Dish Network 2003 Annual Report Download - page 49

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
44
Subscriber acquisition costs. During the year ended December 31, 2002, our subscriber acquisition costs totaled
approximately $1.169 billion, or approximately $421 per new subscriber activation. Comparatively, our subscriber
acquisition costs during the year ended December 31, 2001 totaled approximately $1.081 billion, or approximately
$395 per new subscriber activation. Total subscriber acquisition costs for the year ended December 31, 2002 include
favorable adjustments which reduced the costs related to the production of EchoStar receiver systems. During 2002,
we recorded adjustments of approximately $47.7 million as a result of favorable litigation developments and the
completion of royalty arrangements with more favorable terms than estimated amounts previously accrued. The
increase in total subscriber acquisition costs primarily resulted from an increase in “Other subscriber promotion
subsidies” related to additional subsidies on second receiver installations and a decrease in the sales price of
manufactured equipment, as well as an increase in “Subscriber acquisition advertising” related to acquisition marketing
and our 2002 marketing promotions. A decrease in equipment leasing in 2002 as compared to 2001 also contributed to
this increase. This increase was partially offset by reductions in the cost of manufactured equipment and an increase in
installations we perform on behalf of retailers.
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. Equipment capitalized under our equipment lease
promotion totaled approximately $277.6 million and $337.7 million for the years ended December 31, 2002 and 2001,
respectively. Payments and returned equipment received from disconnecting lease promotion subscribers, which
became available for sale through other promotions rather than being redeployed in the equipment lease promotion,
totaled approximately $37.8 million and $15.7 million during the years ended December 31, 2002 and 2001,
respectively.
General and administrative expenses. “General and administrative” expenses totaled $319.9 million during the year
ended December 31, 2002, an increase of $14.2 million compared to the same period in 2001. The increase in
“General and administrative” expenses was primarily attributable to increased personnel and infrastructure expenses to
support the growth of the DISH Network. This increase was partially offset by a decrease in legal expenses and
litigation settlements. “General and administrative” expenses represented 6.6% and 7.6% of “Total revenue” during
the years ended December 31, 2002 and 2001, respectively.
Non-cash, stock-based compensation. During the year ended December 31, 2002, we recognized $11.3 million of
compensation under our performance-based plan, a decrease of $8.9 million compared to the same period in 2001.
This decrease is primarily attributable to proportionate vesting and stock option forfeitures.
We report all non-cash compensation based on stock option appreciation as a single expense category in our
accompanying statements of operations. The following table represents the other expense categories in our
statements of operations that would be affected if non-cash, stock-based compensation was allocated to the same
expense categories as the base compensation for key employees who participate in the 1999 incentive plan:
For the Years Ended
December 31,
2002 2001
(In thousands)
Subscriber-related................................................................... 729$ 1,767$
Satellite and transmission........................................................ (7) 1,115
General and administrative...................................................... 10,557 17,291
Total non-cash, stock-based compensation.......................... 11,279$ 20,173$
Depreciation and amortization. “Depreciation and amortization” expense totaled $373.0 million during the year ended
December 31, 2002, a $94.3 million increase compared to the same period in 2001. The increase in “Depreciation and
amortization” expense principally resulted from an increase in depreciation related to the commencement of
commercial operation of EchoStar VII in April 2002, commencement of commercial operations of EchoStar VIII in
October 2002 and leased equipment and other additional depreciable assets placed in service. This increase was
partially offset by a reduction of approximately $18.8 million of amortization expense as a result of our adoption of
Statement of Financial Accounting Standards No. 142 (“FAS 142”). In accordance with FAS 142, effective January
2002 we ceased amortization of our FCC authorizations.