Hi Scanbox,No announcement was released yesterday, but TMS did...

Hi Scanbox,

No announcement was released yesterday, but TMS did issue its Annual Report.

The SMH article has focused on note 1b of the Annual Report.

Note 1b reads as follows:

(b) Going Concern Basis of Preparation

Following a comprehensive review of the carrying values of assets during the year ended 30 June 2002, the Directors resolved to write down the carrying value of a number of the parent's and consolidated entity's non-current assets. As a result the consolidated entity has recorded a loss after income tax of $77.1 million for the year ended 30 June 2002. Further, the consolidated entity has incurred a negative operating cash outflow of $2.2 million during the year ended 30 June 2002. This has resulted in the consolidated entity breaching a number of its banking covenants as calculated at and for the year ended 30 June 2002.. The Directors also believe it is likely that the consolidated entity will breach further covenants in the next 12 months. The covenant breaches that occurred in the year ended 30 June 2002 have been waived by the bank and the Directors believe that future breaches may or
may not be waived. However, in accordance with Accounting Standard AASB 1040 "Statement of Financial
Position", the Directors have disclosed the consolidated entity's bank facilities, amounting to $79,674,000, as
current liabilities.

The consolidated entity is currently negotiating with its bankers to restructure the long term financing of the TMS Group.

The consolidated entity has commenced negotiations with the major Australian cinema exhibitors with a view to reducing the level of fixed theatre rents payable under the long term contracts with those exhibitors. In conjunction witn these negotiations tne consoiidated entity has suspended theatre rent payments that were due in September 2002 and it is proposed that future payments will be suspended until the negotiations are resolved.

The continuing viability of the parent and consolidated entity and its ability to continue as a going concern and
meet its debts and commitments as they fall due is dependent upon the consolidated entity being successful in:
(i)
negotiating with its current bankers whereby they continue to provide ongoing finance and access to
(ii)
negotiating with the major cinema exhibitors in amending the current contractual arrangements for the
(iii)
achieving sufficient future cash flows to enable its obligations to be met.

As a result of these matters, there is significant uncertainty whether the parent and consolidated entity will continue as a going concern and, therefore, whether they will realise their assets and settle their liabilities and commitments in the normal course of business and at the amounts stated in the financial report.

However, the Directors believe that the parent and consolidated entity will be successful in the above matters and, accordingly, have prepared the
financial report on a going concern basis. At this time, the Directors are of the opinion that no asset is likely to be realised for an amount less than the amount at which it is recorded in the financial report at 30 June 2002.

Accordingly, no adjustments have been made to the financial report relating to the recoverability and classification of the asset carrying amounts or the amounts and classification of liabilities that might be necessary should the parent and consolidated entity not continue as a going concern.

..............

Since 30 June (the date to which the accounts are stated), TMS has:
1)
received the proceeds of the North Ryde sale (~$19.0m paid in debt reuction);
2)
received the first instalment payment on the US Val Morgan exit (~$6.6m received and paid in debt reduction);
3)
exited the USA for no further liability exposure (but retaining a 2-year revenue sharing arrangement worth, if fully realised, a further $16.0m at yesterday's FX rates, and retaining a 3-year revenue sharing arrangement concerning the Malco cinema circuit which was the more profitable US cinema advertising circuit, concentrated in and around Manhattan, etc);
4)
negotiated a step-up payment on the North Ryde property exit (ie: a further $6.0m to be received in the event of certain rezoning arrangements being secured);
5)
exited from Singapore (which under the MEG arrangements was a significant loss maker for the group);
6)
started re-structuring Latin American Val Morgan operations;
7)
started re-structuring the Australian operations of Val Morgan;
8)
as part of the Australian re-negotiations, suspended the rental payments pending the outcome of the re-structuring talks (this is a typical approach used in any form of rental, property or leasing dispute and is often accompanied by a portion of the payments being escrowed dependent upon the outcome - again, this is something that Hartnell is quite skilled in and I would suspect has already being employed as an appropriate dispute resolution device); and
9)
based on payments received in the last few days, net debt should now be hovering somewhere in the $46.5 - 53.0m range.