Dish Network 2006 Annual Report Download - page 51

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS – Continued
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subscribers. Further, development and implementation fees received from AT&T will continue to be recognized
over the estimated average subscriber life of all subscribers acquired under both the original and revised agreements
with AT&T.
Equipment sales. “Equipment sales” include sales of non-DISH Network digital receivers and related components to
an international DBS service provider and to other international customers. “Equipment sales” also includes
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 AT&T.
Effective the second quarter of 2006, we reclassified certain warranty and service related revenue from “Equipment
sales” to “Subscriber-related revenue.”
“Other” sales. “Other” sales consist principally of satellite transmission revenue and C-band subscription television
service revenue.
Subscriber-related expenses. “Subscriber-related expenses” principally include programming expenses, costs
incurred in connection with our in-home service and call center operations, overhead costs associated with our
installation business, copyright royalties, billing costs, residual commissions paid to our distributors, refurbishment
and repair costs related to EchoStar receiver systems, subscriber retention and other variable subscriber expenses.
“Subscriber-related expenses” also include the cost of equipment sales, and expenses related to installation and other
services from our original agreement with AT&T. Cost of equipment sales to AT&T are deferred and recognized
over the estimated average co-branded subscriber life. Expenses from installation and certain other services
performed at the request of AT&T are recognized as the services are performed. All prior period amounts were
reclassified to conform to current period presentation.
Under the revised AT&T agreement, we are including costs from equipment and installations in “Subscriber
acquisition costs” or in capital expenditures, rather than in “Subscriber-related expenses.” We are continuing to
include in “Subscriber-related expenses” the costs deferred from equipment sales made to AT&T. These costs are
being amortized over the estimated life of the subscribers acquired under the original AT&T agreement.
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 non-DISH Network
digital receivers and related components sold to an international DBS service provider and to other international
customers. “Cost of sales – equipment” also includes unsubsidized sales of DBS accessories to retailers and other
distributors of our equipment domestically and to DISH Network subscribers. “Cost of sales – equipment” does not
include the costs from sales of equipment to AT&T.
Effective the second quarter of 2006, we reclassified certain warranty and service related expenses from “Cost of sales
– equipment” to “Subscriber-related expenses” and “Depreciation and amortization.” All prior period amounts were
reclassified to 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 and costs related to satellite transmission services.
Subscriber acquisition costs. In addition to leasing receivers, we generally subsidize 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 lease program for new subscribers from “Subscriber acquisition costs.”
As discussed above, under the revised AT&T agreement, equipment and installation costs previously reflected in
“Subscriber-related expenses” are being included in “Subscriber acquisition costs” or in capital expenditures.