Lodgenet Interactive (LNET) 11-K Annual report of employee stock purchases

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 11-K

(Mark One):

þ ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the Fiscal Year Ended December 31, 2005

or

o TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

Commission file Number: 0-22334

LODGENET ENTERTAINMENT CORPORATION 401(k) PLAN

(Title of the Plan)

LODGENET ENTERTAINMENT CORPORATION

(Name of Issuer of the Securities Held Pursuant to the Plan)

DELAWARE	46-0371161
(State of Incorporation)	(IRS Employer Identification Number)

3900 West Innovation Street, Sioux Falls, South Dakota 57107
(Address of Principal Executive Offices)

(605) 988-1000
(Registrant’s Telephone Number, including Area Code)

INDEX

	PAGE
Form 11-K cover page for the LodgeNet Entertainment Corporation 401(k) Plan	Cover
Index		2
Signature		3
FINANCIAL STATEMENTS AND EXHIBITS
The following financial statements of the LodgeNet Entertainment Corporation 401(k) Plan for the time periods specified below are submitted herewith together with the Independent Registered Public Accounting Firm’s report thereon:
Report of Independent Registered Public Accounting Firm		4
Statement of net assets available for benefits December 31, 2005 and 2004		5
Statement of changes in net assets available for benefits year ended December 31, 2005		6
Notes to financial statements December 31, 2005 and 2004		7
Schedule of assets (held at end of year) December 31, 2005		11
Exhibit 23-Consent of Independent Registered Public Accounting Firm		12

All other schedules are omitted since the required information is not present, or is not present in the amounts sufficient to require submission of a schedule; or because the information required is included in the financial statements and notes thereto.

2

Signature

     The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.

	LodgeNet Entertainment Corporation 401(k) Plan
	(Name of Plan)
Date: June 29, 2006	/s/ Scott C. Petersen     Scott C. Petersen
	President, Chief Executive Officer

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Report of Independent Registered Public Accounting Firm

To the Participants and Administrator of the
LodgeNet Entertainment Corporation 401(k) Plan

In our opinion, the accompanying statement of net assets available for benefits and the related statement of changes in net assets available for benefits present fairly, in all material respects, the net assets available for benefits of LodgeNet Entertainment Corporation 401 (k) Plan (the “Plan”) at December 31, 2005 and 2004, and the changes in net assets available for benefits for the year ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of assets held at end of year is presented for the purpose of additional analysis and is not a required part of the basic financial statements but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This supplemental schedule is the responsibility of the Plan’s management. The supplemental schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

PricewaterhouseCoopers LLP

Minneapolis, Minnesota
May 19, 2006

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LODGENET ENTERTAINMENT CORPORATION 401(k) PLAN

Statement of net assets available for benefits

As of December 31

	2005		2004
Investments, at fair value	$	22,687,344	$	19,846,335
Net assets available for benefits	$	22,687,344	$	19,846,335

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

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LODGENET ENTERTAINMENT CORPORATION 401(k) PLAN

Statement of changes in net assets available for benefits

For the year ended December 31

	2005
Investment income
Interest and dividend income	$	566,500
Net appreciation of investments		421,882
Total investment income		988,382
Contributions
Participant		2,280,376
Employer		796,327
Rollover		309,713
Total contributions		3,386,416
Distributions to participants		(1,533,789	)
Net increase		2,841,009
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of year		19,846,335
End of year	$	22,687,344

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

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LODGENET ENTERTAINMENT CORPORATION 401(k) PLAN

Notes to financial statements

December 31, 2005 and 2004

1 Description of the Plan

The following is not a comprehensive description of LodgeNet Entertainment Corporation 401(k) Plan (the “Plan”) and, therefore, does not include all situations and limitations covered by the Plan. Participants should refer to the plan agreement for a more complete description of the Plan’s provisions.

General and Eligibility

The Plan is a contributory defined contribution plan covering all eligible full and part-time employees of LodgeNet Entertainment Corporation (the “Company”). Employees become eligible to make 401(k) pre-tax contributions to the Plan beginning on January 1, April 1, July 1 or October 1 immediately following completion of three consecutive months of service and attaining age 18. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and the Internal Revenue Code (the “Code”).

Plan Operations

The Company functions as the plan sponsor and administrator. FASCorp is utilized as record keeper and SunTrust Bank is utilized as trustee and asset custodian of the Plan.

Contributions

The maximum percentage of compensation an employee may contribute to the Plan is 50%, with an annual maximum contribution as provided by the Code. Participants may also rollover amounts representing distributions from other qualified plans into the Plan. Amounts contributed are invested at the discretion and direction of plan participants in any of the Plan’s investment options, one of which is to invest in the common stock of the Company.

The Company may make a discretionary match of participant contributions equal to 50% of the first 6% of each participant’s eligible contribution for the plan year. Amounts contributed are allocated among the investment funds in the same manner as participant contributions. During 2005, the Company elected to make this discretionary match.

The Company may make additional discretionary contributions to the Plan. In a year in which the Company chooses to make discretionary contributions, the contributions will be allocated based upon a participant’s proportionate share of total compensation for all participants and are allocated among the investment funds in the same manner as participant contributions. There were no additional discretionary contributions in 2005.

Vesting

Participants are immediately vested in their contributions plus actual earnings thereon. Vesting in the Company’s matching and additional discretionary contributions, plus actual earnings thereon, is based on years of service. A participant is 100% vested after five years of credited service based on the following percentages:

	Percent vested
Less than one year of service		0	%
One year but less than two		20
Two years but less than three		40
Three years but less than four		60
Four years but less than five		80
Five years or more		100

If a participant dies or becomes disabled while still employed by the Company, his or her entire plan account balance becomes 100% vested.

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Forfeitures

Forfeitures of the nonvested account balances result from participants who withdraw from the Plan before becoming fully vested in employer contributions and earnings thereon. Forfeitures are used to reduce future employer contributions. There was $50,999 in forfeitures used to offset contributions in 2005. There were no forfeitures available for future utilization at December 31, 2005 and approximately $35,000 available for future utilization at December 31, 2004.

Participant Loans

Participants may borrow funds from the Plan up to 50% of their vested balance at an interest rate of 1% over the prime interest rate. The prime interest rate will be determined as of the first business day of each month. Loans will not be granted in amounts less than $1,000 or greater than $50,000. Loans are evidenced by a promissory note and have a repayment period of up to five years, unless the loan qualifies as a home loan for which the repayment term is up to 15 years. At December 31, 2005, interest rates on loans range from 5% to 9%, and are due at various dates through August 2019.

Distribution of Benefits

Distributions are generally made upon termination of employment, retirement or disability. Distributions are based upon the value of participant account balances when the benefits are withdrawn and are paid in a lump sum distribution for the entire vested account balance or a portion of the vested account balance upon participant election. If the vested account balance is less than $5,000, the balance is paid in a lump sum distribution as soon as administratively possible. Effective March 28, 2005, the vested account balance threshold decreased from $5,000 to $1,000 for lump sum distributions. Distributions may be made earlier for hardship reasons in accordance with Internal Revenue Service (“IRS”) regulations.

Account Balances

Each participant’s account is credited with the participant’s contributions and an allocation of Company contributions and Plan earnings. Plan earnings are allocated based on participant account balances as defined. Participants may invest their contributions, and redirect their account balances among the various fund options, including a Company stock fund. Company contributions are invested in the same investment options as the participant contributions.

2 Summary of Significant Accounting Policies

The following significant accounting policies were used to prepare the financial statements in accordance with accounting principles generally accepted in the United States of America.

Basis of Accounting

The financial statements have been prepared on the accrual basis of accounting.

Investment Valuation and Income Recognition

Investments, other than loans, consist primarily of mutual funds and Company stock and are recorded at fair value as determined by SunTrust Bank, the trustee of the Plan, by reference to quoted market prices as of December 31, 2005 and 2004. Participant loans are valued at estimated fair value, consisting of principal outstanding and any related accrued interest.

Investment income is recorded when earned. Dividend income is recorded on ex-dividend date. The Plan presents in the Statement of Changes in Net Assets Available for Benefits the net appreciation (depreciation) in the fair value of investments, which consists of the realized gains or losses and the unrealized appreciation (depreciation) on investments.

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Plan Expenses

Administrative expenses of the Plan are paid by the Company.

Benefits

Benefits are recorded when paid.

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires the Company to make significant estimates and assumptions that affect the reported amounts of net assets available for benefits at the date of the financial statements and the reported amounts of changes in net assets available for benefits during the reporting period. Actual results could differ from those estimates.

Risk and Uncertainties

The Plan provides for investments that, in general, are exposed to various risks, such as interest rates, market conditions and credit risk. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the values of investment securities, it is possible that changes in risk factors in the near term could materially affect participants’ account balances and the amounts reported in the financial statements.

3 Investments

The following presents investments that represent 5% or more of the Plan’s net assets at December 31:

	2005		2004
Mutual Funds
MFS Massachusetts Investors Growth Fund	$	2,804,790	$	2,564,097
SunTrust Retirement 500 Index Fund Class B		2,708,494		2,686,610
Templeton Growth Fund		2,587,117		2,140,471
T. Rowe Price Growth Stock Fund		2,047,312		1,773,518
SunTrust Retirement Stable Asset Fund		1,850,883		1,622,296
STI Classic Life Vision Growth & Income Fund		1,420,119		1,271,043
American Century Income and Growth Advisor		1,156,620		1,045,416
Franklin Small-Mid Cap Growth Fund		1,144,040		719,955
STI Classic Growth and Income Fund		1,092,261		800,191
All other mutual funds investments, individually less than 5% of Plan assets		4,068,633		3,367,989
Total mutual funds		20,880,269		17,991,586
LodgeNet Entertainment Corporation Common Stock		944,687		1,088,445
Participant loans receivable		862,388		766,304
		22,687,344		19,846,335

Net appreciation of investments for the year ended December 31, 2005, consisted of the following:

Mutual funds	$	646,941
Common stock		(225,059	)
	$	421,882

4 Tax Status

The Plan obtained its latest determination letter on March 25, 2004, in which the IRS stated that the Plan, as then designed, was in compliance with applicable requirements of the Code. The plan has been amended since the effective date of the determination letter; however, the plan administrator believes that the Plan is currently designed and being operated in compliance with the applicable requirements of the Code. Therefore, no provision for income taxes has been included in the Plan’s financial statements.

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5 Plan Termination

Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of the Plan’s termination, participants will become fully vested in their accounts and assets will be distributed in accordance with the Plan document.

6 Party-in-Interest Transactions

The trustee is authorized under contract provisions, or by ERISA regulations providing an administrative or statutory exemption, to invest in funds under its control and in the securities of the Company.

Participant contributions are invested in one or more of the investment fund options under the Plan, including stock of LodgeNet Entertainment Corporation and investment funds under the trustee’s control. In 2005, the amount of such purchases and sales of funds managed by the trustee and of the Company’s stock were as follows:

	Purchases		Sales
SunTrust mutual funds	$	1,536,328	$	1,433,964
LodgeNet Entertainment Corporation Common Stock		991,675		910,373
STI Classic mutual funds		1,752,876		1,324,771

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LODGENET ENTERTAINMENT CORPORATION 401(k) PLAN

(Employer identification number: 46-0371161) (Plan number: 001)

Schedule H, line 4i — Schedule of Assets (Held At End of Year)

As of December 31, 2005

(a)	(b)	(c)	(d)	(e)
		Description of Investment,
		Including Maturity Date,
	Identity of Issue, Borrower,	Rate of Interest, Collateral,
	Lessor or Similar Party	Par or Maturity Date	Cost	Current Value
	American Century Income & Growth Advisor	Mutual Fund	**	$	1,156,620
	American Century Inflation Adjusted Bond Adv	Mutual Fund	**		108,415
	Dreyfus Premier New Leaders Fund	Mutual Fund	**		818,449
	Dreyfus Premier Small Cap Value	Mutual Fund	**		309,287
	Dreyfus Premier Technology Growth Fund	Mutual Fund	**		338,584
	Federated Capital Appreciation Fund	Mutual Fund	**		239,355
	Fidelity Advisor Small Cap	Mutual Fund	**		75,003
	Franklin Small-Mid Cap Growth Fund	Mutual Fund	**		1,144,040
	MFS Massachusetts Investors Growth Fund	Mutual Fund	**		2,804,790
	MFS Massachusetts Research International Fund	Mutual Fund	**		502,160
*	STI Classic Growth & Income Fund	Mutual Fund	**		1,092,261
*	STI Classic International Equity Index Fund	Mutual Fund	**		337,531
*	STI Classic Investment Grade Bond Fund	Mutual Fund	**		591,593
*	STI Classic Life Vision Aggressive Growth Fund	Mutual Fund	**		320,871
*	STI Classic Life Vision Growth & Income Fund	Mutual Fund	**		1,420,119
*	STI Classic Life Vision Moderate Growth Fund	Mutual Fund	**		427,385
*	SunTrust Retirement 500 Index Fund Class B	Mutual Fund	**		2,708,494
*	SunTrust Retirement Stable Asset Fund	Mutual Fund	**		1,850,883
	Templeton Growth Fund	Mutual Fund	**		2,587,117
	T. Rowe Price Growth Stock Fund	Mutual Fund	**		2,047,312
*	LodgeNet Entertainment Corporation	Common Stock, 67,768 shares	**		944,687
*	Participant Loans	Interest ranging from 5.0% to 9.0%, due at various dates through August 2019	**		862,388
	Total investments			$	22,687,344

*	Denotes party-in-interest to the Plan.
**	Historical cost information is not required for participant-directed investments under ERISA.

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