Dish Network 2005 Annual Report Download - page 64

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS – Continued
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restricted and unrestricted cash, cash equivalents and marketable investment securities totaled $3.206 billion,
including $172.9 million of restricted cash and marketable investment securities, compared to $1.248 billion,
including $67.1 million of restricted cash and marketable investment securities, as of December 31, 2005.
The following discussion highlights our free cash flow and cash flow activities during the years ended December 31,
2006, 2005 and 2004.
Free cash flow. We define free cash flow as “Net cash flows from operating activities” less “Purchases of property
and equipment,” as shown on our Consolidated Statements of Cash Flows. We believe free cash flow is an
important liquidity metric because it measures, during a given period, the amount of cash generated that is available
to repay debt obligations, make investments, fund acquisitions and for certain other activities. Free cash flow is not
a measure determined in accordance with GAAP and should not be considered a substitute for “Operating income,”
“Net income,” “Net cash flows from operating activities” or any other measure determined in accordance with
GAAP. Since free cash flow includes investments in operating assets, we believe this non-GAAP liquidity measure
is useful in addition to the most directly comparable GAAP measure - “Net cash flows from operating activities.”
During the years ended December 31, 2006, 2005 and 2004, 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 and control of 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 including amounts capitalized under our equipment lease programs, operating efficiencies, increases or decreases
in purchases of property and equipment and other factors.
The following table reconciles free cash flow to “Net cash flows from operating activities.”
For the Years Ended December 31,
2006 2005 2004
(In thousands)
Free Cash Flow.......................................................... 882,924$ 267,680$ 20,855$
Add back:
Purchases of property and equipment................... 1,396,318 1,506,394 980,587
Net cash flows from operating activities................... 2,279,242$ 1,774,074$ 1,001,442$
Free cash flow was $882.9 million, $267.7 million and $20.9 million for the years ended December 31, 2006, 2005 and
2004, respectively.
The improvement in free cash flow from 2005 to 2006 of $615.2 million resulted from an increase in “Net cash flows
from operating activities” of $505.1 million, or 28.5%, and a decrease in “Purchases of property and equipment” of
$110.1 million, or 7.3%. The increase in “Net cash flows from operating activities” was primarily attributable to a
$328.4 million increase in net income, net of changes in: (i) “Deferred tax expense (benefit);” (ii) “Gain on insurance
settlement;” and (iii) “Depreciation and amortization” expense. A $168.4 million increase in cash resulting from
changes in operating assets and liabilities also contributed to the increase. The 2006 decrease in “Purchases of property
and equipment” was primarily attributable to a decline in overall capital expenditures, including satellite construction,
and equipment under our new subscriber lease program, partially offset by increased spending for equipment under our
existing subscriber lease program.
The improvement in free cash flow from 2004 to 2005 of $246.8 million resulted from an increase in “Net cash flows
from operating activities” of $772.6 million, or 77.2%, partially offset by an increase in “Purchases of property and
equipment” of $525.8 million, or 53.6%. The increase in “Net cash flows from operating activities” was primarily
attributable to an $864.2 million increase in net income, net of changes in: (i) “Deferred tax expense (benefit);” (ii)
“Gain on insurance settlement;” (iii) “Realized and unrealized losses (gains) on investments;” and (iv) “Depreciation
and amortization” expense, partially offset by a $77.7 million decrease in cash resulting from changes in operating