We describe a new framework for distilling information from word lattices to improve the accuracy of speech recognition and obtain a more perspicuous representation of a set of alternative hypotheses. In the standard MAP decoding approach the recognizer outputs the string of words corresponding to the path with the highest posterior probability given the acoustics and a language model. However, even given optimal models, the MAP decoder does not necessarily minimize the commonly used performance metric, word error rate (WER). We describe a method for explicitly minimizing WER by extracting word hypotheses with the highest posterior probabilities from word lattices. We change the standard problem formulation by replacing global search over a large set of sentence hypotheses with local search over a small set of word candidates. In addition to improving the accuracy of the recognizer, our method produces a new representation of the set of candidate hypotheses that specifies the sequence of word-level confusions in a compact lattice format. We study the properties of confusion networks and examine their use for other tasks, such as lattice compression, word spotting, confidence annotation, and reevaluation of recognition hypotheses using higher-level knowledge sources.