NOTE 12: COMMITMENTS AND CONTINGENCIES

Broadcast Rights—The Company has entered into certain contractual commitments for broadcast rights that are not currently available for broadcast, including programs not yet produced. In accordance with ASC Topic 920, such commitments are not included in the Company’s consolidated financial statements until the cost of each program is reasonably determinable and the program is available for its first showing or telecast. If programs are not produced, the Company’s commitments would expire without obligation. Payments for broadcast rights generally commence when the programs become available for broadcast. At December 31, 2016 and December 31, 2015, these contractual commitments totaled $1.2 billion and $999 million, respectively.

Operating Leases—The Company leases certain equipment and office and production space under various operating leases. Net lease expense from continuing operations was $24 million, $23 million and $21 million in 2016, 2015 and 2014, respectively. The Company’s future minimum lease payments under non-cancelable operating leases at December 31, 2016 were as follows (in thousands):



2017	$	30,537
2018	25,802
2019	23,275
2020	22,763
2021	16,741
Thereafter	86,110
Total (1)	$	205,228

(1) The table above includes future minimum lease payments under non-cancelable operating leases related to the Gracenote Companies classified as held for sale as of December 31, 2016 of $6 million in 2017, $3 million in each of 2018 and 2019, $2 million in 2020, and $2 million in 2021 and thereafter.

Other Commitments—At December 31, 2016, the Company had commitments under purchasing obligations related to capital projects, technology services, news and market data services, and talent contracts totaling $358 million, which includes $5 million related to the Gracenote Companies classified as held for sale as of December 31, 2016.

FCC Regulation—Various aspects of the Company’s operations are subject to regulation by governmental authorities in the United States. The Company’s television and radio broadcasting operations are subject to FCC jurisdiction under the Communications Act of 1934, as amended. FCC rules, among other things, govern the term, renewal and transfer of radio and television broadcasting licenses, and limit the number of media interests in a local market that a single entity can own. Federal law also regulates the rates charged for political advertising and the quantity of advertising within children’s programs.

Television and radio broadcast station licenses are granted for terms of up to eight years and are subject to renewal by the FCC in the ordinary course, at which time they may be subject to petitions to deny the license renewal applications. As of March 1, 2017, the Company had FCC authorization to operate 39 television stations and one AM radio station.

Under the FCC’s “Local Television Multiple Ownership Rule” (the “Duopoly Rule”), the Company may own up to two television stations within the same Nielsen Media Research Designated Market Area (“DMA”) (i) provided certain specified signal contours of the stations do not overlap, (ii) where certain specified signal contours of the stations overlap but, at the time the station combination was created, no more than one of the stations was a top 4-rated station and the market would continue to have at least eight independently-owned full power stations after the station combination is created or (iii) where certain waiver criteria are met. In a report and order issued in August 2016 (the “2014 Quadrennial Review Order”), the FCC, among other things, adopted a rule applying the “top-4” ownership limitation within a market to “affiliation swaps,” that will prohibit transactions between networks and their local station affiliates pursuant to which affiliations are reassigned in a way that results in common ownership or control of two of the top-four rated stations in the DMA. The prohibition is prospective only and does not apply to multiple top-4 network multicast streams broadcast by a single station. The new rule has not yet become effective. The 2014 Quadrennial Review Order is the subject of a pending petition for reconsideration by the FCC and of a petition for judicial review by the U.S. Court of Appeals for the District of Columbia Circuit. We cannot predict the outcomes of these proceedings, or the effect on our business.

The Company owns duopolies permitted under the “top-4/8 voices” test in the Seattle, Denver, St. Louis, Indianapolis, Oklahoma City and New Orleans DMAs. The Indianapolis duopoly is permitted under the Duopoly Rule because it met the top-4/8 voices test at the time we acquired WTTV(TV)/WTTK(TV) in July 2002. Duopoly Rule waivers granted in connection with the FCC’s approval of the Company’s plan of reorganization (the “Exit Order”) or the Local TV Acquisition (the “Local TV Transfer Order”) authorize the Company’s ownership of duopolies in the New Haven-Hartford and Fort Smith-Fayetteville DMAs, and full power “satellite” stations in the Denver and Indianapolis DMAs.

The FCC’s “Newspaper Broadcast Cross Ownership Rule” (the “NBCO Rule”), generally are prohibited from owning or holding “attributable interests” in both daily newspapers and broadcast stations in the same market. On August 4, 2014, the Company completed the Publishing Spin-off and retained 381,354 shares of tronc common stock, then representing 1.5% of the outstanding common stock of tronc (see Note 2). As such, the Company does not have an attributable interest in the daily newspaper business or operations of tronc. As a result of the pro rata distribution of tronc stock to shareholders of the Company, the three attributable shareholders of the Company (collectively, the “Attributable Shareholders”) became attributable shareholders of tronc. Two Attributable Shareholders report that they have divested their interest in tronc, while one maintains the status quo with respect to its interest in the company.

The Company’s television/newspaper interests are subject to a temporary waiver of the NBCO Rule which was granted by the FCC in conjunction with its approval of the Exit Order. On November 12, 2013, the Company filed with the FCC a request for extension of the temporary NBCO Rule waivers granted in the Exit Order. That request is pending. In the 2014 Quadrennial Order the FCC modified the NBCO Rule by providing an exception for failed or failing entities and allowing for consideration of waivers of the rule on a case-by-case basis. The 2014 Quadrennial Review Order is the subject of a pending petition for reconsideration by the FCC and of a petition for judicial review by the U.S. Court of Appeals for the District of Columbia Circuit. We cannot predict the outcomes of these proceedings, or the effect on our business.

The FCC’s “National Television Multiple Ownership Rule” prohibits the Company from owning television stations that, in the aggregate, reach more than 39% of total U.S. television households, subject to a 50% discount of the number of television households attributable to UHF stations (the “UHF Discount”). The Company’s current national reach exceeds the 39% cap on an undiscounted basis. Effective November 23, 2016, the FCC eliminated the UHF Discount except for “grandfathered” existing combinations that exceeded the 39% cap as of September 26, 2013. Under the modified rule, absent a waiver, a grandfathered station group would have to come into compliance with the modified cap upon a sale or transfer of control. The elimination of the UHF Discount affects the Company’s ability to acquire additional television stations (including the Dreamcatcher stations that are the subject of certain option rights held by the Company, see Note 1 for further information). Elimination of the UHF discount is the subject of a pending petition for reconsiderations by the FCC and of a petition for judicial review by the U.S. Court of Appeals for the Third Circuit. We cannot predict the outcome of these proceedings, or the effect on our business.

The Company provides certain operational support and other services to Dreamcatcher pursuant to shared services agreement (“SSA”). In the 2014 Quadrennial Order, the FCC adopted reporting requirements for SSAs.

In a Report and Order and Further Notice of Proposed Rulemaking issued on March 31, 2014, the FCC sought comment on whether to eliminate or modify its “network non-duplication” and “syndicated exclusivity” rules, pursuant to which local television stations may enforce their contractual exclusivity rights with respect to network and syndicated programming. That proceeding remains pending. Pursuant to the Satellite Television Extension and Localism Act of 2010 (“STELA”) Reauthorization Act, enacted in December 2014 (“STELAR”), the FCC has adopted regulations prohibiting a television station from coordinating retransmission consent negotiations or negotiating retransmission consent on a joint basis with a separately owned television station in the same market. The Company does not currently engage in retransmission consent negotiations jointly with any other stations in its markets. In response to Congress’s directive in STELAR, on September 2, 2015, the FCC issued a Notice of Proposed Rulemaking (“NPRM”) seeking comment on whether the FCC should make changes to its rules requiring that commercial broadcast television stations and MVPDs negotiate in “good faith” for the retransmission by MVPDs of local television signals. On July 14, 2016, Chairman Wheeler announced that the FCC will not adopt additional rules governing parties’ good faith negotiation obligations (however, the FCC has not yet formally terminated the proceeding).

Federal legislation enacted in February 2012 authorizes the FCC to conduct a voluntary “incentive auction” in order to reallocate certain spectrum currently occupied by television broadcast stations to mobile wireless broadband services, to “repack” television stations into a smaller portion of the existing television spectrum band and to require television stations that do not participate in the auction to modify their transmission facilities, subject to reimbursement for reasonable relocation costs up to an industry-wide total of $1.750 billion. The Company participated in the auction and anticipates receiving approximately $190 million in pretax proceeds resulting therefrom. In addition, the Company expects many of our television stations to be required to change frequencies or otherwise modify their operations in the “repack.” In doing so, the Company’s television stations could incur substantial conversion costs, reduction or loss of over-the-air signal coverage or an inability to provide high definition programming and additional program streams. While conclusion of the auction seems imminent, the Company cannot predict the likelihood, timing or outcome of the incentive auction, or any related FCC regulatory action.

The Company completed the Local TV Acquisition on December 27, 2013 pursuant to FCC staff approval granted on December 20, 2013 in the Local TV Transfer Order. On January 22, 2014, Free Press filed an Application for Review seeking review by the full Commission of the Local TV Transfer Order. The Company filed an Opposition to the Application for Review on February 21, 2014. Free Press filed a reply on March 6, 2014. The matter is pending.

From time to time, the FCC revises existing regulations and policies in ways that could affect the Company’s broadcasting operations. In addition, Congress from time to time considers and adopts substantive amendments to the governing communications legislation. The Company cannot predict such actions or their resulting effect upon the Company’s business and financial position.

Other Contingencies—The Company and its subsidiaries are defendants from time to time in actions for matters arising out of their business operations. In addition, the Company and its subsidiaries are involved from time to time as parties in various regulatory, environmental and other proceedings with governmental authorities and administrative agencies. See Note 13 for a discussion of potential income tax liabilities.

The Company does not believe that any other matters or proceedings presently pending will have a material adverse effect, individually or in the aggregate, on its consolidated financial position, results of operations or liquidity.