Dish Network 2010 Annual Report Download - page 64

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
57
57
LIQUIDITY AND CAPITAL RESOURCES
Cash, Cash Equivalents and Current Marketable Investment Securities
We consider all liquid investments purchased within 90 days of their maturity to be cash equivalents. See “Item 7A.
– Quantitative and Qualitative Disclosures About Market Risk” for further discussion regarding our marketable
investment securities. As of December 31, 2010, our cash, cash equivalents and current marketable investment
securities totaled $2.940 billion compared to $2.139 billion as of December 31, 2009, an increase of $801 million.
This increase in cash, cash equivalents and current marketable investment securities was primarily related to cash
generated from operations of $2.140 billion, partially offset by capital expenditures of $1.216 billion, including the
$103 million assignment from EchoStar of certain rights under a launch contract, and by repurchases of our Class A
common stock totaling $107 million.
We have investments in various debt and equity instruments including corporate bonds, corporate equity securities,
government bonds, and variable rate demand notes (“VRDNs”). VRDNs are long-term floating rate municipal
bonds with embedded put options that allow the bondholder to sell the security at par plus accrued interest. All of
the put options are secured by a pledged liquidity source. Our VRDN portfolio is comprised of investments in many
municipalities, which are backed by financial institutions or other highly rated companies that serve as the pledged
liquidity source. While they are classified as marketable investment securities, the put option allows VRDNs to be
liquidated generally on a same day or on a five business day settlement basis. As of December 31, 2010 and 2009,
we held VRDNs, within our current marketable investment securities portfolio, with fair values of $1.334 billion and
$1.054 billion, respectively.
The following discussion highlights our cash flow activities during the years ended December 31, 2010, 2009 and
2008.
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, 2010, 2009 and 2008, free cash flow was significantly impacted by changes in
operating assets and liabilities and in “Purchases of property and equipment” as shown in the “Net cash flows from
operating activities” and “Net cash flows from investing” sections, respectively, 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.