Dish Network 2004 Annual Report Download - page 97

ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
During the year ended December 31, 2004, our significant subscriber acquisition promotions were as follows:
Digital Home Advantage – Effective February 1, 2004, our Digital Home Advantage promotion provided new lease
subscribers up to four installed EchoStar receivers, including various premium models, with a qualifying
programming subscription. The subscriber is required to pay a monthly rental fee for each leased receiver, but is not
required to agree to a minimum lease period. The subscriber must provide a valid major credit card, their social
security number, have an acceptable credit score, and pay a one-time set-up fee of $49.99. The subscriber receives a
$49.99 credit on their first month’s bill. Effective October 19, 2004, the promotion was expanded whereby the
consumer may agree to either a one or two year commitment in exchange for receiving the benefits of our Digital Home
Protection Plan, an optional extended warranty program, without charge for one or two years, respectively. Since we
retain ownership of equipment installed pursuant to the Digital Home Advantage promotion, equipment costs are
capitalized and depreciated over a period of up to four years. Although there can be no assurance as to the ultimate
duration of our current equipment lease promotion, we expect it to continue through at least July 31, 2005.
Free Dish – Effective February 1, 2004, our Free DISH promotion provided new subscribers with a choice of up to
three installed EchoStar receivers, including one premium receiver model for $49.99. The subscriber receives a $49.99
credit on their first month’s bill. To be eligible, subscribers must provide a valid major credit card, their social security
number, have an acceptable credit score, and make a one or two year commitment to subscribe to a qualified
programming package, depending on the set-top box models selected by the subscriber. Certain advanced products,
including digital video recorders and high definition receivers, require additional upgrade fees. The Free Dish
promotion ended on January 31, 2005.
Free for All – Effective February 1, 2004, our Free for All promotion provides new subscribers who purchase one or
two installed receiver systems for $149.00 or $199.00, respectively, a monthly credit of $10.00 for 15 or 20 months,
respectively. The subscriber must subscribe to a qualifying programming package and provide their social security
number. Effective February 1, 2005, new subscribers under our Free for All promotion who purchase one or two
receiver systems and subscribe to a qualifying programming package receive a monthly credit of $5.00 for 30 or 40
months, respectively. Although there can be no assurance as to the ultimate duration of the Free for All promotion, we
expect it to continue through at least July 31, 2005.
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. Accordingly, subscriber acquisition costs
are generally expensed as incurred except for under our equipment lease promotion wherein we retain title to the
receiver and certain other equipment resulting in the capitalization and depreciation of such equipment cost over its
estimated useful life.
Research and Development Costs
Research and development costs are expensed as incurred. Research and development costs totaled $40.0 million,
$32.4 million and $33.0 million for the years ended December 31, 2004, 2003 and 2002, respectively.
Accounting for Stock-Based Compensation
We apply the intrinsic value method of accounting under Accounting Principles Board Opinion No. 25, “Accounting
for Stock Issued to Employees,” (“APB 25”) and related interpretations in accounting for our stock-based
compensation plans, which are described more fully in Note 7. Under APB 25, we generally do not recognize
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