ViaSat, Inc.
VIASAT INC (Form: 10-Q, Received: 02/06/2013 17:18:34)
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 December 28, 2012.

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   ¨

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 January 25, 2013 was 44,549,274.

 

 

 


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 and Comprehensive Income (Loss)

     4   

Condensed Consolidated Statements of Cash Flows

     5   

Condensed Consolidated Statement of Equity

     6   

Notes to the Condensed Consolidated Financial Statements

     7   

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

     35   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     54   

Item 4. Controls and Procedures

     55   

PART II. OTHER INFORMATION

  

Item 1. Legal Proceedings

     55   

Item 1A. Risk Factors

     56   

Item 6. Exhibits

     59   

Signatures

     60   


Table of Contents

PART I — FINANCIAL INFORMATION

Item  1. Financial Statements (Unaudited)

VIASAT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

     As of
December 28, 2012
    As of
March 30, 2012
 
     (In thousands)  
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 112,667      $ 172,583   

Accounts receivable, net

     237,551        211,690   

Inventories

     126,437        127,646   

Deferred income taxes

     20,214        20,316   

Prepaid expenses and other current assets

     36,663        30,917   
  

 

 

   

 

 

 

Total current assets

     533,532        563,152   
    

Satellites, net

     547,805        585,731   

Property and equipment, net

     347,730        294,973   

Other acquired intangible assets, net

     51,069        63,041   

Goodwill

     83,561        83,461   

Other assets

     185,238        136,795   
  

 

 

   

 

 

 

Total assets

   $ 1,748,935      $ 1,727,153   
  

 

 

   

 

 

 
    
LIABILITIES AND EQUITY     

Current liabilities:

    

Accounts payable

   $ 76,930      $ 75,040   

Accrued liabilities

     139,547        159,762   

Current portion of other long-term debt

     1,027        1,240   
  

 

 

   

 

 

 

Total current liabilities

     217,504        236,042   
    

Senior Notes, net

     585,265        547,791   

Other long-term debt

     62        774   

Other liabilities

     58,039        50,353   
  

 

 

   

 

 

 

Total liabilities

     860,870        834,960   
  

 

 

   

 

 

 

Commitments and contingencies (Note 8)

    

Equity:

    

ViaSat, Inc. stockholders’ equity

    

Common stock

     4        4   

Paid-in capital

     695,908        649,672   

Retained earnings

     219,115        262,218   

Common stock held in treasury

     (33,260     (25,358

Accumulated other comprehensive income

     1,832        1,439   
  

 

 

   

 

 

 

Total ViaSat, Inc. stockholders’ equity

     883,599        887,975   

Noncontrolling interest in subsidiary

     4,466        4,218   
  

 

 

   

 

 

 

Total equity

     888,065        892,193   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 1,748,935      $ 1,727,153   
  

 

 

   

 

 

 

See accompanying notes to the condensed consolidated financial statements.

 

3


Table of Contents

VIASAT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

 

     Three Months Ended     Nine Months Ended  
     December 28, 2012     December 30, 2011     December 28, 2012     December 30, 2011  
     (In thousands, except per share data)  

Revenues:

        

Product revenues

   $ 164,694      $ 121,862      $ 480,898      $ 391,019   

Service revenues

     121,748        83,102        330,129        232,070   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     286,442        204,964        811,027        623,089   

Operating expenses:

        

Cost of product revenues

     119,250        89,463        349,720        289,657   

Cost of service revenues

     92,145        57,318        266,096        160,838   

Selling, general and administrative

     62,209        45,640        172,789        131,752   

Independent research and development

     7,612        5,999        23,739        18,502   

Amortization of acquired intangible assets

     3,960        4,752        12,065        14,291   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     1,266        1,792        (13,382     8,049   

Other income (expense):

        

Interest income

     38        20        143        59   

Interest expense

     (10,672     (331     (33,771     (542

Loss on extinguishment of debt

     (26,501     —          (26,501     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

     (35,869     1,481        (73,511     7,566   

Benefit from income taxes

     (15,255     (3,637     (30,607     (7,315
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

     (20,614     5,118        (42,904     14,881   

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

     162        (22     199        7   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to ViaSat, Inc.

   $ (20,776   $ 5,140      $ (43,103   $ 14,874   
  

 

 

   

 

 

   

 

 

   

 

 

 
        
        

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

   $ (0.47   $ 0.12      $ (0.99   $ 0.35   

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

   $ (0.47   $ 0.12      $ (0.99   $ 0.34   
        

Shares used in computing basic net (loss) income per share

     44,189        42,452        43,662        42,132   

Shares used in computing diluted net (loss) income per share

     44,189        44,333        43,662        44,015   
        

Comprehensive income (loss):

        

Net (loss) income

   $ (20,614   $ 5,118      $ (42,904   $ 14,881   

Other comprehensive income (loss), net of tax:

        

Unrealized gain (loss) on hedging, net of tax of $77, $(268), $103 and $(268) respectively

     121        137        161        (584

Foreign currency translation adjustments, net of tax of $29, $(74), $(11) and $(74) respectively

     (55     (241     232        (935
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     66        (104     393        (1,519

Comprehensive (loss) income

     (20,548     5,014        (42,511     13,362   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     162        (22     199        7   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income attributable to ViaSat, Inc.

   $ (20,710   $ 5,036      $ (42,710   $ 13,355   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the condensed consolidated financial statements.

 

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VIASAT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

     Nine Months Ended  
     December 28, 2012     December 30, 2011  
     (In thousands)  

Cash flows from operating activities:

  

Net (loss) income

   $ (42,904   $ 14,881   

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

    

Depreciation

     98,997        71,762   

Amortization of intangible assets

     17,720        17,476   

Deferred income taxes

     (30,997     (7,385

Stock-based compensation expense

     19,410        14,778   

Loss on disposition of fixed assets

     7,070        3,697   

Non-cash loss on extinguishment of debt

     6,726        —     

Repayment of discount on the 2016 Notes

     (3,418     —     

Receipt of premium on the Additional 2020 Notes

     10,500        —     

Other non-cash adjustments

     3,256        892   

Increase (decrease) in cash resulting from changes in operating assets and liabilities:

    

Accounts receivable

     (26,830     6,531   

Inventories

     1,256        (28,197

Other assets

     (8,920     (13,075

Accounts payable

     935        (6,682

Accrued liabilities

     (12,536     (10,940

Other liabilities

     8,873        1,227   
  

 

 

   

 

 

 

Net cash provided by operating activities

     49,138        64,965   
    

Cash flows from investing activities:

    

Purchase of property, equipment and satellites, net

     (120,182     (159,167

Cash paid for patents, licenses and other assets

     (18,880     (17,104
  

 

 

   

 

 

 

Net cash used in investing activities

     (139,062     (176,271
    

Cash flows from financing activities:

    

Proceeds from issuance of Additional 2020 Notes

     300,000        —    

Repayment of 2016 Notes

     (271,582     —    

Payment of debt issuance costs

     (8,059     —    

Proceeds from issuance of common stock under equity plans

     19,512        14,369   

Purchase of common stock in treasury

     (7,902     (6,991

Payments on capital lease

     (925     (762

Payments of satellite performance incentives obligation

     (1,025     —    

Proceeds from line of credit borrowings

     —         130,000   

Payments on line of credit

     —         (20,000
  

 

 

   

 

 

 

Net cash provided by financing activities

     30,019        116,616   

Effect of exchange rate changes on cash

     (11     42   
  

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (59,916     5,352   

Cash and cash equivalents at beginning of period

     172,583        40,490   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 112,667      $ 45,842   
  

 

 

   

 

 

 
    

Non-cash investing and financing activities:

    

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

   $ 7,060      $ 6,340   

See accompanying notes to the condensed consolidated financial statements.

 

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Table of Contents

VIASAT, INC.

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(UNAUDITED)

 

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

Balance at March 30, 2012

    43,776,202      $ 4      $ 649,672      $ 262,218        (727,674   $ (25,358   $ 1,439      $ 4,218      $ 892,193   

Exercise of stock options

    741,620        —         17,025        —          —          —          —          —          17,025   

Issuance of stock under Employee Stock Purchase Plan

    77,474        —          2,487        —          —          —          —          —          2,487   

Stock-based compensation

    —          —          19,664        —          —          —          —          —          19,664   

Shares issued in settlement of certain accrued employee compensation liabilities

    197,149        —          7,060        —          —          —          —          —          7,060   

RSU awards vesting

    576,061        —          —          —          —          —          —          —          —     

Purchase of treasury shares pursuant to vesting of certain RSU agreements

    —          —          —          —          (209,135     (7,902     —          —          (7,902

Other noncontrolling interest activity

    —          —          —          —          —          —          —          49       49   

Net (loss) income

    —          —          —          (43,103     —          —          —          199        (42,904

Other comprehensive income, net of tax

    —          —          —          —          —          —          393        —          393   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 28, 2012

    45,368,506      $ 4      $ 695,908      $ 219,115        (936,809   $ (33,260   $ 1,832      $ 4,466      $ 888,065   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the condensed consolidated financial statements.

 

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Table of Contents

VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1 — Basis of Presentation

The accompanying condensed consolidated balance sheet at December 28, 2012, the condensed consolidated statements of operations and comprehensive income (loss) for the three and nine months ended December 28, 2012 and December 30, 2011, the condensed consolidated statements of cash flows for the nine months ended December 28, 2012 and December 30, 2011 and the condensed consolidated statement of equity for the nine months ended December 28, 2012 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 March 30, 2012 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 March 30, 2012 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 2013 refer to the fiscal year ending on March 29, 2013. The Company’s quarters for fiscal year 2013 end on June 29, 2012, September 28, 2012, December 28, 2012 and March 29, 2013. This results in a 53 week fiscal year approximately every four to five years. Fiscal years 2013 and 2012 are both 52-week years.

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 accruals, 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 is 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. During the three months ended December 28, 2012 and December 30, 2011, the Company recorded losses of approximately $0.6 million and $0.5 million, respectively, related to loss contracts. During the nine months ended December 28, 2012 and December 30, 2011, the Company recorded losses of approximately $3.1 million and $1.2 million, respectively, related to loss contracts.

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.

 

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Table of Contents

VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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.

In accordance with the authoritative guidance for revenue recognition for multiple element arrangements, the 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, 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, 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.

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 as a component of cost of revenues.

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 review by the Defense Contracting Management Agency (DCMA), the Defense Contract Audit Agency (DCAA), and other U.S. government agencies, as well as negotiations with U.S. government representatives. The Company’s incurred cost audits by the DCAA have not been completed for fiscal year 2004 and subsequent fiscal years. Although the Company has recorded contract revenues subsequent to fiscal year 2003 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 December 28, 2012 and March 30, 2012, the Company had $6.9 million and $6.7 million, respectively, 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).

 

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VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Advertising costs

In accordance with the authoritative guidance for advertising costs (ASC 720-35), advertising costs are expensed as incurred and included in selling, general and administrative expenses (SG&A). Advertising expenses for the three months ended December 28, 2012 and December 30, 2011 were $5.5 million and $0.1 million, respectively, and for the nine months ended December 28, 2012 and December 30, 2011 were $17.0 million and $1.6 million, respectively.

Commissions

The Company compensates third parties based on specific commission programs directly related to certain product and service sales. These commission costs are recorded as an element of selling, general and administrative expense as incurred.

Property, equipment and satellites

Satellites and other property and equipment are recorded at cost or, in the case of certain satellites and other property acquired, the fair value at the date of acquisition, net of accumulated depreciation. Capitalized satellite costs consist primarily of the costs of satellite construction and launch, including launch insurance and insurance during the period of in-orbit testing, the net present value of performance incentives expected to be payable to satellite manufacturers (dependent on the continued satisfactory performance of the satellites), costs directly associated with the monitoring and support of satellite construction, and interest costs incurred during the period of satellite construction. The Company also constructs gateway facilities, network operations systems and other assets to support its satellites, and those construction costs, including interest, are capitalized as incurred. At the time satellites are placed in service, the Company estimates the useful life of its satellites for depreciation purposes based upon an analysis of each satellite’s performance against the original manufacturer’s orbital design life, estimated fuel levels and related consumption rates, as well as historical satellite operating trends. The Company computes depreciation using the straight-line method over the estimated useful lives of the assets ranging from two 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.

Interest expense is capitalized on the carrying value of assets under construction, in accordance with the authoritative guidance for the capitalization of interest (ASC 835-20). During the three and nine months ended December 28, 2012, with respect to assets under construction, the Company capitalized $0.7 million and $2.3 million of interest expense, respectively. With respect to ViaSat-1, related gateway and networking equipment and other assets, the Company capitalized $8.1 million and $23.4 million of interest expense during the three and nine months ended December 30, 2011, respectively.

The Company owns two satellites: its new high-capacity Ka-band spot-beam satellite, ViaSat-1 (which was successfully launched into orbit in October 2011 and commenced commercial operation in January 2012) and WildBlue-1 (which was placed into service in March 2007). In addition, the Company has 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 owns related gateway and networking equipment for all of its satellites. The Company periodically reviews the remaining estimated useful life of its satellites to determine if revisions to estimated lives are necessary. The Company’s property and equipment also includes the indoor and outdoor customer premise equipment (CPE) units leased to subscribers under a retail leasing program as part of the Company’s satellite services segment. 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 December 28, 2012 were $140.9 million and $45.9 million, respectively. The total cost and accumulated depreciation of CPE units included in property and equipment, net, as of March 30, 2012 were $85.3 million and $33.1 million, respectively.

Occasionally, the Company may enter into capital lease arrangements for various machinery, equipment, computer-related equipment, software, furniture or fixtures. As of December 28, 2012 and March 30, 2012, assets under capital leases totaled approximately $3.1 million. Accumulated amortization related to such capital leases was $1.2 million and $0.8 million as of December 28, 2012 and March 30, 2012, respectively. The Company records amortization of assets leased under capital lease arrangements within depreciation expense.

 

9


Table of Contents

VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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. As of December 28, 2012 and March 30, 2012, the Company had $3.2 million of capitalized costs related to patents included in other assets. As of December 28, 2012 and March 30, 2012, the Company had $8.6 million and $8.4 million, respectively, of capitalized costs related to acquiring and obtaining orbital slots and other licenses included in other assets. Accumulated amortization related to these assets was approximately $0.6 million and $0.4 million as of December 28, 2012 and March 30, 2012, respectively. Amortization expense related to these assets was an insignificant amount for the three and nine months ended December 28, 2012 and December 30, 2011. 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 nine months ended December 28, 2012 and December 30, 2011, the Company did not write off any significant costs due to abandonment or impairment.

Debt issuance costs

Debt issuance costs are amortized and recognized as interest expense on a straight-line basis over the expected term of the related debt, which is not materially different from the effective interest rate basis. During the three and nine months ended December 28, 2012, the Company paid and capitalized approximately $5.8 million and $8.1 million, respectively, in debt issuance costs. During the three and nine months ended December 30, 2011, the Company did not pay or capitalize any debt issuance costs. Unamortized debt issuance costs related to extinguished debt are expensed at the time the debt is extinguished and recorded in loss on extinguishment of debt in the consolidated statements of operations. Unamortized debt issuance costs are recorded in prepaid expenses and other current assets and in other long-term assets in the consolidated balance sheets, depending on the amounts expected to be amortized to interest expense within the next twelve months.

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 $55.6 million and $42.0 million related to software developed for resale were included in other assets as of December 28, 2012 and March 30, 2012, respectively. The Company capitalized $6.6 million and $19.1 million of costs related to software developed for resale for the three and nine months ended December 28, 2012, respectively. The Company capitalized $6.5 million and $15.8 million of costs related to software developed for resale for the three and nine months ended December 30, 2011, respectively. Amortization expense for software development costs was $1.7 million and $5.5 million for the three and nine months ended December 28, 2012, respectively, and $0.8 million and $3.2 million for the three and nine months ended December 30, 2011, respectively.

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 plans include policies which 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 plan 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 $2.0 million and $1.7 million as of December 28, 2012 and March 30, 2012, respectively. 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 December 28, 2012 and March 30, 2012, no such amounts were accrued related to the aforementioned provisions.

 

10


Table of Contents

VIASAT, INC.

NOTES TO THE 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 (loss) and other comprehensive income (loss) 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 nine months of fiscal years 2013 and 2012, the Company issued 576,061 and 443,607 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 209,135 and 157,183 shares of common stock with a total value of $7.9 million and $7.0 million during the first nine months of fiscal years 2013 and 2012, respectively. Repurchased shares of common stock of 936,809 and 727,674 were held in treasury as of December 28, 2012 and March 30, 2012, 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 December 28, 2012 and March 30, 2012 were as follows:

 

     December 28, 2012      March 30, 2012  

Derivatives designated as hedging instruments

   Other current
assets
     Accrued liabilities      Other current
assets
     Accrued liabilities  
     (In thousands)  

Foreign currency forward contracts

   $ —        $ 179       $ —         $ 443   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total derivatives designated as hedging instruments

   $ —        $ 179       $ —        $ 443   
  

 

 

    

 

 

    

 

 

    

 

 

 

The notional value of foreign currency forward contracts outstanding as of December 28, 2012 and March 30, 2012 was $2.5 million and $9.6 million, respectively.

The effects of foreign currency forward contracts in cash flow hedging relationships during the three months ended December 28, 2012 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

   $ 57         Cost of product revenues       $ (141     Not applicable       $ —    
  

 

 

       

 

 

      

 

 

 

Total

   $ 57          $ (141      $ —    
  

 

 

       

 

 

      

 

 

 

 

11


Table of Contents

VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The effects of foreign currency forward contracts in cash flow hedging relationships during the nine months ended December 28, 2012 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

   $ (463     Cost of product revenues       $ (727     Not applicable       $ —    
  

 

 

      

 

 

      

 

 

 

Total

   $ (463      $ (727      $ —    
  

 

 

      

 

 

      

 

 

 

The effects of foreign currency forward contracts in cash flow hedging relationships during the three months ended December 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

   $ (243     Cost of product revenues       $ (112     Not applicable       $ —    
  

 

 

      

 

 

      

 

 

 

Total

   $ (243      $ (112      $ —    
  

 

 

      

 

 

      

 

 

 

The effects of foreign currency forward contracts in cash flow hedging relationships during the nine months ended December 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

   $ (880     Cost of product revenues       $ (29     Not applicable       $ —    
  

 

 

      

 

 

      

 

 

 

Total

   $ (880      $ (29      $ —    
  

 

 

      

 

 

      

 

 

 

At December 28, 2012, the estimated net amount of unrealized gains or losses related to foreign currency forward contracts that was expected to be reclassified to earnings within the next twelve months was approximately $0.1 million. The Company’s foreign currency forward contracts outstanding as of December 28, 2012 will mature within nine to twenty three months from their inception. There were no gains or losses from ineffectiveness of these derivative instruments recorded for the three and nine months ended December 28, 2012 and December 30, 2011.

 

12


Table of Contents

VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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 over the employee’s requisite service period. Stock-based compensation expense is recognized in the condensed consolidated statements of operations and comprehensive income (loss) for the three and nine months ended December 28, 2012 and December 30, 2011 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 $7.0 million and $19.4 million of stock-based compensation expense for the three and nine months ended December 28, 2012, respectively, and $5.8 million and $14.8 million of stock-based compensation expense for the three and nine months ended December 30, 2011, respectively.

For the nine months ended December 28, 2012 and December 30, 2011, 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 fiscal 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. The Company’s analysis of the need for a valuation allowance considered the loss incurred during the nine months ended December 28, 2012. However, a substantial portion of the current loss was the result of an extinguishment of debt charge that was recorded upon the refinancing of certain of the Company’s debt obligations at lower interest rates, which is expected to provide a benefit to net income in the future. The Company’s evaluation considered other factors, including the Company’s history of positive earnings, taxable income adjusted for certain items, the Company’s significant growth in contractual backlog, and trends and forecasted income by jurisdiction. Consideration was also given to the lengthy period over which these net deferred tax assets can be realized, and the Company’s history of not having federal tax loss carryforwards expire unused.

Recent authoritative guidance

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. In December 2011, the FASB further amended its guidance to defer changes related to the presentation of reclassification adjustments indefinitely as a result of concerns raised by stakeholders that the new presentation requirements would be difficult for preparers and add unnecessary complexity to financial statements. The authoritative guidance (other than the portion regarding the presentation of reclassification adjustments which, as noted above, has been deferred indefinitely) became effective for the Company beginning in the first quarter of fiscal year 2013. In the first quarter of fiscal year 2013, the Company retrospectively adopted the new accounting standard for the presentation of comprehensive income in financial statements which resulted in the presentation of a total for comprehensive income (loss), and the components of net income (loss) and other comprehensive income (loss) in one statement. The adoption of this standard only changed how the Company presents comprehensive income (loss) and did not impact the Company’s consolidated financial position, results of operations or cash flows.

In September 2011, the FASB issued ASU 2011-08, Intangibles—Goodwill and Other (ASC 350): 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

 

13


Table of Contents

VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

effective for interim and annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted if an entity’s financial statements for the more recent interim and annual period have not yet been issued. The Company early adopted this authoritative guidance in the fourth quarter of fiscal year 2012. Adoption of this authoritative guidance did not have a material impact on the Company’s consolidated financial statements and disclosures.

In December 2011, the FASB issued ASU 2011-11, Balance Sheet (ASC 210): Disclosures about offsetting Assets and Liabilities. The new authoritative guidance requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments in the scope of this authoritative guidance. This authoritative guidance will be effective for the Company beginning in the first quarter of fiscal year 2014 and should be applied retrospectively for all comparative periods presented. The Company is currently evaluating the impact that this authoritative guidance may have on its consolidated financial statements and disclosures.

In July 2012, the FASB issued ASU 2012-02, Intangibles—Goodwill and Other (ASC 350): Testing Indefinite-Lived Intangible Assets for Impairment. The new authoritative guidance simplifies the requirements for testing for indefinite-lived intangible assets other than goodwill and permits an entity to first assess qualitative factors to determine whether it is necessary to perform a quantitative fair value test. The guidance is effective for the Company for annual and, if any, interim impairment tests in the fiscal year ending April 4, 2014 with early adoption permitted. The Company anticipates that the adoption of this standard will not have a material impact on the Company or its condensed consolidated financial statements.

 

14


Table of Contents

VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 2 — Composition of Certain Balance Sheet Captions

 

     As of
December 28, 2012
    As of
March 30, 2012
 
     (In thousands)  

Accounts receivable, net:

    

Billed

   $ 118,740      $ 108,758   

Unbilled

     120,065        103,929   

Allowance for doubtful accounts

     (1,254     (997
  

 

 

   

 

 

 
   $ 237,551      $ 211,690   
  

 

 

   

 

 

 

Inventories:

    

Raw materials

   $ 42,279      $ 46,208   

Work in process

     25,643        23,932   

Finished goods

     58,515        57,506   
  

 

 

   

 

 

 
   $ 126,437      $ 127,646   
  

 

 

   

 

 

 

Prepaid expenses and other current assets:

    

Prepaid expenses

   $ 32,823      $ 25,103   

Other

     3,840        5,814   
  

 

 

   

 

 

 
   $ 36,663      $ 30,917   
  

 

 

   

 

 

 

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 — ViaSat-1 (estimated useful life of 17 years)

     363,204        362,977   
  

 

 

   

 

 

 
     658,184        657,957   

Less accumulated depreciation and amortization

     (110,379     (72,226
  

 

 

   

 

 

 
   $ 547,805      $ 585,731   
  

 

 

   

 

 

 

Property and equipment, net:

    

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

   $ 220,527      $ 195,975   

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

     144,734        127,596   

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

     140,885        85,271   

Furniture and fixtures (estimated useful life of 7 years)

     14,969        14,093   

Leasehold improvements (estimated useful life of 2-17 years)

     52,456        51,205   

Building (estimated useful life of 24 years)

     8,923        8,923   

Land

     4,384        4,384   

Construction in progress

     23,642        16,570   
  

 

 

   

 

 

 
     610,520        504,017   

Less accumulated depreciation and amortization

     (262,790     (209,044
  

 

 

   

 

 

 
   $ 347,730      $ 294,973   
  

 

 

   

 

 

 

Other acquired intangible assets, net:

    

Technology (weighted average useful life of 6 years)

   $ 54,361      $ 54,240   

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

     88,786        88,758   

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)

     6,308        6,307   
  

 

 

   

 

 

 
     163,735        163,585   

Less accumulated amortization

     (112,666     (100,544
  

 

 

   

 

 

 
   $ 51,069      $ 63,041   
  

 

 

   

 

 

 

Other assets:

    

Capitalized software costs, net

   $ 55,649      $ 41,992   

Patents, orbital slots and other licenses, net

     11,236        11,194   

Deferred income taxes

     84,217        53,602   

Other

     34,136        30,007   
  

 

 

   

 

 

 
   $ 185,238      $ 136,795   
  

 

 

   

 

 

 

Accrued liabilities:

    

Collections in excess of revenues and deferred revenues

   $ 66,106      $ 88,114   

Accrued vacation

     18,097        17,573   

Warranty reserve, current portion

     7,894        6,238   

Accrued employee compensation

     13,627        21,384   

Other

     33,823        26,453   
  

 

 

   

 

 

 
   $ 139,547      $ 159,762   
  

 

 

   

 

 

 

Other liabilities:

    

Deferred revenue, long-term portion

   $ 16,188      $ 11,414   

Deferred rent, long-term portion

     10,701        8,237   

Warranty reserve, long-term portion

     5,925        5,413   

Deferred income taxes, long-term portion

     2,684        3,073   

Unrecognized tax position liabilities

     1,306        1,306   

Satellite performance incentives obligation, long-term portion

     21,235        20,910   
  

 

 

   

 

 

 
   $ 58,039      $ 50,353   
  

 

 

   

 

 

 

 

15


Table of Contents

VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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 December 28, 2012 and March 30, 2012:

 

     Fair Value as of
December 28, 2012
     Level 1      Level 2      Level 3  
     (In thousands)  

Assets

           

Cash equivalents

   $ 58,166       $ 58,166       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets measured at fair value on a recurring basis

   $ 58,166       $ 58,166       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Foreign currency forward contracts

   $ 179       $ —        $ 179       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities measured at fair value on a recurring basis

   $ 179       $ —        $ 179       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Fair Value as of
   March 30, 2012   
     Level 1      Level 2      Level 3  
     (In thousands)  

Assets

           

Cash equivalents

   $ 70,379       $ 70,379       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets measured at fair value on a recurring basis

   $ 70,379       $ 70,379       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Foreign currency forward contracts

   $ 443       $ —         $ 443       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities measured at fair value on a recurring basis

   $ 443       $ —         $ 443       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

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 (Level 1).

 

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VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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 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 standard calculations/models that are primarily based on observable inputs, such as foreign currency exchange rates, or can be corroborated by observable market data (Level 2).

Long-term debt — The Company’s long-term debt consists of borrowings under (1) capital lease obligations reported at the present value of future minimum lease payments with current accrued interest, and (2) the Company’s 6.875% Senior Notes due 2020 (the 2020 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. As of December 28, 2012, the fair value of the Company’s outstanding long-term debt related to the initial $275.0 million of 2020 Notes (the Initial 2020 Notes) was determined using quoted prices in active markets (Level 1) and was approximately $287.4 million. As of March 30, 2012, the fair value of the Company’s outstanding long-term debt related to the Initial 2020 Notes had been determined using recent market transactions for similar notes (Level 2) and was approximately $280.2 million. The Initial 2020 Notes were exchanged in August 2012 for substantially identical Initial 2020 Notes that had been registered with the Securities and Exchange Commission (SEC), which resulted in a change of the inputs used to measure the fair value of the Initial 2020 Notes from Level 2 (as of March 30, 2012) to Level 1 (as of December 28, 2012). The fair value of the Company’s outstanding long-term debt related to the additional $300.0 million of 2020 Notes issued in October 2012 (the Additional 2020 Notes) was determined using recent market transactions for similar notes (Level 2) and was approximately $313.5 million as of December 28, 2012. The Additional 2020 Notes were exchanged subsequent to the quarter end in January 2013 for substantially identical Additional 2020 Notes that had been registered with the SEC. The fair value of the Company’s outstanding long-term debt related to its former 8.875% Senior Notes due 2016 (the 2016 Notes, and collectively with the 2020 Notes, the Senior Notes), which were repurchased and redeemed in connection with the issuance of the Additional 2020 Notes, had been determined using quoted prices in active markets (Level 1) and was approximately $298.4 million as of March 30, 2012. The fair value of the Company’s capital lease obligations was estimated to approximate their carrying value based on current rates (Level 2).

Satellite performance incentives obligation — The Company’s contract with the manufacturer of ViaSat-1 requires the Company to make monthly in-orbit satellite performance incentive payments, including interest at 7.0%, over a fifteen-year period from December 2011 to December 2026, subject to the continued satisfactory performance of the satellite. The Company recorded the net present value of these expected future payments as a liability and as a component of the cost of the satellite. However, for disclosure purposes, the Company is required to measure the fair value of outstanding satellite performance incentives on a recurring basis. The fair value of the Company’s outstanding satellite performance incentives is estimated to approximate their carrying value based on current rates (Level 2).

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

 

     Three Months Ended      Nine Months Ended  
     December 28, 2012      December 30, 2011      December 28, 2012      December 30, 2011  
     (In thousands)  

Weighted average:

           

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

     44,189         42,452         43,662         42,132   

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

     —          1,352         —          1,371   

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

     —          422         —          407   

Potentially issuable shares in connection with certain terms of the amended ViaSat 401(k) Profit Sharing Plan and Employee Stock Purchase Plan equivalents

     —          107         —          105   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

     44,189         44,333         43,662         44,015   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

17


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VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The weighted average number of shares used to calculate basic and diluted net income (loss) per share attributable to ViaSat, Inc. common stockholders is the same for both the three and nine months ended December 28, 2012, as the Company incurred a net loss for the three and nine months ended December 28, 2012 and inclusion of common share equivalents would be antidilutive. Common share equivalents excluded from the calculation for the three months ended December 28, 2012 were 1,579,179 shares relating to stock options, 388,487 shares relating to restricted stock units and 140,809 shares relating to certain terms of the amended ViaSat 401(k) Profit Sharing Plan and Employee Stock Purchase Plan. Common share equivalents excluded from the calculation for the nine months ended December 28, 2012 were 1,604,192 shares relating to stock options, 376,659 shares relating to restricted stock units and 158,504 shares relating to certain terms of the amended ViaSat 401(k) Profit Sharing Plan and Employee Stock Purchase Plan. Antidilutive shares relating to stock options excluded from the calculation for the three and nine months ended December 30, 2011 were 432,272 and 308,349 shares, respectively. Antidilutive shares relating to restricted stock units excluded from the calculation for the three and nine months ended December 30, 2011 were 641 and 118,121 shares, respectively.

Note 5 — Goodwill and Acquired Intangible Assets

During the first nine months of fiscal year 2013, the Company’s goodwill increased by approximately $0.1 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 three to ten years. Amortization expense related to other acquired intangible assets was $4.0 million and $4.8 million for the three months ended December 28, 2012 and December 30, 2011, respectively, and $12.1 million and $14.3 million for the nine months ended December 28, 2012 and December 30, 2011, 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 nine months ended December 28, 2012

   $ 12,065   

Expected for the remainder of fiscal year 2013

   $ 3,537   

Expected for fiscal year 2014

     13,880   

Expected for fiscal year 2015

     13,804   

Expected for fiscal year 2016

     10,204   

Expected for fiscal year 2017

     4,629   

Thereafter

     5,015   
  

 

 

 
   $ 51,069   
  

 

 

 

Note 6 — Senior Notes and Other Long-Term Debt

Total long-term debt consisted of the following as of December 28, 2012 and March 30, 2012:

 

     As of
December 28, 2012
     As of
March 30, 2012
 
     (In thousands)  

Senior Notes

     

2020 Notes

   $ 575,000       $ 275,000   

Unamortized premium on the 2020 Notes

     10,265        —    

2016 Notes

     —           275,000   

Unamortized discount on the 2016 Notes

     —           (2,209
  

 

 

    

 

 

 

Total Senior Notes, net of premium or discount

     585,265         547,791   

Less: current portion of the Senior Notes

     —          —    
  

 

 

    

 

 

 

Total Senior Notes long-term, net

     585,265         547,791   

Other Long-Term Debt

     

Revolving credit facility

     —          —    

Capital lease obligations

     1,089         2,014   
  

 

 

    

 

 

 

Total other long-term debt

     1,089         2,014   

Less: current portion of other long-term debt

     1,027         1,240   
  

 

 

    

 

 

 

Other long-term debt, net

     62         774   

Total debt

     586,354         549,805   

Less: current portion

     1,027         1,240   
  

 

 

    

 

 

 

Long-term debt, net

   $ 585,327       $ 548,565   
  

 

 

    

 

 

 

 

18


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VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The estimated aggregate amounts and timing of payments on the Company’s long-term debt obligations as of December 28, 2012 for the next five years and thereafter were as follows (excluding the effects of premium accretion on the 2020 Notes):

 

     (In thousands)  

For the remainder of fiscal year 2013

   $ 327   

For the fiscal year ending 2014

     786   

For the fiscal year ending 2015

     —    

For the fiscal year ending 2016

     —    

For the fiscal year ending 2017

     —     

Thereafter

     575,000   
  

 

 

 
     576,113   

Less: imputed interest

     24   

Plus: unamortized premium on the 2020 Notes

     10,265   
  

 

 

 

Total

   $ 586,354   
  

 

 

 

Credit Facility

As of December 28, 2012, the Company’s revolving credit facility (the Credit Facility), as amended, provided a revolving line of credit of $325.0 million (including up to $50.0 million of letters of credit), with a maturity date of May 9, 2017. 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) the Eurodollar rate, plus, in the case of each of (1) and (2), an applicable margin that is based on the Company’s total leverage ratio. The Company has capitalized certain amounts of interest expense on the Credit Facility in connection with the construction of various assets during the construction period. The Credit Facility is guaranteed by certain of the Company’s domestic subsidiaries and secured by substantially all of the Company’s and such subsidiaries’ assets.

The Credit Facility contains financial covenants regarding a maximum total 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 Credit Facility was amended on September 26, 2012 to, among other things, increase the Company’s permitted total leverage ratio for the second, third and fourth quarters of fiscal year 2013 and authorize the offering of the Additional 2020 Notes.

The Company was in compliance with its financial covenants under the Credit Facility as of December 28, 2012. At December 28, 2012, the Company had no outstanding borrowings under the Credit Facility and $38.6 million outstanding under standby letters of credit, leaving borrowing availability under the Credit Facility as of December 28, 2012 of $286.4 million.

Senior Notes

Discharge of Indenture and Loss on Extinguishment of Debt

In connection with the Company’s issuance of the Additional 2020 Notes in October 2012, the Company repurchased and redeemed all of its $275.0 million in aggregate principal amount of 2016 Notes then outstanding through a cash tender offer and redemption, and the indenture governing the 2016 Notes was satisfied and discharged in accordance with its terms. On October 12, 2012, the Company purchased approximately $262.1 million in aggregate principal amount of the 2016 Notes pursuant to the tender offer. The total cash payment to purchase the tendered 2016 Notes in the tender offer, including accrued and unpaid interest up to, but excluding, the repurchase date and a $10 consent payment per $1,000 principal amount of notes tendered, was approximately $282.5 million. On November 14, 2012, the Company redeemed the remaining $12.9 million in aggregate principal amount of 2016 Notes pursuant to the optional redemption provisions of the 2016 Notes at a redemption price of 106.656% of the principal amount, plus accrued and unpaid interest to, but not including, the redemption date. The total cash payment to redeem the remaining 2016 Notes was approximately $14.0 million.

 

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VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

As a result of the repurchase and redemption of the 2016 Notes, the Company recognized a $26.5 million loss on extinguishment of debt during the three and nine months ended December 28, 2012, which was comprised of $19.8 million in cash payments (including tender offer consideration, consent payments, redemption premium and related professional fees), and $6.7 million in non-cash charges (including unamortized discount and unamortized debt issuance costs).

Senior Notes due 2020

In February 2012, the Company issued $275.0 million in principal amount of Initial 2020 Notes in a private placement to institutional buyers, which were exchanged in August 2012 for substantially identical Initial 2020 Notes that had been registered with the SEC. The Initial 2020 Notes were issued at the face value and are recorded as long-term debt in the Company’s condensed consolidated financial statements. On October 12, 2012, the Company issued $300.0 million in principal amount of Additional 2020 Notes in a private placement to institutional buyers at an issue price of 103.50% of the principal amount, which were exchanged subsequent to the quarter end in January 2013 for substantially identical Additional 2020 Notes that had been registered with the SEC. The 2020 Notes are all treated as a single class and have identical terms, except for the issue date, the issue price, the first interest payment date and the date from which interest begins to accrue. The 2020 Notes bear interest at the rate of 6.875% per year, payable semi-annually in cash in arrears, which interest payments commenced in June 2012. Deferred financing cost associated with the issuance of the 2020 Notes is amortized to interest expense on a straight-line basis over the term of the 2020 Notes, which is not materially different from an effective interest rate basis. The $10.5 million premium the Company received in connection with the issuance of the Additional 2020 Notes is recorded as long-term debt in the Company’s condensed consolidated financial statements and is being amortized as a reduction to interest expense on a straight-line basis over the term of the Additional 2020 Notes, which is not materially different from an effective interest rate basis.

The 2020 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 2020 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 2020 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 2020 Notes, and are senior in right of payment to all of their existing and future subordinated indebtedness.

The indenture governing the 2020 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 June 15, 2015, the Company may redeem up to 35% of the 2020 Notes at a redemption price of 106.875% of the principal amount thereof, 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 2020 Notes prior to June 15, 2016, in whole or in part, at a redemption price equal to 100% of the principal amount thereof plus the applicable premium and any accrued and unpaid interest, if any, thereon to the redemption date. The applicable premium is calculated as the greater of: (i) 1.0% of the principal amount of such 2020 Notes and (ii) the excess, if any, of (a) the present value at such date of redemption of (1) the redemption price of such 2020 Notes on June 15, 2016 plus (2) all required interest payments due on such 2020 Notes through June 15, 2016 (excluding accrued but unpaid interest to the date of redemption), computed using a discount rate equal to the treasury rate (as defined under the indenture) plus 50 basis points, over (b) the then-outstanding principal amount of such 2020 Notes. The 2020 Notes may be redeemed, in whole or in part, at any time during the twelve months beginning on June 15, 2016 at a redemption price of 103.438%, during the twelve months beginning on June 15, 2017 at a redemption price of 101.719%, and at any time on or after June 15, 2018 at a redemption price of 100%, in each case plus accrued and unpaid interest, if any, thereon to the redemption date.

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 2020 Notes at a purchase price in cash equal to 101% of the aggregate principal amount of the 2020 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).

Capital leases

Occasionally the Company may enter into capital lease agreements for various machinery, equipment, computer-related equipment, software, furniture or fixtures. As of December 28, 2012 and March 30, 2012, the Company had approximately $1.1 million and $2.0 million, respectively, outstanding under capital leases payable over a weighted average period of 36 months, due fiscal year 2014. These lease agreements bear interest at a weighted average rate of 4.59% and can be extended on a month-to-month basis after the original term.

 

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Table of Contents

VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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 nine months ended December 28, 2012 and December 30, 2011:

 

     Nine Months Ended  
     December 28, 2012     December 30, 2011  
     (In thousands)  

Balance, beginning of period

   $ 11,651      $ 12,942   

Change in liability for warranties issued in period

     5,875        4,147   

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

     (3,707     (5,131
  

 

 

   

 

 

 

Balance, end of period

   $ 13,819      $ 11,958   
  

 

 

   

 

 

 

Note 8 — Commitments and Contingencies

In February 2012, the Company filed a complaint against Space Systems/Loral, Inc. (SS/L) and its former parent company Loral Space & Communications, Inc. (Loral) in the United States District Court for the Southern District of California for patent infringement and breach of contract relating to the manufacture of ViaSat-1. The Company alleges, among other things, that SS/L and Loral infringed U.S. Patent Nos. 8,107,875, 8,010,043, 8,068,827 and 7,773,942 by making, using, offering to sell and/or selling other high-capacity broadband satellites, and has requested monetary damages, injunctive relief and other remedies. On June 15, 2012, SS/L filed counterclaims against the Company for patent infringement and declaratory relief. Specifically, SS/L seeks a judicial declaration that SS/L did not breach the parties’ contract for the manufacture of ViaSat-1, that SS/L does not infringe the Company’s patents described above, and that those patents are invalid and/or unenforceable. SS/L also alleges that the Company infringed U.S. Patent Nos. 6,879,808, 6,400,696 and 7,219,132 by providing broadband internet service by means of the Anik F2 satellite using ViaSat satellite gateways and satellite user terminals and has induced others to infringe by selling certain ground equipment and user terminals.

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 DCMA, the DCAA and other U.S. government agencies of its performance on government contracts, indirect rates and pricing practices, accounting and management internal control business systems, and compliance with applicable contracting and procurement laws, regulations and standards. An adverse outcome to a review or audit or other failure to comply with applicable contracting and procurement laws, regulations and standards could result in material civil and criminal penalties and administrative sanctions being imposed on the Company, which may include termination of contracts, forfeiture of profits, triggering of price reduction clauses, suspension of payments, significant customer refunds, fines and suspension, or a prohibition on doing business with U.S. government agencies. In addition, if the Company fails to obtain an “adequate” determination of its various accounting and management internal control business systems from applicable U.S. government agencies or if allegations of impropriety are made against it, the Company could suffer serious harm to its business or its reputation, including its ability to bid on new contracts or receive contract renewals and its competitive position in the bidding process. The Company’s incurred cost audits by the DCAA have not been completed for fiscal year 2004 and subsequent fiscal years. Although the Company has recorded contract revenues subsequent to fiscal year 2003 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 December 28, 2012 and March 30, 2012, the Company had $6.9 million and $6.7 million, respectively, 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.

 

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VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 9 — Income Taxes

The Company currently estimates its annual effective income tax rate to be approximately 40.1% for fiscal year 2013. The estimated annual effective tax rate is different from the expected statutory rate primarily due to state research and development tax credits. The American Taxpayer Relief Act of 2012 was enacted on January 2, 2013. Included within this legislation was an extension of the research and development credit which had previously expired on December 31, 2011. This legislation retroactively reinstates and extends the credit from the previous expiration date through December 31, 2013. As the legislation was not enacted until after the close of the third quarter of fiscal year 2013, the income tax impact of the retroactive reinstatement and extension will not be recognized until the fourth quarter of fiscal year 2013. The expected impact of the research and development credit is an $8.0 million tax benefit which will be recognized in the fourth quarter of fiscal year 2013.

Future realization of the existing deferred tax asset ultimately depends on future profitability and the existence of sufficient taxable income of appropriate character (for example, ordinary income versus capital gains) within the carryforward period available under tax law. In the event that the Company’s estimate of taxable income is less than that required to utilize the full amount of any deferred tax asset, a valuation allowance is established. The Company’s analysis of the need for a valuation allowance considered the loss incurred during the nine months ended December 28, 2012. However, a substantial portion of the current loss was the result of an extinguishment of debt charge that was recorded upon the refinancing of certain of the Company’s debt obligations at lower interest rates, which is expected to provide a benefit to net income in the future. The Company’s evaluation considered other factors, including the Company’s history of positive earnings, taxable income adjusted for certain items, the Company’s significant growth in contractual backlog, and trends and forecasted income by jurisdiction. Consideration was also given to the lengthy period over which these net deferred tax assets can be realized, and the Company’s history of not having federal tax loss carryforwards expire unused.

For the three and nine months ended December 28, 2012, the Company’s gross unrecognized tax benefits decreased by $0.7 million and increased by $0.2 million, respectively. In the next twelve months, it is reasonably possible that the amount of unrecognized tax benefits will decrease by up to approximately $1.1 million as a result of the expiration of the statute of limitations or settlements with tax authorities for previously filed tax returns.

Note 10 — Comprehensive Income (Loss)

The changes in the components of accumulated other comprehensive income (loss), net of taxes, were as follows:

 

     Three Months Ended
December 28, 2012
 
     Net Change
in Foreign
Currency
Translation
Adjustments
    Net Change in
Derivatives
    Accumulated
Other
Comprehensive
Income (Loss)
 
     (In thousands)  

Beginning balance

   $ 1,996      $ (230   $ 1,766   

Current period other comprehensive income (loss), net of tax

     (55     121        66   
  

 

 

   

 

 

   

 

 

 

Ending balance

   $ 1,941      $ (109   $ 1,832   
  

 

 

   

 

 

   

 

 

 

 

     Nine Months Ended
December 28, 2012
 
     Net Change
in Foreign
Currency
Translation
Adjustments
     Net Change in
Derivatives
    Accumulated
Other
Comprehensive
Income (Loss)
 
     (In thousands)  

Beginning balance

   $ 1,709       $ (270   $ 1,439   

Current period other comprehensive income (loss), net of tax

     232         161        393   
  

 

 

    

 

 

   

 

 

 

Ending balance

   $ 1,941       $ (109   $ 1,832   
  

 

 

    

 

 

   

 

 

 

 

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VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

     Three Months Ended
December 30, 2011
 
     Net Change
in Foreign
Currency
Translation
Adjustments
    Net Change in
Derivatives
    Accumulated
Other
Comprehensive
Income (Loss)
 
           (In thousands)        

Beginning balance

   $ 1,401      $ (539   $ 862   

Current period other comprehensive income (loss), net of tax

     (241     137        (104
  

 

 

   

 

 

   

 

 

 

Ending balance

   $ 1,160      $ (402   $ 758   
  

 

 

   

 

 

   

 

 

 

 

     Nine Months Ended
December 30, 2011
 
     Net Change
in Foreign
Currency
Translation
Adjustments
    Net Change in
Derivatives
    Accumulated
Other
Comprehensive
Income (Loss)
 
     (In thousands)  

Beginning balance

   $ 2,095      $ 182      $ 2,277   

Current period other comprehensive income (loss), net of tax

     (935     (584     (1,519
  

 

 

   

 

 

   

 

 

 

Ending balance

   $ 1,160      $ (402   $ 758   
  

 

 

   

 

 

   

 

 

 

Note 11 — Segment Information

The Company’s reporting segments, comprised of the satellite services, commercial networks and government systems segments, are primarily distinguished by the type of customer and the related contractual requirements. The Company’s satellite services segment provides retail and wholesale satellite-based broadband internet services for its consumer, enterprise and mobile broadband customers in the United States, as well as managed network services for the satellite communication systems of the Company’s consumer, enterprise and mobile broadband customers worldwide. The Company’s commercial networks segment develops and produces a variety of advanced end-to-end satellite and other wireless communication systems and ground networking equipment and products, some of which are ultimately used by the Company’s satellite services segment. The Company’s government systems segment develops and produces network-centric, internet protocol (IP)-based secure government communications systems, products, services and solutions. The more regulated government environment is subject to unique contractual requirements and possesses economic characteristics which differ from the satellite services and commercial networks segments. 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.

 

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VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Segment revenues and operating profits (losses) for the three and nine months ended December 28, 2012 and December 30, 2011 were as follows:

 

     Three Months Ended     Nine Months Ended  
     December 28, 2012     December 30, 2011     December 28, 2012     December 30, 2011  
     (In thousands)  

Revenues

        

Satellite Services

        

Product

   $ 653      $ 734      $ 4,159      $ 2,312   

Service

     71,097        54,916        194,217        165,616   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     71,750        55,650        198,376        167,928   

Commercial Networks

        

Product

     64,241        49,092        216,116        155,451   

Service

     4,411        5,357        15,208        15,266   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     68,652        54,449        231,324        170,717   

Government Systems

        

Product

     99,800        72,036        260,623        233,256   

Service

     46,240        22,829        120,704        51,188   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     146,040        94,865        381,327        284,444   

Elimination of intersegment revenues

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

   $ 286,442      $ 204,964      $ 811,027      $ 623,089   
  

 

 

   

 

 

   

 

 

   

 

 

 
        

Operating (losses) profits

        

Satellite Services

   $ (18,356   $ (1,359   $ (60,245   $ (1,165

Commercial Networks

     (3,399     (5,159     (7,304     (11,270

Government Systems

     26,981        13,062        66,232        34,775   

Elimination of intersegment operating profits

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Segment operating profit (loss) before corporate and amortization of acquired intangible assets

     5,226        6,544        (1,317     22,340   

Corporate

     —          —          —          —     

Amortization of acquired intangible assets

     (3,960     (4,752     (12,065     (14,291
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

   $ 1,266      $ 1,792      $ (13,382   $ 8,049   
  

 

 

   

 

 

   

 

 

   

 

 

 

Assets identifiable to segments include: accounts receivable, unbilled accounts receivable, inventory, acquired intangible assets and goodwill. The Company’s property, plant and equipment, including its satellites, gateways and other networking equipment, are assigned to corporate assets as they are available for use by the various segments throughout their estimated useful lives. Segment assets as of December 28, 2012 and March 30, 2012 were as follows:

 

     As of
December 28,
2012
     As of
March 30,
2012
 
     (In thousands)  

Segment assets

     

Satellite Services

   $ 94,089       $ 95,671   

Commercial Networks

     183,186         170,553   

Government Systems

     221,782         219,199   
  

 

 

    

 

 

 

Total segment assets

     499,057         485,423   

Corporate assets

     1,249,878         1,241,730   
  

 

 

    

 

 

 

Total assets

   $ 1,748,935       $ 1,727,153   
  

 

 

    

 

 

 

 

24


Table of Contents

VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Other acquired intangible assets, net and goodwill included in segment assets as of December 28, 2012 and March 30, 2012 were as follows:

 

     Other Acquired Intangible
Assets, Net
     Goodwill  
     As of
December 28, 2012
     As of
March 30, 2012
     As of
December 28, 2012
     As of
March 30, 2012
 
     (In thousands)  

Satellite Services

   $ 42,755       $ 52,390       $ 9,809       $ 9,809   

Commercial Networks

     1,662         2,186         43,729         43,739   

Government Systems

     6,652         8,465         30,023         29,913   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 51,069       $ 63,041       $ 83,561       $ 83,461   
  

 

 

    

 

 

    

 

 

    

 

 

 

Amortization of acquired intangible assets by segment for the three and nine months ended December 28, 2012 and December 30, 2011 was as follows:

 

     Three Months Ended      Nine Months Ended  
     December 28, 2012      December 30, 2011      December 28, 2012      December 30, 2011  
     (In thousands)  

Satellite Services

   $ 3,159       $ 3,238       $ 9,635       $ 9,714   

Commercial Networks

     163         883         523         2,650   

Government Systems

     638         631         1,907         1,927   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total amortization of acquired intangible assets

   $ 3,960       $ 4,752       $ 12,065       $ 14,291   
  

 

 

    

 

 

    

 

 

    

 

 

 

Revenue information by geographic area for the three and nine months ended December 28, 2012 and December 30, 2011 was as follows:

 

     Three Months Ended      Nine Months Ended  
     December 28, 2012      December 30, 2011      December 28, 2012      December 30, 2011  
     (In thousands)  

United States

   $ 221,445       $ 165,660       $ 606,669       $ 495,621   

Europe, Middle East and Africa

     39,903         25,107         126,448         82,347   

Asia, Pacific

     14,256         4,586         35,148         16,583   

North America other than United States

     8,786         7,763         33,073         17,476   

Central and Latin America

     2,052         1,848         9,689         11,062   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

   $ 286,442       $ 204,964       $ 811,027       $ 623,089   
  

 

 

    

 

 

    

 

 

    

 

 

 

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 $19.6 million and $18.7 million at December 28, 2012 and March 30, 2012, respectively.

Note 12 — Certain Relationships and Related-Party Transactions

Michael Targoff, who served as a director of the Company from February 2003 to February 2012, is the Vice Chairman of the board of directors of Loral and previously served as the Chief Executive Officer of Loral through December 2012. Mr. Targoff 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.

The Company’s satellite construction contract for ViaSat-1 with SS/L, a subsidiary of Loral prior to November 2012, requires the Company to make monthly satellite performance incentive payments, including interest, over a fifteen-year period from December 2011 to December 2026, subject to the continued satisfactory performance of the satellite. As of December 28, 2012 and March 30, 2012, the Company’s estimated satellite performance incentives obligation and accrued interest were $22.9 million and $22.5 million, respectively. Based on estimates as of December 28, 2012, the remaining amount of satellite performance incentives and related interest that the Company may be required to pay under this satellite construction contract during the period until December 2026 is approximately $38.0 million. Material amounts related to the satellite construction contract with SS/L are disclosed in the tables below.

 

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Table of Contents

VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

In addition, from time to time, the Company enters into various contracts in the ordinary course of business with SS/L and Telesat Canada. Material amounts related to these contracts are disclosed in the tables below.

Current payables included in accrued liabilities and long-term payables included in other liabilities as of December 28, 2012 and March 30, 2012 were as follows:

 

     As of
December 28, 2012
     As of
March 30, 2012
 
     (In thousands)  

Payables, current

     

Loral – satellite construction contract (estimated satellite performance incentives)

   $ 1,652       $ 1,599   

Payables, long-term

     

Loral – satellite construction contract (estimated satellite performance incentives)

     21,235         20,910   

Revenue and expense for the three and nine months ended December 28, 2012 and December 30, 2011 were as follows:

 

     Three Months Ended      Nine Months Ended  
       December 28, 2012      December 30, 2011      December 28, 2012      December 30, 2011  
     (In thousands)  

Revenue

        

Loral – ordinary course of business

   $ *      $ 2,251       $ *       $ 3,768   

Expense

           

Telesat Canada – ordinary course of business

     2,467         *         4,453         1,986   

 

*  

Amounts were not meaningful.

Cash received and paid during the nine months ended December 28, 2012 and December 30, 2011 were as follows:

 

     Nine Months Ended  
     December 28, 2012      December 30, 2011  
     (In thousands)  

Cash received

  

Loral – beam sharing agreement

   $ —         $ 3,845   

Telesat Canada – beam sharing agreement

     —           8,085  

Telesat Canada – ordinary course of business

     *         2,843   

Cash paid

     

Loral – satellite construction contract (including satellite performance incentives)

     1,067         2,566   

Telesat Canada – ordinary course of business

     5,721         5,707   

 

*  

Amounts were not meaningful.

Note 13 — Financial Statements of Parent and Subsidiary Guarantors

As of December 28, 2012, $575.0 million in aggregate principal amount of 2020 Notes issued by the Company was outstanding. The 2020 Notes are jointly and severally guaranteed on a full and unconditional basis by each of the Guarantor Subsidiaries, subject to certain customary release provisions, including the sale, transfer or other disposition of the capital stock or all or substantially all of the assets of a Guarantor Subsidiary, the designation of a Guarantor Subsidiary as an unrestricted subsidiary, the release or discharge of the Guarantor Subsidiary’s guarantee of the Credit Facility or the exercise of the legal defeasance option or covenant defeasance option. All of the Guarantor Subsidiaries are direct or indirect 100% owned subsidiaries of the Company. The indentures governing the 2020 Notes limit, among other things, the Company’s and its restricted subsidiaries’ ability to: incur, assume or guarantee

 

26


Table of Contents

VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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 comprehensive income (loss), 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 December 28, 2012 and March 30, 2012 and for the three and nine months ended December 28, 2012 and December 30, 2011.

Condensed Consolidated Balance Sheet as of December 28, 2012

 

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

Current assets:

             

Cash and cash equivalents

   $ 99,961       $ 2,787       $ 9,919       $ —        $ 112,667   

Accounts receivable, net

     216,196         14,090         7,265         —          237,551   

Inventories

     96,661         22,910         6,866         —          126,437   

Deferred income taxes

     18,380         1,526         308         —          20,214   

Prepaid expenses and other current assets

     30,618         5,276         769         —          36,663   

Current portion of intercompany receivables

     91,642         1,581        1,403        (94,626     —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     553,458         48,170         26,530         (94,626     533,532   
             

Satellites, net

     342,778         205,027         —           —          547,805   

Property and equipment, net

     185,075         156,494         6,161         —          347,730   

Other acquired intangible assets, net

     1,824         42,754         6,491         —          51,069   

Goodwill

     63,938         9,687         9,936         —          83,561   

Investments in subsidiaries and intercompany receivables

     394,545         1,439         302         (396,286     —     

Other assets

     138,874         45,682         682         —          185,238   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 1,680,492       $ 509,253       $ 50,102       $ (490,912   $ 1,748,935   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
             
LIABILITIES AND EQUITY              

Current liabilities:

             

Accounts payable

   $ 62,590       $ 13,142       $ 1,198       $ —        $ 76,930   

Accrued liabilities

     107,373         25,775         6,399         —          139,547   

Current portion of other long-term debt

     107         920         —           —          1,027   

Current portion of intercompany payables

     1,403        89,977         3,246        (94,626     —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     171,473         129,814         10,843         (94,626     217,504   
             

Senior Notes, net

     585,265         —           —           —          585,265   

Other long-term debt

     —           62         —           —          62   

Intercompany payables

     308         —           6,263         (6,571     —     

Other liabilities

     39,847         15,810         2,382         —          58,039   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     796,893         145,686         19,488         (101,197     860,870   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Equity:

             

ViaSat, Inc. stockholders’ equity

             

Total ViaSat, Inc. stockholders’ equity

     883,599         363,567         30,614         (394,181     883,599   

Noncontrolling interest in subsidiary

     —           —           —           4,466        4,466   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total equity

     883,599         363,567         30,614         (389,715     888,065   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and equity

   $ 1,680,492       $ 509,253       $ 50,102       $ (490,912   $ 1,748,935   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

27


Table of Contents

VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Condensed Consolidated Balance Sheet as of March 30, 2012

 

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

Current assets:

             

Cash and cash equivalents

   $ 162,426       $ 439       $ 9,718       $ —        $ 172,583   

Accounts receivable, net

     192,313         12,411         6,966         —          211,690   

Inventories

     106,151         16,474         5,021         —          127,646   

Deferred income taxes

     18,482         1,526         308         —          20,316   

Prepaid expenses and other current assets

     27,128         2,923         866         —          30,917   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     506,500         33,773         22,879         —          563,152   
             

Satellites, net

     358,580         227,151         —           —          585,731   

Property and equipment, net

     178,611         110,137         6,225         —          294,973   

Other acquired intangible assets, net

     2,633         52,389         8,019         —          63,041   

Goodwill

     63,939         9,687         9,835         —          83,461   

Investments in subsidiaries and intercompany receivables

     437,631         2,501         1,428         (441,560     —     

Other assets

     117,300         18,886         609         —          136,795   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 1,665,194       $ 454,524       $ 48,995       $ (441,560   $ 1,727,153   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
             
LIABILITIES AND EQUITY              

Current liabilities:

             

Accounts payable

   $ 62,085       $ 12,192       $ 763       $ —        $ 75,040   

Accrued liabilities

     128,327         27,477         3,958         —          159,762   

Current portion of other long-term debt

     129         1,111         —           —          1,240   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     190,541         40,780         4,721         —          236,042   
             

Senior Notes, net

     547,791         —           —           —          547,791   

Other long-term debt

     74         700         —           —          774   

Intercompany payables

     1,428         4,462         9,429         (15,319     —     

Other liabilities

     37,385         10,269         2,699         —          50,353   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     777,219         56,211         16,849         (15,319     834,960   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Equity:

             

ViaSat, Inc. stockholders’ equity

             

Total ViaSat, Inc. stockholders’ equity

     887,975         398,313         32,146         (430,459     887,975   

Noncontrolling interest in subsidiary

     —           —           —           4,218        4,218   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total equity

     887,975         398,313         32,146         (426,241     892,193   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and equity

   $ 1,665,194       $ 454,524       $ 48,995       $ (441,560   $ 1,727,153   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

28


Table of Contents

VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Condensed Consolidated Statement of Operations and Comprehensive Income (Loss) for the Three Months Ended December 28, 2012

 

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

Revenues:

          

Product revenues

   $ 156,334      $ 652      $ 7,859      $ (151   $ 164,694   

Service revenues

     53,895        66,685        1,566        (398     121,748   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     210,229        67,337        9,425        (549     286,442   

Operating expenses:

          

Cost of product revenues

     113,397        908        5,079        (134     119,250   

Cost of service revenues

     35,650        56,042        860        (407     92,145   

Selling, general and administrative

     34,741        24,542        2,926        —         62,209   

Independent research and development

     7,496        28        96        (8     7,612   

Amortization of acquired intangible assets

     260        3,159        541        —         3,960   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     18,685        (17,342     (77     —         1,266   

Other income (expense):

          

Interest income

     36        —         2        —         38   

Interest expense

     (10,658     (14     —         —         (10,672

Loss on extinguishment of debt

     (26,501     —          —         —         (26,501
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (18,438     (17,356     (75     —         (35,869

Provision for (benefit from) income taxes

     (5,765     (9,685     195        —         (15,255

Equity in net income (loss) of consolidated subsidiaries

     (8,103     —         —         8,103        —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (20,776     (7,671     (270     8,103        (20,614

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

     —         —         —         162        162   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to ViaSat, Inc.

   $ (20,776   $ (7,671   $ (270   $ 7,941      $ (20,776
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to ViaSat, Inc.

   $ (20,710   $ (7,671   $ (296   $ 7,967      $ (20,710
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

29


Table of Contents

VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Condensed Consolidated Statement of Operations and Comprehensive Income (Loss) for the Nine Months Ended December 28, 2012

 

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

Revenues:

          

Product revenues

   $ 460,645      $ 4,158      $ 16,468      $ (373   $ 480,898   

Service revenues

     142,923        181,072        7,305        (1,171     330,129   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     603,568        185,230        23,773        (1,544     811,027   

Operating expenses:

          

Cost of product revenues

     336,104        3,018        10,922        (324     349,720   

Cost of service revenues

     97,016        165,523        4,737        (1,180     266,096   

Selling, general and administrative

     96,484        68,264        8,041        —         172,789   

Independent research and development

     22,859        538        382        (40     23,739   

Amortization of acquired intangible assets

     809        9,635        1,621        —         12,065   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     50,296        (61,748     (1,930     —         (13,382

Other income (expense):

          

Interest income

     138        —         5        —         143   

Interest expense

     (33,716     (50     (5     —         (33,771

Loss on extinguishment of debt

     (26,501     —          —         —         (26,501
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (9,783     (61,798     (1,930     —         (73,511

Provision for (benefit from) income taxes

     (3,563     (27,052     8        —         (30,607

Equity in net income (loss) of consolidated subsidiaries

     (36,883     —         —         36,883        —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (43,103     (34,746     (1,938     36,883        (42,904

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

     —         —         —         199        199   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to ViaSat, Inc.

   $ (43,103   $ (34,746   $ (1,938   $ 36,684      $ (43,103
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to ViaSat, Inc.

   $ (42,710   $ (34,746   $ (1,717   $ 36,463      $ (42,710
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

30


Table of Contents

VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Condensed Consolidated Statement of Operations and Comprehensive Income (Loss) for the Three Months Ended December 30, 2011

 

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

Revenues:

          

Product revenues

   $ 115,537      $ 735      $ 5,651      $ (61   $ 121,862   

Service revenues

     30,438        50,864        2,211        (411     83,102   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     145,975        51,599        7,862        (472     204,964   

Operating expenses:

          

Cost of product revenues

     85,440        854        3,230        (61     89,463   

Cost of service revenues

     17,781        38,200        1,760        (423     57,318   

Selling, general and administrative

     31,801        11,767        2,057        15        45,640   

Independent research and development

     5,821        —         181        (3     5,999   

Amortization of acquired intangible assets

     971        3,238        543        —         4,752   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     4,161        (2,460     91        —         1,792   

Other income (expense):

          

Interest income

     19        —         1        —         20   

Interest expense

     (305     (26     —         —         (331
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     3,875        (2,486     92        —         1,481   

Provision for (benefit from) income taxes

     (1,901     (1,318     (418     —         (3,637

Equity in net income (loss) of consolidated subsidiaries

     (636     —         —         636        —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     5,140        (1,168     510        636        5,118   

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

     —         —         —         (22     (22
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to ViaSat, Inc.

   $ 5,140      $ (1,168   $ 510      $ 658      $ 5,140   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to ViaSat, Inc.

   $ 5,036      $ (1,168   $ 195      $ 973      $ 5,036   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

31


Table of Contents

VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Condensed Consolidated Statement of Operations and Comprehensive Income (Loss) for the