U.S. SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 40-F

|(Check One)                                
|-------------------------------------------
|o                                          
|or                                         
|ý                                          
|For the fiscal year ended December 31, 2004
|Commission file number 000-27546           

ALLIANCE ATLANTIS COMMUNICATIONS INC.(Exact name of registrant as specified in its charter)

|Canada  Federal Statute(Province or other jurisdiction
of incorporation or organization) |  | 7812(Primary Standard Industrial
Classification Code Number
(if applicable)) |  | Not applicable(I.R.S. Employer
Identification Number
(if Applicable))
|----------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------- |  | ---------------------------------------------------------------------

121 Bloor Street East, Suite 1500, Toronto, Ontario M4W 3M5 (416) 967-1174(Address and Telephone Number of Registrant's Principal Executive Offices)

Alliance Atlantis Entertainment, Inc., 808 Wilshire Blvd., 3rd Floor,
Santa Monica, California 90401, (310) 899-8000(Name, Address (Including Zip Code) and Telephone Number)
(Including Area Code) of Agent For Service in the United States)

Securities
registered or to be registered pursuant to Section 12(b) of the Act.    None

Securities
registered or to be registered pursuant to Section 12(g) of the Act.

Class B Non-Voting Shares, without par value(Title of Class)

Securities
for which there is a reporting obligation pursuant to Section 15(d) of the Act.    None

For
annual reports, indicate by check mark the information filed with this Form:

ý
Annual Information Form

ý
Audited Annual Financial Statements


Indicate
the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report:

December 31, 2004  40,387,164 Class B Non-Voting Shares, without par value
December 31, 2004  2,845,071 Class A Voting Shares, without par value

Indicate
by check mark whether the registrant by filing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to
Rule 12g3-2(b) under the Securities Exchange Act of 1934 (the "Exchange Act"). If "Yes" is marked, indicate the file number assigned to the registrant in connection with such rule.

Yes

o

No

ý


Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding
12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.

Yes

ý

No

o


The
Annual Report on Form 40-F shall be incorporated by reference into or as an exhibit to, as applicable, each of the registrant's Registration Statements under the
Securities Act of 1933: Form S-8 (File Nos. 333-13284 and 333-9586)



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FORM 40F

Principal Documents

The
following documents have been filed as part of this Annual Report on Form 40-F, beginning on the following page:



40-F2

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LOGO

ALLIANCE ATLANTIS COMMUNICATIONS INC.

CALENDAR 2004 ANNUAL INFORMATION FORM

March 30, 2005

121 Bloor Street East, Suite 1500, Toronto, Ontario, M4W 3M5
Telephone (416) 967-1174 Fax (416) 960-0971

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ALLIANCE ATLANTIS COMMUNICATIONS INC.  CALENDAR 2004 ANNUAL INFORMATION FORM

TABLE OF CONTENTS

|                                                                                      |                                                                                  | Page
|------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | ----
|INCORPORATION                                                                         |                                                                                  | 1   
|                                                                                      | Principal Subsidiaries                                                           |     
|THE COMPANY                                                                           |                                                                                  | 2   
|INDUSTRY OVERVIEW                                                                     |                                                                                  | 2   
|                                                                                      | Broadcasting                                                                     |     
|                                                                                      | Entertainment                                                                    |     
|                                                                                      | Motion Picture Distribution                                                      |     
|GENERAL DEVELOPMENT OF THE BUSINESS                                                   |                                                                                  | 4   
|                                                                                      | Broadcasting                                                                     |     
|                                                                                      | Entertainment                                                                    |     
|                                                                                      | Motion Picture Distribution                                                      |     
|                                                                                      | Reorganization                                                                   |     
|                                                                                      | Recent Developments                                                              |     
|OUR STRATEGY                                                                          |                                                                                  | 11  
|                                                                                      | Broadcasting                                                                     |     
|                                                                                      | Entertainment                                                                    |     
|                                                                                      | Motion Picture Distribution                                                      |     
|COMPETITION                                                                           |                                                                                  | 12  
|                                                                                      | Broadcasting                                                                     |     
|                                                                                      | Entertainment                                                                    |     
|                                                                                      | Motion Picture Distribution                                                      |     
|REGULATION                                                                            |                                                                                  | 12  
|                                                                                      | Broadcasting                                                                     |     
|                                                                                      | Motion Picture Distribution                                                      |     
|INTELLECTUAL PROPERTY                                                                 |                                                                                  | 15  
|PROPERTIES AND FACILITIES                                                             |                                                                                  | 16  
|EMPLOYEES                                                                             |                                                                                  | 17  
|MANAGEMENT                                                                            |                                                                                  | 18  
|                                                                                      | Board of Directors                                                               |     
|                                                                                      | Audit Committee                                                                  |     
|                                                                                      | Officers                                                                         |     
|DESCRIPTION OF SHARE CAPITAL                                                          |                                                                                  | 24  
|                                                                                      | Class A Voting Shares and Class B Non-Voting Shares                              |     
|DESCRIPTION OF CERTAIN INDEBTEDNESS                                                   |                                                                                  | 27  
|                                                                                      | Repayment of Senior Subordinated Notes                                           |     
|                                                                                      | New Credit Facility                                                              |     
|                                                                                      | Other Indebtedness                                                               |     
|FOREIGN EXCHANGE                                                                      |                                                                                  | 28  
|LEGAL PROCEEDINGS                                                                     |                                                                                  | 28  
|RISK FACTORS                                                                          |                                                                                  | 28  
|                                                                                      | Risks Related to Alliance Atlantis and the Entertainment Industry                |     
|                                                                                      | Risks Related to Owning Our Class B Non-Voting Shares                            |     
|RATINGS                                                                               |                                                                                  | 35  
|                                                                                      | Moody's Investor Services                                                        |     
|                                                                                      | Standard & Poor's                                                                |     
|DIVIDENDS                                                                             |                                                                                  | 36  
|REGISTRAR AND TRANSFER AGENT                                                          |                                                                                  | 36  
|MARKET FOR SECURITIES                                                                 |                                                                                  | 36  
|                                                                                      | Trading Price and Volume of Class A Shares on the TSX                            |     
|                                                                                      | Trading Price and Volume of Class B Non-Voting Shares on the TSX                 |     
|MATERIAL CONTRACTS                                                                    |                                                                                  | 37  
|                                                                                      | Investment Agreement                                                             |     
|MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |                                                                                  | 38  
|CONFLICTS OF INTEREST                                                                 |                                                                                  | 38  
|ADDITIONAL INFORMATION                                                                |                                                                                  | 38  
|APPENDIX 1                                                                            |                                                                                  | 40  
|                                                                                      | Procedures for Approval of Audit and Non-Audit Services by the External Auditors |     

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This annual information form includes forward-looking statements. We have based these forward-looking statements on our current expectations and projections about
future events which include, among other things: our anticipated growth strategies; anticipated trends in our business, including trends in viewer acceptance, both of our programs and of our specialty
channels; the costs of producing television productions and of operating specialty channels; our ability to maximize the long term value of our library; and our ability to expand our distribution
activities.

The forward-looking statements included in this annual information form are subject to risks, uncertainties and assumptions about Alliance Atlantis
Communications Inc. and its direct and indirect subsidiaries. Our actual results of operations may differ materially from the forward-looking statements as a result of, among other things,
general risks related to the entertainment industry, the success of our digital specialty television channels, competition within distribution industries, penetration of prime time channel broadcasts,
the potential for budget overruns and other production risks, changes in government regulations that could affect our specialty television channels, our reliance on key personnel, some or all of our
television programs, motion pictures or specialty television channels may not be successful, commitments under output agreements may require significant capital outlays, changes in technology, current
accounting methods applicable to our industry, new accounting standards for our industry which has been introduced, our substantial indebtedness, fluctuating results of operations, program delivery
schedules, changes in government incentive programs or tax laws, foreign economic and exchange rate risks, our labor relations, constraints on the issue and transfer of our voting shares, control of
Alliance Atlantis by key personnel, and fluctuation of the market price of our Class A Voting Shares and our Class B Non-Voting Shares. We undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events
discussed in this annual information form might not occur as described.

Unless
the context indicates otherwise, the information appearing herein is stated as at December 31, 2004, all dollar amounts referred to in this document are references to
Canadian dollars and references in this Calendar 2004 Annual Information Form to "Alliance Atlantis", "the Company", "we", "us" and "our" and similar expressions, mean Alliance Atlantis
Communications Inc. together with its direct and indirect subsidiaries.

INCORPORATION

Alliance Atlantis Communications Inc. is incorporated under theCanada Business Corporations Act(the "CBCA"). Our articles have been amended from time to time to make certain changes, including changes to our share structure.

In
July of 1998, Alliance Communications Corporation ("Alliance") and Atlantis Communications Inc. ("Atlantis") entered into an agreement which provided for the business
combination of Alliance and Atlantis and the integration of their operations by way of a plan of arrangement (the "Merger"). The Merger was completed on September 21, 1998, at which
time Atlantis became a wholly-owned subsidiary of Alliance and Alliance changed its name to Alliance Atlantis Communications Inc.

Alliance
was formed under the CBCA by articles of incorporation on June 27, 1985. On May 5,1995, the articles of Alliance
were amended to create the Class A Voting Shares and the Class B Non-Voting Shares, to convert each of the outstanding common shares into one-half of one
Class A Share and one-half of one Class B Non-Voting Share, to cancel the existing class of common shares and to provide to the board of directors of Alliance the
authority to appoint additional directors.

Our
registered and principal office is located at 121 Bloor Street East, Suite 1500, Toronto, Ontario M4W 3M5. We also operate offices in Montreal (Canada), Los
Angeles (United States), London (England), Dublin and Shannon in Ireland, Madrid and Barcelona in Spain and Sydney (Australia).

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Principal Subsidiaries

The following is a list of our principal subsidiaries as at December 31, 2004, the jurisdiction of incorporation of each subsidiary and the percentage of
securities (both voting and non-voting) beneficially owned by us or over which we exercise control or direction.

|Subsidiary                                        |  | Jurisdiction        |  | Percentage of Securities Owned by the Corporation
|------------------------------------------------- |  | ------------------- |  | -------------------------------------------------
|Alliance Atlantis Broadcasting Inc.               |  | Canada              |  | 100%                                             
|Alliance Atlantis International Distribution Ltd. |  | Republic of Ireland |  | 100%                                             
|Alliance Atlantis Productions, Inc.               |  | California          |  | 100%                                             
|Alliance Atlantis Productions Ltd.                |  | Canada              |  | 100%                                             
|Motion Picture Distribution LP                    |  | Manitoba            |  | 51%(*)                                           

THE COMPANY

We are a leading Canadian specialty broadcaster. We also co-own and co-produce and distribute a limited number of television programs in
Canada and internationally, including the successfulCSIfranchise (CSI: Crime Scene Investigation, CSI: Miami, andCSI: NY) and hold a 51% limited partnership interest in Motion Picture
Distribution L.P. ("MPDLP" or "the Partnership"), Canada's leading motion picture distribution business.

INDUSTRY OVERVIEW

Broadcasting

Specialty television channels provide special interest, news, sports, arts and entertainment programming and are available to Canadians who subscribe to a
particular cable or satellite service package and to wireless broadband system operators. As of August 2001, there were 49 Canadian analog specialty services and 13 Canadian
pay-TV services available to Canadian subscribers. In November 2000, the Canadian Radio-television and Telecommunications Commission (the "CRTC") announced its licence
decisions for new specialty television channels to be carried solely by digital distribution undertakings (satellite and digital cable). In total, 283 licences were awarded, of which
21 were Category 1 (mandatory carriage for a negotiated fee by digital services and genre protection) and 262 were Category 2 (optional carriage for a negotiated fee by
digital services and no genre protection). According to the CRTC's Broadcasting Policy Monitoring Report, 2004, as of November, 2004 there were 49 Canadian analog specialty services,
18 Category 1 digital specialty services and 48 Category 2 digital specialty services in operation, bringing the total number of Canadian specialty services to 115
(including English, French and third-language services). Most Category 2 licenses for digital channels that did not launch by November 24, 2004 have expired.

Specialty
analog and digital television channels derive substantially all of their revenue from subscription fees and advertising. The distribution undertakings that carry these channels
pay specialty service owners a monthly subscription fee, typically on a per subscriber basis. The distribution undertakings who provide television programming services to consumers include cable
operators, DTH satellite services, multipoint distribution systems and telephony distributors. Analog specialty television channels are distributed either as part of a signal distributor's basic
service, or as part of an "extended" or "discretionary" tier, including other Canadian or non-Canadian specialty television channels. The wholesale subscriber fee payable to a channel
owner for carriage of its service is regulated if it is carried as part of the basic service, but is not regulated if it is carried on an extended or discretionary tier. In those instances, the rate
would be negotiated with the distribution undertaking. Digital specialty services are offered as part of a discretionary tier of digital only channels, marketed in theme packs or individual pick a
pack or as pick and pay services. The wholesale subscriber fee for carriage of digital services is not regulated and as such, would be negotiated with the distribution undertaking. Also, as carriage
of Category 2 services is not mandated, carriage must be negotiated between the channel and the distributor. Subscribers to extended or discretionary tiers pay monthly fees which reflect an
amount for the basic service, plus an additional amount for the additional services for which they subscribe on the extended or discretionary tiers, theme packs, pick a pack or individual pick and
pay. As there are only a handful of large dominant distribution undertakings, including Rogers, Shaw, Cogeco, Videotron, Bell ExpressVu and Star Choice, which together make up approximately 90% of the
market, it is important for broadcast licensees to obtain carriage agreements with all of these players in order to obtain maximum household penetration. Broadcasters with multiple channels typically
have more success negotiating carriage agreements than those with only one or two channels.

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With respect to analog channels, specialty channel owners benefit from these stable, recurring subscriber fees, which are also supported by the
high level of cable and satellite penetration in Canada. Although digital channels are available to fewer Canadians, penetration of the new digital specialty networks is increasing. As of
August/September 2004, approximately 42% or 4.2 million of the estimated 9.8 million total TV subscribers in Canada received a digital TV service via a digital set-top
box provided by their DTH satellite TV, cable, multipoint distribution system (wireless cable), or telephone provider. DTH accounted for 55% of all digital subscribers and cable had a 43% market
share. The number of digital TV subscribers increased by about 14% or 515,000 over August/September 2003.(*)

Specialty
television channel revenue has grown significantly since the early 1990s. For the period from 1991 to 2001, according to industry sources, subscription revenue for Canadian
specialty television channels grew from $172 million to $736 million while advertising revenue grew from $70 million to $438 million. In 2004, specialty television reported
total revenues of $1.7 billion, up more than 9% from the prior year. Of this, total subscription revenues accounted for almost $950 million, up 5.3% from a year earlier. Airtime sales
accounted for $691 million, a jump of 17% (CRTC year-end August 2004 Statistical Report). We expect specialty television advertising revenue share to continue to grow
rapidly. Canadian specialty television channels still accounted for only 33% of total Canadian television advertising revenue in 2003/2004 even though the English language specialty and pay television
audience share in Canada (for both Canadian services and U.S. services such as CNN and A&E) was 52% in 2004 (Nielsen Media).

These
industry results are consistent with the growth that we have seen in both audience levels and advertising revenues from our digital channels, and we believe it is a strong leading
indicator for the future of our specialty channels.

Entertainment

U.S. and Canadian television broadcasters purchase the majority of their programming from major studios, with the balance from independent producers. Each of the
major television networks in the United States and Canada currently schedules approximately 22 hours of prime time programming each week. Prime time programming generates the highest
licence fees in these markets and generally consists of a mix of hour-long drama series, TV movies and mini-series, situation comedies and reality and entertainment
programming.

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Generally, television programs are produced under contracts that provide for licence fee revenue, which may not cover all anticipated production
costs. Recovering the "gap" or production deficit between these fees and production costs, and earning a profit, is typically dependent upon the producer's ability to distribute the programs in
multiple geographic regions, including international markets, or through multiple distribution channels. Most foreign broadcasters air a mix of both local programming, often to satisfy local content
regulations, and popular international programming which appeals to a wide audience. The introduction of sophisticated delivery technologies (including cable and satellite transmission), pay
television, increased cable penetration and growth in video and DVD have all contributed to growth in the exploitation of television programming.

Motion Picture Distribution

The first major distribution platform is theatrical exhibition. Revenues are derived from renting films to cinemas and sharing in box office receipts.

The
second major distribution platform for a motion picture is home entertainment. Revenues in this distribution platform are derived from consumers either renting a video cassette or
DVD for a specified period of time (rental revenue) or purchasing a video cassette or DVD for home use (sell-through revenue). Home entertainment typically represents the single largest
source of revenue for a motion picture distributor.

After
a motion picture's initial theatrical exhibition, distribution to ancillary markets and home entertainment release, motion picture distributors generate revenues from television
distribution. This platform includes video-on-demand and pay-per-view, cable television, and free television.

Distribution
to ancillary markets involves granting licences in non-traditional markets such as to airlines, schools, libraries, hospitals, childcare centres and military
installations. These customers (other than airlines) tend to pay annual fees for access to the entire catalogue of motion pictures of a distributor.

GENERAL DEVELOPMENT OF THE BUSINESS

Broadcasting

We operate and have a controlling interest in 13 Canadian cable television channels. We also have a 50% interest in two Canadian French-language specialty
television channels and a minority interest in three other English-language specialty television channels. Canadian specialty television channels are niche programming services, centered around a
specific genre or theme, that are available to viewers only upon payment of a subscription fee to a distribution undertaking (i.e. cable, DTH or multipoint distribution system) upon payment of
a subscription fee. The Company's channels are focused on two core genres  "fact and fiction" and lifestyle. We offer strong brands supported by high quality
content, designed to stand out in the competitive marketplace.

These
channels earn revenue from two primary sources: fees paid by distribution undertakings based on the number of subscriptions to the channel, and money paid by advertisers who
purchase advertising on the channel. Where a specialty service is carried as part of the basic cable package, the subscriber fees are regulated by the CRTC. Where services are carried on a
discretionary tier, rates are not regulated and are negotiated directly with the signal distributors. Advertising rates are not regulated. We sell advertising nation-wide through our
in-house advertising sales team and retain 100% of the available advertising inventory of approximately 12 minutes per hour.



We own a majority interest in and operate five national, English-language analog channels that are required to be carried by every major English-language
distribution undertaking in Canada at a negotiated fee averaging approximately $0.25/channel/month/subscriber. We are equal partners in two French-language analog channels that are required to be
carried by distribution undertakings in Quebec at a negotiated fee. As of March 15, 2005, the Company has 30 million subscribers for its analog channels.

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These
Analog Channels are:



In
2004, advertising revenue for the analog channels grew 24% over calendar 2003. This followed an increase of 47% over 2002.



In addition to our analog channels, we own a majority interest in and operate eight English-language digital channels. Most of these channels launched in the fall
of 2001. We have signed carriage agreements for all of our new digital channels which have resulted in each of them being available to almost every digital household in Canada. Our digital channels
enjoy strong subscriber levels, each with between 650,000 and in excess of 1,000,000 subscribers (with the exception ofBBC Kidsand Fine Living Canadawhich launched later than the other channels). Out of the approximately 50 digital channels that have launched to date,
Nielsen Media research indicates that our eight digital channels accounted for 34% of digital television viewers in the 2004 Broadcast Year (year-end August, 2004).

These
eight digital channels are:



We
also have a minority interest in three other channels. Score Media Inc. (formerly, Headline Media Group), in which we hold a 26% interest, operatesThe
Score, an English-language analog channel featuring 24-hour sports news, highlights and live sports programming. We own a 29.9% equity interest (plus an option to
increase our total equity to 37.7% of the channel) inONE: The Body, Mind and Spirit Channel, a Category 1 digital channel which focuses on
lifestyle and health related programming.ONEwas launched in the fall of 2001 by the operators ofVision
TV. We also own a 49% interest inScream, a digital channel dedicated to the horror genre that was launched in the fall of 2001
by Corus Entertainment Inc.

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Revenue
from our analog channels was $215.4 million for Calendar 2004, a 14% increase over the revenue for the 12-month period ended December 31, 2003 which was
$188.7 million. Revenue for the 12-month period ended December 31, 2002 was $153.3 million. Revenue from our digital channels was $30.5 million in Calendar
2004, a 32% increase over the revenue for the 12-month period ended December 31, 2003, which was $23.1 million. Revenue for the 12-month period ended
December 31, 2002 was $18.2 million.

The
following table describes all of the specialty channels in which we hold an interest:

|Specialty Channel                         |  | Analog/
Digital |  | Must Carry(5) |  | Equity Interest |  | Year of Launch |  | Viewing Subscribers (Millions)
|----------------------------------------- |  | --------------- |  | ------------- |  | --------------- |  | -------------- |  | ------------------------------
|Life Network                              |  | Analog          |  | Yes           |  | 100%            |  | 1995           |  | 5.6                           
|HGTV Canada                               |  | Analog          |  | Yes           |  | 67%             |  | 1997           |  | 5.6                           
|Discovery Health Channel                  |  | Digital         |  | Yes           |  | 65%             |  | 2001           |  | 0.8                           
|Food Network Canada                       |  | Analog          |  | Yes           |  | 51%             |  | 2000           |  | 4.4                           
|National Geographic Channel               |  | Digital         |  | No            |  | 50%             |  | 2001           |  | 0.8                           
|Fine Living Canada(1)                     |  | Digital         |  | No            |  | 67%             |  | 2004           |  |                              
|The Score(2)(3)                           |  | Analog          |  | Yes           |  | 26%             |  | 1997           |  | 5.4                           
|ONE: The Body, Mind and Spirit Channel(2) |  | Digital         |  | Yes           |  | 29.9%           |  | 2001           |  | 0.9                           
|Showcase                                  |  | Analog          |  | Yes           |  | 100%            |  | 1995           |  | 6.2                           
|Showcase Diva                             |  | Digital         |  | No            |  | 100%            |  | 2001           |  | 1.0                           
|Showcase Action                           |  | Digital         |  | No            |  | 100%            |  | 2001           |  | 1.1                           
|The Independent Film Channel Canada       |  | Digital         |  | Yes           |  | 100%            |  | 2001           |  | 1.0                           
|BBC Canada                                |  | Digital         |  | No            |  | 50%             |  | 2001           |  | 0.9                           
|BBC Kids                                  |  | Digital         |  | No            |  | 50%             |  | 2001           |  | 0.8                           
|History Television                        |  | Analog          |  | Yes           |  | 100%            |  | 1997           |  | 5.7                           
|Historia(2)(4)                            |  | Analog          |  | Yes           |  | 50%             |  | 2000           |  | 1.3                           
|Series+(2)(4)                             |  | Analog          |  | Yes           |  | 50%             |  | 2000           |  | 1.3                           
|Scream(2)                                 |  | Digital         |  | No            |  | 49%             |  | 2001           |  | 0.9                           

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Notes:

Entertainment

In December 2003, we announced that that we would no longer produce low margin capital intensive series or miniseries,
movies-of-the-week or feature films. The Entertainment business is now focused upon the co-production and international distribution of the CSIfranchise and distribution of our catalogue of
approximately 5,000 hours of programming rights.

Entertainment's
revenue was $258.7 million for Calendar 2004. It was $260.7 million for the 12-month period ended December 31, 2003 and
$334.3 million for the 12-month period ended December 31, 2002. Entertainment revenue decreased 0.8% between Calendar 2004 and 2003. The decrease in revenue results primarily
from the continued reduction of our traditional production activities.

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We have significantly reduced capital intensive production activities as the international market for the type of production we have traditionally produced has
changed fundamentally. In fiscal 1999,we delivered over 325 hours of prime-time drama production, none of which was part of the CSIfranchise. In
Calendar 2004, we reduced prime-time drama production to just 72 hours, 81% of which were part of theCSIfranchise. We expect non-CSIproduction volume to decline further in 2005.



The Company co-owns, co-produces and internationally distributes the successfulCSIfranchise on a 50/50 partnership basis with CBS Productions ("CBSP"). CBSP and its affiliate, Kingworld, distribute theCSIfranchise in the
U.S. Alliance Atlantis distributes theCSIfranchise in Canada and to the rest of the world. Key revenue sources include U.S. network
first window license fees, U.S. network ratings bonus payments, U.S. second window cablecast/weekday syndication, U.S. weekend syndication, international first window,
international second window, worldwide home video/DVD, and worldwide merchandising and licensing.



CSI: Crime Scene Investigation,now in its fifth season, has been licensed in over
150 territories worldwide with more than 100 episodes delivered.CSI: Crime Scene Investigationcontinues to dominate U.S. network
primetime ratings.

In
March 2001,Spike TV(formerlyThe National Network, a subsidiary of
Viacom, Inc.) acquired certain second window U.S. broadcast rights toCSI: Crime Scene Investigation. Under the agreement, Spike TVbegan
broadcasting episodes ofCSI: Crime Scene Investigationonce per week (not in
prime time) in September 2002 for 104 weeks through September 2004. As of September 2004,Spike TVis permitted to broadcast
episodes ofCSI: Crime Scene Investigationdaily, Monday through Friday (though not against the network timeslot). The agreement has a term of up to
eight seasons. The series has also been licensed to the U.S. weekend syndication market. Through our international distribution network, we have licensed and will continue to license the first
and subsequent window broadcast rights ofCSI: Crime Scene Investigationto broadcasters around the world.



CSI: Miami,now in its third season, has also been licensed in over 150 territories worldwide with more
than 50 episodes delivered. In April 2002, certain second window United States broadcast rights toCSI: Miamiwere sold to A&E Television
Networks("A&E"). Under the agreement, A&E has the right to air one episode per week (not in prime time and not against the
network timeslot) from October 2004 to October 2006. In addition, A&E has acquired the United States second window broadcast rights for up to eight seasons, for broadcast anytime,
except weekends and not against the network timeslot. The series has also been licensed to the U.S. syndication market.



CSI: NYis in its first season of production. It has already been licensed to broadcasters in numerous key
territories including the U.K., France, Germany Spain and Australia. The series has also been licensed to the U.S. syndication market.

7

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Our catalogue or "library" of film and television programming rights includes approximately 1,000 titles totaling approximately 5,000 hours. We hold
the rights to exploit most of those titles around the world for up to 25 years, and in some cases, in perpetuity. We have licensed our library product to more than 300 broadcasters in
over 200 territories. Library revenues require minimal incremental costs (e.g. tape duplication and delivery) and generate significant cash flow.

Motion Picture Distribution



On October 15, 2003, we transferred substantially all of the assets and certain liabilities of our motion picture distribution business into Motion Picture
Distribution L.P. (the "Partnership") in exchange for subordinated units of the Partnership, ordinary units of the Partnership and a promissory note. The Partnership is the largest
distributor of motion pictures in Canada, with a growing presence in the United Kingdom through Momentum Pictures. It is also the largest independent distributor in Spain through Aurum
Producciones, S.A. ("Aurum") which it acquired in May, 2004. We indirectly own a 51% limited partnership interest in the Partnership. Movie Distribution Income Fund (the "Fund"), which
trades on The Toronto Stock Exchange (the "TSX") under the symbol FLM.UN, indirectly owns a 49% limited partnership interest in the Partnership.

Monthly
cash distribution on the units of Movie Distribution Income Fund are paid out of the distributable cash generated by the motion picture distribution business of the Partnership.
As noted above, a portion of our 51% interest in the Partnership is in the form of subordinated units. If the funds available for distribution to limited partners of the Partnership are insufficient,
the subordinated units would have their distribution reduced to zero before ordinary units would have their distributions reduced at all.



In addition to the Partnership having its own strong senior management team, we continue to have an ongoing business relationship with the Partnership. The Fund
and the Partnership are able to draw upon the extensive industry knowledge of our management personnel. Michael MacMillan serves as Chairman of the Board of Directors of Motion Picture
Distribution Inc., the general partner of the Partnership (the "General Partner"). Also, as it has done in the past, the Partnership will continue to meet with our Broadcasting people on
at least an annual basis in order to determine Broadcasting's content requirements that may be satisfied by purchases from the Partnership's motion picture catalogue. The commercial arrangements for
acquiring this content are on market terms and are negotiated on an arm's length basis.



Pursuant to the terms of an administrative services agreement which we entered into with the General Partner and the Partnership, we will continue to provide
those management, administrative and support services to the General Partner, the Partnership and its subsidiaries that we previously provided to our motion picture distribution business. Our duties
include: (i) providing certain accounting services, financial treasury oversight, information technology services and support, human resources support, taxation support and certain legal
services to the Partnership; and (ii) joint purchasing services such as health benefits, telephone and other services provided by third party providers.



Pursuant to the terms of a strategic opportunities and non-competition agreement which we entered into with the General Partner and the Partnership,
and subject to certain limitations, we have agreed to present to the Partnership any opportunity to engage in the motion picture distribution or theatrical exhibition businesses (each, a "Specified
Business") that is presented to us or of which we become aware. We have also agreed, subject to certain limitations, that we will not (i) pursue any opportunity to engage in a Specified
Business in any territory unless that opportunity has first been offered to the Partnership, or (ii) compete with the Partnership in a Specified Business.

8

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Pursuant to the terms of the securityholders' agreement, we are entitled to appoint a majority of the board of directors of the General Partner as long as we own
at least a 50% interest in the Partnership. Also, as long as we own, directly or indirectly, at least 331/3% of the outstanding units of the Partnership, we have certain approval rights
with respect to significant transactions by the Partnership.



The Partnership is engaged exclusively in the distribution of motion pictures and television programs. It does not produce motion pictures. Distribution involves
the promotion and exploitation of motion pictures in a variety of distribution platforms including (i) theatrical exhibition, (ii) home entertainment, (iii) television, and
(iv) ancillary markets.

The
Partnership distributes filmed entertainment in three territories, Canada, the United Kingdom and Spain, which can typically represent up to approximately 15% of global box
office. The Partnership's rights acquisition strategy involves pursuing multi-territory rights. This represents a competitive advantage over other independent distributors who may only be able to
acquire rights for one or two territories at a time.

Over
each the past four years, the Partnership has released an average of 98 theatrical motion pictures, 207 video titles and 235 DVD titles each year. By releasing
a large number of motion pictures from recognized studios through multiple distribution platforms the Partnership generates relatively stable, predictable cash flow. The Partnership's portfolio
approach has also helped reduce the Partnership's dependence on any single blockbuster motion picture. The Partnership executes its portfolio approach through: (i) established relationships
with a diverse group of content suppliers, and (ii) its substantial catalogue of acquired motion picture distribution rights.

For
more information on the Partnership's business, see the Annual Information Form of Movie Distribution Income Fund available on SEDAR.com. That Annual Information Form is not
incorporated by reference into this document.

Reorganization

In December, 2003, we announced that we were conducting a wide-ranging review of our Entertainment group. The review examined the future of certain
television and motion picture production and distribution activities in the face of continued weakened international demand for prime-time dramatic programming. The review excluded the CSIfranchise,
and it did not affect Broadcasting or Motion Picture Distribution. We concluded we would no longer produce low margin, capital intensive
dramatic series or miniseries, movies-of-the-week or feature films, however, we would deliver on existing contracted production obligations. We are now largely
focussed upon the acquisition of distribution and other rights to content, rather than in-house production. This step was consistent in our announced strategy of reducing our financial and
operational exposure to the production business and focusing on growth opportunities in the broadcast and motion picture distribution sectors.

As
part of the restructuring, we reduced our staffing in the Entertainment group by approximately 70 positions and closed production-related offices in Toronto, Edmonton, Halifax,
Vancouver and London, England.

9

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On
April 23, 2004, we streamlined our operating structure and announced the appointment of Phyllis Yaffe to the newly created position of Chief Operating Officer to reflect our
decision to exit virtually all in-house production and focus on growth in the broadcast sector. The new operating structure combined the Broadcast, Entertainment and Corporate groups into
one integrated entity. It did not affect the Partnership.

Recent Developments

On November 24, 2003, we changed our fiscal year-end to December 31 from March 31.

On
May 12, 2004, the Partnership announced that one of its subsidiaries had acquired Aurum for a purchase price of $55.2 million (net of acquired cash). In 2004,
Aurum was the largest independent film distributor in Spain with a 5% market share of theatrical box office receipts in 2004.

On
December 20, 2004, Alliance Atlantis entered into new senior secured credit facilities that consist of a five-year C$175 million (or equivalent US$)
revolving credit facility, a five-year Term Loan A facility for US$ 108.6 million and a seven-year Term Loan B facility for US$ 250 million. These
credit facilities are separate from and have no effect on the financing structure of the Partnership or Movie Distribution Income Fund.

On
December 21, 2004, we repaid the holders of US$300 million of outstanding 13% Senior Subordinated Notes (the "Notes") due December 15, 2009. The repayment
to the holders of the Notes and any outstanding balance on the Company's existing C$300 million revolving credit facility were financed by the new credit facilities. The Company believes its
annual interest savings from early redemption of the 13% Senior Subordinated Notes will be substantial.

On
February 16, 2005, in connection with the extension of certain employment arrangements of senior management of the Partnership and in order to incent other employees of the
Partnership, we announced that we will put into place certain compensation plans and amend existing compensation arrangements.

On
March 18, 2005, the Company completed a re-organization with four individual shareholders to simplify their holdings by converting certain of the Company's
Class A Voting Shares held indirectly by them into Class B Non-Voting Shares held directly by three of the shareholders. Consistent with the structure of the previous holding
company, as a result of the re-organization two of the individual shareholders will continue to jointly control the Company through a holding company that holds 670,995 Class A Voting
Shares of the Company, representing 66.7% of the Class A Shares outstanding.

The
re-organization was the final step in a series of transactions that commenced in December 2003 when two of the individual shareholders, who were former senior
officers of the Company, ceased to be employed by the Company. Their departure triggered certain obligations under contractual arrangements between the four individual shareholders, including the
obligation to sell or convert certain of their shares in the Company.

The
re-organization was reviewed and approved by the Company's Corporate Governance Committee composed of three independent directors, as well as the Company's Board of
Directors. The Corporate Governance Committee agreed that a portion of the costs associated with the re-organization would be covered by the Company. The Company received regulatory approvals for the
re-organization from the Canadian radio-television and Telecommunications Commission, the Ontario Securities Commission, the TSX and the NASDAQ National Market.

10

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OUR STRATEGY

Broadcasting

Alliance Atlantis is committed to growing its broadcast presence by focusing on four key elements: (i) strong channel brands, (ii) innovative and
high quality programming, (iii) innovative and exceptional sales and marketing, and (iv) selectively launching new channels.

Continue to develop strong channel brands in-house and with leading international broadcasters.All of the Company's channels
have well-developed, recognizable brands. Some have been created by us (Life Network, Showcase,Showcase Action,Showcase Diva, and History Television). Others are in partnership with leading international broadcasters such as Scripps (HGTV
Canada,Food Network Canada, andFine Living Canada), National Geographic
(National Geographic Canada), BBC (BBC CanadaandBBC
Kids), and Discovery (Discovery Health Channel Canada). Each of these brands has been developed to stand out in a competitive
marketplace and has a loyal and growing audience base.

Continue to offer high quality programming to support brands and drive ratings.We attempt to ensure each of our channels
offers high quality programming to its viewers. Programming is sourced from leading international producers (e.g. from HBOSix Feet UnderandCurb Your
Enthusiasm), channel partners (e.g. fromFood
NetworkRachel Ray,Iron Chef AmericaandUnwrapped) and the Company itself (e.g.CSI: Crime Scene Investigationand the extensive
library of programming rights we own).

Continue our growth in ad sales with integrated sales and marketing.We have continued to increase advertising sales for our
channels. Our advertising sales in 2004 grew 26% as compared to 2003. Our growth is the result of an innovative and integrated marketing and sales platform and a complementary portfolio of channels
which is primarily targeted at adults aged 25-54, a stable demographic segment.

Selectively launch new channels.We may extend our own brands within Canada by selectively launching new digital channels
(e.g. the recently launchedFine Living Canada) or Video-On-Demand/Subscription Video-on-Demand
versions of our existing channels. We may also acquire broadcasting assets that complement our current channel profile.

Entertainment

The Company's Entertainment business is focused on (i) maximizing the value of theCSIfranchise; and
(ii) exploiting its library of programming rights worldwide.

Maximize value of CSI franchise.See "General Development of the
Business  Entertainment  Television
Production CSIBusiness Model" for details.

License and re-license international library of program rights worldwide.We continue to license our library of
approximately 1,000 titles representing approximately 5,000 hours of programming rights. These rights are typically licensed in "bulk" deals to broadcasters and
sub-distributors worldwide.

Motion Picture Distribution

The Partnership's strategy is to (i) maintain its leading market position in Canada, (ii) continue to grow its U.K. and Spanish operations and
opportunistically expand in certain selected territories, and (iii) leverage its large library of titles.

Maintain market leadership in Canada.The Partnership's strong Canadian market share and consistently strong performance has
resulted in excellent relationships with local exhibitors making it an attractive distributor for independent U.S. studios and other producers seeking access to this market. In 2004, the
Partnership continued its four-year hold on the top spot for market share at 18%.

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Continue profitable international growth.The Partnership intends to grow its U.K. and Spanish operations which had
theatrical market shares of 2% and 5%, respectively, in 2004. In both of these regions, the film distribution industry possesses strong fundamentals including growing demand in the theatrical and home
entertainment windows especially driven by DVD penetration. In addition, the Partnership has identified Germany and France as two territories for possible future expansion. Both markets are fragmented
and, like Canada, U.K. and Spain, have strong demand for motion pictures produced in North America.

Exploit Library.The Partnership has a library of approximately 6,500 titles, totaling approximately
15,000 hours, which is provided to consumers through home entertainment (video/DVD), and to broadcasters (conventional, cable, Video-On-Demand, Subscription
Video-On-Demand) who have strong demand for motion picture content. The Partnership typically holds the rights to the films it acquires for up to 22 years.

COMPETITION

Broadcasting

The Company's channels compete for subscriber and advertising revenues with other operators of television channels in Canada, including Canwest Global, Bell
Globemedia, CHUM Group, CBC, Astral Communications Inc., Corus Entertainment and Quebecor Inc. As the CRTC licenses or authorizes carriage of additional television channels in Canada,
the television audience is further fragmented, increasing competition for viewers and advertising dollars and creating downward pressure on program licence fees. The launch of approximately
50 new digital specialty services in 2001 resulted in an increase in these competitive pressures.

Entertainment

The business of producing and distributing television programs is highly competitive. We face intense competition from other producers and distributors, including
the Hollywood studios, many of which are substantially larger and have greater financial resources than we do and some of which own their own television networks. The Company also competes with other
television and production companies for ideas and story lines created by third parties as well as for actors, directors and other personnel required for production. These competitive factors have
largely diminished in importance as Alliance Atlantis has substantially exited the prime time drama production business, except for theCSIfranchise.

Motion Picture Distribution

The major studios are the Partnership's main competitors in Canada. All other Canadian motion picture distributors in aggregate have consistently represented less
than a 10% share of theatrical box office receipts. In the United Kingdom, where the Partnership's market share is smaller, its main competitors also include several U.K.-based independent
distributors. In Spain, where the partnership is the leading independent distributor, its primary competition comes from the major U.S. studios.

REGULATION

Broadcasting

All of the television services we own and operate or have ownership interests in are regulated by the CRTC pursuant to theBroadcasting
Act(Canada) (the "Broadcasting Act") and the relevant regulations enacted thereunder, including the Specialty Services Regulations, 1990 (the "Specialty
Regulations"). Under the Broadcasting Act, the CRTC is responsible for regulating and supervising all aspects of the Canadian broadcasting system with a view to ensuring compliance with certain
broadcasting policy objectives set out in the Broadcasting Act.

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The CRTC is empowered under the Broadcasting Act to issue licences. Typically, the CRTC issues licences of up to seven years and will only issue licences to
eligible entities to operate television channels. It also has the power to renew, suspend or revoke licences and to consider amendments to licence conditions. Licensees must comply with the
Broadcasting Act and its regulations, conditions and expectations established in their licence, and the general policies and decisions of the CRTC as issued from time to time. Licences are generally
renewed unless a licensee is in material non-compliance with their conditions of licence or the regulations.

Life NetworkandShowcasehad their licences renewed in 2001 for six-year
terms, whileHGTV CanadaandHistory Televisionwere renewed from March 1, 2004 until
August 31, 2010. The licence forFood Networkwill be up for renewal in 2006. The licences for the analog French-language services Series+andHistoriaexpire in August 2005. Applications for the renewal of these services have
already been submitted to the CRTC.

On
November 24, 2000, the CRTC licenced 21 "Category 1" and 262 "Category 2" services, which may be distributed only by digital distribution technologies.
Approximately 50 of these digital services, including eight owned and operated by Alliance Atlantis Broadcasting, have launched to date. The initial licence terms for all of these services
expire August 31, 2007. Category 1 services are guaranteed carriage by digital distribution undertakings and are protected from competition in their genre. Category 2 services are
not guaranteed carriage and may be competitive with other Category 2 services, but have fewer regulatory obligations. All unlaunched digital channel licences lapsed in November 2004.

The
conditions of licence for all specialty services, among other things, restrict the types of programming the service may exhibit, and contain minimum Canadian content exhibition
requirements. The percentage of programming that must be Canadian varies with each channel depending on a number of factors, including the nature of the service, and are generally highest for our
English-language analog services and lowest for Category 2 digital channels. Canadian analog and Category 1 digital services are also required under their conditions of licence to spend
a minimum percentage of revenues on Canadian programming.

Conditions
of licence for most analog and Category 1 digital services also have obligations to acquire a certain amount of Canadian programming from unrelated production companies
(defined as ones in which the licensee or any of its shareholders owns less than 30% of the equity).

We
believe that each of our licensees is in full compliance with all their conditions of licence and all applicable legislation and regulations and that all licences will be renewed when
they come due. The CRTC may, however, impose different conditions at the time of renewal which cannot be anticipated and may have an impact on a licensee's profitability.



The federal government has issued a direction (the "Direction") to the CRTC not to issue broadcasting undertaking licences to, or renew broadcast
undertaking licences issued to, applicants who are not "Canadian" within the meaning of the Direction. Pursuant to the Direction, a corporation is deemed to be "Canadian" if (a) it is
incorporated or continued under the laws of Canada or a province thereof; (b) the chief executive officer is a resident Canadian; (c) not less than 80% of the directors are resident
Canadians; (d) Canadians beneficially own and control not less than 80% of the issued and outstanding voting shares and not less than 80% of the votes; and (e) it is not otherwise
controlled in fact by non-Canadians, a question of fact which may be determined by the CRTC in its discretion.

Where
a licensee is a subsidiary corporation, its parent corporation must also be incorporated or continued under the laws of Canada or a province thereof and Canadians must beneficially
own and control not less than 662/3% of the issued and outstanding voting shares and not less than 662/3% of the votes. In addition, unless Canadians own and control not
less than 80% of the issued and outstanding voting shares and not less than 80% of the votes of the parent corporation and unless its chief executive officer and 80% of its directors are resident
Canadians, neither the parent corporation, nor its directors, may exercise any control or influence over any programming decisions of the licenced subsidiary. Alliance Atlantis
Communications Inc. is not a direct licensee of any specialty television channel, but is the parent of subsidiary licensee corporations.

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In
order to ensure that we and our licenced subsidiaries comply with the requirements of the Direction, our articles include provisions pursuant to which our directors may refuse to
allow the issue or to register the transfer of any of our shares, where such issuance or transfer would, in their opinion, negatively affect our rights or those of our subsidiaries to obtain, maintain
or renew any CRTC licence. See "Description of Our Share Capital".



The CRTC also imposes restrictions on the transfer of ownership and control of specialty television channel licences. Pursuant to the Specialty Regulations, a
holder of a specialty television channel licence must obtain prior approval of the CRTC with respect to any act, agreement or transaction that directly or indirectly would result in a material change
of ownership or effective control of the licensee, or of a person who has, directly or indirectly, effective control of the licensee. Transferees of ownership or control of a licensee must demonstrate
to the CRTC that the transfer is in the public interest and are required to provide a specific package of tangible benefits to the Canadian broadcasting system and the communities served by the
licensee representing a financial contribution of 10% of the value of the transaction as accepted by the CRTC.



Under CRTC regulations, a television licensee may broadcast a maximum of twelve minutes of advertising in each clock hour. There are certain exceptions for unpaid
public service announcements and promotions of Canadian programming. In addition, certain advertising content is regulated by the CRTC and by various other legislation and regulations, as well as by
industry codes and standards.

As
an incentive to induce Canadian broadcasters to broadcast more original Canadian drama programming, the CRTC introduced an incentive program in 2004 which provides broadcasters with
additional advertising minutes for each additional hour of original Canadian programming it airs. The broadcaster would be entitled to bank these minutes and use them to add commercial time to any
programming it chooses, including non-Canadian programming, provided that no more that fourteen minutes of advertising may be broadcast in each hour. Further incentives will also be
available for increasing expenditure on Canadian dramatic programming and on increasing audience to Canadian drama programs.

Each
of Showcase Television, History Television, The Independent Film Channel Canada and BBC Canada have been granted the additional condition of licence necessary to access this
incentive program.



For any service carried as part of the basic cable package, the rates that may be charged to subscribers are regulated by the CRTC and set forth as a condition of
licence. All of our analog services are carried as part of the basic package on some cable systems in the country.



Canadian copyright collectives representing copyright owners of music are entitled to collect royalties in respect of the music broadcast on our services. These
royalties are established by the Copyright Board and paid by broadcasting services and distribution undertakings, as set forth in theCopyright Act(Canada). The Copyright Board recently released its decision on royalties payable to the Society of Composers, Authors and Music Publishers of Canada ("SOCAN") for the performance of music by
specialty television services for the years 2001 - 2004. In previous years, the Tariff 17 royalty was calculated using the aggregate revenues of all specialty services
to arrive at a rate per subscriber payable on the total number of subscribers of distribution undertakings. In its most recent decision, the Board changed its method of calculating royalties to one
based on a percentage of each individual service's revenues. Although the overall Tariff 17 royalty amount payable to SOCAN has increased, we anticipate the change in calculation will result in
a small reduction in the proportionate amount of the Tariff 17 royalty payable in respect of our services. In future, our Tariff 17 royalty obligations could increase or decrease
depending on the decision of the Board, settlements with SOCAN on royalties payable after 2004, or the outcome of negotiations with distribution undertakings.

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Motion Picture Distribution

In most Canadian provinces and territories, a licence to engage in the motion picture distribution business must be obtained from applicable provincial regulatory
authorities. In all of these jurisdictions, other than Québec, there are limited requirements associated with the issue and renewal of such licences. Pursuant to the Cinema Act(Québec),
only companies whose "principal place of business" is located in Québec can hold a general
distribution licence in Québec. Our Vivafilm subsidiary was granted a general distribution licence in 1998.

TheInvestment Canada Act(Canada) provides for the review by the Ministry of Canadian Heritage of proposed investments or acquisitions
that could result in the foreign ownership and control of Canadian cultural businesses, including motion picture distribution. These restrictions on foreign ownership and control do not preclude a
non-Canadian (including a U.S.-based studio) from distributing a motion picture produced by that person or its affiliates.



The Canadian federal government's financing support to the Canadian film industry is provided through the "Canada Feature Film Fund". Financing is available to
motion picture distributors for Canadian theatrical release costs ranging from test marketing and campaign creation to prints and advertising. Financing provided by Telefilm Canada pursuant to the
Canada Feature Film Fund is in the form of a non-interest bearing advance of up to 75% of the eligible Canadian marketing costs for the release of the film.

INTELLECTUAL PROPERTY

We use a number of trademarks for our products and services as well as trademarks, logos and other representations of characters used in our productions. Many of
these trademarks are registered by us and those trademarks that are not registered are protected by common law. We have taken affirmative legal steps to protect our trademarks and we believe our
trademark position is adequately protected. We also believe that our trademarks are generally well recognized by consumers of our products and are associated with a high level of quality and value.
Through our partnerships with owners of some of the leading channel brands in the world, we have licenced the use of certain trademarks and related intellectual property rights for our specialty
channels from National Geographic, the BBC and Discovery Communications.

In
October 2003, we entered into a trademark licence agreement with Movie Distribution Income Fund and the Partnership pursuant to which the Partnership and Movie Distribution
Income Fund have been granted a licence by us to use certain of our trademarks for use only in connection with the distribution and exhibition of motion pictures.

Distribution
rights to television programming and motion pictures are granted legal protection under the copyright laws of Canada, the United States and most foreign countries,
which impose substantial civil and criminal sanctions for unauthorized duplication and exhibition of motion pictures and television programming. From time to time, various third parties contest or
infringe upon our intellectual property rights. We believe that we take, and plan to continue taking, all appropriate and reasonable measures to secure, protect and maintain or obtain agreements from
licensees to secure, protect and maintain copyright protection for all of the motion pictures and television programming produced and distributed by us under the laws of all applicable jurisdictions.
We can give no assurance that our actions to establish and protect our trade-marks and other proprietary rights will be adequate to prevent imitation or copying of our filmed entertainment by others
or to prevent third parties from seeking to block sales of our filmed entertainment as a violation of their trade-marks and proprietary rights.

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Moreover,
we can give no assurance that others will not assert rights in, or ownership of, our trade-marks and other proprietary rights, or that we will be able to successfully resolve
these conflicts. In addition, the laws of certain foreign countries may not protect proprietary rights to the same extent as do the laws of the United States or Canada.

In
April 2002, the Supreme Court of Canada decided that the correct interpretation of sections 9 and 10 of theRadiocommunication
Act(Canada) is that they make it illegal to own or sell equipment in Canada that is capable of decoding encrypted US or other foreign direct-to-home
television satellite signals. We have commenced a legal action in the Federal Court of Canada (together with Bell ExpressVu, Astral and CTV Inc.) against a number of dealers engaged in the
importation and sale of US direct-to-home satellite television equipment seeking injunctive relief together with substantial damages for losses suffered in connection with
their illegal activities, including lost subscription revenue for our broadcast channels and lost distribution revenue in our content business. We, along with other industry participants, will
continue to vigorously pursue legal actions against those who participate in the sale and distribution of illegal US direct-to-home satellite equipment. We are also
participating in public awareness campaigns intended to inform Canadians of both the illegality of owning US direct-to-home satellite equipment and the negative impact of
satellite signal piracy on the Canadian broadcast and production industries.

PROPERTIES AND FACILITIES

We have offices in Toronto and Montreal (Canada), Los Angeles (U.S.), Sydney (Australia), London (England), Dublin and Shannon (Ireland) and Madrid and Barcelona
(Spain). Our corporate head office is located at 121 Bloor Street East, Suite 1500, Toronto, Ontario, Canada. We believe that our properties are in good condition and sufficient for our
purposes.

As
of December 31, 2004, we leased the following properties:

|Address                                                                                     |  | Amount of Space |  | Expiration Date           
|------------------------------------------------------------------------------------------- |  | --------------- |  | --------------------------
|121 Bloor Street East, Suite #1500
Toronto, Ontario
M3W 3M5, Canada                         |  | 155,559 sq. ft  |  | June 2018                 
|175 Bloor Street East
Toronto, Ontario
M4W 3V3, Canada                                      |  | 65,000 sq. ft   |  | March 2006  December 2006
|Cinevillage
65 Heward Avenue
Toronto, Ontario
M4M 2T5, Canada                               |  | 58,330 sq. ft.  |  | March 2006  March 2009   
|Alliance Atlantis Vivafilm
5 Place Ville Marie Suite #1435
Montreal, Quebec
H3B 2G2, Canada |  | 9,666 sq. ft.   |  | April, 2005               

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|Address                                                                  |  | Amount of Space |  | Expiration Date             
|------------------------------------------------------------------------ |  | --------------- |  | ----------------------------
|1668 Barrington Street
Halifax, Nova Scotia
B3J 2A2, Canada              |  | 12,966 sq. ft.  |  | March, 2005                 
|5091 Terminal Road
Halifax, Nova Scotia
B3J 2A2, Canada                  |  | 66,415 sq. ft   |  | November, 2007              
|808 Wilshire Blvd., Suite 300
Santa Monica, California
90401-1810 U.S.A. |  | 32,027 sq. ft   |  | February, 2006              
|Second Floor
184-192 Drummond Street
London NW1 3HP England              |  | 2,046 sq. ft    |  | January, 2008               
|40 Westland Row
Dublin, Ireland                                          |  | 5,000 sq. ft    |  | February, 2006              
|Block l, Unit C
Shannon Business Park
Shannon, Co. Clare, Ireland        |  | 2,000 sq. ft    |  | March, 2005 (month to month)
|401 Darling Street, Suite #2
Balmain, Sydney NSW 2041
Australia          |  | 1,535 sq. ft    |  | June, 2008                  
|12 Avenida de Burgos
Floors 10 and 11
Madrid, Spain                      |  | 900 sq. metres  |  | November, 2006              
|Rambla de Catalunya 98
Third Floor
Barcelona, Spain                      |  | 100 sq. metres  |  | February, 2008              

Effective
February 11, 2005, we moved our Montreal office from the address noted above to 455 St.-Antoine Street West, Suite 300, Montreal, Quebec H2Z 1J1
where we have leased approximately 12,325 square feet. The current lease expires in November, 2015.

Information
regarding additional properties leased by the Partnership, thorugh its subsidiary Alliance Atlantis Cinemas may be found in the Annual Information Form of Movie Distribution
Income Fund available on SEDAR.com. That Annual Information Form is not incorporated by reference into this document.

We
also own the following property:

|Address                                                                                   |  | Square Feet |  | Comments                                                      
|----------------------------------------------------------------------------------------- |  | ----------- |  | --------------------------------------------------------------
|Soho Metropolitan Condominium
36 Blue Jays Way, Suite 1305
Toronto Ontario
M5V 3T3 Canada |  | 1,100       |  | The condominium is currently subject to an agreement for sale.

EMPLOYEES

As at December 31, 2004, we employed approximately 741 employees in Canada, the United States, Europe and Australia. In addition, like any
entertainment company, from time to time we employ the services of a variety of individuals, many of whom are engaged under collective bargaining agreements negotiated with various guilds and unions.
The key guilds and unions which negotiate on behalf of individuals engaged by production companies include: Alliance of Canadian Cinema, Television and Radio Artists (ACTRA) and Union of British
Columbia Performers (UBCP) and Screen Actor's Guild (SAG) (for performers), Writers Guild of Canada (WGC) and Writers Guild of America (WGA) (for writers), Directors Guild of Canada
(DGC) and Directors Guild of America (DGA) (for directors and other key positions) and Association of Canadian Film Craftspeople (ACFC), and International Alliance of Theatrical Stage
Employees, Artists and Allied Crafts (IATSE) (for technicians).

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MANAGEMENT

Board of Directors

As of December 31, 2004, the board of directors of Alliance Atlantis consisted of ten directors. Effective as of March 30, 2005, Robert J. Steacy
was appointed as an additional member of the board of directors. Each of our directors holds office until the next annual meeting of our shareholders or until a successor is elected or appointed. Our
board of directors has established an audit committee, an executive committee, a corporate governance committee and human resources committee. Particulars relating to each of the directors as at
December 31, 2004, as well as their memberships on various committees are set out below.

|Nominee for Election as Director(1)      |  | Director Since |  | Shareholdings                                                        |  | Board Meetings |  | Committees Meetings      
|---------------------------------------- |  | -------------- |  | -------------------------------------------------------------------- |  | -------------- |  | -------------------------
|ANTHONY F. GRIFFITHS(2)(3) LEAD DIRECTOR |  | January 1996   |  | 10,052 Class B Shares 10,000 Class B Options
10,887 DSUs
8,000 PSAPs |  | 14 of 14       |  | 6 of 6 AC(4)
2 of 2 EC(4)

Anthony
F. Griffiths is 74 years old and resides in Toronto, Ontario. Since 1993, Mr. Griffiths has been associated with various companies acting as an independent consultant.
Mr. Griffiths is the Chairman of the Board of Directors of Russel Metals Inc. and Leitch Technology Corporation. Mr. Griffiths is also a director of Jaguar Mining Inc.,
Vitran Corporation, Fairfax Financial Holdings Limited, IMI International Medical Innovations Inc., Hub International Limited and Odyssey Re Holdings Corp. Formerly, Mr. Griffiths was
President and Chief Executive Officer of Jonlab Investments, Chairman and Chief Executive Officer of Canadian Cablesystems Ltd. and Chairman, President and Chief Executive Officer of Mitel
Corp.

|PIERRE DESROCHES |  | September 1995 |  | 100 Class A Shares 2,494 Class B Shares
10,000 Class B Options
6,749 DSUs
8,000 PSAPs |  | 14 of 14 |  | 5 of 5 GC(5)
|---------------- |  | -------------- |  | ------------------------------------------------------------------------------------- |  | -------- |  | ------------

Pierre
DesRoches, is 73 years old and resides in Saint Lambert, Quebec. Mr. DesRoches is a business consultant to the communications industry. Over the last several years he has provided
advice to the Department of Canadian Heritage, the Canadian Broadcasting Corporation and the Société des entreprises culturelles de Québec. Formerly,
Mr. DesRoches was the Executive Director of Telefilm Canada, the Executive Vice President of the Canadian Broadcasting Corporation, the President of the North American National Broadcasters
Association and the President of the French-speaking community of public broadcasters. Mr. DesRoches has been a director of Telesat Canada, the Montreal Opera Company and the Banff Television
Festival. He has been honoured by the French government who named him officier of l'Ordre des arts et des lettres de France.

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|Nominee for Election as Director(1) |  | Director Since |  | Shareholdings                                                                                                  |  | Board Meetings |  | Committees Meetings   
|----------------------------------- |  | -------------- |  | -------------------------------------------------------------------------------------------------------------- |  | -------------- |  | ----------------------
|HAROLD P. GORDON, Q.C.              |  | December 1992  |  | 6,760 Class A Shares
5,398 Class B Shares
3,130 Class A Options
13,130 Class B Options
12,518 DSUs
8,000 PSAPs |  | 14 of 14       |  | 1 of 1 EC(6)
5 of 5 GC

Harold
P. Gordon is 67 years old and resides in Sunny Isles, Florida. In November 2001, Mr. Gordon was appointed Chairman of the Board of Directors of Dundee Corporation
(formerly, Dundee Bancorp Inc.) Mr. Gordon has previously worked as a special assistant to a Minister of the Federal Government of Canada, was a managing partner of Stikeman
Elliott LLP during his 28-year career as a practicing lawyer and was most recently Vice Chairman of Hasbro Inc. Mr. Gordon serves as a director of Dorel Industries
Limited, Dundee Corporation, Sonomax Hearing Health Care Inc., Transcontinental Limited and is Chairman of the Sauve Scholars Foundation.

|ELLIS JACOB |  | December 1992 |  | 633 Class B Shares
110,000 Class B Options
8,531 DSUs
8,000 PSAPs |  | 11 of 14 |  | 6 of 6 AC
1 of 1 EC(6)
|----------- |  | ------------- |  | ----------------------------------------------------------------- |  | -------- |  | ----------------------

Ellis
Jacob is 51 years old and resides in Toronto, Ontario. Mr. Jacob is the President and Chief Executive Officer, Director and General Partner of Cineplex Galaxy LP, one of
Canada's largest motion picture exhibitors. From 1999 to November 25, 2003 Mr. Jacob was the Chief Executive Officer and co-founder of Galaxy Entertainment Inc., a
movie theatre circuit concentrated in mid-size Canadian markets. From September 1998 to October 2000, Mr. Jacob was a consultant to Alliance Atlantis
Communications Inc. and prior to September 1998, Mr. Jacob was the Executive Vice President and then Chief Operating Officer of Cineplex Odeon Corporation. Mr. Jacob is a
director of Motion Picture Distribution Inc., the Toronto International Film Festival Group, the Motion Picture Theatre Association of Canada and various charitable boards and committees.

|ALLEN KARP, Q.C.(7) |  | March 1992 |  | 6,164 Class B Shares
10,000 Class B Options
9,366 DSUs
8,000 PSAPs |  | 11 of 14 |  | 2 of 2 EC
5 of 5 GC
1 of 1 HR(5)
|------------------- |  | ---------- |  | ------------------------------------------------------------------ |  | -------- |  | --------------------------------

Allen
Karp is 64 years old and resides in Toronto, Ontario. Mr. Karp has been with Cineplex Odeon Corporation since 1986, where he is currently the Chairman, Emeritus. Mr. Karp
was a partner in the law firm of Goodman and Carr LLP, where he practiced the law from 1966 until 1986. Mr. Karp also sits on the Board of Directors of Teknion Corporation where he is
lead director and sits on all major committees; is a Trustee of Royal LePage Franchise Services Fund and a director of its management company, the Chair of its corporate governance committee and sits
on the audit committee; is a Trustee of the IBI Group, and sits on the audit committee; and is Chairman of the Toronto International Film Festival Group and a member of all major committees.

|DAVID J. KASSIE |  | December 1992 |  | 718 Class B Shares
3,130 Class A Options
13,130 Class B Options
7,514 DSUs
8,000 PSAPs |  | 10 of 14 |  | 0 of 1 EC(6)
1 of 1 HR(5)
|--------------- |  | ------------- |  | -------------------------------------------------------------------------------------- |  | -------- |  | -------------------------

David
J. Kassie is 49 years old and resides in Toronto, Ontario. Mr. Kassie is a Principal, Chairman and Chief Executive Officer of Genuity Capital Markets. He was the Chairman of Carem
Merchant Bank in 2004. Prior to February, 2004, he was the Chairman and Chief Executive Officer of CIBC World Markets and the Vice Chairman of CIBC. Mr. Kassie has extensive experience as an
advisor, underwriter and principal. He sits on a number of corporate boards of directors. Mr. Kassie is actively involved in community and charitable organizations and is on the Board of
Directors of the Shoah Foundation, the Hospital for Sick Children and the Ivey School of Business. He is a past board member of Women in Capital Markets; he was Chairman of the University of Guelph
Campaign; and was the Patrons' Council Chair for An Evening with Rudolph Giuliani in November, 2002.

19

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|Nominee for Election as Director(1) |  | Director Since |  | Shareholdings                                                                           |  | Board Meetings |  | Committees Meetings
|----------------------------------- |  | -------------- |  | --------------------------------------------------------------------------------------- |  | -------------- |  | -------------------
|MICHAEL I.M. MACMILLAN              |  | June 1989      |  | 2,513,749 Class A Shares(8)
27,889 Class B Shares
125,000 Class B Options
700,000 PSAPs |  | 14 of 14       |  | 2 of 2 EC          

Michael
I.M. MacMillan is 48 years old and resides in Toronto, Ontario. Mr. MacMillan is the Chairman and Chief Executive Officer of Alliance Atlantis Communications Inc.
Mr. MacMillan is also the Chairman of the Board of Directors of Motion Picture Distribution Inc. Mr. MacMillan has served on various corporate boards and has been involved with a
variety of charitable and community organizations. He is currently on the board of and the President of the Canadian Club of Toronto, the Toronto International Film Festival and is a Governor of Upper
Canada College.

|DR. MARGOT NORTHEY |  | September 2001 |  | 3,757 DSUs
10,000 Class B Options
8,000 PSAPs |  | 14 of 14 |  | 5 of 6 AC
1 of 1 HR(5)
|------------------ |  | -------------- |  | --------------------------------------------- |  | -------- |  | ----------------------

Dr. Margot
Northey is 64 years old and resides in North Saanich, British Columbia. Dr. Northey was a Professor and Dean of Queen's School of Business at Queen's University in
Kingston, Ontario from September 1995 to June 2002. Dr. Northey is currently on the Board of Directors of Stressgen Biotechnologies, Wawanesa Insurance Company, Fraser
Papers Inc., Norbord Inc., British Columbia Transmission Corp. and Aliant Inc. Dr. Northey has been a Vice President of the International Association of Business
Communicators and a Director of the Association to Advance Collegiate Schools of Business. Dr. Northey has also served on the selection committee for the CEO of the Year Award and for the
Ontario Rhodes Scholarships. Dr. Northey is the author of five books and several articles.

|BARRY J. REITER(9) |  | September 1993 |  | 1 Class A Share
13,045 Class B Shares
10,000 Class B Options
11,561 DSUs
8,000 PSAPs |  | 13 of 14 |  | 2 of 2 EC
5 of 5 GC
|------------------ |  | -------------- |  | ------------------------------------------------------------------------------------ |  | -------- |  | -------------------

Barry
J. Reiter is 56 years old and resides in Toronto, Ontario. Mr. Reiter is a senior partner and member of the Executive Committee, Chairman of the Technology Group and a member of
the Corporate Governance Group of Torys LLP, a law firm based in New York and Toronto. Mr. Reiter is a director of Avotus Corporation, Skypower Corporation, Eco Waste
Solutions Inc., RBC Technology Ventures Inc., Binscarth PVC Ventures Inc., Park Avenue Investment Corporation, Motion Picture Distribution Inc., and
724 Solutions Inc., and is a member of the Advisory Board of the Centre for Innovation Law and Policy.

20

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|Nominee for Election as Director(1) |  | Director Since |  | Shareholdings                                                                             |  | Board Meetings |  | Committees Meetings   
|----------------------------------- |  | -------------- |  | ----------------------------------------------------------------------------------------- |  | -------------- |  | ----------------------
|DONALD R. SOBEY                     |  | September 1996 |  | 142,242 Class A Shares 2,074 Class B Shares
22,520 Class B Options
9,669 DSUs
8,000 PSAPs |  | 10 of 14       |  | 6 of 6 AC
0 of 1 HR(5)

Donald
R. Sobey is 70 years old and resides in Stellarton, Nova Scotia. Mr. Sobey is the Chairman Emeritus of Empire Company Limited. Mr. Sobey sits on numerous Boards of
Directors including Sobeys Inc., High Liner Foods Inc., Toronto-Dominion Bank, Stora Enso Port Hawkesbury, and World Wildlife Fund. Mr. Sobey is the current Chair of the National
Gallery of Canada and the former Chair of Maritime Telegraph & Telephone Company Limited.

---

Notes:

21

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As of December 31, 2004, our Audit Committee consisted of Ellis Jacob, Anthony Griffiths, Donald Sobey and Margot Northey. As of March 30, 2005,
Robert Steacy joined the Committee. Each of these individuals is "independent", "financially literate" and "unrelated", as those terms are defined in relevant securities legislation and stock exchange
rules and guidelines. The following is the education and experience of each Audit Committee member that is relevant to his or her skills at: (a) understanding accounting principles used by the
Company to prepare its financial statements; (b) assessing the general application of such accounting principles in connection with the accounting for estimates, accruals and reserves;
(c) preparing, auditing, analyzing and evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and
complexity of issues that can reasonably be expected to be raised by Alliance Atlantis' financial statements, or actively supervising one or more persons engaged in such activities; and
(d) understanding of internal controls and procedures for financial reporting.

22

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The
Audit Committee Terms of Reference sets out explicitly the roles and responsibilities of the Audit Committee and is reviewed annually by the Board. In addition, to safeguard the
continued independence of its external auditors, the Audit Committee requires that all audit and non-audit services to be rendered by the external auditors to the Company and any of our
related entities must be the subject of pre-approval by the Audit Committee. Such pre-approval will be based on the detailed policies and procedures established by the Audit
Committee which are attached asAppendix 1.



The following table provides information about the fees billed to the Company for professional services rendered by PricewaterhouseCoopers LLP during
Calendar 2004 and the previous fiscal nine-month period ended December 31, 2003 ("Fiscal 2004"):

|($ thousands)      |  | Calendar 2004 |           | Fiscal 2004
|------------------ |  | ------------- | --------- | -----------
|Audit Fees         |  | $             | 4,836,156 |            
|Audit-Related Fees |  | $             | 174,284   |            
|Tax Fees           |  | $             | 154,685   |            
|All Other Fees     |  | $             | 317,071   |            
|                   |  |               |           |            
|Total              |  | $             | 5,482,196 |            
|                   |  |               |           |            

Audit Fees.Audit fees consist of fees for the audit of the registrant's annual financial statements or services that are
normally provided in connection with statutory and regulatory filings or engagements.

Audit-Related Fees:Audit-Related Fees consist of fees related to contract compliance audits, accounting assistance related
to the adoption of new CICA Handbook pronouncements and new business ventures, assistance with the review of correspondence with regulatory authorities and prospectus preparation.

Tax Fees.Tax fees consist of fees for tax compliance services, tax advice and tax planning. The services provided in this
category included assistance and advice in relation to the preparation of corporate income tax returns and income tax provisions included in the financial statements.

All Other Fees.The services provided in this category included those related to research, transfer pricing services and
foreign currency risk management review.

Officers

The names of the officers of Alliance Atlantis Communications Inc. (other than officers who are also directors) as at December 31, 2004, their
municipality of residence, their current offices and other principal occupations during the last five years are set out below:

|Name and Municipality of Residence |  | Office                                                      |  | Principal Occupations and Positions During the Last Five Years                                                                                                                                                                                                                                                      
|---------------------------------- |  | ----------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|W. Judson Martin
Toronto, Ontario  |  | Senior Executive Vice President and Chief Financial Officer |  | Mr. Martin has held his current position since March, 2003 and was Executive Vice President and Chief Financial Officer of Alliance Atlantis from May 1999 to November, 2002. From November, 2002 to January, 2003,
he was President and Chief Executive Officer of TGS North American Real Estate Investment Trust.

23

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|Name and Municipality of Residence |  | Office                                                                                |  | Principal Occupations and Positions During the Last Five Years                                                                                                                                                                                                                                          
|---------------------------------- |  | ------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Phyllis Yaffe
Toronto, Ontario     |  | Chief Operating Officer                                                               |  | Ms. Yaffe has held her current position since April, 2004. Prior to that she was Chief Executive Officer, Broadcast group of the Company.                                                                                                                                                               
|Heather E. Conway
Toronto, Ontario |  | Executive Vice President, Corporate and Public Affairs                                |  | Ms. Conway has held her current position since July, 2001. From 1999 to June, 2001 she was Executive Vice President Corporate and Public Affairs, at TD Bank Financial Group.                                                                                                                           
|Paul Laberge(3)
Toronto, Ontario   |  | Senior Vice President, Corporate Development, General Counsel and Corporate Secretary |  | Mr. Laberge was Senior Vice President, Corporate Development, General Counsel and Corporate Secretary from March, 2000 to February, 2005.From 1998 to 2000 he was Vice
President, Corporate Development of the Company.                                                                                 
|Rita A. Middleton
Grimsby, Ontario |  | Senior Vice President Finance, Corporate Group                                        |  | Ms. Middleton has been with the Company since 1994 and has held her current position since 2002. From 2000 to 2001 she was Senior Vice President, Finance and Corporate Development, of the Broadcast group of the
Company and from 1998 to 2000 she was Vice President, Finance of the Broadcast group.
|Susan Berger
Toronto, Ontario      |  | Treasurer                                                                             |  | Ms. Berger has been with the Company since 1998 in her current position.                                                                                                                                                                                                                                

As
of December 31, 2004, the directors and officers of Alliance Atlantis Communications Inc. beneficially owned, directly or indirectly, or exercised control or direction
over approximately 2,625,926 Class A Shares, representing approximately 92% of the outstanding Class A Shares and approximately 93,405 Class B Shares representing
approximately 0.59% of the outstanding Class B Shares. The foregoing ownership figures have been provided to us by the individuals indicated and have not been independently verified by us.

DESCRIPTION OF SHARE CAPITAL

The following chart sets out our authorized share capital.

|Shares                    |  | Authorized
|------------------------- |  | ----------
|Class A Voting Shares     |  | Unlimited 
|Class B Non-Voting Shares |  | Unlimited 

---

24

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Our share capital formerly authorized 275,000 Class C Special Voting Shares and one Class D Special Non-Voting
Share. None of these shares is outstanding and no further shares of these classes can be issued.

The
following description refers only to the share capital of Alliance Atlantis Communications Inc. and not to any of our subsidiaries.

Class A Voting Shares and Class B Non-Voting Shares

Voting Rights.The Class A Voting Shares entitle the holders thereof to one vote per share.
The Class B Non-Voting Shares do not entitle the holders thereof to any votes at meetings of our shareholders, subject to the condition that the Class B
Non-Voting Shares entitle the holders thereof to one vote per share on any vote in respect of our liquidation, dissolution or winding-up or the sale, lease or exchange of all
or substantially all of our property and as otherwise provided by law.

Payment of Dividends.The holders of Class A Voting Shares and Class B
Non-Voting Shares participate equally with each other in respect of the payment of dividends, including the amount per share of the dividend.

Distribution of Assets.The Class A Voting Shares and Class B Non-Voting
Shares rank equally with each other in respect of the return of capital in the event of the liquidation, dissolution or other distribution of our assets for the purpose of winding up our affairs.

Preservation of Rights.If either of the Class A Voting Shares or Class B
Non-Voting Shares are subdivided, consolidated, reclassified or otherwise changed, appropriate adjustments shall be made at the same time to the rights attaching to the shares of the other
class to ensure the preservation of the rights of each class in relation to those of the other.

Conversion Rights.Each Class A Voting Share is convertible at any time, at the holder's
option, into one fully paid and non-assessable Class B Non-Voting Share.

If
an offer (the "Offer") is made to purchase Class A Voting Shares and the Offer is one which must, pursuant to applicable securities legislation or the rules of a stock
exchange on which the Class A Voting Shares are then listed, be made to all or substantially all of the holders of Class A Voting Shares in a province of Canada to which the requirement
applies, each Class B Non-Voting Share will become convertible at the option of the holder, at any time commencing eight days after the Offer is made and ending at the expiration of
the Offer, into one Class A Voting Share. The conversion right may be exercised only for the purpose of depositing the resulting Class A Voting Shares in response to the Offer and our
transfer agent (the "Transfer Agent") will deposit the resulting Class A Voting Shares on behalf of the shareholder. No share certificates representing the Class A Voting Shares
will be delivered to the shareholder.

If
(a) Class A Voting Shares resulting from the conversion and deposited pursuant to the Offer are withdrawn by the shareholder or are not taken up by the offeror or
(b) the Offer is abandoned or withdrawn by the offeror, the Class A Voting Shares will be re-converted into Class B Non-Voting Shares and a share
certificate representing the Class B Non-Voting Shares will be sent to the shareholder by the Transfer Agent.

If
the offeror takes up and pays for the Class A Voting Shares resulting from conversion, the Transfer Agent shall deliver to the holders thereof the consideration paid for such
shares by the offeror.

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There is no right to convert the Class B Non-Voting Shares into Class A Voting Shares in the following cases:



Each
Class B Non-Voting Share will be automatically converted into one Class A Voting Share in the event that the Chairman of our board of directors fails to
deliver to the Transfer Agent, within 140 days of the end of the immediately preceding fiscal year of Alliance Atlantis, a certificate, signed by the Chairman, that an independent committee of
our board of directors has determined that it continues to be necessary for us to be Canadian controlled, or that there be limitations on the number of shares held by non-Canadians, for
the purposes of determining our eligibility for financial incentives or assistance or licences from any Canadian federal or provincial government or agency or for any other regulatory purpose. We have
delivered a certificate to our Transfer Agent in respect of the fiscal year ended December 31, 2004.

Constraints on Ownership of Securities.Applicable laws and the nature of the Company's business
(principally in connection with the ownership of interests in broadcast licenses) require that it ensure that the level of non-Canadian ownership be monitored and limited. Accordingly, the
articles of the Company contain a provision which permits the Company to prohibit the issuance or transfer of its shares to any person who is not a "Canadian" (within the meaning of any applicable
statute, regulation, guideline or policy) if the issue or transfer would cause the Company to cease to be qualified to carry on any relevant business. The current limit on non-Canadian
ownership of the Company 's shares in the aggregate is shares representing not more than 331/3% of all issued and outstanding voting shares and not more than 331/3% of
the votes attached to all issued and outstanding voting shares.

Before
an issue or transfer of shares is recorded in the register of the Company 's shareholders, the purchaser or transferee, as the case may be, may be required to submit to the
Company or its agents a declaration as to the purchaser's or transferee's beneficial ownership of shares of the Company, its citizenship and such other matters as the Board may deem relevant in order
to determine whether the registration of the purchaser or transferee should be prohibited. Such a declaration may also be required at any time when proxies are being solicited from shareholders,
before or at any meeting of shareholders or at any time when, in the opinion of the directors of the Company, the holding of shares by any non-Canadian person should be prohibited. The
Company 's shareholders are, therefore, restricted from selling their shares to non-Canadians to the extent that the resulting holdings would result in a breach of these restrictions. In
addition, the directors of the Company may refuse to register a transfer of any shares of the Company if such transfer could require the prior approval of the Canadian Radio-television and
Telecommunications Commission or any other governmental body or authority having or purporting to have jurisdiction.

26

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Each
year the Executive Committee of the Board must advise the Chief Executive Officer, within 140 days after the fiscal year end, that it is necessary or advisable that the
Company be Canadian-controlled. If the Executive Committee should not so advise, the Class B Shares of the Company are to be automatically converted into Class A Shares.

DESCRIPTION OF CERTAIN INDEBTEDNESS

Repayment of Senior Subordinated Notes

On December 21, 2004, we repaid holders of our outstanding 13% senior subordinated notes due December 15, 2009. The holders were paid at 106.5% of
the US$300 million principal amount, plus accrued and unpaid interest. We believe the annual interest savings from the payment of the holders of the 13% senior subordinated notes will be
substantial.

New Credit Facility

On December 20, 2004, the Company entered into new senior secured credit facilities with a syndicate of Canadian and U.S. lenders, that consist of a
five-year C$175 million (or equivalent US$) revolving credit facility, a five-year Term Loan A facility for US$108.6 million, and a seven-year
Term Loan B facility for US$250 million. Advances under the revolving credit facility and the Term Loan A facility bear interest at the Bankers' Acceptance or LIBOR rate (for Canadian
and U.S. dollar advances respectively) plus a margin of 150 basis points. Advances under the Term Loan B Facility bear interest at the LIBOR rate plus a margin of 175 basis
points. The margin payable on the revolving credit facility and the Term Loan A facility is subject to change based on our leverage ratio. We used the new credit facilities to repay the balance on our
previous credit facility in addition to financing the repayment to the holders of the notes.

These
credit facilities are separate from and have no effect on the financing structure of the Partnership or Movie Distribution Income Fund.

For
purposes of this description of the credit facilities, references in this section to the "Company", "we", "us" and "our" refer to Alliance Atlantis Communications Inc. only
and not to any of its subsidiaries.

Borrowings
under the credit facilities are secured by a first ranking lien against substantially all of the assets of the Company. Our obligations under the credit facilities are
guaranteed by substantially all of our material wholly owned subsidiaries and secured by first ranking liens on substantially all of the property and assets of those subsidiaries and are also secured
by liens against the property and assets of certain of our non-wholly owned subsidiaries.

The
credit facilities contain covenants imposing certain operating and financial restrictions on us and our subsidiaries as well as customary affirmative covenants and industry-specific
covenants. The terms of the credit facilities restrict, among other things, our ability to: (a) declare dividends, redeem or repurchase capital stock or make other distributions to our
shareholders; (b) prepay or redeem debt; (c) grant liens; (d) make loans, acquisitions and investments; (e) incur more debt; (f) engage in mergers, reorganizations
and asset sales out of the ordinary course of business; (g) change our core business; (h) engage in transactions with related parties; and (i) enter into certain sale leaseback
transactions.

Events
of default under the credit facilities include: (a) a change of control of the Company; (b) failure to pay principal, interest or other amounts when due;
(c) breach of any covenant or representation and warranty contained in the loan documents; (d) cross-default provisions to other material indebtedness; (e) customary events of
bankruptcy, insolvency or dissolution of the Company or its subsidiaries; and (f) the enforcement of certain judgments against the Company, its subsidiaries or their assets or the seizing of
material assets by other creditors. Upon the occurrence and continuance of an event of default under the credit facilities, the lenders are entitled to terminate their commitments to lend and declare
the outstanding advances due and payable.

27

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Other Indebtedness

Certain of our subsidiaries have additional indebtedness in respect of loans (known as "industry loans") made by broadcasting industry lenders (such as Rogers
Cablesystems Limited, CanWest Global Broadcasting Inc. and Baton Broadcasting Inc.) which loans are generally advanced in connection with specific productions and secured in a
first-ranking position against the assets of the applicable production and, in certain cases, by guarantees from us. Such loans are public-policy mandated by the Canadian federal government and
various provincial governments and are generally made at favorable interest rates and on favorable terms. As at December 31, 2004, total indebtedness of our subsidiaries in respect of such
loans was $1.0 million.

FOREIGN EXCHANGE

A significant portion of our revenues and expenses are in currencies other than Canadian dollars and, are therefore subject to fluctuations in exchange rates.
Approximately 37% of our revenue for 2004 was derived from our foreign operations. Exchange rates are determined by market factors beyond our control and may vary substantially and have a material
adverse effect on our results of operations. For significant transactions, we have occasionally purchased future currency contracts in order to minimize the risk of currency fluctuation. At present,
we are not aware of any existing currency or exchange control regulations in any country in which we currently contemplate exploiting our properties which would have an adverse effect on our ability
to repatriate such funds.

LEGAL PROCEEDINGS

We are involved from time to time in various claims and lawsuits incidental to the ordinary course of our business, including intellectual property actions.
Adverse determinations in litigation could result in the loss of our proprietary rights, subject us to significant liabilities, or require us to seek licences from third parties, any one of which
could have an adverse effect on our business and results of operations. Actions which are incidental to our business are typically covered by insurance and management has estimated the potential
liability and expensed the amount on its financial statements. While no assurance can be given that these proceedings will be favourably resolved, we do not believe that the outcome of these legal
proceedings will have a materially adverse impact on our financial position or results of operations.

RISK FACTORS

Risks Related to Alliance Atlantis and the Entertainment Industry

Some or all of our television programs, motion pictures or specialty television channels may not be successful.

The
television and motion picture distribution industries and specialty cable broadcasting have always involved a substantial degree of risk. There can be no assurance of the economic
success of any motion picture, television program or specialty cable television channel as revenue derived depends on audience acceptance, which cannot be accurately predicted. Audience acceptance is
a factor not only of the response to the television program's or motion picture's artistic components or the specialty cable television channel's content, but also to the reviews of critics,
promotions, the quality and acceptance of other competing programs released into, or channels existing in, the marketplace at or near the same time, the availability of alternative forms of
entertainment and leisure time activities, general economic conditions, public tastes generally and other intangible factors, all of which could change rapidly and many of which are beyond the
Company's control. A lack of audience acceptance for any of theCSIfranchise, motion pictures distributed by the Partnership or specialty television
channels owned by the Company could have an adverse effect on its businesses, results of operations, prospects and financial condition.

28

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In
addition, television production and distribution costs, motion picture distribution costs and broadcasting programming costs, continue to rise. The Company's businesses are also
impacted by prevailing advertising rates, which are subject to fluctuation. A substantial portion of the broadcasting revenue is from advertising sales. The Company competes for advertising sales with
other television channels, radio and print media. The Company's inability to generate advertising revenue could adversely affect its operating results, prospects or financial condition. Specialty
television channel operators rely on fees from subscribers, which are shared with cable and DTH operators, to provide a substantial portion of their revenue while they build an audience and
advertising support. The subscriber penetrations, and therefore subscriber
revenues, of any particular specialty television channel can be affected by the attractiveness of the packaging scenarios presented to subscribers by the cable and DTH satellite operators.

Generally,
television programs are produced under contracts that provide for licence fee revenue that may not cover all anticipated production costs. The "gap" or production deficit
between these fees and production costs can be substantial. The ability to recover the production deficit and the realization of profits, if any, are generally dependent upon the ability to distribute
the programs in multiple geographic regions, including international markets, or through multiple distribution channels. There is a risk that some of the Company's television programs, motion pictures
distributed or specialty television channels will not be successful, which could result in a failure to recoup costs or realize profits. The Company cannot be certain that revenue from existing or
future projects would replace a possible loss of revenue associated with the cancellation of any particular program or poor results of any particular specialty television channel.

Our failure to recoup production costs could have an adverse effect on our financial condition.

The
production, completion and distribution of television programs requires a significant amount of capital. Actual television program costs may exceed their budgets. Factors such as
labor disputes, death or disability of a star performer, technology changes relating to special effects or other aspects of production, shortages of necessary equipment, damage to film negatives,
master tapes and recordings or adverse weather conditions may cause cost overruns and delay or hamper completion of a production. Although the Company generally completes productions within budget,
the Company cannot be certain that it will continue to do so. In the event of substantial budget overruns the Company may have to seek additional financing from outside sources in order to complete
production of a project. The Company cannot be certain of the availability of such financing or that such financing will be available on terms acceptable to the Company. In addition, in the event of
substantial budget overruns, the Company cannot be certain that it will be able to recoup such costs. Failure to recoup any of these costs could have an adverse impact on the Company's businesses,
results of operations, prospects and financial condition. Notwithstanding the foregoing, as the CSI franchise programs are the main focus of the Company's television production activities, many of the
risks associated with new production activity is minimized.

Our production and distribution businesses are very competitive and increased competition could adversely affect us.

The
business of producing and distributing television programs and distributing motion pictures is highly competitive. We face intense competition from other Canadian and international
producers and distributors, many of whom are substantially larger and have greater financial resources than we do and some of which own their own television networks. We compete with other television
production companies for ideas and storylines created by third parties as well as for actors, directors and other personnel required for a production. In addition, the CRTC and foreign regulatory
authorities continue to license additional television channels, thereby further fragmenting the television audience, increasing competition and creating downward pressure on program license fees. We
cannot assure you that we will be able to successfully compete in these areas in the future or that we will continue to acquire rights to additional successful programming or enter into agreements for
the financing, distribution or licensing of programming on terms favorable to us. Our failure to do so could have an adverse impact on our businesses, results of operations, prospects or financial
condition.

29

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Changes in government regulation could adversely affect our results of operations, prospects or financial condition.

The
Company's specialty television channels are regulated by the CRTC, which grants and renews licences. The Company's CRTC broadcast licences must be renewed from time to time,
typically every seven years, and cannot be transferred without regulatory approval. The Company's inability to renew certain of its licences on favourable terms, or at all, would have a material
adverse impact on its results of operations, prospects or financial condition. Changes in the regulations governing the Company's specialty television channels, including decisions by regulators
affecting its broadcast operations, such as the granting or renewal of licences or the granting of additional broadcast licences to the Company's competitors, or the introduction of new regulations by
regulators, could adversely impact the Company's operating results, prospects or financial condition.

The
Canadian broadcast, production and distribution industries are supported by various government and private initiatives to foster the creation of Canadian film and television
programming. The private mechanisms are often mandated by the CRTC in response to change of control of a regulated asset. These initiatives and government programs make up the complex system of
financial support for the industry. Any change in the nature of these programs or their interactions with each other may provide risk to the Company's broadcast, production and distribution
businesses. As well, if the CRTC's general approach to licencing broadcast services and to requiring Canadian content as part of any licence were to change, it could change the market for programs as
well as the value of the Company's current specialty television licences.

Changes
in public policy related to Canadian ownership of broadcasting or other fundamental principles of the broadcasting system could adversely affect the Company's relationships with
foreign partners in broadcasting or its position in the advertising market. As the federal and provincial governments review and modify their funding programs for television production the Company's
broadcast business could be impacted by fewer resources to fill the gap between licence fees and the independent producers' ability to finance their productions. Since the Company's broadcast
conditions of licence determine its original production needs, these reviews and modifications could be a risk to some of the Company's specialty television channels.



As part of the Company's business strategy, we intend to continue expansion of the Company's non-Canadian distribution activities and, therefore, will
continue to earn a substantial portion of revenue from outside of Canada. The Company's ability to maintain or expand its international business, as well as its ability to contract upon favourable
terms with international broadcasters, distributors and other licencees, and conduct foreign production activities depends, in part, on local economic conditions, currency fluctuations, local changes
in regulatory requirements, compliance with a variety of foreign laws and regulations, inflation, interest rates and cultural barriers and preferences. As a result, the Company cannot be certain that
its international operations will continue to be successful.



The Partnership obtains distribution rights from content suppliers to exploit motion pictures in all media. In Canada, the Partnership has exclusive output
agreements with a limited number of U.S.-based independent studios, including New Line Cinema, Miramax Films, Focus Features and Newmarket Films and enters into distribution agreements in
respect of individual motion pictures less frequently. Conversely, in the United Kingdom and Spain, the Partnership most often enters into distribution agreements in respect of individual
motion pictures, and as a result of this, it is able to draw on a wider range of content suppliers in that territory. Overall, a relatively small number of producers represent a substantial proportion
of the Partnership's total revenue. In 2004, motion pictures acquired under these four output agreements accounted for approximately 46% of the Partnership's revenue. Management believes that the
Partnership's financial performance is, and will continue to be, significantly dependent on the Partnership's continued relationship with these content suppliers and the ability of these content
suppliers to continue to produce motion pictures that receive significant audience acceptance.

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The
Partnership has longstanding relationships with three of its principal content suppliers and has renewed the relevant output agreements on multiple occasions. However, each of these
agreements will expire between 2005 and 2007 and there can be no assurance that all or any of them will be renewed at all, or on terms as favourable to the Company as the current agreements. In
particular, any of the Partnership's content suppliers could instead elect to enter into exclusive distribution agreements with a competitor of the Company. Certain of the independent studios with
which the Company currently has a significant Canadian distribution relationship, including Miramax, New Line and Focus Features, are affiliates of major studios that have their own
distribution capability in Canada. There can be no assurance that these or other content suppliers to the Partnership would not determine, or be required by their respective affiliates, to use this
captive distribution capability rather than contracting with the Company for distribution rights. The loss of one or more of these distribution agreements with a significant content supplier could
have a material adverse effect on the business of the Partnership.



The entertainment industry in general, and the motion picture distribution industry in particular, continues to undergo significant changes, primarily due to
technological developments. Due to this rapid growth of technology and shifting consumer tastes, the Company cannot accurately predict the overall effect that technological growth or the availability
of alternative forms of entertainment may have on the potential revenue from and profitability of motion pictures and television series. In addition, certain outlets for the distribution of motion
pictures may not obtain the public acceptance that is or was previously predicted. Although the Company has benefited from the rapid growth in the DVD market, there can be no assurance that such
growth and penetration rates will continue. Additionally, technological advances and the conversion of television programs or motion pictures into digital formats have made it easier to create,
transmit and "share" high quality unauthorized copies of television programs, or motion pictures in theatrical release, on videotapes and DVDs, from pay-per-view through
unauthorized set-top boxes and other devices and through unlicenced broadcasts on free TV. As a result, users may be able to download and distribute unauthorized or "pirated" copies of
copyrighted motion pictures over the Internet. As long as pirated content is available to download digitally, some consumers may choose to digitally download pirated motion pictures rather than pay
for legitimate motion pictures or to purchase pirated DVDs of motion pictures or of boxed sets of television series from unauthorized vendors.

In
the broadcast sector, personal video recorders and similar embedded digital technology enable consumers to program shows to be watched at a later date and to bypass the commercials.
If the use of such devices to bypass commercials should become widespread, there could be a negative impact on our advertising revenue. In addition, there is some pressure from both the private and
public sectors to migrate all cable analog broadcast services to digital technology ("digital migration") in order to free up the limited bandwidth for other uses. Because of its labour intensive
technology, analog channels are offered by cable companies grouped together as tiers and not on an individual or theme basis. Therefore, cable analog subscribers are currently required to subscribe
for an entire tier in order to receive particular channels of their choice. Subscribers of analog channels do not have the flexibility that digital offers in subscribing for theme based or individual
pick and pay channels. If digital migration takes place and if the cable companies are permitted to offer their subscribers theme based or individual pick and pay channels, there is a risk that
current subscribers to one or more of our analog channels as part of a cable tier may not choose to subscribe to the Company's channels once they are available in digital format.

The
independent studios' need for distributors is based in part on the fact that the studios would incur substantial film print costs if they attempted to directly distribute their
motion pictures on a worldwide basis. Partly because of these significant print costs, certain independent studios choose to retain distributors in national markets, thereby sharing the cost and risks
associated with worldwide distribution among a number of different strategic partners. Technological developments permitting the digital distribution of motion pictures as an economic basis and its
general adoption within the industry could reduce film print costs significantly, thereby making it more attractive for producers to distribute their own motion pictures. Although this technology has
yet to be widely adopted by exhibitors (due in part to the significant capital costs that would be associated with the widespread adoption of this technology), expansion of this technology
could adversely affect the Partnership's business.

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Distribution rights to motion pictures are granted legal protection under the copyright laws of Canada, the United Kingdom, Spain and most other foreign
countries, which impose substantial civil and criminal sanctions for unauthorized duplication and exhibition of motion pictures. From time to time, various third parties contest or infringe upon the
Company's intellectual property rights. There can be no assurance that the Company's actions to establish and protect trademarks and other proprietary rights will be adequate to prevent imitation by
others of motion pictures distributed by the Company or to prevent third parties from seeking to block the Company's distribution of motion pictures as a violation of their trademarks and proprietary
rights. Moreover, there can be no assurance that others will not assert rights in, or ownership of, the Company's trademarks and other proprietary rights, or that the Company will be able to
successfully resolve these conflicts. In addition, the laws of certain foreign countries may not protect proprietary rights to the same extent as do the laws of Canada the United Kingdom or
Spain.

Our financial position and results of operations fluctuate from period to period due to program delivery schedules and other factors and may not be indicative of
results for future periods.

Although
industry practices are changing due, in part, to increased competition from new channels, broadcasters make most of their annual programming commitments between February and
June so that new programs are ready for telecast at the start of the broadcast season in September, or as mid-season replacements in January. Because of this annual production cycle, our
revenues are not earned on an even basis throughout the year. In particular, revenues are generally lowest in the second calendar quarter, as fewer programs are completed and delivered during this
period, and highest in the first, third, and, particularly the fourth calendar quarter.

Results
of operations for any period are significantly dependent on the number, timing and commercial success of motion pictures made available to various distribution platforms during
that period, none of which can be predicted with certainty. Consequently, the Company's results of operations may fluctuate materially from period to period and the results of any one period are not
necessarily indicative of results for future periods. Cash flows may also fluctuate and are not necessarily closely correlated with revenue recognition. In addition, where the Partnership obtains
distribution rights under an output agreement or multi-picture agreement, the anticipated exhibition schedule of motion pictures for their theatrical release and exploitation through successive
distribution windows is not consistent from year to year. Consequently, the Company's revenue fluctuates from period to period.

The
Partnership may also experience variation in its operating results, particularly in respect of theatrical exhibition revenues, as result of an undersupply of motion pictures. This
may occur due to seasonal variations in the major studios' release schedules or during a period when the Partnership has been unable to, or determined not to, secure distribution rights to available
motion pictures. In this circumstance, the Company's overall revenues would be adversely affected, and although it would not incur the distribution and P&A costs associated with a theatrical or other
release, its distributable cash may nevertheless be adversely affected.

New accounting standards for our industry were introduced, which have a significant impact on our financial statements.

In
2003, the Canadian Institute of Chartered Accounts ("CICA") issued a new Handbook Section 1100, "Generally Accepted Accounting Principles". During Calendar 2004, the Company
adopted Section 1100. The section mandates a new approach in determining the appropriate treatment for transactions for which the accounting is not specifically addressed in the Handbook.
Effectively, it requires an enterprise to decide the treatment of a transaction by carefully considering analogous situations in the Handbook, basic financial statement concepts and, if appropriate,
other relevant authoritative literature. As a result of the new Section, the Company no longer uses historical industry practice as a source of authority, and accordingly on January 1, 2004
adopted the following changes:

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We may be subject to regulatory scrutiny and may sustain a loss of public confidence if we are unable to satisfy regulatory requirements relating to internal
controls over financial reporting.

Section 404
of the Sarbanes-Oxley Act of 2002 requires that for the year ended December 31, 2006, we will be required to perform an evaluation of our internal controls over
financial reporting and have our auditor attest to such evaluation on an annual basis. Preparing to comply with these requirements has been expensive and time-consuming, and we expect that
to continue. While we believe that we will be able to meet the required deadlines, no assurance can be given that this will be the case. If we fail to timely complete this evaluation, or fail to
remedy any identified material weaknesses or if our auditors render an adverse attestation, we may be subject to regulatory scrutiny and a loss of public confidence in our internal controls.

We have substantial indebtedness which could adversely affect our financial health.

We
have a significant amount of indebtedness. As of December 31, 2004, our net debt was $428.6 million and our net debt to total capitalization ratio was 23.3%. Our
substantial indebtedness and our ability and the ability of our subsidiaries to incur additional indebtedness in the future, could adversely affect our business. For example, it could:



Our obligations under our credit facility impose significant restrictions on us. Our failure to comply with these restrictions could require us to repay our
indebtedness more quickly than we would otherwise be obliged to repay.

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The
agreements governing our outstanding indebtedness, including our credit facilities, impose certain operating and financial restrictions on us. Our credit facilities require us to
maintain specified financial ratios and tests, among other obligations. In addition, our credit facilities restrict, among other things, our ability to: (a) declare dividends, redeem or
repurchase capital stock or make other distributions to our shareholders; (b) prepay or redeem debt; (c) grant liens; (d) make loans, acquisitions and investments;
(e) incur more debt; (f) engage in mergers, reorganizations and asset sales out of the ordinary course of business; (g) change our core business; (h) engage in transactions
with related parties; and (i) enter into certain sale leaseback transactions. A failure to comply with the restrictions contained in our credit facilities could lead to an event of default,
which could result in an accleration of such indebtedness. If indebtedness under these agreements were accelerated, we may not be able to repay in full that indebtedness.

The loss of one or more of our key senior executives could seriously impair our ability to implement our business strategy or negatively impact certain of our
material agreements.

We
rely, to a significant degree on the experience, leadership and skills of Michael MacMillan, Judson Martin, Phyllis Yaffe, Victor Loewy and Patrice Théroux. If any of
these individuals were to be unavailable, we may be unable to locate replacements with similar skills and knowledge of the industry. In addition, certain material agreements may be terminated if
certain of these individuals leave Alliance Atlantis or if their duties are altered in a material way. There are also other senior executives and production personnel who provide unique and useful
services to us and who would be difficult to replace on short notice. The loss of services of any key personnel, senior executives, production personnel or consultants could have an adverse impact on
our businesses, results of operations, prospects or financial condition.

Current accounting methods applicable to our industry may result in fluctuations and may not be indicative of results for future periods.

The
preparation of the financial statements in conformity with Canadian GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting period. Management of the
Company regularly reviews its estimates and assumptions based on historical experience and various other assumptions that it believes would result in reasonable estimates given the circumstances.
Actual results could differ from those estimates under different assumptions. The following is a discussion of accounting policies that require significant management judgments and estimates.

The
Company accounts for its production and distribution of film and television programs in accordance with AICPA Statement of Position 00-2, "Accounting By Producers and
Distributors of Film" ("SOP 00-2"). SOP 00-2 requires that film and television costs of production and acquisition are amortized using the individual film
forecast method under which such costs are amortized for each film or television program in the ratio of revenue earned in the current period for such title to management's estimate of the total
revenue to be realized from all media and markets for that title. Management regularly reviews and revises when necessary, its total revenue estimates on a title-by-title
basis, which may result in a change in the rate of amortization and/or a write-down of the film and television asset to the estimated fair value amount. Results of operations in future
years are dependent upon the amortization of film and television costs and may be significantly affected by periodic adjustments in amortization rates. As a result, the Company's financial results
fluctuate from period to period. If estimates of ultimate revenues change with respect to a film or television program, causing reductions in fair values, we may be required to write down all or a
portion of the related unamortized costs. The fair value of the film or television program is determined using management's estimates of future revenues and costs under a discounted cash flow approach
and a write down equivalent to the amount by which the unamortized costs exceed the estimated fair value of the film or television program is recorded in direct operating costs.

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Many individuals associated with our projects are members of guilds or unions. Strikes could affect production scheduling and increase
costs.

Many
individuals associated with our projects are members of guilds or unions which bargain collectively with producers on an industry-wide basis from time to time. Though we
have positive relationships with the guilds and unions, a strike or other form of labor protest affecting those guilds or unions would disrupt production scheduling, resulting in delays and additional
expenses, all of which could have an adverse impact on our businesses, results of operations, prospects or financial condition. In addition, an attempt has been made by a union to organize some of our
Broadcast employees. As at March 30, 2005, the drive is ongoing and the outcome is unknown to management. If the union is successful in unionizing these employees, the impact on the operations
of the Company is difficult to predict.

Risks Related to Owning Our Class B Non-Voting Shares

We have placed constraints on the issue and transfer of our voting shares to maintain minimum levels of Canadian
ownership.

To
ensure that we maintain minimum levels of Canadian ownership for regulatory purposes, we have instituted a voting and non-voting share structure and have placed
constraints on the issue, voting and transfer of our non-voting shares. See "Regulation  Restrictions on Transfer of Ownership and Control". To
ensure that we comply with Canadian ownership requirements under the Broadcasting Act and other legislation under which we derive the benefit of tax credits and industry incentives, our board of
directors may refuse to permit the voting of or registration of any transfer of our shares if such voting or transfer were to result in persons other than Canadians owning or controlling more than the
permitted number of our shares or the votes attaching to such shares, under such legislation. Our voting structure and the constraints and transfer restrictions on our non-voting shares
may adversely affect the liquidity of our non-voting shares and may have an impact on their trading price. They may also prevent or delay a merger, takeover or other change in our control
and thus discourage attempts to acquire us.

We are currently controlled by our principal shareholders and we have change of control provisions in our debt instruments and other agreements which could limit
the price investors are willing to pay for our shares and prevent or delay a merger or takeover.

Alliance
Atlantis is indirectly controlled by Messrs. Michael MacMillan and Seaton McLean who hold approximately 67% of the votes attached to our voting shares. As a result, the
principal shareholders are in a position to significantly influence our operations and strategy and, subject to applicable law, influence the election of a majority of our directors, influence the
appointment of individuals as our directors and officers and influence the outcome of matters submitted to a shareholder vote. The effect of this control may be to limit the price that investors may
be willing to pay in the future for our Class B Non-Voting Shares, or to prevent or delay a merger, takeover or other change in our control and thus discourage attempts to
acquire us.

RATINGS

A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the rating organization. No
approved rating agency currently rates any of the Company's outstanding securities. The following is a description of certain debt ratings of the Company.

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Moody's Investor Services

In October, 2004, Moody's Investors Service ("Moody's") affirmed the Ba2 Senior Implied and Ba3 Issuer ratings of Alliance Atlantis, prospectively
lowered the Senior Secured rating to (p) Ba2 from Ba1, and changed the outlook of all ratings to positive from stable. Moody's indicated it expected to withdraw the existing
B1 Senior Subordinated rating once the Company retired the existing debt issue on December 15, 2004, (which retirement was completed). The rating action reflects the decision to
refinance all existing debt, in multiple tranches, with a new senior secured facility.

The
outlook was changed to positive as Moody's expects lower interest costs from the refinancing to increase free cash flow by roughly C$25 millionper
annumthereby increasing the Company's ability to reduce debt.

Standard & Poor's

In October, 2004, Standard & Poor's ("S&P") raised its long-term corporate credit rating on Alliance Atlantis to 'BB' from 'BB-'.
S&P also assigned its 'BB' rating to the Company's proposed senior secured bank facility (which was entered into in December, 2004). A recovery rating of '3' was assigned to the loan, indicating
expectations of a meaningful recovery of principal (50%-80%) in the event of default. The bank loan rating was based on preliminary terms and conditions and is subject to review once final
documentation is received. S&P said it would withdraw the 'B' rating on the company's subordinated debt, effective October 28, 2004. It stated that the outlook is stable. The effect of the
transaction is to lower the Company's interest expense and extend maturities.

DIVIDENDS

We have not paid any dividends on our Class A Voting Shares or Class B Non-Voting Shares. Our current policy is to retain earnings for
future growth. In addition, our credit facility restricts the payment of dividends. Any future determination by us to pay dividends will be at the discretion of our board of directors and in
accordance with the terms and conditions of our credit facility and any other indebtedness and will depend upon our financial condition, results of operations, capital requirements and other relevant
factors.

REGISTRAR AND TRANSFER AGENT

The transfer agent and registrar for the Company's Class A Voting Shares and Class B Non-Voting Shares is Computershare Trust Company of
Canada, at its principal office in Toronto, Ontario.

MARKET FOR SECURITIES

Our publicly-traded securities are listed and posted for trading or quoted on the following exchanges under the symbols shown below:

|Security       |  | Symbol   |  | Stock Exchange            
|-------------- |  | -------- |  | --------------------------
|Class A Shares |  | AAC.A    |  | The Toronto Stock Exchange
|Class B Shares |  | AAC.NV.B |  | The Toronto Stock Exchange
|Class B Shares |  | AACB     |  | Nasdaq National Market    

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Trading Price and Volume of Class A Shares on the TSX

|Month           |  | High
($) |  | Low
($) |  | Trading Volume
(Units)
|--------------- |  | -------- |  | ------- |  | ----------------------
|January, 2004   |  | 21.85    |  | 19.70   |  | 111,424               
|February, 2004  |  | 22.48    |  | 20.76   |  | 5,490                 
|March, 2004     |  | 25.51    |  | 21.49   |  | 5,475                 
|April, 2004     |  | 25.70    |  | 24.21   |  | 7,681                 
|May, 2004       |  | 25.04    |  | 22.38   |  | 3,241                 
|June, 2004      |  | 26.53    |  | 24.67   |  | 12,808                
|July, 2004      |  | 25.40    |  | 24.71   |  | 14,983                
|August, 2004    |  | 25.59    |  | 23.76   |  | 7,550                 
|September, 2004 |  | 28.09    |  | 24.44   |  | 8,540                 
|October, 2004   |  | 29.42    |  | 27.95   |  | 8,530                 
|November, 2004  |  | 31.88    |  | 28.69   |  | 10,056                
|December, 2004  |  | 32.88    |  | 30.39   |  | 7,821                 

Trading Price and Volume of Class B Non-Voting Shares on the TSX

|Month           |  | High ($) |  | Low ($) |  | Trading Volume (Units)
|--------------- |  | -------- |  | ------- |  | ----------------------
|January, 2004   |  | 21.96    |  | 19.75   |  | 3,628,125             
|February, 2004  |  | 22.46    |  | 20.53   |  | 3,381,865             
|March, 2004     |  | 25.74    |  | 21.03   |  | 4,063,488             
|April, 2004     |  | 25.78    |  | 24.00   |  | 1,765,214             
|May, 2004       |  | 24.79    |  | 22.25   |  | 2,662,469             
|June, 2004      |  | 26.50    |  | 24.46   |  | 1,423,541             
|July, 2004      |  | 25.47    |  | 24.55   |  | 1,190,076             
|August, 2004    |  | 25.15    |  | 23.75   |  | 1,817,288             
|September, 2004 |  | 27.88    |  | 24.25   |  | 3,208,720             
|October, 2004   |  | 29.29    |  | 27.75   |  | 2,975,748             
|November, 2004  |  | 31.99    |  | 28.74   |  | 6,086,660             
|December, 2004  |  | 32.98    |  | 30.07   |  | 2,912,495             

MATERIAL CONTRACTS

The following are the material contracts which have been entered into by the Company within the two most recently completed financial years, or before the most
recently completed financial year but are still in effect, other than contracts entered into in the ordinary course of business:

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Contracts Relating to the Partnership



On October 2, 2003, the Fund, Movie Distribution Holding Trust ("Holding Trust"), the Partnership, Alliance Atlantis and 4192231 Canada Limited
(a predecessor company of Alliance Atlantis Productions Ltd. ("AAPL")) entered into the Investment Agreement. The Investment Agreement provided, among other things, for
the investment by the Fund and Holding Trust of the proceeds of the Offering in the Partnership and for the acquisition of the Business by the Partnership.

Alliance
Atlantis and AAPL have agreed to indemnify the Partnership, the Fund and Holding Trust, and the Partnership has indemnified the Fund and Holding Trust, in respect of breaches of
their respective representations and warranties. The maximum aggregate liability of Alliance Atlantis and AAPL under their indemnity in the Investment Agreement and the underwriting agreement entered
into with the underwriters in connection with the Offering (the "Underwriting Agreement") is equal to the purchase price of the Business. The maximum aggregate liability of the General Partner
and Distribution LP under their indemnity in the Investment Agreement and the Underwriting Agreement is not limited. All claims for indemnification under the Investment Agreement are subject to
an aggregate deductible in the amount of $100,000 and to a minimum individual claim amount of $5,000.

Under
the terms of the Investment Agreement, Alliance Atlantis agreed that, in connection with the assignment of certain of the output agreements to the Partnership, it will continue to
be liable to the content supplier for the performance of all of the Partnership's obligations under the relevant agreements, and the content supplier may exercise its remedies under the relevant
agreement as against Alliance Atlantis, the Partnership, or both, at its election. The Partnership has agreed to indemnify Alliance Atlantis in respect of any liabilities or expenses that are incurred
by Alliance Atlantis in connection with its continuing obligations under these output agreements, which relate to claims arising at any time that Alliance Atlantis is not entitled to appoint a
majority of the members of the board of directors of the General Partner.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Additional financial information is provided in the Company's financial statements and MD&A for the most recently completed financial year.

CONFLICTS OF INTEREST

Certain officers of Alliance Atlantis are also officers and/or directors of the Fund and the General Partner. As part of the transactions undertaken in
conjunction with the Fund's initial public offering, and as part of the ongoing business relationship between the Partnership and Alliance Atlantis, we have entered into agreements with the
Partnership. In some cases, fees or other amount are payable in connection with such agreements.

ADDITIONAL INFORMATION

Additional information relating to the Company may be found on SEDAR at www.sedar.com. Additional information, including directors' and officers' remuneration and
indebtedness, principal holders of Alliance Atlantis' securities, options to purchase securities and interests of insiders in material transactions, where applicable, is contained in the Circular.

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Additional
financial information is provided in the Calendar 2004 Financial Statements.

Copies
of:



may
be obtained upon request from the Corporate Secretary of Alliance Atlantis, 121 Bloor Street East, Suite 1500, Toronto, Ontario, M4W 3M5
Canada.If the securities of Alliance Atlantis are in the course of a distribution pursuant to a short form prospectus or a preliminary short form
prospectus, copies of the foregoing documents are available free of charge. At all other times, a reasonable fee may be charged if the request for copies is made by a person who is not a security
holder of Alliance Atlantis.

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APPENDIX 1
ALLIANCE ATLANTIS COMMUNICATIONS INC. AND SUBSIDIARIES
PROCEDURES FOR APPROVAL OF AUDIT AND NON-AUDIT
SERVICES BY THE EXTERNAL AUDITORS

I.     Audit Committee Pre-Approval of Services

In accordance with the requirements of securities regulations to which the Company is subject and to safeguard the continued independence of its external
auditors, all audit and non-audit services to be rendered by Alliance Atlantis Communications Inc.'s external auditors and any related entities (the "Auditors") to Alliance
Atlantis Communications Inc. (the "Company"), and its subsidiaries (collectively "Alliance Atlantis") must be the subject of pre-approval by the Audit Committee of the Board.

Such
pre-approval shall be based on the following detailed policies and procedures established by the Audit Committee.

II.    Services that the Auditors may not Provide

The Auditors may not act in any capacity where they could reasonably be seen to:



Except
as otherwise permitted and pre-approved hereby, the Auditors will not be asked to provide any services in the following areas (in each case as more fully
defined in applicable corporate and securities regulations or the regulations and guidelines of the appropriate oversight authorities governing the accounting and auditing profession):

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III.  Pre-Approval of a Range of Services

The engagement for the annual audit of the Company's consolidated financial statements is specifically approved on an annual basis by the execution of the audit
engagement letter with the Auditors. Subject to paragraph IV below, engagements of the Auditors involving services for any of the Alliance Atlantis entities that fall into the following service
definitions are pre-approved by the Audit Committee:

|Type of Service        |                                                                          | Description                                                                                                
|---------------------- | ------------------------------------------------------------------------ | -----------------------------------------------------------------------------------------------------------
|Audit Services         |                                                                          |                                                                                                            
|                       | Financial statement audit                                                |                                                                                                            
|                       |                                                                          | Quarterly reviews.                                                                                         
|                       |                                                                          | Review of tax provision reported in the consolidated and other financial statements.                       
|                       |                                                                          | Review of complex accounting issues with the Auditors' national office in order to reach an audit judgment.
|                       | Regulatory financial filings                                             |                                                                                                            
|                       |                                                                          | Statutory and regulatory filings including prospectuses and registration statements.                       
|                       | 404 attestation services                                                 |                                                                                                            
|Audit Related Services |                                                                          |                                                                                                            
|                       | Employee benefit plan audits                                             |                                                                                                            
|                       | Financial due diligence in connection with acquisitions and divestitures |                                                                                                            
|                       |                                                                          | Accounting consultation and audits in connection with acquisitions and divestitures.                       
|                       | Other attest services                                                    |                                                                                                            

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|Type of Service |                                         | Description
|--------------- | --------------------------------------- | -----------
|                | Application and general control reviews |            
|                | Consultation regarding GAAP             |            
|Tax Services    |                                         |            
|                | Tax compliance                          |            
|                | Tax consulting                          |            
|                | Transfer pricing                        |            

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|Type of Service |                         | Description
|--------------- | ----------------------- | -----------
|                | Customs and duties      |            
|                | Expatriate tax services |            
|Other Services  |                         |            
|                | Valuation               |            
|                | Other                   |            
|                | Other                   |            
|                | Other                   |            

IV.    Limits on the Pre-Approval of a Range of Services

In the case of proposed engagements of the Auditors involving any of the services covered under the range of services under paragraph III where the fees
(excluding disbursements and applicable taxes) for a particular engagement are expected to exceed a total of CDN $25,000, specific pre-approval must be obtained therefor under the
provisions of paragraph V hereof.

The
general pre-approval of the range of services covered under paragraph III will be brought to the Audit Committee for review and, if thought appropriate, renewal on
an annual basis.

In
respect of services under paragraph III where the fees (excluding disbursements and applicable taxes) for a particular engagement are expected to be less than or equal to a
total of CDN $25,000, the Chairman of the Audit Committee shall be notified expeditiously of any such services commenced by the Auditors.

In
the event that services under paragraph III are commenced by the Auditors where the fees (excluding disbursements and applicable taxes) for a particular engagement were
expected to be less than or equal to a total of CDN $25,000, specific pre-approval must be obtained therefore under the provisions of paragraph V hereof if such fees are later
expected to exceed a total of CDN $30,000.

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V.     Pre-Approval of Individual Services

Alliance Atlantis management and/or the Auditors may seek pre-approval by the Audit Committee of the engagement of the Auditors to provide particular
services in certain cases. Where particular pre-approval is required, the Audit Committee has delegated the authority to effect such pre-approval to the Chairman of the
Committee.

Under
no circumstances may the Audit Committee delegate its responsibilities to Alliance Atlantis management.

For
greater certainty, if an engagement with the Auditors for a particular service is contemplated that is neither prohibited under paragraph II hereof, nor covered under
the range of services under paragraph III hereof, in order for such engagement to proceed it must be the subject of individual pre-approval under this paragraph.

It
is the responsibility of management to determine whether a particular service is covered by the pre-approved range of services. Management should seek the guidance of the
Audit Committee Chair where there is any ambiguity about whether a particular service is pre-approved.

VI.   Engagement Letters

Pre-approved non-audit services shall be provided by the Auditors pursuant to an engagement letter with the appropriate Alliance Atlantis
entity that satisfies each of the following requirements:

VII. Reports of Services to the Audit Committee

At every regularly-scheduled meeting of the Audit Committee, management shall report on all new pre-approved engagements of the Auditors since the
last such report. The Auditors may comment on the report if they wish to do so. All engagement letters entered into pursuant hereto shall be made available to the Audit Committee upon demand.

VIII. Effective Date

The effective date of these policies and procedures is the date of adoption by the Audit Committee.

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LOGO

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Management's Discussion and Analysis
of Financial Condition and Results of Operations
For the Year Ended December 31, 2004, the Nine Months Ended December 31, 2003
and the Year Ended March 31, 2003
AND
Consolidated Financial Statements
For the Year Ended December 31, 2004, the Nine Months Ended December 31, 2003
and the Year Ended March 31, 2003

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TABLE OF CONTENTS

|                                                        |                             | Page
|------------------------------------------------------- | --------------------------- | ----
|Overview of the Business                                |                             | 4   
|Consolidated Results of Operations                      |                             | 6   
|Summary of Quarterly Results                            |                             | 10  
|Primary Business Performance                            |                             | 11  
|                                                        | Broadcasting                |     
|                                                        | Motion Picture Distribution |     
|                                                        | Entertainment               |     
|                                                        | Corporate and Other         |     
|Other Statement of Earnings (Loss) Items                |                             | 22  
|Liquidity and Capital Resources                         |                             | 24  
|Related Party Transactions                              |                             | 27  
|Outstanding Shares                                      |                             | 29  
|Off Balance Sheet Arrangements                          |                             | 29  
|Market Risk                                             |                             | 30  
|Critical Accounting Policies and Estimates              |                             | 30  
|Accounting Changes and Recent Accounting Pronouncements |                             | 32  
|Financial Instruments                                   |                             | 33  
|Industry Risk and Uncertainties                         |                             | 34  
|Use of Non-GAAP Financial Measures                      |                             | 37  

2

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Management's discussion and analysis of the financial position and results of operations is prepared at March 28, 2005, and should
be read in conjunction with the accompanying audited and pro forma unaudited financial statements and the notes therein.

During 2003, the Company changed its year end from March 31 to December 31. Accordingly, this report covers the year ended December 31, 2004,
referred to as Calendar 2004. The nine-month period from April 1, 2003 through December 31, 2003 is referred to as Fiscal 2004. The year ended March 31, 2003 is
referred to as Fiscal 2003. This Management's Discussion and Analysis of Financial Condition and Results of Operations compares the three months and year ended December 31, 2004 with the three
months and nine months ended December 31, 2003. For illustrative purposes, we have included pro forma information for the 12 month period ended December 31, 2003, referred
to as the year ended December 31, 2003, to provide a comparison of similar periods. The pro forma results for the year ended December 31, 2003 were compiled by adding the three
months ended March 31, 2003 to the nine months ended December 31, 2003.

This management's discussion and analysis covers the Calendar 2004, Fiscal 2004 and Fiscal 2003 periods. However, to provide a meaningful analysis of results of
operations for the period, this management's discussion and analysis focuses on the three months and years ended December 31, 2004 and December 31, 2003, respectively. Any differences
between the year ended December 31, 2004 and the nine months ended December 31, 2003 are primarily due to timing.

This discussion contains forward-looking statements. Forward-looking statements are subject by their nature to risks and uncertainties, and actual results,
actions or events could differ materially from those set forth in this discussion. The forward-looking information contained herein is current only as at the date of this document. There should not be
an expectation that such information will in all circumstances be updated, supplemented or revised whether as a result of new information, changing circumstances, future events or
otherwise.

3

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Overview of the Business

The following table provides selected information of the Company for the year ended December 31, 2004, the nine months ended December 31, 2003, the
year ended March 31, 2003, and the pro forma year ended December 31, 2003 (in millions of Canadian dollars except per share amounts):

|                                                                |         | Year ended December 31, 2004 |         | Nine months ended December 31, 2003 |  | Year ended March 31, 2003 |       | Year ended December 31, 2003 |        
|--------------------------------------------------------------- | ------- | ---------------------------- | ------- | ----------------------------------- |  | ------------------------- | ----- | ---------------------------- | -------
|
|Revenue(1)                                                      |         |                              | 1,017.5 |                                     |  | 640.2                     |       |                              | 872.0  
|Net earnings (loss) before discontinued operations              |         |                              | 33.8    |                                     |  | (153.9                    | )     |                              | (40.4  
|Net earnings (loss)                                             |         |                              | 29.7    |                                     |  | (169.6                    | )     |                              | (41.3  
|Earnings (loss) per Common Share before discontinued operations |         |                              |         |                                     |  |                           |       |                              |        
|                                                                | Basic   |                              | $       | 0.78                                |  | $                         | (3.60 | )                            | $      
|                                                                | Diluted |                              | $       | 0.78                                |  | $                         | (3.60 | )                            | $      
|Earnings (loss) per Common Share                                |         |                              |         |                                     |  |                           |       |                              |        
|                                                                | Basic   |                              | $       | 0.69                                |  | $                         | (3.96 | )                            | $      
|                                                                | Diluted |                              | $       | 0.68                                |  | $                         | (3.96 | )                            | $      
|Total assets                                                    |         |                              | 1,529.4 |                                     |  | 1,416.2                   |       |                              | 1,642.2
|Total long-term financial liabilities*                          |         |                              | 503.6   |                                     |  | 534.4                     |       |                              | 652.2  
|Cash dividends declared per-share                               |         |                              |        |                                     |  |                          |       |                              |       
|                                                                |         |                              |         |                                     |  |                           |       |                              |        

---

---

The Company's principal business activities are Broadcasting, Motion Picture Distribution and Entertainment. Over the past few years, the Company
has transformed itself into a streamlined, broadcast-driven company, by investing in and growing its broadcast business and reducing the amount of capital and other resources devoted to production and
other related activities.

The
Company continues to keenly focus on generating free cash flow (see note on non-GAAP measures on page 37) and making significant and increasing
progress in its primary financial objective of reducing indebtedness. Through cost cutting initiatives and the exit of the capital-intensive production business, with the exception of the CSIfranchise,
as part of the December 2003 restructuring of its Entertainment operations, the Company has been able to increase its operating
earnings and cash flow. The exit of the production business was concluded by mid-2004. Also, given the more favourable interest rate environment, the Company successfully completed a
refinancing of substantially all of its existing credit facilities in December 2004. The existing $300.0 million revolving credit facility and US$300.0 million 13% senior
subordinated notes were replaced by new senior secured credit facilities consisting of a five-year $175.0 million revolving credit facility, a five-year
US$108.6 million term loan A credit facility, and a seven-year US$250.0 million term loan B credit facility. Management expects this refinancing to significantly reduce
future interest expense, increase cash flow and provide greater long-term capital flexibility. In October 2003, the Company successfully monetized a 49% interest in its motion
picture distribution operations that allowed the Company to make significant strides in reducing its overall indebtedness.

As
a result of these initiatives, the Company has focused its operations and dramatically transformed its balance sheet allowing it to maintain capital flexibility and focus on executing
its strategies.

4

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Broadcasting

The Company has a controlling ownership interest in and operates 13 Canadian specialty television channels  Showcase
Television, Life Network, History Television, HGTV Canada, Food
Network Canada, Showcase Action, Showcase Diva, National Geographic Channel, BBC Canada, BBC Kids, Discovery Health Channel, Fine Living Canada and IFC  The
Independent Film Channel Canada. Each of these channels carries a strong, clear brand which, the Company believes, enables it to stand out and excel in a competitive marketplace. The channels are
aligned in two core genres ("fact and fiction" and "lifestyle") and are supported by a supply of high quality content acquired from leading domestic and international producers. The Company also has a
50% interest in two established Canadian French-language specialty television channels (Series+ and Historia) and a minority interest in three other English-language channels (ONE: The Body, Mind and
Spirit Channel, Scream and The Score).

Motion Picture Distribution

The Company's Motion Picture Distribution business, through its 51% indirect ownership interest in Motion Picture Distribution LP
("Distribution LP"), is the largest distributor of motion pictures in Canada in terms of number of releases and box office receipts, with a growing presence in the United Kingdom through
Momentum Pictures. It is also the largest independent distributor in Spain through the recently acquired Aurum Producciones, S.A. ("Aurum") (May 2004).

The
Company indirectly owns a 51% limited partnership interest in Distribution LP. Movie Distribution Income Fund (the "Fund"), which trades on The Toronto Stock Exchange
under the symbol FLM.UN, indirectly owns a 49% limited partnership interest in Distribution LP.

Distribution LP
distributes motion pictures for theatrical release, in video/DVD format and to television broadcasters (conventional/cable/VOD/SVOD). In Canada,
Distribution LP has exclusive output agreements with a diverse group of leading independent studios, including New Line Cinema, Miramax Films and Focus Features. The Company also enjoys
a catalogue of approximately 5,500 titles totaling 11,000 hours. This library is available for exploitation in video/DVD and television. By releasing a large number of motion pictures
through multiple distribution platforms, Distribution LP creates a diversified portfolio of releases, which generates a relatively predictable and stable stream of cash flow. Monthly cash
distributions to owners of the units of Distribution LP are paid out of the distributable cash generated by the business.

Entertainment

The Company is a 50% co-owner and co-producer of the successfulCSIfranchise, in
partnership with CBS Productions, and distributor for territories outside the United States.CSI: Crime Scene Investigation, now in its fifth
season, has been licenced in over 175 territories worldwide with over 100 episodes delivered and is currently the #1 dramatic series on U.S. television (National Nielsen
Ratings: Primetime Season to Date Rank  Regular Programs for Demographic PER2+ for 09/20/04 - 02/27/05), with an average weekly
audience of more than 26 million viewers, season to date.CSI: Miami, now in its third season, has also been licenced in over
160 territories worldwide with over 60 episodes delivered and is currently one of the top five dramatic series on U.S. television, season to date (National Nielsen Ratings:
Primetime Season to Date Rank  Regular Programs for Demographic PER2+ for 09/20/04 - 02/27/05).CSI:
NY, in its premiere season, has already been licenced in the U.S.A. and Canada, as well as numerous key international territories including the U.K.,
France, Germany, Spain and Australia. The Company continues to aggressively licence this valuable franchise in all available international markets.

The
Company also licences its library of approximately 1,000 titles representing 5,000 hours of programming rights to broadcasters, home video distributors and
sub-distributors worldwide and produces a limited amount of in-house productions that align with the content needs of Broadcasting.

Corporate and Other

The Company's Corporate and Other segment is primarily a corporate services group providing support to the operating segments for information technology, finance,
internal audit, human resources, legal, investor

5

---



relations
and other corporate services. Corporate and Other also holds corporate investments, which generate small revenue streams as well as corporate activities that are being wound down.

Consolidated Results of Operations

The following table presents a consolidated summary of the Company's operations for the year ended December 31, 2004, the nine months ended
December 31, 2003 and the year ended March 31, 2003 (in millions of Canadian dollars):

|                                                                                                             |  |         |   |       |  |        |   |        |   |       |   |       |   | % Increase/(Decrease) |  
|------------------------------------------------------------------------------------------------------------ |  | ------- | - | ----- |  | ------ | - | ------ | - | ----- | - | ----- | - | --------------------- | -
|
|
|Revenue                                                                                                      |  |         |   |       |  |        |   |        |   |       |   |       |   |                       |  
|Broadcasting                                                                                                 |  | 245.9   |   | 24.2  |  | 162.4  |   | 25.4   |   | 182.9 |   | 21.0  |   | 51.4                  |  
|Motion Picture Distribution                                                                                  |  | 512.1   |   | 50.3  |  | 307.8  |   | 48.1   |   | 384.2 |   | 44.0  |   | 66.4                  |  
|Entertainment                                                                                                |  | 258.7   |   | 25.4  |  | 169.8  |   | 26.5   |   | 303.4 |   | 34.8  |   | 52.4                  |  
|Corporate and Other                                                                                          |  | 0.8     |   | 0.1   |  | 0.2    |   |       |   | 1.5   |   | 0.2   |   | 300.0                 |  
|                                                                                                             |  |         |   |       |  |        |   |        |   |       |   |       |   |                       |  
|                                                                                                             |  | 1,017.5 |   | 100.0 |  | 640.2  |   | 100.0  |   | 872.0 |   | 100.0 |   | 58.9                  |  
|                                                                                                             |  |         |   |       |  |        |   |        |   |       |   |       |   |                       |  
|Direct operating expenses                                                                                    |  |         |   |       |  |        |   |        |   |       |   |       |   |                       |  
|Broadcasting                                                                                                 |  | 113.2   |   | 46.0  |  | 69.8   |   | 43.0   |   | 76.5  |   | 41.8  |   | 62.2                  |  
|Motion Picture Distribution                                                                                  |  | 408.4   |   | 79.8  |  | 246.8  |   | 80.2   |   | 320.6 |   | 83.4  |   | 65.5                  |  
|Entertainment                                                                                                |  | 183.9   |   | 71.1  |  | 339.7  |   | 200.1  |   | 230.6 |   | 76.0  |   | (45.9                 | )
|Corporate and Other                                                                                          |  |        |   |      |  |       |   |       |   |      |   |      |   |                      |  
|                                                                                                             |  |         |   |       |  |        |   |        |   |       |   |       |   |                       |  
|                                                                                                             |  | 705.5   |   | 69.3  |  | 656.3  |   | 102.5  |   | 627.7 |   | 72.0  |   | 7.5                   |  
|                                                                                                             |  |         |   |       |  |        |   |        |   |       |   |       |   |                       |  
|Direct profit(2)                                                                                             |  |         |   |       |  |        |   |        |   |       |   |       |   |                       |  
|Broadcasting                                                                                                 |  | 132.7   |   | 54.0  |  | 92.6   |   | 57.0   |   | 106.4 |   | 58.2  |   | 43.3                  |  
|Motion Picture Distribution                                                                                  |  | 103.7   |   | 20.2  |  | 61.0   |   | 19.8   |   | 63.6  |   | 16.6  |   | 70.0                  |  
|Entertainment                                                                                                |  | 74.8    |   | 28.9  |  | (169.9 | ) | (100.1 | ) | 72.8  |   | 24.0  |   | 144.0                 |  
|Corporate and Other                                                                                          |  | 0.8     |   | 100.0 |  | 0.2    |   | 100.0  |   | 1.5   |   | 100.0 |   | 300.0                 |  
|                                                                                                             |  |         |   |       |  |        |   |        |   |       |   |       |   |                       |  
|                                                                                                             |  | 312.0   |   | 30.7  |  | (16.1  | ) | (2.5   | ) | 244.3 |   | 28.0  |   | 2,037.9               |  
|                                                                                                             |  |         |   |       |  |        |   |        |   |       |   |       |   |                       |  
|Selling, general and administrative                                                                          |  | 135.8   |   | 13.4  |  | 123.0  |   | 19.2   |   | 121.1 |   | 13.9  |   | 10.4                  |  
|Stock based compensation                                                                                     |  | 16.7    |   | 1.6   |  | 1.7    |   | 0.3    |   | 0.4   |   |      |   | 882.4                 |  
|                                                                                                             |  |         |   |       |  |        |   |        |   |       |   |       |   |                       |  
|Operating Expenses                                                                                           |  | 152.5   |   | 15.0  |  | 124.7  |   | 19.5   |   | 121.5 |   | 13.9  |   | 22.3                  |  
|                                                                                                             |  |         |   |       |  |        |   |        |   |       |   |       |   |                       |  
|Earnings (loss) before undernoted (EBITDA(2))                                                                |  |         |   |       |  |        |   |        |   |       |   |       |   |                       |  
|Broadcasting                                                                                                 |  | 73.3    |   | 29.8  |  | 50.4   |   | 31.0   |   | 50.4  |   | 27.6  |   | 45.4                  |  
|Motion Picture Distribution                                                                                  |  | 72.9    |   | 14.2  |  | 43.7   |   | 14.2   |   | 44.4  |   | 11.6  |   | 66.8                  |  
|Entertainment                                                                                                |  | 50.2    |   | 19.4  |  | (198.3 | ) | (116.8 | ) | 53.0  |   | 17.5  |   | 125.3                 |  
|Corporate and Other                                                                                          |  | (36.9   | ) |       |  | (36.6  | ) |        |   | (25.0 | ) |       |   | (0.8                  | )
|                                                                                                             |  |         |   |       |  |        |   |        |   |       |   |       |   |                       |  
|                                                                                                             |  | 159.5   |   | 15.7  |  | (140.8 | ) | (22.0  | ) | 122.8 |   | 14.1  |   | 213.3                 |  
|                                                                                                             |  |         |   |       |  |        |   |        |   |       |   |       |   |                       |  
|Earnings (loss) from operations before undernoted and discontinued operations (operating earnings (loss)(2)) |  | 9.8     |   | 1.0   |  | (276.5 | ) | (43.2  | ) | (15.5 | ) | (1.8  | ) | 103.5                 |  
|Net operating earnings (loss)(2)                                                                             |  | 16.8    |   | 1.7   |  | (290.2 | ) | (45.3  | ) | (23.9 | ) | (2.7  | ) | 105.8                 |  
|Net earnings (loss)                                                                                          |  | 29.7    |   | 2.9   |  | (169.6 | ) | (26.5  | ) | (41.3 | ) | (4.7  | ) | 117.5                 |  
|Adjusted EBITDA(2)                                                                                           |  | 160.8   |   | 15.8  |  | 25.2   |   | 3.9    |   | 122.8 |   | 14.1  |   | 538.1                 |  
|Adjusted operating earnings (loss)(2)                                                                        |  | 49.1    |   | 4.8   |  | (67.7  | ) | (10.6  | ) | (15.5 | ) | (1.8  | ) | 172.5                 |  
|Adjusted net operating earnings (loss)(2)                                                                    |  | 41.9    |   | 4.1   |  | (156.5 | ) | (24.4  | ) | (23.9 | ) | (2.7  | ) | 126.8                 |  
|                                                                                                             |  |         |   |       |  |        |   |        |   |       |   |       |   |                       |  

---

Notes:

6

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Earnings
(loss) before undernoted and earnings (loss) from operations before undernoted and discontinued operations include cash and non-cash items that relate to restructuring
activities in Entertainment in Fiscal 2004. Additionally, Calendar 2004 earnings (loss) from operations before undernoted and discontinued operations also includes $12.1 million related to the
write down of deferred financing costs associated with the Company's previous senior revolving credit facility and senior subordinated notes, as well as a $24.0 million redemption premium
related to the senior subordinated notes. Management does not expect to undertake restructuring activities or refinancing activities of a similar magnitude or nature in the imminent future and
therefore believes that the impact of these activities and their associated charges should be eliminated when evaluating the current operating performance of the Company. For this reason, management
has also used adjusted EBITDA, adjusted operating earnings, and adjusted net operating earnings to evaluate the performance of the business. Adjusted EBITDA has been defined as EBITDA less cash and
non-cash restructuring items included in earnings (loss) before undernoted, adjusted operating earnings (loss) has been defined as operating earnings (loss) less cash and
non-cash restructuring items included in earnings (loss) from operations before undernoted, the write down of deferred financing costs, and the redemption premium on the senior
subordinated notes, and adjusted net operating earnings has been defined as adjusted operating earnings (loss), net of an applicable portion of income tax.

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, net earnings (loss) from operations before discontinued operations, net earnings, cash flow and other measures of financial performance prepared in accordance with
Canadian GAAP which are presented in the attached 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.

7

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The following table presents a consolidated summary of the Company's operations for the year ended December 31, 2004 and pro forma
year ended December 31, 2003 (in millions of Canadian dollars):

|                                                                                                          |  |         |   |       |  |        |   |       |   | % Increase (decrease) |  
|--------------------------------------------------------------------------------------------------------- |  | ------- | - | ----- |  | ------ | - | ----- | - | --------------------- | -
|
|
|
|Revenue                                                                                                   |  |         |   |       |  |        |   |       |   |                       |  
|Broadcasting                                                                                              |  | 245.9   |   | 24.2  |  | 211.8  |   | 24.5  |   | 16.1                  |  
|Motion Picture Distribution                                                                               |  | 512.1   |   | 50.3  |  | 392.9  |   | 45.4  |   | 30.3                  |  
|Entertainment                                                                                             |  | 258.7   |   | 25.4  |  | 260.7  |   | 30.1  |   | (0.8                  | )
|Corporate and Other                                                                                       |  | 0.8     |   | 0.1   |  | 0.6    |   |      |   | 33.3                  |  
|                                                                                                          |  |         |   |       |  |        |   |       |   |                       |  
|                                                                                                          |  | 1,017.5 |   | 100.0 |  | 866.0  |   | 100.0 |   | 17.5                  |  
|                                                                                                          |  |         |   |       |  |        |   |       |   |                       |  
|Direct operating expenses                                                                                 |  |         |   |       |  |        |   |       |   |                       |  
|Broadcasting                                                                                              |  | 113.2   |   | 46.0  |  | 90.4   |   | 42.7  |   | 25.2                  |  
|Motion Picture Distribution                                                                               |  | 408.4   |   | 79.8  |  | 318.3  |   | 81.0  |   | 28.3                  |  
|Entertainment                                                                                             |  | 183.9   |   | 71.1  |  | 410.7  |   | 157.5 |   | (55.2                 | )
|Corporate and Other                                                                                       |  |        |   |      |  |       |   |      |   |                       |  
|                                                                                                          |  |         |   |       |  |        |   |       |   |                       |  
|                                                                                                          |  | 705.5   |   | 69.3  |  | 819.4  |   | 94.6  |   | (13.9                 | )
|                                                                                                          |  |         |   |       |  |        |   |       |   |                       |  
|Direct profit                                                                                             |  |         |   |       |  |        |   |       |   |                       |  
|Broadcasting                                                                                              |  | 132.7   |   | 54.0  |  | 121.4  |   | 57.3  |   | 9.3                   |  
|Motion Picture Distribution                                                                               |  | 103.7   |   | 20.2  |  | 74.6   |   | 19.0  |   | 39.0                  |  
|Entertainment                                                                                             |  | 74.8    |   | 28.9  |  | (150.0 | ) | (57.5 | ) | 149.9                 |  
|Corporate and Other                                                                                       |  | 0.8     |   | 100.0 |  | 0.6    |   | 100.0 |   | 33.3                  |  
|                                                                                                          |  |         |   |       |  |        |   |       |   |                       |  
|                                                                                                          |  | 312.0   |   | 30.7  |  | 46.6   |   | 5.4   |   | 569.5                 |  
|                                                                                                          |  |         |   |       |  |        |   |       |   |                       |  
|Selling, general and administrative                                                                       |  | 135.8   |   | 13.3  |  | 158.8  |   | 18.3  |   | (14.5                 | )
|Stock based compensation                                                                                  |  | 16.7    |   | 1.6   |  | 1.8    |   | 0.2   |   | 827.8                 |  
|                                                                                                          |  |         |   |       |  |        |   |       |   |                       |  
|Operating Expenses                                                                                        |  | 152.5   |   | 15.0  |  | 160.6  |   | 18.5  |   | (5.0                  | )
|                                                                                                          |  |         |   |       |  |        |   |       |   |                       |  
|Earnings (loss) before undernoted (EBITDA)                                                                |  |         |   |       |  |        |   |       |   |                       |  
|Broadcasting                                                                                              |  | 73.3    |   | 29.8  |  | 62.0   |   | 29.3  |   | 18.2                  |  
|Motion Picture Distribution                                                                               |  | 72.9    |   | 14.2  |  | 52.2   |   | 13.3  |   | 39.7                  |  
|Entertainment                                                                                             |  | 50.2    |   | 19.4  |  | (185.7 | ) | (71.2 | ) | 127.0                 |  
|Corporate and Other                                                                                       |  | (36.9   | ) |      |  | (42.5  | ) |      |   | 13.2                  |  
|                                                                                                          |  |         |   |       |  |        |   |       |   |                       |  
|                                                                                                          |  | 159.5   |   | 15.7  |  | (114.0 | ) | (13.2 | ) | 239.9                 |  
|                                                                                                          |  |         |   |       |  |        |   |       |   |                       |  
|Earnings (loss) from operations before undernoted and discontinued operations (operating earnings (loss)) |  | 9.8     |   | 1.0   |  | (294.5 | ) | (34.0 | ) | 103.3                 |  
|Net operating earnings (loss)                                                                             |  | 16.8    |   | 1.7   |  | (309.4 | ) | (35.7 | ) | 105.4                 |  
|Net earnings (loss)                                                                                       |  | 29.7    |   | 2.9   |  | (182.1 | ) | (21.0 | ) | 116.3                 |  
|Adjusted EBITDA                                                                                           |  | 160.8   |   | 15.8  |  | 52.0   |   | 6.0   |   | 209.2                 |  
|Adjusted operating earnings (loss)                                                                        |  | 49.1    |   | 4.8   |  | (85.7  | ) | (9.9  | ) | 157.3                 |  
|Adjusted net operating earnings (loss)                                                                    |  | 41.9    |   | 4.1   |  | (175.7 | ) | (20.3 | ) | 123.8                 |  
|                                                                                                          |  |         |   |       |  |        |   |       |   |                       |  

8

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The
following table presents a consolidated summary of the Company's operations for the three months ended December 31, 2004 and 2003 (in millions of Canadian dollars):

|                                                                                                          |  |       |   |       |   |        |   |        |   | % Increase (decrease) |  
|--------------------------------------------------------------------------------------------------------- |  | ----- | - | ----- | - | ------ | - | ------ | - | --------------------- | -
|
|
|
|Revenue                                                                                                   |  |       |   |       |   |        |   |        |   |                       |  
|Broadcasting                                                                                              |  | 72.6  |   | 22.4  |   | 61.1   |   | 22.8   |   | 18.8                  |  
|Motion Picture Distribution                                                                               |  | 147.2 |   | 45.5  |   | 127.3  |   | 47.5   |   | 15.6                  |  
|Entertainment                                                                                             |  | 104.0 |   | 32.1  |   | 79.2   |   | 29.6   |   | 31.3                  |  
|Corporate and Other                                                                                       |  | 0.1   |   |      |   | 0.2    |   | 0.1    |   | (50.0                 | )
|                                                                                                          |  |       |   |       |   |        |   |        |   |                       |  
|                                                                                                          |  | 323.9 |   | 100.0 |   | 267.8  |   | 100.0  |   | 20.9                  |  
|                                                                                                          |  |       |   |       |   |        |   |        |   |                       |  
|Direct operating expenses                                                                                 |  |       |   |       |   |        |   |        |   |                       |  
|Broadcasting                                                                                              |  | 34.0  |   | 46.8  |   | 23.1   |   | 37.8   |   | 47.2                  |  
|Motion Picture Distribution                                                                               |  | 115.6 |   | 78.5  |   | 106.3  |   | 83.5   |   | 8.7                   |  
|Entertainment                                                                                             |  | 76.3  |   | 73.4  |   | 251.9  |   | 318.1  |   | (69.7                 | )
|Corporate and Other                                                                                       |  |      |   |      |   |       |   |       |   |                      |  
|                                                                                                          |  |       |   |       |   |        |   |        |   |                       |  
|                                                                                                          |  | 225.9 |   | 69.7  |   | 381.3  |   | 142.4  |   | (40.8                 | )
|                                                                                                          |  |       |   |       |   |        |   |        |   |                       |  
|Direct profit                                                                                             |  |       |   |       |   |        |   |        |   |                       |  
|Broadcasting                                                                                              |  | 38.6  |   | 53.2  |   | 38.0   |   | 62.2   |   | 1.6                   |  
|Motion Picture Distribution                                                                               |  | 31.6  |   | 21.5  |   | 21.0   |   | 16.5   |   | 50.5                  |  
|Entertainment                                                                                             |  | 27.7  |   | 26.6  |   | (172.7 | ) | (218.1 | ) | 116.0                 |  
|Corporate and Other                                                                                       |  | 0.1   |   | 100.0 |   | 0.2    |   | 100.0  |   | (50.0                 | )
|                                                                                                          |  |       |   |       |   |        |   |        |   |                       |  
|                                                                                                          |  | 98.0  |   | 30.3  |   | (113.5 | ) | (42.4  | ) | 186.3                 |  
|                                                                                                          |  |       |   |       |   |        |   |        |   |                       |  
|Selling, general and administrative                                                                       |  | 37.3  |   | 11.5  |   | 52.4   |   | 19.6   |   | (28.8                 | )
|Stock based compensation                                                                                  |  | 9.9   |   | 3.1   |   | 1.0    |   | 0.4    |   | 890.0                 |  
|                                                                                                          |  |       |   |       |   |        |   |        |   |                       |  
|Operating Expenses                                                                                        |  | 47.2  |   | 14.6  |   | 53.4   |   | 19.9   |   | (11.6                 | )
|                                                                                                          |  |       |   |       |   |        |   |        |   |                       |  
|Earnings (loss) before undernoted (EBITDA)                                                                |  |       |   |       |   |        |   |        |   |                       |  
|Broadcasting                                                                                              |  | 22.9  |   | 31.5  |   | 20.6   |   | 33.7   |   | 11.2                  |  
|Motion Picture Distribution                                                                               |  | 20.1  |   | 13.7  |   | 15.7   |   | 12.3   |   | 28.0                  |  
|Entertainment                                                                                             |  | 22.2  |   | 21.3  |   | (190.3 | ) | (240.3 | ) | 111.7                 |  
|Corporate and Other                                                                                       |  | (14.4 | ) |      |   | (12.9  | ) |       |   | (11.6                 | )
|                                                                                                          |  |       |   |       |   |        |   |        |   |                       |  
|                                                                                                          |  | 50.8  |   | 15.7  |   | (166.9 | ) | (62.3  | ) | 130.4                 |  
|                                                                                                          |  |       |   |       |   |        |   |        |   |                       |  
|Earnings (loss) from operations before undernoted and discontinued operations (operating earnings (loss)) |  | (10.4 | ) | (3.2  | ) | (244.6 | ) | (91.3  | ) | 95.7                  |  
|Net operating earnings (loss)                                                                             |  | (2.9  | ) | (0.9  | ) | (257.6 | ) | (96.2  | ) | 98.9                  |  
|Net earnings (loss)                                                                                       |  | 9.6   |   | 3.0   |   | (151.7 | ) | (56.6  | ) | 106.3                 |  
|Adjusted EBITDA                                                                                           |  | 50.8  |   | 15.7  |   | (0.9   | ) | (0.3   | ) | 5,744.4               |  
|Adjusted operating earnings (loss)                                                                        |  | 25.7  |   | 7.9   |   | (35.8  | ) | (13.4  | ) | 171.8                 |  
|Adjusted net operating earnings (loss)                                                                    |  | 20.2  |   | 6.2   |   | (123.9 | ) | (46.3  | ) | 116.3                 |  
|                                                                                                          |  |       |   |       |   |        |   |        |   |                       |  

9

---



Summary of Quarterly Results

The following table presents an unaudited consolidated summary of our operating results on a quarterly basis for the twelve months ended December 31, 2004
and December 31, 2003 (in millions of Canadian dollars except for per share amounts):

|                                                                                                      |         | Dec. 31 2004 |       | Sept. 30 2004 |  | June 30 2004 |      | Quarter Ended Mar. 31 2004 |       | Dec. 31 2003 |  | Sept. 30 2003 |       | June 30 2003 |       | Quarter Ended Mar. 31 2003 |  
|----------------------------------------------------------------------------------------------------- | ------- | ------------ | ----- | ------------- |  | ------------ | ---- | -------------------------- | ----- | ------------ |  | ------------- | ----- | ------------ | ----- | -------------------------- | -
|
|Revenue                                                                                               |         |              | 323.9 |               |  | 214.4        |      |                            | 267.6 |              |  | 211.6         |       |              | 267.8 |                            |  
|Direct profit (loss)(1)                                                                               |         |              | 98.0  |               |  | 74.7         |      |                            | 73.3  |              |  | 66.0          |       | (            | 113.5 | )                          |  
|Earnings                                                                                              |         |              |       |               |  |              |      |                            |       |              |  |               |       |              |       |                            |  
|Earnings (loss) before undernoted (EBITDA)(1)                                                         |         |              | 50.8  |               |  | 36.8         |      |                            | 38.8  |              |  | 33.1          |       | (            | 166.9 | )                          |  
|Earnings (loss) from operations before undernoted and discontinued operations (operating earnings)(1) |         |              | (10.4 | )             |  | 8.5          |      |                            | 7.5   |              |  | 4.2           |       | (            | 244.6 | )                          |  
|Net earnings (loss) before discontinued operations                                                    |         |              | 9.1   |               |  | 18.9         |      |                            | 7.0   |              |  | (1.2          | )     | (            | 136.6 | )                          |  
|Net earnings (loss)                                                                                   |         |              | 9.6   |               |  | 18.9         |      |                            | 3.2   |              |  | (2.0          | )     | (            | 151.7 | )                          |  
|Earnings (loss) per Common Share before discontinued operations                                       |         |              |       |               |  |              |      |                            |       |              |  |               |       |              |       |                            |  
|                                                                                                      | Basic   |              | $     | 0.21          |  | $            | 0.44 |                            | $     | 0.16         |  | (             | $0.03 | )            | (     | $3.19                      | )
|                                                                                                      | Diluted |              | $     | 0.21          |  | $            | 0.43 |                            | $     | 0.16         |  | (             | $0.03 | )            | (     | $3.19                      | )
|Earnings (loss) per Common Share                                                                      |         |              |       |               |  |              |      |                            |       |              |  |               |       |              |       |                            |  
|                                                                                                      | Basic   |              | $     | 0.22          |  | $            | 0.44 |                            | $     | 0.07         |  | (             | $0.05 | )            | (     | $3.54                      | )
|                                                                                                      | Diluted |              | $     | 0.22          |  | $            | 0.43 |                            | $     | 0.07         |  | (             | $0.05 | )            | (     | $3.54                      | )
|                                                                                                      |         |              |       |               |  |              |      |                            |       |              |  |               |       |              |       |                            |  

---

Results of operations for any period are significantly dependent on the number, timing and commercial success of television programs and motion
pictures delivered or made available to various media, none of which can be predicted with certainty. Consequently, our results of operations may fluctuate materially from period to period and the
results of any one period are not necessarily indicative of results for future periods. Cash flows may also fluctuate and are not necessarily closely correlated with revenue recognition.

With
respect to Entertainment operations, a large percentage of a television program's revenues is recognized when the program is delivered pursuant to a non-cancelable
agreement, provided the applicable broadcast season has commenced. Although industry practices are changing, due, in part, to increased competition from new channels, broadcasters make most of their
annual programming commitments between February and June so that new programs are ready for telecast at the start of the broadcast season in September, or as mid-season replacements in
January. Because of this annual production cycle, our revenues are not earned on an even basis throughout the year. In particular, revenues are generally lowest in the second calendar quarter, as
fewer programs are completed and delivered during this period, and highest in the first, third, and, particularly, the fourth calendar quarter. As production levels significantly decline, this
seasonality has less of an impact on the Company's results of operations.

For
Broadcasting, advertising revenue is generally highest in the fourth calendar quarter, and lowest in the third calendar quarter whereas revenue derived from subscribers to the
Company's specialty television channels is earned relatively evenly throughout the year.

10

---



Primary Business Performance(1)

The
Company's principal business activities are Broadcasting, Motion Picture Distribution and Entertainment.

Broadcasting

The Company operates and has a controlling interest in 13 Canadian specialty television channels. It also has a 50% interest in two Canadian
French-language specialty channels and a minority interest in three other English-language specialty channels. Canadian specialty television channels are niche programming services, centred around a
specific genre or theme, that are available to viewers only upon payment of a subscription fee to a distribution undertaking (i.e., cable, direct-to-home satellite
("DTH") or multipoint distribution system). The Company's channels are focused on two core genres  "fact and fiction" and "lifestyle" programming.

The
Company is committed to growing its broadcasting presence by focusing on four key areas: (i) strong channel brands, (ii) innovative and high quality programming,
(iii) innovative and exceptional sales and marketing, and (iv) selectively launching new channels.



---

11

---





The
channels earn revenue from two primary sources: monthly fees paid by distribution undertakings based on the number of subscriptions to the channel, and money paid by advertisers who
purchase advertising on the channel. Where a specialty service is carried as part of the basic cable package, the subscriber fees are regulated by the CRTC. Where services are carried on a
discretionary tier, rates are not regulated and are negotiated directly with the signal distributors. The Company sells advertising nation-wide through its in-house advertising
sales team and retains 100% of the available advertising inventory of approximately 12 minutes per hour. Additionally, other Broadcasting revenues are generated from the rental of facilities
and licence fees earned on the distribution of certain programming.

Continuing
a five-year trend, the Company's channels demonstrated significant audience growth and outpaced the specialty industry overall for the broadcast year ended
August 31, 2004. Our channels' total regulated revenue grew by 18% during the broadcast year ended August 31, 2004, compared to an overall industry growth of 9%, as reported by the CRTC.
For the broadcast year ended August 31, 2004 the Company held a 12% market share of total regulated revenue in the specialty TV sector.

We
have signed carriage agreements for all of our digital channels which have resulted in each of them being available to almost every digital household in Canada. Our digital channels
enjoy strong subscriber levels, each with between 650,000 and in excess of 1,000,000 subscribers (with the exception of BBC Kids and Fine Living Canada which launched later than the
other channels). Out of the approximately 50 digital channels that have launched to date, Nielsen Media research indicates that our eight digital channels accounted for 34% of digital
television viewers in the 2004 Broadcast Year (year-end August 31, 2004).

The
Company expects its seven established analog channels to demonstrate continued growth in advertising sales. Also, with the number of households in Canada equipped with digital
technology projected to continue to grow, growth for the Company's eight digital specialty television channels is expected to be strong in terms of subscriber revenues, as well as in terms of audience
growth and advertising revenues.

Results of Operations(1)

The
following table presents a summary of Broadcasting operations for the three months and year ended December 31, 2004 and 2003 (in millions of Canadian dollars):

|Three months ended December 31,     |  | 2004 |  | 2003 |  | $ Increase
(decrease) |   | % Increase
(decrease) |  
|----------------------------------- |  | ---- |  | ---- |  | --------------------- | - | --------------------- | -
|
|Revenue                             |  | 72.6 |  | 61.1 |  | 11.5                  |   | 18.8                  |  
|Direct operating costs              |  | 34.0 |  | 23.1 |  | 10.9                  |   | 47.2                  |  
|                                    |  |      |  |      |  |                       |   |                       |  
|Direct profit                       |  | 38.6 |  | 38.0 |  | 0.6                   |   | 1.6                   |  
|Operating expenses                  |  | 15.7 |  | 17.4 |  | (1.7                  | ) | (9.8                  | )
|                                    |  |      |  |      |  |                       |   |                       |  
|Earnings before undernoted (EBITDA) |  | 22.9 |  | 20.6 |  | 2.3                   |   | 11.2                  |  
|                                    |  |      |  |      |  |                       |   |                       |  

|
|

|Year ended December 31,             |  |       |  | (pro forma)
(unaudited) |  |      |  |     
|----------------------------------- |  | ----- |  | ----------------------- |  | ---- |  | ----
|Revenue                             |  | 245.9 |  | 211.8                   |  | 34.1 |  | 16.1
|Direct operating costs              |  | 113.2 |  | 90.4                    |  | 22.8 |  | 25.2
|                                    |  |       |  |                         |  |      |  |     
|Direct profit                       |  | 132.7 |  | 121.4                   |  | 11.3 |  | 9.3 
|Operating expenses                  |  | 59.4  |  | 59.4                    |  |     |  |    
|                                    |  |       |  |                         |  |      |  |     
|Earnings before undernoted (EBITDA) |  | 73.3  |  | 62.0                    |  | 11.3 |  | 18.2
|                                    |  |       |  |                         |  |      |  |     

---

12

---



For comparative purposes, the following table outlines supplemental information on the Company's Broadcasting revenue that has not been shown on the consolidated statements of earnings
(loss) (in millions of Canadian dollars).

|                      |  | Three months ended December 31, |  | Year ended
December 31,
|--------------------- |  | ------------------------------- |  | -----------------------
|
|
|Analog channels       |  |                                 |  |                        
|Subscriber            |  | 22.0                            |  | 19.5                   
|Advertising and other |  | 41.3                            |  | 35.4                   
|                      |  |                                 |  |                        
|                      |  | 63.3                            |  | 54.9                   
|                      |  |                                 |  |                        
|Digital channels      |  |                                 |  |                        
|Subscriber            |  | 7.0                             |  | 5.1                    
|Advertising and other |  | 2.3                             |  | 1.1                    
|                      |  |                                 |  |                        
|                      |  | 9.3                             |  | 6.2                    
|                      |  |                                 |  |                        
|Total Broadcasting    |  | 72.6                            |  | 61.1                   
|                      |  |                                 |  |                        

For
the three months ended December 31, 2004, the analog channels recorded a 15% growth in revenue from $54.9 million to $63.3 million. For the year ended
December 31, 2004, the analog channels recorded a 14% growth in revenue from $188.7 million to $215.4 million. These increases were primarily the result of growth in advertising
revenues, as the Company continues to be a leader in the fundamental shift of Canadian television viewers toward Specialty and Pay television channels from conventional broadcast channels. Advertising
and other revenues increased by 17% in the current quarter and 21% for the year ended December 31, 2004. Analog channels' advertising revenue, on its own, increased 19% for the quarter and 24%
for the year ended December 31, 2004 compared to the equivalent periods in the prior year. The growth in advertising revenue reflects strong growth in audiences, with particularly strong growth
for Showcase Television, Food Network Canada and HGTV Canada.The Company's analog channels' advertising revenue growth was driven by rate growth, as
well as growth in the inventory sell out rate. The Company expects specialty television advertising revenue share to continue to grow rapidly. According to Neilson Media, Canadian specialty television
channels still accounted for only 33% of total Canadian television advertising revenue in 2003/2004 even though the English language specialty and pay television audience share in Canada
(for both Canadian services and U.S. services such as CNN and A&E) was 52% in 2004. The Company's analog channels' subscriber revenues also saw increases of 6% over the prior year ended
December 31, 2003.

The
digital specialty television channels' revenue was $9.3 million for the three months ended December 31, 2004 compared to $6.2 million for the three months ended
December 31, 2003, representing a 50% growth in revenue. For the year ended December 31, 2004, the digital specialty television channels' revenue increased $7.4 million or 32% to
$30.5 million. These favourable variances are primarily a result of an increase in the number of subscribers. The Company's digital specialty television channels' advertising revenue growth was
driven by volume rather than rate as these newer channels continue to attract a growing number of advertisers. The Company's digital specialty television channels were launched towards the end of the
September 2001 quarter. As previously noted, the Company has three of the 10 highest rated digital channels season to date with six channels in the top 20.

Total
paid subscribers for the channels in which the Company holds a controlling ownership grew 9% to 36.5 million subscribers at December 31, 2004 compared to
December 31, 2003.

Broadcasting
direct profit increased 2% for the three months ended December 31, 2004 over the three months ended December 31, 2003 as a result of an increase in advertising
revenues realized by the Company's analog channels as well as an increase in the number of subscribers of our digital specialty television channels, as previously explained. For the year ended
December 31, 2004, Broadcasting direct profit increased 9% over the prior year as a result of an increase in advertising revenues realized by the Company's analog channels, as

13

---



previously
explained. These gains were offset by increased amortization of broadcast rights as a result of the Company's change in accounting policy for broadcast rights (see note 2
to the Company's consolidated financial statements)

Broadcasting
direct margin decreased to 53% in the three months ended December 31, 2004 compared to 62% in the three months ended December 31, 2003, and 54% for the year
ended December 31, 2004 compared to 57% for the year ended December 31, 2003. The decreases in the quarter and year to date periods are a result of increased direct operating expenses
due, in part, to regulated Canadian program expenditure requirements, as well as increased amortization of broadcast rights due to the change in accounting policy noted above, and also the continuing
growth of the broadcast library.

The
operating expenses in Broadcasting were down slightly from the prior year's quarter and consistent with the prior year ended December 31, 2003. In both the quarter and year to
date periods, the net change in operating expenses related to an increase in stock based compensation costs which was more than offset by small decreases in a number of other operating expenses.

The
factors noted above contributed to an 11% and 18% increase in EBITDA in the quarter and year ended December 31, 2004, respectively, compared to the same period in the prior
year.

Motion Picture Distribution

The Company's Motion Picture Distribution business, through its 51% ownership interest in Distribution LP, is the largest distributor of motion pictures in
Canada, with a growing presence in the United Kingdom through Momentum Pictures. It is also the largest independent distributor in Spain through the recently
acquired Aurum Producciones, S.A. (May 2004). The Motion Picture Distribution operations are comprised of four reportable segments: Domestic Distribution, Momentum, Aurum and Cinemas.

Motion
Picture Distribution generates revenue from the theatrical distribution of motion pictures, the licencing of rights to conventional and specialty broadcasters, the sale of videos
and DVDs, and from the exhibition of motion pictures through its chain of cinemas.

Distribution LP
is the largest distributor of motion pictures in Canada, measured both by number of releases and theatrical box office receipts. Over each of the past four years
Distribution LP has released an average of 80 theatrical motion pictures, 169 video titles and 190 DVD titles in Canada. Distribution LP has exclusive Canadian
distribution arrangements with New Line Cinema, Miramax Films, and Focus Features.

In
addition to its leading market position in Canada, Distribution LP is also developing a growing presence in motion picture distribution in the United Kingdom through its
wholly-owned subsidiary Momentum Pictures ("Momentum"). Distribution LP is also the largest independent distributor in Spain through the recently acquired Aurum in May 2004.

Management
believes Distribution LP is the only independent distributor operating in three key territories (Canada, U.K., and Spain) that can collectively represent up to 15% of
the global box office. This platform provides it with enhanced access to high quality content, economies of scale with respect to theatrical print and video/DVD duplication costs, as well as spreading
fixed costs over a broader base. Distribution LP's strategy is to (i) maintain its leading market position in Canada, (ii) continue to grow its U.K. and Spanish operations and
opportunistically expand in certain selected territories, and (iii) leverage its large library of titles.



14

---





Domestic
Distribution obtains distribution rights for motion pictures primarily through its aforementioned longstanding output agreements with New Line Cinema, Miramax Films, and
Focus Features, a unit of Universal Studios, three of the leading U.S. based independent studios, as well as from smaller independent producers and distributors based in the
United States, Canada and around the world. In the United Kingdom, Momentum Pictures primarily acquires theatrical, home entertainment and television distribution rights for motion
pictures one motion picture at a time and, on occasion, pursuant to multi-picture agreements. A similar model is used in the Spanish operations. Motion Picture Distribution typically distributes those
motion pictures for theatrical exhibition, for home entertainment, television viewing and ancillary markets. Motion Picture Distribution also holds a 51% interest in Alliance Atlantis Cinemas
("Cinemas"), a partnership with Famous Players Inc. ("Famous Players") that operates a chain of niche-focused movie cinemas in Canada.

The
Company completed an initial public offering for units of the Fund on October 15, 2003. The Company received gross proceeds of $254.0 million on the closing of the
offering from the sale of a 49.0% interest in its motion picture distribution business. This sale was concluded through an initial sale of a 42.6% interest in the business to Distribution LP in
exchange for 57.4% of the total outstanding LP units plus a promissory note, and then a further sale of a 6.4% interest was completed on the exercise of an over-allotment option by
the underwriting group of the Fund. Distribution LP repaid the promissory note from net proceeds it received from the sale of LP units to the Fund, together with drawings on a new term
loan from a group of financial institutions.

In
May, 2004, a subsidiary of Distribution LP completed the acquisition of Spanish film distributor Aurum Producciones, S.A. for cash consideration of $55.2 million
including $1.8 million in cash expenses. The purchase price was funded through increased borrowing under Distribution LP's senior credit facility and the issuance of Class A
Ordinary Limited Partnership Units ("Ordinary LP Units"). Distribution LP entered into an amended and restated credit agreement with its senior lenders to increase the authorized
borrowing amount under its senior credit facility from $100.0 million to $125.0 million. The Fund completed a private placement of 1,436,000 Units from treasury at $10.45 per
unit, through a syndicate of agents. The Fund applied the gross proceeds of the private placement to acquire Ordinary LP Units of Distribution LP. The Company exercised its preemptive
rights and in doing so maintained its 51% interest in Distribution LP, by acquiring 1,494,612 Ordinary LP Units of Distribution LP at $10.45 per unit, such that
Distribution LP realized combined gross proceeds of $30.6 million from the offering of Ordinary LP Units. Aurum is the largest independent film distributor in Spain with a 5.0%
market share of theatrical box office receipts in 2004. Aurum distributes motion pictures in Spain in all media (theatrical, video/DVD and television) and has a library of over 400 films.

The
Company continues to consolidate the operations of Distribution LP into its results. Net earnings and earnings per share are both reduced by amounts accrued to the 49.0%
interest from the date of completion of the sale. Although an authorized credit facility, including a $50.0 million term loan and a $50.0 million revolving term credit facility, that has
been secured by Distribution LP is non-recourse to the Company, the portion of the facility that has been drawn is included in the Company's reported consolidated
total indebtedness. The Company's future cash flows will be impacted by the expected monthly distributions to holders of Distribution LP Units.

Consistent
with other income trusts, Movie Distribution Income Funds' fiscal year end is December 31. In order to align with the reporting schedule for Movie Distribution Income
Fund, the Company has now adopted a year end of December 31.

With
the successful initial public offering of units in Movie Distribution Income Fund, the Company was able to accelerate debt reduction efforts, surface value in its motion picture
distribution business and gain a partner to help finance future growth opportunities.

15

---



Results of Operations

The following table presents a summary of Motion Picture Distribution operations for the three months and year ended December 31, 2004 and 2003
(in millions of Canadian dollars):

|Three months ended December 31,     |  | 2004  |  | 2003  |  | $ Increase
(decrease) |  | % Increase
(decrease)
|----------------------------------- |  | ----- |  | ----- |  | --------------------- |  | ---------------------
|
|Revenue                             |  | 147.2 |  | 127.3 |  | 19.9                  |  | 15.6                 
|Direct operating costs              |  | 115.6 |  | 106.3 |  | 9.3                   |  | 8.7                  
|                                    |  |       |  |       |  |                       |  |                      
|Direct profit                       |  | 31.6  |  | 21.0  |  | 10.6                  |  | 50.5                 
|Operating expenses                  |  | 11.5  |  | 5.3   |  | 6.2                   |  | 117.0                
|                                    |  |       |  |       |  |                       |  |                      
|Earnings before undernoted (EBITDA) |  | 20.1  |  | 15.7  |  | 4.4                   |  | 28.0                 
|                                    |  |       |  |       |  |                       |  |                      
|
|
|Revenue                             |  | 512.1 |  | 392.9 |  | 119.2                 |  | 30.3                 
|Direct operating costs              |  | 408.4 |  | 318.3 |  | 90.1                  |  | 28.3                 
|                                    |  |       |  |       |  |                       |  |                      
|Direct profit                       |  | 103.7 |  | 74.6  |  | 29.1                  |  | 39.0                 
|Operating expenses                  |  | 30.8  |  | 22.4  |  | 8.4                   |  | 37.5                 
|                                    |  |       |  |       |  |                       |  |                      
|Earnings before undernoted (EBITDA) |  | 72.9  |  | 52.2  |  | 20.7                  |  | 39.7                 
|                                    |  |       |  |       |  |                       |  |                      

16

---



The
following table outlines further information on Motion Picture Distribution's revenue that has not been shown on the consolidated statements of earnings (loss) (in millions of
Canadian dollars)(1).

---

|                                     |  | Theatrical |  | Video/DVD |  | Television |  | Total
|------------------------------------ |  | ---------- |  | --------- |  | ---------- |  | -----
|
|Three months ended December 31, 2004 |  |            |  |           |  |            |  |      
|Domestic Distribution                |  | 14.1       |  | 55.5      |  | 15.8       |  | 85.4 
|Momentum Pictures                    |  | 0.4        |  | 25.2      |  | 2.4        |  | 28.0 
|Aurum                                |  | 3.0        |  | 25.8      |  | 1.2        |  | 30.0 
|Cinemas                              |  | 3.8        |  |          |  |           |  | 3.8  
|Three months ended December 31, 2003 |  |            |  |           |  |            |  |      
|Domestic Distribution                |  | 42.8       |  | 46.8      |  | 9.7        |  | 99.3 
|Momentum Pictures                    |  | 0.8        |  | 20.7      |  | 2.3        |  | 23.8 
|Aurum                                |  |           |  |          |  |           |  |     
|Cinemas                              |  | 4.2        |  |          |  |           |  | 4.2  

|
|

|                             |  | Theatrical |  | Video/DVD |  | Television |  | Total
|---------------------------- |  | ---------- |  | --------- |  | ---------- |  | -----
|
|Year ended December 31, 2004 |  |            |  |           |  |            |  |      
|Domestic Distribution        |  | 72.1       |  | 213.3     |  | 56.4       |  | 341.8
|Momentum Pictures            |  | 12.8       |  | 71.0      |  | 8.6        |  | 92.4 
|Aurum                        |  | 7.9        |  | 48.1      |  | 6.9        |  | 62.9 
|Cinemas                      |  | 15.0       |  |          |  |           |  | 15.0 
|Year ended December 31, 2003 |  |            |  |           |  |            |  |      
|Domestic Distribution        |  | 96.6       |  | 162.3     |  | 47.5       |  | 306.4
|Momentum Pictures            |  | 5.8        |  | 58.7      |  | 7.7        |  | 72.2 
|Aurum                        |  |           |  |          |  |           |  |     
|Cinemas                      |  | 14.3       |  |          |  |           |  | 14.3 

Revenue
for the three months ended December 31, 2004 increased $19.9 million or 15.6% to $147.2 million compared to $127.3 million for the three months ended
December 31, 2003. The acquisition of Aurum in May 2004 contributed $30.0 million to this favorable variance. This increase is offset by a decrease in Domestic Distribution of
$13.9 million.

Revenue
for the year ended December 31, 2004 increased $119.2 million or 30.3% to $512.1 million compared to $392.9 million for the year ended
December 31, 2003. The acquisition of Aurum in May 2004 contributed $62.9 million or 52.8% to this favourable variance with the remaining increase due primarily to the strong
performance of Domestic Distribution and Momentum.

For
the three months ended December 31, 2004, Domestic Distribution's revenue decreased $13.9 million or 14.0% to $85.4 million primarily as a result of the prior
year's quarter including the strong theatrical performance ofThe Lord of the Rings: The Return of the Kingand Elf. Domestic Distribution's revenue for
the year ended December 31, 2004 increased $35.4 million or 11.6% to $341.8 million
compared to $306.4 million for the year ended December 31, 2003. The increase in revenue was primarily due to strong video/DVD sales reflecting the video/DVD release of several
successful pictures, includingThe Lord of the Rings: The Return of the King, Elf, Kill Bill: Volume I, Kill Bill: Volume IIand Fahrenheit 9/11. The
favourable increase in video/DVD revenue was offset by a decline in theatrical revenue. Theatrical revenue benefited from
the successful release ofThe NotebookandFahrenheit 9/11, which became the new record breaking
box office gross for a documentary. Additionally,The Lord of the Rings: The Return of the King, which was initially released in the three months ended
December 31, 2003, became the second highest all-time top grossing film in Canadian box office history, representing 12% of overall box office for 2004. The decline in theatrical
revenue in 2004, however, can be

17

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primarily
attributed to having only the third installment of theLord of the Ringstrilogy showing in theatres in 2004 as compared to having both the
second and third installments of theLord of the Ringstrilogy showing in theatres in the prior year.

Momentum's
revenue was $28.0 million for the three months ended December 31, 2004 compared to $23.8 million in the prior year period. The 17.6% increase is
attributable to the performance of video releases forEternal Sunshine of the Spotless MindandThe Football
Factoryin the current quarter.Momentum's revenue was $92.4 million for the year ended December 31, 2004 compared
to $72.2 million for the year ended December 31, 2003. The increase of $20.2 million or 28.0% in revenue is due to increases in both theatrical and video/DVD revenue. Theatrical
revenue benefited from the successful release ofLost in Translation, which has become Momentum's highest grossing film at the box office, and the
strong performance of Eternal Sunshine of the Spotless Mindnoted above. The success of these two films at the box office also translated into strong video/DVD sales for the
year. Additionally, Momentum's strong video/DVD sales reflected the video/DVD release of the successful and locally madeThe Football Factory,and the
re-release ofReservoir Dogs.

Aurum
contributed $30.0 million and $62.9 million in revenue for the three months ended December 31, 2004 and the period from May, 2004 to December 31, 2004,
respectively. Theatrical revenues included releases such asMindhuntersandThe Phantom of the Opera.
Video releases includedThe Lord of the Rings: The Return of the KingandThe Passion of the Christ.

Cinemas
revenue was $3.8 million and $15.0 million for the three months and year ended December 31, 2004, respectively, compared to $4.2 million and
$14.3 million for the three months and year ended December 31, 2003, respectively. The increase for the year was primarily the result of an increase in theatre admissions, reflecting
higher attendance.

Direct
profit for the three months ended December 31, 2004 increased 50.5% to $31.6 million. The acquisition of Aurum contributed $1.7 million or 16.0% to this
variance. Domestic Distribution and Momentum were the main contributors to this improved performance. Direct profit for the year ended December 31, 2004 increased $29.1 million or 39.0%
to $103.7 million compared to $74.6 million for the year ended December 31, 2003. The acquisition of Aurum in May 2004 contributed $6.2 million or 21.3% to this
favourable variance with the remaining increase due to increases in Domestic Distribution and Cinemas, which were partially offset by a decrease in Momentum.

The
$5.1 million increase in direct profit for Domestic Distribution for the three months ended December 31, 2004 is primarily the result of prior year direct profit
including significant print and advertising costs ("P&A") for the release ofThe Lord of the Rings: The Return of the Kingwithout including the revenue
associated with these costs. The $23.4 million increase in the year to date period is a result of higher revenues as previously noted and the strong performance of Domestic Distribution's
current year release slate.

In
the year ended December 31, 2004, Momentum's direct profit declined by $1.3 million due mainly to the poor theatrical performances ofCompleat
Female Stage BeautyandWicker Parkresulting in less revenue being available to offset P&A costs. Additionally, P&A incurred on Racing
StripesandVera Drake, scheduled for theatrical release in 2005, further depressed direct profit
as no theatrical revenue was recognized to defray the costs of P&A required to be expensed as incurred.

Aurum
contributed $1.7 million and $6.2 million in direct profit, or a direct margin of 5.6% and 9.9% in the quarter and year ended December 31, 2004, respectively.
Aurum's direct margins have historically been lower than those of Domestic Distribution and Momentum. However, margins are expected to improve as a result of a new DVD distribution agreement and the
new and improved agreements for DVD duplication, film prints and media buying.

Direct
margin for the three months and year ended December 31, 2004 was 21.5% and 20.2% respectively, compared to 16.5% and 19.0% in the prior year, respectively, due to the
factors noted above.

Operating
expenses for the quarter ended December 31, 2004 increased $6.2 million to $11.5 million. Operating expenses for the year ended December 31, 2004
increased by $8.4 million to $30.8 million compared to $22.4 million for the year ended December 31, 2003. The variance comprises an increase in Domestic Distribution of
$4.0 million and $7.2 million in the quarter and year to date period, respectively. The increase in

18

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Domestic
Distribution's operating expenses is a result of $1.0 million in costs relating to the Aurum acquisition, $3.1 million in compensation expense relating to the Long Term
Incentive Plan ("LTIP"), and other miscellaneous increases. Additionally, Aurum contributed $2.1 million and $3.7 million to the increase in operating expenses in the quarter and
year,respectively.

The
factors noted above contributed to a 28.0% and 39.7% increase in EBITDA in the three months and year ended December 31, 2004, respectively, compared to the same period in the
prior year.

Entertainment

The Entertainment business co-owns and co-produces the highly successfulCSIfranchise,
acquires and distributes television programs to Canadian, American and international broadcasters, home video distributors, and sub-distributors, and produces a limited amount of
in-house productions that align with the content needs of Broadcasting.

Over
the past five years the Company has significantly reduced capital-intensive production activities, as the international market for the type of production the Company traditionally
produced has changed fundamentally. In fiscal 1999, the Company delivered over 325 hours of prime-time drama production, none of which was part of the CSIfranchise. In the year ended
December 31, 2004, the Company reduced prime-time drama production to just 72.0 hours, 81% of
which were part of theCSIfranchise. The decline in revenues in Entertainment is consistent with this strategy.

The
Company's Entertainment business is focused on (i) maximizing the value of theCSIfranchise; and (ii) exploiting its
library of programming rights worldwide.



As
discussed in note 28 to the Company's consolidated financial statements, in the face of the continued weakened international demand for prime-time dramatic
programming the Company conducted an extensive review of its Entertainment operations and took decisive action in December 2003 to restructure the Entertainment segment. Under the restructuring
plan, Entertainment materially reduced the size and scope of its production business by eliminating entire categories of production such as new prime-time drama series (with the exception
of theCSIfranchise), movies-of-the-week and miniseries and in-house feature films. This step enabled
the Company to significantly reduce staffing levels and to close certain production-related offices. The total impact of the restructuring on the Company's pre-tax earnings for the year
ended December 31, 2003 was $223.7 million. With the restructuring substantially completed, the Company incurred a total of $3.9 million of additional pre-tax charges
related to the restructuring during the year ended December 31, 2004.

As
part of Entertainment's restructuring plan, a decision was made to sell the Company's post-production businesses as they were no longer considered strategically important
to the Company following the curtailment of production activities. Accordingly, the previously reported results of operations and financial position for these businesses have been reported as
discontinued operations (see note 17 to the Company's consolidated financial statements).

Following
the significant review that was announced in December 2003, Entertainment is now primarily an international distributor of television content with limited involvement in
the creation of content. The Company

19

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continues
to sell titles from its catalogue, which contains approximately 1,000 titles and 5,000 hours, includingCSI, from its
international television distribution operation.

The
growth in Entertainment is expected to predominantly relate to theCSIfranchise. The Company and CBS Productions recently began
producing episodes of a second spin-off to theCSIfranchise,CSI: NY.CBS network began
airingCSI: NYon Wednesday nights during the 2004/2005 broadcast year starting September 22, 2004. Currently, the Company has licenced
international broadcast rights, outside of the United States of America, to both the originalCSI: Crime Scene Investigationand its
spin-offCSI: Miamito more than 150 territories around the world, sharing worldwide revenues on a 50/50 basis with CBS
Productions after certain distribution fees, marketing/distribution expenses, production costs and third-party profit participations. The Company has already secured international licence agreements
forCSI:NYin Australia, France, Germany, Spain, the U.K and a number of other international markets.

Entertainment
generates revenue from the production and distribution of theCSIfranchise domestically and internationally, the
distribution of previously produced and acquired television programming and from the licencing of a limited amount of internally produced factual and kids programming.

Results of Operations

The following table presents a summary of Entertainment operations for the three months and year ended December 31, 2004 and 2003 (in millions of
Canadian dollars):

|Three months ended December 31,            |  | 2004  |  | 2003   |   | $ Increase
(decrease) |   | % Increase
(decrease) |  
|------------------------------------------ |  | ----- |  | ------ | - | --------------------- | - | --------------------- | -
|
|Revenue                                    |  | 104.0 |  | 79.2   |   | 24.8                  |   | 31.3                  |  
|Direct operating costs                     |  | 76.3  |  | 251.9  |   | (175.6                | ) | (69.7                 | )
|                                           |  |       |  |        |   |                       |   |                       |  
|Direct profit (loss)                       |  | 27.7  |  | (172.7 | ) | 200.4                 |   | 116.0                 |  
|Operating expenses                         |  | 5.5   |  | 17.6   |   | (12.1                 | ) | (68.8                 | )
|                                           |  |       |  |        |   |                       |   |                       |  
|Earnings (loss) before undernoted (EBITDA) |  | 22.2  |  | (190.3 | ) | 212.5                 |   | 111.7                 |  
|                                           |  |       |  |        |   |                       |   |                       |  

|Year ended December 31,                    |  | 2004  |  | 2003   |   | $ Increase
(decrease) |   | % Increase
(decrease) |  
|------------------------------------------ |  | ----- |  | ------ | - | --------------------- | - | --------------------- | -
|
|Revenue                                    |  | 258.7 |  | 260.7  |   | (2.0                  | ) | (0.8                  | )
|Direct operating costs                     |  | 183.9 |  | 410.7  |   | (226.8                | ) | (55.2                 | )
|Direct profit (loss)                       |  | 74.8  |  | (150.0 | ) | 224.8                 |   | 149.9                 |  
|Operating expenses                         |  | 24.6  |  | 35.7   |   | (11.1                 | ) | (31.1                 | )
|                                           |  |       |  |        |   |                       |   |                       |  
|Earnings (loss) before undernoted (EBITDA) |  | 50.2  |  | (185.7 | ) | 235.9                 |   | 127.0                 |  
|                                           |  |       |  |        |   |                       |   |                       |  

The
current quarter increase in revenue over the prior year is due to an increase inCSIrevenues over the prior year's quarter of
$57.5 million, or 160% mainly as a result of the addition ofCSI: NYto the franchise as well as increased international sales, particularly
through the Company's participation in exploitation revenues in the United States. The increase was offset by decreased other revenues resulting from fewer deliveries of
non-CSIfilm and television programs as a result of the exit of most of the Company's production business.

The
slight decrease in revenues for the year ended December 31, 2004 over the prior year is the net result of an increase of $73.3 million or 55.6% in CSIfranchise revenues offset by a decrease
in other Entertainment revenues of $75.3 million or 58.4%. The increase in the CSIrevenues for the year is the result of the delivery of an increased number of episodes with the addition ofCSI:
NYto the franchise, as well as increased international sales as noted above. Also, certain licence fees for the franchise were increased substantially as a result of the
attainment of certain ratings. The decrease in other revenues is due primarily to the Company's previously articulated strategy of exiting all
non-CSIprime time drama production. Also contributing to the decrease is the adoption of a change in accounting policy with respect to
government financing and assistance, which was

20

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applied
prospectively commencing January 1, 2004. The recognition of government financing and assistance changed from revenue to a reduction of the related production costs. The impact of this
change in accounting policy was a reduction in revenue of $11.3 million for the year ended December 31, 2004. (See note 2 of the Company's consolidated financial
statements).

For
the quarter ended December 31, 2004,CSIfranchise revenue was $93.5 million compared to $36.0 million in the
prior year period. For the year ended December 31, 2004, revenue from theCSIfranchise was $205.1 million, representing 79.3% of
Entertainment's revenue compared to $131.8 million or 50.6% for the prior year. TheCSIfranchise accounted for $39.5 million of
Entertainment's direct profit in the three months ended December 31, 2004 compared to $7.8 million in the same period in the prior year. The CSIfranchise accounted for $73.4 million of
Entertainment's direct profit in the year ended December 31, 2004 compared to
$45.1 million in the prior year.CSIwill continue to be become a larger proportion of Entertainment
operating results now that the Company has completed its exit from substantially all non-CSIdramatic production.

The
following table shows the Company's Entertainment production deliveries for the three months and year ended December 31, 2004 and 2003.

|                                  |                    | Three months ended December 31, |      | Year ended
December 31,
|--------------------------------- | ------------------ | ------------------------------- | ---- | -----------------------
|
|
|Motion Pictures (number of films) |                    |                                |      |                       
|                                  |                    |                                 |      |                        
|Television hours:                 |                    |                                 |      |                        
|                                  | CSI Vegas/Miami/NY |                                 | 27.0 |                        
|                                  | Drama              |                                 | 5.0  |                        
|                                  | Movies             |                                 |     |                        
|                                  | Kids               |                                 |     |                        
|                                  |                    |                                 |      |                        
|                                  |                    | 32.0                            |      | 55.5                   
|                                  | Factual            |                                 |     |                        
|                                  |                    |                                 |      |                        

Entertainment
direct margin for the three months ended December 31, 2004 includes a 42.2% margin onCSIrevenues compared to 21.7%
margin onCSIrevenues in the prior year's period. During the year ended December 31, 2004, the Company recorded a significant reduction in its
investment in film and television programs, representing a reimbursement of production costs to be received over time. As a result of this reduction, sales of the CSIfranchise generated higher margins
in the year and will continue to do so in the future. Entertainment direct margin for the year ended
December 31, 2004 includes a 35.8% margin onCSIrevenues compared to 34.2% margin onCSIrevenues in the prior year.

Direct
margin on other Entertainment revenues increased dramatically. In the prior year three months and year ended December 31, 2003 period, direct operating expenses included
$158.9 million in investment in film and television program impairment charges in connection with the Entertainment restructuring. There is no such charge in the current quarter and year. The
Company continues to reduce its production activities to a limited amount of production that align with the needs of its broadcasting operations, primarily in the genres of factual and kids
programming.

The
decreases in Entertainment operating expenses in the quarter and year are primarily due to significant operating expenses incurred in the equivalent periods in the prior year with
respect to the Entertainment restructuring undertaken in December 2003. The Company is also realizing the expected cost savings anticipated from the restructuring and expects these savings to
continue into the future.

The
above contributed to a 111.7% and 127.0% increase in EBITDA for the three months and year ended December 31, 2004 over the comparable periods in the prior year.

21

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Corporate and Other

Corporate and Other is primarily a corporate services group providing support to the operating segments for information technology, finance, internal audit, human
resources, legal, investor relations and other corporate services. Corporate and Other also holds corporate investments, which generate small revenue streams as well as corporate activities that are
being wound down.

Operating
expenses in Corporate and Other were $14.5 million and $37.7 million in the three months and year ended December 31, 2004, respectively, compared to
$13.1 million and $43.1 million in the same periods in the prior year. Prior year operating costs included a one-time lease abandonment charge of $8.3 million as well
as non-recurring costs of $1.8 million related to the Company's structured financing business. After considering these one time charges, operating expenses increased primarily as a
result of a significant increase in the Company's stock based compensation costs attributable to a significant increase in the Company's share price in the past year, as well as increased professional
fees related the commencement of management's review and assessment of internal controls as required under Sarbanes Oxley and Bill C-198.

Other Statement of Earnings (Loss) Items

AmortizationAmortization includes development costs charges, amortization of property and equipment,
and amortization of other assets. Amortization was $4.8 million for the quarter ended December 31, 2004 compared to $34.6 million for the quarter ended December 31, 2003.
For the year ended December 31, 2004, amortization decreased by $42.7 million to $21.3 million. This decrease is mainly a result of a reduction in unamortized development costs as
a result of the restructuring of our Entertainment operations in the prior year, as described in note 28 of the Company's consolidated financial statements. In the prior year,
$30.8 million in amortization related to the Entertainment restructuring resulting from decisions to abandon projects as a result of the restructuring. Also included in the prior year's
amortization was a reduction of property and equipment of $1.0 million related to the abandonment of one of the Company's offices. For the year ended December 31, 2004
$1.9 million of the amortization expense was incurred in connection with the Entertainment restructuring plan.

InterestInterest expense decreased $10.8 million to $11.9 million for the three months
ended December 31, 2004 compared to $22.7 million for the three months ended December 31, 2003. For the year ended December 31, 2004, interest expense decreased
$29.8 million to $58.2 million compared to $88.0 million for the year ended December 31, 2003. The decrease is the result of the strengthening Canadian dollar relative to
the US dollar, which reduced the interest expense on the Company's US denominated debt. In addition, lower borrowings on the Company's revolving credit facility resulted in decreased interest costs
driven by the Company's continued debt reduction efforts. Interest income increased, reducing net interest expense, as a result of interest recognized with respect to long term receivables held by the
Company. Net indebtedness (indebtedness less cash and cash equivalents) increased from $373.0 million at December 31, 2003 to $428.6 million at December 31, 2004, an
increase of $55.6 million. The increase results from the Company's acquisition of Aurum, and from the $24.0 million premium paid on the redemption of the senior
subordinated notes. The comprehensive refinancing undertaken by the Company in December 2004 is expected to significantly reduce interest costs in the future.

The
decrease in interest expense for the three months ended December 31, 2004 compared to December 31, 2003 is comprised of a $6.5 million decrease in cash interest
expense and a $4.3 million decrease in non-cash interest charges. The decrease in interest expense for the year ended December 31, 2004 compared to the equivalent period in
the prior year is comprised of a $21.7 million decrease in cash interest expense and a $8.1 million decrease in non-cash interest charges. These non-cash interest
charges include a decrease in the interest capitalized to investment in film and television programs, which is in line with the Company's strategy to significantly reduce capital intensive production
activities. The non-cash interest charges also include a decrease in amortized interest due to a change in accounting policy with respect to the amortization of interest previously
capitalized, which was applied prospectively commencing January 1, 2004. The amortization of investment in film and television programs now includes the amortization of interest previously
capitalized. (See note 2 of the Company's consolidated financial statements). As a result of this change in accounting policy, the amortization

22

---



of
investment in film and television programs includes $1.0 million of amortization of interest previously capitalized.

For
the quarter ended December 31, 2004, interest expense includes nominal amounts capitalized to investment in film and television programs compared to $2.4 million in the
prior year's quarter. For the year ended December 31, 2004, interest expense is net of amounts capitalized to investment in film and television programs of $1.6 million compared to
$8.5 million in the prior year. Interest expense for the quarter and year ended December 31, 2004 does not include amortization of interest previously capitalized to investment in film
and television programs due to a change in accounting policy described above. However, $6.8 million and $13.5 million was included in interest expense in the prior year's quarter and
year, respectively, for amortization of interest previously capitalized to investment in film and television programs.

Deferred
financing cost amortization totals $1.4 million for the quarter December 31, 2004 compared to $1.3 million in the prior year's quarter. Deferred financing
cost amortization totals $5.3 million for the year ended December 31, 2004 compared to $6.8 million in the prior year. This decrease is a result of a reduction in deferred
financing fees in the prior year as a result of decreasing the borrowing capacity on the Company's senior revolving credit facility. The decrease was partially offset by the amortization of deferred
financing fees on Distribution LP's credit facilities. The Company incurred additional deferred financing costs of $8.5 million during the year ended December 31, 2004 as a result
of the December 2004 comprehensive debt refinancing as well as amendments made to Distribution LP's credit facilities.

Equity Losses in AffiliatesEquity losses in affiliates for the quarter ended December 31,
2004 was nil compared to $0.1 million for the quarter ended December 31, 2003. For the year ended December 31, 2004, equity losses remained consistent at $0.1 million
compared to the prior year. Equity losses in affiliates include the Company's share of losses from its investments in two digital specialty television channels, One: The Body, Mind and Spirit Channel
and Scream, and its investment in ExtendMedia Inc.

Income TaxesThe income tax provision for the three months ended December 31, 2004 decreased
by $41.5 million to a recovery of $1.9 million compared to the three months ended December 31, 2003. For the year ended December 31, 2004, income tax provision decreased
$52.2 million to $0.6 million compared to $52.8 million in the equivalent period in the prior year. The decrease in the quarter and year is the result of management's assessment
that certain future tax assets previously provided for are now expected to be recovered. The recovery of $22.1 million in valuation allowance was offset by certain adjustments to management's
previous estimates related to certain tax exposures.

Earnings (Loss) From Operations Before Undernoted And Discontinued Operations (Operating Earnings (Loss))Operating loss for the three
months ended December 31, 2004 was $10.4 million compared to an operating loss of $244.6 million for the three months ended December 31, 2003. Net operating loss for the
three months ended December 31, 2004 was $2.9 million, compared to a net operating loss of $257.6 million in the three months ended December 31, 2003.

On
a per share diluted basis, net operating loss was $0.07 for the three months ended December 31, 2004 compared to net operating loss per share of $6.02 in the comparable period
in the prior year.

Operating
earnings for the year ended December 31, 2004 was $9.8 million compared to an operating loss of $294.5 million for the year ended December 31, 2003.
Net operating earnings for the year ended December 31, 2004 was $16.8 million, compared to a net operating loss of $309.4 million in the year ended December 31, 2003.

On
a per share diluted basis, net operating earnings was $0.39 for the year ended December 31, 2004 compared to net operating loss per share of $7.25 in the comparable period in
the prior year.

Adjusted Operating Earnings (Loss)As defined on page 37, adjusted operating earnings for the
three months ended December 31, 2004 was $25.7 million compared to $35.8 million of adjusted operating loss in the prior year's three months. Adjusted net operating earnings for
the quarter ended December 31, 2004 was $20.2 million, compared to adjusted net operating loss of $123.9 million in the prior year's three months.

23

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On
a per share diluted basis, adjusted net operating earnings was $0.46 for the quarter ended December 31, 2004 compared to adjusted net operating loss per share of $2.90 in the
comparable period in the prior year.

Adjusted
operating earnings for the year ended December 31, 2004 was $49.1 million compared to $85.7 million of adjusted operating loss in the prior year. Adjusted
net operating earnings for the year ended December 31, 2004 was $41.9 million, compared to adjusted net operating loss of $175.7 million in the prior year's period.

On
a per share diluted basis, adjusted net operating earnings was $0.96 for the year ended December 31, 2004 compared to adjusted net operating loss per share of $4.11 in the
comparable period in the prior year.

Net Investment (Gains) Losses, netInvestment gains for the quarter ended December 31, 2004 total $1.8 million, and include
a $5.0 million gain relating to a mark to market adjustment reflecting the change in fair value of rights to receive units in a certain investee, and a $1.1 million gain on the
conversion and subsequent sale of units of one of the Company's investments. The Company also recorded a loss of $0.5 million as a result of a settlement with respect to warrants the Company
held. Additionally, after a review by management of the valuations of certain investments carried at cost, the Company recorded a pre-tax impairment charge of $5.0 million. The
Company also received funds upon the wind up of one of its investments with a carrying value of nil, resulting in a gain of $1.2 million. For the year ended December 31, 2004, investment
gains total $2.2 million, and include a $6.2 million gain recognized reflecting the change in fair value of the right noted above, a $1.1 million gain on the conversion and
subsequent sale of units of one of the Company's investments and a $1.2 million gain related to proceeds received noted above, offset by $0.2 million of losses incurred on the disposal
of assets, $1.1 million loss on the warrants noted above, and a pre-tax impairment charge on its investments carried at cost totaling $5.0 million.

Unusual ItemsUnusual items were $36.1 million for the quarter and year ended
December 31, 2004, compared to $12.0 million and $17.2 million for the quarter and year ended December 31, 2003, respectively. The Company refinanced its existing credit
facilities on December 20, 2004 and recorded a $12.1 million write down of deferred financing costs associated with the previous revolving credit facility and senior subordinated notes,
as well as a $24.0 million redemption premium related to the senior subordinated notes. Unusual items for the prior years' quarter include $12.0 million of severance and professional
fees related to the December 2003 restructuring related to the Company's Entertainment business. Also, included in the prior year is a final production financing non-fulfillment
payment made in July 2004, as well as additional severance and professional fees related to a March 2003 restructuring of the Company's Entertainment business.

Net Earnings (Loss)The net earnings for the three months ended December 31, 2004 was $9.6 million compared to the net loss
of $151.7 million for the three months ended December 31, 2003. On a basic and diluted basis, net earnings per share were $0.22 for the three months ended December 31, 2004
compared to a basic and diluted net loss per share of $3.54 for the three months ended December 31, 2003.

The
net earnings for the year ended December 31, 2004 was $29.7 million compared to the net loss of $182.1 million for the year ended December 31, 2003. On a
basic and diluted basis, net earnings per share were $0.69 and $0.68 respectively for the year ended December 31, 2004 compared to net loss per share of $4.26 for the year ended
December 31, 2003.

Liquidity and Capital Resources

Current and Short Term Liquidity

The nature of our business is such that significant expenditures are required to produce and acquire television programs and motion pictures in advance of revenue
generation from these programs and motion pictures, which is earned over an extended period of time after their completion or acquisition. As well, launching new specialty television channels is
capital intensive. This results in significant working capital requirements. The Company has historically financed its working capital requirements through a combination of cash flow from operations,
the use of revolving credit facilities, and the issuance of debt.

Working
capital, comprising cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, income taxes payable and deferred revenue, net of the revolving
credit facility and the current portion

24

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of
term loans, was a deficiency of $208.6 million at December 31, 2004 compared to a deficiency of $211.4 million at December 31, 2003, representing an improvement of
$2.8 million. The most significant contributors to the improvement in the Company's working capital are the increase in accounts receivable caused by the increase in revenue, a decrease in
accounts payable, excluding the acquisition of Aurum, caused by the repayment of production financing arrangements and the exit of certain production business, and the increase in operating cash flow
offset by increases in income taxes payable and deferred revenue.

The
Company's operating cash flow (see note on non-GAAP measures on page 37 for the definition and calculation of operating cash flow) for the three
months ended December 31, 2004 was an inflow of $5.9 million compared to an inflow of $13.6 million for the three months ended December 31, 2003, representing a decrease of
$7.7 million. Operating cash flow for the year ended December 31, 2004 was an inflow of $36.6 million compared to an outflow of $70.7 million in the prior year,
representing an increase of $107.3 million. These variances are due to an increase in operating earnings and a net reduction in investment in film and television programs and reflect the
Company's previously articulated strategy to significantly reduce its capital-intensive production activities.

The
Company's free cash flow (see note on non-GAAP measures on page 37 for the definition and calculation of free cash flow) for the three months ended
December 31, 2004 was an inflow of $32.7 million compared to an inflow of $198.8 million for the three months ended December 31, 2003, representing a decrease of
$166.1 million. Free cash flow for the year ended December 31, 2004 was an outflow of $23.1 million compared to an inflow of $160.1 million, representing a decrease of
$183.2 million. Free cash flow for the three months and year ended December 31, 2003 included proceeds of $162.4 million related to the initial public offering of Movie
Distribution Income Fund. The quarter and year ended December 31, 2004 were positively affected by an increase in operating earnings and a net reduction in the investment in film account, and
adversely affected by an increase in non-cash operating balances and the acquisition of Aurum. The increase in non-cash operating balances was mainly due to an increase in
accounts receivable, which was caused by increased revenue, and reimbursements accrued with respect to costs incurred for one of the Company's productions.

Any
deficiencies in the Company's operating or free cash flow are typically funded by the Company's $175.0 million revolving credit facility or by debt or equity issuances.

As
previously mentioned, the Company's net debt, which comprises the revolving credit facility, term loans and senior subordinated notes, net of cash and cash equivalents, increased over
the prior year by $55.6 million, from $373.0 million at December 31, 2003 to $428.6 million at December 31, 2004, primarily as a result of the acquisition of Aurum
and the premium paid upon redemption of the Company's senior subordinated notes. This short-term debt increase is not significant and relates to capital transactions that will benefit the
Company in the long term. The Company remains keenly focused on reducing its overall indebtedness. The Company expects to fund its debt reduction program through operating cash flow, driven in part by
the continued ratings success ofCSIand increased earnings in our Broadcasting operations.

The
Company completed an initial public offering for units of the Movie Distribution Income Fund on October 15, 2003. The Company received gross proceeds of $254.0 million
on the closing of the offering from the sale of a 49% interest in our motion picture distribution business. As planned, these funds were used to significantly pay down the Company's debt. The Company
continues to consolidate the operations of Distribution LP into the Company's results. Although a $50.0 million term loan that has been secured by Distribution LP is
non-recourse to the Company, it is included in the Company's reported consolidated total indebtedness.

In
addition, the Fund's 49.0% interest in Distribution LP entitles it to at least 49.0% of the cash distributions of Distribution LP. Accordingly, the Company's future cash
flows will be impacted by the expected monthly distributions to holders of LP Units. These distributions will be funded through cash flow from operations.

CommitmentsAs disclosed in the notes to the consolidated financial statements, the Company has
entered into various contracts which result in future cash flow commitments related to programming purchases, operating leases, certain broadcast intangible assets, production financing and term
loans. The following table

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details
the cash flow commitments over the next five years and thereafter related to these obligations. The Company plans to fund these commitments through cash flow from operations; however, any
deficiencies in this cash flow will be funded by the Company's revolving credit facility (in millions of Canadian dollars).

|                                              |  | 2005  |  | 2006  |  | 2007 |  | 2008 |  | 2009 |  | Thereafter |  | Total
|--------------------------------------------- |  | ----- |  | ----- |  | ---- |  | ---- |  | ---- |  | ---------- |  | -----
|Term loans principal*                         |  | 10.1  |  | 66.3  |  | 22.9 |  | 42.5 |  | 55.5 |  | 286.3      |  | 483.6
|Interest on term loans*                       |  | 17.9  |  | 17.4  |  | 16.6 |  | 15.5 |  | 13.5 |  | 24.1       |  | 105.0
|Broadcast and distribution rights(1)          |  | 102.9 |  | 47.6  |  | 12.5 |  | 9.8  |  | 9.0  |  |           |  | 181.8
|Operating leases(2)                           |  | 16.3  |  | 13.1  |  | 10.3 |  | 9.6  |  | 9.3  |  | 79.8       |  | 138.4
|Production financing arrangements*            |  | 14.7  |  | 1.4   |  |     |  |     |  |     |  |           |  | 16.1 
|Broadcast intangibles acquisition liabilities |  | 2.0   |  | 2.0   |  | 1.0  |  |     |  |     |  |           |  | 5.0  
|Consulting contracts(3)                       |  | 0.8   |  | 0.8   |  | 0.8  |  | 0.8  |  |     |  |           |  | 3.2  
|                                              |  |       |  |       |  |      |  |      |  |      |  |            |  |      
|Total contractual obligations                 |  | 164.7 |  | 148.6 |  | 64.1 |  | 78.2 |  | 87.3 |  | 390.2      |  | 933.1
|                                              |  |       |  |       |  |      |  |      |  |      |  |            |  |      

---

Capital Resources

In December 2004, the Company completed a refinancing of substantially all of its existing credit facilities. The existing senior revolving credit facility
and senior subordinated notes were replaced by new senior secured credit facilities consisting of a five-year $175.0 million revolving credit facility, a five-year
US$108.6 million term loan A credit facility, and a seven-year US$250.0 million term loan B credit facility.

Revolving Credit FacilityAt December 31, 2004, the revolving credit facility provided up to
$175.0 million in available committed credit bearing interest at Banker's Acceptance or LIBOR rate plus a margin ranging from 75 to 175 basis points and the Canadian prime rate
and the US base rate plus a margin of up to 75 basis points. At December 31, 2004 no amounts were drawn on this facility.

The
Distribution LP revolving credit facility provides up to $25.0 million in borrowings bearing interest at either the Canadian prime rate or the U.S. base rate
plus a margin of 100 to 200 basis points, or the Banker's Acceptance rate or the LIBOR rate plus a margin of 200 to 300 basis points. The facility is a 364-day
facility that can be extended for a further 364 days upon request and upon consent of lenders holding at least two thirds of the revolving credit facility commitment. On September 13,
2004, the facility was extended for a further 364 days with a maturity date of October 11, 2005.

In
May 2004, Distribution LP amended and restated its credit agreement. As a result, the term loan was modified to transfer $25.0 million of the term loan facility
to the new revolving term credit facility. Additionally, $25.0 million in new credit was authorized, creating a new revolving term credit facility of $50.0 million. The new facility
bears interest at the same interest rates as the initial term loan and matures on October 15, 2006. Distribution LP incurred fees of $1.0 million as a result of the modification
to the facilities, which are being deferred and amortized.

As
at December 31, 2004, none of the revolving credit facility and none of the revolving term facility have been drawn and Distribution LP had unused credit facilities
aggregating $75.0 million.

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Senior Subordinated NotesThe Company had US$300.0 million senior subordinated notes that
were
to mature December 15, 2009. At any time after December 15, 2004 the Company could redeem all or a portion of the notes at specific redemption prices plus accrued interest to the date of
the redemption. In December 2004, as part of the Company's comprehensive refinancing, the senior subordinated notes were repaid, including a $24.0 million redemption premium.

Term LoansTerm loans include the Company's five-year US$108.6 million term loan A
credit facility and seven-year US$250.0 million term loan B credit facility. Term loans also include various industry loans, obligations under capital lease and a
non-revolving term facility held by Distribution LP.

Advances
under the five-year US$108.6 million term loan A credit facility bear interest at the Banker's Acceptance or LIBOR rate plus a margin ranging from
75 to 175 basis points. Advances under the seven-year US$250.0 million term loan B credit facility bear interest at the LIBOR rate plus a margin of 175 basis
points. The principal amount of all advances under the term loan A and term loan B credit facilities will be repaid in 19 and 27 consecutive quarterly installments, respectively,
commencing June 30, 2005.

In
May 2004, Distribution LP's term loan was modified resulting in $25.0 million of the term loan balance being transferred to the new revolving term credit
facility. At December 31, 2004, the entire $50.0 million non-revolving term facility held by Distribution LP was drawn. The Distribution LP term loan bears
interest at either the Canadian prime rate and the U.S. base rate plus a margin of 100 to 200 basis points or the Banker's Acceptance rate and the LIBOR rate plus a margin of
200 to 300 basis points. The term loan matures on October 15, 2006.

Capital ExpendituresAs at December 31, 2004 the Company had no firm capital expenditure commitments. The Company's capital
expenditure budget for Calendar 2004 was funded primarily from cash flow from operations.

Long Term Liquidity

Since the first quarter of fiscal 2002, the Company reduced its net debt defined as the Company's revolving credit facility, senior subordinated notes and term
loans, net of cash, from a peak of $729.7 million to
$428.6 million on December 31, 2004. With a continued keen focus on generating free cash flow, the Company successfully completed a refinancing of substantially all of its existing
credit facilities. As a result, management expects significant interest expense savings in the future.

In
order to achieve the Company's long-term growth strategy, which may involve the launch of additional specialty television channels and Distribution LP's expansion
into continental Europe, additional sources of capital may be required. With the successful initial public offering of units in Movie Distribution Income Fund completed on October 15, 2003, the
Company was able to accelerate debt reduction efforts, and gain a partner to help finance future growth opportunities. Additionally, the Company has historically been successful in securing a
committed senior revolving credit facility, and in raising debt and equity capital in the Canadian and U.S. markets. As in prior years, the Company was able to raise funds through increased
borrowings under its senior credit facilities and through the issuance of Ordinary LP Units to finance the acquisition of Aurum during the current year.

Management
believes that the availability of the current revolving credit facilities, term loans, capital base and earnings from operations will be sufficient to fund the Company's
operations and commitments for the foreseeable future, although there can be no assurance in this regard.

Related Party Transactions

In the normal course of business, the Company acquires, at fair value, broadcast rights from minority interests who exert significant influence over subsidiaries
of the Company. During the year ended December 31, 2004, these purchases totaled $7.6 million. At December 31, 2004, included in accounts payable are amounts due to these related
parties of $4.5 million.

The
Company has entered into trademark and franchise payment agreements, at fair value, with minority interests who exert significant influence over subsidiaries of the Company. During
the year ended December 31, 2004, the Company paid $3.6 million related to such agreements. At December 31, 2004, the amount due to

27

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these
related parties was $5.8 million, of which $3.9 million is included in long-term liabilities pertaining to certain broadcast intangible assets described in
note 6 to the Company's consolidated financial statements.

During
the year ended March 31, 2003, the Company provided loans, primarily for the purpose of financing working capital requirements, of $2.3 million to equity accounted
investees. During the nine-months ended December 31, 2003 the Company provided further advances of $1.0 million. The loans bear interest at rates ranging from the Canadian
prime rate plus 2.5% to 11.0%. Included in accounts receivable at December 31, 2004 is $4.2 million due from these related parties. During the year
ended December 31, 2004 the Company recognized interest income of $0.5 million in connection with these loans.

Loans,
primarily for the purpose of share purchase, of $2.1 million are due from senior officers. The amounts are included in accounts receivable and are repayable on demand,
bearing interest at the Company's marginal cost of borrowing.

In
2003, the Company entered into an arrangement with two former senior officers to provide consulting services for a five-year period ended December 31, 2008. This
arrangement has fixed annual fees of $0.8 million plus certain contingent bonuses based upon achievement of certain cash flow targets related to certain television series. The total of the fees
and bonuses for the five-year period will be in the range of $4.0 million to $15.5 million, depending upon achievement of targets. During 2004, $1.4 million was paid
to the two former senior officers under this arrangement.

During
2004, Distribution LP incurred $1.0 million of costs related to the issuance of Fund Units. Upon the creation of the Fund in October 2003,
$13.1 million of costs related to the issuance of Fund Units were borne by Distribution LP. These issue costs were deducted from the partners' capital of Distribution LP at the
date of formation and subsequent issue of additional Fund units.

At
the time of the transfer of the net assets into Distribution LP, the Company agreed to discharge $24.3 million of liabilities included in the net assets transferred to
Distribution LP. This amount was paid during the year ended December 31, 2004.

On
October 15, 2003, the Fund, and its wholly-owned trust, Holding Trust, the General Partner and Distribution LP entered into a Support Agreement. Under the terms of the
Support Agreement, the General Partner will provide certain management, administrative and support services to the Fund and Holding Trust for the next 10 years and will be reimbursed by
Distribution LP for all direct and indirect costs and expenses it incurs in the provision of services pursuant to the Support Agreement. For the year ended December 31, 2004,
Distribution LP incurred expenses of $0.6 million in connection with the Support Agreement. For the period from October 15, 2003 to December 31, 2003,
Distribution LP incurred expenses of $0.1 million in connection with the Support Agreement.

The
Company has established a Consideration Pool Plan, an Equity Bonus Pool Plan and a Capital Pool Plan for the benefit of certain qualifying employees of Distribution LP. The
Company will fund 100% of these compensation plans, not Distribution LP.

Consideration Pool PlanUnder the Consideration Pool Plan, participating Distribution LP employees will be entitled to cash
retention payments from a pool of up to $6.0 million to be paid over a four-year period, commencing in February 2005 and terminating January 2009. Payments to be made
under this Plan will be recognized as compensation expense as earned by the participating employees throughout the term of this plan.

Equity Bonus Pool PlanUnder the Equity Bonus Pool Plan, participating employees will be entitled to cash awards from a pool of up to
$10.0 million upon conversion or sale of Subordinated LP Units of Distribution LP owned by the Company. Payments to be made under this plan will be recognized as a compensation
expense as earned by the participating employees over the expected life of the plan, which is based on management's estimate of the Conversion Date (as defined in the Limited Partnership
Agreement).

Capital Pool PlanUnder the Capital Pool Plan, participating employees will be granted up to 600,000 options to purchase preferred
shares of an indirect subsidiary of the Company at an exercise price of $0.01 per share.

Provided
that Distribution LP meets certain cash distribution targets, the options will vest at the rate of 25% per calendar year on December 31 of each year commencing in
2005. If vesting does not occur on December 31 of any calendar year because the distribution targets were not satisfied, the options that were to

28

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have
vested will be carried forward and will vest on the date when the missed cash distribution payments are subsequently made. If the missed cash distribution payments are not made prior to the
conversion date (as defined in the Limited Partnership Agreement), the options will terminate.

After
an option has been exercised, participants will have the right to exchange the preferred shares received for Subordinated LP Units (or if the exercise occurs on or
after the conversion date, Ordinary LP units) on a one-for-one basis. If this right is exercised, the Company will have the right to substitute the Subordinated
LP Units to be delivered with (i) Fund units (ii) cash or (iii) any combination of Subordinated LP Units, Fund units and cash.

In
addition to the options granted to participating employees, on a quarterly basis effective October 1, 2004, the General Partner will pay to each participant, as additional
employment income, an amount equal to the quarterly distributions that the Company would be paid on the 600,000 Subordinated LP Units set aside under this Plan ("Employment Distribution
Amount"). The Company will have no further rights to receive distributions on the 600,000 Subordinated LP Units governed by this Plan.

For
the year ended December 31, 2004, Distribution LP recorded compensation expense of $0.2 million in respect of Employment Distribution Amounts paid to
participants under the Capital Pool Plan. No amounts were recognized as compensation expense in respect of the Consideration Pool Plan or the Equity Bonus Pool Plan.

The
Company made the first payment under the Consideration Pool Plan in February 2005 in the amount of $1.0 million.

Outstanding Shares

The Company is authorized to issue an unlimited number of Class A Voting Shares and Class B Non-Voting Shares. At March 28, 2005
the Company had 1,005,447 Class A Voting Shares and 42,488,062 Class B Non-Voting Shares outstanding compared to 2,845,071 Class A Voting Shares
and 40,387,164 Class B Non-Voting Shares outstanding as at December 31, 2004. The Class A Voting Shares and the Class B Non-Voting Shares
have identical attributes except that the Class B Non-Voting Shares are non-voting and each of the Class A Voting Shares is convertible at any time at the
holder's option into one fully paid and non-assessable Class B Non-Voting Share. The Class B Non-Voting Shares may be converted into Class A
Voting Shares only in certain circumstances.

Off Balance Sheet Arrangements

Standby Letters of CreditThe Company, including certain of its subsidiaries, has granted irrevocable
standby letters of credit, issued by financial institutions, to third parties to indemnify them in the event the Company does not perform its contractual obligations. As at December 31, 2004,
the maximum potential liability under these guarantees was $28.1 million of which $14.8 million was for tax assessments which are currently under appeal and $13.3 million was for
payments to be made under various distribution and licencing agreements. As at December 31, 2004, the Company does not expect to make any additional payments associated with these guarantees.

Sale-Leaseback ArrangementsThe Company has entered into various production financing
arrangements with unrelated UK limited partnerships whereby all rights, title and interests to certain film and television programs have been sold to third parties that leased back to the Company the
exclusive rights to distribute such programs for periods of up to 15 years. Under these arrangements, the Company is required to make periodic lease payments to the third parties. The Company
has placed a portion of the cash proceeds received under the arrangements in an irrevocable trust for the benefit of the third parties to be used solely for satisfying the periodic lease payments. The
cash proceeds placed in trust represent the discounted future lease payments due to limited partnerships. The Company believes that the possibility of it being required to make additional future
payments related to these leases is remote. The Company has obtained guarantees for the obligations from unrelated financial institutions. The amount of funds in trust and the related lease
obligations are not included in the Company's balance sheet. The amount of the lease obligations extinguished under these arrangements amounted to $157.8 million as at December 31, 2004.

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The
Company believes that the possibility of these arrangements being terminated is remote as the right to terminate arises only if the bank guarantor fails to meet its obligations.

Other Production Financing ArrangementsThe Company entered into various production financing
arrangements whereby the rights, title and interest to certain film and television programs were sold to unrelated limited partnerships that would in turn grant the Company the exclusive rights to
distribute the production for an extended period. As consideration for these rights, the Company agreed to provide a series of minimum guarantee payments to the limited partnerships. The Company's
obligation to make these future payments exactly equals the amounts due to the Company from the limited partnerships in respect of the initial sale of the productions. As the amounts due to the
Company from the limited partnerships will be realized and the future minimum guarantee payments will be settled simultaneously, the Company has reported its receivable from the limited partnership
and its payable to the limited partnership on a net basis. The receivables and payables under these arrangements amounted to $113.7 million as at December 31, 2004. The Company believes
that the possibility of it being required to make additional future payments in respect of these obligations is remote.

Market Risk

The Company is exposed to market risk related to interest rates and foreign exchange rates. The Company is authorized to enter into currency conversion and
interest rate conversion agreements to modify the exposure to these risks, however, the Company does not engage in any speculative trading program.

Foreign Exchange RiskA significant portion of the Company's revenue and expenses are in currencies
other than Canadian dollars and, therefore, are subject to fluctuations in exchange rates. Approximately 37% of our revenues for the year ended December 31, 2004 were derived from our foreign
customers, a significant portion of which was denominated in U.S. dollars. Exchange rates may vary substantially and have an adverse impact on our results of operations, prospects or financial
condition. The exposure to this foreign exchange risk has been mitigated by the Company's U.S. dollar denominated term loans and expenditures on certain film and television programs. As at
December 31, 2004, there were nominal foreign exchange forward contracts outstanding.

Interest Rate RiskThe Company is exposed to interest rate risk arising from fluctuations in interest
rates on its drawings under its revolving credit facility and term loans. As at December 31, 2004, there were no interest rate conversion agreements outstanding.

Credit RiskCredit risk on the Company's accounts receivable is controlled as a significant portion
is due from the Canadian federal government and other government agencies in addition to there being a wide variety of customers, markets and geographic areas to which the Company sells.

Portfolio RiskThe Company owns a right to receive units in a publicly traded company. The amount is
recorded in the financial statements at its market value. The market value of the right may vary substantially.
During the year ended December 31, 2004 the Company recognized gains of $6.2 million reflecting the change in fair value of the right.

Critical Accounting Policies and Estimates

The preparation of the financial statements in conformity with Canadian GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting
period. Management of the Company regularly reviews its estimates and assumptions based on historical experience and various other assumptions that it believes would result in reasonable estimates
given the circumstances. Actual results could differ from those estimates under different assumptions. The following is a discussion of accounting policies that require significant management
judgments and estimates. For a discussion of all of the Company's accounting policies, including the items outlined below, refer to note 1 of the consolidated financial statements.

Film and television programsThe Company accounts for its production and distribution of film and
television programs in accordance with AICPA Statement of Position 00-2, "Accounting By Producers and Distributors of Film" ("SOP 00-2").
SOP 00-2 requires that film and television costs of production and acquisition are amortized using the individual film forecast method under which such costs are
amortized

30

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for
each film or television program in the ratio of revenue earned in the current period for such title to management's estimate of the total revenue to be realized from all media and markets for that
title. Management regularly reviews and revises when necessary, its total revenue estimates on a title-by-title basis, which may result in a change in the rate of amortization
and/or a write down of the film and television asset to the estimated fair value amount. Results of operations in future years are dependent upon the amortization of film and television costs and may
be significantly affected by periodic adjustments in amortization rates. As a result, the Company's financial results fluctuate from period to period. If estimates of ultimate revenues change with
respect to a film or television program, causing reductions in fair values, we may be required to write down all or a portion of the related unamortized costs. The fair value of the film or television
program is determined using management's estimates of future revenues and costs under a discounted cash flow approach and a write down equivalent to the amount by which the unamortized costs exceed
the estimated fair value of the film or television program is recorded in direct operating costs.

During
the nine-months ended December 31, 2003, the Company conducted an extensive review of its Entertainment operations and concluded that it would significantly and
permanently reduce the size and scope of its production business. As a result, management's estimates of total revenue from all media and markets for certain titles held by Entertainment were revised,
resulting in the recognition of a $158.9 million write down to investment in film and television programs. This write down was included in direct operating costs for the nine months ended
December 31, 2003. No further write-downs of Entertainment investment in film and television programs are anticipated in connection with this restructuring.

Although
the Company has diversified its product mix with respect to the production and distribution of film and television programs, we cannot be certain that a write down will not have
a significant impact on its results of operations, prospects or financial condition.

InvestmentsThe valuation of cost and equity accounted investments is regularly reviewed by
management to ensure that any decline in market value that is considered other than temporary has been reflected in the related carrying value of the investment. In making that assessment, several
factors are considered, including the amount by which the market value exceeds carrying value, the duration of the market value decline and the investees' expected future cash flows and
earnings. The Company recorded in investment (gains) losses line on the statement of earnings (loss) non-cash impairment charges of $5.0 million for the year ended
December 31, 2004, $5.8 million for the nine-months ended December 31, 2003 and $38.6 million for the year ended March 31, 2003.

Goodwill and Broadcast LicencesOn April 1, 2001, the Company adopted the recommendations of
the new Canadian Institute of Chartered Accounts ("CICA") Handbook Section 3062, "Goodwill and Other Intangible Assets". Previously, the Company amortized goodwill on a
straight-line basis over periods of up to 40 years and broadcast licences on a straight-line basis over a period of 40 years. Based on the new standard, goodwill
and broadcast licences of the Company are no longer amortized but are tested for impairment annually at December 31, or more frequently if impairment indicators arise, to determine if an
impairment loss should be recognized. Impairment indicators include the existence of significant restructuring plans, the existence of significant adverse changes in the business climate and the
existence of significant write-downs of assets. Fair value is based on discounted estimated future cash flows from operations. Based on the valuation testing performed for the year ended
December 31, 2004, the Company determined that its goodwill and other intangible assets were not impaired. A significant downward revision in the estimated future cash flows could result in a
material impairment of the Company's goodwill and broadcast licences under CICA Handbook Section 3062.

ProvisionsBalance sheet provisions for accounts receivable, loans receivable, future income taxes,
restructuring costs, returns of product (video/DVD) and legal issues all require estimates and assumptions by management that could be significant.

The
provision for accounts receivable is based on specifically identified accounts where management believes that collection is doubtful. These accounts are identified based on customer
knowledge and past experience. Historically, management's estimate of the required provision has been adequate.

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The
provision for loans receivable is based on specifically identified loans when management believes that collection is doubtful.

In
recording future tax assets, the Company has established a valuation allowance against a portion of these based on a current assessment of the recoverability of these future tax
assets. Management's assessment of the Company's ability to realize future income tax assets is performed on a legal entity basis and is based on existing tax laws and estimates of future taxable
income. Where, in the opinion of management, the value of future income tax assets exceeds the estimate of amounts expected to be realized, a valuation allowance is recorded to reduce the future
income tax asset. If the Company's assessment changes in the future, the valuation allowance will increase or decrease accordingly, resulting in corresponding decreases or increases in income,
respectively, in that period. The valuation allowance is in no way indicative of the availability of income tax losses or other timing differences to offset future profits earned. Rather, the
valuation allowance reduces the future income tax asset to management's estimate of the future tax asset that will be realized as a reduction of cash income taxes paid in the future.

The
provision for returns of product is based on historical return patterns. Product returns are generally linked to the theatrical success of individual titles. Management tracks sales
performance on a regular basis to establish adequate returns provisions on a title-by-title basis.

Provisions
for legal issues are based on management's best estimate of the probable outcome and resolution of legal matters.

The
above estimates are revised accordingly as new or different circumstances arise. While management believes that the balance sheet provisions are adequate, using different assumptions
or estimates could have a significant impact on the Company's results of operations, prospects or financial condition.

Income tax reassessmentsThe Company is subject to periodic reassessments in respect of prior years'
income tax returns. Management sets a provision for expected losses in relation to the possibility of any challenges of previous filing positions and believes these provisions to be
adequate.In November 2003 and December 2002, a subsidiary of the Company received provincial and federal income tax reassessments
respectively for approximately $21.2 million, including interest and penalties. The provincial and federal income tax reassessments relate to the same issues. The Company intends to pursue all
available administrative and judicial appeals in respect of these reassessments. The Company strongly believes that it will prevail because, in the opinion of management, the reassessments run counter
to the applicable law and certain previous rulings. A liability for the amount will be recorded should it become probable that the income tax authority's position will be upheld.

Accounting Changes and Recent Accounting Pronouncements

In 2003, the CICA issued a new Handbook Section 1100, "Generally Accepted Accounting Principles". The section mandates a new approach in determining the
appropriate treatment for transactions for which the accounting is not specifically addressed in the Handbook. Effectively, it requires an enterprise to decide the treatment of a transaction by
carefully considering analogous situations in the Handbook, basic financial statement concepts and, if appropriate, other relevant authoritative literature. As a result of the new Section, the Company
no longer uses historical industry practice as a source of authority, and accordingly on January 1, 2004 adopted the following changes prospectively:



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In
2003, the CICA issued Handbook Section 3110, "Asset Retirement Obligations" which establishes standards for the recognition, measurement and disclosure of liabilities for asset
retirement obligations and the associated asset retirement costs. The section requires that an entity recognize the fair value of a liability for an asset retirement obligation in the period in which
it is incurred when a reasonable estimate of fair value can be made. The adoption of this standard had no material impact on the Company's results of operations or financial position.

In
December 2003, the Emerging Issues Committee of the CICA released EIC-141, "Revenue Recognition" and EIC-142, "Revenue Arrangements with Multiple
Deliverables". EIC-141 provides interpretive guidance on the application of CICA Handbook Section 3400, "Revenue". Specifically, this EIC presents the criteria to be met for
revenue recognition to be considered achieved. EIC-142 addresses certain aspects of the accounting by a vendor for arrangements under which it will perform multiple
revenue-generating activities for a given customer. The adoption of these standards had no material impact on the Company's results of operations or financial position.

In
June 2003, the CICA issued Accounting Guideline 15, "Consolidation of Variable Interest Entities", which will be effective for the Company on January 1, 2005.
This Guideline addresses the application of consolidation principles to entities that are subject to control on a basis other than ownership of voting interests. The Company has not yet determined the
impact of the adoption of this standard on its financial results.

In
January 2005, the CICA issued Handbook Section 3855, "Financial Instruments  Recognition and Measurement". The section prescribes
when a financial instrument is to be recognized on the balance
sheet and at what amount. It also specifies how financial instrument gains and losses are to be presented. This new standard will be effective for interim and annual financial statements relating to
fiscal years commencing on or after October 1, 2006. The Company is assessing the impact of this new standard on its consolidated financial statements.

In
January 2005, the CICA issued Handbook Section 3865, "Hedges". The Section provides alternative treatments to Section 3855 for entities which choose to
designate qualifying transactions as hedges for accounting purposes. It replaces and expands on Accounting Guideline AcG-13 "Hedging Relationships", and the hedging guidance in
Section 1650 "Foreign Currency Translation" by specifying how hedge accounting is applied and what disclosures are necessary when it is applied. This new standard will be effective for interim
and annual financial statements relating to fiscal years commencing on or after October 1, 2006. The Company is assessing the impact of this new standard on its consolidated financial
statements.

In
January 2005, the CICA issued Handbook Section 1530, "Comprehensive Income".The section introduces a new requirement to
temporarily present certain gains and losses from changes in fair value outside net income, but in a transparent manner. This new standard will be effective for interim and annual financial statements
relating to fiscal years commencing on or after October 1, 2006. The Company is assessing the impact of this new standard on its consolidated financial statements.

Financial Instruments

The estimated fair values of financial instruments as at December 31, 2004 is based on relevant market prices and information available at the time. The
carrying values of cash and cash equivalents, loans receivable, revolving credit facilities, accounts payable and accrued liabilities and term loans approximate the fair values of these financial
instruments.

Financial
instruments with carrying values different from their fair values include:

|                 |             | December 31, 2004
|---------------- | ----------- | -----------------
|
|
|Financial assets |             |                  
|                 | Investments |                  

33

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Accounts
receivable are recognized at fair value, based on discounting future cash flows using rates currently available for similar instruments. At December 31, 2004, included in
accounts receivable are amounts due beyond December 31, 2005 totalling $28.4 million (December 31, 2003  $30.9 million). Also
included in accounts receivable is a long-term receivable of $65.5 million related to one of the Company's productions. The amount will be collected in monthly instalments of
$2.2 million until July 2007. The receivable was recognized at its fair value, being the sum of discounted future cash flows using rates available for similar instruments.

The
fair value of investments is based on the trading value of publicly traded investees at December 31, 2004.

As
part of the November 2003 sale of the Company's investment in Galaxy Entertainment Inc. to the Cineplex Galaxy Limited Partnership, the Company received a right to
receive 679,498 Series 2-G Limited Partnership Units if the Cineplex Galaxy Limited Partnership achieved certain cash flow targets. During the year ended December 31,
2004, these cash flow targets were met, and accordingly, an investment gain of $6.2 million was recognized reflecting the change in fair value of the right. The right is valued based on the
trading price of the underlying units, which was $14.70 per unit on December 31, 2004. The fair value also includes $0.8 million in distributions earned but not yet received.

Industry Risk and Uncertainties

The television and motion picture industries and specialty television broadcasting have always involved a substantial degree of risk. There can be no assurance of
the economic success of any motion picture, television program or specialty television channel as revenue derived depends on audience acceptance, which cannot be accurately predicted. Audience
acceptance is a factor not only of the response to the television program's or motion picture's artistic components or the specialty television channel's content, but also to the reviews of critics,
promotions, the quality and acceptance of other competing programs released into, or channels existing in, the marketplace at or near the same time, the availability of alternative forms of
entertainment and leisure time activities, general economic conditions, public tastes generally and other intangible factors, all of which could change rapidly and many of which are beyond the
Company's control. A lack of audience acceptance for any of theCSIfranchise, motion pictures distributed by Distribution LP or specialty
television channels owned by the Company could have an adverse effect on its businesses, results of operations, prospects and financial condition.

In
addition, television production and distribution costs, motion picture distribution costs and broadcasting programming costs, continue to rise. The Company's businesses are also
impacted by prevailing advertising rates, which are subject to fluctuation. A substantial portion of the broadcasting revenue is from advertising sales. The Company competes for advertising sales with
other television channels, radio and print media. The Company's inability to generate advertising revenue could adversely affect its operating results, prospects or financial condition. Specialty
television channel operators rely on fees from subscribers, which are shared with cable and DTH operators, to provide a substantial portion of their revenue while they build an audience and
advertising support. The subscriber penetrations, and therefore subscriber revenues, of any particular specialty television channel can be affected by the attractiveness of the packaging scenarios
presented to subscribers by the cable and DTH satellite operators.

Generally,
television programs are produced under contracts that provide for licence fee revenue that may not cover all anticipated production costs. The "gap" or production deficit
between these fees and production costs can be substantial. The ability to recover the production deficit and the realization of profits, if any, are generally dependent upon the ability to distribute
the programs in multiple geographic regions, including international markets, or through multiple distribution channels. There is a risk that some of the Company's television programs, motion pictures
distributed, or specialty television channels will not be successful, which could result in a failure to recoup costs or realize profits. The Company cannot be certain that revenue from existing or
future projects would replace a possible loss of revenue associated with the cancellation of any particular project or poor results of any particular specialty television channel.

The
production, completion and distribution of television programs requires a significant amount of capital. Actual television program costs may exceed their budgets. Factors such as
labor disputes, death or disability of a star performer, technology changes relating to special effects or other aspects of production, shortages of

34

---



necessary
equipment, damage to film negatives, master tapes and recordings or adverse weather conditions may cause cost overruns and delay or hamper completion of a television production. Although the
Company generally completes television productions within budget, the Company cannot be certain that it will continue to do so. In the event of substantial budget overruns the Company may have to seek
additional financing from outside sources in order to complete production of a television project. The Company cannot be certain of the availability of such financing or that such financing will be
available on terms acceptable to the Company. In addition, in the event of substantial budget overruns, the Company cannot be certain that it will be able to recoup such costs. Failure to recoup any
of these costs could have an adverse impact on the Company's businesses, results of operations, prospects and financial condition. Notwithstanding the foregoing, as the CSIfranchise programs are the
main focus of the Company's television production activities, many of the risks associated with new production activity
is minimized.

The
business of producing and distributing television programs and distributing motion pictures is highly competitive. We face intense competition from other Canadian and international
producers and distributors, many of whom are substantially larger and have greater financial resources than we do and some of which own their own television networks. We compete with other television
production companies for ideas and storylines created by third parties as well as for actors, directors and other personnel required for a production. In addition, the CRTC and foreign regulatory
authorities continue to licence additional television channels, thereby further fragmenting the television audience, increasing competition and creating downward pressure on program licence fees. The
Company cannot be certain that it will be able to successfully compete in these areas in the future or that we will continue to acquire rights to additional successful programming
or enter into agreements for the financing, distribution or licencing of programming on terms favourable to us. Our failure to do so could have an adverse impact on our businesses, results of
operations, prospects or financial condition.

The
Company's specialty television channels are regulated by the CRTC, which grants and renews licences. The Company's CRTC broadcast licences must be renewed from time to time,
typically every seven years, and cannot be transferred without regulatory approval. The Company's inability to renew any of its licences on favourable terms, or at all, would have an adverse impact on
its results of operations, prospects or financial condition. Changes in the regulations governing the Company's specialty television channels, including decisions by regulators affecting its broadcast
operations, such as the granting or renewal of licences or the granting of additional broadcast licences to the Company's competitors, or the introduction of new regulations by regulators, could
adversely impact the Company's operating results, prospects or financial condition.

The
Canadian broadcast, production and distribution industries are supported by various government and private initiatives to foster the creation of Canadian film and television
programming. The private mechanisms are often mandated by the CRTC in response to change of control of a regulated asset. These initiatives and government programs make up the complex system of
financial support for the industry. Any change in the nature of these programs or their interactions with each other may provide risk to the Company's broadcast, production and distribution
businesses. As well, if the CRTC's general approach to licencing broadcast services and to requiring Canadian content as part of any licence were to change, it could change the market for programs as
well as the value of the Company's current specialty television licences.

Changes
in public policy related to Canadian ownership of broadcasting or other fundamental principles of the broadcasting system could adversely affect the Company's relationships with
foreign partners in broadcasting or its position in the advertising market. As the federal and provincial governments review and modify their funding programs for television production the Company's
broadcast business could be impacted by fewer resources to fill the gap between licence fees and the independent producers' ability to finance their productions. Since the Company's broadcast
conditions of licence determine its original production needs, these reviews and modifications could be a risk to some of the Company's specialty television channels.

As
part of the Company's business strategy, we intend to continue expansion of the Company's non-Canadian distribution activities and, therefore, will continue to earn a
substantial portion of revenue from outside of Canada. The Company's ability to maintain or expand its international business, as well as its ability to contract upon favourable terms with
international broadcasters, distributors and other licencees, and conduct foreign production activities depends, in part, on local economic conditions, currency fluctuations, local changes in
regulatory requirements, compliance with a variety of foreign laws and regulations, inflation, interest rates

35

---



and
cultural barriers and preferences. As a result, the Company cannot be certain that its international operations will continue to be successful.

The
Company's Motion Picture Distribution business obtains distribution rights from content suppliers to exploit motion pictures in all media. In Canada, Distribution LP has
exclusive output agreements with a limited number of U.S.-based independent studios, including New Line Cinema, Miramax Films and Focus Features and Newmarket Films and enters into distribution
agreements in respect of individual motion pictures less frequently. Conversely, in the United Kingdom and Spain, Distribution LP most often enters into distribution agreements in
respect of individual motion pictures, and as a result of this, it is able to draw on a wider range of content suppliers in that territory. Overall, a relatively small number of producers represent a
substantial proportion of the Motion Picture Distribution business total revenue. For the year ended December 31, 2004, motion pictures acquired under these three output agreements accounted
for approximately 46.0% of Distribution LP's revenue. Management believes that Distribution LP's financial performance is, and will continue to be, significantly dependent on
Distribution LP's continued relationship with these content suppliers and the ability of these content suppliers to continue to produce motion pictures that receive significant audience
acceptance.

Distribution LP
has longstanding relationships with its three principal content suppliers and has renewed the relevant output agreements on multiple occasions. However, each of
these agreements will expire between 2005 and 2007 and there can be no assurance that all or any of them will be renewed at all, or on terms as favourable to the Company as the current agreements. In
particular, any of Distribution LP's content suppliers could instead elect to enter into exclusive distribution agreements with a competitor of the Company. Certain of the independent studios
with which the Company currently has a significant Canadian distribution relationship, including Miramax, New Line and Focus Features, are affiliates of major studios that have their own
distribution capability in Canada. There can be no assurance that these or other content suppliers to Distribution LP would not determine, or be required by their respective affiliates, to use
this captive distribution capability rather than contracting with the Company for distribution rights. The loss of one or more of these distribution agreements with a significant content supplier
could have a material adverse effect on the business of Distribution LP.

The
entertainment industry in general, and the motion picture distribution industry in particular, continues to undergo significant changes, primarily due to technological developments.
Due to this rapid growth of technology and shifting consumer tastes, the Company cannot accurately predict the overall effect that technological growth or the availability of alternative forms of
entertainment may have on the potential revenue from and profitability of motion pictures and television series. In addition, certain outlets for the distribution of motion pictures may not obtain the
public acceptance that is or was previously predicted. Although the Company has benefited from the rapid growth in the DVD market, there can be no assurance that such growth and penetration rates will
continue. Additionally, technological advances and the conversion of motion pictures into digital formats have made it easier to create, transmit and "share" high quality unauthorized copies of motion
pictures in theatrical release, on videotapes and DVDs, from pay-per-view through unauthorized set-top boxes and other devices and through unlicenced broadcasts on
free TV. As a result, users may be able to download and distribute unauthorized or "pirated" copies of copyrighted motion pictures over the Internet. As long as pirated content is available to
download digitally, some consumers may choose to digitally download pirated motion pictures rather than pay for legitimate motion pictures or to purchase pirated DVD's of motion pictures or of boxed
sets of television series from unauthorized vendors.

In
the broadcast sector, personal video recorders and similar embedded digital technology enable consumers to program shows to be watched at a later date and to bypass the commercials.
If the use of such devices to bypass commercials should become widespread, there could be a negative impact on our advertising revenue. In addition, there is some pressure from both the private and
public sectors to migrate all cable analog broadcast services to digital technology ("digital migration") in order to free up the limited bandwidth for other uses. Because of its labour intensive
technology, analog channels are offered by cable companies grouped together as tiers and not on an individual or theme basis. Therefore, cable analog subscribers are currently required to subscribe
for an entire tier in order to receive particular channels of their choice. Subscribers of analog channels do not have the flexibility that digital offers in subscribing for theme based or individual
pick and pay channels. If digital migration takes place and if the cable companies are permitted to offer their subscribers theme based or individual pick and pay channels, there is a risk that
current subscribers to one or

36

---



more
of our analog channels as part of a cable tier may not choose to subscribe to the Company's channels once they are available in digital format.

The
independent studios' need for distributors is based in part on the fact that the studios would incur substantial film print costs if they attempted to directly distribute their
motion pictures on a worldwide basis. Partly because of these significant print costs, certain independent studios choose to retain distributors in national markets, thereby sharing the cost and risks
associated with worldwide distribution among a number of different strategic partners. Technological developments permitting the digital distribution of motion pictures as an economic basis and its
general adoption within the industry could reduce film print costs significantly, thereby making it more attractive for producers to distribute their own motion pictures. Although this technology has
yet to be widely adopted by exhibitors (due in part to the significant capital costs that would be associated with the widespread adoption of this technology), expansion of this technology
could adversely affect the Motion Picture Distribution business.

Distribution
rights to motion pictures are granted legal protection under the copyright laws of Canada, the United Kingdom, Spain and most other foreign countries, which impose
substantial civil and criminal sanctions for unauthorized duplication and exhibition of motion pictures. From time to time, various third parties contest or infringe upon the Company's intellectual
property rights. There can be no assurance that the Company's actions to establish and protect trademarks and other proprietary rights will be adequate to prevent imitation by others of motion
pictures distributed by the Company or to prevent third parties from seeking to block the Company's distribution of motion pictures as a violation of their trademarks and proprietary rights. Moreover,
there can be no assurance that others will not assert rights in, or ownership of, the Company's trademarks and other proprietary rights, or that the Company will be able to successfully resolve these
conflicts. In addition, the laws of certain foreign countries may not protect proprietary rights to the same extent as do the laws of Canada, the United Kingdom or Spain.

Results
of operations for any period are significantly dependent on the number, timing and commercial success of motion pictures delivered or made available to various distribution
platforms during that period, none of which can be predicted with certainty. Consequently, the Company's results of operations may fluctuate materially from period to period and the results of any one
period are not necessarily indicative of results for future periods. Cash flows may also fluctuate and are not necessarily closely correlated with revenue recognition. In addition, where the Motion
Picture Distribution business obtains distribution rights under an output agreement or multi-picture agreement, the anticipated exhibition schedule of motion
pictures for their theatrical release and exploitation through successive distribution windows is not consistent from year to year. Consequently, the Company's revenue fluctuates from period to
period.

The
Motion Picture Distribution business may also experience variation in its operating results, particularly in respect of theatrical exhibition revenues, as a result of an undersupply
of motion pictures. This may occur due to seasonal variations in the major studios' release schedules or during a period when the business has been unable to, or determined not to, secure distribution
rights to available motion pictures. In this circumstance, the Company's overall revenues would be adversely affected, and although it would not incur the distribution and P&A costs associated with a
theatrical or other release, its distributable cash may nevertheless be adversely affected.

Use of Non-GAAP Financial Measures

In addition to the results reported in accordance with Canadian GAAP, the Company uses various non-GAAP financial measures, which are not recognized
under Canadian or United States GAAP as supplemental indicators of our operating performance and financial position. These non-GAAP financial measures are provided to enhance the
user's understanding of our historical and current financial performance and our prospects for the future. Management believes that these measures provide useful information in that they exclude
amounts that are not indicative of our core operating results and ongoing operations and provide a more consistent basis for comparison between years. The following discussion defines the measures
that the Company uses and explains why management believes they are useful measures of performance:

Earnings before undernoted (EBITDA) and direct profitThe Company uses EBITDA and direct profit to
measure operating performance. EBITDA, calculated using figures determined in accordance with Canadian

37

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GAAP,
is defined as earnings before undernoted, which are earnings before amortization, unusual items, interest, equity losses in affiliates, minority interest, investment gains and losses, dilution
gains, foreign exchange gains and losses, income taxes and discontinued operations, net of tax. Direct profit is defined as revenue less direct operating expenses, as defined in note 25
to the Company's consolidated financial statements.

Operating earnings (losses) and net operating earnings (losses)Operating earnings (losses) has been
defined as earnings (loss) from operations before undernoted 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 (losses) is defined as operating earnings (losses), net of an applicable portion of income tax.

Adjusted EBITDA, adjusted operating earnings (losses), and adjusted net operating earnings (losses)Earnings (loss) before undernoted and
earnings (loss) from operations before undernoted and discontinued operations include cash and non-cash items that relate to restructuring activities in Entertainment in Fiscal 2004.
Additionally, Calendar 2004 earnings (loss) from operations before undernoted and discontinued operations also includes $12.1 million related to the write down of deferred financing costs
associated with the Company's previous senior revolving credit facility and senior subordinated notes, as well as a $24.0 million redemption premium related to the senior subordinated notes.
Management does not expect to undertake restructuring activities or refinancing activities of a similar magnitude or nature in the imminent future and therefore believes that the impact of these
activities and their associated charges should be eliminated when evaluating the current operating performance of the Company. For this reason, management has also used adjusted EBITDA, adjusted
operating earnings, and adjusted net operating earnings to evaluate the performance of the business. Adjusted EBITDA has been defined as EBITDA less cash and non-cash restructuring items
included in earnings (loss) before undernoted, adjusted operating earnings (loss) has been defined as operating earnings (loss) less cash and non-cash restructuring items included in
earnings (loss) from operations before undernoted, the write down of deferred financing costs, and the redemption premium on the senior subordinated notes, and adjusted net operating earnings has been
defined as adjusted operating earnings (loss), net of an applicable portion of income tax.

Operating cash flow and free cash flowOperating cash flow is defined as cash and cash equivalents provided by (used in) operating
activities, excluding the net changes in other non-cash balances related to operations, less investments in property and equipment. Free cash flow is defined as the total of cash and cash
equivalents provided by (used in) operating activities and provided by (used in) investing activities. Operating cash flow and free cash flow are measures used by the Company to measure its operating
performance. Management uses operating cash flow and free cash flow to assess the Company's ability to satisfy working capital needs, repay debt and fund capital expenditures and acquisitions. These
non-GAAP financial measures are provided to give users and investors a better understanding of the Company's cash flow from normal or operational business activities.

While
many in the financial community consider these non-GAAP financial measures to be important measures of operating performance, they should be considered in addition to,
but not as a substitute for, net earnings (loss) from operations before discontinued operations, net earnings, cash flow and other measures of financial performance prepared in accordance with
Canadian GAAP which are presented in the attached consolidated financial statements. In addition, these and related measures do not have any standardized meaning prescribed by Canadian GAAP and,
therefore, are unlikely to be comparable with the calculation of similar measures used by other companies. EBITDA, direct profit, operating earnings (losses), net operating earnings (losses), adjusted
EBITDA, adjusted operating earnings (losses) and adjusted net operating earnings (losses) have been reconciled to their related Canadian GAAP measures on pages 39 to 43. Operating cash
flow and free cash flow have been reconciled to their related Canadian GAAP measures on page 41 and 43.

38

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The following table presents a reconciliation of net earnings (loss), as reported under Canadian GAAP, to EBITDA, direct profit (loss), operating earnings (loss), net operating earnings
(loss), adjusted EBITDA, adjusted operating earnings (loss), and net adjusted operating earnings (loss) for the three months and year ended December 31, 2004 and 2003 (in millions of
Canadian dollars):

|                                                                                                          |                                                          | For the three months ended December 31, |       | For the year ended December 31, |       
|--------------------------------------------------------------------------------------------------------- | -------------------------------------------------------- | --------------------------------------- | ----- | ------------------------------- | ------
|
|
|Net earnings (loss) for the period, as reported under Canadian GAAP                                       |                                                          | 9.6                                     |       | (151.7                          | )     
|Add: Discontinued operations, net of tax                                                                  |                                                          | 0.5                                     |       | (15.1                           | )     
|                                                                                                          | Provision for (recovery of) income taxes                 |                                         | (1.9  | )                               | 39.6  
|                                                                                                          | Foreign exchange (gains) losses                          |                                         | (15.8 | )                               | (1.5  
|                                                                                                          | Dilution gains                                           |                                         |      |                                 | (145.1
|                                                                                                          | Investment losses (gains), net                           |                                         | (1.8  | )                               | (1.0  
|                                                                                                          |                                                          |                                         |       |                                 |       
|Earnings (loss) from operations before undernoted and discontinued operations (operating earnings (loss)) |                                                          | (10.4                                   | )     | (244.6                          | )     
|Add: Minority interest                                                                                    |                                                          | 8.4                                     |       | 8.3                             |       
|                                                                                                          | Equity losses in affiliates                              |                                         |      |                                 | 0.1   
|                                                                                                          | Interest                                                 |                                         | 11.9  |                                 | 22.7  
|                                                                                                          | Unusual items                                            |                                         | 36.1  |                                 | 12.0  
|                                                                                                          | Amortization, including development costs charges        |                                         | 4.8   |                                 | 34.6  
|                                                                                                          |                                                          |                                         |       |                                 |       
|EBITDA                                                                                                    |                                                          | 50.8                                    |       | (166.9                          | )     
|Add: Operating expenses                                                                                   |                                                          | 47.2                                    |       | 53.4                            |       
|                                                                                                          |                                                          |                                         |       |                                 |       
|Direct profit (loss)                                                                                      |                                                          | 98.0                                    |       | (113.5                          | )     
|Operating earnings (loss)                                                                                 |                                                          | (10.4                                   | )     | (244.6                          | )     
|Less: Provision for (recovery of) income taxes on operating earnings (loss)                               |                                                          | (7.5                                    | )     | 13.0                            |       
|                                                                                                          |                                                          |                                         |       |                                 |       
|Net operating earnings (loss)                                                                             |                                                          | (2.9                                    | )     | (257.6                          | )     
|Operating earnings (loss)                                                                                 |                                                          | (10.4                                   | )     | (244.6                          | )     
|Add: Restructuring items in amortization, including development costs charges                             |                                                          |                                        |       | 30.8                            |       
|Restructuring items and refinancing costs included in unusual items                                       |                                                          | 36.1                                    |       | 12.0                            |       
|                                                                                                          | Restructuring items included in direct operating costs   |                                         |      |                                 | 165.3 
|                                                                                                          | Restructuring items included in operating expenses       |                                         |      |                                 | 0.7   
|                                                                                                          |                                                          |                                         |       |                                 |       
|Adjusted operating earnings (loss)                                                                        |                                                          | 25.7                                    |       | (35.8                           | )     
|Adjusted operating earnings (loss)                                                                        |                                                          | 25.7                                    |       | (35.8                           | )     
|Less: Provision for (recovery of) income taxes on adjusted operating earnings (loss)                      |                                                          | 5.5                                     |       | 88.1                            |       
|                                                                                                          |                                                          |                                         |       |                                 |       
|Adjusted net operating earnings (loss)                                                                    |                                                          | 20.2                                    |       | (123.9                          | )     
|EBITDA                                                                                                    |                                                          | 50.8                                    |       | (166.9                          | )     
|Add: Restructuring items included in operating expenses                                                   |                                                          |                                        |       | 0.7                             |       
|                                                                                                          | Restructuring iems included in direct operating expenses |                                         |      |                                 | 165.3 
|                                                                                                          |                                                          |                                         |       |                                 |       
|Adjusted EBITDA                                                                                           |                                                          | 50.8                                    |       | (0.9                            | )     
|                                                                                                          |                                                          |                                         |       |                                 |       

The
following table presents a reconciliation of diluted net earnings (loss) per common share, as reported under Canadian GAAP, to diluted net earnings (loss) from operations before
undernoted per common share,

39

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net
of applicable taxes (net operating earnings (loss) per common share) and to adjusted net operating earnings (loss) per common share for the three months and year ended December 31,
2004 and 2003:

|                                                                                                                                             |  | For the three months ended December 31, 2003 |  
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------- | -
|
|
|Net earnings (loss) per common share, as reported under Canadian GAAP                                                                        |  | 0.22                                         |  
|Discontinued operations, net of income taxes of $1.4 million (December 31, 2003  $1.4 million)                                              |  | (0.01                                        | )
|                                                                                                                                             |  |                                              |  
|Net earnings (loss) per common share before discontinued operations, as reported under Canadian GAAP                                         |  | 0.21                                         |  
|Foreign exchange (gains) losses, net of income taxes of $4.0 million
(December 31, 2003  $0.8 million)                                      |  | (0.27                                        | )
|Investment losses (gains), net of income taxes of $1.5 million
(December 31, 2003  $1.2 million)                                            |  | (0.01                                        | )
|Dilution gains, net of income taxes of nil (December 31, 2003  $26.2 million)                                                               |  |                                             |  
|                                                                                                                                             |  |                                              |  
|Net operating earnings (loss) per common share                                                                                               |  | (0.07                                        | )
|Net operating earnings (loss) per common share                                                                                               |  | (0.07                                        | )
|Restructuring items in amortization, including development costs charges, net of income taxes of nil (December 31, 2003  $11.1 million)     |  |                                             |  
|Restructuring items and refinancing costs included in unusual items, net of income taxes of $13.0 million (December 31, 2003  $4.4 million) |  | 0.53                                         |  
|Restructuring items included in direct operating expenses, net of income taxes of nil (December 31, 2003  $59.4 million)                    |  |                                             |  
|Restructuring items included in operating expenses, net of income taxes of nil (December 31, 2003  $0.3 million)                            |  |                                             |  
|                                                                                                                                             |  |                                              |  
|Adjusted net operating earnings (loss) per common share                                                                                      |  | 0.46                                         |  
|                                                                                                                                             |  |                                              |  

40

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|
|

|                                                                                                                                                  |  | For the year ended December 31, 2003 |  
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------ | -
|
|
|Net earnings (loss) per common share, as reported under Canadian GAAP                                                                             |  | 0.68                                 |  
|Discontinued operations, net of income taxes of $1.4 million (December 31, 2003  $0.8 million)                                                   |  | 0.10                                 |  
|                                                                                                                                                  |  |                                      |  
|Net earnings (loss) per common share before discontinued operations, as reported under Canadian GAAP                                              |  | 0.78                                 |  
|Foreign exchange (gains) losses, net of income taxes of $5.8 million (December 31, 2003  $10.3 million)                                          |  | (0.38                                | )
|Investment losses (gains), net of income taxes of $1.7 million (December 31, 2003  $1.5 million)                                                 |  | (0.01                                | )
|Dilution gains, net of income taxes of nil (December 31, 2003  $26.2 million)                                                                    |  |                                     |  
|                                                                                                                                                  |  |                                      |  
|Net operating earnings (loss) per common share                                                                                                    |  | 0.39                                 |  
|Net operating earnings (loss) per share                                                                                                           |  | 0.39                                 |  
|Restructuring items in amortization, including development costs charges, net of income taxes of $0.7 million (December 31, 2003  $11.1 million) |  | 0.02                                 |  
|Restructuring items and refinancing costs included in unusual items, net of income taxes of $13.0 million (December 31, 2003  $4.4 million)      |  | 0.53                                 |  
|Restructuring items included in direct operating expenses, net of income taxes of nil (December 31, 2003  $59.4 million)                         |  |                                     |  
|Restructuring items included in operating expenses, net of income taxes of $0.5 million (December 31, 2003  $0.3 million)                        |  | 0.02                                 |  
|                                                                                                                                                  |  |                                      |  
|Adjusted net operating earnings (loss) per common share                                                                                           |  | 0.96                                 |  
|                                                                                                                                                  |  |                                      |  

The
following table presents a reconciliation of cash and cash equivalents provided by (used in) operating activities, as reported under Canadian GAAP, to operating cash flow and free
cash flow for the three months and year ended December 31, 2004 and 2003 (in millions of Canadian dollars):

|                                                                                                         |  | For the three months ended December 31, |   | For the year ended December 31, |  
|-------------------------------------------------------------------------------------------------------- |  | --------------------------------------- | - | ------------------------------- | -
|
|
|Cash and cash equivalents provided by (used in) operating activities, as reported under Canadian GAAP    |  | 27.9                                    |   | 32.4                            |  
|Less: Net changes in other non-cash balances related to operations                                       |  | 21.5                                    |   | 18.5                            |  
|Add: Investment in property and equipment                                                                |  | (0.5                                    | ) | (0.3                            | )
|                                                                                                         |  |                                         |   |                                 |  
|Operating cash flow(1)                                                                                   |  | 5.9                                     |   | 13.6                            |  
|                                                                                                         |  |                                         |   |                                 |  
|Cash and cash equivalents provided by (used in) operating activities, as reported under Canadian GAAP(1) |  | 27.9                                    |   | 32.4                            |  
|Add: Cash and cash equivalents used in investing activities                                              |  | 4.8                                     |   | 166.4                           |  
|                                                                                                         |  |                                         |   |                                 |  
|Free cash flow                                                                                           |  | 32.7                                    |   | 198.8                           |  
|                                                                                                         |  |                                         |   |                                 |  

---

41

---





The
following table presents a reconciliation of net earnings (loss), as reported under Canadian GAAP, to EBITDA, direct profit (loss), operating earnings (loss), net operating earnings
(loss), adjusted EBITDA, adjusted operating earnings (loss), and net adjusted operating earnings (loss) for the nine months ended December 31, 2003 and the year ended March 31, 2003
(in millions of Canadian dollars):

|                                                                                                          |                                                           | For the nine months ended December 31, 2003 |        | For the year ended March 31, 2003 |      
|--------------------------------------------------------------------------------------------------------- | --------------------------------------------------------- | ------------------------------------------- | ------ | --------------------------------- | -----
|Net earnings (loss) for the period, as reported under Canadian GAAP                                       |                                                           | (169.6                                      | )      | (41.3                             | )    
|Add: Discontinued operations, net of tax                                                                  |                                                           | 15.7                                        |        | 0.9                               |      
|                                                                                                          | Provision for (recovery of) income taxes                  |                                             | 44.1   |                                   | 16.8 
|                                                                                                          | Foreign exchange (gains) losses                           |                                             | (20.6  | )                                 | (28.2
|                                                                                                          | Investment losses (gains), net                            |                                             | (1.0   | )                                 | 36.3 
|                                                                                                          | Dilution gains                                            |                                             | (145.1 | )                                 |     
|                                                                                                          |                                                           |                                             |        |                                   |      
|Earnings (loss) from operations before undernoted and discontinued operations (operating earnings (loss)) |                                                           | (276.5                                      | )      | (15.5                             | )    
|Add: Minority interest                                                                                    |                                                           | 9.7                                         |        | 3.2                               |      
|                                                                                                          | Equity losses in affiliates                               |                                             | 0.3    |                                   | 3.5  
|                                                                                                          | Interest                                                  |                                             | 62.4   |                                   | 85.0 
|                                                                                                          | Unusual items                                             |                                             | 13.3   |                                   | 9.9  
|                                                                                                          | Amortization, including development costs charges         |                                             | 50.0   |                                   | 36.7 
|                                                                                                          |                                                           |                                             |        |                                   |      
|EBITDA                                                                                                    |                                                           | (140.8                                      | )      | 122.8                             |      
|Add: Operating expenses                                                                                   |                                                           | 124.7                                       |        | 121.5                             |      
|                                                                                                          |                                                           |                                             |        |                                   |      
|Direct profit (loss)                                                                                      |                                                           | (16.1                                       | )      | 244.3                             |      
|Operating earnings (loss)                                                                                 |                                                           | (276.5                                      | )      | (15.5                             | )    
|Less: Provision for (recovery of) income taxes on operating earnings (loss)                               |                                                           | 13.7                                        |        | 8.4                               |      
|                                                                                                          |                                                           |                                             |        |                                   |      
|Net operating earnings (loss)                                                                             |                                                           | (290.2                                      | )      | (23.9                             | )    
|Operating earnings (loss)                                                                                 |                                                           | (276.5                                      | )      | (15.5                             | )    
|Add: Restructuring items in amortization, including development costs charges                             |                                                           | 30.8                                        |        |                                  |      
|                                                                                                          | Restructuring items included in unusual items             |                                             | 12.0   |                                   |     
|                                                                                                          | Restructuring items included in direct operating costs    |                                             | 165.3  |                                   |     
|                                                                                                          | Restructuring items included in operating expenses        |                                             | 0.7    |                                   |     
|                                                                                                          |                                                           |                                             |        |                                   |      
|Adjusted operating earnings (loss)                                                                        |                                                           | (67.7                                       | )      | (15.5                             | )    
|Adjusted operating earnings (loss)                                                                        |                                                           | (67.7                                       | )      | (15.5                             | )    
|Less: Provision for (recovery of) income taxes on adjusted operating earnings (loss)                      |                                                           | 88.8                                        |        | 8.4                               |      
|                                                                                                          |                                                           |                                             |        |                                   |      
|Adjusted net operating earnings (loss)                                                                    |                                                           | (156.5                                      | )      | (23.9                             | )    
|EBITDA                                                                                                    |                                                           | (140.8                                      | )      | 122.8                             |      
|Add: Restructuring items included in operating expenses                                                   |                                                           | 0.7                                         |        |                                  |      
|                                                                                                          | Restructuring items included in direct operating expenses |                                             | 165.3  |                                   |     
|                                                                                                          |                                                           |                                             |        |                                   |      
|Adjusted EBITDA                                                                                           |                                                           | 25.2                                        |        | 122.8                             |      
|                                                                                                          |                                                           |                                             |        |                                   |      

The
following table presents a reconciliation of diluted net earnings (loss) per common share, as reported under Canadian GAAP, to diluted net earnings (loss) from operations before
undernoted per common share,

42

---



net
of applicable taxes (net operating earnings (loss) per common share) and to adjusted net operating earnings (loss) per common share for the nine months ended Decemer 31, 2003 and year ended
March 31, 2003:

|                                                                                                                                      |  | For the nine months ended December 31, 2003 |   | For the year ended March 31, 2003 |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------- | - | --------------------------------- | -
|Net earnings (loss) per common share, as reported under Canadian GAAP                                                                 |  | (3.96                                       | ) | (0.97                             | )
|                                                                                                                                      |  |                                             |   |                                   |  
|Discontinued operations, net of income taxes of $0.8 million (March 31, 2003  $0.7 million)                                          |  | 0.36                                        |   | 0.02                              |  
|Net earnings (loss) per common share before discontinued operations, as reported under Canadian GAAP                                  |  | (3.60                                       | ) | (0.95                             | )
|Foreign exchange (gains) losses, net of income taxes of $3.0 million (March 31, 2003  $7.9 million)                                  |  | (0.41                                       | ) | (0.47                             | )
|Investment losses (gains), net of income taxes of $1.2 million (March 31, 2003  $0.4 million)                                        |  |                                            |   | 0.86                              |  
|Dilution gains, net of income taxes of $26.2 million
(March 31, 2003  nil)                                                           |  | (2.77                                       | ) |                                  |  
|                                                                                                                                      |  |                                             |   |                                   |  
|Net operating earnings (loss) per common share                                                                                        |  | (6.78                                       | ) | (0.56                             | )
|Net operating earnings (loss) per common share                                                                                        |  | (6.78                                       | ) | (0.56                             | )
|                                                                                                                                      |  |                                             |   |                                   |  
|Restructuring items in amortization, including development costs charges, net of income taxes of $11.1 million
(March 31, 2003  nil) |  | 0.46                                        |   |                                  |  
|Restructuring items included in unusual, net of income taxes of $4.4 million (March 31, 2003  nil)                                   |  | 0.18                                        |   |                                  |  
|Restructuring items included in direct operating expenses, net of income taxes of $59.4 million (March 31, 2003  nil)                |  | 2.47                                        |   |                                  |  
|Restructuring items included in operating expenses, net of income taxes of $0.3 million(March 31, 2003  nil)                         |  | 0.01                                        |   |                                  |  
|                                                                                                                                      |  |                                             |   |                                   |  
|Adjusted net operating earnings (loss) per common share                                                                               |  | (3.66                                       | ) | (0.56                             | )
|                                                                                                                                      |  |                                             |   |                                   |  

The
following table presents a reconciliation of cash and cash equivalents provided by (used in) operating activities, as reported under Canadian GAAP, to operating cash flow and free
cash flow for the nine months ended December 31, 2003 and the year ended March 31, 2003 (in millions of Canadian dollars):

|                                                                                                      |  | For the nine months ended December 31, 2003 |   | For the year ended March 31, 2003 |  
|----------------------------------------------------------------------------------------------------- |  | ------------------------------------------- | - | --------------------------------- | -
|Cash and cash equivalents provided by (used in) operating activities, as reported under Canadian GAAP |  | (49.1                                       | ) | 38.9                              |  
|Less: Net changes in other non-cash balances related to operations                                    |  | (10.6                                       | ) | 154.8                             |  
|Add: Investment in property and equipment                                                             |  | (2.7                                        | ) | (4.1                              | )
|                                                                                                      |  |                                             |   |                                   |  
|Operating cash flow                                                                                   |  | (41.2                                       | ) | (120.0                            | )
|                                                                                                      |  |                                             |   |                                   |  
|Cash and cash equivalents provided by (used in) operating activities, as reported under Canadian GAAP |  | (49.1                                       | ) | 38.9                              |  
|Add: Cash and cash equivalents used in investing activities                                           |  | 164.5                                       |   | (2.1                              | )
|                                                                                                      |  |                                             |   |                                   |  
|Free cash flow                                                                                        |  | 115.4                                       |   | 36.8                              |  
|                                                                                                      |  |                                             |   |                                   |  

---

43

---





Additional
information relating to the Company, including the Annual Information Form, can be found on SEDAR at www.sedar.com.

44

---



GRAPHIC

Financial Statements

---





MANAGEMENT'S REPORT

The
accompanying consolidated financial statements and all information contained in this corporate report of Alliance Atlantis Communications Inc. ("the Company") are the responsibility of
management and have been approved by the Board of Directors. Financial and operating data elsewhere in the corporate report is consistent with the information contained in the financial statements.
The financial statements and all other information have been prepared by management in accordance with Canadian generally accepted accounting principles. The financial statements include some figures
and assumptions based on management's best estimates, which have been derived with careful judgment.

In
fulfilling its responsibilities, management of the Company has developed and maintains a system of internal accounting controls. These controls 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 annual consolidated financial statements and recommends their approval by the Board of Directors. The auditors have full access to the Audit Committee with and without management present.

The
consolidated financial statements have been audited by PricewaterhouseCoopers LLP Chartered Accountants, whose opinion is contained in this corporate report.

|GRAPHIC |  | W. Judson Martin |  | GRAPHIC
|------- |  | ---------------- |  | -------

|MICHAEL I.M. MACMILLANChairman and
Chief Executive Officer |  | W. JUDSON MARTINSenior Executive Vice President
and Chief Financial Officer |  | RITA A. MIDDLETONSenior Vice President,
Finance  Corporate
|---------------------------------------------------------- |  | --------------------------------------------------------------------------- |  | -----------------------------------------------------------

|
|

AUDITORS' REPORT

To
the Shareholders of Alliance Atlantis Communications Inc.

We
have audited the consolidated balance sheets of Alliance Atlantis Communications Inc. as at December 31, 2004 and 2003 and the consolidated statements of earnings (loss), deficit and
cash flow for the year ended December 31, 2004, the nine-month period ended December 31, 2003 and the year ended March 31, 2003. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In
our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2004 and 2003 and the results of its
operations and its cash flow for the year ended December 31, 2004, the nine-month period ended December 31, 2003 and the year ended March 31, 2003 in accordance with
Canadian generally accepted accounting principles.

|March 28, 2005
Toronto, Canada |  | GRAPHICChartered Accountants
|------------------------------ |  | ----------------------------

F-2

---





ALLIANCE ATLANTIS COMMUNICATIONS INC.        CONSOLIDATED BALANCE SHEETS        (in millions of Canadian dollars)

|                                                        |                             | December 31, 2004 |       | December 31, 2003 |      
|------------------------------------------------------- | --------------------------- | ----------------- | ----- | ----------------- | -----
|Assets                                                  |                             |                   |       |                   |      
|Cash and cash equivalents                               |                             | 55.0              |       | 95.4              |      
|Accounts receivable(note 26 and 27)                     |                             | 372.2             |       | 277.8             |      
|Investment in film and television programs(note 3):     |                             |                   |       |                   |      
|                                                        | Broadcasting                |                   | 185.2 |                   | 180.2
|                                                        | Motion Picture Distribution |                   | 186.8 |                   | 153.4
|                                                        | Entertainment               |                   | 195.3 |                   | 246.6
|Development costs                                       |                             | 1.2               |       | 3.2               |      
|Property and equipment(note 4)                          |                             | 43.7              |       | 49.7              |      
|Assets related to discontinued operations(note 17)      |                             |                  |       | 9.3               |      
|Investments(note 5)                                     |                             | 16.4              |       | 17.8              |      
|Future income taxes(note 18)                            |                             | 128.4             |       | 84.8              |      
|Other assets(note 6)                                    |                             | 23.9              |       | 36.2              |      
|Broadcast licences                                      |                             | 108.7             |       | 109.3             |      
|Goodwill(note 10 and 25)                                |                             | 212.6             |       | 152.5             |      
|                                                        |                             |                   |       |                   |      
|                                                        |                             | 1,529.4           |       | 1,416.2           |      
|                                                        |                             |                   |       |                   |      
|Liabilities                                             |                             |                   |       |                   |      
|Accounts payable and accrued liabilities(note 22)       |                             | 528.1             |       | 521.5             |      
|Income taxes payable                                    |                             | 57.2              |       | 30.9              |      
|Liabilities related to discontinued operations(note 17) |                             |                  |       | 5.3               |      
|Deferred revenue                                        |                             | 40.4              |       | 28.9              |      
|Term loans(note 8)                                      |                             | 483.6             |       | 79.4              |      
|Senior subordinated notes(note 9)                       |                             |                  |       | 389.0             |      
|Minority interest                                       |                             | 67.4              |       | 42.2              |      
|                                                        |                             |                   |       |                   |      
|                                                        |                             | 1,176.7           |       | 1,097.2           |      
|                                                        |                             |                   |       |                   |      
|Shareholders' Equity                                    |                             |                   |       |                   |      
|Share capital and other(note 12)                        |                             | 725.7             |       | 717.4             |      
|Deficit                                                 |                             | (372.5            | )     | (402.2            | )    
|Cumulative translation adjustments(note 14)             |                             | (0.5              | )     | 3.8               |      
|                                                        |                             |                   |       |                   |      
|                                                        |                             | 352.7             |       | 319.0             |      
|                                                        |                             |                   |       |                   |      
|                                                        |                             | 1,529.4           |       | 1,416.2           |      
|                                                        |                             |                   |       |                   |      
|Commitments and contingencies(note 24)                  |                             |                   |       |                   |      

Approved
by the Board of Directors

|GRAPHIC ANTHONY F. GRIFFITHS |  | GRAPHIC MICHAEL I. M. MACMILLAN
|---------------------------- |  | -------------------------------

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

F-3

---



ALLIANCE ATLANTIS COMMUNICATIONS INC.        CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)        (in millions of Canadian dollars  except per share amounts)

|                                                                              |                                      | Year ended December 31, 2004 |         | Nine months ended December 31, 2003 |   | Year ended March 31, 2003 |        | 12 months ended December 31, 2003 |      
|----------------------------------------------------------------------------- | ------------------------------------ | ---------------------------- | ------- | ----------------------------------- | - | ------------------------- | ------ | --------------------------------- | -----
|
|Revenue                                                                       |                                      |                              |         |                                     |   |                           |        |                                   |      
|                                                                              | Broadcasting                         |                              |         | 245.9                               |   |                           | 162.4  |                                   |      
|                                                                              | Motion Picture Distribution(note 25) |                              |         | 512.1                               |   |                           | 307.8  |                                   |      
|                                                                              | Entertainment(note 25)               |                              |         | 258.7                               |   |                           | 169.8  |                                   |      
|                                                                              | Corporate and Other                  |                              |         | 0.8                                 |   |                           | 0.2    |                                   |      
|                                                                              |                                      |                              |         |                                     |   |                           |        |                                   |      
|                                                                              |                                      |                              | 1,017.5 |                                     |   | 640.2                     |        |                                   | 872.0
|Direct operating expenses                                                     |                                      |                              | 705.5   |                                     |   | 656.3                     |        |                                   | 627.7
|Direct profit (loss)                                                          |                                      |                              |         |                                     |   |                           |        |                                   |      
|                                                                              | Broadcasting                         |                              |         | 132.7                               |   |                           | 92.6   |                                   |      
|                                                                              | Motion Picture Distribution(note 25) |                              |         | 103.7                               |   |                           | 61.0   |                                   |      
|                                                                              | Entertainment(note 25)               |                              |         | 74.8                                |   |                           | (169.9 | )                                 |      
|                                                                              | Corporate and Other                  |                              |         | 0.8                                 |   |                           | 0.2    |                                   |      
|                                                                              |                                      |                              |         |                                     |   |                           |        |                                   |      
|                                                                              |                                      |                              | 312.0   |                                     |   | (16.1                     | )      |                                   | 244.3
|Operating expenses                                                            |                                      |                              |         |                                     |   |                           |        |                                   |      
|                                                                              | Selling, general and administrative  |                              |         | 135.8                               |   |                           | 123.0  |                                   |      
|                                                                              | Stock based compensation(note 12)    |                              |         | 16.7                                |   |                           | 1.7    |                                   |      
|                                                                              |                                      |                              |         |                                     |   |                           |        |                                   |      
|                                                                              |                                      |                              | 152.5   |                                     |   | 124.7                     |        |                                   | 121.5
|Earnings (loss) before undernoted and discontinued operations                 |                                      |                              |         |                                     |   |                           |        |                                   |      
|                                                                              | Broadcasting                         |                              |         | 73.3                                |   |                           | 50.4   |                                   |      
|                                                                              | Motion Picture Distribution(note 25) |                              |         | 72.9                                |   |                           | 43.7   |                                   |      
|                                                                              | Entertainment(note 25)               |                              |         | 50.2                                |   |                           | (198.3 | )                                 |      
|                                                                              | Corporate and Other                  |                              |         | (36.9                               | ) |                           | (36.6  | )                                 |      
|                                                                              |                                      |                              |         |                                     |   |                           |        |                                   |      
|                                                                              |                                      |                              | 159.5   |                                     |   | (140.8                    | )      |                                   | 122.8
|Amortization, including development costs charges                             |                                      |                              | 21.3    |                                     |   | 50.0                      |        |                                   | 36.7 
|Unusual items(note 11)                                                        |                                      |                              | 36.1    |                                     |   | 13.3                      |        |                                   | 9.9  
|Interest(note 15)                                                             |                                      |                              | 58.2    |                                     |   | 62.4                      |        |                                   | 85.0 
|Equity losses in affiliates                                                   |                                      |                              | 0.1     |                                     |   | 0.3                       |        |                                   | 3.5  
|Minority interest                                                             |                                      |                              | 34.0    |                                     |   | 9.7                       |        |                                   | 3.2  
|                                                                              |                                      |                              |         |                                     |   |                           |        |                                   |      
|Earnings (loss) from operations before undernoted and discontinued operations |                                      |                              | 9.8     |                                     |   | (276.5                    | )      |                                   | (15.5
|Dilution gains(note 16)                                                       |                                      |                              |        |                                     |   | (145.1                    | )      |                                   |     
|Investment (gains) losses, net (note 16)                                      |                                      |                              | (2.2    | )                                   |   | (1.0                      | )      |                                   | 36.3 
|Foreign exchange gains                                                        |                                      |                              | (22.4   | )                                   |   | (20.6                     | )      |                                   | (28.2
|                                                                              |                                      |                              |         |                                     |   |                           |        |                                   |      
|Earnings (loss) before income taxes and discontinued operations               |                                      |                              | 34.4    |                                     |   | (109.8                    | )      |                                   | (23.6
|Provision for income taxes(note 18)                                           |                                      |                              | 0.6     |                                     |   | 44.1                      |        |                                   | 16.8 
|                                                                              |                                      |                              |         |                                     |   |                           |        |                                   |      
|Net earnings (loss) before discontinued operations                            |                                      |                              | 33.8    |                                     |   | (153.9                    | )      |                                   | (40.4
|Discontinued operations, net of income taxes(note 17)                         |                                      |                              | (4.1    | )                                   |   | (15.7                     | )      |                                   | (0.9 
|                                                                              |                                      |                              |         |                                     |   |                           |        |                                   |      
|Net earnings (loss) for the period                                            |                                      |                              | 29.7    |                                     |   | (169.6                    | )      |                                   | (41.3
|                                                                              |                                      |                              |         |                                     |   |                           |        |                                   |      
|Earnings (loss) per Common Share before discontinued operations(note 20)      |                                      |                              |         |                                     |   |                           |        |                                   |      
|                                                                              | Basic                                |                              | $       | 0.78                                |   | $                         | (3.60  | )                                 | $    
|                                                                              | Diluted                              |                              | $       | 0.78                                |   | $                         | (3.60  | )                                 | $    
|                                                                              |                                      |                              |         |                                     |   |                           |        |                                   |      
|Earnings (loss) per Common Share                                              |                                      |                              |         |                                     |   |                           |        |                                   |      
|                                                                              | Basic                                |                              | $       | 0.69                                |   | $                         | (3.96  | )                                 | $    
|                                                                              | Diluted                              |                              | $       | 0.68                                |   | $                         | (3.96  | )                                 | $    
|                                                                              |                                      |                              |         |                                     |   |                           |        |                                   |      

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

F-4

---





ALLIANCE ATLANTIS COMMUNICATIONS INC.        CONSOLIDATED STATEMENTS OF DEFICIT        (in millions of Canadian dollars)

|                                   |  | Year ended December 31, 2004 |   | Nine months ended December 31, 2003 |   | Year ended March 31, 2003 |  
|---------------------------------- |  | ---------------------------- | - | ----------------------------------- | - | ------------------------- | -
|Deficit  beginning of period      |  | (402.2                       | ) | (232.6                              | ) | (191.3                    | )
|Net earnings (loss) for the period |  | 29.7                         |   | (169.6                              | ) | (41.3                     | )
|                                   |  |                              |   |                                     |   |                           |  
|Deficit  end of period            |  | (372.5                       | ) | (402.2                              | ) | (232.6                    | )
|                                   |  |                              |   |                                     |   |                           |  

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

F-5

---



ALLIANCE ATLANTIS COMMUNICATIONS INC.        CONSOLIDATED STATEMENT OF CASH FLOW        (in millions of Canadian dollars)

|                                                                      |                                               | Year ended December 31, 2004 |       | Nine months ended December 31, 2003 |        | Year ended March 31, 2003 |      
|--------------------------------------------------------------------- | --------------------------------------------- | ---------------------------- | ----- | ----------------------------------- | ------ | ------------------------- | -----
|Cash and cash equivalents provided by (used in)                       |                                               |                              |       |                                     |        |                           |      
|Operating activities                                                  |                                               |                              |       |                                     |        |                           |      
|Net earnings (loss) for the period                                    |                                               | 29.7                         |       | (169.6                              | )      | (41.3                     | )    
|Items not affecting cash                                              |                                               |                              |       |                                     |        |                           |      
|                                                                      | Amortization of film and television programs: |                              |       |                                     |        |                           |      
|                                                                      |                                               | Broadcasting                 |       | 99.2                                |        | 61.3                      |      
|                                                                      |                                               | Motion Picture Distribution  |       | 92.5                                |        | 51.9                      |      
|                                                                      |                                               | Entertainment                |       | 98.5                                |        | 310.1                     |      
|                                                                      | Development costs charges                     |                              | 4.4   |                                     | 39.4   |                           | 16.4 
|                                                                      | Amortization of property and equipment        |                              | 11.3  |                                     | 9.6    |                           | 16.7 
|                                                                      | Amortization of other assets                  |                              | 9.8   |                                     | 7.8    |                           | 8.8  
|                                                                      | Write down of broadcast licenses              |                              | 1.1   |                                     |       |                           |     
|                                                                      | Loss on redemption of long-term debt          |                              | 36.1  |                                     |       |                           |     
|                                                                      | Provision on loans receivable                 |                              |      |                                     | 6.4    |                           |     
|                                                                      | Dilution gains                                |                              |      |                                     | (145.1 | )                         |     
|                                                                      | Investment (gains) losses, net                |                              | (2.2  | )                                   | (1.0   | )                         | 36.3 
|                                                                      | Equity losses in affiliates                   |                              | 0.1   |                                     | 0.3    |                           | 3.5  
|                                                                      | Minority interest                             |                              | 34.0  |                                     | 9.7    |                           | 3.2  
|                                                                      | Future income taxes                           |                              | (39.8 | )                                   | 23.3   |                           | 13.5 
|                                                                      | Unrealized net foreign exchange gains         |                              | (24.7 | )                                   | (30.1  | )                         | (31.0
|                                                                      | Stock-based compensation                      |                              | 1.5   |                                     | 1.4    |                           | (0.3 
|Investment in film and television programs:                           |                                               |                              |       |                                     |        |                           |      
|                                                                      |                                               | Broadcasting                 |       | (104.2                              | )      | (69.8                     | )    
|                                                                      |                                               | Motion Picture Distribution  |       | (80.0                               | )      | (73.4                     | )    
|                                                                      |                                               | Entertainment                |       | (126.6                              | )      | (76.4                     | )    
|Development costs expenditures                                        |                                               | (1.7                         | )     | (8.9                                | )      | (19.7                     | )    
|Net changes in other non-cash balances related to operations(note 21) |                                               | (31.9                        | )     | (10.6                               | )      | 154.8                     |      
|Discontinued operations                                               |                                               | 2.1                          |       | 14.6                                |        | (1.8                      | )    
|                                                                      |                                               |                              |       |                                     |        |                           |      
|                                                                      |                                               | 9.2                          |       | (49.1                               | )      | 38.9                      |      
|                                                                      |                                               |                              |       |                                     |        |                           |      
|Investing activities                                                  |                                               |                              |       |                                     |        |                           |      
|Property and equipment                                                |                                               | (4.5                         | )     | (2.7                                | )      | (4.1                      | )    
|Proceeds from dilution of subsidiary                                  |                                               |                             |       | 162.4                               |        |                          |      
|Business acquisitions(note 10)                                        |                                               | (35.2                        | )     |                                    |        |                          |      
|Proceeds from sale of investments                                     |                                               | 4.9                          |       | 5.0                                 |        | 2.8                       |      
|Discontinued operations                                               |                                               | 1.9                          |       | (3.2                                | )      | (2.1                      | )    
|Other                                                                 |                                               | 0.6                          |       | 3.0                                 |        | 1.3                       |      
|                                                                      |                                               |                              |       |                                     |        |                           |      
|                                                                      |                                               | (32.3                        | )     | 164.5                               |        | (2.1                      | )    
|                                                                      |                                               |                              |       |                                     |        |                           |      
|Financing activities                                                  |                                               |                              |       |                                     |        |                           |      
|Repayment of long-term debt                                           |                                               | (448.1                       | )     | (92.8                               | )      | (35.0                     | )    
|Proceeds on term loans                                                |                                               | 440.9                        |       | 72.9                                |        |                          |      
|Deferred financing costs                                              |                                               | (8.5                         | )     |                                    |        |                          |      
|Issue of equity by subsidiary to minority interest                    |                                               | 15.0                         |       |                                    |        |                          |      
|Distributions paid to minority interest                               |                                               | (22.7                        | )     | (2.7                                | )      |                          |      
|Issue of share capital                                                |                                               | 6.8                          |       | 1.9                                 |        | 0.6                       |      
|Discontinued operations                                               |                                               | (0.7                         | )     | (1.2                                | )      | (2.3                      | )    
|                                                                      |                                               |                              |       |                                     |        |                           |      
|                                                                      |                                               | (17.3                        | )     | (21.9                               | )      | (36.7                     | )    
|                                                                      |                                               |                              |       |                                     |        |                           |      
|Change in cash and cash equivalents                                   |                                               | (40.4                        | )     | 93.5                                |        | 0.1                       |      
|Cash and cash equivalents  beginning of period                       |                                               | 95.4                         |       | 1.9                                 |        | 1.8                       |      
|                                                                      |                                               |                              |       |                                     |        |                           |      
|Cash and cash equivalents  end of period                             |                                               | 55.0                         |       | 95.4                                |        | 1.9                       |      
|                                                                      |                                               |                              |       |                                     |        |                           |      

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

F-6

---





ALLIANCE ATLANTIS COMMUNICATIONS INC.    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    (In millions of Canadian dollars  except per share amounts)

The Company is a vertically integrated broadcaster, creator and distributor of filmed entertainment content. The Company's three principal business activities are Broadcasting, Motion Picture
Distribution and Entertainment. (See note 25).

1.     SIGNIFICANT ACCOUNTING POLICIES





F-7

---





F-8

---





Buildings

5% by declining balanceFurniture and other equipment

20%  30% by declining balanceComputer equipment and software

30% by declining balanceLeasehold improvements

straight-line over the lease termBroadcasting equipment

straight-line over five years




F-9

---





2.     ACCOUNTING CHANGES







F-10

---





3.     INVESTMENT IN FILM AND TELEVISION PROGRAMS

Broadcasting

Motion Picture Distribution

EntertainmentDecember 31, 2004Theatrical ReleaseReleased, net of accumulated amortization



137.0

11.0Not released



15.8

Advances on unreleased films



21.3

Acquired library, net of accumulated amortization



8.4

Non-Theatrical Film and Television ProgramsReleased, net of accumulated amortization



4.3

161.3Acquired library, net of accumulated amortization





19.4Programs in progress





3.6Broadcasting rights, net of accumulated amortization

185.2



185.2

186.8

195.3


|
|

Broadcasting

Motion Picture Distribution

EntertainmentDecember 31, 2003Theatrical ReleaseReleased, net of accumulated amortization



128.5

22.3Not released



10.5

Advances on unreleased films



14.4

Programs in progress





4.6Non-Theatrical Film and Television ProgramsReleased, net of accumulated amortization





192.0Acquired library, net of accumulated amortization





20.7Programs in progress





7.0Broadcasting rights, net of accumulated amortization

180.2



180.2

153.4

246.6


F-11

---





4.     PROPERTY AND EQUIPMENT

December 31, 2004

December 31, 2003Cost

Accumulated amortization

Cost

Accumulated amortizationBuildings

0.3



0.3

Furniture and other equipment

20.1

13.7

20.7

13.6Computer equipment and software

34.7

25.3

31.3

22.8Leasehold improvements

37.4

16.6

37.4

13.5Broadcast equipment

22.8

16.0

23.2

13.3115.3

71.6

112.9

63.2Net book value



43.7



49.7




5.     INVESTMENTS

December 31, 2004

December 31, 2003At cost

16.1

17.4On equity basis

0.3

0.416.4

17.8






F-12

---







6.     OTHER ASSETS

December 31, 2004

December 31, 2003Deferred financing costs (net of accumulated amortization of $1.1 (December 31, 2003  $28.3))

11.1

19.8Broadcast intangible assets (net of accumulated amortization of $8.0 (December 31, 2003  $6.1))

3.6

6.5Other intangible assets (net of accumulated amortization of $4.2 (December 31, 2003  $3.5))

4.7

2.5Prepaid expenses and other

4.5

7.423.9

36.2




F-13

---





7.     REVOLVING CREDIT FACILITIES

December 31, 2004

December 31, 2003Corporate revolving credit facility  authorized

175.0

300.0Corporate revolving credit facility  drawn



Corporate revolving credit facility  available

148.2

232.7Distribution LP revolving credit facility  authorized

25.0

25.0Distribution LP revolving credit facility  drawn



Distribution LP revolving credit facility  available

25.0

25.0Distribution LP revolving term credit facility  authorized

50.0

Distribution LP revolving term credit facility  drawn



Distribution LP revolving term credit facility  available

50.0










F-14

---





8.     TERM LOANS

December 31, 2004

December 31, 2003Term Loan A Credit Facility bearing interest at the Banker's Acceptance rate or LIBOR rate plus a margin ranging from 75 to 175 basis points and the Canadian prime rate and the US base rate plus up to
75 basis points, maturing December 20, 2009 (US$108.6)

130.6

Term Loan B Credit Facility bearing interest at the Banker's Acceptance rate or LIBOR rate plus a margin of 175 basis points, maturing December 20, 2011 (US$250.0)

300.5

Non-revolving term facility bearing interest at rates ranging from the Canadian prime rate and the US base rate plus a margin of 100 to 200 basis points and the Banker's Acceptance rate and LIBOR plus a margin
of 200 to 300 basis points, maturing October 15, 2006

50.0

75.0Industry and other term loans which are unsecured and have no fixed terms of repayment, bearing interest at various rates

1.0

3.8Obligations under capital lease

1.5

0.6483.6

79.4




2005

10.12006

66.32007

22.92008

42.52009

55.5Thereafter

286.3483.6


9.     SENIOR SUBORDINATED NOTES



F-15

---





10.   BUSINESS ACQUISITIONS





Net assets acquiredCash

20.5Accounts receivable

25.2Investment in film and television programsReleased, net of accumulated amortization

39.1Not released, Film advances

6.8Property and equipment

0.5Goodwill

61.9Customer relationships

2.9Future income taxes

3.8Prepaid expenses and other assets

0.5Total assets acquired

161.2Less: liabilities assumedAccounts payable and accrued liabilities

16.7Distribution and participation liabilities

55.2Deferred revenue

6.6Revolving credit facility

27.5Net assets acquired

55.2




11.   UNUSUAL ITEMS



F-16

---





12.   SHARE CAPITAL AND OTHER





F-17

---









|                                                                         |  | Number of shares |   | Value of shares |  |      |   |       | 
|------------------------------------------------------------------------ |  | ---------------- | - | --------------- |  | ---- | - | ----- | 
|
|Balance, March 31, 2002                                                  |  | 3,775,152        |   | 38,872,416      |  | 52.7 |   | 660.7 | 
|Conversion of Class A Voting Shares to Class B Non-Voting Shares         |  | (100             | ) | 100             |  |     |   |      | 
|Shares issued from exercise of stock options and other employee programs |  | 700              |   | 50,772          |  |     |   | 0.6   | 
|Purchase of Class B Non-Voting Shares held in treasury                   |  |                 |   |                |  |     |   |      | 
|Stock option expense                                                     |  |                 |   |                |  |     |   |      | 
|Deferred share units expense                                             |  |                 |   |                |  |     |   |      | 
|                                                                         |  |                  |   |                 |  |      |   |       | 
|Balance, March 31, 2003                                                  |  | 3,775,752        |   | 38,923,288      |  | 52.7 |   | 661.3 | 
|Conversion of Class A Voting Shares to Class B Non-Voting Shares         |  | (561,741         | ) | 561,741         |  | (7.8 | ) | 7.8   | 
|Shares issued from exercise of stock options and other employee programs |  | 6,260            |   | 132,189         |  | 0.1  |   | 1.8   | 
|Stock option expense                                                     |  |                 |   |                |  |     |   |      | 
|Deferred share units expense                                             |  |                 |   |                |  |     |   |      | 
|                                                                         |  |                  |   |                 |  |      |   |       | 
|Balance, December 31, 2003                                               |  | 3,220,271        |   | 39,617,218      |  | 45.0 |   | 670.9 | 
|Conversion of Class A Voting Shares to Class B Non-Voting Shares         |  | (377,700         | ) | 377,700         |  | (5.2 | ) | 5.2   | 
|Shares issued from exercise of stock options and other employee programs |  | 2,500            |   | 392,246         |  |     |   | 6.7   | 
|Transfer of contributed surplus for exercised stock options              |  |                 |   |                |  |     |   | 0.2   | 
|Stock option expense                                                     |  |                 |   |                |  |     |   |      | 
|Deferred share units expense                                             |  |                 |   |                |  |     |   |      | 
|                                                                         |  |                  |   |                 |  |      |   |       | 
|Balance December 31, 2004                                                |  | 2,845,071        |   | 40,387,164      |  | 39.8 |   | 683.0 | 
|                                                                         |  |                  |   |                 |  |      |   |       | 



F-19

---





|                                 |  | Number of Options |   |          
|-------------------------------- |  | ----------------- | - | ---------
|
|
|Outstanding at March 31, 2002    |  | 18,712            |   | 2,833,841
|Granted                          |  |                  |   | 323,000  
|Exercised                        |  | (1,400            | ) | (70,611  
|Forfeited                        |  |                  |   | (442,750 
|Expired                          |  |                  |   | (3,750   
|                                 |  |                   |   |          
|Outstanding at March 31, 2003    |  | 17,312            |   | 2,639,730
|Granted                          |  |                  |   | 272,000  
|Exercised                        |  | (8,552            | ) | (139,275 
|Forfeited                        |  |                  |   | (109,400 
|Expired                          |  |                  |   | (85,750  
|                                 |  |                   |   |          
|Outstanding at December 31, 2003 |  | 8,760             |   | 2,577,305
|Granted                          |  |                  |   | 223,000  
|Exercised                        |  | (2,500            | ) | (400,996 
|Forfeited                        |  |                  |   | (78,875  
|Expired                          |  |                  |   |         
|                                 |  |                   |   |          
|Outstanding at December 31, 2004 |  | 6,260             |   | 2,320,434
|                                 |  |                   |   |          
|Exercisable at December 31, 2004 |  | 6,260             |   | 1,630,781
|                                 |  |                   |   |          
|Exercisable at December 31, 2003 |  | 8,760             |   | 1,710,493
|Exercisable at March 31, 2003    |  | 17,312            |   | 1,788,426
|                                 |  |                   |   |          



|Range of exercise prices |  | Number of Options |  | Weighted Average Contractual Life |  | Weighted Average Exercise Price
|------------------------ |  | ----------------- |  | --------------------------------- |  | -------------------------------
|$12.00 to 18.00          |  | 826,694           |  | 7.1                               |  | 13.99                          
|$18.01 to 28.00          |  | 1,500,000         |  | 5.1                               |  | 24.88                          
|                         |  |                   |  |                                   |  |                                

|
|

|Range of exercise prices |  | Number of Exercisable Options |  | Weighted Average Exercise Price
|------------------------ |  | ----------------------------- |  | -------------------------------
|$12.00 to 18.00          |  | 404,041                       |  | 14.21                          
|$18.01 to 28.00          |  | 1,233,000                     |  | 25.34                          
|                         |  |                               |  |                                



F-20

---





|                                 |  | PSAP Units |   | Weighted Average Exercise Price
|-------------------------------- |  | ---------- | - | -------------------------------
|Outstanding at March 31, 2003    |  |           |   |                               
|Granted                          |  | 620,000    |   | 17.50                          
|                                 |  |            |   |                                
|Outstanding at December 31, 2003 |  | 620,000    |   | 17.50                          
|Granted                          |  | 802,000    |   | 19.82                          
|Exercised                        |  | (24,975    | ) | 17.50                          
|                                 |  |            |   |                                
|Outstanding at December 31, 2004 |  | 1,397,025  |   | 18.83                          
|Exercisable at December 31, 2004 |  | 332,001    |   | 18.90                          
|Exercisable at December 31, 2003 |  |           |   |                               
|                                 |  |            |   |                                





F-21

---





13.   DISTRIBUTION LP COMPENSATION PLANS



F-22

---





|Excess Amount Percentage |  | Incentive Amount Percentage                   
|------------------------ |  | ----------------------------------------------
|Zero to 5%               |  | 5% of any excess amount                       
|> 5% to 10%              |  | 5% of any excess amount to 5%                 
|                         |  | 10% of an excess amount over 5%               
|>10% to 20%              |  | 5% of any excess amount to 5%                 
|                         |  | 10% of any excess amount over 5% to 10%       
|                         |  | plus 20% of any excess amount over 10% to 20% 
|>20%                     |  | 5% of any excess amount to 5%                 
|                         |  | 10% of any excess amount over 5% to 10%       
|                         |  | plus 20% of any excess amount over 10% to 20%,
|                         |  | plus 30% of any excess amount over 20%        



14.   CUMULATIVE TRANSLATION ADJUSTMENTS



|                                                                                                                                                                     |  | December 31, 2004 |   | December 31, 2003 |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | - | ----------------- | -
|Balance  beginning of period                                                                                                                                        |  | 3.8               |   | (17.3             | )
|Effect of exchange rate variation on translation of net assets of self-sustaining foreign operations                                                                 |  | (18.7             | ) | (1.4              | )
|Effect of exchange rate variation on long-term debt designated as a hedge of net investments in self-sustaining foreign operations, net of tax of $3.2 (2003  $5.0) |  | 14.4              |   | 22.5              |  
|                                                                                                                                                                     |  |                   |   |                   |  
|Balance  end of period                                                                                                                                              |  | (0.5              | ) | 3.8               |  
|                                                                                                                                                                     |  |                   |   |                   |  

15.   INTEREST

|                                                |  | Year ended December 31, 2004 |   | Nine months ended December 31, 2003 |   | Year ended March 31, 2003 |  
|----------------------------------------------- |  | ---------------------------- | - | ----------------------------------- | - | ------------------------- | -
|Senior revolving credit facilities              |  | 4.2                          |   | 7.0                                 |   | 10.8                      |  
|Term loans                                      |  | 4.8                          |   | 7.0                                 |   | 6.2                       |  
|Senior subordinated notes                       |  | 50.3                         |   | 39.5                                |   | 60.2                      |  
|Interest (income) and other                     |  | (4.8                         | ) | (0.7                                | ) | 4.3                       |  
|Interest capitalized during the year            |  | (1.6                         | ) | (6.4                                | ) | (11.7                     | )
|Amortization of interest previously capitalized |  |                             |   | 10.6                                |   | 9.7                       |  
|                                                |  |                              |   |                                     |   |                           |  
|                                                |  | 52.9                         |   | 57.0                                |   | 79.5                      |  
|Amortization of deferred financing costs        |  | 5.3                          |   | 5.4                                 |   | 5.5                       |  
|                                                |  |                              |   |                                     |   |                           |  
|                                                |  | 58.2                         |   | 62.4                                |   | 85.0                      |  
|                                                |  |                              |   |                                     |   |                           |  



F-23

---





16.   INVESTMENT (GAINS) LOSSES, NET AND DILUTION GAINS





F-24

---





17.   DISCONTINUED OPERATIONS



|                                             |  | Year ended December 31, 2004 |       | Nine months ended December 31, 2003 |   | Year ended March 31, 2003 |  
|-------------------------------------------- |  | ---------------------------- | ----- | ----------------------------------- | - | ------------------------- | -
|Revenue                                      |  |                              | 3.7   |                                     |   | 11.3                      |  
|Direct profit                                |  |                              |      |                                     |   | 3.0                       |  
|Loss on write down of property and equipment |  |                              |      |                                     |   | (11.8                     | )
|Loss before income taxes                     |  |                              | (5.5  | )                                   |   | (14.9                     | )
|Provision for (recovery of) income taxes     |  |                              | (1.4  | )                                   |   | 0.8                       |  
|Loss from discontinued operations            |  |                              | (4.1  | )                                   |   | (15.7                     | )
|Basic loss per common share                  |  | $                            | (0.10 | )                                   | $ | (0.37                     | )
|Diluted loss per common share                |  | $                            | (0.09 | )                                   | $ | (0.37                     | )
|                                             |  |                              |       |                                     |   |                           |  

|
|

|                                         |  | December 31, 2004 |  | December 31, 2003
|---------------------------------------- |  | ----------------- |  | -----------------
|Accounts receivable                      |  |                  |  | 6.5              
|Property and equipment                   |  |                  |  | 2.8              
|Other assets                             |  |                  |  |                 
|                                         |  |                   |  |                  
|Total assets                             |  |                  |  | 9.3              
|                                         |  |                   |  |                  
|Accounts payable and accrued liabilities |  |                  |  | 4.5              
|Term loans                               |  |                  |  | 0.8              
|Other liabilities                        |  |                  |  |                 
|                                         |  |                   |  |                  
|Total liabilities                        |  |                  |  | 5.3              
|                                         |  |                   |  |                  



F-25

---



18.   INCOME TAXES



|                                                           |                                                                      | Year Ended December 31, 2004 |       | Nine Months Ended December 31, 2003 |       | Year ended March 31, 2003 |     
|---------------------------------------------------------- | -------------------------------------------------------------------- | ---------------------------- | ----- | ----------------------------------- | ----- | ------------------------- | ----
|Corporate statutory rate of income tax                     |                                                                      | 36.1%                        |       | 36.6%                               |       | 38.1%                     |     
|Provision for (recovery of) income taxes at statutory rate |                                                                      | 10.4                         |       | (45.7                               | )     | (9.6                      | )   
|                                                           |                                                                      |                              |       |                                     |       |                           |     
|Adjusted for the effect of:                                |                                                                      |                              |       |                                     |       |                           |     
|                                                           | Dilution gain                                                        |                              |      |                                     | (43.5 | )                         |    
|                                                           | Foreign operations subject to different income tax rates             |                              | (1.6  | )                                   | 20.7  |                           | (6.1
|                                                           | Expenses not deductible (income not taxable) for income tax purposes |                              | 6.7   |                                     | 4.2   |                           | 12.1
|                                                           | Change in income tax rate for future income taxes                    |                              |      |                                     | (10.5 | )                         | 4.9 
|                                                           | Change in valuation allowance                                        |                              | (22.1 | )                                   | 51.2  |                           | 13.4
|                                                           | Adjustment to prior year estimate                                    |                              | 4.3   |                                     | 66.3  |                           |    
|                                                           | Other                                                                |                              | 2.9   |                                     | 1.4   |                           | 2.1 
|                                                           |                                                                      |                              |       |                                     |       |                           |     
|                                                           |                                                                      | 0.6                          |       | 44.1                                |       | 16.8                      |     
|                                                           |                                                                      |                              |       |                                     |       |                           |     



|                                           |  | December 31, 2004 |   | December 31, 2003 |  
|------------------------------------------ |  | ----------------- | - | ----------------- | -
|Future income tax assets:                  |  |                   |   |                   |  
|Property and equipment                     |  | 8.0               |   | 18.5              |  
|Distribution and participation liabilities |  | 8.3               |   |                  |  
|Loss carryforwards                         |  | 137.4             |   | 147.4             |  
|Investment in film and television programs |  | 38.0              |   | 31.6              |  
|All other                                  |  | 33.0              |   | 17.8              |  
|                                           |  |                   |   |                   |  
|                                           |  | 224.7             |   | 215.3             |  
|Valuation allowance                        |  | (56.2             | ) | (78.3             | )
|                                           |  |                   |   |                   |  
|                                           |  | 168.5             |   | 137.0             |  
|                                           |  |                   |   |                   |  
|Future income tax liabilities:             |  |                   |   |                   |  
|Broadcast licences                         |  | 18.5              |   | 18.5              |  
|Capitalized interest                       |  |                  |   | 11.2              |  
|All other                                  |  | 21.6              |   | 22.5              |  
|                                           |  |                   |   |                   |  
|                                           |  | 40.1              |   | 52.2              |  
|                                           |  |                   |   |                   |  
|Net future income taxes                    |  | 128.4             |   | 84.8              |  
|                                           |  |                   |   |                   |  



F-26

---





|2005 |  | 12.3 
|---- |  | -----
|2006 |  | 8.3  
|2007 |  | 47.3 
|2008 |  | 19.1 
|2009 |  | 67.7 
|2010 |  | 97.0 
|2011 |  | 62.7 
|     |  |      
|     |  | 314.4
|     |  |      



|                     |  | Year ended December 31, 2004 |   | Nine months ended December 31, 2003 |  | Year ended March 31, 2003
|-------------------- |  | ---------------------------- | - | ----------------------------------- |  | -------------------------
|Current income taxes |  | 42.8                         |   | 21.0                                |  | 13.6                     
|Future income taxes  |  | (42.2                        | ) | 23.1                                |  | 3.2                      
|                     |  |                              |   |                                     |  |                          
|                     |  | 0.6                          |   | 44.1                                |  | 16.8                     
|                     |  |                              |   |                                     |  |                          



19.   JOINT VENTURES



|                                        |  | December 31, 2004 |   | December 31, 2003 |   | March 31, 2003 |  
|--------------------------------------- |  | ----------------- | - | ----------------- | - | -------------- | -
|Assets                                  |  | 78.9              |   | 114.4             |   | 129.8          |  
|Liabilities                             |  | 12.9              |   | 16.9              |   | 21.7           |  
|Revenue                                 |  | 90.0              |   | 38.9              |   | 57.8           |  
|Direct operating expenses               |  | 53.4              |   | 24.2              |   | 35.6           |  
|Operating expenses                      |  | 5.7               |   | 4.3               |   | 5.8            |  
|Amortization, interest and income taxes |  | 7.6               |   | 9.7               |   | 0.8            |  
|Net earnings (loss)                     |  | 23.3              |   | 1.9               |   | (0.6           | )
|Cash flow from operating activities     |  | 5.5               |   | 4.5               |   | (3.6           | )
|Cash flow from financing activities     |  | (5.5              | ) | (4.4              | ) | (0.3           | )
|                                        |  |                   |   |                   |   |                |  

F-27

---



20.   EARNINGS (LOSS) PER COMMON SHARE



|                                                                                                                    |  | December 31, 2004 |      | December 31, 2003 |   | March 31, 2003 |  
|------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ---- | ----------------- | - | -------------- | -
|Numerator for basic earnings (loss) per common share:                                                               |  |                   |      |                   |   |                |  
|Net earnings (loss) before discontinued operations for the period                                                   |  |                   | 33.8 |                   |   | (153.9         | )
|Weighted average number of common shares                                                                            |  |                   | 43.1 |                   |   | 42.8           |  
|                                                                                                                    |  |                   |      |                   |   |                |  
|Basic earnings (loss) per common share before discontinued operations                                               |  | $                 | 0.78 |                   | $ | (3.60          | )
|                                                                                                                    |  |                   |      |                   |   |                |  
|Numerator for diluted earnings (loss) per common share:                                                             |  |                   |      |                   |   |                |  
|Earnings (loss) used in computing basic and diluted earnings (loss) per common share before discontinued operations |  |                   | 33.8 |                   |   | (153.9         | )
|                                                                                                                    |  |                   |      |                   |   |                |  
|Denominator for diluted earnings (loss) per common share:                                                           |  |                   |      |                   |   |                |  
|Weighted average number of common shares                                                                            |  |                   | 43.1 |                   |   | 42.8           |  
|Stock options                                                                                                       |  |                   | 0.5  |                   |   |               |  
|                                                                                                                    |  |                   |      |                   |   |                |  
|Shares used in computing diluted earnings (loss) per common share                                                   |  |                   | 43.6 |                   |   | 42.8           |  
|                                                                                                                    |  |                   |      |                   |   |                |  
|Diluted earnings (loss) per common share before discontinued operations                                             |  | $                 | 0.78 |                   | $ | (3.60          | )
|                                                                                                                    |  |                   |      |                   |   |                |  



21.   STATEMENTS OF CASH FLOW SUPPLEMENTAL INFORMATION

|                                                            |  | December 31, 2004 |   | December 31, 2003 |   | March 31, 2003 |  
|----------------------------------------------------------- |  | ----------------- | - | ----------------- | - | -------------- | -
|Change in                                                   |  |                   |   |                   |   |                |  
|Accounts receivable                                         |  | 5.6               |   | 12.9              |   | 61.8           |  
|Accounts payable and accrued liabilities                    |  | (71.1             | ) | (27.3             | ) | 99.5           |  
|Deferred revenue                                            |  | 4.9               |   | (14.7             | ) | 10.9           |  
|Income taxes payable                                        |  | 26.3              |   | 20.9              |   | (21.7          | )
|Other                                                       |  | 2.4               |   | (2.4              | ) | 4.3            |  
|                                                            |  |                   |   |                   |   |                |  
|Net change in other non-cash balances related to operations |  | (31.9             | ) | (10.6             | ) | 154.8          |  
|                                                            |  |                   |   |                   |   |                |  

F-28

---





22.   ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

|                                           |  | December 31, 2004 |  | December 31, 2003
|------------------------------------------ |  | ----------------- |  | -----------------
|Trade payables                             |  | 42.5              |  | 43.1             
|Program related payables                   |  | 102.9             |  | 164.5            
|Distribution and participation liabilities |  | 207.6             |  | 158.2            
|Other accrued liabilities                  |  | 175.1             |  | 155.7            
|                                           |  |                   |  |                  
|                                           |  | 528.1             |  | 521.5            
|                                           |  |                   |  |                  



2005

16.72006

3.42007

1.02008

2009

Due Subsequent

21.1




Accrual of lease termination charge

6.6Interest accretion

0.5Payments made during year ended December 31, 2004

(2.7
)Balance, December 31, 2004

4.4




23.   GOVERNMENT FINANCING AND ASSISTANCE



F-29

---





24.   COMMITMENTS AND CONTINGENCIES



2005

16.32006

13.12007

10.32008

9.62009

9.3Due Subsequent

79.8138.4




F-30

---





25.   SEGMENTED INFORMATION



F-31

---





|                                    |  | Broadcasting |  | Motion Picture Distribution |  | Entertainment |  | Other |   | Total  
|----------------------------------- |  | ------------ |  | --------------------------- |  | ------------- |  | ----- | - | -------
|December 31, 2004                   |  |              |  |                             |  |               |  |       |   |        
|Goodwill                            |  | 42.4         |  | 63.9                        |  | 106.3         |  |      |   | 212.6  
|Total assets                        |  | 433.0        |  | 465.4                       |  | 548.8         |  | 82.2  |   | 1,529.4
|Additions to property and equipment |  | 1.8          |  | 0.4                         |  |              |  | 2.3   |   | 4.5    
|Additions to goodwill               |  | 0.6          |  | 61.9                        |  |              |  |      |   | 62.5   
|                                    |  |              |  |                             |  |               |  |       |   |        
|December 31, 2003                   |  |              |  |                             |  |               |  |       |   |        
|Goodwill                            |  | 40.9         |  | 2.0                         |  | 109.6         |  |      |   | 152.5  
|Total assets                        |  | 431.9        |  | 320.3                       |  | 666.6         |  | (2.6  | ) | 1,416.2
|Additions to property and equipment |  | 0.2          |  | 0.5                         |  |              |  | 2.0   |   | 2.7    
|Additions to goodwill               |  |             |  |                            |  |              |  |      |   |       
|                                    |  |              |  |                             |  |               |  |       |   |        
|March 31, 2003                      |  |              |  |                             |  |               |  |       |   |        
|Goodwill                            |  | 40.9         |  | 2.0                         |  | 109.6         |  |      |   | 152.5  
|Total assets                        |  | 412.3        |  | 261.6                       |  | 893.9         |  | 74.4  |   | 1,642.2
|Additions to property and equipment |  | 0.6          |  | 0.1                         |  | 0.3           |  | 3.1   |   | 4.1    
|Additions to goodwill               |  |             |  |                            |  |              |  |      |   |       
|                                    |  |              |  |                             |  |               |  |       |   |        



F-32

---





|                                                       |  | Domestic Distribution |  | Momentum |  | Aurum |  | Cinemas |  | Total
|------------------------------------------------------ |  | --------------------- |  | -------- |  | ----- |  | ------- |  | -----
|December 31, 2004                                      |  |                       |  |          |  |       |  |         |  |      
|Revenue                                                |  | 341.8                 |  | 92.4     |  | 62.9  |  | 15.0    |  | 512.1
|Direct profit                                          |  | 79.4                  |  | 15.5     |  | 6.2   |  | 2.6     |  | 103.7
|Earnings before undernoted and discontinued operations |  | 58.6                  |  | 9.8      |  | 2.5   |  | 2.0     |  | 72.9 
|Goodwill                                               |  | 2.0                   |  | 12.4     |  | 49.5  |  |        |  | 63.9 
|Total assets                                           |  | 210.5                 |  | 90.0     |  | 158.1 |  | 6.8     |  | 465.4
|Additions to property and equipment                    |  | 0.4                   |  |         |  |      |  |        |  | 0.4  
|Additions to goodwill                                  |  |                      |  | 12.4     |  | 49.5  |  |        |  | 61.9 
|                                                       |  |                       |  |          |  |       |  |         |  |      
|December 31, 2003                                      |  |                       |  |          |  |       |  |         |  |      
|Revenue                                                |  | 241.2                 |  | 56.1     |  |      |  | 10.5    |  | 307.8
|Direct profit                                          |  | 47.2                  |  | 12.5     |  |      |  | 1.3     |  | 61.0 
|Earnings before undernoted and discontinued operations |  | 34.4                  |  | 8.7      |  |      |  | 0.6     |  | 43.7 
|Goodwill                                               |  | 2.0                   |  |         |  |      |  |        |  | 2.0  
|Total assets                                           |  | 210.1                 |  | 96.9     |  |      |  | 13.3    |  | 320.3
|Additions to property and equipment                    |  | 0.5                   |  |         |  |      |  |        |  | 0.5  
|Additions to goodwill                                  |  |                      |  |         |  |      |  |        |  |     
|                                                       |  |                       |  |          |  |       |  |         |  |      
|March 31, 2003                                         |  |                       |  |          |  |       |  |         |  |      
|Revenue                                                |  | 293.0                 |  | 75.4     |  |      |  | 15.8    |  | 384.2
|Direct profit                                          |  | 53.8                  |  | 7.5      |  |      |  | 2.3     |  | 63.6 
|Earnings before undernoted and discontinued operations |  | 41.5                  |  | 1.3      |  |      |  | 1.6     |  | 44.4 
|Goodwill                                               |  | 2.0                   |  |         |  |      |  |        |  | 2.0  
|Total assets                                           |  | 193.9                 |  | 54.6     |  |      |  | 13.1    |  | 261.6
|Additions to property and equipment                    |  | 0.1                   |  |         |  |      |  |        |  | 0.1  
|Additions to goodwill                                  |  |                      |  |         |  |      |  |        |  |     
|                                                       |  |                       |  |          |  |       |  |         |  |      



|                                    |  | Theatrical |  | Video/DVD |  | Television |  | Total
|----------------------------------- |  | ---------- |  | --------- |  | ---------- |  | -----
|Year ended December 31, 2004        |  |            |  |           |  |            |  |      
|Domestic Distribution               |  | 72.1       |  | 213.3     |  | 56.4       |  | 341.8
|Momentum Pictures                   |  | 12.8       |  | 71.0      |  | 8.6        |  | 92.4 
|Aurum                               |  | 7.9        |  | 48.1      |  | 6.9        |  | 62.9 
|Alliance Atlantis Cinemas           |  | 15.0       |  |          |  |           |  | 15.0 
|                                    |  |            |  |           |  |            |  |      
|                                    |  | 107.8      |  | 332.4     |  | 71.9       |  | 512.1
|                                    |  |            |  |           |  |            |  |      
|Nine months ended December 31, 2003 |  |            |  |           |  |            |  |      
|Domestic Distribution               |  | 68.6       |  | 141.2     |  | 31.4       |  | 241.2
|Momentum Pictures                   |  | 3.7        |  | 45.8      |  | 6.6        |  | 56.1 
|Aurum                               |  |           |  |          |  |           |  |     
|Alliance Atlantis Cinemas           |  | 10.5       |  |          |  |           |  | 10.5 
|                                    |  |            |  |           |  |            |  |      
|                                    |  | 82.8       |  | 187.0     |  | 38.0       |  | 307.8
|                                    |  |            |  |           |  |            |  |      
|Year ended March 31, 2003           |  |            |  |           |  |            |  |      
|Domestic Distribution               |  | 81.6       |  | 167.2     |  | 44.2       |  | 293.0
|Momentum Pictures                   |  | 10.2       |  | 55.4      |  | 9.8        |  | 75.4 
|Aurum                               |  |           |  |          |  |           |  |     
|Alliance Atlantis Cinemas           |  | 15.8       |  |          |  |           |  | 15.8 
|                                    |  |            |  |           |  |            |  |      
|                                    |  | 107.6      |  | 222.6     |  | 54.0       |  | 384.2
|                                    |  |            |  |           |  |            |  |      

F-33

---





|                     |  | CSI   |  | Other  |   | Total  |  
|-------------------- |  | ----- |  | ------ | - | ------ | -
|December 31, 2004    |  |       |  |        |   |        |  
|Revenue              |  | 205.1 |  | 53.6   |   | 258.7  |  
|Direct profit (loss) |  | 73.4  |  | 1.4    |   | 74.8   |  
|                     |  |       |  |        |   |        |  
|December 31, 2003    |  |       |  |        |   |        |  
|Revenue              |  | 79.1  |  | 90.7   |   | 169.8  |  
|Direct profit (loss) |  | 24.0  |  | (193.9 | ) | (169.9 | )
|                     |  |       |  |        |   |        |  
|March 31, 2003       |  |       |  |        |   |        |  
|Revenue              |  | 104.8 |  | 198.6  |   | 303.4  |  
|Direct profit (loss) |  | 39.0  |  | 33.8   |   | 72.8   |  
|                     |  |       |  |        |   |        |  



|               |  | Year ended December 31, 2004 |  | Nine months ended December 31, 2003 |  | Year ended March 31, 2003
|-------------- |  | ---------------------------- |  | ----------------------------------- |  | -------------------------
|Revenue        |  |                              |  |                                     |  |                          
|Canada         |  | 637.3                        |  | 481.4                               |  | 562.0                    
|United States  |  | 113.5                        |  | 36.1                                |  | 89.5                     
|United Kingdom |  | 118.8                        |  | 65.4                                |  | 84.5                     
|Spain          |  | 66.5                         |  | 1.9                                 |  | 5.4                      
|Other Foreign  |  | 81.4                         |  | 55.4                                |  | 130.6                    
|               |  |                              |  |                                     |  |                          
|               |  | 1,017.5                      |  | 640.2                               |  | 872.0                    
|               |  |                              |  |                                     |  |                          



|                      |  | Year ended December 31, 2004 |  | Nine months ended December 31, 2003 |  | Year ended March 31, 2003
|--------------------- |  | ---------------------------- |  | ----------------------------------- |  | -------------------------
|Subscriber            |  | 110.9                        |  | 76.5                                |  | 94.3                     
|Advertising and other |  | 135.0                        |  | 85.9                                |  | 88.6                     
|                      |  |                              |  |                                     |  |                          
|                      |  | 245.9                        |  | 162.4                               |  | 182.9                    
|                      |  |                              |  |                                     |  |                          

26.   FINANCIAL INSTRUMENTS



F-34

---







|                      |                           | December 31, 2004 |       | December 31, 2003
|--------------------- | ------------------------- | ----------------- | ----- | -----------------
|
|Financial Assets      |                           |                   |       |                  
|                      | Accounts Receivable       |                   | 372.2 |                  
|                      | Investments               |                   | 16.4  |                  
|Financial Liabilities |                           |                   |       |                  
|                      | Senior Subordinated Notes |                   |      |                  
|                      |                           |                   |       |                  



27.   RELATED PARTY TRANSACTIONS



F-35

---





28.   REVIEW OF OPERATIONS OF ENTERTAINMENT



|                          |                                            | Costs Expensed During the Year Ended December 31, 2004 |     | Costs Expensed During the Nine Months Ended December 31, 2003 |       | Total Cost
|------------------------- | ------------------------------------------ | ------------------------------------------------------ | --- | ------------------------------------------------------------- | ----- | ----------
|Impairments:              |                                            |                                                        |     |                                                               |       |           
|                          | Investment in film and television programs |                                                        |    |                                                               | 158.9 |           
|                          | Development costs                          |                                                        |    |                                                               | 30.8  |           
|                          | Investments                                |                                                        |    |                                                               | 2.2   |           
|                          | Loans receivable                           |                                                        |    |                                                               | 6.4   |           
|                          | Assets held for sale(note 17)              |                                                        |    |                                                               | 11.8  |           
|Employee costs:           |                                            |                                                        |     |                                                               |       |           
|                          | Continuing operations                      |                                                        |    |                                                               | 12.0  |           
|                          | Discontinued operations                    |                                                        | 0.7 |                                                               | 0.9   |           
|Contract terminations     |                                            | 1.9                                                    |     |                                                              |       | 1.9       
|Other exit costs          |                                            | 1.3                                                    |     | 0.7                                                           |       | 2.0       
|                          |                                            |                                                        |     |                                                               |       |           
|Total restructuring costs |                                            | 3.9                                                    |     | 223.7                                                         |       | 227.6     
|                          |                                            |                                                        |     |                                                               |       |           



F-36

---





|                                                  |                                                          | Year ended December 31, 2004 |     | Nine months ended December 31, 2003
|------------------------------------------------- | -------------------------------------------------------- | ---------------------------- | --- | -----------------------------------
|Direct operating costs:                           |                                                          |                              |     |                                    
|                                                  | Impairment of investment in film and television programs |                              |    |                                    
|                                                  | Impairment of loans receivable                           |                              |    |                                    
|Operating expenses:                               |                                                          |                              |     |                                    
|                                                  | Other exit costs                                         |                              | 1.3 |                                    
|Amortization, including development cost charges: |                                                          |                              |     |                                    
|                                                  | Impairment of development costs                          |                              |    |                                    
|                                                  | Contract terminations                                    |                              | 1.9 |                                    
|Investment gains and losses:                      |                                                          |                              |     |                                    
|                                                  | Impairment of investment                                 |                              |    |                                    
|Unusual items:                                    |                                                          |                              |     |                                    
|                                                  | Employee costs  continuing operations                   |                              |    |                                    
|Discontinued operations:                          |                                                          |                              |     |                                    
|                                                  | Impairment of assets held for sale(note 17)              |                              |    |                                    
|                                                  | Employee costs  discontinued operations                 |                              | 0.7 |                                    
|                                                  |                                                          |                              |     |                                    
|                                                  |                                                          | 3.9                          |     | 223.7                              
|                                                  |                                                          |                              |     |                                    



|Accrual of restructuring charges |  | 12.1
|-------------------------------- |  | ----
|Payments made in the period      |  | 11.0
|Balance, December 31, 2004       |  | 1.1 
|                                 |  |     

29.   RECENT ACCOUNTING PRONOUNCEMENTS



F-37

---





30.   SUBSEQUENT EVENT



F-38

---



ALLIANCE ATLANTIS COMMUNICATIONS INC.    Reconciliation to Generally Accepted Accounting Principles (GAAP) in the United States

The consolidated financial statements of the Company have been prepared in accordance with Canadian GAAP. The following schedule presents the material adjustments
and/or additional disclosures which would be required in order to present the financial statements in accordance with United States GAAP as required by the United States
Securities and Exchange Commission (SEC).

Under
United States GAAP, the net earnings (loss) and earnings (loss) per common share figures for the year ended December 31, 2004, the nine months ended
December 31, 2003, and the year ended March 31, 2003, and the shareholders' equity as at December 31, 2004 and 2003 would be adjusted as follows (in millions of Canadian
dollars, except per share amounts):

|                                                                                      |         | Net Earnings (Loss) |      | Shareholders' Equity |  
|------------------------------------------------------------------------------------- | ------- | ------------------- | ---- | -------------------- | -
|
|Net earnings (loss) from continuing operations/Shareholders' equity  Canadian GAAP   |         |                     | 33.8 |                      |  
|Adjustment to reclassify related party loan to equity (a)                             |         |                     |     |                      |  
|Adjustment to equity accounting for long-term investments (b)                         |         |                     | 2.6  |                      |  
|Benefit realized on production financing arrangements (d)                             |         |                     | 0.1  |                      |  
|Adjustment to accounting for jointly controlled productions (e)                       |         |                     | 8.0  |                      |  
|Adjustment to reclassify gains (losses) on warrants (f)                               |         |                     | 1.5  |                      |  
|Adjustment to accounting for government tax credits (h)                               |         |                     | (9.2 | )                    |  
|Adjustment to foreign exchange on hedge of self-sustaining subsidiaries (i)           |         |                     | 1.7  |                      |  
|Income taxes recorded at enacted rates (c)                                            |         |                     | 0.5  |                      |  
|Adjustment to accounting for government tax credits (h)                               |         |                     | 5.9  |                      |  
|Future tax adjustments on above adjustments                                           |         |                     | 6.0  |                      |  
|                                                                                      |         |                     |      |                      |  
|Net Earnings (loss) from continuing operations  United States GAAP                   |         |                     | 50.9 |                      |  
|Discontinued operations, net of tax                                                   |         |                     | (4.1 | )                    |  
|                                                                                      |         |                     |      |                      |  
|Net earnings (loss)  United States GAAP                                              |         |                     | 46.8 |                      |  
|                                                                                      |         |                     |      |                      |  
|Cumulative comprehensive earnings adjustment, net of tax (p)                          |         |                     |      |                      |  
|                                                                                      |         |                     |      |                      |  
|Shareholders' equity  United States GAAP                                             |         |                     |      |                      |  
|                                                                                      |         |                     |      |                      |  
|Net earnings (loss) from continuing operations per common share  United States GAAP  |         |                     |      |                      |  
|                                                                                      | Basic   |                     | $    | 1.18                 |  
|                                                                                      | Diluted |                     | $    | 1.17                 |  
|                                                                                      |         |                     |      |                      |  
|Net earnings (loss) per common share  United States GAAP                             |         |                     |      |                      |  
|                                                                                      | Basic   |                     | $    | 1.09                 |  
|                                                                                      | Diluted |                     | $    | 1.07                 |  
|                                                                                      |         |                     |      |                      |  
|Net earnings (loss) per common share for discontinued operations  United States GAAP |         |                     |      |                      |  
|                                                                                      | Basic   |                     | $    | (0.10                | )
|                                                                                      | Diluted |                     | $    | (0.09                | )
|                                                                                      |         |                     |      |                      |  

The
accompanying notes form an integral part of this reconciliation.

---



The
following table reconciles the numerators and denominators of the basic and diluted earnings (loss) per common share from continuing operations
computation  United States GAAP.

|                                                                                                                                               |  | Year ended
December 31,
2004 |      | Nine months
ended
December 31,
2003 |   | Year ended
March 31,
2003 |  
|---------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ---- | ----------------------------------- | - | ------------------------- | -
|Numerator for basic earnings (loss) from continuing operations per common share from continuing operations:                                    |  |                              |      |                                     |   |                           |  
|Earnings (loss) from continuing operations  United States GAAP                                                                                |  |                              | 50.9 |                                     |   | (159.1                    | )
|Weighted average number of common shares                                                                                                       |  |                              | 43.1 |                                     |   | 42.8                      |  
|                                                                                                                                               |  |                              |      |                                     |   |                           |  
|Basic earnings (loss) from continuing operations per common share from continuing operations  United States GAAP                              |  | $                            | 1.18 |                                     | $ | (3.71                     | )
|                                                                                                                                               |  |                              |      |                                     |   |                           |  
|Numerator for diluted earnings (loss) from continuing operations per common share from continuing operations:                                  |  |                              |      |                                     |   |                           |  
|Earnings (loss) from continuing operations used in computing diluted earnings per common share from continuing operations  United States GAAP |  |                              | 50.9 |                                     |   | (159.1                    | )
|Denominator for diluted earnings (loss) from continuing operations per common share from continuing operations  United States GAAP:           |  |                              |      |                                     |   |                           |  
|Weighted average number of shares                                                                                                              |  |                              | 43.1 |                                     |   | 42.8                      |  
|Stock options                                                                                                                                  |  |                              | 0.5  |                                     |   |                          |  
|                                                                                                                                               |  |                              |      |                                     |   |                           |  
|Shares used in computing diluted earnings (loss) from continuing operations per common share                                                   |  |                              | 43.6 |                                     |   | 42.8                      |  
|                                                                                                                                               |  |                              |      |                                     |   |                           |  
|Diluted earnings (loss) from continuing operations per common share from continuing operations  United States GAAP                            |  | $                            | 1.17 |                                     | $ | (3.71                     | )
|                                                                                                                                               |  |                              |      |                                     |   |                           |  

---





During the nine months ended December 31, 2003, under Canadian GAAP, the Company reflected an impairment charge for an other than
temporary impairment with respect to a long-term equity accounted investment. As a result of the retroactive adjustment to the investment balance for United States GAAP purposes
noted above, the cost base of the investment differed between Canadian and United States GAAP. Accordingly, the impairment charge reported under United States GAAP during the nine months
ended December 31, 2003 should have been reduced by $2.6, resulting in a reduction to the loss for the nine-months ended December 31, 2003. Management has determined this
amount not to be material to the prior period and current year. Accordingly, this amount has been reflected as an increase to net income in the year ended December 31, 2004.

During the year ended March 31, 2003, the Company reflected an impairment charge for an other than temporary impairment with
respect to a long-term equity accounted investment. As a result of the retroactive adjustment to the investment balance for United States GAAP purposes noted above, the cost base of
the investment differed between Canadian and United States GAAP. Accordingly, the impairment charge reported under United States GAAP during the year ended March 31, 2003 has been
reduced by $5.9. During the year ended March 31, 2003, the Company no longer had the ability to exercise significant influence over the investee. As the Company's investment in the company
represents publicly traded equity securities that are available for sale, unrealized gains subsequent to the date of the impairment have been reflected in comprehensive earnings in note (p).



In addition, as disclosed in note 24(e) of the Company's consolidated financial statements, for certain arrangements, under
Canadian GAAP, the financing element has been accounted for as being extinguished through an in-substance defeasance. Under United States GAAP, liabilities are not considered to be
extinguished through an in-substance defeasance. Accordingly for United States GAAP, the Company would report restricted cash of $157.8 (December 31,
2003  $160.1) and a corresponding liability of $154.1 (December 31, 2003  $158.6).



|                                                        |  | Year ended
December 31,
2004 |   | Nine months
ended
December 31,
2003 |   | Year ended
March 31,
2003 |  
|------------------------------------------------------- |  | ---------------------------- | - | ----------------------------------- | - | ------------------------- | -
|Reduction of revenue                                    |  | (75.5                        | ) | (28.5                               | ) | (47.8                     | )
|Reduction in direct operating costs                     |  | (83.5                        | ) | (23.5                               | ) | (34.8                     | )
|Reduction of investment in film and television programs |  | (35.7                        | ) | (32.7                               | ) | (33.9                     | )
|Reduction in liabilities related to participation costs |  | (20.4                        | ) | (3.2                                | ) | (9.5                      | )
|                                                        |  |                              |   |                                     |   |                           |  



---





(g)   Adoption of new accounting pronouncement

In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation 46,Consolidation of Variable Interest
Entities, an Interpretation of ARB No. 51(FIN 46). In December 2003, the FASB modified FIN 46 to make certain technical corrections and address
certain implementation issues that had arisen. FIN 46 provides criteria for the identification of variable interest entities (VIEs) and further criteria for determining which enterprise, if any
should consolidate them. FIN 46 defines a VIE as an entity that does not have sufficient equity at risk to finance its activities without subordinated financial support or where the equity
investors lack the characteristic of a controlling financial interest. VIEs are subject to consolidation by a company if that company is deemed the primary beneficiary of the VIE. The primary
beneficiary is the party that is either exposed to a majority of the expected losses from the VIE's activities or is entitled to receive a majority of the VIE's expected residual returns or both.

Prior to FIN 46, the Company consolidated all entities that it controlled through ownership of a majority of voting interests.
Effective January 1, 2004, for US GAAP reporting the Company implemented FIN 46, retroactively without the restatement of prior periods, and as a result the Company has consolidated
entities in which it has control through ownership of a majority of the voting interests as well as all VIEs for which it is the primary beneficiary. Similar provisions to FIN 46 have been
issued by the Canadian Accounting Standards Board through Accounting Guideline 15 (AcG  15); however such provisions are not required to be adopted until
January 1, 2005 (see note 29 to the consolidated financial statements). The Company is adopting AcG-15 effective January 1, 2005.

Upon implementation of FIN 46, the Company concluded that it was not required to deconsolidate any of the entities previously
included in our consolidation. However the Company is the primary beneficiary of the following entities which have not previously been included in our consolidation.

Production financing tax sheltersIn 1995 the Company entered into various
tax shelter arrangements that provided investors with certain tax benefits and also provided financing for the Company's production activities. Under these arrangements the Company sold the rights,
title and interest to certain film and television programs to limited partnerships that would in
turn grant the Company the exclusive rights to distribute the production for an extended period. The Company has provided loans to either directly or indirectly finance the equity of these
partnerships. These loans bear interest at rates ranging from 6% to 10.9% and mature between 2010 and 2011. Additionally, the Company has agreed to repurchase the rights sold to the partnerships. As a
result the proceeds received from the sale of the film and television programs have been classified as an obligation on the balance sheet to satisfy these future obligations which are payable between
2010 and 2011. The obligation to make these future payments equals the amounts the Company has recorded in respect of the loans provided to finance the partnerships' equity and are essentially secured
by these financing loans. The Company has historically reported these amounts on a net basis. However, as a result our FIN 46 review, the Company has determined that these amounts should be
reported on a gross basis. Accordingly, for United States GAAP purposes the Company would increase reported assets (loans receivable from tax shelters) and liabilities (tax shelter
participation liabilities) by $89.5 at December 31, 2003. Under the terms of the arrangements among the parties, the loans receivable from the investors are to be settled with the proceeds
received from the partnerships and accordingly the arrangements are not expected to have any impact on the Company's cash flows.

The Company has determined that the limited partnerships qualify as variable interest entities for the purposes of FIN 46 and has
concluded that the Company is the primary beneficiary of these partnerships. As required by FIN 46, the Company has consolidated 18 limited partnerships into our financial statements.
These partnerships hold only the rights, title and interest to film properties and do not have active operations.

Production arrangementFollowing the extensive review of the Entertainment
business' operations in December 2003, entertainment materially reduced the size and scope of its production business. As a result, the Company entered into production arrangements with a third
party production company to complete production on a television series. This production company is a VIE as it does not have sufficient equity financing. Under the arrangement, the Company has entered
into a distribution deal with the production company and has agreed to give the entity a non-refundable minimum revenue guarantee which the Company is entitled to recover from future
distribution revenues. The Company has a variable interest in this entity through its participation in future distribution revenues of the entity; this right exposes the Company to a majority of the
expected losses of the entity. As required by FIN 46, the Company has included this third party entity in our consolidated financial statements. The entity's only activity is the production of
the Company's television series and at December 31, 2004, production on the series was still in progress and the entity had not recognized any revenues or costs. The Company's maximum exposure
to loss under the arrangement is limited to its minimum revenue guarantee payment of $2.4.

---



Details of the amounts recorded on the consolidated balance sheet at December 31, 2004 in respect of the above adjustments are
summarized below and include the impact of both the tax shelter limited partnerships and the production company.

Impact of the adjustmentsInvestment in film and television programs

2.7Loans receivable from tax shelters

100.2Total assets

102.9Term loans

1.0Deferred revenue

1.7Tax shelter participation liabilities

100.2Total liabilities

102.9


The impact of the adjustments from the VIEs described above on the Company's financial statements can be further explained as follows:

The consolidation of the production financing tax shelters increased the Company's loans receivable from tax shelters by $100.2 and
resulted in a corresponding increase in tax shelter participation liabilities. These obligations are non-recourse to the Company and its other subsidiaries. The only impact on the
consolidated statement of earnings is interest income earned on the loans receivable which was offset by interest expense on the participation liabilities.

The consolidation of the production company increased investment in film by $2.7, term loans by $1.0 and deferred revenue by $1.7. The
increase in term loans is in respect to a $4.4 credit facility held by the production company that bears interest at a rate of prime plus 0.75% and is secured by the entity's production asset. The
credit facility matures on December 31, 2006 and is non-recourse to the Company and its subsidiaries.

The consolidation of the limited partnerships and the third party production company had no material impact on our consolidated net
earnings.

The Company also identified the following significant VIEs, however we have determined that we were not primary beneficiary of these
entities and are therefore not required to consolidate them.

Interests held in a specialty television channelIn 2000 the Company acquired
a 49% equity interest in a corporation operating a specialty television channel. In addition the Company has made loans to the entity. The Company's maximum exposure to loss at December 31,
2004 is limited to the carrying amount of its loans receivable balance of $3.4 as the carrying
amount of our investment in the entity was written off in prior periods. The Company is required to fund 49% of the entity's future financing requirements. At December 31, 2004 the entity had
assets of $3.0.

Sale leaseback arrangementsBetween 1999 and 2004 the Company entered into
various production financing arrangements with 13 United Kingdom limited partnerships whereby all rights, title and interests to certain film and television programs have been sold to
the limited partnerships that leased back to the Company the exclusive rights to distribute such programs for periods up to 15 years. The Company has placed cash on deposit with banks that have
superior credit ratings to fund these future payments as described in note (d). The Company's maximum exposure to loss is limited to the cash on deposit which is $157.8. The Company
believes that the possibility of it being required to make payments under these arrangements is remote.

Print & advertising tax sheltersBetween 1993 and 2000 a subsidiary of
the Company packaged theatrical distribution activities into limited partnerships and earned fees from the sale of these partnerships to investors. These partnerships were appointed by producers to
develop and execute marketing campaigns for films. In exchange for these services they received distribution fees which were reinvested in a subsidiary of the Company. That subsidiary has an
obligation to repay the partnerships and has placed the cash received on deposit with various international banks that have superior ratings. Additionally, the Company entered into an Interest Support
Agreement under which the Company has agreed to pay an amount to the partnerships that is sufficient to allow each of its limited partners to satisfy their interest obligations on outstanding
financing loans. The amount of the Company's obligations under the Interest Support Agreement equals the interest income earned on the deposits held by the banks. Management has assessed its interests
and obligations in the subsidiary that holds the deposits and has concluded that they are nominal. At December 31, 2004 the subsidiary had received cash from eight limited partnerships and had
placed funds on deposit of $247.3. The amounts on deposit earn interest at rates ranging between 6.75% and 9.0% and mature between January 2005 and January 2011. The Company's maximum
exposure to loss under these arrangements is limited to the interest income earned on the deposits. The Company believes that the possibility of it being required to make payments under these
arrangements is remote.

---



Distribution dealsAs part of distribution activities principally in the
entertainment group, the Company has acquired distribution rights for certain film and television programs developed and owned by independent production entities which are VIEs as they do not have
sufficient equity financing. The Company is entitled to retain a specified percentage of the future distribution revenues for a contractually agreed period of time. In certain instances the Company
may provide an initial non-refundable minimum revenue guarantee to the VIE during the production phase which is expected to be recovered through future distribution revenues. These minimum
revenue guarantees are reflected in the financial statements of the Company as an investment in film and television asset when they become payable and this amount represents the Company's maximum
exposure to loss. The Company has a variable interest in these VIEs through its participation in future distribution revenues of the entity but these rights do not expose the Company to a majority of
the expected losses or the expected residual returns of the VIEs. Due to the number of independent production entities involved in these arrangements and also because these entities are under the
control of the independent producers, the Company has not been able to establish the aggregate size of these entities.



Additionally, in 2004, under Canadian GAAP, tax credits are no longer included in management's estimate of ultimate revenues expected to
be recognized over the life of the investments in film and television programs. In previous years, tax credits earned were included in management's estimate of ultimate revenues. When tax credits were
recognized as revenue, the investment in film and television programs would have been expensed in the proportion that current revenue, which in prior years would have included the tax credits, bears
to management's estimate of ultimate revenue. Prior periods have not been restated. For United States GAAP purposes, tax credits are excluded from the management's estimates of ultimate
revenues and have no impact on the rate at which investment in film and television programs balances are amortized to the statement of earnings (loss). The effects of these differences on selected
line items is as follows:

|                                                       |  | Year ended
December 31,
2004 |   | Nine months
ended
December 31,
2003 |   | Year ended
March 31,
2003 |  
|------------------------------------------------------ |  | ---------------------------- | - | ----------------------------------- | - | ------------------------- | -
|Reduction increase in revenue                          |  |                             |   | (10.4                               | ) | (19.1                     | )
|(Reduction) increase in direct operating expenses      |  | 9.2                          |   | 1.1                                 |   | (2.5                      | )
|Tax recovery, including tax credits                    |  | (9.2                         | ) | (10.8                               | ) | (18.2                     | )
|                                                       |  |                              |   |                                     |   |                           |  
|Increase of investment in film and television programs |  | 24.8                         |   | 28.1                                |   | 29.2                      |  
|                                                       |  |                              |   |                                     |   |                           |  



---





Interest income on impaired loans is recognized over the term of the loan. During the year ended December 31, 2004 the Company
recognized interest income of $0.2 on impaired loans (December 31, 2003  $0.2; March 31, 2003  nil) as a
result of cash collected on account of these loans.



|                                         |                                                                                                                                  | Year ended
December 31,
2004 |      | Nine months
ended
December 31,
2003 |      | Year ended
March 31,
2003 |      
|---------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------- | ---------------------------- | ---- | ----------------------------------- | ---- | ------------------------- | -----
|Net earnings (loss)  United States GAAP |                                                                                                                                  | 46.8                         |      | (174.8                              | )    | (45.8                     | )    
|Other comprehensive earnings (loss):     |                                                                                                                                  |                              |      |                                     |      |                           |      
|                                         | Net unrealized gains (losses) on portfolio investments, net of tax of $(1.4) (December 31, 2003  $2.3; March 31, 2003  $(1.9)) |                              | (6.9 | )                                   | 10.7 |                           | (10.6
|                                         | Reclassification adjustment on portfolio investments, net of tax of nil (December 31, 2003  nil; March 31, 2003  $2.0)         |                              |     |                                     |     |                           | 11.5 
|                                         | (Settlement) unrealized gains on marking warrants to market, net of tax of nil (December 31, 2003  nil; March 31, 2003  nil)   |                              | (1.5 | )                                   | 0.5  |                           | 1.0  
|                                         | Foreign currency translation adjustment, net of tax of nil (December 31, 2003  $1.4; March 31, 2003  $3.1)                     |                              | (5.7 | )                                   | 19.7 |                           | 3.4  
|                                         |                                                                                                                                  |                              |      |                                     |      |                           |      
|Comprehensive earnings (loss)            |                                                                                                                                  | 32.7                         |      | (143.9                              | )    | (40.5                     | )    
|                                         |                                                                                                                                  |                              |      |                                     |      |                           |      

---





|                           |  | Year ended
December 31,
2004 |   | Nine months
ended
December 31,
2003 |   | Year ended
March 31,
2003 |  
|-------------------------- |  | ---------------------------- | - | ----------------------------------- | - | ------------------------- | -
|Balance, beginning of year |  | 13.8                         |   | (17.1                               | ) | (22.4                     | )
|Change for the year        |  | (14.1                        | ) | 30.9                                |   | 5.3                       |  
|                           |  |                              |   |                                     |   |                           |  
|Balance, end of year       |  | (0.3                         | ) | 13.8                                |   | (17.1                     | )
|                           |  |                              |   |                                     |   |                           |  

The accumulated balances of the components of other comprehensive earnings (loss) are as follows:

|                                                |                                                                                                                   | Year ended
December 31,
2004 |      | Nine months
ended
December 31,
2003 |      | Year ended
March 31,
2003 |      
|----------------------------------------------- | ----------------------------------------------------------------------------------------------------------------- | ---------------------------- | ---- | ----------------------------------- | ---- | ------------------------- | -----
|                                                | Unrealized gains on portfolio investments, net of tax of $1.0 (December 31, 2003  $2.4; March 31, 2003  0.1)    |                              | 4.7  |                                     | 11.6 |                           | 0.9  
|                                                | Unrealized gains on marking warrants to market, net of tax of nil (December 31, 2003  nil; March 31, 2003  nil) |                              |     |                                     | 1.5  |                           | 1.0  
|                                                | Foreign currency translation adjustment, net of tax of $4.3 (December 31, 2003  $4.3; March 31, 2003  $2.9)     |                              | (5.0 | )                                   | 0.7  |                           | (19.0
|                                                |                                                                                                                   |                              |      |                                     |      |                           |      
|Accumulated other comprehensive earnings (loss) |                                                                                                                   | (0.3                         | )    | 13.8                                |      | (17.1                     | )    
|                                                |                                                                                                                   |                              |      |                                     |      |                           |      

Comprehensive earnings (loss) are measured in accordance with Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income". This standard defines comprehensive earnings (loss) as all changes in equity other than those resulting from investments by owners and distributions to owners. Canadian
companies currently are not permitted to use the concept of comprehensive income.



The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes Option-Pricing Model with the
following assumptions used for stock options granted during the year ended December 31, 2004: expected dividend yield of 0.0% (December 31,
2003  0.0%; March 31, 2003  0.0%), expected volatility of 39% (December 31,
2003  41.1%; March 31, 2003  45.0%), risk-free interest rate of 3.9% (December 31,
2003  4.0%; March 31, 2003  4.5%) and expected life of 5.0 years (December 31,
2003  5.0 years; March 31, 2003  5.0 years). The fair value of the stock options granted during the
year was $2.2 (December 31, 2003  $1.5; March 31, 2003  $2.1). The resulting compensation expense in 2004
would have been $2.8 (December 31, 2003  $2.6; March 31, 2003 $3.3). The resulting pro forma net earnings (loss) and basic and diluted
earnings (loss) per share for the year ended December 31, 2004, the nine months ended December 31, 2003, the year ended March 31, 2003 are as follows:

---



|                                                                                                                                                                   |  | Year ended
December 31,
2004 |      | Nine months
ended
December 31,
2003 |   | Year ended
March 31,
2003 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------------- | ---- | ----------------------------------- | - | ------------------------- | -
|Net earnings (loss), as reported under United States GAAP                                                                                                          |  |                              | 46.8 |                                     |   | (174.8                    | )
|Add: stock option expense included in reported net earnings, net of income taxes of nil (December 31, 2003  nil; March 31, 2003  nil)                            |  |                              | 1.1  |                                     |   | 0.8                       |  
|Less: stock option expense determined under the fair value based method for all awards, net of income taxes of nil (December 31, 2003  nil; March 31, 2003  nil) |  |                              | (2.8 | )                                   |   | (2.6                      | )
|                                                                                                                                                                   |  |                              |      |                                     |   |                           |  
|Pro forma net earnings (loss)                                                                                                                                      |  |                              | 45.1 |                                     |   | (176.6                    | )
|                                                                                                                                                                   |  |                              |      |                                     |   |                           |  
|Net earnings (loss) per share:                                                                                                                                     |  |                              |      |                                     |   |                           |  
|Basic  as reported                                                                                                                                                |  | $                            | 1.09 |                                     | $ | (4.08                     | )
|Diluted  as reported                                                                                                                                              |  | $                            | 1.07 |                                     | $ | (4.08                     | )
|Basic  pro forma                                                                                                                                                  |  | $                            | 1.05 |                                     | $ | (4.13                     | )
|Diluted  pro forma                                                                                                                                                |  | $                            | 1.03 |                                     | $ | (4.13                     | )
|                                                                                                                                                                   |  |                              |      |                                     |   |                           |  



Reserve for Accounts receivable

|                           |                                      | Year ended
December 31,
2004 |      | Nine months
ended
December 31,
2003 |      | Year ended
March 31,
2003 |     
|-------------------------- | ------------------------------------ | ---------------------------- | ---- | ----------------------------------- | ---- | ------------------------- | ----
|Balance, beginning of year |                                      | 16.5                         |      | 12.7                                |      | 13.0                      |     
|                           | Charged to costs and expenses        |                              | 5.4  |                                     | 5.6  |                           | 0.2 
|                           | Deductions                           |                              | (2.2 | )                                   | (0.9 | )                         |    
|                           | Balance acquired through acquisition |                              | 0.8  |                                     |      |                           |     
|                           | Foreign exchange                     |                              | (0.6 | )                                   | (0.9 | )                         | (0.5
|                           |                                      |                              |      |                                     |      |                           |     
|Balance, end of year       |                                      | 19.9                         |      | 16.5                                |      | 12.7                      |     
|                           |                                      |                              |      |                                     |      |                           |     

Reserve for Loans Receivable

|                           |                               | Year ended
December 31,
2004 |   | Nine months
ended
December 31,
2003 |     | Year ended
March 31,
2003
|-------------------------- | ----------------------------- | ---------------------------- | - | ----------------------------------- | --- | -------------------------
|Balance, beginning of year |                               | 7.5                          |   | 1.1                                 |     | 1.1                      
|                           | Charged to costs and expenses |                              |  |                                     | 6.4 |                          
|                           |                               |                              |   |                                     |     |                          
|Balance, end of year       |                               | 7.5                          |   | 7.5                                 |     | 1.1                      
|                           |                               |                              |   |                                     |     |                          

---



Reserve for Future Income Taxes

|                           |                                          | Year ended
December 31,
2004 |       | Nine months
ended
December 31,
2003 |      | Year ended
March 31,
2003
|-------------------------- | ---------------------------------------- | ---------------------------- | ----- | ----------------------------------- | ---- | -------------------------
|Balance, beginning of year |                                          | 78.3                         |       | 37.6                                |      | 24.2                     
|                           | Balance acquired through acquisition     |                              | 7.9   |                                     |     |                          
|                           | (Recovery) charged to costs and expenses |                              | (30.0 | )                                   | 40.7 |                          
|                           |                                          |                              |       |                                     |      |                          
|Balance, end of year       |                                          | 56.2                         |       | 78.3                                |      | 37.6                     
|                           |                                          |                              |       |                                     |      |                          



|                                    |          | Year ended
December 31,
2004 |  | Nine months
ended
December 31,
2003 |   | Year ended
March 31,
2003 |  
|----------------------------------- | -------- | ---------------------------- |  | ----------------------------------- | - | ------------------------- | -
|Income tax expense  Canadian GAAP: |          |                              |  |                                     |   |                           |  
|                                    | Current  |                              |  |                                     |   |                           |  
|                                    |          | Canada                       |  | 27.6                                |   | 21.0                      |  
|                                    |          | Foreign                      |  | 15.2                                |   |                          |  
|                                    | Deferred |                              |  |                                     |   |                           |  
|                                    |          | Canada                       |  | (48.0                               | ) | 29.4                      |  
|                                    |          | Foreign                      |  | 5.8                                 |   | (6.3                      | )
|                                    |          |                              |  |                                     |   |                           |  
|                                    |          | 0.6                          |  | 44.1                                |   | 16.8                      |  
|                                    |          |                              |  |                                     |   |                           |  

Additionally, United States GAAP requires earnings (loss) before income taxes to be presented by geographic location. This
information is presented in the following table:

|                                                                                 |         | Year ended
December 31,
2004 |       | Nine months
ended
December 31,
2003 |       | Year ended
March 31,
2003 |      
|-------------------------------------------------------------------------------- | ------- | ---------------------------- | ----- | ----------------------------------- | ----- | ------------------------- | -----
|Earnings (loss) from continuing operations, before income taxes  Canadian GAAP: |         |                              |       |                                     |       |                           |      
|                                                                                 | Canada  |                              | (24.2 | )                                   | (9.9  | )                         | (49.5
|                                                                                 | Foreign |                              | 58.6  |                                     | (99.9 | )                         | 25.9 
|                                                                                 |         |                              |       |                                     |       |                           |      
|                                                                                 |         | 34.4                         |       | (109.8                              | )     | (23.6                     | )    
|                                                                                 |         |                              |       |                                     |       |                           |      
|Discontinued operations before income taxes  Canadian GAAP:                     |         |                              |       |                                     |       |                           |      
|                                                                                 | Canada  |                              | (5.5  | )                                   | (14.9 | )                         | (1.6 
|                                                                                 |         |                              |       |                                     |       |                           |      
|Earnings (loss) before income taxes  Canadian GAAP:                             |         |                              |       |                                     |       |                           |      
|                                                                                 | Canada  |                              | (29.7 | )                                   | (24.8 | )                         | (51.1
|                                                                                 | Foreign |                              | 58.6  |                                     | (99.9 | )                         | 25.9 
|                                                                                 |         |                              |       |                                     |       |                           |      
|                                                                                 |         | 28.9                         |       | (124.7                              | )     | (25.2                     | )    
|                                                                                 |         |                              |       |                                     |       |                           |      

---





|                                |  | Year ended
December 31,
2004 |  | Nine months
ended
December 31,
2003
|------------------------------- |  | ---------------------------- |  | -----------------------------------
|Other accrued liabilities       |  | 144.8                        |  | 129.4                              
|Provision for video/DVD returns |  | 30.3                         |  | 26.3                               
|                                |  |                              |  |                                    
|                                |  | 175.1                        |  | 155.7                              
|                                |  |                              |  |                                    



|                                     |  | Year ended
December 31,
2004 |   | Nine months
ended
December 31,
2003 |  
|------------------------------------ |  | ---------------------------- | - | ----------------------------------- | -
|Trade accounts receivable            |  | 382.9                        |   | 282.3                               |  
|Receivables due from related parties |  | 4.2                          |   | 4.5                                 |  
|Other receivables                    |  | 2.9                          |   | 5.5                                 |  
|Accounts receivable reserve          |  | (19.9                        | ) | (16.5                               | )
|                                     |  |                              |   |                                     |  
|                                     |  | 370.1                        |   | 275.8                               |  
|                                     |  |                              |   |                                     |  





---



EITF No. 04-5 Accounting for General Partner Interests in a Limited PartnershipIn
June 2005, the FASB issued EITF Issue No. 04-5, "Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity
When the Limited Partners Have Certain Rights" ("EITF 04-5"). EITF 04-5 presumes that a general partner controls a limited partnership, and therefore
should consolidate the limited partnership in its financial statements. To overcome the presumption of control, and thereby account for a general partner investment in a limited partnership on the
equity method, EITF 04-5 requires the general partner to grant certain rights to the limited partners. EITF 04-5 applies to limited partnerships
created or amended after June 29, 2005, and to all other limited partnerships effective January 1, 2006. EITF 04-5 also applies to entities similar to limited
partnerships, such as limited liability companies with governing provisions that are the functional equivalent of a limited partnership. The Company is evaluating the effect of
EITF 04-5 on its financial position, results of operations and cash flows.

---





ADDITIONAL DISCLOSURE

Certifications and Disclosure Regarding Controls and Procedures.







Notices Pursuant to Regulation BTR.

None

40-F3

---



Audit Committee Financial Expert.

The
registrant's board of directors has determined that Ellis Jacob, an independent member of the registrant's audit committee, qualifies as an "audit committee financial expert" (as such term
is defined in Form 40-F) and meets the definition of audit committee member independence of the Nasdaq Stock Exchange.

Code of Ethics.

The
registrant has adopted a "Code of Business Conduct and Ethics Policy" (the "Code of Ethics"), which is a "code of ethics" (as that term is defined in Form 40-F),
that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions, as well as directors and employees.

The
Code of Ethics is available for viewing on the registrant's website at www.allianceatlantis.com.

Since
the adoption of the Code of Ethics, there have not been any amendments to the Code of Ethics or waivers, including implicit waivers, from any provision of the Code of Ethics.

Principal Accountant Fees and Services.

The
following table provides information about the fees billed to the registrant for professional services rendered by PricewaterhouseCoopers LLP during Calendar 2004 and the
nine-month fiscal period ended December 31, 2003 ("Fiscal 2004"):

|(US$ thousands)    |  | Calendar 2004 |           | Fiscal 2004
|------------------ |  | ------------- | --------- | -----------
|Audit Fees         |  | $             | 3,716,404 |            
|Audit-Related Fees |  | $             | 133,931   |            
|Tax Fees           |  | $             | 118,870   |            
|All Other Fees     |  | $             | 243,657   |            
|                   |  |               |           |            
|Total              |  | $             | 4,212,862 |            
|                   |  |               |           |            

Audit
Fees.    Audit fees consist of fees for the audit of the registrant's annual financial statements or services that are normally provided in connection with
statutory and regulatory filings or engagements.

Audit-Related
Fees.    Audit-Related Fees consist of fees related to contract compliance audits, accounting assistance related to the adoption of new CICA
Handbook pronouncements and new business ventures, assistance with the review of correspondence with regulatory authorities and prospectus preparation.

Tax
Fees.    Tax fees consist of fees for tax compliance services, tax advice and tax planning. The services provided in this category included assistance and
advice in relation to the preparation of corporate income tax returns, transfer pricing services and income tax provisions included in the financial statements.

All
Other Fees.    The services provided in this category included those related to research and foreign currency risk management review.

40-F4

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Pre-Approval Policies and Procedures.

The
Registrant's audit committee is responsible for overseeing the work of its independent auditors and has adopted a policy requiring its pre-approval of all audit and permissible
non-audit services provided by its independent auditors. The audit committee's policy is to pre-approve all audit, audit-related, tax and other non-audit services
that may be provided by the Registrant's independent auditors. The policy identifies the principles that must be considered by the audit committee in approving these services to ensure that the
independence of its outside auditors is not impaired; describes the audit and audit-related, tax and other services that may be provided; and sets forth pre-approval requirements for all
permitted services.

Off-Balance Sheet Arrangements.

The
required disclosure is included in the sections of this Annual Report on Form 40-F entitled: (i) "Off Balance Sheet Arrangements" in the registrant's "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for Calendar 2004; and, (ii) Note (g) in the registrant's "Reconciliation to Generally Accepted Accounting Principles
(GAAP) in the United States".

Additionally,
as a result of completing the Reconciliation to Generally Accepted Accounting Principles (GAAP) in the United States, the Company has determined that the following additional
disclosures are required.

Print & advertising tax sheltersBetween 1993 and 2000 a subsidiary of the Company packaged theatrical distribution activities into
limited partnerships and earned fees from the sale of these partnerships to investors. These partnerships were appointed by producers to develop and execute marketing campaigns for films. In exchange
for these services they received distribution fees which were reinvested in a subsidiary of the Company. That subsidiary has an obligation to repay the partnerships and has placed the cash received on
deposit with various international banks that have superior ratings. Additionally, the Company entered into an Interest Support Agreement under which the Company has agreed to pay an amount to the
partnerships that is sufficient to allow each of its limited partners to satisfy their interest obligations on outstanding financing loans. The amount of the Company's obligations under the Interest
Support Agreement equals the interest income earned on the deposits held by the banks. At December 31, 2004 the subsidiary had received cash from eight limited partnerships and had placed funds
on deposit of $247.3 million. The amounts on deposit earn interest at rates ranging between 6.75% and 9.0% and mature between January 2005 and January 2011. The Company believes
that possibility of it being required to make payments under the arrangements is remote. The amounts placed on deposit are not included in the Company's balance sheet.

Production services tax sheltersBetween 1996 and 2000 the Company packaged production services into limited partnerships and earned fees
from the sale of these partnerships to investors. The investors financed their purchase of units in the limited partnerships with bank loans. Under an Investor Loan Put Agreement the banks have the
right, but not the obligation, to require the subsidiaries of the Company to acquire the investor loans. The rights under the Investor Loan Put Agreements are exercisable between May 2005 and
May 2009. The third party producers that benefited from production services provided by the limited partnerships will fund the acquisition price under the Investor Loan Put Agreement and
have secured these obligations by placing funds on deposits with the banks to settle the acquisition price. The Company believes that the possibility of it being required to make payments under the
arrangements is remote and that its maximum exposure to loss is limited to its equity investment in the subsidiaries which is nominal.

The
Company is no longer involved in arranging these types of structures. This is not expected to have an impact on the Company's current and future operations.

Tabular Disclosure of Contractual Obligations.

The
required disclosure is included in the section of this Annual Report on Form 40-F entitled "Liquidity and Capital Resources", under the sub-heading "Commitments" in
the registrant's "Management's Discussion and Analysis of Financial Condition and Results of Operations" for Calendar 2004.

However
effective January 1, 2005 as a result of applyingAccounting Guideline 15 Consolidation of Variable Interest Entities, the Company
began consolidating various production financing tax shelters. As a result of consolidating these entities, the Company added participation liabilities related to tax shelters to its contractual
obligations. This increases the Company's contractual obligations beyond 2009 by $101.1 million.

UNDERTAKING AND CONSENT TO SERVICE OF PROCESS

A.    Undertaking.

The registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Securities and Exchange Commission
(the "Commission") staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to: the securities registered pursuant to Form 40-F; the securities in
relation to which the obligation to file an annual report on Form 40-F arises; or transactions in said securities.

B.    Consent to Service of Process.

The Company has previously filed a Form F-X in connection with the class of securities in relation to which the obligation to file this report arises.

Any
change to the name or address of the agent for service of process of the registrant shall be communicated promptly to the Securities and Exchange Commmission by an amendment to the
Form F-X referencing the file number of the relevant registration statement.

40-F5

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SIGNATURES

Pursuant to the requirements of the Exchange Act, the registrant certifies that it meets all of the requirements for filing on Form 40-F
and has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized, on August 11, 2005.

| |  | ALLIANCE ATLANTIS COMMUNICATIONS INC.
| |  | -------------------------------------
| |  | By:                                  
| |  |                                      

40-F6

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EXHIBIT INDEX

|Exhibit |  | Description                                                                                                                                                                               
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|99.1    |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14 of the Securities Exchange Act of 1934                                                                      
|        |  |                                                                                                                                                                                           
|99.2    |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14 of the Securities Exchange Act of 1934                                                                      
|        |  |                                                                                                                                                                                           
|99.3    |  | Section 1350 Certification of Chief Executive Officer                                                                                                                                     
|        |  |                                                                                                                                                                                           
|99.4    |  | Section 1350 Certification of Chief Financial Officer                                                                                                                                     
|        |  |                                                                                                                                                                                           
|99.5    |  | Consents of PricewaterhouseCoopers LLP                                                                                                                                                    
|        |  |                                                                                                                                                                                           
|99.6    |  | Auditors' Report on Schedule of Reconciliation to Generally Accepted Accounting Principles in the United States of America and Comments by Auditors on Canada-U.S.A. Reporting Differences

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