Dish Network 2007 Annual Report Download - page 51

Table of Contents
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.
SAC.
We are not aware of any uniform standards for calculating the “average subscriber acquisition costs per new subscriber activation,” or
SAC, and we believe presentations of SAC may not be calculated consistently by different companies in the same or similar businesses. We
include all new DISH Network subscribers in our calculation, including DISH Network subscribers added with little or no subscriber
acquisition costs.
Prior to January 1, 2006, we calculated SAC for the period by dividing the amount of our expense line item “Subscriber acquisition costs” for
the period, by our gross new DISH Network subscribers added during that period. Separately, we then disclosed our “Equivalent SAC” for the
period by adding the value of equipment capitalized under our lease program for new subscribers, and other offsetting amounts, as described
below, to our “Subscriber acquisition cost” expense line item prior to dividing by our gross new subscriber number. Management believes
subscriber acquisition cost measures are commonly used by those evaluating companies in the multi-channel video programming distribution
(“MVPD”)
industry. Because our Equivalent SAC includes all of the costs of acquiring subscribers (i.e., subsidized and capitalized equipment),
our management focuses on Equivalent SAC as the more comprehensive measure of how much we are spending to acquire new subscribers. As
such, effective January 1, 2006, we began disclosing only “Equivalent SAC,” which we now refer to as SAC. SAC is now calculated as
“Subscriber acquisition costs,” plus the value of equipment capitalized under our lease program for new subscribers, divided by gross
subscriber additions. During the first quarter of 2006, we included in our calculation of SAC the benefit of payments we received in connection
with equipment not returned to us from disconnecting lease subscribers and returned equipment that is made available for sale rather than being
redeployed through our lease program, as described in that Form 10-Q. Effective the second quarter of 2006, our revised SAC calculation no
longer includes these benefits. Instead, these benefits are separately disclosed. All prior period SAC calculations have been revised to conform
to the current period calculation.
General and administrative expenses . “General and administrative expenses” consists primarily of employee-related costs associated with
administrative services such as legal, information systems, accounting and finance, including non-cash, stock-based compensation expense
related to the adoption of Statement of Financial Accounting Standards No. 123R (As Amended), “Share-Based Payment” (“SFAS 123R”). It
also includes outside professional fees (i.e. legal and accounting services) and other items associated with facilities and administration.
Interest expense.
“Interest expense” primarily includes interest expense, prepayment premiums and amortization of debt issuance costs
associated with our senior debt and convertible subordinated debt securities (net of capitalized interest) and interest expense associated with our
capital lease obligations.
“Other” income (expense). The main components of “Other”
income and expense are unrealized gains and losses from changes in fair value of
non-marketable strategic investments accounted for at fair value, equity in earnings and losses of our affiliates, gains and losses realized on the
sale of investments, and impairment of marketable and non-marketable investment securities.
Earnings before interest, taxes, depreciation and amortization (
“EBITDA”). EBITDA is defined as “Net income (loss)” plus “Interest
expense” net of “Interest income,” “Taxes” and “Depreciation and amortization.”
DISH Network subscribers.
We include customers obtained through direct sales, and through our retail networks, including our co-branding
relationship with AT&T and other distribution relationships, in our DISH Network subscriber count. We believe our overall economic return
for co-branded and traditional subscribers will be comparable. We also provide DISH Network service to hotels, motels and other commercial
accounts. For certain of these commercial accounts, we divide our total revenue for these commercial accounts by an amount approximately
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Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS —
Continued