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Commitments and Contingencies
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9 Months Ended |
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Sep. 30, 2013
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| Commitments and Contingencies Disclosure [Abstract] | |
| Commitments and Contingencies |
Commitments and Contingencies
Operating Lease Commitments
Operating lease commitments include payments on outstanding, noncancelable, operating lease obligations. The Company leases its operating facilities under noncancelable operating leases that expire through 2017. The Company also leases certain facilities and vehicles under month-to-month arrangements. Total rent expense for the three and nine months ended September 30, 2013 and 2012 was $0.5 million, $1.6 million, $0.1 million, and $0.4 million, respectively. The Company is responsible for certain operating expenses in connection with these leases.
Satellite Cost Commitments
During the nine months ended September 30, 2013 the Company signed four amendments to its Master Services Agreement ("MSA") with its satellite service provider to provide for satellite capacity over Russia, the North Atlantic and for expansion of its existing capacity in the US and Europe. These collective amendments increased satellite cost commitments by a total of $40.0 million over the period from September 30, 2013 through December 31, 2018. The commitment increase by period is as follows: $1.7 million for the remainder of 2013, $9.3 million for 2014, $12.3 million for 2015, $8.4 million for 2016 and $4.2 million for each of the years 2017 and 2018. The Company expenses these satellite fees in the month the service is provided as a charge to cost of services.
Legal Matters
On December 28, 2012, Advanced Media Networks, L.L.C. filed suit in the United States District Court for the Central District of California against Row 44 and one of its customers which Row 44 has agreed to indemnify for allegedly infringing two of its patents and seeking injunctive relief and unspecified monetary damages. Both of the patents are being reexamined by the U.S. Patent & Trademark Office. Based on currently available information, the Company believes it has strong defenses and intends to defend vigorously against this lawsuit, but the outcome of this matter is inherently uncertain and could have a materially adverse effect on its Connectivity business, financial condition and results of operations. The potential range of loss related to this matter cannot be determined and as a result, no reserve has been established.
On October 22, 2013, Arista Music, Sony Music Entertainment and certain parties believed to be related to the foregoing filed suit in the United States Direct Court for the Southern District of New York against Inflight Productions Ltd. (“IFP”), one of its customers and a third party contractor of IFP for copyright infringement and related claims and unspecified money damages. IFP is a direct subsidiary of AIA and an indirect subsidiary of the Company. The Company is in the process of evaluating the merits of this matter, and we intend to defend vigorously against this matter, however the the outcome is inherently uncertain and could have a material adverse effect on the Company’s business, financial condition and results of operations. The potential range of loss related to this matter cannot be determined.
While the resolution of the above matters cannot be predicted with certainty, the Company does not believe, based on current knowledge, that the outcome of the currently pending claims or legal proceedings in which the Company is currently involved will have a material adverse effect on the Company's financial statements.
Business Combination
As a result of the AIA Stock Purchase, the Company assumed certain commitments. AIA’s long-term commitments include contracts for office space leases and operating equipment leases of $5.6 million, movie license fees of $23.1 million and certain guaranteed minimum payments owed to movie content providers of $7.5 million. In addition and as a result of the PMG asset purchase, the Company assumed obligations of $1.8 million associated with a 25-year operating lease agreement.
The operating lease contracts usually have a contract period from 1 to 5 years. The movie license contracts have a contract period of 3 years. Minimum payments for already signed contracts are mainly to be paid within 12 months. The earn-out payment will be due in the years 2014 through 2016.
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