AAC’s Golden gone

Kerri Golden, Alliance Atlantis cfo, has resigned effective early May.. It is unclear whether president Lewis Rose or former Cineplex Odeon executive vp and cfo Ellis Jacob, who has been on contract with aac since the merger, will assume Golden’s duties.

Golden’s departure comes hot on the heels of swift Bay Street reaction last month to the company’s third-quarter results, which showed a drop in net earnings and a downturn in results from its television production division.

Trading in high volumes (almost one million shares), aac class b shares fell $2.10 to close at $22.40 on Feb. 24 – the day the results were released – an 8.57% decrease from a $24.50 close the day before.

However, the next day the stock had rebounded slightly to close at $23.45, up $1.05 on low volume of roughly 111,000 shares traded.

At Playback press time, aac’s class b shares had closed at $23.25, up $1.25 on high volume trading of nearly 682,000 shares.

Michael MacMillan, aac chairman and ceo, points out that his company’s stock had been trading choppily and downwards for three or four days before the third-quarter results were released.

‘I think there was some chatter or concern that we were not going to deliver the results that had been expected, but the results were on expectation,’ he says.

‘I learned a long time ago not to judge something from a day or two’s trading.’

aac net earnings for the three months ended Dec. 31, 1998 were $5.4 million, down from $6.8 million for the same period in ’97.

Revenues for the third quarter at the recently merged entity increased by 11% to $190 million compared to $171.5 million a year ago, buoyed by increases in the motion pictures division and the inclusion of specialty channels History Television and hgtv in the results.

The company’s adoption of generally accepted u.s. accounting practices, which prevent producers from showing revenue from programs until the licence period begins and also prohibit amortizing promotional costs of distributed films over a long period of time, negatively affected revenues as well.

Because of the new accounting policy, which became effective during the quarter, roughly $50 million in revenues were deferred to future periods.

‘[The new accounting policy] takes some time, discussion and understanding and that creates a bit of noise around this,’ MacMillan explains. ‘I presume that’s part of the difficulty in understanding these results, because when you strip that away, the underlying results are very strong,’ says MacMillan, who adds that the impact of the accounting change will ‘even out’ by the fourth quarter and be ‘neutral’ going forward.

MacMillan also revealed that aac had dropped its projection for the number of hours of programming to be delivered this year to 340 from 350.

The drop is due in part to the delay of episodes on a pair of kids’ shows – Hoze Houndz (Amberwood Productions) and Sixth Grade Alien (aac).

Nightman, a drama series produced by the company for u.s. syndicator Tribune Entertainment, has been canceled.

Next year, the company expects to deliver roughly 300 hours of programming. The decrease comes as part of a strategy to produce shows with better profit margins.

Yet this quarter, the television division’s gross profit margin decreased to 11.7% on $14.9 million in gross profit from 12.4% on $15.8 million in gross profit for the same period last year. MacMillan says the slight decrease is due to the mix of shows delivered during the quarter.

Similarly, in the motion picture division revenues increased by 33% to $35.9 million from $27.1 million a year ago, yet gross profit decreased to $5.3 million this third quarter from $6.4 million last year. Profit margin dropped to 15% this year from 24% last year.

Operating expenses were higher for this year’s third quarter at $23 million compared to $16 million last year, but MacMillan says that figure will drop as the synergies of the merged companies begin to be fully realized. Many of the 122 employees who were laid off as part of the aac merger were still on the payroll during the quarter.

The company reported strong library sales for the first nine months of this fiscal as distribution sales accounted for $116 million worth of revenue. This is compared to library sales valued at $105 million for the whole of last fiscal. MacMillan says the shows being sold represented a mix of aac product and that sales of any one show in particular were not responsible for the increase.

One analyst, who spoke on the condition of anonymity, had concerns about the amount of cash that the company was spending versus the amount of cash it was bringing in.

For the nine months ended Dec. 31, cash provided by aac’s activities totaled $372 million but the company’s investing activities, including production costs, broadcast rights and development, totaled nearly $612 million. The costs don’t include any charges associated with the merger or restructuring.

‘The underlying concept of this industry is you have to be creating value in your library faster than you’re eating cash,’ says the analyst. ‘Because if you’re eating cash faster than you’re creating value, you’re destroying value.

‘If you’re destroying value that’s not a stock I want to own.’

However, other analysts’ assessments of aac were not as harsh.

Yorkton Securities’ Roger Dent underestimates any concerns surrounding aac’s third-quarter results because the company is in a rapid transition period.

Similarly, First Marathon Securities’ Karen Fisman says that though the company’s gross margins were a little lower than she anticipated, ‘I view this as a working year for next year.’

Fisman gives a 52-week target on aac stock of $36.

The results also showed that the company is keeping $53 million of secured cash on hand in case Robert Lantos or Victor Loewy choose to cash in their preferred shares. The earliest that could happen would be Sept. 21 – the one-year anniversary of the merger.

Coinciding with the results, the company announced a 40 tv movie output arrangement with Eagle Pictures – one of the largest Italian television distributors.

aac has also secured the feature and tv rights to l.a.-based Top Cow Productions’ superhero secret agent property, The Project. In an unusual deal, aac will simultaneously develop a feature film and a television series based on an original concept from revered comic book creator Marc Silvestri.

With files from Lisa Singer and Cliff Boodoosingh.