Note 2 — Summary of Significant Accounting Policies

Revenue Recognition — We recognize revenue from various sources as follows:

Ø 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 videos, 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.

Ø Cable Television Programming Services. We generate revenue from the sale of basic and premium cable 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 television programming services. We recognize revenue from the sale of cable television 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 which 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 which services are provided.

Ø Envision. The Envision platform allows us to generate revenue through multiple means. We generate revenue through a one-time setup fee associated with enabling premium applications, such as eCompendium and eConcierge, from the subscription fees for the contract premium applications and through commissions on transactions initiated by guests. As with our cable television programming services, we charge the hotel monthly for these subscriptions. We recognize revenue from the setup upon installation, and the applications 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 services which have been provided to the hotel. Persuasive evidence of an arrangement exists through our long-term contract with each hotel. We recognize commission revenue on transactions initiated by guests in the period in which such services are provided to the hotel guest and when collection is reasonably assured. Persuasive evidence of a purchase exists through the transaction recorded on our system. No future performance obligations exist with respect to these types of transactions once they have been provided to the hotel guest. The prices related to our products or services are fixed or determinable prior to the transaction occurring.

Ø Internet Service and Support. We provide ongoing maintenance, service and call center support services to hotel properties installed by us and also to hotel properties 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 standalone 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.

Ø Internet System Sales. We provide Internet access through the sale and installation of equipment. Revenue from the sale and installation of this equipment is recognized when the equipment is installed. The delivery and installation of the equipment are concurrent. In addition, this equipment, which can be acquired from other manufacturers or retailers, has standalone 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 standalone basis.

Ø Hotel System Sales and Support. We also market and sell our guest entertainment 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 deliverables are not separate units of accounting 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.

Ø Other Cable Television Programming Systems and Equipment Sales and Services. We generate revenues from the sale and installation of cable television programming systems (i.e. DirecTV satellite systems); from the installation of master antenna (“MATV”) equipment, including wiring, at the hotel; and from the sale of miscellaneous system equipment or services, such as in-room terminals, television remotes or other media devices, along with service parts and labor. Prices for the equipment or services are fixed and determinable prior to delivery. The equipment is not proprietary and can be supplied by other vendors. 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 which has been provided.

Ø 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 and server-based channels within our interactive room base. Advertising-based media services include traditional television advertising, video-on-demand or interactive advertising, programming, carriage services and channel access services. Our advertising subsidiary delivers targeted advertising to hotel rooms on, or sells programming providers access to, satellite-delivered channels. In addition to the satellite platform, we generate revenue from server-based channels and other interactive and location-based applications which can be delivered by our interactive television platform. Advertising revenue is recognized, net of agency commissions, when advertisements are broadcast or ratably over a contracted advertising period and when collection is reasonably assured. We establish the prices charged to each advertiser and no future performance obligations exist on advertising which has been broadcast. Persuasive evidence of an arrangement exists through our contracts with each advertiser.

Ø 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. The package price of the interactive system and related maintenance is fixed and determinable prior to delivery, and the consideration of each deliverable is derived using the relative selling price method. The entire selling price of the interactive system is recognized upon installation, and is calculated using the estimated selling price on a standalone basis. The support arrangement, which includes interactive content, software maintenance and system services, is renewable upon completion of the initial year. Vendor-specific objective evidence of selling price based on our renewal history is used to determine the selling price of the support arrangement, which 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.

Principles of Consolidation — The consolidated financial statements include the accounts of LodgeNet Interactive Corporation and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Foreign Currency Translation — The operations of our foreign subsidiaries are measured in their local currencies. The assets and liabilities of these subsidiaries were translated at year-end exchange rates. Statement of operations items were translated at average exchange rates for each month. The translation adjustments are reported as a component of other comprehensive income. The gains or losses on the intercompany accounts between LodgeNet and its foreign subsidiaries, resulting from transactions occurring in foreign currencies, are included in the Consolidated Statements of Operations. The gains or losses on intercompany accounts of a long-term investment nature are reported as a component of other comprehensive income.

Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues, expenses and costs during the reporting periods. Actual results could differ from those estimates.

Long-Lived Assets —We review the carrying value of long-lived assets, such as property and equipment and intangible assets, whenever events or circumstances indicate the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized to reduce the carrying value of the asset to its estimated fair value. Our Chapter 11 bankruptcy filing in January 2013 triggered an assessment of the recoverability of our long-lived assets as of December 31, 2012. We prepared the analysis of our undiscounted future cash flows in accordance with the held and use model included in FASB ASC Topic 360, “Property, Plant and Equipment” which resulted in undiscounted cash flows in excess of the carrying value of our long-lived assets and, as a result, no further evaluation is required and no impairment loss existed.

Property and Equipment — Our property and equipment is stated at cost, net of accumulated depreciation and amortization. Installed hotel systems consist of equipment and related costs of installation, including certain payroll costs, sales commissions and customer acquisition costs directly related to the successful acquisition of hotel contracts. Maintenance and repair costs, which do not significantly extend the useful lives of the respective assets, are charged to system operations expense as incurred. We begin depreciating hotel systems when such systems are installed and activated. Depreciation of other equipment begins when such equipment is placed in service. We attribute no salvage value to equipment, and depreciation and amortization are computed using the straight-line method over the following useful lives:

	Years
Buildings	30
Hotel systems	1 ½ – 7
Other equipment	3 – 10

Allowance for System Removal —We de-install properties through the course of normal operations due to a number of factors, including: poor revenue performance, hotel bankruptcy or collection issues, hotel closings and change in service provider. We regularly evaluate our backlog of properties scheduled for de-installation and record a provision for estimated system removal costs. The costs incurred as a result of de-installation include the labor to de-install the system, as well as unamortized installation costs.

Allowance for Excess or Obsolete System Components —We regularly evaluate component levels to ascertain build requirements based on our backlog and service requirements based on our current installed base. When a certain system component becomes obsolete due to technological changes, and it is determined the component cannot be utilized within our current installed base, we record a provision through depreciation for excess and obsolete components, based on estimated forecasts of product demand and service requirements. Additionally, we have components held primarily for resale, and if the component is not an active item for our assembly or service inventory, we record a provision through cost of sales related to that product. We make every effort to ensure the accuracy of our forecasts of service requirements and future production; however, any significant unanticipated changes in demand or technological advances could have an impact on the value of system components and reported operating results.

Goodwill Impairment — We account for goodwill and other intangible assets under FASB ASC Topic 350, “Intangibles - Goodwill and Other.” Under FASB ASC Topic 350, purchased goodwill is not amortized; rather, it is tested for impairment annually. We perform our goodwill impairment test for each reporting unit during the fourth quarter. Impairment testing could occur more frequently if there is a triggering event or a change in circumstances which indicate the carrying value may not be recoverable, such as a significant deterioration in market conditions.

We operate in three reportable segments, which also represent our reporting units, Hospitality, Advertising Services and Healthcare, for which only Hospitality and Advertising Services have goodwill. An entity may first assess qualitative factors to evaluate if the existence of events or circumstances leads to a determination it is necessary to perform the two-step goodwill impairment test. After assessing the totality of events or circumstances, if it is determined it is more likely than not the fair value of a reporting unit is less than its carrying amount, then the two-step impairment test must be performed for that reporting unit or units. An entity has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to the two-step impairment test, and then resume performing the qualitative assessment in any subsequent period. If an entity determines it is necessary to perform the two-step test, the first step is to compare a reporting unit’s fair value to its carrying amount. Fair value measurements must take into consideration the principal or most advantageous market, the highest and best use, the valuation technique and incorporate market participant assumptions. Valuation techniques to be used to measure fair value are the market approach, income approach and/or cost approach, and must be based on market participant assumptions. We consider the income approach to be a more meaningful indicator of fair value over the use of the market and cost approaches, due to a lack of comparable companies and assets. Using the income approach, we utilize a discounted cash flow analysis based on key assumptions and estimates. We also reconcile the aggregate reporting units’ fair values to the Company’s indicated market capitalization. Key assumptions used to determine fair value include projections of revenue and cost data, capital spending, growth and operating earnings, factored for certain economic conditions. Certain costs within the reporting units are fixed in nature; therefore, changes in revenue which exceed or fall below the fixed cost threshold would have an effect on cash flow and recoverability of goodwill.

If the carrying amount is positive and does not exceed the reporting unit’s fair value, no impairment loss exists. If the carrying amount exceeds the reporting unit’s fair value, the second step (Step 2) is to be performed. Reporting units with zero or negative carrying amounts are required to perform Step 2 of the goodwill impairment test if it is more likely than not goodwill impairment exists. In considering whether it is more likely than not an impairment loss exists, a company would evaluate qualitative factors, including the same factors which would trigger an interim impairment test of goodwill. Factors include a significant deterioration in market conditions, unanticipated competition, a significant decline in revenue and margin or an anticipated sale of a reporting unit. If an entity determines it is more likely than not an impairment exists, Step 2 of the impairment test must be performed for that reporting unit or units. Step 2 involves allocating the fair value of the reporting unit to each asset and liability, with the excess being implied goodwill. An impairment loss occurs if the amount of the recorded goodwill exceeds the implied goodwill.

The declines in Guest Entertainment revenue and in our room base during 2012 occurred at a rate greater than what previously estimated. In addition, our market capitalization declined during 2012. The declines in Guest Entertainment revenue and room base during the first half of 2012 caused the Company to reassess and update our financial plans to reflect these changes in our Hospitality business. These matters were qualitative factors impacting the recovery of our Hospitality reporting unit goodwill, and triggered an assessment of goodwill on an interim basis during the second quarter of 2012. As of June 30, 2012, our Hospitality reporting unit had a negative carrying value of $(85.7) million. As such, we evaluated the qualitative factors and determined it was more likely than not an impairment existed. In Step 2 of our impairment testing, it was determined the estimated fair value of the assets and liabilities of the Hospitality reporting unit exceeded the fair value of the reporting unit, resulting in no implied goodwill. As a result of our second quarter impairment test, we recorded a non-cash asset impairment charge in our Hospitality segment of $92.6 million for all of the remaining Hospitality goodwill.

The liquidity constraints and other events discussed elsewhere triggered an assessment of the recoverability of our goodwill as of December 31, 2012. Under the first step of the two step process, our Advertising unit’s fair value substantially exceeded its carrying value as of December 31, 2012 and, as a result, no further evaluation is required and no impairment loss existed.

Intangible Assets — In accordance with FASB ASC Topics 350, “Intangibles — Goodwill and Other,” and 360, “Property, Plant, and Equipment,” we evaluate the remaining useful lives of our intangible assets with finite lives, and review for impairment when triggering events occur or a change in circumstances warrant modifications to the carrying amount of the assets. These triggering events or circumstances include a significant deterioration in market conditions. The decline in Guest Entertainment revenue, in our room base and our market capitalization triggered an assessment of our intangible assets in the second quarter of 2012. As a result, we recorded a $1.4 million non-cash asset impairment charge related to intangible assets in our Hospitality segment under depreciation and amortization expenses. We periodically evaluate the reasonableness of the useful lives of the intangible assets:

	Years
Hotel contracts and relationships	10 – 20
Tradenames	7
Acquired technologies, rights and patents	2 – 10
Content agreements and relationships	4

The liquidity constraints and other events discussed elsewhere constitute a triggering event, which resulted in our performing an analysis of our long-lived assets as of December 31, 2012. As a result of this analysis the undiscounted cash flows of the assets exceeded the carrying amount, and no further evaluation is required and no impairment loss existed.

Software Developed for Internal Use — We have capitalized certain costs of developing internal use software for our Guest Entertainment systems in accordance with FASB ASC Topic 350, “Intangibles — Goodwill and Other.” This requires capitalization of qualifying costs incurred during the software’s application development stage and to expense as incurred costs incurred during the preliminary project and post implementation/operation stages. We evaluate the remaining useful lives of our intangible assets with finite lives, and review for impairment when triggering events occur or a change in circumstances warrant modifications to the carrying amount of the assets. We capitalized internal system development costs of $6.0 million, $3.6 million and $3.3 million during the years ended December 31, 2012, 2011 and 2010, respectively. Amortization of such costs was $2.5 million, $2.2 million and $2.8 million during the years ended December 31, 2012, 2011 and 2010, respectively.

Software Developed for Sale — We have capitalized certain costs of developing software for sale for our healthcare and Internet systems in accordance with FASB ASC Topic 985, “Software.” This requires capitalization of qualifying costs incurred after the establishment of technological feasibility and to expense costs incurred prior to that point as research and development. Capitalized costs are reported at the lower of unamortized cost or net realizable value, and are amortized to direct costs based on current and future revenue, with an annual minimum equal to the straight-line amortization over the remaining estimated economic life. We capitalized system development for sale costs of approximately $286,000, $459,000 and $613,000 during the years ended December 31, 2012, 2011 and 2010, respectively. Amortization of such costs was approximately $480,000, $567,000 and $415,000 during the years ended December 31, 2012, 2011 and 2010, respectively.

Research and Development Costs — Research and development costs related to our software development activities are expensed as incurred. We charged research and development activities of $290,000, $431,000 and $567,000 to operating expense during the years ended December 31, 2012, 2011 and 2010, respectively.

Concentration of Credit Risks and Customer Data — We derive most of our revenue from entities in the lodging industry. During 2012, hotels owned, managed or franchised by Hilton Worldwide (“Hilton”) and by Marriott International, Inc. (“Marriott”) represented approximately 17.8% and 16.7%, respectively, of our consolidated revenue. The Hilton-owned properties account for approximately 8.8% of total properties operating under the Hilton brand within our room base. In 2000, we signed a master services agreement with Hilton to install, on an exclusive basis, our interactive television system in all Hilton-owned properties and to be the exclusive recommended provider of choice for its managed and franchised properties. In 2008, the Hilton master services agreement was extended through December 31, 2009, and is currently on month-to-month terms. Business has not been held up or impacted by not having this master agreement signed. We also have a master agreement with Marriott which allows us to distribute our services to hotel rooms owned or managed by Marriott. In addition, we have the opportunity to enter into agreements to provide our services to additional hotel rooms franchised by Marriott. The master agreement with Marriott expires on the date when the last contract that is entered into under the master agreement with a hotel owned or managed by Marriott expires. The loss of any of these hotel chain customers, or the loss of a significant number of other hotel chain customers, could have a material adverse effect on our results of operations, cash flows and financial condition. No other customers account for more than 10% of our total revenue.

Significant Vendors — We obtain most of our basic and premium cable television programming pursuant to an agreement with DirecTV, which expires January 1, 2020. During September 2012, we were required by DirecTV to enter into a payment plan in order to maintain service. Despite this forbearance agreement, DirecTV has continued to provide service and work with us as we work through our liquidity matters. Subject to the effective date of our reorganization plan, this agreement will be replaced with a new DirecTV agreement terminating seven years from the effective date and then renewing for five successive one-year terms, unless we or DirecTV provide notice of non-renewal prior to the end of the current term. We pay only for the selected programming provided to a hotel. The loss of this vendor could limit our ability to provide such programming to our customers and impact our results of operations, cash flows and financial condition.

Allowance for Doubtful Accounts —We determine the estimate of the allowance for doubtful accounts considering several factors, including historical experience, aging of the accounts receivable, bad debt recoveries and contract terms between the hotel and us. In accordance with our hotel contracts, monies collected by the hotel for interactive television services are held in trust on our behalf. Collectability is reasonably assured, as supported by our credit check process, nominal write-off history and broad customer base. Our interactive hotel base is well diversified in terms of location, demographics and customer contracts. If the financial condition of a hotel chain or group of hotels were to deteriorate and reduce the ability to remit our monies, we may be required to increase our allowance by recording additional bad debt expense. The allowance for doubtful accounts was $250,000, $437,000 and $409,000 at December 31, 2012, 2011 and 2010, respectively.

Derivative Financial Instruments — We follow FASB ASC Topic 815, “Derivative and Hedging Activities,” which establishes accounting and reporting standards requiring every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement requires changes in the derivative’s fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Accounting for qualifying hedges allows a derivative’s gains and losses to offset related results on the hedged item and requires we must formally document, designate and assess the effectiveness of transactions receiving hedge accounting. See Note 9.

Income Taxes — We account for income taxes under the liability method, in accordance with the requirements of FASB ASC Topic 740, “Income Taxes.” Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax basis of assets and liabilities. Measurement is based on enacted tax rates applicable to the periods in which such differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. During 2012, we established the valuation allowance associated with our Canadian deferred tax assets and recognized a $3.3 million deferred tax loss. See Note 16. FASB ASC Topic 740 also 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. In instances where a company has taken or expects to take a tax position in its tax return, and the company believes it is more likely than not such tax position will be upheld by the relevant taxing authority, the company may record a benefit for such tax position in its consolidated financial statements.

Comprehensive Income — We follow FASB ASC Topic 220, “Comprehensive Income,” which requires companies to report all changes in equity during a period, except those resulting from investments by owners and distributions to owners, in either a single continuous statement of comprehensive income, or two separate, consecutive statements. Other comprehensive income reflects the changes in equity during the period from transactions related to our foreign currency translation adjustments for the periods ended December 31, 2012, 2011 and 2010, and our interest rate swap arrangements for the periods ended December 31, 2011 and 2010.

Components of accumulated other comprehensive income (loss), as shown on our Consolidated Balance Sheets, were as follows (dollar amounts in thousands):

	Unrealized (Loss) Gain on Interest Rate Swap Agreements			Foreign Currency Translation Adjustment			Accumulated Other Comprehensive (Loss) Income
Balance, December 31, 2009	$	(26,623	)	$	2,398		$	(24,225	)
Change during period	17,781			778			18,559
Balance, December 31, 2010	(8,842		)	3,176			(5,666		)
Change during period	8,842			(687		)	8,155
Balance, December 31, 2011	$	-		$	2,489		$	2,489
Change during period	-			514			514
Balance, December 31, 2012	$	-		$	3,003		$	3,003

Earnings Per Share Computation — We calculate earnings per share (“EPS”) in accordance with FASB ASC Topic 260, “Earnings Per Share,” which requires the computation and disclosure of two EPS amounts, basic and diluted. Basic EPS is computed based on the weighted average number of common shares actually outstanding during the period. Diluted EPS is computed based on the weighted average number of common shares outstanding plus all potentially dilutive common shares outstanding during the period. Potential common shares which have an anti-dilutive effect are excluded from diluted earnings per share. The provisions of FASB ASC Topic 260 also provide that unvested share-based payment awards which contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. We determined our outstanding shares of non-vested restricted stock are participating securities.

The following table reflects the calculation of weighted average basic and fully diluted shares for the periods ended December 31. Dollar amounts are in thousands, except share data:

	2012			2011			2010
Basic EPS:
Net loss	$	(134,287	)	$	(631	)	$	(11,685	)
Preferred stock dividends (See Note 11)	(5,557		)	(5,744		)	(5,750		)
	$	(139,844	)	$	(6,375	)	$	(17,435	)
Loss allocated to participating securities (1)	-			-			-
Net loss available to common stockholders	$	(139,844	)	$	(6,375	)	$	(17,435	)

Weighted average shares outstanding for basic earnings per common share	25,513,277			25,082,921			24,454,796
Basic earnings per share	$	(5.48	)	$	(0.25	)	$	(0.71	)

Diluted EPS:
Net loss	$	(134,287	)	$	(631	)	$	(11,685	)
Preferred stock dividends (See Note 11)	(5,557		)	(5,744		)	(5,750		)
	$	(139,844	)	$	(6,375	)	$	(17,435	)
Loss allocated to participating securities (1)	-			-			-
Net loss available to common stockholders	$	(139,844	)	$	(6,375	)	$	(17,435	)

Weighted average shares outstanding for basic earnings per common share	25,513,277			25,082,921			24,454,796
Dilutive effect of potential shares (2)	N/A			N/A			N/A
Weighted average shares outstanding for diluted earnings per common share	25,513,277			25,082,921			24,454,796
Diluted earnings per share	$	(5.48	)	$	(0.25	)	$	(0.71	)

Participating securities (1)	177,375			122,625			65,625

Potential dilutive common shares (2)	15,750,173			16,990,537			17,062,267

(1) For the years ended December 31, 2012, 2011 and 2010, participating securities, which do not participate in losses, were not included in the calculations of earnings per share, as we were in a loss position and their inclusion would have been anti-dilutive.

(2) For the years ended December 31, 2012, 2011 and 2010, potential dilutive common shares, which include stock options, unvested restricted stock, warrants and the conversion of preferred stock, were not included in the computation of diluted earnings per share, as we were in a loss position and their inclusion would have been anti-dilutive.

Share-based Compensation — We account for our stock option and incentive plans under the recognition and measurement provisions of FASB ASC Topic 718, “Compensation — Stock Compensation,” which require the measurement and recognition of compensation expense for all stock-based awards based on estimated fair values, net of estimated forfeitures. Share-based compensation expense recognized in the years ended December 31, 2012, 2011 and 2010 includes compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of this Topic.

Statements of Cash Flows — Cash is comprised of demand deposits. Cash paid for interest was $17.8 million, $32.1 million and $31.9 million for the years ended December 31, 2012, 2011 and 2010, respectively. Cash paid for taxes, primarily state franchise and foreign income taxes, was $382,000, $667,000 and $856,000 during the years ended December 31, 2012, 2011 and 2010, respectively.

Effect of Recently Issued Accounting Standards— In December 2011, the FASB issued ASU No. 2011-11, “Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”) and in January 2013 issued ASU No. 2013-01 “Clarifying the Scope of Disclosures About Offsetting Assets and Liabilities.” These standards retain the existing offsetting requirements and enhance the disclosure requirements to allow investors to better compare financial statements prepared under GAAP with those prepared under IFRS. This new guidance is to be applied retrospectively. ASU 2011-11 will be effective for the Company’s quarterly and annual financial statements beginning with the first quarter 2013 reporting. The Company believes that the adoption of ASU 2011-11 and ASU 2013-01 will not have a material impact on its consolidated financial statements.

In July 2012, the FASB issued FASB Accounting Standards Update (“ASU”) No. 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment,” which is now codified under FASB ASC Topic 350, “Intangibles — Goodwill and Other.” This ASU allows an entity to first assess qualitative factors to evaluate if the existence of events or circumstances leads to a determination it is more likely than not the indefinite-lived intangible asset is impaired. After assessing the totality of events or circumstances, if it is determined it is not more likely than not the indefinite-lived asset is impaired, the entity is not required to take further action. Otherwise, the entity is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance with Topic 350. An entity has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test, and then resume performing the qualitative assessment in any subsequent period. FASB ASU No. 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment test performed as of a date prior to July 27, 2012, provided the public entity’s financial statements for the most recent annual or interim period have not yet been issued. We do not expect the adoption of this ASU to have an impact on our consolidated financial position, results of operations or cash flows.

In February 2013, the FASB issued FASB ASU No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income,” which is now codified under FASB ASC Topic 220, “Comprehensive Income.” This ASU will require entities to present, either in a note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and the income statement line items effected by the reclassification. If a component is not required to be reclassified, to net income in its entirety, a company would instead cross reference to the related footnote for additional information. This guidance is effective for public companies for fiscal years, and interim periods within those years, beginning after December 15, 2012. We are evaluating the disclosure options, and do not expect the adoption of this ASU to have an impact on our consolidated financial position, results of operations or cash flows.