##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the Fiscal Year Ended December 31, 2007
 or
 o
    
    TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
 Commission File Number: 0-22334
 LodgeNet Interactive Corporation
  Delaware
    
    46-0371161(State of Incorporation)
    
    (IRS Employer Identification Number)
 3900 West Innovation Street, Sioux Falls, South Dakota 57107
 (605) 988  1000  (Registrants telephone number, including area code)
 Common Stock, $.01 par value.
 None.
 o þ
 o þ
 þ o
 þ
  Large accelerated filer: o
    
    Accelerated filer: þ
    
    Non-accelerated filer: o
    
    Smaller reporting company: o(Do not check if a smaller reporting company)
 o þ
 $680,940,197




---



##### Table of Contents



Table of Contents
 Item 1  Business
    
    
    1Overview
    
    
    1Overview of Markets Served
    
    
    3Acquisition of StayOnline, Inc.
    
    
    4Acquisition of Ascent Entertainment Group, Inc.
    
    
    4Hospitality Market and Customers
    
    
    5Hospitality Market Services and Products
    
    
    5Healthcare and Adjacent Markets
    
    
    9Corporate Operations Utilized Across Multiple Markets
    
    
    10Competition
    
    
    11Business Strategy
    
    
    13Regulation
    
    
    14Employees
    
    
    15Corporate Information and Web Site Access to SEC Filings
    
    
    15Item 1A  Risk Factors
    
    
    16Item 1B  Unresolved Staff Comments
    
    
    22Item 2  Properties
    
    
    22Item 3 - Legal Proceedings
    
    
    22Item 4 - Submission of Matters to a Vote of Security Holders
    
    
    22Item 5 - Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    23Issuer Purchases of Equity Securities
    
    
    23Dividends
    
    
    23Stockholder Rights Plan
    
    
    23Item 6 - Selected Financial Data
    
    
    26Item 7 - Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    28Executive Overview
    
    
    28Core Businesses
    
    
    30Liquidity and Capital Resources
    
    
    36Seasonality
    
    
    38Results of Operations  Years Ended December 31, 2007 and 2006
    
    
    39Results of Operations  Years Ended December 31, 2006 and 2005
    
    
    43Critical Accounting Policies
    
    
    44Recent Accounting Developments
    
    
    44Item 7A  Quantitative and Qualitative Disclosures About Market Risk
    
    
    45Item 8 - Financial Statements and Supplementary Data
    
    
    45Item 9 - Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    45Item 9A  Controls and Procedures
    
    
    46Item 9B  Other Information
    
    
    46Item 10 - Directors and Executive Officers of the Registrant
    
    
    47


LodgeNet Interactive Corporation
    
    
    
    Form 10-K 2007




---



##### Table of Contents



Item 11 - Executive Compensation
    
    
    47Item 12 - Security Ownership of Certain Beneficial Owners and Management
    
    
    47Item 13 - Certain Relationships and Related Transactions
    
    
    47Item 14 - Principal Accountant Fees and Services
    
    
    47Item 15   Exhibits and Financial Statement Schedules
    
    
    48Rights AgreementAmended and Restated Employment AgreementExecutive Employment Agreement - David M. BankersExecutive Employment Agreement - James G. NaroExecutive Employment Agreement - Steven R. PofahlExecutive Employment Agreement - Gary H. RitondaroExecutive Employment Agreement - Derek S. WhiteExecutive Employment Agreement - Scott E. YoungStatement of Computation of RatiosSubsidiariesConsent of Independent Registered Public Accounting FirmCertificationCertificationCertification
   ®


LodgeNet Interactive Corporation
    
    
    
    Form 10-K 2007




---



##### Table of Contents



PART I
 
 Item 1  Business
 
 Overview
     Ø
    
    Increase the recurring revenues we earn from our hospitality business by:
 o
    
    Expanding the size of our hotel customer base;o
    
    Selling more content and services by increasing the number of:
 §
    
    High-definition interactive television rooms;§
    
    Basic and premium television programming rooms;§
    
    Broadband Internet access rooms;§
    
    Advertising media services rooms;
 Ø
    
    Increase the sale of systems and professional technical services to our hotel customers.Ø
    
    Continue to diversify our business into healthcare and other adjacent markets; andØ
    
    Generate increasing levels of cash flow.


LodgeNet Interactive Corporation
    
    1
    
    Form 10-K 2007




---



##### Table of Contents



Year Ended December 31,2007
    
    2006
    
    2005
    
    2004
    
    2003Selected Operations Data:Total rooms served (1) (5)
    
    
    1,962,090
    
    
    
    1,052,025
    
    
    
    1,053,806
    
    
    
    1,034,605
    
    
    
    994,127Total Guest Pay interactive rooms (2) (5)
    
    
    1,860,720
    
    
    
    1,004,937
    
    
    
    1,001,929
    
    
    
    974,798
    
    
    
    924,643Total Digital rooms (3)
    
    
    1,471,608
    
    
    
    733,362
    
    
    
    629,085
    
    
    
    508,979
    
    
    
    385,426Total Cable Programming (FTG) Rooms (4)
    
    
    1,068,256
    
    
    
    535,777
    
    
    
    536,984
    
    
    
    525,436
    
    
    
    500,170Total Broadband Internet Rooms (6)
    
    
    218,619
    
    
    
    37,686
    
    
    
    
    
    
    
    
    
    
    
    Total HD rooms (7)
    
    
    84,327
    
    
    
    23,502
    
    
    
    259
    
    
    
    
    
    
    
    Total revenues
    
    $
    485,588
    
    
    $
    288,213
    
    
    $
    275,771
    
    
    $
    266,441
    
    
    $
    250,149Operating income
    
    
    (4,237
    )
    
    
    26,932
    
    
    
    22,693
    
    
    
    12,970
    
    
    
    6,500Depreciation and amortization (8)
    
    
    116,378
    
    
    
    66,311
    
    
    
    69,862
    
    
    
    77,045
    
    
    
    78,459Share-based compensation
    
    
    1,737
    
    
    
    1,677
    
    
    
    288
    
    
    
    198
    
    
    
    Net loss (income)
    
    $
    (65,172
    )
    
    $
    1,841
    
    
    $
    (6,959
    )
    
    $
    (20,781
    )
    
    $
    (35,052
    )
 
 (1)
    
    Total rooms served include interactive television rooms, rooms served by international
licensees, and properties receiving only basic and premium television services and properties
receiving only broadband services.(2)
    
    Interactive rooms are equipped with our interactive television systems.(3)
    
    Digital rooms are equipped with an interactive digital system where on-demand movies,
television on-demand programming, and music content are stored in a digital format and are
updated and delivered via satellite to our systems within each respective hotel. Digital
rooms are included in total Guest Pay interactive rooms and represent 79% of the Guest Pay
interactive rooms served as of December 31, 2007.(4)
    
    Cable programming rooms receiving basic or premium television programming.(5)
    
    Total room count for 2007 was not affected as a result of Hurricane Katrina but prior years
were reduced by 4,053 rooms in 2006 and 8,195 rooms in 2005.(6)
    
    Represents rooms receiving broadband Internet service and are included in total rooms served.(7)
    
    HD rooms are equipped with high-definition capabilities and are included in total rooms
served and in total digital rooms.(8)
    
    Includes amortization of acquired intangibles.


LodgeNet Interactive Corporation
    
    2
    
    Form 10-K 2007




---



##### Table of Contents











Overview of Markets Served














Ø
    
    on-demand movies;Ø
    
    television on-demand programming;Ø

    
    on-demand digital music programming;Ø

    
    subscription sports programming;Ø

    
    Internet on television;Ø

    
    access to Internet-sourced content;Ø

    
    on-screen controls that allow the guest more viewing control and flexibility; andØ

    
    improved guest marketing and merchandising capabilities.




LodgeNet Interactive Corporation
    
    3
    
    Form 10-K 2007




---



##### Table of Contents














Acquisition of StayOnline, Inc.







Acquisition of Ascent Entertainment Group, Inc.




LodgeNet Interactive Corporation
    
    4
    
    Form 10-K 2007




---



##### Table of Contents



Hospitality Market and Customers
 U.S.,Canadian and Mexican Market
 Diversified Customer Base.
 International Hotel Markets.
 
 Hospitality Market Services and Products
 Interactive Television Programming and Services.
  LodgeNet Interactive Corporation
    
    5
    
    Form 10-K 2007




---



##### Table of Contents



TM
 SM SM SM
  Ø

    
    the number of rooms equipped with our interactive television system;Ø

    
    the range of interactive television content and services offered at each hotel;Ø

    
    the popularity, amount and timeliness of content offered, as well as the popularity and
availability of other entertainment alternatives;Ø

    
    the profile of the guest at each property;Ø

    
    the price of the service purchased by the hotel guest; andØ

    
    the occupancy rate at the property.
  Satellite-Delivered Cable Television Programming
  LodgeNet Interactive Corporation
    
    6
    
    Form 10-K 2007




---



##### Table of Contents





Broadband Internet Access System Sales, Service and Support.


Other Services and System Sales.


Contracts.




LodgeNet Interactive Corporation
    
    7
    
    Form 10-K 2007




---



##### Table of Contents



Programming. SM
 Technology, Product Development, and Patents.
   LodgeNet Interactive Corporation
    
    8
    
    Form 10-K 2007




---



##### Table of Contents



Healthcare and Adjacent Markets
     Programming
 LodgeNet Interactive Corporation
    
    9
    
    Form 10-K 2007




---



##### Table of Contents



Technology and Product Development.
 
 Corporate Operations Utilized Across Multiple Markets
 Trademarks.
 Sales and Marketing.
   Installation Operations.
 Service Operations.
 LodgeNet Interactive Corporation
    
    10
    
    Form 10-K 2007




---



##### Table of Contents



Component Suppliers.
 
 Competition
  Ø

    
    other interactive television service providers such as Hospitality Networks, Inc. (a
wholly-owned subsidiary of Cox Communications, Inc.), NXTV, Kool Connect, Oxford SVI,
Guest-Tek and other international providers, such as Quadriga, MagiNet and Acentic;Ø

    
    cable, television and broadband service providers, such as Charter Communications,
Comcast, Cox Cable and Time Warner;Ø

    
    direct broadcast satellite companies such as DIRECTV and EchoStar Communications;Ø

    
    television networks and programmers such as ABC, NBC, CBS, FOX, HBO, and Showtime;Ø

    
    Internet service providers and high-speed portals such as but not limited to iBAHN,
Wayport, Guest-Tek, Time Warner, Yahoo, Google and T-Mobile;Ø

    
    companies offering web sites that provide on-demand movies;Ø
    
    rental companies that provide videocassettes and DVDs that can be viewed in properly
equipped hotel rooms and on other portable viewing devices; andØ
    
    hotels that offer in-room laptops with Internet access or other types of Internet
access systems.
   LodgeNet Interactive Corporation
    
    11
    
    Form 10-K 2007




---



##### Table of Contents



Ø
    
    the features and benefits of the service offering and Internet systems;Ø
    
    the quality of the vendors technical support and maintenance services;Ø
    
    the financial terms and conditions of the proposed contract, including commissions to the hotel; andØ
    
    the ability to complete system installation in a timely and efficient manner.
  Ø
    
    our history of innovation;Ø
    
    our diverse client base;Ø
    
    our proven ability to retain existing customers and secure new ones;Ø
    
    our technically-innovative digital platform;Ø
    
    our high definition platform;Ø
    
    our flexible interactive television system;Ø
    
    our content management system; andØ
    
    our field service group, which is the largest in the industry providing hotels with
on-the-spot attention to any technical issues that they may encounter.
      LodgeNet Interactive Corporation
    
    12
    
    Form 10-K 2007




---



##### Table of Contents



Business Strategy
 Expand our recurring revenues from the hospitality market.
 o
    
    We believe that growth opportunities are available from (i) supply growth (new
construction) within the hospitality market and (ii) rooms currently served by other
service providers when their contracts expire. We also believe that the features and
benefits of our interactive high-definition television platforms, the capabilities of our
proprietary content management system, plus the quality of our nationwide service network
provide us with a competitive product and service offering that will enable us to continue
to secure long-term contracts within the US, Canada and Mexico hospitality markets.
Internationally, we intend to continue to expand into selected countries in Asia, Latin
America, South America, Europe and other regions through licensing agreements with entities
in those areas or, in certain circumstances, through direct agreements with customers. We
may also consider select acquisitions to further our network expansion objectives.o
    
    We believe that incremental revenue growth opportunities are available within our
existing customer base of 1.9 million hotel rooms from (i) expanding the percentage of
rooms having high-definition interactive televisions because guests historically have
purchased more entertainment from us in rooms with this platform, (ii) increasing the
percentage of hotels that purchase basic and premium cable television programming packages,
which growth was highly correlated to the expansion of our HD platform in 2007, and (iii)
expanding the percentage of hotels that contract for our broadband Internet access
help-desk and technical support services based on the strength of our nationwide service
organization and the benefits of having a single source provider. As of December 31, 2007,
only 5% of our rooms were installed with an HD system, only 57% of the hotels served were
purchasing cable television programming from us, and only 12% of the hotels served were
taking broadband Internet services from us.o
    
    We also believe that growth opportunities are available from an expansion of our
revenue we earn from advertising media solutions. With the acquisition of The Hotel
Networks (THN) in 2007, we began delivering advertising-supported media into select
segments of our interactive television room base, from which we earn revenue from the sale
of television commercials or other marketing-based programs. The demographic and
professional profile of the traveler within our room base tends to have characteristics
that we believe may be attractive to consumer marketing organizations. As of December 31,
2007, THN was delivering this programming into only 357,000 rooms of our total 1.9 million
room base.
 Increase the sale of system, services and solutions to the hospitality market.
 LodgeNet Interactive Corporation
    
    13
    
    Form 10-K 2007




---



##### Table of Contents



Diversify our business into healthcare and other adjacent markets.
  Generate increasing levels of cash flow
 
 Regulation
 Cable Television Regulation
  Healthcare Regulation.
 LodgeNet Interactive Corporation
    
    14
    
    Form 10-K 2007




---



##### Table of Contents



Broadband Internet Access.
  
 Employees
  
 Corporate Information and Web Site Access to SEC Filings
   LodgeNet Interactive Corporation
    
    15
    
    Form 10-K 2007




---



##### Table of Contents



Item 1A  Risk Factors
 We experienced substantial net losses in 2007. If we are not profitable in the long-term or do not
generate sustained levels of net free cash flow a non-GAAP measure which we define as cash
provided by operating activities less cash used for investing activities, it could have a harmful
effect on our results of operations, business and the value of our common stock.
 Acquisitions of companies or technologies may be difficult to integrate, disrupt our business,
dilute stockholder value or divert management attention, and could result in significant
incremental expenses.
 We operate in a very competitive business environment and competition could reduce our revenue and
our cash flow.
 Our business could be adversely impacted by conditions affecting the lodging industrys
performance.
 LodgeNet Interactive Corporation
    
    16
    
    Form 10-K 2007




---



##### Table of Contents



New technologies, including the expansion of digital distribution of content in our markets, may
increase competition and result in a decrease in our revenue.
 If we fail to develop new products and product enhancements, our business and prospects could be
harmed.
 Ø
    
    unanticipated delays;Ø
    
    access to capital;Ø
    
    budget overruns; andØ
    
    technical problems.
   We may have to incur significant capital expenditures in order to adapt to technological change.
 Ø
    
    rapid and significant technological change, including continuing developments in
technology that do not presently have widely accepted standards; andØ
    
    frequent introductions of new services and alternative technologies, including new
technologies for providing high-definition television and providing Internet content.
 LodgeNet Interactive Corporation
    
    17
    
    Form 10-K 2007




---



##### Table of Contents



Our business could be harmed if we are unable to protect our proprietary technology.
 If our products or services employ technology that infringes the proprietary rights of others, we
may be subject to infringement claims, forced to pay certain fees to license technology or be
required to stop selling our products.
 Diversification activities may not be successful and may divert management attention from our core
business.
 We are dependent on others for our programming content and increases in our costs or license fees
to obtain such programming could reduce our cash flow and profitability.
 LodgeNet Interactive Corporation
    
    18
    
    Form 10-K 2007




---



##### Table of Contents



Our revenue may be adversely affected by a reduction or elimination of the time between our receipt
of movies and the movies being made available to the home market.
 The lack of quality programming or a change in available content could reduce our profitability and
cash flows.
 Federal, state, local and foreign legislation and regulation may negatively impact our business and
growth.
 If our hotel customers become dissatisfied with our service, they may elect not to renew or to
terminate service agreements with us and, in that event, our ability to maintain or grow our
revenue would be adversely affected.
 LodgeNet Interactive Corporation
    
    19
    
    Form 10-K 2007




---



##### Table of Contents



Our revenue is affected by seasonality and dependent on other factors beyond our control including
a recession in the US.
 Opportunities to expand our installed customer room base may be limited, so we may be unable to
grow our revenue.
 We may not have adequate capital resources to carry out our business plan, which could have a
harmful effect on our business and prospects.
 Ø
    
    we may be required to delay or be unable to make the capital expenditures necessary to
expand or maintain our customer base or to continue to deploy our digital systems and other
technological advances throughout our installed room base;Ø
    
    we may have insufficient capital to make payments on our outstanding indebtedness as
they become due;Ø
    
    we may have to delay or limit our product development activities; andØ
    
    we may be required to seek additional capital through additional equity or debt
financings, asset sales, collaborative arrangements or other sources, which may not be
available to us on a timely basis, if at all, or may not be available on acceptable terms.
 We have substantial debt and significant interest payment requirements related to our acquisitions.
 Ø
    
    we may have difficulty borrowing money for working capital, capital expenditures,
acquisitions or other purposes;Ø
    
    we will need to use a large portion of our cash flow to pay interest on borrowings under
our Credit Facility and other debt instruments, which will reduce the amount of money
available to fund operations, capital expenditures and other activities;
 LodgeNet Interactive Corporation
    
    20
    
    Form 10-K 2007




---



##### Table of Contents



Ø
    
    some of our debt has a variable rate of interest, which exposes us to the risk of increased interest rates;Ø
    
    we are more vulnerable to economic downturns and adverse development in our business;Ø
    
    we may not have the flexibility to respond to changing business and economic conditions,
including increased competition and demand for new products and services; andØ
    
    our various debt instruments contain cross-default provisions; if we default under any
of these instruments, such default could constitute a default under our other debt
instruments and may result in the acceleration of such indebtedness.
 Covenant restrictions under our current Credit Facility may limit our ability to operate our
business.
 Ø
    
    borrow money;Ø
    
    pay dividends;Ø
    
    purchase or redeem stock;Ø
    
    repay subordinated indebtedness before its stated maturity date;Ø
    
    make investments and extend credit;Ø
    
    engage in transactions with affiliates;Ø
    
    engage in sale-leaseback transactions;Ø
    
    consummate certain asset sales;Ø
    
    effect a consolidation or merger, or sell, transfer, lease or otherwise dispose of all
or substantially all of our assets; andØ
    
    create liens on our assets.
   Our data systems could fail or their security could be compromised.
 LodgeNet Interactive Corporation
    
    21
    
    Form 10-K 2007




---



##### Table of Contents



The price of our common stock may be volatile.
 
 Item 1B  Unresolved Staff Comments
  
 Item 2  Properties
   
 Item 3  Legal Proceedings
   
 Item 4  Submission of Matters to a Vote of Security Holders
  LodgeNet Interactive Corporation
    
    22
    
    Form 10-K 2007




---



##### Table of Contents



PART II
 
 Item 5  Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
   Quarter Ended
    
    High
    
    
    Low
    
    
    Quarter Ended
    
    High
    
    
    LowMarch 31, 2007
    
    
    30.72
    
    
    
    24.26
    
    
    March 31, 2006
    
    
    15.70
    
    
    
    13.05June 30, 2007
    
    
    36.01
    
    
    
    30.48
    
    
    June 30, 2006
    
    
    19.33
    
    
    
    15.41September 30, 2007
    
    
    34.56
    
    
    
    23.67
    
    
    September 30, 2006
    
    
    19.41
    
    
    
    17.80December 31, 2007
    
    
    28.24
    
    
    
    17.44
    
    
    December 31, 2006
    
    
    26.75
    
    
    
    17.63
   
 Issuer Purchases of Equity Securities
 Total Number of
    
    Approximate DollarShares Purchased as
    
    Value of Shares thatTotal Number
    
    
    
    
    
    Part of Publicly
    
    May Yet Beof Shares
    
    Average Price
    
    Announced Plans or
    
    Purchased Under thePeriod
    
    Purchased
    
    Paid per Share
    
    Programs
    
    Plans or Programs12/1/2007 - 12/31/07
    
    
    60,000
    
    
    $
    17.91
    
    
    
    60,000
    
    
    $
    13,924
  
 Dividends
  
 Stockholder Rights Plan
   LodgeNet Interactive Corporation
    
    23
    
    Form 10-K 2007




---



##### Table of Contents



LodgeNet Interactive Corporation
    
    24
    
    Form 10-K 2007




---



##### Table of Contents



Ø
    
    For all shares of the Company;Ø
    
    At the same price for all shares acquired and such price must be greater than the
highest reported market price per share during the prior 2 years and represents a premium
above the average closing prices for the previous five trading days;Ø
    
    Conditioned on tender of at least 90% of the shares; andØ
    
    Paid with at least 80% cash consideration, and any share consideration must be limited
to publicly traded securities listed on the NASDAQ or NYSE.
  LodgeNet Interactive Corporation
    
    25
    
    Form 10-K 2007




---



##### Table of Contents



Item 6  Selected Financial Data
  Year Ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Statement of Operations Data:Revenues:Guest Pay
    
    $
    446,235
    
    
    $
    277,433
    
    
    $
    267,754
    
    
    $
    258,571
    
    
    $
    243,732Other
    
    
    39,353
    
    
    
    10,780
    
    
    
    8,017
    
    
    
    7,870
    
    
    
    6,417Total revenues
    
    
    485,588
    
    
    
    288,213
    
    
    
    275,771
    
    
    
    266,441
    
    
    
    250,149Direct costs (exclusive of operating expenses and
depreciation and amortization)
    
    
    253,163
    
    
    
    131,953
    
    
    
    123,228
    
    
    
    119,193
    
    
    
    111,947Operating expenses (1)
    
    
    236,662
    
    
    
    129,328
    
    
    
    129,850
    
    
    
    134,278
    
    
    
    131,702Income from operations
    
    
    (4,237
    )
    
    
    26,932
    
    
    
    22,693
    
    
    
    12,970
    
    
    
    6,500Investment gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250Write-off of debt issuance costs (2)
    
    
    (22,195
    )
    
    
    (227
    )
    
    
    (272
    )
    
    
    (810
    )
    
    
    (7,061
    )Interest expense
    
    
    (40,950
    )
    
    
    (25,730
    )
    
    
    (29,351
    )
    
    
    (31,891
    )
    
    
    (34,239
    )Other (expense) income, net
    
    
    1,527
    
    
    
    1,165
    
    
    
    421
    
    
    
    (629
    )
    
    
    (43
    )Income (loss) before income taxes
    
    
    (65,855
    )
    
    
    2,140
    
    
    
    (6,509
    )
    
    
    (20,360
    )
    
    
    (34,593
    )Benefit (provision) for income taxes (3)
    
    
    683
    
    
    
    (299
    )
    
    
    (450
    )
    
    
    (421
    )
    
    
    (459
    )Net (loss) income
    
    $
    (65,172
    )
    
    $
    1,841
    
    
    $
    (6,959
    )
    
    $
    (20,781
    )
    
    $
    (35,052
    )Net (loss) income per common share (basic and diluted)
    
    $
    (3.00
    )
    
    $
    0.10
    
    
    $
    (0.39
    )
    
    $
    (1.36
    )
    
    $
    (2.80
    )Other Data:Capital expenditures (4)
    
    $
    79,097
    
    
    $
    48,268
    
    
    $
    51,855
    
    
    $
    54,917
    
    
    $
    52,868Average cost per room  new installation
    
    $
    399
    
    
    $
    354
    
    
    $
    340
    
    
    $
    364
    
    
    $
    405Depreciation and amortization (5)
    
    $
    116,378
    
    
    $
    66,311
    
    
    $
    69,862
    
    
    $
    77,045
    
    
    $
    78,459Restructuring costs / expenses
    
    $
    11,158
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Share-based compensation
    
    $
    1,737
    
    
    $
    1,677
    
    
    $
    288
    
    
    $
    198
    
    
    $
    Non-Financial Operating Data:Total rooms served (6) (9)
    
    
    1,962,090
    
    
    
    1,052,025
    
    
    
    1,053,806
    
    
    
    1,034,605
    
    
    
    994,127Guest Pay interactive rooms served (7) (9)
    
    
    1,860,720
    
    
    
    1,004,937
    
    
    
    1,001,929
    
    
    
    974,798
    
    
    
    924,643Rooms with Digital services (8)
    
    
    1,471,608
    
    
    
    733,362
    
    
    
    629,085
    
    
    
    508,979
    
    
    
    385,426Rooms with HD services (10)
    
    
    84,327
    
    
    
    23,502
    
    
    
    259
    
    
    
    
    
    
    
    Cable Programming (FTG) Rooms (11)
    
    
    1,068,256
    
    
    
    535,777
    
    
    
    536,984
    
    
    
    525,436
    
    
    
    500,170Total Broadband Internet Rooms (12)
    
    
    218,619
    
    
    
    37,686
    
    
    
    
    
    
    
    
    
    
    
    Average monthly revenue per Guest Pay room:Movie revenue
    
    $
    16.62
    
    
    $
    17.27
    
    
    $
    17.00
    
    
    $
    17.39
    
    
    $
    17.55Other interactive service revenue
    
    
    5.97
    
    
    
    5.75
    
    
    
    5.53
    
    
    
    5.47
    
    
    
    5.04Total
    
    $
    22.59
    
    
    $
    23.02
    
    
    $
    22.53
    
    
    $
    22.86
    
    
    $
    22.59
 LodgeNet Interactive Corporation
    
    26
    
    Form 10-K 2007




---



##### Table of Contents



As of December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Balance Sheet Data:Cash and cash equivalents
    
    $
    25,569
    
    
    $
    22,795
    
    
    $
    20,742
    
    
    $
    24,995
    
    
    $
    2,772Total assets
    
    $
    693,823
    
    
    $
    263,209
    
    
    $
    263,072
    
    
    $
    283,036
    
    
    $
    283,268Total debt
    
    $
    624,594
    
    
    $
    270,169
    
    
    $
    292,000
    
    
    $
    312,291
    
    
    $
    368,248Total stockholders deficiency
    
    $
    (48,242
    )
    
    $
    (58,122
    )
    
    $
    (70,233
    )
    
    $
    (72,118
    )
    
    $
    (129,002
    )
 Year Ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Statement of Cash Flows Data:Cash provided by operating activities
    
    $
    58,869
    
    
    $
    72,301
    
    
    $
    64,285
    
    
    $
    60,614
    
    
    $
    48,563Property and equipment additions
    
    
    (79,097
    )
    
    
    (48,268
    )
    
    
    (51,855
    )
    
    
    (54,917
    )
    
    
    (52,868
    )(20,228
    )
    
    
    24,033
    
    
    
    12,430
    
    
    
    5,697
    
    
    
    (4,305
    )Cash used for acquisition and other activities, net
    
    
    (354,177
    )
    
    
    (2,336
    )
    
    
    400
    
    
    
    
    
    
    
    250$
    (374,405
    )
    
    $
    21,697
    
    
    $
    12,830
    
    
    $
    6,264
    
    
    $
    (5,055
    )
 
 (1)
    
    Operating expenses for 2007 included integration expenses of $5.6 million and restructuring
expenses of $11.2 million. Integration expenses are defined as incremental costs associated
with activities to combine or merge an operation that is not being closed, exited, or disposed
of. Since we will realize certain future benefits, these costs are accounted for within our
Guest Pay operating expenses and SG&A expenses as components of continuing operations.
 (2)
    
    During 2007, we redeemed 199,990 notes of our 9.50% Senior Notes due June 15, 2013, and as a
result of the early redemption we recognized a loss of $22.2 million, representing call and
tender premiums and related expenses including the write off unamortized debt issuance costs.
 (3)
    
    The benefit (provision) for income taxes consists of current federal income, state franchise
taxes, and foreign taxes.
 (4)
    
    Presented as cash used for property and equipment additions as reported in the Statement of
Cash Flows.
 (5)
    
    Includes amortization of acquired intangibles.
 (6)
    
    Total rooms served include guest pay interactive rooms, rooms served by international
licensees, and properties receiving only basic and premium televisions services.
 (7)
    
    Interactive rooms are equipped with our interactive television systems.
 (8)
    
    Digital rooms are equipped with an interactive digital system where on-demand movies,
television on-demand programming, and music content are stored in a digital format and are
updated and delivered via satellite to our systems within respective hotels. Digital rooms
are included in total Interactive rooms and represent 79% of the Interactive rooms served as
of December 31, 2007.
 (9)
    
    Total room count for 2007 was not affected as a result of Hurricane Katrina but prior years
were reduced by 4,053 rooms in 2006 and 8,195 rooms in 2005.
 (10)
    
    HD rooms are equipped with high-definition capabilities.
 (11)
    
    Cable programming rooms are equipped to provide satellite-delivered basic and premium
television programming and are included in total rooms served.
 (12)
    
    Represents rooms receiving broadband Internet service included in total rooms served.
 LodgeNet Interactive Corporation
    
    27
    
    Form 10-K 2007




---



##### Table of Contents



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,
2007 and filed on March 14, 2008, 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.
 
 Item 7  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.
 
 Executive Overview
  LodgeNet Interactive Corporation
    
    28
    
    Form 10-K 2007




---



##### Table of Contents



LodgeNet Interactive Corporation
    
    29
    
    Form 10-K 2007




---



##### Table of Contents



Core Businesses
 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 television systems. Our ability to expand 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,
newly constructed hotel properties, and hotels with expiring contracts that may not meet our
return on investment requirement and may select programming from a local cable provider.
 
    
    The variety of services offered at the hotel.Rooms equipped with our high-definition or
standard 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 HDTV
system in all newly contracted rooms and by converting selected rooms to our HDTV 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 general economic conditions. Our
technology enables us to measure the 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 for the properties we serve 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.
 LodgeNet Interactive Corporation
    
    30
    
    Form 10-K 2007




---



##### Table of Contents



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
    
    broadband Internet connectivity costs and call center support;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.
  Ø
    
    revenue generated from our advertising and media services;Ø
    
    revenue generated from the sale of our Guest Pay interactive systems to healthcare
facilities, along with recurring support for interactive content, software maintenance and
technical field service for a fixed fee;Ø
    
    revenue generated from the sale of our Guest Pay interactive 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 multi-service
connection equipment, television remotes and service parts and labor;Ø
    
    revenues from the sale of equipment to our international licensees;Ø
    
    revenues from the installation of master antenna low voltage wiring and related infrastructure;Ø
    
    revenues 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.
 LodgeNet Interactive Corporation
    
    31
    
    Form 10-K 2007




---



##### Table of Contents



Key Metrics:
 Special Note Regarding the Use of Non-GAAP Financial Information
   2007
    
    
    2006
    
    
    2005Net free cash flow
    
    $
    (374,405
    )
    
    $
    21,697
    
    
    $
    12,830Add:Cash used for property and equipment additions
    
    
    79,097
    
    
    
    48,268
    
    
    
    51,855Cash used for acquisitions and other activities
    
    
    354,177
    
    
    
    2,336
    
    
    
    (400
    )Cash provided by operating activities
    
    $
    58,869
    
    
    $
    72,301
    
    
    $
    64,285
 Free Cash Flow
   2007
    
    
    2006
    
    
    2005Cash provided by operating activities (1)
    
    $
    58,869
    
    
    $
    72,301
    
    
    $
    64,285Property and equipment additions
    
    
    (79,097
    )
    
    
    (48,268
    )
    
    
    (51,855
    )(20,228
    )
    
    
    24,033
    
    
    
    12,430Cash used for acquisitions and other activities (2)
    
    
    (354,177
    )
    
    
    (2,336
    )
    
    
    400$
    (374,405
    )
    
    $
    21,697
    
    
    $
    12,830
 
 (1)
    
    Cash provided by operating activities for the year ended December 31, 2007, included $38.2
million of cash used for acquisition refinancing, restructuring and integration including
$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. LodgeNet Interactive Corporation
    
    32
    
    Form 10-K 2007




---



##### Table of Contents



2007
    
    
    2006
    
    
    2005Expansion capital investment (1)
    
    $
    24,668
    
    
    $
    22,291
    
    
    $
    24,231Renewal investment (2)
    
    
    25,772
    
    
    
    13,317
    
    
    
    14,091Corporate capital and minor extensions (3)
    
    
    28,657
    
    
    
    12,660
    
    
    
    13,533$
    79,097
    
    
    $
    48,268
    
    
    $
    51,855
 
 (1)
    
    Capital investment to install newly contracted rooms with our digital or HDTV system.(2)
    
    Capital investment to convert rooms to our digital or HDTV system in exchange for long-term
contact extensions.(3)
    
    Capital investment for corporate infrastructure including computers, equipment, software
development and minor system upgrades. Rooms Served
  2007
    
    
    2006
    
    
    2005Total rooms served (1)
    
    
    1,962,090
    
    
    
    1,052,025
    
    
    
    1,053,806Total Guest Pay interactive rooms (2)
    
    
    1,860,720
    
    
    
    1,004,937
    
    
    
    1,001,929HD rooms (3)
    
    
    84,327
    
    
    
    23,502
    
    
    
    259Total Cable Programming (FTG) Rooms (4)
    
    
    1,068,256
    
    
    
    535,777
    
    
    
    536,984Total Broadband Internet rooms (5)
    
    
    218,619
    
    
    
    37,686
    
    
    
    Net new Guest Pay interactive rooms (6)
    
    
    30,228
    
    
    
    3,008
    
    
    
    35,326
 
 (1)
    
    Total rooms served include interactive television rooms, rooms served by international
licensees, properties receiving only basic and premium television services and properties
receiving only broadband services. The increase from 2006 is due to the addition of the On
Command room base of approximately 830,000 rooms.(2)
    
    Interactive rooms are equipped with our interactive television systems.(3)
    
    HD rooms are equipped with high-definition capabilities.(4)
    
    Cable programming rooms receiving basic or premium television programming.(5)
    
    Represents rooms receiving broadband Internet service included in total rooms served.(6)
    
    Amounts shown are net of de-installations during the period. The gross number of new rooms
installed was 71,430, 65,993 and 71,731 for 2007, 2006 and 2005, respectively. LodgeNet Interactive Corporation
    
    33
    
    Form 10-K 2007




---



##### Table of Contents



High Definition and Digital Room Growth
  2007
    
    
    2006
    
    
    2005Total digital rooms installed
    
    
    1,471,608
    
    
    
    733,362
    
    
    
    629,085Digital rooms as a percent of total
Guest Pay interactive rooms
    
    
    79
    %
    
    
    73
    %
    
    
    63
    %Net new digital rooms installed
    
    
    120,300
    
    
    
    104,277
    
    
    
    120,106Total HDTV rooms installed (1)
    
    
    84,327
    
    
    
    23,502
    
    
    
    259
 
 (1)
    
    HDTV rooms are equipped with high-definition capabilities and are included in total digital
rooms. Capital Investment Per Room
  2007
    
    
    2006
    
    
    2005Average cost per room  new installation
    
    $
    399
    
    
    $
    354
    
    
    $
    340Average cost per room  conversion
    
    $
    309
    
    
    $
    252
    
    
    $
    262Average cost per HD room  new installation
    
    $
    460
    
    
    $
    438
    
    
    $
    Average cost per HD room  conversion
    
    $
    312
    
    
    $
    289
    
    
    $
    
  Revenue Per Room
  2007
    
    
    2006
    
    
    2005Average monthly revenue per room:Movie revenue
    
    $
    16.62
    
    
    $
    17.27
    
    
    $
    17.00Other interactive service revenue
    
    
    5.97
    
    
    
    5.75
    
    
    
    5.53Total per Guest Pay room
    
    $
    22.59
    
    
    $
    23.02
    
    
    $
    22.53
  LodgeNet Interactive Corporation
    
    34
    
    Form 10-K 2007




---



##### Table of Contents



Direct Costs
  2007
    
    
    2006
    
    
    2005Guest Pay direct costs per room
    
    $
    10.26
    
    
    $
    10.51
    
    
    $
    10.03Guest Pay direct costs as a percent of total revenue
    
    
    50.8
    %
    
    
    45.6
    %
    
    
    44.5
    %
 Operating Expense
  2007
    
    
    2006
    
    
    2005Guest pay operating expenses (1)
    
    $
    2.71
    
    
    $
    2.92
    
    
    $
    2.96SG&A expense (2)
    
    
    2.79
    
    
    
    2.41
    
    
    
    2.14Depreciation and amortization (D&A)
    
    
    5.56
    
    
    
    5.50
    
    
    
    5.88Amortization of acquired intangibles
    
    
    0.51
    
    
    
    
    
    
    
    Restructuring
    
    
    0.64
    
    
    
    
    
    
    
    Other operating expense (income), net (3)
    
    
    (0.04
    )
    
    
    (0.10
    )
    
    
    (0.04
    )$
    12.17
    
    
    $
    10.73
    
    
    $
    10.94
 
 (1)
    
    Guest Entertainment operating expenses include $1.7 million directly related to integration
activities.(2)
    
    SG&A expenses include $4.0 million directly related to integration activities.(3)
    
    Other operating income includes net proceeds received from insurance related to business
interruption and property damage claims associated with Hurricane Katrina and recoveries
related to early contract terminations. Net Income/(Loss)
  2007
    
    
    2006
    
    
    2005Net (loss) income
    
    $
    (65,172
    )
    
    $
    1,841
    
    
    $
    (6,959
    )
 LodgeNet Interactive Corporation
    
    35
    
    Form 10-K 2007




---



##### Table of Contents



Liquidity and Capital Resources
     2007
    
    
    2006
    
    
    2005Actual consolidated total leverage ratio (1) (3)
    
    
    4.39
    
    
    
    2.86
    
    
    
    3.16Maximum per covenant
    
    
    5.00
    
    
    
    3.50
    
    
    
    4.00Actual consolidated interest coverage ratio (2)
(3)
    
    
    3.47
    
    
    
    3.85
    
    
    
    3.20Minimum per covenant
    
    
    2.25
    
    
    
    2.75
    
    
    
    2.50
 
 (1)
    
    Our maximum consolidated total 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, maximum consolidated senior secured 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. LodgeNet Interactive Corporation
    
    36
    
    Form 10-K 2007




---



##### Table of Contents



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
    9.50% Senior Notes 3⁄4
  LodgeNet Interactive Corporation
    
    37
    
    Form 10-K 2007




---



##### Table of Contents



Payments due by periodLess than
    
    
    2  3
    
    
    4  5
    
    
    OverTotal
    
    
    1 year
    
    
    years
    
    
    years
    
    
    5 yearsContractual obligations:Long-term debt(s)
    
    $
    624,594
    
    
    $
    7,398
    
    
    $
    13,881
    
    
    $
    12,680
    
    
    $
    590,635Interest on fixed rate debt
    
    
    6
    
    
    
    1
    
    
    
    2
    
    
    
    2
    
    
    
    1Interest on bank term loan (1)
    
    
    261,451
    
    
    
    43,019
    
    
    
    84,503
    
    
    
    82,772
    
    
    
    51,157Interest on derivative instruments
    
    
    4,219
    
    
    
    143
    
    
    
    854
    
    
    
    1,985
    
    
    
    1,237Operating lease payments
    
    
    7,439
    
    
    
    2,996
    
    
    
    4,109
    
    
    
    334
    
    
    
    Uncertain tax positions (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase obligations (3)
    
    
    6,490
    
    
    
    6,490
    
    
    
    
    
    
    
    
    
    
    
    Nintendo minimum royalty (4)
    
    
    22,750
    
    
    
    4,200
    
    
    
    8,400
    
    
    
    8,400
    
    
    
    1,750Programming related minimum
royalties and commissions (5)
    
    
    7,719
    
    
    
    2,824
    
    
    
    4,607
    
    
    
    288
    
    
    
    Total contractual obligations
    
    $
    934,668
    
    
    $
    67,071
    
    
    $
    116,356
    
    
    $
    106,461
    
    
    $
    644,780
 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)
    
    Effective January 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (FIN 48). FIN 48
clarifies the accounting for uncertainty in income taxes recognized in a companys financial
statements and prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax
return. As of December 31, 2007, the company does not have unresolved income tax positions.(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. See Note 10 to the Consolidated Financial Statements.(5)
    
    In connection with our programming related agreements, we may guarantee minimum royalties for
specific periods or by individual programming content. See Note 10 to the Consolidated
Financial Statements. 
 Seasonality
  LodgeNet Interactive Corporation
    
    38
    
    Form 10-K 2007




---



##### Table of Contents



Results of Operations  Years Ended December 31, 2007 and 2006
 Revenue Analysis
  2007
    
    
    2006Percent
    
    
    
    
    
    
    Percentof Total
    
    
    
    
    
    
    of TotalRevenues:
    
    Amount
    
    
    Revenues
    
    
    Amount
    
    
    RevenuesGuest Pay
    
    $
    446,235
    
    
    
    91.9
    %
    
    $
    277,433
    
    
    
    96.3
    %Other
    
    
    39,353
    
    
    
    8.1
    %
    
    
    10,780
    
    
    
    3.7
    %$
    485,588
    
    
    
    100.0
    %
    
    $
    288,213
    
    
    
    100.0
    %
  2007
    
    
    2006Average monthly revenue per room:Movie revenue
    
    $
    16.62
    
    
    $
    17.27Other interactive service revenue
    
    
    5.97
    
    
    
    5.75Total per Guest Pay room
    
    $
    22.59
    
    
    $
    23.02
   LodgeNet Interactive Corporation
    
    39
    
    Form 10-K 2007




---



##### Table of Contents



Expense Analysis
   2007
    
    2006
    
    ChangeDirect costs
as a percent of revenue (exclusive of operating expenses and depreciation
and amortization discussed separately below):
    
    
    52.1
    %
    
    
    45.8
    %
    
    
    6.3
    %Change drivers:Broadband related
    
    
    
    
    
    
    
    
    
    
    3.1
    %Cable Programming (FTG)
    
    
    
    
    
    
    
    
    
    
    2.6
    %Other direct costs (Non Guest
Entertainment)
    
    
    
    
    
    
    
    
    
    
    0.7
    %Guest Entertainment Programming
Costs
    
    
    
    
    
    
    
    
    
    
    -0.3
    %Hotel Incentive Commissions  Movies
    
    
    
    
    
    
    
    
    
    
    0.2
    %6.3
    %
  Operating Expenses.
 2007
    
    
    2006Percent
    
    
    
    
    
    
    Percentof Total
    
    
    
    
    
    
    of TotalAmount
    
    
    Revenues
    
    
    Amount
    
    
    RevenuesOperating expenses:System operations (1)
    
    $
    54,114
    
    
    
    11.1
    %
    
    $
    35,223
    
    
    
    12.2
    %Selling, general and
administrative (2)
    
    
    55,878
    
    
    
    11.5
    %
    
    
    28,999
    
    
    
    10.1
    %Depreciation and amortization
    
    
    107,834
    
    
    
    22.2
    %
    
    
    66,311
    
    
    
    23.0
    %Amortization of acquired
intangibles
    
    
    8,544
    
    
    
    1.8
    %
    
    
    
    
    
    
    Restructuring expenses (3)
    
    
    11,158
    
    
    
    2.3
    %
    
    
    
    
    
    
    Other operating income, net (4)
    
    
    (866
    )
    
    
    (0.2
    )%
    
    
    (1,205
    )
    
    
    (0.4
    )%Total operating expenses
    
    $
    236,662
    
    
    
    48.7
    %
    
    $
    129,328
    
    
    
    44.9
    %
 
 (1)
    
    System operations expenses include $1.7 million directly related to integration
activities.(2)
    
    SG&A expenses include $4.0 million directly related to integration activities. LodgeNet Interactive Corporation
    
    40
    
    Form 10-K 2007




---



##### Table of Contents



(3)
    
    Restructuring or exit costs are defined as costs associated with the closing, disposal
or exit of certain duplicate facilities or operations including termination benefits ands
costs to consolidate facilities or relocate employees. The company will not realize future
benefits from these costs.(4)
    
    Other operating income includes net proceeds received from insurance related to
business interruption and property damage claims associated with Hurricane Katrina and
recoveries related to early contract terminations.       Operating Loss.
 Write-Off of Debt Issuance Costs.
 Interest Expense.
 LodgeNet Interactive Corporation
    
    41
    
    Form 10-K 2007




---



##### Table of Contents



Other Income (Expense).
 Taxes.
 Net Income (Loss).
 LodgeNet Interactive Corporation
    
    42
    
    Form 10-K 2007




---



##### Table of Contents



Results of Operations  Years Ended December 31, 2006 and 2005
    
 LodgeNet Interactive Corporation
    
    43
    
    Form 10-K 2007




---



##### Table of Contents



Critical Accounting Policies
  §
    
    Revenue Recognition  footnote #2§
    
    Goodwill and Intangibles  footnote #7§
    
    Restructuring  footnote #15
 
 Recent Accounting Developments
 Fair Value Measurements
 The Fair Value Option for Financial Assets
and Financial Liabilities  Including an Amendment of FASB Statement No. 115.
 Non-controlling Interests in Consolidated Financial Statements  An amendment of ARB No. 51 prohibited
 Business Combinations
 §
    
    Acquisition costs will generally be expensed as incurred;§
    
    In Process R&D will be recorded as an indefinite lived intangible asset at
acquisition date;
 
 LodgeNet Interactive Corporation
    
    44
    
    Form 10-K 2007




---



##### Table of Contents



§
    
    Restructuring costs associated with a business combination will generally be
expensed subsequent to the acquisition date;§
    
    Liabilities will be recorded at acquisition date fair value and subsequently
re-measured;§
    
    Minority interests will be valued at fair value at acquisition date; and§
    
    Changes in deferred tax asset valuation allowances and income tax uncertainties
after the acquisition date generally will affect income tax expense.
 prohibited
 
 Item 7A  Quantitative and Qualitative Disclosures About Market Risk
  Interest.
 Economic Condition.
 Foreign Currency Transactions.
 
 Item 8  Financial Statements and Supplementary Data
  
 Item 9  Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
  
 LodgeNet Interactive Corporation
    
    45
    
    Form 10-K 2007




---



##### Table of Contents



Item 9A  Controls and Procedures
 Evaluation of Disclosure Controls and Procedures.
 Managements report on internal control over financial reporting
  Internal Control  Integrated Framework
  Changes in Internal Control over Financial Reporting.
 
 Item 9B  Other Information
  
 LodgeNet Interactive Corporation
    
    46
    
    Form 10-K 2007




---



##### Table of Contents



PART III
 
 Item 10  Directors and Executive Officers of the Registrant
     
 Item 11  Executive Compensation
  
 Item 12  Security Ownership of Certain Beneficial Owners and Management
  
 Item 13  Certain Relationships and Related Transactions
  
 Item 14  Principal Accountant Fees and Services
  LodgeNet Interactive Corporation
    
    47
    
    Form 10-K 2007




---



##### Table of Contents



PART IV
 
 Item 15  Exhibits and Financial Statement Schedules
 Consolidated Financial Statements and Schedules
 Exhibits
  Exhibit No.
 3.1
    
    Certificate of Incorporation of LodgeNet (1)3.2
    
    Restated By-Laws of the Registrant (2)3.3
    
    Amendment No. 1 to Restated Certificate of Incorporation of LodgeNet (3)3.4
    
    Certificate of Ownership and Merger merging LodgeNet Interactive Corporation into LodgeNet
Entertainment Corporation (4)4.1
    
    Indenture dated June 18, 2003 between LodgeNet Interactive Corporation and HSBC Bank USA as
Trustee, relating to the 9.50% Senior Subordinated Notes due 2013 (5)4.2
    
    Form of Notes (included in Exhibit 4.1)4.3
    
    First Supplemental Indenture dated June 18, 2003 between LodgeNet Interactive Corporation and
HSBC Bank USA as Trustee, relating to the 9.50% Senior Subordinated Notes due 2013 (6)4.4
    
    Second Supplemental Indenture dated January 15, 2007 between LodgeNet Interactive Corporation
and HSBC Bank USA as Trustee, relating to the 9.50% Senior Subordinated Notes due 2013 (7)4.5
    
    Third Supplemental Indenture dated as of April 10, 2007, among LodgeNet StayOnline, Inc., a
Delaware corporation (the Guaranteeing Subsidiary), LodgeNet Entertainment Corporation, a
Delaware corporation (the Issuer), and HSBC Bank USA, National Association, as trustee under
the indenture referred to below (the Trustee). (8)4.6
    
    Rights Agreement dated as of February 28, 2008 between LodgeNet Interactive Corporation and
Computershare Investor Services, LLC.10.1
    
    LodgeNet Interactive Corporation Stock Option Plan (as amended and restated effective May 9,
2001) (9)10.2
    
    1993 Plan Form of Stock Option Agreement for Non-Employee Directors (10)10.3
    
    1993 Plan Form of Incentive Stock Option Agreement for Key Employees (10)10.4
    
    Master Services Agreement between Hilton Hotels Corporation and LodgeNet Interactive
Corporation dated October 9, 2000  (11)
 
 LodgeNet Interactive Corporation
    
    48
    
    Form 10-K 2007




---



##### Table of Contents



10.5
    
    Amendment To Master Services Agreement dated August 2, 2002 by and between Hilton Hotels
Corporation and LodgeNet Interactive Corporation (12)10.6
    
    Hilton LodgeNet Agreement dated August 2, 2002 by and between Hilton Hotels Corporation and
LodgeNet Interactive Corporation (13)10.7
    
    LodgeNet Interactive Corporation 2003 Stock Option and Incentive Plan (14)10.8
    
    2003 Plan Form of Stock Option Agreement for Non-Employee Directors (15)10.9
    
    2003 Plan Form of Incentive Stock Option Agreement for Key Employees (16)10.10
    
    Form of Restricted Stock Agreement for Time-based Vesting (17)10.11
    
    Form of Restricted Stock Agreement for Performance-Based Vesting (18)10.12
    
    Asset Purchase Agreement, dated November 14, 2006, between StayOnline, Inc. and LodgeNet
StayOnline, Inc., as assignee of LodgeNet Interactive Corporation (19)10.13
    
    Stock Purchase Agreement, dated December 13, 2006, between LodgeNet Interactive Corp and
Liberty Satellite Technology, Inc. (20)10.14
    
    Shareholders Agreement, dated December 13, 2006, between LodgeNet Interactive Corp and
Liberty Satellite Technology, Inc. (21)10.15
    
    Stock Purchase Agreement, dated December 13, 2006, between LodgeNet Interactive Corp and PAR
Capital Partners, LLC. (22)10.16
    
    $675,000,000 Credit Agreement dated as of April 4, 2007 among LodgeNet Entertainment
Corporation, as Borrower, Credit Suisse Securities (USA) LLC as Syndication Agent, U.S. Bank
National Association as Documentation Agent, and Bear Stearns Corporate Lending Inc. as
Administrative Agent. (23)10.17
    
    Second Amended and Restated Employment Agreement dated as of January 29, 2008 between
LodgeNet Interactive Corporation and Scott C. Petersen.10.18
    
    Executive Employment Agreement dated as of January 29, 2008 between LodgeNet Interactive
Corporation and David M. Bankers.10.19
    
    Executive Employment Agreement dated as of January 29, 2008 between LodgeNet Interactive
Corporation and James G. Naro.10.20
    
    Executive Employment Agreement dated as of January 29, 2008 between LodgeNet Interactive
Corporation and Steven R. Pofahl.10.21
    
    Executive Employment Agreement dated as of January 29, 2008 between LodgeNet Interactive
Corporation and Gary H. Ritondaro.10.22
    
    Executive Employment Agreement dated as of February 4, 2008 between LodgeNet Interactive
Corporation and Derek S. White.10.23
    
    Executive Employment Agreement dated as of January 29, 2008 between LodgeNet Interactive
Corporation and Scott E. Young.12.1
    
    Statement of Computation of Ratios
 
 LodgeNet Interactive Corporation
    
    49
    
    Form 10-K 2007




---



##### Table of Contents



21.1
    
    Subsidiaries of LodgeNet23.1
    
    Consent of Independent Registered Public Accounting Firm31.1
    
    Rule 13a-14(a)/15d-14(a) Certifications of Chief Financial Officer31.2
    
    Rule 13a-14(a)/15d-14(a) Certifications of Chief Executive Officer32.1
    
    Section 1350 Certifications
 
 LodgeNet Interactive Corporation
    
    50
    
    Form 10-K 2007




---



##### Table of Contents




    
    Confidential Treatment has been requested with respect to certain portions of this agreement.(1)
    
    Incorporated by Reference to LodgeNets Amendment No. 1 to Registration Statement on Form
S-1, as filed with the Securities and Exchange Commission, September 24, 1993. (File No.
033-67676).(2)
    
    Incorporated by Reference to Exhibit 3.2 to LodgeNets Quarterly Report on Form 10-Q for the
quarter ended June 30, 2005.(3)
    
    Incorporated by Reference to Exhibit 10.37 to LodgeNets Quarterly Report on Form 10-Q for
the quarter ended September 30, 2001.(4)
    
    Incorporated by Reference to Exhibit 3.1 to LodgeNets Current Report on Form 8-K as filed
with the Securities and Exchange Commission on January 15, 2008.(5)
    
    Incorporated by Reference to Exhibit 4.1 to LodgeNets Current Report on Form 8-K as filed
with the Securities and Exchange Commission on June 19, 2003.(6)
    
    Incorporated by Reference to Exhibit 4.2 to LodgeNets Current Report on Form 8-K as filed
with the Securities and Exchange Commission on June 19, 2003.(7)
    
    Incorporated by Reference to Exhibit 4.2 to LodgeNets Annual Report on Form 10-K as filed
with the Securities and Exchange Commission on March 14, 2007.(8)
    
    Incorporated by Reference to Exhibit 4.1 to LodgeNets Current Report on Form 8-K as filed
with the Securities and Exchange Commission on April 10, 2007(9)
    
    Incorporated by Reference to Exhibit 99.1 to LodgeNets Registration Statement on Form
S-8 as filed with the Securities and Exchange Commission on March 27, 2002.(10)
    
    Incorporated by Reference to Exhibit 10.13 and 10.14 to LodgeNets Annual Report on Form 10-K
for the year ended 
December 31, 1993.(11)
    
    Incorporated by Reference to Exhibit 10.32 to LodgeNets Quarterly Report on Form 10-Q for
the quarter ended September 30, 2000.(12)
    
    Incorporated by Reference to Exhibit 10.02 to LodgeNets Current Report on Form 8-K as filed
with the Securities and Exchange Commission on August 15, 2002.(13)
    
    Incorporated by Reference to Exhibit 10.01 to LodgeNets Current Report on Form 8-K as filed
with the Securities and Exchange Commission on August 15, 2002.(14)
    
    Incorporated by Reference to Annex 2 of LodgeNets Definitive Proxy Statement dated March 30,
2006.(15)
    
    Incorporated by Reference to Exhibit 10.26 to LodgeNets Annual Report on Form 10-K for the
year ended December 31, 2003.(16)
    
    Incorporated by Reference to Exhibit 10.27 to LodgeNets Annual Report on Form 10-K for the
year ended December 31, 2003.(17)
    
    Incorporated by Reference to Exhibit 10.25 to LodgeNets Annual Report on Form 10-K for the
year ended December 31, 2005.(18)
    
    Incorporated by Reference to Exhibit 10.26 to LodgeNets Annual Report on Form 10-K for the
year ended December 31, 2005. 
 LodgeNet Interactive Corporation
    
    51
    
    Form 10-K 2007




---



##### Table of Contents



(19)
    
    Incorporated by Reference to Exhibit 10.33 to LodgeNets Annual Report on Form 10-K for the
year ended December 31, 2006.(20)
    
    Incorporated by Reference to Exhibit 10.34 to LodgeNets Annual Report on Form 10-K for the
year ended December 31, 2006.(21)
    
    Incorporated by Reference to Exhibit 10.35 to LodgeNets Annual Report on Form 10-K for the
year ended December 31, 2006.(22)
    
    Incorporated by Reference to Exhibit 10.36 to LodgeNets Annual Report on Form 10-K for the
year ended December 31, 2006.(23)
    
    Incorporated by Reference to Exhibit 10.1 to LodgeNets Current Report on Form 8-K dated
April 4, 2007. 
 LodgeNet Interactive Corporation
    
    52
    
    Form 10-K 2007




---



##### Table of Contents



Signatures
   LodgeNet Interactive CorporationBy:
    /s/ Scott C. PetersenScott C. Petersen,President, Chief Executive Officer and
Chairman of the Board of Directors  Signature
    
    Title
    
    Date/s/ Scott C. Petersen
    
    President, Chief Executive Officer and Chairman of
    
    March 13, 2008Scott C. Petersen
    
    the Board of Directors (Principal
Executive Officer)/s/ Gary H. Ritondaro
    
    Senior Vice President

    
    March 13, 2008Gary H. Ritondaro
    
    Chief Financial Officer (Principal
Financial & Accounting Officer)/s/ R. Douglas Bradbury
    
    Director
    
    March 13, 2008R. Douglas Bradbury/s/ R. F. Leyendecker
    
    Director
    
    March 13, 2008R. F. Leyendecker/s/ Vikki I. Pachera
    
    Director
    
    March 13, 2008Vikki I. Pachera/s/ Scott H. Shlecter
    
    Director
    
    March 13, 2008Scott H. Shlecter
 
 LodgeNet Interactive Corporation
    
    53
    
    Form 10-K 2007




---



##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 LodgeNet Interactive Corporation and Subsidiaries
 Index to Consolidated Financial Statements
 PageReport of Independent Registered Public Accounting Firm
    
    
    F - 2Consolidated Balance Sheets as of December 31, 2007 and 2006
    
    
    F - 4Consolidated Statements of Operations  Three Years Ended December 31, 2007
    
    
    F - 5Consolidated Statements of Stockholders Deficiency and Comprehensive Income (Loss) 
Three Years Ended December 31, 2007
    
    
    F - 6Consolidated Statements of Cash Flows  Three Years Ended December 31, 2007
    
    
    F - 7Notes to Consolidated Financial Statements
    
    
    F - 8Index to Financial SchedulesSchedule II  Valuation and Qualifying Accounts
    
    
    F - 32
 
 LodgeNet Interactive Corporation
    
    F-1
    
    Form 10-K 2007




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
  Internal Control  Integrated Framework
     
 LodgeNet Interactive Corporation
    
    F-2
    
    Form 10-K 2007




---



##### Table of Contents



LodgeNet Interactive Corporation
    
    F-3
    
    Form 10-K 2007




---



##### Table of Contents



LodgeNet Interactive Corporation and Subsidiaries
 
 Consolidated Balance Sheets
  December 31,2007
    
    
    2006AssetsCurrent assets:Cash and cash equivalents
    
    $
    25,569
    
    
    $
    22,795Restricted cash
    
    
    
    
    
    
    1,006Accounts receivable, net
    
    
    73,580
    
    
    
    32,959Other current assets
    
    
    11,359
    
    
    
    10,728Total current assets
    
    
    110,508
    
    
    
    67,488Property and equipment, net
    
    
    323,963
    
    
    
    185,770Debt issuance costs, net
    
    
    11,374
    
    
    
    5,704Intangible assets, net
    
    
    126,530
    
    
    
    690Goodwill
    
    
    111,293
    
    
    
    Other assets
    
    
    10,155
    
    
    
    3,557Total assets
    
    $
    693,823
    
    
    $
    263,209Liabilities and Stockholders DeficiencyCurrent liabilities:Accounts payable
    
    $
    50,559
    
    
    $
    19,165Current maturities of long-term debt
    
    
    7,398
    
    
    
    2,536Accrued expenses
    
    
    30,118
    
    
    
    18,193Deferred revenue
    
    
    14,354
    
    
    
    8,076Total current liabilities
    
    
    102,429
    
    
    
    47,970Long-term debt
    
    
    617,196
    
    
    
    267,633Other long-term liabilities
    
    
    22,440
    
    
    
    5,728Total liabilities
    
    
    742,065
    
    
    
    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;
22,969,775 and 19,084,734 shares outstanding at December 31,
2007 and December 31, 2006, respectively
    
    
    230
    
    
    
    191Treasury stock, at cost: 2007 - 60,000 shares; 2006 - 0 shares
    
    
    (1,075
    )
    
    
    Additional paid-in capital
    
    
    330,405
    
    
    
    242,383Accumulated deficit
    
    
    (367,638
    )
    
    
    (302,466
    )Accumulated other comprehensive (loss) income
    
    
    (10,164
    )
    
    
    1,770Total stockholders deficiency
    
    
    (48,242
    )
    
    
    (58,122
    )Total liabilities and stockholders deficiency
    
    $
    693,823
    
    
    $
    263,209
  
 LodgeNet Interactive Corporation
    
    F-4
    
    Form 10-K 2007




---



##### Table of Contents



LodgeNet Interactive Corporation and Subsidiaries
 
 Consolidated
Statements of Operations
  Years Ended December 31,2007
    
    
    2006
    
    
    2005Revenues:Guest Entertainment
    
    $
    446,235
    
    
    $
    277,433
    
    
    $
    267,754Other
    
    
    39,353
    
    
    
    10,780
    
    
    
    8,017Total revenues
    
    
    485,588
    
    
    
    288,213
    
    
    
    275,771Direct Costs and Operating Expenses:Direct costs (exclusive of operating expenses
and
depreciation and amortization shown separately
below):Guest Entertainment
    
    
    226,882
    
    
    
    126,635
    
    
    
    119,180Other
    
    
    26,281
    
    
    
    5,318
    
    
    
    4,048Operating expenses:System operations
    
    
    54,114
    
    
    
    35,223
    
    
    
    35,117Selling, general and administrative
    
    
    55,878
    
    
    
    28,999
    
    
    
    25,379Depreciation and amortization
    
    
    116,378
    
    
    
    66,311
    
    
    
    69,862Restructuring expense
    
    
    11,158
    
    
    
    
    
    
    
    Other operating expense (income), net
    
    
    (866
    )
    
    
    (1,205
    )
    
    
    (508
    )Total direct costs and operating expenses
    
    
    489,825
    
    
    
    261,281
    
    
    
    253,078(Loss) income from operations
    
    
    (4,237
    )
    
    
    26,932
    
    
    
    22,693Other Income and Expenses:Interest expense
    
    
    (40,950
    )
    
    
    (25,730
    )
    
    
    (29,351
    )Loss on early retirement of debt
    
    
    (22,195
    )
    
    
    (227
    )
    
    
    (272
    )Minority interest in income of subsidiary
    
    
    165
    
    
    
    
    
    
    
    Other income
    
    
    1,362
    
    
    
    1,165
    
    
    
    421(Loss) income before income taxes
    
    
    (65,855
    )
    
    
    2,140
    
    
    
    (6,509
    )Benefit (provision) for income taxes
    
    
    683
    
    
    
    (299
    )
    
    
    (450
    )Net (loss) income
    
    $
    (65,172
    )
    
    $
    1,841
    
    
    $
    (6,959
    )Net (loss) income per common share (basic)
    
    $
    (3.00
    )
    
    $
    0.10
    
    
    $
    (0.39
    )Net (loss) income per common share (diluted)
    
    $
    (3.00
    )
    
    $
    0.10
    
    
    $
    (0.39
    )Weighted average shares outstanding (basic)
    
    
    21,758,066
    
    
    
    18,332,824
    
    
    
    17,923,297Weighted average shares outstanding (diluted)
    
    
    21,758,066
    
    
    
    18,840,917
    
    
    
    17,923,297
  
 LodgeNet Interactive Corporation
    
    F-5
    
    Form 10-K 2007




---



##### Table of Contents



LodgeNet Interactive Corporation and Subsidiaries
 
 Consolidated Statements of Stockholders Deficiency and Comprehensive Income (Loss)
 AccumulatedAdditional
    
    
    
    
    
    
    OtherCommon Stock
    
    
    Treasury Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Income/(Loss)
    
    
    TotalBalance, December 31, 2004
    
    
    17,625,364
    
    
    $
    176
    
    
    
    
    
    
    $
    
    
    
    $
    226,986
    
    
    $
    (297,348
    )
    
    $
    (1,932
    )
    
    $
    (72,118
    )Common stock option exercises
    
    
    288,482
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    3,490
    
    
    
    
    
    
    
    
    
    
    
    3,493Warrants issued (Note 13)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    446
    
    
    
    
    
    
    
    
    
    
    
    446Warrants exercised
    
    
    207,797
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    1,117
    
    
    
    
    
    
    
    
    
    
    
    1,120Share-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57
    
    
    
    
    
    
    
    
    
    
    
    57Restricted stock
    
    
    44,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    231
    
    
    
    
    
    
    
    
    
    
    
    231Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,959
    )
    
    
    Foreign currency
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    241Unrealized gain on
derivative instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,256Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,462
    )Balance, December 31, 2005
    
    
    18,165,643
    
    
    $
    182
    
    
    
    
    
    
    $
    
    
    
    $
    232,327
    
    
    $
    (304,307
    )
    
    $
    1,565
    
    
    $
    (70,233
    )Common stock option exercises
    
    
    587,721
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    8,382
    
    
    
    
    
    
    
    
    
    
    
    8,388Warrants exercised (Note 13)
    
    
    196,570
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    Share-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    700
    
    
    
    
    
    
    
    
    
    
    
    700Restricted stock
    
    
    134,800
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    976
    
    
    
    
    
    
    
    
    
    
    
    977Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,841
    
    
    
    Foreign currency
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49Unrealized gain on
derivative instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    156Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,046Balance, December 31, 2006
    
    
    19,084,734
    
    
    $
    191
    
    
    
    
    
    
    $
    
    
    
    $
    242,383
    
    
    $
    (302,466
    )
    
    $
    1,770
    
    
    $
    (58,122
    )Common stock option exercises
    
    
    818,454
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    12,949
    
    
    
    
    
    
    
    
    
    
    
    12,957Stock issuance
    
    
    3,050,000
    
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    73,382
    
    
    
    
    
    
    
    
    
    
    
    73,413Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    60,000
    
    
    
    (1,075
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,075
    )Share-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    506
    
    
    
    
    
    
    
    
    
    
    
    506Restricted stock
    
    
    16,587
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,185
    
    
    
    
    
    
    
    
    
    
    
    1,185Comprehensive income:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (65,172
    )
    
    
    Foreign currency
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,963Unrealized loss on
derivative instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,897
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (77,106
    )Balance, December 31, 2007
    
    
    22,969,775
    
    
    $
    230
    
    
    
    60,000
    
    
    $
    (1,075
    )
    
    $
    330,405
    
    
    $
    (367,638
    )
    
    $
    (10,164
    )
    
    $
    (48,242
    )
  
 LodgeNet Interactive Corporation
    
    F-6
    
    Form 10-K 2007




---



##### Table of Contents



Lodgenet Interactive Corporation and Subsidiaries
 
 Consolidated Statements of Cash Flows
  Years Ended December 31,2007
    
    
    2006
    
    
    2005Operating activities:Net (loss) income
    
    $
    (65,172
    )
    
    $
    1,841
    
    
    $
    (6,959
    )Adjustments to reconcile net (loss) income to net cash provided
by operating activities:Depreciation and amortization
    
    
    116,378
    
    
    
    66,311
    
    
    
    69,862Loss on early retirement of debt
    
    
    3,583
    
    
    
    227
    
    
    
    272Share-based compensation
    
    
    1,737
    
    
    
    1,677
    
    
    
    288Gain due to insurance proceeds
    
    
    
    
    
    
    (817
    )
    
    
    (788
    )Other
    
    
    188
    
    
    
    288
    
    
    
    668Change in operating assets and liabilities:Accounts receivable
    
    
    (7,861
    )
    
    
    (3,332
    )
    
    
    (1,542
    )Other current assets
    
    
    (2,496
    )
    
    
    (2,070
    )
    
    
    (855
    )Accounts payable
    
    
    6,052
    
    
    
    3,126
    
    
    
    (786
    )Accrued expenses and deferred revenue
    
    
    8,332
    
    
    
    7,795
    
    
    
    3,262Other
    
    
    (1,872
    )
    
    
    (2,745
    )
    
    
    863Net cash provided by operating activities
    
    
    58,869
    
    
    
    72,301
    
    
    
    64,285Investing activities:Property and equipment additions
    
    
    (79,097
    )
    
    
    (48,268
    )
    
    
    (51,855
    )Insurance proceeds related to property damage
    
    
    
    
    
    
    291
    
    
    
    400Acquisition of On Command Corporation, net of cash acquired
    
    
    (335,517
    )
    
    
    (1,691
    )
    
    
    Acquisition of StayOnline, Inc.
    
    
    (14,311
    )
    
    
    (1,174
    )
    
    
    Acquisition of THN (20% minority interest)
    
    
    (5,000
    )
    
    
    
    
    
    
    Other investing activities
    
    
    651
    
    
    
    238
    
    
    
    Net cash used for investing activities
    
    
    (433,274
    )
    
    
    (50,604
    )
    
    
    (51,455
    )Financing activities:Proceeds from long-term debt
    
    
    625,000
    
    
    
    
    
    
    
    Repayment of long-term debt
    
    
    (271,241
    )
    
    
    (21,500
    )
    
    
    (20,500
    )Proceeds from lease transaction
    
    
    
    
    
    
    
    
    
    
    1,022Payment of capital lease obligations
    
    
    (1,712
    )
    
    
    (1,380
    )
    
    
    (1,421
    )Debt issuance costs
    
    
    (12,738
    )
    
    
    
    
    
    
    Contribution from minority interest holder to subsidiary
    
    
    300
    
    
    
    
    
    
    
    Purchase of treasury stock
    
    
    (1,075
    )
    
    
    
    
    
    
    Proceeds from issuance of common stock, net of offering costs
    
    
    23,290
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    17,120
    
    
    
    4,179
    
    
    
    4,613Change in other long-term liability
    
    
    (2,225
    )
    
    
    (930
    )
    
    
    (846
    )Net cash provided by (used for) financing activities
    
    
    376,719
    
    
    
    (19,631
    )
    
    
    (17,132
    )Effect of exchange rates on cash
    
    
    460
    
    
    
    (13
    )
    
    
    49Increase (decrease) in cash and cash equivalents
    
    
    2,774
    
    
    
    2,053
    
    
    
    (4,253
    )Cash and cash equivalents at beginning of period
    
    
    22,795
    
    
    
    20,742
    
    
    
    24,995Cash and cash equivalents at end of period
    
    $
    25,569
    
    
    $
    22,795
    
    
    $
    20,742
  
 LodgeNet Interactive Corporation
    
    F-7
    
    Form 10-K 2007




---



##### Table of Contents



LodgeNet Interactive Corporation and Subsidiaries
 
 Notes to Consolidated Financial Statements
 Note 1  The Company
   Note 2  Summary of Significant Accounting Policies
 Revenue Recognition 
 
    
    Guest Entertainment 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 Entertainment 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.
 
    
    Cable Programming Services.We generate revenue from the sale of basic and premium
television programming to individual hotels. In contrast to Guest Entertainment Services,
where the hotel guest is charged directly for the service, we charge the hotel for our Cable
Programming Services. We recognize revenue from the sale of Cable Programming 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 basic and premium programming services where the revenue is
deferred and recognized in the periods that services are provided.
 
    
    Broadband System Sales.We provide broadband 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.
 
    
    Broadband 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.
 
 LodgeNet Interactive Corporation
    
    F-8
    
    Form 10-K 2007




---



##### Table of Contents




    
    Advertising and Media Services.We generate revenue from the sale of advertising-based
media services within our hospitality media and connectivity businesses through our
wholly-owned subsidiary, The Hotel Networks, and server based channels within our interactive
room base. The Hotel Networks, which was acquired in the On Command transaction (See Note 3),
delivers targeted advertising to more than 350,000 hotel rooms on 10 popular
satellite-delivered channels such as MSNBC, CNBC, Fox News and The Weather Channel. In
addition to the satellite platform, we generate revenue from server based channels, which we
have operating in approximately 400,000 of our rooms today, and other interactive and
location-based applications, that can be delivered by our interactive television platform.
Advertising revenue is recognized, net of agency commissions, when advertisements are
broadcast and when collection is reasonably assured. We establish the prices charged to each
advertiser and no future performance obligations exist on advertising that has been broadcast.
Persuasive evidence of an arrangement exists through our contracts with each advertiser.
 
    
    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 was recognized ratably over the
one-year maintenance period after the equipment is installed. The contracted system hardware,
installation and maintenance elements were 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. In the fourth quarter of 2007, we attained 100% renewal activity for
maintenance services therefore establishing VSOE. Effective in the fourth quarter, the entire
selling price of the interactive system was 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 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.
 
 LodgeNet Interactive Corporation
    
    F-9
    
    Form 10-K 2007




---



##### Table of Contents




    
    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.
 Principles of Consolidation 
 Foreign Currency Translation 
 Use of Estimates 
 Long-Lived Asset 
 Property and Equipment 
 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
 
 LodgeNet Interactive Corporation
    
    F-10
    
    Form 10-K 2007




---



##### Table of Contents



YearsHotel contracts and relationships
    
    
    10 - 20Tradenames
    
    
    7Acquired technologies and patents
    
    
    5Content agreements and relationships
    
    
    4
 Allowance for Excess or Obsolete System Components 
 Software Development 
 Concentration of Credit Risks and Customer Data 
 
 LodgeNet Interactive Corporation
    
    F-11
    
    Form 10-K 2007




---



##### Table of Contents



Significant Vendors 
 Allowance for Doubtful Accounts 
 Derivative Financial Instruments 
 Income Taxes 
 Comprehensive Income (Loss) 
 
 LodgeNet Interactive Corporation
    
    F-12
    
    Form 10-K 2007




---



##### Table of Contents



Unrealized Gain
    
    
    Foreign
    
    
    Accumulated(Loss) on
    
    
    Currency
    
    
    OtherDerivative
    
    
    Translation
    
    
    ComprehensiveInstruments
    
    
    Adjustment
    
    
    Income (Loss)Balance, December 31, 2004
    
    $
    (3,412
    )
    
    $
    1,480
    
    
    $
    (1,932
    )Change during period
    
    
    3,256
    
    
    
    241
    
    
    
    3,497Balance, December 31, 2005
    
    
    (156
    )
    
    
    1,721
    
    
    
    1,565Change during period
    
    
    156
    
    
    
    49
    
    
    
    205Balance, December 31, 2006
    
    
    
    
    
    
    1,770
    
    
    
    1,770Change during period
    
    
    (16,897
    )
    
    
    4,963
    
    
    
    (11,934
    )Balance, December 31, 2007
    
    $
    (16,897
    )
    
    $
    6,733
    
    
    $
    (10,164
    )
 Treasury Stock 
 Earnings Per Share Computation 
  2007
    
    2006
    
    2005Average shares outstanding  basic
    
    
    21,758,066
    
    
    
    18,332,824
    
    
    
    17,923,297Dilutive effect of stock options, non-
vested shares and warrants
    
    
    
    
    
    
    508,093
    
    
    
    Average shares outstanding  diluted
    
    
    21,758,066
    
    
    
    18,840,917
    
    
    
    17,923,297Antidilutive securities excluded
from calculation
    
    
    300,600
    
    
    
    295,100
    
    
    
    3,611,774
  2007
    
    2006
    
    2005Potential dilutive common shares
    
    
    1,355,631
    
    
    
    2,056,754
    
    
    
    4,295,749
 Share-based Compensation  Share-Based Payment
 
 LodgeNet Interactive Corporation
    
    F-13
    
    Form 10-K 2007




---



##### Table of Contents



Statements of Cash Flows 
 Effect of Recently Issued Accounting Standards  Fair Value
Measurements
 The Fair Value Option for Financial
Assets and Financial Liabilities  Including an Amendment of FASB Statement No. 115.
 Non-controlling Interests in Consolidated Financial Statements  An amendment of ARB No. 51 prohibited
 Business Combinations
 §
    
    Acquisition costs will generally be expensed as incurred;§
    
    In Process R&D will be recorded as an indefinite lived intangible asset at
acquisition date;§
    
    Restructuring costs associated with a business combination will generally be
expensed subsequent to the acquisition date;§
    
    Liabilities will be recorded at acquisition date fair value and subsequently
re-measured;§
    
    Minority interests to be valued at fair value at acquisition date; and§
    
    Changes in deferred tax asset valuation allowances and income tax uncertainties
after the acquisition date generally will affect income tax expense.
 prohibited
 
 LodgeNet Interactive Corporation
    
    F-14
    
    Form 10-K 2007




---



##### Table of Contents



Note 3  Investments & Business Combinations
   Receivables
    
    $
    2,082Other current assets
    
    
    794Property and equipment
    
    
    474Intangible assets
    
    
    4,900Goodwill
    
    
    9,596Other assets
    
    
    17Accounts payable
    
    
    (1,127
    )Deferred revenue
    
    
    (1,251
    )Total purchase consideration
    
    $
    15,485
    
 LodgeNet Interactive Corporation
    
    F-15
    
    Form 10-K 2007




---



##### Table of Contents



Cash
    
    $
    4,656Receivables
    
    
    29,757Other current assets
    
    
    3,073Property and equipment
    
    
    158,646Intangible assets
    
    
    129,970Goodwill
    
    
    98,423Other assets
    
    
    5,567Accounts payable
    
    
    (24,039
    )Accrued liabilities
    
    
    (16,081
    )Other long-term liabilities
    
    
    (1,093
    )Minority interest
    
    
    (1,030
    )Total purchase consideration
    
    $
    387,849
  Property and equipment
    
    $
    372Intangible assets
    
    
    190Goodwill
    
    
    3,274Other long-term liabilities
    
    
    300Minority interest
    
    
    864Total purchase consideration
    
    $
    5,000
   Pro FormaDecember 31,2007
    
    
    2006Revenues:LodgeNet Interactive
    
    $
    296,752
    
    
    $
    288,213On Command
    
    
    230,666
    
    
    
    234,206StayOnline
    
    
    20,607
    
    
    
    11,965Total revenues
    
    $
    548,025
    
    
    $
    534,384Net loss
    
    $
    (79,038
    )
    
    $
    (50,313
    )Net loss per share
    
    $
    (3.51
    )
    
    $
    (2.35
    )
  
 LodgeNet Interactive Corporation
    
    F-16
    
    Form 10-K 2007




---



##### Table of Contents



Note 4  Fair Value of Financial Instruments
  2007
    
    2006Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    ValueAssets (Liabilities):Interest rate swaps
    
    $
    16,897
    
    
    $
    16,897
    
    
    $
    
    
    
    $
    Other long-term
liability
    
    $
    
    
    
    $
    
    
    
    $
    (2,225
    )
    
    $
    (2,225
    )Long-term debt
    
    $
    (624,594
    )
    
    $
    (599,718
    )
    
    $
    (270,169
    )
    
    $
    (285,669
    )
  Note 5  Property and Equipment
  2007
    
    
    2006Land, building and equipment
    
    $
    105,247
    
    
    $
    85,642Guest Pay systems:Installed system costs
    
    
    646,095
    
    
    
    473,930Customer acquisition costs
    
    
    55,080
    
    
    
    53,156System components
    
    
    24,966
    
    
    
    26,464Software costs
    
    
    33,783
    
    
    
    22,520Total
    
    
    865,171
    
    
    
    661,712Less  depreciation and amortization
    
    
    (541,208
    )
    
    
    (475,942
    )Property and equipment, net
    
    $
    323,963
    
    
    $
    185,770
  Note 6  Debt Issuance Costs
  2007
    
    
    2006Debt issuance costs
    
    $
    12,739
    
    
    $
    13,617Accumulated amortization
    
    
    (1,365
    )
    
    
    (7,913
    )$
    11,374
    
    
    $
    5,704
 
 LodgeNet Interactive Corporation
    
    F-17
    
    Form 10-K 2007




---



##### Table of Contents



Note 7  Goodwill & Other Intangible Assets
     
 LodgeNet Interactive Corporation
    
    F-18
    
    Form 10-K 2007




---



##### Table of Contents



2007
    
    
    2006Carrying
    
    
    Accumulated
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationAssets subject to amortization:Acquired contracts and relationships
    
    $
    120,315
    
    
    $
    (4,884
    )
    
    $
    
    
    
    $
    Other acquired intangibles
    
    
    12,984
    
    
    
    (8,263
    )
    
    
    16,503
    
    
    
    (15,813
    )Tradenames
    
    
    2,955
    
    
    
    (225
    )
    
    
    
    
    
    
    Acquired patents
    
    
    5,032
    
    
    
    (1,384
    )
    
    
    
    
    
    
    $
    141,286
    
    
    $
    (14,756
    )
    
    $
    16,503
    
    
    $
    (15,813
    )
  Note 8  Accrued Expenses
  2007
    
    
    2006Accrued taxes
    
    $
    8,405
    
    
    $
    4,088Accrued compensation
    
    
    11,485
    
    
    
    6,842Accrued interest
    
    
    
    
    
    
    946Accrued programming related
    
    
    1,785
    
    
    
    1,748Accrued restructuring
    
    
    5,774
    
    
    
    Other
    
    
    2,669
    
    
    
    4,569$
    30,118
    
    
    $
    18,193
 Note 9  Long-term Debt and Credit Facilities
  2007
    
    
    2006Bank Credit Facility:Bank term loan
    
    $
    621,875
    
    
    $
    68,125Revolving credit facility
    
    
    
    
    
    
    9.50% senior notes
    
    
    10
    
    
    
    200,000Capital leases
    
    
    2,709
    
    
    
    2,044624,594
    
    
    
    270,169Less current maturities
    
    
    (7,398
    )
    
    
    (2,536
    )$
    617,196
    
    
    $
    267,633
 Bank Credit Facility 3⁄4
 
 LodgeNet Interactive Corporation
    
    F-19
    
    Form 10-K 2007




---



##### Table of Contents



9.50% Senior Notes 3⁄4 pari passu
  Capital Leases
  2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    ThereafterLong-term debt
    
    $
    6,250
    
    
    $
    6,250
    
    
    $
    6,250
    
    
    $
    6,250
    
    
    $
    6,250
    
    
    $
    590,635Capital leases
    
    
    1,338
    
    
    
    938
    
    
    
    604
    
    
    
    194
    
    
    
    1
    
    
    
    7,588
    
    
    
    7,188
    
    
    
    6,854
    
    
    
    6,444
    
    
    
    6,251
    
    
    
    590,635Less amount representing
interest on capital leases
    
    
    (190
    )
    
    
    (109
    )
    
    
    (53
    )
    
    
    (14
    )
    
    
    
    
    
    
    $
    7,398
    
    
    $
    7,079
    
    
    $
    6,801
    
    
    $
    6,430
    
    
    $
    6,251
    
    
    $
    590,635
  
 LodgeNet Interactive Corporation
    
    F-20
    
    Form 10-K 2007




---



##### Table of Contents



Note 10  Commitments and Contingencies
 Programming Agreements SM
 Minimum Guarantees Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others.
  Operating Leases 
 Legal Proceedings
  Note 11  Stockholders Equity
 Preferred Stock 
 Common Stock 
 
 LodgeNet Interactive Corporation
    
    F-21
    
    Form 10-K 2007




---



##### Table of Contents



Share Repurchase Program 
 Stockholder Rights Plan 
 Note 12  Stock Option Plans
   Accounting for Stock Issued to
Employees Accounting for
Stock-Based Compensation Share-Based Payment
 
 LodgeNet Interactive Corporation
    
    F-22
    
    Form 10-K 2007




---



##### Table of Contents



Years Ended December 31,2007
    
    
    2006
    
    
    2005Compensation Cost:Stock options
    
    $
    506
    
    
    $
    700
    
    
    $
    57Non-vested (restricted) shares
    
    
    1,231
    
    
    
    977
    
    
    
    231Total share-based compensation expense
    
    $
    1,737
    
    
    $
    1,677
    
    
    $
    288Compensation expense per common share:
    
    $
    0.08
    
    
    $
    0.09
    
    
    $
    0.02
  Pro Forma Information under Statement 123
  Year EndedDecember 31,2005Net income (loss), as reported
    
    $
    (6,959
    )Add: stock based employee compensation expense
included in reported net income (loss)
    
    
    288Less: stock based employee compensation expense
determined under fair value method, net of
related tax effects
    
    
    (5,708
    )Net income (loss), pro forma
    
    $
    (12,379
    )Net income (loss) per common share (basic and diluted)As reported
    
    $
    (0.39
    )Pro forma
    
    $
    (0.69
    )
 Stock Option Valuation and Expense Information under Statement 123(R)
  
 LodgeNet Interactive Corporation
    
    F-23
    
    Form 10-K 2007




---



##### Table of Contents



Years Ended December 31,2007
    
    2006
    
    2005Weighted average fair value of options granted
    
    $
    16.40
    
    
    $
    12.23
    
    
    $
    8.90Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Weighted average risk-free interest
    
    
    4.5
    %
    
    
    4.4
    %
    
    
    3.5
    %Weighted average expected volatility
    
    
    49.6
    %
    
    
    53.5
    %
    
    
    55.6
    %Weighted average expected life  employee
    
    6.25 years
    
    
    
    N/A
    
    
    5.0 yearsWeighted average expected life  non-employee
director
    
    
    N/A
    
    
    8.47 years
    
    
    5.0 years
 
 LodgeNet Interactive Corporation
    
    F-24
    
    Form 10-K 2007




---



##### Table of Contents



WeightedWeighted
    
    AverageAverage
    
    Remaining
    
    AggregateExercise
    
    Term
    
    IntrinsicOptions
    
    Price
    
    in Years
    
    ValueOutstanding, December 31, 2004
    
    
    2,544,500
    
    
    $
    15.81Granted
    
    
    297,920
    
    
    
    17.38Exercised
    
    
    (288,482
    )
    
    
    12.28Forfeited/canceled
    
    
    (61,863
    )
    
    
    18.62Outstanding, December 31, 2005
    
    
    2,492,075
    
    
    
    16.33Granted
    
    
    25,000
    
    
    
    19.09Exercised
    
    
    (587,721
    )
    
    
    14.28Forfeited/canceled
    
    
    (56,400
    )
    
    
    21.79Outstanding, December 31, 2006
    
    
    1,872,954
    
    
    
    16.85Granted
    
    
    127,500
    
    
    
    30.51Exercised
    
    
    (818,454
    )
    
    
    15.96Forfeited/canceled
    
    
    (16,550
    )
    
    
    17.78Outstanding, December 31, 2007
    
    
    1,165,450
    
    
    $
    18.96
    
    
    
    5.2
    
    
    $
    1,304,715Options exercisable, December
31, 2007
    
    
    1,024,036
    
    
    $
    17.53
    
    
    
    4.6
    
    
    $
    1,298,245
    Non-Vested Shares (Restricted Stock)
    
 LodgeNet Interactive Corporation
    
    F-25
    
    Form 10-K 2007




---



##### Table of Contents



Years Ended December 31,2007
    
    
    2006
    
    
    2005Compensation cost  non-vested shares:Time-based vesting
    
    $
    753
    
    
    $
    530
    
    
    $
    231Performance-based vesting
    
    
    478
    
    
    
    447
    
    
    
    Total share-based compensation
expense  non-vested shares
    
    $
    1,231
    
    
    $
    977
    
    
    $
    231
  Year EndedDecember 31, 2007Time Based
    
    
    Performance BasedWeighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageNon-vested
    
    
    Grant-date
    
    
    Non-vested
    
    
    Grant-dateShares
    
    
    Fair Value
    
    
    Shares
    
    
    Fair ValueOutstanding, beginning of
period
    
    
    78,500
    
    
    $
    16.93
    
    
    
    101,550
    
    
    $
    14.47Granted
    
    
    28,323
    
    
    
    31.97
    
    
    
    3,658
    
    
    
    31.10Vested
    
    
    (22,250
    )
    
    
    22.62
    
    
    
    
    
    
    
    Forfeited/canceled
    
    
    (5,250
    )
    
    
    16.02
    
    
    
    (3,600
    )
    
    
    13.76Outstanding, end of period
    
    
    79,323
    
    
    $
    20.76
    
    
    
    101,608
    
    
    $
    15.10
 
 LodgeNet Interactive Corporation
    
    F-26
    
    Form 10-K 2007




---



##### Table of Contents



Unrecognized Compensation Expense
  Weighted averageDecember 31,
    
    
    recognition period2007
    
    
    (months)Unrecognized compensation cost:Stock options, net of expected forfeitures
    
    $
    1,705
    
    
    
    36.0Non-vested shares  time based vesting
    
    
    632
    
    
    
    18.5Non-vested shares  performance based vesting
    
    
    495
    
    
    
    11.6Total unrecognized compensation cost
    
    $
    2,832
 Note 13  Warrants
     Note 14  Employee Benefit Plans
  Note 15  Restructuring
 Accounting for Costs Associated with Exit or Disposal Activities.
 
 LodgeNet Interactive Corporation
    
    F-27
    
    Form 10-K 2007




---



##### Table of Contents



12/31/06
    
    
    Expenses
    
    
    
    
    
    12/31/07Balance
    
    
    Incurred
    
    
    Payments
    
    
    BalanceSeverance and other benefit related costs
    
    $
    
    
    
    $
    9,094
    
    
    $
    (3,805
    )
    
    $
    5,289Cost of closing redundant facilities
    
    
    
    
    
    
    955
    
    
    
    (470
    )
    
    
    485Other
    
    
    
    
    
    
    1,109
    
    
    
    (1,109
    )
    
    
    Total
    
    $
    
    
    
    $
    11,158
    
    
    $
    (5,384
    )
    
    $
    5,774
 Note 16  Income Taxes
  2007
    
    
    2006
    
    
    2005Domestic
    
    $
    (67,692
    )
    
    $
    1,159
    
    
    $
    (6,288
    )Foreign
    
    
    1,837
    
    
    
    981
    
    
    
    (221
    )Total
    
    $
    (65,855
    )
    
    $
    2,140
    
    
    $
    (6,509
    )
  2007
    
    
    2006
    
    
    2005Federal income tax benefit at statutory rate (35%)
    
    $
    (23,049
    )
    
    $
    749
    
    
    $
    (2,341
    )State income taxes, net of federal benefit
    
    
    403
    
    
    
    441
    
    
    
    (241
    )Other non-deductible items
    
    
    345
    
    
    
    134
    
    
    
    152Other
    
    
    (58
    )
    
    
    
    
    
    
    Net change to valuation allowance, excluding
change due to acquisitions
    
    
    21,676
    
    
    
    (1,025
    )
    
    
    2,880(Benefit) provision for income taxes
    
    $
    (683
    )
    
    $
    299
    
    
    $
    450
  2007
    
    
    2006
    
    
    2005Current:Federal
    
    $
    
    
    
    $
    
    
    
    $
    State
    
    
    622
    
    
    
    224
    
    
    
    365Foreign
    
    
    (1,305
    )
    
    
    75
    
    
    
    85(683
    )
    
    
    299
    
    
    
    450Deferred:Federal
    
    $
    
    
    
    $
    
    
    
    $
    State
    
    
    
    
    
    
    
    
    
    
    Foreign
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total income tax expense (benefit)
    
    $
    (683
    )
    
    $
    299
    
    
    $
    450
 
 LodgeNet Interactive Corporation
    
    F-28
    
    Form 10-K 2007




---



##### Table of Contents



2007
    
    
    2006Deferred tax assets:Tax net operating loss and tax credit
carryforwards
    
    $
    216,134
    
    
    $
    64,096Capital loss carryforwards
    
    
    1,469
    
    
    
    1,431Reserves and accruals
    
    
    1,579
    
    
    
    1,588Deferred credits, net
    
    
    4,636
    
    
    
    3,371Book over tax depreciation/amortization
    
    
    
    
    
    
    21,692Other tax assets
    
    
    8,292
    
    
    
    Tax valuation allowance
    
    
    (197,232
    )
    
    
    (92,178
    )Total deferred tax assets
    
    
    34,878
    
    
    
    Deferred tax liabilities:Tax over book depreciation/amortization
    
    
    (34,878
    )
    
    
    Total deferred tax liabilities
    
    
    (34,878
    )
    
    
    Net deferred tax liability
    
    $
    
    
    
    $
    
       
 LodgeNet Interactive Corporation
    
    F-29
    
    Form 10-K 2007




---



##### Table of Contents



Beginning
    
    
    
    
    
    
    
    EndingBalance
    
    Additions
    
    Deductions
    
    BalanceUncertain Tax Benefit
    
    $
    1,305
    
    
    $
    677
    
    
    $
    (1,305
    )
    
    $
    677
   Note 17  Segment Information
  2007
    
    
    2006
    
    
    2005United States
    
    $
    454,063
    
    
    $
    275,190
    
    
    $
    263,927Canada
    
    
    27,794
    
    
    
    12,310
    
    
    
    11,083Mexico
    
    
    2,472
    
    
    
    
    
    
    
    Other
    
    
    1,259
    
    
    
    713
    
    
    
    761Total
    
    $
    485,588
    
    
    $
    288,213
    
    
    $
    275,771
  2007
    
    
    2006United States
    
    $
    293,048
    
    
    $
    177,979Canada
    
    
    24,093
    
    
    
    7,791Mexico
    
    
    6,822
    
    
    
    Total
    
    $
    323,963
    
    
    $
    185,770
 Note 18  Impact of Hurricane Katrina
  Note 19  Write-Off of Debt Issuance Costs
  
 LodgeNet Interactive Corporation
    
    F-30
    
    Form 10-K 2007




---



##### Table of Contents



Note 20  Selected Quarterly Financial Data (Unaudited)
  Quarter
    
    Quarter
    
    Quarter
    
    QuarterEnded
    
    Ended
    
    Ended
    
    EndedMarch 31,
    
    June 30,
    
    September 30,
    
    December 31,2006Revenues
    
    $
    70,193
    
    
    $
    71,871
    
    
    $
    76,510
    
    
    $
    69,639Net (loss) income
    
    
    (654
    )
    
    
    433
    
    
    
    2,184
    
    
    
    (122
    )Per common share (basic and diluted)
    
    $
    (0.04
    )
    
    $
    0.02
    
    
    $
    0.12
    
    
    $
    (0.01
    )2007Revenues
    
    $
    75,285
    
    
    $
    134,937
    
    
    $
    142,608
    
    
    $
    132,758Net loss
    
    
    (28
    )
    
    
    (34,031
    )
    
    
    (11,411
    )
    
    
    (19,702
    )Per common share (basic and diluted)
    
    $
    
    
    
    $
    (1.52
    )
    
    $
    (0.50
    )
    
    $
    (0.87
    )
 
 LodgeNet Interactive Corporation
    
    F-31
    
    Form 10-K 2007




---



##### Table of Contents



LodgeNet Interactive Corporation and Subsidiaries
 
 Schedule II  Valuation and Qualifying Accounts
  Additions
    
    
    
    
    
    AdditionsBalance
    
    Charged to
    
    Additions
    
    Related to
    
    
    
    
    
    BalanceBeginning
    
    Costs and
    
    Related to
    
    Other
    
    
    
    
    
    End ofDescription
    
    of Period
    
    Expenses
    
    Acquisition
    
    Accounts
    
    Deductions
    
    PeriodAllowances deducted from related
balance sheet accounts:Year Ended December 31, 2005:Allowance for Excess or
Obsolete
System Components
    
    $
    1,300
    
    
    $
    725
    
    
    $
    
    
    
    $
    
    
    
    $
    1,325
    
    
    $
    700Allowance for Doubtful
Accounts
    
    
    300
    
    
    
    135
    
    
    
    
    
    
    
    
    
    
    
    135
    
    
    
    300Allowance for System Removal
    
    
    300
    
    
    
    1,534
    
    
    
    
    
    
    
    
    
    
    
    994
    
    
    
    840Deferred Tax Valuation
Allowance
    
    
    86,647
    
    
    
    
    
    
    
    
    
    
    
    7,721
    
    
    
    1,166
    
    
    
    93,202Year Ended December 31, 2006:Allowance for Excess or
Obsolete
System Components
    
    $
    700
    
    
    $
    946
    
    
    $
    
    
    
    $
    
    
    
    $
    1,186
    
    
    $
    460Allowance for Doubtful
Accounts
    
    
    300
    
    
    
    (154
    )
    
    
    
    
    
    
    
    
    
    
    (29
    )
    
    
    175Allowance for System Removal
    
    
    840
    
    
    
    2,155
    
    
    
    
    
    
    
    
    
    
    
    2,175
    
    
    
    820Deferred Tax Valuation
Allowance
    
    
    93,202
    
    
    
    
    
    
    
    
    
    
    
    2,362
    
    
    
    3,386
    
    
    
    92,178Year Ended December 31, 2007:Allowance for Excess or
Obsolete
System Components
    
    $
    460
    
    
    $
    1,405
    
    
    $
    
    
    
    $
    
    
    
    $
    1,190
    
    
    $
    675Allowance for Doubtful
Accounts
    
    
    175
    
    
    
    392
    
    
    
    
    
    
    
    
    
    
    
    135
    
    
    
    432Allowance for System Removal
    
    
    820
    
    
    
    2,115
    
    
    
    
    
    
    
    
    
    
    
    2,513
    
    
    
    422Deferred Tax Valuation
Allowance
    
    
    92,178
    
    
    
    
    
    
    
    64,755
    
    
    
    40,637
    
    
    
    338
    
    
    
    197,232
 
 LodgeNet Interactive Corporation
    
    F-32
    
    Form 10-K 2007