Dish Network 1998 Annual Report Download - page 33

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subscriber acquisition costs, an increase of $106 million, and depreciation of EchoStar II, which was 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 which were issued in June 1997, and increases in interest expense associated with the 1994 notes and
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 our decision to increase our valuation allowance sufficient to fully offset net deferred tax assets arising during
the year. Realization of these assets is dependent on us generating sufficient taxable income prior to the expiration
of the net operating loss carryforwards. Our 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.
LIQUIDITY AND CAPITAL RESOURCES
Cash Sources
Since inception, we have financed the development of our EchoStar DBS system and the related commercial
introduction of the DISH Network service primarily through the sale of equity and debt securities. From May 1994
through December 31, 1998, we have raised total gross cash proceeds of approximately $249 million from the sale of
our equity securities and approximately $1.3 billion from the sale of certain debt securities. The following summarizes
the net proceeds we have raised from sales of our equity and debt securities:
• our 1994 notes offering in June 1994 of 12 7/8% Senior Secured Discount Notes and 3.7 million
Common Stock Warrants resulting in net proceeds of approximately $323 million;
• our initial public offering of 4.0 million shares of our Class A common stock in June 1995, resulting in
net proceeds of approximately $63 million;
• our 1996 notes offering in March 1996 13 1/8% Senior Secured Discount Notes resulting in aggregate
net proceeds of approximately $337 million;
• our 1997 notes offering in June 1997 of 12 1/2% Senior Secured Notes resulting in net proceeds of
approximately $363 million;
• our October 1997 offering of 12 1/8% Series B Senior Redeemable Exchangeable Preferred Stock
resulting in net proceeds of approximately $193 million;
• our November 1997 offering of 6 3/4% Series C Cumulative Convertible Preferred Stock resulting in
net proceeds of approximately $97 million; and
• our November 1997 offering of 3.4 million shares of Class A Common Stock resulting in net proceeds
of approximately $63 million.
As of December 31, 1998, our unrestricted cash, cash equivalents and marketable investment securities totaled
$324 million compared to $421 million as of December 31, 1997. For the years ended December 31, 1996, 1997 and
1998, we reported net cash flows from operating activities of ($27 million), $43,000, and ($17 million), respectively.
Our working capital and capital expenditure requirements were substantial during the three-year period ended
December 31, 1998. Such expenditures principally related to the ongoing development of the EchoStar DBS system
and the related commercial introduction of the DISH Network service in March 1996. Capital expenditures, including
expenditures for satellite systems under construction and FCC authorizations, totaled $277 million, $232 million and
$161 million during 1996, 1997 and 1998, respectively.
We expect that our future working capital, capital expenditure and debt service requirements will be satisfied
from existing cash and investment balances and cash generated from operations. Our ability to generate positive future
operating and net cash flows is dependent upon our ability to continue to rapidly expand our DISH Network subscriber