Source : Globe & Mail

Alliance Atlantis' income statement, that bouillabaise of delicious unusual items immersed in an opaque bain, would be right at home on the company's Food Network.

Iron Chef MacMillan has added more carp heads to the soup, but can the judges overlook the hodgepodge?

Alliance, if you're just tuning in, has been fighting hard to tart up its image lately. Executives are quoted in magazines about how they get no respect, and they send out letters (to me, even) complaining about how criticism of their corporate governance persists even after they've improved it (which, to their credit, they have).

The trouble is, they follow up these efforts with stunningly bad moves, like changing their accounting, which they did last week. It's not clear whether the company chose to change the way it does its books or whether an uneasy auditor compelled them to do it. We know that the old way of doing things was, in the opinion of auditor PricewaterhouseCoopers, in compliance with accounting rules, so the question is why change?

Readers of this space may recall that this is the second time Alliance has changed past financials. The first time was last year, when they redid three years' worth of statements, reducing operating cash flow by hundreds of millions.

Fortunately, restating accrual earnings is typically much less of a nuisance than restating cash flow because cash accounting is, by and large, immune from timing issues. Accruals are all about timing. If you're going to receive a pile of cash from an investment in a few years, can you book the gains today? By all means. Then, later, if it suits, you can change the recognition method and claim the profits later.

"You never like to change how you account for something or restate numbers, of course," CEO Michael MacMillan told this newspaper. "Obviously, we would prefer not to be doing this even though the financial impact really isn't anything going forward."

But that's not quite true. The value of the CSI crime drama franchise, in Alliance's estimation, hasn't changed. The cash flow the shows can spin off is unaltered.

But the accounting change wiped out $47-million in pretax profit from the past three fiscal years. In the company's own words: "What will change is strictly the timing of earnings recognition, which will be reduced for past years and increased in future years [emphasis added]." Having made good use of the profits in the past, the company will make better use of them in the future. Reduce, reuse and recycle, Iron Chef. And who knows what other effects that will have.

Alliance Atlantis really wants to remake itself. The company said yesterday, as it served up its 2003 annual results, that it was distressed by all the "noise" in its financials -- the persistent charges and one-offs that have plagued the company and its investors for years -- but that it felt all that was in the past. The future is positively gourmet.

Yet there was junk food in the latest results. Debt fell meaningfully but half of the drop was the result of a rising dollar (some of the debt is denominated in greenbacks). Judging from where the company thinks the exchange rate is going, that's a temporary change.

Free cash flow was up, but that was in large part achieved on the back of much lower capital spending and by running the working capital through the wringer: accounts receivable were down and accounts payable up sharply. You can't hold off paying suppliers forever.

Taxes? There isn't time to begin delving into that.

Long-suffering investors have done better recently, and they deserve a break. Maybe it can go on. Maybe management really does have a handle on things.

Maybe CSI will even live up to its billing.

But the company's executives should stop whining about how they get no respect for all they've accomplished from Canadians, we supposedly great nabobs of negativity. Conrad Black used to say the same thing.

You want respect Iron Chef? Start cooking up some real profits.