<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 18, 2000
REGISTRATION NO. 333-31758
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
VIASAT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3663 33-0174996
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
6155 EL CAMINO REAL
CARLSBAD, CALIFORNIA 92009
(760) 476-2200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MARK D. DANKBERG
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
VIASAT, INC.
6155 EL CAMINO REAL
CARLSBAD, CALIFORNIA 92009
(760) 476-2200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
THOMAS A. EDWARDS, ESQ. ROHAN S. WEERASINGHE, ESQ.
LATHAM & WATKINS SHEARMAN & STERLING
701 B STREET, SUITE 2100 599 LEXINGTON AVENUE
SAN DIEGO, CALIFORNIA 92101-8197 NEW YORK, NEW YORK 10022
(619) 236-1234 (212) 848-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after this registration statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SHARES TO BE AGGREGATE PRICE AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock, $.0001 par
value......................... 2,875,000 $72.50 $208,437,500 $55,028(2)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated in accordance with Rule 457(c) solely for purposes of computing
the amount of the registration fee based on the average of the high and low
prices of the common stock as reported on the Nasdaq National Market System
on February 28, 2000.
(2) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
EXPLANATORY NOTE
This registration statement contains a preliminary prospectus relating to a
public offering of common stock of ViaSat, Inc. in the United States and Canada
together with separate preliminary prospectus pages relating to a concurrent
public offering of common stock outside the United States and Canada. The
complete preliminary prospectus for the U.S. offering follows immediately after
this explanatory note. After the preliminary prospectus for the U.S. offering
are the following alternate pages for the preliminary prospectus for the
international offering: a front cover page, an "Underwriting" section and a back
cover page. Each such page has been labeled "Alternate Page for International
Prospectus." All other pages of the preliminary prospectus for the U.S. offering
are to be used for both the U.S. offering and the international offering.
<PAGE> 3
PROSPECTUS
2,271,500 SHARES
VIASAT LOGO
COMMON STOCK
------------------------
ViaSat is selling all of the shares. The U.S. underwriters are offering
1,817,200 shares in the U.S. and Canada and the international managers are
offering 454,300 shares outside the U.S. and Canada.
The shares are quoted on the Nasdaq National Market under the symbol
"VSAT." On April 17, 2000, the last sale price of the shares as reported on the
Nasdaq National Market was $33 1/16 per share.
INVESTING IN THE COMMON STOCK INVOLVES RISKS THAT ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 8 OF THIS PROSPECTUS.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C> <C>
Public offering price....................................... $30.00 $68,145,000
Underwriting discount....................................... $1.65 $3,747,975
Proceeds, before expenses, to ViaSat........................ $28.35 $64,397,025
</TABLE>
The U.S. underwriters may also purchase up to an additional 272,580 shares
from ViaSat at the public offering price, less the underwriting discount, within
30 days from the date of this prospectus to cover over-allotments. The
international managers may similarly purchase up to an additional 68,145 shares
from ViaSat.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The shares will be ready for delivery on or about April 24, 2000.
------------------------
MERRILL LYNCH & CO.
ING BARINGS C.E. UNTERBERG, TOWBIN
CIBC WORLD MARKETS GERARD KLAUER MATTISON & CO., INC.
------------------------
The date of this prospectus is April 18, 2000.
<PAGE> 4
INSIDE FRONT COVER:
COMMERCIAL BUSINESS
The growth opportunities in satellite broadband are significant, and our
pending acquisition of Scientific-Atlanta's Satellite Networks Business
positions us to compete in other
satellite communications markets as well.
[Each of the following pictures is connected by dotted lines.]
[Picture of oil rig]
Fixed Broadband Networks
Easy-to-set up terminals that [Picture of cruise ship]
can be placed anywhere Mobile Broadband Networks
Broadband on-demand to ships at sea,
[Picture of large satellite dish] with high speed data rates
Communication and Tracking*
Advanced ground stations
and gateways
[Picture of Network Operations Center]
Network Operations Center
-7/24 network services to make
it easy for customers to use
satellite communications
-Broadband on demand
[Picture of truck-trailer]
Asset and Data Tracking Systems*
Low cost communications and network
management for low-rate data message
applications such as tracking
truck-trailers or remote meter reading
[Picture of person using ATM machine]
Transaction Networks*
- -VSAT networks for applications such
as ATM networks
- -Point-to-multipoint architecture
[Picture of open field in a
rural area]
Telephony Networks
Toll-quality voice and fax
for areas lacking wired
phone infrastructure
* Product of the Satellite Networks Business
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 1
Risk Factors................................................ 8
The Acquisition............................................. 19
Use of Proceeds............................................. 22
Price Range of Common Stock................................. 23
Dividend Policy............................................. 23
Capitalization.............................................. 24
Selected Financial Information of ViaSat.................... 25
Selected Financial Information of the Satellite Networks
Business.................................................. 26
Unaudited Pro Forma Condensed Combined Financial
Information............................................... 28
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 34
Business.................................................... 44
Management.................................................. 66
Principal Stockholders...................................... 69
Acquisition Agreements...................................... 70
Description of ViaSat Capital Stock......................... 72
Material United States Income Tax Consequences for Non-U.S.
Holders................................................... 75
Underwriting................................................ 78
Legal Matters............................................... 80
Experts..................................................... 80
Where You Can Find Additional Information................... 81
Index to Financial Statements............................... F-1
</TABLE>
------------------------
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not, and the underwriters have not,
authorized any other person to provide you with different information. If anyone
provides you with different or inconsistent information, you should not rely on
it. We are not, and the underwriters are not, making an offer to sell in any
jurisdictions where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate only as of the date on
the front cover of this prospectus. Our business, financial condition, results
of operations and prospects may have changed since that date.
StarWire(TM) is a registered trademark of ViaSat. Skylinx(TM) and
SkyRelay(TM) are registered trademarks of the Satellite Networks Business. All
other brand names, trademarks and service marks appearing in this prospectus are
the property of their respective holders.
<PAGE> 6
SUMMARY
This summary highlights information in other sections of this prospectus.
It does not contain all the information that is important to you. You should
read this summary together with the more detailed information and financial
statements and notes appearing elsewhere in this prospectus. You should
carefully consider, among other factors, the matters discussed under "Risk
Factors." All references in this prospectus to our fiscal year refer to the
fiscal year ending on March 31 of the specified year. All references in this
prospectus to the Satellite Networks Business' fiscal year refer to the fiscal
year ending on the Friday closest to June 30 of the specified year. The terms
"we," "our," "us" and "ViaSat" refer to ViaSat, Inc. unless the context suggests
otherwise.
VIASAT
We are a leading provider of advanced broadband digital satellite
communications and other wireless networking and signal processing equipment and
services. Based on our extensive experience in complex defense communications
systems, we have developed the capability to design and implement innovative
communications solutions which enhance bandwidth utilization by applying our
sophisticated networking and digital signal processing techniques. On January
18, 2000, we announced an agreement to acquire the satellite networks business
of Scientific-Atlanta, which we refer to as the Satellite Networks Business,
which will allow us to accelerate significantly the growth of our commercial
business. To date, we have achieved 13 consecutive years of internally generated
revenue growth and 12 consecutive years of profitability. Our goal is to
leverage our advanced technology and capabilities to capture a significant share
of the global satellite communications services and equipment segment of the
high-growth broadband communications market. Pioneer Consulting has estimated
that the global satellite broadband access services portion of this market will
increase to $30 billion and 39.6 million users by 2007.
As a result of the recent increase in use of Internet Protocol (IP) data
networks, the trend towards deregulation of communications services and the
globalization of business, satellite networking solutions aimed at commercial
applications have experienced strong growth. Satellite networks are used to
reach areas which lack terrestrial, or ground-based, infrastructure and for
networks that require the wide reach and instant access available through
satellite communications. A large segment of the existing demand has been met
through Very Small Aperture Terminal, or VSAT, technology which enables voice
and data communications networks utilizing geostationary satellites. The
majority of existing VSAT networks were originally designed to meet traditional
narrow-band data processing needs. Increasingly, however, customers require
satellite-based solutions that enable two-way broadband connections for
integrated data, video, and multimedia services.
We excel at determining and designing the optimal technologies for use in
wireless and satellite networking products. We are a leading provider of
products and services based on Demand Assigned Multiple Access, or DAMA,
technology which allows VSAT users to connect to satellite networks and
economically share common satellite resources optimized for high-performance
broadband applications. Because DAMA technology provides direct, on-demand
switched satellite connections that do not have to pass through a ground-based
hub station, satellite networks based on DAMA technology experience less delay,
use satellite resources more efficiently than other VSAT technologies and are
best suited for certain two-way broadband services. In addition, we have also
developed a number of other advanced wireless networking and digital signal
processing technologies such as our patented Paired Carrier Multiple Access, or
PCMA, technology which allows traffic in both directions of a bi-directional
communications connection to be carried simultaneously on the same frequency. A
broadband system utilizing both our DAMA and PCMA technology will be able to
support as many as four times the number of subscribers as competing systems.
Our technology and systems engineering leadership is maintained and enhanced by
our group of over 180 engineers, which will increase to approximately 310
following our acquisition of the Satellite Networks Business.
Our internal growth to date has been driven largely by our success in
meeting the need for advanced communications products for the U.S. military. By
developing cost-effective communications products
1
<PAGE> 7
incorporating our advanced technologies we have continued to grow the markets
for our defense products and services in an environment of shrinking defense
budgets. Our current defense products include our UHF DAMA satellite
communications products consisting of modems, terminals and network control
systems, our advanced multifunction information distribution system, or MIDS,
product line, and our simulation and test equipment which allows the testing of
sophisticated airborne radio equipment without expensive flight exercises. The
MIDS terminal operates as part of the Link-16 line-of-sight tactical radio
system that enables real time data networking among ground and airborne military
users providing an electronic overview of the battlefield. We were recently
selected by the U.S. government as a new Link-16 terminal contractor and one of
only three current U.S. government certified manufacturers of Link-16 MIDS
terminals. The Link-16 market segment has significant technology barriers to
entry, and the U.S. and international military portion of the Link-16 MIDS
market is expected to total approximately 8,000 units and generate approximately
$2 billion in revenues for Link-16 providers over the next five to ten years.
We have been increasing our focus in recent years on offering satellite
based communications products to address commercial market needs. Our commercial
business has grown from approximately 5% of our revenues in fiscal year 1999 to
approximately 22% of our revenues in the nine months ended December 31, 1999.
Based on our DAMA technology and systems integration experience, we have
recently won several important projects, including our $36 million contract with
Science Applications International Corporation (SAIC) to provide two-way
broadband on demand services in the oil field industry and our $6.9 million
contract with Star Cruises Management, Ltd. to outfit its entire ship fleet for
mobile broadband and telephony. To date, our principal commercial offerings have
been our StarWire DAMA-based VSAT terminals, network control systems, and
related network integration and network services. StarWire utilizes Internet
Protocol circuits on a demand basis to provide high-speed data, video, voice and
fax communications.
While our own commercial business has been growing, we recognize the need
to accelerate growth in order to participate more effectively in the anticipated
growth for broadband commercial satellite communications services and products.
We believe our pending acquisition of the Satellite Networks Business will give
us the scale and scope to become a larger player in this market. The Satellite
Networks Business, which is also a significant DAMA-based VSAT vendor, will
further strengthen our position in the DAMA marketplace. The Satellite Networks
Business provides additional product lines addressing the non-DAMA VSAT market,
the gateway market, the asset tracking and meter reading market, and the
telemetry and antenna systems market. In addition, the Satellite Networks
Business brings us a larger and more experienced commercial salesforce, a
significant customer base, and additional research and development and
engineering capabilities. Our plan is to rapidly integrate our existing
commercial activities with those of the Satellite Networks Business and to move
the headquarters of our commercial business to the Satellite Networks Business
facilities in Norcross, Georgia. On a combined basis, we expect that our
commercial satellite business will represent over half of our total revenues.
The purchase price of the acquisition is approximately $75.0 million in
cash, subject to adjustments at closing, and warrants to purchase 50,000 shares
of our common stock. As part of the acquisition, we are entering into several
agreements with Scientific-Atlanta covering interim manufacturing of products,
the provision of transitional services and the leasing of three facilities. As
part of the integration of our commercial business with the Satellite Networks
Business, we plan to achieve significant cost savings and operational
efficiencies that we believe will improve the Satellite Networks Business'
financial performance. See "The Acquisition" for a more detailed discussion of
the acquisition. We will also be implementing initiatives over the next six to
twelve months to focus on the growth opportunities available to us and the
Satellite Networks Business as a result of the combination. We intend to close
the Satellite Networks Business acquisition immediately following the closing of
this offering.
2
<PAGE> 8
As part of our strategy to continue the growth of our business, we intend
to:
- capitalize on our existing technology leadership in new and emerging high
growth communications markets,
- maintain and enhance our technology leadership position,
- provide superior customer value by designing advanced systems and
lowering the total cost of network ownership,
- emphasize strategic partnerships to accelerate market penetration, and
- maintain our historical emphasis on operational efficiency and financial
performance.
------------------------
We were incorporated in California in 1986 and reincorporated in Delaware
in 1996. Our principal executive offices are located at 6155 El Camino Real,
Carlsbad, California 92009 and our telephone number is (760) 476-2200.
3
<PAGE> 9
THE OFFERING
Common stock offered by ViaSat:
U.S. offering............. 1,817,200 shares
International offering.... 454,300 shares
Total.................. 2,271,500 shares
Shares outstanding after the
offering......................... 10,447,651 shares
Use of proceeds.................. We intend to use the net proceeds of the
offering, together with cash on hand if
necessary, for the purchase of the
Satellite Networks Business. We intend to
use the remaining net proceeds, if any, for
working capital and other general corporate
purposes.
Risk factors..................... See "Risk Factors" and other information
included in this prospectus for a
discussion of factors you should carefully
consider before deciding to invest in
shares of the common stock.
Nasdaq National Market symbol.... VSAT
Unless we specifically state otherwise, all information in this prospectus
does not include:
- 340,725 shares issuable upon exercise of the underwriters' over-allotment
option,
- 1,100,805 shares subject to outstanding options with a weighted average
exercise price of $16.28 per share,
- 552,515 shares reserved for issuance under options that we may grant
under our employee benefit plans, and
- 50,000 shares reserved for issuance under warrants which will be issued
to Scientific-Atlanta in connection with the acquisition of the Satellite
Networks Business.
4
<PAGE> 10
SUMMARY HISTORICAL FINANCIAL INFORMATION OF VIASAT
The following table provides summary financial information for us for each
of the fiscal years in the three-year period ended March 31, 1999 and for the
nine-month periods ended December 31, 1998 and 1999. The data as of and for each
of the fiscal years in the three-year period ended March 31, 1999 have been
derived from audited financial statements. The data as of and for the nine
months ended December 31, 1998 and 1999 have been derived from unaudited
financial statements and include, in the opinion of our management, all
adjustments necessary to present fairly the data for those periods. The
unaudited interim financial information should not be considered indicative of
the results for the full fiscal year. You should consider the financial
statement data provided below in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and the notes which are included elsewhere in this prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED MARCH 31, DECEMBER 31,
----------------------------- ------------------
1997 1998 1999 1998 1999
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................. $47,715 $64,197 $71,509 $53,269 $52,093
Cost of revenues......................... 33,102 40,899 44,182 33,461 29,760
------- ------- ------- ------- -------
Gross profit........................... 14,613 23,298 27,327 19,808 22,333
Operating expenses:
Selling, general and administrative.... 4,752 7,862 10,093 7,246 8,226
Independent research and development... 5,087 7,631 7,639 5,773 5,967
------- ------- ------- ------- -------
Income from operations................... 4,774 7,805 9,595 6,789 8,140
Net interest income...................... 100 586 584 394 636
------- ------- ------- ------- -------
Income before income taxes............... 4,874 8,391 10,179 7,183 8,776
Provision for income taxes............... 1,702 3,104 3,883 2,760 3,160
------- ------- ------- ------- -------
Net income............................... $ 3,172 $ 5,287 $ 6,296 $ 4,423 $ 5,616
======= ======= ======= ======= =======
Earnings per share:
Basic.................................. $ 0.66 $ 0.68 $ 0.79 $ 0.56 $ 0.69
======= ======= ======= ======= =======
Diluted................................ $ 0.48 $ 0.65 $ 0.77 $ 0.54 $ 0.66
======= ======= ======= ======= =======
Weighted average number of shares (in
thousands):
Basic.................................. 4,810 7,801 7,977 7,961 8,094
======= ======= ======= ======= =======
Diluted................................ 6,642 8,175 8,173 8,191 8,491
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF MARCH 31, DECEMBER 31,
----------------------------- ------------------
1997 1998 1999 1998 1999
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments............................ $12,673 $ 9,208 $20,793 $16,345 $19,159
Working capital.......................... 20,406 24,276 31,298 29,285 36,829
Total assets............................. 35,674 42,793 50,016 48,858 55,173
Long-term debt, less current portion..... 1,428 1,544 1,243 1,501 504
Total stockholders' equity............... 23,619 29,610 36,847 34,689 43,093
</TABLE>
5
<PAGE> 11
SUMMARY HISTORICAL FINANCIAL INFORMATION OF THE SATELLITE NETWORKS BUSINESS
The following table provides summary financial information of the Satellite
Networks Business for each of the fiscal years in the three-year period ended
June 30, 1999 and for the six-month periods ended December 31, 1998 and 1999.
The data as of and for each of the fiscal years in the three-year period ended
June 30, 1999 have been derived from audited carve-out financial statements. The
data as of and for the six months ended December 31, 1998 and 1999 have been
derived from unaudited carve-out financial statements and include, in the
opinion of our management based on representations made to us by
Scientific-Atlanta's management, all adjustments necessary to present fairly the
data for those periods. The data reflect the operations of the Satellite
Networks Business prior to the acquisition and do not include any adjustments or
synergies resulting from the acquisition. In addition, because the Satellite
Networks Business has operated as a division of Scientific-Atlanta, its results
may not reflect those that would have resulted had it operated as an independent
entity or as part of ViaSat. The unaudited interim financial information should
not be considered indicative of the results for the full fiscal year. You should
consider the financial data provided below in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and the notes which are included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
--------------------------------- ------------------
1997 1998 1999 1998 1999
-------- -------- -------- -------- -------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................. $141,736 $135,338 $ 94,891 $ 48,472 $42,440
Cost of revenues.......................................... 102,763 110,947 87,863 47,926 35,833
-------- -------- -------- -------- -------
Gross profit............................................ 38,973 24,391 7,028 546 6,607
Operating expenses:
Selling and administrative.............................. 26,468 25,181 18,179 10,724 6,588
Research and development................................ 10,151 10,580 8,451 5,077 2,938
Restructuring charges................................... -- 3,407 -- -- --
-------- -------- -------- -------- -------
Income (loss) before income taxes......................... 2,354 (14,777) (19,602) (15,255) (2,919)
Provision (benefit) for income taxes...................... 706 (4,455) -- -- --
-------- -------- -------- -------- -------
Net income (loss)(1)...................................... $ 1,648 $(10,322)(2) $(19,602)(3) $(15,255) $(2,919)
======== ======== ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF DECEMBER 31,
----------------------------- ------------------
1997 1998 1999 1998 1999
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $55,653 $39,437 $37,455 $39,538 $33,827
Total assets................................................ 96,473 67,501 72,223 67,284 65,146
Total Satellite Networks Business unit equity............... 62,274 47,491 50,321 47,754 44,673
</TABLE>
- ---------------
(1) Results for all fiscal years include allocations from Scientific-Atlanta
corporate offices for business services such as accounting, information
services, communications, human resources, facility, security and others;
manufacturing overhead and management staff costs; and costs of
Scientific-Atlanta's executive, legal, financial reporting and other
corporate costs. ViaSat is entering into agreements with Scientific-Atlanta
for the transition period for services needed to establish the Satellite
Networks Business as a separate entity, including a manufacturing agreement
which provides for product manufacturing for satellite telecommunications
and data tracking communicators at a discount of 30% from
Scientific-Atlanta's standard cost. ViaSat management believes that the cost
of this manufacturing agreement approximates the cost at which ViaSat could
procure the inventory from contract manufacturers.
(2) Losses during fiscal year 1998 included restructuring costs of $3.4 million
consisting of $1.5 million for severance, a $1.5 million write-off of
goodwill from the acquisition of Advanced Communications Engineering, Inc.
in 1988 and $385,000 of costs related to relocation of the network
operations center (NOC) from Melbourne, Florida. In addition, an $11.5
million charge was recorded related to excess and obsolete inventory as a
result of the consolidation of operations and the discontinuance of certain
product models.
(3) Losses during fiscal year 1999 included costs of $5.6 million, consisting of
$2.1 million of relocation costs for moving employees from Melbourne,
Florida, $2.1 million of additional program reserves resulting from project
management's reassessment of estimates to complete certain contracts, and a
$1.4 million charge to reduce inventory based on the declining demand in
international markets. In addition, there were continuing costs in 1999
related to a 185 person reduction in workforce and a downsizing of the sales
and marketing organization, especially in Latin America and Asia, in 1998.
The Satellite Networks Business did not realize savings from this downsizing
until the third quarter, although sales were substantially lower in the
first and second quarters.
6
<PAGE> 12
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The summary unaudited pro forma condensed combined financial information
has been prepared by ViaSat's management and gives pro forma effect to the
completion of the acquisition of the Satellite Networks Business and the
application of the proceeds from this offering as if they occurred on April 1,
1998 for income statement purposes and December 31, 1999 for balance sheet
purposes.
The pro forma information has been prepared from, and should be read in
conjunction with, our financial statements and accompanying notes, and the
financial statements and accompanying notes of the Satellite Networks Business,
included elsewhere in this prospectus. The pro forma information is presented
for illustrative purposes only and does not purport to represent what actual
results of operations or financial position would have been had the acquisition
of the Satellite Networks Business occurred on the dates assumed, nor is it
necessarily indicative of our future operating results or combined financial
position. The information reflects the operations of the Satellite Networks
Business prior to the acquisition. ViaSat expects to reduce costs of the
Satellite Networks Business after the acquisition by implementing a combination
of contract manufacturing, rigorous quality control measures, tighter tracking
of project costs and a reduction of corporate overhead allocations. The pro
forma financial information does not reflect (1) the effects of these
anticipated post-acquisition cost savings or restructuring efficiencies or (2)
any interest income attributable to the net cash proceeds of this offering not
utilized for the acquisition. For more information on the assumptions made in
preparing this pro forma financial information, see "Unaudited Pro Forma
Condensed Combined Financial Information."
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
MARCH 31, 1999 DECEMBER 31, 1999
-------------- -----------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $ 166,400 $ 116,973
Cost of revenues............................................ 132,045 85,702
----------- -----------
Gross profit.............................................. 34,355 31,271
Selling, general and administrative......................... 30,542 20,282
Independent research and development........................ 16,090 10,731
----------- -----------
Total operating expenses.................................... 46,632 31,013
Net interest income......................................... 584 636
----------- -----------
Income (loss) before income taxes........................... (11,693) 894
Provision (benefit) for income taxes........................ (4,443) 340
----------- -----------
Net income (loss)........................................... $ (7,250) $ 554
=========== ===========
Earnings (loss) per share:
Basic..................................................... $ (.71) $ .05
=========== ===========
Diluted................................................... $ (.71) $ .05
=========== ===========
Weighted average number of shares:
Basic..................................................... 10,248,348 10,365,781
=========== ===========
Diluted................................................... 10,248,348 10,762,286
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1999
-----------------
<S> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 20,546
Working capital............................................. 67,895
Total assets................................................ 134,992
Long-term liabilities....................................... 3,645
Total stockholders' equity.................................. 107,705
</TABLE>
7
<PAGE> 13
RISK FACTORS
You should carefully consider the following risk factors, in addition to
the other information in this prospectus, before purchasing shares of our common
stock.
RISKS RELATED TO THE ACQUISITION OF THE SATELLITE NETWORKS BUSINESS
IF WE FAIL TO COMPLETE THE ACQUISITION OF THE SATELLITE NETWORKS BUSINESS, WE
WILL NOT RECOGNIZE SOME OF THE BENEFITS WE DESCRIBE IN THIS PROSPECTUS
Although we have entered into an asset purchase agreement with
Scientific-Atlanta to purchase the Satellite Networks Business, we have not
completed the transaction. The asset purchase agreement contains a number of
conditions that must be satisfied before we can complete the transaction. While
we anticipate closing the acquisition immediately after the closing of this
offering, we cannot guarantee when, or whether, the acquisition will be
completed. The acquisition is subject to a number of important conditions,
including receipt or waiver of all necessary material consents from third
parties and absence of any material changes in the condition of the Satellite
Networks Business. If these conditions are not met, the acquisition of the
Satellite Networks Business may not be completed. This offering is not
contingent or in any way dependent on the acquisition of the Satellite Networks
Business. If the acquisition is not completed, the net proceeds from this
offering will be used in the discretion of our management for working capital
and other general corporate purposes. If we are unable to complete the
acquisition, it could materially harm our business and impair the value of our
common stock.
ANY FAILURE TO SUCCESSFULLY INTEGRATE THE SATELLITE NETWORKS BUSINESS WITH OUR
BUSINESS MAY ADVERSELY AFFECT OUR RESULTS OF OPERATIONS
Our future performance will depend in part on whether we can integrate our
operations with the operations of the Satellite Networks Business in an
effective and efficient manner. Integrating our operations with the Satellite
Networks Business will be a complex, time consuming and expensive process. The
acquisition creates risks such as:
- disruption of our ongoing business,
- difficulty assimilating the operations, including financial and
accounting functions, sales and marketing procedures, technology and
other corporate administrative functions of the combined operations,
- difficulty in converting the Satellite Networks Business' current
business information system to our system,
- difficulty maintaining relationships with present and potential
customers, distributors and suppliers of the Satellite Networks Business
due to uncertainties regarding service, production quality and prices,
- diversion of attention of our senior management team from existing
operations and other potential business opportunities, and
- problems hiring and retaining key employees who were previously employed
by Scientific-Atlanta in the Satellite Networks Business.
We cannot guarantee that we will successfully integrate our operations with the
operations of the Satellite Networks Business. If we are unable to address any
of the risks described above, it could materially harm our business and impair
the value of our common stock.
8
<PAGE> 14
THE SATELLITE NETWORKS BUSINESS HAS A HISTORY OF LOSSES AND MAY CONTINUE TO
EXPERIENCE LOSSES IN THE FUTURE
Since its fiscal year 1998, the Satellite Networks Business has incurred
substantial net losses. In its fiscal year 1999, the Satellite Networks Business
incurred a net loss of approximately $19.6 million. Although we believe that, as
part of the integration of our commercial business with the Satellite Networks
Business, we can implement cost savings and operational efficiencies that will
improve the Satellite Networks Business' financial performance, we cannot assure
you that the Satellite Networks Business will become profitable in the
foreseeable future, if at all. If the Satellite Networks Business fails to
achieve profitability, that failure could materially harm our business and
impair the value of our common stock.
THE ACQUISITION OF THE SATELLITE NETWORKS BUSINESS WILL RESULT IN COSTS OF
INTEGRATION AND ACQUISITION EXPENSES THAT COULD ADVERSELY AFFECT OUR FINANCIAL
RESULTS
If the benefits of the acquisition of the Satellite Networks Business do
not exceed the costs associated with the acquisition, our financial results
could be adversely affected. We estimate that, in addition to the cash purchase
price of approximately $75.0 million, subject to closing adjustments, we will
incur costs of approximately $3.7 million associated with the acquisition, of
which $2.0 million will be reimbursed by Scientific-Atlanta. A portion of the
costs in excess of the purchase price will likely be associated with integrating
our operations with the operations of the Satellite Networks Business, including
the elimination of duplicative operations and consolidation of administrative,
financial and accounting functions, sales and marketing operations, support and
research and development activities. Actual costs may substantially exceed our
estimates. In addition, unanticipated expenses associated with integrating the
Satellite Networks Business into our business may arise.
WE FACE RISKS FROM OUR OPERATION OF THE SATELLITE NETWORKS BUSINESS
Although the Satellite Networks Business has historically been operated as
a separate division of Scientific-Atlanta, the Satellite Networks Business has
neither been operated as a stand-alone business nor conducted without the
benefit of the financial resources or trade name of Scientific-Atlanta. Under
the asset purchase agreement, we will be entitled to use Scientific-Atlanta
trademarks for products made or distributed by the Satellite Networks Business
for a period of six months after the closing, as more fully described in
"Acquisition Agreements." However, we cannot assure you that we will not
encounter financial, managerial or other difficulties as a result of operating
the Satellite Networks Business independent of the resources provided by
Scientific-Atlanta. If we are unable to successfully address any of the
foregoing risks, it could materially harm our business and impair the value of
our common stock.
WE FACE RISKS ASSOCIATED WITH OUR ACQUISITION AGREEMENT WITH SCIENTIFIC-ATLANTA
In connection with the acquisition of the Satellite Networks Business, we
entered into an asset purchase agreement and will enter a series of related
agreements with Scientific-Atlanta. The acquisition agreement contemplates
post-closing adjustments to the purchase price which may require us to pay
additional amounts to Scientific-Atlanta after the closing or may require
Scientific-Atlanta to pay additional amounts to us. In addition, we and
Scientific-Atlanta will have additional payment obligations, including
indemnification obligations, under both the acquisition agreement and the
related agreements. If our payment obligations significantly increase, or if
Scientific-Atlanta fails or delays in making its required payments, it could
materially harm our business and impair the value of our common stock.
WE FACE RISKS FROM CHANGES IN THE ALLOCATION OF THE PURCHASE PRICE OF THE
SATELLITE NETWORKS BUSINESS
The acquisition of the Satellite Networks Business will be accounted for by
the purchase method of accounting. Under purchase accounting, the total purchase
price will be allocated to the tangible and intangible assets and liabilities of
the Satellite Networks Business based upon their respective fair values as of
the closing of the acquisition based on valuations and other studies which are
not yet available. A preliminary allocation of the purchase price has been made
to categories of assets and liabilities in the pro
9
<PAGE> 15
forma financial statements based on available information. These pro forma
adjustments represent our management's preliminary determination of purchase
accounting adjustments and are based on available information and assumptions
that we believe to be reasonable. The actual allocation of purchase price and
the resulting effect on income from operations may differ significantly from the
pro forma amounts included in this prospectus. If these final amounts differ
significantly, it could adversely affect our results of operations for that
period. In addition, we have not made a final determination as to the value of
the Satellite Networks Business' in-process research and development, if any. To
the extent that a portion of the purchase price would be allocated to in-process
research and development, generally accepted accounting principles would require
that this amount be written off as a one-time charge to operations.
Consequently, the amounts reflected in the pro forma financial statements are
subject to change, and the final amounts may differ significantly.
RISKS RELATED TO OUR BUSINESS
OUR RELIANCE ON U.S. GOVERNMENT CONTRACTS COULD HARM OUR BUSINESS
Approximately 92% of our revenues for fiscal year 1999 and approximately
71% of our revenues for the nine-month period ended December 31, 1999 were
derived from U.S. government applications. On a combined basis with the
Satellite Networks Business, approximately 38% of our revenues for our fiscal
year 1999 and approximately 31% of our revenues for the nine-month period ended
December 31, 1999 would have been derived from U.S. government applications.
While the acquisition of the Satellite Networks Business will substantially
reduce our dependence on U.S. government business in the near term, such
business will continue to represent a significant portion of our revenues for
the foreseeable future. U.S. government business exposes us to various risks,
including:
- unpredictable contract or project terminations,
- reductions in government funds available for our projects due to
government policy changes, budget cuts and contract adjustments,
- penalties arising from post-award contract audits,
- cost audits in which the value of our contracts may be reduced,
- higher-than-expected final costs, particularly relating to software and
hardware development, for work performed under contracts where we commit
to specified deliveries for a fixed price,
- limited profitability from cost-reimbursement contracts under which the
amount of profit is limited to a specified amount, and
- unpredictable cash collections of unbilled receivables that may be
subject to acceptance of contract deliverables by the customer and
contract close-out procedures, including government approval of final
indirect rates.
In addition, substantially all of our U.S. government backlog scheduled for
delivery can be terminated at the convenience of the U.S. government since
orders are often placed well before delivery, and our contracts typically
provide that orders may be terminated with limited or no penalties. If we are
unable to address any of the risks described above, it could materially harm our
business and impair the value of our common stock.
OUR SUCCESS DEPENDS ON OUR ABILITY TO GROW OUR COMMERCIAL BUSINESS
To date, our internal growth has been driven largely by our success in
meeting the need for advanced communications products for the U.S. military. We
have been increasing our focus in recent years on offering satellite-based
communications products to address commercial market needs. We believe our
pending acquisition of the Satellite Networks Business gives us the scale and
scope to become a larger player in this market. Our goal is to leverage our
advanced technology and capabilities to capture a
10
<PAGE> 16
significant share of the global satellite services and equipment segment of the
high-growth broadband communications market. However, we cannot assure you that
we will be able to grow our commercial satellite communications business or that
we will be able to compete effectively in the commercial market in the future.
If we are unable to grow our commercial business or compete effectively in the
commercial market in the future, it could materially harm our business and
impair the value of our common stock.
A SIGNIFICANT PORTION OF OUR REVENUE IS DERIVED FROM A FEW OF OUR CONTRACTS
A small number of our contracts account for a significant percentage of our
revenues. Historically, our largest revenue producing contracts have been U.S.
government contracts related to our UHF DAMA technology, which generated
approximately 51% of our revenues for our fiscal year 1999 and 38% of our
revenues for the nine-month period ended December 31, 1999. Our five largest
contracts generated approximately 61% of our revenues for fiscal year 1999 and
50% of our revenues for the nine-month period ended December 31, 1999. On a
combined basis with the Satellite Networks Business, our five largest contracts
would have generated approximately 31% of our revenues for fiscal year 1999.
Termination or disruption of these contracts, or our inability to renew or
replace these contracts when they expire, could materially harm our business and
impair the value of our common stock.
OUR SUCCESS DEPENDS UPON THE DEVELOPMENT OF NEW SATELLITE AND OTHER WIRELESS
COMMUNICATIONS PRODUCTS AND OUR ABILITY TO GAIN ACCEPTANCE OF THESE PRODUCTS
The wireless communications market in general, and the satellite
communications market in particular, are subject to rapid technological change,
frequent new and enhanced product introductions, product obsolescence and
changes in user requirements. Our ability to compete successfully in these
markets depends on our success in applying our expertise and technology to
existing and emerging satellite and other wireless communications markets. Our
ability to compete in these markets also depends in large part on our ability to
successfully develop, introduce and sell new products and enhancements on a
timely and cost-effective basis that respond to ever changing customer
requirements. Our ability to successfully introduce new products depends on
several factors, including:
- successful integration of various elements of our complex technologies
and system architectures,
- timely completion and introduction of new product designs,
- achievement of acceptable product costs,
- timely and efficient implementation of our manufacturing and assembly
processes and cost reduction efforts,
- establishment of close working relationships with major customers for the
design of their new wireless communications systems incorporating our
products,
- development of competitive products by competitors, and
- market acceptance of our new products.
We cannot assure you that our product development efforts for communications
products will be successful or that any of our new products we develop will
achieve market acceptance. We may experience difficulties that could delay or
prevent us from successfully selecting, developing, manufacturing or marketing
new products or enhancements. We cannot assure you that defects will not be
found in our products after we begin deliveries, which could result in the delay
or loss of market acceptance. If we are unable to design, manufacture,
integrate, and market profitable new products for existing or emerging
communications markets, it could materially harm our business and impair the
price of our common stock.
OUR SUCCESS DEPENDS UPON THE GROWTH OF COMMERCIAL WIRELESS COMMUNICATIONS
MARKETS
A number of the commercial markets for our products in the wireless
communications area, including our DAMA products, have only recently developed.
Because these markets are relatively new, it is difficult
11
<PAGE> 17
to predict the rate at which these markets will grow, if at all. If the markets
for commercial wireless communications products fail to grow, or grow more
slowly than anticipated, our business could be materially harmed. Conversely, to
the extent that growth in these markets results in capacity limitations in the
wireless communications area, it could materially harm our business and impair
the price of our common stock.
WE DEPEND HEAVILY ON THE VSAT MARKET
We derived approximately 5% of our product revenues for fiscal year 1999
and approximately 22% of our product revenues for the nine months ended December
31, 1999 from sales of VSAT communications networks. On a combined basis with
the Satellite Networks Business, we would have derived approximately 39% of our
product revenues for our fiscal year 1999 and approximately 42% of our product
revenues for the nine months ended December 31, 1999 from sales of VSAT
communications networks. While the market for VSAT communications networks and
services has grown steadily since its inception in the mid-1980's, this market
may not continue to grow or VSAT technology may be replaced by an alternative
technology. A significant decline in this market or the replacement of VSAT
technology by an alternative technology could materially harm our business and
impair the value of our common stock.
ANY FAILURE BY US TO EFFICIENTLY AND EFFECTIVELY MANAGE OUR GROWTH COULD
ADVERSELY AFFECT OUR BUSINESS
Future expansion of our business may place strains on our personnel,
financial and other resources. In order to successfully manage our growth we
must identify, attract, motivate, train and retain highly skilled managerial,
financial, engineering, business development, sales and marketing and other
personnel. Competition for these types of personnel is intense. If we fail to
efficiently manage our growth and compete for these types of personnel, it could
adversely affect the quality of our services and, in turn, materially harm our
business and impair the price of our common stock.
IF THE SELLING PRICES OF OUR PRODUCTS DECREASE, IT COULD MATERIALLY HARM OUR
BUSINESS
The average selling prices of wireless communications products historically
decline over product life cycles. In particular, we expect the average selling
prices of our products to decline as a result of competitive pricing pressures
and customers who negotiate discounts based on large unit volumes. We also
expect that competition in this industry will continue to increase. To offset
these price decreases, we intend to rely primarily on obtaining yield
improvements and corresponding cost reductions in the manufacturing process of
existing products and on the introduction of new products with advanced features
that can be sold at higher prices. However, we cannot assure you that we will be
able to obtain any yield improvements or cost reductions or introduce any new
products in the future. To the extent that we do not reduce costs or introduce
new products in a timely manner, or our customers' products do not achieve
market acceptance, it could materially harm our business and impair the value of
our common stock.
OUR DEVELOPMENT CONTRACTS MAY BE DIFFICULT FOR US TO COMPLY WITH AND MAY EXPOSE
US TO DAMAGES
The wireless communications industry is characterized by rapid
technological change. We are often party to government and commercial contracts
that involve the development of new products. We derived 57% of our revenues for
fiscal year 1999 and 44% of our revenues for the nine months ended December 31,
1999 from these development contracts. These contracts typically contain strict
performance obligations and project milestones. We cannot assure you that we
will comply with these performance obligations or meet these project milestones.
If we are unable to comply with these performance obligations or meet these
milestones, our customers may terminate these contracts and, under some
circumstances, recover damages or other penalties from us. We are not currently,
nor have we always been, in compliance with all outstanding performance
obligations and project milestones. In the past, when we have not complied with
the performance obligations or project milestones in a contract, generally, the
other party has not elected to terminate the contract or seek damages from us.
However, we cannot assure you that in the future other parties will not
terminate their contracts or seek damages from us. If other
12
<PAGE> 18
parties elect to terminate their contracts or seek damages from us, it could
materially harm our business and impair the value of our common stock.
WE MAY EXPERIENCE LOSSES FROM OUR FIXED-PRICE CONTRACTS
Approximately 80% of our revenues for fiscal year 1999 and 79% of our
revenues for the nine-month period ended December 31, 1999 were derived from
contracts with fixed prices. On a combined basis with the Satellite Networks
Business, approximately 92% of our revenues for our fiscal year 1999 and 91% of
our revenues for the nine-month period ended December 31, 1999 would have been
derived from contracts with fixed prices. We assume greater financial risk on
fixed-price contracts than on other types of contracts since if we do not
anticipate technical problems, estimate costs accurately or control costs during
performance of a fixed-price contract, it may significantly reduce our net
profit or cause a loss on the contract. We believe that an increasing percentage
of our contracts will be at fixed prices in the future. Although we believe that
we adequately estimate costs for fixed-price contracts, we cannot assure you
that our estimates will be adequate or that substantial losses on fixed-price
contracts will not occur in the future. If we are unable to address any of the
risks described above, it could materially harm our business and impair the
value of our common stock.
WE EXPECT TO INCREASE OUR RESEARCH AND DEVELOPMENT COSTS WHICH COULD
SIGNIFICANTLY REDUCE OUR PROFITABILITY
Our future growth depends on penetrating new markets, adapting existing
satellite communications products to new applications, and introducing new
communications products that achieve market acceptance. Accordingly, we are
actively applying our communications expertise to design and develop new
hardware and software products and enhance existing products. We expended $7.6
million in our fiscal year 1999 and $6.0 million in the nine-month period ended
December 31, 1999 on research and development activities. In addition, the
Satellite Networks Business expended $8.5 million in its fiscal year 1999 and
$2.9 million in the six-month period ended December 31, 1999 on research and
development activities. We intend to utilize a portion of the net proceeds of
this offering as well as other available funds to increase our research and
development efforts. Since we account for research and development as an
operating expense, these expenditures will adversely affect our earnings in the
near future. Additionally, even if adequately funded, our research and
development program may not produce successful results, which could materially
harm our business and impair the value of our common stock.
OUR RELIANCE ON A LIMITED NUMBER OF THIRD PARTIES TO MANUFACTURE OUR PRODUCTS
EXPOSES US TO VARIOUS RISKS
Our internal manufacturing capacity is limited and we do not intend to
expand that capability in the foreseeable future. We rely on a limited number of
contract manufacturers to produce our products and expect to rely increasingly
on these manufacturers in the future. Some components, subassemblies and
services necessary for the manufacture of our products are obtained from a sole
supplier or a limited group of suppliers. In particular, Texas Instruments is a
sole source supplier of digital signal processing chips, which are critical
components in substantially all of our products. In addition, following the
acquisition of the Satellite Networks Business, we plan to increase our reliance
on contract manufacturing by engaging additional contract manufacturers to
produce the products that are currently being manufactured by the Satellite
Networks Business.
Our reliance on contract manufacturers and on sole suppliers or a limited
group of suppliers involves several risks. We may not be able to obtain an
adequate supply of required components, and our control over the price, timely
delivery, reliability and quality of finished products may be reduced. The
process of manufacturing our products and some of our components and
subassemblies is extremely complex, and we have in the past experienced and may
in the future experience delays in the delivery of and quality problems with
products and components and subassemblies from vendors. Some of the suppliers
that we rely upon have relatively limited financial and other resources. If we
are not able to obtain timely deliveries of components and subassemblies of
acceptable quality or if we are otherwise required to seek
13
<PAGE> 19
alternative sources of supply, or to manufacture our finished products or
components and subassemblies internally, it could delay or prevent us from
delivering our systems promptly and at high quality. This failure could damage
relationships with current or prospective customers, which, in turn, could
materially harm our business and impair the value of our common stock.
THE MARKETS WE SERVE ARE HIGHLY COMPETITIVE AND OUR COMPETITORS MAY HAVE GREATER
RESOURCES THAN US
The wireless communications industry generally is highly competitive and
competition is increasing. In addition, because our industry is evolving and
characterized by rapid technological change, it is difficult for us to predict
whether, when and by whom new competing technologies, products or services may
be introduced into our markets. Currently, we face substantial competition from
domestic and international wireless and ground-based communications service
providers in the commercial and government industries. In the commercial
industry, our major competitors include Hughes Network Systems and Gilat
Satellite Networks Ltd., which have captured a substantial portion of the
overall VSAT market over the past several years. In the government industry, our
major competitors include The Titan Corporation and Rockwell International
Corporation. Many of our competitors and potential competitors have significant
competitive advantages, including strong customer relationships, more experience
with regulatory compliance, greater financial and management resources, and
control over central communications networks. In addition, some of our customers
continuously evaluate whether to develop and manufacture their own products and
could elect to compete with us at any time. Increased competition from any of
these or other entities could materially harm our business and impair the value
of our common stock.
WE DEPEND ON A LIMITED NUMBER OF KEY EMPLOYEES WHO WOULD BE DIFFICULT TO REPLACE
We depend on a limited number of key technical, marketing and management
personnel to manage and operate our business. In particular, we believe that our
success depends to a significant degree on our ability to attract and retain
highly skilled personnel, including our President and Chief Executive Officer,
Mark D. Dankberg, and those highly skilled design, process and test engineers
involved in the manufacture of existing products and the development of new
products and processes. The competition for these types of personnel is intense,
and the loss of key employees could materially harm our business and impair the
value of our common stock. We do not have employment agreements with any of our
officers. We have obtained a key person insurance policy on the life of Mr.
Dankberg.
OUR ABILITY TO PROTECT OUR PROPRIETARY TECHNOLOGY IS LIMITED AND INFRINGEMENT
CLAIMS AGAINST US COULD RESTRICT OUR ABILITY TO CONDUCT BUSINESS
Our success depends significantly on our ability to protect our proprietary
rights to the technologies we use in our products and services. If we are unable
to protect our proprietary rights adequately, our competitors could use the
intellectual property that we have developed to enhance their own products and
services, which could materially harm our business and impair the value of our
common stock. We currently rely on a combination of patents, trade secret laws,
copyrights, trademarks, service marks and contractual rights to protect our
intellectual property. We cannot assure you that the steps we have taken to
protect our proprietary rights will be adequate. Additionally, the laws of some
foreign countries in which our products are or may be sold do not protect our
intellectual property rights to the same extent as do the laws of the United
States.
Litigation may be necessary to protect our intellectual property rights and
trade secrets, to determine the validity and scope of the proprietary rights of
others or to defend against claims of infringement or invalidity. We cannot
assure you that infringement, invalidity, right to use or ownership claims by
third parties or claims for indemnification resulting from infringement claims
will not be asserted against us in the future. If any claims or actions are
asserted against us, we may seek to obtain a license under a third party's
intellectual property rights. We cannot assure you, however, that a license will
be available under reasonable terms or at all. Litigation of intellectual
property claims could be extremely expensive and time consuming, which could
materially harm our business, regardless of the outcome of the litigation. If
our products are found to infringe upon the rights of third parties, we may be
forced to incur substantial costs
14
<PAGE> 20
to develop alternative products. We cannot assure you that we would be able to
develop alternative products or that if these alternative products were
developed, they would perform as required or be accepted in the applicable
markets. If we are unable to address any of the risks described above, it could
materially harm our business and impair the value of our common stock.
ADVERSE REGULATORY CHANGES COULD IMPAIR OUR ABILITY TO SELL PRODUCTS
Our products are incorporated into wireless communications systems that
must comply with various government regulations. Regulatory changes, including
changes in the allocation of available frequency spectrum and in the military
standards and specifications which define the current satellite networking
environment, could materially harm our business by (1) restricting development
efforts by us and our customers, (2) making our current products less attractive
or obsolete, or (3) increasing the opportunity for additional competition.
Changes in, or our failure to comply with, applicable regulations could
materially harm our business and impair the value of our common stock. In
addition, the increasing demand for wireless communications has exerted pressure
on regulatory bodies worldwide to adopt new standards for these products and
services, generally following extensive investigation of and deliberation over
competing technologies. The delays inherent in this government approval process
have caused and may continue to cause our customers to cancel, postpone or
reschedule their installation of communications systems. This, in turn, may have
a material adverse effect on our sales of products to our customers.
BECAUSE WE CONDUCT BUSINESS INTERNATIONALLY, WE FACE ADDITIONAL RISKS RELATED TO
GLOBAL POLITICAL AND ECONOMIC CONDITIONS AND CURRENCY FLUCTUATIONS
We anticipate that international sales will account for an increasing
percentage of our revenues over the next several years. In addition,
international sales represent a significant portion of the Satellite Networks
Business' revenues. Many of these international sales may be denominated in
foreign currencies. Since we do not currently engage in nor do we currently
anticipate engaging in foreign currency hedging transactions, a decrease in the
value of foreign currencies relative to the U.S. dollar could result in losses
from transactions denominated in foreign currencies. This decrease in value
could make our products less price-competitive.
There are additional risks in conducting business internationally,
including:
- unexpected changes in regulatory requirements,
- increased cost of localizing systems in foreign countries,
- increased sales and marketing and research and development expenses,
- availability of suitable export financing,
- timing and availability of export licenses,
- tariffs and other trade barriers,
- political and economic instability,
- challenges in staffing and managing foreign operations,
- difficulties in managing distributors,
- potentially adverse tax consequences, and
- potential difficulty in collecting accounts receivable.
In addition, some of our customer purchase agreements are governed by foreign
laws, which may differ significantly from U.S. laws. Therefore, we may be
limited in our ability to enforce our rights under these agreements and to
collect damages, if awarded. If we are unable to address any of the risks
described above, it could materially harm our business and impair the value of
our common stock.
15
<PAGE> 21
OUR OPERATING RESULTS HAVE VARIED SIGNIFICANTLY FROM QUARTER TO QUARTER IN THE
PAST AND, IF THEY CONTINUE TO DO SO, THE MARKET PRICE OF OUR COMMON STOCK COULD
BE IMPAIRED
Our operating results have varied significantly from quarter to quarter in
the past and may continue to do so in the future. As a result, we believe that
period-to-period comparisons of our revenues are not necessarily meaningful and
you should not rely upon them as indicators of future performance. It is likely
that in one or more future quarters our results may fall below the expectations
of analysts and investors. In this event, the trading price of our common stock
would likely decrease. The factors that cause our quarter-to-quarter operating
results to be unpredictable include:
- a complex and lengthy procurement process for most of our customers or
potential customers,
- the difficulty in estimating costs over the life of a contract, which may
require adjustment in future periods,
- the timing, quantity and mix of products and services sold,
- price discounts given to some customers,
- market acceptance and the timing of availability of our new products,
- the timing of customer payments for significant contracts,
- the failure to receive an expected order or a deferral of an order to a
later period, and
- general economic and political conditions.
If we are unable to address any of the risks described above, it could
materially harm our business and impair the value of our common stock.
WE FACE POTENTIAL PRODUCT LIABILITY CLAIMS
We may be exposed to legal claims relating to the products we sell or the
services we provide. Our agreements with our customers generally contain terms
designed to limit our exposure to potential product liability claims. We also
maintain a product liability insurance policy for our business, and intend to
extend the policy to cover the Satellite Networks Business. However, our
insurance may not cover all relevant claims or may not provide sufficient
coverage. To date, we have not experienced any material product liability
claims. If our insurance coverage does not cover all costs resulting from future
product liability claims, it could materially harm our business and impair the
value of our common stock.
THE LOSS OF SMALL BUSINESS INNOVATION RESEARCH FUNDING STATUS COULD HARM OUR
BUSINESS
We have benefited and continue to benefit from the Small Business
Innovation Research program, known as SBIR, through which the government
provides research and development funding for companies with fewer than 500
employees. As we have grown, our reliance on SBIR funding for research and
development has significantly decreased. We expect to lose our SBIR funding
status following the acquisition of the Satellite Networks Business due to the
increased size of the combined entity. We cannot assure you that our loss of
SBIR funding status will not materially harm our business.
OUR EXECUTIVE OFFICERS AND DIRECTORS OWN A LARGE PERCENTAGE OF OUR COMMON STOCK
AND EXERT SIGNIFICANT INFLUENCE OVER MATTERS REQUIRING STOCKHOLDER APPROVAL
As of March 27, 2000 our executive officers and directors and their
affiliates beneficially owned an aggregate of approximately 32.9% of our common
stock, and they will own an aggregate of approximately 25.9% of our common stock
immediately following this offering. Accordingly, these stockholders may be able
to significantly influence the board of directors and the outcome of corporate
actions requiring stockholder approval, such as mergers and acquisitions. These
stockholders may exercise this ability in a manner that advances their best
interests and not necessarily those of other stockholders. This ownership
interest could also have the effect of delaying or preventing a change in
control.
16
<PAGE> 22
WE HAVE IMPLEMENTED ANTI-TAKEOVER PROVISIONS THAT COULD PREVENT AN ACQUISITION
OF OUR BUSINESS AT A PREMIUM PRICE
Some of the provisions of our certificate of incorporation and bylaws could
discourage, delay or prevent an acquisition of our business at a premium price.
These provisions:
- permit the board of directors to increase its own size and fill the
resulting vacancies,
- provide for a board comprised of three classes of directors with each
class serving a staggered three year term,
- authorize the issuance of preferred stock in one or more series, and
- prohibit stockholder action by written consent.
In addition, Section 203 of the Delaware General Corporation Law also imposes
restrictions on mergers and other business combinations between us and any
holder of 15% or more of our common stock.
YEAR 2000 PROBLEMS COULD DISRUPT OUR BUSINESS
Many software programs may not recognize calendar dates beginning in the
Year 2000. This problem could cause computers or machines that utilize date
dependent software to either shut down or provide incorrect information. As of
the date of this prospectus, we have not experienced any material Year 2000
problems. However, if we, any other company that we conduct business with, or
the U.S. government fails to mitigate internal and external Year 2000 risks, we
may temporarily be unable to engage in business activities, which could
materially harm our business and impair the value of our common stock.
RISKS RELATED TO THIS OFFERING
WE EXPECT OUR STOCK PRICE TO BE VOLATILE
The market price of our common stock has been volatile in the past. For
example, since January 1, 1999, the market price for our common stock has ranged
from $7.00 to $105.00. Trading prices may continue to fluctuate in response to a
number of events and factors, including the following:
- quarterly variations in operating results and announcements of
innovations,
- new products, services and strategic developments by us or our
competitors,
- developments in our relationships with our customers, distributors and
suppliers,
- regulatory developments,
- changes in our revenues, expense levels or profitability,
- changes in financial estimates and recommendations by securities
analysts,
- failure to meet the expectations of securities analysts,
- changes in the wireless communications industry, and
- changes in the economy.
Any of these events may cause the market price of our common stock to fall. In
addition, the stock market in general and the market prices for technology
companies in particular have experienced significant volatility that often has
been unrelated to the operating performance of these companies. These broad
market and industry fluctuations may adversely affect the market price of our
common stock, regardless of our operating performance.
17
<PAGE> 23
SALES OF SHARES ELIGIBLE FOR FUTURE SALE COULD IMPAIR OUR STOCK PRICE
The market price of our common stock could drop due to sales of large
numbers of shares of our common stock or the perception that these sales could
occur. These factors could also make it more difficult to raise funds through
future offerings of common stock. In addition, our employees hold a significant
number of options to purchase shares of our common stock, many of which are
presently exercisable. Many employees may exercise their options and sell shares
shortly after these options become exercisable, particularly if they need to
raise funds to pay for the exercise of the options or to satisfy tax liabilities
that they may incur in connection with exercising their options. As of March 27,
2000, 8,176,151 shares of our common stock were outstanding, and 1,703,320
additional shares of our common stock were reserved for issuance as follows:
- 1,100,805 shares reserved for issuance upon exercise of outstanding
options to purchase our common stock which have been granted to
employees, directors, officers and consultants under our employee benefit
plans,
- 552,515 shares reserved for future issuance to employees, directors,
officers and consultants under our employee benefit plans, and
- 50,000 shares reserved for issuance under warrants to be issued to
Scientific-Atlanta in connection with the acquisition of the Satellite
Networks Business.
The issuance of these additional shares will reduce your percentage ownership of
our common stock.
OUR MANAGEMENT WILL HAVE SUBSTANTIAL DISCRETION OVER THE USE OF PROCEEDS FROM
THIS OFFERING AND MAY NOT APPLY THEM EFFECTIVELY
Management will have significant flexibility in applying the net proceeds
of this offering and may apply the proceeds in ways with which you do not agree.
Although we plan to use the net proceeds to purchase the Satellite Networks
Business from Scientific-Atlanta, we cannot assure you that the acquisition will
be completed. If not completed, we will have no specified use for a large amount
of funds. The failure of management to apply these funds effectively could
materially harm our business and impair the value of our common stock.
OUR FORWARD-LOOKING STATEMENTS ARE SPECULATIVE AND MAY PROVE TO BE WRONG
Some of the information under the captions "Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus are forward-looking
statements. These forward-looking statements include, but are not limited to,
statements about our plans, objectives, expectations and intentions and other
statements contained in this prospectus that are not historical facts. When used
in this prospectus, the words "expects," "anticipates," "intends," "plans,"
"believes," "seeks," "estimates" and similar expressions are generally intended
to identify forward-looking statements. Because these forward-looking statements
involve risks and uncertainties, there are important factors, including the
factors discussed in this "Risk Factors" section of the prospectus, that could
cause actual results to differ materially from those expressed or implied by
these forward-looking statements.
18
<PAGE> 24
THE ACQUISITION
OVERVIEW
On January 18, 2000, we signed an asset purchase agreement with
Scientific-Atlanta to purchase the Satellite Networks Business. The aggregate
purchase price for the Satellite Networks Business is approximately $75.0
million in cash plus warrants to purchase 50,000 shares of our common stock. The
purchase price is subject to various closing adjustments, including an
adjustment based on the net worth of the Satellite Networks Business on the
closing date. The closing of the acquisition is subject to a number of
conditions. We anticipate that the closing will occur immediately following the
closing of this offering. We intend to fund the acquisition primarily through
the proceeds from this offering, together with cash on hand if necessary. As
part of the acquisition, we are entering into several agreements with
Scientific-Atlanta covering interim manufacturing of some of the Satellite
Networks Business' products, the provision of transitional services and the
leasing of three facilities. See "Acquisition Agreements" for a more detailed
description of these agreements.
Scientific-Atlanta was a pioneer in satellite networking technologies and
participated in the market for communications and tracking systems, including
instrumentation and antenna manufacturing, since the 1960's. Scientific-Atlanta
entered the VSAT terminal business in 1988 with the acquisition of Advanced
Communications Engineering, Inc. (Adcom) of Melbourne, Florida, a company
founded by former employees of Harris Corporation. By the early 1990's, the
Satellite Networks Business was a leading supplier of TDMA terminals to the
retailing market and became a major supplier of Ka-band ground stations. The
recent growth in the cable modem and cable set-top box industries shifted
Scientific-Atlanta's focus away from the Satellite Networks Business and towards
cable products and services. During this period, the Satellite Networks Business
reduced its new product development efforts required to effectively compete in
the expanding North American market, and was negatively impacted by its heavy
dependence on declining international markets resulting in lower revenues and
losses in fiscal years 1998 and 1999.
The acquisition represents an opportunity for us to provide the Satellite
Networks Business with additional resources and strategic focus. As part of the
integration of the Satellite Networks Business, we plan to achieve significant
cost savings and operational efficiencies that we believe will improve the
Satellite Networks Business' financial performance. We believe the acquisition
gives us the scope and scale to become a larger player in the commercial
satellite communications market. In particular, the Satellite Networks Business
provides us with a wider range of products and services, a larger and more
experienced commercial salesforce both in the United States and internationally,
a significant customer base, and additional research and development and
engineering capabilities.
We plan to consolidate the combined companies' commercial businesses in the
Satellite Networks Business facilities located in Norcross, Georgia, a suburb of
Atlanta. There are approximately 338 employees in the Satellite Networks
Business, most of whom are located in Norcross. The Satellite Networks Business
also has full-time and contract employees located in eight offices in Europe,
Asia and Latin America.
The Satellite Networks Business currently consists of the following four
business units:
SATELLITE TELECOMMUNICATIONS. The satellite telecommunications unit
designs, manufactures and markets two primary satellite VSAT terminal products,
SkyRelay and Skylinx. This business unit is currently one of the largest
suppliers of VSAT terminals in the satellite communications market. In addition
to selling satellite networking equipment, the satellite telecommunications unit
also produces network control systems and provides communications services, such
as network operations, monitoring and control, to customers in North America
through its network operations center. This business unit generated
approximately 62% of the Satellite Networks Business' revenues in fiscal year
1999.
COMMUNICATIONS AND TRACKING SYSTEMS. The communications and tracking
systems unit is a leader in developing and deploying high performance,
state-of-the-art antenna and tracking systems that perform
19
<PAGE> 25
tracking, telemetry and command functions in the L, S, X, Ku, and Ka-band
frequency spectrums. Typical products include remote sensing data reception for
polar orbiting satellites, advanced gateways for orbiting and geostationary
satellites and telemetry systems for tracking moving targets, such as satellites
and aircraft. This business unit generated approximately 33% of the Satellite
Networks Business' revenues in fiscal year 1999.
DATA TRACKING COMMUNICATORS. The data tracking communicators unit designs,
manufactures and markets terminals and services that work with low earth orbit
satellite systems, such as the ORBCOMM satellite system, to provide global
two-way data messaging services. Fixed-site terminals support applications
including remote automated meter reading, and monitoring and controlling of
electric utility distribution networks. Low-cost mobile terminals support
automated vehicle location systems that track and monitor the status of remote
vehicles such as trucks, trailers and railway locomotives. This business unit
generated approximately 5% of the Satellite Networks Business' revenues in
fiscal year 1999.
ANTENNA MANUFACTURING. The antenna manufacturing business unit designs and
manufactures a broad line of antenna products that range in diameter from 1.8
meters to 18 meters. The highly complex antennas produced by the antenna
manufacturing unit are integrated into the Satellite Networks Business' other
networking products, and revenues for this unit are not reported separately.
For a more detailed description of the products and services of the
Satellite Networks Business, see "Business -- Commercial Markets -- Products and
Services."
REASONS FOR THE ACQUISITION
By combining the complementary strengths of the Satellite Networks
Business' product focus and our expertise in large scale network architectures
and design innovation, we expect to enhance our competitive position due to:
- GREATER MARKET PRESENCE. The combination of our businesses will provide
us with a greater presence in the satellite communications ground segment
marketplace. After the acquisition we will be the third largest supplier
of VSAT-based networks in the industry as measured by Comsys, a leading
industry source.
- GREATER CREDIBILITY AS A PRIME CONTRACTOR. With the addition of the
Satellite Networks Business' satellite gateway business and two-way data
tracking communicators business, we will gain critical mass and breadth
of skills that will give us a competitive advantage in addressing
end-to-end, complex network solutions and establish us as a more credible
prime contractor for large projects.
- TECHNOLOGY AND PRODUCT HARMONIZATION. We will benefit from combining the
best technologies and product features of each of the businesses into
more advanced derivative technologies and products.
- STRENGTHENED MANAGEMENT TEAM. The Satellite Networks Business will
further strengthen our management experience and expertise in the
satellite communications industry.
- BUSINESS PRIORITY AND FOCUS. There is a significant opportunity for us to
improve the Satellite Networks Business' results by applying our market
focus and operational efficiencies. The satellite networks market segment
is not a fundamental part of Scientific-Atlanta's business, whereas this
market represents the core focus of our business.
As we realize the benefits from the acquisition, we believe that we will be
well-positioned to address the anticipated market growth for broadband
commercial satellite communications services and products.
INTEGRATION OF THE SATELLITE NETWORKS BUSINESS
We intend to combine the Satellite Networks Business with our existing
commercial products group to form a new division named ViaSat Satellite
Networks, which will be headquartered in Norcross, Georgia. Although we will
continue to maintain personnel for our commercial business in Carlsbad,
20
<PAGE> 26
California, key management personnel from multiple disciplines will likely
relocate from Carlsbad to Norcross, including the Vice President and General
Manager of ViaSat Satellite Networks.
We have identified certain measures which we believe will result in cost
savings and improved financial performance for the Satellite Networks Business,
including:
- increasing revenues by cross-selling the products and services of the
Satellite Networks Business to our current customers,
- applying our financial and management resources to increase the
operational efficiency of the Satellite Networks Business,
- reducing costs and increasing quality control by transitioning the
manufacturing process for the Satellite Networks Business' products to
our proven contract manufacturing techniques, and
- reducing corporate overhead allocations to the Satellite Networks
Business to immediately strengthen its operating results.
DESCRIPTION OF ACQUISITION AGREEMENTS
The purchase price for the Satellite Networks Business is approximately
$75.0 million, consisting of $65.2 million in cash payable at closing and
approximately $9.7 million in deferred cash payments, as well as 50,000 warrants
to purchase our common stock. The cash portion of the purchase price payable at
closing will be adjusted based on the net worth of the Satellite Networks
Business and the amount of customer deposits as of the closing date.
In connection with the acquisition, we will also be entering into various
other agreements with Scientific-Atlanta at the closing. These agreements
include:
- a services agreement under which Scientific-Atlanta will provide computer
and office support after the acquisition as well as reimburse us for
transition expenses up to $2.0 million,
- a manufacturing agreement under which Scientific-Atlanta will retain a
substantial portion of the Satellite Networks Business' inventory to
manufacture up to $10.2 million of products for us at a 30% discount to
Scientific-Atlanta's standard cost for a period of six months, at the end
of which we will purchase the remaining inventory from
Scientific-Atlanta,
- another manufacturing agreement under which Scientific-Atlanta will
purchase up to $4.0 million of antenna products from us over a one year
term,
- a study contract under which Scientific-Atlanta will pay us $1.0 million
to conduct a technology suitability study, and
- leases for three facilities, each for an initial term of two years with
options to extend up to five years.
21
<PAGE> 27
USE OF PROCEEDS
We estimate that the net proceeds from our sale of 2,271,500 shares of our
common stock will be approximately $63.4 million, after deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by us. If the over-allotment option is exercised in full, we estimate that the
net proceeds will be approximately $73.1 million.
We intend to use the net proceeds of this offering, together with cash on
hand if necessary, to finance the cash portion of the purchase price for the
acquisition of the Satellite Networks Business. See "The Acquisition" for a more
detailed discussion of the acquisition of the Satellite Networks Business. We
expect to use the remaining net proceeds, if any, for working capital and other
general corporate purposes.
Pending these uses, we intend to invest the net proceeds of this offering
in short-term, investment-grade, interest-bearing securities.
22
<PAGE> 28
PRICE RANGE OF COMMON STOCK
Our common stock is quoted on the Nasdaq National Market under the symbol
"VSAT." The following table provides, for each of the quarterly periods
indicated, the high and low sales prices of our common stock as reported on the
Nasdaq National Market:
COMMON STOCK PRICE
<TABLE>
<CAPTION>
HIGH LOW
-------- -------
<S> <C> <C>
Year ended March 31, 1999
First Quarter............................................. $20.375 $13.375
Second Quarter............................................ 20.125 8.250
Third Quarter............................................. 13.000 7.000
Fourth Quarter............................................ 13.000 8.750
Year ended March 31, 2000
First Quarter............................................. 15.750 7.813
Second Quarter............................................ 22.250 13.313
Third Quarter............................................. 55.500 18.063
Fourth Quarter............................................ 105.000 43.000
Year ending March 31, 2001
First Quarter (through April 17, 2000).................... 71.000 32.063
</TABLE>
On April 17, 2000 the last reported sales price of our common stock as
reported on the Nasdaq National Market was $33.063 per share. There were 278
holders of record of our common stock as of March 27, 2000.
DIVIDEND POLICY
We have never declared or paid any dividends on our common stock. We
currently intend to retain all future earnings, if any, for use in the operation
and development of our business and do not anticipate paying any cash dividends
in the foreseeable future. Any future determination regarding the payment of
dividends will be made at the discretion of our board of directors and will
depend on then existing conditions, including our financial condition, results
of operations, contractual restrictions, capital requirements and business
prospects.
23
<PAGE> 29
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999
(1) on an actual basis, and (2) on a pro forma basis after giving effect to:
- the sale by us of 2,271,500 shares of common stock in this offering at a
public offering price of $30.00 per share and the application of the net
proceeds, and
- the acquisition of the Satellite Networks Business.
The following table assumes no exercise of the underwriters' over-allotment
option. The information regarding our common stock excludes an aggregate of
1,100,805 shares of common stock issuable upon exercise of outstanding options
under our employee benefit plans.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Unaudited Pro Forma
Condensed Consolidated Financial Information," and our financial statements and
accompanying notes and other financial data included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
---------------------------
ACTUAL PRO FORMA
----------- ------------
<S> <C> <C>
Cash and cash equivalents................................... $19,159,000 $ 20,546,000
Total long-term debt, less current portion(1)............... 504,000 504,000
Stockholders' equity
Preferred stock, $.0001 par value; 5,000,000 shares
authorized; no shares issued and outstanding actual and
as adjusted............................................ -- --
Common stock, $.0001 par value; 25,000,000 shares
authorized; 8,153,244 shares issued and outstanding
actual; 10,424,744 shares issued and outstanding as
adjusted............................................... 1,000 1,000
Paid in capital........................................... 18,319,000 82,931,000
Retained earnings......................................... 24,773,000 24,773,000
----------- ------------
Total stockholders' equity............................. 43,093,000 107,705,000
----------- ------------
Total capitalization................................... $43,597,000 $108,209,000
=========== ============
</TABLE>
- ---------------
(1) On February 17, 2000, we entered into commitment letters for a credit
facility in the aggregate amount of $50.0 million.
24
<PAGE> 30
SELECTED FINANCIAL INFORMATION OF VIASAT
The following table provides selected financial information for us for each
of the fiscal years in the five-year period ended March 31, 1999 and for the
nine-month periods ended December 31, 1998 and 1999. The data as of and for each
of the fiscal years in the five-year period ended March 31, 1999 have been
derived from audited financial statements. The data as of and for the nine
months ended December 31, 1998 and 1999 have been derived from unaudited
financial statements and include, in the opinion of our management, all
adjustments necessary to present fairly the data for those periods. The
unaudited interim financial information should not be considered indicative of
the results for the full fiscal year. You should consider the financial
statement data provided below in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and the notes which are included elsewhere in this prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED MARCH 31, DECEMBER 31,
--------------------------------------------------- ------------------
1995 1996 1997 1998 1999 1998 1999
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, PER EXCEPT SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................... $22,341 $29,017 $47,715 $64,197 $71,509 $53,269 $52,093
Cost of revenues........................... 16,855 20,983 33,102 40,899 44,182 33,461 29,760
------- ------- ------- ------- ------- ------- -------
Gross profit............................. 5,486 8,034 14,613 23,298 27,327 19,808 22,333
Operating expenses:
Selling, general and administrative...... 2,416 3,400 4,752 7,862 10,093 7,246 8,226
Independent research and development..... 788 2,820 5,087 7,631 7,639 5,773 5,967
------- ------- ------- ------- ------- ------- -------
Income from operations..................... 2,282 1,814 4,774 7,805 9,595 6,789 8,140
Net interest income (expense).............. (87) (231) 100 586 584 394 636
------- ------- ------- ------- ------- ------- -------
Income before income taxes................. 2,195 1,583 4,874 8,391 10,179 7,183 8,776
Provision (benefit) for income taxes....... 888 (50) 1,702 3,104 3,883 2,760 3,160
------- ------- ------- ------- ------- ------- -------
Net income................................. $ 1,307 $ 1,633 $ 3,172 $ 5,287 $ 6,296 $ 4,423 $ 5,616
======= ======= ======= ======= ======= ======= =======
Earnings per share:
Basic.................................... $ 0.42 $ 0.50 $ 0.66 $ 0.68 $ 0.79 $ 0.56 $ 0.69
======= ======= ======= ======= ======= ======= =======
Diluted.................................. $ 0.24 $ 0.28 $ 0.48 $ 0.65 $ 0.77 $ 0.54 $ 0.66
======= ======= ======= ======= ======= ======= =======
Weighted average number of shares (in
thousands):
Basic.................................... 3,080 3,267 4,810 7,801 7,977 7,961 8,094
======= ======= ======= ======= ======= ======= =======
Diluted.................................. 5,479 5,735 6,642 8,175 8,173 8,191 8,491
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF MARCH 31, DECEMBER 31,
-------------------------------------------------- ------------------
1995 1996 1997 1998 1999 1998 1999
------ ------ ------- ------ ------- ------- -------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments.............................. $2,731 $2,297 $12,673 $9,208 $20,793 $16,345 $19,159
Working capital............................ 2,808 4,651 20,406 24,276 31,298 29,285 36,829
Total assets............................... 9,377 13,262 35,674 42,793 50,016 48,858 55,173
Long-term debt, less current portion....... 1,220 1,747 1,428 1,544 1,243 1,501 504
Total stockholders' equity................. 3,413 5,217 23,619 29,610 36,847 34,689 43,093
</TABLE>
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<PAGE> 31
SELECTED FINANCIAL INFORMATION OF
THE SATELLITE NETWORKS BUSINESS
The following table provides selected financial information of the
Satellite Networks Business for each of the fiscal years in the five-year period
ended June 30, 1999 and for the six-month periods ended December 31, 1998 and
1999. The data as of and for each of the fiscal years ended in the three-year
period ended June 30, 1999 have been derived from audited financial statements.
The data as of and for each of the fiscal years in the two-year period ended
June 30, 1996 and as of and for the six months ended December 31, 1998 and 1999
have been derived from unaudited financial statements and include, in the
opinion of our management based on representations made to us by
Scientific-Atlanta's management, all adjustments necessary to present fairly the
data for those periods. The data reflect the operations of the Satellite
Networks Business prior to the acquisition and do not include any adjustments or
synergies resulting from the acquisition. In addition, because the Satellite
Networks Business has operated as a division of Scientific-Atlanta, its results
may not reflect those that would have resulted had it operated as an independent
entity or as part of ViaSat. The unaudited interim financial information should
not be considered indicative of the results for the full fiscal year. You should
consider the financial data provided below in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and the notes which are included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
-------------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1998 1999
-------- -------- -------- -------- -------- -------- -------
(DOLLARS IN THOUSANDS)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $162,433 $159,250 $141,736 $135,338 $ 94,891 $ 48,472 $42,440
Cost of revenues........ 119,789 116,964 102,763 110,947 87,863 47,926 35,833
-------- -------- -------- -------- -------- -------- -------
Gross profit.......... 42,644 42,286 38,973 24,391 7,028 546 6,607
Operating expenses:
Selling and
administrative...... 29,768 25,040 26,468 25,181 18,179 10,724 6,588
Research and
development......... 9,416 8,180 10,151 10,580 8,451 5,077 2,938
Restructuring
charges............. 3,407
-------- -------- -------- -------- -------- -------- -------
Income (loss) before
income taxes.......... 3,460 9,066 2,354 (14,777)(2) (19,602)(3) (15,255) (2,919)
Provision (benefit) for
income taxes.......... 1,038 2,720 706 (4,455) -- -- --
-------- -------- -------- -------- -------- -------- -------
Net income (loss)(1).... $ 2,422 $ 6,346 $ 1,648 $(10,322) $(19,602) $(15,255) $(2,919)
======== ======== ======== ======== ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF DECEMBER 31,
------------------------------------------------------ ------------------
1995 1996 1997 1998 1999 1998 1999
-------- -------- -------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............ $ 65,734 $ 68,870 $ 55,653 $39,437 $37,455 $39,538 $33,827
Total assets............... 120,739 116,604 96,473 67,501 72,223 67,284 65,146
Total Satellite Networks
Business unit equity..... 87,895 73,976 62,274 47,491 50,321 47,754 44,673
</TABLE>
- ---------------
(1) Results for all fiscal years include allocations from Scientific-Atlanta
corporate offices for business services such as accounting, information
services, communications, human resources, facility, security and others;
manufacturing overhead and management staff costs; and costs of
Scientific-Atlanta's executive, legal, financial reporting and other
corporate costs. ViaSat is entering into agreements with
26
<PAGE> 32
Scientific-Atlanta for the transition period for services needed to
establish the Satellite Networks Business as a separate entity, including a
manufacturing agreement which provides for product manufacturing for
satellite telecommunications and data tracking communicators at a discount
of 30% from Scientific-Atlanta's standard cost. ViaSat management believes
that the cost of this manufacturing agreement approximates the cost at which
ViaSat could procure the inventory from contract manufacturers.
(2) Losses during fiscal year 1998 included restructuring costs of $3.4 million
consisting of $1.5 million for severance, a $1.5 million write-off of
goodwill from the acquisition of Advanced Communications Engineering, Inc.
in 1988 and $385,000 of costs related to relocation of the network
operations center (NOC) from Melbourne, Florida. In addition, an $11.5
million charge was recorded related to excess and obsolete inventory as a
result of the consolidation of operations and the discontinuance of certain
product models.
(3) Losses during fiscal year 1999 included costs of $5.6 million, consisting of
$2.1 million of relocation costs for moving employees from Melbourne,
Florida, $2.1 million of additional program reserves resulting from project
management's reassessment of estimates to complete certain contracts, a $1.4
million charge to reduce inventory based on the declining demand in
international markets. In addition, there were continuing costs in 1999
related to a 185 person reduction in workforce and a downsizing of the sales
and marketing organization, especially in Latin America and Asia, in 1998.
The Satellite Networks Business did not realize savings from this downsizing
until the third quarter, although sales were substantially lower in the
first and second quarters.
27
<PAGE> 33
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information
has been prepared by ViaSat's management and gives pro forma effect to the
completion of the acquisition of the Satellite Networks Business and the
application of the proceeds from this offering as if they occurred on April 1,
1998 for income statement purposes and December 31, 1999 for balance sheet
purposes.
The pro forma information has been prepared from, and should be read in
conjunction with, our financial statements and accompanying notes, and the
financial statements and accompanying notes of the Satellite Networks Business
included elsewhere in this prospectus. The pro forma information is presented
for illustrative purposes only and does not purport to represent what actual
results of operations or financial position would have been had the acquisition
of the Satellite Networks Business occurred on the dates assumed, nor is it
necessarily indicative of our future operating results or combined financial
position. The information reflects the operations of the Satellite Networks
Business prior to the acquisition. ViaSat expects to reduce costs of the
Satellite Networks Business after the acquisition by implementing a combination
of contract manufacturing, rigorous quality control measures, tighter tracking
of project costs and a reduction of corporate overhead allocations. The pro
forma financial information does not reflect (1) the effects of these
anticipated post-acquisition cost savings or restructuring efficiencies or (2)
any interest income attributable to the net cash proceeds of this offering not
utilized for the acquisition.
In addition, because the Satellite Networks Business has been operated as a
division of Scientific-Atlanta, its results may not reflect those that would
have resulted had it operated as an independent entity or as a part of ViaSat.
After the acquisition is completed, the actual financial position and results of
operations of ViaSat will differ, perhaps materially, from the pro forma amounts
reflected herein due to a variety of factors, including changes of operating
results between the date of the pro forma information and the time of the
completion of the acquisition of the Satellite Networks Business, as well as the
factors discussed in "Risk Factors."
The following unaudited pro forma condensed combined financial statements
give effect to the proposed acquisition of the Satellite Networks Business by
ViaSat under the purchase method of accounting as defined in APB Opinion No. 16.
When reviewing the following pro forma information, you should note that:
- the pro forma condensed combined income statement for fiscal year 1999
assumes the acquisition and this offering occurred as of April 1, 1998
and combines ViaSat's income statement for its fiscal year ended March
31, 1999 with the Satellite Networks Business' income statement for its
fiscal year ended June 30, 1999,
- the pro forma condensed combined income statement for the nine-month
period ended December 31, 1999 assumes that the acquisition and this
offering occurred as of April 1, 1998 and combines ViaSat's unaudited
income statement for the nine-month period ended December 31, 1999 with
the Satellite Networks Business' unaudited income statement for the same
period,
- the pro forma condensed combined balance sheet as of December 31, 1999
assumes that the acquisition and this offering occurred on December 31,
1999 and combines ViaSat's December 31, 1999 unaudited balance sheet with
the Satellite Networks Business' December 31, 1999 unaudited balance
sheet, and
- the revenues and net loss of the Satellite Networks Business for the
three months ended June 30, 1999 were $22.4 million and $3.4 million,
respectively.
The acquired assets and liabilities of the Satellite Networks Business stated in
the accompanying pro forma condensed combined financial statements are based on
the existing assets and liabilities of the Satellite Networks Business as of
December 31, 1999 and at values representing a preliminary allocation of the
purchase price. The effects resulting from any differences in the closing
balance sheet of the Satellite Networks Business, and from the final allocation
of the purchase price, may differ significantly from the estimates.
28
<PAGE> 34
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE TWELVE MONTH PERIOD ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
SATELLITE
VIASAT NETWORKS PRO FORMA PRO FORMA
YEAR ENDED YEAR ENDED ADJUSTMENTS ADJUSTMENTS PRO FORMA
MARCH 31, 1999 JUNE 30, 1999 ACQUISITION OFFERING TOTAL
-------------- ------------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues....................... $ 71,509 $ 94,891 $ $ $ 166,400
Cost of revenues............... 44,182 87,863 132,045
---------- -------- ------- ---------- -----------
Gross profit................. 27,327 7,028 -- -- 34,355
Operating expenses:
Selling, general and
administrative............ 10,093 18,179 2,270(1) 30,542
Independent research and
development............... 7,639 8,451 16,090
---------- -------- ------- ---------- -----------
Total operating expenses....... 17,732 26,630 2,270 -- 46,632
Net interest income............ 584 584
---------- -------- ------- ---------- -----------
Income (loss) before income
taxes........................ 10,179 (19,602) (2,270) -- (11,693)
Provision (benefit) for income
taxes........................ 3,883 (8,326)(2) (4,443)
---------- -------- ------- ---------- -----------
Net income (loss).............. $ 6,296 $(19,602) $ 6,056 $ -- $ (7,250)
========== ======== ======= ========== ===========
Earnings (loss) per share:
Basic........................ $ 0.79 $ (.71)
========== ======== ======= ========== ===========
Diluted...................... $ 0.77 $ (.71)
========== ======== ======= ========== ===========
Weighted average number of
shares:
Basic........................ 7,976,848 2,271,500(3) 10,248,348
========== ======== ======= ========== ===========
Diluted...................... 8,172,660 2,271,500(3) 10,248,348
========== ======== ======= ========== ===========
</TABLE>
See notes to unaudited pro forma condensed combined financial information.
29
<PAGE> 35
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE NINE MONTH PERIOD ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
SATELLITE ADJUSTMENTS ADJUSTMENTS PRO FORMA
VIASAT NETWORKS ACQUISITION OFFERING TOTAL
---------- --------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues.............................. $ 52,093 $64,880 $ $ $ 116,973
Cost of revenues...................... 29,760 55,942 85,702
---------- ------- ------- ---------- -----------
Gross profit........................ 22,333 8,938 -- -- 31,271
Operating expenses:
Selling, general and
administrative................... 8,226 10,353 1,703(1) 20,282
Independent research and
development...................... 5,967 4,764 10,731
---------- ------- ------- ---------- -----------
Total operating expenses.............. 14,193 15,117 1,703 -- 31,013
Net interest income................... 636 636
---------- ------- ------- ---------- -----------
Income (loss) before income taxes..... 8,776 (6,179) (1,703) -- 894
Provision(benefit) for income taxes... 3,160 (2,820)(2) 340
---------- ------- ------- ---------- -----------
Net income (loss)..................... $ 5,616 $(6,179) $ 1,117 $ -- $ 554
========== ======= ======= ========== ===========
Earnings (loss) per share:
Basic............................... $ 0.69 $ .05
========== ======= ======= ========== ===========
Diluted............................. $ 0.66 $ .05
========== ======= ======= ========== ===========
Weighted average number of shares:
Basic............................... 8,094,281 2,271,500(3) 10,365,781
========== ======= ======= ========== ===========
Diluted............................. 8,490,786 2,271,500(3) 10,762,286
========== ======= ======= ========== ===========
</TABLE>
See notes to unaudited pro forma condensed combined financial information.
30
<PAGE> 36
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
SATELLITE ADJUSTMENTS ADJUSTMENTS PRO FORMA
VIASAT NETWORKS ACQUISITION OFFERING TOTAL
------- --------- ----------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current assets:
Cash, cash equivalents and short
term investments................. $19,159 $ -- $(62,010)(4) $ 63,397(12) $ 20,546
Accounts receivable................. 22,331 33,610 55,941
Inventory........................... 3,189 18,675 (9,414)(5) -- 12,450
Other current assets................ 2,600 2,600
------- ------- -------- -------- --------
Total current assets............. 47,279 52,285 (71,424) 63,397 91,537
Property and equipment, net of
accumulated depreciation............ 7,011 12,626 19,637
Intangible assets, net................ 235 22,700(6) 22,935
Other assets.......................... 883 883
------- ------- -------- -------- --------
Total assets..................... $55,173 $65,146 $(48,724) $ 63,397 $134,992
======= ======= ======== ======== ========
Current liabilities:
Accounts payable.................... $ 4,119 $ 8,845 $ (8,845)(7) $ -- $ 4,119
Payable to seller................... -- 9,692(8) 9,692
Accrued liabilities................. 6,331 2,858 (2,858)(7) 6,331
Customer deposits................... 6,755 (3,255)(9) 3,500
------- ------- -------- -------- --------
Total current liabilities........ 10,450 18,458 (5,266) -- 23,642
Long term liabilities................. 1,630 2,015 3,645
------- ------- -------- -------- --------
Total liabilities................ 12,080 20,473 (5,266) -- 27,287
Stockholders' equity:
Common stock........................ 1 -- -- -- 1
Paid in capital..................... 18,319 1,215(10) 63,397(12) 82,931
Business unit equity................ 44,673 (44,673)(11) -- --
Retained earnings................... 24,773 24,773
------- ------- -------- -------- --------
Total stockholders' equity....... 43,093 44,673 (43,458) 63,397 107,705
------- ------- -------- -------- --------
Total liabilities and
stockholders' equity........... $55,173 $65,146 $(48,724) $ 63,397 $134,992
======= ======= ======== ======== ========
</TABLE>
See notes to unaudited pro forma condensed combined financial information.
31
<PAGE> 37
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
PURCHASE PRICE ALLOCATION
The following analysis assumes a total purchase price of $72.9 million
based on the balance sheet as of December 31, 1999. This price includes $1.2
million for the fair market value of 50,000 ViaSat stock warrants to be issued
to Scientific-Atlanta. The effects resulting from any differences in the final
allocation of the purchase price may differ significantly from the estimates
used herein.
Total purchase consideration and allocation of increase in basis used in
the preparation of these pro forma statements were computed as follows:
RECONCILIATION OF THE CASH PORTION OF THE PURCHASE PRICE (IN THOUSANDS):
<TABLE>
<S> <C>
Original purchase price, including deferred cash
payments................................................. $74,892
Adjustment to net worth.................................... 365(a)
Adjustment to customer deposits............................ (3,255)(b)
Prepayment of transition costs which will be reimbursed.... (2,000)(c)
-------
Total cash portion of the purchase price................... 70,002
Less: deferred cash payments to be made within 60 days of
closing.................................................. (9,692)
-------
Cash to be paid at closing................................. $60,310
=======
</TABLE>
PURCHASE PRICE (IN THOUSANDS):
<TABLE>
<S> <C>
Cash to be paid at closing................................. $60,310
Deferred cash payments to be paid within 60 days of
closing.................................................. 9,692
Fair value of warrants issued to seller.................... 1,215
Acquisition expenses (estimated)........................... 1,700
-------
Total purchase price....................................... $72,917
=======
</TABLE>
PRELIMINARY ALLOCATION OF PURCHASE PRICE (IN THOUSANDS):
<TABLE>
<S> <C>
Fair value of identifiable tangible assets acquired........ $55,497
Fair value of identifiable intangible assets acquired...... 235
Fair value of identifiable liabilities assumed............. (5,515)
-------
50,217
Residual (goodwill)........................................ 22,700
-------
Total purchase price....................................... $72,917(d)
=======
</TABLE>
- -------------------------
(a) The cash portion of the purchase price payable at closing will be increased
or decreased to the extent that the net worth, as defined in the asset
purchase agreement, of the Satellite Networks Business as of the closing
differs from the net worth of the Satellite Networks Business as of October
1, 1999.
(b) The cash portion of the purchase price payable at closing will be decreased
to the extent that customer deposits of the Satellite Networks Business as
of the closing exceed $3.5 million.
(c) The transition services agreement provides that Scientific-Atlanta will
reimburse us for up to $2.0 million of transition expenses that we incur
during the one-year period after the signing of the asset purchase
agreement.
(d) The preliminary allocation of the purchase price is subject to closing
adjustments.
32
<PAGE> 38
PRO FORMA ADJUSTMENTS
Pro forma adjustments have been made to the historical amounts in the
unaudited pro forma condensed consolidated financial data as follows:
(1) Represents the amortization of goodwill of $22.7 million which management
currently estimates has an economic life of ten years.
(2) Represents the adjustment of ViaSat's tax provision to give effect to the
acquisition.
(3) Represents the sale by ViaSat of 2,271,500 primary shares in this offering.
(4) Represents cash to be paid at closing of $60.3 million plus estimated
acquisition expenses of $1.7 million.
(5) Represents production inventories related to the satellite
telecommunications and data tracking communicators product lines which will
not be acquired from Scientific-Atlanta at the time of closing of the
acquisition. Under the terms of the manufacturing agreement we will enter
into with Scientific-Atlanta, the remaining portion of this inventory, if
any, will be acquired at the end of the six month term.
(6) Represents goodwill. See preliminary allocation of purchase price above.
(7) Represents accounts payable and accrued liabilities which will not be
assumed by ViaSat.
(8) Represents the aggregate amount of two payments which will be made to
Scientific-Atlanta within 60 days of closing, in lieu of assuming accounts
payable.
(9) Represents adjustment for customer deposits in excess of $3.5 million which
under the asset purchase agreement result in a reduction of the purchase
price. See reconciliation of the cash portion of the purchase price above.
(10) Represents the fair value of the warrants to purchase 50,000 shares of our
common stock in four tranches with exercise prices ranging from $52.50 to
$82.50. The value of the warrants was estimated using the Black-Scholes
valuation model with a two year term.
(11) Represents the elimination of the Satellite Networks Business unit equity.
(12) Represents estimated cash proceeds from this offering less costs and
expenses of approximately $4.7 million to be incurred by ViaSat.
33
<PAGE> 39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This prospectus contains forward-looking statements within the meaning of
the Securities Act. Discussions containing forward-looking statements may be
found throughout this prospectus, including the materials presented under
"Summary," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business." Actual events or results may differ
materially from those discussed in the forward-looking statements as a result of
various factors, including the risks presented under "Risk Factors" and the
matters in this prospectus generally.
GENERAL
ViaSat was incorporated in 1986 and completed its initial public offering
in 1996. From 1992 to 1999, our total revenues increased at a compounded annual
growth rate of approximately 55.4% through internal growth, and not through
acquisitions. We have achieved 13 consecutive years of internally generated
revenue growth and 12 consecutive years of profitability. Historically, our
revenues have been principally generated by contracts with the U.S. Department
of Defense. Our revenues from U.S. Department of Defense applications have grown
despite government budgetary constraints. Before the acquisition, our commercial
business had grown from 5% of revenues in fiscal year 1999 to approximately 22%
of revenues in the nine-month period ended December 31, 1999.
The acquisition of the Satellite Networks Business will substantially
increase our revenue and transform us into a predominantly commercial business
with approximately 59% of our revenues on a pro forma combined basis for our
fiscal year 1999 generated by commercial contracts. After the acquisition, our
goal is to further grow our commercial business, using our advanced technology
and capabilities to capture a significant share of the global satellite
communications services and equipment segment of the high-growth broadband
communications market.
From 1996 through 1999 the Satellite Networks Business reduced its new
product development efforts required to effectively compete in the expanding
North American market, and was negatively impacted by its heavy dependence on
the declining international markets, resulting in lower revenues and losses in
its fiscal years 1998 and 1999. The acquisition represents an opportunity for us
to provide the Satellite Networks Business with additional resources and
strategic focus. We will be implementing our plan to achieve significant cost
savings and operational efficiencies that we believe will improve the Satellite
Networks Business' financial performance. See "The Acquisition" for a more
detailed discussion of our integration plan and our reasons for the acquisition.
VIASAT
Our revenue mix for the nine months ended December 31, 1999 consisted of
U.S. Department of Defense (71%), commercial customers (22%), and foreign
military sales (7%). To date, our ability to grow and maintain our revenues has
depended on obtaining additional sizable contract awards. However, it is
difficult to predict the probability and timing of obtaining these awards.
Generally, revenues are recognized as services are performed using the
percentage of completion method, measured primarily by costs incurred to date
compared with total estimated costs at completion or based on the number of
units delivered. We provide for anticipated losses on contracts by charges to
income during the period in which they are first identified.
Our products and services are provided primarily through three types of
contracts: fixed-price, time-and-materials and cost-reimbursement contracts.
Historically, approximately 80.3% for fiscal year 1999, 72.8% for fiscal year
1998, 63.3% for fiscal year 1997, 78.9% for the nine months ended December 31,
1999 and 80.2% for the nine months ended December 31, 1998 of our revenues were
derived from fixed-price contracts which require us to provide products and
services under a contract at a stipulated price. Our proportion of fixed-price
contracts has continued to increase as our commercial business has grown,
including through the acquisition of the Satellite Networks Business, and as
government customers are
34
<PAGE> 40
increasingly relying on fixed-price awards. The remainder of our annual revenue
was derived from cost-reimbursement contracts, under which we are reimbursed for
all actual costs incurred in performing the contract to the extent that such
costs are within the contract ceiling and allowable under the terms of the
contract, plus a fee or profit, and from time-and-materials contracts which
reimburse us for the number of labor hours expended at an established hourly
rate negotiated in the contract, plus the cost of materials utilized in
providing such products or services.
Historically, a significant portion of our revenues has been generated from
funded research and development contracts. The research and development efforts
are conducted in direct response to the specific requirements of a customer's
order and, accordingly, expenditures related to such efforts are included in
cost of sales when incurred and the related funding (which includes a profit
component) is included in revenues. Revenues for our funded research and
development during fiscal year 1999 were approximately $40.5 million or 56.6% of
our total revenues, during fiscal year 1998 were $25.6 million or 39.9% of our
total revenues and during fiscal year 1997 were $21.3 million or 44.6% of our
total revenues. Revenues for funded research and development during the nine
months ended December 31, 1999 were approximately $22.9 million or 44.0% of our
total revenues and during the nine months ended December 31, 1998 were $28.9
million or 54.2% of our total revenues.
We invest in independent research and development, which is not directly
funded by a third party. We expense independent research and development costs
as they are incurred. Independent research and development expenses consist
primarily of salaries and other personnel-related expenses, supplies and
prototype materials related to research and development programs. Independent
research and development expenses were approximately 10.7% of revenues during
fiscal year 1999, 11.9% of revenues during fiscal year 1998, 10.7% of revenues
during fiscal year 1997, 11.5% of revenues during the nine months ended December
31, 1999 and 10.8% of revenues during the nine months ended December 31, 1998.
As a government contractor, we are able to recover a portion of our independent
research and development expenses pursuant to our government contracts. The
Satellite Networks Business relies heavily on self-financed research and
development, and we expect the acquisition to decrease our proportion of funded
research and development in future periods.
VIASAT RESULTS OF OPERATIONS
The following table presents, as a percentage of total revenues, income
statement data for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED MARCH 31, DECEMBER 31,
----------------------- --------------------------
1997 1998 1999 1998 1999
----- ----- ----- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues............................ 69.4 63.7 61.8 62.8 57.1
Gross profit.............................. 30.6 36.3 38.2 37.2 42.9
Operating expenses:
Selling, general and administrative....... 10.0 12.2 14.1 13.6 15.8
Independent research and development...... 10.7 11.9 10.7 10.8 11.5
Income from operations...................... 10.0 12.2 13.4 12.7 15.6
Income before income taxes.................. 10.2 13.1 14.2 13.5 16.8
Provision for income taxes.................. 3.6 4.8 5.4 5.2 6.1
Net income.................................. 6.6 8.2 8.8 8.3 10.8
</TABLE>
NINE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO NINE MONTHS ENDED DECEMBER
31, 1998
Revenues. Revenues decreased 2.2% from $53.3 million for the nine months
ended December 31, 1998 compared to $52.1 million for the nine months ended
December 31, 1999. This was primarily due to lower volumes of selected UHF
products and a later than anticipated award date for our recent MIDS contract.
This decrease in revenues from defense products was offset by a significant
increase in our
35
<PAGE> 41
commercial revenues as a result of our recent Science Applications International
Corporation (SAIC) and Star Cruises Management Ltd. commercial broadband
contracts.
Gross Profit. Gross profit increased 12.7% from $19.8 million (37.2% of
revenues) for the nine months ended December 31, 1998 to $22.3 million (42.9% of
revenues) for the nine months ended December 31, 1999. The increase in gross
profit was primarily due to an improvement in our commercial margins as a result
of greater commercial volumes and increased operating efficiencies in the
commercial business.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 13.5% from $7.2 million (13.6% of revenues)
for the nine months ended December 31, 1998 to $8.2 million (15.8% of revenues)
for the nine months ended December 31, 1999. The increase in selling, general
and administrative expenses reflects increased expenditures relating to the
marketing of commercial products, increased business development and bid and
proposal expenses for defense programs, and additional administrative staffing.
Selling, general and administrative expenses consist primarily of personnel
costs and expenses for business development, marketing and sales, bid and
proposal, finance, contract administration and general management. Some selling,
general and administrative expenses are difficult to predict and vary based on
specific government and commercial sales opportunities.
Independent Research and Development. Independent research and development
expenses increased 3.4% from $5.8 million (10.8% of revenues) for the nine
months ended December 31, 1998 to $6.0 million (11.5% of revenues) for the nine
months ended December 31, 1999. This increase resulted from increased
expenditures on research and development for defense products offset in part by
the award of funded development contracts related to our commercial products.
Interest Expense. Interest expense decreased from $199,000 for the nine
months ended December 31, 1998 to $126,000 for the nine months ended December
31, 1999. Interest expense relates to loans for the purchase of capital
equipment, which are generally three year variable-rate term loans, and to
short-term borrowings under our line of credit to cover working capital
requirements, if any. Total outstanding equipment loans were $2.8 million at
December 31, 1998 and $1.5 million at December 31, 1999. There were no
outstanding borrowings under our line of credit during or at the end of each
period.
Interest Income. Interest income increased from $593,000 for the nine
months ended December 31, 1998 to $762,000 for the nine months ended December
31, 1999. This increase resulted from higher average invested cash balances and
higher yields, offset in part by a decrease in interest income from overdue
government receivables from $75,000 for the nine months ended December 31, 1998
to $18,000 for the nine months ended December 31, 1999.
Provision for Income Taxes. Our effective income tax rate decreased from
38.4% for the nine months ended December 31, 1998 to 36.0% for the nine months
ended December 31, 1999. The decrease relates primarily to greater than
anticipated research and development tax credits in prior years.
FISCAL YEAR 1999 COMPARED TO FISCAL YEAR 1998
Revenues. Our revenues increased 11.4% from $64.2 million in fiscal year
1998 to $71.5 million in fiscal year 1999. This increase was primarily due to
increases in revenues generated by government development and production
programs. These increases were partially offset by a decrease in revenues
related to our commercial business as we shifted our commercial focus from
telephony applications to pursue larger commercial data network opportunities.
Gross Profit. Gross profit increased 17.3% from $23.3 million (36.3% of
revenues) in fiscal year 1998 to $27.3 million (38.2% of revenues) in fiscal
year 1999. The increase in gross profit was primarily the result of increased
recovery of independent research and development expenditures and a mix of
higher margin products in our sales for fiscal year 1999 relative to the prior
year. In addition, some long-term contracts realized higher profits than
initially expected. The increases were offset in part by a write-down of
StarWire inventory to the lower of cost or market in connection with the shift
in our commercial business strategy.
36
<PAGE> 42
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 28.4% from $7.9 million (12.2% of revenues) in
fiscal year 1998 to $10.1 million (14.1% of revenues) in fiscal year 1999.
ViaSat increased its business development and administrative staffing in support
of both defense and commercial programs. Bid and proposal expenses increased
from $1.5 million in fiscal year 1998 to $1.8 million in fiscal year 1999.
Independent Research and Development. Independent research and development
expenses remained at $7.6 million for both years, but decreased as a percentage
of revenues from 11.9% of revenues in fiscal year 1998 to 10.7% of revenues in
fiscal year 1999.
Interest Expense. Interest expense increased 18.5% from $211,000 in fiscal
year 1998 to $250,000 in fiscal year 1999. Interest expense relates to loans for
the purchase of capital equipment and to short-term borrowings under our line of
credit to cover working capital requirements, if any. Total outstanding
equipment loans were $2.6 million at March 31, 1998 and $2.5 million at March
31, 1999. There were no outstanding borrowings under our line of credit during
or at the end of each fiscal year.
Interest Income. Interest income increased 4.6% from $797,000 in fiscal
year 1998 to $834,000 in fiscal year 1999. Interest income relates to interest
earned on cash and short-term investments, as well as overdue government
receivables where interest income increased from $17,000 in fiscal year 1998 to
$102,000 in fiscal year 1999.
Provision for Income Taxes. Our effective income tax rate increased from
37% in fiscal year 1998 to 38% in fiscal year 1999. Our effective income tax
rate increased due to expected limitations on our research and development tax
credits.
FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997
Revenues. Our revenues increased 34.5% from $47.7 million in fiscal year
1997 to $64.2 million in fiscal year 1998. This increase was primarily due to
increases in revenues generated by the MD-1324s UHF DAMA stand-alone modems,
StarWire satellite networking systems and Joint Communication Simulator
products. UHF DAMA business area revenues grew from $32.8 million (68.8% of
revenues) in fiscal year 1997 to $35.0 million (54.5% of revenues) in fiscal
year 1998. Revenue from commercial customers grew from $1.5 million in fiscal
year 1997 to $5.9 million in fiscal year 1998, principally due to increased
sales of our StarWire telephony solution. Simulator product revenues grew from
$4.8 million in fiscal year 1997 to $11.5 million in fiscal year 1998. These
increases were partially offset by a decrease in revenues derived from UHF DAMA
network control stations and modems and Enhanced Manpack UHF Terminal
production.
Gross Profit. Gross profit increased 59.4% from $14.6 million (30.6% of
revenues) in fiscal year 1997 to $23.3 million (36.3% of revenues) in fiscal
year 1998. The increase in gross profit was primarily the result of a larger
content of higher margin products in our sales for fiscal year 1998 relative to
the same period of the prior year. In addition, some long-term contracts
realized higher profits than initial estimates.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 65.5% from $4.8 million (10.0% of revenues) in
fiscal year 1997 to $7.9 million (12.2% of revenues) in fiscal year 1998. We
increased our business development and administrative staffing in support of
both defense and commercial programs. Bid and proposal efforts increased from
$1.2 million in fiscal year 1997 to $1.5 million in fiscal year 1998.
Independent Research and Development. Independent research and development
expenses increased 50.0% from $5.1 million (10.7% of revenues) in fiscal year
1997 to $7.6 million (11.9% of revenues) in fiscal year 1998. This increase
resulted primarily from higher independent research and development expenses
related to our StarWire DAMA product, which represented approximately 88% of
total independent research and development for fiscal year 1998.
Interest Expense. Interest expense decreased 16.9% from $254,000 in fiscal
year 1997 to $211,000 in fiscal year 1998. Interest expense relates to loans for
the purchase of capital equipment and to short-term
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borrowings under our line of credit to cover working capital requirements, if
any. Total outstanding equipment loans were $2.6 million at March 31, 1997 and
1998. There were no outstanding borrowings under our line of credit during or at
the end of each fiscal year.
Interest Income. Interest income increased 125.1% from $354,000 in fiscal
year 1997 to $797,000 in fiscal year 1998. Interest income relates to interest
earned on cash and short-term investments.
Provision for Income Taxes. Our effective income tax rate increased from
35% in fiscal year 1997 to 37% in fiscal year 1998. Our effective income tax
rate increased due to expected limitations on our research and development tax
credits.
VIASAT BACKLOG
We had firm backlog of $44.9 million at March 31, 1999, of which $36.8
million was funded, not including options of $45.2 million. As of December 31,
1999, we had firm backlog of $77.2 million, of which $57.9 million was funded.
This backlog does not include our recent $23.4 million MIDS contract award on
January 20, 2000, of which $11.7 million was funded. Of the $77.2 million in
firm backlog at December 31, 1999, approximately $15.7 million is expected to be
delivered in fiscal year 2000, approximately $21.8 million is expected to be
delivered in fiscal year 2001 and the balance is expected to be delivered in
fiscal year 2002 and thereafter. The increase in backlog results from growth in
total awards for both commercial and defense products from $38.8 million for the
nine months ended December 31, 1998 to $84.4 million for the nine months ended
December 31, 1999. We include in our backlog only those orders for which we have
accepted purchase orders. Our firm backlog does not include contract options of
$55.3 million. These options include $46.3 million of Indefinite
Delivery/Indefinite Quantity (IDIQ) contracts for our UHF DAMA satellite
communications products and $6.5 million of IDIQ contracts for our other
products.
Backlog is not necessarily indicative of future sales. A majority of our
backlog from U.S. military contracts scheduled for delivery can be terminated at
the convenience of the government since orders are often made substantially in
advance of delivery, and our contracts typically provide that orders may be
terminated with limited or no penalties. In addition, purchase orders may
present product specifications that would require us to complete additional
product development. A failure to develop products meeting such specifications
could lead to a termination of the related purchase order.
The backlog amounts as presented are comprised of funded and unfunded
components. Funded backlog represents the sum of contract amounts for which
funds have been specifically obligated by customers to contracts. Unfunded
backlog represents future amounts that customers may obligate over the specified
contract performance periods. Our customers allocate funds for expenditures on
long-term contracts on a periodic basis. Our ability to realize revenues from
government contracts in backlog is dependent upon adequate funding for such
contracts. Although funding of our government contracts is not within our
control, our experience indicates that actual contract fundings have ultimately
been approximately equal to the aggregate amounts of the contracts.
THE SATELLITE NETWORKS BUSINESS
Revenues related to the Satellite Networks Business have been generated
principally from commercial contracts in three business areas, satellite
telecommunications (VSAT terminals and services), communications and tracking
systems (gateways and services) and data tracking communicators (satellite
messaging systems). Revenues are generated primarily from product sales with
varying levels of customization and services. Revenue is recognized using the
percentage-of-completion accounting method based on contract costs incurred to
date or delivery of units produced. Losses, if any, are recorded when
determinable. Unbilled receivables consist of costs incurred and estimated
accrued profits not billed under these contracts and are included in accounts
receivable.
From fiscal year 1995 to 1999, revenues from the satellite
telecommunications business declined substantially due to several factors. These
factors included: (1) the satellite telecommunications business
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unit's shift in focus away from the North American VSAT market beginning in
1996, which subsequently experienced strong growth, (2) fierce price competition
from Gilat Satellite Networks Ltd. and Hughes Networks Systems at a time when
the Satellite Networks Business failed to make necessary investments to lower
its own product cost structure, (3) its emphasis on emerging markets shortly
before the Asian economic crisis occurred, resulting in a sharp decline in
emerging market sales, (4) the Satellite Networks Business' restructuring at the
end of fiscal year 1998, which primarily involved a reduction in workforce and a
downsizing of the sales and marketing organizations, and (5) the emphasis by the
satellite telecommunications business unit on equipment sales at a time when
customers were increasingly demanding complete network solutions, especially in
the North American market.
This decline in revenues for the satellite telecommunications business unit
was offset in part by an increase in revenues from communications and tracking
systems which peaked in fiscal years 1996 through 1998 as orders were fulfilled
for ground gateway stations for the Iridium and ORBCOMM satellite systems.
However, communications and tracking systems revenues declined in 1999 after the
substantial completion of the equipment phase of communications ground station
programs in fiscal year 1998. We believe that sales have reached a stable level
in satellite telecommunications and communications and tracking systems with
potential for growth, particularly in the sale and installation of ground
stations for new commercial satellite communications programs. Revenues from the
data tracking communicators unit which began shipments in fiscal year 1999,
continue to grow.
Gross margins declined substantially in 1998 due to an $11.5 million charge
relating to excess and obsolete inventory as a result of the consolidation of
operations and the discontinuance of certain product models. In 1999, gross
margins for the Satellite Networks Business declined further due to lower
production volumes for its VSAT products, continuing high levels of fixed costs
in operations, start up costs for the data tracking communicators business, and
lower volumes in communications and tracking systems. During this same period
cost of revenues included $5.6 million, consisting of $2.1 million of relocation
costs for moving employees from Melbourne, Florida, $2.1 million of additional
program reserves resulting from project management's reassessment of estimates
to complete certain contracts, and a $1.4 million charge to reverse inventory
based on the declining demand in international markets. However, gross margins
improved for the Satellite Networks Business in the first six months of its
fiscal year 2000 due to cost controls for VSAT products, the previous downsizing
in the business, improved margins on data tracking communicators due to new
product introduction, and an improved customer portfolio.
Results for all fiscal years include allocations from Scientific-Atlanta
corporate offices for business services such as accounting, information
services, communications, human resources, facility, security and others;
manufacturing overhead and management staff; and costs of Scientific-Atlanta's
executive, legal, financial reporting and other corporate costs. We are entering
into service agreements for the transition period for services needed to
establish the Satellite Networks Business as a stand-alone entity, including a
manufacturing agreement which provides for manufacturing of satellite
telecommunications and data tracking communicators product at a discount of 30%
from Scientific-Atlanta's standard cost. We believe that this savings is
approximately equivalent to savings realizable from outsourcing the
manufacturing operation. We believe that by outsourcing manufacturing of
satellite telecommunications and data tracking communicators product, historic
levels of gross profitability as a percent of revenues can be reestablished. In
addition, we expect to eliminate approximately $3.0 million annually of
allocated corporate services, net of incremental corporate services that we will
be providing.
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THE SATELLITE NETWORKS BUSINESS RESULTS OF OPERATIONS
The following table presents, as a percentage of total revenues, income
statement data for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
----------------------- --------------------------
1997 1998 1999 1998 1999
----- ----- ----- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues............................ 72.5 82.0 92.6 98.9 84.4
Gross profit.............................. 27.5 18.0 7.4 1.1 15.6
Operating expenses:
Selling and administrative................ 18.6 18.6 19.2 22.1 15.6
Research and development.................. 7.2 7.8 8.9 10.5 6.9
Restructuring charges....................... -- 2.5 -- -- --
Income (loss) before income taxes........... 1.7 (10.9) (20.7) (31.5) (6.9)
Provision (benefit) for income taxes........ 0.5 (3.3) -- -- --
Net income (loss)........................... 1.2 (7.6) (20.7) (31.5) (6.9)
</TABLE>
SIX MONTHS ENDED DECEMBER 31, 1999 COMPARED TO SIX MONTHS ENDED DECEMBER
31, 1998
Revenues. The Satellite Networks Business' revenues decreased 12.4% from
$48.5 million in the six months ended December 31, 1998 to $42.4 million in the
six months ended December 31, 1999. This decrease was primarily due to
downsizing of the satellite telecommunications (VSAT) business area. Sales were
also impacted by the completion of the equipment phase of a large contract in
the communications and tracking systems business area. The decrease was offset
in part by increased sales from new remote meter reading and asset tracking
products.
Gross Profit. Gross profit increased from $546,000 (1.1% of revenues)
during the six months ended December 31, 1998 to $6.6 million (15.6% of
revenues) during the six months ended December 31, 1999. The increase in gross
profit was primarily the result of improved margins on VSAT products due to cost
controls and downsizing of the business in the previous two quarters, and
improved margins on data tracking communicators due to new product introduction,
offset in part by decreases in volumes of communications and tracking systems
gateways.
Selling and Administrative Expenses. Selling and administrative expenses
decreased 38.6% from $10.7 million (22.1% of revenues) during the six months
ended December 31, 1998 to $6.6 million (15.6% of revenues) during the six
months ended December 31, 1999. The Satellite Networks Business downsized much
of its operations between December 31, 1998 and December 31, 1999 including a
reduction in workforce and closing of international offices.
Research and Development. Research and development expenses decreased 42.1%
from $5.1 million (10.5% of revenues) during the six months ended December 31,
1998 to $2.9 million (6.9% of revenues) during the six months ended December 31,
1999. This was primarily due to reduced requirements for data tracking
communicators development as the product moved into the production phase and to
reductions in efforts focused on customizing networks and equipment.
Provision (Benefit) for Income Taxes. No tax benefit has been recorded in
either period as it is more likely than not that the Satellite Networks Business
on a stand-alone basis will be unable to realize the benefit of the losses
incurred during each six-month period.
FISCAL YEAR 1999 COMPARED TO FISCAL YEAR 1998
Revenues. The Satellite Networks Business' revenues decreased 29.9% from
$135.3 million in fiscal year 1998 to $94.9 million in fiscal year 1999. This
decrease was primarily due to downsizing of the satellite telecommunications
(VSAT) business area due to declines in sales in Asia and South America
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<PAGE> 46
and the drop off of TDMA sales in North America. This decline was related in
part to price competition in the market with Gilat Satellite Networks Ltd. and
Hughes Network Systems. Sales were also impacted by the completion of the
equipment phase of a large contract in the communications and tracking systems
business area. The decrease was offset in part by increased sales from new
remote meter reading and asset tracking products.
Gross Profit. Gross profit decreased 71.2% from $24.4 million (18.0% of
revenues) in fiscal year 1998 to $7.0 million (7.4% of revenues) in fiscal year
1999. Gross profits in fiscal year 1998 were reduced by an $11.5 million charge
to reduce inventory to the lower of cost or market, in part the result of
unanticipated losses on a contract in China and in part related to obsolete
inventory parts. Gross profits in fiscal year 1999 were heavily impacted by
lower production volumes (VSAT products) and high level of fixed costs in
manufacturing, start up costs for the data tracking communicators business, and
lower volumes in communications and tracking systems. Downsizing of the business
relative to the lower revenues did not occur until the last half of the fiscal
year.
Selling and Administrative Expenses. Selling and administrative expenses
decreased 27.8% from $25.2 million (18.6% of revenues) in fiscal year 1998 to
$18.2 million (19.2% of revenues) in fiscal year 1999. The decrease is primarily
due to reduced selling and marketing expenses related to the downsizing of the
sales and marketing organizations and the international offices.
Restructuring Charges. The Satellite Networks Business recorded
restructuring charges of $3.4 million in fiscal year 1998 for severance,
facility relocation related to moving the network operations center from
Melbourne, Florida to Atlanta, Georgia, and to write-off goodwill related to the
1988 acquisition of Adcom.
Research and Development. Research and development expenses decreased 20.1%
from $10.6 million (7.8% of revenues) for fiscal year 1998 to $8.5 million for
fiscal year 1999 (8.9% of revenues) because of reductions in the research and
development workforce.
Provision (Benefit) for Income Taxes. The Satellite Networks Business
incurred significant losses during fiscal year 1999 and no tax benefit was
recorded as it is more likely than not that the Satellite Networks Business on a
stand-alone basis will be unable to realize the benefit of the losses incurred.
In fiscal year 1998, losses incurred generated an income tax benefit on a
stand-alone basis, as benefits would be realized through a carryback of the
losses to prior profitable periods.
FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997
Revenues. The Satellite Networks Business' revenues decreased 4.5% from
$141.7 million in fiscal year 1997 to $135.3 million in fiscal year 1998. This
decrease was primarily due to lower VSAT sales, particularly in Europe and North
America offset by increases in South America.
Gross Profit. Gross profit decreased 37.4% from $39.0 million (27.5% of
revenues) in fiscal year 1997 to $24.4 million (18.0% of revenues) in fiscal
year 1998. The decrease in gross profit was primarily the result of an $11.5
million charge relating to excess and obsolete inventory as a result of the
consolidation of operations and the discontinuance of certain product models.
Selling and Administrative Expenses. Selling and administrative expenses
decreased 4.9% from $26.5 million (18.6% of revenues) in fiscal year 1997 to
$25.2 million (18.6% of revenues) in fiscal year 1998. The Satellite Networks
Business receives an allocation of corporate expenses based on sales. The
decrease was caused by a lower allocation of corporate expenses to the business
due to lower sales. This was offset in part by increased selling and marketing
expenses.
Restructuring Charges. Restructuring charges of $3.4 million in fiscal year
1998 were recorded for severance, facility relocation related to moving the
network operations center from Melbourne, Florida to Atlanta, Georgia, and to
write-off goodwill related to the 1988 acquisition of Adcom.
Research and Development. Research and development expenses increased 4.2%
from $10.2 million (7.2% of revenues) in fiscal year 1997 to $10.6 million (7.8%
of revenues) in fiscal year 1998. This was
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primarily caused by the development expenses associated with development of the
remote meter reading and asset tracking products.
Provision (Benefit) for Income Taxes. In fiscal year 1998, losses incurred
generated an income tax benefit on a stand-alone basis, as benefits would be
realized through a carryback of the losses to prior profitable periods. In 1997,
the Satellite Networks Business, on a stand-alone basis, recorded an income tax
provision based upon an effective tax rate of 30%, which represents the
effective tax rate of its parent, Scientific-Atlanta Inc.
THE SATELLITE NETWORKS BUSINESS BACKLOG
As of December 31, 1999, the Satellite Networks Business' backlog was $65.1
million based on Scientific-Atlanta's corporate policy and $94.8 million
restated to conform to ViaSat's policy. Awards for the six months ended December
31, 1999 were $81.1 million. The awards exclude approximately $37.1 million in
awards which Scientific-Atlanta corporate policy excludes from orders because
the deliveries are more than six months from the order date for satellite
telecommunications or 18 months from the order date for communications and
tracking systems.
LIQUIDITY AND CAPITAL RESOURCES
ViaSat has financed its operations to date primarily with cash flows from
operations, bank line of credit financing, equity financing and loans for the
purchase of capital equipment. Cash provided by operating activities for the
fiscal year ended March 31, 1999 was $13.4 million, while cash used in operating
activities for the fiscal year ended March 31, 1998 was $127,000. The relative
increase in cash provided from operating activities for the year ended March 31,
1999 compared to the prior year was primarily due to an increase in net income
and reductions in accounts receivable and inventory. The reduction in accounts
receivable resulted from the collection of overdue receivables from the U.S.
government at March 31, 1998, and from the timing of customer payments. Cash
provided by operating activities for the nine months ended December 31, 1999 was
$1.7 million and cash provided by operating activities was $8.4 million for the
nine months ended December 31, 1998. The relative decrease in cash provided by
operating activities for the nine months ended December 31, 1999 compared to the
same period of the prior year was primarily due to the timing of receivable
collections, but was also impacted by growth in inventories and lower accounts
payable. Days sales outstanding have been high for the last two quarters
primarily because of delays in payments on some government contracts. The
payments were delayed due to processing delays at the government paying offices,
but have since been paid.
Cash used in investing activities for the fiscal years ended March 31, 1999
and 1998 was $11.4 million and $10.0 million, respectively. This increase in
cash used was the result of purchasing $8.9 million in short-term, investment
grade debt securities offset by lower purchases of property and equipment of
$2.5 million, primarily consisting of test equipment and computers. Cash
provided by investing activities for the nine months ended December 31, 1999 was
$9.3 million and cash used in investing activities for the nine months ended
December 31, 1998 was $8.7 million. During the nine months ended December 31,
1999, $12.2 million in short-term investments matured and were reinvested into
investments classified as cash equivalents. ViaSat purchased $2.9 million of
property and equipment during the nine months ended December 31, 1999 and $2.1
million during the nine months ended December 31, 1998. ViaSat's purchases of
property and equipment primarily consist of test equipment and computers.
Cash provided by financing activities for the fiscal years ended March 31,
1999 and 1998 was $717,000 and $745,000, respectively. Cash used by financing
activities for the nine months ended December 31, 1999 was $399,000 and cash
provided by financing activities for the nine months ended December 31, 1998 was
$789,000. This decrease was primarily the result of reduced borrowings for
equipment financing.
At March 31, 1999, ViaSat had $6.0 million in cash and cash equivalents,
$14.8 million in short-term investments, $31.3 million in working capital and
$2.5 million in long-term debt which consists of
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equipment financing. At December 31, 1999, ViaSat had $19.2 million in cash,
cash equivalents and short-term investments, $36.8 million in working capital
and $1.5 million in equipment financing. ViaSat had no outstanding borrowings
under its line of credit at December 31, 1999.
ViaSat has received a commitment from Union Bank of California and
Washington Mutual Bank to provide a total credit facility of $50.0 million,
consisting of a bridge loan of $45.0 million for use in the acquisition of the
Satellite Networks Business as needed, a secured letters of credit facility of
$3.5 million and two secured term loans which total $1.5 million. The commitment
provides for post-acquisition financing as needed of $15 million for the unpaid
principal balance of the bridge loan and a secured revolving credit facility of
$25 million for general working capital. ViaSat is in the process of negotiating
the terms of this commitment.
ViaSat's future capital requirements will depend upon many factors,
including the progress of ViaSat's research and development efforts, expansion
of ViaSat's marketing efforts, the nature and timing of orders and the ability
to improve the financial results of the Satellite Networks Business. ViaSat
believes that its current cash balances and net cash expected to be provided by
operating activities will be sufficient to meet its working capital and capital
expenditure requirements for at least the next 12 months. ViaSat invests its
cash in excess of current operating requirements in short-term,
interest-bearing, investment-grade securities. ViaSat's working capital
requirements may increase as a result of the acquisition of the Satellite
Networks Business.
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BUSINESS
INTRODUCTION
We are a leading provider of advanced broadband digital satellite
communications and other wireless networking and signal processing equipment and
services. Based on our extensive experience in complex defense communications
systems, we have developed the capability to design and implement innovative
communications solutions which enhance bandwidth utilization by applying our
sophisticated networking and digital signal processing techniques. On January
18, 2000, we announced an agreement to acquire the Satellite Networks Business,
which will allow us to accelerate significantly the growth of our commercial
business. To date, we have achieved 13 consecutive years of internally generated
revenue growth and 12 consecutive years of profitability. Our goal is to
leverage our advanced technology and capabilities to capture a significant share
of the global satellite communications services and equipment segment of the
high-growth broadband communications market. Pioneer Consulting, a leading
market research firm, has estimated that the global satellite broadband access
services portion of this market will increase to $30 billion and 39.6 million
users by 2007.
Our internal growth to date has been driven largely by our success in
meeting the need for advanced communications products for the U.S. military. By
developing cost-effective communications products incorporating our advanced
technologies we have continued to grow the markets for our defense products and
services in an environment of shrinking defense budgets. Our current defense
products include our UHF DAMA satellite communications products consisting of
modems, terminals and network control systems, our advanced multifunction
information distribution system, or MIDS, product line, and our simulation and
test equipment which allows the testing of sophisticated airborne radio
equipment without expensive flight exercises. The MIDS terminal operates as part
of the Link-16 line-of-sight tactical radio system that enables real time data
networking among ground and airborne military users providing an electronic
overview of the battlefield. We were recently selected by the U.S. government as
a new Link-16 terminal contractor and one of only three current U.S. government
certified manufacturers of Link-16 MIDS terminals. The Link-16 market segment
has significant technology barriers to entry, and the U.S. and international
military portion of the Link-16 MIDS market is expected to total approximately
8,000 units and generate approximately $2 billion in revenues for Link-16
providers over the next five to ten years.
We have been increasing our focus in recent years on offering satellite
based communications products to address commercial market needs. Our commercial
business has grown from approximately 5% of our revenues in fiscal year 1999 to
approximately 22% of our revenues in the nine months ended December 31, 1999.
Based on our DAMA technology and systems integration experience, we have
recently won several important projects, including our $36 million contract with
Science Applications International Corporation (SAIC) to provide two-way
broadband on demand services in the oil field industry and our $6.9 million
contract with Star Cruises Management, Ltd. to outfit its entire ship fleet for
mobile broadband and telephony. To date, our principal commercial offerings have
been our StarWire DAMA-based VSAT terminals, network control systems, and
related network integration and network services. StarWire utilizes Internet
Protocol circuits on a demand basis to provide high-speed data, video, voice and
fax communications.
While our own commercial business has been growing, we recognize the need
to accelerate growth in order to participate more effectively in the anticipated
growth for broadband commercial satellite communications services and products.
We believe our pending acquisition of the Satellite Networks Business will give
us the scale and scope to become a larger player in this market. The Satellite
Networks Business, which is also a significant DAMA-based VSAT vendor, will
further strengthen our position in the DAMA marketplace. The Satellite Networks
Business provides additional product lines addressing the non-DAMA VSAT market,
the gateway market, the asset tracking and meter reading market, and the
telemetry and antenna systems market. In addition, the Satellite Networks
Business brings us a larger and more experienced commercial salesforce, a
significant customer base, and additional research and development and
engineering capabilities. Our plan is to rapidly integrate our existing
commercial activities
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with those of the Satellite Networks Business and to move the headquarters of
our commercial business to the Satellite Networks Business facilities in
Norcross, Georgia. On a combined basis, we expect that our commercial satellite
business will represent over half of our total revenues.
THE VIASAT ADVANTAGE
LEADING INDUSTRY POSITION. We have a leading position in certain segments
of the advanced communications network industry, including our leadership in
DAMA and Link-16 MIDS businesses. More recently, some of our largest contracts
have related to the provision of broadband equipment and services to commercial
customers utilizing existing satellites. The acquisition of the Satellite
Networks Business will increase our presence in the satellite communications
ground segment and services business. We believe that our leadership position in
the development of advanced technologies and the provision of broadband
equipment and services provides us with a competitive advantage in developing
and enhancing our products and services to capture a significant portion of the
emerging high growth broadband communications market.
LEADING TECHNOLOGY INNOVATOR. We are a leading provider of innovative and
advanced communications network products and services. We have achieved this
leadership through our expertise in applying emerging technologies to satellite
networks as well as developing entirely new technologies. To maintain our
technological innovation we have over 180 engineers focusing on the research,
design and development of new and enhanced communications network technologies
and techniques. The acquisition of the Satellite Networks Business will expand
our group of engineers to approximately 310, as well as provide us with
expertise in many additional components of satellite systems. Because we provide
our engineers with the opportunity to continually work with and develop state of
the art technologies, we have been successful in hiring and retaining
highly-qualified engineers.
EXPERIENCED MANAGEMENT TEAM. We have a strong and experienced management
team, which has overseen our profitable internally-generated growth for more
than a decade. Prior to joining us, several members of our management team have
had experience in successfully acquiring and integrating advanced technology
businesses. Mark D. Dankberg, a co-founder of ViaSat and a leader in satellite
systems solutions and development, has been our President, Chief Executive
Officer and Chairman since our inception in 1986. Each of the other two founders
of ViaSat, Mark J. Miller, Vice President and Chief Technical Officer and Steven
R. Hart, Vice President-Engineering and Chief Technical Officer, continue to
serve as integral members of our management team. In addition, the remainder of
our senior management team has significant long-term experience in the satellite
communications industry.
HIGH QUALITY AND EFFICIENT MANUFACTURING PROCESSES. We believe that our
ability to deliver high-quality, low-cost products through our manufacturing
processes has been a key factor in our success in attracting and retaining
customers. We utilize a range of contract manufacturers to maintain low-cost
products and to support rapid increases in the volume of units. By using
contract manufacturers for a large portion of our manufacturing, we are able to
take advantage of the contract manufacturers' high-volume purchasing power,
advanced manufacturing equipment, and highly-trained workforce. We also maintain
the internal capability to conduct limited manufacturing for small volume
productions, final assembly, integration and testing. As part of our
manufacturing accomplishments, we have for the past three years maintained ISO
9000 certification for our product development, manufacturing and support
services. As further recognition of our manufacturing success, Lockheed Martin
Corporation recently honored us with a Star Supplier award for continued product
quality and delivery. We were one of the four suppliers to receive this award
among 65,000 of Lockheed Martin's suppliers.
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STRATEGY
Our objective is to leverage our advanced technology and capabilities to
capture a significant share of the global satellite services and equipment
segment of the high growth broadband communications market, as well as to
maintain a leadership position in developing and supplying DAMA-based products
to the government market. To implement this strategy, we intend to:
CAPITALIZE ON OUR EXISTING TECHNOLOGY LEADERSHIP IN NEW AND EMERGING HIGH
GROWTH COMMUNICATIONS MARKETS. We believe that the global satellite
communications services and equipment segment of the high-growth broadband
communications market presents a number of attractive opportunities to apply our
advanced technologies and capabilities. We plan to develop new products and
enhance existing products to capture a significant share of this anticipated
growth opportunity. As part of our strategy to penetrate the broadband
communications market, we intend to significantly expand our activity as a
network service provider. As a result of the acquisition of the Satellite
Networks Business, we will significantly increase our ability to offer our
customers satellite bandwidth, installation of network equipment, on-line
network monitoring and network maintenance.
MAINTAIN AND ENHANCE OUR TECHNOLOGY LEADERSHIP POSITION. We are a leader in
the development of advanced broadband digital satellite and other wireless
technologies. We continually strive to improve our technology by meeting complex
network design needs for customers and by devoting significant resources to
research, design and development efforts in emerging markets. In order to
enhance our technology leadership position we intend to leverage the experience
of our skilled research, design and engineering team to develop new and enhanced
satellite products and applications. We also intend to devote additional funds,
consisting of a portion of the proceeds from this offering and the cost-savings
associated with eliminating duplicative research, design and development efforts
between us and the Satellite Networks Business, to further strengthen our
technological expertise.
PROVIDE SUPERIOR CUSTOMER VALUE BY DESIGNING ADVANCED SYSTEMS AND LOWERING
THE TOTAL COST OF NETWORK OWNERSHIP. We plan to continue to provide our
customers superior value by offering network solutions with the lowest total
cost of ownership, considering factors such as equipment purchase cost, cost of
satellite bandwidth, delivery schedules and installation and maintenance costs.
With the recent emergence of broadband networks where the cost of bandwidth
represents a higher proportion of the overall network cost, products that are
based on technologies which increase the efficient use of bandwidth, such as
DAMA and PCMA, offer a means to provide additional customer value. We intend to
develop new products and enhance existing products, primarily based on our DAMA
technology, to offer customers a cost-effective two-way broadband solution.
EMPHASIZE STRATEGIC PARTNERSHIPS TO ACCELERATE MARKET PENETRATION. We
intend to establish relationships with companies whose financial, marketing,
operational or technological resources can accelerate the introduction of new
technologies and the penetration of new markets. We are seeking to develop
strategic relationships with satellite manufacturers, satellite network
equipment manufacturers, high-volume consumer product manufacturers and
distributors, systems integrators and installers, ground-based network equipment
manufacturers, satellite operators, and satellite network service providers
through teaming arrangements, joint ventures and equity investments. Large,
complex network systems typically involve partnering or teaming arrangements as
a means to compete successfully for and implement complete network systems. As a
leader of innovative network designs and communications solutions, we believe we
are an attractive partner for other companies in the satellite communications
market.
MAINTAIN OUR HISTORICAL EMPHASIS ON OPERATIONAL EFFICIENCY AND FINANCIAL
PERFORMANCE. We have maintained a strong emphasis on operational efficiency and
financial performance. We believe that operational focus is essential to our
continuing success in providing advanced communications network solutions. In
order to continue this performance, we devote significant time and resources to
key components of our business, such as our manufacturing processes, design
systems, customer relationships, research and development efforts, and the
expansion of our markets. We expect our strong emphasis on operational
efficiency and financial performance to be a key factor in successfully
integrating the Satellite Networks Business.
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TECHNOLOGY
We develop innovative technologies aimed at rapidly evolving communications
markets. Our development efforts focus on enhancing existing communications
technologies and developing new technologies to increase the efficiency of our
communications products. We integrate advanced signal processing, networking and
multiple access techniques into our networks to increase the efficiency of
satellite resources and to support more users with a given amount of bandwidth.
Since no single technology is optimal for all applications, we believe it
is important to maintain expertise in a broad range of communications
technologies. We excel at determining and designing the optimal technologies for
a specific network use and then integrating those technologies with our
products. Our technology development efforts have led to the successful
introduction of a number of advanced digital communications products ranging
from our innovative commercial satellite networks to our military Link-16 MIDS
products.
As a result of our technological expertise, we have developed numerous
communications products based on DAMA technology. DAMA technology enables
efficient utilization of satellite resources by allowing users to share
bandwidth based on their changing needs. DAMA network subscribers only access a
communications link for the duration of the transmission. The terminated
communication link is then made available for use by other subscribers in the
DAMA network. In addition, DAMA technology allows the development of networks
providing unrestricted direct connectivity among users.
DAMA-based networks provide two primary communications solutions: switching
services and access for network users. DAMA satellite networks essentially
enable the satellite to act as a "switch in the sky." An originator of a
communication can use a DAMA-based network to be connected or switched directly
to the desired destination either through a single hop to a ground-based gateway
where the signal is then routed through the ground-based network or through a
single hop point-to-point connection between terminals in the network. In the
latter case, the signal is switched directly to the end user by the satellite
through the use of an Internet Protocol router embedded in our network control
products.
Mesh networks based on DAMA technology are particularly advantageous where
both in-bound and out-bound, point-to-point transmission at high data rates are
needed since traditional non-DAMA networks are capable of providing high data
rates in only one direction. The optimal application for DAMA mesh networks are
networks comprised of a large number of users communicating at high data rates
with other users, such as corporate and government networks or Intranets.
DIAGRAM
[Diagram of four satellite terminals transmitting and receiving signals
through a satellite controlled by the network control system.]
We have also developed advanced satellite networks incorporating our
advanced technology using "hub and spoke" architectures. These networks require
all transmissions to be routed through a central
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ground-based hub location and are most useful for communications from remote
locations to a central network location. These networks require two satellite
transmissions, or hops, for communication from one remote user to another user.
DIAGRAM
[Diagram of four satellite terminals transmitting and receiving signals through
a satellite to a central hub location.]
Recently, we developed our patented PCMA technology which represents a
fundamentally new technique for two-way satellite communications. PCMA
technology is a key example of our advanced signal processing and multiple
access techniques. PCMA technology enables two satellite terminals to use the
same bandwidth at the same time, enabling satellite networks to support up to
twice as many users or double the traffic on a given satellite resource. For
users of the same bandwidth, the satellite communications signal represents an
aggregate of the signal sent to the other user and the signal received from the
other user. PCMA technology permits each user receiving the combined signal to
delete the signal that the user sent, leaving only the signal intended to be
received. The separation and deletion of the unwanted portion of the signals
takes place on the ground by the terminal and does not interfere with the
satellite transmission. We have recently developed prototypes and models for the
integration and testing of the PCMA technology and anticipate offering products
using our PCMA technology in the near future.
[Diagram of two satellite terminals transmitting and receiving signals from a
satellite.]
DIAGRAM
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COMMERCIAL MARKETS
MARKET OPPORTUNITY
The introduction of satellite communications technology in the 1950's
represented a fundamental change in communications networks. A communications
satellite, in essence, provides the ability to route a communications signal
through the sky. Signals are sent from users on the ground to the satellite,
which then amplifies the signal and sends it back to the end-user on the ground.
Depending on the altitude of a satellite's orbit, it can cover a geographic
area, or footprint, larger than the size of a continent. The key components of a
satellite communications system include:
- user terminals connecting the users to the satellite network,
- satellites which relay communications signals to and from the users, and
- gateways that control the satellite network and connect it to
communications networks on the ground.
The essential advantage of satellite communications is that they allow a
network provider to rapidly deploy new communications services to large numbers
of people anywhere in the footprint of the satellite. Consequently, satellites
can be used to deploy broadband services in developed and developing markets in
a shorter period of time than building ground-based infrastructure. Moreover, in
some areas satellite solutions are less expensive than terrestrial wired and
wireless alternatives. As satellite communications equipment becomes less
expensive and new capabilities emerge in satellite communications technology, we
believe that the market for satellite communications offers tremendous growth
opportunities.
The demand in the commercial market for communications network products has
been growing in both developed and developing countries. Much of the growth in
demand is due to high data rate, or broadband, Internet or Intranet access,
which requires transmission speeds that are much higher than traditional voice
connections. We believe there are significant opportunities to provide satellite
links to fill in gaps in ground-based wired and wireless coverage. The high
growth projected in the commercial satellite communications industry is expected
to be driven by the following major factors: (1) rapidly growing world-wide
demand for communications services in general, and broadband data networks in
particular, (2) the relative cost-effectiveness of satellite communications for
many uses, (3) recent technological advancements which broaden applications for
and increase the capacity and efficiency of satellite based networks, and (4)
global deregulation and privatization of government-owned telecommunications
carriers.
We provide satellite communications network solutions for multiple segments
of the commercial market.
DATA NETWORKS. Satellite networks are well suited for data networks which
focus on (1) rapidly deploying new services across large geographic areas, (2)
reaching multiple user locations separated by long distances, (3) filling in
gaps or providing support for data points of congestion, or "bottlenecks," in
ground-based communications networks, and (4) providing communications
capabilities in remote locations and in emerging markets where ground-based
infrastructure has not yet been developed.
Corporate users are increasingly appreciating the benefits of satellite
networks as they realize the advantages described above. Satellite networks are
experiencing significant growth as a substitute for, or supplement to,
ground-based communications services such as frame relay, digital subscriber
lines, fiber optic cables, and Integrated Services Digital Networks (ISDN). We
believe satellite data network products and services will continue to present us
with significant growth opportunities as broadband data networks continue to
expand in developed and developing markets throughout the world.
INTERNATIONAL AND RURAL TELECOMMUNICATIONS SERVICES. In a large number of
remote or rural areas in developed countries and throughout developing
countries, voice services are limited by the lack of ground-based
infrastructure. In these areas, satellite networks are able to rapidly provide
high-quality communications services in a cost-effective manner. In contrast to
ground-based networks, satellite
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networks are simple to reconfigure or expand and are generally immune to
difficulties of adding additional users in geographically dispersed areas.
Another primary advantage of satellite networks is that additional users can be
connected to a network in a short period of time.
We believe there are growth opportunities for providing satellite
communications equipment and services to communications service providers
targeting rural and residential areas in developed and developing countries
where it may not be cost effective or time efficient to lay the necessary
ground-based infrastructure for telephone and voice services. We believe
satellite based telecommunications products and services represent a growth
opportunity for us.
INTERNET APPLICATIONS. The Internet is evolving into a global medium,
allowing millions of individuals throughout the world to communicate, share
information, and engage in electronic commerce. In recent years, there has been
significant growth in the use of satellites for Internet traffic. This growth
has been centered on connecting Internet service providers, or ISPs, with the
Internet. Satellite capacity is being used primarily where fiber cable is
prohibitively expensive or rare, such as rural areas or emerging countries.
We expect satellite communications to continue to offer a cost-effective
augmentation capability for ISPs, particularly in markets where ground-based
networks are unlikely to be either cost-effective or abundant. Additionally,
satellite broadcast architecture provides an attractive alternative for ISPs,
which are presently dealing with congestion associated with rapid and uneven
Internet growth. Satellite systems can relieve congestion by providing a
low-cost means of selectively distributing content to sites closer to end users.
PRODUCTS AND SERVICES
Following the acquisition of the Satellite Networks Business, we will offer
a broad range of satellite communications and other wireless communications
products and services, including:
VSAT NETWORK PRODUCTS. A VSAT terminal usually consists of an indoor unit
and an outdoor unit. The indoor unit usually connects to a user's desktop or
equipment similar to a modem and contains the circuitry needed to connect the
desktop or equipment to the satellite. The outdoor unit usually includes an
antenna, generally two to six feet in diameter, and electronic equipment that
transmits and receives signals to and from the satellite. The network control
system manages communications between the user terminals.
We currently offer the StarWire(TM) DAMA product line, while the Satellite
Networks Business offers the Skylinx(TM) DAMA and the SkyRelay(TM) TDMA product
lines.
StarWire. Our StarWire VSAT products employing DAMA technology provide
"mesh" broadband data, video and voice services via satellite to remote
locations and areas that lack adequate ground-based communications
infrastructure. Using frequency pre-correction, one of our resource management
techniques, StarWire provides high levels of DAMA operating efficiency. In
addition, all of our StarWire products are embedded with Internet Protocol
routing and are compatible with Internet and Intranet applications. Our StarWire
line currently consists of two terminal products and a network control system.
Our Calypso terminal represents a lower priced terminal with up to two DAMA
channels and operating rates from 4.8 kbps to 2 Mbps. This terminal is ideal for
backup and restoral of ground-based networks, file transfers, extending coverage
of existing ground-based communications networks, and networks with multiple
server locations such as corporate Intranets. Many features and functions of the
Calypso terminal are implemented in our advanced software and are downloadable
over the satellite. This flexibility makes the implementation of new
enhancements and features easy, extends the life of the equipment and enables
the terminal to quickly adapt to different network protocols.
In contrast, our Aurora terminal is a subscriber terminal providing up to
six DAMA channels, with a standard operating rate of 2 Mbps per second. The
Aurora terminal further enhances bandwidth efficiency by determining satellite
and terminal transmission power prior to establishing a connection and then
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optimizing the terminal power based on service type, error correction
requirements, antenna size, and satellite footprint. Users of the Aurora
terminal can connect computers, phones, a private branch exchange (PBX), or
facsimile machines directly to the terminal, or use the terminal as part of a
gateway into a public-switched telephone network. The Aurora terminal also
implements many of the functions in our advanced software, making it simple to
download software through the satellite for on-going maintenance or adding new
product enhancements.
The StarWire product line also consists of a scaleable network control
system consisting of a computer workstation and network server similar to the
StarWire subscriber terminals, which together essentially function as a
"switchboard in the sky." This system performs real-time circuit assignment,
system-wide resource management, and extensive network management. The system
can assign network resources in three ways: (1) on demand, (2) by reservation
one time or periodically, and (3) permanently. The network control systems are
Windows NT-based, giving users a graphically rich interface to make the system
easy to learn and simple to use. The configuration implements two control
channels: inbound for satellite resource requests and outbound for resource
assignment. The StarWire network control system is significantly less expensive
than large installations required by conventional VSAT systems. The network
control system works to further enhance the optimization of the network with
comprehensive monitoring of peak loading, utilization percentages, blocking
statistics, network-wide status, terminal configurations, and diagnostics.
Skylinx. The Satellite Networks Business' Skylinx VSAT product is a
competitively-priced VSAT terminal based on DAMA technology. This product is
designed to provide inexpensive, toll quality telephone service for voice and
fax communication for small businesses and cities in areas lacking adequate
telephone infrastructure. An important feature of the Skylinx terminal is the
large number of telephone interfaces which it supports. The ability to interface
with many different telephone protocols gives the Skylinx terminal a much larger
addressable market as compared to other VSAT systems which normally only support
one or two voice interfaces. These voice protocols include 2-wire E&M, 4-wire
E&M, MF, DTMF, R2, China #1, SS#5, and SS#7.
The Skylinx VSAT terminal's flexibility, in conjunction with the Skylinx
network control system, allows common or custom numbering plans, downloadable
channel unit circuit types, interfaces and signaling systems. This enables a
network to accommodate specific customer requirements for private business
telephony, public rural telephony and disaster recovery. In addition, a single
Skylinx network control system can support up to 62,000 subscribers in the
network. We believe the Skylinx terminals offer a cost-effective communications
solution for rural telephony users who have historically been without service.
SkyRelay. The Satellite Networks Business' SkyRelay products based on
TDM/TDMA technology are designed for transaction-oriented, single point to
multi-point satellite networks. The feature that distinguishes a TDM/TDMA
network from other satellite networks is that information for each specific site
is quickly transmitted a few bits at a time instead of being all sent in one
continuous transmission. The SkyRelay VSAT terminal product is designed to
efficiently distribute large amounts of data through a network from a central
hub location to many remote users. The SkyRelay is a high-end product supporting
multiple data protocols, including X.25, SDLC/SNA, BSC 2780, 3780, BSC 3270,
Async, and Internet Protocol routing. The ability to interface with many
different data protocols gives SkyRelay networks a much larger addressable
market as compared to other VSAT data communication systems which support fewer
data protocols. Protocols may be assigned on a port by port basis on the
SkyRelay terminals with different ports using different protocols. All protocol
parameters are configured remotely by the network management system, then
downloaded to the remote site.
Another important feature of the SkyRelay VSAT terminal is that it
increases the efficiency of bandwidth utilization by automatically adjusting
bandwidth resources to fit the precise nature of user traffic. As traffic
switches from simple interactive transactions to complex batch transfer, each
SkyRelay terminal is able to transition automatically from a straightforward
contention protocol on the satellite link to an array of alternative channel
access schemes. Transparent to the user, these dynamic adjustments in
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traffic loading minimize transmission delays. The SkyRelay network management
system further increases bandwidth efficiency by tracking bandwidth utilization,
identifying traffic patterns, providing automatic trouble-tickets, and creating
user profiles. Typical applications supported by SkyRelay include remote network
access, email, voice communications, ATM networks, credit card and check
authorizations, inventory control, and information management.
New VSAT Network Product Development. We continually strive to develop new
commercial products and services, both from our research and development efforts
as well as through leveraging our government technologies and techniques to
commercial applications. For example, we intend to implement our patented PCMA
technology into products in the near future. In addition, with the acquisition
of the Satellite Networks Business, we will gain a wide range of new
technologies and products. We intend to harmonize our products and technologies
with the products and technologies of the Satellite Networks Business to create
derivative products and technologies composed of the strengths and best features
of each of our combined products.
COMMUNICATIONS AND TRACKING SYSTEMS. The Satellite Networks Business'
communications and tracking systems products are designed for three market
segments: (1) gateway infrastructure, (2) remote sensing ground stations and (3)
tracking, telemetry and command ground stations. Communications and tracking
systems products consist of essentially the same three components: a large
satellite antenna dish, a high-powered radio transmitter and receiver, and an
ultra high speed satellite modem. The size of antennas range from 3.6 meters to
18 meters in diameter depending on the power of the transmissions from the
satellite. The modems integrated into these systems can process data at rates of
up to 150 Mbps per second, depending on the application of the satellite system.
These systems support functions in the L, S, X, Ku, and Ka-band frequency
spectrums.
Gateways. The Satellite Networks Business' gateway business represents a
key component of our ability to offer complete network development and
integration services. The gateway products are used to connect satellites to the
communications infrastructure on the ground, such as public switched telephone
networks. The Satellite Networks Business offers a number of different gateway
products depending on the type, speed and size of the network. The gateways
developed by the Satellite Networks Business consist of the Satellite Networks
Business' hardware and software as well as third party hardware. Although each
of these components employs advanced technologies, the most complex component of
a gateway is the design and software used to integrate each of the hardware
components and operate the system. Gateways represent a key part of any
satellite network since all satellite networks need gateways to route the
traffic in the network.
DIAGRAM
[Diagram of satellite transmitting and receiving signals through a
satellite terminal and a gateway earth station, which includes an antenna, a
radio subsystem and a modem.]
We believe that we will derive many benefits and efficiencies from our
gateway building capabilities. Since the gateway is the most complex and central
component of any network, the optimization of the gateway for the specific
network use is critical to optimizing the entire network. The ability to provide
gateways and integrate those gateways into our innovative network solutions will
provide us with an
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advantage over other network manufacturers and integrators, most of which
purchase gateways from third parties. The Satellite Networks Business has
extensive experience in developing gateways for systems using Ka-band
technologies. These new technologies are the cornerstone of emerging satellite
services like broadband on demand.
Remote Sensing Ground Stations. The Satellite Networks Business has been a
leader in the remote sensing ground station market for over 20 years. Remote
sensing ground stations receive images of the earth transmitted from low earth
orbit satellites. These images are often collected for both civilian and
military purposes. The remote sensing ground station products of the Satellite
Networks Business typically include a personal computer with software to provide
satellite pre-mission planning, automated pre-pass set-up, system performance
integrity analysis, signal routing assignments, and maintenance actions.
Tracking, Telemetry and Command Systems. The Satellite Networks Business'
tracking, telemetry and command products are designed to provide a means for
monitoring and controlling satellites in orbit. The telemetry subsystem in the
satellite supplies measurements of various parameters to an earth station which
is responsible for the satellite management. The tracking systems provide the
tracking and command functions of the system. The tracking subsystem provides
the facilities by which the satellite orbit can be determined. Satellites
operating in low earth orbit need to have their orbit parameters determined so
that their passage over the earth station can be accurately predicted. The
command subsystem provides the means by which the satellite is controlled.
DATA TRACKING COMMUNICATORS. The Satellite Networks Business' data tracking
communicators are designed to relay information at low data rates through small
satellites in low earth orbit, whereas traditional VSAT terminals relay
information at higher data rates through large satellites placed far higher up
in orbit. Because they do much less than traditional VSAT terminals, data
tracking communicators cost only a few hundred dollars, as opposed to thousands
of dollars for traditional VSAT terminals.
For fixed applications like automated meter reading and the monitoring and
controlling of electric utility distribution networks, data tracking
communicators are proving to be cost effective in areas where ground-based
communications may not be available or reliable. The fixed site communicator
includes a single card modem board, multiple access ports, industry-standard
connectors, AC and backup DC power supply, and a fully integrated antenna. The
entire unit is housed in a case with knockouts for power and communication lines
to facilitate installation.
For mobile applications like automated vehicle location systems that track
and monitor the status of remote vehicles such as trucks, trailers and railway
locomotives as well as marine vessels, data tracking communicators can provide
substantial savings to large fleet operators. The mobile communicator includes a
single card modem board, multiple access ports, industry-standard connectors, DC
battery-based power supply with charger, and an external antenna. Extra space is
provided in the electronics compartment of the unit to accommodate third party
components, such as PCS and cellular systems.
NETWORK INTEGRATION SERVICES. We provide a suite of network integration
services. Network integration services are a primary competitive advantage we
maintain in the commercial satellite communications industry. Most of the
manufacturers in this industry do not perform complex and customized network
integration. Instead, most manufacturers only sell hardware and software
communications products. Although some companies build standardized networks
limited to the applications offered by the hardware and software used in the
network, we are one of the few companies that develop complex, fully-operational
networks integrating thousands of advanced hardware and software communications
products. With expertise in satellite network engineering, gateway construction,
and remote terminal manufacturing for all types of interactive communications
services, we take end-to-end responsibility for building, initially operating,
and then handing over a fully-operational, customized satellite network. Often
our development efforts in building these complex networks results in the
development of both new and enhanced technologies that can be leveraged to
generate future products and services.
Network integration services first include network design and then network
implementation. Network design involves analyzing the complex configuration or
technology required to operate the customer's
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network, designing the system, determining critical system components and
parameters of the system, and developing components and specifications for the
network's hardware and software. Network implementation involves network
hardware and software installation as well as interfacing the network equipment
with the customer's other communications equipment. Network designs and
implementations are planned and managed by our in-house network design teams.
NETWORK SERVICES. Satellite network services are a natural extension of our
network integration business. Many of our customers want to maintain satellite
communications networks without purchasing network control systems, directly
purchasing bandwidth from satellite providers, or hiring and training
specialized personnel. As part of our strategy to penetrate the broadband
communications market, we intend to significantly expand our activity as a
network service provider. Our turnkey network services include the provision of
bandwidth to our customers by procuring satellite transponder capacity, which we
obtain from third parties on an as-needed basis. We provide on-site installation
of our equipment sold to customers, systems integration and training of customer
on-site personnel. We also provide our customers with access to our network
operations center (NOC) and to our network control systems for users of our VSAT
terminal products. Although pricing terms vary, we offer flexible terms for our
network services based on both a fixed recurring charge per site or variable
pricing based on usage. After the acquisition of the Satellite Networks
Business, our ability to provide our customers with satellite capacity will be
strengthened as the Satellite Networks Business currently has contracted for
satellite capacity to support growth in its network services business. We
package satellite bandwidth together with our network operation services and the
use of our network control systems to provide our customers with immediate
access to a satellite network.
Many of our customers who operate their own networks require technical
support. When our customers experience a problem with their network, they can
contact the network operations center on a 24 hour basis, seven days a week,
where one of our technicians or engineers, using our advanced monitoring and
control technology, will work to resolve the problem and restore service. If
service cannot be restored to satisfactory levels through our network operations
center, we will dispatch one of our experienced field technicians, usually third
parties trained and certified by us, to repair or replace the faulty equipment
or software. Our maintenance services are supported by our internal logistics
and repair organizations. The acquisition of the Satellite Networks Business
will further strengthen our ability to provide high-quality technical support to
our customers. A key component of our ability to provide end-to-end network
solutions is our expertise in network support services.
Following the acquisition of the Satellite Networks Business, our largest
network operations center will be the Satellite Networks Business' center
located in Norcross, Georgia, which is staffed by technicians who are trained in
network fault isolation, problem resolution and customer service. We also
operate a network operations center at our corporate headquarters in Carlsbad,
California.
CUSTOMERS
The majority of our customers for our commercial products and services are
satellite network integrators, large communications service providers and
corporations requiring complex communications networks. Although we currently
only have a limited number of commercial customers, the acquisition of the
Satellite Networks Business will expand our commercial customer base both
domestically and internationally.
Significant commercial customers of our StarWire terminal products and
network integration services include Star Cruises Management, Ltd. and Science
Applications International Corporation (SAIC). Star Cruises is implementing
ship-to-shore and ship-to-ship voice, data, and video communications onboard its
fleet of cruise ships using a network designed and implemented by us based on
our StarWire DAMA Internet Protocol, satellite-networking products. In addition,
we are using our StarWire products to build a fully-operational satellite
network for SAIC's global broadband network for oil and gas exploration. This
network will represent the first global network operated by our network
management services division.
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We have also been engaged by ASTROLINK International LLC to perform system
engineering services related to the terminal segment of the ASTROLINK(TM)
System. This engagement is for an initial term of approximately six weeks and
maximum compensation to ViaSat of approximately $500,000. ASTROLINK and ViaSat
intend to continue discussions relating to a potential definitive agreement for
the design and production by ViaSat of terminals for the ASTROLINK(TM) System.
Any such agreement would be subject to prior approval by ASTROLINK's board of
directors. We cannot assure you that this approval will be obtained. The
ASTROLINK(TM) System, which is under development, is planned to be a global,
satellite-based system for the provision of high-speed broadband
telecommunications services.
The Satellite Networks Business is currently developing and building the
satellite control portion of the gateways for a multi-billion dollar Ka-band
broadband satellite system currently under development. In addition, the
Satellite Networks Business has provided satellite network products and services
for domestic and international customers, including major foreign automobile
manufacturers, foreign financial institutions, and major foreign and domestic
satellite equipment and service providers such as Telstra, SAAB, Cable and
Wireless, Telespazio SpA (ASTROLINK) and Vantage.
SALES AND MARKETING
We primarily use direct sales channels to market and sell our products and
services. Our marketing and sales activities are organized geographically, with
the majority of our salesforce focusing on North America. In addition, the
Satellite Networks Business will provide us with an international salesforce and
agent relationships, primarily covering Europe, Asia and South America, which we
plan to use to target foreign customers for our existing StarWire commercial
products. After the acquisition, our sales and marketing group will consist of
approximately 40 persons, with over one half located outside the United States.
Our sales teams consist of account managers and sales engineers, who act as
the primary interface to establish account relationships and determine technical
requirements for the customers' networks. In addition to our salesforce, we
maintain a highly-trained service staff to provide technical product and service
support to our customers. The sales cycle in the commercial satellite network
market is lengthy and it is not unusual for a sale to take up to 18 months from
the initial contact through the execution of the agreement. The sales process
often includes several network design iterations, network demonstrations, and
pilot networks consisting of a few sites.
In addition, we seek to develop key strategic relationships to market and
sell our network products and services. We seek strategic relationships and
partners based on many factors, including financial resources, technical
capability, geographic location and market presence. Recently, we developed
strategic relationships with SeaTel Inc. and Satpool AB for the development of
the Star Cruises customized broadband communications network. We worked closely
with SeaTel and Satpool for the development and successful integration of the
integral shipboard antennas for these networks.
We also obtain sales to new customers through referrals from existing
customers, industry suppliers, and other sources such as participation in trade
shows. Additionally, we direct our sales and marketing efforts to our strategic
partners, primarily through our senior management. In some cases a strategic
ally may be the prime contractor for a system or network installation and will
subcontract a portion of the project to us. In other cases, the strategic ally
may recommend us as the prime contractor for the design and integration of the
network.
We provide service, repair and technical support for our products and
services. Through our sales teams and support services, we are constantly made
aware of customers' needs and their use of products and services. Accordingly, a
superior level of continuing customer service and support is integral to our
objective of developing and maintaining long-term relationships with our
customers. The majority of our service and support activities are provided by
our field engineering team, systems engineers, and sales and administrative
support personnel, both on-site at the customer's location and by telephone.
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COMPETITION
The commercial communications industry is highly competitive and the level
of competition is increasing. As a provider of commercial network products and
designer of commercial network solutions in the United States and
internationally, we compete with a number of wireless and ground-based
communications service providers. Many of these competitors have significant
competitive advantages, including strong customer relationships, more experience
with regulatory compliance, greater financial and management resources, and
control over central communications networks. To compete with these providers,
we emphasize:
- the overall cost of our satellite networks, which includes both equipment
and bandwidth costs, as compared to products offered by ground-based and
other satellite service providers,
- the distinct advantages of satellite data networks,
- our end-to-end network implementation services, and
- our network management services.
Our principal competitors in the supply of commercial satellite data
networks are Hughes Network Systems, Gilat Satellite Networks Ltd., NEC
Corporation, and STM Wireless, Inc., each of which offers a broad range of
satellite communications products and services. In competing with these
companies, we emphasize:
- the advanced and flexible features integrated into our products,
- our proven design solutions and network integration services for complex,
customized network needs, and
- the increased bandwidth efficiency offered by our networks and products.
The Satellite Networks Business primarily operates within the same
satellite communications markets as us and competes with the same companies. In
addition, the Satellite Networks Business competes in large part with
Datron/Transco Inc. in the communications and tracking systems market.
In the future there will likely be formidable competition for high-speed
broadband networking from several announced Ka-band satellite systems such as
Spaceway, Astrolink, and Teledesic and the Ku-band Skybridge system. In many
cases these systems will offer capabilities that are similar to those enabled by
StarWire networks.
GOVERNMENT MARKETS
MARKET OPPORTUNITY
Historically, the U.S. military has driven development of many new wireless
technologies. This includes pioneering applications of satellite communications,
digital radios, spread spectrum, and mobile wireless networks to connect widely
dispersed operations. In many cases, these technologies have been transitioned
to serve broader commercial markets. However, more recently technology developed
for commercial applications has been increasingly used for military markets as
the military looks for more efficient ways to rapidly access the most advanced
technology for warfare applications.
The break-up of the Soviet Union has caused the U.S. military to
de-emphasize strategic missions and shift towards more localized tactical roles
such as peacekeeping, counter-terrorism, counter-insurgency and drug
enforcement. These missions create new demands for rapidly deployable, mobile
connectivity. In addition, reductions in the defense budget have led to a
numerically smaller, more technologically advanced military force. As a result,
defense networks are increasingly built around advanced technologies and
products providing high-speed transmissions of digital tactical data.
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The market for defense applications of wireless technologies is growing at
a higher rate than other parts of the defense market due in large measure to an
increasing reliance on complex weapon and tactical data communication systems.
Key reasons for this growth include:
- the need to communicate target information and the location of coalition
and enemy forces to all military units in the battlefield,
- the need to maintain smaller, lighter, less expensive and better
performing voice and data equipment for rapid deployment of ground troops
and weapons systems to all parts of the world,
- the need to develop advanced networks capable of supporting modern
military maneuvers and operations, and
- the development of new technologies that are increasing the utility of
wireless communications networks by decreasing operating costs and
increasing bandwidth utilization and capabilities.
We believe that we are well positioned to take advantage of the trends in
the defense industry. Our leadership in the UHF DAMA market and communications
test equipment, and our recent selection as one of only three current U.S.
government certified manufacturers of Link-16 MIDS terminals, provide an
advantage for future United States and international procurements in these areas
and a foundation from which to expand our sales opportunities. We intend to
continue applying commercial standards (e.g., Internet Protocols) and products
(e.g., StarWire) into government applications to expand our traditional
opportunities by both increasing capabilities and functionality of our
government products as well as increasing the cost competitiveness of these
offerings.
PRODUCTS AND SERVICES
We offer a broad range of products and services to the government
communications market. We are a leading developer of UHF DAMA products and
services for the U.S. military. In addition, we have recently developed highly
sophisticated communications products for military applications such as the
Link-16 MIDS terminal and our simulator and test products.
UHF DAMA PRODUCTS. UHF is a globally available U.S. satellite radio
frequency for military communications. We have historically developed many
advanced products for the U.S. military for use on the UHF frequency. Many of
these products employ DAMA-based technology to efficiently manage the limited
bandwidth represented by the UHF frequency. Our UHF DAMA products and services
for the government market include:
AN/PSC-5 Terminal is also known as the Spitfire. The Spitfire is a
battery-operated UHF satellite radio that Raytheon Systems Company builds for
the U.S. Army. Spitfires are used to send encrypted voice, electronic mail, fax
or other data via satellite. Our DAMA modem, which is a central component of the
Spitfire, allows the radio operator to automatically request a portion of a
satellite channel for a selected destination at the time the operator needs to
send a message or transmit data. The Spitfire radio, combined with a portable
satellite antenna, can be used to transmit secure voice or other data from
almost anywhere in the world. We have provided over 7,000 DAMA modems to
Raytheon for the Spitfire. A next-generation modem development is underway with
a recent order for 3,000 modems for application in Raytheon's extended Skyfire
and Shadowfire line of radios as well as other applications such as the Tomahawk
missile program.
Worldwide Network Control System is the DAMA network management system
originally developed and installed by us for the U.S. Air Force, which has
recently been used by the U.S. Navy. The network consists of four sites
worldwide that manage automatic DAMA access to UHF satellite channels. The
network control computer developed by us automatically allocates satellite
resources to subscriber terminals when a subscriber requests a voice or data
service. The network control system also keeps track of which satellite
terminals are active and the capacity available for each satellite. We continue
to offer technical support services to each network management site.
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MD-1324 is our stand-alone UHF DAMA modem product. This modem can be used
with many types of UHF satellite radios. The MD-1324 enables a satellite radio
connected to external equipment to connect to a DAMA-based network. We have
provided over 1,000 of these modems to U.S. and international forces. We also
recently developed an upgrade to our MD-1324 product which adds an improved
digital signal processor to enable better performance within the same package.
VT-320 is our next generation UHF DAMA terminal product. The VT-320 is a
programmable, modular radio system providing flexible configuration of UHF
satellite communications terminals and test equipment. This product line is
intended for near-term applications throughout the U.S. services and in
international military sales.
QDC-100 is our antenna combiner product. Without this product, an aircraft
loses communications if its single fixed antenna is pointed away from the
satellite by aircraft position changes. This product is currently used on U.S.
Navy P-3 Orion reconnaissance aircraft. Additional potential uses for this
product include international and naval shipboard applications. Recent upgrades
to our QDC-100 product will provide a stand-alone satellite communications and
antenna-combining solution in one piece of equipment for applications to the
United States and international aircraft and surface ships which currently have
multiple antennas.
DOCCT/S is our trainer and simulator product. By simulating signals, this
product enables users to integrate and test UHF DAMA systems as well as train
UHF DAMA users without actually accessing the DAMA network through the
satellite. Access to this tool simplifies the user's activity by providing
realistic communications experiences without the difficult and expensive process
of obtaining satellite resources.
LINK-16 PRODUCTS. Link-16 is a high performance broadband data link system
selected by the U.S. government and international allied nations to support
networked information transmission across a variety of air, sea and ground-based
platforms. The Link-16 system is a wireless line-of-sight system used to
communicate among ground and airborne military users without the use of a
satellite. We were recently selected by the U.S. government as a new Link-16
terminal contractor, and only one of two current U.S. government qualified
manufacturers of Link-16 MIDS terminals. A third Link-16 MIDS manufacturer has
been certified by the U.S. government but has not yet met all the requirements
to serve as a government contractor. The Link-16 market segment has significant
technology barriers to entry, and the U.S. and international military portion of
the Link-16 MIDS market is expected to total approximately 8,000 units and
generate approximately $2 billion in revenues for Link-16 providers over the
next five to ten years. In addition, this market may experience growth from
non-military applications and the development of other related Link-16 products
and test equipment. Our Link-16 products include:
Multifunction Information Distribution System, or MIDS, terminals are
designed to operate in a highly secure, high performance wireless networking
system that allows military platforms, including fighter aircraft, ships,
command and control aircraft, and ground-based units, to share critical
real-time information. Platforms that employ MIDS/Link-16 within a theater of
operation use it to first collect tactical information from each user's on-board
sensors such as radars, early warning electronic warfare systems, and electronic
identification systems and then disseminate a packaged set of information back
to
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the other network users. By sharing this critical information, MIDS allows each
user in a Link-16 network to maintain a real-time situational awareness picture
of the entire battle space.
[GRAPHIC]
[Diagram of military units communicating through a network in the sky.]
Our MIDS terminals communicate in a Link-16 network using a complex, highly
secure waveform. This waveform is designed to provide reliable communications to
multiple users within a hostile electromagnetic environment. It employs many
advanced techniques, such as direct sequence spread spectrum, frequency hopping,
error detection and correction coding, and encryption, to ensure maximum
robustness and jam resistance.
The first U.S. platforms to receive MIDS will be the Navy F/A-18 fighter
aircraft and the Air Force F-16 Fighting Falcon. Other platforms include U.S.
ground-based Command and Control platforms, bomber aircraft, ships, submarines,
the French Rafael fighter, the European EF-2000, Italy's AMX/Tornado fighters,
and Spain's EF-18 fighters.
Link-16 Test Products include a system we developed for Logicon's Link-16
Monitoring System which provides the capability to receive transmissions,
complete with signal quality measures, for monitoring and analyzing the Link-16
wireless network. The Link-16 Simulator is another of our test products that
allows the generation of low power Link-16 signals representing many different
participants in the network for testing of Link-16 equipment in a dynamic, dense
environment.
COMMUNICATION ENVIRONMENT SIMULATOR/JOINT COMMUNICATION
SIMULATOR/COMMUNICATIONS NAVIGATION AND IDENTIFICATION SIMULATOR. CES/JCS/CNIS
is a product designed to simulate realistic radio environments that can be used
to test how well surveillance or other radio systems work in the presence of
various and changing communications signals. The simulation product generates a
large number of very accurate radio frequency signals which can be radiated and
received by the equipment under test or potentially directly inserted into
multiple antenna ports.
VIASAT INTERNET PROTOCOL CRYPTO. Our VIP Crypto product is a device that
encrypts classified information so that it can be transmitted over
communications networks, ground-based or satellite. This product enables
classified private networks to be set up and operated over unclassified networks
such as the public Internet. VIP Crypto is based on our Embeddable Infosec
Product, which has been approved by the National Security Agency for
transmission of classified information classified up to top secret. We
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anticipate National Security Agency endorsement of the VIP Crypto in 2000,
clearing the way for deployment in U.S. Department of Defense operated networks.
CUSTOMERS
The primary customers of our government products and services are the U.S.
Department of Defense, international allied nations and large defense
contractors. While most of our commercial customers are based in the United
States, many of our large defense contractor customers have recently been
leveraging our network design experience and the advanced capabilities of our
products to sell communications products to international military forces.
Examples of large defense contractors with which we have worked in the past
include Raytheon Systems Company, Lockheed Martin Corporation, The Boeing
Company, Northrop-Grumman Corporation and Marconi Communications, Elmer S.p.A.
SALES AND MARKETING
We use both direct and indirect sales channels to sell our government
products. We have approximately six sales and marketing personnel who offer our
government products and services. All of these sales personnel are located in
the United States. International government sales are conducted through our U.S.
sales personnel. Although many of our sales are generated from direct sales, we
often sell our products directly to prime contractors responsible for developing
the entire network system where our products are integrated and embedded into
the system.
Our government sales teams consist of engineers, program managers,
marketing managers and contract managers who work together to identify business
opportunities, develop customer relationships, develop solutions for the
customer's needs, prepare proposals and negotiate a contractual arrangement. The
period of time from initial contact through the point of product sale and
delivery can take over three years for more complex product developments or for
product developments including prototypes and demonstrations. Products already
in production can usually be delivered to a customer between 90 to 180 days.
Our indirect sales are primarily generated from strategic relationships
with prime contractors for large defense projects and referrals from existing
large defense contractor customers.
COMPETITION
The government communications industry is highly competitive and the level
of competition is increasing. As a developer of communications products and
services for the government markets in the United States and internationally, we
compete with a variety of communications providers. Many of these companies have
significant competitive advantages, including long standing customer
relationships, more experience with meeting government standards, and greater
financial and management resources. To compete effectively, we emphasize:
- our record of developing and producing products in relatively short
periods of time,
- our products featuring advanced and flexible architectures,
- our proven network design solutions, and
- our competitive product and service prices.
Our principal competitors in the supply of communications products and
services to the U.S. government include The Titan Corporation, Rockwell
International Corporation, Raytheon Systems Company, Motorola, Inc., and BAE
Systems. With respect to Link-16 products, our principal competitor is Data Link
Solutions (DLS), a partnership between BAE Systems and Rockwell's Collins
division, which is also a U.S. government qualified Link-16 MIDS provider.
EuroMIDS, a third provider of Link-16 MIDS products, which has been certified by
the U.S. government but has not yet met all of the requirements to serve as a
U.S. government contractor, is a consortium among Thomson-CSF, MID S.p.A.,
ENOSA, and DaimlerChrysler AG. We compete with EuroMIDS in the international
MIDS
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terminal market. We believe that we are competitively positioned among these
companies because of our installed base of equipment, our existing contracts,
our market lead time with respect to some DAMA product capabilities and our
participation in both the network control and subscriber terminal markets.
RESEARCH AND DEVELOPMENT
We believe that future success depends on the ability to adapt to the
rapidly changing satellite communications and related signal processing and
networking software environment. Therefore, the continued timely development and
introduction of new products is essential in maintaining our competitive
position. We develop most of our products in-house and currently have a research
and development and engineering staff that includes over 180 engineers, which
will increase to approximately 310 engineers following the acquisition of the
Satellite Networks Business. A significant portion of our research and
development efforts in the defense industry has generally been conducted in
direct response to the specific requirements of a customer's order and,
accordingly, these amounts are included in the cost of sales when incurred and
the related funding is included in revenues at that time. In contrast, all of
the research and development efforts of the Satellite Networks Business have
been focused on the development of commercial products and services.
Our revenues for research and development funded by government and
commercial customers during the nine months ended December 31, 1999 were
approximately $22.9 million, during fiscal year 1999 were approximately $40.5
million, during fiscal year 1998 were approximately $25.6 million, and during
fiscal year 1997 were approximately $21.3 million. In addition, we invested $6.0
million in the nine months ended December 31, 1999, $7.6 million in fiscal year
1999, $7.6 million in fiscal year 1998, and $5.1 million in fiscal year 1997 on
independent research and development, which is not directly funded by a third
party. Funded research and development contains a profit component and is
therefore not directly comparable to independent research and development. As a
government contractor, we also are able to recover a portion of our independent
research and development expenses, consisting primarily of salaries and other
personnel-related expenses, supplies and prototype materials related to research
and development programs. The expenses for the Satellite Networks Business'
research and development during fiscal year 1999 were $8.5 million, during
fiscal year 1998 were $10.6 million and during fiscal year 1997 were $10.2
million.
We have benefited and continue to benefit from the Small Business
Innovation Research program, known as SBIR, through which the government
provides research and development funding for companies with fewer than 500
employees. As we have grown, our reliance on SBIR funding for research and
development has significantly decreased. We expect to lose our SBIR funding
status after completion of the acquisition of the Satellite Networks Business
due to the increased size of the combined entity. We cannot assure you that our
loss of SBIR funding status will not materially harm our business. Nevertheless,
we plan to build from this established technology base to further develop
products for commercial applications.
MANUFACTURING
Our manufacturing objective is to produce high-quality products that
conform to their specifications at the lowest possible manufacturing cost. We
primarily utilize a range of contract manufacturers, based on the volume of the
production, to reduce the costs of products and to support rapid increases in
delivery rates when needed. As part of our manufacturing process, we conduct
extensive testing and quality control procedures for all products before they
are delivered to customers.
Contract manufacturers produce products for many different customers and
are able to pass on the benefits of large scale manufacturing to their
customers. These manufacturers are able to achieve high quality products with
lower levels of costs by (1) exercising their high-volume purchasing power, (2)
employing advanced and efficient production equipment and systems on a full-time
basis, and (3) using a highly skilled workforce. Our primary contract
manufacturers include Jabil Circuit, Inc., SMS Technologies, Inc. and SMTEK
International.
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Our experienced management team facilitates the efficient contract
manufacturing process through the development of strong relationships with a
number of different contract manufacturers. By negotiating beneficial contract
provisions and purchasing some of the equipment needed to manufacture our
products, we retain the ability to move the production of our products from one
contract manufacturing source to another if required. Our operations management
has experience in the successful transition from in-house production to contract
manufacturing. The degree to which we employ contract manufacturing depends on
the maturity of the product. We intend to limit our internal manufacturing
capacity to new product development support and customized products which need
to be manufactured in strict accordance with a customer's specifications and
delivery schedule. Therefore, our internal manufacturing capability for standard
products has been, and is expected to continue to be, very limited, and we
intend to rely on contract manufacturers for large scale manufacturing.
We also rely on outside vendors to manufacture specific components and
subassemblies used in the production of our products. Some components,
subassemblies and services necessary for the manufacture of our products are
obtained from a sole supplier or a limited group of suppliers. In particular,
Texas Instruments is a sole source supplier of digital signal processing chips,
which are critical components used by us in substantially all of our products.
Currently, the Satellite Networks Business relies in large part on internal
manufacturing capabilities to manufacture its products. As part of the
acquisition, we are entering into an agreement with Scientific-Atlanta under
which Scientific-Atlanta will continue to manufacture some products of the
Satellite Networks Business for an interim period of six months. During this
interim period, we intend to transition the manufacturing of the products of the
Satellite Networks Business to contract manufacturers.
BACKLOG
We had firm backlog of $44.9 million at March 31, 1999, of which $36.8
million was funded, not including options of $45.2 million. As of December 31,
1999, we had firm backlog of $77.2 million, of which $57.9 million was funded.
This backlog does not include our recent $23.4 million MIDS contract award on
January 20, 2000, of which $11.7 million was funded. Of the $77.2 million in
firm backlog at December 31, 1999, approximately $15.7 million is expected to be
delivered in fiscal year 2000, approximately $21.8 million is expected to be
delivered in fiscal year 2001 and the balance is expected to be delivered in
fiscal year 2002 and thereafter. The increase in backlog results from growth in
total awards for both commercial and defense products from $38.8 million for the
nine months ended December 31, 1998 to $84.4 million for the nine months ended
December 31, 1999. We include in our backlog only those orders for which we have
accepted purchase orders. Our firm backlog does not include contract options of
$55.3 million. These options include $46.3 million of Indefinite
Delivery/Indefinite Quantity (IDIQ) contracts for our UHF DAMA satellite
communications products and $6.5 million of IDIQ contracts for our other
products.
Backlog is not necessarily indicative of future sales. A majority of our
backlog from U.S. military contracts scheduled for delivery can be terminated at
the convenience of the government since orders are often made substantially in
advance of delivery, and our contracts typically provide that orders may be
terminated with limited or no penalties. In addition, purchase orders may
present product specifications that would require us to complete additional
product development. A failure to develop products meeting such specifications
could lead to a termination of the related purchase order.
The backlog amounts as presented are comprised of funded and unfunded
components. Funded backlog represents the sum of contract amounts for which
funds have been specifically obligated by customers to contracts. Unfunded
backlog represents future amounts that customers may obligate over the specified
contract performance periods. Our customers allocate funds for expenditures on
long-term contracts on a periodic basis. Our ability to realize revenues from
government contracts in backlog is dependent upon adequate funding for such
contracts. Although funding of its government contracts is not within our
control, our experience indicates that actual contract fundings have ultimately
been approximately equal to the aggregate amounts of the contracts.
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As of December 31, 1999, the Satellite Networks Business' backlog was $94.8
million. Awards for the nine months ended December 31, 1999 were $81.1 million.
GOVERNMENT CONTRACTS
A substantial portion of our revenues are generated from contracts and
subcontracts with the U.S. Department of Defense and other federal government
agencies. Many of our contracts are competitively bid and awarded on the basis
of technical merit, personnel qualifications, experience and price. We also
receive some contract awards involving special technical capabilities on a
negotiated, noncompetitive basis due to our unique technical capabilities in
special areas. Recently the Federal Acquisition Streamlining Act of 1994 has
encouraged the use of commercial type pricing on dual use products. Our future
revenues and income could be materially affected by changes in procurement
policies, a reduction in expenditures for the products and services provided by
us, and other risks generally associated with federal government contracts.
We provide products under federal government contracts that usually require
performance over a period of one to five years. Long-term contracts may be
conditioned upon continued availability of congressional appropriations.
Variances between anticipated budget and congressional appropriations may result
in a delay, reduction or termination of these contracts. Contractors often
experience revenue uncertainties with respect to available contract funding
during the first quarter of the government's fiscal year beginning October 1,
until differences between budget requests and appropriations are resolved.
Our federal government contracts are performed under cost-reimbursement
contracts, time-and-materials contracts and fixed-price contracts.
Cost-reimbursement contracts provide for reimbursement of costs and for payment
of a fee. The fee may be either fixed by the contract or variable, based upon
cost control, quality, delivery and the customer's subjective evaluation of the
work. Under time-and-materials contracts, we receive a fixed amount by labor
category for services performed and are reimbursed for the cost of materials
purchased to perform the contract. Under a fixed-price contract, we agree to
perform specific work for a fixed price and, accordingly, realize the benefit or
detriment to the extent that the actual cost of performing the work differs from
the contract price. Revenues generated from contracts with the federal
government or our prime contractors for fiscal year 1999 were approximately 17%
from cost-reimbursement contracts, approximately 3% from time-and-materials
contracts and approximately 72% from fixed-price contracts of total revenues.
Our allowable federal government contract costs and fees are subject to
audit by the Defense Contract Audit Agency. Audits may result in
non-reimbursement of some contract costs and fees. While the government reserves
the right to conduct further audits, audits conducted for periods through fiscal
year 1996 have resulted in no material cost recovery disallowances for us.
Our federal government contracts may be terminated, in whole or in part, at
the convenience of the government. If a termination for convenience occurs, the
government generally is obligated to pay the cost incurred by us under the
contract plus a pro rata fee based upon the work completed. When we participate
as a subcontractor, we are at risk if the prime contractor does not perform its
contract. Similarly, when we act as a prime contractor employing subcontractors,
we are at risk if a subcontractor does not perform its subcontract.
Some of our federal government contracts contain options that are
exercisable at the discretion of the customer. An option may extend the period
of performance for one or more years for additional consideration on terms and
conditions similar to those contained in the original contract. An option may
also increase the level of effort and assign new tasks to us. In our experience,
options are usually exercised.
Our eligibility to perform under our federal government contracts requires
us to maintain adequate security measures. We have implemented security
procedures that we believe are adequate to satisfy the requirements of our
federal government contracts.
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REGULATORY ENVIRONMENT
Some of our products are incorporated into wireless communications systems
that are subject to regulation domestically by the Federal Communications
Commission and internationally by other government agencies. Although the
equipment operators and not us are responsible for compliance with these
regulations, regulatory changes, including changes in the allocation of
available frequency spectrum and in the military standards which define the
current networking environment, could materially adversely affect our operations
by restricting development efforts by our customers, making current products
obsolete or increasing the opportunity for additional competition. Changes in,
or our failure to manufacture products in compliance with, applicable
regulations could materially harm our business. In addition, the increasing
demand for wireless communications has exerted pressure on regulatory bodies
worldwide to adopt new standards for these products, generally following
extensive investigation and deliberation over competing technologies. The delays
inherent in this government approval process have in the past caused and may in
the future cause the cancellation, postponement or rescheduling of the
installation of communication systems by our customers, which in turn may have a
material adverse effect on the sale of our products to the customers.
We are also subject to a variety of local, state and federal government
regulations relating to the storage, discharge, handling, emission, generation,
manufacture and disposal of toxic or other hazardous substances used to
manufacture our products. The failure to comply with current or future
regulations could result in the imposition of substantial fines on us,
suspension of production, alteration of our manufacturing processes or cessation
of operations. To date, these regulations have not had a material effect on our
business, as we have neither incurred significant costs to maintain compliance
nor to remedy past noncompliance.
We believe that we operate our business in material compliance with
applicable government regulations. We are not aware of any pending legislation
that if enacted could materially harm our business.
In addition to the local, state and federal government regulations, the
Satellite Networks Business must comply with applicable laws and obtain the
approval of the regulatory authorities of each foreign country in which it
operates. The laws and regulatory requirements relating to satellite
communications and other wireless communications systems vary from country to
country. Some countries have substantially deregulated satellite communications
and other wireless communications, while other countries maintain strict and
often burdensome regulations. The procedure to obtain these regulatory approvals
can be time-consuming and costly, and the terms of the approvals vary for
different countries. In addition, in some countries there may be restrictions on
the ability to interconnect satellite communications with ground-based
communications systems.
INTELLECTUAL PROPERTY
Both we and the Satellite Networks Business rely on a combination of
patents, trade secrets, copyrights, trademarks, service marks and contractual
rights to protect our intellectual property. We attempt to protect our trade
secrets and other proprietary information through agreements with our customers,
suppliers, employees and consultants, and through other security measures.
Although we intend to protect our rights vigorously, we cannot assure you that
these measures will be successful. In addition, the laws of some countries in
which our products are or may be developed, manufactured or sold may not protect
our products and intellectual property rights to the same extent as the laws of
the United States.
While our ability to compete may be affected by our ability to protect our
intellectual property, we believe that, because of the rapid pace of
technological change in the wireless personal communications industry, our
technical expertise and ability to introduce new products on a timely basis will
be more important in maintaining our competitive position than protection of our
intellectual property and that patent, trade secret and copyright protections
are important but must be supported by other factors such as the expanding
knowledge, ability and experience of our personnel, new product introductions
and frequent
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product enhancements. Although we continue to implement protective measures and
intend to defend vigorously our intellectual property rights, we cannot assure
you that these measures will be successful.
In the event of litigation to determine the validity of any third party's
claims, the litigation could result in significant expense to us and divert the
efforts of our technical and management personnel, whether or not the litigation
is determined in our favor. The wireless communications industry has been
subject to frequent litigation regarding patent and other intellectual property
rights. Leading companies and organizations in the industry have numerous
patents that protect their intellectual property rights in these areas. In the
event of an adverse result of any litigation, we could be required to expend
significant resources to develop non-infringing technology or to obtain licenses
to the technology that is the subject of the litigation.
EMPLOYEES
As of March 27, 2000, we had 380 employees (of which 28 were temporary
employees), including over 194 in research and development, 14 in sales and
marketing, 87 in production, and 85 in corporate, administration and production
coordination. We currently employ 182 engineers, including 75 engineers who have
masters degrees and seven engineers who have doctorate degrees. None of our
employees are covered by a collective bargaining agreement and we have never
experienced any strike or work stoppage. We believe that our relations with our
employees are good.
As of March 27, 2000, the Satellite Networks Business had 338 employees,
including over 128 in research and development, 25 in sales and marketing, 161
in production, and 24 in corporate, administration and production coordination.
The Satellite Networks Business employs 128 engineers. None of the employees of
the Satellite Networks Business are covered by a collective bargaining
agreement.
FACILITIES
We are headquartered in facilities consisting of approximately 180,000
square feet in Carlsbad, California, under a lease expiring in 2009.
Additionally, we maintain offices in Boston, Massachusetts and Sydney,
Australia. We anticipate operating additional regional sales offices in 2000 and
beyond.
After the acquisition, the Satellite Networks Business will be operated
from three facilities consisting of an aggregate of approximately 141,534 square
feet located in Norcross, Georgia. These facilities will be subject to leases
expiring in 2002, with options to extend the terms through 2005. The Satellite
Networks Business also will maintain offices or a sales presence in the United
Kingdom, Australia, Russia, China, India, Chile and Italy after completion of
the acquisition.
LEGAL PROCEEDINGS
From time to time, we may be involved in litigation arising in the ordinary
course of our business. We are not presently a party to any material legal
proceedings.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the directors,
executive officers and other principal officers of ViaSat as of March 27, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Mark D. Dankberg........... 44 Chairman of the Board, President and Chief Executive Officer
Richard A. Baldridge....... 41 Vice President and Chief Financial Officer
Gregory D. Monahan......... 54 Vice President -- Administration, General Counsel and Secretary
Dr. Thomas E. Carter....... 45 Vice President and General Manager of Electronics Systems Group
Thomas M. 41 Vice President and General Manager of Commercial Products Group
Wittenschlaeger..........
Stephen W. Cable........... 44 Vice President -- Strategic Development
James P. Collins........... 55 Vice President -- Business Development of Electronics Systems
Group
Mark J. Miller............. 39 Vice President, Chief Technical Officer and Assistant Secretary
Steven R. Hart............. 45 Vice President -- Engineering and Chief Technical Officer
Robert L. Barrie........... 55 Vice President -- Operations
Frank J. Drdek............. 52 Vice President -- Human Resources
James F. Bunker............ 65 Director
Dr. Robert W. Johnson...... 49 Director
B. Allen Lay............... 65 Director
Dr. Jeffrey M. Nash........ 52 Director
William A. Owens........... 59 Director
</TABLE>
Additional information concerning the directors and executive officers is
presented below:
MARK D. DANKBERG was a founder of ViaSat and has served as Chairman of the
Board, President and Chief Executive Officer of ViaSat since its inception in
May 1986. Mr. Dankberg also serves as a director of REMEC, Inc., a publicly-held
company which manufactures microwave multi-function modules, and Connected
Systems, a privately-held company which develops and manufactures digital voice
messaging systems. Prior to founding ViaSat, he was Assistant Vice President of
M/A-COM Linkabit, a manufacturer of satellite telecommunications equipment, from
1979 to 1986 and Communications Engineer for Rockwell International Corporation
from 1977 to 1979. Mr. Dankberg holds B.S.E.E. and M.E.E. degrees from Rice
University.
RICHARD A. BALDRIDGE joined ViaSat in April 1999 as Vice President and
Chief Financial Officer. Prior to joining ViaSat, Mr. Baldridge served as Vice
President and General Manager of Raytheon Corporation's Training Systems
Division from January 1998 to April 1999. From June 1994 to December 1997, Mr.
Baldridge served as Chief Operating Officer, Chief Financial Officer and Vice
President -- Finance and Administration for Hughes Information Systems and
Hughes Training Inc., prior to their acquisition by Raytheon in 1997. Mr.
Baldridge's other experience includes various senior financial management roles
with General Dynamics Corporation. Mr. Baldridge also serves as a director of
Jobs for America's Graduates (JAG) and the National Alliance of Business (NAB).
Mr. Baldridge holds a B.S. degree in Business Administration, with an emphasis
in Information Systems, from New Mexico State University.
GREGORY D. MONAHAN has served as Vice President, General Counsel and
Secretary of ViaSat since April 1999 and as Vice President, Chief Financial
Officer and General Counsel from December 1988 to April 1999. Prior to joining
ViaSat, Mr. Monahan was Assistant Vice President of M/A-COM Linkabit from 1978
to 1988. Mr. Monahan holds a J.D. degree from the University of San Diego and
B.S.M.E. and M.B.A. degrees from the University of California, Berkeley.
DR. THOMAS E. CARTER has served as Vice President and General Manager of
Electronics Systems Group since August 1996 and as Vice President of Engineering
since November 1990. Prior to joining ViaSat, Dr. Carter served in several
positions including Business Area Manager, Program Manager and
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System Engineering Department Manager in the Military Electronics and Avionics
Division of TRW Inc. Dr. Carter holds a Ph.D. in Electrical Engineering from the
University of Southern California and B.S.E.E. and M.S.E.E. degrees from Rice
University.
THOMAS M. WITTENSCHLAEGER joined ViaSat in October 1998 as Vice President
and General Manager of the Commercial Products Group. Mr. Wittenschlaeger served
as Director, International Finance and Business Assessment of Hughes Space and
Communication from April 1997 to October 1998. From April 1994 to March 1997,
Mr. Wittenschlaeger held various positions at Hughes, including Vice
President -- Business Development, Assistant Division Manager, Command and
Control Systems Division, and Director -- Business Assessment and Member of the
Technical Staff. Mr. Wittenschlaeger holds a B.S. in Electrical Engineering from
the U.S. Naval Academy and co-founded the University of California, Los Angeles'
Executive Program in Marketing. Mr. Wittenschlaeger is also a graduate of the
Executive Program in Business at the University of California, Los Angeles.
STEPHEN W. CABLE joined ViaSat in October 1998 as Vice
President -- Strategic Development. Prior to joining ViaSat, Mr. Cable served as
Director, Satcom Systems of Rockwell International Corporation's Collins
Government Systems Division from September 1997 to October 1998. From October
1994 to August 1997, Mr. Cable held various positions with Rockwell in its
Communications Systems Division, including Director of Advanced Programs,
Director of Engineering, Acting General Manager, Vice President Rockwell Global
Wireless business initiative and Chairman of the Strategic Planning Council for
the Communications Systems Division. Mr. Cable holds B.S.E.E. and M.S.E. degrees
in Electrical Engineering from Rice University.
JAMES P. COLLINS has served as Vice President -- Business Development of
the Electronics Systems Group since March 1997 and as Vice President of Business
Development of ViaSat since December 1988. Prior to joining ViaSat, Mr. Collins
was Assistant Vice President of M/A-COM Linkabit from 1982 to 1988. Mr. Collins
was a Director of Marketing while at General Dynamics Corporation from 1976 to
1982 and prior to that served on active duty in the U.S. Army for ten years. Mr.
Collins currently serves in the U.S. Army Reserve as a Brigadier General. He
holds a B.A. degree from Hofstra University and a M.S. degree in Geodetic
Science from Ohio State University.
MARK J. MILLER was a founder of ViaSat and has served as Vice President and
Chief Technical Officer of ViaSat since 1993 and as Engineering Manager since
1986. Prior to joining ViaSat, Mr. Miller was a Staff Engineer at M/A-COM
Linkabit from 1983 to 1986. Mr. Miller holds a B.S.E.E. degree from the
University of California, San Diego and a M.S.E.E. degree from the University of
California, Los Angeles.
STEVEN R. HART was a founder of ViaSat and has served as Vice
President -- Engineering and Chief Technical Officer since March 1997, as Vice
President and Chief Technical Officer since 1993 and as Engineering Manager
since 1986. Prior to joining ViaSat, Mr. Hart was a Staff Engineer and Manager
at M/A-COM Linkabit from 1982 to 1986. Mr. Hart holds a B.S. in Mathematics from
the University of Nevada, Las Vegas and a M.A. in Mathematics from the
University of California, San Diego.
ROBERT L. BARRIE joined ViaSat in January 1997 as Vice President of
Operations. Prior to joining ViaSat, Mr. Barrie was Vice President of Operations
at Pacific Communications Sciences Inc. from 1987 to 1996. Mr. Barrie served in
several positions at OAK Communications, Inc. from 1980 to 1986 including Vice
President -- Program Management. Mr. Barrie was a Vice President at LaPointe
Industries from 1969 to 1980. Mr. Barrie holds a B.S. degree in Business from
Charter Oak State College and a M.B.A. from National University.
FRANK J. DRDEK joined ViaSat in February 1998 as Vice President of Human
Resources. Prior to joining ViaSat, Mr. Drdek served as Vice President of Human
Resources at Proxima Corporation from January 1992 to February 1998. Mr. Drdek's
previous experience includes serving as Vice President of Human Resources for
Topaz/Square -- D Corporation and Director of Human Resources for NCR
Corporation and Caterpillar Corporation. Mr. Drdek holds a B.S. degree in
Business Administration from San Diego State University and a business teaching
credential from Palomar College.
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JAMES F. BUNKER has been a director of ViaSat since February 1997. In July
1998, Mr. Bunker was named President and Chief Executive Officer of Video
Network Communications, Inc., a publicly-held desktop video conferencing
company. Since 1993, Mr. Bunker has served as President of Windsor Consulting
Group, a privately-held emerging technology and business transition consulting
company. From 1991 to 1993, he served as President of the VideoCipher division
of General Instruments, Inc. Prior to 1991, Mr. Bunker held several senior
management positions at M/A-Com Linkabit. Mr. Bunker received a B.S. degree in
Electrical Engineering from Northeastern University and completed the Sloan
School Senior Executive Program.
DR. ROBERT W. JOHNSON has been a director of ViaSat since 1986. Dr. Johnson
has worked in the venture capital industry since 1980, and has acted as an
independent investor since 1988. Dr. Johnson currently serves as a director of
Hi/fn and Stac Software Inc., publicly-held companies which manufacture
semiconductors and software for networking, data storage and storage management.
Dr. Johnson also serves as a director of TimeLine Vista, a privately-held
company which manufactures professional audio equipment, and Axcelerant, a
privately-held provider of virtual broadband networks over the Internet. Dr.
Johnson holds B.S. and M.S. degrees in Electrical Engineering from Stanford
University and M.B.A. and D.B.A. degrees from Harvard Business School.
B. ALLEN LAY has been a director of ViaSat since 1996. Since 1983, he has
been a General Partner of Southern California Ventures, a venture capital
company. Mr. Lay is currently a director of PairGain Technology, Inc., a
publicly-held telecommunications company, Physical Optics Corporation, a
privately-held optical systems company, and Waveband Corporation, a
privately-held wave scanning antenna and sensor company.
DR. JEFFREY M. NASH has been a director of ViaSat since 1987. Since 1994,
he has been President of Digital Perceptions Inc., a consulting and software
development firm serving the defense, communications, general aviation and
commercial computer industries. From August 1995 to December 1997, he was
President, Chief Executive Officer and a director of TransTech Information
Management Systems, Inc., a privately-held company which produced software and
mobile systems for the towing and recovery industry. From 1989 to 1994, he
served as Chief Executive Officer and President of Visqus Corporation as well as
Conner Technology, Inc., both subsidiaries of Conner Peripherals, Inc. Dr. Nash
is currently a director of REMEC, Inc., a publicly-held company which
manufactures microwave multi-function modules, Tiernan Communications, Inc., a
privately-held company manufacturing high definition television equipment, Prisa
Networks, a privately-held company manufacturing fiber channel networking
products for high-end storage area networks, StoragePoint.com, a privately-held
online storage company, and ORINCON Technology Inc., a privately-held defense
and commercial technical services and software company.
WILLIAM A. OWENS has been a director of ViaSat since August 1998. Mr. Owens
has been Co-Chief Executive Officer and Vice Chairman of Teledesic LLC, a
publicly-held telecommunications company, and Chairman and Chief Executive
Officer of affiliated Teledesic Holdings Ltd. since August 1998. Mr. Owens was
President, Chief Operating Officer and Vice Chairman of Science Applications
International Corporation (SAIC), a privately-held firm, from March 1996 to
August 1998. From February 1994 to February 1996, Mr. Owens was Vice Chairman of
the Joint Chiefs of Staff, and the nation's second-ranking military officer. Mr.
Owens has also served as Deputy Chief of Naval Operations for Resources, Warfare
Requirements and Assessments, Commander of the U.S. Sixth Fleet and Senior
Military Assistant to the Secretary of Defense. Mr. Owens holds a B.S. degree in
Mathematics from the U.S. Naval Academy, B.A. and M.A. degrees in politics,
philosophy and economics from Oxford University, and a M.S. degree in Management
from George Washington University.
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PRINCIPAL STOCKHOLDERS
The following table provides information regarding the beneficial ownership
of our common stock, assuming no exercise of the underwriters' over-allotment
option, as of March 27, 2000, and as adjusted for this offering, by:
- our directors and executive officers,
- each person who is known by us to own beneficially more than 5% of our
common stock, and
- all directors and executive officers as a group.
Beneficial ownership includes shares of outstanding common stock and shares
of common stock that a person has the right to acquire within 60 days after the
date of this table. Except as indicated in the footnotes to this table and under
applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of common stock
beneficially owned by them.
The address of each person named in the table below is c/o ViaSat, Inc.,
6155 El Camino Real, Carlsbad, California 92009.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON STOCK
NUMBER OF SHARES ----------------------------
OF COMMON STOCK BEFORE AFTER
NAME BENEFICIALLY OWNED(1) THE OFFERING THE OFFERING
---- --------------------- ------------ ------------
<S> <C> <C> <C>
Mark D. Dankberg.................................. 839,200 10.22% 8.00%
Steven R. Hart.................................... 581,814 7.11 5.56
Robert W. Johnson................................. 276,249 3.37 2.64
Mark J. Miller.................................... 269,413 3.29 2.58
Gregory D. Monahan................................ 200,445 2.44 1.91
Jeffrey M. Nash................................... 180,207 2.20 1.72
B. Allen Lay(2)................................... 169,515 2.07 1.62
Thomas E. Carter(3)............................... 161,067 1.97 1.54
Robert L. Barrie.................................. 34,564 * *
Richard A. Baldridge.............................. 14,000 * *
James F. Bunker................................... 12,501 * *
Thomas M. Wittenschlaeger......................... 10,000 * *
Stephen W. Cable.................................. 9,307 * *
Frank Drdek....................................... 4,596 * *
William A. Owens.................................. 2,500 * *
All directors and executive officers as a group
(15 persons).................................... 2,765,378 32.91 25.90
</TABLE>
- -------------------------
* Less than 1%.
(1) Includes the following shares issuable upon the exercise of outstanding
stock options which are exercisable within 60 days of March 27, 2000: Mr.
Dankberg -- 38,340 option shares, Mr. Hart -- 11,337 option shares, Dr.
Johnson -- 15,169 option shares, Mr. Miller -- 10,837 option shares, Mr.
Monahan -- 22,539 option shares, Mr. Lay -- 15,169 option shares, Dr.
Nash -- 15,169 option shares, Dr. Carter -- 19,203 option shares, Mr.
Barrie -- 31,000 option shares, Mr. Baldridge -- 14,000 option shares, Mr.
Bunker -- 11,501 option shares, Mr. Wittenschlaeger -- 10,000 option shares,
Mr. Cable -- 7,200 option shares, Mr. Drdek -- 4,000 option shares and Mr.
Owens -- 2,500 option shares.
(2) Includes (a) 15,200 shares of common stock held by Lay Charitable Remainder
Unitrust, and (b) 30,403 shares of common stock held by Lay Living Trust.
(3) Includes (a) 3,366 shares of common stock held by Janna C. Carter Education
Trust, (b) 3,366 shares of common stock held by Michelle L. Carter Education
Trust, and (c) 3,366 shares of common stock held by Bradley T. Carter
Education Trust. Dr. Carter disclaims beneficial ownership of these shares.
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ACQUISITION AGREEMENTS
ASSET PURCHASE AGREEMENT
PURCHASE PRICE
The asset purchase agreement provides that Scientific-Atlanta will sell us
substantially all of the assets of the Satellite Networks Business. The purchase
price for the Satellite Networks Business will include (1) an aggregate of
approximately $75.0 million in cash, subject to adjustment as described below,
and (2) warrants to purchase 50,000 shares of our common stock. The cash portion
of the purchase price may be:
- increased or decreased to the extent that the net worth of the Satellite
Networks Business as of the closing differs from approximately $53.4
million, which was the net worth of the Satellite Networks Business as of
October 1, 1999, and
- decreased to the extent that the customer deposits of the Satellite
Networks Business for work not yet performed as of the closing exceed
$3.5 million.
The warrants are divided into four equal installments of 12,500 shares, with
each installment expiring two years from the closing. The exercise prices of the
warrants range from $52.50 to $82.50 per share.
The purchase price will be payable as follows:
- at the closing, we will pay Scientific-Atlanta $65.2 million in cash,
subject to adjustments described above, and issue to Scientific-Atlanta
warrants to purchase 50,000 shares of our common stock,
- on the 30th calendar day after the closing, we will pay
Scientific-Atlanta approximately $4.8 million in cash, and
- on the 60th calendar day after the closing, we will pay
Scientific-Atlanta approximately $4.8 million in cash.
We have agreed to pay Scientific-Atlanta interest at an annual rate of 12%
on the cash portion of the purchase price payable at closing from April 17, 2000
to the closing date.
In addition, we have agreed to purchase up to $1.0 million of accounts
receivable held by Scientific-Atlanta's foreign subsidiaries. Scientific-Atlanta
has agreed to reimburse us to the extent that any of these or other specified
accounts receivable are not collected within one year after the closing.
INDEMNIFICATION
Each party is required to indemnify the other party for any losses incurred
as a result of any breach of any representation, warranty, covenant or
agreement. The indemnification obligations survive for a period of 30 months
from the closing, except with respect to tax and environmental claims, which
survive until the expiration of the applicable statute of limitations. Claims
based on fraud or intentional misrepresentation survive indefinitely. Neither
party is entitled to bring an indemnification claim against the other party
until the aggregate amount of all claims exceeds $670,000, at which point the
indemnifying party will be liable for the entire amount of all claims from the
first dollar. Only claims that exceed $20,000 may be applied towards the
$670,000 threshold.
EMPLOYEES
In connection with the transaction, we will extend offers of employment to
substantially all of the employees involved in the operation of the Satellite
Networks Business. Scientific-Atlanta will terminate the employment of each of
these employees prior to the closing and cooperate with us to secure
satisfactory employment arrangements with these employees. Scientific-Atlanta
will maintain responsibility for all wages and other compensation and benefits
owed to these employees through the closing date. For a
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period of two years following the closing, both parties have agreed not to hire
or offer employment to any of the other party's employees.
USE OF TRADEMARKS
After the closing, we will be entitled to use Scientific-Atlanta trademarks
for products made or distributed by the Satellite Networks Business for a period
of six months. This right will allow us to use Scientific-Atlanta trademarks on
(1) advertising and promotional materials transferred to us in the transaction,
(2) packaging transferred to us in the transaction and (3) building signage used
in connection with the Satellite Networks Business. In addition, for an
unlimited period of time, we will be entitled to display Scientific-Atlanta
trademarks on finished goods and inventory purchased in the transaction.
CLOSING CONDITIONS
Several conditions must be met, or waived, before we can complete the
transaction, including the following:
- all waiting periods under U.S. antitrust laws must have expired or
terminated,
- no regulation or injunction may be in effect prohibiting completion of
the transaction,
- no action by any government authority or other person shall have been
instituted or threatened which questions the validity or legality of the
transaction,
- all required approvals and consents must have been obtained,
- all representations and warranties of the parties must be true in all
material respects,
- all covenants and agreements required to be performed by the parties
prior to closing must have been performed in all material respects,
- no change that is materially adverse to the Satellite Networks Business
shall have occurred, and
- all ancillary agreements described below shall have been executed and
delivered.
TERMINATION
The asset purchase agreement may be terminated at any time prior to the
closing as follows:
- by mutual written consent of the parties,
- by us, if Scientific-Atlanta breaches any of its representations,
warranties or covenants in any material respect and the breach continues
for a period of 10 days following written notice,
- by Scientific-Atlanta, if we breach any of our representations,
warranties or covenants in any material respect and the breach continues
for a period of 10 days following written notice, or
- by either party if the closing does not occur by June 16, 2000.
OTHER AGREEMENTS
As part of the acquisition, we will be entering into other agreements with
Scientific-Atlanta, including the following:
TRANSITION SERVICES AGREEMENT. Under the terms of the transition services
agreement, after the closing, Scientific-Atlanta will provide (1) computer
support services for the Satellite Networks Business at market prices, (2) use
of office space at some of Scientific-Atlanta's foreign offices, and (3) other
transition services as we may mutually agree. The transition services agreement
also provides that Scientific-Atlanta will reimburse us for all transition
expenses we incur during the one-year period after the signing of the asset
purchase agreement in an amount not to exceed $2.0 million. In addition, we have
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agreed to provide Scientific-Atlanta with network operation services for a
period of one year after the closing, for which Scientific-Atlanta will pay us
$500,000.
SELLER MANUFACTURING AGREEMENT. Under the terms of the seller manufacturing
agreement, for a period of six months after the closing, Scientific-Atlanta will
manufacture specified satellite network products for our sale and distribution
using unfinished goods and other inventory excluded from the purchased assets.
Scientific-Atlanta has agreed to manufacture up to $10.2 million of these
products at a 30% discount to Scientific-Atlanta's standard cost. Any products
purchased by us in excess of $10.2 million will be priced at
Scientific-Atlanta's standard cost. At the end of the six month term of this
agreement, we have agreed to purchase the remaining inventory related to the
Satellite Networks Business.
BUYER MANUFACTURING AGREEMENT. Under the terms of the buyer manufacturing
agreement, for a period of one year after the closing, Scientific-Atlanta has
agreed to purchase at least $4.0 million of specified antenna products from us.
STUDY CONTRACT. Under the terms of the study contract, we have agreed to
provide Scientific-Atlanta with a suitability study for the development of a
direct to home two-way interactive digital satellite TV network using both
companies' technologies. Scientific-Atlanta has agreed to pay us $1.0 million
for this study.
AGREEMENT NOT TO COMPETE. Under the terms of the agreement not to compete,
for a period of five years after the closing, Scientific-Atlanta has agreed not
to compete with us in the Satellite Networks Business.
FACILITY LEASES. Under the terms of the leases, Scientific-Atlanta has
agreed to lease to us three facilities currently being utilized by the Satellite
Networks Business for a term of up to five years. Each of the leases has an
initial term of two years and provides an option for us to extend the term for
an additional year after the first two years of the lease and for an additional
two years after the third year of the lease.
DESCRIPTION OF VIASAT CAPITAL STOCK
The following summary description of the material terms of the capital
stock of ViaSat is not intended to be complete. Since the terms of ViaSat's
capital stock must comply with the provisions of its certificate of
incorporation and bylaws, which are included as exhibits to the registration
statement, and the Delaware General Corporation Law, you should read each of
these documents carefully. See "-- Delaware Law and Charter Provisions" for a
general discussion of the provisions of ViaSat's certificate of incorporation
and bylaws and the Delaware General Corporation Law.
ViaSat has the authority to issue up to 25,000,000 shares of common stock
and 5,000,000 shares of preferred stock, par value $0.0001 per share.
CAPITAL STOCK
As of March 27, 2000 there were 8,176,151 shares of common stock
outstanding, held of record by 278 stockholders.
Holders of common stock are entitled to one vote per share on all matters
to be voted on by the stockholders of ViaSat. The holders of common stock do not
have cumulative voting rights, which means the holder or holders of more than
one-half of the shares voting for the election of directors can elect all of the
directors then being elected. Subject to the preferences of any outstanding
preferred stock, the holders of common stock are entitled to a proportional
distribution of any dividends that may be declared by the board of directors. In
the event of a liquidation or dissolution of ViaSat, the holders of common stock
are entitled to share equally in all assets remaining after payment of
liabilities and any payments due to holders of any outstanding preferred stock.
The outstanding shares of common stock are, and the shares offered by ViaSat in
this offering, when issued and paid for, will be fully paid and nonassessable.
The
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rights, preferences and privileges of holders of common stock are subject to,
and may be adversely affected by, the rights of the holders of shares of any
outstanding preferred stock.
PREFERRED STOCK
ViaSat currently has no outstanding preferred stock and has no plans to
issue any preferred stock. The board of directors is authorized, without further
stockholder approval, to issue up to 5,000,000 shares of preferred stock in one
or more series and to fix the rights, preferences, privileges and restrictions
granted or imposed upon any unissued shares of preferred stock and to fix the
number of shares of any series and the designations of the series.
The issuance of preferred stock may have the effect of delaying or
preventing a change in control of ViaSat. The issuance of preferred stock could
decrease the amount of earnings and assets available for distribution to the
holders of common stock or could adversely affect the rights and powers,
including voting rights, of the holders of common stock. In some circumstances,
the issuance of preferred stock could have the effect of decreasing the market
price of ViaSat's common stock.
DELAWARE LAW AND CHARTER PROVISIONS
The following summary description of provisions of the Delaware General
Corporation Law and ViaSat's certificate of incorporation and bylaws is not
intended to be complete.
ViaSat must comply with the provisions of Section 203 of the Delaware
General Corporation Law. Section 203 prohibits a publicly-held Delaware
corporation from engaging in a business combination with an interested
stockholder for three years after the date of the transaction in which the
person became an interested stockholder, unless the business combination is
approved in a prescribed manner. A business combination includes mergers, asset
sales and other transactions resulting in a financial benefit to the interested
stockholder. An interested stockholder is generally a person who, together with
affiliates and associates, owns, or within the past three years did own, 15% of
the corporation's voting stock.
Some provisions of ViaSat's certificate of incorporation and bylaws could
also have anti-takeover effects. See "Risk Factors -- We have implemented
anti-takeover provisions that could prevent an acquisition of our business at a
premium price" for a further discussion of these anti-takeover effects. These
provisions are intended to enhance the likelihood of continuity and stability in
the composition of the policies formulated by the board of directors. In
addition, these provisions are intended to ensure that the board of directors
will have sufficient time to act in what it believes to be in the best interests
of ViaSat and its stockholders. These provisions also are designed to reduce the
vulnerability of ViaSat to an unsolicited proposal for a takeover of ViaSat that
does not contemplate the acquisition of all of its outstanding shares or an
unsolicited proposal for the restructuring or sale of all or part of ViaSat. The
provisions are also intended to discourage some tactics that may be used in
proxy fights.
Classified Board of Directors
The certificate of incorporation provides for the board of directors to be
divided into three classes of directors, with each class as nearly equal in
number as possible, serving staggered three-year terms. As a result,
approximately one-third of the board of directors will be elected each year. The
classified board provision will help to assure the continuity and stability of
the board of directors and the business strategies and policies of ViaSat as
determined by the board of directors. The classified board provision could have
the effect of discouraging a third party from making a tender offer or
attempting to obtain control of ViaSat. In addition, the classified board
provision could delay stockholders who do not agree with the policies of the
board of directors from removing a majority of the board of directors for two
years.
No Stockholder Action by Written Consent; Special Meetings
The certificate of incorporation provides that stockholder action can only
be taken at an annual or special meeting of stockholders and prohibits
stockholder action by written consent in lieu of a meeting.
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The certificate of incorporation also provides that special meetings of
stockholders may be called only by the board of directors, its chairman, the
president or the secretary of ViaSat. Stockholders are not permitted to call a
special meeting of stockholders or to require that the board of directors call a
special meeting.
Number of Directors; Removal; Filling Vacancies
The certificate of incorporation provides that the board of directors will
consist of between four and eleven members, the exact number to be fixed by
resolution adopted by affirmative vote of a majority of the board of directors.
The board of directors currently consists of six directors. Further, the
certificate of incorporation authorizes the board of directors to fill newly
created directorships. Accordingly, this provision could prevent a stockholder
from obtaining majority representation on the board of directors by permitting
the board of directors to enlarge the size of the board and fill the new
directorships with its own nominees. A director so elected by the board of
directors holds office until the next election of the class for which the
director has been chosen and until his or her successor is elected and
qualified. The certificate of incorporation also provides that directors may be
removed only for cause and only by the affirmative vote of holders of a majority
of the total voting power of all outstanding securities. The effect of these
provisions is to preclude a stockholder from removing incumbent directors
without cause and simultaneously gaining control of the board of directors by
filling the vacancies created by the removal with its own nominees.
Indemnification
ViaSat has included in its certificate of incorporation and bylaws
provisions to (1) eliminate the personal liability of its directors for monetary
damages resulting from breaches of their fiduciary duty to the extent permitted
by the Delaware General Corporation Law and (2) indemnify its directors and
officers to the fullest extent permitted by the Delaware General Corporation
Law, including circumstances in which indemnification is discretionary.
ViaSat believes that these provisions are necessary to attract and retain
qualified persons as directors and officers.
Bylaws
The certificate of incorporation provides that the bylaws are subject to
adoption or amendment either by (1) the board of directors or (2) the
affirmative vote of the holders of at least two-thirds of the total voting power
of all outstanding securities voting together as a single class. This provision
will make it more difficult for stockholders to make changes in the bylaws by
allowing the holders of a minority of the voting securities to prevent the
holders of a majority of voting securities from amending the bylaws.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Harris Trust
Company of California.
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MATERIAL UNITED STATES INCOME TAX CONSEQUENCES
FOR NON-U.S. HOLDERS
OVERVIEW
The following general discussion summarizes certain of the material U.S.
federal income and estate tax aspects of the ownership and disposition of our
common stock applicable to non-U.S. holders of our common stock. In general, a
"non-U.S. holder" is a person other than:
- a citizen or resident of the United States,
- a corporation or other entity taxable as a corporation created or
organized under the laws of the United States or any of its political
subdivisions,
- an estate the income of which is subject to U.S. federal income taxation
regardless of its sources,
- a trust if a U.S. court is able to exercise primary supervision over
administration of the trust and one or more U.S. persons have authority
to control all substantial decisions of the trust, or
- a trust that has a valid election in effect under applicable U.S.
Treasury regulations to be treated as a United States person.
The discussion is based upon the Internal Revenue Code of 1986, as amended,
regulations of the Treasury Department, Internal Revenue Service rulings and
pronouncements and judicial decisions now in effect, all of which are subject to
change (possibly on a retroactive basis). The discussion does not address
aspects of U.S. federal taxation other than income and estate taxation and does
not address all aspects of federal income and estate taxation. The discussion
does not consider any specific facts or circumstances that may apply to a
particular non-U.S. holder and does not address all aspects of U.S. federal
income tax law that may be relevant to non-U.S. holders that may be subject to
special treatment under such law, such as insurance companies, tax-exempt
organizations, financial institutions, broker-dealers, certain U.S. expatriates,
controlled foreign corporations, passive foreign investment companies or foreign
personal holding companies.
PERSONS CONSIDERING THE PURCHASE OF OUR COMMON STOCK SHOULD CONSULT THEIR
TAX ADVISORS CONCERNING THE APPLICATION OF U.S. FEDERAL INCOME TAX LAWS, AS WELL
AS THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION TO THEIR
PARTICULAR SITUATIONS.
DIVIDENDS
In general, the gross amount of dividends paid to a non-U.S. holder will be
subject to U.S. withholding tax at a 30% rate, or any lower rate prescribed by
an applicable tax treaty, unless the dividends:
- are effectively connected with a trade or business carried on by the
non-U.S. holder within the United States and a Form 4224 is filed with
the withholding agent, or
- if a tax treaty applies, are attributable to a United States permanent
establishment of the non-U.S. holder.
If either exception applies, the dividend will be taxed at ordinary U.S.
federal income tax rates. A non-U.S. holder may be required to satisfy certain
certification requirements in order to claim the benefit of an applicable treaty
rate or otherwise claim a reduction of, or exemption from, the withholding
obligation under the above described rules. In the case of a non-U.S. holder
that is a corporation, effectively connected income may also be subject to an
additional branch profits tax, which is generally imposed on a foreign
corporation at a rate of 30% of the deemed repatriation from the United States
of "effectively connected earnings and profits" or such lower rate as an
applicable tax treaty may provide. To the extent a distribution exceeds our
current or accumulated earnings or profits, it will be treated first as a return
of the holder's tax basis, and then as a gain from the sale of a capital asset.
Any withholding tax on
75
<PAGE> 81
a distribution in excess of our accumulated earnings or profits is refundable to
the non-U.S. holder upon filing an appropriate claim with the Internal Revenue
Service.
Under current law, dividends paid to an address outside the United States
are presumed to be paid to a resident of such country (unless the payor has
knowledge to the contrary) for purposes of the withholding tax discussed above
and, under the current interpretation of United States Treasury regulations, for
purposes of determining the applicability of a tax treaty rate. Under recently
finalized United States Treasury regulations, a non-U.S. holder of our common
stock who wishes to claim the benefit of an applicable treaty rate (and avoid
backup withholding as discussed below) for dividends paid after December 31,
2000, will be required to satisfy applicable certification and other
requirements.
DISPOSITION OF COMMON STOCK
Generally, a non-U.S. holder will not be subject to U.S. federal income tax
on any gain recognized upon the disposition of our common stock unless:
- the gain is effectively connected with a trade or business carried on by
the non-U.S. holder within the United States, or, alternatively, if a tax
treaty applies, attributable to a United States permanent establishment
maintained by the non-U.S. holder, in which case such gain will be
subject to tax at the rates and in the manner applicable to U.S. persons,
and, if the holder is a foreign corporation, the branch profits tax may
also apply,
- the common stock is disposed of by an individual non-U.S. holder, who
holds the common stock as a capital asset and is present in the United
States for 183 days or more in the taxable year of the disposition and
certain other conditions are met, in which case such gain will be subject
to a flat 30% tax, which may be offset by United States source capital
losses even though the individual is not considered a resident of the
United States, or
- (A) we are or have been a "U.S. real property holding corporation" within
the meaning of Section 897(c)(2) of the Code at any time within the
shorter of the five-year period preceding such disposition or such
non-U.S. holder's holding period and (B) assuming that the common stock
is "regularly traded on an established securities market" for U.S.
federal income tax purposes, the non-U.S. holder held, directly or
indirectly, at any time during the applicable period from clause (A)
above, including on the date of disposition, more than 5% of the
outstanding common stock. We are not and do not anticipate becoming a
"U.S. real property holding corporation."
Non-U.S. holders should consult applicable treaties, which may exempt from
U.S. taxation gains realized upon the disposition of our common stock in certain
cases.
ESTATE TAX
Common stock owned, or treated as owned, by an individual non-U.S. holder
at the time of death will be includible in the individual's gross estate for
U.S. federal estate tax purposes, and may be subject to U.S. federal estate tax,
unless an applicable treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
On October 6, 1997, the Internal Revenue Service issued final regulations
relating to withholding, information reporting and backup withholding that unify
current certification procedures and forms and clarify reliance standards. The
final regulations generally will be effective for payments made after December
31, 2000.
Except as provided below, this section describes rules applicable to
payments made on or before December 31, 2000. Backup withholding, which
generally is a withholding tax imposed at the rate of 31% on certain payments to
persons that fail to furnish the information required under the U.S. information
reporting and backup withholding rules, generally will not apply to (1)
dividends paid to non-U.S. holders that are subject to the 30% withholding
discussed above, or that are not so subject because a tax treaty
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<PAGE> 82
applies which reduces or eliminates such 30% withholding, or (2) dividends paid
on our common stock to a non-U.S. holder at an address outside the United
States, unless the payor has actual knowledge that the payee is a U.S. person.
We will be required to report annually to the Internal Revenue Service and to
each non-U.S. holder the amount of dividends paid to, and the tax withheld from,
such holder, regardless of whether any tax was actually withheld or whether
withholding was required. This information may also be made available to the tax
authorities in the non-U.S. holder's country of residence.
In the case of a non-U.S. holder that sells our common stock to or through
a U.S. office of a broker, the broker must backup withhold at a rate of 31% and
report the sale to the Internal Revenue Service, unless the holder certifies its
non-U.S. status under penalties of perjury or otherwise establishes an
exemption. In the case of a non-U.S. holder that sells our common stock to or
through the foreign office of a U.S. broker, or a foreign broker with certain
types of relationships to the United States, the broker must report the sale to
the Internal Revenue Service (but not backup withhold) unless the broker has
documentary evidence in its files that the seller is a non-U.S. holder or
certain other conditions are met, or the holder otherwise establishes an
exemption. A non-U.S. holder will generally not be subject to information
reporting or backup withholding if such non-U.S. holder sells our common stock
to or through a foreign office of a non-U.S. broker.
Any amount withheld under the backup withholding rules from a payment to a
holder is allowable as a credit against the holder's U.S. federal income tax,
which may entitle the holder to a refund, provided that the holder furnishes the
required information to the Internal Revenue Service. In addition, certain
penalties may be imposed by the Internal Revenue Service on a holder who is
required to supply information but does not do so in the proper manner.
The final regulations eliminate the general, current legal presumption that
dividends paid to an address in a foreign country are paid to a resident of that
country. The final regulations impose certain certification and documentation
requirements on non-U.S. holders claiming the benefit, under a tax treaty, of a
reduced withholding rate on dividends.
Prospective purchasers of our common stock are urged to consult their own
tax advisors as to the effect, if any, of the final regulations on their
purchase, ownership and disposition of our common stock.
77
<PAGE> 83
UNDERWRITING
We intend to offer the shares in the U.S. and Canada through the U.S.
underwriters and elsewhere through the international managers. Merrill Lynch,
Pierce, Fenner & Smith Incorporated, ING Barings LLC, C.E. Unterberg, Towbin,
CIBC World Markets Corp. and Gerard Klauer Mattison & Co., Inc. are acting as
U.S. representatives of the U.S. underwriters named below. Subject to the terms
and conditions described in a U.S. purchase agreement among us and the U.S.
underwriters, and concurrently with the sale of 454,300 shares to the
international managers, we have agreed to sell to the U.S. underwriters, and the
U.S. underwriters severally have agreed to purchase from us, the number of
shares listed opposite their names below.
<TABLE>
<CAPTION>
NUMBER
OF SHARES
U.S. UNDERWRITER ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 726,880
ING Barings LLC............................................. 454,300
C.E. Unterberg, Towbin...................................... 272,580
CIBC World Markets Corp. ................................... 272,580
Gerard Klauer Mattison & Co., Inc. ......................... 90,860
---------
Total.......................................... 1,817,200
=========
</TABLE>
We have also entered into an international purchase agreement with the
international managers for sale of the shares outside the U.S. and Canada, for
whom Merrill Lynch International, ING Barings Limited as agent for ING Bank
N.V., London Branch, C.E. Unterberg, Towbin, CIBC World Markets plc and Gerard
Klauer Mattison & Co., Inc. are acting as lead managers. Subject to the terms
and conditions in the international purchase agreement, and concurrently with
the sale of 1,817,200 shares to the U.S. underwriters pursuant to the U.S.
purchase agreement, we have agreed to sell to the international managers and the
international managers severally have agreed to purchase 454,300 shares from us.
The public offering price per share and the total underwriting discount per
share are identical under the U.S. purchase agreement and the international
purchase agreement.
The U.S. underwriters and the international managers have agreed to
purchase all of the shares sold under the U.S. and international purchase
agreements if any of these shares are purchased. If an underwriter defaults, the
U.S. and international purchase agreements provide that the purchase commitments
of the nondefaulting underwriters may be increased or the purchase agreements
may be terminated. The closings for the sale of shares to be purchased by the
U.S. underwriters and the international managers are conditioned on one another.
We have agreed to indemnify the U.S. underwriters and the international
managers against certain liabilities, including liabilities under the Securities
Act, or to contribute to payments the U.S. underwriters and international
managers may be required to make in respect of those liabilities.
The underwriters are offering the shares, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares and other conditions
contained in the purchase agreements, such as the receipt by the underwriters of
officer's certificates and legal opinions. The underwriters reserve the right to
withdraw, cancel or modify offers to the public and to reject orders in whole or
in part.
C.E. Unterberg, Towbin, one of the lead international managers and a
representative of the U.S. underwriters, has been engaged as our financial
advisor to provide investment banking and advisory services in connection with
specific transactions, including rendering a written opinion with respect to the
fairness, from a financial point of view, of the consideration to be paid by us
in the acquisition of the Satellite Networks Business, for which it is entitled
to receive customary fees.
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<PAGE> 84
COMMISSIONS AND DISCOUNTS
The U.S. representatives have advised us that the U.S. underwriters propose
initially to offer the shares to the public at the public offering price on the
cover page of this prospectus and to dealers at that price less a concession not
in excess of $1.00 per share. The U.S. underwriters may allow, and the dealers
may reallow, a discount not in excess of $.10 per share to other dealers. After
the public offering, the public offering price, concession and discount may be
changed.
The following table shows the public offering price, underwriting discount
and proceeds before expenses to us. The information assumes either no exercise
or full exercise by the U.S. underwriters and the international managers of
their over-allotment options.
<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price............................. $30.00 $68,145,000 $78,366,750
Underwriting discount............................. $1.65 $3,747,975 $4,310,171
Proceeds, before expenses, to ViaSat.............. $28.35 $64,397,025 $74,056,579
</TABLE>
The expenses of the offering, not including the underwriting discount, are
estimated at $1.0 million and are payable by ViaSat.
OVER-ALLOTMENT OPTION
We have granted an option to the U.S. underwriters to purchase up to
272,580 additional shares at the public offering price less the underwriting
discount. The U.S. underwriters may exercise this option for 30 days from the
date of this prospectus solely to cover any over-allotments. If the U.S.
underwriters exercise this option, each will be obligated, subject to conditions
contained in the purchase agreements, to purchase a number of additional shares
proportionate to that U.S. underwriter's initial amount reflected in the above
table.
We have also granted an option to the international managers, exercisable
for 30 days from the date of this prospectus, to purchase up to 68,145
additional shares to cover any over-allotments on terms similar to those granted
to the U.S. underwriters.
INTERSYNDICATE AGREEMENT
The U.S. underwriters and the international managers have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Under the intersyndicate agreement, the U.S. underwriters and the international
managers may sell shares to each other for purposes of resale at the public
offering price, less an amount not greater than the selling concession. Under
the intersyndicate agreement, the U.S. underwriters and any dealer to whom they
sell shares will not offer to sell or sell shares to persons who are non-U.S. or
non-Canadian persons or to persons they believe intend to resell to persons who
are non-U.S. or non-Canadian persons, except in the case of transactions under
the intersyndicate agreement. Similarly, the international managers and any
dealer to whom they sell shares will not offer to sell or sell shares to U.S.
persons or Canadian persons or to persons they believe intend to resell to U.S.
or Canadian persons, except in the case of transactions under the intersyndicate
agreement.
NO SALES OF COMMON STOCK OR SIMILAR SECURITIES
We and our executive officers and directors have agreed, with exceptions,
not to sell or transfer any common stock for 90 days after the date of this
prospectus without first obtaining the written consent of Merrill Lynch.
Specifically, we and these other individuals have agreed not to directly or
indirectly
- offer, pledge, sell or contract to sell any common stock,
- sell any option or contract to purchase any common stock,
- purchase any option or contract to sell any common stock,
- grant any option, right or warrant for the sale of any common stock,
79
<PAGE> 85
- lend or otherwise dispose of or transfer any common stock,
- request or demand that we file a registration statement related to the
common stock, or
- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any common stock whether
any such swap or transaction is to be settled by delivery of shares or
other securities, in cash or otherwise.
This lockup provision applies to common stock and to securities convertible
into or exchangeable or exercisable for or repayable with common stock. It also
applies to common stock owned now or acquired later by the person executing the
agreement or for which the person executing the agreement later acquires the
power of disposition.
QUOTATION ON THE NASDAQ NATIONAL MARKET
The shares are quoted on the Nasdaq National Market under the symbol
"VSAT."
PRICE STABILIZATION AND SHORT POSITIONS
Until the distribution of the shares is completed, SEC rules may limit
underwriters and selling group members from bidding for and purchasing our
common stock. However, the U.S. representatives may engage in transactions that
stabilize the price of our common stock, such as bids or purchases to peg, fix
or maintain that price.
If the underwriters create a short position in our common stock in
connection with the offering, i.e., if they sell more shares than are listed on
the cover of this prospectus, the U.S. representatives may reduce that short
position by purchasing shares in the open market. The U.S. representatives may
also elect to reduce any short position by exercising all or part of the
over-allotment option described above. Purchases of the common stock to
stabilize its price or to reduce a short position may cause the price of the
common stock to be higher than it might be in the absence of such purchases.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
we nor any of the underwriters makes any representation that the U.S.
representatives or the lead managers will engage in these transactions or that
these transactions, once commenced, will not be discontinued without notice.
PASSIVE MARKET MAKING
In connection with this offering, underwriters and selling group members
may engage in passive market making transactions in our common stock on the
Nasdaq National Market in accordance with Rule 103 of Regulation M under the
Exchange Act during a period before the commencement of offers or sales of
common stock and extending through the completion of distribution. A passive
market maker must display its bid at a price not in excess of the highest
independent bid of that security. However, if all independent bids are lowered
below the passive market maker's bid, that bid must then be lowered when
specified purchase limits are exceeded.
LEGAL MATTERS
The legality of ViaSat's common stock offered by this prospectus will be
passed upon for ViaSat by Latham & Watkins, San Diego, California. Some legal
matters in connection with the offering will be passed upon for the underwriters
by Shearman & Sterling, New York, New York.
EXPERTS
The financial statements as of March 31, 1998 and 1999 and for each of the
three years in the period ended March 31, 1999 of ViaSat included in this
prospectus have been so included in reliance on the
80
<PAGE> 86
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The financial statements as of June 26, 1998 and July 2, 1999 and for each
of the three years in the period ended July 2, 1999 of the Satellite Networks
Business included in this prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We are subject to the informational requirements of the Exchange Act, and
file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any reports, proxy statements
and other information we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the SEC's regional offices at Seven
World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Please call
the SEC at 1-800-SEC-0300 for further information on the public reference rooms.
You may also access filed documents at the SEC's website at www.sec.gov.
We have filed a registration statement on Form S-3 and related exhibits
with the SEC under the Securities Act. The registration statement contains
additional information about us and the securities. You may inspect the
registration statement and exhibits without charge and obtain copies from the
SEC at prescribed rates at the locations above.
The SEC allows us to incorporate by reference the information we file with
it, which means that we can disclose important information to you by referring
to those documents. The information incorporated by reference is an important
part of this prospectus, and information that we file later with the SEC will
automatically update and supersede this information. We incorporate by reference
the following documents we have filed, or may file, with the SEC:
- Our Annual Report on Form 10-K for the fiscal year ended March 31, 1999,
- Our Quarterly Report on Form 10-Q for the three months ended June 30,
1999,
- Our Quarterly Report on Form 10-Q for the three months ended September
30, 1999,
- Our Quarterly Report on Form 10-Q for the three months ended December 31,
1999,
- Our Current Report on Form 8-K filed with the SEC on January 19, 2000,
- The description of our common stock contained in our Registration
Statement on Form 8-A filed with the SEC on November 20, 1996, and
- All documents filed by us with the SEC under Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this prospectus and before
the termination of this offering.
A statement contained in a document incorporated by reference is considered
to be part of this prospectus, and information filed later with the SEC will
update and supersede this information.
You may request a free copy of any of the documents incorporated by
reference in this prospectus by writing or telephoning us at the following
address:
ViaSat, Inc.
6155 El Camino Real
Carlsbad, California 92009
(760) 476-2200
This prospectus is part of a registration statement we filed with the SEC,
but does not contain all of the information in the registration statement. You
should rely only on the information incorporated by reference or provided in
this prospectus and any supplement. We have not authorized anyone else to
provide you with different information. You should not assume that the
information in this prospectus or any prospectus supplement is accurate as of
any date other than the dates on the front of these documents.
81
<PAGE> 87
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
VIASAT, INC.
Report of Independent Accountants........................... F-2
Balance Sheet as of March 31, 1998 and 1999................. F-3
Statement of Income for the years ended March 31, 1997, 1998
and 1999.................................................. F-4
Statement of Cash Flows for the years ended March 31, 1997,
1998 and 1999............................................. F-5
Statement of Stockholders' Equity for the years ended March
31, 1997, 1998, and 1999.................................. F-6
Notes to Financial Statements............................... F-7
Unaudited Condensed Balance Sheet as of December 31, 1999... F-16
Unaudited Condensed Statement of Income for the three months
ended December 31, 1999 and the nine months ended December
31, 1999.................................................. F-17
Unaudited Condensed Statement of Cash Flows for the nine
months ended December 31, 1998 and 1999................... F-18
Unaudited Condensed Statement of Stockholders' Equity for
the nine months ended December 31, 1999................... F-19
Notes to Unaudited Condensed Financial Statements........... F-20
SATELLITE NETWORKS BUSINESS
Report of Independent Accountants........................... F-22
Balance Sheet as of June 26, 1998, July 2, 1999 and
December 31, 1999 (unaudited)............................. F-23
Statement of Operations for the years ended June 27, 1997,
June 26, 1998
and July 2, 1999.......................................... F-24
Statement of Operations for the six-month periods ended
January 1, 1999
(unaudited) and December 31, 1999 (unaudited)............. F-25
Statement of Cash Flows for the years ended June 27, 1997,
June 26, 1998
and July 2, 1999.......................................... F-26
Statement of Cash Flows for the six-month periods ended
January 1, 1999
(unaudited) and December 31, 1999 (unaudited)............. F-27
Notes to Financial Statements............................... F-28
</TABLE>
F-1
<PAGE> 88
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of ViaSat, Inc.
In our opinion, the accompanying balance sheet and the related statements
of income, of cash flows and of stockholders' equity present fairly, in all
material respects, the financial position of ViaSat, Inc., at March 31, 1998 and
1999, and the results of its operations and its cash flows for each of the three
years in the period ended March 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
San Diego, California
May 12, 1999
F-2
<PAGE> 89
VIASAT, INC.
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
AS OF AS OF
MARCH 31, MARCH 31,
1998 1999
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 3,290,000 $ 6,005,000
Short-term investments.................................... 5,918,000 14,788,000
Accounts receivable....................................... 19,056,000 16,176,000
Inventory................................................. 4,687,000 2,525,000
Deferred income taxes..................................... 1,548,000 2,358,000
Other current assets...................................... 479,000 446,000
----------- -----------
Total current assets................................. 34,978,000 42,298,000
Property and equipment, net................................. 6,986,000 6,630,000
Other assets................................................ 829,000 1,088,000
----------- -----------
Total assets......................................... $42,793,000 $50,016,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 4,555,000 $ 3,754,000
Accrued liabilities....................................... 5,087,000 6,027,000
Current portion of notes payable.......................... 1,060,000 1,219,000
----------- -----------
Total current liabilities............................ 10,702,000 11,000,000
----------- -----------
Notes payable............................................... 1,544,000 1,243,000
Other liabilities........................................... 937,000 926,000
----------- -----------
Total long-term liabilities.......................... 2,481,000 2,169,000
----------- -----------
Commitments and contingencies (Notes 11 & 12)
Stockholders' equity:
Series A, convertible preferred stock, $.0001 par value;
5,000,000 shares authorized; no shares issued and
outstanding at March 31, 1998 and 1999, respectively
Common stock, $.0001 par value, 25,000,000 shares
authorized; 7,920,639 and 8,034,204 shares issued and
outstanding at March 31, 1998 and 1999, respectively... 1,000 1,000
Paid in capital........................................... 16,748,000 17,689,000
Retained earnings......................................... 12,861,000 19,157,000
----------- -----------
Total stockholders' equity........................... 29,610,000 36,847,000
----------- -----------
Total liabilities and stockholders' equity........... $42,793,000 $50,016,000
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 90
VIASAT, INC.
STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenues......................................... $47,715,000 $64,197,000 $71,509,000
Cost of revenues................................. 33,102,000 40,899,000 44,182,000
----------- ----------- -----------
Gross profit................................... 14,613,000 23,298,000 27,327,000
Operating expenses:
Selling, general and administrative............ 4,752,000 7,862,000 10,093,000
Independent research and development........... 5,087,000 7,631,000 7,639,000
----------- ----------- -----------
Income from operations........................... 4,774,000 7,805,000 9,595,000
Other income (expense):
Interest income................................ 354,000 797,000 834,000
Interest expense............................... (254,000) (211,000) (250,000)
----------- ----------- -----------
Income before income taxes....................... 4,874,000 8,391,000 10,179,000
Provision for income taxes....................... 1,702,000 3,104,000 3,883,000
----------- ----------- -----------
Net income....................................... $ 3,172,000 $ 5,287,000 $ 6,296,000
=========== =========== ===========
Basic net income per share....................... $ 0.66 $ 0.68 $ 0.79
=========== =========== ===========
Diluted net income per share..................... $ 0.48 $ 0.65 $ 0.77
=========== =========== ===========
Shares used in computing basic net income per
share.......................................... 4,810,472 7,801,212 7,976,848
=========== =========== ===========
Shares used in computing diluted net income per
share.......................................... 6,641,805 8,174,994 8,172,660
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 91
VIASAT, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------------------------
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 3,172,000 $ 5,287,000 $ 6,296,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation................................. 1,389,000 2,182,000 2,853,000
Tax benefit from exercise of stock options... -- -- 82,000
Deferred income taxes........................ (721,000) (811,000) (1,082,000)
Increase (decrease) in cash resulting from
changes in:
Accounts receivable.......................... (4,144,000) (8,741,000) 2,880,000
Inventory.................................... (3,255,000) (209,000) 2,162,000
Other assets................................. (1,620,000) 1,078,000 46,000
Accounts payable............................. 2,070,000 (289,000) (801,000)
Accrued liabilities.......................... 1,612,000 1,318,000 940,000
Other liabilities............................ 275,000 58,000 (11,000)
----------- ------------ ------------
Net cash (used in) provided by operating
activities.............................. (1,222,000) (127,000) 13,365,000
----------- ------------ ------------
Cash flows from investing activities:
Purchases of short-term investments, net........ -- (5,918,000) (8,870,000)
Purchases of property and equipment............. (3,685,000) (4,083,000) (2,497,000)
----------- ------------ ------------
Net cash used in investing activities...... (3,685,000) (10,001,000) (11,367,000)
----------- ------------ ------------
Cash flows from financing activities:
Proceeds from short-term bank borrowings........ 2,600,000 -- --
Repayment of short-term bank borrowings......... (2,600,000) -- --
Proceeds from issuance of notes payable......... 889,000 1,448,000 1,092,000
Repayment of notes payable...................... (836,000) (1,407,000) (1,234,000)
Proceeds from issuance of common stock.......... 15,230,000 704,000 859,000
----------- ------------ ------------
Net cash provided by financing
activities.............................. 15,283,000 745,000 717,000
----------- ------------ ------------
Net increase (decrease) in cash and cash
equivalents..................................... 10,376,000 (9,383,000) 2,715,000
Cash and cash equivalents at beginning of year.... 2,297,000 12,673,000 3,290,000
----------- ------------ ------------
Cash and cash equivalents at end of year.......... $12,673,000 $ 3,290,000 $ 6,005,000
=========== ============ ============
Supplemental information:
Cash paid for interest.......................... $ 254,000 $ 211,000 $ 250,000
=========== ============ ============
Cash paid for income taxes...................... $ 2,293,000 $ 3,857,000 $ 4,263,000
=========== ============ ============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 92
VIASAT, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
--------------------- ------------------- STOCKHOLDERS'
NUMBER OF NUMBER OF PAID IN NOTES RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE EARNINGS
---------- -------- --------- ------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1996...... 3,225,000 $ 32,000 3,342,101 $ 1,000 $ 782,000 $ 4,402,000
Issuance of common stock..... 2,034,635 15,310,000
Conversion of preferred stock
to common stock............ (3,225,000) (32,000) 2,365,538 32,000
Shares subscribed............ $(80,000)
Net income................... 3,172,000
---------- -------- --------- ------- ----------- -------- -----------
Balance at March 31, 1997...... -- -- 7,742,274 1,000 16,124,000 (80,000) 7,574,000
Exercise of stock options.... 126,273 149,000
Issuance for Employee Stock
Purchase Plan.............. 52,092 475,000
Payment for shares
subscribed................. 80,000
Net income................... 5,287,000
---------- -------- --------- ------- ----------- -------- -----------
Balance at March 31, 1998...... -- -- 7,920,639 1,000 16,748,000 -- 12,861,000
Tax benefit from exercise of
stock options.............. 82,000
Exercise of stock options.... 60,481 334,000
Issuance for Employee Stock
Purchase Plan.............. 53,084 525,000
Net income................... 6,296,000
---------- -------- --------- ------- ----------- -------- -----------
Balance at March 31, 1999...... -- $ -- 8,034,204 $ 1,000 $17,689,000 $ -- $19,157,000
========== ======== ========= ======= =========== ======== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 93
VIASAT, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY AND A SUMMARY OF ITS SIGNIFICANT ACCOUNTING POLICIES
The Company
ViaSat, Inc. (the "Company") designs, produces and markets advanced digital
satellite telecommunications and wireless signal processing equipment.
Management Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
Cash Equivalents
Cash equivalents consist of highly liquid investments with original
maturities of 90 days or less.
Investments
At March 31, 1999, the Company held investments in investment grade debt
securities with various maturities. Management determines the appropriate
classification of its investments in debt securities at the time of purchase and
reevaluates such designation as of each balance sheet date. The Company's
investments in these securities as of March 31, 1998 and 1999 totaled $9,176,000
and $18,686,000, respectively. The Company has included $3,258,000 and
$3,898,000 of these securities in cash and cash equivalents as of March 31, 1998
and 1999, respectively, as they have original maturities of less than 90 days.
The remaining $5,918,000 and $14,788,000 as of March 31, 1998 and 1999,
respectively, have been classified as short-term investments. The Company has
designated all of its investments as held to maturity.
Revenue Recognition
The majority of the Company's revenues are derived from services performed
for the United States Government and its prime contractors under a variety of
contracts including cost-plus-fixed fee, fixed-price, and time and materials
contracts. Such sales amounted to $46,292,000, $58,249,000 and $65,478,000 for
the years ended March 31, 1997, 1998 and 1999, respectively. Included in these
revenues are sales to a significant customer under various subcontracts totaling
$12,830,000, $8,964,000 and $9,058,000 during the years ended March 31, 1997,
1998 and 1999, respectively. The Company's five largest contracts (by revenues)
generated approximately 58%, 65% and 61% of the Company's total revenues for the
fiscal year ended March 31, 1997, 1998 and 1999, respectively. Revenues to
customers in foreign countries are not significant.
Generally, revenues are recognized as services are performed using the
percentage of completion method, measured primarily by costs incurred to date
compared with total estimated costs at completion or based on the number of
units delivered. The Company provides for anticipated losses on contracts by a
charge to income during the period in which they are first identified.
Contract costs, including indirect costs, are subject to audit and
negotiations with Government representatives. These audits have been completed
and agreed upon through fiscal year 1996. Contract revenues and accounts
receivable are stated at amounts which are expected to be realized upon final
settlement.
F-7
<PAGE> 94
VIASAT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Unbilled Accounts Receivable
Unbilled receivables consist of costs and fees earned and billable on
contract completion or other specified events. The majority of unbilled
receivables is expected to be collected within one year.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash equivalents, short-term
investments, and trade accounts receivable which are generally not
collateralized. The Company limits its exposure to credit loss by placing its
cash equivalents and short-term investments with high credit quality financial
institutions and investing in high quality short-term debt instruments.
Concentrations of credit risk with respect to receivables are generally limited
because the Company's principal customers are various agencies of the United
States Government and its prime contractors.
Inventory
Inventories are valued at the lower of cost or market, cost being
determined by the first-in, first-out method.
Software Costs
Software product 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 cost or net realizable
value. Through March 31, 1999, no significant amounts were expended subsequent
to reaching technological feasibility.
Property and Equipment
Equipment, computers, and furniture and fixtures are recorded at cost, and
depreciated over estimated useful lives of three to seven years under the
straight-line method. Additions to property and equipment together with major
renewals and betterments are capitalized. Maintenance, repairs and minor
renewals and betterments are charged to expense. When assets are sold or
otherwise disposed of, the cost and related accumulated depreciation or
amortization are removed from the accounts and any resulting gain or loss is
recognized.
Long-lived Assets
The Company assesses potential impairments to its long-lived assets when
there is evidence that events or changes in circumstances have made recovery of
the asset's carrying value unlikely. An impairment loss would be recognized when
the sum of the expected future undiscounted net cash flows is less than the
carrying amount of the asset. No such impairment losses have been identified by
the Company.
Warranty Reserves
The Company provides limited warranties on certain of its products for
periods of up to three years. The Company records warranty reserves when
products are shipped based upon an estimate of total warranty costs, with
amounts expected to be incurred within twelve months classified as a current
liability.
F-8
<PAGE> 95
VIASAT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Income Taxes
Current income tax expense is the amount of income taxes expected to be
payable for the current year. A deferred income tax asset or liability is
established for the expected future tax consequences resulting from differences
in the financial reporting and tax bases of assets and liabilities. Deferred
income tax expense (benefit) is the net change during the year in the deferred
income tax asset or liability.
Stock Based Compensation
The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic value method and provides pro forma
disclosures of net income and earnings per share as if the fair value method had
been applied in measuring compensation expense.
Earnings Per Share
Basic earnings per share is computed based upon the weighted average number
of common shares outstanding during the period. Diluted earnings per share is
based upon the weighted average number of common shares outstanding and dilutive
common stock equivalents during the period. Common stock equivalents include
options granted under the Company's stock option plans which are included in the
earnings per share calculations using the treasury stock method and common
shares expected to be issued under the Company's employee stock purchase plan
Fair Value of Financial Instruments
At March 31, 1999, the carrying amounts of the Company's financial
instruments, including cash equivalents, short-term investments, trade
receivables and accounts payable, approximated their fair values due to their
short-term maturities. At March 31, 1999, the estimated fair value of the
Company's long-term debt approximated its carrying value, as a majority of the
related borrowing rates are variable.
NOTE 2 -- COMPLETION OF INITIAL PUBLIC OFFERING
On December 3, 1996, the Company completed its initial public offering for
the sale of 2,400,000 shares of common stock (of which 1,850,000 shares were
sold by the Company and 550,000 shares were sold by certain stockholders) at a
price to the public of $9 per share, which resulted in net proceeds to the
Company of $15,485,000 after payment of the underwriters' commissions but before
deduction of offering expenses.
F-9
<PAGE> 96
VIASAT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- COMPOSITION OF CERTAIN BALANCE SHEET CAPTIONS
<TABLE>
<CAPTION>
AS OF MARCH 31,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
Cash and cash equivalents:
Investments in debt securities.................. $ 3,258,000 $ 3,898,000
Cash............................................ 32,000 2,107,000
----------- -----------
$ 3,290,000 $ 6,005,000
=========== ===========
Accounts receivable:
Billed.......................................... $12,077,000 $ 7,765,000
Unbilled........................................ 6,979,000 8,411,000
----------- -----------
$19,056,000 $16,176,000
=========== ===========
Inventory:
Raw materials................................... $ 1,564,000 $ 914,000
Work in process................................. 2,372,000 1,157,000
Finished goods.................................. 751,000 454,000
----------- -----------
$ 4,687,000 $ 2,525,000
=========== ===========
Property and equipment:
Machinery and equipment......................... $ 8,224,000 $ 9,249,000
Computer equipment.............................. 4,108,000 4,179,000
Furniture and fixtures.......................... 339,000 326,000
----------- -----------
12,671,000 13,754,000
Less accumulated depreciation................... (5,685,000) (7,124,000)
----------- -----------
$ 6,986,000 $ 6,630,000
=========== ===========
Accrued liabilities:
Current portion of warranty reserve............. $ 1,279,000 $ 1,440,000
Accrued vacation................................ 974,000 1,143,000
Accrued bonus................................... 500,000 1,195,000
Accrued 401(k) matching contribution............ 671,000 791,000
Income taxes payable............................ 309,000 694,000
Collections in excess of revenues............... 930,000 527,000
Other........................................... 424,000 237,000
----------- -----------
$ 5,087,000 $ 6,027,000
=========== ===========
</TABLE>
NOTE 4 -- SHORT-TERM BANK BORROWINGS
The Company's credit facilities, including the line of credit and
commitment for future equipment financing, expired on December 15, 1998. The
Company is in the process of renegotiating the terms of an agreement.
F-10
<PAGE> 97
VIASAT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- NOTES PAYABLE
<TABLE>
<CAPTION>
AS OF MARCH 31,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
Bank installment loans, with various maturity
dates through September 2001, total monthly
payments of $117,000 with interest rates ranging
between 8% and 9%, collateralized by
equipment....................................... $ 2,485,000 $ 2,462,000
Finance company installment loans, with various
maturity dates through April 1999, total monthly
payments of $20,000 with interest rates ranging
between 10.23% and 11.81%, collateralized by
equipment....................................... 119,000
----------- -----------
2,604,000 2,462,000
Less current portion.............................. (1,060,000) (1,219,000)
----------- -----------
$ 1,544,000 $ 1,243,000
=========== ===========
</TABLE>
Principal maturities of notes payable as of March 31, 1999 are summarized
as follows:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31,
---------------------
<S> <C>
2000............................................... $1,219,000
2001............................................... 908,000
2002............................................... 335,000
----------
$2,462,000
==========
</TABLE>
NOTE 6 -- COMMON STOCK AND OPTIONS
In July 1993, the Company adopted the 1993 Stock Option Plan (the "Plan")
which authorizes 733,500 shares to be granted no later than July 2003. The Plan
provides for the grant of both incentive stock options and non-qualified stock
options which are subject to a three-year vesting period. The exercise prices of
the options represent the estimated fair value of the Company's common stock as
determined by the Company's Board of Directors. In November 1996, the Plan was
terminated and replaced by the 1996 Equity Participation Plan. No options have
been issued under the Plan since July 1996.
In November 1996, the Company adopted the ViaSat, Inc. 1996 Equity
Participation Plan (the "1996 Equity Participation Plan") designed to update and
replace the 1993 Stock Option Plan. The 1996 Equity Participation Plan provides
for the grant to executive officers, other key employees, consultants and non-
employee directors of the Company a broad variety of stock-based compensation
alternatives such as nonqualified stock options, incentive stock options,
restricted stock and performance awards. A maximum of 1,250,000 shares are
reserved for issuance under the 1996 Equity Participation Plan. As of March 31,
1999, the Company had granted options to purchase 762,000 shares of common stock
under this plan with vesting terms of 3 to 5 years.
In November 1996, the Company adopted the ViaSat, Inc. Employee Stock
Purchase Plan (the "Employee Stock Purchase Plan") to assist employees in
acquiring a stock ownership interest in the Company and to encourage them to
remain in the employment of the Company. The Employee Stock Purchase Plan is
intended to qualify under Section 423 of the Internal Revenue Code. A maximum of
250,000 shares of common stock are reserved for issuance under the Employee
Stock Purchase Plan. The Employee Stock Purchase Plan permits eligible employees
to purchase common stock at a discount through payroll deductions during
specified six-month offering periods. No employee may purchase more than $25,000
worth of stock in any calendar year. The price of shares purchased under the
Employee
F-11
<PAGE> 98
VIASAT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Stock Purchase Plan is equal to 85% of the fair market value of the common stock
on the first or last day of the offering period, whichever is lower. As of March
31, 1999, the Company has issued 105,176 shares of common stock under this plan.
Transactions under the Company's stock option plans are summarized as
follows:
<TABLE>
<CAPTION>
NUMBER EXERCISE PRICE
OF SHARES PER SHARE
--------- --------------
<S> <C> <C>
Outstanding at March 31, 1996..................... 310,087 $ .34 - 1.36
Options granted................................... 295,673 4.09 - 10.75
Options canceled.................................. (5,284) .82 - 4.09
Options exercised................................. (73,458) .34 - 1.36
--------
Outstanding at March 31, 1997..................... 527,018 .34 - 10.75
Options granted................................... 269,450 12.25 - 19.81
Options canceled.................................. (13,511) .48 - 12.75
Options exercised................................. (126,273) .34 - 4.09
--------
Outstanding at March 31, 1998..................... 656,684 .34 - 19.81
Options granted................................... 324,000 7.38 - 17.08
Options canceled.................................. (109,908) 1.36 - 15.53
Options exercised................................. (60,480) .34 - 14.13
--------
Outstanding at March 31, 1999..................... 810,296 $ .48 - 19.81
========
</TABLE>
The following table summarizes all options outstanding and exercisable by
price range as of March 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE-YEARS PRICE EXERCISABLE PRICE
- --------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.48 - 1.50 94,709 1.11 $ 1.23 94,709 $ 1.23
4.09 - 4.50 84,605 2.25 4.18 54,191 4.19
7.38 - 9.38 122,500 9.14 8.48 18,334 9.00
10.09 - 10.75 82,000 8.29 10.66 25,000 10.68
11.56 - 12.75 170,482 8.17 12.73 52,008 12.74
14.03 - 19.81 256,000 9.03 15.76 16,104 16.14
------- -------
$ 0.48 - 19.81 810,296 7.16 10.60 260,346 6.52
======= =======
</TABLE>
F-12
<PAGE> 99
VIASAT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- SHARES USED IN EARNINGS PER SHARE CALCULATIONS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Weighted average common shares outstanding used
in calculating basic net income per share.... 4,810,472 7,801,212 7,976,848
Weighted average options to purchase common
stock as determined by application of the
treasury stock method........................ 226,840 360,118 185,452
Incremental shares for assumed conversion of
convertible preferred stock.................. 1,600,788 -- --
Employee Stock Purchase Plan equivalents........ 3,705 13,664 10,360
--------- --------- ---------
Shares used in computing diluted net income per
share........................................ 6,641,805 8,174,994 8,172,660
========= ========= =========
</TABLE>
All outstanding shares of the Company's preferred stock automatically
converted into shares of common stock upon the closing of the Company's initial
public offering on December 3, 1996. Shares used in computing diluted net income
per share for 1997 assume the conversion of all outstanding shares of the
convertible preferred stock at the beginning of those years. Antidilutive shares
excluded from the calculation were 24,527, 18,493, and 420,735 shares for the
fiscal years ended March 31, 1997, 1998, and 1999 respectively.
NOTE 8 -- PRO FORMA EARNINGS PER SHARE
The fair values of options granted during the years ended as reported below
were estimated at the date of grant using a Black-Scholes option pricing model
with the following weighted average assumptions:
<TABLE>
<CAPTION>
EMPLOYEE STOCK OPTIONS EMPLOYEE STOCK PURCHASE PLAN
--------------------------------------- ----------------------------
1997 1998 1999 1997 1998 1999
----------- ----------- ----------- ----- ----- ------------
<S> <C> <C> <C> <C> <C> <C>
Expected life (in years)..... 3.50 - 5.00 3.50 - 5.50 3.50 - 5.00 0.50 0.50 0.50
Risk-free interest rate...... 6.45% 5.65 - 5.68% 4.46 - 5.42% 5.97% 5.54% 5.66% - 6.22%
Expected volatility.......... 50.00% 50.00% 50.00% 50.00% 50.00% 50.00%
Expected dividend yield...... 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
</TABLE>
The weighted average estimated fair value of employee stock options granted
during 1997, 1998, and 1999 was $3.55, $6.30, and $6.27 per share, respectively.
The weighted average estimated fair value of shares granted under the Employee
Stock Purchase Plan during 1997, 1998 and 1999 was $2.78, $4.00 and $4.00 per
share, respectively.
For purposes of pro forma disclosures, the estimated fair value of options
is amortized to expense over the vesting period. The Company's pro forma
information for the years ended March 31, 1997, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Net income as reported......................... $3,172,000 $5,287,000 $6,296,000
Pro forma net income........................... 3,016,000 4,489,000 5,157,000
Pro forma basic earnings per share............. 0.63 0.58 0.65
Pro forma diluted earnings per share........... 0.46 0.56 0.65
</TABLE>
F-13
<PAGE> 100
VIASAT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- INCOME TAXES
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------------------
1997 1998 1999
---------- ---------- -----------
<S> <C> <C> <C>
Current tax provision
Federal.................................. $1,954,000 $3,200,000 $ 3,977,000
State.................................... 469,000 715,000 988,000
---------- ---------- -----------
2,423,000 3,915,000 4,965,000
---------- ---------- -----------
Deferred tax (benefit) provision
Federal.................................. (563,000) (683,000) (863,000)
State.................................... (158,000) (128,000) (219,000)
---------- ---------- -----------
(721,000) (811,000) (1,082,000)
---------- ---------- -----------
Total provision for income taxes.... $1,702,000 $3,104,000 $ 3,883,000
========== ========== ===========
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
AS OF MARCH 31,
------------------------
1998 1999
---------- ----------
<S> <C> <C>
Deferred tax assets:
Warranty reserve.................................. $ 738,000 $ 706,000
Inventory reserve................................. 383,000 1,377,000
Accrued vacation.................................. 328,000 396,000
State income taxes................................ 243,000 335,000
Other............................................. 377,000 337,000
---------- ----------
Total deferred tax assets...................... $2,069,000 $3,151,000
========== ==========
</TABLE>
A reconciliation of the provision for income taxes to the amount computed
by applying the statutory federal income tax rate to income before income taxes
is as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Tax expense at statutory rate.................. $1,657,000 $2,853,000 $3,461,000
State tax provision, net of federal benefit.... 205,000 388,000 507,000
Research tax credit............................ (181,000) (179,000) (67,000)
Other.......................................... 21,000 42,000 (18,000)
---------- ---------- ----------
$1,702,000 $3,104,000 $3,883,000
========== ========== ==========
</TABLE>
NOTE 10 -- EMPLOYEE BENEFITS
The Company has a voluntary deferred compensation plan under Section 401(k)
of the Internal Revenue Code. The Company may make discretionary contributions
to the plan which vest equally over six years. Employees who have completed 90
days of service and are at least 21 years of age are eligible to participate in
the plan. Participants are entitled, upon termination or retirement, to their
vested portion of the plan assets which are held by an independent trustee.
Discretionary contributions accrued by the Company during fiscal years 1997,
1998 and 1999 amounted to $553,000, $671,000 and $791,000, respectively. The
cost of administering the plan is not significant.
F-14
<PAGE> 101
VIASAT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 -- COMMITMENTS
The Company leases office facilities under noncancelable operating leases
with initial terms ranging from one to ten years which expire between November
1999 and December 2009. Certain of the Company's facilities leases contain
option provisions which allow for extension of the lease terms. Rent expense was
$793,000, $1,079,000 and $1,312,000 in fiscal years 1997, 1998 and 1999,
respectively.
Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31,
---------------------
<S> <C>
2000............................................... $ 1,465,000
2001............................................... 2,294,000
2002............................................... 2,294,000
2003............................................... 2,294,000
2004............................................... 2,294,000
Thereafter......................................... 12,999,000
-----------
$23,640,000
===========
</TABLE>
NOTE 12 -- CONTINGENCIES
The Company is currently a party to various government and commercial
contracts which require the Company to meet performance covenants and project
milestones. Under the terms of these contracts, failure by the Company to meet
such performance covenants and milestones permit the other party to terminate
the contract and, under certain circumstances, recover liquidated damages or
other penalties. The Company is currently not in compliance (or in the past was
not in compliance) with the performance or milestone requirements of certain of
these contracts. Historically, the Company's customers have not elected to
terminate such contracts or seek liquidated damages from the Company and
management does not believe that its existing customers will do so; therefore,
the Company has not accrued for any potential liquidated damages or penalties.
NOTE 13 -- SUBSEQUENT EVENT
From time to time, the Company issues standby letters of credit for its
customers. At April 1999, the Company has secured these letters of credit with a
$1,000,000 time certificate of deposit with the Company's bank.
F-15
<PAGE> 102
VIASAT, INC.
CONDENSED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1999
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $16,584,000
Short-term investments.................................... 2,575,000
Accounts receivable....................................... 22,331,000
Inventory................................................. 3,189,000
Deferred income taxes..................................... 2,143,000
Other current assets...................................... 457,000
-----------
Total current assets................................... 47,279,000
Property and equipment, net................................. 7,011,000
Other assets................................................ 883,000
-----------
Total assets........................................... $55,173,000
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 4,119,000
Accrued liabilities....................................... 5,334,000
Current portion of notes payable.......................... 997,000
-----------
Total current liabilities.............................. 10,450,000
-----------
Notes payable............................................... 504,000
Other liabilities........................................... 1,126,000
-----------
Total long-term liabilities............................ 1,630,000
-----------
Contingencies (Note 6)
Stockholders' equity:
Common stock.............................................. 1,000
Paid in capital........................................... 18,319,000
Retained earnings......................................... 24,773,000
-----------
Total stockholders' equity............................. 43,093,000
-----------
Total liabilities and stockholders' equity........... $55,173,000
===========
</TABLE>
See accompanying notes to condensed financial statements.
F-16
<PAGE> 103
VIASAT, INC.
CONDENSED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------- -------------------------
1998 1999 1998 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues.................................... $18,928,000 $18,041,000 $53,269,000 $52,093,000
Cost of revenues............................ 12,401,000 10,493,000 33,461,000 29,760,000
----------- ----------- ----------- -----------
Gross profit.............................. 6,527,000 7,548,000 19,808,000 22,333,000
Operating expenses:
Selling, general and administrative....... 2,371,000 2,845,000 7,246,000 8,226,000
Independent research and development...... 1,671,000 2,087,000 5,773,000 5,967,000
----------- ----------- ----------- -----------
Income from operations...................... 2,485,000 2,616,000 6,789,000 8,140,000
Other income (expense):
Interest income........................... 185,000 283,000 593,000 762,000
Interest expense.......................... (63,000) (37,000) (199,000) (126,000)
----------- ----------- ----------- -----------
Income before income taxes.................. 2,607,000 2,862,000 7,183,000 8,776,000
Provision for income taxes.................. 950,000 855,000 2,760,000 3,160,000
----------- ----------- ----------- -----------
Net income.................................. $ 1,657,000 $ 2,007,000 $ 4,423,000 $ 5,616,000
=========== =========== =========== ===========
Basic net income per share.................. $ .21 $ .25 $ .56 $ .69
=========== =========== =========== ===========
Diluted net income per share................ $ .20 $ .23 $ .54 $ .66
=========== =========== =========== ===========
Shares used in basic net income per share
computation............................... 7,987,508 8,113,466 7,960,529 8,094,281
=========== =========== =========== ===========
Shares used in diluted net income per share
computation............................... 8,153,782 8,706,955 8,190,970 8,490,786
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
F-17
<PAGE> 104
VIASAT, INC.
CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 4,423,000 $ 5,616,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 2,045,000 2,531,000
Deferred taxes......................................... (379,000) 424,000
Tax benefit from exercise of stock options............. 82,000 68,000
Increase (decrease) in cash resulting from changes in:
Accounts receivable.................................... 728,000 (6,155,000)
Inventory.............................................. 578,000 (664,000)
Other assets........................................... 179,000 (15,000)
Accounts payable....................................... (152,000) 365,000
Accrued liabilities.................................... 840,000 (693,000)
Other liabilities...................................... 83,000 200,000
----------- -----------
Net cash provided by operating activities.............. 8,427,000 1,677,000
----------- -----------
Cash flows from investing activities:
Purchases and sales of short-term investments, net........ (6,592,000) 12,213,000
Purchases of property and equipment....................... (2,079,000) (2,912,000)
----------- -----------
Net cash (used in) provided by investing activities.... (8,671,000) 9,301,000
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable................... 1,092,000 --
Repayment of notes payable................................ (877,000) (961,000)
Proceeds from issuance of common stock.................... 574,000 562,000
----------- -----------
Net cash provided by (used in) financing activities.... 789,000 (399,000)
----------- -----------
Net increase in cash and cash equivalents................... 545,000 10,579,000
Cash and cash equivalents at beginning of period............ 3,290,000 6,005,000
----------- -----------
Cash and cash equivalents at end of period.................. $ 3,835,000 $16,584,000
=========== ===========
Supplemental information:
Cash paid for interest................................. $ 199,000 $ 126,000
=========== ===========
Cash paid for income taxes............................. $ 2,668,000 $ 3,347,000
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
F-18
<PAGE> 105
VIASAT, INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------
NUMBER OF PAID IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
--------- ------ ----------- -----------
<S> <C> <C> <C> <C>
Balance at March 31, 1999................... 8,034,204 $1,000 $17,689,000 $19,157,000
Exercise of stock options................. 70,863 316,000
Issuance of shares for Employee Stock
Purchase Plan.......................... 48,177 246,000
Tax benefit from exercise of stock
options................................ 68,000
Net income................................ 5,616,000
--------- ------ ----------- -----------
Balance at December 31, 1999................ 8,153,244 $1,000 $18,319,000 $24,773,000
========= ====== =========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
F-19
<PAGE> 106
VIASAT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying condensed balance sheet as of December 31, 1999, the
condensed statements of income for the three and nine month periods ended
December 31, 1998 and 1999, the condensed statement of cash flows for the nine
month periods ended December 31, 1998 and 1999, and the condensed statement of
stockholders' equity for the nine months ended December 31, 1999 have been
prepared by ViaSat, Inc. (the "Company"), and have not been audited. These
financial statements, in the opinion of management, include all adjustments
(consisting only of normal recurring accruals) necessary for a fair presentation
of the financial position, results of operations and cash flows for all periods
presented. These financial statements should be read in conjunction with the
financial statements and notes thereto for the year ended March 31, 1999
included in the Company's 1999 Annual Report on Form 10-K. Interim operating
results are not necessarily indicative of operating results for the full year.
NOTE 2 -- MANAGEMENT ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
NOTE 3 -- REVENUE RECOGNITION
The majority of the Company's revenues are derived from services performed
for the United States Government and its prime contractors under a variety of
contracts including cost-plus-fixed fee, fixed-price, and time and materials
type contracts. Generally, revenues are recognized as services are performed
using the percentage of completion method, measured primarily by costs incurred
to date compared with total estimated costs at completion or based on the number
of units delivered. The Company provides for anticipated losses on contracts by
a charge to income during the period in which they are first identified.
Contract costs, including indirect costs, are subject to audit and
negotiations with Government representatives. These audits have been completed
and agreed upon through fiscal year 1996. Contract revenues and accounts
receivable are stated at amounts which are expected to be realized upon final
settlement.
NOTE 4 -- EARNINGS PER SHARE
Common stock equivalents of 166,274 and 593,489 shares for the three months
ended December 31, 1998 and 1999, respectively, and 230,441 and 396,505 for the
nine months ended December 31, 1998 and 1999, respectively, were used to
calculate diluted earnings per share. Antidilutive shares excluded from the
calculation were 515,381 and zero shares for the three months ended December 31,
1998 and 1999, respectively. Antidilutive shares excluded from the calculation
were 216,642 and 10,520 shares for the nine months ended December 31, 1998 and
1999, respectively. Common stock equivalents are primarily comprised of options
granted under the Company's stock option plan. There are no reconciling items in
calculating the numerator for basic and diluted earnings per share for any of
the periods presented.
F-20
<PAGE> 107
VIASAT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 5 -- COMPOSITION OF CERTAIN BALANCE SHEET CAPTIONS
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1999
------------
(UNAUDITED)
<S> <C>
Accounts receivable:
Billed.................................................... $12,185,000
Unbilled.................................................. 10,146,000
-----------
$22,331,000
===========
Inventory:
Raw materials............................................. $ 1,580,000
Work in process........................................... 1,351,000
Finished goods............................................ 258,000
-----------
$ 3,189,000
===========
Accrued liabilities:
Current portion of warranty reserve....................... $ 836,000
Accrued vacation.......................................... 1,228,000
Accrued bonus............................................. 754,000
Accrued 401(k) matching contribution...................... 728,000
Income taxes payable...................................... (56,000)
Collections in excess of revenues......................... 1,196,000
Other..................................................... 648,000
-----------
$ 5,334,000
===========
</TABLE>
NOTE 6 -- CONTINGENCIES
The Company is currently a party to various government and commercial
contracts which require the Company to meet performance covenants and project
milestones. Under the terms of these contracts, failure by the Company to meet
such performance covenants and milestones permit the other party to terminate
the contract and, under certain circumstances, recover liquidated damages or
other penalties. The Company is currently not in compliance, or in the past was
not in compliance, with the performance or milestone requirements of certain of
these contracts. Historically, the Company's customers have not elected to
terminate such contracts or seek liquidated damages from the Company and
management does not believe that its existing customers will do so; therefore,
the Company has not accrued for any potential liquidated damages or penalties.
F-21
<PAGE> 108
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of ViaSat, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, and of cash flows present fairly, in all material respects, the
financial position of the Satellite Networks Business Unit, a business unit of
Scientific-Atlanta, Inc. at June 26, 1998 and July 2, 1999, and the results of
its operations and its cash flows for each of the three years in the period
ended July 2, 1999, in conformity with accounting principles generally accepted
in the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Atlanta, Georgia
March 2, 2000
F-22
<PAGE> 109
SATELLITE NETWORKS BUSINESS UNIT
(A BUSINESS UNIT OF SCIENTIFIC-ATLANTA, INC.)
BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 26, JULY 2, DECEMBER 31,
1998 1999 1999
-------- -------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current Assets:
Accounts receivable, less allowance for doubtful accounts
of $440 at June 26, 1998, $439 at July 2, 1999 and $441
at December 31, 1999................................... $ 33,016 $ 37,919 $ 33,610
Inventory................................................ 23,482 19,244 18,675
-------- -------- --------
Total current assets................................ 56,498 57,163 52,285
-------- -------- --------
Property and equipment, at cost.......................... 32,664 35,962 36,553
Less accumulated depreciation.......................... (21,896) (21,141) (23,927)
-------- -------- --------
10,768 14,821 12,626
-------- -------- --------
Patents, net of accumulated amortization of $166 at June
26, 1998, $181 at July 2, 1999 and $195 at December 31,
1999................................................... 235 239 235
-------- -------- --------
Total assets........................................ $ 67,501 $ 72,223 $ 65,146
======== ======== ========
LIABILITIES AND BUSINESS UNIT EQUITY
Current Liabilities:
Accounts payable......................................... $ 8,790 $ 9,297 $ 8,845
Accrued liabilities...................................... 6,839 4,269 2,858
Customer deposits........................................ 1,432 6,142 6,755
-------- -------- --------
Total current liabilities........................... 17,061 19,708 18,458
Other liabilities........................................ 2,949 2,194 2,015
-------- -------- --------
Total liabilities................................... 20,010 21,902 20,473
Contingencies (Note 8)
Business unit equity..................................... 47,491 50,321 44,673
-------- -------- --------
Liabilities and business unit equity..................... $ 67,501 $ 72,223 $ 65,146
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE> 110
SATELLITE NETWORKS BUSINESS UNIT
(A BUSINESS UNIT OF SCIENTIFIC-ATLANTA, INC.)
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED JUNE 27, 1997, JUNE 26, 1998 AND JULY 2, 1999
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues................................................... $141,736 $135,338 $ 94,891
Cost of revenues........................................... 102,763 110,947 87,863
-------- -------- --------
Gross profit............................................. 38,973 24,391 7,028
Operating expenses:
Selling and administrative............................... 26,468 25,181 18,179
Research and development................................. 10,151 10,580 8,451
Restructuring charges.................................... -- 3,407 --
-------- -------- --------
Total operating expenses.............................. 36,619 39,168 26,630
-------- -------- --------
Income (loss) before income taxes.......................... 2,354 (14,777) (19,602)
Provision (benefit) for income taxes....................... 706 (4,455) --
-------- -------- --------
Net income (loss).......................................... $ 1,648 $(10,322) $(19,602)
======== ======== ========
</TABLE>
See accompanying notes to the financial statements.
F-24
<PAGE> 111
SATELLITE NETWORKS BUSINESS UNIT
(A BUSINESS UNIT OF SCIENTIFIC-ATLANTA, INC.)
STATEMENT OF OPERATIONS
FOR THE SIX MONTH PERIODS ENDED JANUARY 1, 1999 AND
DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
JANUARY 1, DECEMBER 31,
1999 1999
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
Revenues.................................................... $ 48,472 $42,440
Cost of revenues............................................ 47,926 35,833
-------- -------
Gross profit.............................................. 546 6,607
Operating expenses:
Sales and administrative.................................. 10,724 6,588
Research and development.................................. 5,077 2,938
Restructuring charges..................................... -- --
-------- -------
Total operating expenses............................... 15,801 9,526
-------- -------
Net loss.................................................... $(15,255) $(2,919)
======== =======
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE> 112
SATELLITE NETWORKS BUSINESS UNIT
(A BUSINESS UNIT OF SCIENTIFIC-ATLANTA, INC.)
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED JUNE 27, 1997, JUNE 26, 1998 AND JULY 2, 1999
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................ $ 1,648 $(10,322) $(19,602)
-------- -------- --------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization....................... 803 1,510 2,741
Bad debt expense.................................... 121 109 33
Changes in operating assets and liabilities:
Accounts receivable................................. 24,906 14,886 (4,936)
Inventories......................................... (1,583) 16,017 4,238
Patents............................................. (58) (19)
Accounts payable and accrued liabilities............ (10,771) (14,976) 2,647
Other liabilities................................... 2,342 607 (755)
-------- -------- --------
Net cash provided by (used in) operating
activities..................................... 17,466 7,773 (15,653)
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment...................... (4,577) (3,494) (9,198)
-------- -------- --------
Cash flows from financing activities:
Advances (to) from parent................................ (12,889) (4,279) 24,851
-------- -------- --------
Change in cash and cash equivalents........................ -- -- --
Cash and cash equivalents at beginning of year............. -- -- --
-------- -------- --------
Cash and cash equivalents at end of year................... $ -- $ -- $ --
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE> 113
SATELLITE NETWORKS BUSINESS UNIT
(A BUSINESS UNIT OF SCIENTIFIC-ATLANTA, INC.)
STATEMENT OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED JANUARY 1, 1999 AND DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31,
1999 1999
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(15,255) $(2,919)
-------- -------
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization........................ 2,184 3,122
Bad debt expense..................................... 56 (24)
Changes in operating assets and liabilities:
Accounts receivable.................................. 1,295 4,333
Inventories.......................................... (1,530) 569
Patents.............................................. (34) (9)
Accounts payable and accrued liabilities............. 78 (1,250)
Other liabilities.................................... (558) (179)
-------- -------
Net cash (used in) provided by operating
activities...................................... (13,764) 3,643
-------- -------
Cash flows from investing activities:
Purchases of property and equipment....................... (1,754) (949)
-------- -------
Cash flows from financing activities:
Advances from (to) parent................................. 15,518 (2,694)
-------- -------
Change in cash and cash equivalents......................... -- --
Cash and cash equivalents at beginning of year.............. -- --
-------- -------
Cash and cash equivalents at end of year.................... $ -- $ --
======== =======
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE> 114
SATELLITE NETWORKS BUSINESS UNIT
(A BUSINESS UNIT OF SCIENTIFIC-ATLANTA, INC.)
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
The Satellite Networks Business Unit (the "Company") is an operating
business unit of Scientific-Atlanta, Inc. ("SA" or the "Parent"). The Company is
not a separate legal entity and, accordingly, has no authorized or outstanding
capital stock. The Company manufactures products for broad satellite network
gateways, data transactions, telephony, mobile asset tracking, automated meter
reading, remote monitoring, and space imaging and operates satellite network
operations centers for customers globally.
BASIS OF PRESENTATION
These financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") and present the financial position and
results of operations of the Company as defined above. The results of operations
include direct charges for expenses, such as facilities and telephone and data
line charges, and indirect charges for other common expenses and corporate
expenses. Common expenses include, but are not limited to, shared assembly and
manufacturing facilities and functional services, such as purchasing, human
resources, financial services, and legal services. These common expenses are
charged to the business unit based on actual usage or based on the ratio of the
business unit's net operating expenses to SA consolidated domestic net operating
expenses. Corporate expenses which include head office expense such as corporate
human resources, corporate finance, investor relations and other similar
expenses are allocated to business units based on the ratio of the business
unit's sales to SA consolidated domestic sales. Corporate expense allocated to
the Company totaled $4,936, $4,545 and $3,749 for the years ended June 27, 1997,
June 26, 1998 and July 2, 1999, respectively, and are primarily included in
sales and administrative expenses in the accompanying financial statements.
Management believes that the charges and allocations are based on practical and
reasonable methods. However, these financial statements are not necessarily
indicative of the results of operations that would have occurred if the
Satellite Networks Business Unit had been an independent company.
SA provides a centralized cash management function; accordingly, the
Company does not maintain separate cash accounts, and its cash disbursements and
collections are settled by SA. Amounts owed to SA by the Company have been
included as a component of business unit equity as these advances do not have
any scheduled maturity dates and are not expected to be settled upon the sale of
the Company by SA (Note 12).
FISCAL YEAR-END
The Company's fiscal year ends on the Friday closest to June 30 of each
year. Fiscal year ends are as follows:
<TABLE>
<S> <C>
1997: June 27, 1997
1998: June 26, 1998
1999: July 2, 1999
</TABLE>
The fiscal year ended July 2, 1999 includes fifty-three weeks.
USE OF ESTIMATES
The preparation of the accompanying 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
liabilities at the date of the financial statements and the reported amounts of
F-28
<PAGE> 115
SATELLITE NETWORKS BUSINESS UNIT
(A BUSINESS UNIT OF SCIENTIFIC-ATLANTA, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
revenues and expenses during the reporting period. Actual results could differ
from those estimates. The estimates made by management primarily relate to
receivable and inventory reserves, estimated costs to complete long-term
contracts and certain accrued liabilities, principally relating to warranty and
service provisions, restructuring reserves, compensation and taxes.
REVENUE RECOGNITION
Revenue is recognized under American Institute of Certified Public
Accountants ("AICPA") Statement of Position No. 81-1 using the
percentage-of-completion accounting method based on contract costs incurred to
date or delivery of units produced. Losses, if any, are recorded when
determinable. Unbilled receivables consist of costs incurred and estimated
accrued profits not billed under these contracts and are included in accounts
receivables. Unbilled receivables were $8,023 at June 26, 1998 and $12,259 at
July 2, 1999. It is anticipated that substantially all such amounts will be
collected within one year.
RESEARCH AND DEVELOPMENT EXPENDITURES
Research and development costs are expensed as incurred.
INVENTORY
Inventories are stated at the lower of cost (first-in, first-out) or
market. Cost includes spare parts, materials, direct labor, and manufacturing
overhead. Market is defined principally as net realizable value. Inventories
include purchased and manufactured components in various stages of assembly.
PROPERTY AND EQUIPMENT
Property, plant and equipment are recorded at costs. Depreciation is
provided using principally the straight-line method over the estimated useful
lives of the assets, which range from three to ten years. Maintenance and
repairs are charged to expense as incurred. Renewals and betterments are
capitalized. The cost and accumulated depreciation of property retired or
otherwise disposed of are removed from the respective accounts, and the gains or
losses thereon are included in the statement of earnings.
INTANGIBLE ASSETS
Intangible assets consist of patents developed in the Company's business.
Amortization for these intangibles is provided on a straight-line basis over the
estimated useful life of the related asset, which is generally 17 years. The
Company records impairment losses on long-lived assets used in operations when
events and circumstances indicate that the assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are less than
the carrying amount of those assets.
WARRANTY COSTS
The Company accrues warranty costs at the time of sale.
INCOME TAXES
The Company has applied the asset and liability approach to Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", for
financial reporting purposes. The Company accounts for certain items of income
and expense in different time periods for financial reporting and income tax
purposes. Provisions for deferred income taxes are made in recognition of such
temporary
F-29
<PAGE> 116
SATELLITE NETWORKS BUSINESS UNIT
(A BUSINESS UNIT OF SCIENTIFIC-ATLANTA, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
differences, where applicable. A valuation allowance is established against
deferred tax assets unless the Company believes it is more likely than not that
the benefit will be realized.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The recorded values of accounts receivable and accounts payable approximate
their fair values principally because of the short-term maturities of these
instruments.
BUSINESS UNIT EQUITY
Business unit equity includes accumulated retained earnings and capital
contributions by SA.
UNAUDITED INFORMATION
The interim financial information as of and for the six months ended
January 1, 1999 and December 31, 1999 is unaudited. However, in the opinion of
management, such information has been prepared on the same basis as the audited
financial statements and includes all adjustments, consisting solely of normal
recurring adjustments, necessary for a fair presentation of the financial
position and results of operations for the periods presented. The interim
results, however, are not necessarily indicative of results for any future
period.
2. INVENTORY
At June 26, 1998 and July 2, 1999, inventory consisted of the following:
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Raw materials and work-in-process........................ $16,755 $14,772
Finished goods........................................... 6,727 4,472
------- -------
Total inventory................................ $23,482 $19,244
======= =======
</TABLE>
At June 26, 1998, the Company reduced inventory by $11,451 related to
excess and obsolete inventory in conjunction with the consolidation of
manufacturing operations and the discontinuance of certain product models.
3. PROPERTY AND EQUIPMENT
At June 26, 1998 and July 2, 1999, property and equipment consisted of the
following:
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Machinery and equipment.................................. $25,876 $29,791
Computer and office equipment............................ 6,788 6,171
------- -------
32,664 35,962
Less: Accumulated depreciation........................... (21,896) (21,141)
------- -------
Property and equipment, net.............................. $10,768 $14,821
======= =======
</TABLE>
Depreciation expense was $803, $1,470 and $2,726 for the years ended June
27, 1997, June 26, 1998 and July 2, 1999, respectively.
F-30
<PAGE> 117
SATELLITE NETWORKS BUSINESS UNIT
(A BUSINESS UNIT OF SCIENTIFIC-ATLANTA, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
4. ACCRUED LIABILITIES
Accrued liabilities consisted of the following at June 26, 1998 and July 2,
1999:
<TABLE>
<CAPTION>
1998 1999
------ ------
<S> <C> <C>
Warranty and service....................................... $ 273 $ 728
Restructuring reserves..................................... 1,859 --
Common liabilities......................................... 4,707 3,541
------ ------
$6,839 $4,269
====== ======
</TABLE>
Common liabilities consist primarily of accruals for compensation and
employee benefits such as vacation, health and disability insurance, and
retirement plans. These programs are managed by SA with the related costs
charged to the business units, as described in Note 1, on a companywide basis
for domestic employees. These liabilities are determined on an SA consolidated
basis and not specifically identifiable to a business unit. Business units are
supported by shared factories and functional services, such as purchasing, human
resources, financial services, and legal services. Common liabilities have been
allocated based on a ratio of the Company's sales to total sales of SA. Given
the nature of these accruals the allocation based on sales is appropriate as it
results in the an estimate of costs that include both employees specifically
identified to the Company as well as other employees of SA which provide shared
manufacturing, common and corporate services to the Company. Management has
determined that such allocation is a practical and reasonable method.
5. OTHER LIABILITIES
Other liabilities consist of common liabilities for accrued benefits and
retirement plans and are allocated using the methodology described in Note 4. SA
has a defined benefit pension plan covering substantially all of its domestic
employees, including those of the Company. The benefits are based upon the
employees' years of service, age and compensation. In addition to providing
pension benefits, the Company has contributory plans that provide certain health
care and life insurance benefits to eligible retired employees, including those
of the Company. Other liabilities includes $1,121 (excluding $54 in current
accrued liabilities) at June 26, 1998 and $1,062 (excluding $35 in current
accrued liabilities) at July 2, 1999 allocated to the Company related to this
plan. Other liabilities also includes $1,642 (excluding $150 in current
liabilities) at June 26, 1998 and $1,020 (excluding $82 in current accrued
liabilities) at July 2, 1999 allocated to the Company related to other
postretirement liabilities.
6. RESTRUCTURING CHARGES
During fiscal year 1998, the Company announced that it would implement a
restructuring and consolidation of certain operations for reduced cost, improved
efficiency and better customer service. The Melbourne, Florida satellite
services Network Operations Center and research and development facility were
relocated to Norcross, Georgia. The Satellite Networks and Communications and
Tracking Systems business units combined in fiscal year 1999 to capitalize on
the combined resources provided by concentrated capabilities in networks,
research and development, marketing and sales, and customer program management
and services.
The Company recorded restructuring charges of $3,407 which included $1,474
of severance costs for approximately 100 employees, $1,548 for the impairment of
an intangible asset and $385 of other miscellaneous expenses. As of July 2,
1999, benefits paid and charged against the liability for severance totaled
$1,474, and approximately 104 employees have been terminated.
F-31
<PAGE> 118
SATELLITE NETWORKS BUSINESS UNIT
(A BUSINESS UNIT OF SCIENTIFIC-ATLANTA, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
The following reconciles the beginning restructuring charge to the
liability at the end of fiscal years 1998 and 1999:
<TABLE>
<CAPTION>
ASSET
IMPAIRMENT SEVERANCE OTHER TOTAL
---------- --------- ----- ------
<S> <C> <C> <C> <C>
Restructuring charge....................... $1,548 $1,474 $385 $3,407
Assets written off......................... (1,548) -- -- (1,548)
------ ------ ---- ------
Balance at June 28, 1998................... -- 1,474 385 1,859
Charges to the reserve..................... -- (1,474) (385) (1,859)
------ ------ ---- ------
Balance at July 2, 1999.................... $ -- $ -- $ -- $ --
====== ====== ==== ======
</TABLE>
7. INCOME TAXES
For the years ended June 27, 1997, June 26, 1998 and July 2, 1999, the
Company's results were included in the federal and state income tax returns of
SA. For the purpose of these financial statements, the income tax provision has
been determined on a basis as if the Company were a separate taxpayer. The
Company recorded an income tax (provision)/benefit of $(706), $4,455 and $0 for
the years ended June 27, 1997, June 26, 1998 and, July 2, 1999 respectively. The
Company's income tax benefit recorded in fiscal 1998 is the result of utilizing
net operating losses to carry back against prior year income taxes. The Company
was unable to carryback any of its fiscal 1999 net operating losses as prior
years' pre-tax income within the carryback period was offset by the fiscal 1998
net operating losses. Due to the losses incurred by the Company over the past
two years, the remaining net deferred tax asset resulting from temporary
differences is not considered probable of realization and therefore is offset in
all periods presented by a valuation allowance.
The Company's effective tax rate differs from the federal statutory tax
rate in fiscal years 1997 and 1998 primarily due to research and development tax
credits and export incentives. The Company's effective tax rate differs from the
federal statutory tax rate (35%) in fiscal year 1999 primarily as a result of
the recording of a deferred tax asset valuation allowance.
8. CONTINGENCIES
The Company is a party to various legal proceedings arising in the ordinary
course of business. In management's opinion, the outcome of these proceedings
will not have a material adverse effect on the Company's financial position or
results of operations and cash flows.
F-32
<PAGE> 119
SATELLITE NETWORKS BUSINESS UNIT
(A BUSINESS UNIT OF SCIENTIFIC-ATLANTA, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
9. BUSINESS UNIT EQUITY
The following details the Company's changes in business unit equity:
<TABLE>
<CAPTION>
BUSINESS
UNIT EQUITY
-----------
<S> <C>
Balance June 30, 1996....................................... $ 73,976
Net income................................................ 1,648
Net transfers to parent................................... (13,350)
--------
Balance June 27, 1997....................................... 62,274
Net loss.................................................. (10,322)
Net transfers to parent................................... (4,461)
--------
Balance June 26, 1998....................................... 47,491
Net loss.................................................. (19,602)
Net transfers from parent................................. 22,432
--------
Balance July 2, 1999........................................ 50,321
Net loss.................................................. (2,919)
Net transfers to parent................................... (2,729)
--------
Balance December 31, 1999 (unaudited)....................... $ 44,673
========
</TABLE>
10. SEGMENT INFORMATION
SA adopted Statement of Financial Accounting Standards ("SFAS No. 131"),
"Disclosures About Segments of an Enterprise and Related Information," during
fiscal year 1999, and as such, the requirements set forth in SFAS No. 131 apply
to the Company. SFAS No. 131 establishes standards for reporting information
about operating segments in financial statements and requires selected
information about operating segments in interim financial reports. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance.
The Company operates in one segment that consists of satellite network
products and services. The Company had revenue from one customer that was 13% of
total revenue in fiscal year 1998 and 12% of total sales in fiscal year 1999.
The same customer accounted for 12% of accounts receivable at June 26, 1998 and
13% of accounts receivable at July 2, 1999. No other customer accounted for 10%
or more of the Company's total revenue for the three years ended July 2, 1999
nor of accounts receivable as of June 26, 1998 or July 2, 1999, respectively.
The Company did not have revenue or long-lived assets in any single foreign
country exceeding 10% of total revenue or total long-lived assets in 1998 or
1999.
F-33
<PAGE> 120
SATELLITE NETWORKS BUSINESS UNIT
(A BUSINESS UNIT OF SCIENTIFIC-ATLANTA, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
The following table presents the Company's sales to geographic areas based
on the location of the customers:
<TABLE>
<CAPTION>
NORTH LATIN
AMERICA AMERICA EUROPE ASIA/PACIFIC TOTAL
------- ------- ------- ------------ --------
<S> <C> <C> <C> <C> <C>
1999
Revenue from external customers...... $47,588 $ 8,694 $24,219 $14,390 $ 94,891
Identifiable assets.................. 72,223 -- -- -- 72,223
Long-lived tangible assets........... 14,821 -- -- -- 14,821
1998
Revenue from external customers...... $56,147 $19,240 $27,250 $32,701 $135,338
Identifiable assets.................. 67,501 -- -- -- 67,501
Long-lived tangible assets........... 10,768 -- -- -- 10,768
1997
Revenue from external customers...... $64,583 $ 5,414 $42,886 $28,853 $141,736
Identifiable assets.................. 96,473 -- -- -- 96,473
Long-lived tangible assets........... 8,746 -- -- -- 8,746
</TABLE>
11. SIGNIFICANT RISKS AND UNCERTAINTIES
The Company's future results and operations involve a number of risks and
uncertainties. Factors that could affect the Company's future operating results
and cause actual results to vary materially from expectations include, but are
not limited to, new products, competition, competitive pricing pressures,
international sales, the uneven pattern of quarterly sales, management of
growth, dependence upon key personnel, manufacturing risks, litigation and
changes in regulation.
12. SUBSEQUENT EVENT
On January 18, 2000, SA signed a definitive agreement to sell the
inventory, manufacturing assets, and patents of the Company to ViaSat, Inc. for
approximately $75,000. The transaction is subject to various regulatory and
other conditions and is expected to close within 120 days. The amount of the
purchase price is subject to normal closing adjustments.
Pursuant to the agreement, certain accounts receivable have been guaranteed
by SA to ViaSat, Inc. This amount totaled $6,052 of the Company's accounts
receivable balance at July 2, 1999.
F-34
<PAGE> 121
[INSIDE BACK COVER]
GOVERNMENT BUSINESS
From core expertise in on-demand satellite communications for the U.S.
Department of Defense, we are building a complementary group of
products. Additionally, we continue to explore emerging communications
technologies and markets.
[Each of the following pictures is connected by dotted lines.]
[Picture of fighter
pilot in cockpit]
Link-16 and MIDS
The information
gathered in the
battlefield must be
integrated and
distributed to the
warfighter
[Picture of fighter aircraft]
Communications Simulation and Test
With more advanced communications
comes the need to test and evaluate
these complex systems
[Picture of U.S. Pentagon]
Defense and Government Users
[Picture of individual using
VSAT terminal]
UHF DAMA
-Modems, terminals
and network control
-Enables government
satellites to support more
users
[Picture of training personnel]
Satellite Simulation and Training
Trains users on UHF DAMA without
actual satellites time
[Picture of person inserting key
into lock]
Information Encryption
Opens the public data networks to
those who need to communicate
classified information
<PAGE> 122
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,271,500 SHARES
VIASAT LOGO
COMMON STOCK
------------------------
PROSPECTUS
------------------------
MERRILL LYNCH & CO.
ING BARINGS
C.E. UNTERBERG, TOWBIN
CIBC WORLD MARKETS
GERARD KLAUER MATTISON & CO., INC.
APRIL 18, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 123
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
PROSPECTUS
2,271,500 SHARES
VIASAT LOGO
COMMON STOCK
------------------------
ViaSat is selling all of the shares. The international managers are
offering 454,300 shares outside the U.S. and Canada and the U.S. underwriters
are offering 1,817,200 shares in the U.S. and Canada.
The shares are quoted on the Nasdaq National Market under the symbol
"VSAT." On April 17, 2000, the last sale price of the shares as reported on the
Nasdaq National Market was $33 1/16 per share.
INVESTING IN THE COMMON STOCK INVOLVES RISKS THAT ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 8 OF THIS PROSPECTUS.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C> <C>
Public offering price....................................... $30.00 $68,145,000
Underwriting discount....................................... $1.65 $3,747,975
Proceeds, before expenses, to ViaSat........................ $28.35 $64,397,025
</TABLE>
The international managers may also purchase up to an additional 68,145
shares from ViaSat at the public offering price, less the underwriting discount,
within 30 days from the date of this prospectus to cover over-allotments. The
U.S. underwriters may similarly purchase up to an additional 272,580 shares from
ViaSat.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The shares will be ready for delivery on or about April 24, 2000.
------------------------
MERRILL LYNCH INTERNATIONAL
ING BARINGS C.E. UNTERBERG, TOWBIN
CIBC WORLD MARKETS GERARD KLAUER MATTISON & CO., INC.
------------------------
The date of this prospectus is April 18, 2000.
<PAGE> 124
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
UNDERWRITING
We intend to offer the shares outside the U.S. and Canada through the
international managers and in the U.S. and Canada through the U.S. underwriters.
Merrill Lynch International, ING Barings Limited as agent for ING Bank N.V.,
London Branch, C.E. Unterberg, Towbin, CIBC World Markets plc and Gerard Klauer
Mattison & Co., Inc. are acting as lead managers for the international managers
named below. Subject to the terms and conditions described in an international
purchase agreement among us and the international managers, and concurrently
with the sale of 1,817,200 shares to the U.S. underwriters, we have agreed to
sell to the international managers, and the international managers severally
have agreed to purchase from us, the number of shares listed opposite their
names below.
<TABLE>
<CAPTION>
NUMBER
OF SHARES
INTERNATIONAL MANAGER ---------
-------------------
<S> <C>
Merrill Lynch International................................. 181,720
ING Barings Limited as agent for ING Bank N.V., London
Branch.................................................... 113,575
C.E. Unterberg, Towbin...................................... 68,145
CIBC World Markets plc ..................................... 68,145
Gerard Klauer Mattison & Co., Inc. ......................... 22,715
-------
Total......................................... 454,300
=======
</TABLE>
We have also entered into a U.S. purchase agreement with the U.S.
underwriters for sale of the shares in the U.S. and Canada for whom Merrill
Lynch, Pierce, Fenner & Smith Incorporated, ING Barings LLC, C.E. Unterberg,
Towbin, CIBC World Markets Corp. and Gerard Klauer Mattison & Co., Inc. are
acting as U.S. representatives. Subject to the terms and conditions in the U.S.
purchase agreement, and concurrently with the sale of 454,300 shares to the
international managers pursuant to the international purchase agreement, we have
agreed to sell to the U.S. underwriters and the U.S. underwriters severally have
agreed to purchase 1,817,200 shares from us. The public offering price per share
and the total underwriting discount per share are identical under the
international purchase agreement and the U.S. purchase agreement.
The international managers and the U.S. underwriters have agreed to
purchase all of the shares sold under the international and U.S. purchase
agreements if any of these shares are purchased. If an underwriter defaults, the
international and U.S. purchase agreements provide that the purchase commitments
of the nondefaulting underwriters may be increased or the purchase agreements
may be terminated. The closings for the sale of shares to be purchased by the
international managers and the U.S. underwriters are conditioned on one another.
We have agreed to indemnify the international managers and the U.S.
underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the international managers and U.S.
underwriters may be required to make in respect of those liabilities.
The underwriters are offering the shares, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares and other conditions
contained in the purchase agreements, such as the receipt by the underwriters of
officer's certificates and legal opinions. The underwriters reserve the right to
withdraw, cancel or modify offers to the public and to reject orders in whole or
in part.
C.E. Unterberg, Towbin, one of the lead international managers and a
representative of the U.S. underwriters, has been engaged as our financial
advisor to provide investment banking and advisory services in connection with
specific transactions, including rendering a written opinion with respect to the
fairness, from a financial point of view, of the consideration to be paid by us
in the acquisition of the Satellite Networks Business, for which it is entitled
to receive customary fees.
78
<PAGE> 125
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
COMMISSIONS AND DISCOUNTS
The lead managers have advised us that the international managers propose
initially to offer the shares to the public at the public offering price on the
cover page of this prospectus and to dealers at that price less a concession not
in excess of $1.00 per share. The international managers may allow, and the
dealers may reallow, a discount not in excess of $.10 per share to other
dealers. After the public offering, the public offering price, concession and
discount may be changed.
The following table shows the public offering price, underwriting discount
and proceeds before expenses to us. The information assumes either no exercise
or full exercise by the international managers and the U.S. underwriters of
their over-allotment options.
<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price............................. $30.00 $68,145,000 $78,366,750
Underwriting discount............................. $1.65 $3,747,975 $4,310,171
Proceeds, before expenses, to ViaSat.............. $28.35 $64,397,025 $74,056,579
</TABLE>
The expenses of the offering, not including the underwriting discount, are
estimated at $1.0 million and are payable by ViaSat.
OVER-ALLOTMENT OPTION
We have granted options to the international managers to purchase up to
68,145 additional shares at the public offering price less the underwriting
discount. The international managers may exercise these options for 30 days from
the date of this prospectus solely to cover any over-allotments. If the
international managers exercise these options, each international manager will
be obligated, subject to conditions contained in the purchase agreements, to
purchase a number of additional shares proportionate to that international
manager's initial amount reflected in the above table.
We have also granted options to the U.S. underwriters, exercisable for 30
days from the date of this prospectus, to purchase up to 272,580 additional
shares to cover any over-allotments on terms similar to those granted to the
international managers.
INTERSYNDICATE AGREEMENT
The international managers and the U.S. underwriters have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Under the intersyndicate agreement, the international managers and the U.S.
underwriters may sell shares to each other for purposes of resale at the public
offering price, less an amount not greater than the selling concession. Under
the intersyndicate agreement, the international managers and any dealer to whom
they sell shares will not offer to sell or sell shares to U.S. or Canadian
persons or to persons they believe intend to resell to U.S. or Canadian persons,
except in the case of transactions under the intersyndicate agreement.
Similarly, the U.S. underwriters and any dealer to whom they sell shares will
not offer to sell or sell shares to persons who are non-U.S. or non-Canadian
persons or to persons they believe intend to resell to persons who are non-U.S.
or non-Canadian persons, except in the case of transactions under the
intersyndicate agreement.
NO SALES OF COMMON STOCK OR SIMILAR SECURITIES
We and our executive officers and directors have agreed, with exceptions,
not to sell or transfer any common stock for 90 days after the date of this
prospectus without first obtaining the written consent of Merrill Lynch.
Specifically, we and these other individuals have agreed not to directly or
indirectly
- offer, pledge, sell or contract to sell any common stock,
- sell any option or contract to purchase any common stock,
79
<PAGE> 126
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
- purchase any option or contract to sell any common stock,
- grant any option, right or warrant for the sale of any common stock,
- lend or otherwise dispose of or transfer any common stock,
- request or demand that we file a registration statement related to the
common stock, or
- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any common stock whether
any such swap or transaction is to be settled by delivery of shares or
other securities, in cash or otherwise.
This lockup provision applies to common stock and to securities convertible
into or exchangeable or exercisable for or repayable with common stock. It also
applies to common stock owned now or acquired later by the person executing the
agreement or for which the person executing the agreement later acquires the
power of disposition.
QUOTATION ON THE NASDAQ NATIONAL MARKET
The shares are quoted on the Nasdaq National Market under the symbol
"VSAT."
PRICE STABILIZATION AND SHORT POSITIONS
Until the distribution of the shares is completed, SEC rules may limit
underwriters and selling group members from bidding for and purchasing our
common stock. However, the U.S. representatives may engage in transactions that
stabilize the price of our common stock, such as bids or purchases to peg, fix
or maintain that price.
If the underwriters create a short position in the common stock in
connection with the offering, i.e., if they sell more shares than are listed on
the cover of this prospectus, the U.S. representatives may reduce that short
position by purchasing shares in the open market. The U.S. representatives may
also elect to reduce any short position by exercising all or part of the
over-allotment option described above. Purchases of the common stock to
stabilize its price or to reduce a short position may cause the price of the
common stock to be higher than it might be in the absence of such purchases.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
we nor any of the underwriters makes any representation that the U.S.
representatives or the lead managers will engage in these transactions or that
these transactions, once commenced, will not be discontinued without notice.
80
<PAGE> 127
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
UK SELLING RESTRICTIONS
Each international manager has agreed that
- it has not offered or sold and will not offer or sell any shares of our
common stock to persons in the United Kingdom, except to persons whose
ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances which do not constitute an
offer to the public in the United Kingdom within the meaning of the
Public Offers of Securities Regulations 1995;
- it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the common stock in, from or otherwise involving the United
Kingdom; and
- it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the
issuance of common stock to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 as amended by the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1997 or
is a person to whom such document may otherwise lawfully be issued or
passed on.
NO PUBLIC OFFERING OUTSIDE THE UNITED STATES
No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the shares of our common
stock, or the possession, circulation or distribution of this prospectus or any
other material relating to our company or shares of our common stock in any
jurisdiction where action for that purpose is required. Accordingly, the shares
of our common stock may not be offered or sold, directly or indirectly, and
neither this prospectus nor any other offering material or advertisements in
connection with the shares of common stock may be distributed or published, in
or from any country or jurisdiction except in compliance with any applicable
rules and regulations of any such country or jurisdiction.
Purchasers of the shares offered by this prospectus may be required to pay
stamp taxes and other charges in accordance with the laws and practices of the
country of purchase in addition to the offering price on the cover page of this
prospectus.
PASSIVE MARKET MAKING
In connection with this offering, underwriters and selling group members
may engage in passive market making transactions in our common stock on the
Nasdaq National Market in accordance with Rule 103 of Regulation M under the
Exchange Act during a period before the commencement of offers or sales of our
common stock and extending through the completion of distribution. A passive
market maker must display its bid at a price not in excess of the highest
independent bid of that security. However, if all independent bids are lowered
below the passive market maker's bid, that bid must then be lowered when
specified purchase limits are exceeded.
81
<PAGE> 128
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,271,500 SHARES
VIASAT LOGO
COMMON STOCK
------------------------
PROSPECTUS
------------------------
MERRILL LYNCH INTERNATIONAL
ING BARINGS
C.E. UNTERBERG, TOWBIN
CIBC WORLD MARKETS
GERARD KLAUER MATTISON & CO., INC.
APRIL 18, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 129
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION OF VIASAT
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates except
for the SEC registration fee and the NASD filing fee. All of these fees are
being paid by ViaSat.
<TABLE>
<S> <C>
Registration fee............................................ $ 55,028
NASD filing fee............................................. 21,334
Blue Sky fees and expenses.................................. 5,000
Legal fees and expenses..................................... 250,000
Accounting fees and expenses................................ 200,000
Printing and engraving expenses............................. 150,000
Miscellaneous............................................... 18,638
--------
Total............................................. $700,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Officers and directors of ViaSat are covered by certain provisions of the
Delaware General Corporation Law (the "DGCL"), the charter, the bylaws and
insurance policies which serve to limit and, in certain instances, to indemnify
them against certain liabilities which they may incur in such capacities. None
of these provisions would have retroactive effect for periods before the
distribution of ViaSat, and ViaSat is not aware of any claim or proceeding in
the last three years, or any threatened claim, which would have been or would be
covered by these provisions. These various provisions are described below.
Elimination of Liability in Certain Circumstances. In June 1986, Delaware
enacted legislation which authorizes corporations to limit or eliminate the
personal liability of directors to corporations and their stockholders for
monetary damages for breach of directors' fiduciary duty of care. This duty of
care requires that, when acting on behalf of the corporation, directors must
exercise an informed business judgment based on all significant information
reasonably available to them. Absent the limitations now authorized by such
legislation, directors are accountable to corporations and their stockholders
for monetary damages for conduct constituting negligence or gross negligence in
the exercise of their duty of care. Although the statute does not change
directors' duty of care, it enables corporations to limit available relief to
equitable remedies such as injunction or rescission. The charter limits the
liability of Directors to ViaSat or its stockholders (in their capacity as
directors but not in their capacity as officers) to the fullest extent permitted
by such legislation. Specifically, the directors of ViaSat will not be
personally liable for monetary damages for breach of a director's fiduciary duty
as director, except for liability: (1) for any breach of the director's duty of
loyalty to ViaSat or its stockholders, (2) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law, (3)
for unlawful payments of dividends or unlawful share repurchases or redemptions
as provided in Section 174 of the DGCL, or (4) for any transaction from which
the director derived an improper personal benefit.
Indemnification and Insurance. As a Delaware corporation, ViaSat has the
power, under specified circumstances generally requiring the director or officer
to act in good faith and in a manner he reasonably believes to be in or not
opposed to ViaSat's best interests, to indemnify its directors and officers in
connection with actions, suits or proceedings brought against them by a third
party or in the name of ViaSat, by reason of the fact that they were or are such
directors or officers, against expenses, judgments, fines and amounts paid in
settlement in connection with any such action, suit or proceeding. The bylaws
generally provide for mandatory indemnification of ViaSat's directors and
officers to the full extent provided by Delaware corporate law. In addition,
ViaSat has entered into indemnification agreements with
II-1
<PAGE> 130
its directors and officers which generally provide for mandatory indemnification
under circumstances for which indemnification would otherwise be discretionary
under Delaware law.
ViaSat maintains insurance on behalf of any person who is or was a director
or officer of ViaSat, or is or was a director or officer of ViaSat serving at
the request of ViaSat as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not ViaSat would
have the power or obligation to indemnify him against such liability under the
provisions of the bylaws.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1(3) Form of Underwriting Agreement.
2.1(1) Asset Purchase Agreement, dated January 18, 2000, between
ViaSat and Scientific-Atlanta.
3.1(2) Amended and Restated Certificate of Incorporation.
3.2(2) Bylaws.
4.1(2) Form of Common Stock Certificate.
5.1(3) Opinion of Latham & Watkins.
23.1* Consent of PricewaterhouseCoopers LLP, independent
accountants, with respect to ViaSat financial statements.
23.2* Consent of PricewaterhouseCoopers LLP, independent
accountants, with respect to the Satellite Networks Business
financial statements.
23.3(3) Consent of Latham & Watkins. Reference is made to Exhibit
5.1.
24.1(3) Power of Attorney.
</TABLE>
- ---------------
* Filed herewith.
(1) Incorporated by reference to ViaSat's Current Report on Form 8-K filed with
the SEC on January 19, 2000.
(2) Incorporated by reference to ViaSat's Registration Statement on Form S-1
filed with the SEC on October 1, 1996 (File No. 333-13183), as amended by
Amendment No. 1 filed with the SEC on November 5, 1996, Amendment No. 2
filed with the SEC on November 20, 1996, and Amendment No. 3 filed with the
SEC on November 22, 1996.
(3) Previously filed.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant under provisions described in Item 14 or otherwise, the
Registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. If a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been
II-2
<PAGE> 131
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as a
part of this registration statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be
deemed part of this registration statement as of the time it was declared
effective.
2. For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at such
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 132
SIGNATURES
Under the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3, and has duly caused this Amendment
No. 2 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Carlsbad, County of San
Diego, State of California, on April 17, 2000.
VIASAT, INC.
By: /s/ MARK D. DANKBERG
------------------------------------
Mark D. Dankberg
Chairman, President and Chief
Executive Officer
Under the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ MARK D. DANKBERG Chairman, President and Chief April 17, 2000
- ----------------------------------------------------- Executive Officer
Mark D. Dankberg
/s/ RICHARD A. BALDRIDGE* Vice President and Chief April 17, 2000
- ----------------------------------------------------- Financial Officer
Richard A. Baldridge
/s/ JAMES F. BUNKER* Director April 17, 2000
- -----------------------------------------------------
James F. Bunker
/s/ ROBERT W. JOHNSON* Director April 17, 2000
- -----------------------------------------------------
Robert W. Johnson
/s/ B. ALLEN LAY* Director April 17, 2000
- -----------------------------------------------------
B. Allen Lay
/s/ JEFFREY M. NASH* Director April 17, 2000
- -----------------------------------------------------
Jeffrey M. Nash
/s/ WILLIAM A. OWENS* Director April 17, 2000
- -----------------------------------------------------
William A. Owens
*By: /s/ MARK D. DANKBERG
------------------------------------------------
Mark D. Dankberg
Attorney-in-fact
</TABLE>
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<PAGE> 133
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1(3) Form of Underwriting Agreement.
2.1(1) Asset Purchase Agreement, dated January 18, 2000, between
ViaSat and Scientific-Atlanta.
3.1(2) Amended and Restated Certificate of Incorporation.
3.2(2) Bylaws.
4.1(2) Form of Common Stock Certificate.
5.1(3) Opinion of Latham & Watkins.
23.1* Consent of PricewaterhouseCoopers LLP, independent
accountants, with respect to ViaSat financial statements.
23.2* Consent of PricewaterhouseCoopers LLP, independent
accountants, with respect to the Satellite Networks Business
financial statements.
23.3(3) Consent of Latham & Watkins. Reference is made to Exhibit
5.1.
24.1(3) Power of Attorney.
</TABLE>
- ---------------
* Filed herewith.
(1) Incorporated by reference to ViaSat's Current Report on Form 8-K filed with
the SEC on January 19, 2000.
(2) Incorporated by reference to ViaSat's Registration Statement on Form S-1
filed with the SEC on October 1, 1996 (File No. 333-13183), as amended by
Amendment No. 1 filed with the SEC on November 5, 1996, Amendment No. 2
filed with the SEC on November 20, 1996, and Amendment No. 3 filed with the
SEC on November 22, 1996.
(3) Previously filed.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-3 of our
report dated May 12, 1999 relating to the financial statements of ViaSat, Inc.
which appears in such Registration Statement. We also consent to the reference
to us under the heading "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
San Diego, California
April 17, 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 2 to the Registration
Statement on Form S-3 (No. 333-31758) of ViaSat, Inc. of our report dated
March 2, 2000 relating to the financial statements of the Satellite Networks
Business Unit, a business unit of Scientific-Atlanta, Inc., which appears in
such Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
Atlanta, Georgia
April 18, 2000
