Eric Wold – Merriman Curhan Ford

Welcome to the IMAX quarterly earnings conference call. Today's call is being recorded. At this time, I would like to turn theconference over to Mr. Brad Wechsler.

Thank you very much, operator. Good morning, everybody and thanks forjoining us today on our conference call. Joining me as usual is my partner, co-Chairmanand co-CEO, Rich Gelfond. Also with usare our CFO, Joe Sparacio and General Counsel, Rob Lister. Before we begin, let me remind you of the followinginformation regarding forward-looking statements. Our comments and answers toyour questions on this call may include statements that are forward-looking inthat they pertain to future results or occurrences. Actual future results oroccurrences may differ materially from these forward-looking statements. Pleaserefer to our SEC filings for a more detailed discussion of some of the factorsthat could affect our future results and occurrences, including the 10-K(a) and10-Q(a) we filed on Tuesday and the 10-Q we will be filing later today. During today's call, references will be made to certainnon-GAAP financial measures as defined by Regulation G of the Securities andExchange Commission. A discussion ofmanagement’s views of these measures and reconciliations to GAAP measures arecontained in the company's earnings release and our 10-K(a) for fiscal 2006, aswell as our 10-Q for the third quarter of fiscal 2007, which as I said, will befiled later today. The full text of the earnings release, along with supportingfinancial tables, is available on our website, www.imax.com. Today's conference call is being webcast inits entirety on our website. I would like to begin by discussing where IMAX stands todayfrom a strategic point of view and where we go from here, particularly withrespect to our pending transition to digital. Over the last decade, IMAX hasrecognized and discussed the benefits of transitioning from a film-based systemto a digital format. We have had some false starts, as well as promisingbreakthroughs. Several weeks ago, we announced a seminal event: the formallaunch of our digital projection system set for late in the second quarter of2008.…

Thanks, Brad. Webelieve that the beginning of our digital rollout will usher in the beginningof the end of our difficult financial transition period. The last year and thenext few quarters have been and will be negatively impacted in part by issuesarising out of the digital transition from increased R&D to delayedinstallations to our inability to recognize revenue on systems where we providea digital upgrade. When we move into our full rollout of digital systems in thethird and fourth quarters of 2008, we should see a marked improvement infinancial performance. The indices which will be the key drivers in creatingearnings in our digital environment include film slate, film performance,signings, JV signings and theater performance. Let's start with a look at our film slate. Next week, we are excited torelease Beowulf in IMAX 3D. This film looks amazing and is visuallystunning as a result of the next generation of the Polar Express-type CGI technology used by Robert Zemeckis. Thejunket press screenings were held exclusively in IMAX 3D -- that means not in 35 millimeter and not indigital 3D --and generated enthusiasticreactions. As we indicated on our lastcall, this is the first time a film will be released simultaneously in IMAX 3D,as well as conventional theater digital 3D. We welcome the opportunity to compare the per-screen box office of thetwo and believe the pricing in box office numbers will bear out that the IMAXexperience delivers the best, most differentiated, movie-going experience incinema. After Beowulf, wewill release I Am Legend with WarnerBrothers Pictures on December 14. Thishighly anticipated film stars Will Smith as a brilliant scientist who is thelast human survivor of a virus that has wiped out all but the mutant victims ofthe plague. He must race against time to find a way to reverse the effects ofthe virus, using his own immune…

(Operator Instructions) Your first question comes from RichIngrassia - Roth Capital Partners.

Rich, we can't hear you.

Mr. Ingrassia, is your line on mute, sir? We will go to the next question.

Operator?

Hi, sir.

We can't hear anything. Are you putting through the questions?

Your next question comes from Eric Wold –Merriman Curhan Ford. Mr. Wold, please go ahead. Eric Wold –Merriman Curhan Ford: You gave the amount you are spending this year on legal andaccounting fees of $12 million and $8 million on R&D. What should we think about into '08? How muchof that legal and accounting fee won't be there next year? How much do you think is centered just purelyon this year to get the filings up to speed and all that? How much digitalspend would be left for 2008?

Eric, let me answer that a little differently, because Ithink you are asking obviously a very important question. Before we had our regulatory issues andbefore we were doing our digital R&D, I think you might see legal andprofessional fees, legal and accounting/professional fees, in the $3 million to$4 million range. I think you would also see a run rate of R&D of $3.5million. Now '08 is a hybrid year, meaning we are still going to bespending some money on R&D development certainly through the early parts ofnext year and we are also going to be continuing with the regulatoryinquiries. I think our expectationobviously is that we hit the high points in this previous year and it startstailing down, and we hit hopefully a normalized run rate towards the end ofnext year. So that is not quantifying the answer for '08, but it justmeans I think you have seen the peak in '07 and I gave you some sense of whatthe normal run rate is. Eric Wold –Merriman Curhan Ford: I gather, obviously, that with the digital install coming orthe digital projector available around the middle of the year, obviously as youtalked about, you are probably not going to see a lot of installs in the firsthalf of the year. People wait andobviously for your sense, it's probably not worth installing something you aregoing to upgrade anyway in a few months. Knowing that, you are probably going to see a prettyback-weighted year for installs into '08. What is your capacity to get those installs done? What are your thoughts on if you do getalmost all the installs kind of pushed into the last two quarters, howdifficult will that be to get complete?

Eric, our technology group has said that they could installas much as demand requires in the second half of the year. With that said, we are in the process of quantifyingthat and weaning it down, but it does not appear that the supply chain shouldbe an obstacle. Eric Wold –Merriman Curhan Ford: Is it safe then to assume there should fairly minimal, ifany, installs in the first half?

Yes, it is going to be small, but I think the “if any” iswrong. I mean there should definitely be installs in the first half and theseare obviously film-based systems, some of which we will have an obligation toupgrade, some of which frankly we won't have an obligation to upgrade. Some will be domestic and a bunch will beinternational. Eric Wold –Merriman Curhan Ford: In that backlog number you gave out, what is the number thatare scheduled to be installed during the fourth quarter, including the two thatwere moved?

The fourth quarter of this year? Eric Wold –Merriman Curhan Ford: Correct. Currentquarter.

I think it is about seven, Eric. Eric Wold –Merriman Curhan Ford: Including those two?

Including the two that slipped.

Yes.

(Operator Instructions) There are no questions at this time.

Why don't Rich and I just make a couple of closing remarks? Mine are unbelievably simple and it's afunction of one of the things that we emphasized in the speech and it isactually a function of one of the questions that we got. When we look forward, obviously Rich and I are veryenthusiastic about the effects on our business with the transition to digitalin and of itself, and also, I think we are very bullish on joint ventures andwhat they can do for us in terms of deployment of capital and return oninvestment. On the other side, we see significant decreases in cashexpenditures and P&L expenditures with respect to SG&A and R&D andall of this really should begin to coalesce into our financials towards thesecond half of next year. But basically, the financials at IMAX tend to lag andI think what Rich and I are seeing on the ground on an operating basis ispretty positive with respect to our business. Rich, your comments?

It is consistent, Brad. The only thing I would like to add is that at various times in abusiness' history, things look better on the inside or worse on the inside thanthey look on the outside. At the moment,there is somewhat of a disconnect between the level of business activity bothfrom studios and exhibitors and as we are talking about the performance of thetheaters, same-store sales up 60% versus what our reported financials are; andas Brad said, there is a lag between our business activity and what getsreported. I guess I would just like to convey a personal view, whichBrad shares, is that right now things under the hood and inside the car look alot better than they do looking at the car from the outside. We are confident that over time, particularlywith the launch of digital, things will look as good on the outside as they nowdo on the inside. With that, we would like to thank you for joining us.