Imax Corp (IMAX) 2004 Q3 法說會逐字稿

Good day everyone, and welcome to this IMAX Conference Call. This call is being recorded, and at this time I'd to turn the call over to Mr. Brad Wechsler. Please go ahead, sir.

Thank you operator and good morning to all of you. Thanks for joining us today. Here with me today is my partner and Co-CEO, Rich Gelfond. Also here with us are Frank Joyce, our CFO; Steve Abraham, our Senior Vice President, Corporate Development; and Cheryl Cramer, our Investor Relations Director. Before we begin, let me remind you of the following information regarding forward-looking statements. Our comments and the answers to your questions on this call may include statements that are forward looking in that they pertain to future results or occurrences. Actual future results or occurrences may differ materially from these forward-looking statements. Please refer to our SEC filings for a more detailed discussion of some of the factors that could affect our future results and occurrences. Our third quarter 2004 financial results were issued this morning in a press release, for all you to review.

During today's call, references will be made to certain non-GAAP financial measures as defined by Regulation G of the Securities and Exchange Commission. Discussion of management's use of these measures and reconciliations to GAAP are contained in the Company's third quarter earnings release. The full text of the release along with supporting financial table is available on our Website www.imax.com. With that said, this morning we'll walk you through our financial results for the third quarter, and update you on our guidance for the remainder of this year. We will also give you a progress report on our commercial strategy, including updates on the commercial exhibitors in Hollywood studios. It will give a very preliminary look at what we see ahead for 2005.

On our last quarterly call, we presented strong evidence that our commercial strategy was taking hold. Now, 3 months later, this become even more clear that IMAX has reached a tipping point, and that our core business strategy of bringing IMAX into the world of mainstream entertainment option is accelerating. This was our best quarter for theater system signings in 7 years. As the best forward indicator of future earnings, this quarter's signings signal that the wind is now at our backs. Perhaps more important, as I discuss our financial results for the third quarter, you will see that this commercial strategy is beginning to translate into strong financial results for IMAX as well.

We are very encouraged by the results of the third quarter. We met or exceeded expectations for all of our operating, strategic and financial metrics. This includes signings, in particular with North American multiplex operators, as well as installations, revenues, and EPS. During the third quarter, we reached an agreement on contracts for 15 new IMAX theater systems, with a total value of little less then $22 million. This marks the best quarter for IMAX system signings since the fourth quarter of 1997, and represents a 200 percent increase over the third quarter of last year, when we signed contracts for 5 theater systems. In fact, we signed more theater systems in the third quarter, than in the entire year of 2001, and as you know, although we recognize revenues at the time of installation, we get cash from customers at the time of each signing, and this is evident in our current cash balance this quarter.

Bringing commercial exhibitors into the IMAX network is critical to our growth. We were very pleased with our progress on this front during September quarter. Of the quarter's 15 signings, 8 were from major domestic commercial exhibitors, 3 from a major Latin American exhibitor, and 3 from international operators in Russia, Pakistan, and China, and finally one for a science center in Portland. 9 of these 15 signings were for our new MPX theater system, bringing our total MPX orders to-date to 24.

Before we go into the details of our strategic developments with the commercial exhibitors in Hollywood studios, I would like to turn briefly to our financial results for the third quarter. We reported net earnings of 5 cents per share, 4 cents per share from continuing operations, ahead of guidance and the first quarter mean. This compares to a net loss of 7 cents per share in the third quarter of 2003. Total revenue for the quarter was $31.8 million, ahead of our guidance for $30 million, and this is up significantly from the $21.2 million in total revenue reported for the third quarter of 2003. Looking at the components of our total revenue, systems revenue was $21.3 million, up from $11.5 million in the third quarter of 2003, as we recognized revenue on 6 theater systems in the third quarter of this year, versus 1 in the year- ago quarter. As you know, accounting rules dictate that we book certain revenues upon significant amendments, terminations, or changes to our lease agreement. Of the $21.3 million in systems revenue reported for the third quarter, $2.9 million was for revenue related to such amendments, and/or terminations. As we've said on previous calls, this has always been an ongoing part of our business and we expect this to be an ongoing piece of our revenue in the future, including in the fourth quarter of this year. A significant portion of our revenue from these changes to lease agreements this year has related to existing customers that restructured their lease agreements in order to obtain our new MPX projection system.

Let me take a minute to explain how this works financially. I will try to be slow and specific here. Let's say a customer has previously contracted to lease the larger IMAX GT system at a price of $2.5 million. Let's also say that this customer has paid us $2 million in cash already, but then decides that he would rather have the newer, more efficient MPX projector. If we amend that customer's agreement so that he takes an MPX system, which is valued at approximately $1.5 million, instead of the $2.5 million GT system that he originally contracted for, several things happen. First, at the time of the amendment, we book the difference between the cash we previously received in the MPX system price. In this example, we will book $500,000, because we had already received $2 million and the price of the MPX system is $1.5 million. Second, we would keep the MPX system in backlog until it is installed, at which point we will book the MPX revenues and margin. During the third quarter, approximately $1.8 million of the $2.9 million in changes in lease agreements related to contracts with existing customers that restructured their lease agreements, and received options to obtain the IMAX MPX system.

Getting back to our third quarter, film revenue for the third quarter was $6.1 million compared to $5.3 million in the year-ago quarter, primarily due to the release of Spiderman 2 in July, and the release of Harry Potter, and The Prisoner of Azkaban: The IMAX Experience in June. The increase was partially offset by a decline in traditional third-party business of the IMAX at the Company's post-production unit. Theater operations revenues grew to $3.7 million in the quarter from $3.4 million in the year-ago period. Other revenues declined to $753,000 from $1.1 million in the year-ago quarter.

Gross margin for the third quarter was $14.5 million or 45.5 percent of total revenues, in line with 45.6 percent gross margins in the third quarter of last year. Turning to expenses, SG&A for the quarter was $7.6 million compared to $8.3 million reported in the third quarter of '03. R&D expense increased slightly to $1 million from $950,000 in the year-ago quarter. Cash as of September 30 was $20.7 million, an increase of $3.7 million from our cash position at June 30. Cash generated from operating activities for the first 9 months of the year was $4.7 million. This compares to the 9-month period of '03 when we actually used $4.7 million in cash flow from operating activities. The primary driver of this increase was the cash we received from our signings during the quarter. Our credit facility remains undrawn at $20 million, and our total debt is $160 million with no principal payment due until 2010.

As of September 30, our backlog contain contracts for 66 theaters with a value of $123.5 million. 24 of these systems in backlog are for the new MPX system, and this is just 4 months after our first MPX system was installed with the new MPX products, the time lag between signing and system installation has been significantly compressed, though it is becoming more difficult to predict the exact timing of new MPX installations. MPX strategy calls for MPX systems to comprise a greater and greater portion of our new signing, it will become more difficult for us to pin point the timings of these specific installations. For example, 5 systems signed in the third quarter are expected to be installed by early November. Just 3 months signed to install window is dramatically shorter that the approximately 18-month window typical of our older systems. Assuming gross margins on systems of approximately 65 percent, the net contribution to IMAX with each installation is approximately $1 million from these MPXs. Given our current share count, this translates to between 2 and 3 cents per share illustrating the significant impact just one system installation can have on our quarterly financial results.

For the full year 2004, we are comfortable with between 30 and 35 signings and 20 to 25 installations. We expect total revenue of between 125 and $130 million for the year and net earnings per share of approximately 25 cents before a bond refinancing cost of 2 cents per share consistent with previous guidance. It is important to mention that there are still a few new moving pieces that can have an impact on our reported results. These include a few unsigned installations, potential impact from the Polar Express and other films and some pending settlements. But based on our past experience, we remain comfortable with this guidance.

Finally we expect to -- we expect to spend approximately $35 million in SG&A and $7 to $8 million in CapEx. I will now turn the call over to Rich who will discuss our third quarter progress with the commercial exhibitors as well as our current and upcoming and gives you a first look at our expectations for 2005.

Thanks, Brad, and good morning everyone. This quarter's level of theatre system signings is not only important from a financial standpoint but also a strategic one. It signaled that our business strategy has taken hold and it's accelerating. During the quarter, we signed significant agreements with major commercial exhibitors in the US, Canada and Mexico. In August, National Amusements, parent company of Viacom signed on for a 6 theatre system with an option to increase this to as many as 18. Specifically, the National Amusements deal includes the firm commitment for 4 IMAX MPX systems to be installed this year, plus 2 additional systems to be installed in 2005 or '06.

In addition, the agreement gives National the option to install upto 12 more systems. Also in August, Cinemark USA, the third largest North American exhibitor signed an agreement for 2 IMAX MPX systems. Cinemark and IMAX partnered for 7 years, already operates 5 IMAX theaters.

Also during the quarter, famous players, Canada's top grossing commercial exhibitor installed 2 systems, one outside of Toronto and Brampton, and one outside of Vancouver. Most recently in September, Organizacion Ramirez, the largest exhibitor in Latin America and the eighth largest in the world, signed a contract for 3 IMAX systems. The first is being installed in Ramirez's Cinepolis Perisur, a multiplex in Mexico City, the highest grossing multiplex in the country in time for the opening of Polar Express next month.

At the end of the quarter, there were 33 IMAX theatres in domestic multiplexes. With several of the theaters we've just mentioned gets also open this quarter. We expect the number of IMAX theaters at multiplexes to go by 7 or 21 percent by the end of the year. Well, this is a very good start to our commercial rollout, we are also very excited about the tremendous potential for IMAX in domestic multiplexes that still lies ahead. Our current base to multiplex locations represents just 11 percent penetration of the 300 plus potential domestic IMAX zones.

On the international side, we believe that the opportunities for growth is even greater, as our 19 IMAX theatres in international multiplexes represent just 3 percent penetration of the estimated 600 IMAX zones outside of North America.

Many of our international theaters are performing very well, further driving increase from exhibitors outside of the US. In fact, during the quarter, we signed our first deal in Pakistan. This IMAX theater will be part of a multifunction entertainment park, which the government of Punjab province expects to open in 2005. We also continue to see tremendous potential in China and India, especially given strong recent DMR film performances there. As we just announced last week, box office results for Spiderman II were very strong in Indian theaters in Hyderabad and Mumbai. These theaters accounted for almost 8 percent of box office receipts for the film in all of India, even though they accounted for less than less than 1 percent of the total number of films stream show in the film. In Asia, the level of interest of in IMAX theaters continues to increase significantly, and that is one of the factors driving out strong level of increase around the world. Increase are of course a great gauge of interest in IMAX theaters. And worldwide we have not seen this level of increase for IMAX theater systems in over 5 years. This demonstrated to a business, I believe, that they can achieve very attractive financial returns on an IMAX MPX system. This compelling economic returns, which equates to about a 3-year payback on a $1.6 million system including our equipment and conversion of the theaters is based on certain assumptions, including the assumptions about the future IMAX film slate and is still performance.

The economic model for MPX, assumes that the theater operator can generate approximately $750,000 to $1 million in box office revenue per year, or $15,000 to $20,000 per week from IMAX films. Naturally, new and potential MPX customers have been closely watching the performance of our recent Hollywood films. And I am happy to report that both our Hollywood summer films performed at or above this threshold. Warner Brothers' Harry Potter, and the Prisoner of Azkaban: The IMAX Experience grossed over $23,000 per screen per week for the first 8 weeks of its release. And Sony's Spiderman II, a 3-week delayed release grossed approximately $15,000 per week per screen in it's first week -- eight weeks even though it was sharing screen time with Nascar, Harry Potter, and other films.

The availability of multiple IMAX and offerings throughout the summer appealed to both audiences and exhibitors, and the per screen revenues driving the exhibitor's economic returns, multiple IMAX offering Sharing the stage – screen making economics ever more compelling for IMAX.

With the economic model, we have taken exhibitors to -- is based on approximately 5 to 7 films per year, about 1 every 8 weeks. I thought I'd give you a quick look at how the calendar for next year is shaping up.

In just 2 weeks, we will release the Polar Express, the world's first Hollywood full-length feature film ever released in IMAX 3-D. Marketing for the release of the Warner Brothers $165 million holiday blockbuster is now beginning in full swing. The G rated family film, based on the Timeless Classic. It should have wide box office appeal around the holiday's and beyond. The Polar Express, which reunites the academy award winning acting, directing team of Tom Hanks and Robert Zemeckis, is a film making first, produced with CGI stop-motion technology, which makes the animated characters, 5 of them are played by Hanks himself, come to life.

The IMAX 3-D version of the film, which the Hollywood Reporter recently called an "eye popper" will literally add another dimension to this film. Bringing the charming characters and gorgeous scenes not only collide but bringing them off the screen and into your lap. On November 10, the Polar Express will open in 58 theaters domestically, and contemporaneously in both 35 millimeter 2-D, and IMAX 3-D formats. It will also open in 15 theaters internationally day and day with the film's 35 millimeter openings in those markets.

In fact, we just learnt that the film would mark another IMAX first later in the month, when it opens in Mexico City in the new Ramirez complex, I just discussed, in IMAX 3-D, a week before it actually opens at the rest of the 35 millimeter theaters in the country. We think this will be a prime example of our key business films, as children who see the film in conventional format will pull their parents back to the IMAX theaters to experience it again and again in IMAX 3-D.

Both IMAX and Warner Brothers are thrilled about the upcoming release. Members of the IMAX team just saw the completed film last week, and I've seen about 18 minutes of that and I can personally say I was blown away by the 3-D effects.

We had a number of press screenings in New York and those you know the press is fairly cynical and as is customary at the end of 35 millimeters screenings the press didn't react at all. At the end of the IMAX screenings, there were 3 of them, the press collapsed at the end of each of them. And I'd say the vast majority came up to us to tell how fabulous they thought the film looked, obviously, though we encourage you all to go and experience and experience it for yourself and see what you think and you'll be able to do that starting November 10. The Polar Express will continue to run through January as it completes its holiday season run. Then on January 28, Disney will release Aliens of the Deep, a 3-D film by James Cameron, exclusively to IMAX theatres. The film marks the Academy Award-winning director. Director's second original film released to IMAX theaters. The film presents the highlights of more than 40 dives off ocean ridge of 46,000 mile chain of submerged mountain. IMAX 3-D is the ideal format to show case James Cameron's passion for exploring the corollaries between life under the sea and an outer space and we believe Disney will do a good job marketing that film.

In the fall, we will release a new film from Tom Hanks' production company, Playtone Studio. Playtone and IMAX have already begun production on its original 3-D film called Magnificent Desolation, which should be released in the September, October time frame. Tom Hanks will not only produce but also direct and play a role in this film about the man who walked on the moon.

So, we currently an additional 3 to 5 film slots to fill next year with Hollywood, DMR products principally in the early spring, summer, Thanksgiving, and Christmas time frames. As you know, these seasons are very popular windows for new Hollywood event zone and there are many Hollywood films that we believe would be a good fit for IMAX. These include Star Wars Episode III, X-MEN 3 and Robots, all from Fox. Warner Brothers' Charlie and the Chocolate Factory, Batman and Harry Potter IV, and Universal's King Kong to be directed by Peter Jackson, just to name a few. And to be clear, although none of these are firmed up today, we are in discussions for many of those kinds of projects. And we already have one project in developed -- in production for 2006. We expect to start to nailing early down in announcing '05 titles in the next few months. Recently, Warner Brothers and IMAX announced that we will partner in another 6 films together Denizens of the Deep, which is a 3-D sequel for the $70 million grossing Into the Deep, which was released in 91, and that film will be released in '06.

New commercial exhibitor customers such as National Amusement and Cinemark have done extensive due diligence on the IMAX economic model including conducting discussions with Hollywood Studios to check film slate assumptions. We think that they adherence to the the IMAX models, indicates their confidence in our ability to deliver strong Hollywood film slates. We believe that 2005 will be our strongest film slate ever and we look forward to giving you more details on upcoming films as they unfold.

Now let me touch briefly on what we see ahead. A very preliminary guidance for 2005. We have not yet completed our 2005 departmental process. It is important to underscore here the preliminary nature of this initial guidance. Our current expectation is for approximately 40 to 45 new theatre signings in 2005 and for installations of approximately 35 systems. Based on this assumption for installation, we forecast revenues of between $140 million and $145 million at earnings per diluted share of between 32 and 35 cents for 2005, about a 35 percent increase from 2004. As Brad said earlier, please keep in mind that as our signings to installations window compress in the near term, it will be difficult to be more -- to forecast installation on a quarter-by-quarter basis and each installation accelerating or slipping by one quarter translates to a 2 to 3 cents swing in EPS. We expect to provide you with more meaningfull 2005 guidance on our year-end results conference call in February.

Now before I wrap it up today, I would like to just take a minute to address another issue, the background of a very large short interest in IMAX stock. We debated whether or not to raise this issue but given the size of the position, approximately 6.3 million shares or about 16 percent of our shares outstanding, we thought that it would be appropriate to address this question raised by many shareholders as to what is the rationale of the shorts. About 18 months ago, when this short position started to build, it was our understanding that the shorts doubted IMAX's ability to refinance our $200 million of debt due at '05. About a year ago, the debt was refinanced and overall debt for the Company was reduced from $200 million to $160 million with no principle payment now due until 2010. Next, it was our understanding that the short's questioned the IMAX commercial business model. Doubting that the studios that make IMAX films and that is commerical of a differential buyer of MPX system and speculating that the world was saturated with IMAX fears.

Again the empirical evidence suggests otherwise. As we just completed the best signings quarter in 7 years featuring contracts for 11 systems with major commercial exhibitors and our summer box office results were solid. There are also 1000 unsold IMAX film zones in the world. Most recently, it's our understanding that the shorts expressed doubt about our ability to meet our Q3 numbers and expected us to take down our guidance for the full year. Today we announced that we beat expectations for the third quarter signings revenues and EPS and have reaffirmed our full year 2004 earnings guidance. So, we feel that our recent results speak for themselves. At each case, these shorts have built, they have been refuted with empirical evidence to the contrary. This management team remains, first and foremost, focused on building the IMAX business and on delivering more solid results just as we did in the third quarter where we hit or exceeded all of our [Inaudible] .

It is our hope that the continued strong results combined with the short positions, which will take a staggering 20 days to cover at current trading volumes, will provide a good source of demand and potential upsides for IMAX shareholders. We believe that our old chicken and egg problem regarding films and theaters is now behind us and the growth of films and theaters will feed off each other. The commercial exhibitors both domestically and internationally assume a compelling business model for IMAX systems and the Hollywood Studios are seeing IMAX theaters as new release windows for their films.

There is as tremendous potential market opportunity that still lies ahead of us. We're gradually pursuing this large potential market and we continue to have ongoing discussions with the majority of the top 10 North American exhibitors and Hollywood studios. We remain confident that our recent progress in growing the network of IMAX theaters will continue to feed on itself and ultimately deliver value to our shareholders.

I'll now turn it back to the operator and will be happy to take any of your questions. Thank you.

(OPERATOR INSTRUCTIONS). Eric Wold, Merriman Curhan Ford.

Two questions. First one, [Inaudible] have you updated in the past given the number on how many theaters that are currently in discussion with -- maybe talk about how they may have changed over the past 3 to 6 months and with the ones you have signed recently, that are also -- as they are basically same as the ones coming out?

Eric, we don't give specific guidance on that slate but we do give guidance in general on increase and, as I think Brad said, during the call our increase are extremely high and through the end of the third quarter, they were approaching the level that we had for all of last year. So, we feel very good about the level of activity of our business. We don't break out the specific number of discussions.

Second question on cash flow, obviously the model is changing a little bit, now that you get to the MPX and can get these signed and installed in a relatively short amount of time. Maybe walk us through how the typical payment cycle has changed for theaters -- I know it may vary around the math depending on who you're signing with. There is a typical look at, when you sign a theater, about how much you typically receive up front and how much of that is received by the time it's installed and how that usually flows.

It does definitely depend, Eric, as your questions mentioned on who the customer is. If it's a credit-worthy customer, like a major theater chains, we typically get somewhere between 20 and 30 percent up front. And then we get another 30 percent in kind of progress payments and cover the last 30 percent at around the time of installation and then the final 10 percent of 38 after installations. If it's a less credit-worthy customer, we typically get more of the money in progress payments and usually have about 90 percent of the money before the system is shipped and then the last 10 percent on installations. In addition, if it's a foreign customer, we'll typically secure the payments with LCs up front, particularly if it's not a major company.

So, just to cover that, obviously if you start moving towards more and more of these MPX, which has a bit shorter lead time, regarding to the cash flow, that's has improved than it may have in the past couple of years and is it a timing?

I think that should be right, Eric. Assuming signings go higher and installations, the shorter cycle should show more cash coming in from installations quicker than it has in the past.

It'll be a greater velocity because of the truncated installation period, which is what you're saying.

Okay. Just final question, of these 35 installations, you have mentioned for next year, could you indicate how many of those are basically you've already signed and how many you would need to sign to make that number?

I think it's actually too early for us to break that out. I mean we are building that. But I think one of things that obviously we are paying attention to is with the MPX, and we have an ability and install. Right now we are talking about 16-month period. We saw with National for example, we signed and installed within 3 months. So, increasingly there will be an utility to sign theaters and install them in the same fiscal period, certainly the following quarter or subsequent quarter. But I can't tell you, break out specifically the number between currently in our backlog and numbers that we are going to sign for next year.

Although, Eric, just to give some comfort to everyone on the call, I mean at moment it looks like and remember we are early in the third quarter that there is somewhere north of 20 that by the end of this year will already be signed and delivered. And then we are looking at next year, and as Brad said during his remarks, it's a question of sign and install for next year, it's much more difficult to predict. So the 35 number was based on talking to our marketing people, looking at the number of increase and we tried to be somewhat conservative. There is -- obviously there is downside to that number but there is also upside to that number when you just look at the quarter's results. This is a little bit new territory for us because of the new product cycle and we are going to keep watching that out through the year as we go forward.

Rich Ingrassia, Roth Capital Partner.

Brad, I want just to clarify something you just said. Brad, you said National signed and delivered in 3 months, that famous players, right?

No, no, no. National, 4 to 6 theaters of the National theaters that were signed and installed by us in roughly in 4 -- roughly at 3 months period.

Were installed in this -- in third quarter?

No, there were installed in the fourth quarter or current quarter. They were signed in the third and they are installed in the fourth. In fact most of them are going to be open in time for Polar Express.

The SG&A dropped by about a million, any comment on that, sequentially?

It was somewhat timing differences, some legal fees that we have budgeted, net incomes or provision and some timing issues, I don't think you could extrapolate that going forward. It was just a good quarter for that.

Okay. And then again a detailed question on the balance sheet. I saw payables increased by about 33.5 percent sequentially. Any -- could you comment on that?

It's more likely has just been just crossed over (ph) , part of that in receivables as well.

What that means is, Rich, is that for some of these DMR projects, we will just pay money and get a check for money, that you can have dislocations in your balance sheet at any moment of time.

Right. Like what happened with Revolutions, Matrix Reloaded.

Yes.

Okay, and finally just maybe, Rich or Brad, can you comment on the industry, the exhibition industry overall. I know Regal's revenue results were a bit disappointing? And I guess just your general read on the overall health of industry, major exhibitors versus independent and then US or North American versus foreign?

I think we look at it perhaps in a -- maybe a slightly different context than you. I mean, [Inaudible] exhibition industry, it is just an industry that is getting healthier and healthier. They are also obviously pursuing various different ancilliary revenues including advertising but also important to us. And you guys can cut in different ways too. There is an acceleration something like the late 1990's, but there is an acceleration of new builds as they continue to prune out at some of their underperforming locations, they are adding some new locations. And from our standpoint that's where we evaluate it, it all feels pretty good to us.

Tobis Swabian, Lorean Company (ph) .

Good morning. I have question on system installations; you have a pretty ambitious quarter set out for the fourth-quarter period. How many of those are installed and do you face any inventory or part shortages in for to meeting the demand when that comes for your theater systems?

We don't -- we don't anticipate a shortage of inventory or inventory problems in that area for the quarter. I think we hope to have somewhere between 8 and 10 installs for the quarter. As we have said, there are still a few that remain to be nailed down but I believe 8 or 9 are locked down.

Ken Sober, CRT Capital.

Good morning. I may have missed this earlier in the call, throughput termination revenues if any?

Yes. It was 2.9 in aggregate but we also wanted to make the distinction. If you want an example of how some of the swap outs, as people sort of swap out to MPXs, and on the swap outs it was -- 1.8 of the 2.9 was swap out.

You gave some good numbers for Harry Potter and Spiderman, as far as per screen gross. Can you tell us what -- give us the comparable numbers for Nascar like first 8 weeks?

I can tell you intuitively, Ken, that it was good, but I don't know what else. The film is approaching about $ 20 million of now. So it's done very well. But I think the general observation one can make out of a film like Nascar, which is not made (ph) for IMAX 3-D film, is that – they tend to have a longer waves than a Hollywood commercial film. And they also probably come out of the box slower, that's because they are not supported by $35 million marketing campaign from 35mm rolls where the rolls are promoting the IMAX release. So I can't tell you the first 8 weeks.

I have looked at 10 weeks with 16,000 a week. So that means there should be -- well, probably somewhat better than that, and it shared screen time with some of the DMR films. It was also right in there.

And Kim, I believe your question gives an opportunity to make a point which is really important. Rich said in the speech but it's so important. Remember our key constituency is the exhibitors. We sell to the exhibitors. Now if you're a film producer, you say, okay Nascar made $20,000 a week whereas Spiderman made $15,000 a week. You are looking at your film, but if you are -- [Inaudible] what you're looking at is how much revenue is being driven through your IMAX box. Now if films are sharing screens, but the Nascar is playing with Spiderman and with Harry Potter and you're asking instances where there's screen sharing. They're adding up the grosses for more than different films. So that creates for them a different and actually more positive dynamics than just what the film does from a distribution point of view.

The guidance you gave as far as signings was surprising. Could you talk about whether you think it's going to be -- how it's going to play out during the year, first half versus second half?

It's completely impossible to do that. I think what's going to somewhat affect it will be the film announcements coming forward. So, I think just like flow or expense gone to number of signings and I think actually announce some of these higher profile projects, it will create a sense of urgency. But in the field, there's just certainly more activity than I've seen in the last 5 years since the mid-to-late '90s, and I talked to my head of Asia who gives forecasts on numbers of deals going on that I wouldn't repeat on this call because our sales forces is really juiced about what's out there. So I think this is actually is very good but I don't think you can really break it down by quarter.

How about domestic versus international?

I think both markets are looking good. Brad and I, we just said ShoEast which is in Florida where Polar Express has just shown we get sponsored in a bandwidth. We've got -- Bob Zemeckis was there and much of the Warners people and all the exhibitors. There's an enormous amount of interest. I think a lot of people are going to watch the Polar results. I think they are going to see how National theatres do, I think they're going to see how a lot of the existing customers, how their theaters do. But there is a lot of people pretty close to the finish line waiting for a few more data points.

Okay. In terms of films for next year, are there any movies that are coming out next year, that are comparable to the Polar Express, like those animated type films where it could be 3-D in IMAX., Robots one of them or--?

Robots actually -- they are increasing, the flicks they are picking are – the picks are IPL, which is – helps you rumor somewhat. Increasingly people are moving to the 3-D CGI. Robot is a 3-D CGI film and I expect that there'll be others. Again, one of the things that's always interesting in IMAX is sort of the notion of proven concept. Many years ago, we did Apollo 13, in the PMR and everyone said “Wow, this is really great”. We think the people, the other producers of 3-D CGI are going to actually be extremely impressed when they see what their films can look like in 3-D when they go to see Polar.

Okay. And then the last question I have for you is on the film revenue you're showing in your press release. Year to date, you had about $17 million. Can you break that out, like between some pretty big number and I know it has down from last year but it's still pretty big number. I just want to get a sense of what are the components of that number.

I don't think we can do it film by film. You know that theway we approach our business is we look at a production plus development component where increasingly, we're not spending much on production, but we still do make some very high margin fees when we help other people produce films. You have some money running in and out of the DMR, both on revenue cost side on DMRs. There are library films, which are historic, made for IMAX films, which generally run at pretty decent margins because a lot of them have been fully amortized and almost fully amortized over the years. And lastly there is post production subsidiary and that's the mix like -- cassettes, ear phones, revenue, and contribution numbers

You mean -- was Nascar a big part of this number?

A part, I can't tell you off hand -- its not distorting it. Meaning, I'd say I speculate, this is speculation, Nascar's contribution is probably -- certainly no more and maybe even less than what Space Station was the previous 12 month period. And so the next 12 month there is Magnificent Desolation. So, I don't think there is anything skewing in the numbers.

Okay. And then along those lines you said that you did generate film revenue from Harry Potter and Spiderman. Did I hear that correctly?

No, I think we just talked about the general performance of those films.

We do get revenues from them because we've talked about it on this call, how increasingly the business model we've chosen to go down as we we put up some of the DMR costs and then we recoup out of thet DMR gross box office. And while can adjust specific deals with specific studios. We are increasingly going in that direction and have a participation in these films.

Are you making profits? I mean, any profits on the Harry Potter and Spiderman?

I think it's a film-by-film answer, Ken, and the films haven't completed their runs and I don't have all the costs here. It's marginal one way or the other at the moment on an overall basis.

Peter Silus .

Well, I am shorts of stock, I am very unhappy today. I wanted to ask about the 3-D because it looks to me that -- I mean as cool as the regular IMAX is, the 3-D is something that is really unique. I mean -- it's just very different from the regular. And I guess between Polar Express and the 2 other movies that you have coming out next year. You have at least 3 3-Ds in the next 12 months and probably more than that. Now, my question is what are the economics of the 3-D. How much -- what does it cost to do say 3-D Polar Express than a regular movie? And do you have any expectations as to -- what the leg on a 3-D might be versus a regular?

No, I think there are 2 answers. You -- first, you were referring to the 3 films next year. Let's break that down between Hollywood films that are converted into IMAX 3-Ds such as Polar Express or a film Magnificent Desolation or the James Cameron film that is primary exhibition space, is really on IMAX 3-D. On the latter, the production costs of those films are probably $7 to $10 million as a whole -- as a group. If you look back over the last 7 years on IMAX, 3-D films have done very well as a group. They have definitely been profitable. Films like T-Rex are moving in the direction of $100 million. You have lesser known films like Galapagos that is on $25 million. Nascar is now at 20 and rising. So, as a group these films did pretty well and the economics are pretty good.

Probably from the points that you made, Peter, which is somewhat unique and its not the 1950s. These are optometrics (ph) and hence not -- doesn't strain your eyes and it's just a unique entertainment experience. Do you think Polar is going to actually take that to a new level [Inaudible] making these films on computers and then composing the films in 3-D. We think it has blown the pipe totally here but with a films like Polar or toy story or whatever it is, it is simple to take all that 3-D data and throw it out of the window and just show the movie 2-D flat because you can actually create an environment, which is unbelievably inverse. So, then, as we said, if you are a kid you don't see Polar Express you are going to see kid's reaching for the film play. They are going to be trained coming out of the screen, coming at them and it's a unique experience and what that means is, from our experience, I think very much longer play times and creating perennials and films that actually maybe come back on a seasonal basis year after year after year and in some instances will even be seasonal, but they always in the library that can always pop in and come back for re-release like the old Disney strategy of creating evergreens.

Now the costs are definitely more expensive. You are probably talking about conversion of Hollywood film, somewhere in the south of $10 million. How far south we can get is -- first one was probably less than 10. We brought the DMR costs down overtime in the 2-D world. We hope to do same in the 3-D world.

The only thing I want to ask Peter is that -- and it's totally premature to even discuss this in much detail. But, since you asked the question I thought you'd find it interesting. We and other people are playing around with the technology to take live action and turn into 3-D, because I happened to agree with you. I think the DMR obviously, the audience has like it and they'll pay a premium price. But no less than Jeffrey Katzenberg who years ago did some test on Shrek, that if you, doing it in 3-D, he will have to fight them off with a baseball bat, that was his sense of it. I believe that if we could do it in live action, we'd even broaden the audience and we've made some promising inroads in that area and some other people have, and I wouldn't be surprised if -- in the next few years you'd even see it playing with that a little bit.

Because, I mean going back again I guess, what I -- what Brad was saying before, in these movies like Polar Express, it may cost you more up front, but your expectation is for a much longer tail, right. So that, if we were looking at the next quarter, for example, which is when it is going to come out it will take longer to recoup your investment in those things but your return over an extended period of time might be much higher. Is that a reason, by way of looking at that?

You can also expect from movies like Polar, I mean if you are only in footing to see how the public reacts, but Polar could be a perennial. I mean, there's no reason why Polar shouldn't be released in '05 or '06 as a holiday film in 3-D. They've increase substantial legs (Technical Difficulty).

All right, I'm looking forward to seeing it. I hear -- the buzz I hear on the 3-D is very interesting. And I'm sorry, I'm short to start, but I'll stop right here. Thanks guys.

Robert Croft, Scandal Capital (ph) .

Good morning, and thanks for great quarter. And actually I should also be congratulated for the [Inaudible] appear on personal capital buying the share. If you could just dig in a little deeper into this concept of IMAX film zones, but use of IMAX film zones. Are you -- it seems to me that that's where the -- if the growth rate can accelerate when you have exhibitors competing against each other to make sure they don't get locked out. Can you just kind of talk what an IMAX zone is and whether or not you're starting to see that yet?

A film zone is not -- it is an area where we are going to maintain some sort of exclusivity for our customers. And what we have done and it is not pulling the culprits, like in New York City going around for a walk, 20-square block or a 40-square block. It looks like an amoeba and it's different in each city. I mean -- there is actually a lot of work to do because we have to do with drive time. It doesn't have just the demographics and [Inaudible] highways, driving patterns and that's the way actually the conventional 35mm roll, instead of art we're going to have to also do our films in [Inaudible] . But we felt that we had to come up with different film zones in the IMAX world because the IMAX [Inaudible] are going to be larger because people drive further to come to the IMAX theater. But it is exactly right. One of the things that we sell is exclusivity. And I think one of the things that Rich and I've noticed over the years doing business -- what motivates often people, sometimes big companies is a combination of fear and greed, often in greed, in making money, making good IR, putting your capital to work. It's often not a time fuse [Inaudible] associated with that. You can take an awful lot of time doing your due diligence, figuring out if you are going make your 40 percent or your 30 percent or your 20 percent, so you know whatever your hurdle rate is. However, when that gets combined with the notion of being a little fearful, because somebody else may eat you cheese. Those things together come together in a very, very interesting dynamic and when you are selling exclusivity for a product that worked, that's exactly what we think will come to pass as our MPX strategy gets more and more traction as we are getting.

So, do you have any examples of zones where you sold and you have picked off somebody else who is trying to fly that zone and hopefully there are not going to get picked off on the next zone, they are going to be the first move?

It an interesting example. In our national amusement field we did a deal with National in White Plains. I guess a lot of people are going to call us from New York, many, many aren't. But that actually is arguably a different film zone, Uvushell (ph) is probably a 15 to 20 minute drive time. There is a Regal theater in Uvushell. Regal is a good customer of ours, that not withstanding the Regal people were not pleased that, you know, we put a theater in White Plains. They have expressed their displeasure in many different forms. But the reality is you know our reap and success creates the potential to create both conflict and competition among the commercial exhibitor, it's just a fact of life. But there is a very specific example. I will also give you some other examples of 35-mm skies, whereas not wanting a Hollywood blockbuster film playing in an Imax Theater near the 35-mm theaters, because they are afraid that people will drive past their 35-mm complex and drive to the Imax complex.

And then in fact National is going to program some of their new theaters with some of those films including NASSCAR.

Great. Just also reiterate what is the excitement about 3-D in terms of building a library for you guys. It seems to me that you can look out 3 or 4 years from now and between the climbing on Mount Everest, going under the sea, NASSCAR, they should be able to produce quite a bit of perpetual releases that can really make the economics of theater that much better, because then you are not only counting on the 5 or 6 major hits per year, but you fill in a lot of the blanks as well.

And then in fact National is going to program some of their new theaters with some of those films including NASSCAR. We are going to only take up three more questions as time is running along. So operator next question.

Yes sir, next question will come from Morgan Ratman with Harvest Management.

Thank you. I apologize, I did miss a very early part of the call, so I don't know whether you have covered this or not. But in talking about the Hollywood slate for next year, can you give us some sense of numbers and where discussions might stand and whether or not it's multiple studios as opposed to a longstanding relationship with [Inaudible] .

Morgan, what you missed was we said that for next year, 2.5 were lost in. Always going to play through January. Disney has an original James Cameron film, which is going to start roughly February 1st and the [Inaudible] really is coming out in September. And those are all 3-D and those are set in. So that leaves room for something like around 4 or 5 CMR films, and we are in discussions actually with every one of those slots. We did not say it's the first time, but we have pictures and outlines flat for everyone of those slots. They are not just one studio, they are with multiple studios and we think there is a decent likelihood in the next couple of months we can start to make announcements nailing them down. We feel very good about the film. I would go so far as to say we have a virtual handshake, but as you know you can't announce these things until they are documented and several of them were in that process.

And a year or two ago, the DMY process took much, much longer, so therefore we are seeing announcements way ahead of release dates. Would you say that it's a fair estimation that because you have gotten DMR down so quickly that time prior to release is going to shrink? And therefore we might only have a few weeks though this is opposed to a few months notice in the past?

I think that will be unlikely Morgan. And I don't think and you were asking in sort of a polite way of -- why is it all nailed down already and why don't we know it and the answer is releasing a film next Christmas.

you don't feel the sense of urgency that we feel and [Inaudible] . When you talk to them about it, you know a real-world example is that, “the deal is started, it's been going well, relax.” So, that's more of what it is about than anything about timing or work and the way we have started to normally commit quicker if they look. One of your competitors wants that Christmas slot, so you either have to do it or not do it. But I think you will still know them in advance, what is a last minute change much like there was of Catwoman to Spiderman.

That's okay. I actually thought about more from your perspective like by the time Catwoman was basically can and everybody saw what it was. It was pretty clear, it was not necessarily the kind of movie you'd want to have, and so because you can work so much quicker now, sometimes you have a luxury of getting a sense of the buzz and the outlook for the movie before you have to commit.

I think that is right. They also think there is less urgency for us, because when you think about what constituency that we are playing to is the exhibitors in order to make, in order to sell feeder systems and again more and more of the studios are doing IMAX films, more comfortable with IMAX films. We are not negotiating with XYZ exhibitors without buying an IMAX system. He says, “What is the film slate look like”. It is almost less struggle than us saying, 'hey call the guys that you talk to every Monday morning of every week of the year and ask them what films they expect to be doing in IMAX and there is a very open clear dialogue between these guys, which basically gives the exhibition guys comfort. So, it is less critical for us to be out there and say we are waving the flag, because it is more assimilated into the normal course of business, which is, I think where we want to be.

And as a follow up to that Morgan, I think you will find it interesting. As we have gone down kind of walking in to one studio or another, the trade off for kind of guaranteed product flow, you have to, sort of, give them access to blocks of your schedule. Right? If you are studio x, and we wanted you to walk in for a couple of years IMAX, you’ll think “why I want some [Inaudible] every year. And as we continue to feel better about the interest of our broad array of studios, there is less pressure for us to want to give up our valuable slot sooner.

I have two more questions, one is at what point is the inflection point and the number of theaters that will show Hollywood releases, where you might consider having more than one release in a window, is it -- is there a number of theaters, be it 200 or 300 or is there some point where there is enough theaters so that you could potentially have more than one Hollywood release in a window?

Morgan, I think there is a potential, but it is not a potential that we've even analyzed on a yellow pad yet. Our goal is to take this thing that is at the early stages of working, who are the studios and the exhibitors and get through the plan where it is really working. So, before you talk about doing 2 contemplative Hollywood films each in a 100 IMAX I think you want to get to the point where Warner's or Fox or Universal is feeling very, very comfortable about having their one film in 150 theaters at the same time and not get out really high growth for themselves.

Okay and last but not least, you expressed great enthusiasm, I think for, or the sales people are expressing great enthusiasm for Asia, when it comes to the new signages. Can you talk about the current regions of the world where you think interest is high versus low? And specifically the US, the Big five in the US. Do you think you are getting traction with those that you haven’t necessarily gained traction with before.

I definitely wouldn't want to comment on specifics. I won't limit it to the Big five. But as I said before Morgan, having just finished Chavez, there is an awful, and seeming respect. I think the fact the National Amusements came into the business and they are considered fairly smart and fairly leading edge, and fairly conservative exhibitors it is a real plus for us and has given us some creditability and a lot of people are watching that and that is a -- I think that market is fairly strong and there is a lot of people close to the goal line. I think that outside of the US, South America is a roughly slow road, having a lot to do with tariffs and socio-economic factors there. I think that China is just as bullish as we have been.

I think we are even more bullish partly because their third commercial theater opened on People's Square and it's posted some really good numbers on Spiderman and Harry Potter, and that's got a lot of interest and attention. So, lots of dialogue going on, India also lots of dialogue primarily because our commercial theaters have done very well, and actually I am going over there in a few weeks. First time I have been there, even though I have been to China around 10 times. Government officials and potential customers and I think that's going to be a market almost at par with China -- for us going forward. Probably, Russia is exploding market. We just -- it's unbelievable, we open our first theater last year and I could be wrong, there were somewhere between 6 and 10 theaters, something like that. We have contracts for us right now. Europe is a little bit slow, Morgan, I think that real estate issues historically have kept us slow down in Europe, and we are just really starting to roll out the MPX now in Europe, kind of it's the second right after here, but definitely not as high as North America or Asia. So, I think that gives you a pretty good worldwide flavor.

Dennis McAlpine, McAlpine Associates LLC.

Thank you and good morning. Would you just sort of run through the, let's say, the top 10 domestic exhibitors on a commercial basis? Which ones you don't have -- do signings with us at this point [Inaudible] were up twice?

I mean, Dennis, we are not going to comment on specific exhibitors. But if you go through the Web, Regal, we have 13 theatres with us now. There are largest third-party customers, in a markets of top 10, we have 5 they just signed on for 2 more National Amusement had in one theater and they just signed on for between 6 and 18 Rolls (ph) , is an IMAX customer. They've one the most successful theaters in the world here in New York and again, I'm not going to comment on the state of discussion. Well we are talking to them. Famous players are the top 10 that just took 2 new deliveries That’s AMC. We’ve, we've been talking to for years, and continue to talk to and again, we are hopeful. We are not going to make predictions one way or the other. Well I'm missing the one that's owned by the LBO firm, Carmike and they tend to be in small markets, we are in some discussions with them. But they are preliminary, there are a lot of market where IMAX make Century, which is kind of a very similar to National Amusements that are in San Francisco and have a fairly strong presence in California. We've had meetings with them. Again, I think they are monitoring the business, we'll comment on specific discussion. So, I think that gives a flavor of we're pretty much talking to everybody.

Eric Wold, Merriman Curhan Ford.

Actually [Inaudible] . My question was answered. Well done.

And well I think why don't we wrap up. I think I'll make a couple of comments and Rich can also. But I think, let's go back to where we started. This is a quarter where we had 16 signs. It was our best quarter in terms of signs in 7 year. Signs are the best forward indicator about the health of the business. We have guys like National entering our business. We are becoming, maybe inappropriately, but we are becoming a little more broader about the telephoto fund business because the studio are giving us a very positive reception and it's clear to us that people want to do IMAX films in the normal course of the business. Our financials are in a good shape and I think as Rich said, as I said, both of us said, we are feeling the wind behind our backs. We are seeing a certain environment marketplace not only domestically, which is very importantly to us but also throughout the world with the markets that Rich checked off. And we are, sort of very, very enthusiastic about the nature of turnover business and feel that we have a lot of good things ahead of us, and Rich do you want to add anything?

The only thing I would like to add is our head of Investor Relations, Cheryl Cramer whose from Boston came in this morning with the Boston Red Sox hat on and she said, 'hey, both IMAX and The Boston Red Sox are having a good day and I said, 'hey Cheryl there is some similarities there', a lot of people bet a lot of money against Boston and there are lot of people betting a lot of money against us. And still that and nowhere after they've been written off late in the season, Boston put together a pretty impressive winning streak. While, I'm certainly would not delude myself for any of you to think we are close to winning the world series. We've certainly put a couple of decent games back to back, and hopefully on future calls, we can live up to shows expectations

Thank you. And that does conclude our conference call for today.