iHeartMedia 2003 Annual Report Download - page 80

The collar meets the requirements of Statement 133 Implementation Issue G20, Assessing and Measuring the Effectiveness of a Purchased
OptionUsedinaCashFlowHedge
. Under this guidance, complete hedging effectiveness is assumed and the entire change in fair value of the
collar is recorded in other comprehensive income. Annual assessments are required to ensure that the critical terms of the contract have not
changed. As of December 31, 2003, the fair value of the collar was a $101.7 million liability, and the amount recorded in other comprehensive
income, net of tax, related to the change in fair value of the collar for the year ended December 31, 2003 was $63.5 million.
Also included in “Other long-term borrowings” is CCI, Inc.’s obligation under its secured forward exchange contracts on its investment in
American Tower Corporation (“AMT”). In 2001, CCI, Inc. entered into two ten-year secured forward exchange contracts that monetized
2.9 million shares of its investment in AMT. The AMT contracts had a value of $47.3 million and $64.4 million at December 31, 2003 and
December 31, 2002, respectively. These contracts are not designated as a hedge of the Company’s cash flow exposure of the forecasted sale of
the AMT shares. During the years ended December 31, 2003, 2002 and 2001, the Company recognized a loss of $17.1 million and gains of
$29.5 million and $68.8 million, respectively, in “Gain (loss) on marketable securities” related to the change in the fair value of these contracts.
To offset the change in the fair value of these contracts, the Company has recorded AMT shares as trading securities. During the years ended
December 31, 2003, 2002 and 2001, the Company recognized income of $13.8 million and losses of $11.9 million and $57.2 million,
respectively, in “Gain (loss) on marketable securities” related to the change in the fair value of the shares.
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 designated as a
hedge and denominated in the same currency as the foreign denominated net investment, the hedge, which is on an after-tax basis, 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, 2003 and 2002, the cumulative translation gain (loss), net of tax of $88.1 million and
$(44.7) million, respectively, have been reported as a part of “Accumulated other comprehensive income (loss)” within shareholders’ equity.
NOTE G — COMMITMENTS AND CONTINGENCIES
The Company leases office space, certain broadcasting facilities, equipment and the majority of the land occupied by its outdoor advertising
structures under long-term operating leases. Some of the lease agreements contain renewal options and annual rental escalation clauses
(generally tied to the consumer price index or a maximum of 5%), as well as provisions for the payment of utilities and maintenance by the
Company.
The Company has minimum franchise payments associated with non-cancelable contracts that enable it to display advertising on such media as
buses, taxis, trains, bus shelters and terminals, as well as other type contacts. The majority of these contracts contain rent provisions that are
calculated as the greater of a percentage of the relevant advertising revenue or a specified guaranteed minimum annual payment. Also, the
Company has non-cancelable contracts in its live entertainment operations related to minimum performance payments with various artist as
well as various other contracts in its radio broadcasting operations related to program rights and music license fees. In addition, the Company
has commitments relating to required purchases of property, plant, and equipment under certain street furniture contracts, as well as
construction commitments for facilities and venues.
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