Dish Network 2008 Annual Report Download - page 58

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
48
Several years ago, we began deploying receivers that utilize 8PSK modulation technology and receivers that utilize
MPEG-4 compression technology. These technologies, when fully deployed, will allow more programming
channels to be carried over our existing satellites. A majority of our customers today, however, do not have
receivers that use MPEG-4 compression and a smaller but still significant percentage do not have receivers that use
8PSK modulation. We may choose to invest significant capital to accelerate the conversion of customers to MPEG-
4 and/or 8PSK in order to realize the bandwidth benefits sooner. In addition, given that all of our HD content is
broadcast in MPEG-4, any growth in HD penetration will naturally accelerate our transition to these newer
technologies and may increase our subscriber acquisition and retention costs. All new receivers that we purchase
from EchoStar now have MPEG-4 technology. Although we continue to refurbish and redeploy MPEG-2 receivers,
as a result of our HD initiatives and current promotions, most new customers in certain markets will be required to
activate higher priced MPEG-4 technology. This limits our ability to redeploy MPEG-2 receivers and, to the extent
that our new promotion in certain markets are successful, will accelerate the transition to MPEG-4 technology,
resulting in an adverse effect on our SAC.
Our “Subscriber acquisition costs” and “SAC” may materially increase in the future to the extent that we transition to
newer technologies, introduce more aggressive promotions, or provide greater equipment subsidies. See further
discussion under “Liquidity and Capital Resources – Subscriber Retention and Acquisition Costs.”
General and administrative expenses. “General and administrative expenses” totaled $544 million during the year
ended December 31, 2008, a decrease of $80 million or 12.8% compared to the same period in 2007. This decrease
was primarily attributable to the reduction in headcount and administrative costs resulting from the Spin-off and a
reduction in outside professional fees, partially offset by an increase in costs related to transitional services and
commercial agreements with EchoStar as a result of the Spin-off. In addition, the 2007 amount included $22 million
of in-process research and development costs associated with the acquisition of Sling Media in the fourth quarter 2007.
“General and administrative expenses” represented 4.7% and 5.6% of “Total revenue” during the years ended
December 31, 2008 and 2007, respectively. The decrease in the ratio of the expenses to “Total revenue” was
primarily attributable to the changes in expenses discussed above.
Litigation expense. The 2007 “Litigation expense” of $34 million related to the Tivo case and represents the
estimated cost of any software infringement prior to the implementation of the alternative technology, plus interest
subsequent to the jury verdict.
Depreciation and amortization. “Depreciation and amortization” expense totaled $1.000 billion during the year
ended December 31, 2008, a decrease of $329 million or 24.8% compared to the same period in 2007. This decrease
was primarily a result of our contribution of several satellites, uplink and satellite transmission assets, real estate and
other assets to EchoStar in connection with the Spin-off. In addition, the 2007 expense included the write-off of
costs associated with discontinued software development projects.
Interest income. “Interest income” totaled $51 million during the year ended December 31, 2008, a decrease of $87
million compared to the same period in 2007. This decrease principally resulted from lower average carrying balances,
as well as rate of return, of our cash and marketable investment securities during 2008 compared to the same period in
2007.
Interest expense, net of amounts capitalized. “Interest expense” totaled $370 million during the year ended December
31, 2008, a decrease of $35 million or 8.7% compared to the same period in 2007. This decrease primarily resulted
from the reduction in interest expense associated with 2007 and 2008 debt redemptions and the contribution of
satellite capital leases to EchoStar in connection with the Spin-off, partially offset by an increase in interest expense
related to the issuance of debt during 2008.