Welcome to IMAX Corporate 1st Quarter Earnings Conference Call. Today’s call is being recorded. At this time, I would like to turn the conference over to Mr. Brad Wechsler for opening remarks and introductions. Mr. Wechsler, please go ahead.

Thank you. Good morning, everyone and thanks for joining us today for our 1st quarter 2006 Conference Call. Joining me as always, is my partner, Co-Chairman and Co-CEO, Rich Gelfond; also with us are our General Counsel, Rob Lister and our CFO, Frank Joyce. Before we begin, let me remind you that the 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 results, 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 including the 10Q we are filing later today. Our 1st quarter 2006 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 SEC. Discussion of management use of these measurements and reconciliations to GAAP measures are contained in the company’s 1st quarter earnings release and our 10Q. The full text of the earnings release along with a supporting financial table is available on our website www.imax.com. First, let me briefly outline the agenda for today’s call. I’ll review our 1st quarter financial and operating results, I’ll then turn it over to Rich for our current outlook and an update on the process underway to produce strategic alternatives for the company; finally we’ll open the call up for your questions. But before I begin, on the nuts and bolts of our operations and before I turn it over to Rich, I’d like to release to the elephant in the room and tell you our strategic alternatives process…

Thanks, Brad and good morning everybody. In recent months, there has been a lot discussion of the impact of digital technology on IMAX. So I thought it would be useful to give you our perspective – on our last call we updated you on developments on the digital front both in conventional cinema and in IMAX. One key update was the release of the first film in digital 3D. At that time, the numbers for Disney’s digital 3D version of “Chicken Little” had just come in which indicated about $8 million in total 3D box office on roughly 85 screens with approximately 1/3 of the films attendance being incremental or attracting new audience members to the (inaudible). Since then, we have got more detail on clarity on the films performance. The total 3D box office for the film was actually a little less than $8 million and the incremental attendance ended up being slightly less than 33%. Once again for comparison purposes, it seems to make sense to compare the performance of “Chicken Little” 3D in digital with “Polar Express” in IMAX 3D because both films grossed around $125 million box office and 35mm 2D. I believe you will agree with us that the data underscored how IMAX 3D is an entirely different experience in exhibitor and consumer proposition than digital 3D. Remember “Polar” 3D played on almost exactly the same number of screens as “Chicken Little” 3D. The 35mm 2D versions of the films were almost identical and they were both released at exactly the time of the year to the same target audience; so they are about as good a comparison as you are ever going to get. In fact, the only major difference between the conventional films was that the conventional version of “Chicken Little” featured much…

At this time if you do have a question, please press “*1” on your touchtone telephone and if you are on a speaker phone, please be sure your mute function is turned off to allow your signal to reach us. And once again, that is “*1” for questions and we’ll pause for moment. And we’ll take our first question from Eric Wold, Merriman Curhan Ford & Co. Eric Wold, Merriman Curhan Ford & Co: Hi good morning. Recently there has been, as usual, a lot of concerns raised by others in the Press about your finances and how that may effect the sale process – I know you can’t talk too much about it, but is there anything you can say about any financing that been lined up or committed to or anything along those lines for people that may be looking to joint venturing with you or acquiring you?

It is my understanding, Eric, that a couple of investment banks have offered financing to potential acquirers around IMAX and those investment banks that did their work long before any recent articles and the recent articles didn’t change their view at all. I think I know what you are referring to and I don’t think there has been anything to change anybody’s view. There hasn’t been anything changing anyone’s view of the process here. Eric Wold, Merriman Curhan Ford & Co.: Perfect – and just a couple of questions on Q2, in that Q2 guidance of the 10 systems to be recognized revenue on what is the mix between North America and International?

Do you have the answer to that, Frank?

I don’t have that.

He could look while the call goes on, Eric and we’ll come back to that. Eric Wold, Merriman Curhan Ford & Co.: Ok and since there obviously was less than $1 million in lease buyout revenue in Q4, nothing in Q1, anything in Q2 in the Q2 guidance for that?

I don’t know off hand, but it is not a material number. Eric Wold, Merriman Curhan Ford & Co.: Ok and then lastly, just looking at this year assuming, maybe this has been updated, assuming there are no additional signings at all this year, which I think is unlikely, but no additional signing at all where would you fall on to what schedule to be installed this year in terms of the total number?

Eric, we don’t look at it that way because obviously in the comment I just made a big part of our year includes some signs and installs. I don’t know what the number is off hand; we are not looking at it that way.

And for the Q2 installations – I see four being for North America. Eric Wold, Merriman Curhan Ford & Co.: So it is four for North America?

Yes.

I’ll go next to Richard Ingrassia, Roth Capital Partners

Thanks and good morning everybody. Rich, just to be clear – your guidance then for 2006 is still between 38-45 installations?

This is an area you have to be very precise in. I think we said we are not giving any guidance on this call. I don’t remember exactly what we said in the last call, but I just don’t want to trip over any words. What we said is we are on track for whatever we said, ok. I just don’t want to reference to what I don’t remember what was said on the last call.

Ok – that is what I have for last time. What was the amount, if you can, of incremental SG&A in the quarter related to the deal; it looks like it came in at about $2 million ahead of the run rate.

No, SG&A was not $2 million ahead of the run rate – we were almost flat with last year. But, I would say probably close to $1 million ahead of the run rate, is that what you would say, Frank because of stock appreciation charges and some of the other things deal related expenses and some other, and I’d say it is around $1 million, Rich. Anything else?

Yes, I don’t know if you could answer this specifically or not either but do you have a number, last quarter you gave us a way to back into 2006 backlog vs. your install guidance for the year. Can you give us some sense for the backlog today for 2006?

I am probably not answering that question, but the backlog today I think is 69 systems with $111 million.

Of the 69, how many are on backlog for 2006?

I cannot tell you off the top of my head.

You can call later and follow-up, we just don’t have it off the top of our heads.

I’ll go next to Ken Silver, CRT Capital

Hi good morning. I guess a couple of questions…

Just one thing, Rich – I think they are around a dozen that needs to be signed and installed in the budget, around – ok is that the question you are looking for? Come back in the queue Rich and tell me if that is not the answer you are looking for ok. Go ahead, sorry.

Ok – in the Press Release it says you recognized revenue on three installations in the 1st quarter, but Brad you said you only installed one. I know this has come up before but could just clarify that again.

I think two others were like lease renewals, so where as the lease term expires at ten years and the elected to renew it, they are not installs but there is some revenue implication which are significantly smaller than an install.

Those are lower margins obviously.

Ok and then the 2nd quarter guidance you said revenue you are expecting approximately $40 million which is basically $20 million higher than the 1st quarter. I guess there are going to be nine more installations?

That is what we are guided to, yes.

Can you give a sense for what you expect film revenues to be in the 2nd quarter or how much of that 40 is film?

I think that is hard to break that out specifically, but obviously 2nd quarter revenues should be noticeably better than 1st given the performance of the films in the 1st quarter.

It is about 12.

Ok so in other words the two major underpinnings of the higher revenue, the nine installs and higher films, right?

Yes, I mean if you want to just say nine installs then I don’t know it is probably a little off, but if you say the average install is around $1.5 million a little bit more, I mean that gets you most of it.

I guess at 14, 14 out of the 20.

Because there are increases in systems obviously.

And then I just have a couple questions about the M&A process, you said you are moving into the second rounds. Can you describe what the first round entailed?

I am going to talk generically about it, not our process the way these processes work in general is that your investment banks receive a large number of inquiries and out of that they decide who to enter confidentiality agreements with, who to send books to it is a wide net and then it bankers, and again I am not talking about our process, but in general they whittle that down by seeking preliminary proposals and they look at what the proposal is, what is the financial capability of the person making the proposal, what is their reputation, what is their timeline, what is their likelihood that they’ll close and then that somewhat smaller group goes into a much more intensive diligent phase and in general that is what a second round is – is that much more intensive phase.

Ok – so your first round received financial indications of interest.

I am not going to comment on our process beyond what we said.

And we’ll go to Matthew Harrigan, Janco Partners

Most of my granular questions were answered, but is Warner’s likely to prominently the 20-minute live 3D excerpt in its marketing and can we infer from this that you are more optimistic on the time path for having more 3D live action content in 2007. And then lastly, I know you can’t get very specific at all on the strategic alternatives process, but nobody even your admirers is allowing for any of the movies you have this summer to do “Polar Express” type numbers, can you make an argument that it would be very good for the strategic process to require to at least to extend into the summer to show the credibility if you do manage to have another hit, maybe not a candid “Polar Express” but certainly a lot higher than some of the cynics who think that “Polar Express” was just a one off would be inclined to believe.

I think Warner Bros. like IMAX is very excited about the notion of incorporating 3D footage into “Superman” and I absolutely believe that that will be featured prominently in the marketing of the film – it is really I think again Warner’s would like to do something special for their audiences, they would like to be able to come back and see the film another time and see it in 3D and I think we have developed this very symbiotic relationship with Warner, particularly as it relates to the best way to marketing a film to create incremental revenues both for Warner Bros. and for our theater customers so you should expect to see the marketing. With respect to what that means for 2007 and beyond, I mean as Rich said in his speech he sort of underplayed it a little. This is the first time that we are going to see any footage from a live action 35mm film converted to 3D, very, very exciting. In some sense this is what IMAX is all about which is sort of at the cutting edge of both film and technology and absolutely you start with small steps and you accelerate to larger steps and I think as we go forward, you’ll see more and more of this as we go forward into 2007 and 2008. And with respect to your last question about timing and strategic alternatives and trying to be smart enough to sync up strategic alternative process with film releases and film performance, (A) we are not that smart, and (B) the strategic alternative process has a pacing of its own so I think they really are separate and discreet.

I’ll go next to Michael Kelman, Susquehanna Financial Group

Thanks, gross margins were only around 30% in the quarter obviously significantly below the 50% level experienced over the last few years. Obviously that was driven mostly by the revenue short fall, but could you walk us through the variable and fixed nature of your cost structure – particularly in the cost of sales given the weakness in gross profit.

Clearly gross margin is driven by the number of installations and there is a certain amount of fixed costs within the cost of sales that is covered as more installation go, so in looking at gross margins in the quarter in this significant variance, clearly it is the number of installations. I know you are talking about cost of sale a big part of obviously the selling effort is in SG&A, one item in cost of sales is obviously variable is actually, literally the system cost which you do not debit out of inventory when an installation is deferred, but I think the big answer to your question is really when you go down to three installs the mix of your revenue drifts dramatically to your other parts of your business and out of systems which is the very high margin part of our business.

We’ll go next to David Marsh, Friedman, Billings, Ramsey

Thanks, guys could you disclose what the amount of non-cash comp was in the quarter?

When you say non-cash comps sure I mean the stock charge was around $500,000, the stock appreciation rate that was one. There were deal related expenses, and this is just by memory but it’s close, which were a couple of a hundred thousand dollars, there were some option expenses (about $300,000) with retention agreements related to the sale which were around $300,000 a couple of other things but that is pretty much the bulk of it.

In terms of the backlog, how many of the 69 systems in backlog are MTX?

Do you know the answer to that, Frank?

Yes, about 65% for 45 systems.

And then with regard to the 2D-3D conversion from live action – you guys haven’t done it in the past this is your first forte into it for public consumption, but do you guys have an estimate of how much it would cost you to do a whole film 2D-3D live action?

I’ll give you an estimate and then I’ll also make an observation. I think that our estimate is probably around $8 million or so or $8-10 million to do initially, but I think the key thing is we are talking about a new technology here and just the way, I don’t know with shareholders many, many years ago this is the first time we did a DMR film which is “Apollo 13” the conversion process took us 7-months and was fairly expensive. It now takes us 2-weeks or in some instances even less and it has become highly automated so over time we expect to see significant decreases in the cost and increasing amounts of automation in the process. Right now, it is a little too labor intensive that is because it is new.

We’ll go next to Dennis McAlpine, McAlpine & Associates Dennis McAlpine, McAlpine & Associates: Thank you and good morning. Following-up on that, can you talk about the costs as splitting on the 3D conversion on “Superman”, how much you are taking vs. Warner, are they taking any of that cost?

I can’t comment specifically on the deal, Dennis, but the bulk of it is born by Warner. Dennis McAlpine, McAlpine & Associates: And on “V for Vendetta”, just to clarify – when you say it was $0.02 less than expected, you are not saying that it was a $0.02 loss?

That’s correct. Dennis McAlpine, McAlpine & Associates: And then lastly, if you were to do a digital 3D or a digital IMAX would it make sense for you to go into a digital distribution i. e.: AIX/Christie or something like that and what does it cost you currently per print?

One of the reasons why digital is such an exciting opportunity for IMAX, I am going to try to make this as simple as possible, the ratio in the 35mm world and the AIX world the ratio of the cost of a projector to a print cost is about 100 to 1, $100,000 to buy a projection system, $1,000 per print. We expect that the ratio of projector cost to print cost in the IMAX world is 15 to 1; which means after 15 films, you can basically pay for the cost of the IMAX digital projector. That is unbelievably compelling in terms of payback and deployment. Rich Gelfond, Co-Chief Executive Officer And Dennis, I don’t know if you were going here, but if you are asking the question whether something like virtual print fees could finance the role out of IMAX digital that is something that we have been examining closely. Dennis McAlpine, McAlpine & Associates: If you concluded on that examination yet whether it is something that you want to get into or is there something that you would like a third party to get involved?

We would definitely get into it ourselves.

I’ll go to Ken Silver, CRT Capital

My question was answered, thanks.

I think there are no more questions in the queue. Thank you all for joining the call today. I think you all agree, IMAX is a very exciting junction in its evolution as a company and we look forward to updating you both in the progress of our strategic initiatives and our process underway as well as our progress as a company with the very exciting film slate coming up starting this week. Thank you very much. Copyright policy: : THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. : THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.