6155 EL CAMINO RE AL, CARL SBAD, CA 92009 TEL 760.476.2200 WEB WWW.VIASAT.COM
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Financial Highlights
Fiscal Years Ended
(In thousands, except per share data)
CONSOLIDATED STATEMENT OF OPERATIONS DATA
Revenues
Product revenues
Service revenues
Total revenues
Operating expenses:
Cost of product revenues
Cost of service revenues
Selling, general and administrative
Independent research and development
Amortization of acquired intangible assets
(Loss) income from operations
Interest expense, net
Loss on extinguishment of debt
(Loss) income before income taxes
(Benefit from) provision for income taxes
Net (loss) income
Less: Net income (loss) attributable to noncontrolling interest, net of tax
Net (loss) income attributable to ViaSat, Inc.
Basic net (loss) income per share attributable to ViaSat, Inc.
common stockholders
Diluted net (loss) income per share attributable to ViaSat, Inc.
common stockholders
Shares used in computing basic net (loss) income per share
Shares used in computing diluted net (loss) income per share
AN ITEMIZED RECONCILIATION BETWEEN NET INCOME (LOSS) ATTRIBUTABLE TO VIASAT, INC.
AND ADJUSTED EBITDA IS AS FOLLOWS
GAAP net (loss) income attributable to ViaSat, Inc.
(Benefit from) provision for income taxes
Interest expense, net
Depreciation and amortization
Stock-based compensation expense
Acquisition related expenses
Loss on extinguishment of debt
Adjusted EBITDA
CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents
Working capital
Total assets
Senior notes, net
Other long-term debt
Other liabilities
Total ViaSat, Inc. stockholders’ equity
March 29
2013
March 30
2012
April 1
2011
April 2
2010
$ 664,417
455,273
1,119,690
484,973
363,188
240,859
35,448
15,584
(20,362)
(43,820)
26,501
(90,683)
(50,054)
(40,629)
543
$ 542,064
321,563
$ 523,938
278,268
$ 584,074
104,006
863,627
402,794
233,187
181,728
24,992
18,732
2,194
(8,247)
—
(6,053)
(13,651)
7,598
102
802,206
389,945
160,623
164,265
28,711
19,409
39,253
(2,831)
—
36,422
(2)
36,424
309
688,080
408,526
66,830
132,895
27,325
9,494
43,010
(6,733)
—
36,277
5,438
30,839
(297)
$ (41,172)
$ 7,496
$ 36,115
$ 31,136
$ (0.94)
$ 0.18
$ 0.88
$ 0.94
$ (0.94)
$ 0.17
$ 0.84
$ 0.89
43,931
43,931
42,325
44,226
40,858
43,059
33,020
34,839
$ (41,172)
(50,054)
43,820
157,171
27,035
—
26,501
$ 163,301
$ 105,738
297,725
1,794,072
584,993
1,456
52,640
903,001
$ 7,496
(13,651)
8,247
125,511
21,382
—
—
$ 148,985
$ 172,583
327,110
1,727,153
547,791
774
50,353
887,975
$ 36,115
(2)
2,831
103,053
17,440
1,379
—
$ 160,816
$ 40,490
167,457
1,405,748
272,296
61,946
23,842
840,125
$ 31,136
5,438
6,733
46,955
12,212
11,374
—
$ 113,848
$ 89,631
214,541
1,293,552
271,801
60,000
24,395
753,005
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Welcome to our annual report for fiscal year 2013. These are exciting times for ViaSat. This report starts by shining the spotlight on our
financial results, which validate the growth we’re achieving.
We’re proud of our results and we certainly appreciate the relationship between good results and the opportunities they create. But we
believe strong growth is a consequence of great businesses, and our higher purpose here is to illustrate the ideas, the people, and the
enthusiasm that underpins that growth.
In our 27 year history we have evolved from bootstrap start-up to billion dollar global services enterprise. Our compound annual average
revenue growth rate for those 27 years is over 35% and in fiscal 2013 we grew by over 30%. The large majority of that growth is
organic. We’re a technology company and the pace of change in our markets is only going to continue to accelerate. Not only does the
technology change rapidly, but, so do the business models and strategies enabled by that technology. That has enormous implications
for technology companies and the way they compete. We see it as a fantastic opportunity.
It used to be that companies would compete to make their products or services better, or faster, or cheaper, than their competitors.
More often now, value is created by changing the very nature or definition of those products and services.
The last generation of leading cell phone manufacturers wasn’t overtaken by better cell phone companies. It was displaced by devices
that changed the meaning of what a cell phone is—from companies that weren’t on the radar screen, using business models that were
inconceivable to the incumbents. End customers determined the value of these new devices in dimensions (like the number of “apps”)
that weren’t even in the lexicon of the phones they displaced.
Likewise, PCs are being displaced by products with a different purpose—mostly from companies that weren’t significant players in the
PC industry. In the U.S., the entire telephone industry is threatened by the cable industry—which began with purely broadcast, one-way
network infrastructure, and now has superior two-way broadband transmission systems for a large portion of the population.
While sometimes (in retrospect, at least) it’s easy to identify specific products or services that disrupt the status quo, there are often
less obvious, though equally far-reaching, implications in the surrounding business ecosystems. Often, the ecosystems are themselves
complicit in creating the environment that enabled those disruptive products. Successful companies, with competitive advantages in
established value chains, cling to the status quo and are often oblivious (or outright opposed) to shifts in perceived value among end
consumers. Often government regulations are obstacles, too, until they are finally overcome by irresistible market forces.
At ViaSat, we want to be a disruptor—not a disruptee. Given the pace of change, we believe the best way to navigate this kind of
competitive landscape is to immerse ourselves into virtually every dimension of our business. Our most significant platforms for change
are satellite networks. As you’ll see in this report we are aiming to change just about every aspect of those systems, and how they are
used. And literally, that really does mean just about every single thing.
We started to visualize this opportunity over a decade ago when we became the ground network provider for leading Ka-band satellite
systems, and the first in-flight Wi-Fi networks. It seemed clear to us that broadband networks were fundamentally about bandwidth,
Welcome to our annual report for fiscal year 2013. These are exciting times for ViaSat. This report starts by shining the spotlight on our
financial results, which validate the growth we’re achieving.
We’re proud of our results and we certainly appreciate the relationship between good results and the opportunities they create. But we
believe strong growth is a consequence of great businesses, and our higher purpose here is to illustrate the ideas, the people, and the
enthusiasm that underpins that growth.
In our 27 year history we have evolved from bootstrap start-up to billion dollar global services enterprise. Our compound annual average
revenue growth rate for those 27 years is over 35% and in fiscal 2013 we grew by over 30%. The large majority of that growth is
organic. We’re a technology company and the pace of change in our markets is only going to continue to accelerate. Not only does the
technology change rapidly, but, so do the business models and strategies enabled by that technology. That has enormous implications
for technology companies and the way they compete. We see it as a fantastic opportunity.
It used to be that companies would compete to make their products or services better, or faster, or cheaper, than their competitors.
More often now, value is created by changing the very nature or definition of those products and services.
The last generation of leading cell phone manufacturers wasn’t overtaken by better cell phone companies. It was displaced by devices
that changed the meaning of what a cell phone is—from companies that weren’t on the radar screen, using business models that were
inconceivable to the incumbents. End customers determined the value of these new devices in dimensions (like the number of “apps”)
that weren’t even in the lexicon of the phones they displaced.
Likewise, PCs are being displaced by products with a different purpose—mostly from companies that weren’t significant players in the
PC industry. In the U.S., the entire telephone industry is threatened by the cable industry—which began with purely broadcast, one-way
network infrastructure, and now has superior two-way broadband transmission systems for a large portion of the population.
While sometimes (in retrospect, at least) it’s easy to identify specific products or services that disrupt the status quo, there are often
less obvious, though equally far-reaching, implications in the surrounding business ecosystems. Often, the ecosystems are themselves
complicit in creating the environment that enabled those disruptive products. Successful companies, with competitive advantages in
established value chains, cling to the status quo and are often oblivious (or outright opposed) to shifts in perceived value among end
consumers. Often government regulations are obstacles, too, until they are finally overcome by irresistible market forces.
At ViaSat, we want to be a disruptor—not a disruptee. Given the pace of change, we believe the best way to navigate this kind of
competitive landscape is to immerse ourselves into virtually every dimension of our business. Our most significant platforms for change
are satellite networks. As you’ll see in this report we are aiming to change just about every aspect of those systems, and how they are
used. And literally, that really does mean just about every single thing.
We started to visualize this opportunity over a decade ago when we became the ground network provider for leading Ka-band satellite
systems, and the first in-flight Wi-Fi networks. It seemed clear to us that broadband networks were fundamentally about bandwidth,
and so we developed skills in every technology needed to create much, much more bandwidth in satellite networks. We took a major
step in 2008 with the start of the ViaSat-1 project and another in 2012 when we launched Exede® Internet, the world’s first high-speed
Internet service delivered by satellite.
These and other developments made fiscal 2013 a breakthrough year for us. Our results show that even in challenging competitive
environments, more bandwidth is a compelling value proposition for end-users in applications ranging from direct-to-home consumer
broadband to government in-flight connectivity. We believe we’re only getting started.
In our fiscal 2014 we are looking to both accelerate the pace of change and expand the markets we address. Our biggest step is
the start of the ViaSat-2 project. ViaSat-1 established the value of bandwidth economics through an innovative space systems
approach. With ViaSat-2 we aim to double those economics, while at the same time substantially increase geographic coverage and
operational flexibility.
We are pushing the boundaries of virtually every space and ground network technology to do it, and intend to create a foundation
for sustained economic improvements for another decade or more. At the same time, we’re starting deployments of some very
exciting applications enabled by ViaSat-1 and the existing generation of high-capacity Ka-band satellites. In these pages you’ll
see where we are heading for home broadband, in-flight Wi-Fi, live streaming of news and events, and global mobile connectivity
for government applications.
In this totally-connected environment, information security plays an increasingly critical role, and we give a glimpse into what we’re
doing there too. In each space, we are—in at least one sense—turning conventional wisdom on its head. Often, we are offering
products that on the surface might appear similar to existing ones, but in reality are aiming at different end users, who probably
never would have considered using the previous generation. They create value in different ways and often for different purposes.
It’s a little bit of a whimsical view of our world. In fact, we have to navigate around many entrenched entities with vested interest in
the way things are. But more often than not nowadays, imagination and creativity are the keys to competitive advantage.
We at ViaSat depend on, and appreciate, the vision and commitment of not only our investors, but all of our stakeholders, including
our people, our suppliers, and our customers. So for at least a few minutes, we invite all of you to exercise your own imagination and
enter our world. We hope you’ll find it informative, and a good investment for your own future.
Sincerely,
Mark Dankberg
Chairman of the Board and Chief Executive Officer
Exede Broadband Service
Over five years ago we imagined a satellite Internet service with more speed and
bandwidth than DSL and mobile wireless for fixed home use. Exede 12 Internet
Plan, powered by ViaSat-1, has made that a reality. Already, over 30% of our
customers come from slower terrestrial alternatives. We’ve garnered awards and
recognition from Guinness World Records, Popular Science, and even the FCC
for over-delivering on promised speeds more than any other ISP (among ISPs
included in FCC “Measuring Broadband America” study).*
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Exede In the Air
In-flight Wi-Fi bandwidth has been a scarce resource—targeted at business
travelers and their laptops. Airlines sought an elusive balance between
service quality, and the revenue to support it. ViaSat-1 lets us, and launch
partners JetBlue and LiveTV, turn that upside down. Exede In The Air has
enough bandwidth to connect everyone, their smartphones and their apps,
with a speedy 12 Mbps. JetBlue plans to initially offer it free through TrueBlue
membership. Imagine that.
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Exede Live Events
For decades, satellite has been a reliable—though expensive and complex—
way to bring live news and events to broadcast networks. Exede Live Events
now makes it simple and affordable to carry not only those minutes of prime
time network news, but also to enable hours of reliable, live HD video over the
web. ViaSat pairs the satellite bandwidth with an extensive fiber network to
help create and distribute the “live” web. Think of the possibilities.
38.7 Billion Videos
213 Videos per Viewer
19.2 Hours per Viewer
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Government Airborne Mobile Broadband
Every government aircraft has narrowband links. But increasingly, mission success on an
affordable budget depends on broadband speeds far beyond those capabilities—driven
by video, sensors, and other high-bandwidth applications. Needs have outstripped
organic Department of Defense capabilities and ViaSat’s Ku- and Ka-band global mobile
services are filling the gap. We have the leading share in this nascent market. It’s not
hard to imagine how ViaSat-2 can expand that lead.
750,000+ Mission Hours
300+ Government Aircraft;
15 Types of Airborne Platforms
700+ Terabytes Mission Data
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Critical Infrastructure Protection
Cybersecurity issues make headlines daily. We can see how information
security for networked PCs, critical infrastructure, mobile devices, and
cloud-based networks can rely on distinct technologies, while sharing some
common fundamental foundations. ViaSat is leveraging its expertise in
trusted networking and information security for classified IP networks to
attract influential, forward looking customers in multiple cyber domains,
including the electric grid of one of America’s leading utilities.
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Life at ViaSat
Our people imagine and create our unique view of technology and market
applications. We aim for an intellectually stimulating, collaborative,
challenging, and informal university-like work environment. We work hard,
but encourage a healthy, balanced life for the long term. We’re engaged with
the communities where we live and work. Investors, customers, suppliers,
and prospective employees alike get the best sense of what ViaSat really is
by visiting us in person.
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Fiscal Year 2013 In Review
April 2012
» Awarded $31.5 million order for
Multifunctional Information
Distribution System (MIDS) Joint
Tactical Radio System terminals for
the U.S. government.
July 2012 continued
» Moved up six spots to number
22 on the Space News Top 50
list of space industry manufacturing
and services companies.
May 2012
» Announced a distribution agreement to
add Exede high-speed Internet services
to DirecTV video and broadband service
bundles for the home.
» Received a $35 million contract to
supply a UHF satcom system for
the Commonwealth of Australia
Department of Defence.
June 2012
» Won an additional $34.8 million
award from the U.S. Army for Blue
Force Tracking 2 systems.
» Selected by the U.S. Marine Corps
Systems Command to engineer
military-grade information security into
commercial smartphones and tablets.
» Awarded $42.5 million contract by
LiveTV for in-flight Internet systems
and services for commercial airline
customers.
July 2012
» Won a $256.8 million contract from NBN
Co for ground-based communications,
network management, and data
processing systems for the Australian
national broadband network.
August 2012
» Announced that the total number
of ViaSat satellite broadband
subscribers in the U.S. surpassed
400,000 (as of end of June) for the
first time since the launch of
ViaSat-1.
September 2012
» Introduced Exede In The Air
in-flight Internet service, which
can specify a high-speed service
level of 12 Mbps or more to each
connected passenger.
» American Red Cross Disaster
Services selects Exede Enterprise
satellite services to provide satellite
connectivity during disaster response.
» Awarded a contract valued at up to
$34 million by the Space and Naval
Warfare Systems Command for a
cryptographic module for the MIDS
Low Volume Terminal.
October 2012
» Together with Harris Corporation,
delivered the 100th KOR-24 Small
Tactical Terminal that expands the
availability of situational awareness
to military users at the tactical edge.
November 2012
» ABC television stations WLS in Chicago
and KTRK in Houston successfully
completed alpha-phase field testing of
Exede Newsgathering service.
» Popular Science named the
ViaSat-1 high-capacity satellite
system, including Exede Internet,
as a Best of What’s New Award
winner for 2012.
» Chairman and CEO Mark Dankberg
named Visionary Executive of the
Year at the first annual Satellite
Markets and Research Vision Awards
in New York City.
December 2012
» Won a $52 million broadband airborne
satcom services contract for a U.S.
government customer for satellite
mobility services.
» Shipped 500th VR-12 Ku-band airborne
antenna, part of the system that
provides our mobile satellite services
to hundreds of military and general
aviation aircraft.
» Launched Exede Internet on
national TV with a spot relating
U.S. domination of the space race
with the innovation and speed of
our space-based Internet service.
» Defense Systems ranked ViaSat
number 25 among the “Super 75,”
the most successful and agile
companies supplying net-centric
products and systems.
December 2012 continued
» ViaSat-1 awarded Guinness World
Records® title for Highest Capacity
Communications Satellite.
January 2013
» Initiated a total capacity increase of
more than 60 percent for our Ku-band
global mobility network to accommodate
growth in mobile satellite services.
» Demonstrated Ka-band satellite
communications that deliver broadband
for rotary wing aircraft, providing 4
Mbps from a Sikorsky H-3 to a ground
station and 8 Mbps to the helicopter.
» Introduced a new cybersecurity system
for protecting utilities and other critical
infrastructure networks.
February 2013
» Exede Internet is the first satellite
service to be included in the Federal
Communications Commission
“Measuring Broadband America” study,
debuting as the best among all ISPs
included in the study at meeting or
exceeding advertised speeds.
March 2013
» Reached 512,000 total subscribers
for our satellite Internet services, with
nearly 300,000 hosted on ViaSat-1 after
just one year of operation of the full
Exede network.
» Achieved records of $1.1 billion in
revenues and over $1.4 billion in new
orders for fiscal year 2013.
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Financial Performance
Selected Financial Data
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Summarized Quarterly Data (Unaudited)
Controls and Procedures
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations and
Comprehensive Income (Loss)
Consolidated Statements of Cash Flows
Consolidated Statements of Equity
Notes to the Consolidated Financial Statements
Valuation and Qualifying Accounts
Market for Registrant’s Common Equity and
Related Stockholder Matters
Performance Graph
Corporate Information
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39
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83
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85
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Selected Financial Data
The following table provides our selected financial information for each of the fiscal
years in the five-year period ended March 29, 2013. The data as of and for each of the
fiscal years in the five-year period ended March 29, 2013 have been derived from our
audited consolidated financial statements. You should consider the financial statement
data provided below in conjunction with “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” and the consolidated financial
statements and notes which are included elsewhere in this Annual Report.
Fiscal Years Ended
(In thousands, except per share data)
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
Revenues:
Product revenues
Service revenues
Total revenues
Operating expenses:
Cost of product revenues
Cost of service revenues
Selling, general and administrative
Independent research and development
Amortization of acquired intangible assets
(Loss) income from operations
Interest (expense) income, net
Loss on extinguishment of debt
(Loss) income before income taxes
(Benefit from) provision for income taxes
Net (loss) income
Less: Net income (loss) attributable to noncontrolling interest, net of tax
Net (loss) income attributable to ViaSat, Inc.
Basic net (loss) income per share attributable to ViaSat, Inc. common stockholders
Diluted net (loss) income per share attributable to ViaSat, Inc. common stockholders
Shares used in computing basic net (loss) income per share
Shares used in computing diluted net (loss) income per share
CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents
Working capital
Total assets
Senior notes, net
Other long-term debt
Other liabilities
Total ViaSat, Inc. stockholders’ equity
March 29
2013
March 30
2012
April 1
2011
April 2
2010
April 3
2009
$
664,417
455,273
$ 542,064
321,563
$ 523,938
278,268
$
1,119,690
863,627
802,206
484,973
363,188
240,859
35,448
15,584
(20,362)
(43,820)
(26,501)
(90,683)
(50,054)
(40,629)
543
(41,172)
(0.94)
(0.94)
43,931
43,931
$
$
$
402,794
233,187
181,728
24,992
18,732
2,194
(8,247)
—
(6,053)
(13,651)
7,598
102
7,496
0.18
0.17
42,325
44,226
$
$
$
389,945
160,623
164,265
28,711
19,409
39,253
(2,831)
—
36,422
(2)
36,424
309
36,115
0.88
0.84
40,858
43,059
$
$
$
$
$
$
584,074
104,006
688,080
408,526
66,830
132,895
27,325
9,494
43,010
(6,733)
—
36,277
5,438
30,839
(297)
31,136
0.94
0.89
33,020
34,839
$ 105,738
297,725
1,794,072
584,993
1,456
52,640
903,001
$ 172,583
327,110
1,727,153
547,791
774
50,353
887,975
$
40,490
167,457
1,405,748
272,296
61,946
23,842
840,125
$
89,631
214,541
1,293,552
271,801
60,000
24,395
753,005
$ 595,342
32,837
628,179
424,620
22,204
98,624
29,622
8,822
44,287
954
—
45,241
6,794
38,447
116
$ 38,331
$
$
1.25
1.20
30,772
31,884
$ 63,491
203,390
622,942
—
—
24,718
458,748
Fiscal year 2010 information presented reflects the acquisition of WildBlue Holding, Inc.
in December of 2009 for approximately $574.6 million. Therefore, our consolidated
balance sheet data as of March 29, 2013, March 30, 2012, April 1, 2011 and April 2,
2010 are not comparable to our consolidated balance sheet data as of April 3, 2009,
and our consolidated statements of operations data for the fiscal years ended March 29,
2013, March 30, 2012 and April 1, 2011 are not comparable to our consolidated
statements of operations data for the years ended April 2, 2010 and April 3, 2009.
In addition, our fiscal year 2013 information presented reflects the repurchase and
redemption of our former 8.875% Senior Notes due 2016 (the 2016 Notes) and the
associated approximately $26.5 million loss on extinguishment of debt. Refer to Note 5
to the consolidated financial statements for discussion of the repurchase and redemption
of all of the 2016 Notes and loss on extinguishment of debt.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
Company Overview
We are a leading provider of high-speed fixed and mobile broadband services, advanced
satellite and wireless networks and secure networking systems, products and services.
We have leveraged our success developing complex satellite communication systems
and equipment for the U.S. government and select commercial customers to develop
next-generation satellite broadband technologies and services for both fixed and
mobile users. Our product, systems and broadband service offerings are often linked
through common underlying technologies, customer applications and market relationships.
We believe that our portfolio of products and services, combined with our ability to
effectively cross-deploy technologies between government and commercial segments
and across different geographic markets, provides us with a strong foundation to
sustain and enhance our leadership in advanced communications and networking
technologies. ViaSat operates in three segments: satellite services, commercial
networks and government systems.
In July 2010, we completed the acquisition of all outstanding shares of the parent
company of Stonewood Group Limited (Stonewood), a privately held company registered
in England and Wales (see Note 9 to our consolidated financial statements).
Sources of Revenues
Our satellite services segment revenues are primarily derived from our domestic satellite
broadband services business and from our worldwide managed network services. Our
domestic satellite broadband services business comprised approximately 20%, 22%
and 26% of total revenues during fiscal years 2013, 2012 and 2011, respectively.
With respect to our commercial networks and government systems segments, to date,
our ability to grow and maintain our revenues has depended on our ability to identify and
target markets where the customer places a high priority on the technology solution, and
our ability to obtain additional sizable contract awards. Due to the nature of this process,
it is difficult to predict the probability and timing of obtaining awards in these markets.
Our products in these segments are provided primarily through three types of contracts:
fixed-price, time-and-materials and cost-reimbursement contracts. Fixed-price
contracts (which require us to provide products and services under a contract at a
specified price) comprised approximately 94%, 93% and 95% of our total revenues
for these segments for fiscal years 2013, 2012 and 2011, respectively. The remainder
of our revenue in these segments for such periods was derived from cost-reimbursement
contracts (under which we are reimbursed for all actual costs incurred in performing
the contract to the extent such costs are within the contract ceiling and allowable
under the terms of the contract, plus a fee or profit) and from time-and-materials
contracts (which reimburse us for the number of labor hours expended at an established
hourly rate negotiated in the contract, plus the cost of materials utilized in providing
such products or services).
Historically, a significant portion of our revenues has been derived from customer
contracts that include the research and development of products. The research
and development efforts are conducted in direct response to the customer’s specific
requirements and, accordingly, expenditures related to such efforts are included in
cost of sales when incurred and the related funding (which includes a profit component)
is included in revenues. Revenues for our funded research and development from our
customer contracts were approximately $286.4 million or 26% of our total revenues
during fiscal year 2013, $228.2 million or 26% of our total revenues during fiscal year
2012, and $210.6 million or 26% of our total revenues during fiscal year 2011.
We also incur independent research and development (IR&D) expenses, which are not
directly funded by a third party. IR&D expenses consist primarily of salaries and other
personnel-related expenses, supplies, prototype materials, testing and certification
related to research and development projects. IR&D expenses were approximately 3%,
3% and 4% of total revenues in fiscal years 2013, 2012 and 2011, respectively. As a
government contractor, we are able to recover a portion of our IR&D expenses pursuant
to our government contracts.
Critical Accounting Policies and Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations
discusses our consolidated financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States of America (GAAP).
The preparation of these financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
We consider the policies discussed below to be critical to an understanding of our
financial statements because their application places the most significant demands on
management’s judgment, with financial reporting results relying on estimation about
the effect of matters that are inherently uncertain. We describe the specific risks for
these critical accounting policies in the following paragraphs. For all of these policies,
we caution that future events rarely develop exactly as forecast, and even the best
estimates routinely require adjustment.
Revenue Recognition
A substantial portion of our revenues is derived from long-term contracts requiring
development and delivery of complex equipment built to customer specifications. Sales
related to these contracts are accounted for under the authoritative guidance for the
percentage-of-completion method of accounting (Accounting Standards Codification
(ASC) 605-35). Sales and earnings under these contracts are recorded either based on
the ratio of actual costs incurred to date to total estimated costs expected to be incurred
related to the contract, or as products are shipped under the units-of-delivery method.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (cont.)
The percentage-of-completion method of accounting requires management to estimate
the profit margin for each individual contract and to apply that profit margin on a
uniform basis as sales are recorded under the contract. The estimation of profit
margins requires management to make projections of the total sales to be generated
and the total costs that will be incurred under a contract. These projections require
management to make numerous assumptions and estimates relating to items such as
the complexity of design and related development costs, performance of subcontractors,
availability and cost of materials, labor productivity and cost, overhead and capital
costs, and manufacturing efficiency. These contracts often include purchase options
for additional quantities and customer change orders for additional or revised product
functionality. Purchase options and change orders are accounted for either as an
integral part of the original contract or separately depending upon the nature and value
of the item. For contract claims or similar items, we apply judgment in estimating the
amounts and assessing the potential for realization. These amounts are only included
in contract value when they can be reliably estimated and realization is considered
probable. Anticipated losses on contracts are recognized in full in the period in which
losses become probable and estimable. During fiscal years 2013, 2012 and 2011,
we recorded losses of approximately $3.1 million, $1.4 million and $12.1 million,
respectively, related to loss contracts.
Assuming the initial estimates of sales and costs under a contract are accurate, the
percentage-of-completion method results in the profit margin being recorded evenly
as revenue is recognized under the contract. Changes in these underlying estimates
due to revisions in sales and future cost estimates or the exercise of contract options
may result in profit margins being recognized unevenly over a contract as such
changes are accounted for on a cumulative basis in the period estimates are revised.
We believe we have established appropriate systems and processes to enable us to
reasonably estimate future costs on our programs through regular evaluations of
contract costs, scheduling and technical matters by business unit personnel and
management. Historically, in the aggregate, we have not experienced significant
deviations in actual costs from estimated program costs, and when deviations that
result in significant adjustments arise, we disclose the related impact in Management’s
Discussion and Analysis of Financial Condition and Results of Operations. However,
these estimates require significant management judgment and a significant change
in future cost estimates on one or more programs could have a material effect on our
results of operations. A one percent variance in our future cost estimates on open
fixed-price contracts as of March 29, 2013 would change our loss before income taxes
by approximately $0.6 million.
We also derive a substantial portion of our revenues from contracts and purchase
orders where revenue is recorded on delivery of products or performance of services in
accordance with the authoritative guidance for revenue recognition (ASC 605). Under this
standard, we recognize revenue when an arrangement exists, prices are determinable,
collectability is reasonably assured and the goods or services have been delivered.
We also enter into certain leasing arrangements with customers and evaluate
the contracts in accordance with the authoritative guidance for leases (ASC 840).
Our 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,
we classify the transactions as sales type or operating leases based on: (1) review
for transfers of ownership of the equipment to the lessee by the end of the lease term,
(2) review of the lease terms to determine if it contains an option to purchase the
leased equipment for a price which is sufficiently lower than the expected fair value
of the equipment at the date of the option, (3) review of the lease term to determine if
it is equal to or greater than 75% of the economic life of the equipment, and (4) review
of the present value of the minimum lease payments to determine if they are equal to
or greater than 90% of the fair market value of the equipment at the inception of the
lease. Additionally, we consider the cancelability of the contract and any related
uncertainty of collections or risk in recoverability of the lease investment at lease
inception. Revenue from sales type leases is recognized at the inception of the lease
or when the equipment has been delivered and installed at the customer site, if
installation is required. Revenues from equipment rentals under operating leases are
recognized as earned over the lease term, which is generally on a straight-line basis.
In accordance with the authoritative guidance for revenue recognition for multiple
element arrangements, the Accounting Standards Update (ASU) 2009-13
(ASU 2009-13), Revenue Recognition (ASC 605) Multiple-Deliverable Revenue
Arrangements, which updates ASC 605-25, Revenue Recognition-Multiple element
arrangements, of the Financial Accounting Standards Board (FASB) codification,
for substantially all of the arrangements with multiple deliverables, we allocate
revenue to each element based on a selling price hierarchy at the arrangement
inception. The selling price for each element is based upon the following selling price
hierarchy: vendor specific objective evidence (VSOE) if available, third party evidence
(TPE) if VSOE is not available, or estimated selling price (ESP) if neither VSOE nor
TPE are available (a description as to how we determine VSOE, TPE and ESP is
provided below). If a tangible hardware systems product includes software, we
determine whether the tangible hardware systems product and the software work
together to deliver the product’s essential functionality and, if so, the entire
product is treated as a nonsoftware deliverable. The total arrangement consideration
is allocated to each separate unit of accounting for each of the nonsoftware
deliverables using the relative selling prices of each unit based on the aforementioned
selling price hierarchy. Revenue for each separate unit of accounting is recognized
when the applicable revenue recognition criteria for each element have been met.
To determine the selling price in multiple-element arrangements, we establish VSOE of
the selling price using the price charged for a deliverable when sold separately and for
software license updates, product support and hardware systems support, based on
the renewal rates offered to customers. For nonsoftware multiple-element arrangements,
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TPE is established by evaluating similar and/or interchangeable competitor products
or services in standalone arrangements with similarly situated customers and/or
agreements. If we are unable to determine the selling price because VSOE or TPE
doesn’t exist, we determine ESP for the purposes of allocating the arrangement by
reviewing historical transactions, including transactions whereby the deliverable was
sold on a standalone basis and considering several other external and internal factors
including, but not limited to, pricing practices including discounting, margin objectives,
competition, the geographies in which we offer our products and services, the type
of customer (i.e. distributor, value added reseller, government agency or direct end
user, among others) and the stage of the product lifecycle. The determination of ESP
considers our pricing model and go-to-market strategy. As our or our competitors’
pricing and go-to-market strategies evolve, we may modify our pricing practices in the
future, which could result in changes to our determination of VSOE, TPE and ESP. As a
result, our future revenue recognition for multiple-element arrangements could differ
materially from those in the current period.
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
consolidated financial statements.
Warranty Reserves
We provide limited warranties on our products for periods of up to five years.
We record a liability for our warranty obligations when we ship the products 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, we estimate the warranty costs based
on historical experience with the particular product. For newer products that do not
have a history of warranty costs, we base our estimates on our experience with the
technology involved and the types of failures that may occur. It is possible that
our underlying assumptions will not reflect the actual experience, and in that case,
we will make future adjustments to the recorded warranty obligation.
Property, Equipment and Satellites
Satellites and other property and equipment are recorded at cost or in the case of certain
satellites and other property acquired, the fair value at the date of acquisition, net of
accumulated depreciation. Capitalized satellite costs consist primarily of the costs of
satellite construction and launch, including launch insurance and insurance during the
period of in-orbit testing, the net present value of performance incentives expected to
be payable to the satellite manufacturers (dependent on the continued satisfactory
performance of the satellites), costs directly associated with the monitoring and support
of satellite construction, and interest costs incurred during the period of satellite
construction. We also construct gateway facilities, network operations systems and
other assets to support our satellites, and those construction costs, including interest,
are capitalized as incurred. At the time satellites are placed in service, we estimate the
useful life of our satellites for depreciation purposes based upon an analysis of each
satellite’s performance against the original manufacturer’s orbital design life, estimated
fuel levels and related consumption rates, as well as historical satellite operating trends.
We own two satellites: ViaSat-1 (our high-capacity Ka-band spot-beam satellite, which
was successfully launched into orbit in October 2011 and commenced commercial
operation in January 2012) and WildBlue-1 (which was placed into service in March
2007), and we recently announced the entry into a satellite construction contract for
ViaSat-2, a second high-capacity Ka-band satellite. In addition, we have 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
own related gateway and networking equipment on all of our satellites. Our property
and equipment also include the customer premise equipment (CPE) units leased to
subscribers under a retail leasing program as part of our satellite services segment.
Impairment of Long-Lived and Other Long-Term Assets
(Property, Equipment and Satellites, and Other Assets, Including Goodwill)
In accordance with the authoritative guidance for impairment or disposal of long-lived
assets (ASC 360), we assess potential impairments to our long-lived assets, including
property, equipment and satellites and other assets, when there is evidence that events
or changes in circumstances indicate that the carrying value may not be recoverable.
We periodically review the remaining estimated useful life of the satellite to determine
if revisions to the estimated life are necessary. We recognize an impairment loss when
the undiscounted cash flows expected to be generated by an asset (or group of assets)
are less than the asset’s carrying value. Any required impairment loss would be
measured as the amount by which the asset’s carrying value exceeds its fair value,
and would be recorded as a reduction in the carrying value of the related asset and
charged to results of operations. No material impairments were recorded by us for
fiscal years 2013, 2012 and 2011.
We account for our goodwill under the authoritative guidance for goodwill and other
intangible assets (ASC 350) and the provisions of ASU 2011-08, Testing Goodwill for
Impairment, which permits us to make a qualitative assessment of whether it is more
likely than not that a reporting unit’s fair value is less than its carrying amount before
applying the two step goodwill impairment test. If, after completing our qualitative
assessment we determine that it is more likely than not that the carrying value
exceeds estimated fair value, we compare the fair value to our carrying value (including
goodwill). If the estimated fair value is greater than the carrying value, we conclude
that no impairment exists. If the estimated fair value of the reporting unit is less
than the carrying value, a second step is performed in which the implied fair value
of goodwill is compared to its carrying value. If the implied fair value of goodwill is
less than its carrying value, goodwill must be written down to its implied fair value,
resulting in goodwill impairment. We test goodwill for impairment during the fourth
quarter every fiscal year and when an event occurs or circumstances change such
that it is reasonably possible that an impairment may exist.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (cont.)
The qualitative analysis included assessing the impact of changes in certain factors
including: (1) changes in forecasted operating results and comparing actual results
to projections, (2) changes in the industry or our competitive environment since the
acquisition date, (3) changes in the overall economy, our market share and market
interest rates since the acquisition date, (4) trends in the stock price and related
market capitalization and enterprise values, (5) trends in peer companies total
enterprise value metrics, and (6) additional factors such as management turnover,
changes in regulation and changes in litigation matters.
Based on our qualitative assessment performed during the fourth quarter of fiscal
year 2013, we concluded that it was more likely than not that the estimated fair value
of our reporting units exceeded its carrying value as of March 29, 2013 and, therefore,
determined it was not necessary to perform the two step goodwill impairment test.
Income Taxes and Valuation Allowance on Deferred Tax Assets
Management evaluates the realizability of our deferred tax assets and assesses
the need for a valuation allowance on a quarterly basis. In accordance with the
authoritative guidance for income taxes (ASC 740), net deferred tax assets are reduced
by a valuation allowance if, based on all the available evidence, it is more likely than
not that some or all of the deferred tax assets will not be realized. Our valuation
allowance against deferred tax assets increased from $14.7 million at March 30, 2012
to $16.0 million at March 29, 2013. The valuation allowance primarily relates to state
net operating loss carryforwards and research credit carryforwards available to reduce
state income taxes.
Our analysis of the need for a valuation allowance considered the loss incurred during
the fiscal year ended March 29, 2013. However, a substantial portion of the loss
incurred in such period was the result of an extinguishment of debt charge that was
recorded upon the refinancing of the 2016 Notes with our additional 6.875% Senior
Notes due 2020 (the 2020 Notes), which were issued in October 2012 (the Additional
2020 Notes), which is expected to provide a benefit to net income in the future due to
the lower interest rate of the 2020 Notes. Our evaluation considered other factors,
including our history of positive earnings, taxable income adjusted for certain items,
the significant growth in contractual backlog, and trends and forecasted income by
jurisdiction. Consideration was also given to the lengthy period over which our net
deferred tax assets can be realized, and our history of not having federal tax loss
carryforwards expire unused.
Accruals for uncertain tax positions are provided for in accordance with the
authoritative guidance for accounting for uncertainty in income taxes (ASC 740). Under
the authoritative guidance, we 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 addresses
the 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.
We are subject to income taxes in the United States and numerous foreign jurisdictions.
In the ordinary course of business there are calculations and transactions where the
ultimate tax determination is uncertain. In addition, changes in tax laws and regulations
as well as adverse judicial rulings could adversely affect the income tax provision.
We believe we have adequately provided for income tax issues not yet resolved with
federal, state and foreign tax authorities. However, if these provided amounts prove
to be more than what is necessary, the reversal of the reserves would result in tax
benefits being recognized in the period in which we determine that provision for the
liabilities is no longer necessary. If an ultimate tax assessment exceeds our estimate
of tax liabilities, an additional charge to expense would result.
Results of Operations
The following table presents, as a percentage of total revenues, income statement data
for the periods indicated.
Fiscal Years Ended
Revenues:
Product revenues
Service revenues
Operating expenses:
Cost of product revenues
Cost of service revenues
Selling, general and administrative
Independent research and development
Amortization of acquired intangible assets
(Loss) income from operations
Interest expense, net
Loss on extinguishment of debt
(Loss) income before income taxes
(Benefit from) provision for income taxes
Net (loss) income
Net (loss) income attributable to ViaSat, Inc.
March 29
2013
March 30
2012
100.0%
59.3
40.7
100.0%
62.8
37.2
April 1
2011
100.0%
65.3
34.7
43.3
32.4
21.5
3.2
1.4
(1.8)
(3.9)
(2.4)
(8.1)
(4.5)
(3.6)
(3.7)
46.6
27.0
21.0
2.9
2.2
0.3
(1.0)
—
(0.7)
(1.6)
0.9
0.9
48.6
20.0
20.5
3.6
2.4
4.9
(0.4)
—
4.5
—
4.5
4.5
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Fiscal Year 2013 Compared to Fiscal Year 2012
Selling, General and Administrative Expenses
Revenues
Fiscal Years Ended
(In millions, except percentages)
March 29
2013
March 30
2012
Dollar
Increase
(Decrease)
Percentage
Increase
(Decrease)
Product revenues
Service revenues
Total revenues
$ 664.4
455.3
$ 542.1
321.6
$ 122.4
133.7
$ 1,119.7
$ 863.6
$ 256.1
22.6%
41.6%
29.6%
Our total revenues increased approximately $256.1 million during fiscal year 2013
when compared to fiscal year 2012 due to an increase in both service and product
revenues. The increase in service revenues of approximately $133.7 million was
primarily driven by service revenue increases in our government systems segment
of approximately $83.4 million and in our satellite services segment of approximately
$52.6 million. The increase in product revenues of approximately $122.4 million
was primarily derived from product revenue increases in our commercial networks
segment of approximately $65.5 million and in our government systems segment
of approximately $55.1 million.
Cost of Revenues
Fiscal Years Ended
(In millions, except percentages)
Cost of product revenues
Cost of service revenues
Total cost of revenues
Dollar
Increase
(Decrease)
Percentage
Increase
(Decrease)
March 29
2013
$ 485.0
363.2
March 30
2012
$ 402.8
233.2
$ 82.2
130.0
$ 848.2
$ 636.0
$ 212.2
20.4%
55.7%
33.4%
Total cost of revenues increased $212.2 million during fiscal year 2013 when compared
to fiscal year 2012 principally related to a cost of service revenues increase of
approximately $130.0 million. Cost of service revenues increased from $233.2 million
to $363.2 million during fiscal year 2013 when compared to fiscal year 2012 primarily
due to an increase in service revenues, which caused an increase of approximately
$97.0 million in cost of service revenues on a constant margin basis, mainly related
to government satellite communications systems services in our government systems
segment and our Exede broadband services in our satellite services segment. Additionally,
in fiscal year 2013 we experienced an increase of cost of service revenues associated
with our ViaSat-1 satellite, data center, billing system and costs in connection with our
Exede broadband services, which commenced commercial operation in January 2012.
Cost of product revenues increased from $402.8 million to $485.0 million during fiscal
year 2013 when compared to fiscal year 2012 primarily due to increased product
revenues, which caused an increase of approximately $90.9 million in cost of product
revenues on a constant margin basis, mainly related to consumer broadband products
in our commercial networks segment and government satellite communications
systems in our government systems segment. This increase in cost of product revenues
was partially offset by improved margins in our commercial networks segment mainly
related to consumer broadband products.
Fiscal Years Ended
(In millions, except percentages)
March 29
2013
March 30
2012
Dollar
Increase
(Decrease)
Percentage
Increase
(Decrease)
Selling, general and administrative
$ 240.9
$ 181.7
$ 59.1
32.5%
The increase in selling, general and administrative (SG&A) expenses of $59.1 million
during fiscal year 2013 compared to fiscal year 2012 was primarily attributable to
higher selling costs of $44.7 million, as well as higher support costs of $14.0 million.
Of the higher selling costs, $40.9 million related to our satellite services segment as
we continue to grow our consumer broadband subscriber base. These higher support
costs consisted of $7.7 million related to our satellite services segment, $4.4 million
related to our commercial networks segment, and $1.9 million related to our government
systems segment. SG&A expenses consisted primarily of personnel costs and expenses
for business development, marketing and sales, bid and proposal, facilities, finance,
contract administration and general management.
Independent Research and Development
Fiscal Years Ended
(In millions, except percentages)
March 29
2013
March 30
2012
Dollar
Increase
(Decrease)
Percentage
Increase
(Decrease)
Independent research and development
$ 35.4
$ 25.0
$ 10.5
41.8%
The increase in IR&D expenses of approximately $10.5 million represents a year-over-
year increase in our commercial networks segment of approximately $5.9 million
(primarily due to next-generation consumer broadband and next-generation satellite
communications systems development projects) and in our government systems
segment of approximately $3.8 million (primarily due to advancement of integrated
government satellite communications platforms).
Amortization of Acquired Intangible Assets
We amortize our acquired intangible assets from prior acquisitions over their estimated
useful lives ranging from three to ten years. The decrease in amortization of acquired
intangible assets of approximately $3.1 million in fiscal year 2013 compared to last
fiscal year was a result of certain acquired technology intangibles in our commercial
networks segment becoming fully amortized over the preceding twelve months.
Expected amortization expense for acquired intangible assets for each of the following
periods is as follows:
(In thousands)
Expected for fiscal year 2014
Expected for fiscal year 2015
Expected for fiscal year 2016
Expected for fiscal year 2017
Expected for fiscal year 2018
Thereafter
Amortization
$ 13,747
13,671
10,161
4,616
3,597
1,378
$ 47,170
Management’s Discussion and Analysis of Financial Condition and Results of Operations (cont.)
Interest Income
Interest income in fiscal year 2013 compared to fiscal year 2012 increased slightly
as we experienced higher average invested cash balances, but slightly lower average
interest rates on our investments during fiscal year 2013 compared to fiscal year 2012.
Interest Expense
The increase in interest expense year-over-year of approximately $35.7 million was
primarily due to lower capitalized interest and additional interest incurred on our initial
2020 Notes, which were issued in the fourth quarter of fiscal year 2012 (the Initial
2020 Notes). In fiscal year 2013, we capitalized approximately $3.1 million of interest
associated with other assets currently under construction, compared to approximately
$25.9 million in fiscal year 2012 associated with our ViaSat-1 satellite, related
gateways and networking equipment, which were placed into service during the
fourth quarter of fiscal year 2012.
(Benefit from) Provision for Income Taxes
The effective income tax benefit in fiscal year 2013 reflected the tax benefit from the
loss before income taxes and the benefit from federal and state research tax credits.
Fiscal year 2013 included fifteen months of federal research tax credit as a result of
the January 2013 reinstatement of the credit retroactively from January 1, 2012. The
effective income tax benefit in fiscal year 2012 reflected the expected tax benefit from
the loss before income taxes and the benefit from federal and state research tax
credits. Due to the December 31, 2011 expiration of the federal research tax credits,
fiscal year 2012 only included nine months of the federal research tax credit.
Segment Results for Fiscal Year 2013 Compared to Fiscal Year 2012
Satellite Services Segment
REVENUES
Fiscal Years Ended
(In millions, except percentages)
Segment product revenues
Segment service revenues
Total revenues
March 29
2013
$
4.7
272.3
$ 277.0
March 30
2012
$
3.0
219.7
$ 222.7
Dollar
Increase
(Decrease)
Percentage
Increase
(Decrease)
$ 1.7
52.6
$ 54.3
57.3%
23.9%
24.4%
The increase of approximately $54.3 million in our satellite services segment revenue
in fiscal year 2013 compared to fiscal year 2012 was predominately from increased
service revenues of approximately $52.6 million. This increase was comprised of a
$48.5 million increase in retail and wholesale broadband services and a $4.1 million
increase in mobile broadband services. The revenue increase relating to our Exede and
WildBlue broadband services was primarily due to a 14% increase in the number of
subscribers in fiscal year 2013 to approximately 512,000 compared to fiscal year 2012,
as well as a change in the mix of retail and wholesale subscribers and related higher
average revenue per subscriber.
SEGMENT OPERATING LOSS
Fiscal Years Ended
(In millions, except percentages)
March 29
2013
March 30
2012
Dollar
(Increase)
Decrease
Percentage
(Increase)
Decrease
Segment operating loss
Percentage of segment revenues
$ (79.2)
$ (16.8)
$ (62.4)
(371.5)%
(28.6)%
(7.5)%
Our satellite services segment incurred a $79.2 million loss in fiscal year 2013, which
increased $62.4 million from fiscal year 2012. The fiscal year 2013 loss was primarily
due to the start-up effects of higher operating expenses incurred associated with our
ViaSat-1 satellite and related infrastructure, as commercial operation of our Exede
broadband services commenced in January 2012 and the related subscriber base was
in the early phases of growth. These higher operating expenses included additional
depreciation of $34.7 million, and $61.5 million in additional costs related to satellite
services operations support costs and selling, advertising and marketing costs as we
continued to expand the subscriber base of our Exede broadband services.
Commercial Networks Segment
REVENUES
Fiscal Years Ended
(In millions, except percentages)
March 29
2013
March 30
2012
Dollar
Increase
(Decrease)
Percentage
Increase
(Decrease)
Segment product revenues
Segment service revenues
Total revenues
$ 295.5
19.5
$ 314.9
$ 229.9
21.7
$ 251.7
$ 65.5
(2.3)
$ 63.3
28.5%
(10.4)%
25.1%
Commercial networks segment revenue increased approximately $63.3 million in fiscal
year 2013 compared to fiscal year 2012, due to an increase in product revenues of
approximately $65.5 million, offset by a decrease in service revenues of approximately
$2.3 million. The product revenue increase was comprised of a $77.8 million increase
in fixed satellite networks (driven by consumer broadband products), a $6.0 million
increase in satellite payload technology development programs and a $3.9 million
increase in satellite networking development programs. This increase in product
revenues was partially offset by decreases of $19.3 million in antenna systems
products and $2.0 million in mobile broadband satellite communication systems.
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SEGMENT OPERATING LOSS
Fiscal Year 2012 Compared to Fiscal Year 2011
Fiscal Years Ended
(In millions, except percentages)
March 29
2013
March 30
2012
Dollar
(Increase)
Decrease
Percentage
(Increase)
Decrease
Revenues
Segment operating loss
Percentage of segment revenues
$ (11.1)
$ (13.0)
$ 1.9
14.6%
(3.5)%
(5.2)%
The reduction of our commercial networks segment operating loss in fiscal year 2013
compared to the last fiscal year was primarily due to higher earnings contributions
of approximately $13.1 million from increased revenues and improved margins in our
consumer broadband products, partially offset by higher IR&D costs of $5.9 million
and an increase in selling, support and new business proposal costs of $5.3 million.
Government Systems Segment
REVENUES
Fiscal Years Ended
(In millions, except percentages)
Segment product revenues
Segment service revenues
March 29
2013
$ 364.2
163.5
March 30
2012
$ 309.1
80.2
Dollar
Increase
(Decrease)
Percentage
Increase
(Decrease)
$ 55.1
83.4
17.8%
104.0%
35.6%
Total revenues
$ 527.8
$ 389.3
$ 138.5
Total revenues in our government systems segment increased approximately
$138.5 million in fiscal year 2013 compared to the last fiscal year due to an
increase in service revenues of $83.4 million and an increase in product revenues
of $55.1 million. The increase in service revenues was primarily due to a revenue
increase of $86.4 million in government satellite communication systems services
(mainly attributable to broadband networking services revenues for military customers
and command and control situational awareness), offset by a decrease in information
assurance services of $3.9 million. The increase in product revenues was primarily due
to a revenue increase of $34.3 million in government satellite communication systems,
$15.1 million in tactical data link products and $10.4 million in TrellisWare, offset by a
revenue decrease of $4.6 million in information assurance products.
SEGMENT OPERATING PROFIT
Fiscal Years Ended
(In millions, except percentages)
March 29
2013
March 30
2012
Dollar
Increase
(Decrease)
Percentage
Increase
(Decrease)
Segment operating profit
Percentage of segment revenues
$ 85.5
$ 50.7
$ 34.8
68.6%
16.2%
13.0%
The increase in our government systems segment operating profit of $34.8 million
during fiscal year 2013 compared to fiscal year 2012 was primarily due to higher
earnings contributions of approximately $43.9 million mainly in our government
satellite communication systems, offset by higher selling, support and new business
proposal costs of approximately $5.4 million, and higher IR&D costs of $3.8 million.
Fiscal Years Ended
(In millions, except percentages)
Product revenues
Service revenues
Total revenues
March 30
2012
$ 542.1
321.6
April 1
2011
$ 523.9
278.3
$ 863.6
$ 802.2
Dollar
Increase
(Decrease)
Percentage
Increase
(Decrease)
$ 18.1
43.3
$ 61.4
3.5%
15.6%
7.7%
Our total revenues increased approximately $61.4 million during fiscal year 2012
when compared to fiscal year 2011 due to an increase in service revenues of approximately
$43.3 million, coupled with an increase in product revenues of $18.1 million. The
increase in service revenues was driven by service revenue increases in our government
systems segment of approximately $47.0 million and in our commercial networks
segment of approximately $6.0 million, offset by a decrease in our satellite services
segment of approximately $9.7 million. The increase in product revenues was derived
from our commercial networks segment of approximately $62.5 million, partially offset
by decreases in our government systems segment of approximately $41.8 million and
approximately $2.6 million in our satellite services segment.
In the fourth quarter of fiscal year 2011, based on communications with the Defense
Contracting Management Agency (DCMA), changes in the regulatory environment for
federal government contractors, the status of current government audits and other
events, we recorded an additional $5.0 million in contract-related reserves for our
estimate of potential refunds to customers for possible cost adjustments on several
multi-year U.S. government cost reimbursable contracts, which resulted in a
decrease to revenues and earnings in fiscal year 2011. For additional information,
see “Risk Factors—Our Business Could Be Adversely Affected by a Negative Audit
by the U.S. Government” in our most recent Annual Report on Form 10-K.
Cost of Revenues
Fiscal Years Ended
(In millions, except percentages)
Cost of product revenues
Cost of service revenues
Total cost of revenues
March 30
2012
$ 402.8
233.2
April 1
2011
$ 389.9
160.6
$ 636.0
$ 550.6
Dollar
Increase
(Decrease)
Percentage
Increase
(Decrease)
$ 12.8
72.6
$ 85.4
3.3%
45.2%
15.5%
Total cost of revenues increased $85.4 million during fiscal year 2012 when
compared to fiscal year 2011 principally related to cost of service revenues increase
of approximately $72.6 million. Cost of service revenues increased from $160.6
million to $233.2 million during fiscal year 2012 when compared to fiscal year 2011
primarily from a $26.3 million cost of service revenue increase associated with our
ViaSat-1 satellite, data center, billing system and costs in connection with our Exede
broadband services, which commenced commercial operation in January 2012. In
addition, cost of service revenue increased on a constant margin basis approximately
$25.0 million due to increased service revenues. Cost of product revenues increased
Management’s Discussion and Analysis of Financial Condition and Results of Operations (cont.)
from $389.9 million to $402.8 million during fiscal year 2012 when compared to fiscal
year 2011 primarily due to increased product revenues, which caused an increase of
approximately $13.5 million in cost of product revenues on a constant margin basis.
In the first quarter of fiscal year 2011, we recorded an additional forward loss of
$8.5 million on a government satellite communication program due to the significant
additional labor and material costs for rework and testing required to complete the
program requirements and specifications.
Selling, General and Administrative Expenses
Fiscal Years Ended
(In millions, except percentages)
March 30
2012
April 1
2011
Dollar
Increase
(Decrease)
Percentage
Increase
(Decrease)
Selling, general and administrative
$ 181.7
$ 164.3
$ 17.5
10.6%
The increase in SG&A expenses of $17.5 million during fiscal year 2012 compared to
fiscal year 2011 was primarily attributable to higher support costs of $9.2 million, as
well as higher selling costs of $7.4 million. Of the higher support costs, $4.6 million
related to our commercial networks segment, $3.0 million related to our government
systems segment and $1.6 million related to our satellite services segment. Higher
selling costs were incurred across all segments, $2.9 million within our government
systems segment, $2.6 million in our commercial networks segment and $1.9 million
in our satellite services segment. SG&A expenses consisted primarily of personnel
costs and expenses for business development, marketing and sales, bid and proposal,
facilities, finance, contract administration and general management.
Independent Research and Development
Fiscal Years Ended
(In millions, except percentages)
March 30
2012
April 1
2011
Dollar
Increase
(Decrease)
Percentage
Increase
(Decrease)
Independent research
and development
$ 25.0
$ 28.7
$ (3.7)
(13.0)%
The decrease in IR&D expenses of approximately $3.7 million represents a year-over-year
decrease in our government systems segment of approximately $2.2 million primarily
due to information assurance and tactical data link development projects, and a
decrease in IR&D expenses of approximately $2.1 million in our commercial networks
segment principally related to next-generation satellite communications systems.
Amortization of Acquired Intangible Assets
We amortize our acquired intangible assets from prior acquisitions over their
estimated useful lives ranging from three to ten years. The decrease in amortization
of acquired intangible assets of approximately $0.7 million in fiscal year 2012
compared to fiscal year 2011 was a result of an approximately $1.2 million decrease
in amortization as certain acquired technology intangibles in our government systems
and commercial networks segments became fully amortized over the preceding
twelve months, offset by an increase in amortization of approximately $0.6 million
due to our acquisition of Stonewood in July 2010.
Interest Income
The decrease in interest income of $0.3 million year-over-year was primarily due
to lower interest rates on our cash and cash equivalents during fiscal year 2012
when compared to fiscal year 2011.
Interest Expense
The increase in interest expense year-over-year of approximately $5.2 million was
primarily due to lower capitalized interest associated with our ViaSat-1 satellite, related
gateway and networking equipment, and other related assets which were placed into
service during the fourth quarter of fiscal year 2012. Additionally, the Initial 2020 Notes
issued in the fourth quarter of fiscal year 2012 caused an increase in interest expense
year-over-year. For fiscal years 2012 and 2011, we capitalized interest expense of
approximately $25.9 million and $28.3 million, respectively. Interest expense incurred
during fiscal year 2012 was attributable to the Initial 2020 Notes, the 2016 Notes and
our revolving credit facility (the Credit Facility). Interest expense incurred during fiscal
year 2011 was attributable to the 2016 Notes and the Credit Facility.
(Benefit from) Provision for Income Taxes
The effective income tax benefit in fiscal year 2012 reflects the expected tax benefit
from the loss before income taxes and the benefit from federal and state research tax
credits. The zero rate in fiscal year 2011 was primarily due to increased federal tax
credits in fiscal year 2011, as the federal research credit in fiscal year 2011 included
fifteen months of the credit as a result of the December 2010 reinstatement of the
credit retroactively from January 1, 2010.
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Segment Results for Fiscal Year 2012 Compared to Fiscal Year 2011
Commercial Networks Segment
Satellite Services Segment
REVENUES
Fiscal Years Ended
(In millions, except percentages)
Segment product revenues
Segment service revenues
March 30
2012
$ 3.0
219.7
April 1
2011
Dollar
Increase
(Decrease)
Percentage
Increase
(Decrease)
$ 5.6
229.4
$ (2.6)
(9.7)
(46.0)%
(4.2)%
(5.2)%
Total revenues
$ 222.7
$ 235.0
$ (12.3)
The decrease of approximately $12.3 million in our satellite services segment revenue
in fiscal year 2012 compared to fiscal year 2011 was predominately from decreased
service revenues of approximately $9.7 million. This decrease was comprised of an
$8.8 million decrease in retail and wholesale broadband services and a $4.7 million
decrease in managed broadband services, offset by an increase in mobile broadband
services of $3.8 million. The decrease in retail and wholesale service revenues was
mainly due to the lower number of wholesale subscribers as our sales channels
provisioned fewer customers with existing service plans in anticipation of the
commencement of commercial operations of our Exede broadband services, in
January 2012.
REVENUES
Fiscal Years Ended
(In millions, except percentages)
Segment product revenues
Segment service revenues
Total revenues
March 30
2012
$ 229.9
21.7
April 1
2011
$ 167.4
15.7
$ 251.7
$ 183.1
Dollar
Increase
(Decrease)
Percentage
Increase
(Decrease)
$ 62.5
6.0
$ 68.5
37.3%
38.5%
37.4%
Commercial networks segment revenue increased approximately $68.5 million in fiscal
year 2012 compared to fiscal year 2011, primarily due to an increase in product revenues
of approximately $62.5 million.
The increase in our commercial networks segment product revenues was derived
from a $27.0 million increase in fixed satellite networks (mainly driven by consumer
broadband products), $16.0 million in mobile broadband satellite communication
systems, $12.8 million in antenna systems products and $11.8 million in satellite
payload technology development programs, offset by a decrease of $5.0 million in
satellite networking development programs.
Our commercial networks segment experienced higher service revenues primarily due
to increases of $4.4 million in satellite networking development program services and
$1.7 million in antenna systems services.
SEGMENT OPERATING (LOSS) PROFIT
Fiscal Years Ended
(In millions, except percentages)
March 30
2012
April 1
2011
Dollar
Increase
(Decrease)
Percentage
Increase
(Decrease)
Segment operating (loss) profit
Percentage of segment revenues
$ (16.8)
$ 38.2
$ (55.0)
(143.9)%
(7.5)%
16.3%
SEGMENT OPERATING LOSS
Fiscal Years Ended
(In millions, except percentages)
Segment operating loss
March 30
2012
$ (13.0)
April 1
2011
$ (9.5)
Dollar
Increase
(Decrease)
Percentage
Increase
(Decrease)
$ (3.5)
(36.8)%
Our satellite services segment generated an operating loss in fiscal year 2012
compared to an operating profit in fiscal year 2011. This change was primarily due
to the impact of lower revenues coupled with higher operating expenses, including the
additional $26.3 million of costs incurred throughout fiscal year 2012 associated with
our ViaSat-1 satellite, data center, billing system and costs in connection with our
Exede broadband services, which commenced commercial operation in January 2012.
Additionally, this segment was affected by an increase in selling, support and new
business proposal costs of approximately $3.6 million.
Percentage of segment revenues
(5.2)%
(5.2)%
The increase in our commercial networks segment operating loss in fiscal year 2012 compared
to fiscal year 2011 was primarily due to an increase in selling, support and new business
proposal costs of $9.7 million, offset by higher earnings contributions of approximately
$4.2 million from increased revenues and lower IR&D costs of approximately $2.0 million.
Government Systems Segment
REVENUES
Fiscal Years Ended
(In millions, except percentages)
Segment product revenues
Segment service revenues
March 30
2012
$ 309.1
80.2
April 1
2011
$ 350.9
33.2
Dollar
Increase
(Decrease)
Percentage
Increase
(Decrease)
$ (41.8)
47.0
(11.9)%
141.6%
1.3%
Total revenues
$ 389.3
$ 384.1
$ 5.2
Total revenues in our government systems segment increased by approximately
$5.2 million in fiscal year 2012 compared to fiscal year 2011, primarily due to an
increase in service revenues of approximately $47.0 million, offset by a decrease
Management’s Discussion and Analysis of Financial Condition and Results of Operations (cont.)
in product revenues of approximately $41.8 million. Service revenue increased by
$35.5 million in government satellite communication systems services (mainly
attributable to broadband networking services revenues for military customers),
$6.5 million in information assurance services and $3.2 million in tactical data link
services. The decrease in product revenues was primarily due to decreases of
$28.0 million in information assurance products and $25.3 million in tactical data
link products, offset by an increase of $10.9 million in government satellite
communication systems.
In the fourth quarter of fiscal year 2011, based on communications with the DCMA,
changes in the regulatory environment for federal government contractors, the status
of current government audits and other events, we recorded an additional $5.0 million
in contract-related reserves for our estimate of potential refunds to customers for
potential cost adjustments on several multi-year U.S. government cost reimbursable
contracts, which resulted in a decrease to revenues and earnings in fiscal year 2011.
For additional information, see “Risk Factors—Our Business Could Be Adversely
Affected by a Negative Audit by the U.S. Government” in our most recent Annual
Report on Form 10-K.
SEGMENT OPERATING PROFIT
Fiscal Years Ended
(In millions, except percentages)
March 30
2012
April 1
2011
Dollar
Increase
(Decrease)
Percentage
Increase
(Decrease)
Segment operating profit
Percentage of segment revenues
$ 50.7
$ 29.9
$ 20.8
69.7%
13.0%
7.8%
The increase in our government systems segment operating profit of $20.8 million
during fiscal year 2012 compared to fiscal year 2011 was due to higher earnings
contributions of approximately $22.8 million resulting from lower cost of revenues.
Lower year-over-year cost of revenues was mainly related to the $8.5 million forward
loss recorded on a government satellite communication program in the first quarter
of fiscal year 2011 due to the significant additional labor and material costs for rework
and testing required to complete the program requirements and specifications.
In addition, improved margins in certain government satellite communication systems
products contributed to lower costs of revenue, and IR&D costs decreased approximately
$2.2 million. These segment operating profit improvements were offset by higher
selling, support and new business proposal costs of approximately $4.2 million in
fiscal year 2012 compared to fiscal year 2011.
Backlog
As reflected in the table below, both firm and funded backlog increased in each
of our segments during fiscal year 2013 due to certain large contract awards in our
commercial networks segment, which we were pursuing in fiscal year 2012 and fiscal
year 2013, as well as growth in contract awards in the other two segments.
(In millions)
FIRM BACKLOG
Satellite Services segment
Commercial Networks segment
Government Systems segment
Total
FUNDED BACKLOG
Satellite Services segment
Commercial Networks segment
Government Systems segment
Total
As of
March 29, 2013
As of
March 30, 2012
$ 24.7
472.1
355.1
$ 851.9
$ 24.7
472.1
345.7
$ 842.5
$ 10.9
323.0
284.6
$ 618.5
$ 10.9
323.0
266.6
$ 600.5
The firm backlog does not include contract options. Of the $851.9 million in firm
backlog, approximately $565.4 million is expected to be delivered in fiscal year 2014,
and the balance is expected to be delivered in fiscal year 2015 and thereafter. We
include in our backlog only those orders for which we have accepted purchase orders.
Our total new awards were $1,373.4 million, $1,008.6 million and $853.5 million
for fiscal years 2013, 2012 and 2011, respectively. New contract awards in fiscal year
2013 were a record for us. In fiscal year 2014, we anticipate that contract awards,
particularly in our government systems segment, may be negatively impacted by
budget cuts, including sequestration by the U.S. government. For additional information,
see “Risk Factors—Our Reliance on U.S. Government Contracts Exposes Us to
Significant Risks” in our most recent Annual Report on Form 10-K.
Backlog is not necessarily indicative of future sales. A majority of our contracts can
be terminated at the convenience of the customer. Orders are often made substantially
in advance of delivery, and our contracts typically provide that orders may be
terminated with limited or no penalties. In addition, purchase orders may present
product specifications that would require us to complete additional product
development. A failure to develop products meeting such specifications could lead
to a termination of the related contract.
Firm backlog amounts as presented are comprised of funded and unfunded components.
Funded backlog represents the sum of contract amounts for which funds have been
specifically obligated by customers to contracts. Unfunded backlog represents future
amounts that customers may obligate over the specified contract performance periods.
Our customers allocate funds for expenditures on long-term contracts on a periodic
basis. Our ability to realize revenues from contracts in backlog is dependent upon
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adequate funding for such contracts. Although we do not control the funding of our
contracts, our experience indicates that actual contract fundings have ultimately been
approximately equal to the aggregate amounts of the contracts.
Liquidity and Capital Resources
Overview
We have financed our operations to date primarily with cash flows from operations,
bank line of credit financing, debt financing and equity financing. At March 29, 2013,
we had $105.7 million in cash and cash equivalents, $297.7 million in working
capital and no outstanding borrowings under our Credit Facility. At March 30, 2012,
we had $172.6 million in cash and cash equivalents, $327.1 million in working
capital and no outstanding borrowings under our Credit Facility. We invest our cash
in excess of current operating requirements in short-term, interest-bearing,
investment-grade securities.
The general cash needs of our satellite services, commercial networks and
government systems segments can vary significantly. The cash needs of our satellite
services segment tend to be driven primarily by the timing of payment of capital
expenditures (e.g., payments under satellite construction and launch contracts) and
of network expansion activities, as well as the quality of customer, type of contract
and payment terms. In our commercial networks segment, cash needs tend to be
driven primarily by the type and mix of contracts in backlog, the nature and quality
of customers, the level of investments in IR&D activities and the payment terms
of customers (including whether advance payments are made or customer financing
is required). In our government systems segment, the primary factors determining
cash needs tend to be the type and mix of contracts in backlog (e.g., product or
service, development or production) and timing of payments (including restrictions
on the timing of cash payments under U.S. government procurement regulations).
Other factors affecting the cash needs of our commercial networks and government
systems segments include contract duration and program performance. For example,
if a program is performing well and meeting its contractual requirements, then its
cash flow requirements are usually lower.
To further enhance our liquidity position, we may obtain additional financing, which could
consist of debt, convertible debt or equity financing from public and/or private capital
markets. In March 2013, we filed a universal shelf registration statement with the
Securities and Exchange Commission (SEC) for the future sale of an unlimited amount of
debt securities, common stock, preferred stock, depositary shares, warrants and rights.
The securities may be offered from time to time, separately or together, directly by us, by
selling security holders, or through underwriters, dealers or agents at amounts, prices,
interest rates and other terms to be determined at the time of the offering.
Our future capital requirements will depend upon many factors, including the timing and
amount of cash required for our ViaSat-2 satellite project and any future broadband
satellite projects we may engage in, expansion of our research and development and
marketing efforts, and the nature and timing of orders. Additionally, we will continue to
evaluate possible acquisitions of, or investments in complementary businesses, products
and technologies which may require the use of cash or additional financing. We believe
that our current cash balances and net cash expected to be provided by operating
activities along with availability under our Credit Facility will be sufficient to meet our
anticipated operating requirements for at least the next twelve months.
Cash Flows
Cash provided by operating activities for fiscal year 2013 was $91.8 million compared
to cash provided by operating activities of $141.4 million for fiscal year 2012.
This $49.7 million decrease was primarily driven by our operating results (net loss
adjusted for depreciation, amortization and other non-cash charges) which generated
$32.8 million of higher cash outflows, coupled with a $24.0 million year-over-year
increase in cash used to fund net operating assets needs, offset by a $7.1 million
net cash inflow related to our refinancing of the 2016 Notes. The increase in cash
outflows from our operating results was primarily due to the significant operating
costs we incurred during fiscal year 2013 in connection with the launch and roll-out
of our ViaSat-1 satellite and related ground infrastructure and the commencement
of our Exede broadband services, including upfront costs associated with our sales
and marketing efforts, commissions and other costs associated with the acquisition
of Exede broadband subscribers, which negatively impacted income from operations.
The increase in net operating assets was mainly due to a $55.3 million increase
in combined billed and unbilled accounts receivables, net, during fiscal year 2013
compared to the last fiscal year attributable to the contractual timing of certain
milestones in our government systems and commercial networks segments, offset
by a $21.4 million decrease in inventory mainly in our commercial networks and
government systems segments during fiscal year 2013 compared to the last
fiscal year primarily due to high demand for CPE terminals from domestic and
international customers.
Cash used in investing activities for fiscal year 2013 was $201.6 million compared to
cash used in investing activities in fiscal year 2012 of $229.0 million. The decrease
in cash used in investing activities resulted primarily from a reduction of $63.2 million
in cash payments for the ViaSat-1 satellite, placed in service in January 2012, and a
reduction of $37.5 million in cash used for the related ViaSat-1 ground network and
operating systems, offset by $72.1 million in higher capital expenditures for new CPE
units and other general purpose equipment.
Cash provided by financing activities for fiscal year 2013 was $42.9 million compared
to cash provided by financing activities of $219.8 million for fiscal year 2012.
Cash provided by financing activities for fiscal year 2013 reflected the issuance of
$300.0 million in aggregate principal amount of the Additional 2020 Notes, offset
by the repurchase and redemption of all of our $275.0 million in aggregate principal
amount of 2016 Notes, and $8.1 million in debt issuance costs. Cash provided by
financing activities for fiscal year 2012 reflected the issuance of $275.0 million
in aggregate principal amount of Initial 2020 Notes. In addition, during fiscal year 2013
we had no borrowings or repayments under our Credit Facility compared to $60.0 million
in repayments, net of borrowings, under our Credit Facility during fiscal year 2012.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (cont.)
Cash provided by financing activities for both periods included cash received from stock
option exercises and employee stock purchase plan purchases, and cash used for the
repurchase of common stock related to net share settlement of certain employee tax
liabilities in connection with the vesting of restricted stock unit awards.
Satellite Service-Related Activities
On May 15, 2013, we entered into an agreement with The Boeing Company (Boeing)
to purchase ViaSat-2, our second high-capacity Ka-band satellite, at a price of
approximately $358.0 million, plus an additional amount for launch support services
to be performed by Boeing.
We have incurred higher operating costs in connection with the launch and roll-out
of our ViaSat-1 satellite and related ground infrastructure and, beginning in January
2012, the launch of our Exede broadband services, as well as higher interest expense
as we no longer capitalize the interest expense for the debt we incurred to finance
these activities. These higher operating costs included costs associated with
depreciation, gateway connectivity, subscriber acquisition costs, logistics, customer
care and various support systems. These higher operating costs have negatively
impacted income from operations during the past two fiscal years. During fiscal year
2013, the total number of subscribers of our Exede broadband services increased,
and we expect that this trend will continue. Accordingly, we expect that the resultant
increase in service revenues in our satellite services segment will improve income
(loss) from operations for that segment over time. However, there can be no
assurance that this will occur. We also expect our subscriber acquisition costs
to increase during fiscal year 2014 due to the expected increase in the number
of subscribers on our Exede broadband services, which results in an increase
of CPE-related capital expenditures.
We are 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 and other matters. See “Legal Proceedings” in our most recent Annual Report
on Form 10-K for a discussion of certain patent infringement litigation involving Space
Systems/Loral and Loral Space and Communications, Inc. Regardless of the outcome,
litigation can have an adverse impact on us because we expect to incur costs, which
may vary based on interim rulings, discovery and other related activities. In addition, it
is possible that an unfavorable resolution of one or more such proceedings could in the
future materially and adversely affect our business, financial condition, results of
operations or liquidity in a particular period.
Credit Facility
As of March 29, 2013, the Credit Facility provided a revolving line of credit of
$325.0 million (including up to $50.0 million of letters of credit) with a maturity
date of May 9, 2017. Borrowings under the Credit Facility bear interest, at our option,
at either (1) the highest of the Federal Funds rate plus 0.50%, the Eurodollar rate
plus 1.00%, or the administrative agent’s prime rate as announced from time to time,
or (2) the Eurodollar rate plus, in the case of each of (1) and (2), an applicable margin
that is based on our total leverage ratio. The Credit Facility is guaranteed by certain
of our domestic subsidiaries and secured by substantially all of our respective assets.
The Credit Facility contains financial covenants regarding a maximum total leverage
ratio and a minimum interest coverage ratio. In addition, the Credit Facility contains
covenants that restrict, among other things, our ability to sell assets, make
investments and acquisitions, make capital expenditures, grant liens, pay dividends
and make certain other restricted payments. We were in compliance with our financial
covenants under the Credit Facility as of March 29, 2013. At March 29, 2013, we had
no outstanding borrowings under the Credit Facility and $38.2 million outstanding
under standby letters of credit, leaving borrowing availability under the Credit Facility
as of March 29, 2013 of $286.8 million. Subsequent to the fiscal year end, on
May 15, 2013, the Credit Facility was amended to increase the permitted total
leverage ratio for each of the quarters of fiscal year 2014.
Senior Notes
DISCHARGE OF INDENTURE AND LOSS ON EXTINGUISHMENT OF DEBT
In connection with our issuance of the Additional 2020 Notes in October 2012,
we repurchased and redeemed all of our $275.0 million in aggregate principal amount
of 2016 Notes then outstanding through a cash tender offer and redemption, and the
indenture governing the 2016 Notes was satisfied and discharged in accordance with
its terms. On October 12, 2012, we purchased approximately $262.1 million in
aggregate principal amount of the 2016 Notes pursuant to the tender offer.
The total cash payment to purchase the tendered 2016 Notes in the tender offer,
including accrued and unpaid interest up to, but excluding, the repurchase date
and a $10 consent payment per $1,000 principal amount of notes tendered, was
approximately $282.5 million. On November 14, 2012, we redeemed the remaining
$12.9 million in aggregate principal amount of 2016 Notes pursuant to the optional
redemption provisions of the 2016 Notes at a redemption price of 106.656% of the
principal amount, plus accrued and unpaid interest to, but not including, the
redemption date. The total cash payment to redeem the remaining 2016 Notes
was approximately $14.0 million.
As a result of the repurchase and redemption of the 2016 Notes, we recognized a
$26.5 million loss on extinguishment of debt during the fiscal year ended March 29, 2013,
which was comprised of $19.8 million in cash payments (including tender offer
consideration, consent payments, redemption premium and related professional fees),
and $6.7 million in non-cash charges (including unamortized discount and unamortized
debt issuance costs).
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SENIOR NOTES DUE 2020
In February 2012, we issued $275.0 million in principal amount of Initial 2020 Notes
in a private placement to institutional buyers, which were exchanged in August 2012
for substantially identical Initial 2020 Notes that had been registered with the SEC.
The Initial 2020 Notes were issued at face value and are recorded as long-term debt
in our consolidated financial statements. On October 12, 2012, we issued $300.0 million
in principal amount of Additional 2020 Notes in a private placement to institutional
buyers at an issue price of 103.50% of the principal amount, which were exchanged
in January 2013 for substantially identical Additional 2020 Notes that had been
registered with the SEC. The 2020 Notes are all treated as a single class. The
2020 Notes bear interest at the rate of 6.875% per year, payable semi-annually
in cash in arrears, which interest payments commenced in June 2012. Deferred
financing cost associated with the issuance of the 2020 Notes is amortized to
interest expense on a straight-line basis over the term of the 2020 Notes, the results
of which are not materially different from the effective interest rate basis. The
$10.5 million premium we received in connection with the issuance of the Additional
2020 Notes is recorded as long-term debt in our consolidated financial statements
and is being amortized as a reduction to interest expense on an effective interest
rate basis over the term of the Additional 2020 Notes.
The 2020 Notes are guaranteed on an unsecured senior basis by each of our existing
and future subsidiaries that guarantees the Credit Facility (the Guarantor Subsidiaries).
The 2020 Notes and the guarantees are our and the Guarantor Subsidiaries’ general
senior unsecured obligations and rank equally in right of payment with all of our
existing and future unsecured unsubordinated debt. The 2020 Notes and the guarantees
are effectively junior in right of payment to our 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 our subsidiaries that are not guarantors of the 2020 Notes, and are
senior in right of payment to all of our existing and future subordinated indebtedness.
The indenture governing the 2020 Notes limits, among other things, our and our
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 our satellite insurance; and consolidate or merge with, or sell
substantially all of their assets to, another person.
Prior to June 15, 2015, we may redeem up to 35% of the 2020 Notes at a redemption
price of 106.875% of the principal amount thereof, plus accrued and unpaid interest,
if any, thereon to the redemption date, from the net cash proceeds of specified equity
offerings. We may also redeem the 2020 Notes prior to June 15, 2016, in whole or in
part, at a redemption price equal to 100% of the principal amount thereof plus the
applicable premium and any accrued and unpaid interest, if any, thereon to the
redemption date. The applicable premium is calculated as the greater of: (i) 1.0% of
the principal amount of such 2020 Notes and (ii) the excess, if any, of (a) the present
value at such date of redemption of (1) the redemption price of such 2020 Notes on
June 15, 2016 plus (2) all required interest payments due on such 2020 Notes through
June 15, 2016 (excluding accrued but unpaid interest to the date of redemption),
computed using a discount rate equal to the treasury rate (as defined under the
indenture) plus 50 basis points, over (b) the then-outstanding principal amount of such
2020 Notes. The 2020 Notes may be redeemed, in whole or in part, at any time during
the twelve months beginning on June 15, 2016 at a redemption price of 103.438%,
during the twelve months beginning on June 15, 2017 at a redemption price of
101.719%, and at any time on or after June 15, 2018 at a redemption price of 100%,
in each case plus accrued and unpaid interest, if any, thereon to the redemption date.
In the event a change of control occurs (as defined in the indenture), each holder will
have the right to require us to repurchase all or any part of such holder’s 2020 Notes
at a purchase price in cash equal to 101% of the aggregate principal amount of the
2020 Notes repurchased plus accrued and unpaid interest, if any, to the date of
purchase (subject to the right of holders of record on the relevant record date to
receive interest due on the relevant interest payment date).
Management’s Discussion and Analysis of Financial Condition and Results of Operations (cont.)
Contractual Obligations
The following table sets forth a summary of our obligations at March 29, 2013:
(In thousands, including interest where applicable)
Operating leases and satellite capacity agreements
Other
2020 Notes
Line of credit
Standby letters of credit
Satellite performance incentives
Purchase commitments including satellite-related agreements
Total
For the Fiscal Years Ending
$
Total
219,515
3,698
871,484
—
38,189
37,640
393,436
2014
2015–2016
2017–2018
Thereafter
$
79,741
2,242
39,531
—
34,787
1,735
181,267
$ 60,638
1,456
79,063
—
3,402
3,861
128,925
$ 31,334
$
47,802
—
79,063
—
—
4,424
49,158
—
673,827
—
—
27,620
34,086
$ 1,563,962
$ 339,303
$ 277,345
$ 163,979
$ 783,335
We purchase components from a variety of suppliers and use several subcontractors and
contract manufacturers to provide design and manufacturing services for our products.
During the normal course of business, we enter into agreements with subcontractors,
contract manufacturers and suppliers that either allow them to procure inventory based
upon criteria defined by us or that establish the parameters defining our requirements.
In certain instances, these agreements allow us the option to cancel, reschedule and
adjust our requirements based on our business needs prior to firm orders being placed.
Consequently, only a portion of our reported purchase commitments arising from these
agreements are firm, non-cancelable and unconditional commitments. Subsequent to
the fiscal year end, we entered into a satellite construction contract for ViaSat-2, a
second high-capacity Ka-band satellite. See “Liquidity and Capital Resources—Satellite
Service-Related Activities.”
Our consolidated balance sheets included $52.6 million and $50.4 million of “other
liabilities” as of March 29, 2013 and March 30, 2012, respectively, which primarily
consisted of the long-term portion of our satellite performance incentives obligation,
our long-term warranty obligations, the long-term portion of deferred rent, long-term
portion of deferred revenue, long-term deferred income taxes and long-term
unrecognized tax position liabilities. With the exception of the long-term portion
of our satellite performance incentives obligation, these remaining liabilities have
been excluded from the above table as the timing and/or the amount of any cash
payment is uncertain. See Note 8 to our consolidated financial statements for additional
information regarding our income taxes and related tax positions and Note 13 to our
consolidated financial statements for a discussion of our product warranties.
Off-Balance Sheet Arrangements
We had no material off-balance sheet arrangements at March 29, 2013 as defined in
Regulation S-K Item 303(a)(4) other than as discussed under Contractual Obligations above
or disclosed in the notes to our consolidated financial statements included in this report.
Recent Authoritative Guidance
For information regarding recently adopted and issued accounting pronouncements,
see Note 1 to the consolidated financial statements.
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Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
Our financial instruments consist of cash and cash equivalents, trade accounts
receivable, accounts payable, short-term and long-term obligations, including the
Credit Facility and the 2020 Notes, and foreign currency forward contracts. We consider
investments in highly liquid instruments purchased with a remaining maturity of three
months or less at the date of purchase to be cash equivalents. As of March 29, 2013,
we had no outstanding borrowings under our Credit Facility and $575.0 million in
aggregate principal amount outstanding of the 2020 Notes, and we held no short-term
investments. Our 2020 Notes bear interest at a fixed rate and therefore our exposure
to market risk for changes in interest rates relates primarily to borrowings under our
Credit Facility, cash equivalents, short-term investments and short-term obligations.
The primary objective of our investment activities is to preserve principal while at
the same time maximizing the income we receive from our investments without
significantly increasing risk. To minimize this risk, we maintain a significant portion
of our cash balance in money market funds. In general, money market funds are not
subject to interest rate risk because the interest paid on such funds fluctuates with
the prevailing interest rate. Our cash and cash equivalents earn interest at variable
rates. Given recent declines in interest rates, our interest income has been and may
continue to be negatively impacted. Fixed rate securities may have their fair market
value adversely impacted due to a rise in interest rates, while floating rate securities
may produce less income than expected if interest rates fall. If the underlying weighted
average interest rate on our cash and cash equivalents, assuming balances remain
constant over a year, changed by 50 basis points, interest income would have
increased or decreased by approximately $0.4 million and $0.1 million, respectively,
for each of the fiscal years ended March 29, 2013 and March 30, 2012. Because our
investment policy restricts us to invest in conservative, interest-bearing investments
and because our business strategy does not rely on generating material returns from
our investment portfolio, we do not expect our market risk exposure on our investment
portfolio to be material.
Our primary interest rate under the Credit Facility is the Eurodollar rate plus an
applicable margin that is based on our total leverage ratio. Under the Credit Facility,
the effective interest rate as of March 29, 2013 that would have been applied to any
new Eurodollar note based borrowings under the Credit Facility was approximately
3.80%. As of March 29, 2013, we had no outstanding borrowings under our Credit
Facility. Accordingly, assuming the outstanding balance remained constant over a year,
changes in interest rates applicable to our Credit Facility would have no effect on our
interest incurred and cash flow.
Foreign Exchange Risk
We generally conduct our business in U.S. dollars. However, as our international business
is conducted in a variety of foreign currencies, we are exposed to fluctuations in foreign
currency exchange rates. Our objective in managing our exposure to foreign currency
risk is to reduce earnings and cash flow volatility associated with foreign exchange
rate fluctuations. Accordingly, from time to time, we may enter into foreign currency
forward contracts to mitigate risks associated with foreign currency denominated
assets, liabilities, commitments and anticipated foreign currency transactions.
As of March 29, 2013, we had a number of foreign currency forward contracts
outstanding which are intended to reduce the foreign currency risk for amounts
payable to vendors in Euros. The foreign currency forward contracts with a notional
amount of $7.0 million had a fair value of approximately $0.3 million and were recorded
in accrued liabilities as of March 29, 2013. If the foreign currency forward rate for the
Euro to the U.S. dollar on these foreign currency forward contracts had changed by
10%, the fair value of these foreign currency forward contracts as of March 29, 2013
would have changed by approximately $0.7 million.
Summarized Quarterly Data (Unaudited)
The following financial information reflects all normal recurring adjustments which are, in the opinion of management, necessary for the fair statement of the results
for the interim periods. Summarized quarterly data for fiscal years 2013 and 2012 are as follows:
(In thousands, except per share data)
2013
Total revenues
(Loss) income from operations
Net (loss) income
Net (loss) income attributable to ViaSat, Inc.
Basic net (loss) income per share
Diluted net (loss) income per share
2012
Total revenues
Income (loss) from operations
Net income (loss)
Net income (loss) attributable to ViaSat, Inc.
Basic net income (loss) per share
Diluted net income (loss) per share
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
$ 241,763
(13,789)
(14,433)
(14,420)
(0.33)
(0.33)
$ 195,101
1,301
1,594
1,759
0.04
0.04
$ 282,822
(859)
(7,857)
(7,907)
(0.18)
(0.18)
$ 223,024
4,956
8,169
7,975
0.19
0.18
$ 286,442
1,266
(20,614)
(20,776)
(0.47)
(0.47)
$ 204,964
1,792
5,118
5,140
0.12
0.12
$ 308,663
(6,980)
2,275
1,931
0.04
0.04
$ 240,538
(5,855)
(7,283)
(7,378)
(0.17)
(0.17)
Summarized quarterly data for the third quarter of fiscal year 2013 reflects a $26.5 million loss on extinguishment of debt. Refer to Note 5 to the consolidated financial statements
for discussion of the refinancing of the 2016 Notes and associated loss on extinguishment of debt.
Basic and diluted net income (loss) per share are computed independently for each of the quarters presented. Therefore, the sum of quarterly basic and diluted per share
information may not equal annual basic and diluted net income (loss) per share.
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Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to provide reasonable
assurance of achieving the objective that information in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified and
pursuant to the requirements of the SEC’s rules and forms and that such information
is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow for timely decisions
regarding required disclosures. In designing and evaluating the disclosure controls
and procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of achieving
the desired control objectives, and management is required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
As required by SEC Rule 13a-15(b), we carried out an evaluation, with the participation
of our management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of our disclosure controls and procedures as of March 29, 2013,
the end of the period covered by this report. Based upon the foregoing, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure controls
and procedures were effective at a reasonable assurance level as of March 29, 2013.
Management’s Report on Internal Control Over Financial Reporting
The company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act. Under the supervision and with the participation of the
company’s management, including our Chief Executive Officer and Chief Financial
Officer, the company conducted an evaluation of the effectiveness of its internal
control over financial reporting based on criteria established in the framework in
Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, the company’s
management concluded that its internal control over financial reporting was effective
as of March 29, 2013.
Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risks that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
The company’s independent registered public accounting firm has audited the
effectiveness of the company’s internal control over financial reporting as of
March 29, 2013, as stated in their report which appears on page 42.
Changes in Internal Control Over Financial Reporting
We regularly review our system of internal control over financial reporting and make
changes to our processes and systems to improve controls and increase efficiency,
while ensuring that we maintain an effective internal control environment. Changes
may include such activities as implementing new, more efficient systems, consolidating
activities, and migrating processes. During the quarter ended March 29, 2013, there
were no changes in our internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of ViaSat, Inc.:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and comprehensive income (loss), cash flows
and equity present fairly, in all material respects, the financial position of ViaSat, Inc.
and its subsidiaries at March 29, 2013 and March 30, 2012, and the results of their
operations and their cash flows for each of the three years in the period ended March 29,
2013 in conformity with accounting principles generally accepted in the United States
of America. In addition, in our opinion, the financial statement schedule listed in the
accompanying index presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial statements.
Also in our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of March 29, 2013, based on criteria established
in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company’s management is
responsible for these financial statements and financial statement schedule, for
maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control over Financial Reporting.
Our responsibility is to express opinions on these financial statements, on the financial
statement schedule, and on the Company’s internal control over financial reporting
based on our integrated audits. We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement and whether
effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included 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, and
evaluating the overall financial statement presentation. Our audit of internal control
over financial reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk. Our audits also included performing such other procedures
as we considered necessary in the circumstances. We believe that our audits provide
a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes
those policies and procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (ii) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
San Diego, California
May 24, 2013
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Consolidated Balance Sheets
(In thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventories
Deferred income taxes
Prepaid expenses and other current assets
Total current assets
Satellites, net
Property and equipment, net
Other acquired intangible assets, net
Goodwill
Other assets
Total assets
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
Accrued liabilities
Current portion of other long-term debt
Total current liabilities
Senior notes, net
Other long-term debt
Other liabilities
Total liabilities
Commitments and contingencies (Notes 11 and 12)
Equity:
ViaSat, Inc. stockholders’ equity
Series A, convertible preferred stock, $.0001 par value; 5,000,000 shares authorized; no shares issued
and outstanding at March 29, 2013 and March 30, 2012, respectively
Common stock, $.0001 par value, 100,000,000 shares authorized; 44,974,186 and 43,048,528 shares outstanding
at March 29, 2013 and March 30, 2012, respectively
Paid-in capital
Retained earnings
Common stock held in treasury, at cost, 947,607 and 727,674 shares at March 29, 2013
and March 30, 2012, respectively
Accumulated other comprehensive income
Total ViaSat, Inc. stockholders’ equity
Noncontrolling interest in subsidiary
Total equity
Total liabilities and equity
See accompanying notes to the consolidated financial statements.
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As of
March 29, 2013
As of
March 30, 2012
$
105,738
266,970
106,281
25,065
40,819
544,873
535,090
378,691
47,170
83,000
205,248
$ 172,583
211,690
127,646
20,316
30,917
563,152
585,731
294,973
63,041
83,461
136,795
$ 1,794,072
$ 1,727,153
$
83,009
161,909
2,230
247,148
584,993
1,456
52,640
886,237
$
75,040
159,762
1,240
236,042
547,791
774
50,353
834,960
—
—
4
715,115
221,046
(33,770)
606
903,001
4,834
907,835
4
649,672
262,218
(25,358)
1,439
887,975
4,218
892,193
$ 1,794,072
$ 1,727,153
Consolidated Statements of Operations and Comprehensive Income (Loss)
Fiscal Years Ended (In thousands, except per share data)
March 29, 2013
March 30, 2012
April 1, 2011
Revenues:
Product revenues
Service revenues
Total revenues
Operating expenses:
Cost of product revenues
Cost of service revenues
Selling, general and administrative
Independent research and development
Amortization of acquired intangible assets
(Loss) income from operations
Other income (expense):
Interest income
Interest expense
Loss on extinguishment of debt
(Loss) income before income taxes
Benefit from income taxes
Net (loss) income
Less: Net income attributable to the noncontrolling interest, net of tax
Net (loss) income attributable to ViaSat, Inc.
Net (loss) income per share attributable to ViaSat, Inc. common stockholders:
Basic net (loss) income per share attributable to ViaSat, Inc. common stockholders
Diluted net (loss) income per share attributable to ViaSat, Inc. common stockholders
Shares used in computing basic net (loss) income per share
Shares used in computing diluted net (loss) income per share
Comprehensive income (loss):
Net (loss) income
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on hedging, net of tax
Foreign currency translation adjustments, net of tax
Other comprehensive (loss) income, net of tax
Comprehensive (loss) income
Less: comprehensive income attributable to the noncontrolling interest, net of tax
Comprehensive (loss) income attributable to ViaSat, Inc.
See accompanying notes to the consolidated financial statements.
$ 664,417
455,273
1,119,690
$ 542,064
321,563
863,627
$ 523,938
278,268
802,206
484,973
363,188
240,859
35,448
15,584
(20,362)
173
(43,993)
(26,501)
(90,683)
(50,054)
(40,629)
543
$
(41,172)
$
$
(0.94)
(0.94)
43,931
43,931
402,794
233,187
181,728
24,992
18,732
2,194
60
(8,307)
—
(6,053)
(13,651)
7,598
102
7,496
0.18
0.17
42,325
44,226
$
$
$
389,945
160,623
164,265
28,711
19,409
39,253
323
(3,154)
—
36,422
(2)
36,424
309
$ 36,115
$
$
0.88
0.84
40,858
43,059
$
(40,629)
$
7,598
$ 36,424
76
(909)
(833)
(41,462)
543
(452)
(386)
(838)
6,760
102
182
1,636
1,818
38,242
309
$
(42,005)
$
6,658
$ 37,933
T
R
O
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E
R
L
A
U
N
N
A
3
1
0
2
T
A
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A
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44
45
T
A
K
I
N
G
C
E
N
T
E
R
S
T
A
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E
F
I
N
A
N
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I
A
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F
O
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M
A
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E
Consolidated Statements of Cash Flows
Fiscal Years Ended (In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES
March 29, 2013
March 30, 2012
April 1, 2011
$
(40,629)
$
7,598
$
36,424
Depreciation
Amortization of intangible assets
Deferred income taxes
Stock-based compensation expense
Loss on disposition of fixed assets
Non-cash loss on extinguishment of debt
Repayment of discount on the 2016 Notes
Receipt of premium on the Additional 2020 Notes
Other non-cash adjustments
Increase (decrease) in cash resulting from changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable
Inventories
Other assets
Accounts payable
Accrued liabilities
Other liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, equipment and satellites, net
Cash paid for patents, licenses and other assets
Payments related to acquisition of businesses, net of cash acquired
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of 2020 Notes
Repayment of 2016 Notes
Payment of debt issuance costs
Proceeds from line of credit borrowings
Payments on line of credit
Proceeds from issuance of common stock under equity plans
Purchase of common stock in treasury
Other
Incremental tax benefits from stock-based compensation
Net cash provided by financing activities
Effect of exchange rate changes on cash
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of fiscal year
Cash and cash equivalents at end of fiscal year
SUPPLEMENTAL INFORMATION
Cash paid for interest (net of amounts capitalized)
Cash paid (received) for income taxes, net
NON-CASH INVESTING AND FINANCING ACTIVITIES
Capitalization of estimated satellite performance incentives obligation
Issuance of stock in satisfaction of certain accrued employee compensation liabilities
Capitalization of non-cash portion of interest expense and stock-based compensation to constructed assets
Issuance of common stock in connection with acquisitions
Fair value of assets acquired in business combinations, excluding cash acquired
Liabilities assumed in business combinations
See accompanying notes to the consolidated financial statements.
134,133
23,038
(50,728)
27,035
12,109
6,726
(3,418)
10,500
4,301
(57,124)
21,233
(15,471)
4,564
9,406
6,123
91,798
(176,295)
(25,270)
—
(201,565)
300,000
(271,582)
(8,059)
—
—
31,001
(8,412)
—
—
42,948
(26)
(66,845)
172,583
101,507
24,004
(13,330)
21,382
5,814
—
—
—
1,793
(21,026)
(25,271)
(9,266)
7,679
33,280
7,285
141,449
(204,973)
(24,049)
—
(229,022)
275,000
—
(5,706)
130,000
(190,000)
19,341
(7,451)
(1,386)
—
219,798
(132)
132,093
40,490
83,629
19,424
(4,098)
17,440
6,999
—
—
—
503
(14,138)
(14,030)
3,151
6,644
32,441
(4,772)
169,617
(208,285)
(15,986)
(13,456)
(237,727)
—
—
(2,775)
40,000
(40,000)
26,398
(5,880)
—
867
18,610
359
(49,141)
89,631
$ 105,738
$ 172,583
$
40,490
$
$
$
$
$
$
$
$
32,004
931
227
7,060
520
—
—
—
$
$
$
$
$
$
$
$
5,964
(3,966)
22,300
6,340
3,802
—
—
—
$
$
$
$
$
$
$
$
2,797
(6,563)
—
5,096
3,261
4,630
22,699
4,613
Consolidated Statements of Equity
(In thousands, except share data)
Balance at April 2, 2010
Exercise of stock options
Issuance of stock under Employee Stock Purchase Plan
Stock-based compensation
Tax benefit from exercise of stock options and release of RSU awards
Shares issued in settlement of certain accrued employee compensation liabilities
RSU awards vesting
Purchase of treasury shares pursuant to vesting of certain RSU agreements
Shares issued in connection with acquisition of business, net of issuance costs
Other noncontrolling interest activity
Net income
Other comprehensive income, net of tax
Balance at April 1, 2011
Exercise of stock options
Issuance of stock under Employee Stock Purchase Plan
Stock-based compensation
Shares issued in settlement of certain accrued employee compensation liabilities
RSU awards vesting
Purchase of treasury shares pursuant to vesting of certain RSU agreements
Net income
Other comprehensive loss, net of tax
Balance at March 30, 2012
Exercise of stock options
Issuance of stock under Employee Stock Purchase Plan
Stock-based compensation
Shares issued in settlement of certain accrued employee compensation liabilities
RSU awards vesting
Purchase of treasury shares pursuant to vesting of certain RSU agreements
Other noncontrolling interest activity
Net (loss) income
Other comprehensive loss, net of tax
Balance at March 29, 2013
See accompanying notes to the consolidated financial statements.
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2
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47
Common Stock
Common Stock Held in Treasury
ViaSat, Inc. Stockholders
Number of
Shares Issued
40,199,770
1,124,415
159,940
—
—
162,870
433,173
—
144,962
—
—
—
42,225,130
795,634
126,302
—
156,825
472,311
—
—
—
43,776,202
1,178,573
157,636
—
197,149
612,233
—
—
—
—
Amount
$ 4
—
—
—
—
—
—
—
—
—
—
—
$ 4
—
—
—
—
—
—
—
—
$ 4
—
—
—
—
—
—
—
—
—
45,921,793
$ 4
$ 715,115
$ 221,046
(947,607)
$ (33,770)
$ 4,834
$ 907,835
Paid-in
Capital
$ 545,962
Retained
Earnings
$ 218,607
Number of
Shares
(407,137)
Amount
$
(12,027)
Accumulated
Other
Comprehensive
Income (Loss)
$
459
Noncontrolling
Interest in
Subsidiary
$ 3,745
Total
$ 756,750
$ 601,029
$ 254,722
(560,363)
$
(17,907)
$ 4,116
$ 844,241
22,101
4,297
17,640
1,303
5,096
4,630
—
—
—
—
—
14,681
4,660
22,962
6,340
25,915
5,086
27,382
7,060
—
—
—
—
—
—
—
—
—
36,115
7,496
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(41,172)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(153,226)
(5,880)
(167,311)
(7,451)
(219,933)
(8,412)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,818
$ 2,277
(838)
$ 1,439
(833)
$
606
—
—
—
—
—
—
—
—
62
309
—
—
—
—
—
—
—
102
—
—
—
—
—
—
—
73
543
—
22,101
4,297
17,640
1,303
5,096
—
(5,880)
4,630
62
36,424
1,818
14,681
4,660
22,962
6,340
—
(7,451)
7,598
(838)
25,915
5,086
27,382
7,060
—
(8,412)
73
(40,629)
(833)
$ 649,672
$ 262,218
(727,674)
$
(25,358)
$ 4,218
$ 892,193
Consolidated Statements of Equity
(In thousands, except share data)
Balance at April 2, 2010
Exercise of stock options
Issuance of stock under Employee Stock Purchase Plan
Stock-based compensation
Tax benefit from exercise of stock options and release of RSU awards
Shares issued in settlement of certain accrued employee compensation liabilities
RSU awards vesting
Purchase of treasury shares pursuant to vesting of certain RSU agreements
Shares issued in connection with acquisition of business, net of issuance costs
Other noncontrolling interest activity
Net income
Other comprehensive income, net of tax
Balance at April 1, 2011
Exercise of stock options
RSU awards vesting
Net income
Other comprehensive loss, net of tax
Balance at March 30, 2012
Exercise of stock options
RSU awards vesting
Other noncontrolling interest activity
Net (loss) income
Other comprehensive loss, net of tax
Balance at March 29, 2013
Issuance of stock under Employee Stock Purchase Plan
Stock-based compensation
Shares issued in settlement of certain accrued employee compensation liabilities
Purchase of treasury shares pursuant to vesting of certain RSU agreements
Issuance of stock under Employee Stock Purchase Plan
Stock-based compensation
Shares issued in settlement of certain accrued employee compensation liabilities
Purchase of treasury shares pursuant to vesting of certain RSU agreements
See accompanying notes to the consolidated financial statements.
Common Stock
Common Stock Held in Treasury
ViaSat, Inc. Stockholders
Number of
Shares Issued
40,199,770
1,124,415
159,940
162,870
433,173
144,962
42,225,130
795,634
126,302
156,825
472,311
43,776,202
1,178,573
157,636
197,149
612,233
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Amount
$ 4
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$ 4
$ 4
45,921,793
$ 4
Paid-in
Capital
$ 545,962
22,101
4,297
17,640
1,303
5,096
—
—
4,630
—
—
—
$ 601,029
14,681
4,660
22,962
6,340
—
—
—
—
$ 649,672
25,915
5,086
27,382
7,060
—
—
—
—
—
$ 715,115
Retained
Earnings
$ 218,607
—
—
—
—
—
—
—
—
—
36,115
—
$ 254,722
—
—
—
—
—
—
7,496
—
$ 262,218
—
—
—
—
—
—
—
(41,172)
—
$ 221,046
Number of
Shares
(407,137)
—
—
—
—
—
—
(153,226)
—
—
—
—
(560,363)
—
—
—
—
—
(167,311)
—
—
(727,674)
—
—
—
—
—
(219,933)
—
—
—
(947,607)
$
$
$
Amount
(12,027)
—
—
—
—
—
—
(5,880)
—
—
—
—
(17,907)
—
—
—
—
—
(7,451)
—
—
(25,358)
—
—
—
—
—
(8,412)
—
—
—
Accumulated
Other
Comprehensive
Income (Loss)
$
459
Noncontrolling
Interest in
Subsidiary
$ 3,745
—
—
—
—
—
—
—
—
—
—
1,818
$ 2,277
—
—
—
—
—
—
—
(838)
—
—
—
—
—
—
—
—
62
309
—
$ 4,116
—
—
—
—
—
—
102
—
$ 1,439
$ 4,218
—
—
—
—
—
—
—
—
(833)
—
—
—
—
—
—
73
543
—
Total
$ 756,750
22,101
4,297
17,640
1,303
5,096
—
(5,880)
4,630
62
36,424
1,818
$ 844,241
14,681
4,660
22,962
6,340
—
(7,451)
7,598
(838)
$ 892,193
25,915
5,086
27,382
7,060
—
(8,412)
73
(40,629)
(833)
$ (33,770)
$
606
$ 4,834
$ 907,835
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Notes to the Consolidated Financial Statements
NOTE 1 | The Company and a Summary of Its Significant
Accounting Policies
The Company
ViaSat, Inc. (also referred to hereafter as the “Company” or “ViaSat”) is a leading
provider of high-speed fixed and mobile broadband services, advanced satellite and
other wireless networks and secure networking systems, products and services.
Principles of Consolidation
The Company’s consolidated financial statements include the assets, liabilities
and results of operations of ViaSat, its wholly owned subsidiaries and TrellisWare
Technologies, Inc. (TrellisWare), a majority-owned subsidiary. All significant
intercompany amounts have been eliminated.
The Company’s fiscal year is the 52 or 53 weeks ending on the Friday closest to
March 31 of the specified year. For example, references to fiscal year 2013 refer to
the fiscal year ended March 29, 2013. The Company’s quarters for fiscal year 2013
ended on June 29, 2012, September 28, 2012, December 28, 2012 and March 29, 2013.
This results in a 53 week fiscal year approximately every four to five years. Fiscal years
2013, 2012 and 2011 were each 52 week years.
Certain prior period amounts have been reclassified to conform to the current
period presentation.
During the second quarter of fiscal year 2011, the Company completed the acquisition
of Stonewood Group Limited (Stonewood), a privately held company registered in
England and Wales. This acquisition was accounted for as a purchase and accordingly,
the consolidated financial statements include the operating results of Stonewood from
the date of acquisition (see Note 9).
Management Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (GAAP) requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting period.
Estimates have been prepared on the basis of the most current and best available
information and actual results could differ from those estimates. Significant estimates
made by management include revenue recognition, stock-based compensation, self-
insurance reserves, allowance for doubtful accounts, warranty accruals, valuation of
goodwill and other intangible assets, patents, orbital slots and other licenses, software
development, property, equipment and satellites, long-lived assets, derivatives,
contingencies and income taxes including the valuation allowance on deferred tax assets.
Cash Equivalents
Cash equivalents consist of highly liquid investments with original maturities of three
months or less at the date of purchase.
Accounts Receivable, Unbilled Accounts Receivable
and Allowance for Doubtful Accounts
The Company records receivables at net realizable value including an allowance for
estimated uncollectible accounts. The allowance for doubtful accounts is based on
the Company’s assessment of the collectability of customer accounts. The Company
regularly reviews the allowance by considering factors such as historical experience,
credit quality, the age of accounts receivable balances and current economic conditions
that may affect a customer’s ability to pay. Amounts determined to be uncollectible are
charged or written off against the reserve. Historically, the Company’s allowance for
doubtful accounts has been minimal primarily because a significant portion of its sales
has been to the U.S. government or with respect to its satellite services commercial
business, the Company bills and collects in advance.
Unbilled accounts receivables consist of costs and fees earned and billable on contract
completion or other specified events. Unbilled accounts receivables are generally
expected to be billed and collected within one year.
Concentration of Risk
Financial instruments that potentially subject the Company to significant concentrations
of credit risk consist primarily of cash equivalents and trade accounts receivable which
are generally not collateralized. The Company limits its exposure to credit loss by
placing its cash equivalents with high credit quality financial institutions and investing
in high quality short-term debt instruments. The Company establishes customer credit
policies related to its accounts receivable based on historical collection experiences
within the various markets in which the Company operates, historical past due amounts
and any specific information that the Company becomes aware of such as bankruptcy
or liquidity issues of customers.
Revenues from the U.S. government comprised 24.1%, 19.9% and 24.5% of total
revenues for fiscal years 2013, 2012 and 2011, respectively. Billed accounts receivable
to the U.S. government as of March 29, 2013 and March 30, 2012 were 37.9% and
21.4%, respectively, of total billed receivables. In addition, none of the Company’s
commercial customers comprised 10.0% or more of total revenues for fiscal years
2013, 2012 and 2011. The Company’s five largest contracts generated approximately
24.0%, 19.6% and 21.2% of the Company’s total revenues for the fiscal years ended
March 29, 2013, March 30, 2012 and April 1, 2011, respectively.
The Company relies on a limited number of contract manufacturers to produce
its products.
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49
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Inventory
Inventory is valued at the lower of cost or market, cost being determined by the
weighted average cost method.
Property, Equipment and Satellites
Satellites and other property and equipment are recorded at cost or in the case of
certain satellites and other property acquired, the fair value at the date of acquisition,
net of accumulated depreciation. Capitalized satellite costs consist primarily of the
costs of satellite construction and launch, including launch insurance and insurance
during the period of in-orbit testing, the net present value of performance incentives
expected to be payable to satellite manufacturers (dependent on the continued
satisfactory performance of the satellites), costs directly associated with the
monitoring and support of satellite construction, and interest costs incurred during
the period of satellite construction. The Company also constructs gateway facilities,
network operations systems and other assets to support its satellites, and those
construction costs, including interest, are capitalized as incurred. At the time satellites
are placed in service, the Company estimates the useful life of its satellites for
depreciation purposes based upon an analysis of each satellite’s performance against
the original manufacturer’s orbital design life, estimated fuel levels and related
consumption rates, as well as historical satellite operating trends. The Company
computes depreciation using the straight-line method over the estimated useful lives
of the assets ranging from two to twenty-four years. Leasehold improvements are
capitalized and amortized using the straight-line method over the shorter of the lease
term or the life of the improvement. Costs incurred for additions to property, equipment
and satellites, together with major renewals and betterments, are capitalized and
depreciated over the remaining life of the underlying asset. Costs incurred for
maintenance, repairs and minor renewals and betterments are charged to expense
as incurred. When assets are sold or otherwise disposed of, the cost and related
accumulated depreciation or amortization are removed from the accounts and any
resulting gain or loss is recognized in operations.
Interest expense is capitalized on the carrying value of assets under construction, in
accordance with the authoritative guidance for the capitalization of interest (Accounting
Standards Codification (ASC) 835-20). With respect to assets under construction, the
Company capitalized $3.1 million of interest expense during the fiscal year ended
March 29, 2013. With respect to ViaSat-1, related gateway and networking equipment
and other assets, the Company capitalized $25.9 million and $28.3 million of interest
expense during the fiscal years ended March 30, 2012 and April 1, 2011, respectively.
The Company owns two satellites: ViaSat-1 (its high-capacity Ka-band spot-beam
satellite, which was successfully launched into orbit in October 2011 and commenced
commercial operation in January 2012) and WildBlue-1 (which was placed into service
in March 2007). Subsequent to the fiscal year end, the Company announced the entry
into a satellite construction contract for ViaSat-2, a second high-capacity Ka-band
satellite. In addition, the Company has an exclusive prepaid lifetime capital lease of
Ka-band capacity over the continental United States on Telesat Canada’s Anik F2
satellite (which was placed into service in April 2005) and owns related gateway and
networking equipment for all of its satellites. The Company periodically reviews the
remaining estimated useful life of its satellites to determine if revisions to estimated
lives are necessary. The Company procured indoor and outdoor customer premise
equipment (CPE) units leased to subscribers under a retail leasing program as part
of the Company’s satellite services segment, which are reflected in investing activities
and property and equipment in the accompanying consolidated financial statements.
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 March 29, 2013 were $170.9 million and $51.5 million, respectively. The total
cost and accumulated depreciation of CPE units included in property and equipment,
net, as of March 30, 2012 were $85.3 million and $33.1 million, respectively.
Occasionally, the Company may enter into capital lease arrangements for various
machinery, equipment, computer-related equipment, software, furniture or fixtures.
The Company records amortization of assets leased under capital lease arrangements
within depreciation expense.
Goodwill and Intangible Assets
The authoritative guidance for business combinations (ASC 805) requires that all
business combinations be accounted for using the purchase method. The authoritative
guidance for business combinations also specifies criteria for recognizing and reporting
intangible assets apart from goodwill; however, acquired workforce must be recognized
and reported in goodwill. The authoritative guidance for goodwill and other intangible
assets (ASC 350) requires that intangible assets with an indefinite life should not be
amortized until their life is determined to be finite. All other intangible assets must be
amortized over their useful life. The authoritative guidance for goodwill and other
intangible assets prohibits the amortization of goodwill and indefinite-lived intangible
assets, but instead requires these assets to be tested for impairment at least annually
and more frequently upon the occurrence of specified events. In addition, all goodwill
must be assigned to reporting units for purposes of impairment testing.
Patents, Orbital Slots and Other Licenses
The Company capitalizes the costs of obtaining or acquiring patents, orbital slots
and other licenses. Amortization of intangible assets that have finite lives is provided
for by the straight-line method over the shorter of the legal or estimated economic life.
Total capitalized costs of $3.2 million related to patents were included in other assets
as of March 29, 2013 and March 30, 2012. The Company has capitalized costs of
$8.6 million and $8.4 million related to acquiring and obtaining orbital slots and other
licenses included in other assets as of March 29, 2013 and March 30, 2012,
respectively. Accumulated amortization related to these assets was approximately
$0.7 million and $0.4 million as of March 29, 2013 and March 30, 2012, respectively.
Amortization expense related to these assets was an insignificant amount for each of
the fiscal years ended March 29, 2013, March 30, 2012, and April 1, 2011. If a patent,
Notes to the Consolidated Financial Statements (cont.)
orbital slot or orbital license is rejected, abandoned or otherwise invalidated, the
unamortized cost is expensed in that period. During fiscal years 2013, 2012 and 2011,
the Company did not write off any significant costs due to abandonment or impairment.
Debt Issuance Costs
Debt issuance costs are amortized and recognized as interest expense on a straight-
line basis over the expected term of the related debt, the results of which are not
materially different from the effective interest rate basis. During fiscal years 2013,
2012 and 2011, the Company paid and capitalized approximately $8.1 million,
$5.7 million and $2.8 million, respectively, in debt issuance costs. Unamortized debt
issuance costs related to extinguished debt are expensed at the time the debt is
extinguished and recorded in loss on extinguishment of debt in the consolidated
statements of operations and comprehensive income (loss). Other unamortized debt
issuance costs are recorded in prepaid expenses and other current assets and in other
long-term assets in the consolidated balance sheets, depending on the amounts
expected to be amortized to interest expense within the next twelve months.
Software Development
Costs of developing software for sale are charged to research and development
expense when incurred, until technological feasibility has been established. Software
development costs incurred from the time technological feasibility is reached until the
product is available for general release to customers are capitalized and reported at
the lower of unamortized cost or net realizable value. Once the product is available
for general release, the software development costs are amortized based on the ratio
of current to future revenue for each product with an annual minimum equal to
straight-line amortization over the remaining estimated economic life of the product,
generally within five years. Capitalized costs, net, of $60.6 million and $42.0 million
related to software developed for resale were included in other assets as of March 29,
2013 and March 30, 2012, respectively. The Company capitalized $25.8 million and
$22.7 million of costs related to software developed for resale for fiscal years ended
March 29, 2013 and March 30, 2012, respectively. Amortization expense for software
development costs was $7.2 million and $5.2 million during fiscal years 2013 and 2012,
respectively. There was no amortization expense of software development costs during
fiscal year 2011.
Impairment of Long-Lived and Other Long-Term Assets
(Property, Equipment, and Satellites, and Other Assets, Including Goodwill)
In accordance with the authoritative guidance for impairment or disposal of long-
lived assets (ASC 360), the Company assesses potential impairments to long-lived
assets, including property, equipment and satellites, and other assets, when there is
evidence that events or changes in circumstances indicate that the carrying value
may not be recoverable. An impairment loss is recognized when the undiscounted
cash flows expected to be generated by an asset (or group of assets) is less than
its carrying value. Any required impairment loss would be measured as the amount
by which the asset’s carrying value exceeds its fair value, and would be recorded as
a reduction in the carrying value of the related asset and charged to results of
operations. No material impairments were recorded by the Company for fiscal years
2013, 2012 and 2011.
The Company accounts for its goodwill under the authoritative guidance for goodwill
and other intangible assets (ASC 350) and Accounting Standards Update (ASU)
2011-08 (ASU 2011-08), Intangibles—Goodwill and Other (ASC 350): Testing Goodwill
for Impairment, which simplifies how the Company tests goodwill for impairment.
Recent authoritative guidance allows the Company to first assess qualitative factors
to determine whether it is necessary to perform the two-step quantitative goodwill
impairment test. If, after completing the qualitative assessment the Company
determines that it is more likely than not that the estimated fair value is greater than
the carrying value, the Company concludes that no impairment exists. If it is more
likely than not that the carrying value of reporting unit exceeds estimated fair value,
the Company compares the fair value of reporting unit to its carrying value. If the
estimated fair value of the reporting unit is less than the carrying value, a second
step is performed in which the implied fair value of goodwill is compared to its carrying
value. If the implied fair value of goodwill is less than its carrying value, goodwill must
be written down to its implied fair value, resulting in goodwill impairment. The
Company tests goodwill for impairment during the fourth quarter every fiscal year and
when an event occurs or circumstances change such that it is reasonably possible that
an impairment may exist.
The qualitative analysis included assessing the impact of changes in certain factors
including (1) changes in forecasted operating results and comparing actual results
to projections, (2) changes in the industry or the Company’s competitive environment
since the acquisition date, (3) changes in the overall economy, the Company’s market
share and market interest rates since the acquisition date, (4) trends in the stock
price, related market capitalization and enterprise values, (5) trends in peer companies
total enterprise value metrics, and (6) additional factors such as management
turnover, changes in regulation and changes in litigation matters.
Based on the Company’s qualitative assessment performed during the fourth quarter
of fiscal year 2013, the Company concluded that it was more likely than not that the
estimated fair value of the Company’s reporting units exceeded its carrying value as of
March 29, 2013 and therefore determined it was not necessary to perform the two step
goodwill impairment test. No impairments were recorded by the Company related to
goodwill and other intangible assets for fiscal years 2013, 2012 and 2011.
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Warranty Reserves
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 (see Note 13).
Fair Value of Financial Instruments
The carrying amounts of the Company’s financial instruments, including cash
equivalents, trade receivables, accounts payable and accrued liabilities, approximate
their fair values due to their short-term maturities. The estimated fair value of the
Company’s long-term borrowings and other long-term interest bearing liabilities is
determined by using available market information for those securities or similar
financial instruments (see Note 3).
Self-Insurance Liabilities
The Company has self-insurance plans to retain a portion of the exposure for losses
related to employee medical benefits and workers’ compensation. The self-insurance
plans include policies which provide for both specific and aggregate stop-loss limits.
The Company utilizes internal actuarial methods, as well as other historical
information for the purpose of estimating ultimate costs for a particular plan year.
Based on these actuarial methods, along with currently available information and
insurance industry statistics, the Company has recorded self-insurance liability for
its plans of $2.3 million and $1.7 million as of March 29, 2013 and March 30, 2012,
respectively. The Company’s estimate, which is subject to inherent variability, is
based on average claims experience in the Company’s industry and its own
experience in terms of frequency and severity of claims, including asserted and
unasserted claims incurred but not reported, with no explicit provision for adverse
fluctuation from year to year. This variability may lead to ultimate payments being
either greater or less than the amounts presented above. Self-insurance liabilities
have been classified as a current liability in accrued liabilities in accordance with
the estimated timing of the projected payments.
Indemnification Provisions
In the ordinary course of business, the Company includes indemnification provisions
in certain of its contracts, generally relating to parties with which the Company has
commercial relations. Pursuant to these agreements, the Company will indemnify, hold
harmless and agree to reimburse the indemnified party for losses suffered or incurred
by the indemnified party, including but not limited to losses relating to third-party
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intellectual property claims. To date, there have not been any material costs incurred
in connection with such indemnification clauses. The Company’s insurance policies
do not necessarily cover the cost of defending indemnification claims or providing
indemnification, so if a claim was filed against the Company by any party that the
Company has agreed to indemnify, the Company could incur substantial legal costs
and damages. A claim would be accrued when a loss is considered probable and the
amount can be reasonably estimated. At March 29, 2013 and March 30, 2012, no such
amounts were accrued related to the aforementioned provisions.
Noncontrolling Interest
A noncontrolling interest represents the equity interest in a subsidiary that is not
attributable, either directly or indirectly, to the Company and is reported as equity of
the Company, separately from the Company’s controlling interest. Revenues, expenses,
gains, losses, net income (loss) and other comprehensive income (loss) are reported
in the 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 fiscal years 2013, 2012 and 2011, the Company issued 612,233, 472,311 and
433,173 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 219,933,
167,311 and 153,226 shares of common stock with a total value of $8.4 million,
$7.5 million and $5.9 million during fiscal years 2013, 2012 and 2011, respectively.
Repurchased shares of common stock of 947,607 and 727,674 were held in treasury
as of March 29, 2013 and March 30, 2012, respectively.
Derivatives
The Company enters into foreign currency forward and option contracts from time
to time to hedge certain forecasted foreign currency transactions. Gains and losses
arising from foreign currency forward and option contracts not designated as hedging
instruments are recorded in other income (expense) as gains (losses) on derivative
instruments. Gains and losses arising from the effective portion of foreign currency
forward and option contracts which are designated as cash-flow hedging instruments
are recorded in accumulated other comprehensive income (loss) as unrealized gains
(losses) on derivative instruments until the underlying transaction affects the
Company’s earnings, at which time they are then recorded in the same income
statement line as the underlying transaction.
Notes to the Consolidated Financial Statements (cont.)
The fair values of the Company’s outstanding foreign currency forward contracts as of March 29, 2013 and March 30, 2012 were as follows:
Derivatives designated as hedging instruments
(In thousands)
Foreign currency forward contracts
Total derivatives designated as hedging instruments
March 29, 2013
March 30, 2012
Other current
assets
$ —
$ —
Accrued
liabilities
$ 318
$ 318
Other current
assets
$ —
$ —
Accrued
liabilities
$ 443
$ 443
The notional value of foreign currency forward contracts outstanding as of March 29, 2013 and March 30, 2012 was $7.0 million and $9.6 million, respectively.
The effects of foreign currency forward contracts in cash flow hedging relationships during fiscal year 2013 were as follows:
Derivatives in Cash Flow
Hedging Relationships
(In thousands)
Amount of Gain
or (Loss) Recognized
in Accumulated OCI
on Derivatives
(Effective Portion)
Location of Gain
or (Loss) Reclassified
from Accumulated OCI
into Income
(Effective Portion)
Amount of Gain
or (Loss) Reclassified
from Accumulated OCI
into Income
(Effective Portion)
Location of Gain
or (Loss) Recognized
in Income on Derivatives
(Ineffective Portion and
Amount Excluded from
Effectiveness Testing)
Amount of Gain
or (Loss) Recognized
in Income on Derivatives
(Ineffective Portion and
Amount Excluded from
Effectiveness Testing)
Foreign currency forward contracts
$ (733)
Cost of product revenues
Total
$ (733)
$ (858)
$ (858)
Not applicable
$ —
$ —
The effects of foreign currency forward contracts in cash flow hedging relationships during fiscal year 2012 were as follows:
Derivatives in Cash Flow
Hedging Relationships
(In thousands)
Amount of Gain
or (Loss) Recognized
in Accumulated OCI
on Derivatives
(Effective Portion)
Location of Gain
or (Loss) Reclassified
from Accumulated OCI
into Income
(Effective Portion)
Amount of Gain
or (Loss) Reclassified
from Accumulated OCI
into Income
(Effective Portion)
Location of Gain
or (Loss) Recognized
in Income on Derivatives
(Ineffective Portion and
Amount Excluded from
Effectiveness Testing)
Amount of Gain
or (Loss) Recognized
in Income on Derivatives
(Ineffective Portion and
Amount Excluded from
Effectiveness Testing)
Foreign currency forward contracts
$ (766)
Cost of product revenues
Total
$ (766)
$ (142)
$ (142)
Not applicable
$ —
$ —
The effects of foreign currency forward contracts in cash flow hedging relationships during fiscal year 2011 were as follows:
Derivatives in Cash Flow
Hedging Relationships
(In thousands)
Foreign currency forward contracts
Total
Amount of Gain
or (Loss) Recognized
in Accumulated OCI
on Derivatives
(Effective Portion)
Location of Gain
or (Loss) Reclassified
from Accumulated OCI
into Income
(Effective Portion)
Amount of Gain
or (Loss) Reclassified
from Accumulated OCI
into Income
(Effective Portion)
Location of Gain
or (Loss) Recognized
in Income on Derivatives
(Ineffective Portion and
Amount Excluded from
Effectiveness Testing)
Amount of Gain
or (Loss) Recognized
in Income on Derivatives
(Ineffective Portion and
Amount Excluded from
Effectiveness Testing)
$ 182
$ 182
Cost of product revenues
$ 857
$ 857
Not applicable
$ —
$ —
At March 29, 2013, the estimated net amount of unrealized gains or losses related to foreign currency forward contracts that was expected to be reclassified to earnings within
the next twelve months was approximately $0.3 million. The Company’s foreign currency forward contracts outstanding as of March 29, 2013 will mature within two to twenty-three
months from their inception. There were no gains or losses from ineffectiveness of these derivative instruments recorded for fiscal years 2013, 2012 and 2011.
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Foreign Currency
In general, the functional currency of a foreign operation is deemed to be the local
country’s currency. Consequently, assets and liabilities of operations outside the United
States are generally translated into U.S. dollars, and the effects of foreign currency
translation adjustments are included as a component of accumulated other
comprehensive income (loss) within ViaSat, Inc. stockholders’ equity.
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.
Revenue Recognition
A substantial portion of the Company’s revenues is derived from long-term contracts
requiring development and delivery of complex equipment built to customer
specifications. Sales related to long-term contracts are accounted for under the
authoritative guidance for the percentage-of-completion method of accounting (ASC
605-35). Sales and earnings under these contracts are recorded either based on the
ratio of actual costs incurred to date to total estimated costs expected to be incurred
related to the contract, or as products are shipped under the units-of-delivery method.
Anticipated losses on contracts are recognized in full in the period in which losses
become probable and estimable. Changes in estimates of profit or loss on contracts
are included in earnings on a cumulative basis in the period the estimate is changed.
In the first quarter of fiscal year 2011, the Company recorded an additional forward
loss of $8.5 million on a government satellite communication program due to the
significant additional labor and material costs for rework and testing required to
complete the program requirements and specifications. Including this program, in
fiscal years 2013, 2012 and 2011, the Company recorded losses of approximately
$3.1 million, $1.4 million and $12.1 million, respectively, related to loss contracts.
The Company also derives a substantial portion of its revenues from contracts and
purchase orders where revenue is recorded on delivery of products or performance
of services in accordance with the authoritative guidance for revenue recognition
(ASC 605). Under this standard, the Company recognizes revenue when an arrangement
exists, prices are determinable, collectability is reasonably assured and the goods
or services have been delivered.
The Company also enters into certain leasing arrangements with customers and
evaluates the contracts in accordance with the authoritative guidance for leases
(ASC 840). The Company’s accounting for equipment leases involves specific
determinations under the authoritative guidance for leases, which often involve
complex provisions and significant judgments. In accordance with the authoritative
guidance for leases, the Company classifies the transactions as sales type or operating
leases based on: (1) review for transfers of ownership of the equipment to the lessee
by the end of the lease term, (2) review of the lease terms to determine if it contains
an option to purchase the leased equipment for a price which is sufficiently lower than
the expected fair value of the equipment at the date of the option, (3) review of the
lease term to determine if it is equal to or greater than 75% of the economic life of
the equipment and (4) review of the present value of the minimum lease payments to
determine if they are equal to or greater than 90% of the fair market value of the
equipment at the inception of the lease. Additionally, the Company considers the
In accordance with the authoritative guidance for revenue recognition for multiple
element arrangements, ASU 2009-13, Revenue Recognition (ASC 605) Multiple-
Deliverable Revenue Arrangements, which updates ASC 605-25, Revenue
Recognition-Multiple element arrangements, of the Financial Accounting Standards
Board (FASB) codification, for substantially all of the arrangements with multiple
deliverables, the Company allocates revenue to each element based on a selling price
hierarchy at the arrangement inception. The selling price for each element is based
upon the following selling price hierarchy: vendor specific objective evidence (VSOE)
if available, third party evidence (TPE) if VSOE is not available, or estimated selling
price (ESP) if neither VSOE nor TPE are available (a description as to how the
Company determines VSOE, TPE and ESP is provided below). If a tangible hardware
systems product includes software, the Company determines whether the tangible
hardware systems product and the software work together to deliver the product’s
essential functionality and, if so, the entire product is treated as a nonsoftware
deliverable. The total arrangement consideration is allocated to each separate unit of
accounting for each of the nonsoftware deliverables using the relative selling prices
of each unit based on the aforementioned selling price hierarchy. Revenue for each
separate unit of accounting is recognized when the applicable revenue recognition
criteria for each element have been met.
To determine the selling price in multiple-element arrangements, the Company
establishes VSOE of the selling price using the price charged for a deliverable when
sold separately and for software license updates, product support and hardware
systems support, based on the renewal rates offered to customers. For nonsoftware
multiple-element arrangements, TPE is established by evaluating similar and/or
interchangeable competitor products or services in standalone arrangements with
similarly situated customers and/or agreements. If the Company is unable to determine
the selling price because VSOE or TPE doesn’t exist, the Company determines ESP for
the purposes of allocating the arrangement by reviewing historical transactions,
including transactions whereby the deliverable was sold on a standalone basis and
considers several other external and internal factors including, but not limited to,
pricing practices including discounting, margin objectives, competition, the geographies
in which the Company offers its products and services, the type of customer (i.e.,
distributor, value added reseller, government agency or direct end user, among others)
and the stage of the product lifecycle. The determination of ESP considers the Company’s
pricing model and go-to-market strategy. As the Company, or its competitors’, pricing
and go-to-market strategies evolve, the Company may modify its pricing practices in
the future, which could result in changes to its determination of VSOE, TPE and ESP.
As a result, the Company’s future revenue recognition for multiple-element arrangements
could differ materially from those in the current period.
Notes to the Consolidated Financial Statements (cont.)
In accordance with the authoritative guidance for shipping and handling fees and costs
(ASC 605-45), the Company records shipping and handling costs billed to customers
as a component of revenues, and shipping and handling costs incurred by the Company
for inbound and outbound freight as a component of cost of revenues.
Collections in excess of revenues and deferred revenues represent cash collected
from customers in advance of revenue recognition and are recorded in accrued
liabilities for obligations within the next twelve months. Amounts for obligations
extending beyond twelve months are recorded within other liabilities in the
consolidated financial statements.
Contract costs on U.S. government contracts are subject to audit and review by
the Defense Contracting Management Agency (DCMA), the Defense Contract Audit
Agency (DCAA), and other U.S. government agencies, as well as negotiations with
U.S. government representatives. The Company’s incurred cost audits by the DCAA
have not been completed for fiscal year 2004 and subsequent fiscal years. Although
the Company has recorded contract revenues subsequent to fiscal year 2003 based
upon an estimate of costs that the Company believes will be approved upon final
audit or review, the Company does not know the outcome of any ongoing or future
audits or reviews and adjustments, and if future adjustments exceed the Company’s
estimates, its profitability would be adversely affected. As of March 29, 2013 and
March 30, 2012, the Company had $7.2 million and $6.7 million, respectively, in
contract-related reserves for its estimate of potential refunds to customers for
potential cost adjustments on several multi-year U.S. government cost reimbursable
contracts (see Note 12).
Advertising Costs
In accordance with the authoritative guidance for advertising costs (ASC 720-35),
advertising costs are expensed as incurred and included in selling, general and
administrative expenses (SG&A). Advertising expenses for fiscal years 2013, 2012
and 2011 were $21.8 million, $2.8 million and $2.2 million, respectively.
Commissions
The Company compensates third parties based on specific commission programs
directly related to certain product and service sales. These commission costs are
recorded as an element of SG&A expense as incurred.
Stock-Based Compensation
In accordance with the authoritative guidance for share-based payments (ASC 718),
the Company measures stock-based compensation cost at the grant date, based on
the estimated fair value of the award, and recognizes expense on a straight-line
basis over the employee’s requisite service period. Stock-based compensation
expense is recognized in the consolidated statements of operations and
comprehensive income (loss) for fiscal years 2013, 2012 and 2011 only for those
awards ultimately expected to vest, with forfeitures estimated at the date of grant.
The authoritative guidance for share-based payments requires forfeitures to be
estimated at the time of grant and revised, if necessary, in subsequent periods if
actual forfeitures differ from those estimates.
Independent Research and Development
Independent research and development (IR&D), which is not directly funded by a third
party, is expensed as incurred. IR&D expenses consist primarily of salaries and other
personnel-related expenses, supplies, prototype materials and other expenses related
to research and development programs.
Rent Expense, Deferred Rent Obligations and Deferred Lease Incentives
The Company leases all of its facilities under operating leases. Some of these lease
agreements contain tenant improvement allowances funded by landlord incentives,
rent holidays and rent escalation clauses. The authoritative guidance for leases
(ASC 840) requires rent expense to be recognized on a straight-line basis over the
lease term. The difference between the rent due under the stated periods of the
lease compared to that of the straight-line basis is recorded as deferred rent within
accrued and other long-term liabilities in the consolidated balance sheet.
For purposes of recognizing landlord incentives and minimum rental expenses on
a straight-line basis over the terms of the leases, the Company uses the date that
it obtains the legal right to use and control the leased space to begin recording rent
expense, which is generally when the Company enters the space and begins to make
improvements in preparation of occupying new space. For tenant improvement
allowances funded by landlord incentives and rent holidays, the Company records
a deferred lease incentive liability in accrued and other long-term liabilities on the
consolidated balance sheets and amortizes the deferred liability as a reduction to rent
expense on the consolidated statements of operations and comprehensive income
(loss) over the term of the lease.
Certain lease agreements contain rent escalation clauses which provide for scheduled
rent increases during the lease term or for rental payments commencing at a date
other than the date of initial occupancy. Such increasing rent expense is recorded in
the consolidated statements of operations and comprehensive income (loss) on a
straight-line basis over the lease term.
At March 29, 2013 and March 30, 2012, deferred rent included in accrued liabilities
in the Company’s consolidated balance sheets was $0.8 million and $0.7 million,
respectively, and deferred rent included in other long-term liabilities in the Company’s
consolidated balance sheets was $9.0 million and $8.2 million, respectively.
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Income Taxes
Accruals for uncertain tax positions are provided for in accordance with the authoritative
guidance for accounting for uncertainty in income taxes (ASC 740). The Company may
recognize the tax benefit from an uncertain tax position only if it is more likely than
not that the tax position will be sustained on examination by the taxing authorities,
based on the technical merits of the position. The tax benefits recognized in the
financial statements from such a position should be measured based on the largest
benefit that has a greater than 50% likelihood of being realized upon ultimate
settlement. The authoritative guidance for accounting for uncertainty in income taxes
also provides guidance on derecognition of income tax assets and liabilities, classification
of current and deferred income tax assets and liabilities, accounting for interest and
penalties associated with tax positions, and income tax disclosures. The Company’s
policy is to recognize interest expense and penalties related to income tax matters as
a component of income tax expense. Current income tax expense is the amount of
income taxes expected to be payable for the current fiscal year. A deferred income tax
asset or liability is established for the expected future tax consequences resulting from
differences in the financial reporting and tax bases of assets and liabilities and for the
expected future tax benefit to be derived from tax credit and loss carryforwards.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred tax
assets will not be realized. Deferred income tax expense (benefit) is the net change
during the year in the deferred income tax asset or liability. The Company’s analysis
of the need for a valuation allowance considered the loss incurred during the fiscal
year ended March 29, 2013. However, a substantial portion of the loss incurred in such
period was the result of an extinguishment of debt charge that was recorded upon
the refinancing of the Company’s former 8.875% Senior Notes due 2016 (the 2016
Notes) with additional 6.875% Senior Notes due 2020 (the Additional 2020 Notes),
which is expected to provide a benefit to net income in the future due to the lower
interest rate of the Additional 2020 Notes. The Company’s evaluation considered other
factors, including the Company’s history of positive earnings, taxable income adjusted
for certain items, the Company’s significant growth in contractual backlog, and trends
and forecasted income by jurisdiction. Consideration was also given to the lengthy
period over which these net deferred tax assets can be realized, and the Company’s
history of not having federal tax loss carryforwards expire unused.
Earnings Per Share
Basic earnings per share is computed based upon the weighted average number of
common shares outstanding during the period. Diluted earnings per share is based
upon the weighted average number of common shares outstanding and potential
common stock, if dilutive during the period. Potential common stock includes options
granted and restricted stock units awarded under the Company’s equity compensation
plan which are included in the earnings per share calculations using the treasury stock
method, common shares expected to be issued under the Company’s employee stock
purchase plan, and shares potentially issuable under the amended ViaSat 401(k) Profit
Sharing Plan in connection with the Company’s decision to pay a discretionary match in
common stock or cash. The weighted average number of shares used to calculate
basic and diluted net income (loss) per share attributable to ViaSat, Inc. common
stockholders is the same for the fiscal year ended March 29, 2013, as the Company
incurred a net loss for fiscal year 2013 and inclusion of common share equivalents
would be antidilutive.
Segment Reporting
The Company’s satellite services, commercial networks and government systems
segments are primarily distinguished by the type of customer and the related
contractual requirements. The Company’s satellite services segment provides retail
and wholesale satellite-based broadband services for its consumer, enterprise and
mobile broadband customers in the United States, as well as managed network
services for the satellite communication systems of the Company’s consumer,
enterprise and mobile broadband customers worldwide. The Company’s commercial
networks segment develops and produces a variety of advanced end-to-end satellite
and other wireless communication systems and ground networking equipment and
products, some of which are ultimately used by the Company’s satellite services
segment. The Company’s government systems segment develops and produces
network-centric, internet protocol (IP)-based secure fixed and mobile government
communications systems, products, services and solutions. The more regulated
government environment is subject to unique contractual requirements and possesses
economic characteristics which differ from the satellite services and commercial
networks segments. The Company’s segments are determined consistent with the
way management currently organizes and evaluates financial information internally
for making operating decisions and assessing performance (see Note 15).
Recent Authoritative Guidance
In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (ASC 220):
Presentation of Comprehensive Income. The new authoritative guidance requires an
entity to present the total of comprehensive income, the components of net income,
and the components of other comprehensive income either in a single continuous
statement of comprehensive income or in two separate but consecutive statements.
The new authoritative guidance eliminates the option to present the components of
other comprehensive income as part of the statement of equity. The authoritative
guidance became effective for the Company beginning in the first quarter of fiscal year
2013. In the first quarter of fiscal year 2013, the Company retrospectively adopted the
new accounting standard for the presentation of comprehensive income in financial
statements which resulted in the presentation of a total for comprehensive income
(loss), and the components of net income (loss) and other comprehensive income (loss)
in one statement. The adoption of this standard only changed how the Company
presents comprehensive income (loss) and did not impact the Company’s consolidated
financial position, results of operations or cash flows.
Notes to the Consolidated Financial Statements (cont.)
In February 2013, the FASB issued ASU 2013-02, Comprehensive Income (ASC 220):
Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive
Income. ASU 2013-02 requires an entity to provide information about the amounts
reclassified out of accumulated other comprehensive income by component. In addition,
an entity is required to present, either on the face of the statement where net income
is presented or in the notes, significant amounts reclassified out of accumulated other
comprehensive income by the respective line items of net income. The guidance, effective
for the Company beginning in the first quarter of fiscal year 2014, requires changes in
presentation only and the Company anticipates that the adoption of this standard will
not have a significant impact on its consolidated financial statements and disclosures.
In March 2013, the FASB issued ASU 2013-05, Foreign Currency Matters (ASC 830):
Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition
of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment
in a Foreign Entity. ASU 2013-05 clarifies that the cumulative translation adjustment
should be released into net income only when a reporting entity ceases to have
a controlling financial interest in a subsidiary or a business within a foreign entity.
Further, for an equity method investment that is a foreign entity, a pro rata portion
of the cumulative translation adjustment should be released into net income upon
a partial sale of such an equity method investment. The guidance, effective for the
Company beginning in the first quarter of fiscal year 2015, is not expected to have
a material impact on its consolidated financial statements and disclosures.
In September 2011, the FASB issued ASU 2011-08, Intangibles—Goodwill and Other
(ASC 350): Testing Goodwill for Impairment. The new authoritative guidance simplifies
how an entity tests goodwill for impairment. The new authoritative guidance allows
an entity to first assess qualitative factors to determine whether it is necessary to
perform the two-step quantitative goodwill impairment test. The two-step quantitative
impairment test is required only if, based on its qualitative assessment, an entity
determines that it is more likely than not that the fair value of a reporting unit is
less than its carrying amount. This authoritative guidance is effective for interim
and annual goodwill impairment tests performed for fiscal years beginning after
December 15, 2011. Early adoption is permitted if an entity’s financial statements
for the more recent interim and annual period have not yet been issued. The Company
early adopted this authoritative guidance in the fourth quarter of fiscal year 2012.
Adoption of this authoritative guidance did not have a material impact on the
Company’s consolidated financial statements and disclosures.
In December 2011, the FASB issued ASU 2011-11, Balance Sheet (ASC 210): Disclosures
about offsetting Assets and Liabilities. The new authoritative guidance requires an
entity to disclose information about offsetting and related arrangements to enable
users of its financial statements to evaluate the effect or potential effect of netting
arrangements on an entity’s financial position, including the effect or potential effect
of rights of setoff associated with certain financial instruments and derivative
instruments in the scope of this authoritative guidance. This authoritative guidance
will be effective for the Company beginning in the first quarter of fiscal year 2014 and
should be applied retrospectively for all comparative periods presented. The Company
is currently evaluating the impact that this authoritative guidance may have on its
consolidated financial statements and disclosures.
In July 2012, the FASB issued ASU 2012-02, Intangibles—Goodwill and Other
(ASC 350): Testing Indefinite-Lived Intangible Assets for Impairment. The new
authoritative guidance simplifies the requirements for testing for indefinite-lived
intangible assets other than goodwill and permits an entity to first assess qualitative
factors to determine whether it is necessary to perform a quantitative fair value test.
The guidance is effective for the Company for annual and, if any, interim impairment
tests in fiscal year 2014 with early adoption permitted. The Company anticipates that
the adoption of this standard will not have a material impact on its consolidated
financial statements and disclosures.
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NOTE 2 | Composition of Certain Balance Sheet Captions
(In thousands)
Accounts receivable, net:
Billed
Unbilled
Allowance for doubtful accounts
Inventories:
Raw materials
Work in process
Finished goods
Prepaid expenses and other current assets:
Prepaid expenses
Other
Satellites, net:
Satellite—WildBlue-1 (estimated useful life of 10 years)
Capital lease of satellite capacity—Anik F2 (estimated useful life of 10 years)
Satellite—ViaSat-1 (estimated useful life of 17 years)
Less accumulated depreciation and amortization
Property and equipment, net:
Machinery and equipment (estimated useful life of 2-5 years)
Computer equipment and software (estimated useful life of 2-7 years)
CPE leased equipment (estimated useful life of 3-5 years)
Furniture and fixtures (estimated useful life of 7 years)
Leasehold improvements (estimated useful life of 2-17 years)
Building (estimated useful life of 24 years)
Land held for sale
Land
Construction in progress
Less accumulated depreciation and amortization
Other assets:
Capitalized software costs, net
Patents, orbital slots and other licenses, net
Deferred income taxes
Other
Accrued liabilities:
Collections in excess of revenues and deferred revenues
Accrued employee compensation
Accrued vacation
Warranty reserve, current portion
Other
Other liabilities:
Deferred revenue, long-term portion
Deferred rent, long-term portion
Warranty reserve, long-term portion
Deferred income taxes, long-term portion
Unrecognized tax position liabilities
Satellite performance incentives obligation, long-term portion
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As of March 29, 2013
As of March 30, 2012
$ 134,206
134,198
(1,434)
$ 266,970
$ 40,308
21,298
44,675
$ 106,281
$ 34,257
6,562
$ 40,819
$ 195,890
99,090
363,204
658,184
(123,094)
$ 535,090
$ 226,884
154,202
170,934
15,716
57,691
8,923
2,846
1,260
23,025
661,481
(282,790)
$ 378,691
$ 60,596
11,100
97,238
36,314
$ 205,248
$ 65,822
23,925
19,252
8,840
44,070
$ 161,909
$ 15,360
8,964
5,267
1,547
493
21,009
$ 52,640
$ 108,758
103,929
(997)
$ 211,690
$ 46,208
23,932
57,506
$ 127,646
$ 25,103
5,814
$ 30,917
$ 195,890
99,090
362,977
657,957
(72,226)
$ 585,731
$ 195,975
127,596
85,271
14,093
51,205
8,923
3,124
1,260
16,570
504,017
(209,044)
$ 294,973
$ 41,992
11,194
53,602
30,007
$ 136,795
$ 88,114
21,384
17,573
6,238
26,453
$ 159,762
$
11,414
8,237
5,413
3,073
1,306
20,910
$ 50,353
Notes to the Consolidated Financial Statements (cont.)
NOTE 3 | Fair Value Measurements
In accordance with the authoritative guidance for financial assets and liabilities
measured at fair value on a recurring basis (ASC 820), the Company prioritizes the
inputs used to measure fair value from market-based assumptions to entity specific
assumptions:
» Level 1—Inputs based on quoted market prices for identical assets or liabilities
in active markets at the measurement date.
» Level 2—Observable inputs other than quoted prices included in Level 1, such as
quoted prices for similar assets and liabilities in active markets; quoted prices for
identical or similar assets and liabilities in markets that are not active; or other
inputs that are observable or can be corroborated by observable market data.
» Level 3—Inputs which reflect management’s best estimate of what market
participants would use in pricing the asset or liability at the measurement date. The
inputs are unobservable in the market and significant to the instruments valuation.
The following tables present the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of March 29, 2013 and March 30, 2012:
(In thousands)
Assets:
Cash equivalents
Total assets measured at fair value on a recurring basis
Liabilities:
Foreign currency forward contracts
Total liabilities measured at fair value on a recurring basis
(In thousands)
Assets:
Cash equivalents
Total assets measured at fair value on a recurring basis
Liabilities:
Foreign currency forward contracts
Total liabilities measured at fair value on a recurring basis
Fair Value as of
March 29, 2013
$ 47,427
$ 47,427
$
$
318
318
Fair Value as of
March 30, 2012
$ 70,379
$ 70,379
$
$
443
443
Level 1
Level 2
Level 3
$ 47,427
$ 47,427
$
$
—
—
$ —
$ —
$ 318
$ 318
$ —
$ —
$ —
$ —
Level 1
Level 2
Level 3
$ 70,379
$ 70,379
$
$
—
—
$ —
$ —
$ 443
$ 443
$ —
$ —
$ —
$ —
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The following section describes the valuation methodologies the Company uses
to measure financial instruments at fair value:
CASH EQUIVALENTS The Company’s cash equivalents consist of money market funds.
Money market funds are valued using quoted prices for identical assets in an active
market with sufficient volume and frequency of transactions (Level 1).
FOREIGN CURRENCY FORWARD CONTRACTS The Company uses derivative financial
instruments to manage foreign currency risk relating to foreign exchange rates. The
Company does not use these instruments for speculative or trading purposes. The
Company’s objective is to reduce the risk to earnings and cash flows associated with
changes in foreign currency exchange rates. Derivative instruments are recognized as
either assets or liabilities in the accompanying consolidated financial statements and
are measured at fair value. Gains and losses resulting from changes in the fair values
of those derivative instruments are recorded to earnings or other comprehensive
income (loss) depending on the use of the derivative instrument and whether it
qualifies for hedge accounting. The Company’s foreign currency forward contracts
are valued using standard calculations/models that are primarily based on observable
inputs, such as foreign currency exchange rates, or can be corroborated by observable
market data (Level 2).
LONG-TERM DEBT The Company’s long-term debt consists of the initial 6.875% Senior
Notes due 2020 (the Initial 2020 Notes), which were issued in the fourth quarter of
fiscal year 2012 and the Additional 2020 Notes, which were issued in October 2012,
collectively referred to as the 2020 Notes reported at amortized cost. However, for
disclosure purposes, the Company is required to measure the fair value of outstanding
debt on a recurring basis. As of March 29, 2013, the fair value of the Company’s
outstanding long-term debt related to the 2020 Notes was determined using quoted
prices in active markets (Level 1) and was approximately $616.7 million. As of March 30,
2012, the fair value of the Company’s outstanding long-term debt related to the Initial
2020 Notes had been determined using recent market transactions for similar notes
(Level 2) and was approximately $280.2 million. The Initial 2020 Notes were exchanged
in August 2012 for substantially identical Initial 2020 Notes that had been registered
with the Securities and Exchange Commission (SEC), which resulted in a use of quoted
prices in active markets (Level 1) to measure the fair value of the Initial 2020 Notes and
change from Level 2 (as of March 30, 2012) to Level 1 (as of March 29, 2013). The fair
value of the Company’s outstanding long-term debt related to the 2016 Notes, which
were repurchased and redeemed in connection with the issuance of the Additional 2020
Notes, had been determined using quoted prices in active markets (Level 1) and was
approximately $298.4 million as of March 30, 2012.
SATELLITE PERFORMANCE INCENTIVES OBLIGATION The Company’s contract with the
manufacturer of ViaSat-1 requires the Company to make monthly in-orbit satellite
performance incentive payments, including interest at 7.0%, over a fifteen-year period
from December 2011 to December 2026, subject to the continued satisfactory
performance of the satellite. The Company recorded the net present value of these
expected future payments as a liability and as a component of the cost of the satellite.
However, for disclosure purposes, the Company is required to measure the fair value of
outstanding satellite performance incentives on a recurring basis. The fair value of the
Company’s outstanding satellite performance incentives is estimated to approximate
their carrying value based on current rates (Level 2).
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Notes to the Consolidated Financial Statements (cont.)
NOTE 4 | Goodwill and Acquired Intangible Assets
During fiscal years 2013 and 2012, the Company’s goodwill decreased by approximately
$0.5 million and $0.1 million, respectively, related to the effects of foreign currency
translation recorded within the Company’s government systems and commercial
networks segments. Other acquired intangible assets are amortized using the
straight-line method over their estimated useful lives of three to ten years, which
is not materially different from the economic benefit method. Amortization expense
related to other acquired intangible assets was $15.6 million, $18.7 million and
$19.4 million for the fiscal years ended March 29, 2013, March 30, 2012 and
April 1, 2011, respectively.
The expected amortization expense of amortizable acquired intangible assets may
change due to the effects of foreign currency fluctuations as a result of international
businesses acquired. Expected amortization expense for acquired intangible assets
for each of the following periods is as follows:
(In thousands)
Expected for fiscal year 2014
Expected for fiscal year 2015
Expected for fiscal year 2016
Expected for fiscal year 2017
Expected for fiscal year 2018
Thereafter
The allocation of the other acquired intangible assets and the related accumulated amortization as of March 29, 2013 and March 30, 2012 is as follows:
(In thousands)
Technology
Contracts and customer relationships
Satellite co-location rights
Trade name
Other
Total other acquired intangible assets
Weighted
Average
Useful Life
6
7
9
3
9
As of March 29, 2013
As of March 30, 2012
Total
$ 53,714
88,651
8,600
5,680
6,287
$ 162,932
Accumulated
Amortization
$ (49,654)
(51,184)
(3,044)
(5,680)
(6,200)
$ (115,762)
Net
book
Value
$ 4,060
37,467
5,556
—
87
$ 47,170
Total
$ 54,240
88,758
8,600
5,680
6,307
$ 163,585
Accumulated
Amortization
$ (47,959)
(39,966)
(2,119)
(4,339)
(6,161)
$ (100,544)
Amortization
$ 13,747
13,671
10,161
4,616
3,597
1,378
$ 47,170
Net
book
Value
$ 6,281
48,792
6,481
1,341
146
$ 63,041
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NOTE 5 | Senior Notes and Other Long-Term Debt
Total long-term debt consisted of the following as of March 29, 2013
and March 30, 2012:
(In thousands)
SENIOR NOTES
2020 Notes
Unamortized premium on the 2020 Notes
2016 Notes
Unamortized discount on the 2016 Notes
Total senior notes, net of premium or discount
Less: current portion of senior notes
Total senior notes long-term, net
OTHER LONG-TERM DEBT
Revolving credit facility
Other
Total other long-term debt
Less: current portion of other long-term debt
Other long-term debt, net
Total debt
Less: current portion
Long-term debt, net
As of
March 29, 2013
As of
March 30,2012
$ 575,000
9,993
—
—
584,993
—
584,993
—
3,686
3,686
2,230
1,456
588,679
2,230
$ 275,000
—
275,000
(2,209)
547,791
—
547,791
—
2,014
2,014
1,240
774
549,805
1,240
$ 586,449
$ 548,565
The estimated aggregate amounts and timing of payments on the Company’s long-term
debt obligations as of March 29, 2013 for the next five years and thereafter were as
follows (excluding the effects of premium accretion on the 2020 Notes):
For the Fiscal Years Ending
(In thousands)
2014
2015
2016
2017
2018
Thereafter
Less: imputed interest
Plus: unamortized premium on the 2020 Notes
Total
$ 2,242
1,456
—
—
—
575,000
578,698
12
9,993
$ 588,679
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Credit Facility
As of March 29, 2013, Company’s revolving credit facility (the Credit Facility), as amended,
provided a revolving line of credit of $325.0 million (including up to $50.0 million of
letters of credit), with a maturity date of May 9, 2017. Borrowings under the Credit
Facility bear interest, at the Company’s option, at either (1) the highest of the Federal
Funds rate plus 0.50%, the Eurodollar rate plus 1.00%, or the administrative agent’s
prime rate as announced from time to time, or (2) the Eurodollar rate plus, in the case
of each of (1) and (2), an applicable margin that is based on the Company’s total leverage
ratio. The Company has capitalized certain amounts of interest expense on the Credit
Facility in connection with the construction of various assets during the construction
period. The Credit Facility is guaranteed by certain of the Company’s domestic subsidiaries
and secured by substantially all of the Company’s and such subsidiaries’ assets.
The Credit Facility contains financial covenants regarding a maximum total leverage
ratio and a minimum interest coverage ratio. In addition, the Credit Facility contains
covenants that restrict, among other things, the Company’s ability to sell assets, make
investments and acquisitions, make capital expenditures, grant liens, pay dividends
and make certain other restricted payments. Subsequent to the fiscal year end, on
May 15, 2013, the Company amended the Credit Facility to increase the permitted total
leverage ratio for each of the quarters of fiscal year 2014.
The Company was in compliance with its financial covenants under the Credit Facility
as of March 29, 2013. At March 29, 2013, the Company had no outstanding borrowings
under the Credit Facility and $38.2 million outstanding under standby letters of credit,
leaving borrowing availability under the Credit Facility as of March 29, 2013 of
$286.8 million.
Senior Notes
DISCHARGE OF INDENTURE AND LOSS ON EXTINGUISHMENT OF DEBT
In connection with the Company’s issuance of the Additional 2020 Notes in October
2012, the Company repurchased and redeemed all of its $275.0 million in aggregate
principal amount of 2016 Notes then outstanding through a cash tender offer and
redemption, and the indenture governing the 2016 Notes was satisfied and discharged
in accordance with its terms. On October 12, 2012, the Company purchased approximately
$262.1 million in aggregate principal amount of the 2016 Notes pursuant to the tender
offer. The total cash payment to purchase the tendered 2016 Notes in the tender offer,
including accrued and unpaid interest up to, but excluding, the repurchase date and a
$10 consent payment per $1,000 principal amount of notes tendered, was approximately
$282.5 million. On November 14, 2012, the Company redeemed the remaining
$12.9 million in aggregate principal amount of 2016 Notes pursuant to the optional
redemption provisions of the 2016 Notes at a redemption price of 106.656% of the
principal amount, plus accrued and unpaid interest to, but not including, the
redemption date. The total cash payment to redeem the remaining 2016 Notes was
approximately $14.0 million.
Notes to the Consolidated Financial Statements (cont.)
As a result of the repurchase and redemption of the 2016 Notes, the Company
recognized a $26.5 million loss on extinguishment of debt during the fiscal year ended
March 29, 2013, which was comprised of $19.8 million in cash payments (including
tender offer consideration, consent payments, redemption premium and related
professional fees), and $6.7 million in non-cash charges (including unamortized
discount and unamortized debt issuance costs).
Senior Notes Due 2020
In February 2012, the Company issued $275.0 million in principal amount of Initial 2020
Notes in a private placement to institutional buyers, which were exchanged in August
2012 for substantially identical Initial 2020 Notes that had been registered with the
SEC. The Initial 2020 Notes were issued at face value and are recorded as long-term
debt in the Company’s consolidated financial statements. On October 12, 2012, the
Company issued $300.0 million in principal amount of Additional 2020 Notes in a
private placement to institutional buyers at an issue price of 103.50% of the principal
amount, which were exchanged in January 2013 for substantially identical Additional
2020 Notes that had been registered with the SEC. The 2020 Notes are all treated as a
single class. The 2020 Notes bear interest at the rate of 6.875% per year, payable semi-
annually in cash in arrears, which interest payments commenced in June 2012. Deferred
financing cost associated with the issuance of the 2020 Notes is amortized to interest
expense on a straight-line basis over the term of the 2020 Notes, the results of which
are not materially different from the effective interest rate basis. The $10.5 million
premium the Company received in connection with the issuance of the Additional 2020
Notes is recorded as long-term debt in the Company’s consolidated financial statements
and is being amortized as a reduction to interest expense on an effective interest rate
basis over the term of the Additional 2020 Notes.
The 2020 Notes are guaranteed on an unsecured senior basis by each of the Company’s
existing and future subsidiaries that guarantees the Credit Facility (the Guarantor
Subsidiaries). The 2020 Notes and the guarantees are the Company’s and the Guarantor
Subsidiaries’ general senior unsecured obligations and rank equally in right of payment
with all of the Company’s existing and future unsecured unsubordinated debt. The 2020
Notes and the guarantees are effectively junior in right of payment to their existing and
future secured debt, including under the Credit Facility (to the extent of the value of the
assets securing such debt), are structurally subordinated to all existing and future
liabilities (including trade payables) of the Company’s subsidiaries that are not
guarantors of the 2020 Notes, and are senior in right of payment to all of their
existing and future subordinated indebtedness.
The indenture governing the 2020 Notes limits, among other things, the Company’s and
its restricted subsidiaries’ ability to: incur, assume or guarantee additional debt; issue
redeemable stock and preferred stock; pay dividends, make distributions or redeem or
repurchase capital stock; prepay, redeem or repurchase subordinated debt; make loans
and investments; grant or incur liens; restrict dividends, loans or asset transfers from
restricted subsidiaries; sell or otherwise dispose of assets; enter into transactions
with affiliates; reduce the Company’s satellite insurance; and consolidate or merge
with, or sell substantially all of their assets to, another person.
Prior to June 15, 2015, the Company may redeem up to 35% of the 2020 Notes at a
redemption price of 106.875% of the principal amount thereof, plus accrued and unpaid
interest, if any, thereon to the redemption date, from the net cash proceeds of specified
equity offerings. The Company may also redeem the 2020 Notes prior to June 15, 2016,
in whole or in part, at a redemption price equal to 100% of the principal amount thereof
plus the applicable premium and any accrued and unpaid interest, if any, thereon to the
redemption date. The applicable premium is calculated as the greater of: (i) 1.0% of the
principal amount of such 2020 Notes and (ii) the excess, if any, of (a) the present value
at such date of redemption of (1) the redemption price of such 2020 Notes on June 15, 2016
plus (2) all required interest payments due on such 2020 Notes through June 15, 2016
(excluding accrued but unpaid interest to the date of redemption), computed using a
discount rate equal to the treasury rate (as defined under the indenture) plus 50 basis
points, over (b) the then-outstanding principal amount of such 2020 Notes. The 2020
Notes may be redeemed, in whole or in part, at any time during the twelve months
beginning on June 15, 2016 at a redemption price of 103.438%, during the twelve months
beginning on June 15, 2017 at a redemption price of 101.719%, and at any time on
or after June 15, 2018 at a redemption price of 100%, in each case plus accrued and
unpaid interest, if any, thereon to the redemption date.
In the event a change of control occurs (as defined in the indenture), each holder will
have the right to require the Company to repurchase all or any part of such holder’s
2020 Notes at a purchase price in cash equal to 101% of the aggregate principal
amount of the 2020 Notes repurchased plus accrued and unpaid interest, if any, to
the date of purchase (subject to the right of holders of record on the relevant record
date to receive interest due on the relevant interest payment date).
NOTE 6 | Common Stock and Stock Plans
In March 2013, the Company filed a universal shelf registration statement with the SEC
for the future sale of an unlimited amount of debt securities, common stock, preferred
stock, depositary shares, warrants, and rights. The securities may be offered from time
to time, separately or together, directly by the Company, by selling security holders, or
through underwriters, dealers or agents at amounts, prices, interest rates and other
terms to be determined at the time of the offering.
In November 1996, the Company adopted the 1996 Equity Participation Plan (the Equity
Participation Plan). The Equity Participation Plan provides for the grant to executive
officers, other key employees, consultants and non-employee directors of the Company
a broad variety of stock-based compensation alternatives such as nonqualified stock
options, incentive stock options, restricted stock units and performance awards. From
November 1996 to September 2012 through various amendments of the Equity
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Participation Plan, the Company increased the maximum number of shares reserved
for issuance under this plan to 21,400,000 shares. The Company believes that such
awards better align the interests of its employees with those of its stockholders. Shares
of the Company’s common stock granted under the Equity Participation Plan in the form
of stock options or stock appreciation right are counted against the Equity Participation
Plan share reserve on a one for one basis. Shares of the Company’s common stock
granted under the Equity Participation Plan as an award other than as an option
or as a stock appreciation right with a per share purchase price lower than 100% of fair
market value on the date of grant are counted against the Equity Participation Plan share
reserve as two shares for each share of common stock up to September 22, 2010 and
subsequent to September 19, 2012, and as 2.65 shares for each share of common stock
during the period from September 22, 2010 to September 20, 2012. Restricted stock units
are granted to eligible employees and directors and represent rights to receive shares
of common stock at a future date. As of March 29, 2013, the Company had granted
options and restricted stock units, net of cancellations, to purchase 9,527,083 and
3,725,766 shares of common stock, respectively, under the Equity Participation Plan.
In November 1996, the Company adopted the ViaSat, Inc. Employee Stock Purchase
Plan (the Employee Stock Purchase Plan) to assist employees in acquiring a stock
ownership interest in the Company and to encourage them to remain in the
employment of the Company. The Employee Stock Purchase Plan is intended to
qualify under Section 423 of the Internal Revenue Code. In July of 2009, the
Company amended the Employee Stock Purchase Plan to increase the maximum
number of shares reserved for issuance under this plan from 1,500,000 shares to
2,250,000 shares. The Employee Stock Purchase Plan permits eligible employees to
purchase common stock at a discount through payroll deductions during specified
six-month offering periods. No employee may purchase more than $25,000 worth
of stock in any calendar year. The price of shares purchased under the Employee
Stock Purchase Plan is equal to 85% of the fair market value of the common stock
on the first or last day of the offering period, whichever is lower. As of March 29,
2013, the Company had issued 1,994,792 shares of common stock under the
Employee Stock Purchase Plan.
Total stock-based compensation expense recognized in accordance with the authoritative guidance for share-based payments was as follows:
(In thousands)
Stock-based compensation expense before taxes
Related income tax benefits
Stock-based compensation expense, net of taxes
Fiscal Years Ended
March 29, 2013
March 30, 2012
April 1, 2011
$ 27,035
(10,213)
$ 16,822
$ 21,382
(8,010)
$ 13,372
$ 17,440
(6,511)
$ 10,929
For fiscal years 2013 and 2012 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. For fiscal year 2011, the Company recorded
an incremental tax benefit from stock options exercised and restricted stock unit awards
vesting of $0.9 million which was classified as part of cash flows from financing
activities in the consolidated statements of cash flows.
The Company has no awards with market or performance conditions. The compensation
cost that has been charged against income for the Equity Participation Plan under the
authoritative guidance for share-based payments was $25.5 million, $20.0 million and
$16.2 million, and for the Employee Stock Purchase Plan was $1.5 million, $1.4 million
and $1.2 million, for the fiscal years ended March 29, 2013, March 30, 2012 and
April 1, 2011, respectively. The Company capitalized $1.0 million and $1.6 million of stock-
based compensation expense as a part of the cost for software development for resale
included in other assets and as a part of the machinery and equipment for the internal
use included in property, equipment and satellites for fiscal years 2013 and 2012,
respectively. There was no material compensation cost capitalized for fiscal year 2011.
As of March 29, 2013, total unrecognized compensation cost related to unvested
stock-based compensation arrangements granted under the Equity Participation Plan
(including stock options and restricted stock units) and the Employee Stock Purchase
Plan was $63.3 million and $0.4 million, respectively. These costs are expected to be
recognized over a weighted average period of 2.5 years and 2.7 years, for stock options
and restricted stock units, respectively, under the Equity Participation Plan and less
than six months for the Employee Stock Purchase Plan.
Notes to the Consolidated Financial Statements (cont.)
STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN The Company’s employee
stock options typically have a simple four-year vesting schedule and a six to ten year
contractual term. The weighted average estimated fair value of employee stock options
granted and employee stock purchase plan shares issued during fiscal year 2013 was
$13.96 and $9.02 per share, respectively, during fiscal year 2012 was $17.36 and
$11.74 per share, respectively, and during fiscal year 2011 was $14.24 and $8.55 per
share, respectively, using the Black-Scholes model with the following weighted average
assumptions (annualized percentages):
Employee Stock Options
Employee Stock Purchase Plan
Volatility
Risk-free interest rate
Dividend yield
Expected life
Fiscal Year 2013
Fiscal Year 2012
Fiscal Year 2011
Fiscal Year 2013
Fiscal Year 2012
Fiscal Year 2011
41.2%
0.7%
0.0%
41.4%
0.9%
0.0%
42.2%
0.9%
0.0%
30.0%
0.1%
0.0%
38.4%
0.1%
0.0%
28.3%
0.2%
0.0%
5.5 years
5.5 years
4.2 years
0.5 years
0.5 years
0.5 years
The Company’s expected volatility is a measure of the amount by which its stock price is
expected to fluctuate over the expected term of the stock-based award. The estimated
volatilities for stock options are based on the historical volatility calculated using the
daily stock price of the Company’s stock over a recent historical period equal to the
expected term. The risk-free interest rate that the Company uses in determining the
fair value of its stock-based awards is based on the implied yield on U.S. Treasury zero-
coupon issues with remaining terms equivalent to the expected term of its stock-based
awards. The expected term or life of employee stock options represents the expected
period of time from the date of grant to the estimated date that the stock options under
the Company’s Equity Participation Plan would be fully exercised. The expected term
assumption is estimated based primarily on the options’ vesting terms and remaining
contractual life and employees’ expected exercise and post-vesting employment
termination behavior. Prior to fiscal year 2012, the expected life of employee stock
options was calculated using the simplified method consistent with the authoritative
guidance for share-based payments, due to significant changes in the Company’s option
terms in October of 2006 and due to stock options meeting “plain-vanilla” requirements.
A summary of employee stock option activity for fiscal year 2013 is presented below:
Outstanding at March 30, 2012
Options granted
Options canceled
Options exercised
Outstanding at March 29, 2013
Vested and exercisable at March 29, 2013
Number of
Shares
3,401,634
290,700
(84,097)
(1,178,573)
2,429,664
1,744,566
Weighted Average
Exercise Price
per Share
Weighted Average
Remaining
Contractual
Term in Years
Aggregate Intrinsic
Value
(In thousands)
$ 26.00
36.46
40.59
21.99
$ 28.69
$ 24.72
2.68
1.90
$ 47,984
$ 41,386
The total intrinsic value of stock options exercised during fiscal years 2013, 2012 and 2011 was $23.5 million, $20.8 million and $21.3 million, respectively.
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Transactions related to the Company’s stock options are summarized as follows:
Outstanding at April 2, 2010
Options granted
Options canceled
Options exercised
Outstanding at April 1, 2011
Options granted
Options canceled
Options exercised
Outstanding at March 30, 2012
Options granted
Options canceled
Options exercised
Outstanding at March 29, 2013
Number of
Shares
4,718,176
266,250
(20,543)
(1,124,415)
3,839,468
368,000
(10,200)
(795,634)
3,401,634
290,700
(84,097)
(1,178,573)
2,429,664
Weighted Average
Exercise Price
per Share
$ 20.90
41.26
27.40
19.60
22.66
44.73
32.11
18.45
26.00
36.46
40.59
21.99
$ 28.69
All options issued under the Company’s stock option plans have an exercise price equal
to the fair market value of the Company’s stock on the date of the grant.
RESTRICTED STOCK UNITS Restricted stock units represent a right to receive shares
of common stock at a future date determined in accordance with the participant’s
award agreement. There is no exercise price and no monetary payment required for
receipt of restricted stock units or the shares issued in settlement of the award.
Instead, consideration is furnished in the form of the participant’s services to the
Company. Restricted stock units generally vest over four years. Compensation cost
for these awards is based on the fair value on the date of grant and recognized as
compensation expense on a straight-line basis over the requisite service period. For
fiscal years 2013, 2012 and 2011, the Company recognized $21.7 million, $16.7 million
and $12.6 million, respectively, in stock-based compensation expense related to these
restricted stock unit awards.
The per unit weighted average grant date fair value of restricted stock units granted
during fiscal years 2013, 2012 and 2011 was $36.82, $44.28 and $41.48, respectively.
A summary of restricted stock unit activity for fiscal year 2013 is presented below:
Outstanding at March 30, 2012
Awarded
Forfeited
Released
Outstanding at March 29, 2013
Vested and deferred at March 29, 2013
Number of
Restricted Stock
Units
Weighted
Average Grant
Date Fair Value
per Share
1,725,370
732,009
(59,482)
(612,233)
1,785,664
106,110
$ 37.57
36.82
40.95
38.01
$ 38.29
$ 28.52
The total fair value of shares vested related to restricted stock units during the fiscal
years 2013, 2012 and 2011 was $21.8 million, $15.1 million and $11.3 million, respectively.
Transactions related to the Company’s restricted stock units are summarized as follows:
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Outstanding at April 2, 2010
Awarded
Forfeited
Released
Outstanding at April 1, 2011
Awarded
Forfeited
Released
Outstanding at March 30, 2012
Awarded
Forfeited
Released
Outstanding at March 29, 2013
Number of
Restricted Stock Units
1,389,615
630,056
(37,035)
(433,173)
1,549,463
684,692
(36,474)
(472,311)
1,725,370
732,009
(59,482)
(612,233)
1,785,664
Notes to the Consolidated Financial Statements (cont.)
NOTE 7 | Shares Used In Computing Diluted Net Income (Loss)
Per Share
NOTE 8 | Income Taxes
The provision for income taxes includes the following:
(In thousands)
WEIGHTED AVERAGE
Common shares outstanding used in
calculating basic net (loss) income per
share attributable to ViaSat, Inc.
common stockholders
Options to purchase common stock as
determined by application of the
treasury stock method
Restricted stock units to acquire common
stock as determined by application of
the treasury stock method
Potentially issuable shares in connection
with certain terms of the amended
ViaSat 401(k) Profit Sharing Plan and
Employee Stock Purchase Plan
equivalents
Shares used in computing diluted net
(loss) income per share attributable to
ViaSat, Inc. common stockholders
Fiscal Years Ended
March 29
2013
March 30
2012
April 1
2011
(In thousands)
43,931
42,325
40,858
Current tax (benefit) provision
Federal
State
Foreign
Deferred tax (benefit) provision
—
—
1,352
1,611
435
428
Federal
State
Foreign
Fiscal Years Ended
March 29
2013
March 30
2012
April 1
2011
$ (166)
2
(64)
$ (4,761)
(482)
(45)
$ 433
3,178
222
(228)
(5,288)
3,833
(36,042)
(12,657)
(1,127)
(49,826)
(1,519)
(6,334)
(510)
(8,363)
3,704
(7,064)
(475)
(3,835)
—
114
162
Significant components of the Company’s net deferred tax assets are as follows:
Total benefit from income taxes
$ (50,054)
$ (13,651)
$ (2)
(In thousands)
Deferred tax assets:
Net operating loss carryforwards
Tax credit carryforwards
Warranty reserve
Accrued compensation
Deferred rent
Inventory reserve
Stock-based compensation
Contract accounting
Other
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
As of
March 29
2013
March 30
2012
$ 240,402
82,910
5,325
5,846
3,618
7,578
8,214
3,018
7,775
(15,965)
$ 163,548
64,013
4,482
5,547
3,390
6,069
9,793
768
8,027
(14,695)
348,721
250,942
Property, equipment and satellites and intangible assets
(227,965)
(180,096)
Total deferred tax liabilities
Net deferred tax assets
(227,965)
(180,096)
$ 120,756
$ 70,846
43,931
44,226
43,059
The weighted average number of shares used to calculate basic and diluted net income
(loss) per share attributable to ViaSat, Inc. common stockholders is the same for the
fiscal year ended March 29, 2013, as the Company incurred a net loss for the fiscal
year ended March 29, 2013 and inclusion of common share equivalents would be
antidilutive. Common share equivalents excluded from the calculation for the fiscal
year ended March 29, 2013 were 1,601,693 shares relating to stock options, 424,464
shares relating to restricted stock units and 162,517 shares relating to certain terms
of the amended ViaSat 401(k) Profit Sharing Plan and Employee Stock Purchase Plan.
Antidilutive shares relating to stock options excluded from the calculation were 379,618
for the fiscal year ended March 30, 2012 and 108,637 for the fiscal year ended April 1,
2011. Antidilutive shares relating to restricted stock units excluded from the
calculation were 1,682 for the fiscal year ended March 30, 2012 and 4,525 for the
fiscal year ended April 1, 2011.
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A reconciliation of the provision for income taxes to the amount computed by applying
the statutory federal income tax rate to income before income taxes is as follows:
(In thousands)
Tax (benefit) expense at federal statutory rate
State tax provision, net of federal benefit
Tax credits, net of valuation allowance
Manufacturing deduction
Non-deductible transaction costs
Non-deductible compensation
Non-deductible meals and entertainment
Other
Total (benefit from) provision
for income taxes
Fiscal Years Ended
March 29
2013
$ (31,737)
(3,124)
(17,249)
—
—
1,305
448
303
March 30
2012
$ (2,128)
112
(12,973)
176
—
700
447
15
April 1
2011
$ 12,749
1,375
(15,615)
—
30
1,054
328
77
$ (50,054)
$ (13,651)
$ (2)
upon the refinancing of the 2016 Notes with the Additional 2020 Notes, which is
expected to provide a benefit to net income in the future due to the lower interest rate
of the 2020 Notes. The Company’s evaluation considered other factors, including the
Company’s history of positive earnings, taxable income adjusted for certain items, the
Company’s significant growth in contractual backlog, and trends and forecasted
income by jurisdiction. Consideration was also given to the lengthy period over which
these net deferred tax assets can be realized, and the Company’s history of not having
federal tax loss carryforwards expire unused.
If the Company has an “Ownership Change” as defined under Internal Revenue Code
Section 382, it may have an annual limitation on the utilization of its net operating loss
and tax credit carryforwards.
The following table summarizes the activity related to the Company’s unrecognized
tax benefits:
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As of March 29, 2013, the Company had federal and state research credit carryforwards
of approximately $65.5 million and $69.6 million, respectively, which begin to expire in
fiscal year 2026 and fiscal year 2018, respectively, and federal and state net operating
loss carryforwards of approximately $678.3 million and $501.5 million, respectively,
which begin to expire in fiscal year 2020 and fiscal year 2013, respectively.
The Company recognizes excess tax benefits associated with share-based
compensation to stockholders’ equity only when realized. When assessing whether
excess tax benefits relating to share-based compensation have been realized, the
Company follows the with-and-without approach excluding any indirect effects of the
excess tax deductions. Under this approach, excess tax benefits related to share-based
compensation are not deemed to be realized until after the utilization of all other tax
benefits available to the Company. During fiscal year 2013, the Company did not realize
any excess tax benefits. As of March 29, 2013, the Company had $21.9 million of
unrealized excess tax benefits associated with share-based compensation. These tax
benefits will be accounted for as a credit to additional paid-in capital if and when
realized, rather than a reduction of the provision for income taxes.
In accordance with the authoritative guidance for income taxes (ASC 740), net deferred
tax assets are reduced by a valuation allowance if, based on all the available evidence,
it is more likely than not that some or all of the deferred tax assets will not be realized.
Future realization of existing deferred tax assets ultimately depends on future profitability
and the existence of sufficient taxable income of appropriate character (for example,
ordinary income versus capital gains) within the carryforward period available under
tax law. A valuation allowance of $16.0 million at March 29, 2013 and $14.7 million at
March 30, 2012 has been established relating to state net operating loss carryforwards
and research credit carryforwards that, based on management’s estimate of future
taxable income attributable to certain states and generation of additional research
credits, are considered more likely than not to expire unused. The Company’s analysis
of the need for additional valuation allowance considered the loss incurred during the
fiscal year ended March 29, 2013. However, a substantial portion of the loss incurred
in such period was the result of an extinguishment of debt charge that was recorded
(In thousands)
Balance, beginning of fiscal year
Increase related to prior year
tax positions
Increases related to current
year tax positions
Statute expirations
Settlements
March 29
2013
As of
March 30
2012
April 1
2011
$ 33,556
$ 33,015
$ 31,759
16
819
1,819
4,608
(3,489)
(200)
3,148
(3,426)
—
4,740
(5,303)
—
Balance, end of fiscal year
$ 34,491
$ 33,556
$ 33,015
Of the total unrecognized tax benefits at March 29, 2013, approximately $27.9 million
would reduce the Company’s annual effective tax rate if recognized, subject to
valuation allowance consideration.
In the next twelve months it is reasonably possible that the amount of unrecognized tax
benefits will decrease by approximately $1.3 million as a result of the expiration of the
statute of limitations or settlements with tax authorities for previously filed tax returns.
The Company is subject to periodic audits by domestic and foreign tax authorities.
By statute, the Company’s U.S. federal income tax returns are subject to examination
by the Internal Revenue Service (“IRS”) for fiscal years 2010 through 2012. Additionally,
tax credit carryovers that were generated in prior years and utilized in these years
may also be subject to examination by the IRS. With few exceptions, fiscal years
2009 to 2012 remain open to examination by state and foreign taxing jurisdictions.
The Company believes that it has appropriate support for the income tax positions
taken on its tax returns and its accruals for tax liabilities are adequate for all open
years based on an assessment of many factors, including past experience and
interpretations. The Company’s policy is to recognize interest expense and penalties
related to income tax matters as a component of income tax expense. There were no
accrued interest or penalties associated with uncertain tax positions as of March 29,
2013 and March 30, 2012.
Notes to the Consolidated Financial Statements (cont.)
NOTE 9 | Acquisition
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. 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.
In accordance with the authoritative guidance for business combinations (ASC 805),
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, all
of which were incurred and recorded in SG&A expenses in fiscal year 2011.
The purchase price allocation of the acquired assets and assumed liabilities based
on the estimated fair values is as follows:
(In thousands)
Current assets
Property and equipment
Identifiable intangible assets
Goodwill
Total assets acquired
Current liabilities
Other long-term liabilities
Total liabilities assumed
Total purchase price
$ 4,382
484
11,199
7,381
23,446
(1,843)
(2,770)
(4,613)
$ 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:
(In thousands)
Technology
Customer relationships
Non-compete agreements
Total identifiable intangible assets
Fair Value
$ 9,026
1,977
196
$ 11,199
Estimated
Weighted
Average Life
5
10
5
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 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. During the fourth quarter of fiscal year
2011, the Company recorded a $0.5 million adjustment to the preliminary purchase
price allocation for Stonewood related to pre-acquisition net operating loss carryovers,
reducing the Company’s government systems segment goodwill with a corresponding
adjustment to deferred tax liabilities.
The 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.
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NOTE 10 | Employee Benefits
The Company is a sponsor of a voluntary deferred compensation plan under
Section 401(k) of the Internal Revenue Code which was amended during the fourth
quarter of fiscal year 2009. Under the amended plan, the Company may make
discretionary contributions to the plan which vest over six years. The Company’s
discretionary matching contributions to the plan are based on the amount of employee
contributions and can be made in cash or the Company’s common stock at the
Company’s election. Subsequent to the fiscal year-end, the Company elected to settle
the discretionary contributions liability in stock. Based on the year-end common stock
closing price, the Company would issue 165,514 shares of common stock at this time.
Discretionary contributions accrued by the Company as of March 29, 2013 and
March 30, 2012 amounted to $8.0 million and $7.0 million, respectively.
NOTE 11 | Commitments
In January 2008, the Company entered into several agreements with Space Systems/
Loral, Inc. (SS/L), Loral Space & Communications, Inc. (Loral) and Telesat Canada
related to the Company’s high-capacity Ka-band spot-beam satellite, ViaSat-1. In
October 2011, ViaSat-1 was successfully launched into orbit. SS/L handed over
operation of the satellite to the Company in December 2011, following the successful
completion of the manufacturer’s in-orbit testing. In January 2012, the Company
commenced commercial operation of its ViaSat-1-based Exede broadband services.
The Company’s contract with SS/L requires monthly in-orbit satellite performance
incentive payments, including interest, over a fifteen-year period from December 2011
until December 2026, subject to the continued satisfactory performance of the
satellite. The Company recorded the net present value of these expected future
payments as a liability and as a component of the cost of the satellite during the third
quarter of fiscal year 2012. As of March 29, 2013, the Company’s estimated satellite
performance incentives obligation and accrued interest was $22.7 million, of which
$1.7 million and $21.0 million have been classified current in accrued liabilities and
non-current in other liabilities, respectively. Under the satellite construction contract
with SS/L, the Company may incur up to $37.6 million in total costs for satellite
performance incentives obligation and related interest earned over the fifteen-year
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period with potential future minimum payments of $1.7 million, $1.9 million,
$2.0 million, $2.1 million and $2.3 million in fiscal years 2014, 2015, 2016, 2017
and 2018, respectively, with $27.6 million commitments thereafter.
The Company has various other purchase commitments under satellite capacity
agreements which are used to provide satellite networking services to its customers
for future minimum payments of $58.7 million, $18.5 million, $1.8 million and
$0.1 million in fiscal years 2014, 2015, 2016 and 2017, respectively, with no further
commitments thereafter.
The Company leases office and other facilities under non-cancelable operating leases
with initial terms ranging from one to fifteen years which expire between fiscal year
2014 and fiscal year 2024 and provide for pre-negotiated fixed rental rates during the
terms of the lease. Certain of the Company’s facilities leases contain option provisions
which allow for extension of the lease terms.
For operating leases, minimum lease payments, including minimum scheduled rent
increases, are recognized as rent expense on a straight-line basis over the lease term
as that term is defined in the authoritative guidance for leases including any option
periods considered in the lease term and any periods during which the Company has
use of the property but is not charged rent by a landlord (“rent holiday”). Leasehold
improvement incentives paid to the Company by a landlord are recorded as a liability
and amortized as a reduction of rent expense over the lease term. Total rent expense
was $19.9 million, $18.9 million and $17.1 million in fiscal years 2013, 2012 and
2011, respectively.
Future minimum lease payments are as follows:
Fiscal Years Ending
(In thousands)
2014
2015
2016
2017
2018
Thereafter
$ 21,015
20,452
19,891
18,450
12,777
47,802
$ 140,387
Notes to the Consolidated Financial Statements (cont.)
recorded contract revenues subsequent to fiscal year 2003 based upon an estimate
of costs that the Company believes will be approved upon final audit or review, the
Company does not know the outcome of any ongoing or future audits or reviews and
adjustments, and if future adjustments exceed the Company’s estimates, its profitability
would be adversely affected. As of March 29, 2013 and March 30, 2012, the Company
had $7.2 million and $6.7 million, respectively, in contract-related reserves for its
estimate of potential refunds to customers for potential cost adjustments on several
multi-year U.S. government cost reimbursable contracts. This reserve is classified as
either an element of accrued liabilities or as a reduction of unbilled accounts
receivable based on status of the related contracts.
NOTE 13 | 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 in fiscal years
2013, 2012 and 2011.
(In thousands)
Fiscal Years Ended
March 29
2013
March 30
2012
April 1
2011
Balance, beginning of period
$ 11,651
$ 12,942
$ 11,208
Change in liability for warranties
issued in period
Settlements made (in cash or in kind)
during the period
Balance, end of period
7,441
5,441
7,396
(4,985)
(6,732)
(5,662)
$ 14,107
$ 11,651
$ 12,942
NOTE 12 | Contingencies
In February 2012, the Company filed a complaint against SS/L and its former parent
company Loral in the United States District Court for the Southern District of California
for patent infringement and breach of contract relating to the manufacture of ViaSat-1.
The Company alleges, among other things, that SS/L and Loral infringed U.S. Patent
Nos. 8,107,875, 8,010,043, 8,068,827 and 7,773,942 by making, using, offering to sell
and/or selling other high-capacity broadband satellites, and has requested monetary
damages, injunctive relief and other remedies. In June 2012, SS/L filed counterclaims
against the Company for patent infringement and declaratory relief. Specifically, SS/L
seeks a judicial declaration that SS/L did not breach the parties’ contract for the
manufacture of ViaSat-1, that SS/L does not infringe the Company’s patents described
above, and that those patents are invalid and/or unenforceable. SS/L also alleges that
the Company infringed U.S. Patent Nos. 6,879,808, 6,400,696 and 7,219,132 by
providing broadband internet service by means of the Anik F2 satellite using ViaSat
satellite gateways and satellite user terminals and has induced others to infringe by
selling certain ground equipment and user terminals.
The Company is involved in a variety of claims, suits, investigations and proceedings
arising in the ordinary course of business, including actions with respect to intellectual
property claims, breach of contract claims, labor and employment claims, tax and other
matters. Although claims, suits, investigations and proceedings are inherently uncertain
and their results cannot be predicted with certainty, the Company believes that the
resolution of its current pending matters will not have a material adverse effect on its
business, financial condition, results of operations or liquidity.
The Company has contracts with various U.S. government agencies. Accordingly, the
Company is routinely subject to audit and review by the DCMA, the DCAA and other U.S.
government agencies of its performance on government contracts, indirect rates and
pricing practices, accounting and management internal control business systems, and
compliance with applicable contracting and procurement laws, regulations and
standards. An adverse outcome to a review or audit or other failure to comply with
applicable contracting and procurement laws, regulations and standards could result
in material civil and criminal penalties and administrative sanctions being imposed
on the Company, which may include termination of contracts, forfeiture of profits,
triggering of price reduction clauses, suspension of payments, significant customer
refunds, fines and suspension, or a prohibition on doing business with U.S. government
agencies. In addition, if the Company fails to obtain an “adequate” determination of its
various accounting and management internal control business systems from applicable
U.S. government agencies or if allegations of impropriety are made against it, the
Company could suffer serious harm to its business or its reputation, including its ability
to bid on new contracts or receive contract renewals and its competitive position in the
bidding process. The Company’s incurred cost audits by the DCAA have not been
completed for fiscal year 2004 and subsequent fiscal years. Although the Company has
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NOTE 14 | Comprehensive Income (Loss)
The changes in the components of accumulated other comprehensive income (loss),
net of taxes, were as follows:
(In thousands)
Beginning balance
Current period other
comprehensive income (loss),
net of tax
Ending balance
(In thousands)
Beginning balance
Current period other
comprehensive income (loss),
net of tax
Ending balance
(In thousands)
Beginning balance
Current period other
comprehensive income (loss),
net of tax
Ending balance
Fiscal Year Ended March 29, 2013
Net Change in
Foreign Currency
Translation
Adjustments
Net Change
in Derivatives
Accumulated
Other
Comprehensive
Income (Loss)
$ 1,709
$ (270)
$ 1,439
(909)
$ 800
76
(833)
$ (194)
$ 606
Fiscal Year Ended March 30, 2012
Net Change in
Foreign Currency
Translation
Adjustments
Net Change
in Derivatives
Accumulated
Other
Comprehensive
Income (Loss)
$ 2,095
$ 182
$ 2,277
(386)
$ 1,709
(452)
$ (270)
(838)
$ 1,439
Fiscal Year Ended April 1, 2011
Net Change in
Foreign Currency
Translation
Adjustments
Net Change
in Derivatives
Accumulated
Other
Comprehensive
Income (Loss)
1,636
$ 2,095
182
$ 182
1,818
$ 2,277
Tax amounts related to comprehensive income (loss) disclosures are not material for
all of the periods presented.
NOTE 15 | Segment Information
The Company’s reporting segments, comprised of the satellite services, commercial
networks and government systems segments, are primarily distinguished by the type
of customer and the related contractual requirements. The Company’s satellite services
segment provides retail and wholesale satellite-based broadband services for its consumer,
enterprise and mobile broadband customers in the United States, as well as managed
network services for the satellite communication systems of the Company’s consumer,
enterprise and mobile broadband customers worldwide. The Company’s commercial
networks segment develops and produces a variety of advanced end-to-end satellite and
other wireless communication systems and ground networking equipment and products,
some of which are ultimately used by the Company’s satellite services segment.
The Company’s government systems segment develops and produces network-centric,
IP-based secure fixed and mobile government communications systems, products, services
and solutions. The more regulated government environment is subject to unique contractual
requirements and possesses economic characteristics which differ from the satellite
services and commercial networks segments. The Company’s segments are determined
consistent with the way management currently organizes and evaluates financial
information internally for making operating decisions and assessing performance.
As discussed further in Note 1, included in the government systems segment operating
profit for fiscal year 2011 is an $8.5 million forward loss recorded on a government
satellite communications program. As discussed in Note 1, also included in the
government systems segment operating profit for fiscal year 2011 is an additional
$5.0 million in contract-related reserves for potential cost adjustments on several
multi-year U.S. government cost reimbursable contracts, which resulted in a decrease
to revenues and earnings. The Company’s satellite services segment operating profit for
fiscal year 2011 reflects a $5.2 million benefit to cost of service revenues related to a
satellite capacity contract liability acquired in the WildBlue acquisition and release of
future payment liabilities related thereto.
Segment revenues and operating profits (losses) for the fiscal years ended
March 29, 2013, March 30, 2012 and April 1, 2011 were as follows:
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Revenues:
Satellite Services
Product
Service
Total
Product
Service
Total
Government Systems
Product
Service
Total
Fiscal Years Ended
March 29
2013
March 30
2012
April 1
2011
$ 4,715
272,272
$ 2,998
219,674
$ 5,551
229,401
276,987
222,672
234,952
295,469
19,471
314,940
364,233
163,530
527,763
229,941
21,736
251,677
309,125
80,153
389,278
167,446
15,697
183,143
350,941
33,170
384,111
Elimination of intersegment revenues
—
—
—
Total revenues
Operating (losses) profits:
Satellite Services
Commercial Networks
Government Systems
Elimination of intersegment operating
profits
Segment operating (loss) profit before
corporate and amortization of acquired
intangible assets
Corporate
Amortization of acquired intangible
$ 1,119,690
$ 863,627
$ 802,206
$ (79,172)
(11,079)
85,473
$ (16,790)
(12,974)
50,690
$ 38,228
(9,482)
29,872
—
—
—
(4,778)
—
20,926
—
58,618
44
assets
(15,584)
(18,732)
(19,409)
(Loss) income from operations
$ (20,362)
$ 2,194
$ 39,253
$ 459
$ —
$ 459
Commercial Networks
Notes to the Consolidated Financial Statements (cont.)
Assets identifiable to segments include: accounts receivable, unbilled accounts receivable, inventory, acquired intangible assets and goodwill. The Company’s property and
equipment, including its satellites, gateways and other networking equipment, are assigned to corporate assets as they are available for use by the various segments throughout
their estimated useful lives. Segment assets as of March 29, 2013 and March 30, 2012 were as follows:
(In thousands)
Segment assets
Satellite Services
Commercial Networks
Government Systems
Total segment assets
Corporate assets
Total assets
As of
March 29, 2013
As of
March 30, 2012
$ 89,945
175,230
238,057
503,232
1,290,840
$ 1,794,072
$ 95,671
170,553
219,199
485,423
1,241,730
$ 1,727,153
Other acquired intangible assets, net and goodwill included in segment assets as of March 29, 2013 and March 30, 2012 were as follows:
(In thousands)
Satellite Services
Commercial Networks
Government Systems
Total
Other Acquired Intangible Assets, Net
Goodwill
As of
March 29, 2013
As of
March 30, 2012
As of
March 29, 2013
As of
March 30, 2012
$ 39,989
1,520
5,661
$ 47,170
$ 52,390
2,186
8,465
$ 63,041
$ 9,809
43,648
29,543
$ 83,000
$ 9,809
43,739
29,913
$ 83,461
Amortization of acquired intangible assets by segment for the fiscal years ended March 29, 2013, March 30, 2012 and April 1, 2011 was as follows:
(In thousands)
Satellite Services
Commercial Networks
Government Systems
Total amortization of acquired intangible assets
Fiscal Years Ended
March 29, 2013
March 30, 2012
April 1, 2011
$ 12,401
666
2,517
$ 15,584
$ 12,951
3,224
2,557
$ 18,732
$ 12,951
4,001
2,457
$ 19,409
Revenue information by geographic area for the fiscal years ended March 29, 2013, March 30, 2012 and April 1, 2011 was as follows:
(In thousands)
United States
Europe, Middle East and Africa
Asia, Pacific
North America other than United States
Central and Latin America
Total
Fiscal Years Ended
March 29, 2013
March 30, 2012
April 1, 2011
$ 840,899
171,853
56,195
39,158
11,585
$ 1,119,690
$ 680,655
114,382
22,683
32,657
13,250
$ 863,627
$ 667,060
95,356
24,203
8,321
7,266
$ 802,206
The Company distinguishes revenues from external customers by geographic area based on customer location.
The net book value of long-lived assets located outside the United States was $18.5 million and $18.7 million at March 29, 2013 and March 30, 2012, respectively.
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73
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NOTE 16 | Certain Relationships and Related-Party Transactions
John Stenbit, a director of the Company since August 2004, also serves on the board of
directors of Loral. The Company’s satellite construction contract with SS/L (a subsidiary
of Loral prior to November 2012), under which the Company purchased ViaSat-1,
requires the Company to make monthly satellite performance incentive payments,
including interest, over a fifteen-year period from December 2011 to December 2026,
subject to the continued satisfactory performance of the satellite (see Note 11). In
addition, the Company entered into a beam sharing agreement with Loral, whereby Loral
is responsible for contributing 15% of the total costs 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. In March 2011, Loral entered into agreements with Telesat Canada
(an entity owned by TeleSat Holdings, Inc., a joint venture between Loral and the Public
Sector Pension Investment Board) pursuant to which Loral assigned to Telesat Canada
and Telesat Canada assumed from Loral all of Loral’s rights and obligations with
respect to the Canadian beams on ViaSat-1. Material amounts related to the satellite
construction contract with SS/L and beam sharing agreement with Telesat Canada are
disclosed in the tables below.
In addition, from time to time, the Company enters into various contracts in the
ordinary course of business with SS/L and Telesat Canada. Material amounts related
to these contracts are disclosed in the tables below.
Current payables included in accrued liabilities and long-term payables included in other liabilities as of March 29, 2013 and March 30, 2012 that relate to Loral were as follows:
(In thousands)
Payables, current:
Satellite construction contract (estimated satellite performance incentives)
Payables, long-term:
Satellite construction contract (estimated satellite performance incentives)
As of March 29, 2013
As of March 30, 2012
$ 1,725
$ 1,599
21,009
20,910
Revenue and expense for the fiscal years ended March 29, 2013, March 30, 2012 and April 1, 2011 were as follows:
(In thousands)
Revenue:
Loral—ordinary course of business
Expense:
Telesat Canada—ordinary course of business
*Amount was not meaningful
Fiscal Years Ended
March 29, 2013
March 30, 2012
April 1, 2011
$ *
$ 3,983
$ 3,282
7,685
3,380
2,153
Cash received and paid during the fiscal years ended March 29, 2013, March 30, 2012 and April 1, 2011 were as follows:
(In thousands)
Cash received:
Loral—beam sharing agreement
Telesat Canada—beam sharing agreement
Loral—ordinary course of business
Telesat Canada—ordinary course of business
Cash paid:
Loral—satellite construction contract (including estimated satellite performance incentives)
Telesat Canada—ordinary course of business
Fiscal Years Ended
March 29, 2013
March 30, 2012
April 1, 2011
$ —
—
—
1,023
1,609
7,358
$ 4,298
9,159
1,194
2,930
4,174
7,606
$ 8,230
—
3,876
1,239
25,020
7,178
Notes to the Consolidated Financial Statements (cont.)
In connection with the Company’s acquisition of WildBlue Holding, Inc. (WildBlue) in
fiscal year 2010, the Company entered into an indemnification agreement in September
2009 (the Indemnification Agreement) with several of the former stockholders of
WildBlue (the Indemnitors). Pursuant to the terms of the indemnification agreement,
the Indemnitors agreed to indemnify the Company for any damages relating to, among
other things, an appraisal action regarding WildBlue’s 2008 recapitalization (the Action).
During the third quarter of fiscal year 2012, the parties to the Action entered into
a settlement agreement whereby the parties agreed to release all claims in exchange for
a payment of $20.5 million by WildBlue to the plaintiffs. Payment of this amount by
WildBlue was expressly conditioned upon the Indemnitors fully funding an escrow
account covering all amounts other than the $0.5 million the Company was obligated to
pay under the Indemnification Agreement. In January 2012, in accordance with the terms
of the settlement agreement, the Company received $20.0 million in cash from the
Indemnitors and paid $20.5 million to the plaintiffs in the Action. One of the former
WildBlue stockholders and plaintiffs in the Action was TimesArrow Capital I, LLC.
Thomas Moore, Senior Vice President of the Company at the time, served as the
administrative member of, and held 33.3% of the equity interests in, TimesArrow.
Of the $20.5 million paid to the plaintiffs in the Action, TimesArrow and Mr. Moore
received $3.0 million and $1.0 million, respectively.
NOTE 17 | Financial Statements of Parent and Subsidiary Guarantors
As of March 29, 2013, $575.0 million in aggregate principal amount of 2020 Notes
issued by the Company was outstanding. The 2020 Notes are jointly and severally
guaranteed on a full and unconditional basis by each of the Guarantor Subsidiaries,
subject to certain customary release provisions, including the sale, transfer or other
disposition of the capital stock or all or substantially all of the assets of a Guarantor
Subsidiary, the designation of a Guarantor Subsidiary as an unrestricted subsidiary, the
release or discharge of the Guarantor Subsidiary’s guarantee of the Credit Facility or
the exercise of the legal defeasance option or covenant defeasance option. All of the
Guarantor Subsidiaries are direct or indirect 100% owned subsidiaries of the Company.
The indenture governing the 2020 Notes limits, among other things, the Company’s and
its restricted subsidiaries’ ability to: incur, assume or guarantee additional debt; issue
redeemable stock and preferred stock; pay dividends, make distributions or redeem or
repurchase capital stock; prepay, redeem or repurchase subordinated debt; make loans
and investments; grant or incur liens; restrict dividends, loans or asset transfers from
restricted subsidiaries; sell or otherwise dispose of assets; enter into transactions with
affiliates; reduce the Company’s satellite insurance; and consolidate or merge with, or
sell substantially all of their assets to, another person.
The following supplemental financial information sets forth, on a condensed
consolidating basis, the balance sheets, statements of operations and comprehensive
income (loss) and statements of cash flows for the Company (as “Issuing Parent
Company”), the Guarantor Subsidiaries, the non-guarantor subsidiaries and total
consolidated Company and subsidiaries as of March 29, 2013 and March 30, 2012
and for the fiscal years ended March 29, 2013, March 30, 2012 and April 1, 2011.
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75
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Condensed Consolidated Balance Sheet as of March 29, 2013
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventories
Deferred income taxes
Prepaid expenses and other current assets
Current portion of intercompany receivables
Total current assets
Satellites, net
Property and equipment, net
Other acquired intangible assets, net
Goodwill
Investments in subsidiaries and intercompany receivables
Other assets
Total assets
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
Accrued liabilities
Current portion of other long-term debt
Current portion of intercompany payables
Total current liabilities
Senior notes, net
Other long-term debt
Intercompany payables
Other liabilities
Total liabilities
Equity:
ViaSat, Inc. stockholders’ equity
Total ViaSat, Inc. stockholders’ equity
Noncontrolling interest in subsidiary
Total equity
Total liabilities and equity
Issuing
Parent
Company
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidation
and Elimination
Adjustments
$ 93,780
240,457
81,195
22,350
32,372
128,383
598,537
337,437
189,500
1,597
63,939
381,338
154,854
$ 3,112
15,537
19,985
2,425
7,819
1,581
50,459
197,653
183,227
39,989
9,686
1,439
49,645
$ 8,846
10,976
5,101
290
628
1,631
27,472
—
5,964
5,584
9,375
303
749
$ —
—
—
—
—
(131,595)
(131,595)
—
—
—
—
(383,080)
—
Consolidated
$ 105,738
266,970
106,281
25,065
40,819
—
544,873
535,090
378,691
47,170
83,000
—
205,248
$ 1,727,202
$ 532,098
$ 49,447
$ (514,675)
$ 1,794,072
$ 71,931
128,374
454
1,631
202,390
584,993
380
302
36,136
824,201
903,001
—
903,001
$ 1,727,202
$ 9,999
26,916
1,776
127,215
165,906
—
1,076
—
15,137
182,119
349,979
—
349,979
$ 532,098
$ 1,079
6,619
—
2,750
10,448
—
—
6,319
1,367
18,134
31,313
—
31,313
$ —
—
—
(131,596)
(131,596)
—
—
(6,621)
—
(138,217)
(381,292)
4,834
(376,458)
$ 83,009
161,909
2,230
—
247,148
584,993
1,456
—
52,640
886,237
903,001
4,834
907,835
$ 49,447
$ (514,675)
$ 1,794,072
Notes to the Consolidated Financial Statements (cont.)
Condensed Consolidated Balance Sheet as of March 30, 2012
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventories
Deferred income taxes
Prepaid expenses and other current assets
Total current assets
Satellites, net
Property and equipment, net
Other acquired intangible assets, net
Goodwill
Investments in subsidiaries and intercompany receivables
Other assets
Total assets
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
Accrued liabilities
Current portion of other long-term debt
Total current liabilities
Senior notes, net
Other long-term debt
Intercompany payables
Other liabilities
Total liabilities
Equity:
ViaSat, Inc. stockholders’ equity
Total ViaSat, Inc. stockholders’ equity
Noncontrolling interest in subsidiary
Total equity
Total liabilities and equity
Issuing
Parent
Company
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidation
and Elimination
Adjustments
$ 162,426
192,313
106,151
18,482
27,128
506,500
358,580
178,611
2,633
63,939
437,631
117,300
$ 439
12,411
16,474
1,526
2,923
33,773
227,151
110,137
52,389
9,687
2,501
18,886
$ 9,718
6,966
5,021
308
866
22,879
—
6,225
8,019
9,835
1,428
609
$ —
—
—
—
—
—
—
—
—
—
(441,560)
—
Consolidated
$ 172,583
211,690
127,646
20,316
30,917
563,152
585,731
294,973
63,041
83,461
—
136,795
$ 1,665,194
$ 454,524
$ 48,995
$ (441,560)
$ 1,727,153
$ 62,085
128,327
129
190,541
547,791
74
1,428
37,385
777,219
887,975
—
887,975
$ 1,665,194
$ 12,192
27,477
1,111
40,780
—
700
4,462
10,269
56,211
398,313
—
398,313
$ 454,524
$ 763
3,958
—
4,721
—
—
9,429
2,699
16,849
32,146
—
32,146
$ —
—
—
$ 75,040
159,762
1,240
—
—
—
(15,319)
—
(15,319)
(430,459)
4,218
(426,241)
236,042
547,791
774
—
50,353
834,960
887,975
4,218
892,193
$ 48,995
$ (441,560)
$ 1,727,153
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Condensed Consolidated Statement of Operations and Comprehensive Income (Loss) for the Fiscal Year Ended March 29, 2013
(In thousands)
Revenues:
Product revenues
Service revenues
Total revenues
Operating expenses:
Cost of product revenues
Cost of service revenues
Selling, general and administrative
Independent research and development
Amortization of acquired intangible assets
Income (loss) from operations
Other income (expense):
Interest income
Interest expense
Loss on extinguishment of debt
Income (loss) before income taxes
Provision for (benefit from) income taxes
Equity in net income (loss) of consolidated subsidiaries
Net income (loss)
Less: Net income (loss) attributable to noncontrolling interest, net of tax
Net income (loss) attributable to ViaSat, Inc.
Comprehensive income (loss)
Comprehensive income (loss) attributable to ViaSat, Inc.
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidation
and Elimination
Adjustments
Issuing
Parent
Company
$ 631,067
193,478
824,545
463,553
133,404
133,273
34,274
1,037
59,004
168
(43,916)
(26,501)
(11,245)
(18,861)
(48,788)
(41,172)
—
$ 4,714
254,796
259,510
3,383
225,730
96,346
525
12,400
(78,874)
—
(72)
—
(78,946)
(30,612)
—
(48,334)
—
$ 29,141
8,531
37,672
18,463
5,587
11,248
719
2,147
(492)
5
(5)
—
(492)
(581)
—
89
—
$ (41,172)
$ (42,005)
$ (42,005)
$ (48,334)
$ (48,334)
$ (48,334)
$ 89
$ (874)
$ (874)
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Consolidated
$ 664,417
455,273
1,119,690
484,973
363,188
240,859
35,448
15,584
(20,362)
173
(43,993)
(26,501)
(90,683)
(50,054)
—
(40,629)
543
$ (41,172)
$ (41,462)
$ (42,005)
$ (505)
(1,532)
(2,037)
(426)
(1,533)
(8)
(70)
—
—
—
—
—
—
—
48,788
48,788
543
$ 48,245
$ 49,751
$ 49,208
Notes to the Consolidated Financial Statements (cont.)
Condensed Consolidated Statement of Operations and Comprehensive Income (Loss) for the Fiscal Year Ended March 30, 2012
(In thousands)
Revenues:
Product revenues
Service revenues
Total revenues
Operating expenses:
Cost of product revenues
Cost of service revenues
Selling, general and administrative
Independent research and development
Amortization of acquired intangible assets
Income (loss) from operations
Other income (expense):
Interest income
Interest expense
Income (loss) before income taxes
Provision for (benefit from) income taxes
Equity in net income (loss) of consolidated subsidiaries
Net income (loss)
Less: Net income (loss) attributable to noncontrolling interest, net of tax
Net income (loss) attributable to ViaSat, Inc.
Comprehensive income (loss)
Comprehensive income (loss) attributable to ViaSat, Inc.
Issuing
Parent
Company
$ 514,577
106,548
621,125
384,858
66,833
119,227
24,109
3,569
22,529
264
(8,199)
14,594
(7,407)
(15,360)
6,641
—
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
$ 2,998
206,470
209,468
$ 24,767
10,482
35,249
Consolidation
and Elimination
Adjustments
$ (278)
(1,937)
(2,215)
2,902
160,579
53,051
—
12,954
(20,018)
—
(108)
(20,126)
(6,038)
—
(14,088)
—
16,711
7,612
9,453
928
2,209
(1,664)
6
(210)
(1,868)
(698)
—
(1,170)
—
(1,677)
(1,837)
(3)
(45)
—
1,347
(210)
210
1,347
492
15,360
16,215
102
Consolidated
$ 542,064
321,563
863,627
402,794
233,187
181,728
24,992
18,732
2,194
60
(8,307)
(6,053)
(13,651)
—
7,598
102
$ 6,641
$ 5,803
$ 5,803
$ (14,088)
$ (14,088)
$ (14,088)
$ (1,170)
$ (1,351)
$ (1,351)
$ 16,113
$ 16,396
$ 16,294
$ 7,496
$ 6,760
$ 6,658
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79
Condensed Consolidated Statement of Operations and Comprehensive Income (Loss) for the Fiscal Year Ended April 1, 2011
(In thousands)
Revenues:
Product revenues
Service revenues
Total revenues
Operating expenses:
Cost of product revenues
Cost of service revenues
Selling, general and administrative
Independent research and development
Amortization of acquired intangible assets
Income (loss) from operations
Other income (expense):
Interest income
Interest expense
Income (loss) before income taxes
Provision for (benefit from) income taxes
Equity in net income (loss) of consolidated subsidiaries
Net income (loss)
Less: Net income (loss) attributable to noncontrolling interest, net of tax
Net income (loss) attributable to ViaSat, Inc.
Comprehensive income (loss)
Comprehensive income (loss) attributable to ViaSat, Inc.
Issuing
Parent
Company
$ 505,634
53,701
559,335
375,635
34,339
104,235
27,807
4,672
12,647
687
(3,103)
10,231
(10,188)
15,654
36,073
—
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
$ 5,546
215,267
220,813
$ 16,583
10,994
27,577
Consolidation
and Elimination
Adjustments
$ (3,825)
(1,694)
(5,519)
8,228
121,024
50,946
—
12,954
27,661
—
(49)
27,612
10,325
—
17,287
—
9,426
6,926
9,123
924
1,783
(605)
9
(375)
(971)
353
—
(1,324)
—
(3,344)
(1,666)
(39)
(20)
—
(450)
(373)
373
(450)
(492)
(15,654)
(15,612)
309
Consolidated
$ 523,938
278,268
802,206
389,945
160,623
164,265
28,711
19,409
39,253
323
(3,154)
36,422
(2)
—
36,424
309
$ 36,073
$ 37,891
$ 37,891
$ 17,287
$ 17,287
$ 17,287
$ (1,324)
$ 611
$ 611
$ (15,921)
$ (17,547)
$ (17,856)
$ 36,115
$ 38,242
$ 37,933
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Notes to the Consolidated Financial Statements (cont.)
Condensed Consolidated Statement of Cash Flows for the Fiscal Year Ended March 29, 2013
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Issuing
Parent
Company
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidation
and Elimination
Adjustments
Consolidated
Net cash provided by (used in) operating activities
$ (37,754)
$ 130,299
$ (820)
$ 73
$ 91,798
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, equipment and satellites, net
Cash paid for patents, licenses and other assets
Long-term intercompany notes and investments
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of 2020 Notes
Repayment of 2016 Notes
Payment of debt issuance costs
Proceeds from issuance of common stock under equity plans
Purchase of common stock in treasury
Other
Long-term intercompany financing
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of fiscal year
(46,413)
(25,154)
(1,232)
(72,799)
300,000
(271,582)
(8,059)
31,001
(8,412)
(1,041)
—
41,907
—
(68,646)
162,426
(128,667)
—
—
(128,667)
—
—
—
—
—
1,041
—
1,041
—
2,673
439
(1,215)
(116)
—
(1,331)
—
—
—
73
—
—
1,232
1,305
(26)
(872)
9,718
—
—
1,232
1,232
—
—
—
(73)
—
—
(1,232)
(1,305)
—
—
—
(176,295)
(25,270)
—
(201,565)
300,000
(271,582)
(8,059)
31,001
(8,412)
—
—
42,948
(26)
(66,845)
172,583
Cash and cash equivalents at end of fiscal year
$ 93,780
$ 3,112
$ 8,846
$ —
$ 105,738
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81
Condensed Consolidated Statement of Cash Flows for the Fiscal Year Ended March 30, 2012
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Issuing
Parent
Company
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidation
and Elimination
Adjustments
Consolidated
Net cash provided by (used in) operating activities
$ 64,191
$ 71,869
$ 7,350
$ (1,961)
$ 141,449
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, equipment and satellites, net
Cash paid for patents, licenses and other assets
Long-term intercompany notes and investments
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of 2020 Notes
Payment of debt issuance costs
Proceeds from line of credit borrowings
Payments on line of credit
Proceeds from issuance of common stock under equity plans
Purchase of common stock in treasury
Other
Long-term intercompany financing
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of fiscal year
(156,874)
(23,993)
2,849
(178,018)
275,000
(5,706)
130,000
(190,000)
19,341
(7,451)
(438)
31,160
251,906
—
138,079
24,347
(46,922)
—
—
(46,922)
—
—
—
—
—
—
(948)
(31,160)
(32,108)
—
(7,161)
7,600
(3,138)
(56)
—
(3,194)
—
—
—
—
—
—
—
(2,849)
(2,849)
(132)
1,175
8,543
1,961
—
(2,849)
(888)
—
—
—
—
—
—
—
2,849
2,849
—
—
—
(204,973)
(24,049)
—
(229,022)
275,000
(5,706)
130,000
(190,000)
19,341
(7,451)
(1,386)
—
219,798
(132)
132,093
40,490
Cash and cash equivalents at end of fiscal year
$ 162,426
$ 439
$ 9,718
$ —
$ 172,583
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Notes to the Consolidated Financial Statements (cont.)
Condensed Consolidated Statement of Cash Flows for the Fiscal Year Ended April 1, 2011
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Issuing
Parent
Company
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidation
and Elimination
Adjustments
Consolidated
Net cash provided by (used in) operating activities
$ 57,877
$ 112,029
$ (19)
$ (270)
$ 169,617
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, equipment and satellites, net
Cash paid for patents, licenses and other assets
Payments related to acquisition of businesses, net of cash acquired
Long-term intercompany notes and investments
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of debt issuance costs
Proceeds from line of credit borrowings
Payments on line of credit
Proceeds from issuance of common stock under equity plans
Purchase of common stock in treasury
Incremental tax benefits from stock-based compensation
Long-term intercompany financing
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of fiscal year
(152,416)
(15,942)
(14,203)
(726)
(183,287)
(2,775)
40,000
(40,000)
26,398
(5,880)
867
64,889
83,499
—
(41,911)
66,258
(54,126)
—
—
100
(54,026)
—
—
—
—
—
—
(66,619)
(66,619)
—
(8,616)
16,216
(2,013)
(44)
747
1,731
421
—
—
—
—
—
—
625
625
359
1,386
7,157
270
—
—
(1,105)
(835)
—
—
—
—
—
—
1,105
1,105
—
—
—
(208,285)
(15,986)
(13,456)
—
(237,727)
(2,775)
40,000
(40,000)
26,398
(5,880)
867
—
18,610
359
(49,141)
89,631
Cash and cash equivalents at end of fiscal year
$ 24,347
$ 7,600
$ 8,543
$ —
$ 40,490
NOTE 18 | Subsequent Event
On May 15, 2013, the Company entered into an agreement with The Boeing Company (Boeing) to purchase ViaSat-2, the Company’s second high-capacity Ka-band satellite,
at a price of approximately $358.0 million, plus an additional amount for launch support services to be performed by Boeing.
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Valuation and Qualifying Accounts
For the Three Fiscal Years Ended March 29, 2013
Date
(In thousands)
Balance, April 2, 2010
Charged (credited) to costs and expenses
Deductions
Balance, April 1, 2011
Charged (credited) to costs and expenses
Deductions
Balance, March 30, 2012
Charged (credited) to costs and expenses
Deductions
Balance, March 29, 2013
Date
(In thousands)
Balance, April 2, 2010
Charged (credited) to costs and expenses
Charged (credited) to goodwill*
Deductions
Balance, April 1, 2011
Charged (credited) to costs and expenses
Deductions
Balance, March 30, 2012
Charged (credited) to costs and expenses
Deductions
Balance, March 29, 2013
*Related to the acquisition of WildBlue
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Allowance for
Doubtful Accounts
$ 539
813
(859)
$ 493
1,194
(690)
$ 997
1,621
(1,184)
$ 1,434
Deferred Tax Asset
Valuation Allowance
$ 13,074
1,445
(1,848)
—
$ 12,671
2,024
—
$ 14,695
1,270
—
$ 15,965
Market for Registrant’s Common Equity and Related Stockholder Matters
Dividend Policy
To date, we have neither declared nor paid any dividends on our common stock.
We currently intend to retain all future earnings, if any, for use in the operation and
development of our business and, therefore, do not expect to declare or pay any cash
dividends on our common stock in the foreseeable future. Any future determination
to pay cash dividends will be at the discretion of the Board of Directors, subject to any
applicable restrictions under our debt and credit agreements, and will be dependent
upon our financial condition, results of operations, capital requirements, general
business condition and such other factors as the Board of Directors may deem relevant.
Price Range of Common Stock
Our common stock is traded on the Nasdaq Global Select Market under the symbol
“VSAT.” The following table sets forth, for the periods indicated, the range of high and
low sales prices of our common stock as reported by Nasdaq.
Fiscal 2012
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal 2013
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
$ 44.47
46.17
49.16
49.80
$ 48.88
41.20
40.74
51.18
$ 37.12
31.18
31.57
43.50
$ 34.84
33.09
34.67
36.97
As of May 10, 2013, there were approximately 1,416 holders of record of our common
stock. A substantially greater number of holders of ViaSat common stock are “street
name” or beneficial holders, whose shares are held of record by banks, brokers and
other financial institutions.
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Performance Graph
The following graph shows the value of an investment of $100 in cash on March 28, 2008
in (1) ViaSat’s common stock, (2) the NASDAQ Telecommunications Index, (3) the
NASDAQ Composite Index and (4) the S&P 600 SmallCap Index. The graph assumes
that all dividends, if any, were reinvested. The stock price performance shown on the
graph is based on historical data and should not be considered indicative of future
performance. The information contained under this heading “Performance Graph” shall
not be deemed to be “soliciting material,” or to be “filed” with the SEC, or subject
to Regulation 14A or Regulation 14C or to the liabilities of Section 18 of the Securities
Exchange Act of 1934, and shall not be deemed to be incorporated by reference into
any filing of ViaSat, except to the extent that ViaSat specifically incorporates it by
reference into a document filed under the Securities Act of 1933 or the Securities
Exchange Act of 1934.
$250
$225
$200
$175
$150
$125
$100
$75
$50
$25
$0
MAR 28
2008
JUN 27
2008
OCT 3
2008
JAN 2
2009
APR 3
2009
JUL 3
2009
OCT 2
2010
JAN 1
2010
APR 2
2010
JUL 2
2010
OCT 1
2010
DEC 31
2010
APR 1
2011
JUL 1
2011
SEP 30
2011
DEC 30
2011
MAR 30
2012
JUN 29
2012
SEP 28
2012
DEC 28
2012
MAR 29
2013
VIASAT, INC.
NASDAQ TELECOM
NASDAQ COMPOSITE
S&P 600 SMALLCAP
USE OF NON-GAAP FINANCIAL INFORMATION
To supplement ViaSat’s consolidated financial statements presented in accordance with generally accepted
accounting principles (GAAP), ViaSat uses Adjusted EBITDA, a measure ViaSat believes is appropriate to
enhance an overall understanding of ViaSat’s past financial performance and prospects for the future. We
believe Adjusted EBITDA provides useful information to both management and investors by excluding specific
expenses that we believe are not indicative of our core operating results. In addition, since we have historically
reported non-GAAP results to the investment community, we believe the inclusion of non-GAAP numbers provides
consistency in our financial reporting and facilitates comparisons to the company’s historical operating results.
Further, these non-GAAP results are among the primary indicators that management uses as a basis for evaluating
the operating performance of our segments, allocating resources to such segments, planning and forecasting in
future periods. The presentation of this additional information is not meant to be considered in isolation or as a
substitute for measures of financial performance prepared in accordance with GAAP. A reconciliation of specific
adjustments to GAAP results is provided in the table “An Itemized Reconciliation Between Net Income (Loss)
Attributable to ViaSat, Inc. and Adjusted EBITDA” contained in this Annual Report.
FORWARD-LOOKING STATEMENTS
This Annual Report, including “Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” contains forward-looking statements regarding future events and our future results that are subject
to the safe harbors created under the Securities Act of 1933 and the Securities Exchange Act of 1934. These
statements are based on current expectations, estimates, forecasts and projections about the industries in which
we operate and the beliefs and assumptions of our management. We use words such as “anticipate,” “believe,”
“continue,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “plan,” “project,” “seek,” “should,” “target,”
“will,” “would,” variations of such words and similar expressions to identify forward-looking statements. In
addition, statements that refer to projections of earnings, revenue, costs or other financial items; anticipated
growth and trends in our business or key markets; future economic conditions and performance; anticipated
performance of products or services; anticipated satellite construction activities; the performance and anticipated
benefits of the ViaSat-2 satellite; the expected capacity, service, coverage, service speeds and other features of
ViaSat-2, and the timing, cost, economics and other benefits associated therewith; anticipated subscriber growth;
plans, objectives and strategies for future operations; and other characterizations of future events or circumstances,
are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions
and are subject to risks, uncertainties and assumptions that are difficult to predict. Factors that could cause actual
results to differ include: our ability to realize the anticipated benefits of the ViaSat-2 satellite; unexpected expenses
related to the satellite project; our ability to successfully implement our business plan for our broadband satellite
services on our anticipated timeline or at all, including with respect to the ViaSat-2 satellite system; risks associated
with the construction, launch and operation of ViaSat-2 and our other satellites, including the effect of any
anomaly, operational failure or degradation in satellite performance; negative audits by the U.S. government;
continued turmoil in the global business environment and economic conditions; delays in approving U.S.
government budgets and cuts in government defense expenditures; our reliance on U.S. government contracts, and
on a small number of contracts which account for a significant percentage of our revenues; our ability to
successfully develop, introduce and sell new technologies, products and services; reduced demand for products
and services as a result of continued constraints on capital spending by customers; changes in relationships
with, or the financial condition of, key customers or suppliers; our reliance on a limited number of third parties to
manufacture and supply our products; increased competition and other factors affecting the communications and
defense industries generally; the effect of adverse regulatory changes on our ability to sell products and services;
our level of indebtedness and ability to comply with applicable debt covenants; our involvement in litigation,
including intellectual property claims and litigation to protect our proprietary technology; our dependence on a
limited number of key employees; and other factors identified in our most recent reports on Form 10-K, 10-Q and
8-K and our other filings with the SEC. Therefore, actual results may differ materially and adversely from those
expressed in any forward-looking statements. We undertake no obligation to revise or update any forward-looking
statements for any reason.
Corporate Information
Board of Directors
Mark Dankberg
Chairman of the Board and
Chief Executive Officer
ViaSat, Inc.
Robert Bowman
President and Chief Executive Officer
Major League Baseball Advanced Media
Dr. Robert Johnson
Venture Capital Investor
Allen Lay
Private Investor
Dr. Jeffrey Nash
Private Investor
John Stenbit
Private Consultant
Harvey White
Chairman
(SHW)2 Enterprises
Executive Officers
Mark Dankberg
Chairman of the Board and
Chief Executive Officer
Richard Baldridge
President and Chief Operating Officer
Bruce Dirks
Vice President and Chief Financial Officer
Shawn Duffy
Vice President, Corporate Controller and
Chief Accounting Officer
Stephen Estes
Vice President, Enterprise Services
Kevin Harkenrider
Senior Vice President, Broadband Services
Steven Hart
Vice President, Engineering and Chief Technical Officer
Keven Lippert
Vice President, General Counsel and Secretary
Mark Miller
Vice President and Chief Technical Officer
Ken Peterman
Vice President, Government Systems
John Zlogar
Vice President, Commercial Networks
Annual Meeting
The 2013 Annual Meeting will be held at
ViaSat’s headquarters, located at
6155 El Camino Real, Founders Hall
Carlsbad, California 92009
on September 18, 2013 at 8:00 a.m. Pacific Time.
Independent Registered
Public Accounting Firm
PricewaterhouseCoopers LLP
5375 Mira Sorrento Place, Suite 300
San Diego, California 92121
General Legal Counsel
Latham & Watkins LLP
12636 High Bluff Drive, Suite 400
San Diego, California 92130
Transfer Agent and Registrar
Computershare Investor Services
P.O. Box 43078
Providence, Rhode Island 02940-3078
+1 312-588-4162
web.queries@computershare.com
www-us.computershare.com
Investor Relations
For investor information, financial information,
SEC filings and other useful information, visit our
website at www.viasat.com. To obtain a printed copy of
our Form 10-K without charge, or to receive additional
copies of this Annual Report or other financial
information, please contact our Investor Relations
department at:
ViaSat, Inc.
Attn: Investor Relations
6155 El Camino Real
Carlsbad, California 92009
+1 760-476-2633
ir@viasat.com
The following are trademarks or service marks of ViaSat, Inc.: Exede, WildBlue, ViaSat and the ViaSat logo. All other product and company names mentioned herein are the property of their respective owners.
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