Anuvu Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Commitments and Contingencies

Commitments and Contingencies

12 Months Ended

Dec. 31, 2016

Commitments and Contingencies Disclosure [Abstract]

Movie License and Internet Protocol Television (IPTV) Commitments

The Company has certain long-term commitments including film license fees and guaranteed minimum payments owed to content providers. In addition, the Company has certain long-term arrangements with service and television providers to license and provide content and IPTV services that are subject to future guaranteed minimum payments.

The following is a schedule of future minimum payment obligations under movie and IPTV arrangements as of December 31, 2016 (in thousands):



Year Ending December 31,	Amount
2017	$	46,207
2018	15,662
2019	5,142
2020	1,251
2021	650
Thereafter	150
Total minimum payments	$	69,062

Operating Leases

The Company leases its operating facilities under non-cancelable operating leases that expire on various dates through 2025. Certain operating leases provide the Company with the option to renew for additional periods. Where operating leases contain escalation clauses, rent abatements, and/or concessions, such as rent holidays and landlord or tenant incentives or allowances, the Company applies them in the determination of straight-line rent expense over the lease term. Certain operating leases require the payment of real estate taxes or other occupancy costs, which may be subject to escalation. The Company also leases certain facilities and vehicles under month-to-month arrangements.

The following is a schedule of future minimum lease payments under operating leases as of December 31, 2016 (in thousands):



Year Ending December 31,	Amount
2017	$	5,407
2018	3,312
2019	2,955
2020	2,585
2021	2,539
Thereafter	7,042
Total minimum lease payments	$	23,840

Total lease expense for the year ended December 31, 2016, 2015, and 2014 was $5.6 million, $4.4 million, and $4.1 million, respectively. The Company is responsible for certain operating expenses in connection with these leases.

Capital Leases

The Company leases certain computer software and equipment under capital leases that expire on various dates through 2020. The current portion and non-current portion of capital lease obligations are included in Current portion of long-term debt and Long-term debt, respectively, on the Consolidated Balance Sheets. As of December 31, 2016, future minimum lease payments under these capital leases were as follows (in thousands):



Year Ending December 31,	Amount
2017	$	758
2018	579
2019	486
2020	339
Total minimum lease payments	2,162
Less: amount representing interest	(174		)
Present value of net minimum lease payments	1,988
Less current portion	(670		)
Capital lease obligation, non-current	$	1,318

Satellite Capacity Commitments

The Company maintains agreements with satellite service providers to provide for satellite capacity. The Company expenses these satellite fees in the month the service is provided as a charge to licensing and services cost of sales.

In connection with the EMC Acquisition, the Company assumed a number of contractual commitments, including those for satellite services. During the third quarter of 2016 (prior to the EMC Acquisition), EMC entered into an amendment to its existing service agreement with one of its satellite service providers, Intelsat Corporation (“Intelsat”). Under this amendment, Intelsat will provide certain levels of satellite bandwidth in exchange for an additional $40 million from the Company over and above EMC’s prior contractual commitment.

During the year ended December 31, 2014, the Company entered into a satellite service agreement with New Skies Satellites B.V. (“SES”) to provide global, Ku-band satellite bandwidth to GEE for use in GEE’s in-flight connectivity system. The SES agreement required the Company to make an up-front pre-payment of $4.0 million as well as one additional pre-payment of $4.5 million due and paid in January 2016. During the first quarter of 2015, the Company entered into an agreement with Hughes Network Systems, LLC (“HNS”) to administer and assume the underlying obligations under the SES agreement, and transferred its first $4.0 million SES prepayment to HNS. The upfront $4.0 million pre-payment was applied to certain service fees through February 2016, while the $4.5 million prepayment made in January 2016 will be applied to certain future services expected to launch in 2017. In March 2016, the Company and HNS entered into an additional agreement under which HNS will deliver satellite connectivity for the Company’s next-generation, multi-band airborne services utilizing the high-throughput Ka-band Jupiter constellation of satellites. There is no minimum commitment under this HNS contract and the costs are based on actual usage. In December 2016, the Company entered into an agreement with SES to purchase Tranche 1 and 2 satellite transponders with $13.5 million payable in 2017 for Tranche 1 transponders and $23.0 million payable in 2017 for Tranche 2 transponders. The satellite transponders operate over certain parts of North and Central Americas.

The following is a schedule of future minimum satellite costs as of December 31, 2016 (in thousands):



Year Ending December 31,	Amount
2017	$	94,269
2018	76,028
2019	63,896
2020	49,209
2021	29,426
Thereafter	134,690
Total minimum payments	$	447,518

Other Commitments

In connection with the EMC Acquisition on July 27, 2016, the Company was obligated to pay the former member unit holder up to an additional $25.0 million on the first anniversary date in, at the Company’s option, (a) cash, (b) newly issued shares of the Company’s common stock or (c) a combination of cash and newly issued shares of the Company’s common stock. On July 27, 2017, the Company elected to pay such amounts in shares of common stock and issued 5,080,049 shares of common stock to the former member unit holder of EMC.

Through the acquisitions of WOI, RMG, masFlight and navAero, the Company assumed certain obligations with respect to future contingent earn-outs. As of December 31, 2016 and 2015, the total liability was approximately $2.0 million and $9.7 million, respectively, with potential payouts on specified dates through 2020.

In the normal course of business, the Company enters into future purchase commitments with certain connectivity vendors to secure future inventory for its airlines customers and the development pertaining to engineering and antenna projects. As of December 31, 2016, the Company had approximately $40.0 million of future purchase commitments, which it expects to pay $39.0 million in 2017 and $1.0 million in 2018. At December 31, 2016, the Company also had outstanding letters of credit in the amount of $5.2 million, of which $3.3 million was secured by the First Lien Credit Agreement.

Contingencies

The Company is subject to various legal proceedings and claims that have arisen in the ordinary course of business and that have not been fully adjudicated. The Company records accruals for loss contingencies to the extent that management concludes it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. On a regular basis, management evaluates developments in legal proceedings and other matters that could cause an increase or decrease in the amount of the liability that has been accrued previously. While it is not possible to accurately predict or determine the eventual outcomes of these matters, an adverse determination in one or more of these matters currently pending could have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. Certain of the Company’s legal proceedings and other matters that management believes could become significant are discussed below:

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Music Infringement and Related Claims. On May 6, 2014, UMG Recordings, Inc., Capitol Records, Universal Music Corp. and entities affiliated with the foregoing (collectively, “UMG”) filed suit in the United States District Court for the Central District of California against the Company and Inflight Productions Ltd. (“IFP”) for copyright infringement and related claims and unspecified money damages. IFP is a direct subsidiary of Global Entertainment AG (formally AIA) and an indirect subsidiary of the Company. In August 2016, the Company entered into settlement agreements with major record labels and publishers, including UMG, to settle music copyright infringement and related claims (the “Sound-Recording Settlements”). As a result of the Sound-Recording Settlements, the Company paid approximately $18.0 million in cash and issued approximately 1.8 million shares of its common stock to settle lawsuits and other claims. Under the settlement agreement with UMG, the Company paid UMG an additional $5.0 million in cash in March 2017 and agreed to issue 500,000 additional shares of its common stock when and if the closing price of its common stock exceeds $10.00 per share and 400,000 additional shares of its common stock when and if the closing price of its common stock exceeds $12.00 per share.

On July 1, 2014, American Airlines, Inc. (“AA”) filed suit in Texas State Court against IFP for breach of contract and seeking a declaration that IFP must defend and indemnify American against claims that UMG and others may assert against American for music-related copyright infringement insofar as such claims arise out of American’s use of content provided by IFP. In October 2016, the Company, IFP and AA entered into a settlement agreement pursuant to which the Company paid $3.7 million to AA to settle the litigation.

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In 2016, the Company received notices from several music rights holders and associations acting on their behalf regarding potential claims that the Company infringed their music rights and the rights of artists that they represent. To date, none of these rights holders or associations has initiated litigation against the Company. The Company has not accrued a reserve for these loss contingencies at this time because the Company does not currently believe that a material loss relating to these matters is probable. Based on the Company’s previous music litigation experience, the Company believes that a material loss relating to these matters is reasonably possible, but is currently unable to estimate the amount of such loss at this time due to the preliminary nature of the potential claims. The Company intends to vigorously defend itself against these claims.

•

SwiftAir Litigation. On August 14, 2014, SwiftAir, LLC filed suit against the Company’s wholly owned subsidiary Row 44 and one of its airline customers for breach of contract, quantum meruit, unjust enrichment and similar claims and money damages in the Superior Court of California for the County of Los Angeles. SwiftAir and Row 44 had a contractual relationship whereby Row 44 agreed to give SwiftAir access to its portal for one of its airline customers so that SwiftAir could market its destination deal product to the airline customer’s passengers. When Row 44’s customer decided not to proceed with SwiftAir’s destination deal product, Row 44 terminated the contract in 2013. In its lawsuit, SwiftAir seeks approximately $9.0 million in monetary damages against Row 44 and its airline customer. The Court has currently scheduled the trial for this matter in November 2017. The Company has not accrued a reserve for this loss contingency at this time because the Company does not currently believe that a material loss relating to these matters is probable. The Company believes that a material loss relating to this matter is reasonably possible, but is currently unable to estimate the amount of the potential loss at this time due to the preliminary nature of the matter. The Company intends to vigorously defend itself against this claim.

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AMN Litigation. On March 4, 2016, Advanced Media Networks (“AMN”) filed suit against EMC (which is a wholly owned subsidiary of the Company) and Maritime Telecommunications Network, Inc., a wholly-owned indirect subsidiary of EMC (“MTN”) in U.S. District Court for the Southern District of Florida, for allegedly infringing two of AMN’s patents and seeking injunctive relief and unspecified monetary damages. The Company had recorded a loss contingency and indemnification receivable due from the seller of EMC for this matter in the purchase price accounting and as of December 31, 2016. In June 2017 however, EMC and MTN settled the lawsuit with AMN, and pursuant to the purchase agreement whereby EMC purchased the MTN business, the sellers of the MTN business indemnified EMC and MTN for the full settlement amount and all related legal expenses.

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STM Litigation. On April 12, 2016, STM Atlantic N.V. and STM Group, Inc. (jointly, the “STM Sellers”) filed a breach-of-contract action in Delaware Superior Court against EMC relating to EMC’s 2013 acquisition of STM Norway AS, STMEA (FZE), Vodanet Telecomuniçacões Ltda. and STM Networks from the STM Sellers. The STM Sellers allege, among other things, that EMC breached earnout provisions in the purchase agreement by failing to develop and sell sat-link technology following the acquisition closing. The STM Sellers seek $20 million in damages. The Court has currently scheduled the trial for this matter in December 2017. The Company has not accrued a reserve for these loss contingencies at this time because the Company does not currently believe that a material loss relating to these matters is probable. The Company believes that a material loss relating to these matters is reasonably possible, but is currently unable to estimate the amount of such loss at this time due to the preliminary nature of the potential claims. Additionally, pursuant to the purchase agreement whereby the Company purchased the EMC business, the sellers of the EMC business agreed to indemnify the Company in full for this claim and assumed the defense of this matter. The Company intends to vigorously defend itself against this claim.

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Securities Class Action Litigation. On February 23, 2017 and on March 17, 2017, following the Company’s announcement that it anticipated a delay in its 2016 Form 10-K filing and that its former CEO and former CFO would separate from the Company, three putative securities class action lawsuits were filed in United States District Court for the Central District of California. These lawsuits alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act against the Company, its former CEO and two of its former CFOs. The plaintiffs voluntarily dismissed two of these lawsuits. The third lawsuit, brought by putative stockholder M&M Hart Living Trust and Randi Williams (the “Hart complaint”), alleged that the Company and the other Defendants made misrepresentations and/or omitted material information about the EMC Acquisition in July 2016, the Company’s projected financial performance and synergies following that acquisition, and the impact of that acquisition on the Company’s internal controls over financial reporting. Plaintiffs sought unspecified damages, attorneys’ fees and costs. On November 2, 2017, the Court granted the Company’s and the other defendants’ motion to dismiss the Hart complaint, and dismissed the action with prejudice. The plaintiffs may appeal that ruling, and their period in which to appeal has not yet expired. The Company has not accrued a reserve for this loss contingency at this time because the Company currently believes that a material loss relating to this matter is remote. If appealed, the Company intends to vigorously defend itself against this claim.

In addition, from time to time the Company is or may be party to various additional legal matters incidental to the conduct of its business. Certain of the outstanding legal matters include speculative claims for indeterminate amounts of damages, for which no contingency reserve has been recorded. Additionally, the Company has determined that other legal matters are likely not material to our financial statements, and as such have not discussed those matters above. Although the ultimate resolution of these speculative and immaterial matters cannot be predicted with certainty, based on its current knowledge, the Company does not believe that the outcome of any of these matters will have a material adverse effect on its financial statements.