Knobias Clip Report (12-7-2007)

Submitted By Knobias ClipReport

IMAX: Announces 100 Screen Joint Venture Agreement with AMC Entertainment Inc.

Imax Corp. (IMAX) and AMC Entertainment announced a joint venture agreement to convert 100 of AMC’s screens into IMAX projection systems in 33 major US cities. The agreement is projected to double IMAX's current commercial theatre footprint in North America and accelerates the momentum behind IMAX and AMC's transition to digital projection technology.

According to the conference call, the agreement is based on the premise that IMAX will carry the cost of projectors and their installation which normally cost in the $500,000 range, while AMC will retrofit auditorium seating and screens to accommodate for the IMAX experience.

The rollout of the first 50 IMAX digital projection systems will begin in July 2008 at premier AMC theatre locations in 24 of the 33 selected markets, with an additional 25 scheduled for rollout in 2009 and 25 more in 2010. The IMAX theatres are slated to be installed in many of AMC's top-performing locations in the United States, including: AMC South Barrington 30, Chicago; AMC Mesquite 30, Dallas; AMC Gulf Pointe 30, Houston; AMC Century City 15, Los Angeles; AMC Empire 25, New York; AMC Neshaminy 24, Philadelphia; AMC Eastridge 15, San Francisco; AMC Hoffman Center 22, Washington D.C.

The Company noted that deal will allow IMAX to receive a percentage of net revenue. It wasn’t completely disclosed exactly what the percentage was, but a cannibalization clause was built into the deal which would protect AMC somewhat. Even so, projections have a payback period of 2.4 years for IMAX with an internal rate of return of 37.5%. With only a $500,000 investment, IMAX is expecting to receive a total of $1.51M over a 7 year period per screen.

The projectors were noted as being the new digital line the Company had been developing. In October of this year, IMAX announced that it had moved up the launch date of its digital projection system to mid-2008 from its previously announced anticipated timeframe of the end of 2008 to mid-2009. The highly anticipated IMAX digital projection system will further enhance The IMAX Experience and help to drive profitability for studios, exhibitors and IMAX theatres by virtually eliminating the need for film prints, increasing program flexibility and ultimately increasing the number of movies shown on IMAX screens.

On the financing the maximum amount of cash IMAX would need to complete installation was noted as $18 million. The Company reported that while more capital would be spent during the deal, IMAX would only need $18 million to finish the installation because cash flow would begin following the first installations which would help the cost of subsequent costs. As of the Company’s latest quarterly report, cash and cash equivalents totaled $15.98 million while short term investments were $2.192 million. The amounts cause IMAX to need additional financing but the accounts receivable balance was $22.511 million while financing receivables came in at $62.214 million, more than enough to cover the costs of the projector installations.

In addition, IMAX noted the record opening and second week numbers from their release of Beowulf at their theaters throughout the country. Following the news, shares of IMAX opened up 48% on strong volume. While the deal could conceivably bring the Company closer to profitability, the legitimacy and recognition the Company could receive might cause a snowball effect with other theaters adding an IMAX screen to their lineup. With that in mind, investors would be wise to watch.



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