Thank you for standing by everyone, welcome to the IMAX Corporation’s Third Quarter Earnings Conference Call. Just a quick reminder this conference is being recorded. Now at this time I’d like to turn the conference over to Rich Gelfond for opening remarks and introduction. Please go ahead sir.

Good morning and thanks for joining us today for our third quarter 2006 conference call. Joining is my partner Co-Chairman and Co-CEO Brad Wechsler, also with us is our Interim CFO Ed MacNeil. Our objective on today’s call is to discuss with you in greater detail the strategic initiatives IMAX is undertaking to grow its business profitably for the long term. Specifically, we will focus on how we expect our transition to digital to work and our accelerated efforts in joint ventures. We will therefore keep our comments brief on our operating numbers for the quarter ended September 30, 2006. These results are discussed in both the press release we issued yesterday as well as the 10-Q we will be filling for the period. 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 including the 10-Q we are filing today. 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 and our 10-Q. The full text of the earnings release along with supporting financial tables is available on our website www.imax.com. Please note that later on the call we will be referencing slides that are being simultaneously webcast on www.imax.com. To access the presentation, please click on Company Info and…

Thank you very much Rich, and for those of you on the webcast you’ll be able to see the slides on the screen. First, I’m going to go through the forward-looking statement language on the opening side that says “transition to digital” and start on the slide labeled “items to be covered.” What my goal in the next 10 minutes or so will be to cover off and answering the following questions: why now is the right time for IMAX to launch a digital product, why digital is a good thing for IMAX, what technology we intend to use and why, what is our time line, and finally how much will it cost and how we intend to fund. Going to the next slide, which is “why now.” IMAX started investigating a transition to digital in the late 1990s and took a concrete step in 1999 with our purchase of DPI, a Digital Projection Company, which was one of the three initial licensees of Texas Instruments DLP technology. At that time, we stated we would migrate to digital as soon as we could produce a digital image that was consistent with our brand in the expectations of our customers, one that created that “IMAX wow.” We concluded then that the technology was not yet developed enough to build an IMAX caliber system. Today, we view the digital technology has evolved sufficiently for us to focus on having an IMAX Digital projection system in theaters by the end of 2008, the same year we expect to see significant deployment of conventional digital cinema. Now, the answer is a number of items ranging from higher resolution chipsets coming to market as well as technology that we developed such as a Patent Pending Image Enhancement Engine that enables us to super-charge contrast ratios…

Thanks Brad. In our previous earnings call we announced that we intend to accelerate our rollout of joint ventures with commercial exhibitors. It is important to remember that this is in no way is a replacement to our sales lease model but a supplement. The primary reason to offer joint ventures to our clients is to add incremental momentum to our theater growth to more quickly realize the benefits of network economics. Over the past several years, our theater signings have increased nicely based on our sales type lease model by about $1.5 million in capital and they received the benefit of virtually all the IMAX box office. We believe that by lowering the capital cost of the exhibitors by IMAX contributing these systems, with the exhibitor putting up approximately $250,000 to retrofit the auditorium, we can expand the network much more rapidly and receive a significant part of the IMAX box office from the theaters as well as a piece of the IMAX film revenue from the studio. As Brad pointed out and as I’ll discuss later, we believe the JV economics get even better for both IMAX and the exhibitor as we transition to digital. Back in May of 2005 we announced our first significant joint venture with AMC, the second largest North American exhibitor, to retrofit five domestic multiplexes with IMAX MPX theater systems. Under the agreement we contributed the system at our installation cost, our partner contributed the retrofit cost, and we both recouped out investments first and then shared the box office. We believe that the structure of that agreement remains very compelling for exhibitors because it shifts some risk capital to IMAX and is compelling for us because it essentially shifts IMAX theater economics more towards a recovering revenue model. We intend to structure…

Thank you very much sir. At this point if you would like to ask a question you may do so by pressing * and 1 on your telephone keypad. If you’re using a speaker phone please make sure your mute function is turned off to allow your signal to reach our equipment. And once again if you would like to ask a question that’s * and 1, and we’ll pause for just a moment. We’ll take the first question from Richard Ingrassia with Roth Capital Partners.

Thanks, good morning everybody. I apologize if I’ve missed this, but have any of the five to eight slated for the December quarter have been installed to date?

Yes.

Do you how many?

One or two at this point.

Okay, and Brad and Rich, how much of your time personally has been spent in the current quarter pitching with JV proposal versus some of the obvious demands on your time and the shareholder law suits in the accounting investigation?

Very little but it has nothing to do with the shareholder law suits or the SEC investigation. The JV business is a different business for us Rich, meaning that our old business was selling locations and systems rather than having an ongoing stake in the box office, and we made a strategic determination that until we had the plan buttoned own we weren’t going to actively market it, and that means the criteria I went through, such as the right location, the operating history, the right partner, how you’re going to audit it, how you’re going to police it. So, we have not actively marketed it in a material way so we haven’t spent a lot of time on that. With that said we have marketed it to some extent and we spent some time on it, and following this call we expect to spend more time on it.

Okay, and just finally, two years is a long time to wait for a digital cinema launch, do you expect it to increase demand for signings here in the next 12 months or is the intention really more to give the current lessees the digital swap option and give them at least a re-up when their leases come up?

Let me answer it two ways. First, it has nothing to do with signings per se. We think it’s really good for our business that our business becomes more profitable for everybody as we go digital, and therefore we should be implementing a digital solution as soon as we can, and that means with the current technology. Yes, we’ve been working on it for at least a year but continuing to jump on it, accelerate it, and get into the field in a year and a half to two years from now. In terms of what it means for the customers, I think our belief as people can continue to make a bunch of money over the next couple of years, people can license film-based projector systems and then know that when a digital system becomes available that they could be swapped into a digital system. So, I think we don’t view this as accelerating film-based signings or really detracting from film-based signings as long as our customers know that there will be a digital swap out when the digital becomes available.

Okay, thank you.

We’ll next hear from Ken Silver of CRT Capital.

Hi, good morning. I just want to follow up on what you just said as far as digital swap outs. The contracts you’re currently negotiating, do they have digital swap-out language in them?

It’s customer specific. Generally speaking, no, but it has been raised by some of our customers and it’s something that we are willing to negotiate about. One of the things we’d like to do is we’d like to be further along in our negotiations on the Virtual Print Fees, because that obviously sort of coincides with the swap-out obligation.

I didn’t catch entirely what you said with the last person who was asking questions, but is this expecting the backlog, in the sense are people reluctant to install film-based systems without knowing or having some comfort from you that they’re going to be able to swap out into a digital system in the future on terms that are reasonably good for them?

To the contrary I think by announcing this initiative and being willing to provide the swap out, we eliminate that risk to the client, Ken.

And have you had discussions with people whose systems are in the backlog about this?

No, I’m sorry, I’m confused or you’re not being clear. In terms of current signings this should help them, because people are no longer taking a risk; we’re willing to take the risk. In terms of the backlog, those are contractually binding obligations and this doesn’t affect the backlog. Now, we could chose to swap them out and in instances we will chose to swap them out, but they have contractually binding obligations that are completely unaffected by this.

But they have the ability to cancel their order if they want to, I understand that, but have you discussions with your customers?

Wait, they don’t have any ability to cancel their orders; I mean they have a binding contract. We have sued under the contracts and we haven’t lost under the contracts.

Fair enough, and that related to not install the system, and I guess I was just trying to understand whether you had discussions with your existing customers who you already have negotiated contracts with about the swap outs that’s all I’m asking.

We haven’t because we’re announcing it today on this call.

Okay, fair enough.

We’ll next hear from Michael Kelman of Susquehanna Financial.

Thanks very much. Actually I had just a quick question regarding the revenue recognition with the JV structure. You talked about the incremental revenues and incremental cost, how will that look on your P&L going forward? For example, using that example that you used in the presentation, if there were $380,000 of incremental revenues, would you actually book the actual incremental profit and your percentage of it or would you actually book the gross amounts on the actual theater system, could you help us understand that a little bit better?

Ed, do you want to answer that?

It would be the actual incremental amount, so it would be our cut of the incremental box office.

Would it be net of incremental costs or how would you recognize that, and would only cost that you show would be just a depreciation on your initial investment?

The thinking is that the formula in terms of the number on which we split would first deduct the incremental costs of running the IMAX theater, and then from that point we would split based on our recoupement orders.

Let me just give you a followthrough from what we presented on the slide, and Ed correct me if I’m wrong. I think we showed like $380,000 of incremental revenues, $75,000 of incremental costs in terms of running the system at the joint venture level, but that would be around $300,000 of incremental profits. If we were entitled to take half of that we would book $150,000 into revenue. Now on the cost side, let’s say we contributed a theater system that cost $600,000 -- making that up -- and it had a 10-year life through the venture, then we would I guess depreciate that straight line over 10 years or $60,000 a year, so you would have $150,000 of revenues and $60,000 of cost, not including our DMR participation of 12.5% of the gross of the box office, which would show up on our film line.

Perfect, that was very helpful. I just had one other question for you and it’s regarding SG&A expenses. Given that the exploration continues and the SEC investigation is ongoing, should we expect that SG&A expenses will continue to run at current levels?

I think it’s hard for us to say what the runrate will be. I think it is easy for us to say that we are going to have incremental legal fees with respect to the SEC and the OSC investigation, but it’s really hard for me to say the runrate right now is. You can extrapolate that on a quarterly basis. I don’t think we know the answer to that.

Okay, thank you.

We’ll next take a question from Eric Wold of Merriman Curhan Ford.

Obviously sign-in installs have been lagging recently because of the box office I think as one of the factors, what do you think the biggest driver is getting sign-in installs back up and running, is that really just a function of box office or do you think irrespective of that theater operators understanding the JV model and being comfortable with that and comfortable with the lack of capital commitment they need to get into that structure that would help them kind over the hump even with a weak box office, or do you think box office is really the only driver there?

I think it’s really both, Eric. I think from exhibitor point of view, as we said during our remarks it’s a risk reward calculation, and one of the things that’s kept some of the exhibitors away particularly the large North American exhibitors that are owned by LBO films is the outlay of cash, and the I think the risk reward calculus will change if we are contributing the system. So, I would expect as we educate people on that the installs will come in at a relatively quick turn cycle. On the other hand, there’s no question that box office has an impact, and we would be hopeful that next year with “Spider-Man” and “Hatter Potter” coming that those are the kinds of blockbuster hits that people will want to be up and running for, so I think it will both.

If you’re looking at the 24 systems that are in backlog now to be installed next year, do you have an idea or even a wide range of how many potentially could be signed in the fourth quarter of a sales type lease that could fall into ’07? And then the eight that are potentially on the cards to be installed by the end of next year what are the gating factors, are those looking like January or February ’08 and they could fall forward a couple of months or is it really up to the theater operators’ discretion of when they you want to pull those in?

On your first question, Eric, in terms of the fourth quarter, historically there are some signs of that moving to the next year, but I really don’t know how to answer that specifically right now because I’m not aware of the install dates on the deals that we’re talking about and finalizing right now. In terms of the eight that we said could come forward, under our contracts it’s indicated that they would install in ’07, but I think given the history of slippages and our experience with slippages, which we talked about on this call, we’re hesitant to predict that they’re really going to make it, and it’s a question of how strongly we want to enforce our contractual rights. So, it’s just difficult to access which is why we couched at the way we did Eric.

And then lastly on the 10 JVs that you think could be installed in ’07, are any of those likely to be installed in the first half, is that more kind of a back half?

Again it’s very hard to say but based on where some of the discussions are I would expect some would be installed in the first half.

Okay, thanks.

We’ll next hear from Piper Jaffray’s Tony Gikas.

Hi, good morning guys. Could you tell us if there were any theater installs that slipped out of the September quarter or the December quarter that were due to the consideration by these theater operators to move to digital systems specifically? That’s the first question. Second question, how long will it take to migrate all of your existing systems from film based to the digital platform, is this is a multi-year transition or is it something that occurs over the course of two or three years?

With respect to your first question, we are not aware of any of the systems that slipped because of people being concerned about digital. It was more issues like zoning approvals in the land or something like that. With respect to the overall transition, the transition is going to take many years. It’s not something that happens right away, and I think as other people have indicated with their questions there are probably different segments, meaning certainly there are those people that we’re going to be signing now going forward, new customers. That’s one segment which will be very interested in a digital upgrade probably sooner rather than later. There are backlog customers that have the signed commitments to film, who will probably at some point want to go digital. And then there previous customers, they are current install base, and some of those have used the film-based projectors for many, many years, they may be coming to the end of their lease, and actually there will be a new customer force for buying a digital system. And there will be others that may have had a system for three or four years and they may want to talk to us or negotiate with us some sort of swap-out arrangement. It’s going to take a period of time.

So, if it’s going to be a multi-year transition then, how long will you be supporting the film systems and content as you move to digital; I mean how long until you realize those absolute print cost savings if you will? Then last question, can you provide us any visibility on cash flow projections for next year?

First, with respect to running duplicative systems, again it’s a little different than the model in the 35 mm world. We don’t incur a ton of print costs. This is the studios that incur the print cost. So, I would say a transition from now will probably be about five years, but as the digital network grows obviously it becomes more compelling for the studios and also the way the Virtual Print Fees work; they tend to be better and better for the studios as time goes on, meaning that they keep the greater share of the print savings. So, it’s really sort of crossing lines. I don’t know if that’s terribly clear, but it’s five years from now or three years from the initiation of our digital product.

We really haven’t outlined it specific enough to answer that question, Tony, although a preliminary look that we’ve given suggests that this year so far our cash position is down from the beginning of the year to around $8 million. Now, we started around 32 and we’re at 25 to 26 now, and the back of the envelope I really have to caution it’s very preliminary, suggests something like that but it’s too early to say.

Another $8 million decline for next year, is that what you’re implying?

Well, it’s complicated Tony, because there are a lot of pieces with JVs and we haven’t modeled it all out, but I’m saying back of the envelope, very early stages, and that’s kind of the neighborhood we’re thinking of.

Okay, thanks guys.

We’ll next hear from George Smith.

Thanks, just talking about the bank agreement here, you have an EBITDA test and I’m not sure if I’m calculating things right, but it looks like you’re getting close to the $20 million test right now and with the fourth quarter looking like it’s probably going to be a negative comparison, can you just tell us what the availability is going to look like going forward?

As you say there is an EBITDA test, the availability is subject to certain levels of performance. What we are projecting now obviously for the fourth quarter keeps us in compliance with the EBITDA test.

Okay, as a followup to that, the funding plan, it looks like you’re putting it in place if you don’t get somebody to buy the company, looks like it’s going to be increasing the leverages, you do the transition of the JV plan, how much leverage are you willing to take on and what kind of leverage metrics are you comfortable with?

I think we specifically said that in the short run it was unlikely that we were going to take on significantly more leverage because we are likely to use our cash and use the revolver to the extent it’s available. So, it’s more cash leverage but it’s consistent with the existing capital structure, and I think we would take on additional debt likely as the JVs prove out in the model and when it’s prudent to do it. Again, the specific financing needs are somewhat influx. If someone came to us tomorrow, a reputable client and said they are willing to do a 40-theater JV, we might take a different point of view on it, but at the moment we don’t intend to take on significantly more leverage.

Other than using up your cash and using the bank line.

Correct.

Okay, I mean I think you have a great business plan but it’s just a little bit risky in the short term for the investors. Thank you.

We’ll next go to Josh Clark with South Wing Capital.

Hey guys, thanks for taking my call. My question is, what do you guys think the end of the year cash is actually going to be? It seems like we’ve burned close to $4 million in the third quarter and that was without making the $7.5 million interest payment that we have due December 1st. When I do that math it seems like we’re going to finish the year $20 million or less, is that what you guys think?

No, I think we said during our comments that we expected to finish the year around $25 million and that is what we expect. The fourth quarter is historically a good quarter for cash collections for us. If you look over the last several years and we’ve done a fairly detailed analysis and that’s our expectation at the present time.

When you guys work out your projections for the next couple of years, how long do you think this cash will last if we burned $8 million or $9 million this year, whatever the number is, and we burned the same amount next year, do we have enough to make it to the end of next year?

From that point of view based on the projections we’ve seen there’s no question we have enough to make to the end of the next year, that’s not an issue.

And how low can that cash actually go, there’s got to be some level where you get nervous or don’t feel comfortable, is there some number that you don’t want to go below on that cash balance?

I don’t think we should speculate that right now, I don’t think that’s in the foreseeable future.

Just a quick reminder, that is * and 1 if you’d like to ask a question. We’ll next move to Eric Wold.

Hey, just a follow question to make sure I understand this. If I look at ’07, specifically on the JV model, and I know that each deal could be different from the others, but given the one on the slide with 75/25 recoupement to IMAX on a $700,000 investment, so I understand it’s likely unless that theater opens up in the very, very first part of the year that you would not recoup that $700,000 during ’07 such that any JVs installed in ’07 prior would not contribute to profitability in ’07 but would be in ’08?

That’s correct, on a cash basis.

But on a GAAP earnings it would contribute to the bottom line?

Yeah, sure as soon it opens.

Okay, I just want to make sure, thank you.

Moving on, we’ll now go to Ken Silver.

Hi, just a quick followup. I appreciate you sort of giving some preliminary guidance for the cash balance at the end of next year and I think you said you felt maybe it would decline by $8 million. I guess the only thing I wanted to clarify about that was does that also anticipate some borrowings under the bank line at that point in time?

No, we’re talking about total cash position, no Ken.

Okay, thanks a lot.

And just as a final reminder, that is * and 1. And there appear to be no further questions at this point.

I think Rich and I will make some concluding remarks. First, thank you very much for joining us. I think as we indicated in our last call in August while we don’t plan to give financial guidance going forward, we are trying to give greater transparency into our business and particularly the operating levers of our business and the items that we look at such as signings of joint ventures or performance per film, aggregate performance per theater. Thank you for spending as much time as you did with us today, but the purpose is to give insights into the operating levers in our business, because at the end of the day that’s what translates into shareholder value over the long term, and that’s what we’re trying to achieve.

Yeah, adding to what Brad said, I think one reason we decided to put the slides out on the web was to enable you all to build a financial model based on the pieces that we put together on the slide, and I think in particular on the financial side we’re going to try and be accessible to help answer your question to fill out that model. So, you should please call Amanda Mullen and Amanda will address the calls to Ed MacNeil, our CFO, or to Brad or myself as appropriate, and again thank you for joining us.

That does conclude this conference call. Thank you all for joining us and have a wonderful day.