Imax Corp (IMAX) 2004 Q4 法說會逐字稿

Thank you for standing by. And welcome to the IMAX conference call. This call is being recorded. Now, at this time I would like to turn the conference over to Brad Wechsler. Mr. Wechsler, please go ahead.

Thank you very much. Good morning, everyone. Thank you for joining us today for our fourth quarter and year-end 2004 conference call. Joining me as always is my partner Co-Chairman and Co-CEO, Rich Gelfond. Also with us today is CFO, Frank Joyce; our Senior Vice President of Corporate Development, Steve Abraham; and our IR Director, Cheryl Cramer.

Before we begin let me remind you of the following information regarding forward-looking statements. Our comments and 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 fourth quarter and full year 2004 financial results were issued this morning in a Press Release for all of 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 measures are contained in the Company's third quarter earnings release. The full text of the release, along with the supporting financial tables is available on our website, www.imax.com.

With that said this morning, we will walk you through our financial results for the fourth quarter and full year 2004 and update you on our guidance for the current year. We will also give you an update on our recent progress with the commercial exhibitors and Hollywood Studios and discuss how this momentum is starting to drive our financial results. Simply put, 2004 was a groundbreaking year for IMAX as we accelerated our efforts to establish IMAX as the newest distribution platform for Hollywood films. We delivered the best year for signings in over 5 years by signing deals for 36 theater systems and the best commercial film slate in the Company's history, highlighted by the "Polar Express," which has grossed approximately $45 million to date or about $500,000 per IMAX screen.

Our primary focus for 2004 was advancing IMAX's commercial strategy towards the tipping point, which we have discussed before, and our financial results are now starting to reflect this. In fact, 2004 was the most profitable year we reported since 1999 with respect to earnings from operations, which improved by 43 percent in 2004 to over $25 million. Our earnings per share, revenues and signings the key metrics of our business, all exceeded our guidance for 2004 and today we have raised our outlook for 2005. But before I go through the numbers I would like to provide a context for 2004 results from a business point of view. I'll hit some of the highlights and then Rich will take you through the additional aspects a little later on.

The success of "Polar" was a transforming event in the Company's history because of its positive implications for IMAX, IMAX theater operators, audiences, and Hollywood Studios. Buy embracing the IMAX network as a new release window for their event films, studios can increase their financial return on a film release. The higher-average ticket price of 30 percent or more, plus the incremental moviegoers that IMAX attracts, can add significantly to the films overall box office. Since revenues to the studios for later release windows, such as Pay TV, Cable, and Free TV, and even indirectly DVD sales, correlate to box office, and IMAX release helps studios increase their overall return on a film. While averages are potentially misleading we believe that $15 million of IMAX domestic box office can easily translate into $20 million or more in profit to the studio across all windows. The consumer proposition embedded in the math is quite simple and compelling. Research appears to indicate the audiences like any film better in IMAX than in 35mm. This in turn drives incremental value and profit for the studios.

For exhibitors the success of "Polar" and the rest of our 2004 film releases, including an original IMAX 3-D production "NASCAR," demonstrates a theater's ability to generate a 3-year payback on an IMAX-MPX investment. Anchored by "Polar Express" our 2004 films generated over $1.1 million in box office revenue per IMAX screen for just 4 films. This exceeds the threshold an exhibitor needs in order to earn a 30 percent plus IRR on their $1.6 million investment in an IMAX-MPX retrofit, and this is a fundamental reason for our recent acceleration in signings.

Lastly, the success of "Polar Express" positively impacted IMAX's financial results for 2004 by increasing attendance to the Company's owned and operated theaters, and generating revenue for IMAX through royalty and revenue share agreements. As you know, we typically receive about 5 percent of the theater's box office beyond a guaranteed minimum and recently have been investing in some of the cost of a DMR conversion and sharing in the studio's take of the box office. Our participation in the "Polar" box office, therefore, came from 2 sides, theater operators, including our own O&Os, and the studio. So clearly one of the highlights of the fourth quarter and year is "Polar Express," which provides a great example of how IMAX's strategic improvements are starting to have a measurable impact on our financials.

Turning to our numbers I'll discuss the fourth quarter first followed by the full year. Net earnings per share for the fourth quarter were $0.19, which compares to a net loss $0.01 for the fourth quarter of 2003. Total revenue was $47.5 million, up from 29.9 million for the year-ago quarter as we recognize revenue on 9 systems in the fourth quarter. Systems revenue for the fourth quarter was $28.8 million, up from 19.9 million in the fourth quarter of 2003. Film revenue was 10.7 million, up 73 percent from 6.2 million in the year-ago quarter. As you know, historically our film revenue has been comprised of mainly postproduction and distribution work. As I mentioned earlier we have recently started to contribute to the DMR conversion costs in exchange for a share of the box office returns from our IMAX-DMR films. This revenue share with the studios varies from film-to-film and over time we hope this can be a significant source for IMAX. As a result of this type of arrangement the "Polar Express" positively impacted our fourth quarter film revenues and profitability.

Theater operation revenues were 6.2 million, more than double the $3 million in the fourth quarter of 2003. Both revenues and gross margin for our 7 owned and operated theaters improved significantly year-over-year. The improved profitability of our O&Os is a strong indicator of the turnaround in the IMAX network. What is more impressive is that as stand-alone theaters these 7 owned and operated do not benefit from the economies of scale the same way IMAX theaters in a multiplex would, indicating that the profit potential for IMAX multiplex-based theaters is even greater. Lastly, other revenues increased to 1.8 million in Q4 of '04 from $800,000 in Q4 of '03.

Turning to expenses for the quarter. SG&A was $11.5 million versus 8.4 million in the year-ago quarter, and included a $1.3 million expense or about $0.03 per share relating to compliance with Sarbanes-Oxley. As we stated in our Press Release this morning we expect to be fully compliant with the requirements setout -- set forth in Sarbanes-Oxley as of the filing of Form 8-K tomorrow morning. Finally, R&D expenses were just under $1 million, unchanged from a year ago.

For the full year 2004 net earnings were $0.26 per share after deducting bond refinancing costs of $0.02 per share, which compares to our guidance of $0.23 per share. Net earnings from continuing operations before bond refinancing costs were $0.26 per share as compared to $0.14 reported for 2003. That is an 86 percent year-over-year improvement. Total revenue for the year was $136 million as we recognized revenue on 22 systems. Systems revenue was 86.6 million, up from 75.8 million for 2003. Film revenue was 27.9 million versus 25.8 million in 2003. Theater operations was 17.4 million, up from 13.1 million for 2003. And other revenues declined to 4.1 million in 2004 from 4.5 million in '03, owing to our de-emphasis of our camera rental business. As we continue to shift towards repurposing of Hollywood films, our camera rental business is expected to continue to decline. Included in our fourth quarter results was an asset impairment charge of $800,000 related to the diminished carrying value of our camera assets. This equates to about $0.02 a share off of our 2004 earnings. SG&A for 2004 was approximately $36 million, and R&D approximately $4 million.

As we have said before, the year 2004 was characterized by a transition from our older products to our new MPX system, and also as the final leg in the long recovery of the Worldwide Theater Exhibition Business. As a result of these transitions and other more typical aspects of our business a significant contributor to revenues and profits for 2004 were these backlog upgrades to MPX, as well as consentual lease buyouts by our customers. Specifically, in 2004 we recognized $6 million in revenue from MPX backlog upgrades which occur when a customer, who previously contracted for, and made payments on, an older IMAX theater system elects to install a lower-priced MPX system instead usually in order to save capital and construction costs. In this case we adjust the backlog value to reflect the lower-priced MPX systems and recognize the difference from the higher-priced system as revenue to the extent we have received cash in advance.

We also recognized revenues of $12.3 million for consentual lease buyouts which occur when a customer relinquishes his right to the IMAX territory he originally contracted for. At the time of this consentual lease buyout we booked cash previously received which sits in our deferred revenue account or cash we received at the time of the actual buyout. The largest piece of this in 2004 with an agreement previously announced back in December with UCI, which was recently sold to a new owner. We reclaimed the right to the 8 IMAX films originally contracted for back in 1999 and now we can resell all of those territories. In addition, we received a significant amount of the margin we would have received upon installation, as well as a good part of the margin we would have earned from royalties and maintenance.

Finally, the smallest category, at only approximately $800,000 for 2004, is revenue from terminations by default where the contract is terminated because the customer defaults on payments due to IMAX. Rounding out the overall financial picture for 2004 and turning to our cash, CapEx was approximately $5.8 million in line with our guidance, and we ended the year with $29 million in cash. This compares to a cash position of 23 million at the end of '03 which excludes cash used in the first days of 2004 to retire $29 million of our old senior notes. Our debt remains unchanged at $160 million with no principal payments due into 2010. Our fourth quarter and year-end results clearly show that we are not only hitting our strategic goals, but our financial results are also starting to reflect this progress. Now, I would like to turn it over to Rich to discuss our recent business accomplishments in more detail and to also give you an update on what we are currently projecting in 2005.

Thanks, Brad. And good morning, everyone. As Brad mentioned we just completed our best signings year since 1999 driven by accelerated interest from commercial exhibitors in the second half of the year. In the last 6 months of the year alone we signed contracts for 26 theater systems. More than we did for all of 2003, including 11 systems in the fourth quarter. Why this second half momentum? The successful installation of our first MPX theater in late June changed the selling dynamic for IMAX. With MPX theaters up and running in the last few months of the year we were able for the first time to generate substantial data showing that an IMAX -- that an MPX retrofit is a win-win for IMAX theater operators and moviegoers.

Specifically, data from the 4 new National Amusements Theaters opened in November has helped confirm the MPX value propositions. The model works and the experience is definitely IMAX. First, the MPX delivered the "wow" our customers expect from IMAX. In fact, of moviegoers polled at National Amusements Theater during the showing of "Polar Express," 86 percent said the addition of the IMAX Theater had improved their perception of the entire multiplex. And 86 percent are more likely to visit that multiplex again in the near future because of the addition of an IMAX Theater. After viewing the "Polar Express" at the National Amusements Theater 93 percent of moviegoers said they were extremely or very satisfied with the IMAX 3-D experience, and have looked -- were extremely or very likely to see the film again in an IMAX Theater.

Second, the data supported one of our critical assertions about IMAX. IMAX attendees are incremental, not cannibalized from other 35mm boxes in the complex. And I can't overemphasize the importance of this because obviously both exhibitors and studios really wanted to know whether they were bringing in an incremental patron or just taking patrons from one box to another. As an example, the National Amusements Theater that recently opened in Louisville, Kentucky was originally a 20-plex. After opening the IMAX Theater the complex has 19, 35mm screens and the IMAX. We compared the market share before the IMAX Theater opened when the complex had 20 screens to its market share for the remaining 19, 35mm screens after the IMAX Theater opened. And found that the market share was actually higher, meaning that the other screens got a bigger percentage of the market than they did when there were more screens.

Therefore, the evidence demonstrates that the attendees to the IMAX Theater were additive to the 35mm audience. In fact, owing for the IMAX 3-D Version the "Polar Express" became the best-performing film for these 4 National Amusements multiplexes in the last 3 years. And frankly, they only had data for 3 years. The box office at these multiplexes from the "Polar Express" in IMAX exceeded the box office from other films that were huge box office blockbusters in 35mm, things like "Lord of the Rings," et cetera. Meaning that the IMAX 3-D Version of "Polar" did better for these National Amusements multiplexes than every 35mm box office success during that 3-year period.

Finally, box office results for our 2004 films demonstrate that IMAX screens can generate the more than $1 million in box office revenue modeled for exhibitors to earn a 3-year payback or 30 percent plus IRR on an IMAX-MPX retrofit. In 2004 our first film slate included 3 DMR releases and the original production "NASCAR 3-D" the IMAX Experience. Together these films grosses, average approximately $1.1 million per IMAX screen. Not to belabor the point, but it's a really critical one. This exceeds the million-dollar box office hurdle modeled for a theater operator to earn a 3-year payback on his investment, and this is the most fundamental reason for our recent acceleration in signings.

Continuing the momentum we started this Fall with domestic/commercial exhibitors, such as National Amusements, our fourth quarter momentum was very strong with major international commercial exhibitors. Included in our 11 signings for quarter four is a 6-theater deal with China's Lark multimedia, the parent of UA Cinemas, which operates 55 commercial theaters in China, including the highest grossing multiplex in Hong Kong. This agreement is the largest agreement we have signed in Asia in our 37-year history. We also signed a 3 theater deal with the Government of Chongqing which includes 1 MPX system, and an agreement to install a theater system in the China Aviation Museum. IMAX already has a strong brand in China. One of the most sought after expansion sites for international business today. And these recent deals have made it the second fastest growing region for IMAX Theaters with 22 theaters expected there by 2008.

Another signal of our recent acceptance with international commercial operators is the decision by Latin America's largest operator and North America's eighth largest Cinepolis to accelerate 2 of its installations by several years. This decision followed Cinepolis' review of the initial results of its IMAX Theater opened in Mexico City this Fall, and we are already discussing a number of additional sites in Mexico with Cinepolis and others. These international deals are further evidence of the worldwide appeal of the IMAX experience and its ability to transcend culture and language.

On that note, I would like to make just a couple of quick points regarding international theater system signings. First, we have already talked before about the worldwide target market for IMAX in the multiplex. Approximately 600 of our 900 identified zones lay outside North America. As such going forward we would expect a similar proportion two-thirds of our signings to come from the international markets. Second, the global economics are virtually identical with the dollar margins on the average theater systems sold to an international customer approximately the same as the dollar margin on a domestic signing. The economic model of an MPX retrofit is essentially identical for an international operator with the ability to earn a 30 percent plus IRR with $1 million in annual box office revenue. In fact, in some countries like the U.K. for "Polar Express" the ticket price was around $20, so you can see the economics could be even more desirable.

The success of our 2004 slate throughout drew the attention of studios and commercial exhibitors alike. For that reason we are confident that our 2005 film slate will be the best in the Company's history and should generate at least the requisite million dollars per screen. In fact, just 2 months into the year we already have in place 3 DMR films for 2005 and expect to announce a fourth in the near future. In addition to our Independent 3-D production in September and Disney's 3-D production released in January. In January, "Polar," which held over from the end of last year, averaged about $100,000 per IMAX screen as a continuous momentum from 2004. Late in the month Disney released James Cameron's "Aliens of the Deep" an original 3-D film that has generated over $100,000 per IMAX screen to date. Tomorrow, we are really excited to release our first DMR film of the year with 20th Century Fox's "Robots." This CGI animated film is from Blue Sky Productions, the team that delivered the hit "Ice Age" and is voiced by an all-star cast, including Robin Williams, Halle Berry, and Mel Brooks. The film is tracking very well and has received extremely good early reviews. And we believe it will be a strong, early, Spring release for the 76 IMAX Theaters showing it.

What is also important from a strategic standpoint is how Fox is incorporating IMAX into its distribution plans for the film. As part of all movie releases studios typically do a number of screening for exhibitors and others in the film industry to generate excitement or buzz for a movie. In addition screenings are done for the press. Fox has done a number of both exhibitor screenings and press screenings for "Robots" in IMAX Theaters. The first time this has ever been done and a number of critics who have already seen the film in 35mm are requesting to go back and see it in IMAX. And we have an indication several will review it in IMAX. Just last week we announced that IMAX and Warner Bros. will release the IMAX-DMR version of "Batman Begins," the much-anticipated film on June 17th. The film starring Christian Bale in the title role and directed by Christopher Nolan, best known for the acclaimed thriller of "Memento," explores the origins of the Batman legend. The early Hollywood buzz is extremely positive and we are confident that the IMAX experience will add another level to this adventure.

Then in July we will release our third DMR film of the year, Warner Bros. "Charlie and the Chocolate Factory." The film reunites Director Tim Burton and Actor Johnny Depp in the title role, and as a remake of the classic Roald Dahl tale "Willy Wonka and the Chocolate Factory." We expect Tim Burton's creative visual presentation of the famous factory to be even more spectacular on the IMAX screen. In September we will release our original production "Magnificent Desolations," men walking on the moon, a 3-D joint production from IMAX and Playtone, Tom Hanks' production company. The film invites the viewer to join the select few who have experienced the thrill and wonder of walking on the moon, rendering man's first moon walk in the way that only IMAX 3-D can deliver. As you remember, our last 3-D space film, "Space Station," was a big box office hit grossing over $80 million to date. Tom is very involved in the production and also will play a major role in the marketing of the film. That leaves one slot left to fill in the November/December time frame. We are still in discussions regarding this slot and have already had several offers, a few of which are still under consideration. There are a number of exceptional films scheduled for that period and we are confident that one will be released in IMAX theaters. Also keep in mind that in late 2005 we will also bring back the "Polar Express" for a short holiday timed run.

Our studio relationships continue to grow stronger as we continue to grow the worldwide network of IMAX theaters and deliver solid box office numbers. I think also the studios are becoming more and more attuned to what Brad went through, which is the value of the IMAX release, not only in its profitability and IMAX, but its ability to drive ancillary revenue. In fact, recently we have received more inbound unsolicited calls from studios regarding film projects than we ever have in the past. And we are already discussing 7 films with 4 different studios for the 2006 calendar. Studio discussions are actually becoming more complex today given our recent success as the film slate decision is now not just a matter of what film, but of getting the right Hollywood film. For example, when choosing between 2 films we consider how well the film will translate into the IMAX experience, the timing of the release, and ultimately, what the economics will be to IMAX. We are confident that our 2005 film slate will again be able to deliver more than the $1 million in box office revenue to our customers. This in turn should expand the number of screens in the IMAX network, increasing the distribution base, and box office for these DMR releases.

Let me now turn to what we see going forward. But before I get to financial guidance, I would like to talk about something very exciting we see on the horizon from a strategic perspective. With the recent success of IMAX 3-D with "NASCAR" and particularly "Polar Express" we accelerated our development of a proprietary technology we have been working on for a very long time that we believe will truly revolutionize moviegoing. The conversion of a live action Hollywood 2-D film to IMAX 3-D. Until now our ability to render films in IMAX 3-D was limited to a film shot with an IMAX 3-D camera or as in the case of "Polar" a conversion of a CGI animated film. Today we already have the technology to convert a live action 35mm 2-D Hollywood-event film to the IMAX 3-D format. And are currently further perfecting this groundbreaking technology. Picture "Spiderman" leaping off the screen and casting his web into the audience or "Harry Potter's" wand conjuring up a snake that slithers right into your lap. I'm not sure my 2 daughters would like picturing the second one, but I'm sure there would be a pretty big audience for that. We now expect to announce the first live action 2-D to IMAX 3-D Hollywood film this year for release next year and we look forward to giving you progress reports over these next few conference calls.

As Brad discussed at the very beginning of the call, in 2004 IMAX accelerated its strategic jump to commercial entertainment destination. In 2005 we expect this strategic momentum to start to translate into even improved financial results. With more revenues and profits from installation, and less from product upgrades and consentual lease buyouts. Specifically, we are raising our 2005 EPS guidance from our previous range of 32 to $0.35 a share to a range of 35 to $0.38 a share. This would represent earnings growth of about 40 percent from 2004's $0.26 per share after deducting bond refinancing costs. Total revenue for the year is expected to be between 140 and $145 million. For the full year 2005 we expect to end the year with approximately 30 to $35 million in cash. Our cash requirements will include CapEx of approximately $9 million, which includes additional investments in DMR films. We expect to achieve these results through installations of approximately 35 theater systems for 2005. We expect signings for 2005 to be between 40 and 45, again, with about two-thirds of these coming from markets outside the U.S. And a significant majority of these should come from commercial customers.

So far this year the tone of our business is very strong. Through today we have already signed 7 deals in the first quarter, including 2 conditional deals, compared to 6 for the entire first quarter of 2004. These Q1 signings include an important multiplex opening in Amsterdam with one of Europe's largest cinema chains. We are also in serious discussions with a number of North American exhibitors and are hopeful that we will soon have some progress to report on that front. For the first quarter we currently project an improvement versus the first quarter of 2004 when we reported a net loss of $0.02 a share after bond refinancing costs. And for the first quarter of '05 expect to report between breakeven and net earnings of $0.02 a share.

In closing, the strategic momentum in our business is evident on all fronts. Our theater network is growing as commercial exhibitors and Hollywood studios increasingly embrace IMAX as a new distribution platform for Hollywood event films. We expect this momentum to have a positive impact on our financial results in both the long-term and the near-term starting with our increase in guidance for 2005. And with new development, such as live action 2-D to IMAX 3-D conversion we are confident that we can continue to draw moviegoers away from their home theaters. In doing so, we will help studios draw incremental returns from their IMAX-DMR film in the form of more audiences, higher ticket prices, incremental DVD sales, and other ancillaries, and position IMAX theaters as "the" premium price destination in the commercial entertainment market place. Thank you very much for listening. And Operator we are now ready to take calls.

Very good. [OPERATOR INSTRUCTIONS]. And we'll first go to Eric Wold with Merriman Curhan.

Hi, good morning, guys.

Hi, Eric.

Quick question on the -- a couple of questions. But first of all, on the installs for '05, of the 35 installs you are looking for, can you give us some sense of how many of those are already in backlog and scheduled to be opened this year?

At the current moment there are probably 7 to 8 that are yet unsigned for '05 basically consistent with where we were last year.

But I just want to add some color. The fact that we have 47, 28 signed at this time of the year is much more than we have had in any recent years. And in fact, it's more installs than we have had in any year in the last 4 or 5 years.

Agreed. And plus given the fact that you guys can now get these signed and installed relatively quickly --.

Yes. The velocity has changed dramatically.

Okay. And then on the -- to get to the "Polar Express" with the participation you guys now have on the studio side by paying for the conversion, is it safe to assume that you guys covered the cost of that conversion in Q4 such that whatever "Polar Express" did in Q1 doesn't really have any costs associated with it?

I don't think that is -- on a cash basis that is right, Eric. I don't think that is accurate in terms of the way some accounting works where you amortize the costs over the useful life of the film. So I think it is a little more complicated that in terms of the P&L effect.

Okay. But in terms of the cash part of it though it comes with --?

Yes.

Lastly, before I hop back in. Obviously, getting a live action movie on 3-D is a big deal. Maybe talk a little bit about where you see the cost of converting movies using DMR to progress over the next coming year both regular movies to 2-D, and then movies to 3-D whether it is live action or animated?

The cost of converting a 2-D movie to IMAX-DMR is somewhere between 1.5 and 2.5 million depending on the length of the movie and the complexity. Although the costs has continued to come down, Eric, as we've gotten better at doing it and faster. In addition to that is the cost of prints and the cost of marketing which makes it all in about 5. But to be clear, the part we contribute is the conversion cost itself, the 1.5 to 2.5.

On the 3-D side our new 2-D to 3-D technology obviously we haven't converted a film yet, a whole film, so this is done by way of modeling. But we have done segments of films and our estimates are that the conversion costs should be some where around $7 million. But, again, we hope to drive that down and we hope we are conservative in estimating. But it could be higher than that when we get into the real world.

Okay. And just to be clear, of that 7 you guys are probably still -- put in the same amount, that you are kind of doing for a TV --?

A lower amount. We would not be taking the full conversion cost.

Perfect. Thanks, guys.

Thank you.

And we'll next go to Rich Ingrassia with Roth Capital Partners.

Thanks. Good morning, everybody. Can you clarify the breakdown of the lease buyout and UCI settlement recognitions on systems in the quarter, please?

On the quarter, I think we started by the year, which I just to repeat was about a little over 12 million on consentual, a lease buyout about $6 million of the MPX upgrades, and about $800,000 from the terminations. When you look at the quarter you probably see numbers of around approximately 9 to 9.5 million on the consentual lease buyouts. A little less than $1 million on the MPX upgrades, and 0, I believe, on the terminations.

The terms of the UCI settlement, let me address that a little bit. UCI had entered into this contract with us to roll out a number of theaters in Europe, and first the theater exhibition problems happened, then the owners of UCI decided to sell the company, and the owners were Viacom and Vivende. And we entered into settlement negotiations with them as part of the sale of the company where they requested to buyout the territories under the agreement.

One of the terms of that agreement, Rich, is that the terms are confidential. We can't reference exactly how much of the funding came out of that settlement under our agreement with them. But to suffice it to say we were made substantially whole in terms of the profits we would have received from that agreement. And we can resell the territories and, in fact, right now we have a number of inquiries on those territories which we just got paid for. But I can't tell you the exact number of the settlement.

Okay. Understood. And then some housekeeping on the balance sheet. I -- obviously the strong performance in the quarter looks like it drove about 1.5 million of the deferred tax asset. Frank, can you just lay out briefly what your tax situation might be here in '05 if you are going to be starting to take a noncash accrual or just sort of lay it out for us for the next couple of years?

Sure. For -- it's something we will look at each quarter, but at this point for 2005 we look like -- we think we will have about a 10 percent accrual which will cover nonincome taxes. So capital taxes and things like that. In terms of cash, we don't see ourselves paying cash income taxes for the foreseeable future, certainly through 2005.

Okay. And backlog number and value at the end of the year?

End of the year was about 60 systems at about 105.

Okay. Two more quick ones. SG&A was up, I know you said 1.3 million on Sarb-Ox, but it was up about 4 million sequentially. What else happened there on that line?

Yes, there were 2 other things. One was a bonus accrual that we just had it to -- it wasn't a real change it was just -- it was around $900,000. It was just an adjustment from earlier in the year numbers that we had to make in the fourth quarter. Also because that throughout the year the stronger Canadian dollar we pay people in Canadian dollars a lot of our staff, but our revenues are in U.S. dollars, and we were negatively impacted by that. And other than that a bunch of small things.

The bonus point, Rich, was just talking about was an '03 act, it was an '03 number. '03 was underaccrued but made the delta look greater than it was.

I see. Okay. And finally, on the other line obviously revenues there are not in camera, so what caused the spike in the quarter?

Aftermarket sales.

What that means, Rich, is that existing IMAX theaters will buy different things like upgrades to -- for a rewind unit or a new sound system. Things to improve their system that don't go through our system line. We call that "aftermarket sales" and that's in there.

Got it. Thank you.

You're welcome.

We will next go to Ken Silver with CRT Capital.

Hi, good morning. I guess I had a question about your revenue guidance for '05. It is not much above what you just reported for '04. Is that because you are not budgeting some of these lease buyouts and MPX upgrades that you booked in '04?

No, I think that -- Ken, I think it is just too early in the year to try and be too aggressive in changing our revenue guidance. You know, don't take too much out of this, but I think we all feel that our revenue guidance is conservative at this point.

This morning -- I will just give you a flavor for the tone of our business right now. This morning I got a call from one of our managers over seas who had a meeting yesterday. We have been working on this for years, but had a meeting yesterday about a 4-theater deal, including 2 to be delivered -- to be installed in '05, and they have another meeting tomorrow. And I would say the tone of our business right now is, that is probably 2 or 3 calls a week of a similar nature, not all 4 theater deals, but of a similar nature. And I think we are feeling very good about our business, but we want to be a little bit conservative in managing expectations out there.

And I think if the business continues on the same track it's likely we'll increase our revenue guidance, but -- and we thought about it now, but we just decided it was prudent not to.

Because you said you were going to install 35 systems versus 22. But yet revenues are only up like $3 million, I think, $4 million.

But remember there is other things in there. There's film revenues in there. There is other things.

Right. Okay. And then you said, Frank, you said you are not going to have any cash tax -- income taxes, right?

Correct.

And what do you think -- I'm just trying to take your EPS guidance and maybe work up the P&L a little bit. What do you think your depreciation and amortization is going to be in 2005?

I would put that at close to 17 mil.

Okay. And then your cash you're not forecasting a lot of growth in cash. The 9 million of CapEx that is sort of film and CapEx?

Correct. That's an aggregate of both.

All right, so your interest is 15 plus, your CapEx is 9, so we'll call it 25 million. Based on this, these numbers I mean your EBITDA is going to be in the mid 40s, which obviously means -- is your cash estimate conservative do you think?

Ken, I think it is difficult to do this on fly and over the phone. Your EBITDA number is actually lower than what our projections are for EBITDA for the year. Yes, it is just a little too detailed and I don't think we're going to be able to build to it on the fly on the conference call.

Okay. All right.

I mean you can call and we'll be happy to do it on a specific basis. It is just -- it takes a 10 minute conversation not 30 seconds.

Okay. All right. I'll get back in and let someone else ask questions. Thanks.

We'll next go then to Matthew Harrigan with Janco Partners.

I was curious does part of your business plan over a period of time, particular, if you are able to compress the 7 million cost for the conversion entail going back and converting some library product as well? Could you do "Indiana Jones" or if their original negative was in good enough condition, "Gone with the Wind" in 3-D and possibly have that as matinee product or something during the off periods when there wasn't a new film offering?

Yes, you can convert -- first you can convert 2-D product and you will also be able to convert 3-D library product. And you are absolutely right, it is a question of going back to the elements. The digital -- the conversion process is digital. Even though you print back to film. So as long as you have elements in decent shape you can scan it into the digital domain. You can convert it into 3-D. You can improve the resolution, even from the sharpness. You can improve color saturation and then print it back to 3-D, and absolutely make that available on a matinee basis.

However, I would say 2 things. One, it is a limited number of films that you would want to do that with. That is not going to be a staple crop there are probably a dozen films that really can stand up to that type of -- that will be the demand to go see them. The other thing I think you will often see, at least from a studio perspective is, especially when you are re-releasing library films, they often wouldn't be tied into DVD sales. Meaning, it would get a lot of publicity, as well as make some money on an IMAX release of a 3-D film. But then they would follow-on quickly with the re-release of a DVD in order to make more substantial dollars.

From our perspective one of the most important things that I said in my part of the introduction, is this notion of $15 million of IMAX box office and we are doing that today on, what 80 screens on a network that is poised for a lot of growth. But $15 million of box office and IMAX can turn into $20 million of profit for the studio because of the value through the ancillary windows. It's a very, very, very important point. A critical strategic point and helps drive the value proposition.

The second question, what progress do you see on the part of the Sonys of the world on a digital projection side to get to format that is more competitive? With IMAX, obviously, we get a continual wave of chip announcements every so often.

Every 10 minutes.

Right.

Yes. It is something we are obviously monitoring closely. And clearly let's start with 2-D. In the 2-D world they have been making progress over the last several years and getting their pictures better and better. There's still nothing that really approaches the IMAX size and IMAX resolution in digital. There's no product on the market that does that. And the whole digital area is fascinating because there has been a really long-term discussion about when digital is -- when the whole movie Industry is going to go from 35mm to digital. And the issues aren't only technical. There's just a ton of business model questions. Who pays for it? Who gets the benefits from it? What are the standards? What is obsolescence?

With that said we think that it's inevitable that digital is going to happen. And we have been sort of aggressive over the years in making sure when it does happen we have an important place at the digital party. And, in fact, I guess about 4 or 5 years ago we negotiated an exclusive arrangement with Texas Instruments where digital, at a certain viewing angle, and over a certain size, it could only be developed between TI and IMAX. And we have been developing that and looking at it over the years sort of on a flow basis because to parallel the development in digital on the 35mm rolled in, if we see that catching more traction on a faster basis.

We've also been monitoring Sony has a new chip technology. JVC has a new chip technology. And it won't surprise you to know that because we are IMAX and what we represent a lot of these people would like to affiliate themselves with us in some way. So we continually evaluate that technology and make a decision when is the right time to more aggressively get into the digital projection business.

In 3-D, there is no such thing really today as digital 3-D. But over the next week and couple of months I think you are going to see a lot of noise made about it as people try and sort of launch digital, in general, by talking about the capabilities of digital 3-D. And it is a product that sort of exists right now in the laboratory, but not at theaters. And I think like digital, in general, there is some promising technology there, but it is technology that is going to take a while to get into ready for prime time shape and then to roll out. And I think we will monitor that and we'll try and participate there if that evolves as well.

Hopefully, initially it will be smaller screen, lower aluminosity, and highly differentiated from IMAX in terms of quality. And as I think as Rich was saying you would expect us to participate in the high-end. And we think digital is inevitable. We think we'll be a player in it, but it will be at the high-end of the digital quality scale.

Great. Congratulations on the quarter. Thank you.

Thank you.

And we'll next go to Marla Backer with Research Associates.

Thank you. I have a question about the strategy. You have consistently said that you want to limit the number of IMAX-DMRs in order to maintain a premium experience for the moviegoer. But given how much interest you are seeing now from studios could you see expanding from roughly 4 to 6 or even 7 per year?

Well, Marla, I think a good question, but I think our strategy has always been -- the short answer is, yes, absolutely going from 4 to 6 or 7 because maybe we haven't been entirely clear. I think our strategy has been to build to 6 or 7 over time and I don't remember because we have been doing this now for a couple of years. I think we went from 2 to 3 to 4, but I think our goal really is roughly a half dozen. What we don't want to do is -- I don't want to cast [submersions] on any films, but we don't want to dilute it with -- certain films shouldn't be IMAX-DMR films. These should be big, grand, beautiful films. They should be event films. They should be [indiscernible] films.

And by definition when you look at the slots there may be a dozen of these films a year, but they are not released 1 a month. A number of them are going to bunch around Memorial Day or July 4th, and around Thanksgiving and around Christmas. So we think that 6 or 7 is probably a good target zone. And as the studios can make more money in IMAX as our network grows and as the ancillaries bring in incremental profit dollars to them, we feel that the studios -- there will be some competition for the slots.

And as Rich said, we have gone from many years ago, Rich and I were traveling salesmen. We would go around banging on the doors in Hollywood and say, would you please look at this test that we have of DMR -- of a DMR -- 30 seconds of DMR film 4 years ago. Now, we get phone calls from the major agencies, some of the major filmmakers, and some of the studios talking about their events and films and saying, hey, how does your Memorial Day slot work. So it is a great change in dynamics.

Okay. Thank you. Can you also talk a little bit about National Amusements in terms of -- do you have any update on the status of the options that National Amusements has for the theaters that they haven't built yet.

Sure. I think National Amusements is very pleased with the way it has gone so far. We met with them a number of times. We are discussing different locations with them. I would kind of be surprised if they didn't agree to do additional theaters this year. I think they are really happy with the way the relationship is going. I mean that is all I can say. I think it is going really well. We are looking at sites and I think we will do more with them.

Okay. Great. And then a last housekeeping question you talked about the Sarbanes-Oxley expense. What do you think it should be going forward?

Frank?

My sense is about $0.02 a share.

So about 800

About at 1,000 or so. That is our best guess at this point. Certainly less than this year.

Okay. Thanks very much.

And we'll next go to Morgan Rutman with Harvest Management.

Hi, guys. How are you?

Good, thank you.

A couple of questions, and I guess the first is, I don't know if it was the last call or the call before you articulated that you were in a certain number of conversations with various theater owners and groups. And you -- I think you referenced it as showing how many more conversations you were at that time than you were maybe 6 months or a year before that. Can you give us kind of an update from a 30,000-foot view that same sort of metric today?

Morgan, we don't have it gathered that way. We had it last time at Investor Day and I forget the number. We said it was something like 49 conversations going on and they translate into signing. It really isn't quantified right now, but I will tell you that since 1998 I have never seen -- I have not seen an environment we are in like now in terms of conversations. And for example, just yesterday or the day before we announced those 2 deals in Central America. The deals kind of came out of the blue about a week before we signed them, and whereas, years ago you would have to take years of gestation. It is just the opposite of that right now.

Brad and I were joking saying our business has gone through 3 phases. Kind of in the late 90s you would wake up in the morning and 10 good things would happen at the office. And then after the exhibitors had their meltdowns you would come to the office and 5 bad things would happen to you. And in the last, I would say 6 months since we introduced the MPX, every day it is like another good thing is happening to you that you didn't expect. There are just -- I couldn't quantify it, but I guarantee it is more than we -- significantly more than we told you at Investor Day last year.

We have Show West which is the big Exhibitor Conference opening next week in Las Vegas. We actually deliver a keynote address at the big opening luncheon to the international exhibitors. And Brad and I are staying until the end for the first time through Thursday. There is just so much activity going on. Meetings with studios. Meetings with exhibitors throughout the world. Meetings with existing customers. Sorry I can't quantify but I hope I'm giving you the flavor.

No, you are. That was exactly what -- I just wanted to know on kind of a relative scale. I figured given what's happened that was the case. And you also just touched on something that I want to make sure I understand. So if the old in kind of in the last 3 years of the average was 6 months plus to do a deal, you are now -- your start to finish getting deals done in much less time?

Depends who the customer is. With big organizations it still takes awhile because you have got to sell different levels of the organization. But one example I will give you on the other end of the spectrum is, I met someone I was in Europe a few weeks ago for breakfast, the guy was interested, and then we sent the team over that followed up. The guy requested a contract, and he has a Board meeting the end of this month. Those are the 2 extremes.

Right. And something that always comes up is the U.S. multiplexes and can you talk about not specifically with any one of them, but in general, level of and high level of discussion, where it is today versus where it was 6 months or a year ago? And are you seeing -- gaining traction with those that you already have relationships with and those that you don't?

I tiered in 2 places, Morgan. When you look at what I call the "non-top 10 U.S. exhibitors much more discussions, much more serious discussions, and I would be surprised if you didn't see a fair amount of activity coming out of there. With the top 10 exhibitors probably the same level of discussions we had a year ago. I think 1 or 2 of them looked particularly promising. And are kind of pretty far along in the process. But I hate to predict.

Morgan, the other thing I would add to state the obvious. If you look between our last conference call and now what has occurred, "Polar" was out there. It did $500,000 per screen. The National MP -- the first retrofit theaters opened in the United States in this last quarter of last year and did extremely, extremely well. Everybody knew there was a business model that said you can get a 3-year payback on a $1.6 million investment. But empirically the data just keeps getting layered on, and layered on, and layered on, and layered on, and it becomes that much of a more empirical sell.

If you look at the numbers of the $1.1 million of box office gross from films last year, again, that's the -- that's above the hurdle that the people need. So the nature and the tenor of the conversations with the domestic operators almost definitely has to change.

That is what I figured. Two other questions. Have you plotted -- if $1 million on a gross basis per screen gets you to a high 20s IRR for the theater owner, have you plotted every 100,000 above that incremental -- what it does to the incremental return? Because I would think that the net margins to the theater owner on a million 2, million 3, million 4 is significantly higher. And given that you only had -- what is 3 last year, right? Three --.

Three DMR and NASCAR.

Yes. So when you start to have an environment where you have somewhere between 4 and 6 plus some traditional IMAX fare, you would think $1 million would probably be on the low side not the high side?

You'll start seeing -- the start of the obvious thing -- it is a hybrid answer and I can't give you -- just tell you exactly how the curve looks in terms of the IRRs. Let's start with the basic point, which is you have 50 percent off the bat, which is a variable cost, right? which is the film. So that is disappearing.

You have other variable costs. You have some level of fixed costs. But I think probably where you really see the curve spike up for the exhibitor and draw his rates of returns, is those million -- that extra million dollars was bringing in extra attend -- or every $100,000 above that million dollars that the IMAX was generating. Brings in incremental attendees and there you are looking at 85 to 90 percent gross margin business with respect to concessions.

So that side -- we have a large variable cost component on the one hand, and then you have a very, very high cost of profitability component tied into concessions. That sort of modeled out, that you will see. It is not a line. It sort of spikes up and you will see noticeably higher IRRs when you start adding those incremental box office dollars.

All right. So there is a lot of sensitivity.

Yes.

And so last, but not least, you touched on it. But right now the math as I look at it when you look at 80 screens that kind of show commercial fare for the last year. You are going to install 35 million -- 35 screens this year, let's say that amount or slightly more next year. So a couple of years from now you're talking about 150 or 160 commercial fare screens. And the incremental cost to you to do the conversions, if anything, are going to go down, not up. And so I guess what I'm trying to get at is what percentage of the first dollar gross -- you have a certain percent that comes from the theater owners, and now you are getting a certain percentage from the studios.

Do you see that continuing, and if you see that continuing can we all look at it as a fairly steep growth curve with regards to margins because there is no incremental cost against it?

Well, one point Morgan is that, first I'll give you the good news and then I'll give you the bad news. I mean the good news is that our take from the studios has been going up in general, picture-to-picture, meaning that as the slots become more valuable they're willing to give you a higher percentage of the box office. And I think the same thing will be true on the exhibitors side as the zones become more valuable you should be able to cut better and better deals with the exhibitors.

On the other hand, just intuitively once the numbers start getting so big the law of unintended consequences suggests you are not going to get infinite margin growth and that there is going to be factors we haven't yet thought about that are going to hinge on it and keep them sort of in a range. So while I think directionally your theory models outright probably in the real world it is very exciting, but not as exciting as it would work out to be on a yellow pad.

Right. Though even if margin ends up at some point holding steady, which I'm sure it I would, as we open -- as you look at 5 years out and say well maybe there is 3 or 400 IMAXs worldwide, even with the same margin you kind of calculate through the dollars?

There is a lot of operating leverage in our business models -- that's the short answer.

There we go. All right. Thank you, guys.

Thanks Morgan.

We'll next go to Terese Fabian with Sidoti & Company.

Hi, good morning. I have a question, I think I missed the number for the lease buyouts for the fourth quarter. Could you repeat that, please?

It was around 9 million. The consentual lease buyouts was about $9 million, maybe a tad below. And I believe the MPX upgrades were a tad below $1 million. There were no terminations by default.

Okay. Thank you. And then I have another question. You have 3-D MR films scheduled already for this year and you're saying that you are doing probably you're looking for one more in November. Do you have anything between the March release of "Robots" and "Batman" begins in June?

No, and that is a 3-month period of time. Just to give you a reference, "Matrix Reloaded" played for I think 14 or 15 weeks. "Polar Express" played for also about 3 months. I don't know if this run time will be 3 months, but it will probably be 2 months at least. So you couldn't really put another release in there and make it profitable.

And when you are looking into the future like you might be doing more than 4 DMRs a year, you might be doing 5 or 6. Are you also looking then to see how you would schedule them to get optimal play time for them?

Sure that is a big factor. That's -- when I said before that we have 7 were under discussion for next year unfortunately, 3 of them are for exactly the same weekend. So you can't do all 7. But when you talk about the ability to get margins and get the right picture having 3 for the same weekend isn't so bad.

Another question on the Cinemark deal you did last year. Are those theaters installed yet?

No, one I think is opening this quarter or shortly. The one in Pittsburgh.

Okay. And then a last question on your earnings guidance. It seems like then you are going to be sort of heavily back-end loaded. Do you have any installation guidance like for the first quarter did you talk about that?

We didn't talk about it but it's somewhere between 4 and 5 we think.

Okay. Thank you.

And we'll next go to Dennis McAlpine with McAlpine Associates.

Thank you and good morning. As you look at the fourth quarter film revenue of 10.7 million, can you talk about what percentage of that is coming from your participation in films as opposed to other areas and how you see that percentage growing?

Well, when you say participation in films you mean the DMR films, Dennis?

Yes.

I don't think I can do that off the top of my head.

I mean I actually out of the 10 million about a third of it or a little more is from our participation in films.

And how do you see that growing over the next year or two?

Oh, it totally depends, Dennis, on the blend between DMR films and the library, right? Because as you have interest in more DMR films and then you have the library showing less, right? Your percentage and participation would go up and your library revenues would go down. So it's completely a function of how quickly your translations to DMR.

Okay. And as you expand the number of IMAX Theaters are you giving exclusivity, geographic exclusivity to exhibitors and how broad of a geographic range is it?

We're giving geographic exclusivity as a highly negotiated point. So if someone was doing a 5-theater deal with us they would have more leverage to get broader exclusivity then a one-off operator somewhere else. And the exclusivity varies in some cases it's 2 years and some cases it's 5 years.

Dennis, any other thing that I would add because we tie into this rather, quite specifically. About a year and a half ago our guys for the first cut put together exclusive film zones in the United States. And that's -- Rich said before there's 900 target markets, 300 domestic, 600 international.

Actually there is probably more than that, but as we look at the country and we looked at Cleveland or Detroit or New York you draw amebas around different large multiplexes that have stadium seats. And you create this theoretical zone of exclusivity. It's one of the important things that we sell. Because you're not going to put IMAX Theaters across the street from each other. You want to -- in order for them to maintain their specialness and perform financially you want to give them some breathing room. And it's not haphazard. We have it in sort of fine detail and probably the top 200 markets in the country.

Good. And then lastly on the 2-D and 3-D conversion is that going to require any upgrade of equipment by the people who already have equipment?

No. It's just the same as the way we showed "Polar Express" in our theaters. It will be just like that.

Good. Thank you.

And we'll next go to Grant Jordan with Wachovia Securities.

Good morning. Thanks for taking my call. Just a couple of housekeeping questions first. What was CapEx for the year '04?

About 5.8 million.

5.8 million going up to 9 million next year. You talked a little bit about this, but could you give what the EBITDA in the quarter was?

In the quarter, about a little over 16 mil.

Okay. And you said based on kind of your initial thoughts with the 140 to 145 million revenue number you thought EBITDA would be higher than mid 40s?

Probably near the $50 million range.

Okay. I know you kind of touched on this earlier, but if you take roughly, subtract out 16 and cash, 9 in CapEx what other cash flow out -- cash flows out are we missing to get to the 35 million in cash?

I think it's a matter of timing differences. When you look at our Company it's much more complicated than that short analysis. Because, for example, we receive cash from customers when we sign systems, but we don't recognize it until the time of installation. So that's a cash sort, that's not in EBITDA. On the other hand, there are minimum royalties in our Company, which are recognized before we receive the full cash. So that's another timing difference. So that's why Brad said you really need to sit down, which we're happy to do with you. But it's more complicated than just doing it off the top of our heads.

And working capital changes. You just can't run working capital --.

Yes, we're investing a lot in inventory this year because of the new products.

Okay. That's kind of what I was looking for, is should we expect to see a decent size working capital flow, et cetera?

There is definitely a ramp up in inventory investments this year.

Okay. All right. Sounds great.

This will be the -- Operator, this will be the last question.

Very good. And it will be from David Marsh with Friedman, Billings, Ramsey.

Thank you guys so much for taking my question. A couple of quick housekeeping items. Your letter of credit balance at 12/31 Frank?

The base is around 20, there's about 5 in outstanding LC. So I would say around 14 or 15 is a good range.

No, the balance of letters is 5.

Oh, these letters, we've not drawn anything down. No cash drawn down.

Right. So you have 15 available on the credit line?

Somewhere in that range.

That's where I was going. Okay. Great. Of the 60 systems in backlog can you tell us how many are MPX?

I can't.

While Frank's looking, it's around 30.

27 is what I have.

27 perfect. Okay. You said about 4 to 5 systems in one queue. The other question I have you guys mentioned that you're looking at doing one last film for the year, without asking the question, what film will it be, which I know that you guys are not going to say. I would ask the question, can you tell us was Warner Bros. pleased with the results of the "Harry Potter" remake that you did for them?

With the "Harry Potter" I think they were quite pleased with "Harry Potter." I think they were pleased with the association and the [indiscernible] association with IMAX on all different fronts. Particularly, the most recent "collaboration with respect to Polar," which was a huge home run.

I think he's being clever, Brad, in asking you, is it possible that "Harry Potter" is one of the films that we're considering in a different way. And I would just equally -- not as clever as the question -- but the answer would be. They were happy with results and we were happy with the results. And if it worked out that that was one of them that worked them and us, that would be just fine.

[Laughter]. Very good. Lastly, I guess the most interesting question that I would want to get at is, in terms of your percentage of gross receipts, I think that historically you guys have had pretty much a flat rate on gross receipts. And I know that that model is changing as you guys put more of your own skin in the game in terms of reformatting the films. Could you talk a little bit just in broad terms about what percentage increase on your standard rate that you are going to get as you do more of these? And --.

Are you talking on the film side or the theater side?

Yes, on the film side. I think historically you have gotten like 7 percent of gross period.

No that's the theater side. That's why I asked the question. When we do a systems leasing deal not only do we get the up-front payments, but we get these guaranteed minimum -- the greater of the guarantee minimum or 5 to 7 percent of the gross. But that's on the theater systems side. It has really nothing to do with whose film is showing the IMAX Theater -- on any film that's showing the IMAX Theater.

Right. So as we go forward should we think -- what should we think about in terms of gross receipts as you guys put more skin in the game on these MPX? Do you think you can get it up to like 10 or 12 percent at gross?

Yes, as a matter of fact we're spending a lot of time looking at a business model which says that we could accelerate the gross of the IMAX network by putting out IMAX Theaters at a much discounted price or even contributing them for a bigger piece of the box office. And that's -- we call that sort of "joint ventures" where we would contribute the system and get a larger piece of the box office. And that's something we're starting to look at and it's potentially very interesting to us.

Obviously, from our point of view the big issue is what the location would be. Because if you could put it into the right location and get a percentage of growth that could be something that could be very valuable to us. So if I'm hearing your question right, we are looking for ways to get a bigger percentage of the box office. And that's one of the ways we're looking at it.

Well, that's great. That's really good. I'm sorry just can I squeeze one more -- in the theater ops line the revenue -- that revenue line was really, really up. And you said that's on your 7 owed theaters. I guess historically you said that this isn't really the business that you want to be in owning the theaters? Is that something that you might look to divest to another ownership group at some point?

I don't think we're looking at divesting, but in the same hand I don't think we're looking to grow any. IMAX is -- we don't want to be in the bricks and mortar business per se. And the revenues went up and they contributed more profitability mostly of the function of "Polar Express" last year. But I think our strategic view of the owned and operating business hasn't changed. We like it. Our theaters are important theaters in given markets, but it's not a business we're looking to grow. Nor sale.

And then that number is going to vary very much with the content in those theaters at the --?

Absolutely, at year-in and year-out.

Right. Okay. Great. Thanks so much guys. Appreciate it.

And I think maybe Rich and I both have some closing remarks. But I would just like to say, obviously, to repeat we're extremely, extremely please about the performance of the Company in '04 from a 100,000 feet, which I think is really the best way to look at it. I guess our sense is what happens in '04? Well, "Polar" came out in 3-D and made $45 million at the box office. National opened the 4 MPX retrofit and those theaters did phenomenally well.

The research was great. The audience loved it. The financial performance was great. Unbelievable data points in validating the overall thesis of the IMAX retrofit theater combined with IMAX -- with MPR -- with DMR films. And then going back to what we've been saying for years, and years, and years, IMAX has to be easy and profitable for 2 big constituencies to deal with. The studios on the one side and the exhibitors on the other.

Well, I think we've demonstrated that we're easy and profitable to deal with. I think the studios are getting the joke. They're looking at IMAX not only in terms of what they can make in IMAX, but they understand how it receives in the ancillary markets as well. And the exhibitors who are moderate -- used to be very capital [indiscernible] now only moderately capital constraints. You'll see very good rates have returned. A [indiscernible] significant investments . Very, very reasonable assumptions. So it's really a year of coalescing. And as we often say I think we've basically hit this tipping point. So Rich do you have any other observations.

Yes, the only thing I would say is that '04 we talked about it during our comments as being a transition year. And I think in a certain respect the year started on July 1st, when we opened our first MPX system with the [Elmo] in Spain. And the second half of the year where we signed 26 systems capped off by the fourth quarter where we had our best earnings quarter for the year. But I think in terms of the business' ability to grow and to generate recurring revenues and signings and momentum going forward. Just sort of a translation on my comments during the call I think we feel very good about it. That's it not the second half in the year wasn't a blip. The second half of the year was the beginning of a real major turnaround for this business.

And Brad and I have been here now, almost 11 years. And I think we would both say -- even though our -- and this really doesn't have to do with stock price. And it doesn't have to do with results, but it has to do with feel for the business and the durability of the business model. And how it's rolling out and how it's working. And I think we would both say that we've never felt as good about our business as we feel right now. And thank you, everybody for being on the call. And for those of you who have been shareholders for a while we're happy that the stock prices are finally reflecting some of these efforts. And we thank you all for your support.

And again this does conclude today's conference call. And we thank everyone for your participation and wish everyone a good day.