UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended December 28, 2007.

OR

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

For the transition period from                      to                     

ViaSat, Inc.

Delaware		33-0174996
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

     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 þ No o

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

Large Accelerated filer o       Accelerated filer þ       Non-accelerated filer o       Smaller reporting company o

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

     The number of shares outstanding of the registrant’s Common Stock, $0.0001 par value, as of February 1, 2008 was 30,465,339.

 

 

VIASAT, INC.

INDEX

		Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at December 28, 2007 and March 30, 2007			3
Condensed Consolidated Statements of Operations for the three and nine months ended December 28, 2007 and December 29, 2006			4
Condensed Consolidated Statements of Cash Flows for the nine months ended December 28, 2007 and December 29, 2006			5
Condensed Consolidated Statement of Stockholders’ Equity for the nine months ended December 28, 2007			6
Notes to Condensed Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
Item 3. Quantitative and Qualitative Disclosures About Market Risk			36
Item 4. Controls and Procedures			37
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			37
Item 1A. Risk Factors			37
Item 4. Submission of Matters to a Vote of Security Holders			39
Item 5. Other Information			39
Item 6. Exhibits			39
Signatures			40
EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 10.3
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

VIASAT, INC.

		As of				As of
		December 28,				March 30,
		2007				2007
Assets
Current assets:
Cash and cash equivalents		$	121,073			$	103,345
Short-term investments			11,953				47
Accounts receivable, net			147,356				139,789
Inventories			56,371				46,034
Deferred income taxes			15,821				9,721
Prepaid expenses and other current assets			20,907				9,218
Total current assets			373,481				308,154
Goodwill			67,210				65,988
Other intangible assets, net			28,726				33,601
Property and equipment, net			54,293				51,463
Other assets			19,744				24,733
Total assets		$	543,454			$	483,939
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	52,853			$	43,516
Accrued liabilities			79,510				62,470
Payables to former stockholders of acquired businesses			1,101				14,762
Total current liabilities			133,464				120,748
Other liabilities			17,364				13,273
Total liabilities			150,828				134,021
Commitments and contingencies (Note 8)
Minority interest in consolidated subsidiary			2,234				1,123
Stockholders’ equity:
Common stock			3				3
Paid in capital			252,618				232,693
Retained earnings			138,618				115,969
Common stock held in treasury			(1,034	)			—
Accumulated other comprehensive income			187				130
Total stockholders’ equity			390,392				348,795
Total liabilities and stockholders’ equity		$	543,454			$	483,939

See accompanying notes to condensed consolidated financial statements.

VIASAT, INC.

		Three months ended								Nine months ended
		December 28,				December 29,				December 28,				December 29,
		2007				2006				2007				2006
Revenues		$	152,053			$	124,336			$	427,240			$	384,538
Operating expenses:
Cost of revenues			105,842				90,383				306,751				285,942
Selling, general and administrative			20,920				17,692				59,074				50,326
Independent research and development			8,405				5,557				24,215				15,181
Amortization of intangible assets			2,389				2,521				7,173				7,202
Income from operations			14,497				8,183				30,027				25,887
Other income (expense):
Interest income			1,578				553				4,462				1,302
Interest expense			(269	)			(92	)			(606	)			(383	)
Income before income taxes			15,806				8,644				33,883				26,806
Provision (benefit) for income taxes			4,803				(1,095	)			9,863				5,076
Minority interest in net earnings of subsidiary, net of tax			778				49				1,029				140
Net income		$	10,225			$	9,690			$	22,991			$	21,590
Basic net income per share		$	.34			$	.34			$	.76			$	.76
Diluted net income per share		$	.32			$	.31			$	.71			$	.71
Shares used in basic net income per share computation			30,338				28,687				30,164				28,352
Shares used in diluted net income per share computation			32,458				30,773				32,309				30,422

See accompanying notes to condensed consolidated financial statements.

VIASAT, INC.

		Nine months ended
		December 28,				December 29,
		2007				2006
Cash flows from operating activities:
Net income		$	22,991			$	21,590
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			11,660				10,457
Amortization of intangible assets and capitalized software			9,053				9,702
Deferred income taxes			1,440				(3,593	)
Incremental tax benefits from stock-based compensation			(934	)			(1,202	)
Non-cash stock-based compensation			5,550				3,603
Other non-cash adjustments			2,367				891
Increase (decrease) in cash resulting from changes in operating assets and liabilities, net of the effects of acquisitions:
Accounts receivable, net			(7,417	)			(6,252	)
Inventories			(9,772	)			445
Other assets			(9,888	)			(5,853	)
Accounts payable			7,491				(7,409	)
Accrued liabilities			12,085				18,439
Other liabilities			1,461				1,518
Net cash provided by operating activities			46,087				42,336
Cash flows from investing activities:
Payments related to acquisitions of businesses, net of cash acquired			(9,826	)			(281	)
Purchases of short-term investments held-to-maturity			(11,835	)			—
Purchases of property and equipment			(13,584	)			(12,062	)
Net cash used in investing activities			(35,245	)			(12,343	)
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs			6,763				8,509
Purchase of common stock in treasury			(1,034	)			—
Incremental tax benefits from stock-based compensation			934				1,202
Net cash provided by financing activities			6,663				9,711
Effect of exchange rate changes on cash			223				192
Net increase in cash and cash equivalents			17,728				39,896
Cash and cash equivalents at beginning of period			103,345				36,723
Cash and cash equivalents at end of period		$	121,073			$	76,619
Non-cash investing and financing activities:
Issuance of stock in connection with acquisition (see Note 12)		$	452			$	16,350
Issuance of payables to former stockholders of acquired businesses (see Note 1)		$	800			$	9,000
Issuance of stock in satisfaction of a payable to former stockholders of an acquired business (see Note 1)		$	5,631			$	—

See accompanying notes to condensed consolidated financial statements.

VIASAT, INC.

																		Common Stock								Accumulated
		Common Stock																In Treasury								Other
		Number of								Paid in				Retained				Number of								Comprehensive								Comprehensive
		Shares				Amount				Capital				Earnings				Shares				Amount				Income (Loss)				Total				Income (Loss)
Balance at March 30, 2007			29,733,396			$	3			$	232,693			$	115,969				—			$	—			$	130			$	348,795
Cumulative effect of adopting FIN 48			—				—				—				(342	)			—				—				—				(342	)
Exercise of stock options			367,592				—				5,494				—				—				—				—				5,494
Tax benefit from exercise of stock options and release of restricted stock unit (RSU) awards			—				—				1,529				—				—				—				—				1,529
Issuance of stock under Employee Stock Purchase Plan			50,211				—				1,269				—				—				—				—				1,269
Stock-based compensation expense			—				—				5,550				—				—				—				—				5,550
Value of stock issued in connection with acquisition of a business			14,424				—				452				—				—				—				—				452
Value of stock issued as additional consideration in connection with acquisition of a business, net of issuance costs			170,763				—				5,631				—				—				—				—				5,631
RSU awards vesting			94,165				—				—				—				—				—				—				—
Purchase of treasury shares pursuant to vesting of certain RSU agreements			—				—				—				—				(33,238	)			(1,034	)			—				(1,034	)
Net income			—				—				—				22,991				—				—				—				22,991			$	22,991
Hedging transactions, net of tax			—				—				—				—				—				—				(11	)			(11	)			(11	)
Foreign currency translation, net of tax			—				—				—				—				—				—				68				68				68
Comprehensive income			—				—				—				—				—				—				—				—			$	23,048
Balance at December 28, 2007			30,430,551			$	3			$	252,618			$	138,618				(33,238	)		$	(1,034	)		$	187			$	390,392

See accompanying notes to condensed consolidated financial statements.

VIASAT, INC.

Note 1 — Basis of Presentation

     The accompanying condensed consolidated balance sheet at December 28, 2007, the condensed consolidated statements of operations for the three and nine months ended December 28, 2007 and December 29, 2006, the condensed consolidated statements of cash flows for the nine months ended December 28, 2007 and December 29, 2006, and the condensed consolidated statement of stockholders’ equity for the nine months ended December 28, 2007 have been prepared by the management of ViaSat, Inc. (the “Company”), and have not been audited. These financial statements have been prepared on the same basis as the audited consolidated financial statements for the year ended March 30, 2007 and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the financial position, results of operations and cash flows for all periods presented. These financial statements should be read in conjunction with the financial statements and notes thereto for the year ended March 30, 2007 included in the Company’s 2007 Annual Report on Form 10-K. Interim operating results are not necessarily indicative of operating results for the full year. The year-end condensed balance sheet data were derived from audited financial statements, but do not include all disclosures required by accounting principles generally accepted in the United States of America.

     The Company’s consolidated financial statements include the assets, liabilities and results of operations of TrellisWare Technologies, Inc., a majority owned subsidiary of the Company. 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 2008 refer to the fiscal year ending on March 28, 2008. The Company’s quarters for fiscal year 2008 end on June 29, 2007, September 28, 2007, December 28, 2007 and March 28, 2008.

     During fiscal year 2007, the Company completed the acquisitions of Enerdyne Technologies, Inc. (Enerdyne) and Intelligent Compression Technologies, Inc. (ICT). During the Company’s second quarter of fiscal year 2008, the Company completed the acquisition of JAST, S.A., a Switzerland based, privately-held company (see Note 12). The acquisitions were accounted for as purchases and accordingly, the condensed consolidated financial statements include the operating results of Enerdyne, ICT and JAST from the dates of acquisition.

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Estimates have been prepared on the basis of the most current and best available information and actual results could differ from those estimates. Significant estimates made by management include revenue recognition, stock-based compensation, self-insurance reserves, allowance for doubtful accounts, warranty accrual, valuation of goodwill and other intangible assets, valuation of derivatives, long-lived assets and valuation allowance on deferred tax assets.

Marketable Securities

     The Company accounts for marketable securities in accordance with Statement of Financial Accounting Standards (SFAS) No. 115 (SFAS 115), “Accounting for Certain Investments in Debt and Equity Securities.” The Company determines the appropriate classification of all marketable securities as held-to-maturity, available-for-sale or trading at the time of purchase and re-evaluates such classification as of each balance sheet date. At December 28, 2007, marketable securities consisted primarily of commercial paper with original maturities greater than 90 days at the date of purchase but less than one year. At December 28, 2007 and March 30, 2007, all marketable securities were classified as held-to-maturity and recorded at amortized cost as the Company had the intent and ability to hold the securities to maturity. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts from the date of purchase to maturity. Such amortization is included in interest income (expense) as an addition to or deduction from the coupon interest earned on the investments. The amortized cost of the Company’s marketable securities approximated fair value at December 28, 2007 and March 30, 2007.

     The Company regularly monitors and evaluates the realizable value of its marketable securities. When assessing marketable securities for other-than-temporary declines in value, the Company considers factors including: how significant the decline in value is as a percentage of the original cost, how long the market value of the investment has been less than its original cost, the performance of the investee’s stock price in relation to the stock price of its competitors within the industry, expected market volatility and the

VIASAT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

market in general, any news or financial information that has been released specific to the investee and the outlook for the overall industry in which the investee operates. If events and circumstances indicate that a decline in the value of these assets has occurred and is other-than-temporary, the Company records a charge to interest income (expense). No such charges were incurred in the nine months ended December 28, 2007.

Derivatives

     The Company enters into foreign currency forward and option contracts 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 interest income (expense) as gains (losses) on derivative instruments. Gains and losses arising from the effective portion of foreign currency forward and option contracts that 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.

Payables to Former Stockholders of Acquired Businesses

     On May 23, 2006, in connection with the Company’s Efficient Channel Coding, Inc. (ECC) acquisition, the Company agreed under the terms of the ECC acquisition agreement to pay the maximum additional consideration amount to the former ECC stockholders in the amount of $9.0 million which was accrued as of March 30, 2007. The $9.0 million was payable in cash or stock, at the Company’s option, in May 2007. Accordingly, on May 30, 2007, the Company paid approximately $9.0 million of additional cash consideration to the former stockholders of ECC. The additional purchase price consideration of $9.0 million was recorded as additional goodwill in the Satellite Networks product group in the commercial segment in the first quarter of fiscal year 2007.

     As of March 30, 2007, in connection with the Company’s Enerdyne acquisition and under the terms of the Enerdyne acquisition agreement, the Company owed an additional consideration amount to the former Enerdyne stockholders in the amount of $5.9 million which was accrued and recorded as additional goodwill in the government segment as of March 30, 2007. The $5.9 million was payable in cash and stock in accordance with certain terms of the agreement, in May 2007. Accordingly, on May 3, 2007, the Company paid $5.9 million of additional consideration to the former stockholders of Enerdyne, which was comprised of 170,763 shares of common stock and $260,000 in cash.

     On August 2, 2007, in connection with the terms of the Company’s JAST acquisition, the Company has an obligation to pay the remaining portion of the initial purchase price of approximately $800,000 on the first anniversary of the closing date of which $483,000 will be paid in cash and $317,000 will be paid in stock or cash, at the Company’s election. The $800,000 payable was accrued in current liabilities as of December 28, 2007.

Land Held-for-Sale

     In January 2006, the Company purchased approximately 10 acres of land adjacent to a leased facility for approximately $3.1 million. During the first quarter of fiscal year 2007, the Company signed a property listing agreement with the intention to sell the property. As of December 28, 2007, the Company reported the property in accordance with SFAS No. 144 (SFAS 144), “Accounting for the Impairment or Disposal of Long-Lived Assets,” as an asset held-for-sale at the lower of carrying value or fair value, less estimated costs to sell, which is estimated to be $3.1 million.

Self-Insurance Liabilities

     The Company has a self-insurance plan to retain a portion of the exposure for losses related to employee medical benefits. The Company also has a self-insurance plan for a portion of the exposure for losses related to workers’ compensation costs. The self-insured policies provide for both specific and aggregate stop-loss limits. The Company utilizes internal actuarial methods, as well as an independent third-party actuary for the purpose of estimating ultimate costs for a particular policy year. Based on these actuarial methods along with currently available information and insurance industry statistics, the Company recorded self-insurance liabilities as of December 28, 2007 and March 30, 2007 of $1.1 million and $883,000, 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 current in accordance with the estimated timing of the projected payments.

VIASAT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Secured Borrowings

     Occasionally, the Company enters into secured borrowing arrangements in connection with customer financing in order to provide additional sources of funding. As of December 28, 2007 and March 30, 2007, the Company had one secured borrowing arrangement, under which the Company pledged a note receivable from a customer to serve as collateral for the obligation under the borrowing arrangement. The arrangement includes recourse to certain other assets of the Company in the event of customer default on the note receivable. No significant guarantees beyond the recourse provision exist. Payments under the arrangement consist of semi-annual principal payments of $590,000 plus accrued interest for five years with the first semi-annual payment being interest only. The interest rate resets semi-annually to the current LIBOR rate plus a margin of 2.5%. This secured borrowing arrangement does not qualify as a sale of assets under SFAS No. 140 (SFAS 140), “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities,” as the Company has continued involvement related to the recourse provision.

     During the third quarter of fiscal year 2008, due to a payment default, the Company wrote-down the note receivable by approximately $5.3 million related to the principal and interest accrued to date. Pursuant to a notes receivable insurance arrangement which provides for the recovery of principal and certain interest amounts of the note, the Company recorded a current asset of approximately $4.5 million as of December 28, 2007. As of December 28, 2007, the Company had $5.1 million of the secured borrowing recorded under accrued liabilities with a carrying value approximating the balance of the secured borrowing. As of March 30, 2007, the Company had $590,000 of the secured borrowing recorded under accrued liabilities and $4.1 million recorded under other long-term liabilities with a carrying value approximating the balance of the secured borrowing.

Indemnification Provisions

     In the ordinary course of business, the Company includes indemnification provisions within 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 intellectual property indemnity. Historically, to date, there have not been any 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 the Company indemnifies, 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, 2007 and March 30, 2007, no such amounts were accrued.

Treasury Stock

     During the third quarter of fiscal year 2008, the Company delivered 94,165 shares of common stock 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 delivery of common stock underlying these restricted stock unit agreements, the Company repurchased 33,238 shares of common stock with a total value of $1.0 million in the first nine months of fiscal year 2008. There was no common stock held in treasury as of March 30, 2007.

Stock-Based Compensation

     The Company records compensation expense associated with stock options, restricted stock unit awards and other equity based compensation in accordance with SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS 123R), which the Company adopted on April 1, 2006. The Company recognizes these compensation costs on a straight-line basis over the requisite service period of the award. The Company recognized $1.9 million and $5.6 million of stock-based compensation expense related to the adoption of SFAS 123R for the three and nine months ended December 28, 2007, respectively, and $1.6 million and $2.4 million for the three and nine months ended December 29, 2006, respectively.

     The Company recorded incremental tax benefits from stock options exercised and restricted stock unit award vesting of $934,000 and $1.2 million for the nine months ended December 28, 2007 and December 29, 2006, respectively, which is classified as part of cash flows from financing activities in the condensed consolidated statements of cash flows. At December 28, 2007, the total unrecognized estimated compensation cost net of estimated forfeitures related to unvested stock options and restricted stock units, and the employee stock purchase plan was approximately $9.4 million, $6.8 million and $0, respectively. These costs are expected to be recognized over a weighted average period of 2.7 years, 2.8 years and 0 years, respectively.

VIASAT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Review of Stock Option Grant Procedures

     In August 2006, the Company commenced and completed a voluntary internal investigation, assisted by the Company’s outside legal counsel, of its historical stock option granting practices, stock option documentation and related accounting during the period from its initial public offering in December 1996 through June 30, 2006. At the conclusion of its investigation, the Company’s outside legal counsel and the Company determined that there was no evidence of a pattern of intentionally misdating stock option grants to achieve an accounting result, or that any officer, director, or senior executive at the Company willfully or knowingly engaged in stock options misdating, or had knowledge of others doing so.

     During the investigation, the Company identified certain accounting errors associated with stock options granted primarily to certain non-executive new hire employees during the ten-year period from December 1996 to June 30, 2006. Based on the results of the investigation, the Company identified that certain stock options to non-executive new hires had incorrectly been accounted for using an accounting measurement date prior to the date that the new hires commenced employment. The Company concluded, with the concurrence of the Audit Committee, that the financial impact of these errors was not material to its consolidated financial statements for any annual period in which the errors related. In accordance with Accounting Principles Board Opinion No. 28, “Interim Financial Reporting,” paragraph 29, the Company recorded a cumulative adjustment to compensation expense in the first quarter of fiscal year 2007 of $703,000, net of tax, because the effect of the correcting adjustment was not material to the Company’s fiscal year 2007 net income. This non-cash compensation expense adjustment will have no impact on future periods. There is no impact on revenue or net cash provided by operating activities as a result of recording the compensation expense adjustment.

Income Taxes

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

Recent Accounting Pronouncements

     In September 2006, the FASB issued Statement No. 157 (SFAS 157), “Fair Value Measurements.” SFAS 157 defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 (fiscal year 2009 for the Company), and interim periods within those fiscal years. The Company is currently assessing the impact SFAS 157 will have on its results of operations and financial position.

     In February 2007, the FASB issued Statement No. 159 (SFAS 159), “The Fair Value Option for Financial Assets and Financial Liabilities,” which permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS 159 will be effective for the Company in fiscal year 2009. The Company is currently evaluating the impact of adopting SFAS 159 on its financial position, cash flows, and results of operations.

     In June 2007, the FASB ratified Emerging Issues Task Force (EITF) Issue No. 07-3 (EITF 07-3), “Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities.” This issue provides that nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities should be deferred and capitalized. Such amounts should be recognized as an expense as the related goods are delivered or the related services are performed. EITF 07-3 is effective for the Company’s fiscal year 2009. The adoption of EITF Issue No. 07-3 is not expected to have a material impact on the Company’s consolidated financial position, results of operations and cash flows.

     In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (SFAS 141R). The purpose of issuing the statement is to replace current guidance in SFAS 141 to better represent the economic value of a business combination transaction. The changes to be effected with SFAS 141R from the current guidance include, but are not limited to: (1) acquisition costs will be recognized as expenses separately from the acquisition; (2) known contractual contingencies at the time of the acquisition will be considered part of the liabilities acquired measured at their fair value; all other contingencies will be part of the liabilities acquired measured at their fair value only if it is more likely than not that they meet the definition of a liability; (3) contingent consideration

VIASAT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

based on the outcome of future events will be recognized and measured at the time of the acquisition; (4) business combinations achieved in stages (step acquisitions) will need to recognize the identifiable assets and liabilities, as well as non-controlling interests, in the acquiree, at the full amounts of their fair values; and (5) a bargain purchase (defined as a business combination in which the total acquisition-date fair value of the identifiable net assets acquired exceeds the fair value of the consideration transferred plus any non-controlling interest in the acquiree) will require that excess to be recognized as a gain attributable to the acquirer. SFAS 141R will be effective for the Company in fiscal year 2010. The Company is currently evaluating the impact of SFAS 141R.

     In December 2007, the FASB issued SFAS No. 160 (SFAS 160), “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51.” SFAS 160, which changes the accounting and reporting for business acquisitions and non-controlling interests in subsidiaries, was issued to improve the relevance, comparability, and transparency of financial information provided to investors. Moreover, SFAS 160 eliminates the diversity that currently exists in accounting for transactions between an entity and non-controlling interests by requiring they be treated as equity transactions. SFAS 160 will be effective for the Company in fiscal year 2010. The Company is currently evaluating the impact that SFAS 160 will have on its financial statements and disclosures.

Note 2 — Revenue Recognition

     A substantial portion of the Company’s revenues are derived from long-term contracts requiring development and delivery of complex equipment built to customer specifications. Sales related to long-term contracts are accounted for under the percentage-of-completion method of accounting under the American Institute of Certified Public Accountants’ Statement of Position 81-1 (SOP 81-1), “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” Sales and earnings under these contracts are recorded either based on the ratio of actual costs incurred 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, 2007 and December 29, 2006, the Company recorded losses of approximately $3.0 million and $1.1 million, respectively, related to loss contracts. During the nine months ended December 28, 2007 and December 29, 2006, the Company recorded losses of approximately $6.5 million and $2.4 million, respectively, related to loss contracts.

     The Company also has contracts and purchase orders where revenue is recorded on delivery of products in accordance with SAB 104, “Staff Accounting Bulletin No. 104: Revenue Recognition.” In this situation, contracts and customer purchase orders are used to determine the existence of an arrangement. Shipping documents and customer acceptance, when applicable, are used to verify delivery. The Company assesses whether the sales price is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment, and assesses collectibility based primarily on the creditworthiness of the customer as determined by credit checks and analysis, as well as the customer’s payment history.

     When a sale involves multiple elements, such as sales of products that include services, the entire fee from the arrangement is allocated to each respective element based on its relative fair value in accordance with EITF 00-21, “Accounting for Multiple Element Revenue Arrangements” and recognized when the applicable revenue recognition criteria for each element are met. The amount of product and service revenue recognized is impacted by the Company’s judgments as to whether an arrangement includes multiple elements and, if so, whether sufficient objective and reliable evidence of fair value exists for those elements. Changes to the elements in an arrangement and the Company’s ability to establish evidence for those elements could affect the timing of the revenue recognition.

     In accordance with EITF 00-10, “Accounting for Shipping and Handling Fees and Costs,” the Company records shipping and handling costs billed to customers as a component of revenues, and shipping and handling costs incurred by the Company for inbound and outbound freight are recorded as a component of cost of revenues.

     Collections in excess of revenues represent cash collected from customers in advance of revenue recognition.

     Contract costs on U.S. government contracts, including indirect costs, are subject to audit and negotiations with U.S. government representatives. These audits have been completed and agreed upon through fiscal year 2002. Contract revenues and accounts receivable are stated at amounts which are expected to be realized upon final settlement.

VIASAT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 3 — Earnings Per Share

     Potential common stock of 2,119,581 and 2,085,677 shares for the three months ended December 28, 2007 and December 29, 2006, respectively, and 2,145,112 and 2,069,757 shares for the nine months ended December 28, 2007 and December 29, 2006, respectively, were included in the calculation of diluted earnings per share. Antidilutive shares excluded from the calculation were 995,948 and 810,974 shares for the three months ended December 28, 2007 and December 29, 2006, respectively and 931,453 and 398,407 shares for the nine months ended December 28, 2007 and December 29, 2006, respectively. Potential common stock includes options granted and restricted stock units awarded under the Company’s equity compensation plan which are included in the earnings per share calculations using the treasury stock method and common shares expected to be issued under the Company’s employee stock purchase plan.

VIASAT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 4 — Composition of Certain Balance Sheet Captions (In thousands)

		December 28, 2007				March 30, 2007
Accounts receivable, net:
Billed		$	92,711			$	89,645
Unbilled			55,844				51,358
Allowance for doubtful accounts			(1,199	)			(1,214	)
		$	147,356			$	139,789
Inventories:
Raw materials		$	21,939			$	19,840
Work in process			8,680				7,963
Finished goods			25,752				18,231
		$	56,371			$	46,034
Prepaid expenses and other current assets:
Prepaid expenses		$	12,064			$	8,339
Income tax receivable			2,978				—
Other			5,865				879
		$	20,907			$	9,218
Other intangible assets, net:
Technology		$	44,392			$	43,270
Contracts and relationships			19,758				18,766
Non-compete agreement			9,076				8,920
Other intangibles			9,323				9,295
			82,549				80,251
Less accumulated amortization			(53,823	)			(46,650	)
		$	28,726			$	33,601
Property and equipment, net:
Machinery and equipment		$	48,906			$	48,439
Computer equipment and software			41,754				36,936
Furniture and fixtures			8,220				7,552
Leasehold improvements			12,885				12,983
Land held-for-sale			3,124				3,124
Construction in progress			3,422				2,440
			118,311				111,474
Less accumulated depreciation and amortization			(64,018	)			(60,011	)
		$	54,293			$	51,463
Other assets:
Capitalized software costs, net		$	1,713			$	3,576
Deferred income taxes			11,298				13,328
Other			6,733				7,829
		$	19,744			$	24,733
Accrued liabilities:
Secured borrowings and accrued interest		$	5,111			$	590
Current portion of warranty reserve			6,012				5,007
Accrued vacation			8,474				7,958
Accrued wages and performance compensation			9,866				10,678
Collections in excess of revenues			39,409				28,030
Other			10,638				10,207
		$	79,510			$	62,470
Other liabilities:
Unrecognized tax position liabilities		$	6,760			$	—
Accrued warranty			5,641				4,856
Deferred rent, long-term portion			3,874				3,514
Secured borrowing, long-term portion			—				4,130
Other			1,089				773
		$	17,364			$	13,273

VIASAT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 5 — Accounting for Goodwill and Intangible Assets

     The Company accounts for its goodwill under SFAS No. 142 (SFAS 142), “Goodwill and Other Intangible Assets.” The SFAS 142 goodwill impairment model is a two-step process. First, it requires a comparison of the book value of net assets to the fair value of the reporting units that have goodwill assigned to them. Reporting units within the Company’s government and commercial segments have goodwill assigned to them. The Company estimates the fair values of the reporting units using discounted cash flows. The cash flow forecasts are adjusted by an appropriate discount rate. If the fair value is determined to be less than book value, a second step is performed to compute the amount of the impairment. In this process, a fair value for goodwill is estimated, based in part on the fair value of the operations used in the first step, and is compared to its carrying value. The shortfall of the fair value below carrying value represents the amount of goodwill impairment.

     The Company will continue to make assessments of impairment on an annual basis in the fourth quarter of its fiscal year or more frequently if specific triggering events occur. In assessing the value of goodwill, the Company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the reporting units. If these estimates or their related assumptions change in the future, the Company may be required to record impairment charges that would negatively impact operating results.

     The intangible assets are amortized using the straight-line method over their estimated useful lives of eight months to ten years. The technology intangible asset has several components with estimated useful lives of five to nine years, the contracts and relationships intangible asset has several components with estimated useful lives of three to ten years, the non-compete agreements have useful lives of three to five years and other amortizable assets have several components with original estimated useful lives of eight months to ten years. The amortization expense was $2.4 million and $2.5 million for the three months ended December 28, 2007 and December 29, 2006, respectively, and $7.2 million for the nine months ended December 28, 2007 and December 29, 2006.

     The current and expected amortization expense for each of the following periods is as follows (in thousands):

		Amortization
For the nine months ended December 28, 2007		$	7,173
Expected for the remainder of fiscal year 2008		$	2,389
Expected for fiscal year 2009			9,020
Expected for fiscal year 2010			5,787
Expected for fiscal year 2011			5,024
Expected for fiscal year 2012			3,798
Thereafter			2,708
		$	28,726

Note 6 — Notes Payable and Line of Credit

     On January 31, 2005, the Company entered into a three-year, $60 million revolving credit facility (the “Facility”) in the form of a Second Amended and Restated Revolving Loan Agreement. On January 25, 2008, the Company amended the Second Amended and Restated Revolving Loan Agreement extending the Facility’s current terms and conditions to April 30, 2008.

     Borrowings under the Facility are permitted up to a maximum amount of $60 million, including up to $15 million of letters of credit. Borrowings under the Facility bear interest, at the Company’s option, at either the lender’s prime rate or at LIBOR (London Interbank Offered Rate) plus, in each case, an applicable margin based on the ratio of the Company’s total funded debt to EBITDA (income from operations plus depreciation and amortization). The Facility is collateralized by substantially all of the Company’s personal property assets. At December 28, 2007, the Company had approximately $8.2 million outstanding under standby letters of credit leaving borrowing availability under the Facility of $51.8 million.

     The Facility contains financial covenants that set a minimum EBITDA limit for the twelve-month period ending on the last day of any fiscal quarter at $30.0 million, a minimum tangible net worth as of the last day of any fiscal quarter at $135.0 million and a minimum quick ratio (sum of cash and cash equivalents, accounts receivable and marketable securities, divided by current liabilities) as of the last day of any fiscal quarter at 1.50 to 1.00. The Company was in compliance with its loan covenants at December 28, 2007.

VIASAT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 7 — Product Warranty

     The Company provides limited warranties on most of its products for periods of up to five years. The Company records a liability for its warranty obligations when products are shipped 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 costs, the Company bases its estimates on its experience with the technology involved and the types 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, 2007 and December 29, 2006 (in thousands).

		For the nine months ended
		December 28, 2007				December 29, 2006
Balance, beginning of period		$	9,863			$	8,369
Change in liability for warranties issued in period			5,900				5,207
Settlements made (in cash or in kind) during the period			(4,110	)			(3,408	)
Balance, end of period		$	11,653			$	10,168

Note 8 – Commitments, Contingencies

     The Company is a party to various claims and legal actions arising in the normal course of business. Although the ultimate outcome of such matters is not presently determinable, the Company believes that the resolution of all such matters, net of amounts accrued, will not have a material adverse effect on its financial position or liquidity; however, there can be no assurance that the ultimate resolution of these matters will not have a material impact on its results of operations in any period.

Note 9 — Derivatives

     During the three months ended December 28, 2007, the Company settled certain foreign exchange contracts recognizing a gain of approximately $205,000, recorded as cost of revenues based on the nature of the underlying transaction. During the nine months ended December 28, 2007, the Company entered into a foreign currency exchange contract intended to reduce the foreign currency risk for amounts payable to vendors in Euros which have a maturity of less than six months. The fair value of the outstanding foreign currency contract was approximately $11,000 and was recorded as a liability as of December 28, 2007. The Company had $1.4 million and $0 of notional value of foreign currency forward contracts outstanding as of December 28, 2007 and March 30, 2007, respectively. During the three months ended December 29, 2006, the Company settled certain foreign exchange contracts recognizing a gain of $7,000 recorded as cost of revenues based on the nature of the underlying transaction. During the nine months ended December 29, 2006, the Company settled certain foreign contracts recognizing a loss of $130,000 recorded as a cost of revenues based on the nature of the underlying transaction.

Note 10 — Income Taxes

     The effective income tax rate for the three and nine months ended December 28, 2007 was 30.4% and 29.1%, respectively, compared to the 18.2% annual effective tax rate for the fiscal year ended March 30, 2007, reflecting the December 31, 2007 expiration of the federal research and development tax credit. The estimated tax rate is different from the expected statutory rate due primarily to research and development tax credits and the manufacturing deduction.

     The Company’s estimated effective tax rate of 28.4% for fiscal year 2008 reflects the expiration of the federal research and development tax credit at December 31, 2007. If the federal research and development tax credit is reinstated, the Company will have a lower effective tax rate. In the event the federal research and development tax credit is reinstated, the amount of the reduction in the Company’s tax rate will depend on the effective date and terms of the reinstatement, as well as the amount of eligible research and development expenses in the reinstated period.

     In 2006, the FASB issued Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109,” which clarifies the accounting for uncertainty in tax positions. The Company adopted FIN 48 on March 31, 2007 and recognized a cumulative-effect adjustment of $342,000, decreasing beginning retained earnings. The Company also recorded unrecognized tax position liabilities of approximately $6.8 million that were previously offset against deferred tax assets.

VIASAT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

     As of the beginning of fiscal year 2008, the total gross amount of unrecognized tax benefits was $28.8 million. Of that amount, $19.9 million, if recognized, would affect the Company’s effective tax rate. For the three and nine months ended December 28, 2007, the Company’s gross unrecognized tax benefits increased by $1.2 million and $2.6 million, respectively. The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense. Prior to the adoption of FIN 48, the Company had recognized interest expense related to income tax matters as a component of interest expense. The gross amount of interest and penalties accrued as of the beginning of fiscal year 2008 was $892,000.

     The Company is subject to periodic audits by domestic and foreign tax authorities. The Internal Revenue Service (“IRS”) examination of the Company’s U.S. federal tax returns for fiscal years 2001-2004 was completed in the fourth quarter of fiscal year 2006 and agreement was reached with the IRS on the proposed adjustments. There was no material impact on income taxes or interest resulting from these audits and the Company considers those fiscal years to be effectively settled under FIN 48. By statute, the Company’s U.S. federal returns are subject to examination by the IRS for fiscal years 2005 through 2007. Additionally, tax credit carryovers that were generated in prior years and utilized in these years may also be subject to examination by the IRS. In July 2007, the Company was notified by the IRS of its intention to examine the Company’s fiscal year 2006 federal income tax return. With few exceptions, the fiscal years 2003 to 2007 remain open to examination by state and foreign taxing jurisdictions. The Company believes that it has appropriate support for the income tax positions taken and to be taken on its tax returns and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors, including past experience and interpretations of tax law applied to the facts of each matter. In the next twelve months it is reasonably possible that the amount of unrecognized tax benefits will decrease by $972,000 as a result of the expiration of the statute of limitations for previously filed tax returns.

Note 11 — Segment Information

     The Company’s commercial and government segments are primarily distinguished by the type of customer and the related contractual requirements. The more regulated government environment is subject to unique contractual requirements and possesses economic characteristics which differ from the commercial segment. Therefore, the Company is organized primarily on the basis of products with commercial and government (defense) communication applications. These product groups are distinguished from one another based upon their underlying technologies.  During the third quarter of fiscal year 2008, the Company made management and organization structure changes due to a shift in product marketing and development strategies and consequently realigned the way management organizes and evaluates financial information internally for making operating decisions and assessing performance in the Satellite Networks and Government reportable segments. Reporting segments are determined consistent with the way management currently organizes and evaluates financial information internally for making operating decisions and assessing performance. The following segment information, including prior periods, recasts this new organizational and reporting structure:

		Three months ended								Nine months ended
		December 28,				December 29,				December 28,				December 29,
(in thousands)		2007				2006				2007				2006
Revenues
Government		$	84,943			$	69,045			$	235,425			$	207,340
Commercial
Satellite Networks			52,234				46,821				152,420				147,948
Antenna Systems			14,876				8,470				39,395				29,250
			67,110				55,291				191,815				177,198
Elimination of intersegment revenues			—				—				—				—
Total revenues			152,053				124,336				427,240				384,538
Operating profits (losses)
Government			15,610				8,786				33,656				33,691
Commercial
Satellite Networks			(85	)			1,980				771				(54	)
Antenna Systems			1,345				(41	)			3,013				(607	)
			1,260				1,939				3,784				(661	)
Elimination of intersegment operating profits			56				—				56				—
Segment operating profit before corporate and amortization			16,926				10,725				37,496				33,030
Corporate			(40	)			(21	)			(296	)			59
Amortization of intangible assets			(2,389	)			(2,521	)			(7,173	)			(7,202	)
Income from operations		$	14,497			$	8,183			$	30,027			$	25,887

VIASAT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Amortization of intangibles by segment for the three and nine months ended December 28, 2007 and December 29, 2006 is as follows:

		Three months ended								Nine months ended
		December 28,				December 29,				December 28,				December 29,
(in thousands)		2007				2006				2007				2006
Government		$	272			$	703			$	815			$	1,497
Commercial
Satellite Networks			1,799				1,654				5,609				5,213
Antenna Systems			318				164				749				492
Total amortization of intangibles		$	2,389			$	2,521			$	7,173			$	7,202

Assets identifiable to segments include: accounts receivable, unbilled accounts receivable, inventory, intangible assets and goodwill. Segment assets as of December 28, 2007 and March 30, 2007 are as follows:

(in thousands)		December 28, 2007				March 30, 2007
Segment assets
Government		$	133,398			$	114,625
Commercial
Satellite Networks			141,739				148,526
Antenna Systems			24,707				22,704
			166,446				171,230
Corporate assets			243,610				198,084
Total		$	543,454			$	483,939

The management and organization structure changes in the third quarter of fiscal year 2008 resulted in reclassifications of approximately $5.9 million of goodwill for December 28, 2007 and March 30, 2007, and $299,000 and $345,000 of net intangible assets for December 28, 2007 and March 30, 2007, respectively, from the Satellite Networks segment to the Government segment. Net intangible assets and goodwill included in segment assets as of December 28, 2007 and March 30, 2007 are as follows:

		Net intangible assets								Goodwill
		December 28,				March 30,				December 28,				March 30,
(in thousands)		2007				2007				2007				2007
Government		$	4,152			$	4,967			$	21,993			$	21,993
Commercial
Satellite Networks			21,666				27,275				40,367				40,367
Antenna Systems			2,908				1,359				4,850				3,628
Total		$	28,726			$	33,601			$	67,210			$	65,988

Revenue information by geographic area for the three and nine month periods ended December 28, 2007 and December 29, 2006 is as follows:

		Three months ended								Nine months ended
		December 28,				December 29,				December 28,				December 29,
(in thousands)		2007				2006				2007				2006
United States		$	125,164			$	102,885			$	349,196			$	326,554
Asia Pacific			5,548				3,316				21,074				14,818
Europe/Africa			11,197				8,919				30,184				27,047
North America other than United States			9,067				3,568				22,901				9,179
Latin America			1,077				5,648				3,885				6,940
		$	152,053			$	124,336			$	427,240			$	384,538

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

     The net book value of long-lived assets located outside the United States was $399,000 at December 28, 2007 and $313,000 at March 30, 2007.

Note 12 — Acquisition

     On August 2, 2007, the Company completed the acquisition of all of the outstanding capital stock of JAST, S.A., a Switzerland based, privately-held developer of microwave circuits and antennas for terrestrial and satellite applications, specializing in small, low-profile antennas for mobile satellite communications. The initial purchase price of approximately $2.1 million was comprised

VIASAT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

primarily of $452,000 related to the fair value of 14,424 shares of the Company’s common stock issued at the closing date, $748,000 in cash consideration, the issuance of an $800,000 payable, and approximately $125,000 in direct acquisition costs. The $748,000 in cash consideration paid to the former JAST stockholders plus approximately $125,000 in direct acquisition costs less cash acquired of $22,000 resulted in a net cash outlay of approximately $851,000 as of September 28, 2007. The remaining $800,000 is payable on the first anniversary of the closing date, of which $483,000 will be paid in cash and $317,000 will be paid in stock or cash, at the Company’s election. Under the terms of the purchase agreement, up to an additional $4.5 million in consideration is payable in stock and/or cash, at the Company’s option, based on JAST achieving certain earnings performance and technology development targets during the two years following closing. No portion of this additional consideration is guaranteed. The additional consideration, if earned, is payable after JAST achieves specified earnings performance and technology development targets and will be recorded as additional purchase price.

     The preliminary allocation of purchase price of the acquired assets and assumed liabilities based on the estimated fair values is as follows:

		August 2, 2007
		(In thousands)
Current assets		$	169
Identifiable intangible assets			2,298
Goodwill			1,222
Total assets acquired			3,689
Liabilities assumed			(1,564	)
Total purchase price		$	2,125

     Amounts assigned to other intangible assets are being amortized on a straight-line basis over their estimated useful lives ranging from two to five years and are as follows:

		(In thousands)
Technology (3 year weighted average life)		$	1,122
Customer relationships (5 year weighted average life)			992
Non-compete agreements (5 year weighted average life)			156
Backlog (2 year weighted average life)			28
Total identifiable intangible assets		$	2,298

     The acquisition of JAST is beneficial to the Company because it adds complementary technologies and provides additional business opportunities, namely microwave circuits and antennas for terrestrial and satellite applications and small, low-profile antennas for mobile satellite communications. The benefit of these products can be offered to many of the Company’s consumer, enterprise or government customers. These benefits and additional opportunities were among the factors that contributed to a purchase price resulting in the recognition of goodwill which has been recorded within Antenna Systems product group in the commercial segment. The intangible assets and goodwill recognized will not be deductible for federal income tax purposes. The purchase price is preliminary due to resolution of certain tax and contractual matters.

     The condensed consolidated financial statements include the operating results of JAST from the date of acquisition in the Company’s Antenna Systems product group in the commercial segment. Pro forma results of operations have not been presented because the effect of the acquisition was insignificant to the financial statements for all periods presented.

Note 13 – Subsequent Event

     In January 2008, the Company entered into several agreements with Space Systems/Loral (SS/L), Loral Space & Communications (Loral) and Telesat Canada (Telesat) related to the Company’s high capacity satellite system. Under the satellite construction contract with SS/L, the Company will purchase a Ka-band satellite (ViaSat-1) for approximately $209.1 million, subject to purchase price adjustments based on satellite performance. The Company does not believe the purchase price paid by ViaSat to SS/L for the ViaSat-1 satellite will materially change. In addition, the Company entered into a beam sharing agreement with Loral (“Beam Sharing Agreement”), whereby Loral is responsible for contributing 15% of the total costs (estimated at approximately $60 million) associated with the ViaSat-1 satellite project. As part of this arrangement, Loral executed a separate contract with SS/L whereby Loral is purchasing the Canadian beams on the ViaSat-1 satellite (Loral Beams) for approximately $36.9 million (15% of the total satellite cost of $246.0 million). In addition, Loral remains responsible under the Beam Sharing Agreement to reimburse ViaSat for costs associated with

VIASAT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

launch, launch and in-orbit insurance, and operating the satellite. The reimbursed costs to ViaSat from Loral for launch and launch and the first year of in-orbit insurance are expected to be approximately $23.1 million. Further, under the terms of the Beam Sharing Agreement, ViaSat is appointed the sole and exclusive supplier of end-user broadband terminals and hub equipment for broadband service operated over the Loral Beams. The Company also entered into an agreement with Telesat, whereby Telesat has agreed to transfer certain orbital slot license rights to the Company for ViaSat-1 satellite operation.

     Michael Targoff, a director of the Company since February 2003, currently serves as the Chief Executive Officer and the Vice Chairman of the board of directors of Loral Space & Communications, Inc., the parent of Space Systems/Loral, Inc. John Stenbit, a director of the Company since August 2004, also currently serves on the board of directors of Loral Space & Communications, Inc. The purchase of the ViaSat-1 satellite by the Company from SS/L was approved by the disinterested members of the Company’s Board of Directors.

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

     The following information should be read in conjunction with the condensed consolidated financial statements and the notes thereto included in Item 1 of this Quarterly Report and the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended March 30, 2007, filed with the Securities and Exchange Commission.

      Except for the historical information contained herein, the following discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results may differ substantially from those referred to herein due to a number of factors, including but not limited to risks described in the section entitled “Risk Factors” and elsewhere in this Quarterly Report.

General

     We are a leading provider of advanced digital satellite communications and other wireless and secure networking and signal processing equipment and services to the government and commercial markets. Our internal growth to date has historically been driven largely by our success in meeting the need for advanced communications products for our government and commercial customers. By developing cost-effective communications solutions incorporating our advanced technologies, we have continued to grow the markets for our products and services. Our goal is to leverage our advanced technology and capabilities to capture a considerable share of the global satellite communications equipment and services segment for both government and commercial customers. ViaSat was incorporated in 1986 and completed its initial public offering in 1996.

     Our company is organized principally in two segments: government and commercial. Our government business encompasses specialized products principally serving defense customers and includes:

	•		Data links, including multifunction information distribution system (MIDS) terminals, joint tactical radio systems (JTRS) development and unmanned vehicle technologies,
	•		Information security and assurance products and services, which enable military and government users to communicate secure information over secure and non-secure networks, and
	•		Government satellite communication systems and products, including UHF DAMA satellite communications products consisting of modems, terminals and network control systems, and innovative broadband solutions to government customers to increase available bandwidth using existing satellite capacity.

Serving government customers with cost-effective products and solutions continues to be a critical and core element of our overall business strategy.

     In recent years approximately one-half of our revenues has been generated from satellite based communications products and systems solutions to address commercial market needs. Our commercial business accounted for approximately 44% of our revenues in the three months ended December 28, 2007 and December 29, 2006, respectively, 45% and 46% of our revenues in the nine months ended December 28, 2007 and December 29, 2006, respectively, and 46% of our revenues in fiscal year 2007 and 51% of our revenues in fiscal year 2006.

     The commercial segment comprises two business product groups: satellite networks and antenna systems. Our commercial business offers an end-to-end capability to provide customers with a broad range of satellite communication and other wireless communications equipment solutions including:

	•		Consumer broadband products and solutions to customers based on DOCSIS and DVB-RCS based technologies,
	•		Mobile broadband products and systems for in-flight, maritime and ground mobile broadband applications,
	•		Enterprise VSAT networks products and services,
	•		Satellite networking systems design and technology development, and
	•		Antenna systems for commercial and defense applications and customers.

     With expertise in commercial satellite network engineering, gateway construction, and remote terminal manufacturing for all types of interactive communications services, we have the ability to take overall responsibility for designing, building, initially operating, and then handing over a fully operational, customized satellite network serving a variety of markets and applications.

     There are a number of large new business opportunities we are pursuing in fiscal year 2008. In the government segment, the opportunities include future MIDS LVT production orders, international MIDS LVT orders, new MIDS joint tactical radio system development and pre-production contracts, additional funding for current information assurance projects, new information assurance contracts using our HAIPE technology, and orders for our KG-250 and KG-255 products. In our commercial segment, the opportunities include development and production agreements for next generation consumer broadband systems, production orders for existing consumer and mobile broadband systems and equipment, and further penetration in the North American market for enterprise VSAT and antenna systems. The probability and timing of these orders is not entirely predictable, so our revenue may vary somewhat from quarter-to-quarter or even year-to-year.

     To date, our ability to grow and maintain our revenues has depended on our ability to identify and target markets where the customer places a high priority on the technology solution, and obtaining additional sizable contract awards from these customers. Due to the nature of this process, it is difficult to predict the probability and timing of obtaining awards in these markets.

     We expect that our capital needs for fiscal year 2008 will be similar to fiscal year 2007. In fiscal years 2006 and 2007, we initiated and completed facility expansion and modernization projects in Carlsbad, California and Gilbert, Arizona, as well as expanded our production test equipment and lab development equipment and information technology to meet customer program requirements and growth forecasts. In fiscal year 2008, we have additional facility projects under way in Carlsbad, California, as well as production test equipment and information technology projects to support our growth needs. Our facility needs have normally been met with long-term lease agreements, but we do anticipate additional tenant improvements over the next two fiscal years associated with our expansion. Additionally, as our employee base increases, the need for additional computers and other equipment will also increase.

     On August 2, 2007, we completed the acquisition of all of the outstanding capital stock of JAST, S.A., a Switzerland based, privately-held developer of microwave circuits and antennas for terrestrial and satellite applications, specializing in small, low-profile antennas for mobile satellite communications. The initial purchase price of approximately $2.1 million was comprised primarily of $452,000 related to the fair value of 14,424 shares of our common stock issued at the closing date, $748,000 in cash consideration, the issuance of an $800,000 payable, and approximately $125,000 in direct acquisition costs. The $748,000 in cash consideration paid to the former JAST stockholders plus approximately $125,000 in direct acquisition costs less cash acquired of $22,000 resulted in a net cash outlay of approximately $851,000. The remaining $800,000 is payable on the first anniversary of the closing date, of which $483,000 will be paid in cash and $317,000 will be paid in stock or cash, at our election. Under the terms of the purchase agreement, up to an additional $4.5 million in consideration is payable in stock and/or cash, at our option, based on JAST achieving certain earnings performance and technology development targets during the two years following closing. No portion of this additional consideration is guaranteed. The additional consideration, if earned, is payable after JAST achieves specified earnings performance and technology development targets and will be recorded as additional purchase price.

Subsequent Event

     In January 2008, the Company entered into several agreements with Space Systems/Loral (SS/L), Loral Space & Communications (Loral) and Telesat Canada (Telesat) related to the Company’s high capacity satellite system. Under the satellite construction contract with SS/L, the Company will purchase a Ka-band satellite (ViaSat-1) for approximately $209.1 million, subject to purchase price adjustment based on satellite performance. The Company does not believe the purchase price paid by ViaSat to SS/L for the ViaSat-1 satellite will materially change. In addition, the Company entered into a beam sharing agreement with Loral (Beam Sharing Agreement), whereby Loral is responsible for contributing 15% of the total costs (estimated at approximately $60.0 million) associated with the ViaSat-1 satellite project. As part of this arrangement, Loral executed a separate contract with SS/L whereby Loral is purchasing the Canadian beams on the ViaSat-1 satellite (Loral Beams) for approximately $36.9 million (15% of the total satellite cost of $246.0 million). In addition, Loral remains responsible under the Beam Sharing Agreement to reimburse ViaSat for costs associated with launch, launch and in-orbit insurance, and operating the satellite. The reimbursed costs to ViaSat from Loral for launch and launch and the first year of in-orbit insurance are expected to be approximately $23.1 million. Further, under the terms of the Beam Sharing Agreement, ViaSat is appointed the sole and exclusive supplier of end-user broadband terminals and hub equipment for broadband service operated over the Loral Beams. The Company also entered into an agreement with Telesat, whereby Telesat has agreed to transfer certain orbital slot license rights to the Company for ViaSat-1 satellite operation.

Critical Accounting Policies and Estimates

     Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We consider the policies discussed below to be critical to an understanding of our financial statements because their application places the most significant demands on management’s judgment, with financial reporting results relying on estimation about the effect of matters that are inherently uncertain. We describe the specific risks for these critical accounting policies in the following paragraphs. For all of these policies, we caution that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment.

Revenue recognition

     A substantial portion of our revenues are derived from long-term contracts requiring development and delivery of complex equipment built to customer specifications. Certain of these contracts are accounted for under the percentage-of-completion method of accounting under the American Institute of Certified Public Accountants’ Statement of Position 81-1 (SOP 81-1), “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” Sales and earnings under these contracts are recorded 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.

     The percentage-of-completion method of accounting requires management to estimate the profit margin for each individual contract and to apply that profit margin on a uniform basis as sales are recorded under the contract. The estimation of profit margins requires management to make projections of the total sales to be generated and the total costs that will be incurred under a contract. These projections require management to make numerous assumptions and estimates relating to items such as the complexity of design and related development costs, performance of subcontractors, availability and cost of materials, labor productivity and cost, overhead and capital costs, and manufacturing efficiency. These contracts often include purchase options for additional quantities and customer change orders for additional or revised product functionality. Purchase options and change orders are accounted for either as an integral part of the original contract or separately depending upon the nature and value of the item. Anticipated losses on contracts are recognized in full in the period in which losses become probable and estimable. During the three months ended December 28, 2007 and December 29, 2006, we recorded charges of approximately $3.0 million and $1.1 million, respectively, related to loss contracts. During the nine months ended December 28, 2007 and December 29, 2006, we recorded charges of approximately $6.5 million and $2.4 million, respectively, related to loss contracts.

     Assuming the initial estimates of sales and costs under a contract are accurate, the percentage-of-completion method results in the profit margin being recorded evenly as revenue is recognized under the contract. Changes in these underlying estimates due to revisions in sales and future cost estimates or the exercise of contract options may result in profit margins being recognized unevenly over a contract as such changes are accounted for on a cumulative basis in the period estimates are revised.

     We believe we have established appropriate systems and processes to enable us to reasonably estimate future cost on our programs through regular quarterly evaluations of contract costs, scheduling and technical matters by business unit personnel and management. Historically, in the aggregate, we have not experienced significant deviations in actual costs from estimated program costs, and when deviations that result in significant adjustments arise, we disclose the related impact in Management’s Discussion and Analysis. However, a significant change in future cost estimates on one or more programs could have a material effect on our results of operations. For example, a one percent variance in our future cost estimates on open fixed-price contracts as of December 28, 2007 would change our income before income taxes by approximately $400,000.

     We also have contracts and purchase orders where revenue is recorded on delivery of products in accordance with SAB 104, “Staff Accounting Bulletin No. 104 Revenue Recognition.” In this situation, contracts and customer purchase orders are used to determine the existence of an arrangement. Shipping documents and customer acceptance, when applicable, are used to verify delivery. We assess whether the sales price is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment, and assesses collectibility based primarily on the creditworthiness of the customer as determined by credit checks and analysis, as well as the customer’s payment history.

     When a sale involves multiple elements, such as sales of products that include services, the entire fee from the arrangement is allocated to each respective element based on its relative fair value in accordance with EITF, 00-21, “Accounting for Multiple Element Revenue Arrangements,” and recognized when the applicable revenue recognition criteria for each element are met. The amount of product and service revenue recognized is impacted by our judgments as to whether an arrangement includes multiple elements and, if so, what sufficient objective and reliable evidence of fair value exists for those elements. Changes to the elements in an arrangement and our ability to establish evidence for those elements could affect the timing of revenue recognition.

Accounting for Stock-Based Compensation

     We grant options to purchase our common stock and award restricted stock units to our employees and directors under our equity compensation plans. Eligible employees can also purchase shares of our common stock at 85% of the lower of the fair market value on the first or the last day of each six-month offering period under our employee stock purchase plan. The benefits provided under these plans are stock-based payments subject to the provisions of revised Statement of Financial Accounting Standards (SFAS) No. 123 (SFAS 123R), “Share-Based Payment.” Effective April 1, 2006, we use the fair value method to apply the provisions of SFAS 123R with a modified prospective application which provides for certain changes to the method for estimating the value of stock-based compensation. The valuation provisions of SFAS 123R apply to new awards and to awards that are outstanding on the effective date, which are subsequently modified or cancelled. Under the modified prospective application method, prior periods are not revised for comparative purposes. Stock-based compensation expense recognized under SFAS 123R for the three months ended December 28, 2007 and December 29, 2006 was $1.9 million and $1.6 million, respectively. Stock-based compensation expense recognized under SFAS 123R for the nine months ended December 28, 2007 and December 29, 2006 was $5.6 million and $2.4 million, respectively. At December 28, 2007, total unrecognized estimated compensation cost including estimated forfeitures related to non-vested stock options and restricted stock units granted prior to that date, and employee stock purchase plan was $9.4 million, $6.8 million and $0, respectively, which are expected to be recognized over a weighted-average period of 2.7 years, 2.8 years and 0 years, respectively.

Review of Stock Option Grant Procedures

     In August 2006, we commenced and completed a voluntary internal investigation, assisted by our outside legal counsel, of our historical stock option granting practices, stock option documentation and related accounting during the period from our initial public offering in December 1996 through June 30, 2006. At the conclusion of our investigation, our outside legal counsel and the company determined that there was no evidence of a pattern of intentionally misdating stock option grants to achieve an accounting result, or that any officer, director, or senior executive at the company willfully or knowingly engaged in stock options misdating, or had knowledge of others doing so.

     During the investigation, we identified certain accounting errors associated with stock options granted primarily to certain non-executive new hire employees during the ten-year period from December 1996 to June 30, 2006. Based on the results of the investigation, we identified that certain stock options to non-executive new hires had incorrectly been accounted for using an accounting measurement date prior to the date that the new hires commenced employment. We concluded, with the concurrence of the Audit Committee, that the financial impact of these errors was not material to our consolidated financial statements for any annual period in which the errors related. In accordance with Accounting Principles Board Opinion No. 28, “Interim Financial Reporting,” paragraph 29, we recorded a cumulative adjustment to compensation expense in the first quarter of fiscal year 2007 of $703,000, net

of tax, because the effect of the correcting adjustment was not material to our fiscal year 2007 net income. This non-cash compensation expense adjustment will have no impact on future periods. There is no impact on revenue or net cash provided by operating activities as a result of recording the compensation expense adjustment.

Allowance for doubtful accounts

     We make estimates of the collectibility of our accounts receivable based on historical bad debts, customer credit-worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. Historically, our bad debts have been minimal; a contributing factor to this is that a significant portion of our sales has been to the U.S. government. In recent years, commercial customers have comprised a larger part of our revenues. Our accounts receivable balance was $147.4 million, net of allowance for doubtful accounts of $1.2 million as of December 28, 2007, and our accounts receivable balance was $139.8 million, net of allowance for doubtful accounts of $1.2 million as of March 30, 2007.

Warranty reserves

     We provide limited warranties on a majority of our products for periods of up to five years. We record a liability for our warranty obligations when we ship the products based upon an estimate of expected warranty costs. We classify the amounts we expect to incur within twelve months as a current liability. For mature products, we estimate the warranty costs based on historical experience with the particular product. For newer products that do not have a history of warranty costs, we base our estimates on our experience with the technology involved and the types of failure that may occur. It is possible that our underlying assumptions will not reflect the actual experience, and in that case, we will make future adjustments to the recorded warranty obligation.

Goodwill and other intangible assets

     We account for our goodwill under SFAS No. 142 (SFAS 142) “Goodwill and Other Intangible Assets.” The SFAS 142 goodwill impairment model is a two-step process. First, it requires a comparison of the book value of net assets to the fair value of the reporting units that have goodwill assigned to them. If the fair value is determined to be less than book value, a second step is performed to compute the amount of the impairment. In this process, a fair value for goodwill is estimated, based in part on the fair value of the reporting unit used in the first step, and is compared to its carrying value. The shortfall of the value below carrying value represents the amount of goodwill impairment. We test goodwill for impairment during the fourth quarter every fiscal year, and when an event occurs or circumstances change such that it is reasonably possible that an impairment may exist.

     We estimate the fair values of the related operations using discounted cash flows and other indicators of fair value. We base the forecast of future cash flows on our best estimate of the future revenues and operating costs, which we derive primarily from existing firm orders, expected future orders, contracts with suppliers, labor agreements, and general market conditions. Changes in these forecasts could cause a particular reporting unit to either pass or fail the first step in the SFAS 142 goodwill impairment model, which could significantly influence whether an impairment of goodwill needs to be recorded. We adjust the cash flow forecasts by an appropriate discount rate derived from our market capitalization plus a suitable control premium at the date of evaluation.

Impairment of long-lived assets (Property and equipment and other intangible assets)

     We adopted SFAS No. 144 (SFAS 144) “Accounting for the Impairment or Disposal of Long-Lived Assets” on April 1, 2002. In accordance with SFAS 144, we assess potential impairments to our long-lived assets, including property and equipment and other intangible assets, when there is evidence that events or changes in circumstances indicate that the carrying value may not be recoverable. We recognize an impairment loss when the undiscounted cash flows expected to be generated by an asset (or group of assets) are less than the asset’s carrying value. Any required impairment loss would be measured as the amount by which the asset’s carrying value exceeds its fair value, and would be recorded as a reduction in the carrying value of the related asset and charged to results of operations. We have not identified any such impairments.

Income taxes

     Management evaluates the realizability of our deferred tax assets and assesses the need for a valuation allowance on a quarterly basis. In accordance with SFAS No. 109 (SFAS 109), “Accounting for Income Taxes,” net deferred tax assets are reduced by a

valuation allowance if, based on all the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

     On March 31, 2007, we adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109.” FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement.

     We are subject to income taxes in the United States and numerous foreign jurisdictions. In the ordinary course of our business there are calculations and transactions where the ultimate tax determination is uncertain. In addition, changes in tax laws and regulations as well as adverse judicial rulings could adversely affect the income tax provision. We believe we have adequately provided for income tax issues not yet resolved with federal, state and foreign tax authorities. However, if these provided amounts prove to be more than what is necessary, the reversal of the reserves would result in tax benefits being recognized in the period in which we determine that provision for the liabilities is no longer necessary. If an ultimate tax assessment exceeds our estimate of tax liabilities, an additional charge to expense would result.

Derivatives

     We enter into foreign currency forward and option contracts 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 investment income (expense) as gains (losses) on derivative instruments. Gains and losses arising from the effective portion of foreign currency forward and option contracts that are designated as cash-flow hedging instruments are recorded in accumulated other comprehensive income (loss) as unrealized gains (losses) on derivative instruments and accrued liabilities until the underlying transaction affects our earnings and are then recorded in the same income statement line as the underlying transaction. We had $1.4 million of notional value of foreign currency forward contracts outstanding at December 28, 2007. We had $0 of notional value of foreign currency forward contracts outstanding at March 30, 2007.

Self-insurance liabilities

     We self-insure a portion of the exposure for losses related to workers’ compensation costs and employee medical benefits. Accounting for workers’ compensation expense and employee medical benefits require the use of estimates and assumptions regarding numerous factors, including ultimate severity of injuries, the timeliness of reporting injuries, and health care cost increases. We insure for workers’ compensation and employee medical benefit liabilities under a large deductible program where losses are incurred up to certain specific and aggregate amounts. Accruals for claims under this self-insurance program are recorded as claims are incurred. We estimate our liability for claims incurred but not paid, including claims incurred but not recorded, based on the total incurred claims and paid claims, adjusted for ultimate losses as determined by our insurance carrier. We evaluate the estimated liability on a continuing basis and adjust accordingly. To date, workers’ compensation expense and employee medical benefits expense have been within the range of managements’ expectations.

Results of Operations

     The following table presents, as a percentage of total revenues, income statement data for the periods indicated.

		Three months ended								Nine months ended
		December 28,				December 29,				December 28,				December 29,
		2007				2006				2007				2006
Revenues			100.0	%			100.0	%			100.0	%			100.0	%
Operating expenses:
Cost of revenues			69.6				72.7				71.8				74.4
Selling, general and administrative			13.8				14.2				13.8				13.1
Independent research and development			5.5				4.5				5.7				3.9
Amortization of intangible assets			1.6				2.0				1.7				1.9
Income from operations			9.5				6.6				7.0				6.7
Income before income taxes			10.4				7.0				7.9				7.0
Net income			6.7				7.8				5.4				5.6

Three Months Ended December 28, 2007 vs. Three Months Ended December 29, 2006

Revenues

		Three months ended								Dollar				Percentage
		December 28,				December 29,				Increase				Increase
(In millions, except percentages)		2007				2006				(Decrease)				(Decrease)
Revenues		$	152.1			$	124.3			$	27.7				22.3	%

     The increase in revenues during the third quarter of fiscal year 2008 was due to our higher beginning backlog of $439.0 million, quarterly customer awards of $136.0 million and the conversion of certain backlog and awards into revenues. Revenue increases were experienced in both our government segment, increasing by $15.9 million, and commercial segment, increasing by $11.8 million. The revenue increase in the government segment was primarily derived from increased revenues of approximately $5.6 million in certain information assurance products, $6.9 million in next generation military satellite communication systems and $2.8 million from our majority owned subsidiary, TrellisWare Technologies, Inc. (TrellisWare). The revenue increase in the commercial segment was primarily derived from increased sales of consumer and mobile broadband products of approximately $13.4 million and $6.4 million in higher sales from our Antenna Systems product group offset by a $7.7 million reduction in enterprise VSAT product sales.

Cost of Revenues

		Three months ended								Dollar				Percentage
		December 28,				December 29,				Increase				Increase
(In millions, except percentages)		2007				2006				(Decrease)				(Decrease)
Cost of revenues		$	105.8			$	90.4			$	15.5				17.1	%
Percentage of revenues			69.6	%			72.7	%

     The increase in quarterly cost of revenues from $90.4 million to $105.8 million was primarily due to the increase in revenues. However, cost of revenues decreased as a percentage of revenues from 72.7% to 69.6% primarily due to product cost reductions in our consumer and mobile broadband products totaling approximately $2.2 million and better program performance in our Antenna Systems product group totaling approximately $1.3 million for the three months ended December 28, 2007 compared to the same period last year. We also experienced better program performance in our government segment, contributing approximately $4.9 million in cost of revenue reductions spread across various product groups. Cost of revenues for the three months ended December 28, 2007 and December 29, 2006 included approximately $485,000 and $423,000, respectively, in stock-based compensation expense related to our adoption of SFAS 123R. Cost of revenues may fluctuate in future quarters depending on the mix of products sold and services provided, competition, new product introduction costs and other factors.

Selling, General and Administrative Expenses

		Three months ended								Dollar				Percentage
		December 28,				December 29,				Increase				Increase
(In millions, except percentages)		2007				2006				(Decrease)				(Decrease)
Selling, general and administrative		$	20.9			$	17.7			$	3.2				18.2	%
Percentage of revenues			13.8	%			14.2	%

     The increase in selling, general and administrative (SG&A) expenses in the third quarter of fiscal year 2008 compared to the third quarter of fiscal year 2007 was primarily attributable to higher support costs of approximately $1.8 million and higher selling and proposal costs of approximately $700,000 to support our anticipated future revenue growth. SG&A expenses consist primarily of personnel costs and expenses for business development, marketing and sales, bid and proposal, finance, contract administration and general management. Some SG&A expenses are difficult to predict and vary based on specific government and commercial sales opportunities.

Independent Research and Development

		Three months ended								Dollar				Percentage
		December 28,				December 29,				Increase				Increase
(In millions, except percentages)		2007				2006				(Decrease)				(Decrease)
Independent research and development		$	8.4			$	5.6			$	2.8				51.3	%
Percentage of revenues			5.5	%			4.5	%

     The increase in independent research and development (IR&D) expenses reflects the current fiscal year third quarter over prior fiscal year third quarter increases primarily in the government segment of approximately $1.8 million for planned development of next generation information assurance and unmanned aerial vehicle (UAV) technologies. The commercial segment contributed approximately $1.0 million in IR&D increases due to planned efforts related to next generation broadband equipment and mobile antenna technologies. The higher IR&D expenses reflect our recognition of certain opportunities in these markets and the need to invest in the development of new technologies to meet these opportunities.

     Amortization of Intangible Assets. The intangible assets from acquisitions occurring in fiscal years 2001, 2002, 2006, 2007 and 2008 are being amortized over original useful lives ranging from eight months to ten years. The amortization of intangible assets will decrease each year as the intangible assets with shorter lives become fully amortized.

     The current and expected amortization expense for each of the following periods is as follows (in thousands):

		Amortization
For the nine months ended December 28, 2007		$	7,173
Expected for the remainder of fiscal year 2008		$	2,389
Expected for fiscal year 2009			9,020
Expected for fiscal year 2010			5,787
Expected for fiscal year 2011			5,024
Expected for fiscal year 2012			3,798
Thereafter			2,708
		$	28,726

     Interest Income. Interest income increased to $1.6 million for the three months ended December 28, 2007 from $553,000 for the three months ended December 29, 2006 due to higher average invested cash balances during the respective periods.

     Interest Expense. Interest expense increased to $269,000 for the three months ended December 28, 2007 from $92,000 for the three months ended December 29, 2006. The increase in interest expense for the third quarter of fiscal year 2008 compared to third quarter of fiscal year 2007 was mainly due to the accretion of interest on the secured borrowing agreement entered into in the fourth quarter of fiscal year 2007. Commitment fees on our line of credit availability remained the same for each period. We had no outstanding borrowings under our line of credit at December 28, 2007 or December 29, 2006.

     Provision (Benefit) for Income Taxes. Our effective tax rate for the three months ended December 28, 2007 was approximately 30.4%, which is approximately equal to the 28.4% estimated annual effective tax rate for the fiscal year 2008, compared to a tax

benefit of 12.7% for the three months ended December 29, 2006. The income tax benefit of approximately 12.7% for the third quarter of fiscal 2007 is lower than the expected annual effective tax rate primarily due to the recording of research and development tax credits allowed for in the third quarter of fiscal 2007 by the Tax Relief and Health Care Act of 2006, enacted on December 20, 2006, extending the research and development tax credit from January 1, 2006 to December 31, 2007. In the first and second quarters of fiscal year 2007, our estimated annual effective income tax rate did not include the effect of the extension of the research and development tax credit, which resulted in a catch-up adjustment of approximately $2.0 million in the third quarter of fiscal year 2007. Also as a result of the extension of the research and development tax credit, approximately $1.3 million of research and development tax credit generated in the fourth quarter of fiscal 2006 was recognized as a discrete item in the third quarter of fiscal 2007. Our estimated effective tax rate of approximately 28.4% for fiscal year 2008 reflects the expiration of the federal research and development tax credit at December 31, 2007. If the federal research and development tax credit is reinstated, we will have a lower effective tax rate and the amount of the tax rate reduction will depend on the effective date, the terms of the reinstatement as well as the amount of eligible research and development expenses in the reinstated period.

Our Segment Results for the Three Months Ended December 28, 2007 vs. Three Months Ended December 29, 2006

Government Segment

Revenues

		Three months ended								Dollar				Percentage
		December 28,				December 29,				Increase				Increase
(In millions, except percentages)		2007				2006				(Decrease)				(Decrease)
Revenues		$	84.9			$	69.0			$	15.9				23.0	%

     The increase in government segment revenues related primarily to a higher beginning backlog and the receipt of $54.4 million in awards during the third quarter of fiscal year 2008. The increased revenues resulted primarily from higher sales of certain information assurance products of approximately $5.6 million, $6.9 million in next generation military satellite communication systems and $2.8 million from our majority owned subsidiary, TrellisWare.

Segment Operating Profit

		Three months ended								Dollar				Percentage
		December 28,				December 29,				Increase				Increase
(In millions, except percentages)		2007				2006				(Decrease)				(Decrease)
Operating profit		$	15.6			$	8.8			$	6.8				77.7	%
Percentage of government segment revenues			18.4	%			12.7	%

     The increase in government segment operating profit was primarily related to margin gains from increased revenues of $15.9 million and better program performance contributing approximately $4.9 million in cost of revenue reductions and approximately $840,000 in selling and support cost reductions spread across various product groups. This increase was offset by an increase in research and development expenses of $1.8 million.

Commercial Segment

Revenues

		Three months ended								Dollar				Percentage
		December 28,				December 29,				Increase				Increase
(In millions, except percentages)		2007				2006				(Decrease)				(Decrease)
Satellite Networks
Revenues		$	52.2			$	46.8			$	5.4				11.6	%
Antenna Systems
Revenues		$	14.9			$	8.5			$	6.4				75.6	%
Total Commercial Segment
Revenues		$	67.1			$	55.3			$	11.8				21.4	%

     Commercial segment revenues increased $11.8 million primarily due to higher sales of our consumer and mobile broadband products of approximately $13.4 million compared to the same period last year offset by a $7.7 million reduction in enterprise VSAT product sales. Antenna Systems product sales were also higher, increasing by approximately $6.4 million due to the higher awards levels and related program performance.

Segment Operating Profit

		Three months ended								Dollar				Percentage
		December 28,				December 29,				Increase				Increase
(In millions, except percentages)		2007				2006				(Decrease)				(Decrease)
Satellite Networks
Satellite Networks operating (loss) profit		$	(0.1	)		$	2.0			$	(2.1	)			(104.3	)%
Percentage of Satellite Network revenues			(0.2	)%			4.2	%
Antenna Systems
Antenna Systems operating profit (loss)		$	1.3			$	(0.1	)		$	1.4				3,380.5	%
Percentage of Antenna Systems revenues			9.0	%			(0.5	)%
Total Commercial Segment
Segment operating profit		$	1.3			$	1.9			$	(0.7	)			(35.0	)%
Percentage of commercial segment revenues			1.9	%			3.5	%

     The commercial segment overall operating profit decrease of approximately $700,000 compared to the same period last year was primarily due to a $7.7 million reduction in enterprise VSAT product sales decreasing segment operating profits by approximately $3.9 million and additional costs related to the Company’s sales and marketing of wide area networking acceleration products of $890,000. This decrease was offset by a $3.4 million increase in operating profits relating to our consumer and mobile broadband products, primarily through product cost reductions, and a $1.4 million increase in operating profits relating to our Antenna System products, primarily through improved overall program performance year over year.

Nine Months Ended December 28, 2007 vs. Nine Months Ended December 29, 2006

Revenues

		Nine months ended								Dollar				Percentage
		December 28,				December 29,				Increase				Increase
(In millions, except percentages)		2007				2006				(Decrease)				(Decrease)
Revenues		$	427.2			$	384.5			$	42.7				11.1	%

     The increase in revenues was due to our beginning backlog of $388.7 million and customer awards of $461.5 million for the first nine months of our fiscal year 2008 and the conversion of certain backlog and awards into revenues. Year to date revenue growth was experienced in both our government segment, increasing by $28.1 million, and commercial segment, increasing by $14.6 million. The revenue increase in the government segment was primarily derived from increased revenues of approximately $3.0 million in certain information assurance products, $20.8 million in next generation military satellite communication systems and $2.9 million from our majority owned subsidiary, TrellisWare. The revenue increase in the commercial segment was primarily derived from increased sales of consumer broadband products of approximately $23.3 million, various other satellite networks products of approximately $1.5 million and $10.1 million in higher sales from our Antenna Systems product group offset by a $20.3 million reduction in enterprise VSAT product sales.

Cost of Revenues

		Nine months ended								Dollar				Percentage
		December 28,				December 29,				Increase				Increase
(In millions, except percentages)		2007				2006				(Decrease)				(Decrease)
Cost of revenues		$	306.8			$	285.9			$	20.8				7.3	%
Percentage of revenues			71.8	%			74.4	%

     The increase in cost of revenues from $285.9 million to $306.8 million was primarily due to an increase in our revenues. However, we experienced a decrease in the cost of revenues as a percentage of revenues from 74.4% to 71.8% primarily due to product cost reductions in our consumer and mobile broadband products totaling approximately $9.1 million and better program performance in our Antenna Systems product group totaling approximately $4.4 million for the nine months ended December 28, 2007 compared to

the same period last year. We also experienced better program performance in our government segment, contributing approximately $1.1 million in cost of revenue reductions spread across various product groups. Cost of revenues for the nine months ended December 28, 2007 and December 29, 2006 included approximately $1.4 million and $730,000, respectively, in stock-based compensation expense related to our adoption of SFAS 123R. Cost of revenues may fluctuate in future quarters depending on the mix of products sold and services provided, competition, new product introduction costs and other factors.

Selling, General and Administrative Expenses

		Nine months ended								Dollar				Percentage
		December 28,				December 29,				Increase				Increase
(In millions, except percentages)		2007				2006				(Decrease)				(Decrease)
Selling, general and administrative		$	59.1			$	50.3			$	8.7				17.4	%
Percentage of revenues			13.8	%			13.1	%

     The increase in SG&A expenses in the first nine months of fiscal year 2008 compared to the first nine months of fiscal year 2007 was primarily attributable to higher support costs of approximately $5.0 million and higher selling and proposal costs of approximately $2.8 million to support our anticipated future revenue growth and $3.7 million in stock-based compensation expense recorded in the first nine months of fiscal year 2008 compared to $1.6 million in stock-based compensation expense recorded in the first nine months of fiscal year 2007 related to our adoption of SFAS 123R. SG&A expenses consist primarily of personnel costs and expenses for business development, marketing and sales, bid and proposal, finance, contract administration and general management. Some SG&A expenses are difficult to predict and vary based on specific government and commercial sales opportunities.

Independent Research and Development

		Nine months ended								Dollar				Percentage
		December 28,				December 29,				Increase				Increase
(In millions, except percentages)		2007				2006				(Decrease)				(Decrease)
Independent research and development		$	24.2			$	15.2			$	9.0				59.5	%
Percentage of revenues			5.7	%			3.9	%

     The increase in IR&D expenses reflects year over year increases primarily in the government segment of approximately $6.5 million for planned development of next generation information assurance and UAV technologies. The commercial segment contributed approximately $2.5 million in IR&D increases due to planned efforts related to next generation broadband equipment and mobile antenna technologies. The higher IR&D expenses reflect our recognition of certain opportunities in these markets and the need to invest in the development of new technologies to meet these opportunities.

     Amortization of Intangible Assets. The intangible assets from acquisitions occurring in fiscal years 2001, 2002, 2006, 2007 and 2008 are being amortized over original useful lives ranging from eight months to ten years. The amortization of intangible assets will decrease each year as the intangible assets with shorter lives become fully amortized.

     The current and expected amortization expense for each of the following periods is as follows (in thousands):

		Amortization
For the nine months ended December 28, 2007		$	7,173
Expected for the remainder of fiscal year 2008		$	2,389
Expected for fiscal year 2009			9,020
Expected for fiscal year 2010			5,787
Expected for fiscal year 2011			5,024
Expected for fiscal year 2012			3,798
Thereafter			2,708
		$	28,726

     Interest Income. Interest income increased to $4.5 million for the nine months ended December 28, 2007 from $1.3 million for the nine months ended December 29, 2006 due to higher average invested cash balances year over year.

     Interest Expense. Interest expense increased to $606,000 for the nine months ended December 28, 2007 from $383,000 for the nine months ended December 29, 2006. The increase in interest expense was mainly due to the accretion of interest on the secured

borrowing agreement entered into in the fourth quarter of fiscal year 2007. Commitment fees on our line of credit availability remained the same year over year. We had no outstanding borrowings under our line of credit at December 28, 2007 or December 29, 2006.

     Provision for Income Taxes. Our effective tax rate for the nine months ended December 28, 2007 was approximately 29.1%, which is approximately equal to the 28.4% estimated annual effective tax rate for the fiscal year 2008, compared to a 19.7% tax rate for the nine months ended December 29, 2006. The income tax provision for the nine months ended December 29, 2006 included approximately $1.3 million of research and development tax credit generated in the fourth quarter of fiscal 2006 recognized as a discrete tax benefit in the nine-month period ended December 29, 2006. Our estimated effective tax rate of approximately 28.4% for fiscal year 2008 reflects the expiration of the federal research and development tax credit at December 31, 2007. If the federal research and development tax credit is reinstated, we will have a lower effective tax rate and the amount of the tax rate reduction will depend on the effective date, the terms of the reinstatement as well as the amount of eligible research and development expenses in the reinstated period.

     Our Segment Results for the Nine Months Ended December 28, 2007 vs. Nine Months Ended December 29, 2006

Government Segment

Revenues

		Nine months ended								Dollar				Percentage
		December 28,				December 29,				Increase				Increase
(In millions, except percentages)		2007				2006				(Decrease)				(Decrease)
Revenues		$	235.4			$	207.3			$	28.1				13.5	%

     The increase in government segment revenues related primarily to a higher beginning backlog and the receipt of $248.4 million in awards during first nine months of fiscal year 2008. The sales increase was principally from higher sales of our next generation military satellite communication systems of approximately $20.8 million, certain information assurance products of approximately $3.0 million and approximately $2.9 million from our majority owned subsidiary, TrellisWare.

Segment Operating Profit

		Nine months ended								Dollar				Percentage
		December 28,				December 29,				Increase				Increase
(In millions, except percentages)		2007				2006				(Decrease)				(Decrease)
Operating profit		$	33.7			$	33.7			$	0.0				(0.1	)%
Percentage of government segment revenues			14.3	%			16.2	%

     The government segment operating profit was relatively flat year over year. We experienced increased revenues of $28.1 million and better program performance in our government segment, contributing approximately $1.1 million in cost of revenue reductions spread across various product groups. This increase was offset by increases in research and development expenses of $6.5 million and selling and support costs of $1.9 million when compared to the same period last year.

Commercial Segment

Revenues

		Nine months ended								Dollar				Percentage
		December 28,				December 29,				Increase				Increase
(In millions, except percentages)		2007				2006				(Decrease)				(Decrease)
Satellite Networks
Revenues		$	152.4			$	147.9			$	4.5				3.0	%
Antenna Systems
Revenues		$	39.4			$	29.3			$	10.1				34.7	%
Total Commercial Segment
Revenues		$	191.8			$	177.2			$	14.6				8.2	%

     Commercial segment revenues increased $14.6 million primarily due to higher sales of our consumer and mobile broadband products of approximately $23.3 million and various other satellite networks products of approximately $1.5 million compared to the

same period last year offset by a $20.3 million reduction in enterprise VSAT product sales. Antenna Systems product sales increased by approximately $10.1 million due to higher awards levels and related program performance.

Segment Operating Profit

		Nine months ended								Dollar				Percentage
		December 28,				December 29,				Increase				Increase
(In millions, except percentages)		2007				2006				(Decrease)				(Decrease)
Satellite Networks
Satellite Networks operating profit (loss)		$	0.8			$	(0.1	)		$	0.8				1,527.8	%
Percentage of Satellite Network revenues			0.5	%			0.0	%
Antenna Systems
Antenna Systems operating profit (loss)		$	3.0			$	(0.6	)		$	3.6				596.4	%
Percentage of Antenna Systems revenues			7.6	%			(2.1	)%
Total Commercial Segment
Segment operating profit (loss)		$	3.8			$	(0.7	)		$	4.4				672.5	%
Percentage of commercial segment revenues			2.0	%			(0.4	)%

     The commercial segment overall operating profit increase of $4.4 million compared to the same period last year was primarily due to continued revenue growth of certain consumer and mobile broadband products combined with overall improved cost of revenues performance contributing an additional $9.1 million to commercial segment profits, offset by enterprise VSAT products and additional costs related to the Company’s sales and marketing of wide area networking acceleration products of $3.0 million. Additionally, our antenna products generated an additional $4.4 million in operating profits primarily through improved overall program performance year over year.

Backlog