Dish Network 2003 Annual Report Download - page 39

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
34
Subscriber acquisition costs. Generally, under most promotions, we subsidize the installation and all or a portion of
the cost of EchoStar receiver systems in order to attract new DISH Network subscribers. Our “Subscriber acquisition
costs” include the cost of EchoStar receiver systems sold to retailers and other distributors of our equipment, the cost of
receiver systems sold directly by us to subscribers, net costs related to our free installation promotions and other
promotional incentives, and costs related to acquisition advertising. We exclude equipment capitalized under our
equipment lease promotion from our calculation of “Subscriber acquisition costs.” We also exclude payments and
certain returned equipment received from disconnecting lease promotion subscribers from our calculation of
“Subscriber acquisition costs.”
SAC. SAC, which represents total subscriber acquisition costs stated on a per subscriber basis, is calculated by
dividing total subscriber acquisition costs for a period by the number of gross new subscribers acquired during the
period. We are not aware of any uniform standards for calculating SAC and believe presentations of SAC may not
be calculated consistently by different companies in the same or similar businesses.
General and administrative expenses. “General and administrative expenses” primarily includes employee-related
costs associated with administrative services such as legal, information systems, accounting and finance. It also
includes outside professional fees (i.e. legal and accounting services) and building maintenance expense and other
items associated with the administration of the company.
Interest expense. “Interest expense” primarily includes interest expense, prepayment premiums and amortization of
debt issuance costs associated with our high yield and convertible debt securities, net of capitalized interest.
Other. The main components of “Other” income and expense are equity in earnings of our affiliates and gains and
losses on the sale of investments or impairment of marketable and non-marketable investment securities.
Earnings before interest, taxes, depreciation and amortization (“EBITDA”). EBITDA is defined as “Net income
(loss)” plus “Interest expense” net of “Interest income”, “Taxes” and “Depreciation and amortization”. Effective
January 1, 2003, we include “Non-cash, stock-based compensation expense” in our definition of EBITDA. Effective
April 1, 2003, we include “Other income and expense” items and “Change in valuation of contingent value rights” in
our definition of EBITDA. All prior amounts conform to the current presentation.
DISH Network Subscribers. The total number of DISH Network subscribers includes only those subscribers who
are actively subscribing to the DISH Network service.
Monthly average revenue per subscriber (“ARPU”). Average monthly revenue per subscriber, or ARPU, is
calculated by dividing average monthly revenues for the period (total revenues during the period divided by the
number of months in the period) by average DISH Network subscribers for the period. Average subscribers are
calculated for the year and the period by adding the average subscribers for each month and dividing by the number
of months in the period. Average subscribers for each month are calculated by adding the beginning and ending
subscribers for the month and dividing by two. We are not aware of any uniform standards for calculating ARPU
and believe presentations of ARPU may not be calculated consistently by different companies in the same or similar
businesses.
Monthly subscriber churn/subscriber turnover. We calculate percentage monthly churn by dividing the number of
subscribers who terminate service during the month by total subscribers as of the beginning of the month. We are
not aware of any uniform standards for calculating churn and believe presentations of churn may not be calculated
consistently by different companies in the same or similar businesses.
Free Cash Flow. We define free cash flow as “Net cash flows from operating activities” less “Purchases of
property and equipment”, as shown on our Consolidated Statements of Cash Flows.