IMAX MAKES GIANT LEAP BIG PICTURES PUSH FIRM INTO PROFIT.

Byline: Greg Hernandez Staff Writer

With well-received giant screen versions of ``Star Wars: Episode II - Attack of the Clones'' and ``Apollo 13'' leading the way, the IMAX Corp. on Thursday reported its first profitable year since 1999 as the Toronto-based company seeks to retrofit more major studio films to play in its big screen venues.

``Simply put, it is our goal that when it is time to see event Hollywood films such as 'Harry Potter,' 'Lord of the Rings' or 'Star Wars,' consumers will say, 'Let's go see it at the IMAX' and will be willing to pay a premium price for the experience,'' said Bradley J. Wechsler, IMAX co-chairman and chief executive.

After a successful summer run in theaters, ``Clones'' was re-launched in November as an IMAX film after being converted by the company's DMR process which allows for a movie to be enlarged for an IMAX screen without compromising picture quality.

In announcing fourth-quarter and year-end earnings, executives said in a conference call Thursday that they expect ``significant increases in profitability'' in 2003 due to overall progress in commercial theater strategy, lowered corporate cost structure and growth in theater system signings.

``From top line to bottom line they outperformed our expectations,'' said Kavir Dhar, an analyst with Jeffries & Company Inc. in New York.

In the fourth quarter, IMAX's revenues were $37.3 million compared with $33.9 million in the prior year. Film revenue was $11.5 million in the fourth quarter versus $6.6 million in 2001, results also helped by the strong performance of the company's film ``Space Station'' which was narrated by Tom Cruise.

But such educational-oriented product as ``Space Station'' is set to be accompanied by more commercial fare in the coming years as the IMAX version of ``Clones'' grossed $1.4 million in its first weekend, one of the biggest openings ever for an IMAX release.

``Directors can now shoot a movie in their normal 35mm film and convert the movie to the IMAX film format for $2 (million to) $4 million, a sum relatively insignificant for a studio and the returns to a studio can be quite significant,'' said Richard L. Gelfond, also IMAX co-chairman and chief executive. ``Economics for these films are becoming more and more attractive for studios and exhibitors.''

Gelfond said among the returns for a studio is that there is an extra boost to the video release of a film after it has played on IMAX. He cited the success Disney's home video division had with ``Beauty and the Beast'' which enjoyed robust video sales after an IMAX run that came more than a decade after the film's original theatrical release.

``Disney saw immediate payback from the box office receipts,'' said Gelfond, who added that 20th Century Fox also had ``great promotion'' for its home video of ``Clones'' which hit stores shortly after it emerged on the IMAX screens.

Company officials said research showed that audiences for these films traveled more than 20 miles and indicated that they would be willing to pay the additional $3 to $4 for future DMR releases of event films.

Dhar said that while offering a wider variety of commercially viable films is a key to the company's long-term success, most important to its bottom line is the sale of IMAX equipment to theater exhibitors.

``IMAX system orders ultimately drives the financial results of the company,'' said Dhar, who added that a major new benefit is that existing theaters can now be retrofitted with IMAX systems.

``Now you can go to the target customer and say, 'You don't have to build a lot of new theaters, we've created a way where you can put IMAX in an existing multiplex,'' he said. ``This makes it more economical.''

For all of 2002, the company signed new agreements for 21 new theater systems compared with 12 in 2001. Founded in 1967, there were 232 IMAX theaters operating in 32 countries as of the end of last year.

Earlier this week, the company announced that it had entered into an agreement with Regal Entertainment Group Inc. to further expand its IMAX theater network. Regal will operate 14 IMAX theaters, making it the largest third-party operator of IMAX theaters in the world.

For all of 2002, the company's revenues were $130.7 million as compared with $118.7 million in 2001. Film revenue was $40.6 million in 2002 as compared with $29.9 million in the prior year.