TORONTO - Alliance Atlantis Communications shares dropped more than 8% on Tuesday after the company reported an error in its cost accounting on the popular show CSI: Crime Scene Investigation.
The stock was off $2.59 at $29.40 in afternoon trading on the TSX.
The specialty broadcaster said an error in accounting for costs at its CSI television franchise will reduce operating earnings by $25.2 million over three quarters.
In reporting its third-quarter results late Monday, Alliance Atlantis said it restated its second-quarter profit to indicate an $11.9-million drop in operating earnings, or $7.2 million in net earnings, at its entertainment division.
"During our review of the current quarter results, management noted that certain costs related to CSI: Crime Scene Investigation had been under-accrued," said Judson Martin, the company's senior executive vice-president and chief financial officer in the quarterly report.
The accounting error reduced second-quarter operating earnings for the company's entertainment division by $11.9 million to $4.1 million and consolidated after-tax earnings by $7.2 million to $7.0 million.
"We regret the error and have taken the necessary steps to ensure this accrual problem with CSI does not recur," said Martin. Despite this unfortunate oversight, the value of the CSI franchise to Alliance Atlantis, arising from its substantial free cash flow generating capacity, continues to grow."
The company said the mistake cuts operating earnings for its entertainment division by $8.3 million in the third quarter and is expected to result in a further reduction by $5.0 million in the fourth quarter of 2004.
Despite the change, Alliance Atlantis still expects 2004 operating earnings to be in line with management's previous guidance of $193 million.
"We expect our broadcasting and motion picture distribution operations will be stronger than we originally expected, and entertainment, due primarily to the effect of the under-accrual, will be weaker than originally expected," Martin said.
For the third quarter, Alliance Atlantis reported an overall profit of $18.9 million, compared with a loss of $10.8 million a year ago. The company's quarterly revenue rose to $214.4 million, up from $212.7 million last year.
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