Dish Network 1997 Annual Report Download - page 34

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subscriber acquisition costs (increase of $106 million) and depreciation of EchoStar II (placed in service during the
fourth quarter of 1996).
Other Income and Expense. Other expense, net totaled $88 million during 1997, an increase of $42 million
as compared to 1996. The 1997 increase in other expense resulted primarily from interest expense associated with
the 1997 Notes (as defined), which were issued in June 1997, and increases in interest expense associated with
EchoStar’s 12 7/8% Senior Secured Discount Notes due 2004 (the “ 1994 Notes”) and its 13 1/8% Senior Secured
Discount Notes due 2004 (the “ 1996 Notes” ) due to higher accreted balances thereon. These increases in interest
expense were partially offset by increases in capitalized interest. Capitalized interest (primarily related to satellite
construction) totaled $43 million during 1997, compared to $32 million during 1996.
Income Tax Benefit. The $55 million decrease in the income tax benefit during 1997 principally resulted
from EchoStar’s decision to increase its valuation allowance sufficient to fully offset net deferred tax assets arising
during the year. Realization of these assets is dependent on EchoStar generating sufficient taxable income prior to
the expiration of the net operating loss carryforwards. EchoStar’s net deferred tax assets ($67 million at each of
December 31, 1996 and 1997) principally relate to temporary differences for amortization of original issue discount
on the 1994 Notes and 1996 Notes, net operating loss carryforwards, and various accrued expenses which are not
deductible until paid. If future operating results differ materially and adversely from EchoStar’s current
expectations, its judgment regarding the magnitude of its valuation allowance may change.
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995.
Revenue. Total revenue for 1996 was $199 million, an increase of $50 million as compared to total revenue
during 1995 of $149 million. This increase resulted from the introduction of the DISH Network and was partially
offset by decreased sales of domestic and international C-band equipment and decreased C-band programming
revenues.
The DISH Network commenced operation in March 1996. During 1996, DISH Network subscription
television services revenues totaled $50 million and Other DISH Network revenue approximated $10 million, of
which approximately $5 million related to incremental revenue realized on sales made pursuant to the 1996 Promotion.
During 1996, DTH equipment sales and integration services revenues principally resulted from sales of
EchoStar Receiver Systems and related accessories prior to the August 1996 nationwide rollout of the 1996
Promotion. DTH equipment sales and integration services revenue for 1996 totaled $78 million, an increase of $42
million over 1995 revenues of $36 million. During 1995, DTH equipment sales and integration services revenue
primarily related to sales of a competitor’s DBS satellite receivers and related accessories (“ Competitor DBS
Receivers”). All Competitor DBS Receivers were manufactured and supplied by a third-party manufacturer.
C-band and other revenue totaled $55 million for 1996, a decrease of $58 million compared to $113 million
in 1995. Other revenue principally related to domestic and international sales of C-band products and net domestic
C-band programming revenues. This decrease resulted from the world-wide decrease in demand for C-band
products and services.
DISH Network Operating Expenses. DISH Network operating expenses totaled $42 million for 1996 and
represented 86% of subscription television services revenue.
Cost of sales – DTH equipment and Integration Services. For 1996, cost of sales – DTH equipment and
integration services totaled $76 million and represented costs of EchoStar Receiver Systems sold prior to the August
1996 rollout of the 1996 Promotion. For 1995, cost of sales – DTH equipment and integration services totaled $30
million and primarily represented costs of sales associated with Competitor DBS Receivers.
Cost of sales – C-band and other. Cost of sales – C-band and other totaled $42 million during 1996, a
decrease of $42 million compared to 1995. This decrease was consistent with the decrease in related revenues and
resulted from the decline in the world-wide demand for C-band products and services.