Dish Network 2005 Annual Report Download - page 102

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ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
F–17
Subscriber Acquisition Costs. Subscriber acquisition costs in our Consolidated Statements of Operations and
Comprehensive Income (Loss) consist of costs incurred to acquire new subscribers through third parties and our direct
customer acquisition distribution channel. Subscriber acquisition costs include the following line items from our
Consolidated Statements of Operations and Comprehensive Income (Loss):
• “Cost of sales – subscriber promotion subsidies” includes the cost of EchoStar receiver systems sold to
retailers and other distributors of our equipment and receiver systems sold directly by us to subscribers.
• “Other subscriber promotion subsidies” includes net costs related to promotional incentives and costs related
to installation.
• “Subscriber acquisition advertising” includes advertising and marketing expenses related to the acquisition of
new DISH Network subscribers. Advertising costs generally are expensed as incurred.
Accounting for dealer sales under our promotions fall within the scope of EITF 01-9. In accordance with that
guidance, we characterize amounts paid to our independent dealers as consideration for equipment installation services
and for equipment buydowns (commissions and rebates) as a reduction of revenue. We expense payments for
equipment installation services as “Other subscriber promotion subsidies.” Our payments for equipment buydowns
represent a partial or complete return of the dealer’s purchase price and are, therefore, netted against the proceeds
received from the dealer. We report the net cost from our various sales promotions through our independent dealer
network as a component of “Other subscriber promotion subsidies.” No net proceeds from the sale of subscriber
related equipment pursuant to our subscriber acquisition promotions are recognized as revenue.
Research and Development Costs
Research and development costs are expensed as incurred. Research and development costs totaled $56.7 million,
$46.1 million and $40.0 million for the years ended December 31, 2006, 2005 and 2004, respectively.
Basic and Diluted Net Income (Loss) Per Share
Statement of Financial Accounting Standards No. 128, “Earnings Per Share” (“SFAS 128”) requires entities to
present both basic earnings per share (“EPS”) and diluted EPS. Basic EPS excludes dilution and is computed by
dividing net income (loss) by the weighted-average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur if stock options were exercised and convertible securities were
converted to common stock.
The potential dilution from our subordinated notes convertible into common stock was computed using the “if
converted method.” Since we reported net income attributable to common stockholders for the years ending
December 31, 2006, 2005 and 2004, the potential dilution from stock options exercisable into common stock for
these periods was computed using the treasury stock method based on the average market value of our Class A
common stock for the period. The following table reflects the basic and diluted weighted-average shares
outstanding used to calculate basic and diluted earnings per share. Earnings per share amounts for all periods are
presented below in accordance with the requirements of SFAS 128.