MediaWorks NZ, the broadcaster whose stable includes TV3 and Four, and radio stations including the Rock and MoreFM, has taken a $22.1 million provision for settlement of its disputed tax case with the Inland Revenue Department over deductions claimed on convertible notes.
The broadcaster, which posted an annual loss $305.6 million in the 12 months ended August 31 last year, recognised the provision for a potential settlement based on "legal judgements issued to other non-related taxpayers", holding company GR Media Holdings said in financial statements lodged with the Companies Office.
"MediaWorks NZ Ltd will continue to dispute the proposed adjustments," the company said.
The dispute relates to MediaWorks' tax deductions between 2002 and 2004 on the notes which are structured to let companies juggle debt and equity in the New Zealand divisions to provide a tax advantage for the parent and a loss to the local revenue base.
The IRD contends the hybrid securities were structured purely to minimise tax, and it has previously succeeded in prosecuting Western Australia's Alesco over its use of the notes.
The accounts were released after the broadcaster last week signalled a restructure that will see senior lenders write down the value of their debt as they provide new facilities and introduce new lending covenant terms. The recapitalisation will also satisfy a $43 million debt owed on its spectrum licence.
The restructuring meant auditor PwC wasn't able to say whether the broadcaster's assets and liabilities are fairly stated, and it was "unable to obtain sufficient audit evidence upon which to form an opinion as to whether the assumption of an orderly transfer is appropriate," it said in its report.
MediaWorks took a $241.6 million charge in writing down the value of its goodwill to prepare for the new structure, the bulk of which appears to be in its TVWorks unit.
The RadioWorks unit was valued using a multiple of earnings before interest, tax, depreciation and amortisation of 7.3 times, while the TV business was valued on a net tangible asset basis, the statements said. The broadcaster's goodwill was valued at $142 million as at Aug. 31 last year.
MediaWorks has been strapped for cash since Australian private equity firm Ironbridge bought CanWest's 70 per cent stake in 2007 for some $741 million in a leveraged buy-out.
Since then, the media company's lenders didn't pursue some $266.7 million owed by the previous holding company HT Media Holdings after agreeing to a restructure that gave them equity in the broadcaster, according to the company's first liquidator's report.
MediaWorks faced a smaller interest bill from its lenders of $30 million compared to $50 million a year earlier. The broadcaster's $387.7 million senior facility was fully drawn down as at Aug. 31, as was its $15 million working capital facility.
US Private equity firm Oaktree Capital Management bought $125 million of the broadcaster's debt at a reported discount of 50 per cent, according to the Australian Financial Review. The US private equity firm also owns debt associated with troubled Australian media group Nine Entertainment.