NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 Basis of Presentation
The accompanying condensed consolidated balance sheet at June 30, 2017, the condensed consolidated statements of operations and
comprehensive income (loss) for the three months ended June 30, 2017 and 2016, the condensed consolidated statements of cash flows for the three months ended June 30, 2017 and 2016 and the condensed consolidated statement of equity for the
three months ended June 30, 2017 have been prepared by the management of ViaSat, Inc. (also referred to hereafter as the Company or ViaSat), and have not been audited. These financial statements have been prepared on the same basis as the
audited consolidated financial statements for the fiscal year ended March 31, 2017 and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the Companys
results for the periods presented. These financial statements should be read in conjunction with the financial statements and notes thereto for the fiscal year ended March 31, 2017 included in the Companys Annual Report on Form
10-K.
Interim operating results are not necessarily indicative of operating results for the full year. The
year-end
condensed consolidated balance sheet data was derived from
audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (GAAP).
The Companys condensed consolidated financial statements include the assets, liabilities and results of operations of ViaSat, its wholly owned subsidiaries and its majority-owned subsidiaries,
TrellisWare Technologies, Inc. (TrellisWare) and Euro Broadband Retail Sàrl (Euro Retail Co.). All significant intercompany amounts have been eliminated. Investments in entities in which the Company can exercise significant influence, but
does not own a majority equity interest or otherwise control, are accounted for using the equity method and are included as investment in unconsolidated affiliate in other assets (long-term) on the condensed consolidated balance sheets.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenues and expenses during the reporting period. Estimates have been prepared on the
basis of the most current and best available information and actual results could differ from those estimates. Significant estimates made by management include revenue recognition, stock-based compensation, self-insurance reserves, allowance for
doubtful accounts, warranty accruals, valuation of goodwill and other intangible assets, patents, orbital slots and other licenses, software development, property, equipment and satellites, long-lived assets, derivatives, contingencies and income
taxes including the valuation allowance on deferred tax assets.
Revenue recognition
A substantial portion of the Companys revenues is derived from long-term contracts requiring development and delivery of complex
equipment built to customer specifications. Sales related to long-term contracts are accounted for under the authoritative guidance for the
percentage-of-completion
method of accounting (Accounting Standards Codification (ASC)
605-35).
Sales and earnings under these contracts are recorded either based on the ratio of actual costs incurred to date to total estimated costs
expected to be incurred related to the contract, or as products are shipped under the
units-of-delivery
method. Anticipated losses on contracts are recognized in full in
the period in which losses become probable and estimable. Changes in estimates of profit or loss on contracts are included in earnings on a cumulative basis in the period the estimate is changed. During the three months ended June 30, 2017 and
2016, the Company recorded losses of approximately $2.2 million and $0.4 million, respectively, related to loss contracts.
The Company also derives a substantial portion of its revenues from contracts and purchase orders where revenue is recorded on delivery of products or performance of services in accordance with the
authoritative guidance for revenue recognition (ASC 605). Under this standard, the Company recognizes revenue when an arrangement exists, prices are determinable, collectability is reasonably assured and the goods or services have been delivered.
The Company also enters into certain leasing arrangements with customers and evaluates the contracts in accordance with the
authoritative guidance for leases (ASC 840). The Companys accounting for equipment leases involves specific determinations under the authoritative guidance for leases, which often involve complex provisions and significant judgments. In
accordance with the authoritative guidance for leases, the Company classifies the transactions as sales type or operating leases based on: (1) review for transfers of ownership of the equipment to the lessee by the end of the lease term,
(2) review of the lease terms to determine if it contains an option to purchase the leased equipment for a price which is sufficiently lower than the expected fair value of the equipment at the date of the option, (3) review of the lease
term to determine if it is equal to or greater than 75% of the economic life of the equipment, and (4) review of the present value of the minimum lease payments to determine if they are equal to or greater than 90% of the fair market value of
the equipment at the inception of the lease. Additionally, the Company considers the cancelability of the contract and any related uncertainty of collections or risk in recoverability of the lease investment at lease inception. Revenue from sales
type leases is recognized at the inception of the lease or when the equipment has been delivered and installed at the customer site, if installation is required. Revenues from equipment rentals under operating leases are recognized as earned over
the lease term, which is generally on a straight-line basis.
In accordance with the authoritative guidance for revenue
recognition for multiple element arrangements, the Accounting Standards Update (ASU)
2009-13
(ASU
2009-13),
Revenue Recognition (ASC 605) Multiple-Deliverable Revenue
Arrangements, which updates ASC
605-25,
Revenue Recognition-Multiple element arrangements, of the Financial Accounting Standards Board (FASB) codification, for substantially all of the arrangements with
multiple deliverables, the Company allocates revenue to each element based on a selling price
7
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
hierarchy at the arrangement inception. The selling price for each element is based upon the following selling price hierarchy: vendor specific objective evidence (VSOE) if available, third-party
evidence (TPE) if VSOE is not available, or estimated selling price (ESP) if neither VSOE nor TPE are available (a description as to how the Company determines VSOE, TPE and ESP is provided below). If a tangible hardware systems product includes
software, the Company determines whether the tangible hardware systems product and the software work together to deliver the products essential functionality and, if so, the entire product is treated as a nonsoftware deliverable. The total
arrangement consideration is allocated to each separate unit of accounting for each of the nonsoftware deliverables using the relative selling prices of each unit based on the aforementioned selling price hierarchy. Revenue for each separate unit of
accounting is recognized when the applicable revenue recognition criteria for each element have been met.
To determine the
selling price in multiple-element arrangements, the Company establishes VSOE of the selling price using the price charged for a deliverable when sold separately. The Company also considers specific renewal rates offered to customers for software
license updates, product support and hardware systems support, and other services. For nonsoftware multiple-element arrangements, TPE is established by evaluating similar and/or interchangeable competitor products or services in standalone
arrangements with similarly situated customers and/or agreements. If the Company is unable to determine the selling price because VSOE or TPE doesnt exist, the Company determines ESP for the purposes of allocating the arrangement by reviewing
historical transactions, including transactions whereby the deliverable was sold on a standalone basis and considers several other external and internal factors including, but not limited to, pricing practices including discounting, margin
objectives, competition, the geographies in which the Company offers its products and services, the type of customer (i.e., distributor, value added reseller, government agency or direct end user, among others), volume commitments and the stage of
the product lifecycle. The determination of ESP considers the Companys pricing model and
go-to-market
strategy. As the Companys, or its competitors,
pricing and
go-to-market
strategies evolve, the Company may modify its pricing practices in the future, which could result in changes to its determination of VSOE, TPE
and ESP. As a result, the Companys future revenue recognition for multiple-element arrangements could differ materially from those in the current period.
In accordance with the authoritative guidance for shipping and handling fees and costs (ASC
605-45),
the Company records shipping and handling costs billed to
customers as a component of revenues, and shipping and handling costs incurred by the Company for inbound and outbound freight as a component of cost of revenues.
Collections in excess of revenues and deferred revenues represent cash collected from customers in advance of revenue recognition and are recorded in accrued liabilities for obligations within the next 12
months. Amounts for obligations extending beyond 12 months are recorded within other liabilities in the condensed consolidated financial statements.
Contract costs on U.S. government contracts are subject to audit and review by the Defense Contracting Management Agency (DCMA), the Defense Contract Audit Agency (DCAA), and other U.S. government
agencies, as well as negotiations with U.S. government representatives. The Companys incurred cost audits by the DCAA have not been concluded for fiscal years 2016 and 2017. As of June 30, 2017, the DCAA had completed its incurred cost
audit for fiscal year 2004 and approved the Companys incurred cost claims for fiscal years 2005 through 2015 without further audit. Although the Company has recorded contract revenues subsequent to fiscal year 2015 based upon an estimate of
costs that the Company believes will be approved upon final audit or review, the Company does not know the outcome of any ongoing or future audits or reviews and adjustments, and if future adjustments exceed the Companys estimates, its
profitability would be adversely affected. As of June 30, 2017 and March 31, 2017, the Company had $1.6 million and $1.8 million, respectively, in contract-related reserves for its estimate of potential refunds to customers for
potential cost adjustments on several multi-year U.S. government cost reimbursable contracts (see Note 8).
Advertising costs
In accordance with the authoritative guidance for advertising costs (ASC
720-35),
advertising costs are expensed as incurred and included in selling, general and administrative (SG&A) expenses. Advertising expenses for the three months ended June 30, 2017 and 2016 were
$1.2 million and $0.8 million, respectively.
Commissions
The Company compensates third parties based on specific commission programs directly related to certain product and service sales, and
these commissions costs are expensed as incurred.
Property, equipment and satellites
Satellites and other property and equipment are recorded at cost or, in the case of certain satellites and other property acquired, the
fair value at the date of acquisition, net of accumulated depreciation. Capitalized satellite costs consist primarily of the costs of satellite construction and launch, including launch insurance and insurance during the period of
in-orbit
testing, the net present value of performance incentives expected to be payable to satellite manufacturers (dependent on the continued satisfactory performance of the satellites), costs directly associated
with the monitoring and support of satellite construction, and interest costs incurred during the period of satellite construction. The Company also constructs earth stations, network operations systems and other assets to support its satellites,
and those construction costs, including interest, are capitalized as incurred. At the time satellites are placed in service, the Company estimates the useful life of its satellites for depreciation purposes based upon an analysis of each
satellites performance against the original manufacturers orbital design life, estimated fuel levels and related consumption rates, as well as historical satellite operating trends. Costs related to internally developed software for
internal uses are capitalized after the preliminary project stage is complete and are amortized over the estimated
8
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
useful lives of the assets. Costs incurred for additions to property, equipment and satellites, together with major renewals and betterments, are capitalized and depreciated over the remaining
life of the underlying asset. Costs incurred for maintenance, repairs and minor renewals and betterments are charged to expense as incurred. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation or amortization
are removed from the accounts and any resulting gain or loss is recognized in operations, which for the periods presented, primarily related to losses incurred for unreturned customer premise equipment (CPE). The Company computes depreciation using
the straight-line method over the estimated useful lives of the assets ranging from two to 24 years. Leasehold improvements are capitalized and amortized using the straight-line method over the shorter of the lease term or the life of the
improvement.
Interest expense is capitalized on the carrying value of assets under construction, in accordance with the
authoritative guidance for the capitalization of interest (ASC
835-20).
With respect to assets under construction, including the
ViaSat-2
satellite and related gateway
and networking equipment (which commenced construction during the first quarter of fiscal year 2014), and the
ViaSat-3
class satellites (which commenced construction during the fourth quarter of fiscal year
2016), the Company capitalized $14.6 million and $10.2 million of interest expense for the three months ended June 30, 2017 and 2016, respectively.
The Company owns two satellites:
ViaSat-1
(its first-generation high-capacity
Ka-band
spot-beam satellite, which was placed
into service in January 2012) and
WildBlue-1
(which was placed into service in March 2007). On June 1, 2017, the Companys second-generation
ViaSat-2
satellite
was successfully launched into orbit, and the satellite manufacturer will transfer title and operation of the satellite to the Company following the successful completion of orbit raising, orbital placement and in-orbit testing. The Company
currently has two third-generation
ViaSat-3
class satellites under construction. The Company also has an exclusive prepaid lifetime capital lease of
Ka-band
capacity
over the contiguous United States on Telesat Canadas Anik F2 satellite (which was placed into service in April 2005) and owns related earth stations and networking equipment for all of its satellites. The Company periodically reviews the
remaining estimated useful life of its satellites to determine if revisions to estimated lives are necessary. The Company procures indoor and outdoor CPE units leased to subscribers under a retail leasing program as part of the Companys
satellite services segment, which are reflected in investing activities and property and equipment in the accompanying condensed consolidated financial statements. The Company depreciates the satellites, earth stations and networking equipment, CPE
units and related installation costs over their estimated useful lives. The total cost and accumulated depreciation of CPE units included in property and equipment, net, as of June 30, 2017 were $266.2 million and $160.8 million,
respectively. The total cost and accumulated depreciation of CPE units included in property and equipment, net, as of March 31, 2017 were $271.9 million and $158.2 million, respectively.
Occasionally, the Company may enter into capital lease arrangements for various machinery, equipment, computer-related equipment,
software, furniture or fixtures. The Company records amortization of assets leased under capital lease arrangements within depreciation expense.
Patents, orbital slots and other licenses
The Company capitalizes
the costs of obtaining or acquiring patents, orbital slots and other licenses. Amortization of intangible assets that have finite lives is provided for by the straight-line method over the shorter of the legal or estimated economic life. Total
capitalized costs of $3.2 million related to patents were included in other assets as of June 30, 2017 and March 31, 2017. The Company capitalized costs of $15.4 million related to acquiring and obtaining orbital slots and other
licenses included in other assets as of June 30, 2017 and March 31, 2017. Accumulated amortization related to these assets was $2.2 million and $2.1 million as of June 30, 2017 and March 31, 2017, respectively.
Amortization expense related to these assets was an insignificant amount for the three months ended June 30, 2017 and 2016. If a patent, orbital slot or orbital license is rejected, abandoned or otherwise invalidated, the unamortized cost is
expensed in that period. During the three months ended June 30, 2017 and 2016, the Company did not write off any significant costs due to abandonment or impairment.
Debt issuance costs
Debt issuance costs are amortized and
recognized as interest expense using the effective interest rate method, or, when the results are not materially different, on a straight-line basis over the expected term of the related debt. During the three months ended June 30, 2017 and
2016, no amounts and $6.1 million, respectively, of debt issuance costs were capitalized. Unamortized debt issuance costs related to extinguished debt are expensed at the time the debt is extinguished and recorded in loss on extinguishment of
debt in the condensed consolidated statements of operations and comprehensive income (loss). Debt issuance costs related to the Companys revolving credit facility (the Revolving Credit Facility) are recorded in prepaid expenses and other
current assets and in other long-term assets in the condensed consolidated balance sheets in accordance with the authoritative guidance for imputation of interest (ASC
835-30).
Debt issuance costs related to
the Companys 6.875% Senior Notes due 2020 (2020 Notes) and the Companys direct loan facility with the Export-Import Bank of the United States for
ViaSat-2
(the
Ex-Im
Credit Facility) are recorded as a direct deduction from the carrying amount of the related debt, consistent with debt discounts, in accordance with the authoritative guidance for imputation of interest
(ASC
835-30).
Software development
Costs of developing software for sale are charged to research and development expense when incurred, until technological feasibility has
been established. Software development costs incurred from the time technological feasibility is reached until the product is available for general release to customers are capitalized and reported at the lower of unamortized cost or net realizable
value. Once the product is available for general release, the software development costs are amortized based on the ratio of current to future revenue for each product with an annual minimum equal to straight-line amortization over the remaining
estimated economic life of the product, generally within five years. Capitalized costs, net, of $211.8 million and $203.7 million related to software developed for resale were included in other assets as of June 30, 2017 and
March 31, 2017, respectively. The Company capitalized $17.8 million and $21.0 million of costs related to software developed for resale for the three months ended June 30, 2017 and 2016, respectively. Amortization expense for
capitalized software development costs was $9.7 million and $7.7 million for the three months ended June 30, 2017 and 2016, respectively.
9
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Self-insurance liabilities
The Company has self-insurance plans to retain a portion of the exposure for losses related to employee medical benefits and workers
compensation. The self-insurance plans include policies which provide for both specific and aggregate stop-loss limits. The Company utilizes internal actuarial methods as well as other historical information for the purpose of estimating ultimate
costs for a particular plan year. Based on these actuarial methods, along with currently available information and insurance industry statistics, the Company has recorded self-insurance liability for its plans of $4.1 million and
$4.2 million in accrued liabilities in the condensed consolidated balance sheets as of June 30, 2017 and March 31, 2017, respectively. The Companys estimate, which is subject to inherent variability, is based on average claims
experience in the Companys industry and its own experience in terms of frequency and severity of claims, including asserted and unasserted claims incurred but not reported, with no explicit provision for adverse fluctuation from year to year.
This variability may lead to ultimate payments being either greater or less than the amounts presented above. Self-insurance liabilities have been classified as a current liability in accrued liabilities in accordance with the estimated timing of
the projected payments.
Indemnification provisions
In the ordinary course of business, the Company includes indemnification provisions in certain of its contracts, generally relating to parties with which the Company has commercial relations. Pursuant to
these agreements, the Company will indemnify, hold harmless and agree to reimburse the indemnified party for losses suffered or incurred by the indemnified party, including but not limited to losses relating to third-party intellectual property
claims. To date, there have not been any material costs incurred in connection with such indemnification clauses. The Companys insurance policies do not necessarily cover the cost of defending indemnification claims or providing
indemnification, so if a claim was filed against the Company by any party that the Company has agreed to indemnify, the Company could incur substantial legal costs and damages. A claim would be accrued when a loss is considered probable and the
amount can be reasonably estimated. At June 30, 2017 and March 31, 2017, no such amounts were accrued related to the aforementioned provisions.
Noncontrolling interests
A noncontrolling interest represents the
equity interest in a subsidiary that is not attributable, either directly or indirectly, to the Company and is reported as equity of the Company, separately from the Companys controlling interest. Revenues, expenses, gains, losses, net income
(loss) and other comprehensive income (loss) are reported in the condensed consolidated financial statements at the consolidated amounts, which include the amounts attributable to both the controlling and noncontrolling interest.
Investments in unconsolidated affiliate equity method
Investments in entities in which the Company can exercise significant influence, but does not own a majority equity interest or otherwise
control, are accounted for using the equity method and are included as investment in unconsolidated affiliate in other assets (long-term) on the condensed consolidated balance sheets. The Company records its share of the results of such entities
within equity in earnings (losses) of unconsolidated affiliate, net on the condensed consolidated statements of operations and comprehensive income (loss). The Company monitors such investments for other-than-temporary impairment by considering
factors including the current economic and market conditions and the operating performance of the entities and records reductions in carrying values when necessary. The fair value of privately held investments is estimated using the best available
information as of the valuation date, including current earnings trends, undiscounted cash flows, quoted stock prices of comparable public companies, and other company specific information, including recent financing rounds.
Common stock held in treasury
As of June 30, 2017 and March 31, 2017, the Company had no shares of common stock held in treasury.
During the three months ended June 30, 2017 and 2016, the Company issued 72,811 and 72,581 shares of common stock, respectively, based on the vesting terms of certain restricted stock unit
agreements. In order for employees to satisfy minimum statutory employee tax withholding requirements related to the issuance of common stock underlying these restricted stock unit agreements, the Company repurchased 27,514 and 26,596 shares of
common stock at cost with a total value of $1.9 million during the first three months of fiscal years 2018 and 2017. The shares of common stock repurchased during the three months ended June 30, 2017 and 2016 were immediately retired.
These retired shares remain as authorized stock; however they are considered to be unissued. The retirement of treasury stock had no impact on the Companys total consolidated stockholders equity. Although shares withheld for employee
withholding taxes are technically not issued, they are treated as common stock repurchases for accounting purposes (with such shares deemed to be repurchased and then immediately retired), as they reduce the number of shares that otherwise would
have been issued upon vesting of the restricted stock units.
Derivatives
The Company enters into foreign currency forward and option contracts from time to time to hedge certain forecasted foreign currency
transactions. Gains and losses arising from foreign currency forward and option contracts not designated as hedging instruments are recorded in other income (expense) as gains (losses) on derivative instruments. Gains and losses arising from the
effective portion of foreign currency forward and option contracts which are designated as cash-flow hedging instruments are recorded in accumulated other comprehensive income (loss) as unrealized gains (losses) on derivative instruments until the
underlying transaction affects the Companys earnings, at which time they are then recorded in the same income statement line as the underlying transaction.
10
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
During the three months ended June 30, 2017 and 2016, the Company settled certain
foreign exchange contracts and in connection therewith for each period recognized an insignificant gain or loss recorded in cost of revenues based on the nature of the underlying transactions. The fair value of the Companys foreign currency
forward contracts was an insignificant amount recorded as an other current asset as of June 30, 2017 and as an accrued liability as of March 31, 2017. The notional value of foreign currency forward contracts outstanding as of June 30,
2017 and March 31, 2017 was $2.1 million and $2.6 million, respectively.
At June 30, 2017, the estimated
net amount of unrealized gains or losses related to foreign currency forward contracts that was expected to be reclassified to earnings within the next 12 months was insignificant. The Companys foreign currency forward contracts outstanding as
of June 30, 2017 will mature within approximately 27 to 36 months from their inception. There were no gains or losses from ineffectiveness of these derivative instruments recorded for the three months ended June 30, 2017 and 2016.
Stock-based compensation
In accordance with the authoritative guidance for share-based payments (ASC 718), the Company measures stock-based compensation cost at the grant date, based on the estimated fair value of the award, and
recognizes expense on a straight-line basis over the employees requisite service period. Effective April 1, 2017, the Company adopted a change in accounting policy in accordance with ASU
2016-09,
Compensation Stock Compensation (ASC 718) to account for forfeitures as they occur. Prior to April 1, 2017, forfeitures were estimated at the date of grant and revised, if necessary, in subsequent periods if actual forfeitures differed
from those estimates. The Company recognized $15.5 million and $12.8 million of stock-based compensation expense for the three months ended June 30, 2017 and 2016, respectively.
Effective April 1, 2017, in accordance with ASU
2016-09,
on a prospective basis, the Company
recognizes excess tax benefits or deficiencies on vesting or settlement of awards as discrete items within income tax benefit or provision within net income (loss) and the related cash flows classified within operating activities. Prior to
April 1, 2017 any unrealized excess tax benefits were tracked off the balance sheet and recognition of the benefits was deferred until realized through a reduction in taxes payable. When the excess tax benefits or deficiencies were realized,
they were recognized in
paid-in-capital
and the related cash flows were classified as an outflow from operating activities and an inflow from financing activities. For
the three months ended June 30, 2017 the Company recorded an insignificant amount of incremental tax benefits from stock options exercised and restricted stock unit awards released as an income tax benefit. For the three months ended
June 30, 2016, the Company recorded no incremental tax benefits from stock options exercised and restricted stock unit awards released as the excess tax benefit from stock options exercised and restricted stock unit awards released increased
the Companys net operating loss carryforward.
Income taxes
Accruals for uncertain tax positions are provided for in accordance with the authoritative guidance for accounting for uncertainty in
income taxes (ASC 740). The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of
the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The authoritative guidance
for accounting for uncertainty in income taxes also provides guidance on derecognition of income tax assets and liabilities, classification of deferred income tax assets and liabilities, accounting for interest and penalties associated with tax
positions, and income tax disclosures. The Companys policy is to recognize interest expense and penalties related to income tax matters as a component of income tax expense.
The Company calculates its provision for income taxes at the end of each interim reporting period on the basis of an estimated annual
effective tax rate adjusted for tax items that are discrete to each period. However, when a reliable estimate cannot be made, the Company computes its provision for income taxes using the actual effective tax rate for the
year-to-date
period. For the three months ended June 30, 2016, the Company used the actual effective tax rate method in calculating the income tax provision for the
period as a reliable estimate of the annual effective tax rate could not be made.
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.
Recent authoritative guidance
In May 2014, the FASB issued ASU
2014-09,
Revenue from Contracts with Customers. ASU
2014-09
requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of
promised goods or services to a customer. This guidance will replace most existing revenue recognition guidance and will be effective for the Company beginning in fiscal year 2019, including interim
11
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
periods within that reporting period, based on the FASB decision in July 2015 (ASU
2015-14,
Revenue from Contracts with Customers Deferral of the
Effective Date) to delay the effective date of the new revenue recognition standard by one year, but providing entities a choice to adopt the standard as of the original effective date. In March 2016, the FASB issued ASU
2016-08,
Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU
2016-10,
Identifying Performance Obligations and Licensing, which clarifies the implementation guidance on identifying performance obligations and the licensing implementation guidance. In May 2016, the FASB issued
ASU
2016-12,
Narrow-Scope Improvements and Practical Expedients, which provides practical expedient for contract modifications and clarification on assessing the collectability criterion, presentation of sales
taxes, measurement date for
non-cash
consideration and completed contracts at transition. In December 2016, the FASB issued ASU
2016-20,
Technical Corrections and
Improvements to ASC 606, Revenue from Contracts with Customers, which provides for correction or improvement to the guidance previously issued in ASU
2014-09.
These standards permit the use of either the
retrospective or cumulative effect transition method. The Company currently plans to adopt the standard in fiscal year 2019 using the modified retrospective method. Under that method, the Company will apply the rules to all contracts
existing as of April 1, 2018, recognizing in beginning retained earnings an adjustment for the cumulative effect of the change and providing additional disclosures comparing results to previous accounting standards.
Upon initial evaluation, the Company believes the key changes in the standard that impact its revenue recognition relate to the deferral
of commissions in the Companys satellite service segment, which are currently expensed as incurred under the current standard. The requirement to defer incremental contract acquisition costs and recognize them with the transfer of the related
good or service will result in the recognition of a deferred charge on the Companys consolidated balance sheet and corresponding impact to the Companys consolidated statement of operations and comprehensive income (loss).
In January 2016, the FASB issued ASU
2016-01,
Recognition and Measurement of Financial Assets and
Financial Liabilities (ASC
825-10).
ASU
2016-01
requires that most equity investments (except those accounted for under the equity method for accounting or those that
result in consolidation of the investee) be measured at fair value, with subsequent changes in fair value recognized in net income (loss). The new guidance also impacts financial liabilities under the fair value option and the presentation and
disclosure requirements for financial instruments. The new guidance should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. ASU
2016-01
will become effective for the Company in fiscal year 2019, with early adoption permitted with certain stipulations. The Company is currently evaluating the impact of this standard on its consolidated
financial statements and disclosures.
In February 2016, the FASB issued ASU
2016-02,
Leases (ASC 842). ASU
2016-02
requires lessees to recognize most leases on their balance sheets as lease liabilities with corresponding
right-of-use
assets and eliminates certain real estate-specific provisions. The new guidance will become effective for the Company beginning in the first quarter of
fiscal year 2020, with early adoption permitted. ASU
2016-02
will be adopted on a modified retrospective transition basis for leases existing at, or entered into after, the beginning of the earliest
comparative period presented in the financial statements. The Company is currently evaluating the impact of this standard on its consolidated financial statements and disclosures.
In March 2016, the FASB issued ASU
2016-05,
Derivatives and Hedging (ASC 815). ASU
2016-05
clarifies that a change in the counterparty to a derivative instrument, in and of itself, does not require dedesignation of a hedging relationship. This guidance became effective for the Company beginning in
the first quarter of fiscal year 2018. The Company adopted this guidance in the first quarter of fiscal year 2018 on a prospective basis and the guidance did not have a material impact on the Companys consolidated financial statements and
disclosures.
In March 2016, the FASB issued ASU
2016-06,
Derivatives and Hedging (ASC
815). ASU
2016-06
clarifies the requirements for assessing whether contingent put or call option in a debt instrument qualifies as a separate derivative. The new guidance is required to be applied on a
modified retrospective basis to all existing and future debt instruments of the fiscal year for which the amendments are effective. This guidance became effective for the Company beginning in the first quarter of fiscal year 2018. The Company
adopted this guidance in the first quarter of fiscal year 2018 on a modified retrospective basis and the guidance did not have a material impact on the Companys consolidated financial statements and disclosures.
In March 2016, the FASB issued ASU
2016-07,
Investment Equity Method and Joint Ventures
(ASC 323). ASU
2016-07
eliminates the requirement to apply the equity method of accounting retrospectively when a reporting entity obtains significant influence over a previously held investment. This guidance
became effective for the Company beginning in the first quarter of fiscal year 2018. The Company adopted this guidance in the first quarter of fiscal year 2018 on a prospective basis and the guidance did not have a material impact on the
Companys consolidated financial statements and disclosures.
In March 2016, the FASB issued ASU
2016-09,
Compensation Stock Compensation (ASC 718). ASU
2016-09
simplifies various aspects related to how share-based payments are accounted for and presented in the
financial statements. The new guidance became effective for the Company beginning in fiscal year 2018. The Company adopted this guidance in the first quarter of fiscal year 2018. On a prospective basis the Company recognizes excess tax benefits or
deficiencies on vesting or settlement of awards as discrete items within income tax benefit or provision within net income (loss) and the related cash flows classified within operating activities. With respect to the forfeiture accounting policy
election, the Company elected to account for forfeitures as they occur, adopted on a modified retrospective basis as a cumulative effect adjustment to retained earnings. The election to account for forfeitures as they occur did not have a material
impact on the Companys consolidated financial statements and disclosures. See Note 9 for additional information regarding the impact of the adoption of this guidance.
12
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
In June 2016, the FASB issued ASU
2016-13,
Financial Instruments Credit Losses (ASC 326). ASU
2016-13
requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected
credit loss model (referred to as the current expected credit loss (CECL) model). It also modifies the impairment model for
available-for-sale
debt securities and
provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The new guidance will become effective for the Company beginning in fiscal year 2021, with early adoption permitted. The new
guidance is required to be applied on a modified-retrospective basis. The Company is currently evaluating the impact of this standard on its consolidated financial statements and disclosures.
In August 2016, the FASB issued ASU
2016-15,
Statement of Cash Flows (ASC 230). ASU
2016-15
makes eight targeted changes to how companies present and classify certain cash receipts and cash payments in the statement of cash flows. The new standard will become effective for the Company beginning in
fiscal year 2019, with early adoption permitted. The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case the Company would be required to apply the amendments prospectively as of the
earliest date practicable. The Company is currently evaluating the impact of this standard on its consolidated financial statements and disclosures.
In October 2016, the FASB issued ASU
2016-16,
Income Taxes (ASC 740). ASU
2016-16
requires that an entity should recognize
the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs as opposed to when the asset has been sold to an outside party. The new standard will become effective for the Company beginning in
fiscal year 2019, with early adoption permitted. The new standard will require adoption on a modified retrospective basis through cumulative-effect adjustment directly to retained earnings as of the beginning of the period. The Company is currently
evaluating the impact of this standard on its consolidated financial statements and disclosures.
In October 2016, the FASB
issued ASU
2016-17,
Consolidation: Interests Held through Related Parties That Are Under Common Control (ASC 810). The amendments change how a reporting entity that is the single decision maker of a variable
interest entity should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that variable interest entity. The new
standard became effective for the Company beginning in the first quarter of fiscal year 2018. The Company adopted this guidance in the first quarter of fiscal year 2018 on a retrospective basis and the guidance did not have a material impact on the
Companys consolidated financial statements and disclosures.
In January 2017, the FASB issued ASU
2017-01,
Business Combinations: Clarifying the Definition of a Business (ASC 805). ASU
2017-01
clarifies the definition of a business with the objective of adding guidance to
assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and
consolidation. The new standard will become effective for the Company beginning in fiscal year 2019, with early adoption permitted with limitations. The Company is currently evaluating the impact of this standard on its consolidated financial
statements and disclosures.
In January 2017, the FASB issued ASU
2017-04,
Intangibles
Goodwill and Other: Simplifying the Test for Goodwill Impairment (ASC 350). ASU
2017-04
removes Step 2 from the goodwill impairment test. The standard will become effective for the Company beginning in
fiscal year 2021, with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and disclosures.
In February 2017, the FASB issued ASU
2017-05,
Other Income Gains and Losses from the Derecognition of Nonfinancial Assets (ASC
610-20):
Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. ASU
2017-05
clarifies the scope and accounting of a
financial asset that meets the definition of an
in-substance
nonfinancial asset and defines the term
in-substance
nonfinancial asset. ASU
2017-05
also adds guidance for partial sales of nonfinancial assets. The standard will become effective for the Company in fiscal year 2019, with early adoption permitted. The Company is currently evaluating the
impact of this standard on its consolidated financial statements and disclosures.
In March 2017, the FASB issued ASU
2017-08,
Receivables Nonrefundable Fees and Other Costs (ASC
310-20):
Premium Amortization on Purchased Callable Debt Securities. ASU
2017-08
amends the amortization period for certain callable debt securities held at a premium. The amendments require the premium to be amortized to the earliest call date. The standard will become effective for the
Company beginning in fiscal year 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and disclosures.
In May 2017, the FASB issued ASU
2017-09,
Compensation Stock Compensation (ASC
718): Scope of Modification Accounting. ASU
2017-09
provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The
standard will become effective for the Company beginning in fiscal year 2019, with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and disclosures.
In May 2017, the FASB issued ASU
2017-10,
Service Concession Arrangements (ASC 853): Determining
the Customer of the Operation Services. ASU
2017-10
provides clarity on determining the customer in a service concession arrangement. The standard will become effective for the Company beginning in fiscal year
2019, with early adoption permitted. The new standard will require adoption on a modified retrospective approach by recording a cumulative-effect adjustment to equity, beginning with the earliest period presented, or a retrospective approach. The
Company is currently evaluating the impact of this standard on its consolidated financial statements and disclosures.
13
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Note 2 Composition of Certain Balance Sheet Captions
|
|
|
|
|
|
|
|
|
|
|
As of
June 30,
2017
|
|
|
As of
March 31,
2017
|
|
|
|
(In thousands)
|
|
Accounts receivable, net:
|
|
|
|
|
|
|
|
|
Billed
|
|
$
|
115,662
|
|
|
$
|
145,626
|
|
Unbilled
|
|
|
101,564
|
|
|
|
119,565
|
|
Allowance for doubtful accounts
|
|
|
(2,173
|
)
|
|
|
(1,470
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
215,053
|
|
|
$
|
263,721
|
|
|
|
|
|
|
|
|
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
62,503
|
|
|
$
|
56,096
|
|
Work in process
|
|
|
35,846
|
|
|
|
25,820
|
|
Finished goods
|
|
|
79,594
|
|
|
|
81,285
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
177,943
|
|
|
$
|
163,201
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets:
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
$
|
56,751
|
|
|
$
|
51,856
|
|
Other
|
|
|
9,443
|
|
|
|
5,980
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
66,194
|
|
|
$
|
57,836
|
|
|
|
|
|
|
|
|
|
|
Satellites, net:
|
|
|
|
|
|
|
|
|
Satellites (estimated useful life of
10-17
years)
|
|
$
|
559,380
|
|
|
$
|
559,380
|
|
Capital lease of satellite capacity Anik F2 (estimated useful life of 10 years)
|
|
|
99,090
|
|
|
|
99,090
|
|
Satellites under construction
|
|
|
814,909
|
|
|
|
776,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,473,379
|
|
|
|
1,434,824
|
|
Less: accumulated depreciation and amortization
|
|
|
(339,241
|
)
|
|
|
(326,554
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,134,138
|
|
|
$
|
1,108,270
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net:
|
|
|
|
|
|
|
|
|
Equipment and software (estimated useful life of
2-7 years)
|
|
$
|
707,190
|
|
|
$
|
679,008
|
|
CPE leased equipment (estimated useful life of
4-5
years)
|
|
|
266,190
|
|
|
|
271,917
|
|
Furniture and fixtures (estimated useful life of 7 years)
|
|
|
32,424
|
|
|
|
30,539
|
|
Leasehold improvements (estimated useful life of
2-17
years)
|
|
|
87,575
|
|
|
|
80,727
|
|
Building (estimated useful life of 24 years)
|
|
|
8,923
|
|
|
|
8,923
|
|
Land
|
|
|
14,573
|
|
|
|
14,573
|
|
Construction in progress
|
|
|
131,653
|
|
|
|
116,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,248,528
|
|
|
|
1,202,589
|
|
Less: accumulated depreciation
|
|
|
(689,142
|
)
|
|
|
(661,981
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
559,386
|
|
|
$
|
540,608
|
|
|
|
|
|
|
|
|
|
|
Other acquired intangible assets, net:
|
|
|
|
|
|
|
|
|
Technology (weighted average useful life of 6 years)
|
|
$
|
88,827
|
|
|
$
|
87,592
|
|
Contracts and customer relationships (weighted average useful life of 7 years)
|
|
|
103,346
|
|
|
|
103,034
|
|
Satellite
co-location
rights (weighted average useful life of 9 years)
|
|
|
8,600
|
|
|
|
8,600
|
|
Trade name (weighted average useful life of 3 years)
|
|
|
5,940
|
|
|
|
5,940
|
|
Other (weighted average useful life of 6 years)
|
|
|
10,017
|
|
|
|
9,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
216,730
|
|
|
|
215,091
|
|
Less: accumulated amortization
|
|
|
(177,233
|
)
|
|
|
(173,414
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
39,497
|
|
|
$
|
41,677
|
|
|
|
|
|
|
|
|
|
|
14
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
As of
June 30,
2017
|
|
|
As of
March 31,
2017
|
|
|
|
(In thousands)
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Investment in unconsolidated affiliate
|
|
$
|
144,289
|
|
|
$
|
141,894
|
|
Deferred income taxes
|
|
|
200,880
|
|
|
|
134,764
|
|
Capitalized software costs, net
|
|
|
211,766
|
|
|
|
203,686
|
|
Patents, orbital slots and other licenses, net
|
|
|
16,400
|
|
|
|
16,500
|
|
Other
|
|
|
32,193
|
|
|
|
32,522
|
|
|
|
|
|
|
|
|
|
|
|
|
$605,528
|
|
|
$529,366
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
Collections in excess of revenues and deferred revenues
|
|
$
|
89,129
|
|
|
$
|
76,682
|
|
Accrued employee compensation
|
|
|
23,472
|
|
|
|
41,691
|
|
Accrued vacation
|
|
|
34,759
|
|
|
|
33,214
|
|
Warranty reserve, current portion
|
|
|
7,168
|
|
|
|
7,796
|
|
Other
|
|
|
49,703
|
|
|
|
65,576
|
|
|
|
|
|
|
|
|
|
|
|
|
$204,231
|
|
|
$224,959
|
|
|
|
|
|
|
|
|
|
|
Other liabilities:
|
|
|
|
|
|
|
|
|
Deferred revenue, long-term portion
|
|
$
|
68,358
|
|
|
$
|
4,617
|
|
Deferred rent, long-term portion
|
|
|
11,839
|
|
|
|
10,743
|
|
Warranty reserve, long-term portion
|
|
|
2,635
|
|
|
|
3,262
|
|
Satellite performance incentives obligation, long-term portion
|
|
|
18,940
|
|
|
|
19,164
|
|
Deferred income taxes, long-term
|
|
|
513
|
|
|
|
1,936
|
|
Other
|
|
|
7,605
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$109,890
|
|
|
$42,722
|
|
|
|
|
|
|
|
|
|
|
Note 3 Fair Value Measurements
In accordance with the authoritative guidance for financial assets and liabilities measured at fair value on a recurring basis (ASC 820), the Company prioritizes the inputs used to measure fair value
from market-based assumptions to entity specific assumptions:
|
|
|
Level 1 Inputs based on quoted market prices for identical assets or liabilities in active markets at the measurement date.
|
|
|
|
Level 2 Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in
active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
|
|
|
|
Level 3 Inputs which reflect managements best estimate of what market participants would use in pricing the asset or liability at the
measurement date. The inputs are unobservable in the market and significant to the instruments valuation.
|
The following tables present the Companys hierarchy for its assets measured at fair value on a recurring basis as of June 30, 2017 and assets and liabilities measured at fair value on a
recurring basis as of March 31, 2017. The Company had no liabilities measured at fair value on a recurring basis as of June 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of
June 30, 2017
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(In thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
1,005
|
|
|
$
|
1,005
|
|
|
$
|
|
|
|
$
|
|
|
Foreign currency forward contracts
|
|
|
51
|
|
|
|
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value on a recurring basis
|
|
$
|
1,056
|
|
|
$
|
1,005
|
|
|
$
|
51
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of
March 31, 2017
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(In thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
2,003
|
|
|
$
|
2,003
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value on a recurring basis
|
|
$
|
2,003
|
|
|
$
|
2,003
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
$
|
96
|
|
|
$
|
|
|
|
$
|
96
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at fair value on a recurring basis
|
|
$
|
96
|
|
|
$
|
|
|
|
$
|
96
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
The following section describes the valuation methodologies the Company uses to measure
financial instruments at fair value:
Cash equivalents
The Companys cash equivalents consist of money
market funds. Money market funds are valued using quoted prices for identical assets in an active market with sufficient volume and frequency of transactions (Level 1).
Foreign currency forward contracts
The Company uses derivative financial instruments to manage foreign currency risk relating to foreign exchange rates. The Company does not use these
instruments for speculative or trading purposes. The Companys objective is to reduce the risk to earnings and cash flows associated with changes in foreign currency exchange rates. Derivative instruments are recognized as either assets or
liabilities in the accompanying condensed consolidated financial statements and are measured at fair value. Gains and losses resulting from changes in the fair values of those derivative instruments are recorded to earnings or other comprehensive
income (loss) depending on the use of the derivative instrument and whether it qualifies for hedge accounting. The Companys foreign currency forward contracts are valued using standard calculations/models that are primarily based on observable
inputs, such as foreign currency exchange rates, or can be corroborated by observable market data (Level 2).
Long-term debt
The Companys long-term debt consists of borrowings under its Revolving Credit Facility and
Ex-Im
Credit Facility (collectively, the Credit Facilities), as well as $575.0 million in aggregate principal amount of 2020 Notes. Long-term debt related to the Revolving Credit Facility is reported at the
outstanding principal amount of borrowings, while long-term debt related to the
Ex-Im
Credit Facility and 2020 Notes is reported at amortized cost. However, for disclosure purposes, the Company is required to
measure the fair value of outstanding debt on a recurring basis. As of June 30, 2017 and March 31, 2017, the fair value of the Companys outstanding long-term debt related to the 2020 Notes was determined using quoted prices in active
markets (Level 1) and was $586.3 million and $587.9 million, respectively. The fair value of the Companys long-term debt related to the Revolving Credit Facility approximates its carrying amount due to its variable interest rate,
which approximates a market interest rate. As of June 30, 2017 and March 31, 2017, the fair value of the Companys long-term debt related to the
Ex-Im
Credit Facility was determined based on a
discounted cash flow analysis using observable market interest rates for instruments with similar terms (Level 2) and was approximately $298.5 million and $297.2 million, respectively.
Satellite performance incentives obligation
The Companys contract with the manufacturer of
ViaSat-1
requires the Company to make monthly
in-orbit
satellite performance incentive payments, including interest at 7.0%, over
15-year
period from December 2011 to December 2026, subject to the continued satisfactory performance of the satellite. The Company recorded the net present value of these expected future payments as a
liability and as a component of the cost of the satellite. However, for disclosure purposes, the Company is required to measure the fair value of outstanding satellite performance incentives obligation on a recurring basis. The fair value of the
Companys outstanding satellite performance incentives obligation is estimated to approximate its carrying value based on current rates (Level 2). As of June 30, 2017 and March 31, 2017, the Companys estimated satellite
performance incentives obligation and accrued interest was $21.6 million and $21.8 million, respectively.
Note 4 Shares
Used In Computing Diluted Net (Loss) Income Per Share
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
|
(in thousands)
|
|
Weighted average:
|
|
|
|
|
|
|
|
|
Common shares outstanding used in calculating basic net (loss) income per share attributable to ViaSat, Inc. common
stockholders
|
|
|
57,842
|
|
|
|
49,133
|
|
Options to purchase common stock as determined by application of the treasury stock method
|
|
|
|
|
|
|
289
|
|
Restricted stock units to acquire common stock as determined by application of the treasury stock method
|
|
|
|
|
|
|
564
|
|
Potentially issuable shares in connection with certain terms of the ViaSat 401(k) Profit Sharing Plan and Employee Stock Purchase
Plan
|
|
|
|
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted net (loss) income per share attributable to ViaSat, Inc. common stockholders
|
|
|
57,842
|
|
|
|
50,170
|
|
|
|
|
|
|
|
|
|
|
The weighted average number of shares used to calculate basic and diluted net loss per share attributable
to ViaSat, Inc. common stockholders is the same for the three months ended June 30, 2017, as the Company incurred a net loss attributable to ViaSat, Inc. common stockholders for such period and inclusion of potentially dilutive shares of common
stock would be antidilutive. Potentially dilutive shares of common stock excluded from the calculation for the three months ended June 30, 2017 were 1,393,749 shares relating to stock options, 472,520 shares relating to restricted stock units
and 198,800 shares relating to certain terms of the ViaSat 401(k) Profit Sharing Plan and Employee Stock Purchase Plan.
16
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Antidilutive shares relating to stock options excluded from the calculation comprised
713,863 shares for the three months ended June 30, 2016. Antidilutive shares relating to restricted stock units excluded from the calculation comprised 12,332 shares for the three months ended June 30, 2016.
Note 5 Goodwill and Acquired Intangible Assets
During the three months ended June 30, 2017, the Companys goodwill increased by $0.5 million, which related to the effects of foreign currency translation recorded within all three of the
Companys segments.
Other acquired intangible assets are amortized using the straight-line method over their estimated
useful lives of two to ten years. Amortization expense related to other acquired intangible assets was $3.3 million and $2.5 million for the three months ended June 30, 2017 and 2016, respectively.
The expected amortization expense of amortizable acquired intangible assets may change due to the effects of foreign currency
fluctuations as a result of international businesses acquired. Current and expected amortization expense for acquired intangible assets for each of the following periods is as follows:
|
|
|
|
|
|
|
Amortization
|
|
|
|
(In thousands)
|
|
For the three months ended June 30, 2017
|
|
$
|
3,260
|
|
|
|
Expected for the remainder of fiscal year 2018
|
|
$
|
8,698
|
|
Expected for fiscal year 2019
|
|
|
9,295
|
|
Expected for fiscal year 2020
|
|
|
7,492
|
|
Expected for fiscal year 2021
|
|
|
5,116
|
|
Expected for fiscal year 2022
|
|
|
3,292
|
|
Thereafter
|
|
|
5,604
|
|
|
|
|
|
|
|
|
$ 39,497
|
|
|
|
|
|
|
17
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Note 6 Senior Notes and Other Long-Term Debt
Total long-term debt consisted of the following as of June 30, 2017 and March 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
As of
June 30, 2017
|
|
|
As of
March 31, 2017
|
|
|
|
(In thousands)
|
|
2020 Notes
|
|
$
|
575,000
|
|
|
$
|
575,000
|
|
Revolving Credit Facility
|
|
|
|
|
|
|
|
|
Ex-Im
Credit Facility (1)
|
|
|
304,134
|
|
|
|
304,134
|
|
Other
|
|
|
291
|
|
|
|
288
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
879,425
|
|
|
|
879,422
|
|
Unamortized premium/(discount and debt issuance costs),
net (1)
|
|
|
(29,282
|
)
|
|
|
(30,651
|
)
|
Less: current portion of long-term debt
|
|
|
19,300
|
|
|
|
288
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
830,843
|
|
|
$
|
848,483
|
|
|
|
|
|
|
|
|
|
|
(1)
|
As of June 30, 2017, included in
Ex-Im
Credit Facility and in unamortized discount and debt issuance costs on the
Ex-Im
Credit Facility was $29.5 million and $22.0 million, respectively, relating to the exposure fees accrued as of such date expected to be financed under the
Ex-Im
Credit Facility. As of March 31, 2017, included in
Ex-Im
Credit Facility and in unamortized discount and debt issuance costs on the
Ex-Im
Credit Facility was $29.5 million and $23.0 million, respectively, relating to the exposure fees accrued as of such date expected to be financed under the
Ex-Im
Credit Facility.
|
Revolving Credit Facility
As of June 30, 2017, the Revolving Credit Facility provided an $800.0 million revolving line of credit (including up to
$150.0 million of letters of credit), with a maturity date of May 24, 2021 (or March 16, 2020, if more than $200.0 million of the Companys 2020 Notes are then outstanding and certain conditions are met).
Borrowings under the Revolving Credit Facility bear interest, at the Companys option, at either (1) the highest of the Federal
Funds rate plus 0.50%, the Eurodollar rate plus 1.00%, or the administrative agents prime rate as announced from time to time, or (2) the Eurodollar rate, plus, in the case of each of (1) and (2), an applicable margin that is based
on the Companys total leverage ratio. The Company has capitalized certain amounts of interest expense on the Revolving Credit Facility in connection with the construction of various assets during the construction period. The Revolving Credit
Facility is required to be guaranteed by certain significant domestic subsidiaries of the Company (as defined in the Revolving Credit Facility) and secured by substantially all of the Companys and any such subsidiaries assets. As of
June 30, 2017, none of the Companys subsidiaries guaranteed the Revolving Credit Facility.
The Revolving Credit
Facility contains financial covenants regarding a maximum total leverage ratio and a minimum interest coverage ratio. In addition, the Revolving Credit Facility contains covenants that restrict, among other things, the Companys ability to sell
assets, make investments and acquisitions, make capital expenditures, grant liens, pay dividends and make certain other restricted payments.
18
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
The Company was in compliance with its financial covenants under the Revolving Credit
Facility as of June 30, 2017. At June 30, 2017, the Company had no outstanding borrowings under the Revolving Credit Facility and $37.1 million outstanding under standby letters of credit, leaving borrowing availability under the
Revolving Credit Facility as of June 30, 2017 of $762.9 million.
Ex-Im
Credit
Facility
As of June 30, 2017, the
Ex-Im
Credit Facility provided a
$362.4 million senior secured direct loan facility, $321.2 million of which can be used to finance up to 85% of the costs of construction, launch and insurance of the
ViaSat-2
satellite and related
goods and services (including costs incurred on or after September 18, 2012), with the remainder used to finance the total exposure fees incurred under the
Ex-Im
Credit Facility of up to
$41.2 million (depending on the total amount of financing borrowed under the
Ex-Im
Credit Facility).
Borrowings under the
Ex-Im
Credit Facility bear interest at a fixed rate of 2.38% and are required to be repaid in 16 approximately equal semi-annual installments,
commencing approximately six months after the
in-orbit
acceptance date of the
ViaSat-2
satellite (or, if earlier, on April 15, 2018), with a maturity date of
October 15, 2025. Exposure fees of $6.0 million were incurred in connection with the initial borrowing under the
Ex-Im
Credit Facility, with the remaining exposure fees payable by the
in-orbit
acceptance date for
ViaSat-2.
Exposure fees under the
Ex-Im
Credit Facility are amortized using the effective interest rate
method. The effective interest rate on the Companys outstanding borrowings under the
Ex-Im
Credit Facility, which takes into account estimated timing and amount of borrowings, exposure fees, debt
issuance costs and other fees, was estimated to be between 4.5% and 4.8% as of June 30, 2017. The
Ex-Im
Credit Facility is guaranteed by ViaSat and is secured by first-priority liens on the
ViaSat-2
satellite and related assets, as well as a pledge of the capital stock of the borrower under the facility.
The
Ex-Im
Credit Facility contains financial covenants regarding ViaSats maximum total leverage ratio and minimum interest coverage ratio. In addition, the
Ex-Im
Credit Facility contains covenants that restrict, among other things, the Companys ability to sell assets, make investments and acquisitions, make capital expenditures, grant liens, pay dividends and
make certain other restricted payments.
The Company was in compliance with its financial covenants under the
Ex-Im
Credit Facility as of June 30, 2017. At June 30, 2017, the Company had $274.6 million in principal amount of outstanding borrowings under the
Ex-Im
Credit
Facility and had accrued $29.5 million in completion exposure fees expected to be financed under the
Ex-Im
Credit Facility. As of June 30, 2017, the undrawn commitment under the
Ex-Im
Credit Facility was $58.3 million (excluding $29.5 million of accrued completion exposure fees), of which $52.5 million was available to finance
ViaSat-2
related costs once incurred. Borrowings under the
Ex-Im
Credit Facility were issued with a discount of $36.6 million (comprising the initial $6.0 million exposure fee, the completion exposure fees
accrued as of June 30, 2017, and other customary fees). Borrowings under the
Ex-Im
Credit Facility are recorded as current portion of
long-term
debt and as other
long-term debt, net of unamortized discount and debt issuance costs, in the Companys condensed consolidated financial statements. The discount and deferred financing cost associated with the issuance of the borrowings under the
Ex-Im
Credit Facility is amortized to interest expense on an effective interest rate basis over the term of the borrowings under the
Ex-Im
Credit Facility.
Senior Notes due 2020
In February 2012, the Company issued $275.0 million in principal amount of 2020 Notes in a private placement to institutional buyers, which were exchanged in August 2012 for substantially identical
2020 Notes that had been registered with the SEC. These initial 2020 Notes were issued at face value and are recorded as long-term debt in the Companys condensed consolidated financial statements. In October 2012, the Company issued an
additional $300.0 million in principal amount of 2020 Notes in a private placement to institutional buyers at an issue price of 103.50% of the principal amount, which were exchanged in January 2013 for substantially identical 2020 Notes that
had been registered with the SEC. The 2020 Notes are all treated as a single class. The 2020 Notes bear interest at the rate of 6.875% per year, payable semi-annually in cash in arrears, which interest payments commenced in June 2012. Debt issuance
costs associated with the issuance of the 2020 Notes are amortized to interest expense on a straight-line basis over the term of the 2020 Notes, the results of which are not materially different from the effective interest rate basis. The
$10.5 million premium the Company received in connection with the issuance of the additional 2020 Notes is recorded as long-term debt in the Companys condensed consolidated financial statements and is being amortized as a reduction to
interest expense on an effective interest rate basis over the term of those 2020 Notes. The 2020 Notes are recorded as long-term debt, net of unamortized premium and debt issuance costs, in the Companys condensed consolidated financial
statements.
The 2020 Notes are required to be guaranteed on an unsecured senior basis by each of the Companys existing
and future subsidiaries that guarantees the Revolving Credit Facility. As of June 30, 2017, none of the Companys subsidiaries guaranteed the 2020 Notes. The 2020 Notes are the Companys general senior unsecured obligations and rank
equally in right of payment with all of the Companys existing and future unsecured unsubordinated debt. The 2020 Notes are effectively junior in right of payment to the Companys existing and future secured debt, including under the
Credit Facilities (to the extent of the value of the assets securing such debt), are structurally subordinated to all existing and future liabilities (including trade payables) of the Companys subsidiaries that do not guarantee the 2020 Notes,
and are senior in right of payment to all of their existing and future subordinated indebtedness.
The indenture governing the
2020 Notes limits, among other things, the Companys and its restricted subsidiaries ability to: incur, assume or guarantee additional debt; issue redeemable stock and preferred stock; pay dividends, make distributions or redeem or
repurchase capital stock; prepay, redeem or repurchase subordinated debt; make loans and investments; grant or incur liens; restrict dividends, loans or asset transfers from restricted subsidiaries; sell or otherwise dispose of assets; enter into
transactions with affiliates; reduce the Companys satellite insurance; and consolidate or merge with, or sell substantially all of their assets to, another person.
19
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
The 2020 Notes may be redeemed, in whole or in part, at any time during the 12 months
beginning on June 15, 2017 at a redemption price of 101.719%, and at any time on or after June 15, 2018 at a redemption price of 100%, in each case plus accrued and unpaid interest, if any, thereon to the redemption date.
In the event a change of control occurs (as defined in the indenture), each holder will have the right to require the Company to
repurchase all or any part of such holders 2020 Notes at a purchase price in cash equal to 101% of the aggregate principal amount of the 2020 Notes repurchased, plus accrued and unpaid interest, if any, to the date of purchase (subject to the
right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).
Note 7
Product Warranty
The Company provides limited warranties on its products for periods of up to five years. The Company
records a liability for its warranty obligations when products are shipped or they are included in long-term construction contracts based upon an estimate of expected warranty costs. Amounts expected to be incurred within 12 months are classified as
accrued liabilities and amounts expected to be incurred beyond 12 months are classified as other liabilities in the condensed consolidated financial statements. For mature products, the warranty cost estimates are based on historical experience with
the particular product. For newer products that do not have a history of warranty costs, the Company bases its estimates on its experience with the technology involved and the types of failures that may occur. It is possible that the Companys
underlying assumptions will not reflect the actual experience and, in that case, future adjustments will be made to the recorded warranty obligation. The following table reflects the change in the Companys warranty accrual during the three
months ended June 30, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
|
(In thousands)
|
|
Balance, beginning of period
|
|
$
|
11,058
|
|
|
$
|
11,434
|
|
Change in liability for warranties issued in period
|
|
|
215
|
|
|
|
2,872
|
|
Settlements made (in cash or in kind) during
the period
|
|
|
(1,470
|
)
|
|
|
(2,149
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
9,803
|
|
|
$
|
12,157
|
|
|
|
|
|
|
|
|
|
|
Note 8 Commitments and Contingencies
In May 2013, the Company entered into an agreement to purchase the
ViaSat-2
satellite from The
Boeing Company (Boeing) at a price of approximately $358.0 million, plus an additional amount for launch support services to be performed by Boeing. In April 2017, the satellite construction agreement was amended to replace the remaining
milestone payments for the satellite under the agreement with approximately $21.0 million of
in-orbit
satellite performance incentives payments, excluding interest, payable monthly over a nine-year period
commencing one month after the completion of
in-orbit
testing, subject to the continued satisfactory performance of the satellite.
In July 2016, the Company entered into two separate agreements with Boeing for the construction and purchase of two
ViaSat-3
class satellites and the integration of
ViaSats payload technologies into the satellites at a price of approximately $368.3 million in the aggregate (subject to purchase price adjustments based on factors such as launch delay and early delivery), plus an additional amount for
launch support services to be performed by Boeing. In addition, under one of these agreements, the Company has the option to order up to two additional
ViaSat-3
class satellites. The first
ViaSat-3
class satellite is expected to provide broadband services over the Americas, and the second is expected to provide broadband services over Europe, the Middle East and Africa.
From time to time, the Company is involved in a variety of claims, suits, investigations and proceedings arising in the ordinary course
of business, including government investigations and claims, and other claims and proceedings with respect to intellectual property, breach of contract, labor and employment, tax and other matters. Such matters could result in fines; penalties,
compensatory, treble or other damages; or
non-monetary
relief. A violation of government contract laws and regulations could also result in the termination of its government contracts or debarment from bidding
on future government contracts. Although claims, suits, investigations and proceedings are inherently uncertain and their results cannot be predicted with certainty, the Company believes that the resolution of its current pending matters will not
have a material adverse effect on its business, financial condition, results of operations or liquidity.
In March 2016, the
Companys 52% majority-owned subsidiary TrellisWare was informed by the Civil Division of the U.S. Attorneys Office for the Southern District of California that it was investigating TrellisWares eligibility for certain prior
government contracts and whether TrellisWares conduct in connection therewith violated the False Claims Act. An estimated loss contingency is accrued when it is probable that an asset has been impaired or a liability has been incurred and the
amount of loss can be reasonably estimated. The Company regularly evaluates current information available to determine whether such accruals should be adjusted and whether new accruals are required. During the fourth quarter of fiscal year 2017,
based on further developments in that investigation and TrellisWares discussions with the U.S. Attorneys Office, the Company accrued a total loss contingency of $11.8 million in SG&A expenses in its government systems segment,
which consisted of $11.4 million in uncharacterized damages and $0.4 million in penalties. The impact of the loss contingency on
20
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
net income attributable to ViaSat, Inc. stockholders for fiscal year 2017, net of tax, was $4.0 million, with the related amount of $3.7 million recorded to net (loss) income
attributable to noncontrolling interests, net of tax. As of June 30, 2017, the total loss contingency was recorded in accrued liabilities and other long term liabilities in the condensed consolidated balance sheet in the amounts of
$8.8 million and $3.0 million, respectively. At this time, the Company cannot determine with certainty how or whether the TrellisWare investigation will conclude or whether this will be the final amount of damages and penalties.
The Company has contracts with various U.S. government agencies. Accordingly, the Company is routinely subject to audit and
review by the DCMA, the DCAA and other U.S. government agencies of its performance on government contracts, indirect rates and pricing practices, accounting and management internal control business systems, and compliance with applicable contracting
and procurement laws, regulations and standards. An adverse outcome to a review or audit or other failure to comply with applicable contracting and procurement laws, regulations and standards could result in material civil and criminal penalties and
administrative sanctions being imposed on the Company, which may include termination of contracts, forfeiture of profits, triggering of price reduction clauses, suspension of payments, significant customer refunds, fines and suspension, or a
prohibition on doing business with U.S. government agencies. In addition, if the Company fails to obtain an adequate determination of its various accounting and management internal control business systems from applicable U.S. government
agencies or if allegations of impropriety are made against it, the Company could suffer serious harm to its business or its reputation, including its ability to bid on new contracts or receive contract renewals and its competitive position in the
bidding process. The Companys incurred cost audits by the DCAA have not been concluded for fiscal years 2016 and 2017. As of June 30, 2017, the DCAA had completed its incurred cost audit for fiscal year 2004 and approved the
Companys incurred cost claims for fiscal years 2005 through 2015 without further audit. Although the Company has recorded contract revenues subsequent to fiscal year 2015 based upon an estimate of costs that the Company believes will be
approved upon final audit or review, the Company does not know the outcome of any ongoing or future audits or reviews and adjustments, and if future adjustments exceed the Companys estimates, its profitability would be adversely affected. As
of June 30, 2017 and March 31, 2017, the Company had $1.6 million and $1.8 million, respectively, in contract-related reserves for its estimate of potential refunds to customers for potential cost adjustments on several
multi-year U.S. government cost reimbursable contracts. This reserve is classified as either an element of accrued liabilities or as a reduction of unbilled accounts receivable based on the status of the related contracts.
Note 9 Income Taxes
The Company calculates its provision for income taxes at the end of each interim reporting period on the basis of an estimated annual effective tax rate adjusted for tax items that are discrete to each
period.
For the three months ended June 30, 2017, the Company recorded an income tax benefit of $9.2 million,
resulting in an effective tax benefit rate of 51.2%. For the three months ended June 30, 2016, the Company recorded an income tax provision of $0.8 million, resulting in an effective tax rate of 27.3%. The effective tax benefit rate in the
first quarter of fiscal year 2018 was higher than the U.S. statutory rate due primarily to the benefit of research and development tax credits. The effective tax rate in the first quarter of fiscal year 2017 was lower than the U.S. statutory rate
due primarily to the benefit of research and development tax credits offset by increases in valuation allowances on state net operating losses and state research and development tax credits.
When a reliable estimate of the annual effective tax rate cannot be made, the Company computes its provision for income taxes using the
actual effective tax rate method for the
year-to-date
period. For the three months ended June 30, 2016, the Company used the actual effective tax rate method in
calculating the income tax provision for the period as a reliable estimate of the annual effective tax rate could not be made.
Future realization of existing deferred tax assets ultimately depends on future profitability and the existence of sufficient taxable
income of appropriate character (for example, ordinary income versus capital gains) within the carryforward period available under tax law. In the event that the Companys estimate of taxable income is less than that required to utilize the
full amount of any deferred tax asset, a valuation allowance is established which would cause a decrease to income in the period such determination is made.
For the three months ended June 30, 2017, the Companys gross unrecognized tax benefits increased by $1.2 million. In the next 12 months it is reasonably possible that the amount of
unrecognized tax benefits will not change significantly.
In accordance with the ASU
2016-09,
which the Company adopted during the first quarter of fiscal year 2018, the Company recorded a cumulative effect adjustment as of the beginning of the first quarter of fiscal year 2018 to increase
retained earnings by $58.7 million with a corresponding increase to deferred tax assets to recognize net operating loss carryforwards attributable to excess tax benefits on share-based compensation that had not been previously recognized. On a
prospective basis, the Company recognizes excess tax benefits or deficiencies on vesting or settlement of awards as discrete items within income tax benefit or provision within net income (loss) and the related cash flows classified within operating
activities.
21
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Note 10 Equity Method Investments and Related-Party Transactions
Eutelsat strategic partnering arrangement
In March 2017, the Company acquired a 49% interest in Euro Broadband Infrastructure Sàrl (Euro Infrastructure Co.) for $139.5 million as part of the consummation of the Companys
strategic partnering arrangement with Eutelsat S.A. (together with its affiliates, Eutelsat). The Companys investment in Euro Infrastructure Co. is accounted for under the equity method and the total investment, including basis difference
allocated to tangible assets, identifiable intangible assets, deferred income taxes and goodwill, is classified as a single line item, as an investment in unconsolidated affiliate, on the Companys condensed consolidated balance sheets. Because
the underlying net assets in Euro Infrastructure Co. and the related excess carrying value of investment over the proportionate share of net assets are denominated in Euros, foreign currency translation gains or losses impact the recorded value of
the Companys investment, which are recorded in accumulated other comprehensive income (loss). The Company records its proportionate share of the results of Euro Infrastructure Co., and any related basis difference amortization expense, within
equity in earnings (losses) of unconsolidated affiliate, net, one quarter in arrears. Accordingly, the Company began including its share of the results of Euro Infrastructure Co. (from the date of the Companys investment in Euro Infrastructure
Co. on March 3, 2017 through March 31, 2017) in its condensed consolidated financial statements for the three months ended June 30, 2017. The Companys investment in Euro Infrastructure Co. is presented at cost of investment plus
its accumulated proportional share of income or loss, including amortization of the difference in the historical basis of the Companys contribution, less any distributions it has received.
The difference between the Companys carrying value of its investment in Euro Infrastructure Co. and its proportionate share of the
net assets of Euro Infrastructure Co. as of June 30, 2017 and March 31, 2017 is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
As of
June 30, 2017
|
|
|
As of
March 31, 2017
|
|
|
|
(In thousands)
|
|
Carrying value of investment in Euro Infrastructure Co.
|
|
$
|
144,289
|
|
|
$
|
141,894
|
|
Proportionate share of net assets of Euro Infrastructure Co.
|
|
|
129,491
|
|
|
|
127,393
|
|
|
|
|
|
|
|
|
|
|
Excess carrying value of investment over proportionate share of net assets
|
|
$
|
14,798
|
|
|
$
|
14,501
|
|
|
|
|
|
|
|
|
|
|
The excess carrying value has been primarily assigned to:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
21,214
|
|
|
$
|
20,791
|
|
Identifiable intangible assets
|
|
|
12,626
|
|
|
|
12,379
|
|
Tangible assets
|
|
|
(20,646
|
)
|
|
|
(20,241
|
)
|
Deferred income taxes
|
|
|
1,604
|
|
|
|
1,572
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 14,798
|
|
|
$ 14,501
|
|
|
|
|
|
|
|
|
|
|
The identifiable intangible assets have useful lives of up to 11 years and a weighted average useful life
of approximately ten years, and tangible assets have useful lives of up to 11 years and a weighted average useful life of approximately 11 years. The preliminary allocation is subject to revision as a more detailed analysis is completed and
additional information on the assets and liabilities of Euro Infrastructure Co. as of the closing date becomes available. Any change in the net assets of Euro Infrastructure Co. will change the amount of the purchase price allocable to
goodwill. Goodwill is not deductible for tax purposes.
The Companys share of loss on its investment in Euro
Infrastructure Co. was $0.5 million for the three months ended June 30, 2017 (consisting of the Companys share of equity in Euro Infrastructure Co.s loss, including amortization of the difference in the historical basis of the
Companys contribution). The Company did not hold any investment in Euro Infrastructure Co. in the prior year period.
Related-party transactions
Transactions with the equity method investee are considered related-party transactions. Related-party transactions entered into between Euro Infrastructure Co. and its subsidiaries, on the one hand, and
the Company and its subsidiaries, on the other hand, in the ordinary course of business for the period from and after the date of the Companys investment in Euro Infrastructure Co. in March 2017 and as of June 30, 2017 were insignificant.
22
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
The following tables set forth the material related-party transactions entered into
between Euro Infrastructure Co. and its subsidiaries, on the one hand, and the Company and its subsidiaries, on the other hand, in the ordinary course of business for the time periods presented:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
|
(in thousands)
|
|
Revenue
|
|
$
|
3,451
|
|
|
$
|
*
|
|
Expense
|
|
|
1,831
|
|
|
|
*
|
|
Cash received
|
|
|
2,071
|
|
|
|
*
|
|
Cash paid
|
|
|
2,021
|
|
|
|
*
|
|
|
|
|
|
|
As
of
June 30, 2017
|
|
|
As
of
March 31, 2017
|
|
|
|
(in thousands)
|
|
Collections in excess of revenues and deferred revenues
|
|
$
|
2,120
|
|
|
$
|
*
|
*
|
*
|
Euro Infrastructure Co. and its subsidiaries were not related parties in the prior year period.
|
**
|
Amount was insignificant.
|
Note 11
Segment Information
The Companys reporting segments, comprised of the satellite services, commercial networks and
government systems segments, are primarily distinguished by the type of customer and the related contractual requirements. The Companys satellite services segment provides satellite-based broadband and related services to consumers,
enterprises, commercial airlines and mobile broadband customers. The Companys commercial networks segment develops and offers advanced satellite and wireless broadband platforms, ground networking equipment, radio frequency and advanced
microwave solutions, ASIC chip design, satellite payload development and
space-to-earth
connectivity systems, some of which are ultimately used by the Companys
satellite services segment. The Companys government systems segment provides global mobile broadband services to military and government users and develops and offers network-centric, internet protocol (IP)-based fixed and mobile secure
communications products and solutions. The more regulated government environment is subject to unique contractual requirements and possesses economic characteristics which differ from the satellite services and commercial networks segments. The
Companys segments are determined consistent with the way management currently organizes and evaluates financial information internally for making operating decisions and assessing performance.
Segment revenues and operating profits (losses) for the three months ended June 30, 2017 and 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
|
(in thousands)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Satellite services
|
|
|
|
|
|
|
|
|
Product (1)
|
|
$
|
217
|
|
|
$
|
6,685
|
|
Service
|
|
|
151,997
|
|
|
|
145,708
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
152,214
|
|
|
|
152,393
|
|
Commercial networks
|
|
|
|
|
|
|
|
|
Product
|
|
|
36,483
|
|
|
|
58,596
|
|
Service
|
|
|
8,765
|
|
|
|
6,957
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
45,248
|
|
|
|
65,553
|
|
Government systems
|
|
|
|
|
|
|
|
|
Product
|
|
|
129,418
|
|
|
|
95,395
|
|
Service
|
|
|
53,164
|
|
|
|
49,789
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
182,582
|
|
|
|
145,184
|
|
Elimination of intersegment revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
380,044
|
|
|
$
|
363,130
|
|
|
|
|
|
|
|
|
|
|
Operating profits (losses):
|
|
|
|
|
|
|
|
|
Satellite services (1)
|
|
$
|
18,843
|
|
|
$
|
30,867
|
|
Commercial networks
|
|
|
(66,125
|
)
|
|
|
(38,531
|
)
|
Government systems
|
|
|
32,592
|
|
|
|
17,955
|
|
Elimination of intersegment operating profits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating (loss) profit before corporate and amortization of acquired intangible assets
|
|
|
(14,690
|
)
|
|
|
10,291
|
|
Corporate
|
|
|
|
|
|
|
|
|
Amortization of acquired intangible assets
|
|
|
(3,260
|
)
|
|
|
(2,513
|
)
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
$
|
(17,950
|
)
|
|
$
|
7,778
|
|
|
|
|
|
|
|
|
|
|
23
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
(1)
|
Product revenues and operating profits in the satellite services segment for the three months ended June 30, 2016 included $6.6 million relating to amounts
realized under the Companys settlement agreement entered into in fiscal year 2015 with Space Systems Loral, Inc. and its former parent company Loral Space & Communications, Inc. As of March 31, 2017, all payments pursuant to this
settlement agreement had been recorded and no further impacts to the Companys consolidated financial statements are anticipated related to this settlement agreement.
|
Assets identifiable to segments include: accounts receivable, unbilled accounts receivable, inventory, acquired intangible assets and
goodwill. The Companys property and equipment, including its satellites, earth stations and other networking equipment, are assigned to corporate assets as they are available for use by the various segments throughout their estimated useful
lives. Segment assets as of June 30, 2017 and March 31, 2017 were as follows:
|
|
|
|
|
|
|
|
|
|
|
As of
June 30,
2017
|
|
|
As of
March 31,
2017
|
|
|
|
(In thousands)
|
|
Segment assets:
|
|
|
|
|
|
|
|
|
Satellite services
|
|
$
|
71,477
|
|
|
$
|
81,728
|
|
Commercial networks
|
|
|
169,942
|
|
|
|
179,992
|
|
Government systems
|
|
|
310,405
|
|
|
|
326,242
|
|
|
|
|
|
|
|
|
|
|
Total segment assets
|
|
|
551,824
|
|
|
|
587,962
|
|
Corporate assets
|
|
|
2,526,890
|
|
|
|
2,366,691
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,078,714
|
|
|
$
|
2,954,653
|
|
|
|
|
|
|
|
|
|
|
Other acquired intangible assets, net and goodwill included in segment assets as of June 30, 2017
and March 31, 2017 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Acquired Intangible
Assets, Net
|
|
|
Goodwill
|
|
|
|
As of
June 30, 2017
|
|
|
As of
March 31, 2017
|
|
|
As of
June 30, 2017
|
|
|
As of
March 31, 2017
|
|
|
|
(In thousands)
|
|
Satellite services
|
|
$
|
20,810
|
|
|
$
|
21,843
|
|
|
$
|
13,815
|
|
|
$
|
13,579
|
|
Commercial networks
|
|
|
4,495
|
|
|
|
4,903
|
|
|
|
44,003
|
|
|
|
43,930
|
|
Government systems
|
|
|
14,192
|
|
|
|
14,931
|
|
|
|
62,601
|
|
|
|
62,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
39,497
|
|
|
$
|
41,677
|
|
|
$
|
120,419
|
|
|
$
|
119,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of acquired intangible assets by segment for the three months ended June 30, 2017 and
2016 was as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
Satellite services
|
|
$
|
2,093
|
|
|
$
|
1,104
|
|
Commercial networks
|
|
|
407
|
|
|
|
445
|
|
Government systems
|
|
|
760
|
|
|
|
964
|
|
|
|
|
|
|
|
|
|
|
Total amortization of acquired intangible assets
|
|
$
|
3,260
|
|
|
$
|
2,513
|
|
|
|
|
|
|
|
|
|
|
24