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.

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

Commission File Number (000-21767)

ViaSat, Inc.

(Exact name of registrant as specified in its charter)

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

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

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

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

     The number of shares outstanding of the registrant’s common stock, $0.0001 par value, as of February 1, 2011 was 41,598,623

 

 

VIASAT, INC.

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)			3
Condensed Consolidated Balance Sheets			3
Condensed Consolidated Statements of Operations			4
Condensed Consolidated Statements of Cash Flows			5
Condensed Consolidated Statement of Equity and Comprehensive Income			6
Notes to Condensed Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			32
Item 3. Quantitative and Qualitative Disclosures About Market Risk			52
Item 4. Controls and Procedures			53
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			53
Item 1A. Risk Factors			54
Item 6. Exhibits			54
Signatures			55
EX-10.1
EX-31.1
EX-31.2
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I — FINANCIAL INFORMATION

Item 1.		Financial Statements (Unaudited)

VIASAT, INC.

		As of				As of
		December 31, 2010				April 2, 2010
		(In thousands)
ASSETS
Current assets:
Cash and cash equivalents		$	45,364			$	89,631
Accounts receivable, net			175,949				176,351
Inventories			95,747				82,962
Deferred income taxes			17,346				17,346
Prepaid expenses and other current assets			25,329				28,857
Total current assets			359,735				395,147
Satellites, net			532,345				495,689
Property and equipment, net			201,643				155,804
Other acquired intangible assets, net			86,311				89,389
Goodwill			82,559				75,024
Other assets			93,308				82,499
Total assets		$	1,355,901			$	1,293,552
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	55,023			$	78,355
Accrued liabilities			122,178				102,251
Current portion of other long-term debt			760				—
Total current liabilities			177,961				180,606
Senior Notes due 2016, net			272,172				271,801
Other long-term debt			51,991				60,000
Other liabilities			30,309				24,395
Total liabilities			532,433				536,802
Commitments and contingencies (Note 9)
Equity:
ViaSat, Inc. stockholders’ equity
Common stock			4				4
Paid-in capital			592,769				545,962
Retained earnings			242,578				218,607
Common stock held in treasury			(17,532	)			(12,027	)
Accumulated other comprehensive income			1,747				459
Total ViaSat, Inc. stockholders’ equity			819,566				753,005
Noncontrolling interest in subsidiary			3,902				3,745
Total equity			823,468				756,750
Total liabilities and equity		$	1,355,901			$	1,293,552

See accompanying notes to condensed consolidated financial statements.

VIASAT, INC.

		Three Months Ended								Nine Months Ended
		December 31, 2010				January 1, 2010				December 31, 2010				January 1, 2010
						(In thousands, except per share data)
Revenues:
Product revenues		$	126,434			$	137,146			$	379,022			$	437,889
Service revenues			69,507				19,218				206,812				37,549
Total revenues			195,941				156,364				585,834				475,438
Operating expenses:
Cost of product revenues			95,009				98,708				278,174				309,105
Cost of service revenues			41,923				11,613				122,682				24,585
Selling, general and administrative			40,413				34,416				121,286				90,259
Independent research and development			6,661				7,864				21,597				21,559
Amortization of acquired intangible assets			4,923				1,901				14,627				4,768
Income from operations			7,012				1,862				27,468				25,162
Other income (expense):
Interest income			46				382				248				580
Interest expense			(60	)			(2,121	)			(3,151	)			(2,530	)
Income before income taxes			6,998				123				24,565				23,212
(Benefit) provision for income taxes			(5,929	)			(2,940	)			437				2,765
Net income			12,927				3,063				24,128				20,447
Less: Net income (loss) attributable to the noncontrolling interest, net of tax			3				(183	)			157				(243	)
Net income attributable to ViaSat, Inc.		$	12,924			$	3,246			$	23,971			$	20,690
Basic net income per share attributable to ViaSat, Inc. common stockholders		$	.31			$	.10			$	.59			$	.65
Diluted net income per share attributable to ViaSat, Inc. common stockholders		$	.30			$	.09			$	.56			$	.62
Shares used in computing basic net income per share			41,205				32,777				40,604				31,863
Shares used in computing diluted net income per share			43,352				34,725				42,799				33,591

See accompanying notes to condensed consolidated financial statements.

VIASAT, INC.

		Nine Months Ended
		December 31, 2010				January 1, 2010
		(In thousands)
Cash flows from operating activities:
Net income		$	24,128			$	20,447
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			61,980				17,432
Amortization of intangible assets			14,628				4,820
Stock-based compensation expense			12,690				8,412
Other non-cash adjustments			6,084				(5,477	)
Increase (decrease) in cash resulting from changes in operating assets and liabilities, net of effect of acquisition:
Accounts receivable			1,901				(9,953	)
Inventories			(11,273	)			(6,580	)
Other assets			(422	)			5,360
Accounts payable			(6,112	)			7,750
Accrued liabilities			17,124				16,288
Other liabilities			2,584				(636	)
Net cash provided by operating activities			123,312				57,863
Cash flows from investing activities:
Purchase of property, equipment and satellites			(151,730	)			(85,429	)
Payment related to acquisition of business, net of cash acquired			(13,456	)			(377,987	)
Cash paid for patents, licenses and other assets			(11,524	)			(10,004	)
Change in restricted cash, net			—				5,150
Net cash used in investing activities			(176,710	)			(468,270	)
Cash flows from financing activities:
Payments on line of credit			(40,000	)			(123,000	)
Proceeds from line of credit borrowings			30,000				263,000
Proceeds from issuance of long-term debt, net of discount			—				271,582
Payment of debt issuance costs			—				(11,598	)
Proceeds from issuance of common stock under equity plans			24,391				14,764
Purchase of common stock in treasury			(5,505	)			(2,297	)
Incremental tax benefits from stock-based compensation			—				1,104
Net cash provided by financing activities			8,886				413,555
Effect of exchange rate changes on cash			245				477
Net (decrease) increase in cash and cash equivalents			(44,267	)			3,625
Cash and cash equivalents at beginning of period			89,631				63,491
Cash and cash equivalents at end of period		$	45,364			$	67,116
Non-cash investing and financing activities:
Issuance of common stock in satisfaction of certain accrued employee compensation liabilities		$	5,096			$	5,090
Issuance of common stock in connection with acquisition		$	4,630			$	131,888
Equipment acquired under capital lease		$	2,751			$	—
Issuance of common stock in connection with license right obtained		$	—			$	303

See accompanying notes to condensed consolidated financial statements.

VIASAT, INC.

		ViaSat, Inc. Stockholders
		Common Stock																Common Stock Held								Accumulated
		Number of																in Treasury								Other				Noncontrolling
		Shares								Paid-in				Retained				Number of								Comprehensive				Interest in								Comprehensive
		Issued				Amount				Capital				Earnings				Shares				Amount				Income (Loss)				Subsidiary				Total				Income
Balance at April 2, 2010			40,199,770			$	4			$	545,962			$	218,607				(407,137	)		$	(12,027	)		$	459			$	3,745			$	756,750
Exercise of stock options			1,018,672				—				20,094				—				—				—				—				—				20,094
Issuance of stock under Employee Stock Purchase Plan			159,940				—				4,297				—				—				—				—				—				4,297
Stock-based compensation expense			—				—				12,690				—				—				—				—				—				12,690
Shares issued in settlement of certain accrued employee compensation liabilities			162,870				—				5,096				—				—				—				—				—				5,096
RSU awards vesting			409,642				—				—				—				—				—				—				—				—
Purchase of treasury shares pursuant to vesting of certain RSU agreements			—				—				—				—				(144,871	)			(5,505	)			—				—				(5,505	)
Shares issued in connection with acquisition of business, net of issuance costs			144,962				—				4,630				—				—				—				—				—				4,630
Net income			—				—				—				23,971				—				—				—				157				24,128			$	24,128
Hedging transactions, net of tax			—				—				—				—				—				—				160				—				160				160
Foreign currency translation, net of tax			—				—				—				—				—				—				1,128				—				1,128				1,128
Comprehensive income																																						$	25,416
Balance at December 31, 2010			42,095,856			$	4			$	592,769			$	242,578				(552,008	)		$	(17,532	)		$	1,747			$	3,902			$	823,468

See accompanying notes to condensed consolidated financial statements.

VIASAT, INC.

Note 1 — Basis of Presentation

     The accompanying condensed consolidated balance sheet at December 31, 2010, the condensed consolidated statements of operations for the three and nine months ended December 31, 2010 and January 1, 2010, the condensed consolidated statements of cash flows for the nine months ended December 31, 2010 and January 1, 2010, and the condensed consolidated statement of equity and comprehensive income for the nine months ended December 31, 2010 have been prepared by the management of ViaSat, Inc. (also referred to hereafter as the Company or ViaSat), and have not been audited. These financial statements have been prepared on the same basis as the audited consolidated financial statements for the fiscal year ended April 2, 2010 and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the Company’s results for the periods presented. These financial statements should be read in conjunction with the financial statements and notes thereto for the fiscal year ended April 2, 2010 included in the Company’s Annual Report on Form 10-K. Interim operating results are not necessarily indicative of operating results for the full year. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (GAAP).

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

     The Company’s fiscal year is the 52 or 53 weeks ending on the Friday closest to March 31 of the specified year. For example, references to fiscal year 2011 refer to the fiscal year ending on April 1, 2011. The Company’s quarters for fiscal year 2011 end on July 2, 2010, October 1, 2010, December 31, 2010 and April 1, 2011. This results in a 53 week fiscal year approximately every four to five years. Fiscal years 2011 and 2010 are both 52 week years.

     During the second quarter of fiscal year 2011, the Company completed the acquisition of Stonewood Group Limited (Stonewood), a privately held company registered in England and Wales. During the third quarter of fiscal year 2010, the Company completed the acquisition of WildBlue Holding, Inc. (WildBlue), a privately held Delaware corporation. The acquisitions were accounted for as purchases and accordingly, the condensed consolidated financial statements include the operating results of Stonewood and WildBlue from the dates of acquisition (see Note 11).

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

Property, equipment and satellites

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

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

     Satellite construction costs, including launch services and insurance, are generally procured under long-term contracts that provide for payments over the contract periods and are capitalized as incurred. The Company is also constructing gateway facilities and network operations systems to support the satellite under construction and these construction costs are capitalized as incurred. Interest expense is capitalized on the carrying value of the satellite, related gateway and networking equipment and other assets during the construction period. With respect to ViaSat-1 (the Company’s high-capacity satellite) and other assets currently under construction, the Company capitalized $7.8 million and $20.5 million of interest expense during the three and nine months ended December 31, 2010, respectively, and $3.8 million and $5.0 million of interest expense during the three and nine months ended January 1, 2010, respectively.

     As a result of the acquisition of WildBlue on December 15, 2009 (see Note 11), the Company acquired the WildBlue-1 satellite (which was placed into service in March 2007) and an exclusive prepaid lifetime capital lease of Ka-band capacity over the continental United States on Telesat Canada’s Anik F2 satellite (which was placed into service in April 2005) and related gateway and networking equipment on both satellites. The acquired assets also included the indoor and outdoor customer premise equipment (CPE) units leased to subscribers under WildBlue’s retail leasing program. The Company depreciates the satellites, gateway and networking equipment, CPE units and related installation costs over their estimated useful lives. The total cost and accumulated depreciation of CPE units included in property and equipment, net, as of December 31, 2010 was $57.9 million and $15.2 million, respectively. The total cost and accumulated depreciation of CPE units included in property and equipment, net, as of April 2, 2010 was $41.5 million and $4.2 million, respectively.

     Occasionally, the Company may enter into capital lease arrangements for various machinery, equipment, computer-related equipment, software, furniture or fixtures. As of December 31, 2010, assets under capital leases totaled approximately $2.8 million. During the three and nine months ended December 31, 2010, the Company recorded immaterial amounts of capital lease amortization in depreciation expense. The Company had no capital lease arrangements as of April 2, 2010 and there was no capital lease amortization for the three and nine months ended January 1, 2010.

Patents, orbital slots and orbital licenses

     The Company capitalizes the costs of obtaining or acquiring patents, orbital slots and orbital licenses. Amortization of intangible assets that have finite lives is provided for by the straight-line method over the shorter of the legal or estimated economic life. Total capitalized costs of $3.2 million and $3.0 million related to patents were included in other assets as of December 31, 2010 and April 2, 2010, respectively. Accumulated amortization related to these patents was $0.3 million as of December 31, 2010 and April 2, 2010. Amortization expense related to these patents was less than $0.1 million for each of the three and nine months ended December 31, 2010 and January 1, 2010. The Company also capitalized $5.5 million and $5.2 million of costs related to acquiring and obtaining licenses that were included in other assets as of December 31, 2010 and April 2, 2010, respectively, related to orbital slots and orbital licenses that have not yet been placed into service. If a patent, orbital slot or orbital license is rejected, abandoned or otherwise invalidated, the unamortized cost is expensed in that period.

Debt issuance costs

     Debt issuance costs are amortized and recognized as interest expense on a straight-line basis over the expected term of the related debt, which is not materially different from the effective interest rate basis. During the three and nine months ended December 31, 2010, the Company did not pay or capitalize any debt issuance costs. During the three and nine months ended January 1, 2010, the Company paid and capitalized approximately $8.5 million and $11.3 million, respectively, in debt issuance costs related to the Company’s 8.875% Senior Notes due 2016 (the Notes) and additional debt issuance costs related to the Company’s revolving credit facility (the Credit Facility). Unamortized debt issuance costs are recorded in prepaid expenses and other current assets and in other long-term assets in the condensed consolidated balance sheets, depending on the amounts expected to be amortized to interest expense within the next twelve months.

Software development

     Costs of developing software for sale are charged to research and development expense when incurred, until technological feasibility has been established. Software development costs incurred from the time technological feasibility is reached until the product is available for general release to customers are capitalized and reported at the lower of unamortized cost or net realizable value. Once the product is available for general release, the software development costs are amortized based on the ratio of current to

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

future revenue for each product with an annual minimum equal to straight-line amortization over the remaining estimated economic life of the product, generally within five years. The Company capitalized $3.4 million and $11.4 million of costs related to software developed for resale for the three and nine months ended December 31, 2010, respectively. The Company capitalized $2.3 million and $5.3 million of costs related to software developed for resale for the three and nine months ended January 1, 2010, respectively. There was no amortization expense of software development costs for the three and nine months ended December 31, 2010 and January 1, 2010.

Self-insurance liabilities

     The Company has self-insurance plans to retain a portion of the exposure for losses related to employee medical benefits and workers’ compensation. The self-insurance policies provide for both specific and aggregate stop-loss limits. The Company utilizes internal actuarial methods as well as other historical information for the purpose of estimating ultimate costs for a particular policy year. Based on these actuarial methods, along with currently available information and insurance industry statistics, the Company’s self-insurance liability for the plans was $1.4 million as of December 31, 2010 and April 2, 2010. 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.

Indemnification provisions

     In the ordinary course of business, the Company includes indemnification provisions in certain of its contracts, generally relating to parties with which the Company has commercial relations. Pursuant to these agreements, the Company will indemnify, hold harmless and agree to reimburse the indemnified party for losses suffered or incurred by the indemnified party, including but not limited to losses relating to third-party intellectual property claims. To date, there have not been any costs incurred in connection with such indemnification clauses. The Company’s insurance policies do not necessarily cover the cost of defending indemnification claims or providing indemnification, so if a claim was filed against the Company by any party that the Company has agreed to indemnify, the Company could incur substantial legal costs and damages. A claim would be accrued when a loss is considered probable and the amount can be reasonably estimated. At December 31, 2010 and April 2, 2010, no such amounts were accrued.

     Simultaneously with the execution of the merger agreement relating to the acquisition of WildBlue, the Company entered into an indemnification agreement dated September 30, 2009 with several of the former stockholders of WildBlue pursuant to which such former stockholders agreed to indemnify the Company for costs which result from, relate to or arise out of potential claims and liabilities under various WildBlue contracts, an existing appraisal action regarding WildBlue’s 2008 recapitalization, certain rights to acquire securities of WildBlue and a severance agreement. Under the indemnification agreement, the Company is required to pay up to $0.5 million and has recorded a liability of $0.5 million in the condensed consolidated balance sheets as of December 31, 2010 and April 2, 2010 as an element of accrued liabilities.

Noncontrolling interest

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

Common stock held in treasury

     During the first nine months of fiscal year 2011 and during fiscal year 2010, the Company issued 409,642 and 234,039 shares of common stock, respectively, based on the vesting terms of certain restricted stock unit agreements. In order for employees to satisfy minimum statutory employee tax withholding requirements related to the issuance of common stock underlying these restricted stock unit agreements, the Company repurchased 144,871 and 88,438 shares of common stock with a total value of $5.5 million and $2.3 million during the first nine months of fiscal year 2011 and during fiscal year 2010, respectively.

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

     On January 4, 2010, the Company repurchased 251,731 shares of the Company’s common stock from Intelsat USA Sales Corp for $8.0 million in cash. Repurchased shares of common stock of 552,008 and 407,137 were held in treasury as of December 31, 2010 and April 2, 2010, respectively.

Derivatives

     The Company enters into foreign currency forward and option contracts from time to time to hedge certain forecasted foreign currency transactions. Gains and losses arising from foreign currency forward and option contracts not designated as hedging instruments are recorded in 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.

     The fair values of the Company’s outstanding foreign currency forward contracts as of December 31, 2010 were as follows:

Asset Derivatives

Liability Derivatives

Balance Sheet

Fair

Balance Sheet

Classification

Value

Classification

Fair Value

(In thousands)

Derivatives designated as hedging instruments

Foreign currency forward contracts

Other assets

$

160

Other liabilities

$

—

Total derivatives designated as hedging instruments

$

160

$

—

     The Company had no foreign currency forward contracts outstanding as of April 2, 2010 and therefore there was no balance in the Company’s accumulated other comprehensive income related to hedging transactions as of April 2, 2010. The notional value of foreign currency forward contracts outstanding as of December 31, 2010 was $6.1 million.

     The effects of foreign currency forward contracts in cash flow hedging relationships during the three months ended December 31, 2010 were as follows:

Amount of

Gain or

(Loss)

Amount

Location of

Amount of

Location of Gain

Recognized

of Gain or

Gain or

Gain or

or (Loss)

in Income on

(Loss)

(Loss)

(Loss)

Recognized in

Derivative

Recognized

Reclassified

Reclassified

Income on

(Ineffective

in Accumulated

from

from

Derivative

Portion and

OCI

Accumulated

Accumulated

(Ineffective

Amount

on

OCI into

OCI into

Portion and

Excluded

Derivatives

Income

Income

Amount Excluded

from

Derivatives in Cash

(Effective

(Effective

(Effective

from Effectiveness

Effectiveness

Flow Hedging

Portion)

Portion)

Portion)

Testing)

Testing)

Relationships

(In thousands)

Foreign currency forward contracts

$

(120

)

Selling, general and administrative

$

399

Selling, general and administrative

$

—

Total

$

(120

)

$

399

$

—

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

     The effects of foreign currency forward contracts in cash flow hedging relationships during the nine months ended December 31, 2010 were as follows:

Amount of

Gain or

(Loss)

Amount

Location of

Amount of

Location of Gain

Recognized

of Gain or

Gain or

Gain or

or (Loss)

in Income on

(Loss)

(Loss)

(Loss)

Recognized in

Derivative

Recognized

Reclassified

Reclassified

Income on

(Ineffective

in Accumulated

from

from

Derivative

Portion and

OCI

Accumulated

Accumulated

(Ineffective

Amount

on

OCI into

OCI into

Portion and

Excluded

Derivatives

Income

Income

Amount Excluded

from

Derivatives in Cash

(Effective

(Effective

(Effective

from Effectiveness

Effectiveness

Flow Hedging

Portion)

Portion)

Portion)

Testing)

Testing)

Relationships

(In thousands)

Foreign currency forward contracts

$

160

Selling, general and administrative

$

601

Selling, general and administrative

$

—

Total

$

160

$

601

$

—

     During the three and nine months ended January 1, 2010, the Company did not settle any foreign currency forward contracts; therefore, there were no realized gains or losses during the three and nine months ended January 1, 2010 related to derivative instruments.

     At December 31, 2010, the estimated net existing income that is expected to be reclassified into income within the next twelve months is approximately $0.2 million. Foreign currency forward contracts usually mature within approximately twelve months from their inception. There were no gains or losses from ineffectiveness of these financial instruments recorded for the three and nine months ended December 31, 2010 and January 1, 2010.

Stock-based compensation

     The Company records compensation expense associated with stock options, restricted stock unit awards and other stock-based compensation in accordance with the authoritative guidance for share-based payments (Statement of Financial Accounting Standards (SFAS) No. 123R (SFAS 123R), “Share-Based Payment” / Accounting Standards Codification (ASC) 718 (ASC 718)). The Company recognizes these compensation costs on a straight-line basis over the requisite service period of the award. The Company recognized $4.4 million and $12.7 million of stock-based compensation expense for the three and nine months ended December 31, 2010, respectively. The Company recognized $3.3 million and $8.4 million of stock-based compensation expense for the three and nine months ended January 1, 2010, respectively.

     For the nine months ended December 31, 2010 the Company recorded no incremental tax benefits from stock options exercised and restricted stock unit award vesting as the excess tax benefit from stock options exercised and restricted stock unit award vesting increased the Company’s net operating loss carryforward. The Company recorded incremental tax benefits from stock options exercised and restricted stock unit awards vesting of $1.1 million for the nine months ended January 1, 2010 which were classified as part of cash flows from financing activities in the condensed consolidated statements of cash flows.

Income taxes

     Accruals for uncertain tax positions are provided for in accordance with the authoritative guidance for accounting for uncertainty in income taxes (Financial Accounting Standards Board (FASB) Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” / ASC 740). The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The authoritative guidance for accounting for uncertainty in income taxes also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures.

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

Recent authoritative guidance

     In October 2009, the FASB issued authoritative guidance for revenue recognition with multiple deliverables (Emerging Issues Task Force 08-1 (EITF 08-1), “Revenue Arrangements with Multiple Deliverables”). This new guidance impacts the determination of

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

when the individual deliverables included in a multiple-element arrangement may be treated as separate units of accounting. Additionally, this guidance modifies the manner in which the transaction consideration is allocated across the separately identified deliverables by no longer permitting the residual method of allocating arrangement consideration. This guidance will be effective for the Company beginning in the first quarter of fiscal year 2012; however, early adoption is permitted. The Company is currently evaluating the impact that the authoritative guidance may have on its consolidated financial statements and disclosures.

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 authoritative guidance for the percentage-of-completion method of accounting (the AICPA’s Statement of Position 81-1 (SOP 81-1), “Accounting for Performance of Construction-Type and Certain Production-Type Contracts” / ASC 605-35). Sales and earnings under these contracts are recorded either based on the ratio of actual costs incurred to date to total estimated costs expected to be incurred related to the contract or as products are shipped under the units-of-delivery method. Anticipated losses on contracts are recognized in full in the period in which losses become probable and estimable. Changes in estimates of profit or loss on contracts are included in earnings on a cumulative basis in the period the estimate is changed.

     In June 2010, the Company performed extensive integration testing of numerous system components that had been separately developed as part of a government satellite communication program. As a result of this testing and subsequent internal reviews and analyses, the Company determined that significant additional rework was required in order to complete the program requirements and specifications and to prepare for a scheduled customer test in the Company’s fiscal second quarter. This additional rework and engineering effort resulted in a substantial increase in estimated labor and material costs to complete the program. Accordingly, the Company recorded an additional forward loss of $8.5 million in the three months ended July 2, 2010 related to this estimate of program costs. While the Company believes the additional forward loss is adequate to cover known risks to date and that steps taken to improve the program performance will be effective, the program is on going and the Company’s efforts and the end results must be satisfactory to the customer. The Company believes that its estimate of costs to complete the program is appropriate based on known information, but cannot provide absolute assurance that additional costs will not be incurred. Including this program, during the three months ended December 31, 2010 and January 1, 2010, the Company recorded losses of approximately $2.3 million and $0.6 million, respectively, related to loss contracts. Including this program, during the nine months ended December 31, 2010 and January 1, 2010, the Company recorded losses of approximately $11.5 million and $5.7 million, respectively, related to loss contracts.

     The Company also has contracts and purchase orders where revenue is recorded on delivery of products or performance of services in accordance with authoritative guidance for revenue recognition (Staff Accounting Bulletin No. 104, “Revenue Recognition” / ASC 605). Under this standard, the Company recognizes revenue when an arrangement exists, prices are determinable, collectability is reasonably assured and the goods or services have been delivered.

     The Company also enters into certain leasing arrangements with customers and evaluates the contracts in accordance with the authoritative guidance for leases (SFAS 13, “Leases” / ASC 840). The Company’s accounting for equipment leases involves specific determinations under the authoritative guidance for leases, which often involve complex provisions and significant judgments. In accordance with the authoritative guidance for leases, the Company classifies the transactions as sales type or operating leases based on (1) review for transfers of ownership of the property to the lessee by the end of the lease term, (2) review of the lease terms to determine if it contains an option to purchase the leased property for a price which is sufficiently lower than the expected fair value of the property at the date of the option, (3) review of the lease term to determine if it is equal to or greater than 75% of the economic life of the equipment and (4) review of the present value of the minimum lease payments to determine if they are equal to or greater than 90% of the fair market value of the equipment at the inception of the lease. Additionally, the Company considers the cancelability of the contract and any related uncertainty of collections or risk in recoverability of the lease investment at lease inception. Revenue from sales type leases is recognized at the inception of the lease or when the equipment has been delivered and installed at the customer site, if installation is required. Revenues from equipment rentals under operating leases are recognized as earned over the lease term, which is generally on a straight-line basis.

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

     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 authoritative guidance for accounting for multiple element revenue arrangements, (EITF 00-21, “Accounting for Multiple Element Revenue Arrangements” / ASC 605-25), and recognized when the applicable revenue recognition criteria for each element have been 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 of fair value for those elements could affect the timing of the revenue recognition.

     In accordance with authoritative guidance for shipping and handling fees and costs (EITF 00-10, “Accounting for Shipping and Handling Fees and Costs” / ASC 605-45), the Company records shipping and handling costs billed to customers as a component of revenues, and shipping and handling costs incurred by the Company for inbound and outbound freight are recorded as a component of cost of revenues.

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

     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.

Note 3 — Fair Value Measurements

     In accordance with the authoritative guidance for financial assets and liabilities measured at fair value on a recurring basis (SFAS 157, “Fair Value Measurements” / ASC 820), the Company prioritizes the inputs used to measure fair value from market-based assumptions to entity specific assumptions:

•

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

•

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

•

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

     Effective April 4, 2009, the Company adopted the authoritative guidance for non-financial assets and liabilities that are remeasured at fair value on a non-recurring basis without material impact on its consolidated financial statements and disclosures.

     The following tables present the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of December 31, 2010 and April 2, 2010:

		Fair Value at
		December 31, 2010				Level 1				Level 2				Level 3
		(In thousands)
Assets
Cash equivalents		$	5,748			$	4,033			$	1,715			$	—
Foreign currency forward contracts			160				—				160				—
Total assets measured at fair value on a recurring basis		$	5,908			$	4,033			$	1,875			$	—

		Fair Value at
		April 2, 2010				Level 1				Level 2				Level 3
		(In thousands)
Assets
Cash equivalents		$	16,250			$	14,810			$	1,440			$	—
Total assets measured at fair value on a recurring basis		$	16,250			$	14,810			$	1,440			$	—

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

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

     Cash equivalents - The Company’s cash equivalents consist of money market funds and certified deposit investments. Money market funds are valued using quoted prices for identical assets in an active market with sufficient volume and frequency of transactions (Level 1). Certified deposit investments are valued based on quoted prices for similar assets, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or brokers’ model driven valuations in which all significant inputs are observable or can be obtained from or corroborated by observable market data for substantially the full term of the assets (Level 2).

     Foreign currency forward exchange contracts - The Company uses derivative financial instruments to manage foreign currency risk relating to foreign exchange rates. The Company does not use these instruments for speculative or trading purposes. The Company’s objective is to reduce the risk to earnings and cash flows associated with changes in foreign currency exchange rates. Derivative instruments are recognized as either assets or liabilities in the accompanying condensed consolidated financial statements and are measured at fair value. Gains and losses resulting from changes in the fair values of those derivative instruments are recorded to earnings or other comprehensive income (loss) depending on the use of the derivative instrument and whether it qualifies for hedge accounting. The Company’s foreign currency forward contracts are valued using quoted prices for similar assets and liabilities in active markets or other inputs that are observable or can be corroborated by observable market data.

     Long-term debt - As of December 31, 2010 and April 2, 2010, the Company’s long-term debt consisted of borrowings under the Credit Facility reported at the borrowed outstanding amount with current accrued interest, capital lease obligations reported at the present value of future minimum lease payments with current accrued interest, and the Notes reported at amortized cost. However, for disclosure purposes, the Company is required to measure the fair value of outstanding debt on a recurring basis. The fair value of the Company’s long-term debt related to the Notes is determined using quoted prices in active markets and was approximately $292.9 million and $281.2 million as of December 31, 2010 and April 2, 2010, respectively. The fair value of the Company’s long-term debt related to the Credit Facility approximates its carrying amount due to its variable interest rate on the revolving line of credit which approximates a market interest rate. The fair value of the Company’s capital lease obligations is estimated at their carrying value based on current rates.

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

		Three Months Ended								Nine Months Ended
		December 31, 2010				January 1, 2010				December 31, 2010				January 1, 2010
		(In thousands)
Weighted average:
Common shares outstanding used in calculating basic net income per share attributable to ViaSat, Inc. common stockholders			41,205				32,777				40,604				31,863
Options to purchase common stock as determined by application of the treasury stock method			1,636				1,603				1,638				1,335
Restricted stock units to acquire common stock as determined by application of the treasury stock method			392				217				422				253
Potentially issuable shares in connection with certain terms of the amended ViaSat 401(k) Profit Sharing Plan			91				113				97				119
Employee Stock Purchase Plan equivalents			28				15				38				21
Shares used in computing diluted net income per share attributable to ViaSat, Inc. common stockholders			43,352				34,725				42,799				33,591

     Antidilutive shares relating to stock options excluded from the calculation were 165,000 and 56,099 shares for the three and nine months ended December 31, 2010, respectively. Antidilutive shares relating to stock options excluded from the calculation were 523,295 and 468,153 shares for the three and nine months ended January 1, 2010, respectively.

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

     Antidilutive shares relating to restricted stock units excluded from the calculation were none and 109,652 shares for the three and nine months ended December 31, 2010, respectively. Antidilutive shares relating to restricted stock units excluded from the calculation were 364 and 136,704 shares for the three and nine months ended January 1, 2010, respectively.

Note 5 — Composition of Certain Balance Sheet Captions

		As of				As of
		December 31, 2010				April 2, 2010
		(In thousands)
Accounts receivable, net:
Billed		$	97,978			$	93,737
Unbilled			78,454				83,153
Allowance for doubtful accounts			(483	)			(539	)
		$	175,949			$	176,351
Inventories:
Raw materials		$	46,636			$	36,255
Work in process			24,386				21,345
Finished goods			24,725				25,362
		$	95,747			$	82,962
Prepaid expenses and other current assets:
Prepaid expenses		$	20,477			$	13,239
Income tax receivable			2,999				9,022
Other			1,853				6,596
		$	25,329			$	28,857
Satellites, net:
Satellite — WildBlue-1 (estimated useful life of 10 years)		$	195,890			$	195,890
Capital lease of satellite capacity — Anik F2 (estimated useful life of 10 years)			99,090				99,090
Satellite under construction			268,211				209,432
			563,191				504,412
Less accumulated depreciation and amortization			(30,846	)			(8,723	)
		$	532,345			$	495,689
Property and equipment, net:
Machinery and equipment (estimated useful life of 2-5 years)		$	111,591			$	96,484
Computer equipment and software (estimated useful life of 3-5 years)			62,022				55,384
CPE leased equipment (estimated useful life of 3-5 years)			57,857				41,469
Furniture and fixtures (estimated useful life of 7 years)			11,659				10,760
Leasehold improvements (estimated useful life of 2-11 years)			23,862				20,119
Building (estimated useful life of 24 years)			8,923				8,923
Land			4,384				4,384
Construction in progress			57,051				18,578
			337,349				256,101
Less accumulated depreciation and amortization			(135,706	)			(100,297	)
		$	201,643			$	155,804
Other acquired intangible assets, net:
Technology (estimated useful life of 3-9 years)		$	54,010			$	44,552
Contracts and customer relationships (estimated useful life of 3-10 years)			88,762				86,707
Non-compete agreement (estimated useful life of 3-5 years)			9,323				9,098
Satellite co-location rights (estimated useful life of 10 years)			8,600				8,600
Trade name (estimated useful life of 3 years)			5,680				5,680
Other intangibles (estimated useful life of 8 months to 10 years)			9,331				9,326
			175,706				163,963
Less accumulated amortization			(89,395	)			(74,574	)
		$	86,311			$	89,389
Accrued liabilities:
Warranty reserve, current portion		$	6,678			$	6,410
Accrued vacation			13,886				13,437
Accrued employee compensation			11,298				17,268
Collections in excess of revenues and deferred revenues			64,172				46,180
Other			26,144				18,956
		$	122,178			$	102,251

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

Note 6 — Goodwill and Acquired Intangible Assets

     During fiscal year 2011, the Company's goodwill increased by approximately $7.5 million, net, of which $7.9 million was related to the acquisition of Stonewood recorded within the Company's government systems segment. The Company also recorded a $0.7 million decrease to goodwill for the tax effect of certain pre-acquisition net operating loss carryovers with a corresponding adjustment to deferred tax assets within the Company's satellite service segment. The remaining change in goodwill of $0.3 million relates to the effect of foreign currency translation recorded within the Company's government systems and commercial networks segments.

     The other acquired intangible assets are amortized using the straight-line method over their estimated useful lives of eight months to ten years. Amortization expense related to other acquired intangible assets was $4.9 million and $1.9 million for the three months ended December 31, 2010 and January 1, 2010, respectively, and $14.6 million and $4.8 million for the nine months ended December 31, 2010 and January 1, 2010, respectively.

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

		Amortization
		(In thousands)
For the nine months ended December 31, 2010		$	14,627
Expected for the remainder of fiscal year 2011		$	4,762
Expected for fiscal year 2012			18,657
Expected for fiscal year 2013			15,558
Expected for fiscal year 2014			13,807
Expected for fiscal year 2015			13,731
Thereafter			19,796
		$	86,311

Note 7 — Senior Notes and Other Long-Term Debt

     Total long-term debt consisted of the following as of December 31, 2010 and April 2, 2010:

		As of				As of
		December 31, 2010				April 2, 2010
		(In thousands)
Senior Notes Due 2016 (the Notes)
Notes		$	275,000			$	275,000
Unamortized discount on the Notes			(2,828	)			(3,199	)
Total Notes, net of discount			272,172				271,801
Less: current portion of the Notes			—				—
Total Notes long-term, net			272,172				271,801
Other Long-Term Debt
Line of credit			50,000				60,000
Capital lease obligations, due 2013, interest rate 4.78%			2,751				—
Total other long-term debt			52,751				60,000
Less: current portion of other long-term debt			760				—
Other long-term debt, net			51,991				60,000
Total debt			324,923				331,801
Less: current portion			760				—
Long-term debt, net		$	324,163			$	331,801

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

     The aggregate payments on the Company’s long-term debt obligations excluding the effects of discount accretion on its $275.0 million of Notes as of December 31, 2010 were as follows:

For the Fiscal Years Ending		(In thousands)
For the remainder of fiscal year 2011		$	—
2012			1,177
2013			51,184
2014			599
2015			—
Thereafter			275,000
			327,960
Less: imputed interest			209
Less: unamortized discount on the Notes			2,828
Total		$	324,923

Senior Notes due 2016

     On October 22, 2009, the Company issued $275.0 million in principal amount of Notes in a private placement to institutional buyers, which Notes were exchanged in May 2010 for substantially identical Notes that had been registered with the Securities and Exchange Commission (SEC). The Notes bear interest at the rate of 8.875% per year, payable semi-annually in cash in arrears, which interest payments commenced in March 2010. The Notes were issued with an original issue discount of 1.24%, or $3.4 million. The Notes are recorded as long-term debt, net of original issue discount, in the Company’s consolidated financial statements. The original issue discount and deferred financing cost associated with the issuance of the Notes is amortized to interest expense on a straight-line basis over the term of the Notes.

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

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

     Prior to September 15, 2012, the Company may redeem up to 35% of the Notes at a redemption price of 108.875% of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to the redemption date, from the net cash proceeds of specified equity offerings. The Company may also redeem the Notes prior to September 15, 2012, in whole or in part, at a redemption price equal to 100% of the principal amount thereof plus the applicable premium and any accrued and unpaid interest, if any, thereon to the redemption date. The applicable premium is calculated as the greater of: (i) 1.0% of the principal amount of such Notes and (ii) the excess, if any, of (a) the present value at such date of redemption of (1) the redemption price of such Notes on September 15, 2012 plus (2) all required interest payments due on such Notes through September 15, 2012 (excluding accrued but unpaid interest to the date of redemption), computed using a discount rate equal to the treasury rate (as defined under the indenture) plus 50 basis points, over (b) the then-outstanding principal amount of such Notes. The Notes may be redeemed, in whole or in part, at any time during the twelve months beginning on September 15, 2012 at a redemption price of 106.656%, during the twelve months beginning on September 15, 2013 at a redemption price of 104.438%, during the twelve months beginning on September 15, 2014 at a redemption price of 102.219%, and at any time on or after September 12, 2015 at a redemption price of 100%, in each case plus accrued and unpaid interest, if any, thereon to the redemption date.

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

     In the event a change of control occurs (as defined under the indenture), each holder will have the right to require the Company to repurchase all or any part (equal to $2,000 or larger integral multiples of $1,000) of such holder’s Notes at a purchase price in cash equal to 101% of the aggregate principal amount of the Notes repurchased plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).

Credit Facility

     As of December 31, 2010, the Credit Facility provided a revolving line of credit of $275.0 million (including up to $35.0 million in letters of credit). Borrowings under the Credit Facility bear interest, at the Company’s option, at either (1) the highest of the Federal Funds rate plus 0.50%, the Eurodollar rate plus 1.00% or the administrative agent’s prime rate as announced from time to time, or (2) at the Eurodollar rate plus, in the case of each of (1) and (2), an applicable margin that is based on the ratio of the Company’s debt to earnings before interest, taxes, depreciation and amortization (EBITDA). At December 31, 2010, the weighted average effective interest rate on the Company’s outstanding borrowings under the Credit Facility was 4.28%. The Company has capitalized certain amounts of interest expense on the Credit Facility in connection with the construction of ViaSat-1 and other assets currently under construction. The Credit Facility is guaranteed by certain of the Company’s domestic subsidiaries and collateralized by substantially all of the Company’s and the Guarantor Subsidiaries’ assets. The Credit Facility contains financial covenants regarding a maximum leverage ratio, a maximum senior secured leverage ratio and a minimum interest coverage ratio. In addition, the Credit Facility contains covenants that restrict, among other things, the Company’s ability to sell assets, make investments and acquisitions, make capital expenditures, grant liens, pay dividends and make certain other restricted payments.

     The Company was in compliance with its financial covenants under the Credit Facility as of December 31, 2010. At December 31, 2010, the Company had $50.0 million in principal amount of outstanding borrowings under the Credit Facility and $14.8 million outstanding under standby letters of credit, leaving borrowing availability under the Credit Facility as of December 31, 2010 of $210.2 million.

     On January 25, 2011, subsequent to the third quarter of fiscal year 2011, the Company further amended the Credit Facility to (1) increase the Company’s revolving line of credit from $275.0 million to $325.0 million, (2) extend the maturity date of the Credit Facility from July 1, 2012 to January 25, 2016, (3) decrease the commitment fee and the applicable margin for Eurodollar and base rate loans under the Credit Facility, and (4) amend certain financial and other covenants to provide the Company with increased flexibility.

Capital leases

     Occasionally the Company may enter into capital lease agreements for various machinery, equipment, computer-related equipment, software, furniture or fixtures. As of December 31, 2010, the Company had approximately $2.8 million outstanding under capital leases payable over a weighted average period of 36 months. These lease agreements bear interest at a weighted average rate of 4.78% and can be extended on a month-to-month basis after the original term. The Company had no capital lease arrangements as of April 2, 2010.

Note 8 — Product Warranty

     The Company provides limited warranties on its products for periods of up to five years. The Company records a liability for its warranty obligations when products are shipped or they are included in long-term construction contracts based upon an estimate of expected warranty costs. Amounts expected to be incurred within twelve months are classified as a current liability. For mature products, the warranty cost estimates are based on historical experience with the particular product. For newer products that do not have a history of warranty cost, the Company bases its estimates on its experience with the technology involved and the type of failures that may occur. It is possible that the Company’s underlying assumptions will not reflect the actual experience and in that case, future adjustments will be made to the recorded warranty obligation. The following table reflects the change in the Company’s warranty accrual during the nine months ended December 31, 2010 and January 1, 2010.

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

		Nine Months Ended
		December 31, 2010				January 1, 2010
		(In thousands)
Balance, beginning of period		$	11,208			$	11,194
Change in liability for warranties issued in period			5,903				4,602
Settlements made (in cash or in kind) during the period			(4,042	)			(4,929	)
Balance, end of period		$	13,069			$	10,867

Note 9 — Commitments and Contingencies

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

Note 10 — Income Taxes

     The Company currently estimates its annual effective income tax rate to be approximately 7.7% for fiscal year 2011, as compared to the actual 15.0% effective income tax rate in fiscal year 2010. The effective income tax rate of approximately 1.8% for the first nine months of fiscal year 2011 was 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 year 2011 by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, enacted on December 17, 2010, which extended the research and development tax credit from January 1, 2010 to December 31, 2011. In the first two quarters of fiscal year 2011, the Company’s 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 $2.8 million in the third quarter of fiscal year 2011. Also as a result of the extension of the research and development tax credit, approximately $1.5 million of research and development tax credit generated in the fourth quarter of fiscal year 2010 was recognized as a discrete tax benefit in the third quarter of fiscal year 2011. In addition, in the third quarter of fiscal year 2011, approximately $2.1 million of previously unrecognized tax benefits were recognized due to the expiration of the statute of limitations for certain previously filed tax returns.

     For the three and nine months ended December 31, 2010, the Company’s gross unrecognized tax benefits increased by $2.9 million and $3.5 million, respectively. In the next twelve months, it is reasonably possible that the amount of unrecognized tax benefits will decrease by $3.3 million as a result of the expiration of the statute of limitations for previously filed tax returns.

Note 11 — Acquisitions

Stonewood acquisition

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

     The Company accounts for business combinations pursuant to the authoritative guidance for business combinations (SFAS 141R, “Business Combinations,” / ASC 805). Accordingly, the Company allocated the purchase price of the acquired company to the net tangible assets and intangible assets acquired based upon their estimated fair values. Under the authoritative guidance for business combinations, acquisition-related transaction costs and acquisition-related restructuring charges are not included as components of consideration transferred but are accounted for as expenses in the period in which the costs are incurred. Total merger-related transaction costs incurred by the Company were approximately $0.9 million, of which none and $0.9 million were incurred and recorded in selling, general and administrative expenses in the three and nine months ended December 31, 2010, respectively.

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

     The preliminary purchase price allocation of the acquired assets and assumed liabilities based on the estimated fair values as of July 8, 2010 is as follows:

		(In thousands)
Current assets		$	4,382
Property and equipment			484
Identifiable intangible assets			11,199
Goodwill			7,856
Total assets acquired			23,921
Current liabilities			(1,843	)
Other long term liabilities			(3,245	)
Total liabilities assumed			(5,088	)
Total purchase price		$	18,833

     Amounts assigned to identifiable intangible assets are being amortized on a straight-line basis over their estimated useful lives and are as follows:

						Estimated
		Preliminary				weighted
		fair value				average
		(In thousands)				life
Technology		$	9,026				5
Customer relationships			1,977				10
Non-compete agreements			196				5
Total identifiable intangible assets		$	11,199				6

     The intangible assets acquired in the Stonewood business combination were determined, in accordance with the authoritative guidance for business combinations, based on the estimated fair values using valuation techniques consistent with the market approach and/or income approach to measure fair value. The remaining useful lives were estimated based on the underlying agreements and/or the future economic benefit expected to be received from the assets.

     The acquisition of Stonewood is beneficial to the Company as it enhances the Company’s current encryption security offerings within the Company’s information assurance products and provides additional solutions in the design, manufacture and delivery of data at rest encryption products and services. These benefits and additional opportunities were among the factors that contributed to a purchase price resulting in the recognition of preliminary estimated goodwill, which was recorded within the Company’s government systems segment. The intangible assets and goodwill recognized are not deductible for federal income tax purposes. The purchase price allocation is preliminary due to pending resolution of certain Stonewood tax attributes.

     The condensed consolidated financial statements include the operating results of Stonewood from the date of acquisition. 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.

WildBlue acquisition

     On December 15, 2009, the Company completed the acquisition of all outstanding shares of WildBlue, a privately held provider of broadband internet service, delivering two-way broadband internet access via satellite in the contiguous United States. The purchase price of approximately $574.6 million was comprised primarily of $131.9 million related to the fair value of 4,286,250 shares of the Company’s common stock issued at the closing date and $442.7 million in cash consideration. The $442.7 million in cash consideration paid to the former WildBlue stockholders less cash and restricted cash acquired of $64.7 million resulted in a net cash outlay of approximately $378.0 million. As of April 2, 2010, all of the acquired restricted cash had become unrestricted. The acquisition was accounted for as a purchase and accordingly, the condensed consolidated financial statements include the operating results of WildBlue from the date of acquisition. During the third quarter of fiscal year 2011, the Company recorded a $0.7 million adjustment to the final purchase price allocation for WildBlue related to pre-acquisition net operating loss carryovers, reducing the Company’s satellite services segment goodwill with a corresponding adjustment to deferred tax assets.

Unaudited pro forma financial information

     The unaudited financial information in the table below summarizes the combined results of operations for the Company and WildBlue on a pro forma basis, as though the companies had been combined as of the beginning of fiscal year 2010. The pro forma financial information is presented for informational purposes only and may not be indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal year 2010. The pro forma financial information for the

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

three and nine month periods ended January 1, 2010 includes the business combination accounting effect on historical WildBlue revenue, elimination of the historical ViaSat revenues and related costs of revenues derived from sales of CPE units to WildBlue, amortization and depreciation charges from acquired intangible and tangible assets, the difference between WildBlue’s and ViaSat’s historical interest expense/interest income due to ViaSat’s new capitalization structure as a result of the acquisition, related tax effects and adjustment to shares outstanding for shares issued for the acquisition.

		Three Months Ended				Nine Months Ended
		January 1, 2010				January 1, 2010
		(In thousands, except per share data)
Total revenues		$	196,779			$	605,310
Net income attributable to ViaSat, Inc.		$	4,114			$	20,014
Basic net income per share attributable to ViaSat, Inc. common stockholders		$	.11			$	.55
Diluted net income per share attributable to ViaSat, Inc. common stockholders		$	.11			$	.53

Note 12 — Restructuring

     In the third quarter of fiscal year 2010, the Company initiated a post-acquisition restructuring plan related to the termination of certain duplicative employee positions upon the acquisition of WildBlue. Under the terms of the plan, the Company recorded no restructuring charges and restructuring charges of approximately $0.5 million as part of selling, general and administrative expenses within the satellite services segment during the three and nine months ended December 31, 2010, respectively, and approximately $2.7 million as part of selling, general, and administrative expenses within the satellite services segment during the three and nine months ended January 1, 2010. As of December 31, 2010 and April 2, 2010, $0.3 million of restructuring charges remained unpaid and were recorded in accrued liabilities. During the nine months ended December 31, 2010 and January 1, 2010, the Company paid approximately $0.5 million and $2.4 million of the outstanding restructuring liabilities, respectively.

Note 13 — Segment Information

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

     As discussed further in Note 2, included in the government systems segment operating profit for the nine months ended December 31, 2010 is an $8.5 million forward loss recorded during the first quarter of fiscal year 2011 on a government satellite communications program.

		Three Months Ended								Nine Months Ended
		December 31, 2010				January 1, 2010				December 31, 2010				January 1, 2010
		(In thousands)
Revenues
Government Systems		$	97,561			$	89,078			$	281,343			$	284,453
Commercial Networks			39,048				55,009				128,979				172,709
Satellite Services			59,332				12,277				175,512				18,276
Elimination of intersegment revenues			—				—				—				—
Total revenues		$	195,941			$	156,364			$	585,834			$	475,438
Operating profits (losses)
Government Systems			8,166				10,780				22,632				37,182
Commercial Networks			(4,160	)			(835	)			(7,677	)			2,950
Satellite Services			7,929				(6,177	)			27,096				(10,219	)
Elimination of intersegment operating profits			—				—				—				—
Segment operating profit before corporate and amortization			11,935				3,768				42,051				29,913
Corporate			—				(5	)			44				17
Amortization of acquired intangible assets			(4,923	)			(1,901	)			(14,627	)			(4,768	)
Income from operations		$	7,012			$	1,862			$	27,468			$	25,162

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

     Amortization of acquired intangible assets by segment for the three and nine months ended December 31, 2010 and January 1, 2010 was as follows:

		Three Months Ended								Nine Months Ended
		December 31, 2010				January 1, 2010				December 31, 2010				January 1, 2010
		(In thousands)
Government Systems		$	714			$	272			$	1,806			$	816
Commercial Networks			971				1,089				3,107				3,412
Satellite Services			3,238				540				9,714				540
Total amortization of acquired intangible assets		$	4,923			$	1,901			$	14,627			$	4,768

     Assets identifiable to segments include: accounts receivable, unbilled accounts receivable, inventory, acquired intangible assets and goodwill. Segment assets as of December 31, 2010 and April 2, 2010 were as follows:

		December 31, 2010				April 2, 2010
		(In thousands)
Segment assets
Government Systems		$	215,020			$	168,703
Commercial Networks			128,369				146,990
Satellite Services			96,331				107,919
Total segment assets			439,720				423,612
Corporate assets			916,181				869,940
Total assets		$	1,355,901			$	1,293,552

     Net acquired intangible assets and goodwill included in segment assets as of December 31, 2010 and April 2, 2010 were as follows:

		Net Acquired Intangible
		Assets								Goodwill
		December 31, 2010				April 2, 2010				December 31, 2010				April 2, 2010
		(In thousands)
Government Systems		$	11,442			$	1,708			$	30,218			$	22,161
Commercial Networks			6,291				9,389				43,684				43,461
Satellite Services			68,578				78,292				8,657				9,402
Total		$	86,311			$	89,389			$	82,559			$	75,024

     Revenue information by geographic area for the three and nine months ended December 31, 2010 and January 1, 2010 was as follows:

		Three Months Ended								Nine Months Ended
		December 31, 2010				January 1, 2010				December 31, 2010				January 1, 2010
		(In thousands)
United States		$	165,763			$	120,321			$	493,863			$	380,723
Europe, Middle East and Africa			20,301				24,662				62,502				64,261
Asia, Pacific			5,870				5,944				18,715				18,380
North America other than United States			2,370				2,782				5,469				5,650
Latin America			1,637				2,655				5,285				6,424
		$	195,941			$	156,364			$	585,834			$	475,438

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

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

     The net book value of long-lived assets located outside the United States was $5.4 million and $4.4 million at December 31, 2010 and April 2, 2010, respectively.

Note 14 — Certain Relationships and Related-Party Transactions

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

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

     During the nine months ended December 31, 2010 and January 1, 2010, under the satellite construction contract, the Company paid $23.1 million and $51.3 million, respectively, to SS/L and had no outstanding payables and $3.8 million payable to SS/L as of December 31, 2010 and April 2, 2010, respectively. During the nine months ended December 31, 2010 and January 1, 2010, the Company also received $8.2 million and $2.4 million, respectively, from SS/L under the beam sharing agreement with Loral. Accounts receivable due from SS/L under the beam sharing agreement with Loral were less than $0.1 million and $3.8 million as of December 31, 2010 and April 2, 2010, respectively.

     From time to time the Company enters into various contracts in the ordinary course of business with SS/L and Telesat Canada. Under a contract with SS/L, the Company recognized $1.2 million and $1.4 million in revenue during the three and nine months ended December 31, 2010, respectively, and received $3.9 million of cash during the nine months ended December 31, 2010. The Company recognized no revenue during the three and nine months ended January 1, 2010 and had no cash receipts during the nine months ended January 1, 2010 related to a contract with SS/L. Collections in excess of revenues and deferred revenues related to a contract with SS/L were $2.5 million and $0.8 million as of December 31, 2010 and April 2, 2010, respectively. Accounts receivable due from Telesat Canada as of December 31, 2010 and April 2, 2010 were $0.1 million and $0.9 million, respectively. The Company also recognized $1.0 million and $6.0 million of expense related to Telesat Canada during the three and nine months ended December 31, 2010, respectively, and no material amounts during the three and nine months ended January 1, 2010. All other amounts related to SS/L and Telesat Canada, excluding activities under the ViaSat-1 related satellite contracts, were not material.

Note 15 — Financial Statements of Parent and Subsidiary Guarantors

     On October 22, 2009, the Company issued $275.0 million in principal amount of Notes in a private placement to institutional buyers. The Notes were exchanged in May 2010 for substantially identical Notes that had been registered with the SEC. The Notes are jointly and severally guaranteed on a full and unconditional basis by each of the Guarantor Subsidiaries, which are 100% owned by the Company. The indenture governing the Notes limits, among other things, the Company’s and its restricted subsidiaries’ ability to: incur, assume or guarantee additional debt; issue redeemable stock and preferred stock; pay dividends, make distributions or redeem or repurchase capital stock; prepay, redeem or repurchase subordinated debt; make loans and investments; grant or incur liens; restrict dividends, loans or asset transfers from restricted subsidiaries; sell or otherwise dispose of assets; enter into transactions with affiliates; reduce the Company’s satellite insurance; and consolidate or merge with, or sell substantially all of their assets to, another person.

     The following supplemental financial information sets forth, on a condensed consolidating basis, the balance sheets, statements of operations and statements of cash flows for the Company (as “Issuing Parent Company”), the Guarantor Subsidiaries, the non-guarantor subsidiaries and total consolidated Company and subsidiaries as of December 31, 2010 and April 2, 2010 and for the three and nine months ended December 31, 2010 and January 1, 2010.

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

Condensed Consolidated Balance Sheet as of December 31, 2010

														Consolidation and
		Issuing Parent				Guarantor				Non-Guarantor				Elimination
		Company				Subsidiaries				Subsidiaries				Adjustments				Consolidated
		(Unaudited, in thousands)
ASSETS
Current assets:
Cash and cash equivalents		$	27,719			$	8,778			$	8,867			$	—			$	45,364
Accounts receivable, net			157,538				10,796				7,615				—				175,949
Inventories			85,730				7,212				2,805				—				95,747
Deferred income taxes			16,480				866				—				—				17,346
Prepaid expenses and other current assets			19,383				4,728				1,218				—				25,329
Total current assets			306,850				32,380				20,505				—				359,735
Satellites, net			268,211				264,134				—				—				532,345
Property and equipment, net			98,632				95,985				8,101				(1,075	)			201,643
Other acquired intangible assets, net			7,190				68,579				10,542				—				86,311
Goodwill			63,940				8,534				10,085				—				82,559
Investments in subsidiaries and intercompany receivables			503,399				2,514				7,572				(513,485	)			—
Other assets			70,791				21,874				643				—				93,308
Total assets		$	1,319,013			$	494,000			$	57,448			$	(514,560	)		$	1,355,901
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	47,248			$	7,030			$	745			$	—			$	55,023
Accrued liabilities			95,038				22,783				4,357				—				122,178
Current portion of other long-term debt			80				680				—				—				760
Total current liabilities			142,366				30,493				5,102				—				177,961
Senior Notes due 2016, net			272,172				—				—				—				272,172
Other long-term debt			50,235				1,756				—				—				51,991
Intercompany payables			17,245				—				17,570				(34,815	)			—
Other liabilities			18,240				8,688				3,381				—				30,309
Total liabilities			500,258				40,937				26,053				(34,815	)			532,433
Equity:
ViaSat, Inc. stockholders’ equity
Total ViaSat, Inc. stockholders’ equity			818,755				453,063				31,395				(483,647	)			819,566
Noncontrolling interest in subsidiary			—				—				—				3,902				3,902
Total equity			818,755				453,063				31,395				(479,745	)			823,468
Total liabilities and equity		$	1,319,013			$	494,000			$	57,448			$	(514,560	)		$	1,355,901