Dish Network 2004 Annual Report Download - page 44

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
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Equipment sales. “Equipment sales” consist of sales of digital set-top boxes and related components by our ETC
subsidiary to an international DBS service provider. “Equipment sales” also include unsubsidized sales of DBS
accessories to retailers and other distributors of our equipment domestically and to DISH Network subscribers.
“Equipment sales” does not include revenue from sales of equipment to SBC. Effective January 1, 2004, “Equipment
sales” includes non-DISH Network receivers and other accessories sold by our EchoStar International Corporation
subsidiary to international customers which were previously included in “Other” revenue. All prior period amounts
were reclassified to conform to the current period presentation.
Other. “Other” sales consists principally of subscription television service revenues from the C-band subscription
television service business of Superstar/Netlink Group L.L.C. (“SNG”) that we acquired in April 2004.
Subscriber-related expenses. “Subscriber-related expenses” principally include costs incurred in connection with
our in-home service and call center operations, overhead costs associated with our installation business,
programming expenses, copyright royalties, residual commissions paid to retailers or distributors, billing, lockbox,
subscriber retention and other variable subscriber expenses. Contemporaneous with the commencement of sales of
co-branded services pursuant to our agreement with SBC during the first quarter of 2004, “Subscriber-related
expenses” also include the cost of sales and expenses from equipment sales, direct costs of installation and other
services related to that relationship. Cost of sales from equipment sales to SBC are deferred and recognized over the
estimated average co-branded subscriber life. Expenses from installation and certain other services performed at the
request of SBC are recognized as the services are performed.
Satellite and transmission expenses. “Satellite and transmission expenses” include costs associated with the
operation of our digital broadcast centers, the transmission of local channels, satellite telemetry, tracking and control
services, satellite and transponder leases, and other related services.
Cost of sales – equipment. “Cost of sales – equipment” principally includes costs associated with digital set-top boxes
and related components sold by our ETC subsidiary to an international DBS service provider and unsubsidized sales of
DBS accessories to DISH Network subscribers and to retailers and other distributors of our equipment domestically.
“Cost of sales – equipment” does not include the costs from sales of equipment to SBC. Effective January 1, 2004,
“Cost of sales – equipment” includes non-DISH Network receivers and other accessories sold by our EchoStar
International Corporation subsidiary to international customers which were previously included in “Cost of sales –
other.” All prior period amounts conform to the current period presentation.
Cost of sales – other. “Cost of sales – other” principally includes programming and other expenses associated with
the C-band subscription television service business of SNG we acquired in April 2004.
Subscriber acquisition costs. 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 promotional incentives, and costs related to
installation and acquisition advertising. We exclude the value of equipment capitalized under our equipment lease
program from our calculation of “Subscriber acquisition costs.” We also exclude payments and the value of returned
equipment related to disconnected lease program subscribers from our calculation of “Subscriber acquisition costs.”
SAC and Equivalent SAC. 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.
We calculate SAC by dividing total “Subscriber acquisition costs” for a period by the number of gross new DISH
Network subscribers during the period. We include all new DISH Network subscribers in our calculation, including
DISH Network subscribers added with little or no subscriber acquisition costs. “Equivalent SAC” adds to
“Subscriber acquisition costs” the value of equipment capitalized under our new subscriber lease program less the value
of returned equipment related to disconnected lease program subscribers, which became available for sale rather than
being redeployed through the lease program, together with payments received in connection with equipment not
returned to us.