Imax accounting errors delay financial filings

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TORONTO -- Giant-screen exhibitor Imax Corp. has delayed filing its 10-K and annual financial results after uncovering $2.5 million in accounting errors stretched over a six-year period.

Toronto-based Imax on Friday said it will satisfy regulatory requirements by filing its full-year 2006 earnings report by March 30.

During a morning conference call with financial analysts, Imax co-CEOs Bradley Wechsler and Rich Gelfond did little to hide their disappointment at delaying their financial report just as the company is experiencing momentum at the boxoffice and in new theater deals.

"We're obviously disappointed, regretful and sorry that we could not file the financials on time," Wechsler told analysts. "Our hope is that people can appreciate the very nice fundamental momentum in our business that has occurred over the last few months."

Both Imax executives stressed that the $2.5 million in accounting errors, which occurred from 2001 to 2006, do not relate to ongoing probes by the U.S. Securities and Exchange Commission and the Ontario Securities Commission into the company's previous accounting recognition of theater revenues.

Those investigations, first made public in August, are the subject of investor lawsuits alleging that Imax misled shareholders.

The latest accounting issues were uncovered by Imax executives and PricewaterhouseCoopers LLP during the company's recent year-end audit. In essence, they involve costs that were capitalized when they should have been expensed as they were incurred as well as unrecorded branch-level interest taxes, Imax said.

Imax said it will make an $800,000 adjustment after expensing, over six years, about $1.4 million paid to a law firm that helped the company sign theater deals in the Asian market. That expense was mistakenly capitalized and allocated to cost of goods sold when theater installations were recognized, whereas Imax should have expensed the legal fees when they were incurred.

The giant-screen exhibitor similarly capitalized film marketing costs related to "Deep Sea 3D" and "Magnificent Desolation" that should have been expensed as they were incurred. That mistake will require a separate adjustment of about $750,000.

Imax also will need to make an adjustment for branch level interest taxes, after expensing roughly $750,000 in taxes in 2006 that should have been accrued between 2003 and 2005.

The company's latest financial accounting woes follow Frank Joyce resigning as Imax's chief financial officer last summer. He was replaced on an interim basis by Edward MacNeil. The company is currently interviewing permanent CFO candidates.

In the meantime, Imax and PricewaterhouseCoopers will continue combing through the company's books to identify any remaining accounting errors, with an eye to restoring investor confidence in the company's financial reporting.

"We recognize that the underlying causes are unacceptable, and we are committed to rebuilding our financial staff," Gelfond told analysts.

News that Imax will need to restate its financial results over the last six years overshadowed recent good news from Imax. Warner Bros.' "300" opened strongly at its giant-screen theaters last weekend, and the large-format exhibitor earlier this week announced its first profit-sharing joint-venture theater deal with Regal Cinemas along with a separate five-cinema, system-leasing deal with Dickinson Theaters.

On March 12, NASDAQ-traded shares in Imax jumped 5.2% to $4.86 on news of the latest theater deals. The stock was trading at $5.03 during morning trading Friday.

Imax will hold another analyst call in two weeks when it unveils its full-year 2006 results. The company did say Friday that it installed seven theater systems and inked deals for nine more screens during the fourth quarter of 2006.
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