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Alliance Atlantis cuts production arm

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Alliance Atlantis
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TORONTO - Alliance Atlantis Communications, once known as a TV and movie production powerhouse in Canada, has dramatically scaled back its entertainment group, leading to the closure of several offices and the elimination of up to 70 positions.

Yesterday, the company announced that due to what it says is a permanent downturn on this side of the video industry, it is undertaking a review to examining the future of certain television and motion picture production and distribution activities. However, the review excludes the mega-popular CSI franchise, and it does not affect the company's broadcast or motion picture distribution groups, or the Movie Distribution Income Fund.

The company, which has been cutting back the number of hours produced for a few years now, expects to complete this new review by the end of the fiscal year ending December 31, 2003 and disclose the detailed financial impact early in the New Year. New financial guidance for fiscal 2004 and calendar 2004, will be made available at that time.

"We began this review in response to what we believe is a permanent downturn in domestic and international demand for prime time television series, movies of the week and miniseries as well as 'art house' theatrical motion picture productions, all of which have represented a sizable portion of our production activities in the past," said senior executive vice-president and CFO Judson Martin.

"While we have not yet completed the detailed financial analysis we will, in the coming days, materially and permanently reduce the size and scope of our production business, eliminate certain functions and certain categories of production, reduce our staffing levels in the entertainment group by between 60 and 70 positions, and close certain offices.

"In this context, we will also reassess certain library assets, and we expect the overall carrying value of the entertainment group's library will be diminished as a result," Martin added. "In addition to the cash costs associated with severance obligations and office closings, the company expects to record material non-cash charges during the fiscal year ending December 31, 2003. We also expect significant future cost savings, increased free cash flow and positive effects on our debt financing requirements, in calendar 2004 and beyond, as a result of exiting the capital intensive, low margin segments of the production business."

As part of these changes, chairman and CEO Michael MacMillan "announced with regret that entertainment group CEO Peter Sussman and Seaton McLean, the group's president, production, will be leaving the company," says the release.

"Given the long history that we have shared in building this company, this was a very difficult decision. I am pleased to say that both Peter and Seaton have offered their unqualified support that this overall refocusing and redirection of the entertainment group is the right thing to do and in line with the company's strategy for the future. Peter and Seaton have each made enormous contributions to the growth and development of Alliance Atlantis for many years, and I am personally very grateful to both of them. I am also pleased that they have each agreed to assist in ensuring an effective transition in the short-term and providing consulting services as required in the future.

"This is the next logical step in our clearly articulated strategy of reducing our financial and operational exposure to the production business and focusing on the abundant growth opportunities in the broadcast and motion picture distribution sectors. The CSI franchise, which Alliance Atlantis co-owns and co-produces with CBS Productions is completely outside the review and will not be affected in any way. And although we are reducing our production exposure, international television distribution remains an important part of our business and operations," MacMillan added.

"When we complete this reorganization of the entertainment group and complete our comprehensive refinancing plan during the coming year, we expect the company will be very well positioned to deliver substantially more stable, predictable and growing earnings and cash flows from our broadcast assets, our controlling interest in the Movie Distribution Income Fund and our valuable CSI franchise."
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