Dish Network 2004 Annual Report Download - page 59

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
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operating assets and liabilities was negative $75.7 million during 2003 compared to $183.0 million during 2002. This
decrease primarily resulted from an increased use of cash related to prepayments made under our satellite service
agreements and reductions in accounts payable and accrued expenses as a result of the timing of certain payments. The
decrease in “Purchases of property and equipment” was primarily attributable to reduced spending on the construction
of satellites and the capitalization of less equipment under our lease programs.
The following table reconciles free cash flow to “Net cash flows from operating activities.”
For the Years Ended December 31,
2004 2003 2002
(In thousands)
Free Cash Flow.............................................................................. 20,855$ 253,762$ (369,075)$
Add back:
Purchases of property and equipment....................................... 980,587 321,819 435,819
Net cash flows from operating activities........................................ 1,001,442$ 575,581$ 66,744$
During the years ended December 31, 2004, 2003 and 2002, free cash flow was significantly impacted by changes in
operating assets and liabilities as shown in the “Net cash flows from operating activities” section of our Consolidated
Statements of Cash Flows included herein. Operating asset and liability balances can fluctuate significantly from
period to period and there can be no assurance that free cash flow will not be negatively impacted by material changes
in operating assets and liabilities in future periods, since these changes depend upon, among other things,
management’s timing of payments, inventory levels and cash receipts. In addition to fluctuations resulting from
changes in operating assets and liabilities, free cash flow can vary significantly from period to period depending upon,
among other things, subscriber growth, subscriber revenue, subscriber churn, subscriber acquisition costs, operating
efficiencies, increases or decreases in purchases of property and equipment and other factors.
Impacts from our litigation with the networks in Florida, FCC rules governing the delivery of superstations and other
factors could cause us to terminate delivery of network channels and superstations to a substantial number of our
subscribers, which could cause many of those customers to cancel their subscription to our other services. In the event
the Court of Appeals upholds the Miami District Court’s network litigation injunction, and if we do not reach private
settlement agreements with additional stations, we will attempt to assist subscribers in arranging alternative means to
receive network channels, including migration to local channels by satellite where available, and free off air antenna
offers in other markets. However, we cannot predict with any degree of certainty how many subscribers might
ultimately cancel their primary DISH Network programming as a result of termination of their distant network
channels. We could be required to terminate distant network programming to all subscribers in the event the
plaintiffs prevail on their cross-appeal and we are permanently enjoined from delivering all distant network
channels. Termination of distant network programming to subscribers would result in a reduction in average
monthly revenue per subscriber and a temporary increase in subscriber churn.
Our future capital expenditures could increase or decrease depending on the strength of the economy, strategic
opportunities or other factors.
Cash flows from operating activities. We typically reinvest the cash flow from operating activities in our business
primarily to grow our subscriber base and to expand our infrastructure. For the years ended December 31, 2004,
2003 and 2002, we reported net cash flows from operating activities of $1.001 billion, $575.6 million and $66.7
million, respectively. See discussion of changes in net cash flows from operating activities included in “Free cash
flow” above.
Cash flows from investing activities. Our investing activities generally include purchases and sales of marketable
investment securities and cash used to grow our subscriber base and expand our infrastructure. For the years ended
December 31, 2004, 2003 and 2002, we reported net cash flows from investing activities of $1.078 billion, negative
$1.762 billion and negative $682.4 million, respectively. The increase from 2003 to 2004 of approximately $2.840
billion primarily resulted from an increase in net sales of marketable investment securities, and from a reclassification
of cash previously restricted for satellite insurance. The increase in net cash flows from investing activities was
partially offset by increases in cash used for capital expenditures and our asset acquisition from Gemstar (See Note 2 in
the Notes to the Consolidated Financial Statements in Item 15 of this Annual Report on Form 10-K).