Dish Network 2013 Annual Report Download - page 76

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
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Subscriber acquisition costs. While we primarily lease Pay-TV receiver systems and Broadband modem
equipment, we also subsidize certain costs to attract new Pay-TV and Broadband subscribers. Our “Subscriber
acquisition costs” include the cost of subsidized sales of Pay-TV receiver systems to retailers and other third-party
distributors of our equipment, the cost of subsidized sales of Pay-TV receiver systems directly by us to subscribers,
including net costs related to our promotional incentives, costs related to our direct sales efforts and costs related to
installation and acquisition advertising. We exclude the value of equipment capitalized under our lease program for
new Pay-TV and Broadband subscribers from “Subscriber acquisition costs.”
Pay-TV SAC. Subscriber acquisition cost measures are commonly used by those evaluating companies in the pay-
TV industry. We are not aware of any uniform standards for calculating the “average subscriber acquisition costs
per new Pay-TV subscriber activation,” or Pay-TV SAC, and we believe presentations of Pay-TV SAC may not be
calculated consistently by different companies in the same or similar businesses. Our Pay-TV SAC is calculated as
“Subscriber acquisition costs,” excluding “Subscriber acquisition costs” associated with our broadband services, plus
the value of equipment capitalized under our lease program for new Pay-TV subscribers, divided by gross new Pay-
TV subscriber activations. We include all the costs of acquiring Pay-TV subscribers (e.g., subsidized and
capitalized equipment) as we believe it is a more comprehensive measure of how much we are spending to acquire
subscribers. We also include all new Pay-TV subscribers in our calculation, including Pay-TV subscribers added
with little or no subscriber acquisition costs. During the fourth quarter 2012, we elected to provide Pay-TV SAC
rather than SAC, defined below, as we believe Pay-TV SAC provides a more meaningful metric.
SAC. Historically, we have calculated SAC as “Subscriber acquisition costs,” plus the value of equipment
capitalized under our lease program for new subscribers, divided by gross new subscriber activations. This metric
included the cost (e.g., subsidized and capitalized equipment) of acquiring Pay-TV subscribers and certain costs of
acquiring broadband subscribers. We also included all new Pay-TV subscribers in our calculation, including Pay-
TV subscribers added with little or no subscriber acquisition costs. During the fourth quarter 2012, we elected to
discontinue providing SAC as we believe Pay-TV SAC, which excludes broadband subscriber acquisition costs,
provides a more meaningful metric.
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. It also includes outside professional fees (e.g., legal,
information systems and accounting services) and other items associated with facilities and administration.
Litigation expense. “Litigation expense” primarily consists of legal settlements, judgments or accruals associated with
certain significant litigation.
Interest expense, net of amounts capitalized. “Interest expense, net of amounts capitalized” primarily includes
interest expense, prepayment premiums and amortization of debt issuance costs associated with our senior debt (net
of capitalized interest), and interest expense associated with our capital lease obligations.
Other, net. The main components of “Other, net” are gains and losses realized on the sale and/or conversion of
investments and derivative financial instruments, impairment of marketable and non-marketable investment
securities, unrealized gains and losses from changes in fair value of marketable and non-marketable strategic
investments accounted for at fair value, unrealized gains and losses from changes in fair value of derivative financial
instruments, and equity in earnings and losses of our affiliates.
Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”). Adjusted
EBITDA is defined as “Net income (loss) attributable to DISH Network” less “Income (loss) from discontinued
operations, net of tax” plus “Interest expense, net of amounts capitalized” net of “Interest income,” “Income tax
(provision) benefit, net” and “Depreciation and amortization.” This “non-GAAP measure” is reconciled to “Net
income (loss) attributable to DISH Network” in our discussion of “Results of Operations” below.