| Basis of Presentation | Note 1
— Basis of Presentation
The
accompanying condensed consolidated balance sheet at June 30,
2017, the condensed consolidated statements of operations and
comprehensive income (loss) for the three months ended
June 30, 2017 and 2016, the condensed consolidated statements
of cash flows for the three months ended June 30, 2017 and
2016 and the condensed consolidated statement of equity for the
three months ended June 30, 2017 have been prepared by the
management of ViaSat, Inc. (also referred to hereafter as the
Company or ViaSat), and have not been audited. These financial
statements have been prepared on the same basis as the audited
consolidated financial statements for the fiscal year ended
March 31, 2017 and, in the opinion of management, include all
adjustments (consisting only of normal recurring adjustments)
necessary for a fair statement of the Company’s results for
the periods presented. These financial statements should be read in
conjunction with the financial statements and notes thereto for the
fiscal year ended March 31, 2017 included in the
Company’s Annual Report on Form 10-K. year-end
The
Company’s condensed consolidated financial statements include
the assets, liabilities and results of operations of ViaSat, its
wholly owned subsidiaries and its majority-owned subsidiaries,
TrellisWare Technologies, Inc. (TrellisWare) and Euro Broadband
Retail Sàrl (Euro Retail Co.). All significant intercompany
amounts have been eliminated. Investments in entities in which the
Company can exercise significant influence, but does not own a
majority equity interest or otherwise control, are accounted for
using the equity method and are included as investment in
unconsolidated affiliate in other assets (long-term) on the
condensed consolidated balance sheets.
The
preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements, and reported amounts of revenues and expenses during
the reporting period. Estimates have been prepared on the basis of
the most current and best available information and actual results
could differ from those estimates. Significant estimates made by
management include revenue recognition, stock-based compensation,
self-insurance reserves, allowance for doubtful accounts, warranty
accruals, valuation of goodwill and other intangible assets,
patents, orbital slots and other licenses, software development,
property, equipment and satellites, long-lived assets, derivatives,
contingencies and income taxes including the valuation allowance on
deferred tax assets.
Revenue
recognition
A substantial
portion of the Company’s revenues is derived from long-term
contracts requiring development and delivery of complex equipment
built to customer specifications. Sales related to long-term
contracts are accounted for under the authoritative guidance for
the percentage-of-completion 605-35). units-of-delivery
The Company
also derives a substantial portion of its revenues from contracts
and purchase orders where revenue is recorded on delivery of
products or performance of services in accordance with the
authoritative guidance for revenue recognition (ASC 605). Under
this standard, the Company recognizes revenue when an arrangement
exists, prices are determinable, collectability is reasonably
assured and the goods or services have been delivered.
The Company
also enters into certain leasing arrangements with customers and
evaluates the contracts in accordance with the authoritative
guidance for leases (ASC 840). The Company’s accounting for
equipment leases involves specific determinations under the
authoritative guidance for leases, which often involve complex
provisions and significant judgments. In accordance with the
authoritative guidance for leases, the Company classifies the
transactions as sales type or operating leases based on:
(1) review for transfers of ownership of the equipment to the
lessee by the end of the lease term, (2) review of the lease
terms to determine if it contains an option to purchase the leased
equipment for a price which is sufficiently lower than the expected
fair value of the equipment at the date of the option,
(3) review of the lease term to determine if it is equal to or
greater than 75% of the economic life of the equipment, and
(4) review of the present value of the minimum lease payments
to determine if they are equal to or greater than 90% of the fair
market value of the equipment at the inception of the lease.
Additionally, the Company considers the cancelability of the
contract and any related uncertainty of collections or risk in
recoverability of the lease investment at lease inception. Revenue
from sales type leases is recognized at the inception of the lease
or when the equipment has been delivered and installed at the
customer site, if installation is required. Revenues from equipment
rentals under operating leases are recognized as earned over the
lease term, which is generally on a straight-line basis.
In accordance
with the authoritative guidance for revenue recognition for
multiple element arrangements, the Accounting Standards Update
(ASU) 2009-13 2009-13), 605-25,
To determine
the selling price in multiple-element arrangements, the Company
establishes VSOE of the selling price using the price charged for a
deliverable when sold separately. The Company also considers
specific renewal rates offered to customers for software license
updates, product support and hardware systems support, and other
services. For nonsoftware multiple-element arrangements, TPE is
established by evaluating similar and/or interchangeable competitor
products or services in standalone arrangements with similarly
situated customers and/or agreements. If the Company is unable to
determine the selling price because VSOE or TPE doesn’t
exist, the Company determines ESP for the purposes of allocating
the arrangement by reviewing historical transactions, including
transactions whereby the deliverable was sold on a standalone basis
and considers several other external and internal factors
including, but not limited to, pricing practices including
discounting, margin objectives, competition, the geographies in
which the Company offers its products and services, the type of
customer (i.e., distributor, value added reseller, government
agency or direct end user, among others), volume commitments and
the stage of the product lifecycle. The determination of ESP
considers the Company’s pricing model and go-to-market go-to-market
In accordance
with the authoritative guidance for shipping and handling fees and
costs (ASC 605-45),
Collections
in excess of revenues and deferred revenues represent cash
collected from customers in advance of revenue recognition and are
recorded in accrued liabilities for obligations within the next 12
months. Amounts for obligations extending beyond 12 months are
recorded within other liabilities in the condensed consolidated
financial statements.
Contract
costs on U.S. government contracts are subject to audit and review
by the Defense Contracting Management Agency (DCMA), the Defense
Contract Audit Agency (DCAA), and other U.S. government
agencies, as well as negotiations with U.S. government
representatives. The Company’s incurred cost audits by the
DCAA have not been concluded for fiscal years 2016 and 2017. As of
June 30, 2017, the DCAA had completed its incurred cost audit
for fiscal year 2004 and approved the Company’s incurred cost
claims for fiscal years 2005 through 2015 without further audit.
Although the Company has recorded contract revenues subsequent to
fiscal year 2015 based upon an estimate of costs that the Company
believes will be approved upon final audit or review, the Company
does not know the outcome of any ongoing or future audits or
reviews and adjustments, and if future adjustments exceed the
Company’s estimates, its profitability would be adversely
affected. As of June 30, 2017 and March 31, 2017, the
Company had $1.6 million and $1.8 million, respectively,
in contract-related reserves for its estimate of potential refunds
to customers for potential cost adjustments on several multi-year
U.S. government cost reimbursable contracts (see Note
8).
Advertising costs
In accordance
with the authoritative guidance for advertising costs
(ASC 720-35),
Commissions
The Company
compensates third parties based on specific commission programs
directly related to certain product and service sales, and these
commissions costs are expensed as incurred.
Property, equipment and satellites
Satellites
and other property and equipment are recorded at cost or, in the
case of certain satellites and other property acquired, the fair
value at the date of acquisition, net of accumulated depreciation.
Capitalized satellite costs consist primarily of the costs of
satellite construction and launch, including launch insurance and
insurance during the period of in-orbit
Interest
expense is capitalized on the carrying value of assets under
construction, in accordance with the authoritative guidance for the
capitalization of interest (ASC 835-20). ViaSat-2 ViaSat-3
The Company
owns two satellites: ViaSat-1 Ka-band WildBlue-1 ViaSat-2 ViaSat-3 Ka-band
Occasionally,
the Company may enter into capital lease arrangements for various
machinery, equipment, computer-related equipment, software,
furniture or fixtures. The Company records amortization of assets
leased under capital lease arrangements within depreciation
expense.
Patents, orbital slots and other
licenses
The Company
capitalizes the costs of obtaining or acquiring patents, orbital
slots and other licenses. Amortization of intangible assets that
have finite lives is provided for by the straight-line method over
the shorter of the legal or estimated economic life. Total
capitalized costs of $3.2 million related to patents were
included in other assets as of June 30, 2017 and
March 31, 2017. The Company capitalized costs of
$15.4 million related to acquiring and obtaining orbital slots
and other licenses included in other assets as of June 30,
2017 and March 31, 2017. Accumulated amortization related to
these assets was $2.2 million and $2.1 million as of
June 30, 2017 and March 31, 2017, respectively.
Amortization expense related to these assets was an insignificant
amount for the three months ended June 30, 2017 and 2016. If a
patent, orbital slot or orbital license is rejected, abandoned or
otherwise invalidated, the unamortized cost is expensed in that
period. During the three months ended June 30, 2017 and 2016,
the Company did not write off any significant costs due to
abandonment or impairment.
Debt
issuance costs
Debt issuance
costs are amortized and recognized as interest expense using the
effective interest rate method, or, when the results are not
materially different, on a straight-line basis over the expected
term of the related debt. During the three months ended
June 30, 2017 and 2016, no amounts and $6.1 million,
respectively, of debt issuance costs were capitalized. Unamortized
debt issuance costs related to extinguished debt are expensed at
the time the debt is extinguished and recorded in loss on
extinguishment of debt in the condensed consolidated statements of
operations and comprehensive income (loss). Debt issuance costs
related to the Company’s revolving credit facility (the
Revolving Credit Facility) are recorded in prepaid expenses and
other current assets and in other long-term assets in the condensed
consolidated balance sheets in accordance with the authoritative
guidance for imputation of interest (ASC 835-30). ViaSat-2 Ex-Im 835-30).
Software development
Costs of
developing software for sale are charged to research and
development expense when incurred, until technological feasibility
has been established. Software development costs incurred from the
time technological feasibility is reached until the product is
available for general release to customers are capitalized and
reported at the lower of unamortized cost or net realizable value.
Once the product is available for general release, the software
development costs are amortized based on the ratio of current to
future revenue for each product with an annual minimum equal to
straight-line amortization over the remaining estimated economic
life of the product, generally within five years. Capitalized
costs, net, of $211.8 million and $203.7 million related
to software developed for resale were included in other assets as
of June 30, 2017 and March 31, 2017, respectively. The
Company capitalized $17.8 million and $21.0 million of
costs related to software developed for resale for the three months
ended June 30, 2017 and 2016, respectively. Amortization
expense for capitalized software development costs was
$9.7 million and $7.7 million for the three months ended
June 30, 2017 and 2016, respectively.
Self-insurance liabilities
The Company
has self-insurance plans to retain a portion of the exposure for
losses related to employee medical benefits and workers’
compensation. The self-insurance plans include policies which
provide for both specific and aggregate stop-loss limits. The
Company utilizes internal actuarial methods as well as other
historical information for the purpose of estimating ultimate costs
for a particular plan year. Based on these actuarial methods, along
with currently available information and insurance industry
statistics, the Company has recorded self-insurance liability for
its plans of $4.1 million and $4.2 million in accrued
liabilities in the condensed consolidated balance sheets as of
June 30, 2017 and March 31, 2017, respectively. The
Company’s estimate, which is subject to inherent variability,
is based on average claims experience in the Company’s
industry and its own experience in terms of frequency and severity
of claims, including asserted and unasserted claims incurred but
not reported, with no explicit provision for adverse fluctuation
from year to year. This variability may lead to ultimate payments
being either greater or less than the amounts presented above.
Self-insurance liabilities have been classified as a current
liability in accrued liabilities in accordance with the estimated
timing of the projected payments.
Indemnification provisions
In the
ordinary course of business, the Company includes indemnification
provisions in certain of its contracts, generally relating to
parties with which the Company has commercial relations. Pursuant
to these agreements, the Company will indemnify, hold harmless and
agree to reimburse the indemnified party for losses suffered or
incurred by the indemnified party, including but not limited to
losses relating to third-party intellectual property claims. To
date, there have not been any material costs incurred in connection
with such indemnification clauses. The Company’s insurance
policies do not necessarily cover the cost of defending
indemnification claims or providing indemnification, so if a claim
was filed against the Company by any party that the Company has
agreed to indemnify, the Company could incur substantial legal
costs and damages. A claim would be accrued when a loss is
considered probable and the amount can be reasonably estimated. At
June 30, 2017 and March 31, 2017, no such amounts were
accrued related to the aforementioned provisions.
Noncontrolling interests
A
noncontrolling interest represents the equity interest in a
subsidiary that is not attributable, either directly or indirectly,
to the Company and is reported as equity of the Company, separately
from the Company’s controlling interest. Revenues, expenses,
gains, losses, net income (loss) and other comprehensive income
(loss) are reported in the condensed consolidated financial
statements at the consolidated amounts, which include the amounts
attributable to both the controlling and noncontrolling
interest.
Investments in unconsolidated
affiliate — equity method
Investments
in entities in which the Company can exercise significant
influence, but does not own a majority equity interest or otherwise
control, are accounted for using the equity method and are included
as investment in unconsolidated affiliate in other assets
(long-term) on the condensed consolidated balance sheets. The
Company records its share of the results of such entities within
equity in earnings (losses) of unconsolidated affiliate, net on the
condensed consolidated statements of operations and comprehensive
income (loss). The Company monitors such investments for
other-than-temporary impairment by considering factors including
the current economic and market conditions and the operating
performance of the entities and records reductions in carrying
values when necessary. The fair value of privately held investments
is estimated using the best available information as of the
valuation date, including current earnings trends, undiscounted
cash flows, quoted stock prices of comparable public companies, and
other company specific information, including recent financing
rounds.
Common
stock held in treasury
As of
June 30, 2017 and March 31, 2017, the Company had no
shares of common stock held in treasury.
During the
three months ended June 30, 2017 and 2016, the Company issued
72,811 and 72,581 shares of common stock, respectively, based on
the vesting terms of certain restricted stock unit agreements. In
order for employees to satisfy minimum statutory employee tax
withholding requirements related to the issuance of common stock
underlying these restricted stock unit agreements, the Company
repurchased 27,514 and 26,596 shares of common stock at cost with a
total value of $1.9 million during the first three months of
fiscal years 2018 and 2017. The shares of common stock repurchased
during the three months ended June 30, 2017 and 2016 were
immediately retired. These retired shares remain as authorized
stock; however they are considered to be unissued. The retirement
of treasury stock had no impact on the Company’s total
consolidated stockholders’ equity. Although shares withheld
for employee withholding taxes are technically not issued, they are
treated as common stock repurchases for accounting purposes (with
such shares deemed to be repurchased and then immediately retired),
as they reduce the number of shares that otherwise would have been
issued upon vesting of the restricted stock units.
Derivatives
The Company
enters into foreign currency forward and option contracts from time
to time to hedge certain forecasted foreign currency transactions.
Gains and losses arising from foreign currency forward and option
contracts not designated as hedging instruments are recorded in
other income (expense) as gains (losses) on derivative instruments.
Gains and losses arising from the effective portion of foreign
currency forward and option contracts which are designated as
cash-flow hedging instruments are recorded in accumulated other
comprehensive income (loss) as unrealized gains (losses) on
derivative instruments until the underlying transaction affects the
Company’s earnings, at which time they are then recorded in
the same income statement line as the underlying
transaction.
During the
three months ended June 30, 2017 and 2016, the Company settled
certain foreign exchange contracts and in connection therewith for
each period recognized an insignificant gain or loss recorded in
cost of revenues based on the nature of the underlying
transactions. The fair value of the Company’s foreign
currency forward contracts was an insignificant amount recorded as
an other current asset as of June 30, 2017 and as an accrued
liability as of March 31, 2017. The notional value of foreign
currency forward contracts outstanding as of June 30, 2017 and
March 31, 2017 was $2.1 million and $2.6 million,
respectively.
At
June 30, 2017, the estimated net amount of unrealized gains or
losses related to foreign currency forward contracts that was
expected to be reclassified to earnings within the next 12 months
was insignificant. The Company’s foreign currency forward
contracts outstanding as of June 30, 2017 will mature within
approximately 27 to 36 months from their inception. There were no
gains or losses from ineffectiveness of these derivative
instruments recorded for the three months ended June 30, 2017
and 2016.
Stock-based compensation
In accordance
with the authoritative guidance for share-based payments (ASC 718),
the Company measures stock-based compensation cost at the grant
date, based on the estimated fair value of the award, and
recognizes expense on a straight-line basis over the
employee’s requisite service period. Effective April 1,
2017, the Company adopted a change in accounting policy in
accordance with ASU 2016-09,
Effective
April 1, 2017, in accordance with ASU 2016-09, paid-in-capital
Income
taxes
Accruals for
uncertain tax positions are provided for in accordance with the
authoritative guidance for accounting for uncertainty in income
taxes (ASC 740). The Company may recognize the tax benefit from an
uncertain tax position only if it is more likely than not that the
tax position will be sustained on examination by the taxing
authorities, based on the technical merits of the position. The tax
benefits recognized in the financial statements from such a
position should be measured based on the largest benefit that has a
greater than 50% likelihood of being realized upon ultimate
settlement. The authoritative guidance for accounting for
uncertainty in income taxes also provides guidance on derecognition
of income tax assets and liabilities, classification of deferred
income tax assets and liabilities, accounting for interest and
penalties associated with tax positions, and income tax
disclosures. The Company’s policy is to recognize interest
expense and penalties related to income tax matters as a component
of income tax expense.
The Company
calculates its provision for income taxes at the end of each
interim reporting period on the basis of an estimated annual
effective tax rate adjusted for tax items that are discrete to each
period. However, when a reliable estimate cannot be made, the
Company computes its provision for income taxes using the actual
effective tax rate for the year-to-date
A deferred
income tax asset or liability is established for the expected
future tax consequences resulting from differences in the financial
reporting and tax bases of assets and liabilities and for the
expected future tax benefit to be derived from tax credit and loss
carryforwards. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely
than not that some portion or all of the deferred tax assets will
not be realized.
Recent
authoritative guidance
In May 2014,
the FASB issued ASU 2014-09, 2014-09 2015-14, 2016-08, 2016-10, 2016-12, non-cash 2016-20, 2014-09.
Upon initial
evaluation, the Company believes the key changes in the standard
that impact its revenue recognition relate to the deferral of
commissions in the Company’s satellite service segment, which
are currently expensed as incurred under the current standard. The
requirement to defer incremental contract acquisition costs and
recognize them with the transfer of the related good or service
will result in the recognition of a deferred charge on the
Company’s consolidated balance sheet and corresponding impact
to the Company’s consolidated statement of operations and
comprehensive income (loss).
In January
2016, the FASB issued ASU 2016-01, 825-10). 2016-01 2016-01
In February
2016, the FASB issued ASU 2016-02, 2016-02 right-of-use 2016-02
In March
2016, the FASB issued ASU 2016-05, 2016-05
In March
2016, the FASB issued ASU 2016-06, 2016-06
In March
2016, the FASB issued ASU 2016-07, 2016-07
In March
2016, the FASB issued ASU 2016-09, 2016-09
In June 2016,
the FASB issued ASU 2016-13, 2016-13 available-for-sale
In August
2016, the FASB issued ASU 2016-15, 2016-15
In October
2016, the FASB issued ASU 2016-16, 2016-16
In October
2016, the FASB issued ASU 2016-17,
In January
2017, the FASB issued ASU 2017-01, 2017-01
In January
2017, the FASB issued ASU 2017-04, 2017-04
In February
2017, the FASB issued ASU 2017-05, 610-20): 2017-05 “in-substance “in-substance 2017-05
In March
2017, the FASB issued ASU 2017-08, 310-20): 2017-08
In May 2017,
the FASB issued ASU 2017-09, 2017-09
In May 2017,
the FASB issued ASU 2017-10, 2017-10 |
