Annual report pursuant to Section 13 and 15(d)

Commitments and Contingencies

v2.4.1.9
Commitments and Contingencies
12 Months Ended
Dec. 31, 2014
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, 2014 (in thousands):
Year ending December 31,       
Amount
2015
$
32,598

2016
13,219

2017
4,292

2018
350

2019
325

Thereafter
425

Total minimum payments
$
51,209


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 January 2015 and March 2024.
The following is a schedule of future minimum lease payments under operating leases as of December 31, 2014 (in thousands):
Year ending December 31,       
Amount
2015
$
3,158

2016
1,769

2017
931

2018
804

2019
813

Thereafter
4,200

Total minimum lease payments
$
11,675


The Company also leases certain facilities and vehicles under month-to-month arrangements. Total rent expense for the year ended December 31, 2014, 2013, and 2012 was $4.1 million, $2.4 million, and $0.5 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.
During the year ended December 31, 2014, the Company entered into a satellite service agreement with New Skies Satellites B.V. (“SES”) that will 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 to make two additional pre-payments each upon the achievement of certain milestones relating to the development by SES of future Capacity Services, with such additional pre-payments being due no earlier than June 30, 2015 and January 1, 2016, respectively. These pre-payments will be applied to certain service fees as they become due. In the event that the SES agreement is terminated, SES will refund the pre-payments, less any amounts applied to services rendered or scheduled to be rendered.
The following is a schedule of future commitments under the agreement as of December 31, 2014 (in thousands):
Year ending December 31,       
Amount
2015
$
37,222

2016
27,302

2017
23,490

2018
33,777

2019
31,261

Thereafter
136,741

Total minimum payments
$
289,793


Earn-out and Equipment Purchase Commitments
Through the acquisitions of AIA, the Company assumed certain obligations with respect to future earn-outs for certain employees of AIA. As of December 31, 2014, the total liability was approximately $1.7 million and is expected to be paid out in full in 2015. As of the December 31, 2013, the total liability was approximately $1.2 million and was paid out in full during the year ended December 31, 2014.
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, 2014, the Company had approximately $19.0 million of future purchase commitments, which it expects to pay in 2015.     
Legal Matters
On December 28, 2012, Advanced Media Networks, L.L.C. ("AMN") 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 had agreed to indemnify for allegedly infringing two of its patents and seeking injunctive relief and unspecified monetary damages. Row 44 is a direct subsidiary of the Company. In December 2014, Row 44 entered into a confidential settlement agreement with AMN pursuant to which AMN agreed to dismiss its claims against Row 44 and the other defendant with prejudice, and agreed not to sue Row 44 or its airline customers in the future for infringement of any patent currently owned by AMN or any related patent based on our products, services or systems, in exchange for us paying an immaterial amount and entering into a license agreement with AMN.
On May 6, 2014, UMG Recordings, Inc., Capital 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 GE AG and an indirect subsidiary of the Company. Based on currently available information, the Company believes it and IFP have strong defenses and intend to defend vigorously against this lawsuit, but the outcome of this matter 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, 2014, the potential range of loss related to this matter cannot be determined. The parties have agreed to non-binding mediation of the case which is currently scheduled for April 1, 2015. On July 1, 2014, American Airlines, Inc. (“American”) filed suit in Texas State Court, Tarrant County, against IFP, and filed an amended complaint on October 29, 2014, seeking a declaration that IFP is obligated to defend and indemnify American against claims that UMG may assert against American for copyright infringement insofar as such claims arise out of American’s use of content provided by IFP during a limited period of time, and for breach of contract. On February 24, 2015, American was added as a defendant in UMG’s case against the Company and IFP. The American lawsuit seeks unspecified money damages and liquidated damages, as well as attorney’s fees. Based on currently available information, the Company believes that IFP has strong defenses and intends to defend vigorously against this lawsuit, but the outcome of this matter is inherently uncertain and could have a material adverse effect on the Company’s business, financial condition and results of operations.
On August 14, 2014, SwiftAir, LLC filed suit against Row 44, Inc. and one of its customers for breach of contract, quantum meruit, unjust enrichment and similar claims and unspecified money damages in the Superior Court of California for the Country of Los Angeles. SwiftAir and Row 44 had a contractual relationship, which Row 44 terminated in 2013, with respect to the provision of destination deal content to one of Row 44’s connectivity customers. Based on currently available information, the Company believes that Row 44 has strong defenses and intends to defend vigorously against this lawsuit, but the outcome of this matter 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, 2014, the potential range of loss related to this matter cannot be determined.
During the year ended December 31, 2014, the Company recorded aggregate legal settlement expenses relating to potential claims arising in connection with litigation brought against the Company by a number of third parties of approximately $8.3 million. The full amount was expensed and included in general and administrative expenses during the year ended December 31, 2014.
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.