##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended
September 30, 2002

Commission File Number 0-22334

LodgeNet Entertainment Corporation

---

(Exact name of registrant as specified in its charter)


|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Delaware                                                       |  | 46-0371161                             
|                                                               |  |                                        
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification Number)

3900 West Innovation Street, Sioux Falls, South Dakota 57107

---

(Address of Principal Executive Offices)       (ZIP code)


(605) 988-1000

---

(Registrants telephone number,
including area code)




---

(Former name, former address and former fiscal year, if changed since last report


Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No o.

At October 24,
2002, there were 12,416,049 shares outstanding of the
Registrants common stock, $0.01 par value.

This report contains a total of 27 pages



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TABLE OF CONTENTS



|                                                 |                                                                                                |                                                        |  |  |  |  |  | 
|------------------------------------------------ | ---------------------------------------------------------------------------------------------- | ------------------------------------------------------ |  |  |  |  |  | 
|Part I  Financial Information                  
|                                                 | Item 1  Financial Statements                                                                 
|                                                 |                                                                                                | Consolidated Balance Sheets (Unaudited)               
|                                                 |                                                                                                | Consolidated Statements of Operations (Unaudited)     
|                                                 |                                                                                                | Consolidated Statements of Cash Flows (Unaudited)     
|                                                 |                                                                                                | Notes to Consolidated Financial Statements (Unaudited)
|                                                 | Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                 | Item 3  Quantitative and Qualitative Disclosures About Market Risk                           
|                                                 | Item 4  Controls and Procedures                                                              
|Part II  Other Information                     
|                                                 | Item 1  Legal Proceedings                                                                    
|                                                 | Item 2  Changes in Securities and Use of Proceeds                                            
|                                                 | Item 3  Defaults Upon Senior Securities                                                      
|                                                 | Item 4   Submission of Matters to a Vote of Security Holders                                 
|                                                 | Item 5  Other Information                                                                    
|                                                 | Item 6  Exhibits and Reports on Form 8-K                                                     
|                                                 | Signatures                                                                                    
|EX-10.24 Amended Employment Agreement - Petersen



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##### Table of Contents



|                                   |  |          
|---------------------------------- |  | ---------
|LodgeNet Entertainment Corporation |  | Form 10-Q

LodgeNet Entertainment Corporation

Index

|                                                                                               |                                                                                                                          |  |      |   |  |  |  |  | 
|---------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------ |  | ---- | - |  |  |  |  | 
|                                                                                               |                                                                                                                          |  | Page |   |  |  | 
|                                                                                               |                                                                                                                          |  | No.  |   |  |  | 
|                                                                                               |                                                                                                                          |  |      |   |  |  | 
|Part I. Financial Information                                                                 
|Item 1  Financial Statements:                                                                 |                                                                                                                          |  |      |   |  |  |  | 
|                                                                                               | Consolidated Balance Sheets (Unaudited) as of September 30, 2002 and December 31, 2001                                   |  |      | 3 |  |  |  |  | 
|                                                                                               | Consolidated Statements of Operations (Unaudited) for
the Three Months and Nine Months Ended September 30, 2002 and 2001 |  |      | 4 |  |  |  |  | 
|                                                                                               | Consolidated Statements of Cash Flows (Unaudited) for
the Nine Months Ended September 30, 2002 and 2001                  |  |      | 5 |  |  |  |  | 
|                                                                                               | Notes to Consolidated Financial Statements (Unaudited)                                                                   |  |      | 6 |  |  |  |  | 
|Item 2  Managements Discussion and Analysis of Financial Condition
and Results of Operations |                                                                                                                          |  | 11   |   |  |  |  | 
|Item 3  Quantitative and Qualitative Disclosures About Market Risk                            |                                                                                                                          |  | 22   |   |  |  |  | 
|Item 4  Controls and Procedures                                                               |                                                                                                                          |  | 22   |   |  |  |  | 
|Part II. Other Information                                                                    
|Item 1  Legal Proceedings                                                                     |                                                                                                                          |  | 23   |   |  |  |  | 
|Item 2  Changes in Securities and Use of Proceeds                                             |                                                                                                                          |  | 23   |   |  |  |  | 
|Item 3  Defaults Upon Senior Securities                                                       |                                                                                                                          |  | 23   |   |  |  |  | 
|Item 4  Submission of Matters to a Vote of Security Holders                                   |                                                                                                                          |  | 23   |   |  |  |  | 
|Item 5  Other Information                                                                     |                                                                                                                          |  | 23   |   |  |  |  | 
|Item 6  Exhibits and Reports on Form 8-K                                                      |                                                                                                                          |  | 24   |   |  |  |  | 
|Signatures                                                                                     |                                                                                                                          |  | 25   |   |  |  |  | 

As used herein (unless the context otherwise requires) LodgeNet, the
Company and/or the Registrant means LodgeNet Entertainment Corporation and
its majority-owned subsidiaries.

September 30, 2002

Page 2



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##### Table of Contents



|                                   |  |          
|---------------------------------- |  | ---------
|LodgeNet Entertainment Corporation |  | Form 10-Q




Part I  Financial Information




Item 1  Financial Statements




LodgeNet Entertainment Corporation
Consolidated Balance Sheets (Unaudited)
(Dollar amounts in thousands, except share data)

|                                                         |                                                                                                                                                                    |                                      |                                                |          |         |               |         |          |              |   |  | 
|-------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------ | ---------------------------------------------- | -------- | ------- | ------------- | ------- | -------- | ------------ | - |  | 
|                                                         |                                                                                                                                                                    |                                      |                                                |          |         | September 30, |         |          | December 31, |  
|                                                         |                                                                                                                                                                    |                                      |                                                |          |         | 2002          |         |          | 2001         |  
|                                                         |                                                                                                                                                                    |                                      |                                                |          |         |               |         |          |              |  
|                                                         |                                                                                                                                                                    |                                      |                                                | Assets   |         |               |         |          |              |   |  | 
|Current assets:                                          |                                                                                                                                                                    |                                      |                                                |          |         |               |         |         
|                                                         | Cash and cash equivalents                                                                                                                                          |                                      | $                                              | 1,323    |         |               | $       | 1,528    |             
|                                                         | Accounts receivable, net                                                                                                                                           |                                      |                                                | 31,499   |         |               |         | 26,677   |             
|                                                         | Prepaid expenses and other                                                                                                                                         |                                      |                                                | 3,782    |         |               |         | 2,864    |             
|                                                         |                                                                                                                                                                    |                                      |                                                |          |         |              
|                                                         |                                                                                                                                                                    | Total current assets                 |                                                |          | 36,604  |               |         |          | 31,069       |  
|Property and equipment, net                              |                                                                                                                                                                    |                                      | 245,483                                        |          |         |               | 240,274 |         
|Investments in and advances to unconsolidated affiliates |                                                                                                                                                                    |                                      |                                               |          |         |               | 484     |         
|Debt issuance costs, net                                 |                                                                                                                                                                    |                                      | 7,956                                          |          |         |               | 9,176   |         
|Other assets, net                                        |                                                                                                                                                                    |                                      | 14,412                                         |          |         |               | 10,482  |         
|                                                         |                                                                                                                                                                    |                                      |                                                |          |         |              
|                                                         |                                                                                                                                                                    | $                                    | 304,455                                        |          |         | $             | 291,485 |         
|                                                         |                                                                                                                                                                    |                                      |                                                |          |         |              
|                                                         |                                                                                                                                                                    |                                      | Liabilities and Stockholders Equity (Deficit) |          |         |               |         |          |              |   | 
|Current liabilities:                                     |                                                                                                                                                                    |                                      |                                                |          |         |               |         |         
|                                                         | Accounts payable                                                                                                                                                   |                                      | $                                              | 16,949   |         |               | $       | 14,502   |             
|                                                         | Current maturities of long-term debt                                                                                                                               |                                      |                                                | 9,134    |         |               |         | 8,168    |             
|                                                         | Accrued expenses and other                                                                                                                                         |                                      |                                                | 14,766   |         |               |         | 10,251   |             
|                                                         | Deferred revenue                                                                                                                                                   |                                      |                                                | 3,269    |         |               |         | 3,100    |             
|                                                         |                                                                                                                                                                    |                                      |                                                |          |         |              
|                                                         |                                                                                                                                                                    | Total current liabilities            |                                                |          | 44,118  |               |         |          | 36,021       |  
|Long-term debt                                           |                                                                                                                                                                    |                                      | 333,242                                        |          |         |               | 317,663 |         
|Other long-term liability                                |                                                                                                                                                                    |                                      | 5,774                                          |          |         |               |        |         
|Derivative instruments                                   |                                                                                                                                                                    |                                      | 11,411                                         |          |         |               | 5,369   |         
|                                                         |                                                                                                                                                                    |                                      |                                                |          |         |              
|                                                         | Total liabilities                                                                                                                                                  |                                      |                                                | 394,545  |         |               |         | 359,053  |             
|                                                         |                                                                                                                                                                    |                                      |                                                |          |         |              
|Commitments and contingencies                            |                                                                                                                                                                    |                                      |                                                |          |         |               |         |         
|Stockholders equity (deficit):                          |                                                                                                                                                                    |                                      |                                                |          |         |               |         |         
|                                                         | Common stock, $.01 par value, 50,000,000 shares authorized;
12,416,049 and 12,284,998 shares outstanding at September 30,
2002 and December 31, 2001, respectively |                                      |                                                | 124      |         |               |         | 123      |             
|                                                         | Additional paid-in capital                                                                                                                                         |                                      |                                                | 153,311  |         |               |         | 151,990  |             
|                                                         | Accumulated deficit                                                                                                                                                |                                      |                                                | (230,268 | )       |               |         | (212,389 | )           
|                                                         | Accumulated other comprehensive loss                                                                                                                               |                                      |                                                | (13,257  | )       |               |         | (7,292   | )           
|                                                         |                                                                                                                                                                    |                                      |                                                |          |         |              
|                                                         |                                                                                                                                                                    | Total stockholders equity (deficit) |                                                |          | (90,090 | )             |         |          | (67,568      | )
|                                                         |                                                                                                                                                                    |                                      |                                                |          |         |              
|                                                         |                                                                                                                                                                    | $                                    | 304,455                                        |          |         | $             | 291,485 |         
|                                                         |                                                                                                                                                                    |                                      |                                                |          |         |              

The accompanying notes are an integral part of these consolidated financial statements.

September 30, 2002

Page 3



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##### Table of Contents



|                                   |  |          
|---------------------------------- |  | ---------
|LodgeNet Entertainment Corporation |  | Form 10-Q




LodgeNet Entertainment Corporation
Consolidated Statements of Operations (Unaudited)
(Dollar amounts, except per share amounts, in thousands)

|                                                                            |                                     |                                                                                   |            |                    |        |   |                   |        |        |      |            |         |         |   |            |         |         | 
|--------------------------------------------------------------------------- | ----------------------------------- | --------------------------------------------------------------------------------- | ---------- | ------------------ | ------ | - | ----------------- | ------ | ------ | ---- | ---------- | ------- | ------- | - | ---------- | ------- | ------- | 
|                                                                            |                                     |                                                                                   |            | Three Months Ended |        |   | Nine Months Ended |       
|                                                                            |                                     |                                                                                   |            | September 30,      |        |   | September 30,     |       
|                                                                            |                                     |                                                                                   |            |                    |        |   |                   |       
|                                                                            |                                     |                                                                                   |            | 2002               |        |   | 2001              |        |        | 2002 |            |         | 2001    |  
|                                                                            |                                     |                                                                                   |            |                    |        |   |                   |        |        |      |            |         |         |  
|Revenues:                                                                   |                                     |                                                                                   |            |                    |        |   |                   |        |        |      |            |         |         |   |            |        
|                                                                            | Guest Pay                           |                                                                                   | $          | 61,408             |        |   | $                 | 54,572 |        |      | $          | 170,226 |         |   | $          | 155,676 |        
|                                                                            | Other                               |                                                                                   |            | 2,252              |        |   |                   | 3,109  |        |      |            | 7,143   |         |   |            | 8,141   |        
|                                                                            |                                     |                                                                                   |            |                    |        |   |                   |        |        |      |            |        
|                                                                            |                                     | Total revenues                                                                    |            |                    | 63,660 |   |                   |        | 57,681 |      |            |         | 177,369 |   |            |         | 163,817 | 
|                                                                            |                                     |                                                                                   |            |                    |        |   |                   |        |        |      |            |        
|Direct costs:                                                               |                                     |                                                                                   |            |                    |        |   |                   |        |        |      |            |         |         |   |            |        
|                                                                            | Guest Pay                           |                                                                                   |            | 26,854             |        |   |                   | 22,854 |        |      |            | 72,067  |         |   |            | 63,921  |        
|                                                                            | Other                               |                                                                                   |            | 1,262              |        |   |                   | 1,980  |        |      |            | 3,939   |         |   |            | 5,188   |        
|                                                                            |                                     |                                                                                   |            |                    |        |   |                   |        |        |      |            |        
|                                                                            |                                     | Total direct costs (exclusive
of other operating expenses
shown separately below) |            |                    | 28,116 |   |                   |        | 24,834 |      |            |         | 76,006  |   |            |         | 69,109  | 
|                                                                            |                                     |                                                                                   |            |                    |        |   |                   |        |        |      |            |        
|Gross profit (exclusive of other
operating expenses shown separately
below) |                                     |                                                                                   | 35,544     |                    |        |   | 32,847            |        |        |      | 101,363    |         |         |   | 94,708     |        
|                                                                            |                                     |                                                                                   |            |                    |        |   |                   |        |        |      |            |        
|Operating expenses:                                                         |                                     |                                                                                   |            |                    |        |   |                   |        |        |      |            |         |         |   |            |        
|                                                                            | Guest Pay operations                |                                                                                   |            | 7,711              |        |   |                   | 7,183  |        |      |            | 22,171  |         |   |            | 21,647  |        
|                                                                            | Selling, general and administrative |                                                                                   |            | 5,718              |        |   |                   | 5,340  |        |      |            | 16,439  |         |   |            | 16,050  |        
|                                                                            | Depreciation and amortization       |                                                                                   |            | 19,242             |        |   |                   | 16,295 |        |      |            | 56,534  |         |   |            | 49,168  |        
|                                                                            |                                     |                                                                                   |            |                    |        |   |                   |        |        |      |            |        
|                                                                            |                                     | Total operating expenses                                                          |            |                    | 32,671 |   |                   |        | 28,818 |      |            |         | 95,144  |   |            |         | 86,865  | 
|                                                                            |                                     |                                                                                   |            |                    |        |   |                   |        |        |      |            |        
|Operating income                                                            |                                     |                                                                                   | 2,873      |                    |        |   | 4,029             |        |        |      | 6,219      |         |         |   | 7,843      |        
|Investment gains (losses)                                                   |                                     |                                                                                   | (73        | )                  |        |   | (790              | )      |        |      | 753        |         |         |   | (1,688     | )      
|Interest expense                                                            |                                     |                                                                                   | (8,258     | )                  |        |   | (7,728            | )      |        |      | (24,659    | )       |         |   | (22,089    | )      
|Other income (expense), net                                                 |                                     |                                                                                   | 79         |                    |        |   | (68               | )      |        |      | 235        |         |         |   | (12        | )      
|                                                                            |                                     |                                                                                   |            |                    |        |   |                   |        |        |      |            |        
|Loss before income taxes                                                    |                                     |                                                                                   | (5,379     | )                  |        |   | (4,557            | )      |        |      | (17,452    | )       |         |   | (15,946    | )      
|Provision for income taxes                                                  |                                     |                                                                                   | (133       | )                  |        |   | (114              | )      |        |      | (427       | )       |         |   | (434       | )      
|                                                                            |                                     |                                                                                   |            |                    |        |   |                   |        |        |      |            |        
|Loss before extraordinary item                                              |                                     |                                                                                   | (5,512     | )                  |        |   | (4,671            | )      |        |      | (17,879    | )       |         |   | (16,380    | )      
|Extraordinary item, net                                                     |                                     |                                                                                   |           |                    |        |   | (2,091            | )      |        |      |           |         |         |   | (2,091     | )      
|                                                                            |                                     |                                                                                   |            |                    |        |   |                   |        |        |      |            |        
|Net loss                                                                    |                                     | $                                                                                 | (5,512     | )                  |        | $ | (6,762            | )      |        | $    | (17,879    | )       |         | $ | (18,471    | )      
|                                                                            |                                     |                                                                                   |            |                    |        |   |                   |        |        |      |            |        
|Per common share (basic and diluted):                                       |                                     |                                                                                   |            |                    |        |   |                   |        |        |      |            |         |         |   |            |        
|                                                                            | Loss before extraordinary item      |                                                                                   | $          | (0.44              | )      |   | $                 | (0.38  | )      |      | $          | (1.45   | )       |   | $          | (1.34   | )      
|                                                                            | Extraordinary item, net             |                                                                                   |            |                   |        |   |                   | (0.17  | )      |      |            |        |         |   |            | (0.17   | )      
|                                                                            |                                     |                                                                                   |            |                    |        |   |                   |        |        |      |            |        
|                                                                            | Net loss                            |                                                                                   | $          | (0.44              | )      |   | $                 | (0.55  | )      |      | $          | (1.45   | )       |   | $          | (1.51   | )      
|                                                                            |                                     |                                                                                   |            |                    |        |   |                   |        |        |      |            |        
|Weighted average shares outstanding                                         |                                     |                                                                                   | 12,406,919 |                    |        |   | 12,265,897        |        |        |      | 12,363,428 |         |         |   | 12,236,310 |        
|                                                                            |                                     |                                                                                   |            |                    |        |   |                   |        |        |      |            |        

The accompanying notes are an integral part of these consolidated financial statements.

September 30, 2002

Page 4



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##### Table of Contents



|                                   |  |          
|---------------------------------- |  | ---------
|LodgeNet Entertainment Corporation |  | Form 10-Q




LodgeNet Entertainment Corporation
Consolidated Statements of Cash Flows (Unaudited)
(Dollar amounts in thousands)

|                                                 |                                                                                 |                                             |                            |         |                   |        |         |         |        |        |  
|------------------------------------------------ | ------------------------------------------------------------------------------- | ------------------------------------------- | -------------------------- | ------- | ----------------- | ------ | ------- | ------- | ------ | ------ | -
|                                                 |                                                                                 |                                             |                            |         | Nine Months Ended |       
|                                                 |                                                                                 |                                             |                            |         | September 30,     |       
|                                                 |                                                                                 |                                             |                            |         |                   |       
|                                                 |                                                                                 |                                             |                            |         | 2002              |        |         | 2001    |       
|                                                 |                                                                                 |                                             |                            |         |                   |        |         |         |       
|Operating activities:                            |                                                                                 |                                             |                            |         |                   |        |         |        
|                                                 | Net loss                                                                        |                                             | $                          | (17,879 | )                 |        | $       | (18,471 | )     
|                                                 | Adjustments to reconcile net loss to net cash provided
by operating activities: |                                             |                            |         |                   |        |         |         |       
|                                                 |                                                                                 | Depreciation and amortization               |                            |         | 56,534            |        |         |         | 49,168 |       
|                                                 |                                                                                 | Investment (gains) losses                   |                            |         | (753              | )      |         |         | 1,688  |       
|                                                 |                                                                                 | Non-cash portion of extraordinary item      |                            |         |                  |        |         |         | 2,091  |       
|                                                 |                                                                                 | Other, net                                  |                            |         |                  |        |         |         | 253    |       
|                                                 |                                                                                 | Change in operating assets and liabilities: |                            |         |                   |        |         |         |        |       
|                                                 |                                                                                 |                                             | Accounts receivable, net   |         |                   | (4,813 | )       |         |        | (4,983 | )
|                                                 |                                                                                 |                                             | Prepaid expenses and other |         |                   | (866   | )       |         |        | 290    |  
|                                                 |                                                                                 |                                             | Accounts payable           |         |                   | 2,445  |         |         |        | 6,349  |  
|                                                 |                                                                                 |                                             | Accrued expenses and other |         |                   | 4,676  |         |         |        | 3,122  |  
|                                                 |                                                                                 |                                             | Other                      |         |                   | 25     |         |         |        | (176   | )
|                                                 |                                                                                 |                                             |                            |         |                   |       
|Net cash provided by operating activities        |                                                                                 |                                             | 39,369                     |         |                   |        | 39,331  |        
|                                                 |                                                                                 |                                             |                            |         |                   |       
|Investing activities:                            |                                                                                 |                                             |                            |         |                   |        |         |        
|                                                 | Property and equipment additions                                                |                                             |                            | (56,974 | )                 |        |         | (62,046 | )     
|                                                 | Proceeds from sale of investments                                               |                                             |                            |        |                   |        |         | 1,393   |       
|                                                 | Proceeds from affiliates, net                                                   |                                             |                            | 1,287   |                   |        |         | 1,498   |       
|                                                 |                                                                                 |                                             |                            |         |                   |       
|Net cash used for investing activities           |                                                                                 |                                             | (55,687                    | )       |                   |        | (59,155 | )      
|                                                 |                                                                                 |                                             |                            |         |                   |       
|Financing activities:                            |                                                                                 |                                             |                            |         |                   |        |         |        
|                                                 | Proceeds from long-term debt                                                    |                                             |                            |        |                   |        |         | 150,000 |       
|                                                 | Borrowings under revolving credit facility                                      |                                             |                            | 29,000  |                   |        |         | 27,000  |       
|                                                 | Repayments of revolving credit facility                                         |                                             |                            | (6,000  | )                 |        |         | (61,000 | )     
|                                                 | Repayment of long-term debt                                                     |                                             |                            | (7,156  | )                 |        |         | (81,030 | )     
|                                                 | Repayment of capital lease obligations                                          |                                             |                            | (492    | )                 |        |         | (373    | )     
|                                                 | Debt issuance costs                                                             |                                             |                            | (269    | )                 |        |         | (6,008  | )     
|                                                 | Exercise of stock options                                                       |                                             |                            | 1,027   |                   |        |         | 770     |       
|                                                 |                                                                                 |                                             |                            |         |                   |       
|Net cash provided by financing activities        |                                                                                 |                                             | 16,110                     |         |                   |        | 29,359  |        
|                                                 |                                                                                 |                                             |                            |         |                   |       
|Effect of exchange rates on cash                 |                                                                                 |                                             | 3                          |         |                   |        | (44     | )      
|                                                 |                                                                                 |                                             |                            |         |                   |       
|Increase (decrease) in cash and cash equivalents |                                                                                 |                                             | (205                       | )       |                   |        | 9,491   |        
|Cash and cash equivalents at beginning of period |                                                                                 |                                             | 1,528                      |         |                   |        | 4,059   |        
|                                                 |                                                                                 |                                             |                            |         |                   |       
|Cash and cash equivalents at end of period       |                                                                                 | $                                           | 1,323                      |         |                   | $      | 13,550  |        
|                                                 |                                                                                 |                                             |                            |         |                   |       
|Supplemental cash flow information:              |                                                                                 |                                             |                            |         |                   |        |         |        
|                                                 | Cash paid for interest                                                          |                                             | $                          | 21,574  |                   |        | $       | 20,651  |       
|                                                 |                                                                                 |                                             |                            |         |                   |       

The accompanying notes are an integral part of these consolidated financial statements.

September 30, 2002

Page 5



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##### Table of Contents



|                                   |  |          
|---------------------------------- |  | ---------
|LodgeNet Entertainment Corporation |  | Form 10-Q




LodgeNet Entertainment Corporation
Notes to Consolidated Financial Statements (Unaudited)

Note 1  Basis of Presentation

The accompanying consolidated financial statements as of September 30, 2002,
and for the three and nine month periods ended September 30, 2002 and 2001,
have been prepared by LodgeNet Entertainment Corporation (the Company),
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission (the Commission). The information furnished in the
accompanying consolidated financial statements reflects all adjustments,
consisting of normal recurring adjustments, which, in the opinion of
management, are necessary for a fair presentation of such financial statements.

Certain information and footnote disclosures, normally included in financial
statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to the rules and
regulations of the Commission. Although the Company believes that the
disclosures are adequate to make the information presented herein not
misleading, it is recommended that these unaudited consolidated financial
statements be read in conjunction with the more detailed information contained
in the Companys Annual Report on Form 10-K for 2001, as filed with the
Commission. The results of operations for the three and nine month periods
ended September 30, 2002 and 2001 are not necessarily indicative of the results
of operations for the full year due to inherent seasonality within the business
among other factors.

The consolidated financial statements include the accounts of LodgeNet
Entertainment Corporation and its majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.

Note 2  Property and Equipment, Net

Property and equipment was comprised as follows (in thousands):

|                                     |                   |       |          |               |         |   |              |         |         | 
|------------------------------------ | ----------------- | ----- | -------- | ------------- | ------- | - | ------------ | ------- | ------- | 
|                                     |                   |       |          | September 30, |         |   | December 31, |        
|                                     |                   |       |          | 2002          |         |   | 2001         |        
|                                     |                   |       |          |               |         |   |              |        
|Land, building and equipment         |                   | $     | 72,268   |               |         | $ | 68,007       |        
|Free-to-guest equipment              |                   |       | 27,306   |               |         |   | 24,798       |        
|Guest Pay systems:                   |                   |       |          |               |         |   |              |        
|                                     | Installed         |       |          | 440,271       |         |   |              | 399,520 |        
|                                     | System components |       |          | 27,793        |         |   |              | 27,548  |        
|                                     | Software costs    |       |          | 16,548        |         |   |              | 14,793  |        
|                                     |                   |       |          |               |         |  
|                                     |                   | Total |          |               | 584,186 |   |              |         | 534,666 | 
|Less  depreciation and amortization |                   |       | (338,703 | )             |         |   | (294,392     | )      
|                                     |                   |       |          |               |         |  
|Property and equipment, net          |                   | $     | 245,483  |               |         | $ | 240,274      |        
|                                     |                   |       |          |               |         |  

September 30, 2002

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|LodgeNet Entertainment Corporation |  | Form 10-Q

Note 3  Loss Per Common Share

Basic earnings per share is computed based on the weighted average number of
common shares actually outstanding during the period. Diluted earnings per
share is computed based on the weighted average number of common shares
outstanding plus all potentially dilutive common shares outstanding during the
period. Potential common shares that have an anti-dilutive effect are excluded
from diluted earnings per share.

The loss per common share for the three months ended September 30, 2002 and
2001 and for the nine months ended September 30, 2002, and 2001 is based on
12,406,919, 12,265,897, 12,363,428, and 12,236,310 weighted average shares
outstanding during the respective periods. Potential common shares were not
included in the computation of diluted earnings per share because their
inclusion would be anti-dilutive. As of September 30, 2002 and 2001, the
number of potential common shares was approximately 4,729,000 and 4,187,000,
respectively. Such potential dilutive common shares consist of stock options
and warrants. The foregoing potential common share amounts do not take into
account the assumed number of shares that would be repurchased by the Company
upon the exercise of stock options or warrants.

Note 4  Long-term Debt and Credit Facilities

Long-term debt was comprised as follows (in thousands):

|                        |                           |   |               |         |   |              |         |         |  
|----------------------- | ------------------------- | - | ------------- | ------- | - | ------------ | ------- | ------- | -
|                        |                           |   | September 30, |         |   | December 31, |        
|                        |                           |   | 2002          |         |   | 2001         |        
|                        |                           |   |               |         |   |              |        
|Bank Credit Facility:   |                           |   |               |         |   |              |         |        
|                        | Bank term loan            |   | $             | 148,500 |   |              | $       | 149,625 |  
|                        | Revolving credit facility |   |               | 23,000  |   |              |         |        |  
|10.25% senior notes     |                           |   | 150,000       |         |   |              | 150,000 |        
|11.50% senior notes     |                           |   | 18,000        |         |   |              | 24,000  |        
|                        | Less unamortized discount |   |               | (219    | ) |              |         | (333    | )
|Capital leases          |                           |   | 2,283         |         |   |              | 1,697   |        
|Other                   |                           |   | 812           |         |   |              | 842     |        
|                        |                           |   |               |         |   |             
|                        |                           |   | 342,376       |         |   |              | 325,831 |        
|Less current maturities |                           |   | (9,134        | )       |   |              | (8,168  | )      
|                        |                           |   |               |         |   |             
|                        |                           | $ | 333,242       |         |   | $            | 317,663 |        
|                        |                           |   |               |         |   |             

Bank Credit Facility  On August 29, 2001, the Company entered into a $225
million bank credit facility, comprised of a $150 million term loan and a $75
million revolving credit facility which may be increased to $100 million,
subject to certain limitations. The term loan matures in June 2006 and
quarterly repayments began in December 2001. The term loan bears interest at
the Companys option of (1) the banks base rate plus a margin of 2.75% or (2)
LIBOR plus a margin of 4.00%. The term loan interest rate as of September 30,
2002 was 5.8%. The revolving credit facility matures in June 2006, and loans
bear interest at the Companys option of (1) the banks base rate plus a margin
of 1.00% to 1.75%, or (2) LIBOR plus a margin of 2.25% to 3.00%. The weighted
average interest rate for the revolving credit facility as of September 30,
2002 was 4.8%. Loans under the credit facility are collateralized by a first
priority security interest in all of the Companys assets.

The facility provides for the issuance of letters of credit up to $10 million,
subject to customary terms and conditions. As of September 30, 2002, the
Company had outstanding letters of credit totaling $2.0 million.

The facility includes terms and conditions which require compliance in
accordance with a material adverse effect covenant as well as the maintenance
of certain financial ratios and place limitations on capital expenditures,
additional indebtedness, liens, investments, guarantees, asset sales and
certain payments or distributions in respect of the common stock. In August
2002, the Company received unanimous consent from its lenders to amend its
existing bank credit facility. The amendment modified the covenants for
leverage and interest coverage by generally deferring the scheduled step-downs
in covenant terms that were to be effective as of December 31, 2002. (See
Liquidity and Capital Resources) As of September 30, 2002, the Company was in
compliance with all covenants, terms and
conditions of the bank credit facility.

September 30, 2002

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|LodgeNet Entertainment Corporation |  | Form 10-Q

10.25% Senior NotesIn December 1996, the Company issued $150 million of
unsecured 10.25% senior notes (the 10.25% Notes), due December 15, 2006. The
10.25% Notes are unsecured, rank pari passuin right of payment with future
unsubordinated unsecured indebtedness and rank senior in right of payment to
all subordinated indebtedness of the Company. The 10.25% Notes require
semi-annual interest payments and contain certain restrictive covenants. As of
September 30, 2002, the Company was in compliance with all covenants, terms,
and conditions of the 10.25% Notes.

The 10.25% Notes are redeemable at the option of the Company, in whole or in
part at 105.125% of their principal amount (plus accrued and unpaid interest)
declining ratably to 100% of their principal amount (plus accrued and unpaid
interest) on or after December 15, 2003.

11.50% Senior NotesDuring 1995, the Company issued $30 million principal
amount of unsecured 11.50% senior notes (the 11.50% Notes). Annual
principal payments of $6 million commenced in July 2001 and continue through
July 2005. Semi-annual interest payments are required. The Company issued a
total of 480,000 warrants to purchase common stock of the Company in connection
with the issuance of the 11.50% Notes and the value of the warrants, $1.68
million, was recorded as additional paid-in capital and shown as a discount on
the 11.50% Notes. As part of the financing transaction in which the 10.25%
Notes were issued, the holders of the 11.50% Notes adopted the covenants and
ranking of the 10.25% Notes.

Long-term debt has the following scheduled principal maturities for the 12
month periods ended September 30 (in thousands of dollars): 2003  $9,134; 2004
 $8,237; 2005  $7,783; 2006  $167,221; 2007  $150,001.

The Company does not utilize special purpose entities or off-balance sheet
financial arrangements.

Note 5  Accounting for Derivative Instruments and Hedging Activities

In March 2002, the Company entered into a $50 million interest rate swap
agreement, which expires in March 2006. In addition, the Company had existing
interest rate swap agreements on $100 million of long-term debt, of which $50
million expire in March 2003 and $50 million expire in December 2005. The
Company is required by its bank credit facility to have in place a minimum of
$100 million swap agreements that convert variable rate interest debt into
fixed interest rate loans. The swap agreements have been designated as, and
meet the criteria for, cash flow hedges and are not considered speculative in
nature.

Note 6  Comprehensive Loss

Comprehensive loss reflects the changes in equity during a period from
transactions and other events and circumstances from non-owner sources. The
Companys comprehensive loss was as follows for the periods ended September 30
(in thousands):

|                                              |  |                    |         |   |                   |   |         |      |  |   |         |   |  |   |         |  
|--------------------------------------------- |  | ------------------ | ------- | - | ----------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                              |  | Three Months Ended |         |   | Nine Months Ended |  
|                                              |  | September 30,      |         |   | September 30,     |  
|                                              |  |                    |         |   |                   |  
|                                              |  | 2002               |         |   | 2001              |   |         | 2002 |  |   | 2001    |  
|                                              |  |                    |         |   |                   |   |         |      |  |   |         |  
|Net loss                                      |  | $                  | (5,512  | ) |                   | $ | (6,762  | )    |  | $ | (17,879 | ) |  | $ | (18,471 | )
|Foreign currency translation adjustment       |  |                    | (531    | ) |                   |   | (275    | )    |  |   | 77      |   |  |   | (365    | )
|Cumulative effect of adoption of SFAS
No. 133 |  |                    |        |   |                   |   |        |      |  |   |        |   |  |   | (1,287  | )
|Unrealized loss on derivative instruments     |  |                    | (4,332  | ) |                   |   | (3,688  | )    |  |   | (6,042  | ) |  |   | (5,375  | )
|                                              |  |                    |         |   |                   |   |         |      |  |   |         |  
|Comprehensive loss                            |  | $                  | (10,375 | ) |                   | $ | (10,725 | )    |  | $ | (23,844 | ) |  | $ | (25,498 | )
|                                              |  |                    |         |   |                   |   |         |      |  |   |         |  

September 30, 2002

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|LodgeNet Entertainment Corporation |  | Form 10-Q

Note 7  Effect of Recently Issued Accounting Standards

In June 2001, the Financial Accounting Standards Board issued SFAS No. 142,
Goodwill and Other Intangible Assets which eliminates the current requirement
to amortize goodwill and indefinite-lived intangible assets, addresses the
amortization of intangible assets with a defined life and addresses the
impairment testing and recognition for goodwill and intangible assets.
Effective January 1, 2002, the Company adopted the provisions of this
statement, which had no impact on its consolidated financial statements.

In June 2001, the Financial Accounting Standards Board issued SFAS No. 143,
Accounting for Obligations Associated with the Retirement of Long-Lived
Assets. SFAS No. 143 primarily establishes accounting standards for the
recognition and measurement of an asset retirement obligation and its
associated asset retirement costs. The provisions of SFAS No. 143 will be
effective for fiscal years beginning after June 15, 2002. The Company has
determined the adoption of this statement will not significantly impact its
consolidated financial statements.

In October 2001, the Financial Accounting Standards Board issued SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144
supercedes SFAS 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of. SFAS No. 144 primarily addresses
significant issues relating to the implementation of SFAS No. 121 and develops
a single accounting model for long-lived assets to be disposed of, whether
previously held and used or newly acquired. Effective January 1, 2002, the
Company adopted the provisions of SFAS No. 144, which had no impact on its
consolidated financial statements.

In November 2001, the FASB Emerging Issues Task Force issued EITF 01-9,
Accounting for Consideration Given by a Vendor to a Customer or a Reseller of
the Vendors Products. The EITF concluded that certain consideration from a
vendor to a customer is to be reported as a reduction of revenue. Effective
January 1, 2002, the Company adopted the provisions of EITF 01-9, which had no
impact on its consolidated financial statements.

In April 2002, the Financial Accounting Standards Board issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement
No. 13, and Technical Corrections, effective for fiscal years beginning after
June 15, 2002. SFAS No. 145 will require gains and losses on extinguishments
of debt to be classified as income or loss from continuing operations rather
than as extraordinary items as previously required under SFAS No. 4.
Extraordinary treatment will be required for certain extinguishments as
provided in APB Opinion No. 30. SFAS No. 145 also amends SFAS No. 13 to
require certain modifications to capital leases be treated as a sale-leaseback
and modifies the accounting for sub-leases when the original lessee remains a
secondary obligor (or guarantor). In addition, the FASB rescinded SFAS No. 44,
which addressed the accounting for intangible assets of motor carriers and made
numerous technical corrections. The provisions of SFAS No. 145 will be
effective for fiscal years beginning after May 15, 2002. The Company has
determined the adoption of this statement will not significantly impact its
consolidated financial statements.

In June 2002, the Financial Accounting Standards Board issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal Activities,which
addresses financial accounting and reporting for costs associated with exit or
disposal activities and supersedes EITF Issue 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). SFAS No. 146 requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. A liability for an exit cost as
defined in EITF 94-3 is recognized at the date of an entitys commitment to an
exit plan. SFAS No. 146 also establishes that the liability should initially be
measured and recorded at fair value. The Company will adopt the provisions of
SFAS No. 146 for exit or disposal activities that are initiated after December
31, 2002. Adoption of this standard will not have a material effect on the
Companys consolidated financial statements.

September 30, 2002

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|                                   |  |          
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|LodgeNet Entertainment Corporation |  | Form 10-Q

In October 2002, the FASB Emerging Issues Task Force reached a tentative
conclusion on EITF 00-21, Accounting for Revenue Arrangements with Multiple
Deliverables. The EITF addresses how to account for multiple-deliverable
revenue arrangements and focuses on when a revenue arrangement should be
separated into different revenue-generating deliverables or units of
accounting and if so, how the arrangement considerations should be allocated
to the different deliverables or units of accounting. The provisions of EITF
00-21 will be effective for fiscal years beginning after December 15, 2002.
The Company is currently evaluating the effect of the adoption of the EITF,
however the Company does not believe that it will have an impact on its
consolidated financial statements.

Note 8  InnMedia LLC

Effective July 31, 2002, the Company and InnMedias co-owner, Hilton Hotels
Corporation (Hilton), mutually agreed to dissolve InnMedia. InnMedia and the
Company mutually released their claims against each other, and the lawsuit
filed by InnMedia against the Company was dismissed with prejudice on August 7,
2002. During the third quarter of 2002, the Company contributed $252,000 for
its share of pre-dissolution operating costs. The $252,000 was recorded as an
equity loss in the same period.

Note 9  Hilton Agreement

Effective July 31, 2002, the Company expanded its Master Services Agreement
with Hilton Hotels Corporation. The Company acquired the right to provide
television-based Internet access and time-shifted TV programming services to
participating hotels and the right to independently pursue and further develop
interactive television content throughout the Companys entire room base. As
consideration, the Company agreed to pay Hilton $8.0 million over a five year
period. The present value of these payments, approximately $5.8 million, has
been capitalized within other assets on the Companys consolidated balance
sheet and is being amortized on a straight-line basis over its estimated useful
life. Additionally, the Company paid Hilton $1.0 million for a six months
extension of the existing seven-year contracts with certain installed
Hilton-owned properties, encompassing approximately 24,000 rooms.

September 30, 2002

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|LodgeNet Entertainment Corporation |  | Form 10-Q




Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis provides information concerning our
results of operations and financial condition. This discussion should be read
in conjunction with the accompanying consolidated financial statements and the
notes thereto.

Special Note Regarding Forward-Looking Statements

Except for the historical statements contained herein, all statements made in
this presentation are forward-looking statements within the meaning of the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended, and are subject to risks, uncertainties, and other factors that could
cause actual results, performance or achievements of the Company to be
materially different from those expressed or implied by such forward-looking
statements. Such factors include, among others, the impact of competition and
changes to the competitive environment for the Companys products and services,
changes in demand for the Companys products and services, changes in
technology, changes in the Companys relationships with its strategic partners,
uncertainty of litigation, changes in government regulation and other factors
detailed, from time to time, in the Companys filings with the Securities and
Exchange Commission. The Company does not undertake any obligation to update
or revise any forward- looking statements, whether as a result of new
information, future events or otherwise.

Overview 

LodgeNet, the worlds largest provider of television-based broadband services
to the hospitality industry, specializes in the delivery of interactive
television and television-based Internet access services to the lodging
industry throughout the United States, Canada and select international markets.
As of September 30, 2002, the Company provided interactive and television
services to approximately 5,600 hotel properties, more properties than any
other broadband service provider in the world. The Companys services are
designed to serve the needs of the lodging industry and the traveling public
and include on-demand movies, music and music videos, Nintendo® video games,
Internet-enhanced television, which does not require a laptop for access,
high-speed Internet access, and other interactive services, all of which are
referred to as Guest Pay interactive services. The Company has installed its
interactive television system in more than 863,000 of its rooms, which host
more than 260 million guests on an annual basis.

Guest Pay Interactive Services.Guest Pay interactive services are purchased by
guests on a per-view, hourly, or daily basis and include on-demand movies,
music and music videos, network-based video games, Internet-enhanced
television, and high-speed Internet access services. Guest Pay packages may
also include video review of room charges, video checkout, guest surveying, and
merchandising services that are paid for by the hotel and provided to guests at
no charge.

The Companys Guest Pay interactive revenues depend on a number of factors,
including the number of rooms equipped with the Companys systems, hotel
occupancy rates, guest demographics, and the popularity, pricing, and
availability of programming. The primary direct costs of providing Guest Pay
interactive services are (i) license fees paid to studios for non-exclusive
distribution rights to recently-released major motion pictures; (ii) one-time
license fees paid for independent films; (iii) license fees for other
interactive services; (iv) Internet connectivity costs; and (v) the commission
paid to the hotel. Guest Pay operating expenses include costs of system
maintenance and support, programming delivery and distribution, data retrieval,
insurance, and personal property taxes.

September 30, 2002

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|                                   |  |          
|---------------------------------- |  | ---------
|LodgeNet Entertainment Corporation |  | Form 10-Q

The room installations for the twelve months ended September 30, 2002 represent
an increase of 8.7% for Guest Pay interactive rooms as compared to September
30, 2001. Additionally, Digital services rooms, as described below, increased
170.2% over the number of installed rooms at September 30, 2001.
De-installation activity for 2002 has been less than 2% of the installed number
of rooms.

The Companys base of installed rooms was comprised as follows at September 30:

|                                |  |      |         |  |      |  |         | 
|------------------------------- |  | ---- | ------- |  | ---- |  | ------- | 
|                                |  | 2002 |         |  | 2001 | 
|                                |  |      |         |  |      | 
|Guest Pay interactive rooms (1) |  |      | 863,777 |  |      |  | 794,359 | 
|Digital services rooms (2)      |  |      | 226,475 |  |      |  | 83,804  | 
|Total rooms served (3)          |  |      | 939,062 |  |      |  | 874,030 | 

(1)   100% of Guest Pay interactive rooms are served by the Companys on-demand
movie system (as compared to a scheduled movie system that shows movies at
predetermined times).

(2)   Digital services rooms are equipped with the interactive digital systems
where on-demand movies and music content are updated and delivered via
satellite to the Companys systems within respective hotels. Digital rooms are
included with the total Guest Pay interactive rooms and represent more than 26%
of the Guest Pay interactive rooms served.

(3)   Total rooms served represent rooms receiving one or more of the Companys
services, including rooms served by international licensees.

Free-to-Guest and Other Services.In addition to Guest Pay interactive
services, the Company provides satellite-delivered basic and premium cable
television programming and other interactive entertainment and information
services that are paid for by the hotel and provided to guests at no charge,
all of which are referred to as free-to-guest services. The hotel pays the
Company a fixed monthly charge per room for each programming channel provided.
The Company obtains its free-to-guest programming pursuant to multi-year
agreements and pays a monthly fee per room, which varies depending on incentive
programs in effect from time to time.

To meet the needs of its hotel customers related to the Companys service
offerings, the Company provides a variety of other services to its hotel
customers including the sale of system equipment and service parts and labor.
Results from these other services and free-to-guest services delivered to rooms
not receiving Guest Pay interactive services are included in the other
components of revenues and direct costs in the statements of operations.

September 30, 2002

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|                                   |  |          
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|LodgeNet Entertainment Corporation |  | Form 10-Q

InnMedia LLC.In October of 2000, the Company created a joint venture with
Hilton Hotels Corporation, named InnMedia LLC, to provide interactive
television and television-based Internet access services for distribution to
the lodging industry. At that time the Company entered into various agreements
with InnMedia pursuant to which the Company agreed to obtain interactive
television and television-based Internet access services exclusively from
InnMedia and to provide InnMedia with the services necessary to distribute such
content. InnMedia and Hilton also entered into an agreement whereby InnMedia
became the exclusive provider of interactive television content and Internet
access services to various Hilton hotels. At that time, the Company also
entered into a Master Services Agreement with Hilton pursuant to which the
Company was named the exclusive guest-pay provider to Hilton owned hotels and
the preferred guest pay provider to various Hilton managed and franchised
hotels of movies, games and music content.

Effective July 31, 2002, the Company and InnMedias co-owner, Hilton Hotels
Corporation (Hilton), mutually agreed to dissolve InnMedia. At that time,
InnMedia and the Company mutually released their claims against each other, and
the lawsuit filed by InnMedia against the Company has been dismissed with
prejudice. During the third quarter of 2002, the Company contributed $252,000
for its share of pre-dissolution operating costs. The $252,000 was recorded
as an equity loss in the same period.

Critical Accounting Policies

Property and EquipmentProperty and equipment is stated at cost, net of
accumulated depreciation and amortization. Installed Guest Pay and
free-to-guest systems consist of equipment and related costs of installation,
including certain payroll costs. Maintenance costs, which do not significantly
extend the useful lives of the respective assets, and repairs, are charged to
operations as incurred. Depreciation of Guest Pay and free-to-guest systems
begins when such systems are installed and activated. Depreciation of other
equipment begins when such equipment is placed in service. The Company
attributes no salvage value to equipment. Depreciation and amortization is
computed using the straight-line method over the following useful lives, not to
exceed the life of a contract:

|                   |                   |  |        |       | 
|------------------ | ----------------- |  | ------ | ----- | 
|                   |                   |  | Years 
|                   |                   |  |       
|Buildings          |                   |  | 30     |      
|Guest Pay systems: |                   |  |        |      
|                   | System components |  |        | 5  7 | 
|                   | In-room equipment |  |        | 2  5 | 
|Other equipment    |                   |  | 3  10 |      

Software DevelopmentThe Company has capitalized certain costs of developing
software for its Guest Pay systems in accordance with AICPA Statement of
Position 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use. Capitalized costs are reported at the lower of
unamortized cost or net realizable value, and are amortized over the systems
estimated useful life, not to exceed five years.

Revenue RecognitionRevenue from the sale of interactive television services
is recognized in the period the services are provided. Revenue from the sale
of system equipment and service parts and labor is recognized when the
equipment is delivered or the service has been provided. Deferred revenue
consists of advance billings for certain interactive television services that
are recognized in the periods that services are provided.

September 30, 2002

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|---------------------------------- |  | ---------
|LodgeNet Entertainment Corporation |  | Form 10-Q

Discussion and Analysis of Results of Operations
Three Months Ended September 30, 2002 and 2001

Revenue Analysis. The Companys total revenue for the third quarter of 2002
increased 10.4%, or $6.0 million, in comparison to the third quarter of 2001.
The following table sets forth the components of revenue (in thousands) for the
quarter ended September 30:

|          |  |        |        |  |         |          |       |        |  |   |         |  |          |  |       | 
|--------- |  | ------ | ------ |  | ------- | -------- | ----- | ------ |  | - | ------- |  | -------- |  | ----- | 
|          |  | 2002   |        |  | 2001    |         
|          |  |        |        |  |         |         
|          |  |        |        |  |         | Percent  |       |        |  |   |         |  | Percent  | 
|          |  |        |        |  |         | of Total |       |        |  |   |         |  | of Total | 
|Revenue:  |  | Amount |        |  | Revenue |          |       | Amount |  |   | Revenue | 
|          |  |        |        |  |         |          |       |        |  |   |         | 
|Guest Pay |  | $      | 61,408 |  |         |          | 96.5  |        |  | $ | 54,572  |  |          |  | 94.6  | 
|Other     |  |        | 2,252  |  |         |          | 3.5   |        |  |   | 3,109   |  |          |  | 5.4   | 
|          |  |        |        |  |         |          |       |        |  |   |         | 
|          |  | $      | 63,660 |  |         |          | 100.0 |        |  | $ | 57,681  |  |          |  | 100.0 | 
|          |  |        |        |  |         |          |       |        |  |   |         | 

Guest Pay interactive revenue increased 12.5% or $6.8 million, in the third
quarter of 2002 as compared to the third quarter of 2001. This increase was
attributable to a 9.7% increase in the average number of installed Guest Pay
interactive rooms, and a 2.6% increase in average monthly revenue per
interactive Guest Pay room. The following table sets forth information in
regard to average monthly Guest Pay interactive revenue per room for the
quarter ended September 30:

|                                  |                                   |                          |   |       |       |  |      |       |       | 
|--------------------------------- | --------------------------------- | ------------------------ | - | ----- | ----- |  | ---- | ----- | ----- | 
|                                  |                                   |                          |   | 2002  |       |  | 2001 |      
|                                  |                                   |                          |   |       |       |  |      |      
|Average monthly revenue per room: |                                   |                          |   |       |       |  |      |      
|                                  | Movie revenue                     |                          | $ | 18.98 |       |  | $    | 18.43 |      
|                                  | Other interactive service revenue |                          |   | 4.99  |       |  |      | 4.93  |      
|                                  |                                   |                          |   |       |       | 
|                                  |                                   | Total per Guest Pay room |   | $     | 23.97 |  |      | $     | 23.36 | 
|                                  |                                   |                          |   |       |       | 

Average movie revenue per room increased 3.0% due to higher movie prices,
partially offset by declines in buy rate (30 basis points) and occupancy (40
basis points) versus the third quarter of 2001. Other interactive service
revenue per room increased by 1.2% primarily driven by the New Media business,
which is comprised of Internet-enhanced television and time-shifted television
programming. The new media revenue recognized during the third quarter totaled
$945,000.

Other Revenue includes revenue from free-to-guest services provided to hotels
not receiving Guest Pay services and the sales of system equipment and service
parts and labor. Other revenue decreased $857,000 or 27.6% due to decreased
equipment sales to international licensees.

September 30, 2002

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##### Table of Contents



|                                   |  |          
|---------------------------------- |  | ---------
|LodgeNet Entertainment Corporation |  | Form 10-Q

Gross Profit (exclusive of other operating expenses discussed separately
below).Gross profit totaled $35.5 million for the third quarter ended
September 30, 2002, an increase of 8.2% over the third quarter of 2001 on a
10.4% increase in revenue (dollar amounts in thousands).

|                     |           |   |        |        |   |      |        |        |  
|-------------------- | --------- | - | ------ | ------ | - | ---- | ------ | ------ | -
|                     |           |   | 2002   |        |   | 2001 |       
|                     |           |   |        |        |   |      |       
|Gross profit:        |           |   |        |        |   |      |        |       
|                     | Guest Pay |   | $      | 34,554 |   |      | $      | 31,718 |  
|                     | Other     |   |        | 990    |   |      |        | 1,129  |  
|                     |           |   |        |        |   |     
|                     |           | $ | 35,544 |        |   | $    | 32,847 |       
|                     |           |   |        |        |   |     
|Gross profit margin: |           |   |        |        |   |      |        |       
|                     | Guest Pay |   |        | 56.3   | % |      |        | 58.1   | %
|                     | Other     |   |        | 44.0   | % |      |        | 36.3   | %
|                     | Composite |   |        | 55.8   | % |      |        | 56.9   | %

Gross profit on Guest Pay interactive services increased 8.9%, or $2.8 million,
on a 12.5% increase in related revenue. Guest Pay direct costs (primarily
studio license fees, license fees for other interactive services, Internet
connectivity fees, and the commission paid to the hotel) are primarily based on
related revenue, and such costs generally vary directly with revenue. As a
percentage of revenue, the decrease in gross profit margin from 58.1% to 56.3%
was primarily due to connectivity costs related to Internet-enhanced television
and to nominal increases in hotel commissions.

Gross profit on other services decreased $139,000 or 12.3% in the third quarter
of 2002 from the prior year quarter. The decrease was due to lower sales of
equipment to international licensees. The gross profit margin increased to
44.0% in the third quarter of 2002 due to lower costs related to cable
programming services, which resulted from favorable pricing and incentive
arrangements.

As a percentage of revenue, the Companys overall gross profit margin decreased
from 56.9% to 55.8%. The decrease in gross margin from Guest Pay interactive
services was partially offset by an increase in other gross margin as described
above.

Operating Expenses.The following table sets forth information in regard to
the Companys operating expenses for the quarter ended September 30 (dollar
amounts in thousands):

|                    |                                     |                          |   |        |        |  |          |          |      |        |   |        |          |  |          |      |      | 
|------------------- | ----------------------------------- | ------------------------ | - | ------ | ------ |  | -------- | -------- | ---- | ------ | - | ------ | -------- |  | -------- | ---- | ---- | 
|                    |                                     |                          |   | 2002   |        |  | 2001     |         
|                    |                                     |                          |   |        |        |  |          |         
|                    |                                     |                          |   |        |        |  |          | Percent  |      |        |   |        |          |  | Percent  |     
|                    |                                     |                          |   |        |        |  |          | of Total |      |        |   |        |          |  | of Total |     
|                    |                                     |                          |   | Amount |        |  | Revenues |          |      | Amount |   |        | Revenues | 
|                    |                                     |                          |   |        |        |  |          |          |      |        |   |        |          | 
|Operating expenses: |                                     |                          |   |        |        |  |          |          |      |        |   |        |          |  |          |     
|                    | Guest Pay operations                |                          | $ | 7,711  |        |  |          | 12.1     |      |        | $ | 7,183  |          |  |          | 12.4 |     
|                    | Selling, general and administrative |                          |   | 5,718  |        |  |          | 9.0      |      |        |   | 5,340  |          |  |          | 9.3  |     
|                    | Depreciation and amortization       |                          |   | 19,242 |        |  |          | 30.2     |      |        |   | 16,295 |          |  |          | 28.3 |     
|                    |                                     |                          |   |        |        |  |          |          |      |        |   |       
|                    |                                     | Total operating expenses |   | $      | 32,671 |  |          |          | 51.3 |        |   |        | 28,818   |  |          |      | 50.0 | 
|                    |                                     |                          |   |        |        |  |          |          |      |        |   |       

Guest Pay operations expenses consist of costs directly related to the
operation of systems at hotel sites. Guest Pay operations expenses increased
7.4%, or $528,000 in the third quarter of 2002, compared to the third quarter
of 2001. The increase resulted from additional costs incurred with the addition
of 75,200 average rooms, offset by continued cost control efforts and improved
operating efficiencies. Per average installed room, Guest Pay operations
expenses decreased 2.3% from $3.08 per month during the third quarter of 2001
to $3.01 per month during the third quarter of 2002.

September 30, 2002

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|                                   |  |          
|---------------------------------- |  | ---------
|LodgeNet Entertainment Corporation |  | Form 10-Q

Selling, general and administrative expenses increased $378,000 or 7.1% in the
third quarter of 2002 compared to the prior year quarter. The increase was
substantially attributed to professional fees related to the InnMedia lawsuit
which was dismissed with prejudice in August and the dissolution of the
InnMedia entity. As a percentage of revenue, such expenses decreased to 9.0%
in the third quarter of 2002 from 9.3% in the prior year quarter.

Depreciation and amortization expenses were $19.2 million in the third quarter
of 2002 versus $16.3 million in the year earlier quarter. The increase is
driven by the demand for the installation of, or upgrade to, the digital
platform, which resulted in an additional 75,200 average rooms placed in
operation. At the end of third quarter of 2002, the interactive digital system
had been installed in more than 226,000 rooms. Additionally, other increases
were associated with software costs and other capitalized costs including
service vans, equipment, and computers that are related to the increased number
of rooms in service compared to the prior year. As a percentage of revenue,
depreciation and amortization expenses increased to 30.2% in the current
quarter from 28.3% in the third quarter of 2001.

Operating Income.For the reasons previously described, the Company generated
operating income of $2.9 million in the third quarter of 2002 compared to $4.0
million in the third quarter of 2001.

Investment Gains (Losses). Prior to the second quarter of 2001, the Company
owned a minority interest in Global Interactive Communications Corporation
(GICC) resulting from the merger transaction involving ResNet Communications
LLC (formerly the Companys majority-owned subsidiary) in 1998. In the second
quarter of 2001, the Company transferred its equity interest in GICC back to
GICC and has no further financing obligation to GICC. As of December 31, 2001,
the Company had an investment balance in GICC of $316,000. During the third
quarter of 2002, the Company received $179,000 in cash from the sale of GICCs
bankrupt assets and recognized an investment gain of $179,000. Additionally,
the Company contributed $252,000 to InnMedia during the third quarter of 2002
for its share of pre-dissolution operating costs. The $252,000 was recorded
as an equity loss in the same period.

Interest Expense.Interest expense was $8.3 million during the third quarter
of 2002, an increase of 6.9% due to increases in long-term debt to fund the
Companys continuing expansion of its digital platform. Average principal
amount of long-term debt outstanding during the quarter ended September 30,
2002 was approximately $346 million at an average interest rate of
approximately 9.5% as compared to an average principal amount outstanding of
approximately $315 million at an average interest rate of approximately 9.8%
during the comparable period of 2001.

Net Loss.For the reasons previously described, the Companys net loss
decreased to $5.5 million in the third quarter of 2002 from a net loss of $6.8
million in the prior year quarter. Third quarter 2001 net loss included a $2.1
million extraordinary charge associated with the write-off of debt issuance
costs related to the refinancing of the Companys bank credit facility.

EBITDA.EBITDA (defined by the Company as earnings before interest, income
taxes, depreciation and amortization) increased 8.8% to $22.1 million in the
third quarter of 2002 as compared to $20.3 million in the prior year quarter.
This increase is primarily due to a 9.7% increase in the average number of
installed rooms receiving Guest Pay interactive services, and improved
operating efficiencies as described above. As a percentage of total revenue,
EBITDA was 34.7% in the current quarter compared to 35.2% in the prior year
quarter.

EBITDA is not intended to represent an alternative to net income, operating
income or cash flows from operating, financing or investing activities (as
determined in accordance with generally accepted accounting principles) as a
measure of performance, and is not representative of funds available for
discretionary use due to the Companys financing obligations. EBITDA, as
defined by the Company, may not be calculated consistently among other
companies reporting similarly titled measures. EBITDA is included herein
because it is a widely accepted financial indicator used by certain investors
and financial analysts to assess and compare companies on the basis of
operating performance. Management believes that EBITDA provides an important
additional perspective on the Companys operating results and the Companys
ability to service its long-term debt and to fund the Companys continuing
growth.

September 30, 2002

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|                                   |  |          
|---------------------------------- |  | ---------
|LodgeNet Entertainment Corporation |  | Form 10-Q

Discussion and Analysis of Results of Operations
Nine Months Ended September 30, 2002 and 2001

Revenue Analysis. The Companys total revenue for the first nine months of
2002 increased 8.3%, or $13.6 million, in comparison to the same period of
2001. The following table sets forth the components of revenue (in thousands)
for the nine months ended September 30:

|          |  |        |         |  |         |          |       |        |  |   |         |  |          |  |       | 
|--------- |  | ------ | ------- |  | ------- | -------- | ----- | ------ |  | - | ------- |  | -------- |  | ----- | 
|          |  | 2002   |         |  | 2001    |         
|          |  |        |         |  |         |         
|          |  |        |         |  |         | Percent  |       |        |  |   |         |  | Percent  | 
|          |  |        |         |  |         | of Total |       |        |  |   |         |  | of Total | 
|Revenue:  |  | Amount |         |  | Revenue |          |       | Amount |  |   | Revenue | 
|          |  |        |         |  |         |          |       |        |  |   |         | 
|Guest Pay |  | $      | 170,226 |  |         |          | 96.0  |        |  | $ | 155,676 |  |          |  | 95.0  | 
|Other     |  |        | 7,143   |  |         |          | 4.0   |        |  |   | 8,141   |  |          |  | 5.0   | 
|          |  |        |         |  |         |          |       |        |  |   |         | 
|          |  | $      | 177,369 |  |         |          | 100.0 |        |  | $ | 163,817 |  |          |  | 100.0 | 
|          |  |        |         |  |         |          |       |        |  |   |         | 

Guest Pay interactive revenue increased 9.3% or $14.6 million, in the first
nine months of 2002 in comparison to the same period of 2001. This increase
was attributable to a 10.8% increase in the average number of installed Guest
Pay interactive rooms, offset by a 1.3% decrease in average monthly revenue per
room. The following table sets forth information in regard to average monthly
Guest Pay interactive revenue per room for the nine months ended September 30:

|                                  |                                   |                          |   |       |       |  |      |       |       | 
|--------------------------------- | --------------------------------- | ------------------------ | - | ----- | ----- |  | ---- | ----- | ----- | 
|                                  |                                   |                          |   | 2002  |       |  | 2001 |      
|                                  |                                   |                          |   |       |       |  |      |      
|Average monthly revenue per room: |                                   |                          |   |       |       |  |      |      
|                                  | Movie revenue                     |                          | $ | 18.09 |       |  | $    | 18.34 |      
|                                  | Other interactive service revenue |                          |   | 4.54  |       |  |      | 4.59  |      
|                                  |                                   |                          |   |       |       | 
|                                  |                                   | Total per Guest Pay room |   | $     | 22.63 |  |      | $     | 22.93 | 
|                                  |                                   |                          |   |       |       | 

Average movie revenue per room decreased 1.4% as a result of a 150 basis point
decrease in occupancy levels versus the same period of 2001. Other interactive
service revenue per room decreased by 1.1% also due to the decrease in
occupancy levels versus the same period of 2001.

Other Revenue includes revenue from free-to-guest services provided to hotels
not receiving Guest Pay services and sales of system equipment and service
parts and labor. Other revenue decreased $998,000 or 12.3% due to decreased
equipment sales to international licensees.

September 30, 2002

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|                                   |  |          
|---------------------------------- |  | ---------
|LodgeNet Entertainment Corporation |  | Form 10-Q

Gross Profit (exclusive of other operating expenses discussed separately
below).Gross profit totaled $101.4 million for the nine months ended
September 30, 2002, an increase of 7.0% over the first nine months of 2001 on
an 8.3% increase in revenue (dollar amounts in thousands).

|                     |           |   |         |        |   |      |        |        |  
|-------------------- | --------- | - | ------- | ------ | - | ---- | ------ | ------ | -
|                     |           |   | 2002    |        |   | 2001 |       
|                     |           |   |         |        |   |      |       
|Gross profit:        |           |   |         |        |   |      |        |       
|                     | Guest Pay |   | $       | 98,159 |   |      | $      | 91,755 |  
|                     | Other     |   |         | 3,204  |   |      |        | 2,953  |  
|                     |           |   |         |        |   |     
|                     |           | $ | 101,363 |        |   | $    | 94,708 |       
|                     |           |   |         |        |   |     
|Gross profit margin: |           |   |         |        |   |      |        |       
|                     | Guest Pay |   |         | 57.7   | % |      |        | 58.9   | %
|                     | Other     |   |         | 44.9   | % |      |        | 36.3   | %
|                     | Composite |   |         | 57.1   | % |      |        | 57.8   | %

Gross profit on Guest Pay interactive services increased 7.0%, or $6.4 million,
on a 9.3% increase in related revenue. Guest Pay direct costs (primarily
studio license fees, license fees for other interactive services, Internet
connectivity fees, and the commission retained by the hotel) are primarily
based on related revenue, and such costs generally vary directly with revenue.
As a percentage of revenue, the decrease in gross profit margin from 58.9% to
57.7% was primarily due to connectivity costs related to the Internet on
television product and to increases in hotel commissions.

Gross profit on other services increased $251,000 or 8.5% in the first nine
months of 2002 from the prior year nine months, and the gross profit margin
increased from 36.3% to 44.9%. These increases were due to lower costs of
sales related to international licenses and lower costs related to cable
programming services, which resulted from favorable pricing.

As a percentage of revenue, the Companys overall gross profit margin was 57.8%
compared to 57.1%. The nominal decrease in gross margin from Guest Pay
interactive services was partially offset by an increase in other gross margin
as described above.

Operating Expenses.The following table sets forth information in regard to
the Companys operating expenses for the nine months ended September 30 (dollar
amounts in thousands):

|                    |                                     |                          |   |        |        |  |          |          |      |        |   |        |          |  |          |      |      | 
|------------------- | ----------------------------------- | ------------------------ | - | ------ | ------ |  | -------- | -------- | ---- | ------ | - | ------ | -------- |  | -------- | ---- | ---- | 
|                    |                                     |                          |   | 2002   |        |  | 2001     |         
|                    |                                     |                          |   |        |        |  |          |         
|                    |                                     |                          |   |        |        |  |          | Percent  |      |        |   |        |          |  | Percent  |     
|                    |                                     |                          |   |        |        |  |          | of Total |      |        |   |        |          |  | of Total |     
|                    |                                     |                          |   | Amount |        |  | Revenues |          |      | Amount |   |        | Revenues | 
|                    |                                     |                          |   |        |        |  |          |          |      |        |   |        |          | 
|Operating expenses: |                                     |                          |   |        |        |  |          |          |      |        |   |        |          |  |          |     
|                    | Guest Pay operations                |                          | $ | 22,171 |        |  |          | 12.5     |      |        | $ | 21,647 |          |  |          | 13.2 |     
|                    | Selling, general and administrative |                          |   | 16,439 |        |  |          | 9.3      |      |        |   | 16,050 |          |  |          | 9.8  |     
|                    | Depreciation and amortization       |                          |   | 56,534 |        |  |          | 31.9     |      |        |   | 49,168 |          |  |          | 30.0 |     
|                    |                                     |                          |   |        |        |  |          |          |      |        |   |       
|                    |                                     | Total operating expenses |   | $      | 95,144 |  |          |          | 53.6 |        |   | $      | 86,865   |  |          |      | 53.0 | 
|                    |                                     |                          |   |        |        |  |          |          |      |        |   |       

Guest Pay operations expenses consist of costs directly related to the
operation of systems at hotel sites. Guest Pay operations expenses increased
2.4%, or $524,000 in the first nine months of 2002, compared to the same period
of 2001. The increase was primarily due to the costs incurred with 81,200
average new rooms placed in operation during the time period, partially offset
by continued cost control efforts and improved operating efficiencies. Per
average installed room, Guest Pay operations expenses decreased to $2.95 per
month in the first nine months of 2002 as compared to $3.19 per month in the
comparable period of 2001.

Selling, general and administrative expenses were $16.4 million in the first
nine months of 2002 compared to $16.1 in the year earlier nine months. As a
percentage of revenue, such expenses decreased to 9.3% in the third quarter of
2002 from 9.8% in the prior year period due to on-going cost control measures.

September 30, 2002

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|                                   |  |          
|---------------------------------- |  | ---------
|LodgeNet Entertainment Corporation |  | Form 10-Q

Depreciation and amortization expenses were $56.5 million in the first nine
months of 2002 versus $49.2 million in the year earlier nine months. This
increase was due to the 10.8% increase in the average number of rooms in
operation driven by the increased demand for the installation of, or upgrade
to, the digital platform. As of September 30, 2002, the interactive digital
system had been installed in more than 226,000 rooms as compared to 83,800
rooms at September 30, 2001. Additionally, other increases were related to
software costs and other capitalized costs including service vans, equipment,
and computers that are related to the increased number of rooms in service
compared to the prior year. As a percentage of revenue, depreciation and
amortization expenses increased to 31.9% in the first nine months of 2002 from
30.0% in the first nine months of 2001.

Operating Income.For the reasons previously described, the Company generated
operating income of $6.2 million in the first nine months of 2002 compared to
$7.8 million in the same period of 2001.

Investment Gains (Losses). Prior to the second quarter of 2001, the Company
owned a minority interest in Global Interactive Communications Corporation
(GICC) resulting from the merger transaction involving ResNet Communications
LLC (formerly the Companys majority-owned subsidiary) in 1998. In the second
quarter of 2001, the Company transferred its equity interest in GICC back to
GICC and has no further financing obligation to GICC. As of December 31, 2001,
the Company had an investment balance in GICC of $316,000. During the first
nine months of 2002, the Company received $1.6 million in cash from the sale of
GICCs bankrupt assets and recognized an investment gain of $1.3 million.

Interest Expense.Interest expense was $2.6 million or 11.6%, compared to
$24.6 million during the first nine months of 2002 due to increases in
long-term debt to fund the Companys continuing expansion of its digital
platform and other business activities. Average principal amount of long-term
debt outstanding during the nine months ended September 30, 2002 was
approximately $336 million at an average interest rate of approximately 9.8% as
compared to an average principal amount outstanding of approximately $302
million at an average interest rate of approximately 9.8% during the comparable
period of 2001.

Net Loss.For the reasons previously described, the Companys net loss
decreased to $17.9 million in the first nine months of 2002 from a net loss of
$18.5 million in the prior year nine months.

EBITDA.EBITDA (defined by the Company as earnings before interest, income
taxes, depreciation and amortization) increased 10.1% to $62.7 million in the
first nine months of 2002 as compared to $57.0 million in the prior year
period. This increase is primarily due to a 10.8% increase in the average
number of installed rooms receiving Guest Pay interactive services, and
improved operating efficiencies as described above. As a percentage of total
revenue, EBITDA increased to 35.4% in the current nine months compared to 34.8%
in the first nine months of 2001.

EBITDA is not intended to represent an alternative to net income, operating
income or cash flows from operating, financing or investing activities (as
determined in accordance with generally accepted accounting principles) as a
measure of performance, and is not representative of funds available for
discretionary use due to the Companys financing obligations. EBITDA, as
defined by the Company, may not be calculated consistently among other
companies reporting similarly titled measures. EBITDA is included herein
because it is a widely accepted financial indicator used by certain investors
and financial analysts to assess and compare companies on the basis of
operating performance. Management believes that EBITDA provides an important
additional perspective on the Companys operating results and the Companys
ability to service its long-term debt and to fund the Companys continuing
growth.

September 30, 2002

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|                                   |  |          
|---------------------------------- |  | ---------
|LodgeNet Entertainment Corporation |  | Form 10-Q

Recent Accounting Developments

See Note 7 in the notes to consolidated financial statements.

Seasonality

The Companys quarterly operating results are subject to fluctuation depending
upon hotel occupancy rates and other factors. Typically, occupancy rates are
higher during the second and third calendar quarters due to seasonal travel
patterns.

Liquidity and Capital Resources

The Company historically has required substantial amounts of capital to fund
operations, expand the Companys business and to service existing indebtedness.
Commencing in 2001, net cash flow from operations was sufficient to cover all
debt service, capital expenditures classified as renewal, general corporate, or
maintenance capital as well as a portion of growth capital. The funding of the
remaining portion of growth capital expenditures was provided by the Companys
bank facility. For 2001, capital expenditures were $78.4 million and net cash
provided by operating activities was $46.5 million. During the first nine
months of 2002, cash flow from operations was sufficient to cover all debt
service, capital expenditures classified as renewal, general corporate, or
maintenance capital as well as a portion of growth capital. The funding for
the balance of the growth capital expenditures was provided by the Companys
bank facility. For the nine-months ended September 30, 2002, capital
expenditures were $57.0 million as compared to $62.0 million in the same period
of 2001. Net cash provided by operating activities was $39.4 million as
compared to $39.3 million in the first nine months of 2001.

Depending on the rate of growth of its business and other factors, the Company
expects to incur capital expenditures of $73 to $75 million in 2002 as
contemplated under its 2002 business plan. The Company was in compliance
with all covenants related to its bank debt and its Senior notes as of
September 30, 2002. The Company is not aware of any events that qualify under
the Material Adverse Effect clause of the current credit facility. The total
amount of long-term debt outstanding, including that portion of debt classified
as current, as of September 30, 2002 was $342.4 million versus $342.9 million
as of June 30, 2002.

The Company believes that its operating cash flows and borrowings available
under the revolving credit facility will be sufficient to fund the Companys
future growth, financing obligations, and its negative working capital, as
contemplated under its 2002 business plan. However, if operating cash flows
are significantly below the amount anticipated in its current business plan,
the Company intends to cover the short fall through any combination of
additional borrowings available under its current revolving credit facility and
a reduction in capital spending.

In August 2002, the Company received unanimous consent from its lenders to
amend its existing bank credit facility. The amendment modified the covenants
for leverage and interest coverage by generally deferring the scheduled
step-downs in covenant terms that were to be effective as of December 31, 2002.
The Maximum Consolidated Total Leverage Ratio will remain at 4.5 times debt to
EBITDA through the third quarter of 2003 with a step-down to 4.4 times debt to
EBITDA at the end of the fourth quarter 2003. The Maximum Consolidated Senior
Secured Leverage Ratio was modified to 2.5 times senior debt to EBITDA from
2.25 times. The 2.5 ratio is in effect through the fourth quarter of 2004. The
Minimum Consolidated Interest ratio coverage ratio was amended to 2.25 times
and will remain at that level through the second quarter of 2004.

Based on the current bank facility covenants the Company had $21.5 million of
borrowing capacity available under its revolver credit facility.

September 30, 2002

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|                                   |  |          
|---------------------------------- |  | ---------
|LodgeNet Entertainment Corporation |  | Form 10-Q

In May 2002, the Company filed a universal shelf registration statement with
the Securities and Exchange Commission (SEC) providing for the offering from
time to time of debt securities, common stock or preferred stock with aggregate
proceeds of up to $225 million. The Company may use the proceeds from possible
sale of securities for general corporate purposes, which include additions to
working capital, repayment or redemption of existing indebtedness, financing of
capital expenditures, research and development of new technologies, future
acquisitions and strategic investment opportunities. The timing and amount of
any offering under the registration statement will depend on the market and
general business conditions. The registration statement was declared effective
by the SEC on June 18, 2002. No securities have been issued under this
registration statement as of September 30, 2002.

The foregoing statements regarding capital expenditures and cash requirements
are forward-looking statements and there can be no assurance in this regard.
The Companys actual cash flow and cash requirements will vary (and such
variations could be material) depending upon the number of new contracts for
services entered into by the Company, the cost of installations, demand for the
Companys services, competitive factors, hotel occupancy rates, general
economic factors and other factors.

Obligations and Commitments as of September 30, 2002.

|                         |                             |                               |   |         |         |  |        |                        |        |       |       |        |        |       |   |         |         |  |  |       |       | 
|------------------------ | --------------------------- | ----------------------------- | - | ------- | ------- |  | ------ | ---------------------- | ------ | ----- | ----- | ------ | ------ | ----- | - | ------- | ------- |  |  | ----- | ----- | 
|                         |                             |                               |   |         |         |  |        | Payments due by period |       
|                         |                             |                               |   |         |         |  |        |                        |       
|                         |                             |                               |   |         |         |  |        | Less than              |        |       | 1  3 |        |        | 4  5 |   |         | Over    | 
|                         |                             |                               |   | Total   |         |  | 1 year |                        |        | years |       |        | years  |       |   | 5 years |        
|                         |                             |                               |   |         |         |  |        |                        |        |       |       |        |        |       |   |         |        
|Contractual obligations: |                             |                               |   |         |         |  |        |                        |        |       |       |        |        |       |   |         |         |  |  |      
|                         | Long-term debt(s)           |                               | $ | 340,092 |         |  | $      | 8,311                  |        |       | $     | 14,781 |        |       | $ | 317,000 |         |  |  |      |      
|                         | Interest on senior notes    |                               |   | 73,332  |         |  |        | 17,446                 |        |       |       | 32,822 |        |       |   | 23,064  |         |  |  |      |      
|                         | Other long-term obligations |                               |   | 11,363  |         |  |        | 1,230                  |        |       |       | 4,676  |        |       |   | 2,942   |         |  |  | 2,515 |      
|                         |                             |                               |   |         |         |  |        |                        |        |       |       |        |        |       |  
|                         |                             | Total contractual obligations |   | $       | 424,787 |  |        | $                      | 26,987 |       |       | $      | 52,279 |       |   | $       | 343,006 |  |  |       | 2,515 | 
|                         |                             |                               |   |         |         |  |        |                        |        |       |       |        |        |       |  

|                              |                           |  |       |       |  |        |                                            |       |       |       |  |       |       |  |         |      |  |  |  |   | 
|----------------------------- | ------------------------- |  | ----- | ----- |  | ------ | ------------------------------------------ | ----- | ----- | ----- |  | ----- | ----- |  | ------- | ---- |  |  |  | - | 
|                              |                           |  |       |       |  |        | Amount of commitment expiration per period |      
|                              |                           |  |       |       |  |        |                                            |      
|                              |                           |  |       |       |  |        | Less than                                  |       |       | 1  3 |  |       | 4  5 |  |         | Over | 
|                              |                           |  | Total |       |  | 1 year |                                            |       | years |       |  | years |       |  | 5 years |     
|                              |                           |  |       |       |  |        |                                            |       |       |       |  |       |       |  |         |     
|Other commercial commitments: |                           |  |       |       |  |        |                                            |       |       |       |  |       |       |  |         |      |  |  |  |  
|                              | Standby letters of credit |  | $     | 2,000 |  |        | $                                          | 2,000 |       |       |  |      |       |  |         |     |  |  |  |  | 
|                              |                           |  |       |       |  |        |                                            |       |       |       |  |       |       |  |        

Performance of Lodging Industry

The overall travel industry, initially impacted by the tragic events of
September 11th, continues to be adversely effected by the weaker general
economic climate and uncertain financial markets. Occupancy rates from the
properties served by the Company during the third quarter of 2002 were 40 basis
points below the same period in the prior year. While the average occupancy
rate for the Companys served hotels is typically higher than the average of
the entire lodging industry, the Companys business is clearly linked to the
continued effects of changes in occupancy levels.

Geographically, the Companys room base is diversified with more than
two-thirds of properties served being in highway or suburban locations. In
addition, less than 5% of the room base is concentrated in the top ten urban
areas of the United States. By serving a wide variety of geographically
dispersed properties, the Company mitigates reliance on any one geographic
sector.

Occupancy rates have been improving but remain below the levels experienced in
the prior year. During the third quarter of 2002, occupancy rates were
forecasted to slowly improve, however, were affected by the first anniversary
of September 11th. To help mitigate the impact of occupancy levels on
operating profit and EBITDA, the Company continues to firmly control operating
expenses and capital spending. The Company plans to reassess its operating and
capital expenditure plans periodically to respond to changes in the economic
environment.

September 30, 2002

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|                                   |  |          
|---------------------------------- |  | ---------
|LodgeNet Entertainment Corporation |  | Form 10-Q




Item 3  Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to various market risks, including potential losses
resulting from adverse changes in interest rates and foreign currency exchange
rates. The Company does not enter into derivatives or other financial
instruments for trading or speculative purposes.

Interest.At September 30, 2002, the Company had debt totaling $342 million.
The Company has interest rate swap arrangements covering debt with a notional
amount of $150 million to effectively change the underlying debt from a
variable interest rate to a fixed interest rate for the term of the swap
agreements. After giving effect to the interest rate swap arrangements, the
Company had fixed rate debt of $271 million and variable rate debt of $71
million at September 30, 2002. For fixed rate debt, interest rate changes
affect the fair market value but do not impact earnings or cash flows.
Conversely, for variable rate debt, interest rate changes generally do not
affect the fair market value but do impact future earnings and cash flows,
assuming other factors are held constant. Assuming other variables remain
constant (such as debt levels), a one percentage point increase in interest
rates would decrease the unrealized fair market value of the fixed rate debt by
an estimated $24.1 million. The impact on earnings and cash flow for the next
year resulting from a one percentage point increase in interest rates would be
approximately $715,000 assuming other variables remain constant.

Foreign Currency Transactions.A portion of the Companys revenues are derived
from the sale of Guest Pay services in Canada. The results of operations and
financial position of the Companys operations in Canada are measured in
Canadian dollars and translated into U.S. dollars. The effects of foreign
currency fluctuations in Canada are somewhat mitigated by the fact that
expenses and liabilities are generally incurred in Canadian dollars. The
reported income of the Companys Canadian subsidiary will be higher or lower
depending on a weakening or strengthening of the U.S. dollar against the
Canadian dollar. In addition, a portion of the Companys assets are based in
Canada and are translated into U.S. dollars at foreign currency exchange rates
in effect as of the end of each period. Accordingly, the Companys consolidated
assets will fluctuate depending on the weakening or strengthening of the U.S.
dollar against the Canadian dollar. No significant foreign currency
fluctuations occurred in the third quarter of 2002 to materially impact
consolidated results of operations or financial condition.




Item 4  Controls and Procedures

With the participation of management, the Companys chief executive officer and
chief financial officer evaluated the Companys disclosure controls and
procedures within 90 days of the filing date of this quarterly report (the
Evaluation Date). Based upon this evaluation, the chief executive officer and
chief financial officer concluded that the Companys disclosure controls and
procedures are effective in ensuring that material information required to be
disclosed is included in the reports that it files with the Securities and
Exchange Commission.

There were no significant changes in the Companys internal controls or, to the
knowledge of management of the Company, other factors that could significantly
affect internal controls subsequent to the date of the Companys most recent
evaluation of its disclosure controls and procedures utilized to compile
information in this filing.

September 30, 2002

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|                                   |  |          
|---------------------------------- |  | ---------
|LodgeNet Entertainment Corporation |  | Form 10-Q




Part II  Other Information




Item 1  Legal Proceedings

The Company is subject to litigation arising in the ordinary course of
business. As of the date hereof, the Company believes the resolution of such
litigation will not have a material adverse effect upon the Companys financial
condition or results of operations.




Item 2  Changes in Securities and Use of Proceeds

Not applicable.




Item 3  Defaults Upon Senior Securities

Not applicable.




Item 4  Submission of Matters to a Vote of Security Holders

None




Item 5  Other Information

Not applicable

September 30, 2002

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|                                   |  |          
|---------------------------------- |  | ---------
|LodgeNet Entertainment Corporation |  | Form 10-Q




Item 6  Exhibits and Reports on Form 8-K



| | a. |  | Exhibits:
| | -- |  | ---------

|      |  |                                                                                                              
|----- |  | -------------------------------------------------------------------------------------------------------------
|10.24 |  | Amended And Restated Employment Agreement
between the Company and Scott C. Petersen dated September 23,
2002.



| | b. |  | Reports on Form 8-K:
| | -- |  | --------------------



| | The Company filed a Current Report on Form 8-K with the SEC on
August 14, 2002, to file as an exhibit under Item 7 a copy of the
Companys press release dated August 14, 2002, announcing its chief
executive officer and chief financial officer have certified
LodgeNets financial statements attached to its Quarterly Report on
Form 10-Q filed on August 14, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | The Company filed a Current Report on Form 8-K with the SEC on
August 15, 2002, announcing under Item 5 that the Company entered
into a number of agreements with Hilton Hotels Corporation
(Hilton) relating to the mutual decision of the parties to
dissolve InnMedia LLC, a joint venture co-owned by the Company and
Hilton, and to expand the services that the Company will provide to
Hilton under its existing Master Service Agreement with Hilton.
The Company also filed as exhibits under Item 7 (a) a copy of the
Hilton LodgeNet Agreement, dated as of August 2, 2002, and (b) a
copy of the Amendment to Master Services Agreement, dated August 2,
2002, (certain confidential portions of this Exhibit were redacted
and separately filed with the SEC).                                                   
|
| | The Company filed a Current Report on Form 8-K with the SEC on
August 20, 2002, announcing under Item 5 that the Company entered
into, and received requisite consent from its lenders for, a First
Amendment to Credit Agreement, which amended its existing senior
bank credit facility obtained in August 2001, modifying the
covenants for leverage and interest coverage contained in the
original credit agreement by generally deferring schedule
step-downs in covenant terms that were to become effective as of
December 31, 2002. The Company also filed as exhibits under Item 7
(a) a copy of the First Amendment to Credit Agreement, dated August
19, 2002, by and between the Company and Canadian Imperial Bank (as
Administrative Agent), and (b) a copy of the Companys press
release dated August 19, 2002.
|
| | The Company filed a Current Report on Form 8-K with the SEC on
October 17, 2002, including under Item 7 and Item 9 a copy of a
Power Point presentation posted on the Companys website in advance
of an earnings telephone conference held October 16, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

September 30, 2002

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|                                   |          
|---------------------------------- | ---------
|LodgeNet Entertainment Corporation | Form 10-Q




LodgeNet Entertainment Corporation

Signatures

Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|      |  |                   |  |                                                                                                                                  |  | 
|----- |  | ----------------- |  | -------------------------------------------------------------------------------------------------------------------------------- |  | 
|      |  |                   |  | LodgeNet
Entertainment Corporation                                                                                              
|     
|      |  |                   |  | (Registrant)                                                                                                                     |  | 
|     
|Date: |  | November 13, 2002 |  | /s/ Scott C. PetersenScott C. Petersen
President and Chief Executive Officer
(Principal Executive Officer)                       |  | 
|     
|Date: |  | November 13, 2002 |  | /s/ Gary H. RitondaroGary H. Ritondaro
Senior Vice President, Chief Financial Officer
(Principal Financial & Accounting Officer) |  | 

September 30, 2002

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|                                   |  |          
|---------------------------------- |  | ---------
|LodgeNet Entertainment Corporation |  | Form 10-Q

I, Gary H. Ritondaro, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of LodgeNet Entertainment
Corporation.

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date);
and

c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls;
and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                        |  |  |  |                                                                |  | 
|----------------------- |  |  |  | -------------------------------------------------------------- |  | 
|                       
|Date: November 13, 2002 |  |  |  | /s/ Gary H. RitondaroGary H. Ritondaro
Chief Financial Officer |  | 

September 30, 2002

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|                                   |  |          
|---------------------------------- |  | ---------
|LodgeNet Entertainment Corporation |  | Form 10-Q

I, Scott C. Petersen, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of LodgeNet Entertainment
Corporation.

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date);
and

c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls;
and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                        |  |  |  |                                                                |  | 
|----------------------- |  |  |  | -------------------------------------------------------------- |  | 
|                       
|Date: November 13, 2002 |  |  |  | /s/ Scott C. PetersenScott C. Petersen
Chief Executive Officer |  | 

September 30, 2002

Page 27