ViaSat, Inc.
VIASAT INC (Form: 10-Q, Received: 11/09/2011 13:36:20)
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011.

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to             .

Commission File Number (000-21767)

 

 

ViaSat, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   33-0174996

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

6155 El Camino Real

Carlsbad, California 92009

(760) 476-2200

(Address of principal executive offices and telephone number)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   x    Accelerated filer   ¨   Non-accelerated filer     ¨   Smaller reporting company   ¨
     (Do not check if a smaller reporting company)  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x

The number of shares outstanding of the registrant’s common stock, $0.0001 par value, as of November 1, 2011 was 42,230,684.

 

 

 


Table of Contents

VIASAT, INC.

TABLE OF CONTENTS

 

     Page  

PART I. FINANCIAL INFORMATION

  

Item 1. Financial Statements (Unaudited)

     3   

Condensed Consolidated Balance Sheets

     3   

Condensed Consolidated Statements of Operations

     4   

Condensed Consolidated Statements of Cash Flows

     5   

Condensed Consolidated Statement of Equity and Comprehensive Income

     6   

Notes to the Condensed Consolidated Financial Statements

     7   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     34   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     53   

Item 4. Controls and Procedures

     54   

PART II. OTHER INFORMATION

  

Item 1. Legal Proceedings

     54   

Item 1A. Risk Factors

     54   

Item 5. Other Information

     56   

Item 6. Exhibits

     56   

Signatures

     57   

 

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Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

VIASAT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

     As of
September 30, 2011
    As of
April 1, 2011
 
     (In thousands)  
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 36,007      $ 40,490   

Accounts receivable, net

     198,488        191,889   

Inventories

     122,343        98,555   

Deferred income taxes

     18,313        18,805   

Prepaid expenses and other current assets

     44,568        21,141   
  

 

 

   

 

 

 

Total current assets

     419,719        370,880   

Satellites, net

     570,953        533,000   

Property and equipment, net

     263,947        233,139   

Other acquired intangible assets, net

     72,079        81,889   

Goodwill

     83,345        83,532   

Other assets

     115,524        103,308   
  

 

 

   

 

 

 

Total assets

   $ 1,525,567      $ 1,405,748   
  

 

 

   

 

 

 
LIABILITIES AND EQUITY     

Current liabilities:

    

Accounts payable

   $ 65,894      $ 71,712   

Accrued liabilities

     117,309        130,583   

Current portion of other long-term debt

     1,212        1,128   
  

 

 

   

 

 

 

Total current liabilities

     184,415        203,423   

Senior Notes due 2016, net

     272,544        272,296   

Other long-term debt

     171,401        61,946   

Other liabilities

     24,422        23,842   
  

 

 

   

 

 

 

Total liabilities

     652,782        561,507   
  

 

 

   

 

 

 

Commitments and contingencies (Note 8)

    

Equity:

    

ViaSat, Inc. stockholders’ equity

    

Common stock

     4        4   

Paid-in capital

     623,475        601,029   

Retained earnings

     264,456        254,722   

Common stock held in treasury

     (20,157     (17,907

Accumulated other comprehensive income

     862        2,277   
  

 

 

   

 

 

 

Total ViaSat, Inc. stockholders’ equity

     868,640        840,125   

Noncontrolling interest in subsidiary

     4,145        4,116   
  

 

 

   

 

 

 

Total equity

     872,785        844,241   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 1,525,567      $ 1,405,748   
  

 

 

   

 

 

 

See accompanying notes to the condensed consolidated financial statements.

 

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VIASAT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

     Three Months Ended     Six Months Ended  
     September 30, 2011     October 1, 2010     September 30, 2011     October 1, 2010  
     (In thousands, except per share data)  

Revenues:

        

Product revenues

   $ 146,611      $ 127,586      $ 269,157      $ 252,588   

Service revenues

     76,413        70,303        148,968        137,305   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     223,024        197,889        418,125        389,893   

Operating expenses:

        

Cost of product revenues

     107,909        88,451        200,194        183,165   

Cost of service revenues

     54,204        41,697        103,520        80,759   

Selling, general and administrative

     44,379        41,952        86,112        80,873   

Independent research and development

     6,809        7,622        12,503        14,936   

Amortization of acquired intangible assets

     4,767        5,094        9,539        9,704   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     4,956        13,073        6,257        20,456   

Other income (expense):

        

Interest income

     13        63        39        202   

Interest expense

     (211     (950     (211     (3,091
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     4,758        12,186        6,085        17,567   

(Benefit from) provision for income taxes

     (3,411     4,385        (3,678     6,366   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     8,169        7,801        9,763        11,201   

Less: Net income attributable to the noncontrolling interest, net of tax

     194        15        29        154   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to ViaSat, Inc.

   $ 7,975      $ 7,786      $ 9,734      $ 11,047   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic net income per share attributable to ViaSat, Inc. common stockholders

   $ 0.19      $ 0.19      $ 0.23      $ 0.27   

Diluted net income per share attributable to ViaSat, Inc. common stockholders

   $ 0.18      $ 0.18      $ 0.22      $ 0.26   

Shares used in computing basic net income per share

     42,142        40,640        41,972        40,304   

Shares used in computing diluted net income per share

     43,894        42,717        43,860        42,466   

See accompanying notes to the condensed consolidated financial statements.

 

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VIASAT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

     Six Months Ended  
     September 30, 2011     October 1, 2010  
     (In thousands)  

Cash flows from operating activities:

    

Net income

   $ 9,763      $ 11,201   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation

     48,000        40,983   

Amortization of intangible assets

     11,907        9,720   

Deferred income taxes

     (3,388     6,220   

Stock-based compensation expense

     8,979        8,313   

Loss on disposition of fixed assets

     2,913        2,916   

Other non-cash adjustments

     782        777   

Increase (decrease) in cash resulting from changes in operating assets and liabilities, net of effect of acquisition

    

Accounts receivable

     (7,416     6,018   

Inventories

     (20,582     (3,743

Other assets

     (13,902     3,550   

Accounts payable

     (6,270     (2,067

Accrued liabilities

     (7,117     9,768   

Other liabilities

     117        2,430   
  

 

 

   

 

 

 

Net cash provided by operating activities

     23,786        96,086   

Cash flows from investing activities:

    

Purchase of property, equipment and satellites, net

     (133,313     (109,518

Cash paid for patents, licenses and other assets

     (8,295     (8,427

Payment related to acquisition of business, net of cash acquired

     —          (13,456
  

 

 

   

 

 

 

Net cash used in investing activities

     (141,608     (131,401

Cash flows from financing activities:

    

Proceeds from line of credit borrowings

     130,000        15,000   

Payments on line of credit

     (20,000     (30,000

Proceeds from issuance of common stock under equity plans

     6,167        16,234   

Purchase of common stock in treasury

     (2,250     (1,884

Payments on capital lease

     (465     —     
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     113,452        (650

Effect of exchange rate changes on cash

     (113     115   
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (4,483     (35,850

Cash and cash equivalents at beginning of period

     40,490        89,631   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 36,007      $ 53,781   
  

 

 

   

 

 

 

Non-cash investing and financing activities:

    

Issuance of common stock in satisfaction of certain accrued employee compensation liabilities

   $ 6,340      $ 5,096   

Issuance of common stock in connection with acquisition

   $ —        $ 4,630   

Equipment acquired under capital lease

   $ —        $ 2,704   

See accompanying notes to the condensed consolidated financial statements.

 

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VIASAT, INC.

CONDENSED CONSOLIDATED STATEMENT OF EQUITY AND COMPREHENSIVE INCOME

(UNAUDITED)

(In thousands, except share data)

 

    ViaSat, Inc. Stockholders                    
    Common Stock                 Common Stock Held     Accumulated
Other
Comprehensive
Income (Loss)
                   
    Number of
Shares
Issued
                      in Treasury       Noncontrolling
Interest in
Subsidiary
             
      Amount     Paid-in
Capital
    Retained
Earnings
    Number of
Shares
    Amount         Total     Comprehensive
Income
 

Balance at April 1, 2011

    42,225,130      $ 4      $ 601,029      $ 254,722        (560,363   $ (17,907   $ 2,277      $ 4,116      $ 844,241     

Exercise of stock options

    219,114        —          4,088        —          —          —          —          —          4,088     

Issuance of stock under Employee Stock Purchase Plan

    56,523        —          2,079        —          —          —          —          —          2,079     

Stock-based compensation expense

    —          —          9,939        —          —          —          —          —          9,939     

Shares issued in settlement of certain accrued employee compensation liabilities

    156,825        —          6,340        —          —          —          —          —          6,340     

RSU awards vesting

    145,695        —          —          —          —          —          —          —          —       

Purchase of treasury shares pursuant to vesting of certain RSU agreements

    —          —          —          —          (51,403     (2,250     —          —          (2,250  

Net income

    —          —          —          9,734        —          —          —          29        9,763      $ 9,763   

Hedging transactions, net of tax

    —          —          —          —          —          —          (721     —          (721     (721

Foreign currency translation, net of tax

    —          —          —          —          —          —          (694     —          (694     (694
                   

 

 

 

Comprehensive income

                    $ 8,348   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2011

    42,803,287      $ 4      $ 623,475      $ 264,456        (611,766   $ (20,157   $ 862      $ 4,145      $ 872,785     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

See accompanying notes to the condensed consolidated financial statements.

 

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VIASAT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1 — Basis of Presentation

The accompanying condensed consolidated balance sheet at September 30, 2011, the condensed consolidated statements of operations for the three and six months ended September 30, 2011 and October 1, 2010, the condensed consolidated statements of cash flows for the six months ended September 30, 2011 and October 1, 2010, and the condensed consolidated statement of equity and comprehensive income for the six months ended September 30, 2011 have been prepared by the management of ViaSat, Inc. (also referred to hereafter as the Company or ViaSat), and have not been audited. These financial statements have been prepared on the same basis as the audited consolidated financial statements for the fiscal year ended April 1, 2011 and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the Company’s results for the periods presented. These financial statements should be read in conjunction with the financial statements and notes thereto for the fiscal year ended April 1, 2011 included in the Company’s Annual Report on Form 10-K. Interim operating results are not necessarily indicative of operating results for the full year. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (GAAP).

The Company’s condensed consolidated financial statements include the assets, liabilities and results of operations of ViaSat, its wholly owned subsidiaries and TrellisWare Technologies, Inc. (TrellisWare), a majority-owned subsidiary. All significant intercompany amounts have been eliminated.

The Company’s fiscal year is the 52 or 53 weeks ending on the Friday closest to March 31 of the specified year. For example, references to fiscal year 2012 refer to the fiscal year ending on March 30, 2012. The Company’s quarters for fiscal year 2012 end on July 1, 2011, September 30, 2011, December 30, 2011 and March 30, 2012. This results in a 53 week fiscal year approximately every four to five years. Fiscal years 2012 and 2011 are both 52-week years.

During the second quarter of fiscal year 2011, the Company completed the acquisition of Stonewood Group Limited (Stonewood), a privately held company registered in England and Wales. This acquisition was accounted for as a purchase and, accordingly, the condensed consolidated financial statements include the operating results of Stonewood from the date of acquisition (see Note 10).

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenues and expenses during the reporting period. Estimates have been prepared on the basis of the most current and best available information and actual results could differ from those estimates. Significant estimates made by management include revenue recognition, stock-based compensation, self-insurance reserves, allowance for doubtful accounts, warranty accrual, valuation of goodwill and other intangible assets, patents, orbital slots and other licenses, software development, property, equipment and satellites, long-lived assets, derivatives, contingencies and income taxes including the valuation allowance on deferred tax assets.

Revenue recognition

A substantial portion of the Company’s revenues are derived from long-term contracts requiring development and delivery of complex equipment built to customer specifications. Sales related to long-term contracts are accounted for under the authoritative guidance for the percentage-of-completion method of accounting (Accounting Standards Codification (ASC) 605-35). Sales and earnings under these contracts are recorded either based on the ratio of actual costs incurred to date to total estimated costs expected to be incurred related to the contract or as products are shipped under the units-of-delivery method. Anticipated losses on contracts are recognized in full in the period in which losses become probable and estimable. Changes in estimates of profit or loss on contracts are included in earnings on a cumulative basis in the period the estimate is changed.

In the first quarter of fiscal year 2011, the Company recorded an additional forward loss of $8.5 million on a government satellite communication program due to the significant additional labor and material costs for rework and testing required to complete the program requirements and specifications. During the three months ended September 30, 2011 and October 1, 2010, the Company recorded losses of approximately $0.4 million and $0.5 million, respectively, related to loss contracts. Including this program, during the six months ended September 30, 2011 and October 1, 2010, the Company recorded losses of approximately $0.7 million and $9.2 million, respectively, related to loss contracts.

 

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VIASAT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The Company also derives a substantial portion of its revenues from contracts and purchase orders where revenue is recorded on delivery of products or performance of services in accordance with the authoritative guidance for revenue recognition (ASC 605). Under this standard, the Company recognizes revenue when an arrangement exists, prices are determinable, collectability is reasonably assured and the goods or services have been delivered.

The Company also enters into certain leasing arrangements with customers and evaluates the contracts in accordance with the authoritative guidance for leases (ASC 840). The Company’s accounting for equipment leases involves specific determinations under the authoritative guidance for leases, which often involve complex provisions and significant judgments. In accordance with the authoritative guidance for leases, the Company classifies the transactions as sales type or operating leases based on (1) review for transfers of ownership of the equipment to the lessee by the end of the lease term, (2) review of the lease terms to determine if it contains an option to purchase the leased equipment for a price which is sufficiently lower than the expected fair value of the equipment at the date of the option, (3) review of the lease term to determine if it is equal to or greater than 75% of the economic life of the equipment, and (4) review of the present value of the minimum lease payments to determine if they are equal to or greater than 90% of the fair market value of the equipment at the inception of the lease. Additionally, the Company considers the cancelability of the contract and any related uncertainty of collections or risk in recoverability of the lease investment at lease inception. Revenue from sales type leases is recognized at the inception of the lease or when the equipment has been delivered and installed at the customer site, if installation is required. Revenues from equipment rentals under operating leases are recognized as earned over the lease term, which is generally on a straight-line basis.

Beginning in the first quarter of fiscal year 2012, the Company adopted Accounting Standards Update (ASU) 2009-13 (ASU 2009-13), Revenue Recognition (ASC 605) Multiple-Deliverable Revenue Arrangements, which updates ASC 605-25, Revenue Recognition-Multiple element arrangements, of the Financial Accounting Standards Board (FASB) codification. ASU 2009-13 amended accounting guidance for revenue recognition to eliminate the use of the residual method and requires entities to allocate revenue using the relative selling price method. For substantially all of the arrangements with multiple deliverables, the Company allocates revenue to each element based on a selling price hierarchy at the arrangement inception. The selling price for each element is based upon the following selling price hierarchy: vendor specific objective evidence (VSOE) if available, third party evidence (TPE) if VSOE is not available, or estimated selling price (ESP) if neither VSOE nor TPE are available (a description as to how the Company determines VSOE, TPE and ESP is provided below). If a tangible hardware systems product includes software, the Company determines whether the tangible hardware systems product and the software work together to deliver the product’s essential functionality and, if so, the entire product is treated as a nonsoftware deliverable. The total arrangement consideration is allocated to each separate unit of accounting for each of the nonsoftware deliverables using the relative selling prices of each unit based on the aforementioned selling price hierarchy. Revenue for each separate unit of accounting is recognized when the applicable revenue recognition criteria for each element have been met.

To determine the selling price in multiple-element arrangements, the Company establishes VSOE of the selling price using the price charged for a deliverable when sold separately and for software license updates and product support and hardware systems support, based on the renewal rates offered to customers. For nonsoftware multiple-element arrangements, TPE is established by evaluating similar and/or interchangeable competitor products or services in standalone arrangements with similarly situated customers and/or agreements. If the Company is unable to determine the selling price because VSOE or TPE doesn’t exist, the Company determines ESP for the purposes of allocating the arrangement by reviewing historical transactions, including transactions whereby the deliverable was sold on a standalone basis and considers several other external and internal factors including, but not limited to, pricing practices including discounting, margin objectives, competition, the geographies in which the Company offers its products and services, the type of customer (i.e., distributor, value added reseller, government agency or direct end user, among others) and the stage of the product lifecycle. The determination of ESP considers the Company’s pricing model and go-to-market strategy. As the Company, or its competitors’, pricing and go-to-market strategies evolve, the Company may modify its pricing practices in the future, which could result in changes to its determination of VSOE, TPE and ESP. As a result, the Company’s future revenue recognition for multiple-element arrangements could differ materially from those in the current period. The Company adopted this authoritative guidance in the first quarter of fiscal year 2012 without a material impact on its consolidated financial statements and disclosures.

In accordance with the authoritative guidance for shipping and handling fees and costs (ASC 605-45), the Company records shipping and handling costs billed to customers as a component of revenues, and shipping and handling costs incurred by the Company for inbound and outbound freight are recorded as a component of cost of revenues.

 

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VIASAT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Collections in excess of revenues and deferred revenues represent cash collected from customers in advance of revenue recognition and are recorded in accrued liabilities for obligations within the next twelve months. Amounts for obligations extending beyond twelve months are recorded within other liabilities in the condensed consolidated financial statements.

Contract costs on U.S. government contracts are subject to audit and negotiations with U.S. government representatives. The Company’s incurred cost audits by the Defense Contract Audit Agency (DCAA) have not been completed for fiscal year 2003 and subsequent fiscal years. Although the Company has recorded contract revenues subsequent to fiscal year 2002 based upon an estimate of costs that the Company believes will be approved upon final audit or review, the Company does not know the outcome of any ongoing or future audits or reviews and adjustments, and if future adjustments exceed the Company’s estimates, its profitability would be adversely affected. As of September 30, 2011 and April 1, 2011, the Company had $6.7 million in contract-related reserves for its estimate of potential refunds to customers for potential cost adjustments on several multi-year U.S. government cost reimbursable contracts (see Note 8).

Property, equipment and satellites

Equipment, computers and software, furniture and fixtures, the Company’s ViaSat-1 high-capacity satellite, and related gateway and networking equipment under construction are recorded at cost, net of accumulated depreciation. The Company computes depreciation using the straight-line method over the estimated useful lives of the assets ranging from one to twenty-four years. Leasehold improvements are capitalized and amortized using the straight-line method over the shorter of the lease term or the life of the improvement. Costs incurred for additions to property, equipment and satellites, together with major renewals and betterments, are capitalized and depreciated over the remaining life of the underlying asset. Costs incurred for maintenance, repairs and minor renewals and betterments are charged to expense as incurred. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation or amortization are removed from the accounts and any resulting gain or loss is recognized in operations.

Satellite costs, including launch services and insurance, are generally procured under long-term contracts that provide for payments over the contract periods and are capitalized as incurred. The Company is also constructing gateway facilities and network operations systems to support the ViaSat-1 satellite which are also capitalized as incurred. Interest expense is capitalized on the carrying value of the satellite, related gateway and networking equipment and other assets during the construction period, in accordance with the authoritative guidance for the capitalization of interest (ASC 835-20). With respect to ViaSat-1, related gateway and networking equipment and other assets currently under construction, the Company capitalized $7.7 million and $15.3 million of interest expense during the three and six months ended September 30, 2011, respectively, and $6.7 million and $12.7 million of interest expense during the three and six months ended October 1, 2010, respectively.

As a result of the acquisition of WildBlue Holding, Inc. (WildBlue) in December 2009, the Company acquired the WildBlue-1 satellite (which was placed into service in March 2007), an exclusive prepaid lifetime capital lease of Ka-band capacity over the continental United States on Telesat Canada’s Anik F2 satellite (which was placed into service in April 2005) and related gateway and networking equipment on both satellites. The acquired assets also included the indoor and outdoor customer premise equipment (CPE) units leased to subscribers under WildBlue’s retail leasing program. The Company depreciates the satellites, gateway and networking equipment, CPE units and related installation costs over their estimated useful lives. The total cost and accumulated depreciation of CPE units included in property and equipment, net, as of September 30, 2011 was $68.5 million and $26.3 million, respectively. The total cost and accumulated depreciation of CPE units included in property and equipment, net, as of April 1, 2011 was $61.6 million and $19.2 million, respectively.

Occasionally, the Company may enter into capital lease arrangements for various machinery, equipment, computer-related equipment, software, furniture or fixtures. As of September 30, 2011, assets under capital leases totaled approximately $3.1 million and accumulated amortization related to such capital leases was $0.4 million. As of April 1, 2011, assets under capital leases totaled approximately $3.1 million and had an immaterial amount of accumulated amortization. The Company records amortization of assets leased under capital lease arrangements within depreciation expense.

Patents, orbital slots and other licenses

The Company capitalizes the costs of obtaining or acquiring patents, orbital slots and other licenses. Amortization of intangible assets that have finite lives is provided for by the straight-line method over the shorter of the legal or estimated economic life. Total capitalized costs of $3.2 million related to patents were included in other assets as of September 30, 2011 and April 1, 2011. The Company has capitalized costs of $5.9 million and $5.7 million related to acquiring and obtaining orbital slots and other licenses,

 

9


Table of Contents

VIASAT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

included in other assets as of September 30, 2011 and April 1, 2011, respectively. Accumulated amortization related to these assets was approximately $0.4 million and $0.3 million as of September 30, 2011 and April 1, 2011, respectively. Amortization expense related to these assets was an immaterial amount for the three months ended September 30, 2011 and October 1, 2010, and approximately $0.1 million for each of the six months ended September 30, 2011 and October 1, 2010. If a patent, orbital slot or orbital license is rejected, abandoned or otherwise invalidated, the unamortized cost is expensed in that period. During the three and six months ended September 30, 2011 and October 1, 2010, the Company did not write off any material costs due to abandonment or impairment.

Software development

Costs of developing software for sale are charged to research and development expense when incurred, until technological feasibility has been established. Software development costs incurred from the time technological feasibility is reached until the product is available for general release to customers are capitalized and reported at the lower of unamortized cost or net realizable value. Once the product is available for general release, the software development costs are amortized based on the ratio of current to future revenue for each product with an annual minimum equal to straight-line amortization over the remaining estimated economic life of the product, generally within five years. Capitalized costs, net, of $31.5 million and $24.5 million related to software developed for resale were included in other assets as of September 30, 2011 and April 1, 2011, respectively. The Company capitalized $4.1 million and $9.4 million of costs related to software developed for resale for the three and six months ended September 30, 2011, respectively. The Company capitalized $4.1 million and $8.0 million of costs related to software developed for resale for the three and six months ended October 1, 2010, respectively. Amortization expense for software development costs was $1.1 million and $2.3 million for the three and six months ended September 30, 2011, respectively. There was no amortization expense of software development costs for the three and six months ended October 1, 2010.

Self-insurance liabilities

The Company has self-insurance plans to retain a portion of the exposure for losses related to employee medical benefits and workers’ compensation. The self-insurance policies provide for both specific and aggregate stop-loss limits. The Company utilizes internal actuarial methods as well as other historical information for the purpose of estimating ultimate costs for a particular policy year. Based on these actuarial methods, along with currently available information and insurance industry statistics, the Company’s self-insurance liability for the plans was $1.5 million as of September 30, 2011 and April 1, 2011. The Company’s estimate, which is subject to inherent variability, is based on average claims experience in the Company’s industry and its own experience in terms of frequency and severity of claims, including asserted and unasserted claims incurred but not reported, with no explicit provision for adverse fluctuation from year to year. This variability may lead to ultimate payments being either greater or less than the amounts presented above. Self-insurance liabilities have been classified as a current liability in accrued liabilities in accordance with the estimated timing of the projected payments.

Indemnification provisions

In the ordinary course of business, the Company includes indemnification provisions in certain of its contracts, generally relating to parties with which the Company has commercial relations. Pursuant to these agreements, the Company will indemnify, hold harmless and agree to reimburse the indemnified party for losses suffered or incurred by the indemnified party, including but not limited to losses relating to third-party intellectual property claims. To date, there have not been any material costs incurred in connection with such indemnification clauses. The Company’s insurance policies do not necessarily cover the cost of defending indemnification claims or providing indemnification, so if a claim was filed against the Company by any party that the Company has agreed to indemnify, the Company could incur substantial legal costs and damages. A claim would be accrued when a loss is considered probable and the amount can be reasonably estimated. At September 30, 2011 and April 1, 2011, no such amounts were accrued.

Simultaneously with the execution of the merger agreement relating to the acquisition of WildBlue, the Company entered into an indemnification agreement dated September 30, 2009 with several of the former stockholders of WildBlue pursuant to which such former stockholders agreed to indemnify the Company for costs which result from, relate to or arise out of potential claims and liabilities under various WildBlue contracts, an existing appraisal action regarding WildBlue’s 2008 recapitalization, certain rights to acquire securities of WildBlue and a severance agreement. Under the indemnification agreement, the Company is required to pay up to $0.5 million and has recorded a liability of $0.5 million in the condensed consolidated balance sheets as of September 30, 2011 and April 1, 2011 as an element of accrued liabilities.

 

10


Table of Contents

VIASAT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Noncontrolling interest

A noncontrolling interest represents the equity interest in a subsidiary that is not attributable, either directly or indirectly, to the Company and is reported as equity of the Company, separately from the Company’s controlling interest. Revenues, expenses, gains, losses, net income or loss and other comprehensive income are reported in the condensed consolidated financial statements at the consolidated amounts, which include the amounts attributable to both the controlling and noncontrolling interest.

Common stock held in treasury

During the first six months of fiscal year 2012 and 2011, the Company issued 145,695 and 159,235 shares of common stock, respectively, based on the vesting terms of certain restricted stock unit agreements. In order for employees to satisfy minimum statutory employee tax withholding requirements related to the issuance of common stock underlying these restricted stock unit agreements, the Company repurchased 51,403 and 58,380 shares of common stock with a total value of $2.3 million and $1.9 million during the first six months of fiscal year 2012 and 2011, respectively. Repurchased shares of common stock of 611,766 and 560,363 were held in treasury as of September 30, 2011 and April 1, 2011, respectively.

Derivatives

The Company enters into foreign currency forward and option contracts from time to time to hedge certain forecasted foreign currency transactions. Gains and losses arising from foreign currency forward and option contracts not designated as hedging instruments are recorded in other income (expense) as gains (losses) on derivative instruments. Gains and losses arising from the effective portion of foreign currency forward and option contracts which are designated as cash-flow hedging instruments are recorded in accumulated other comprehensive income (loss) as unrealized gains (losses) on derivative instruments until the underlying transaction affects the Company’s earnings, at which time they are then recorded in the same income statement line as the underlying transaction.

The fair values of the Company’s outstanding foreign currency forward contracts as of September 30, 2011 were as follows:

 

$0,000,00, $0,000,00, $0,000,00, $0,000,00,
     Asset Derivatives      Liability Derivatives  
       Balance Sheet
Classification
     Fair
Value
     Balance  Sheet
Classification
     Fair Value  
             
     (In thousands)  

Derivatives designated as hedging instruments

  

Foreign currency forward contracts

     Not applicable       $ —           Accrued liabilities       $ 539   
     

 

 

       

 

 

 

Total derivatives designated as hedging instruments

      $  —            $ 539   
     

 

 

       

 

 

 

The fair values of the Company’s outstanding foreign currency forward contracts as of April 1, 2011 were as follows:

 

$0,0000000 $0,0000000 $0,0000000 $0,0000000
    Asset Derivatives      Liability Derivatives  
      Balance Sheet
Classification
     Fair
Value
     Balance  Sheet
Classification
     Fair Value  
    (In thousands)  

Derivatives designated as hedging instruments

 

Foreign currency forward contracts

    Other current assets       $ 182         Not applicable       $ —     
    

 

 

       

 

 

 

Total derivatives designated as hedging instruments

     $ 182          $ —     
    

 

 

       

 

 

 

The notional value of foreign currency forward contracts outstanding as of September 30, 2011 and April 1, 2011 was $12.6 million and $4.6 million, respectively.

 

11


Table of Contents

VIASAT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The effects of foreign currency forward contracts in cash flow hedging relationships during the three months ended September 30, 2011 were as follows:

 

Derivatives in Cash Flow Hedging Relationships

   Amount
of Gain or
(Loss)
Recognized
in Accumulated
OCI
on
Derivatives
(Effective
Portion)
    Location of
Gain or
(Loss)
Reclassified
from
Accumulated
OCI into
Income
(Effective
Portion)
     Amount of
Gain or
(Loss)
Reclassified
from
Accumulated
OCI into
Income
(Effective
Portion)
    Location of Gain
or (Loss)
Recognized in
Income on
Derivatives
(Ineffective
Portion and
Amount Excluded
from  Effectiveness
Testing)
     Amount of
Gain or
(Loss)
Recognized
in Income on
Derivatives
(Ineffective
Portion and
Amount
Excluded
from
Effectiveness
Testing)
 
     (In thousands)  

Foreign currency forward contracts

   $ (670     Cost of product revenues       $ (77     Not applicable       $ —     
  

 

 

      

 

 

      

 

 

 

Total

   $ (670      $ (77      $ —     
  

 

 

      

 

 

      

 

 

 

The effects of foreign currency forward contracts in cash flow hedging relationships during the six months ended September 30, 2011 were as follows:

 

Derivatives in Cash Flow Hedging Relationships

  Amount
of Gain or
(Loss)
Recognized
in Accumulated
OCI
on
Derivatives
(Effective
Portion)
   

Location of

Gain or

(Loss)

Reclassified

from

Accumulated

OCI into

Income

(Effective

Portion)

  Amount of
Gain or
(Loss)
Reclassified
from
Accumulated
OCI into
Income
(Effective
Portion)
    Location of Gain
or (Loss)
Recognized in
Income on
Derivatives
(Ineffective
Portion and
Amount Excluded
from Effectiveness
Testing)
  Amount of
Gain or
(Loss)
Recognized
in Income on
Derivatives
(Ineffective
Portion and
Amount
Excluded
from
Effectiveness
Testing)
 
    (In thousands)  

Foreign currency forward contracts

  $ (638)      Cost of product revenues   $ 83      Not applicable   $ —     
 

 

 

     

 

 

     

 

 

 

Total

  $ (638)        $ 83        $ —     
 

 

 

     

 

 

     

 

 

 

 

12


Table of Contents

VIASAT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The effects of foreign currency forward contracts in cash flow hedging relationships during the three months ended October 1, 2010 were as follows:

 

Derivatives in Cash Flow Hedging Relationships

  Amount
of Gain or
(Loss)
Recognized
in Accumulated
OCI
on
Derivatives
(Effective
Portion)
   

Location of

Gain or

(Loss)

Reclassified

from

Accumulated

OCI into

Income

(Effective

Portion)

  Amount of
Gain or
(Loss)
Reclassified
from
Accumulated
OCI into
Income
(Effective
Portion)
    Location of Gain
or (Loss)
Recognized in
Income on
Derivatives
(Ineffective
Portion and
Amount Excluded
from Effectiveness
Testing)
    Amount of
Gain or
(Loss)
Recognized
in Income on
Derivatives
(Ineffective
Portion and
Amount
Excluded
from
Effectiveness
Testing)
 
    (In thousands)  

Foreign currency forward contracts

  $ 369      Cost of product revenues   $ 211        Not applicable      $ —     
 

 

 

     

 

 

     

 

 

 

Total

  $ 369        $ 211        $ —     
 

 

 

     

 

 

     

 

 

 

The effects of foreign currency forward contracts in cash flow hedging relationships during the six months ended October 1, 2010 were as follows:

 

Derivatives in Cash Flow Hedging Relationships

  Amount
of Gain or
(Loss)
Recognized
in Accumulated
OCI
on
Derivatives
(Effective
Portion)
   

Location of

Gain or

(Loss)

Reclassified

from

Accumulated

OCI into

Income

(Effective

Portion)

  Amount of
Gain or
(Loss)
Reclassified
from
Accumulated
OCI into
Income
(Effective
Portion)
    Location of Gain
or (Loss)
Recognized in
Income on
Derivatives
(Ineffective
Portion and
Amount Excluded
from Effectiveness
Testing)
    Amount of
Gain or
(Loss)
Recognized
in Income on
Derivatives
(Ineffective
Portion and
Amount
Excluded
from
Effectiveness
Testing)
 
    (In thousands)  

Foreign currency forward contracts

  $ 280      Cost of product revenues   $ 202        Not applicable      $ —     
 

 

 

     

 

 

     

 

 

 

Total

  $ 280        $ 202        $ —     
 

 

 

     

 

 

     

 

 

 

At September 30, 2011, the estimated net amount of unrealized gains or losses on foreign currency cash flow hedges that is expected to be reclassified to earnings within the next twelve months is approximately $0.4 million. Foreign currency forward contracts usually mature within approximately eighteen months from their inception. There were no gains or losses from ineffectiveness of these derivative instruments recorded for the three and six months ended September 30, 2011 and October 1, 2010.

Stock-based compensation

In accordance with the authoritative guidance for share-based payments (ASC 718), the Company measures stock-based compensation cost at the grant date, based on the estimated fair value of the award, and recognizes expense on a straight-line basis

 

13


Table of Contents

VIASAT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

over the requisite service period of the employee’s award. Stock-based compensation expense is recognized in the condensed consolidated statement of operations for the three and six months ended September 30, 2011 and October 1, 2010 only for those awards ultimately expected to vest, with forfeitures estimated at the date of grant. The authoritative guidance for share-based payments requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company recognized $4.8 million and $9.0 million of stock-based compensation expense for the three and six months ended September 30, 2011, respectively, and $4.1 million and $8.3 million of stock-based compensation expense for the three and six months ended October 1, 2010, respectively.

For the six months ended September 30, 2011 and October 1, 2010, the Company recorded no incremental tax benefits from stock options exercised and restricted stock unit award vesting as the excess tax benefit from stock options exercised and restricted stock unit award vesting increased the Company’s net operating loss carryforward.

Income taxes

Accruals for uncertain tax positions are provided for in accordance with the authoritative guidance for accounting for uncertainty in income taxes (ASC 740). The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The authoritative guidance for accounting for uncertainty in income taxes also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures. The Company’s policy is to recognize interest expense and penalties related to income tax matters as a component of income tax expense.

Current income tax expense is the amount of income taxes expected to be payable for the current year. A deferred income tax asset or liability is established for the expected future tax consequences resulting from differences in the financial reporting and tax bases of assets and liabilities and for the expected future tax benefit to be derived from tax credit and loss carryforwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred income tax expense (benefit) is the net change during the year in the deferred income tax asset or liability.

Recent authoritative guidance

In October 2009, the FASB issued authoritative guidance for revenue recognition with multiple deliverables (ASU 2009-13, which updated ASC 605-25). This new guidance impacts the determination of when the individual deliverables included in a multiple-element arrangement may be treated as separate units of accounting. Additionally, this authoritative guidance modifies the manner in which the transaction consideration is allocated across the separately identified deliverables by no longer permitting the residual method of allocating arrangement consideration. The Company adopted this authoritative guidance in the first quarter of fiscal year 2012 without a material impact on its consolidated financial statements and disclosures.

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (ASC 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in GAAP and International Financial Reporting Standards (IFRS). The new authoritative guidance results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between GAAP and IFRS. While many of the amendments to GAAP are not expected to have a significant effect on practice, the new guidance changes some fair value measurement principles and disclosure requirements. This authoritative guidance is effective for the Company beginning in the fourth quarter of fiscal year 2012. Adoption of this authoritative guidance is not expected to have a material impact on the Company’s consolidated financial statements and disclosures.

In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (ASC 220): Presentation of Comprehensive Income. The new authoritative guidance requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The new authoritative guidance eliminates the option to present the components of other comprehensive income as part of the statement of equity. This authoritative guidance will be effective for the Company beginning in the first quarter of fiscal year 2013 and should be applied retrospectively; however, early adoption is permitted. The Company is currently evaluating the impact that the authoritative guidance may have on its consolidated financial statements and disclosures.

 

14


Table of Contents

VIASAT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

In September 2011, the FASB issued ASU No. 2011-08, Intangibles—Goodwill and Other (ASU 2011-08): Testing Goodwill for Impairment. The new authoritative guidance simplifies how an entity tests goodwill for impairment. The new authoritative guidance allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. The two-step quantitative impairment test is required only if, based on its qualitative assessment, an entity determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. This authoritative guidance is effective for interim and annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Adoption of this authoritative guidance is not expected to have a material impact on the Company’s consolidated financial statements and disclosures.

Note 2 — Composition of Certain Balance Sheet Captions

 

     As of
September 30, 2011
    As of
Apri 1, 2011
 
     (In thousands)  

Accounts receivable, net:

    

Billed

   $ 97,979      $ 100,863   

Unbilled

     101,415        91,519   

Allowance for doubtful accounts

     (906     (493
  

 

 

   

 

 

 
   $ 198,488      $ 191,889   
  

 

 

   

 

 

 

Inventories:

    

Raw materials

   $ 49,905      $ 46,651   

Work in process

     20,658        18,713   

Finished goods

     51,780        33,191   
  

 

 

   

 

 

 
   $ 122,343      $ 98,555   
  

 

 

   

 

 

 

Prepaid expenses and other current assets:

    

Prepaid expenses

   $ 27,380      $ 18,235   

Income tax receivable

     155        26   

Other

     17,033        2,880   
  

 

 

   

 

 

 
   $ 44,568      $ 21,141   
  

 

 

   

 

 

 

Satellites, net:

    

Satellite — WildBlue-1 (estimated useful life of 10 years)

   $ 195,890      $ 195,890   

Capital lease of satellite capacity — Anik F2 (estimated useful life of 10 years)

     99,090        99,090   

Satellite under construction

     329,053        276,418   
  

 

 

   

 

 

 
     624,033        571,398   

Less accumulated depreciation and amortization

     (53,080     (38,398
  

 

 

   

 

 

 
   $ 570,953      $ 533,000   
  

 

 

   

 

 

 

Property and equipment, net:

    

Machinery and equipment (estimated useful life of 2-5 years)

   $ 140,351      $ 122,113   

Computer equipment and software (estimated useful life of 2-7 years)

     98,402        66,768   

CPE leased equipment (estimated useful life of 3-5 years)

     68,477        61,610   

Furniture and fixtures (estimated useful life of 7 years)

     13,330        13,053   

Leasehold improvements (estimated useful life of 1-15 years)

     25,106        24,550   

Building (estimated useful life of 24 years)

     8,923        8,923   

Land

     4,384        4,384   

Construction in progress

     83,150        80,976   
  

 

 

   

 

 

 
     442,123        382,377   

Less accumulated depreciation and amortization

     (178,176     (149,238
  

 

 

   

 

 

 
   $ 263,947      $ 233,139   
  

 

 

   

 

 

 

Other acquired intangible assets, net:

    

Technology (weighted average useful life of 6 years)

   $ 54,088      $ 54,344   

Contracts and customer relationships (weighted average useful life of 7 years)

     88,773        88,834   

Non-compete agreements (weighted average useful life of 4 years)

     9,331        9,332   

Satellite co-location rights (weighted average useful life of 9 years)

     8,600        8,600   

Trade name (weighted average useful life of 3 years)

     5,680        5,680   

Other (weighted average useful life of 6 years)

     9,332        9,331   
  

 

 

   

 

 

 
     175,804        176,121   

Less accumulated amortization

     (103,725     (94,232
  

 

 

   

 

 

 
   $ 72,079      $ 81,889   
  

 

 

   

 

 

 

 

15


Table of Contents

VIASAT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Accrued liabilities:

     

Warranty reserve, current portion

   $ 7,493       $ 8,014   

Accrued vacation

     15,931         15,600   

Accrued employee compensation

     13,243         18,804   

Collections in excess of revenues and deferred revenues

     59,834         61,916   

Other

     20,808         26,249   
  

 

 

    

 

 

 
   $ 117,309       $ 130,583   
  

 

 

    

 

 

 

Other liabilities:

     

Unrecognized tax position liabilities

   $ 2,217       $ 2,217   

Deferred rent, long-term portion

     6,962         6,363   

Deferred revenue, long-term portion

     7,047         6,960   

Deferred income taxes, long-term portion

     3,297         3,374   

Warranty reserve, long-term portion

     4,899         4,928   
  

 

 

    

 

 

 
   $ 24,422       $ 23,842   
  

 

 

    

 

 

 

Note 3 — Fair Value Measurements

In accordance with the authoritative guidance for financial assets and liabilities measured at fair value on a recurring basis (ASC 820), the Company prioritizes the inputs used to measure fair value from market-based assumptions to entity specific assumptions:

 

   

Level 1 — Inputs based on quoted market prices for identical assets or liabilities in active markets at the measurement date.

 

   

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

   

Level 3 — Inputs which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instruments valuation.

The following tables present the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of September 30, 2011 and April 1, 2011:

 

     Fair Value as  of
September 30, 2011
     Level 1      Level 2      Level 3  
     (In thousands)  

Assets

           

Cash equivalents

   $ 1,593       $ 1,593       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets measured at fair value on a recurring basis

   $ 1,593       $ 1,593       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Foreign currency forward contracts

   $ 539       $ —         $ 539       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities measured at fair value on a recurring basis

   $ 539       $ —         $ 539       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Fair Value as  of
April 1, 2011
     Level 1      Level 2      Level 3  
     (In thousands)  

Assets

           

Cash equivalents

   $ 4,488       $ 4,488       $ —         $ —     

Foreign currency forward contracts

     182         —           182         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets measured at fair value on a recurring basis

   $ 4,670       $ 4,488       $ 182       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

The following section describes the valuation methodologies the Company uses to measure financial instruments at fair value:

Cash equivalents — The Company’s cash equivalents consist of money market funds. Money market funds are valued using quoted prices for identical assets in an active market with sufficient volume and frequency of transactions.

Foreign currency forward contracts — The Company uses derivative financial instruments to manage foreign currency risk relating to foreign exchange rates. The Company does not use these instruments for speculative or trading purposes. The Company’s objective is to reduce the risk to earnings and cash flows associated with changes in foreign currency exchange rates. Derivative

 

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VIASAT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

instruments are recognized as either assets or liabilities in the accompanying condensed consolidated financial statements and are measured at fair value. Gains and losses resulting from changes in the fair values of those derivative instruments are recorded to earnings or other comprehensive income (loss) depending on the use of the derivative instrument and whether it qualifies for hedge accounting. The Company’s foreign currency forward contracts are valued using quoted prices for similar assets and liabilities in active markets or other inputs that are observable or can be corroborated by observable market data.

Long-term debt — The Company’s long-term debt consists of borrowings under the revolving credit facility (the Credit Facility) reported at the borrowed outstanding amount, capital lease obligations reported at the present value of future minimum lease payments with current accrued interest, and the Company’s 8.875% Senior Notes due 2016 (the Notes) reported at amortized cost. However, for disclosure purposes, the Company is required to measure the fair value of outstanding debt on a recurring basis. The fair value of the Company’s outstanding long-term debt related to the Notes is determined using quoted prices in active markets and was approximately $279.1 million and $293.6 million as of September 30, 2011 and April 1, 2011, respectively. The fair value of the Company’s long-term debt related to the Credit Facility approximates its carrying amount due to its variable interest rate on the revolving line of credit, which approximates a market interest rate. The fair value of the Company’s capital lease obligations is estimated at their carrying value based on current rates.

Note 4 — Shares Used In Computing Diluted Net Income Per Share

 

     Three Months Ended      Six Months Ended  
     September 30, 2011      October 1, 2010      September 30, 2011      October 1, 2010  
     (In thousands)  

Weighted average:

           

Common shares outstanding used in calculating basic net income per share attributable to ViaSat, Inc. common stockholders

     42,142         40,640         41,972         40,304   

Options to purchase common stock as determined by application of the treasury stock method

     1,311         1,625         1,375         1,624   

Restricted stock units to acquire common stock as determined by application of the treasury stock method

     348         385         377         411   

Potentially issuable shares in connection with certain terms of the amended ViaSat 401(k) Profit Sharing Plan

     83         59         114         99   

Employee Stock Purchase Plan equivalents

     10         8         22         28   
  

 

 

    

 

 

    

 

 

    

 

 

 

Shares used in computing diluted net income per share attributable to ViaSat, Inc. common stockholders

     43,894         42,717         43,860         42,466   
  

 

 

    

 

 

    

 

 

    

 

 

 

Antidilutive shares relating to stock options excluded from the calculation were 281,250 and 246,387 shares for the three and six months ended September 30, 2011, respectively, and for the three and six months ended October 1, 2010 antidilutive shares relating to stock options excluded from the calculation were 348,997 and 347,348 shares, respectively.

Antidilutive shares relating to restricted stock units excluded from the calculation were 13,356 and 9,090 for the three and six months ended September 30, 2011, respectively, and for the three and six months ended October 1, 2010 antidilutive shares relating to restricted stock units excluded from the calculation were 1,055 and 527, respectively.

 

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VIASAT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 5 — Goodwill and Acquired Intangible Assets

During fiscal year 2012, the Company’s goodwill decreased by approximately $0.2 million related to the effects of foreign currency translation recorded within the Company’s government systems and commercial networks segments. Other acquired intangible assets are amortized using the straight-line method over their estimated useful lives of eight months to ten years. Amortization expense related to other acquired intangible assets was $4.8 million and $5.1 million for the three months ended September 30, 2011 and October 1, 2010, respectively, and $9.5 million and $9.7 million for the six months ended September 30, 2011 and October 1, 2010, respectively.

The expected amortization expense of amortizable acquired intangible assets may change due to the effects of foreign currency fluctuations as a result of international businesses acquired. Current and expected amortization expense for acquired intangible assets for each of the following periods is as follows:

 

     Amortization  
     (In thousands)  

For the six months ended September 30, 2011

   $ 9,539   

Expected for the remainder of fiscal year 2012

   $ 9,179   

Expected for fiscal year 2013

     15,555   

Expected for fiscal year 2014

     13,811   

Expected for fiscal year 2015

     13,735   

Expected for fiscal year 2016

     10,181   

Thereafter

     9,618   
  

 

 

 
   $ 72,079   
  

 

 

 

 

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VIASAT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 6 — Senior Notes and Other Long-Term Debt

Total long-term debt consisted of the following as of September 30, 2011 and April 1, 2011:

 

     As of
September 30, 2011
    As of
April 1, 2011
 
     (In thousands)  

Senior Notes due 2016 (the Notes)

    

Notes

   $ 275,000      $ 275,000   

Unamortized discount on the Notes

     (2,456     (2,704
  

 

 

   

 

 

 

Total Notes, net of discount

     272,544        272,296   

Less: current portion of the Notes

     —          —     
  

 

 

   

 

 

 

Total Notes long-term, net

     272,544        272,296   

Other Long-Term Debt

    

Line of credit

     170,000        60,000   

Capital lease obligations

     2,613        3,074   
  

 

 

   

 

 

 

Total other long-term debt

     172,613        63,074   

Less: current portion of other long-term debt

     1,212        1,128   
  

 

 

   

 

 

 

Other long-term debt, net

     171,401        61,946   

Total debt

     445,157        335,370   

Less: current portion

     1,212        1,128   
  

 

 

   

 

 

 

Long-term debt, net

   $ 443,945      $ 334,242   
  

 

 

   

 

 

 

Senior Notes due 2016

In October 2009, the Company issued $275.0 million in principal amount of Notes in a private placement to institutional buyers, which Notes were exchanged in May 2010 for substantially identical Notes that had been registered with the Securities and Exchange Commission (SEC). The Notes bear interest at the rate of 8.875% per year, payable semi-annually in cash in arrears, which interest payments commenced in March 2010. The Notes were issued with an original issue discount of 1.24%, or $3.4 million. The Notes are recorded as long-term debt, net of original issue discount, in the Company’s consolidated financial statements. The original issue discount and deferred financing cost associated with the issuance of the Notes is amortized to interest expense on a straight-line basis over the term of the Notes.

The Notes are guaranteed on an unsecured senior basis by each of the Company’s existing and future subsidiaries that guarantees the Credit Facility (the Guarantor Subsidiaries). The Notes and the guarantees are the Company’s and the Guarantor Subsidiaries’ general senior unsecured obligations and rank equally in right of payment with all of the Company’s existing and future unsecured unsubordinated debt. The Notes and the guarantees are effectively junior in right of payment to their existing and future secured debt, including under the Credit Facility (to the extent of the value of the assets securing such debt), are structurally subordinated to all existing and future liabilities (including trade payables) of the Company’s subsidiaries that are not guarantors of the Notes, and are senior in right of payment to all of their existing and future subordinated indebtedness.

The indenture governing the Notes limits, among other things, the Company’s and its restricted subsidiaries’ ability to: incur, assume or guarantee additional debt; issue redeemable stock and preferred stock; pay dividends, make distributions or redeem or repurchase capital stock; prepay, redeem or repurchase subordinated debt; make loans and investments; grant or incur liens; restrict dividends, loans or asset transfers from restricted subsidiaries; sell or otherwise dispose of assets; enter into transactions with affiliates; reduce the Company’s satellite insurance; and consolidate or merge with, or sell substantially all of their assets to, another person.

Prior to September 15, 2012, the Company may redeem a portion of the Notes at the redemption price specified in the indenture, plus accrued and unpaid interest, if any, thereon to the redemption date, from the net cash proceeds of specified equity offerings. The Company may also redeem the Notes prior to September 15, 2012, in whole or in part, at a redemption price equal to the principal amount thereof plus the applicable “make-whole” premium and any accrued and unpaid interest, if any, thereon to the redemption date. The Notes may be redeemed, in whole or in part, at any time from September 15, 2012 at a fixed redemption price that declines ratably over time, plus accrued and unpaid interest, if any, thereon to the redemption date. For more information regarding the applicable redemption prices, see “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” of this Quarterly Report.

 

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VIASAT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

In the event a change of control occurs (as defined in the indenture), each holder will have the right to require the Company to repurchase all or any part of such holder’s Notes at a purchase price in cash equal to 101% of the aggregate principal amount of the Notes repurchased plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).

Credit Facility

As of September 30, 2011, the Credit Facility, as amended, provided a revolving line of credit of $325.0 million (including up to $35.0 million of letters of credit), with a maturity date of January 25, 2016. Borrowings under the Credit Facility bear interest, at the Company’s option, at either (1) the highest of the Federal Funds rate plus 0.50%, the Eurodollar rate plus 1.00% or the administrative agent’s prime rate as announced from time to time, or (2) at the Eurodollar rate plus, in the case of each of (1) and (2), an applicable margin that is based on the ratio of the Company’s debt to earnings before interest, taxes, depreciation and amortization (EBITDA) as defined in the Credit Facility. At September 30, 2011, the weighted average effective interest rate on the Company’s outstanding borrowings under the Credit Facility was 3.23%. The Company has capitalized certain amounts of interest expense on the Credit Facility in connection with the construction of ViaSat-1, related gateway and networking equipment and other assets currently under construction. The Credit Facility is guaranteed by certain of the Company’s domestic subsidiaries and collateralized by substantially all of the Company’s and the Guarantor Subsidiaries’ assets. Subsequent to the quarter end, on October 31, 2011, the Company amended the Credit Facility to revise the definition of EBITDA for certain earnings impacts related to the delay in the launch of its ViaSat-1 satellite.

The Credit Facility contains financial covenants regarding a maximum leverage ratio, a maximum senior secured leverage ratio and a minimum interest coverage ratio. In addition, the Credit Facility contains covenants that restrict, among other things, the Company’s ability to sell assets, make investments and acquisitions, make capital expenditures, grant liens, pay dividends and make certain other restricted payments.

The Company was in compliance with its financial covenants under the Credit Facility as of September 30, 2011. At September 30, 2011, the Company had $170.0 million in principal amount of outstanding borrowings under the Credit Facility and $8.8 million outstanding under standby letters of credit, leaving borrowing availability under the Credit Facility as of September 30, 2011 of $146.2 million.

Capital leases

Occasionally, the Company may enter into capital lease agreements for various machinery, equipment, computer-related equipment, software, furniture or fixtures. As of September 30, 2011 and April 1, 2011, the Company had approximately $2.6 million and $3.1 million, respectively, outstanding under capital leases payable over a weighted average period of 36 months, due fiscal years 2014 through 2015. These lease agreements bear interest at a weighted average rate of 4.65% and can be extended on a month-to-month basis after the original term.

Note 7 — Product Warranty

The Company provides limited warranties on its products for periods of up to five years. The Company records a liability for its warranty obligations when products are shipped or they are included in long-term construction contracts based upon an estimate of expected warranty costs. Amounts expected to be incurred within twelve months are classified as a current liability. For mature products, the warranty cost estimates are based on historical experience with the particular product. For newer products that do not have a history of warranty cost, the Company bases its estimates on its experience with the technology involved and the type of failures that may occur. It is possible that the Company’s underlying assumptions will not reflect the actual experience and in that case, future adjustments will be made to the recorded warranty obligation. The following table reflects the change in the Company’s warranty accrual during the six months ended September 30, 2011 and October 1, 2010.

 

     Six Months Ended  
     September 30, 2011     October 1, 2010  
     (In thousands)  

Balance, beginning of period

   $ 12,942      $ 11,208   

Change in liability for warranties issued in period

     2,922        4,220   

Settlements made (in cash or in kind) during the period

     (3,472     (3,086
  

 

 

   

 

 

 

Balance, end of period

   $ 12,392      $ 12,342   
  

 

 

   

 

 

 

 

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VIASAT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 8 — Commitments and Contingencies

The Company is involved in a variety of claims, suits, investigations and proceedings arising in the ordinary course of business, including actions with respect to intellectual property claims, breach of contract claims, labor and employment claims, tax and other matters. Although claims, suits, investigations and proceedings are inherently uncertain and their results cannot be predicted with certainty, the Company believes that the resolution of its current pending matters will not have a material adverse effect on its business, financial condition, results of operations or liquidity.

The Company has contracts with various U.S. government agencies. Accordingly, the Company is routinely subject to audit and review by the DCAA and other U.S. government agencies for its performance on government contracts, indirect rates and pricing practices, accounting and management internal control systems, and compliance with applicable contracting and procurement laws, regulations and standards. Such audits or reviews could result in significant customer refunds, penalties and sanctions against the Company, and could adversely affect the Company’s ability to compete for contracts, perform contracts or receive timely payment on contracts. The Company’s incurred cost audits by the DCAA have not been completed for fiscal year 2003 and subsequent fiscal years. Although the Company has recorded contract revenues subsequent to fiscal year 2002 based upon an estimate of costs that the Company believes will be approved upon final audit or review, the Company does not know the outcome of any ongoing or future audits or reviews and adjustments, and if future adjustments exceed the Company’s estimates, its profitability would be adversely affected. As of September 30, 2011 and April 1, 2011, the Company had $6.7 million in contract-related reserves for its estimate of potential refunds to customers for potential cost adjustments on several multi-year U.S. government cost reimbursable contracts. This reserve is classified as either an element of accrued liabilities or as a reduction of unbilled accounts receivable based on status of the related contracts.

Note 9 — Income Taxes

For the three and six months ended September 30, 2011, the Company recorded income tax benefits of $3.4 million and $3.7 million, respectively. The Company currently estimates its annual effective income tax rate to be a benefit of approximately 54.8% for fiscal year 2012, compared to the actual zero effective income tax rate in fiscal year 2011. The estimated annual effective income tax benefit rate for fiscal year 2012 is primarily a result of expected federal and state research and development tax credits in excess of taxes at the statutory rate on projected pre-tax income for the year. The benefit rate reflects the December 31, 2011 expiration of the federal research and development tax credit. If the federal research and development tax credit is reinstated, the Company may have a higher annual effective tax benefit rate for fiscal year 2012, and the amount of any such increase in the tax benefit rate will depend on the effective date of any such reinstatement, the terms of the reinstatement, as well as the amount of eligible research and development expenses in the reinstated period.

For the three and six months ended September 30, 2011, the Company’s gross unrecognized tax benefits increased by $2.2 million and $3.1 million, respectively. In the next twelve months, it is reasonably possible that the amount of unrecognized tax benefits will decrease by up to approximately $3.1 million as a result of the expiration of the statute of limitations or settlements with tax authorities for previously filed tax returns.

Note 10 — Acquisition

On July 8, 2010, the Company completed the acquisition of all outstanding shares of the parent company of Stonewood. Stonewood is a leader in the design, manufacture and delivery of data at rest encryption products and services. Stonewood products are used to encrypt data on computer hard drives so that a lost or stolen laptop does not result in the compromise of classified information or the loss of intellectual property. These products enhance the Company’s current encryption security offerings within the Company’s information assurance products in the government systems segment. The purchase price of approximately $18.8 million was comprised of $4.6 million related to the fair value of 144,962 shares of the Company’s common stock issued at the closing and $14.2 million in cash consideration paid to former Stonewood stockholders. The $14.2 million in cash consideration paid to the former Stonewood stockholders less cash acquired of $0.7 million resulted in a net cash outlay of approximately $13.5 million. The acquisition was accounted for as a purchase and accordingly, the condensed consolidated financial statements include the operating results of Stonewood from the date of acquisition.

Note 11 — Segment Information

The Company’s reporting segments, comprised of the government systems, commercial networks and satellite services segments, are primarily distinguished by the type of customer and the related contractual requirements. The Company’s government systems

 

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VIASAT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

segment develops and produces network-centric, IP-based secure government communications systems, products and solutions. The more regulated government environment is subject to unique contractual requirements and possesses economic characteristics which differ from the commercial networks and satellite services segments. The Company’s commercial networks segment develops and produces a variety of advanced end-to-end satellite communication systems and ground networking equipment and products. The Company’s satellite services segment complements both the government systems and commercial networks segments by providing wholesale and retail satellite-based broadband internet services in the United States via the Company’s satellite and capacity agreements, as well as managed network services for the satellite communication systems of the Company’s consumer, enterprise and mobile broadband customers. The Company’s satellite services segment includes the Company’s WildBlue business and the Company’s ViaSat-1 satellite-related activities. The Company’s segments are determined consistent with the way management currently organizes and evaluates financial information internally for making operating decisions and assessing performance.

As discussed further in Note 1, included in the government systems segment operating profit for the six months ended October 1, 2010 is an $8.5 million forward loss recorded on a government satellite communications program. Segment revenues and operating profits (losses) for the three and six months ended September 30, 2011 and October 1, 2010 were as follows:

 

     Three Months Ended     Six Months Ended  
     September 30, 2011     October 1, 2010     September 30, 2011     October 1, 2010  
     (In thousands)  

Revenues

        

Government Systems

        

Product

   $ 86,621      $ 86,530      $ 161,220      $ 168,362   

Service

     16,789        8,407        28,359        15,420   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     103,410        94,937        189,579        183,782   

Commercial Networks

        

Product

     59,063        39,431        106,359        82,049   

Service

     5,136        4,881        9,909        7,882   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     64,199        44,312        116,268        89,931   

Satellite Services

        

Product

     927        1,625        1,578        2,177   

Service

     54,488        57,015        110,700        114,003   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     55,415        58,640        112,278        116,180   

Elimination of intersegment revenues

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

   $ 223,024      $ 197,889      $ 418,125      $ 389,893   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating profits (losses)

        

Government Systems

   $ 14,333      $ 12,808      $ 21,713      $ 14,466   

Commercial Networks

     (2,871     (2,347     (6,111     (3,517

Satellite Services

     (1,739     7,706        194        19,167   

Elimination of intersegment operating profits

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Segment operating profit before corporate and amortization of acquired intangible assets

     9,723        18,167        15,796        30,116   

Corporate

     —          —          —          44   

Amortization of acquired intangible assets

     (4,767     (5,094     (9,539     (9,704
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

   $ 4,956      $ 13,073      $ 6,257      $ 20,456   
  

 

 

   

 

 

   

 

 

   

 

 

 

Assets identifiable to segments include: accounts receivable, unbilled accounts receivable, inventory, acquired intangible assets and goodwill. Segment assets as of September 30, 2011 and April 1, 2011 were as follows:

 

     As of
September 30, 2011
     As of
April 1, 2011
 
     (In thousands)  

Segment assets

     

Government Systems

   $ 231,920       $ 228,194   

Commercial Networks

     152,389         133,158   

Satellite Services

     91,858         93,857   
  

 

 

    

 

 

 

Total segment assets

     476,167         455,209   

Corporate assets

     1,049,400         950,539   
  

 

 

    

 

 

 

Total assets

   $ 1,525,567       $ 1,405,748   
  

 

 

    

 

 

 

 

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VIASAT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Other acquired intangible assets, net and goodwill included in segment assets as of September 30, 2011 and April 1, 2011 were as follows:

 

     Other Acquired Intangible
Assets, Net
     Goodwill  
     September 30, 2011      April 1, 2011      September 30, 2011      April 1, 2011  
     (In thousands)  

Government Systems

   $ 9,580       $ 11,157       $ 29,777       $ 30,023   

Commercial Networks

     3,634         5,391         43,759         43,700   

Satellite Services

     58,865         65,341         9,809         9,809   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 72,079       $ 81,889       $ 83,345       $ 83,532   
  

 

 

    

 

 

    

 

 

    

 

 

 

Amortization of acquired intangible assets by segment for the three and six months ended September 30, 2011 and October 1, 2010 was as follows:

 

    Three Months Ended     Six Months Ended  
    September 30, 2011     October 1, 2010     September 30, 2011     October 1, 2010  
    (In thousands)  

Government Systems

  $ 645      $ 823      $ 1,296      $ 1,092   

Commercial Networks

    884        1,033        1,767        2,136   

Satellite Services

    3,238        3,238        6,476        6,476   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total amortization of acquired intangible assets

  $ 4,767      $ 5,094      $ 9,539      $ 9,704   
 

 

 

   

 

 

   

 

 

   

 

 

 

Revenue information by geographic area for the three and six months ended September 30, 2011 and October 1, 2010 was as follows:

 

     Three Months Ended     Six Months Ended  
     September 30, 2011      October 1, 2010     September 30, 2011     October 1, 2010  
     (In thousands)  

United States

   $ 175,760       $ 166,935      $ 329,961      $ 328,100   

Europe, Middle East and Africa

     30,336         21,587        57,240        42,201   

Asia, Pacific

     4,819         6,012        11,997        12,845   

North America other than United States

     5,489         1,777        9,713        3,099   

Central and Latin America

     6,620         1,578        9,214        3,648   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total revenues

   $ 223,024       $ 197,889      $ 418,125      $ 389,893   
  

 

 

    

 

 

   

 

 

   

 

 

 

The Company distinguishes revenues from external customers by geographic area based on customer location.

The net book value of long-lived assets located outside the United States was $8.2 million and $7.9 million at September 30, 2011 and April 1, 2011, respectively.

 

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VIASAT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 12 — Certain Relationships and Related-Party Transactions

Michael Targoff, a director of the Company since February 2003, currently serves as the Chief Executive Officer and the Vice Chairman of the board of directors of Loral Space & Communications, Inc. (Loral), the parent of Space Systems/Loral, Inc. (SS/L), and is also a director of Telesat Holdings, Inc., a joint venture company formed by Loral and the Public Sector Pension Investment Board to acquire Telesat Canada in October 2007. John Stenbit, a director of the Company since August 2004, also currently serves on the board of directors of Loral.

In January 2008, the Company entered into a satellite construction contract with SS/L under which the Company purchased a new high-capacity Ka-band spot-beam satellite (ViaSat-1) designed by the Company and constructed by SS/L for approximately $209.1 million, subject to purchase price adjustments based on satellite performance. In addition, the Company entered into a beam sharing agreement with Loral, whereby Loral is responsible for contributing 15% of the total costs (estimated at approximately $57.6 million) associated with the ViaSat-1 satellite project. The Company’s purchase of the ViaSat-1 satellite from SS/L was approved by the disinterested members of the Company’s Board of Directors, after a determination by the disinterested members of the Company’s Board that the terms and conditions of the purchase were fair to and in the best interests of the Company and its stockholders. On March 1, 2011, Loral entered into agreements with Telesat Canada pursuant to which Loral assigned to Telesat Canada and Telesat Canada assumed from Loral all of Loral’s rights and obligations with respect to the Canadian beams on ViaSat-1.

During the six months ended September 30, 2011 and October 1, 2010, under the satellite construction contract, the Company paid $1.3 million and $19.2 million, respectively, to SS/L and had $1.3 million outstanding payables as of September 30, 2011 and no payables as of April 1, 2011. During the six months ended September 30, 2011 and October 1, 2010, the Company also received less than $0.1 million and $6.0 million of cash, respectively, from SS/L under the beam sharing agreement with Loral. Accounts receivable due from SS/L were $12.2 million as of September 30, 2011, and an immaterial amount as of April 1, 2011 included in prepaid expenses and other current assets. All other amounts related to SS/L under the ViaSat-1 related satellite contracts were not material.

From time to time, the Company enters into various contracts in the ordinary course of business with SS/L and Telesat Canada. Under a contract with SS/L, the Company recognized an immaterial amount and $1.5 million in revenue during the three and six months ended September 30, 2011, respectively. There were no collections in excess of revenues and deferred revenues related to a contract with SS/L as of September 30, 2011 and there were $1.4 million in such collections as of April 1, 2011. The Company received cash of $1.9 million and an immaterial amount from Telesat Canada during the six months ended September 30, 2011 and October 1, 2010, respectively. During the six months ended September 30, 2011 and October 1, 2010, the Company paid $4.8 million and $4.7 million, respectively, to Telesat Canada. The Company also recognized $1.3 million and $1.7 million of expense related to Telesat Canada during the six months ended September 30, 2011 and October 1, 2010, respectively. All other amounts related to SS/L and Telesat Canada, excluding activities under the ViaSat-1 related satellite contracts, were not material.

 

24


Table of Contents

VIASAT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 13 — Financial Statements of Parent and Subsidiary Guarantors

In October 2009, the Company issued $275.0 million in principal amount of Notes in a private placement to institutional buyers. The Notes were exchanged in May 2010 for substantially identical Notes that had been registered with the SEC. The Notes are jointly and severally guaranteed on a full and unconditional basis by each of the Guarantor Subsidiaries, which are 100% owned by the Company. The indenture governing the Notes limits, among other things, the Company’s and its restricted subsidiaries’ ability to: incur, assume or guarantee additional debt; issue redeemable stock and preferred stock; pay dividends, make distributions or redeem or repurchase capital stock; prepay, redeem or repurchase subordinated debt; make loans and investments; grant or incur liens; restrict dividends, loans or asset transfers from restricted subsidiaries; sell or otherwise dispose of assets; enter into transactions with affiliates; reduce the Company’s satellite insurance; and consolidate or merge with, or sell substantially all of their assets to, another person.

The following supplemental financial information sets forth, on a condensed consolidating basis, the balance sheets, statements of operations and statements of cash flows for the Company (as “Issuing Parent Company”), the Guarantor Subsidiaries, the non-guarantor subsidiaries and total consolidated Company and subsidiaries as of September 30, 2011 and April 1, 2011 and for the three and six months ended September 30, 2011 and October 1, 2010.

 

25


Table of Contents

VIASAT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Condensed Consolidated Balance Sheet as of September 30, 2011

 

     Issuing  Parent
Company
     Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
     Consolidation  and
Elimination
Adjustments
    Consolidated  
     (Unaudited, in thousands)  
ASSETS              

Current assets:

             

Cash and cash equivalents

   $ 24,045       $ 1,361       $ 10,601       $ —        $ 36,007   

Accounts receivable, net

     180,620         10,907         6,961         —          198,488   

Inventories

     109,048         9,467         3,828         —          122,343   

Deferred income taxes

     16,428         1,723         162         —          18,313   

Prepaid expenses and other current assets

     36,690         7,241         637         —          44,568   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     366,831         30,699         22,189         —          419,719   

Satellites, net

     329,053         241,900         —           —          570,953   

Property and equipment, net

     161,748         96,466         5,733         —          263,947   

Other acquired intangible assets, net

     4,261         58,865         8,953         —          72,079   

Goodwill

     63,939         9,687         9,719         —          83,345   

Investments in subsidiaries and intercompany receivables

     461,933         4,259         788         (466,980     —     

Other assets

     98,502         16,443         579         —          115,524   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 1,486,267       $ 458,319       $ 47,961       $ (466,980   $ 1,525,567   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
LIABILITIES AND EQUITY              

Current liabilities:

             

Accounts payable

   $ 58,276       $ 6,729       $ 889       $ —        $ 65,894   

Accrued liabilities

     90,502         23,349         3,458         —          117,309   

Current portion of other long-term debt

     126         1,086         —           —          1,212   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     148,904         31,164         4,347         —          184,415   

Senior Notes due 2016, net

     272,544         —           —           —          272,544   

Other long-term debt

     170,139         1,262         —           —          171,401   

Intercompany payables

     9,929         —           11,662         (21,591     —     

Other liabilities

     16,111         5,414         2,897         —          24,422   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     617,627         37,840         18,906         (21,591     652,782   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Equity:

             

ViaSat, Inc. stockholders’ equity

             

Total ViaSat, Inc. stockholders’ equity

     868,640         420,479         29,055         (449,534     868,640   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Noncontrolling interest in subsidiary

     —           —           —           4,145        4,145   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total equity

     868,640         420,479         29,055         (445,389     872,785   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and equity

   $ 1,486,267       $ 458,319       $ 47,961       $ (466,980   $ 1,525,567   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

26


Table of Contents

VIASAT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Condensed Consolidated Balance Sheet as of April 1, 2011

 

     Issuing  Parent
Company
     Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
     Consolidation  and
Elimination
Adjustments
    Consolidated  
     (Unaudited, in thousands)  
ASSETS              

Current assets:

             

Cash and cash equivalents

   $ 24,347       $ 7,600       $ 8,543       $ —        $ 40,490   

Accounts receivable, net

     171,183         10,644         10,062         —          191,889   

Inventories

     88,542         7,484         2,932         (403     98,555   

Deferred income taxes

     16,428         1,723         162         492        18,805   

Prepaid expenses and other current assets

     15,236         4,745         1,160         —          21,141   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     315,736         32,196         22,859         89        370,880   

Satellites, net

     276,418         256,582         —           —          533,000   

Property and equipment, net

     122,945         103,410         7,785         (1,001     233,139   

Other acquired intangible assets, net

     6,201         65,341         10,347         —          81,889   

Goodwill

     63,939         9,686         9,907         —          83,532   

Investments in subsidiaries and intercompany receivables

     490,288         2,246         404         (492,938     —     

Other assets

     89,834         12,922         552         —          103,308   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 1,365,361       $ 482,383       $ 51,854       $ (493,850   $ 1,405,748   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
LIABILITIES AND EQUITY              

Current liabilities:

             

Accounts payable

   $ 62,465       $ 8,164       $ 1,083       $ —        $ 71,712   

Accrued liabilities

     100,749         25,691         4,143         —          130,583   

Current portion of other long-term debt

     116         1,012         —           —          1,128   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     163,330         34,867         5,226         —          203,423   

Senior Notes due 2016, net

     272,296         —           —           —          272,296   

Other long-term debt

     60,203         1,743         —           —          61,946   

Intercompany payables

     14,606         —           11,945         (26,551     —     

Other liabilities

     16,464         4,321         3,057         —          23,842   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     526,899         40,931         20,228         (26,551     561,507   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Equity:

             

ViaSat, Inc. stockholders’ equity

             

Total ViaSat, Inc. stockholders’ equity

     838,462         441,452         31,626         (471,415     840,125   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Noncontrolling interest in subsidiary

     —           —           —           4,116        4,116   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total equity

     838,462         441,452         31,626         (467,299     844,241   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and equity

   $ 1,365,361       $ 482,383       $ 51,854       $ (493,850   $ 1,405,748   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

27


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VIASAT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Condensed Consolidated Statement of Operations for the Three Months Ended September 30, 2011

 

     Issuing  Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Consolidation  and
Elimination
Adjustments
    Consolidated  
     (Unaudited, in thousands)  

Revenues:

          

Product revenues

   $ 135,843      $ 926      $ 9,917      $ (75   $ 146,611   

Service revenues

     21,988        51,638        3,187        (400     76,413   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     157,831        52,564        13,104        (475     223,024   

Operating expenses:

          

Cost of product revenues

     100,366        785        7,892        (1,134     107,909   

Cost of service revenues

     14,580        38,321        1,701        (398     54,204   

Selling, general and administrative

     29,919        11,983        2,477        —          44,379   

Independent research and development

     6,592        —          234        (17     6,809   

Amortization of acquired intangible assets

     970        3,239        558        —          4,767   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     5,404        (1,764     242        1,074        4,956   

Other income (expense):

          

Interest income

     112        —          2        (101     13   

Interest expense

     (152     (59     (101     101        (211
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     5,364        (1,823     143        1,074        4,758   

Provision for (benefit from) income taxes

     (3,443     (732     272        492        (3,411

Equity in net income (loss) of consolidated subsidiaries

     (1,414     —          —          1,414        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     7,393        (1,091     (129     1,996        8,169   

Less: Net income (loss) attributable to noncontrolling interest, net of tax

     —          —          —          194        194   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to ViaSat, Inc.

   $ 7,393      $ (1,091   $ (129   $ 1,802      $ 7,975   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

28


Table of Contents

VIASAT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Condensed Consolidated Statement of Operations for the Six Months Ended September 30, 2011

 

     Issuing  Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Consolidation  and
Elimination
Adjustments
    Consolidated  
     (Unaudited, in thousands)  

Revenues:

          

Product revenues

   $ 254,756      $ 1,578      $ 13,167      $ (344   $ 269,157   

Service revenues

     39,685        104,989        5,413        (1,119     148,968   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     294,441        106,567        18,580        (1,463     418,125   

Operating expenses:

          

Cost of product revenues

     189,930        1,542        10,465        (1,743     200,194   

Cost of service revenues

     25,472        75,457        3,659        (1,068     103,520   

Selling, general and administrative

     56,534        25,060        4,521        (3     86,112   

Independent research and development

     11,957        —          572        (26     12,503   

Amortization of acquired intangible assets

     1,940        6,477        1,122        —          9,539   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     8,608        (1,969     (1,759     1,377        6,257   

Other income (expense):

          

Interest income

     245        —          4        (210     39   

Interest expense

     (152     (59     (210     210        (211
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     8,701        (2,028     (1,965     1,377        6,085   

Provision for (benefit from) income taxes

     (3,463     (822     115        492        (3,678

Equity in net income (loss) of consolidated subsidiaries

     (3,315     —          —          3,315        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     8,849        (1,206     (2,080     4,200        9,763   

Less: Net income (loss) attributable to noncontrolling interest, net of tax

     —          —          —          29        29   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to ViaSat, Inc.

   $ 8,849      $ (1,206   $ (2,080   $ 4,171      $ 9,734   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

29


Table of Contents

VIASAT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Condensed Consolidated Statement of Operations for the Three Months Ended October 1, 2010

 

     Issuing  Parent
Company
    Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
    Consolidation  and
Elimination
Adjustments
    Consolidated  
     (Unaudited, in thousands)  

Revenues:

           

Product revenues

   $ 122,639      $ 1,629       $ 4,043      $ (725   $ 127,586   

Service revenues

     14,248        53,465         3,022        (432     70,303   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total revenues

     136,887        55,094         7,065        (1,157     197,889   

Operating expenses:

           

Cost of product revenues

     85,148        1,515         2,408        (620     88,451   

Cost of service revenues

     9,823        30,026         2,270        (422     41,697   

Selling, general and administrative

     25,436        14,060         2,476        (20     41,952   

Independent research and development

     7,384        —           240        (2     7,622   

Amortization of acquired intangible assets

     1,233        3,239         622        —          5,094   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     7,863        6,254         (951     (93     13,073   

Other income (expense):

           

Interest income

     155        —           2        (94     63   

Interest expense

     (950     —           (94     94        (950
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     7,068        6,254         (1,043     (93     12,186   

Provision for (benefit from) income taxes

     1,918        2,443         24        —          4,385   

Equity in net income (loss) of consolidated subsidiaries

     2,729        —           —          (2,729     —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net income (loss)

     7,879        3,811         (1,067     (2,822     7,801   

Less: Net income (loss) attributable to noncontrolling interest, net of tax

     —          —           —          15        15   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to ViaSat, Inc.

   $ 7,879      $ 3,811       $ (1,067   $ (2,837   $ 7,786   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

30


Table of Contents

VIASAT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Condensed Consolidated Statement of Operations for the Six Months Ended October 1, 2010

 

     Issuing  Parent
Company
    Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
    Consolidation  and
Elimination
Adjustments
    Consolidated  
     (Unaudited, in thousands)  

Revenues:

           

Product revenues

   $ 247,780      $ 2,180       $ 5,385      $ (2,757   $ 252,588   

Service revenues

     25,470        107,008         5,677        (850     137,305   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total revenues

     273,250        109,188         11,062        (3,607     389,893   

Operating expenses:

           

Cost of product revenues

     180,436        1,990         3,352        (2,613     183,165   

Cost of service revenues

     17,827        59,707         4,035        (810     80,759   

Selling, general and administrative

     50,997        26,538         3,358        (20     80,873   

Independent research and development

     14,645        —           293        (2     14,936   

Amortization of acquired intangible assets

     2,493        6,477         734        —          9,704   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     6,852        14,476         (710     (162     20,456   

Other income (expense):

           

Interest income

     380        —           5        (183     202   

Interest expense

     (3,091     —           (183     183        (3,091
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     4,141        14,476         (888     (162     17,567   

Provision for (benefit from) income taxes

     374        5,752         240        —          6,366   

Equity in net income (loss) of consolidated subsidiaries

     7,442        —           —          (7,442     —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net income (loss)

     11,209        8,724         (1,128     (7,604     11,201   

Less: Net income (loss) attributable to noncontrolling interest, net of tax

     —          —           —          154        154   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to ViaSat, Inc.

   $ 11,209      $ 8,724       $ (1,128   $ (7,758   $ 11,047   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

31


Table of Contents

VIASAT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Condensed Consolidated Statement of Cash Flows for the Six Months Ended September 30, 2011

 

     Issuing  Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Consolidation  and
Elimination
Adjustments
    Consolidated  
     (Unaudited, in thousands)  

Cash flows from operating activities:

          

Net cash provided by (used in) operating activities

   $ (12,993   $ 30,987      $ 7,704      $ (1,912   $ 23,786   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

          

Purchase of property, equipment and satellites, net

     (116,927     (16,129     (2,169     1,912        (133,313

Cash paid for patents, licenses and other assets

     (8,277     —          (18     —          (8,295

Long-term intercompany notes and investments

     3,346        —          —          (3,346     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (121,858     (16,129     (2,187     (1,434     (141,608

Cash flows from financing activities:

          

Proceeds from line of credit borrowings

     130,000        —          —          —          130,000   

Payments on line of credit

     (20,000     —          —          —          (20,000

Proceeds from issuance of common stock under equity plans

     6,167        —          —          —          6,167   

Purchase of common stock in treasury

     (2,250     —          —          —          (2,250

Payments on capital lease

     (54     (411     —          —          (465

Intercompany long-term financing

     20,686        (20,686     (3,346     3,346        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     134,549        (21,097     (3,346     3,346        113,452   

Effect of exchange rate changes on cash

     —          —          (113     —          (113
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     (302     (6,239     2,058        —          (4,483

Cash and cash equivalents at beginning of period

     24,347        7,600        8,543        —          40,490   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 24,045      $ 1,361      $ 10,601      $ —