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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

or

Commission File Number (0-21767)

6155 El Camino Real, Carlsbad, California 92009
(760) 476-2200
(Address, including zip code, and telephone number, including area code, of principal executive offices)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]   No [   ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [   ]

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X]   No [   ]

     The aggregate market value of the voting stock held by non-affiliates of the registrant, as of October 3, 2003 was approximately $289,785,104 (based on the closing price on that date for shares of the registrant’s Common Stock as reported by the Nasdaq National Market). Shares of Common Stock held by each officer, director and holder of 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

     The number of shares outstanding of the registrant’s Common Stock, $.0001 par value, as of June 10, 2004 was 26,635,564.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the registrant’s definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection with its 2004 Annual Meeting of Stockholders are incorporated by reference into Part III of this Report. Such Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the registrant’s fiscal year ended April 2, 2004.

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VIASAT, INC.
FORM 10-K
For the fiscal year ended April 2, 2004

INDEX

 

PART I

Item 1. Business

     All references in this annual report to our fiscal year 2004 refer to the fiscal year ended on April 2, 2004. Unless otherwise indicated, all references in this annual report to periods of time (e.g., quarters and years) are to fiscal periods.

     Our website address is www.viasat.com. We make available free of charge through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material has been electronically filed with or furnished to the Securities and Exchange Commission.

Introduction

     We are a leading provider of advanced digital satellite communications and other wireless networking and signal processing equipment and services to the government and commercial markets. Although we initially focused primarily on developing satellite communication and simulation equipment for the U.S. government, we have successfully diversified into other related government as well as commercial markets. During the period from April 2000 to January 2002, we acquired (1) the satellite networks business from Scientific-Atlanta, Inc. (SA), (2) the Comsat Laboratories business from Lockheed Martin Global Telecommunications, LLC (LMGT), and (3) U.S. Monolithics, LLC (USM). These acquisitions further enhanced our strategic positioning in the commercial satellite communication market and significantly expanded our intellectual property portfolio. As a result of this diversification, we have transitioned from a primarily defense-oriented company to a company with near equal amounts of government and commercial business. We believe our diversification, combined with our unique ability to effectively apply technologies between government and commercial markets, provides us a strong foundation to sustain and enhance our leadership in advanced communications and networking technologies.

     ViaSat develops and manufactures satellite ground network systems and other related defense and commercial digital communications equipment. Generally, our sales consist of either:

1.		Project contracts to study, research, develop, test, deploy, support, and/or manufacture customized communication systems and/or products for either commercial or government customers. Usually research and development costs in these customized projects and/or products are customer-funded.
2.		Selling, deploying, and/or supporting standard “off-the-shelf” products to either commercial or government customers. Usually these standard products are developed through a combination of customer and discretionary internal research and development funding.

     Our customers include a variety of commercial and government entities. Government contracts may be with U.S. or foreign governments, or through domestic or international prime contractors. Purchasers of standard off-the-shelf products are U.S. or foreign government agencies, domestic or international prime contractors, or by domestic or foreign governments, telecom service providers, or enterprises for commercial purposes. We also enter into contracts to design, develop and manufacture customized satellite network systems or equipment for domestic and international commercial customers. Individual contracts may range in value from thousands of dollars to tens of millions of dollars.

     We are organized principally in two segments: government and commercial. Our government business encompasses specialized products principally serving defense customers and includes:

Tactical Data Links. Our Tactical Data Links product line primarily consists of our multifunction information distribution system (MIDS) product. The MIDS terminal operates as part of the Link-16 line-of-sight tactical radio system, which enables real time data networking among ground and airborne military users providing an electronic picture of the entire battlefield to each user in the network. ViaSat is one of only two current U.S. government certified providers of MIDS production units.

Tactical Networking and Information Assurance. Tactical Networking and Information Assurance products include our information security and ViaSat Data Controller (VDC) products. ViaSat’s information security products enable military and government communicators to secure information up to Top Secret levels. Our VDCs provide reliable military tactical communication channels using innovative error correction technology. Technology from certain of these products are integrated into some of our existing tactical radio products (such as MIDS and UHF DAMA satellite products) as well as sold on a stand-alone basis.

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•		Mobile Satellite Systems. ViaSat’s Mobile Satellite systems have a 15 year history of leadership in the UHF satellite communication terminal market. This includes the design and development of modems, terminals and test and training equipment operating over the military UHF satellite band. These products are used in “manpack” satellite communication terminals as well as airborne, ship, shore and mobile applications.
•		Government Broadband. Launched during fiscal year 2003, ViaSat’s Government Broadband product line leverages our commercial satellite technology into military applications. We generally focus on opportunities for high-speed satellite communications products which operate in higher frequencies.
•		Simulation and Test. Our Simulation and Test capabilities encompass products and support for testing sophisticated airborne radio equipment. Our simulators allow testing of airborne equipment without expensive flight exercises. We have delivered simulators and provided support on complex, customized communication simulators for the F-22 Raptor program, as well as for joint Navy-Air Force test and evaluation centers.

     We believe our long standing strength in both commercial and government satellite communications technologies provides us an advantage as the U.S. military looks to upgrade its satellite technology with a mix of funded development and commercial technologies.

     ViaSat’s commercial business comprises an end-to-end capability to provide customers with satellite communication equipment solutions and includes:

•		Consumer Broadband. Our consumer products include the development of DOCSIS (Data Over Cable Service Interface Specification)-based and DVB-RCS (Digital Video Broadcast-Return Channel Satellite) satellite broadband systems, including satellite modem termination systems for system operators and customer premise equipment.
•		Mobile Broadband. ViaSat’s mobile broadband products include the design and development of airborne, maritime and ground mobile terminals and systems. Existing certified systems in the in-flight broadband market include Connexion by Boeing and SKYLink for ARINC. We are developing systems in the maritime and ground mobile markets.
•		Enterprise VSAT. Our Enterprise VSAT (Very Small Aperture Terminal) satellite communication products and services comprise ViaSat’s original VSAT products and the VSAT products purchased from SA and LMGT. ViaSat’s Enterprise VSAT offering includes a wide range of terminals, hubs, and networks control systems as well as network management services for customers in North America and internationally.
•		Large Antenna Systems. ViaSat provides large antenna systems for both commercial and defense communications. We have a 40-year legacy in the design, test, manufacture and installation of antennas from three to 18 meters. Applications for these antenna systems include large system gateways, VSAT or video broadcast hubs, image retrieval by satellite, transportable antennas and telemetry, tracking and control.
•		Satellite Networking Systems Design and Technology Development. ViaSat, through its Comsat Laboratories acquisition, has extensive capabilities in satellite networking design and development and engineering support for both commercial and government customers.
•		MMIC Design and Development. Through its USM acquisition, ViaSat specializes in the design of monolithic microwave integrated circuits (MMICs), packaged components, and modules for commercial, military and space applications. Areas of expertise include high frequency communication technology, MMIC semiconductor design, high-power transceiver design, high levels of functional integration, high-frequency packaging and design for low-cost manufacturing.

     With expertise in commercial satellite network engineering, gateway construction, and remote terminal manufacturing for all types of interactive communications services, we believe we have the unique ability to take overall responsibility for designing, building, initially operating, and then handing over a fully operational, customized satellite network serving a variety of markets and applications.

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The ViaSat Advantage

ViaSat has consistently aimed to achieve and sustain competitive advantages through:

•		A culture of innovation and advanced technology. Executive management has always been technically oriented. We place high value on technical competence and expertise among our employees.
•		Focus on markets that place a high value on innovative technology. Since technology is fundamental to our Company’s culture, we tend to target markets and customers who value what we do best.
•		A cohesive, experienced management team. The Company’s three founders have worked together for over 20 years (including experience prior to starting ViaSat) and turnover among executive management leadership is very low. We believe we have significant management experience within our core business areas and in working together as a team.
•		Low employee turnover rates. We believe the Company’s culture and sustained growth help foster and have fostered an exceptionally low employee turnover rate – especially for a high tech company. We believe a low employee turnover rate helps reduce overall costs and sustains long-term relationships with our customers.
•		A complementary mix of defense and commercial products, projects, and geographic markets. Management constantly aims for a diversified mix of businesses that are unified through common underlying technologies, customer applications, market relationships or other factors.
•		Long-lived customer relationships. We focus on establishing and cultivating customer relationships that have the potential for enduring for many years. We believe this has been particularly successful with a number of government customers.
•		High quality, cost effective outsourced manufacturing supply chain. Since inception, we have chosen to strategically out-source much of our manufacturing operations. We believe this reduces operating costs, reduces capital investments, facilitates rapid adoption of the most modern and effective manufacturing technologies, provides flexible response to fluctuating product demand, and focuses our resources on designing for producibility. We manage out-sourced manufacturing through an ISO-9001 quality process and have established enduring relationships with key suppliers.
•		Recognition within our market niches for technical innovation and excellence, product quality, and competitiveness.

Strategy

ViaSat targets three basic business objectives:

1.		Offer investors superior opportunities for equity appreciation through sustained growth in revenues and earnings. This drives us to identify, select, and pursue those market opportunities most consistent with this objective.
2.		Establish enduring relationships with our customers, work force and suppliers. This compels a long-term view.
3.		Sustain and enhance our competitive advantages in advanced communications and networking technologies. We are fundamentally a technology company, which guides our investments of management attention, time, and resources. We believe this is a key reason for our success to-date on the first two objectives.

ViaSat Business Strategy

     ViaSat is involved in a diverse set of inter-related markets and technologies – we believe much more so than most companies of comparable size. Our business mix has grown due to strategic concepts we tend to apply in pursuing customers, markets, and technologies.

•		Leverage customer funded research and development (R&D) opportunities. We often offer products and/or technologies that are not available “off the shelf” from any supplier and must be developed, or customized, via funded R&D by a particular customer. This principle applies, to varying extents, to both our government and commercial segments.
•		Address increasingly larger markets. We have applied this same principle for the life of the company. The size of customer funded opportunities we can credibly address directly correlates to the annual revenue of the company. By increasing our revenues, we anticipate we will be more successful in capturing customer funded R&D opportunities for increasingly larger projects, like we have with MIDS and Connexion by Boeing.

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•

Steadily evolve into “neighboring” products, projects, technologies & markets. We anticipate continued growth via evolutionary steps by:

o		Selling existing, or customized, versions of technologies we developed for one customer base to a different market. This principle can be applied, for instance, to different segments of the government market, or between government and commercial markets. It is the primary way we grow the market segments we address.
o		Selling new, but related, technologies or products to existing customers. This is the primary way we expand the breadth of technologies and products we offer.

•

Careful targeting of new market opportunities. We consider several factors in selecting new market opportunities.

o		Are there meaningful entry barriers for new competitors? Examples include specialized technologies or expertise, a large body of “legacy” software, or special relationships.
o		Are we addressing “right-sized” niches consistent with our growth objectives? We seek niches large enough to provide us with significant revenues, but are not likely to evoke excessive competition.
o		Does it involve new, advanced, unproven, and/or customized technologies? Our technology competence and focus makes us an attractive supplier to customers that understand, and are sensitive to, development risks associated with new technologies.
o		Is the opportunity consistent with our market reach and selling channels?

•		Augment customer funded R&D with discretionary R&D to enter or leverage new markets or technologies. We use availability of customer funding or co-investments for product development as an important factor in choosing where to apply our own discretionary R&D resources.
•		Invest in R&D, sales and marketing expenses, and capital facilities to foster a constant flow of new opportunities. Often we apply discretionary expenditures in a way to promote a renewable stream of project or market opportunities – as opposed to developing or promoting specific products or markets per se.
•		Sustain a large (relative to our size) and highly proficient engineering staff to capture and perform our target projects. Since customer funded R&D is an important aspect of our business, we believe it is important to sustain a large, highly competent, engineering team. We believe we offer a very competitive compensation, benefits and work environment to attract and maintain employees. Perhaps even more important, we believe we tend to seek and attract engineers who embrace our business approach and the associated technology challenges it offers. So far, this has enabled us to offer good value to our customers in terms of product performance, reduction of technological risks, and competitive pricing.
•		Continue to take informed, aggressive, diversified & prudent risks in advancing technologies to achieve leading & pioneering positions in target markets. Our technical orientation and competence is usually most valuable in addressing programs involving significant technical challenges– and therefore carrying the greatest risks. We emphasize the ability to identify, evaluate, and retire sources of technology risk in pursuing new program and market opportunities. We also aim to mitigate those risks by targeting a diversity of projects, by investing appropriate discretionary R&D or pre-proposal efforts, by staggering the timing of risky development projects, by diversifying the customer base, and by accepting risks that have at least a proportionate amount of expected financial returns.
•		Sustain our diversified business mix. We believe there is economic value in maintaining diversity in our technology and market portfolios and taking active steps to sustain and foster it.

Government

     Market Opportunity

     After several years of relatively flat sales and contract awards, ViaSat’s government revenues grew by over 30% and 56%, and new orders by over 100% and 30%, during the fiscal years 2003 and 2004, respectively. While there may be several interpretations or explanations for our growth during this year, we believe there are three basic themes and those themes may persist in our government markets for several years:

1.

The critical role of collection and dissemination of real-time information in executing high-speed, high precision, highly mobile warfare over dispersed geographic areas. There are two important aspects of this. One is reflected in the catch phrase “network-centric warfare”, which emphasizes the importance of real time data networks of all types via multiple transmission media. The other is the growing importance of satellite-based communications, in particular, as

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		the most reliable method of connecting rapidly moving forces who may simply out-run the range of terrestrial radio links.
2.		The growing importance of Internet Protocol (IP) networks in Department of Defense (DoD) compared to older circuit based systems – especially in light of network-centric warfare. We believe IP networks will drive a fundamental restructuring of DoD’s secure information networks, which will take several years to complete.
3.		Over the next decade or so many of the previous generation of defense communications satellite networks will expire or become obsolete. New programs are underway or in planning to define, develop, procure and deploy systems to replace them. While ViaSat has been successful in capturing defense satellite ground system business in the past, we believe these new programs present more opportunities for bidding on new contracts than we have seen previously.

We believe these fundamentals offer growth opportunities for each of our government business areas.

ViaSat’s government segment includes the following product lines:

•		Tactical Data Links
•		Tactical Networking and Information Assurance
•		Mobile Satellite Systems
•		Government Broadband Systems
•		Simulation and Test

     Tactical Data Links

     This product line is anchored by the Multifunction Information Distribution System (MIDS) terminal market. We are a prime contractor and are one of only two qualified providers of MIDS production units. We compete with Data Link Solutions (DLS), a joint venture between Rockwell Collins and BAE (United Kingdom) and EuroMIDS, who is in the process of becoming a qualified supplier and is a consortium comprised of four European contractors, Marconi-Selenia (Italy), Thales (France), EADS (Germany) , and Indra (Spain).

     MIDS is a specific implementation of a secure, anti-jam, tactical data radio intended primarily for air-to-air, air-to-ship, and air-to-ground real time transmission of Situational Awareness and Command and Control information using the so-called “Link-16” protocol.

     MIDS terminals have undergone extensive unit level qualification testing as well as product and system level developmental and operational testing on F/A-18 aircraft and other platforms. We believe the U.S. government has invested substantial time and money in MIDS testing and is not likely to qualify other production suppliers for those platforms designed to accommodate one of the configurations.

     We also anticipate a number of other countries who operate their own versions of MIDS-capable platforms (e.g. F-16’s) or who use other tactical air platforms but desire to interoperate with U.S. forces, will procure MIDS terminals. In aggregate, we believe the international market is approximately as large as the domestic U.S. market for MIDS. We expect EuroMIDS to compete for international orders, but it has only recently completed qualification testing and has not yet undergone extensive operational testing. International customers may procure terminals directly from ViaSat, or have the U.S. government acquire them on their behalf via the Foreign Military Sales (FMS) program.

     MIDS production is currently migrating from a “Low Rate Initial Production” (LRIP) phase to a “full rate” production. We believe this will likely lead to higher ordering rates in aggregate. While MIDS production represents the largest portion of this product line, we believe there are other related ongoing and potential opportunities including development of a low cost weapon data link and a compatible terminal with the Joint Tactical Radio System (JTRS).

     Tactical Networking and Information Assurance

Information Assurance

     For many years, ViaSat has developed and manufactured so-called “Type 1” DoD approved communications security devices. Type 1 encryption devices are required for virtually any communication of classified military information over radio, satellite, wire line, or fiber optic media. Type 1 encryption is used to protect information whether it is transmitted over military or commercial frequency bands or transmission systems. Prior to the year 2000, most of our previous Type 1 encryption devices were integrated or “embedded” into tactical radio products such as MIDS or our UHF DAMA satellite products.

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     For the last decade, ViaSat has been anticipating increased demand for Type 1 encryption devices that support Internet Protocol (IP) based networks. Our KIV-21 stand-alone Type 1 encryptor was our first product aimed at the IP market. During the past few years DoD has indicated strong support for IP encryption and developed a new standard to create an interoperable environment for such devices. The new standard is called HAIPIS, or High Assurance Internet Protocol Interoperability Specification. In recent years, we have been developing HAIPIS technology and we are preparing the release of our first HAIPIS compliant crypto, the KG-250, a 100 Mbps network encryptor. We believe the HAIPIS standard has become the security foundation for the DoD’s Global Information Grid (GIG), an initiative to achieve information superiority by connecting soldiers to the information they need, when they need it, no matter where they are. We believe end to end information security is a cornerstone of the GIG, and HAIPIS is the standard by which it is achieved.

     Another important aspect to the information security market is the DoD’s efforts to update its communications security products through an initiative known as “Crypto Modernization”. The focus of this initiative is to completely replace the DoD’s legacy inventory of encryptors with a new generation of programmable cryptographic devices. We anticipate the government will invest $3-4 billion over 10 years to modernize this information security infrastructure.

     In response to these trends, ViaSat has been developing a programmable, high assurance cryptographic architecture specifically designed to support Type 1 networking that is flexible enough to be applied to both standalone network encryptors and multi-channel embedded network encryptors. ViaSat’s architecture, dubbed the Programmable, Scalable Information Assurance Module (PSIAM) is designed to meet the requirements of Crypto Modernization, HAIPIS, and the GIG. We believe most of our growth in the information security market is due to our customers’ recognition that the PSIAM meets their emerging information assurance requirements. Important PSIAM based products and programs which highlight our ability to compete using this approach include:

•		Our family of standalone network encryptors (KG-250, KG-250A, and KG-255, our gigabit speed product).
•		Embedded encryption devices for both the Air Force’s Family of Beyond Line of Sight Terminal (FAB-T) and the Navy’s Common Data Link System.
•		Our family of high assurance filters including the JMINI High Assurance Guard for the Navy and the Secure Gateway/Trusted Filter for CECOM.
•		The Content Based Information Security program, a subcontract from Lockheed Martin, to develop the Type 1 portions of a network security solution that supports the GIG with network encryption, media encryption, key management, and strong authentication measures.
•		An enhancement of the HAIPIS standard modified for efficient operation over RF networks with bandwidth constraints for Boeing’s Joint Tactical Radio System “Cluster 1” radio.

     Our Information Assurance products continued their rapid year over year growth, expanding sales by more than 100% in fiscal year 2004, most of which came from customer-funded product development, as opposed to existing product sales.

Tactical Networking

     For the past 10 years, ViaSat has offered a family of tactical data networking products known as “ViaSat Data Controllers” which provide data communications over noisy, error-prone radio networks. This Data Controller product line is compatible with an interoperable military standard known as MIL-STD 188-184 and is primarily used on mobile tactical radios for reliable data communications. ViaSat manufactures both gateway and network edge versions of these products. Many data controller users are involved in “special operations” and / or similar light or highly mobile forces organizations. We believe ViaSat holds a dominant position in a portion of this market with multi-band and SATCOM radio users, with approximately 18,000 data controller products fielded. ViaSat has strong name brand recognition with these products, which we believe provide excellent reliability and performance. This area has seen recent growth in sales due to increased military activities, increased emphasis on small, mobile forces, increased emphasis on satellite communications, and because of recent product upgrades enhancing the IP-networking capabilities of the product family. These networking features allow users to realize the connectivity goals of the GIG today using their legacy radios even before transformation communication programs such as JTRS are available, albeit at lower data rates.

     We believe there are market opportunities in this product area through continual deployment of the gateway version of these products into the DoD’s core network infrastructure, which in turn results in significant edge product sales. We attempt to approach this market by anticipating the needs of users, and provide them with the capabilities they need, when they need it. Examples of our approach to the market include providing interface capability to every tactical radio in the DoD inventory, providing messaging applications that take full advantage of the Data Controller’s capabilities, and implementing an Internet Protocol layer to network radio networks with wired networks.

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     We seek to improve our Data Controller products by providing incremental advancements to both their network capabilities and communications performance. ViaSat’s advantage in this market is our continuous product evolution enabled by our unique knowledge of user requirements.

     Mobile Satellite Systems

     Our Mobile Satellite Systems products consist primarily of stand-alone and embedded satellite modems, terminals, and test and training equipment operating over the military UHF satellite band. UHF satellite terminals are almost always required to support a complex set of interoperable networking standards known as MIL-STD 188-182 and MIL-STD 188-183 – also called, collectively, UHF DAMA (Demand Assigned Multiple Access). We have been a leading supplier of UHF DAMA terminals, modems, and network control systems for both U.S. and allied military and prime contractors.

     Key products include:

•		The UHF DAMA satellite modem embedded in Raytheon’s AN/PSC-5 “manpack” satcom terminal. Raytheon has also designed our UHF DAMA modem into other related terminals including one for the Tactical Tomahawk cruise missile and other multi-band tactical radios.
•		The RT-18xx family of modular UHF satcom terminals for airborne, ship and shore installations.
•		The MD-1324 stand-alone UHF DAMA modem.
•		The DOCCT/S (DAMA Orderwire Control Channel Trainer/Simulator) test and training system.
•		Related UHF satellite terminal products including antenna combining systems, network control terminals and software, and end-user software applications.

     Government Broadband

     Our Government Broadband systems focus primarily on leveraging our commercial satellite technology into military satellite communications solutions for the U.S. government and its prime contractors. Fiscal year 2004 marked the first full year of sales for these products and their early growth is attributable to several key programs, which form the nucleus for continuing success.

     We believe there are significant growth opportunities for our Government Broadband systems across many product areas, including:

•		Growth from existing programs;
•		The U.S. government’s desire to standardize on a network-centric IP bandwidth-on-demand satellite modem. One of the key objectives is to gain the logistics advantage from a common modem implementation that serves point-to-point SCPC, network-centric mesh and hub-spoke topologies. ViaSat is in an ideal position to leverage its EBEM (SCPC), LINKWAY (mesh) and LinkStar (hub-spoke) products to meet the U.S. Government’s requirements.
•		Integration of our existing enterprise VSAT, bandwidth on demand satellite network systems such as LINKWAY and LinkStar, to satisfy near term communications requirements of our government customers. The joint combat camera and coalition military networks in Iraq are examples of these types of opportunities.
•		Deployment of a “cable modem” like satellite communications-on-the-move service that leverages our SKYLink modem technology ViaSat developed to bring broadband connectivity to business jets.

     Simulation & Test

     ViaSat produces simulation and test equipment which provides realistic simulated RF environments providing the opportunity for customers to test and evaluate electronic systems in an environment similar to flight, battlefield or space operations without leaving the confines of the laboratory. We attempt to meet our customers’ expectations by providing high fidelity signal simulations of any possible waveform that has been generated. These signals and the corresponding RF environment that affects them can be customized to the test needs of our customers. This includes platform dynamics; natural environmental effects on signals and other RF signal interferers. We accomplish these goals with a programmable, highly accurate, flexible signal generation source capable of simulating any modulated waveform. The overall system is highly scalable and can drive a few signals to 2,000 simultaneous signals. The combination of these highly accurate signal models utilize techniques which project signal in space attributes and combine with platform dynamics (simulated flight characteristics) to allow avionics to be tested and flown in a simulated flight environment in the lab. This has the distinct advantage of allowing systems to be debugged prior to costly flight-testing. These highly effective systems have been previously been deployed to support Communications, Navigation

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and Identification (Surveillance) Testing for the F-22 program, as well as for joint Navy-Air Force test and evaluation centers at Edwards Air Force Base and Patuxent River Naval Air Station. Beyond communications, navigation and identification signals, simulations include radar, search and track, television, radio, cellular telephones, GPS satellite and other non-conventional waveforms.

     The capability to engineer and produce high fidelity signal simulations without hardware design changes provides many emerging opportunities in radar, electronic warfare, satellite communications, signal exploitation and more. New opportunities to develop simulators have emerged for Lockheed Martin on the Joint Strike Fighter F-35 Program, and NASA Glen Research Center Future Air Traffic Control Test Bed. Additionally, international military customers in Korea, Japan, Taiwan, Italy and Australia have requirements that can be satisfied with our technology.

     Customers & Markets

Customers

     The primary customers for our government segment are the U.S. Department of Defense, agencies with other U.S. departments, international allied nations and large defense contractors. While most of our commercial customers are based in the United States, many of our large defense contractor customers have recently been leveraging our network design experience and the advanced capabilities of our products to sell communications products to international military forces. Examples of large defense contractors with which we have worked in the past include Raytheon Systems Company, Lockheed Martin Corporation, The Boeing Company, Northrop-Grumman Corporation, ITT Industries, and Marconi Communications, Elmer S.p.A.

Sales and Marketing

     We use both direct and indirect sales channels to sell our government products. We have approximately ten sales and marketing personnel who offer our government products. All but one of these sales personnel are located in the United States. International government sales are conducted primarily through our U.S. sales personnel. Although many of our sales are generated from direct sales, we often sell our products to prime contractors responsible for developing the entire network system where our products are integrated and embedded into the system.

     Our government sales teams consist of engineers, program managers, marketing managers and contract managers who work together to identify business opportunities, develop customer relationships, develop solutions for the customer’s needs, prepare proposals and negotiate 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.

     Similar to our efforts on the commercial side, we continue to increase the awareness of the ViaSat brand through a mix of positive program performance and our customers’ recommendation as well as public relations, advertising, trade show selling and conference speaking engagements.

Competition

     Within our government segment, we generally compete with defense electronics product, subsystem or system manufacturers such as Rockwell Collins, L3 Communications, Harris, General Dynamics, BAE Systems or similar companies. We may occasionally compete directly with the largest defense prime contractors, who are also customers, including Boeing, Lockheed Martin, Northrop Grumman or Raytheon Systems. We also frequently partner or team with these same companies (large or mid-tier) to compete against other teams for large defense programs.

     Almost all of the companies with which we compete are substantially larger than ViaSat.

Commercial

     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.

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Depending on the altitude of a satellite’s orbit, it can cover a geographic area, or footprint, larger than the size of a continent. The key components of a satellite communications system include:

•		satellites which relay communications signals to and from the users,
•		gateways which control the satellite network and connect it to communications networks on the ground, and
•		user terminals (indoor unit and outdoor unit) connecting the users to the satellite network.

     The essential advantage of satellite communications is that it allows a network provider to rapidly deploy new communications services to large numbers of people anywhere in the footprint of the satellite. Consequently, satellites can be used to deploy communication services in developed and developing markets in a shorter period of time than building ground-based infrastructure. Moreover, in some areas satellite solutions are less expensive than terrestrial wired and wireless alternatives. As satellite communications equipment becomes less expensive and new capabilities emerge in satellite communications technology, we believe the market for satellite communications offers growth opportunities.

     The commercial satellite communications industry is expected to be driven by the following major factors: (1) world-wide demand for communications services in general, and broadband data networks in particular, (2) the improving cost-effectiveness of satellite communications for many uses, (3) recent technological advancements which broaden applications for and increase the capacity and efficiency of satellite based networks, and (4) global deregulation and privatization of government-owned telecommunications carriers.

     We provide a variety of satellite communications network solutions for multiple sectors of the commercial market.

     Data Networks. Satellite networks are well suited for data networks which focus on (1) rapidly deploying new services across large geographic areas, (2) reaching multiple user locations separated by long distances, (3) filling in gaps or providing support for data points of congestion, or bottlenecks in ground-based communications networks, and (4) providing communications capabilities in remote locations and in emerging markets where ground-based infrastructure has not yet been developed.

     Satellite networks are used as a substitute for, or supplement to, ground-based communications services such as frame relay, digital subscriber lines, fiber optic cables, and Integrated Services Digital Networks (ISDN). We believe satellite data network products and services will present us with growth opportunities as commercial data networks using satellites are applied in developed and developing markets throughout the world.

     Internet Applications. In recent years, there has been an increase in the use of satellites for Internet traffic. This growth has been centered on connecting consumers and businesses with the Internet. Satellite capacity is often used where fiber cable is prohibitively expensive or rare, such as rural areas or emerging countries.

     We expect satellite communications to offer a cost-effective augmentation capability for Internet Service Providers (ISPs), particularly in markets where ground-based networks are unlikely to be either cost-effective or abundant. Additionally, satellite broadcast architecture provides an alternative for ISPs, which are dealing with congestion associated with the distribution of increasing amounts of high-capacity multimedia content on the Internet.

     Our commercial business offers a broad range of satellite communications and other wireless communications products and solutions in the following product lines:

•		Consumer Broadband,
•		Mobile Broadband,
•		Enterprise,
•		VSAT Networks,
•		Large Antenna Systems,
•		Satellite Networking Systems Design and Technology Development, and
•		MMIC Design and Development.

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     Consumer Broadband

     Our Consumer Broadband products enable broadband access to the global information infrastructure via satellites. We provide system solutions, equipment and support to service providers who distribute directly to end users, such as consumers, and provide the equipment employed by the end user of the service.

     For the fixed site, last mile broadband access market, we believe the key elements for a cost-effective solution for our customers are (1) access to a large pool of nationwide, low cost capacity, (2) availability of low cost customer premise equipment (CPE), and (3) low per subscriber operational and support costs for a large scale deployment. We focus on providing solutions which make more efficient use of the available satellite bandwidth (i.e. more subscribers per satellite), leverage mass market chipsets and innovative radio frequency technology to create low cost consumer premise equipment (CPE), and include an extensive set of tools to automate customer fulfillment and support. Equally important is our focus on working closely with satellite operators (e.g. WildBlue and Telesat) who are investing in next generation satellites specifically designed for low cost broadband access and service providers (e.g. Orbit Data Services and NRTC) with the distribution channels and support infrastructure to successfully capture the target end users.

     ViaSat has successfully developed DOCSIS and DVB-RCS-based technology for low cost CPE and network scalability along with advanced products to improve capacity on each satellite.

     Mobile Broadband

     With the emergence of increasingly capable satellite networking technologies, ViaSat has been able to develop cost-effective mobile broadband products. We have certified products and systems for in-flight high speed two-way internet and broadcast applications. ViaSat is developing complementary products for the maritime and ground mobile markets.

     For the mobile broadband access market, we believe the key elements for a cost-effective customer solution are (1) ubiquitous coverage (including regulatory approvals), (2) equipment suitable for the mobile platform and (3) sufficient capacity and speed to distinguish the service from mobile telephony or more limited services, such as Inmarsat. For this market, we focus on solutions with unique technical characteristics necessary to operate at high rates using a small antenna on a moving platform (commercial aircraft, business jets, trains, trucks, automobiles). Our experience with spread spectrum systems with our government products play a role in bringing the right technologies to bear. We believe it is also important to focus on working with satellite operators with a commitment to provide broadband coverage in areas needed by the mobile market (e.g. Connexion by Boeing and SES Americom/ARINC) to create a unified solution.

     We believe our advantages in this market include our high performance spread spectrum technology, our broadband frequency reuse PCMA technology and our position as the current supplier to the leading service providers in this market.

     Enterprise VSAT Networks

     ViaSat is a global supplier of VSAT satellite networks, services and products to enterprise customers. We design, manufacture and sell satellite networking products and provide services associated with their use and life cycle support. We also manage the delivery, installation and initial activation of the customer equipment around the world. In addition, we offer long-term software maintenance agreements, technical support agreements and operate a 7/24 Network Operations Center to support our customer base. In North America, ViaSat operates an owned VSAT shared hub network and offers satellite communication service to enterprise customers.

     Customers use our products to enable connectivity in corporate networks, retail facilities, schools and public institutions. The products are also used to extend “Broadband” connectivity to remote locations for Internet and other telecommunications infrastructure requirements. Once installed and activated our product solutions enable customers to transport data, video, and voice communication within a private network or across the world.

     Using feedback from user group meetings, customers and our sales team we continue to design leading edge VSAT solutions based on market needs. We believe our entrepreneurial culture and technical excellence allows us to react quickly to market requirements, implement new features and applications that create a competitive advantage.

     Large Antenna Systems

     We are a global provider of fixed and mobile ground-based antenna systems for the following applications: (1) gateway infrastructure, (2) remote sensing, (3) tracking, telemetry and control, (4) military tactical and strategic terminals, and (5) antenna products. Our products include antennas, servo control equipment, monitor and control software, and specialty converters and modems. These systems support functions in the L, S, C, X, Ku, and Ka-band frequency spectrums.

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     Gateways. Our gateway products represent a key component of our ability to offer complete network development and integration services. The gateway products connect satellites to the communications infrastructure on the ground, such as public switched telephone networks. We offer a number of different gateway products depending on the type, speed and size of the network. The gateways consist of our internally developed antenna and signal processing hardware and software as well as third party hardware. Although each of these components employs advanced technologies, the most complex component of a gateway is the overall system design and the software used to integrate each of the hardware components and operate the system. Gateways represent a key-operating component of any satellite network since gateways are required to interface the satellite portion of the network to the terrestrial communications network.

     We believe we will continue to derive benefits and efficiencies from our gateway building capabilities. Since the gateway is a complex and central component of any network, the optimization of the gateway for the specific network use is critical to optimizing the performance of the entire network. The ability to provide gateways and integrate those gateways into our innovative network solutions should provide us with an advantage over other network manufacturers and integrators, most of which purchase gateways from third parties. ViaSat has extensive experience in developing gateways for systems using Ka-band technologies. We believe these new technologies are a cornerstone of emerging satellite services like broadband on demand.

     Remote Sensing. ViaSat has been a leader in the satellite imaging and remote sensing ground station market for over 20 years. Remote sensing ground stations receive images of the earth transmitted from low earth orbit satellites. These images are often collected for both civilian and military purposes. Our remote sensing ground station products typically include software to provide satellite pre-mission planning, automated pre-pass set-up, system performance integrity analysis, signal routing assignments and maintenance actions.

     Tracking, Telemetry and Control. Our tracking, telemetry and command products are designed to provide a means for monitoring aircraft and missiles during flight tests as well as monitoring and controlling satellites. This equipment is used by the government and commercial flight test ranges as well as by commercial satellite operators.

     Military Terminals. Our military terminal products are used to provide tactical and strategic communications either over satellites or for point-to-point applications. These systems range from small diameter antennas with associated control equipment for shipboard applications to large diameter antenna systems for military gateway applications. These systems include advanced technology Ka-band antenna systems.

     Antenna Products. Our antenna products provide standard off-the-shelf antennas for typical geosynchronous satellite applications. Although our antenna systems are often sold and integrated with our other satellite communication products, we also offer a wide range of antenna systems as separate units. Our antennas range from 1 meter to 18 meters in diameter. Customers of our antenna systems include cable TV uplink stations and cable system providers that operate head-end receive stations, VSAT service providers, and various satellite communication system integrators that require traditional satellite communication capability.

     Satellite Networking Systems Design and Technology Development

     ViaSat performs research, systems engineering, and custom product design and development in satellite communications for ground and space systems. Specifically, we have expertise is in the areas of satellite network design, planning, and management; modulation and coding; payload architecture design; terminal design and development; Internet technologies; and modeling, analysis, and simulation.

     Our strategy is to leverage our reputation as a center of excellence for innovative ideas and technologies in satellite communications to win research and development programs funded by the government and commercial customers. We believe we have talented satellite communications engineers encompassing many relevant disciplines, a large portfolio of intellectual property, and existing platforms and products that can be enhanced and customized to meet customer’s requirements. We believe these strengths give us a competitive advantage to capture engineering services and system design and development programs in the satellite communications market. Typical satellite communications companies in this industry do not perform customized design and development work for both government and commercial clients. Instead, most companies only sell their standard hardware and software products. Although some companies build large networks with terminals and gateways, ViaSat is one of the few companies with the ability to design and deliver complex customized networks incorporating many advanced communications techniques and integrating various hardware and software elements.

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     MMIC Design and Development

     ViaSat provides custom high frequency MMICs and assemblies to commercial and government customers. Targeted markets include enterprise VSAT, consumer and mobile broadband, military airborne and shipboard, space-based electronics, and terrestrial based interactive satellite communications. The company has access to a wide range of integrated circuit technologies allowing it to offer optimum solutions for a given application.

     Our primary strategy is to offer fast turn, high performance custom MMIC solutions to specific customers and markets. In general we tend to be selective in the opportunities it pursues and focuses its resources to gain maximum market penetration. We operate in a fab-less environment and, hence, leverage outside contract manufacturing, including contract manufacturing outside the United States, to provide highest value to our customers. This approach avoids the high cost of internal capitalization and, where allowed by federal law, leverages the lower cost manufacturing available outside the United States. Another key strategy for us is to aggressively reduce product cost which in turn enables new markets to develop.

     ViaSat has highly skilled engineers who have extensive MMIC design and development experience. Skills include electrical and mechanical design, manufacturing process engineering, and metallurgy.

     Market Opportunity

Customers

     The majority of our commercial segment customers are satellite network integrators, large communications service providers and corporations requiring complex communications and / or networking solutions. Over the past couple of years, we have significantly expanded our commercial customer base both domestically and internationally.

     Significant commercial customers in the last fiscal year included Eutelsat, Intelsat, Boeing, ARINC, Telespazio, Gedas, Inc., Shoppers Drug Mart, INTERDirec, Beijing Application Institute of Information Technology (BAIIT), Cap Rock, Halliburton and Tatanet India.

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 in domestic and global markets. Our sales and marketing group includes approximately 34 persons, with six located outside the United States.

     Our sales teams consist of regional sales directors, regional sales managers and sales engineers, who act as the primary interface to establish account relationships and determine technical requirements for the customer’s networks. In addition to our sales force, we maintain a highly trained service staff to provide technical product and service support to our customers. The sales cycle in the commercial satellite network market is lengthy and it is not unusual for a sale to take up to 18 months from the initial contact through the execution of the agreement. The sales process often includes several network design iterations, network demonstrations and pilot networks consisting of a few sites.

     In addition, we seek to develop key strategic relationships to market and sell our network products and services. We seek strategic relationships and partners based on many factors, including financial resources, technical capability, geographic location and market presence.

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     We also obtain sales to new customers through referrals from existing customers, industry suppliers, and other sources such as participation in trade shows and advertising. We actively work at increasing awareness for the ViaSat brand through a mix of public relations, advertising, trade show selling and conference speaking engagements.

     Additionally, we direct our sales and marketing efforts to our strategic partners, primarily through our senior management relationships. In some cases a strategic ally may be the prime contractor for a system or network installation and will subcontract a portion of the project to us. In other cases, the strategic ally may recommend us as the prime contractor for the design and integration of the network.

     We provide service, repair and technical support for our products and services. Through our sales teams and support services, we are constantly made aware of customers’ needs and their use of products and services. Accordingly, a superior level of continuing customer service and support is integral to our objective of developing and maintaining long-term relationships with our customers. The majority of our service and support activities are provided by our field engineering team, systems engineers, and sales and administrative support personnel, both on-site at the customer’s location and by telephone.

Competition

     The commercial communications industry is highly competitive. As a provider of commercial network products and designer of commercial network solutions in the United States and internationally, we compete with a number of wireless and ground-based communications service providers. Many of these competitors have significant competitive advantages, including strong customer relationships, more experience with regulatory compliance, greater financial and management resources and control over central communications networks. To compete with these providers, we emphasize:

•		the overall cost of our satellite networks, which includes both equipment and bandwidth costs, as compared to products offered by ground-based and other satellite service providers,
•		the distinct advantages of satellite data networks,
•		our end-to-end network implementation capabilities, and
•		our network management experience.

     Our principal competitors in enterprise VSAT networks are Hughes Network Systems, Gilat Satellite Networks Ltd., EMS Technologies, Inc., Nera ASA, ND Satcom and iDirect Technologies, each of which offers a broad range of satellite communications products and services. Our principal competitors in the supply of large antenna and gateway systems are Andrew Corporation, RFS and Tripoint Global.

     In competing with these companies, we emphasize:

•		the innovative and flexible features integrated into our products,
•		our proven designs and network integration services for complex, customized network needs, and
•		the increased bandwidth efficiency offered by our networks and products.

Strategic Ventures

     TrellisWare Technologies. In August 2000, we established TrellisWare Technologies Inc., a majority-owned spin-off of ViaSat. TrellisWare was formed to focus on developing products based on maximum likelihood processing technology, a signal processing technology that is expected to greatly improve the performance of broadband communications in challenging environments (multi-path, interference and high channel dynamics).

     Teaming Arrangements. We regularly enter into teaming arrangements with other government contractors to more effectively capture complex government programs. In these teaming arrangements we may act as either the prime contractor or subcontractor bidder. Once awarded a contract, generally the prime contractor is obligated, with some exceptions, to award a contract to the relevant subcontractors on the team.

     We expect to continue to actively seek strategic relationships and ventures with companies whose financial, marketing, operational or technological resources can accelerate the introduction of new technologies and the penetration of new markets.

Research and Development

     We believe our future success depends on the ability to adapt to the rapidly changing satellite communications and related signal processing and networking software environment. Therefore, the continued timely development and introduction of new products is essential in maintaining our competitive position. We develop most of our products in-house and have a research and development and engineering staff, which includes over 500 engineers.

     A significant portion of our research and development efforts 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.

     The portion of our contract revenues which includes research and development funded by government and commercial customers during fiscal year 2004 was approximately $81.0 million, during fiscal year 2003 was approximately $74.1 million, and during fiscal year 2002 was approximately $75.2 million. In addition, we incurred $10.0 million in fiscal year 2004, $16.0 million in fiscal year 2003, and $9.4 million in fiscal year 2002, 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

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research and development expenses, consisting primarily of salaries and other personnel-related expenses, supplies and prototype materials related to research and development programs.

Manufacturing

     Our manufacturing objective is to produce high-quality products that conform to specifications at the lowest possible manufacturing cost. We primarily utilize a range of contract manufacturers, based on the volume of the production, to reduce the costs of products and to support rapid increases in delivery rates when needed. As part of our manufacturing process, we conduct extensive testing and quality control procedures for all products before they are delivered to customers.

     Contract manufacturers produce products for many different customers and are able to pass on the benefits of large scale manufacturing to their customers. These manufacturers are able to achieve high quality products with lower levels of costs by (1) exercising their high-volume purchasing power, (2) employing advanced and efficient production equipment and systems on a full-time basis, and (3) using a highly skilled workforce. Our primary contract manufacturers include Spectral Response, Inc., SMS Technologies Inc.and MC Assembly.

     Our experienced management team facilitates the efficient contract manufacturing process through the development of strong relationships with a number of different contract manufacturers. By negotiating beneficial contract provisions and purchasing some of the equipment needed to manufacture our products, we retain the ability to move the production of our products from one contract manufacturing source to another if required. Our operations management has experience in the successful transition from in-house production to contract manufacturing. The degree to which we employ contract manufacturing depends on the maturity of the product. We intend to limit our internal manufacturing capacity to new product development support and customized products that need to be manufactured in strict accordance with a customer’s specifications and delivery schedule.

     Therefore, our internal manufacturing capability for standard products has been, and is expected to continue to be, very limited, and we intend to rely on contract manufacturers for large-scale manufacturing.

     We also rely on outside vendors to manufacture specific components and subassemblies used in the production of our products. Some components, subassemblies and services necessary for the manufacture of our products are obtained from a sole supplier or a limited group of suppliers. In particular, Texas Instruments and Broadcom are sole source suppliers of certain digital signal processing chips, which are critical components we use in many of our products.

Backlog

     As of April 2, 2004, we had firm backlog of $281.6 million, of which $258.3 million was funded. This compares to firm backlog of $213.6 million at March 31, 2003, of which $179.6 million was funded, not including options of $44.9 million. Of the $281.6 million in firm backlog at April 2, 2004, approximately $174.8 million is expected to be delivered in fiscal year 2005 and the balance is expected to be delivered in fiscal year 2006 and thereafter. Total new awards for both commercial and defense products were $346.5 million for fiscal year 2004 compared to $259.2 million for fiscal year 2003. We include in our backlog only those orders for which we have accepted purchase orders or signed contracts. As of April 2, 2004, our firm backlog does not include contract options of $25.8 million. These options include $23.1 million of Indefinite Delivery/Indefinite Quantity (IDIQ) contracts for our UHF DAMA satellite communications products and $2.7 million of IDIQ contracts for our other products.

     Backlog is not necessarily indicative of future sales. A majority of our contracts can be terminated at the convenience of the customer since orders are often made substantially in advance of delivery, and our contracts typically provide that orders may be terminated with limited or no penalties. In addition, purchase orders may present product specifications that would require us to complete additional product development. A failure to develop products meeting such specifications could lead to a termination of the related purchase order.

     The backlog amounts as presented are comprised of funded and unfunded components. Funded backlog represents the sum of contract amounts for which funds have been specifically obligated by customers to contracts. Unfunded backlog represents future amounts that customers may obligate over the specified contract performance periods. Our customers allocate funds for expenditures on long-term contracts on a periodic basis. Our ability to realize revenues from contracts in backlog is dependent upon adequate funding for such contracts. Although we do not control the funding of our contracts , our experience indicates that actual contract fundings have ultimately been approximately equal to the aggregate amounts of the contracts.

Government Contracts

     Substantial portions 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,

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personnel qualifications, experience and price. We also receive some contract awards involving special technical capabilities on a negotiated, noncompetitive basis due to our unique technical capabilities in special areas. The Federal Acquisition Streamlining Act of 1994 has encouraged the use of commercial type pricing on dual use products. Our future revenues and income could be materially affected by changes in procurement policies, a reduction in expenditures for the products and services 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 several months 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 2004 were approximately 23% from cost-reimbursement contracts, approximately 2% from time-and-materials contracts and approximately 75% from fixed-price contracts of total revenues.

     Our allowable federal government contract costs and fees are subject to audit by the Defense Contract Audit Agency. Audits may result in non-reimbursement of some contract costs and fees. While the government reserves the right to conduct further audits, audits conducted for periods through fiscal year 2001 have resulted in no material cost recovery disallowances for us.

     Our federal government contracts may be terminated, in whole or in part, at the convenience of the 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 exercised more often than not.

     Our eligibility to perform under our federal government contracts requires us to maintain adequate security measures. We have implemented security procedures that we believe are adequate to satisfy the requirements of our federal government contracts.

Regulatory Environment

     Some of our products are incorporated into wireless communications systems that are subject to regulation domestically by the Federal Communications Commission and internationally by other government agencies. Although the equipment operators and not us are responsible for compliance with these regulations, regulatory changes, including changes in the allocation of available frequency spectrum and in the military standards which define the current networking environment, could materially adversely affect our operations by restricting development efforts by our customers, making current products obsolete or increasing the opportunity for additional competition. Changes in, or our failure to manufacture products in compliance with, applicable regulations could materially harm our business. In addition, the increasing demand for wireless communications has exerted pressure on regulatory bodies world wide to adopt new standards for these products, generally following extensive investigation and deliberation over competing technologies. The delays inherent in this government approval process have in the past caused and may in the future cause the cancellation, postponement or rescheduling of the installation of communication systems by our customers, which in turn may have a material adverse effect on the sale of our products to the customers.

     We are also subject to a variety of local, state and federal government regulations relating to the storage, discharge, handling, emission, generation, manufacture and disposal of toxic or other hazardous substances used to manufacture our products. The failure to comply with current or future regulations could result in the 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

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material effect on our business, as we have neither incurred significant costs to maintain compliance nor to remedy past noncompliance.

     We believe that we operate our business in material compliance with applicable government regulations. We are not aware of any pending legislation that if enacted could materially harm our business.

     In addition to the local, state and federal government regulations, we must comply with applicable laws and obtain the approval of the regulatory authorities of each foreign country in which we operate. The laws and regulatory requirements relating to satellite communications and other wireless communications systems vary from country to country. Some countries have substantially deregulated satellite communications and other wireless communications, while other countries maintain strict and often burdensome regulations. The procedure to obtain these regulatory approvals can be time-consuming and costly, and the terms of the approvals vary for different countries. In addition, in some countries there may be restrictions on the ability to interconnect satellite communications with ground-based communications systems.

Intellectual Property

     We rely on a combination of patents, trade secrets, copyrights, trademarks, service marks and contractual rights to protect our intellectual property. We attempt to protect our trade secrets and other proprietary information through agreements with our customers, suppliers, employees and consultants, and through other security measures. Although we intend to protect our rights vigorously, we cannot assure you that these measures will be successful. In addition, the laws of some countries in which our products are or may be developed, manufactured or sold may not protect our products and intellectual property rights to the same extent as the laws of the United States.

     While our ability to compete may be affected by our ability to protect our intellectual property, we believe that, because of the rapid pace of technological change in the satellite and other wireless communications industry, our technical expertise and ability to introduce new products on a timely basis will be more important in maintaining our competitive position than protection of our intellectual property and that patent, trade secret and copyright protections are important but must be supported by other factors such as the expanding knowledge, ability and experience of our personnel, new product introductions and frequent product enhancements. Although we continue to implement protective measures and intend to defend vigorously our intellectual property rights, we cannot assure you that these measures will be successful.

     In the event of litigation to determine the validity of any third party’s claims, the litigation could result in significant expense to us and divert the efforts of our technical and management personnel, whether or not the litigation is determined in our favor. The wireless communications industry has been subject to frequent litigation regarding patent and other intellectual property rights. Leading companies and organizations in the industry have numerous patents that protect their intellectual property rights in these areas. In the event of an adverse result of any litigation, we could be required to expend significant resources to develop non-infringing technology or to obtain licenses to the technology that is the subject of the litigation.

Employees

     As of April 2, 2004, we had 964 employees (of which 59 were temporary employees), including approximately 505 in engineering and research and development, 34 in sales and marketing, 220 in production, and 205 in corporate, administration and production coordination. None of our employees are covered by a collective bargaining agreement and we have never experienced any strike or work stoppage. We believe that our relations with our employees are good.

Trademarks

     The following marks are trademarks of ViaSat, Inc.: AltaSec, LinkStar, LINKWAY, Skylinx, StarWire and ArcLight. COMSAT Laboratories is a trade name of ViaSat, Inc. Neither COMSAT Labs nor COMSAT Laboratories is affiliated with COMSAT Corporation.

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Factors That May Affect Future Performance

     You should consider each of the following factors as well as the other information in this annual report in evaluating our business and prospects. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also impair our business operations. If any of the following risks actually occur, our business and financial results could be harmed. In that case the trading price of our common stock could decline. You should also refer to the other information set forth in this annual report, including our financial statements and the related notes.

If Commercial Wireless Communications Markets Fail to Grow as Anticipated, Our Business Could Be Materially Harmed

     A number of the commercial markets for our products in the wireless communications area, including our DAMA and broadband products, have only r