iHeartMedia 2001 Annual Report Download - page 87

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87
Statement 133, on January 1, 2001, the Company recorded an asset on the balance sheet as "Other long-
term assets" of $49.0 million to reflect the fair value of the interest rate swap agreements and increased
the carrying value of the underlying debt by an equal amount. On December 31, 2001, the fair value of
the interest rate swap agreements was approximately $106.6 million. Accordingly, an adjustment was
made to the asset and carrying value of the underlying debt on December 31, 2001 to reflect the increase
in fair value.
Secured Forward Exchange Contract
On January 31, 2001, and again on June 25, 2001, Clear Channel Investments, Inc., a wholly-owned
subsidiary of the Company, entered into two ten-year secured forward exchange contracts that monetized
2.6 million shares and .3 million shares of the Company's investment in American Tower Corporation,
(“AMT”), respectively. The January 31, 2001 and June 25, 2001 secured forward exchange contracts
protect the Company against decreases in the fair value of AMT below $36.54 per share and $24.53 per
share while providing participation in increases in the fair value of the stock up to $47.50 per share and
$31.88 per share, respectively. During the term of the secured forward exchange contracts, the Company
retains ownership of the AMT shares. The Company's obligation under the secured forward exchange
contracts is collateralized by a security interest in the AMT shares.
Under Statement 133, these contracts are considered hybrid instruments - long-term obligations with
derivative instruments embedded into the contracts. Statement 133 requires a hybrid instrument to be
bifurcated such that the long-term obligations and the embedded derivatives are accounted for separately
under the appropriate accounting guidance. The long-term obligations have been recorded on the balance
sheet as "Other long-term liabilities" at their inception fair value of $56.9 million and accrete to their
maturity values totaling $103.0 million over their ten-year term, with the accretion classified as interest
expense. As of December 31, 2001, the aggregate balance of the long-term obligations was $60.3 million
while the aggregate balance of the embedded derivatives recorded on the balance sheet as "Other assets"
was $34.9 million. For the twelve months ended December 31, 2001, the fair value of the embedded
derivative increased $68.8 million. The increase in fair value was recorded in earnings as "Gain on
marketable securities". On December 31, 2001, the fair market value of the 2.0 million shares of AMT
previously reclassified as trading securities was $19.0 million. For the twelve months ended December
31, 2001, the fair value of the AMT shares classified as trading securities had decreased $57.2 million.
The change in the fair market value of these shares has been recorded in earnings as "Gain on marketable
securities".
Foreign Currency Rate Management
As a result of the Company's foreign operations, the Company is exposed to foreign currency exchange
risks related to its investment in net assets in foreign countries. To manage this risk, the Company enters
into foreign denominated debt to hedge a portion of the effect of movements in currency exchange rates
on these net investments. The Company's major foreign currency exposure involves markets with net
investments in Euros and the British pound. The primary purpose of the Company's foreign currency
hedging activities is to offset the translation gain or losses associated with the Company's net investments
denominated in foreign currencies. Since the debt is denominated in the same currency of the foreign
denominated net investment, the hedge will offset a portion of the translation changes in the
corresponding net investment. Since an assessment of this hedge revealed no ineffectiveness, all of the
translation gains and losses associated with this debt are reflected as a translation adjustment within
accumulated other comprehensive income (loss) within shareholders' equity. As of December 31, 2001,
cumulative translation losses, net of tax of $126.4 million have been reported as a part of "Accumulated
other comprehensive income (loss)" within shareholders' equity.