Annual report pursuant to Section 13 and 15(d)

Commitments and Contingencies

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Commitments and Contingencies
 12 Months Ended
Dec. 31, 2013
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
Commitments and Contingencies

Movie License and Internet Protocol Television (IPTV) Commitments

As a result of the AIA and PMG acquisitions, the Company assumed certain long-term commitments including movie license fees and guaranteed minimum payments owed to movie 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, 2013:

Year ending December 31,       
Amount
2014
$
20,986

2015
16,046

2016
9,005

2017
6,452

2018
3,225

Thereafter
750

Total minimum payments
$
56,464



Operating Lease Commitments

The Company conducts its operations utilizing leased office facilities in various locations under non-cancelable operating leases. The Company’s leases expire between June 2014 and March 2024.

The following is a schedule of future minimum lease payments under operating leases as of December 31, 2013:

Year ending December 31,       
Amount
2014
$
4,042

2015
2,432

2016
1,191

2017
487

2018
276

Thereafter
1,518

Total minimum lease payments
$
9,946



The Company also leases certain facilities and vehicles under month-to-month arrangements. Total rent expense for the year ended December 31, 2013, 2012, and 2011 was $2.4 million, $0.5 million, and $0.4 million, respectively. The Company is responsible for certain operating expenses in connection with these leases. As a result of the PMG acquisition and reflected in the table above, the Company assumed asset purchase obligations of $1.8 million associated with a 25-year operating lease agreement.
     
Satellite Cost Commitments

During the year ended December 31, 2013 the Company amended 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 resulted in satellite cost commitments to $179.8 million over the period from December 31, 2013 through December 31, 2020. The Company expenses these satellite fees in the month the service is provided as a charge to cost of services.

The following is a schedule of future commitments under the agreement as of December 31, 2013:

Year ending December 31,       
Amount
2014
$
37,800

2015
37,253

2016
25,175

2017
21,822

2018
21,822

Thereafter
35,912

Total minimum payments
$
179,784


Earn-out and Equipment Purchase Commitments

Through the acquisitions of AIA and PMG, the Company assumed certain obligations with respect to future earn-outs for certain employees of AIA and PMG. As of December 31, 2013, the total liabilities were approximately $1.8 million, and are expected to be paid out in full by 2015.

Through its normal course of business, the Company enters into future purchase commitments with its equipment vendors to secure future inventory for its airlines customers. As of December 31, 2013, the Company had approximately $35.0 million of future purchase commitments, of which it expects to pay $32.8 and $2.2 million in 2014 and 2015, respectively.

    
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 operating segment, 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 District 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, which we intend to defend vigorously, however the outcome is inherently uncertain and could have a material adverse effect on the Company’s business, financial condition and results of operations. As of December 31, 2013, the Company has provided a reserve for this matter. The reserve is not material to the financial results of the Company as of December 31, 2013.

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.