Alliance Atlantis Reports Strong Third Quarter Results

Alliance Atlantis Reports Strong Third Quarter Results

- Earnings from operations increase to $17 million from $9 million - Free cash flow of $69 million in Q3 reduces consolidated Net Debt to $374 million - Total advertising sales increase 30% - Company completes review of capital structure and plans to re-purchase shares - Phyllis Yaffe appointed to Board of Directors

TSX: AAC.A, AAC.NV.B

TORONTO, Nov. 11 /PRNewswire-FirstCall/ -- Alliance Atlantis Communications Inc. reported solid results for the quarter ended September 30, 2005, driven by the strength of its broadcasting business and the continuing strong performance of the CSI franchise.

"These strong results underline our ability to grow audience and advertising sales across our 13 specialty TV channels while maximizing the value of the CSI franchise," said Phyllis Yaffe, Chief Executive Officer of Alliance Atlantis Communications Inc. "Our continued debt reduction is a result of free cash flow generation in each of our businesses and reinforces our confidence in the long term strength of our assets."

Alliance Atlantis also announced it has concluded a review of its capital structure. "The objectives of our capital structure review were to establish target debt levels for our business and to determine appropriate uses of free cash flow beyond current reinvestment opportunities," said David Lazzarato, Chief Financial Officer. "Going forward, the Company will target a Net Debt to EBITDA ratio in the range of 1.5x to 2.5x, excluding its Motion Picture Distribution business. We intend to begin opportunistically repurchasing shares under our Normal Course Issuer Bid, and plan to renew the bid when it expires in December, 2005."

Q2 Financial Results

Revenue

Broadcasting revenue of $64.0 million represented an increase of 17% over the prior year's period. Strong advertising sales reflected continued audience growth, particularly for Showcase Television, Food Network Canada, History Television and HGTV Canada. Digital channel revenue increased 35% due to gains in both advertising and subscriber revenue. Seven of our eight digital channels now have paid subscriber levels between 0.9 million and 1.3 million.

Entertainment recorded revenue of $66.9 million during the quarter representing growth of 47% due to continued strong performance of the CSI franchise and sales related to the Company's film and television library. CSI revenue was $50.3 million compared to $43.9 million in the prior year's period. Revenue gains are attributable to higher first and second window licence fees and increased video/DVD revenue, both internationally and in the United States. Sales from Other, which primarily reflects distribution of the Company's library of international program rights, increased to $16.6 million.

Motion Picture Distribution revenue for the third quarter was $116.2 million, an increase of $2.0 million or 2% compared to the prior year's quarter. This increase was primarily due to strong results from the company's Spanish operations.

EBITDA

Broadcasting EBITDA increased 23% over the prior year's period to $14.5 million. This represented an EBITDA margin of 23% during the quarter compared to 22% in the prior year's quarter.

Entertainment generated EBITDA of $12.8 million compared to $17.0 million in the prior year's quarter. The CSI franchise recorded a direct margin of 46% in the third quarter compared to 51% in the prior year's period. As previously disclosed, the prior year's period direct margin was unusually high as the Company recorded a significant reduction in investment in film and television programs in the second quarter last year which resulted in lower amortization expense in the third quarter last year. The Other Entertainment segment recorded a direct loss of $3.4 million in the third quarter compared to a direct profit of $2.2 million in the prior year's period. During the quarter, ultimate revenue estimates for a limited number of library titles were revised, resulting in additional amortization expense of $4.0 million.

Motion Picture Distribution EBITDA was $17.5 million, an increase of 4% compared to the prior year's period. This represented a solid margin of 15%. EBITDA growth was due to the strong contributions from the UK and Spanish operations, partially offset by a smaller contribution in Canada.

Corporate and Other expenses were $9.8 million compared to $9.0 million in the prior year's period. The increase is related to higher compensation costs including stock based compensation and higher professional fees including those associated with Sarbanes-Oxley.

Amortization

Amortization of $3.3 million was down by $1.3 million from the prior year's period.

Interest

Interest expense decreased from $15.6 million to $6.1 million in the quarter primarily as a result of the debt refinancing undertaken by the Company in December 2004. The Company's average cost of borrowing in the quarter was 5.2 % as compared to 10.5% in the prior year's quarter.

Minority Interest

Minority Interest primarily represents the Movie Distribution Income Fund's share of earnings from Motion Picture Distribution LP. Minority Interest was $8.5 million in the quarter compared to $8.1 million in last year's period.

Earnings From Operations Before Undernoted And Discontinued Operations
(Operating Earnings)

Operating earnings for the quarter were $17.2 million compared to $8.5 million for the prior year's period. A higher effective tax rate this year, due to the mix of different tax jurisdictions, as well as not currently tax affecting certain losses, resulted in net operating earnings for the quarter of $10.4 million, compared to $10.0 million in last year's quarter. On a per share diluted basis, net operating earnings were $0.24 during the quarter compared to $0.23 in last year's period.

Foreign Exchange Gains

Foreign exchange gains were $2.7 million for the quarter compared to $11.5 million in the prior year's period. The majority of gains in the quarter relate to unrealized gains on the unhedged portion of the Company's long term US denominated debt, partially offset by unrealized losses from the long term investment in foreign operations by the Company's motion picture distribution business.

Net Earnings

Net earnings for the quarter were $12.2 million compared to net earnings of $18.9 million for the prior year's period. This decrease reflects the above noted fluctuations in foreign exchange and income taxes. On a basic and diluted basis, net earnings per share were $0.28 for the quarter, compared to basic and diluted net earnings per share of $0.44 and $0.43 respectively for last year's period.

Liquidity

Consolidated net debt decreased from the prior year by $69.3 million to $374.3 million as a result of improvements in free cash flow and the positive impact of the strengthening Canadian dollar on our US dollar denominated debt. Net debt, excluding non-recourse net debt related to Motion Picture Distribution LP, was $324.6 million, representing a reduction of $90.1 million from the prior year's period.

Operating Highlights

Broadcasting

By growing audiences and focusing on monetizing that growth through advertising sales, the core Broadcasting business continues to deliver strong performance. Our digital channels again outperformed the industry average, with an overall average minute audience (AMA) increase of 30% for the broadcast year. Showcase Action is the No. 1 new specialty network for A25-54 and six of the new specialty channels are ranked in the top 20 - Showcase Action, Showcase Diva, BBC Canada, IFC, National Geographic and Discovery Health Canada.

Food Network Canada, Home and Garden Television (HGTV) and History all hit significant milestones during the third quarter, achieving the highest AMA for a summer season in the history of the channels. The "Showcase at 10" fall lineup also reported very strong AMA growth during the third quarter, with critically-acclaimed and immensely popular programming including Six Feet Under, Rescue Me and the L-Word.

Entertainment

The Company continues to leverage the CSI franchise around the world, and revenues from international sales of CSI: Crime Scene Investigation, CSI: Miami and CSI: NY remain strong and continue to grow. The sixth season of CSI: Crime Scene Investigation premiered on CBS on September 22, 2005 and delivered outstanding ratings, attracting more than 29 million viewers and premiering as the No. 1 show on that night(1). The series continues to be the No. 1 series on U.S. television(2).

Additionally, CSI: Miami began its fourth season on September 19, 2005 with more than 19 million viewers tuning in(3). The second series in the immensely popular CSI franchise is also making a big impact on the primetime schedules of European broadcasters, including Germany, France, the U.K. and Spain. The series has had significant ratings success in France on TF1, with almost 40% of viewers tuning in to the show during its primetime timeslot.

And the newest series in the franchise, CSI: NY began a very successful second season as the No. 1 show airing in its timeslot on Wednesdays and has seen solid growth in its ratings since the premiere episode aired on September 29, 2005(4).

With the success of CSI: NY, all series within the franchise are currently ranked within the top 15 on U.S. television(5). Sales for each of the three series have also hit an impressive milestone internationally, with sales in more than 200 territories.

Motion Picture Distribution

For Operating Highlights and the Outlook for Motion Picture Distribution LP please refer to their press release issued on November 9th (www.moviedistributionincomefund.com).

Outlook

The Company reconfirmed its 2005 consolidated guidance for Revenue ($1,040 million), EBITDA ($176 million) and year-end Net Debt ($362 million), excluding the impact of any share repurchases. The Company does not intend to update or reconfirm any previously issued guidance or provide any further guidance for periods beyond December 31, 2005. "Our decision not to provide guidance beyond this year end is in keeping with current practices," said Mr. Lazzarato. "Our ongoing confidence in the business is reflected in our intention to opportunistically repurchase shares."

Appointment of Phyllis Yaffe to Alliance Atlantis Communications Inc.
Board of Directors

Anthony Griffiths, Lead Director also announced today that Phyllis Yaffe has been appointed a Member of the Board of Directors, effective November 10, 2005.

About Alliance Atlantis Communications

In 2005, Alliance Atlantis Communications Inc. celebrates its 10th anniversary as a leading specialty broadcaster, continuing to offer Canadians recognizable, high-quality brands boasting targeted, high-quality programming across 13 specialty channels. The Company co-produces and distributes a limited number of television programs in Canada and internationally, including the hit CSI franchise, and holds a 51% limited partnership interest in Motion Picture Distribution LP, the largest distributor of motion pictures in Canada and a growing presence in the U.K. and Spain. The Company's common shares are listed on the Toronto Stock Exchange - trading symbols AAC.A and AAC.NV.B. The Company's Web site is www.allianceatlantis.com.

Certain statements and information included in this release constitute "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Alliance Atlantis to be materially different from any future results, performance or achievements expressed or implied in such forward-looking statements. The words or phrases "guidance", "expect", "anticipate", "estimates", and "forecast" and similar words or expressions are intended to identify such forward-looking statements. Additional discussion of factors that could cause actual results to differ materially from management's projections, estimates and expectations is contained in the Company's periodic reports and registration statements filed with the Canadian securities regulatory authorities and the U.S. Securities and Exchange Commission. Alliance Atlantis undertakes no duty to update or revise its forward-looking statements, including its earnings outlook, because of new information, future events or otherwise.

This earnings release contains the unaudited consolidated balance sheets, earnings statements and statements of cash flows for the three months ended September 30, 2005 and the three months ended September 30, 2004.

(x) Non-GAAP financial measures

The Company uses EBITDA, direct profit (loss), operating earnings (loss), and net operating earnings (loss) to gain a better understanding of the results of the business. These non-GAAP financial measures are not recognized under Canadian or United States GAAP. These non-GAAP financial measures are provided to enhance the user and investor understanding of the Company's historical and current financial performance and its prospects for the future. Management believes that these measures provide useful information in that they exclude amounts that are not indicative of the Company's core operating results and ongoing operations and provide a more consistent basis for comparison between years. The Company uses EBITDA, direct profit (loss), operating earnings (loss), and net operating earnings (loss) to measure operating performance. The Company has defined EBITDA, calculated using figures determined in accordance with Canadian GAAP, as earnings (loss) before under noted, which are earnings before amortization, interest, equity losses in affiliates, minority interest, unusual items, investment gains and losses, foreign exchange gains and losses, income taxes and discontinued operations, net of tax. Direct profit (loss) is defined as revenue less direct operating expenses, as defined in note 13 to the Company's unaudited interim consolidated financial statements. Operating earnings (losses) has been defined as earnings (loss) from operations before under noted and discontinued operations, which are earnings before investment gains and losses, foreign exchange gains and losses, income taxes and discontinued operations, net of tax. Net operating earnings are defined as operating earnings, net of an applicable portion of income tax.

Net debt is defined as the Company's revolving credit facility, senior subordinated notes and term loans, net of cash and cash equivalents.

While many in the financial community consider EBITDA, operating earnings and net operating earnings to be important measures of operating performance, they should be considered in addition to, but not as a substitute for, earnings (losses) before under noted, earnings (loss) from operations before under noted and discontinued operations, net earnings, cash flow and other measures of financial performance prepared in accordance with Canadian GAAP which are presented in the attached unaudited interim consolidated financial statements. In addition, the Company's calculation of EBITDA, operating earnings (loss) and net operating earnings (loss) may be different than the calculation used by other companies and therefore comparability may be affected. A reconciliation of these non-GAAP financial measures to the most directly comparable measures calculated in accordance with Canadian GAAP is presented in the Company's Management's Discussion and Analysis.

(xx) Alliance Atlantis holds a 51% limited partnership interest in Motion
Picture Distribution LP (the "Partnership"), a motion picture distributor
in Canada, the U.K. and Spain. The balance of the Partnership is owned by
Movie Distribution Income Fund (TSX: FLM.UN).

----------------------------------

(1) National Nielsen ratings: Primetime Weekly-Regular Programs for
Demographic PER2+ for September 19, 2005 through to
September 25, 2005)
(2) National Nielsen ratings: Primetime Weekly-Regular Programs for
Demographic PER2+ for September 19, 2005 through to October 30,
2005)
(3) National Nielsen ratings: Primetime Weekly-Regular Programs for
Demographic PER2+ for September 19, 2005 through to
September 25, 2005)
(4) National Nielsen ratings: Primetime Weekly-Regular Programs for
Demographic PER2+ for September 19, 2005 through to October 30,
2005)
(5) National Nielsen ratings: Primetime Season to Date-Regular Programs
for Demographic PER2+ for September 19, 2005 through to
October 30, 2005.

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September 30, 2005
Consolidated Financial Statements
For the Three Months and Nine Months Ended
September 30, 2005 and 2004
(Unaudited)
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The interim Consolidated Financial Statements for the three month
and nine month periods ended September 30 have not been reviewed
by an auditor.

Alliance Atlantis Communications Inc.
Management Report
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The accompanying unaudited interim consolidated financial statements of Alliance Atlantis Communications Inc. ("the Company") are the responsibility of management and have been approved by the Board of Directors. The unaudited interim consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles. The unaudited interim consolidated financial statements include some amounts and assumptions based on management's best estimates which have been derived with careful judgement.

In fulfilling its responsibilities, management of the Company has developed and maintains a system of internal accounting controls. These controls are designed to ensure that the financial records are reliable for preparing the financial statements. The Board of Directors of the Company carries out its responsibility for the financial statements through its Audit Committee. The Audit Committee reviews the Company's unaudited interim consolidated financial statements and recommends their approval by the Board of Directors.

November 11, 2005

PHYLLIS YAFFE DAVID LAZZARATO
Chief Executive Officer Executive Vice President and
Chief Financial Officer

Alliance Atlantis Communications Inc.
Consolidated Balance Sheets
(unaudited)
(in millions of Canadian dollars)

September 30, December 31, September 30,
2005 2004 2004
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Assets
Cash and cash equivalents 50.7 55.0 26.5
Accounts receivable 333.0 372.2 337.5
Investment in film and television
programs (note 3a) 563.1 567.3 563.0
Development costs 0.4 1.2 1.9
Property and equipment 39.5 43.7 47.6
Investments 7.0 16.4 19.1
Future income taxes 108.5 128.4 91.8
Other assets 19.4 23.9 28.7
Loans receivable from tax
shelters (note 2) 101.1 90.9 90.5
Broadcast licences 108.7 108.7 109.3
Goodwill 201.9 212.6 221.4
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1,533.3 1,620.3 1,537.3
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Liabilities
Revolving credit facilities (note 4) 14.0 - 39.0
Accounts payable and accrued
liabilities 468.1 528.1 518.2
Income taxes payable 53.0 57.2 27.0
Deferred revenue 24.7 40.4 20.4
Term loans (note 5) 411.0 483.6 52.6
Tax shelter participation
liabilities (note 2) 101.1 90.9 90.5
Senior subordinated notes (note 6) - - 378.5
Minority interest 58.3 67.4 64.3
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1,130.2 1,267.6 1,190.5
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Shareholders' Equity
Share capital and other (note 7) 734.6 725.7 723.9
Deficit (326.4) (372.5) (382.1)
Cumulative translation adjustments (5.1) (0.5) 5.0
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403.1 352.7 346.8
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1,533.3 1,620.3 1,537.3
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Commitments and contingencies (note 12)

The accompanying notes form an integral part of these unaudited interim
consolidated financial statements.

Alliance Atlantis Communications Inc.
Consolidated Statements of Earnings
For the periods ended September 30, 2005 and September 30, 2004
(unaudited)
-------------------------------------------------------------------------
(in millions of Canadian dollars - except per share amounts)

Three months ended Nine months ended
September 30, September 30,
2005 2004 2005 2004
-------------------------------------------------------------------------
Revenue
Broadcasting (note 13) 64.0 54.6 199.2 173.3
Entertainment (note 13) 66.9 45.5 247.6 154.7
Motion Picture Distribution
(note 13) 116.2 114.2 304.9 364.9
Corporate and Other - 0.1 0.3 0.7
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247.1 214.4 752.0 693.6
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Direct operating expenses 167.9 139.7 505.3 479.6
Direct profit
Broadcasting 31.6 25.6 106.0 94.1
Entertainment (note 13) 19.6 24.8 82.4 47.1
Motion Picture Distribution
(note 13) 28.0 24.2 58.0 72.1
Corporate and Other - 0.1 0.3 0.7
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79.2 74.7 246.7 214.0
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Operating expenses
Selling, general and
administrative 39.8 35.1 120.5 98.5
Stock-based compensation 4.4 2.8 5.4 6.8
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44.2 37.9 125.9 105.3
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Earnings (loss) before undernoted
and discontinued operations
Broadcasting 14.5 11.8 55.5 50.4
Entertainment 12.8 17.0 65.9 28.0
Motion Picture Distribution
(note 13) 17.5 16.9 26.1 52.8
Corporate and Other (9.8) (8.9) (26.7) (22.5)
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35.0 36.8 120.8 108.7
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Amortization, including development
costs charges 3.3 4.6 10.0 16.5
Interest (note 8) 6.1 15.6 17.0 46.3
Equity (earnings) losses
in affiliates (0.1) - (0.1) 0.1
Minority interest 8.5 8.1 10.2 25.6
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Earnings from operations before
undernoted and discontinued
operations 17.2 8.5 83.7 20.2
Investment (gains) losses (note 9) 0.7 - 0.7 (0.6)
(Gain) loss on disposal of assets
(note 18) (3.7) - (3.7) 0.2
Foreign exchange (gains) losses (2.7) (11.5) 6.7 (6.6)
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Earnings before income taxes,
and discontinued operations 22.9 20.0 80.0 27.2
Provision for income taxes 10.7 1.1 33.9 2.5
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Net earnings before discontinued
operations 12.2 18.9 46.1 24.7
Discontinued operations,
net of tax (note 10) - - - (4.6)
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Net earnings for the period 12.2 18.9 46.1 20.1
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Earnings per Common Share before
discontinued operations
Basic (note 11) $0.28 $0.44 $1.06 $0.57
Diluted (note 11) $0.28 $0.43 $1.05 $0.57
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Earnings per Common Share
Basic (note 11) $0.28 $0.44 $1.06 $0.47
Diluted (note 11) $0.28 $0.43 $1.05 $0.46
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The accompanying notes form an integral part of these unaudited interim
consolidated financial statements.

Alliance Atlantis Communications Inc.
Consolidated Statements of Deficit
For the periods ended September 30, 2005 and September 30, 2004
(unaudited)
-------------------------------------------------------------------------
(in millions of Canadian dollars)
Three months ended Nine months ended
September 30, September 30,
2005 2004 2005 2004
-------------------------------------------------------------------------
Deficit - beginning of period (338.6) (401.0) (372.5) (402.2)
Net earnings for the period 12.2 18.9 46.1 20.1
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Deficit - end of period (326.4) (382.1) (326.4) (382.1)
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The accompanying notes form an integral part of these unaudited interim
consolidated financial statements.

Alliance Atlantis Communications Inc.
Consolidated Statements of Cash Flow
For the periods ended September 30, 2005 and September 30, 2004
(unaudited)
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(in millions of Canadian dollars)
Three months ended Nine months ended
September 30, September 30,
2005 2004 2005 2004
-------------------------------------------------------------------------
Cash and cash equivalents
provided by (used in)
Operating activities
Net earnings for the period 12.2 18.9 46.1 20.1
Items not affecting cash
Amortization of film and
television programs (note 3b) 89.8 56.1 274.5 214.3
Development costs charges 0.3 - 0.9 4.4
Amortization of property
and equipment 2.6 3.0 7.7 9.0
Amortization of other assets 1.3 3.0 4.1 7.0
Loss on sale of discontinued
operations - - - 0.7
Investment (gains) losses
(note 9) 0.7 - 0.7 (0.6)
(Gain) loss on disposal of
assets (note 18) (3.7) - (3.7) 0.2
Equity (earnings) losses
in affiliates (0.1) - (0.1) 0.1
Minority interest 8.5 8.1 10.2 25.6
Future income taxes (0.1) 1.9 19.9 (5.8)
Unrealized net foreign exchange
(gains) losses 1.9 (12.5) 10.5 (6.5)
Stock-based compensation 0.6 2.8 2.3 6.8
Investment in film and television
programs (note 3b) (79.6) (69.8) (286.7) (233.1)
Development costs expenditures - - (0.1) (3.1)
Net changes in other non-cash
balances related to operations 22.7 48.0 (37.7) (59.2)
Discontinued operations - (1.1) - 1.4
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57.1 58.4 48.6 (18.7)
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Investing activities
Loans receivable - - - 0.2
Property and equipment (1.7) (2.6) (3.9) (4.0)
Proceeds from sale of property
and equipment 4.7 - 4.7 -
Long-term investments 8.7 - 7.1 (0.1)
Business acquisitions (note 15) - - - (35.1)
Proceeds from sale of investments
in subsidiaries - - - 1.9
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11.7 (2.6) 7.9 (37.1)
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Financing activities
Revolving credit facilities, net (8.0) (32.0) 14.0 14.0
Deferred financing costs - - - (1.0)
Repayment of long-term debt (30.7) 1.2 (62.1) (29.3)
Issue of equity by subsidiary
to minority interest - - - 15.0
Distributions paid to minority
interest (8.1) (6.0) (19.3) (16.6)
Issue of share capital 2.0 1.3 6.6 5.5
Discontinued operations - - - (0.7)
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(44.8) (35.5) (60.8) (13.1)
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Change in cash and cash equivalents 24.0 20.3 (4.3) (68.9)
Cash and cash equivalents -
beginning of period 26.7 6.2 55.0 95.4
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Cash and cash equivalents -
end of period 50.7 26.5 50.7 26.5
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The accompanying notes form an integral part of these unaudited interim
consolidated financial statements.

Source: Alliance Atlantis Communications Inc.

CONTACT: Andrew Akman, Vice President, Corporate Development & Investor
Relations, Tel: (416) 966-7701, E-mail: andrew.akman@allianceatlantis.com;
Jennifer Bell, Director, Corporate & Public Affairs, Tel: (416) 934-7854,
E-mail: jennifer.bell@allianceatlantis.com

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