Headline, Industry News

Imax accounting errors US$2.5M

Friday March 16th 2007

TORONTO (CP) _ Giant-screen movie company Imax Corp. (TSX:IMX) saw its financial problems get a little bigger Friday as it postponed its annual report and said it will restate six years of results, recognizing accounting errors worth about US$2.5 million.

The 2006 earnings report was due Friday, but the company now expects to file by March 30, falling within the 15-day grace period allowed by regulators.

In an investor conference call, co-CEOs Richard Gelfond and Bradley Wechsler detailed the errors that were discovered while the company reviewed its financial statements for timing of revenue recognition.

The revisions include fees paid to a law firm that was hired to find theatre deals in Asia. The fees were listed as a "cost of goods sold" when the theatre installations were recognized. The Toronto-based company, which reports in U.S. dollars, will adjust its financial statements by $800,000.

Imax also incorrectly tracked marketing expenses for co-productions "Deep Sea 3-D" and "Magnificent Desolation," and listed certain costs as profits, amounting to $900,000 in adjustments.

The company also paid U.S. expense taxes in 2006 that should’ve been recognized as $250,000 each year from 2003 to 2005, totalling $750,000.

"We fully recognize that the delay in filing the 10-K (U.S. financial report) and the underlying causes are unacceptable and we are committed to improving our financial controls and systems," Wechsler said.

Imax is reviewing the errors with accounting firm PricewaterhouseCoopers LLP and will provide an update once it reaches a conclusion, it said.

A fourth-quarter conference call is scheduled for March 30.

Imax discovered the latest financial problems while combing through past reports as part of informal inquiries made by the U.S. Securities and Exchange Commission and the Ontario Securities Commission about its previous accounting recognition of revenues. The company noted that the two incidents are otherwise unrelated.

Imax is also facing shareholder civil suits claiming the company misled investors.

Last August, chief financial officer Frank Joyce abruptly resigned. Imax said he planned to leave the company months ago to pursue other interests.

The company has yet to hire a permanent replacement.

Last November, Imax stock tumbled 29 per cent to its lowest level in more than four years after the firm reported a US$12-million loss in the third quarter, missing analyst estimates by a wide margin.

Aside from the restatement, Imax logged a strong week of announcements, saying that it had installed seven theatre systems in the fourth quarter and signed for another nine systems.

The exhibitor wrapped up the year with about $27 million in cash and short-term investments.

Earlier this week, Imax entered a joint venture with exhibitor Regal Cinemas Inc. to install two giant-screen theatre systems, and signed a separate five-screen deal with a Kansas-based exhibitor.

The contracts came on the heels of blockbuster first-weekend results for the action film "300" which brought in $71 million across both conventional and giant screens. Imax posted weekend records on 48 of the 62 screens that were showing the film.

On the Toronto stock market Friday afternoon, Imax shares dipped five cents at $5.82. The 52-week high is $12.72 and the low is $3.78.