Back to GetFilings.com
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
| |
|
|
| (Mark One) |
|
|
|
þ
|
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934. |
| |
| |
|
For the fiscal year ended April 1, 2005 |
| |
|
or |
| |
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934. |
| |
| |
|
For the transition period
from to . |
Commission File Number (0-21767)
VIASAT, INC.
(Exact name of registrant as specified in its charter)
| |
|
|
|
Delaware
|
|
33-0174996 |
(State or other jurisdiction of
incorporation or organization) |
|
(I.R.S. Employer
Identification No.) |
6155 El Camino Real, Carlsbad, California 92009
(760) 476-2200
(Address, including zip code, and telephone number, including
area code, of principal executive offices)
Securities registered pursuant to Section 12(b) of the
Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, $.0001 Par Value
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange
Act). Yes þ No o
The aggregate market value of the voting stock held by
non-affiliates of the registrant, as of October 1, 2004 was
approximately $415,911,987 (based on the closing price on that
date for shares of the registrant’s Common Stock as
reported by the Nasdaq National Market). Shares of Common Stock
held by each officer, director and holder of 5% or more of the
outstanding Common Stock have been excluded in that such persons
may be deemed affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
The number of shares outstanding of the registrant’s Common
Stock, $.0001 par value, as of June 3, 2005 was
26,897,516.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement to
be filed with the Securities and Exchange Commission pursuant to
Regulation 14A in connection with its 2005 Annual Meeting
of Stockholders are incorporated by reference into Part III
of this Report. Such Proxy Statement will be filed with the
Securities and Exchange Commission not later than 120 days
after the registrant’s fiscal year ended April 1, 2005.
VIASAT, INC.
FORM 10-K
For the fiscal year ended April 1, 2005
INDEX
2
PART I
All references in this annual report to our fiscal year 2005
refer to the fiscal year ended on April 1, 2005. Unless
otherwise indicated, all references in this annual report to
periods of time (e.g., quarters and years) are to fiscal periods.
We were incorporated in California in 1986 and reincorporated in
Delaware in 1996. Our website address is www.viasat.com. Our
website is not part of this filing. We make available free of
charge through our website our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on
Form 8-K and all amendments to those reports as soon as
reasonably practicable after such material has been
electronically filed with or furnished to the Securities and
Exchange Commission (SEC). They are also available free of
charge on the SEC’s website at www.sec.gov. In
addition, any materials filed with the SEC may be read and
copied by the public at the SEC’s Public Reference Room at
450 Fifth Street, NW, Washington, DC 20549. The public may
obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330.
Introduction
We are a leading provider of advanced digital satellite
communications and other wireless networking and signal
processing equipment and services to the government and
commercial markets. Although we initially focused primarily on
developing satellite communication and simulation equipment for
the U.S. government, we have successfully diversified into
other related government as well as commercial markets. During
the period from April 2000 to January 2002, we acquired
(1) the satellite networks business from
Scientific-Atlanta, Inc. (SA), (2) the Comsat Laboratories
business from Lockheed Martin Global Telecommunications, LLC
(LMGT), and (3) US Monolithics, LLC (USM). These
acquisitions further enhanced our strategic positioning in the
commercial satellite communication market and significantly
expanded our intellectual property portfolio. As a result of
this diversification, we have transitioned from a primarily
defense-oriented company to a company with near equal amounts of
government and commercial business. We believe our
diversification, combined with our unique ability to effectively
apply technologies between government and commercial markets,
provides us a strong foundation to sustain and enhance our
leadership in advanced communications and networking
technologies.
We develop and produce satellite ground network systems and
other related defense and commercial digital communications
equipment. Generally, our sales consist of either:
|
|
|
| |
• |
Project contracts to study, research, develop, test, support,
and manufacture customized communication systems or products for
both government or commercial customers. Research and
development costs for these customized projects and products are
often customer-funded. |
| |
| |
• |
Selling, deploying, and supporting our standard
“off-the-shelf” products for both government or
commercial customers. These standard products are generally
developed through a combination of customer and discretionary
internal research and development funding. |
Our customers include a variety of government and commercial
entities. Government contracts may be directly with U.S. or
foreign governments, or indirectly through domestic or
international prime contractors. Purchasers of our standard
off-the-shelf products include U.S. and foreign governments,
domestic and international prime contractors, telecom service
providers, and commercial enterprises. We also enter into
contracts to design, develop and manufacture customized
satellite network systems or equipment for domestic and
international commercial customers. Individual contracts may
range in value from thousands of dollars to tens of millions of
dollars.
3
Segment Overview
We are organized principally in two segments: government and
commercial. Our government business encompasses specialized
products principally serving defense customers and includes:
|
|
| |
Tactical Data Links. Our Tactical Data Links product line
primarily consists of our multifunction information distribution
system (MIDS) product. The MIDS terminal operates as part of the
Link-16 line-of-sight tactical radio system, which enables real
time data networking among ground and airborne military users
providing an electronic picture of the entire battlefield to
each user in the network. We are one of only two current
U.S. government certified providers of MIDS production
units. |
| |
| |
Tactical Networking and Information Assurance. Tactical
Networking and Information Assurance products include our
information security and ViaSat Data Controller
(VDC) products. Our information security products enable
military and government communicators to secure information up
to “Top Secret” levels. Our VDC products provide
reliable military tactical communication channels using
innovative error correction technology. Technology from some of
these products are integrated into some of our existing tactical
radio products (such as MIDS and UHF DAMA satellite products) as
well as sold on a stand-alone basis. |
| |
| |
Mobile Satellite Communication Systems. We have a
15 year history of leadership in the UHF satellite
communication terminal market. This includes the design and
development of modems, terminals and test and training equipment
operating over the military UHF satellite band. These products
are used in “manpack” satellite communication
terminals as well as airborne, ship, shore and mobile
applications. In addition, we also specialize in leveraging our
commercial satellite technology into military applications. We
generally focus on opportunities for high-speed satellite
communications products which operate in higher frequencies. |
We believe our long standing strength in both commercial and
government satellite communications technologies provides us an
advantage as the U.S. military looks to upgrade its
satellite technology with a mix of funded development and
commercial technologies.
Our commercial business comprises an end-to-end capability to
provide customers with satellite communication equipment
solutions and includes:
|
|
| |
Consumer Broadband. Our consumer products include the
development of DOCSIS (Data Over Cable Service Interface
Specification)-based and DVB-RCS (Digital Video Broadcast-Return
Channel Satellite) satellite broadband systems, including
satellite modem termination systems for system operators and
customer premise equipment. |
| |
| |
Mobile Broadband. Our mobile broadband products include
the design and development of airborne, maritime and ground
mobile terminals and systems. Existing certified systems in the
in-flight broadband market include Connexion by Boeing and
SKYLink for ARINC. We are also developing systems in the
maritime and ground mobile markets. |
| |
| |
Enterprise VSAT. Our Enterprise VSAT (Very Small Aperture
Terminal) satellite communication products and services
comprises a wide range of terminals, hubs, and networks control
systems as well as network management services for customers in
North America and internationally. |
| |
| |
Satellite Networking Systems Design and Technology
Development. We believe we have extensive capabilities in
satellite networking design and development and engineering
support for both commercial and government customers. |
| |
| |
MMIC Design and Development. Our subsidiary, USM,
specializes in the design of monolithic microwave integrated
circuits (MMICs), packaged components, and modules for
commercial, military and space applications. Areas of expertise
include high frequency communication technology, MMIC
semiconductor design, high-power transceiver design, high levels
of functional integration, high-frequency packaging and design
for low-cost manufacturing. |
4
|
|
| |
Antenna Systems. We provide antenna systems for both
commercial and defense communications. We have a 40-year legacy
in the design, test, manufacture and installation of antennas
from three to 18 meters. Applications for these antenna
systems include large system gateways, VSAT or video broadcast
hubs, image retrieval by satellite, transportable antennas, and
telemetry, tracking and control. |
With expertise in commercial satellite network engineering,
gateway construction, and remote terminal manufacturing for all
types of interactive communications services, we believe we have
the unique ability to take overall responsibility for designing,
building, initially operating, and/or maintaining a fully
operational, customized satellite network serving a variety of
markets and applications.
The ViaSat Advantage
We have consistently aimed to achieve and sustain competitive
advantages through:
|
|
|
| |
• |
A culture of innovation and advanced technology.
Executive management has always been technically oriented. We
place high value on technical competence and expertise among our
employees. |
| |
| |
• |
Focus on markets that place a high value on innovative
technology. Since technology is fundamental to our culture,
we tend to target markets and customers who value what we do
best. |
| |
| |
• |
A cohesive, experienced management team. Our three
founders have worked together for over 20 years (including
experience prior to starting ViaSat) and turnover among
executive management leadership is very low. We believe we have
significant management experience within our core business areas
and in working together as a team. |
| |
| |
• |
Low employee turnover rates. We believe our culture and
sustained growth help continue to foster an exceptionally low
employee turnover rate — especially for a high
technology company. We believe a low employee turnover rate
helps reduce overall costs and sustains long-term relationships
with our customers. |
| |
| |
• |
A complementary mix of defense and commercial products,
projects, and geographic markets. Management constantly aims
for a diversified mix of businesses that is unified through
common underlying technologies, customer applications, market
relationships or other factors. We believe this complementary
mix, combined with our unique ability to effectively apply
technologies between government and commercial markets, provides
us a strong foundation to sustain and enhance our leadership in
advanced communications and networking technologies. |
| |
| |
• |
Long-lived customer relationships. We focus on
establishing and cultivating customer relationships that have
the potential for enduring for many years. We believe this has
been particularly successful with a number of government
customers. |
| |
| |
• |
High quality, cost effective outsourced manufacturing supply
chain. Since inception, we have chosen to strategically
out-source much of our manufacturing operations. We believe this
reduces operating costs, reduces capital investments,
facilitates rapid adoption of the most modern and effective
manufacturing technologies, provides flexible response to
fluctuating product demand, and focuses our resources on
designing for producibility. We manage out-sourced manufacturing
through an ISO-9001 quality process and have established
enduring relationships with key suppliers. |
| |
| |
• |
Recognition within our market niches for technical innovation
and excellence, product quality, and competitiveness. |
Strategy
We target three basic business objectives:
|
|
| |
1. Offer investors superior opportunities for equity
appreciation through sustained growth in revenues and
earnings. This drives us to identify, select, and pursue
those market opportunities most consistent with this objective. |
5
|
|
| |
2. Establish enduring relationships with our customers,
work force and suppliers. This compels a long-term view. |
| |
| |
3. Sustain and enhance our competitive advantages in
advanced communications and networking technologies. We are
fundamentally a technology company, which guides our investments
of management attention, time, and resources. We believe this is
a key reason for our past success on the first two objectives. |
We are involved in a diverse set of inter-related markets and
technologies — we believe much more so than most
companies of comparable size. We believe our business mix has
grown due to the following strategic concepts we tend to apply
in pursuing customers, markets, and technologies:
|
|
|
| |
• |
Leverage customer funded research and development (R&D)
opportunities. We often offer products and technologies that
are not available “off the shelf” from any supplier
and must be developed, or customized, via funded R&D by a
particular customer. This principle applies, to varying extents,
to both our government and commercial segments. |
| |
| |
• |
Address increasingly larger markets. We have applied this
same principle for the life of the company. The size of customer
funded opportunities we can credibly address directly correlates
to our annual revenue. By increasing our revenues, we anticipate
we will be more successful in capturing customer funded R&D
opportunities for increasingly larger projects, like we have
with MIDS and Connexion by Boeing. |
| |
| |
• |
Steadily evolve into “neighboring” products,
projects, technologies & markets. We anticipate
continued growth via evolutionary steps by: |
|
|
| |
1. Selling existing, or customized, versions of
technologies we developed for one customer base to a different
market. This principle can be applied, for instance, to
different segments of the government market, or between
government and commercial markets. It is the primary way we grow
the market segments we address. |
| |
| |
2. Selling new, but related, technologies or products to
existing customers. This is the primary way we expand the
breadth of technologies and products we offer. |
|
|
|
| |
• |
Careful targeting of new market opportunities. We
consider several factors in selecting new market opportunities: |
|
|
| |
1. Are there meaningful entry barriers for new
competitors? Examples include specialized technologies or
expertise, a large body of “legacy” software, or
special relationships. |
| |
| |
2. Are we addressing “right-sized” niches
consistent with our growth objectives? We seek niches large
enough to provide us with significant revenues, but are not
likely to evoke excessive competition. |
| |
| |
3. Does it involve new, advanced, unproven, and/or
customized technologies? Our technology competence and focus
makes us an attractive supplier to customers who understand, and
are sensitive to, development risks associated with new
technologies. |
| |
| |
4. Is the opportunity consistent with our market reach
and selling channels? |
|
|
|
| |
• |
Augment customer funded R&D with discretionary R&D to
enter or leverage new markets or technologies. We use
availability of customer funding or co-investments for product
development as an important factor in choosing where to apply
our own discretionary R&D resources. |
| |
| |
• |
Invest in R&D, sales and marketing, and capital
facilities to foster a constant flow of new opportunities.
Often we apply discretionary expenditures in a way to promote a
renewable stream of project or market opportunities —
as opposed to developing or promoting specific products or
markets per se. |
| |
| |
• |
Sustain a large (relative to our size) and highly proficient
engineering staff to capture and perform our target
projects. Since customer funded R&D is an important
aspect of our business, we believe it is |
6
|
|
|
| |
|
important to sustain a large, highly competent, engineering
team. We believe we offer a very competitive compensation,
benefits and work environment to attract and maintain employees.
Perhaps even more important, we believe we tend to seek and
attract engineers who embrace our business approach and the
associated technology challenges it offers. So far, this has
enabled us to offer good value to our customers in terms of
product performance, reduction of technological risks, and
competitive pricing. |
| |
| |
• |
Continue to take informed, aggressive, diversified and
prudent risks in advancing technologies to achieve leading and
pioneering positions in target markets. Our technical
orientation and competence is usually most valuable in
addressing programs involving significant technical challenges
which often carry the greatest risks. We emphasize the ability
to identify, evaluate, and retire sources of technology risk in
pursuing new program and market opportunities. We also aim to
mitigate those risks by targeting a diversity of projects, by
investing appropriate discretionary R&D or pre-proposal
efforts, by staggering the timing of risky development projects,
by diversifying the customer base, and by accepting risks that
have at least a proportionate amount of expected financial
returns. |
| |
| |
• |
Sustain our diversified business mix. We believe there is
economic value in maintaining diversity in our technology and
market portfolios and taking active steps to sustain and foster
it. |
Government
Our government segment revenues grew by over 37%, 56% and 30%,
and new orders by over 33%, 30% and 100%, during the fiscal
years 2005, 2004 and 2003, respectively. While there may be
several interpretations or explanations for our growth during
this year, we believe there are three basic themes and believe
those themes may persist in our government markets for several
years:
|
|
| |
1. The critical role of collection and dissemination of
real-time information in executing high-speed, high precision,
highly mobile warfare over dispersed geographic areas. There are
two important aspects of this. One is reflected in the catch
phrase “network-centric warfare,” which emphasizes the
importance of real time data networks of all types via multiple
transmission media. The other is the growing importance of
satellite-based communications, in particular, as the most
reliable method of connecting rapidly moving forces who may
simply out-run the range of terrestrial radio links. |
| |
| |
2. The growing importance of Internet Protocol
(IP) networks in the Department of Defense (DoD) compared
to older circuit based systems — especially in light
of network-centric warfare. We believe IP networks will drive a
fundamental restructuring of DoD’s secure information
networks, which will take several years to complete. |
| |
| |
3. We believe that over the next decade or so many of the
previous generation of defense communications satellite networks
will expire or become obsolete. New programs are underway or in
planning to define, develop, procure and deploy systems to
replace them. While we have been successful in capturing defense
satellite ground system business in the past, we believe these
new programs present more opportunities for bidding on new
contracts than we have seen previously. |
We believe these fundamentals offer growth opportunities for
each of our government product areas.
Our government segment includes the following product lines:
(1) Tactical Data Links, (2) Tactical Networking and
Information Assurance, and (3) Mobile Satellite
Communications (MILSATCOM).
Our Tactical Data Links product line is anchored by the MIDS
terminal market and the MIDS Joint Tactical Radio System (MIDS
JTRS) development program. We are a MIDS prime contractor and
are one of only three international and one of two
U.S. qualified providers of MIDS production units.
7
MIDS is a specific implementation of a secure, anti-jam,
tactical data radio intended primarily for air-to-air,
air-to-ship, and air-to-ground real time transmission of
situational awareness and command and control information using
the “Link-16” protocol. MIDS JTRS will be a Software
Compliant Architecture (SCA) new generation radio system
for the F/A-18 E/F and A-10 aircraft initially that will perform
all the current MIDS functionality and will be capable of
operating advanced waveforms to meet future network centric
operations radio system requirements.
MIDS terminals have been deployed all over the world and are
fully operational in the U.S. Air Force, Navy and Army
forces. Current plans include system upgrades to the MIDS
terminals that are already deployed as well as terminals to be
delivered in the future. We believe the U.S. government has
invested substantially in Link-16 and MIDS and it is unlikely
that other defense contractors will in the immediate future be
qualified to supply Link-16 terminals for the DoD platforms
designated to receive MIDS.
We also anticipate a number of other countries which operate
their own versions of MIDS-capable platforms (e.g., F-16’s)
or which use other tactical air platforms and tactical ground
based systems but desire to interoperate with U.S. forces,
to procure MIDS terminals. In aggregate, we believe the
international market is approximately as large as the domestic
U.S. market for MIDS. We expect EuroMIDS to compete for
international orders, but it has only recently completed
qualification testing and the EuroMIDS terminal is not qualified
on U.S. produced platforms. International customers may
procure terminals directly from us, or have the
U.S. government acquire them on their behalf via the
Foreign Military Sales program.
MIDS terminals are currently in full rate production and in the
next few years MIDS JTRS is expected to migrate from a
development and qualification program to low rate initial
production phase and then to full rate production. We believe
this will likely lead to higher ordering rates in aggregate.
While MIDS production represents the largest portion of this
product line, we believe MIDS JTRS will eventually surpass the
MIDS production rates and there are other related ongoing and
potential opportunities including development of a low cost
weapon data link and expanded requirements for Link-16
capabilities and support equipment.
We compete with Data Link Solutions (DLS), a joint venture
between Rockwell Collins and BAE (United Kingdom), and EuroMIDS,
which is a consortium comprised of four European contractors,
Selenia (Italy), Thales (France), EADS (Germany), and Indra
(Spain). We are co-developing with DLS the MIDS JTRS radio
system under an accelerated contract for the U.S. Navy and
U.S. Air Force with international participation in the
program.
|
|
|
Tactical Networking and Information Assurance |
For many years, we have developed and manufactured
“Type 1” DoD approved communications security
devices. Type 1 encryption devices are required for
virtually any communication of classified military information
over radio, satellite, wire line, or fiber optic media.
Type 1 encryption is used to protect information whether it
is transmitted over military or commercial frequency bands or
transmission systems. Prior to the year 2000, most of our
previous Type 1 encryption devices were integrated or
“embedded” into tactical radio products such as MIDS
or our UHF DAMA satellite products.
For the last decade, we have been anticipating increased demand
for Type 1 encryption devices that support IP based
networks. Our KIV-21 stand-alone Type 1 encryptor was our
first product aimed at the IP market. During the past few years,
DoD has moved toward IP encryption and developed a new standard
to create an interoperable environment for such devices. The new
standard is called HAIPIS, or High Assurance Internet Protocol
Interoperability Specification. We are a charter member of the
industry working group charged with maintaining and evolving the
HAIPIS standard. This past year, we were able to obtain
certification for both our first and second HAIPIS compliant
cryptos (the KG-250 and the KG-250A). These are similar
100 megabits per second (Mbps) products that can be applied
to different environments. The HAIPIS standard has become the
security foundation for the DoD’s Global Information Grid
(GIG), an initiative to achieve information superiority by
connecting soldiers to the information they need, when they
8
need it, no matter where they are. End to end information
security is a cornerstone of the GIG, and HAIPIS is the standard
by which it is to be achieved.
Another important aspect to the information security market is
the DoD’s efforts to update its communications security
products through an initiative known as “Crypto
Modernization.” The focus of this initiative is to
completely replace the DoD’s legacy inventory of encryptors
with a new generation of programmable cryptographic devices. We
anticipate the U.S. government will invest approximately
$4 billion over ten years to modernize this information
security infrastructure.
In response to these trends, we have developed a programmable,
high assurance cryptographic architecture specifically designed
to support Type 1 networking that is flexible enough to be
applied to both stand-alone network encryptors and multi-channel
embedded network encryptors. Our architecture, dubbed the
Programmable, Scalable Information Assurance Module
(PSIAM) is designed to meet the requirements of Crypto
Modernization, HAIPIS and the GIG. We believe most of our growth
in the information security market is due to our customers’
recognition that the PSIAM meets their emerging information
assurance requirements. Both the KG-250 and KG-250A, and the
Navy’s Common Data Link System are PSIAM based products
that achieved certification this past year. Other important
PSIAM based products and programs undergoing certification which
highlight our ability to compete using this approach include:
|
|
|
| |
• |
Our gigabit speed Inline Network Encryptor, KG-255. |
| |
| |
• |
The embedded encryption module for the U.S. Air
Force’s Family of Beyond Line of Sight Terminal (FAB-T). |
| |
| |
• |
The embedded encryption module for the MIDS JTRS. |
| |
| |
• |
Our family of high assurance filters including the JMINI High
Assurance Guard for the U.S. Navy and the Secure Gateway/
Trusted Filter for CECOM. |
We are currently developing the second generation of PSIAM
technology, reducing the size and cost of the implementations,
and adding multi-level, multi-channel capabilities. We believe
this technology investment will provide even greater growth
potential than the first generation has the last few years.
For the past 10 years, we have offered VDC products which
provide data communications over noisy, error-prone radio
networks. This VDC product line is compatible with an
interoperable military standard known as MIL-STD 188-184 and is
primarily used on mobile tactical radios for reliable data
communications. We manufacture both gateway and network edge
versions of these products. Many users are involved in
“special operations” and similar light or highly
mobile forces organizations. We believe we hold a dominant
position in a portion of this market with multi-band and SATCOM
radio users, with approximately 18,000 data controller products
fielded. We have strong name brand recognition with these
products, which we believe provide excellent reliability and
performance. This area continues to provide consistent product
sales with excellent margins. The networking features of these
products allow users to realize the connectivity goals of the
GIG today using their legacy radios even before transformation
communication programs such as JTRS are available, albeit at
lower data rates.
There continue to be market opportunities in this product area
through continual deployment of the gateway version of these
products into the DoD’s core network infrastructure, which
in turn results in significant edge product sales. We attempt to
approach this market by anticipating the needs of users, and
provide them with the capabilities they need, when they need it.
Examples of our approach to the market include providing
interface capability to every major tactical radio and computing
device in the DoD inventory, providing messaging applications
that take full advantage of the VDC’s capabilities, and
implementing an IP layer to network radio networks with wired
networks.
We seek to improve our VDC products by providing incremental
advancements to both their network capabilities and
communications performance. Our advantage in this market is our
continuous product evolution and excellent customer support
enabled by our unique knowledge of user requirements.
9
|
|
|
Mobile Satellite Communication Systems (MILSATCOM) |
MILSATCOM consist primarily of stand-alone and embedded
satellite modems, terminals, and test and training equipment
operating over the military UHF satellite band and military
satellite communication solutions, which leverage our commercial
broadband satellite technology.
UHF satellite terminals are almost always required to support a
complex set of interoperable networking standards known as
MIL-STD 188-182 and MIL-STD 188-183 — also called,
collectively, UHF DAMA (Demand Assigned Multiple Access). We
have been a leading supplier of UHF DAMA terminals, modems, and
network control systems for both U.S. and allied military and
prime contractors.
Our key products include:
|
|
|
| |
• |
The UHF DAMA satellite modem embedded in Raytheon’s AN/
PSC-5 “manpack” satcom terminal. (Raytheon has also
designed our UHF DAMA modem into other related terminals
including one for the Tactical Tomahawk cruise missile and other
multi-band tactical radios), |
| |
| |
• |
The RT-18xx family of modular UHF satcom terminals for airborne,
ship and shore installations, |
| |
| |
• |
The MD-1324 stand-alone UHF DAMA modem, |
| |
| |
• |
The DOCCT/ S (DAMA Orderwire Control Channel Trainer/ Simulator)
test and training system, and |
| |
| |
• |
Related UHF satellite terminal products including antenna
combining systems, network control terminals and software, and
end-user software applications. |
In late fiscal year 2003, we began to expand our MILSATCOM focus
to leverage our broadband commercial satellite technology into
military satellite communications solutions for the
U.S. government and its prime contractors. We believe
significant growth opportunities exist for government broadband
systems across many product areas, including:
|
|
|
| |
• |
Growth from existing programs including the certification of the
EBEM modem, its transition into full scale production, and the
expansion of this technology into additional satellite
communication segments. |
| |
| |
• |
The U.S. government’s desire to standardize on a
network-centric IP bandwidth-on-demand satellite modem. One of
the key objectives is to gain the logistics advantage from a
common modem implementation that serves point-to-point SCPC,
network-centric mesh and hub-spoke topologies. We are in an
ideal position to leverage our EBEM (SCPC), LINKWAY
(mesh) and LinkStar (hub-spoke) products to meet the
U.S. government’s requirements. |
| |
| |
• |
Integration of our existing enterprise VSAT, bandwidth on demand
satellite network systems such as LINKWAY and LinkStar, to
satisfy near term communications requirements of our
U.S. government customers. The Joint Combat Camera Imagery
and Coalition Military Network systems in Iraq exemplify these
types of opportunities. |
| |
| |
• |
Deployment of a “cable modem” like satellite
communications-on-the-move service that leverages our ArcLight
network technology that we developed to bring broadband
connectivity to business jets. |
Customers and Markets
The primary customers for our government segment are the DoD,
other U.S. government agencies and departments,
international allied nations and large defense contractors.
While most of our commercial customers are based in the United
States, many of our large defense contractor customers have
recently been leveraging our network design experience and the
advanced capabilities of our products to sell communications
products to international military forces. Examples of large
defense contractors with which we have
10
worked in the past include Raytheon Systems Company, Lockheed
Martin Corporation, The Boeing Company, Northrop Grumman
Corporation, ITT Industries, and Marconi Communications, Elmer
S.p.A.
We use both direct and indirect sales channels to sell our
government products. We have approximately ten sales and
marketing personnel who offer our government products. All but
one of these sales personnel are located in the United States.
International government sales are conducted primarily through
our U.S. sales personnel. Although many of our sales are
generated from direct sales, we often sell our products to prime
contractors responsible for developing the entire network system
where our products are integrated and embedded into the system.
Our government sales teams consist of engineers, program
managers, marketing managers and contract managers who work
together to identify business opportunities, develop customer
relationships, develop solutions for the customer’s needs,
prepare proposals and negotiate contractual arrangements. The
period of time from initial contact through the point of product
sale and delivery can take over three years for more complex
product developments or for product developments including
prototypes and demonstrations. Products already in production
can usually be delivered to a customer between 90 to
180 days.
Our indirect sales are primarily generated from strategic
relationships with prime contractors for large defense projects
and referrals from existing large defense contractor customers.
Similar to our efforts on the commercial side, we continue to
increase the awareness of the ViaSat brand through a mix of
positive program performance and our customers’
recommendation as well as public relations, advertising, trade
show selling and conference speaking engagements.
Within our government segment, we generally compete with defense
electronics product, subsystem or system manufacturers such as
Rockwell Collins, L3 Communications, Harris, General Dynamics,
BAE Systems or similar companies. We may occasionally compete
directly with the largest defense prime contractors, who are
also customers, including Boeing, Lockheed Martin, Northrop
Grumman or Raytheon Systems. We also frequently partner or team
with these same companies (large or mid-tier) to compete against
other teams for large defense programs. Almost all of the
companies with which we compete are substantially larger than we
are.
Commercial
The introduction of satellite communications technology in the
1950’s represented a fundamental change in communications
networks. A communications satellite, in essence, provides the
ability to route a communications signal through the sky.
Signals are sent from users on the ground to the satellite,
which then amplifies the signal and sends it back to end-users
on the ground. Depending on the altitude of a satellite’s
orbit, it can cover a geographic area, or footprint, larger than
the size of a continent. The key components of a satellite
communications system include:
|
|
|
| |
• |
satellites, which relay communications signals to and from the
users, |
| |
| |
• |
gateways, which control the satellite network and connect it to
communications networks on the ground, and |
| |
| |
• |
user terminals (indoor unit and outdoor unit) connecting the
users to the satellite network. |
The essential advantage of satellite communications is that it
allows a network provider to rapidly deploy new communications
services to large numbers of people anywhere in the footprint of
the satellite. Consequently, satellites can be used to deploy
communication services in developed and developing markets in a
shorter period of time than building ground-based
infrastructure. Moreover, in some areas satellite solutions
11
are less expensive than terrestrial wired and wireless
alternatives. As satellite communications equipment becomes less
expensive and new capabilities emerge in satellite
communications technology, we believe the market for satellite
communications offers growth opportunities.
The commercial satellite communications industry is expected to
be driven by the following major factors: (1) world-wide
demand for communications services in general, and broadband
data networks in particular, (2) the improving
cost-effectiveness of satellite communications for many uses,
(3) recent technological advancements which broaden
applications for and increase the capacity and efficiency of
satellite based networks, and (4) global deregulation and
privatization of government-owned telecommunications carriers.
We provide a variety of satellite communications network
solutions for multiple sectors of the commercial market.
Data Networks. Satellite networks are well suited for
data networks which focus on (1) rapidly deploying new
services across large geographic areas, (2) reaching
multiple user locations separated by long distances,
(3) filling in gaps or providing support for data points of
congestion, or bottlenecks in ground-based communications
networks, and (4) providing communications capabilities in
remote locations and in emerging markets where ground-based
infrastructure has not yet been developed. In addition,
satellite networks are used as a substitute for, or supplement
to, ground-based communications services such as frame relay,
digital subscriber lines, fiber optic cables, and Integrated
Services Digital Networks (ISDN). We believe satellite data
network products and services will present us with growth
opportunities as commercial data networks using satellites are
applied in developed and developing markets throughout the world.
Internet Applications. In recent years, there has also
been an increase in the use of satellites for Internet traffic.
This growth has been centered on connecting consumers and
businesses with the Internet. Satellite capacity is often used
where fiber cable is prohibitively expensive or rare, such as
rural areas or emerging countries. More recently, certain
satellite operators have begun investing in next generation
satellites specifically designed for low cost broadband access
and service providers. We expect satellite communications to
offer a cost-effective augmentation capability for Internet
Service Providers (ISPs), particularly in markets where
ground-based networks are unlikely to be either cost-effective
or abundant. Additionally, satellite broadcast architecture
provides an alternative for ISPs, which are dealing with
congestion associated with the distribution of increasing
amounts of high-capacity multimedia content on the Internet.
Our commercial business offers a broad range of satellite
communications and other wireless communications products and
solutions in the following product areas: (1) Satellite
Networks comprising consumer and mobile broadband products,
enterprise VSAT networks products and services, systems design
and technology development and MMIC design and development; and
(2) Antenna Systems.
Satellite Networks
Our consumer broadband products enable broadband access to the
global information infrastructure via satellites. We provide
system solutions, equipment and support to service providers who
distribute directly to end users, such as consumers, and provide
the equipment employed by the end user of the service.
For the fixed site, last mile broadband access market, we
believe the key elements for a cost-effective solution for our
customers are (1) access to a large pool of nationwide, low
cost satellite capacity, (2) availability of low cost
customer premise equipment (CPE), and (3) low per
subscriber operational and support costs to support large scale
deployments. We focus on providing solutions which make more
efficient use of the available satellite bandwidth (i.e., more
subscribers per satellite), leverage mass market chipsets and
innovative radio frequency technology to create low cost CPE,
and include an extensive set of tools to automate customer
fulfillment and support. Equally important is our emphasis on
working closely with satellite operators (e.g., WildBlue and
Telesat) which are investing in next generation satellites
specifically designed for low cost broadband access and service
providers (e.g., Orbit Data Services and the National
12
Rural Telecommunications Cooperative) with the distribution
channels and support infrastructure to successfully capture the
target end users.
We have pioneered development of DOCSIS-based technology for low
cost CPE and network scalability complementing our mature and
feature-rich DVB-RCS-based solution. Our portfolio of broadband
access technologies also includes advanced products to improve
capacity on each satellite.
With the emergence of increasingly capable satellite networking
technologies, we have been able to develop cost-effective mobile
broadband products. We have certified products and systems for
in-flight, high speed, two-way Internet and broadcast
applications. We are developing complementary products for the
maritime and ground mobile markets.
For the mobile broadband access market, we believe the key
elements for a cost-effective customer solution are
(1) ubiquitous coverage (including regulatory approvals),
(2) equipment suitable for the mobile platform and
(3) sufficient capacity and speed to distinguish the
service from mobile telephony or more limited services, such as
those provided by Inmarsat. For this market, we focus on
solutions with unique technical characteristics necessary to
operate at high rates using a small antenna on a moving platform
(commercial aircraft, business jets, trains, trucks,
automobiles). Our experience with spread spectrum systems with
our government products plays a role in bringing the right
technologies to bear. We believe it is also important to partner
with satellite operators which are committed to providing
broadband coverage in areas needed by the mobile market (e.g.
Connexion by Boeing and SES Americom/ ARINC) to create a unified
solution.
We believe our advantages in this market include our high
performance spread spectrum technology, our broadband frequency
reuse PCMA technology and our position as the current supplier
to the leading service providers in this market.
We are a global supplier of VSAT satellite networks, services
and products to enterprise customers as well as service
providers, satellite operators, foreign governments and the
U.S. government. We design, manufacture and sell
satellite-networking products and provide services associated
with their use and life cycle support. We also manage the
delivery, installation and initial activation of the customer
equipment around the world. In addition, we offer long-term
software maintenance agreements, technical support agreements
and operate a 24/7 network operations center to support our
customer base. In North America, we own and operate a VSAT
shared hub network and offer satellite network service to
enterprise customers.
Customers use our products to enable connectivity in corporate
networks, retail facilities, schools, public institutions, oil
and gas exploration and anywhere quick deployable, ubiquitous,
communications infrastructure is needed. The products are also
used to extend broadband connectivity to various locations for
Internet and other telecommunications requirements including
VOIP. Once installed and activated, our systems enable customers
to transport data, video, and voice communication within a
private network or across the world.
Using feedback from user group meetings, customers and our sales
team we continue to design leading edge VSAT solutions based on
market needs. We believe our entrepreneurial culture and
technical excellence allows us to react quickly to market
requirements, implement new features and applications that
create a competitive advantage.
|
|
|
Satellite Networking Systems Design and Technology
Development |
We perform research, systems engineering, and custom product
design and development in satellite communications for ground
and space systems primarily through our Comsat Laboratories
business. Specifically, we have expertise in the areas of
satellite network design, planning, and management; modulation
and coding; payload architecture design; terminal design and
development; Internet technologies; and modeling, analysis, and
simulation.
13
Our strategy is to leverage our reputation as a center of
excellence for innovative ideas and technologies in satellite
communications to win research and development programs funded
by government and commercial customers. We believe we have
talented satellite communications engineers encompassing many
relevant disciplines, a large portfolio of intellectual
property, and existing platforms and products that can be
enhanced and customized to meet customers’ requirements. We
believe these strengths give us a competitive advantage to
capture engineering services and system design and development
programs in the satellite communications market. Typical
satellite communications companies in this industry do not
perform customized design and development work for both
government and commercial customers. Instead, most companies
only sell their standard hardware and software products.
Although some companies build large networks with terminals and
gateways, we believe we are one of the few companies with the
ability to design and deliver complex customized networks
incorporating many advanced communications techniques and
integrating various hardware and software elements.
|
|
|
MMIC Design and Development |
Our wholly owned subsidiary, USM, provides custom high frequency
MMICs and integrated assemblies to select commercial and
government customers. Targeted markets include enterprise VSAT,
consumer and mobile broadband, military airborne and shipboard,
space-based electronics, and terrestrial based interactive
satellite communications. We have access to a wide range of
integrated circuit technologies allowing it to offer optimum
solutions for a given application.
Our primary strategy is to offer fast turn, high performance
custom MMIC solutions to specific customers and markets. We tend
to be selective in the opportunities we pursue thereby focusing
our resources to gain maximum market penetration. We operate in
a fab-less business environment leveraging domestic and
off-shore contract manufacturing, including semiconductor wafer
manufacturing, to provide the highest value to our customers.
This approach avoids the high cost of internal capitalization
and, where allowed by federal law, leverages the lower cost
manufacturing available outside the United States. Another key
strategy is to aggressively reduce product costs which in turn
enables new markets to develop. We have highly skilled engineers
who have extensive MMIC design and development experience.
Skills include electrical design, mechanical and thermal design,
manufacturing process engineering, and metallurgy.
Antenna Systems
We are a global provider of fixed and mobile ground-based
antenna systems for the following applications: (1) gateway
infrastructure, (2) remote sensing, (3) tracking,
telemetry and control, (4) military tactical and strategic
terminals, and (5) antenna products. Our products include
antennas, servo control equipment, monitor and control software,
and specialty converters and modems. These systems support
functions in the L, S, C, X, Ku, and Ka-band frequency spectrums.
Gateways. Our gateway products represent a key component
of our ability to offer complete network development and
integration services. The gateway products connect satellites to
the communications infrastructure on the ground, such as public
switched telephone networks. We offer a number of different
gateway products depending on the type, speed and size of the
network. The gateways consist of our internally developed
antenna and signal processing hardware and software as well as
third party hardware. Although each of these components employs
advanced technologies, the most complex components of a gateway
are the overall system design and the software used to integrate
each of the hardware components and operate the system. Gateways
represent a key-operating component of any satellite network
since gateways are required to interface the satellite portion
of the network to the terrestrial communications network.
We believe we will continue to derive benefits and efficiencies
from our gateway building capabilities. Since the gateway is a
complex and central component of any network, the optimization
of the gateway for the specific network use is critical to
optimizing the performance of the entire network. The ability to
provide gateways and integrate those gateways into our
innovative network solutions should provide us with an advantage
over other network manufacturers and integrators, most of which
purchase gateways from third
14
parties. We have extensive experience in developing gateways for
systems using Ka-band technologies. We believe these new
technologies are a cornerstone of emerging satellite services
like broadband on demand.
Remote Sensing. We have been a leader in the satellite
imaging and remote sensing ground station market for over
20 years. Remote sensing ground stations receive images of
the earth transmitted from low earth orbit satellites. These
images are often collected for both civilian and military
purposes. Our remote sensing ground station products typically
include software to provide satellite pre-mission planning,
automated pre-pass set-up, system performance integrity
analysis, signal routing assignments and maintenance actions.
Tracking, Telemetry and Control. Our tracking, telemetry
and command products are designed to provide a means for
monitoring aircraft and missiles during flight tests as well as
monitoring and controlling satellites. This equipment is used by
the government and commercial flight test ranges as well as by
commercial satellite operators.
Military Terminals. Our military terminal products are
used to provide tactical and strategic communications either
over satellites or for point-to-point applications. These
systems range from small diameter antennas with associated
control equipment for shipboard applications to large diameter
antenna systems for military gateway applications. These systems
include advanced technology Ka-band antenna systems.
Antenna Products. Our antenna products provide standard
off-the-shelf antennas for typical geosynchronous satellite
applications. Although our antenna systems are often sold and
integrated with our other satellite communication products, we
also offer a wide range of antenna systems as separate units.
Our antennas range from three meters to 18 meters in diameter.
Customers of our antenna systems include cable TV uplink
stations and cable system providers that operate head-end
receive stations, VSAT service providers, and various satellite
communication system integrators that require traditional
satellite communication capability.
Customers and Markets
The majority of our commercial segment customers are satellite
network integrators, large communications service providers and
corporations requiring complex communications and networking
solutions. Over the past couple of years, we have significantly
expanded our commercial customer base both domestically and
internationally.
Significant commercial customers in the last fiscal year
included Eutelsat, Intelsat, Boeing, ARINC, WildBlue, SES
Americom, Telespazio, Shoppers Drug Mart, SMART, Suburban
Telecom, ITT, Honeywell and Lockheed.
We primarily use direct sales channels to market and sell our
products and services. Our marketing and sales activities are
organized geographically in domestic and global markets. Our
sales and marketing group includes approximately 34 persons,
with six located outside the United States.
Our sales teams consist of regional sales directors, regional
sales managers and sales engineers, who act as the primary
interface to establish account relationships and determine
technical requirements for customer networks. In addition to our
sales force, we maintain a highly trained service staff to
provide technical product and service support to our customers.
The sales cycle in the commercial satellite network market is
lengthy and it is not unusual for a sale to take up to
18 months from the initial contact through the execution of
the agreement. The sales process often includes several network
design iterations, network demonstrations and pilot networks
consisting of a few sites.
In addition, we seek to develop key strategic relationships to
market and sell our network products and services. We seek
strategic relationships and partners based on many factors,
including financial resources, technical capability, geographic
location and market presence. We also obtain sales to new
customers through referrals from existing customers, industry
suppliers, and other sources such as participation in trade shows
15
and advertising. We actively work at increasing awareness for
our brand through a mix of public relations, advertising, trade
show selling and conference speaking engagements.
Additionally, we direct our sales and marketing efforts to our
strategic partners, primarily through our senior management
relationships. In some cases a strategic ally may be the prime
contractor for a system or network installation and will
subcontract a portion of the project to us. In other cases, the
strategic ally may recommend us as the prime contractor for the
design and integration of the network.
We provide service, repair and technical support for our
products and services. Through our sales teams and support
services, we are constantly made aware of customers’ needs
and their use of products and services. Accordingly, a superior
level of continuing customer service and support is integral to
our objective of developing and maintaining long-term
relationships with our customers. The majority of our service
and support activities are provided by our field engineering
team, systems engineers, and sales and administrative support
personnel, both on-site at the customer’s location and by
telephone.
The commercial communications industry is highly competitive. As
a provider of commercial network products and designer of
commercial network solutions in the United States and
internationally, we compete with a number of wireless and
ground-based communications service providers. Many of these
competitors have significant competitive advantages, including
strong customer relationships, more experience with regulatory
compliance, greater financial and management resources and
control over central communications networks. To compete with
these providers, we emphasize:
|
|
|
| |
• |
the overall cost of our satellite networks, which includes both
equipment and bandwidth costs, as compared to products offered
by ground-based and other satellite service providers, |
| |
| |
• |
the distinct advantages of satellite data networks, |
| |
| |
• |
our end-to-end network implementation capabilities, and |
| |
| |
• |
our network management experience. |
Our principal competitors in Satellite Networks are Hughes
Network Systems, Gilat Satellite Networks Ltd., EMS
Technologies, Inc., Nera ASA, ND Satcom and iDirect
Technologies, each of which offers a broad range of satellite
communications products and services. Our principal competitors
in the supply of Antenna Systems are Andrew Corporation, General
Dynamics and Titan Corporation.
In competing with these companies, we emphasize:
|
|
|
| |
• |
the innovative and flexible features integrated into our
products, |
| |
| |
• |
our proven designs and network integration services for complex,
customized network needs, and |
| |
| |
• |
the increased bandwidth efficiency offered by our networks and
products. |
Strategic Ventures
TrellisWare Technologies. In August 2000, we established
TrellisWare Technologies Inc., a majority-owned spin-off of
ViaSat. TrellisWare was formed to focus on developing products
based on maximum likelihood processing technology, a signal
processing technology that is expected to greatly improve the
performance of broadband communications in challenging
environments (multi-path, interference and high channel
dynamics).
Teaming Arrangements. We regularly enter into teaming
arrangements with other government contractors to more
effectively capture complex government programs. In these
teaming arrangements we may act as either the prime contractor
or subcontractor bidder. Once awarded a contract, generally the
prime contractor is obligated, with some exceptions, to award a
contract to the relevant subcontractors on the team.
16
We expect to continue to actively seek strategic relationships
and ventures with companies whose financial, marketing,
operational or technological resources can accelerate the
introduction of new technologies and the penetration of new
markets.
Research and Development
We believe our future success depends on the ability to adapt to
the rapidly changing satellite communications and related signal
processing and networking software environment. Therefore, the
continued timely development and introduction of new products is
essential in maintaining our competitive position. We develop
most of our products in-house and have a research and
development and engineering staff, which includes over 545
engineers.
A significant portion of our research and development efforts
have generally been conducted in direct response to the specific
requirements of a customer’s order and, accordingly, these
amounts are included in the cost of sales when incurred and the
related funding is included in revenues at that time.
The portion of our contract revenues which includes research and
development funded by government and commercial customers during
fiscal year 2005 was approximately $105.7 million, during
fiscal year 2004 was approximately $81.0 million, and
during fiscal year 2003 was approximately $74.1 million. In
addition, we incurred $8.1 million in fiscal year 2005,
$10.0 million in fiscal year 2004, and $16.0 million
in fiscal year 2003, on independent research and development,
which is not directly funded by a third party. Funded research
and development contains a profit component and is therefore not
directly comparable to independent research and development. As
a government contractor, we also are able to recover a portion
of our independent research and development expenses, consisting
primarily of salaries and other personnel-related expenses,
supplies and prototype materials related to research and
development programs.
Manufacturing
Our manufacturing objective is to produce high-quality products
that conform to specifications at the lowest possible
manufacturing cost. We primarily utilize a range of contract
manufacturers, based on the volume of the production, to reduce
the costs of products and to support rapid increases in delivery
rates when needed. As part of our manufacturing process, we
conduct extensive testing and quality control procedures for all
products before they are delivered to customers.
Contract manufacturers produce products for many different
customers and are able to pass on the benefits of large scale
manufacturing to their customers. These manufacturers are able
to achieve high quality products with lower levels of costs by
(1) exercising their high-volume purchasing power,
(2) employing advanced and efficient production equipment
and systems on a full-time basis, and (3) using a highly
skilled workforce. Our primary contract manufacturers include
Spectral Response, Inc., SMS Technologies, Inc. and MC Assembly.
Our experienced management team facilitates the efficient
contract manufacturing process through the development of strong
relationships with a number of different contract manufacturers.
By negotiating beneficial contract provisions and purchasing
some of the equipment needed to manufacture our products, we
retain the ability to move the production of our products from
one contract manufacturing source to another if required. Our
operations management has experience in the successful
transition from in-house production to contract manufacturing.
The degree to which we employ contract manufacturing depends on
the maturity of the product. We intend to limit our internal
manufacturing capacity to new product development support and
customized products that need to be manufactured in strict
accordance with a customer’s specifications and delivery
schedule. Therefore, our internal manufacturing capability for
standard products has been, and is expected to continue to be,
very limited, and we intend to rely on contract manufacturers
for large-scale manufacturing.
We also rely on outside vendors to manufacture specific
components and subassemblies used in the production of our
products. Some components, subassemblies and services necessary
for the manufacture of our products are obtained from a sole
supplier or a limited group of suppliers. In particular, Texas
Instruments
17
and Broadcom are sole source suppliers of certain digital signal
processing chips, which are critical components we use in many
of our products.
Backlog
As reflected in the table below, funded and firm (funded plus
unfunded) backlog increased during fiscal year 2005 with the
increases in firm backlog coming from both our government and
commercial segments. New contract awards in the current year
increased backlog to a new all-time high for us.
| |
|
|
|
|
|
|
|
|
|
| |
|
April 1, 2005 | |
|
April 2, 2004 | |
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Firm backlog
|
|
|
|
|
|
|
|
|
|
Government segment
|
|
$ |
194.6 |
|
|
$ |
142.9 |
|
|
Commercial segment
|
|
|
167.3 |
|
|
|
138.7 |
|
| |
|
|
|
|
|
|
| |
Total
|
|
$ |
361.9 |
|
|
$ |
281.6 |
|
| |
|
|
|
|
|
|
|
Funded backlog
|
|
|
|
|
|
|
|
|
|
Government segment
|
|
$ |
109.4 |
|
|
$ |
119.6 |
|
|
Commercial segment
|
|
|
163.9 |
|
|
|
138.7 |
|
| |
|
|
|
|
|
|
| |
Total
|
|
$ |
273.3 |
|
|
$ |
258.3 |
|
| |
|
|
|
|
|
|
|
Contract options
|
|
$ |
23.0 |
|
|
$ |
25.8 |
|
| |
|
|
|
|
|
|
The firm backlog does not include contract options. Of the
$361.9 million in firm backlog, approximately
$220.6 million is expected to be delivered in fiscal year
2006, and the balance is expected to be delivered in fiscal year
2007 and thereafter. We include in our backlog only those orders
for which we have accepted purchase orders.
Backlog is not necessarily indicative of future sales. A
majority of our contracts can be terminated at the convenience
of the customer since 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, contracts 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 contacts.
The 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 adequate funding for such contracts. Although
funding of our contracts is not within our control, our
experience indicates that actual contract fundings have
ultimately been approximately equal to the aggregate amounts of
the contracts.
Government Contracts
Substantial portions of our revenues are generated from
contracts and subcontracts with the DoD and other federal
government agencies. Many of our contracts are competitively bid
and awarded on the basis of technical merit, personnel
qualifications, experience and price. We also receive some
contract awards involving special technical capabilities on a
negotiated, noncompetitive basis due to our unique technical
capabilities in special areas. The Federal Acquisition
Streamlining Act of 1994 has encouraged the use of commercial
type pricing on dual use products. Our future revenues and
income could be materially affected by changes in procurement
policies, a reduction in expenditures for the products and
services we provide, and other risks generally associated with
federal government contracts.
We provide products under federal government contracts that
usually require performance over a period of several months to
five years. Long-term contracts may be conditioned upon
continued availability of
18
congressional appropriations. Variances between anticipated
budget and congressional appropriations may result in a delay,
reduction or termination of these contracts. Contractors often
experience revenue uncertainties with respect to available
contract funding during the first quarter of the
U.S. government’s fiscal year beginning
October 1, until differences between budget requests and
appropriations are resolved.
Our federal government contracts are performed under
cost-reimbursement contracts, time-and-materials contracts and
fixed-price contracts. Cost-reimbursement contracts provide for
reimbursement of costs and for payment of a fee. The fee may be
either fixed by the contract or variable, based upon cost
control, quality, delivery and the customer’s subjective
evaluation of the work. Under time-and-materials contracts, we
receive a fixed amount by labor category for services performed
and are reimbursed for the cost of materials purchased to
perform the contract. Under a fixed-price contract, we agree to
perform specific work for a fixed price and, accordingly,
realize the benefit or detriment to the extent that the actual
cost of performing the work differs from the contract price.
Revenues generated from contracts with the federal government or
our prime contractors for fiscal year 2005 were approximately
22% from cost-reimbursement contracts, approximately 1% from
time-and-materials contracts and approximately 77% from
fixed-price contracts of total revenues.
Our allowable federal government contract costs and fees are
subject to audit by the Defense Contract Audit Agency. Audits
may result in non-reimbursement of some contract costs and fees.
While the government reserves the right to conduct further
audits, audits conducted for periods through fiscal year 2001
have resulted in no material cost recovery disallowances for us.
Our federal government contracts may be terminated, in whole or
in part, at the convenience of the U.S. government. If a
termination for convenience occurs, the U.S. government
generally is obligated to pay the cost incurred by us under the
contract plus a pro rata fee based upon the work completed. When
we participate as a subcontractor, we are at risk if the prime
contractor does not perform its contract. Similarly, when we act
as a prime contractor employing subcontractors, we are at risk
if a subcontractor does not perform its subcontract.
Some of our federal government contracts contain options that
are exercisable at the discretion of the customer. An option may
extend the period of performance for one or more years for
additional consideration on terms and conditions similar to
those contained in the original contract. An option may also
increase the level of effort and assign new tasks to us. In our
experience, options are exercised more often than not.
Our eligibility to perform under our federal government
contracts requires us to maintain adequate security measures. We
have implemented security procedures that we believe adequately
satisfy the requirements of our federal government contracts.
Regulatory Environment
Some of our products are incorporated into wireless
communications systems that are subject to regulation
domestically by the Federal Communications Commission and
internationally by other government agencies. Although the
equipment operators and not us are responsible for compliance
with these regulations, regulatory changes, including changes in
the allocation of available frequency spectrum and in the
military standards which define the current networking
environment, could materially adversely affect our operations by
restricting development efforts by our customers, making current
products obsolete or increasing the opportunity for additional
competition. Changes in, or our failure to manufacture products
in compliance with, applicable regulations could materially harm
our business. In addition, the increasing demand for wireless
communications has exerted pressure on regulatory bodies world
wide to adopt new standards for these products, generally
following extensive investigation and deliberation over
competing technologies. The delays inherent in this government
approval process have in the past caused and may in the future
cause the cancellation, postponement or rescheduling of the
installation of communication systems by our customers, which in
turn may have a material adverse effect on the sale of our
products to the customers.
We are also subject to a variety of local, state and federal
government regulations relating to the storage, discharge,
handling, emission, generation, manufacture and disposal of
toxic or other hazardous substances used to manufacture our
products. The failure to comply with current or future
regulations could result in the
19
imposition of substantial fines on us, suspension of production,
alteration of our manufacturing processes or cessation of
operations. To date, these regulations have not had a material
effect on our business, as we have neither incurred significant
costs to maintain compliance nor to remedy past noncompliance.
We believe that we operate our business in material compliance
with applicable government regulations. We are not aware of any
pending legislation that if enacted could materially harm our
business.
In addition to the local, state and federal government
regulations, we must comply with applicable laws and obtain the
approval of the regulatory authorities of each foreign country
in which we operate. The laws and regulatory requirements
relating to satellite communications and other wireless
communications systems vary from country to country. Some
countries have substantially deregulated satellite
communications and other wireless communications, while other
countries maintain strict and often burdensome regulations. The
procedure to obtain these regulatory approvals can be
time-consuming and costly, and the terms of the approvals vary
for different countries. In addition, in some countries there
may be restrictions on the ability to interconnect satellite
communications with ground-based communications systems.
Intellectual Property
We rely on a combination of patents, trade secrets, copyrights,
trademarks, service marks and contractual rights to protect our
intellectual property. We attempt to protect our trade secrets
and other proprietary information through agreements with our
customers, suppliers, employees and consultants, and through
other security measures. Although we intend to protect our
rights vigorously, we cannot assure you that these measures will
be successful. In addition, the laws of some countries in which
our products are or may be developed, manufactured or sold may
not protect our products and intellectual property rights to the
same extent as the laws of the United States.
While our ability to compete may be affected by our ability to
protect our intellectual property, we believe that, because of
the rapid pace of technological change in the satellite and
other wireless communications industry, our technical expertise
and ability to introduce new products on a timely basis will be
more important in maintaining our competitive position than
protection of our intellectual property and that patent, trade
secret and copyright protections are important but must be
supported by other factors such as the expanding knowledge,
ability and experience of our personnel, new product
introductions and frequent product enhancements. Although we
continue to implement protective measures and intend to defend
vigorously our intellectual property rights, we cannot assure
you that these measures will be successful.
In the event of litigation to determine the validity of any
third party’s claims, the litigation could result in
significant expense to us and divert the efforts of our
technical and management personnel, whether or not the
litigation is determined in our favor. The wireless
communications industry has been subject to frequent litigation
regarding patent and other intellectual property rights. Leading
companies and organizations in the industry have numerous
patents that protect their intellectual property rights in these
areas. In the event of an adverse result of any litigation, we
could be required to expend significant resources to develop
non-infringing technology or to obtain licenses to the
technology that is the subject of the litigation.
The following marks are our trademarks: AltaSec, LinkStar,
LINKWAY, Skylinx, SkyRelay, StarWire, SURFBEAM, ArcLight and
ViaSat. COMSAT Laboratories is a trade name of ours. Neither
COMSAT Labs nor COMSAT Laboratories is affiliated with COMSAT
Corporation.
Employees
As of April 1, 2005, we had 1,029 employees (of which 27
were temporary employees), including approximately 546 in
engineering and research and development, 32 in sales and
marketing, 235 in production, and 216 in corporate,
administration and production coordination. None of our
employees are covered by a collective bargaining agreement and
we have never experienced any strike or work stoppage. We
believe that our relations with our employees are good.
20
Factors That May Affect Future Performance
You should consider each of the following factors as well as the
other information in this annual report in evaluating our
business and prospects. The risks and uncertainties described
below are not the only ones we face. Additional risks and
uncertainties not presently known to us or that we currently
consider immaterial may also impair our business operations. If
any of the following risks actually occur, our business and
financial results could be harmed. In that case the trading
price of our common stock could decline. You should also refer
to the other information set forth in this annual report,
including our financial statements and the related notes.
|
|
|
If Commercial Wireless Communications Markets Fail to Grow
as Anticipated, Our Business Could Be Materially Harmed |
A number of the commercial markets for our products in the
wireless communications area, including our broadband products,
have only recently developed. Because these markets are
relatively new, it is difficult to predict the rate at which
these markets will grow, if at all. If the markets for
commercial wireless communications products fail to grow, or
grow more slowly than anticipated, our business could be
materially harmed. Conversely, to the extent that growth in
these markets results in capacity limitations in the wireless
communications area, it could materially harm our business and
impair the value of our common stock.
|
|
|
Our Reliance on U.S. Government Contracts Exposes Us
to Significant Risks |
Our government segment revenues were approximately 51% of our
revenues in fiscal year 2005, 46% of our revenues in fiscal year
2004 and 45% of our revenues in fiscal year 2003, and were
derived from U.S. government applications. Our
U.S. government business will continue to represent a
significant portion of our revenues for the foreseeable future.
U.S. government business exposes us to various risks,
including:
|
|
|
| |
• |
unexpected contract or project terminations or suspensions, |
| |
| |
• |
unpredictable order placements, reductions or cancellations, |
| |
| |
• |
reductions in government funds available for our projects due to
government policy changes, budget cuts and contract adjustments, |
| |
| |
• |
the ability of competitors to protest contractual awards, |
| |
| |
• |
penalties arising from post-award contract audits, |
| |
| |
• |
cost audits in which the value of our contracts may be reduced, |
| |
| |
• |
higher-than-expected final costs, particularly relating to
software and hardware development, for work performed under
contracts where we commit to specified deliveries for a fixed
price, |
| |
| |
• |
limited profitability from cost-reimbursement contracts under
which the amount of profit is limited to a specified
amount, and |
| |
| |
• |
unpredictable cash collections of unbilled receivables that may
be subject to acceptance of contract deliverables by the
customer and contract close-out procedures, including government
approval of final indirect rates. |
In addition, substantially all of our U.S. government
backlog scheduled for delivery can be terminated at the
convenience of the U.S. government because our contracts
with the U.S. government typically provide that orders may
be terminated with limited or no penalties. If we are unable to
address any of the risks described above, it could materially
harm our business and impair the value of our common stock.
|
|
|
Our Operating Results May Be Adversely Affected by
Unfavorable Economic and Market Conditions |
Adverse and uncertain economic conditions worldwide have had
significant effects on markets we serve, particularly satellite
communications equipment manufacturers, services providers and
network operators, and have had a negative effect on our
revenues. Adverse and uncertain economic conditions may affect
our
21
business in the future, including our ability to increase or
maintain our revenues and operating results. In addition,
because we intend to continue to make investments in research
and development, any decline in the rate of growth of our
revenues will have a significant adverse impact on our operating
results.
Further, because current domestic and global economic conditions
and economies are uncertain, it is difficult to estimate the
growth in various parts of the economy, including the markets in
which we participate. Because parts of our budgeting and
forecasting are reliant on estimates of growth in the markets we
serve, the current economic uncertainty renders estimates of
future revenues and expenditures even more difficult than usual
to formulate. The future direction of the overall domestic and
global economies could have a significant impact on our overall
financial performance and impair the value of our common stock.
|
|
|
If Our Customers Experience Financial or Other
Difficulties, Our Business Could Be Materially Harmed |
A number of our commercial customers have in the past, and may
in the future experience financial difficulties. Many of our
commercial customers face risks that are similar to those we
encounter, including risks associated with market growth,
acceptance by the market of products and services, and the
ability to obtain sufficient capital. We cannot assure you that
our customers will be successful in managing these risks. If our
customers do not successfully manage these types of risks, it
could impair our ability to generate revenues, collect amounts
due from these customers and materially harm our business.
Major communications infrastructure programs, such as proposed
satellite communications systems, are important sources of our
current and planned future revenues. We also participate in a
number of defense programs. Programs of these types often cannot
proceed unless the customer can raise substantial funds, from
either governmental or private sources. As a result, our
expected revenues can be adversely affected by political
developments or by conditions in private and public capital
markets. They can also be adversely affected if capital markets
are not receptive to a customer’s proposed business plans.
If our customers are unable to raise adequate funds it could
materially harm our business and impair the value of our common
stock.
|
|
|
A Significant Portion of Our Revenues Is Derived from a
Few of Our Contracts |
A small number of our contracts account for a significant
percentage of our revenues. Our largest revenue producing
contracts are related to our tactical data links (which includes
MIDS) products generating approximately 22% of our revenues in
fiscal year 2005, 15% of our revenues in fiscal year 2004 and
18% of our revenues in fiscal year 2003. Our five largest
contracts generated approximately 27% of our revenues in fiscal
year 2005, 24% of our revenues in fiscal year 2004 and 29% of
our revenues in fiscal year 2003. The failure of these customers
to place additional orders or to maintain these contracts with
us for any reason, including any downturn in their business or
financial condition, or our inability to renew our contracts
with these customers or obtain new contracts when they expire,
could materially harm our business and impair the value of our
common stock.
|
|
|
We May Experience Losses from Our Fixed-Price
Contracts |
Approximately 88% of our revenues in fiscal year 2005, 89% of
our revenues in fiscal year 2004 and 95% of our revenues in
fiscal year 2003 were derived from government and commercial
contracts with fixed prices. We assume greater financial risk on
fixed-price contracts than on other types of contracts because
if we do not anticipate technical problems, estimate costs
accurately or control costs during performance of a fixed-price
contract, it may significantly reduce our net profit or cause a
loss on the contract. In the past, we have experienced
significant cost overruns and loses on fixed price contracts. We
believe a high percentage of our contracts will be at fixed
prices in the future. Although we attempt to accurately estimate
costs for fixed-price contracts, we cannot assure you our
estimates will be adequate or that substantial losses on
fixed-price contracts will not occur in the future. If we are
unable to address any of the risks described above, it could
materially harm our business and impair the value of our common
stock.
22
|
|
|
We Depend Heavily on the VSAT Market |
We derived approximately 26% of our revenues in fiscal year
2005, 28% of our revenues in fiscal year 2004 and 34% of our
revenues in fiscal year 2003 from sales of VSAT communications
networks. A significant decline in this market, increased
competition from alternative technologies (DSL and cable) or the
replacement of VSAT technology by an alternative technology,
could materially harm our business and impair the value of our
common stock.
|
|
|
Our Credit Facility Contains Restrictions that Could Limit
Our Ability to Implement Our Business Plan |
The restrictions contained in our line of credit may limit our
ability to implement our business plan, finance future
operations, respond to changing business and economic
conditions, secure additional financing, and engage in
opportunistic transactions, such as strategic acquisitions. In
addition, if we fail to meet the covenants contained in our line
of credit, our ability to borrow under our line of credit may be
restricted. The line of credit, among other things, restricts
our ability to do the following:
|
|
|
| |
• |
incur additional indebtedness, |
| |
| |
• |
create liens on our assets, |
| |
| |
• |
make certain payments, including payments of dividends in
respect of capital stock, consolidate, merge and sell assets, |
| |
| |
• |
engage in certain transactions with affiliates, and |
| |
| |
• |
make acquisitions. |
In addition, the line of credit requires us to satisfy the
following financial tests:
|
|
|
| |
• |
minimum EBITDA (income from operations plus depreciation and
amortization) for the twelve-month period ending on the last day
of any fiscal quarter of $30 million, |
| |
| |
• |
minimum tangible net worth as of the last day of any fiscal
quarter of $135 million, and |
| |
| |
• |
minimum quick ratio (sum of cash and cash equivalents, accounts
receivable and marketable securities, divided by current
liabilities) as of the last day of any fiscal quarter of 1.50 to
1.00. |
We cannot assure you we will be able to comply with our
financial or other covenants or that any covenant violations
will be waived. Any violation not waived could result in an
event of default, permitting the lenders to suspend commitments
to make any advance, to declare notes and interest thereon due
and payable, and to require any outstanding letters of credit to
be collateralized by an interest bearing cash account, any or
all of which could have a material adverse effect on our
business, financial condition and results of operations. In
addition, if we fail to comply with our financial or other
covenants, we may need additional financing in order to service
or extinguish our indebtedness. We may not be able to obtain
financing or refinancing on terms acceptable to us, if at all.
|
|
|
Our Success Depends on the Development of New Satellite
and Other Wireless Communications Products and Our Ability to
Gain Acceptance of These Products |
The wireless communications market in general, and the satellite
communications market in particular, are subject to rapid
technological change, frequent new and enhanced product
introductions, product obsolescence and changes in user
requirements. Our ability to compete successfully in these
markets depends on our success in applying our expertise and
technology to existing and emerging satellite and other wireless
communications markets. Our ability to compete in these markets
also depends in large part on our ability to successfully
develop, introduce and sell new products and enhancements on a
timely and cost-effective basis that respond to ever-changing
customer requirements. Our ability to successfully introduce new
products depends on several factors, including:
|
|
|
| |
• |
successful integration of various elements of our complex
technologies and system architectures, |
| |
| |
• |
timely completion and introduction of new product designs, |
23
|
|
|
| |
• |
achievement of acceptable product costs, |
| |
| |
• |
timely and efficient implementation of our manufacturing and
assembly processes and cost reduction efforts, |
| |
| |
• |
establishment of close working relationships with major
customers for the design of their new wireless communications
systems incorporating our products, |
| |
| |
• |
development of competitive products and technologies by
competitors, |
| |
| |
• |
marketing and pricing strategies of our competitors with respect
to competitive products, and |
| |
| |
• |
market acceptance of our new products. |
We cannot assure you our product development efforts for
communications products will be successful or any new products
we develop, including ArcLight, KG-250, Surfbeam (our
DOCSIS-based consumer broadband product) and LinkStar, will
achieve sufficient market acceptance. We may experience
difficulties that could delay or prevent us from successfully
selecting, developing, manufacturing or marketing new products
or enhancements. In addition, defects may be found in our
products after we begin deliveries that could result in the
delay or loss of market acceptance. If we are unable to design,
manufacture, integrate and market profitable new products for
existing or emerging communications markets, it could materially
harm our business and impair the value of our common stock.
|
|
|
A Decrease in the Selling Prices of Our Products Could
Materially Harm Our Business |
The average selling prices of wireless communications products
historically decline over product life cycles. In particular, we
expect the average selling prices of our products to decline as
a result of competitive pricing pressures and customers who
negotiate discounts based on large unit volumes. We also expect
competition in this industry will continue to increase. To
offset these price decreases, we intend to rely primarily on
obtaining yield improvements and corresponding cost reductions
in the manufacturing process of existing products and on the
introduction of new products with advanced features, which can
be sold at higher prices. However, we cannot assure you we will
be able to obtain any yield improvements or cost reductions or
introduce any new products in the future. To the extent we do
not reduce costs or introduce new products in a timely manner,
or our new products do not achieve market acceptance, it could
materially harm our business and impair the value of our common
stock.
|
|
|
Our Development Contracts May Be Difficult for Us to
Comply With and May Expose Us to Third-Party Claims for
Damages |
We are often party to government and commercial contracts
involving the development of new products. We derived
approximately 24% of our revenues in fiscal year 2005, 29% of
our revenues in fiscal year 2004 and 40% of our revenues in
fiscal year 2003 from these development contracts. These
contracts typically contain strict performance obligations and
project milestones. We cannot assure you we will comply with
these performance obligations or meet these project milestones.
If we are unable to comply with these performance obligations or
meet these milestones, our customers may terminate these
contracts and, under some circumstances, recover damages or
other penalties from us. We are not currently, nor have we
always been, in compliance with all outstanding performance
obligations and project milestones. In the past, when we have
not complied with the performance obligations or project
milestones in a contract, generally, the other party has not
elected to terminate the contract or seek damages from us.
However, we cannot assure you in the future other parties will
not terminate their contracts or seek damages from us. If other
parties elect to terminate their contracts or seek damages from
us, it could materially harm our business and impair the value
of our common stock.
24
|
|
|
We Expect to Incur Research and Development Costs, Which
Could Significantly Reduce Our Profitability |
Our future growth depends on penetrating new markets, adapting
existing communications products to new applications, and
introducing new communications products that achieve market
acceptance. Accordingly, we are actively applying our
communications expertise to design and develop new hardware and
software products and enhance existing products. We expended
$8.1 million in fiscal year 2005, $10.0 million in
fiscal year 2004 and $16.0 million in fiscal year 2003 in
research and development activities. We expect to continue to
spend discretionary funds on research and development in the
near future. The amount of funds spent on research and
development projects is dependent on the amount and mix of
customer funded development, the types of technology being
developed and the affordability of the technology being
developed. Because we account for research and development as an
operating expense, these expenditures will adversely affect our
earnings in the near future. Our research and development
program may not produce successful results, which could
materially harm our business and impair the value of our common
stock.
|
|
|
Our Reliance on a Limited Number of Third Parties to
Manufacture and Supply Our Products Exposes Us to Various
Risks |
Our internal manufacturing capacity is limited and we do not
intend to expand our capability in the foreseeable future. We
rely on a limited number of contract manufacturers to produce
our products and expect to rely increasingly on these
manufacturers in the future. In addition, some components,
subassemblies and services necessary for the manufacture of our
products are obtained from a sole supplier or a limited group of
suppliers.
Our reliance on contract manufacturers and on sole suppliers or
a limited group of suppliers involves several risks. We may not
be able to obtain an adequate supply of required components, and
our control over the price, timely delivery, reliability and
quality of finished products may be reduced. The process of
manufacturing our products and some of our components and
subassemblies is extremely complex. We have in the past
experienced and may in the future experience delays in the
delivery of and quality problems with products and components
and subassemblies from vendors. Some of the suppliers we rely
upon have relatively limited financial and other resources. If
we are not able to obtain timely deliveries of components and
subassemblies of acceptable quality or if we are otherwise
required to seek alternative sources of supply, or to
manufacture our finished products or components and
subassemblies internally, it could delay or prevent us from
delivering our systems promptly and at high quality. This
failure could damage relationships with current or prospective
customers, which, in turn, could materially harm our business
and impair the value of our common stock.
|
|
|
Our Ability to Protect Our Proprietary Technology is
Limited and Infringement Claims Against Us Could Restrict Our
Ability to Conduct Business |
Our success depends significantly on our ability to protect our
proprietary rights to the technologies we use in our products
and services. If we are unable to protect our proprietary rights
adequately, our competitors could use the intellectual property
we have developed to enhance their own products and services,
which could materially harm our business and impair the value of
our common stock. We currently rely on a combination of patents,
trade secret laws, copyrights, trademarks, service marks and
contractual rights to protect our intellectual property. We
cannot assure you the steps we have taken to protect our
proprietary rights are adequate. Also, we cannot assure you our
issued patents will remain valid or that any pending patent
applications will be issued. Additionally, the laws of some
foreign countries in which our products are or may be sold do
not protect our intellectual property rights to the same extent
as do the laws of the United States.
Litigation may often be necessary to protect our intellectual
property rights and trade secrets, to determine the validity and
scope of the proprietary rights of others or to defend against
claims of infringement or invalidity. We believe infringement,
invalidity, right to use or ownership claims by third parties or
claims for indemnification resulting from infringement claims
will likely be asserted against us in the future. If any claims
or actions are asserted against us, we may seek to obtain a
license under a third party’s intellectual property rights.
We cannot assure you, however, that a license will be available
under reasonable terms or at
25
all. Litigation of intellectual property claims could be
extremely expensive and time consuming, which could materially
harm our business, regardless of the outcome of the litigation.
If our products are found to infringe upon the rights of third
parties, we may be forced to incur substantial costs to develop
alternative products. We cannot assure you we would be able to
develop alternative products or, if these alternative products
were developed, they would perform as required or be accepted in
the applicable markets. Also, we have delivered certain
technical data and information to the U.S. government under
procurement contracts, and it may have unlimited rights to use
that technical data and information. There can be no assurance
that the U.S. government will not authorize others to use
that data and information to compete with us. If we are unable
to address any of the risks described above relating to the
protection of our proprietary rights or the
U.S. government’s rights with respect to certain
technical data and information, it could materially harm our
business and impair the value of our common stock.
|
|
|
The Markets We Serve Are Highly Competitive and Our
Competitors May Have Greater Resources
Than Us |
The wireless communications industry is highly competitive and
competition is increasing. In addition, because our industry is
evolving and characterized by rapid technological change, it is
difficult for us to predict whether, when and who may introduce
new competing technologies, products or services into our
markets. Currently, we face substantial competition from
domestic and international wireless and ground-based
communications service providers in the commercial and
government industries. Many of our competitors and potential
competitors have significant competitive advantages, including
strong customer relationships, more experience with regulatory
compliance, greater financial and management resources, and
control over central communications networks. In addition, some
of our customers continuously evaluate whether to develop and
manufacture their own products and could elect to compete with
us at any time. Increased competition from any of these or other
entities could materially harm our business and impair the value
of our common stock.
|
|
|
We Depend on a Limited Number of Key Employees Who Would
Be Difficult to Replace |
We depend on a limited number of key technical, marketing and
management personnel to manage and operate our business. In
particular, we believe our success depends to a significant
degree on our ability to attract and retain highly skilled
personnel, including our Chairman and Chief Executive Officer,
Mark D. Dankberg, and those highly skilled design, process and
test engineers involved in the manufacture of existing products
and the development of new products and processes. The
competition for these types of personnel is intense, and the
loss of key employees could materially harm our business and
impair the value of our common stock. We do not have employment
agreements with any of our officers.
|
|
|
Compliance with Changing Regulation of Corporate
Governance and Public Disclosure May Result in Additional
Expenses |
Changing laws, regulations and standards relating to corporate
governance and public disclosure, including the Sarbanes-Oxley
Act of 2002, new SEC regulations and Nasdaq Stock Market rules,
are creating uncertainty for companies such as ours. These new
or changed laws, regulations and standards are subject to
varying interpretations in many cases due to their lack of
specificity, and as a result, their application in practice may
evolve over time as new guidance is provided by regulatory and
governing bodies, which could result in continuing uncertainty
regarding compliance matters and higher costs necessitated by
ongoing revisions to disclosure and governance practices. We are
committed to maintaining high standards of corporate governance
and public disclosure. As a result, our efforts to comply with
evolving laws, regulations and standards have resulted in, and
are likely to continue to result in, increased general and
administrative expenses and a diversion of management time and
attention from revenue-generating activities to compliance
activities. In particular, our efforts to comply with
Section 404 of the Sarbanes-Oxley Act of 2002 and the
related regulations regarding our required assessment of our
internal control over financial reporting and our independent
registered public accounting firm’s audit of that
assessment has required, and is likely to continue to require,
the commitment of significant financial and managerial
resources, which could materially harm our business and impair
the value of our common stock.
26
|
|
|
We May Identify Material Weaknesses in the Future |
As noted in our quarterly report on Form 10-Q for the third
quarter ended December 31, 2004 filed with the SEC,
management identified a material weakness in its internal
controls over financial reporting. Please see Item 9A.
Controls and Procedures for further discussion.
Although we have been able to remediate the material weakness
and certain internal control deficiencies in the past, we cannot
assure you in the future that a material weakness will not
exist. If this would be the case, and we cannot timely remediate
such material weakness, management may conclude that our
internal controls over financial reporting is not operating
effectively or our independent registered public accounting firm
may be required to issue an adverse opinion on our internal
control over financial reporting, which could in either case
adversely affect investor confidence and impair the value of our
common stock.
|
|
|
We Depend on the Recruitment and Retention of Personnel
with U.S. Government Security Clearances, and Our Failure
to Attract and Retain Such Personnel Could Seriously Harm Our
Business |
Due to the specialized nature of our businesses, our future
performance is dependent upon the continued services of our key
engineering and management personnel with U.S. government
security clearances. Our prospects depend in part upon our
ability to attract and retain qualified engineering and
management personnel for our operations. Competition for
personnel with U.S. government security clearances is
intense, and we may not be successful in attracting or retaining
such qualified personnel. Our failure to compete for these
personnel could seriously harm our business, results of
operations and financial condition.
|
|
|
We May Engage in Strategic Transactions That Could Result
in Significant Charges and Management Disruption and Fail to
Enhance Stockholder Value |
From time to time, we consider strategic transactions and
alternatives with the goal of maximizing stockholder value.
These strategic transactions entail a high degree of risk. We
will continue to evaluate potential strategic transactions and
alternatives we believe may enhance stockholder value. These
potential future transactions may include a variety of different
business arrangements, including acquisitions, spin-offs,
strategic partnerships, joint ventures, restructurings,
divestitures, business combinations and investments. Although
our goal is to maximize stockholder value, such transactions may
have unexpected results that adversely affect our business and
the trading price of our common stock. Any such transaction may
require us to incur non-recurring or other charges and may pose
significant integration challenges and management and business
disruptions, which could harm our operating results and business
prospects.
|
|
|
Any Failure to Successfully Integrate Strategic
Acquisitions Could Adversely Affect Our Business |
In order to position ourselves to take advantage of growth
opportunities, we have made, and may continue to make, strategic
acquisitions that involve significant risks and uncertainties.
These risks and uncertainties include:
|
|
|
| |
• |
the difficulty in integrating newly-acquired businesses and
operations in an efficient and effective manner, |
| |
| |
• |
the challenges in achieving strategic objectives, cost savings
and other benefits expected from acquisitions, |
| |
| |
• |
the risk our markets do not evolve as anticipated and the
technologies acquired do not prove to be those needed to be
successful in those markets, |
| |
| |
• |
the potential loss of key employees of the acquired businesses, |
| |
| |
• |
the risk of diverting the attention of senior management from
the operations of our business, |
27
|
|
|
| |
• |
the risks of entering markets in which we have less
experience, and |
| |
| |
• |
the risks of potential disputes concerning indemnities and other
obligations that could result in substantial costs and further
divert management’s attention and resources. |
Any failure to successfully integrate strategic acquisitions
could harm our business and impair the value of our common
stock. Furthermore, to complete future acquisitions we may issue
equity securities, incur debt, assume contingent liabilities or
have amortization expenses and write-downs of acquired assets,
which could cause our earnings per share to decline.
|
|
|
Because We Conduct Business Internationally, We Face
Additional Risks Related to Global Political and Economic
Conditions and Currency Fluctuations |
Approximately 27% of our revenues in fiscal year 2005, 24% of
our revenues in fiscal year 2004 and 27% of our revenues in
fiscal year 2003 were derived from international sales. We
anticipate international sales will account for an increasing
percentage of our revenues over the next several years. Many of
these international sales may be denominated in foreign
currencies. Because we do not currently engage in nor do we
anticipate engaging in material foreign currency hedging
transactions related to international sales, a decrease in the
value of foreign currencies relative to the U.S. dollar
could result in losses from transactions denominated in foreign
currencies. This decrease in value could also make our products
less price-competitive.
There are additional risks in conducting business
internationally, including:
|
|
|
| |
• |
unexpected changes in regulatory requirements, |
| |
| |
• |
increased cost of localizing systems in foreign countries, |
| |
| |
• |
increased sales and marketing and research and development
expenses, |
| |
| |
• |
availability of suitable export financing, |
| |
| |
• |
timing and availability of export licenses, |
| |
| |
• |
tariffs and other trade barriers, |
| |
| |
• |
political and economic instability, |
| |
| |
• |
challenges in staffing and managing foreign operations, |
| |
| |
• |
difficulties in managing distributors, |
| |
| |
• |
potentially adverse tax consequences, |
| |
| |
• |
potential difficulty in making adequate payment
arrangements, and |
| |
| |
• |
potential difficulty in collecting accounts receivable. |
In addition, some of our customer purchase agreements are
governed by foreign laws, which may differ significantly from
U.S. laws. We may be limited in our ability to enforce our
rights under these agreements and to collect damages, if
awarded. If we are unable to address any of the risks described
above, it could materially harm our business and impair the
value of our common stock.
|
|
|
Exports of Our Defense Products are Subject to the
International Traffic in Arms Regulations and Require a License
from the U.S. Department of State Prior to Shipment |
We must comply with the United States Export Administration
Regulations and the International Traffic in Arms Regulations,
or ITAR. Our products that have military or strategic
applications are on the munitions list of the ITAR and require
an individual validated license in order to be exported to
certain jurisdictions. Any changes in export regulations may
further restrict the export of our products, and we may cease to
be able to procure export licenses for our products under
existing regulations. The length of time required by the
licensing process can vary, potentially delaying the shipment of
products and the recognition of the
28
corresponding revenue. Any restriction on the export of a
significant product line or a significant amount of our products
could cause a significant reduction in net sales.
|
|
|
Adverse Regulatory Changes Could Impair Our Ability to
Sell Products |
Our products are incorporated into wireless communications
systems that must comply with various government regulations,
including those of the Federal Communications Commission (FCC).
In addition, we operate and provide services to customers
through the use of several satellite earth hub stations, which
are licensed by the FCC. Regulatory changes, including changes
in the allocation of available frequency spectrum and in the
military standards and specifications that define the current
satellite networking environment, could materially harm our
business by (1) restricting development efforts by us and
our customers, (2) making our current products less
attractive or obsolete, or (3) increasing the opportunity
for additional competition. Changes in, or our failure to comply
with, applicable regulations could materially harm our business
and impair the value of our common stock. In addition, the
increasing demand for wireless communications has exerted
pressure on regulatory bodies worldwide to adopt new standards
for these products and services, generally following extensive
investigation of and deliberation over competing technologies.
The delays inherent in this government approval process have
caused and may continue to cause our customers to cancel,
postpone or reschedule their installation of communications
systems. This, in turn, may have a material adverse effect on
our sales of products to our customers.
|
|
|
We Face Potential Product Liability Claims |
We may be exposed to legal claims relating to the products we
sell or the services we provide. Our agreements with our
customers generally contain terms designed to limit our exposure
to potential product liability claims. We also maintain a
product liability insurance policy for our business. However,
our insurance may not cover all relevant claims or may not
provide sufficient coverage. If our insurance coverage does not
cover all costs resulting from future product liability claims,
it could materially harm our business and impair the value of
our common stock.
|
|
|
Our Operating Results Have Varied Significantly from
Quarter to Quarter in the Past and, if They Continue to do so,
the Market Price of Our Common Stock Could Be Impaired |
Our operating results have varied significantly from quarter to
quarter in the past and may continue to do so in the future. The
factors that cause our quarter-to-quarter operating results to
be unpredictable include:
|
|
|
| |
• |
a complex and lengthy procurement process for most of our
customers or potential customers, |
| |
| |
• |
changes in the levels of research and development spending,
including the effects of associated tax credits, |
| |
| |
• |
the difficulty in estimating costs over the life of a contract,
which may require adjustment in future periods, |
| |
| |
• |
the timing, quantity and mix of products and services sold, |
| |
| |
• |
price discounts given to some customers, |
| |
| |
• |
market acceptance and the timing of availability of our new
products, |
| |
| |
• |
the timing of customer payments for significant contracts, |
| |
| |
• |
one time charges to operating income arising from items such as
acquisition expenses and write-offs of assets related to
customer non-payments or obsolescence, |
| |
| |
• |
the failure to receive an expected order or a deferral of an
order to a later period, and |
| |
| |
• |
general economic and political conditions. |
As a result, we believe period-to-period comparisons of our
operating results are not necessarily meaningful and you should
not rely upon them as indicators of future performance. If we
are unable to address
29
any of the risks described above, it could materially impair the
value of our common stock. In addition, it is likely that in one
or more future quarters our results may fall below the
expectations of analysts and investors. In this event, the
trading price of our common stock would likely decrease.
|
|
|
Changes in Financial Accounting Standards Related to Stock
Option Expenses Are Expected to Have a Significant Effect on Our
Reported Results |
The FASB recently issued a revised standard that requires that
we record compensation expense in the statement of operations
for employee stock options using the fair value method. The
adoption of the new standard is expected to have a significant
effect on our reported earnings, although it will not affect our
cash flows, and could adversely impact our ability to provide
accurate guidance on our future reported financial results due
to the variability of the factors used to establish the value of
stock options. As a result, the adoption of the new standard in
fiscal year 2007 could impair the value of our common stock and
result in greater stock price volatility.
|
|
|
Our Executive Officers and Directors Own a Large
Percentage of Our Common Stock and Exert Significant Influence
Over Matters Requiring Stockholder Approval |
As of June 3, 2005, our executive officers and directors
and their affiliates beneficially owned an aggregate of
approximately 19% of our common stock. Accordingly, these
stockholders may be able to significantly influence the outcome
of corporate actions requiring stockholder approval, such as
mergers and acquisitions. These stockholders may exercise this
ability in a manner that advances their best interests and not
necessarily those of other stockholders. This ownership interest
could also have the effect of delaying or preventing a change in
control.
|
|
|
We Have Implemented Anti-Takeover Provisions That Could
Prevent an Acquisition of Our Business at a Premium Price |
Some of the provisions of our certificate of incorporation and
bylaws could discourage, delay or prevent an acquisition of our
business at a premium price. These provisions:
|
|
|
| |
• |
permit the Board of Directors to increase its own size and fill
the resulting vacancies, |
| |
| |
• |
provide for a Board comprised of three classes of directors with
each class serving a staggered three-year term, |
| |
| |
• |
authorize the issuance of preferred stock in one or more
series, and |
| |
| |
• |
prohibit stockholder action by written consent. |
In addition, Section 203 of the Delaware General
Corporation Law imposes restrictions on mergers and other
business combinations between us and any holder of 15% or more
of our common stock.
|
|
|
Our Forward-looking Statements are Speculative and May
Prove to be Wrong |
Some of the information under “Item 1. Business,”
“Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” and
elsewhere in this annual report are forward-looking statements.
These forward-looking statements include, but are not limited
to, statements about our plans, objectives, expectations and
intentions and other statements contained in this annual report
that are not historical facts. When used in this annual report,
the words “expects,” “anticipates,”
“intends,” “plans,” “believes,”
“seeks,” “estimates,” “could,”
“should,” “may,” “will” and
similar expressions are generally intended to identify
forward-looking statements. Because these forward-looking
statements involve risks and uncertainties, there are important
factors, including the factors discussed in this “Factors
that May Affect Future Performance” section of the annual
report, that could cause actual results to differ materially
from those expressed or implied by these forward-looking
statements. We undertake no obligation to update or revise any
forward-looking statements.
30
We are headquartered in facilities consisting of approximately
255,000 square feet in Carlsbad, California.
180,000 square feet are currently under a lease expiring in
2015, with 75,000 square feet expiring in April 2006. We
expect to occupy an additional 60,000 square feet of leased
space in Carlsbad, California, currently under construction, in
the next twelve months. Facilities consisting of an aggregate of
approximately 197,000 square feet are located in Norcross,
Georgia subject to leases expiring in 2006. Replacing the
Norcross facilities is a new 146,000 square foot campus
currently under construction in Duluth, Georgia with a ten year
lease scheduled to commence on January 1, 2006. We have
facilities consisting of approximately 40,000 square feet
in Clarksburg, Maryland under a lease expiring in July 2005.
Replacing the facilities in Clarksburg will be a facility with
45,000 square feet in Germantown, Maryland with a lease
commencement anticipated in August 2005 expiring in October
2011. Facilities consisting of approximately 17,000 square
feet are located in Chandler, Arizona under a lease expiring in
2007. Additionally, we maintain offices or a sales presence in
Linthicum Heights (Maryland), Boston (Massachusetts), Australia,
China, Canada, India, Italy and Spain. We anticipate operating
additional regional sales offices in fiscal year 2006 and beyond.
|
|
| Item 3. |
Legal Proceedings |
A review of our current litigation is disclosed in the Notes to
Consolidated Financial Statements. See “Notes to
Consolidated Financial Statements —
Note 10 — Contingencies.” We are also
engaged in other legal actions arising in the ordinary course of
our business and believe that the ultimate outcome of these
actions will not have a material adverse effect on our results
of operations, liquidity or financial position.
|
|
| Item 4. |
Submission of Matters to a Vote of Security Holders |
No matters were submitted to a vote of security holders during
the quarter ended April 1, 2005.
PART II
|
|
| Item 5. |
Market for Registrant’s Common Stock, Related
Stockholder Matters and Issuer Purchases of Equity
Securities |
Our common stock is traded on the Nasdaq National Market under
the symbol “VSAT.” The following table sets forth the
range of high and low sales prices on the Nasdaq National Market
of our common stock for the periods indicated, as reported by
Nasdaq. Such quotations represent inter-dealer prices without
retail markup, markdown or commission and may not necessarily
represent actual transactions.
| |
|
|
|
|
|
|
|
|
|
| |
|
High | |
|
Low | |
| |
|
| |
|
| |
|
Fiscal 2004
|
|
|
|
|
|
|
|
|
| |
First Quarter
|
|
$ |
14.62 |
|
|
$ |
8.24 |
|
| |
Second Quarter
|
|
|
18.94 |
|
|
|
12.28 |
|
| |
Third Quarter
|
|
|
23.37 |
|
|
|
17.46 |
|
| |
Fourth Quarter
|
|
|
28.91 |
|
|
|
19.46 |
|
|
Fiscal 2005
|
|
|
|
|
|
|
|
|
| |
First Quarter
|
|
$ |
27.60 |
|
|
$ |
20.63 |
|
| |
Second Quarter
|
|
|
24.96 |
|
|
|
16.79 |
|
| |
Third Quarter
|
|
|
25.00 |
|
|
|
16.83 |
|
| |
Fourth Quarter
|
|
|
24.37 |
|
|
|
17.41 |
|
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. In
addition, our credit facility restricts our ability to pay
dividends. As of June 3, 2005 there were 538 holders of
record of
31
our common stock. On June 3, 2005, the last sale price
reported on the Nasdaq National Market for our common stock was
$20.59 per share.
The information required to be disclosed by Item 201(d) of
Regulation S-K “Securities Authorized for Issuance
Under Equity Compensation Plans” is included under
Item 12 of Part III of this Annual Report on
Form 10-K.
|
|
| Item 6. |
Selected Financial Data |
The following table provides selected financial information for
us for each of the fiscal years in the five-year period ended
April 1, 2005. The data as of and for each of the fiscal
years in the five-year period ended April 1, 2005 has been
derived from our audited financial statements and include, in
the opinion of our management, all adjustments necessary to
state fairly the data for those periods. 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 financial
statements and notes which are included elsewhere in this annual
report. All amounts shown are in thousands, except per share
data.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
April 1, | |
|
April 2, | |
|
March 31, | |
|
March 31, | |
|
March 31, | |
| Years Ended |
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Statement of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Revenues
|
|
$ |
345,939 |
|
|
$ |
278,579 |
|
|
$ |
185,022 |
|
|
$ |
195,628 |
|
|
$ |
164,352 |
|
| |
Cost of revenues
|
|
|
262,260 |
|
|
|
206,327 |
|
|
|
142,908 |
|
|
|
139,354 |
|
|
|
113,458 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Gross profit
|
|
|
83,679 |
|
|
|
72,252 |
|
|
|
42,114 |
|
|
|
56,274 |
|
|
|
50,894 |
|
| |
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Selling, general and administrative
|
|
|
48,631 |
|
|
|
38,800 |
|
|
|
37,858 |
|
|
|
38,153 |
|
|
|
26,482 |
|
| |
|
Independent research and development
|
|
|
8,082 |
|
|
|
9,960 |
|
|
|
16,048 |
|
|
|
9,415 |
|
|
|
6,173 |
|
| |
|
Acquired in-process research and development
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,550 |
|
|
|
2,334 |
|
| |
|
Amortization of intangible assets
|
|
|
6,642 |
|
|
|
7,841 |
|
|
|
8,448 |
|
|
|
6,959 |
|
|
|
3,789 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income (loss) from operations
|
|
|
20,324 |
|
|
|
15,651 |
|
|
|
(20,240 |
) |
|
|
(803 |
) |
|
|
12,116 |
|
| |
Interest income (expense)
|
|
|
304 |
|
|
|
(346 |
) |
|
|
(740 |
) |
|
|
188 |
|
|
|
1,647 |
|
| |
Other income (loss)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(90 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income (loss) before income taxes and minority interest
|
|
|
20,628 |
|
|
|
15,305 |
|
|
|
(20,980 |
) |
|
|
(705 |
) |
|
|
13,763 |
|
| |
Provision (benefit) for income taxes
|
|
|
1,246 |
|
|
|
2,015 |
|
|
|
(11,395 |
) |
|
|
(2,918 |
) |
|
|
3,441 |
|
| |
Minority interest in net earnings of subsidiary, net of tax
|
|
|
115 |
|
|
|
122 |
|
|
|
47 |
|
|
|
56 |
|
|
|
57 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income (loss)
|
|
$ |
19,267 |
|
|
$ |
13,168 |
|
|
$ |
(9,632 |
) |
|
$ |
2,157 |
|
|
$ |
10,265 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic net income (loss) per share
|
|
$ |
0.72 |
|
|
$ |
0.50 |
|
|
$ |
(0.37 |
) |
|
$ |
0.09 |
|
|
$ |
0.48 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Diluted net income (loss) per share
|
|
$ |
0.68 |
|
|
$ |
0.48 |
|
|
$ |
(0.37 |
) |
|
$ |
0.09 |
|
|
$ |
0.46 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Shares used in computing basic net income (loss) per share
|
|
|
26,749 |
|
|
|
26,257 |
|
|
|
26,016 |
|
|
|
23,072 |
|
|
|
21,379 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Shares used in computing diluted net income (loss) per share
|
|
|
28,147 |
|
|
|
27,558 |
|
|
|
26,016 |
|
|
|
23,954 |
|
|
|
22,537 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash, cash equivalents and short-term investments
|
|
$ |
14,741 |
|
|
$ |
18,670 |
|
|
$ |
4,269 |
|
|
$ |
6,620 |
|
|
$ |
17,721 |
|
| |
Working capital
|
|
|
138,859 |
|
|
|
107,846 |
|
|
|
74,276 |
|
|
|
83,458 |
|
|
|
84,334 |
|
| |
Total assets
|
|
|
301,825 |
|
|
|
272,682 |
|
|
|
237,155 |
|
|
|
238,667 |
|
|
|
169,378 |
|
| |
Capital lease obligation, less current portion
|
|
|
— |
|
|
|
— |
|
|
|
141 |
|
|
|
174 |
|
|
|
— |
|
| |
Total stockholders’ equity
|
|
|
226,283 |
|
|
|
202,475 |
|
|
|
183,887 |
|
|
|
191,939 |
|
|
|
132,807 |
|
32
|
|
| Item 7. |
Management’s Discussion and Analysis of Financial
Condition and Results of Operations |
General
We are a leading provider of advanced digital satellite
communications and other wireless networking and signal
processing equipment and services to the government and
commercial markets. Based on our history and extensive
experience in complex defense communications systems, we have
developed the capability to design and implement innovative
communications solutions, which enhance bandwidth utilization by
applying our sophisticated networking and digital signal
processing techniques. Our goal is to leverage our advanced
technology and capabilities to capture a considerable share of
the global satellite communications equipment and services
segment of the broadband communications market for both
government and commercial customers.
Our internal growth to date has historically been driven largely
by our success in meeting the need for advanced communications
products for our government and commercial customers. By
developing cost-effective communications products incorporating
our advanced technologies, we have continued to grow the markets
for our products and services.
Our company is organized principally in two segments: government
and commercial. Our government business encompasses specialized
products principally serving defense customers and includes:
|
|
|
| |
• |
Tactical data links, including MIDS, |
| |
| |
• |
Information security and assurance products and services, which
enable military and government users to communicate secure
information over secure and non-secure networks, and |
| |
| |
• |
MILSATCOM systems and products, including UHF DAMA satellite
communications products consisting of modems, terminals and
network control systems, and innovative broadband solutions to
government customers to increase available bandwidth using
existing satellite capacity. |
Serving government customers with cost-effective products and
solutions continues to be a critical and core element of our
overall business strategy.
We have been increasing our focus in recent years on offering
satellite based communications products and systems solutions to
address commercial market needs. In pursuing this strategy, we
have acquired three strategic satellite communication equipment
providers: (1) the Satellite Networks Business of SA in
fiscal year 2001; (2) Comsat Laboratories products business
from Lockheed Martin in fiscal year 2002; and (3) USM in
fiscal year 2002. Our commercial segment accounts for
approximately 51% of our revenues in fiscal year 2005, 55% of
our revenues in fiscal year 2004, and 56% of our revenues in
fiscal year 2003. To date, our principal commercial offerings
include VSAT, broadband Internet equipment over satellite,
network control systems, network integration services, network
operation services, gateway infrastructure, antenna systems and
other satellite ground stations. In addition, based on our
advanced satellite technology and systems integration
experience, we won several important projects in the three key
broadband markets: enterprise, consumer and in-flight mobile
applications.
Our commercial business offers an end-to-end capability to
provide customers with a broad range of satellite communication
and other wireless communications equipment solutions including:
|
|
|
| |
• |
Consumer broadband products and solutions to customers based on
DOCSIS or DVB-RCS-based technology, |
| |
| |
• |
Mobile broadband products and systems for in-flight, maritime
and ground mobile broadband applications, |
| |
| |
• |
Enterprise VSAT networks products and services, |
| |
| |
• |
Satellite networking systems design and technology development, |
| |
| |
• |
MMIC design and development, with an emphasis in systems
engineering of packaged components, which specializes in
high-frequency communication technology design and
development, and |
| |
| |
• |
Antenna systems for commercial and defense applications and
customers. |
33
With expertise in commercial satellite network engineering,
gateway construction, and remote terminal manufacturing for all
types of interactive communications services, we have the unique
ability to take overall responsibility for designing, building,
initially operating, and then handing over a fully operational,
customized satellite network serving a variety of markets and
applications.
To date, our ability to grow and maintain our revenues has
depended on our ability to identify and target high technology
satellite communication and other communication markets where
the customer places a high priority on the solution, and
obtaining additional sizable contract awards. Due to the nature
of this process, it is difficult to predict the probability and
timing of obtaining these awards.
Our products are provided primarily through three types of
contracts: fixed-price, time-and-materials and
cost-reimbursement contracts. Historically, approximately 88%
for fiscal year 2005, 89% for fiscal year 2004 and 95% for
fiscal year 2003, of our revenues were derived from fixed-price
contracts, which require us to provide products and services
under a contract at a stipulated price. The remainder of our
annual revenue 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 are from
contracts for the research and development of products. The
research and development efforts are conducted in direct
response to the specific requirements of a customer’s
engineering and production order 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 were approximately $105.7 million
or 30.6% of our total revenues during fiscal year 2005,
$81.0 million or 29.1% of our total revenues during fiscal
year 2004, and $74.1 million or 40.0% of our total revenues
during fiscal year 2003.
We also incur independent research and development expenses,
which are not directly funded by a third party. Independent
research and development expenses consist primarily of salaries
and other personnel-related expenses, supplies, prototype
materials, testing and certification related to research and
development programs. Independent research and development
expenses were approximately 2.3% of revenues during fiscal year
2005, 3.6% of revenues during fiscal year 2004 and 8.7% of
revenues during fiscal year 2003. As a government contractor, we
are able to recover a portion of our independent research and
development expenses pursuant to our government contracts.
Executive Summary
We develop and manufacture satellite ground systems and other
related government and commercial digital communications
equipment. Our products are generally highly complex and have a
concept-to-market timeline of several months to several years.
The development of products where customers expect
state-of-the-art results requires an exceptionally talented and
dedicated engineering workforce. Since inception, we have been
able to attract, develop and retain engineers who support its
business and customer objectives, while experiencing low
turnover (relative to its competitors or peers). The consistency
and depth of our engineering workforce has enabled us to develop
leading edge products and solutions for our customers.
From 1986 through fiscal year 2002, we were profitable and grew
our revenue base each year. The downturn in the
telecommunications industry and the terrorist attacks in 2001
resulted in the loss of approximately one-third of our backlog
at the end of calendar year 2001. In the ensuing months, we
began rebuilding our backlog — first primarily in the
government segment and then in the commercial segment as well.
While we were rebuilding backlog, we were also investing
significantly in research and development of new products and
new business activities. While awards in fiscal year 2003 were a
record at the time, it was the first year we did not grow our
revenue on a year over year basis and were not profitable.
Our awards have grown from $191.9 million in fiscal year
2002 to $259.2 million in fiscal year 2003, to
$346.5 million in fiscal year 2004 and to
$426.2 million in fiscal year 2005. The awards growth each
of the past
34
three years and the conversion of certain of the awards has
contributed to our revenue growth.
There are a number of large new business opportunities we are
pursuing in fiscal year 2006. In the government segment, the
opportunities include the MIDS Lot VI production order,
international MIDS orders, new MIDS joint tactical radio system
contracts, additional funding for current information assurance
projects, new information assurance contracts using our HAIPIS
technology, and orders for our new KG-250 product. In our
commercial segment, the opportunities include new production
orders for consumer and mobile broadband systems, new consumer
broadband development systems, further penetration in the North
American market with enterprise VSAT customers and antenna
systems. The timing of these orders is not entirely predictable,
so our revenue may vary somewhat from quarter-to-quarter or even
year-to-year.
Our operating objective for income from operations, excluding
the deduction for “Amortization of intangible assets,”
is ten percent of revenues. To the extent we are not generating
sufficient gross profit from revenues, we strive to adjust other
operating expenses to continue to attempt to meet this
objective. For the past three years we have not achieved our
operating objective principally due to cost overruns on customer
funded development programs, investments in research and
development and increased selling expenses.
Generating positive cash flows from operating activities was a
financial priority for us in fiscal years 2005 and 2004 and will
continue to be a focus in fiscal year 2006. Key areas which we
monitor to achieve the cash flow objective include: generating
income from operations, reducing our unbilled accounts
receivable by monitoring program performance to ensure
performance milestones are achieved, reducing the cycle time for
amounts billed to customers and their related collection, and
reducing inventory on hand.
We expect that our capital needs will increase for fiscal year
2006 as compared to fiscal year 2005 as we expand our
facilities, production test equipment and lab development
equipment to meet customer program requirements and growth
forecasts. Our facility needs have normally been met with
long-term lease agreements, but we do anticipate additional
tenant improvements over the next two fiscal years associated
with our expansion. Additionally, as our employee base
increases, the need for additional computers and other equipment
will also increase.
Included in fiscal year 2004 operating cash flow is
$9.0 million received from SA and $406,000 in proceeds from
the bankruptcy liquidation proceedings of ORBCOMM. Operating
income for fiscal year 2004 includes a benefit to cost of
revenues of $3.2 million and a benefit to selling, general
and administrative expenses of $3.1 million as a result of
SA proceeds and a benefit to selling, general and administrative
expenses of $406,000 from the bankruptcy liquidation proceedings
of ORBCOMM (see Liquidity section of our MD&A for more
detail).
Critical Accounting Policies and Estimates
Management’s Discussion and Analysis of Financial Condition
and Results of Operations discusses our consolidated financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the United States.
The preparation of these financial statements requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. We consider the policies discussed
below to be critical to an understanding of our financial
statements because their application places the most significant
demands on management’s judgment, with financial reporting
results relying on estimation about the effect of matters that
are inherently uncertain. We describe the specific risks for
these critical accounting policies in the following paragraphs.
For all of these policies, we caution that future events rarely
develop exactly as forecast, and even the best estimates
routinely require adjustment.
35
A substantial portion of the Company’s revenues are derived
from long-term contracts requiring development and delivery of
products over time and often contain fixed-price purchase
options for additional products. Certain of these contracts are
accounted for under the percentage-of-completion method of
accounting under the American Institute of Certified Public
Accountants’ Statement of Position 81-1, Accounting for
Performance of Construction-Type and Certain Production-Type
Contracts (SOP 81-1). Sales and earnings under these
contracts are recorded based on the ratio of actual costs
incurred to date to total estimated costs expected to be
incurred related to the contract or as products are shipped
under the units-of-delivery method.
The percentage-of-completion method of accounting requires
management to estimate the profit margin for each individual
contract and to apply that profit margin on a uniform basis as
sales are recorded under the contract. The estimation of profit
margins requires management to make projections of the total
sales to be generated and the total costs that will be incurred
under a contract. These projections require management to make
numerous assumptions and estimates relating to items such as the
complexity of design and related development costs, performance
of subcontractors, availability and cost of materials, labor
productivity and cost, overhead and capital costs, and
manufacturing efficiency. These contracts often include purchase
options for additional quantities and customer change orders for
additional or revised product functionality. Purchase options
and change orders are accounted for either as an integral part
of the original contract or separately depending upon the nature
and value of the item. Anticipated losses on contracts are
recognized in full in the period in which losses become probable
and estimable. In the fiscal year ended April 1, 2005, we
recorded losses of approximately $5.7 million related to
loss contracts. There were no significant charges for loss
contracts in fiscal years ended April 2, 2004 or
March 31, 2003.
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 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. Significant changes in estimates related to accounting
for long-term contracts may have a material effect on our
results of operations in the period in which the revised
estimate is made.
The Company also has contracts and purchase orders where revenue
is recorded on delivery of products in accordance with
SAB 104, “Staff Accounting
Bulletin No. 104: Revenue Recognition.” In
this situation, contracts and customer purchase orders are used
to determine the existence of an arrangement. Shipping documents
and customer acceptance, when applicable, are used to verify
delivery. The Company assesses whether the sales price is fixed
or determinable based on the payment terms associated with the
transaction and whether the sales price is subject to refund or
adjustment, and assesses collectibility based primarily on the
creditworthiness of the customer as determined by credit checks
and analysis, as well as the customer’s payment history.
When a sale involves multiple elements, such as sales of
products that include services, the entire fee from the
arrangement is allocated to each respective element based on its
relative fair value in accordance with EITF, 00-21,
Accounting for Multiple Element Revenue Arrangements and
recognized when the applicable revenue recognition criteria for
each element are met. The amount of product and service revenue
recognized is impacted by our judgments as to whether an
arrangement includes multiple elements and, if so, whether
vendor-specific objective evidence of fair value exists for
those elements. Changes to the elements in an arrangement and
our ability to establish vendor-specific objective evidence for
those elements could affect the timing of the revenue
recognition.
|
|
|
Capitalized software development costs |
We charge costs of developing software for sale 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
36
capitalized and reported at the lower of unamortized cost or net
realizable value. Once the product is available for general
release, we amortize the software development costs 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 not to exceed
five years. The determination of net realizable value involves
judgment and estimates of future revenues to be derived from a
product, as well as estimates of future costs of manufacturing
that product. We use our experience in the marketplace in making
judgments in estimating net realizable value, but our estimates
may differ from the actual outcome. We periodically assess the
assumptions underlying our estimates and, if necessary, we would
adjust the carrying amount of capitalized software development
costs downward to our new estimate of net realizable value.
We did not capitalize any costs related to software developed
for resale in the fiscal years ended April 1, 2005 or
April 2, 2004. We capitalized costs related to software
developed for resale of $5.3 million for the fiscal year
ended March 31, 2003. Amortization expense of software
development costs was $3.4 million for fiscal year 2005,
$2.8 million for fiscal year 2004 and $1.1 million for
fiscal year 2003. These software development costs are included
in other assets on the balance sheet and we record the related
amortization expense as a charge to cost of revenues on the
statement of operations.
|
|
|
Allowance for doubtful accounts |
We make estimates of the collectibility of our accounts
receivable based on historical bad debts, customer
credit-worthiness and current economic trends when evaluating
the adequacy of the allowance for doubtful accounts.
Historically, our bad debts have been minimal; a contributing
factor to this is that a significant portion of our sales has
been to the U.S. government. More recently, commercial
customers comprise a larger part of our revenues. Our accounts
receivable balance was $141.3 million, net of allowance for
doubtful accounts of $163,000, as of April 1, 2005 and our
accounts receivable balance was $110.8 million, net of
allowance for doubtful accounts of $379,000, as of April 2,
2004.
We provide limited warranties on a majority of our products for
periods of up to five years. We record a liability for our
warranty obligations when we ship the products based upon an
estimate of expected warranty costs. We classify the amounts we
expect to incur within twelve months as a current liability. For
mature products, we estimate the warranty costs based on
historical experience with the particular product. For newer
products that do not have a history of warranty costs, we base
our estimates on our experience with the technology involved and
the types of failure that may occur. It is possible that our
underlying assumptions will not reflect the actual experience,
and in that case, we will make future adjustments to the
recorded warranty obligation.
We account for our goodwill under Statement of Financial
Accounting Standards (SFAS) No. 142 Goodwill and
Other Intangible Assets. The SFAS No. 142 goodwill
impairment model is a two-step process. First, it requires a
comparison of the book value of net assets to the fair value of
the reporting units that have goodwill assigned to them. The
only reporting units which have goodwill assigned to them are
the businesses which were acquired and have been included in our
commercial segment. If the fair value is determined to be less
than book value, a second step is performed to compute the
amount of the impairment. In this process, a fair value for
goodwill is estimated, based in part on the fair value of the
reporting unit used in the first step, and is compared to its
carrying value. The shortfall of the value below carrying value
represents the amount of goodwill impairment. We test goodwill
for impairment during the fourth quarter every fiscal year, and
when an event occurs or circumstances change such that it is
reasonably possible that an impairment may exist.
We estimate the fair values of the related operations using
discounted cash flows and other indicators of fair value. We
base the forecast of future cash flows on our best estimate of
the future revenues and operating costs, which we derive
primarily from existing firm orders, expected future orders,
contracts with suppliers, labor agreements, and general market
conditions. Changes in these forecasts could cause a particular
reporting
37
unit to either pass or fail the first step in the
SFAS No. 142 goodwill impairment model, which could
significantly influence whether a goodwill impairment needs to
be recorded. We adjust the cash flow forecasts by an appropriate
discount rate derived from our market capitalization plus a
suitable control premium at the date of evaluation. In applying
the first step, which is identification of any impairment of
goodwill, no impairment of goodwill has resulted.
|
|
|
Impairment of long-lived assets (Property and equipment
and other intangible assets) |
In accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived, we assess potential
impairments to our long-lived assets, including property and
equipment and other intangible assets, when there is evidence
that events or changes in circumstances indicate that the
carrying value may not be recoverable. We recognize an
impairment loss when the undiscounted cash flows expected to be
generated by an asset (or group of assets) are less than the
asset’s carrying value. Any required impairment loss would
be measured as the amount by which the asset’s carrying
value exceeds its fair value, and would be recorded as a
reduction in the carrying value of the related asset and charged
to results of operations. We have not identified any such
impairments.
|
|
|
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 SFAS No. 109,
“Accounting for Income Taxes,” net deferred tax assets
are reduced by a valuation allowance if, based on all the
available evidence, it is more likely than not that some or all
of the deferred tax assets will not be realized. A valuation
allowance of $769,000 was provided on deferred tax assets at
April 1, 2005, for California research credit carryforward.
The amount of California research credit carryforward considered
realizable was determined based on California taxable income and
generation of additional California research credits projected
in the future. Even though there is no expiration for California
research credits, we are generating the credits at a rate faster
than we expect to use them.
We enter into foreign currency forward and option contracts to
hedge certain forecasted foreign currency transactions. Gains
and losses arising from foreign currency forward and option
contracts not designated as hedging instruments are recorded in
investment income (expense) as gains (losses) on derivative
instruments. Gains and losses arising from the effective portion
of foreign currency forward and option contracts that are
designated as cash-flow hedging instruments are recorded in
accumulated other comprehensive income (loss) as gains (losses)
on derivative instruments until the underlying transaction
affects our earnings. The fair value of our foreign currency
forward contracts was a liability of $54,000 at April 1,
2005. We had $2.7 million of notional value of foreign
currency forward contracts outstanding at April 1, 2005. We
had no foreign currency forward or option contracts outstanding
at April 2, 2004 and March 31, 2003.
38
Results of Operations
The following table presents, as a percentage of total revenues,
income statement data for the periods indicated.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years Ended |
|
April 1, 2005 | |
|
April 2, 2004 | |
|
March 31, 2003 | |
| |
|
| |
|
| |
|
| |
|
Revenues
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
Cost of revenues
|
|
|
75.8 |
|
|
|
74.1 |
|
|
|
77.2 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Gross profit
|
|
|
24.2 |
|
|
|
25.9 |
|
|
|
22.8 |
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Selling, general and administrative
|
|
|
14.1 |
|
|
|
13.9 |
|
|
|
20.4 |
|
| |
Independent research and development
|
|
|
2.3 |
|
|
|
3.6 |
|
|
|
8.7 |
|
| |
Amortization of intangible assets
|
|
|
1.9 |
|
|
|
2.8 |
|
|
|
4.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
5.9 |
|
|
|
5.6 |
|
|
|
(10.9 |
) |
|
Income (loss) before income taxes
|
|
|
6.0 |
|
|
|
5.4 |
|
|
|
(11.4 |
) |
|
Provision (benefit) for income taxes
|
|
|
0.4 |
|
|
|
0.7 |
|
|
|
(6.2 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
5.6 |
|
|
|
4.7 |
|
|
|
(5.2 |
) |
| |
|
|
|
|
|
|
|
|
|
Fiscal Year 2005 Compared to Fiscal Year 2004
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
|
Dollar | |
|
Percentage | |
| |
|
| |
|
Increase | |
|
Increase | |
| |
|
April 1, 2005 | |
|
April 2, 2004 | |
|
(Decrease) | |
|
(Decrease) | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except percentages) | |
|
Revenues
|
|
$ |
345.9 |
|
|
$ |
278.6 |
|
|
$ |
67.3 |
|
|
|
24.2% |
|
The increase in revenues was due to the higher customer awards
received in the past two fiscal years consisting of
$426.2 million in fiscal year 2005 and $346.6 million
in fiscal year 2004 and the conversion of certain of those
awards into revenues.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
|
Dollar | |
|
Percentage | |
| |
|
| |
|
Increase | |
|
Increase | |
| |
|
April 1, 2005 | |
|
April 2, 2004 | |
|
(Decrease) | |
|
(Decrease) | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except percentages) | |
|
Gross profit
|
|
$ |
83.7 |
|
|
$ |
72.3 |
|
|
$ |
11.4 |
|
|
|
15.8 |
% |
|
Percentage of revenues
|
|
|
24.2 |
% |
|
|
25.9 |
% |
|
|
|
|
|
|
|
|
The increase in gross profit was primarily due to the margin
dollars generated from higher revenues and improved program
performance in the government segment over fiscal year 2004.
These increases were partially offset by gross profit reductions
from higher than planned development and start-up costs of our
DOCSIS-based consumer satellite broadband system. Our fiscal
year 2004 gross profit includes a $3.2 million benefit from
the SA Settlement. See “Liquidity and Capital
Resources” for a more detailed explanation of the SA
Settlement.
|
|
|
Selling, General and Administrative Expenses. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
|
Dollar | |
|
Percentage | |
| |
|
| |
|
Increase | |
|
Increase | |
| |
|
April 1, 2005 | |
|
April 2, 2004 | |
|
(Decrease) | |
|
(Decrease) | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except percentages) | |
|
Selling, General and Administrative
|
|
$ |
48.6 |
|
|
$ |
38.8 |
|
|
$ |
9.8 |
|
|
|
25.3 |
% |
|
Percentage of revenues
|
|
|
14.1 |
% |
|
|
13.9 |
% |
|
|
|
|
|
|
|
|
39
The increase in selling, general and administrative (SG&A)
expenses year over year is primarily attributable to the
increase in selling costs related to higher new contract awards
and increased revenues, costs related to Sarbanes-Oxley
implementation of $1.1 million, and higher year over year
legal costs of approximately $0.8 million.
Included in SG&A expenses for fiscal year 2004, is a benefit
of $3.1 million from the SA Settlement and a benefit of
$406,000 related to bad debt recoveries from the bankruptcy
liquidation of ORBCOMM. Absence these benefits, SG&A
expenses in fiscal year 2004 would have been $42.3 million
(15.2% of revenues). Therefore, SG&A expenses, as a
percentage of revenues, declined 1.1% in fiscal year 2005 over
2004. The reduction in percentage is due to the lower support
costs required to operate the Company as it grows.
SG&A expenses consist primarily of personnel costs and
expenses for business development, marketing and sales, bid and
proposal, finance, contract administration and general
management. Some SG&A expenses are difficult to predict and
vary based on specific government and commercial sales
opportunities.
|
|
|
Independent Research and Development. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
|
Dollar | |
|
Percentage | |
| |
|
| |
|
Increase | |
|
Increase | |
| |
|
April 1, 2005 | |
|
April 2, 2004 | |
|
(Decrease) | |
|
(Decrease) | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except percentages) | |
|
Independent Research and Development
|
|
$ |
8.1 |
|
|
$ |
10.0 |
|
|
$ |
(1.9 |
) |
|
|
(19.0 |
)% |
|
Percentage of revenues
|
|
|
2.3 |
% |
|
|
3.6 |
% |
|
|
|
|
|
|
|
|
Independent research and development (IR&D) expenses have
declined in each of the past two years compared to the prior
year. The decrease in IR&D expenses reflects the reduced
efforts for company funded development projects due to the
increase of orders over the past 30 months, where customer
funded development was part of the contract, and the completion
of the KG-250 development during in fiscal year 2005 versus a
full year in fiscal year 2004.
Amortization of Intangible Assets. The intangible assets
from acquisitions in fiscal year 2001 and in fiscal year 2002
are being amortized over useful lives ranging from two to ten
years. The amortization of intangible assets will decrease each
year as the intangible assets with shorter lives become fully
amortized.
The estimated amortization expense of long-lived intangible
assets for the next five fiscal years is as follows:
| |
|
|
|
|
| |
|
Amortization | |
| |
|
| |
| |
|
(In thousands) | |
|
Expected for fiscal year 2006
|
|
$ |
6,048 |
|
|
Expected for fiscal year 2007
|
|
|
5,378 |
|
|
Expected for fiscal year 2008
|
|
|
4,508 |
|
|
Expected for fiscal year 2009
|
|
|
3,760 |
|
|
Expected for fiscal year 2010
|
|
|
536 |
|
Interest Expense. Interest expense decreased to $141,000
for fiscal year 2005 from $357,000 for fiscal year 2004. The
decrease resulted from lower outstanding borrowings coupled with
lower loan fees in fiscal year 2005. At April 1, 2005 and
April 2, 2004, there were no outstanding borrowings under
our line of credit.
Interest Income. Interest income increased to $445,000
for fiscal year 2005 from $11,000 for fiscal year 2004. This
increase resulted from interest accrued on income taxes due from
amending previous years tax returns.
Provision for Income Taxes. Our effective income tax rate
was 6.0% in fiscal year 2005 compared to 13.2% in fiscal year
2004. In fiscal year 2005 we increased our export sales tax
benefit by $1.4 million over fiscal year 2004 and increased
research tax credits in fiscal year 2005 by $1.4 million
over fiscal year 2004.
40
Our Segment Results Fiscal Year 2005 Compared to Fiscal Year
2004
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
|
Dollar | |
|
Percentage | |
| |
|
| |
|
Increase | |
|
Increase | |
| |
|
April 1, 2005 | |
|
April 2, 2004 | |
|
(Decrease) | |
|
(Decrease) | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except percentages) | |
|
Revenues
|
|
$ |
175.4 |
|
|
$ |
128.4 |
|
|
$ |
47.0 |
|
|
|
36.6 |
% |
The increase in government segment revenues related primarily to
the $227.1 million in awards received during fiscal year
2005. The increased sales were principally from higher year over
year tactical data link sales of $33.7 million and sales of
the KG-250 of $12.6 million, which was a new product
introduced in fiscal year 2005.
|
|
|
Segment Operating Profit. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
|
Dollar | |
|
Percentage | |
| |
|
| |
|
Increase | |
|
Increase | |
| |
|
April 1, 2005 | |
|
April 2, 2004 | |
|
(Decrease) | |
|
(Decrease) | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except percentages) | |
|
Segment operating profit
|
|
$ |
28.1 |
|
|
$ |
15.2 |
|
|
$ |
12.9 |
|
|
|
84.9 |
% |
|
Percentage of segment revenues
|
|
|
16.0 |
% |
|
|
11.8 |
% |
|
|
|
|
|
|
|
|
The increase in government segment operating profit dollars was
primarily related to the increased revenue year over year from
tactical data link sales of $15.6 million offset by
contract development overrun charges on information assurance
and MILSATCOM programs of $5.7 million. Segment operating
profit percentage also increased due to improved margins of
tactical data links products.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
|
Dollar | |
|
Percentage | |
| |
|
| |
|
Increase | |
|
Increase | |
| Satellite Networks |
|
April 1, 2005 | |
|
April 2, 2004 | |
|
(Decrease) | |
|
(Decrease) | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except percentages) | |
|
Revenues
|
|
$ |
138.0 |
|
|
$ |
111.5 |
|
|
$ |
26.5 |
|
|
|
23.8 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
|
Dollar | |
|
Percentage | |
| |
|
| |
|
Increase | |
|
Increase | |
| Antenna Systems |
|
April 1, 2005 | |
|
April 2, 2004 | |
|
(Decrease) | |
|
(Decrease) | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except percentages) | |
|
Revenues
|
|
$ |
39.4 |
|
|
$ |
42.6 |
|
|
$ |
(3.2 |
) |
|
|
(7.5 |
)% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
|
Dollar | |
|
Percentage | |
| |
|
| |
|
Increase | |
|
Increase | |
| Total Commercial Segment |
|
April 1, 2005 | |
|
April 2, 2004 | |
|
(Decrease) | |
|
(Decrease) | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except percentages) | |
|
Revenues
|
|
$ |
177.4 |
|
|
$ |
154.2 |
|
|
$ |
23.2 |
|
|
|
15.0 |
% |
The increase in commercial segment revenues reflects higher
sales of satellite networking systems, principally consumer
broadband and enterprise VSAT equipment, offset by partially
lower sales of antenna systems. The higher sales of satellite
networking equipment revenue reflects higher customer awards
stemming from greater market acceptance of our products and the
conversion of those awards to revenue. The reduction in antenna
systems revenues are related to lower year over year new
contract awards.
41
|
|
|
Segment Operating Profit. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
|
Dollar | |
|
Percentage | |
| |
|
| |
|
Increase | |
|
Increase | |
| Satellite Networks |
|
April 1, 2005 | |
|
April 2, 2004 | |
|
(Decrease) | |
|
(Decrease) | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except percentages) | |
|
Satellite Networks operating profit
|
|
$ |
(1.7 |
) |
|
$ |
7.3 |
|
|
$ |
(9.0 |
) |
|
|
(123 |
)% |
|
Percentage of Satellite Network revenues
|
|
|
(1.2 |
)% |
|
|
6.5 |
% |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
|
Dollar | |
|
Percentage | |
| |
|
| |
|
Increase | |
|
Increase | |
| Antenna Systems |
|
April 1, 2005 | |
|
April 2, 2004 | |
|
(Decrease) | |
|
(Decrease) | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except percentages) | |
|
Antenna Systems operating profit
|
|
$ |
3.6 |
|
|
$ |
2.1 |
|
|
$ |
1.5 |
|
|
|
71.4% |
|
|
Percentage of Antenna Systems revenues
|
|
|
9.1 |
% |
|
|
4.9 |
% |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
|
Dollar | |
|
Percentage | |
| |
|
| |
|
Increase | |
|
Increase | |
| Total Commercial Segment |
|
April 1, 2005 | |
|
April 2, 2004 | |
|
(Decrease) | |
|
(Decrease) | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except percentages) | |
|
Segment operating profit
|
|
$ |
1.9 |
|
|
$ |
9.4 |
|
|
$ |
(7.5 |
) |
|
|
(79.8 |
)% |
|
Percentage of segment revenues
|
|
|
1.1 |
% |
|
|
6.1 |
% |
|
|
|
|
|
|
|
|
The decrease in commercial segment operating profit dollars and
percentage reflects an increase in antenna systems operating
profit from improved program performance offset by higher
operating costs in satellite networks, principally higher
development and start-up costs related to our DOCSIS-based
consumer satellite broadband system. Fiscal year 2004 satellite
networks operating profit includes a $6.3 million benefit
related to the SA settlement and $406,000 in proceeds from the
bankruptcy liquidation of ORBCOMM. Absent these benefits,
satellite networks operating profit would have been
$0.6 million.
Fiscal Year 2004 Compared to Fiscal Year 2003
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
|
Dollar | |
|
Percentage | |
| |
|
| |
|
Increase | |
|
Increase | |
| |
|
April 2, 2004 | |
|
March 31, 2003 | |
|
(Decrease) | |
|
(Decrease) | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except percentages) | |
|
Revenues
|
|
$ |
278.6 |
|
|
$ |
185.0 |
|
|
$ |
93.6 |
|
|
|
50.6% |
|
The increase in revenues was due to the higher customer awards
received in the past two fiscal years consisting of
$346.6 million in fiscal year 2004 and $259.2 million
in fiscal year 2003 and the conversion of certain of those
awards into revenues.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
|
Dollar | |
|
Percentage | |
| |
|
| |
|
Increase | |
|
Increase | |
| |
|
April 2, 2004 | |
|
March 31, 2003 | |
|
(Decrease) | |
|
(Decrease) | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except percentages) | |
|
Gross profit
|
|
$ |
72.3 |
|
|
$ |
42.1 |
|
|
$ |
30.2 |
|
|
|
71.7% |
|
|
Percentage of revenues
|
|
|
25.9 |
% |
|
|
22.8 |
% |
|
|
|
|
|
|
|
|
The increase in gross profit was primarily due to the margin
dollars generated from higher revenues and improved program
performance in our enterprise VSAT networks contracts over
fiscal year 2003. These increases were partially offset by gross
profit reductions from a higher percentage of customer funded
products in the development stage for fiscal year 2004, which
typically have lower profit margins, cost overruns in our
SurfBeam product area and higher amortization of capitalized
software. Our fiscal year 2004 gross profit includes a
$3.2 million benefit from the SA Settlement and fiscal year
2003 included a $2.7 million charge
42
related to Astrolink. See “Liquidity and Capital
Resources” for a more detailed explanation of the SA
Settlement and Astrolink.
|
|
|
Selling, General and Administrative Expenses. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
|
Dollar | |
|
Percentage | |
| |
|
| |
|
Increase | |
|
Increase | |
| |
|
April 2, 2004 | |
|
March 31, 2003 | |
|
(Decrease) | |
|
(Decrease) | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except percentages) | |
|
Selling, General and Administrative
|
|
$ |
38.8 |
|
|
$ |
37.9 |
|
|
$ |
0.9 |
|
|
|
2.4% |
|
|
Percentage of revenues
|
|
|
13.9 |
% |
|
|
20.4 |
% |
|
|
|
|
|
|
|
|
Included in selling, general and administrative (SG&A)
expenses for fiscal year 2004, is a benefit of $3.1 million
from the SA Settlement and a benefit of $406,000 related to bad
debt recoveries from the bankruptcy liquidation of ORBCOMM.
Absent these benefits, SG&A expenses would have been
$42.3 million (15.2% of revenues). SG&A expenses
increased principally from selling expenses related to the
pursuit of enterprise VSAT network contracts and 401(k) and
performance bonus accruals. SG&A expenses consist primarily
of personnel costs and expenses for business development,
marketing and sales, bid and proposal, finance, contract
administration and general management. Some SG&A expenses
are difficult to predict and vary based on specific government
and commercial sales opportunities.
|
|
|
Independent Research and Development. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
|
Dollar | |
|
Percentage | |
| |
|
| |
|
Increase | |
|
Increase | |
| |
|
April 2, 2004 | |
|
March 31, 2003 | |
|
(Decrease) | |
|
(Decrease) | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except percentages) | |
|
Independent Research and Development
|
|
$ |
10.0 |
|
|
$ |
16.0 |
|
|
$ |
(6.0 |
) |
|
|
(37.5 |
)% |
|
Percentage of revenues
|
|
|
3.6 |
% |
|
|
8.7 |
% |
|
|
|
|
|
|
|
|
The decrease in independent research and development (IR&D)
expenses reflects the reduced efforts for company funded
development projects due to the increase of orders during this
period where customer funded development was part of the
contract.
Amortization of Intangible Assets. The intangible assets
from acquisitions in fiscal year 2001 and in fiscal year 2002
are being amortized over useful lives ranging from two to ten
years. The amortization of intangible assets will decrease each
year as the intangible assets with shorter lives become fully
amortized.
The estimated amortization expense of long-lived intangible
assets for the next five fiscal years is as follows:
| |
|
|
|
|
| |
|
Amortization | |
| |
|
| |
| |
|
(In thousands) | |
|
Expected for fiscal year 2005
|
|
$ |
6,642 |
|
|
Expected for fiscal year 2006
|
|
|
6,048 |
|
|
Expected for fiscal year 2007
|
|
|
5,378 |
|
|
Expected for fiscal year 2008
|
|
|
4,508 |
|
|
Expected for fiscal year 2009
|
|
|
3,760 |
|
Interest Expense. Interest expense decreased to $357,000
for fiscal year 2004 from $856,000 for fiscal year 2003. The
decrease resulted from lower outstanding borrowings coupled with
lower loan fees in fiscal year 2004. At March 31, 2003,
there were $10.0 million in outstanding borrowings under
our line of credit. At April 2, 2004, there were no
outstanding borrowings under our line of credit.
Interest Income. Interest income decreased to $11,000 for
fiscal year 2004 from $116,000 for fiscal year 2003. This
decrease resulted from lower average invested cash balances and
lower yields.
Provision (Benefit) for Income Taxes. Our effective
income tax rate was a provision of 13.2% in fiscal year 2004
compared to a benefit of 54.3% in fiscal year 2003. We generate
research credits that are not
43
variable to income, so when there is a loss before tax as there
was in fiscal year 2003, the credits increase the tax benefit.
In fiscal year 2004, we have income before tax so the tax
credits reduce the tax provision. Therefore, the annual
effective tax rate for fiscal year 2004 cannot be meaningfully
compared to the effective tax rate for fiscal year 2003.
Our Segment Results Fiscal Year 2004 Compared to Fiscal Year
2003
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
|
Dollar | |
|
Percentage | |
| |
|
| |
|
Increase | |
|
Increase | |
| |
|
April 2, 2004 | |
|
March 31, 2003 | |
|
(Decrease) | |
|
(Decrease) | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except percentages) | |
|
Revenues
|
|
$ |
128.4 |
|
|
$ |
82.6 |
|
|
$ |
45.8 |
|
|
|
55.4% |
|
The increase in government segment revenues related primarily to
the $170.5 million in awards received during fiscal year
2004. We experienced growth across all of our government
products including tactical data links, mobile satellite systems
and secure networking products.
|
|
|
Segment Operating Profit. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
|
Dollar | |
|
Percentage | |
| |
|
| |
|
Increase | |
|
Increase | |
| |
|
April 2, 2004 | |
|
March 31, 2003 | |
|
(Decrease) | |
|
(Decrease) | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except percentages) | |
|
Segment operating profit
|
|
$ |
15.2 |
|
|
$ |
11.7 |
|
|
$ |
3.5 |
|
|
|
29.9% |
|
|
Percentage of segment revenues
|
|
|
11.8 |
% |
|
|
14.2 |
% |
|
|
|
|
|
|
|
|
The increase in government segment operating profit dollars was
primarily related to the increased revenue year over year.
Segment operating profit did not increase as rapidly as revenues
primarily due to higher customer funded research and development
contract activity, which typically has a lower profit rate, and
increased investments by us in our KG-250 product.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
|
Dollar | |
|
Percentage | |
| |
|
| |
|
Increase | |
|
Increase | |
| Satellite Networks |
|
April 2, 2004 | |
|
March 31, 2003 | |
|
(Decrease) | |
|
(Decrease) | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except percentages) | |
|
Revenues
|
|
$ |
111.5 |
|
|
$ |
75.1 |
|
|
$ |
36.4 |
|
|
|
48.5% |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
|
Dollar | |
|
Percentage | |
| |
|
| |
|
Increase | |
|
Increase | |
| Antenna Systems |
|
April 2, 2004 | |
|
March 31, 2003 | |
|
(Decrease) | |
|
(Decrease) | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except percentages) | |
|
Revenues
|
|
$ |
42.6 |
|
|
$ |
28.7 |
|
|
$ |
13.9 |
|
|
|
48.4% |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
|
Dollar | |
|
Percentage | |
| |
|
| |
|
Increase | |
|
Increase | |
| Total Commercial Segment |
|
April 2, 2004 | |
|
March 31, 2003 | |
|
(Decrease) | |
|
(Decrease) | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except percentages) | |
|
Revenues
|
|
$ |
154.2 |
|
|
$ |
103.8 |
|
|
$ |
50.4 |
|
|
|
48.6% |
|
The increase in commercial segment revenues reflects improved
competitive positioning across all our commercial products, more
favorable market conditions in the commercial telecommunications
market for our VSAT network products, record awards for our
antenna products, and the further development of our in-flight
and consumer satellite broadband internet systems.
44
|
|
|
Segment Operating Profit. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
|
Dollar | |
|
Percentage | |
| |
|
| |
|
Increase | |
|
Increase | |
| Satellite Networks |
|
April 2, 2004 | |
|
March 31, 2003 | |
|
(Decrease) | |
|
(Decrease) | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except percentages) | |
|
Satellite Networks operating profit
|
|
$ |
7.3 |
|
|
$ |
(23.2 |
) |
|
$ |
30.5 |
|
|
|
131 |
% |
|
Percentage of Satellite Network revenues
|
|
|
6.5 |
% |
|
|
(30.9 |
)% |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
|
Dollar | |
|
Percentage | |
| |
|
| |
|
Increase | |
|
Increase | |
| Antenna Systems |
|
April 2, 2004 | |
|
March 31, 2003 | |
|
(Decrease) | |
|
(Decrease) | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except percentages) | |
|
Antenna Systems operating profit
|
|
$ |
2.1 |
|
|
$ |
0.5 |
|
|
$ |
1.6 |
|
|
|
320 |
% |
|
Percentage of Antenna Systems revenues
|
|
|
4.9 |
% |
|
|
1.7 |
% |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
|
Dollar | |
|
Percentage | |
| |
|
| |
|
Increase | |
|
Increase | |
| Total Commercial Segment |
|
April 2, 2004 | |
|
March 31, 2003 | |
|
(Decrease) | |
|
(Decrease) | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except percentages) | |
|
Segment operating profit
|
|
$ |
9.4 |
|
|
$ |
(22.6 |
) |
|
$ |
32.0 |
|
|
|
142 |
% |
|
Percentage of segment revenues
|
|
|
6.1 |
% |
|
|
(21.8 |
)% |
|
|
|
|
|
|
|
|
The increase in commercial segment operating profit and improved
operating profit percentage resulted from improved program
execution in our enterprise VSAT networks and antenna systems
contracts and increased revenues year over year from our
consumer and mobile broadband, antenna systems and enterprise
VSAT networks products. This increase was partially offset by
development cost overruns in our DOCSIS-based consumer broadband
satellite system. Our fiscal year 2004 segment operating profit
includes a $6.3 million benefit from the SA Settlement and
$406,000 in proceeds from the bankruptcy liquidation of ORBCOMM.
Fiscal year 2003 segment operating profits included
$2.4 million of company funded research and development by
USM, the $2.7 million charge related to Astrolink and
increased legal costs related to the claim against SA.
Backlog
As reflected in the table below, funded and firm (funded plus
unfunded) backlog increased during fiscal year 2005 with the
increases in firm backlog coming from both our government and
commercial segments. New contract awards in the current year
increased backlog to a new all-time high for us.
| |
|
|
|
|
|
|
|
|
|
| |
|
April 1, 2005 | |
|
April 2, 2004 | |
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Firm backlog
|
|
|
|
|
|
|
|
|
|
Government segment
|
|
$ |
194.6 |
|
|
$ |
142.9 |
|
|
Commercial segment
|
|
|
167.3 |
|
|
|
138.7 |
|
| |
|
|
|
|
|
|
| |
Total
|
|
$ |
361.9 |
|
|
$ |
281.6 |
|
| |
|
|
|
|
|
|
|
Funded backlog
|
|
|
|
|
|
|
|
|
|
Government segment
|
|
$ |
109.4 |
|
|
$ |
119.6 |
|
|
Commercial segment
|
|
|
163.9 |
|
|
|
138.7 |
|
| |
|
|
|
|
|
|
| |
Total
|
|
$ |
273.3 |
|
|
$ |
258.3 |
|
| |
|
|
|
|
|
|
|
Contract options
|
|
$ |
23.0 |
|
|
$ |
25.8 |
|
| |
|
|
|
|
|
|
The firm backlog does not include contract options. Of the
$361.9 million in firm backlog, approximately
$220.6 million is expected to be delivered in fiscal year
2006, and the balance is expected to be delivered in
45
fiscal year 2007 and thereafter. We include in our backlog only
those orders for which we have accepted purchase orders.
Total new awards for both commercial and defense products were
$426.2 million for fiscal year 2005 compared to
$346.5 million for fiscal year 2004.
Backlog is not necessarily indicative of future sales. A
majority of our contracts can be terminated at the convenience
of the customer since 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
purchase order.
The 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 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
We have financed our operations to date primarily with cash
flows from operations, bank line of credit financing, equity
financing and loans for the purchase of capital equipment. The
general cash needs of our government and commercial segments can
vary significantly and depend on the type and mix of contracts
(i.e. product or service, development or production, timing of
payments, etc.) in backlog, the quality of the customer (i.e.,
U.S. government or commercial, domestic or international)
and the duration of the contract. In addition, for both of our
segments, program performance significantly impacts the timing
and amount of cash flows. If a program is performing and meeting
its contractual requirements, then the cash flow requirements
are usually lower.
The cash needs of the government segment tend to be more of a
function of the type of contract rather than customer quality.
Also, U.S. government procurement regulations tend to
restrict the timing of cash payments on the contract. In the
commercial segment, our cash needs are driven primarily by the
quality of the customer and the type of contract. The quality of
the customer will typically affect the specific contract cash
flow and whether financing instruments are required by the
customer. In addition, the commercial environment tends to
provide for more flexible payment terms with customers,
including advance payments.
Cash provided by operating activities in fiscal year 2005 was
$3.6 million as compared to cash provided by operating
activities in fiscal year 2004 of $28.6 million. The
decrease in cash provided by operating activities in 2005
compared to 2004 primarily related to an increase in accounts
receivable of $30.5 million, an increase in inventories of
$6.2 million, the payment of 401(k) and performance bonuses
of $6.7 million in fiscal year 2005, compared to zero in
fiscal year 2004, offset by cash provided by operations from
increased profitability year over year. Cash flow from operating
activities in fiscal year 2004, included $9.0 million
received in the SA Settlement (see note 10 —
Contingencies to our consolidated financial statements).
Unbilled accounts receivable increased due to the higher level
of MIDS production and the related progress payment process and
the delay in achieving milestones primarily on information
assurance, consumer broadband and enterprise VSAT programs. The
increase in inventory was primarily related to MIDS and KG-250
inventory as we increase production, and consumer and enterprise
VSAT equipment. We expect both unbilled receivables and
inventory to decline over the next two quarters.
Cash used in investing activities in fiscal year 2005 was
$11.3 million as compared to cash used in investing
activities in 2004 of $8.5 million. We acquired
$11.3 million in equipment in fiscal year 2005 compared to
acquiring $8.5 million in equipment in fiscal year 2004.
46
Cash provided by financing activities for fiscal year 2005 was
$3.7 million as compared to cash used in financing
activities for fiscal year 2004 of $5.9 million. This
increase for fiscal year 2005 was primarily the result of net
cash payments of $10 million on our line of credit in
fiscal year 2004, partially offset by cash received from the
exercise of employee stock options.
At April 1, 2005, we had $14.7 million in cash, cash
equivalents and short-term investments, $138.9 million in
working capital and no outstanding borrowings under our line of
credit. We had $5.0 million outstanding under standby
letters of credit principally related to contract performance
leaving borrowing availability under our line of credit of
$55.0 million. At April 2, 2004, we had
$18.7 million in cash, cash equivalents and short-term
investments, $107.8 million in working capital and no
outstanding borrowings under our line of credit.
On January 31, 2005, we entered into a three-year,
$60 million revolving credit facility (the
“Facility”) with Union Bank of California, Comerica
Bank and Silicon Valley Bank.
Borrowings under the Facility are permitted up to a maximum
amount of $60 million, including up to $15 million of
letters of credit. Borrowings under the Facility bear interest,
at our option, at either the lender’s prime rate or at
LIBOR (London Interbank Offered Rate) plus, in each case, an
applicable margin based on the ratio of ViaSat’s total
funded debt to EBITDA (income from operations plus depreciation
and amortization). The Facility is collateralized by
substantially all of ViaSat’s personal property assets.
The Facility contains financial covenants that set a minimum
EBITDA limit for the twelve-month period ending on the last day
of any fiscal quarter at $30 million, a minimum tangible
net worth as of the last day of any fiscal quarter at
$135 million and a minimum quick ratio (sum of cash and
cash equivalents, accounts receivable and marketable securities,
divided by current liabilities) as of the last day of any fiscal
quarter at 1.50 to 1.00. We were in compliance with our loan
covenants at April 1, 2005.
On October 23, 2002, we sent SA a claim for indemnification
under the terms of the asset purchase agreement related to the
acquisition of SA’s satellite networks business (Satellite
Networks Business) in April 2000. On November 14, 2002, SA
filed a complaint (United States District Court, Northern
District of Georgia, Atlanta Division) for declaratory judgment
seeking to resolve our claim for indemnification through
litigation. In response to SA’s complaint, on
January 15, 2003, we filed a formal claim against SA for,
among other things, fraud, breach of warranty, contractual and
equitable indemnification, and breach of the duty of good faith
and fair dealing. In December 2003, we reached an agreement with
SA (the “SA Settlement”). Under the terms of the SA
Settlement, SA paid us $9.0 million in cash and the parties
jointly dismissed the litigation concerning the acquisition.
Neither party admitted liability in connection with the
litigation, or in the agreement resolving it. As a result of the
settlement, the Consolidated Statement of Operations for fiscal
year 2004 includes benefits to cost of revenues of
$3.2 million and to selling, general and administrative
expenses of $3.1 million.
On January 19, 2003 we reached a settlement with Astrolink
with respect to contractual termination payments for contracts
that were terminated on December 5, 2001. We received a
cash payment of $6.5 million. The assets at risk prior to
the Astrolink settlement totaled $9.2 million and included
accounts receivable due from Astrolink in the amount of
approximately $6.3 million, inventory specific to Astrolink
of $0.4 million and $2.5 million in prepaid airtime on
Astrolink satellites. As a result, we recorded a charge through
cost of revenues in the fiscal year ended March 31, 2003 of
$2.7 million.
On September 15, 2000 ORBCOMM Global, L.P. and seven of its
subsidiaries filed a voluntary petition for Chapter 11
relief in the United States Bankruptcy Court for the District of
Delaware as part of ORBCOMM’s efforts to restructure and
reorganize its business. ORBCOMM has continued its efforts to
maintain and operate its network of low-Earth orbit
(LEO) satellites and related ground facilities while it
restructures its operations. Although discussions continued with
ORBCOMM, we no longer considered it reasonably possible that our
assets at risk would be recovered. The amount at risk was
accounts receivable of $4.8 million, and a charge to
selling, general and administrative costs was made for this
amount and was included in our results for fiscal year ended
March 31, 2002. In fiscal year 2004 we received $406,000
from the
47
bankruptcy liquidation proceedings of ORBCOMM. The Consolidated
Statement of Operations for fiscal year 2004 includes a benefit
to selling, general and administrative expenses of $406,000 for
these proceeds.
In June 2004 we filed a universal shelf registration statement
with the Securities and Exchange Commission for the future sale
of up to $154 million of debt securities, common stock,
preferred stock, depositary shares and warrants. Additionally,
ViaSat has available $46 million of these securities, which
were previously registered under a shelf registration statement
ViaSat originally filed in September 2001. Up to
$200 million of the securities may now be offered from time
to time, separately or together, directly by us or through
underwriters at amounts, prices, interest rates and other terms
to be determined at the time of the offering. We currently
intend to use the net proceeds from the sale of the securities
under the shelf registration statement for general corporate
purposes, including acquisitions, capital expenditures and
working capital.
Our future capital requirements will depend upon many factors,
including the 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. We believe that
our current cash balances and net cash expected to be provided
by operating activities will be sufficient to meet our operating
requirements for at least the next twelve months. However, we
may sell additional equity or debt securities or obtain credit
facilities to further enhance our liquidity position. The sale
of additional securities could result in additional dilution of
our stockholders. We invest our cash in excess of current
operating requirements in short-term, interest-bearing,
investment-grade securities.
The following table sets forth a summary of our obligations
under operating leases, irrevocable letters of credit, purchase
commitments and accrued warranty for the periods indicated:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
For the Fiscal Years Ending, | |
| |
|
|
|
| |
| |
|
Total | |
|
2006 | |
|
2007-2008 | |
|
2009-2010 | |
|
After 2010 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Operating leases
|
|
$ |
62,916 |
|
|
$ |
6,171 |
|
|
$ |
12,044 |
|
|
$ |
12,176 |
|
|
$ |
32,525 |
|
|
Standby letters of credit
|
|
|
5,041 |
|
|
|
1,286 |
|
|
|
1,610 |
|
|
|
— |
|
|
|
2,145 |
|
|
Purchase commitments
|
|
|
183,198 |
|
|
|
88,250 |
|
|
|
78,215 |
|
|
|
16,733 |
|
|
|
— |
|
|
Accrued warranty
|
|
|
7,179 |
|
|
|
3,268 |
|
|
|
2,344 |
|
|
|
1,567 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
258,334 |
|
|
$ |
98,975 |
|
|
$ |
94,213 |
|
|
$ |
30,476 |
|
|
$ |
34,670 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 as 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.
We are currently a party to various government and commercial
contracts which require us to meet performance covenants and
project milestones. Under the terms of these contracts, our
failure meet such performance covenants and milestones permit
the other party to terminate the contract and, under certain
circumstances, recover liquidated damages or other penalties. We
are currently not in compliance (or in the past were not in
compliance) with the performance or milestone requirements of
certain of these contracts. Generally, our customers have not
elected to terminate such contracts or seek liquidated damages
from us; therefore, we have not accrued for any potential
liquidated damages or penalties. However, there can be no
assurance that our customers will not elect to terminate such
contracts or seek liquidated damages or penalties from us in the
future.
48
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements at April 1, 2005,
that are reasonably likely to have a current or future material
effect on our consolidated financial condition, results of
operations, liquidity, capital expenditures, or capital
resources.
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board
(FASB) revised Statement No. 123 (SFAS 123R),
“Share-Based Payment,” which requires companies to
expense the estimated fair value of employee stock options and
similar awards. On April 14, 2005, the SEC adopted a new
rule amending the compliance dates for SFAS 123R. In
accordance with the new rule, the accounting provisions of
SFAS 123R will be effective for us in fiscal 2007. We will
adopt the provisions of SFAS 123R and plan to use the
modified prospective transition method. Under the modified
prospective transition method, SFAS 123R, which provides
certain changes to the method for valuing stock-based
compensation among other changes, will apply to new awards and
to awards that are outstanding on the effective date and are
subsequently modified or cancelled. Compensation expense for
outstanding awards for which the requisite service had not been
rendered as of the effective date will be recognized over the
remaining service period using the compensation cost calculated
for pro forma disclosure purposes under SFAS 123 (See
Stock-based Compensation in this note). As permitted by
SFAS 123, we currently account for stock-based compensation
using APB 25’s intrinsic value method and, as such,
generally recognize no compensation cost for employee stock
options. Accordingly, the adoption of SFAS 123R will likely
have a material impact on our results of operations. However,
the ultimate impact of adoption of SFAS 123R cannot be
predicted at this time because it will depend on levels of
share-based payments granted in the future.
In November 2004, the FASB issued SFAS No. 151,
“Inventory Costs — An Amendment of ARB
No. 43, Chapter 4,” to clarify the accounting for
abnormal inventory costs. SFAS No. 151 requires that
abnormal amounts of idle facility costs, freight, handling costs
and spoilage are to be recognized as current-period expenses
regardless of whether they meet the “so abnormal”
criterion outlined in ARB No. 43. In addition, the
allocation of fixed production overhead costs to inventory is to
be based on the normal capacity of the production facilities.
Unallocated overhead costs are to be recognized as expenses in
the period incurred. Normal capacity is defined as the
production expected to be achieved over a number of periods or
seasons under normal circumstances, taking into account the loss
of capacity resulting from planned maintenance.
SFAS No. 151 is effective for inventory costs incurred
during fiscal years beginning after June 15, 2005. The
adoption of SFAS No. 151 is not expected to have a
significant impact on our consolidated financial statements.
In December 2004, the FASB issued SFAS No. 153,
“Exchanges of Nonmonetary Assets — An Amendment
of APB Opinion No. 29, Accounting for Nonmonetary
Transactions” (SFAS 153). SFAS 153 eliminates the
exception from fair value measurement for nonmonetary exchanges
of similar productive assets in paragraph 21(b) of APB
Opinion No. 29, “Accounting for Nonmonetary
Transactions,” and replaces it with an exception for
exchanges that do not have commercial substance. SFAS 153
specifies that a nonmonetary exchange has commercial substance
if the future cash flows of the entity are expected to change
significantly as a result of the exchange. SFAS 153 is
effective for the fiscal periods beginning after June 15,
2005. The Company is currently evaluating the effect that the
adoption of SFAS 153 will have on its consolidated results
of operations and financial condition but does not expect it to
have a material impact.
In May 2005, the FASB issued SFAS No. 154,
“Accounting Changes and Error Corrections”.
SFAS No. 154 is a replacement of Accounting Principles
Board Opinion (“APB”) No. 20 and FASB Statement
No. 3. SFAS No. 154 provides guidance on the
accounting for and reporting of accounting changes and error
corrections. It establishes retrospective application as the
required method for reporting a change in accounting principle.
SFAS No. 154 provides guidance for determining whether
retrospective application of a change in accounting principle is
impracticable and for reporting a change when retrospective
application is impracticable. The reporting of a correction of
an error by restating previously issued financial statements is
also addressed by SFAS No. 154. SFAS No. 154
is effective for accounting changes and corrections of errors
49
made in fiscal years beginning after December 15, 2005. We
will be adopting this pronouncement beginning in our fiscal year
2007.
On March 29, 2005, the SEC issued Staff Accounting Bulletin
(SAB) 107 which express the views of the SEC regarding the
interaction between SFAS No. 123R and certain SEC
rules and regulations and provided the SEC’s views
regarding the valuation of share-based payment arrangements for
public companies. In particular, SAB 107 provides guidance
related to share-based payment transactions with nonemployees,
the transition from nonpublic to public entity status, valuation
methods (including assumptions such as expected volatility and
expected term), the accounting for certain redeemable financial
instruments issue under share-based payment arrangements, the
classification of compensation expense, non-GAAP financial
measures, first-time adoption of SFAS No. 123R in and
interim period, capitalization of compensation cost related to
share-based payment arrangements, the accounting for income tax
effects of share-based payment arrangements upon adoption of
SFAS No. 123R, the modification of employee share
options prior to adoption of SFAS No. 123R and
disclosures in Management’s Discussion and Analysis of
Financial Condition and Results of Operations subsequent to
adoption of SFAS No. 123R. We are currently evaluating
the impact SAB 107 will have on our results of operations
and financial position when we adopt in fiscal 2007.
|
|
| Item 7A. |
Quantitative and Qualitative Disclosures About Market
Risk |
Our financial instruments consist of cash and cash equivalents,
short-term investments, trade accounts receivable, accounts
payable, and short-term obligations including the revolving line
of credit. We consider investments in highly liquid instruments
purchased with a remaining maturity of 90 days or less at
the date of purchase to be cash equivalents. Our exposure to
market risk for changes in interest rates relates primarily to
short-term investments and short-term obligations. As a result,
we do not expect fluctuations in interest rates to have a
material impact on the fair value of these securities.
As of April 1, 2005, there is a foreign currency exchange
contract outstanding which is intended to reduce the foreign
currency risk for amounts payable to vendors in Euros. The
foreign exchange contract with a notional amount of
$2.7 million, consisting of both a put contract and a call
contract, had a fair value of a net liability of $54,000 as of
April 1, 2005. The fair value of this foreign currency
forward contract as of April 1, 2005, would have changed by
$176,000 if the foreign currency exchange rate for the Euro to
the U.S. dollar on this forward contract had changed by
10%. We had no foreign currency transactions outstanding at
April 2, 2004.
|
|
| Item 8. |
Financial Statements and Supplementary Data |
Our consolidated financial statements at April 1, 2005 and
April 2, 2004 and for each of the three years in the period
ended April 1, 2005, and the Report of
PricewaterhouseCoopers LLP, Independent Registered Public
Accounting Firm, are included in this annual report on
pages F-1 through F-25.
50
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 2005 and
2004 are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
1st Quarter | |
|
2nd Quarter | |
|
3rd Quarter | |
|
4th Quarter | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share data) | |
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
84,170 |
|
|
$ |
82,643 |
|
|
$ |
88,187 |
|
|
$ |
90,939 |
|
|
Gross profit
|
|
|
21,394 |
|
|
|
19,835 |
|
|
|
19,715 |
|
|
|
22,735 |
|
|
Income from operations
|
|
|
5,379 |
|
|
|
5,768 |
|
|
|
4,867 |
|
|
|
4,310 |
|
|
Net income
|
|
|
3,563 |
|
|
|
3,745 |
|
|
|
5,241 |
|
|
|
6,718 |
|
|
Basic net income per share
|
|
|
0.13 |
|
|
|
0.14 |
|
|
|
0.20 |
|
|
|
0.25 |
|
|
Diluted net income per share
|
|
|
0.13 |
|
|
|
0.13 |
|
|
|
0.19 |
|
|
|
0.24 |
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
59,264 |
|
|
$ |
64,336 |
|
|
$ |
71,758 |
|
|
$ |
83,221 |
|
|
Gross profit
|
|
|
15,939 |
|
|
|
16,811 |
|
|
|
19,922 |
|
|
|
19,580 |
|
|
Income (loss) from operations
|
|
|
(63 |
) |
|
|
1,778 |
|
|
|
9,611 |
|
|
|
4,325 |
|
|
Net income
|
|
|
463 |
|
|
|
1,802 |
|
|
|
7,089 |
|
|
|
3,814 |
|
|
Basic net income per share
|
|
|
0.02 |
|
|
|
0.07 |
|
|
|
0.27 |
|
|
|
0.14 |
|
|
Diluted net income per share
|
|
|
0.02 |
|
|
|
0.07 |
|
|
|
0.26 |
|
|
|
0.13 |
|
Included in the third quarter of the fiscal year ended
April 2, 2004, is a benefit to gross profit of
$3.2 million and SG&A of $3.1 million related to
the SA Settlement. See “Liquidity and Capital
Resources” for a more detailed explanation of both the SA
Settlement and Astrolink charge.
|
|
| Item 9. |
Changes in and Disagreements With Accountants On
Accounting and Financial Disclosure |
None.
|
|
| Item 9A. |
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.
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
April 1, 2005, the end of the period covered by this annual
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 April 1, 2005.
Changes in Internal Control Over Financial Reporting
As noted in our quarterly report on Form 10-Q for the quarter
ended December 31, 2004 filed with the SEC, management
identified a material weakness in its internal controls related
to two types of non-routine transactions. These two matters
included (1) two separate bill and hold transactions where
revenue was not deferred in accordance with the revenue
recognition principles of SEC Staff Accounting
Bulletin 104, Revenue Recognition, and (2) two
foreign currency forward purchase contracts that were not
properly assessed and designated as hedges in accordance with
Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging
Activities.
51
Because adjustments to our interim financial statements were
required related to the bill and hold transactions that involved
amounts which were material to the interim financial statements,
we concluded that a material weakness in our internal control
over financial reporting existed as of December 31, 2004.
Specifically, our management did not have formalized policies
and procedures in place that (1) specified how significant
and non-routine transactions should be assessed,
(2) specified how the accounting conclusions were to be
documented and (3) included criteria requiring that certain
accounting conclusions be reviewed and approved by a more
experienced member of the accounting staff. Our management also
concluded that our inadequate depth of finance and accounting
resources contributed to the significance of this internal
control weakness.
In the fourth quarter, our management, working with our Audit
Committee, implemented the following measures to improve our
internal control over financial reporting:
|
|
|
| |
• |
Hired additional finance and accounting personnel with
appropriate experience to, among other things, oversee
non-routine transactions to ensure they are properly accounted
for in accordance with generally accepted accounting principles. |
| |
| |
• |
Conducted additional training of our personnel concerning
revenue recognition accounting principles. |
| |
| |
• |
Established and implemented policies and procedures for the
identification, assessment, documentation and supervisory review
of the accounting for significant and non-routine transactions. |
We believe the foregoing management initiatives mitigated the
internal control deficiencies identified in the third quarter,
and management and our independent registered public accounting
firm concluded that our internal control over financial
reporting is operating effectively as of our fiscal year-end,
April 1, 2005. Other than the foregoing initiatives, there
have been no changes in our internal control over financial
reporting during our most recent fiscal quarter that have
materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial
Reporting
Our 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 our management,
including our principal executive officer and principal
financial officer, We conducted an evaluation of the
effectiveness of our 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, our management concluded
that our internal control over financial reporting was effective
as of April 1, 2005.
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.
PricewaterhouseCoopers LLP, the Company’s independent
registered public accounting firm has audited management’s
assessment of the effectiveness of the Company’s internal
control over financial reporting as of April 1, 2005 as
stated in their report, which appears on page F-1.
52
|
|
| Item 9B. |
Other Information |
None.
PART III
|
|
| Item 10. |
Directors and Executive Officers of the Registrant |
The information required by this item is incorporated by
reference to our definitive Proxy Statement to be filed with the
SEC in connection with our 2005 Annual Meeting of Stockholders
(the Proxy Statement) under the headings “Election of
Directors” and “Executive Officers.”
|
|
| Item 11. |
Executive Compensation |
The information required by this item is incorporated by
reference to the Proxy Statement under the heading
“Executive Compensation.”
|
|
| Item 12. |
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters |
The information required by this item is incorporated by
reference to the Proxy Statement under the heading
“Security Ownership of Certain Beneficial Owners and
Management.”
|
|
| Item 13. |
Certain Relationships and Related Transactions |
The information required by this item, to the extent applicable,
is incorporated by reference to the Proxy Statement under the
heading “Certain Transactions.”
|
|
| Item 14. |
Principal Accountant Fees and Services |
The information required by this item is incorporated by
reference to the Proxy Statement under the heading
“Principal Accountant Fees and Services.”
53
PART IV
|
|
| Item 15. |
Exhibits and Financial Statement Schedules |
(a) Documents filed as part of the report:
| |
|
|
|
|
|
| |
|
Page | |
| |
|
Number | |
| |
|
| |
|
(1) Report of Independent Registered Public Accounting Firm
|
|
|
F-1 |
|
| |
Consolidated Balance Sheets as of April 1, 2005 and
April 2, 2004
|
|
|
F-3 |
|
| |
Consolidated Statements of Operations for the years ended
April 1, 2005, April 2, 2004 and March 31, 2003
|
|
|
F-4 |
|
| |
Consolidated Statements of Cash Flows for the years ended
April 1, 2005, April 2, 2004 and March 31, 2003
|
|
|
F-5 |
|
| |
Consolidated Statements of Stockholders’ Equity for the
years ended April 1, 2005, April 2, 2004 and
March 31, 2003
|
|
|
F-6 |
|
| |
Notes to the Consolidated Financial Statements
|
|
|
F-7 |
|
|
(2) Schedule II — Valuation and Qualifying
Accounts
|
|
|
II-1 |
|
All other schedules are omitted because they are not applicable
or the required information is shown in the financial statements
or notes thereto.
(3) Exhibits
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Incorporated by Reference |
|
|
| Exhibit | |
|
|
|
|
|
Filed | |
| Number | |
|
Exhibit Description |
|
Form | |
|
File No. |
|
Exhibit | |
|
Filing Date |
|
Herewith | |
| | |
|
|
|
| |
|
|
|
| |
|
|
|
| |
| |
2.1 |
|
|
Asset Purchase Agreement, dated January 18, 2000, by and
between ViaSat, Inc. and Scientific-Atlanta, Inc. |
|
|
8-K |
|
|
0000-21767 |
|
|
2.1 |
|
|
01/19/2000 |
|
|
|
|
| |
2.2 |
|
|
Unit Purchase Agreement dated as of December 12, 2001 by
and between ViaSat, Inc. and Wildblue Communications, Inc. |
|
|
8-K |
|
|
000-21767 |
|
|
10.1 |
|
|
12/19/2001 |
|
|
|
|
| |
2.3 |
|
|
Unit Purchase Agreement dated as of December 14, 2001 by
and among ViaSat, Inc. and the parties identified under the
heading Sellers on the signature pages thereto |
|
|
8-K |
|
|
000-21767 |
|
|
10.5 |
|
|
12/19/2001 |
|
|
|
|
| |
3.1 |
|
|
First Amended and Restated Bylaws of ViaSat, Inc. |
|
|
S-3 |
|
|
333-116468 |
|
|
3.2 |
|
|
06/14/2004 |
|
|
|
|
| |
3.2 |
|
|
Second Amended and Restated Certificate of Incorporation of
ViaSat, Inc. |
|
|
10-Q |
|
|
000-21767 |
|
|
3.1 |
|
|
11/14/2000 |
|
|
|
|
| |
4.1 |
|
|
Form of Common Stock Certificate |
|
|
S-1/A |
|
|
333-13183 |
|
|
4.1 |
|
|
11/05/1996 |
|
|
|
|
| |
10.1 |
|
|
Form of Invention and Confidential Disclosure Agreement by and
between ViaSat, Inc. and Each Employee of ViaSat, Inc. |
|
|
S-1 |
|
|
333-13183 |
|
|
10.4 |
|
|
10/01/1996 |
|
|
|
|
| |
10.2* |
|
|
The 1996 Equity Participation Plan of ViaSat, Inc. |
|
|
S-8 |
|
|
333-109959 |
|
|
10.1 |
|
|
10/24/2003 |
|
|
|
|
| |
10.3* |
|
|
Form of Incentive Stock Option Agreement under the 1996 Equity
Participation Plan |
|
|
S-1/A |
|
|
333-13183 |
|
|
10.9 |
|
|
11/20/1996 |
|
|
|
|
| |
10.4* |
|
|
Form of Nonqualified Stock Option Agreement under the 1996
Equity Participation Plan |
|
|
S-1/A |
|
|
333-13183 |
|
|
10.10 |
|
|
11/20/1996 |
|
|
|
|
54
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Incorporated by Reference |
|
|
| Exhibit | |
|
|
|
|
|
Filed | |
| Number | |
|
Exhibit Description |
|
Form | |
|
File No. |
|
Exhibit | |
|
Filing Date |
|
Herewith | |
| | |
|
|
|
| |
|
|
|
| |
|
|
|
| |
| |
10.5* |
|
|
The ViaSat, Inc. Employee Stock Purchase Plan, as amended |
|
|
10-Q |
|
|
000-21767 |
|
|
10.1 |
|
|
08/14/2000 |
|
|
|
|
| |
10.6* |
|
|
ViaSat, Inc. 401(k) Profit Sharing Plan |
|
|
S-1 |
|
|
333-13183 |
|
|
10.12 |
|
|
10/11/1996 |
|
|
|
|
| |
10.7 |
|
|
Second Amended and Restated Revolving Loan Agreement dated
January 31, 2005 among ViaSat, Inc., Union Bank of
California, N.A. and Comerica Bank |
|
|
8-K |
|
|
000-21767 |
|
|
10.1 |
|
|
02/01/2005 |
|
|
|
|
| |
10.8 |
|
|
Lease, dated March 24, 1998, by and between W9/ LNP Real
Estate Limited Partnership and ViaSat, Inc. (6155 El Camino
Real, Carlsbad, California) |
|
|
10-K |
|
|
000-21767 |
|
|
10.27 |
|
|
06/29/1998 |
|
|
|
|
| |
10.9 |
|
|
Amendment to Lease, dated June 17, 2004, by and between
Levine Investments Limited Partnership and ViaSat, Inc. (6155
El Camino Real, Carlsbad, CA) |
|
|
10-Q |
|
|
000-21767 |
|
|
10.1 |
|
|
08/10/2004 |
|
|
|
|
| |
10.10 |
|
|
Award/ Contract, effective January 20, 2000, issued by
Space and Naval Warfare Systems to ViaSat, Inc. |
|
|
10-Q |
|
|
000-21767 |
|
|
10.1 |
|
|
02/14/2000 |
|
|
|
|
| |
21.1 |
|
|
Subsidiaries. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
| |
23.1 |
|
|
Consent of PricewaterhouseCoopers LLP, Independent Registered
Public Accounting Firm. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
| |
31.1 |
|
|
Certifications Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
| |
32.1 |
|
|
Certifications Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
| |
* |
Denotes management contract or compensatory plan or arrangement
required to be filed pursuant to Item 15(b) of this Annual
Report on Form 10-K. |
55
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
| |
|
| |
Mark D. Dankberg |
| |
Chairman and Chief Executive Officer |
Date: June 10, 2005
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
| |
|
|
|
|
|
|
| Signature |
|
Title |
|
Date |
| |
|
|
|
|
| |
/s/ MARK D. DANKBERG
Mark
D. Dankberg |
|
Chairman of the Board and Chief Executive Officer (Principal
Executive Officer) |
|
June 10, 2005 |
| |
/s/ RONALD G. WANGERIN
Ronald
G. Wangerin |
|
Vice President, Chief Financial Officer (Principal Financial and
Accounting Officer) |
|
June 10, 2005 |
| |
/s/ ROBERT W. JOHNSON
Robert
W. Johnson |
|
Director |
|
June 10, 2005 |
| |
/s/ JEFFREY M. NASH
Jeffrey
M. Nash |
|
Director |
|
June 10, 2005 |
| |
/s/ B. ALLEN LAY
B.
Allen Lay |
|
Director |
|
June 10, 2005 |
| |
/s/ MICHAEL B. TARGOFF
Michael
B. Targoff |
|
Director |
|
June 10, 2005 |
| |
/s/ JOHN P. STENBIT
John
P. Stenbit |
|
Director |
|
June 10, 2005 |
| |
/s/ HARVEY P. WHITE
Harvey
P. White |
|
Director |
|
June 10, 2005 |
56
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of ViaSat, Inc.:
We have completed an integrated audit of ViaSat, Inc.’s
April 1, 2005 consolidated financial statements and of its
internal control over financial reporting as of April 1,
2005 and audits of its April 2, 2004 and March 31,
2003 consolidated financial statements in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Our opinions, based on our audits, are
presented below.
Consolidated financial statements and financial statement
schedule
In our opinion, the consolidated financial statements listed in
the index appearing under Item 15(a)(1) present fairly, in
all material respects, the financial position of ViaSat, Inc.
and its subsidiaries at April 1, 2005 and April 2,
2004, and the results of their operations and their cash flows
for each of the three years in the period ended April 1,
2005 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 index appearing
under Item 15(a)(2) presents fairly, in all material
respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are
the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits of these statements in accordance with
the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit of financial statements includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
Internal control over financial reporting
Also, in our opinion, management’s assessment, included in
Management’s Report on Internal Control Over Financial
Reporting appearing under Item 9A, that the Company
maintained effective internal control over financial reporting
as of April 1, 2005 based on criteria established in
Internal Control — Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), is fairly stated, in all material respects,
based on those criteria. Furthermore, in our opinion, the
Company maintained, in all material respects, effective internal
control over financial reporting as of April 1, 2005, based
on criteria established in Internal Control —
Integrated Framework issued by the COSO. The Company’s
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our
responsibility is to express opinions on management’s
assessment and on the effectiveness of the Company’s
internal control over financial reporting based on our audit. We
conducted our audit of internal control over financial reporting
in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over
financial reporting was maintained in all material respects. An
audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial
reporting, evaluating management’s assessment, testing and
evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we consider
necessary in the circumstances. We believe that our audit
provides 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
F-1
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.
PricewaterhouseCoopers LLP
San Diego, California
June 9, 2005
F-2
VIASAT, INC.
CONSOLIDATED BALANCE SHEETS
| |
|
|
|
|
|
|
|
|
|
|
| |
|
As of | |
|
As of | |
| |
|
April 1, | |
|
April 2, | |
| |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
| |
|
(In thousands, | |
| |
|
except share data) | |
|
ASSETS |
|
Current assets:
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
14,579 |
|
|
$ |
18,510 |
|
| |
Short-term investments
|
|
|
162 |
|
|
|
160 |
|
| |
Accounts receivable, net
|
|
|
141,298 |
|
|
|
110,766 |
|
| |
Inventories
|
|
|
36,612 |
|
|
|
30,357 |
|
| |
Deferred income taxes
|
|
|
7,027 |
|
|
|
5,487 |
|
| |
Prepaid expenses and other current assets
|
|
|
10,114 |
|
|
|
9,251 |
|
| |
|
|
|
|
|
|
| |
|
Total current assets
|
|
|
209,792 |
|
|
|
174,531 |
|
|
Goodwill
|
|
|
19,492 |
|
|
|
19,492 |
|
|
Other intangible assets, net
|
|
|
20,990 |
|
|
|
27,632 |
|
|
Property and equipment, net
|
|
|
33,278 |
|
|
|
32,052 |
|
|
Other assets
|
|
|
18,273 |
|
|
|
18,975 |
|
| |
|
|
|
|
|
|
| |
|
Total assets
|
|
$ |
301,825 |
|
|
$ |
272,682 |
|
| |
|
|
|
|
|
|
| |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
Current liabilities:
|
|
|
|
|
|
|
|
|
| |
Accounts payable
|
|
$ |
38,523 |
|
|
$ |
32,635 |
|
| |
Accrued liabilities
|
|
|
32,410 |
|
|
|
34,050 |
|
| |
|
|
|
|
|
|
| |
|
Total current liabilities
|
|
|
70,933 |
|
|
|
66,685 |
|
|
Other liabilities
|
|
|
3,911 |
|
|
|
2,944 |
|
| |
|
|
|
|
|
|
| |
|
Total liabilities
|
|
|
74,844 |
|
|
|
69,629 |
|
| |
|
|
|
|
|
|
|
Commitments and contingencies (Notes 9 & 10)
|
|
|
|
|
|
|
|
|
|
Minority interest in consolidated subsidiary
|
|
|
698 |
|
|
|
578 |
|
| |
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
| |
Series A, convertible preferred stock, $.0001 par
value; 5,000,000 shares authorized; no shares issued and
outstanding at April 1, 2005 and April 2, 2004,
respectively
|
|
|
— |
|
|
|
— |
|
| |
Common stock, $.0001 par value, 100,000,000 shares
authorized; 26,861,900 and 26,540,159 shares issued and
outstanding at April 1, 2005 and April 2, 2004,
respectively
|
|
|
3 |
|
|
|
3 |
|
| |
Paid-in capital
|
|
|
163,819 |
|
|
|
159,323 |
|
| |
Retained earnings
|
|
|
62,288 |
|
|
|
43,021 |
|
| |
Accumulated other comprehensive income
|
|
|
173 |
|
|
|
128 |
|
| |
|
|
|
|
|
|
| |
|
Total stockholders’ equity
|
|
|
226,283 |
|
|
|
202,475 |
|
| |
|
|
|
|
|
|
| |
|
Total liabilities and stockholders’ equity
|
|
$ |
301,825 |
|
|
$ |
272,682 |
|
| |
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
F-3
VIASAT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
| |
|
| |
| |
|
April 1, 2005 | |
|
April 2, 2004 | |
|
March 31, 2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share data) | |
|
Revenues
|
|
$ |
345,939 |
|
|
$ |
278,579 |
|
|
$ |
185,022 |
|
|
Cost of revenues
|
|
|
262,260 |
|
|
|
206,327 |
|
|
|
142,908 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Gross profit
|
|
|
83,679 |
|
|
|
72,252 |
|
|
|
42,114 |
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Selling, general and administrative
|
|
|
48,631 |
|
|
|
38,800 |
|
|
|
37,858 |
|
| |
Independent research and development
|
|
|
8,082 |
|
|
|
9,960 |
|
|
|
16,048 |
|
| |
Amortization of intangible assets
|
|
|
6,642 |
|
|
|
7,841 |
|
|
|
8,448 |
|
| |
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
20,324 |
|
|
|
15,651 |
|
|
|
(20,240 |
) |
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Interest income
|
|
|
445 |
|
|
|
11 |
|
|
|
116 |
|
| |
Interest expense
|
|
|
(141 |
) |
|
|
(357 |
) |
|
|
(856 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and minority interest
|
|
|
20,628 |
|
|
|
15,305 |
|
|
|
(20,980 |
) |
|
Provision (benefit) for income taxes
|
|
|
1,246 |
|
|
|
2,015 |
|
|
|
(11,395 |
) |
|
Minority interest in net earnings of subsidiary, net of tax
|
|
|
115 |
|
|
|
122 |
|
|
|
47 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
19,267 |
|
|
$ |
13,168 |
|
|
$ |
(9,632 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$ |
0.72 |
|
|
$ |
0.50 |
|
|
$ |
(0.37 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share
|
|
$ |
0.68 |
|
|
$ |
0.48 |
|
|
$ |
(0.37 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic net income (loss) per share
|
|
|
26,749 |
|
|
|
26,257 |
|
|
|
26,016 |
|
| |
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted net income (loss) per share
|
|
|
28,147 |
|
|
|
27,558 |
|
|
|
26,016 |
|
| |
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
F-4
VIASAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
| |
|
| |
| |
|
April 1, 2005 | |
|
April 2, 2004 | |
|
March 31, 2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income (loss)
|
|
$ |
19,267 |
|
|
$ |
13,168 |
|
|
$ |
(9,632 |
) |
| |
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Depreciation
|
|
|
10,053 |
|
|
|
10,098 |
|
|
|
9,754 |
|
| |
|
Amortization of intangible assets and capitalized software
|
|
|
10,072 |
|
|
|
10,631 |
|
|
|
9,533 |
|
| |
|
Provision for bad debts
|
|
|
234 |
|
|
|
(294 |
) |
|
|
475 |
|
| |
|
Deferred income taxes
|
|
|
(3,353 |
) |
|
|
(94 |
) |
|
|
(5,767 |
) |
| |
|
Minority interest in consolidated subsidiary
|
|
|
120 |
|
|
|
126 |
|
|
|
38 |
|
| |
|
Non-cash compensation
|
|
|
— |
|
|
|
35 |
|
|
|
103 |
|
| |
|
Tax benefit from exercise of stock options
|
|
|
787 |
|
|
|
976 |
|
|
|
25 |
|
| |
Increase (decrease) in cash resulting from changes in
operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Accounts receivable
|
|
|
(30,760 |
) |
|
|
(29,310 |
) |
|
|
(1,148 |
) |
| |
|
Inventories
|
|
|
(6,249 |
) |
|
|
(198 |
) |
|
|
(10 |
) |
| |
|
Other assets
|
|
|
(1,771 |
) |
|
|
(2,796 |
) |
|
|
3,663 |
|
| |
|
Accounts payable
|
|
|
5,885 |
|
|
|
10,643 |
|
|
|
5,908 |
|
| |
|
Accrued liabilities
|
|
|
(1,697 |
) |
|
|
15,006 |
|
|
|
1,169 |
|
| |
|
Other liabilities
|
|
|
995 |
|
|
|
606 |
|
|
|
(504 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Net cash provided by operating activities
|
|
|
3,583 |
|
|
|
28,597 |
|
|
|
13,607 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Purchases of short-term investments, net
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
(2 |
) |
| |
Investment in capitalized software
|
|
|
— |
|
|
|
— |
|
|
|
(5,333 |
) |
| |
Purchases of property and equipment, net
|
|
|
(11,279 |
) |
|
|
(8,532 |
) |
|
|
(12,242 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Net cash used in investing activities
|
|
|
(11,281 |
) |
|
|
(8,534 |
) |
|
|
(17,577 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Proceeds from line of credit
|
|
|
19,000 |
|
|
|
4,000 |
|
|
|
10,950 |
|
| |
Payments on line of credit
|
|
|
(19,000 |
) |
|
|
(13,950 |
) |
|
|
(10,900 |
) |
| |
Proceeds from issuance of common stock
|
|
|
3,709 |
|
|
|
4,054 |
|
|
|
1,550 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Net cash provided by (used in) financing activities
|
|
|
3,709 |
|
|
|
(5,896 |
) |
|
|
1,600 |
|
|
Effect of exchange rate changes on cash
|
|
|
58 |
|
|
|
232 |
|
|
|
17 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(3,931 |
) |
|
|
14,399 |
|
|
|
(2,353 |
) |
|
Cash and cash equivalents at beginning of year
|
|
|
18,510 |
|
|
|
4,111 |
|
|
|
6,464 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
14,579 |
|
|
$ |
18,510 |
|
|
$ |
4,111 |
|
| |
|
|
|
|
|
|
|
|
|
|
Supplemental information:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash paid for interest
|
|
$ |
141 |
|
|
$ |
384 |
|
|
$ |
790 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Cash paid (received) for income taxes
|
|
$ |
3,680 |
|
|
$ |
(45 |
) |
|
$ |
(3,614 |
) |
| |
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
F-5
VIASAT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Common Stock | |
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
| |
|
| |
|
|
|
|
|
|
|
Other | |
|
|
|
|
| |
|
Number of | |
|
|
|
Paid in | |
|
Retained | |
|
Unearned | |
|
Comprehensive | |
|
|
|
Comprehensive | |
| |
|
Shares | |
|
Amount | |
|
Capital | |
|
Earnings | |
|
Compensation | |
|
Income (Loss) | |
|
Total | |
|
Income (Loss) | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except share data) | |
|
Balance at March 31, 2002
|
|
|
25,908,373 |
|
|
$ |
2 |
|
|
$ |
152,775 |
|
|
$ |
39,485 |
|
|
$ |
(138 |
) |
|
$ |
(185 |
) |
|
$ |
191,939 |
|
|
|
|
|
| |
Exercise of stock options
|
|
|
32,250 |
|
|
|
|
|
|
|
223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
223 |
|
|
|
|
|
| |
Tax benefit from exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25 |
|
|
|
|
|
| |
Issuance of stock under Employee Stock Purchase Plan
|
|
|
189,820 |
|
|
|
1 |
|
|
|
1,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,327 |
|
|
|
|
|
| |
Forfeited unexercised options
|
|
|
|
|
|
|
|
|
|
|
(56 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56 |
) |
|
|
|
|
| |
Amortization of stock based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103 |
|
|
|
|
|
|
|
103 |
|
|
|
|
|
| |
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,632 |
) |
|
|
|
|
|
|
|
|
|
|
(9,632 |
) |
|
$ |
(9,632 |
) |
| |
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42 |
) |
|
|
(42 |
) |
|
|
(42 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(9,674 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2003
|
|
|
26,130,443 |
|
|
|
3 |
|
|
|
154,293 |
|
|
|
29,853 |
|
|
|
(35 |
) |
|
|
(227 |
) |
|
|
183,887 |
|
|
|
|
|
| |
Exercise of stock options
|
|
|
282,383 |
|
|
|
|
|
|
|
2,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,673 |
|
|
|
|
|
| |
Tax benefit from exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
976 |
|
|
|
|
|
| |
Issuance of stock under Employee Stock Purchase Plan
|
|
|
127,333 |
|
|
|
|
|
|
|
1,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,381 |
|
|
|
|
|
| |
Unearned compensation of option plan acquired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35 |
|
|
|
|
|
|
|
35 |
|
|
|
|
|
| |
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,168 |
|
|
|
|
|
|
|
|
|
|
|
13,168 |
|
|
$ |
13,168 |
|
| |
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
355 |
|
|
|
355 |
|
|
|
355 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
13,523 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 2, 2004
|
|
|
26,540,159 |
|
|
|
3 |
|
|
|
159,323 |
|
|
|
43,021 |
|
|
|
— |
|
|
|
128 |
|
|
|
202,475 |
|
|
|
|
|
| |
Exercise of stock options
|
|
|
230,094 |
|
|
|
|
|
|
|
2,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,037 |
|
|
|
|
|
| |
Tax benefit from exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
787 |
|
|
|
|
|
| |
Issuance of stock under Employee Stock Purchase Plan
|
|
|
91,647 |
|
|
|
|
|
|
|
1,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,672 |
|
|
|
|
|
| |
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,267 |
|
|
|
|
|
|
|
|
|
|
|
19,267 |
|
|
$ |
19,267 |
|
| |
Hedging transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(54 |
) |
|
|
(54 |
) |
|
|
(54 |
) |
| |
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99 |
|
|
|
99 |
|
|
|
99 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
19,312 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 1, 2005
|
|
|
26,861,900 |
|
|
$ |
3 |
|
|
$ |
163,819 |
|
|
$ |
62,288 |
|
|
$ |
— |
|
|
$ |
173 |
|
|
$ |
226,283 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
F-6
VIASAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
| Note 1 — |
The Company and a Summary of Its Significant Accounting
Policies |
ViaSat, Inc. (“We” or the “Company”)
designs, produces and markets advanced broadband digital
satellite communications and other wireless networking and
signal processing equipment.
|
|
|
Principles of Consolidation |
The Company’s consolidated financial statements include the
assets, liabilities and results of operations of TrellisWare
Technologies, Inc., a majority owned subsidiary of ViaSat. All
significant intercompany amounts have been eliminated.
We have adopted a 52- or 53-week fiscal year beginning with our
fiscal year 2004. All references to a fiscal year refer to the
fiscal year ending on the Friday closest to March 31 of the
specified year. For example, references to fiscal year 2005
refer to the fiscal year ending on April 1, 2005. Our
quarters for fiscal year 2005 ended on July 2, 2004,
October 1, 2004, December 31, 2004 and April 1,
2005.
Certain prior period amounts have been reclassified to conform
to the current period presentation.
|
|
|
Management Estimates and Assumptions |
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenues and
expenses during the reporting period. Estimates have been
prepared on the basis of the most current and best available
information and actual results could differ from those
estimates. Significant estimates made by management include
revenue recognition, capitalized software development costs,
allowance for doubtful accounts, warranty accrual, valuation of
goodwill and other intangible assets, long-lived assets and
valuation allowance on deferred tax assets.
Cash equivalents consist of highly liquid investments with
original maturities of 90 days or less.
At April 1, 2005 and April 2, 2004, the Company held
investments in investment grade debt securities with various
maturities. Management determines the appropriate classification
of its investments in debt securities at the time of purchase
and has designated all of its investments as held-to-maturity.
The Company’s investments in these securities as of
April 1, 2005 and April 2, 2004 totaled $162,000 and
$160,000, respectively.
|
|
|
Unbilled Accounts Receivable |
Unbilled receivables consist of costs and fees earned and
billable on contract completion or other specified events.
Unbilled receivables are expected to be collected within one
year.
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist primarily of
cash equivalents, short-term investments, and trade accounts
receivable which are generally not collateralized. The Company
limits its exposure to credit loss by placing its cash
equivalents and short-term investments with high credit quality
financial institutions and investing in high quality short-term
F-7
VIASAT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
debt instruments. The Company establishes allowances for bad
debts based on historical collection experiences within the
various markets in which the Company operates, number of days
the accounts are past due 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 30.3%, 25.4%
and 16.9% of total revenues for fiscal years 2005, 2004 and
2003, respectively. No other customer accounted for at least 10%
of total revenues. Billed accounts receivable to the
U.S. government as of April 1, 2005 and April 2,
2004 were 33.8% and 26.3%, respectively, of total billed
receivables.
Revenues from the U.S. government and its prime contractors
amounted to $175.4 million, $128.4 million and
$82.6 million for the years ended April 1, 2005,
April 2, 2004 and March 31, 2003, respectively.
Revenues from commercial customers amounted to
$177.4 million, $154.2 million and $103.8 million
for the years ended April 1, 2005, April 2, 2004 and
March 31, 2003, respectively. The Company’s five
largest contracts (by revenues) generated approximately 27%, 24%
and 29% of the Company’s total revenues for the fiscal
years ended April 1, 2005, April 2, 2004 and
March 31, 2003, respectively.
The Company relies on a limited number of contract manufacturers
to produce its products.
Inventory is valued at the lower of cost or market, cost being
determined by the weighted average method.
Equipment, computers and software, and furniture and fixtures
are recorded at cost, and depreciated using the straight-line
method over estimated useful lives of five years, three years
and seven years, respectfully. Additions to property and
equipment together with major renewals and betterments are
capitalized. Maintenance, repairs and minor renewals and
betterments are charged to expense. When assets are sold or
otherwise disposed of, the cost and related accumulated
depreciation or amortization are removed from the accounts and
any resulting gain or loss is recognized.
|
|
|
Goodwill and Intangible Assets |
Statement of Financial Accounting Standards
(SFAS) No. 141, Business Combinations, requires
that all business combinations be accounted for using the
purchase method. SFAS No. 141 also specifies criteria
for recognizing and reporting intangible assets apart from
goodwill; however, acquired workforce must be recognized and
reported in goodwill. SFAS No. 142 requires that
intangible assets with an indefinite life should not be
amortized until their life is determined to be finite, and all
other intangible assets must be amortized over their useful
life. SFAS No. 142 prohibits the amortization of
goodwill and indefinite-lived intangible assets, but instead
requires these assets to be tested for impairment in accordance
with the provisions of SFAS No. 142 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. As a result of adopting
SFAS No. 142, the Company reclassified acquired
workforce with a net book value of $3.4 million to goodwill.
We account for our goodwill under SFAS No. 142
Goodwill and Other Intangible Assets. The
SFAS No. 142 goodwill impairment model is a two-step
process. First, it requires a comparison of the book value of
net assets to the fair value of the reporting units that have
goodwill assigned to them. If the fair value is determined to be
less than book value, a second step is performed to compute the
amount of the
F-8
VIASAT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
impairment. In this process, a fair value for goodwill is
estimated, based in part on the fair value of the reporting unit
used in the first step, and is compared to its carrying value.
The shortfall of the value below carrying value represents the
amount of goodwill impairment. SFAS No. 142 requires
goodwill to be tested for impairment annually at the same time
every year, and when an event occurs or circumstances change
such that it is reasonably possible that an impairment may exist.
We estimate the fair values of the related operations using
discounted cash flows and other indicators of fair value. The
forecast of future cash flows are based on our best estimate of
the future revenues and operating costs, based primarily on
existing firm orders, expected future orders, contracts with
suppliers, labor agreements, and general market conditions.
Changes in these forecasts could cause a particular reporting
unit to either pass or fail the first step in the
SFAS No. 142 goodwill impairment model, which could
significantly influence whether goodwill impairment needs to be
recorded.
The cash flow forecasts are adjusted by an appropriate discount
rate derived from our market capitalization plus a suitable
control premium at the date of evaluation.
|
|
|
Impairment of long-lived assets (Property and equipment
and other intangible assets) |
In accordance with SFAS No. 144, we assess potential
impairments to our long-lived assets, including property and
equipment and other intangible assets, when there is evidence
that events or changes in circumstances indicate that the
carrying value may not be recoverable. 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 such impairments have been identified by us.
The Company provides limited warranties on certain of its
products for periods of up to five years. The Company records
warranty reserves when products are delivered based upon an
estimate of total warranty costs, with amounts expected to be
incurred within twelve months classified as a current liability.
|
|
|
Fair Value of Financial Instruments |
At April 1, 2005, the carrying amounts of the
Company’s financial instruments, including cash
equivalents, short-term investments, trade receivables, accounts
payable, accrued liabilities and line of credit, approximated
their fair values due to their short-term maturities.
We enter into foreign currency forward and option contracts to
hedge certain forecasted foreign currency transactions. Gains
and losses arising from foreign currency forward and option
contracts not designated as hedging instruments are recorded in
investment income (expense) as gains (losses) on derivative
instruments. Gains and losses arising from the effective portion
of foreign currency forward and option contracts that are
designated as cash-flow hedging instruments are recorded in
accumulated other comprehensive income (loss) as gains (losses)
on derivative instruments until the underlying transaction
affects our earnings. The fair value of our foreign currency
forward contracts was a liability of $54,000 at April 1,
2005. We had $2.7 million of notional value of foreign
currency forward contracts outstanding at April 1, 2005. We
had no foreign currency forward or option contracts outstanding
at April 2, 2004 and March 31, 2003.
F-9
VIASAT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
A substantial portion of the Company’s revenues are derived
from long-term contracts requiring development and delivery of
products over time and often contain fixed-price purchase
options for additional products. Sales related to long-term
contracts are accounted for under the percentage-of-completion
method of accounting under the American Institute of Certified
Public Accountants’ Statement of Position 81-1,
Accounting for Performance of Construction-Type and Certain
Production-Type Contracts (SOP 81-1). Sales and
earnings under these contracts are recorded either based on the
ratio of actual costs incurred to total estimated costs expected
to be incurred related to the contract or under the cost-to-cost
method 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 fiscal year ended April 1, 2005, we
recorded losses of approximately $5.7 million related to
loss contracts. There were no significant charges for loss
contracts in fiscal years ended April 2, 2004 or
March 31, 2003.
The Company also has contracts and purchase orders where revenue
is recorded on delivery of products in accordance with
SAB 104, “Staff Accounting
Bulletin No. 104: Revenue Recognition.” In
this situation, contracts and customer purchase orders are used
to determine the existence of an arrangement. Shipping documents
and customer acceptance, when applicable, are used to verify
delivery. The Company assesses whether the sales price is fixed
or determinable based on the payment terms associated with the
transaction and whether the sales price is subject to refund or
adjustment, and assesses collectibility based primarily on the
creditworthiness of the customer as determined by credit checks
and analysis, as well as the customer’s payment history.
When a sale involves multiple elements, such as sales of
products that include services, the entire fee from the
arrangement is allocated to each respective element based on its
relative fair value in accordance with EITF, 00-21,
Accounting for Multiple Element Revenue Arrangements and
recognized when the applicable revenue recognition criteria for
each element are met. The amount of product and service revenue
recognized is impacted by our judgments as to whether an
arrangement includes multiple elements and, if so, whether
vendor-specific objective evidence of fair value exists for
those elements. Changes to the elements in an arrangement and
our ability to establish vendor-specific objective evidence for
those elements could affect the timing of the revenue
recognition.
Collections in excess of revenues represent cash collected from
customers in advance of revenue recognition and are recorded as
an accrued liability.
Contract costs on U.S. government contracts, including
indirect costs, are subject to audit and negotiations with
U.S. government representatives. These audits have been
completed and agreed upon through fiscal year 2001. Contract
revenues and accounts receivable are stated at amounts which are
expected to be realized upon final settlement.
|
|
|
Independent Research and Development |
Independent research and development, which is not directly
funded by a third party, is expensed as incurred. Independent
research and development expenses consist primarily of salaries
and other personnel-related expenses, supplies, prototype
materials, and other expenses related to research and
development programs.
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
F-10
VIASAT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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 not to exceed
five years. We capitalized costs related to software developed
for resale of $0 for the fiscal year ended April 1, 2005,
$0 for the fiscal year ended April 2, 2004 and
$5.3 million for the fiscal year ended March 31, 2003.
Amortization expense of software development costs was
$3.4 million for fiscal year 2005, $2.8 million for
fiscal year 2004 and $1.1 million for fiscal year 2003.
Current income tax expense is the amount of income taxes
expected to be payable for the current year. A deferred income
tax asset or liability is established for the expected future
tax consequences resulting from differences in the financial
reporting and tax bases of assets and liabilities and for the
expected future tax benefit to be derived from tax credit and
loss carryforwards. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is
more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred income tax expense
(benefit) is the net change during the year in the deferred
income tax asset or liability.
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 under the Company’s stock option plans
which are included in the earnings per share calculations using
the treasury stock method and common shares expected to be
issued under the Company’s employee stock purchase plan.
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 United States dollars, and the
effects of foreign currency translation adjustments are included
as a component of accumulated other comprehensive income in the
consolidated statements stockholders’ equity.
Our commercial and government segments are primarily
distinguished by the type of customer and the related
contractual requirements. The more regulated government
environment is subject to unique contractual requirements and
possesses economic characteristics, which differ from the
commercial segment. Therefore, we are organized primarily on the
basis of products with commercial and government
(defense) communication applications. Operating segments
are determined consistent with the way that management organizes
and evaluates financial information internally for making
operating decisions and assessing performance.
The Company measures compensation expense for ViaSat’s
stock-based employee compensation plans using the intrinsic
value method and provides pro forma disclosures of net income
(loss) as if the fair value-based method had been applied in
measuring compensation expense.
At April 1, 2005, the Company had stock-based compensation
plans described in detail in Note 5. The Company accounts
for options issued to employees, directors and officers under
those plans under the
F-11
VIASAT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
recognition and measurement principles of APB Opinion
No. 25, “Accounting for Stock Issued to Employees,
and related Interpretations.” Generally, no stock-based
employee compensation cost is reflected in net income, as all
options granted under those plans have an exercise price equal
to the market value of the underlying common stock on the date
of grant.
The fair values of options granted during the years ended as
reported below were estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted
average assumptions:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Employee Stock Purchase | |
| |
|
Employee Stock Options | |
|
Plan | |
| |
|
| |
|
| |
| |
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Expected life (in years)
|
|
|
6.30 |
|
|
|
6.84 |
|
|
|
5.99 |
|
|
|
0.50 |
|
|
|
0.50 |
|
|
|
0.50 |
|
|
Risk-free interest rate
|
|
|
3.79 |
% |
|
|
3.20 |
% |
|
|
2.78 |
% |
|
|
1.68 |
% |
|
|
1.05 |
% |
|
|
1.55 |
% |
|
Expected volatility
|
|
|
62.00 |
% |
|
|
66.00 |
% |
|
|
91.00 |
% |
|
|
46.00 |
% |
|
|
66.00 |
% |
|
|
91.00 |
% |
|
Expected dividend yield
|
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
The weighted average estimated fair value of employee stock
options granted during 2005, 2004, and 2003 was $11.33, $10.40,
and $8.25 per share, respectively. The weighted average
estimated fair value of shares granted under the Employee Stock
Purchase Plan during 2005, 2004 and 2003 was $7.92, $10.85 and
$6.99 per share, respectively.
For purposes of pro forma disclosures, the estimated fair value
of options is amortized to expense over the vesting period. The
Company’s pro forma information for the years ended
April 1, 2005, April 2, 2004 and March 31, 2003
is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended | |
| |
|
| |
| |
|
April 1, 2005 | |
|
April 2, 2004 | |
|
March 31, 2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share data) | |
|
Net income (loss) as reported
|
|
$ |
19,267 |
|
|
$ |
13,168 |
|
|
$ |
(9,632 |
) |
|
Stock based compensation included in net income (loss), net of
tax
|
|
|
— |
|
|
|
35 |
|
|
|
103 |
|
|
Stock based employee compensation expense under fair value based
method, net of tax
|
|
|
(8,146 |
) |
|
|
(10,478 |
) |
|
|
(12,749 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss)
|
|
$ |
11,121 |
|
|
$ |
2,725 |
|
|
$ |
(22,278 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
As reported
|
|
$ |
0.72 |
|
|
$ |
0.50 |
|
|
$ |
(0.37 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Pro forma
|
|
$ |
0.42 |
|
|
$ |
0.10 |
|
|
$ |
(0.86 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
As reported
|
|
$ |
0.68 |
|
|
$ |
0.48 |
|
|
$ |
(0.37 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Pro forma
|
|
$ |
0.40 |
|
|
$ |
0.10 |
|
|
$ |
(0.86 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Recent Accounting Pronouncements |
In December 2004, the Financial Accounting Standards Board
(“FASB”) revised Statement No. 123
(SFAS 123R), “Share-Based Payment,” which
requires companies to expense the estimated fair value of
employee stock options and similar awards. On April 14,
2005, the U.S. Securities and Exchange Commission adopted a
new rule amending the compliance dates for SFAS 123R. In
accordance with the new rule, the accounting provisions of
SFAS 123R will be effective for the Company in fiscal 2007.
We will adopt the provisions of SFAS 123R and plan to use
the modified prospective transition method. Under the modified
F-12
VIASAT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
prospective transition method, SFAS 123R, which provides
certain changes to the method for valuing stock-based
compensation among other changes, will apply to new awards and
to awards that are outstanding on the effective date and are
subsequently modified or cancelled. Compensation expense for
outstanding awards for which the requisite service had not been
rendered as of the effective date will be recognized over the
remaining service period using the compensation cost calculated
for pro forma disclosure purposes under SFAS 123 (See
Stock-based Compensation in this note). As permitted by
SFAS 123, the Company currently accounts for stock-based
compensation using APB 25’s intrinsic value method
and, as such, generally recognizes no compensation cost for
employee stock options. Accordingly, the adoption of
SFAS 123R will likely have a material impact on the
Company’s results of operations. However, the ultimate
impact of adoption of SFAS 123R cannot be predicted at this
time because it will depend on levels of share-based payments
granted in the future.
In November 2004, the FASB issued SFAS No. 151,
“Inventory Costs — An Amendment of ARB
No. 43, Chapter 4,” to clarify the accounting for
abnormal inventory costs. SFAS No. 151 requires that
abnormal amounts of idle facility costs, freight, handling costs
and spoilage are to be recognized as current-period expenses
regardless of whether they meet the “so abnormal”
criterion outlined in Accounting Research
Bulletin No. 43. In addition, the allocation of fixed
production overhead costs to inventory is to be based on the
normal capacity of the production facilities. Unallocated
overhead costs are to be recognized as expenses in the period
incurred. Normal capacity is defined as the production expected
to be achieved over a number of periods or seasons under normal
circumstances, taking into account the loss of capacity
resulting from planned maintenance. SFAS No. 151 is
effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. The adoption of
SFAS No. 151 is not expected to have a significant
impact on the Company’s consolidated financial statements.
In December 2004, the FASB issued SFAS No. 153,
“Exchanges of Nonmonetary Assets — An Amendment
of APB Opinion No. 29, Accounting for Nonmonetary
Transactions” (SFAS 153). SFAS 153 eliminates the
exception from fair value measurement for nonmonetary exchanges
of similar productive assets in paragraph 21(b) of APB
Opinion No. 29, “Accounting for Nonmonetary
Transactions,” and replaces it with an exception for
exchanges that do not have commercial substance. SFAS 153
specifies that a nonmonetary exchange has commercial substance
if the future cash flows of the entity are expected to change
significantly as a result of the exchange. SFAS 153 is
effective for the fiscal periods beginning after June 15,
2005. The Company is currently evaluating the effect that the
adoption of SFAS 153 will have on its consolidated results
of operations and financial condition but does not expect it to
have a material impact.
In May 2005, the FASB issued SFAS No. 154,
“Accounting Changes and Error Corrections”.
SFAS No. 154 is a replacement of Accounting Principles
Board Opinion (“APB”) No. 20 and FASB Statement
No. 3. SFAS No. 154 provides guidance on the
accounting for and reporting of accounting changes and error
corrections. It establishes retrospective application as the
required method for reporting a change in accounting principle.
SFAS No. 154 provides guidance for determining whether
retrospective application of a change in accounting principle is
impracticable and for reporting a change when retrospective
application is impracticable. The reporting of a correction of
an error by restating previously issued financial statements is
also addressed by SFAS No. 154. SFAS No. 154
is effective for accounting changes and corrections of errors
made in fiscal years beginning December 15, 2005. We will
be adopting this pronouncement beginning in our fiscal year 2007.
On March 29, 2005, the SEC issued Staff Accounting Bulletin
(SAB) 107 which express the views of the SEC regarding the
interaction between SFAS No. 123R and certain SEC
rules and regulations and provided the SEC’s views
regarding the valuation of share-based payment arrangements for
public companies. In particular, SAB 107 provides guidance
related to share-based payment transactions with nonemployees,
the transition from nonpublic to public entity status, valuation
methods (including assumptions such as expected volatility and
expected term), the accounting for certain redeemable financial
instruments issue under share-
F-13
VIASAT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
based payment arrangements, the classification of compensation
expense, non-GAAP financial measures, first-time adoption of
SFAS No. 123R in an interim period, capitalization of
compensation cost related to share-based payment arrangements,
the accounting for income tax effects of share-based payment
arrangements upon adoption of SFAS No. 123R, the
modification of employee share options prior to adoption of
SFAS No. 123R and disclosures in Management’s
Discussion and Analysis of Financial Condition and Results of
Operations subsequent to adoption of SFAS No. 123R. We
are currently evaluating the impact SAB 107 will have on
our results of operations and financial position when we adopt
it in fiscal 2007.
|
|
| Note 2 — |
Composition of Certain Balance Sheet Captions |
| |
|
|
|
|
|
|
|
|
|
| |
|
April 1, 2005 | |
|
April 2, 2004 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Accounts receivable, net:
|
|
|
|
|
|
|
|
|
| |
Billed
|
|
$ |
49,737 |
|
|
$ |
53,539 |
|
| |
Unbilled
|
|
|
91,724 |
|
|
|
57,606 |
|
| |
Allowance for doubtful accounts
|
|
|
(163 |
) |
|
|
(379 |
) |
| |
|
|
|
|
|
|
| |
|
$ |
141,298 |
|
|
$ |
110,766 |
|
| |
|
|
|
|
|
|
|
Inventories:
|
|
|
|
|
|
|
|
|
| |
Raw materials
|
|
$ |
16,706 |
|
|
$ |
17,299 |
|
| |
Work in process
|
|
|
9,347 |
|
|
|
4,757 |
|
| |
Finished goods
|
|
|
10,559 |
|
|
|
8,301 |
|
| |
|
|
|
|
|
|
| |
|
$ |
36,612 |
|
|
$ |
30,357 |
|
| |
|
|
|
|
|
|
|
Prepaid expenses and other current assets:
|
|
|
|
|
|
|
|
|
| |
Income taxes receivable
|
|
$ |
2,639 |
|
|
$ |
3,130 |
|
| |
Prepaid expenses
|
|
|
6,187 |
|
|
|
5,126 |
|
| |
Other
|
|
|
1,288 |
|
|
|
995 |
|
| |
|
|
|
|
|
|
| |
|
$ |
10,114 |
|
|
$ |
9,251 |
|
| |
|
|
|
|
|
|
|
Other intangible assets, net:
|
|
|
|
|
|
|
|
|
| |
Technology
|
|
$ |
26,770 |
|
|
$ |
26,770 |
|
| |
Contracts and relationships
|
|
|
9,736 |
|
|
|
9,736 |
|
| |
Non-compete agreement
|
|
|
7,950 |
|
|
|
7,950 |
|
| |
Other intangibles
|
|
|
6,875 |
|
|
|
6,875 |
|
| |
|
|
|
|
|
|
| |
|
|
51,331 |
|
|
|
51,331 |
|
| |
Less accumulated amortization
|
|
|
(30,341 |
) |
|
|
(23,699 |
) |
| |
|
|
|
|
|
|
| |
|
$ |
20,990 |
|
|
$ |
27,632 |
|
| |
|
|
|
|
|
|
F-14
VIASAT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| |
|
|
|
|
|
|
|
|
|
| |
|
April 1, 2005 | |
|
April 2, 2004 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Property and equipment, net:
|
|
|
|
|
|
|
|
|
| |
Machinery and equipment
|
|
$ |
43,966 |
|
|
$ |
35,628 |
|
| |
Computer equipment and software
|
|
|
29,866 |
|
|
|
26,347 |
|
| |
Furniture and fixtures
|
|
|
3,523 |
|
|
|
3,313 |
|
| |
Construction in progress
|
|
|
3,876 |
|
|
|
4,902 |
|
| |
|
|
|
|
|
|
| |
|
|
81,231 |
|
|
|
70,190 |
|
| |
Less accumulated depreciation
|
|
|
(47,953 |
) |
|
|
(38,138 |
) |
| |
|
|
|
|
|
|
| |
|
$ |
33,278 |
|
|
$ |
32,052 |
|
| |
|
|
|
|
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
| |
Capitalized software costs, net
|
|
$ |
10,341 |
|
|
$ |
13,771 |
|
| |
Deferred income taxes
|
|
|
6,333 |
|
|
|
4,520 |
|
| |
Other
|
|
|
1,599 |
|
|
|
684 |
|
| |
|
|
|
|
|
|
| |
|
$ |
18,273 |
|
|
$ |
18,975 |
|
| |
|
|
|
|
|
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
| |
Current portion of warranty reserve
|
|
$ |
3,268 |
|
|
$ |
1,945 |
|
| |
Accrued vacation
|
|
|
5,120 |
|
|
|
4,410 |
|
| |
Accrued bonus
|
|
|
3,468 |
|
|
|
4,382 |
|
| |
Accrued 401(k) matching contribution
|
|
|
2,771 |
|
|
|
2,321 |
|
| |
Collections in excess of revenues
|
|
|
13,767 |
|
|
|
16,040 |
|
| |
Other
|
|
|
4,016 |
|
|
|
4,952 |
|
| |
|
|
|
|
|
|
| |
|
$ |
32,410 |
|
|
$ |
34,050 |
|
| |
|
|
|
|
|
|
|
Other liabilities:
|
|
|
|
|
|
|
|
|
|
Accrued warranty
|
|
$ |
3,911 |
|
|
$ |
2,506 |
|
|
Deferred income taxes
|
|
|
— |
|
|
|
438 |
|
| |
|
|
|
|
|
|
| |
|
$ |
3,911 |
|
|
$ |
2,944 |
|
| |
|
|
|
|
|
|
|
|
| Note 3 — |
Accounting for Goodwill and Intangible Assets |
We account for our goodwill under SFAS No. 142. The
SFAS No. 142 goodwill impairment model is a two-step
process. First, it requires a comparison of the book value of
net assets to the fair value of the reporting units that have
goodwill assigned to them. The only reporting units which have
goodwill assigned to them are the businesses which were acquired
and have been included in our commercial segment. We estimate
the fair values of the reporting units using discounted cash
flows. The cash flow forecasts are adjusted by an appropriate
discount rate. If the fair value is determined to be less than
book value, a second step is performed to compute the amount of
the impairment. In this process, a fair value for goodwill is
estimated, based in part on the fair value of the operations
used in the first step, and is compared to its carrying value.
The shortfall of the fair value below carrying value represents
the amount of goodwill impairment.
The annual test of impairment as required by
SFAS No. 142 was completed in the fourth quarter of
our fiscal year. In applying the first step, which is
identification of any impairment of goodwill as of the test date,
F-15
VIASAT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
no impairment of goodwill resulted. Since step two is required
only if step one reveals an impairment, we were not required to
complete step two and the annual impairment testing was complete.
We will continue to make assessments of impairment on an annual
basis in the fourth quarter of our fiscal year or more
frequently if specific events occur. In assessing the value of
goodwill, we must make assumptions regarding estimated future
cash flows and other factors to determine the fair value of the
reporting units. If these estimates or their related assumptions
change in the future, we may be required to record impairment
charges that would negatively impact operating results.
The intangible assets are amortized using the straight-line
method over their estimated useful lives of two to ten years.
The technology intangible asset has several components with
estimated useful lives of six to nine years, contracts and
relationships intangible asset has several components with
estimated useful lives of three to nine years, non-compete
agreements have useful lives of three to five years and other
amortizable assets has several components with estimated useful
lives of two to ten years. The amortization expense was
$6.6 million, $7.8 million and $8.4 million for
the years ended April 1, 2005, April 2, 2004 and
March 31, 2003, respectively. The estimated amortization
expense for the next five years is as follows:
| |
|
|
|
|
| |
|
Amortization | |
| |
|
| |
| |
|
(In thousands) | |
|
Expected for fiscal year 2006
|
|
$ |
6,048 |
|
|
Expected for fiscal year 2007
|
|
|
5,378 |
|
|
Expected for fiscal year 2008
|
|
|
4,508 |
|
|
Expected for fiscal year 2009
|
|
|
3,760 |
|
|
Expected for fiscal year 2010
|
|
|
536 |
|
Below is the allocation of the intangible assets and the related
accumulated amortization as of April 1, 2005 and
April 2, 2004 is as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
As of April 1, 2005 | |
|
As of April 2, 2004 | |
| |
|
|
|
| |
|
| |
| |
|
|
|
Accumulated | |
|
Net Book | |
|
Accumulated | |
|
Net Book | |
| |
|
Total | |
|
Amortization | |
|
Value | |
|
Amortization | |
|
Value | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Existing Technology
|
|
$ |
26,770 |
|
|
$ |
14,770 |
|
|
$ |
12,000 |
|
|
$ |
10,969 |
|
|
$ |
15,801 |
|
|
Contracts and relationships
|
|
|
9,736 |
|
|
|
5,395 |
|
|
|
4,341 |
|
|
|
4,331 |
|
|
|
5,405 |
|
|
Non-compete agreements
|
|
|
7,950 |
|
|
|
7,040 |
|
|
|
910 |
|
|
|
5,926 |
|
|
|
2,024 |
|
|
Other amortizable assets
|
|
|
6,875 |
|
|
|
3,136 |
|
|
|
3,739 |
|
|
|
2,473 |
|
|
|
4,402 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total intangible assets
|
|
$ |
51,331 |
|
|
$ |
30,341 |
|
|
$ |
20,990 |
|
|
$ |
23,699 |
|
|
$ |
27,632 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On January 31, 2005, we entered into a three-year,
$60 million revolving credit facility (the
“Facility”) in the form of a Second Amended and
Restated Revolving Loan Agreement with Union Bank of California,
Comerica Bank and Silicon Valley Bank. The Facility amended and
restated the Company’s existing $30 million revolving
credit facility that was scheduled to expire on
February 28, 2005.
Borrowings under the Facility are permitted up to a maximum
amount of $60 million, including up to $15 million of
letters of credit. Borrowings under the Facility bear interest,
at the Company’s option, at either the lender’s prime
rate or at LIBOR (London Interbank Offered Rate) plus, in each
case, an applicable margin based on the ratio of the
Company’s total funded debt to EBITDA (income from
operations plus depreciation and amortization). The Facility is
collateralized by substantially all of the Company’s
personal
F-16
VIASAT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
property assets. At April 1, 2005, the Company had
approximately $5.0 million outstanding under standby
letters of credit leaving borrowing availability under our line
of credit of $55.0 million.
The Facility contains financial covenants that set a minimum
EBITDA limit for the twelve-month period ending on the last day
of any fiscal quarter at $30 million, a minimum tangible
net worth as of the last day of any fiscal quarter at
$135 million and a minimum quick ratio (sum of cash and
cash equivalents, accounts receivable and marketable securities,
divided by current liabilities) as of the last day of any fiscal
quarter at 1.50 to 1.00. We were in compliance with our loan
covenants at April 1, 2005.
|
|
| Note 5 — |
Common Stock and Options |
In June 2004 we filed a universal shelf registration statement
with the Securities and Exchange Commission for the future sale
of up to $154 million of debt securities, common stock,
preferred stock, depositary shares and warrants. Additionally,
the Company has available $46 million of these securities,
which were previously registered under a shelf registration
statement the Company originally filed in September 2001. Up to
$200 million of the securities may now be offered from time
to time, separately or together, directly by us or through
underwriters 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 1996 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 and performance awards. In September 2000, the Company
amended the 1996 Equity Participation Plan to increase the
maximum number of shares reserved for issuance under this plan
from 2,500,000 shares to 6,100,000 shares. In
September 2003, the Company further amended the 1996 Equity
Participation Plan to increase the maximum number of shares
reserved for issuance under this plan from 6,100,000 shares
to 7,600,000 shares. As of April 1, 2005, the Company
had granted options to purchase 6,776,769 shares of
common stock under this plan with vesting terms of three to five
years which are exercisable for up to ten years from the grant
date or up to five years from the date of grant for a ten
percent owner.
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. A maximum of 1,000,000 shares of common stock
are reserved for issuance under the Employee Stock Purchase
Plan. 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 April 1, 2005, the
Company had issued 881,969 shares of common stock under
this plan.
In January 2002, the Company assumed the U.S. Monolithics
2000 Incentive Plan (the “USM Plan”) which was amended
and restated January 2002. Pursuant to such assumption, all
options granted under the USM Plan were converted into options
to purchase common stock of the Company. The number of shares of
common stock reserved for issuance under this plan is 203,000.
As of April 1, 2005, options to
purchase 203,000 shares of common stock had been
granted under this plan, 44,418 of which were converted from
previously issued U.S. Monolithics options. The options
granted under this plan have an exercise price equal to the
market value of the underlying common stock on the date of grant.
F-17
VIASAT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Transactions under the Company’s stock option plans are
summarized as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted Average | |
| |
|
Number of | |
|
Exercise Price | |
|
Exercise Price | |
| |
|
Shares | |
|
per Share | |
|
per Share | |
| |
|
| |
|
| |
|
| |
|
Outstanding at March 31, 2002
|
|
|
4,387,741 |
|
|
|
$ 4.25 - $43.82 |
|
|
$ |
15.41 |
|
|
Options granted
|
|
|
922,249 |
|
|
|
4.70 - 12.95 |
|
|
|
10.37 |
|
|
Options canceled
|
|
|
(242,123 |
) |
|
|
7.77 - 26.16 |
|
|
|
19.11 |
|
|
Options exercised
|
|
|
(32,250 |
) |
|
|
5.78 - 8.94 |
|
|
|
6.81 |
|
| |
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2003
|
|
|
5,035,617 |
|
|
|
4.25 - 43.82 |
|
|
|
14.37 |
|
|
Options granted
|
|
|
514,000 |
|
|
|
10.26 - 25.01 |
|
|
|
17.55 |
|
|
Options canceled
|
|
|
(192,426 |
) |
|
|
8.80 - 36.35 |
|
|
|
17.80 |
|
|
Options exercised
|
|
|
(282,383 |
) |
|
|
4.25 - 26.16 |
|
|
|
9.15 |
|
| |
|
|
|
|
|
|
|
|
|
|
Outstanding at April 2, 2004
|
|
|
5,074,808 |
|
|
|
4.25 - 43.82 |
|
|
|
14.83 |
|
|
Options granted
|
|
|
1,296,000 |
|
|
|
16.94 - 22.82 |
|
|
|
19.52 |
|
|
Options canceled
|
|
|
(126,353 |
) |
|
|
6.06 - 43.82 |
|
|
|
19.36 |
|
|
Options exercised
|
|
|
(230,094 |
) |
|
|
4.69 - 22.03 |
|
|
|
8.86 |
|
| |
|
|
|
|
|
|
|
|
|
|
Outstanding at April 1, 2005
|
|
|
6,014,361 |
|
|
|
4.25 - 35.63 |
|
|
|
15.98 |
|
| |
|
|
|
|
|
|
|
|
|
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.
The following table summarizes all options outstanding and
exercisable by price range as of April 1, 2005:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Weighted | |
|
|
|
|
|
|
| |
|
|
|
Average | |
|
Weighted | |
|
|
|
Weighted | |
| |
|
|
|
Remaining | |
|
Average | |
|
|
|
Average | |
| |
|
Number | |
|
Contractual | |
|
Exercise | |
|
Number | |
|
Exercise | |
| Range of Exercise Prices |
|
Outstanding | |
|
Life-Years | |
|
Price | |
|
Exercisable | |
|
Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
$ 4.25 - $ 7.77
|
|
|
891,714 |
|
|
|
3.37 |
|
|
$ |
6.36 |
|
|
|
869,051 |
|
|
$ |
6.39 |
|
|
8.07 - 9.37
|
|
|
131,717 |
|
|
|
4.62 |
|
|
|
8.60 |
|
|
|
122,518 |
|
|
|
8.55 |
|
|
9.95 - 10.73
|
|
|
815,114 |
|
|
|
7.89 |
|
|
|
10.69 |
|
|
|
493,313 |
|
|
|
10.68 |
|
|
11.08 - 14.00
|
|
|
687,264 |
|
|
|
6.57 |
|
|
|
13.34 |
|
|
|
488,113 |
|
|
|
13.37 |
|
|
14.56 - 18.54
|
|
|
612,930 |
|
|
|
7.68 |
|
|
|
17.13 |
|
|
|
281,707 |
|
|
|
16.55 |
|
|
18.71 - 18.71
|
|
|
8,000 |
|
|
|
6.13 |
|
|
|
18.71 |
|
|
|
4,800 |
|
|
|
18.71 |
|
|
18.73 - 18.73
|
|
|
794,000 |
|
|
|
9.61 |
|
|
|
18.73 |
|
|
|
0 |
|
|
|
0.00 |
|
|
18.97 - 21.82
|
|
|
618,999 |
|
|
|
8.68 |
|
|
|
20.87 |
|
|
|
139,869 |
|
|
|
20.83 |
|
|
21.83 - 21.83
|
|
|
7,000 |
|
|
|
5.23 |
|
|
|
21.83 |
|
|
|
5,800 |
|
|
|
21.83 |
|
|
22.03 - 35.63
|
|
|
1,447,623 |
|
|
|
5.54 |
|
|
|
22.69 |
|
|
|
1,330,632 |
|
|
|
22.69 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.25 - 35.63
|
|
|
6,014,361 |
|
|
|
6.71 |
|
|
|
15.98 |
|
|
|
3,735,803 |
|
|
|
15.09 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-18
VIASAT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Note 6 — Shares Used in Earnings Per Share
Calculations
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
| |
|
| |
| |
|
April 1, 2005 | |
|
April 2, 2004 | |
|
March 31, 2003 | |
| |
|
| |
|
| |
|
| |
|
Weighted average common shares outstanding used in calculating
basic net income (loss) per share
|
|
|
26,748,597 |
|
|
|
26,256,869 |
|
|
|
26,015,702 |
|
|
Weighted average options to purchase common stock as determined
by application of the treasury stock method
|
|
|
1,396,434 |
|
|
|
1,297,416 |
|
|
|
— |
|
|
Employee Stock Purchase Plan equivalents
|
|
|
2,141 |
|
|
|
3,623 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted net income (loss) per share
|
|
|
28,147,172 |
|
|
|
27,557,908 |
|
|
|
26,015,702 |
|
| |
|
|
|
|
|
|
|
|
|
Antidilutive shares relating to stock options excluded from the
calculation were 1,580,997, 1,817,156 and 3,437,227 shares
for the fiscal years ended April 1, 2005, April 2,
2004, and March 31, 2003, respectively.
The provision (benefit) for income taxes includes the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
| |
|
| |
| |
|
April 1, 2005 | |
|
April 2, 2004 | |
|
March 31, 2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Current tax provision (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Federal
|
|
$ |
3,563 |
|
|
$ |
1,493 |
|
|
$ |
(5,325 |
) |
| |
States
|
|
|
845 |
|
|
|
207 |
|
|
|
(454 |
) |
| |
Foreign
|
|
|
191 |
|
|
|
409 |
|
|
|
142 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
4,599 |
|
|
|
2,109 |
|
|
|
(5,637 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Deferred tax (benefit) provision
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Federal
|
|
|
(2,077 |
) |
|
|
175 |
|
|
|
(2,669 |
) |
| |
State
|
|
|
(1,276 |
) |
|
|
(269 |
) |
|
|
(3,089 |
) |
| |
Foreign
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
(3,353 |
) |
|
|
(94 |
) |
|
|
(5,758 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
Total provision (benefit) for income taxes
|
|
$ |
1,246 |
|
|
$ |
2,015 |
|
|
$ |
(11,395 |
) |
| |
|
|
|
|
|
|
|
|
|
F-19
VIASAT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Significant components of the Company’s net deferred tax
assets are as follows:
| |
|
|
|
|
|
|
|
|
|
|
| |
|
As of | |
| |
|
| |
| |
|
April 1, 2005 | |
|
April 2, 2004 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
| |
Tax credit carryforwards
|
|
$ |
10,031 |
|
|
$ |
8,637 |
|
| |
Warranty reserve
|
|
|
2,913 |
|
|
|
1,644 |
|
| |
Inventory reserve
|
|
|
1,947 |
|
|
|
1,990 |
|
| |
Accrued vacation
|
|
|
1,708 |
|
|
|
1,439 |
|
| |
Net operating loss carryforward
|
|
|
13 |
|
|
|
35 |
|
| |
Other
|
|
|
(299 |
) |
|
|
256 |
|
| |
Valuation allowance
|
|
|
(769 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
| |
|
Total deferred tax assets
|
|
|
15,544 |
|
|
|
14,001 |
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
| |
Property and equipment and intangible assets
|
|
|
2,153 |
|
|
|
3,835 |
|
| |
Other
|
|
|
31 |
|
|
|
159 |
|
| |
|
|
|
|
|
|
| |
|
Total deferred tax liabilities
|
|
|
2,184 |
|
|
|
3,994 |
|
| |
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$ |
13,360 |
|
|
$ |
10,007 |
|
| |
|
|
|
|
|
|
A reconciliation of the provision (benefit) for income taxes to
the amount computed by applying the statutory federal income tax
rate to income before income taxes is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
| |
|
| |
| |
|
April 1, 2005 | |
|
April 2, 2004 | |
|
March 31, 2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Tax expense (benefit) at statutory rate
|
|
$ |
7,296 |
|
|
$ |
5,369 |
|
|
$ |
(7,335 |
) |
|
State tax provision, net of federal benefit
|
|
|
982 |
|
|
|
659 |
|
|
|
(1,227 |
) |
|
Tax credits, net of valuation allowance
|
|
|
(5,480 |
) |
|
|
(4,076 |
) |
|
|
(3,167 |
) |
|
Export sales tax benefit
|
|
|
(1,548 |
) |
|
|
(177 |
) |
|
|
— |
|
|
Other
|
|
|
(4 |
) |
|
|
240 |
|
|
|
334 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
1,246 |
|
|
$ |
2,015 |
|
|
$ |
(11,395 |
) |
| |
|
|
|
|
|
|
|
|
|
As of April 1, 2005, the Company had federal and state
research credit carryforwards of approximately $5.8 million
and $6.1 million, respectively, that begin to expire in
2022 for federal purposes and do not expire for state purposes.
The Company has federal alternative minimum tax credit
carryforward of $291,000 which may be carried forward
indefinitely as a credit against regular tax liability.
In accordance with SFAS No. 109, “Accounting for
Income Taxes,” net deferred tax assets are reduced by a
valuation allowance if, based on all the available evidence, it
is more likely than not that some or all of the deferred tax
assets will not be realized. A valuation allowance of $769,000
was provided on deferred tax assets at April 1, 2005, for
California research credit carryforwards. The amount of
California research credit carryforward considered realizable
was determined based on California taxable income and generation
of additional California research credits projected in the
future. Even though there is no expiration for California
research credits, we are generating the credits at a rate faster
than we expect to use them.
On October 22, 2004, the American Jobs Creation Act of 2004
(the “Jobs Creation Act”) was signed into law. The
Jobs Creation Act creates a temporary incentive for
U.S. corporations to repatriate accumulated
F-20
VIASAT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
income earned abroad by providing an 85 percent dividends
received deduction for certain dividends from controlled foreign
corporations. The deduction is subject to a number of
limitations and, as of today, uncertainty remains as to how to
interpret numerous provisions of the Jobs Creation Act. Based on
the Company’s analysis of the Jobs Creation Act, although
not yet finalized, the potential amounts that could be
repatriated and the tax thereon are not material to the
financial statements.
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 tax credit
carryforwards.
|
|
| Note 8 — |
Employee Benefits |
The Company is a sponsor of a voluntary deferred compensation
plan under Section 401(k) of the Internal Revenue Code. The
Company may make discretionary contributions to the plan which
vest equally over six years. Employees who are at least
18 years of age are eligible to participate in the plan.
Participants are entitled, upon termination or retirement, to
their vested portion of the plan assets which are held by an
independent trustee. Discretionary contributions accrued by the
Company during fiscal years 2005, 2004 and 2003 amounted to
$2.8 million, $2.3 million and $0, respectively. The
cost of administering the plan is not significant.
The Company leases office facilities under noncancelable
operating leases with initial terms ranging from one to ten
years which expire between November 2005 and December 2015.
Certain of the Company’s facilities leases contain option
provisions which allow for extension of the lease terms. Rent
expense, which is recognized on a straight-line basis, was
$7.1 million, $6.5 million and $6.9 million in
fiscal years 2005, 2004 and 2003, respectively.
Future minimum lease payments are as follows (in thousands):
| |
|
|
|
|
| Years Ending, |
|
|
| |
|
|
|
2006
|
|
$ |
6,171 |
|
|
2007
|
|
|
6,138 |
|
|
2008
|
|
|
5,906 |
|
|
2009
|
|
|
6,046 |
|
|
2010
|
|
|
6,130 |
|
|
Thereafter
|
|
|
32,525 |
|
| |
|
|
|
| |
|
$ |
62,916 |
|
| |
|
|
|
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 as 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. As of
April 1, 2005, we had total purchase commitments for
inventory and services of approximately $183.2 million, of
which $88.2 million is expected to be fulfilled within one
year and the balance of $95.0 million is expected to be
fulfilled in fiscal year 2007 and thereafter.
F-21
VIASAT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
We are currently a party to various government and commercial
contracts which require us to meet performance covenants and
project milestones. Under the terms of these contracts, our
failure to meet such performance covenants and milestones permit
the other party to terminate the contract and, under certain
circumstances, recover liquidated damages or other penalties. We
are currently not in compliance (or in the past were not in
compliance) with the performance or milestone requirements of
certain of these contracts. Historically, our customers have not
elected to terminate such contracts or seek liquidated damages
from us and we do not believe that our existing customers will
do so; therefore, we have not accrued for any potential
liquidated damages or penalties. However, there can be no
assurance that our customers will not elect to terminate such
contracts or seek liquidated damages or penalties from us in the
future.
On October 23, 2002, we sent Scientific-Atlanta, Inc. a
claim for indemnification under the terms of the asset purchase
agreement related to the acquisition of
Scientific-Atlanta’s satellite networks business (the
“Satellite Networks Business”) in April 2000. On
November 14, 2002, Scientific-Atlanta filed a complaint
(United States District Court, Northern District of Georgia,
Atlanta Division) for declaratory judgment seeking to resolve
our claim for indemnification through litigation. In response to
Scientific-Atlanta’s complaint, on January 15, 2003,
we filed a formal claim against Scientific-Atlanta for, among
other things, fraud, breach of warranty, contractual and
equitable indemnification, and breach of the duty of good faith
and fair dealing. In December 2003, we reached an agreement with
Scientific-Atlanta (“SA Settlement”). Under the terms
of the SA Settlement, Scientific-Atlanta paid us
$9.0 million in cash and the parties jointly dismissed the
litigation concerning the acquisition. Neither party admitted
liability in connection with the litigation, or in the agreement
resolving it. As a result of the settlement, the Consolidated
Statement of Operations for the fiscal year ended April 2,
2004 includes a benefit to cost of revenues of $3.2 million
and to selling, general and administrative expenses of
$3.1 million.
On May 21, 2003, we filed a complaint against Xetron
Corporation alleging Xetron failed to deliver conforming radio
frequency amplifiers (RFAs) for integration into our MIDS
terminals. Xetron filed a counter-claim against us alleging we
failed to make proper payments. On April 11, 2005, we and
Xetron agreed to settle all claims whereby we received
$4.8 million as a result of the settlement and will
recognize a net benefit of approximately $2.7 million in
the first quarter of fiscal year 2006.
We are also party to various claims and legal actions arising in
the normal course of business. Although the ultimate outcome of
the such matters is not presently determinable, we believe that
the resolution of all such matters, net of amounts accrued, will
not have a material adverse effect on our financial position or
liquidity; however, there can be no assurance that the ultimate
resolution of these matters will not have a material impact on
our results of operations in any period.
F-22
VIASAT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
| Note 11 — |
Product Warranty |
We provide limited warranties on most of our products for
periods of up to five years. We record a liability for our
warranty obligations when products are delivered 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 costs estimates are
based on historical experience with the particular product. For
newer products that do not have a history of warranty costs, we
base our estimates on our experience with the technology
involved and the types of failure that may occur. It is possible
that our underlying assumptions will not reflect the actual
experience and in that case, future adjustments will be made to
the recorded warranty obligation. The following table reflects
the change in our warranty accrual in fiscal years 2005, 2004
and 2003.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
| |
|
| |
| |
|
April 1, 2005 | |
|
April 2, 2004 | |
|
March 31, 2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Balance, beginning of period
|
|
$ |
4,451 |
|
|
$ |
2,327 |
|
|
$ |
1,498 |
|
| |
Change in liability for warranties issued in period
|
|
|
4,737 |
|
|
|
3,315 |
|
|
|
1,613 |
|
| |
Settlements made (in cash or in kind) during the period
|
|
|
(2,009 |
) |
|
|
(1,191 |
) |
|
|
(784 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$ |
7,179 |
|
|
$ |
4,451 |
|
|
$ |
2,327 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Note 12 — |
Immeon Networks, L.L.C. |
In January 2001 the Company and Loral Skynet formed a 50-50
joint venture named Immeon Networks, L.L.C. (Immeon). Pursuant
to the Joint Venture Agreement and related agreements, the
Company was obligated to provide a minimum level of marketing,
selling, administrative and network operation services to Immeon
while Loral Skynet was to provide Immeon with satellite
bandwidth. ViaSat has accounted for the costs incurred on behalf
of Immeon as Cost of revenues. ViaSat was eligible to receive
reimbursement for costs incurred, contingent upon Immeon
achieving positive cash flows in the future. Because the
collectibility of such reimbursements was not reasonably assured
at the time the services were provided, revenue related to such
services has not been recognized in the accompanying financial
statements. The cost of these services, which is included in
Cost of revenues for fiscal years 2004 and 2003, is $177,000 and
$1.7 million, respectively. In January 2004, Loral Skynet
formally withdrew from the Immeon joint venture as a result of a
bankruptcy proceeding of Loral Space and Communications, so
ViaSat is now the sole owner and operator of Immeon.
Condensed combined financial information for Immeon, which was
accounted under the equity method through January 2, 2004,
is summarized below (amounts in thousands). Immeon is
consolidated by ViaSat from January 3, 2004. Immeon
maintains its financial statements on a calendar year basis.
| |
|
|
|
|
|
| |
|
December 31, 2003 | |
| |
|
| |
|
Current assets
|
|
$ |
648 |
|
|
Non-current assets
|
|
|
— |
|
|
Current liabilities
|
|
|
15 |
|
|
Amounts contingently payable to Members
|
|
|
6,730 |
|
|
Non-current liabilities
|
|
|
— |
|
| |
|
|
|
| |
Total member’s deficit
|
|
$ |
(6,097 |
) |
| |
|
|
|
|
ViaSat’s investment in joint venture
|
|
$ |
— |
|
| |
|
|
|
F-23
VIASAT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| |
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
| |
|
December 31, | |
| |
|
| |
| |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
Operating revenues
|
|
$ |
350 |
|
|
$ |
430 |
|
|
Operating expenses
|
|
|
(857 |
) |
|
|
(3,033 |
) |
| |
|
|
|
|
|
|
| |
Net loss
|
|
$ |
(507 |
) |
|
$ |
2,603 |
|
|
Company’s share of net loss, after elimination of
intercompany transactions
|
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
| Note 13 — |
Segment Information |
Our commercial and government segments are primarily
distinguished by the type of customer and the related
contractual requirements. The more regulated government
environment is subject to unique contractual requirements and
possesses economic characteristics, which differ from the
commercial segment. Therefore, we are organized primarily on the
basis of products with commercial and government
(defense) communication applications. Based on the
Company’s commercial business strategy to provide
end-to-end capability with satellite communication equipment
solutions, the Company implemented certain management changes
during the year ended April 1, 2005 which led to the
delineation of the commercial segment into two product lines;
Satellite Networks and Antenna Systems. These product lines are
distinguished from one another based upon their underlying
technologies. Prior segment results have been reclassified to
conform to our current organizational structure. Reporting
segments are determined consistent with the way that management
organizes and evaluates financial information internally for
making operating decisions and assessing performance. The
following table summarizes revenues and operating profits by
reporting segment for the fiscal years ended April 1, 2005,
April 2, 2004 and March 31, 2003. Certain corporate
general and administrative costs, amortization of intangible
assets and charges of acquired in-process research and
development are not allocated to either segment and accordingly,
are shown as reconciling items from segment operating profit and
consolidated operating profit. Certain assets are not tracked by
reporting segment. Consequently, it is not practical to show
assets by reporting segments. Depreciation expense is allocated
to reporting segments as an overhead charge based on direct
labor dollars within the reporting segments.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
| |
|
| |
| |
|
April 1, 2005 | |
|
April 2, 2004 | |
|
March 31, 2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Government
|
|
$ |
175,442 |
|
|
$ |
128,351 |
|
|
$ |
82,588 |
|
| |
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Satellite Networks
|
|
|
137,971 |
|
|
|
111,549 |
|
|
|
75,102 |
|
| |
|
Antenna Systems
|
|
|
39,420 |
|
|
|
42,607 |
|
|
|
28,663 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
177,391 |
|
|
|
154,156 |
|
|
|
103,765 |
|
| |
Eliminations
|
|
|
(6,894 |
) |
|
|
(3,928 |
) |
|
|
(1,331 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$ |
345,939 |
|
|
$ |
278,579 |
|
|
$ |
185,022 |
|
| |
|
|
|
|
|
|
|
|
|
|
Operating profits
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Government
|
|
$ |
28,060 |
|
|
$ |
15,190 |
|
|
$ |
11,652 |
|
| |
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Satellite Networks
|
|
|
(1,748 |
) |
|
|
7,301 |
|
|
|
(23,184 |
) |
| |
|
Antenna Systems
|
|
|
3,639 |
|
|
|
2,093 |
|
|
|
536 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
1,891 |
|
|
|
9,394 |
|
|
|
(22,648 |
) |
F-24
VIASAT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
| |
|
| |
| |
|
April 1, 2005 | |
|
April 2, 2004 | |
|
March 31, 2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Segment operating profit (loss) before corporate and other
|
|
|
29,951 |
|
|
|
24,584 |
|
|
|
(10,996 |
) |
| |
Corporate
|
|
|
(2,207 |
) |
|
|
(1,058 |
) |
|
|
(796 |
) |
| |
Other
|
|
|
(778 |
) |
|
|
(34 |
) |
|
|
— |
|
| |
Amortization of intangibles(1)
|
|
|
(6,642 |
) |
|
|
(7,841 |
) |
|
|
(8,448 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
$ |
20,324 |
|
|
$ |
15,651 |
|
|
$ |
(20,240 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Amortization of intangibles relate to the commercial segment. |
| |
|
|
|
|
|
|
|
|
|
|
| |
|
April 1, 2005 | |
|
April 2, 2004 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Segment assets(2)
|
|
|
|
|
|
|
|
|
|
Government
|
|
$ |
81,645 |
|
|
$ |
65,010 |
|
|
Commercial
|
|
|
|
|
|
|
|
|
| |
|
Satellite Networks
|
|
|
79,835 |
|
|
|
63,143 |
|
| |
|
Antenna Systems
|
|
|
17,778 |
|
|
|
15,631 |
|
| |
|
|
|
|
|
|
| |
|
|
97,613 |
|
|
|
78,774 |
|
| |
Corporate assets
|
|
|
122,567 |
|
|
|
128,898 |
|
| |
|
|
|
|
|
|
|
Total
|
|
$ |
301,825 |
|
|
$ |
272,682 |
|
| |
|
|
|
|
|
|
|
|
| (2) |
Assets identifiable to segments include; accounts receivable,
unbilled accounts receivable and inventory. At April 1,
2005 and April 1, 2004, all the Company’s goodwill
related to the Company’s commercial segment. |
Revenue information by geographic area for the fiscal years
ended April 1, 2005, April 2, 2004 and March 31,
2003 is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
| |
|
| |
| |
|
April 1, 2005 | |
|
April 2, 2004 | |
|
March 31, 2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
United States
|
|
$ |
253,045 |
|
|
$ |
211,252 |
|
|
$ |
134,360 |
|
|
Europe
|
|
|
44,617 |
|
|
|
36,690 |
|
|
|
22,176 |
|
|
Asia Pacific
|
|
|
29,137 |
|
|
|
23,046 |
|
|
|
14,942 |
|
|
North America other than United States
|
|
|
12,953 |
|
|
|
5,181 |
|
|
|
12,254 |
|
|
Latin America
|
|
|
6,187 |
|
|
|
2,410 |
|
|
|
1,290 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
345,939 |
|
|
$ |
278,579 |
|
|
$ |
185,022 |
|
| |
|
|
|
|
|
|
|
|
|
We distinguish revenues from external customers by geographic
areas based on customer location.
The net book value of long-lived assets located outside the
United States was $48,000, $52,000 and $235,000 at April 1,
2005, April 2, 2004 and March 31, 2003, respectively.
F-25
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
For the Three Years Ended April 2, 2005
| |
|
|
|
|
|
| |
|
Allowance for | |
| Date |
|
Doubtful Accounts | |
| |
|
| |
| |
|
(In thousands) | |
|
Balance, March 31, 2002
|
|
$ |
487 |
|
| |
Provision
|
|
|
475 |
|
| |
Write-off
|
|
|
(289 |
) |
| |
|
|
|
|
Balance, March 31, 2003
|
|
$ |
673 |
|
| |
Provision
|
|
|
(294 |
) |
| |
|
|
|
|
Balance, April 2, 2004
|
|
$ |
379 |
|
| |
Provision
|
|
|
234 |
|
| |
Write-off
|
|
|
(450 |
) |
| |
|
|
|
|
Balance, April 1, 2005
|
|
$ |
163 |
|
| |
|
|
|
| |
|
|
|
|
|
| |
|
Deferred Tax | |
| Date |
|
Asset Valuation | |
| |
|
| |
| |
|
(In thousands) | |
|
Balance, March 31, 2002
|
|
$ |
— |
|
| |
Provision
|
|
|
— |
|
| |
Write-off
|
|
|
— |
|
| |
|
|
|
|
Balance, March 31, 2003
|
|
$ |
— |
|
| |
Provision
|
|
|
— |
|
| |
|
|
|
|
Balance, April 2, 2004
|
|
$ |
— |
|
| |
Provision
|
|
|
769 |
|
| |
Write-off
|
|
|
— |
|
| |
|
|
|
|
Balance, April 1, 2005
|
|
$ |
769 |
|
| |
|
|
|
II-1