iHeartMedia 2002 Annual Report Download - page 92

From time to time, claims are made and lawsuits are filed against the Company, arising out of the ordinary business of the Company. In the
opinion of the Company’s management, liabilities, if any, arising from these actions are either covered by insurance or accrued reserves, or
would not have a material adverse effect on the financial condition of the Company.
In various areas in which the Company operates, outdoor advertising is the object of restrictive and, in some cases, prohibitive zoning and other
regulatory provisions, either enacted or proposed. The impact to the Company of loss of displays due to governmental action has been
somewhat mitigated by federal and state laws mandating compensation for such loss and constitutional restraints.
Various acquisition agreements include deferred consideration payments including future contingent payments based on the financial
performance of the acquired companies, generally over a one to five year period. Contingent payments involving the financial performance of
the acquired companies are typically based on the acquired company meeting certain EBITDA targets as defined in the agreement. The
contingent payment amounts are generally calculated based on predetermined multiples of the achieved EBITDA not to exceed a
predetermined maximum payment. At December 31, 2002, the Company believes its maximum aggregate contingency, which is subject to the
financial performance of the acquired companies, is approximately $65.7 million. In addition, certain acquisition agreements include deferred
consideration payments based on performance requirements by the seller, generally over a one to five year period. Contingent payments based
on performance requirements by the seller typically involve the completion of a development or obtaining appropriate permits that enable the
Company to construct additional advertising displays. At December 31, 2002, the Company believes its maximum aggregate contingency,
which is subject to performance requirements by the seller, is approximately $35.8 million. As the contingencies have not been met or resolved
as of December 31, 2002, these amounts are not recorded. If future payments are made, amounts will be recorded as additional purchase price.
The Company has various investments in nonconsolidated affiliates that are subject to agreements that contain provisions that may result in
future additional investments to be made by the Company. The put values are contingent upon financial performance of the investee and
typically based on the investee meeting certain EBITDA targets, as defined in the agreement. The contingent payment amounts are generally
calculated based on predetermined multiples of the achieved EBITDA not to exceed a predetermined maximum amount.
NOTE H —GUARANTEES
As of December 31, 2002 and 2001, the Company guaranteed third party debt of approximately $98.6 million and $225.2 million, respectively.
The guarantees arose primarily in 2000 in conjunction with the Company entering into long-term contracts with third parties. The guarantees
will terminate the earlier of the sale of the underlying assets or September 2004. The operating assets associated with these contracts secure the
debt that the Company has guaranteed. Only to the extent that the assets are either sold by the third-party for less than the guaranteed amount or
the third party is unable to service the debt will the Company be required to make a cash payment under the guarantee. As of December 31,
2002, it is not probable that the Company will be required to make a payment under these guarantees. Thus, as of December 31, 2002 and
2001, the guarantees associated with long-term operating contracts are not recorded on the Company’s financial statements. These guarantees
are included in the Company’s calculation of its leverage ratio covenant under the bank credit facilities.
As of December 31, 2002, the Company has provided a guarantee under a certain performance contract of approximately $77.4 million that
expires in 2004. Under this guarantee, if the amount collected from the third parties that receive the benefit under the performance contract
does not exceed the guarantee amount, the Company must make payment for the shortfall. During 2002 and 2001, under this guarantee, the
Company has made payments of $3.8 million and $2.2 million, respectively. As of December 31, 2002, the Company has a liability recorded
and classified in “Other current liabilities”on its financial statements of approximately $4.2 million for unpaid shortfalls under this guarantee
for the contract period of 2001 and 2002. As of December 31, 2002, the Company cannot reasonably estimate whether it will have to make any
future payments under this guarantee for the 2003 and 2004 contract periods. As such, possible losses on this executory performance contract
will be appropriately recorded in the period that they are incurred.
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