Alliance Stock Drop After 'CSI' Accounting Error

Investors dumped stocks in Alliance Atlantis Communications yesterday after the company reported an accounting error in the way it presented profits from the CSI franchise.

According to an Alliance press release, an accounting audit showed that over the past three years the company included earnings from CSI in its profit report that it wouldn't actually earn until later in the future. As a result, the company had to revise its profit statements from the past three years, saying that pretax earnings in 2001, 2002 and 2003 were about C$13 million ($9.7 million), C$19 million and C$15 million lower than originally reported, respectively.

Although the company had to cut these earnings from its past profit reports, it will now be able to add them over the coming years, when they actually come in. This means the changes will not have an effect on the total profitability of the CSI franchise, but simply that it will take a bit longer to reap all profit from the series than was originally thought.

Despite this assurance, nervous investors still drew parallels with US accounting scandals such as those at energy company Enron, and Alliance Atlantis stock fell by more than 5%. "In this environment, any sort of earnings adjustment, restatement, regardless of how clean or dirty it is, gets the same sort of brush," CIBC World Markets analyst Bob Bek told Reuters.

The full earnings report from Alliance Atlantis will be presented coming Monday. "This [announcement] has no adverse impact whatsoever on the ultimate value or cash generation potential of Alliance Atlantis's interest in the CSI franchise or on our previously articulated corporate commitments to increase free cash flow and continue with our debt reduction initiatives," said Judson Martin, Chief Financial Officer of Alliance Atlantis. "On Monday, we expect to report in our fiscal 2003 financial results our third consecutive quarter of free cash flow and net debt of $540.2 million on March 31, 2003 compared to $613.6 million a year earlier."

A full financial analysis of the company's accounting revision can be found in this Reuters article.

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