Dish Network 2001 Annual Report Download - page 43

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December 31, 2001, our subscriber acquisition costs totaled approximately $1.074 billion, or approximately $395 per
new subscriber activation. Since we retain ownership of the equipment, amounts capitalized under our Digital Home
Plan are not included in our calculation of these subscriber acquisition costs, which would be materially higher if we
expensed rather than capitalized Digital Home Plan equipment costs. Comparatively, our subscriber acquisition costs
during the year ended December 31, 2000 totaled $1.155 billion, or approximately $452 per new subscriber activation.
The decrease in our per new subscriber acquisition cost primarily resulted from an increase in penetration of our Digital
Home Plans, the introduction of our I Like 9 promotion and an increase in direct sales. Capital expenditures under our
Digital Home Plan promotion totaled approximately $338 million and $65.4 million for the years ended December
31, 2001 and 2000, respectively. While there can be no assurance, we expect per subscriber acquisition costs for the
year ended December 31, 2002 to be consistent with per subscriber acquisition costs for the year ended December 31,
2001.
Our subscriber acquisition costs, both in the aggregate and on a per new subscriber activation basis, may
materially increase to the extent that we introduce other more aggressive promotions if we determine that they are
necessary to respond to competition, or for other reasons.
General and Administrative Expenses. General and administrative expenses totaled $378 million during the
year ended December 31, 2001, an increase of $128 million as compared to the same period in 2000. The increase in
G&A expenses was principally attributable to increased legal fees and personnel expenses to support the growth of the
DISH Network. G&A expenses represented 9% of total revenue during the years ended December 31, 2001 and 2000.
While there can be no assurance, we expect G&A expenses as a percentage of total revenue to remain near current
levels in future periods.
Non-cash, Stock-based Compensation. During 1999, we adopted an incentive plan which provided certain
key employees with incentives including stock options. The payment of these incentives was contingent upon our
achievement of certain financial and other goals. We met certain of these goals during 1999. Accordingly, during
1999 we recorded approximately $179 million of deferred compensation related to post-grant appreciation of stock
options granted pursuant to the 1999 incentive plan. The related deferred compensation will be recognized over the
five-year vesting period. Accordingly, during the years ended December 31, 2001 and 2000 we recognized
$20 million and $51 million, respectively, under this performance-based plan. The remaining deferred
compensation of $25 million, which will be reduced by future forfeitures, if any, will be recognized over the
remaining vesting period.
We report all non-cash compensation based on stock option appreciation as a single expense category in
our accompanying statements of operations. The following table represents the other expense categories in our
statements of operations that would be affected if non-cash, stock-based compensation was allocated to the same
expense categories as the base compensation for key employees who participate in the 1999 incentive plan:
December 31,
2000 2001
(in thousands)
Customer service center and other
........................................ $ 1,744 $ 1,767
Satellite and transmission .................................................... 3,061 1,115
General and administrative .................................................. 46,660 17,291
Total non-cash, stock-based compensation........................ $ 51,465 $ 20,173
Options to purchase an additional 9.7 million shares are outstanding as of December 31, 2001 and were
granted at fair market value during 1999, 2000 and 2001 pursuant to a Long Term Incentive Plan. The weighted-
average exercise price of these options is $9.04. Vesting of these options is contingent on meeting certain longer-
term goals, which may be met upon the consummation of the proposed merger with Hughes. However, as the
achievement of these goals cannot be reasonably predicted as of December 31, 2001, no compensation was recorded
during 1999, 2000 and 2001 related to these long-term options. We will continue to evaluate the likelihood of
achieving these long-term goals and will record the related compensation at the time achievement of these goals
becomes probable. Such compensation, if recorded, could result in material non-cash stock-based compensation
expense in our statements of operations.