x
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2017
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE TRANSITION PERIOD FROM __________ TO ________
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Delaware
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27-4757800
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification Number)
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6100 Center Drive, Suite 1020
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Los Angeles, California
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90045
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(Address of principal executive offices)
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(Zip Code)
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Title of each class
Common Stock, $0.0001 par value
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Name of each exchange on which registered
The Nasdaq Stock Market LLC
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Securities registered pursuant to Section 12(g) of the Act:
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None
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Large accelerated filer
o
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Accelerated filer
x
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Non-accelerated filer
o
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Smaller reporting company
o
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Emerging growth company
o
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Item No.
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Description
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Page
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•
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Wi-Fi connectivity (utilizing specialized network equipment and technology) that enables access to the Internet, live television, texting services, e-commerce, on-demand content and travel-related information; and
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•
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Connectivity-enabled solutions for advertising, operational performance management and analytics that enable our customers to increase profitability through generation of new revenue streams and more efficient operations.
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•
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Connectivity Equipment
– We sell and lease equipment that enables our satellite-based services to operate on aircraft. Our equipment is generally shipped and sold as a single kit, with components of the kits separately priced for spares provisioning. Significant components of our equipment kits include the radome, antenna, modems, wireless access points and activation packages. Substantially all of our equipment is manufactured and warrantied by third-party manufacturers. Our antennas are proprietary to us in that we develop the specifications, and our third-party suppliers manufacture them exclusively for our use.
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•
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Regulatory Support
– We obtain Supplemental Type Certificates (“STCs”), which are certificates issued when an applicant has received Federal Aviation Administration (“FAA”), European Aviation Safety Agency (“EASA”) or similar international regulatory approval to modify an aircraft from its original type certificate approval. An STC on a particular aircraft type enables our equipment to be installed on that aircraft type. We have STCs for installation on the Boeing 737, 757, 767, 777 and Airbus A320 aircraft families. As an alternative to STC-based installation, we also offer our equipment for factory installation (Boeing Line-fit) on the Boeing 737-700, 737-800, 737-900 and 737 MAX aircraft family.
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•
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Post-Installation Support
– Once our equipment is installed and operational, we provide technical and network support and management services, including 24/7 operational assistance and monitoring of each aircraft’s connectivity performance and bandwidth of our satellite-based services.
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•
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Airconnect Global® Antenna
–
In partnership with Quantenelektronische Systeme GmbH (“QEST”), we continue to develop a satellite antenna that would enable global usage of our services, including equatorial regions of the world (the “Global Antenna”). The Global Antenna’s innovative design features a first-of-its-kind three-axis precision pointing mechanism capable of delivering superior satellite connectivity and continuous coverage, including during flights near or below the equator, at high latitudes or during banking maneuvers. It is optimized to deliver airlines a breakthrough mix of reliability, high connection speeds and global coverage. The Global Antenna utilizes a revolutionary steerable pointing system to optimize coverage anywhere a commercial aircraft flies. The Global Antenna is compatible with our current installation architecture and STCs, and is also intended to meet the requirements for future line-fit installations. We have received customer orders and expect to begin our first installations of this equipment in mid-2018.
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•
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In late 2015, Global Eagle entered into an agreement with Hughes, the world's leading provider of broadband satellite solutions and services, to utilize Hughes's JUPITER™ System HT Aero Modem to power Global Eagle’s next-generation, high-performance broadband aviation service. Hughes's HT Aero Modem, including the core router module and JUPITER mobility technology, features the JUPITER System second-generation SoC (System on a Chip) that supports over 200 Mbps of throughput, readily accommodating the highest demands for aviation broadband. Compared to Hughes's prior-generation mobility terminal, the new HT modem delivers more than 10 times the throughput performance to an individual aircraft. Designed for the aviation broadband industry, the HT Aero Modem technology also provides faster spot beam and satellite switchover times. The modem is compatible with our antenna system, enabling an easy and cost-effective upgrade to improve speeds for our current connected fleet. We have received customer orders and expect to begin our first installations of this equipment in mid-2018.
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•
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Airtime App
: Our
Airtime App
is an innovative application that allows passengers to personalize their entertainment directly on their mobile devices.
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•
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Airtime Content-to-Go
:
Airtime Content-to-Go
eliminates the need for airlines to install onboard hardware because it enables airlines to offer passengers a pre-flight download of digital media content. Passengers can download content as early as when they book a flight and the content remains locked until they board the plane, at which time they are able to view the purchased content.
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•
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Connectivity
– We provide global satellite bandwidth (C-Band, Ku-Band, and Ka-band), terrestrial broadband network, backhaul services, remote fiber network and fully meshed MPLS interconnected teleports. We provide capacity planning and management services and on-board revenue management.
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•
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Access
– We provide worldwide access to live television, video (on-demand and subscription), backhaul services, Internet, voice, data, high-definition video conferencing and universal portals, including through use of our patented and proprietary
SpeedNet
Content Distribution Network (CDN) architecture and application-based traffic prioritization.
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•
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Support
– We have field support centers in several locations worldwide, several of which offer a spare parts inventory, a network operations center open 24/7, certified technicians, system integration and project management. These field centers provide third-party antenna and ship-based system integration, global installation support, and repair services.
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•
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acquiring non-theatrical licenses from major Hollywood, independent and international film and television producers and distributors, and marketing those rights to the airline, maritime and other non-theatrical markets;
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making content available for non-theatrical systems and all associated services;
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providing services ranging from the selection, purchase, post-production and technical adjustment of content to customer support in connection with the integration and servicing of non-theatrical programs;
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providing ancillary revenue through advertising and sponsorship of airport lounge media, IFE, IFC and live broadcast insertion on multiple platforms; and
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•
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providing creative services such as user experience and user interface management on all IFE systems and the creation and production of special videos such as safety videos, destination guides and video promotions.
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•
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Our interests could diverge from our joint-venture partner’s interests or we may not agree with our joint-venture partner on ongoing activities or on the amount, timing or nature of further investments in WMS;
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•
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WMS profits and cash flows may prove inadequate to fund cash dividends or other distributions to us, or those amounts may be subject to reduction as noted above;
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The carrying value of our interest in WMS could exceed the fair value requiring the recognition of additional impairment of the investment value;
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•
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Our control over the operations of and other decisions relating to WMS is limited;
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Due to differing business models or long term business goals, our joint-venture partner may decide not to fund capital investments in WMS, impairing the value of the WMS joint venture;
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We may lose the rights to technology or products being developed by WMS, including if our joint-venture partner is acquired by another company, or experiences financial or other losses;
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•
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Many of the contractors on which WMS relies are with our joint-venture partner, and “seconded” to WMS from our joint-venture partner, such that WMS relies on these contractors, personnel and other resources provided to it by our joint-venture partner; and
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•
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We may experience difficulties or delays in collecting amounts due to us from WMS.
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our ability to continue to develop leading technologies in existing and emerging broadband, advanced communications and secure networking markets;
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our ability to successfully develop, introduce and sell new products and services on a timely and cost-effective basis that respond to ever-changing customer requirements;
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our ability to enhance our product and service offerings by continuing to increase satellite capacity, bandwidth cost efficiencies and service quality and adding innovative features that differentiate our offerings from those of our competitors;
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•
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successful integration of various elements of our complex technologies and system architectures;
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timely completion and introduction of new system and product designs;
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•
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achievement of acceptable product and service costs;
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establishment of close working relationships with major customers for the design of their new communications and secure networking systems incorporating our products and services;
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marketing and pricing strategies of our competitors with respect to competitive products and services; and
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•
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market acceptance of our new products and services.
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•
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potential impact on our ability to produce financial statements in a timely manner, such as with the EMC Acquisition and which acquisition could in turn contribute to our material weaknesses in our internal controls;
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potential distraction of management from our ongoing business and from the remediation of our material weaknesses;
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difficulty integrating the operations and products of the acquired business, which could result in delays in the realization of acquisition synergies;
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use of cash to fund the acquisition or investment or for unanticipated expenses;
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limited market experience in new businesses;
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exposure to unknown liabilities, including litigation against the companies that we acquire;
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•
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additional costs due to differences in culture, geographical locations and duplication of key talent;
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delays associated with or resources being devoted to regulatory review and approval and other ongoing compliance matters;
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acquisition-related accounting charges affecting our balance sheet and operations;
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difficulty integrating the financial results of the acquired business in our consolidated financial statements;
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controls in the acquired business;
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impairment of goodwill, intangible and tangible assets. During the years ended December 31, 2017 and 2016 we recorded goodwill impairment charges of $167 million and $64 million, respectively. In addition, during the year ended December 31, 2017, we recorded an impairment of $16.7 million relating to our WMS investment;
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•
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dilution to our current stockholders from the potential issuance of equity securities to consummate a proposed acquisition or investment; and
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potential loss of key employees or customers of the acquired company.
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•
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If we fail to meet payment obligations or otherwise default under our debt, the lenders will have the right to accelerate the indebtedness and exercise other rights and remedies against us. We do not expect that we could repay all of our outstanding indebtedness if the repayment of such indebtedness was accelerated.
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We are required to comply with a financial covenant that requires us to maintain, as of the last day of each fiscal quarter, a maximum consolidated first lien net leverage ratio (the “Leverage Ratio”), as calculated under our senior secured credit agreement entered into on January 6, 2017 (as amended, the “2017 Credit Agreement”). If our Leverage Ratio is greater than 3.5x, we are restricted from incurring additional indebtedness under our revolving credit facility.
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Our ability to obtain additional financing to fund future working capital needs, capital expenditures, acquisitions and other general corporate requirements could be limited. If we are unable to raise additional capital if required, it could affect our liquidity, business, financial condition, results of operations and cash flows. In addition, our ability to borrow additional amounts under our revolving credit facility, which is a significant source of liquidity, is subject to the absence of defaults and our ability to make certain representations and warranties. Failure to meet our borrowing conditions under our revolving credit facility could materially and adversely impact our liquidity.
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•
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Our debt imposes operating and financial covenants and restrictions on us, and compliance with such covenants and restrictions may adversely affect our ability to incur additional debt at favorable rates, or at all, to adequately finance our operations or capital needs, pursue attractive business opportunities that may arise, redeem or repurchase capital stock, pay dividends, sell assets and make capital expenditures.
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•
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Our failure to comply with the covenants in our 2017 Credit Agreement and the securities purchase agreement governing our Second Lien Notes due June 30, 2023 (the “Second Lien Notes”), which include covenants requiring us to timely file our audited and unaudited financial statements, could result in an event of default on our debt.
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•
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We could experience increased vulnerability to general adverse economic conditions, including increases in interest rates if our borrowings bear interest at variable rates or if such indebtedness is refinanced at a time when interest rates are higher.
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•
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We are initially required to pay the interest on our Second Lien Notes in kind and may be required to pay in kind until March 15, 2021, which will increase the outstanding principal amount on such notes and further increase our substantial indebtedness.
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•
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our inability to timely file our SEC reports;
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•
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our material weaknesses in our internal controls;
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•
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actual or anticipated fluctuations in our financial results or the financial results of companies perceived to be similar to us;
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•
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changes in the market’s expectations about our operating results;
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•
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success of competitors;
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•
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our inability to consummate beneficial investment and M&A transactions, including due to our inability to obtain any required regulatory or national security approvals;
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our operating results failing to meet the expectation of securities analysts or investors in a particular period;
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changes in financial estimates and recommendations by securities analysts concerning the Company, the market for in-flight entertainment, the airline industry, or the travel market in general;
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operating and stock price performance of other companies that investors deem comparable to us;
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our ability to market new and enhanced products on a timely basis;
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•
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changes in laws and regulations affecting our business or our industry;
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•
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commencement of, or involvement in, litigation involving the Company;
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•
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changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;
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•
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the volume of shares of our common stock available for public sale;
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•
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any major change in our Board or management; and
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sales of substantial amounts of common stock by our directors, executive officers or significant stockholders or the perception that such sales could occur.
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a classified Board with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our Board;
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•
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no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
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•
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the exclusive right of our Board to elect a director to fill a vacancy created by the expansion of the Board or the resignation, death, or removal of a director, which prevents stockholders from being able to fill vacancies on our Board;
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•
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the ability of our Board to determine to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;
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•
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a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;
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•
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the requirement that an annual meeting of stockholders may be called only by the chair of the Board, the chief executive officer, or the Board, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;
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•
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limiting the liability of, and providing indemnification to, our directors and officers;
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•
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controlling the procedures for the conduct and scheduling of stockholder meetings;
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•
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providing the Board with the express power to postpone previously scheduled annual meetings of stockholders and to cancel previously scheduled annual meetings of stockholders;
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•
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providing that directors may be removed prior to the expiration of their terms by stockholders only for cause; and
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•
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advance notice procedures that stockholders must comply with in order to nominate candidates to our Board or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of the Company.
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Location
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Segment(s)
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Square Footage
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Description / Lease Expiration Date
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Los Angeles, CA, USA
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Corporate / Media & Content
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21,312
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Leased office space / July 31, 2022
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Vaughan, ON, Canada
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Media & Content
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10,200
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Leased office space / December 31, 2022
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Lombard, IL, USA
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Connectivity
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23,320
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Leased office space / February 28, 2025
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Irvine, CA, USA
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Media & Content
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22,000
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Leased office space / March 31, 2024
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Montreal, QC, Canada
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Media & Content/ Connectivity
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22,305
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Leased office space / June 30, 2025
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Sundsvall, Sweden
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Connectivity
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14,100
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Leased office space / September 30, 2019
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Mumbai, India
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Media & Content
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13,278
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|
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Leased office space / June 21, 2101
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Knutsford, United Kingdom
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Media & Content
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13,533
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Owned building / mortgage to be paid off in 2032
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Kapolei, Hawaii, USA
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Connectivity
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113,118
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Leased teleport facility / July 31, 2019
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Holmdel, NJ, USA
|
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Connectivity
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114,913
|
|
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Leased teleport facility / December 31, 2023
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Miramar, FL, USA
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Connectivity
|
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53,342
|
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Leased office space / December 31, 2019
|
Year Ended December 31, 2017
|
High
|
|
Low
|
||||
Fourth Quarter
|
$
|
3.53
|
|
|
$
|
1.85
|
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Third Quarter
|
$
|
3.72
|
|
|
$
|
2.45
|
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Second Quarter
|
$
|
3.56
|
|
|
$
|
2.78
|
|
First Quarter
|
$
|
6.79
|
|
|
$
|
2.92
|
|
|
|
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|
||||
Year Ended December 31, 2016
|
High
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|
Low
|
||||
Fourth Quarter
|
$
|
9.65
|
|
|
$
|
6.15
|
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Third Quarter
|
$
|
9.13
|
|
|
$
|
6.61
|
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Second Quarter
|
$
|
9.00
|
|
|
$
|
6.18
|
|
First Quarter
|
$
|
10.40
|
|
|
$
|
7.94
|
|
|
December 31,
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||||||||||||||||||||||
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2012
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2013
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2014
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2015
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2016
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2017
|
||||||||||||
Global Eagle Entertainment Inc.
|
$
|
100.00
|
|
|
$
|
149.15
|
|
|
$
|
136.51
|
|
|
$
|
99.00
|
|
|
$
|
64.79
|
|
|
$
|
22.97
|
|
Russell 2000 Index
|
$
|
100.00
|
|
|
$
|
137.00
|
|
|
$
|
141.84
|
|
|
$
|
133.74
|
|
|
$
|
159.78
|
|
|
$
|
180.79
|
|
S&P 500 Index
|
$
|
100.00
|
|
|
$
|
129.60
|
|
|
$
|
144.36
|
|
|
$
|
143.31
|
|
|
$
|
156.78
|
|
|
$
|
187.47
|
|
|
Year Ended December 31,
|
||||||||||||||||||
|
2017
|
|
2016
(1)
|
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2015
(2)
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|
2014
(3)
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|
2013
(4)
|
||||||||||
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
||||||||||
Revenue
|
$
|
619,469
|
|
|
$
|
529,755
|
|
|
$
|
426,030
|
|
|
$
|
387,735
|
|
|
$
|
259,722
|
|
Cost of sales
|
462,120
|
|
|
365,470
|
|
|
279,156
|
|
|
281,873
|
|
|
197,938
|
|
|||||
Gross Margin
|
157,349
|
|
|
164,285
|
|
|
146,874
|
|
|
105,862
|
|
|
61,784
|
|
|||||
Operating expenses:
|
|
|
|
|
|
|
|
|
|
||||||||||
Sales and marketing expenses
|
40,938
|
|
|
30,941
|
|
|
17,705
|
|
|
13,287
|
|
|
10,330
|
|
|||||
Product development
|
35,608
|
|
|
37,718
|
|
|
28,610
|
|
|
23,010
|
|
|
9,068
|
|
|||||
General and administrative
(5)
|
148,221
|
|
|
115,195
|
|
|
78,126
|
|
|
69,743
|
|
|
70,629
|
|
|||||
Provision for legal settlements
(5)
|
1,435
|
|
|
43,446
|
|
|
4,250
|
|
|
8,030
|
|
|
—
|
|
|||||
Amortization of intangible assets
|
43,955
|
|
|
35,648
|
|
|
26,994
|
|
|
24,552
|
|
|
17,281
|
|
|||||
Goodwill impairment
(7)
|
167,000
|
|
|
64,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Restructuring charges
|
—
|
|
|
—
|
|
|
—
|
|
|
4,223
|
|
|
—
|
|
|||||
Total operating expenses
|
437,157
|
|
|
326,948
|
|
|
155,685
|
|
|
142,845
|
|
|
107,308
|
|
|||||
Loss from operations
|
(279,808
|
)
|
|
(162,663
|
)
|
|
(8,811
|
)
|
|
(82,989
|
)
|
|
(45,524
|
)
|
|||||
Other income (expense):
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest (expense) income, net
|
(58,454
|
)
|
|
(18,198
|
)
|
|
(2,492
|
)
|
|
88
|
|
|
(2,417
|
)
|
|||||
Loss on extinguishment of debt
(8)
|
(14,389
|
)
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
||||||
Income (loss) from equity method investments including impairment losses
(6)(9)
|
(12,424
|
)
|
|
3,829
|
|
|
—
|
|
|
(1,500
|
)
|
|
—
|
|
|||||
Change in fair value of derivatives
|
3,510
|
|
|
25,515
|
|
|
11,938
|
|
|
(6,955
|
)
|
|
(63,961
|
)
|
|||||
Other expense, net
(6)
|
(436
|
)
|
|
(6,326
|
)
|
|
(1,140
|
)
|
|
(1,270
|
)
|
|
(1,000
|
)
|
|||||
Loss before income taxes
|
(362,001
|
)
|
|
(157,843
|
)
|
|
(505
|
)
|
|
(46,620
|
)
|
|
(112,902
|
)
|
|||||
Income tax (benefit) expense
|
(4,887
|
)
|
|
(44,911
|
)
|
|
1,621
|
|
|
10,574
|
|
|
1,839
|
|
|||||
Net loss
|
(357,114
|
)
|
|
(112,932
|
)
|
|
(2,126
|
)
|
|
(57,194
|
)
|
|
(114,741
|
)
|
|||||
Net income attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
194
|
|
|
290
|
|
|||||
Net loss attributable to Global Eagle Entertainment Inc. common stockholders
|
$
|
(357,114
|
)
|
|
$
|
(112,932
|
)
|
|
$
|
(2,126
|
)
|
|
$
|
(57,388
|
)
|
|
$
|
(115,031
|
)
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net loss per share:
|
|
|
|
|
|
|
|
|
|
||||||||||
Basic
|
$
|
(4.07
|
)
|
|
$
|
(1.39
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.78
|
)
|
|
$
|
(2.17
|
)
|
Diluted
|
$
|
(4.07
|
)
|
|
$
|
(1.39
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(0.78
|
)
|
|
$
|
(2.17
|
)
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
||||||||||
Basic
|
87,733
|
|
|
81,269
|
|
|
77,558
|
|
|
73,300
|
|
|
53,061
|
|
|||||
Diluted
|
87,733
|
|
|
81,269
|
|
|
78,394
|
|
|
73,300
|
|
|
53,061
|
|
|
December 31,
|
||||||||||||||||||
|
2017
|
|
2016
(1)
|
|
2015
(2)
|
|
2014
(3)
|
|
2013
(4)
|
||||||||||
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash and cash equivalents
|
$
|
48,260
|
|
|
$
|
50,686
|
|
|
$
|
223,552
|
|
|
$
|
197,648
|
|
|
$
|
258,796
|
|
Working capital (deficit)
(10)
|
$
|
(11,261
|
)
|
|
$
|
(7,537
|
)
|
|
$
|
193,293
|
|
|
$
|
146,028
|
|
|
$
|
169,558
|
|
Total assets
(11)
|
$
|
860,584
|
|
|
$
|
1,099,435
|
|
|
$
|
637,861
|
|
|
$
|
533,595
|
|
|
$
|
578,883
|
|
Long term liabilities
(10)
|
$
|
646,624
|
|
|
$
|
539,301
|
|
|
$
|
118,185
|
|
|
$
|
46,654
|
|
|
$
|
39,577
|
|
Total stockholders' equity (deficit)
|
$
|
(25,475
|
)
|
|
$
|
298,997
|
|
|
$
|
353,761
|
|
|
$
|
312,629
|
|
|
$
|
356,184
|
|
(1)
|
The presented financial information as of and for the year ended December 31, 2016 includes the financial information and activities of our acquired EMC business for the period July 27, 2016 to December 31, 2016.
|
(2)
|
The presented financial information as of and for the year ended December 31, 2015 includes the financial information and activities of Western Outdoor Interactive Private Limited (“WOI”) (now part of our Media & Content segment) and certain assets and assumed certain liabilities of RMG Networks Holding Corporation (“RMG”) (now part of our Media & Content segment) for the period July 1, 2015 to December 31, 2015 and Marks Systems, Inc. (or “masFlight”) and NavAero Holding AB (“navAero”) (now part of our Connectivity segment) for the period August 6, 2015 to December 31, 2015.
|
(3)
|
The presented financial information as of and for the year ended December 31, 2014 includes the financial information and activities of Purple Inflight Entertainment Private Ltd. (“Purple Inflight Entertainment” or “Purple”) (now part of our Media & Content segment) for the period from August 2, 2014 to December 31, 2014.
|
(4)
|
The presented financial information as of and for the year ended December 31, 2013 includes the financial information and activities of Row 44 ( Connectivity segment) for the period January 1, 2013 to December 31, 2013 as well as the financial information and activities of the Company and AIA (now part of Media & Content segment) for the period January 31, 2013 to December 31, 2013, Post Modern Edit, LLC and related entities (“PMG”) (now part of our Media & Content segment) for the period July 9, 2013 to December 31, 2013 and Travel Entertainment Group Equity Limited and subsidiaries (“IFES”) (now part of our Media & Content segment) for the period October 18, 2013 to December 31, 2013.
|
(5)
|
General and Administrative expenses for years preceding December 31, 2016, where applicable, have been adjusted to reflect the reclassification of the provision for legal settlements to a separate line item to conform to the presentation for the year ended December 31, 2017 and 2016.
|
(6)
|
Other expense, net for the year ended December 31, 2014 has been adjusted to reflect the reclassification of losses from an equity method investment to a separate line item to conform to the presentation for the year ended December 31, 2017.
|
(7)
|
During the year ended
December 31, 2017
we determined that goodwill relating to our Maritime & Land Connectivity and Aviation Connectivity reporting units was impaired and we recognized an impairment loss of
$45.0 million
and
$44.0 million
, respectively. Additionally, during the quarter ended March 31, 2017 we recorded a goodwill impairment loss of
$78.0 million
in our Maritime & Land Connectivity reporting unit. During the quarter ended
December 31, 2016
we recorded an impairment loss of
$64.0 million
to our Maritime & Land Connectivity reporting unit. See
Note 5. Goodwill
.
|
(8)
|
In January 2017 we entered into a new credit agreement consisting of a $500 million senior secured term loan facility and a five-year $85 million senior secured revolving credit facility and concurrently paid-off in full the indebtedness assumed upon the EMC Acquisition of $412.4 million. In connection with this refinancing transaction we incurred a loss on extinguishment of debt of
$14.4 million
recorded in the statement of operations during the quarter ended March 31, 2017. See
Note 9. Financing Arrangements
.
|
(9)
|
During the fourth quarter of 2017 we completed an assessment of the recoverability of our equity method investments and determined that the carrying value of our interest in WMS exceeded the estimated fair value of our interest and accordingly we recorded an impairment loss of
$16.7 million
. See
Note 7. Equity Method Investments
.
|
(10)
|
During the fourth quarter of 2015 we elected to early-adopt the provision of ASU No. 2015-17,
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
, which simplified the presentation of deferred income taxes by requiring deferred tax assets and liabilities be classified as non-current on the balance sheet. Since this standard was adopted prospectively, the working capital balances for year-end periods preceding December 31, 2015 include the current portion of deferred tax assets and liabilities. The net current deferred tax asset position included above was $4,639 and $2,060 as of December 31, 2014 and 2013, respectively.
|
(11)
|
Total assets and total liabilities as of December 31, 2015 have been adjusted retrospectively to reflect our adoption of FASB Accounting Standards Update (“ASU”) No. 2015-03,
Interest - Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs
, in the first quarter of 2016. This ASU requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with the treatment of debt discount. The adoption of this standard did not affect year end periods presented above preceding December 31, 2015.
|
•
|
We have assessed the number of performance obligations in our contracts with customers and noted no significant changes as compared to unit of accounting under existing revenue guidance.
|
•
|
We will be required to use a variable consideration model which requires us to estimate (and constrain) variable service revenue, and allocate total contract consideration among all performance obligations. Additionally, estimates used in the recognition of revenue under the new standard will be updated as new facts and circumstances warrant, which may cause differences in the trend of revenue recognition as compared to that reported under the current standard. The Company expects this change to primarily impact the Connectivity segment.
|
•
|
The timing of recognition for certain content licenses will change as the new standard requires us to apply the sales or usage based royalties exception. Compared to existing guidance, revenue recognition will be deferred depending on when the customer’s subsequent sales or usage occurs. Additionally, revenue from games & apps contracts will be accelerated because the new standard changes the requirement for vendor-specific objective evidence, which previously resulted in revenue recognized ratably over the service period. The Company expects these changes to primarily impact the Media & Content segment.
|
•
|
Costs to obtain or fulfill a contract with a customer, including costs incurred to service contracts and certain sales commissions, will require capitalization and amortization over the anticipated service period. These include costs to obtain Supplemental Type Certificates (“STCs”), which were previously expensed.
|
•
|
Interest income (expense), net – interest expense on outstanding debt, net of interest earned on cash balances and short-term investments. We typically invest our available cash balances in money market funds and short-term United States Treasury obligations;
|
•
|
Income from equity method investments acquired in the EMC Acquisition;
|
•
|
Changes in the fair value of our derivative financial instruments; and
|
•
|
Other income (expense), net – primarily comprised of certain unrealized transaction gains and losses on foreign currency denominated assets and liabilities, which fluctuates depending upon movements in underlying currency exchange rates, primarily movement of the U.S. dollar against the Euro, Pound Sterling and Canadian dollar.
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Revenue
|
$
|
619,469
|
|
|
$
|
529,755
|
|
|
$
|
426,030
|
|
Cost of sales
|
462,120
|
|
|
365,470
|
|
|
279,156
|
|
|||
Gross margin
|
157,349
|
|
|
164,285
|
|
|
146,874
|
|
|||
Operating expenses
|
|
|
|
|
|
||||||
Sales and marketing
|
40,938
|
|
|
30,941
|
|
|
17,705
|
|
|||
Product development
|
35,608
|
|
|
37,718
|
|
|
28,610
|
|
|||
General and administrative
|
148,221
|
|
|
115,195
|
|
|
78,126
|
|
|||
Provision for legal settlements
|
1,435
|
|
|
43,446
|
|
|
4,250
|
|
|||
Amortization of intangible assets
|
43,955
|
|
|
35,648
|
|
|
26,994
|
|
|||
Goodwill impairment
|
167,000
|
|
|
64,000
|
|
|
—
|
|
|||
Total operating expenses
|
437,157
|
|
|
326,948
|
|
|
155,685
|
|
|||
Loss from operations
|
(279,808
|
)
|
|
(162,663
|
)
|
|
(8,811
|
)
|
|||
Other income (expense):
|
|
|
|
|
|
||||||
Interest (expense) income, net
|
(58,454
|
)
|
|
(18,198
|
)
|
|
(2,492
|
)
|
|||
Loss on extinguishment of debt
|
(14,389
|
)
|
|
—
|
|
|
—
|
|
|||
Income (loss) from equity method investments including impairment losses
|
(12,424
|
)
|
|
3,829
|
|
|
—
|
|
|||
Change in fair value of derivatives
|
3,510
|
|
|
25,515
|
|
|
11,938
|
|
|||
Other expense, net
|
(436
|
)
|
|
(6,326
|
)
|
|
(1,140
|
)
|
|||
Loss before income taxes
|
(362,001
|
)
|
|
(157,843
|
)
|
|
(505
|
)
|
|||
Income tax provision (benefit)
|
(4,887
|
)
|
|
(44,911
|
)
|
|
1,621
|
|
|||
Net loss
|
$
|
(357,114
|
)
|
|
$
|
(112,932
|
)
|
|
$
|
(2,126
|
)
|
|
|
|
|
|
|
||||||
Net loss per share:
|
|
|
|
|
|
||||||
Basic
|
$
|
(4.07
|
)
|
|
$
|
(1.39
|
)
|
|
$
|
(0.03
|
)
|
Diluted
|
$
|
(4.07
|
)
|
|
$
|
(1.39
|
)
|
|
$
|
(0.18
|
)
|
|
|
|
|
|
|
||||||
Weighted average shares outstanding:
|
|
|
|
|
|
||||||
Basic
|
87,733
|
|
|
81,269
|
|
|
77,558
|
|
|||
Diluted
|
87,733
|
|
|
81,269
|
|
|
78,394
|
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Depreciation expense:
|
|
|
|
|
|
||||||
Cost of sales
|
$
|
29,798
|
|
|
$
|
10,855
|
|
|
$
|
2,957
|
|
Sales and marketing
|
3,219
|
|
|
1,793
|
|
|
893
|
|
|||
Product development
|
3,478
|
|
|
2,186
|
|
|
1,443
|
|
|||
General and administrative
|
10,009
|
|
|
6,677
|
|
|
4,154
|
|
|||
Total
|
$
|
46,504
|
|
|
$
|
21,511
|
|
|
$
|
9,447
|
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Stock-based compensation expense:
|
|
|
|
|
|
||||||
Cost of sales
|
$
|
300
|
|
|
$
|
313
|
|
|
$
|
322
|
|
Sales and marketing
|
423
|
|
|
629
|
|
|
701
|
|
|||
Product development
|
634
|
|
|
994
|
|
|
1,020
|
|
|||
General and administrative
|
6,228
|
|
|
8,811
|
|
|
6,192
|
|
|||
Total
|
$
|
7,585
|
|
|
$
|
10,747
|
|
|
$
|
8,235
|
|
|
Year Ended December 31,
|
|||||||
|
2017
|
|
2016
|
|
2015
|
|||
Revenue
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
Operating expenses:
|
|
|
|
|
|
|||
Cost of sales
|
75
|
%
|
|
69
|
%
|
|
66
|
%
|
Sales and marketing
|
7
|
%
|
|
6
|
%
|
|
4
|
%
|
Product development
|
6
|
%
|
|
7
|
%
|
|
7
|
%
|
General and administrative
|
24
|
%
|
|
22
|
%
|
|
18
|
%
|
Provision for legal settlements
|
—
|
%
|
|
8
|
%
|
|
1
|
%
|
Amortization of intangible assets
|
7
|
%
|
|
7
|
%
|
|
6
|
%
|
Goodwill impairment
|
27
|
%
|
|
12
|
%
|
|
—
|
%
|
Total operating expenses
|
71
|
%
|
|
62
|
%
|
|
37
|
%
|
Loss from operations
|
(45
|
)%
|
|
(31
|
)%
|
|
(2
|
)%
|
Other expense, net
|
(13
|
)%
|
|
1
|
%
|
|
2
|
%
|
Loss before income taxes
|
(58
|
)%
|
|
(30
|
)%
|
|
—
|
%
|
Income tax (benefit) expense
|
(1
|
)%
|
|
(8
|
)%
|
|
—
|
%
|
Net loss attributable to Global Eagle Entertainment Inc. common stockholders
|
(58
|
)%
|
|
(21
|
)%
|
|
—
|
%
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Revenue:
|
|
|
|
|
|
||||||
Media & Content
|
$
|
298,935
|
|
|
$
|
318,064
|
|
|
$
|
308,067
|
|
|
|
|
|
|
|
||||||
Connectivity:
|
|
|
|
|
|
||||||
Services
|
282,985
|
|
|
178,471
|
|
|
96,912
|
|
|||
Equipment
|
37,549
|
|
|
33,220
|
|
|
21,051
|
|
|||
Total
|
320,534
|
|
|
211,691
|
|
|
117,963
|
|
|||
Total revenue
|
$
|
619,469
|
|
|
$
|
529,755
|
|
|
$
|
426,030
|
|
Cost of sales:
|
|
|
|
|
|
||||||
Media & Content
|
$
|
217,909
|
|
|
$
|
214,028
|
|
|
$
|
203,693
|
|
Connectivity:
|
|
|
|
|
|
||||||
Services
|
210,710
|
|
|
122,674
|
|
|
57,942
|
|
|||
Equipment
|
33,501
|
|
|
28,768
|
|
|
17,521
|
|
|||
Total
|
244,211
|
|
|
151,442
|
|
|
75,463
|
|
|||
Total cost of sales
|
$
|
462,120
|
|
|
$
|
365,470
|
|
|
$
|
279,156
|
|
Contribution profit:
|
|
|
|
|
|
||||||
Media & Content
|
$
|
81,026
|
|
|
$
|
104,036
|
|
|
$
|
104,374
|
|
Connectivity
|
76,323
|
|
|
60,249
|
|
|
42,500
|
|
|||
Total contribution profit
|
157,349
|
|
|
164,285
|
|
|
146,874
|
|
|||
Other operating expenses
|
437,157
|
|
|
326,948
|
|
|
155,685
|
|
|||
Loss from operations
|
$
|
(279,808
|
)
|
|
$
|
(162,663
|
)
|
|
$
|
(8,811
|
)
|
|
Year Ended December 31,
|
|
% Change
|
||||||||||||||
|
2017
|
|
2016
|
|
2015
|
|
2016 to 2017
|
|
2015 to 2016
|
||||||||
Licensing and services
|
$
|
298,935
|
|
|
$
|
318,064
|
|
|
$
|
308,067
|
|
|
(6
|
)%
|
|
3
|
%
|
|
Year Ended December 31,
|
|
% Change
|
||||||||||||||
|
2017
|
|
2016
|
|
2015
|
|
2016 to 2017
|
|
2015 to 2016
|
||||||||
Services
|
$
|
282,985
|
|
|
$
|
178,471
|
|
|
$
|
96,912
|
|
|
59
|
%
|
|
84
|
%
|
Equipment
|
37,549
|
|
|
33,220
|
|
|
21,051
|
|
|
13
|
%
|
|
58
|
%
|
|||
Total
|
320,534
|
|
|
211,691
|
|
|
117,963
|
|
|
51
|
%
|
|
79
|
%
|
|
Year Ended December 31,
|
|
% Change
|
||||||||||||||
|
2017
|
|
2016
|
|
2015
|
|
2016 to 2017
|
|
2015 to 2016
|
||||||||
Cost of sales
|
$
|
217,909
|
|
|
$
|
214,028
|
|
|
$
|
203,693
|
|
|
2
|
%
|
|
5
|
%
|
|
Year Ended December 31,
|
|
% Change
|
||||||||||||||
|
2017
|
|
2016
|
|
2015
|
|
2016 to 2017
|
|
2015 to 2016
|
||||||||
Services
|
$
|
210,710
|
|
|
$
|
122,674
|
|
|
$
|
57,942
|
|
|
72
|
%
|
|
112
|
%
|
Equipment
|
33,501
|
|
|
28,768
|
|
|
17,521
|
|
|
16
|
%
|
|
64
|
%
|
|||
Total
|
$
|
244,211
|
|
|
$
|
151,442
|
|
|
$
|
75,463
|
|
|
61
|
%
|
|
101
|
%
|
|
Year Ended December 31,
|
|
% Change
|
||||||||||||||
|
2017
|
|
2016
|
|
2015
|
|
2016 to 2017
|
|
2015 to 2016
|
||||||||
Sales and marketing
|
$
|
40,938
|
|
|
$
|
30,941
|
|
|
$
|
17,705
|
|
|
32
|
%
|
|
75
|
%
|
Product development
|
35,608
|
|
|
37,718
|
|
|
28,610
|
|
|
(6
|
)%
|
|
32
|
%
|
|||
General and administrative
|
148,221
|
|
|
115,195
|
|
|
78,126
|
|
|
29
|
%
|
|
47
|
%
|
|||
Provision for legal settlements
|
1,435
|
|
|
43,446
|
|
|
4,250
|
|
|
(97
|
)%
|
|
922
|
%
|
|||
Amortization of intangible assets
|
43,955
|
|
|
35,648
|
|
|
26,994
|
|
|
23
|
%
|
|
32
|
%
|
|||
Goodwill impairment
|
167,000
|
|
|
64,000
|
|
|
—
|
|
|
161
|
%
|
|
100
|
%
|
|||
Total
|
$
|
437,157
|
|
|
$
|
326,948
|
|
|
$
|
155,685
|
|
|
34
|
%
|
|
110
|
%
|
|
Year Ended December 31,
|
|
% Change
|
||||||||||||||
|
2017
|
|
2016
|
|
2015
|
|
2016 to 2017
|
|
2015 to 2016
|
||||||||
Interest (expense) income, net
|
$
|
(58,454
|
)
|
|
$
|
(18,198
|
)
|
|
$
|
(2,492
|
)
|
|
221
|
%
|
|
630
|
%
|
Loss on extinguishment of debt
|
(14,389
|
)
|
|
—
|
|
|
—
|
|
|
100
|
%
|
|
—
|
%
|
|||
Income (loss) from equity method investments
|
(12,424
|
)
|
|
3,829
|
|
|
—
|
|
|
(424
|
)%
|
|
100
|
%
|
|||
Change in fair value of derivatives
|
3,510
|
|
|
25,515
|
|
|
11,938
|
|
|
(86
|
)%
|
|
114
|
%
|
|||
Other expense, net
|
(436
|
)
|
|
(6,326
|
)
|
|
(1,140
|
)
|
|
(93
|
)%
|
|
455
|
%
|
|||
Total
|
$
|
(82,193
|
)
|
|
$
|
4,820
|
|
|
$
|
8,306
|
|
|
(1,805
|
)%
|
|
(42
|
)%
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Net cash (used in) provided by operating activities
|
$
|
(53,707
|
)
|
|
$
|
(36,600
|
)
|
|
$
|
21,855
|
|
Net cash used in investing activities
|
(73,190
|
)
|
|
(150,819
|
)
|
|
(80,895
|
)
|
|||
Net cash provided by financing activities
|
123,826
|
|
|
13,898
|
|
|
84,558
|
|
|||
Effects of exchange rate changes on cash and cash equivalents
|
645
|
|
|
655
|
|
|
386
|
|
|||
Net increase (decrease) in cash and cash equivalents
|
(2,426
|
)
|
|
(172,866
|
)
|
|
25,904
|
|
|||
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
|
50,686
|
|
|
223,552
|
|
|
197,648
|
|
|||
CASH AND CASH EQUIVALENTS AT END OF YEAR
|
$
|
48,260
|
|
|
$
|
50,686
|
|
|
$
|
223,552
|
|
|
December 31,
|
||||||
|
2017
|
|
2016
|
||||
Senior secured term loan facility, due July 2021
(1)
|
$
|
—
|
|
|
$
|
263,980
|
|
Senior secured revolving credit facility, due July 2020
(1)
|
—
|
|
|
55,500
|
|
||
Senior secured term loan facility, due July 2022
(1)
|
—
|
|
|
92,000
|
|
||
Senior secured term loan facility, due January 2023
(2)
|
490,625
|
|
|
|
|||
Senior secured revolving credit facility, due January 2022
(2)
|
78,000
|
|
|
|
|||
2.75% convertible senior notes, due February 2035
(3)
|
82,500
|
|
|
82,500
|
|
||
Other debt
|
9,075
|
|
|
3,299
|
|
||
Unamortized bond discounts, fair value adjustments and issue costs, net
|
(41,136
|
)
|
|
(26,979
|
)
|
||
Total carrying value of debt
|
619,064
|
|
|
470,300
|
|
||
Less: current portion, net
|
(20,106
|
)
|
|
(2,069
|
)
|
||
Total non-current
|
$
|
598,958
|
|
|
$
|
468,231
|
|
Year Ending December 31,
|
Amount
|
||
2018
|
$
|
20,106
|
|
2019
|
22,372
|
|
|
2020
|
25,405
|
|
|
2021
|
25,044
|
|
|
2022
|
103,045
|
|
|
Thereafter
|
464,228
|
|
|
Total
|
$
|
660,200
|
|
|
Payments due by period
|
||||||||||||||||||
(in thousands, except as stated in footnotes to table)
|
Total
|
|
Less than 1 year
|
|
1-3 years
|
|
3-5 years
|
|
More than 5 years
|
||||||||||
Operating lease obligations
|
$
|
25,186
|
|
|
$
|
5,618
|
|
|
$
|
8,230
|
|
|
$
|
6,315
|
|
|
$
|
5,023
|
|
Capital lease obligations
|
2,074
|
|
|
931
|
|
|
1,143
|
|
|
—
|
|
|
—
|
|
|||||
Satellite commitments
(1)
|
464,330
|
|
|
106,101
|
|
|
165,218
|
|
|
70,069
|
|
|
122,942
|
|
|||||
Deferred revenue arrangements
(2)
|
7,575
|
|
|
6,508
|
|
|
1,067
|
|
|
—
|
|
|
—
|
|
|||||
Long-term debt obligations
(3), (4)
|
660,200
|
|
|
20,106
|
|
|
47,777
|
|
|
128,089
|
|
|
464,228
|
|
|||||
Contingent consideration obligations
(5)
|
114
|
|
|
114
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Content and television license fees and guarantees
(6)
|
61,662
|
|
|
30,295
|
|
|
27,381
|
|
|
3,986
|
|
|
—
|
|
|||||
Equipment and engineering purchase commitments
(7)
|
7,500
|
|
|
7,500
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Total
|
$
|
1,228,641
|
|
|
$
|
177,173
|
|
|
$
|
250,816
|
|
|
$
|
208,459
|
|
|
$
|
592,193
|
|
(1)
|
Amounts represent future satellite cost commitments to Intelsat Corporation, Hughes Network Systems and SES over the period January 1, 2018 through December 31, 2028.
|
(2)
|
Amounts represent obligations to provide service for which we have already received cash from our customers.
|
(3)
|
Interest payments were calculated based upon the interest rate in effect at December 31, 2017. See also
Note 9. Financing Arrangements
.
|
(4)
|
Includes amounts pertaining to a mortgage loan assumed for a building acquired in the IFES acquisition.
|
(5)
|
The amounts above include earn-out liabilities for business combinations. These amounts also include future obligations relating to employee compensation as part of the masFlight acquisition.
|
(6)
|
Amounts represent minimum guarantees and contractual obligations associated with licensing and providing our content and Internet protocol television services to our customers.
|
(7)
|
Equipment and engineering purchase commitments represent purchase commitments for Connectivity equipment inventory and antenna and engineering development projects. We have purchase commitments with various providers of equipment for our connectivity services. As of December 31, 2017, we have committed to purchase $7.5 million of future products which we expects to purchase during the year ended December 31, 2018.
|
|
Expected Year of Maturity
|
||||||||||||||||||||||||||||||
(in millions)
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
Thereafter
|
|
Total
|
|
Fair Value
|
||||||||||||||||
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Fixed rate
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
82.5
|
|
|
$
|
82.5
|
|
|
$
|
43.3
|
|
Average interest rate
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
2.8
|
%
|
|
2.8
|
%
|
|
|
|||||||||
Variable rate
|
$
|
12.5
|
|
|
$
|
21.9
|
|
|
$
|
25.0
|
|
|
$
|
25.0
|
|
|
$
|
103.0
|
|
|
$
|
381.3
|
|
|
$
|
568.7
|
|
|
$
|
564.9
|
|
Average interest rate
|
8.3
|
%
|
|
8.3
|
%
|
|
8.3
|
%
|
|
8.3
|
%
|
|
8.3
|
%
|
|
8.3
|
%
|
|
8.3
|
%
|
|
|
•
|
Ineffective design and implementation, and operation of controls over the completeness, existence and accuracy of the financial statement close and reporting process and financial statement disclosures.
|
•
|
Ineffective general information technology controls (GITCs) over all IT operating systems, databases, and IT applications supporting financial reporting processes across the organization. GITCs include controls over new systems development, program changes and user access controls commensurate with the user’s job responsibilities and authorities and are necessary to address different IT systems used in the financial reporting processes across the organization. Accordingly, automated process-level controls and manual controls that are dependent upon the information derived from IT systems are also determined to be ineffective. Additionally, the Company did not have effective end-user computing controls over spreadsheets used in the financial reporting process.
|
•
|
Ineffective design and implementation, and operation of controls over the completeness, existence, accuracy and presentation of intercompany transactions.
|
•
|
Ineffective design and implementation, and operation of controls over the completeness, existence, accuracy and valuation of inventory transactions.
|
•
|
Ineffective design and implementation, and operation of
controls over the
completeness, existence, accuracy, valuation and presentation of
content library assets.
|
•
|
Ineffective design and implementation, and operation of controls over the completeness, existence and accuracy, valuation and presentation over the capitalization of internally developed software costs and related amortization expense.
|
•
|
Ineffective design and implementation, and operation of
controls over the
completeness, existence, accuracy, valuation and presentation of long-lived assets and related depreciation expense.
|
•
|
Ineffective controls to assess the existence of impairment indicators and to perform an impairment assessment of customer relationship intangible assets in accordance with the relevant accounting guidance on a timely basis.
|
•
|
Ineffective design and implementation, and operation of controls over the completeness and accuracy of the data provided to third-party consultants for purposes of the goodwill impairment analysis.
|
•
|
Ineffective design and implementation, operation of controls over the appropriateness of the assumptions and methodology used to measure the fair value of reporting units and the reasonableness of the conclusions in the consultants’ reports.
|
•
|
Ineffective design and implementation, and operation of controls over the completeness, existence and accuracy of the procurement of goods and services and invoice processing and cash disbursements, and the completeness, existence, accuracy and presentation of accounts payable and accrued liabilities and operating expenses.
|
•
|
Ineffective design and implementation, and operation of controls over the completeness, existence, accuracy and presentation of revenue and deferred revenue transactions and accounts receivable,
including cash receipts, and the collectability of accounts receivable and its related allowan
ce.
|
•
|
Ineffective design and implementation, and operation of controls over the completeness, accuracy and presentation of cost of sales and related accrued liabilities.
|
•
|
Ineffective design and implementation, and operation of controls over the completeness, existence, accuracy, valuation and presentation of income tax accounts including income tax expense (benefit) and withholding tax expense, deferred tax assets and liabilities, uncertain tax positions, and taxes payable and receivable.
|
•
|
Ineffective design and implementation, and operation of controls over the completeness, existence, accuracy and presentation of payroll and related expenses.
|
•
|
Ineffective design and implementation, and operation of controls over the completeness, existence, accuracy and presentation over stock-based compensation for existing plans
and new stock-based compensation arrangements.
|
•
|
Ineffective design and implementation, and operation of controls over the completeness, existence, accuracy, valuation and presentation of
certain financial liabilities, specifically in relation to the valuation methods selected and third-party pricing data used
.
|
•
|
Ineffective controls over cash management functions.
|
•
|
Ineffective design and implementation, and operation of controls over the completeness, existence and accuracy of the fair value of the acquired assets and assumed liabilities in connection with the finalization of the purchase price allocation. In addition, we do not have effective processes and related internal controls to execute and account for an acquired business.
|
•
|
Ineffective design and implementation, and operation of controls to evaluate the completeness, existence, accuracy, valuation and presentation of non-routine transactions.
|
•
|
Our Board appointed a new member with extensive accounting and auditing experience.
|
•
|
Our Board appointed new executive management, including a new CEO and CFO, and emphasized to them their responsibilities relating to an improved financial reporting and internal control environment.
|
•
|
Our Audit Committee has frequent communications with management regarding our financial reporting and internal control environment.
|
•
|
We revised our organization structure and commenced hiring key employees, with the appropriate expertise and competence to assume assigned responsibility and accountability for financial reporting processes and internal controls. Additional key employees are required.
|
•
|
We have engaged third-party accounting and SOX experts to assist in the evaluation of and enhance our financial reporting and internal control environment.
|
•
|
We are investing in IT products and platforms to enhance our financial reporting and internal control environment.
|
•
|
Provide education and training to employees on the Company’s accounting policies and procedures, our business processes and internal controls such that employees are aware of the importance of operating effective internal controls;
|
•
|
Further develop the detailed remediation plan, with appropriate executive sponsorship and with the assistance of third-party specialists, to specifically address the material weaknesses related to the control environment, risk assessment, information and communication, and monitoring activities;
|
•
|
Further develop and document detailed policies and procedures regarding our business processes for significant accounts, critical accounting policies and procedures, critical accounting estimates and significant unusual transactions and design and implement and operate effective process-level controls to mitigate the risk of misstatement due to error and/or fraud;
|
•
|
Improve our IT control environment by replacement, integration and implementation of systems; and
|
•
|
Establish effective general controls over relevant IT systems to ensure that our automated process level controls and information produced and maintained in our IT systems is relevant and reliable.
|
•
|
Implemented controls over the continued post-closing integration of EMC.
|
•
|
Implemented an effective standard of conduct that demonstrates the importance of integrity and ethical values and that defines the Company’s policies and procedures and expected behavior. We communicated the standard of conduct to personnel at all levels across the organization.
|
•
|
Implemented an enterprise risk management committee and annual enterprise risk assessment process.
|
•
|
Implemented new delegation of authority policy which was approved by the Board of Directors and provided training to ensure understanding and compliance.
|
•
|
Revised our organization structure and commenced hiring key employees, with the appropriate expertise and competence to assume assigned responsibility and accountability for financial reporting processes and internal controls.
|
•
|
Appointed a new Board member with extensive accounting and auditing experience.
|
•
|
oversight by the Board of Directors over the processes and internal controls over the five components of the COSO 2013 Framework;
|
•
|
a process implemented to evaluate the competence and expertise necessary to support financial reporting and a response to address shortcomings a sufficient number of trained personnel with assigned responsibility and accountability for the conduct of financial reporting processes and internal controls;
|
•
|
a process to evaluate the performance of internal control responsibilities by Company personnel and provide performance incentives and rewards or exercise disciplinary actions, as appropriate and to hold personnel accountable for their internal control responsibilities through performance measurement plans and goals; and
|
•
|
sufficient training of personnel on COSO 2013 Framework and their financial reporting and related internal control responsibilities.
|
•
|
the communication of materiality relevant to the reporting units, geographic markets and functional areas of the business organization such that the required level of accuracy and precision required for financial reporting and the risk tolerance associated with internal controls was established;
|
•
|
effective controls over the application of generally accepted accounting principles over critical accounting policies and practices, critical accounting estimates and certain significant unusual transactions; and
|
•
|
a continuous documented risk assessment process to identify and analyze risks of misstatement due to error and/or fraud, including management override of controls, to determine appropriate internal controls to manage the financial reporting risks and to make necessary changes in financial reporting processes and related internal controls that are responsive to changes in the business operations and environment, IT systems, and personnel.
|
•
|
timely identification and communication of relevant and reliable information sourced internally and externally to financial reporting personnel, management, and the Board of Directors; and
|
•
|
effective controls over its various information technology systems to ensure that information used in financial reporting is timely, current, accurate, complete, accessible, protected and verifiable and retained.
|
•
|
effective controls to ascertain whether the processes and internal controls related to the five COSO 2013 Framework components (and underlying principles) were present and functioning;
|
•
|
effective controls to ascertain whether process level controls related to routine transactions or unusual non-recurring transactions were operating effectively;
|
•
|
an effective, functioning internal audit group responsible for monitoring the effectiveness of internal controls; and
|
•
|
an effective process and controls to timely remediate existing control deficiencies.
|
•
|
written policies and procedures to support the operating effectiveness of the controls and to demonstrate the operation of the controls; and
|
•
|
effective control activities at the transaction level at an appropriate level of precision to mitigate the risk of material misstatement in financial reporting including the following various deficient control activities:
|
–
|
Ineffective design and implementation, and operation of controls over the completeness, existence and accuracy of the financial statement close and reporting process and financial statement disclosures.
|
–
|
Ineffective general information technology controls (GITCs) over all IT operating systems, databases, and IT applications supporting financial reporting processes across the organization.
|
–
|
Ineffective automated process-level controls and manual controls that are dependent upon the information derived from IT systems.
|
–
|
Ineffective end-user computing controls over spreadsheets used in the financial reporting process.
|
–
|
Ineffective design and implementation, and operation of controls over the completeness, existence, accuracy and presentation of intercompany transactions.
|
–
|
Ineffective design and implementation, and operation of controls over the completeness, existence, accuracy and valuation of inventory transactions.
|
–
|
Ineffective design and implementation, and operation of controls over the completeness, existence, accuracy, valuation and presentation of content library assets.
|
–
|
Ineffective design and implementation, and operation of controls over the completeness, existence and accuracy, valuation and presentation over the capitalization of internally developed software costs and related amortization expense.
|
–
|
Ineffective design and implementation, and operation of controls over the completeness, existence, accuracy, valuation and presentation of long-lived assets and related depreciation expense.
|
–
|
Ineffective controls to assess the existence of impairment indicators and to perform an impairment assessment of customer relationship intangible assets in accordance with the relevant accounting guidance on a timely basis.
|
–
|
Ineffective design and implementation, and operation of controls over the completeness and accuracy of the data provided to third-party consultants for purposes of the goodwill impairment analysis.
|
–
|
Ineffective design and implementation, operation of controls over the appropriateness of the assumptions and methodology used to measure the fair value of reporting units and the reasonableness of the conclusions in the consultants’ reports.
|
–
|
Ineffective design and implementation, and operation of controls over the completeness, existence and accuracy of the procurement of goods and services and invoice processing and cash disbursements, and the completeness, existence, accuracy and presentation of accounts payable and accrued liabilities and operating expenses.
|
–
|
Ineffective design and implementation, and operation of controls over the completeness, existence, accuracy and presentation of revenue and deferred revenue transactions and accounts receivable, including cash receipts, and the collectability of accounts receivable and its related allowance.
|
–
|
Ineffective design and implementation, and operation of controls over the completeness, accuracy, and presentation of cost of sales and related accrued liabilities.
|
–
|
Ineffective design and implementation, and operation of controls over the completeness, existence, accuracy, valuation and presentation of income tax accounts including income tax expense (benefit) and withholding tax expense, deferred tax assets and liabilities, uncertain tax positions, and taxes payable and receivable.
|
–
|
Ineffective design and implementation, and operation of controls over the completeness, existence, accuracy and presentation of payroll and related expenses.
|
–
|
Ineffective design and implementation, and operation of controls over the completeness, existence, accuracy and presentation over stock-based compensation for existing plans and new stock-based compensation arrangements.
|
–
|
Ineffective design and implementation, and operation of controls over the completeness, existence, accuracy, valuation and presentation of certain financial liabilities, specifically in relation to the valuation methods selected and third-party pricing data used.
|
–
|
Ineffective controls over cash management functions.
|
–
|
Ineffective design and implementation, and operation of controls over the completeness, existence and accuracy of the fair value of the acquired assets and assumed liabilities in connection with the finalization of the purchase price allocation.
|
–
|
Ineffective processes and related internal controls to execute and account for an acquired business.
|
–
|
Ineffective design and implementation, and operation of controls to evaluate the completeness, existence, accuracy, valuation and presentation of non-routine transactions.
|
|
GLOBAL EAGLE ENTERTAINMENT INC.
|
|
|
|
|
|
By:
|
/s/ PAUL RAINEY
|
|
|
Paul Rainey
|
|
|
Chief Financial Officer
|
|
|
(Principal Financial Officer)
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ JOSHUA B. MARKS
|
|
Chief Executive Officer and Director
|
|
April 2, 2018
|
Joshua B. Marks
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
|
/s/ PAUL RAINEY
|
|
Chief Financial Officer
|
|
April 2, 2018
|
Paul Rainey
|
|
(Principal Financial Officer)
|
|
|
|
|
|
|
|
/s/ SARLINA SEE
|
|
Chief Accounting Officer
|
|
April 2, 2018
|
Sarlina See
|
|
(Principal Accounting Officer)
|
|
|
|
|
|
|
|
/s/ JEFFREY A. LEDDY
|
|
Executive Chairman of the Company and Chair of the Board of Directors
|
|
April 2, 2018
|
Jeffrey A. Leddy
|
|
|
|
|
|
|
|
|
|
/s/ STEPHEN HASKER
|
|
Director
|
|
April 2, 2018
|
Stephen Hasker
|
|
|
|
|
|
|
|
|
|
/s/ HARRY E. SLOAN
|
|
Director
|
|
April 2, 2018
|
Harry E. Sloan
|
|
|
|
|
|
|
|
|
|
/s/ JEFF SAGANSKY
|
|
Director
|
|
April 2, 2018
|
Jeff Sagansky
|
|
|
|
|
|
|
|
|
|
/s/ JEFFREY E. EPSTEIN
|
|
Director
|
|
April 2, 2018
|
Jeffrey E. Epstein
|
|
|
|
|
|
|
|
|
|
/s/ ROBERT W. REDING
|
|
Director
|
|
April 2, 2018
|
Robert W. Reding
|
|
|
|
|
|
|
|
|
|
/s/ EDWARD L. SHAPIRO
|
|
Director
|
|
April 2, 2018
|
Edward L. Shapiro
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
April 2, 2018
|
Eric Sondag
|
|
|
|
|
|
|
|
|
|
/s/ RONALD STEGER
|
|
Director
|
|
April 2, 2018
|
Ronald Steger
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
April 2, 2018
|
Eric Zinterhofer
|
|
|
|
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Revenue:
|
|
|
|
|
|
||||||
Licensing & Services
|
$
|
581,920
|
|
|
$
|
496,535
|
|
|
$
|
404,979
|
|
Equipment
|
37,549
|
|
|
33,220
|
|
|
21,051
|
|
|||
Total revenue
|
619,469
|
|
|
529,755
|
|
|
426,030
|
|
|||
Cost of sales:
|
|
|
|
|
|
||||||
Licensing & Services
|
428,619
|
|
|
336,702
|
|
|
261,635
|
|
|||
Equipment
|
33,501
|
|
|
28,768
|
|
|
17,521
|
|
|||
Total cost of sales
|
462,120
|
|
|
365,470
|
|
|
279,156
|
|
|||
Gross margin
|
157,349
|
|
|
164,285
|
|
|
146,874
|
|
|||
Operating expenses:
|
|
|
|
|
|
||||||
Sales and marketing
|
40,938
|
|
|
30,941
|
|
|
17,705
|
|
|||
Product development
|
35,608
|
|
|
37,718
|
|
|
28,610
|
|
|||
General and administrative
|
148,221
|
|
|
115,195
|
|
|
78,126
|
|
|||
Provision for legal settlements
|
1,435
|
|
|
43,446
|
|
|
4,250
|
|
|||
Amortization of intangible assets
|
43,955
|
|
|
35,648
|
|
|
26,994
|
|
|||
Goodwill impairment
|
167,000
|
|
|
64,000
|
|
|
—
|
|
|||
Total operating expenses
|
437,157
|
|
|
326,948
|
|
|
155,685
|
|
|||
Loss from operations
|
(279,808
|
)
|
|
(162,663
|
)
|
|
(8,811
|
)
|
|||
Other income (expense):
|
|
|
|
|
|
||||||
Interest (expense) income, net
|
(58,454
|
)
|
|
(18,198
|
)
|
|
(2,492
|
)
|
|||
Loss on extinguishment of debt
|
(14,389
|
)
|
|
—
|
|
|
—
|
|
|||
Income (loss) from equity method investments including impairment losses
|
(12,424
|
)
|
|
3,829
|
|
|
—
|
|
|||
Change in fair value of derivatives
|
3,510
|
|
|
25,515
|
|
|
11,938
|
|
|||
Other expense, net
|
(436
|
)
|
|
(6,326
|
)
|
|
(1,140
|
)
|
|||
Loss before income taxes
|
(362,001
|
)
|
|
(157,843
|
)
|
|
(505
|
)
|
|||
Income tax provision (benefit)
|
(4,887
|
)
|
|
(44,911
|
)
|
|
1,621
|
|
|||
Net loss
|
$
|
(357,114
|
)
|
|
$
|
(112,932
|
)
|
|
$
|
(2,126
|
)
|
|
|
|
|
|
|
||||||
Net loss per share:
|
|
|
|
|
|
||||||
Basic
|
$
|
(4.07
|
)
|
|
$
|
(1.39
|
)
|
|
$
|
(0.03
|
)
|
Diluted
|
$
|
(4.07
|
)
|
|
$
|
(1.39
|
)
|
|
$
|
(0.18
|
)
|
|
|
|
|
|
|
||||||
Weighted average shares outstanding:
|
|
|
|
|
|
||||||
Basic
|
87,733
|
|
|
81,269
|
|
|
77,558
|
|
|||
Diluted
|
87,733
|
|
|
81,269
|
|
|
78,394
|
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Net loss
|
$
|
(357,114
|
)
|
|
$
|
(112,932
|
)
|
|
$
|
(2,126
|
)
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
||||||
Unrealized foreign currency translation adjustments
|
394
|
|
|
(117
|
)
|
|
(303
|
)
|
|||
Other comprehensive income (loss)
|
394
|
|
|
(117
|
)
|
|
(303
|
)
|
|||
Comprehensive loss
|
$
|
(356,720
|
)
|
|
$
|
(113,049
|
)
|
|
$
|
(2,429
|
)
|
|
Common Stock
|
|
Common Stock Non-Voting
|
|
Treasury Stock
|
|
Additional Paid-in
|
|
Subscriptions
|
|
Accumulated
|
|
Accumulated Other Comprehensive
|
|
Total
|
|||||||||||||||||||||||||
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Receivable
|
|
Deficit
|
|
Income (Loss)
|
|
Equity (Deficit)
|
|||||||||||||||||||
Balance, December 31, 2014
|
79,626
|
|
|
$
|
8
|
|
|
—
|
|
|
$
|
—
|
|
|
(3,054
|
)
|
|
$
|
(30,659
|
)
|
|
$
|
645,110
|
|
|
$
|
(503
|
)
|
|
$
|
(301,331
|
)
|
|
$
|
4
|
|
|
$
|
312,629
|
|
Convertible note conversion option fair value
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,674
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,674
|
|
||||||||
Exercise of common stock options and warrants, net
|
607
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,006
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,006
|
|
||||||||
Restricted stock units vested and distributed, net of tax
|
31
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(208
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(208
|
)
|
||||||||
Issuance of common stock in exchange for warrants
|
1,412
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16,600
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16,600
|
|
||||||||
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,235
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,235
|
|
||||||||
Tax benefit on stock options exercise
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
279
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
279
|
|
||||||||
Interest income on subscription receivable
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(25
|
)
|
|
—
|
|
|
—
|
|
|
(25
|
)
|
||||||||
Other comprehensive loss, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(303
|
)
|
|
(303
|
)
|
||||||||
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,126
|
)
|
|
—
|
|
|
(2,126
|
)
|
||||||||
Balance, December 31, 2015
|
81,676
|
|
|
8
|
|
|
—
|
|
|
—
|
|
|
(3,054
|
)
|
|
(30,659
|
)
|
|
688,696
|
|
|
(528
|
)
|
|
(303,457
|
)
|
|
(299
|
)
|
|
353,761
|
|
||||||||
Issuance of common stock for Emerging Markets Communication Acquisition
|
5,467
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
40,606
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
40,607
|
|
||||||||
Issuance of common stock for legal settlements
|
1,751
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,705
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,705
|
|
||||||||
Repurchase and retirement of common stock
|
(614
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,219
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,219
|
)
|
||||||||
Exercise of common stock options
|
26
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
255
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
255
|
|
||||||||
Restricted stock units vested and distributed, net of tax
|
177
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(705
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(705
|
)
|
||||||||
Purchase of subsidiary shares from non-controlling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(876
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(876
|
)
|
||||||||
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,747
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,747
|
|
||||||||
Tax deficiency on stock options exercise
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(204
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(204
|
)
|
||||||||
Interest income on subscription receivable
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(25
|
)
|
|
—
|
|
|
—
|
|
|
(25
|
)
|
||||||||
Other comprehensive loss, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(117
|
)
|
|
(117
|
)
|
||||||||
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(112,932
|
)
|
|
—
|
|
|
(112,932
|
)
|
||||||||
Balance, December 31, 2016
|
88,483
|
|
|
$
|
9
|
|
|
—
|
|
|
$
|
—
|
|
|
(3,054
|
)
|
|
$
|
(30,659
|
)
|
|
$
|
747,005
|
|
|
$
|
(553
|
)
|
|
$
|
(416,389
|
)
|
|
$
|
(416
|
)
|
|
$
|
298,997
|
|
Restricted stock units vested and distributed, net of tax
|
272
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(311
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(311
|
)
|
||||||||
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,584
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,584
|
|
|
Common Stock
|
|
Common Stock Non-Voting
|
|
Treasury Stock
|
|
Additional Paid-in
|
|
Subscriptions
|
|
Accumulated
|
|
Accumulated Other Comprehensive
|
|
Total
|
|||||||||||||||||||||||||
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Receivable
|
|
Deficit
|
|
Income (Loss)
|
|
Equity (Deficit)
|
|||||||||||||||||||
Change in Accounting Policy - ASU 2016-09
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
288
|
|
|
—
|
|
|
(288
|
)
|
|
—
|
|
|
—
|
|
||||||||
Settlement of contingent consideration
|
5,080
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
24,999
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25,000
|
|
||||||||
Interest income on subscription receivable
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(25
|
)
|
|
—
|
|
|
—
|
|
|
(25
|
)
|
||||||||
Effect of foreign exchange translation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
394
|
|
|
394
|
|
||||||||
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(357,114
|
)
|
|
—
|
|
|
(357,114
|
)
|
||||||||
Balance, December 31, 2017
|
93,835
|
|
|
$
|
10
|
|
|
—
|
|
|
$
|
—
|
|
|
(3,054
|
)
|
|
$
|
(30,659
|
)
|
|
$
|
779,565
|
|
|
$
|
(578
|
)
|
|
$
|
(773,791
|
)
|
|
$
|
(22
|
)
|
|
$
|
(25,475
|
)
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
||||||
Net loss
|
$
|
(357,114
|
)
|
|
$
|
(112,932
|
)
|
|
$
|
(2,126
|
)
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
|
|
|
|
|
|
||||||
Depreciation and amortization
|
89,854
|
|
|
57,158
|
|
|
36,592
|
|
|||
Amortization of content library
|
15,813
|
|
|
14,932
|
|
|
14,929
|
|
|||
Non-cash interest expense, net
|
6,449
|
|
|
1,916
|
|
|
903
|
|
|||
Stock-based compensation
|
7,585
|
|
|
10,747
|
|
|
8,235
|
|
|||
Loss on extinguishment of debt
|
14,389
|
|
|
—
|
|
|
—
|
|
|||
Issuance of shares for legal settlements
|
—
|
|
|
13,705
|
|
|
—
|
|
|||
Impairment of goodwill
|
167,000
|
|
|
64,000
|
|
|
—
|
|
|||
Impairment of internally developed software
|
—
|
|
|
4,069
|
|
|
—
|
|
|||
Impairment of related party loan
|
—
|
|
|
4,353
|
|
|
—
|
|
|||
Proceeds from equity method investments
|
6,798
|
|
|
—
|
|
|
—
|
|
|||
(Gain) loss on equity method investments including impairment losses
|
12,424
|
|
|
(3,829
|
)
|
|
—
|
|
|||
Loss on disposal of fixed assets
|
443
|
|
|
—
|
|
|
—
|
|
|||
Change in fair value of derivatives
|
(3,510
|
)
|
|
(25,515
|
)
|
|
(11,938
|
)
|
|||
Provision for bad debt
|
2,788
|
|
|
2,624
|
|
|
797
|
|
|||
Deferred income taxes
|
(16,913
|
)
|
|
(60,369
|
)
|
|
(6,452
|
)
|
|||
Other
|
(2,944
|
)
|
|
(1,488
|
)
|
|
96
|
|
|||
Changes in operating assets and liabilities:
|
|
|
|
|
|
||||||
Restricted cash
|
(1,653
|
)
|
|
2,700
|
|
|
(722
|
)
|
|||
Accounts receivable
|
4,159
|
|
|
(8,032
|
)
|
|
(5,879
|
)
|
|||
Inventories
|
(5,637
|
)
|
|
2,123
|
|
|
(1,580
|
)
|
|||
Prepaid expenses
|
4,172
|
|
|
(4,382
|
)
|
|
(1,272
|
)
|
|||
Other current assets
|
(115
|
)
|
|
16,366
|
|
|
(1,252
|
)
|
|||
Content library
|
(15,539
|
)
|
|
(18,614
|
)
|
|
(15,406
|
)
|
|||
Other non-current assets
|
(1,064
|
)
|
|
2,695
|
|
|
2,814
|
|
|||
Accounts payable and accrued expenses
|
23,363
|
|
|
14,854
|
|
|
4,183
|
|
|||
Deferred revenue
|
(919
|
)
|
|
(12,891
|
)
|
|
(3,134
|
)
|
|||
Other current liabilities
|
(3,536
|
)
|
|
(790
|
)
|
|
3,067
|
|
|||
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
|
(53,707
|
)
|
|
(36,600
|
)
|
|
21,855
|
|
|||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
||||||
Acquisitions of companies, net of cash acquired
|
—
|
|
|
(92,246
|
)
|
|
(60,242
|
)
|
|||
Purchases of property and equipment
|
(74,994
|
)
|
|
(54,173
|
)
|
|
(20,653
|
)
|
|||
Issuance of loan to related party
|
—
|
|
|
(4,400
|
)
|
|
—
|
|
|||
Release of restricted cash held in escrow
|
554
|
|
|
—
|
|
|
—
|
|
|||
Settlement received related to EMC Acquisition
|
1,250
|
|
|
—
|
|
|
—
|
|
|||
NET CASH USED IN INVESTING ACTIVITIES
|
(73,190
|
)
|
|
(150,819
|
)
|
|
(80,895
|
)
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
||||||
Proceeds from issuance of debt, net of $15,000 discount
|
485,000
|
|
|
—
|
|
|
—
|
|
|||
Issuance costs
|
(20,927
|
)
|
|
—
|
|
|
(831
|
)
|
|||
Repayment of EMC indebtedness
|
(412,400
|
)
|
|
|
|
|
|||||
Proceeds from borrowings on line of credit
|
78,000
|
|
|
27,500
|
|
|
81,250
|
|
|||
Repayment of long-term debt
|
(10,618
|
)
|
|
(3,806
|
)
|
|
(1,126
|
)
|
|||
Payment of contingent consideration
|
(1,599
|
)
|
|
—
|
|
|
—
|
|
|||
Borrowings from related party
|
6,370
|
|
|
—
|
|
|
—
|
|
|||
Repurchase of common stock warrants
|
—
|
|
|
(5,219
|
)
|
|
—
|
|
|||
Proceeds from exercise of stock options and warrants
|
—
|
|
|
(450
|
)
|
|
5,604
|
|
|||
Other financing activities, net
|
—
|
|
|
(4,127
|
)
|
|
(339
|
)
|
|||
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
123,826
|
|
|
13,898
|
|
|
84,558
|
|
|||
Effects of exchange rate changes on cash and cash equivalents
|
645
|
|
|
655
|
|
|
386
|
|
|||
Net (decrease) increase in cash and cash equivalents
|
(2,426
|
)
|
|
(172,866
|
)
|
|
25,904
|
|
|||
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
|
50,686
|
|
|
223,552
|
|
|
197,648
|
|
|||
CASH AND CASH EQUIVALENTS AT END OF YEAR
|
$
|
48,260
|
|
|
$
|
50,686
|
|
|
$
|
223,552
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
||||||
Cash paid for:
|
|
|
|
|
|
||||||
Taxes
|
$
|
7,863
|
|
|
$
|
12,562
|
|
|
$
|
5,435
|
|
Interest
|
$
|
36,018
|
|
|
$
|
19,249
|
|
|
$
|
1,161
|
|
SIGNIFICANT NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
||||||
Issuance of common stock in connection with acquisition of business
|
$
|
25,000
|
|
|
$
|
40,607
|
|
|
$
|
—
|
|
Deferred consideration liabilities incurred in connection with acquisition of business
|
$
|
—
|
|
|
$
|
25,000
|
|
|
$
|
—
|
|
Release of restricted cash held in escrow to former owners of MTN
|
$
|
15,483
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Issuance of common stock to repurchase Global Eagle public company warrants
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,600
|
|
Purchases of property, plant and equipment held in accounts payable
|
$
|
9,390
|
|
|
$
|
13,500
|
|
|
$
|
—
|
|
|
December 31,
|
||||||
|
2017
|
|
2016
|
||||
Accounts receivable, gross
|
$
|
122,225
|
|
|
$
|
130,583
|
|
Less: Allowance for doubtful accounts
|
(8,680
|
)
|
|
(10,091
|
)
|
||
Accounts receivable, net
|
$
|
113,545
|
|
|
$
|
120,492
|
|
|
2017
|
|
2016
|
|
2015
|
||||||
Beginning balance
|
$
|
10,091
|
|
|
$
|
8,640
|
|
|
$
|
7,468
|
|
Additions charged to statements of operations
|
2,788
|
|
|
2,624
|
|
|
1,172
|
|
|||
Less: Bad debt write offs
|
(4,199
|
)
|
|
(1,173
|
)
|
|
—
|
|
|||
Ending balance
|
$
|
8,680
|
|
|
$
|
10,091
|
|
|
$
|
8,640
|
|
•
|
Level 1: Observable quoted prices in active markets for identical assets and liabilities.
|
•
|
Level 2: Observable quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
|
•
|
Level 3: Model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models, and similar techniques.
|
|
December 31, 2017
|
|
Quotes Prices in Active Markets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Other Unobservable Inputs
(Level 3)
|
||||||||
Liabilities:
|
|
|
|
|
|
|
|
||||||||
Earn-out liability
(1)
|
$
|
114
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
114
|
|
Liability warrants
(2)
|
20
|
|
|
—
|
|
|
—
|
|
|
20
|
|
||||
Contingently issuable shares
(3)
|
1,448
|
|
|
—
|
|
|
—
|
|
|
1,448
|
|
||||
Total
|
$
|
1,582
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,582
|
|
|
December 31, 2016
|
|
Quotes Prices in Active Markets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Other Unobservable Inputs
(Level 3)
|
||||||||
Liabilities:
|
|
|
|
|
|
|
|
||||||||
Earn-out liability
(1)
|
$
|
1,987
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,987
|
|
Liability warrants
(2)
|
433
|
|
|
—
|
|
|
—
|
|
|
433
|
|
||||
Contingently issuable shares
(3)
|
4,545
|
|
|
—
|
|
|
—
|
|
|
4,545
|
|
||||
Total
|
$
|
6,965
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,965
|
|
(1)
|
Represents aggregate earn-out liabilities for the Company’s acquisitions of WOI, RMG, navAero and masFlight assumed in business combinations for the year ended December 31, 2015.
|
(2)
|
Includes
6,173,228
Public SPAC Warrants at
December 31, 2017
and
2016
.
|
(3)
|
In connection with the Sound Recording Settlements, (as described below in
Note 10. Commitments and Contingencies
) the Company is obligated to issue to UMG (as defined in that Note)
500,000
shares of its common stock when and if the closing price of the Company's common stock exceeds
$10.00
per share and an additional
400,000
shares of common stock when and if the closing price of the Company’s common stock exceeds
$12.00
per share. Such contingently issuable shares are classified as liabilities and are re-measured to fair value each reporting period.
|
|
Liability Warrants (Level 1)
|
|
Liability Warrants (Level 3)
|
|
Contingently Issuable Shares
(Level 3)
|
|
Earn-Out Liabilities (Level 3)
|
||||||||
Balance, December 31, 2015
|
$
|
24,076
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,652
|
|
Fair value of contingently issuable shares associated with sound recording litigation settlement
|
—
|
|
|
—
|
|
|
6,417
|
|
|
—
|
|
||||
Payments of earn-out liability
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,127
|
)
|
||||
Transfer-in
|
—
|
|
|
6,235
|
|
|
—
|
|
|
—
|
|
||||
Transfer-out
|
(6,235
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Change in value
|
(17,841
|
)
|
|
(5,802
|
)
|
|
(1,872
|
)
|
|
(3,538
|
)
|
||||
Balance, December 31, 2016
|
—
|
|
|
433
|
|
|
4,545
|
|
|
1,987
|
|
||||
Payments of earn-out liability
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,937
|
)
|
||||
Change in value
|
—
|
|
|
(413
|
)
|
|
(3,097
|
)
|
|
64
|
|
||||
Balance, December 31, 2017
|
$
|
—
|
|
|
$
|
20
|
|
|
$
|
1,448
|
|
|
$
|
114
|
|
|
Liability Warrants
|
|
Contingently Issuable Shares
|
||||||||
Assumed liquidation company share price
|
N/A
|
|
|
$
|
10.00
|
|
|
$
|
12.00
|
|
|
Common stock price at December 31, 2017
|
$
|
2.29
|
|
|
$
|
2.29
|
|
|
$
|
2.29
|
|
Exercise price
|
$
|
11.50
|
|
|
N/A
|
|
|
N/A
|
|
||
Estimated term (in years)
|
0.09
|
|
|
10.25
|
|
|
11.52
|
|
|||
Expected stock volatility
|
199.4
|
%
|
|
54.0
|
%
|
|
54.0
|
%
|
|||
Risk free rate
|
1.9
|
%
|
|
N/A
|
|
|
N/A
|
|
|||
Dividend yield
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|||
Implied discount for lack of marketability
(1)
|
—
|
%
|
|
29.5
|
%
|
|
30.1
|
%
|
(1)
|
A discount for lack of marketability was applied to the resulting values as the shares, when issued, may not initially be registered with the SEC.
|
|
December 31, 2017
|
|
December 31, 2016
|
||||||||||||
|
Carrying Amount
|
|
Fair Value
|
|
Carrying Amount
|
|
Fair Value
|
||||||||
Senior secured first lien term loan facility, due July 2021
(*)(1)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
263,980
|
|
|
$
|
260,020
|
|
Senior secured revolving credit facility, due July 2020
(*)(1)
|
—
|
|
|
—
|
|
|
55,500
|
|
|
52,932
|
|
||||
Senior secured second lien term loan facility, due July 2022
(*)(1)
|
—
|
|
|
—
|
|
|
92,000
|
|
|
88,780
|
|
||||
Senior secured term loan facility, due January 2023
(+)(1)
|
490,625
|
|
|
486,945
|
|
|
—
|
|
|
—
|
|
||||
Senior secured revolving credit facility, due January 2022
(+)(3)
|
78,000
|
|
|
78,000
|
|
|
—
|
|
|
—
|
|
||||
2.75% convertible senior notes due 2035
(1) (2) (4)
|
82,500
|
|
|
43,313
|
|
|
82,500
|
|
|
67,444
|
|
||||
Other debt
(3)
|
9,075
|
|
|
9,075
|
|
|
3,299
|
|
|
3,299
|
|
||||
Unamortized bond discounts and issue costs
|
(41,136
|
)
|
|
—
|
|
|
(26,979
|
)
|
|
—
|
|
||||
|
$
|
619,064
|
|
|
$
|
617,333
|
|
|
$
|
470,300
|
|
|
$
|
472,475
|
|
(1)
|
The estimated fair value is classified as Level 2 financial instrument and was determined based on the quoted prices of the instrument in an over-the-counter market.
|
(2)
|
The fair value of the
2.75%
convertible senior notes due 2035 is exclusive of the conversion feature therein, which was originally allocated for reporting purposes at
$13.0 million
, and is included in the consolidated balance sheets within “Additional paid-in capital” (see
Note 13. Common Stock, Stock-Based Awards and Warrants
).
|
(3)
|
The estimated fair value is considered to approximate carrying value given the short-term maturity and is classified as Level 3 financial instruments.
|
(4)
|
The principal amount outstanding of the
2.75%
convertible senior notes due 2035 as set forth in the foregoing table was
$82.5 million
as of December 31, 2017, and is not the carrying amount of this indebtedness (
i.e.
, outstanding principal amount net of debt issuance costs and discount associated with the equity component). The carrying value of this indebtedness as of December 31, 2017 was
$69.7 million
.
|
•
|
We have assessed the number of performance obligations in our contracts with customers and noted no significant changes as compared to unit of accounting under existing revenue guidance.
|
•
|
We will be required to use a variable consideration model which requires us to estimate (and constrain) variable service revenue, and allocate total contract consideration among all performance obligations. Additionally, estimates used in the recognition of revenue under the new standard will be updated as new facts and circumstances warrant, which may cause differences in the trend of revenue recognition as compared to that reported under the current standard. The Company expects this change to primarily impact the Connectivity segment.
|
•
|
The timing of recognition for certain content licenses will change as the new standard requires us to apply the sales or usage based royalties exception. Compared to existing guidance, revenue recognition will be deferred depending on when the customer’s subsequent sales or usage occurs. Additionally, revenue from games & apps contracts will be accelerated because the new standard changes the requirement for vendor-specific objective evidence, which previously resulted in revenue recognized ratably over the service period. The Company expects these changes to primarily impact the Media & Content segment.
|
•
|
Costs to obtain or fulfill a contract with a customer, including costs incurred to service contracts and certain sales commissions, will require capitalization and amortization over the anticipated service period. These include costs to obtain Supplemental Type Certificates (“STCs”), which were previously expensed.
|
|
Amount
|
||
Cash consideration paid to seller
|
$
|
100,454
|
|
Issuance of 5,466,886 shares of Company common stock
(1)
|
40,607
|
|
|
Deferred consideration
(2)
|
25,000
|
|
|
Settlement of pre-existing relationship
|
228
|
|
|
Working capital settlement adjustment
(3)
|
(1,250
|
)
|
|
Total
|
$
|
165,039
|
|
(1)
|
The fair value of the Company’s common stock issued as consideration was measured based on the stock price upon closing of the transaction on July 27, 2016, less a
7.5%
discount for restriction on transferability.
|
(2)
|
On July 27, 2017, the Company elected to pay such amount in
5,080,049
newly issued shares of its common stock to the former unit holder of EMC.
|
(3)
|
In June 2017, the Company finalized the working capital adjustments with the EMC seller, which resulted in the release to the Company of
$1.3 million
from a working capital adjustment escrow.
|
|
Weighted Average Useful Life (Years)
(2)
|
|
Final
|
||
Cash and cash equivalents
|
|
|
$
|
8,208
|
|
Restricted cash
|
|
|
16,257
|
|
|
Other current assets
|
|
|
60,625
|
|
|
Property, plant and equipment
|
|
|
82,220
|
|
|
Equity method investments
(1)
|
|
|
152,700
|
|
|
Intangible assets:
|
|
|
|
||
Completed technology
|
3.4
|
|
18,500
|
|
|
Customer relationships
|
8.0
|
|
47,700
|
|
|
Backlog
|
3.0
|
|
18,300
|
|
|
Trademarks
|
5.0
|
|
1,000
|
|
|
Other non-current assets
|
|
|
2,321
|
|
|
Accounts payable and accrued liabilities
|
|
|
(68,864
|
)
|
|
Debt, including current
|
|
|
(371,990
|
)
|
|
Deferred tax liabilities, net
|
|
|
(71,954
|
)
|
|
Unfavorable vendor contracts, including current
|
|
|
(13,500
|
)
|
|
Deferred revenue, including current
|
|
|
(4,602
|
)
|
|
Other non-current liabilities
|
|
|
(9,479
|
)
|
|
Fair value of net assets acquired
|
|
|
(132,558
|
)
|
|
Consideration transferred
(3)
|
|
|
165,039
|
|
|
Goodwill
|
|
|
$
|
297,597
|
|
(1)
|
Represents
49%
investments in WMS and Santander.
|
(2)
|
The weighted average useful life in total is
5.9
years.
|
(3)
|
In June 2017, the Company finalized the working capital adjustments with the EMC seller, which resulted in the release to the Company of
$1.3 million
from a working capital adjustment escrow which reduced the Goodwill recorded. See
Note 5. Goodwill
.
|
|
Weighted Average Useful Life (Years)
(1)
|
|
(Final)
December 31, 2016 |
||
Goodwill
|
|
|
$
|
40,281
|
|
Customer relationships
|
7.6
|
|
14,000
|
|
|
Developed technology
|
5.7
|
|
21,900
|
|
|
Trade name
|
5.0
|
|
200
|
|
|
Accounts receivable
|
|
|
6,450
|
|
|
Property and equipment
|
|
|
1,783
|
|
|
Deferred tax liability
|
|
|
(11,047
|
)
|
|
Accrued expenses
|
|
|
(4,379
|
)
|
|
Other liabilities assumed, net of assets acquired
|
|
|
(857
|
)
|
|
Total consideration transferred
|
|
|
$
|
68,331
|
|
(1)
|
The weighted average useful life in total is
6.4
years.
|
|
December 31,
|
||||||
|
2017
|
|
2016
|
||||
Leasehold improvements
|
$
|
6,869
|
|
|
$
|
5,737
|
|
Furniture and fixtures
|
2,187
|
|
|
1,332
|
|
||
Equipment
(3)
|
128,046
|
|
|
86,339
|
|
||
Computer equipment
|
10,661
|
|
|
8,002
|
|
||
Computer software
(1)
|
31,518
|
|
|
18,207
|
|
||
Automobiles
|
311
|
|
|
325
|
|
||
Buildings
|
6,744
|
|
|
7,039
|
|
||
Albatross (aircraft)
|
447
|
|
|
425
|
|
||
Satellite transponder
(2)
|
79,097
|
|
|
62,131
|
|
||
Construction in-progress
(3)
|
3,370
|
|
|
8,380
|
|
||
Total property, plant, and equipment
|
269,250
|
|
|
197,917
|
|
||
Accumulated depreciation
(1) (2) (3)
|
(74,221
|
)
|
|
(31,868
|
)
|
||
Property, plant and equipment, net
|
$
|
195,029
|
|
|
$
|
166,049
|
|
(1)
|
Includes computer software acquired under capital leases of
$1.0 million
as
December 31, 2017
and
2016
, net of and related accumulated amortization of
$0.7 million
and
$0.4 million
as of
December 31, 2017
and
2016
, respectively.
|
(2)
|
Includes satellite transponders acquired under capital leases of
$2.0 million
and the related accumulated depreciation of
$0.6 million
and
$0.6 million
as of
December 31, 2017
and 2016, respectively.
|
(3)
|
Includes internally developed software of
$18.1 million
and
$10.7 million
and related accumulated amortization of
$11.4 million
and
$6.3 million
as of
December 31, 2017
and
2016
, respectively. Amortization expense for the years ended
December 31, 2017
,
2016
and
2015
was
$5.1 million
,
$3.6 million
and
$1.7 million
, respectively. Impairment loss for the year ended December 31, 2016 was
$4.1 million
included in the Consolidated Statements of Operations. There were
no
impairment losses during the years ended December 31, 2017 and
2015
. During the years ended
December 31, 2017
,
2016
and
2015
, the Company capitalized software development costs totaling
$7.4 million
,
$5.0 million
and
$3.3 million
, respectively.
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Consolidated Statement of Operations Classification:
|
|
|
|
|
|
||||||
Cost of sales
|
$
|
29,798
|
|
|
$
|
10,855
|
|
|
$
|
2,957
|
|
Sales and marketing
|
3,219
|
|
|
1,793
|
|
|
893
|
|
|||
Product development
|
3,478
|
|
|
2,186
|
|
|
1,443
|
|
|||
General and administrative
|
10,009
|
|
|
6,677
|
|
|
4,154
|
|
|||
Total
|
$
|
46,504
|
|
|
$
|
21,511
|
|
|
$
|
9,447
|
|
|
Aviation Connectivity
|
|
Maritime & Land Connectivity
|
|
Media & Content
|
|
Total
|
||||||||
Balance as of December 31, 2015
|
$
|
19,273
|
|
|
$
|
—
|
|
|
$
|
74,523
|
|
|
$
|
93,796
|
|
Goodwill related to the EMC acquisition
|
78,764
|
|
|
210,380
|
|
|
9,703
|
|
|
298,847
|
|
||||
Impairment loss
|
—
|
|
|
(64,000
|
)
|
|
—
|
|
|
(64,000
|
)
|
||||
Adjustment to RMG goodwill
|
—
|
|
|
—
|
|
|
(812
|
)
|
|
(812
|
)
|
||||
Foreign currency translation
|
—
|
|
|
—
|
|
|
5
|
|
|
5
|
|
||||
Balance as of December 31, 2016
|
98,037
|
|
|
146,380
|
|
|
83,419
|
|
|
327,836
|
|
||||
Impairment loss
|
(44,000
|
)
|
|
(123,000
|
)
|
|
—
|
|
|
(167,000
|
)
|
||||
Settlement received related to acquisition
|
—
|
|
|
(1,250
|
)
|
|
—
|
|
|
(1,250
|
)
|
||||
Foreign currency translation
|
—
|
|
|
—
|
|
|
110
|
|
|
110
|
|
||||
Balance as of December 31, 2017
|
$
|
54,037
|
|
|
$
|
22,130
|
|
|
$
|
83,529
|
|
|
$
|
159,696
|
|
|
|
|
|
|
|
|
|
||||||||
Balance as of December 31, 2017
|
|
|
|
|
|
|
|
||||||||
Gross carrying amount
|
$
|
98,037
|
|
|
$
|
209,130
|
|
|
$
|
83,529
|
|
|
$
|
390,696
|
|
Accumulated impairment loss
|
(44,000
|
)
|
|
(187,000
|
)
|
|
—
|
|
|
(231,000
|
)
|
||||
Balance as of December 31, 2017, net
|
$
|
54,037
|
|
|
$
|
22,130
|
|
|
$
|
83,529
|
|
|
$
|
159,696
|
|
|
|
|
December 31, 2017
|
||||||||||
|
Weighted Average Useful Lives
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
||||||
Existing technology - software
|
4.8 years
|
|
$
|
42,999
|
|
|
$
|
20,209
|
|
|
$
|
22,790
|
|
Existing technology - games
|
5.0 years
|
|
12,331
|
|
|
12,125
|
|
|
206
|
|
|||
Developed technology
|
8.0 years
|
|
7,317
|
|
|
3,887
|
|
|
3,430
|
|
|||
Customer relationships
|
7.9 years
|
|
170,716
|
|
|
85,160
|
|
|
85,556
|
|
|||
Backlog
|
3.0 years
|
|
18,300
|
|
|
8,642
|
|
|
9,658
|
|
|||
Other
|
4.5 years
|
|
2,746
|
|
|
1,804
|
|
|
942
|
|
|||
Total
|
|
|
$
|
254,409
|
|
|
$
|
131,827
|
|
|
$
|
122,582
|
|
|
|
|
December 31, 2016
|
||||||||||
|
Weighted Average Useful Lives
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
||||||
Existing technology - software
|
4.8 years
|
|
$
|
43,019
|
|
|
$
|
9,842
|
|
|
$
|
33,177
|
|
Existing technology - games
|
5.0 years
|
|
12,331
|
|
|
9,659
|
|
|
2,672
|
|
|||
Developed technology
|
8.0 years
|
|
7,317
|
|
|
2,973
|
|
|
4,344
|
|
|||
Customer relationships
|
7.9 years
|
|
170,716
|
|
|
61,579
|
|
|
109,137
|
|
|||
Backlog
|
3.0 years
|
|
18,300
|
|
|
2,542
|
|
|
15,758
|
|
|||
Other
|
4.5 years
|
|
3,702
|
|
|
2,070
|
|
|
1,632
|
|
|||
Total
|
|
|
$
|
255,385
|
|
|
$
|
88,665
|
|
|
$
|
166,720
|
|
Year Ending December 31,
|
Amount
|
||
2018
|
$
|
38,443
|
|
2019
|
28,647
|
|
|
2020
|
22,263
|
|
|
2021
|
13,824
|
|
|
2022
|
7,907
|
|
|
Thereafter
|
11,498
|
|
|
Total
|
$
|
122,582
|
|
|
December 31,
|
||||||
|
2017
|
|
2016
|
||||
Current assets
|
$
|
35,859
|
|
|
$
|
30,837
|
|
Non-current assets
|
21,009
|
|
|
21,822
|
|
||
Current liabilities
|
15,151
|
|
|
20,455
|
|
||
Non-current liabilities
|
1,056
|
|
|
1,307
|
|
|
Year Ended December 31,
|
||||||
|
2017
|
|
2016
|
||||
Carrying value in our equity method investments
(1)
|
$
|
137,299
|
|
|
$
|
156,527
|
|
|
December 31,
|
||||||
|
2017
|
|
2016
|
||||
Accounts payable
|
$
|
102,893
|
|
|
$
|
67,562
|
|
Content license and royalties
|
37,177
|
|
|
53,008
|
|
||
Deferred consideration for EMC Acquisition
|
—
|
|
|
25,000
|
|
||
Accrued legal settlements
|
13,322
|
|
|
17,291
|
|
||
Accrued payroll obligations
|
7,577
|
|
|
12,251
|
|
||
Deferred acquisition earn-out liability
|
—
|
|
|
1,883
|
|
||
Other accrued expenses
|
44,067
|
|
|
63,349
|
|
||
Total
|
$
|
205,036
|
|
|
$
|
240,344
|
|
|
December 31,
|
||||||
|
2017
|
|
2016
|
||||
Senior secured term loan facility, due July 2021
(1)
|
$
|
—
|
|
|
$
|
263,980
|
|
Senior secured revolving credit facility, due July 2020
(1)
|
—
|
|
|
55,500
|
|
||
Senior secured term loan facility, due July 2022
(1)
|
—
|
|
|
92,000
|
|
||
Senior secured term loan facility, due January 2023
(2)
|
490,625
|
|
|
|
|||
Senior secured revolving credit facility, due January 2022
(2)
|
78,000
|
|
|
|
|||
2.75% convertible senior notes, due February 2035
(3)
|
82,500
|
|
|
82,500
|
|
||
Other debt
|
9,075
|
|
|
3,299
|
|
||
Unamortized bond discounts, fair value adjustments and issue costs, net
|
(41,136
|
)
|
|
(26,979
|
)
|
||
Total carrying value of debt
|
619,064
|
|
|
470,300
|
|
||
Less: current portion, net
|
(20,106
|
)
|
|
(2,069
|
)
|
||
Total non-current
|
$
|
598,958
|
|
|
$
|
468,231
|
|
•
|
Initial Term Loans (as defined in the 2017 Credit Agreement) now bear interest on the outstanding amount at a rate per annum equal to either (i) the Base Rate plus
6.50%
or (ii) the Eurocurrency Rate for each Interest Period plus
7.50%
.
|
•
|
Revolving Loans (as defined in the 2017 Credit Agreement) now bear interest at a rate equal to either (i) the Base Rate plus
6.50%
or (ii) the Eurocurrency Rate or EURIBOR plus
7.50%
until the Company delivers its unaudited financial statements for the quarter ending March 31, 2018. After the delivery of those unaudited financial statements, the 2017 Revolving Loans will bear interest at a rate based on the Base Rate, Eurocurrency Rate or EURIBOR plus an interest-rate spread thereon that varies on the Consolidated First Lien Net Leverage Ratio. The spread thereon will range from
6.00%
to
6.50%
for the Base Rate and
7.00%
to
7.50%
for the Eurocurrency Rate and EURIBOR.
|
•
|
The “non-call period” on the 2017 Term Loans has been extended to January 31, 2020. In connection with the Credit Agreement Amendments, the Company paid an aggregate
$13.2 million
to the lenders consenting to such amendments.
|
Year Ending December 31,
|
Amount
|
||
2018
|
$
|
20,106
|
|
2019
|
22,372
|
|
|
2020
|
25,405
|
|
|
2021
|
25,044
|
|
|
2022
|
103,045
|
|
|
Thereafter
|
464,228
|
|
|
Total
|
$
|
660,200
|
|
Year Ending December 31,
|
Amount
|
||
2018
|
$
|
30,295
|
|
2019
|
17,984
|
|
|
2020
|
9,397
|
|
|
2021
|
3,486
|
|
|
2022
|
500
|
|
|
Thereafter
|
—
|
|
|
Total minimum payments
|
$
|
61,662
|
|
Year Ending December 31,
|
Amount
|
||
2018
|
$
|
5,618
|
|
2019
|
4,758
|
|
|
2020
|
3,472
|
|
|
2021
|
3,373
|
|
|
2022
|
2,942
|
|
|
Thereafter
|
5,023
|
|
|
Total minimum lease payments
|
$
|
25,186
|
|
Year Ending December 31,
|
Amount
|
||
2018
|
$
|
931
|
|
2019
|
772
|
|
|
2020
|
371
|
|
|
Total minimum lease payments
|
2,074
|
|
|
Less: amount representing interest
|
(108
|
)
|
|
Present value of net minimum lease payments
|
1,966
|
|
|
Less current portion
|
(874
|
)
|
|
Capital lease obligation, non-current
|
$
|
1,092
|
|
Year Ending December 31,
|
Amount
|
||
2018
|
$
|
106,101
|
|
2019
|
93,951
|
|
|
2020
|
71,267
|
|
|
2021
|
39,595
|
|
|
2022
|
35,658
|
|
|
Thereafter
|
125,534
|
|
|
Total minimum payments
|
$
|
472,106
|
|
•
|
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 us 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 as such is our indirect subsidiary. In August 2016, we 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, we paid approximately
$18.0 million
in cash and issued approximately
1.8 million
shares of our common stock to settle lawsuits and other claims. Under the settlement agreement with UMG, we paid UMG an additional
$5.0 million
in cash in March 2017 and agreed to issue
500,000
additional shares of our common stock when and if our closing price of our common stock exceeds
$10.00
per share and
400,000
additional shares of our common stock when and if the closing price of our common stock exceeds
$12.00
per share. In 2016, we received notices from several other music rights holders and associations acting on their behalf regarding potential claims that we 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 us. We believe that a loss relating to these matters is probable, but we believe that it is unlikely to be material and therefore have accrued an immaterial reserve for these loss contingencies. If initiated however, we intend to vigorously defend ourselves against these claims.
|
•
|
SwiftAir Litigation
. On August 14, 2014, SwiftAir, LLC filed suit against our 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. In 2013, after Row 44’s customer decided not to proceed with SwiftAir’s destination deal product, Row 44 terminated the contract. In its lawsuit, SwiftAir seeks approximately
$9 million
in monetary damages against Row 44 and its airline customer. The Court has scheduled the trial for this matter in September 2018. We believe that a material loss relating to this matter is reasonably possible, but we are currently unable to estimate the amount of the potential loss at this time due to the speculative nature of the claimed damages and the varying theories under which damages could be measured, and as such have not accrued a reserve for this loss contingency. We intend to vigorously defend ourselves against this claim.
|
•
|
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 alleged, among other things, that EMC breached earn-out provisions in the purchase agreement by failing to develop and sell sat-link technology following the acquisition closing. We believed that a material loss relating to this matter was reasonably possible, but we were previously unable to estimate the amount of such loss, and as such did not accrue a reserve for this loss contingency. In February 2018, EMC settled the lawsuit with STM Sellers, and pursuant to the
|
•
|
Securities Class Action Litigation
. On February 23, 2017 and on March 17, 2017, following our announcement that we anticipated a delay in our 2016 Form 10-K filing and that our former CEO and former CFO would separate from us, 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 us, our former CEO and two of our 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 we and the other defendants made misrepresentations and/or omitted material information about the EMC Acquisition, our projected financial performance and synergies following that acquisition, and the impact of that acquisition on our internal controls over financial reporting. The plaintiffs sought unspecified damages, attorneys’ fees and costs. On November 2, 2017, the Court granted our and the other defendants’ motion to dismiss the
Hart
complaint, and dismissed the action with prejudice. On November 30, 2017, the plaintiffs filed a motion to alter or amend the Court’s previous judgment of dismissal to permit them to file a further amended complaint. On January 8, 2018 the Court denied the plaintiffs’ motion to alter or amend the previous judgment. On January 29, 2018, the plaintiffs filed a notice of appeal to the United States Court of Appeals for the Ninth Circuit from the Court’s denial of the plaintiffs’ motion to alter or amend the judgment. We believe that a loss relating to this matter is probable, but we believe that it is unlikely to be material and therefore have accrued an immaterial reserve for this loss contingency. We intend to vigorously defend ourselves against this claim.
|
|
2017
|
|
2016
|
|
2015
|
||||||
Common stock price on grant date
|
$
|
2.74
|
|
|
$
|
8.34
|
|
|
$
|
12.91
|
|
Expected life (in years)
|
4.75
|
|
|
3.91
|
|
|
3.77
|
|
|||
Risk-free interest rate
|
2.26
|
%
|
|
1.15
|
%
|
|
1.28
|
%
|
|||
Expected stock volatility
|
52
|
%
|
|
44
|
%
|
|
43
|
%
|
|||
Expected dividend yield
|
0
|
%
|
|
0
|
%
|
|
0
|
%
|
|||
Fair value of stock options granted
|
$
|
0.93
|
|
|
$
|
2.93
|
|
|
$
|
4.41
|
|
|
Shares
(in thousands)
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Term (in years)
|
|
Aggregate Intrinsic Value
(in thousands)
|
|||||
Balance unexercised at January 1, 2017
|
6,723
|
|
|
$
|
10.37
|
|
|
2.70
|
|
$
|
59
|
|
Granted
|
2,115
|
|
|
$
|
4.63
|
|
|
|
|
|
|
|
Exercised
|
—
|
|
|
$
|
—
|
|
|
|
|
|
||
Forfeited
|
(1,761
|
)
|
|
$
|
9.95
|
|
|
|
|
|
||
Balance unexercised at December 31, 2017
|
7,077
|
|
|
$
|
8.76
|
|
|
2.60
|
|
$
|
—
|
|
Exercisable at December 31, 2017
|
4,794
|
|
|
$
|
9.92
|
|
|
1.58
|
|
$
|
—
|
|
Vested and expected to vest after December 31, 2017
|
7,077
|
|
|
$
|
8.76
|
|
|
2.60
|
|
$
|
—
|
|
Range of Exercise Price
|
Number Outstanding
(in thousands)
|
|
Weighted Average Remaining Contractual Term (in years)
|
|
Weighted Average Exercise Price
|
|
Number Exercisable
(in thousands)
|
|
Weighted Average Exercise Price
|
||||||
$16.70 - $16.70
|
21
|
|
|
0.14
|
|
$
|
16.70
|
|
|
21
|
|
|
$
|
16.70
|
|
$13.26 - $16.06
|
183
|
|
|
1.89
|
|
$
|
14.30
|
|
|
139
|
|
|
$
|
14.55
|
|
$12.51 - $13.15
|
1,015
|
|
|
2.09
|
|
$
|
12.95
|
|
|
780
|
|
|
$
|
12.98
|
|
$10.57 - $11.43
|
808
|
|
|
1.22
|
|
$
|
10.76
|
|
|
731
|
|
|
$
|
10.76
|
|
$10.00 - $10.00
|
1,345
|
|
|
0.33
|
|
$
|
10.00
|
|
|
1,345
|
|
|
$
|
10.00
|
|
$9.31 - $9.79
|
425
|
|
|
0.38
|
|
$
|
9.62
|
|
|
425
|
|
|
$
|
9.62
|
|
$6.34 - 9.25
|
1,021
|
|
|
2.83
|
|
$
|
8.77
|
|
|
637
|
|
|
$
|
8.73
|
|
$6.22 - $6.22
|
1,000
|
|
|
3.67
|
|
$
|
6.22
|
|
|
530
|
|
|
$
|
6.22
|
|
$6.18 - $6.18
|
144
|
|
|
3.02
|
|
$
|
6.18
|
|
|
67
|
|
|
$
|
6.18
|
|
$3.21 - $3.21
|
1,115
|
|
|
6.61
|
|
$
|
3.21
|
|
|
119
|
|
|
$
|
3.21
|
|
|
7,077
|
|
|
2.60
|
|
$
|
8.76
|
|
|
4,794
|
|
|
$
|
9.92
|
|
|
Shares (in thousands)
|
|
Weighted Average Grant Date Fair Value
|
|
Aggregate Intrinsic Value (in thousands)
|
|||||
Balance nonvested at January 1, 2017
|
1,638
|
|
|
$
|
8.60
|
|
|
$
|
10,579
|
|
Granted
|
3,911
|
|
|
$
|
2.67
|
|
|
|
||
Vested
|
(368
|
)
|
|
$
|
8.64
|
|
|
|
||
Forfeited
|
(590
|
)
|
|
$
|
8.48
|
|
|
|
||
Balance nonvested at December 31, 2017
|
4,591
|
|
|
$
|
3.56
|
|
|
$
|
10,512
|
|
Vested and expected to vest at December 31, 2017
|
4,533
|
|
|
$
|
3.47
|
|
|
$
|
10,381
|
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Consolidated Statement of Operations Classification:
|
|
|
|
|
|
||||||
Cost of sales
|
$
|
300
|
|
|
$
|
313
|
|
|
$
|
322
|
|
Sales and marketing
|
423
|
|
|
629
|
|
|
701
|
|
|||
Product development
|
634
|
|
|
994
|
|
|
1,020
|
|
|||
General and administrative
|
6,228
|
|
|
8,811
|
|
|
6,192
|
|
|||
Total
|
$
|
7,585
|
|
|
$
|
10,747
|
|
|
$
|
8,235
|
|
|
Number of Warrants (in thousands)
|
|
Weighted Average Exercise price
|
|
Weighted Average Remaining Contractual Term (in years)
|
|||
Outstanding at January 1, 2017
|
6,173
|
|
|
$
|
11.50
|
|
|
|
Granted
|
—
|
|
|
—
|
|
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
|
|
Purchased
|
—
|
|
|
—
|
|
|
|
|
Exchanged for Global Eagle common stock
|
—
|
|
|
—
|
|
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
|
|
Outstanding and exercisable at December 31, 2017
|
6,173
|
|
|
$
|
11.50
|
|
|
0.09
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
United States
|
$
|
(336,278
|
)
|
|
$
|
(119,549
|
)
|
|
$
|
(9,949
|
)
|
Foreign
|
(25,723
|
)
|
|
(38,294
|
)
|
|
9,444
|
|
|||
Loss before income taxes
|
$
|
(362,001
|
)
|
|
$
|
(157,843
|
)
|
|
$
|
(505
|
)
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Current provision:
|
|
|
|
|
|
||||||
Federal
|
$
|
(323
|
)
|
|
$
|
47
|
|
|
$
|
932
|
|
State
|
(136
|
)
|
|
227
|
|
|
355
|
|
|||
Foreign
|
12,485
|
|
|
15,184
|
|
|
6,786
|
|
|||
Total current provision
|
$
|
12,026
|
|
|
$
|
15,458
|
|
|
$
|
8,073
|
|
Deferred provision (benefit):
|
|
|
|
|
|
||||||
Federal
|
$
|
(9,173
|
)
|
|
$
|
(53,395
|
)
|
|
$
|
(2,691
|
)
|
State
|
(60
|
)
|
|
(2,070
|
)
|
|
—
|
|
|||
Foreign
|
(7,680
|
)
|
|
(4,904
|
)
|
|
(3,761
|
)
|
|||
Total deferred provision (benefit)
|
(16,913
|
)
|
|
(60,369
|
)
|
|
(6,452
|
)
|
|||
Total income tax provision (benefit)
|
$
|
(4,887
|
)
|
|
$
|
(44,911
|
)
|
|
$
|
1,621
|
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Income tax benefit at federal statutory rate
|
$
|
(126,700
|
)
|
|
$
|
(55,245
|
)
|
|
$
|
(177
|
)
|
State income tax, net of federal benefit
|
(272
|
)
|
|
(1,898
|
)
|
|
418
|
|
|||
Permanent items
|
3,623
|
|
|
1,781
|
|
|
9,123
|
|
|||
Change in fair value of financial instruments
|
(1,102
|
)
|
|
(8,836
|
)
|
|
(3,847
|
)
|
|||
Goodwill impairment
|
55,016
|
|
|
12,321
|
|
|
—
|
|
|||
Sound-recording settlements
|
—
|
|
|
8,556
|
|
|
—
|
|
|||
Stock-based compensation
|
2,660
|
|
|
229
|
|
|
375
|
|
|||
Tax credits
|
(116
|
)
|
|
(590
|
)
|
|
(586
|
)
|
|||
Other
|
1,608
|
|
|
2,977
|
|
|
746
|
|
|||
Uncertain tax positions
|
(420
|
)
|
|
3,858
|
|
|
708
|
|
|||
Withholding taxes
|
5,090
|
|
|
4,732
|
|
|
3,431
|
|
|||
Rate differential
|
(12,187
|
)
|
|
(2,158
|
)
|
|
(3,200
|
)
|
|||
Change in enacted tax rate
|
28,431
|
|
|
173
|
|
|
(1,371
|
)
|
|||
Change in valuation allowance
|
39,482
|
|
|
(10,811
|
)
|
|
(3,999
|
)
|
|||
Income tax provision (benefit)
|
$
|
(4,887
|
)
|
|
$
|
(44,911
|
)
|
|
$
|
1,621
|
|
|
December 31,
|
||||||
|
2017
|
|
2016
|
||||
Deferred tax assets:
|
|
|
|
||||
Intangible assets and goodwill
|
$
|
15,272
|
|
|
$
|
20,196
|
|
Allowances and reserves
|
3,973
|
|
|
5,816
|
|
||
Accrued liabilities
|
5,135
|
|
|
8,793
|
|
||
Inventories
|
1,307
|
|
|
1,066
|
|
||
Investments in affiliates
|
—
|
|
|
—
|
|
||
Stock-based compensation
|
5,043
|
|
|
6,977
|
|
||
Tax credits
|
3,393
|
|
|
4,006
|
|
||
Net operating losses
|
98,249
|
|
|
68,489
|
|
||
Other
|
1,893
|
|
|
3,304
|
|
||
Total deferred tax assets
|
134,265
|
|
|
118,647
|
|
||
Less: valuation allowance
|
(85,393
|
)
|
|
(43,269
|
)
|
||
Net deferred tax assets
|
$
|
48,872
|
|
|
$
|
75,378
|
|
|
|
|
|
||||
Deferred tax liabilities:
|
|
|
|
||||
Property, plant and equipment
|
$
|
(11,345
|
)
|
|
$
|
(14,972
|
)
|
Intangible assets
|
(21,170
|
)
|
|
(37,590
|
)
|
||
Investments in affiliates
|
(28,530
|
)
|
|
(50,831
|
)
|
||
Debt costs
|
(2,696
|
)
|
|
(4,288
|
)
|
||
Other
|
(1,378
|
)
|
|
(854
|
)
|
||
Total deferred tax liabilities
|
(65,119
|
)
|
|
(108,535
|
)
|
||
Net deferred tax liabilities
|
$
|
(16,247
|
)
|
|
$
|
(33,157
|
)
|
|
2017
|
|
2016
|
|
2015
|
||||||
Balance at beginning of year
|
$
|
11,048
|
|
|
$
|
4,637
|
|
|
$
|
4,237
|
|
Additions from business combinations
|
—
|
|
|
3,492
|
|
|
—
|
|
|||
Increase to prior year positions
|
—
|
|
|
(34
|
)
|
|
—
|
|
|||
Reversal of prior tax positions
|
(3,045
|
)
|
|
(147
|
)
|
|
—
|
|
|||
Additions based on tax positions related to current year
|
725
|
|
|
3,100
|
|
|
400
|
|
|||
Balance at end of year
|
$
|
8,728
|
|
|
$
|
11,048
|
|
|
$
|
4,637
|
|
|
Amount
|
||
Balance at December 31, 2014
|
$
|
73,659
|
|
Acquired valuation allowance from business combination
|
(1,400
|
)
|
|
Decrease in valuation allowance
|
(19,060
|
)
|
|
Balance at December 31, 2015
|
53,199
|
|
|
Decrease in valuation allowance
|
(9,930
|
)
|
|
Balance at December 31, 2016
|
43,269
|
|
|
Increase in valuation allowance
|
42,124
|
|
|
Balance at December 31, 2017
|
$
|
85,393
|
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Revenue:
|
|
|
|
|
|
||||||
Media & Content
|
|
|
|
|
|
||||||
Licensing & Services
|
$
|
298,935
|
|
|
$
|
318,064
|
|
|
$
|
308,067
|
|
Connectivity
|
|
|
|
|
|
||||||
Services
|
282,985
|
|
|
178,471
|
|
|
96,912
|
|
|||
Equipment
|
37,549
|
|
|
33,220
|
|
|
21,051
|
|
|||
Total
|
320,534
|
|
|
211,691
|
|
|
117,963
|
|
|||
Total revenue
|
$
|
619,469
|
|
|
$
|
529,755
|
|
|
$
|
426,030
|
|
Contribution profit
(1)
:
|
|
|
|
|
|
||||||
Media & Content
|
$
|
81,026
|
|
|
$
|
104,036
|
|
|
$
|
104,374
|
|
Connectivity
|
76,323
|
|
|
60,249
|
|
|
42,500
|
|
|||
Total contribution profit
|
157,349
|
|
|
164,285
|
|
|
146,874
|
|
|||
Other operating expenses
|
437,157
|
|
|
326,948
|
|
|
155,685
|
|
|||
Loss from operations
|
$
|
(279,808
|
)
|
|
$
|
(162,663
|
)
|
|
$
|
(8,811
|
)
|
(1)
|
Includes depreciation expense of
$0.6 million
(Media & Content) and
$29.2 million
(Connectivity) for the year ended
December 31, 2017
,
$0.7 million
(Media & Content) and
$10.2 million
(Connectivity) for the year ended
December 31, 2016
, and
$0.7 million
(Media & Content) and
$2.2 million
(Connectivity) for the year ended
December 31, 2015
. Also includes amortization expense of
$0.2 million
(Media & Content) for the year ended December 31, 2015.
|
|
December 31,
|
||||||
|
2017
|
|
2016
|
||||
Segment assets:
|
|
|
|
||||
Media & Content
|
$
|
362,216
|
|
|
$
|
391,668
|
|
Connectivity
|
479,714
|
|
|
690,463
|
|
||
Total segment assets
|
841,930
|
|
|
1,082,131
|
|
||
Corporate assets
|
18,654
|
|
|
17,304
|
|
||
Total assets
|
$
|
860,584
|
|
|
$
|
1,099,435
|
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Media & Content:
|
|
|
|
|
|
||||||
United States and Canada
|
$
|
67,807
|
|
|
$
|
80,765
|
|
|
$
|
78,662
|
|
Europe
|
52,551
|
|
|
48,527
|
|
|
39,738
|
|
|||
Asia and Middle East
|
149,644
|
|
|
152,758
|
|
|
155,818
|
|
|||
Other
|
28,933
|
|
|
36,014
|
|
|
33,849
|
|
|||
Total
|
$
|
298,935
|
|
|
$
|
318,064
|
|
|
$
|
308,067
|
|
Connectivity:
|
|
|
|
|
|
||||||
United States
|
$
|
195,363
|
|
|
$
|
150,532
|
|
|
$
|
102,598
|
|
Europe
|
77,102
|
|
|
37,319
|
|
|
14,833
|
|
|||
Africa, Middle East and Asia
|
26,966
|
|
|
13,759
|
|
|
—
|
|
|||
Other
|
21,103
|
|
|
10,081
|
|
|
532
|
|
|||
Total
|
$
|
320,534
|
|
|
$
|
211,691
|
|
|
$
|
117,963
|
|
|
$
|
619,469
|
|
|
$
|
529,755
|
|
|
$
|
426,030
|
|
|
December 31,
|
||||||
|
2017
|
|
2016
|
||||
Media & Content:
|
|
|
|
||||
United States and Canada
|
$
|
1,628
|
|
|
$
|
2,803
|
|
United Kingdom
|
4,531
|
|
|
3,023
|
|
||
India
|
1,745
|
|
|
2,013
|
|
||
Other
|
346
|
|
|
1,338
|
|
||
Total
|
$
|
8,250
|
|
|
$
|
9,177
|
|
Connectivity:
|
|
|
|
||||
United States
|
$
|
162,133
|
|
|
$
|
130,924
|
|
Germany
|
15,316
|
|
|
16,321
|
|
||
Other
|
4,574
|
|
|
4,139
|
|
||
Total
|
$
|
182,023
|
|
|
$
|
151,384
|
|
Corporate
|
|
|
|
||||
United States
|
$
|
4,756
|
|
|
$
|
5,488
|
|
Total
|
$
|
4,756
|
|
|
$
|
5,488
|
|
|
$
|
195,029
|
|
|
$
|
166,049
|
|
|
Year Ended December 31,
|
|||||||
|
2017
|
|
2016
|
|
2015
|
|||
Southwest Airlines as percentage of total revenue
|
19
|
%
|
|
22
|
%
|
|
23
|
%
|
Southwest Airlines as percentage of total Connectivity revenue
|
36
|
%
|
|
54
|
%
|
|
85
|
%
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Net income (loss) (Numerator):
|
|
|
|
|
|
||||||
Net loss
|
$
|
(357,114
|
)
|
|
$
|
(112,932
|
)
|
|
$
|
(2,126
|
)
|
Less: adjustment for change in fair value on warrants liability for diluted EPS after assumed exercise of warrants liability
|
—
|
|
|
—
|
|
|
11,938
|
|
|||
Net loss for dilutive EPS
|
$
|
(357,114
|
)
|
|
$
|
(112,932
|
)
|
|
$
|
(14,064
|
)
|
|
|
|
|
|
|
||||||
Shares (Denominator):
|
|
|
|
|
|
||||||
Weighted average common shares outstanding - basic
|
87,733
|
|
|
81,269
|
|
|
77,558
|
|
|||
Dilutive effect of stock options and warrants
|
—
|
|
|
—
|
|
|
836
|
|
|||
Weighted average common shares outstanding - diluted
|
87,733
|
|
|
81,269
|
|
|
78,394
|
|
|||
|
|
|
|
|
|
||||||
Net loss per share:
|
|
|
|
|
|
||||||
Basic
|
$
|
(4.07
|
)
|
|
$
|
(1.39
|
)
|
|
$
|
(0.03
|
)
|
Diluted
|
$
|
(4.07
|
)
|
|
$
|
(1.39
|
)
|
|
$
|
(0.18
|
)
|
|
Year Ended December 31,
|
|||||||
|
2017
|
|
2016
|
|
2015
|
|||
Employee stock options
|
6,061
|
|
|
6,203
|
|
|
3,200
|
|
Restricted stock units (including performance stock units)
|
1,364
|
|
|
306
|
|
|
44
|
|
Non-employees stock options
|
—
|
|
|
—
|
|
|
1
|
|
Equity warrants
(1)
|
353
|
|
|
1,165
|
|
|
430
|
|
Public SPAC Warrants
(2)
|
6,173
|
|
|
6,173
|
|
|
—
|
|
Convertible notes
|
4,447
|
|
|
4,447
|
|
|
3,850
|
|
EMC deferred consideration
(3)
|
2,795
|
|
|
1,428
|
|
|
—
|
|
Contingently issuable shares
(4)
|
900
|
|
|
354
|
|
|
—
|
|
(1)
|
These are Legacy Row 44 warrants originally issuable for Row 44 common stock and Row 44 Series C preferred stock, later became issuable for our Common Stock. During the six months ended
June 30, 2017
, these Legacy Row 44 warrants expired. See
Note 12. Common Stock, Share-Based Awards and Warrants
.
|
(2)
|
These are
6,173,228
“Public SPAC Warrants”. See
Note 12. Common Stock, Share-Based Awards and Warrants
.
|
(3)
|
In connection with the EMC Acquisition on July 27, 2016 (the “EMC Acquisition Date”), we were obligated to pay
$25.0 million
in cash or stock, at our option, on July 27, 2017, which we elected to pay in
5,080,049
newly issued shares of our common stock on that date. See
Note 10. Commitments and Contingencies
. This EMC deferred consideration represents those shares.
|
(4)
|
In connection with a Sound Recording Settlement, we are obligated to issue
500,000
shares of our common stock when and if the closing price of our common stock exceeds
$10.00
per share, and
400,000
shares of our common stock when and if the closing price of our common stock exceeds
$12.00
per share. See
Note 10. Commitments and Contingencies
.
|
|
Quarter Ended
|
||||||||||||||||||||||||||||||
|
Mar. 31, 2016
|
|
June 30, 2016
|
|
Sept. 30, 2016
(1)
|
|
Dec. 31, 2016
|
|
Mar. 31, 2017
|
|
June 30, 2017
|
|
Sept. 30, 2017
|
|
Dec. 31, 2017
|
||||||||||||||||
Revenue
|
$
|
113,817
|
|
|
$
|
112,265
|
|
|
$
|
146,909
|
|
|
$
|
156,764
|
|
|
$
|
152,592
|
|
|
$
|
155,742
|
|
|
$
|
151,537
|
|
|
$
|
159,598
|
|
Cost of sales
|
76,768
|
|
|
75,086
|
|
|
103,348
|
|
|
110,268
|
|
|
110,540
|
|
|
118,090
|
|
|
112,951
|
|
|
120,539
|
|
||||||||
Gross margin
|
37,049
|
|
|
37,179
|
|
|
43,561
|
|
|
46,496
|
|
|
42,052
|
|
|
37,652
|
|
|
38,586
|
|
|
39,059
|
|
||||||||
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Sales and marketing
|
4,672
|
|
|
6,491
|
|
|
8,390
|
|
|
11,388
|
|
|
11,012
|
|
|
10,029
|
|
|
9,332
|
|
|
10,565
|
|
||||||||
Product development
(6)
|
8,746
|
|
|
8,416
|
|
|
7,916
|
|
|
12,640
|
|
|
7,649
|
|
|
7,942
|
|
|
11,328
|
|
|
8,689
|
|
||||||||
General and administrative
(1) (2)
|
19,220
|
|
|
18,447
|
|
|
44,728
|
|
|
32,800
|
|
|
35,321
|
|
|
34,929
|
|
|
39,129
|
|
|
38,842
|
|
||||||||
Provision for legal settlements
(2)
|
2,001
|
|
|
38,142
|
|
|
1,545
|
|
|
1,758
|
|
|
475
|
|
|
—
|
|
|
310
|
|
|
650
|
|
||||||||
Amortization of intangible assets
|
7,403
|
|
|
7,486
|
|
|
9,166
|
|
|
11,593
|
|
|
11,008
|
|
|
10,860
|
|
|
10,981
|
|
|
11,106
|
|
||||||||
Goodwill impairment
(7)
|
—
|
|
|
—
|
|
|
—
|
|
|
64,000
|
|
|
78,000
|
|
|
—
|
|
|
—
|
|
|
89,000
|
|
||||||||
Total operating expenses
|
42,042
|
|
|
78,982
|
|
|
71,745
|
|
|
134,179
|
|
|
143,465
|
|
|
63,760
|
|
|
71,080
|
|
|
158,852
|
|
||||||||
Income (loss) from operations
|
(4,993
|
)
|
|
(41,803
|
)
|
|
(28,184
|
)
|
|
(87,683
|
)
|
|
(101,413
|
)
|
|
(26,108
|
)
|
|
(32,494
|
)
|
|
(119,793
|
)
|
||||||||
Interest expense, net
|
(804
|
)
|
|
(613
|
)
|
|
(6,412
|
)
|
|
(10,369
|
)
|
|
(10,964
|
)
|
|
(14,807
|
)
|
|
(18,164
|
)
|
|
(14,519
|
)
|
||||||||
Loss from extinguishment of debt
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(14,389
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Income from equity method investments
(1) (9)
|
—
|
|
|
—
|
|
|
2,065
|
|
|
1,764
|
|
|
1,539
|
|
|
601
|
|
|
1,770
|
|
|
(16,334
|
)
|
||||||||
Change in fair value of derivatives
|
5,865
|
|
|
10,926
|
|
|
1,191
|
|
|
7,533
|
|
|
2,920
|
|
|
(445
|
)
|
|
196
|
|
|
839
|
|
||||||||
Other income (expense), net
(3)
|
680
|
|
|
(5,934
|
)
|
|
631
|
|
|
(1,703
|
)
|
|
(488
|
)
|
|
653
|
|
|
(123
|
)
|
|
(478
|
)
|
||||||||
Income (loss) before income taxes
|
748
|
|
|
(37,424
|
)
|
|
(30,709
|
)
|
|
(90,458
|
)
|
|
(122,795
|
)
|
|
(40,106
|
)
|
|
(48,815
|
)
|
|
(150,285
|
)
|
||||||||
Income tax expense (benefit)
(1)
|
3,160
|
|
|
736
|
|
|
(50,063
|
)
|
|
1,256
|
|
|
2,816
|
|
|
4,024
|
|
|
4,153
|
|
|
(15,880
|
)
|
||||||||
Net income (loss)
|
$
|
(2,412
|
)
|
|
$
|
(38,160
|
)
|
|
$
|
19,354
|
|
|
$
|
(91,714
|
)
|
|
$
|
(125,611
|
)
|
|
$
|
(44,130
|
)
|
|
$
|
(52,968
|
)
|
|
$
|
(134,405
|
)
|
Net income (loss) per share
(4)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Basic
|
$
|
(0.03
|
)
|
|
$
|
(0.49
|
)
|
|
$
|
0.23
|
|
|
$
|
(1.07
|
)
|
|
$
|
(1.47
|
)
|
|
$
|
(0.52
|
)
|
|
$
|
(0.59
|
)
|
|
$
|
(1.51
|
)
|
Diluted
|
$
|
(0.03
|
)
|
|
$
|
(0.49
|
)
|
|
$
|
0.23
|
|
|
$
|
(1.07
|
)
|
|
$
|
(1.47
|
)
|
|
$
|
(0.52
|
)
|
|
$
|
(0.59
|
)
|
|
$
|
(1.51
|
)
|
Weighted average shares outstanding
(5)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Basic
|
78,643
|
|
|
78,127
|
|
|
82,874
|
|
|
85,369
|
|
|
85,440
|
|
|
85,496
|
|
|
89,194
|
|
|
89,222
|
|
||||||||
Diluted
|
78,643
|
|
|
78,127
|
|
|
85,081
|
|
|
85,369
|
|
|
85,440
|
|
|
85,496
|
|
|
89,194
|
|
|
89,222
|
|
(1)
|
On July 27, 2016, the Company acquired EMC (Maritime & Land Connectivity segment). The financial data for the quarter ended September 30, 2016 includes the operating results of EMC from the acquisition date through September 30, 2016. In connection with this acquisition, the Company released the valuation allowance due to the deferred tax liabilities created of
$53.9 million
, offset by foreign income taxes of
$4.8 million
resulting from the foreign subsidiaries’ contribution to pretax income, withholding taxes of
$2.7 million
and effects of permanent differences. Also, in connection with this acquisition, the Company acquired interests in two equity method investments. The related transaction and integration expenses of
$12.7 million
,
$1.9 million
and
$0.8 million
were incurred during the quarters ended September 30, 2016, June 30, 2016 and March 31, 2016, respectively, in General and administrative in the quarterly Consolidated Statements of Operations.
|
(2)
|
During the quarter ended June 30, 2016, the Company recorded a one-time charge of
$38.1 million
to settle sound recording liabilities under the Sound Recording Settlements. The Company also engaged in settlement negotiations with airlines regarding related liabilities. The presentation of the Provision for legal settlements for applicable prior quarters have been reclassified from General and administrative to conform with this presentation.
|
(3)
|
Other income (expense), net, for the quarter ended June 30, 2016 includes a one-time
$4.4 million
write-off of a related party note receivable and accrued interest and a
$0.9 million
impairment of internally developed software.
|
(4)
|
Quarterly and year-to-date computations of net income (loss) per common share amounts are calculated independently. Therefore, the sum of the per share amounts for the quarters may not agree with the per share amounts for the year.
|
(5)
|
During the quarter ended June 30, 2016, the Company repurchased
0.6 million
shares of its common stock for consideration of
$5.2 million
in the aggregate under the stock repurchase program authorized by the Board of Directors in March 2016. In connection with the EMC Acquisition on July 27, 2016, the Company issued approximately
5.5 million
shares of its common stock at the closing as part of the purchase price. On the first anniversary of the EMC Acquisition, on July 27, 2017, the Company issued to the EMC seller approximately
5.1 million
additional shares of the Company’s common stock. Pursuant to the EMC purchase agreement, 50% of the newly issued shares were valued at
$8.40
per share, and the other 50% was valued at the volume-weighted average price of a share of Company common stock measured two days prior to the first anniversary date. In addition, as a result of the Sound Recording Settlements entered into with major record labels and publishers in 2016, including UMG, the Company issued
1.8 million
shares of its common stock during the quarter ended September 30, 2016 as part of the settlement payments.
|
(6)
|
Product development for the quarter ended December 31, 2016 includes an impairment of internally developed software of
$3.2 million
.
|
(7)
|
During the quarter ended
December 31, 2017
we determined that goodwill relating to our Maritime & Land Connectivity and Aviation Connectivity reporting units was impaired and we recognized an impairment loss of
$45.0 million
and
$44.0 million
, respectively. Additionally, during the quarter ended March 31, 2017 we recorded a goodwill impairment loss of
$78.0 million
in our Maritime & Land Connectivity reporting unit. During the quarter ended
December 31, 2016
we recorded an impairment loss of
$64.0 million
to our Maritime & Land Connectivity reporting unit. See
Note 5. Goodwill
.
|
(8)
|
In January 2017 we entered into a new credit agreement consisting of a
$500 million
senior secured term loan facility and a
five
-year
$85 million
senior secured revolving credit facility and concurrently paid-off in full the indebtedness assumed upon the EMC Acquisition of
$412.4 million
. In connection with this refinancing transaction we incurred a loss on extinguishment of debt of
$14.4 million
recorded in the statement of operations during the quarter ended March 31, 2017. See
Note 9. Financing Arrangements
.
|
(9)
|
During the fourth quarter of 2017 we completed an assessment of the recoverability of our equity method investments and determined that the carrying value of our interest in WMS exceeded the estimated fair value of our interest and accordingly we recorded an impairment loss of
$16.7 million
. See
Note 7. Equity Method Investments
.
|
•
|
the number of directors then serving on the Board,
multiplied by
|
•
|
a fraction, the numerator of which is the total number of outstanding shares of Common Stock underlying the Penny Warrants beneficially owned by Searchlight (after giving effect to the exercise of the Penny Warrants) and the denominator of which is the sum of (A) the total number of outstanding shares of Common Stock plus (B) the number of shares of Common Stock underlying the Penny Warrants that have not yet been exercised;
|
•
|
resetting the non-call period by modifying the definition of the “Relevant Call Date” to mean June 30, 2020;
|
•
|
modifying the mandatory prepayments provision therein to require the Company, following the filing of its Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and the delivery of a budget and certain projections for the 2018 fiscal year to Searchlight, to repay all then outstanding revolving credit loans outstanding under the Credit Agreement, including outstanding interest thereon;
|
•
|
modifying the debt covenant therein to permit the incurrence of indebtedness in connection with the issuance of
$150,000,000
in aggregate principal amount of the Notes and any refinancing thereof and adding a corresponding exception to the lien covenant; and
|
•
|
modifying the junior-debt-prepayments covenant therein to prohibit the Company from making interest payments in respect of the Notes in cash prior to the earlier of (i) March 15, 2021 and (ii) such time as the Company’s “total net leverage ratio” has decreased to
3.39
to 1.0. As noted above, our “total net leverage ratio” is as defined in the Purchase Agreement, and uses a “Consolidated EBITDA” definition from the Purchase Agreement that is different than the “Adjusted EBITDA” figure that we publicly report to our investors.
|
|
|
Very truly yours,
|
|
|
|
|
|
|
|
GLOBAL EAGLE ENTERTAINMENT INC.
|
|
|
|
By:
|
/s/: Jeff Leddy
|
|
|
Printed Name:
|
Jeff Leddy
|
|
|
Title:
|
CEO
|
/s/: Josh Marks
|
|
|
|
|
Josh Marks
|
|
|
|
|
|
|
|
|
|
Dated:
|
March 23, 2018
|
|
|
|
Signature:
|
/s/: Joshua Marks
|
|
Date:
|
August 4, 2015
|
|
Print Employee Name:
|
Joshua Senegal Marks
|
|
|
|
Global Eagle Entertainment lnc,
|
|
By:
|
/s/:Jay Itzkowitz
|
Name:
|
Jay Itzkowitz
|
Title:
|
SVP & General Counsel
|
|
|
Very truly yours,
|
|
|
|
|
|
|
|
GLOBAL EAGLE ENTERTAINMENT INC.
|
|
|
|
By:
|
/s/: Stephen Ballas
|
|
|
Printed Name:
|
Stephen Ballas
|
|
|
Title:
|
EVP & General Counsel
|
/s/: Jeffrey A. Leddy
|
|
|
|
|
Jeffrey A. Leddy
|
|
|
|
Attachment A:
|
Employee Statement and Agreements Regarding Confidentiality, Proprietary Information, Invention Assignment, Non-Competition and Non-Solicitation
|
(a)
|
Communicate to Global Eagle any facts known by me respecting the Inventions;
|
(b)
|
do all lawful acts, including the execution and delivery of all papers and proper oaths and the giving of testimony deemed necessary or desirable by Global Eagle or the Company Group, with regard to said Inventions, for protecting, obtaining, securing rights in, maintaining and enforcing any and all copyrights, patents, mask work rights or other intellectual property rights in the United States and throughout the world for said Inventions, and for perfecting, affirming, recording and maintaining in the Company Group and Company Group Representatives sole and exclusive right, title and interest in and to the Inventions, and any copyrights, Patents, mask work rights or other intellectual property rights relating thereto; and
|
(c)
|
generally cooperate to the fullest extent in all matters pertaining to said Inventions, original works of authorship, concepts, trade secrets, improvements, developments and discoveries, any and all applications, specifications, oaths, assignments and all other instruments which Global Eagle shall deem necessary in order to apply for and obtain such rights and in order to assign and convey to Global Eagle, its successors, assigns and nominees the sole and exclusive rights, title and interest in and to such Inventions, and any copyrights, patents, mask work rights or other intellectual property rights relating thereto.
|
(a)
|
was developed entirely on my own time without using Company Group equipment, supplies, facilities, or trade secret information;
|
(b)
|
does not relate at the time of conception or reduction to practice of the invention to the Business, or to its actual or demonstrably anticipated research or development; and
|
(c)
|
does not result from any work performed by me for the Company Group.
|
A.
|
NON-COMPETITION
|
B.
|
NON-SOLICITATION OF EMPLOYEES
|
C.
|
NON-SOLICITATION OF CUSTOMERS OR CLIENTS
|
A.
|
his Restrictive Covenant Agreement will be governed by the laws of the State of Delaware.
|
B.
|
Nothing contained herein shall be construed to require the commission of any act contrary to law. Should there be any conflict between any provisions hereof and any present or future statute, law, ordinance, regulation, or other pronouncement having the force of law, the latter shall prevail, but the provision of this Restrictive Covenant Agreement affected thereby shall be curtailed and limited only to the extent necessary to bring it within the requirement of the law, and the remaining provisions of this Restrictive Covenant Agreement shall remain in full force and effect. This Restrictive Covenant Agreement may not be assigned by me without the prior written consent of Global Eagle. Subject to the foregoing sentence, this Restrictive
|
C.
|
The provisions of this Restrictive Covenant Agreement are severable, and if any one or more provisions may be determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions or parts thereof shall nevertheless be binding and enforceable. In the event that any provision of this Restrictive Covenant Agreement is deemed unenforceable, Global Eagle and I agree that a court or an arbitrator chosen pursuant to the terms hereof shall reform such provision to the extent necessary to cause it to be enforceable to the maximum extent permitted by law. Global Eagle and I agree that each desires the court or arbitrator to reform such provision, and therefore agree that the court or arbitrator will have jurisdiction to do so and that each will abide by the determination of the court or arbitrator.
|
D.
|
I have had the opportunity to review this Restrictive Covenant Agreement and have had the opportunity to ask questions regarding the nature of my employment with Global Eagle I have also been advised that I have been given the opportunity to allow legal counsel to assist me in the review of this Restrictive Covenant Agreement prior to my execution of this Restrictive Covenant Agreement. I represent that my performance of all the terms of this Agreement will not breach any agreement to keep in confidence proprietary information acquired by me in confidence or in trust prior to my employment with Global Eagle. I have not entered into, and I agree I will not enter into any oral or written agreements in conflict herewith.
|
Jeffrey A. Leddy
|
|
|
|
|
Signature
|
/s/: Jeffrey A. Leddy
|
|
Date:
|
February 21, 2017
|
Global Eagle Entertainment lnc,
|
|
By:
|
/s/:Stephen Ballas
|
Name:
|
Stephen Ballas
|
Title:
|
EVP & General Counsel
|
SUBSIDIARIES
|
|
STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION
|
Advanced Film GmbH
|
|
Germany
|
Airline Media Productions, Inc.
|
|
Delaware
|
DTI Software FZ-LLC
|
|
United Arab Emirates
|
DTI Software Inc.
|
|
Canada
|
Emerging Markets Communications Argentina, S.R.L.
|
|
Argentina
|
Emerging Markets Communications Deutschland GmbH
|
|
Germany
|
Emerging Markets Communications, LLC
|
|
Delaware
|
Entertainment in Motion, Inc.
|
|
California
|
Fairdeal Multimedia Pvt. Ltd.
|
|
India
|
Global Eagle Entertainment GmbH
|
|
Germany
|
Global Eagle Entertainment Limited
|
|
United Kingdom
|
Global Eagle Entertainment Luxembourg II S.à r.l.
|
|
Luxembourg
|
Global Eagle Entertainment Operations Solutions, Inc.
|
|
Delaware
|
Global Eagle Entertainment Spain SL
|
|
Spain
|
Global Entertainment GmbH
|
|
Germany
|
IFE Services Limited
|
|
United Kingdom
|
IFES Acquisition Corp. Ltd
|
|
United Kingdom
|
Inflight Production Ltd
|
|
United Kingdom
|
Inflight Production B.V.
|
|
Netherlands
|
Inflight Productions USA Inc.
|
|
California
|
MariTel Holdings, Inc.
|
|
Delaware
|
Maritime Telecommunications Network, Inc.
|
|
Colorado
|
Row 44, Inc.
|
|
Delaware
|
SeaMobile, Inc.
|
|
Washington
|
•
|
oversight by the Board of Directors over the processes and internal controls over the five components of the
Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO 2013 Framework);
|
•
|
a process implemented to evaluate the competence and expertise necessary to support financial reporting and a response to address shortcomings a sufficient number of trained personnel with assigned responsibility and accountability for the conduct of financial reporting processes and internal controls;
|
•
|
a process to evaluate the performance of internal control responsibilities by Company personnel and provide performance incentives and rewards or exercise disciplinary actions, as appropriate and to hold personnel accountable for their internal control responsibilities through performance measurement plans and goals; and
|
•
|
sufficient training of personnel on COSO 2013 Framework and their financial reporting and related internal control responsibilities.
|
•
|
the communication of materiality relevant to the reporting units, geographic markets and functional areas of the business organization such that the required level of accuracy and precision required for financial reporting and the risk tolerance associated with internal controls was established;
|
•
|
effective controls over the application of generally accepted accounting principles over critical accounting policies and practices, critical accounting estimates and certain significant unusual transactions; and
|
•
|
a continuous documented risk assessment process to identify and analyze risks of misstatement due to error and/or fraud, including management override of controls, to determine appropriate internal controls to manage the financial reporting risks and to make necessary changes in financial reporting processes and related internal controls that are responsive to changes in the business operations and environment, IT systems, and personnel.
|
•
|
timely identification and communication of relevant and reliable information sourced internally and externally to financial reporting personnel, management, and the Board of Directors; and
|
•
|
effective controls over its various information technology systems to ensure that information used in financial reporting is timely, current, accurate, complete, accessible, protected and verifiable and retained.
|
•
|
effective controls to ascertain whether the processes and internal controls related to the five COSO 2013 Framework components (and underlying principles) were present and functioning;
|
•
|
effective controls to ascertain whether process level controls related to routine transactions or unusual non-recurring transactions were operating effectively;
|
•
|
an effective, functioning internal audit group responsible for monitoring the effectiveness of internal controls; and
|
•
|
an effective process and controls to timely remediate existing control deficiencies.
|
•
|
written policies and procedures to support the operating effectiveness of the controls and to demonstrate the operation of the controls; and
|
•
|
effective control activities at the transaction level at an appropriate level of precision to mitigate the risk of material misstatement in financial reporting including the following various deficient control activities:
|
•
|
Ineffective design and implementation, and operation of controls over the completeness, existence and accuracy of the financial statement close and reporting process and financial statement disclosures.
|
•
|
Ineffective general information technology controls (GITCs) over all IT operating systems, databases, and IT applications supporting financial reporting processes across the organization.
|
•
|
Ineffective automated process-level controls and manual controls that are dependent upon the information derived from IT systems.
|
•
|
Ineffective end-user computing controls over spreadsheets used in the financial reporting process.
|
•
|
Ineffective design and implementation, and operation of controls over the completeness, existence, accuracy and presentation of intercompany transactions.
|
•
|
Ineffective design and implementation, and operation of controls over the completeness, existence, accuracy and valuation of inventory transactions.
|
•
|
Ineffective design and implementation, and operation of controls over the completeness, existence, accuracy, valuation and presentation of content library assets.
|
•
|
Ineffective design and implementation, and operation of controls over the completeness, existence and accuracy, valuation and presentation over the capitalization of internally developed software costs and related amortization expense.
|
•
|
Ineffective design and implementation, and operation of controls over the completeness, existence, accuracy, valuation and presentation of long-lived assets and related depreciation expense.
|
•
|
Ineffective controls to assess the existence of impairment indicators and to perform an impairment assessment of customer relationship intangible assets in accordance with the relevant accounting guidance on a timely basis.
|
•
|
Ineffective design and implementation, and operation of controls over the completeness and accuracy of the data provided to third-party consultants for purposes of the goodwill impairment analysis.
|
•
|
Ineffective design and implementation, operation of controls over the appropriateness of the assumptions and methodology used to measure the fair value of reporting units and the reasonableness of the conclusions in the consultants’ reports.
|
•
|
Ineffective design and implementation, and operation of controls over the completeness, existence and accuracy of the procurement of goods and services and invoice processing and cash disbursements, and the completeness, existence, accuracy and presentation of accounts payable and accrued liabilities and operating expenses.
|
•
|
Ineffective design and implementation, and operation of controls over the completeness, existence, accuracy and presentation of revenue and deferred revenue transactions and accounts receivable, including cash receipts, and the collectability of accounts receivable and its related allowance.
|
•
|
Ineffective design and implementation, and operation of controls over the completeness, accuracy, and presentation of cost of sales and related accrued liabilities.
|
•
|
Ineffective design and implementation, and operation of controls over the completeness, existence, accuracy and presentation of payroll and related expenses.
|
•
|
Ineffective design and implementation, and operation of controls over the completeness, existence, accuracy and presentation over stock-based compensation for existing plans and new stock-based compensation arrangements.
|
•
|
Ineffective design and implementation, and operation of controls over the completeness, existence, accuracy, valuation and presentation of certain financial liabilities, specifically in relation to the valuation methods selected and third-party pricing data used.
|
•
|
Ineffective controls over cash management functions.
|
•
|
Ineffective design and implementation, and operation of controls over the completeness, existence and accuracy of the fair value of the acquired assets and assumed liabilities in connection with the finalization of the purchase price allocation.
|
•
|
Ineffective processes and related internal controls to execute and account for an acquired business. Ineffective design and implementation, and operation of controls to evaluate the completeness, existence, accuracy, valuation and presentation of non-routine transactions.
|
1.
|
I have reviewed this Annual Report on Form 10-K of Global Eagle Entertainment Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
|
Date: April 2, 2018
|
/s/ JOSHUA B. MARKS
|
|
Joshua B. Marks
|
|
Chief Executive Officer
|
|
(Principal Executive Officer)
|
1.
|
I have reviewed this Annual Report on Form 10-K of Global Eagle Entertainment Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
|
Date: April 2, 2018
|
/s/ PAUL RAINEY
|
|
Paul Rainey
|
|
Chief Financial Officer
|
|
(Principal Financial Officer and Duly Authorized Officer)
|
(1)
|
the Annual Report on Form 10-K of the Company for the year ended
December 31, 2017
(the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
(2)
|
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date: April 2, 2018
|
/s/ JOSHUA B. MARKS
|
|
Joshua B. Marks
|
|
Chief Executive Officer
|
|
(Principal Executive Officer)
|
(1)
|
the Annual Report on Form 10-K of the Company for the year ended
December 31, 2017
(the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
(2)
|
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date: April 2, 2018
|
/s/ PAUL RAINEY
|
|
Paul Rainey
|
|
Chief Financial Officer
|
|
(Principal Financial Officer and Duly Authorized Officer)
|