Dish Network 2003 Annual Report Download - page 44

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
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respectively. Although there can be no assurance as to the ultimate duration of the Free for All promotion, we expect it
to continue through at least June 30, 2004.
Digital Home Plan – Effective February 1, 2003, our Digital Home Plan promotion offered new subscribers up to
four EchoStar receivers, including various models, with a minimum required programming package subscription.
Each plan includes in-home service, and the consumer must agree to a one-year commitment, provide a valid major
credit card, have an acceptable credit score, incur a one-time set-up fee of $49.99, and an optional $50.00 upgrade fee.
The subscriber receives a $49.99 credit on their first month’s bill. Effective November 15, 2003, for an optional $99.00
upgrade fee or a two-year programming commitment, we offered new subscribers an option to connect up to three
EchoStar receivers to up to four televisions. Since we retain ownership of equipment installed pursuant to the Digital
Home Plan promotion, equipment costs are capitalized and depreciated over a period of approximately four years.
Although there can be no assurance as to the ultimate duration of our current equipment lease promotion, we expect it
to continue through at least June 30, 2004.
Free Installation – Under our free installation program all subscribers who purchase an EchoStar receiver system are
eligible to receive free professional installation of up to two receivers. Although there can be no assurance as to the
ultimate duration of the Free Installation promotion, we expect it to continue through at least June 30, 2004.
General and administrative expenses. “General and administrative expenses” totaled $332.7 million during the year
ended December 31, 2003, an increase of $12.8 million compared to the same period in 2002. The increase in
“General and administrative expenses” was primarily attributable to increased personnel and infrastructure expenses to
support the growth of the DISH Network. “General and administrative expenses” represented 5.8% and 6.6% of “Total
revenue” during the years ended December 31, 2003 and 2002, respectively. This decrease in “General and
administrative expenses” as a percent of “Total revenue” was the result of increased operational efficiencies.
Non-cash, stock-based compensation. During 1999, we adopted an incentive plan under our 1995 Stock Incentive
Plan, which provided certain key employees with incentives including stock options. During the year ended
December 31, 2003, we recognized $3.5 million of compensation under this performance-based plan, a decrease of
$7.7 million compared to the same period in 2002. This decrease was primarily attributable to proportionate vesting
and stock option forfeitures resulting from employee terminations. The remaining deferred compensation of $1.2
million as of December 31, 2003, which will be reduced by future forfeitures, if any, will be recognized over the
remaining vesting period, ending on March 31, 2004.
We report all non-cash compensation based on stock option appreciation as a single expense category in our
accompanying statements of operations. The following table represents the other expense categories in our
statements of operations that would be affected if non-cash, stock-based compensation was allocated to the same
expense categories as the base compensation for key employees who participate in the 1999 incentive plan:
For the Years Ended
December 31,
2003 2002
(In thousands)
Subscriber-related................................................................. 34$ 729$
Satellite and transmission...................................................... 359 (7)
General and administrative.................................................... 3,151 10,557
Total non-cash, stock-based compensation........................ 3,544$ 11,279$
In addition, options to purchase 8.0 million shares were outstanding under our long-term incentive plan as of
December 31, 2003. These options were granted with exercise prices at least equal to the market value of the
underlying shares on the dates they were issued during 1999, 2000 and 2001. The weighted-average exercise price
of these options is $9.05. Vesting of these options is contingent upon meeting certain longer-term goals which have
not yet been achieved. Consequently, no compensation was recorded during the years ended December 31, 2003
and 2002 related to these long-term options. We will record the related compensation when achievement of the
performance goals becomes probable, if ever. Such compensation, if recorded, would likely result in material non-
cash, stock-based compensation expense in our statements of operations.