##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2007
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 Commission File Number 0-22334
 LodgeNet Entertainment Corporation
  Delaware
    
    46-0371161(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    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,
  (Former name, former address and former fiscal year, if changed since last report
 þ o
  o þ o
 o þ




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##### 



LodgeNet
Entertainment Corporation
    
    Form 10-Q
  
 LodgeNet Entertainment Corporation and Subsidiaries
 Index
 PageNo.Part I. Financial InformationItem 1  Financial Statements:Consolidated Balance Sheets (Unaudited) as of September 30, 2007 and December 31, 2006
    
    
    3Consolidated Statements of Operations (Unaudited) for
the Three Months and Nine Months Ended September 30, 2007 and 2006
    
    
    4Consolidated Statements of Cash Flows (Unaudited) for
the Nine Months Ended September 30, 2007 and 2006
    
    
    5Notes to Consolidated Financial Statements (Unaudited)
    
    
    6Item 2  Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    16Item 3  Quantitative and Qualitative Disclosures About Market Risk
    
    
    34Item 4  Controls and Procedures
    
    
    34Part II. Other InformationItem 1  Legal Proceedings
    
    
    35Item 1A  Risk Factors
    
    
    35Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    35Item 3  Defaults Upon Senior Securities
    
    
    35Item 4  Submission of Matters to a Vote of Security Holders
    
    
    35Item 5  Other Information
    
    
    35Item 6  Exhibits
    
    
    35Signatures
    
    
    36Rule 13a-14(a)/15d-14(a) Certification of Chief Financial OfficerRule 13a-14(a)/15d-14(a) Certification of Chief Executive OfficerSection 1350 Certifications
  
 As used herein (unless the context otherwise requires) LodgeNet and/or the Registrant, as well
as the terms we, us and our refer to LodgeNet Entertainment Corporation and its consolidated
subsidiary.LodgeNet , any other LodgeNet related marks used herein, On Command, and StayOnline are
service marks or registered trademarks of LodgeNet Entertainment Corporation; all other trademarks
or service marks used herein are the property of their respective owners. September 30, 2007
    
    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 and Subsidiaries
 
 Consolidated Balance Sheets (Unaudited)
  September 30,
    
    
    December 31,2007
    
    
    2006AssetsCurrent assets:Cash and cash equivalents
    
    $
    32,150
    
    
    $
    22,795Restricted cash
    
    
    
    
    
    
    1,006Accounts receivable, net
    
    
    71,614
    
    
    
    32,959Other current assets
    
    
    11,265
    
    
    
    10,728Total current assets
    
    
    115,029
    
    
    
    67,488Property and equipment, net
    
    
    336,480
    
    
    
    185,770Debt issuance costs, net
    
    
    11,829
    
    
    
    5,704Intangible assets, net
    
    
    131,488
    
    
    
    690Goodwill
    
    
    104,088
    
    
    
    Other assets
    
    
    10,459
    
    
    
    3,557Total assets
    
    $
    709,373
    
    
    $
    263,209Liabilities and Stockholders DeficiencyCurrent liabilities:Accounts payable
    
    $
    53,239
    
    
    $
    19,165Current maturities of long-term debt
    
    
    7,402
    
    
    
    2,536Accrued expenses
    
    
    23,951
    
    
    
    18,193Deferred revenue
    
    
    12,427
    
    
    
    8,076Total current liabilities
    
    
    97,019
    
    
    
    47,970Long-term debt
    
    
    618,712
    
    
    
    267,633Other long-term liabilities
    
    
    11,701
    
    
    
    5,728Total liabilities
    
    
    727,432
    
    
    
    321,331Commitments and contingenciesStockholders deficiency:Preferred stock, $.01 par value, 5,000,000 shares authorized;
no shares issued or outstandingCommon stock, $.01 par value, 50,000,000 shares authorized;
22,928,325 and 19,084,734 shares outstanding at September 30,
2007 and December 31, 2006, respectively
    
    
    229
    
    
    
    191Additional paid-in capital
    
    
    329,403
    
    
    
    242,383Accumulated deficit
    
    
    (347,936
    )
    
    
    (302,466
    )Accumulated other comprehensive income
    
    
    245
    
    
    
    1,770Total stockholders deficiency
    
    
    (18,059
    )
    
    
    (58,122
    )Total liabilities and stockholders deficiency
    
    $
    709,373
    
    
    $
    263,209
  September 30, 2007
    
    Page 3




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##### Table of Contents



LodgeNet
Entertainment Corporation
    
    Form 10-Q
 LodgeNet Entertainment Corporation and Subsidiaries
 
 Consolidated Statements of Operations (Unaudited)
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Guest Pay
    
    $
    131,387
    
    
    $
    73,861
    
    
    $
    325,936
    
    
    $
    211,218Other
    
    
    11,222
    
    
    
    2,649
    
    
    
    26,896
    
    
    
    7,356Total revenues
    
    
    142,609
    
    
    
    76,510
    
    
    
    352,832
    
    
    
    218,574Costs and Expenses:Direct costs (exclusive of operating expenses and
depreciation and amortization shown separately
below):Guest Pay
    
    
    68,213
    
    
    
    34,743
    
    
    
    163,223
    
    
    
    96,439Other
    
    
    7,719
    
    
    
    1,293
    
    
    
    18,115
    
    
    
    3,472Operating expenses:Guest Pay operations
    
    
    15,430
    
    
    
    8,902
    
    
    
    39,262
    
    
    
    26,752Selling, general and administrative
    
    
    16,117
    
    
    
    7,069
    
    
    
    40,181
    
    
    
    21,089Depreciation and amortization
    
    
    34,130
    
    
    
    16,099
    
    
    
    83,818
    
    
    
    49,882Restructuring expense
    
    
    2,296
    
    
    
    
    
    
    
    5,034
    
    
    
    Other operating expense (income), net
    
    
    132
    
    
    
    
    
    
    
    (763
    )
    
    
    (198
    )Total costs and operating expenses
    
    
    144,037
    
    
    
    68,106
    
    
    
    348,870
    
    
    
    197,436Income (loss) from operations
    
    
    (1,428
    )
    
    
    8,404
    
    
    
    3,962
    
    
    
    21,138Other Income and Expenses:Interest expense
    
    
    (11,741
    )
    
    
    (6,402
    )
    
    
    (29,527
    )
    
    
    (19,483
    )Loss on early retirement of debt
    
    
    (25
    )
    
    
    (52
    )
    
    
    (22,195
    )
    
    
    (181
    )Minority interest in income of subsidiary
    
    
    
    
    
    
    
    
    
    
    165
    
    
    
    Other income
    
    
    725
    
    
    
    234
    
    
    
    1,289
    
    
    
    794Income (loss) before income taxes
    
    
    (12,469
    )
    
    
    2,184
    
    
    
    (46,306
    )
    
    
    2,268Provision for income taxes
    
    
    1,058
    
    
    
    
    
    
    
    836
    
    
    
    (305
    )Net income (loss)
    
    $
    (11,411
    )
    
    $
    2,184
    
    
    $
    (45,470
    )
    
    $
    1,963Net income (loss) per common share (basic)
    
    $
    (0.50
    )
    
    $
    0.12
    
    
    $
    (2.12
    )
    
    $
    0.11Net income (loss) per common share (diluted)
    
    $
    (0.50
    )
    
    $
    0.12
    
    
    $
    (2.12
    )
    
    $
    0.11Weighted average shares outstanding (basic)
    
    
    22,742,001
    
    
    
    18,377,629
    
    
    
    21,417,266
    
    
    
    18,250,620Weighted average shares outstanding (diluted)
    
    
    22,742,001
    
    
    
    18,743,251
    
    
    
    21,417,266
    
    
    
    18,611,981
  September 30, 2007
    
    Page 4




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##### Table of Contents



LodgeNet
Entertainment Corporation
    
    Form 10-Q
 LodgeNet Entertainment Corporation and Subsidiaries
 
 Consolidated Statements of Cash Flows (Unaudited)
  Nine Months Ended September 30,2007
    
    
    2006Operating activities:Net income (loss)
    
    $
    (45,470
    )
    
    $
    1,963Adjustments to reconcile net loss to net cash provided
by operating activities:Depreciation and amortization
    
    
    83,818
    
    
    
    49,882Investment gain
    
    
    
    
    
    
    (238
    )Loss on early retirement of debt
    
    
    3,583
    
    
    
    181Share-based compensation
    
    
    1,296
    
    
    
    1,297Other
    
    
    (215
    )
    
    
    Change in operating assets and liabilities:Accounts receivable
    
    
    (5,890
    )
    
    
    (3,193
    )Other current assets
    
    
    (2,792
    )
    
    
    (1,919
    )Accounts payable
    
    
    7,970
    
    
    
    5,239Accrued expenses and deferred revenue
    
    
    1,018
    
    
    
    9,152Other
    
    
    (905
    )
    
    
    (2,297
    )Net cash provided by operating activities
    
    
    42,413
    
    
    
    60,067Investing activities:Property and equipment additions
    
    
    (60,591
    )
    
    
    (36,825
    )Acquisition of On Command Corporation, net of cash acquired
    
    
    (335,364
    )
    
    
    Acquisition of StayOnline, Inc.
    
    
    (14,311
    )
    
    
    Acquisition of THN (20% minority interest)
    
    
    (5,000
    )
    
    
    Other investing activities
    
    
    638
    
    
    
    238Net cash used for investing activities
    
    
    (414,628
    )
    
    
    (36,587
    )Financing activities:Proceeds from long-term debt
    
    
    625,000
    
    
    
    Repayment of long-term debt
    
    
    (269,677
    )
    
    
    (16,125
    )Payment of capital lease obligations
    
    
    (1,419
    )
    
    
    (1,049
    )Debt issuance costs
    
    
    (12,738
    )
    
    
    Contribution from minority interest holder to subsidiary
    
    
    300
    
    
    
    Proceeds from issuance of common stock, net of offering costs
    
    
    23,290
    
    
    
    Exercise of stock options
    
    
    16,468
    
    
    
    3,945Net cash provided by (used for) financing activities
    
    
    381,224
    
    
    
    (13,229
    )Effect of exchange rates on cash
    
    
    346
    
    
    
    114Increase in cash and cash equivalents
    
    
    9,355
    
    
    
    10,365Cash and cash equivalents at beginning of period
    
    
    22,795
    
    
    
    20,742Cash and cash equivalents at end of period
    
    $
    32,150
    
    
    $
    31,107
  September 30, 2007
    
    Page 5




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##### Table of Contents



LodgeNet
Entertainment Corporation
    
    Form 10-Q
 LodgeNet Entertainment Corporation and Subsidiaries
 
 Notes to Consolidated Financial Statements (Unaudited)
          September 30, 2007
    
    Page 6




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##### Table of Contents



LodgeNet
Entertainment Corporation
    
    Form 10-Q
    Cash
    
    $
    671Receivables
    
    
    30,496Other current assets
    
    
    3,084Property and equipment
    
    
    160,883Intangible assets
    
    
    132,192Goodwill
    
    
    91,228Other assets
    
    
    5,567Accounts payable
    
    
    (21,955
    )Accrued liabilities
    
    
    (12,194
    )Other long-term liabilities
    
    
    (1,093
    )Minority Interest
    
    
    (1,030
    )Total purchase consideration
    
    $
    387,849
  September 30, 2007
    
    Page 7




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##### Table of Contents



LodgeNet
Entertainment Corporation
    
    Form 10-Q
   Property and equipment
    
    $
    372Intangible assets
    
    
    200Goodwill
    
    
    3,264Other long-term liabilities
    
    
    300Minority interest
    
    
    864Total purchase consideration
    
    $
    5,000
  Pro Forma
    
    
    Pro FormaThree Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:LodgeNet Entertainment
    
    $
    78,569
    
    
    $
    76,510
    
    
    $
    224,808
    
    
    $
    218,574On Command
    
    
    58,434
    
    
    
    60,695
    
    
    
    175,478
    
    
    
    177,362StayOnline
    
    
    5,606
    
    
    
    3,416
    
    
    
    14,981
    
    
    
    8,180Total revenues
    
    $
    142,609
    
    
    $
    140,621
    
    
    $
    415,267
    
    
    $
    404,116Net loss
    
    $
    (11,411
    )
    
    $
    (9,317
    )
    
    $
    (59,290
    )
    
    $
    (36,473
    )Net loss per share
    
    $
    (0.50
    )
    
    $
    (0.43
    )
    
    $
    (2.64
    )
    
    $
    (1.71
    )
  September 30, 2007
    
    Page 8




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##### Table of Contents



LodgeNet
Entertainment Corporation
    
    Form 10-Q
   September 30,
    
    
    December 31,2007
    
    
    2006Land, building and equipment
    
    $
    102,978
    
    
    $
    85,642Guest Pay systems:Installed system costs
    
    
    635,355
    
    
    
    473,930Customer acquisition costs
    
    
    54,493
    
    
    
    53,156System components
    
    
    29,481
    
    
    
    26,464Software costs
    
    
    34,734
    
    
    
    22,520Total
    
    
    857,041
    
    
    
    661,712Less  depreciation and amortization
    
    
    (520,561
    )
    
    
    (475,942
    )Property and equipment, net
    
    $
    336,480
    
    
    $
    185,770
      September 30, 2007
    
    Page 9




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##### Table of Contents



LodgeNet
Entertainment Corporation
    
    Form 10-Q
  September 30, 2007
    
    
    December 31, 2006Carrying
    
    
    Accumulated
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationAssets subject to amortization:Acquired contracts and relationships
    
    $
    125,570
    
    
    $
    (4,472
    )
    
    $
    
    
    
    $
    Other acquired intangibles
    
    
    7,624
    
    
    
    (6,375
    )
    
    
    16,503
    
    
    
    (15,813
    )Tradenames
    
    
    5,292
    
    
    
    (239
    )
    
    
    
    
    
    
    Acquired patents
    
    
    5,039
    
    
    
    (950
    )
    
    
    
    
    
    
    $
    143,525
    
    
    $
    (12,037
    )
    
    $
    16,503
    
    
    $
    (15,813
    )
     Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Average shares outstanding  basic
    
    
    22,742,001
    
    
    
    18,377,629
    
    
    
    21,417,266
    
    
    
    18,250,620Dilutive effect of stock options, non-vested shares and warrants
    
    
    
    
    
    
    365,622
    
    
    
    
    
    
    
    361,361Average shares outstanding  diluted
    
    
    22,742,001
    
    
    
    18,743,251
    
    
    
    21,417,266
    
    
    
    18,611,981Antidilutive securities excluded from calculation
    
    
    
    
    
    
    2,225,255
    
    
    
    
    
    
    
    2,225,255
  September 30, 2007
    
    Page 10




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##### Table of Contents



LodgeNet
Entertainment Corporation
    
    Form 10-Q
   September 30,
    
    
    December 31,2007
    
    
    2006Accrued taxes
    
    $
    7,139
    
    
    $
    4,088Accrued compensation
    
    
    9,782
    
    
    
    6,842Accrued interest
    
    
    349
    
    
    
    946Accrued programming related
    
    
    1,889
    
    
    
    1,748Other
    
    
    4,792
    
    
    
    4,569$
    23,951
    
    
    $
    18,193
   September 30,
    
    
    December 31,2007
    
    
    2006Bank Credit Facility:Bank term loan
    
    $
    623,438
    
    
    $
    68,125Revolving credit facility
    
    
    
    
    
    
    9.50% senior notes
    
    
    10
    
    
    
    200,000Capital leases
    
    
    2,666
    
    
    
    2,044626,114
    
    
    
    270,169Less current maturities
    
    
    (7,402
    )
    
    
    (2,536
    )$
    618,712
    
    
    $
    267,633
 Bank Credit Facility 3⁄4
  September 30, 2007
    
    Page 11




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##### Table of Contents



LodgeNet
Entertainment Corporation
    
    Form 10-Q
  9.50% Senior Notes 3⁄4 pari passu
  Capital Leases
  2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    ThereafterLong-term debt
    
    $
    1,563
    
    
    $
    6,250
    
    
    $
    6,250
    
    
    $
    6,250
    
    
    $
    6,250
    
    
    $
    596,885Capital leases
    
    
    391
    
    
    
    1,188
    
    
    
    822
    
    
    
    520
    
    
    
    111
    
    
    
    1,954
    
    
    
    7,438
    
    
    
    7,072
    
    
    
    6,770
    
    
    
    6,361
    
    
    
    596,885Less amount representing
interest on capital leases
    
    
    (57
    )
    
    
    (165
    )
    
    
    (93
    )
    
    
    (42
    )
    
    
    (9
    )
    
    
    $
    1,897
    
    
    $
    7,273
    
    
    $
    6,979
    
    
    $
    6,728
    
    
    $
    6,352
    
    
    $
    596,885
  3⁄4
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income (loss)
    
    $
    (11,411
    )
    
    $
    2,184
    
    
    $
    (45,470
    )
    
    $
    1,963Foreign currency translation adjustment
    
    
    1,875
    
    
    
    74
    
    
    
    4,370
    
    
    
    500Unrealized gain (loss) on derivative instruments
    
    
    (10,310
    )
    
    
    
    
    
    
    (5,895
    )
    
    
    156Comprehensive income (loss)
    
    $
    (19,846
    )
    
    $
    2,258
    
    
    $
    (46,995
    )
    
    $
    2,619
 September 30, 2007
    
    Page 12




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##### Table of Contents



LodgeNet
Entertainment Corporation
    
    Form 10-Q
  September 30,
    
    
    December 31,2007
    
    
    2006Unrealized loss on derivative instruments
    
    $
    (5,895
    )
    
    $
    Foreign currency translation adjustment
    
    
    6,140
    
    
    
    1,770Accumulated other comprehensive income
    
    $
    245
    
    
    $
    1,770
 3⁄4
  3⁄4
 Fair Value Measurements
 The Fair Value Option for Financial
Assets and Financial Liabilities  Including an Amendment of FASB Statement No. 115.
  Share-Based Payment
 September 30, 2007
    
    Page 13




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##### Table of Contents



LodgeNet
Entertainment Corporation
    
    Form 10-Q
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Compensation cost (benefit):Stock options
    
    $
    149
    
    
    $
    141
    
    
    $
    357
    
    
    $
    556Non-vested shares
    
    
    293
    
    
    
    229
    
    
    
    939
    
    
    
    741Total share based compensation expense
    
    $
    442
    
    
    $
    370
    
    
    $
    1,296
    
    
    $
    1,297Compensation expense per common share (basic and diluted):
    
    $
    0.02
    
    
    $
    0.02
    
    
    $
    0.06
    
    
    $
    0.07
    3⁄4
   Accounting for Costs Associated with Exit or Disposal Activities.
 September 30, 2007
    
    Page 14




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##### Table of Contents



LodgeNet
Entertainment Corporation
    
    Form 10-Q
   6/30/07
    
    Charges to
    
    Cash
    
    9/30/07Balance
    
    Expense
    
    Payment
    
    BalanceSeverance and other benefit related costs
    
    $
    2,011
    
    
    $
    1,841
    
    
    $
    (1,632
    )
    
    $
    2,220
  Accounting for Uncertainty in Income Taxes  An
Interpretation of FASB Statement No. 109, .
 September 30, 2007
    
    Page 15




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##### Table of Contents



LodgeNet
Entertainment Corporation
    
    Form 10-Q
 
 Item 2  Managements Discussion and Analysis of Financial Condition and Results of
Operations
 The following discussion should be read in conjunction with our Consolidated Financial Statements,
including the notes thereto, appearing elsewhere herein.
 Special Note Regarding Forward-Looking Statements
 Certain statements in this report or document incorporated herein by reference constitute
forward-looking statements. When used in this report, the words intends, expects,
anticipates, estimates, believes, goal, no assurance and similar expressions, and
statements which are made in the future tense or refer to future events or developments, including,
without limitation, those related to estimated free cash flow, debt ratios and synergies, are
intended to identify such forward-looking statements. Such forward-looking statements are subject
to risks, uncertainties, and other factors that could cause the actual results, performance or
achievements to be materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. In addition to the risks and uncertainties
discussed in Item 1A of our most recent Annual Report on Form 10-K for the year ended December 31,
2006 and filed on March 14, 2007, in any prospectus supplement or any report or document
incorporated herein by reference, such factors include, among others, the following:
 Ø
    
    the effects of economic conditions, including in particular the economic condition of
the lodging industry, which can be particularly affected by international crisis, acts or
threats of terrorism and public health issues;Ø
    
    competition from providers of similar services and from alternative sources;Ø
    
    changes in demand for our products and services, programming costs, availability,
timeliness, and quality;Ø
    
    technological developments by competitors;Ø
    
    developmental costs, difficulties, and delays;Ø
    
    relationships with clients and property owners;Ø
    
    the availability of capital to finance growth;Ø
    
    the impact of government regulations;Ø
    
    potential effects of litigation;Ø
    
    risks of expansion into new markets;Ø
    
    risks related to the security of our data systems; andØ
    
    other factors detailed, from time to time, in our filings with the SEC.
 With respect to any proposed or completed acquisition, we are subject to risks that integration
costs will exceed expectations, that synergies we anticipate will not be realized, or will take
longer than anticipated to realize, that our management and management systems will encounter
difficulties in dealing with a bigger, more diversified enterprise, and that the financial results
we expect from the acquisition will not be realized.
   September 30, 2007
    
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##### Table of Contents



LodgeNet
Entertainment Corporation
    
    Form 10-Q
    Guest Pay Interactive Services.
  
    
    The number of rooms on our network.We can increase revenue over time by increasing the
number of rooms served by our interactive systems. With the acquisition of On Command, we
have expanded our room base to over 1.9 million rooms. Our ability to continue expanding our
room base is dependent on a number of factors, including the attractiveness of our technology,
service and support to hotels currently operating without an interactive television system and
newly constructed hotel properties.
    
    The variety of services offered at the hotel.Rooms equipped with our digital system
generate higher revenue than rooms equipped with our tape-based system primarily because they
offer a greater variety of services and content choices. We plan to continue to grow the
revenue we generate per average room by the installation of our digital system in all newly
contracted rooms and by converting selected tape-based rooms to our digital system in exchange
for long-term contract extensions.
    
    The popularity, timeliness and amount of content offered at the hotel.Our revenues vary
to a certain degree with the number, timeliness and popularity of movie content available for
viewing. Historically, a decrease in the availability of popular movie content has adversely
impacted revenue. Although not completely within our control, we seek to program and promote
the most popular available movie content and other content to maximize revenue and gross
profit.
    
    The price of the service purchased by the hotel guest.Generally, we control the prices
charged for our products and services and manage pricing in an effort to maximize revenue and
overall gross profit. We establish pricing based on such things as the demographics of the
property served, the popularity of the content and overall economic conditions. Our
technology enables us to measure popularity of our content and make decisions to best position
such content and optimize revenue from such content.
    
    The occupancy rate at the property.Our revenue also varies depending on hotel occupancy
rates, which are subject to a number of factors, including seasonality, general economic
conditions and world events, such as terrorist threats or public health issues. Occupancy
rates are typically higher during the second and third quarters due to seasonal travel
patterns. We target higher occupancy properties in diverse demographic and geographic
locations in an effort to mitigate occupancy-related risks.
 September 30, 2007
    
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##### Table of Contents



LodgeNet
Entertainment Corporation
    
    Form 10-Q
  Ø
    
    license fees paid to major motion picture studios, which are based on a percent of
guest-generated revenue, for non-exclusive distribution rights of recently released major
motion pictures;Ø
    
    commissions paid to our hotel customers, which are also based on a percent of
guest-generated revenue;Ø
    
    fixed monthly programming charges paid primarily to DIRECTV for satellite-delivered
basic and premium television programming;Ø
    
    HSIA customer support costs;Ø
    
    Internet connectivity costs;Ø
    
    license fees, which are based on a percent of guest-generated revenue, for television on
demand, music, music video, video games and sports programming; andØ
    
    one-time license fees paid for independent films, most of which are non-rated and
intended for mature audiences.
 Other Products and Services.
 High Speed Internet Access System Sales, Service and Support.
 Healthcare System Sales and Support.
 System Sales and Support to Travel Centers.
 Other.
 Ø
    
    revenue generated from the sale of our interactive television systems to hotels, along
with recurring support for interactive content, software maintenance and technical field
service for a fixed fee;Ø
    
    revenue from the sale of miscellaneous system equipment such as television remotes and
service parts and labor;Ø
    
    revenue from the sale of equipment to our international licensees;Ø
    
    revenue from the installation of master antenna wiring and related infrastructure;Ø
    
    revenue from the sale of guest connectivity centers;Ø
    
    revenue from the sale and installation of DirecTV satellite systems; andØ
    
    revenue generated from delivery of satellite basic and premium television programming
for which the hotel pays us a fixed monthly charge per room.
 September 30, 2007
    
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##### Table of Contents



LodgeNet
Entertainment Corporation
    
    Form 10-Q
 Key Metrics:
 Special Note Regarding the Use of Non-GAAP Financial Information
   Rooms Served
  September 30,2007
    
    2006Total rooms served (1)
    
    
    1,954,116
    
    
    
    1,051,046Total Guest Pay interactive rooms (2)
    
    
    1,852,124
    
    
    
    1,003,602Total HSIA rooms (3)
    
    
    215,581
    
    
    
    36,665Net new Guest Pay interactive rooms for the three months ended (4)
    
    
    7,673
    
    
    
    (3,011
    )Net new Guest Pay interactive rooms for the nine months ended (4)
    
    
    21,632
    
    
    
    1,673
 
 (1)
    
    Total rooms served include guest pay interactive rooms, rooms served by international licensees, properties receiving only basic and premium television services and properties receiving only HSIA services. The increase from 2006 is due to the addition of the On Command room base of approximately 830,000 rooms.(2)
    
    Guest Pay interactive rooms are equipped with our interactive television systems.(3)
    
    Represents rooms receiving high-speed Internet service included in total rooms served.(4)
    
    Amounts shown are net of de-installations during the period. The gross number of new rooms installed was 17,790 and 18,295 for the three months ended September 30, 2007 and 2006, respectively, and 56,077 and 48,164 for the nine months ended September 30, 2007 and 2006, respectively. September 30, 2007
    
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##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
 Digital Room Growth
  September 30,2007
    
    2006Net new digital rooms for the three months ended
    
    
    31,743
    
    
    
    24,240Net new digital rooms for the nine months ended
    
    
    91,995
    
    
    
    81,708Net new HDTV rooms for the three months ended (1)
    
    
    12,552
    
    
    
    5,351Net new HDTV rooms for the nine months ended (1)
    
    
    31,858
    
    
    
    11,325Total HDTV rooms installed (2)
    
    
    63,502
    
    
    
    13,880Total digital rooms installed
    
    
    1,443,303
    
    
    
    710,793Digital rooms as a percent of total Guest Pay interactive rooms
    
    
    77.9
    %
    
    
    70.8
    %
 
 (1)
    
    HDTV rooms are equipped with high-definition capabilities and are included in total digital
rooms.(2)
    
    HDTV rooms are included in the total digital rooms installed. Capital Investment Per Room
  Three Months Ended
    
    Years EndedSeptember 30,
    
    September 30,
    
    December 31,
    
    December 31,
    
    December 31,2007
    
    2006
    
    2006
    
    2005
    
    2004Average cost per
room 
new installation
    
    $
    399
    
    
    $
    356
    
    
    $
    354
    
    
    $
    340
    
    
    $
    364Average cost per
room 
conversion
    
    $
    310
    
    
    $
    235
    
    
    $
    252
    
    
    $
    262
    
    
    $
    284
  September 30, 2007
    
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##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
 Revenue Per Room
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Average monthly revenue per room:Movie revenue
    
    $
    17.43
    
    
    $
    18.56
    
    
    $
    17.00
    
    
    $
    17.56Other interactive service revenue
    
    
    6.27
    
    
    
    5.99
    
    
    
    5.96
    
    
    
    5.80Total per Guest Pay room
    
    $
    23.70
    
    
    $
    24.55
    
    
    $
    22.96
    
    
    $
    23.36
  Direct Costs
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Guest Pay direct costs per room
    
    $
    12.31
    
    
    $
    11.55
    
    
    $
    11.66
    
    
    $
    10.67Guest Pay direct costs as a percent of total revenue
    
    
    51.9
    %
    
    
    47.0
    %
    
    
    50.1
    %
    
    
    45.7
    %
  Operating Expenses
  Net Income (Loss)
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Net income (loss)
    
    $
    (11,411
    )
    
    $
    2,184
    
    
    $
    (45,470
    )
    
    $
    1,963
 September 30, 2007
    
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##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
 Free Cash Flow
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Cash provided by operating activities (1)
    
    $
    28,298
    
    
    $
    23,896
    
    
    $
    42,413
    
    
    $
    60,520Property and equipment additions
    
    
    (21,748
    )
    
    
    (11,668
    )
    
    
    (59,953
    )
    
    
    (36,587
    )6,550
    
    
    
    12,228
    
    
    
    (17,540
    )
    
    
    23,933Cash used for acquisition activities (2)
    
    
    (5,071
    )
    
    
    (120
    )
    
    
    (354,675
    )
    
    
    (453
    )$
    1,479
    
    
    $
    12,108
    
    
    $
    (372,215
    )
    
    $
    23,480
 
 (1)
    
    Cash used for operating activities for the nine months ended September 30, 2007 included $9.2
million of acquisition related working capital, $2.8 million for restructuring and integration
activities and $18.6 million for the redemption of our 9.5% Senior Notes.(2)
    
    Cash used for acquisition activities related to the acquisitions of On Command, THN and
StayOnline. Liquidity and Capital Resources
    September 30, 2007
    
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##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
  2007
    
    2006Actual consolidated total leverage ratio (1) (3)
    
    
    4.30
    
    
    
    2.93Maximum per covenant
    
    
    5.00
    
    
    
    3.75Actual consolidated interest coverage ratio (2) (3)
    
    
    4.07
    
    
    
    3.67Minimum per covenant
    
    
    2.25
    
    
    
    2.75
 
 (1)
    
    Our maximum consolidated leverage ratio is a function of total indebtedness divided by
operating income exclusive of depreciation and amortization and other miscellaneous
non-recurring items as defined by the covenant.(2)
    
    Our minimum consolidated interest coverage ratio is a function of operating income exclusive
of depreciation and amortization and other miscellaneous non-recurring items divided by
interest expense as defined by the covenant.(3)
    
    Maximum consolidated total leverage ratio and minimum consolidated interest coverage ratios
are not based on generally accepted accounting principles and are not presented as alternative
measures of operating performance or liquidity. They are presented here to demonstrate
compliance with the covenants in our Credit Facility, as noncompliance with such covenants
could have a material adverse effect on us.   Q1 2008
    
    Q3 2008
    
    Q1 2009
    
    Q3 2009Maximum consolidated total leverage ratio
    
    
    4.75
    
    
    
    4.50
    
    
    
    4.25
    
    
    
    4.00Minimum consolidated interest coverage
ratio
    
    
    2.50
    
    
    
    2.50
    
    
    
    2.75
    
    
    
    2.75
   September 30, 2007
    
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##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
   9.50% Senior Notes 3⁄4 pari passu
   Payments due by periodLess than
    
    
    2  3
    
    
    4  5
    
    
    OverTotal
    
    
    1 year
    
    
    years
    
    
    years
    
    
    5 yearsContractual obligations:Long-term debt(s)
    
    $
    626,114
    
    
    $
    7,387
    
    
    $
    13,845
    
    
    $
    12,684
    
    
    $
    592,198Interest on bank term loan (1)
    
    
    287,010
    
    
    
    45,453
    
    
    
    89,289
    
    
    
    87,465
    
    
    
    64,809Interest on derivative instruments
    
    
    (4,162
    )
    
    
    (642
    )
    
    
    (1,280
    )
    
    
    (1,280
    )
    
    
    (960
    )Other long-term obligationsAcquired intangible asset (2)
    
    
    2,500
    
    
    
    2,500
    
    
    
    
    
    
    
    
    
    
    
    Operating lease payments
    
    
    14,917
    
    
    
    5,377
    
    
    
    8,639
    
    
    
    901
    
    
    
    Purchase obligations (3)
    
    
    18,431
    
    
    
    18,431
    
    
    
    
    
    
    
    
    
    
    
    Nintendo minimum royalty (4)
    
    
    23,800
    
    
    
    4,200
    
    
    
    8,400
    
    
    
    8,400
    
    
    
    2,800Programming related minimum
royalties and commissions (5)
    
    
    8,808
    
    
    
    2,715
    
    
    
    5,007
    
    
    
    1,086
    
    
    
    Total contractual obligations
    
    $
    977,418
    
    
    $
    85,420
    
    
    $
    123,900
    
    
    $
    109,256
    
    
    $
    658,847
 Amount of commitment expiration per periodLess than
    
    
    2  3
    
    
    4  5
    
    
    OverTotal
    
    
    1 year
    
    
    years
    
    
    years
    
    
    5 yearsOther commercial commitments:Standby letters of credit
    
    $
    810
    
    
    $
    810
    
    
    $
    
    
    
    $
    
    
    
    $
    
 
 (1)
    
    Interest payments are estimates based on current LIBOR and scheduled amortization.(2)
    
    In July 2002, we acquired from Hilton Hotels Corporation the right to provide Internet on
television access and television on-demand programming services to participating hotels and
the right to independently pursue and further develop interactive television content
throughout our entire room base.(3)
    
    Consists of open purchase orders primarily for the procurement of system components.(4)
    
    Nintendo video games pursuant to a non-exclusive license agreement with Nintendo, which
expires in May 2013. Under the terms of the agreement, we pay a monthly royalty equal to a
percent of revenue generated from the sale of Nintendo video game services, subject to a
monthly minimum.(5)
    
    In connection with our programming related agreements, we may guarantee minimum royalties for
specific periods or by individual programming content. Seasonality
  September 30, 2007
    
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##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
 Discussion and Analysis of Results of Operations
Three Months Ended September 30, 2007 and 2006
 Revenue Analysis.
 2007
    
    
    2006Percent
    
    
    
    
    
    
    Percentof Total
    
    
    
    
    
    
    of TotalAmount
    
    
    Revenues
    
    
    Amount
    
    
    RevenuesRevenues:Guest Pay
    
    $
    131,387
    
    
    
    92.1
    %
    
    $
    73,861
    
    
    
    96.5
    %Other
    
    
    11,222
    
    
    
    7.9
    %
    
    
    2,649
    
    
    
    3.5
    %$
    142,609
    
    
    
    100.0
    %
    
    $
    76,510
    
    
    
    100.0
    %
  Three Months EndedSeptember 30,2007
    
    
    2006Average monthly revenue per room:Movie revenue
    
    $
    17.43
    
    
    $
    18.56Other interactive service revenue
    
    
    6.27
    
    
    
    5.99Total per Guest Pay room
    
    $
    23.70
    
    
    $
    24.55
   Direct Costs (exclusive of operating expenses and depreciation and amortization discussed
separately below).
   September 30, 2007
    
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##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
  2007
    
    2006
    
    ChangeDirect costs as a percent of revenue
(exclusive of operating expenses and depreciation
and amortization discussed separately below):
    
    
    53.2
    %
    
    
    47.1
    %
    
    
    6.1
    %Change drivers:HSIA related
    
    
    
    
    
    
    
    
    
    
    2.7
    %Programming-related costs
    
    
    
    
    
    
    
    
    
    
    2.2
    %Other direct costs
    
    
    
    
    
    
    
    
    
    
    1.2
    %6.1
    %
 Operating Expenses.
 2007
    
    
    2006Percent
    
    
    
    
    
    
    Percentof Total
    
    
    
    
    
    
    of TotalAmount
    
    
    Revenues
    
    
    Amount
    
    
    RevenuesOperating expenses:Guest Pay operations
    
    $
    15,430
    
    
    
    10.8
    %
    
    $
    8,902
    
    
    
    11.6
    %Selling, general and
administrative
    
    
    16,117
    
    
    
    11.3
    %
    
    
    7,069
    
    
    
    9.2
    %Depreciation and amortization
    
    
    31,020
    
    
    
    21.8
    %
    
    
    16,099
    
    
    
    21.0
    %Amortization of acquired
intangibles
    
    
    3,110
    
    
    
    2.2
    %
    
    
    
    
    
    
    0.0
    %Restructuring expense
    
    
    2,296
    
    
    
    1.6
    %
    
    
    
    
    
    
    0.0
    %Other operating income, net
    
    
    132
    
    
    
    0.1
    %
    
    
    
    
    
    
    0.0
    %Total operating expenses
    
    $
    68,105
    
    
    
    47.8
    %
    
    $
    32,070
    
    
    
    41.9
    %
     September 30, 2007
    
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##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
 Operating Loss.
 Interest Expense.
 Other (Expense) Income.
 Taxes.
 Net Loss.
 September 30, 2007
    
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##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
 Discussion and Analysis of Results of Operations
Nine Months Ended September 30, 2007 and 2006
 Revenue Analysis.
 2007
    
    
    2006Percent
    
    
    
    
    
    
    Percentof Total
    
    
    
    
    
    
    of TotalAmount
    
    
    Revenues
    
    
    Amount
    
    
    RevenuesRevenues:Guest Pay
    
    $
    325,936
    
    
    
    92.4
    %
    
    $
    211,218
    
    
    
    96.6
    %Other
    
    
    26,896
    
    
    
    7.6
    %
    
    
    7,356
    
    
    
    3.4
    %$
    352,832
    
    
    
    100.0
    %
    
    $
    218,574
    
    
    
    100.0
    %
  2007
    
    
    2006Average monthly revenue per room:Movie revenue
    
    $
    17.00
    
    
    $
    17.56Other interactive service revenue
    
    
    5.96
    
    
    
    5.80Total per Guest Pay room
    
    $
    22.96
    
    
    $
    23.36
   Direct Costs (exclusive of operating expenses and depreciation and amortization discussed
separately below).
   September 30, 2007
    
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##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
  2007
    
    2006
    
    ChangeDirect costs as a percent of revenue
(exclusive of operating expenses and depreciation
and amortization discussed separately below):
    
    
    51.4
    %
    
    
    45.7
    %
    
    
    5.7
    %Change drivers:HSIA related
    
    
    
    
    
    
    
    
    
    
    2.8
    %Programming-related costs
    
    
    
    
    
    
    
    
    
    
    1.9
    %Other direct costs
    
    
    
    
    
    
    
    
    
    
    1.0
    %5.7
    %
 Operating Expenses.
 2007
    
    
    2006Percent
    
    
    
    
    
    
    Percentof Total
    
    
    
    
    
    
    of TotalAmount
    
    
    Revenues
    
    
    Amount
    
    
    RevenuesOperating expenses:Guest Pay operations
    
    $
    39,262
    
    
    
    11.1
    %
    
    $
    26,752
    
    
    
    12.2
    %Selling, general and administrative
    
    
    40,181
    
    
    
    11.4
    %
    
    
    21,089
    
    
    
    9.6
    %Depreciation and amortization
    
    
    77,993
    
    
    
    22.1
    %
    
    
    49,882
    
    
    
    22.8
    %Amortization of acquired intangibles
    
    
    5,825
    
    
    
    1.7
    %
    
    
    
    
    
    
    0.0
    %Restructuring expense
    
    
    5,034
    
    
    
    1.4
    %
    
    
    
    
    
    
    0.0
    %Other operating income, net
    
    
    (763
    )
    
    
    (0.2
    )%
    
    
    (198
    )
    
    
    (0.1
    )%Total operating expenses
    
    $
    167,532
    
    
    
    47.5
    %
    
    $
    97,525
    
    
    
    44.6
    %
     September 30, 2007
    
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##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
   Operating Income.
 Interest Expense.
 Loss on Early Retirement of Debt.
 Other (Expense) Income.
 Taxes.
 Net Loss (Income).
 Critical Accounting Policies
  Revenue Recognition 
 
    
    Guest Pay Services.Our primary source of revenue is from providing in-room, interactive
television services to the lodging industry, which the hotel guest typically purchases on a
per-view, hourly or daily basis. These services include on-demand movies, on-demand games,
music and music video, Internet on television and television on-demand. We recognize revenue
from the sale of these Guest Pay services in the period in which such services are sold to the
hotel guest and when collection is reasonably assured. Persuasive evidence of a purchase
exists through a guest buy transaction recorded on our system. No future performance
obligations exist with respect to these types of services once they have been provided to the
hotel guest. The prices related to our products or services are fixed or determinable prior
to delivery of the products or services.
 September 30, 2007
    
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##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
 
    
    Free-to-Guest Services.We generate revenue from the sale of basic and premium television programming to
individual hotels. In contrast to Guest Pay Services, where the hotel guest is charged
directly for the service, we charge the hotel for our Free-to-Guest Services. We recognize
revenue from the sale of Free-to-Guest Services in the period in which such services are sold
and when collection is reasonably assured. We establish the prices charged to each hotel and
no future performance obligations exist on programming that has been provided to the hotel.
Persuasive evidence of an arrangement exists through our long-term contract with each hotel.
We also have advance billings from one month to three months for certain free-to-guest
programming services where the revenue is deferred and recognized in the periods that services
are provided.
    
    High Speed Internet Access System Sales.We provide high-speed Internet access through the
sale and installation of equipment. Revenue from the sale and installation of this equipment
is recognized when the equipment is installed. The delivery and installation of the equipment
are concurrent. In addition, this equipment, which can be acquired from other manufacturers
or retailers, has stand-alone value to the customer. The software used within these systems
can also be supplied by other vendors unrelated to us. Equipment prices are fixed and
determinable prior to delivery and are based on objective and reliable sales evidence from a
stand-alone basis.
    
    High Speed Internet Access Service and Support.We provide ongoing maintenance, service
and call center support services to hotel properties that have been installed by us and also
to hotel properties that have been installed by other providers. In addition, we provide, in
some cases, the hotel property with the portal to access the Internet. We receive monthly
service fees from such hotel properties for our maintenance services and Internet access. We
recognize the service fee ratably over the term of the contract. The prices for these
services are fixed and determinable prior to delivery of the service. The fair value of these
services is known due to objective and reliable evidence from contracts and stand-alone sales.
Under the service agreement, which includes maintenance and Internet access, we recognize
revenue ratably over the term of the maintenance and service contract, typically three years.
    
    Healthcare System Sales and Support.We provide our interactive television infrastructure
and content to the healthcare industry. We generate revenue from two sources: 1) the sale and
installation of system equipment and 2) support agreements with the facility to provide
software maintenance, programming and system maintenance for one year. Historically, revenue
from the sale and installation of our interactive system is recognized ratably over the
one-year maintenance period after the equipment is installed. The contracted system hardware,
installation and maintenance elements are not separable during this start-up phase due to
insufficient vendor specific objective evidence (VSOE). The package price of the interactive
system and related maintenance is fixed and determinable prior to delivery. Upon completion
of the initial year, the support arrangement, which includes interactive content, software
maintenance, and system services, is renewable and is recognized ratably over the term of the
related contract. The hospital is under no obligation to contract with us for the support
arrangement. They may contract with other providers and utilize the equipment and software
installed by us. Management expects VSOE to be established in the fourth quarter of 2007
based on market history and 100% renewal activity for maintenance services. Once VSOE has
been established, the entire selling price of the interactive system will be recognized upon
installation.
    
    System Sales and Support to Travel Centers.We also market and sell our interactive systems
to travel centers. We generate revenue from three sources: 1) the sale of the interactive
system, which includes equipment, operating software and a one-year parts and labor warranty
2) optional extended service and maintenance agreements, which include future software
upgrades as they become available and 3) programming. The interactive system price includes a
non-exclusive, non-transferable right to use the initial software package. Currently, revenue
from the sale of our interactive system and the extended service and maintenance agreement is
recognized ratably over the three-year maintenance period, which includes the original
one-year warranty and the two-year extension, after the equipment is delivered. The
contracted interactive system and extended service and maintenance elements are not separable
during this start-up phase due to insufficient vendor specific objective evidence (VSOE). The
prices of the interactive system and extended service and maintenance agreement are fixed and
determinable prior to delivery. Management expects VSOE to be established after at least
eighteen months of market history and meaningful renewal activity for maintenance services.
Once VSOE has been established, the entire selling price of the interactive system will be
recognized
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LodgeNet Entertainment Corporation
    
    Form 10-Q
 upon delivery.
Programming revenue from this arrangement is recognized on a recurring basis over the term of
the related contract.
    
    Hotel System Sales and Support.We also market and sell our Guest Pay interactive systems
to hotels, along with recurring support for interactive content, software maintenance and
technical field service for a fixed fee. Revenue from the sale and installation of the
interactive system, including the operating software, is deferred and recognized over the term
of the contract, generally five years, due to inseparable proprietary software elements. The
multiple elements are not separable because the proprietary software is required to operate
the system and we do not license or sell the software separately under this business model.
The interactive system prices are fixed and determinable prior to delivery. Revenue from this
arrangement, which includes equipment, operating software, interactive content, and
maintenance services, is recognized ratably over the term of the related contract.
    
    Master Antenna Television (MATV) Services.We generate revenues from the installation of
master antenna wiring and related infrastructure. Revenues are recognized upon completion of
the MATV installation and the prices of the services are fixed and determinable prior to
delivery. MATV equipment and services are not proprietary and can be supplied by other
vendors.
    
    Satellite System Sales.We also generate revenues from the sale and installation of DirecTV
satellite systems. Revenues are recognized upon installation of the satellite system and the
prices for these services are fixed and determinable prior to delivery. DirecTV equipment and
installation services are not proprietary and can be supplied by other vendors other than us.
    
    Other.We also generate revenue from the sale of miscellaneous system equipment such as
television remotes and service parts and labor. These sales are not made under multiple
element arrangements and we recognize the revenue when the equipment is delivered or service
(repair or installation) has been performed. No future performance obligation exists on an
equipment sale or on a repair service that has been provided.
 Allowance for Doubtful Accounts.
 Allowance for Excess or Obsolete System Components.
 Long-Lived Assets.
 Property and Equipment.
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LodgeNet Entertainment Corporation
    
    Form 10-Q
  YearsBuildings
    
    30Guest Pay systems:Installed system costs
    
    2  7Customer acquisition costs
    
    5  7System components
    
    5  7Software costs
    
    3  5Other equipment
    
    3  10
 Allowance for System Removal.
 Goodwill and Other Intangibles Assets. Goodwill and Other Intangible Assets .
  YearsHotel contracts and relationships
    
    10  20Tradenames
    
    15Acquired technologies and patents
    
    5Content agreements and relationships
    
    4
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LodgeNet Entertainment Corporation
    
    Form 10-Q
 Recent Accounting Developments
 Fair Value Measurements
 The Fair Value Option for Financial
Assets and Financial Liabilities  Including an Amendment of FASB Statement No. 115.
 
 Item 3  Quantitative and Qualitative Disclosures About Market Risk
  Interest.
 Foreign Currency Transactions.
 
 Item 4  Controls and Procedures
 Evaluation of Disclosure Controls and Procedures.
 Changes in Internal Control over Financial Reporting.
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LodgeNet Entertainment Corporation
    
    Form 10-Q
 
 Part II  Other Information
 
 Item 1  Legal Proceedings
  
 Item 1ARisk Factors
 No material change.
 
 Item 2  Unregistered Sales of Equity 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
 Not applicable.
 
 Item 5  Other Information
 Not applicable.
 
 Item 6  Exhibits
 31.1
    
    Rule 13a-14(a)/15(d)-14(a) Certification of Chief Financial Officer31.2
    
    Rule 13a-14(a)/15(d)-14(a) Certification of Chief Executive Officer32
    
    Section 1350 Certifications
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LodgeNet Entertainment Corporation
    
    Form 10-Q
 
 LodgeNet Entertainment Corporation and Subsidiaries
 
 Signatures
  LodgeNet Entertainment Corporation(Registrant)Date:  November 7, 2007
    / s /  Scott C. PetersenScott C. PetersenPresident, Chief Executive Officer and
Chairman of the Board of Directors
(Principal Executive Officer)Date:  November 7, 2007
    / s /  Gary H. RitondaroGary H. RitondaroSenior Vice President, Chief Financial Officer
(Principal Financial & Accounting Officer) September 30, 2007
    
    Page 36