Imax stock falls sharply after Q3 loss

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TORONTO -- Imax Corp. on Thursday saw its stock fall sharply after posting a disappointing $12 million third-quarter loss, even as it unveiled digital projection and joint-venture theater ownership plans to restore its fortunes.

Shares in Toronto-based Imax fell in afternoon trading on the Toronto Stock Exchange by 25%, or CAN$1.39 ($1.23), to CAN$4.07 ($3.60) after Imax late Wednesday reported a quarterly loss owing to disappointing boxoffice returns and a failure to install any new systems during the latest quarter.

Imax co-CEO Rich Gelfond told analysts Thursday during a morning conference call that slower-than-expected construction of new theaters had delayed the timing on new Imax installations.

"While the slippage has remained a recurring and unpredictable part of our business, we do note that as these installations fall into subsequent periods, they should prove beneficial to our numbers," Gelfond said, referring to 24 system contracts now in backlog and likely to be installed next year.

Gelfond and Imax co-CEO Bradley Wechsler also used the Thursday analyst call to outline progress on two key growth strategies going forward: digital film projection and joint ventures.

Wechsler said that Imax was developing a digital system that employs two Sony 4K projectors and proprietary technology that could be launched into the market during 2008.

He said the digital transition will squeeze out steep studio print costs for films converted to the large-format process, typically $22,000 for a 2D Imax film print and $45,000 for a 3D print.

"Lower print costs should lead to more films and more films should lead to more theaters and more profits per theater," Wechsler told analysts. "This in turn should mean more profitability for the studios releasing their films into a larger network and for Imax, whether through conventional systems sales or through joint ventures."

Elsewhere, Gelfond pointed to the success of a pilot project with AMC Entertainment Inc. to retrofit five multiplex auditoriums with Imax screens as a model for future joint ventures. Under that arrangement, Imax contributes its projection technology and the theater operator contributes the auditorium and an estimated $250,000 retrofit cost.

That figure is about 20% of the estimated $1.25 million that a theater operator incurs to acquire an Imax theater system under a conventional sale and leaseback arrangement.

For Imax, a joint venture promises a larger slice of the boxoffice and other theater revenues. This occurs as Imax and the cinema operator share the ongoing boxoffice revenues after both partners recover their startup costs.

"We have identified that increasing the number of joint-venture arrangements is an excellent and very viable way for us to deploy capital, grow the network, and benefit from our participation in the incremental revenues and profitability that Imax tries both for studios and the exhibitors," Gelfond said.

Imax said it expects to initially sign between 25 and 30 joint-venture theater deals in both 2007 and 2008.
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