SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K/A

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): December 15, 2009

ViaSat, Inc.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation)		0-21767 (Commission File No.)		33-0174996 (I.R.S. Employer Identification No.)

6155 El Camino Real
Carlsbad, California 92009
(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (760) 476-2200

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o		Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o		Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o		Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o		Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

     This Current Report on Form 8-K/A amends the Current Report on Form 8-K filed by ViaSat, Inc. (“ViaSat”) on December 18, 2009 (the “Initial 8-K”) to include the consolidated financial statements of WildBlue Holding, Inc. (“WildBlue”) required by Item 9.01 of Form 8-K with respect to the merger (the “Merger”) of a wholly owned subsidiary of ViaSat with and into WildBlue, with WildBlue as the surviving corporation and a wholly owned subsidiary of ViaSat. In connection with the Merger, all outstanding WildBlue debt was fully paid and discharged.

     The independent auditor’s report, the consolidated balance sheets of WildBlue as of December 31, 2008, December 31, 2007 and September 30, 2009, the consolidated statements of operations and cash flows of WildBlue for each of the years ended December 31, 2008, December 31, 2007 and December 31, 2006 and the nine months ended September 30, 2009 and September 30, 2008, the consolidated statements of stockholders’ equity and comprehensive income of WildBlue for each of the years ended December 31, 2008, December 31, 2007 and December 31, 2006 and the nine months ended September 30, 2009, and the notes related thereto, are filed herewith as Exhibit 99.1.

     The pro forma financial information required by this Item with respect to the Merger will be furnished as soon as practicable, and in any event not later than 71 days after the date on which the Initial 8-K was required to be filed.

Exhibit
Number		Description of Exhibit
23.1		Consent of KPMG LLP.
99.1		Independent auditor’s report, consolidated balance sheets of WildBlue Holding, Inc. as of December 31, 2008, December 31, 2007 and September 30, 2009, consolidated statements of operations of WildBlue Holding, Inc. for each of the years ended December 31, 2008, December 31, 2007 and December 31, 2006 and the nine months ended September 30, 2009 and September 30, 2008, consolidated statements of stockholders’ equity and comprehensive income of WildBlue Holding, Inc. for each of the years ended December 31, 2008, December 31, 2007 and December 31, 2006 and the nine months ended September 30, 2009, consolidated statements of cash flows of WildBlue Holding, Inc. for each of the years ended December 31, 2008, December 31, 2007 and December 31, 2006 and the nine months ended September 30, 2009 and September 30, 2008, and the notes related thereto.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

EXHIBIT INDEX

Exhibit
Number		Description of Exhibit
23.1		Consent of KPMG LLP.
99.1		Independent auditor’s report, consolidated balance sheets of WildBlue Holding, Inc. as of December 31, 2008, December 31, 2007 and September 30, 2009, consolidated statements of operations of WildBlue Holding, Inc. for each of the years ended December 31, 2008, December 31, 2007 and December 31, 2006 and the nine months ended September 30, 2009 and September 30, 2008, consolidated statements of stockholders’ equity and comprehensive income of WildBlue Holding, Inc. for each of the years ended December 31, 2008, December 31, 2007 and December 31, 2006 and the nine months ended September 30, 2009, consolidated statements of cash flows of WildBlue Holding, Inc. for each of the years ended December 31, 2008, December 31, 2007 and December 31, 2006 and the nine months ended September 30, 2009 and September 30, 2008, and the notes related thereto.

Exhibit 23.1

Consent of Independent Auditors

We consent to the incorporation by reference in the registration statements on Form S-3 (File Nos. 333-143425, 333-85522, 333-74276, 333-69664, 333-116468, 333-135652, 333-141238 and 333-141859) and the registration statements on Form S-8 (File Nos. 333-21113, 333-68757, 333-40396, 333-67010, 333-82340, 333-109959, 333-131377, 333-131382, 333-153828, 333-159708 and 333-160361) of ViaSat, Inc., of our report dated October 9, 2009 with respect to the consolidated balance sheets of WildBlue Holding, Inc. and subsidiaries as of December 31, 2007 and 2008, and the related consolidated statements of operations, stockholders’ equity and comprehensive income, and cash flows for each of the years in the three year period ended December 31, 2008, which report appears in this Current Report on Form 8-K/A of ViaSat, Inc.

/s/ KPMG LLP

January 7, 2010

Exhibit 99.1

Independent Auditors’ Report

The Board of Directors
WildBlue Holding, Inc.:

We have audited the accompanying consolidated balance sheets of WildBlue Holding, Inc. and subsidiaries (the Company) as of December 31, 2007 and 2008, and the related consolidated statements of operations, stockholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2008. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards as established by the Auditing Standards Board (United States) and in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of WildBlue Holding, Inc. and subsidiaries as of December 31, 2007 and 2008, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2008 in conformity with U.S. generally accepted accounting principles.

/s/ KPMG LLP

October 9, 2009

WILDBLUE HOLDING, INC.
AND SUBSIDIARIES

Consolidated Balance Sheets
(in thousands, except share and per share data)

		As of
		December 31,								September 30,
		2007				2008				2009
										(unaudited)
Assets
Current assets:
Cash and cash equivalents		$	21,112			$	50,567			$	69,953
Investments in available-for-sale securities			2,144				10,000				1,040
Restricted cash			3,157				2,147				5,698
Receivables — related party			3,719				3,866				3,721
Receivables, net of allowance for doubtful accounts of $729, $1,276 and $1,879, respectively			5,141				12,235				9,211
Inventory			10,576				5,542				8,764
Prepaid expenses			8,547				4,241				4,612
Total current assets			54,396				88,598				102,999
Property, plant, and equipment, net			465,453				435,813				427,044
Satellite co-location right, net			4,608				4,216				3,922
Prepaid services, net			6,252				5,720				5,321
Other assets			1,136				1,434				1,350
Total assets		$	531,845			$	535,781			$	540,636
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	14,826				8,796				8,779
Accrued liabilities			14,919				11,397				14,514
Deferred revenue			3,774				5,716				8,264
Long-term debt, current portion			—				—				13,844
Long-term debt — related parties, current portion			—				—				215,531
Total current liabilities			33,519				25,909				260,932
Long-term debt, net			22,739				22,658				9,851
Long-term debt — related parties, net			377,905				391,964				195,937
Deferred revenue — non current			—				2,194				5,345
Total liabilities			434,163				442,725				472,065
Commitments and contingencies
Stockholders’ equity:
Preferred stock:
Convertible senior preferred stock, $0.001 par value. Authorized 195,000,000, 0, and 0 shares issued and outstanding 97,500,000, 0 and 0 shares at December 31, 2007 and 2008 and September 30, 2009, respectively, (aggregate liquidation preference of $195,000,000, $0 and $0, respectively)			98				—				—
Junior preferred stock, $0.001 par value. Authorized 45,000, 0 and 0 shares; issued and outstanding 45,000, 0 and 0 shares at December 31, 2007 and 2008 and September 30, 2009, respectively (aggregate liquidation preference of $45,000,000, $0 and $0, respectively)			—				—				—
Pre-recapitalization Common stock, Series A, $0.001 par value. Authorized 265,000,000, 0 and 0 shares; issued and outstanding 28,479,213, 0 and 0 shares at December 31, 2007 and 2008 and September 30, 2009, respectively			28				—				—
Common stock, $.01 par value. Authorized 0, 2,250,000 and 2,250,000 shares; issued and outstanding 0, 1,468,750 and 1,468,750 shares at December 31, 2007 and 2008 and September 30, 2009, respectively			—				15				15
Additional paid-in capital			551,843				627,915				630,556
Accumulated deficit			(454,287	)			(534,874	)			(563,036	)
Accumulated other comprehensive income			—				—				1,036
Total stockholders’ equity			97,682				93,056				68,571
Total liabilities and stockholders’ equity		$	531,845			$	535,781			$	540,636

The accompanying notes are an integral part of these financial statements

WILDBLUE HOLDING, INC.
AND SUBSIDIARIES

Consolidated Statements of Operations
(in thousands except share and per share data)

														For the nine month periods
		For the years ended December 31,												ended September 30,
		2006				2007				2008				2008				2009
														(unaudited)
Revenue:
Subscriber revenue		$	34,088			$	97,523			$	161,068			$	117,303			$	142,974
Equipment revenue			5,101				7,980				24,432				16,764				11,947
Other revenue			943				1,808				1,789				1,360				2,603
Total revenues			40,132				107,311				187,289				135,427				157,524
Operating expenses:
Cost of revenue (exclusive of depreciation and amortization shown below)			65,099				99,694				105,921				82,253				60,375
Sales, marketing and advertising			17,614				21,421				22,513				17,804				17,894
Research and development			2,039				1,037				167				156				19
General and administrative			22,923				8,901				10,678				6,163				16,129
Depreciation and amortization			21,898				43,008				52,794				39,180				43,839
Loss on disposition of assets			4				31				6				87				1,747
Loss on extinguishment of debt			2,068				3,871				15,639				15,639				—
Total operating expenses			131,645				177,963				207,718				161,282				140,003
Operating income (loss)			(91,513	)			(70,652	)			(20,429	)			(25,855	)			17,521
Other income (expense):
Interest expense			(25,100	)			(57,264	)			(58,892	)			(42,819	)			(44,262	)
Interest income			1,080				2,095				875				598				230
Loss on undesignated interest rate swap contract, net			—				—				—				—				(1,651	)
Other-than-temporary impairment on investments			—				(1,056	)			(2,141	)			(1,680	)			—
Net loss		$	(115,533	)		$	(126,877	)		$	(80,587	)		$	(69,756	)		$	(28,162	)
Net Loss per Share
Basic loss per share		$	(4.06	)		$	(4.46	)		$	(4.89	)		$	(3.24	)		$	(19.17	)
Diluted loss per share		$	(4.06	)		$	(4.46	)		$	(4.89	)		$	(3.24	)		$	(19.17	)
Weighted average common shares outstanding
Basic			28,442,850				28,461,380				16,491,008				21,553,453				1,468,750
Diluted			28,442,850				28,461,380				16,491,008				21,553,453				1,468,750

The accompanying notes are an integral part of these financial statements

WILDBLUE HOLDING, INC.
AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity and Comprehensive Income
(in thousands except share data)

		Preferred Stock																Pre-recapitalization																Additional								Accumulated other				Total
		Senior								Junior								Series A common stock								Common stock								paid-in				Accumulated				comprehensive				stockholders’
		Shares				Amount				Shares				Amount				Shares				Amount				Shares				Amount				capital				deficit				income				equity
Balance at January 1, 2006			97,500,000			$	98				45,000			$	—				28,442,850			$	28				—			$	—			$	529,479			$	(211,877	)		$	—			$	317,728
Issuance of warrants to purchase Senior Preferred Stock			—				—				—				—				—				—				—				—				22,360				—				—				22,360
Net loss for the year ended December 31, 2006			—				—				—				—				—				—				—				—				—				(115,533	)			—				(115,533	)
Balance at December 31, 2006			97,500,000				98				45,000				—				28,442,850				28				—				—				551,839				(327,410	)			—				224,555
Issuance of Series A common stock			—				—				—				—				36,363				—				—				—				4				—				—				4
Net loss for the year ended December 31, 2007			—				—				—				—				—				—				—				—				—				(126,877	)			—				(126,877	)
Balance at December 31, 2007			97,500,000				98				45,000				—				28,479,213				28				—				—				551,843				(454,287	)			—				97,682
Recapitalization
Exchange of outstanding shares			(97,500,000	)			(98	)			(45,000	)			—				(28,479,213	)			(28	)			968,750				10				116				—				—				—
Sale of common stock			—				—				—				—				—				—				500,000				5				49,995				—				—				50,000
Issuance of warrants in connection with debt restructuring			—				—				—				—				—				—				—				—				24,861				—				—				24,861
Stock-based compensation			—				—				—				—				—				—				—				—				1,100				—				—				1,100
Net loss for the year ended December 31, 2008			—				—				—				—				—				—				—				—				—				(80,587	)			—				(80,587	)
Balance at December 31, 2008			—				—				—				—				—				—				1,468,750				15				627,915				(534,874	)			—				93,056
Stock-based compensation (unaudited)			—				—				—				—				—				—				—				—				2,641				—				—				2,641
Comprehensive loss
Net loss for the nine month period ended September 30, 2009 (unaudited)			—				—				—				—				—				—				—				—				—				(28,162	)			—				(28,162	)
Unrealized gain on available-for-sale securities (unaudited)			—				—				—				—				—				—				—				—				—				—				1,036				1,036
Total comprehensive loss			—				—				—				—				—				—				—				—				—				—				—				(27,126	)
Balance at September 30, 2009 (unaudited)			—			$	—				—			$	—				—			$	—				1,468,750			$	15			$	630,556			$	(563,036	)		$	1,036			$	68,571

The accompanying notes are an integral part of these financial statements

WILDBLUE HOLDING, INC.
AND SUBSIDIARIES

Consolidated Statements of Cash Flows
(in thousands)

														For the nine month periods
		For the years ended December 31,												ended September 30,
		2006				2007				2008				2008				2009
														(unaudited)
Cash flows from operating activities:
Net loss		$	(115,533	)		$	(126,877	)		$	(80,587	)		$	(69,756	)		$	(28,162	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization			21,898				43,008				52,794				39,180				43,839
Change in allowance for doubtful accounts			184				545				547				119				603
Stock appreciation rights and stock option compensation			7,809				(6,735	)			(3,631	)			(4,662	)			2,641
Loss on extinguishment of debt facility			2,068				3,871				15,639				15,639				—
Unrealized loss on undesignated interest rate swap contract			—				—				—				—				1,283
Other-than-temporary impairment on investments			—				1,056				2,141				1,680				—
Noncash interest expense; debt discount amortization and other noncash items, net			12,376				21,032				24,149				17,071				22,292
Changes in operating assets and liabilities:
Decrease (increase) in receivables — related parties			(1,849	)			(1,250	)			(147	)			(156	)			145
Decrease (increase) in receivables			(461	)			(3,335	)			(7,641	)			(3,776	)			2,421
Decrease (increase) in inventory			(8,549	)			290				5,034				1,810				(3,222	)
Decrease (increase) in prepaid expenses			(43	)			(6,480	)			4,306				3,802				(371	)
Increase in deferred revenues			—				1,952				4,136				2,081				5,699
Increase (decrease) in accounts payable and accrued expenses			11,934				5,278				(4,814	)			(2,724	)			1,518
Net cash provided by (used in) operating activities			(70,166	)			(67,645	)			11,926				308				48,686
Cash flows from investing activities:
Capital expenditures for property, plant, and equipment			(125,890	)			(36,691	)			(22,152	)			(11,979	)			(36,074	)
Proceeds from sale of assets			92				480				—				—				566
Decrease (increase) in restricted cash			343				(1,071	)			1,010				(27	)			(3,551	)
Purchase of investments in available-for-sale securities			(2,200	)			(1,000	)			(9,997	)			(9,959	)			(3,999	)
Proceeds from sale of investments in available-for-sale securities			—				—				—				—				13,996
Other investing activities			(6	)			19				133				—				(238	)
Net cash used in investing activities			(127,661	)			(38,263	)			(31,006	)			(21,965	)			(29,300	)
Cash flows from financing activities:
Proceeds from vendor financing and notes payable			228				—				—				—				—
Payments on vendor financing and notes payable			(60,358	)			—				—				—				—
Payments on obligations under capital lease			(84	)			—				—				—				—
Proceeds from issuance of equity			—				—				50,000				50,000				—
Proceeds from long-term debt			270,000				120,000				—				—				—
Payments of debt financing costs			(5,454	)			(2,291	)			(1,465	)			(1,198	)			—
Net cash provided by financing activities			204,332				117,709				48,535				48,802				—
Net increase (decrease) in cash and cash equivalents			6,505				11,801				29,455				27,145				19,386
Net cash and cash equivalents, beginning of period			2,806				9,311				21,112				21,112				50,567
Net cash and cash equivalents, end of period		$	9,311			$	21,112			$	50,567			$	48,257			$	69,953
Supplemental cash flow information:
Interest paid		$	12,104			$	36,420			$	34,673			$	25,745			$	23,706
Noncash investing and financing activities:
Capital acquisitions using capital lease financing			84				—				—				—				—
Capital expenditures for property, plant, and equipment, not paid			—				—				—				—				298
Interest expense added to long-term debt			11,774				16,152				17,765				12,505				16,087

The accompanying notes are an integral part of these financial statements

(1) Organization and Description of Business

WildBlue Holding, Inc. (WildBlue or the Company), incorporated under the laws of the state of Delaware, is a closely-held holding company and operates its business through its wholly-owned subsidiary, WildBlue Communications, Inc (WCI). WCI in turn has two wholly-owned subsidiaries, WildBlue Holdings 1 LLC, its Federal Communications Commission licensee, and WildBlue Communications Canada Corp., owner of the Canadian infrastructure.

The Company operates a satellite-delivered broadband internet service. During 2005, the Company deployed the first Ka-band geostationary (GEO) satellite system, using leased capacity on Telesat Canada’s (Telesat’s) ANIK F2 satellite, capable of providing two-way broadband internet access targeted to residential, small office, and home office subscribers in the contiguous United States unserved or under-served by cable modem, digital subscriber line or terrestrial wireless service. In June 2005, the Company commenced commercial operations. In December 2006, the Company launched its owned satellite, WildBlue-1. This second satellite began providing internet access commercially in March 2007.

Subsequent to year end, on September 30, 2009, WildBlue signed a definitive agreement with ViaSat, Inc. (ViaSat), whereby ViaSat would acquire the Company for approximately $568 million (subject to certain adjustments) payable in a combination of cash, notes payable and ViaSat common stock. The transaction is subject to customary regulatory and other conditions and the Company expects the transaction to close in the fourth quarter of ViaSat’s 2010 fiscal year, which ends April 2, 2010.

(2) Recapitalization Transaction

Effective July 22, 2008, WildBlue Holding, Inc. was formed by the controlling shareholders of WCI by issuing 500,000 shares of common stock in exchange for $50 million. WildBlue Holding, Inc. then simultaneously entered into and affected a Merger Agreement with the stockholders of WCI, providing for the acquisition by the Company of 100% of the outstanding shares of common and preferred stock of WCI through a stock exchange. The exchange of shares was based on the fair market value of the WCI shares on the date of the Merger. The Company exchanged 968,750 of its common shares and 125,000 warrants to purchase its common shares for WCI equity securities pursuant to the Merger Agreement including a 1 for 100 exchange of shares. The outstanding common and Junior Preferred shares of WCI, the related warrants and options to purchase such shares, and the remaining out-of-the-money warrants to purchase the Convertible Senior preferred shares of WCI were determined to have no value and were cancelled (see note 10) pursuant to the Merger Agreement except for 6,250 warrants, which remain outstanding under their original terms on a share adjusted basis. In addition, the Company’s credit facilities were amended, including revisions of the covenants, an increase in the interest rate on a portion of the credit facilities, the ability to extend the maturity date and the issuance of 325,000 additional warrants to purchase the Company’s common stock. (see note 9).

The share exchange was accounted for as a recapitalization between entities under common control. Therefore, the financial statements prior to July 22, 2008, reflect the assets and liabilities of WCI at historical carrying amounts.

(3) Liquidity and Capital Commitments

Delivering broadband internet service via satellite involves substantial risk and future operating results will be subject to business, economic, regulatory, technical, and competitive uncertainties and contingencies. These factors, individually or in the aggregate, could have an adverse effect on the Company’s financial condition and future operating results. In addition, the Company has incurred substantial costs through September 30, 2009, primarily related to two satellites, which are capitalized as property, plant, and equipment. Recovery of the costs is dependent on its ability to operate its business according to plan including acquisition and retention of customers at projected rates, customer bandwidth consumption projections and managing costs.

The Company has historically obtained funds through the issuance of debt and equity to develop and sustain its operations. For the year ended December 31, 2008 and the nine month period ended September 30, 2009, the Company generated positive cash flows from operations. While the Company believes it will continue to have positive cash flows from operations in the future, there can be no assurance it will. As such, the Company may need to obtain additional funding through the issuance of debt or equity in the future. The Company believes it has sufficient cash on hand and cash flows from operations to fund its obligations through December 31, 2009. The Company’s first lien and second lien credit facilities mature on June 30, 2010 and August 16, 2011, respectively. The Company’s cash on hand and cash flows from operations are not sufficient to pay these debt instruments at maturity and it will, therefore, need to either restructure the existing terms of the debt or raise the necessary funds to refinance the existing debt facilities. There are no assurances, however, that such restructuring or financing will be obtained or, if obtained, on terms that would be favorable to the Company or its existing stockholders.

(4) Summary of Significant Accounting Policies

(a)

Principles of Consolidation

The consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

(b)

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements as of September 30, 2009 and for the nine month periods ended September 30, 2008 and 2009 included herein have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. The unaudited condensed consolidated financial statements as of September 30, 2009 and for the nine month periods ended September 30, 2008 and 2009 have been prepared on the same basis as the consolidated financial statements as of December 31, 2007 and 2008 and for each of the years in the three year period ended December 31, 2006, 2007 and 2008 included herein, and in the opinion of management, all adjustments consisting only of normal recurring adjustments, that are considered necessary for a fair presentation of the accompanying condensed consolidated financial statements, have been made. Operating results for the nine months ended September 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009 or for any future period. Further, in connection with preparation of the condensed consolidated financial statements and in accordance with the recently issued Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 855 — Subsequent Events, we evaluated subsequent events after the balance sheet dates of December 31, 2008 and September 30, 2009 through October 9, 2009 and November 30, 2009, respectively.

All amounts included in the condensed consolidated financial statements as of September 30, 2009 and for the nine month periods ended September 30, 2008 and 2009 are unaudited.

(c)

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. In addition, the Company’s accounting policies require management to make complex and subjective judgments subject to an inherent degree of uncertainty. The accounting estimates that require the Company’s most significant, difficult and subjective judgments include:

	•		The valuation of financial instruments;
	•		The assessment of recoverability of long-lived assets;
	•		The recognition and measurement of deferred tax assets and liabilities (including the measurement of uncertain tax positions);
	•		The valuation and recognition of share-based compensation;
	•		The estimate of the fair value of warrants;
	•		The estimate of the length of customer lives; and
	•		The estimate of the fair value of debt.

The actual results that the Company experiences may differ materially from the estimates.

(d)

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of six months or less at time of purchase to be cash equivalents. The Company maintains the majority of its cash balances with financial institutions in the form of demand deposits, money market accounts and U.S. government agency obligations. Such deposit accounts at times may exceed federally insured limits. The Company has not experienced any losses related to these balances.

(e)

Restricted Cash

The Company has used cash to collateralize certain letters of credit, which are renewed annually and to collateralize its interest rate swap agreement (see note 9). In addition, certain employment agreements require the Company to restrict cash to fund severance obligations that are triggered upon termination of certain key employees. These amounts are deposited in accounts that restrict the use of such cash for purposes other than discharging the related obligations. As such, these amounts have been classified as restricted cash on the Company’s consolidated balance sheets. Restricted cash whereby the restriction expires in more than one year is classified as noncurrent.

(f)

Receivables and Allowance for Doubtful Accounts

Receivables are recorded at amounts owed as of the balance sheet dates and are reflected net of an allowance for doubtful accounts. The allowance for doubtful accounts reflects management’s best estimate of probable losses in the accounts receivable balance. Management determines the allowance based on known troubled accounts, historical experience and other currently available evidence. Such allowances totaled $0.7 million, $1.3 million and $1.9 million as of December 31, 2007 and 2008 and September 30, 2009, respectively.

(g)

Marketable Investment Securities

As part of its cash management program, the Company maintains a portfolio of marketable investment securities purchased pursuant to the investment policy established by the Board of Directors. The Company accounts for its investments in accordance with FASB ASC Topic 320 — Investments in Debt and Equity Securities. During the years ended December 31, 2007 and 2008, the Company held investments in treasury bills and auction rate securities. During the nine month period ended September 30, 2009, the Company held investment in auction rate securities, which mature in September 2017 and also held investments in commercial paper. The securities held by the Company as of December 31, 2007 and 2008 and September 30, 2009 are classified as available-for-sale (AFS) and are carried at fair value. The Company adjusts the carrying value of the AFS securities to fair value and reports the related unrealized gains and losses that are not deemed to be other-than-temporary as a separate component of “Accumulated Other Comprehensive Income (Loss)” within stockholders’ equity, net of related deferred income tax. Declines in the fair value of a marketable investment security, which are estimated to be “other than temporary” are recognized in the consolidated statement of operations, thus establishing a new cost basis for that investment. For the years ended December 31, 2007 and 2008, the Company recorded an other-than-temporary impairment of approximately $1.1 million and $2.1 million, respectively, on its investments in auction rate securities, which established a new cost basis in the auction rate securities. For the nine month period ended September 30, 2009, the Company recorded a recovery of its impairment of approximately $1.0 million, which is included in other comprehensive income at September 30, 2009. The changes in the fair value of the treasury bills during 2006, 2007 and 2008 and the nine month periods ended September 30, 2008 and 2009 were insignificant and primarily related to the accretion of accrued interest.

(h)

Inventory

Inventory consists of the Company’s indoor and outdoor units that have not been deployed, which together comprise its customer premise equipment referred to as “CPE.” Inventory is recorded at the lower of cost or market, which is determined using the first-in, first-out method. Inventories are adjusted for estimated obsolescence and written down to net realizable value based upon estimates of future demand, technology developments, and market conditions. The Company’s proprietary products are built by contract manufacturers to the Company’s specifications. The Company depends on a single manufacturer for the indoor and outdoor electronic components and a single manufacturer for the antenna contained in its CPE. Sales of inventory are included in operating activities in the consolidated statement of cash flows.

In July of 2008, the Company implemented its CPE leasing model whereby the end customer would no longer purchase the CPE but rather it would enter into a lease arrangement with the Company to lease the CPE. Prior to the implementation of the CPE lease model, inventory that was shipped from the Company’s warehouse to its distribution channel partners was treated as a sale (see further discussion in our following discussion of Equipment Revenues). The Company evaluates the nature of the transaction with its distribution channel to determine whether the transaction is a consummated sale and criteria for revenue recognition have been met. After implementation of the CPE leasing model, the Company does not believe that revenue recognition criteria are met until the CPE lease is consummated. The inventory shipped from the Company’s warehouse to its distribution channel partners is recorded in inventory on the balance sheet until the CPE is leased. Upon installation of the CPE at a customer’s premise and signing of the lease agreement, the CPE is recorded to property and equipment on the Company’s balance sheet and the Company begins to depreciate the asset.

The title to and risk of ownership of the CPE inventory located within the Company’s distribution channel has been passed to its channel partners. The title to and risk of ownership is transferred back to the Company upon consummation of the lease with the end customer.

(i)

Property, Plant, and Equipment

The Company records property, plant and equipment at cost. Pursuant to FASB ASC Topic 835 — Interest, the cost of its owned satellite and leased satellite capacity includes capitalized interest costs incurred during the construction and development period. In addition, capitalized costs of these satellites and related ground systems include internal direct labor costs incurred in the construction and development as well as depreciation costs (included in WildBlue-1) related to assets, which support the construction and development of the satellites and related ground systems. Ground systems are placed into service when they are ready for their intended use. While under construction, the costs of these satellites are capitalized assuming the eventual successful launch and in-orbit operation of the satellite. If a satellite was to fail during launch or while in-orbit, the resulting loss would be charged to expense in the period in which such loss was to occur. The amount of any such loss would be reduced to the extent of insurance proceeds received as a result of the launch or in-orbit failure.

The Company capitalizes certain internal and external software development costs incurred to develop software for internal use in accordance with FASB ASC Topic 350 — Intangibles. The Company expenses the costs of developing computer software until the software has reached the application development stage and capitalizes all costs incurred

from that time until the software is ready for its intended use, at which time amortization of the capitalized costs begins. Determination of when the software has reached the application development stage is based upon completion of conceptual designs, evaluation of alternative designs and performance requirements. Costs of major enhancements to internal use software are capitalized while routine maintenance of existing software is charged to expense as incurred. The determination of when the software is in the application development stage and the ongoing assessment of the recoverability of capitalized computer software development costs requires considerable judgment by management with respect to certain factors, including, but not limited to, estimated economic life and changes in software and hardware technology.

Internal use capitalized software costs are amortized on a product-by-product basis over their expected useful life, which is generally three to five years. Software costs that are directly related to a satellite are capitalized with the satellite and amortized over the satellite’s estimated useful life. Amortization expense related to capitalized software costs, exclusive of software cost amortized as part of the cost of the Company’s owned and leased satellites, was $2.8 million, $3.7 million, $4.4 million, $3.3 million and $3.4 million for years ended December 31, 2006, 2007 and 2008, and for the nine month periods ended September 30, 2008 and 2009, respectively.

Included in property, plant, and equipment is a 15-year prepaid capital lease on the ANIK F2 satellite. Beginning in July of 2008, property, plant, and equipment also include costs of CPE leased to subscribers under the retail leasing program. The Company begins depreciating the cost of CPE and installation costs on the initial installation of equipment for customers in the leasing program. Subsequent installations of the CPE are expensed as incurred until the CPE is retired. When a subscriber under the retail leasing program disconnects from the Company’s service and fails to return the leased CPE, the Company retires the leased CPE and records a loss on disposition of assets net of any proceeds received. Loss on disposition of assets of $0 and $1.7 million for the year ended December 31, 2008 and for the nine month period ended September 30, 2009, respectively, have been recorded since implementing the retail leasing program in July of 2008.

Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the respective assets. The Company begins recording depreciation on the assets associated with the network, gateway ground stations and the satellites when commercially operational. Interest capitalized during the year ended December 31, 2006 was $101,000. No interest was capitalized during the years ended December 31, 2007 or 2008 or the nine month periods ended September 30, 2008 and 2009. The following table summarizes the useful lives of property, plant and equipment:

Asset Class:		Useful Life:
Land		N/A
Network equipment, software and office furniture		3-10 Years
Leasehold improvements		5 Years
Gateway station facilities		5-30 Years
Satellites		12-15 Years
Equipment leased to subscribers		5 Years

(j)

Satellite Co-Location Right

The Company paid Telesat Canada (Telesat) $5 million prior to the launch of WildBlue-1 in December 2006 to co-locate WildBlue-1 with Telesat’s ANIK F2 satellite at the orbital location of 111° W.L. The Company amortizes the co-location right over the remaining life of the ANIK F2 satellite per the co-location agreement with Telesat. The amortization is included in depreciation and amortization in the accompanying consolidated statement of operations. As of December 31, 2007 and 2008 and September 30, 2009, the accumulated amortization of the satellite co-location right was $392,000, $784,000 and $1,078,000 respectively. Estimated future amortization of the satellite co-location right as of December 31, 2008 is as follows (in thousands):

For the years ended December 31,
2009		$	392
2010			392
2011			392
2012			392
2013			392
Thereafter			2,256
Total		$	4,216

(k)

Prepaid Services, net

Prepaid services consist of satellite telemetry, tracking, and control services associated with ANIK F2, which became operational in 2005. The Company amortizes the prepaid services over the remaining life of the ANIK F2 satellite lease on a straight-line basis. The amortization is included in depreciation and amortization in the accompanying consolidated statement of operations. Estimated future amortization of the prepaid services as of December 31, 2008 is as follows (in thousands):

For the years ended December 31,
2009		$	532
2010			532
2011			532
2012			532
2013			532
Thereafter			3,060
Total		$	5,720

(l)

Debt Issuance Costs and Debt Discounts

Debt issuance costs are deferred, included in other assets and amortized to interest over the term of the respective credit facilities.

(m)

Impairment of Long-Lived Assets and Assets to be Disposed of

In accordance with the guidance contained in FASB ASC Topic 360 — Property Plant, and Equipment, the Company reviews long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In the event that any one or combination of factors indicate that there may be an impairment of the Company’s long-lived assets, such long-lived assets are to be reviewed to determine if their carrying value exceeds their fair value. The Company evaluates the satellite fleet for recovery as one asset group. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. For the years ended December 31, 2007 and 2008, the Company reviewed its long-lived assets for impairment and determined that the carrying value did not exceed the fair value; therefore, no impairment was recorded.

(n)

Derivative Instruments

The Company uses derivative financial instruments for the purpose of hedging exposures to fluctuations in interest rates. The Company’s derivative instruments are recorded in the consolidated balance sheets at fair value within accrued liabilities. Upon settlement of the contracts, the cash flows are presented as an operating activity. The Company accounts for interest rate swaps in accordance with FASB ASC Topic 815 — Derivatives and Hedging. For interest swaps that are not designated as cash flow hedges under the provisions of FASB ASC Topic 815, all gains or losses associated with changes to the fair value of these financial instruments will be recorded in the income statement as loss on undesignated interest rate swap contract.

(o)

Revenue Recognition

The Company’s revenues are derived from two primary sources, the delivery of monthly services and sales or leases of CPE. WildBlue recognizes revenue in accordance with FASB ASC Topic 605 — Revenue Recognition. Under this standard, the Company recognizes revenue when an arrangement exists, prices are determinable, collectibility is reasonably assured and the goods or services have been delivered. In situations where customer offerings represent a bundled arrangement for both services and hardware, revenue elements are separated into their relevant components (services or hardware) for revenue recognition. WildBlue has two primary sales channels: wholesale and retail. Retail consists of direct sales and independent distributor/value-added reseller sales with respect to equipment sales. Wholesale consists of sales of monthly services through partners at a discount as these partners absorb subscriber acquisition costs, including installation and commissions, as well as on-going operating costs, such as customer service and billing.

(p)

Monthly Services

Subscriber revenues generated from delivery of monthly services are recognized in the month the services are provided. Revenues for monthly services are billed in advance for retail customers and included in deferred revenue. Monthly services earned through the wholesale channel are billed in arrears.

(q)

Equipment Revenues

The Company generates equipment revenue from the sale of CPE to retail subscribers, its wholesale partners and independent distributors. Revenue is recognized when pervasive evidence of an arrangement exists, delivery of products has occurred, the fees are fixed and determinable, and collectability is reasonably assured. The Company has deemed that the revenue recognition criteria are not met for equipment that is sold which is subject to repurchase upon

consummation of a lease. CPE sold directly to a retail subscriber, which is not subject to a subsequent repurchase upon consummation of a lease, is recognized as revenue upon installation. CPE sales to wholesalers are not subject to repurchase and are recognized as revenue upon delivery of CPE to the wholesale partner. Since inception of the leasing model in July of 2008, CPE units sold to independent distributors are subject to repurchase upon consummation of a lease with an end customer and no revenue is recognized for these transactions. The Company has concluded that all sales of CPE prior to the implementation of the CPE leasing model are consummated sales. Consummated CPE sales and value-added resellers are priced at or below cost. These sales are recorded on a net basis, with the proceeds received from the independent distributors and value-added resellers recorded as a reduction of cost of revenue. The proceeds received from the Company’s independent distributors and value-added resellers and recorded as a reduction of cost of revenues were $16.5 million, $24.2 million, $10.9 million, $10.8 million and $0.1 million for the years ended December 31, 2006, 2007, and 2008 and the nine month periods ended September 30, 2008 and 2009, respectively.

Beginning in July 2008, WildBlue’s new retail channel subscribers must lease the CPE required to receive WildBlue’s service. These leases have been evaluated in accordance with FASB ASC Topic 840 — Leases, and are considered operating leases. The Company retains title to the equipment, which is capitalized and depreciated over its estimated useful life. The subscribers have the option of prepaying the lease at a discounted rate. Payments received under this program are recorded as deferred revenue and recognized as revenue on a straight-line basis over the term of the lease. All lease revenues whether prepaid or direct billed are recognized in the month in which the lease revenue is earned. Fees related to account activation are collected prior to installation and shipping and installation are collected upon service activation. These fees are also recorded as deferred revenue and are recognized as revenue over the estimated life of the subscriber relationship. Prior to the leasing program, these fees as well as all installation and related costs were reflected in cost of revenue in the month of the installation.

Sales taxes collected from subscribers and remitted to governmental authorities are accounted for on a net basis and are excluded from revenues in the consolidated statements of operations.

(r)

Cost of Revenue

Cost of revenue includes both the cost of providing monthly services and the cost of CPE sold. Cost of revenue does not include depreciation expense of CPE leased to customers, which consists of $0.6 million and $4.1 million for the year ended December 31, 2008 and the nine month period ended September 30, 2009, respectively. The cost of monthly services consists primarily of the expenses related to space, terrestrial and customer-facing operations. These costs include but are not limited to satellite, gateway, technical, connectivity, engineering, billing, internet service provider (ISP) services, customer care, logistics, and field operations. These costs are recognized as the services are performed or as incurred. Cost of equipment and installation principally includes the cost of CPE sold and related installation. With the exception of the installation and related expenses associated with initial installation under the leasing program, which are capitalized in property, plant and equipment and amortized over the estimated equipment life, the expenditures are treated as expenses when incurred.

(s)

Sales, Marketing and Advertising Costs

Sales, marketing and advertising costs include the ongoing costs of sales, marketing and advertising programs. They also include the cost of up-front and residual commissions paid to the Company’s independent distributors for selling WildBlue’s service. The portion of the up-front commissions allocated to the CPE lease program is considered loan origination cost under the guidance contained in FASB ASC Topic 310 — Receivables, and is reflected in prepaid expenses and amortized over the estimated life of the subscriber. The remaining portion of the up-front commissions and all residual commissions are expensed as incurred.

The Company’s policy is to expense the costs of advertising as they are incurred and no advertising expenditures are capitalized as of December 31, 2008. Advertising costs included in sales, marketing, and advertising were $6.5 million, $2.7 million, $4.3 million, $4.0 million and $3.7 million for the years ended December 31, 2006, 2007 and 2008 and the nine month periods ended September 30, 2008 and 2009, respectively.

(t)

Research and Development Expenses

Research and development expenses are charged to expense as incurred.

(u)

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with FASB ASC Topic 718 — Compensation — Stock Compensation. FASB ASC Topic 718 establishes standards for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. FASB ASC Topic 718 requires the Company to estimate the amount of expected forfeitures in calculating compensation costs for all outstanding awards. In addition, the Company uses the accelerated attribution method to compute its stock-based compensation expense.

(v)

Income Taxes

The Company uses the asset and liability method of accounting for deferred income taxes as prescribed by FASB Topic 740 — Income Taxes. Under this method, deferred tax assets and liabilities are recognized for tax consequences attributable to the differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to be in effect when such amounts are realized or settled. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The resulting deferred tax assets and liabilities are adjusted to reflect changes in tax laws or rates in the period of enactment.

In June 2006, the FASB issued new guidance in ASC Topic 740 — Income Taxes. These requirements were specific to Accounting for Uncertainty in Income Taxes. The Company adopted the new guidance on January 1, 2009. The Company retrospectively applied the adoption to the financial statements for the years ended December 31, 2007 and 2008 and for the nine month period ended September 30, 2008. The adoption resulted in no effect to the financial statements for any of those periods. FASB ASC Topic 740 defines the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with Topic 740 — Income Taxes and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FASB ASC Topic 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures and transition. Under FASB ASC Topic 740, the benefit of an uncertain income tax position is recognized at the largest amount that is more-likely-than-not to be sustained upon audit or review by the relevant taxing authority.

(w)

Fair Value Measurements

Effective January 1, 2008 the Company adopted the provisions of FASB ASC Topic 820 — Fair Value Measurements and Disclosures, with respect to financial instruments which provides a definition of fair value, establishes a framework for measuring value and emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and should be determined based on the assumptions that market participants would use in pricing the asset or liability. Fair value losses or gains are reported in earnings or other comprehensive earnings (loss) as they occur.

The financial instruments consist of cash and cash equivalents, investments in U.S. Treasury Bills and auction rate securities, accounts receivable, accounts payable, interest rate swaps and borrowings. The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximate their fair values. The fair values of the marketable securities, interest rate swaps and long term debt are described below.

FASB ASC Topic 820 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:

Level 1 inputs utilize observable, quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Financial assets and liabilities utilizing Level 1 inputs include actively-traded equity securities.

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability. Level 2 inputs include the quoted prices for similar assets or liabilities inactive markets, quoted prices for identical or similar assets or liabilities in markets that are not active, that is, markets in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers (for example, some brokered markets), or in which little information is released publicly (for example, a principal-to-principal market), inputs other than quoted prices that are observable for the asset or liability (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates) or inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs).

Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measure in its entirety requires management’s judgment and considers factors specific to the asset or liability.

The following table provides information about the assets and liabilities measured at fair value on a recurring basis as of December 31, 2008 and September 30, 2009 and indicate the valuation technique utilized by the Company to determine the fair value (in thousands).

		Fair Value Measurement at December 31, 2008 Using:
										Significant
		Total Carrying				Quoted prices				Other				Significant
		Value at				in active				Observable				Unobservable
		December 31,				markets				Inputs				Inputs
		2008				(Level 1)				(Level 2)				(Level 3)
Available for sale securities		$
U.S. Treasury Bills		$	9,997			$	9,997			$	—			$	—
Auction Rate Securities			3				—				—				3
Fair Value		$	10,000			$	9,997			$	—			$	3
Long-term debt
Credit facility 1st Lien		$	225,080			$	—			$	—			$	225,080
Credit facility 2nd Lien		$	189,542			$	—			$	—			$	182,529

		Fair Value Measurement at September 30, 2009 Using: (unaudited)
										Significant
		Total Carrying				Quoted prices				Other				Significant
		Value at				in active				Observable				Unobservable
		September 30,				markets				Inputs				Inputs
		2009				(Level 1)				(Level 2)				(Level 3)
Available for sale securities
Auction Rate Securities			1,040				—				—				1,040
Long-term debt
Credit facility 1st Lien		$	229,375			$	—			$	—			$	229,375
Credit facility 2nd Lien		$	205,788			$	—			$	—			$	192,014
Interest Rate Swap		$	1,283			$	—			$	—			$	1,283

During 2007 and 2008 the Company deemed decreases in the fair value of the auction rate securities of $1.1 million and $2.1 million, respectively, to be other-than-temporary and the related impairments were recorded through the consolidated statement of operations. The following table provides disclosures regarding changes in Level 3 fair value measurements (in thousands):

Changes to Recurring Level 3 Fair Value Measurements

		Auction Rate				Interest Rate
Level 3		Securities				Swap
(In thousands)
Balance, January 1, 2007		$				$
Purchases, issuances and settlements, net			3,200				—
Other-than-temporary impairment loss on investments			(1,056	)			—
Realized and unrealized gains (losses) included in other comprehensive income			—				—
Balance as of December 31, 2007			2,144				—
Purchases, issuances and settlements, net			0				—
Other-than-temporary impairment loss on investments			(2,141	)			—
Realized and unrealized gains (losses) included in other comprehensive income			—				—
Balance as of December 31, 2008			3				—
Purchases, issuances and settlements, net			—				368
Other-than-temporary impairment loss on investments			—				—
Realized and unrealized loss on undesignated interest rate swap contract			—				(1,651	)
Realized and unrealized gains (losses) included in other comprehensive income			1,037				—
Balance as of September 30, 2009 (unaudited)		$	1,040			$	(1,283	)

The Company employs various valuation techniques. The Company’s cash equivalents consist of investments with maturity dates of less than six months when purchased and are quoted from market rates and are classified within Level 1 of the valuation hierarchy.

			For the nine month period ended September 30, 2009, the Company recorded a loss of $1.7 million for the changes in the fair value of its interest rate swaps. The loss would continue if London Interbank Offered Rate (LIBOR) rates remain below the current swap rate, and the loss would decrease if LIBOR rates rise, potentially leading to a gain if LIBOR rates rise above the current swap rate. The fair value of the Company’s interest rate swap was determined using projected future cash flows, discounted at the mid-market forward LIBOR rate. The fair values of the Company’s credit facilities are based on the discounted future cash flows using current market rates. The cash flows are discounted using risk free interest rates adjusted for the current credit risk rating of the Company. The credit facilities are reflected on the consolidated balance sheet at original cost net of unamortized discounts and premiums, not at fair value. The fair values of the Company’s auction rate securities are based on the discounted future cash flows using current market rates.
			The Company additionally evaluates the counterparty creditworthiness and has not identified any circumstances requiring that the reported values of its financial instruments be adjusted as of December 31, 2008 and September 30, 2009.
	(x)		Reclassifications
			Certain prior period amounts have been adjusted to correct an immaterial error and conform the prior period presentation to that of the current period. The immaterial error was the result of improperly reducing inventory, increasing accounts receivable and recording a loss on inventory shipped to and held by distributors after the Company implemented the practice of leasing customer premise equipment to subscribers in 2008. The Company has determined that the inventory held by distributors should continue to be reflected on the Company’s balance sheet and it should not record a loss on inventory shipped to its distributor as the inventory is repurchased by the Company from the distributor upon installation at a customer premise under the leasing model (see note 4(h) and note 4(q)). The inventory held in the Company’s distribution channel on December 31, 2008 was approximately $2,660,000 and the loss previously recognized on the inventory shipped to the distributors during 2008 after the company implemented the practice of leasing customer premise equipment to subscribers was approximately $498,000. The company has corrected the amount of inventory reported as of December 31, 2008 with an offsetting reduction in accounts receivable but did not correct the immaterial error relating to the loss previously reported on the inventory shipped to the distributors. As a result of this correction, “Decrease (increase) in receivables” and “Decrease (increase) in inventory” have also been adjusted in “Cash flows from operating activities” on the Consolidated Statements of Cash Flows for the period ending December 31, 2008. The loss on the sales of the customer premise equipment to its distributor of $498,000 in 2008 was recorded in “Cost of revenue” on the Consolidated Statements of Operations. The correction of the immaterial error relating to the loss on sale was corrected in 2009 as a reduction in “Cost of revenue” on the Consolidated Statements of Operations with a corresponding increase in accounts receivable.

	(y)		Recent Accounting Pronouncements
			In June 2009, the FASB issued ASC Topic 105 — Generally Accepted Accounting Principles. The FASB ASC has become the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with GAAP. All existing accounting standard documents are superseded by the Codification and any accounting literature not included in the Codification will not be authoritative. However, rules and interpretive releases of the SEC issued under the authority of federal securities laws will continue to be the source of authoritative generally accepted accounting principles for SEC registrants. Effective September 30, 2009, all references made to GAAP in our consolidated financial statements will refer to the FASB ASC with the exception of authoritative literature that has not yet been added to the FASB’s ASC. The ASC does not change or alter existing GAAP and, will not have any impact on the Company’s accounting policies or its consolidated financial statements.
			In May 2009, the FASB issued ASC Topic 855 — Subsequent Events, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The Company adopted this standard in the quarter ended June 30, 2009 and it did not have any material impact.
			In December 2007, the FASB issued ASC Topic 805 — Business Combinations. FASB ASC Topic 805 expands the definition of a business combination and requires the fair value of the purchase price of an acquisition, including the issuance of equity securities, to be determined on the acquisition date. FASB ASC Topic 805 also requires that all assets, liabilities, contingent considerations, and contingencies of an acquired business be recorded at fair value at the acquisition date. In addition, FASB ASC Topic 805 requires that acquisition costs generally be expensed as incurred, restructuring costs generally be expensed in periods subsequent to the acquisition date, changes in accounting for deferred tax asset valuation allowances be expensed after the measurement period, and acquired income tax

uncertainties be expensed after the measurement period. The Company adopted FASB ASC Topic 805 effective January 1, 2009. The adoption of this standard will impact any of the Company’s future acquisitions.

In April 2008, the FASB issued ASC Topic 350 — Intangibles. FASB Topic 350 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The Company adopted FASB Topic 350 effective January 1, 2009, on a prospective basis. The adoption of this standard did not have a material effect on its consolidated financial position or results of operations.

In April 2009, the FASB issued ASC Topic 320 — Investments. FASB ASC Topic 320 amends the other-than-temporary impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. The Company adopted FASB ASC Topic 320 effective April 1, 2009. Upon adoption, the Company held one investment in an auction rate security that is covered by the guidance of FASB ASC Topic 320. It is the Company’s intention to liquidate the instrument prior to its maturity and has provided the appropriate disclosures under FASB ASC Topic 320. Accordingly, there is no cumulative effect as the result of adopting FASB ASC Topic 320.

In April 2009, the FASB issued ASC Topic 825 — Financial Instruments. FASB ASC Topic 825 increases the frequency of fair value disclosures from annual only to quarterly reporting periods. The requirements of FASB ASC Topic 825 are effective for financial statements issued for interim and annual periods ending after June 15, 2009. The Company has provided the disclosures required by FASB ASC Topic 825 above.

In June 2009, the FASB issued changes to ASC Topic 810 — Consolidation. The changes amended ASC Topic 810 to require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity and to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. The changes are effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. The Company is currently evaluating the impact that the changes may have on its consolidated financial statements.

In October 2009, the FASB issued Accounting Standards Update (ASU) Number 2009-13, “Revenue Recognition (ASC 605) Multiple-Deliverable Revenue Arrangements a consensus of the FASB Emerging Issues Task Force.” This ASU establishes a new selling price hierarchy to use when allocating the sales price of a multiple element arrangement between delivered and undelivered elements. This ASU is generally expected to result in revenue recognition for more delivered elements than under current rules. We are required to adopt this ASU prospectively for new or materially modified agreements as of January 1, 2011. We are evaluating the impact of this ASU, but do not expect adoption to have a material impact on our financial statements.

(5) Information on Industry Segments and Major Customers

The Company follows the guideance in FASB ASC Topic 280 — Segment Reporting. FASB ASC Topic 280 establishes standards for reporting information about operating segments in the financial statements of public business enterprises. The Company only has one operating segment as it does not maintain discreet information or have any significant decision making processes that are indicative of any separable segments.

Revenue percentages from all customers whose revenue exceeded 10% of the total company revenue were as follows:

														For the nine month
		For the years ended December 31,												periods ended September 30,
(% of revenues)		2006				2007				2008				2008				2009
														(unaudited)
Customer A (Related party)			31.4	%			18.0	%			12.3	%			12.8	%			10.8	%
Customer B			*	%			*	%			16.0	%			16.5	%			15.2	%
Customer C			*	%			*	%			10.9	%			8.7	%			11.0	%

Percentages of accounts receivable (net of allowance for doubtful accounts) for all customers whose receivable exceeded 10% of the net accounts receivable as of:

		As of December 31,								As of September
(% of total receivables)		2007				2008				30, 2009
										(unaudited)
Customer A (Related party)			41.9	%			24.0	%			28.8	%
Customer B			34.5	%			48.7	%			43.0	%
Customer C			*	%			20.1	%			8.8	%
Customer D			7.3	%			1.3	%			13.9	%

(6) Inventory

Inventory consists of the following (in thousands):

		As of December 31,
		2007				2008				As of Sept 30, 2009
										(unaudited)
Finished goods — Warehouse		$	8,227			$	2,337			$	4,028
Finished goods — Distribution channel			—				2,660				3,468
Work-in-process			1,969				406				1,167
Finished goods — Spare equipment			380				139				101
		$	10,576			$	5,542			$	8,764

(7) Property and Equipment

Property and equipment consist of the following (in thousands):

		As of December 31,								As of September
		2007				2008				30, 2009
										(unaudited)
Land		$	1,184			$	1,134			$	1,134
Network equipment, software and office furniture			33,343				38,515				41,599
Leasehold improvements			1,581				1,601				1,607
Gateway station facilities			59,087				60,775				62,425
Satellites			444,792				447,077				449,357
Equipment leased to subscribers			—				12,670				39,297
Total property and equipment			539,987				561,772				595,419
Accumulated depreciation and amortization			(74,534	)			(125,959	)			(168,375	)
Property and equipment, net		$	465,453			$	435,813			$	427,044

Depreciation expense for property and equipment was $20.0 million, $41.9 million, $51.6 million, $38.3 million and $42.8 million for the years ended December 31, 2006, 2007 and 2008 and the nine month periods ended September 30, 2008 and 2009, respectively.

(8) Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

		As of December 31,								As of September
		2007				2008				30, 2009
										(unaudited)
Accrued compensation		$	5,957			$	4,042			$	4,821
Accrued commissions			1,153				1,283				2,363
Expense reimbursement payable			2,500				1,910				1,296
Sales, property and other taxes			1,755				1,356				1,317
Accrued customer support expense			1,715				1,102				1,082
Accrued professional fees			417				526				1,595
Accrued derivative instrument liability			—				—				1,283
Accrued interest			148				142				153
Other liabilities			1,274				1,036				605
Total accrued liabilities		$	14,919			$	11,397			$	14,515

(9) Long-Term Debt

Credit Facilities

On January 9, 2006, WildBlue entered into a $218 million senior secured credit facility (Credit Facility 1^st Lien) with certain of its stockholders. The Credit Facility 1^st Lien had an initial 15-month term and is secured by substantially all of the assets of the Company. Interest, which is paid quarterly, was tied to three-month LIBOR plus a margin of 10%. The Credit Facility 1^st Lien allows a portion of the interest to be added to the principal of the debt.

The Credit Facility 1^st Lien includes customary covenants, including financial covenants tied to minimum subscriber counts, pre-subscriber acquisition costs and consolidated EBITDA, as defined. A portion of the Credit Facility 1^st Lien was purchased from an original investor by a limited liability company, the majority of which is owned and controlled by current and former executive officers of the Company.

On August 16, 2006, WildBlue amended the Credit Facility 1^st Lien and entered into an Amended and Restated First Lien Credit Agreement (Credit Facility 1^st Lien, as Amended), which effectively limited the Credit Facility 1^st Lien to $180 million and extended the maturity date to December 31, 2009, subject to the certain conditions within the agreement.

Concurrent with this amendment, on August 16, 2006, the Company entered into a $170 million senior secured credit facility (Credit Facility 2^nd Lien). The Credit Facility 2^nd Lien has a 60-month term and is subordinated to the Credit Facility 1^st Lien with regard to security interests in collateral. Interest, which is paid quarterly, is tied to three-month LIBOR plus a margin of 9.5%. The Credit Facility 2^nd Lien allows for a portion of the interest to be added to the principal and contains a commitment fee for the unused portion of the debt equal to 0.50% per annum and payable quarterly. The Credit Facility 2^nd Lien has a prepayment premium, which requires the Company to pay all interest in full through a specified date on any amounts paid prior to that date. The Credit Facility 2nd Lien includes customary covenants as defined therein, such as financial covenants tied to subscriber counts, consolidated EBITDA, leverage ratios and capital expenditures.

Upon the first borrowing of $50 million under the Credit Facility 2^nd Lien, the Company issued to the lenders detachable warrants to purchase 12,500,000 shares of WildBlue Senior Preferred Stock, at an exercise price of $0.01 per share. The proceeds were allocated ratably to the debt and warrants based on the relative fair value of the debt and warrants. The difference between the allocated value to the debt and its face value is amortized to interest expense over the remaining term of the debt.

On June 30, 2007, WildBlue amended the Credit Facility 1^st Lien, as Amended and Credit Facility 2^nd Lien, to increase each credit facility by $20 million for a total of $40 million. The Credit Facility 1^st Lien, as Amended, and Credit Facility 2^nd Lien were increased to $200 million and $190 million, respectively, exclusive of interest added to the principal. The amendments also (i) reduced the interest rate on the Credit Facility 1^st Lien by 1.5% effective June 30, 2007 to LIBOR plus 6.5%, (ii) adjusted the customary covenants, and (iii) extended by 12 months the prepayment premiums on the Credit Facility 2^nd Lien.

On July 22, 2008, the Company completed a recapitalization transaction, which included an amendment to the Credit Facility 1^st Lien, as Amended and Credit Facility 2^nd Lien, as Amended. Under the amendment to the Credit Facility 1^st Lien, as Amended, the lenders (i) revised the covenants and (ii) granted the Company the ability to extend the maturity date from December 31, 2009 to June 30, 2010, which the Company did effective April 30, 2009. The interest rate on the Credit Facility 1^st Lien will increase to LIBOR plus 8.5% on July 1, 2009. Under the amendment to the Credit Facility 2^nd Lien, as Amended, the lenders (i) revised the covenants, (ii) increased the interest rate from LIBOR + 9.5% to a fixed rate of 15.75% (iii) extended the yield maintenance and prepayment premium periods for an additional 12 months, (iv) provided for a reduction in the interest rate based on achieving certain leverage ratios, and (v) permitted the Company to extend the maturity date of August 16, 2011 to a date not to exceed June 30, 2014. As a part of the recapitalization, warrants for the purchase of 125,000 shares of post-recapitalization Common stock at $0.01 per share were issued in replacement of the original warrants. In addition, the Company issued new

$0.01 warrants for the purchase of 325,000 shares of Common Stock. As part of the amendment to the Credit Facility 2^nd Lien, as Amended, there is a prepayment premium or yield maintenance amount due to the lenders on any amounts paid prior to the fourth anniversary of the effective date of the amendment (or August 16, 2012, if the maturity date is extended.)

The amendments to the credit facilities were accounted for as substantial modifications as defined in FASB ASC Topic 470 — Debt. Under this standard, approximately 95.5% of the debt was considered substantially modified and a loss on extinguishment of $15.6 million was recorded based on the derecognition of the carrying value of the old debt and the recording of the fair value of the new debt, which included the fair value of the new warrants or approximately $24.9 million.

As of December 31, 2008 and September 30, 2009, the Company had $225.1 million and $229.4 million, respectively, outstanding under the Credit Facility 1^st Lien, as Amended, including $25.1 million and $29.4 million, respectively, of interest to be added to the principal. As of December 31, 2008 and September 30, 2009, the Company had $210.6 million and $222.4 million outstanding under the Credit Facility 2^nd Lien, including $20.6 million and $32.4 million, respectively, of interest to be added to the principal balance. As of December 31, 2008 and September 30, 2009, the Company had $21.1 million and $16.6 million, respectively, of long term debt discount, net of amortization of $3.8 million and $7.8 million, respectively. The Company made no commitment fee payments during 2008 or the nine months ended September 30, 2009 as both credit facilities were fully drawn and no additional borrowing was available. After exercising its right to extend the Credit Facility 1^st Lien, the Credit Facility 1^st Lien and the Credit Facility 2^nd Lien have maturity dates of June 30, 2010 and August 16, 2011, respectively. As of December 31, 2008, the Credit Facility 1^st Lien, as Amended and Credit Facility 2^nd Lien interest rates were 10.26% and 15.750%, respectively. At September 30, 2009, the Credit Facility 1^st Lien, as Amended and Credit Facility 2^nd Lien interest rates were 9.10% and 15.750%, respectively.

A portion of the debt is owed to related parties. See note 14 for details on the related parties. The schedules below show the breakdown of the debt and related debt discount between related and non-related parties (in thousands):

		December 31,								September 30
		2007				2008				2009
										(unaudited)
Portion of Credit Facility 1st Lien owed to related parties		$	205,385			$	211,495			$	215,531
Portion of Credit Facility 2nd Lien owed to related parties			188,976				200,529				211,757
Total related party debt			394,361				412,024				427,288
Debt discount			(16,456	)			(20,060	)			(15,820	)
Total long-term debt, net — related party		$	377,905			$	391,964			$	411,468

		December 31,								September 30
		2007				2008				2009
										(unaudited)
Portion of Credit Facility 1st Lien owed to non-related parties		$	14,065			$	13,585			$	13,844
Portion of Credit Facility 2nd Lien owed to non-related parties			9,501				10,082				10,646
Total long-term debt			23,566				23,667				24,490
Debt discount			(827	)			(1,009	)			(795	)
Total long-term debt, net		$	22,739			$	22,658			$	23,695