Dish Network 2006 Annual Report Download - page 105

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ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
F–20
Total non-cash, stock-based compensation expense, net of related tax effect, as of December 31, 2006 was $11.0
million and was allocated to the same expense categories as the base compensation for key employees who
participate in our stock option plans, as follows:
For the Year Ended December 31,
2006 2005 2004
(In thousands)
Subscriber-related................................................. 549$ -$ 49$
Satellite and transmission...................................... 320 - 67
General and administrative................................... 10,149 190 1,023
Total non-cash, stock based compensation......... 11,018$ 190$ 1,139$
Prior to January 1, 2006, we applied the intrinsic value method of accounting under APB 25 and applied the
disclosure only provisions of SFAS 123. Pro forma information regarding net income and earnings per share was
required by SFAS 123 and has been determined as if we had accounted for our stock-based compensation plans
using the fair value method prescribed by that statement. For purposes of pro forma disclosures, the estimated fair
value of the options was amortized to expense over the options’ vesting period on a straight-line basis. We
accounted for forfeitures as they occurred. Compensation previously recognized was reversed in the event of
forfeitures of unvested options. The following table illustrates the effect on net income (loss) per share as if we had
accounted for our stock-based compensation plans using the fair value method under SFAS 123:
For the Years Ended
December 31,
2005 2004
(In thousands)
Net income (loss), as reported .................................................................................. $ 1,514,540 $ 214,769
Add: Stock-based employee compensation expense included
in reported net income (loss), net of related tax effect.................................... 190 1,139
Deduct: Total stock-based employee compensation expense determined
under fair value based method for all awards, net of related tax effect.......... (21,822) (20,515)
Pro forma net income (loss) ...................................................................................... $ 1,492,908 $ 195,393
Basic income (loss) per share, as reported ................................................................ $ 3.35 $ 0.46
Diluted income (loss) per share, as reported ............................................................. $ 3.22 $ 0.46
Pro forma basic income (loss) per share ................................................................... $ 3.30 $ 0.42
Pro forma diluted income (loss) per share ................................................................ $ 3.18 $ 0.42
The fair value of each option grant was estimated at the date of the grant using a Black-Scholes option pricing model
with the following weighted-average assumptions:
For the Years Ended December 31,
2006 2005 2004
Risk-free interest rate ......................................................... 4.68% 4.09% 3.69%
Volatility factor .................................................................. 24.99% 26.10% 33.26%
Expected term of options in years....................................... 6.1 6.2 5.4
Weighted-average fair value of options granted ................ $ 11.58 $ 10.22 $ 11.66
During December 2004, we paid a one-time dividend of $1 per outstanding share of our Class A and Class B common
stock. We do not currently plan to pay additional dividends on our common stock, and therefore the dividend yield
percentage is set at zero for all periods. The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are fully transferable. Consequently, our
estimate of fair value may differ from other valuation models. Further, the Black-Scholes model requires the input of
highly subjective assumptions. Changes in the subjective input assumptions can materially affect the fair value