1Q1+
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form10-K
Form 10-K
(Mark One)
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31 2017, 2023
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file Number001-35066
IMAX Corporation
(Exact name of registrant as specified in its charter)
Canada | 98-0140269 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |
2525 Speakman Drive, Mississauga, Ontario, CanadaL5K 1B1
| 902 Broadway, Floor 20 New York, New York, USA10010
| |
(Address of principal executive offices, zip code, telephone numbers)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
|
| |||
Common Shares, no par value | IMAX | The New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐No☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company.company, or an emerging growth Company. See the definitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company,” and “emerging growth company” inRule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting | ☐ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. □
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). □
Indicate by check mark whether the registrant is a shell Company (as defined inRule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the common shares of the registrant held bynon-affiliates of the registrant, computed by reference to the last sale price of such shares as of the close of trading on June 30, 20172023 was $1,219.7$758.9 million.
As of January 31, 2018,2024, there were 64,902,20152,951,334 common shares of the registrant outstanding.
Document Incorporated by Reference
Portions of the registrant’s definitive Proxy Statement to be filed within 120 days of the close of IMAX Corporation’s fiscal year ended December 31, 2017,2023, with the Securities and Exchange Commission pursuant to Regulation 14A involving the election of directors and the annual meeting of the stockholders of the registrant (the “Proxy Statement”) are incorporated by reference in Part III of thisForm 10-K to the extent described therein.
IMAX CORPORATION
December 31, 20172023
Table of Contents
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Item | 4 | |||||||||
Item | 17 | |||||||||
Item 1B. | 31 | |||||||||
Item | 31 | |||||||||
Item | 33 | |||||||||
Item | 33 | |||||||||
Item 4. | ||||||||||
33 | ||||||||||
Item 5. | 34 | |||||||||
Item 6. | 36 | |||||||||
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 37 | ||||||||
Item 7A. | 64 | |||||||||
Item 8. | 66 | |||||||||
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 138 | ||||||||
Item 9A. | 138 | |||||||||
Item 9B. | ||||||||||
138 | ||||||||||
Item | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 138 | ||||||||
Item 10. | 139 | |||||||||
Item 11. | 139 | |||||||||
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 139 | ||||||||
Item 13. | Certain Relationships and Related Transactions, and Director Independence | 139 | ||||||||
Item 14. | ||||||||||
139 | ||||||||||
Item 15. | 139 | |||||||||
Item 16. | ||||||||||
142 | ||||||||||
143 | ||||||||||
2
IMAX CORPORATION
EXCHANGE RATE DATA
Unless otherwise indicated, all dollar amounts in this document are expressed in United States (“U.S.”) dollars.Dollars. The following table sets forth, for the periods indicated, certain exchange rates based on the noon buying rate in the City of New York for cable transfers in foreign currencies as certified for customs purposes by the Bank of Canada (the “Noon Buying Rate”). Such rates quoted are the number of U.S. dollarsDollars per one Canadian dollarDollar and are the inverse of rates quoted by the Bank of Canada for Canadian dollarsDollars per U.S. $1.00. The average exchange rate is based on the average of the exchange rates on the last day of each month during such periods. The Noon Buying Rate on December 31, 20172023 was U.S. $0.7971.$0.7561.
|
| Years Ended December 31, |
| |||||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||||
Exchange rate at end of period |
|
| 0.7561 |
|
|
| 0.7383 |
|
|
| 0.7888 |
|
|
| 0.7854 |
|
|
| 0.7699 |
|
Average exchange rate during period |
|
| 0.7409 |
|
|
| 0.7685 |
|
|
| 0.7977 |
|
|
| 0.7455 |
|
|
| 0.7536 |
|
High exchange rate during period |
|
| 0.7617 |
|
|
| 0.8031 |
|
|
| 0.8306 |
|
|
| 0.7863 |
|
|
| 0.7699 |
|
Low exchange rate during period |
|
| 0.7207 |
|
|
| 0.7217 |
|
|
| 0.7727 |
|
|
| 0.6898 |
|
|
| 0.7353 |
|
Years Ended December 31, | ||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||
Exchange rate at end of period | 0.7971 | 0.7448 | 0.7225 | 0.8620 | 0.9402 | |||||
Average exchange rate during period | 0.7712 | 0.7558 | 0.7748 | 0.9022 | 0.9713 | |||||
High exchange rate during period | 0.8245 | 0.7972 | 0.8527 | 0.9422 | 1.0164 | |||||
Low exchange rate during period | 0.7276 | 0.6854 | 0.7148 | 0.8589 | 0.9348 |
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain statements included in this annual report may constitute “forward-looking statements” within the meaning of the UnitedU.S. States Private Securities Litigation Reform Act of 1995.1995 or “forward-looking information” within the meaning of Canadian securities laws. These forward-looking statements include, but are not limited to, references to future capital expenditures (including the amount and nature thereof), business and technology strategies and measures to implement strategies, competitive strengths, goals, expansion and growth of business, operations and technology, future capital expenditures (including the amount and nature thereof), industry prospects and consumer behavior, plans and references to the future success of IMAX Corporation together with its consolidated subsidiaries (the “Company”)the Company and expectations regarding the Company’sits future operating, financial and technological results. These forward-looking statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. However, whether actual results and developments will conform with the expectations and predictions of the Company is subject to a number of risks and uncertainties, including, but not limited to, risks associated with investments and operations in foreign jurisdictions and any future international expansion, including those related to economic, political and regulatory policies of local governments and laws and policies of the United States and Canada;Canada, as well as geopolitical conflicts; risks related to the Company’s growth and operations in China; the performance of IMAX DMR films;® films and other films released to the IMAX network; the signing of theater systemIMAX System agreements; conditions, changes and developments in the commercial exhibition industry; risks related to currency fluctuations; the potential impact of increased competition in the markets within which the Company operates;operates, including competitive actions by other companies; the failure to respond to change and advancements in digital technology; risks relating to recent consolidation among commercial exhibitors and studios; risks related to brand extensions and new business initiatives; conditions in thein-home andout-of-home entertainment industries; the opportunities (or lack thereof) that may be presented to and pursued by the Company; risks related to cyber-security;cyber-security and data privacy; risks related to the Company’s inability to protect its intellectual property; risks related to climate change; risks related to weather conditions and natural disasters that may disrupt or harm the Company’s intellectual property;business; risks related to the Company’s indebtedness and compliance with its debt agreements; general economic, market or business conditions; risks related to political, economic and social instability; the failure to convert theater system backlog into revenue; changes in laws or regulations; any statements of belief and any statements of assumptions underlying any of the failure to fully realize the projected cost savingsforegoing; other factors and benefits fromrisks outlined in the Company’s restructuring initiative;periodic filings with the United States Securities and Exchange Commission (the “SEC”) or in Canada, the System for Electronic Document Analysis and Retrieval (“SEDAR+”); and other factors, many of which are beyond the control of the Company. Consequently, all of the forward-looking statements made in this annual report are qualified by these cautionary statements, and actual results or anticipated developments by the Company may not be realized, and even if substantially realized, may not have the expected consequences to, or effects on, the Company. The forward-looking statements herein are made only as of the date hereof and the Company undertakes no obligation to update publicly or otherwise revise any forward-looking information,statements, whether as a result of new information, future events or otherwise.
IMAX®, IMAX® Dome, IMAX® 3D, IMAX® 3D Dome, Experience It In IMAX®,The IMAXExperience®,An DMR®, Filmed For IMAXExperience®,An IMAX3D Experience®, IMAX DMR®, DMR®LiveTM, IMAX nXosEnhanced®, IMAX think big®, think big®Stream SmartTM and IMAX Is BelievingSSIMWAVE®, are trademarks and trade names of the Company or its subsidiaries that are registered or otherwise protected under laws of various jurisdictions.
3
The CompanyIMAX Corporation, together with its consolidated subsidiaries (the “Company” or “IMAX”) is a Canadian corporation that was formed in March 1994 as a result of an amalgamation between WGIM Acquisition Corp. and the former IMAX Corporation (“Predecessor IMAX”). Predecessor IMAX was incorporated in 1967.
GENERAL
TheAs of December 31, 2023, the Company together with itsindirectly owns 71.55% of IMAX China Holding, Inc. (“IMAX China”), whose shares trade on the Hong Kong Stock Exchange. IMAX China is a consolidated subsidiaries, is onesubsidiary of the world’s leadingCompany.
GENERAL
IMAX is a premier global technology platform for entertainment technology companies, specializing in motion picture technologies and presentations.events. Through its proprietary software, auditorium, architecture, patented intellectual property, and specialized equipment, IMAX offers a uniqueend-to-end cinematic solution combining proprietary software, theater architecture and equipment to create the highest-quality, mostsuperior, awe-inspiring immersive motion picture experiencecontent experiences for which the IMAX® brand has become known globally.is globally renowned. Top filmmakers, movie studios, artists, and studioscreators utilize the cutting-edge visual and sound technology of IMAX theaters to connect with audiences in innovative ways, and asways. As a result, IMAX’s theater networkIMAX is among the most important and successful theatricalglobal distribution platforms for major event films around the world.platforms.
The Company’s coreCompany leverages its proprietary technology and engineering in all aspects of its business, which principally consists of:
IMAX theater systemsSystems are based on proprietary and patented image, audio and other technology developed over the course of the Company’s50-year history. history since its founding in 1967. The Company’s customers who purchase, lease or otherwise acquire thefor IMAX theater systems through joint revenue sharing arrangementsSystems are theaterprincipally theatrical exhibitors that operate commercial multiplex theaters, (particularly multiplexes),and, to a much lesser extent, museums, science centers orand destination entertainment sites. The Company generally does not own the locations in the IMAX theaters,network, except for one, and is not an exhibitor, but licensesinstead sells or leases the IMAX System to exhibitor customers along with a license to use its trademarks and ongoing maintenance services for which there is an annual payment by the exhibitor to IMAX.
IMAX has the largest global premium format network, more than double the size of its trademarks along withnearest competitor. As of December 31, 2023, there were 1,772 IMAX Systems operating in 90 countries and territories, including 1,693 commercial multiplexes, 12 commercial destinations, and 67 institutional locations in the sale, lease or contributionCompany’s global network. This compares to 1,716 IMAX Systems operating in 87 countries and territories as of December 31, 2022, including 1,633 commercial multiplexes, 12 commercial destinations, and 71 institutional locations in the Company’s global network. Additional information on the composition of the IMAX theater system. The Company refers to all theaters usingnetwork is provided in the discussion of Marketing and Customers.
IMAX theater system as “IMAX theaters”.Systems provide the Company’s exhibitor customers with a combination of the following benefits:
IMAX theater systems combine:
4
In addition, certain movies shown in the IMAX network are filmed using proprietary IMAX film cameras or IMAX certified digital cameras, which along with IMAX’s customized guidance and a workflow process provide filmmakers enhanced and differentiated image quality and an IMAX-exclusive film aspect ratio that delivers up to 26% more image onto a standard IMAX movie screen. In select IMAX locations worldwide, movies filmed with IMAX cameras have an IMAX-exclusive 1.43 film aspect ratio, with up to 67% more image.
Together, these components cause audiences in IMAX theaterslocations to feel as if they are a part of theon-screen action, creating a more intense, immersive, and awe-inspiring exciting experience than a traditional theater.conventional cinematic format.
As a result of the immersivenessengineering and superior image and sound qualityscientific achievements that are a hallmark ofThe IMAXExperience®, the Company’s exhibitor customers typically charge a premium for IMAX DMR films overreleased in IMAX’s format versus films exhibited in their other auditoriums. The premium pricing, combined with the higher attendance levels associated with IMAX DMR films, generates incrementalbox-office box office for the Company’s exhibitor customers and for the movie studios releasing their films to the IMAX theater network. The incrementalbox-office box office generated by IMAX DMR films combined with IMAX’s unmatched global network footprint and scale has helped establish IMAX as a key premium distribution and marketing platform for Hollywood and foreign local language movie studios.
The Company’s global content portfolio includes blockbuster films.films, both from Hollywood and local language film industries worldwide; IMAX documentaries, both original and acquired (“IMAX Documentaries”), and IMAX events and experiences in emerging verticals including music, gaming, and sports.
IMAX THEATER NETWORK
The Company believesachieved its second highest grossing year at the global box office (“GBO”) and its highest grossing year at the Domestic, United States and Canada combined, box office in 2023. The year was highlighted by the Company’s highest grossing year for local language films, the $180.4 million in IMAX box office generated by Christopher Nolan’s Oppenheimer, and strong indexing across titles including Super Mario Bros., Guardians of the Galaxy Vol. 3, Spider-Man: Across the Spider-Verse, and Mission Impossible: Dead Reckoning.
A cornerstone of the IMAX theaterbrand for more than 50 years, IMAX recently relaunched its IMAX Documentaries unit to focus on a new generation of narrative-driven original and acquired documentary films, as well as downstream revenue opportunities through partnerships with leading streaming platforms. Additional forthcoming IMAX original documentaries include The Blue Angels and The Elephant Odyssey.
The Company also continues to evolve its platform to bring new, innovative events and experiences to audiences worldwide. During the year, the Company partnered with A24 for the IMAX LiveTM 40th anniversary screening of Jonathan Demme’s Stop Making Sense at the Toronto International Film Festival, which became the highest grossing IMAX Live event of all time. In January 2024, the Company and Pathé Live in partnership with Mercury Studios and Queen Films released Queen Rock Montreal, a concert from 1981, exclusively in 450 IMAX locations globally.
As of December 31, 2023, the Company has a footprint of 252 connected locations in the IMAX network across North America, Europe, and Asia were configured with connectivity to deliver live and interactive content with low latency and superior sight and sound. For more information on the Company’s content, see section “FILM DISTRIBUTION AND POST-PRODUCTION” below.
As a premier global technology platform for entertainment and events, the Company strives to remain at the forefront of advancements in entertainment technology. The Company offers a suite of laser-based digital projection systems (“IMAX Laser Systems”), which deliver increased resolution, sharper and brighter images, deeper contrast, and the widest range of colors available to filmmakers today. The Company further believes that its suite of IMAX Laser Systems are helping facilitate the next major renewal and upgrade cycle for the global IMAX network.
In September 2022, the Company acquired SSIMWAVE Inc. (“SSIMWAVE”), a leader in artificial intelligence (“AI”)-driven video quality solutions for media and entertainment companies. The acquisition of SSIMWAVE marks a significant expansion of the Company’s streaming and consumer technology strategy to deliver the highest quality images on any screen, while also creating cost efficiencies to streaming companies, broadcasters and other companies that transmit visual data — to drive new, recurring revenue and grow its global leadership in entertainment technology. In 2023, the Company formed a new business unit, Streaming and Consumer Technology to focus on in-home entertainment technology. The business unit includes the streaming technology acquired in the SSIMWAVE acquisition as well as IMAX Enhanced® product services.
The Company utilizes AI for image enhancement, streaming technology, and data analysis to improve various aspects of its business. It is one ofactively exploring other global use cases for AI to improve its products, operations, and efficiency.
5
IMAX NETWORK
The IMAX network is the most extensive premium theater networksnetwork in the world with 1,370 theater systems (1,2721,772 IMAX Systems operating in 90 countries and territories, including 1,693 commercial multiplex,multiplexes, 12 commercial destination, 86 institutional) operating in 75 countries as at December 31, 2017.
The Company believes that over time its commercial multiplex theater network could grow to approximately 2,855 IMAX theaters worldwide from the 1,272 commercial multiplex IMAX theaters in operationdestinations and 67 institutional locations as of December 31, 2017. While2023. The Company currently estimates a worldwide commercial multiplex addressable market of 3,619 locations, of which there are 1,693 IMAX Systems operating as of December 31, 2023, representing a market penetration of only 46.8%.
IMAX grew its network by 3.7% in 2023 driven by 128 system installations and ended the year with a backlog of 450 IMAX Systems. The Company continues to grow in the United States and Canada, it believes that the majority of its future network growth will come from international markets.markets outside of China. As atof December 31, 2017, 67.2%2023, 76% of IMAX theater systemsSystems in operationthe global commercial multiplex network were located within international markets (defined as all countries other than the United States and Canada), up from 63.7% as at December 31, 2016, and approximately 90.2% of IMAX theater systems in backlog are scheduled to be installed in international markets, compared to 87.8% as at December 31, 2016.. Revenues and grossbox-officeGBO derived from outside the United States and Canadainternational markets continue to exceed revenues and grossbox-officeGBO from the United States and Canada.
For the year ended December 31, 2023, the Company’s revenue generated from its Greater China continues(which includes the mainland of the People’s Republic of China, Hong Kong, Macau, and Taiwan) operations represents 25% of consolidated revenue, compared to be the Company’s second-largest market, measured by revenues, with approximately 33% of overall revenues generated24% in 2022 and 44% in 2021. Restrictions resulting from the Company’s ChinaCOVID-19 pandemic significantly impacted operations in 2017.China in 2022 and 2023. As atof December 31, 2017,2023, the Company had 544 theaters807 IMAX Systems operating in Greater China andwith an additional 309 theaters206 systems in backlog that are scheduled to be installed in Greater China by 2022.backlog. The Company’s backlog in Greater China represents 61.9%46% of the Company’sits total current backlog.backlog, including system upgrades. The Company’s largest single internationalCompany has a partnership is in China with Wanda Film formerly(“Wanda”) and as of December 31, 2023, through the Company’s partnership with Wanda, Cinema Line Corporation (“Wanda”). Wanda’s total commitment to the Company is for 359 theater systems,there were 376 IMAX Systems operational in Greater China, of which 343 theater systems362 are under the parties’ joint revenue sharing arrangement.arrangements. In December 2023, Beijing Wanda Investment, which owns a 20% stake in Wanda Film Holding, was sold to China Ruyi Holdings, a Tencent Holdings-backed company.
In 2015,(Refer to “Risk Factors – The Company conducts business internationally, which exposes it to uncertainties and risks that could negatively affect its operations, sales and future growth prospects”, “– The Company faces risks in connection with its significant presence in China and the continued expansion of its business there”, “– General political, social and economic conditions can affect the Company’s subsidiary,business by reducing both revenues generated from existing IMAX China Holding, Inc. (“Systems and the demand for new IMAX China”)Systems”, completed an initial public offeringand “– The Company may not convert all of its ordinary shares on the Main Board of the Hong Kong Stock Exchange Limited (the “IMAX China IPO”backlog into revenue and cash flows” in Part I, Item 1A.). Following the IMAX China IPO, the Company continues to indirectly own approximately 67.93% of IMAX China, which remains a consolidated subsidiary of the Company.
PRINCIPAL PRODUCTS AND SERVICES
The Company believes it is the world’s largest designer and manufacturer of specialty premium projection and sound system components for premium large-format theaters around the world, as well asand it is also a significant producer and distributor of large-format films. The Company’s theater systems include specialized IMAX projectors, advanced sound systems and specialty screens.
The Company’s principal products and services are as follows:
The Company assesses and evaluates the Company’s performance based on the operating certain IMAX theaters, camera rentalsresults of the Content Solutions and other miscellaneous items.These product lines do notTechnology Products and Services segments, which largely reflect the naturedifferent customer bases the Company serves. The Content Solutions segment principally focuses on content enhancement and sourcesdistribution services for the Company’s movie studio customers. The Technology Products and Services segment primarily consists of revenue, orproducts and services for the manner in which management reviews financial information.Company’s exhibitor customers, including the sale, lease and ongoing service of IMAX Systems. The Company’s segmentedsegment information is provided in Part II, Item 7, Management’s Discussion and note 18Analysis of Financial Condition and Results of Operations and Note 21 to the accompanying audited consolidated financial statementsConsolidated Financial Statements in Part II, Item 8 of this Annual Report on Form10-K for the Fiscal Year ended December 31, 2017 (this “2017 Form10-K”), which8.
6
IMAX FILM REMASTERING
IMAX Film Remastering is incorporated by reference into this Item I.
DigitalRe-Mastering (IMAX DMR)
The Company has developed a proprietary technology known as IMAX DMR, tothat digitallyre-master Hollywood remasters films into IMAX digital cinema package format or15/70-format film for exhibition informats. IMAX theaters. IMAX DMRFilm Remastering digitally enhances the image resolution of motion picture films for projection on IMAX screens while maintaining or enhancing the visual clarity and sound quality to levels for whichTheIMAXExperience is known. In addition, the original soundtrack of a film to be exhibited across the IMAX network is remastered for IMAX digital sound systems. IMAX remastered soundtracks are uncompressed and full fidelity. IMAX sound systems use proprietary loudspeaker systems and proprietary surround sound configurations that ensure every seat in an auditorium is an optimal listening position.
The IMAX DMRFilm Remastering process involves the following:involves:
The original soundtrack of a film to be exhibited in the IMAX theater network isre-mastered for the IMAX digital sound systems in connection with the IMAX DMR release. Unlike the soundtracks played in conventional theaters, IMAXre-mastered soundtracks are uncompressed and full fidelity. IMAX sound systems use proprietary loudspeaker systems and proprietary surround sound configurations that ensure every theater seat is in an optimal listening position.
IMAX films also benefit from enhancements made by individual filmmakers exclusively for the IMAX release of the film. Collectively, the Company refers to these enhancements as “IMAX DNA.” Filmmakers and filmmakers andmovie studios have sought IMAX-specific enhancements in recent years to generate interest in and excitement for their films. Such enhancements include shooting select scenesfilms with IMAX cameras to increase the audience’s immersion in the film and takingto take advantage of the unique dimensions of the IMAX screen by projecting the film in a larger aspect ratio.ratio that delivers up to 26% more image onto a standard IMAX screen. In addition,select IMAX locations worldwide, movies filmed with IMAX cameras have an IMAX-exclusive 1.43 film aspect ratio, with up to 67% more image. The Company has a Filmed For IMAX® program under which filmmakers craft films from their inception in various ways in order to optimize The IMAX Experience. The program includes incremental and bespoke marketing support, which box office metrics demonstrate audiences respond extremely favorably to, and drives higher market share for IMAX.
Management believes that growth in international box office remains an important driver of growth for the upcoming filmsMarvel’s Avengers: Infinity War andCompany. To support continued growth in international markets, the Untitled Avengers Sequel are expected to be shot in their entireties using IMAX cameras.
In 2017, 60 films were converted throughCompany is focused on the IMAX DMR process and released to theaters inexpansion of the IMAX network byand has sought to bolster its international film studios as comparedstrategy, supplementing its slate of Hollywood films with appealing local language films released in select markets, including China, Japan, India, and South Korea.
7
The following table provides detailed information about the films that were released to 51the Company’s global network during the years ended December 31, 2023 and 2022:
|
|
| For the Years Ended December 31, |
| |||||
|
|
| 2023 |
|
| 2022 |
| ||
Hollywood film releases(1) |
|
|
| 36 |
|
|
| 32 |
|
Local language film releases: |
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|
|
|
|
|
| ||
China |
|
|
| 28 |
|
|
| 15 |
|
Japan |
|
|
| 11 |
|
|
| 8 |
|
South Korea |
|
|
| 9 |
|
|
| 5 |
|
India |
|
|
| 8 |
|
|
| 6 |
|
France |
|
|
| 1 |
|
|
| 1 |
|
Malaysia |
|
|
| 1 |
|
|
| — |
|
Thailand |
|
|
| 1 |
|
|
| — |
|
Indonesia |
|
|
| — |
|
|
| 1 |
|
Total local language film releases |
|
|
| 59 |
|
|
| 36 |
|
Total film releases(2)(3) |
|
|
| 95 |
|
|
| 68 |
|
To date, in 2024, 18 titles have been released to the global IMAX network, including three re-releases, and the Company has announced the following 31 DMRadditional 24 titles to be released in 2018 to the IMAX theater network:
2024:
Scheduled | ||||||
Title | Studio | Release Date(1) | IMAX DNA | |||
Dune: Part II | Warner Bros. Pictures/Legendary Pictures | March 2024 | Filmed For IMAX | |||
Kung Fu Panda 4 | Universal Pictures | March 2024 | — | |||
Ghostbusters: Frozen Empire | Sony Pictures | March 2024 | — | |||
Godzilla x Kong: The | Warner Bros. Pictures/Legendary Pictures | April 2024 | Filmed For IMAX |
Civil War | A24 | April 2024 | — | |||
Spy x Family Code:White | Sony Pictures/Crunchyroll | April 2024 | — | |||
The | Universal Pictures | May 2024 | — | |||
Kingdom of The Planet of The Apes | Walt Disney Studios | May 2024 | — | |||
Furiosa | Warner Bros. Pictures | May 2024 | — |
Bad Boys 4 | Sony Pictures | June 2024 | — | |||
Inside Out 2 | Walt Disney Studios/Pixar Animation Studios | June 2024 | — | |||
A Quiet Place: Day One | Paramount Pictures | June 2024 | — |
Despicable Me 4 | Universal Pictures | July 2024 | — |
Twisters | Universal Pictures/Warner Bros. Pictures | July 2024 | — |
Deadpool & Wolverine |
Marvel Studios/Walt Disney Studios | July 2024 | — |
Alien: Romulus |
Walt Disney Studios | August 2024 | — |
Kraven the Hunter | Sony Pictures/Marvel Studios | August 2024 | — | |||
Beetlejuice 2 | Warner Bros. Pictures | September 2024 | — | |||
Transformers One | Paramount Pictures | September 2024 | — | |||
Wolfs | Sony Pictures/Apple | September 2024 | — | |||
Joker: Folie à Deux | Warner Bros. Pictures/DC Studios | October 2024 | Filmed For IMAX | |||
Venom 3 | Sony Pictures | November 2024 | Filmed For IMAX | |||
Untitled Gladiator Sequel | Paramount Pictures | November 2024 | — | |||
Wicked – Part 1 | Universal Pictures | November 2024 | — |
In addition,
The Company remains in active negotiations with all of the major Hollywood studios for additional films to fill out its shortshort- and long-term film slate for the IMAX network. The Company also expects to announce additional local language films and anticipates that the number ofexclusive IMAX DMR filmsevents and experiences to be released to its global network throughout 2024.
8
FILM DISTRIBUTION AND POST-PRODUCTION
The Company continues to believe that the IMAX theater network in 2018 willserves as a valuable platform to launch and distribute original content. The Company distributes large-format documentary films, primarily to institutional customers. The Company receives as its distribution fee either a fixed amount or a fixed percentage of the box office receipts and, following the recoupment of its costs, is typically entitled to receive an additional percentage of gross revenues as participation revenues.
The ownership rights to such films may be similarheld by the film sponsors, the film investors and/or the Company. As of December 31, 2023, the Company has distribution rights with respect to approximately 60 films, which cover subjects such as space, wildlife, music, sports, history and natural wonders.
In May 2023, the Company announced that Amazon Studios acquired worldwide rights to the 60Company’s original documentary, The Blue Angels, filmed with IMAX DMR filmsdigital certified cameras and produced in collaboration with Dolphin Entertainment, Bad Robot Productions, and Zipper Bros Films. The documentary is expected to be delivered in the second quarter of 2024. In October 2023, Deep Sky, a documentary on NASA’s Webb Telescope in collaboration with Crazy Boat Pictures Ltd. and filmmaker Nathaniel Kahn, was released to the IMAX theaternetwork. In July 2023, the Company also announced the start of production of The Elephant Odyssey, a documentary in collaboration with Beach House Pictures Pte Ltd and China International Communications Group, which is expected to be released in 2025.
In addition, the Company continues to evolve its platform to bring new, innovative IMAX events and experiences to audiences worldwide. As of December 31, 2023, the Company has a footprint of 252 connected locations in the IMAX network across the United States, Canada, Europe, and Asia configured with connectivity to deliver live, interactive content with low latency and superior sight and sound.
In 2023, the Company partnered with Metro-Goldwyn-Studios Inc. (“MGM”) for an IMAX premiere event, consisting of red carpet interviews and behind the scenes footage, followed by a special advanced screening of Creed III, which was released across the IMAX global network. The Company also hosted a reunion of the iconic band Talking Heads at the Toronto International Film Festival, followed by a screening of Stop Making Sense,before the movie was released to the IMAX network more broadly. This became the highest grossing IMAX Live event of all time. These events were broadcast live to much of the IMAX Domestic connected network. In January 2024, the Company and Pathé Live in 2017.partnership with Mercury Studios and Queen Films released Queen Rock Montreal, a concert film from 1981, exclusively in 450 IMAX locations globally.
The Company also provides film post-production and quality control services for large-format films, whether produced by IMAX Systemsor third-parties, and digital post-production services. In addition, the Company also provides IMAX film and digital cameras to content creators under the IMAX certified camera program.
IMAX SYSTEMS
The Company’s primary products are its theater systems.various digital projection systems, which are either sold or leased to exhibitor customers along with a license for the use of the globally recognized IMAX brand. The Company’s digital projection systems include a projector that offers superior image quality and stability and a digital theater control system; a digital audio system delivering up to 12,000 watts of sound; a screen with a proprietary coating technology, and, if applicable,in certain situations, 3D glasses and cleaning equipment. IMAX’s digital projection systemsystems also operatesoperate without the need for analog film prints. Traditional IMAX film-based theater systems contain the same components as the digital projection systems but include a rolling loop15/70-format projector and require the use of analog film prints. Since its introduction in 2008, the vast majority of the Company’s theater sales have been digital systems. Furthermore, a majority of the Company’s existing film-based theater systems have been upgraded, at a cost to the exhibitor, to an IMAX digital system. As part of the arrangement to sell or lease its theater systems, the Company provides extensive advice on theater planning and design and supervision of installation services. Theater systems are also leased or sold with a license for the use of the globally recognized IMAX brand.
The Company’s digital projection system providessystems provide a premium and differentiated experience to moviegoersaudiences that is consistent with what they have come to expect from the IMAX brand, while providing forexhibitor customers with the compelling economics and flexibility that digital technology affords.
As part of the arrangement to sell or lease an IMAX System, the Company provides extensive advice on auditorium planning and design, and supervision of installation services. The terms of each sale or lease arrangement vary according to the configuration of the theater system provided,IMAX System, as well as the cinema market and the film distribution marketmarkets relevant to the geographic location of the customer.
Revenue from theater business arrangements isthe sale or lease of an IMAX System may be recognized at a different time from when cash is collected. See “Critical Accounting Policies” in Item 7 for furthercollected from the exhibitor customer. Further discussion onof the Company’s revenue recognition policies.
IMAX Theater Backlogpolicies is provided in Critical Accounting Estimates in Part II, Item 7 and NetworkNote 2(o) to Consolidated Financial Statements in Part II, Item 8.
9
The Company’s sales backlog is as follows:
December 31, 2017 | December 31, 2016 | |||||||||||||||
Number of Systems | Fixed Contractual Dollar Value (in thousands) | Number of Systems | Fixed Contractual Dollar Value (in thousands) | |||||||||||||
Sales and sales-type lease arrangements | 162 | $ | 205,001 | 143 | $ | 175,331 | ||||||||||
Joint revenue sharing arrangements | ||||||||||||||||
Hybrid arrangements | 121 | 64,328 | (1) | 92 | 48,658 | (1) | ||||||||||
Traditional arrangements | 216 | 11,942 | (1) | 263 | 3,680 | (1) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
499 | (2) | $ | 281,271 | 498 | (3) | $ | 227,669 | |||||||||
|
|
|
|
|
|
|
|
The number of theater systems in the backlog reflects the minimum number of commitments under signed contracts. The dollar value fluctuates depending onfollowing table presents the number of new theater system arrangements signed from year to year, which adds toIMAX Systems that are in the network and in backlog, by configuration, as of December 31, 2023 and the installation and acceptance of theater systems and the settlement of contracts, both of which reduce backlog. Sales backlog typically represents the fixed contracted revenue under signed theater system sale and lease agreements that2022:
|
| December 31, 2023 |
|
|
| December 31, 2022 |
|
| ||||||||||||||||||
|
| System |
|
|
|
|
|
|
|
|
| System |
|
|
|
|
|
|
|
| ||||||
|
| Network |
|
| New |
|
| Upgrade |
|
|
| Network |
|
| New |
|
| Upgrade |
|
| ||||||
|
| Base |
|
| Backlog |
|
| Backlog |
|
|
| Base |
|
| Backlog |
|
| Backlog |
|
| ||||||
IMAX Laser Systems |
|
| 466 |
|
|
| 238 |
|
|
| 68 |
|
|
|
| 349 |
|
|
| 200 |
|
|
| 89 |
|
|
IMAX Xenon Systems |
|
| 1,276 |
|
|
| 144 |
|
|
| — |
|
|
|
| 1,330 |
|
|
| 161 |
|
|
| — |
|
|
IMAX Film Systems |
|
| 30 |
|
|
| — |
|
|
| — |
|
|
|
| 37 |
|
|
| — |
|
|
| — |
|
|
Total |
|
| 1,772 |
|
|
| 382 |
|
|
| 68 |
|
|
|
| 1,716 |
|
|
| 361 |
|
|
| 89 |
|
|
IMAX Laser Systems
In 2014, the Company believes will be recognized as revenue upon installation and acceptance of the associated theater. Sales backlog includes initial fees along with the estimated present value of contractual ongoing fees due over the term, however it excludes amounts allocated to maintenance and extended warranty revenues as well as fees (contingent fees) in excess of contractual ongoing fees that may be received in the future.
The value of sales backlog does not include revenue from theaters in whichintroduced its first laser-based digital projection system. Since then, the Company has continued research and development aimed at creating more affordable laser-based solutions with various screen sizes for its commercial multiplex customers. Beginning in 2021, the Company began offering an equityadditional laser-based system product to provide customers with an opportunity to replace and upgrade IMAX Xenon Systems. The Company currently sells two different configurations of its laser systems. The Company believes that IMAX Laser Systems present greater brightness and clarity, higher contrast, a wider color gamut and deeper blacks, consume less power and last longer than other digital projection technologies, and are capable of illuminating the largest screens in the IMAX network.
IMAX Xenon Systems
In 2008, the Company introduced its digital IMAX Xenon System. Prior to 2008, all of the IMAX Systems offered by the Company were film-based and required analog film prints. The Company believes that IMAX Xenon Systems deliver higher quality imagery when compared with IMAX Film Systems.
IMAX Film Systems
IMAX Film Systems include various configurations, including 2D and 3D systems, and screen sizes. Following the introduction of the digital IMAX Xenon System in 2008, the number of IMAX Film Systems in the IMAX network has decreased significantly. However, IMAX’s proprietary format, the IMAX 70mm Film System continues to be a sought after IMAX viewing experience. The existing network of 30 unique locations are being actively supported and leveraged for special event releases throughout the year such as with the 2023 release of Oppenheimer in IMAX 70mm film, which garnered significant consumer interest operating leases, lettersand demand for this format.
The following table provides information about the Company’s system backlog by deal type as of intent or long-term conditional theater commitments. December 31, 2023 and 2022:
|
| December 31, 2023 |
|
|
| December 31, 2022 |
|
| ||||||||||||||||||||||||||||||||
|
| Number of |
|
|
|
|
|
|
| Number of |
|
|
|
|
|
| ||||||||||||||||||||||||
|
| Systems |
|
|
| Dollar Value |
|
|
| Systems |
|
|
| Dollar Value |
|
| ||||||||||||||||||||||||
(In thousands of U.S. Dollars, except number of systems) |
| New |
|
|
| Upgrade |
|
|
| New |
|
|
| Upgrade |
|
|
| New |
|
|
| Upgrade |
|
|
| New |
|
|
| Upgrade |
|
| ||||||||
Sales Arrangements (1) |
|
| 148 |
|
|
|
| 16 |
|
|
| $ | 158,318 |
|
|
| $ | 16,068 |
|
|
|
| 149 |
|
|
|
| 13 |
|
|
| $ | 165,176 |
|
|
| $ | 14,362 |
|
|
Hybrid JRSA(2) |
|
| 102 |
|
|
|
| 1 |
|
|
|
| 76,173 |
|
|
|
| 910 |
|
|
|
| 116 |
|
|
|
| 4 |
|
|
|
| 86,215 |
|
|
|
| 3,235 |
|
|
Traditional JRSA(2)(3) |
|
| 132 |
|
|
|
| 51 |
|
|
|
| 425 |
|
|
|
| 1,975 |
|
|
|
| 96 |
|
|
|
| 72 |
|
|
|
| 200 |
|
|
|
| 2,900 |
|
|
|
| 382 |
|
|
|
| 68 |
|
|
| $ | 234,916 |
|
|
| $ | 18,953 |
|
|
|
| 361 |
|
|
|
| 89 |
|
|
| $ | 251,591 |
|
|
| $ | 20,497 |
|
|
10
The backlog reflects the minimum number of commitments for IMAX Systems according to the signed contracts. The dollar value fluctuates depending on the number of new arrangements signed from year-to-year, which adds to backlog, and the installation and acceptance of IMAX Systems and the settlement of contracts, both of which reduce backlog. The dollar value of backlog typically represents the fixed contracted revenue according to the signed IMAX System sale and lease agreements that the Company expects to recognize as revenue upon installation and acceptance of the associated system, as well as an estimate of variable consideration in sales arrangements. The value of backlog does not include amounts allocated to maintenance and extended warranty revenues or revenue from IMAX Systems in which the Company has an equity interest, operating leases, and long-term conditional theater commitments. The Company believes that the contractual obligations for theater systemIMAX System installations that are listed in salesthe backlog are valid and binding commitments.
From time to time, in the normal course of its business, the Company will have customers who are unable to proceed with a theater systeman IMAX System installation for a variety of reasons, including the inability to obtain certain consents, approvals or financing. Once the determination is made that the customer will not proceed with installation, the agreement with the customer is terminated or amended. If the agreement is terminated, once the Company and the customer are released from all their future obligations under the agreement, all or a portion of the initial rents or fees that the customer previously made to the Company are recognized as revenue. (Refer to “Risk Factors ― The Company may not convert all of its backlog into revenue and cash flows.”)
The following chart shows the numberCertain of the Company’s theater systems by configuration, opened theater network andcontracts contain options for the customer to elect to upgrade system type during the term or to alter the contract structure (for example, from a joint revenue sharing arrangement to a sale) after signing, but before installation. The current backlog as at December 31:information reflects all known elections.
IMAX MAINTENANCE
2017 | 2016 | |||||||||||||||
Theater Network | Backlog | Theater Network | Backlog | |||||||||||||
Flat Screen (2D) | 5 | — | 9 | — | ||||||||||||
Dome Screen (2D) | 41 | — | 45 | — | ||||||||||||
IMAX 3D Dome (3D) | 2 | — | 2 | — | ||||||||||||
IMAX 3D GT (3D) | 14 | — | 18 | — | ||||||||||||
IMAX 3D SR (3D) | 7 | — | 9 | — | ||||||||||||
IMAX Digital: Xenon (3D) | 1,250 | 467 | 1,093 | 478 | ||||||||||||
IMAX Digital: Laser (3D) | 51 | 32 | (1) | 39 | 20 | (2) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 1,370 | 499 | 1,215 | 498 | ||||||||||||
|
|
|
|
|
|
|
|
TheIMAX System arrangements also include a requirement for the Company estimates that it will install approximately 145 new theater systems (excluding upgrades) in 2018. The Company cautions, however, that theater system installations may slip from period to periodprovide maintenance services over the courselife of the Company’s business, usuallyarrangement in exchange for reasons beyond its control.
an extended warranty and annual maintenance fee paid by the exhibitor. Under these arrangements, the Company provides preventative and emergency maintenance services to ensure that each presentation is up to the highest IMAX theater systems consistquality standard. Annual maintenance fees are paid throughout the duration of the following configurations:
IMAX Digital: Xenon Theater Systems. The vast majorityterm of the Company’s theater system signings have been foragreements. (Refer to “Maintenance and Extended Warranty Services” below.)
OTHER PRODUCTS AND SERVICES
Streaming and Consumer Technology
Streaming and Consumer Technology includes the Company’s proprietary xenon-based digital systems.Streaming Technology software offerings and IMAX Enhanced product services. Streaming Technology consists of several software products including:
These AI-powered products allow streaming platforms and broadcasters to automate workflows. The Company believes that its xenon-based digital projection system delivers highthese products allow users to deliver the highest quality imagery comparedviewing experiences to their subscribers while reducing costs.
IMAX Enhanced is a solution to bring The IMAX Experience into the home. IMAX Enhanced provides end-to-end premium technology across streaming content and best-in-class entertainment devices, offering consumers high-fidelity playback of image and sound in the home and beyond, including the following features:
11
To be certified as IMAX Enhanced, leading consumer electronics manufacturers spanning 4K/8K televisions, projectors, A/V receivers, loudspeakers, soundbars, smartphones, personal computers, tablets, and more must meet a carefully prescribed set of audiovisual performance standards, set by a certification committee, along with other digital systems.some of Hollywood’s leading technical specialists.
At present, certified global device partners include Sony Electronics, Hisense, TCL, LG, Phillips, Hewlett Packard, Xiaomi, Sound United and Honor, among others. As atof December 31, 2017,2023, more than 300 IMAX Enhanced titles have been released across five of the Company had installed 1,250 xenon-based digital theater systemsbiggest streaming platforms worldwide: Disney+, Sony Bravia CORE, Tencent Video, iQiyi and has an additional 467 xenon-based digital theater systemsRakuten TV. Over 15 million IMAX Enhanced certified devices are estimated to be in the market today.
The Company’s collaboration with Disney allows fans to stream 20 Disney titles in IMAX’s expanded aspect ratio at home on Disney+. The presence of IMAX Enhanced on Disney+ provides strong brand exposure for IMAX by expanding the Company’s in-home entertainment footprint to Disney+ and most of its backlog.
IMAX Digital: Laser Theater Systems. The Company introduced its laser-based digital projection system at the end of 2014.150 million global subscribers. The Company believes thethat IMAX laser-based digital projectors present greater brightness and clarity, higher contrast, a wider color gamut and deeper blacks, and consume less power and last longer than existing digital technology, capable of illuminating the largest screens in theEnhanced enables an elevated end-to-end experience on Disney+, with IMAX theater network. As at December 31, 2017, the Company had installed 51 laser-based digital systems. The Companysignature sound coming to subscribers with IMAX Enhanced certified devices. IMAX Enhanced is in the process of developing an updated laser-based projection system, which is targeted primarily for screens in commercial multiplexes.
IMAX Flat Screen and IMAX Dome Theater Systems. IMAX flat screen and IMAX dome systems primarily have been installed in institutions such as museums and science centers. Flat screen IMAX theaters were introduced in 1970, while IMAX dome theaters, which are designed for tilted dome screens, were introduced in 1973. There have been several significant proprietary and patented enhancements to these systems since their introduction. As at December 31, 2017, there were 48 IMAX flat screen and IMAX dome theater systems in the IMAX network, as compared to 56 IMAX flat screen and IMAX dome theater systems as at December 31, 2016. With the introduction of the IMAX digital theater systems, there has been a decrease in the number of IMAX flat screen and IMAX dome theater systems in the network.
IMAX 3D GT and IMAX 3D SR Theater Systems. IMAX 3D theaters utilize a flat screen 3D system, which produces realistic 3D images on an IMAX screen. As at December 31, 2017, there were 21 IMAX 3D GT and IMAX 3D SR theater systems in operation compared to 27 IMAX 3D GT and IMAX 3D SR theater systems in operation as at December 31, 2016. The decrease in the number of 3D GT and 3D SR theater systems is largely attributable to the conversion of existing 3D GT and 3D SR theater systems to IMAX digital theater systems.
New Business Initiatives
The Company is exploring new lines of business outside of its core business, with a focus on alternative location-based entertainment experiences, investments in original content, as well as premium IMAX home entertainment technologies and services.
Virtual Reality
The Company is piloting a comprehensive virtual reality (“VR”) strategy to develop a premium, location-based VR offering that delivers immersive, multi-dimensional experiences, including entertainment content and games, to branded VR centers (“IMAX VR Centers”). Pilot IMAX VR Centers are located in a stand-alone venue and in several multiplexes, and are retrofitted with proprietary VR pods that permit interactive, moveable VR experiences. The Company’s VR initiative is premised on a unique combination of premium content, proprietary design andbest-in-class technology.
In January 2017, the Company launched its flagship pilot IMAX VR Center in Los Angeles. Since that time, the Company has opened six pilot IMAX VR Centers (two in New York City, one in Toronto, one in Manchester, England, one in Shanghai, China and one in Bangkok, Thailand.) The Company continues to evaluate its pilot VR strategy based on several factors, including the overall customer experience, pricing models, throughput, types of content featured and differences in geographic areas.
The Company has also established a virtual reality fund (the “VR Fund”) among the Company, its subsidiary IMAX China and other strategic investors. The VR Fund will help finance the creation of interactive VR content experiences over the next three years for use across all VR platforms, including in the pilot IMAX VR Centers. The VR Fund recently helped finance the production of one interactive VR experience, which debuted exclusively in the pilot IMAX VR Centers in November 2017 before being made available to other VR platforms.
Original Content
In 2017, the Company partnered with Marvel Television Inc. (“Marvel”) and Disney|ABC Television Group toco-produce and premiere theatrically the television series “Marvel’s Inhumans” in IMAX theaters. The first two episodes of the series ran worldwide in IMAX theaters for two weeks in September 2017 and subsequently the series premiered on the ABC network in the U.S. and across other networks internationally. As part of the investment,Company’s next evolutionary step to extend the Company sharesIMAX brand and technology further into new use cases, including streaming entertainment and the consumer electronics market.
(Refer to “Risk Factors ― Failure to respond adequately or in a timely fashion to changes and advancements in technology could negatively affect the economics across the venture, including in both the theatrical and television platforms.Company’s business.”)
Other
The Company continues to believe that the IMAX network serves asderives a valuable platform to launch and distribute original content, especially during shoulder periods. However, the Company expects that future investments in original content will be less capital intensive to the Company thansmall portion of its investment in “Marvel’s Inhumans”.
The Company has also created two film funds to help finance the production of original content. The Company is forming the IMAX China Film Fund (the “China Film Fund”) with its subsidiary IMAX China Holding Inc. (“IMAX China”), its partner CMC and severalrevenue from other large investors to help fund Mandarin language commercial films. The China Film Fund, which is expected initially to be capitalized with over $80.0 million, will target productions that can leverage the Company’s brand, relationships, technology and release windows in China. The China Film Fund is expected toco-finance approximately 15 Mandarin-language tent-pole films over three years, and will target contributions of between $3.0 million and $7.0 million per film. The China Film Fund will operate under an IMAXChina-CMC controlled greenlight committee.
In addition, the Company’s IMAX Original Film Fund (the “Original Film Fund”) was established in 2014 toco-finance a portfolio of 10 original large format films. The Original Film Fund, which is intended to be capitalized with up to $50.0 million, will finance an ongoing supply of original films that the Company believes will be more exciting and compelling than traditional documentaries. The initial investment in the Film Fund was committed to by a third party in the amount of $25.0 million, with the possibility of contributing additional funds. The Company agreed to contribute $9.0 million to the Original Film Fund over five years starting in 2014 and sees the Original Film Fund as a self-perpetuating vehicle designed to generate a continuous flow of high-quality documentary content. As at December 31, 2017, the Original Film Fund has invested $13.4 million toward the development of original films.
IMAX Home Entertainment Technologies and Services
The Company has also announced home theater initiatives,sources including a joint venture with TCL Multimedia Technology Holding Limited (“TCL”) to design, develop, manufacture and sell a premium home theater system. The joint venture has signed agreements with end users for the sale of more than 170 premium home theater systems, and has signed agreements with distributors for the sale of more than 470 home theater systems. The Company does not intend to invest significant capital into the joint venture going forward, and instead expects any additional funding to be provided through third party capital.
Beyond its premium home theater, the Company has also developed other components of a broader home entertainment platform designed to permit customers to view content on a premiumvideo-on-demand basis in their home theaters.
Other
The Company is also a distributor of large-format films, primarily for its institutional theater partners.
Films produced by the Company are typically financed through third parties, whereby the Company will generally receive a film production fee in exchange for producing the film and a distribution fee for distributing the film. The ownership rights to such films may be held by the film sponsors, the film investors and/or the Company. As at December 31, 2017, the Company currently has distribution rights with respect to 46 of such films, which cover such subjects such as space, wildlife, music, history and natural wonders.
Several more recent large-format films that have been distributed by the Company include:A Beautiful Planet, which was released in April 2016 and has grossed over $19.3 million as at the end of 2017;Voyage of Time, which was released in October 2016 and has grossed over $0.5 million as at the end of 2017;Island of Lemurs: Madagascar, which was released in April 2014 and has grossed over $13.8 million as at the end of 2017;Journey to the South Pacific, which was released in 2013 has grossed $13.6 million as at the end of 2017. Large-format films have significantly longer exhibition periods than conventional commercial films and many of the films in the large-format library have remained popular for many decades, including the filmsSPACE STATION,Hubble 3DandT-REX: Back to the Cretaceous.
The Company also provides film post-production and quality control services for large-format films (whether produced internally or externally), and digital post-production services.
As at December 31, 2017, the Company had twoone owned and operated IMAX theaters (December 31, 2016 — two owned and operated IMAX theaters). In addition, the Company hasSystem in Sacramento, California; a commercial arrangement with one theater resulting in the sharing of profits and losses and provideslosses; the provision of management services to three other theaters. The Company also rents itstheaters; renting the Company’s proprietary 2D and 3D large-format film and digital cameras to third party production companies. The Company maintains cameras and other film equipmentcameras; and also offersoffering production advice and technical assistance to both documentary and Hollywood filmmakers.
MARKETING AND CUSTOMERS
The Company markets its theater systemsIMAX Systems through a direct sales force and marketing staff located in offices in Canada, the United States, Greater China, Europe, and Asia. In addition, the Company has agreements with consultants, business brokers and real estate professionals to locate potential customers and theater sitessystem locations for the Company on a commission basis.
TheIMAX currently estimates a worldwide commercial multiplex theater segmentaddressable market of 3,619 locations, of which there are 1,693 IMAX Systems operating as of December 31, 2023, representing a market penetration of only 46.8%. Commercial multiplex systems are the largest part of the IMAX theater network, is the Company’s largest segment, comprising 1,2721,693 IMAX theaters,Systems, or 92.8%96%, of the 1,3701,772 IMAX theaters openSystems in the IMAX network as atof December 31, 2017.2023. The Company’s institutional customers include science and natural history museums, zoos, aquaria, and other educational and cultural centers. The Company also sells or leases its theater systemsIMAX Systems to commercial destinations such as theme parks, private home theaters, tourist destination sites, fairs, and expositions (the Commercial Destination segment). Atexpositions. As of December 31, 2017,2023, approximately 67.2%75% of all openedopen and operational IMAX theatersSystems were in locations outside of the United States and Canada.
The following table outlinesprovides detailed information about the breakdown of the theaterIMAX network by system type and geographic location as atof December 31:31, 2023 and 2022:
|
| December 31, 2023 |
|
|
| December 31, 2022 |
| ||||||||||||||||||||||||||
|
| Commercial |
|
| Commercial |
|
| Institutional |
|
| Total |
|
|
| Commercial |
|
| Commercial |
|
| Institutional |
|
| Total |
| ||||||||
United States |
|
| 363 |
|
|
| 4 |
|
|
| 24 |
|
|
| 391 |
|
|
|
| 364 |
|
|
| 4 |
|
|
| 25 |
|
|
| 393 |
|
Canada |
|
| 42 |
|
|
| 1 |
|
|
| 7 |
|
|
| 50 |
|
|
|
| 40 |
|
|
| 1 |
|
|
| 7 |
|
|
| 48 |
|
Greater China(1) |
|
| 791 |
|
|
| — |
|
|
| 16 |
|
|
| 807 |
|
|
|
| 778 |
|
|
| — |
|
|
| 16 |
|
|
| 794 |
|
Asia (excluding Greater China) |
|
| 166 |
|
|
| 2 |
|
|
| 2 |
|
|
| 170 |
|
|
|
| 138 |
|
|
| 2 |
|
|
| 2 |
|
|
| 142 |
|
Western Europe |
|
| 126 |
|
|
| 4 |
|
|
| 8 |
|
|
| 138 |
|
|
|
| 118 |
|
|
| 4 |
|
|
| 8 |
|
|
| 130 |
|
Latin America(2) |
|
| 60 |
|
|
| 1 |
|
|
| 8 |
|
|
| 69 |
|
|
|
| 55 |
|
|
| 1 |
|
|
| 11 |
|
|
| 67 |
|
Rest of the World |
|
| 145 |
|
|
| — |
|
|
| 2 |
|
|
| 147 |
|
|
|
| 140 |
|
|
| — |
|
|
| 2 |
|
|
| 142 |
|
Total(3) |
|
| 1,693 |
|
|
| 12 |
|
|
| 67 |
|
|
| 1,772 |
|
|
|
| 1,633 |
|
|
| 12 |
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| 71 |
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| 1,716 |
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2017 Theater Network | 2016 Theater Network | |||||||||||||||||||||||||||||||
Commercial Multiplex | Commercial Destination | Institutional | Total | Commercial Multiplex | Commercial Destination | Institutional | Total | |||||||||||||||||||||||||
United States | 364 | 4 | 35 | 403 | 349 | 5 | 41 | 395 | ||||||||||||||||||||||||
Canada | 37 | 2 | 7 | 46 | 37 | 2 | 7 | 46 | ||||||||||||||||||||||||
Greater China(1) | 527 | — | 17 | 544 | 407 | — | 17 | 424 | ||||||||||||||||||||||||
Asia (excluding Greater China) | 100 | 1 | 3 | 104 | 93 | 2 | 3 | 98 | ||||||||||||||||||||||||
Western Europe | 88 | 4 | 10 | 102 | 76 | 6 | 10 | 92 | ||||||||||||||||||||||||
Russia & the CIS | 58 | — | — | 58 | 56 | — | — | 56 | ||||||||||||||||||||||||
Latin America(2) | 42 | — | 12 | 54 | 38 | — | 12 | 50 | ||||||||||||||||||||||||
Rest of the World | 56 | 1 | 2 | 59 | 51 | 1 | 2 | 54 | ||||||||||||||||||||||||
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Total | 1,272 | 12 | 86 | 1,370 | 1,107 | 16 | 92 | 1,215 | ||||||||||||||||||||||||
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For information on revenue breakdown by geographic area, see note 18 to
The Company conducts business internationally,has a partnership in China with Wanda which exposes it to uncertainties and risks that could negatively affectis its operations sales and future growth prospects” and “Risk Factors – The Company faces risks in connection with the continued expansionlargest exhibitor customer. As of its business in China” in Item 1A. The Company’s largest customers as at December 31, 2017, collectively represent 34.1%2023, Wanda represented 22% of the Company’s commercial network, of theaters, 28.5%4% of the Company’s theater system backlog and 13.2%10% of its revenues. As of December 31, 2022, Wanda represented 23% of the Company’s commercial network, 4% of the Company’s backlog and 7% of its revenue. A geographic breakdown of the Company’s revenue is provided in Note 21 to Consolidated Financial Statements in Part II, Item 8.
INDUSTRY OVERVIEW
Competition
Theout-of-home entertainment industry is very competitive,diverse with numerous companies vying for the public’s leisure time, and the Company faces competition as a number of competitive challenges. In recent years, for instance,consequence. Within the theatrical space, exhibitors and entertainment technology companies have introduced their own branded, large-screen 3D auditoriums or other proprietary theater systems, some of which include laser-based projectors, and in many cases, have marketed those auditoriums or theater systems as having the samesimilar quality or attributes asto an IMAX theater. The Company believes that all of these alternative formats deliver images and experiences that are inferior toThe IMAXExperience.System.
The Company may continue to face competition in the future from companies in the entertainment industry with new technologies and/or substantially greater capital resources to develop and support them. The Company also facesin-home competition from a number of alternative motion picturefilm distribution channels such as home video,pay-per-view,subscription streaming services, transactional video-on-demand DVD, Internet (both rentals and syndicatedsales), advertiser-supported video-on-demand, internet, and broadcast and cable television. The Company further competes for the public’s leisure time and disposable income with other forms of entertainment, including gaming, sporting events, concerts, live theater, social media, and restaurants. Furthermore, the Company may continue to face competition in the future from companies in the entertainment industry with new technologies and/or greater capital resources to develop and support them.
The Company believes that its competitive strengths include the value of the IMAX brand name, the premium IMAX consumer experience, the design, quality and historic reliability rate of IMAX theater systems,Systems (including the IMAX Laser Systems as well as the IMAX immersive sound system, the return on investment of an IMAX theater,System for exhibitors, the number and quality of IMAX films that it distributes, the tailored distribution and marketing support by dedicated teams around the world, the relationships the Company maintains with prominent Hollywood and international filmmakers aand other content creators (a number of whom desire to film portions of their movies and events with IMAX cameras, the quality of the sound system components included with the IMAX theater,cameras), the availability of Hollywood and international event films to the IMAX theatersnetwork through IMAX DMRFilm Remastering technology, the availability of unique and innovative events and experiences such as distributed concerts, special theatrical screenings, and live Q&A sessions with top content creators, consumer loyalty and the level of the Company’s service and maintenance and extended warranty efforts. The Company believes that its laser-based projection system increases further the technological superiority of the consumer experience it delivers. As a result, the Company believes that virtually all of the best performing premium theaters in the worldthese alternative formats deliver overall experiences that are inferior to TheIMAX theaters.
Exhibitor Consolidation
The Company’s primary customers are commercial multiplex exhibitors. TheSince 2016, the commercial exhibition industry has undergone significant consolidation, in recent years, with Dalian Wanda’s acquisitions ofincluding AMC and Hoyts Group in 2012 and 2015, respectively, and AMC’sEntertainment Holdings Inc.’s (“AMC”) acquisition of Carmike Cinemas and Odeon & UCI Cinemas Group (“Odeon”), which includes Nordic Cinema Group (“Nordic”), in 2016. The industry continues to consolidate, as evidenced byand Cineworld Group’s plannedGroup plc's (“Cineworld”) acquisition of Regal Entertainment Group the Company’s second largest customer.(“Regal”).
The Company believes that recent exhibitorthe consolidation of the commercial exhibition industry has helped facilitate the growth of the Company’s theaterIMAX network. The Company has historically enjoyed strong relationships with large commercial exhibitor chains, which have greater capital to purchase, lease or otherwise acquire IMAX theater systems.Systems. As larger commercial chains such as AMC and Cineworld have purchased smaller chains, those smaller chains have in turn become part of the IMAX theater network. For instance, following AMC’s acquisition of Odeon and Nordic, the Company and AMC entered into an agreement for 25 new IMAX theater systemsSystems across the Odeon and Nordic theater network. This deal represented the largest single European agreement in the Company’s history. The Company believes that continued consolidation could facilitate further signings and other strategic benefits going forward.
However, exhibitor consolidation has also resulted in individual exhibitor chains constituting a material portion of the Company’s revenue and network. Continued industry consolidation, (asas well as consolidation in the movie studio industry)industry, may present risks to the Company. See(Refer to “Risk Factors”Factors – Consolidation among commercial exhibitors and studios reduces the breadth of the Company’s customer base, and could result in a narrower market for the Company’s products and reduced negotiating leverage. A deterioration in the Company’s relationship with key partners could materially and adversely affect the Company’s business, financial condition or results of operation. In addition, an adverse economic impact on a significant customer’s business operations could have a corresponding material adverse effect on the Company.” in Part I, Item 1.A of this 2017 Form10-K.1A.)
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THE IMAX BRAND
IMAX is a world leader inpremier global technology platform for entertainment technology. and events.
The Company relies on its brand to communicate its leadership and singular goal of creating entertainment experiences that exceed all expectations. Top filmmakers, studios, and studiosother content creators use the IMAX brand to message that a film will connect with audiences in unique and extraordinary ways.
The Company has a Filmed for IMAX program through which filmmakers partner closely with IMAX to craft films that fully leverage IMAX technology and where every frame, from inception, is intentionally designed for The IMAX Experience. Box office metrics demonstrate audiences respond extremely favorably to Filmed for IMAX titles.
To capture content in a resolution appropriate for IMAX screens, filmmakers utilize IMAX 70mm film cameras or IMAX-certified best-in-class digital cameras with leading brands including ARRI, Panavision, RED Digital Cinema and Sony. When this content is paired with IMAX’s proprietary post-production process, the resulting craftsmanship enthralls fans in 1,700+ IMAX locations around the world.
The IMAX brand is a promise to deliver what today’s movie audiences crave, —which is a memorable, more emotionally engaging, more thrilling and shareable experience. ConsumerIMAX commissions on-going third party consumer research conductedto measure the strength of its brand in six countries worldwide by a leading third-party research firm showsnumerous markets. The Company’s latest 2023 studies show that the IMAX brand has achieved near universal awareness, createsis uniquely recognized as a special experienceleading, ultra-premium brand, and isoffers one of the most differentiated movie-going brands. Onexperiences. The IMAX brand has also been proven to signal a standardized measurespecial, must-see event at levels far greater than any other entertainment technology brand based on evidence. Across various measures of brand equity and health, the IMAX brand ranged from two to 10 times more powerful than other exhibition and entertainment technology brands. The Company believes that its strong brand equity supports consumers’ predisposition to choose IMAX over competing brands and to pay a premium forThe IMAXExperience now and into the future.
RESEARCH AND DEVELOPMENT
The Company believes that it is one of the world’s leadinga premier global technology platform for awe-inspiring entertainment technology companiesand events with significant proprietary expertise in digital and film-based projection and sound system component design, engineering, and imaging technology, particularly in laser-based technology. In recent years,A significant portion of the Company has increased its level ofCompany’s research and development in order to developlaser-based projection systems. Theefforts have been focused on the IMAX Laser Systems, which the Company rolled out its laser-based projection system at the end of 2014, whichbelieves is capable of illuminating the largest screens in the Company’s network. The laser-based projection systemIMAX network and provides greater brightness and clarity, higher contrast, a wider color gamut and deeper blacks, while consuming less power and lasting longer than existing digital technology, to ensure that the Company continues to provide the highest quality, premier movie goingcinematic experience available to consumers. However, theThe Company has experienced lower than expected margins from the installation of these laser-based projection systems. As a result, over the past several years, the Company has focused itscontinued research and development efforts on an updatedaimed at creating more affordable laser-based projection system, which is targeted primarilysolutions with various screen sizes for screens inits commercial multiplexes.multiplex customers.
Recent research and development activity has also focused on the exploration of a comprehensive VR strategy to deliver immersive and interactive experiences to consumers through pilot IMAX VR Centers. The Company also has made progress deploying its proprietary expertise in image technology and 3D technology, as well as its proprietary film content and the IMAX brand, for applications in itsin-home entertainment technology initiatives, including its premium home theater system with TCL. The premium home theater system incorporates 4K projection technology, together with security and delivery technology to enable the viewing of current theatrical releases that have been digitallyre-mastered with IMAX enhancement technology.
Going forward, the Company plansintends to continue research and development activity in the future in other areas considered importantto further evolve its end-to-end technology. This includes bringing connectivity to the Company’s continued commercial success, includingglobal network to support live and interactive events worldwide; developing new IMAX film cameras and certifying additional digital cameras; further improving its proprietary film remastering and distribution process for the delivery of content for both theatrical (including local language content) and home entertainment; and further improving the reliability of its projectors;projectors, as well as enhancing the Company’s 2Dimage and 3D image quality; expanding the applicability ofsound quality. Within the Company’s digital technology; developing IMAX theater systems’ capabilities;Streaming and improving the Company’s proprietary tuning system and mastering processes. Furthermore, due to the increasing
success major Hollywood filmmakers have experienced with IMAX cameras, the Company has identified the development and manufacture of additional IMAX cameras as an importantConsumer Technology business, there is ongoing research and development initiative.in perceptual metrics including novel measurement and optimization techniques. Investments are also being made to expand existing and/or develop new technologies which are expected to further enhance video quality, delivery, and creation across devices. Furthermore, the Company intends to invest in activities that will capture opportunities to create/build AI and automation into its operations and processes.
For the years endedAs of December 31, 2017, 2016,2023 and 2015, the Company recorded research2022, 86 and development expenses of $20.9 million, $16.3 million and $12.7 million, respectively. As at December 31, 2017, 8166 of the Company’s employees were connected with research and development projects.projects, respectively.
MANUFACTURING AND SERVICE
Projector Component Manufacturing
The Company assembles the projector of its theater systemsIMAX System projectors at its officefacility in Mississauga, Ontario, Canada (near Toronto). TheWith a few exceptions, the Company develops and designs all of the key elements of the proprietary technology involved in this component. FabricationThe fabrication of a majority of parts andsub-assemblies is subcontracted to a group of carefullypre-qualified third-party suppliers. Manufacture and supply contracts are signed for the delivery of the component on anorder-by-order basis. The Company believes its significant suppliers will continue to supply quality products in quantities sufficient to satisfy its needs. The Company inspects all parts andsub-assemblies, completes the final assembly, and then subjects the projector to comprehensive testing individually and as a system prior to shipment. In 2017,Historically, these projectors including both the Company’s xenon and laser-based projection systems,have had reliability rates based on scheduled shows of approximately 99.9%99%.
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Sound System Component Manufacturing
The Company develops, designs, and assembles the key elements of itsthe theater sound system component. The standard IMAX theater sound system component comprisesconsists of parts from a variety of sources, with approximately 50% of the materials of each sound system attributable to proprietary parts provided under original equipment manufacturers agreements with outside vendors. These proprietary parts include custom loudspeaker enclosures and horns, specialized amplifiers, and signal processing and control equipment. The Company inspects all parts andsub-assemblies, completes the final assembly, and then subjects the sound system component to comprehensive testing individually and as a system prior to shipment.system.
Screen and Other Components
The Company purchases its screen componentcomponents and glasses cleaning equipment from third parties. The standard screen system component is comprisedconsists of a projection screen manufactured to IMAX specifications and a frame to hang the projection screen. The proprietary glasses cleaning machine is a stand-alone unit that is connected to the theater’s water and electrical supply to automate the cleaning of 3D glasses.
Maintenance and Extended Warranty Services
The Company also provides ongoing maintenance and extended warranty services to IMAX theater systems.Systems. These arrangements are usually for a separate fee, although the Company oftensometimes includes free service in the initial year of anthe arrangement. The maintenance and extended warranty arrangements include service, maintenance, and replacement parts for theater systems.IMAX Systems.
To support the IMAX theater network, the Company has personnel stationed in major markets throughout the world who provide periodic and emergency maintenance and extended warranty services on existing theater systems.IMAX Systems. The Company provides various levels of maintenance and warranty services, which are priced accordingly. Under full servicefull-service programs, Company personnel typically visit each theaterIMAX location every six to twelve months to provide preventative maintenance, cleaning and inspection services and emergency visits to resolve problems and issues with the theater system. Under some arrangements, customers can elect to participate in a service partnership program whereby the Company trains a customer’s technician to carry out certain aspects of maintenance. Under such shared maintenance arrangements, the Company participates in certain of the customer’s maintenance checks each year, provides a specified number of emergency visits, and provides spare parts, as necessary. For both xenon and laser-based digital systems, the Company providespre-emptive maintenance, remote system monitoring and a network operations center that provides continuous access to product experts.
PATENTS AND TRADEMARKS
The Company’s inventions cover various aspects of its proprietary technology and many of these inventions are protected by Letters of Patent or applications filed throughout the world, most significantly in the United States, Canada, China, Belgium, Japan, France, Germany, and the United Kingdom. The subject matter covered by these patents and applications and other licenses encompasses theaterincludes auditorium design and geometry, electronic circuitryaudio and display technology, mechanisms employed in projectors and projection equipment (including 3D projection equipment), a method for synchronizing digital data, a method of generating stereoscopic (3D) imaging, data from a monoscopic (2D) source, a process for digitallyre-mastering 35mm films into large-format, a method for increasing the dynamic range and contrast of projectors, a method for visibly seaming or superimposing images from multiple projectors, and other inventions relating to imaging technology, digital projectors. The Company has securedprojectors, laser projection, and video quality assessment. Included in the exclusive license rights from Kodak to aCompany’s patent portfolio ofare more than 5030 patents and patent families acquired from the Eastman Kodak Company covering laser projection technology as well as certain exclusive rights to a broad rangetechnology. In addition, the Company acquired more than 15 patent families in connection with the acquisition of Kodak patentsSSIMWAVE in the field of digital cinema.September 2022. The Company has been and will continue to be diligent in the protection of its proprietary interests.
As atof December 31, 2017,2023, the Company holds 10692 patents, has 14 patents pending in the United States and has corresponding patents or filed applications in many countries throughout the world. While the Company considers its patents to be important to the overall conduct of its business, it does not consider any particular patent essential to its operations. Certain of the Company’s patents for improvements to the IMAX projection system components expire between 20182024 and 2034.2041.
The Company owns or otherwise has rights to trademarks and trade names used in conjunction with the sale of its products, systems, and services. The following trademarks are considered significant in terms of the current and contemplated operations of the Company: IMAX,®, IMAX® Dome, IMAX® 3D, IMAX® 3D Dome, Experience It inIn IMAX®,The IMAXExperience®,An IMAXExperience®,An IMAX3DExperience®, TheIMAX DMR®Experience, DMR,®, Filmed For IMAX, nXos®, IMAX think big®, think big®Live, IMAX Enhanced, and IMAX Is BelievingSSIMWAVE®. These trademarks are widely protected by registration or common law throughout the world.
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HUMAN CAPITAL
The Company also ownsbelieves that effective human capital management is critical to its success. The Company’s human capital management objectives are focused on attracting, engaging, and retaining exceptional talent who are passionate about IMAX’s business; and 2) fostering a work environment that unites diverse teams around its mission to connect the service mark IMAX THEATRETM.world through extraordinary experiences that inspire us to reimagine what’s possible together.
EMPLOYEESTo achieve these objectives, the Company’s people and culture strategy focuses on creating a compelling employee brand which attracts top talent to join the Company; engaging its employee base to maximize overall performance and enhance retention; offering a competitive total rewards program (the “Total Rewards Program”); developing and refining a diversity, equity, and inclusion (“DE&I”) plan that is unique to its business; and continuing its focus on employee safety.
As of December 31, 2023, the Company employed 697 people, of which approximately 69% were employed outside of the United States. The global workforce consists of approximately 96% full-time and 4% part-time employees. Some of the Company’s recent initiatives to achieve its’s human capital management objectives include the following:
Recruiting Talent
The Company had 606believes that a collaborative team of innovative employees from diverse backgrounds and experiences is essential to meet the demands of technology and creativity. Additionally, the Company has and will continue to provide DE&I training for hiring managers to ensure the Company’s interview and hiring processes are fair and equitable. The Company’s outreach efforts include using global job boards, engaging with community associations and organizations, working with universities and colleges to build stronger partnerships, and maintaining relationships with IMAX alumni to proactively expand its sources of talent. The Company continues to implement technologies and solutions to support human capital management strategies and processes while supporting talent management for creative projects as atit stays connected to the vision, foundation, and core of the Company.
Engaging Employees
During 2023, the Company created a comprehensive talent management plan to foster greater employee retention, engagement, and inclusivity. The plan includes incorporating the Company’s values of collaboration, belonging, and excellence in its culture into talent management by rolling out development programs to build manager and leader capabilities and enhancing the overall employee experience. The Company expects to implement the plan in 2024. For 2024, the Company has updated its performance management process and launched an employee training program to foster a high-performance and engaging work culture. For example, the performance management process includes a new mid-year talent review cycle to assess talent, understand the Company’s bench strength and gaps for succession planning and engagement strategies.
In 2024, the Company plans to deploy an employee engagement survey to gather feedback and insights on how to continue to make IMAX a great place to work.
Total Rewards
The Company takes a holistic view of the Total Rewards Program, focusing on providing competitive compensation and benefits packages to attract, incentivize, and retain a talented, diverse, multi-generational workforce.
The Total Rewards Program balances base compensation, incentive compensation for both short-term and long-term performance, and a focus on total well-being of the employee. The Company’s recent efforts to improve the Total Rewards Program include the following:
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Diversity, Equity, and Inclusion
In 2023, the Company continued its commitment to diversity, equity, and inclusion. The Company engaged its executive sponsorship committee to revise its DE&I strategy, which focuses on the following areas:
As of December 31, 2017, compared to 703 employees as at December 31, 2016. Both employee counts exclude hourly employees at2023, women represented approximately 35% of the Company’s ownedglobal workforce. The Company currently has three female directors (30%) and operated theaters, virtual reality centerstwo directors who identify as ethnically diverse (20%) on its Board of Directors (the “Board”). There are four (25%) female members of the Company’s management team of 16 as well as four (25%) members of the Company’s management team who identify as ethnically diverse.
Employee Safety
Risks to the safety of employees are present in day-to-day office work, building renovation, manufacturing, logistics, training, testing, research, and certain other newdevelopment, and during the designing, installation, and servicing of IMAX Systems around the world. The Company has implemented a global program for workplace safety that ensures it has the necessary controls in place to keep its employees and visitors safe. Every employee is responsible for participating in workplace safety planning activities, and managers are responsible for employee safety program implementation within their business initiatives.function. This effort is supported by a cross-functional team dedicated to employee health and safety and business continuity.
AVAILABLE INFORMATION
The Company makes available, free of charge, its Annual Reports onForm 10-K, Quarterly Reports onForm 10-Q and Current Reports onForm 8-K, and any amendments to such reports, as soon as reasonably practicable after such filings have been made with the United States Securities and Exchange Commission (the “SEC”). The public may read and copy any materials the Company files with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549, as well as obtain information on the operation of the Public Reference Room by calling the SEC at1-800-SEC-0330.SEC. Reports may be obtained free of charge through the SEC’s website at www.sec.gov and through the Company’s website at www.imax.com or by calling the Company’s Investor Relations Department at212-821-0100. 212-821-0154. No information included on the Company’s website shall be deemed included or otherwise incorporated into this 2017 Form10-K, except where expressly indicated.
IfBefore you make an investment decision with respect to the Company’s common shares, you should carefully consider all of the information included in this Form 10-K and the Company’s subsequent periodic filings with the SEC. In particular, you should carefully consider the risk factors described below and the risks and uncertainties related to “Forward Looking Statements,” any of the risks described below occurs,which could have a material adverse effect on the Company’s business, operating results andof operations, financial condition couldand the actual outcome of matters as to which forward looking statements are made in this annual report. The following risk factors should be materially adversely affected.
read in conjunction with the balance of this annual report, including the Consolidated Financial Statements and related notes. The risks described below are not the only ones the Company faces. Additional risks not presently knownthat the Company currently deems immaterial or that are currently unknown to the Company or that it deems immaterial, may also impair its business or operations.
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RISKS RELATED TO THE COMPANY’S BUSINESS AND OPERATIONS
The Company conducts business internationally, which exposes it to uncertaintiesGeneral political, social and risks that could negatively affect its operations, sales and future growth prospects.
A significant portion of the Company’s revenues and grossbox-office are generated by customers located outside the United States and Canada. Approximately 65%, 62% and 60% of the Company’s revenues were derived outside of the United States and Canada in 2017, 2016 and 2015, respectively. As at December 31, 2017, approximately 90% of IMAX theater systems arrangements in backlog are scheduled to be installed in international markets. The Company’s network currently spans 75 different countries, and the Company expects its international operations to continue to account for an increasingly significant portion of its revenues in the future. There are a number of risks associated with operating in international markets that could negativelyeconomic conditions can affect the Company’s operations, sales and future growth prospects. These risks include:
In addition, changes in United States or Canadian foreign policy can present additional risks or uncertainties as the Company continues to expand its international operations.
The Company faces risks in connection with the continued expansion of its business in China.
At present, Greater China is the Company’s second largest market, by revenue. In recent years, the Company’s Greater China operations have accounted for an increasingly significant portion of its overall revenues, with nearly 33% of overall revenues generated from existing IMAX Systems and the demand for new IMAX Systems.
The Company’s success depends in part on general political, social and economic conditions and the willingness of consumers to purchase tickets to the IMAX auditoriums. If movie-going becomes less popular globally, the Company’s China operations in 2017. As at December 31, 2017, the Company had 544 theaters operatingbusiness could be adversely affected, especially if such a decline occurs in Greater China with an additional 309 theatersChina. There remains uncertainty around whether and when movie-going will return to pre-COVID levels in backlog, whichvarious markets and there can be no assurance that the reduction in movie-going does not represent 61.9%a permanent change in consumer behavior. The timing and extent of a recovery of consumer behavior and willingness to spend discretionary income on movie-going may delay the Company’s current backlog and which are scheduledability to be installedgenerate significant revenue from GBO generated by its exhibitor customers in Greater China by 2022. Of the systems currently scheduled to be installed in Greater China, 47.3% are under joint revenue sharing arrangements, which further increasevarious markets. In addition, the Company’s ongoing exposure to box office performanceoperations could be adversely affected if consumers’ discretionary income globally or in this market.
The China market faces a number of risks, including changes in laws and regulations, currency fluctuations, increased competition and changes in economic conditions, including the riskparticular geography falls as a result of an economic downturn or recession, as well as othersustained inflationary conditions, that mayhigh interest rates, supply chain issues, or otherwise. Such adverse impact the Company’s exhibitor and studio partners, as well ason consumer’s discretionary income could result in a shift in consumer spending. Adverse developments in any of these areas could impact the Company’s future revenues and cash flows and could cause the Company to fail to achieve anticipated growth. In addition, over the past several years, the growth of screens in Greater China has outpaced IMAX box office growth.
Moreover, certain risks and uncertainties of doing business in China are solely within the control of the Chinese government, and Chinese law regulates both the scopedemand away from movie-going. The majority of the Company’s continued expansionrevenue is directly derived from the box office results of its exhibitor partners. Accordingly, a decline in Chinaattendance at commercial IMAX locations could materially and adversely affect several sources of key revenue streams for the business conducted by it within China. For instance,Company. Sustained inflationary pressures observed globally could materially increase the Chinese government regulates bothcost of our goods, services and personnel, which could cause an increase in the number and timing or terms of Hollywood films released to the China market. Company's operating costs.
The Company cannot provide assurance thatalso depends on the Chinese government will continue to permit the releasesale, lease and installation of IMAX filmsSystems to commercial theatrical exhibitors to generate revenue. Commercial theatrical exhibitors generate revenues from consumer attendance at their theaters, which depends on the willingness of consumers to visit movie theaters and spend discretionary income at movie theaters. In the event of declining box office and concession revenues, commercial exhibitors may be less willing to invest capital in China or that the timing or numberIMAX Systems. In addition, a significant portion of IMAX releases will be favorable to the Company. There are also uncertainties regarding the interpretation and application of laws and regulations and the enforceability of intellectual property and contract rightssystems in China. If the Company were unable to navigate China’s regulatory environment, including with respect to its current customs inquiry, or if the Company were unable to enforce its intellectual property or contract rights in China, the Company’s businessbacklog are expected to be installed in newly built multiplexes. An economic downturn, recession, significant increases in interest rates or other adverse economic developments could be adversely impacted.impact developers’ ability to secure financing on acceptable terms and complete the buildout of these locations, thereby negatively impacting the Company’s ability to install IMAX Systems, grow its theater network and collects its contractual revenue.
The success of the IMAX theater network is directly related to the availability and success of the IMAX DMRremastered films, and other films released to the IMAX network, as well as the continued purchase or lease of IMAX Systems and other support by theatrical exhibitors, for which there can be no guarantee.
An important factor affecting the growth and success of the IMAX theater network is the availability and strategic selection of films for IMAX theaterslocations and thebox-office box office performance of such films. The Company itself produces only a small number of such films and, as a result, the Company relies principally on films produced by third partythird-party filmmakers and studios, including both Hollywood and local language features converted into the Company’s large format using the Company’sformat. In 2023, 95 new IMAX DMR technology. In 2017, 60 IMAX DMR films were released by studios to the worldwide IMAX theaterCompany’s global network. There is no guarantee that filmmakers and studios will continue to release films to the IMAX theater network, or that the films selected for release to the IMAX theater network will be commercially successful.
The Company is directly impacted by thebox-office commercial success and box office results forof the films released to the IMAX network through its joint revenue sharing arrangements, as well as through the percentage of thebox-office box office receipts the Company receives from the studios releasing IMAX DMR films, and the Company’s continued ability to secure films, find suitable partners for joint revenue sharesharing arrangements and to sell IMAX theater systems also depends on the number and commercial success of films released to its network.Systems. The commercial success of films released to IMAX theaterslocations depends on a number of factors outside of the Company’s control, including whether the film receives critical and consumer acclaim, the timing of its release, the success of the marketing efforts of the studio releasing the film, consumer preferences and trends in cinema attendance. Moreover, films can be subject to delays in production or changes in release schedule, which can negatively impact the number, timing and quality of IMAX DMR and IMAX original films released to the IMAX theaterCompany’s global network. For example, the Writers Guild of America and the Screen Actors Guild – American Federation of Television and Radio Artists went on strike in May and July 2023, respectively, over labor disputes with the Alliance Motion Picture and Television Producers. Although these strikes ended in late 2023, they have and may result in further changes in film productions, release, and promotion schedules and plans, which may adversely impact the Company’s revenues and results of operations.
In addition, as the Company’s international network has expanded, the Company has signed deals with studios in other countries to convert their films to the Company’s large format and release them to the IMAX theaters.network. The Company may be unable to select films which will be successful in international markets or may be unsuccessful in selecting the right mix of Hollywood and local DMRlanguage films for a particular country or region.region, notably Greater China, the Company’s largest market. Also, conflicts in international release schedules may make it difficult to release every IMAX film in certain markets.
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The Company depends principally on commercial movietheatrical exhibitors to purchase or lease IMAX theater systems,Systems, to supplybox-office box office revenue under joint revenue sharing arrangements and under its salessale and sales-type lease agreements and to supply venues in which to exhibit IMAX DMR films. The Company can make no assurances that exhibitors will continue to do any of these things.
The Company is unable to predict the pace at which exhibitors will purchase or lease IMAX theater systemsSystems or enter into joint revenue sharing arrangements with the Company, or whether any of the Company’s existing exhibitor customers will continue to do any of the foregoing. If exhibitors choose to reduce their levels of presence or expansion, negotiate economic terms that are less favorable economic terms,to the Company, or decide not to enter into transactions with the Company, the Company’s revenues would not increase at an anticipated rate and motion picture studios may be
less willing to convert their films into the Company’s format for exhibition in commercial IMAX theaters.locations. As a result, the Company’s future revenues and cash flows could be adversely affected.
Recent consolidation among commercial exhibitorsThe Company is undertaking brand extensions and studios reducesnew business initiatives, and the breadthCompany’s investments and efforts in such business evolution may not be successful.
The Company is undertaking brand extensions and new business initiatives. These initiatives represent potential new areas of growth for the Company and could include the offering of new products and services that may not be accepted by the market. The Company has recently explored initiatives in the field of in-home entertainment technology, which is an intensely competitive business and which is dependent on consumer demand, over which the Company has no control. The Company is also exploring new technologies to connect the IMAX network to facilitate bringing more unique content, including broadcasts of live events, to IMAX audiences and to expand the Company’s streaming and consumer technology strategy. If any new brand extensions and business initiatives in which the Company invests or attempts to develop does not progress as planned, the Company may be adversely affected by investment expenses that have not led to the anticipated results, by write-downs of its assets, by the distraction of management from its core business or by damage to its brand or reputation.
New initiatives could involve acquisitions or the formation of joint ventures and business alliances. For example, in September 2022, the Company acquired SSIMWAVE. Such transactions and arrangements involve significant challenges and risks, including that they may not advance the Company’s long-term business strategy, that the Company realizes an unsatisfactory return on its investments or fails to realize anticipated business synergies, that the Company has difficulty integrating or retaining new employees, systems, and technology, that the Company has disagreements with a relevant partner with respect to financing, management, and development, that the Company fails to identify or anticipate risks and liabilities of acquired companies in advance of acquisition, or that management gets distracted from the Company’s core business. Also, it may take longer than expected to realize the full benefits from these transactions and arrangements such as increased revenue or enhanced efficiencies, or the benefits may ultimately be smaller than the Company expected.
The Company faces cyber-security and similar risks, which could result in the disclosure, theft, or loss of confidential or other proprietary information, including intellectual property, damage to the Company’s brand and reputation, legal exposure and financial losses. The Company must also comply with a variety of data privacy regulations and failure to comply with such regulations may adversely affect the Company’s financial performance.
The nature of the Company’s customer base,business involves access to and storage of confidential and proprietary content and other information, including its own intellectual property and the intellectual property of certain movie studios or partners it may work with, as well as certain information regarding the Company’s customers, employees, licensees, and suppliers. Although the Company maintains robust procedures, internal policies and technological security measures to safeguard such content and information, as well as a cyber-security insurance policy, the Company’s information technology systems, and the information technology systems of its current or future third-party vendors, collaborators, consultants and service providers, could be penetrated by internal or external parties intent on extracting information, corrupting information, stealing intellectual property or trade secrets, or disrupting business processes. Information security risks have increased in recent years because of the proliferation of new technologies and the increased sophistication and activities of perpetrators of cyber-attacks, including from emerging technologies, such as advanced forms of AI and quantum computing. The Company’s information technology infrastructure may be vulnerable to such attacks, including through the use of malware, software bugs, computer viruses, ransomware, social engineering, and denial of service. It is possible that such attacks could compromise the Company’s security measures or the security measures of parties with whom the Company does business. Because the techniques that may be used to circumvent the Company’s safeguards change frequently and may be difficult to detect, the Company may be unable to anticipate any new techniques or implement sufficient preventive security measures. In addition, the Company’s sensitive, proprietary, or confidential information could be leaked, disclosed, or revealed as a result of or in connection with the Company’s employees’ or third-party vendor’s use of generative AI technologies. The Company seeks to monitor such attempts and incidents and to prevent their recurrence through modifications to the Company’s internal procedures and information technology infrastructure and provides information security training and compliance program to its employees on an annual basis, but in some cases preventive action might not be successful. Moreover, the development and maintenance of these security measures may be costly and will require ongoing updates as technologies evolve and techniques to overcome the Company’s security measures become more sophisticated. Any such attack or unauthorized access could result in a narrower market fordisruption of the Company’s operations, the theft, unauthorized use or publication of confidential or proprietary information of the Company or its customers, employees, licensees or suppliers, a reduction of the revenues the Company is able to generate from its operations, damage to the Company’s brand and reputation, a loss of confidence in the security
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of the Company’s business and products, and reduced negotiating leverage. significant legal and financial exposure, each of which could potentially have an adverse effect on the Company’s business. Refer to Part 1C, Cybersecurity for additional information.
In addition, a variety of laws and regulations at the international, national, and state level govern the Company’s collection, use, protection and processing of personal data. These laws, including but not limited to the General Data Protection Regulation and the California Privacy Rights Act, are constantly evolving and may result in increasing regulatory oversight and public scrutiny in the future. The Company’s actual or perceived failure to comply with such laws and regulations could result in fines, investigations, enforcement actions, penalties, sanctions, claims for damages by affected individuals, and damage to the Company’s reputation, among other negative consequences, any of which could have a material adverse effect on its financial performance.
RISKS RELATED TO THE COMPANY’S INTERNATIONAL OPERATIONS
The Company conducts business internationally, which exposes it to uncertainties and risks that could negatively affect its operations, sales, and future growth prospects.
A deteriorationsignificant portion of the GBO generated by the Company’s exhibitor customers and its revenues are generated by customers located outside the United States and Canada. Approximately 64%, 62%, and 70% of the Company’s revenues were derived outside of the United States and Canada in 2023, 2022 and 2021, respectively. As of December 31, 2023, approximately 78% of IMAX Systems in backlog are scheduled to be installed in international markets. The Company’s network spanned 90 different countries as of December 31, 2023, and the Company expects its international operations to continue to account for an increasingly significant portion of its future revenues. There are a number of risks associated with operating in international markets that could negatively affect the Company’s operations, sales and future growth prospects. These risks include:
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Additionally, global geopolitical tensions, such as the Russia and Ukraine and Israel-Hamas Wars, and actions that governments take in response may adversely impact the Company’s ability to operate in such regions and/or result in global or regional economic downturns. For example, in response to the ongoing conflict between Russia and Ukraine, Canada, the United States, and other countries in which the Company operates have imposed broad sanctions and other restrictive actions against governmental and other entities in Russia and Belarus, which in turn have and may continue to have an adverse impact on the Company’s business financial condition orand results of operation.operations in affected regions. In addition, an adverse economic impact onin the wake of the Russia-Ukraine conflict and resulting sanctions, major movie studios suspended the theatrical release of films in Russia and Belarus and financial institutions halted transactions with Russian entities. The Company has notified its exhibitor clients in Russia and Belarus that such sanctions and actions constitute a significant customer’s business operations could have a corresponding material adverse effect onforce majeure event under their system agreements, resulting in the Company.
The Company’s primary customers are commercial multiplex exhibitors. The commercial exhibition industry has undergone significant consolidation in recent years, with Dalian Wanda’s acquisitions of AMC and Hoyts Group in 2012 and 2015, respectively, and AMC’s acquisition of Carmike Cinemas and Odeon & UCI Cinemas Group, which includes Nordic Cinema Group, in 2016. The industry continues to consolidate, as evidenced by Cineworld Group’s planned acquisition of Regal Entertainment Group. Exhibitor concentration has resulted in individual exhibitor chains constituting a material portionsuspension of the Company’s networkobligations thereunder. Given the uncertainty as to the scope, intensity, duration and revenue. For instance, Wandaoutcome of geopolitical conflicts, it is difficult to predict the full extent of the adverse impact of geopolitical conflicts on the Company’s business and AMC continueresults of operations. Additionally, given the global nature of the Company’s operations, any protracted conflict or the broader macroeconomic impact of geopolitical conflicts and sanctions imposed in response thereto, could have an adverse impact on the Company’s business, results of operations, financial condition, and future performance (the Company has 20 systems in its backlog from Russia, the CIS and Ukraine, and none from Israel) and may also magnify the impact of other risks described herein, including the risk of cybersecurity attacks, which may impact information technology systems unrelated to bethe conflict, or jeopardize critical infrastructure in jurisdictions where the Company operates.
In addition, changes in United States or Canadian foreign policy can present additional risks or uncertainties as the Company continues to expand its international operations. Opening and operating theaters in markets that have experienced geopolitical or sociopolitical unrest or controversy, including through partnerships with local entities, exposes the Company to the risks listed above, as well as additional risks of operating in a volatile region. Such risks may negatively impact the Company’s business operations in such regions and may also harm the Company’s brand. Moreover, a deterioration of the diplomatic relations between the United States or Canada and a given country may impede the Company’s ability to operate IMAX systems in such countries and have a negative impact on the Company’s financial condition and future growth prospects.
The Company faces risks in connection with its significant presence in China and the continued expansion of its business there.
Greater China is the Company’s largest exhibitor customer, representingmarket by revenue, with approximately 16.4%, 13.5% and 16.0%25% of overall revenues generated from its Greater China operations in 2023. As of December 31, 2023, the Company had 807 IMAX Systems operating in Greater China with an additional 206 systems in backlog, which represent 46% of the Company’s total revenuescurrent backlog. Of the IMAX Systems currently scheduled to be installed in 2017, 2016 and 2015, respectively. Wanda’s current commitment to the Company stands at 359 IMAX theater systems, and Wanda and AMC together represented approximately 40.7% of the commercial network and 30.5% of the Company’s backlog as of December 31, 2017. The share of the Company’s revenue that is generated by Wanda and AMC is expected to continue to grow as the significant number of Wanda theater systems currently in backlogGreater China, 71% are opened. No assurance can be given that significant customers such as Wanda and/or AMC will continue to purchase theater systems and/or enter intounder joint revenue sharing arrangements, which further increases the Company’s ongoing exposure to box office performance in this market.
The China market faces a number of risks, including a continued slow recovery from the COVID-19 pandemic, changes in laws and regulations, currency fluctuations, increased competition, and changes in economic conditions, including the risk of an economic downturn or recession, trade embargoes, restrictions or other barriers, as well as other conditions that may impact the Company’s exhibitor and studio partners, and consumer spending. The worsening of United States–China political tensions could exacerbate any or all of these risks, and adverse developments in any of these areas could impact the Company’s future revenues and cash flows and could cause the Company to fail to achieve anticipated growth.
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The Company does not believe that it is currently required to obtain any permission or approval from the China Securities Regulatory Commission, the Cyberspace Administration of China or any other regulatory authority in the PRC for its operations, but there can be no assurance that such permissions or approvals would not be required in the future and, if required, that they would be granted in a timely manner, on acceptable terms, or at all. Furthermore, PRC regulators, including the Cyberspace Administration of China, the Ministry of Industry and Information Technology, and the Ministry of Public Security, have been increasingly focused on regulation in data security and data protection. Regulatory requirements concerning data protection and cybersecurity, as well as other requirements concerning operations of foreign businesses, in the PRC are evolving, and their enactment timetable, interpretation and implementation involve significant uncertainties. To the extent any PRC laws and regulations become applicable to the Company, it may be subject to the risks and uncertainties associated with the legal system in the PRC, including with respect to the enforcement of laws and the possibility of changes of rules and regulations with little or no advance notice.
Certain risks and uncertainties of doing business in China are solely within the control of the Chinese government, and Chinese law regulates both the scope of the Company’s continued expansion in China and the Company's business within China. For instance, the Chinese government regulates the number, timing, and terms of Hollywood films released to the China market. A number of prominent Hollywood films were denied release dates in China in 2021 and 2022, including several films released in IMAX format in other markets. While significantly more Hollywood films were given release dates in China in 2023, several of the prominent Hollywood sequels or franchise films released into China in 2023 underperformed their predecessors in that market. The Company and if so, whether contractual termscannot provide assurance that the Chinese government will continue to permit the release of Hollywood IMAX films in China or that the timing, number or performance of IMAX releases will be affected.favorable to the Company. There are also uncertainties regarding the interpretation and application of laws and regulations and the enforceability of intellectual property and contract rights in China. If the Company does business with either Wanda and/were unable to navigate China’s regulatory environment, or AMC or other large exhibitor chains less frequently or on less favorable terms than currently, the Company’s business, financial condition or results of operations may be adversely affected. In addition, an adverse economic impact on a significant customer’s business operations could have a corresponding material adverse effect on the Company.
The Company also receives revenues from studios releasing IMAX DMR films. Hollywood studios have also experienced recent consolidation, as evidenced by Walt Disney Studios’ planned acquisition of certain studio assets from Twenty First Century Fox. Studio consolidation could result in individual studios comprising a greater percentage of the Company’s film slate and overall DMR revenue, and could exposeif the Company were unable to the same risks described aboveenforce its intellectual property or contract rights in connection with exhibitor consolidation.
General political, social and economic conditions can affect the Company’s business by reducing both revenue generated from existing IMAX theater systems and the demand for new IMAX theater systems.
The Company’s success depends in part on general political, social and economic conditions and the willingness of consumers to purchase tickets to IMAX movies. If movie-going becomes less popular globally,China, the Company’s business could be adversely affected. In addition, the Company’s operations could be adversely affected if consumers’ discretionary income falls as a result of an economic downturn. In recent years, the majority of the Company’s revenue has been directly derived from thebox-office revenues of its films. Accordingly, a decline in attendance at commercial IMAX theaters could materially and adversely affect several sources of key revenue streams for the Company.impacted.
The Company also depends on the sale and lease of IMAX theater systems to commercial movie exhibitors to generate revenue. Commercial movie exhibitors generate revenues from consumer attendance at their theaters, which depends on the willingness of consumers to visit movie theaters and spend discretionary income at movie theaters. In the event of decliningbox-office and concession revenues, commercial exhibitors may be less willing to invest capital in new IMAX theaters. In addition, a significant portion of theaters in the Company’s backlog are expected to be installed in newly built multiplexes. An economic downturn could impact developers’ ability to secure financing and complete the buildout of these locations, thereby negatively impacting the Company’s ability to grow its theater network.
The Company may experience adverse effects due to exchange rate fluctuations.
A substantial portion of the Company’s revenues are denominated in U.S. dollars,Dollars, while a substantial portion of its expenses are denominated in Canadian dollars.Dollars. The Company also generates revenues in Chinese Yuan Renminbi, Euros and Japanese Yen. While the Company periodically enters into forward contracts to hedge its exposure to exchange rate fluctuations between the U.S. and the Canadian dollar,Dollar, the Company may not be successful in reducing its exposure to these fluctuations. The use of derivative contracts is intended to mitigate or reduce transactional level volatility in the results of foreign operations, but does not completely eliminate volatility. Even in jurisdictions in which the Company does not accept local currency or requires minimum payments in U.S. dollars,Dollars, significant local currency issues may impact the profitability of the Company’s arrangements for the Company’swith its customers, which
ultimately affect the Company’s ability to negotiate cost-effective arrangements and, therefore, the Company’s results of operations. In addition, because IMAX films generatebox-office box office revenue in 7590 different countries, unfavorable exchange rates between applicable local currencies and the U.S. dollarDollar could affect the GBO generated by exhibitors and the Company’s reported grossbox-office and revenues, further impacting the Company’s results of operations.
The introductionRISK RELATED TO THE COMPANY’S INDUSTRY AND COMPETITIVE ENVIRONMENT
Consolidation among commercial exhibitors and studios reduces the breadth of new, competingthe Company’s customer base, and could result in a narrower market for the Company’s products and technologies could harmreduced negotiating leverage. A deterioration in the Company’s business.
Theout-of-home entertainment industry is very competitive, and the Company faces a number of competitive challenges. According to the National Association of Theater Owners, as at December 31, 2017, there were approximately 42,381conventional-sized screens in North American multiplexes. The Company faces competition both in the form of technological advances inin-home entertainment as well as those within the theater-going experience. In recent years, for instance, exhibitors and entertainment technology companies have introduced their own branded, large-screen 3D auditoriums or other proprietary theater systems, and in many cases have marketed those auditoriums or theater systems as having the same quality or attributes as an IMAX theater. The Company may continue to face competition in the future from companies in the entertainment industryrelationship with new technologies and/or substantially greater capital resources to develop and support them. If the Company is unable to continue to deliver a premium movie-going experience, or if other technologies surpass those of the Company, the Company may be unable to continue to produce theater systems which are premium to, or differentiated from, other theater systems.
As noted above, the Company facesin-home competition from a number of alternative motion picture distribution channels such as home video,pay-per-view, streaming services,video-on-demand, DVD, Internet and syndicated and broadcast television. The Company further competes for the public’s leisure time and disposable income with other forms of entertainment, including gaming, sporting events, concerts, live theater, social media and restaurants.
If the Company is unable to continue to produce a differentiated theater experience, consumers may be unwilling to pay the price premiums associated with the cost of IMAX theater tickets andbox-office performance of IMAX films may decline. Decliningbox-office performance of IMAX filmskey partners could materially and adversely harmaffect the Company’s business, financial condition or results of operation. In addition, an adverse economic impact on a significant customer’s business operations could have a corresponding material adverse effect on the Company.
The Company’s primary customers are commercial multiplex exhibitors. Since 2016, the commercial exhibition industry has undergone significant consolidation, including AMC’s acquisition of Carmike Cinemas and prospects.Odeon, which includes Nordic and Cineworld’s acquisition of Regal. Exhibitor concentration has resulted in certain exhibitor chains constituting a material portion of the Company’s network and revenue. For instance, Wanda is the Company’s largest exhibitor customer, representing approximately 10% of the Company’s total revenues in 2023. As of December 31, 2023, through the Company’s partnership with Wanda, there were 376 IMAX Systems operational in Greater China and Wanda represented approximately 21% of the commercial network and 4% of the Company’s backlog. The share of the Company’s revenue that is generated by Wanda is expected to continue to grow as the number of IMAX Systems in backlog with Wanda are opened. No assurance can be given that significant customers such as Wanda will continue to purchase IMAX Systems and/or enter into joint revenue sharing arrangements with the Company and if so, whether contractual terms will be affected. If the Company does business with Wanda or other large exhibitor chains less frequently or on less favorable terms than currently, the Company’s business, financial condition or results of operations may be adversely affected. In addition, an adverse economic impact on a significant customer’s business operations could have a corresponding material adverse effect on the Company.
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The Company also receives revenues from studios releasing IMAX films. Hollywood studios have also experienced consolidation, as evidenced by the Walt Disney Company’s acquisition of certain studio assets from Twenty First Century Fox in 2019. Studio consolidation could result in individual studios comprising a greater percentage of the Company’s film slate and overall IMAX Film Remastering revenue, and could expose the Company to the same risks described above in connection with exhibitor consolidation.
Failure to respond adequately or in a timely fashion to changes and advancements in digital technology could negatively affect the Company’s business.
There have been a number of advancements in the digital cinema field in recent years. In order to keep pace with these changes and advancements in digital technology and in order to continue to provide an experience whichthat is premium to and differentiated from conventional cinemaentertainment experiences, the Company has made, and expects to continue to make, significant investments in digital technology in the form of research and development and the acquisition of third partythird-party intellectual property and/or proprietary technology. Recently, the Company has madeA significant investments in laser technology as partportion of the development of its next-generation laser-based digital projection system, which it began rolling out to the largest theaters in the IMAX network at the end of 2014. The Company continuedCompany’s research and development throughout 2017efforts have been focused on its laser-based projection systems. The Company’s recent research and development efforts have also focused on image enhancement technology, developing technologies and systems to support the further development of an updated laser-based digital projection system, which is targeted primarily for screens in commercial multiplexes.help bring additional interactivity to its global IMAX network. The process of developing new technologies is inherently uncertain and subject to certain factors that are outside of the Company’s control, including reliance on third partythird-party partners and suppliers, and the Company can provide no assurance its investments will result in commercially viable advancements to the Company’s existing products or in commercially successful new products, or that any such advancements or products will improve upon existing technology or will be developed within the timeframe expected.
Furthermore, in September 2022, with the acquisition of SSIMWAVE, a leader in AI-driven video quality solutions for media and entertainment companies, there is ongoing research and development in perceptual metrics including novel measurement and optimization techniques. Artificial intelligence technologies and their use are currently undergoing rapid change. If the Company fails to enhance its current AI products and develop new products in response to changes in technology or industry standards, or the Company fails to bring product enhancements or new product developments to market quickly enough, the Company’s AI products could rapidly become less competitive or obsolete.
The introduction of new, competing products and technologies could harm the Company’s business.
The entertainment industry is very competitive. The Company is undertaking new linesfaces competition both in the form of businesstechnological advances in in-home entertainment, as well as those within the out-of-home entertainment, including the theater-going experience. For example, according to research conducted by Omdia, there were approximately 42,000 conventional-sized screens in North American commercial multiplexes in 2022. In addition, exhibitors and these new business initiatives may not be successful.
entertainment technology companies have introduced their own branded, large-screen 3D auditoriums or other proprietary theater systems, and in many cases, have marketed those auditoriums or theater systems as having similar quality or attributes as an IMAX System. The Company is undertakingcompetes with entertainment and media companies with new linestechnologies and/or substantially greater capital resources to develop and support them. The Company may be unable to continue to produce theater systems or provide experiences which are premium to, or differentiated from, other theater systems or entertainment experiences, respectively. Furthermore, many of business. These initiatives represent new areasthe Company’s commercial exhibitor customers are reliant on the availability of growth for the Companyretail shopping malls at physical locations, which compete with other forms of retailing such as online retail websites, and could include the offering of new products and services that may not be acceptedadversely affected by the market. The Company has recently explored initiativeschanges in the fields of location-based virtual reality, original contentretail shopping landscape andin-home entertainment technology, all of which are intensively competitive businesses and which are dependent on consumer demand, over which the Company has no control. If any new business in which the Company invests or attempts to develop does not progress as planned,purchasing pattern. In return, the Company may be adversely affected by investment expensesthe challenges faced by its exhibitor customers.
As noted above, the Company faces in-home competition from a number of alternative motion picture distribution channels such as home video, streaming services, video-on-demand, internet, and broadcast and cable television. The average exclusive theatrical release window for Hollywood titles has decreased over the years, and there can be no assurance that have not led to the anticipated results, by write-downs of its equity investments,this release window, which is determined by the distraction of management from its core business or by damage to its brand or reputation.
In addition, these initiatives may involve the formation of joint ventures and business alliances. While the Company seeks to employ the optimal structure for each such business alliance, the alliance may require a high level of cooperation with and reliancemovie studios, will not shrink further which could have an adverse impact on the Company’s partnersbusiness and results of operations. In addition, as a result of the COVID-19 pandemic and related movie theater closures, in 2020 and 2021, a number of films were released directly or concurrently to streaming services the same day as to theaters. Most major film studios have since recommitted to exclusive theatrical releases for blockbuster movies. However, there is a possibilitycan be no assurance that direct or concurrent release to streaming services will not resume or increase in the future, intensifying in-home competition. The Company further competes for the public’s leisure time and disposable income with other forms of entertainment, including gaming, sporting events, concerts, live theater, social media, and restaurants.
If the Company is unable to continue to produce a differentiated theater experience, consumers may have disagreementsbe unwilling to pay the price premiums associated with its relevant partner with respect to financing, technological management, product development, management strategies or otherwise. Any such disagreementthe cost of IMAX tickets and box office performance of IMAX films may cause
decline. The declining box-office performance of IMAX films could materially and adversely harm the joint venture orCompany’s business alliance to be terminated.and prospects.
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The Company may not be able to adequately protect its intellectual property, and competitors could misappropriate its technology or brand, which could weaken its competitive position.
The Company depends on its proprietary knowledge regarding IMAX theater systemsSystems and digital and film technology.technology, video quality assessment and image enhancement. The Company relies principally upon a combination of copyright, trademark, patent and trade secret laws, restrictions on disclosures and contractual provisions to protect its proprietary and intellectual property rights. These laws and procedures may not be adequate to prevent unauthorized parties from attempting to copy or otherwise obtain the Company’s processes and technology or deter others from developing similar processes or technology, which could weaken the Company’s competitive position and require the Company to incur costs to secure enforcement of its intellectual property rights. The protection provided to the Company’s proprietary technology by the laws of foreign jurisdictions may not protect it as fully as the laws of Canada or the United States. The lack of protection afforded to intellectual property rights in certain international jurisdictions may be increasingly problematic given the extent to which the future growth of the Company is anticipated to come from foreign jurisdictions. The Company may develop proprietary technology or knowledge, including AI-generated works, that are not entitled to intellectual property protection. Finally, some of the underlying technologies of the Company’s products and system components are not covered by patents or patent applications.
The Company owns or licenses patents issued and patent applications pending, including those covering its digital projector, digital conversion technology, and laser illumination technology.technology, and other inventions relating to imaging technology and video quality assessment. The Company’s patents are filed in the United States, often with corresponding patents or filed applications in other jurisdictions, such as Canada, China, Belgium, Japan, France, Germany, and the United Kingdom. The patent applications pending may not be issued or the patents may not provide the Company with any competitive advantage. The patent applications may also be challenged by third parties. Several of the Company’s issued patents for improvements to IMAX projectors, IMAX 3D Dome and sound system components expire between 20212024 and 2034. 2041. If the Company’s patent claims are rendered invalid or unenforceable, or narrowed in scope, the patent coverage afforded the Company’s products and services could be impaired, which could negatively affect its competitive position. In addition, competitors and other third-parties may be able to circumvent or design around the Company’s patents and may develop and obtain patent protection for more effective technologies. If these developments were to occur, it could have an adverse effect on the Company’s sales or market position.
Any claims or litigation initiated by the Company to protect its proprietary technology could be time consuming, costly, and divert the attention of its technical and management resources. If the Company chooses to go to court to stop a third-party from infringing its intellectual property, that third-party may ask the court to rule that the Company’s intellectual property rights are invalid and/or should not be enforced against that third-party.
The Company relies upon trade secrets and other confidential and proprietary know how to develop and maintain the Company’s competitive position. While it is the Company’s policy to enter into agreements imposing nondisclosure and confidentiality obligations upon its employees and third-parties to protect the Company’s intellectual property, these obligations may be breached, may not provide meaningful protection for the Company’s trade secrets or proprietary know-how, or adequate remedies may not be available in the event of an unauthorized access, use or disclosure of the Company’s trade secrets and know-how. Furthermore, despite the existence of such nondisclosure and confidentiality agreements, or other contractual restrictions, the Company may not be able to prevent the unauthorized disclosure or use of its confidential proprietary information or trade secrets by consultants, vendors and employees. In addition, others could obtain knowledge of the Company’s trade secrets through independent development or other legal means.
The IMAX brand stands for the highest quality and most immersive motion picture entertainment.entertainment experiences. Protecting the IMAX brand is a critical element in maintaining the Company’s relationships with studios and its exhibitor clients.clients and building and maintaining brand loyalty and recognition. Though the Company relies on a combination of trademark and copyright law as well as its contractual provisions to protect the IMAX brand, those protections may not be adequate to prevent erosion of the brand over time, particularly in foreign jurisdictions. Erosion of the brand could threaten the demand for the Company’s products and services and impair its ability to grow future revenue streams.
The Company faces cyber-security and similar risks, which could result in the disclosure, theft or loss of confidential or other proprietary information, including intellectual property; damage to the Company’s brand and reputation; legal exposure and financial losses.
The nature In addition, if any of the Company’s business involves accessregistered or unregistered trademarks, trade names or service marks is challenged, infringed, circumvented, declared generic or determined to and storage of confidential and proprietary content andbe infringing on other information, including intellectual property, as well as information regarding the Company’s customers, employees, licensees and suppliers. Although the Company maintains robust procedures to safeguard such content and information, as well as a cyber-security insurance policy, the Company’s information technology systemsmarks, it could be penetrated by internal or external parties’ intent on extracting information, corrupting information, stealing intellectual property or trade secrets, or disrupting business processes. Information security risks have increased in recent years because of the proliferation of new technologies and the increased sophistication and activities of perpetrators of cyber-attacks. It is possible that computer hackers could compromise the Company’s security measures or the security measures of parties with whom the Company does business, and thereby obtain the confidential or proprietary information of the Company or its customers, employees, licensees and suppliers. Any such breach or unauthorized access could result in a disruption of the Company’s operations, the theft, unauthorized use or publication of the Company’s intellectual property and other proprietary information, a reduction of the revenues the Company is able to generate from its operations, damage to the Company’s brand and reputation, a loss of confidence in the security of the Company’s business and products, and significant legal and financial exposure, each of which could potentially have an adverse effect on the Company’s business.sales or market position.
The Company may be subject to claims of infringement of third-party intellectual property rights that are costly to defend, result in the diversion of management’s time and efforts, require the payment of damages, limit the Company’s ability to use particular technologies in the future or prevent the Company from marketing its existing or future products and services.
The Company’s commercial success will depend in part on not infringing, misappropriating, or violating the intellectual property rights of others. A third-party could assert a claim against the Company for alleged infringement of its patent, copyright, trademark, or other intellectual property rights, including in relation to technologies that are important to the Company’s business. The Company may not be aware of whether its products or services do or will infringe existing or future patents or the intellectual property rights of others. In addition, there can be no assurance that one or more of The Company’s competitors who have developed competing technologies or the Company’s other competitors will not be granted patents for their technology and allege that the Company has infringed.
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Any claims that the Company’s business infringes the intellectual property rights of others, regardless of the merit or resolution of such claims, could entail significant costs in responding to, defending, and resolving such claims. An adverse determination in any intellectual property claim could require the Company to pay damages and/or stop using its technologies, trademarks, copyrighted works, and other material found to be in violation of another party’s rights and could prevent the Company from licensing its technologies to others unless the Company enters into royalty or licensing arrangements with the prevailing party or are able to redesign its products and services to avoid infringement. Such a license may not be available on reasonable terms, if at all, and there can be no assurance that the Company would be able to redesign its services in a way that would not infringe the intellectual property rights of others. Any payments the Company is required to make and any injunction the Company is required to comply with as a result of any infringement could harm its reputation and financial results.
RISKS RELATED TO THE COMPANY’S REVENUES, EARNINGS, AND FINANCIAL POSITION
The Company’s operating results and cash flow can vary substantially from period to period and could increase the volatility of its share price.
The Company’s operating results and cash flow can fluctuate substantially from period to period. In particular, fluctuations in IMAX System installations and GBO performance of IMAX films can materially affect operating results. Factors that have affected the Company’s operating results and cash flow in the past, and are likely to affect its operating results and cash flow in the future, include, among other things:
Most of the Company’s operating expenses are fixed in the short term. The Company may be unable to rapidly adjust its spending to compensate for any unexpected shortfall in sales, joint revenue sharing arrangements revenue or IMAX Film Remastering revenue, which would harm operating results for a particular period.
The Company’s systems revenue can vary significantly from its cash flows under IMAX System sales or lease agreements.
The Company’s systems revenue can vary significantly from the associated cash flows. The Company often provides financing to customers for IMAX Systems on a long-term basis through long-term sale or lease arrangements. The terms of leases or financing receivables are typically 10 to 12 years. The sale and sales-type lease agreements for IMAX Systems typically provide for three major sources of cash flow:
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Initial fees generally make up the vast majority of cash received under IMAX System sales or sales-type lease agreements for a theater arrangement.
For sale and sales-type leases, the revenue recorded is generally equal to the sum of initial fees and the present value of any future initial payments, and fixed minimum ongoing payments. Sales arrangements also include an estimate of future variable consideration due under the agreement. Cash received from initial fees in advance of meeting the revenue recognition criteria for the IMAX Systems is recorded as deferred revenue.
Leases that do not transfer substantially all of the benefits and risks of ownership to the customer are classified as operating leases. For these leases, initial fees and fixed minimum ongoing payments are recognized as revenue on a straight-line basis over the lease term. Contingent payments in excess of fixed minimum ongoing payments are recognized as revenue when reported by theater operators, provided collectability is reasonably assured.
As a result of the above, the revenue set forth in the Company’s Consolidated Financial Statements does not necessarily correlate with the Company’s cash flow or cash position. Revenues include the present value of future contracted cash payments, and there is no guarantee that the Company will receive such payments under its lease and sale agreements if its customers default on their payment obligations.
The Company may not convert all of its backlog into revenue and cash flows.
As of December 31, 2023, the Company’s backlog included 450 IMAX Systems, consisting of 164 IMAX Systems under sales or lease arrangements and 286 IMAX Systems under joint revenue sharing arrangements. The Company lists signed contracts for IMAX Systems for which revenue has not been recognized as backlog prior to the time of revenue recognition. The total value of the backlog represents all signed IMAX System sale or lease agreements that are expected to be recognized as revenue in the future and includes initial fees along with the estimated present value of contractual ongoing fees due over the term, and a variable consideration estimate for the IMAX Systems under sales arrangements, but it excludes amounts allocated to maintenance and extended warranty revenues. Notwithstanding the legal obligation to do so, some of the Company’s customers with which it has signed contracts may not accept delivery of IMAX Systems that are included in the Company’s backlog. An economic or industry downturn may exacerbate the risk of customers not accepting delivery of IMAX Systems. Any reduction in backlog could adversely affect the Company’s future revenues and cash flows. In addition, customers with system obligations in backlog sometimes request that the Company agree to modify or reduce such obligations, which the Company has agreed to do in the past under certain circumstances. Customer-requested delays in the installation of IMAX Systems in backlog remain a recurring and unpredictable part of the Company’s business.
The Company’s inability to enter into renewals of new sales and lease agreements on favorable terms or at all would adversely affect its cash flows and operating results.
Approximately 7% of the Company’s sales and lease agreements are due to expire in the next 12 months. If these agreements are not renewed, or if the Company is unable to enter into new leases agreements comparable to those currently in effect in a timely manner, then the Company’s systems revenue could be adversely affected.
The Company’s revenues from existing customers are derived in part from financial reporting provided by its customers, which may be inaccurate or incomplete, resulting in lost or delayed revenues.
The Company’s revenue under its joint revenue sharing arrangements, a portion of the Company’s payments under lease or sales arrangements and its film distribution fees are based upon financial reporting provided by its customers. If such reporting is inaccurate, incomplete, or withheld, the Company’s ability to receive the appropriate payments it is owed in a timely fashion that are due to it may be impaired. The Company’s contractual ability to audit IMAX theaterslocations may not rectify payments lost or delayed as a result of customers not fulfilling their contractual obligations with respect to financial reporting.
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There is collection risk associated with payments to be received over the terms of the Company’s theater systemIMAX System agreements.
The Company is dependent in part on the viability of its exhibitors for collections under long-term leases, sales financing agreements, and joint revenue sharing arrangements. Exhibitors or other operators may experience financial difficulties that could cause them to be unable to fulfill their contractual payment obligations to the Company. As a result, the Company’s future revenues and cash flows could be adversely affected.
The Company may not convert all of its backlog into revenue and cash flows.
At December 31, 2017, the Company’s sales backlog included 499 theater systems, consisting of 162 systems under sales arrangements and 337 theater systems under joint revenue sharing arrangements. The Company lists signed contracts for theater systems for which revenue has not been recognized as sales backlog prior to the time of revenue recognition. The total value of the sales backlog represents all signed theater system sale or lease agreements that are expected to be recognized as revenue in the future and includes initial fees along with the present value of fixed minimum ongoing fees due over the term, but excludes contingent fees in excess of fixed minimum ongoing fees that might be received in the future and maintenance and extended warranty fees. Notwithstanding the legal obligation to do so, not all of the Company’s customers with which it has signed contracts may accept delivery of theater systems that are included in the Company’s backlog. This could adversely affect the Company’s future revenues and cash flows. In addition, customers with theater system obligations in backlog sometimes request that the Company agree to modify or reduce such obligations, which the Company has agreed to in the past under certain circumstances. Customer requested delays in the installation of theater systems in backlog remain a recurring and unpredictable part of the Company’s business.
The Company’s operating results and cash flow can vary substantially from period to period and could increase the volatility of its share price.
The Company’s operating results and cash flow can fluctuate substantially from period to period. In particular, fluctuations in theater system installations and grossbox-office performance of IMAX DMR content can materially affect operating results. Factors that have affected the Company’s operating results and cash flow in the past, and are likely to affect its operating results and cash flow in the future, include, among other things:
Most of the Company’s operating expenses are fixed in the short term. The Company may be unable to rapidly adjust its spending to compensate for any unexpected shortfall in sales, joint revenue sharing arrangements revenue or IMAX DMR revenue which would harm operating results for a particular period, although the results of any particular period are not necessarily indicative of its results for any period.
The Company’s theater system revenue can vary significantly from its cash flows under theater system sales or lease agreements.
The Company’s theater systems revenue can vary significantly from the associated cash flows. The Company often provides financing to customers for theater systems on a long-term basis through long-term leases or notes receivables. The terms of leases or notes receivable are typically 10 years. The Company’s sale and lease-type agreements typically provide for three major sources of cash flow related to theater systems:
Initial fees generally make up the vast majority of cash received under theater system sales or lease agreements for a theater arrangement.
For sales and sales-type leases, the revenue recorded is generally equal to the sum of initial fees and the present value of minimum ongoing fees due under the agreement. Cash received from initial fees in advance of meeting the revenue recognition criteria for the theater systems is recorded as deferred revenue. Contingent fees are recognized as they are reported by the theaters after annual minimum fixed fees are exceeded.
Leases that do not transfer substantially all of the benefits and risks of ownership to the customer are classified as operating leases. For these leases, initial fees and minimum fixed ongoing fees are recognized as revenue on a straight-line basis over the lease term. Contingent fees are recognized as they are reported by the theaters after annual minimum fixed fees are exceeded.
As a result of the above, the revenue set forth in the Company’s financial statements does not necessarily correlate with the Company’s cash flow or cash position. Revenues include the present value of future contracted cash payments and there is no guarantee that the Company will receive such payments under its lease and sale agreements if its customers default on their payment obligations.
The Company’s stock price has historically been volatile and declines in market price, including as a result a market downturn, may negatively affect its ability to raise capital, issue debt, secure customer business and retain employees.
The Company is listed on the New York Stock Exchange (“NYSE”) and its publicly traded shares have in the past experienced, and may continue to experience, significant price and volume fluctuations. This market volatility could reduce the market price of its common stock, regardless of the Company’s operating performance. A decline in the capital markets generally, or an adjustment in the market price or trading volumes of the Company’s publicly traded securities, may negatively affect its ability to raise capital, issue debt, secure customer business or retain employees. These factors, as well as general economic and geopolitical conditions, may have a material adverse effect on the market price of the Company’s publicly traded securities.
The credit agreement governing the Company’s senior secured credit facility contains significant restrictions that limit its operating and financial flexibility.
The credit agreement governing the Company’s senior secured credit facility contains certain restrictive covenants that, among other things, limit its ability to:
These restrictive covenants impose operating and financial restrictions on the Company that limit the Company’s ability to engage in acts that may be in the Company’s long-term best interests.
The Company is subject to impairment losses on its film assets.assets if such assets do not meet management’s estimates of total revenues.
The Company amortizes its film assets, including IMAX DMRFilm Remastering costs capitalized using the individual film forecast method, whereby the costs of film assets are amortized and participation costs are accrued for each film in the ratio of revenues earned in the current period to management’s estimate of total revenues ultimately expected to be received for that title. Management regularly reviews, and revises when necessary, its estimates of ultimate revenues on atitle-by-title basis, which may result in a change in the rate of amortization of the film assets and write-downs or impairments of film assets. Results of operations in future years will include the amortization of the Company’s film assets and may be significantly affected by periodic adjustments in amortization rates.
The Company ismay be subject to impairment losses on its inventories.inventories if they become obsolete.
The Company records write-downs for excess and obsolete inventory based upon current estimates of future events and conditions, including the anticipated installation dates for the current backlog of theater systemIMAX System contracts, technological developments, signings in negotiation and anticipated market acceptance of the Company’s current and pending theater systems.IMAX Systems.
If the Company’s goodwill or long-lived assets become impaired, the Company may be required to record a significant charge to earnings.
Under United States Generally Accepted Accounting Principles (“U.S. GAAP”), the Company reviews its long-lived assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be qualitatively assessed at least annually and when events or changes in circumstances arise or can be quantitatively tested for impairment. Factors that may be considered a change in circumstances include (but are not limited to) a decline in stockshare price and market capitalization, declines in future cash flows, and slower growth rates in the Company’s industry. The Company may be required to record a significant charge to earnings in its financial statements during the period in which any impairment of its goodwill or long-lived assets is determined.
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RISKS RELATED TO THE COMPANY’S COMMON SHARES
The market price for the Company’s common shares has historically been volatile and declines in market price, may negatively affect its ability to raise capital, issue debt, secure customer business, and retain employees.
The Company is listed on the New York Stock Exchange (“NYSE”) and its publicly traded shares have in the past experienced, and may continue to experience, significant price and volume fluctuations. This market volatility could reduce the market price of its common shares, regardless of the Company’s operating performance. A decline in the capital markets generally, or an adjustment in the market price or trading volumes of the Company’s publicly traded securities, may negatively affect its ability to raise capital, issue debt, secure customer business or retain employees. These factors, as well as general economic and geopolitical conditions, may have a material adverse effect on the market price of the Company’s publicly traded securities.
Because the Company is incorporated in Canada, it may be difficult for plaintiffs to enforce against the Company liabilities based solely upon United States federal securities laws.
The Company is incorporated under the federal laws of Canada, some of its directors and officers are residents of Canada and a substantial portion of its assets and the assets of such directors and officers are located outside the United States. As a result, it may be difficult for United States plaintiffs to effect service within the United States upon those directors or officers who are not residents of the United States, or to obtain or enforce against them or the Company judgments of United States courts predicated solely upon civil liability under the United States federal securities laws. In addition, it may be difficult for plaintiffs to bring an original action outside of the United States against the Company to enforce liabilities based solely on United States federal securities laws.
RISKS RELATED TO THE COMPANY’S INDEBTEDNESS
The credit agreement governing the Company’s senior secured credit facility contains significant restrictions that limit its operating and financial flexibility.
The credit agreement governing the Company’s senior secured credit facility contains certain restrictive covenants that, among other things, limit its ability to:
These restrictive covenants impose operating and financial restrictions on the Company that limit its ability to engage in acts that may be in the Company’s long-term best interests.
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The Company’s indebtedness and liabilities could limit the cash flow available for its operations, and expose the Company to risks that could adversely affect its business, financial condition, and results of operations.
As of December 31, 2023, the Company had approximately $389.5 million of consolidated indebtedness and liabilities. The Company may also incur additional indebtedness to meet future financing needs. The Company’s indebtedness could have significant negative consequences for its security holders and its business, results of operations and financial condition by, among other things:
The Company’s business may not generate sufficient funds, and the Company may otherwise be unable to maintain sufficient cash reserves, to pay amounts due under its indebtedness, and the Company’s cash needs may increase in the future. In addition, the Credit Agreement contains, and any future indebtedness that the Company incurs may contain, financial and other restrictive covenants that limit its ability to operate, raise capital or make payments under its other indebtedness. If the Company fails to comply with these covenants or to make payments under its indebtedness when due, then the Company would be in default under that indebtedness, which could, in turn, result in that and the Company’s other indebtedness becoming immediately payable in full. A description of the Company’s outstanding indebtedness is provided in Note 14 to Consolidated Financial Statements in Part II, Item 8.
The Company may be unable to raise the funds necessary to repurchase the Convertible Notes for cash following a fundamental change, or to pay the cash amounts due upon conversion, and the Company’s other indebtedness may limit its ability to repurchase the Convertible Notes or pay cash upon their conversion.
Noteholders may, subject to a limited exception described in the indenture governing the Convertible Notes, require the Company to repurchase their Convertible Notes following a fundamental change at a cash repurchase price generally equal to the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest, if any. In addition, all conversions of Convertible Notes will be settled partially or entirely in cash. The Company may not have enough available cash or be able to obtain financing at the time it is required to repurchase the Convertible Notes or pay the cash amounts due upon conversion. In addition, applicable law, regulatory authorities and the agreements governing the Company’s other indebtedness may restrict the Company’s ability to repurchase the Convertible Notes or pay the cash amounts due upon conversion. The Company’s failure to repurchase Convertible Notes or pay the cash amounts due upon conversion when required will constitute a default under the indenture governing the Convertible Notes. A default under the indenture or the fundamental change itself could also lead to a default under agreements governing the Company’s other indebtedness, which may result in that other indebtedness becoming immediately payable in full. The Company may not have sufficient funds to satisfy all amounts due under its other indebtedness and the Convertible Notes.
Provisions in the indenture could delay or prevent an otherwise beneficial takeover of the Company.
Certain provisions in the Convertible Notes and the related indenture could make a third-party attempt to acquire the Company more difficult or expensive. For example, if a takeover constitutes a fundamental change, then noteholders will have the right to require the Company to repurchase their Convertible Notes for cash. In addition, if a takeover constitutes a make-whole fundamental change, then the Company may be required to temporarily increase the conversion rate of the Convertible Notes. In either case, and in other cases, the Company’s obligations under the Convertible Notes and the indenture could increase the cost of acquiring the Company otherwise discourage a third party from acquiring the Company or removing incumbent management, including in a transaction that noteholders or holders of the Company’s common shares may view as favorable.
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The Company is subject to counterparty risk with respect to the Capped Call Transactions, and the capped call may not operate as planned.
In connection with the issuance of the Convertible Notes, the Company entered into privately negotiated capped call transactions with option counterparties (the “Capped Call Transactions”). The Capped Call Transactions are expected to reduce potential dilution resulting from the common shares the Company is required to issue and/or to offset any potential cash payments the Company is required to make in excess of the principal amount of the Convertible Notes in the event that the market price per share of the Company’s common shares is greater than the strike price of the Capped Call Transactions, with such reduction and/or offset subject to a cap. Collectively, the Capped Call Transactions cover, subject to anti-dilution adjustments substantially similar to those applicable to the Convertible Notes, the number of the Company’s common shares underlying the Convertible Notes.
The option counterparties are financial institutions, and the Company will be subject to the risk that they might default under the Capped Call Transactions. The Company’s exposure to the credit risk of the option counterparties will not be secured by any collateral. Global economic conditions have from time to time resulted in the actual or perceived failure or financial difficulties of many financial institutions. If an option counterparty becomes subject to insolvency proceedings, the Company will become an unsecured creditor in those proceedings with a claim equal to the Company’s exposure at that time under our transactions with that option counterparty. The Company’s exposure will depend on many factors, but, generally, the increase in the Company’s exposure will be correlated with increases in the market price or the volatility of its common shares. In addition, upon a default by an option counterparty, the Company may suffer adverse tax consequences and more dilution than the Company currently anticipates with respect to its common shares. The Company can provide no assurances as to the financial stability or viability of any option counterparty. In addition, the Capped Call Transactions are complex, and they may not operate as planned. For example, the terms of the Capped Call Transactions may be subject to adjustment, modification or, in some cases, renegotiation if certain corporate or other transactions occur. Accordingly, these transactions may not operate as the Company intends if it is required to adjust their terms as a result of transactions in the future or upon unanticipated developments that may adversely affect the functioning of the Capped Call Transactions.
GENERAL RISK FACTORS
The loss of one or more of the Company’s key personnel, or its failure to attract and retain its employee population, could adversely affect its business.
The Company’s operations and prospects depend in large part on the performance and continued service of its senior management team. The competition for experienced senior management in the Company’s industry is intense, and the Company may not find qualified replacements for any of these individuals if their services are no longer available on the same terms or at all. The loss of the services of one or more members of the Company’s senior management team could adversely affect its ability to effectively pursue its business strategy.
In addition, the Company may experience challenges with respect to employee retention given the current competitive labor market. A number of external factors beyond the Company’s control, including its industry’s highly competitive market for skilled workers and leaders, cost inflation, development of non-compete laws, and workforce participation rates, may negatively affect the Company’s ability to retain and attract qualified employees. If the Company experiences high attrition rates in its employee population, the results of our operations may be adversely affected.
Changes in accounting and changes in management’s estimates may affect the Company’s reported earnings and operating income.
U.S. GAAP and accompanying accounting pronouncements implementation guidelines and interpretations for many aspects of the Company’s business, such as revenue recognition, film accounting, accounting for pensions and other postretirement benefits, accounting for income taxes, and treatment of goodwill or long-lived assets, are highly complex and involve many subjective judgments. Changes in these rules, their interpretation, management’s estimates, or changes in the Company’s products or business could significantly change its reported future earnings and operating income and could add significant volatility to those measures, without a comparable underlying change in cash flow from operations. See “CriticalMore information is provided in Critical Accounting Policies”Estimates within Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7.
Regulatory and market responses to climate change concerns may negatively impact our business and increase our operating costs.
Growing public concern about climate change has resulted in the increased focus of local, state, regional, national and international regulatory bodies on climate change issues. As a result, climate change regulation and market reactions to climate change could adversely impact the Company’s business, including the potential for an increase in climate risk assessment. Such enhanced governmental and societal attention to climate matters, including expanding mandatory and voluntary reporting, diligence, and disclosure on topics such as climate change impacts, carbon emissions, water usage, waste management, and risk oversight, could expand the nature, scope, and complexity of matters that the Company is required to control, assess, and report. Furthermore, regulatory efforts to combat climate change could result in increases in the cost of raw materials, taxes, transportation and utilities for the Company’s suppliers and vendors
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which would result in higher operating costs for the Company and potentially impact the availability of components used in the Company’s systems. These and other rapidly changing laws, regulations, policies, interpretations, and expectations may increase the cost of the Company’s compliance, divert management attention, alter the environment in which it does business, and expose the Company to potentially significant fines or other penalties if it is unable to comply with such laws, regulations or policies, any of which could have a material adverse effect on the Company’s business, results of operations, and financial condition. In addition, the shift toward a lower-carbon economy, driven by policy regulations, low-carbon technology advancement, consumer sentiment, and/or liability risks, may negatively impact the Company’s business and operating costs. However, the Company is unable to predict at this time, the potential effects, if any, that any climate change initiatives may have on its business.
The Company’s business and financial results could be adversely affected by weather conditions and natural and man-made disasters.
Physical risks, including man-made disasters, such as infrastructure failures, structural collapse, fires, explosions, and acts of war and terror, as well as weather conditions and natural disasters, such as earthquakes, droughts, floods, hailstorms, heavy or prolonged precipitation, wildfires, hurricanes, sea level rise and others, affecting the IMAX global network or corporate locations, could harm the Company’s business. Additionally, the physical impacts of climate change may cause occurrences of natural disasters to increase in frequency, severity and duration, magnifying the adverse impact of such occurrences and the cost of insuring against them. The climates and geology of some of the regions in which the Company’s principal offices are located, including California, present increased risks of adverse weather or natural disasters. Any such events in the future could disrupt the Company’s operations and impact the Company’s ability to serve its customers.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Overview
The Company is not aware of any cybersecurity threats or incidents to date that have materially affected its strategy, results of operations, or financial condition. However, the scope and impact of any future cybersecurity incident cannot be predicted with certainty. More information on how material cybersecurity attacks may impact the Company’s business is provided in “Item 1A. Risk Factors”.
Cybersecurity Risk Management Framework
The Company employs a multi-faceted cybersecurity risk management framework, which is integrated into its enterprise risk management system. The Company aligns its security policies and practices with the ISO 27001 framework and manages its cybersecurity risks through a dedicated information security team, reporting to Mr. Preston. The information security team is tasked with, among other things, assessing, identifying and managing material cybersecurity risks and overseeing the implementation of the Company’s cybersecurity strategy. The Company’s cybersecurity risk management includes, but is not limited to, the following elements.
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In addition, the Company has established clear lines of communication with key stakeholders, including executives, IT teams, employees, and customers, to ensure transparency and an effective response to cybersecurity incidents. Furthermore, the information security team develops and provides cybersecurity awareness training to the Company’s employees and regularly communicates updates on best cybersecurity practices and improvements in the cybersecurity program.
The Company may not fully realizeuse third-party programs and software and engage assessors, consultants, cybersecurity auditors, or other third parties to review, test, and advise on improvements to the projected cost savingsCompany’s cybersecurity infrastructure.
Role of the Board of Directors
The Audit Committee oversees the Company’s risk management and benefits fromassessment, including its restructuring initiative.
The Company recently implemented a cost reduction plan that included staff reductionsmitigation strategies, and updates the consolidationentire Board on the Company’s risk profile and exposures on an as needed basis. With respect to cybersecurity, the Company’s Chief Technology Officer (“CTO”) and Head of certain leased facilities. As part of its cost reduction plan,Information Security updates the Company eliminated approximately 100 full-time positions, including positionsAudit Committee on at IMAX China Holding, Inc., equalleast an annual basis on matters such as external cybersecurity threats and attack trends; updates to roughly 14%threat monitoring processes; the composition of the Company’s full-time global workforce. Althoughinformation security team; cybersecurity awareness training and testing; cybersecurity strategy; cybersecurity metrics, and assessments the Company expects the restructuring plan to result in cost savings aimed at increasing profitability, operating leverage and free cash flow, there can be no assurances that these benefits will be realized to the full extent projected. If the Company does not achieve projected savings as a resultprogress of these initiatives, or incurs higher than expected or unanticipated costs in implementing these initiatives, its business, financial condition or results of operations could be adversely impacted.
Enactment of the Tax Act could have a negative effect on the Company or its shareholders.
On December 20, 2017, the U.S. Congress passed the Tax Cuts and Jobs Act (H.R. 1) (the “Tax Act”), and on December 22, 2017, President Trump signed the Tax Act into law. The Tax Act makes significant changes to the U.S. federal income tax rules applicable to both individuals and entities, including corporations. This tax legislation reduced the U.S. statutory corporate tax rate and made other changes that could have an impact on our overall U.S. federal tax liability in a given period. The tax legislation also included a number of provisions that limit or eliminate various deductions, including interest expense, performance-based compensation for certain executivescybersecurity programs; and the domestic production activities deduction, among others, that could affect the Company’s U.S. federal income tax position. The Company is continuing to evaluate the overallpotential scope and impact of this tax legislationcybersecurity risks and incidents on its operations and U.S. federal income tax position. See Note 9 (Income Taxes) to the consolidated financial statements included in Part II, Item 8 for further discussion of the Tax Act. There can be no assurance that changes in tax laws or regulations, both within the U.S. and the other jurisdictions in which the Company operates, will not materially and adversely affect the effective tax rate, tax payments, financial condition and results of operations. Similarly, changes in tax laws and regulations that impact the Company’s customers and counterparties or the economy generally may also impact its financial condition and results of operations. There is some uncertainty as to the impact of the Tax Act on the Company or an investment in the Company’s shares. Investors should consult with their tax advisors with respect to the status of U.S. tax reform and its potential effect on an investment in the Company’s securities.
The Company relies on its key personnel, and the loss of one or more of those personnel could harm its ability to carry out its business strategy.
The Company’s operations and prospects depend in large partfinancial condition. The Audit Committee may also meet with management on an ad hoc basis to discuss and review any material cybersecurity incidents or threats.
Role of Management
Management is responsible for managing risks and informing the performance and continued service of its senior management team. The Company may not find qualified replacements for any of these individuals if their services are no longer available. The loss of the services of one or more membersBoard of the Company’s material near- and long-term risks and risk management strategies. Management presents the Company’s risk assessment, which includes its cybersecurity risks, to the Audit Committee on at least an annual basis.
The Chief Technology Officer (“CTO”) leads management’s assessment and management of cybersecurity risks. The Company’s Head of Information Security leads the information security team, which is responsible for managing day-to-day cybersecurity risks and implementing and maintaining the Company’s cybersecurity strategy. The Head of Information Security reports to and regularly briefs the CTO on cybersecurity matters, including results of vulnerability testing and remediation, cyber incident responses, and progress on cybersecurity infrastructure initiatives. The CTO and Head of Information Security update the Audit Committee about cybersecurity risks and any investigation of a material cybersecurity incident.
The Company’s current CTO has over 20 years of experience in senior technology leadership roles, involving oversight of all aspects of technology development and technical operations, including cybersecurity.
The Company’s current Head of Information Securities has over 20 years of experience in cybersecurity roles, including in cybersecurity engineering, information security assessment, and development and management team could adversely affect its ability to effectively pursue its business strategy.of corporate security policies and governance problems.
Because the Company is incorporated in Canada, it may be difficult for plaintiffs to enforce against the Company liabilities based solely upon U.S. federal securities laws.
The Company is incorporated under the federal laws of Canada, some of its directors and officers are residents of Canada and a substantial portion of its assets and the assets of such directors and officers are located outside the United States. As a result, it may be difficult for U.S. plaintiffs to effect service within the United States upon those directors or officers who are not residents of the United States, or to realize against them or the Company in the United States upon judgments of courts of the United States predicated upon the civil liability under the U.S. federal securities laws. In addition, it may be difficult for plaintiffs to bring an original action outside of the United States against the Company to enforce liabilities based solely on U.S. federal securities laws.
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Item 2.Properties
None.
The Company’s principal executive offices are located in Mississauga, Ontario, Canada, New York, New York, and Playa Vista, California. TheAs of December 31, 2023, the Company’s principal facilities are as follows:
| Operation | Own/Lease | Expiration | ||||
Mississauga, Ontario(1) | Headquarters, Administrative, Assembly, | ||||||
and Maintenance Services | Own | N/A | |||||
Playa Vista, California | Sales, Marketing, Film Production and Post-Production | Own | N/A | ||||
New York, New York | Executive | Lease | 2029 | ||||
Tokyo, Japan | Sales, Marketing, and Maintenance Services | Lease | 2024 | ||||
Shanghai, China | Sales, Marketing, Maintenance Services, and Administrative | Lease | 2029 | ||||
| Sales, Marketing, Administrative, and Research and Development | Lease | 2024 | ||||
| Sales, Marketing, Administrative, and Research and Development | Lease | 2026 | ||||
London, United Kingdom | Sales | Lease | 2024 | ||||
The Company believes that its existing facilities and equipment are in good operating condition and are suitable for the conduct of its business.
Item 3.Legal Proceedings
See note 13Refer to the accompanying audited consolidated financial statementsNote 16 to Consolidated Financial Statements in Part II, Item 8 of this 2017 Form10-K.8.
Item 4.Mine Safety Disclosures
Not applicable.
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Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
The Company’s common shares are listed for tradingtraded on the NYSE under the trading symbol “IMAX” on the NYSE. The following table sets forth the range.
As of high and low sales prices per share for the common shares on the NYSE.
U.S. Dollars | ||||||||
High | Low | |||||||
NYSE | ||||||||
Year ended December 31, 2017 | ||||||||
Fourth quarter | $ | 26.40 | $ | 20.50 | ||||
Third quarter | $ | 23.20 | $ | 17.70 | ||||
Second quarter | $ | 33.60 | $ | 22.00 | ||||
First quarter | $ | 34.25 | $ | 30.75 | ||||
Year ended December 31, 2016 | ||||||||
Fourth quarter | $ | 34.80 | $ | 27.95 | ||||
Third quarter | $ | 34.47 | $ | 28.55 | ||||
Second quarter | $ | 33.50 | $ | 27.63 | ||||
First quarter | $ | 33.92 | $ | 25.99 |
As at January 31, 2018,2024, the Company had approximately 239231 registered holders of record of the Company’sits common shares.
Over the last twofew years, the Company has not paid, nor does the Company have any current plans to pay, cash dividends on its common shares. The payment of dividends by the Company is subject to certain restrictions under the terms of the Company’s indebtedness (see note 11Note 14 to the accompanying audited consolidated financial statementsConsolidated Financial Statements in Part II, Item 8 and “Liquidity and Capital Resources” in Item 7 of this 2017 Form10-K)8). The payment of any future dividends will be determined by the Board of Directors in light of conditions then existing, including the Company’s financial condition and requirements, future prospects, restrictions in financing agreements, business conditions and other factors deemed relevant by the BoardBoard.
The Company grants two types of Directors.performance stock units (“PSU”), one which vests based on a combination of employee service and the achievement of certain Adjusted EBITDA targets, and one which vests based on a combination of employee service and the achievement of total shareholder return (“TSR”) targets. The achievement of the Adjusted EBITDA and TSR targets in these PSUs is determined over a three-year performance period. At the conclusion of the three-year performance period, the number of PSUs that ultimately vest can range from 0% to a maximum vesting opportunity of 175% of the initial Adjusted EBITDA PSU award or 150% of the initial TSR PSU award depending upon actual performance versus the established Adjusted EBITDA and TSR, respectively.
Equity Compensation Plans
The following table sets forth information regarding the Company’s Equity Compensation Plan as atof December 31, 2017:2023:
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) |
| (A) |
| Weighted Average |
| Number of Securities |
| ||||||||||||||||
Plan Category | (a) | (b) | (c) |
|
|
|
|
|
|
|
|
| |||||||||||||
Equity compensation plans approved by security holders | 6,077,429 | $ | 29.86 | 4,704,507 |
|
| 5,538,873 |
|
| $ |
| 15.77 |
|
|
| 4,895,941 |
| ||||||||
Equity compensation plans not approved by security holders | nil | nil | nil |
| nil |
|
|
| nil |
|
| nil |
| ||||||||||||
|
|
| |||||||||||||||||||||||
Total | 6,077,429 | $ | 29.86 | 4,704,507 | |||||||||||||||||||||
|
|
| |||||||||||||||||||||||
Total(1) |
|
| 5,538,873 |
|
| $ |
| 15.77 |
|
|
| 4,895,941 |
|
34
Performance Graph
The following graph compares the total cumulative shareholder return for $100 invested on December 31, 20112018 (assuming that all dividends were reinvested) in common shares of the Company against the cumulative total return of the NYSE Composite Index, the S&P/TSX Composite Index and the IMAX Peer Group to the end of the most recently completed fiscal year. The IMAX Peer Group consists of TiVo Corporation, World Wrestling Entertainment,Ambarella, Inc., Corus EntertainmentCinemark Holdings, Inc.,Take-Two Interactive Software, Cineplex Inc., Dolby Laboratories, Inc., Six Flags EntertainmentHarmonic Inc., Knowles Corporation, Lions Gate Entertainment Corp., The Marcus Corporation, and Cinemark Holdings, Inc.
35
Issuer Purchases of Equity Securities
In 2017, the Company repurchased 1,736,150 common shares at an average price of $26.57 per share. The repurchases in 2017 exhausted the remaining allowance of $46.1 million under the previously announced $200.0 million share repurchase program, which expired in June 2017. The average carrying value of the stock retired was deducted from common stock and the remaining excess over the average carrying value of stock was charged to accumulated deficit. Since the inception of the prior buyback program, the Company has repurchased 6,697,406 common shares at an average price of $29.86 per share.
On June 12, 2017, the Company announced that itsthe Board of Directors approved a new $200.0 million share repurchase program for its common shares of the Company’s common stock. The share purchase program expiresthat would have initially expired on June 30, 2020.2020, which was subsequently extended and increased in the total share repurchase authority to $400.0 million. In 2023, the Company’s Board approved a 36-month extension to its share repurchase program through June 30, 2026. As of December 31, 2023, the Company had $167.0 million authorized for repurchase under its approved share repurchase program. The repurchases may be made either in the open market or through private transactions, including repurchases made pursuant a plan intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, subject to market conditions, applicable legal requirements, and other relevant factors. The Company has no obligation to repurchase shares and the share repurchase program may be suspended or discontinued by the Company at any time. ThereDuring the three months ended December 31, 2023, the Company repurchased 1,459,948 common shares at an average price of $16.55 per share, for a total of $24.2 million, excluding commissions, of which 108,393 were nocommon shares where settlement occurred subsequent to December 31, 2023, at an average price of $14.98 per share, for a total of $1.6 million, excluding commission.
As of December 31, 2023 and December 31, 2022, the IMAX LTIP trustee did not hold any shares. Any shares held with the trustee are recorded at cost and are reported as a reduction against Capital Stock on the Company's Consolidated Balance Sheets.
Subsequent to December 31, 2023 and through February 26, 2024, the Company completed repurchases underthrough a 10b5-1 program of 1,158,724 shares at an average of $13.99 per share, for a total cost of $16.2 million, excluding commission.
The Company’s common share repurchase program activity for the newthree months ended December 31, 2023 was as follows:
|
| Total number of |
|
| Average price paid |
|
| Total number of |
|
| Maximum value of |
| ||||||
October 1 through October 31, 2023 |
|
| 350,058 |
|
| $ |
| 17.89 |
|
|
| 350,058 |
|
| $ |
| 184,936,439 |
|
November 1 through November 30, 2023 |
|
| 715,080 |
|
|
|
| 16.76 |
|
|
| 715,080 |
|
|
|
| 172,950,160 |
|
December 1 through December 31, 2023 |
|
| 394,810 |
|
|
|
| 14.96 |
|
|
| 394,810 |
|
|
|
| 167,042,020 |
|
Total |
|
| 1,459,948 |
|
| $ |
| 16.54 |
|
|
| 1,459,948 |
|
|
|
|
|
In 2022, IMAX China’s shareholders granted its Board of Directors (the “IMAX China Board”) a general mandate authorizing the IMAX China Board, subject to applicable laws, to repurchase shares of IMAX China not to exceed 10% of the total number of issued shares as of June 23, 2022 (34,063,480 shares). This program in 2017.
Theexpired on the date of the 2023 Annual General Meeting of IMAX China on June 7, 2023. During the 2023 Annual General Meeting, shareholders approved the repurchase of shares of IMAX China not to exceed 10% of the total number of shares as of June 7, 2023 (33,959,314 shares). This program will be valid until the 2024 Annual General Meeting of IMAX China. The repurchases may be made in the open market or through other means permitted by applicable laws. IMAX China has no obligation to repurchase its shares and the share repurchase program may be suspended or discontinued by IMAX China at any time. During the three months ended December 31, 2023, IMAX China repurchased during16,800 common shares at an average price of HKD 7.11 per share ($0.91 per share) for a total of HKD 0.1 million or less than $0.1 million.
For the year does not include anyyears ended December 31, 2023 and 2022, there were no shares receivedpurchases in the administration of employee share-based compensation plans.
CERTAIN INCOME TAX CONSIDERATIONS
United States Federal Income Tax Considerations
The following discussion is a generalA summary of the material U.S. federal income tax consequencesterms and conditions of the ownership and dispositionCompany’s revolving credit facility, which include a limitation of the common shares by a holder of common shares that is an individual resident of the United States or a United States corporation (a “U.S. Holder”). This discussion does not discuss all aspects of U.S. federal income taxation that may be relevant to investors subject to special treatment under U.S. federal income tax law (including, for example, owners of 10.0% or more of the voting shares of the Company).
Distributions on Common Shares
In general, distributions (without reduction for Canadian withholding taxes) paid by the Company with respect to the common shares will be taxed to a U.S. Holder as dividend income to the extent that such distributions do not exceed the current and accumulated earnings and profits of the Company (as determined for U.S. federal income tax purposes). Subject to certain limitations, under current law dividends paid tonon-corporate U.S. Holders may be eligible for a reduced rate of taxation as long as the Company is considered to be a “qualified foreign corporation”. A qualified foreign corporation includes a foreign corporation that is eligible for the benefits of an income tax treaty with the United States or a foreign corporation the stock of which is regularly tradable on an established securities market in the United States. The amount of a distribution that exceeds the currentpermitted share repurchases, is provided in Note 14 to Consolidated Financial Statements in Part II, Item 8.
Issuer Sales of Unregistered Securities
Refer to Note 17(c) to Consolidated Financial Statements in Part II, Item 8.
Item 6.Selected Financial Data
Reserved.
36
Item 7.Management’s Discussion and accumulated earningsAnalysis of Financial Condition and profitsResults of the Company will be treated first as anon-taxable return of capital to the extent of the U.S. Holder’s tax basis in the common shares and thereafter as taxable capital gain. Corporate holders generally will not be allowed a deduction for dividends received in respect of distributions on common shares. Subject to the limitations set forth in the U.S. Internal Revenue Code of 1986, as amended, as modified by the U.S.-Canada Income Tax Treaty, U.S. Holders may elect to claim a foreign tax credit against their U.S. federal income tax liability for Canadian income tax withheld from dividends. Alternatively, U.S. Holders may claim a deduction for such amounts of Canadian tax withheld.Operations
Disposition of Common SharesOVERVIEW
Upon the sale or other disposition of common shares, a U.S. Holder generally will recognize capital gain or loss equal to the difference between the amount realized on the sale or other disposition and such holder’s tax basis in the common shares. Gain or loss upon the sale or other disposition of the common shares will be long-term if, at the time of the sale or other disposition, the common shares have been held for more than one year. Long-term capital gains ofnon-corporate U.S. Holders may be eligible for a reduced rate of taxation. The deduction of capital losses is subject to limitations for U.S. federal income tax purposes.
Canadian Federal Income Tax Considerations
This summary is applicable to a holder or prospective purchaser of common shares who, for the purposes of theIncome Tax Act (Canada) and any applicable treaty and at all relevant times, is not (and is not deemed to be) resident in Canada, does not (and is not deemed to) use or hold the common shares in, or in the course of, carrying on a business in Canada, and is not an insurer that carries on an insurance business in Canada and elsewhere.
This summary is based on the current provisions of theIncome Tax Act (Canada), the regulations thereunder, all specific proposals to amend such Act and regulations publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof and the Company’s understanding of the administrative policies and assessing practices published in writing by the Canada Revenue Agency prior to the date hereof. This summary does not otherwise take into account any change in law or administrative policy or assessing practice, whether by judicial, governmental, legislative or administrative decision or action, nor does it take into account other federal or provincial, territorial or foreign tax consequences, which may vary from the Canadian federal income tax considerations described herein.
This summary is of a general nature only and it is not intended to be, nor should it be construed to be, legal or tax advice to any holder of the common shares and no representation with respect to Canadian federal income tax consequences to any holder of common shares is made herein. Accordingly, prospective purchasers and holders of the common shares should consult their own tax advisers with respect to their individual circumstances.
Dividends on Common Shares
Canadian withholding tax at a rate of 25.0% (subject to reduction under the provisions of any applicable tax treaty) will be payable on dividends (or amounts paid or credited on account or in lieu of payment of, or in satisfaction of, dividends) paid or credited to a holder of common shares. Under theCanada-U.S. Income Tax Convention (1980), as amended (the “Canada - U.S. Income Tax Treaty”) the withholding tax rate is generally reduced to 15.0% for a holder entitled to the benefits of the Canada - U.S. Income Tax Treaty who is the beneficial owner of the dividends (or 5.0% if the holder is a company that owns at least 10.0% of the common shares).
Capital Gains and Losses
Subject to the provisions of any relevant tax treaty, capital gains realized by a holder on the disposition or deemed disposition of common shares held as capital property will not be subject to Canadian tax unless the common shares are taxable Canadian property (as defined in theIncome Tax Act (Canada)), in which case the capital gains will be subject to Canadian tax at rates which will approximate
those payable by a Canadian resident. Common shares generally will not be taxable Canadian property to a holder provided that, at the time of the disposition or deemed disposition, the common shares are listed on a designated stock exchange (which currently includes the NYSE) unless at any time within the 60 month period immediately preceding such time (a) any combination of (i) such holder, (ii) persons with whom such holder did not deal at arm’s length or (iii) a partnership in which such holder or any such persons holds a membership interest either directly or indirectly through one or more partnerships, owned 25.0% or more of the issued shares of any class or series of shares of the Company and (b) more than 50% of the fair market value of the common shares was derived directly or indirectly from one or any combination of (i) real or immovable property situated in Canada, (ii) Canadian resource properties, (iii) timber resource properties, and (iv) options in respect of, or interests in, or for civil law rights in, property described in any of paragraphs (i) to (iii), whether or not the property exists. In certain circumstances set out in theIncome TaxAct (Canada), the common shares may be deemed to be taxable Canadian property. Under theCanada-U.S. Income Tax Treaty, a holder entitled to the benefits of the Canada - U.S. Income Tax Treaty and to whom the common shares are taxable Canadian property will not be subject to Canadian tax on the disposition or deemed disposition of the common shares unless at the time of disposition or deemed disposition, the value of the common shares is derived principally from real property situated in Canada.
The selected financial data set forth below is derived from the consolidated financial information of the Company. The financial information has been prepared in accordance with U.S. GAAP. All financial information referred to herein is expressed in U.S. dollars unless otherwise noted.
Years Ended December 31, | ||||||||||||||||||||
(In thousands of U.S. dollars, except per share amounts) | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Statements of Operations Data: | ||||||||||||||||||||
Revenues | $ | 380,767 | $ | 377,334 | $ | 373,805 | $ | 290,541 | $ | 287,937 | ||||||||||
Costs and expenses applicable to revenues | 195,521 | 174,656 | 154,517 | 117,153 | 123,334 | |||||||||||||||
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|
|
|
|
|
|
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| |||||||||||
Gross margin | $ | 185,246 | $ | 202,678 | $ | 219,288 | $ | 173,388 | $ | 164,603 | ||||||||||
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|
|
|
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|
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| |||||||||||
Net income | $ | 12,518 | $ | 39,320 | $ | 64,624 | $ | 42,169 | $ | 44,115 | ||||||||||
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| |||||||||||
Net income attributable to common shareholders | $ | 2,344 | $ | 28,788 | $ | 55,844 | $ | 39,736 | $ | 44,115 | ||||||||||
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Net income per share attributable to common shareholders |
| |||||||||||||||||||
Net income per share – basic | ||||||||||||||||||||
Net income per share from continuing operations | $ | 0.04 | $ | 0.43 | $ | 0.79 | $ | 0.57 | $ | 0.66 | ||||||||||
Net income per share from discontinued operations | — | — | — | 0.01 | — | |||||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||
$ | 0.04 | $ | 0.43 | $ | 0.79 | $ | 0.58 | $ | 0.66 | |||||||||||
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|
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|
|
|
|
|
|
| |||||||||||
Net income per share – diluted | ||||||||||||||||||||
Net income per share from continuing operations | $ | 0.04 | $ | 0.42 | $ | 0.78 | $ | 0.56 | $ | 0.64 | ||||||||||
Net income per share from discontinued operations | — | — | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
$ | 0.04 | $ | 0.42 | $ | 0.78 | $ | 0.56 | $ | 0.64 | |||||||||||
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|
BALANCE SHEET DATA
(in thousands of U.S. dollars) | As at December 31, | |||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||
Cash and cash equivalents | $ | 158,725 | $ | 204,759 | $ | 317,449 | $ | 106,503 | $ | 29,546 | ||||||||||
Total assets | $ | 866,612 | $ | 857,334 | $ | 930,629 | $ | 621,106 | $ | 481,145 | ||||||||||
Total bank indebtedness | $ | 25,357 | $ | 27,316 | $ | 29,276 | $ | 4,283 | $ | — | ||||||||||
Total shareholders’ equity | $ | 602,257 | $ | 621,574 | $ | 673,850 | $ | 382,775 | $ | 319,585 |
In October 2016, the FASB issued ASUNo. 2016-16, “Income Taxes (Topic 740)”. The purpose of ASU2016-16 is to eliminate the exception for an intra-entity transfer of an asset other than inventory. The amendments require the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The Company elected to early adopt ASU2016-16 during the first quarter of 2017. The impact from the adoption was reflected in the Company’s consolidated financial statements on a modified retrospective basis resulting in an increase to Accumulated deficit of $8.3 million, a decrease to Other assets of $14.8 million, an increase to Deferred taxes of $7.9 million and an increase to Accrued and other liabilities of $1.4 million.
OVERVIEW
IMAX Corporation, together with its consolidated subsidiaries (the “Company” or “IMAX”), is onea Canadian corporation that was formed in March 1994 as a result of an amalgamation between WGIM Acquisition Corp. and the world’s leadingformer IMAX Corporation (“Predecessor IMAX”). Predecessor IMAX was incorporated in 1967.
IMAX is a premier global technology platform for entertainment technology companies, specializing in motion picture technologies and presentations. The Company refers to all theaters using the IMAX theater system as “IMAX theaters”.events. Through its proprietary software, auditorium architecture, patented intellectual property, and specialized equipment, IMAX offers a uniqueend-to-end cinematic solution combining proprietary software, theater architecture and equipment to create the highest-quality, mostsuperior, awe-inspiring immersive motion picture experiencecontent experiences for which the IMAX® brand has become known globally.is globally renowned. Top filmmakers, movie studios, artists, and studioscreators utilize the cutting-edge visual and sound technology of IMAX theaters to connect with audiences in innovative ways, and, asways. As a result, IMAX’s networkIMAX is among the most important and successful theatricalglobal distribution platforms for major eventplatforms. The Company’s global content portfolio includes blockbuster films, aroundboth from Hollywood and local language film industries worldwide; IMAX documentaries, both original and acquired (“IMAX Documentaries”); and IMAX events and experiences in emerging verticals including music, gaming, and sports.
The Company leverages its proprietary technology and engineering in all aspects of its business, which principally consists of the world. There were 1,370IMAX film remastering (“IMAX Film Remastering” and formerly known as “IMAX DMR”) and the sale or lease of premium IMAX theater systems (1,272 commercial multiplexes, 12 commercial destinations, 86 institutional) operating in 75 countries as of December 31, 2017. This compares to 1,215 theater systems (1,107 commercial multiplexes, 16 commercial destinations, 92 institutional) operating in 75 countries as of December 31, 2016.
The Company’s core business consists of:
IMAX theater systemsSystems are based on proprietary and patented image, audio and other technology developed over the course of the Company’s50-year history since its founding in 1967. The customers for IMAX Systems are principally theatrical exhibitors that operate commercial multiplex theaters, and, combine:to a much lesser extent, museums, science centers and destination entertainment sites. The Company does not own the locations in the IMAX network, except for one, and is not an exhibitor, but instead sells or leases the IMAX System to exhibitor customers along with a license to use its trademarks and ongoing maintenance services for which there is an annual payment by the exhibitor to IMAX.
IMAX has the largest global premium format network, more than double the size of its nearest competitor. As of December 31, 2023, there were 1,772 IMAX Systems operating in 90 countries and territories, including 1,693 commercial multiplexes, 12 commercial destinations, and 67 institutional locations in the Company’s global network. This compares to 1,716 IMAX Systems in 87 countries and territories as of December 31, 2022, including 1,633 commercial multiplexes, 12 commercial destinations, and 71 institutional locations in the Company’s global network. Additional information on the composition of the IMAX network is provided in the discussion of IMAX Network and Backlog.
IMAX Systems provide the Company’s exhibitor customers with a combination of the following benefits:
In addition, select movies shown in the IMAX network are filmed using proprietary IMAX film cameras or IMAX certified digital cameras, which offer filmmakers customized guidance and a workflow process to provide further enhanced and differentiated image quality and an IMAX-exclusive film aspect ratio that delivers up to 26% more image onto a standard IMAX movie screen. In select IMAX locations worldwide, movies filmed with IMAX cameras have an IMAX-exclusive 1.43 film aspect ratio, with up to 67% more image.
37
Together, these components cause audiences in IMAX theaterslocations to feel as if they are a part of theon-screen action, creating a more intense, immersive, and exciting experience than in a traditional theater.conventional cinematic format.
As a result of the immersivenessengineering and superior image and sound qualityscientific achievements that are a hallmark ofTheIMAXExperience®, the Company’s exhibitor customers typically charge a premium for IMAX DMR films overreleased in IMAX’s format versus films exhibited in their other auditoriums. The premium pricing, combined with the higher attendance levels associated with IMAX DMR films, generates incremental box office for the Company’s exhibitor customers and for the movie studios releasing their films to the IMAX theater network. The incremental box office generated by IMAX DMR films combined with IMAX’s unmatched global network footprint and scale has helped establish IMAX as athe key premium distribution and marketing platform for Hollywood blockbuster films. and foreign local language movie studios.
The Company released 60achieved its second highest grossing year at the global box office (“GBO”) and its highest grossing year at the Domestic, United States and Canada combined, box office in 2023. The year was highlighted by the Company’s highest grossing year for local language films, the $180.4 million in 2017, up from 51IMAX box office generated by Christopher Nolan’s Oppenheimer, and strong indexing across titles including Super Mario Bros., Guardians of the Galaxy Vol. 3, Spider-Man: Across the Spider-Verse, and Mission Impossible: Dead Reckoning.
A cornerstone of the IMAX brand for more than 50 years, IMAX recently relaunched its IMAX Documentaries unit to focus on a new generation of narrative-driven original and acquired documentary films, in 2016. as well as downstream revenue opportunities through partnerships with leading streaming platforms. Additional forthcoming IMAX original documentaries include The Blue Angels and The Elephant Odyssey.
The Company expectsalso continues to releaseevolve its platform to bring new, innovative events and experiences to audiences worldwide. During the year, the Company partnered with A24 for the IMAX LiveTM 40th anniversary screening of Jonathan Demme’s Stop Making Sense at the Toronto International Film Festival, which became the highest grossing IMAX Live event of all time. In January 2024, the Company and Pathé Live in partnership with Mercury Studios and Queen Films released Queen Rock Montreal, a similar numberconcert from 1981, exclusively in 450 IMAX locations globally.
As of December 31, 2023, the Company has a footprint of 252 connected locations in the IMAX network across North America, Europe, and Asia were configured with connectivity to deliver live and interactive content with low latency and superior sight and sound.
As a premier global technology platform for entertainment and events, the Company strives to remain at the forefront of advancements in entertainment technology. The Company offers a suite of laser-based digital projection systems (“IMAX Laser Systems”), which deliver increased resolution, sharper and brighter images, deeper contrast, and the widest range of colors available to filmmakers today. The Company further believes that its suite of IMAX DMR films in 2018 as compared to 2017.
SOURCES OF REVENUE
The primary revenue sourcesLaser Systems are helping facilitate the next major renewal and upgrade cycle for the global IMAX network.
In September 2022, the Company can be categorized into four main groups: network business, theater business,acquired SSIMWAVE Inc. (“SSIMWAVE”), a leader in artificial intelligence (“AI”)-driven video quality solutions for media and entertainment companies. The acquisition of SSIMWAVE marks a significant expansion of the Company’s streaming and consumer technology strategy to deliver the highest quality images on any screen, while also creating cost efficiencies to streaming companies, broadcasters and other companies that transmit visual data to drive new, recurring revenue and grow its global leadership in entertainment technology. In 2023, the Company formed a new business unit, Streaming and other.Consumer Technology to focus on in-home entertainment technology. The business unit includes the streaming technology acquired in the SSIMWAVE acquisition as well as IMAX Enhanced® products and services.
The Company utilizes AI for image enhancement, streaming technology, and data analysis to improve various aspects of its business. It is actively exploring other global use cases for AI to improve its products, operations, and efficiency.
Commencing in March 2022, in response to numerous sanctions imposed by the United States, Canada and the European Union on companies transacting in Russia and Belarus resulting from ongoing conflict between Russia and Ukraine, the Company suspended its operations in Russia and Belarus. As of December 31, 2023, the IMAX network business includes variable revenues that are primarily derived from film studios54 systems in Russia, eight systems in Ukraine, and exhibitors. Underone system in Belarus, and the Company’s DMR arrangements,backlog includes 14 systems in Russia, one system in Ukraine, and five systems in Belarus with a total fixed contracted value of $22.9 million. In 2022, the Company provides DMR servicesrecorded provisions for potential credit losses against substantially all of its receivables in Russia due to studios in exchange for a percentage of contingent box office receipts. Underuncertainties associated with the ongoing conflict. These receivables relate to existing sale agreements as the Company is not party to any joint revenue sharing arrangements in these countries. In addition, exhibitors in Russia, Ukraine, and Belarus were placed on nonaccrual status for maintenance revenue and finance income. In 2023, due to the resumption of operations throughout Ukraine’s theatrical exhibition industry, as evidenced by the reopening of all IMAX Systems in Ukraine and payments received from exhibitor customers therein, the Company recognized maintenance revenue and finance income in connection with those theaters. The Company closely monitors geopolitical conflicts (including any government sanctions imposed in response thereto) and its effects on the global economy and the Company. (Refer to “Risk Factors — The Company conducts business internationally, which exposes it to uncertainties and risks that could negatively affect its operations, sales, and future growth prospects.” in Part I, Item 1A, and Note 2(b) to Consolidated Financial Statements in Part II, Item 8.)
38
On September 7, 2022, Cineworld Group plc (“Cineworld”), the parent company of Regal, and certain of its subsidiaries and Regal CineMedia Holdings, LLC, filed petitions for reorganization under Chapter 11 of the United States Bankruptcy Code in the Southern District of Texas. The Court approved Cineworld’s Plan of Reorganization (the “Plan”) on June 28, 2023, in which Cineworld disclosed that it plans to emerge from the Chapter 11 proceedings on or about July 28, 2023. On August 30, 2023, the Company and Cineworld entered into a Joint Stipulation and Agreed Order which was entered by the Court on September 21, 2023 (the “Stipulation”) pursuant to which Cineworld assumed its global agreement with IMAX (the “Global Agreement”). The Stipulation provides that all amounts owed to IMAX theaterwill be paid by Cineworld and set out a revised timetable for all systems installations required of Cineworld under the Global Agreement. Cineworld has emerged from the Chapter 11 proceedings and the Stipulation finalizes all matters between IMAX and Cineworld as a result of the restructuring. The Company has determined that no additional provision for expected credit losses is required.
SOURCES OF REVENUE
The Company has organized its operating segments into the following two reportable segments: (i) Content Solutions, which principally includes content enhancement and distribution services, and (ii) Technology Products and Services, which principally includes the sale, lease, and maintenance of IMAX Systems. The Company’s activities that do not meet the criteria to exhibitorsbe considered a reportable segment are disclosed within All Other. Additional information is provided in Note 21 to the Consolidated Financial Statements in Part II, Item 8.
Content Solutions
The Content Solutions segment earns revenue principally from the digital remastering of films and other content into IMAX formats for distribution across the IMAX network. To a lesser extent, the Content Solutions segment also earns revenue from the distribution of large-format documentary films and IMAX events and experiences including music, gaming, and sports, as well as the provision of film post-production services.
Film Remastering and Distribution
IMAX Film Remastering is a proprietary technology that digitally remasters films and other content into IMAX formats for distribution across the IMAX network. In a typical film remastering and distribution arrangement, the Company receives a percentage of contingentthe box office receipts. In addition, certainreceipts from a movie studio in exchange for converting a commercial film into the IMAX format and distributing it across the IMAX network. The fee earned by the Company in a typical film remastering and distribution arrangement averages approximately 12.5% of the Company’s sales and sales-type leases require customers to make contingent rent payments that are tied to box office performance, and this contingent rent is included inreceipts (i.e., GBO less applicable sales taxes), except for within Greater China, where the network business.
The theater business includes fixed revenues that are primarily derived from theater exhibitors through eitherCompany receives a sale or sales-type lease arrangementlower percentage of net box office receipts for IMAX theater systems. Sales and sales-type lease arrangements typically require fixed upfront and annual minimum payments. The Company’s theater business also includes fixed revenues that are required under its hybrid theater systems from the joint revenue sharing arrangements segment. In addition, theater exhibitors also pay for associated maintenance, extended warranty services and the provision of aftermarket parts of its system components, and these revenues are included in the theater business.
New business includes revenues from content licensing and distribution fees associated with the Company’s original content investments, virtual reality initiatives, IMAX Home Entertainment, and other new business initiatives that are in the development and/orstart-up phase).
The Company also derives a small portion of other revenues from the film studios for provision of film production services, operation of its owned and operated theaters and camera rentals.
The Company believes that separating the fixed price revenues from the variable sources of revenue, as well as isolating itsnon-core new business initiatives, provides greater transparency into the Company’s performance.
Network Business: DigitalRe-Mastering (IMAX DMR) and Joint Revenue Sharing Arrangements
DigitalRe-Mastering (IMAX DMR)
The Company has developed a proprietary technology, known as IMAX DMR, to digitallyre-mastercertain Hollywood films into due to an import tax.
IMAX digital cinema package format or15/70-format film for exhibition in IMAX theaters at a cost that is incurred by the Company. IMAX DMRFilm Remastering digitally enhances the image resolution of motion picture films for projection on IMAX screens while maintaining or enhancing the visual clarity and sound quality to levels for whichTheIMAXExperience is known. In addition, the original soundtrack of a typical IMAX DMR film arrangement, the Company receives a percentage, which in recent years has averaged approximately 12.5%, of net box office receipts, defined as gross box office receipts less applicable sales taxes, of any commercial films released outside of Greater China in return for converting them to be exhibited across the IMAX DMR formatnetwork is remastered for IMAX digital sound systems. IMAX remastered soundtracks are uncompressed for full fidelity. IMAX sound systems use proprietary loudspeaker systems and distributing them through the IMAX theater network. Within Greater China, the Company receives a lower percentage of box office receipts for certain Hollywood films.proprietary surround sound configurations that ensure every seat in an auditorium is an optimal listening position.
IMAX films also benefit from enhancements made by individual filmmakers exclusively for the IMAX release of the film. Collectively, the Company refers to these enhancements as “IMAX DNA.” Filmmakers and filmmakers andmovie studios have sought IMAX-specific enhancements in recent years to generate interest in and excitement for their films. Such enhancements include shooting select scenesfilms with IMAX cameras to increase the audience’s immersion in the film and takingto take advantage of the unique dimensions of the IMAX screen by projecting the film in a larger aspect ratio.ratio that delivers up to 26% more image onto a standard IMAX movie screen. In addition, the upcoming filmsMarvel’s Avengers: Infinity Warand the Untitled Avengers Sequel are expectedselect IMAX locations worldwide, movies filmed with IMAX cameras have an IMAX-exclusive 1.43 film aspect ratio, delivering up to be shot in their entireties using IMAX cameras.
The original soundtrack of a film to be released to the IMAX theater network isre-mastered for the IMAX digital sound systems in connection with the IMAX DMR release. Unlike the soundtracks played in conventional theaters, IMAXre-mastered soundtracks are uncompressed and full fidelity. IMAX sound systems use proprietary loudspeaker systems and proprietary surround sound configurations that ensure every theater seat is in an optimal listening position.
67% more image. The Company has a Filmed For IMAX® program for select films under which filmmakers craft films from their inception in numerous ways to optimize The IMAX Experience. The program includes incremental and bespoke marketing support, which box office metrics demonstrate audiences respond extremely favorably to, and drives higher market share for IMAX.
Management believes that the growth in international box office remains an important driver of future growth for the Company. During the year ended December 31, 2017, 63.4% of the Company’s gross box office from IMAX DMR films was generated in international markets, as compared to 61.8% in the year ended December 31, 2016. To support continued growth in international markets, the Company is focused on the expansion of the IMAX network and has sought to bolsterelevate its international film strategy, supplementing the Company’s filmits slate of Hollywood DMR titlesfilms with appealing local IMAX DMR releaseslanguage films released in select markets, including China, Japan, India, France and South Korea. More recently, the Company has further diversified its strategy by distributing local language films in both native and foreign markets. During
39
The following table provides detailed information about the films that were released to the Company’s global network during the years ended December 31, 2023 and 2022:
|
|
| For the Years Ended December 31, |
| |||||
|
|
| 2023 |
|
| 2022 |
| ||
Hollywood film releases(1) |
|
|
| 36 |
|
|
| 32 |
|
Local language film releases: |
|
|
|
|
|
|
| ||
China |
|
|
| 28 |
|
|
| 15 |
|
Japan |
|
|
| 11 |
|
|
| 8 |
|
South Korea |
|
|
| 9 |
|
|
| 5 |
|
India |
|
|
| 8 |
|
|
| 6 |
|
France |
|
|
| 1 |
|
|
| 1 |
|
Malaysia |
|
|
| 1 |
|
|
| — |
|
Thailand |
|
|
| 1 |
|
|
| — |
|
Indonesia |
|
|
| — |
|
|
| 1 |
|
Total local language film releases |
|
|
| 59 |
|
|
| 36 |
|
Total film releases(2)(3) |
|
|
| 95 |
|
|
| 68 |
|
The Company expects to announce additional local language IMAX DMR films to bedistributed through the Company’s global network during the year ended December 31, 2023 include Oppenheimer, The Super Mario Bros. Movie, The Wandering Earth 2, Guardians of the Galaxy Vol.3, Mission: Impossible - Dead Reckoning Part One, Ant-Man and the Wasp: Quantumania, Fast X, Creation of the Gods I: Kingdom of Storms, Spider-Man: Across the Spider-Verse, and Aquaman and the Lost Kingdom.
To date, in 2024, 18 titles have been released to the global IMAX theater network, in the remainder of 2018including three re-releases, and beyond.
In addition, in conjunction with Marvel and Disney|ABC Television Group, the Companyco-produced and exclusively premiered theatrically the television series “Marvel’s Inhumans” in IMAX theaters.
To date, the Company has announced the following 31 DMRadditional 24 titles to be released in 2018 to the IMAX theater network:2024:
Scheduled | ||||||
Title | Studio | Release Date(1) | IMAX DNA | |||
Dune: Part II | Warner Bros. Pictures/Legendary Pictures | March 2024 | Filmed For IMAX | |||
Kung Fu Panda 4 | Universal Pictures | March 2024 | — | |||
Ghostbusters: Frozen Empire | Sony Pictures | March 2024 | — | |||
Godzilla x Kong: The | Warner Bros. Pictures/Legendary Pictures | April 2024 | Filmed For IMAX |
Civil War | A24 | April 2024 | — | |||
Spy x Family Code:White | Sony Pictures/Crunchyroll | April 2024 | — | |||
The | Universal Pictures | May 2024 | — | |||
Kingdom of The Planet of The Apes | Walt Disney Studios | May 2024 | — | |||
Furiosa | Warner Bros. Pictures | May 2024 | — |
Bad Boys 4 | Sony Pictures | June 2024 | — | |||
Inside Out 2 | Walt Disney Studios/Pixar Animation Studios | June 2024 | — | |||
A Quiet Place: Day One | Paramount Pictures | June 2024 | — |
Despicable Me 4 | Universal Pictures | July 2024 | — |
Twisters | Universal Pictures/Warner Bros. Pictures | July 2024 | — |
Deadpool & Wolverine |
Marvel Studios/Walt Disney Studios | July 2024 | — |
Alien: Romulus |
Walt Disney Studios | August 2024 | — |
Kraven the Hunter | Sony Pictures/Marvel Studios | August 2024 | — | |||
Beetlejuice 2 | Warner Bros. Pictures | September 2024 | — | |||
Transformers One | Paramount Pictures | September 2024 | — | |||
Wolfs | Sony Pictures/Apple | September 2024 | — | |||
Joker: Folie à Deux | Warner Bros. Pictures/DC Studios | October 2024 | Filmed For IMAX | |||
Venom 3 | Sony Pictures | November 2024 | Filmed For IMAX | |||
Untitled Gladiator Sequel | Paramount Pictures | November 2024 | — | |||
Wicked – Part 1 | Universal Pictures | November 2024 | — |
In addition,
40
The Company remains in active negotiations with all of the major Hollywood studios for additional films to fill out its shortshort- and long-term film slate.slate for the IMAX network. The Company also expects to announce additional local language films and exclusive IMAX events and experiences to be released to its global network throughout 2024 with an expectation to exceed the 59 local language films released in 2023.
Other Content Solutions
The Company distributes large-format documentary films, primarily to institutional theaters. The Company receives as its distribution fee either a fixed amount or a fixed percentage of the box office receipts and, following the recoupment of its costs, is typically entitled to receive an additional percentage as participation revenues.
The Company continues to believe that the IMAX network serves as a valuable platform to launch and distribute original content. The ownership rights to such films may be held by the film sponsors, the film investors and/or the Company. As of December 31, 2023, the Company has distribution rights with respect to approximately 60 films, which cover subjects such as space, wildlife, music, sports, history and natural wonders.
In May 2023, the Company announced that Amazon Studios acquired worldwide rights to the Company’s original documentary, The Blue Angels, filmed with IMAX digital certified cameras, and produced in collaboration with Dolphin Entertainment, Bad Robot Productions, and Zipper Bros Films. The documentary is expected to be delivered in the second quarter of 2024. In October 2023, Deep Sky, a documentary on NASA’s Webb Telescope in collaboration with Crazy Boat Pictures Ltd. and filmmaker Nathaniel Kahn, was released to the IMAX network. In July 2023, the Company also announced the start of production of The Elephant Odyssey, a documentary in collaboration with Beach House Pictures Pte Ltd and China International Communications Group, which is expected to be released in 2025.
In addition, the Company continues to evolve its platform to bring new, innovative IMAX events and experiences to audiences worldwide. As of December 31, 2023, the Company has a footprint of 252 connected locations in the IMAX network across the United States, Canada, Europe, and Asia configured with connectivity to deliver live and interactive events with low latency and superior sight and sound.
In 2023, the Company partnered with Metro-Goldwyn-Studios Inc. (“MGM”) for an IMAX premiere event, consisting of red carpet interviews and behind the scenes footage, followed by a special advanced screening of Creed III, which was released across the IMAX global network. The Company also hosted a reunion of the iconic band Talking Heads at the Toronto International Film Festival, followed by a screening of Stop Making Sense,before the movie was released to the IMAX network more broadly. This became the highest grossing IMAX Live event of all time. These events were broadcast live to much of the IMAX Domestic connected network. In January 2024, the Company and Pathé Live in partnership with Mercury Studios and Queen Films released Queen Rock Montreal, a concert from 1981, exclusively in 450 IMAX locations globally.
The Company also provides film post-production and quality control services for large-format films, whether produced by IMAX or third parties, and digital post-production services. In addition, the Company also provides IMAX film and digital cameras to content creators under the IMAX certified camera program.
Technology Products and Services
The Technology Product and Services segment earns revenue principally from the sale or lease of IMAX Systems, as well as from the maintenance of IMAX Systems. To a lesser extent, the Technology Product and Services segment also earns revenue from certain ancillary theater business activities, including after-market sales of IMAX System parts and 3D glasses.
Sales Arrangements
The Company provides IMAX Systems to exhibitors through sale arrangements or long-term lease arrangements that for accounting purposes are classified as sales-type leases. Under these arrangements, in exchange for providing the IMAX System, the Company earns initial fees and ongoing consideration, which can include fixed annual minimum payments and contingent fees in excess of the minimum payments, as well as maintenance and extended warranty fees (see “IMAX Maintenance” below). The initial fees vary depending on the system configuration and location of the IMAX System. Initial fees are paid to the Company in installments typically between the time of signing the arrangement and the time of system installation. Once an IMAX System is installed, the initial fees and the present value of future annual minimum payments, which are financing fees, are recognized as revenue. In addition, in sale arrangements, the present value of the estimated contingent fees that may become due if certain annual minimum box office receipt thresholds are exceeded is recorded as revenue in the period when the sale is recognized and is adjusted in future periods based on actual results and changes in estimates. Such variable consideration is only recognized on sales transactions to the extent the Company believes there is not a risk of significant revenue reversal. Finance income is recognized over the term of a financed sale or sales-type lease arrangement.
41
In sale arrangements, title to the IMAX System equipment generally transfers to the customer. However, in certain instances, the Company retains title or a security interest in the equipment until the customer has made all payments required by the agreement or until certain shipment events for the equipment have occurred. In a sales-type lease arrangement, title to the IMAX System equipment remains with the Company. The Company has the right to remove the equipment for non-payment or other defaults by the customer.
The revenue earned from customers under the Company’s IMAX System sale or sales-type lease agreements varies from quarter-to-quarter and year-to-year based on a number of factors, including the number and mix of IMAX System configurations sold or leased, the timing of installation of the IMAX Systems, the nature of the arrangement and other factors specific to individual contracts.
Joint Revenue Sharing Arrangements – Contingent Rent
The Company provides IMAX theater systemsSystems to certain of its exhibitor customers underexhibitors through joint revenue sharing arrangements (“JRSA”). The Company has two basic typesUnder the traditional form of joint revenue sharing arrangements: traditional and hybrid.
Under a traditional joint revenue sharing arrangement,these arrangements, the Company provides anthe IMAX theater system toSystem under a customerlong-term lease in return for a portionwhich the Company assumes the majority of the customer’s IMAXequipment and installation costs. In exchange for its upfront investment, the Company, primarily, earns rent based on a percentage of contingent box office receipts and, in some cases, concession revenues, rather than requiring the customer to pay a fixed upfront paymentfee or fixed annual minimum payments. Rental payments as would be required under a sales or sales-type lease arrangement (which is discussed below under “Theater Business”). Payments, which are based on box office receipts,from the customer are required throughout the term of the arrangement and are typically due either monthly or quarterly. Certain maintenance and extended warranty services are provided to the customer for a separate fixed annual fee. The Company retains title to the theater systemIMAX System equipment components throughout the lease term, and the equipment is returned to the Company at the conclusion of the arrangement.
Under a hybridcertain other joint revenue sharing arrangement, by contrast,arrangements, known as hybrid arrangements, the customer is responsible for making fixed upfront payments prior to the delivery and installation of the IMAX theater systemSystem in an amount that is typically half of what the Company would receive from a straighttypical sale transaction. As with a traditional joint revenue sharing arrangement, the customer also pays the Company a portionpercentage of the customer’s IMAXcontingent box office receipts over the term of the arrangement, although thethis percentage of box office receipts owing to the Company is typically half that of a traditional joint revenue sharing arrangement. Hybrid joint revenue sharing arrangements take the form of a sale. The fixed revenues under a hybrid jointupfront payment is recognized when the lease term commences and is recorded within Revenues – Technology Sales. The contingent rent is recognized as revenue
sharing arrangement are reported in the Company’s theater business operations, while the contingent box office receipts are included in the Company’s network business operations.
Under the majority ofmost joint revenue sharing arrangements (both traditional and hybrid), the initialnon-cancellable term of IMAX theater systems is 10 years or longer and is renewable by the customer for one to two additional terms of between three to five years. The Company has the right to remove the equipment fornon-payment or other defaults by the customer. The contracts arenon-cancellable by the customer unless the Company fails to perform its obligations.
The introduction ofrevenue earned from customers under the Company’s joint revenue sharing arrangements hascan vary from quarter-to-quarter and year-to-year based on a number of factors that drive box office levels including film performance, the mix of IMAX System configurations, the timing of installation of IMAX Systems, the nature of the arrangement, the location, size and management of the theater and other factors specific to individual arrangements.
Joint revenue sharing arrangements also require IMAX to provide maintenance and extended warranty services to the customer over the term of the lease in exchange for a separate fixed annual fee. These fees are reported within IMAX Maintenance, as discussed below.
Joint revenue sharing arrangements have been an important factor in the expansion of the Company’s commercial theatersystem network. Joint revenue sharing arrangements allow commercial theater exhibitors to install IMAX theater systemsSystems without the significant initial capital investment required in a sale or sales-type lease arrangement. Joint revenue sharing arrangements drive recurring cash flows and earnings for the Company as customers under joint revenue sharingthese arrangements pay the Company a portion of their ongoing box office.office receipts. The Company funds its investment in equipment for joint revenue sharing arrangements through cash flows from operations. As atof December 31, 2017,2023, the Company had 747 theaters in operation924 locations under joint revenue sharing arrangements a 16.7% increase as compared to the 640 joint revenue sharing arrangements open as at December 31, 2016.in its global commercial multiplex network. The Company also had contracts in backlog for an additional 337 theaters286 systems under joint revenue sharing arrangements as atof December 31, 2017.2023, including 234 new locations and 52 upgrades to existing locations.
The revenue earned from customers underIMAX Maintenance
IMAX System arrangements also include a requirement for the Company’s joint revenue sharing arrangements can vary from quarterCompany to quarter and year to year based on a number of factors including film performance,provide maintenance services over the mix of theater system configurations, the timing of installation of these theater systems, the naturelife of the arrangement the location, size and management of the theater and other factors specific to individual arrangements.
IMAX Systems – Contingent Rent
The Company’s sales and sales type lease arrangements include contingent rent in excess of fixed minimum ongoing payments. This contingent rent, which is included in the Company’s network business operations, is recognized after the fixed minimum amount per annum is exceeded as driven by box office performance. Contingent payments in excess of fixed minimum ongoing payments of sales or sales type lease arrangements are recognized as revenue when reported by theater operators, provided collectability is reasonably assured. In addition, contingent rent includes amounts realizedexchange for changes in rent and maintenance payments which are indexed to a local consumer price index.
Theater Business: IMAX Systems, Theater System Maintenance and Fixed Fees from Joint Revenue Sharing Arrangements
IMAX Systems
The Company also provides IMAX theater systems to customers on a sales or long-term lease basis, typically with an initial10-year term. These agreements typically require the payment of initial fees and ongoing fees (which can include a fixed minimum amount per annum and contingent fees in excess of the minimum payments), as well as maintenance and extended warranty fees. The initial fees vary depending on the system configuration and location of the theater. Initial fees areannual maintenance fee paid to the Company in installments between the time of system signing and the time of system installation, which is when the total of these fees, in addition to the present value of future annual minimum payments, are recognized as revenue. Ongoing fees are paid over the term of the contract, commencing after the theater system has been installed, and is a fixed minimum amount per annum. Finance income is derived over the term of a financed sale or sales-type lease arrangement as the unearned income on that financed sale or sales-type lease is earned. Certain maintenance and extended warranty services are provided to the customer for a separate fixed annual fee.
Under the Company’s sales agreements, title to the theater system equipment components passes to the customer. In certain instances, however, the Company retains title or a security interest in the equipment until the customer has made all payments required under the agreement. Under the terms of a sales-type lease agreement, title to the theater system equipment components remains with the Company. The Company has the right to remove the equipment fornon-payment or other defaults by the customer.
The revenue earned from customers under the Company’s theater system sales or lease agreements varies from quarter to quarter and year to year based on a number of factors, including the number and mix of theater system configurations sold or leased, the timing of installation of the theater systems, the nature of the arrangement and other factors specific to individual contracts.
Joint Revenue Sharing Arrangements – Fixed Fees
As discussed in joint revenue sharing arrangements above, under a hybrid joint revenue sharing arrangement the customer is responsible for making upfront payments prior to the delivery and installation of the IMAX theater system in an amount that is typically half of what the Company would receive from a straight sale transaction. These fixed upfront payments are included in the Company’s theater business operations.
Theater System Maintenance
For all IMAX theaters, theater owners or operators are also responsible for paying the Company an annual maintenance and extended warranty fee.exhibitor. Under these arrangements, the Company provides proactivepreventative and emergency maintenance services to every theater in its network to ensure that each presentation is up to the highest IMAX quality standard. Annual maintenance fees are paid throughout the duration of the term of the theatersystem agreements.
42
All Other
Other Theater Revenues
Additionally,Streaming and Consumer Technology
Streaming and Consumer Technology includes the Company’s Streaming Technology software offerings and IMAX Enhanced product services. Streaming Technology consists of several software products including:
These AI-powered products allow streaming platforms and broadcasters to automate workflows. The Company generates revenues frombelieves that these products allow users to deliver the salehighest quality viewing experiences to their subscribers while reducing costs.
IMAX Enhanced is a solution to bring The IMAX Experience into the home. IMAX Enhanced provides end-to-end premium technology across streaming content and best-in-class entertainment devices, offering consumers high-fidelity playback of after-market partsimage and 3D glasses.sound in the home and beyond, including the following features:
To be certified as IMAX Enhanced, leading consumer electronics manufacturers spanning 4K/8K televisions, projectors, A/V receivers, loudspeakers, soundbars, smartphones, personal computers, tablets, and more must meet a carefully prescribed set of audiovisual performance standards, set by a certification committee, along with some of Hollywood's leading technical specialist.
Revenue from theater business arrangements is recognized at a different time from when cash is collected. See “Critical Accounting Policies” in Item 1At present, certified global device partners include Sony Electronics, Hisense, TCL, LG, Phillips, Hewlett Packard, Xiaomi, Sound United and Honor, among others. As of December 31, 2023, more than 300 IMAX Enhanced titles have been released across five of the Company’s Form10-Kbiggest streaming platforms worldwide: Disney+, Sony Bravia CORE, Tencent Video, iQiyi and Rakuten TV. Over 15 million IMAX Enhanced certified devices are estimated to be in the market today.
The Company's collaboration with Disney allows fans to stream 20 Disney titles in IMAX's expanded aspect ratio at home on Disney+. The presence of IMAX Enhanced on Disney+ provides strong brand exposure for the year ended December 31, 2017 (the “2017 Form10-K”) for further discussion onIMAX by expanding the Company’s revenue recognition policies.
New Business
in-home entertainment footprint to Disney+ and most of its 150 million global subscribers. The Company is exploring new lines of business outside of its core business,believes that IMAX Enhanced enables an elevated end-to-end experience on Disney+, with a focus on investments in alternativelocation-based entertainment experiences, original content, as well as premium IMAX home entertainment technologies and services.
Virtual Reality
The Companysignature sound coming to subscribers with IMAX Enhanced certified devices. IMAX Enhanced is piloting a comprehensive virtual reality (“VR”) strategy to develop a premium, location-based VR offering to deliver immersive, multi-dimensional experiences, including entertainment content and games, to branded VR centers (“IMAX VR Centers”). Pilot IMAX VR Centers are located in a stand-alone venue and in several multiplexes and are retrofitted with proprietary VR pods that permit interactive, moveable VR experiences. The Company’s VR initiative is premised on a unique combination of premium content, proprietary design andbest-in-class technology.
In January 2017, the Company launched its flagship pilot IMAX VR Center in Los Angeles. Since that time, the Company has opened six pilot IMAX VR Centers (two in New York City, one in Toronto, one in Manchester, England, one in Shanghai, China and one in Bangkok, Thailand). The Company continues to evaluate its pilot VR strategy based on several factors including the overall customer experience, pricing models, throughput, types of content featured and differences in geographic areas.
The Company also has a virtual reality fund (the “VR Fund”) among the Company, its subsidiary IMAX China and other strategic investors. The VR Fund will help finance the creation of interactive VR content experiences over the next three years for use across all VR platforms, including in the pilot IMAX VR Centers. The VR Fund recently helped finance the production of one interactive VR experience, which debuted exclusively in the pilot IMAX VR Centers in November 2017 before being made available to other VR platforms.
Original Content
In 2017, the Company partnered with Marvel Television Inc. (“Marvel”) and Disney|ABC Television Group toco-produce and premiere theatrically the television series “Marvel’s Inhumans” in IMAX theaters. The first two episodes of the series ran worldwide in IMAX theaters for two weeks in September 2017 and subsequently the series premiered on the ABC network in the U.S. and across other networks internationally. As part of the investment,Company's next evolutionary step to extend the Company shares in the economics across the venture,IMAX brand and technology further into new use cases, including in both the theatrical and television platforms. This agreement marks the first time a live-action television series has debuted in this manner,streaming entertainment and the first time the Company has an economic interestconsumer electronics market.
(Refer to “Risk Factors ― Failure to respond adequately or in a television property.
The Company continuestimely fashion to believe that the IMAX network serves as a valuable platform to launchchanges and distribute original content, especially during shoulder periods. However, the Company expects that future investmentsadvancements in original content will be less capital intensive to the Company than its investment in “Marvel’s Inhumans”.
The Company has also created two film funds to help finance the production of original content. The Company is forming the IMAX China Film Fund (the “China Film Fund”) with its subsidiary IMAX China Holding Inc. (“IMAX China”), its partner CMC and several other large investors to help fund Mandarin language commercial films. The China Film Fund, which is expected initially to be capitalized with over $80.0 million, will target productions that can leveragetechnology could negatively affect the Company’s brand, relationships, technology and release windows in China. The China Film Fund is expected toco-finance approximately 15 Mandarin-language tent-pole films over three years, and will target contributions of between $3.0 million and $7.0 million per film. The China Film Fund will operate under an IMAXChina-CMC controlled greenlight committee.business.”)
In addition, the Company’s IMAX Original Film Fund (the “Original Film Fund”) was established in 2014 toco-finance a portfolio of 10 original large format films. The initial investment in the Film Fund was committed to by a third party in the amount of $25.0 million, with the possibility of contributing additional funds. The Company agreed to contribute $9.0 million to the Original Film Fund over five years starting in 2014 and sees the Original Film Fund as a self-perpetuating vehicle designed to generate a continuous flow of high-quality documentary content. As at December 31, 2017, the Original Film Fund has invested $13.4 million toward the development of original films.Other
IMAX Home Entertainment Technologies and Services
The Company hasAll Other also announced home theater initiatives, including a joint venture with TCL Multimedia Technology Holding Limited (“TCL”) to design, develop, manufacture and sell a premium home theater system. The joint venture has signed agreements with end users for the sale of more than 170 premium home theater systems, and has signed agreements with distributors for the sale of more than 470 home theater systems. The Company does not intend to invest significant capital into the joint venture going forward, and instead expects any additional funding to be provided through third party capital.
Beyond its premium home theater, the Company has also developed other components of a broader home entertainment platform designed to permit customers to view content on a premiumvideo-on-demand basis in their home theaters.
Other
The Company is also a distributor of large-format films, primarily for its institutional theater partners. The Company generally distributes films which it produces or for which it has acquired distribution rights from independent producers. The Company receives either a percentage of the theater box office receipts or a fixed amount as a distribution fee.
The Company also provides film post-production and quality control services for large-format films (whether produced internally or externally), and digital post-production services.
The Company derives a small portion of itsincludes revenues from other sources. As at December 31, 2017, the Company had twosources including one owned and operated IMAX theaters (December 31, 2016 — two owned and operated IMAX theaters). In addition, the Company hasSystem in Sacramento, California; a commercial arrangement with one theater resulting in the sharing of profits and losses and provideslosses; the provision of management services to three other theaters. The Company also rents itstheaters; renting the Company’s proprietary 2D and 3D large-format film and digital cameras to third party production companies. The Company maintains cameras and other film equipmentcameras; and also offersoffering production advice and technical assistance to both documentary and Hollywood filmmakers.
43
IMAX NETWORK AND BACKLOG
IMAX Theater Network and Backlog
IMAX Theater Network
The following table outlines the breakdown ofprovides detailed information about the IMAX theater network by system type and geographic location as atof December 31:31, 2023 and 2022:
|
| December 31, 2023 |
|
|
| December 31, 2022 |
| ||||||||||||||||||||||||||
|
| Commercial |
|
| Commercial |
|
| Institutional |
|
| Total |
|
|
| Commercial |
|
| Commercial |
|
| Institutional |
|
| Total |
| ||||||||
United States |
|
| 363 |
|
|
| 4 |
|
|
| 24 |
|
|
| 391 |
|
|
|
| 364 |
|
|
| 4 |
|
|
| 25 |
|
|
| 393 |
|
Canada |
|
| 42 |
|
|
| 1 |
|
|
| 7 |
|
|
| 50 |
|
|
|
| 40 |
|
|
| 1 |
|
|
| 7 |
|
|
| 48 |
|
Greater China(1) |
|
| 791 |
|
|
| — |
|
|
| 16 |
|
|
| 807 |
|
|
|
| 778 |
|
|
| — |
|
|
| 16 |
|
|
| 794 |
|
Asia (excluding Greater China) |
|
| 166 |
|
|
| 2 |
|
|
| 2 |
|
|
| 170 |
|
|
|
| 138 |
|
|
| 2 |
|
|
| 2 |
|
|
| 142 |
|
Western Europe |
|
| 126 |
|
|
| 4 |
|
|
| 8 |
|
|
| 138 |
|
|
|
| 118 |
|
|
| 4 |
|
|
| 8 |
|
|
| 130 |
|
Latin America(2) |
|
| 60 |
|
|
| 1 |
|
|
| 8 |
|
|
| 69 |
|
|
|
| 55 |
|
|
| 1 |
|
|
| 11 |
|
|
| 67 |
|
Rest of the World |
|
| 145 |
|
|
| — |
|
|
| 2 |
|
|
| 147 |
|
|
|
| 140 |
|
|
| — |
|
|
| 2 |
|
|
| 142 |
|
Total(3) |
|
| 1,693 |
|
|
| 12 |
|
|
| 67 |
|
|
| 1,772 |
|
|
|
| 1,633 |
|
|
| 12 |
|
|
| 71 |
|
|
| 1,716 |
|
2017 Theater Network | 2016 Theater Network | |||||||||||||||||||||||||||||||
Commercial Multiplex | Commercial Destination | Institutional | Total | Commercial Multiplex | Commercial Destination | Institutional | Total | |||||||||||||||||||||||||
United States | 364 | 4 | 35 | 403 | 349 | 5 | 41 | 395 | ||||||||||||||||||||||||
Canada | 37 | 2 | 7 | 46 | 37 | 2 | 7 | 46 | ||||||||||||||||||||||||
Greater China(1) | 527 | — | 17 | 544 | 407 | — | 17 | 424 | ||||||||||||||||||||||||
Asia (excluding Greater China) | 100 | 1 | 3 | 104 | 93 | 2 | 3 | 98 | ||||||||||||||||||||||||
Western Europe | 88 | 4 | 10 | 102 | 76 | 6 | 10 | 92 | ||||||||||||||||||||||||
Russia & the CIS | 58 | — | — | 58 | 56 | — | — | 56 | ||||||||||||||||||||||||
Latin America(2) | 42 | — | 12 | 54 | 38 | — | 12 | 50 | ||||||||||||||||||||||||
Rest of the World | 56 | 1 | 2 | 59 | 51 | 1 | 2 | 54 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total | 1,272 | 12 | 86 | 1,370 | 1,107 | 16 | 92 | 1,215 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company believes that over time itsIMAX currently estimates a worldwide commercial multiplex theater network could grow to approximately 2,855addressable market of 3,619 locations, of which there are 1,693 IMAX theaters worldwide from 1,272 commercial multiplex IMAX theatersSystems operating as of December 31, 2017.2023, representing a market penetration of only 46.8%. The Company believes that the majority of its future growth will come from international markets. As atof December 31, 2017, 67.2%2023, 76% of IMAX theater systemsSystems in operation were located within international markets (defined as all countries other than the United States and Canada), up from 63.7% as at December 31, 2016. (2022 ― 74%). Revenues and gross box officeGBO derived from outside the United States and Canadainternational markets continue to exceed revenues and gross box officeGBO from the United States and Canada. Risks associated with
For the Company’s international business are outlined in Risk Factors – “The Company conducts business internationally, which exposes it to uncertainties and risks that could negatively affect its operations, sales and future growth prospects” in Item 1A of Part I of this 2017 Form10-K.
Greater China continues to beyear ended December 31, 2023, the Company’s second largest market, measured by revenues, with approximately 33% of overall revenues generated from the Company’sits Greater China operations represents 25% of consolidated revenue, compared to 24% in 2017.2022 and 44% in 2021. Restrictions resulting from the COVID-19 pandemic significantly impacted operations in China in 2022 and 2023. As atof December 31, 2017,2023, the Company had 544 theaters807 IMAX Systems operating in Greater China with an additional 309 theaters206 systems in backlog that are scheduled to be installed in Greater China by 2022.backlog. The Company’s backlog in Greater China represents 61.9% of the Company’s current backlog. The Company’s largest single international partnership is in China with Wanda Film, formerly Wanda Cinema Line Corporation (“Wanda”). Wanda’s total, commitment to the Company is for 359 theater systems in Greater China (of which 343 theater systems are under the parties’ joint revenue sharing arrangement). See Risk Factors – “The Company faces risks in connection with the continued expansion46% of its business in China” in Item 1A of Part I of this 2017 Form10-K.
The following table outlinestables provide detailed information about the breakdown ofcommercial multiplex locations in operation within the Commercial Multiplex theaterIMAX network by arrangement type and geographic location as atof December 31, 2023 and 2022:
2017 |
| December 31, 2023 |
| |||||||||||||||||||||||||||||||||
IMAX Commercial Multiplex Theater Network |
| Commercial Multiplex Locations in IMAX Network |
| |||||||||||||||||||||||||||||||||
Traditional JRSA | Hybrid JRSA | Total JRSA | Sale / Sales- type lease | Total |
| Traditional |
|
| Hybrid |
|
| Sales Arrangements(1) |
|
| Total |
| ||||||||||||||||||||
Domestic Total (United States & Canada) | 273 | 4 | 277 | 124 | 401 |
|
| 272 |
|
|
| 6 |
|
|
| 127 |
|
|
| 405 |
| |||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||
International: |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Greater China | 260 | 80 | 340 | 187 | 527 |
|
| 410 |
|
|
| 109 |
|
|
| 272 |
|
|
| 791 |
| |||||||||||||||
Asia (excluding Greater China) | 35 | 23 | 58 | 42 | 100 |
|
| 44 |
|
|
| 8 |
|
|
| 114 |
|
|
| 166 |
| |||||||||||||||
Western Europe | 31 | 24 | 55 | 33 | 88 |
|
| 41 |
|
|
| 15 |
|
|
| 70 |
|
|
| 126 |
| |||||||||||||||
Russia & the CIS | — | — | — | 58 | 58 | |||||||||||||||||||||||||||||||
Latin America | — | — | — | 42 | 42 |
|
| 2 |
|
|
| — |
|
|
| 58 |
|
|
| 60 |
| |||||||||||||||
Rest of the World | 14 | 3 | 17 | 39 | 56 |
|
| 17 |
|
|
| — |
|
|
| 128 |
|
|
| 145 |
| |||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||
International Total | 340 | 130 | 470 | 401 | 871 |
|
| 514 |
|
|
| 132 |
|
|
| 642 |
|
|
| 1,288 |
| |||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||
Worldwide Total | 613 | 134 | 747 | 525 | 1,272 | |||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||
2016 | ||||||||||||||||||||||||||||||||||||
IMAX Commercial Multiplex Theater Network | ||||||||||||||||||||||||||||||||||||
JRSA | Hybrid JRSA | Total JRSA | Sale / Sales- type lease | Total | ||||||||||||||||||||||||||||||||
Domestic Total (United States & Canada) | 262 | 4 | 266 | 120 | 386 | |||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||
International: | ||||||||||||||||||||||||||||||||||||
Greater China | 195 | 66 | 261 | 146 | 407 | |||||||||||||||||||||||||||||||
Asia (excluding Greater China) | 34 | 20 | 54 | 39 | 93 | |||||||||||||||||||||||||||||||
Western Europe | 21 | 23 | 44 | 32 | 76 | |||||||||||||||||||||||||||||||
Russia & the CIS | — | — | — | 56 | 56 | |||||||||||||||||||||||||||||||
Latin America | — | — | — | 38 | 38 | |||||||||||||||||||||||||||||||
Rest of the World | 13 | 2 | 15 | 36 | 51 | |||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||
International Total | 263 | 111 | 374 | 347 | 721 | |||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||
Worldwide Total | 525 | 115 | 640 | 467 | 1,107 | |||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||
Worldwide Total(2) |
|
| 786 |
|
|
| 138 |
|
|
| 769 |
|
|
| 1,693 |
|
As at
44
|
| December 31, 2022 |
| |||||||||||||
|
| Commercial Multiplex Locations in IMAX Network |
| |||||||||||||
|
| Traditional |
|
| Hybrid |
|
| Sales Arrangements(1) |
|
| Total |
| ||||
Domestic Total (United States & Canada) |
|
| 276 |
|
| 6 |
|
| 122 |
|
| 404 |
| |||
International: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Greater China |
|
| 401 |
|
| 112 |
|
| 265 |
|
| 778 |
| |||
Asia (excluding Greater China) |
|
| 37 |
|
| 5 |
|
| 96 |
|
| 138 |
| |||
Western Europe |
|
| 47 |
|
| 28 |
|
| 43 |
|
| 118 |
| |||
Latin America |
|
| 2 |
|
| — |
|
| 53 |
|
| 55 |
| |||
Rest of the World |
|
| 17 |
|
| — |
|
| 123 |
|
| 140 |
| |||
International Total |
|
| 504 |
|
| 145 |
|
| 580 |
|
| 1,229 |
| |||
Worldwide Total(2) |
|
| 780 |
|
| 151 |
|
| 702 |
|
|
| 1,633 |
|
Backlog
The following table provides detailed information about the Company’s system backlog as of December 31, 2017, 277 (2016 – 266) of the 747 (2016 – 640) theaters2023 and 2022:
|
| December 31, 2023 |
|
|
| December 31, 2022 |
|
| ||||||||||||||||||||||||||||||||
|
| Number of |
|
|
|
|
|
|
| Number of |
|
|
|
|
|
| ||||||||||||||||||||||||
|
| Systems |
|
|
| Dollar Value |
|
|
| Systems |
|
|
| Dollar Value |
|
| ||||||||||||||||||||||||
(In thousands of U.S. Dollars, except number of systems) |
| New |
|
|
| Upgrade |
|
|
| New |
|
|
| Upgrade |
|
|
| New |
|
|
| Upgrade |
|
|
| New |
|
|
| Upgrade |
|
| ||||||||
Sales Arrangements (1) |
|
| 148 |
|
|
|
| 16 |
|
|
| $ | 158,318 |
|
|
| $ | 16,068 |
|
|
|
| 149 |
|
|
|
| 13 |
|
|
| $ | 165,176 |
|
|
| $ | 14,362 |
|
|
Hybrid JRSA(2) |
|
| 102 |
|
|
|
| 1 |
|
|
|
| 76,173 |
|
|
|
| 910 |
|
|
|
| 116 |
|
|
|
| 4 |
|
|
|
| 86,215 |
|
|
|
| 3,235 |
|
|
Traditional JRSA(2)(3) |
|
| 132 |
|
|
|
| 51 |
|
|
|
| 425 |
|
|
|
| 1,975 |
|
|
|
| 96 |
|
|
|
| 72 |
|
|
|
| 200 |
|
|
|
| 2,900 |
|
|
|
| 382 |
|
|
|
| 68 |
|
|
| $ | 234,916 |
|
|
| $ | 18,953 |
|
|
|
| 361 |
|
|
|
| 89 |
|
|
| $ | 251,591 |
|
|
| $ | 20,497 |
|
|
Sales Backlog
The Company’s current sales backlog is as follows:
December 31, 2017 | December 31, 2016 | |||||||||||||||
Number of Systems | Fixed Contractual Dollar Value (in thousands) | Number of Systems | Fixed Contractual Dollar Value (in thousands) | |||||||||||||
Sales and sales-type lease arrangements | 162 | $ | 205,001 | 143 | $ | 175,331 | ||||||||||
Joint revenue sharing arrangements | ||||||||||||||||
Hybrid arrangements | 121 | 64,328 | (1) | 92 | 48,658 | (1) | ||||||||||
Traditional arrangements | 216 | 11,942 | (1) | 263 | 3,680 | (1) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
499 | (2) | $ | 281,271 | 498 | (3) | $ | 227,669 | |||||||||
|
|
|
|
|
|
|
|
The number of theater systems in the backlog reflects the minimum number of commitments under signed contracts. The dollar value fluctuates depending on the number of new theater system arrangements signed from year to year, which adds to backlog, and the installation and acceptance of theater systems and the settlement of contracts, both of which reduce backlog. Sales backlog typically represents the fixed contracted revenue under signed theater system sale and lease agreements that the Company believes will be recognized as revenue upon installation and acceptance of the associated theater. Sales backlog includes initial fees along with the estimated present value of contractual ongoing fees due over the term; however, it excludes amounts allocated to maintenance and extended warranty revenues as well as fees (contingent rent) in excess of contractual ongoing fees that may be received in the future. The value of sales backlog does not include revenue from theaters in which the Company has an equity interest, operating leases, letters of intent or long-term conditional theater commitments. The value of theaters undertraditional joint revenue sharing arrangements is excluded from thetypically a percentage of contingent box office receipts rather than a fixed upfront fee or fixed annual minimum payments. Accordingly, such arrangements do not usually have a dollar value of sales backlog, although certain theater systems underin backlog; however, hybrid joint revenue sharing arrangements typically provide for contracted upfront payments and therefore carry a backlog value based on those payments.
The backlog reflects the minimum number of commitments for IMAX Systems according to the signed contracts. The dollar value fluctuates depending on the number of new arrangements signed from year-to-year, which adds to backlog and the installation and acceptance of IMAX Systems and the settlement of contracts, both of which reduce backlog. The dollar value of backlog typically represents the fixed contracted revenue according to the signed IMAX System sale and lease agreements that the Company expects to recognize as revenue upon installation and acceptance of the associated system, as well as an estimate of variable consideration in sales arrangements. The value of backlog does not include amounts allocated to maintenance and extended warranty revenues or revenue from systems in which the Company has an equity interest, operating leases, and long-term conditional theater commitments. The Company believes that the contractual obligations for theater systemIMAX System installations that are listed in sales backlog are valid and binding commitments.
45
From time to time, in the normal course of its business, the Company will have customers who are unable to proceed with a theater systeman IMAX System installation for a variety of reasons, including the inability to obtain certain consents, approvals or financing. Once the determination is made that the customer will not proceed with installation, the agreement with the customer is terminated or amended. If the agreement is terminated, once the Company and the customer are released from all their future obligations under the agreement, all or a portion of the initial rents or fees that the customer previously made to the Company are recognized as revenue.
Certain of the Company’s contracts contain options for the customer to elect to upgrade system type during the term or to alter the contract structure (for example, from a joint revenue sharing arrangement to a sale) after signing, but before installation. Current backlog information reflects all known elections.
The following table outlinestables provide detailed information about the breakdown of the totalCompany’s system backlog by arrangement type and geographic location as atof December 31:31, 2023 and 2022:
|
| December 31, 2023 |
|
| |||||||||||||
|
| IMAX System Backlog |
|
| |||||||||||||
|
| Traditional |
|
| Hybrid |
|
| Sales Arrangements(1) |
|
| Total |
|
| ||||
Domestic Total (United States & Canada) |
|
| 81 |
|
|
| 2 |
|
|
| 12 |
|
|
| 95 |
|
|
International: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Greater China |
|
| 56 |
|
|
| 90 |
|
|
| 60 |
|
|
| 206 |
|
|
Asia (excluding Greater China) |
|
| 24 |
|
|
| 7 |
|
|
| 21 |
|
|
| 52 |
|
|
Western Europe |
|
| 16 |
|
|
| 3 |
|
|
| 18 |
|
|
| 37 |
|
|
Latin America |
|
| 3 |
|
|
| — |
|
|
| 2 |
|
|
| 5 |
|
|
Rest of the World |
|
| 3 |
|
|
| 1 |
|
|
| 51 |
|
|
| 55 |
|
|
International Total |
|
| 102 |
|
|
| 101 |
|
|
| 152 |
|
|
| 355 |
|
|
Worldwide Total |
|
| 183 |
|
|
| 103 |
|
|
| 164 |
|
|
| 450 |
| (2) |
2017 |
| December 31, 2022 |
|
| |||||||||||||||||||||||||||||||||
IMAX Theater Backlog |
| IMAX System Backlog |
|
| |||||||||||||||||||||||||||||||||
JRSA | Hybrid JRSA | Total JRSA | Sale / Lease | Total |
| Traditional |
|
| Hybrid |
|
| Sales Arrangements(1) |
|
| Total |
|
| ||||||||||||||||||||
Domestic Total (United States & Canada) | 37 | 3 | 40 | 9 | 49 |
|
| 101 |
|
|
| 2 |
|
|
| 9 |
|
|
| 112 |
|
| |||||||||||||||
|
|
|
|
| |||||||||||||||||||||||||||||||||
International: |
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Greater China | 134 | 102 | 236 | 73 | 309 |
|
| 42 |
|
|
| 93 |
|
|
| 69 |
|
|
| 204 |
|
| |||||||||||||||
Asia (excluding Greater China) | 6 | 11 | 17 | 20 | 37 |
|
| 3 |
|
|
| 13 |
|
|
| 26 |
|
|
| 42 |
|
| |||||||||||||||
Western Europe | 33 | 4 | 37 | 8 | 45 |
|
| 17 |
|
|
| 11 |
|
|
| 3 |
|
|
| 31 |
|
| |||||||||||||||
Latin America | — | — | — | 17 | 17 |
|
| 3 |
|
|
| — |
|
|
| 3 |
|
|
| 6 |
|
| |||||||||||||||
Rest of the World | 6 | 1 | 7 | 35 | 42 |
|
| 2 |
|
|
| 1 |
|
|
| 52 |
|
|
| 55 |
|
| |||||||||||||||
|
|
|
|
| |||||||||||||||||||||||||||||||||
International Total | 179 | 118 | 297 | 153 | 450 |
|
| 67 |
|
|
| 118 |
|
|
| 153 |
|
|
| 338 |
|
| |||||||||||||||
|
|
|
|
| |||||||||||||||||||||||||||||||||
Worldwide Total | 216 | 121 | 337 | 162 | 499 |
|
| 168 |
|
|
| 120 |
|
|
| 162 |
|
|
| 450 |
| (3) | |||||||||||||||
|
|
|
|
| |||||||||||||||||||||||||||||||||
2016 | |||||||||||||||||||||||||||||||||||||
IMAX Theater Backlog | |||||||||||||||||||||||||||||||||||||
JRSA | Hybrid JRSA | Total JRSA | Sale / Lease | Total | |||||||||||||||||||||||||||||||||
Domestic Total (United States & Canada) | 48 | 3 | 51 | 10 | 61 | ||||||||||||||||||||||||||||||||
|
|
|
|
| |||||||||||||||||||||||||||||||||
International: | |||||||||||||||||||||||||||||||||||||
Greater China | 199 | 76 | 275 | 59 | 334 | ||||||||||||||||||||||||||||||||
Asia (excluding Greater China) | 4 | 8 | 12 | 20 | 32 | ||||||||||||||||||||||||||||||||
Western Europe | 7 | 5 | 12 | 6 | 18 | ||||||||||||||||||||||||||||||||
Russia & the CIS | — | — | — | 18 | 18 | ||||||||||||||||||||||||||||||||
Latin America | — | — | — | 15 | 15 | ||||||||||||||||||||||||||||||||
Rest of the World | 5 | — | 5 | 15 | 20 | ||||||||||||||||||||||||||||||||
|
|
|
|
| |||||||||||||||||||||||||||||||||
International Total | 215 | 89 | 304 | 133 | 437 | ||||||||||||||||||||||||||||||||
|
|
|
|
| |||||||||||||||||||||||||||||||||
Worldwide Total | 263 | 92 | 355 | 143 | 498 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
Approximately 90.2%79% of IMAX theater systemSystem arrangements in backlog as atof December 31, 20172023 are scheduled to be installed in international markets (2016 – 87.8%(2022 ― 75%).
46
Signings and Installations
The following reflects the Company’s theater systemtables provide detailed information about IMAX System signings and installations:installations for the years ended December 31, 2023 and 2022:
|
| Years Ended December 31, |
|
| ||||||
|
| 2023 |
|
|
| 2022 |
|
| ||
System Signings: |
|
|
|
|
|
|
|
| ||
Sales Arrangements(1) |
|
| 64 |
|
|
|
| 21 |
|
|
Hybrid JRSA |
|
| — |
|
|
|
| 3 |
|
|
Traditional JRSA |
|
| 65 |
|
|
|
| 23 |
|
|
Total IMAX System signings(2) |
|
| 129 |
|
|
|
| 47 |
|
|
|
|
|
|
|
|
|
|
| ||
|
| Years Ended December 31, |
|
| ||||||
|
| 2023 |
|
|
| 2022 |
|
| ||
System Installations(3): |
|
|
|
|
|
|
|
| ||
Sales Arrangements(1) |
|
| 70 |
|
|
|
| 38 |
|
|
Hybrid JRSA |
|
| 5 |
|
|
|
| 8 |
|
|
Traditional JRSA |
|
| 53 |
|
|
|
| 46 |
|
|
Total IMAX System installations(4) |
|
| 128 |
|
|
|
| 92 |
|
|
Years Ended December 31, | ||||||||
2017 | 2016 | |||||||
Theater System Signings: | ||||||||
Full new sales and sales-type lease arrangements | 85 | 61 | ||||||
New traditional joint revenue sharing arrangements | 35 | 246 | ||||||
New hybrid joint revenue sharing arrangements | 50 | 7 | ||||||
|
|
|
| |||||
Total new theaters | 170 | 314 | ||||||
Upgrades of IMAX theater systems | 7 | 5 | ||||||
|
|
|
| |||||
Total theater signings | 177 | 319 | ||||||
|
|
|
| |||||
Years Ended December 31, | ||||||||
2017 | 2016 | |||||||
Theater System Installations: | ||||||||
Full new sales and sales-type lease arrangements | 60 | 56 | (1) | |||||
New traditional joint revenue sharing arrangements | 86 | 76 | ||||||
New hybrid joint revenue sharing arrangements | 19 | 33 | ||||||
Short-term operating lease arrangement | — | 1 | ||||||
|
|
|
| |||||
Total new theaters | 165 | 166 | ||||||
Upgrades of IMAX theater systems | 5 | (2) | 16 | (2)(3) | ||||
|
|
|
| |||||
Total theater installations | 170 | 182 | ||||||
|
|
|
|
The
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company prepares its consolidatedpreparation of financial statements and related disclosures in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP”).
The preparation of these consolidated financial statements requires management to make estimatesjudgments, assumptions, and judgments under its accounting policiesestimates that affect the financial results. The precision of theseamounts reported in the Company’s Consolidated Financial Statements and accompanying notes. Management’s judgments, assumptions, and estimates and the likelihood of future changes depend on a number of underlying variables and a range of possible outcomes.
Management bases its estimatesare based on historical experience, future expectations, and other assumptionsfactors that are believed to be reasonable atas of the date of the consolidated financial statements.Company’s Consolidated Financial Statements. Actual results may ultimately differ from thesethe Company’s original estimates, due to uncertainty involved in measuring, at a specific point in time,as future events which are continuous in nature, and circumstances sometimes do not develop as expected, and the differences may be material. Management believes that the following are the Company’s most critical accounting estimates, which are not ranked in any particular order, that may affect the Company’s reported results of operations and/or financial condition. The Company’s significant accounting policies are discusseddescribed in noteNote 2 to its audited consolidated financial statementsConsolidated Financial Statements in Part II, Item 8 of the Company’s Annual Report for the Fiscal Year ended December 31, 2017 (this “2017Form 10-K”). Management considers an accounting policy to be critical if it is important to its financial condition and results, and requires significant judgments and estimates.
The Company considers the following significant estimates, assumptions and judgments to have the most significant effect on its results:
Revenue Recognition
ApplicationThe application of the various accounting principles under U.S. GAAP related to the measurement and recognition of revenue requires the Companymanagement to make judgments and estimates. Contract arrangementsIn addition, revenue contracts with nonstandard terms and conditions may require significant contract interpretation to determine the appropriate accounting. The Company believes that revenue recognition is critical for its financial statements because consolidated net income is directly affected by the timing of revenue recognition
Multiple Element ArrangementsIMAX Systems
The Company’s revenue arrangements with certain customers may involve multiple elements consisting of a theater system (projector, sound system, screen system and, if applicable, 3D glasses cleaning machine); services associated with the theater system including theater design support, supervision of installation, and projectionist training; a license to use the IMAX brand; 3D glasses; maintenance and extended warranty services; and licensing of films. The Company evaluates all elementseach of the performance obligations in an IMAX System arrangement to determine whatwhich are considered typical deliverablesdistinct, either individually or in a group, for accounting purposes and which of the deliverables represent separate units of accounting based on the applicable accounting guidanceperformance obligations. The transaction price in the Leases Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC” or “Codification”); the Guarantees Topic of the FASB ASC; the Entertainment – Films Topic of the FASB ASC; and the Revenue Recognition Topic of the FASB ASC. If separate units of accounting are either required under the relevant accounting standards or determined to be applicable under the Revenue Recognition Topic, the total consideration received or receivable in thean IMAX System arrangement is allocated to each good or service that is identified as a separate performance obligation based on estimated standalone selling prices. This allocation is based on observable prices when the applicable guidance inCompany sells the above noted standards.good or service separately.
Theater Systems47
The Company has identifiedCompany’s “System Obligation” consists of the projection system,following: (i) an IMAX System, which includes the projector, sound system, screen system and, if applicable, a 3D glasses cleaning machine,machine; (ii) services associated with the IMAX System, including theater design support, the supervision of installation services, and projectionist trainingtraining; and the(iii) a license to use of the IMAX brand to bemarket the location. The System Obligation, as a single deliverablegroup, is a distinct performance obligation. The Company is not responsible for the physical installation of the equipment in the customer’s facility; however, it supervises the installation by the customer. The customer has the right to use the IMAX brand from the date the Company and a single unit of accounting (“the customer enter into an arrangement.
The Company has established standalone prices for the System Deliverable”). When an arrangement does not include all the elements of a System Deliverable, the elements of the System Deliverable included in the arrangement are considered by the Company to be a single deliverableObligation and a single unit of accounting.
The Company uses vendor-specific objective evidence of selling price (VSOE) when the Company sells the deliverable separately and is the price actually charged by the Company for that deliverable. VSOE is established for the Company’s System Deliverable, maintenance and extended warranty services, andas well as for film license arrangements. The Company uses a best estimate of selling price (BESP)an adjusted market assessment approach for units of accountingseparate performance obligations that do not have VSOEstandalone selling prices or third-party evidence of estimated standalone selling price.prices. The Company determines BESP for a deliverable by consideringconsiders multiple factors including the Company’sits historical pricing practices, product class, market competition and geography.
Revenue allocated toConstraints on the Recognition of Variable Consideration
The transaction price for the System Deliverable is recognized in accordance withObligation, other than for IMAX Systems delivered pursuant to joint revenue sharing arrangements, consists of upfront or initial payments made before and after the Revenue Recognition Topicfinal installation of the FASB ASC, when allsystem and ongoing payments throughout the term of the following conditions have been met: (i)arrangement. The Company estimates the projector, sound system and screen system have been installed and aretransaction price, including an estimate of future variable consideration, received in full working condition, (ii)exchange for the 3D glasses cleaning machine, if applicable, has beengoods delivered (iii) projectionist training has been completed, and (iv)or services rendered. The arrangement for the earliersale of (a) receipt of written customer acceptance certifyingan IMAX System includes indexed minimum payment increases over the completion of installation andrun-in testingterm of the equipment andarrangement, as well as the completionpotential for additional payments owed by the customer if certain minimum box office receipt thresholds are exceeded. In addition, hybrid sales arrangements include amounts owed by the customer based on a percentage of projectionist training or (b) public openingtheir box office receipts over the term of the theater, provided there is persuasive evidencearrangement. These contract provisions are considered to be variable consideration. An estimate of an arrangement, the price is fixed or determinable and collectability is reasonably assured.
The initial revenue recognized consists of the initial payments received and the present value of anysuch variable consideration is recognized as revenue upon the transfer of control of the System Obligation to the customer, subject to constraints to ensure that there is not a risk of significant revenue reversal.
Variable consideration related to indexed minimum payment increases is outside of the Company’s control, but the movement in the rates is historically well documented and economic trends in inflation are easily accessible. Accordingly, for each contract subject to an indexed minimum payment increase, the Company estimates the most likely amount using published indices. The amount of the estimated minimum payment increase is then recorded at its present value as of the date of recognition using the customer’s implied borrowing rate.
Variable consideration related to the level of the customer’s box office receipts is outside of the Company’s control as it is dependent upon the future initial paymentscommercial success of the films released to the IMAX network. The estimated variable consideration initially recognized by the Company is based on management’s box office projections for the location, which are developed using historical box office data for that location and, fixed minimum ongoing payments that have been attributedif necessary, comparable locations and territories. Using this data, management applies its understanding of these location markets to estimate the most likely amount of variable consideration to be earned over the term of the arrangement. Management then applies a constraint to this unitestimate by reducing the projection by a percentage factor for theaters or markets with no or limited historical box office experience. In cases where direct historical experience can be observed, average historical box office results, eliminating significant outliers, are used. The resulting amount of accounting. Contingent payments in excessvariable consideration is then recorded at its present value as of the fixed minimum ongoing payments are recognized when reported by theater operators, provided collectability is reasonably assured.
date of recognition using a risk-weighted discount rate. The Company has also agreed,reviews its variable consideration assets on occasion, to sell equipment under lease or at the endleast a quarterly basis considering recent box office performance and, when applicable, updated box office projections for future periods.
Current Expected Credit Losses
The ability of a lease term. Consideration agreed to for these lease buyouts is included in revenues from equipment and product sales, when persuasive evidence of an arrangement exists, the fees are fixed or determinable, collectability is reasonably assured and title to the theater system passes from the Company to collect its accounts receivable, financing receivables, and variable consideration receivables is dependent on the customer.viability and solvency of individual theater operators which is significantly influenced by consumer behavior and general economic conditions. Theater operators and, in certain situations, movie studios, may experience financial difficulties that could cause them to be unable to fulfill their payment obligations to the Company.
Film ProductionThe Company develops its estimate of credit losses by class of receivable and IMAX DMR Servicescustomer type through a calculation that utilizes historical loss rates which are then adjusted for specific receivables that are judged to have a higher-than-normal risk profile after taking into account management’s internal credit quality classifications, as well as macro-economic and industry risk factors.
In certain film arrangements,Judgments regarding the Company produces a film financed by third parties, whereby the third party retains the copyrightcollectability of accounts receivable, financing receivables, and variable consideration receivables, and the Company obtains exclusive distribution rights. Under these arrangements, the Company is entitled to receive a fixed fee or to
retain as a fee the excessamount of funding over cost of production (the “production fee”). The third parties receive a portionany required allowance for credit losses, are based on management’s initial credit evaluation of the revenues received bycustomer and the Company from distributing the film, which is charged to costs and expenses applicable to revenues-services. The production fees are deferred, and recognized as a reduction in the costregular ongoing monitoring of the film, basedcredit quality of each customer. This monitoring process includes an analysis of collections history and aging for each customer, as well as meetings on the ratio of the Company’s distribution revenues recognizedat least a monthly basis to identify credit concerns and potential changes in the current period to the ultimate distribution revenues expected from the film.
Revenues from digitallyre-mastering (IMAX DMR) films where third parties owncredit quality classification. A customer may improve their credit quality classification once a substantial payment is made on an overdue balance or hold the copyrights and the rights to distribute the film are derived in the form of processing fees and recoupments calculated as a percentage ofbox-office receipts generated from there-mastered films. Processing fees are recognized as Service revenues when the performance of the relatedre-mastering service is completed, provided there is persuasive evidence of an arrangement, the fee is fixed or determinablecustomer has agreed to a payment plan and collectability is reasonably assured. Recoupments, calculated as a percentage ofbox-office receipts,payments have commenced in accordance with that plan. Changes in credit quality classification are recognized as Services revenues whenbox-office receipts are reported by the third party that owns or holds the related film rights, provided collectability is reasonably assured.dependent upon management approval.
Losses on film production and IMAX DMR services are recognized as costs and expenses applicable to revenues-services in the period when it is determined that the Company’s estimate of total revenues to be realized by the Company will not exceed estimated total production costs to be expended on the film production and the cost of IMAX DMR services.48
Allowances for Accounts Receivable and Financing Receivables
Allowances for doubtful accounts receivableManagement’s judgments regarding expected credit losses are based on the Company’s assessment offacts available to management at the collectability of specific customer balances, which is based upon a review of the customer’s credit worthiness, past collection history and the underlying asset value of the equipment, where applicable. Interest on overdue accounts receivable is recognized as income as the amounts are collected.
The Company monitors the performance of the theaters to which it has leased or sold theater systems which are subject to ongoing payments. When facts and circumstances indicate that there is a potential impairment in the accounts receivable, net investment in lease or a financing receivable, the Company will evaluate the potential outcome of either a renegotiation involving changes in the terms of the receivable or defaults on the existing lease or financed sale agreements. The Company will record a provision if it is considered probabletime that the Company will be unable to collect all amounts due underConsolidated Financial Statements are prepared and involve estimates about the contractual termsfuture. As a result, the Company’s judgments and associated estimates of the arrangement or a renegotiated lease amount will cause a reclassification of the sales-type lease to an operating lease.
These provisions are adjusted when there is a significant change in the amount or timing of the expected future cash flows or when actual cash flows differ from cash flow previously expected. While such credit losses have historically been withinmay ultimately prove, with the Company’s expectations and the provisions established, the Company cannot guarantee that it will continuebenefit of hindsight, to experience the same credit loss rates that it has in the past. Changes in the underlying financial condition of its customers could result in a material impact on the Company’s consolidated results of operation and financial position.be incorrect.
Inventories
The Company records write-downs for excess and obsolete inventory based upon current estimates ofmanagement’s judgments regarding future events and business conditions, including the anticipated installation dates for the current backlog of theater system contracts, contracts in negotiation, technological developments, signings in negotiation, growth prospects within the customers’ ultimate marketplace, and anticipated market acceptance of the Company’s current and pending theater systems.IMAX Systems.
(Refer to Note 8 to Consolidated Financial Statements in Part II, Item 8.)
Asset Impairments
The Company performsGoodwill
Goodwill represents the excess of the purchase price paid over the fair value of net assets acquired in a qualitative, and when necessary quantitative,business combination. Goodwill is not amortized but is tested annually for impairment test on its goodwill on an annual basis, coincident with theyear-end, as well as in quarters where events or changes in circumstances suggest that the carrying amount may not be recoverable.
Goodwill impairment is assessed at the reporting unit level in the fourth quarter of the year and between annual tests if indicators of potential impairment exist. These indicators could include a decline in the Company’s stock price and market capitalization, a significant change in the outlook for the reporting unit’s business, including projections of future box office results and IMAX System installations, lower than expected operating results, increased competition, legal factors, or the sale or disposition of a significant portion of a reporting unit. For reporting units with goodwill, an impairment loss is recognized for the amount by comparingwhich the reporting unit’s carrying value, including goodwill, to theexceeds its fair value. The carrying value of the unit. The Company completedeach reporting unit is based on a full quantitative analysis as required by ASC 350 – “Intangibles – Goodwillsystematic and Other” (Step 1) in 2014. The carrying values of each unit are subject to allocationsrational allocation of certain assets and liabilities that the Company has applied in a systematic and rational manner.liabilities. The fair value of the Company’s unitseach reporting unit is assessed using a discounted cash flow model.model based on management’s current short-term forecast and estimated long-term projections, against which various sensitivity analyses are performed. The discount rates used in the cash flow model is constructed usingare derived based on the Company’s budgetestimated weighted average cost of capital. These estimates and long-range plan as a base. The Company performs a qualitative assessment of its reporting units and certain select quantitative calculations against its current long range plan to determine whether it is more likely than not (that is, athe likelihood of more than 50 percent) that the fair valuefuture changes in these estimates depend on a number of underlying variables and a reporting unit is less than its carrying amount (Step 0).
Long-Lived Assets
Long-lived assetassets are grouped and reviewed for impairment testing is performed at the lowest level of an asset group atfor which identifiable cash flows are largely independent.independent whenever events or changes in circumstances indicate that the carrying amount of the asset (or asset group) may not be recoverable. In performing its review for recoverability, the Company estimates thesuch situations, long-lived assets are considered impaired when estimated future cash flows expected to result(undiscounted and without interest charges) resulting from the use of the asset or(or asset groupgroup) and its eventual disposition. If the sum of the expected future cash flows isdisposition are less than the carrying amountvalue of the asset or(or asset group, an impairment loss is recognized in the consolidated statement of operations. Measurement of the impairment loss is based on the excess of the carrying amount ofgroup). In such situations, the asset or(or asset group over thegroup) is written down to its fair value, calculated using discounted expected future cash flows.
The Company’s estimates of future cash flows involve anticipating future revenue streams, which contain many assumptions that are subject to variability, as well as estimates for future cash outlays, the amounts of which, and the timing of which are both uncertain. Actual results that differ from the Company’s budget and long-range plan could result in a significantly different result to an impairment test, which could impact earnings.
The Company’s investment in debt securities classified as anavailable-for-sale investment has unrealized holding gains and losses which is excluded from earnings and reported in other comprehensive income until realized. Realization occurs upon the sale of a portion of or the entire investment. The investment is impaired if the value is not expected to recover based on the length of time and extent to which the market value has been less than cost. Furthermore, when the Company intends to sell a specifically identified beneficial interest, a write-down for other-than-temporary impairment shall be recognized in earnings.
Pension Plan Assumptions
The Company’s pension plan obligations and related costs are calculated using actuarial concepts, within the framework of the Compensation – Retirement Benefits Topic of the FASB ASC. A critical assumption to this accounting is the discount rate. The Company evaluates this critical assumption annually or when otherwise required to by accounting standards. Other assumptions include factors such as expected retirement date, mortality rate, rate of compensation increase, and estimates of inflation.
The discount rate enables the Company to state expected future cash payments for benefits as a present value on the measurement date. The guideline for setting this rate is a high-quality long-term corporate bond rate. A lower discount rate increases the present value of benefit obligations and increases pension expense. The Company’s discount rate was determined by considering the average of pension yield curves constructed fromestimated future cash flows. Factors that are considered when evaluating long-lived assets for impairment include a large population of high-quality corporate bonds. The resulting discount rate reflects the matching of plan liability cash flows to the yield curves.
The discount rate used is a key assumption in the determination of the pension benefit obligation and expense. A 1.0% change in the discount rate used would result in a $2.2 million reduction or a $2.6 million increase in the pension benefit obligation with a corresponding benefit or charge recognized in other comprehensive income in the year.
Deferred Tax Asset Valuation
As at December 31, 2017, the Company had net deferred income tax assets of $30.7 million. The Company’s management assesses realization of its deferred tax assets based on all available evidence in order to conclude whethercurrent expectation that it is more likely than not that the deferred tax assetslong-lived asset will be realized. Available evidence considered bysold significantly before the Company includes, butend of its useful life, a significant decrease in the market price of the long-lived asset, and a significant change in the extent or manner in which the long-lived asset is being used.
Film Assets
The recoverability of the Company’s film assets is dependent upon the commercial acceptance of the underlying films and the resulting level of box office results and, in certain situations, ancillary revenues. If management’s projections of future net cash flows resulting from the exploitation of a film indicate that the carrying value of the film asset is not limitedrecoverable, the film asset is written down to its fair value.
Valuation of Identifiable Intangible Assets Acquired
Management applies significant judgment in estimating the fair value of intangible assets. The estimates used to value the identifiable intangible assets acquired through the acquisition of SSIMWAVE are based in part on historical experience and information obtained from the management of the acquired business. The developed technology and in-process research and development acquired are valued utilizing income approaches, notable relief from royalty and multi-period excess earnings methods using discounted cash flow models. The significant estimates used in valuing these intangible assets include assumptions related to revenue and gross margin forecasts, attrition rate, royalty rate and discount rates. The estimates of fair value are based on assumptions believed to be reasonable at that time. If management made different estimates or judgments, material differences in the fair values of the net assets acquired may result.
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The estimates of fair value are based on assumptions believed to be reasonable at that time. If management made different estimates or judgments, material differences in the fair values of the net assets acquired may result.
(Refer to Note 4 to Consolidated Financial Statements in Part II, Item 8.)
Share-Based Compensation
The Company issues share-based compensation to eligible employees, directors, and consultants under the IMAX Corporation Second Amended and Restated Long-Term Incentive Plan (as may be amended, the “IMAX LTIP”) and the China Long-Term Incentive Plan (the “China LTIP”) as summarized below. The IMAX LTIP is the Company’s historical operating results, projected future operating results, reversing temporary differences, contracted sales backlog at December 31, 2017, changing business circumstances,governing document and the abilityawards to realize certain deferred tax assets through lossemployees, directors, and tax credit carry-back and carry-forward strategies.
When there is a change in circumstances that causes a change in judgment about the realizabilityconsultants under this plan may consist of the deferred tax assets, the Company would adjust the applicable valuation allowance in the period when such change occurs.
Tax Exposures
The Company is subject to ongoing tax exposures, examinations and assessments in various jurisdictions. Accordingly, the Company may incur additional tax expense based upon the outcomes of such matters. In addition, when applicable, the Company adjusts tax expense to reflect the Company’s ongoing assessments of such matters which require judgment and can materially increase or decrease its effective rate as well as impact operating results. The Company provides for such exposures in accordance with Income Taxes Topic of the FASB ASC.
Stock-Based Compensation
The Company’s stock-based compensation generally includes stock options, and restricted share units (“RSUs”)., performance stock units (“PSUs”) and other awards. A separate share-based compensation plan, the China LTIP, was adopted by a subsidiary of the Company in October 2012.
The Company estimatesmeasures share-based compensation expense using the grant date fair value of stock optionthe award (as defined below), which is recognized as an expense in the Consolidated Statements of Operations on a straight-line basis over the requisite service period. Share-based compensation expense is not adjusted for estimated forfeitures, but is instead adjusted when and if actual forfeitures occur.
The Company grants two types of PSU awards, one which vests based on a combination of employee service and the dateachievement of certain Adjusted EBITDA targets, and one which vests based on a combination of employee service and the achievement of total shareholder return (“TSR”) targets. The achievement of the Adjusted EBITDA and TSR targets in these PSUs is determined over a three-year performance period. At the conclusion of the three-year performance period, the number of PSUs that ultimately vest can range from 0% to a maximum vesting opportunity of 175% of the initial Adjusted EBITDA PSU award or 150% of the initial TSR PSU award, depending upon actual performance versus the established Adjusted EBITDA and TSR targets.
The grant using fair value measurement techniques. Thedate fair value of RSU awardsPSUs with Adjusted EBITDA targets is equal to the closing price of the Company’s common stockshares on the date of grant or the average closing price of the Company’s common shares for five days prior to the date of grant.
The Company utilizes a lattice-binomial option-pricing model (the “Binomial Model”) to determine thegrant date fair value of stock option awards. PSUs with TSR targets is determined on the grant date using a Monte Carlo simulation, which is a valuation model that considers the likelihood of achieving the TSR targets embedded in the award (“Monte Carlo Model”). The compensation expense attributable to each type of PSU is recognized on a straight-line basis over the requisite service period.
The fair value determined by the BinomialMonte Carlo Model is affected by the Company’s stockshare price, as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, market conditions as of the grant date, the Company’s expected stockshare price volatility over the term of the awards,award, and actual and projected employee stock option exercise behaviors.other relevant data. The Binomial Model also considerscompensation expense is fixed on the expected exercise multiple which isdate of grant based on the multiple of exercise price to grant price at which exercises are expected to occur on average. Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable. Because the Company’s employee stock options have certain characteristics that are significantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, in management’s opinion, the Binomial Model best provides an accurate measure of the fairdollar value of the Company’s employee stock options. Although the fair valuePSUs granted.
The amount and timing of employee stock optionscompensation expense recognized for PSUs with Adjusted EBITDA targets is determined in accordance with the Equity topic of the FASB ASC using an option-pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.
Impact of Recently Issued Accounting Pronouncements
Please see note 3 to the audited consolidated financial statements in Item 8 of this Company’s 2017Form 10-K for information regarding the Company’s recent changes in accounting policies and recently issued accounting pronouncements impacting the Company.
ASSET IMPAIRMENTS AND OTHER CHARGES (RECOVERIES)
The following table identifies the Company’s charges (recoveries) relating to the impairment of assets:
Years Ended December 31, | ||||||||||||
(in thousands of U.S. dollars) | 2017 | 2016 | 2015 | |||||||||
Asset impairments | ||||||||||||
Property, plant and equipment | $ | 3,966 | $ | 223 | $ | 405 | ||||||
Impairment of investments and loans | 1,225 | 194 | 425 | |||||||||
Film assets | 17,363 | 3,020 | — | |||||||||
Other assets | 2,533 | — | — | |||||||||
Other charges (recoveries): | ||||||||||||
Accounts receivable | 1,967 | 1,029 | 677 | |||||||||
Financing receivables | 680 | (75 | ) | 75 | ||||||||
Inventories | 500 | 458 | 572 | |||||||||
Other assets | 47 | — | — | |||||||||
Property, plant and equipment | 1,224 | 885 | 1,485 | |||||||||
Other intangible assets | 63 | 206 | 86 | |||||||||
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Total asset impairments and other charges | $ | 29,568 | $ | 5,940 | $ | 3,725 | ||||||
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Asset Impairments
As a result of the Company’s restructuring activities in June 2017, certain long-lived assets were deemed to be impaired as the Company’s exit from certain activities limited the future revenue associated with these assets. The Company recognized property, plant and equipment charges of $3.7 million, film impairment charges of $0.3 million and other asset charges of $1.5 million. Additional details of the Company’s restructuring activities are discussed in note 22 to its audited consolidated financial statements in Item 8 of this 2017 Form10-K.
The Company records asset impairment charges for property, plant and equipment after andependent upon management's assessment of the carrying valuelikelihood of certain asset groups in light of their future expected cash flows. During 2017, the Company recorded asset impairment charges of $0.3 million
(2016 — $0.2 million; 2015 — $0.4 million) as the Company recognized that the carrying values for the assets exceeded the expected undiscounted future cash flows.
In 2017, the Company identified andwrote-off $1.2 million related to a certain loan that is no longer considered collectible. No such charge was recognized in the years ended December 31, 2016 and 2015, respectively.
The Company recognized a $0.2 million other-than-temporary impairment of its investments in 2016 as the value is not expected to recover based on the length of time and extent to which the market value has been less than cost (2015 — $0.4 million). No such charge was recorded in the year ended December 31, 2017.
The Company recognized an impairment on its episodic content assets, within film assets, of $11.7 millionachieving these targets. If, as a result of lowermanagement’s assessment, it is projected that a greater number of PSUs will vest than previously anticipated, revenue generated for the “Marvel’s Inhumans” television series’ first season. No such charge wasa life-to-date adjustment to increase compensation expense is recorded in the years ended December 31, 2016 and 2015, respectively.
The Company reviewed the carrying value of certain documentary film assetsperiod that such determination is made. Conversely, if, as a result of management’s assessment, it is projected that a lower number of PSUs will vest than expected revenue being generated duringpreviously anticipated, a life-to-date adjustment to decrease compensation expense is recorded in the period that such determination is made.
(Refer to Note 17(b) to Consolidated Financial Statements in Part II, Item 8.)
Deferred Income Tax Assets
Income taxes are accounted for under the liability method whereby deferred income tax assets and revised expectationsliabilities are recognized for future revenues based on the latest information available. An impairment of $5.3 million was recorded based on the carrying value of these documentary films as compared to the related estimated future box office and revenues that would ultimately be generated by these films (2016 — $3.0 million; 2015 — $nil).
In 2017, the VR Fund helped finance the production of one interactive VR experience. Due to the weaker than expected performance at the VR Centers, the Company recognized a $1.0 million impairment of the VR content asset. The VR fund is consolidated by the Company and has a third partynon-controlling interest. The Company’s share of this impairment afternon-controlling interest is $0.4 million.
Other Charges (Recoveries)
The Company recorded a net provision of $2.0 million in 2017 (2016 — $1.0 million; 2015 —$0.7 million) in accounts receivable based on the Company’s ongoing assessment of the collectability of specific customer balances. The higher charge in 2017 is primarily resulting from the deterioration in the financial condition of certain theater exhibitors and studios.
In 2017, the Company recorded a net provision of $0.7 million in financing receivables (2016 — net recovery of $0.1 million; 2015 — net provision of $0.1 million). Provisions of the Company’s financing receivables is recorded when the collectability associated with certain financing receivables is uncertain. These provisions are adjusted when there is a significant change in the amount or timing of the expected future cash flowstax consequences of temporary differences between the accounting and tax bases of assets and liabilities. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or when actual cash flows differ from cash flows previously expected.settled. Investment tax credits are recognized as a reduction of income tax expense.
The Company recorded an $0.5 million provision (2016 — $0.5 million; 2015 — $0.6 million) in costsassesses the realization of deferred income tax assets and expenses applicable to revenues due to a reduction inbased on all available evidence, concludes whether it is more likely than not that the net realizable value of its inventories. These charges primarily resulted from a reduction in the net realizable value of its theater system equipment inventories and certain service part inventories due to normal operational activity.
In 2017, the Company recorded a charge of $1.2 million (2016 — $0.3 million; 2015 — $0.4 million) reflecting property, plant and equipment that were no longer in use. In 2016, the Company also recorded a charge of $0.6 million (2015 — $0.6 million) in cost of sales applicable to Equipment and product sales upon the upgrade of xenon-based digital systems under operating lease arrangements to laser-based digital systems under sales or sales-type lease arrangements. No such charge was recorded in the year ended December 31, 2017. In addition, in 2015, the Company recorded a charge of $0.5 million in cost of sales applicable to Rentals upon the upgrade of certain xenon-based digital systems to laser-based digital systems operating under joint revenue sharing arrangements. No such charge was recordeddeferred income tax assets will be realized. A valuation allowance is provided for the year ended December 31, 2017amount of deferred income tax assets not considered to be realizable. In assessing the need for a valuation allowance, management considers, among other things, projections of future taxable income and 2016, respectively.
In 2017, the Company recordedongoing prudent and feasible tax planning strategies. If management determines that sufficient negative evidence exists, then management will consider recording a charge of $0.1 million (2016 — $0.2 million; 2015 — $0.1 million) reflecting other intangible assets that were no longer in use.
As of December 31, 2017, the Company can determinevaluation allowance against all or a reasonable estimate of the effects of U.S. tax reform and is recording that estimate as a provisional amount. The provisionalre-measurementportion of the deferred tax assets in that jurisdiction. If, after recording a valuation allowance, management’s projections of future taxable income and liabilities resultedother positive evidence considered in evaluating the need for a $9.3 million discretevaluation allowance prove, with the benefit of hindsight, to be inaccurate, it could prove more difficult to support the realization of these deferred tax provisionassets. As a result, an additional valuation allowance could be required, which increasedwould have an adverse impact on the Company’s effective income tax rate by 31.1% forand results. Conversely, if, after recording a valuation allowance, management determines that sufficient positive evidence exists in the year. See “Resultsjurisdiction in which a valuation allowance
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is recorded, the Company may reverse all or a portion of Operations”the valuation allowance in Item 7 and note 9that jurisdiction. In such situations, the adjustment made to the audited consolidated financial statementsdeferred tax asset would have a favorable impact on the Company’s effective income tax rate and results in the period such determination was made.
(Refer to Notes 12(d) and 12(g) of Notes to Consolidated Financial Statements in Part II, Item 88.)
Uncertain Tax Positions
The Company is subject to ongoing tax exposures, examinations and assessments in various jurisdictions. Tax benefits are recognized only when it is more likely than not, based on the technical merits, that the benefits will be sustained on examination. Tax benefits that meet the more-likely-than-not recognition threshold are measured using a probability weighting of this Company’s 2017Form 10-Kthe largest amount of tax benefit that has greater than 50% likelihood of being realized upon settlement. Whether the more-likely-than-not recognition threshold is met for further discussion.
NON-GAAP FINANCIAL MEASURES
In this report,a particular tax benefit is a matter of judgment based on the individual facts and circumstances evaluated in light of all available evidence as of the balance sheet date. Although management believes that the Company presents certain data which are not recognized under U.S. GAAP and are considered“non-GAAP financial measures” under U.S. Securities and Exchange Commission rules. Specifically,has adequately accounted for its uncertain tax positions, tax audits can result in subsequent assessments where the ultimate resolution may result in the Company presentsowing additional taxes above what was originally recognized in its financial statements.
Tax reserves for uncertain tax positions are adjusted by the followingnon-GAAP financial measuresCompany to reflect management’s best estimate of the outcome of examinations and assessments and in light of changing facts and circumstances, such as supplemental measuresthe completion of its performance:
The Company presents adjusted net income and adjusted net income per diluted share, which excludes stock-based compensation andnon- recurring exit costs, restructuring charges and interest accruals associated impairments,with the relateduncertain tax impactpositions until they are resolved. Some of these adjustments require significant judgment in estimating the timing and a tax charge resulting from the enactmentamount of the U.S. Tax Act, because it believes that they are important supplemental measuresadditional tax expense.
(Refer to Note 12(h) to Consolidated Financial Statements in Part II, Item 8.)
RECENTLY ISSUED ACCOUNTING STANDARDS
Refer to Note 3 to Consolidated Financial Statements in Part II, Item 8 for a discussion of recently issued accounting standards and their impact on the Company’s comparable controllable operating performance. Although stock-based compensation is an important aspect of the Company’s employee and executive compensation packages, it is mostly anon-cash expense and is excluded from certain internal business performance measures, and the Company wants to ensure that its investors fully understand the impact of its stock-based compensation (net of any related tax impact) andnon-recurring charges on net income.financial statements.
In addition, the Company presents adjusted net income attributable to common shareholders and adjusted net income attributable to common shareholders per diluted share because it believes that they are important supplemental measures of its comparable financial results. Without the presentation of these adjusted presentation measures the Company believes it could potentially distort the analysis of trends in business performance and it wants to ensure that its investors fully understand the impact of net income attributable tonon-controlling interests, its stock-based compensation,non-recurring exit costs, restructuring charges and associated impairments (net of any related tax impact) and a tax charge resulting from the enactment of the U.S. Tax Act in determining net income attributable to common shareholders.
Management uses these measures for internal reporting and forecasting purposes in order to review operating performance on a comparable basis from period to period. However, thesenon-GAAP measures may not be comparable to similarly titled amounts reported by other companies. The Company’snon-GAAP measures should be considered in addition to, and not as a substitute for, or superior to, net income and net income attributable to common shareholders and other measures of financial performance reported in accordance with U.S. GAAP
The Company is required to maintain a minimum level of “EBITDA”, as such term is defined in the Company’s credit agreement (and which is referred to herein as “Adjusted EBITDA per Credit Facility”, as the credit agreement includes additional adjustments beyond interest, taxes, depreciation and amortization). EBITDA and Adjusted EBITDA per Credit Facility (each as defined below) are used by management to evaluate, assess and benchmark the Company’s operational results, and the Company believes that EBITDA and Adjusted EBITDA per Credit Facility are relevant and useful information widely used by analysts, investors and other interested parties in the Company’s industry. Accordingly, the Company is disclosing this information to permit a more comprehensive analysis of its operating performance and to provide additional information with respect to the Company’s ability to comply with its credit agreement requirements. EBITDA is defined as net income with adjustments for depreciation and amortization, interest income (expense)-net, and income tax provision (benefit). Adjusted EBITDA per Credit Facility is defined as EBITDA plus adjustments for loss from equity accounted investments, stock and other non-cash compensation, exit costs, restructuring charges and associated impairments and adjusted EBITDA attributable to non-controlling interests.
The Company is also introducing the metric Adjusted EBITDA per Credit Facility excluding “Marvel’s Inhumans”, which is defined and discussed under “Credit Facility” in this Item 7. However, the Company cautions that EBITDA, Adjusted EBITDA per Credit Facility and Adjusted EBITDA per Credit Facility excluding “Marvel’s Inhumans” are non-GAAP measures and should not be construed as substitutes for net income, operating income or other operating performance measures that are determined in accordance with U.S. GAAP. In addition, EBITDA, Adjusted EBITDA per Credit Facility and Adjusted EBITDA per Credit Facility excluding “Marvel’s Inhumans” might not be comparable to similarly titled measures used by other companies.
RESULTS OF OPERATIONS
Important factors that theThe Company’s business and future prospects are evaluated by Richard L. Gelfond, its Chief Executive Officer (“CEO”) Richard L. Gelfond uses in assessing, using a variety of factors and financial and operational metrics including: (i) IMAX box office performance and the Company’s businesssecuring of new films and prospects include:
Management, including(vii) the Company’soverall execution, reliability, and consumer acceptance of The IMAX Experience; and (viii) short- and long-term cash flow projections.
The CEO who is the Company’s Chief Operating Decision Maker (“CODM”) (as defined in the Segment Reporting Topic, as such term is determined under U.S. GAAP. The CODM, along with other members of the FASB ASC),management, assesses segment performance based on segment revenues and gross margins and film performance.margins. Selling, general and administrative expenses, research and development costs, the amortization of intangibles, receivables provisions (recoveries),intangible assets, provision for (reversal of) current expected credit losses, certain write-downs, net of recoveries, interest income, interest expense, and income tax (provision) recovery(expense) benefit are not allocated to the Company’s segments. As identified in note 18 to the accompanying audited financial statements in Item 1, the Company identified new business as an additional reportable segment in
In the first quarter of 2017. The2023, the Company now has the following eight reportable segments: IMAX DMR; joint revenue sharing arrangements; IMAX systems; theater system maintenance; other; new business; film distribution; and film post-production. The Company is presenting the followingrevised its internal segment reporting, including information at a disaggregated level to provide more relevant information to readers, as permitted by the standard:
The discussion of the provisionCompany’s results of film post-production,operations below compares results for the years ended December 31, 2023 and their associated costs.2022 as well as for the years ended December 31, 2022 and 2021.
51
The Company’s Management’s Discussion and Analysis (“MD&A”) of Financial Condition and Results of Operations has been organized byfor the Company into four primary groups – Network Business, Theater Business, New BusinessYears Ended December 31, 2023 and Other. Each of the Company’s reportable segments, as identified above, has been classified into one of these broader groups for purposes of MD&A discussion. 2022
The Company believes that this approach is consistent with howits 2023 results of operations showed the CODM reviewsstrength of IMAX’s business model and the financial performanceincreasing global demand for The IMAX Experience by consumers, exhibitors, filmmakers, and studios. In 2023, the Company achieved a number of significant box office records reflecting the business and makes strategic decisions regarding resource allocation and investmentsgrowing demand for IMAX. This contributed to meet long-term business goals. Management believes that a discussion and analysis based on these groups is significantly more relevant and useful to readers, as the Company’s consolidated statementsinstallation of operations captions combine results from several segments. Certain128 IMAX Systems compared to 92 in 2022, system signings of 129 IMAX Systems compared to 47 in 2022, and generating $58.6 million in net cash provided by the Company’s operating activities, compared to $17.3 million in the prior year’s figures have been reclassifiedyear.
Net Income (Loss) and Adjusted Net Income Attributable to conform to the current year’s presentation.Common Shareholders
The following table sets forthpresents the breakdown of revenue and gross margin by category:
(In thousands of U.S. dollars) | Revenue | Gross Margin | ||||||||||||||||||||||
2017 | 2016 | 2015 | 2017 | 2016 | 2015 | |||||||||||||||||||
Network Business | ||||||||||||||||||||||||
IMAX DMR | $ | 108,853 | $ | 106,403 | $ | 107,089 | $ | 71,789 | $ | 69,196 | $ | 77,645 | ||||||||||||
Joint revenue sharing arrangements - contingent rent | 70,444 | 73,500 | 81,396 | 47,337 | 54,705 | 63,500 | ||||||||||||||||||
IMAX systems - contingent rent | 3,890 | 4,644 | 3,900 | 3,890 | 4,644 | 3,900 | ||||||||||||||||||
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183,187 | 184,547 | 192,385 | 123,016 | 128,545 | 145,045 | |||||||||||||||||||
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Theater Business | ||||||||||||||||||||||||
IMAX systems | ||||||||||||||||||||||||
Sales and sales-type leases(1) | 79,853 | 89,525 | 86,934 | 47,639 | 44,788 | 44,787 | ||||||||||||||||||
Ongoing fees and finance income(2) | 10,494 | 11,359 | 11,292 | 10,095 | 10,660 | 10,478 | ||||||||||||||||||
Joint revenue sharing arrangements – fixed fees | 10,118 | 17,913 | 17,724 | 2,349 | 5,132 | 4,873 | ||||||||||||||||||
Theater system maintenance | 45,383 | 40,430 | 36,944 | 18,275 | 13,660 | 12,701 | ||||||||||||||||||
Other theater | 9,145 | 10,888 | 10,482 | 1,965 | 1,930 | 2,105 | ||||||||||||||||||
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154,993 | 170,115 | 163,376 | 80,323 | 76,170 | 74,944 | |||||||||||||||||||
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New Business | 24,522 | 626 | — | (16,176 | ) | (2,199 | ) | — | ||||||||||||||||
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Other | ||||||||||||||||||||||||
Film distribution and post-production | 13,172 | 14,127 | 10,945 | (1,006 | ) | (180 | ) | 1,122 | ||||||||||||||||
Other | 4,893 | 7,919 | 7,099 | (911 | ) | 342 | (1,823 | ) | ||||||||||||||||
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18,065 | 22,046 | 18,044 | (1,917 | ) | 162 | (701 | ) | |||||||||||||||||
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$ | 380,767 | $ | 377,334 | $ | 373,805 | $ | 185,246 | $ | 202,678 | $ | 219,288 | |||||||||||||
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Results of Operations Discussion for the Three Years Ended December 31, 2017
The Company reportedCompany’s net income of $12.5 million, or $0.19 per basic and diluted share, for the year ended December 31, 2017, as compared to net income of $39.3 million, or $0.58 per basic and diluted share, for the year ended December 31, 2016 and net income of $64.6 million, or $0.92 per basic share and $0.90 per diluted share, for the year ended December 31, 2015.
Net income for the year ended December 31, 2017 includes a $22.7 million charge, or $0.35 per diluted share (2016 — $30.5 million, or $0.45 per diluted share; 2015 — $21.9 million or $0.31 per diluted share), for stock-based compensation and a $16.2 million charge, or $0.25 per diluted share for exit costs, restructuring charges and associated impairments (2016 — $nil; 2015 — $nil). In 2017, the Company also recognized a $9.3 million, or $0.14 per diluted share,non-recurring tax charge as the Companyre-measured its deferred tax assets and liabilities as of the date of enactment of the recently passed Tax Act.
Adjusted net income, which consists of net income excluding the impact of stock-based compensation, exit costs, restructuring charges and associated impairments, the related tax impact of these adjustments, and tax charge from the provisionalre-measurement of U.S. deferred tax assets and liabilities given changes enacted by the Tax Act, was $51.5 million, or $0.79 per diluted share, for the year ended December 31, 2017 as compared to adjusted net income of $61.1 million, or $0.90 per diluted share, for the year ended December 31, 2016 and $82.4 million, or $1.15 per diluted share, for the year ended December 31, 2015.
The Company reported net income(loss) attributable to common shareholders of $2.3 million, or $0.04and the associated per basic share and diluted share for the year ended December 31, 2017 (2016 — $28.8 million, or $0.43 per basic share and $0.42 per diluted share; 2015 — $55.8 million, or $0.79 per basic share and $0.78 per diluted share).
Adjusted net income attributable to common shareholders, which consists of net income attributable to common shareholders excluding the impact of stock-based compensation, exit costs, restructuring charges and associated impairments, the related tax impact of these adjustments, and tax charge from the provisionalre-measurement of U.S. deferred tax assets and liabilities given changes enacted by the Tax Act, was $40.5 million, or $0.62 per diluted share, for the year ended December 31, 2017amounts, as compared towell as adjusted net income attributable to common shareholders of $50.0 million, or $0.73 per diluted share, for the year ended December 31, 2016 and $73.0 million, or $1.02 per diluted share, for the year ended December 31, 2015.
A reconciliation of net income and net income attributable to common shareholders, the most directly comparable U.S. GAAP measure, to adjusted net income, adjusted net income per diluted share, adjusted net income attributable to common shareholdersshareholders* and adjusted net income attributable to common shareholders per diluted share is presented inshare* for the table below:years ended December 31, 2023 and 2022:
|
| Years Ended December 31, |
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| 2023 |
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| 2022 |
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(In thousands of U.S. Dollars, except per share amounts) |
| Net Income |
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| Per Diluted Share |
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| Net (Loss) Income |
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| Per Diluted Share |
| ||||
Net income (loss) attributable to common shareholders |
| $ | 25,335 |
|
|
| $ | 0.46 |
|
|
| $ | (22,800 | ) |
|
| $ | (0.40 | ) |
Adjusted net income attributable to common shareholders* |
| $ | 52,079 |
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|
| $ | 0.94 |
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| $ | 3,207 |
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| $ | 0.06 |
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* Refer to “Non-GAAP Financial Measures” below for a description of this non-GAAP financial measure and a reconciliation to the most comparable GAAP amount.
Years Ended December 31, | ||||||||||||||||||||||||
2017 | 2016 | 2015 | ||||||||||||||||||||||
Net Income | Diluted EPS | Net Income | Diluted EPS | Net Income | Diluted EPS | |||||||||||||||||||
Reported net income | $ | 12,518 | $ | 0.19 | $ | 39,320 | $ | 0.58 | $ | 64,624 | $ | 0.90 | ||||||||||||
Adjustments: | ||||||||||||||||||||||||
Stock-based compensation | 22,653 | 0.35 | 30,523 | 0.45 | 21,880 | 0.31 | ||||||||||||||||||
Exit costs, restructuring charges and associated impairments | 16,174 | 0.25 | — | — | — | — | ||||||||||||||||||
Tax impact on items listed above | (9,218 | ) | (0.14 | ) | (8,783 | ) | (0.13 | ) | (4,056 | ) | (0.06 | ) | ||||||||||||
Impact of enactment of U.S. Tax Act | 9,323 | 0.14 | — | — | — | — | ||||||||||||||||||
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Adjusted net income | 51,450 | 0.79 | 61,060 | 0.90 | 82,448 | 1.15 | ||||||||||||||||||
Net income attributable tonon-controlling interests(1) | (10,174 | ) | (0.16 | ) | (10,532 | ) | (0.16 | ) | (8,780 | ) | (0.12 | ) | ||||||||||||
Stock-based compensation (net of tax of $0.2 million, $0.2 million and $0.2 million, respectively)(1) | (620 | ) | (0.01 | ) | (533 | ) | (0.01 | ) | (703 | ) | (0.01 | ) | ||||||||||||
Exit costs, restructuring charges and associated impairments (net of tax of $0.1 million)(1) | (181 | ) | — | — | — | — | — | |||||||||||||||||
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Adjusted net income attributable to common shareholders | $ | 40,475 | $ | 0.62 | $ | 49,995 | $ | 0.73 | $ | 72,965 | $ | 1.02 | ||||||||||||
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Weighted average diluted shares outstanding | 65,540 | 68,263 | 71,058 | |||||||||||||||||||||
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Revenues and Gross Margin
The Company’s revenues forFor the year ended December 31, 2017 increased to $380.8 million from $377.3 million in 2016. The2023, the Company’s revenues and gross margin across all segments in 2017 was $185.2increased by $74.0 million or 48.7% of total revenue, compared to $202.725% and $58.0 million or 53.7%37%, respectively, from 2022 principally due to the strength of totalthe IMAX GBO performance through the distribution of films such as Oppenheimer, Avatar: The Way of Water, The Super Mario Bros. Movie, The Wandering Earth 2, Guardians of the Galaxy Vol.3, Mission: Impossible - Dead Reckoning Part One, Ant-Man and the Wasp: Quantumania, Creation of the Gods I: Kingdom of Storms, and Spider-Man: Across the Spider-Verse and record performance of local language content coupled with higher system sales and renewals in the current period.
The following table presents the Company’s revenue, in 2016. Impairment charges included in gross margin and gross margin percentage by reportable segment for the yearyears ended December 31, 2017 were $19.7 million,2023 and 2022:
|
| Revenue |
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| Gross Margin |
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| Gross Margin % |
| |||||||||||||||
(In thousands of U.S. Dollars) |
| 2023 |
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| 2022 |
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| 2023 |
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| 2022 |
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| 2023 |
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| 2022 |
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Content Solutions |
| $ | 126,698 |
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| $ | 101,820 |
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| $ | 74,106 |
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| $ | 51,240 |
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|
| 58 | % |
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| 50 | % |
Technology Products and Services |
|
| 234,303 |
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| 192,368 |
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| 129,946 |
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| 101,055 |
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| 55 | % |
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| 53 | % |
Sub-total for reportable segments |
|
| 361,001 |
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| 294,188 |
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| 204,052 |
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| 152,295 |
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| 57 | % |
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| 52 | % |
All Other(1) |
|
| 13,838 |
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| 6,617 |
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| 10,289 |
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| 4,060 |
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| 74 | % |
|
| 61 | % |
Total |
| $ | 374,839 |
|
| $ | 300,805 |
|
| $ | 214,341 |
|
| $ | 156,355 |
|
|
| 57 | % |
|
| 52 | % |
Segment Operating Results
The Company’s segment operating results are presented based on how the Company assesses operating performance and internally reports financial information. See Note 21 to Consolidated Financial Statements in Part II, Item 8 for additional information on the Company’s reportable segments.
Content Solutions
Content Solutions segment results are influenced by the level of which $13.0 million relatedcommercial success and box office performance of the films and other content released to new business initiatives, or 5.2%the IMAX network, as well as other factors including the timing of total revenue, compared to $3.7 million,the releases, the length of which $nil related to new business initiatives, or 1.0%play across the IMAX network, the box office share take rates under the Company’s film remastering and distribution arrangements, the level of total revenuemarketing spend associated with the releases in the year ended December 31, 2016. Impacting the gross margin in 2017, was a gross loss experienced in the Company’s new business segment mainly due to the impairment charges discussed above.
The Company’s revenues for the year ended December 31, 2016 increased to $377.3 million from $373.8 million in 2015, largely due to an increase in revenues from the Company’s theater business. The gross margin across all segments in 2016 was $202.7 million, or 53.7% of total revenue, compared to $219.3 million, or 58.7% of total revenue in 2015. Impacting the gross margin in 2016 was the lower revenues experienced in the Company’s network business largely due to weakerbox-office performance, particularly in the China region. Grossbox-office is a significant driver of the Company’s business as the impact of film performance affects multiple reporting segments, as discussed below.
Network Business
Grossbox-office generated by IMAX DMR films increased 1.1% to $976.5 million in 2017 from $965.6 million in 2016. The 2016 grossbox-office generated was 2.1% lower than the $985.3 million in 2015. In 2017, grossbox-office was generated primarily from the exhibition of 67 films (60 new and 7 carryovers), as compared to 58 films (51 new and 7 carryover) exhibited in 2016 and 57 films (44 new and 13 carryover) exhibited in 2015. In recent years, the Company has experienced weaker grossbox-office particularly in the China region resulting from both film performance and unfavorable exchange rates.
The Company’s network business performance is impacted by the timing of a film release to the IMAX theater network, the commercial success of the film, the Company’s take rates under its DMR and joint revenue sharing arrangements, and the distribution window for the exhibition of films in the IMAX theater network. Other factors impacting performance include fluctuations in the value of foreign currencies versus the U.S. dollar and potential currency devaluations.Dollar.
Network business revenue decreased by 0.7% to $183.2 million in52
For the year ended December 31, 20172023, Content Solutions segment revenues and gross margin increased by $24.9 million or 24% to $126.7 million from $184.5$101.8 million and $22.9 million or 45% to $74.1 million from $51.2 million, respectively, when compared to the same period in 2022 principally due to better performance of the films distributed throughout the global IMAX network in 2023 including IMAX China, following the Chinese government relaxing its dynamic zero-COVID policies and easing capacity restrictions at the end of 2022.
For the year ended December 31, 2016, primarily as2023, GBO generated by IMAX films totaled $1.1 billion, a result of decreased revenue from joint revenue sharing arrangements. Furthermore, network business revenue$209.3 million or 25% increase versus $849.7 million in 2022. The 2023 GBO was 4.1% lower in 2016 from the $192.4 million experienced in 2015. The gross margin experiencedgenerated by the Company’s network businessexhibition of 105 films, which consisted of 95 new films (2022 — 63), 10 carryovers (2022 — 10) and one re-release (2022 — five). The impact of changes in 2017 was $123.0 million, or 67.2% of network business revenue, comparedforeign currency valuations versus the U.S. Dollar led to $128.5 million, or 69.7% in 2016 and $145.0 million, or 75.4% in 2015.
The 4.2%a decrease in revenues from joint revenue sharing arrangements was largely due to lower joint venture take rates, offset slightly by continued network growth. Joint venture take rates are impacted by the mixGBO of theater systems installed and the particular geographic market for those systems. Contingent rent revenues from joint revenue sharing arrangements decreased to $70.4$23.0 million in the year ended December 31, 2017 from $73.5 million in the year ended December 31, 2016. In 2015 revenues from joint revenue sharing arrangements were $81.4 million. The decrease in revenues in 2016 versus 2015 from joint revenue sharing arrangements was due to weaker film performance in 2016, partly a result of unfavorable exchange rates between applicable local currencies and the U.S. dollar. The Company ended 2017 with 747 theaters operating under joint revenue sharing arrangements,2023 as compared to 640 theaters at the end of 2016, an increase of 16.7%prior year rates. The Company believes that if foreign currency exchange rates were consistent in 2023 and 529 theaters at the end of 2015. Gross2019 that IMAX GBO in 2023 would have exceeded its best box office generated by the joint revenue sharing arrangements was 2.8% higher at $525.3 millionyear ever in the year ended December 31, 2017 from $511.0 million in the year ended December 31, 2016 and $514.1 million in the year ended December 31, 2015.2019.
The gross margin from joint revenue sharing arrangements decreased to $47.3 million in the year ended December 31, 2017 from $54.7 million in the year ended December 31, 2016 and $63.5 million in 2015. Included in the calculation of gross marginIn addition, for the year ended December 31, 2017 were certain advertising, marketing and commission costs primarily associated with new theater launches of $3.7 million, as compared to $2.72023, local language films exhibited across the Company’s global IMAX network generated over $227.2 million in 2016IMAX GBO, representing 21% of the Company’s total box office. Leading local language titles distributed across the IMAX network during 2023 included the Chinese Filmed For IMAX title The Wandering Earth 2, which generated IMAX GBO of $48.6 million, the Chinese film Creation of the Gods I: Kingdom of Storms ($32.5 million), the Chinese film No More Bets ($11.2 million), and $3.0 millionthe Japanese anime film The First Slam Dunk ($10.8 million). Despite accounting for such expensesapproximately 1% of all Domestic screens and less than 1% of all screens globally in 2015. The lower2023, the IMAX network had a Domestic market share of 4.4% and a global market share of 3.2% in 2023.
In addition to the higher level of revenues, Content Solutions segment gross margin experienced in 2017 versus prior years is mostly due to the lower take rates experienced (as discussed above), as well higher depreciation expense resulting from the continuous growth in the number of operational theaters under joint revenue sharing arrangements.
IMAX DMR revenues increased 2.3% to $108.9 million in the year ended December 31, 2017 from $106.4 million in the year ended December 31, 2016, partially offsetting the decrease in revenues from joint revenue sharing arrangements. IMAX DMR revenues increased largely as a result of stronger returns under the Company’s DMR arrangements, drivenalso influenced by the geographical mix of films
exhibited in 2017 as compared to prior years. IMAX DMR revenues decreased 0.6% in 2016 from $107.1 million in the year ended December 31, 2015.
The gross margin from the IMAX DMR segment was $71.8 million, $69.2 million and $77.6 million in the years ended December 31, 2017, 2016 and 2015, respectively. Margin is a function of the costs associated with the respective films and other content exhibited in the period and can vary particularlyfrom period-to-period, especially with respect to marketing expenses.
Contingent rent revenue consists of variable payments received in excess of the fixed minimum ongoing paymentsexpenses, which are primarily driven by gross box office performance reported by theater operators. Contingent rent revenue from IMAX systems decreased to $3.9 million in the year ended December 31, 2017 from $4.6 million in the year ended December 31, 2016. Contingent rent revenue from IMAX systems increased to $4.6 million in the year ended December 31, 2016 from $3.9 million in the year ended December 31, 2015.
Theater Business
The primary drivers of this line of business are theater system installationsexpensed as incurred, for films and the Company’s maintenance contract that accompany each theater installation.costs incurred to produce, market and distribute live events and documentary content during the period. For the year ended December 31, 2017, theater business revenue decreased $15.12023, marketing expenses incurred towards films were $14.2 million or 8.9%compared to $155.0$17.3 million as compared toin 2022. Gross margin percent for the year ended December 31, 2016 and increased 4.1% in 2016 as2023 was 58% compared to 50% for the year ended December 31, 2015. same period in 2022 with the increase being driven by the operating leverage that results from achieving higher levels of box office with relatively fixed film distribution costs and strategic deployment of marketing dollars.
Technology Products and Services
The decreaseprimary drivers of Technology Products and Services segment results are the number of IMAX Systems installed in theater businessa period, the costs associated with each installation, lease payments tied to the box office performance of the films released to the IMAX network, as well as the associated maintenance contracts that accompany each installation. The average revenue in 2017 as compared to 2016 was primarily due to:
The negative variance was partially offset by a $3.9 million increase due to four additional systems installed under sales or sales-type lease arrangements.
Despite the revenue decrease, theater business gross margin increased 5.5% to $80.3 million in 2017 as compared to $76.2 million in 2016, primarily due to the geographic marketsold and variation of sales, sales-type lease and joint revenue sharing arrangements installed. The theater business gross margin was 51.8% compared to 44.8% in 2016 and 45.9% in 2015.
various other factors. The installation of theater systemsIMAX Systems in newly-built theaters or multiplexes, which make up a large portion of the Company’s theater system backlog, depends primarily on the timing of the construction of those projects, which is not under the Company’s control.
For the year ended December 31, 2023, Technology Products and Services segment revenue and gross margin increased by $41.9 million or 22% to $234.3 million from $192.4 million and $28.9 million or 29% to $129.9 million from $101.1 million, respectively, when compared to the prior year. The breakdownhigher level of revenue is driven in part by an increase of $16.9 million in system sales revenue as a result of 29 additional IMAX System installations under sales arrangements, including upgrades, partially offset by the impact of higher interest rates on future minimum payments and estimated variable consideration, the mix of contract types and lower aftermarket sales and sales-type lease andof 3D glasses.
Also contributing to the higher level of revenue was an increase of $13.8 million in Revenues — Technology Rentals, as a result of IMAX GBO earned from IMAX Systems under joint revenue sharing arrangements, (see discussion below)which increased by $181.7 million or 42% in 2023 when compared to the prior year, from $433.1 million to $614.8 million, resulting from the higher level of box office performance discussed above.
The Technology Products and Services segment gross margin increase of 29% year-over-year is primarily reflective of a higher number of IMAX System installations and higher Revenues — Technology Rentals earned through the Company’s joint revenue sharing arrangements, driven by theater system configurationthe stronger box office performance, which led to incremental profit flow-through.
53
The following table provides detailed information about IMAX Systems installed and the associated revenue recognized at that time, except for 2017, 2016traditional joint revenue sharing arrangement as revenue is recognized over the lease term, during the years ended December 31, 2023 and 2015 is outlined2022:
|
| 2023 |
|
| 2022 |
| ||||||||||
(In thousands of U.S. Dollars, except number of systems) |
| Number of |
|
| Revenue |
|
| Number of |
|
| Revenue |
| ||||
New IMAX Systems |
|
| 64 |
|
| $ | 56,508 |
|
|
| 34 |
|
| $ | 32,522 |
|
Upgraded IMAX Systems |
|
| 11 |
|
|
| 9,376 |
|
|
| 12 |
|
|
| 16,419 |
|
Total |
|
| 75 |
|
| $ | 65,884 |
|
|
| 46 |
|
| $ | 48,941 |
|
All Other
For the year ended December 31, 2023, All Other revenue and gross margin increased by $7.2 million and $6.2 million, respectively, when compared to the same period in 2022 principally due to growth in revenues earned by the Company’s Streaming and Consumer Technology business. Full year 2023 reflects the inclusion of both SSIMWAVE’s revenues as that acquisition was completed in late September 2022 and growth in the consumer technology business of IMAX Enhanced.
Selling, General and Administrative Expenses
The following table below:presents information about the Company’s Selling, General and Administrative Expenses for the years ended December 31, 2023 and 2022:
|
| Years Ended December 31, |
|
| Variance | |||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
|
| $ |
|
| % | |||
Total selling, general and administrative expenses |
| $ | 144,406 |
|
| $ | 138,043 |
|
| $ | 6,363 |
|
| 5% |
Less: Share-based compensation(1) |
|
| 22,534 |
|
|
| 25,438 |
|
|
| (2,904 | ) |
| (11%) |
Total selling, general and administrative expenses, excluding share-based compensation |
| $ | 121,872 |
|
| $ | 112,605 |
|
| $ | 9,267 |
|
| 8% |
The increase in Selling, General and Administrative Expenses reflects the inclusion of $5.2 million related to the Company’s Streaming Technology operation of SSIMWAVE, which was not included to the same extent in the prior year comparative as the acquisition was completed in late September 2022, and $3.3 million in non-recurring transaction expenses associated with the proposal to acquire the outstanding shares in IMAX China.
Years Ended December 31, | ||||||||||||||||||||||||
2017 | 2016 | 2015 | ||||||||||||||||||||||
Number of Systems | Dollar Value | Number of Systems | Dollar Value | Number of Systems | Dollar Value | |||||||||||||||||||
New IMAX digital theater systems — installed and recognized | ||||||||||||||||||||||||
Sales and sales-types lease arrangements | 60 | $ | 73,560 | 56 | $ | 69,620 | 56 | $ | 68,799 | |||||||||||||||
Short-term operating lease arrangement | — | — | �� | 1 | — | — | — | |||||||||||||||||
Joint revenue sharing arrangements — hybrid | 19 | 10,115 | 33 | 18,777 | 31 | 15,645 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total new theater systems | 79 | 83,675 | 90 | 88,397 | 87 | 84,444 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
IMAX digital theater system upgrades — installed and recognized | ||||||||||||||||||||||||
Sales and sales-types lease arrangements | 4 | 5,502 | 14 | 17,975 | 11 | 14,950 | ||||||||||||||||||
Short-term operating lease arrangements | — | — | — | — | 2 | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total upgraded theater systems | 4 | 5,502 | 14 | 17,975 | 13 | 14,950 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total theater systems installed and recognized | 83 | $ | 89,177 | 104 | $ | 106,372 | 100 | $ | 99,394 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Research and Development
The Company believes that it is a premier global technology platform for awe-inspiring entertainment and events with significant proprietary expertise in digital and film-based projection and sound system component design, engineering, and imaging technology, particularly in laser-based technology. A significant portion of the Company’s research and development efforts have been focused on the IMAX Laser Systems, which the Company believes is capable of illuminating the largest screens in the IMAX network and provides greater brightness and clarity, higher contrast, a wider color gamut and deeper blacks, while consuming less power and lasting longer than existing digital technology, to ensure that the Company continues to provide the highest quality, premier cinematic experience available to consumers. The Company has continued research and development aimed at creating more affordable laser-based solutions with various screen sizes for its commercial multiplex customers.
For the year ended December 31, 2023, Research and Development expenses were $10.1 million, representing an increase of $4.8 million or 91% when compared to $5.3 million during the same period in the prior year, primarily driven by increased compensation expense of $1.0 million in Streaming and Consumer Technology business and $3.5 million in the Company’s other research and innovation initiatives. For the year ended December 31, 2023, expenses include $1.4 million specifically related to the Company’s Streaming and Consumer Technology activities.
54
The Company intends to continue research and development to further evolve its end-to-end technology. This includes bringing connectivity to the Company’s global network to support live and interactive events worldwide; developing new IMAX film cameras and certifying additional digital cameras; further improving its proprietary film remastering and distribution process for the delivery of content for both theatrical (including local language content) and home entertainment; and further improving the reliability of its projectors, as well as enhancing the Company’s image and sound quality. Within the Company’s Streaming and Consumer Technology business, there is ongoing research and development in perceptual metrics involving novel measurement and optimization techniques. Investments are also being made to expand existing and/or develop new technologies which are expected to further enhance video quality, delivery, and creation across devices. Furthermore, the Company intends to invest in activities that will capture opportunities to create/build AI and automation into its operations and processes.
As of December 31, 2023 and 2022, 86 and 66 of the Company’s employees were connected with research and development projects, respectively.
Credit Loss Expense, Net
For the year ended December 31, 2023, the Company recorded current expected credit losses of $1.8 million, as compared to credit losses of $8.5 million recognized in the prior year. The prior period expense was principally due to reserves established against substantially all of the Company’s receivables in Russia due to uncertainties associated with the ongoing Russia-Ukraine conflict and resulting sanctions, partially offset by the reversal of provisions associated with the COVID-19 pandemic as the outlook for the theatrical exhibition industry improved.
Consolidated Financial Statements are prepared and involve estimates about the future. As a result, the Company’s judgments and associated estimates of credit losses may ultimately prove, with the benefit of hindsight, to be incorrect.
Asset Impairments
For the year ended December 31, 2023, the Company recorded asset impairments of $0.4 million principally related to the write-down of content-related assets which became impaired in the year.
On January 10, 2022, IMAX (Shanghai) Culture and Technology Co., Ltd, a wholly-owned subsidiary of IMAX China, entered into a joint film investment agreement with Wanda Film (Horgos) Co. Ltd. to invest RMB 30.0 million ($4.7 million) in the movie Mozart from Space, which was released on July 15, 2022. Pursuant to the investment agreement, IMAX (Shanghai) Culture and Technology Co., Ltd. has the right to receive a share of the profits or losses of the film distribution. IMAX (Shanghai) Culture and Technology Co., Ltd.’s commitment is limited to its investment and has no further obligation if the actual movie production cost exceeds the original budget. The investment met the criteria for classification as a financial asset. The investment was measured at amortized cost less impairment losses and was recorded within Other Assets in the Consolidated Balance Sheets.
For the year ended December 31, 2022, the Company recorded a full impairment of its RMB 30.0 million ($4.5 million) investment in Mozart from Space based on projected box office results and distribution costs.
Interest Expense
For the year ended December 31, 2023, interest expense was $6.8 million, with $257.2 million of year-end total debt, representing an increase of $0.9 million or 15% when compared to interest expense of $5.9 million with $270.7 million of year-end total debt in the prior year. This increase is primarily due to cash flows as well as timing of borrowings and repayments of revolving credit facility borrowings made during the year in support of investments in the business, including capital expenditures to invest in equipment for joint revenue sharing arrangements as well as share repurchases, and the impact of higher interest rates in 2023. (Refer to Note 14 to Consolidated Financial Statements in Part II, Item 8.)
Income Taxes
For the year ended December 31, 2023, the Company recorded an income tax expense of $13.1 million (2022 — $10.1 million). The Company’s effective tax rate for year ended December 31, 2023 of 28.3% differs from the Canadian statutory tax rate of 26.5%, primarily due to tax rate differences in foreign jurisdictions, a reduction in tax reserves of $0.4 million (2022 — $1.6 million) and a net decrease in the valuation allowance related to deferred taxes of $0.7 million (2022 — increase of $16.8 million). This was offset by withholding taxes of $5.2 million (2022 — $3.8 million). The remainder of the difference was due to normal course movements and non-material items.
For the year ended December 31, 2023, the deferred tax liability for the applicable foreign withholding taxes decreased by $2.4 million (2022 — $2.7 million). During the year ended December 31, 2023, $24.0 million (2022 — $27.4 million) of historical earnings from a subsidiary in China were distributed and, as a result, $2.4 million (2022 — $2.7 million) of foreign withholding taxes were paid
55
to the relevant tax authorities. The remaining deferred tax liability on the Company’s Consolidated Balance Sheets as of December 31, 2023 is $12.5 million (2022 — $14.9 million).
(Refer to Note 12 to Consolidated Financial Statements in Part II, Item 8 for more information on the Company’s tax position.)
Non-Controlling Interests
The Company’s Consolidated Financial Statements include the non-controlling interest in the net income or loss of IMAX China, as well as the impact of non-controlling interests in the activity of its Original Film Fund subsidiary. For the year ended December 31, 2023, the net income attributable to non-controlling interests of the Company’s subsidiaries was $7.7 million (2022 — $2.9 million), an increase of 164.5% or $4.8 million year-over-year. The increase reflects the recovery of IMAX China’s box office following the Chinese government relaxing its dynamic zero-COVID policies and easing capacity restrictions at the end of 2022 and an increasing level of consumer confidence in attending public gatherings.
Results of Operations for the Years Ended December 31, 2022 and 2021
In the first quarter of 2023, the Company updated its reportable segments. See Note 21 to Consolidated Financial Statements in Part II, Item 8. The following discussion and analysis related to the Company’s segment results for the years ended December 31, 2022 and 2021 have been revised to conform with the current year presentation.
The discussion of the Company’s results of operations comparing results for the years ended December 31, 2022 and 2021 that was not impacted by the segment change is included under the section entitled “Results of Operations” in Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, and is incorporated by reference into this Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Net Loss and Adjusted Net Income (Loss) Attributable to Common Shareholders
The following table presents the Company’s net loss attributable to common shareholders and the associated per share amounts, as well as adjusted net income (loss) attributable to common shareholders* and adjusted net income (loss) attributable to common shareholders per share* for the years ended December 31, 2022 and 2021:
Years Ended December 31, | |||||||||||||||||||
2022 | 2021 | ||||||||||||||||||
(In thousands of U.S. Dollars, except per share amounts) | Net (Loss) Income | Per Share | Net Loss | Per Share | |||||||||||||||
Net loss attributable to common shareholders | $ | (22,800 | ) | $ | (0.40 | ) | $ | (22,329 | ) | $ | (0.38 | ) | |||||||
Adjusted net income (loss) attributable to common shareholders* | $ | 3,207 | $ | 0.06 | $ | (8,420 | ) | $ | (0.14 | ) |
For the year ended December 31, 2022, the Company recorded a net non-cash provision of $6.9 million, or $0.12 per share, due to an increase in reserves given the uncertainty of collecting receivables in Russia. This provision was taken due to the ongoing conflict and resulting sanctions in Ukraine and covers substantially all of the Company’s net receivable exposure in the Russian market. Excluding the impact of this provision, net loss attributable to common shareholders* was $(15.9) million, or $(0.28) per share, and adjusted net income attributable to common shareholders* was $10.1 million, or $0.18 per share. Over the past five years, Russia has represented on average approximately 3% of the GBO generated by IMAX films.
* See “Non-GAAP Financial Measures” below for a description of this non-GAAP financial measure and a reconciliation to the most comparable GAAP amount.
Revenues and Gross Margin
For the year ended December 31, 2022, the Company’s revenues and gross margin increased by $45.9 million or 18% and $21.9 million or 16%, respectively, when compared to the same period in 2021 principally due to the strength of the GBO performance through the distribution of films such as Avatar: The Way of Water, Top Gun: Maverick, Doctor Strange in the Multiverse of Madness, Jurassic World Dominion, The Batman, Black Panther: Wakanda Forever,Thor: Love and Thunder,The Battle at Lake Changjin 2, and Spider-Man: No Way Home.
56
The following table presents the Company’s revenue, gross margin and gross margin percentage by reportable segment for the years ended December 31, 2022 and 2021:
|
| Revenue |
|
| Gross Margin |
|
| Gross Margin % |
| |||||||||||||||
(In thousands of U.S. Dollars) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||
Content Solutions |
| $ | 101,820 |
|
| $ | 76,989 |
|
| $ | 51,240 |
|
| $ | 45,269 |
|
|
| 50 | % |
|
| 59 | % |
Technology Products and Services |
|
| 192,368 |
|
|
| 172,952 |
|
|
| 101,055 |
|
|
| 86,041 |
|
|
| 53 | % |
|
| 50 | % |
Sub-total for reportable segments |
|
| 294,188 |
|
|
| 249,941 |
|
|
| 152,295 |
|
|
| 131,310 |
|
|
| 52 | % |
|
| 53 | % |
All Other(1) |
|
| 6,617 |
|
|
| 4,942 |
|
|
| 4,060 |
|
|
| 3,096 |
|
|
| 61 | % |
|
| 63 | % |
Total |
| $ | 300,805 |
|
| $ | 254,883 |
|
| $ | 156,355 |
|
| $ | 134,406 |
|
|
| 52 | % |
|
| 53 | % |
(1) All Other includes the results from Streaming and Consumer Technology and other ancillary activities.
Segment Operating Results
The Company’s segment operating results are presented based on how the Company assesses operating performance and internally report financial information. See Note 21 to Consolidated Financial Statements in Part II, Item 8 for additional information on the segments.
Content Solutions
Content Solutions segment results are influenced by the level of commercial success and box office performance of the films and other content released to the IMAX network, as well as other factors including the timing of the releases, the length of play across the IMAX network, the box office share take rates under the Company’s film remastering and distribution arrangements, the level of marketing spend associated with the releases in the year and the fluctuations in the value of foreign currencies versus the U.S. Dollar.
For the year ended December 31, 2022, Content Solutions segment revenues and gross margin increased by $24.8 million or 32% to $101.8 million from $77.0 million and $6.0 million or 13% from $51.2 million from $45.3 million, respectively, when compared to the prior year.
The performance of the films distributed through the IMAX network resulted in a $211.5 million or 33% increase in GBO, from $638.2 million in 2021 to $849.7 million in 2022, despite a 32% decline in Greater China box office driven by the COVID-19 restrictions instituted as part of China’s dynamic zero-COVID policy. This overall improvement in GBO earned through the global IMAX network for the year was partially offset by unfavorable foreign currency exchange rate movements. For the year ended December 31, 2022, GBO was generated by the exhibition of 78 films (63 new, 10 carryovers, and five re-releases), including Avatar: The Way of Water, which generated GBO of $140.2 million (or 11% market share) and Top Gun: Maverick, which generated GBO of $110.7 million (or 7% market share) in the year. During the year ended December 31, 2021, GBO was generated by the exhibition of 73 films (63 new, six carryovers and four re-releases).
In addition to the higher level of revenues, Content Solutions segment gross margin is also influenced by the costs associated with the films and other content exhibited in the period, and can vary from period-to-period, especially with respect to marketing expenses, which are expensed as incurred, for films and the costs incurred to produce, market and distribute live events and documentary content during the period. For the year ended December 31, 2022, the impact of the higher level of Content Solutions Segment revenues was partially offset by higher marketing expenses of $17.3 million, as compared to $8.2 million in the prior year reflecting investments to drive higher levels of box office and enable the achievement of the Company’s highest global and domestic market share of 3% and 5%, respectively, in 2022. The Content Solutions segment gross margin was also impacted by investments in infrastructure costs, depreciation expense and network connection fees of $3.3 million to operate the IMAX connected network for the year ended December 31, 2022.
Technology Products and Services
The primary drivers of Technology Products and Services segment results are the number of IMAX Systems installed in a period, the costs associated with each installation, lease payments tied to the box office performance of the films released to the IMAX network, as well as the associated maintenance contracts that accompany each installation. The average revenue and gross margin per full, new theater systemIMAX System under a salessale and sales-type lease arrangementarrangements varies depending upon the number of theater systemIMAX System commitments with a single respective exhibitor, an exhibitor’s location, the type of system sold and various other factors. The installation of IMAX Systems in theaters or other various factors. Average revenue per full, new theatermultiplexes, which make up a large portion of the Company’s system backlog, depends primarily on the timing of the construction of those projects, which is not under a sales and sales-type lease arrangement was $1.2 million forthe Company’s control.
57
For the year ended December 31, 2017, as2022, Technology Products and Services segment revenue increased by $19.4 million or 11% to $192.4 million from $173.0 million while gross margin increased by $15.0 million or 17% to $101.1 million from $86.0 million, when compared to $1.3the prior year. The increase in revenue was primarily reflective of an increase of $15.6 million in Technology Rentals and $3.3 million in recurring maintenance revenue partially offset by a $2.7 million decrease in IMAX Systems revenue related to a lower number of system installations year-over-year.
The increase in Technology rentals revenue earned through the Company’s joint revenue sharing arrangements, was driven by the stronger box office performance which led to incremental profit flow-through. IMAX GBO earned from IMAX Systems under joint revenue sharing arrangements increased by $94.0 million or 28% in 2022 when compared to the prior year, from $339.1 million to $433.1 million, resulting from the higher level of box office performance discussed above.
The increase in IMAX Maintenance revenue was due to the continued global reopening of the IMAX network amidst the ongoing recovery of the theatrical exhibition industry from earlier stages of the COVID-19 pandemic, partially offset by a decrease of $1.2 million in revenue associated with systems in Russia, Ukraine, and Belarus, which were placed on nonaccrual status due to the ongoing Russia-Ukraine conflict and resulting sanctions.
The year-over-year lower level of IMAX Systems revenue in 2022 was the result of four fewer IMAX System installations, including upgrades, in 2022 under sale and sales-type lease arrangements and a decrease of $1.1 million in Finance Income associated with locations in Russia, Ukraine, and Belarus, which were placed on nonaccrual status due to the ongoing Russia-Ukraine conflict and resulting sanctions. These factors were partially offset by an increase of $5.0 million from the impact of amendments to existing IMAX System arrangements, as well as an increase of $3.3 million as the Company ended the temporary relief on annual minimum payment obligations for exhibitor customers during the COVID-19 pandemic.
The increase in Technology Products and Services segment gross margin of $15.0 million, when compared to the prior year as costs Rentals including depreciation expense, advertising, marketing and system commission costs grew at a lower rate than revenue. This increase was partially offset by lower year-over-year profit contribution from maintenance revenue due to the profit flowthrough of $2.5 million in maintenance revenue recognized in 2021 that had been deferred from 2020 due to uncertainties associated with the COVID-19 pandemic. For the year ended December 31 20162022, Technology Products and $1.2Services segment depreciation expense of $22.6 million was consistent with the prior year and advertising, marketing and commission costs of $2.2 million, compared to $4.3 million in the prior year.
The following table provides detailed information about IMAX Systems installed and the associated revenue recognized at that time, except for traditional joint revenue sharing arrangement as revenue is recognized over the lease term, during the years ended December 31, 2022 and 2021:
2022 | 2021 | |||||||||||||||
(In thousands of U.S. Dollars, except number of systems) | Number of | Revenue | Number of | Revenue | ||||||||||||
New IMAX Systems | 34 | $ | 32,522 | 44 | $ | 48,289 | ||||||||||
Upgraded IMAX Systems | 12 | 16,419 | 8 | 11,371 | ||||||||||||
Total | 46 | $ | 48,941 | 52 | $ | 59,660 |
All Other
For the year ended December 31, 2015.
Revenues from sales2022, All Other revenue and sales-type leases includes settlement revenue of $1.3gross margin increased by $1.7 million in 2016 asand $1.0 million, respectively, when compared to $0.1 millionthe same period in 2015. Costs associated with settlements consist primarily2021 principally due to the inclusion of commission costs. Gross margin from sales and sales-type leases include settlement margin of $1.2 million in 2016, as compared to $0.1 million in 2015. No such settlement revenue or costs were recorded in the year ended December 31, 2017.
Theater system maintenance revenue increased 12.3% to $45.4 million in the year ended December 31, 2017 from $40.4 million in the year ended December 31, 2016 and $36.9 in 2015, a 9.4% increase in 2016 from 2015. Theater system maintenance gross margin was $18.3 million in the year ended December 31, 2017 versus $13.7 million in the year ended December 31, 2016 and $12.7 million in 2015. The Company recorded a write-down of $0.3 million, $0.2 million and less than $0.1 millionSSIMWAVE’s revenues for certain service parts inventories in the years ended 2017, 2016 and 2015, respectively. Maintenance revenue continues to growthree months as the number of theatersacquisition was completed in late September 2022 as well as growth in the IMAX theater network grows. Maintenance margins vary depending on the mix of theater system configurations in the theater network, volume-pricing related to larger relationships and the timing and the date(s) of installation and/or service.Enhanced consumer technology business.
58
CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
Ongoing fees and finance income was $10.5 million in the year ended December 31, 2017 compared to $11.4 million in the year ended December 31, 2016 and $11.3 million in 2015. Gross margin for ongoing rent and finance income decreased to $10.1 million in the year ended December 31, 2017 from $10.7 million in the year ended December 31, 2016 and $10.5 million in 2015. The costs associated with ongoing fees are minimal as it usually consists of depreciation ondiscussion below compares the Company’s theaters under operating lease agreements and/or marketing.
Other theater revenue decreased to $9.1 million in the year ended December 31, 2017 as compared to $10.9 million in the year ended December 31, 2016 and $10.5 million in 2015. Other theater revenue primarily includes revenue generated from the Company’s after-market sales of projection system parts and 3D glasses. Despite the revenue decline, the gross margin recognized from other theater revenue was on par with prior years ($2.0 million in the year ended December 31, 2017 as compared to $1.9 million in 2016 and $2.1 million in 2015).
New Business
Revenue earned from the Company’s new business initiatives was $24.5 million in the year ended December 31, 2017, as compared to $0.6 million in the year ended December 31, 2016 and $nil in 2015. New business revenue was primarily generated from the release of theco-produced television series “Marvel’s Inhumans” in September 2017 and contractual payments relating to the development of an IMAX VR camera.
The gross margin recognized from the new business segment was a loss of $16.2 million in the year ended December 31, 2017 as compared to a loss of $2.2 million in the year ended December 31, 2016 and $nil in 2015, primarily due to the “Marvel’s Inhumans”performance as well as the launch of the Company’s first pilot IMAX VR Center in Los Angeles, the opening of five VR Centers in 2017 and the performance of the Company’s other new business initiatives, as compared to the prior year comparative period.
The performance of the new business segment for the year ended December 31, 2017, was mostly driven by the Company’s investment in, and the theatrical premiere of, the television series “Marvel’s Inhumans”. Episodic revenue, cost of revenue and negative gross margin recognized for the year ended December 31, 2017, were $20.4 million, $33.4 million and $13.0 million, respectively.
The Company is evaluating its new business initiatives separately from its core business as the nature of its activities is separate and distinct from its ongoing operations. The Company recognized a net loss before tax from its new business initiatives for the year ended December 31, 2017 of $31.5 million, which includes amortization of $15.4 million, exit costs, restructuring charges and associated impairments of $3.4 million, impairment charges of $13.0 million and an equity loss of $0.7 million, as compared to net loss of $10.9 million, which includes amortization of $0.6 million and an equity loss of $2.3 million, in the prior year comparative period. Net loss before tax from its new business initiatives for the year ended December 31, 2015 was $8.5 million, which includes amortization of less than $0.1 million and an equity loss of $2.4 million.
Adjusted EBITDA per Credit Facility from the Company’s new business initiatives was $0.3 million in the year ended December 31, 2017 as compared to negative Adjusted EBITDA per Credit Facility of $8.0 million and $6.1 million in the year ended December 31, 2016 and 2015, respectively.
Other
Film distribution and post-production revenues was $13.2 million in the year ended December 31, 2017, as compared to $14.1 million in the year ended December 31, 2016. In 2017 revenues from post-production was almost double that of 2016 due to work performed onDunkirk, which was mostly offset by a decrease in film distribution revenue. The film distribution and post-production segments experienced a gross loss of $1.0 million in the year ended December 31, 2017 as compared to a loss of $0.2 million in the year ended December 31, 2016. The Company reviewed the carrying value of certain documentary film assets as a result of lower than expected revenue being generated during the year and revised expectations for future revenues based on the latest information available. In 2017, an impairment of $5.3 million was recorded based on the carrying value of these documentary films as compared to the related estimated future box office and revenues that would ultimately be generated by these films.
Film distribution and post-production revenues increased 29.1% to $14.1 million in 2016 from $10.9 million in 2015, primarily due to an increase in film distribution revenue from IMAX original films. The year ended December 31, 2016, includes the release of two IMAX original productions,A Beautiful Planetand Voyage of Time, whereas no original films were released in 2015. Gross margin was a loss of $0.2 million in 2016 as compared to $1.1 million in 2015, primarily due to a charge against film assets of $3.0 million in 2016, to reflect the carrying value of certain documentary film assets that exceeded the expected revenues generated from estimated futurebox-office. No similar charge was recorded in 2015. This was partially offset by revenue earned from the release of the two IMAX original productions in 2016 as discussed above.
Other revenue decreased to $4.9 million in the year ended December 31, 2017, as compared to $7.9 million in the year ended December 31, 2016 and $7.1 million in 2015. Other revenue primarily includes revenue generated from the Company’s theater operations and camera rental business. The decrease in revenue is primarily the result of two IMAX owned and operational theaters in the year ended December 31, 2017, as compared to three such theaters in the prior years comparative period.
The gross margin recognized from other revenue was a loss of $0.9 million in the year ended December 31, 2017, as compared to loss of $0.3 million in the year ended December 31, 2016 and loss of $1.8 million in 2015 due to the performance of the owned and operated theaters and the lower revenues from camera rentals.
Selling, General and Administrative Expenses
In conjunction with the Company’s restructuring and cost-savings initiatives, selling, general and administrative expenses decreased to $110.4 million in 2017, as compared to $124.7 million in 2016. Selling, general and administrative expenses excluding the impact of stock-based compensation were $90.0 million in 2017, as compared to $94.2 million in 2016.
Selling, general and administrative expenses increased to $124.7 million in 2016, as compared to $115.3 million in 2015. Selling, general and administrative expenses excluding the impact of stock-based compensation were $94.2 million in 2016, as compared to $93.4 million in 2015.
The following reflects the significant items impacting selling, general and administrative expensescash flows for the years ended December 31, 2017, 20162023 and 2015:
2017 | 2016 | 2015 | 2017 versus 2016 | 2016 versus 2015 | ||||||||||||||||||||||||
Stock-based compensation | $ | 20,393 | $ | 30,523 | $ | 21,880 | $ | (10,130 | ) | (33.2 | )% | $ | 8,643 | 39.5 | % | |||||||||||||
Staff costs | 58,284 | 60,659 | 57,046 | (2,375 | ) | (3.9 | )% | 3,613 | 6.3 | % | ||||||||||||||||||
Foreign exchange (gain) loss | (954 | ) | 859 | 2,373 | (1,813 | ) | (211.1 | )% | (1,514 | ) | (63.8 | )% | ||||||||||||||||
Other general corporate expenditures | 32,677 | 32,704 | 34,046 | (27 | ) | (0.1 | )% | (1,342 | ) | (3.9 | )% | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total | $ | 110,400 | $ | 124,745 | $ | 115,345 | $ | (14,345 | ) | $ | 9,400 | |||||||||||||||||
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Staff costs presented above are related to the Company’s core business and include salaries and benefits.
The Company’s net foreign exchange gains/losses are related to the translation of foreign currency denominated monetary assets and liabilities.
Other general corporate expenditures include professional fees, travel and entertainment. Selling, general and administrative expenses also includes asset impairment charges and write-offs, if any, and miscellaneous items, other than interest.
Research and Development
Research and development expenses increased to $20.9 million in 2017 compared to $16.3 million in 2016 and $12.7 million in 2015 and are primarily attributable to the continued development2022. A comparison of the Company’s updated laser-based digital projection systemcash flows for the years ended December 31, 2022 and other new business initiatives which commenced2021 is included in 2016, including the development of a VR camera and virtual reality centers.
The Company intends for additional research and development to continue through 2018, as the Company supports further development of an updated laser-based projection system, which is targeted primarily for screenssection entitled “Cash Flows” in commercial multiplexes.
The Company also intends to continue research and development in other areas considered important to the Company’s continued commercial success, including further improving the reliability of its projectors, developing and manufacturing more IMAX cameras, enhancing the Company’s 2D and 3D image quality, expanding the applicabilityItem 7 of the Company’s digital technology, developing IMAX theater systems’ capabilities in both home and live entertainment, improvements toAnnual Report on Form 10-K for the DMR process and the ability to deliver DMR releases digitally to its theater network, without the requirement for hard drives.
Receivable Provisions, Net of Recoveries
Receivable provisions, net of recoveries for accounts receivable and financing receivables amounted to a net provision of $2.6 million in 2017, as compared to $1.0 million in 2016 and $0.8 million in 2015. The higher charge in 2017 as compared to prior years’ is primarily resulting from the deterioration in the financial condition of certain theater exhibitors and studios.
The Company’s accounts receivables and financing receivables are subject to credit risk, as a result of geographical location, exchange rate fluctuations, and other unforeseeable financial difficulties. These receivables are concentrated with the leading theater exhibitors and studios in the film entertainment industry. To minimize the Company’s credit risk, the Company retains title to underlying theater systems leased, performs initial and ongoing credit evaluations of its customers and makes ongoing provisions for its estimate of potentially uncollectible amounts. Accordingly, the Company believes it has adequately protected itself against exposures relating to receivables and contractual commitments.
Asset Impairments and Other Charges
In 2017, the Company identified and wrote off $1.2 million related to a certain loan that is no longer considered collectible. No such charge was recognized in the prior years comparative period.
The Company recorded a charge related to property, plant and equipment of $0.2 million and $0.4 million in 2016 and 2015, respectively, reflecting assets that no longer meet the capitalization requirements. No such charge was recorded in thefiscal year ended December 31, 2016.
In 2016,2022, and is incorporated by reference into this Annual Report on Form 10-K for the Company recognized a $0.2 million other-than-temporary impairment of its investments as the value is not expected to recover based on the length of time and extent to which the market value has been less than cost, as compared to $0.4 million in 2015. No such charge was recorded in thefiscal year ended December 31, 2017.2023.
Interest IncomeOperating Activities
The net cash used in or provided by the Company’s operating activities is affected by a number of factors, including: (i) the level of cash collections from customers in respect of existing IMAX System sale and Expense
Interest income was $1.0 million in 2017, as compared to $1.5 million in 2016 and $1.0 million in 2015.
Interest expense was $1.9 million in 2017, as compared to $1.8 million in 2016 and $1.7 million in 2015. Consistent with its historical financial reporting, the Company has elected to classify interest and penalties related to income tax liabilities, when applicable, as part of the interest expense in its consolidated statements of operations rather than income tax expense. In 2017, 2016 and 2015, the Company recovered less than $0.1 million, respectively, in potential interest and penalties associated with its provision for uncertain tax positions. Also included in interest expense is the amortization of deferred finance costs inlease agreements, (ii) the amount of $0.6 million, $0.5 millionupfront payments collected in respect of IMAX System sale and $1.0 millionlease agreements in 2017, 2016 and 2015, respectively. The Company’s policy is to defer and amortize allbacklog, (iii) the costs relating to debt financing which are paid directly to the debt provider, over the lifebox office performance of the debt instrument.
Exit costs, restructuring charges and associated impairments
Exit costs, restructuring charges and associated impairments were $16.2 million in the year ended December 31, 2017 which is comprised of costs incurred to exit an existing operating lease, employee severance costs, costs of consolidating facilities and contract termination costs. No such charges were incurred in prior years.
Income Taxes
The Company’s effective tax rate differs from the statutory tax rate and varies from year to year primarily as a result of numerous permanent differences, investmentfilms and other tax credits, the provision for income taxes at different rates in foreign and other provincial jurisdictions, enacted statutory tax rate increases or reductions in the year, including the impact of the Tax Cuts and Jobs Act (the “Tax Act”), changes due to foreign exchange, changes in the Company’s valuation allowance based on the Company’s recoverability assessments of deferred tax assets, and favorable or unfavorable resolution of various tax examinations.
The Company recorded income tax expense of $16.8 million for the year-ended December 31, 2017. The effective tax rate for the year of 55.9% was significantly higher than the statutory rate due to the impact of the Tax Act, which was enacted on December 22, 2017content distributed by the U.S. government. The Tax Act makes broadCompany and/or released to IMAX locations, (iv) the level of inventory purchases and complex changes toinvestment in joint revenue sharing arrangements, and (v) the U.S. tax code including, but not limited to reducing the U.S. federal corporate tax rate from 35% to 21%, and imposing other limitations and changes that limit or eliminate various deductions, including interest expense, performance based compensation for certain executives, and other deductions requiring there-measurement of deferred tax assets and liabilities. U.S. GAAP requires that the impact of changes to tax legislation be recognized in the period in which the law was enacted.
On December 22, 2017, the SEC issued Staff Accounting Bulletin (“SAB 118”), which provides guidance on accounting for tax effects of the Tax Act when a company does not have all the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the effect of the changes in the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. While the Company is able to make reasonable estimates of the impact of the reduction in corporate rate and other changes in the legislation on deferred tax assets and liabilities the final impact of the Tax Act may differ from these estimates, due to, among other things, changes in interpretations and assumptions, additional guidance that may be issued by the I.R.S., and actions the Company may take.
The effect of there-measurement on deferred taxes is reflected entirely in the period that includes the enactment date and is allocated directly to income tax expense. As of December 31, 2017, the Company can determine a reasonable estimate of the effects of tax reform and is recording that estimate as a provisional amount. The provisionalre-measurement of the deferred tax assets and liabilities resulted in a $9.3 million discrete tax provision which increased the effective tax rate by 31.1% for the year. The provisionalre-measurement amount may change as data becomes available allowing more accurate scheduling of the deferred tax assets and liabilities.
The Tax Act also includes a number of other changes including: (a) the imposition of aone-time deemed repatriation tax on accumulated foreign earnings (the “Transition Tax”), (b) a 100% dividends received deduction on dividends from foreign affiliates, (c) a current inclusion in U.S. federal taxable income of earnings of foreign affiliates that are determined to be global intangible low taxed income or “GILTI”, (d) creation of the base erosion anti-abuse tax, or “BEAT”, (e) provision for an effective tax rate of 13.125% for certain income derived from outside of the U.S. (referred to as foreign derived intangible income or “FDII”) and, (f) 100% expensing of qualifying fixed assets acquired after September 27, 2017.
Given that the Company is a Canadian based multinational with subsidiary operations in the US and other foreign jurisdictions a number of these changes are not anticipated to impact the Company. The Company does not expect to be subject to the BEAT, Transition Tax or GILTI given its current legal and tax structures. The Company will be eligible to expense qualifying fixed assets acquired after September 27, 2017, and will be impacted by the additional limitations imposed on the deductibility of executive compensation, and does not expect to be adversely impacted by the limitations placed on the deductibility of interest expense. The impact of the Tax Act may differ from this estimate, during theone-year measurement period due to, among other things, further refinementlevel of the Company’s calculations, changes in interpretationsoperating expenses, including expenses for research and assumptions the Company has made, guidance that may be issueddevelopment and actions the Company may take as a result of the Tax Act.new business initiatives.
As a result, no income taxes have been provided for any undistributed foreign earnings, or any additional outside basis differences inherent in these foreign entities, as the Company is a Canadian corporation and these amounts continue to be indefinitely reinvested in foreign operations which are owned directly or indirectly.
As at December 31, 2017, the Company had a gross deferred income tax asset of $30.9 million, against which the Company is carrying a $0.2 million valuation allowance. For the year ended December 31, 2017,2023, the Company recordednet cash provided by the Company’s operating activities totaled $58.6 million, as compared to $17.3 million in the prior year, an income tax provisionimprovement of $16.8$41.3 million. In 2023, the net cash provided by the Company’s operating activities is principally a result of revenue growth attributable to the record box office performance of the films distributed through the IMAX network, revenue from the installation of IMAX Systems and revenue associated with the amendments and renewals of IMAX Systems arrangements. This is partially offset by $20.3 million which includedof variable consideration receivables resulting from incremental sales arrangements, including upgrades and amendments, and change in variable consideration estimate, and $20.4 million of expenditures incurred in connection with the development of Film Assets.
For the year ended December 31, 2022, the net cash inflow from operating activities of $17.3 million was principally a provisionfunction of $1.4the Company’s cash earnings, as well as Financing Receivables, partially offset by the increase in Accounts Receivable of $29.0 million resulting from revenue growth attributable to the strength of the box office performance of the films distributed through the IMAX network during the last quarter of the year and $19.6 million spent in connection with the development of Film Assets.
Investing Activities
For the year ended December 31, 2023, the net cash used in the Company’s investing activities totaled $31.8 million, as compared to $53.3 million in 2022. In 2023, the net cash used in investing activities is driven by $18.0 million invested in equipment contributed to the Company’s joint revenue sharing arrangements with exhibitor customers, $6.5 million related to the purchase of property, plant and equipment, and $8.3 million of intangible assets acquired, principally related to the continued development or purchase of internal use software. The Company considers its provisioninvestment in joint revenue sharing arrangements to be reflective of growth capital expenditures.
In 2022, the net cash used in investing activities is driven by $15.9 million paid for uncertain tax positions. In addition, includedthe acquisition of SSIMWAVE, net of cash and cash equivalents acquired, $19.8 million invested in equipment to be used in the provision for income taxes wasCompany’s joint revenue sharing arrangements with exhibitor customers, $4.7 million invested by IMAX (Shanghai) Culture and Technology Co., Ltd, a $0.6wholly-owned subsidiary of IMAX China, in the movie Mozart from Space (see “Asset Impairment” above), $8.4 million provision for tax shortfalls related to stock-based compensation costs recognizedthe purchase of property, plant and equipment, and $4.4 million of intangible assets acquired, principally related to the development of internal use software.
Capital expenditures, including the Company’s investment in joint revenue sharing arrangements, the purchase of property, plant and equipment, the acquisition of other intangible assets, and investments in films were $53.2 million in 2023 as compared to $57.0 million in 2022. Based on management’s operating plan for 2023, the Company expects to continue to use cash to deploy additional IMAX Systems under joint revenue sharing arrangements.
Financing Activities
For the year ended December 31, 2023, the net cash used in the period,Company’s financing activities totaled $48.5 million, as compared to $58.5 million used by financing activities in the prior year. In 2023, the net cash used in financing activities is principally due to $13.5 million in net repayments of revolving credit facility borrowings, $26.8 million used to repurchase common shares of the Company, $6.5 million in taxes withheld on vested employee equity awards, and the $9.3$1.4 million charge relatingof dividends paid to there-measurement non-controlling interests of IMAX China.
59
In 2022, the net cash used in financing activities is principally due to $83.2 million used to repurchase common shares of the Company ($80.1 million) and IMAX China ($3.0 million), $3.7 million paid to purchase treasury stock for the settlement of RSUs and related taxes, $2.7 million of dividends paid to the non-controlling interests of IMAX China, and $2.3 million in fees paid in relation to the Sixth Amended and Restated Credit Agreement entered into by the Company during the first quarter of 2022, partially offset by $34.3 million in net cash inflow from revolving credit facility borrowings. (Refer to Note 14(b) to Consolidated Financial Statements in Part II, Item 8.)
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2023, the Company’s principal sources of liquidity included: (i) its balances of cash and cash equivalents of $76.2 million; (ii) the anticipated collection of trade accounts receivable, which includes amounts owed under joint revenue sharing arrangements and film remastering agreements with movie studios; (iii) the anticipated collection of financing receivables due in the next 12 months under sale and sales-type lease arrangements for systems currently in operation; and (iv) installment payments expected in the next 12 months under sale and sales-type lease arrangements in backlog. Under the terms of the Company’s US deferred tax assetstypical sale and liabilities givensales-type lease agreements, the enactmentCompany receives substantial cash payments before it completes the performance of its contractual obligations.
In addition, as of December 31, 2023, the Company also had $276.0 million in available borrowing capacity under its Sixth Amended and Restated Credit Agreement, with Wells Fargo Bank, National Association (the “Credit Agreement”), $26.8 million in available borrowing capacity under the IMAX (Shanghai) Multimedia Technology Co., Ltd. (“IMAX Shanghai”) revolving credit facility with the Bank of China (the “Bank of China Facility”), and $28.2 million in available borrowing capacity under IMAX Shanghai’s revolving credit facility with HSBC Bank (China) Company Limited, Shanghai Branch (the “HSBC China Facility”). (Refer to Note 14(a) to Consolidated Financial Statements in Part II, Item 8 for a description of the Tax Act.material terms of the Credit Agreement, the Bank of China Facility, and the HSBC Facility.)
The Company recorded an income tax provisionCompany’s $76.2 million balance of $16.2cash and cash equivalents as of December 31, 2023 (December 31, 2022 — $97.4 million) includes $68.5 million for 2016,in cash held outside of Canada (December 31, 2022 — $79.7 million), of which $1.6$30.0 million is relatedwas held in the People's Republic of China (“PRC”) (December 31, 2022 — $43.7 million). Management reassessed its strategy with respect to a decreasethe most efficient means of deploying the Company’s capital resources globally and determined that historical earnings of certain foreign subsidiaries in its provision for uncertain tax positions and offset by net income tax recoveryexcess of $0.1 million.
amounts required to sustain business operations would no longer be indefinitely reinvested. During the year ended December 31, 2017, after considering all available evidence, both positive2023, $24.0 million of historical earnings from a subsidiary in China were distributed (December 31, 2022 — $27.4 million) and, as a result, $2.4 million of foreign withholding taxes were paid to the relevant tax authorities (December 31, 2022 — $2.7 million). As of December 31, 2023, the Company’s Consolidated Balance Sheets include a deferred tax liability of $12.5 million (December 31, 2022 — $14.9 million) for the applicable foreign withholding taxes associated with the remaining balance of unrepatriated historical earnings that will not be indefinitely reinvested outside of Canada. These taxes will become payable upon the repatriation of any such earnings.
The Company forecasts its future cash flow and short-term liquidity requirements on an ongoing basis. These forecasts are based on estimates and may be materially impacted by factors that are outside of the Company’s control (including recent profits, projected future profitability, backlog, carry forward periods for,the factors described in “Risk Factors” in Part I, Item 1A). As a result, there is no guarantee that these forecasts will come to fruition and utilization of net operating loss carryovers and tax credits, discretionary deductions and other factors) and negative (including cumulative losses in past years and other factors),that the Company concluded that the valuation allowance againstwill be able to fund its operations through cash flows from operations. In particular, the Company’s deferred tax assets was adequate. The remaining $0.2 million balance in the valuation allowance as at December 31, 2017 is primarily attributableoperating cash flows and cash balances will be adversely impacted if management’s projections of future signings and installations of IMAX Systems and box office performance of remastered content distributed to certain U.S. state net operating loss carryovers that may expire without being utilized.
The Company’s Chinese subsidiary has made certain enquiries of the Chinese State Administration of Taxation regarding the potential deductibility of certain stock based compensation for stock options issued by the Chinese subsidiary’s parent company, IMAX China. In addition, Chinese regulatory authorities responsible for capital and exchange controls will need to review and approve the proposed transactions before they can be completed. There may be a requirement for future investment of funds into China in order to secure the deduction. Should the Company proceed, any such future investment would come from existing capital invested in the IMAX China group of companies being redeployed amongst the IMAX China group of companies, including the Chinese subsidiary. The Company is unable to reliably estimate the magnitude of the related tax benefits at this time.network are not realized.
Equity-Accounted Investments
The Company accounts for investments in new business ventures using the guidance of the FASB ASC 323. At December 31, 2017, the equity method of accounting is being utilized for investments with a total carrying value of $nil (December 31, 2016 — $nil). The Company’s accumulated losses in excess of its equity investment were $2.0 million as at December 31, 2017 and $0.5 million as at December 31, 2016, and are classified in Accrued and other liabilities. For the year ended December 31, 2017, gross revenues, cost2023, the Company had $76.2 million balance of revenuecash and cash equivalents and net loss for these investments were $2.5cash provided by the Company’s operating activities of $58.6 million $3.9which improved $41.3 million from 2022. Based on the Company’s current cash balances and $2.5 million, respectively (2016 — $0.6 million, $6.8 millionoperating cash flows, management expects to have sufficient capital and $6.2 million, respectively; 2015 — $nil, $9.3 millionliquidity to fund its anticipated operating needs and $9.1 million, respectively). Thecapital requirements during the next twelve-month period following the date of this report.
60
CONTRACTUAL OBLIGATIONS
Payments to be made by the Company recorded its proportionate shareunder contractual obligations as of the net loss which amounted to $0.7 million for 2017 as compared to $2.3 million in 2016 and $2.4 million in 2015.
Non-Controlling Interests
The Company’s consolidated financial statements include thenon-controlling interest in the net income of IMAX China resulting from the IMAX China Investment and the IMAX China IPO as well as the impact ofnon-controlling interests in its subsidiaries created for the Film Fund and VR Content Fund activity. For the year ended December 31, 2017, the net income attributable2023 are as follows:
|
| Payments Due by Period |
| |||||||||||||||||
(In thousands of U.S. Dollars) |
| Total |
|
| Less Than One Year |
|
| 1 to 3 years |
|
| 3 to 5 years |
|
| Thereafter |
| |||||
Purchase obligations(1) |
| $ | 35,210 |
|
| $ | 33,723 |
|
| $ | 1,192 |
|
| $ | 24 |
|
| $ | 271 |
|
Pension obligations(2) |
|
| 20,298 |
|
|
| — |
|
|
| 20,298 |
|
|
| — |
|
|
| — |
|
Operating lease obligations(3) |
|
| 14,898 |
|
|
| 2,740 |
|
|
| 5,026 |
|
|
| 4,965 |
|
|
| 2,167 |
|
Finance lease obligations |
|
| 518 |
|
|
| 518 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Wells Fargo Facility |
|
| 24,000 |
|
|
| 24,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Federal Economic Development Loan(4) |
|
| 3,200 |
|
|
| 965 |
|
|
| 2,235 |
|
|
| — |
|
|
| — |
|
Convertible Notes(5) |
|
| 232,875 |
|
|
| 1,150 |
|
|
| 231,725 |
|
|
| — |
|
|
| — |
|
Postretirement benefits obligations |
|
| 2,489 |
|
|
| 106 |
|
|
| 221 |
|
|
| 228 |
|
|
| 1,934 |
|
|
| $ | 333,488 |
|
| $ | 63,202 |
|
| $ | 260,697 |
|
| $ | 5,217 |
|
| $ | 4,372 |
|
Pension Plan
be made under binding commitments with suppliers and outstanding payments to be made for supplies ordered, but yet to be invoiced.
$20.3 million. The components of net periodic benefit cost were as follows:
Years ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Interest cost | $ | 427 | $ | 261 | $ | 253 | ||||||
|
|
|
|
|
| |||||||
Pension expense | $ | 427 | $ | 261 | $ | 253 | ||||||
|
|
|
|
|
|
The plan experienced an actuarial gain of $1.0 million during 2017, $0.2 million in 2016, and $0.2 million in 2015 resulting primarily from the continuing change in the Pension Benefit Guaranty Corporation (“PBGC”) published annuity interest rates year-over-year used to determine thetable above assumes that Mr. Gelfond will receive a lump sum payment underof $20.3 million six months after retirement at the plan.
Underend of the term of his current employment agreement, which expires on December 31, 2025, in accordance with the terms of the SERP, if Mr. Gelfond’s employment is terminated other than for cause (as defined in his employment agreement), he is entitled to receive SERP benefits in the form of a lump sum payment. SERP benefit payments to Mr. Gelfond are subject to a deferral for six months after the termination of his employment, at which time Mr. Gelfond will be entitled to receive interest on the deferred amount credited at the applicable federal rate for short-term obligations. Pursuant to an employment agreement dated November 8, 2016, the term of Mr. Gelfond’s employment was extended through December 31, 2019, although Mr. Gelfond has not informed the Company that he intends to retire at that time. Under the terms of the arrangement, no compensation earned beginning(Refer to Note 23 to Consolidated Financial Statements in 2011 is to be included in calculating this entitlementPart II, Item 8.)
Company’s operating leases.
In July 2000, the Company agreed to maintain health benefits for Messrs. Gelfond and Bradley J. Wechsler, the Company’s formerCo-CEO and current Chairman of its Board of Directors, upon retirement. As at December 31, 2017, the Company had an unfunded benefit obligation recorded of $0.7 million (December 31, 2016 — $0.6 million). For the year ended December 31, 2017 the Company contributed and expensed an aggregate of less than $0.1 million (2016 — $0.1 million; 2015 — $0.2 million).
The Company also maintains a deferred compensation retirement plan (the “Retirement Plan”) covering Greg Foster, CEO of IMAX Entertainment and Senior Executive Vice President of the Company. The Company has agreed to make a total contribution of $3.2 million over Mr. Foster’s employment term. The Retirement Plan is subject to a vesting schedule based on continued employment with the Company, such that 25% will vest July 2019; 50% will vest July 2022; 75% will vest July 2025; and Mr. FosterFederal Economic Development Loan will be 100% vestedrepayable over 36 months, with repayments estimated to begin in July 2027. As at December 31, 2017, the Company had an unfunded benefit obligation recorded of $1.0 million (December 31, 2016 - $0.5 million). During 2017, the Company contributed and expensed an aggregate of $0.7 million (2016 — $0.5 million).
Stock-Based Compensation
January 2024. (Refer to Note 14(b) to Consolidated Financial Statements in Part II, Item 8.)
Stock-based compensation expense recognized under FASB ASC 718, “Compensation – Stock Compensation” (“ASC 718”) for 2017, 2016 and 2015 was $23.0 million, $30.5 million and $21.9 million, respectively. The following reflects the Company’s stock-based compensation expense recorded to the respective financial statement line items in 2017:
2017 | ||||
Cost and expenses applicable to revenues | $ | 1,704 | ||
Selling, general and administrative expenses | 20,393 | |||
Research and development | 556 | |||
Exit costs, restructuring charges and associated impairments | 357 | |||
|
| |||
$ | 23,010 | |||
|
|
In 2016 and 2015, all stock-based compensation expense was recorded in selling, general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
Credit Facility
The Company maintains a senior secured credit facility (the “Credit Facility”) with a maximum borrowing capacity of $200.0 million and a scheduled maturity of March 3, 2020. The Credit Facility is collateralized by a first priority security interest in substantially all of the present and future assets of the Company and the Guarantors. Certain of the Company’s subsidiaries serve as guarantors (the “Guarantors”) of the Company’s obligations under the Credit Facility.
The terms of the Credit Facility are set forth in the Fourth Amended and Restated Credit Agreement (the “Credit Agreement”), dated March 3, 2015, among the Company, the Guarantors, the lenders named therein, Wells Fargo Bank, National Association (“Wells Fargo”), as agent and issuing lender (Wells Fargo, together with the lenders named therein, the “Lenders”) and Wells Fargo Securities, LLC, as Sole Lead Arranger and Sole Bookrunner and in various collateral and security documents entered into by the Company and the Guarantors.
Total amounts drawn and available under the Credit Facility at December 31, 2017 were $nil and $200.0 million, respectively (December 31, 2016 – $nil and $200.0 million, respectively).
Under the Credit Facility, the effective interest rate for the year ended December 31, 2017 was nil, as no amounts were outstanding during the period (2016 – nil).
The Credit Agreement provides that the Company is required at all times to satisfy a Minimum Liquidity Test (as defined in the Credit Agreement) of at least $50.0 million. The Company is also required to maintain minimum Adjusted EBITDA per Credit Facility (as defined in the Credit Agreement as EBITDA and referred to herein as Adjusted EBITDA per Credit Facility) of $100.0 million, and a Maximum Total Leverage Ratio (as defined in the Credit Agreement) of 1.75:1.0. The Company was in compliance with all of these requirements at December 31, 2017. The Maximum Total Leverage Ratio was 0.19:1 as at December 31, 2017, where Total Debt (as defined in the Credit Agreement) is the sum of all obligations evidenced by notes, bonds, debentures or similar instruments and was $25.7 million. Adjusted EBITDA per Credit Facility is calculated as follows:
Adjusted EBITDA per Credit Facility: | ||||
(In thousands of U.S. Dollars) | ||||
Net income | $12,518 | |||
Add (subtract): | ||||
Provision for income taxes | 16,790 | |||
Interest expense, net of interest income | 915 | |||
Depreciation and amortization, including film asset amortization(1) | 66,245 | |||
|
| |||
EBITDA | $ | 96,468 | ||
Exit costs, restructuring charges and associated impairments | 16,174 | |||
Stock and othernon-cash compensation | 23,718 | |||
Write-downs, net of recoveries including asset impairments and receivable provisions(1) | 24,015 | |||
Loss from equity accounted investments | 703 | |||
|
| |||
Adjusted EBITDA beforenon-controlling interests | 161,078 | |||
Adjusted EBITDA attributable tonon-controlling interests(2) | (22,927 | ) | ||
|
| |||
Adjusted EBITDA per Credit Facility | $ | 138,151 | * | |
|
| |||
Adjusted EBITDA per Credit Facility, excluding impact from “Marvel’s Inhumans” | $ | 126,158 | * | |
|
|
Playa Vista Financing
In 2014, IMAX PV Development Inc., (“PV Borrower”) a wholly-owned subsidiary of the Company, entered into a loan agreement with Wells Fargo to principally fund the costs of development and construction of the Company’s new West Coast headquarters, located in the Playa Vista neighborhood of Los Angeles, California (the “Playa Vista Loan”).
The Playa Vista Loan was fully drawn at $30.0 million and boreConvertible Notes bear interest at a variable interest rate of 0.500% per annum equal to 2.0% aboveon the30-day LIBOR rate. PV Borrower was required to make monthly payments principal of combined principal$230.0 million, payable semi-annually in arrears on April 1 and interest over a10-year term with a lump sum payment at the endOctober 1 of year 10. The Playa Vista Loan is being amortized over 15 years. The Playa Vista Loan will be fully due and payable on October 19, 2025 (the “Maturity Date”), and may be prepaid at any time without premium, but with all accrued interest and other applicable payments.
The Playa Vista Loan is secured by a deed of trust from PV Borrower in favor of Wells Fargo and other documents evidencing and securing the loan, granting a first lien on and security interest in the Playa Vista property and the Playa Vista project, including all improvements to be constructed thereon. The company has also guaranteed Playa Vista Loan.
The Loan Documents contain affirmative, negative and financial covenants (including compliance with the financial covenants of the Company’s outstanding Credit Facility), agreements, representations, warranties, borrowing conditions, and events of default customary for development projects such as the Playa Vista Project.
Total amount drawn under the Playa Vista Loan as at December 31, 2017 was $25.7 million (December 31, 2016 — $27.7 million). Under the Playa Vista Loan, the effective interest rate for December 31, 2017 was 3.14% (December 31, 2016 — 2.52%).
Letters of Credit and Other Commitments
As at December 31, 2017 and 2016, the Company did not have any letters of credit and advance payment guarantees outstanding, under the Credit Facility.
The Company also has a $10.0 million facility for advance payment guarantees and letters of credit through the Bank of Montreal for use solely in conjunction with guarantees fully insured by Export Development Canada (the “Bank of Montreal Facility”). The Bank of Montreal Facility is unsecured and includes typical affirmative and negative covenants, including delivery of annual consolidated financial statements within 120 days of the end of the fiscaleach year. The Bank of Montreal Facility is subjectConvertible Notes will mature on April 1, 2026, unless earlier repurchased, redeemed or converted. (Refer to periodic annual reviews. As at December 31, 2017, the Company did not have any letters of credit and advance payment guarantees outstanding under the Bank of Montreal Facility (December 31, 2016 – $0.1 million).
Cash and Cash Equivalents
As at December 31, 2017, the Company’s principal sources of liquidity included cash and cash equivalents of $158.7 million, the Credit Facility, anticipated collection from trade accounts receivable of $130.5 million including receivables from theaters under joint revenue sharing arrangements and DMR agreements with studios, anticipated collection from financing receivables dueNote 14(b) Consolidated Financial Statements in the next 12 months of $27.0 million and payments expected in the next 12 months on existing backlog deals. As at December 31, 2017, the Company did not have any amount drawn on the Credit Facility (remaining availability of $200.0 million) and the Company had $25.7 million drawn on the Playa Vista Loan. There were no letters of credit and advance payment guarantees outstanding under the Credit Facility and the Bank of Montreal Facility. Cash held outside of North America as at December 31, 2017 was $119.4 million (December 31, 2016 — $117.4 million), of which $32.6 million was held in the People’s Republic of China (“PRC”) (December 31, 2016 — $31.5 million). The Company’s intent is to permanently reinvest these amounts outside of Canada and the Company does not currently anticipate that it will need funds generated from foreign operations to fund North American operations. In the event funds from foreign operations are needed to fund operations in North America and if withholding taxes have not already been previously provided, the Company would be required to accrue and pay these additional withholding tax amounts on repatriation of funds from China to Canada. The Company currently estimates this amount to be $6.9 million.
During the year ended December 31, 2017, the Company’s operations provided cash of $85.4 million. The Company used cash of $73.5 million to fund capital expenditures, to build equipment for use in joint revenue sharing arrangements, to purchase other intangible assets, to invest in new business ventures such as its VR initiatives and to purchase property, plant and equipment. These uses of cash were partially offset by cash provided by operating activities. Based on management’s current operating plan for 2018, the Company expects to continue to use cash to deploy additional theater systems under joint revenue sharing arrangements, to fund DMR agreements with studios, invest in new business ventures and continued share repurchases. Cash flows from joint revenue sharing arrangements are derived from the theaterbox-office and concession revenues and the Company invested directly in the roll out of 105 new theater systems under joint revenue sharing arrangements in the year ending December 31, 2017, of which 86 new theater systems were capitalized by the Company.
The Company completed its previously announced $200.0 million share repurchase program in the second quarter of 2017 by repurchasing 1,736,150 common shares at an average price of $26.57 per share. The retired shares were repurchased for $46.1 million.
In June 2017, the Company announced a number of actions aimed at increasing Company value, including the approval by the Company’s Board of Directors of a new share repurchase program which authorizes the repurchase of up to $200.0 million of its common shares by June 30, 2020. The repurchases may be made either in the open market or through private transactions, subject to market conditions, applicable legal requirements and other relevant factors. The Company has no obligation to repurchase shares and the share repurchase program may be suspended or discontinued by the Company at any time. There were no repurchases of shares under the new share repurchase program during the year.
In addition, the Company has implemented a cost reduction plan with the goal to create annualized cost savings aimed at increasing profitability, operating leverage and free cash flow. For more details see notes 14 and 22 to the accompanying consolidated financial statements inPart II, Item 8 of this 2017 Form10-K.
The Company’s operating cash flow will be adversely affected if management’s projections of future signings for theater systems and film performance, theater installations and film productions are not realized. The Company forecasts its short-term liquidity requirements on a quarterly and annual basis. Since the Company’s future cash flows are based on estimates and there may be factors that are outside of the Company’s control (see “Risk Factors” in Item 1A in the Company’s 2017Form 10-K), there is no guarantee that the Company will continue to be able to fund its operations through cash flows from operations. Under the terms of the Company’s typical sale and sales-type lease agreement, the Company receives substantial cash payments before the Company completes the performance of its obligations. Similarly, the Company receives cash payments for some of its film productions in advance of related cash expenditures. Based on the Company’s cash flow from operations and facilities, it expects to have sufficient capital and liquidity to fund its operations in the normal course for the next 12 months.
Operating Activities
The Company’s net cash provided by operating activities is affected by a number of factors, including the proceeds associated with new signings of theater system lease and sale agreements in the year, costs associated with contributing systems under joint revenue sharing arrangements, thebox-office performance of films distributed by the Company and/or released to IMAX theaters, increases or decreases in the Company’s operating expenses, including research and development and new business initiatives, and the level of cash collections received from its customers.
Cash provided by operating activities amounted to $85.4 million for the year ended December 31, 2017. Changes in othernon-cash operating assets as compared to December 31, 2016 include:
Changes in other operating liabilities as compared to December 31, 2016 include: a net increase in deferred revenue of $22.9 million related to backlog payments received in the current period, offset by amount relieved from deferred revenue related to theater system installations; a net increase in accounts payable of $4.2 million; and a net decrease of $0.6 million in accrued liabilities, both of which are due to normal operational activity.
Investing Activities
Capital expenditures, including the Company’s investment in joint revenue sharing equipment, purchase of property, plant and equipment, other intangible assets and investments in film assets were $106.6 million in 2017 as compared to $85.3 million in 2016. The Company expects its investment in capital expenditures to remain fairly consistent as the nature of these cash outlays in particular, joint revenue sharing arrangements and film assets, exist to strengthen operational performances.
Net cash used in investing activities amounted to $73.6 million in year ended December 31, 2017, which includes purchases of $24.1 million in property, plant and equipment of which $4.5 million is for the Company’s new business segment assets, an investment in joint revenue sharing equipment of $42.6 million, an investment in new business ventures of $1.6 million and an investment in other intangible assets of $5.2 million, primarily related to expanding the functionality of the Company’s enterprise resource planning system.
Financing Activities
Net cash used in financing activities in the year ended December 31, 2017 amounted to $57.5 million as compared to $125.8 million in the year ended December 31, 2016. In the year ended December 31, 2017, the Company paid $46.1 million for the repurchase of common shares under the Company’s share repurchase program and $25.5 million to purchase treasury stock for the settlement of restricted share units and options. In addition, the Company also made repayments of $2.0 million under the Playa Vista Loan. These cash outlays were offset by $16.7 million received from the issuance of common shares resulting from stock option exercises and a $0.6 million of taxes withheld and paid on vested employee stock awards.
Prior Year Cash Flow Activities
Net cash provided by operating activities amounted to $77.9 million in the year ended December 31, 2016. Changes in othernon-cash operating assets as compared to 2015 included: a net increase of $1.4 million in accounts receivable; a net increase of $4.6 million in financing receivables; a net increase of $3.8 million in inventories; a net increase of $0.1 million in prepaid expenses; and a net increase of $6.7 million in other assets which includes an increase of $5.7 million in prepaid tax and a net increase of $1.0 million in other assets which reflect a change in commissions and other deferred selling expenses. Changes in other operating liabilities as compared to December 31, 2015 included: a net decrease in deferred revenue of $14.7 million related to amounts relieved from deferred revenue due to theater system installations, offset partially by payments received in the current year related to theater systems not yet installed; a net decrease in accounts payable of $3.4 million; and a net increase of $3.9 million in accrued liabilities.
Net cash used in investing activities amounted to $64.9 million in 2016, which included purchases of $15.3 million in property, plant and equipment, an investment in joint revenue sharing equipment of $42.9 million, an investment in new business ventures of $1.9 million and an investment in other intangible assets of $4.8 million.
Net cash provided by financing activities in 2016 amounted to $125.8 million as compared to cash used in financing activities of $204.7 million in 2015. In 2016, the Company paid $116.5 million for the repurchase of common shares under the Company’s share repurchase program and $19.9 million to purchase treasury stock for the settlement of restricted share units and options. In addition, the Company paid $2.4 million of taxes relating to secondary sales and repatriation dividends and $0.5 million of taxes relating to employee stock award vesting. Furthermore, the Company also made $2.0 million in repayments under the Playa Vista Loan. These cash outlays were offset by $13.1 million received from the issuance of common shares resulting from stock option exercises, and $2.5 million received from a capital contribution to the Film Fund made by third parties.
Capital expenditures including the Company’s investment in joint revenue sharing equipment, purchase of property, plant and equipment, net of sales proceeds, other intangible assets and investments in film assets were $85.3 million in the year ended December 31, 2016.
CONTRACTUAL OBLIGATIONS
Payments to be made by the Company under contractual obligations as of December 31, 2017 are as follows:
Payments Due by Fiscal Year | ||||||||||||||||||||
(In thousands of U.S. Dollars) | Total Obligations | 1 year | > 1 - 3 years | > 3 - 5 years | Thereafter | |||||||||||||||
Purchase obligations | $ | 38,055 | $ | 38,055 | $ | — | $ | — | $ | — | ||||||||||
Pension obligations | 20,076 | — | 20,076 | — | — | |||||||||||||||
Operating lease obligations | 24,933 | 6,226 | 5,007 | 2,761 | 10,939 | |||||||||||||||
Playa Vista Loan | 25,667 | 2,000 | 4,000 | 4,000 | 15,667 | |||||||||||||||
Postretirement benefits obligations | 4,569 | 746 | 1,093 | 908 | 1,822 | |||||||||||||||
Other financial commitments | 10,677 | 6,677 | 4,000 | — | — | |||||||||||||||
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$ | 123,977 | $ | 53,704 | $ | 34,176 | $ | 7,669 | $ | 28,428 | |||||||||||
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Pension and Postretirement Obligations
The Company has an unfunded defined benefit pension plan, the SERP, covering Mr. Gelfond. As at December 31, 2017, the Company had an unfunded and accrued projected benefit obligation of approximately $19.0 million (December 31, 2016 — $19.6 million) in respect of the SERP.
Pursuant to an employment agreement dated November 8, 2016, the term of Mr. Gelfond’s employment was extended through December 31, 2019, although Mr. Gelfond has not informed the Company that he intends to retire at that time. Under the terms of the arrangement, no compensation earned beginning in 2011 is to be included in calculating his entitlement under the SERP.
The Company has a postretirement plan to provide health and welfare benefits to Canadian employees meeting certain eligibility requirements. As at December 31, 2017, the Company had an unfunded benefit obligation of $1.7 million (December 31, 2016 — $1.7 million).
In July 2000, the Company agreed to maintain health benefits for Messrs. Gelfond and Bradley J. Wechsler, the Company’s formerCo-CEO and current Chairman of its Board of Directors, upon retirement. As at December 31, 2017, the Company had an unfunded benefit obligation of $0.7 million (December 31, 2016 — $0.6 million).
The Company also maintains a Retirement Plan covering Greg Foster, CEO of IMAX Entertainment and Senior Executive Vice President of the Company. The Company has agreed to make a total contribution of $3.2 million over Mr. Foster’s employment term. The Retirement Plan is subject to a vesting schedule based on continued employment with the Company, such that 25% will vest July 2019; 50% will vest July 2022; 75% will vest July 2025; and Mr. Foster will be 100% vested in July 2027. As at December 31, 2017, the Company had an unfunded benefit obligation recorded of $1.0 million (December 31, 2016 — $0.5 million).
OFF-BALANCE SHEET ARRANGEMENTS
There are currently nooff-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on the Company’s financial condition.
NON-GAAP FINANCIAL MEASURES
GAAP refers to generally accepted accounting principles in the United States of America. In this report, the Company presents financial measures in accordance with GAAP and also on a non-GAAP basis under the SEC regulations. Specifically, the Company presents the following non-GAAP financial measures as supplemental measures of its performance:
Adjusted net income or loss attributable to common shareholders and adjusted net income or loss attributable to common shareholders per basic and diluted share exclude, where applicable: (i) share-based compensation; (ii) COVID-19 government relief benefits; (iii) realized and unrealized investment gains or losses; (iv) transaction-related expenses; and (v) restructuring and executive transition costs, as well as the related tax impact of these adjustments.
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The Company believes that these non-GAAP financial measures are important supplemental measures that allow management and users of the Company’s financial statements to view operating trends and analyze controllable operating performance on a comparable basis between periods without the after-tax impact of share-based compensation and certain unusual items included in net loss attributable to common shareholders. Although share-based compensation is an important aspect of the Company’s employee and executive compensation packages, it is a non-cash expense and is excluded from certain internal business performance measures.
Reconciliations of net income (loss) attributable to common shareholders and the associated per share amounts to adjusted net income (loss) attributable to common shareholders and adjusted net income attributable to common shareholders per basic and diluted share are presented in the table below.
|
| Years Ended December 31, |
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| 2023 |
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| 2022 |
| ||||||||||
(In thousands of U.S. Dollars, except per share amounts) |
| Net Income |
|
| Per Diluted Share |
|
| Net (Loss) |
|
| Per Diluted Share |
| ||||
Net income (loss) attributable to common shareholders |
| $ | 25,335 |
|
| $ | 0.46 |
|
| $ | (22,800 | ) |
| $ | (0.40 | ) |
Adjustments(1): |
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|
|
|
|
|
|
|
|
|
| ||||
Share-based compensation |
|
| 23,184 |
|
|
| 0.42 |
|
|
| 26,382 |
|
|
| 0.46 |
|
Unrealized investment gains |
|
| (558 | ) |
|
| (0.01 | ) |
|
| (70 | ) |
|
| — |
|
Transaction-related expenses(2) |
|
| 3,361 |
|
|
| 0.06 |
|
|
| 1,122 |
|
|
| 0.02 |
|
Restructuring and executive transition costs(3) |
|
| 2,688 |
|
|
| 0.05 |
|
|
| — |
|
|
| — |
|
COVID-19 government relief benefits, net |
|
| — |
|
|
| — |
|
|
| (373 | ) |
|
| (0.01 | ) |
Tax impact on items listed above |
|
| (1,931 | ) |
|
| (0.04 | ) |
|
| (1,054 | ) |
|
| (0.02 | ) |
Adjusted net income(1) |
| $ | 52,079 |
|
| $ | 0.94 |
|
| $ | 3,207 |
|
| $ | 0.06 |
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| |||||
Weighted average shares outstanding - basic |
|
|
|
|
| 54,310 |
|
|
|
|
|
| 56,674 |
| ||
Weighted average shares outstanding - diluted |
|
|
|
|
| 55,146 |
|
|
|
|
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| 57,371 |
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In addition to the non-GAAP financial measures discussed above, management also uses “EBITDA,” as such term is defined in the Credit Agreement, and which is referred to herein as “Adjusted EBITDA per Credit Facility.” As allowed by the Credit Agreement, Adjusted EBITDA per Credit Facility includes adjustments in addition to the exclusion of interest, taxes, depreciation and amortization. Accordingly, this non-GAAP financial measure is presented to allow a more comprehensive analysis of the Company’s operating performance and to provide additional information with respect to the Company’s compliance with its Credit Agreement requirements, when applicable. In addition, the Company believes that Adjusted EBITDA per Credit Facility presents relevant and useful information widely used by analysts, investors and other interested parties in the Company’s industry to evaluate, assess and benchmark the Company’s results.
EBITDA is defined as net income or loss excluding: (i) income tax expense or benefit; (ii) interest expense, net of interest income; (iii) depreciation and amortization, including film asset amortization; and (iv) amortization of deferred financing costs. Adjusted EBITDA per Credit Facility is defined as EBITDA excluding: (i) share-based and other non-cash compensation; (ii) realized and unrealized investment gains or losses; (iii) transaction-related expenses; (iv) restructuring and executive transition costs; and (v) write-downs, net of recoveries, including asset impairments and credit loss expense.
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Reconciliations of net income attributable to common shareholders, which is the most directly comparable GAAP measure, to EBITDA and Adjusted EBITDA per Credit Facility are presented in the table below.
| For the Twelve Months Ended December 31, 2023 |
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| Attributable to |
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| Non-controlling |
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| Less: |
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| Interests and |
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| Attributable to |
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| Attributable to |
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(In thousands of U.S. Dollars) | Common Shareholders |
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| Non-controlling Interests |
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| Common Shareholders |
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Reported net income | $ |
| 33,066 |
|
| $ |
| 7,731 |
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| $ |
| 25,335 |
|
Add (subtract): |
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Income tax expense |
|
| 13,051 |
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| 1,725 |
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| 11,326 |
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Interest expense, net of interest income |
|
| 2,101 |
|
|
|
| (408 | ) |
|
|
| 2,509 |
|
Depreciation and amortization, including film asset amortization |
|
| 60,022 |
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| 5,312 |
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| 54,710 |
|
Amortization of deferred financing costs(1) |
|
| 2,235 |
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|
|
| — |
|
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| 2,235 |
|
EBITDA |
|
| 110,475 |
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|
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| 14,360 |
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|
|
| 96,115 |
|
Share-based and other non-cash compensation |
|
| 24,230 |
|
|
|
| 774 |
|
|
|
| 23,456 |
|
Unrealized investment gains |
|
| (465 | ) |
|
|
| (93 | ) |
|
|
| (372 | ) |
Transaction-related expenses(2) |
|
| 3,569 |
|
|
|
| 208 |
|
|
|
| 3,361 |
|
Write-downs, including asset impairments and credit loss expense |
|
| 3,273 |
|
|
|
| 362 |
|
|
|
| 2,911 |
|
Restructuring and executive transition costs(3) |
|
| 2,946 |
|
|
|
| 258 |
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|
|
| 2,688 |
|
Adjusted EBITDA per Credit Facility | $ |
| 144,028 |
|
| $ |
| 15,869 |
|
| $ |
| 128,159 |
|
The Company cautions users of its financial statements that these non-GAAP financial measures may not be comparable to similarly titled measures reported by other companies. Additionally, the non-GAAP financial measures used by the Company should not be considered in isolation, or as a substitute for, or superior to, the comparable GAAP amounts.
63
Item 7A. Quantitative and Qualitative Factors about Market Risk
The Company is exposed to market risk from foreign currency exchange rates and interest rates, which could affect operating results, financial position and cash flows. Market risk is the potential change in an instrument’s value caused by, for example, fluctuations in interest and currency exchange rates. The Company’s primary market risk exposure is the risk of unfavorable movements in exchange rates between the U.S. dollar,Dollar, the Canadian dollarDollar (“CAD”), and the Chinese Yuan Renminbi.Renminbi (“RMB”). The Company does not use financial instruments for trading or other speculative purposes.
Foreign Exchange Rate Risk
A majority of the Company’s revenue is denominated in U.S. dollarsDollars while a significant portion of its costs and expenses is denominated in Canadian dollars.Dollars. A portion of the Company’s net U.S. dollarDollar cash flows is converted to Canadian dollarsDollars to fund Canadian dollarDollar expenses through the spot market. In addition, IMAX films generate box office in 7590 different countries, and therefore unfavorable exchange rates between applicable local currencies and the U.S. dollarDollar could have an impact on the GBO generated by the Company’s reported gross box officeexhibitor customers and its revenues. The Company has incoming cash flows from its revenue generating theatersIMAX network and ongoing operating expenses in China through its majority-owned subsidiary IMAX (Shanghai) Multimedia Technology Co., Ltd.Shanghai. In Japan, the Company has ongoingYen-denominated operating expenses related to its Japanese operations. Net RenminbiRMB and Japanese Yen cash flows are converted to U.S. dollarsDollars through the spot market. The Company also has cash receipts under leases denominated in Renminbi,RMB, Japanese Yen, British Pound Sterling, Euros and Canadian dollars.Dollars.
The Company manages its exposure to foreign exchange rate risks through the Company’sits regular operating and financing activities and, when appropriate, through the use of derivative financial instruments. These derivative financial instruments are utilized to hedge economic exposures as well as reduce earnings and cash flow volatility resulting from shifts in market rates.
TheCertain of the Company’s PRC subsidiaries IMAX (Shanghai) Multimedia Technology Co., Ltd. and IMAX (Shanghai) Theatre Technology Services Co. Ltd., held approximately RMB 213.0 million Renminbi ($32.6or $30.0 million U.S. dollars) in cash and cash equivalents in the PRC as atof December 31, 20172023 (December 31, 20162022 — 218.2RMB 303.8 million Renminbi or $31.5 million U.S. dollars)$43.6 million) and are required to transact locally in Renminbi.RMB. Foreign currency exchange transactions, including the remittance of any funds into and out of the PRC, are subject to controls and require the approval of the China State AdministrativeAdministration of Foreign Exchange to complete. Any developments relating to the Chinese economy and any actions taken by the ChinaChinese government are beyond the control of the Company,Company; however, the Company monitors and manages its capital and liquidity requirements to ensure compliance with local regulatory and policy requirements. (Refer to “Risk Factors – The Company faces risks in connection with its significant presence in China and the continued expansion of its business there”)
For the year ended December 31, 2017,2023, the Company recorded a foreign exchange net gainloss of $1.0$0.7 million as compared to a foreign exchange net loss of $0.9$3.2 million in 2016,2022, associated with the translation of foreign currency denominated monetary assets and liabilities.liabilities, primarily due to the slower pace of RMB weakening against the U.S. Dollar throughout 2023 compared to 2022. The impact of changes in foreign currency valuations versus the U.S. Dollar led to a decrease in GBO of $30.4 million in 2023 as compared to prior year rates.
The Company has entered into a series of foreign currency forward contracts to manage the Company’s risks associated with the volatility of foreign currencies. TheThese foreign currency forward contracts havemet the criteria required for hedge accounting under the Derivatives and Hedging Topic of the FASB ASC at inception, and continue to meet hedge effectiveness tests as of December 31, 2023, with settlement dates throughout 20182024 and 2019.2025. Foreign currency derivatives are recognized and measured in the balance sheetConsolidated Balance Sheets at fair value. Changes in the fair value (gains(i.e., gains or losses) are recognized in the consolidated statementConsolidated Statements of operationsOperations except for derivatives designated and qualifying as foreign currency cash flow hedging instruments. All foreign currency forward contracts held by theThe Company as at December 31, 2017, are designatedcurrently has cash flow hedging instruments associated with Selling, General and qualify as foreign currency hedging instruments.Administrative Expenses. For foreign currency cash flow hedging instruments related to Selling, General and Administrative Expenses, the effective portion of the gain or loss in a hedge of a forecasted transaction is reported in other comprehensive incomewithin Accumulated Other Comprehensive Loss and reclassified to the consolidated statementsConsolidated Statements of operationsOperations when the forecasted transaction occurs. Any ineffective portion is recognized immediately in the consolidated statementConsolidated Statements of operations. Operations.
The notional value of foreign currency cash flow hedging instruments atthat qualify for hedge accounting as of December 31, 20172023 was $35.2$40.6 million (December 31, 20162022 — $37.8$24.7 million). A gain of $2.5$0.6 million was recorded to Other Comprehensive (Loss) Income with respect to the depreciation/appreciationchange in thefair value of these contracts in 2017 (20162023 (2022 — loss of $1.3 million; 2021 — gain of $1.0 million).$0.5 million ). A gainloss of $0.8$0.9 million was reclassified from Accumulated Other Comprehensive IncomeLoss to selling, generalSelling, General and administrative expensesAdministrative Expenses in 2017 (20162023 (2022 — loss of $3.1$0.6 million; 2021 — gain of $1.7 million). Appreciation, primarily due to the fairly stabilized CAD against the U.S. Dollar through most of 2023 compared to 2022, when the CAD weakened against the U.S. Dollar. In 2023, there were no gains or depreciation onlosses resulting from a change in the classification of certain forward contracts notno longer meeting the requirements for hedge accounting in the Derivativeswere reclassified from Accumulated Other Comprehensive Loss to Selling, General and Hedging TopicAdministrative Expenses (2022 — $nil). The notional value of the FASB Accounting Standards Codification are recorded to selling, general and administrative expenses.forward contracts that do not qualify for hedge accounting as of December 31, 2023 was $nil (December 31, 2022 — $nil).
64
For all derivative instruments, the Company is subject to counterparty credit risk to the extent that the counterparty may not meet its obligations to the Company. To manage this risk, the Company enters into derivative transactions only with major financial institutions.
AtAs of December 31, 2017,2023, the Company’s financing receivablesFinancing Receivables and working capital items denominated in Canadian dollars, Renminbi,Dollars, RMB, Japanese Yen, Euros and Eurosother foreign currencies translated into U.S. dollarsDollars was $90.1 million.$172.7 million, of which $172.5 million was denominated in RMB. Assuming a 10% appreciation or depreciation in foreign currency exchange rates from the quoted foreign currency exchange rates atas of December 31, 2017,2023, the potential change in the fair value of foreign currency-denominated financing receivables and working capital items would have been $9.0$17.3 million. A significant portion of the Company’s selling, general,Selling, General, and administrative expensesAdministrative Expenses is denominated in Canadian dollars.Dollars. Assuming a 1% change appreciation or depreciation in foreign currency exchange rates atas of December 31, 2017,2023, the potential change in the amount of selling, general,Selling, General, and administrative expensesAdministrative Expenses would be $0.1 million for every $10.0 million in Canadian denominated expenditures.$0.2 million.
Interest Rate Risk Management
The Company’s earnings aremay also be affected by changes in interest rates due toand the resulting impact of those changes have on its interest income from cash, and its interest expense from variable-rate borrowings underborrowings.
For the Credit Facility.
As atyear ended December 31, 2017 and 2016 the Company had not drawn down on its Credit Facility.
As at December 31, 2017,2023 the Company had drawn down $25.7$24.0 million on its Playa Vista LoanCredit Facility (December 31, 20162022 — $27.7$25.0 million).
The Company’s largest exposure with respect, $nil on its HSBC China Facility (December 31, 2022 — $12.5 million) and $nil on its Bank of China Facility (December 31, 2022 — $0.4 million), which are all subject to variable rate debt comes from changes in LIBOR. effective interest rates.
The Company hadCompany’s variable rate debt instruments representing 9.8%were $24.0 million as of December 31, 2023 or 37% less than $37.9 million as of December 31 2022. Variable rate debt instruments represented 5% and 12.0%8% of its total liabilities atas of December 31, 20172023 and 2016,2022, respectively. If the interest rates available to the Company increased by 10%, the Company’s interest expense would increase by approximately $0.1$0.2 million and interest income from cash would increase by approximately $0.1$0.2 million. These amounts are determined by considering the impact of the hypothetical interest rates on the Company’s variable rate debt and cash balances atas of December 31, 2017.
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Item 8.Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page | ||||
Report of Independent Registered Public Accounting Firm(PCAOB Firm ID 271) | 67 | |||
Consolidated Balance Sheets as | 70 | |||
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72 | ||||
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75 |
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Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of IMAX Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of IMAX Corporation and its subsidiaries (together, the Company) as of December 31, 20172023 and December 31, 2016,2022, and the related consolidated statements of operations, comprehensive income,income(loss), shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2017,2023, including the related notes and the schedule of valuation and qualifying accounts for each of the three years in the period then ended December 31, 2017 appearing on page 140 (collectively referred to as the consolidated financial statements). We also have audited the entity’sCompany’s internal control over financial reporting as of December 31, 2017,2023, based on criteria established inInternal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the entityCompany as of December 31, 20172023 and December 31, 20162022, and its consolidatedthe results of its operations and its consolidated cash flows for each of the three years in the period ended December 31, 20172023 in conformity with accounting principles generally accepted in the United States of America (US GAAP).America. Also in our opinion, the entityCompany maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2023, based on criteria established inInternal Control -– Integrated Framework (2013) issued by the COSO.
Change in accounting principle
As discussed in note 3 to the consolidated financial statements, the entity changed the manner in which it accounts for the income tax effect of the intra-entity transfers of assets other than inventory in 2017.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’sManagement's Annual Report on Internal Control over Financial Reporting appearing under Item 9A.9A of this Annual Report on Form 10-K. Our responsibility is to express opinions on the entity’sCompany’s consolidated financial statements and on the entity’sCompany’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the entityCompany in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and limitationsLimitations of internal controlInternal Control over financial reportingFinancial Reporting
A Company’scompany’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. An entity’sA company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the entity;company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the entitycompany are being made only in accordance with authorizations of management and directors of the entity;company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the entity’scompany’s assets that could have a material effect on the consolidated financial statements.
67
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition - IMAX Systems
As described in notes 2(o) and 20(a) to the consolidated financial statements, the Company recognized revenue from System Sales related to the IMAX Technology Products and Services segment of $93.3 million for the year ended December 31, 2023 ($65.5 million for the year ended December 31, 2022). Management evaluates whether a system arrangement involves either a sale or a lease of a system, and for those arrangements that are accounted for as a sale of a system, determines the transaction price and the allocation thereof to each separate performance obligation based on estimated standalone selling prices. For arrangements accounted for as a sale of a system, the transaction price allocated to the performance obligation is recognized when the conditions signifying transfer of control have been met. For system arrangements, management applied significant judgement in (i) determining whether the system arrangement related to either a sale or a lease by considering the terms of the arrangement including title to the system equipment and payment consideration; (ii) estimating the transaction price which may include the discounted present value of fixed ongoing payments and variable consideration (such as indexed minimum payment increases and additional payments owed by the customer if certain minimum box office receipt thresholds are exceeded); (iii) allocating the transaction price to each separate performance obligation based on estimated standalone selling prices; and (iv) determining the timing of revenue recognition based on when performance obligations are met.
The principal considerations for our determination that performing procedures relating to the revenue recognition of System Sales is a critical audit matter are that management identified the matter as a critical accounting estimate, and there was significant judgement required by management in (i) determining whether the system arrangement related to a sale or a lease, and based on the type of sale or lease each arrangement represents, whether it falls in the scope of ASC 606 or ASC 842; (ii) estimating the transaction price which may include the discounted present value of fixed ongoing payments and variable consideration; (iii) allocating the transaction price to each separate performance obligation; and (iv) determining the timing of revenue recognition. This in turn led to a high degree of auditor judgement, subjectivity and effort in performing procedures and evaluating audit evidence relating to the revenue recognition of System Sales.
68
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls over management’s review and approval of revenue recognition memoranda produced for each system arrangement which include the determination of the type of system arrangement, the estimate of the transaction price and allocation thereof and the timing of the related revenue recognition. These procedures also included, among others, evaluating the reasonableness of management’s assessment of whether the system arrangement related to either a sale or a lease by considering the contractual terms and conditions of the executed contracts. Procedures were also performed to test management’s process for estimating the transaction price for a sample of contracts with customers, including (i) evaluating the appropriateness of management’s discounted present value method; (ii) testing the completeness, accuracy and relevance of the data used in estimating the transaction price; and (iii) evaluating the reasonableness of significant assumptions used by management, including the discount rate and expected future performance of underlying theatres associated with the arrangement. Evaluating management’s assumption related to the discount rate involved evaluating whether the assumption was reasonable considering consistency with external market data. Evaluating management’s assumption related to expected future performance of underlying theatres associated with the arrangement involved evaluating whether the assumption was reasonable considering the current and past performance of the underlying theatres. Procedures were also performed to test management’s process for allocating the transaction price to each separate performance obligation, including (i) evaluating the appropriateness of management’s method of allocating the transaction price; (ii) testing the completeness, accuracy and relevance of the data used in allocating the transaction price; and (iii) evaluating the reasonableness of significant assumptions used by management, including estimated standalone selling prices. Evaluating management’s assumption related to estimated standalone selling prices involved evaluating whether the assumption was reasonable by comparing the estimate to current and historical transactions. Evaluating the appropriateness of management’s assessment of the timing of revenue recognition involved inspecting the customers’ certificates of acceptance and theatre openings during the year.
/s/ PricewaterhouseCoopers LLP
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Canada
February 27, 2018
Toronto, Canada February 27, 2024 |
We have served as the entity’sCompany’s auditor since 1987, which includes periods before the entityCompany became subject to SEC reporting requirements.
69
CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars)Dollars except share amounts)
|
| As of December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Assets |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 76,200 |
|
| $ | 97,401 |
|
Accounts receivable, net of allowance for credit losses |
|
| 136,259 |
|
|
| 136,142 |
|
Financing receivables, net of allowance for credit losses |
|
| 127,154 |
|
|
| 129,384 |
|
Variable consideration receivables, net of allowance for credit losses |
|
| 64,338 |
|
|
| 44,024 |
|
Inventories |
|
| 31,584 |
|
|
| 31,534 |
|
Prepaid expenses |
|
| 12,345 |
|
|
| 12,343 |
|
Film assets, net of accumulated amortization |
|
| 6,786 |
|
|
| 5,277 |
|
Property, plant and equipment, net of accumulated depreciation |
|
| 243,299 |
|
|
| 252,896 |
|
Investment in equity securities |
|
| — |
|
|
| 1,035 |
|
Other assets |
|
| 20,879 |
|
|
| 15,665 |
|
Deferred income tax assets, net of valuation allowance |
|
| 7,988 |
|
|
| 9,900 |
|
Goodwill |
|
| 52,815 |
|
|
| 52,815 |
|
Other intangible assets, net of accumulated amortization |
|
| 35,022 |
|
|
| 32,738 |
|
Total assets |
| $ | 814,669 |
|
| $ | 821,154 |
|
Liabilities |
|
|
|
|
|
| ||
Accounts payable |
| $ | 26,386 |
|
| $ | 25,237 |
|
Accrued and other liabilities |
|
| 111,013 |
|
|
| 117,286 |
|
Deferred revenue |
|
| 67,105 |
|
|
| 70,940 |
|
Revolving credit facility borrowings, net of unamortized debt issuance costs |
|
| 22,924 |
|
|
| 36,111 |
|
Convertible notes and other borrowings, net of unamortized discounts and debt issuance costs |
|
| 229,131 |
|
|
| 226,912 |
|
Deferred income tax liabilities |
|
| 12,521 |
|
|
| 14,900 |
|
Total liabilities |
|
| 469,080 |
|
|
| 491,386 |
|
Commitments, contingencies and guarantees (see Notes 15 and 16) |
|
|
|
|
|
| ||
Non-controlling interests |
|
| 658 |
|
|
| 722 |
|
Shareholders’ equity |
|
|
|
|
|
| ||
Capital stock common shares — no par value. Authorized — unlimited number. |
|
|
|
|
|
| ||
53,260,276 issued and outstanding (December 31, 2022 — 54,148,614 issued and outstanding) |
|
| 389,048 |
|
|
| 376,715 |
|
Other equity |
|
| 185,087 |
|
|
| 185,678 |
|
Statutory surplus reserve |
|
| 3,932 |
|
|
| 3,932 |
|
Accumulated deficit |
|
| (292,845 | ) |
|
| (293,124 | ) |
Accumulated other comprehensive loss |
|
| (12,081 | ) |
|
| (9,846 | ) |
Total shareholders’ equity attributable to common shareholders |
|
| 273,141 |
|
|
| 263,355 |
|
Non-controlling interests |
|
| 71,790 |
|
|
| 65,691 |
|
Total shareholders’ equity |
|
| 344,931 |
|
|
| 329,046 |
|
Total liabilities and shareholders’ equity |
| $ | 814,669 |
|
| $ | 821,154 |
|
As at December 31, | ||||||||
2017 | 2016 | |||||||
Assets | ||||||||
Cash and cash equivalents | $ | 158,725 | $ | 204,759 | ||||
Accounts receivable, net of allowance for doubtful accounts of $1,613 (December 31, 2016 — $1,250) | 130,546 | 96,349 | ||||||
Financing receivables (notes 4 and 19(c)) | 129,494 | 122,125 | ||||||
Inventories (note 5) | 30,788 | 42,121 | ||||||
Prepaid expenses | 7,549 | 6,626 | ||||||
Film assets (note 6) | 5,026 | 16,522 | ||||||
Property, plant and equipment (note 7) | 276,781 | 245,415 | ||||||
Other assets (notes 8 and 19(e)) | 26,757 | 33,195 | ||||||
Deferred income taxes (note 9) | 30,708 | 20,779 | ||||||
Other intangible assets (note 10) | 31,211 | 30,416 | ||||||
Goodwill | 39,027 | 39,027 | ||||||
|
|
|
| |||||
Total assets | $ | 866,612 | $ | 857,334 | ||||
|
|
|
| |||||
Liabilities | ||||||||
Bank indebtedness (note 11) | $ | 25,357 | $ | 27,316 | ||||
Accounts payable | 24,235 | 19,990 | ||||||
Accrued and other liabilities (notes 6, 12, 13, 14(c), 19(b), 19(d), 20 and 22) | 100,140 | 93,208 | ||||||
Deferred revenue | 113,270 | 90,266 | ||||||
|
|
|
| |||||
Total liabilities | 263,002 | 230,780 | ||||||
|
|
|
| |||||
Commitments and contingencies (notes 12 and 13) | ||||||||
Non-controlling interests (note 21) | 1,353 | 4,980 | ||||||
|
|
|
| |||||
Shareholders’ equity | ||||||||
Capital stock (note 14) common shares — no par value. Authorized — unlimited number. 64,902,201 — issued and 64,695,550 — outstanding (December 31, 2016 — 66,224,467 — issued and 66,159,902 — outstanding) | 445,797 | 439,213 | ||||||
Less: Treasury stock, 206,651 shares at cost (December 31, 2016 — 64,565) | (5,133 | ) | (1,939 | ) | ||||
Other equity | 175,300 | 177,304 | ||||||
Accumulated deficit | (87,592 | ) | (47,366 | ) | ||||
Accumulated other comprehensive loss | (626 | ) | (5,200 | ) | ||||
|
|
|
| |||||
Total shareholders’ equity attributable to common shareholders | 527,746 | 562,012 | ||||||
Non-controlling interests (note 21) | 74,511 | 59,562 | ||||||
|
|
|
| |||||
Total shareholders’ equity | 602,257 | 621,574 | ||||||
|
|
|
| |||||
Total liabilities and shareholders’ equity | $ | 866,612 | $ | 857,334 | ||||
|
|
|
|
(See the accompanying notes, which are an integral part of these consolidated financial statements)Consolidated Financial Statements)
70
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of U.S. dollars,Dollars, except per share amounts)
Years Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Revenues | ||||||||||||
Equipment and product sales (note 15(c)) | $ | 103,294 | $ | 122,382 | $ | 118,937 | ||||||
Services (note 15(c)) | 195,594 | 166,862 | 161,964 | |||||||||
Rentals (note 15(c)) | 72,281 | 77,315 | 83,651 | |||||||||
Finance income | 9,598 | 9,500 | 9,112 | |||||||||
Other (note 15(a)) | — | 1,275 | 141 | |||||||||
|
|
|
|
|
| |||||||
380,767 | 377,334 | 373,805 | ||||||||||
|
|
|
|
|
| |||||||
Costs and expenses applicable to revenues (note 2(m)) | ||||||||||||
Equipment and product sales | 48,172 | 69,680 | 63,635 | |||||||||
Services (note 15(c)) | 120,629 | 83,780 | 70,855 | |||||||||
Rentals | 26,720 | 21,086 | 20,027 | |||||||||
Other | — | 110 | — | |||||||||
|
|
|
|
|
| |||||||
195,521 | 174,656 | 154,517 | ||||||||||
|
|
|
|
|
| |||||||
Gross margin | 185,246 | 202,678 | 219,288 | |||||||||
Selling, general and administrative expenses (note 15(b)) (including share-based compensation expense of $20.4 million, $30.5 million and $21.9 million for 2017, 2016 and 2015, respectively) | 110,400 | 124,745 | 115,345 | |||||||||
Research and development | 20,855 | 16,315 | 12,730 | |||||||||
Amortization of intangibles | 3,019 | 2,079 | 1,860 | |||||||||
Receivable provisions, net of recoveries (note 16) | 2,647 | 954 | 752 | |||||||||
Asset impairments (notes 7 and 19(e)) | 1,225 | 417 | 830 | |||||||||
Exit costs, restructuring charges and associated impairments (note 22) | 16,174 | — | — | |||||||||
|
|
|
|
|
| |||||||
Income from operations | 30,926 | 58,168 | 87,771 | |||||||||
Interest income | 1,027 | 1,490 | 968 | |||||||||
Interest expense | (1,942 | ) | (1,805 | ) | (1,661 | ) | ||||||
|
|
|
|
|
| |||||||
Income from operations before income taxes | 30,011 | 57,853 | 87,078 | |||||||||
Provision for income taxes | (16,790 | ) | (16,212 | ) | (20,052 | ) | ||||||
Loss from equity-accounted investments, net of tax | (703 | ) | (2,321 | ) | (2,402 | ) | ||||||
|
|
|
|
|
| |||||||
Net income | 12,518 | 39,320 | 64,624 | |||||||||
Less: net income attributable tonon-controlling interests (note 21) | (10,174 | ) | (10,532 | ) | (8,780 | ) | ||||||
|
|
|
|
|
| |||||||
Net income attributable to common shareholders | $ | 2,344 | $ | 28,788 | $ | 55,844 | ||||||
|
|
|
|
|
| |||||||
Net income per share attributable to common shareholders - basic and diluted: (note 14(d)) |
| |||||||||||
Net income per share — basic | $ | 0.04 | $ | 0.43 | $ | 0.79 | ||||||
|
|
|
|
|
| |||||||
Net income per share — diluted | $ | 0.04 | $ | 0.42 | $ | 0.78 | ||||||
|
|
|
|
|
|
|
| Years Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Revenues |
|
|
|
|
|
|
|
|
| |||
Technology sales |
| $ | 100,792 |
|
| $ | 69,158 |
|
| $ | 66,153 |
|
Image enhancement and maintenance services |
|
| 189,752 |
|
|
| 161,379 |
|
|
| 131,148 |
|
Technology rentals |
|
| 75,566 |
|
|
| 61,786 |
|
|
| 46,790 |
|
Finance income |
|
| 8,729 |
|
|
| 8,482 |
|
|
| 10,792 |
|
|
| 374,839 |
|
|
| 300,805 |
|
|
| 254,883 |
| |
Costs and expenses applicable to revenues |
|
|
|
|
|
|
|
|
| |||
Technology sales |
|
| 46,756 |
|
|
| 37,610 |
|
|
| 37,039 |
|
Image enhancement and maintenance services |
|
| 88,056 |
|
|
| 81,834 |
|
|
| 58,062 |
|
Technology rentals |
|
| 25,686 |
|
|
| 25,006 |
|
|
| 25,376 |
|
|
| 160,498 |
|
|
| 144,450 |
|
|
| 120,477 |
| |
Gross margin |
|
| 214,341 |
|
|
| 156,355 |
|
|
| 134,406 |
|
Selling, general and administrative expenses |
|
| 144,406 |
|
|
| 138,043 |
|
|
| 117,322 |
|
Research and development |
|
| 10,110 |
|
|
| 5,300 |
|
|
| 6,944 |
|
Amortization of intangible assets |
|
| 4,578 |
|
|
| 4,829 |
|
|
| 4,877 |
|
Credit loss expense (reversal), net |
|
| 1,759 |
|
|
| 8,547 |
|
|
| (3,951 | ) |
Asset impairments |
|
| 144 |
|
|
| 4,470 |
|
|
| — |
|
Legal judgment and arbitration awards |
|
| — |
|
|
| — |
|
|
| (1,770 | ) |
Restructuring and executive transition costs |
|
| 2,946 |
|
|
| — |
|
|
| — |
|
Income (loss) from operations |
|
| 50,398 |
|
|
| (4,834 | ) |
|
| 10,984 |
|
Realized and unrealized investment gains |
|
| 465 |
|
|
| 70 |
|
|
| 5,340 |
|
Retirement benefits non-service expense |
|
| (411 | ) |
|
| (556 | ) |
|
| (463 | ) |
Interest income |
|
| 2,486 |
|
|
| 1,428 |
|
|
| 2,218 |
|
Interest expense |
|
| (6,821 | ) |
|
| (5,877 | ) |
|
| (7,092 | ) |
Income (loss) before taxes |
|
| 46,117 |
|
|
| (9,769 | ) |
|
| 10,987 |
|
Income tax expense |
|
| (13,051 | ) |
|
| (10,108 | ) |
|
| (20,564 | ) |
Net income (loss) |
|
| 33,066 |
|
|
| (19,877 | ) |
|
| (9,577 | ) |
Net income attributable to non-controlling interests |
|
| (7,731 | ) |
|
| (2,923 | ) |
|
| (12,752 | ) |
Net income (loss) attributable to common shareholders |
| $ | 25,335 |
|
| $ | (22,800 | ) |
| $ | (22,329 | ) |
|
|
|
|
|
|
|
|
|
| |||
Net income (loss) per share attributable to common shareholders: |
| |||||||||||
Basic |
| $ | 0.47 |
|
| $ | (0.40 | ) |
| $ | (0.38 | ) |
Diluted |
| $ | 0.46 |
|
| $ | (0.40 | ) |
| $ | (0.38 | ) |
Weighted average shares outstanding (in thousands): |
|
|
|
|
|
|
|
|
| |||
Basic |
|
| 54,310 |
|
|
| 56,674 |
|
|
| 59,126 |
|
Diluted |
|
| 55,146 |
|
|
| 56,674 |
|
|
| 59,126 |
|
(See the accompanying notes, which are an integral part of these consolidated financial statements)Consolidated Financial Statements)
71
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands of U.S. dollars)Dollars)
Years Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Net income | $ | 12,518 | $ | 39,320 | $ | 64,624 | ||||||
|
|
|
|
|
| |||||||
Unrealized defined benefit plan actuarial gain (note 20(a)) | 1,004 | 159 | 180 | |||||||||
Unrealized postretirement benefit plans actuarial gain (notes 20(c) and 20(d)) | 125 | 184 | 79 | |||||||||
Amortization of postretirement benefit plan actuarial loss (note 20(c)) | — | 69 | 135 | |||||||||
Unrealized net gain (loss) from cash flow hedging instruments (note 19(d)) | 2,545 | 1,049 | (5,881 | ) | ||||||||
Realization of cash flow hedging net (gain) loss upon settlement (note 19(d)) | (824 | ) | 3,078 | 3,217 | ||||||||
Foreign currency translation adjustments (note 2) | 3,618 | (2,851 | ) | (2,121 | ) | |||||||
|
|
|
|
|
| |||||||
Other comprehensive income (loss), before tax | 6,468 | 1,688 | (4,391 | ) | ||||||||
Income tax (expense) benefit related to other comprehensive income (loss) (note 9(h)) | (746 | ) | (1,180 | ) | 511 | |||||||
|
|
|
|
|
| |||||||
Other comprehensive income (loss), net of tax | 5,722 | 508 | (3,880 | ) | ||||||||
|
|
|
|
|
| |||||||
Comprehensive income | 18,240 | 39,828 | 60,744 | |||||||||
Less: Comprehensive income attributable tonon-controlling interests | (11,322 | ) | (8,797 | ) | (9,196 | ) | ||||||
|
|
|
|
|
| |||||||
Comprehensive income attributable to common shareholders | $ | 6,918 | $ | 31,031 | $ | 51,548 | ||||||
|
|
|
|
|
|
|
| Years Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Net income (loss) |
| $ | 33,066 |
|
| $ | (19,877 | ) |
| $ | (9,577 | ) |
Other comprehensive (loss) income, before tax |
|
|
|
|
|
|
|
|
| |||
Unrealized defined benefit plan actuarial (loss) gain |
|
| (75 | ) |
|
| 2,901 |
|
|
| 132 |
|
Unrealized postretirement benefit plans actuarial (loss) gain |
|
| (37 | ) |
|
| 754 |
|
|
| 140 |
|
Amortization of defined benefit and postretirement benefit plans net gain |
|
| (604 | ) |
|
| — |
|
|
| — |
|
Amortization of prior service cost |
|
| — |
|
|
| 184 |
|
|
| 185 |
|
Unrealized net gain (loss) from cash flow hedging instruments |
|
| 575 |
|
|
| (1,323 | ) |
|
| 468 |
|
Realized net loss (gain) from cash flow hedging instruments |
|
| 892 |
|
|
| 596 |
|
|
| (1,707 | ) |
Reclassification of unrealized gain from ineffective cash flow hedging instruments |
|
| — |
|
|
| — |
|
|
| (318 | ) |
Foreign currency translation adjustments |
|
| (3,907 | ) |
|
| (20,594 | ) |
|
| 3,364 |
|
Total other comprehensive (loss) income, before tax |
|
| (3,156 | ) |
|
| (17,482 | ) |
|
| 2,264 |
|
Income tax (expense) benefit related to other comprehensive income |
|
| (181 | ) |
|
| (818 | ) |
|
| 286 |
|
Other comprehensive (loss) income, net of tax |
|
| (3,337 | ) |
|
| (18,300 | ) |
|
| 2,550 |
|
Comprehensive income (loss) |
|
| 29,729 |
|
|
| (38,177 | ) |
|
| (7,027 | ) |
Comprehensive (income) loss attributable to non-controlling interests |
|
| (6,629 | ) |
|
| 3,004 |
|
|
| (13,763 | ) |
Comprehensive income (loss) attributable to common shareholders |
| $ | 23,100 |
|
| $ | (35,173 | ) |
| $ | (20,790 | ) |
(See the accompanying notes, which are an integral part of these consolidated financial statements)Consolidated Financial Statements)
72
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)Dollars)
Years Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Cash provided by (used in): | ||||||||||||
Operating Activities | ||||||||||||
Net income | $ | 12,518 | $ | 39,320 | $ | 64,624 | ||||||
Adjustments to reconcile net income to cash from operations: | ||||||||||||
Depreciation and amortization (notes 17(c) and 18(a)) | 66,807 | 46,485 | 42,803 | |||||||||
Write-downs, net of recoveries (notes 17(d) and 18(a)) | 29,568 | 5,940 | 3,725 | |||||||||
Change in deferred income taxes | (4,017 | ) | 4,940 | (1,336 | ) | |||||||
Stock and othernon-cash compensation | 24,075 | 31,586 | 22,379 | |||||||||
Unrealized foreign currency exchange (gain) loss | (502 | ) | 462 | 785 | ||||||||
Loss from equity-accounted investments | 306 | 2,685 | 3,838 | |||||||||
Gain onnon-cash contribution to equity-accounted investees | 397 | (364 | ) | (1,436 | ) | |||||||
Investment in film assets | (34,645 | ) | (22,308 | ) | (15,119 | ) | ||||||
Changes in othernon-cash operating assets and liabilities (note 17(a)) | (9,141 | ) | (30,874 | ) | (36,058 | ) | ||||||
|
|
|
|
|
| |||||||
Net cash provided by operating activities | 85,366 | 77,872 | 84,205 | |||||||||
|
|
|
|
|
| |||||||
Investing Activities | ||||||||||||
Purchase of property, plant and equipment | (24,143 | ) | (15,278 | ) | (43,257 | ) | ||||||
Investment in joint revenue sharing equipment | (42,634 | ) | (42,910 | ) | (28,474 | ) | ||||||
Investment in new business ventures | (1,606 | ) | (1,911 | ) | (2,000 | ) | ||||||
Acquisition of other intangible assets | (5,214 | ) | (4,787 | ) | (5,065 | ) | ||||||
|
|
|
|
|
| |||||||
Net cash used in investing activities | (73,597 | ) | (64,886 | ) | (78,796 | ) | ||||||
|
|
|
|
|
| |||||||
Financing Activities | ||||||||||||
Increase in bank indebtedness (note 11) | — | — | 25,290 | |||||||||
Repayment of bank indebtedness (note 11) | (2,000 | ) | (2,000 | ) | (333 | ) | ||||||
Repurchase of common shares | (46,140 | ) | (116,518 | ) | (34,276 | ) | ||||||
Settlement of restricted share units and options | (20,331 | ) | (17,889 | ) | (10,000 | ) | ||||||
Exercise of stock options | 16,668 | 13,113 | 35,609 | |||||||||
Taxes paid on secondary sales and repatriation dividend | — | (2,443 | ) | — | ||||||||
Treasury stock repurchased for future settlement of restricted share units | (5,133 | ) | (1,996 | ) | — | |||||||
Taxes withheld and paid on employee stock awards vested | (600 | ) | (528 | ) | (520 | ) | ||||||
Issuance of subsidiary shares tonon-controlling interests - private offering | — | 2,479 | 40,000 | |||||||||
Share issuance costs from the issuance of subsidiary shares tonon-controlling interests - private offering | — | — | (2,000 | ) | ||||||||
Issuance of subsidiary shares tonon-controlling interests - public offering | — | — | 178,226 | |||||||||
Share issuance expenses - public offering | — | — | (16,257 | ) | ||||||||
Dividends paid tonon-controlling interests | — | — | (9,511 | ) | ||||||||
Credit facility amendment fees paid | — | — | (1,533 | ) | ||||||||
|
|
|
|
|
| |||||||
Net cash (used in) provided by financing activities | (57,536 | ) | (125,782 | ) | 204,695 | |||||||
|
|
|
|
|
| |||||||
Effects of exchange rate changes on cash | (267 | ) | 106 | 842 | ||||||||
|
|
|
|
|
| |||||||
(Decrease) increase in cash and cash equivalents during year | (46,034 | ) | (112,690 | ) | 210,946 | |||||||
Cash and cash equivalents, beginning of year | 204,759 | 317,449 | 106,503 | |||||||||
|
|
|
|
|
| |||||||
Cash and cash equivalents, end of year | $ | 158,725 | $ | 204,759 | $ | 317,449 | ||||||
|
|
|
|
|
|
|
| Years Ended December 31, |
| ||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
|
|
|
|
|
|
|
|
|
|
| |||||
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
| |||
Net income (loss) |
| $ |
| 33,066 |
|
| $ |
| (19,877 | ) |
| $ |
| (9,577 | ) |
Adjustments to reconcile net income (loss) to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
| |||
Depreciation and amortization |
|
|
| 60,022 |
|
|
|
| 56,661 |
|
|
|
| 56,082 |
|
Amortization of deferred financing costs |
|
|
| 2,235 |
|
|
|
| 3,177 |
|
|
|
| 2,513 |
|
Credit loss expense (reversal), net |
|
|
| 1,759 |
|
|
|
| 8,547 |
|
|
|
| (3,951 | ) |
Write-downs, including asset impairments |
|
|
| 1,884 |
|
|
|
| 7,176 |
|
|
|
| 1,764 |
|
Deferred income tax (benefit) expense |
|
|
| (1,447 | ) |
|
|
| (2,073 | ) |
|
|
| 2,996 |
|
Share-based and other non-cash compensation |
|
|
| 24,230 |
|
|
|
| 27,573 |
|
|
|
| 26,079 |
|
Unrealized foreign currency exchange (gain) loss |
|
|
| (212 | ) |
|
|
| 1,108 |
|
|
|
| 256 |
|
Realized and unrealized investment gain |
|
|
| (465 | ) |
|
|
| (70 | ) |
|
|
| (5,340 | ) |
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| |||
Accounts receivable |
|
|
| (1,907 | ) |
|
|
| (29,003 | ) |
|
|
| (52,453 | ) |
Inventories |
|
|
| (285 | ) |
|
|
| (5,529 | ) |
|
|
| 11,451 |
|
Film assets |
|
|
| (20,394 | ) |
|
|
| (19,598 | ) |
|
|
| (14,810 | ) |
Deferred revenue |
|
|
| (3,882 | ) |
|
|
| (11,572 | ) |
|
|
| (6,591 | ) |
Changes in other operating assets and liabilities |
|
|
| (35,989 | ) |
|
|
| 801 |
|
|
|
| (2,354 | ) |
Net cash provided by operating activities |
|
|
| 58,615 |
|
|
|
| 17,321 |
|
|
|
| 6,065 |
|
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
| |||
Purchase of property, plant and equipment |
|
|
| (6,491 | ) |
|
|
| (8,424 | ) |
|
|
| (3,590 | ) |
Investment in equipment for joint revenue sharing arrangements |
|
|
| (18,000 | ) |
|
|
| (19,803 | ) |
|
|
| (10,094 | ) |
Interest in film classified as a financial instrument |
|
|
| — |
|
|
|
| (4,731 | ) |
|
|
| — |
|
Acquisition of other intangible assets |
|
|
| (8,344 | ) |
|
|
| (4,394 | ) |
|
|
| (4,092 | ) |
Proceeds from sale of equity securities |
|
|
| 1,045 |
|
|
|
| — |
|
|
|
| 17,769 |
|
Acquisition of SSIMWAVE Inc., net of cash and cash equivalents acquired |
|
|
| — |
|
|
|
| (15,939 | ) |
|
|
| — |
|
Net cash used in investing activities |
|
|
| (31,790 | ) |
|
|
| (53,291 | ) |
|
|
| (7 | ) |
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
| |||
Proceeds from issuance of convertible notes, net |
|
|
| — |
|
|
|
| — |
|
|
|
| 223,675 |
|
Debt issuance costs related to convertible notes |
|
|
| — |
|
|
|
| — |
|
|
|
| (1,161 | ) |
Purchase of capped calls related to convertible notes |
|
|
| — |
|
|
|
| — |
|
|
|
| (19,067 | ) |
Proceeds from revolving credit facility borrowings |
|
|
| 39,717 |
|
|
|
| 37,871 |
|
|
|
| 3,600 |
|
Repayments of revolving credit facility borrowings |
|
|
| (53,248 | ) |
|
|
| (3,600 | ) |
|
|
| (307,609 | ) |
Proceeds from other borrowings |
|
|
| 322 |
|
|
|
| — |
|
|
|
| — |
|
Repayment of other borrowings |
|
|
| (53 | ) |
|
|
| — |
|
|
|
| — |
|
Credit facility amendment fees paid |
|
|
| (46 | ) |
|
|
| (2,279 | ) |
|
|
| (527 | ) |
Repurchase of common shares, IMAX Corporation |
|
|
| (26,823 | ) |
|
|
| (80,124 | ) |
|
|
| (13,905 | ) |
Repurchase of common shares, IMAX China |
|
|
| (15 | ) |
|
|
| (3,043 | ) |
|
|
| (10,060 | ) |
Taxes withheld and paid on employee stock awards vested |
|
|
| (6,466 | ) |
|
|
| (3,687 | ) |
|
|
| (3,660 | ) |
Common shares issued - stock options exercised |
|
|
| — |
|
|
|
| — |
|
|
|
| 883 |
|
Principal payment under finance lease obligations |
|
|
| (480 | ) |
|
|
| (948 | ) |
|
|
| — |
|
Dividends paid to non-controlling interests |
|
|
| (1,438 | ) |
|
|
| (2,704 | ) |
|
|
| (4,889 | ) |
Net cash used in by financing activities |
|
|
| (48,530 | ) |
|
|
| (58,514 | ) |
|
|
| (132,720 | ) |
Effects of exchange rate changes on cash |
|
|
| 504 |
|
|
|
| 2,174 |
|
|
|
| (1,006 | ) |
Decrease in cash and cash equivalents during year |
|
|
| (21,201 | ) |
|
|
| (92,310 | ) |
|
|
| (127,668 | ) |
Cash and cash equivalents, beginning of year |
|
|
| 97,401 |
|
|
|
| 189,711 |
|
|
|
| 317,379 |
|
Cash and cash equivalents, end of year |
| $ |
| 76,200 |
|
| $ |
| 97,401 |
|
| $ |
| 189,711 |
|
(See the accompanying notes, which are an integral part of these consolidated financial statements)Consolidated Financial Statements)
73
(In thousands of U.S. dollars)Dollars except share amounts)
|
| Years Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Adjustments to capital stock: |
|
|
|
|
|
|
|
|
| |||
Balance, beginning of year |
| $ | 376,715 |
|
| $ | 409,979 |
|
| $ | 407,020 |
|
Change in shares held in treasury |
|
| — |
|
|
| — |
|
|
| 11 |
|
Restricted share units vested, net of shares withheld for employee tax obligations |
|
| 13,701 |
|
|
| 11,597 |
|
|
| 9,833 |
|
Employee stock options exercised, net of shares withheld for employee tax obligations |
|
| — |
|
|
| — |
|
|
| 883 |
|
Grant date fair value of stock options exercised |
|
| — |
|
|
| — |
|
|
| 271 |
|
Average carrying value of repurchased and retired common shares |
|
| (1,368 | ) |
|
| (46,808 | ) |
|
| (8,039 | ) |
Issuance of common shares in acquisition |
|
| — |
|
|
| 1,947 |
|
|
| — |
|
Balance, end of year |
|
| 389,048 |
|
|
| 376,715 |
|
|
| 409,979 |
|
Adjustments to other equity: |
|
|
|
|
|
|
|
|
| |||
Balance, beginning of year |
|
| 185,678 |
|
|
| 174,620 |
|
|
| 188,845 |
|
Amortization of share-based payment expense - stock options |
|
| 93 |
|
|
| 637 |
|
|
| 1,267 |
|
Amortization of share-based payment expense - restricted share units |
|
| 12,502 |
|
|
| 18,952 |
|
|
| 17,116 |
|
Amortization of share-based payment expense - performance stock units |
|
| 8,321 |
|
|
| 8,495 |
|
|
| 5,733 |
|
Restricted share units vested |
|
| (21,074 | ) |
|
| (16,441 | ) |
|
| (14,740 | ) |
Grant date fair value of stock options exercised |
|
| — |
|
|
| — |
|
|
| (271 | ) |
Change in ownership interest related to IMAX China common share repurchases |
|
| (433 | ) |
|
| (585 | ) |
|
| (4,263 | ) |
Purchase of capped calls related to convertible notes |
|
| — |
|
|
| — |
|
|
| (19,067 | ) |
Balance, end of year |
|
| 185,087 |
|
|
| 185,678 |
|
|
| 174,620 |
|
Adjustments to statutory surplus reserve: |
|
|
|
|
|
|
|
|
| |||
Balance, beginning of year |
|
| 3,932 |
|
|
| 3,932 |
|
|
| — |
|
Establishment of statutory surplus reserve, IMAX China |
|
| — |
|
|
| — |
|
|
| 3,932 |
|
Balance, end of period |
|
| 3,932 |
|
|
| 3,932 |
|
|
| 3,932 |
|
Adjustments to accumulated deficit: |
|
|
|
|
|
|
|
|
| |||
Balance, beginning of year |
|
| (293,124 | ) |
|
| (234,975 | ) |
|
| (202,849 | ) |
Net income (loss) attributable to common shareholders |
|
| 25,335 |
|
|
| (22,800 | ) |
|
| (22,329 | ) |
Statutory surplus reserve deducted from retained earnings, IMAX China |
|
| — |
|
|
| — |
|
|
| (3,932 | ) |
Common shares repurchased and retired |
|
| (25,056 | ) |
|
| (35,349 | ) |
|
| (5,865 | ) |
Balance, end of year |
|
| (292,845 | ) |
|
| (293,124 | ) |
|
| (234,975 | ) |
Adjustments to accumulated other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
| |||
Balance, beginning of year |
|
| (9,846 | ) |
|
| 2,527 |
|
|
| 988 |
|
Other comprehensive (loss) income, net of tax |
|
| (2,235 | ) |
|
| (12,373 | ) |
|
| 1,539 |
|
Balance, end of year |
|
| (12,081 | ) |
|
| (9,846 | ) |
|
| 2,527 |
|
Adjustments to non-controlling interests: |
|
|
|
|
|
|
|
|
| |||
Balance, beginning of year |
|
| 65,691 |
|
|
| 73,531 |
|
|
| 70,004 |
|
Net income attributable to non-controlling interests |
|
| 7,793 |
|
|
| 2,959 |
|
|
| 12,753 |
|
Other comprehensive (loss) income, net of tax |
|
| (1,102 | ) |
|
| (5,927 | ) |
|
| 1,011 |
|
Share-based compensation attributable to non-controlling interests |
|
| 428 |
|
|
| 290 |
|
|
| 449 |
|
Establishment of statutory surplus reserve, IMAX China |
|
| — |
|
|
| — |
|
|
| 1,699 |
|
Statutory surplus reserve deducted from IMAX China retained earnings |
|
| — |
|
|
| — |
|
|
| (1,699 | ) |
Dividends paid to non-controlling shareholders of IMAX China |
|
| (1,438 | ) |
|
| (2,704 | ) |
|
| (4,889 | ) |
Change in ownership interest related to IMAX China common share repurchases |
|
| 418 |
|
|
| (2,458 | ) |
|
| (5,797 | ) |
Balance, end of year |
|
| 71,790 |
|
|
| 65,691 |
|
|
| 73,531 |
|
Total Shareholders’ Equity |
| $ | 344,931 |
|
| $ | 329,046 |
|
| $ | 429,614 |
|
Common shares issued and outstanding: |
|
|
|
|
|
|
|
|
| |||
Balance, beginning of year |
|
| 54,148,614 |
|
|
| 58,653,642 |
|
|
| 58,921,008 |
|
Employee stock options exercised |
|
| — |
|
|
| — |
|
|
| 41,613 |
|
Restricted share units and stock option exercises settled from treasury shares purchased on open market |
|
| — |
|
|
| — |
|
|
| 723 |
|
Performance stock units settled with new treasury shares |
|
| 233,306 |
|
|
| — |
|
|
| — |
|
Restricted share units settled with new treasury shares |
|
| 514,383 |
|
|
| 596,277 |
|
|
| 531,629 |
|
Repurchase of common shares |
|
| (1,636,027 | ) |
|
| (5,261,852 | ) |
|
| (841,331 | ) |
Issuance of common shares in acquisition |
|
| — |
|
|
| 160,547 |
|
|
| — |
|
Balance, end of year |
|
| 53,260,276 |
|
|
| 54,148,614 |
|
|
| 58,653,642 |
|
Common Shares Issued and Outstanding | Capital Stock | Other Equity | Accumulated (Deficit) Earnings | Accumulated Other Comprehensive Loss | Non- controlling Interests | Total Shareholders’ Equity | ||||||||||||||||||||||
Balance as at December 31, 2014 | 68,988,050 | $ | 344,862 | $ | 47,319 | $ | (6,259 | ) | $ | (3,147 | ) | $ | — | $ | 382,775 | |||||||||||||
Net income | — | — | — | 64,624 | — | — | 64,624 | |||||||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | — | (4,296 | ) | 416 | (3,880 | ) | |||||||||||||||||||
Net income attributable tonon-controlling interests | — | — | — | (8,780 | ) | — | 9,113 | 333 | ||||||||||||||||||||
Paid-in capital fornon-employee stock options granted | — | — | 81 | — | — | — | 81 | |||||||||||||||||||||
Employee stock options exercised | 1,650,643 | 49,756 | (14,278 | ) | — | — | — | 35,478 | ||||||||||||||||||||
Non-employee stock options exercised | 9,000 | 206 | (75 | ) | — | — | — | 131 | ||||||||||||||||||||
Paid-in capital for employee stock options granted | — | — | 12,225 | — | — | — | 12,225 | |||||||||||||||||||||
Paid-in capital for restricted share units granted | — | — | 8,075 | — | — | — | 8,075 | |||||||||||||||||||||
Restricted share units vested (net of shares withheld for tax) | 25,551 | 626 | (1,151 | ) | — | — | — | (525 | ) | |||||||||||||||||||
Restricted share units vested and issued to employees purchased on open market | — | — | (6,203 | ) | — | — | — | (6,203 | ) | |||||||||||||||||||
Stock options exercises settled from treasury shares purchased on open market | — | — | (3,797 | ) | — | — | — | (3,797 | ) | |||||||||||||||||||
Repurchase of common shares | (1,000,000 | ) | (5,390 | ) | — | (28,886 | ) | — | — | (34,276 | ) | |||||||||||||||||
Accretion charges associated with redeemable common stock | — | — | — | (769 | ) | — | — | (769 | ) | |||||||||||||||||||
Utilization of windfall tax benefits from vested restricted share units and expensed stock options | — | — | 529 | — | — | — | 529 | |||||||||||||||||||||
Issuance of subsidiary shares, initial public offering | — | 71,291 | 106,935 | — | — | — | 178,226 | |||||||||||||||||||||
Share issuance expenses, initial public offering | — | (13,041 | ) | (3,216 | ) | — | — | — | (16,257 | ) | ||||||||||||||||||
Dividends paid | — | — | — | — | — | (9,511 | ) | (9,511 | ) | |||||||||||||||||||
Tax impact of sale of subsidiary shares in initial public offering | — | — | (12,450 | ) | — | — | — | (12,450 | ) | |||||||||||||||||||
Reduction innon-controlling interest value upon qualified initial public offering | — | — | 29,100 | — | — | (29,100 | ) | — | ||||||||||||||||||||
Conversion of Class C Shares upon initial public offering | — | — | — | — | — | 79,041 | 79,041 | |||||||||||||||||||||
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| |||||||||||||||
Balance as at December 31, 2015 | 69,673,244 | $ | 448,310 | $ | 163,094 | $ | 19,930 | $ | (7,443 | ) | $ | 49,959 | $ | 673,850 | ||||||||||||||
Retrospective adjustment related to forfeiture rate | — | — | 5,331 | (4,431 | ) | — | — | 900 | ||||||||||||||||||||
Net income | — | — | — | 39,320 | — | — | 39,320 | |||||||||||||||||||||
Other comprehensive income, net of tax | — | — | — | — | 2,243 | (1,735 | ) | 508 | ||||||||||||||||||||
Net income attributable tonon-controlling interests | — | — | — | (10,532 | ) | — | 11,338 | 806 | ||||||||||||||||||||
Paid-in capital fornon-employee stock options granted | — | — | 30 | — | — | — | 30 | |||||||||||||||||||||
Employee stock options exercised | 347,814 | 11,431 | (3,139 | ) | — | — | — | 8,292 | ||||||||||||||||||||
Fair value of stock options exercised at the grant date | — | 3,139 | — | — | — | — | 3,139 | |||||||||||||||||||||
Paid-in capital for employee stock options granted | — | — | 13,766 | — | — | — | 13,766 | |||||||||||||||||||||
Paid-in capital for restricted share units granted | — | — | 16,493 | — | — | — | 16,493 | |||||||||||||||||||||
Restricted share units vested (net of shares withheld for tax) | 52,631 | 1,198 | (14,731 | ) | — | — | — | (13,533 | ) | |||||||||||||||||||
Stock options exercises settled from treasury shares purchased on open market | — | — | (5,224 | ) | — | — | — | (5,224 | ) | |||||||||||||||||||
Cash received from the issuance of common shares in excess of par value | — | — | 1,684 | — | — | — | 1,684 | |||||||||||||||||||||
Repurchase of common shares | (3,849,222 | ) | (24,865 | ) | — | (91,653 | ) | — | — | (116,518 | ) | |||||||||||||||||
Shares held in treasury | (64,565 | ) | (1,939 | ) | — | — | — | — | (1,939 | ) | ||||||||||||||||||
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Balance as at December 31, 2016 | 66,159,902 | $ | 437,274 | $ | 177,304 | $ | (47,366 | ) | $ | (5,200 | ) | $ | 59,562 | $ | 621,574 | |||||||||||||
Retrospective adjustment related to intra-entity transfers | — | — | — | (8,314 | ) | — | — | (8,314 | ) | |||||||||||||||||||
Net income | — | — | — | 12,518 | — | — | 12,518 | |||||||||||||||||||||
Other comprehensive income, net of tax | — | — | — | — | 4,574 | 1,148 | 5,722 | |||||||||||||||||||||
Net income attributable tonon-controlling interests | — | — | — | (10,174 | ) | — | 13,801 | 3,627 | ||||||||||||||||||||
Paid-in capital fornon-employee stock options granted | — | — | 17 | — | — | — | 17 | |||||||||||||||||||||
Employee stock options exercised | 405,229 | 14,652 | (3,542 | ) | — | — | — | 11,110 | ||||||||||||||||||||
Fair value of stock options exercised at the grant date | — | 3,542 | — | — | — | — | 3,542 | |||||||||||||||||||||
Paid-in capital for employee stock options granted | — | — | 5,496 | — | — | — | 5,496 | |||||||||||||||||||||
Paid-in capital for restricted share units granted | — | — | 17,157 | — | — | — | 17,157 | |||||||||||||||||||||
Restricted share units vested (net of shares withheld for tax) | 7,127 | 274 | (14,756 | ) | — | — | — | (14,482 | ) | |||||||||||||||||||
Stock options exercises settled from treasury shares purchased on open market | 66,093 | — | (8,393 | ) | — | — | — | (8,393 | ) | |||||||||||||||||||
Cash received from the issuance of common shares in excess of par value | — | — | 2,017 | — | — | — | 2,017 | |||||||||||||||||||||
Repurchase of common shares | (1,736,150 | ) | (11,884 | ) | — | (34,256 | ) | — | — | (46,140 | ) | |||||||||||||||||
Shares held in treasury | (206,651 | ) | (3,194 | ) | — | — | — | — | (3,194 | ) | ||||||||||||||||||
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Balance as at December 31, 2017 | 64,695,550 | $ | 440,664 | $ | 175,300 | $ | (87,592 | ) | $ | (626 | ) | $ | 74,511 | $ | 602,257 | |||||||||||||
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(TheSee the accompanying notes, which are an integral part of these consolidated financial statements)Consolidated Financial Statements)
74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands of U.S. dollars,Dollars, unless otherwise stated)
1. Description of the Business
IMAX Corporation, together with its consolidated subsidiaries (the “Company” or “IMAX”) is a Canadian corporation that was formed in March 1994 as a result of an amalgamation between WGIM Acquisition Corp. and the former IMAX Corporation (“Predecessor IMAX”). Predecessor IMAX was incorporated in 1967. As of December 31, 2023, IMAX Corporation indirectly owns 71.55% of IMAX China Holding, Inc. (“IMAX China”), whose shares trade on the Hong Kong Stock Exchange. IMAX China is ana consolidated subsidiary of the Company.
IMAX is a premier global technology platform for entertainment and events. Through its proprietary software, auditorium architecture, patented intellectual property, and specialized equipment, IMAX offers a unique end-to-end solution to create superior, immersive content experiences for which the IMAX® brand is globally renowned. Top filmmakers, movie studios, artists, and creators utilize the cutting-edge visual and sound technology company specializingof IMAX to connect with audiences in digitalinnovative ways. As a result, IMAX is among the most important and film-based motion picture technologies, whose principal activities are the:successful global distribution platforms. The Company’s global content portfolio includes blockbuster films, both from Hollywood and local language film industries worldwide; IMAX documentaries, both original and acquired (“IMAX Documentaries”); and IMAX events and experiences in emerging verticals including music, gaming, and sports.
IMAX Systems are based on proprietary and operated by commercialpatented image, audio and institutional customers located in 75 countries as at December 31, 2017;
The Company refers to all theaters using the IMAX theater system as “IMAX theaters.”
The Company’s revenues from equipment and product sales include the sale and sales-type leasing of its theater systems and sales of their associated parts and accessories, contingent rentals on sales-type leases and contingent additional payments on sales transactions.
The Company’s revenues from services include the provision of maintenance and extended warranty services, digitalre-mastering services, film production and film post-production services, film distribution, and the operation of certain theaters.
The Company’s rentals include revenues from the leasing of its theater systems that are operating leases, contingent rentals on operating leases, joint revenue sharing arrangements and the rentalcourse of the Company’s camerashistory since its founding in 1967. The customers for IMAX Systems are principally theatrical exhibitors that operate commercial multiplex theaters, and, camera equipment.to a much lesser extent, museums, science centers and destination entertainment sites. The Company does not own the locations in the IMAX network, except for one, and is not an exhibitor, but instead sells or leases the IMAX System to exhibitor customers along with a license to use its trademarks and ongoing maintenance services.
The Company’s finance income represents interest income arising from the sales-type leasesAs of December 31, 2023, there were 1,772 IMAX Systems operating in 90 countries and financed sales ofterritories, including 1,693 commercial multiplexes, 12 commercial destinations and 67 institutional locations in the Company’s theater systems.global network. This compares to 1,716 IMAX Systems operating in 87 countries and territories as of December 31, 2022 including 1,633 commercial multiplexes, 12 commercial destinations, and 71 institutional locations in the Company’s global network.
The Company’s other revenues includeCompany also distributes large-format documentary films, primarily to institutional theaters, and distributes exclusive IMAX events and experiences. In addition, the settlement of contractual obligations with customers.Company provides film post-production and quality control services for large-format films, whether produced by IMAX or third parties, and digital post-production services.
2. Summary of Significant Accounting Policies
Significant accounting policies are summarized as follows:
The Company prepares its consolidated financial statementsConsolidated Financial Statements in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP.GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The significant accounting policies used by the Company are summarized below.
The All intercompany accounts and transactions have been eliminated. The Company has evaluated its various variable interests to determine whether they are VIEs as required by 75 The Company has December 31, December 31, (In thousands of U.S. Dollars) 2023 2022 Total assets $ 1,425 $ 1,523 Total liabilities $ 246 $ 248 Basisconsolidated financial statementsConsolidated Financial Statements include the accounts of the Company together with its consolidated subsidiaries, except for subsidiaries which the Company hashave been identified as variable interest entities (“VIEs”) where the Company is not the primary beneficiary.the Consolidation Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC” or “Codification”).U.S. GAAP.11 film and content related companies that are VIEs. For five of the Company’sinterests in 10 film production companies, thewhich have been identified as VIEs. The Company has determined that it is the primary beneficiary of and consolidates five of these entities as the Companyit has the power to direct the activities of the respective VIE that most significantly impact the respective VIE’s economic performance of the VIE, and it has the obligation to absorb losses of the VIE that couldpotentially be significant to the respective VIE or the right to receive benefits from the respective VIE that could potentially be significant to the respective VIE.significant. The majority of the assets relating to these consolidated assetsproduction companies are held by the IMAX Original Film Fund (the “Original Film Fund”) and the virtual reality fund (the “VR Fund”) as described in note 21(b)Note 25(b). ForThe Company does not consolidate the other sixfive film production companies which are VIEs, the Company did not consolidate these film entities sincebecause it does not have the power to direct their activities and it does not have the obligation to absorb the majority of the expected losses or the right to receive expected residual returns. The Company uses the equity accountsmethod of accounting for these entities.entities, which are not material to the Company’s Consolidated Financial Statements. A loss in value of an equity method investment that is other than a temporary decline is recognized as a charge toin the consolidated statementsConsolidated Statements of operations.Operations.TotalAs of December 31, 2023 and 2022, total assets and liabilities of the Company’s consolidated VIEs are as follows: December 31, December 31, 2017 2016 $ 7,539 $ 10,346 7,178 6,368
Total assets
December 31, | December 31, | |||||||
2017 | 2016 | |||||||
Total assets | $ | 448 | $ | 444 | ||||
Total liabilities | 388 | 363 |
The Company’s exposure, which is determined based on the level of funding contributed by the Company and the development stage of the respective film, is $nil at December 31, 2017 (2016 — $nil).
The Company accounts for investments in new business ventures using the guidance of the FASB ASC 323 “Investments – Equity Method and Joint Ventures” (“ASC 323”) and ASC 320 “Investments in Debt and Equity Securities” (“ASC 320”), as appropriate.
All intercompany accounts and transactions, including all unrealized intercompany profits on transactions with equity-accounted investees, have been eliminated.
(b) Use of Estimates
The preparation of consolidated financial statements and related disclosures in conformityaccordance with U.S. GAAP requires management to make estimatesjudgments, assumptions, and judgmentsestimates that affect the amounts reported amountsin the Company’s Consolidated Financial Statements and accompanying notes. Management’s judgments, assumptions, and estimates are based on historical experience, future expectations and other factors that are believed to be reasonable as of assets and liabilities and disclosures of contingent assets and liabilities at the date of consolidated financial statementsthe Consolidated Financial Statements. Actual results may ultimately differ from management’s original estimates, as future events and circumstances sometimes do not develop as expected, and the reported amounts of revenues and expenses during the reporting period. Actual results coulddifferences may be materially different from these estimates. material.
Significant estimates made by management include, but are not limited to: selling prices associated with(i) the individual elementsallocation of the transaction price in multiple element arrangements; residual valuesan IMAX System arrangement to distinct performance obligations; (ii) the amount of leased theater systems; economic livesvariable consideration to be earned on sales of leased assets; allowances for potential uncollectabilityIMAX Systems based on projections of future box office performance; (iii) expected credit losses on accounts receivable, financing receivables, and net investment in leases;variable consideration receivables; (iv) provisions for inventory obsolescence; ultimate revenues for film assets; impairment provisions for film assets,the write-down of excess and obsolete inventory; (v) the fair values of the reporting units used in assessing the recoverability of goodwill; (vi) the cash flow projections used in testing the recoverability of long-lived assets and goodwill; depreciablesuch as the IMAX System equipment supporting joint revenue sharing arrangements; (vii) the economic lives of property, plant and equipment;the IMAX System equipment supporting joint revenue sharing arrangements; (viii) the useful lives of intangible assets; (ix) the ultimate revenue forecasts used to test the recoverability of film assets; (x) the discount rates used to determine the present value of financing receivables and lease liabilities, as well as to determine the fair values of the Company’s reporting units for the purpose of assessing the recoverability of goodwill; (xi) pension plan assumptions; accruals for contingencies including tax contingencies;(xii) estimates related to the fair value and projected vesting of share-based payment awards; (xiii) the valuation allowances forof deferred income tax assets; (xiv) reserves related to uncertain tax positions; and estimates(xv) the allocation of the fair valuepurchase price for the acquisition of stock-based payment awards.SSIMWAVE Inc. and its wholly-owned subsidiary (together, “SSIMWAVE”).
Commencing in March 2022, in response to numerous sanctions imposed by the United States, Canada and the European Union on companies transacting in Russia and Belarus resulting from ongoing conflict between Russia and Ukraine, the Company suspended its operations in Russia and Belarus. In 2022, the Company recorded provisions for potential credit losses against substantially all of its receivables in Russia due to uncertainties associated with the ongoing conflict and resulting sanctions. These receivables relate to existing sale agreements as the Company is not party to any joint revenue sharing arrangements in these countries. In addition, exhibitors in Russia, Ukraine, and Belarus were placed on nonaccrual status for maintenance revenue and finance income. In 2023, due to the resumption of operations throughout Ukraine’s theatrical exhibition industry, as evidenced by the reopening of all IMAX Systems in Ukraine and payments received from exhibitor customers therein, the Company recognized maintenance revenue and finance income in connection with those theaters. The Company closely monitors geopolitical conflicts (including any government sanctions imposed in response thereto) and its effects on the global economy and the Company.
76
On September 7, 2022, Cineworld Group plc (“Cineworld”), the parent company of Regal, and certain of its subsidiaries and Regal CineMedia Holdings, LLC, filed petitions for reorganization under Chapter 11 of the United States Bankruptcy Code in the Southern District of Texas. The Court approved Cineworld’s Plan of Reorganization (the “Plan”) on June 28, 2023, in which Cineworld disclosed that it plans to emerge from the Chapter 11 proceedings on or about July 28, 2023. On August 30, 2023, the Company and Cineworld entered into a Joint Stipulation and Agreed Order, which was entered by the Court on September 21, 2023 (the “Stipulation”), pursuant to which Cineworld assumed its global agreement with IMAX (the “Global Agreement”). The Stipulation provides that all amounts owed to IMAX will be paid by Cineworld and set out a revised timetable for all systems installations required of Cineworld under the Global Agreement. Cineworld has emerged from the Chapter 11 proceedings, and the Stipulation finalizes all matters between IMAX and Cineworld as a result of the restructuring. The Company has determined that no additional provision for expected credit losses is required.
The Company considers all highly liquid investments convertible to a known amount of cash and with an original maturity to the Company of three months or less to be cash equivalents.
The Company develops an estimate of expected credit losses by class of receivable and customer type through a calculation that utilizes historical loss rates which are then adjusted for specific receivables that are judged to have a higher-than-normal risk profile after considering management’s internal credit quality classifications, as well as macro-economic and industry risk factors. The write-off of any billed receivable balance requires the approval of management.
(d) Accounts Receivable and Financing Receivables
Allowances(Refer to Note 5 for doubtful accounts receivable are based onmore information related to the Company’s assessment of the collectability of specific customer balances, which is based upon a review of the customer’sreceivables and current expected credit worthiness, past collection history and the underlying asset value of the equipment, where applicable. Interest on overdue accounts receivable is recognized as income as the amounts are collected.losses.)
For trade accounts receivable that have characteristics of both a contractual maturity of one year or less, and arose from the sale of other goods or services, the Company charges off the balance against the allowance for doubtful accounts when it is known that a provided amount will not be collected.
The Company monitors the performance of the theaters to which it has leased or sold theater systems which are subject to ongoing payments. When facts and circumstances indicate that there is a potential impairment in the net investment in lease or a financing receivable, the Company will evaluate the potential outcome of either a renegotiation involving changes in the terms of the receivable or defaults on the existing lease or financed sale agreements. The Company will record a provision if it is considered probable that the Company will be unable to collect all amounts due under the contractual terms of the arrangement or a renegotiated lease amount will cause a reclassification of the sales-type lease to an operating lease.
When the net investment in lease or the financing receivable is impaired, the Company will recognize a provision for the difference between the carrying value in the investment and the present value of expected future cash flows discounted using the effective interest rate for the net investment in the lease or the financing receivable. If the Company expects to recover the theater system, the provision is equal to the excess of the carrying value of the investment over the fair value of the equipment.
When the minimum lease payments are renegotiated and the lease continues to be classified as a sales-type lease, the reduction in payments is applied to reduce unearned finance income.
These provisions are adjusted when there is a significant change in the amount or timing of the expected future cash flows or when actual cash flows differ from cash flow previously expected.
Once a net investment in lease or financing receivable is considered impaired, the Company does not recognize interest income until the collectability issues are resolved. When finance income is not recognized, any payments received are applied against outstanding gross minimum lease amounts receivable or gross receivables from financed sales. Once the collectability issues are resolved, the Company will once again commence the recognition of interest income.
(e) Inventories
Inventories are carried at the lower of cost, determined on an average cost basis, and net realizable value except for raw materials, which are carried at the lower of cost and replacement cost. Finished goods andwork-in-process include includes the cost of raw materials, direct labor, theater design costs, and an applicable share of manufacturing overhead costs.
The costs related to theater systemsIMAX Systems under salessale and sales-type lease arrangements are relievedtransferred from inventoryInventories to costsCosts and expenses applicableExpenses Applicable to revenues-equipment and product salesRevenues – Technology Sales in the period when revenue recognition criteria are met.the sale is recognized in the Consolidated Statements of Operations. The costs related to theater systemsIMAX Systems under operating lease arrangements and joint revenue sharing arrangements are transferred from inventoryInventories to assets under construction in property, plantProperty, Plant and equipmentEquipment when allocated to a signed joint revenue sharing arrangement or when the arrangement is first classified as an operating lease.arrangement.
The Company records provisionswrite-downs for excess and obsolete inventory based upon current estimates ofmanagement’s judgments regarding future events and business conditions, including the anticipated installation dates for the current backlog of theater system contracts, contracts in negotiation, technological developments, signings in negotiation, growth prospects within the customers’ ultimate marketplace and anticipated market acceptance of the Company’s current and pending theater systems.IMAX Systems.
Finished goods inventories can contain theater systemsincludes IMAX Systems for which title has passed to the Company’s customer (asin situations when the theater systemIMAX System has been delivered to the customer)customer, but the criteria for revenue recognition criteriawere not met as discussed in note 2(m) have not been met.of the balance sheet date.
CostsFilm Assets consist of: (i) capitalized costs associated with the digital remastering of producingfilms where the copyright is owned by a third party, including labor and allocated overhead, and (ii) capitalized costs associated with the production of films, including labor, allocated overhead, capitalized interest, and coststhe cost of acquiring film rights are recorded as film assets and accounted for in accordance with Entertainment-Films Topic of the FASB ASC.rights. Production financing provided by third parties that acquire substantive rights in the film is recorded as a reduction of the cost of the production. Film assetsfilm.
Capitalized film costs are amortized and participation costs are accrued to Costs and Expenses Applicable to Revenues using the individual-film-forecast method, which amortizes such costs in the same ratio that current gross revenues bear to current and anticipated futureas the associated ultimate revenues.revenue. Estimates of ultimate revenues are prepared on atitle-by-title basis and reviewed regularly by management and revised where necessary to reflect the most current information. Ultimate revenues for films includereflect management’s estimates of future revenue over a period not to exceed ten10 years following the date of the film’s initial release.
77
Film exploitation costs, including advertising costs, are expensed as incurred.
Costs, including labor and allocated overhead, of digitallyre-mastering films where the copyright is owned by a third party and the Company shares in the revenueThe recoverability of the third party are included in film assets. These costs are amortized using the individual-film-forecast method in the same ratio that current gross revenues bear to current and anticipated future ultimate revenues from there-mastered film.
The recoverability ofCompany’s film assets is dependent upon the commercial acceptance of the films.underlying films and the resulting level of box office results and, in certain situations, ancillary revenues. If events or circumstancesmanagement’s projections of future net cash flows resulting from the exploitation of a film indicate that the recoverable amountcarrying value of athe film asset is less than the unamortized film costs,not recoverable, the film asset is written down to its fair value. The Company determines
Film exploitation costs, including advertising and marketing, are recorded in Costs and Expenses Applicable to Revenues – Image Enhancement and Maintenance Services as incurred, except for those costs that are made after recognizing revenue, which are recorded when the fair value of its film assets using a discounted cash flow model.related revenues are recognized.
Property, plantPlant and equipment areEquipment is recorded at cost and areis depreciated on a straight-line basis over theirthe estimated useful lives of the underlying assets as follows:
IMAX System components(1) | — | Over the equipment’s expected useful life (7 to 20 years) | ||
| — | Over a period between 5 to | ||
| — | Over a period between 20 to | ||
| — | Over a period between 3 to | ||
| — | |||
| Over the shorter of the initial term of the underlying | |||
assured renewal |
Equipment
The cost of IMAX System components and components allocatedrelated equipment expected to be used in future operating leases and joint revenue sharing arrangements, as well asincluding related direct labor costs and an allocation of direct production costs, are included inrecorded within assets under construction until such equipmentthe underlying IMAX System is installed and in working condition, at which time the equipment iscondition. These assets are depreciated to Costs and Expenses Applicable to Revenues on a straight-line basis over the lesser of the term of the joint revenue sharing arrangement and the equipment’s anticipatedexpected useful life. The estimated useful lives of the system components and related equipment used in joint revenue sharing arrangements are reviewed periodically to determine if any adjustments are required.
The Company reviewsProperty, Plant and Equipment is grouped at the carrying values of its property, plantlowest level for which identifiable cash flows are largely independent and equipmentreviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of anthe asset or(or asset group mightgroup) may not be recoverable. Assets are grouped atIn such situations, the lowest level for which identifiable cash flows are largely independentasset (or asset group) is considered impaired when testing for, and measuring for, impairment. In performing its review of recoverability, the Company estimates theestimated future cash flows expected to result(undiscounted and without interest charges) resulting from the use of the asset or(or asset groupgroup) and its eventual disposition. If the sum of the expected undiscounted future cash flows isdisposition are less than the carrying amountvalue of the asset or(or asset group, angroup). In such situations, the asset (or asset group) is written down to its fair value, which is the present value of the estimated future cash flows. Factors that are considered when evaluating such assets for impairment lossinclude a current expectation that it is recognizedmore likely than not that the long-lived asset will be sold significantly before the end of its useful life, a significant decrease in the consolidated statements of operations. Measurement of the impairment loss is based on the excess of the carrying amount of the asset or asset group over the fair value calculated using discounted expected future cash flows.
A liability for the fair value of an asset retirement obligation associated with the retirement of tangible long-lived assets and the associated asset retirement costs are recognized in the period in which the liability and costs are incurred if a reasonable estimate of fair value can be made using a discounted cash flow model. The associated asset retirement costs are capitalized as part of the carrying amountmarket price of the long-lived asset, and subsequently amortized overa significant change in the asset’s useful life. The liabilityextent or manner in which the long-lived asset is accreted overbeing used.
Equity securities with readily determinable fair values are reported at fair value with changes in fair value recorded within Realized and Unrealized Investment Gains (Losses) in the period to expected cash outflows.Consolidated Statements of Operations.
(h)
Other assets includeAssets principally includes lease incentives provided to certain exhibitor customers under joint revenue sharing arrangements classified as an operating lease, as well as sales commissions and other deferred selling costsexpenses that are direct and incrementaldirectly relate to the acquisition of sales contracts,the revenue generating contract and are incremental to the Company’s other expenses. To a much lesser extent, Other Assets also includes various investments insurance recoverable,and foreign currency derivatives, deferred chargesderivatives.
Capitalized lease incentives are amortized on debt financing, and prepaid taxes.
Costs of debt financing are deferred and amortizeda straight-line basis over the term of the debt using the effective interest method.
Selling costs relatedlease and are recorded within Costs and Expenses Applicable to an arrangement incurredRevenues — Technology Rentals. Sales commissions and other selling expenses paid prior to the recognition of the related revenue are deferred and expensedrecognized within Costs and Expenses Applicable to costs and expenses applicable to revenues upon: (i) recognitionRevenues upon the client acceptance of the contract’s theater system revenue;IMAX System or (ii)the abandonment of the sale arrangement.
Foreign currency derivatives are accounted for at fair value using quoted prices in closed exchanges (Level 2 input in accordance withactive markets.
78
In periods when there are no outstanding borrowings under the Fair Value Measurements Topic of the FASB ASC hierarchy).
The Company may provide lease incentives to certain exhibitors whichCompany’s revolving credit facility arrangements, any related debt issuance costs are essential to entering into the respective lease arrangement. Lease incentives include payments made to or on behalf of the exhibitor. These lease incentives are recognized as a reduction in rental revenuerecorded within Other Assets and amortized on a straight-line basis over the term of the lease.
Investments in new business venturesfacility. In periods when there are accounted for using ASC 323 as described in note 2(a). The Company currently accounts for its joint venture investment with TCL Multimedia Technology Holdings Limited (“TCL”), usingoutstanding borrowings under the equity methodCompany’s revolving credit facility arrangements, any related debt issuance costs are reclassified to reduce the principal amount of accounting. The Company accounts forin-kind contributions to its equity investment in accordance with ASC 845“Non-Monetary Transactions” (“ASC 845”) whereby if the fair value of the asset or assets contributed is greater than the carrying valueoutstanding borrowings and amortized on a partial gain shall be recognized.
The Company’s investment in debt securities is classified as anavailable-for-sale investment in accordance with ASC 320. Unrealized holding gains and losses for this investment is excluded from earnings and reported in other comprehensive income until realized. Realization occurs upon sale of a portion of or the entire investment. The investment is impaired if the fair value is less than cost, which is assessed in each reporting period. When the Company intends to sell a specifically identified beneficial interest, a write-down for other-than-temporary impairment shall be recognized in earnings.
The Company’s investment in preferred shares, which meets the criteria for classification as an equity security in accordance with ASC 325, is accounted for at cost. The Company records the related warrants at fair value upon recognition date. Warrants are recognizedstraight-line basis over the term of the agreement.facility. (Refer to Note 14 for information related to the Company’s borrowings.)
(i) Goodwill
Goodwill represents the excess of the purchase price paid over the fair value of net identifiable assets acquired in a purchase business combination. Goodwill is not subject to amortization andamortized, but is tested annually for impairment annually or more frequently if events or circumstances indicate that the asset might be impaired. The Company performs a qualitative assessment of its reporting units and certain select quantitative calculations against its current long-range plan to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount. The Company first assesses certain qualitative factors to determine whether the existence of events or circumstances leads to determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, the Company determines it is not more likely than not that the fair value of a reporting unit is less than its carry amount, then performing thetwo-step impairment test is unnecessary. When necessary, impairment of goodwill is tested at the reporting unit level by comparingin the fourth quarter of the year and between annual tests if indicators of potential impairment exist. These indicators could include a decline in the Company’s stock price and market capitalization, a significant change in the outlook for the reporting unit’sunit's business, including projections of future box office results and IMAX System installations, lower than expected operating results, increased competition, legal factors, or the sale or disposition of a significant portion of a reporting unit. For reporting units with goodwill, an impairment loss is recognized for the amount by which the reporting unit's carrying amount,value, including goodwill, to theexceeds its fair value. The carrying value of theeach reporting unit.unit is based on a systematic and rational allocation of certain assets and liabilities. The fair value of theeach reporting unit is estimatedassessed using a discounted cash flow approach. If the carrying amount of the reporting unit exceeds its fair value, then a second step is performed to measure the amount of impairment loss, if any, by comparing the fair value of each identifiable assetmodel based on management’s current short-term forecast and liabilityestimated long-term projections, against which various sensitivity analyses are performed. The discount rates used in the reporting unit tocash flow model are derived based on the total fair valueCompany’s estimated weighted average cost of capital. These estimates and the reporting unit. Any impairment loss is expensedlikelihood of future changes in the consolidated statementthese estimates depend on a number of operationsunderlying variables and is not reversed if the fair value subsequently increases.a range of possible outcomes.
(j)
Patents, trademarks and other intangiblesOther intangible assets with finite lives are recorded at cost and aregenerally amortized on a straight-line basis over estimated useful lives ranging from 43 to 1020 years, except for intangible assets that have an identifiable pattern of consumption of the economic benefit of the asset, whichasset. Such intangible assets are amortized over the consumption pattern.
Research and development acquired in a business combination is measured at fair value using market-participant assumptions and is initially classified as an indefinite-lived intangible asset. The in-process intangible research and development (“IPR&D”) assets are considered indefinite-lived until the abandonment or completion of the associated research and development efforts. If the acquired IPR&D project is abandoned, the related intangible would be written off or impaired. Once the IPR&D activities are completed, management would determine the useful lives and the methods of amortization of the related intangible assets.
The Company reviewscapitalizes costs associated with internally developed and/or purchased software systems for internal use that have reached the carrying valuesapplication development stage. Capitalized costs include external direct costs of materials and services utilized in developing or obtaining internal-use software and payroll and payroll-related expenses for employees who are directly associated with and allocate time to the internal-use software project. Capitalization of such costs begins when the preliminary project stage is complete and ceases no later than the point at which the project is substantially complete and ready for its other intangible assets for impairment whenever events or changes in circumstances indicate thatintended purpose. Costs incurred during the carrying amount of an asset or asset group might not be recoverable.preliminary project and post-implementation stages are charged to expense. These capitalized costs are amortized on a straight-line basis over the estimated useful life.
Intangible Assets are grouped at the lowest level for which identifiable cash flows are largely independent and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset (or asset group) may not be recoverable. In such situations, the asset (or asset group) is considered impaired when testing for, and measuring for, impairment. In performing its review for recoverability, the Company estimates theestimated future cash flows expected to result(undiscounted and without interest charges) resulting from the use of the asset or(or asset groupgroup) and its eventual disposition. If the sum of the expected undiscounted future cash flows isdisposition are less than the carrying amountvalue of the asset or(or asset group, angroup). In such situations, the asset (or asset group) is written down to its fair value, which is the present value of the estimated future cash flows. Factors that are considered when evaluating intangible assets for impairment lossinclude a current expectation that it is recognizedmore likely than not that the intangible asset will be sold significantly before the end of its useful life, a significant decrease in the consolidated statement of operations. Measurementmarket price of the impairment lossintangible asset, and a significant change in the extent or manner in which the intangible asset is based onbeing used.
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In instances where the excessCompany receives consideration prior to satisfying its performance obligations, the recognition of revenue is deferred. The majority of the carrying amountDeferred Revenue balance relates to payments received by the Company for IMAX Systems where control of the asset or asset group oversystem has not transferred to the fair value calculated using discounted expected future cash flows.
(k)customer. The Deferred Revenue
balance related to an individual location increases as progress payments are made and is then derecognized when control of the system is transferred to the customer. To a lesser extent, the Deferred revenue represents cash receivedRevenue balance also relates to situations when an exhibitor customer pays the contractual maintenance fee prior to revenuethe recognition criteria being met for theater system salesof revenue.
Pursuant to the corporate law of the People’s Republic of China (“PRC”), entities registered in the PRC are required to maintain certain statutory reserves, which are appropriated from after-tax profits, after offsetting accumulated losses from prior year and before dividends can be declared or leases, film contracts, maintenancepaid to equity holders.
The Company’s PRC subsidiaries are required to appropriate 10% of statutory net profits to statutory surplus reserves, upon distribution of their after-tax profits. The Company’s PRC subsidiaries may discontinue the appropriation of statutory surplus reserves when the aggregate sum of the statutory surplus reserve is more than 50% of their registered capital. The statutory surplus reserve is non-distributable other than during liquidation and extended warranty services, film related services and film distribution.may only be used to fund losses from prior years, to expand production operations, or to increase the capital of the subsidiaries. In addition, the subsidiaries may make further contribution to a discretionary surplus reserve using post-tax profits in accordance with resolutions of the Board of Directors.
(l)
Income taxes are accounted for under the liability method whereby deferred income tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the accounting and tax bases of assets and liabilities. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates or laws is recognized in the consolidated statement of operationsCompany’s Consolidated Financial Statements in the period in which the change is enacted. Investment tax credits are recognized as a reduction of income tax expense.
The Company assesses the realization of deferred income tax assets and based on all available evidence, concludes whether it is more likely than not that the net deferred income tax assets will be realized. A valuation allowance is provided for the amount of deferred income tax assets not considered to be realizable.realizable in the current period. In assessing the need for a valuation allowance, management considers, among other things, projections of future taxable income and ongoing prudent and feasible tax planning strategies. If management determines that sufficient negative evidence exists, then management will consider recording a valuation allowance against a portion or all of the deferred tax assets in that jurisdiction. If, after recording a valuation allowance, management’s projections of future taxable income and other positive evidence considered in evaluating the need for a valuation allowance prove, with the benefit of hindsight, to be inaccurate, it could prove more difficult to support the realization of these deferred tax assets. As a result, an additional valuation allowance could be required, which would have an adverse impact on the Company’s effective income tax rate and results. Conversely, if, after recording a valuation allowance, management determines that sufficient positive evidence exists in the jurisdiction in which a valuation allowance is recorded, the Company may reverse all or a portion of the valuation allowance in that jurisdiction. In such situations, the adjustment made to the deferred tax asset would have a favorable impact on the Company’s effective income tax rate and results in the period such determination was made.
The Company is subject to ongoing tax exposures, examinations and assessments in various jurisdictions. Accordingly,Tax benefits are recognized only when it is more likely than not, based on the technical merits, that the benefits will be sustained on examination. Tax benefits that meet the more likely than not recognition threshold are measured using a probability weighting of the largest amount of tax benefit that has greater than 50% likelihood of being realized upon settlement. Whether the more likely than not recognition threshold is met for a particular tax benefit is a matter of judgment based on the individual facts and circumstances evaluated in light of all available evidence as of the balance sheet date. Although management believes that the Company has adequately accounted for its uncertain tax positions, tax audits can result in subsequent assessments where the ultimate resolution may incur additional tax expense based upon the outcomes of such matters. In addition, when applicable,result in the Company adjustsowing additional taxes above what was originally recognized in its financial statements.
Tax reserves for uncertain tax expensepositions are adjusted by the Company to reflect the Company’s ongoing assessments of such matters which require judgment and can materially increase or decrease its effective rate as well as impact operating results. The Company provides for such exposures in accordance with the Income Taxes Topicbest estimate of the FASB ASC.
(m) Revenue Recognition
Multiple Element Arrangements
The Company’s revenue arrangements with certain customers may involve multiple elements consistingoutcome of examinations and assessments and in light of changing facts and circumstances, such as the completion of a theater system (projector, sound system, screen systemtax audit, expiration of a statute of limitations, the refinement of an estimate, and if applicable, 3D glasses cleaning machine); servicesinterest accruals associated with the theater system including theater design support, supervisionuncertain tax positions until they are resolved. Some of installation,these adjustments require significant judgment in estimating the timing and projectionist training; a license to useamount of the additional tax expense.
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IMAX brand; 3D glasses; maintenance and extended warranty services; and licensing of films. Systems
The Company evaluates all elementseach of the performance obligations in an IMAX System arrangement to determine whatwhich are considered deliverablesdistinct, either individually or in a group, for accounting purposes and which of the deliverables represent separate units of accounting based on the applicable accounting guidance in the Leases Topicperformance obligations.
The Company’s “System Obligation” consists of the FASB ASC;following: (i) an IMAX System, which includes the Guarantees Topic of the FASB ASC; the Entertainment – Films Topic of FASB ASC; and the Revenue Recognition Topic of the FASB. If separate units of accounting are either required under the relevant accounting standards or determined to be applicable under the Revenue Recognition Topic, the total consideration received or receivable in the arrangement is allocated based on the applicable guidance in the above noted standards.
Theater Systems
The Company has identified the projection system,projector, sound system, screen system and, if applicable, a 3D glasses cleaning machine, theatermachine; (ii) services associated with the IMAX System, including auditorium design support, the supervision of installation services, and projectionist trainingtraining; and the(iii) a license to use of the IMAX brand to bemarket the auditorium. The System Obligation, as a single deliverable andgroup, is a single unit of accounting (the “System Deliverable”). When an arrangement does not include all the elements of a System Deliverable, the elements of the System Deliverable included in the arrangement are considered by the Company to be a single deliverable and a single unit of accounting.distinct performance obligation. The Company is not responsible for the physical installation of the equipment in the customer’s facility; however, the Companyit supervises the installation by the customer. The customer has the right to use the IMAX brand from the date the Company and the customer enter into an arrangement.
IMAX System arrangements also include a requirement for the Company to provide maintenance services and an extended warranty over the life of the arrangement in exchange for an annual maintenance fee, which is subject to a consumer price index increase on renewal each year. Consideration related to the provision of maintenance services is included in the allocation of the transaction price to the separate performance obligations in the arrangement at contract inception, as discussed in more detail below. The Company’s maintenance services are a stand ready obligation and, as a result, are recognized on a straight-line basis over the contract term.
The transaction price in an IMAX System Deliverablearrangement is allocated to each good or service that is identified as a separate performance obligation based on estimated standalone selling prices. This allocation is based on observable prices when the Company sells the goods or services separately. The Company has established standalone prices for the System Obligation and maintenance and extended warranty services, as well as for film license arrangements. The Company uses an adjusted market assessment approach for separate performance obligations that do not have standalone selling prices or third-party evidence of estimated standalone selling prices. The Company considers multiple factors including its historical pricing practices, product class, market competition and geography.
IMAX System arrangements involve either athe lease or athe sale of the theater system. Considerationan IMAX System. The transaction price for the System Deliverable,Obligation, other than for thoseIMAX Systems delivered pursuant to joint revenue sharing arrangements, consist of upfront or initial payments made before and after the final installation of the theater system equipment and ongoing payments throughout the term of the leasearrangement. The Company estimates the transaction price, including an estimate of future variable consideration, received in exchange for the goods delivered or services rendered. The arrangement for the sale of an IMAX System includes indexed minimum payment increases over the term of the arrangement, as well as the potential for additional payments owed by the exhibitor customer if certain minimum box office receipt thresholds are exceeded. In addition, hybrid sales arrangements include amounts owed by the exhibitor customer based on a periodpercentage of time, as specified intheir box office receipts over the term of the arrangement. The ongoing paymentsThese contract provisions are the greater of an annual fixed minimum amount or a certain percentageconsidered to be variable consideration. An estimate of the theaterbox-office. Amounts received in excesspresent value of such variable consideration is recognized as revenue upon the transfer of control of the annual fixed minimum amountsSystem Obligation to the customer, subject to constraints to ensure that there is not a risk of significant revenue reversal. This estimate is based on management’s box office projections for the individual location, which are considered contingent payments. The Company’sdeveloped using historical data for the location and, if necessary, comparable theaters and territories(see “Constraints on the Recognition of Variable Consideration” below). Transfer of control of the System Obligation occurs at the earlier of client acceptance of the installation of the IMAX System, including projectionist training, and the opening of the location to the public, as discussed in more detail below.
IMAX System arrangements arenon-cancellable unless the Company fails to perform its obligations. In the absence of a material default by the Company, there is no right to any remedy for the customer under the Company’s arrangements. If a material default by the Company exists, the customer has the right to terminate the arrangement and seek a refund only if the customer provides notice to the Company of a material default and only if the Company does not cure the default within a specified period.
For arrangements entered into or materially modified after January 1, 2011, consideration is allocated to each unit of accounting based on the unit’s relative selling prices. The Company uses vender-specific objective evidence of selling price (VSOE) when the Company sells the deliverable separately and is the price actually charged by the Company for that deliverable. VSOE is established for the Company’s System Deliverable, maintenance and extended warranty services and film license arrangements. The Company uses a best
estimate of selling price (BESP) for units of accounting that do not have VSOE or third-party evidence of selling price. The Company determines BESP for a deliverable by considering multiple factors including the Company’s historical pricing practices, product class, market competition and geography.
Sales Arrangements
For IMAX System arrangements qualifyingthat qualify as sales,a sale, the revenuetransaction price allocated to the System DeliverableObligation is recognized in accordance with the Revenue Recognition TopicConsolidated Statements of Operations upon the transfer of control of the FASB ASC,system to the customer, which is when all of the following conditions have been met: (i) the projector, sound system, and screen system have been installed and are in full working condition, (ii) the 3D glasses cleaning machine, if applicable, has been delivered, (iii) projectionist training has been completed, and (iv) the earlier of (a) the receipt of written customer acceptance certifying the completion of installation andrun-in testing of the equipment and the completion of projectionist training or (b) the public opening of the theater, provided there is persuasive evidence of an arrangement, the price is fixed or determinable and collectability is reasonably assured.IMAX System.
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The initial revenue recognized in a sales arrangement consists of payments made before and in connection with the initial payments receivedinstallation of the IMAX System and the present value of any future initial payments, andincluding ongoing fixed minimum ongoing payments, that have been attributedwhich are subject to this unit of accounting. Contingent payments in excessindexed increases over the term of the fixedarrangement, and potential additional payments owed by the customer if certain minimum ongoingbox office receipt thresholds are exceeded. In addition, hybrid sales arrangements include amounts owed by the customer based on a percentage of their box office receipts over the term of the arrangement. Potential payments based on the future box office receipts of the customer are considered to be variable consideration. An estimate of the present value of such variable consideration is recognized when reported by theater operators, provided collectabilityas revenue upon the transfer of control of the System Obligation to the customer, subject to constraints to ensure that there is reasonably assured.not a risk of significant revenue reversal (see “Constraints on the Recognition of Variable Consideration” below).
The Company has also agreed, on occasion, to sell equipment under lease or at the end of a lease term. ConsiderationThe transaction price agreed to for these lease buyouts is includedreflected in revenuesthe Company’s Consolidated Statements of Operations within Revenues – Technology Sales.
Taxes assessed by governmental authorities that are both imposed on and concurrent with the specific revenue-producing transactions and collected by the Company have been excluded from equipmentthe measurement of the transaction prices discussed above.
Constraints on the Recognition of Variable Consideration
The recognition of variable consideration involves a significant amount of judgment. Variable consideration is recognized subject to appropriate constraints to avoid a significant reversal of revenue in future periods. The Company reviews its variable consideration assets on at least a quarterly basis considering recent box office performance and, productwhen applicable, updated box office projections for future periods. The relevant accounting guidance identifies the following examples of situations when constraining the amount of variable consideration is appropriate:
As discussed above, the Company’s significant streams of variable consideration relate to arrangements for the sale of IMAX Systems which include indexed minimum payment increases over the term of the arrangement, as well as the potential for additional payments owed by the customer if certain minimum box office receipt thresholds are exceeded. In addition, hybrid sales when persuasive evidencearrangements include variable consideration based on a percentage of the customer’s box office receipts over the term of the arrangement.
Variable consideration related to indexed minimum payment increases is outside of the Company’s control, but the movement in the rates is historically well documented and economic trends in inflation are easily accessible. For each contract subject to an arrangement exists,indexed minimum payment increase, the fees are fixed or determinable, collectabilityCompany estimates the most likely amount using published indices. The amount of the estimated minimum payment increase is reasonably assured and titlethen recorded at its present value as of the date of recognition using the customer’s implied borrowing rate.
Variable consideration related to the theater system passes fromlevel of the customer’s box office receipts is outside of the Company’s control as it is dependent upon the future commercial success of the films released to the IMAX network. The estimated variable consideration initially recognized by the Company is based on management’s box office projections for the location, which are developed using historical box office data for that location and, if necessary, comparable locations and territories. Using this data, management applies its understanding of these exhibition markets to estimate the customer.
Lease Arrangements
The Company usesmost likely amount of variable consideration to be earned over the Leases Topic of FASB ASC to evaluate whether an arrangement is a lease within the scopeterm of the accounting standard. Arrangements not withinarrangement. Management then applies a constraint to this estimate by reducing the scopeprojection by a percentage factor for locations or markets with no or limited historical box office experience. In cases where direct historical experience can be observed, average historical box office results, eliminating significant outliers, is used. The resulting amount of variable consideration is then recorded at its present value as of the accounting standard are accounted for either asdate of recognition using a sales or services arrangement, as applicable.risk-weighted discount rate.
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Lease Arrangements
For lease arrangements,As a lessor, the Company determinesprovides IMAX Systems to customers through long-term lease arrangements. Under these arrangements, in exchange for providing the classification ofIMAX System, the lease in accordance with the Lease Topic of FASB ASC.Company earns fixed upfront and ongoing consideration. A lease arrangement that transfers substantially all of the benefits and risks incident to ownership of the equipmentIMAX System is classified as a sales-type lease based on the criteria established by the accounting standard;lease; otherwise the lease is classified as an operating lease. Prior to commencement of the lease term, for the equipment, the Company may modify certain payment terms or make concessions. If these circumstances occur, the Company reassesses the classification of the lease based on the modified terms and conditions.
For sales-type leases, the revenue allocated to the System DeliverableObligation is recognized when the lease term commences, which the Company deems to be when all of the following conditions have been met: (i) the projector, sound system, and screen system have been installed and are in full working condition;condition, (ii) the 3D glasses cleaning machine, if applicable, has been delivered;delivered, (iii) projectionist training has been completed;completed, and (iv) the earlier of (a) the receipt of the written customer acceptance certifying the completion of installation andrun-in testing of the equipment and the completion of projectionist training or (b) the public opening of the theater, provided collectability is reasonably assured.
The initial revenue recognized for sales-type leases consists of the initial payments received and the present value of future initial payments and fixed minimum ongoing payments computed at the interest rate implicit in the lease. Contingent payments in excess of the fixed minimum payments are recognized when reported by theater operators, provided collectability is reasonably assured.
For joint revenue sharing arrangements that are classified as operating leases, initial payments and fixed minimum ongoing payments are recognized as revenue on a straight-line basis over the lease term. For operatingthese leases, the lease term is considered to commence when all of the following conditions have been met: (i) the projector, sound system and screen system have been installed and are in full working condition; (ii) the 3D glasses cleaning machine, if applicable, has been delivered; (iii) projectionist training has been completed; and (iv) the earlier of (a) the receipt of written customer acceptance certifying the completion of installation andrun-in testing of the equipment and the completion of projectionist training or (b) the public opening of the theater. Contingent payments in excess of fixed minimum ongoing payments are recognized as revenue when reported by theater operators, provided collectability is reasonably assured.
Revenues from joint revenue sharing arrangements with upfront payments that qualify for classification as sales and sales-type leases are recognized in accordance with the sales and sales-type lease criteria discussed above. Contingent revenues from joint revenue sharing arrangements are recognized asbox-office results and concessions revenues are reported by the theater operator, provided collectability is reasonably assured.
Finance Income
Finance incomeIncome is recognized over the term of the sales-type lease or financed salessale receivable, provided collectability is reasonably assured. A theater operator that is classified within the “All Transactions Suspended” category under the Company’s internal credit quality guidelines is placed on nonaccrual status and Finance incomeIncome recognition ceases whenrelated to the Company determines thatlocation is stopped. While the associated receivable is not collectible.
recognition of Finance incomeIncome is suspended, whenpayments received from a customer are applied against the Company identifiesoutstanding balance owed. If payments are sufficient to cover any unreserved receivables, a theater thatrecovery of provision taken on the billed amount, if applicable, is delinquent,non-responsive or not negotiating in good faith withrecorded to the Company.extent of the residual cash received. Once the collectability issues are resolved and the customer has returned to being in good standing, the Company will resume recognition of finance income.Finance Income.
Improvements and Modifications
Improvements and modifications to the theater systeman IMAX System after installation are treated as a separate revenue transactions,performance obligation, if and when the Company is requested to perform these services. Revenue is recognized for these services when the performanceonce they have been provided.
Costs and Expenses Applicable to Revenues – Technology Sales
Costs and Expenses Applicable to Revenues – Technology Sales relates to sale and sales-type leases of the services has been completed, provided there is persuasive evidence of an arrangement, the fee is fixed or determinable and collectability is reasonably assured.
Cost of Equipment and Product Sales
Theater systemsIMAX Systems and other equipment, subject to sales-type leases and sales arrangements includes the cost of the equipment and costs related to project management, design, delivery and installation supervision services, as applicable. The costs related to theater systemsIMAX Systems under salessale and sales-type lease arrangements are relievedtransferred from inventoryInventories to costsCosts and expenses applicableExpenses Applicable to revenues-equipment and product salesRevenues in the period when revenue recognition criteria are met. In addition, the Company defers direct selling costs such as salessale is recognized in the Consolidated Statements of Operations.
Sales commissions and other amounts relatedselling expenses that directly relate to these contracts until the relatedacquisition of the revenue is recognized. These costs includedgenerating contract and are incremental to the Company’s other expenses are deferred and recognized in costs and expenses applicable to revenues-equipment and product sales, totaled $2.7 million in 2017 (2016 — $3.3 million; 2015 — $3.4 million). The costthe Consolidated Statements of equipment and product sales prior to direct selling costs was $45.5 million in 2017 (2016 — $66.5 million; 2015 — $60.2 million).Operations upon the client acceptance of the IMAX System. The Company may have warranty obligations at or after the time revenue is recognized which require the replacement of certain parts that do not affect the functionality of the theater system or services. The costs for warranty obligations for known issues are accrued as charges to costsCosts and expenses applicableExpenses Applicable to revenues-equipment and product salesRevenues – Technology Sales at the time revenue is recognized based on the Company’s past historical experience and cost estimates.
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Costs and Expenses Applicable to Revenues – Technology Rentals
Cost ofCosts and Expenses Applicable to Revenues – Technology Rentals
For theater systems and other equipment subject relates to an operating lease or placed in a theater operators’ venue under a joint revenue sharing arrangement,arrangements classified as operating leases, and primarily includes the costdepreciation of IMAX System components and related equipment and those costs that result directly from and are essential toused in the arrangement, is included within property, plant and equipment. Depreciation and impairmentjoint revenue sharing arrangement. Impairment losses, if any, are also included in cost of rentals based on the accounting policy set out in note 2(g). CommissionsCosts and Expenses Applicable to Revenues – Technology Rentals. Sales commissions related to these arrangements are deferred and recognized as costsCosts and expenses applicableExpenses Applicable to revenues-rentalsRevenues – Technology Rentals in the month they are earned by the salesperson, which is typically the month of installation. These costs totaled $1.6 million in 2017 (2016 — $1.8 million; 2015 — $1.1 million). Direct advertising and marketing costs for each theaterlocation are charged to costsCosts and expenses applicableExpenses Applicable to revenues-rentalsRevenues – Technology Rentals as incurred. These costs totaled $2.6 million in 2017 (2016 — $0.9 million; 2015 — $1.9 million).
Terminations, Consensual Buyouts and Concessions
The Company enters into theater systemIMAX System arrangements with customers that contain customer payment obligations prior to the scheduled installation of the theater system.IMAX System. During the period of time between signing and the installation of the theater system,IMAX System, which may extend several years, certain customers may be unable to, or may elect not to, proceed with the theater system installation for a number of reasons including business considerations, or the inability to obtain certain consents, approvals or financing. Once the determination is made that the customer will not proceed with installation, the arrangement may be terminated under the default provisions of the arrangement or by mutual agreement between the Company and the customer (a “consensual buyout”). Terminations by default are situations when a customer does not meet the payment obligations under an arrangement and the Company retains the amounts paid by the customer. Under a consensual buyout, the Company and the customer agree, in writing, to a settlement and to release each other of any further obligations under the arrangement or an arbitrated settlement is reached. Any initial payments retained or additional payments received by the Company are recognized as revenue when the settlement arrangements are executed and the cash is received, respectively. These termination and consensual buyout amounts are recognized in Other revenues.
In addition, the Company couldmay agree with customersa customer to convert theirits obligations for other theater system configurationsone type of IMAX System configuration that havehas not yet been installed to arrangementsan arrangement to acquire or lease thea different type of IMAX digital theater system.System. The Company considers these situations to be athe termination of the previousoriginal arrangement and the origination of a new arrangement for the IMAX digital theater system. For all
arrangements entered into or modified prior to the date of adoption of the amended FASB ASC605-25, the Company continues to defer an amount of any initial fees received from the customer such that the aggregate of the fees deferred and the net present value of the future fixed initial and ongoing payments to be received from the customer equals the selling price of the IMAX digital theater system to be leased or acquired by the customer. Any residual portion of the initial fees received from the customer for the terminated theater system is recorded in other revenues at the time when the obligation for the original theater system is terminated and the new theater system arrangement is signed. Under the amended FASB ASC605-25, for all arrangements entered into or materially modified after the date of adoption, the total arrangement consideration to be received is allocated on a relative selling price basis to the digital upgrade and the termination of the previous theater system. The arrangement consideration allocated to the termination of the existing arrangement is recorded in Other revenues at the time when the obligation for the original theater system is terminated and the new theater system arrangement is signed.
The Company may offer certain incentives to customers to complete theater systemIMAX System transactions including payment concessions or free services and products such as film licenses or 3D glasses. Reductions in, and deferral of, payments are taken into account in determining the salestransaction price either by a direct reduction in the sales price or a reduction of payments to be discounted in accordance with the Leases or Interests Topic of the FASB ASC.discounted. Free products and services are accounted for as separate units of accounting. Other consideration given by the Company to customers are accounted for in accordance with the Revenue Recognition Topic of the FASB ASC.performance obligations.
Maintenance and Extended Warranty Services
Maintenance and extended warranty services may be provided under aan arrangement with multiple element arrangementperformance obligations or as a separately priced contract. Revenues related to these services are deferred and recognized on a straight-line basis over the contract period and are recognized within Revenues – Image Enhancement and Maintenance Services in Services revenues.the Consolidated Statements of Operations. Maintenance and extended warranty services includesinclude maintenance of the customer’s equipment and replacement parts. Under certain maintenance arrangements, maintenance services may include additional training services to the customer’s technicians. All costs associated with this maintenance and extended warranty program are expensed as incurred. A loss on maintenance and extended warranty services is recognized if the expected cost of providing the services under the contractscontract exceeds the related deferred revenue. As the maintenance services are a stand ready obligation with the cost of providing the service expected to increase throughout the term, revenue is recognized over the term of the arrangement such that increased amounts are recognized in later periods.
IMAX Film Remastering Services
In a film remastering arrangement, the Company receives a percentage of the box-office receipts from a third party who owns the copyright to a film in exchange for converting the film into an IMAX Film Remastering format and distributing it through the IMAX network. In these arrangements, although the Company does not hold rights to the intellectual property in the form of the film content, it is compensated for the application of its intellectual property in the form of its patented film remastering processes to create new intellectual property in the form of an IMAX Film Remastering version of film. Revenues associated with film remastering arrangements qualify for the variable consideration exemption for sales- or usage-based royalties in the relevant accounting guidance and are recognized within Revenues – Image Enhancement and Maintenance Services in the period when the corresponding box office sales occur.
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Losses on IMAX Film Remastering services are recognized as Costs and Expenses Applicable to Revenues – Image Enhancement and Maintenance Services in the period when it is determined that the Company’s estimate of total revenues to be realized by the remastered film will not exceed the corresponding cost of IMAX Film Remastering services.
Film Production and IMAX DMR Services
In certain film arrangements, the Company produces a film financed by third parties whereby the third party retains the copyright, and the Company obtains exclusive distribution rights. Under these arrangements, the Company is entitled to receive a fixed fee or to retain, as a fee, the excess of fundinggross revenue over the cost of the production (the “production fee”). The third parties receiveparty receives a portion of the revenues received by the Company from distributing the film, which is charged to costsCosts and expenses applicableExpenses Applicable to revenues-services. The productionRevenues – Image Enhancement and Maintenance Services. Production fees are deferred and recognized as a reduction in the cost of the film based on the ratio of the Company’s distribution revenues recognized in the current period to the ultimate distribution revenues expected from the film. Film exploitation costs, including advertising and marketing, totaled $15.4 million in 2017 (2016 — $17.5 million; 2015 — $13.3 million) and are recorded in Costs and Expenses Applicable to Revenues – Image Enhancement and Maintenance Services as incurred, except for those costs and expenses applicable to revenues-services as incurred.that are made after recognizing revenue, which are recorded when the related revenues are recognized.
Revenue from film production services where the Company does not hold the associated distribution rights are recognized in Revenues – Image Enhancement and Maintenance Services revenues when performance ofobligations associated with the contractual service is complete, provided there is persuasive evidence of an agreement, the fee is fixed or determinable and collectability is reasonably assured.are satisfied.
Revenues from digitallyre-mastering (IMAX DMR) films where third parties own or hold the copyrights and the rights to distribute the film are derived in the form of processing fees and recoupments calculated as a percentage ofbox-office receipts generated from there-mastered films. Processing fees are recognized as Services revenues when the performance of the relatedre-mastering service is completed provided there is persuasive evidence of an arrangement, the fee is fixed or determinable and collectability is reasonably assured. Recoupments, calculated as a percentage ofbox-office receipts, are recognized as Services revenue whenbox-office receipts are reported by the third party that owns or holds the related film rights, provided collectability is reasonably assured.
Losses on film production and IMAX DMR services are recognized as costsCosts and expenses applicableExpenses Applicable to revenues-servicesRevenues – Image Enhancement and Maintenance Services in the period when it is determined that the Company’s estimate of total revenues to be realized by the Company will not exceed estimated total production costs to be expended on the film productionproduction.
Film Distribution Services
In a Film Distribution arrangement, the Company distributes large-format documentary films, primarily to institutional locations, and the cost of IMAX DMR services.
Film Distribution
distributes exclusive entertainment experiences ranging from live performances to interactive events with leading artists and creators. Revenue from the licensing of films qualifies for the variable consideration exemption for sales- or usage-based royalties in the relevant accounting guidance and is recognized inwithin Revenues – Image Enhancement and Maintenance Services revenues when persuasive evidenceall performance obligations have been satisfied, which includes the completion and delivery of a licensing arrangement exists, the film has been completed and delivered,the commencement of the license period has begun, the fee is fixed or determinable and collectability is reasonably assured. Whenperiod. In situations when film license fees are based on a percentage ofbox-office receipts, revenue is recognized whenbox-office receipts are reported by exhibitors, provided collectability is reasonably assured.the exhibitor. Film exploitation costs, including advertising and marketing, totaled a recovery of $0.7 million in 2017 (2016 — expense of $2.2 million; 2015 — recovery of $0.1 million)are expensed as incurred within Costs and are recorded in costsExpenses Applicable to Revenues – Image Enhancement and expenses applicable to revenues-services as incurred.Maintenance Services.
Film Post-Production Services
Revenues from post-production film services are recognized inwithin Revenues – Image Enhancement and Maintenance Services revenues when performance of the contracted services is complete provided there is persuasive evidence of an arrangement, the fee is fixed or determinablecompleted.
Software License and collectability is reasonably assured.Subscription Services
Other
The Company recognizes revenue in Services revenues from its owned and operated theaters resulting frombox-office ticket and concession sales as tickets are sold, films are shown and upon the sale of various concessions. The sales are cash or credit card transactions with theater goers based on fixed prices per seat or per concession item.
In addition,Through SSIMWAVE, the Company enters into commercial arrangements withprovides term licenses, which give customers the right to use its software for a specific period, and perpetual licenses, which give customers the right to use its software for an indefinite period. For both types of licenses, the associated revenue is recognized at the point in time when the customer can use and benefit from the software, which is generally upon delivery to the customer or upon commencement of the renewal term. For licenses that are deployed and hosted at the customer site, revenue is recognized upon delivery of the software to the customer or upon commencement of the renewal term. For licenses where the software is provided through a hosting arrangement, if the customer does not have a contractual right to take possession of the underlying software without significant penalty, or it is not feasible for the customer to run the software on its own hardware or contract a third party theater owners resulting into host the sharingservices, the arrangement is accounted for as a service transaction whereby the Company has a stand-ready obligation to provide the software over the license period. Therefore, the related revenue is recognized ratably over the license period, as control of profitsservice is transferred to the customer.
SSIMWAVE’s software license arrangements for both term and lossesperpetual licenses typically include maintenance and support services which areprovide technical support and unspecified updates and upgrades on a when-and-if-available basis. The contractual term of the arrangement to provide maintenance and support services for perpetual licenses is renewable, generally on an annual basis, at the option of the customer. Maintenance and support services represent stand-ready obligations for which revenue is recognized in Services revenues when reported by such theaters. The Company also provides management services to certain theaters and recognizes revenueratably over the term of such services.the arrangements.
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Revenues on camera rentalsfrom licenses and maintenance and support services are recognized within Revenues – Image Enhancement and Maintenance Services.
As a lessee, the Company’s lease arrangements principally involve office and warehouse space, which are classified as operating leases. The corresponding operating lease right-of-use (“ROU”) assets and liabilities are recorded within Property, Plant and Equipment and Accrued and Other Liabilities in Rental revenuesthe Company’s Consolidated Balance Sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term. Operating lease liabilities are recognized at commencement date based on the present value of lease payments over the rental period.
Revenuelease term. The incremental borrowing rate used in the calculation of the Company’s lease liabilities is based on the location of each leased property.None of the Company’s leases include options to purchase the leased property. Most of the Company’s leases include one or more options to renew, with renewal terms that can extend the lease term from one to five years or more. The Company has determined that it is reasonably certain that the salerenewal options on its warehouse leases will be exercised based on previous history, its current understanding of 3D glasses is recognizedfuture business needs, and its level of investment in Equipmentthe leasehold improvements, among other factors. The depreciable lives of ROU assets and product sales revenue whenrelated leasehold improvements are limited by the 3D glassesexpected lease term. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company rents or subleases certain office space to third parties, which have been delivereda remaining term of less than 12 months and are not expected to be renewed. When there are modifications to the customer.
Other service revenueslease agreements, the Company remeasures the lease liabilities to reflect changes to lease payments and recognizes the amount of the remeasurement of the lease liability as an adjustment to the ROU assets. Amortization of ROU assets and interest on lease liabilities are recognizedincluded within Selling, General and Administrative Expenses in Service revenues when the performanceCompany’s Consolidated Statements of contracted services is complete.Operations. (Refer to Note 6 for additional information related to the Company’s operating leases.)
(n)
Research and development costs, which are expensed as incurred, and primarily include projector and sound parts, labor, consulting fees, allocation of overheads, and other related materials which pertain to the Company’s development of ongoing productnew products and services. Research and development costs pertaining to fixed and intangible assets that have alternative future uses are capitalized and amortized under their related policies.
(o)
Monetary assets and liabilities of the Company’s operations whichthat are denominated in currenciesa currency other than the Company’s functional currency are translated into the relevant functional currency atusing the exchange ratesrate prevailing at the end of the period. In 2013, the Company determined that the functional currency of one of its consolidated subsidiaries had changed from the Company’s reporting currency to the currency of the nation in which it is domiciled. As a result, in accordance with the FASB ASC 830 “Foreign Currency Matters”, the adjustment attributable to current-rate translation ofnon-monetary assets as of the date of the change was reported in other comprehensive income (“OCI”). The functional currency of its other consolidated subsidiaries continues to be the United States dollar. Foreign exchange translation gains and losses are included in the determination of earnings in the period in which they arise.
Assets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance sheet date. Revenues, expenses, gains, and losses recorded in foreign currencies are translated using the exchange rates prevailing during the period in which they are recognized. Translation adjustments resulting from this process are recorded to Other Comprehensive Income (Loss) and reported on the Company’s Consolidated Balance Sheets within Accumulated Other Comprehensive Loss until the subsidiary is sold or liquidated, at which point the adjustments are recognized in Consolidated Statements of Operations.
Foreign currency derivatives are recognized and measured in the balance sheetConsolidated Balance Sheets at their fair value. Changes in the fair value (gains(i.e., gains or losses) are recognized in the consolidated statementConsolidated Statements of operationsOperations except for derivatives designated and qualifying as foreign currency hedging instruments. For foreign currency hedging instruments, the gain or loss related to the effective portion of the gain or loss in a hedge of a forecasted transaction is reported in other comprehensive income (loss)within Other Comprehensive (Loss) Income and reclassified to the consolidated statementConsolidated Statements of operationsOperations when the forecasted transaction occurs. Any ineffective portion is recognized immediately in the consolidated statementConsolidated Statements of operations.Operations.
(p) Stock-Based Compensation
The Company issues share-based compensation to eligible employees, directors, and consultants under the IMAX Corporation Second Amended and Restated Long-Term Incentive Plan (as may be amended, the “IMAX LTIP”) and the China Long-Term Incentive Plan (the “China LTIP”) as summarized in Note 17. The IMAX LTIP is the Company’s stock-based compensation generally includesgoverning document and awards to employees, directors, and consultants under this plan may consist of stock options, and restricted share units (“RSUs”). Stock-based, performance stock units (“PSUs”) and other awards. A separate share-based compensation is recognizedplan, the China LTIP, was adopted by a subsidiary of the Company in accordance with the FASB ASC Topic 505, “Equity” and Topic 718, “Compensation-Stock Compensation.”October 2012.
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The Company estimatesmeasures share-based compensation expense using the grant date fair value of stock option awards on the date of grant using fair value measurement techniques such as an option-pricing model. The fair value of RSU awards is equal to the closing price of the Company’s common stock on the date of grant. The value of the portion of the employee award that is ultimately expected to vest(see below), which is recognized as an expense in the Consolidated Statements of Operations on a straight-line basis over the requisite service periods in the Company’s consolidated statement of operations.period. Share-based compensation expense is not adjusted for estimated forfeitures but is instead adjusted when and if actual forfeitures occur.
Stock Options
The Company utilizes a lattice-binomial option-pricing model (“Binomial Model”) to determine the fair value of stock option awards.awards on the grant date. The fair value determined by the Binomial Model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards,award, and actual and projected employee stock option exercise behaviors. The Binomial Model also considers the expected exercise multiple which is the multiple of exercise price to grant price at which exercises are expected to occur on average. Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable. Because the Company’s employee stock options have certain characteristics that are significantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, in management’s opinion, the Binomial Model best provides a fair measure of the fair value of the Company’s employee stock options. See note 14(c) for the assumptions used to determine the fair value of stock-based payment awards.
Stock-based compensation expense includes compensation cost for employee stock-based payment awards granted and all modified, repurchased or cancelled employee awards. In addition, compensation expense includes the compensation cost, based on the grant-date fair value calculated for pro forma disclosures under ASC718-10-55, for the portion of awards for which required service had not been rendered that were outstanding. Compensation expense for these employee awards is recognized using the straight-line single-option method. Stock-based compensation expense is not adjusted for estimated forfeitures, but instead adjusted upon an actual forfeiture of a stock option or RSU award. The Company utilizes the market yield on U.S. treasury securities (also known as nominal rate) over the contractual term of the instrument being issued.
Stock Options
As the Company stratifies its employees into homogeneous groups in order to calculate the grant date fair value underof stock options using the Binomial Model,Model. As a result, ranges of assumptions are used are presented for the expected option life.life of the option. The Company uses historical data to estimate option exercise behavior within the valuation model;Binomial Model and various groups of employees that have similar historical exercise behavior are considered separatelygrouped together for valuation purposes. The expected volatility rate is estimated based on a blended volatility method which takes into consideration the Company’s historical share price volatility, the Company’s implied volatility which is implied by thedetermined in reference to observed current market prices offor the Company’s traded options and the Company’s peer group volatility.
The Company utilizesno longer issues stock options as a form of employee compensation.
(Refer to Note 17(c) for the Binomial Modelassumptions used to determine expected option life based on such data as vesting periodsthe fair value of awards, historical data that includes past exercise and post-vesting cancellations andthe Company’s stock price history.options.)
The Company’s policy is to issue new common shares from treasury or shares purchased in the open market to satisfy stock options which are exercised.
Restricted Share Units
The Company’s RSUs have been classified as equity in accordance with Topic 505. The fair value of RSU awards is equal to the closing price of the Company’s common stock on the date of grant or the average closing price of the Company’s common shares for five days prior to the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as compensation expense over the requisite service period in the Company’s Consolidated Statements of Operations. The Company’s RSUs are classified as equity.
Performance Stock Units
The Company grants two types of PSU awards, one which vests based on a combination of employee service and the achievement of certain Adjusted EBITDA targets and one which vests based on a combination of employee service and the achievement of total shareholder return (“TSR”) targets. The achievement of the Adjusted EBITDA and TSR targets in these PSUs is determined over a three-year performance period. At the conclusion of the three-year performance period, the number of PSUs that ultimately vest can range from 0% to a maximum vesting opportunity of 175% of the initial Adjusted EBITDA PSU award or 150% of the initial TSR PSU award depending upon actual performance versus the established Adjusted EBITDA and TSR targets, respectively. The Company’s PSUs are classified as equity.
The grant date fair value of PSUs with Adjusted EBITDA targets is equal to the closing price of the Company’s common shares on the date of grant or the average closing price of the Company’s common shares for five days prior to the date of grant. The grant date fair value of PSUs with TSR targets is determined on the grant date using a Monte Carlo simulation, which is a valuation model that considers the likelihood of achieving the TSR targets embedded in the award (“Monte Carlo Model”). The compensation expense attributable to each type of PSU is recognized on a straight-line basis over the requisite service period.
The fair value determined by the Monte Carlo Model is affected by the Company’s share price, as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, market conditions as of the grant date, the Company’s expected share price volatility over the term of the awards, and other relevant data. The compensation expense is fixed on the date of grant based on the dollar value of the PSUs granted.
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The amount and timing of compensation expense recognized for PSUs with Adjusted EBITDA targets is dependent upon management’s assessment of the likelihood and timing of achieving these targets. If, as a result of management’s assessment, it is projected that a greater number of PSUs will vest than previously anticipated, a life-to-date adjustment to increase compensation expense is recorded in the period such determination is made. Conversely, if, as a result of management’s assessment, it is projected that a lower number of PSUs will vest than previously anticipated, a life-to-date adjustment to decrease compensation expense is recorded in the period such determination is made.
Share-Based Payment Awards toNon-Employees
Stock-basedShare-based payment awards for services provided bynon-employees are accounted for based on themeasured at grant date fair value of the services received or the stock-based award, whichever is more reliably determinable. If the fair value of the stock-based award is used, the fair value is measured at the date of the award and remeasured until the earlier of the dateequity instruments that the Company is obligated to issue when the service has a performance commitmentbeen rendered and any other conditions necessary to earn the right to benefit from thenon-employees, instruments have been satisfied. The grant date is the date which the Company and the non-employees reach a mutual understanding of the key terms and conditions of the share-based payment awards. When there are performance is completed, orconditions related to the vesting of the share-based awards, the Company assesses the probability of vesting at each reporting date and adjusts the awards vest.compensation costs based on the probability assessment.
(q)
The Company has a defined benefit pension plan, the Supplemental Executive Retirement Plan (the “SERP”). As the Company’s SERP is unfunded, as atof December 31, 2017,2023, a liability is recognized for the projected benefit obligation.
Assumptions used in computing the defined benefit obligations are reviewed annually by management in consultation with its actuaries and adjusted for current conditions. Actuarial gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefits cost are recognized as a component of other comprehensive income.Other Comprehensive (Loss) Income. Amounts recognized in accumulated other comprehensive incomeAccumulated Other Comprehensive Loss including unrecognized actuarial gains or losses and prior service costs are adjusted as they are subsequently recognized in the consolidated statementConsolidated Statements of operationsOperations as components of net periodic benefit cost. Prior service costs resulting from the pension plan inception or amendments are amortized over the expected future service life of the employees, cumulative actuarial gains and losses in excess of 10%10% of the projected benefit obligation are amortized over the expected average remaining service life of the employees, and current service costs are expensed when earned. The remaining weighted average future service life of the employee used in computing the defined benefit obligation for the year ended December 31, 20172023 was 2.0 years.two years.
For defined contribution pension plans, required contributions by the Company are recorded as an expense.expense within Selling, General and Administrative Expenses in the Company’s Consolidated Statements of Operations.
A liability is recognized for the unfunded accumulated benefit obligation of the postretirement benefits plan. Assumptions used in computing the accumulated benefit obligation are reviewed by management in consultation with its actuaries and adjusted for current conditions. CurrentNet benefit cost is split between operating income and non-operating income, where only the service cost is recognized as incurredincluded in income from operations and actuarialthe non-service components are included in Retirement Benefits Non-Service Expenses. Actuarial gains and losses are recognized as a component of other comprehensive income (loss).Other Comprehensive (Loss) Income. Amounts recognized in accumulated other comprehensive income (loss)Accumulated Other Comprehensive Loss including unrecognized actuarial gains or losses are adjusted as they are subsequently recognized within Retirement Benefits Non-Service Expense in the consolidated statementConsolidated Statements of operationsOperations.
In situations when the Company acts as components of net periodic benefit cost.
(r) Guarantees
The FASB ASC Guarantees Topic requires a guarantor, to recognize, at the inception of a guarantee, it recognizes a liability for the fair value of certain guarantees.the underlying guarantee. Disclosures as required under the relevant accounting guidance have been included in note 13(f).Note 16.
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3. New Accounting Standards and Accounting Changes
Adoption of New Accounting Policies
In March 2022, the FASB issued ASU No. 2022-02, “2022-02: Financial Instruments — Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” (“ASU 2022-02”). ASU 2022-02 amends and eliminates the accounting guidance for Troubled Debt Restructurings by creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty and requires public business entities to disclose current-period gross write offs by year of origination for financing receivables and net investments in leases. The Company adopted several standards ASU 2022-02 on January 1, 2017, which2023. The adoption of ASU 2022-02 did not have a material impact on the Company’s Consolidated Financial Statements.
In September 2022, the FASB issued ASU No. 2022-04, “2022-04: Liabilities — Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations” (“ASU 2022-04”). ASU 2022-04 requires that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. The Company adopted ASU 2022-04 on January 1, 2023. The adoption of ASU 2022-04 did not have a material impact on the Company’s Consolidated Financial Statements.
Recently Issued FASB Accounting Standard Codification Updates Not Yet Adopted
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”). The purpose of ASU 2020-04 is to provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 is effective for annual periods ending afterall entities from the beginning of an interim period that includes the issuance date of the ASU. In October 2022, the FASB extended the temporary accounting relief to December 31, 2016,2024 from the current sunset date of December 31, 2022. As of December 31, 2023, the Company is not party to any third party contracts that reference the London Interbank Offered Rate (LIBOR). Accordingly, the Company does not expect ASU 2020-04 to have a material effect on its Consolidated Financial Statements.
In October 2023, the FASB issued Accounting Standards Update No. 2023-06, Disclosure Improvements: Codification Amendments in response to the SEC’s Disclosure Update and for annualSimplification Initiative (“ASU 2023-06”). This ASU incorporates into U.S. GAAP certain presentation and interim periods thereafter, which diddisclosure requirements currently included in the SEC’s regulations. Each amendment will become effective prospectively from the date the SEC withdrawals the corresponding SEC regulatory requirement. The Company is still evaluating this ASU, however, given that it is subject to the corresponding SEC regulatory requirements, it does not expect the ASU to have a material impact on its consolidated financial statements.Consolidated Financial Statements.
In October 2016,November 2023, the FASB issued ASUAccounting Standards Update No. 2016-16, “Income Taxes2023-07, Segment Reporting (Topic 740)”820): Improvements to Reportable Segment Reporting (“ASU 2023-07”). The purpose of ASU2016-16 2023-07 is to eliminateenhance the exceptioninterim disclosure requirements by more closely aligning them with the annual requirements. ASU 2023-07 requires interim and annual disclosures to include information about the company's significant segment expenses. ASU 2023-07 will be effective for an intra-entity transfer of an asset other than inventory. The amendments require the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs.Company’s year ended December 31, 2024 and all interim periods thereafter. The Company elected to early adoptis still evaluating the impact of this ASU2016-16 during the first quarter of 2017. The impact from the adoption was reflected in the Company’s consolidated on its financial statements on a modified retrospective basis resulting in an increase to Accumulated deficit of $8.3 million, a decrease to Other assets of $14.8 million, an increase to Deferred taxes of $7.9 million and an increase to Accrued and other liabilities of $1.4 million.statements.
Recently Issued FASB Accounting Standard Codification Updates
In February 2016,December 2023, the FASB issued ASUNo. 2016-02, “LeasesAccounting Standard Update 2023-09, Income Taxes (Topic 842)” (“ASU2016-02”). The purpose of the amendment is to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. New disclosures will include qualitative and quantitative requirements to provide additional information about the amounts recorded in the financial statements. Lessor accounting will remain largely unchanged from current guidance; however, ASU2016-02 will provide improvements that are intended to align lessor accounting with the lessee model and with updated revenue recognition guidance. For public entities, the amendments in ASU2016-02 are effective for interim and annual reporting periods beginning after December 15, 2018. As a lessor, the Company has a significant portion of its revenue derived from leases, including its joint revenue sharing arrangements, and while the lessor accounting model is not fundamentally different, the Company continues to evaluate the effect of the standard on this revenue stream.
In March 2016, the FASB issued ASUNo. 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations” (“ASU2016-08”). The purpose of ASU2016-08 is to clarify the implementation of guidance on principal versus agent considerations.
In April 2016, the FASB issued ASUNo. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” (“ASU2016-10”). The purpose of ASU2016-10 is to provide more detailed guidance in the following key areas: identifying performance obligations and licenses of intellectual property.
In May 2016, the FASB issued ASUNo. 2016-11, to rescind from the FASB Accounting Standards Codification certain SEC paragraphs as a result of two SEC Staff Announcements at the March 3, 2016 meeting.
In May 2016, the FASB issued ASUNo. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” (“ASU2016-12”). The purpose of ASU2016-12 is to clarify certain narrow aspects of Topic 606 such as assessing the collectability criterion, presentation of sales taxes and other similar taxes collected from customers, noncash consideration, contract modifications at transition, completed contracts at transition, and technical corrections.
In December 2016, the FASB issued ASUNo. 2016-20, “Technical Corrections and740) - Improvements to Topic 606, Revenue from Contracts with Customers”Income Tax Disclosures (“ASU 2023-09”). The amendments improve the transparency of income tax disclosures by requiring (i) consistent categories and greater disaggregation of information in ASU2016-20 represent changes to clarify the accounting standard codification, correct unintended application of guidance, or make minor improvements to the accounting standards codification that are related to Topic 606, Revenue from Contracts with Customers.
In November 2017, the FASB issuedrate reconciliation, and (ii) income taxes paid disaggregated by jurisdiction. ASUNo. 2017-14, to eliminate or amend from the FASB Accounting Standards Codification Topic 220, Topic 605 and Topic 606 certain SEC paragraphs.
For public companies, ASU2016-08, ASU2016-10, ASU2016-11, ASU2016-12, ASU2016-20, and ASU2017-14 which are all related to Topic 606, are 2023-09 will be effective for interim and annual reporting periods beginning after December 15, 2017.
Effective January 1, 2018, for the 2018 fiscal year, the Company adopted Topic 606, “Revenue from Contracts with Customers” (ASC 606) utilizing the modified retrospective approach with a cumulative catch up adjustment and will provide additional disclosures comparing results to previous U.S. GAAP in its 2018 consolidated financial statements. The Company plans to apply the new revenue standard only to contracts not completed as of the date of initial application, referred to as open contracts. All system sales and maintenance contracts with the existing network of IMAX theaters and the backlog of sales contracts make up a significant majority of the Company’s open contracts at any point in time. DMR arrangements where the film continues to be shown by the Company’s exhibitor partners, film distribution arrangements with remaining terms, aftermarket sales orders that have been received but for which control of the assets has not yet transferred to the customer are all also considered open contracts.
The Company’s revenues from the sales of projection systems, provision of maintenance services, sale of aftermarket 3D glasses and parts, conversion of film content into the IMAX DMR format, distribution of documentary film content and the provision of post production services are within the scope of the standard. The Company’s joint revenue sharing revenue arrangements, with the exception of those where the title transfers to the customer prior to recognition of the system revenue (hybrid sales arrangements), are not in scope of the standard due to their classification as leases. Similarly, any system revenue transactions classified as sales-type leases are excluded from the provisions of the new standard.
The Company has assessed its performance obligations under its arrangements pursuant to ASC 606 and has concluded that there are no significant differences between the performance obligations required to be units of account under ASC 606 and the deliverables considered to be units of account under ASC 605. Specifically, the Company has concluded that its “System Deliverable”, which consists of a theater system (projector, sound system, screen system and, if applicable, 3D glasses cleaning machine); services associated with the theater system including theater design support, supervision of installation services, and projectionist training; a license to use the IMAX brand to market the theater; 3D glasses; maintenance and extended warranty services; and potentially the licensing of films. remains unchanged when considered under ASC 606.
Certain of the Company’s revenue streams will be impacted by the variable consideration provisions of the new standard. The arrangements for the sale of projection systems include indexed minimum payment increases over the term of the arrangement, as well as provision for additional payments in excess of the minimum agreed payments in situations where the theater exceeds certain box office thresholds. Both contract provisions constitute variable consideration under the new standard that, subject to constraints to ensure significant reversal of revenues do not occur, require estimation and recognition at the point of revenue recognition, which is at the
earlier of client acceptance of the installation of the system, including projectionist training, and the theater’s opening to the public. As this variable consideration extends through the entire term of the arrangement, which typically last 10 years, the Company applies constraints to its estimates and recognizes the variable consideration on a discounted present value basis at recognition. Under the previous standard, these amounts were recognized as reported by exhibitors (or customers) in future periods.
In certain joint revenue sharing arrangements, specifically the Company’s hybrid sales arrangements, the Company’s arrangements call for sufficient upfront revenues to cover the cost of the arrangement, with monthly payments calculated based on the theater’s net box office earned. Title and control of the projection system transfer to the customer at the point of revenue recognition, which is the earlier of client acceptance of the theater installation, including projectionist training, and theater opening to the public. Under the new revenue recognition standard, the percentage payment is considered variable consideration that must be estimated and recognized at the time of initial revenue recognition. Using box office projections and the Company’s history with theater and box office experience, the Company estimates the amount of percentage payment earned over the life of the arrangement, subject to sufficient constraint such that there is not a risk of significant revenue reversal. Under the previous recognition standard, these amounts were recognized as reported by exhibitors (or customers) in future periods. As a result, the Company does not believe that hybrid sales arrangements should be considered as part of the Joint Revenue Sharing Arrangement segment since the revenue recognition patterns of the arrangements now very closely resemble those of the traditional sale arrangements.
The Company’s arrangements include a requirement for the provision of maintenance services over the life of the arrangement, subject to a consumer price index increase on renewal each year. Under the new standard, the Company has included the future consideration from the provision of maintenance services in the relative selling price calculation at revenue recognition. The amount allocated to maintenance services is deferred and recognized over the full life of the arrangement. As the maintenance services are a stand ready obligation revenue is recognized evenly over time, which is consistent with past treatment. Under the previous recognition standard, only the first year’s extended warranty and maintenance services included as part of the upfront consideration received by the Company was included in the relative selling price allocation to determine the allocation of consideration between deliverables, while the future years maintenance services were recognized and amortized over each year’s renewal term. The Company does not expect a significant change in the allocation of consideration between performance obligations to arise as a result of this change.
The DMR and Film Distribution revenue streams fall under the variable consideration exemption for sales- or usage-based royalties. While the Company does not hold rights to the intellectual property in the form of the film content, the Company is being reimbursed for the application of its intellectual property in the form of its patented DMR processes used in the creation of new intellectual property in the form of an IMAX DMR version of film. The Company’s Film Distribution revenues are strictly from the license of its intellectual property in the form of documentary film content to which the Company holds distribution rights.
The Company’s remaining revenue streams are not significantly impacted by the new standard. The Company’s balance sheet will require adjustment for contract assets and liabilities arising from the variable consideration calculations noted above.
At this point, the Company is in the process of calculating the opening retained earnings impacts of the above.year ended December 31, 2025. The Company is implementing changes to its revenue accounting system, processes and internal controls over revenue recognition as part of the adoption of the new standard.
In June 2016, the FASB issued ASUNo. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU2016-13”). The purpose of ASU2016-13 is to require a financial asset measured on the amortized cost basis to be presented at the net amount expected to be collected. Credit losses relating toavailable-for-sale debt securities should be recorded through an allowance for credit losses. For public entities, the amendments in ASU2016-13 are effective for interim and annual reporting periods beginning after December 15, 2019. The Company is currently assessingstill evaluating the impact of this ASU2016-13 on its consolidated financial statements.
In January 2017, the FASB issued ASUNo. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU2017-01”).The purpose of the amendment is to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. For public entities, the amendments in ASU2017-01 are effective for interim and annual reporting periods beginning after December 15, 2017. The adoption of this standard in January 2018 did not have a material impact to the Company’s consolidated financial statements.
In January 2017, the FASB issued ASUNo. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU2017-04”). The purpose of the amendment is to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. For public entities, the amendments in ASU
2017-04 are effective for interim and annual reporting periods beginning after December 15, 2019. The Company is currently assessing the impact of ASU2017-04 on its consolidated financial statements.
In March 2017, the FASB issued ASUNo. 2017-07, “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (“ASU2017-07”). The amendment requires the service cost component of net periodic benefit cost be presented in the same income statement line item as other employee compensation costs arising from services rendered during the period and other components of the net periodic benefit cost be presented separately from the line item that includes the service cost and outside of any subtotal of operating income. For public entities, the amendments in ASU2017-07 are effective for interim and annual reporting periods beginning after December 15, 2017. The adoption of this standard in January 2018 did not have a material impact to the Company’s consolidated financial statements.
In May 2017, the FASB issued ASUNo. 2017-09, “Compensation - Stock compensation (Topic 718): Scope of modification accounting” (“ASU2017-09”). The purpose of the amendment is to clarify which changes to the terms or condition of a share-based payment award require an entity to apply modification accounting. For all entities that offer share based payment awards, ASU2017-09 are effective for interim and annual reporting periods beginning after December 15, 2017. The adoption of this standard in January 2018 did not have a material impact to the Company’s consolidated financial statements.
In August 2017, the FASB issued ASUNo. 2017-12, “Derivatives and Hedging (Topic 815)”. The purpose of the amendment is to better align the results of cash flow and fair value hedge accounting with risk management activities through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results in the financial statements. For public entities, the amendments in ASU2017-12 are effective for interim and annual reporting periods beginning after December 15, 2018. The Company is currently assessing the impact of ASU2017-12 on its consolidated financial statements.
The Company considers the applicability and impact of all recently issued FASB accounting standard codification updates. Accounting standardsstandard updates that are not noted above were assessed and determined to be not applicable or not significant to the Company’s consolidatedConsolidated Financial Statements for the year ended December 31, 2023.
4. Acquisition
On September 22, 2022, the Company acquired all of the issued and outstanding shares of SSIMWAVE pursuant to a share purchase agreement by and among the Company, SSIMWAVE, and related shareholders (the “Sellers”). SSIMWAVE provides perceptual quality measurement and optimization solutions based on artificial intelligence technologies for leading media and entertainment companies. Following the acquisition, SSIMWAVE became a wholly-owned subsidiary of the Company.
89
As consideration for the acquisition of SSIMWAVE, the Company paid an aggregate purchase price of $23.2 million, consisted of: (i) $19.5 million in cash, (ii) 160,547 common shares of the Company with a fair value of $1.9 million (the “IMAX Share Consideration”), and (iii) contingent consideration with a fair value of $1.8 million (the “Earn-Out Payment”). The fair value of the IMAX Share Consideration, which is based on the share price on the date of the acquisition, is reduced to reflect the fair value of certain restrictions on the future transfer of the shares. The Earn-Out Payment may be paid to certain Sellers in an aggregate amount of up to $2.0 million in cash, contingent upon and following the achievement of certain commercial and financial statementsmilestones during the period from January 1, 2023 to December 31, 2024, or under certain terms March 31, 2025. The fair value of the Earn-Out Payment is based on management’s assessment of the likelihood of achieving these milestones.
The revenues and earnings of SSIMWAVE for the period post-acquisition through December 31, 2022 were included in All Other for segment reporting and were not material to the Company’s Consolidated Financial Statements. During the year ended December 31, 2017.2022, the Company incurred $1.1 million of professional fees in connection with the acquisition of SSIMWAVE, which were recorded within Selling, General and Administrative Expenses on the Company’s Consolidated Statements of Operations.
The Company accounted for the acquisition of SSIMWAVE as a business combination. The following table summarizes the allocation of the purchase price to the assets acquired and liabilities assumed as of December 31, 2022.
(In thousands of U.S. Dollars) | |||||
Purchase Price: | |||||
Cash payments | $ | 19,521 | |||
IMAX Share Consideration | 1,947 | ||||
Earn-Out Payment | 1,750 | ||||
Total Purchase Price | $ | 23,218 | |||
Allocation of Purchase Price: | |||||
Cash and cash equivalents | $ | 3,582 | |||
Accounts receivable | 158 | ||||
Property, plant and equipment | 409 | ||||
Intangible assets (see Note 13) | 11,189 | ||||
Other assets | 293 | ||||
Accounts payable and accrued liabilities | (1,092 | ) | |||
Deferred revenue | (1,300 | ) | |||
Federal economic development loan, net of unaccreted interest benefit | (1,772 | ) | |||
Deferred tax liability | (2,037 | ) | |||
Goodwill (see Note 13) | 13,788 | ||||
Total Purchase Price | $ | 23,218 |
The allocation of the fair value of identified intangible assets is as follows:
(In thousands of U.S. Dollars) | Fair Value |
| Weighted Average Useful Life | |
Patent and trademarks | $ | 100 |
| 2 Years |
Customer relationships |
| 1,340 |
| 7 Years |
Developed technology |
| 5,779 |
| 4 to 7 Years |
In-process research and development |
| 3,810 |
| Not yet in use |
Non-compete agreement |
| 160 |
| 4 Years |
Total identifiable intangible assets | $ | 11,189 |
|
|
Goodwill is the excess of the consideration transferred over the net assets recognized and primarily represents future economic benefits arising from assets acquired that are not individually identified and separately recognized, including synergies and assembled workforce inherent in the acquired business. The goodwill recorded is not expected to be deductible for income tax purposes.
90
5. Receivables
The ability of the Company to collect its receivables is principally dependent on the viability and solvency of individual theater operators which is significantly influenced by consumer behavior and general economic conditions. Theater operators, or other customers, may experience financial difficulties that could result in them being unable to fulfill their payment obligations to the Company.
4.In order to mitigate the credit risk associated with its receivables, management performs an initial credit evaluation prior to entering into an arrangement with a customer and then regularly monitors the credit quality of each customer through an analysis of collections history and aging. This monitoring process includes meetings on at least a monthly basis to identify credit concerns and potential changes in credit quality classification. A customer may improve their credit quality classification once a substantial payment is made on an overdue balance or when the customer has agreed to a payment plan and payments have commenced in accordance with that plan. Changes in credit quality classification are dependent upon management approval. The Company’s internal credit quality classifications are as follows:
During the period when the accretion of Finance Income is suspended for Financing Receivables, any payments received from a customer are applied against the outstanding balance owed. If payments are sufficient to cover any unreserved receivables, a reversal of the provision is recorded to the extent of the residual cash received. Once the collectability issues are resolved and the customer has returned to being in good standing, the Company will resume recognition of Finance Income.
When a customer’s aging exceeds 90 days, the Company’s policy is to perform an enhanced review to assess collectability of the theater’s past due accounts. The over 90 days past due category may be an indicator of potential impairment as up to 90 days outstanding is considered to be a reasonable time to resolve any issues.
The Company develops an estimate of expected credit losses by class of receivable and customer type through a calculation that utilizes historical loss rates which are then adjusted for specific receivables that are judged to have a higher-than-normal risk profile after considering management’s internal credit quality classifications. Additional credit loss provisions are also recorded taking into account macro-economic and industry risk factors. The write-off of any billed receivable balance requires the approval of management.
Management’s judgments regarding expected credit losses are based on the facts available to management and involve estimates about the future. As a result, the Company’s judgments and associated estimates of credit losses may ultimately prove, with the benefit of hindsight, to be incorrect. The impacts of inflation, and rising interest rates may impact future credit losses. The Company will continue to monitor economic trends and conditions and portfolio performance and adjust its allowance for credit loss accordingly. Refer to Note 2(b), Estimates and Assumptions, for information regarding Cineworld and theater operators in Russia, Ukraine, and Belarus.
91
Accounts Receivable
Accounts receivable principally includes amounts currently due to the Company under IMAX System sale and sales-type lease arrangements, contingent fees owed by theater operators as a result of box office performance, and fees for maintenance services. Accounts receivable also includes amounts due to the Company from movie studios and other content creators principally for digitally remastering films into IMAX formats, as well as for film distribution and post-production services.
The following tables summarize the activity in the allowance for credit losses related to Accounts Receivable for the years ended December 31, 2023 and 2022:
|
| Year Ended December 31, 2023 |
| |||||||||||||
(In thousands of U.S. Dollars) |
| Theater |
|
| Studios |
|
| Other |
|
| Total |
| ||||
Beginning balance |
| $ | 11,144 |
|
| $ | 1,699 |
|
| $ | 1,276 |
|
| $ | 14,119 |
|
Current period provision (reversal), net |
|
| 4,771 |
|
|
| (944 | ) |
|
| (270 | ) |
|
| 3,557 |
|
Write-offs, net of recoveries |
|
| (1,225 | ) |
|
| (133 | ) |
|
| — |
|
|
| (1,358 | ) |
Foreign exchange |
|
| (335 | ) |
|
| (6 | ) |
|
| — |
|
|
| (341 | ) |
Ending balance |
| $ | 14,355 |
|
| $ | 616 |
|
| $ | 1,006 |
|
| $ | 15,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Year Ended December 31, 2022 |
| |||||||||||||
(In thousands of U.S. Dollars) |
| Theater |
|
| Studios |
|
| Other |
|
| Total |
| ||||
Beginning balance |
| $ | 8,867 |
|
| $ | 1,994 |
|
| $ | 1,085 |
|
| $ | 11,946 |
|
Current period provision (reversal), net |
|
| 2,687 |
|
|
| (128 | ) |
|
| 585 |
|
|
| 3,144 |
|
Write-offs, net of recoveries |
|
| (43 | ) |
|
| (128 | ) |
|
| (394 | ) |
|
| (565 | ) |
Foreign exchange |
|
| (367 | ) |
|
| (39 | ) |
|
| — |
|
|
| (406 | ) |
Ending balance |
| $ | 11,144 |
|
| $ | 1,699 |
|
| $ | 1,276 |
|
| $ | 14,119 |
|
For the year ended December 31, 2023, the Company’s allowance for current expected credit losses related to Accounts Receivable increased by $1.9 million, largely the result of an increase in aged receivables. In the fourth quarter of 2023, the $1.5 million COVID-19 reserve for China was released of which $0.3 million related to Accounts Receivable and $1.2 million to Financing Receivables.
For the year ended December 31, 2022, the Company’s allowance for current expected credit losses related to Accounts Receivable increased by $2.2 million principally due to reserves established against its receivables in Russia due to uncertainties associated with the ongoing Russia-Ukraine conflict and resulting sanctions, partially offset the reversal of provisions associated with the COVID-19 pandemic as the outlook for the theatrical exhibition industry in Domestic and Rest of World markets continues to improve. As of December 31, 2022, there remains a $1.5 million of COVID-19 additional reserve for China.
92
Financing Receivables
Financing receivables are due from theater operators and consist of the Company’s net investment in sales-type leases and receivables associated with financed sales of IMAX Systems. As of December 31, 2023 and 2022, financing receivables consist of the following:
|
| December 31, |
|
| December 31, |
| ||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
| ||
Net investment in leases |
|
|
|
|
|
| ||
Gross minimum payments due under sales-type leases |
| $ | 30,459 |
|
| $ | 29,727 |
|
Unearned finance income |
|
| (467 | ) |
|
| (619 | ) |
Present value of minimum payments due under sales-type leases |
|
| 29,992 |
|
|
| 29,108 |
|
Allowance for credit losses |
|
| (453 | ) |
|
| (776 | ) |
Net investment in leases |
|
| 29,539 |
|
|
| 28,332 |
|
Financed sales receivables |
|
|
|
|
|
| ||
Gross minimum payments due under financed sales |
|
| 135,684 |
|
|
| 141,337 |
|
Unearned finance income |
|
| (28,452 | ) |
|
| (29,340 | ) |
Present value of minimum payments due under financed sales |
|
| 107,232 |
|
|
| 111,997 |
|
Allowance for credit losses |
|
| (9,617 | ) |
|
| (10,945 | ) |
Net financed sales receivables |
|
| 97,615 |
|
|
| 101,052 |
|
Total financing receivables |
| $ | 127,154 |
|
| $ | 129,384 |
|
|
|
|
|
|
|
| ||
Net financed sales receivables due within one year |
| $ | 32,031 |
|
| $ | 32,366 |
|
Net financed sales receivables due after one year |
|
| 65,584 |
|
|
| 68,686 |
|
Total financed sales receivables |
| $ | 97,615 |
|
| $ | 101,052 |
|
As of December 31, 2023 and 2022, the weighted-average remaining lease term and weighted-average interest rate associated with the Company’s sales-type lease arrangements and financed sales receivables, as applicable, are as follows:
|
|
| December 31, |
| December 31, | ||||||
|
|
| 2023 |
| 2022 | ||||||
Weighted-average remaining lease term (in years) |
|
|
|
|
|
|
|
| |||
Sales-Type lease arrangements |
|
|
| 8.3 |
|
|
|
| 9.0 |
|
|
Weighted-average interest rate |
|
|
|
|
|
|
|
|
| ||
Sales-Type lease arrangements |
|
|
| 7.88 |
| % |
|
| 8.23 |
| % |
Financed sales receivables |
|
|
| 8.97 |
| % |
|
| 8.79 |
| % |
93
The tables below provide information on the Company’s net investment in leases by credit quality indicator as of December 31, 2023 and 2022. The amounts disclosed for each credit quality classification are determined on a customer-by-customer basis and include both billed and unbilled amounts.
(In thousands of U.S. Dollars) |
| By Origination Year |
|
|
|
| ||||||||||||||||||||||
As of December 31, 2023 |
| 2023 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
|
| Prior |
|
| Total |
| |||||||
Net investment in leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Credit quality classification: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
In good standing |
| $ | 2,435 |
|
| $ | 3,262 |
|
| $ | 6,241 |
|
| $ | 2,173 |
|
| $ | 1,677 |
|
| $ | 1,138 |
|
| $ | 16,926 |
|
Credit Watch |
|
| — |
|
|
| 490 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 313 |
|
|
| 803 |
|
Pre-approved transactions |
|
| — |
|
|
| — |
|
|
| 3,462 |
|
|
| 1,182 |
|
|
| 5,221 |
|
|
| 1,997 |
|
|
| 11,862 |
|
Transactions suspended |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 401 |
|
|
| 401 |
|
Total net investment in leases |
| $ | 2,435 |
|
| $ | 3,752 |
|
| $ | 9,703 |
|
| $ | 3,355 |
|
| $ | 6,898 |
|
| $ | 3,849 |
|
| $ | 29,992 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
(In thousands of U.S. Dollars) |
| By Origination Year |
|
|
|
| ||||||||||||||||||||||
As of December 31, 2022 |
| 2022 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| Prior |
|
| Total |
| |||||||
Net investment in leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Credit quality classification: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
In good standing |
| $ | 4,148 |
|
| $ | 6,969 |
|
| $ | 2,494 |
|
| $ | 1,977 |
|
| $ | — |
|
| $ | 1,016 |
|
| $ | 16,604 |
|
Credit Watch |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Pre-approved transactions |
|
| — |
|
|
| 3,089 |
|
|
| 1,162 |
|
|
| 5,401 |
|
|
| 2,451 |
|
|
| — |
|
|
| 12,103 |
|
Transactions suspended |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 401 |
|
|
| 401 |
|
Total net investment in leases |
| $ | 4,148 |
|
| $ | 10,058 |
|
| $ | 3,656 |
|
| $ | 7,378 |
|
| $ | 2,451 |
|
| $ | 1,417 |
|
| $ | 29,108 |
|
The tables below provide information on the Company’s financed sales receivables by credit quality indicator as of December 31, 2023 and 2022. The amounts disclosed for each credit quality classification are determined on a customer-by-customer basis and include both billed and unbilled amounts.
(In thousands of U.S. Dollars) |
| By Origination Year |
|
|
|
| ||||||||||||||||||||||
As of December 31, 2023 |
| 2023 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
|
| Prior |
|
| Total |
| |||||||
Financed sales receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Credit quality classification: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
In good standing |
| $ | 6,660 |
|
| $ | 5,921 |
|
| $ | 5,961 |
|
| $ | 5,415 |
|
| $ | 8,058 |
|
| $ | 44,870 |
|
| $ | 76,885 |
|
Credit Watch |
|
| — |
|
|
| 30 |
|
|
| — |
|
|
| — |
|
|
| 317 |
|
|
| 796 |
|
|
| 1,143 |
|
Pre-approved transactions |
|
| 607 |
|
|
| 313 |
|
|
| 2,619 |
|
|
| 1,455 |
|
|
| 2,084 |
|
|
| 8,508 |
|
|
| 15,586 |
|
Transactions suspended |
|
| — |
|
|
| — |
|
|
| 728 |
|
|
| 345 |
|
|
| 1,546 |
|
|
| 10,999 |
|
|
| 13,618 |
|
Total financed sales receivables |
| $ | 7,267 |
|
| $ | 6,264 |
|
| $ | 9,308 |
|
| $ | 7,215 |
|
| $ | 12,005 |
|
| $ | 65,173 |
|
| $ | 107,232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
(In thousands of U.S. Dollars) |
| By Origination Year |
|
|
|
| ||||||||||||||||||||||
As of December 31, 2022 |
| 2022 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| Prior |
|
| Total |
| |||||||
Financed sales receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Credit quality classification: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
In good standing |
| $ | 10,252 |
|
| $ | 8,643 |
|
| $ | 6,280 |
|
| $ | 8,541 |
|
| $ | 9,854 |
|
| $ | 39,912 |
|
| $ | 83,482 |
|
Credit Watch |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,152 |
|
|
| 1,152 |
|
Pre-approved transactions |
|
| — |
|
|
| 2,318 |
|
|
| 1,399 |
|
|
| 1,134 |
|
|
| 1,449 |
|
|
| 9,243 |
|
|
| 15,543 |
|
Transactions suspended |
|
| 272 |
|
|
| 664 |
|
|
| 142 |
|
|
| 1,269 |
|
|
| 1,197 |
|
|
| 8,276 |
|
|
| 11,820 |
|
Total financed sales receivables |
| $ | 10,524 |
|
| $ | 11,625 |
|
| $ | 7,821 |
|
| $ | 10,944 |
|
| $ | 12,500 |
|
| $ | 58,583 |
|
| $ | 111,997 |
|
94
The balance of financed sales receivables classified within the Transactions Suspended category as of December 31, 2023 includes amounts due from exhibitors in Russia, Ukraine, and Belarus which were reclassified from other credit quality classifications in 2022 as a result of the ongoing Russia-Ukraine conflict and resulting sanctions.
The following tables provide an aging analysis for the Company’s net investment in leases and financed sales receivables as of December 31, 2023 and 2022:
|
| As of December 31, 2023 |
| |||||||||||||||||||||||||||||
(In thousands of U.S. Dollars) |
| Accrued |
|
| 30-89 |
|
| 90+ |
|
| Billed |
|
| Unbilled |
|
| Recorded |
|
| Allowance |
|
| Net |
| ||||||||
Net investment in leases |
| $ | 293 |
|
| $ | 212 |
|
| $ | 4,598 |
|
| $ | 5,103 |
|
| $ | 24,889 |
|
| $ | 29,992 |
|
| $ | (453 | ) |
| $ | 29,539 |
|
Financed sales receivables |
|
| 1,535 |
|
|
| 1,196 |
|
|
| 10,704 |
|
|
| 13,435 |
|
|
| 93,797 |
|
|
| 107,232 |
|
|
| (9,617 | ) |
|
| 97,615 |
|
Total |
| $ | 1,828 |
|
| $ | 1,408 |
|
| $ | 15,302 |
|
| $ | 18,538 |
|
| $ | 118,686 |
|
| $ | 137,224 |
|
| $ | (10,070 | ) |
| $ | 127,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
| As of December 31, 2022 |
| |||||||||||||||||||||||||||||
(In thousands of U.S. Dollars) |
| Accrued |
|
| 30-89 |
|
| 90+ |
|
| Billed |
|
| Unbilled |
|
| Recorded |
|
| Allowance |
|
| Net |
| ||||||||
Net investment in leases |
| $ | 237 |
|
| $ | 216 |
|
| $ | 2,593 |
|
| $ | 3,046 |
|
| $ | 26,062 |
|
| $ | 29,108 |
|
| $ | (776 | ) |
| $ | 28,332 |
|
Financed sales receivables |
|
| 2,269 |
|
|
| 1,307 |
|
|
| 12,793 |
|
|
| 16,369 |
|
|
| 95,628 |
|
|
| 111,997 |
|
|
| (10,945 | ) |
|
| 101,052 |
|
Total |
| $ | 2,506 |
|
| $ | 1,523 |
|
| $ | 15,386 |
|
| $ | 19,415 |
|
| $ | 121,690 |
|
| $ | 141,105 |
|
| $ | (11,721 | ) |
| $ | 129,384 |
|
The following tables provide information about the Company’s net investment in leases and financed sales receivables with billed amounts past due for which it continues to accrue finance income as of December 31, 2023 and 2022. The amounts disclosed for each credit quality classification are determined on a customer-by-customer basis and include both billed and unbilled amounts.
|
| As of December 31, 2023 |
| |||||||||||||||||||||||||
(In thousands of U.S. Dollars) |
| Accrued |
|
| 30-89 Days |
|
| 90+ Days |
|
| Billed |
|
| Unbilled |
|
| Allowance |
|
| Net |
| |||||||
Net investment in leases |
| $ | 259 |
|
| $ | 212 |
|
| $ | 4,598 |
|
| $ | 5,069 |
|
| $ | 22,651 |
|
| $ | (9 | ) |
| $ | 27,711 |
|
Financed sales receivables |
|
| 798 |
|
|
| 782 |
|
|
| 10,517 |
|
|
| 12,097 |
|
|
| 33,552 |
|
|
| (1,198 | ) |
|
| 44,451 |
|
Total |
| $ | 1,057 |
|
| $ | 994 |
|
| $ | 15,115 |
|
| $ | 17,166 |
|
| $ | 56,203 |
|
| $ | (1,207 | ) |
| $ | 72,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| As of December 31, 2022 |
| |||||||||||||||||||||||||
(In thousands of U.S. Dollars) |
| Accrued |
|
| 30-89 Days |
|
| 90+ Days |
|
| Billed |
|
| Unbilled |
|
| Allowance |
|
| Net |
| |||||||
Net investment in leases |
| $ | 190 |
|
| $ | 181 |
|
| $ | 2,593 |
|
| $ | 2,964 |
|
| $ | 17,070 |
|
| $ | (230 | ) |
| $ | 19,804 |
|
Financed sales receivables |
|
| 1,550 |
|
|
| 1,115 |
|
|
| 10,814 |
|
|
| 13,479 |
|
|
| 43,172 |
|
|
| (1,587 | ) |
|
| 55,064 |
|
Total |
| $ | 1,740 |
|
| $ | 1,296 |
|
| $ | 13,407 |
|
| $ | 16,443 |
|
| $ | 60,242 |
|
| $ | (1,817 | ) |
| $ | 74,868 |
|
The following table provides information about the Company’s net investment in leases and financed sales receivables that are on nonaccrual status as of December 31, 2023 and 2022:
|
| As of December 31, 2023 |
|
| As of December 31, 2022 |
| ||||||||||||||||||
(In thousands of U.S. Dollars) |
| Recorded |
|
| Allowance |
|
| Net |
|
| Recorded |
|
| Allowance |
|
| Net |
| ||||||
Net investment in leases |
| $ | 401 |
|
| $ | (401 | ) |
| $ | — |
|
| $ | 401 |
|
| $ | (401 | ) |
| $ | — |
|
Net financed sales receivables |
|
| 29,204 |
|
|
| (8,884 | ) |
|
| 20,320 |
|
|
| 27,364 |
|
|
| (9,589 | ) |
|
| 17,775 |
|
Total |
| $ | 29,605 |
|
| $ | (9,285 | ) |
| $ | 20,320 |
|
| $ | 27,765 |
|
| $ | (9,990 | ) |
| $ | 17,775 |
|
95
For the year ended December 31, 2023, the Company recognized less than $0.1 million (2022 — $0.1 million; 2021 —$0.1 million) in Finance Income related to the net investment in leases with billed amounts past due. For the years ended December 31, 2023, 2022 and 2021, the Company did not recognize any Finance Income related to the net investment in leases in nonaccrual status. For the year ended December 31, 2023, the Company recognized $2.7 million (2022 — $3.6 million; 2021 — $3.7 million) in Finance Income related to the financed sales receivables with billed amounts past due. For the year ended December 31, 2023, the Company recognized $0.2 million (2022 — $0.5 million; 2021 — $0.2 million) in Finance Income related to the financed sales receivables in nonaccrual status.
The following tables summarize the activity in the allowance for credit losses related to the Company’s net investment in leases and financed sales receivables for years ended December 31, 2023 and 2022:
|
| Year Ended December 31, 2023 |
| |||||
|
| Net Investment |
|
| Financed |
| ||
(In thousands of U.S. Dollars) |
| in Leases |
|
| Sales Receivables |
| ||
Beginning balance |
| $ | 776 |
|
| $ | 10,945 |
|
Current period reversal, net |
|
| (61 | ) |
|
| (1,644 | ) |
Foreign exchange |
|
| (262 | ) |
|
| 316 |
|
Ending balance |
| $ | 453 |
|
| $ | 9,617 |
|
|
|
|
|
|
|
| ||
|
| Year Ended December 31, 2022 |
| |||||
|
| Net Investment |
|
| Net Financed |
| ||
(In thousands of U.S. Dollars) |
| in Leases |
|
| Sales Receivables |
| ||
Beginning balance |
| $ | 798 |
|
| $ | 5,414 |
|
Current period provision, net |
|
| 5 |
|
|
| 5,783 |
|
Foreign exchange |
|
| (27 | ) |
|
| (252 | ) |
Ending balance |
| $ | 776 |
|
| $ | 10,945 |
|
For the year ended December 31, 2023, the Company’s allowance for current expected credit losses related to its net investment in leases and financed sales receivables decreased by $1.7 million. This decrease is principally due to the release of China’s COVID-19 pandemic provision of $1.5 million, of which $1.2 million relates to its net investment in leases and financed sales receivables.
For the year ended December 31, 2022, the Company’s allowance for current expected credit losses related to its net investment in leases and financed sales receivables increased by $5.5 million. This decrease is principally due to reserves established against its receivables in Russia due to uncertainties associated with the ongoing Russia-Ukraine conflict and resulting sanctions, partially offset by the reversal of provisions associated with the COVID-19 pandemic as the outlook for the theatrical exhibition industry in Domestic and Rest of World markets continues to improve.
Variable Consideration Receivables
In sale arrangements, variable consideration may become due to the Company from theater operators if certain annual minimum box office receipt thresholds are exceeded. Such variable consideration is recorded as revenue in the period when the sale is recognized and adjusted in future periods based on actual results and changes in estimates. Variable consideration is only recognized to the extent the Company believes there is not a risk of significant revenue reversal.
The following table summarizes the activity in the Allowance for Credit Losses related to Variable Consideration Receivables for the years ended December 31, 2023 and 2022:
|
| Year Ended December 31, |
| |||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
| ||
Beginning balance |
| $ | 610 |
|
| $ | 1,082 |
|
Current period provision (reversal), net |
|
| 35 |
|
|
| (440 | ) |
Foreign Exchange |
|
| (12 | ) |
|
| (32 | ) |
Ending balance |
| $ | 633 |
|
| $ | 610 |
|
For the year ended December 31, 2023, the Company’s allowance for current expected credit losses related to Variable Consideration Receivables remained consistent at $0.6 million. As of December 31, 2023, there was no COVID-19 pandemic provision remaining.
96
For the year ended December 31, 2022, the Company’s allowance for current expected credit losses related to Variable Consideration Receivables decreased by $0.5 million. This decrease is principally due to the reversal of provisions associated with the COVID-19 pandemic as the outlook for the theatrical exhibition industry in Domestic and Rest of World markets continues to improve.
6. Lease Arrangements
(a) General TermsThe Company’s operating lease arrangements principally involve office and warehouse space. Office equipment is generally purchased outright. Leases with an initial term of Lease Arrangements
A numberless than 12 months are not recorded on the Consolidated Balance Sheets and the related lease expense is recognized on a straight-line basis over the lease term. Most of the Company’s leases include one or more options to renew, with renewal terms that can extend the lease term from one to five years or more. The Company has determined that it is reasonably certain that the renewal options on its warehouse leases will be exercised based on previous history, its current understanding of future business needs, and its level of investment in leasehold improvements, among other factors. The incremental borrowing rate used in the calculation of the Company’s lease liabilities is based on the location of each leased property.None of the Company’s leases include options to purchase the leased property. The depreciable lives of right-of-use assets and related leasehold improvements are limited by the expected lease term. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company rents or subleases certain office space to third parties, which have a remaining term of less than 12 months and are not expected to be renewed.
In 2022, the Company entered into a finance lease arrangement involving equipment used to facilitate the delivery of live events to certain IMAX locations. The lease arrangement includes an option for the Company to purchase the equipment at the end of the lease term that is reasonably certain to be exercised. The resulting right-of-use assets are being depreciated from the lease commencement dates over the useful life of the underlying equipment. The incremental borrowing rate used in the calculation of the lease liabilities is based on the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar term.
For the years ended December 31, 2023, 2022, and 2021 the components of lease expense recorded within Selling, General and Administrative Expenses are as follows:
|
| Years Ended December 31, |
| |||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Operating lease cost: |
|
|
|
|
|
|
|
|
| |||
Amortization of operating lease assets |
| $ | 2,677 |
|
| $ | 2,734 |
|
| $ | 2,791 |
|
Interest on operating lease liabilities |
|
| 768 |
|
|
| 825 |
|
|
| 937 |
|
Short-term and variable lease costs |
|
| 507 |
|
|
| 616 |
|
|
| 713 |
|
Finance lease cost: |
|
|
|
|
|
|
|
|
| |||
Amortization of finance lease assets |
|
| 398 |
|
|
| 171 |
|
| N/A |
| |
Interest on finance lease liabilities |
|
| 45 |
|
|
| 22 |
|
| N/A |
| |
Total lease cost |
| $ | 4,395 |
|
| $ | 4,368 |
|
| $ | 4,441 |
|
For the years ended December 31, 2023, 2022, and 2021, supplemental cash and non-cash information related to leases is as follows:
|
| Years Ended December 31, |
| |||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
| |||
Operating leases |
| $ | 3,675 |
|
| $ | 3,783 |
|
| $ | 3,839 |
|
Finance leases |
|
| 480 |
|
|
| 948 |
|
| N/A |
| |
Supplemental disclosure of non-cash leasing activities: |
|
|
|
|
|
|
|
|
| |||
Right-of-use assets obtained in exchange for operating lease |
|
| 972 |
|
|
| 3,068 |
|
|
| 1,047 |
|
Right-of-use assets obtained in exchange for finance lease obligations |
|
| — |
|
|
| 1,990 |
|
| N/A |
|
97
As of December 31, 2023 and 2022, supplemental balance sheet information related to leases is as follows:
|
|
| December 31, |
| |||||
(In thousands of U.S. Dollars) |
|
| 2023 |
|
| 2022 |
| ||
Assets | Balance Sheet Location |
|
|
|
|
|
| ||
Operating lease right-of-use assets | Property, plant and equipment |
| $ | 10,599 |
|
| $ | 12,341 |
|
Finance lease right-of-use assets | Property, plant and equipment |
|
| 1,420 |
|
|
| 1,876 |
|
Liabilities | Balance Sheet Location |
|
|
|
|
|
| ||
Operating lease liabilities | Accrued and other liabilities |
|
| 12,702 |
|
|
| 14,641 |
|
Finance lease liabilities(1) | Accrued and other liabilities |
|
| 518 |
|
|
| 1,011 |
|
As of December 31, 2023 and 2022, the weighted-average remaining lease term and weighted-average interest rate associated with the Company’s leases are as follows:
|
|
| December 31, |
|
| |||||
|
|
| 2023 |
|
| 2022 |
|
| ||
Operating leases: |
|
|
|
|
|
|
| |||
Weighted-average remaining lease term (years) |
|
| 4.9 |
|
|
| 6.0 |
|
| |
Weighted-average discount rate |
|
|
| 5.85 |
| % |
| 5.90 |
| % |
Finance leases: |
|
|
|
|
|
|
|
| ||
Weighted-average remaining lease term (years) |
|
| 3.6 |
|
|
| 4.7 |
|
| |
Weighted-average discount rate |
|
|
| 6.0 |
| % |
| 6.0 |
| % |
As of December 31, 2023, the maturities of the Company’s operating and finance lease liabilities are as follows:
(In thousands of U.S. Dollars) |
| Operating Leases |
| Finance Leases |
| ||
2024 |
| $ | 2,740 |
| $ | 535 |
|
2025 |
|
| 2,544 |
|
| — |
|
2026 |
|
| 2,482 |
|
| — |
|
2027 |
|
| 2,481 |
|
| — |
|
2028 |
|
| 2,484 |
|
| — |
|
Thereafter |
|
| 2,167 |
|
| — |
|
Total lease payments |
|
| 14,898 |
|
| 535 |
|
Less: interest expense |
|
| (2,196 | ) |
| (17 | ) |
Present value of lease liabilities |
| $ | 12,702 |
| $ | 518 |
|
The Company provides IMAX Systems to customers through long-term lease arrangements that for accounting purposes are classified as sales-type leases. Under these arrangements, in exchange for providing the IMAX System, the Company earns fixed upfront and ongoing consideration. Certain arrangements that are legal sales are also classified as sales-type leases as certain clauses within the arrangements limit transfer of title or provide the Company with conditional rights to the system. The customer’s rights under the Company’s sales-type lease arrangements are described in note 2(m)Note 2(o). The Company classifies its lease arrangements at inception of the arrangement and, if required, after a modification of the lease arrangement, to determine whether they are sales-type leases or operating leases. Under the Company’s sales-type lease arrangements, the customer has the ability and the right to operate the hardware components or direct others to operate them in a manner determined by the customer. The Company’s lease portfolio terms are typicallynon-cancellable for 10 to 20 years with renewal provisions from inception. Except for those sales arrangements that are classified as sales-type leases, the Company’s leases generally do not contain an automatic transfer of title at the end of the lease term. The Company’s sales-type lease arrangements do not contain a guarantee of residual value at the end of the lease term. The customer is required to pay for executory costs such as insurance and taxes and is required to pay the Company for maintenance and an extended warranty generally after the first year of the lease until the end of the lease term. The customer is responsible for obtaining insurance coverage for the theater systemsIMAX System commencing on the date specified in the arrangement’s shipping terms and ending on the date the theater systems are delivered backIMAX System is returned to the Company.
98
The Company has assessedalso provides IMAX Systems to customers through joint revenue sharing arrangements. Under the naturetraditional form of itsthese arrangements, in exchange for providing the IMAX System under a long-term lease, the Company earns rent based on a percentage of contingent box office receipts and, in some cases, concession revenues, rather than a fixed upfront fee or annual minimum payments. Under certain other joint revenue sharing arrangements, known as hybrid arrangements, the customer is responsible for making fixed upfront payments prior to the delivery and concluded that, based on the guidance in the Revenue Recognition Topicinstallation of the ASC, the arrangements contain a lease.IMAX System. Under joint revenue sharing arrangements, the customer has the ability and the right to operate the hardware components or direct others to operate them in a manner determined by the customer. The Company’s joint revenue sharing arrangements are typicallynon-cancellable for 10 years or longer with renewal provisions. Title to equipmentthe IMAX System under a joint revenue sharing arrangementsarrangement generally does not transfer to the customer. The Company’s joint revenue sharing arrangements do not contain a guarantee of residual value at the end of the lease term. The customer is required to pay for executory costs such as insurance and taxes and is required to pay the Company for maintenance and an extended warranty throughout the term. The customer is responsible for obtaining insurance coverage for the theater systemsIMAX System commencing on the date specified in the arrangement’s shipping terms and ending on the date the theater systems are delivered backIMAX System is returned to the Company. See additional details regarding
The following lease payments are expected to be received by the Company’s traditionalCompany for its sales-type leases and hybrid joint revenue sharing arrangements as described in note 2(m).
(b) Financing Receivables
Financing receivables, consisting of net investment in sales-type leases and receivables from financed sales of theater systems are as follows:
As at December 31, | ||||||||
2017 | 2016 | |||||||
Gross minimum lease payments receivable | $ | 8,537 | $ | 10,466 | ||||
Unearned finance income | (1,147 | ) | (1,710 | ) | ||||
|
|
|
| |||||
Minimum lease payments receivable | 7,390 | 8,756 | ||||||
Accumulated allowance for uncollectible amounts | (155 | ) | (672 | ) | ||||
|
|
|
| |||||
Net investment in leases | 7,235 | 8,084 | ||||||
|
|
|
| |||||
Gross financed sales receivables | 162,522 | 154,301 | ||||||
Unearned finance income | (39,341 | ) | (39,766 | ) | ||||
|
|
|
| |||||
Financed sales receivables | 123,181 | 114,535 | ||||||
Accumulated allowance for uncollectible amounts | (922 | ) | (494 | ) | ||||
|
|
|
| |||||
Net financed sales receivables | 122,259 | 114,041 | ||||||
|
|
|
| |||||
Total financing receivables | $ | 129,494 | $ | 122,125 | ||||
|
|
|
| |||||
Net financed sales receivables due within one year | $ | 25,455 | $ | 21,980 | ||||
Net financed sales receivables due after one year | $ | 96,804 | $ | 92,061 |
In 2017, the financed sales receivables had a weighted average effective interest rate of 9.1% (2016 — 9.3%).
(c) Contingent Fees
Contingent fees that meet the Company’s revenue recognition policy, from customers under various theater system arrangements, have been reported in revenue as follows:
Years Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Sales | $ | 2,613 | $ | 3,308 | $ | 2,492 | ||||||
Sales-type leases | 53 | 375 | 363 | |||||||||
Operating leases | 185 | 602 | 901 | |||||||||
|
|
|
|
|
| |||||||
Subtotal - sales, sales-type leases and operating leases | 2,851 | 4,285 | 3,756 | |||||||||
Joint revenue sharing arrangements | 70,779 | 73,976 | 82,016 | |||||||||
|
|
|
|
|
| |||||||
$ | 73,630 | $ | 78,261 | $ | 85,772 | |||||||
|
|
|
|
|
|
(d) Future Minimum Rental Payments
Future minimum rental payments receivable from operating and sales-type leases at December 31, 2017, for each of the next five years and thereafter following the December 31, 2023 balance sheet date:
(In thousands of U.S. Dollars) |
| Sales-Type |
|
| Joint Revenue |
| ||
2024 |
| $ | 3,222 |
|
| $ | 71 |
|
2025 |
|
| 3,112 |
|
|
| 27 |
|
2026 |
|
| 3,031 |
|
|
| — |
|
2027 |
|
| 2,965 |
|
|
| — |
|
2028 |
|
| 2,813 |
|
|
| — |
|
Thereafter |
|
| 9,307 |
|
|
| — |
|
Total |
| $ | 24,450 |
|
| $ | 98 |
|
(Refer to Note 6 for additional information related to the net investment in leases related to the Company’s sales-type lease arrangements.)
99
7. Variable Consideration from Contracts with Customers
The arrangement for the sale of an IMAX System includes indexed minimum payment increases over the term of the arrangement, as well as the potential for additional payments owed by the customer if certain minimum box office receipt thresholds are exceeded. In addition, hybrid sales arrangements include amounts owed by the customer based on a percentage of their box office receipts over the term of the arrangement. These contract provisions are considered to be variable consideration. An estimate of the present value of such variable consideration is recognized as follows:revenue upon the transfer of control of the System Obligation to the customer, subject to constraints to ensure that there is not a risk of significant revenue reversal. This estimate is based on management’s box office projections for the individual IMAX System, which are developed using historical data for the location and, if necessary, comparable theaters and territories. (Refer to Note 2(o) for a more detailed discussion of the Company’s accounting policy related to variable consideration.)
The following table summarizes the activity related to variable consideration from contracts with customers for the years ended December 31, 2023, 2022, and 2021:
|
|
|
| |
(In thousands of U.S. Dollars) |
|
|
| |
Balance as of January 1, 2021 |
| $ | 40,526 |
|
Variable consideration for newly recognized sales |
|
| 4,696 |
|
Accretion to finance income |
|
| 1,985 |
|
Transferred to receivables from variable consideration assets |
|
| (3,794 | ) |
Movement in allowance for credit losses |
|
| 805 |
|
Balance as of December 31, 2021 |
|
| 44,218 |
|
Variable consideration for newly recognized sales |
|
| 7,109 |
|
Accretion to finance income |
|
| 1,846 |
|
Transferred to receivables from variable consideration assets |
|
| (9,621 | ) |
Movement in allowance for credit losses (see Note 5) |
|
| 472 |
|
Balance as of December 31, 2022 |
|
| 44,024 |
|
Variable consideration for newly recognized sales |
|
| 28,580 |
|
Accretion to finance income |
|
| 2,644 |
|
Transferred to receivables from variable consideration assets |
|
| (10,887 | ) |
Movement in allowance for credit losses (see Note 5) |
|
| (23 | ) |
Balance as of December 31, 2023 |
| $ | 64,338 |
|
8. Inventories
Operating Leases | Sales-Type Leases | |||||||
2018 | $ | 484 | $ | 1,503 | ||||
2019 | 166 | 1,456 | ||||||
2020 | 69 | 1,331 | ||||||
2021 | 69 | 1,306 | ||||||
2022 | 70 | 899 | ||||||
Thereafter | 215 | 1,655 | ||||||
|
|
|
| |||||
Total | $ | 1,073 | $ | 8,150 | ||||
|
|
|
|
|
| As of December 31, |
| |||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
| ||
Raw materials |
| $ | 27,660 |
|
| $ | 25,365 |
|
Work-in-process |
|
| 2,570 |
|
|
| 2,034 |
|
Finished goods |
|
| 1,354 |
|
|
| 4,135 |
|
|
| $ | 31,584 |
|
| $ | 31,534 |
|
Total future minimum rental payments receivable from sales-type leases at
As of December 31, 2017 exclude $0.4 million which represents amounts billed but not yet received.
5.2023, Inventories
As at December 31, | ||||||||
2017 | 2016 | |||||||
Raw materials | $ | 21,206 | $ | 28,000 | ||||
Work-in-process | 2,601 | 3,818 | ||||||
Finished goods | 6,981 | 10,303 | ||||||
|
|
|
| |||||
$ | 30,788 | $ | 42,121 | |||||
|
|
|
|
At December 31, 2017, include finished goods inventoryof $0.6 million (December 31, 2022 — $3.5 million) for which title had passed to the customer, andbut the criteria for revenue was deferred amounted to $4.9 million (December 31, 2016 — $2.3 million).recognition were not met as of the balance sheet date.
Inventories at
100
The following table summarizes the activity for the Company’s inventory valuation allowance account for the years ended December 31, 2017 include impairments2023, 2022 and write-downs for excess and obsolete inventory based upon current estimates2021:
|
| Balance at |
|
| Additions |
|
| Other deductions(2) |
|
| Balance at |
| ||||
(In thousands of U.S. Dollars) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Year ended December 31, 2023 |
| $ | 5,739 |
|
| $ | 64 |
|
| $ | (387 | ) |
| $ | 5,416 |
|
Year ended December 31, 2022 |
|
| 4,897 |
|
|
| 919 |
|
| (77 | ) |
|
| 5,739 |
| |
Year ended December 31, 2021 |
|
| 5,752 |
|
|
| 629 |
|
| (1,484 | ) |
|
| 4,897 |
|
6.9. Film Assets
As at December 31, |
| As of December 31, |
| |||||||||||||
2017 | 2016 | |||||||||||||||
Completed and released films, net of accumulated amortization of $158,155 (2016—$128,650) | $ | 3,467 | $ | 10,643 | ||||||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
| ||||||||||
Completed and released films, net of accumulated amortization of |
| $ | 1,382 |
|
| $ | 1,227 |
| ||||||||
$236,275 (2022 ― $235,029) |
|
|
|
|
|
| ||||||||||
Films in production | 97 | 325 |
|
| 4,341 |
|
|
| 1,667 |
| ||||||
Films in development | 1,462 | 5,554 |
|
| 1,063 |
|
|
| 2,383 |
| ||||||
|
|
| $ | 6,786 |
|
| $ | 5,277 |
| |||||||
$ | 5,026 | $ | 16,522 | |||||||||||||
|
|
The Company expects to amortize film costs$5.0 million of $3.4 million for released filmsthe Film Assets balance within three years from December 31, 2017 (December 31, 2016 — $4.8 million),2023, including $2.2$3.2 million which reflects the portion of the costs of the Company’s completed films that are expected to be amortized withinin 2024, $0.9 million in 2025, and $0.9 million in 2026. In certain film arrangements, the next year.Company co-produces a film with a third party whereby the third party retaining certain rights to the film. The amount of participation payments owed to third parties related to theseco-produced films thatas of December 31, 2023 is $3.8 million (December 31, 2022 — $3.8 million) and is recorded on the Consolidated Balance Sheets within Accrued and Other Liabilities.
In 2023, the Company expectsrecorded impairment losses of $0.4 million related to pay during 2018,the write-down of film assets (2022 — $0.8 million; 2021 — $0.2 million).
101
10. Property, Plant and Equipment
|
| As of December 31, 2023 |
| ||||||||||||
|
|
|
|
|
| Accumulated |
|
| Net Book |
| |||||
(In thousands of U.S. Dollars) |
| Cost |
|
| Depreciation |
|
| Value |
| ||||||
Equipment leased or held for use: |
|
|
|
|
|
|
|
|
|
|
|
| |||
IMAX System components(1)(2)(3) |
| $ |
| 334,323 |
|
| $ |
| 192,069 |
|
| $ |
| 142,254 |
|
Camera and connectivity equipment |
|
|
| 9,077 |
|
|
|
| 5,053 |
|
|
|
| 4,024 |
|
|
|
| 343,400 |
|
|
|
| 197,122 |
|
|
|
| 146,278 |
| |
Assets under construction(4) |
|
|
| 20,125 |
|
|
|
| — |
|
|
|
| 20,125 |
|
Right-of-use assets(5) |
|
|
| 13,545 |
|
|
|
| 1,526 |
|
|
|
| 12,019 |
|
Other property, plant and equipment: |
|
|
|
|
|
|
|
|
|
|
|
| |||
Land |
|
|
| 8,203 |
|
|
|
| — |
|
|
|
| 8,203 |
|
Buildings |
|
|
| 81,374 |
|
|
|
| 33,748 |
|
|
|
| 47,626 |
|
Office and production equipment(6) |
|
|
| 38,223 |
|
|
|
| 31,891 |
|
|
|
| 6,332 |
|
Leasehold improvements |
|
|
| 7,926 |
|
|
|
| 5,210 |
|
|
|
| 2,716 |
|
|
|
| 135,726 |
|
|
|
| 70,849 |
|
|
|
| 64,877 |
| |
| $ |
| 512,796 |
|
| $ |
| 269,497 |
|
| $ |
| 243,299 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
| As of December 31, 2022 |
| ||||||||||||
|
|
|
|
|
| Accumulated |
|
| Net Book |
| |||||
(In thousands of U.S. Dollars) |
| Cost |
|
| Depreciation |
|
| Value |
| ||||||
Equipment leased or held for use: |
|
|
|
|
|
|
|
|
|
|
|
| |||
IMAX System components(1)(2)(3) |
| $ |
| 345,960 |
|
| $ |
| 194,444 |
|
| $ |
| 151,516 |
|
Camera and connectivity equipment |
|
|
| 8,597 |
|
|
|
| 3,859 |
|
|
|
| 4,738 |
|
|
|
| 354,557 |
|
|
|
| 198,303 |
|
|
|
| 156,254 |
| |
Assets under construction(4) |
|
|
| 14,379 |
|
|
|
| — |
|
|
|
| 14,379 |
|
Right-of-use assets(5) |
|
|
| 14,615 |
|
|
|
| 398 |
|
|
|
| 14,217 |
|
Other property, plant and equipment: |
|
|
|
|
|
|
|
|
|
|
|
| |||
Land |
|
|
| 8,203 |
|
|
|
| — |
|
|
|
| 8,203 |
|
Buildings |
|
|
| 81,053 |
|
|
|
| 31,519 |
|
|
|
| 49,534 |
|
Office and production equipment(6) |
|
|
| 38,485 |
|
|
|
| 31,360 |
|
|
|
| 7,125 |
|
Leasehold improvements |
|
|
| 7,959 |
|
|
|
| 4,775 |
|
|
|
| 3,184 |
|
|
|
| 135,700 |
|
|
|
| 67,654 |
|
|
|
| 68,046 |
| |
| $ |
| 519,251 |
|
| $ |
| 266,355 |
|
| $ |
| 252,896 |
|
102
11. Other Assets
|
| As of December 31, |
| |||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
| ||||
Lease incentives provided to exhibitor customers, net of accumulated amortization |
| $ |
| 17,417 |
|
| $ |
| 12,975 |
|
Commissions and other deferred selling expenses |
|
|
| 1,241 |
|
|
|
| 1,336 |
|
Other investments |
|
|
| 1,000 |
|
|
|
| 1,000 |
|
Foreign currency derivatives |
|
|
| 846 |
|
|
|
| 50 |
|
Other |
|
|
| 375 |
|
|
|
| 304 |
|
|
| $ |
| 20,879 |
|
| $ |
| 15,665 |
|
12. Income Taxes
Income (loss) before taxes by tax jurisdiction for the years ended December 31, 2017,2023, 2022, and 2021 consists of the following:
|
| Years Ended December 31, |
| ||||||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
Canada |
| $ |
| (13,366 | ) |
| $ |
| (55,623 | ) |
| $ |
| (55,480 | ) |
United States |
|
|
| 5,195 |
|
|
|
| 4,281 |
|
|
|
| 3,218 |
|
China |
|
|
| 34,433 |
|
|
|
| 11,466 |
|
|
|
| 53,792 |
|
Ireland |
|
|
| 19,371 |
|
|
|
| 24,070 |
|
|
|
| 829 |
|
Other |
|
|
| 484 |
|
|
|
| 6,037 |
|
|
|
| 8,628 |
|
|
| $ |
| 46,117 |
|
| $ |
| (9,769 | ) |
| $ |
| 10,987 |
|
Income tax expense for the years ended December 31, 2023, 2022, and 2021 consists of the following:
|
| Years Ended December 31, |
| ||||||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
Income tax expense – current: |
|
|
|
|
|
|
|
|
|
|
|
| |||
Canada |
| $ |
| (3,102 | ) |
| $ |
| (1,149 | ) |
| $ |
| (915 | ) |
United States |
|
|
| (1,638 | ) |
|
|
| (274 | ) |
|
|
| (1,038 | ) |
China |
|
|
| (3,634 | ) |
|
|
| (4,437 | ) |
|
|
| (11,045 | ) |
Ireland |
|
|
| (3,481 | ) |
|
|
| (2,802 | ) |
|
|
| (1,358 | ) |
Other |
|
|
| (2,643 | ) |
|
|
| (3,519 | ) |
|
|
| (3,212 | ) |
Sub-total |
|
|
| (14,498 | ) |
|
|
| (12,181 | ) |
|
|
| (17,568 | ) |
Income tax (expense) benefit – deferred: |
|
|
|
|
|
|
|
|
|
|
|
| |||
Canada(1) |
|
|
| 2,456 |
|
|
|
| 943 |
|
|
|
| (231 | ) |
United States |
|
|
| 1,537 |
|
|
|
| (131 | ) |
|
|
| (1,268 | ) |
China(2) |
|
|
| (433 | ) |
|
|
| 2,763 |
|
|
|
| (381 | ) |
Ireland |
|
|
| (2,040 | ) |
|
|
| (1,562 | ) |
|
|
| (997 | ) |
Other |
|
|
| (73 | ) |
|
|
| 60 |
|
|
|
| (119 | ) |
Sub-total |
|
|
| 1,447 |
|
|
|
| 2,073 |
|
|
|
| (2,996 | ) |
Total(3) |
| $ |
| (13,051 | ) |
| $ |
| (10,108 | ) |
| $ |
| (20,564 | ) |
The Company recognized an impairmentrecorded in jurisdictions where management has determined, based on its episodic contentthe weight of all available evidence, both positive and negative, that a valuation allowance for deferred tax assets in its new business segment, of $11.7 million foris required. For the year ended December 31, 2017, due to lower than anticipated revenue generated for the television series’ first season. The first season of the series was completed in 2017 and as a result the episodic asset value was $nil as at December 31, 2017.
In 2017,2023, the Company recorded a charge$
7. Property, Plant and Equipment
As at December 31, 2017 | ||||||||||||
Cost | Accumulated Depreciation | Net Book Value | ||||||||||
Equipment leased or held for use | ||||||||||||
Theater system components(1)(2)(3)(4) | $ | 264,259 | $ | 103,922 | $ | 160,337 | ||||||
Camera equipment | 5,757 | 3,939 | 1,818 | |||||||||
|
|
|
|
|
| |||||||
270,016 | 107,861 | 162,155 | ||||||||||
|
|
|
|
|
| |||||||
Assets under construction(5) | 23,398 | — | 23,398 | |||||||||
|
|
|
|
|
| |||||||
Other property, plant and equipment | ||||||||||||
Land | 8,203 | — | 8,203 | |||||||||
Buildings | 74,478 | 17,364 | 57,114 | |||||||||
Office and production equipment(6) | 40,442 | 22,164 | 18,278 | |||||||||
Leasehold improvements | 10,974 | 3,341 | 7,633 | |||||||||
|
|
|
|
|
| |||||||
134,097 | 42,869 | 91,228 | ||||||||||
|
|
|
|
|
| |||||||
$ | 427,511 | $ | 150,730 | $ | 276,781 | |||||||
|
|
|
|
|
| |||||||
As at December 31, 2016 | ||||||||||||
Cost | Accumulated Depreciation | Net Book Value | ||||||||||
Equipment leased or held for use | ||||||||||||
Theater system components(1)(2)(3) | $ | 224,890 | $ | 89,218 | $ | 135,672 | ||||||
Camera equipment | 5,739 | 3,732 | 2,007 | |||||||||
|
|
|
|
|
| |||||||
230,629 | 92,950 | 137,679 | ||||||||||
|
|
|
|
|
| |||||||
Assets under construction(5) | 18,315 | — | 18,315 | |||||||||
|
|
|
|
|
| |||||||
Other property, plant and equipment | ||||||||||||
Land | 8,203 | — | 8,203 | |||||||||
Buildings | 69,861 | 14,877 | 54,984 | |||||||||
Office and production equipment(6) | 41,128 | 21,935 | 19,193 | |||||||||
Leasehold improvements | 10,067 | 3,026 | 7,041 | |||||||||
|
|
|
|
|
| |||||||
129,259 | 39,838 | 89,421 | ||||||||||
|
|
|
|
|
| |||||||
$ | 378,203 | $ | 132,788 | $ | 245,415 | |||||||
|
|
|
|
|
|
The Company recognized asset impairment charges of $0.3 million (2016 — $0.2 million; 2015 — $0.4 million)valuation allowance against property, plant and equipment after an assessment of the carrying value of certainits deferred tax assets in light of their future expected cash flows.
In addition, as a result ofCanada. The $
103
(3) For the year ended December 31, 2023, Income Tax Expense excludes a tax expense of $0.2 million included in |
8. Other Assets
As at December 31, | ||||||||
2017 | 2016 | |||||||
Lease incentives provided to theaters | $ | 7,393 | �� | $ | 5,632 | |||
Commissions and other deferred selling expenses | 3,762 | 3,352 | ||||||
Other investments | 3,516 | 2,000 | ||||||
Investment in film business | 3,484 | 1,389 | ||||||
Insurance recoverable | 2,708 | 2,708 | ||||||
Investment in content | 2,911 | 522 | ||||||
Foreign currency derivatives | 1,447 | 480 | ||||||
Deferred charges on debt financing and other fees | 1,182 | 1,713 | ||||||
Prepaid taxes (note 9) | — | 14,728 | ||||||
Other | 354 | 671 | ||||||
|
|
|
| |||||
$ | 26,757 | $ | 33,195 | |||||
|
|
|
|
9.Comprehensive (Loss) Income Taxes
(a)(2022 — expense of $
For the years ended December 31, 2023, 2022, and 2021, the Company’s effective tax rate and income taxes by tax jurisdiction are comprised of the following:
Years Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Canada | $ | (17,261 | ) | $ | 21,002 | $ | 41,099 | |||||
United States | (11,895 | ) | 505 | 4,504 | ||||||||
China | 50,410 | 41,224 | 45,818 | |||||||||
Ireland | 3,632 | (9,768 | ) | (10,581 | ) | |||||||
Other | 5,125 | 4,890 | 6,238 | |||||||||
|
|
|
|
|
| |||||||
$ | 30,011 | $ | 57,853 | $ | 87,078 | |||||||
|
|
|
|
|
|
(b) The provision for income taxes related to income (loss) before income taxes is comprised of the following:
Years Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Current: | ||||||||||||
Canada | $ | (6,898 | ) | $ | (1,396 | ) | $ | (10,862 | ) | |||
United States | 267 | 1,756 | 985 | |||||||||
China | (12,724 | ) | (10,131 | ) | (10,591 | ) | ||||||
Ireland | (735 | ) | (405 | ) | — | |||||||
Other | (717 | ) | (1,093 | ) | (920 | ) | ||||||
|
|
|
|
|
| |||||||
(20,807 | ) | (11,269 | ) | (21,388 | ) | |||||||
|
|
|
|
|
| |||||||
Deferred:(1) | ||||||||||||
Canada | 8,748 | (3,583 | ) | (518 | ) | |||||||
United States | (7,109 | ) | (4,359 | ) | 147 | |||||||
China | 1,405 | 776 | (83 | ) | ||||||||
Ireland | 1,085 | 2,352 | 1,840 | |||||||||
Other | (112 | ) | (129 | ) | (50 | ) | ||||||
|
|
|
|
|
| |||||||
4,017 | (4,943 | ) | 1,336 | |||||||||
|
|
|
|
|
| |||||||
$ | (16,790 | ) | $ | (16,212 | ) | $ | (20,052 | ) | ||||
|
|
|
|
|
|
(c) The provision for income taxes from continuing operationsexpense differs from the amount that would have resulted by applying the combined Canadian federal and provincial statutory income tax rates to earnings due to the following:following factors:
|
| Years Ended December 31, | ||||||||||||||||
|
| 2023 |
| 2022 |
| 2021 | ||||||||||||
(In thousands of U.S. Dollars, except rates) |
| Amount |
|
| Rate |
| Amount |
|
| Rate |
| Amount |
|
| Rate | |||
Income tax (expense) benefit at combined statutory rates |
| $ | (12,221 | ) |
| 26.5% |
| $ | 2,596 |
|
| 26.5% |
| $ | (2,912 | ) |
| 26.5% |
Adjustments resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Decrease (increase) in valuation allowance |
|
| 732 |
|
| (1.6%) |
|
| (16,848 | ) |
| (172.5%) |
|
| (14,722 | ) |
| 134.0% |
Changes to tax reserves |
|
| 387 |
|
| (0.8%) |
|
| 1,643 |
|
| 16.8% |
|
| 3,508 |
|
| (31.9%) |
U.S. federal and state taxes |
|
| (250 | ) |
| 0.5% |
|
| (86 | ) |
| (0.9%) |
|
| (80 | ) |
| 0.7% |
Withholding taxes |
|
| (5,206 | ) |
| 11.3% |
|
| (3,825 | ) |
| (39.2%) |
|
| (4,199 | ) |
| 38.2% |
Income tax at different rates in foreign and other provincial jurisdictions |
|
| 3,144 |
|
| (6.8%) |
|
| 3,872 |
|
| 39.6% |
|
| 3,352 |
|
| (30.5%) |
Investment and other tax credits (non-refundable) |
|
| 379 |
|
| (0.8%) |
|
| 752 |
|
| 7.7% |
|
| 413 |
|
| (3.8%) |
Changes to deferred tax assets and liabilities resulting from audit and other tax return adjustments |
|
| (273 | ) |
| 0.6% |
|
| 2,278 |
|
| 23.3% |
|
| (5,336 | ) |
| 48.6% |
Other items included in tax benefit (expense) |
|
| 257 |
|
| (0.6%) |
|
| (490 | ) |
| (4.9%) |
|
| (588 | ) |
| 5.4% |
Income tax expense |
| $ | (13,051 | ) |
| 28.3% |
| $ | (10,108 | ) |
| (103.6%) |
| $ | (20,564 | ) |
| 187.2% |
Years Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Income tax provision at combined statutory rates | $ | (7,954 | ) | $ | (15,330 | ) | $ | (23,081 | ) | |||
Adjustments resulting from: | ||||||||||||
Stock based compensation | (295 | ) | (565 | ) | 2,387 | |||||||
Othernon-deductible/non-includable items | (717 | ) | (1,254 | ) | (439 | ) | ||||||
Decrease (increase) in valuation allowance relating to current year temporary differences | — | 129 | (16 | ) | ||||||||
Changes to tax reserves | (1,435 | ) | 1,628 | (453 | ) | |||||||
U.S. federal and state taxes | (373 | ) | (767 | ) | (27 | ) | ||||||
Withholding taxes | (1,217 | ) | (786 | ) | (716 | ) | ||||||
Income tax at different rates in foreign and other provincial jurisdictions | 4,147 | 50 | 961 | |||||||||
Investment and other tax credits(non-refundable) | 1,570 | 2,190 | 1,597 | |||||||||
Changes to deferred tax assets and liabilities resulting from audit and other tax return adjustments | (532 | ) | (1,612 | ) | (242 | ) | ||||||
Windfall tax (shortfall) benefit | (591 | ) | 57 | — | ||||||||
Impact of changes due to U.S. tax reform | (9,323 | ) | — | — | ||||||||
Other | (70 | ) | 48 | (23 | ) | |||||||
|
|
|
|
|
| |||||||
Provision for income taxes, as reported | $ | (16,790 | ) | $ | (16,212 | ) | $ | (20,052 | ) | |||
|
|
|
|
|
|
(d) The netAs of December 31, 2023 and 2022, the Company’s deferred income tax asset is comprisedassets and deferred tax liability consists of the following:
As at December 31, |
| As of December 31, |
| |||||||||||||||
2017 | 2016 | |||||||||||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
| ||||||||||||
Net operating loss carryforwards | $ | 3,306 | $ | 2,893 |
| $ |
| 29,490 |
|
| $ |
| 29,158 |
| ||||
Investment tax credit and other tax credit carryforwards | 161 | — |
|
| 5,348 |
|
|
| 5,213 |
| ||||||||
Write-downs of other assets | 1,219 | 759 |
|
| 1,223 |
|
|
| 2,341 |
| ||||||||
Excess of tax accounting basis in property, plant and equipment, inventories and other assets | 9,380 | — | ||||||||||||||||
Excess of tax accounting basis in various assets | Excess of tax accounting basis in various assets |
|
| 15,379 |
|
|
| 14,549 |
| |||||||||
Accrued pension liability | 6,406 | 6,571 |
|
| 5,583 |
|
|
| 5,375 |
| ||||||||
Accrued stock-based compensation | 3,004 | 12,352 | ||||||||||||||||
Accrued share-based compensation |
|
| 8,460 |
|
|
| 8,920 |
| ||||||||||
Income recognition on net investment in leases |
|
| (4,691 | ) |
|
| (3,344 | ) | ||||||||||
Other accrued reserves | 9,615 | 3,754 |
|
|
| 9,328 |
|
|
| 10,552 |
| |||||||
|
| |||||||||||||||||
Total deferred income tax assets | 33,091 | 26,329 |
|
| 70,120 |
|
|
| 72,764 |
| ||||||||
Income recognition on net investment in leases | (2,186 | ) | (3,985 | ) | ||||||||||||||
Excess accounting over tax basis in property, plant and equipment, inventories and other assets | — | (1,368 | ) | |||||||||||||||
|
| |||||||||||||||||
30,905 | 20,976 | |||||||||||||||||
Valuation allowance | (197 | ) | (197 | ) |
|
| (62,132 | ) |
|
|
| (62,864 | ) | |||||
|
| |||||||||||||||||
Net deferred income tax asset | $ | 30,708 | $ | 20,779 | ||||||||||||||
|
| |||||||||||||||||
Deferred income tax asset net of valuation allowance |
|
| 7,988 |
|
|
| 9,900 |
| ||||||||||
Deferred tax liability |
|
|
| (12,521 | ) |
|
|
| (14,900 | ) | ||||||||
Net deferred tax liability |
| $ |
| (4,533 | ) |
| $ |
| (5,000 | ) |
The gross
104
As of December 31, 2023, net deferred tax assets include a liability of $0.4$1.3 million relating to the remaining tax effect resulting from the Company’s defined benefit pension plan, the related(December 31, 2022 — liability of $1.1 million) associated with amounts recognized within Accumulated Other Comprehensive Loss, including unrealized actuarial gains and losses related to the Company’s pension and other postretirement benefit plans and unrealized net gains and losses on cash flow hedging instruments recorded in accumulated other comprehensive income.instruments.
The Company elected to early adopt ASU2016-16 related to income taxes during the first quarter of 2017. The impact from the adoption was reflected in the Company’s consolidated financial statements on a modified retrospective basis resulting in an increase to Accumulated deficit of $8.3 million, a decrease to Other assets of $14.8 million, an increase to Deferred taxes of $7.9 million and an increase to Accrued and other liabilities of $1.4 million.
The Company recorded income tax expense of $16.8 million for the year-ended December 31, 2017. The effective tax rate for the year of 55.9% was significantly higher than the statutory rate due to the impact of the Tax Cuts and Jobs Act (the “Tax Act”), which was enacted on December 22, 2017 by the U.S. government. The Tax Act makes broad and complex changes to the U.S. tax code including, but not limited to reducing the U.S. federal corporate tax rate from 35% to 21%, and imposing other limitations and changes that limit or eliminate various deductions, including interest expense, performance based compensation for certain executives, and other deductions requiring there-measurement of deferred tax assets and liabilities. U.S. GAAP requires that the impact of changes to tax legislation be recognized in the period in which the law was enacted.
On December 22, 2017, the SEC issued Staff Accounting Bulletin (“SAB 118”), which provides guidance on accounting for tax effects of the Tax Act when a company does not have all the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the effect of the changes in the Tax Act. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate to be included in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provision of the tax laws that were in effect immediately before the enactment of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. While the Company is able to make reasonable estimates of the impact of the reduction in corporate rate and other changes in the legislation the final impact of the Tax Act may differ from these estimates, due to, among other things, changes in interpretations and assumptions, additional guidance that may be issued by the I.R.S., and actions the Company may take.
The effect of there-measurement on deferred taxes is reflected entirely in the period that includes the enactment date and is allocated directly to income tax expense. As of December 31, 2017, the Company can determine a reasonable estimate of the effects of tax reform and is recording that estimate as a provisional amount. The provisionalre-measurement of the deferred tax assets and liabilities resulted in a $9.3 million discrete tax provision which increased the effective tax rate by 31.1% for the year. The provisionalre-measurement amount may change as data becomes available allowing more accurate scheduling of the deferred tax assets and liabilities.
The Tax Act also includes a number of other changes including: (a) the imposition of aone-time deemed repatriation tax on accumulated foreign earnings (the “Transition Tax”), (b) a 100% dividends received deduction on dividends from foreign affiliates, (c) a current inclusion in U.S. federal taxable income of earnings of foreign affiliates that are determined to be global intangible low taxed income or “GILTI”, (d) creation of the base erosion anti-abuse tax, or “BEAT”, (e) provision for an effective tax rate of 13.125% for certain income derived from outside of the U.S. (referred to as foreign derived intangible income or “FDII”) and, (f) 100% expensing of qualifying fixed assets acquired after September 27, 2017.
Given that the Company is a Canadian based multinational with subsidiary operations in the US and other foreign jurisdictions a number of these changes are not anticipated to impact the Company. The Company does not expect to be subject to the BEAT, Transition Tax or GILTI given its current legal and tax structures. The Company will be eligible to expense qualifying fixed assets acquired after September 27, 2017, and will be impacted by the additional limitations imposed on the deductibility of executive compensation, and does not expect to be adversely impacted by the limitations placed on the deductibility of interest expense. The impact of the Tax Act may differ from this estimate, during theone-year measurement period due to, among other things, further refinement of the Company’s calculations, changes in interpretations and assumptions the Company has made, guidance that may be issued and actions the Company may take as a result of the Tax Act.
As a result, no U.S. income taxes have been provided for any undistributed foreign earnings, or any additional outside basis differences inherent in these foreign entities, as the Company is a Canadian corporation and these amounts continue to be indefinitely reinvested in foreign operations which are owned directly or indirectly.
The Company has not provided Canadian taxes on cumulative earnings ofnon-Canadian affiliates and associated companies that have been reinvested indefinitely. Taxes are provided for earnings ofnon-Canadian affiliates and associated companies when the Company determines that such earnings are no longer indefinitely reinvested.
(e) Estimated U.S.Canadian net operating loss carryforwards of $19.0$123.3 million can be used to reduce taxable income through 2043, China net operating losses of $5.3 million can be used to reduce taxable income through 2028, and $23.1$14.4 million of loss carryforwards in Ireland net operating losses can be carried forward indefinitely to reduce taxable income. Additional net operating loss carryforwards of $0.6 million in Canada and Japan can be carried forward through to 2029.indefinitely. Investment tax credits and other tax credits of $5.2 million can be carried forward to reduce income taxes payable through to 2038.2043.
Income taxes are accrued for the earnings of non-Canadian affiliates and associated companies unless management determines that such earnings will be indefinitely reinvested outside of Canada.
(f) Valuation allowance
The provision for income taxes in the year ended December 31, 2017 does not include an adjustmentIn 2020, management completed a reassessment of its strategy with respect to the valuation allowance (2016 — $0.1 million recovery)most efficient means of deploying the Company’s capital resources globally. Based on the results of this reassessment, management concluded that the historical earnings of certain foreign subsidiaries in continuing operations.excess of amounts required to sustain business operations would no longer be indefinitely reinvested. During the year ended December 31, 2017, after considering all available evidence, both positive (including recent2023, $24.0 million (2022 — $27.4 million) of historical earnings from a subsidiary in China were distributed and, as a result, $2.4 million (2022 — $2.7 million) of foreign withholding taxes were paid to the relevant tax authorities. The Company has a deferred tax liability of $12.5 million as of December 31, 2023 (2022 — $14.9 million) related to the estimated applicable foreign withholding taxes associated with these historical profits, projected future profitability, backlog, carryforward periods for, and utilizationearnings.
As of December 31, 2023, the Company’s Consolidated Balance Sheets include net operating loss carryovers anddeferred income tax credits, discretionary deductions and other factors) and negative (including cumulative lossesassets of $8.0 million, net of a valuation allowance of $62.1 million (December 31, 2022 — $9.9 million, net of a valuation allowance of $62.9 million). For the year ended December 31, 2023, the Company recorded a net decrease in past years and other factors),valuation allowance of $0.7 million (2022 — net increase of $16.8 million). The net decrease includes an increase of $2.0 million in reporting entities where it was concluded that it is more likely than not that the existing valuation allowance against the Company’sbenefit from deferred tax assets will not be realized. This was appropriate (2016 — $0.1offset by a decrease of $1.3 million decrease).related to the recognition of certain losses in IMAX China that management now considers to be realizable and a decrease of $1.4 million related to uncertain tax positions. The $0.2 million (2016 — $0.2 million) balancenet decrease in the valuation allowance asis reflected within Income Tax Expense in the Company’s Consolidated Statements of Operations. The valuation allowance is expected to reverse at the point in time when management determines it is more likely than not that the Company will incur sufficient tax liabilities to allow it to utilize the deferred tax assets against which the valuation allowance is recorded.
As of December 31, 2017 is primarily attributable to certain U.S. state net operating loss carryovers that may expire unutilized.
(g) Uncertain tax positions
The Company recorded a net increase of $3.3 million related to reserves for income taxes, of which $1.9 million was recorded directly to retained earnings. As at December 31, 2017 and December 31, 2016,2023, the Company had total unrecognized tax benefitsreserves (including interest and penalties) of $15.9$12.0 million and $12.6 million, respectively,(2022 — $12.3 million) for deductibility of stock based compensation, international withholding taxes and other items. Approximately $15.9 million of the unrecognizedvarious uncertain tax benefits could impact the Company’s effective tax rate if recognized.positions. While the Company believes it has adequately provided for all tax positions, amounts asserted by taxing authorities could differ from the Company’s accrued position.liability. Accordingly, additional provisions on federal, provincial, state and foreigntax-related matters couldmay be recordedrequired in the future as revised estimates are made or the underlying matters are settled or otherwise resolved.
A reconciliationFor the year ended December 31, 2023, the Company recorded a net decrease of the beginning and ending amount of unrecognized$0.8 million (2022 — $2.2 million, 2021 —$2.1 million) related to tax benefitsreserves (excluding interest and penalties) primarily related to tax years becoming statute barred for the years ended December 31 is as follows:purposes of future tax examinations by local tax jurisdictions, partially offset by additional tax positions related to prior years.
2017 | 2016 | 2015 | ||||||||||
Balance at beginning of the year | $ | 12,593 | $ | 14,221 | $ | 1,972 | ||||||
Additions based on tax positions related to the current year | 3,639 | 314 | 12,694 | |||||||||
Reductions for tax positions of prior years | (195 | ) | (500 | ) | — | |||||||
Reductions resulting from lapse of applicable statute of limitations and administrative practices | (110 | ) | (1,442 | ) | (445 | ) | ||||||
|
|
|
|
|
| |||||||
Balance at the end of the year | $ | 15,927 | $ | 12,593 | $ | 14,221 | ||||||
|
|
|
|
|
|
Consistent with its historical financial reporting, theThe Company has elected to classify interest and penalties related to income tax liabilities, when applicable, as part of the interest expenseIncome Tax Expense in its consolidated statementsConsolidated Statements of operationsOperations rather than income tax expense.Interest Expense. The Company expensed less than $0.1recorded a net increase of $0.6 million in potential interest and penalties associated with its provision for uncertain tax positions for the years ended December 31, 2017 (20162023 (2022 — less than $0.1 million recovery; 2015$0.6 million; 2021 — less than $0.1 million recovery)$1.4 million).
105
The following table presents a reconciliation of the beginning and ending amount of tax reserves (excluding interest and penalties) for the years ended December 31, 2023, 2022, and 2021:
|
| Years Ended December 31, |
| ||||||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
Balance at beginning of the year |
| $ |
| 9,733 |
|
| $ |
| 11,939 |
|
| $ |
| 14,076 |
|
Additions based on tax positions related to the current year |
|
|
| — |
|
|
|
| 11 |
|
|
|
| 37 |
|
Additions (reductions) for tax positions of prior years |
|
|
| 1,552 |
|
|
|
| (94 | ) |
|
|
| (991 | ) |
Reductions resulting from lapse of applicable statute of limitations and |
|
|
| (2,331 | ) |
|
|
| (2,123 | ) |
|
|
| (1,183 | ) |
Balance at the end of the year |
| $ |
| 8,954 |
|
| $ |
| 9,733 |
|
| $ |
| 11,939 |
|
The number of years with open tax audits varies depending on the tax jurisdiction. The Company’s majormaterial taxing jurisdictions include Canada, the province of Ontario, the United States, (including multiple states), Ireland, and China.
The Company’s 20112020 through 20162023 tax years remain subject to examination by the IRS for U.S.United States federal tax purposes, and the 20062016 through 20162023 tax years remain subject to examination by the appropriate governmental agencies for Canadian federal tax purposes. There are otheron-going audits in various other jurisdictions that are not material to the financial statements.Consolidated Financial Statements.
Cash held outside of North America as at December 31, 2017 was $119.4 million (December 31, 2016 — $117.4 million), of which $32.6 million was heldThe Company is subject to audit by tax authorities in the People’s Republicvarious jurisdictions in which it operates in the ordinary course of China (“PRC”its business and believes that it has adequately reserved for the expected exposures in its accounts. During the fourth quarter of 2022, the Company received a Notice of Reassessment (the “Reassessment”) (December 31, 2016 — $31.5 million)in the amount of $13.2 million (inclusive of interest). A revised Reassessment was issued by the CRA in May 2023 to reduce the amount previously reassessed to $2.7 million (inclusive of interest). The Company’s intentCompany has filed a Notice of Objection with respect to this Reassessment and believes that the matter will be resolved on a basis that is to permanently reinvest these amounts outside of Canada and the Company does not currently anticipate that it will need funds generated from foreign operations to fund North American operations. In the event funds from foreign operations are needed to fund operations in North America and if withholding taxes have not already been previously provided, the Company would be required to accrue and pay these additional withholding tax amounts on repatriation of funds from China to Canada. The Company currently estimates this amount to be $6.9 million.consistent with its filing position.
(h)
The income tax (expense) benefitFor the years ended December 31, 2023, 2022, and 2021, Income Tax Expense related to the following items included in other comprehensive income (loss) are:components of Other Comprehensive (Loss) Income is as follows:
|
| Years Ended December 31, |
| ||||||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
Unrealized change in defined benefit plan |
| $ |
| 20 |
|
| $ |
| (198 | ) |
| $ |
| (37 | ) |
Unrealized change in postretirement benefit plans |
|
|
| 9 |
|
|
|
| (762 | ) |
|
|
| (35 | ) |
Amortization of defined benefit and postretirement benefit plans |
|
|
| 175 |
|
|
|
| — |
|
|
|
| — |
|
Amortization of prior service cost |
|
|
| — |
|
|
|
| (48 | ) |
|
|
| (48 | ) |
Unrealized change in cash flow hedging instruments |
|
|
| (151 | ) |
|
|
| 346 |
|
|
|
| (123 | ) |
Realized change in cash flow hedging instruments |
|
|
| (234 | ) |
|
|
| (156 | ) |
|
|
| 446 |
|
Reclassification of unrealized change in ineffective cash flow hedging instruments |
|
|
| — |
|
|
|
| — |
|
|
|
| 83 |
|
| $ |
| (181 | ) |
| $ |
| (818 | ) |
| $ |
| 286 |
|
Years Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Unrecognized actuarial gain or loss on defined benefit plan | $ | (307 | ) | $ | (41 | ) | $ | (47 | ) | |||
Unrecognized actuarial gain or loss on postretirement benefit plans | 13 | (48 | ) | (21 | ) | |||||||
Amortization of actuarial gain or loss on postretirement benefit plan | — | (18 | ) | (35 | ) | |||||||
Unrealized change in cash flow hedging instruments | 107 | (271 | ) | 1,543 | ||||||||
Realized change in cash flow hedging instruments upon settlement | (559 | ) | (802 | ) | (844 | ) | ||||||
Foreign currency translation adjustments | — | — | (85 | ) | ||||||||
|
|
|
|
|
| |||||||
$ | (746 | ) | $ | (1,180 | ) | $ | 511 | |||||
|
|
|
|
|
|
10.13. Goodwill and Other Intangible Assets
As of December 31, 2023, the Company’s total Goodwill was $52.8 million, of which $13.8 million relates to the SSIMWAVE reporting unit, which was acquired on September 22, 2022, and $39.0 million relates to the Technology Products and Services reporting unit (December 31, 2022 — $39.0 million). (Refer to Note 4 for additional information related to the Company’s acquisition of SSIMWAVE).
As at December 31, 2017 | ||||||||||||
Accumulated | Net Book | |||||||||||
Cost | Amortization | Value | ||||||||||
Patents and trademarks | $ | 12,184 | $ | 7,710 | $ | 4,474 | ||||||
Licenses and intellectual property | 21,471 | 7,800 | 13,671 | |||||||||
Other | 19,529 | 6,463 | 13,066 | |||||||||
|
|
|
|
|
| |||||||
$ | 53,184 | $ | 21,973 | $ | 31,211 | |||||||
|
|
|
|
|
| |||||||
As at December 31, 2016 | ||||||||||||
Accumulated | Net Book | |||||||||||
Cost | Amortization | Value | ||||||||||
Patents and trademarks | $ | 11,395 | $ | 7,046 | $ | 4,349 | ||||||
Licenses and intellectual property | 22,490 | 7,620 | 14,870 | |||||||||
Other | 15,352 | 4,155 | 11,197 | |||||||||
|
|
|
|
|
| |||||||
$ | 49,237 | $ | 18,821 | $ | 30,416 | |||||||
|
|
|
|
|
|
Other intangible assetsThe Company performed a qualitative impairment test as of $19.5 million are comprised mainlythe annual assessment date, September 30, 2023, to evaluate whether it is more likely than not that the fair value of its reporting units was less than their respective carrying amounts. Based on such assessment, the Company concluded, with respect to all reporting units other than SSIMWAVE, that it is not more likely than not that the fair value of any such reporting unit is less than its carrying value.
106
Accordingly, the Company performed the quantitative assessment of goodwill impairment for the SSIMWAVE reporting unit. Based on the quantitative assessment, the Company concluded that there is no impairment in the year ended December 31, 2023 and the fair value of the SSIMWAVE reporting unit exceeded its carrying value.
The Company’s significant assumptions, including revenue growth rates, discount rate and other factors may change in the future based on the changing economic and competitive environment in which it operates. Assuming that all other components of the Company’s investmentfair value estimate remain unchanged, an increase of 100 basis points in an enterprise resource planning system. Fully amortizeddiscount rate decreases the goodwill headroom by $9.5 million, and a decrease of 10% in the revenue growth rate decreases the goodwill headroom by $24.5 million, without triggering impairment charges of goodwill.
In the year ended December 31, 2022, the Company performed a qualitative impairment test as of the annual assessment date, September 30, 2022, to evaluate whether it is more likely than not that the fair value of its reporting units was less than their respective carrying amounts. Based on its assessment, the Company concluded that it was not more likely than not that the fair value of a reporting unit is less than its carrying amount for all reporting units.
|
| As of December 31, 2023 |
| ||||||||||||
|
|
|
|
| Accumulated |
|
| Net Book |
| ||||||
(In thousands of U.S. Dollars) |
| Cost |
|
| Amortization |
|
| Value |
| ||||||
Licenses and intellectual property |
| $ |
| 26,168 |
|
| $ |
| 16,657 |
|
| $ |
| 9,511 |
|
Internal use software |
|
|
| 36,647 |
|
|
|
| 27,342 |
|
|
|
| 9,305 |
|
Developed technology |
|
|
| 6,282 |
|
|
|
| 1,329 |
|
|
|
| 4,953 |
|
In process research and development |
|
|
| 3,810 |
|
|
|
| — |
|
|
|
| 3,810 |
|
Patents and trademarks |
|
|
| 12,389 |
|
|
|
| 9,530 |
|
|
|
| 2,859 |
|
Customer relationships |
|
|
| 1,340 |
|
|
|
| 251 |
|
|
|
| 1,089 |
|
Marketing-related intangibles |
|
|
| 4,338 |
|
|
|
| 952 |
|
|
|
| 3,386 |
|
Other |
|
|
| 160 |
|
|
|
| 51 |
|
|
|
| 109 |
|
| $ |
| 91,134 |
|
| $ |
| 56,112 |
|
| $ |
| 35,022 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
| As of December 31, 2022 |
| ||||||||||||
|
|
|
|
| Accumulated |
|
| Net Book |
| ||||||
(In thousands of U.S. Dollars) |
| Cost |
|
| Amortization |
|
| Value |
| ||||||
Licenses and intellectual property |
| $ |
| 26,168 |
|
| $ |
| 15,232 |
|
| $ |
| 10,936 |
|
Internal use software |
|
|
| 30,454 |
|
|
|
| 25,413 |
|
|
|
| 5,041 |
|
Developed technology |
|
|
| 5,821 |
|
|
|
| 267 |
|
|
|
| 5,554 |
|
In process research and development |
|
|
| 3,810 |
|
|
|
| — |
|
|
|
| 3,810 |
|
Patents and trademarks |
|
|
| 13,031 |
|
|
|
| 9,771 |
|
|
|
| 3,260 |
|
Customer relationships |
|
|
| 1,340 |
|
|
|
| 50 |
|
|
|
| 1,290 |
|
Marketing-related intangibles |
|
|
| 3,041 |
|
|
|
| 344 |
|
|
|
| 2,697 |
|
Other |
|
|
| 160 |
|
|
|
| 10 |
|
|
|
| 150 |
|
| $ |
| 83,825 |
|
| $ |
| 51,087 |
|
| $ |
| 32,738 |
|
During 2023, the Company capitalized $8.2 million related to the development of internal use software, marketing-related intangibles, as well as additions in patents and trademarks and other intangible assets are still in use by the Company. In 2017, the Company identified and wrote off $0.1 million (2016(2022 — $0.2$5.1 million) of patents and trademarks that are no longer in use.
During 2017, the Company acquired $5.2 million in other intangible assets. The net book value of these other intangible assets was $4.6 million as at December 31, 2017.. The weighted average amortization period for these additions is 4.9 years.4.3 years (2022 — 4.7 years). The net book value of the other intangible assets capitalized in 2023 was $8.1 million as of December 31, 2023 (2022 — $15.5 million). During 2022, the Company acquired $11.2 million of intangible assets through its acquisition of SSIMWAVE. (Refer to Note 4.)
During 2017,2023, the Company incurred costs of $0.4$0.4 million to renew or extend the term of acquired patents and trademarks which were recorded in selling, generalSelling, General and administrativeAdministrative expenses (2016(2022 — $0.2$0.4 million); 2021 — $0.1 million).
Fully amortized other intangible assets are still in use by the Company. In 2023, the Company identified and wrote off $1.0 million (2022 — $0.1 million; 2021—$0.1 million) of fully amortized patents and trademarks that are no longer in use.
107
The estimated amortization expense for each of the next five years endedfollowing the December 31, are2023 balance sheet date is as follows:
(In thousands of U.S. Dollars) |
|
|
|
| |
2024 |
| $ |
| 7,749 |
|
2025 |
|
|
| 8,063 |
|
2026 |
|
|
| 7,266 |
|
2027 |
|
|
| 5,015 |
|
2028 |
|
|
| 3,794 |
|
2018 | $ | 4,649 | ||
2019 | 4,649 | |||
2020 | 4,649 | |||
2021 | 4,649 | |||
2022 | 4,649 |
14. Borrowings
11.
As of December 31, 2023 and Playa Vista Loan2022, Revolving Credit Facility Borrowings, Net includes the following:
|
| December 31, |
|
| December 31, |
| ||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
| ||
Wells Fargo Credit Facility borrowings |
| $ | 24,000 |
|
| $ | 25,000 |
|
HSBC China Facility borrowings |
|
| — |
|
|
| 12,496 |
|
Bank of China Facility borrowings |
|
| — |
|
|
| 374 |
|
Unamortized debt issuance costs |
|
| (1,076 | ) |
|
| (1,759 | ) |
Revolving Credit Facility Borrowings, net |
| $ | 22,924 |
|
| $ | 36,111 |
|
Wells Fargo Credit Agreement
TheOn March 25, 2022, the Company maintainsentered into a senior securedSixth Amended and Restated Credit Agreement with Wells Fargo Bank, National Association, as agent (the “Agent”), and a syndicate of lenders party thereto (the “Credit Agreement”), which extended the maturity date of the credit facility under the Credit Agreement (the “Credit Facility”) with a maximum borrowing capacityfrom June 28, 2023 to March 25, 2027. The Company’s obligations under the Credit Agreement are guaranteed by certain of $200.0 millionthe Company’s subsidiaries (the “Guarantors”), and a scheduled maturity of March 3, 2020. The Credit Facility is collateralizedare secured by a first priorityfirst-priority security interestinterests in substantially all of the present and future assets of the Company and the Guarantors. Certain
The Credit Agreement has a revolving borrowing capacity of $300.0 million, and contains an uncommitted accordion feature allowing the Company to further increase its borrowing capacity by the greater of $140.0 million, for a total of $440.0 million, or by the Company's EBITDA for the sum of the Company’s subsidiaries serve as guarantors (the “Guarantors”)four most recently ended fiscal quarters, subject to certain conditions, depending on the mix of the Company’s obligationsrevolving loans and/or term loans under the Credit Facility.
The terms of the Credit Facility areincremental facility and subject to conditions set forth in the Fourth Amended and Restated Credit Agreement (as amended, the “Credit Agreement”), dated March 3, 2015, amongAgreement.
The Credit Facility requires that the Company maintain a maximum Senior Secured Net Leverage Ratio (as defined in the Guarantors,Credit Agreement) of no greater than 3.25:1.00, on the lenders named therein, Wells Fargo Bank, National Association (“Wells Fargo”)last day of each Fiscal Quarter. The Senior Secured Net Leverage Ratio is the ratio of Total Debt (as defined in the Credit Agreement), as agentsecured by liens, net of unrestricted cash and issuing lender (Wells Fargo, together withcash equivalents held outside of the lenders named therein,PRC to a maximum of $75.0 million, relative to Adjusted EBITDA per Credit Facility for the “Lenders”) and Wells Fargo Securities, LLC, as Sole Lead Arranger and Sole Bookrunner and in various collateral and security documents entered into by the Company and the Guarantors.
four prior quarters. The Senior Secured Net Leverage Ratio is calculated using Adjusted EBITDA per Credit Facility determined on a trailing twelve-month basis. The Company was in compliance with allthis requirement as of its requirements at December 31, 2017.2023 as the Senior Secured Net Leverage Ratio was 0.00:1.00.
Total amounts drawn and availableLoans under the Credit Facility bear interest, at the Company’s option, at (i) Term Secure Overnight Financing Rate (“SOFR“), Eurocurrency Rate or Canadian Dollar Offered Rate (“CDOR”) plus a margin ranging from 1.00% to 1.75% per annum; or (ii) the U.S. base rate or the Canadian prime rate plus a margin ranging from 0.25% to 1.00% per annum, in each case depending on the Company’s total leverage ratio. In no event will Term SOFR, Eurocurrency Rate or CDOR be less than 0.00% per annum.
As of December 31, 20172023, borrowings under the Credit Facility were $24.0 million (December 31, 2022 — $25.0 million) and 2016 were $nil and $200.0 million, respectively.
Asbear interest at Term SOFR, plus a margin up to 1.75% per annum (December 31, 2022 — 1.75%) based on the Company’s total leverage ratio. The effective interest rate for the year ended December 31, 20172023 was 6.83% (2022 — 5.64%).
The Credit Agreement contains customary affirmative and 2016,negative covenants, including covenants that limit indebtedness, liens, asset sales, investments and restricted payments, in each case subject to negotiated exceptions and baskets. The Credit Agreement also contains customary representations, warranties and event of default provisions.
108
The Company incurred fees of approximately $2.5 million in connection with the March 2022 amendment of the Credit Agreement, which are being amortized on a straight-line basis over the term of the Credit Agreement. In the first quarter of 2022, the Company expensed $0.4 million in unamortized deferred financing costs associated with lenders that are no longer parties to the Credit Agreement.
On May 25, 2022, the Company delivered a “Designated Period” suspension notice to the Agent, and the Company, the Agent and the lenders under the Credit Agreement entered into a limited consent, which notice and limited consent evidenced and effectuated the termination of the Designated Period under the Credit Agreement. From and after the termination of the Designated Period, the $75.0 million minimum liquidity covenant in the Credit Agreement was no longer in effect.
In conjunction with the proposal to acquire the outstanding 96.3 million shares in IMAX China Holding, Inc. (“IMAX China”) (the “China Transaction”), the Company obtained a consent on June 30, 2023 under the Credit Facility to temporarily increase the Letter of Credit (“LC”) Accommodations Sublimit from $25.0 million to $130.0 million. On July 11, 2023, the Company obtained a LC in the amount of $130.0 million in favor of Morgan Stanley Asia Limited, the financial adviser for the China Transaction, to provide certainty of funds for the proposed proceeds and transaction costs payable with respect to the China Transaction. At the Extraordinary General Meeting of IMAX China shareholders held on October 9, 2023, the vast majority voted in favor of the China Transaction; however, the Company did not have anyreceive approval from 90% of disinterested IMAX China shareholders as required by Hong Kong law and, as a result, the Company’s proposal to acquire IMAX China’s outstanding shares did not proceed. Consequently, the LC and the temporary increase of the LC Accommodations Sublimit were canceled effective October 11, 2023.
As of December 31, 2023 and 2022, the Company had no letters of credit andor advance payment guarantees outstanding under the Credit Facility.
Playa Vista Financing
In 2014, IMAX PV Development Inc., (“PV Borrower”) a wholly-owned subsidiaryAs of December 31, 2023, the Company, entered into a loan agreement with Wells Fargo to principally fund the costs of development and construction of the Company’s new West Coast headquarters, located in the Playa Vista neighborhood of Los Angeles, California (the “Playa Vista Loan”).
The Playa Vista Loan was fully drawn at $30.0 million and bore interest at a variable interest rate per annum equal to 2.0% above the30-day LIBOR rate. PV Borrower was required to make monthly payments of combined principal and interest over a10-year term with a lump sum payment at the end of year 10. The Playa Vista Loan is being amortized over 15 years. The Playa Vista Loan will be fully due and payable on October 19, 2025 (the “Maturity Date”), and may be prepaid at any time without premium, but with all accrued interest and other applicable payments.
The Playa Vista Loan is secured by a deed of trust from PV Borrower in favor of Wells Fargo and other documents evidencing and securing the loan, granting a first lien on and security interest in the Playa Vista property and the Playa Vista project, including all improvements to be constructed thereon. The company has also guaranteed Playa Vista Loan.
The Loan Documents contain affirmative, negative and financial covenants (including compliance with the financial covenants of the Company’s outstanding Credit Facility), agreements, representations, warranties, borrowing conditions, and events of default customaryamount available for development projects such as the Playa Vista Project.
Bank indebtedness includes the following:
As at December 31, | ||||||||
2017 | 2016 | |||||||
Playa Vista Loan | 25,667 | 27,667 | ||||||
Deferred charges on debt financing | (310 | ) | (351 | ) | ||||
|
|
|
| |||||
$ | 25,357 | $ | 27,316 | |||||
|
|
|
|
Total amounts drawnfuture borrowings under the Playa Vista Loan at December 31, 2017Credit Facility was $25.7 million (December 31, 2016 — $27.7 million) at an effective interest rate of 3.14%, respectively (December 31, 2016 — 2.52%, respectively).$276.0 million.
In accordance with the Playa Vista Loan Documents, the Company is obligated to make principal payments on the loan as follows:
2018 | $ | 2,000 | ||
2019 | 2,000 | |||
2020 | 2,000 | |||
2021 | 2,000 | |||
2022 | 2,000 | |||
Thereafter | 15,667 | |||
|
| |||
$ | 25,667 | |||
|
|
Wells Fargo Foreign Exchange Facility
Within the Credit Facility, the Company is able to purchase foreign currency forward contracts and/or other swap arrangements. There is no settlement riskAs of December 31, 2023, the net unrealized gain on itsthe Company’s outstanding foreign currency forward contracts at December 31, 2017, aswas $0.8 million, representing the amount by which the fair value of these forward contracts exceeded their nominal value ( 2022 — net unrealized loss of $0.6 million; 2021 — net unrealized gain of $0.1 million). As of December 31, 2023, the notional value of the Company’s outstanding foreign currency forward contracts. contracts was $40.6 million (December 31, 2022 — $24.7 million).
Bank of China Facility
In June 2022, IMAX (Shanghai) Multimedia Technology Co., Ltd. (“IMAX Shanghai”), one of the Company’s majority-owned subsidiaries in China, renewed its unsecured revolving facility with Bank of China for up to 200.0 million Chinese Renminbi (“RMB”) ($28.2 million), including RMB 10.0 million ($1.4 million) for letters of guarantee, to fund ongoing working capital requirements (the “Bank of China Facility”). The Bank of China Facility expired in September 2023 and has been renewed to February 21, 2025.
As atof December 31, 2017,2023, no borrowings were outstanding under the Bank of China Facility and outstanding letters of guarantee were RMB 0.2 million (less than $0.1 million). As of December 31, 2022, outstanding Bank of China Facility borrowings were RMB 2.6 million ($0.4 million) and outstanding letters of guarantee were RMB 2.8 million ($0.4 million).
As of December 31, 2023, the amount available for future borrowings under the Bank of China Facility was RMB 190.0 million ($26.8 million) and the amount available for letters of guarantee was RMB 9.8 million ($1.4 million). The amount available for future borrowings under the Bank of China Facility is not subject to a standby fee. The effective interest rate for the year ended December 31, 2023 was 3.85% (2022 — 4.12%).
HSBC China Facility
In June 2022, IMAX Shanghai entered into an unsecured revolving facility for up to RMB 200.0 million ($28.2 million) with HSBC Bank (China) Company Limited, Shanghai Branch to fund ongoing working capital requirements (the “HSBC China Facility”). As of December 31, 2023, no borrowings were outstanding under the HSBC China facility (December 31, 2022 - RMB 87 million or $12.5 million). As of December 31, 2023, the amount available for future borrowings under the HSBC China Facility was RMB 200.0 million ($28.2 million). The effective interest rate for the year ended December 31, 2023 was 3.88% (2022— 3.91%).
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NBC Facility
In October 2019, the Company has $35.2 million in notional value of such arrangements outstanding.
Bank of Montreal Facility
As at December 31, 2017 and 2016, the Company had availableentered into a $10.0$5.0 million facility with theNational Bank of MontrealCanada (the “NBC Facility”) fully insured by Export Development Canada for use solely in conjunction with the issuance of performance guarantees and letters of credit fully insured by Export Development Canada (the “Bank of Montreal Facility”).credit. The NBC Facility has been renewed to August 21, 2024. The NBC Facility is renewable on the same terms and conditions on an annual basis. The Company did notnot have any letters of credit andor advance payment guarantees outstanding as atof December 31, 2017 (December 31, 2016 — $0.1 million)2023 and 2022 under the BankNBC Facility.
As of Montreal Facility.December 31, 2023 and December 31, 2022, Convertible Notes and Other Borrowings, Net includes the following:
|
| December 31, |
|
| December 31, |
| ||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
| ||
Convertible Notes |
| $ | 230,000 |
|
| $ | 230,000 |
|
Unamortized discounts and debt issuance costs |
|
| (3,367 | ) |
|
| (4,870 | ) |
Convertible Notes, net |
|
| 226,633 |
|
|
| 225,130 |
|
|
|
|
|
|
|
| ||
Federal Economic Development Loan |
|
| 3,200 |
|
|
| 2,812 |
|
Unaccreted interest benefit |
|
| (702 | ) |
|
| (1,030 | ) |
Federal Economic Development Loan, net |
|
| 2,498 |
|
|
| 1,782 |
|
|
|
|
|
|
|
| ||
Convertible Notes and Other Borrowings, net |
| $ | 229,131 |
|
| $ | 226,912 |
|
Convertible Notes
12.On March 19, 2021, the Company issued $230.0 million of 0.500% Convertible Senior Notes due 2026 (the “Convertible Notes”) in a private placement conducted pursuant to Rule 144A under the Securities Act of 1933, as amended. The net proceeds from the issuance of the Convertible Notes were $223.7 million, after deducting the initial purchasers’ discounts and commissions.
The Convertible Notes are senior unsecured obligations of the Company and bear interest at a rate of 0.500% per annum on the principal of $230.0 million, payable semi-annually in arrears on April 1 and October 1 of each year, beginning on October 1, 2021. The Convertible Notes will mature on April 1, 2026, unless they are redeemed or repurchased by the Company or converted on an earlier date.
Holders of the Convertible Notes have the right to convert their Convertible Notes in certain circumstances and during specified periods. Before January 1, 2026, holders of the Convertible Notes have the right to convert their Convertible Notes only upon the occurrence of certain events. From and after January 1, 2026, holders of the Convertible Notes may convert their Convertible Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date. Upon conversion, the Company will pay or deliver, as applicable, cash or a combination of cash (in an amount no less than the principal amount of the Convertible Notes being converted) and common shares, at its election, based on the applicable conversion rates. The initial conversion rate is 34.7766 common shares per $1,000 principal amount of Convertible Notes, which represents an initial conversion price of approximately $28.75 per common share, and is subject to adjustment upon the occurrence of certain events.
The Convertible Notes are redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or after April 6, 2024 and on or before the 40th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, but only if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price for a specified period of time. In addition, calling any Convertible Notes for redemption will constitute a “make-whole fundamental change” with respect to such notes, in which case the conversion rate applicable to the conversion of such notes will be increased in certain circumstances if such notes are converted after they are called for redemption.
110
In connection with the pricing of the Convertible Notes, the Company entered into privately negotiated capped call transactions (the “Capped Call Transactions”) with certain financial institutions. The Capped Call Transactions are expected to reduce potential dilution resulting from the common shares the Company is required to issue and/or to offset any potential cash payments the Company is required to make in excess of the principal amount of the Convertible Notes in the event that the market price per share of the Company’s common shares is greater than the strike price of the Capped Call Transactions with such reduction and/or offset subject to a cap. The Capped Call Transactions have an initial cap price of $37.2750 per share of the Company’s common shares, which represents a premium of 75% over the last reported sale price of the common shares when they were priced on March 16, 2021, and are subject to certain adjustments under the terms of the Capped Call Transactions. Collectively, the Capped Call Transactions cover, subject to anti-dilution adjustments substantially similar to those applicable to the Convertible Notes, the number of the Company’s common shares underlying the Convertible Notes. The cost of the Capped Call Transactions was approximately $19.1 million.
The Capped Call Transactions are separate transactions, are not part of the terms of the Convertible Notes and will not affect any holder’s rights under the Convertible Notes. Holders of the Convertible Notes will not have any rights with respect to the Capped Call Transactions.
The Capped Call Transactions meet all of the applicable criteria for equity classification in accordance with ASC 815-10-15-74(a), “Derivatives and Hedging — Embedded Derivatives — Certain Contracts Involving an Entity’s Own Equity,” and, as a result, the related $19.1 million cost was recorded as a reduction to Other Equity within Shareholders’ Equity on the Company’s Consolidated Statements of Shareholders’ Equity and Consolidated Balance Sheets.
In addition, upon the occurrence of a “fundamental change” (as defined below), holders may require the Company to repurchase their Convertible Notes at a cash repurchase price equal to the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest, if any. Subject to the terms and conditions of the indenture governing the Convertible Notes, a “fundamental change” means, among other things, an event resulting in (i) a change of control, (ii) a transfer of all or substantially all of the assets of the Company, (iii) a merger, (iv) liquidation or dissolution of the Company, or (v) delisting of the Company’s common shares from a national securities exchange.
The Company recorded the Convertible Notes entirely as a liability in the Consolidated Balance Sheets, net of initial purchasers' discounts and commissions and other debt issuance costs, with interest expense reflecting the cash coupon plus the amortization of the discounts and capitalized costs. Additionally, under the “if-converted” method, because the principal amount of the Convertible Notes is settled in cash and the conversion spread is settleable in the Company’s common shares, diluted earnings per share is calculated by including the net number of incremental shares that would be issued upon conversion of the Convertible Notes, using the average market price during the period. Accordingly, the application of the “if-converted” method may reduce the Company’s reported diluted earnings per share.
Federal Economic Development Loan
The Company’s wholly-owned subsidiary, SSIMWAVE, entered into a contribution agreement with the Federal Economic Development Agency for Southern Ontario (the “Federal Economic Development Loan”) on May 29, 2019, under which SSIMWAVE received $4.2 million Canadian Dollar ($3.2 million) by way of repayable contributions toward certain eligible projects costs. The contributions under the agreement covered 35% of the eligible and supported costs incurred by SSIMWAVE between January 10, 2019 and December 31, 2022. The contributions were repayable over 60 months, with repayments to begin in January 2024 and an annual interest rate of 0%. As a result of SSIMWAVE amalgamating with the Company on January 1, 2024, the Federal Economic Development Loan was reassigned to the Company on January 4, 2024. Under the reassigned and amended agreement, the contributions are repayable over 36 months beginning January 2024, with an annual interest rate of 0%.
The benefit of the interest-free loan has been determined by calculating the present value of the payments using a market-based interest rate and comparing this to the proceeds received. The benefit is recorded as the interest-free benefit of government funding within Interest Income on the Company’s Consolidated Statements of Operations. The obligation is being accreted to its maturity amount, resulting in an interest accretion expense of $0.5 million in 2023 (2022 — less than $0.1 million) which is being recorded within Interest Expense on the Company’ Consolidated Statements of Operations.
As of December 31, 2023, the Federal Economic Development Loan has a carrying value of $2.5 million, net of unaccreted interest benefit and is recorded within Convertible Notes and Other Borrowings, Net on the Company’s Consolidated Balance Sheets.
111
15. Commitments
In the ordinary course of its business, the Company enters into contractual agreements with third parties that includenon-cancelable payment obligations, for which it is liable in future periods. These arrangements can include terms binding the Company to minimum payments and/or penalties if it terminates the agreement for any reason other than an event of default as described by the agreement. The following table presents a summary of the Company’s contractual obligations and commitments as atof December 31, 2017:2023:
Payments Due by Fiscal Year | ||||||||||||||||||||||||||||
Total | ||||||||||||||||||||||||||||
Obligations | 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | ||||||||||||||||||||||
Purchase obligations | $ | 38,055 | $ | 38,055 | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
Pension obligations | 20,076 | — | — | 20,076 | — | — | — | |||||||||||||||||||||
Operating lease obligations | 24,933 | 6,226 | 3,462 | 1,545 | 1,364 | 1,397 | 10,939 | |||||||||||||||||||||
Playa Vista Loan | 25,667 | 2,000 | 2,000 | 2,000 | 2,000 | 2,000 | 15,667 | |||||||||||||||||||||
Postretirement benefits obligations | 4,569 | 746 | 613 | 480 | 488 | 420 | 1,822 | |||||||||||||||||||||
Other financial commitments | 10,677 | 6,677 | 4,000 | — | — | — | — | |||||||||||||||||||||
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|
|
|
|
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|
|
|
|
| |||||||||||||||
$ | 123,977 | $ | 53,704 | $ | 10,075 | $ | 24,101 | $ | 3,852 | $ | 3,817 | $ | 28,428 | |||||||||||||||
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|
|
|
|
|
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|
|
|
|
| Payments Due by Period |
| |||||||||||||||||
(In thousands of U.S. Dollars) |
| Total |
|
| Less Than One Year |
|
| 1 to 3 years |
|
| 3 to 5 years |
|
| Thereafter |
| |||||
Purchase obligations(1) |
| $ | 35,210 |
|
| $ | 33,723 |
|
| $ | 1,192 |
|
| $ | 24 |
|
| $ | 271 |
|
Pension obligations(2) |
|
| 20,298 |
|
|
| — |
|
|
| 20,298 |
|
|
| — |
|
|
| — |
|
Operating lease obligations(3) |
|
| 14,898 |
|
|
| 2,740 |
|
|
| 5,026 |
|
|
| 4,965 |
|
|
| 2,167 |
|
Finance lease obligations |
|
| 518 |
|
|
| 518 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Wells Fargo Facility |
|
| 24,000 |
|
|
| 24,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Federal Economic Development Loan(4) |
|
| 3,200 |
|
|
| 965 |
|
|
| 2,235 |
|
|
| — |
|
|
| — |
|
Convertible Notes(5) |
|
| 232,875 |
|
|
| 1,150 |
|
|
| 231,725 |
|
|
| — |
|
|
| — |
|
Postretirement benefits obligations |
|
| 2,489 |
|
|
| 106 |
|
|
| 221 |
|
|
| 228 |
|
|
| 1,934 |
|
|
| $ | 333,488 |
|
| $ | 63,202 |
|
| $ | 260,697 |
|
| $ | 5,217 |
|
| $ | 4,372 |
|
Operating Lease Obligations
The Company’s lease commitments consist of rent and equipment under operating leases. The Company accounts for any incentives provided over the term of the lease. The following table summarizes information about the Company’s
Years Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Total rent expense | $ | 5,685 | $ | 5,106 | $ | 4,766 |
Recorded in the accrued liabilities balance as at December 31, 2017 is $4.1 million (December 31, 2016 — $1.6 million) relatedpayments to accrued rent and lease inducements being recognized as an offset to rent expense over the term of the respective leases.
Purchase Obligations
Purchase obligations primarily consist of the Company’s commitmentsbe made under long-term supplier contracts.
Pensionbinding commitments with suppliers and Postretirement Benefits Obligations
outstanding payments to be made for supplies ordered, but yet to be invoiced.
Playa Vista Loan
Note 6.)
Other Financial Commitments
Other financial commitments include the Company’s total minimum commitment toward the development, production, post-production and marketing, related1, 2021
Letters of Credit and Advance Payment Guarantees
As at December 31, 2017 the Company did not have any letters of credit and advance payment guarantees outstanding (December 31, 2016 — $nil), under the Credit Facility. As at December 31, 2017 the Company did not have any letters of credit and advance payment guarantees outstanding as compared to $0.1 million as at December 31, 2016, under the Bank of Montreal Facility.
The Company compensates its sales force with both fixed and variable compensation. Commissions on the sale or lease of the Company’s theater systemsIMAX Systems are payable in graduated amounts from the time of collection of the customer’s first payment to the Company up to the collection of the customer’s last initial payment. AtAs of December 31, 2017, $2.32023, $2.7 million (December 31, 2016 —$2.02022 — $2.2 million) of commissions have been accrued and will be payable in future periods.
13.16. Contingencies and Guarantees
The Company is involved in lawsuits, claims, and proceedings, including those identified below, which arise in the ordinary course of business. In accordance withManagement is required to assess the Contingencies Topiclikelihood of the FASB ASC, theany adverse judgments or outcomes related to these legal contingencies, as well as potential ranges of probable or reasonably possible losses. The Company will makerecords a provision for a liability when it is both probable that a loss has been incurred and the amount of the loss can be reasonably estimated. The Company believes it has adequate provisions fordetermination of the amount of any such matters. The Company reviews these provisions in conjunction with any related provisions on assets related to the claimsliability recorded or disclosed is reviewed at least quarterly and adjusts these provisions to reflectbased on a careful analysis of each individual exposure with, in some cases, the impactsassistance of outside legal counsel, taking into account the impact of negotiations, settlements, rulings, advice of legal counsel and other pertinent information related to the case. Should developments in anyThe amount of liabilities recorded or disclosed for these matters outlined below cause acontingencies may change in the Company’s determination asfuture due to an unfavorable outcome and resultchanges in management's judgments resulting from new developments or changes in settlement strategy. Any resulting adjustment to the need to recognize a material provision, or, should any of these matters result in a final adverse judgment or be settled for significant amounts, theyliabilities recorded by the Company could have a material adverse effect on the Company’sits results of operations, cash flows, and financial position in the period or periods in which such a changechanges in determination, settlement or judgment occurs.
occur. The Company believes it has adequate provisions for any such matters. The Company expenses legal costs relating to its lawsuits, claims and proceedings as incurred.
(a) On May 15, 2006, the Company initiated arbitration against Three-Dimensional Media Group, Ltd. (“3DMG”) before the International Centre for Dispute Resolution in New York (the “ICDR”), alleging breaches of the license and consulting agreements between the Company and 3DMG. On June 15, 2006, 3DMG filed an answer denying any breaches and asserting counterclaims that the Company breached the parties’ license agreement. On June 21, 2007, the ICDR unanimously denied 3DMG’s Motion for Summary Judgment filed on April 11, 2007 concerning the Company’s claims and 3DMG’s counterclaims. The proceeding was suspended on May 4, 2009 due to failure of 3DMG to pay fees associated with the proceeding. The proceeding was further suspended on October 11, 2010 pending resolution ofre-examination proceedings involving one of 3DMG’s patents. Following a status conference on April 27, 2016 before the ICDR, the ICDR granted 3DMG leave to amend its answer and counterclaims, and subsequently lifted the stay in this matter. In its amended counterclaims, 3DMG seeks damages for alleged unpaid royalties, damages and other fees under the license and consulting agreements, and the Panel has permitted 3DMG to advance new damage theories. The ICDR held the first phase of a final hearing during the week of July 10, 2017, and the final hearing occurred during the week of October 16, 2017. The parties submitted final briefs in December 2017, and the Panel has scheduled closing oral arguments for March 2018. The Company believes that the amount of loss suffered in connection with the amended counterclaims would not have a material impact on the financial position or results of operations of the Company, although no assurance can be given with respect to the ultimate outcome of the arbitration. The minimum amount in the range has been used to measure the amount to be accrued for this loss contingency in accordance with FASB ASC Topic 450.112
(b)
(i) In January 2004, the Company and IMAX Theatre Services Ltd., a subsidiary of the Company, commenced an arbitration seeking damages before the International Court of Arbitration of the International Chamber of Commerce (the “ICC”) with respect to the breach by Electronic Media Limited (“EML”) of its December 2000 agreement with the Company. In June 2004, the Company commenced a related arbitration before the ICC against EML’s affiliate,E-City Entertainment (I) PVT Limited(“E-City”). On March 27, 2008, the arbitration panel issued a final award in favor of the Company in the amount of $11.3$11.3 million, consisting of past and future rents owed to the Company, plus interest and costs, as well as an additional $2,512$2,512 each day in interest from October 1, 2007 until the date the award is paid.paid. In July 2008,E-City commenced a proceeding in Mumbai, India seeking an order thatto prevent recognition of the ICC award may not be recognized in India and on June 10, 2013, the Bombay High Court ruled that it had jurisdiction over the proceeding filed byE-City. The Company appealed that ruling to the Supreme Court of India, and onIndia. On March 10, 2017, the Supreme Court set aside the Bombay High Court’s judgement andof India dismissedE-City’s petition. On March 29, 2017, the Company filed an Execution Application in the Bombay High Court seeking to enforce the ICC award againstE-City and several related parties.parties, which award the Company calculates to be $26.2 million, inclusive of interest, as of December 31, 2023. That matter is currently pending. The Company has also taken steps to enforce the ICC final award outside of India. In December 2011, the Ontario Superior Court of Justice issued an order recognizing the final award and requiringE-City to pay the Company $30,000$30,000 to cover the costs of the application, and in October 2015,May 2012, the New York Supreme Court recognized the Canadian judgment and entered it as a New York judgment. The Company intends to continue pursuing its rights and seeking to enforce the award, although no assurances can be given with respect to the ultimate outcome.
(c) In March 2013, IMAX (Shanghai) Multimedia Technology Co., Ltd. (“IMAX Shanghai”), the Company’s majority-owned subsidiary in China, received notice from the Shanghai office of the General Administration of Customs (“Customs Authority”) that it had been selected for a customs audit (the “Audit”). In the course of the Audit, the Customs Authority discovered the underpayment by IMAX Shanghai of the freight and insurance portion of the customs duties and taxes applicable to the importation of certain IMAX theater systems during the period from October 2011 through March 2013. Though IMAX Shanghai’s importation agent accepted responsibility for the error giving rise to the underpayment, the matter was transferred first to the Anti-Smuggling Bureau (the “ASB”) of the Customs Authority and then to the Third Division of Shanghai People’s Procuratorate for further review. During the year ended December 31, 2017, at the request of the ASB, IMAX Shanghai paid approximately $0.15 million to the ASB to satisfy the amount owing as a result of the underpayment. Given that the amount of the underpayment exceeds RMB 200,000 (the applicable ASB threshold), the Company has been advised that the matter may be treated as a criminal rather than as an administrative matter. During
the year ended December 31, 2017, IMAX Shanghai recorded an estimate of $0.3 million in respect of fines that it believes are likely to result from the matter. IMAX Shanghai has been advised that the range of potential penalties is between three and five times the underpayment depending on whether the matter is assessed as criminal or administrative; however, the actual amount of any fines or other penalties remains unknown and the Company cautions that these actual fines or other penalties maybe be greater or less than the amount accrued or the expected range.
(d) On November 11, 2013, Giencourt Investments, S.A. (“Giencourt”) initiated arbitration before the International Centre for Dispute Resolution in Miami, Florida, based on alleged breaches by the Company of its theater agreement and related license agreement with Giencourt. An arbitration hearing for witness testimony was held during the week of December 14, 2015. At the hearing, Giencourt’s expert identified monetary damages of up to approximately $10.4 million, which Giencourt sought to recover from the Company. The Company asserted a counterclaim against Giencourt for breach of contract and sought to recover lost profits in excess of $24.0 million under the agreements. Subsequently, in December 2015, Giencourt made a motion to the panel seeking to enforce a purported settlement of the matter based on negotiations between Giencourt and the Company. The panel held a final hearing with closing arguments in October 2016. On February 7, 2017, the panel issued a Partial Final Award and on July 21, 2017, the panel issued a Final Award (collectively, the “Award”), which held that the parties had reached a binding settlement, and therefore the panel did not reach the merits of the dispute. The Company strongly disputes that discussions about a potential resolution of this matter amounted to an enforceable settlement. In October 2017, the Company filed a petition to vacate the arbitration award in the United States Court for the Southern District of Florida on various grounds, including that the panel exceeded its jurisdiction. At this time, the Company is unable to determine the amounts that it may owe pursuant to the Award, or the timing of any such payments, and therefore no assurances can be given with respect to the ultimate outcome of the matter.
(e)(ii) In addition to the matters described above, the Company is currently involved in other legal proceedings or governmental inquiries which, in the opinion of the Company’s management, will not materially affect the Company’s financial position or future operating results, although no assurance can be given with respect to the ultimate outcome of any such proceedings.
(f)(iii) In the normal course of business, the Company enters into agreements that may contain features that meet the definition of a guarantee. The Guarantees Topic of the FASB ASC defines aA guarantee to beis a contract (including an indemnity) that contingently requires the Company to make payments (either in cash, financial instruments, other assets, shares of its stock, or provision of services) to a third party based on (a) changes in an underlying interest rate, foreign exchange rate, equity or commodity instrument, index or other variable, that is related to an asset, a liability or an equity security of the counterparty, (b) failure of another party to perform under an obligating agreement or (c) failure of another third party to pay its indebtedness when due.
Financial Guarantees
TheCertain subsidiaries of the Company hashave provided no significant financial guarantees to third parties.parties under the Credit Agreement (see Note 14).
Product Warranties
The Company’s accrual for product warranties, that waswhich is recorded as part of accruedwithin Accrued and other liabilitiesOther Liabilities in the consolidated balance sheets is $0.1Consolidated Balance Sheets, was less than $0.1 million and less than $0.1 million$nil as atof December 31, 20172023 and 2016,2022, respectively.
Director/Officer Indemnifications
The Company’s GeneralBy-law containsby-laws contain an indemnification of its directors/officers, former directors/officers, and persons who have acted at its request to be a director/officer of an entity in which the Company is a shareholder or creditor, to indemnify them, to the extent permitted by the Canada Business Corporations Act, against expenses (including legal fees), judgments, fines and any amountamounts actually and reasonably incurred by them in connection with any action, suit or proceeding in which the directors and/or officers are sued as a result of their service, if they acted honestly and in good faith with a view to the best interests of the Company. In addition, the Company has entered into indemnification agreements with each of its directors in order to effectuate the foregoing. The nature of the indemnification prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay to counterparties. The Company has purchased directors’ and officers’ liability insurance. No amount has been accrued in the consolidated balance sheetCompany’s Consolidated Balance Sheets as atof December 31, 20172023 and December 31, 20162022 with respect to this indemnity.
113
Other Indemnification Agreements
In the normal course of the Company’sits operations, the Company provides indemnifications to counterparties in transactions such as: theater systemIMAX System lease and sale agreements and the supervision of installation or servicing of the theater systems;IMAX Systems; film production, exhibition and distribution agreements; real property lease agreements; and employment agreements. These indemnification agreements require the Company to compensate the counterparties for costs incurred as a result of litigation claims that may be suffered by the counterparty as a consequence of the transaction or the Company’s breach ornon-performance under these agreements. While the terms of these indemnification agreements vary based upon the contract, they normally extend for the life of the agreements. A small number of agreements do not provide for any limit on the maximum potential amount of indemnification; however, virtually all of the Company’s systemIMAX System lease and sale agreements limit such maximum potential liability to the purchase price of the system. The fact that the maximum potential amount of indemnification required by the Company is not specified in some cases prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay to counterparties. Historically, the Company has notnot made any significant payments under such indemnifications and no amounts have been accrued in the consolidated financial statementsConsolidated Financial Statements with respect to the contingent aspect of these indemnities.
14.17. Capital Stock
Common Shares
The authorized capital of the Company consists of an unlimited number of common shares. The following is a summary of the rights, privileges, restrictions, and conditions of the common shares.
The holders of common shares are entitled to receive dividends, if as and when declared by the directors of the Company, subject to the rights of the holders of any other class of shares of the Company entitled to receive dividends in priority to the common shares.
The holders of the common shares are entitled to one vote for each common share held at all meetings of the shareholders.
(b) Changes during the Year
During the year,years ended December 31, 2023, 2022, and 2021, the Company settled common shares pursuant to the exercise of stock options for cash proceeds and the vesting of RSUs. The settlement ofPSUs and RSUs with its common shares can beshares. These settlements were either settled through newly issued common shares from treasury or through the purchase of common shares in the open market by the IMAX Long-Term Incentive PlanLTIP trustee. The following table summarizes the settlement of stock option, PSU and RSU transactions during the year:transactions:
|
| Years Ended December 31, |
| ||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
Stock options |
|
|
|
|
|
|
|
|
|
|
|
| |||
Issued from treasury |
|
|
| — |
|
|
|
| — |
|
|
|
| 41,613 |
|
Total stock options exercised |
|
|
| — |
|
|
|
| — |
|
|
|
| 41,613 |
|
PSUs |
|
|
|
|
|
|
|
|
|
|
|
| |||
Issued from treasury |
|
|
| 233,306 |
|
|
|
| — |
|
|
|
| — |
|
Shares withheld for tax withholdings |
|
|
| 135,296 |
|
|
|
| — |
|
|
|
| — |
|
Total PSUs vested |
|
|
| 368,602 |
|
|
|
| — |
|
|
|
| — |
|
RSUs |
|
|
|
|
|
|
|
|
|
|
|
| |||
Issued from treasury |
|
|
| 514,383 |
|
|
|
| 596,277 |
|
|
|
| 531,629 |
|
Plan trustee purchases |
|
|
| — |
|
|
|
| — |
|
|
|
| 723 |
|
Shares withheld for tax withholdings |
|
|
| 232,749 |
|
|
|
| 203,954 |
|
|
|
| 157,520 |
|
Total RSUs vested |
|
|
| 747,132 |
|
|
|
| 800,231 |
|
|
|
| 689,872 |
|
Years Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Stock options | ||||||||||||
Issued from treasury | 405,229 | 347,814 | 1,659,643 | |||||||||
Plan trustee purchases | 263,112 | 170,204 | 102,032 | |||||||||
|
|
|
|
|
| |||||||
Total stock options exercised | 668,341 | 518,018 | 1,761,675 | |||||||||
|
|
|
|
|
| |||||||
Cash proceeds on stock option exercises | $ | 14,652 | $ | 11,431 | $ | 35,609 | ||||||
|
|
|
|
|
| |||||||
RSUs | ||||||||||||
Issued from treasury | 7,127 | 54,159 | 25,551 | |||||||||
Plan trustee purchases | 422,022 | 394,423 | 167,469 | |||||||||
Shares withheld for tax withholdings | 27,630 | 18,336 | 14,351 | |||||||||
|
|
|
|
|
| |||||||
Total RSUs vested | 456,779 | 466,918 | 207,371 | |||||||||
|
|
|
|
|
|
(c) Stock-Based Compensation
The Company issues stock-basedshare-based compensation to eligible employees, directors, and consultants under the IMAX Corporation Amended and Restated Long-Term Incentive Plan (the “IMAX LTIP”)LTIP and the China Long-Term Incentive Plan (the “China LTIP”)LTIP, as summarized below.
The On June 3, 2020, the Company’s shareholders approved the IMAX LTIP isat its Annual and Special Meeting.
Awards under the Company’s governing document and awards to employees, directors, and consultants under this planIMAX LTIP may consist of stock options, RSUs, PSUs, and other awards. Stock options are no longer granted under the Company’s previouspreviously approved Stock Option Plan (“SOP”).
A separate stock option plan,114
For the China LTIP, was adopted by a subsidiary of the Company in October 2012.
Compensation costs recordedyear ended December 31, 2023, share-based compensation expense totaled $23.6 million (2022 — $27.0 million; 2021 — $25.6 million) and is reflected in the consolidated statementsfollowing accounts in the Consolidated Statements of operations for the Company’s stock-based compensation plans were $23.0 million (2016 — $30.5 million; 2015 — $21.9 million). The following reflects the stock-based compensation expense recorded to the respective financial statement line items:Operations:
|
| Years Ended December 31, |
| ||||||||||||
(In thousands of U.S. Dollars) |
|
| 2023 |
|
|
| 2022 |
|
|
| 2021 |
| |||
Cost and expenses applicable to revenues |
| $ |
| 850 |
|
| $ |
| 1,156 |
|
| $ |
| 1,490 |
|
Selling, general and administrative expenses |
|
|
| 22,534 |
|
|
|
| 25,438 |
|
|
|
| 23,776 |
|
Research and development |
|
|
| 434 |
|
|
|
| 419 |
|
|
|
| 348 |
|
Exit costs, restructuring charges and associated impairments |
|
|
| (267 | ) |
|
|
| — |
|
|
|
| — |
|
|
| $ |
| 23,551 |
|
| $ |
| 27,013 |
|
| $ |
| 25,614 |
|
2017 | ||||
Cost and expenses applicable to revenues | $ | 1,704 | ||
Selling, general and administrative expenses | 20,393 | |||
Research and development | 556 | |||
Exit costs, restructuring charges and associated impairments | 357 | |||
|
| |||
$ | 23,010 | |||
|
|
As atof December 31, 2017,2023, the Company has reserved a total of 10,781,9365,538,873 (December 31, 20162022 — 12,012,572)5,788,499) common shares for future issuance under the SOP and IMAX LTIP. Of thethis amount, 3,329,422 common shares are reserved for issuance, therethe future exercise of stock options (December 31, 2022 — 3,604,739), 922,621 common shares are reserved for the future vesting of PSUs (December 31, 2022 — 931,716), and 1,286,830 common shares are reserved for the future vesting of RSUs (December 31, 2022 — 1,252,044). As of December 31, 2023, 3,329,422 stock options in respect of 5,082,100common shares (December 31, 20162022 — 5,190,542) common shares and RSUs in respect of 995,329 (December 31, 2016 — 1,124,180) common shares outstanding at December 31, 2017. At December 31, 2017 options in respect of 3,913,088 (December 31, 2016 —4,001,078) common shares3,523,335) were vested and exercisable.
IMAX LTIP and SOP Stock Option PlanOptions
The Company’s policy is to issue new common shares from treasury or shares purchased in the open market to satisfy stock options which are exercised. The Company no longer intends to issue new stock option awards.
The Company utilizes a Binomial Model to determine the fair value of stock-based payment awards.stock option awards on the grant date. The fair value determined by the Binomial Model is affected by the Company’s stock price, as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards,award, and actual and projected employee stock option exercise behaviors. The Binomial Model also considers the expected exercise multiple which is the multiple of exercise price to grant price at which exercises are expected to occur on average. Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable. Because the Company’s employee stock options have certain characteristics that are significantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, in management’s opinion, the Binomial Model best provides a fair measure of the fair value of the Company’s employee stock options.
All stock option awards of stock options are madegranted at the fair market value of the Company’s common shares on the date of grant. The fair market value of a common share on a given date meansis based on the higher of the closing price of a common share on either: (i) the grant date (oror (ii) the most recent trading date if the grant date is not a trading date)date on the New York Stock Exchange (“NYSE”) or such national exchange as may be designated by the Company’s Board of Directors (the “Fair Market Value”). TheDirectors. All stock options vest within 5 yearshave been vested and expire 10 years or less from the date granted.of the grant. The SOP and IMAX LTIP provide for double-trigger accelerated vesting in the event of a change in control, as defined in each plan.
The Company recorded the following expenses related to stock option grantsoptions issued to employees and directors inunder the IMAX LTIP and SOP plans.
Stock option expense Years Ended December 31, 2017 2016 2015 $ 4,462 $ 12,795 $ 10,710
|
| Years Ended December 31, |
| ||||||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
Stock option expense |
| $ |
| 84 |
|
| $ |
| 572 |
|
| $ |
| 1,064 |
|
An income tax benefit is recorded in the consolidated statement of operations of $1.0 million for the 2017 stock option expenses and $3.8 million for
For the year ended December 31, 2016, respectively.2023, the Company’s Consolidated Statements of Operations includes an income tax benefit of $nil related to stock option expense (2022 — $0.1 million; 2021 — $0.1 million).
Total stock-basedAs of December 31, 2023, 2022, and 2021, unrecognized share-based compensation expense related tonon-vested employee stock options not yet recognized at December 31, 2017 areis as follows:
|
| As of December 31, |
| ||||||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
Expense not yet recognized related to non-vested employee stock options |
| $ |
| — |
|
| $ |
| 86 |
|
| $ |
| 662 |
|
Years Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Expense related tonon-vested employee stock options not yet recognized | $ | 7,441 | $ | 5,894 | $ | 12,575 |
The weighted average period over which the awards are115
As of 2023, 2022, and 2021, unrecognized share-based compensation expense related to non-vested employee stock options is expected to be recognized are as follows:over the following weighted-average periods:
Years Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Weighted average period awards are expected to be recognized (in years) | 2.3 | 2.3 | 1.7 |
|
| As of December 31, |
| ||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
Weighted average period (in years) |
|
|
| — |
|
|
|
| 0.2 |
|
|
|
| 1.1 |
|
The weighted average fair value of all stock options granted to employeesDuring the years ended December 31, 2023, 2022 and directors at the measurement date and the assumptions used to estimate the average fair value of the stock option are as follow:
2017 | 2016 | 2015 | ||||||||||
Weighted average fair value per share | $ | 8.31 | $ | 8.16 | $ | 8.07 | ||||||
Average risk-free interest rate | 2.34 | % | 1.67 | % | 1.97 | % | ||||||
Expected option life (in years) | 4.71 - 5.83 | 4.44 - 5.24 | 3.55 - 5.76 | |||||||||
Expected volatility | 30 | % | 30 | % | 30 | % | ||||||
Dividend yield | 0 | % | 0 | % | 0 | % |
Stock options toNon-Employees
There were no common share options issued tonon-employees in 2017, 2016 or 2015. The following table summarizes certain information about the outstanding stock options related tonon-employees:
Years Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Weighted average exercise price per share of outstanding stock options | $ | — | $ | 29.64 | $ | 26.79 | ||||||
Number of outstanding stock options | — | 17,000 | 38,750 | |||||||||
Weighted average exercise price per share of exercisable stock options | $ | — | $ | 30.10 | $ | 26.34 | ||||||
Number of exercisable stock options | — | 15,200 | 21,525 | |||||||||
Aggregate intrinsic value of vested stock options | $ | — | $ | 123 | $ | 198 |
In 2017,2021, the Company recorded a charge of less than $0.1 million (2016 — less than $0.1 million; 2015 — $0.1 million) to selling, general and administrative expenses related to thenon-employeedid not grant any stock options. There were no accrued liabilities related tonon-employee stock options as at December 31, 2017 (December 31, 2016 — less than $0.1 million).
China Long-Term Incentive Plan (“China LTIP”)
The China LTIP was adopted by IMAX China Holding, Inc. (“IMAX China”), a subsidiary of the Company, in October 2012. Each stock option (“China Option”), RSU or cash settled share-based payment (“CSSBP”) issued under the China LTIP represents an opportunity to participate economically in the future growth and value creation of IMAX China. Prior to the initial public offering of IMAX China on October 8, 2015 (the “IMAX China IPO”), the China Options and CSSBPs issued by IMAX China operated in tandem with options granted to certain employees of IMAX China under the Company’s SOP and the IMAX LTIP (“Tandem Options”).
During 2015, no Tandem Options were granted in conjunction with China Options or CSSBPs. Immediately prior to the IMAX China IPO, there were 186,446 outstanding and unvested Tandem Options issued under the Company’s SOP and IMAX LTIP with a weighted average exercise price of $23.70 per share. The Tandem Options had a maximum contractual life of 7 years. The total fair value of the Tandem Options granted with respect to the China LTIP was $1.9 million. The Company was recognizing this expense over a5-year period.
Pursuant to their terms, upon the occurrence of a qualified initial public offering, the 186,446 Tandem Options issued would forfeit immediately and the related charge would be reversed. As a result of the IMAX China IPO on October 8, 2015, the 186,446 Tandem Options with an average price of $23.70 per share were forfeited immediately. The Company recorded a recovery of $0.6 million in 2015 (2014 — $0.3 million expense) related to the forfeiture of Tandem Options issued under the Company’s SOP and IMAX LTIP.
The Company subsequently recognized an immediate charge related to the vesting of China Options and certain CSSBPs for China employees. The total fair value of the China Options and CSSBP awards granted with respect to the China LTIP was $3.9 million and $2.1 million, respectively. During the fourth quarter of 2015, a charge of $2.1 million and $1.4 million was recorded relating to the China Options and CSSBPs, respectively. The remaining charge was recognized over the related requisite period. The CSSBPs represent the right to receive cash payments in an amount equal to a certain percentage of the excess of the total equity value of IMAX China based on the per share price in the IMAX China IPO over the strike price of the CSSBPs. The CSSBPs were issued in conjunction with the China LTIP, with similar terms and conditions as the China Options. The CSSBP awards are accounted as liability awards, however the fair value of the liability is fixed at the time of the initial public offering. During 2017, the remaining balance of the CSSBPs vested and were settled in cash for $0.6 million (2016 — $0.5 million).
In connection with the IMAX China IPO and in accordance with the China LTIP, IMAX China adopted apost-IPO share option plan and apost-IPO restricted stock unit plan. Pursuant to these plans, IMAX China has issued additional China Options and China LTIP Restricted Share Units (“China RSUs”).
The following table summarizes the expense related to China Options, China RSUs, CSSBPs and any accrued liability related to CSSBPs:
Years Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Expense | ||||||||||||
China Options | $ | 1,034 | $ | 971 | $ | 2,136 | ||||||
China RSUs | 1,124 | 518 | — | |||||||||
CSSBPs | 353 | 429 | 1,357 | |||||||||
CSSBPs liability | $ | — | $ | 289 | $ | 395 |
Stock Option Summary
The following table summarizes certain information in respect ofstock option activity under the SOP and IMAX LTIP:
Weighted Average Exercise | ||||||||||||||||||||||||
Number of Shares | Price Per Share | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2017 | 2016 | 2015 | |||||||||||||||||||
Options outstanding, beginning of year | 5,190,542 | 4,805,244 | 5,925,660 | $ | 28.35 | $ | 27.03 | $ | 24.24 | |||||||||||||||
Granted | 854,764 | 984,452 | 873,929 | 30.07 | 31.49 | 31.59 | ||||||||||||||||||
Exercised | (668,341 | ) | (518,018 | ) | (1,761,675 | ) | 21.92 | 22.07 | 20.21 | |||||||||||||||
Forfeited | (108,551 | ) | (66,903 | ) | (232,670 | ) | 32.42 | 29.28 | 24.60 | |||||||||||||||
Expired | (89,958 | ) | — | — | 32.29 | — | — | |||||||||||||||||
Cancelled | (96,356 | ) | (14,233 | ) | — | 29.28 | 24.82 | — | ||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Options outstanding, end of year | 5,082,100 | 5,190,542 | 4,805,244 | 29.31 | 28.35 | 27.03 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Options exercisable, end of year | 3,913,088 | 4,001,078 | 2,800,723 | 28.96 | 27.79 | 25.83 | ||||||||||||||||||
|
|
|
|
|
|
As atLTIP for the years ended December 31, 2017, 5,082,1002023, 2022, and 2021:
|
|
|
|
|
|
|
|
| Weighted Average Exercise |
| |||||||||||||||||
|
| Number of Shares |
|
|
| Price Per Share |
| ||||||||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||||||||
Stock options outstanding, beginning of year |
|
| 3,604,739 |
|
|
| 3,736,157 |
|
|
| 4,892,962 |
|
| $ |
| 26.36 |
|
| $ |
| 26.61 |
|
| $ |
| 26.81 |
|
Granted |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
Exercised |
|
| — |
|
|
| — |
|
|
| (41,613 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| 21.23 |
|
Forfeited |
|
| — |
|
|
| (796 | ) |
|
| (88,934 | ) |
|
|
| — |
|
|
|
| 22.49 |
|
|
|
| 22.49 |
|
Expired |
|
| (275,317 | ) |
|
| (126,569 | ) |
|
| (903,038 | ) |
|
|
| 27.95 |
|
|
|
| 33.61 |
|
|
|
| 28.31 |
|
Cancelled |
|
| — |
|
|
| (4,053 | ) |
|
| (123,220 | ) |
|
|
| — |
|
|
|
| 27.92 |
|
|
|
| 26.68 |
|
Stock options outstanding, end of year |
|
| 3,329,422 |
|
|
| 3,604,739 |
|
|
| 3,736,157 |
|
|
|
| 26.23 |
|
|
|
| 26.36 |
|
|
|
| 26.61 |
|
Stock options exercisable, end of year |
|
| 3,329,422 |
|
|
| 3,523,335 |
|
|
| 3,488,107 |
|
|
|
| 26.23 |
|
|
|
| 26.45 |
|
|
|
| 26.93 |
|
As of December 31, 2023, 3,329,422 options outstanding included both fully vested and unvested options with a weighted average exercise price of $29.31,$26.23, an aggregate intrinsic value of $0.5 million and weighted average remaining contractual life of 4.7 years. As at December 31, 2017, options that are exercisable have an intrinsic value of $0.3 million$nil and a weighted average remaining contractual life of 4.32.4 years. The intrinsic value of options exercised in 20172023 was $6.8 million (2016$nil (2022 —$ nil; 2021 — $5.4 million; 2015 — $29.8$0.1 million).
IMAX LTIP Restricted Share Units
RSUs have been granted to employees consultants and directors under the IMAX LTIP. Each RSU represents a contingent right to receive onea common share and is the economic equivalent of one common share. The grant date fair value of each RSU is equal to the share price of the Company’s stock at the grant date. Thedate or the average closing price of the Company’s common share for five days prior to the date of grant. For the years ended December 31, 2023, 2022, and 2021, the Company recorded the following expenses related to RSU grantsRSUs issued to employees and directors in the plan:IMAX LTIP:
|
| Years Ended December 31, |
| ||||||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
RSU expenses |
| $ |
| 12,612 |
|
| $ |
| 15,498 |
|
| $ |
| 15,555 |
|
Years Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
RSU expenses | $ | 16,033 | $ | 15,809 | $ | 8,197 |
The Company’s actual tax benefits realized for the tax deductions related to the vesting of RSUs was $3.6$0.8 million for the year ended December 31, 2017 (20162023 (2022 — $4.6$0.9 million; 20152021 — $0.4$0.6 million).
The Company did not issue any RSU grants to advisors or strategic partnersCompany’s accrued liability for granted RSUs was $2.7 million as of the Company for the year ended December 31, 2017. The Company did not record any expense for the years ended December2023 (December 31, 2017 and 2016. An expense of less than $0.1 million was recorded in 2015 related to RSU grants issued to certain advisors and strategic partners of the Company.2022 — $0.8 million).
Total stock-basedshare-based compensation expense related tonon-vested RSUs not yet recognized and the weighted average period over which the awards are expected to be recognized are as follow:follows:
Years Ended December 31, |
| Years Ended December 31, |
| ||||||||||||||||||||||||
2017 | 2016 | 2015 | |||||||||||||||||||||||||
Expense related tonon-vested RSUs not yet recognized | $ | 22,440 | $ | 29,050 | $ | 24,399 | |||||||||||||||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||||||||||||||
Expense not yet recognized related to non-vested RSUs |
| $ |
| 16,256 |
|
| $ |
| 17,457 |
|
| $ |
| 15,913 |
| ||||||||||||
|
|
|
|
|
|
| |||||||||||||||||||||
Weighted average period awards are expected to be recognized (in years) | 2.1 | 2.4 | 3.0 |
|
|
| 1.7 |
|
|
|
| 1.5 |
|
|
|
| 1.6 |
|
116
The following table summarizes certain informationthe activity in respect of RSU activityRSUs issued under the IMAX LTIP:LTIP for the years ended December 31, 2023, 2022, and 2021:
Number of Awards | Weighted Average Grant Date Fair Value Per Share |
| Number of Awards |
|
| Weighted Average Grant Date Fair |
| ||||||||||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | 2017 | 2016 | 2015 |
| 2023 |
|
| 2022 |
|
| 2021 |
|
|
| 2023 |
|
|
| 2022 |
|
|
| 2021 |
| |||||||||||||||||||||||||
RSUs outstanding, beginning of year | 1,124,180 | 973,637 | 595,834 | $ | 33.01 | $ | 32.27 | $ | 27.13 |
|
| 1,252,044 |
|
|
| 1,457,883 |
|
|
| 1,564,838 |
|
| $ |
| 19.16 |
|
| $ |
| 19.16 |
|
| $ |
| 18.33 |
| |||||||||||||||
Granted | 463,010 | 664,278 | 605,349 | 30.47 | 32.29 | 36.04 |
|
| 900,199 |
|
|
| 708,313 |
|
|
| 831,123 |
|
|
| 17.82 |
|
|
| 19.31 |
|
|
| 21.03 |
| |||||||||||||||||||||
Vested and settled | (456,779 | ) | (466,918 | ) | (207,371 | ) | 31.66 | 30.63 | 28.81 |
|
| (747,132 | ) |
|
| (800,231 | ) |
|
| (689,872 | ) |
|
| 18.65 |
|
|
| 19.10 |
|
|
| 19.46 |
| ||||||||||||||||||
Forfeited | (135,082 | ) | (46,817 | ) | (20,175 | ) | 32.03 | 31.16 | 29.27 |
|
| (118,281 | ) |
|
| (113,921 | ) |
|
| (248,206 | ) |
|
|
| 19.12 |
|
|
| 20.39 |
|
|
| 19.38 |
| |||||||||||||||||
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||
RSUs outstanding, end of year | 995,329 | 1,124,180 | 973,637 | 32.68 | 33.01 | 32.27 |
|
| 1,286,830 |
|
|
| 1,252,044 |
|
|
| 1,457,883 |
|
|
|
| 18.53 |
|
|
| 19.16 |
|
|
| 19.16 |
| ||||||||||||||||||||
|
|
|
Historically, RSUs granted under the IMAX LTIP have vested between immediately and fourthree years from the grant date. In connection with the amendment and restatement ofOn June 3 2020, the IMAX LTIP at the Company’s annual and special meeting of the shareholders on June 6, 2016, the IMAX LTIP plan was amended to imposerequire a minimumone-year vesting period of one year on future RSU grants, with acarve-out for 300,000 RSUsan aggregate of no more than 5% of the total number of common shares authorized for issuance under the plan that may vest on a shorter schedule. Vesting of the RSUs is subject to continued employment or service with the Company. The following table summarizes the number of RSUs issued from thecarve-out balance:
Approved under the IMAX LTIP | 1,030,000 | |||||
| (541,942 | ) | ||||
Issued during | ||||||
2023 | (63,443 | ) | ||||
Outstanding, December 31, | ||||||
| ||||||
2023 | ||||||
| ||||||
424,615 |
Restricted Share Units to Non-Employees
During the years ended December 31, 2023, 2022 and 2021, the Company did not grant any restricted share units to non-employees. The Company did not record any expenses for the year ended December 31, 2023 related to RSU grants issued to non-employees of the Company (2022 ― $nil; 2021 ― $nil).
IMAX LTIP Performance Stock Units Summary
The Company grants two types of PSUs awards, one which vests based on a combination of employee service and the achievement of certain Adjusted EBITDA targets and one which vests based on a combination of employee service and the achievement of total TSR targets. The achievement of the Adjusted EBITDA and TSR targets in these PSUs is determined over a three-year performance period. At the conclusion of the three-year performance period, the number of PSUs that ultimately vest can range from 0% to a maximum vesting opportunity of 175% of the initial Adjusted EBITDA PSU award or 150% of the initial TSR PSU award, depending upon actual performance versus the established Adjusted EBITDA and TSR targets, respectively.
The grant date fair value of PSUs with Adjusted EBITDA targets is equal to the closing price of the Company’s common shares on the date of grant or the average closing price of the Company’s common shares for five days prior to the date of grant. The grant date fair value of PSUs with TSR targets is determined on the grant date using a Monte Carlo Model. The compensation expense attributable to each type of PSU is recognized on a straight-line basis over the requisite service period.
The fair value determined by the Monte Carlo Model is affected by the Company’s share price, as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, market conditions as of the grant date, the Company’s expected share price volatility over the term of the awards, and other relevant data. The compensation expense is fixed on the date of grant based on the fair value of the PSUs granted.
The amount and timing of compensation expense recognized for PSUs with Adjusted EBITDA targets is dependent upon management's assessment of the likelihood of achieving these targets. If, as a result of management’s assessment, it is projected that a greater number of PSUs will vest than previously anticipated, a life-to-date adjustment to increase compensation expense is recorded in the period that such determination is made. Conversely, if, as a result of management’s assessment, it is projected that a lower number of PSUs will vest than previously anticipated, a life-to-date adjustment to decrease compensation expense is recorded in the period that such determination is made.
117
For the years ended December 31, 2023, 2022, and 2021, the Company recorded the following expenses related to outstanding PSUs, which includes adjustments reflecting management’s estimate of the number of PSUs with Adjusted EBITDA targets expected to vest:
|
| Years Ended December 31, |
| ||||||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
PSU expenses |
| $ |
| 7,859 |
|
| $ |
| 8,306 |
|
| $ |
| 5,322 |
|
The Company’s actual tax benefits realized for the tax deductions related to the vesting of PSUs was $0.3 million for the year ended December 31, 2023 (2022 ― $nil; 2021 ― $nil).
Total share-based compensation expense related to non-vested PSUs not yet recognized and the weighted average period over which the awards are expected to be recognized are as follows:
|
| Years Ended December 31, |
| ||||||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
Expense not yet recognized related to non-vested PSUs |
| $ |
| 10,907 |
|
| $ |
| 10,800 |
|
| $ |
| 9,254 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average period awards are expected to be recognized (in years) |
|
|
| 1.8 |
|
|
|
| 1.8 |
|
|
|
| 1.8 |
|
The following table summarizes the activity in respect of PSUs issued under the IMAX LTIP:
|
| Number of Awards |
|
| Weighted Average Grant Date |
| ||||||||||||||||||||
|
| 2023 |
|
| 2022 |
| 2021 |
|
|
| 2023 |
|
|
| 2022 |
|
|
| 2021 |
| ||||||
PSUs outstanding, beginning of year |
|
| 931,716 |
|
|
| 613,405 |
|
| 361,844 |
|
| $ |
| 18.96 |
|
| $ |
| 18.21 |
|
| $ |
| 15.68 |
|
Granted(1) |
|
| 585,602 |
|
|
| 359,138 |
|
| 309,574 |
|
|
|
| 17.69 |
|
|
|
| 20.34 |
|
|
|
| 20.77 |
|
Vested and settled(1) |
|
| (368,602 | ) |
|
| — |
|
| — |
|
|
|
| 16.92 |
|
|
|
| — |
|
|
|
| — |
|
Forfeited(2) |
|
| (226,095 | ) |
|
| (40,827 | ) |
| (58,013 | ) |
|
|
| 18.19 |
|
|
|
| 19.90 |
|
|
|
| 16.11 |
|
PSUs outstanding, end of year(3) |
|
| 922,621 |
|
|
| 931,716 |
|
| 613,405 |
|
|
|
| 19.16 |
|
|
|
| 18.96 |
|
|
|
| 18.21 |
|
As of December 31, 2023, the maximum number of shares of common stock that may be issued with respect to PSUs outstanding is 1,591,329, assuming full achievement of the Adjusted EBITDA and TSR targets.
China Long-Term Incentive Plan
Each stock option (“China Option”), RSU, or PSU issued under the China LTIP represents an opportunity to participate economically in the future growth and value creation of IMAX China.
In connection with the IMAX China IPO and in accordance with the China LTIP, IMAX China adopted a post-IPO share option plan and a post-IPO restricted stock unit plan. Pursuant to these plans, IMAX China has issued additional China Options, China LTIP Performance Stock Units (“China PSUs”), and China LTIP Restricted Share Units (“China RSUs”).
118
For the years ended December 31, 2023, 2022, and 2021, share-based compensation expense related to China Options, China RSUs and China PSUs was as follows:
|
| Years Ended December 31, |
| ||||||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
Expense |
|
|
|
|
|
|
|
|
|
|
|
| |||
China Options |
| $ |
| 12 |
|
| $ |
| 91 |
|
| $ |
| 285 |
|
China RSUs |
|
|
| 2,337 |
|
|
|
| 2,284 |
|
|
|
| 2,810 |
|
China PSUs |
|
|
| 647 |
|
|
|
| 262 |
|
|
|
| 578 |
|
Total |
| $ |
| 2,996 |
|
| $ |
| 2,637 |
|
| $ |
| 3,673 |
|
In 2022, IMAX China modified the terms of certain fully vested stock options to extend their contractual life by one year and recorded an associated expense of $0.1 million (2021 ― $0.1 million). No such charges were incurred in 2023.
Issuer Purchases of Equity Securities
In 2017, the Company repurchased 1,736,150 (2016 — 3,849,222) common shares at an average price of $26.57 per share (2016 — $30.25 per share). The repurchases in 2017 exhausted the remaining allowance of $46.1 million under the previously announced $200 million share repurchase program. The average carrying value of the stock retired was deducted from common stock and the remaining excess over the average carrying value of stock was charged to accumulated deficit. Since the inception of this program, the Company has repurchased 6,697,406 common shares at an average price of $29.86 per share.
On June 12, 2017, the Company announced that itsthe Board of Directors approved a new $200.0$200.0 million share repurchase program for its common shares ofthat would have initially expired on June 30, 2020, which was subsequently extended and increased in the total share repurchase authority to $400.0 million. In 2023, the Company’s common stock. TheBoard of Directors approved a 36-month extension to its share purchaserepurchase program expires onthrough June 30, 2020.2026. As of December 31, 2023, the Company has $167.0 million authorized for repurchase under its approved repurchase program. The repurchases may be made either in the open market or through private transactions, including repurchases made pursuant a plan intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, subject to market conditions, applicable legal requirements, and other relevant factors. The Company has no obligation to repurchase shares and the share repurchase program may be suspended or discontinued by the Company at any time. There were no share repurchases of shares under In 2023, the new share repurchase program in 2017.
The total number of shares purchased during the year ended December 31, 2017 and 2016 does not include any shares purchased in the administration of employee share-based compensation plans (which amounted to 825,692 (2016 – 630,720)Company repurchased 1,604,420 (2022 ― 5,401,852) common shares at an average price of $30.23 (2016 – $31.52)$16.45 per share (2022 ― $15.19 per share).
As at, for a total of $26.4 million (2022 ― $82.0 million), excluding commissions, of which 108,393 were common shares (2022 ― 140,000) where settlement occurred subsequent to December 31, 2017,2023, at an average price of $14.98 per share for a total of $1.6 million, excluding commissions.
The following table summarizes the Company’s share repurchases during the years ended December 31, 2023 and 2022:
|
| Total Number of Shares Repurchased |
|
| Average Price Paid Per Share |
| ||||||||||||
(in thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
|
|
| 2023 |
|
|
| 2022 |
| ||||
Shares repurchased |
|
| 1,604,420 |
|
|
| 5,401,852 |
|
| $ |
| 16.45 |
|
| $ |
| 15.19 |
|
For the years ended December 31, 2023 and 2022, there were no shares purchases in the administration of employee share based plans.
As of December 31, 2023, the IMAX LTIP trustee held 206,651 shares purchased for $5.1 million in the open market to be issued upon the settlement of RSUs and stock options. Thenil shares. Any shares held with the trustee are recorded at cost and are reported as a reduction against capital stockCapital Stock on the consolidated balance sheet.
Reconciliations In 2022, IMAX China’s shareholders granted its Board of Directors (“IMAX China Board”) a general mandate authorizing the IMAX China Board, subject to applicable laws, to repurchase shares of IMAX China not to exceed 10% of the numeratortotal number of issued shares as of June 23, 2022 (34,063,480 shares). This program expired on the date of the 2023 Annual General Meeting of IMAX China on June 7, 2023. During the 2023 Annual General Meeting, shareholders approved the repurchase of shares of IMAX China not to exceed 10% of the total number of shares as of June 7, 2023 (33,959,314 shares). This program will be valid until the 2024 Annual General Meeting of IMAX China. The repurchases may be made in the open market or through other means permitted by applicable laws. IMAX China has no obligation to repurchase its shares and the share repurchase program may be suspended or discontinued by IMAX China at any time.
In 2023, IMAX China repurchased 16,800 (2022 ― 2,961,800) common shares at an average price of HKD 7.11 per share (U.S. $0.91 per share) for a total of HKD 0.1 million or less than U.S. $0.1 million (2022 ― HKD 8.0 per share or U.S. $1.02 per share, for a total of HKD 23.7 million or U.S. $3.0 million). The change in non-controlling interest as a result of common shares repurchased by IMAX China is recorded within Non-Controlling Interest in the Consolidated Balance Sheets and the Consolidated Statements of Shareholders’ Equity. The difference between the consideration paid and the ownership interest obtained as a result of IMAX China share repurchases is recorded within Other Equity in the Consolidated Balance Sheets and the Consolidated Statements of Shareholders’ Equity (see Note 2(a)).
119
The following table summarizes the IMAX China’s share repurchases during the years ended December 31, 2023 and 2022:
|
| Total Number of Shares Repurchased |
|
| Average Price Paid Per Share |
| ||||||||||||
(in thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
|
|
| 2023 |
|
|
| 2022 |
| ||||
Shares repurchased |
|
| 16,800 |
|
|
| 2,961,800 |
|
| $ |
| 0.91 |
|
| $ |
| 1.02 |
|
The following table reconciles the denominator of the basic and dilutedper-share computations are comprised of weighted average share computations:
|
| Years Ended December 31, |
| ||||||||||||
(In thousands) |
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
Issued and outstanding, beginning of period |
|
|
| 54,149 |
|
|
|
| 58,654 |
|
|
|
| 58,921 |
|
Weighted average number of shares issued (repurchased) , net |
|
|
| 161 |
|
|
|
| (1,980 | ) |
|
|
| 205 |
|
Weighted average number of shares outstanding - basic and diluted |
|
|
| 54,310 |
|
|
|
| 56,674 |
|
|
|
| 59,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Weighted average effect of potential common shares, if dilutive |
|
|
| 836 |
|
|
|
| — |
|
|
|
| — |
|
Weighted average number of shares outstanding - diluted |
|
|
| 55,146 |
|
|
|
| 56,674 |
|
|
|
| 59,126 |
|
For the following:
Years Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Net income attributable to common shareholders | $ | 2,344 | $ | 28,788 | $ | 55,844 | ||||||
Less: Accretion charges associated with redeemable common stock | — | — | (769 | ) | ||||||||
|
|
|
|
|
| |||||||
Net income applicable to common shareholders | $ | 2,344 | $ | 28,788 | $ | 55,075 | ||||||
|
|
|
|
|
| |||||||
Weighted average number of common shares (000’s): | ||||||||||||
Issued and outstanding, beginning of period | 66,160 | 69,673 | 68,988 | |||||||||
Weighted average number of shares (repurchased) issued during the period, net | (780 | ) | (2,098 | ) | 538 | |||||||
|
|
|
|
|
| |||||||
Weighted average number of shares used in computing basic earnings per share | 65,380 | 67,575 | 69,526 | |||||||||
Assumed exercise of stock options and RSUs, net of shares assumed repurchased | 160 | 688 | 1,532 | |||||||||
|
|
|
|
|
| |||||||
Weighted average number of shares used in computing diluted earnings per share | 65,540 | 68,263 | 71,058 | |||||||||
|
|
|
|
|
|
Theyear ended December 31, 2023, the calculation of diluted earnings per share exclude 4,993,014 (2016 — 2,814,907)excludes 3,380,142 (2022 ― 4,523,121; 2021 ― 6,131,792) shares that are issuable upon the vesting of 18,877 RSUs (2022 ― 637,120; 2021 ― 1,457,883), the vesting of 31,843 PSUs (2022 ― 281,262; 2021 ― 937,752), and the exercise of 579,808 (2016 — 377,048) RSUs3,329,422 stock options (2022 ― 3,604,739; 2021 ― 3,736,157 ), as the effect would be anti-dilutive.
The calculation of diluted weighted average shares outstanding for the year ended December 31, 2023 also excludes any shares potentially issuable upon the conversion of the Convertible Notes as the average market price of the Company’s common shares during the period of time they were outstanding was less than the conversion price of the Convertible Notes. (Refer to Note 14(b).)
Pursuant to the corporate law of the PRC, entities registered in the PRC are required to maintain certain statutory reserves, which are appropriated from after-tax profits, after offsetting accumulated losses from prior years, before dividends can be declared or paid to equity holders.
The Company’s PRC subsidiaries are required to appropriate 10% of statutory net profits to statutory surplus reserves, upon distribution of their after-tax profits. The Company’s PRC subsidiaries may discontinue the contribution when the when the aggregate sum of the statutory surplus reserve is more than 50% of their registered capital. The statutory surplus reserve is non-distributable other than during liquidation and 4,413,206 (2016 — 2,437,859) stock optionsmay only be used to fund losses from prior years, to expand production operations, or to increase the capital of the subsidiaries. In addition, the subsidiaries may make further contribution to the discretional surplus reserve using post-tax profits in accordance with resolutions of the Board of Directors.
The statutory surplus reserve of RMB 36.4 million ($5.6 million) has reached 50% of its PRC subsidiaries’ registered capital, as such no further contributions to the reserve are required.
120
18. Consolidated Statements of Operations Supplemental Information
The following table summarizes the Company’s selling expenses, including sales commissions and marketing and other, which are recognized within Costs and Expenses Applicable to Revenues in the Consolidated Statements of Operations, for the years ended December 31, 20172023, 2022 and 2016, as the impact of these exercises would be antidilutive.2021:
| Years Ended December 31, |
| |||||||||||||||||||||||||||
| 2023 |
|
| 2022 |
|
| 2021 |
| |||||||||||||||||||||
(In thousands of U.S. Dollars) | Sales |
|
| Marketing and Other |
|
| Sales |
|
| Marketing and Other |
|
| Sales |
|
| Marketing and Other |
| ||||||||||||
Technology sales(1) | $ |
| 1,575 |
|
| $ |
| 1,103 |
|
| $ |
| 479 |
|
| $ |
| 810 |
|
| $ |
| 1,885 |
|
| $ |
| 989 |
|
Image enhancement and maintenance services(2) |
|
| — |
|
|
|
| 15,200 |
|
|
|
| — |
|
|
|
| 20,284 |
|
|
|
| — |
|
|
|
| 8,923 |
|
Technology rentals(3) |
|
| 478 |
|
|
|
| 734 |
|
|
|
| 85 |
|
|
|
| 663 |
|
|
|
| 399 |
|
|
|
| 1,109 |
|
Total | $ |
| 2,053 |
|
| $ |
| 17,037 |
|
| $ |
| 564 |
|
| $ |
| 21,757 |
|
| $ |
| 2,284 |
|
| $ |
| 11,021 |
|
15. Consolidated Statements of Operations Supplemental Information
(a) Other Revenues
The Company enters into theater system arrangements with customers that typically contain customer payment obligations
incurred.
Included in selling, generalSelling, General and administrative expensesAdministrative Expenses for the year ended December 31, 20172023 is $1.0a foreign currency net loss of $0.7 million for a net foreignresulting from changes in exchange gainrates related to the translation of foreign currency denominated monetary assets and liabilities, primarily due to the slower pace of RMB weakening against the U.S. Dollar throughout 2023, as compared to a net loss of $0.9$3.2 million and a net lossgain of $2.4$1.3 million for the yearyears ended December 31, 20162022 and 2015,2021, respectively. See note 19(d)Refer to Note 22(c) for additional information.
Joint Revenue Sharing Arrangements
InRefer to Note 6 for a joint revenue sharing arrangement, the Company receives a portion of a theater’sbox-office and concession revenues, and in some cases a small upfront or initial payment, in exchange for placing a theater system at the theater operator’s venue. Under joint revenue sharing arrangements, the customer has the ability and the right to operate the hardware components or direct others to operate them in a manner determined by the customer. The Company’s joint revenue sharing arrangements are typicallynon-cancellable for 10 years or longer with renewal provisions. Title to equipment under joint revenue sharing arrangements generally does not transfer to the customer. The Company’s joint revenue sharing arrangements do not contain a guarantee of residual value at the enddescription of the term. The customer is required to pay for executory costs such as insurance and taxes and is required to pay the Company for maintenance and extended warranty throughout the term. The customer is responsible for obtaining insurance coverage for the theater systems
commencing on the date specified in the arrangement’s shipping terms and ending on the date the theater systems are delivered back to the Company.
The Company has signed joint revenue sharing agreements with 47 exhibitors (2016 — 48) for a total of 1,084 theater systems (2016 — 995), of which 747 theaters (2016 — 640) were operating as at December 31, 2017. Thematerial terms of the Company’s collaborative joint revenue sharing arrangements are similar in nature, rights and obligations.arrangements. The accounting policy for the Company’s joint revenue sharing arrangements is disclosed in note 2(m)Note 2(o).
AmountsRevenue attributable to transactions arising between the Company and its customers under joint revenue sharing arrangements are included in Equipmentrecorded within Revenues – Technology Sales (for hybrid joint revenue sharing arrangements) and Product Sales andRevenues – Technology Rentals (for traditional joint revenue and forsharing arrangements). For the year ended December 31, 2017 amounted2023, such revenues totaled $78.2 million (2022 — $66.6 million; 2021 — $51.6 million). (Refer to $80.6 million (2016 — $91.4 million; 2015 —$99.1 million).Note 20(a) for a disaggregated presentation of the Company’s revenues.)
IMAX DMRFilm Remastering and Distribution
In an IMAX DMRa film remastering and distribution arrangement, the Company transforms conventional motion pictures into the Company’s large screen format, allowing the release of Hollywood content to the global IMAX theater network. In a typical IMAX DMR film arrangement, the Company will absorb its costs for the digitalre-mastering and then recoup this cost fromreceives a percentage of thebox-office box office receipts offrom a third party who owns the copyright to a film in exchange for converting the film whichinto IMAX format and distributing it through the IMAX network. The fee earned by the Company in recent years has averageda typical film remastering and distribution arrangement averages approximately 12.5% outside12.5% of box office receipts (i.e., gross box office receipts less applicable sales taxes), except for within Greater China, andwhere the Company receives a lower percentage of net box office receipts for certain films within Greater China. The Company does not typically hold distribution rights or the copyright to theseHollywood films.
In 2017, the majority of IMAX DMR revenue was earned from the exhibition of 60 IMAX DMR films (2016 — 51) throughout the IMAX theater network. The accounting policy for the Company’s IMAX DMRfilm remastering and distribution arrangements is disclosed in note 2(m)Note 2(o).
Amounts121
Revenue attributable to transactions arising between the Company and its customers under IMAX DMRthe Company’s film remastering and distribution arrangements are included in Services revenuesRevenues – Image Enhancement and forMaintenance Services. For the year ended December 31, 2017 amounted2023, such revenues totaled $118.6 million (2022 — $94.9 million; 2021 — $70.7 million). (Refer to $108.9 million (2016 —$106.4 million; 2015 —$107.1 million).Note 20(a) for a disaggregated presentation of the Company’s revenues.)
Co-Produced Film Arrangements
In certain film arrangements, the Companyco-produces a film with a third party whereby the third party retains the copyright and certain other rights to the film except thatfilm. In some cases, the Company obtains exclusive theatrical distribution rights to the film. Under these arrangements, both parties contribute funding to the Company’s wholly-owned company for the production of the film or content and for associated exploitation costs. Clauses in the film arrangements generally provide for the third party to take over the production of the film if the costfunding of the production, exceeds its approved budget or if it appears as thoughdistribution and exploitation costs associated with the film will not be delivered on a timely basis.film.
As atof December 31, 2017,2023, the Company has two significantis party to oneco-produced arrangements film arrangement, which primarily represents the VIE total assets balance of $7.5$1.4 million and liabilities balance of $7.2$0.2 million and threefour otherco-produced film arrangements, the terms of which are similar. The accounting policies relating toco-produced film arrangements are disclosed in notesNotes 2(a) and 2(m)2(o).
In 2017, amounts totaling $1.22023, an expense of $0.6 million (2016(2022 — $1.4$0.8 million; 20152021 — $1.5$0.4 million) attributable to transactions between the Company and other parties involved in the production of the films have been included in cost and expenses applicable to revenues-services.
In 2016, the Company entered into an arrangement toco-produce television episodic content. Funding was provided to the third party and the third party retains the copyright and rights to the content. The Company obtained exclusive theatrical distribution rights to the first two episodes and a percentage share to all television revenue.
As at December 31, 2017, the Company is participating in one significantco-produced television arrangement. This arrangement is not a VIE.
For the year ended December 31, 2017, revenues of $20.4 million and costs and expenses applicable to revenues of $33.4 million, attributable to this collaborative arrangement have been recorded in Revenue – Services and Costs and expenses applicableExpenses Applicable to revenuesRevenues – Services, respectively. Included therein are net revenues attributable to transactions between the CompanyImage Enhancement and other parties involved in the production of the episodic content of $20.1 million.Maintenance Services.
16. Receivable Provisions, Net of Recoveries
The following table reflects the Company’s receivable provisions net of recoveries recorded in the consolidated statements of operations:
Years Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Accounts receivable provisions, net of recoveries | $ | 1,967 | $ | 1,029 | $ | 677 | ||||||
Financing receivable provisions, net of recoveries | 680 | (75 | ) | 75 | ||||||||
|
|
|
|
|
| |||||||
Receivable provisions, net of recoveries | $ | 2,647 | $ | 954 | $ | 752 | ||||||
|
|
|
|
|
|
17.19. Consolidated Statements of Cash Flows Supplemental Information
| Years Ended December 31, |
| ||||||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
|
| 2022 |
|
|
| 2021 |
| |||
Decrease (Increase) in: |
|
|
|
|
|
|
|
|
|
|
| |||
Financing receivables | $ |
| 2,642 |
|
| $ |
| 5,411 |
|
| $ |
| (7,637 | ) |
Prepaid expenses |
|
| (1,273 | ) |
|
|
| (1,892 | ) |
|
|
| (3,230 | ) |
Variable consideration receivables |
|
| (20,337 | ) |
|
|
| 667 |
|
|
|
| (2,905 | ) |
Other assets |
|
| (10,473 | ) |
|
|
| 968 |
|
|
|
| 1,003 |
|
Increase (Decrease) in: |
|
|
|
|
|
|
|
| ||||||
Accounts payable |
|
| (535 | ) |
|
|
| 8,496 |
|
|
|
| (4,752 | ) |
Accrued and other liabilities |
|
| (6,013 | ) |
|
|
| (12,849 | ) |
|
|
| 15,167 |
|
| $ |
| (35,989 | ) |
| $ |
| 801 |
|
| $ |
| (2,354 | ) |
Years Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Decrease (increase) in: | ||||||||||||
Accounts receivable | $ | (37,807 | ) | $ | (1,414 | ) | $ | (22,521 | ) | |||
Financing receivables | (7,253 | ) | (4,627 | ) | (13,628 | ) | ||||||
Inventories | 10,832 | (3,825 | ) | (21,070 | ) | |||||||
Prepaid expenses | (924 | ) | (127 | ) | (1,552 | ) | ||||||
Other assets, prepaid tax | — | (5,664 | ) | — | ||||||||
Other assets | (457 | ) | (1,038 | ) | (655 | ) | ||||||
Increase (decrease) in: | ||||||||||||
Accounts payable | 4,204 | (3,360 | ) | 9,183 | ||||||||
Accrued and other liabilities | (642 | ) | 3,914 | (2,057 | ) | |||||||
Deferred revenue | 22,906 | (14,733 | ) | 16,242 | ||||||||
|
|
|
|
|
| |||||||
$ | (9,141 | ) | $ | (30,874 | ) | $ | (36,058 | ) | ||||
|
|
|
|
|
|
| Years Ended December 31, |
| ||||||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
|
| 2022 |
|
|
| 2021 |
| |||
Income taxes(1) | $ |
| 17,812 |
|
| $ |
| 13,963 |
|
| $ |
| 18,475 |
|
Interest | $ |
| 3,930 |
|
| $ |
| 715 |
|
| $ |
| 3,251 |
|
122
|
| Years Ended December 31, |
| ||||||||||||
(In thousands of U.S. Dollars) |
|
| 2023 |
|
|
| 2022 |
|
|
| 2021 |
| |||
Film assets |
| $ |
| 20,281 |
|
| $ |
| 16,881 |
|
| $ |
| 16,316 |
|
Property, plant and equipment: |
|
|
|
|
|
|
|
|
|
|
|
| |||
Equipment supporting joint revenue sharing arrangements |
|
|
| 22,857 |
|
|
|
| 22,165 |
|
|
|
| 22,320 |
|
Other property, plant and equipment(1) |
|
|
| 9,125 |
|
|
|
| 9,757 |
|
|
|
| 9,479 |
|
Other intangible assets(2) |
|
|
| 5,952 |
|
|
|
| 6,103 |
|
|
|
| 6,079 |
|
Other assets(3) |
|
|
| 1,807 |
|
|
|
| 1,755 |
|
|
|
| 1,888 |
|
Total |
| $ |
| 60,022 |
|
| $ |
| 56,661 |
|
| $ |
| 56,082 |
|
| Years Ended December 31, |
| ||||||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
|
| 2022 |
|
|
| 2021 |
| |||
Other assets(1) | $ |
| 144 |
|
| $ |
| 4,470 |
|
| $ |
| — |
|
Inventories(2) |
|
| 542 |
|
|
|
| 741 |
|
|
|
| 890 |
|
Property, plant and equipment: |
|
|
|
|
|
|
|
|
|
|
| |||
Equipment supporting joint revenue sharing arrangements(3) |
|
| 756 |
|
|
|
| 973 |
|
|
|
| 364 |
|
Other property, plant and equipment |
|
| 31 |
|
|
|
| 57 |
|
|
|
| 217 |
|
Other intangible assets |
|
| — |
|
|
|
| 87 |
|
|
|
| 142 |
|
Film assets(4) |
|
| 411 |
|
|
|
| 848 |
|
|
|
| 151 |
|
| $ |
| 1,884 |
|
| $ |
| 7,176 |
|
| $ |
| 1,764 |
|
123
| Years Ended December 31, |
| ||||||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
|
| 2022 |
|
|
| 2021 |
| |||
Net increase (decrease) in accruals related to: |
|
|
|
|
|
|
|
|
|
|
| |||
Investment in equipment supporting joint revenue sharing arrangements | $ |
| (600 | ) |
| $ |
| 790 |
|
| $ |
| 1,009 |
|
Acquisition of other intangible assets |
|
| (942 | ) |
|
|
| 30 |
|
|
|
| (891 | ) |
Purchases of property, plant and equipment(1) |
|
| (541 | ) |
|
|
| 311 |
|
|
|
| (188 | ) |
$ |
| (2,083 | ) |
| $ |
| 1,131 |
|
| $ |
| (70 | ) |
In the fourth quarter of 2023, the Company recognized a $1.6 million liability on the Consolidated Balance Sheets within Accounts Payable related to repurchase of its common shares, which settled subsequent to December 31, 2023 (2022 — $2.0 million liability within Accrued and Other Liabilities).
20.Revenue from Contracts with Customers
In the first quarter of 2023, the Company updated its reportable segments (refer to Note 21). Prior year comparatives have been revised to conform with the current year presentation. The following tables summarize the Company’s revenues by type and reportable segment for the years ended December 31, 2023, 2022, and 2021:
| Year Ended December 31, 2023 |
| |||||||||||||||||||||||
(In thousands of U.S. Dollars) | Technology Sales |
|
| Image Enhancement and Maintenance Services |
|
| Technology Rentals |
|
| Finance |
|
| Total |
| |||||||||||
Content Solutions Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Film Remastering and Distribution | $ |
| — |
|
| $ |
| 118,637 |
|
| $ |
|
| — |
|
| $ |
| — |
|
| $ |
| 118,637 |
|
Other Content Solutions |
|
| — |
|
|
|
| 8,061 |
|
|
|
|
| — |
|
|
|
| — |
|
|
|
| 8,061 |
|
|
|
| — |
|
|
|
| 126,698 |
|
|
|
|
| — |
|
|
|
| — |
|
|
|
| 126,698 |
|
Technology Products and Services Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
System Sales |
|
| 93,271 |
|
|
|
| — |
|
|
|
|
| — |
|
|
|
| — |
|
|
|
| 93,271 |
|
System Rentals |
|
| — |
|
|
|
| — |
|
|
|
|
| 75,566 |
|
|
|
| — |
|
|
|
| 75,566 |
|
Maintenance |
|
| — |
|
|
|
| 56,737 |
|
|
|
|
| — |
|
|
|
| — |
|
|
|
| 56,737 |
|
Finance Income |
|
| — |
|
|
|
| — |
|
|
|
|
| — |
|
|
|
| 8,729 |
|
|
|
| 8,729 |
|
|
|
| 93,271 |
|
|
|
| 56,737 |
|
|
|
|
| 75,566 |
|
|
|
| 8,729 |
|
|
|
| 234,303 |
|
Sub-total for reportable segments |
|
| 93,271 |
|
|
|
| 183,435 |
|
|
|
|
| 75,566 |
|
|
|
| 8,729 |
|
|
|
| 361,001 |
|
All Other |
|
| 7,521 |
|
|
|
| 6,317 |
|
|
|
|
| — |
|
|
|
| — |
|
|
|
| 13,838 |
|
Total | $ |
| 100,792 |
|
| $ |
| 189,752 |
|
| $ |
|
| 75,566 |
|
| $ |
| 8,729 |
|
| $ |
| 374,839 |
|
124
| Year Ended December 31, 2022 |
| |||||||||||||||||||||||
(In thousands of U.S. Dollars) | Technology Sales |
|
| Image Enhancement and Maintenance Services |
|
| Technology Rentals |
|
| Finance |
|
| Total |
| |||||||||||
Content Solutions Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Film Remastering and Distribution | $ |
| — |
|
| $ |
| 94,867 |
|
| $ |
|
| — |
|
| $ |
| — |
|
| $ |
| 94,867 |
|
Other Content Solutions |
|
| — |
|
|
|
| 6,935 |
|
|
|
|
| 18 |
|
|
|
| — |
|
|
|
| 6,953 |
|
|
|
| — |
|
|
|
| 101,802 |
|
|
|
|
| 18 |
|
|
|
| — |
|
|
|
| 101,820 |
|
Technology Products and Services Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
System Sales |
|
| 65,510 |
|
|
|
| — |
|
|
|
|
| — |
|
|
|
| — |
|
|
|
| 65,510 |
|
System Rentals |
|
| — |
|
|
|
| — |
|
|
|
|
| 61,768 |
|
|
|
| — |
|
|
|
| 61,768 |
|
Maintenance |
|
| — |
|
|
|
| 56,608 |
|
|
|
|
| — |
|
|
|
| — |
|
|
|
| 56,608 |
|
Finance Income |
|
| — |
|
|
|
| — |
|
|
|
|
| — |
|
|
|
| 8,482 |
|
|
|
| 8,482 |
|
|
|
| 65,510 |
|
|
|
| 56,608 |
|
|
|
|
| 61,768 |
|
|
|
| 8,482 |
|
|
|
| 192,368 |
|
Sub-total for reportable segments |
|
| 65,510 |
|
|
|
| 158,410 |
|
|
|
|
| 61,786 |
|
|
|
| 8,482 |
|
|
|
| 294,188 |
|
All Other |
|
| 3,648 |
|
|
|
| 2,969 |
|
|
|
|
| — |
|
|
|
| — |
|
|
|
| 6,617 |
|
Total | $ |
| 69,158 |
|
| $ |
| 161,379 |
|
| $ |
|
| 61,786 |
|
| $ |
| 8,482 |
|
| $ |
| 300,805 |
|
| Year Ended December 31, 2021 |
| |||||||||||||||||||||||
(In thousands of U.S. Dollars) | Technology Sales |
|
| Image Enhancement and Maintenance Services |
|
| Technology Rentals |
|
| Finance |
|
| Total |
| |||||||||||
Content Solutions Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Film Remastering and Distribution | $ |
| — |
|
| $ |
| 70,659 |
|
| $ |
|
| — |
|
| $ |
| — |
|
| $ |
| 70,659 |
|
Other Content Solutions |
|
| — |
|
|
|
| 5,724 |
|
|
|
|
| 606 |
|
|
|
| — |
|
|
|
| 6,330 |
|
|
|
| — |
|
|
|
| 76,383 |
|
|
|
|
| 606 |
|
|
|
| — |
|
|
|
| 76,989 |
|
Technology Products and Services Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
System Sales |
|
| 62,637 |
|
|
|
| — |
|
|
|
|
| — |
|
|
|
| — |
|
|
|
| 62,637 |
|
System Rentals |
|
| — |
|
|
|
| — |
|
|
|
|
| 46,184 |
|
|
|
| — |
|
|
|
| 46,184 |
|
Maintenance |
|
| — |
|
|
|
| 53,339 |
|
|
|
|
| — |
|
|
|
| — |
|
|
|
| 53,339 |
|
Finance Income |
|
| — |
|
|
|
| — |
|
|
|
|
| — |
|
|
|
| 10,792 |
|
|
|
| 10,792 |
|
|
|
| 62,637 |
|
|
|
| 53,339 |
|
|
|
|
| 46,184 |
|
|
|
| 10,792 |
|
|
|
| 172,952 |
|
Sub-total for reportable segments |
|
| 62,637 |
|
|
|
| 129,722 |
|
|
|
|
| 46,790 |
|
|
|
| 10,792 |
|
|
|
| 249,941 |
|
All Other |
|
| 3,516 |
|
|
|
| 1,426 |
|
|
|
|
| — |
|
|
|
| — |
|
|
|
| 4,942 |
|
Total | $ |
| 66,153 |
|
| $ |
| 131,148 |
|
| $ |
|
| 46,790 |
|
| $ |
| 10,792 |
|
| $ |
| 254,883 |
|
Years Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Income taxes | $ | 22,829 | $ | 24,640 | $ | 22,798 | ||||||
|
|
|
|
|
| |||||||
Interest | $ | 826 | $ | 721 | $ | 411 | ||||||
|
|
|
|
|
|
Years Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Film assets(1) | $ | 31,031 | $ | 16,324 | $ | 16,357 | ||||||
Property, plant and equipment | ||||||||||||
Joint revenue sharing arrangements | 18,112 | 15,840 | 13,663 | |||||||||
Other property, plant and equipment | 11,803 | 9,692 | 7,698 | |||||||||
Other intangible assets | 4,319 | 3,235 | 3,285 | |||||||||
Other assets | 980 | 862 | 784 | |||||||||
Deferred financing costs | 562 | 532 | 1,016 | |||||||||
|
|
|
|
|
| |||||||
$ | 66,807 | $ | 46,485 | $ | 42,803 | |||||||
|
|
|
|
|
|
125
Years Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Asset impairments | ||||||||||||
Property, plant and equipment | $ | 3,966 | $ | 223 | $ | 405 | ||||||
Impairment of investments | 1,225 | 194 | 425 | |||||||||
Film assets | 17,363 | 3,020 | — | |||||||||
Other assets | 2,533 | — | — | |||||||||
Other charges (recoveries) | ||||||||||||
Accounts receivables | 1,967 | 1,029 | 677 | |||||||||
Financing receivables | 680 | (75 | ) | 75 | ||||||||
Inventories(1) | 500 | 458 | 572 | |||||||||
Other assets | 47 | — | — | |||||||||
Property, plant and equipment(2) | 1,224 | 885 | 1,485 | |||||||||
Other intangible assets | 63 | 206 | 86 | |||||||||
|
|
|
|
|
| |||||||
$ | 29,568 | $ | 5,940 | $ | 3,725 | |||||||
|
|
|
|
|
| |||||||
Inventory charges | ||||||||||||
Recorded in costs and expenses applicable to revenues - equipment & product sales | $ | 500 | $ | 227 | $ | 537 | ||||||
Recorded in costs and expenses applicable to revenues - services | — | 231 | 35 | |||||||||
|
|
|
|
|
| |||||||
$ | 500 | $ | 458 | $ | 572 | |||||||
|
|
|
|
|
|
For the year ended December 31, 2023, $43.1 million of revenue was recognized that was included in the $70.9 million balance of deferred revenue as of December 31, 2022. For the year ended December 31, 2022, $26.5 million of revenue was recognized that was included in the $81.2 million balance of deferred revenue as of December 31, 2021.
Years Ended December 31, | ||||||||
2017 | 2016 | |||||||
Net accruals related to: | ||||||||
Purchases of property, plant and equipment | $ | 871 | $ | (1,229 | ) | |||
Investment in joint revenue sharing arrangements | 69 | 346 | ||||||
Acquisition of other intangible assets | 37 | (121 | ) | |||||
|
|
|
| |||||
$ | 977 | $ | (1,004 | ) | ||||
|
|
|
|
21. Segment Reporting
18. Segmented Information
Management, including theThe Company’s Chief Executive Officer (“CEO”) who is the Company’sits Chief Operating Decision Maker (as defined in the Segment Reporting Topic(“CODM”), as such term is determined under U.S. GAAP. The CODM, along with other members of the FASB ASC), assessesmanagement, assess segment performance based on segment revenues and gross margins and film performance.margins. Selling, general and administrative expenses, research and development costs, the amortization of intangibles, receivables provisions (recoveries),intangible assets, provision for (reversal of) current expected credit losses, certain write-downs, net of recoveries, interest income, interest expense, and income tax (provision) recovery(expense) benefit are not allocated to the Company’s segments.
In the first quarter of 2017, modifications were made2023, the Company revised its internal segment reporting, including the information provided to the CEO’s reporting packageCODM to move awayassess segment performance and allocate resources. Accordingly, the Company has two reportable segments:
The Company’s historical two primary groups – IMAX Theater Systems and Film – andactivities that do not meet the criteria to better alignbe considered a reportable segment are reported within All Other. Prior period comparatives have been revised to conform with the way in whichcurrent period presentation.
The following table presents the CODM managesCompany’s revenue and gross margin by reportable segment for the business. years ended December 31, 2023, 2022, and 2021:
|
| Years Ended December 31, |
| |||||||||||||||||||||
|
| Revenue(1) |
|
| Gross Margin |
| ||||||||||||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
Content Solutions | $ | 126,698 |
|
| $ | 101,820 |
|
| $ | 76,989 |
|
| $ | 74,106 |
|
| $ | 51,240 |
|
| $ | 45,269 |
| |
Technology Products and Services |
| 234,303 |
|
|
| 192,368 |
|
|
| 172,952 |
|
|
| 129,946 |
|
|
| 101,055 |
|
|
| 86,041 |
| |
Sub-total for reportable segments |
|
| 361,001 |
|
|
| 294,188 |
|
|
| 249,941 |
|
|
| 204,052 |
|
|
| 152,295 |
|
|
| 131,310 |
|
All Other |
|
| 13,838 |
|
|
| 6,617 |
|
|
| 4,942 |
|
|
| 10,289 |
|
|
| 4,060 |
|
|
| 3,096 |
|
Total |
| $ | 374,839 |
|
| $ | 300,805 |
|
| $ | 254,883 |
|
| $ | 214,341 |
|
| $ | 156,355 |
|
| $ | 134,406 |
|
The new structure is expectedfollowing table presents the Company’s assets by reportable segment, reconciled to assist usersconsolidated assets, as of December 31, 2023 and 2022:
|
| As of December 31, |
| |||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
| ||
Content Solutions |
| $ | 97,123 |
|
| $ | 92,706 |
|
Technology Products and Services |
|
| 529,057 |
|
|
| 524,309 |
|
Sub-total for reportable segments |
|
| 626,180 |
|
|
| 617,015 |
|
All Other |
|
| 43,994 |
|
|
| 29,686 |
|
Corporate and other non-segment specific assets |
|
| 144,495 |
|
|
| 174,453 |
|
Total |
| $ | 814,669 |
|
| $ | 821,154 |
|
126
The following table presents the Company’s amortization by reportable segment, and on a consolidated basis, for the years ended December 31, 2023, 2022, and 2021:
|
| Years Ended December 31, |
| |||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Content Solutions |
| $ | 24,032 |
|
| $ | 18,790 |
|
| $ | 17,441 |
|
Technology Products and Services |
|
| 28,497 |
|
|
| 24,089 |
|
|
| 26,284 |
|
Sub-total for reportable segments |
|
| 52,529 |
|
|
| 42,879 |
|
|
| 43,725 |
|
All Other |
|
| 1,395 |
|
|
| 309 |
|
|
| — |
|
Corporate and other non-segment specific assets |
|
| 6,098 |
|
|
| 13,473 |
|
|
| 12,357 |
|
Total |
| $ | 60,022 |
|
| $ | 56,661 |
|
| $ | 56,082 |
|
The following table presents the Company’s write-downs, including asset impairments and credit loss expense (reversal) by reportable segment, and on a consolidated basis, for the years ended December 31, 2023, 2022, and 2021:
|
| Years Ended December 31,(2) |
| |||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Content Solutions |
| $ | 411 |
|
| $ | 848 |
|
| $ | 151 |
|
Technology Products and Services |
|
| 1,233 |
|
|
| 1,714 |
|
|
| 1,254 |
|
Sub-total for reportable segments |
|
| 1,644 |
|
|
| 2,562 |
|
|
| 1,405 |
|
All Other |
|
| 151 |
|
|
| — |
|
|
| — |
|
Corporate and other non-segment specific assets(2) |
|
| 1,848 |
|
|
| 13,161 |
|
|
| (3,592 | ) |
Total |
| $ | 3,643 |
|
| $ | 15,723 |
|
| $ | (2,187 | ) |
The following table presents the Company’s purchases of Property, Plant and Equipment within the Consolidated Statements of Cash Flows by reportable segment for the years ended December 31, 2023, 2022, and 2021:
|
| Years Ended December 31, |
| |||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Content Solutions |
| $ | 722 |
|
| $ | 5,321 |
|
| $ | 2,208 |
|
Technology Products and Services |
|
| 17,883 |
|
|
| 22,381 |
|
|
| 10,740 |
|
Sub-total for reportable segments |
|
| 18,605 |
|
|
| 27,702 |
|
|
| 12,948 |
|
All Other |
|
| 566 |
|
|
| 9 |
|
|
| — |
|
Corporate and other non-segment specific assets |
|
| 5,320 |
|
|
| 516 |
|
|
| 736 |
|
Total |
| $ | 24,491 |
|
| $ | 28,227 |
|
| $ | 13,684 |
|
The Company has identified new business as an additional reportable segmentits RMB
The Company’s reportable segments are now organized under four primary groups identified by nature of product sold or service provided: (1) Network Business, representing variable revenue generated byMozart from Space based on projected box office results and which includes the reportable segment of IMAX DMR and contingent rent from the joint revenue sharing arrangements and IMAX systems segments; (2) Theater Business, representing revenue generated by the sale and installation of theater systems and maintenance services, primarily relateddistribution costs. (Refer to the IMAX Systems and Theater System Maintenance reportable segments, and also includes fixed hybrid revenues and upfront installation costs from the joint revenue sharing arrangements segment and after-market sales of projection system parts and 3D glasses from the other segment; (3) New Business, which includes content licensing and distribution fees associated with the Company’s original content investments, virtual reality initiatives, IMAX Home Entertainment, and other business initiatives that are in the development and/orstart-up phase, and (4) Other; which includes the film post-production and distribution segments and certain IMAX theaters that the Company owns and operates, camera rentals and other miscellaneous items from the other segment. The Company is presenting information at a disaggregated level to provide more relevant information to readers, as permitted by the standard. The accounting policies of the segments are the same as those described in note 2.Note 22(e).)
127
Transactions between the film production and IMAX DMR segment and the film post-production segment are valued at exchange value. Inter-segment profits are eliminated upon consolidation, as well as for the disclosures below.
(a) Operating Segments
Years Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Revenue(1) | ||||||||||||
Network business | ||||||||||||
IMAX DMR | $ | 108,853 | $ | 106,403 | $ | 107,089 | ||||||
Joint revenue sharing arrangements – contingent rent | 70,444 | 73,500 | 81,396 | |||||||||
IMAX systems – contingent rent | 3,890 | 4,644 | 3,900 | |||||||||
|
|
|
|
|
| |||||||
183,187 | 184,547 | 192,385 | ||||||||||
|
|
|
|
|
| |||||||
Theater business | ||||||||||||
IMAX systems | 90,347 | 100,884 | 98,226 | |||||||||
Joint revenue sharing arrangements – fixed fees | 10,118 | 17,913 | 17,724 | |||||||||
Theater system maintenance | 45,383 | 40,430 | 36,944 | |||||||||
Other theater | 9,145 | 10,888 | 10,482 | |||||||||
|
|
|
|
|
| |||||||
154,993 | 170,115 | 163,376 | ||||||||||
|
|
|
|
|
| |||||||
New business(2) | 24,522 | 626 | — | |||||||||
|
|
|
|
|
| |||||||
Other | ||||||||||||
Film post-production | 10,382 | 8,873 | 7,069 | |||||||||
Film distribution | 2,790 | 5,254 | 3,876 | |||||||||
Other | 4,893 | 7,919 | 7,099 | |||||||||
|
|
|
|
|
| |||||||
18,065 | 22,046 | 18,044 | ||||||||||
|
|
|
|
|
| |||||||
Total | $380,767 | $377,334 | $373,805 | |||||||||
|
|
|
|
|
| |||||||
Gross Margin | ||||||||||||
Network business | ||||||||||||
IMAX DMR(4) | $ | 71,789 | $ | 69,196 | $ | 77,645 | ||||||
Joint revenue sharing arrangements – contingent rent(4) | 47,337 | 54,705 | 63,500 | |||||||||
IMAX systems – contingent rent | 3,890 | 4,644 | 3,900 | |||||||||
|
|
|
|
|
| |||||||
123,016 | 128,545 | 145,045 | ||||||||||
|
|
|
|
|
| |||||||
Theater business | ||||||||||||
IMAX systems(3) (4) | 57,734 | 55,448 | 55,265 | |||||||||
Joint revenue sharing arrangements – fixed fees(4) | 2,349 | 5,132 | 4,873 | |||||||||
Theater system maintenance(3) | 18,275 | 13,660 | 12,701 | |||||||||
Other theater | 1,965 | 1,930 | 2,105 | |||||||||
|
|
|
|
|
| |||||||
80,323 | 76,170 | 74,944 | ||||||||||
|
|
|
|
|
| |||||||
New business(2) | (16,176 | ) | (2,199 | ) | — | |||||||
|
|
|
|
|
| |||||||
Other | ||||||||||||
Film post-production | 4,791 | 3,729 | 1,381 | |||||||||
Film distribution(4) | (5,797 | ) | (3,909 | ) | (259 | ) | ||||||
Other | (911 | ) | 342 | (1,823 | ) | |||||||
|
|
|
|
|
| |||||||
(1,917 | ) | 162 | (701 | ) | ||||||||
|
|
|
|
|
| |||||||
Total | $ | 185,246 | $ | 202,678 | $ | 219,288 | ||||||
|
|
|
|
|
|
Depreciation and amortization Network business IMAX DMR Joint revenue sharing arrangements - contingent rent Theater business IMAX systems Theater system maintenance New business(2) Other Film post-production Film distribution Other Corporate and othernon-segment specific assets Total Asset impairments and write-downs, net of recoveries Network business Joint revenue sharing arrangements - contingent rent Theater business IMAX systems Theater system maintenance New business(2) Other Film post-production Film distribution Corporate and othernon-segment specific assets Total Years Ended December 31, 2017 2016 2015 $ 15,779 $ 15,028 $ 14,330 19,092 16,724 14,443 3,551 4,165 5,685 173 72 72 15,365 629 11 1,845 2,769 1,465 2,128 1,444 2,129 911 938 693 7,963 4,716 3,975 $ 66,807 $ 46,485 $ 42,803 Years Ended December 31, 2017 2016 2015 $ 944 $ 266 $ 528 2,930 916 2,298 — 1,002 277 16,400 — — — 223 — 5,865 3,020 — 3,429 513 622 $ 29,568 $ 5,940 $ 3,725
Purchase of property, plant and equipment Network business IMAX DMR Joint revenue sharing arrangements - contingent rent Theater business IMAX systems Theater system maintenance New business Other Film post-production Film distribution Other Corporate and othernon-segment specific assets Total Years Ended December 31, 2017 2016 2015 $ 518 $ 1,121 $ 1,350 42,634 42,910 28,474 4,537 3,170 8,846 206 481 555 4,487 5,070 1,737 810 1,746 16,337 — 21 830 367 804 249 13,218 2,865 13,353 $ 66,777 $ 58,188 $ 71,731
Years Ended December 31 | ||||||||
2017 | 2016 | |||||||
Assets | ||||||||
Network business | ||||||||
IMAX DMR | $ | 42,067 | $ | 39,688 | ||||
Joint revenue sharing arrangements - contingent rent | 216,285 | 194,384 | ||||||
IMAX systems - contingent rent | 457 | 573 | ||||||
Theater business | ||||||||
IMAX systems | 224,424 | 216,931 | ||||||
Joint revenue sharing arrangements - fixed fees | 7,997 | 10,174 | ||||||
Theater system maintenance | 27,256 | 28,763 | ||||||
Other theater | 1,564 | 429 | ||||||
New business | 27,450 | 13,661 | ||||||
Other | ||||||||
Film post-production | 34,480 | 35,865 | ||||||
Film distribution | 9,444 | 21,059 | ||||||
Other | 7,597 | 9,350 | ||||||
Corporate and othernon-segment specific assets | 267,591 | 286,457 | ||||||
|
|
|
| |||||
Total | $ | 866,612 | $ | 857,334 | ||||
|
|
|
|
|
Revenue by geographic area is based on the location of the customer. Revenue related to the IMAX DMRFilm Remastering process is presented based upon the geographic location of the theatersIMAX System that exhibit there-mastered remastered films. IMAX DMRFilm Remastering revenue is generated through contractual relationships with studios and other third parties and these may not be in the same geographical location as the theater.IMAX System.
The following table summarizes the Company’s revenues by geographic area for the years ended December 31, 2023, 2022, and 2021:
Years Ended December 31, |
| Years Ended December 31, |
| |||||||||||||||||||||
2017 | 2016 | 2015 | ||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
|
| 2021 |
| |||||||||||||||
United States | $ | 135,153 | $ | 129,844 | $ | 136,017 |
| $ | 117,925 |
|
| $ | 107,734 |
|
| $ | 73,499 |
| ||||||
Greater China | 126,474 | 118,532 | 110,591 |
|
| 91,901 |
|
|
| 73,330 |
|
|
| 112,801 |
| |||||||||
Asia (excluding Greater China) |
|
| 59,690 |
|
|
| 47,145 |
|
|
| 23,682 |
| ||||||||||||
Western Europe |
|
| 54,908 |
|
|
| 40,245 |
|
|
| 20,942 |
| ||||||||||||
Latin America |
|
| 13,788 |
|
|
| 9,418 |
|
|
| 3,601 |
| ||||||||||||
Canada | 12,812 | 12,822 | 11,665 |
|
| 18,746 |
|
|
| 7,550 |
|
|
| 3,266 |
| |||||||||
Western Europe | 32,765 | 36,286 | 39,569 | |||||||||||||||||||||
Asia (excluding Greater China) | 35,896 | 35,283 | 38,143 | |||||||||||||||||||||
Russia & the CIS | 11,054 | 14,908 | 12,412 | |||||||||||||||||||||
Latin America | 10,963 | 12,191 | 10,179 | |||||||||||||||||||||
Rest of the World | 15,650 | 17,468 | 15,229 |
|
| 17,881 |
|
|
| 15,383 |
|
|
| 17,092 |
| |||||||||
|
|
| ||||||||||||||||||||||
Total | $ | 380,767 | $ | 377,334 | $ | 373,805 |
| $ | 374,839 |
|
| $ | 300,805 |
|
| $ | 254,883 |
| ||||||
|
|
|
No single country in the Rest of the World, Western Europe, Latin America, and Asia (excluding Greater China) classifications comprisecomprises more than 10% of total revenue.
The following table presents the breakdown of Property, Plant and Equipment by geography as of December 31, 2023 and 2022:
As at December 31 | As of December 31, |
| ||||||||||||||
2017 | 2016 | |||||||||||||||
Property, plant and equipment | ||||||||||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
| ||||||||||
United States | $ | 105,594 | $ | 104,083 |
| $ | 98,831 |
|
| $ | 94,505 |
| ||||
Greater China | 84,619 | 69,751 |
|
| 72,492 |
|
|
| 86,665 |
| ||||||
Canada | 51,862 | 39,467 |
|
| 37,877 |
|
|
| 36,385 |
| ||||||
Western Europe | 19,480 | 19,308 |
|
| 12,763 |
|
|
| 20,132 |
| ||||||
Asia (excluding Greater China) | 8,793 | 8,460 |
|
| 16,538 |
|
|
| 10,471 |
| ||||||
Rest of the World | 6,433 | 4,346 |
|
| 4,798 |
|
|
| 4,738 |
| ||||||
|
| |||||||||||||||
Total | $ | 276,781 | $ | 245,415 |
| $ | 243,299 |
|
| $ | 252,896 |
| ||||
|
|
19.22. Financial Instruments
The Company maintains cash with various major financial institutions. The Company’s cash is invested with highly rated financial institutions.
The Company’s accounts receivables$76.2 million balance of cash and financing receivables are subject to credit risk. The Company’s accounts receivable and financing receivables are concentrated withcash equivalents as of December 31, 2023 (December 31, 2022 — $97.4 million) includes $68.5 million in cash held outside of Canada (December 31, 2022 — $79.7 million), of which $30.0 million was held in the theater exhibition industry and film entertainment industry. To minimize the Company’s credit risk, the Company retains title to underlying theater systems leased, performs initial and ongoing credit evaluations of its customers and makes ongoing provisions for its estimate of potentially uncollectible amounts. The Company believes it has adequately provided for related exposures surrounding receivables and contractual commitments.PRC (December 31, 2022 — $43.7 million).
128
The carrying values of the Company’s cashCash and cash equivalents, accounts receivable, accounts payableCash Equivalents, Accounts Receivable, Accounts Payable, and accrued liabilitiesAccrued Liabilities due withinone-year one year approximate their fair values due to the short-term maturity of these instruments. TheIncluding these instruments, the Company’s other financial instruments at December 31, are comprisedconsist of the following:
| As of December 31, 2023 |
|
| As of December 31, 2022 |
| |||||||||||
(In thousands of U.S. Dollars) |
| Carrying |
|
| Estimated |
|
| Carrying |
|
| Estimated |
| ||||
Level 1 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents(1) |
| $ | 76,200 |
|
| $ | 76,200 |
|
| $ | 97,401 |
|
| $ | 97,401 |
|
Equity securities(2) |
|
| — |
|
|
| — |
|
|
| 1,035 |
|
|
| 1,035 |
|
Level 2 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net financed sales receivables(3) |
| $ | 97,615 |
|
| $ | 96,500 |
|
| $ | 101,052 |
|
| $ | 100,059 |
|
Net investment in sales-type leases(3) |
|
| 29,539 |
|
|
| 28,751 |
|
|
| 28,332 |
|
|
| 27,972 |
|
Equity securities(1) |
|
| 1,000 |
|
|
| 1,000 |
|
|
| 1,000 |
|
|
| 1,000 |
|
COLI(4) |
|
| 3,522 |
|
|
| 3,522 |
|
|
| 3,398 |
|
|
| 3,398 |
|
Foreign exchange contracts — designated forwards(2) |
|
| 819 |
|
|
| 819 |
|
|
| (649 | ) |
|
| (649 | ) |
Wells Fargo Credit Facility borrowings(1) |
|
| (24,000 | ) |
|
| (24,000 | ) |
|
| (25,000 | ) |
|
| (25,000 | ) |
HSBC China Facility borrowings(1) |
|
| — |
|
|
| — |
|
|
| (12,496 | ) |
|
| (12,496 | ) |
Bank of China Facility borrowings(1) |
|
| — |
|
|
| — |
|
|
| (374 | ) |
|
| (374 | ) |
Federal Economic Development Loan(3) |
|
| (2,498 | ) |
|
| (2,498 | ) |
|
| (1,782 | ) |
|
| (1,782 | ) |
Convertible Notes(5) |
|
| (230,000 | ) |
|
| (205,850 | ) |
|
| (230,000 | ) |
|
| (196,717 | ) |
As at December 31, 2017 | As at December 31, 2016 | |||||||||||||||
Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | |||||||||||||
Cash and cash equivalents | $ | 158,725 | $ | 158,725 | $ | 204,759 | $ | 204,759 | ||||||||
Net financed sales receivable | $ | 122,259 | $ | 122,918 | $ | 114,041 | $ | 115,014 | ||||||||
Net investment in sales-type leases | $ | 7,235 | $ | 7,409 | $ | 8,084 | $ | 8,372 | ||||||||
Convertible loan receivable | $ | 1,500 | $ | 1,500 | $ | 1,000 | $ | 1,000 | ||||||||
Available-for-sale investment | $ | 2,016 | $ | 2,016 | $ | 1,000 | $ | 1,007 | ||||||||
Foreign exchange contracts — designated forwards | $ | 1,425 | $ | 1,425 | $ | (296 | ) | $ | (296 | ) | ||||||
Borrowings under the Playa Vista Loan | $ | (25,667 | ) | $ | (25,667 | ) | $ | (27,667 | ) | $ | (27,667 | ) |
Cash and cash equivalents are comprised of cash and interest-bearing investments with original maturity dates to the Company of 90 days or less. Cash and cash equivalents are recorded
The estimated fair values of the net financed sales receivable and net investment in sales-type leases arevalue is estimated based on discounting future cash flows at currently available interest rates with comparable terms (Level 2 input in accordance with the terms.
The fair value of the Company’savailable-for-sale investment is determined using quoted market prices in active markets (Level 2 input in accordance with the Fair Value Measurements Topic of the FASB ASC hierarchy) as at December 31, 2017 and 2016, respectively.
The estimated fair value of the Company’s convertible loan receivable is based on discounting future cash flow at currently available interest rates with comparable terms as at December 31, 2017 and 2016, respectively (Level 2 input in accordance with the Fair Value Measurements Topic of the FASB ASC hierarchy).
The fair value of foreign currency derivativesthat are determined using quoted prices in active markets (Level 2 input in accordance with the Fair Value Measurements Topic of the FASB ASC hierarchy) as at December 31, 2017 and 2016, respectively. These identical instruments are traded on a closed exchange.
The carrying value of borrowings under the Playa Vista Loan approximates fair value as the interest rates offered under the loan are close to December 31, 2017 market rates for the Company for debt of the same remaining maturities (Level 2 input in accordance with the Fair Value Measurements Topic of the FASB ASC hierarchy) as at December 31, 2017.
There were no significant transfers between Level 1 and Level 2 during the year ended December 31, 2017 or 2016. When a determination is made to classify an asset or liability within Level 3, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement.
There were no transfers in or out of the Company’s Level 3 assets during the year ended December 31, 2017.
(c) Financing Receivables
The Company’s net investment in leases and its net financed sale receivables are subject to the disclosure requirements of ASC 310 “Receivables”. Due to differing risk profiles of its net investment in leases and its net financed sales receivables, the Company views its net investment in leases and its net financed sale receivables as separate classes of financing receivables. The Company does not aggregate financing receivables to assess impairment.
The Company monitors the credit quality of each customer on a frequent basis through collections and aging analyses. The Company also holds meetings monthly in order to identify credit concerns and whether a change in credit quality classification is required for the customer. A customer may improve in their credit quality classification once a substantial payment is made on overdue balances or the customer has agreed to a payment plan with the Company and payments have commenced in accordance to the payment plan. The change in credit quality indicator is dependent upon management approval.
The Company classifies its customers into four categories to indicate the credit quality worthiness of its financing receivables for internal purposes only:
Good standing — Theater continues to be in good standing with the Company as the client’s payments and reporting areup-to-date.
Credit Watch — Theater operator has begun to demonstrate a delay in payments, and has been placed on the Company’s credit watch list for continued monitoring, but active communication continues with the Company. Depending on the size of outstanding balance, length of time in arrears and other factors, transactions may need to be approved by management. These financing receivables are considered to be in better condition than those receivables related to theatersobservable in the“Pre-approved transactions” category, but not in as good of condition as those receivables in “Good standing.”
Pre-approved transactions only — Theater operator is demonstrating a delay in payments with little market or no communication with the Company. All service or shipments to the theater must be reviewed and approved by management. These financing receivables are considered to be in better condition than those receivables related to theaters in the “All transactions suspended” category, but not in as good of condition as those receivables in “Credit Watch.” Depending on the individual facts and circumstances of each customer, finance income recognition may be suspended if management believes the receivable to be impaired.
All transactions suspended — Theater is severely delinquent,non-responsive or not negotiating in good faith with the Company. Once a theater is classified as “All transactions suspended” the theater is placed on nonaccrual status and all revenue recognitions related to the theater are stopped.
The following table discloses the recorded investment in financing receivables by credit quality indicator:
As at December 31, 2017 | As at December 31, 2016 | |||||||||||||||||||||||
Minimum Lease Payments | Financed Sales Receivables | Total | Minimum Lease Payments | Financed Sales Receivables | Total | |||||||||||||||||||
In good standing | $ | 6,265 | $ | 118,060 | $ | 124,325 | $ | 7,741 | $ | 111,568 | $ | 119,309 | ||||||||||||
Credit Watch | 568 | 2,926 | 3,494 | — | 1,514 | 1,514 | ||||||||||||||||||
Pre-approved transactions | 557 | 1,003 | 1,560 | — | 842 | 842 | ||||||||||||||||||
Transactions suspended | — | 1,192 | 1,192 | 1,015 | 611 | 1,626 | ||||||||||||||||||
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$ | 7,390 | $ | 123,181 | $ | 130,571 | $ | 8,756 | $ | 114,535 | $ | 123,291 | |||||||||||||
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While recognition of finance income is suspended, payments received by a customer are applied against the outstanding balance owed. If payments are sufficient to cover any unreserved receivables, a recovery of provision taken on the billed amount, if applicable, is recorded to the extent of the residual cash received. Once the collectability issues are resolved and the customer has returned to being in good standing, the Company will resume recognition of finance income.
The Company’s investment in financing receivables on nonaccrual status is as follows:
As at December 31, 2017 | As at December 31, 2016 | |||||||||||||||
Recorded Investment | Related Allowance | Recorded Investment | Related Allowance | |||||||||||||
Net investment in leases | $ | — | $ | — | $ | 1,015 | $ | (672 | ) | |||||||
Net financed sales receivables | 1,192 | (922 | ) | 611 | (494 | ) | ||||||||||
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Total | $ | 1,192 | $ | (922 | ) | $ | 1,626 | $ | (1,166 | ) | ||||||
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The Company considers financing receivables with aging between60-89 days as indications of theaters with potential collection concerns. The Company will begin to focus its review on these financing receivables and increase its discussions internally and with the theater regarding payment status. Once a theater’s aging exceeds 90 days, the Company’s policy is to review and assess collectability on the theater’s past due accounts. Over 90 days past due is used by the Company as an indicator of potential impairment as invoices up to 90 days outstandingthat could be considered reasonable due to the time required for dispute resolution or for the provision of further information or supporting documentation to the customer.
The Company’s aged financing receivables are as follows:
As at December 31, 2017 | ||||||||||||||||||||||||||||||||
Accrued and Current | 30-89 Days | 90+ Days | Billed Financing Receivables | Related Unbilled Recorded Investment | Total Recorded Investment | Related Allowances | Recorded Investment Net of Allowances | |||||||||||||||||||||||||
Net investment in leases | $ | 103 | $ | 74 | $ | 376 | $ | 553 | $ | 6,837 | $ | 7,390 | $ | (155 | ) | $ | 7,235 | |||||||||||||||
Net financed sales receivables | 3,285 | 1,399 | 3,763 | 8,447 | 114,734 | 123,181 | (922 | ) | 122,259 | |||||||||||||||||||||||
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Total | $ | 3,388 | $ | 1,473 | $ | 4,139 | $ | 9,000 | $ | 121,571 | $ | 130,571 | $ | (1,077 | ) | $ | 129,494 | |||||||||||||||
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As at December 31, 2016 | ||||||||||||||||||||||||||||||||
Accrued and Current | 30-89 Days | 90+ Days | Billed Financing Receivables | Related Unbilled Recorded Investment | Total Recorded Investment | Related Allowances | Recorded Investment Net of Allowances | |||||||||||||||||||||||||
Net investment in leases | $ | 28 | $ | 159 | $ | 781 | $ | 968 | $ | 7,788 | $ | 8,756 | $ | (672 | ) | $ | 8,084 | |||||||||||||||
Net financed sales receivables | 2,393 | 1,724 | 2,368 | 6,485 | 108,050 | 114,535 | (494 | ) | 114,041 | |||||||||||||||||||||||
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Total | $ | 2,421 | $ | 1,883 | $ | 3,149 | $ | 7,453 | $ | 115,838 | $ | 123,291 | $ | (1,166 | ) | $ | 122,125 | |||||||||||||||
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The Company’s recorded investment in past due financing receivables for which the Company continues to accrue finance income is as follows:
As at December 31, 2017 | ||||||||||||||||||||||||||||
Accrued and Current | 30-89 Days | 90+ Days | Billed Financing Receivables | Related Unbilled Recorded Investment | Related Allowance | Recorded Investment Past Due and Accruing | ||||||||||||||||||||||
Net investment in leases | $ | 68 | $ | 70 | $ | 376 | $ | 514 | $ | 2,287 | $ | — | $ | 2,801 | ||||||||||||||
Net financed sales receivables | 1,165 | 743 | 3,363 | 5,271 | 27,430 | — | 32,701 | |||||||||||||||||||||
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Total | $ | 1,233 | $ | 813 | $ | 3,739 | $ | 5,785 | $ | 29,717 | $ | — | $ | 35,502 | ||||||||||||||
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As at December 31, 2016 | ||||||||||||||||||||||||||||
Accrued and Current | 30-89 Days | 90+ Days | Billed Financing Receivables | Related Unbilled Recorded Investment | Related Allowance | Recorded Investment Past Due and Accruing | ||||||||||||||||||||||
Net investment in leases | $ | — | $ | 54 | $ | 244 | $ | 298 | $ | 1,646 | $ | — | $ | 1,944 | ||||||||||||||
Net financed sales receivables | 284 | 634 | 1,854 | 2,772 | 20,147 | — | 22,919 | |||||||||||||||||||||
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Total | $ | 284 | $ | 688 | $ | 2,098 | $ | 3,070 | $ | 21,793 | $ | — | $ | 24,863 | ||||||||||||||
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The Company considers financing receivables to be impaired when it believes it to be probable that it will not recover the full amount of principal or interest owing under the arrangement. The Company uses its knowledge of the industry and economic trends, as well as its prior experiences to determine the amount recoverable for impaired financing receivables. The following table discloses information regarding the Company’s impaired financing receivables:
Impaired Financing Receivables For the Year Ended December 31, 2017 | ||||||||||||||||||||
Recorded Investment | Unpaid Principal | �� | Related Allowance | Average Recorded Investment | Interest Income Recognized | |||||||||||||||
With an allowance recorded: | ||||||||||||||||||||
Net investment in leases | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Net financed sales receivables | 1,050 | 142 | (922 | ) | 684 | 89 | ||||||||||||||
With no related allowance recorded: | ||||||||||||||||||||
Net investment in leases | — | — | — | — | — | |||||||||||||||
Net financed sales receivables | — | — | — | — | — | |||||||||||||||
Total: | ||||||||||||||||||||
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Net investment in leases | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
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Net financed sales receivables | $ | 1,050 | $ | 142 | $ | (922 | ) | $ | 684 | $ | 89 | |||||||||
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Impaired Financing Receivables For the Year Ended December 31, 2016 | ||||||||||||||||||||
Recorded Investment | Unpaid Principal | Related Allowance | Average Recorded Investment | Interest Income Recognized | ||||||||||||||||
With an allowance recorded: | ||||||||||||||||||||
Net investment in leases | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Net financed sales receivables | 525 | 75 | (494 | ) | 637 | — | ||||||||||||||
With no related allowance recorded: | ||||||||||||||||||||
Net investment in leases | — | — | — | — | — | |||||||||||||||
Net financed sales receivables | — | — | — | — | — | |||||||||||||||
Total: | ||||||||||||||||||||
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Net investment in leases | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
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Net financed sales receivables | $ | 525 | $ | 75 | $ | (494 | ) | $ | 637 | $ | — | |||||||||
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The Company’s activity in the allowance for credit losses for the period and the Company’s recorded investment in financing receivables is as follows:
Year Ended December 31, 2017 | ||||||||
Net Investment in Leases | Net Financed Sales Receivables | |||||||
Allowance for credit losses: | ||||||||
Beginning balance | $ | 672 | $ | 494 | ||||
Charge-offs | (517 | ) | (67 | ) | ||||
Recoveries | — | — | ||||||
Provision | — | 495 | ||||||
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Ending balance | $ | 155 | $ | 922 | ||||
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Ending balance: individually evaluated for impairment | $ | 155 | $ | 922 | ||||
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Financing receivables: | ||||||||
Ending balance: individually evaluated for impairment | $ | 7,390 | $ | 123,181 | ||||
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Year Ended December 31, 2016 | ||||||||
Net Investment in Leases | Net Financed Sales Receivables | |||||||
Allowance for credit losses: | ||||||||
Beginning balance | $ | 672 | $ | 568 | ||||
Charge-offs | — | — | ||||||
Recoveries | — | (74 | ) | |||||
Provision | — | — | ||||||
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Ending balance | $ | 672 | $ | 494 | ||||
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Ending balance: individually evaluated for impairment | $ | 672 | $ | 494 | ||||
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Financing receivables: | ||||||||
Ending balance: individually evaluated for impairment | $ | 8,756 | $ | 114,535 | ||||
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(d) derived from observable market data.
The Company is exposed to market risk from changes in foreign currency rates.
A majority portion of the Company’s revenues is denominated in U.S. dollarsDollars while a substantialsignificant portion of its costs and expenses is denominated in Canadian dollars.Dollars. A portion of the Company’s net U.S. dollarDollar cash flows of the Company is periodically converted to Canadian dollarsDollars to fund Canadian dollarDollar expenses through the spot market. In China and Japan, the Company has ongoing operating expenses related to its operations in Chinese RenminbiRMB and Japanese yen,Yen, respectively. Net cash flows are converted to and from U.S. dollarsDollars through the spot market. The Company also has cash receipts under leases denominated in Chinese Renminbi,RMB, Japanese yen,Yen, Canadian dollarsDollars, and Euros which are converted to U.S. dollarsDollars through the spot market. In addition, because IMAX films generatebox-office box office in 7590 different countries, unfavourableunfavorable exchange rates between applicable local currencies and the U.S. dollar affectDollar could have an impact on box office receipts and the Company’s reported grossbox-officerevenues and revenues, further impacting the Company’s results of operations. The Company’s policy is to not use any financial instruments for trading or other speculative purposes.
129
The Company has entered into a series of foreign currency forward contracts to manage the Company’s risks associated with the volatility of foreign currencies. Certain of these foreign currency forward contracts met the criteria required for hedge accounting under the Derivatives and Hedging Topic of the FASB ASC at inception, and continue to meet hedge effectiveness tests atas of December 31, 20172023 (the “Foreign Currency Hedges”), with settlement dates throughout 20182024 and 2019.2025. Foreign currency derivatives are recognized and
measured in the balance sheetConsolidated Balance Sheets at fair value. Changes in the fair value (gains(i.e., gains or losses) are recognized in the consolidated statementConsolidated Statements of operationsOperations except for derivatives designated and qualifying as foreign currency cash flow hedging instruments. The Company currently has cash flow hedging instruments associated with Selling, General and Administrative Expenses. For foreign currency cash flow hedging instruments related to Selling, General and Administrative Expenses, the effective portion of the gain or loss in a hedge of a forecasted transaction is reported in other comprehensive incomeAccumulated Other Comprehensive Loss and reclassified to the consolidated statementConsolidated Statements of operationsOperations when the forecasted transaction occurs. Any ineffective portion is recognized immediately in the consolidated statementConsolidated Statements of operations. The Company currently does not hold any derivatives which are not designated as hedging instruments and therefore no gain or loss pertaining to an ineffective portion has been recognized.Operations.
The following tabular disclosures reflect the impact that derivative instruments and hedging activities have on the Company’s consolidated financial statements:Consolidated Financial Statements:
Notional value of foreign exchange contracts:contracts:
| As of December 31, |
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(In thousands of U.S. Dollars) |
| 2023 |
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| 2022 |
| ||
Derivatives designated as hedging instruments: |
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Foreign exchange contracts — Forwards |
| $ | 40,563 |
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| $ | 24,707 |
|
As at December 31, | ||||||||
2017 | 2016 | |||||||
Derivatives designated as hedging instruments: | ||||||||
Foreign exchange contracts — Forwards | $ | 35,170 | $ | 37,825 | ||||
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Fair value of derivatives in foreign exchange contracts:contracts:
|
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| As of December 31, |
| ||||||
(In thousands of U.S. Dollars) |
| Balance Sheet Location |
| 2023 |
|
| 2022 |
| ||
Derivatives designated as hedging instruments: |
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Foreign exchange contracts — Forwards |
| Other assets |
| $ | 846 |
|
| $ | 50 |
|
| Accrued and other liabilities |
|
| (27 | ) |
|
| (699 | ) | |
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| $ | 819 |
|
| $ | (649 | ) |
As at December 31, | ||||||||||
Balance Sheet Location | 2017 | 2016 | ||||||||
Derivatives designated as hedging instruments: | ||||||||||
Foreign exchange contracts — Forwards | Other assets | $ | 1,447 | $ | 480 | |||||
Accrued and other liabilities | (22 | ) | (776 | ) | ||||||
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$ | 1,425 | $ | (296 | ) | ||||||
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Derivatives in Foreign Currency Hedgingforeign currency hedging relationships are as follows:follows:
|
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| Years Ended December 31, |
| ||||||||||
(In thousands of U.S. Dollars) |
|
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| 2023 |
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| 2022 |
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| 2021 |
| |||
Foreign exchange contracts |
| Derivative Gain (Loss) |
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| |||
— Forwards |
| Recognized in OCI |
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| |||
| (Effective Portion) |
| $ | 575 |
|
| $ | (1,323 | ) |
| $ | 468 |
| |
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| Location of Derivative (Loss) Gain |
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| Reclassified from AOCI |
| Years Ended December 31, |
| ||||||||||
(In thousands of U.S. Dollars) |
| (Effective Portion) |
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Foreign exchange contracts |
| Selling, general and |
|
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| |||
| administrative expenses |
| $ | (892 | ) |
| $ | (596 | ) |
| $ | 1,707 |
|
Non-designated derivatives in foreign currency relationships are as follows:
Years Ended December 31, | ||||||||||||||||
2017 | 2016 | 2015 | ||||||||||||||
Foreign exchange contracts - Forwards | | Derivative Gain (Loss) in OCI (Effective Portion) | $ | 2,545 | $ | 1,049 | $ | (5,881 | ) | |||||||
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$ | 2,545 | $ | 1,049 | $ | (5,881 | ) | ||||||||||
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Location of Derivative Gain (Loss) | ||||||||||||||||
Reclassified from AOCI | Years Ended December 31, | |||||||||||||||
into Income (Effective Portion) | 2017 | 2016 | 2015 | |||||||||||||
Foreign exchange contracts - Forwards | Selling, general and administrative expenses | $ | 824 | $ | (3,078 | ) | $ | (3,217 | ) | |||||||
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$ | 824 | $ | (3,078 | ) | $ | (3,217 | ) | |||||||||
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| Years Ended December 31, |
| ||||||||||
(In thousands of U.S. Dollars) |
|
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Foreign exchange contracts |
| Derivative Gain Reclassified |
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| |||
— Forwards |
| From AOCI |
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| |||
| (Ineffective Portion) |
| $ | — |
|
| $ | — |
|
| $ | (318 | ) |
|
|
| Years Ended December 31, |
| ||||||||||
(In thousands of U.S. Dollars) |
| Location of Derivative Gain |
| 2023 |
|
| 2022 |
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| 2021 |
| |||
Foreign exchange contracts |
| Selling, general and |
|
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| |||
— Forwards |
| administrative expenses |
| $ | — |
|
| $ | — |
|
| $ | 398 |
|
130
The Company’s estimated net amount of the existing gainsgain as atof December 31, 20172023 is $1.2$0.6 million, which is expected to be reclassified to earnings within the next twelve months.
(e) New Business VenturesEquity Securities
The Company accounts for investments in new business ventures using the guidance of the FASB ASC 323 and the FASB ASC 320, as appropriate.
As atof December 31, 2017,2023, the equity method of accounting is being utilized for investments with a total carrying value of $nilConsolidated Balance Sheets includes $nil (December 31, 20162022 — $nil). The Company’s accumulated losses in excess$1.0 million) of its equity investment were $2.0 million as at December 31, 2017 (December 31, 2016 — $0.5 million), and are classified in Accrued and other liabilities. For the year ended December 31, 2017, gross revenues, cost of revenue and net loss for the investment were $2.5 million, $3.9 million and $2.5 million, respectively (2016 — $0.6 million, $6.8 million, and $6.2 million, respectively). The Company has determined it is not the primary beneficiary of this VIE, and therefore this entity has not been consolidated. In 2016, the Company issued a convertible loan of $1.0 million to this entity with a term of 3 years with an annual effective interest rate of 5.0%. In 2017, the Company issued an additional $0.5 million under this existing convertible loan. The instrument is classified as anavailable-for-sale investment due to certain features that allow for conversion to common stock in the entity in the event of certain triggers occurring.
In addition, the Company has an investment in preferred stock of another business venture of $1.5 million which meets the criteria for classification as a debt security under the FASB ASC 320 and is recorded at a fair value of $nil at December 31, 2017 (December 31, 2016 — $nil). This investment was classified as anavailable-for-sale investment.
Furthermore, the Company has an investment of $1.0 million (December 31, 2016 — $1.0 million) in the shares of an exchange traded fund. This investmentfund which is also classified as anavailable-for-sale investment. investment in equity securities.
For the year endedAs of December 31, 2017,2023, the Company held investments with a total value of $3.5 million in the preferred shares of enterprises which meet the criteria for classification as an equity security under FASB ASC 325, carried at historical cost, net of impairment charges. The carrying value of these equity security investments was $1.0$1.0 million atas of December 31, 20172023 (December 31, 20162022 — $nil).
The total carrying value of investments in new business ventures at December 31, 2017 and 2016 is $3.5 million and $2.0 million, respectively,$1.0 million) and is recorded in Other Assets.
(e) Interest in Film
20.In 2022, IMAX (Shanghai) Culture and Technology Co., Ltd, a wholly-owned subsidiary of IMAX China, entered into a joint film investment agreement with Wanda Film (Horgos) Co. Ltd. to invest RMB 30.0 million ($4.7 million) in the movie Mozart from Space, which was released on July 15, 2022. Pursuant to the investment agreement, IMAX (Shanghai) Culture and Technology Co., Ltd. has the right to receive a share of the profits or losses of the film distribution. IMAX (Shanghai) Culture and Technology Co., Ltd.’s commitment is limited to its investment and has no further obligation if the actual movie production cost exceeds the original budget. The investment meets the criteria for classification as a financial asset. The investment is measured at amortized cost less impairment losses and is recorded within Other Assets in the Consolidated Balance Sheets.
In 2022, the Company recognized a full impairment of its RMB 30.0 million ($4.5 million) investment in Mozart from Space based on projected box office results and distribution costs.
No contributions to film investments were made in 2023.
23. Employee’s Pension and Postretirement Benefits
The Company has an unfunded U.S. defined benefit pension plan, the SERP,Supplemental Executive Retirement Plan (the “SERP”), covering its CEO, Richard L. Gelfond, Chief Executive Officer (“CEO”) of the Company. The SERP provides for a lifetime retirement benefit from age 55 determined as 75% of Mr. Gelfond’s best average 60 consecutive months of earnings over his employment history. The benefits were 50% vested as at July 2000, the SERP initiation date. The vesting percentage increased on a straight-line basis from inception until age 55. The benefits of Mr. Gelfond are 100% vested. Upon a termination for cause, prior to a change of control, Mr. Gelfond shall forfeit any and all benefits to which he may have been entitled, whether or not vested.
Gelfond. Under the terms of the SERP, if Mr. Gelfond’s employment is terminated other than for cause (as defined in his employment agreement), he is entitled to receive SERP benefits in the form of a lump sum payment. SERP benefit payments to Mr. Gelfond are subject to a deferral for six months after the termination of his employment, at which time Mr. Gelfond will be entitled to receive interest on the deferred amount credited at the applicable federal rate for short-term obligations. Pursuant to an amendment to his employment agreement dated November 8, 2016,September 19, 2022, the term of Mr. Gelfond’s employment was extended through December 31, 2019,2025, although Mr. Gelfond has not informed the Company that he intends to retire at that time. Under the terms of his employment agreement, as amended, the arrangement, no compensation earned beginning in 2011 is included in calculating his entitlementtotal benefit payable to Mr. Gelfond under the SERP.SERP is fixed at $20.3 million.
The following assumptions were used to determineAs of December 31, 2023 and 2022, the obligation and cost of the Company’s SERP at the plan measurement dates:
As at December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Discount rate | 2.22 | % | 2.18 | % | 1.34 | % | ||||||
Lump sum interest rate: | ||||||||||||
First 20 years | 2.39 | % | 1.87 | % | 2.82 | % | ||||||
Thereafter | 2.60 | % | 2.37 | % | 2.95 | % | ||||||
Cost of living adjustment on benefits | 1.20 | % | 1.20 | % | 1.20 | % |
The amounts accrued for the SERP are determined as follows:
Years Ended December 31, | ||||||||
2017 | 2016 | |||||||
Projected benefit obligation: | ||||||||
Obligation, beginning of year | $ | 19,580 | $ | 19,478 | ||||
Interest cost | 427 | 261 | ||||||
Actuarial gain | (1,004 | ) | (159 | ) | ||||
|
|
|
| |||||
Obligation, end of year and unfunded status | $ | 19,003 | $ | 19,580 | ||||
|
|
|
|
The following table provides disclosure of the pension benefit obligation recorded in the consolidated balance sheets:
As at December 31, | ||||||||
2017 | 2016 | |||||||
Accrued benefits cost | $ | (19,003 | ) | $ | (19,580 | ) | ||
Accumulated other comprehensive loss | 161 | 1,165 | ||||||
|
|
|
| |||||
Net amount recognized in the consolidated balance sheets | $ | (18,842 | ) | $ | (18,415 | ) | ||
|
|
|
|
The following table provides disclosure of pension expense for the SERP for the years ended December 31:
Years ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Interest cost | $ | 427 | $ | 261 | $ | 253 | ||||||
|
|
|
|
|
| |||||||
Pension expense | $ | 427 | $ | 261 | $ | 253 | ||||||
|
|
|
|
|
|
The accumulatedprojected benefit obligation for SERP are as follows:
|
| Years Ended December 31, |
| |||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
| ||
Projected benefit obligation: |
|
|
|
|
|
| ||
Obligation, beginning of period |
| $ | 17,315 |
|
| $ | 20,056 |
|
Interest cost |
|
| 788 |
|
|
| 160 |
|
Actuarial loss (gain) |
|
| 75 |
|
|
| (2,901 | ) |
Obligation, end of period and unfunded status |
| $ | 18,178 |
|
| $ | 17,315 |
|
As of December 31, 2023, 2022, and 2021, the following amounts related to the SERP was $19.0 million at December 31, 2017 (2016 — $19.6 million).
The following amounts were included in accumulated other comprehensive incomerecorded on the Company’s Consolidated Balance Sheets within Accumulated Other Comprehensive Loss and will be recognized as components of net periodic benefit cost in future periods:
|
|
| As of December 31, |
| |||||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
|
|
| 2021 |
| |||||
Unrealized actuarial gain |
| $ |
| (2,889 | ) |
| $ |
| (3,580 | ) |
| $ |
| (679 | ) |
Unamortized prior service cost |
|
|
| — |
|
|
|
| — |
|
|
|
| 184 |
|
Net periodic benefit costs to be recognized in future periods |
| $ |
| (2,889 | ) |
| $ |
| (3,580 | ) |
| $ |
| (495 | ) |
131
For the years ended December 31, 2023, 2022, and 2021, the components of pension expense related to the SERP were as follows:
|
| Years ended December 31, |
| ||||||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
Interest cost |
| $ |
| 788 |
|
| $ |
| 160 |
|
| $ |
| 72 |
|
Amortization of prior service cost |
|
|
| — |
|
|
|
| 184 |
|
|
|
| 185 |
|
Amortization of actuarial gain |
|
|
| (616 | ) |
|
|
| — |
|
|
|
| — |
|
Pension expense |
| $ |
| 172 |
|
| $ |
| 344 |
|
| $ |
| 257 |
|
The following assumptions were used to determine the SERP obligation and any related costs as of and for the years ended December 31, 2023, 2022, and 2021:
|
| As of December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Discount rate |
|
| 4.42 | % |
|
| 4.55 | % |
|
| 0.80 | % |
Lump sum interest rate: |
|
|
|
|
|
|
|
|
| |||
First 25 years |
| N/A |
|
| N/A |
|
| N/A |
| |||
First 20 years |
| N/A |
|
| N/A |
|
| N/A |
| |||
Thereafter |
| N/A |
|
| N/A |
|
| N/A |
| |||
Cost of living adjustment on benefits |
| N/A |
|
| N/A |
|
| N/A |
|
As at December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Unrealized actuarial loss | $ | 161 | $ | 1,165 | $ | 1,323 | ||||||
|
|
|
|
|
|
No contributions were made for the SERP during 2017.2023. The Company expects interest costs of $0.4$0.8 million to be recognized as a component of net periodic benefitpension cost in 2018.
The following benefit payments are expected to be made as perfor the current SERP assumptions and the terms of the SERP in each of the next five years, and in the aggregate:year ended December 31, 2024.
2018 | $ | — | ||
2019 | — | |||
2020 | 20,076 | |||
2021 | — | |||
2022 | — | |||
Thereafter | — | |||
|
| |||
$ | 20,076 | |||
|
|
The Company also maintains defined contribution pension plans for its employees, including its executive officers. The Company makes contributions to these plans on behalf of employees in an amount up to 5%5% of their base salary subject to certain prescribed maximums. During 2017,2023, the Company contributed and expensed an aggregaterecorded expense of $1.2$1.2 million (2016(2022 — $1.2$1.1 million; 20152021 — $1.1$1.1 million) to its Canadian plan and an aggregate of $0.7$0.8 million (2016(2022 — $0.6$0.7 million; 20152021 — $0.4$0.5 million) to its defined contribution employee pension plan under Section 401(k) of the U.S. Internal Revenue Code.
The Company also maintains a deferred compensation plan (the “Retirement Plan”) covering Greg Foster, CEO of IMAX Entertainment and Senior Executive Vice President of the Company. The Company has agreed to make a total contribution of $3.2 million over Mr. Foster’s employment term. The Retirement Plan is subject to a vesting schedule based on continued employment with the Company, such that 25% will vest July 2019; 50% will vest July 2022; 75% will vest July 2025; and Mr. Foster will be 100% vested in July 2027. During the year the Company contributed and expensed an aggregate of $0.7 million (2016 — $0.5 million) to this Retirement Plan. The Company expects to contribute and expense $0.7 million in 2018. As at December 31, 2017, the Company had an unfunded benefit obligation recorded of $1.0 million (December 31, 2016 — $0.5 million).
The Company has an unfunded postretirement plan for Messrs.Mr. Gelfond and Bradley J. Wechsler, former Chairman of the Company’s Board of Directors.Directors (the “Executive Postretirement Benefit Plan”). The planExecutive Postretirement Benefit Plan provides that the Company will maintain health benefits for Messrs. Gelfond and Wechsler until they become eligible for Medicare and, thereafter, the Company will provide Medicare supplemental coverage as selected by Messrs. Gelfond and Wechsler. Mr. Wechsler retired from the Company’s Board of Directors on June 9, 2021. The Company maintained Mr. Wechsler’s health benefits through December 31, 2021, and thereafter is providing him with Medicare supplemental coverage or its equivalent value.
As of December 31, 2023 and 2022, the Company’s Consolidated Balance Sheets include the following amounts within Accrued and Other Liabilities related to the Executive Postretirement Benefit Plan:
The amounts accrued for
|
| As of December 31, |
| |||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
| ||||
Projected benefit obligation: |
|
|
|
|
|
|
|
| ||
Obligation, beginning of year |
| $ |
| 457 |
|
| $ |
| 662 |
|
Interest cost |
|
|
| 23 |
|
|
|
| 18 |
|
Benefits paid |
|
|
| (10 | ) |
|
|
| (8 | ) |
Actuarial loss (gain) |
|
|
| 37 |
|
|
|
| (215 | ) |
Obligation, end of year and unfunded status |
| $ |
| 507 |
|
| $ |
| 457 |
|
132
For the plan are determinedyears ended December 31, 2023, 2022, and 2021, the components of pension expense related to the Executive Postretirement Benefit Plan were as follows:
As at December 31, | ||||||||
2017 | 2016 | |||||||
Obligation, beginning of year | $ | 647 | $ | 763 | ||||
Interest cost | 26 | 31 | ||||||
Benefits paid | (21 | ) | (33 | ) | ||||
Actuarial loss (gain) | 46 | (114 | ) | |||||
|
|
|
| |||||
Obligation, end of year | $ | 698 | $ | 647 | ||||
|
|
|
|
|
| Years Ended December 31, |
| |||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Interest cost |
| $ | 23 |
|
| $ | 18 |
|
| $ | 16 |
|
Amortization of actuarial gain |
|
| (65 | ) |
|
| — |
|
|
| — |
|
Pension expense |
| $ | (42 | ) |
| $ | 18 |
|
| $ | 16 |
|
TheAs of December 31, 2023, 2022, and 2021, the following details the net cost components, allamounts related to continuing operations, and underlying assumptions of postretirement benefits other than pensions:
Years Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Interest cost | $ | 26 | $ | 31 | $ | 30 | ||||||
Amortization of actuarial loss | — | 69 | 135 | |||||||||
|
|
|
|
|
| |||||||
$ | 26 | $ | 100 | $ | 165 | |||||||
|
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|
|
|
|
The following amountsthe Executive Postretirement Benefit Plan were included in accumulated other comprehensive incomerecorded on the Company’s Consolidated Balance Sheets within Accumulated Other Comprehensive Loss and will be recognized as components of net periodic benefitpension cost in future periods:
|
| As of December 31, |
| |||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Unrealized actuarial gain |
| $ | (140 | ) |
| $ | (242 | ) |
| $ | (27 | ) |
As at December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Unrealized actuarial loss (gain) | $ | 9 | $ | (37 | ) | $ | 146 | |||||
|
|
|
|
|
|
WeightedAs of December 31, 2023, 2022, and 2021, the weighted average assumptions used to determine the benefit obligation are:related to the Executive Postretirement Benefit Plan are as follows:
|
| As of December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Discount rate |
|
| 4.80 | % |
|
| 5.01 | % |
|
| 2.71 | % |
As at December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Discount rate | 3.55 | % | 4.10 | % | 4.20 | % |
WeightedFor the years ended December 31, 2023, 2022, and 2021, the weighted average assumptionassumptions used to determine the net postretirement benefit expense are:related to the Executive Postretirement Benefit Plan are as follows:
Years Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Discount rate | 4.10 | % | 4.20 | % | 3.70 | % |
|
| Years Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Discount rate |
|
| 5.01 | % |
|
| 2.71 | % |
|
| 2.36 | % |
The following benefit payments are expected to be made as per the current plan assumptions for the Executive Postretirement Benefit Plan in each of the next five years:years and thereafter following the December 31, 2023 balance sheet date:
(In thousands of U.S. Dollars) |
|
|
|
| |
2024 |
| $ |
| 10 |
|
2025 |
|
|
| 11 |
|
2026 |
|
|
| 23 |
|
2027 |
|
|
| 25 |
|
2028 |
|
|
| 27 |
|
Thereafter |
|
|
| 914 |
|
Total |
| $ |
| 1,010 |
|
2018 | $ | 24 | ||
2019 | 26 | |||
2020 | 33 | |||
2021 | 37 | |||
2022 | 40 | |||
Thereafter | 538 | |||
|
| |||
Total | $ | 698 | ||
|
|
The Company has an unfunded postretirement plan for its Canadian employees upon meeting specific eligibility requirements.requirements (the “Canadian Postretirement Benefit Plan”). The Company will provide eligible participants, upon retirement, with health and welfare benefits.
133
As of December 31, 2023 and 2022, the Company’s Consolidated Balance Sheets include the following amounts within Accrued and Other Liabilities related to the Canadian Postretirement Benefit Plan:
|
| As of December 31, |
| |||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
| ||||
Projected benefit obligations: |
|
|
|
|
|
|
|
| ||
Obligation, beginning of year |
| $ |
| 976 |
|
| $ |
| 1,702 |
|
Interest cost |
|
|
| 48 |
|
|
|
| 46 |
|
Benefits paid |
|
|
| (140 | ) |
|
|
| (155 | ) |
Actuarial loss (gain)(1) |
|
|
| — |
|
|
|
| (539 | ) |
Unrealized foreign exchange loss (gain) |
|
|
| 98 |
|
|
|
| (78 | ) |
Obligation, end of year and unfunded status |
| $ |
| 982 |
|
| $ |
| 976 |
|
_____________________
For the years ended December 31, 2023, 2022, and 2021, the components of pension expense related to the Canadian Postretirement Benefit Plan were as follows:
|
| Years Ended December 31, |
| |||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Interest cost |
| $ | 48 |
|
| $ | 46 |
|
| $ | 42 |
|
Amortization of actuarial gain |
|
| (18 | ) |
|
| — |
|
|
| — |
|
Pension expense |
| $ | 30 |
|
| $ | 46 |
|
| $ | 42 |
|
The amounts accruedCompany expects interest costs of less than $0.1 million to be recognized as a component of benefit cost for the plan are determined as follows:year ended December 31, 2024.
As at December 31, | ||||||||
2017 | 2016 | |||||||
Obligation, beginning of year | $ | 1,745 | $ | 1,778 | ||||
Interest cost | 65 | 68 | ||||||
Benefits paid | (79 | ) | (88 | ) | ||||
Actuarial gain | (171 | ) | (70 | ) | ||||
Unrealized foreign exchange loss | 118 | 57 | ||||||
|
|
|
| |||||
Obligation, end of year | $ | 1,678 | $ | 1,745 | ||||
|
|
|
|
TheAs of December 31, 2023, 2022, and 2021, the following details the net cost components, allamounts related to continuing operations, and underlying assumptions of postretirement benefits other than pensions:
Years Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Interest cost | $ | 65 | $ | 68 | $ | 71 | ||||||
Service cost | — | — | 1 | |||||||||
|
|
|
|
|
| |||||||
$ | 65 | $ | 68 | $ | 72 | |||||||
|
|
|
|
|
|
The following amountsthe Canadian Postretirement Benefit Plan were included in accumulated other comprehensive incomerecorded on the Company’s Consolidated Balance Sheets within Accumulated Other Comprehensive Loss and will be recognized as components of net periodic benefitpension cost in future periods:
As at December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Unrealized actuarial loss | $ | 182 | $ | 353 | $ | 423 | ||||||
|
|
|
|
|
|
|
| As of December 31, |
| |||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Unrealized actuarial (gain) loss |
| $ | (336 | ) |
| $ | (354 | ) |
| $ | 185 |
|
The Company expects interest costs of $0.1 million to be recognized as a component of net periodic benefit cost in 2018.
WeightedAs December 31, 2023, 2022, and 2021, the weighted average assumptions used to determine the benefit obligation are:related to the Canadian Postretirement Benefit Plan are as follows:
As at December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Discount rate | 3.35 | % | 3.65 | % | 3.75 | % |
|
| As of December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Discount rate |
|
| 4.60 | % |
|
| 5.00 | % |
|
| 2.80 | % |
WeightedFor the years ended December 31, 2023, 2022, and 2021, the weighted average assumptions used to determine the net postretirement benefit expense are:related to the Canadian Postretirement Benefit Plan are as follows:
Years Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Discount rate | 3.65 | % | 3.75 | % | 3.75 | % |
|
| Years Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Discount rate |
|
| 5.00 | % |
|
| 2.80 | % |
|
| 2.30 | % |
134
The following benefit payments are expected to be made as per the current plan assumptions for the Canadian Postretirement Benefit Plan in each of the next five years:years and thereafter following the December 31, 2023 balance sheet date:
(In thousands of U.S. Dollars) |
|
|
| |
2024 |
| $ | 96 |
|
2025 |
|
| 97 |
|
2026 |
|
| 90 |
|
2027 |
|
| 88 |
|
2028 |
|
| 88 |
|
Thereafter |
|
| 1,020 |
|
Total |
| $ | 1,479 |
|
The Company maintained a nonqualified deferred compensation benefit plan (the “Retirement Plan”) covering the former CEO of IMAX Entertainment and Senior Executive Vice President of the Company. Under the terms of the Retirement Plan, the benefits were due to vest in full if the executive incurred a separation from service from the Company (as defined therein). In 2018, the executive incurred a separation from service from the Company, and as such, the Retirement Plan benefits became fully vested as of December 31, 2018.
2018 | $ | 98 | ||
2019 | 105 | |||
2020 | 111 | |||
2021 | 114 | |||
2022 | 116 | |||
Thereafter | 1,134 | |||
|
| |||
Total | $ | 1,678 | ||
|
|
21.Non-Controlling InterestsAs of December 31, 2023, the benefit obligation related to the Retirement Plan was $4.1 million (December 31, 2022 — $3.9 million) and is recorded on the Company’s Consolidated Balance Sheets within Accrued and Other Liabilities. As the Retirement Plan is fully vested, the benefit obligation is measured at the present value of the benefits expected to be paid in the future with the accretion of interest recognized in the Consolidated Statements of Operations within Retirement Benefits Non-Service Expense.
The Retirement Plan is funded by an investment in company-owned life insurance (“COLI”), which is recorded at its fair value on the Company’s Consolidated Balance Sheets within Prepaid Expenses. As of December 31, 2023, fair value of the COLI asset was $3.5 million (December 31, 2022 — $3.4 million). Gains and losses resulting from changes in the cash surrender value of the COLI asset are recognized in the Consolidated Statements of Operations within Realized and Unrealized Investment Gains (Losses).
24. Government Assistance
For the year ended December 31, 2023, the Company did not recognize any benefits from COVID relief legislation.
In 2015, During the year ended December 31, 2022, the Company applied for and received financial support under COVID relief legislation that had been enacted in the countries in which it operates. The Company recognized $0.4 million (2021 — $3.8 million) in benefits principally from the Hardest-Hit Businesses Recovery program, and recorded such amounts as reductions to Selling, General and Administrative Expenses ($0.3 million) and Costs and Expenses Applicable to Revenues ($0.1 million).
For the year ended December 31, 2021, the Company recognized $3.8 million in benefits from various COVID-19 government relief programs, principally the Canada Emergency Wage Subsidy program, which expired in October 2021. The Company recognized these benefits as a reduction to Selling, General and Administrative Expenses ($2.9 million) and to Costs and Expenses Applicable to Revenues ($0.9 million).
Refer to Note 14, Borrowings.
IMAX China completedreceives local district grants primarily related to taxes paid, including corporate income taxes, value-added taxes, individual income taxes, and withholding taxes for dividends and/or cross-border activities. Government grants are recognized in the period the costs were incurred.
135
For the year ended December 31, 2023, $5.4 million was recognized primarily as a reduction in Costs and Expenses Applicable to Revenues and Income Tax Expense. The impact to net income attributable to common shareholders was $3.4 million.
For the years ended December 2022 and 2021, $1.3 million and $2.7 million was recognized primarily as a reduction in Costs and Expenses Applicable to Revenues and Income Tax Expense, respectively. The impact to net income attributable to common shareholders of $0.8 million and $1.7 million for the years ended December 2022 and 2021, respectively.
25. Non-Controlling Interests
As of December 31, 2023, the Company continues to indirectly own approximately 67.93%owns 71.55% of IMAX China, whichwhose shares trade on the Hong Kong Stock Exchange (December 31, 2022 — 71.73%). IMAX China remains a consolidated subsidiary of the Company.
The following summarizes the movementbalance of thenon-controlling interest in temporary equity, inIMAX China as of December 31, 2023 is $71.8 million (December 31, 2022 — $65.7 million). The net income attributable to non-controlling interest of IMAX China for the year ended December 31, 2023 is $7.8 million (2022 — $3.0 million; 2021 — $12.8 million).
The Company’s subsidiary:
Balance as at January 1, 2015 | $ | 40,272 | ||
Issuance of subsidiary shares to anon-controlling interest | 40,000 | |||
Share issuance costs from the issuance of subsidiary shares to anon-controlling interest | (2,000 | ) | ||
Net income prior to IMAX China IPO | 5,401 | |||
Other comprehensive income prior to IMAX China IPO | 164 | |||
Accretion charges associated with redeemable common stock | 769 | |||
Redemption of redeemable common stock upon qualified IPO | (84,606 | ) | ||
|
| |||
Balance as at October 7, 2015 | $ | — | ||
|
|
The following summarizes the movement of thenon-controlling interest in shareholders’ equity, in the Company’s subsidiary:
Balance as at October 8, 2015 | $ | 84,606 | ||
Net income after IMAX China IPO | 3,712 | |||
Other comprehensive income after IMAX China IPO | 252 | |||
Dividends paid tonon-controlling shareholders | (9,511 | ) | ||
Reduction in value due to qualified initial public offering | (29,100 | ) | ||
|
| |||
Balance as at December 31, 2015 | $ | 49,959 | ||
Net income | 11,338 | |||
Other comprehensive loss, net of tax | (1,735 | ) | ||
|
| |||
Balance as at December 31, 2016 | $ | 59,562 | ||
Net income | 13,801 | |||
Other comprehensive income | 1,148 | |||
|
| |||
Balance as at December 31, 2017 | $ | 74,511 | ||
|
|
(b) OtherNon-Controlling Interests
In 2014, the Company announced the creation of theOriginal Film Fund was established in 2014 toco-finance a portfolio of 10 original large-format films. The Film Fund, which is intended to be capitalized with up to $50.0 million, will finance an ongoing supply of original films that the Company believes will be more exciting and compelling than traditional documentaries. The initial investment in the Original Film Fund was committed to by a third party in the amount of $25.0$25.0 million, with the possibility of contributing additional funds. The Company agreed to contribute $9.0has contributed $9.0 million to the Original Film Fund over five years starting insince 2014, and seeshas reached its maximum contribution. Through December 31, 2023, the Original Film Fund as a self-perpetuating vehicle designed to generate a continuous, steady flow of high-quality documentary content. As at December 31, 2017, the Film Fundhas invested $13.4$22.3 million toward the development of original films. The related production, financing and distribution agreement includes put and call rights relating to change of control of the rights, title and interest in theco-financed pictures.
In 2016,The following summarizes the Company announcedmovement of the creation of a VR Fund among the Company, its subsidiary IMAX China and other strategic investors. The VR Fund will help finance the creation of interactive VR content experiences over the next three years for use across all VR platforms, includingnon-controlling interest in temporary equity, in the pilot IMAX VR Centers. The VROriginal Film Fund recently helped finance the production of one interactive VR experience, which debuted exclusively in the pilot IMAX VR Centers in November 2017 before being made available to other VR platforms. As at December 31, 2017, the Company invested $3.0 million toward the development of VR content.
Balance as at January 1, 2015 | $ | 3,640 | ||
Net loss | (333 | ) | ||
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Balance as at January 1, 2016 | $ | 3,307 | ||
Issuance of subsidiary shares tonon-controlling interests | 2,479 | |||
Net loss | (806 | ) | ||
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Balance as at December 31, 2016 | $ | 4,980 | ||
Net loss | (3,627 | ) | ||
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Balance as at December 31, 2017 | $ | 1,353 | ||
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22. Exit costs, restructuring charges and associated impairments
The Company recognized the following charges in its consolidated statements of operations for the yearyears ended December 31, 2017:2023, 2022 and 2021:
Restructuring charges | $ | 9,895 | ||
Asset impairments | 5,553 | |||
Costs to exit an operating lease | 726 | |||
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$ | 16,174 | |||
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(In thousands of U.S. Dollars) |
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Balance as of January 1, 2021 |
| $ | 759 |
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Net loss |
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| (1 | ) |
Balance as of December 31, 2021 |
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| 758 |
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Net loss |
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| (36 | ) |
Balance as of December 31, 2022 |
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| 722 |
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| (64 | ) |
Balance as of December 31, 2023 |
| $ | 658 |
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(a)
26. Restructuring and Executive Transition Costs to exit an operating lease
In September 2017,March 2023, the Company relocated its New York office employees and operations as the existing leased space was not suitablePresident, IMAX Entertainment and Executive Vice President of the Company, (the “President”) agreed to accommodate all current business needs. Asconclude the premises lease isnon-cancellablePresident’s employment with the Company, effective April 30, 2023. Pursuant to the endemployment agreement between the Company and the President, dated as of October 10, 2018, and the letter agreement between the Company and the President, dated as of March 15, 2023, the Company recognized executive transition costs of $1.4 million associated with the departure of the term,President. The costs included severance of $1.6 million, transition services covering three months of $0.8 million, and the reversal of previously recognized share-based compensation costs of $1.0 million for PSU forfeitures.
In December 2023, the Company incurred $1.3 million in connection with the restructuring of other employees to capture efficiencies and centralize certain operational roles. These charges have been recognized in Restructuring and Executive Transition costs on the Consolidated Statements of Operations.
136
27. Related Party Transactions
On January 13, 2023, the Company, China International Communications Group (“CICG”), and Beach House Pictures Pte Ltd (“Beach House”) entered into an agreement to co-finance a sublease arrangementdocumentary film, The Elephant Odyssey. A member of the Company’s Board of Directors and its Audit Committee, is the ultimate controlling shareholder of Blue Ant Media (“Blue Ant”), a media company which he co-founded in 2011. Blue Ant owns 70% of Beach House. The total budget for the film is approximately $2.6 million, of which CICG is responsible for $0.3 million or 10%. The Company and Beach House have agreed to reduce the expected losses overfinance $1.7 million or 75% and $0.6 million or 25% of the remaining termbudget, respectively. As of the lease. Pursuant to FASB ASC 420 “Exit or Disposal Cost Obligations”,December 31, 2023, the Company has recognized a corporate segment expensemade payments of $0.7$1.0 million forunder the year ended December 31, 2017.agreement. On February 8, 2024, Blue Ant sold 100% of its interest in Beach House.
137
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
(b) Restructuring chargesNone
In June 2017, the Company announced the implementation of a cost reduction plan with the goal of increasing profitability, operating leverageItem 9A. Controls and free cash flow. The cost reduction plan included the exit from certainnon-core businesses or initiatives, as well as aone-time reduction in workforce. Restructuring charges are comprised of employee severance costs including benefits and stock-based compensation, costs of consolidating facilities and contract termination costs. Restructuring charges are based upon plans that have been committed to by the Company, but may be refined in subsequent periods. These charges are recognized pursuant to FASB ASC 420. A liability for a cost associated with an exit or disposal activity is recognized and measured at its fair value in the consolidated statement of operations in the period in which the liability is incurred. When estimating the value of facility restructuring activities, assumptions are applied regarding estimatedsub-lease payments to be received, which can differ from actual results.Procedures
In connection with the Company’s restructuring initiatives, the Company incurred $9.9 million in restructuring charges for the year ended December 31, 2017. A summary of the restructuring and other costs by reporting groups identified by nature of product sold, or service provided as disclosed in note 18 recognized during the year ended December 31, 2017 are as follows:
Employee Severance and Benefits | Other Exit Costs | Total | ||||||||||
Corporate | $ | 5,354 | $ | 15 | $ | 5,369 | ||||||
IMAX DMR | 1,699 | — | 1,699 | |||||||||
Theater system maintenance | 930 | — | 930 | |||||||||
New business | 364 | 298 | 662 | |||||||||
Other | 548 | — | 548 | |||||||||
IMAX systems | 264 | 282 | 546 | |||||||||
Joint revenue sharing arrangements | 120 | — | 120 | |||||||||
Film post-production | 21 | — | 21 | |||||||||
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$ | 9,300 | $ | 595 | $ | 9,895 | |||||||
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The Company expects to recognize restructuring charges of $0.8 million in 2018.
The following table sets forth a summary of restructuring accrual activities for the year ended December 31, 2017:
Employee Severance and Benefits | Other Exit Costs | Total | ||||||||||
Balance as at December 31, 2016 | $ | — | $ | — | $ | — | ||||||
Restructuring charges | 9,300 | 595 | 9,895 | |||||||||
Cash payments | (6,719 | ) | (427 | ) | (7,146 | ) | ||||||
Other movements | (360 | ) | (168 | ) | (528 | ) | ||||||
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Balance as at December 31, 2017 | $ | 2,221 | $ | — | $ | 2,221 | ||||||
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(c) Associated Impairments
As a result of the cost reduction plan discussed above, the Company recognized costs associated with the retirement of certain long-lived assets pursuant to the FASB ASC410-20, “Asset retirement and environmental obligations” and ASC360-10, “Property, plant and equipment”. The following impairments for the year ended December 31, 2017 are a direct result of the exit activities described in (a) above.
Film assets | $ | 335 | ||
Property, plant and equipment | 3,696 | |||
Other assets | 1,522 | |||
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$ | 5,553 | |||
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23. Selected Quarterly Financial Information (Unaudited)
(in thousands of U.S. dollars, except per share amounts) | 2017 | |||||||||||||||
Q1 | Q2 | Q3 | Q4 | |||||||||||||
Revenues | $ | 68,657 | $ | 87,758 | $ | 98,800 | $ | 125,552 | ||||||||
Costs and expenses applicable to revenues | 32,886 | 38,299 | 58,932 | 65,404 | ||||||||||||
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Gross margin | $ | 35,771 | $ | 49,459 | $ | 39,868 | $ | 60,148 | ||||||||
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Net (loss) income | $ | (887 | ) | $ | 1,809 | $ | 2,898 | $ | 8,698 | |||||||
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Net income (loss) attributable to common shareholders | $ | 75 | $ | (1,712 | ) | $ | (850 | ) | $ | 4,831 | ||||||
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Net income per share attributable to common shareholders: | ||||||||||||||||
Net (loss) income per share - basic | $ | — | $ | (0.03 | ) | $ | (0.01 | ) | $ | 0.08 | ||||||
Net (loss) income per share - diluted | $ | — | $ | (0.03 | ) | $ | (0.01 | ) | $ | 0.08 | ||||||
2016 | ||||||||||||||||
Q1 | Q2 | Q3 | Q4 | |||||||||||||
Revenues | $ | 92,128 | $ | 91,743 | $ | 86,550 | $ | 106,913 | ||||||||
Costs and expenses applicable to revenues | 39,952 | 41,466 | 41,651 | 51,587 | ||||||||||||
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Gross margin | $ | 52,176 | $ | 50,277 | $ | 44,899 | $ | 55,326 | ||||||||
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Net income | $ | 13,952 | $ | 8,908 | $ | 4,384 | $ | 12,076 | ||||||||
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Net income attributable to common shareholders | $ | 11,302 | $ | 6,016 | $ | 2,525 | $ | 8,945 | ||||||||
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Net income per share attributable to common shareholders: | ||||||||||||||||
Net income per share - basic | $ | 0.16 | $ | 0.09 | $ | 0.04 | $ | 0.14 | ||||||||
Net income per share - diluted | $ | 0.16 | $ | 0.09 | $ | 0.04 | $ | 0.13 |
None
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the specified time periods and that such information is accumulated and communicated to management, including the CEO and Chief Financial Officer (“CFO”), to allow timely discussions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
The Company’s management, with the participation of its CEO and its CFO, has evaluated the effectiveness of the Company’s “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934Rules 13a-15(e) or15d-15(e)) as atof December 31, 20172023 and has concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective. The Company will continue to periodically evaluate its disclosure controls and procedures and will make modifications from time to time as deemed necessary to ensure that information is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.
Management has used the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) framework in Internal Control-Integrated Framework (2013) to assess the effectiveness of the Company’s internal control over financial reporting.
Management has assessed the effectiveness of the Company’s internal control over financial reporting as at December 31, 2017, and has concluded that such internal control over financial reporting were effective as at that date.of December 31, 2023.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP, hasan independent registered public accounting firm, audited the effectiveness of the Company’s internal control over financial reporting as atof December 31, 20172023, as stated in their report, which appears in Item 8 of Part II, of this 2017 Form10-K.Item 8.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in the Company’s internal control over financial reporting which occurred during the three months ended December 31, 2017,2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
None.
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
N/A.
138
PART III
Item 10. Directors, Executive Officers, and Corporate Governance
The information required by Item 10 is incorporated by reference from the information under the following captions in the Company’s Proxy Statement: “Item No. 1 -– Election of Directors;” “Executive Officers;” “Section“Delinquent Section 16(a) Beneficial Ownership Reporting Compliance;Reports;” “Code of Business Conduct and Ethics;Ethics and Insider Trading Policy;” and “Audit Committee.“Corporate Governance.”
Item 11. Executive Compensation
The information required by Item 11 is incorporated by reference from the information under the following captions in the Company’s Proxy Statement: “Compensation Discussion and Analysis;” "Compensation Committee Report;" “Summary Compensation Table;” “Grants of Plan-Based Awards;” “Outstanding Equity Awards at FiscalYear-End;” “Option Exercise and Stock Vested;” “Pension Benefits;” “Employment Agreements and Potential“Pay Ratio Disclosure;” “Potential Payments upon Termination orChange-in-Control;” "Pay Versus Performance;" “Compensation of Directors;” and “Compensation Committee Interlocks and Insider Participation.”
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by Item 12 is incorporated by reference from the information under the following captions in the Company’s Proxy Statement: “Equity Compensation Plans;” “Principal Shareholders of Voting Shares;” and “Security Ownership of Directors and Management.”
The information required by Item 13 is incorporated by reference from the information under the following caption in the Company’s Proxy Statement: “Certain Relationships and Related Transactions,” “Review, Approval or Ratification of Transactions with Related Persons,” and “Director Independence.”
Item 14. Principal Accounting Fees and Services
The information required by Item 14 is incorporated by reference from the information under the following captions in the Company’s Proxy Statement: “Audit Fees;” “Audit-Related Fees;” “Tax Fees;” “All Other Fees;” and “Audit Committee’sPre-Approval Policies and Procedures.”
Item 15. Exhibits and Financial Statement Schedules
(a)(1) Financial Statements and Schedules
The consolidated financial statementsConsolidated Financial Statements filed as part of this Report are included under Item 8 in Part II. Financial Statement Schedules have been omitted since they either are not required, not applicable, or the information required is included in the financial statements or the accompanying notes thereto.
Report of Independent Registered Public Accounting Firm, which covers boththe financial statements, the accompanying notes to the financial statements and the Company’s internal control over financial statement
schedule in (a)(2),reporting, is included under Item 8 in Part II, of this 2017 Form10-K.Item 8.
139
(b) Exhibits
(a)(2) Financial Statement Schedules
140
141
Exhibit No. |
| Description |
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| File No |
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| Filing Date |
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10.38 |
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10.39 |
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10.40 |
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| 001-35066 |
| 10.7 |
| 4/29/21 | |
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10.41 |
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| 001-35066 |
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| 4/29/21 | |
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*21.1 |
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*101.INS |
| Inline XBRL Instance Document – The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document. | ||||||||
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*101.SCH | Inline XBRL Taxonomy Extension Schema Document | |||||||||
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*101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||||||||
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*101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document | ||||||||
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*101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document | ||||||||
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*101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||||||||
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*104 |
| Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | ||||||||
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Financial statement schedule for each year in the three-year period ended December 31, 2017.* Filed herewith
II. Valuation and Qualifying Accounts.
(a)(3) Exhibits
The items listed as Exhibits 10.1 to 10.35 relate to management contracts+ Management contract or compensatory plansplan, contract or arrangements.arrangement
Not applicable.
142
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
IMAX CORPORATION | ||||
| ||||
By | /s/ NATASHA FERNANDES | |||
Natasha Fernandes | ||||
Chief Financial Officer |
Date: February 27, 20182024
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 27, 2018.2024.
/s/ RICHARD L. GELFOND | /s/ NATASHA FERNANDES | /s/ ELIZABETH GITAJN | ||
Richard L. Gelfond Chief Executive Officer & Director (Principal Executive Officer) |
Chief Financial Officer & Executive Vice-President (Principal Financial Officer) |
Senior Vice-President, Finance & Controller (Principal Accounting Officer) | ||
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* | * | * | ||
Darren D. Throop Chairman of the Board & Director |
Director | Eric A. Demirian Director | ||
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Kevin Douglas Director | David W. Leebron Director | Michael MacMillan Director | ||
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Steve Pamon Director | Dana Settle Director | Jennifer Wong Director |
By | * /s/ NATASHA FERNANDES | |||
Natasha Fernandes | ||||
(asattorney-in-fact) |
143
IMAX CORPORATION
Schedule II
Valuation and Qualifying Accounts
(In thousands of U.S. dollars)
Balance at beginning of year | Additions/ (recoveries) charged to expenses | Other additions/ (deductions)(1) | Balance at end of year | |||||||||||||
Allowance for net investment in leases | ||||||||||||||||
Year ended December 31, 2015 | $ | 972 | $ | — | $ | (300 | ) | $ | 672 | |||||||
Year ended December 31, 2016 | $ | 672 | $ | — | $ | — | $ | 672 | ||||||||
Year ended December 31, 2017 | $ | 672 | $ | (517 | ) | $ | — | $ | 155 | |||||||
Allowance for financed sale receivables | ||||||||||||||||
Year ended December 31, 2015 | $ | 494 | $ | 75 | $ | (1 | ) | $ | 568 | |||||||
Year ended December 31, 2016 | $ | 568 | $ | (75 | ) | $ | 1 | $ | 494 | |||||||
Year ended December 31, 2017 | $ | 494 | $ | 428 | $ | — | $ | 922 | ||||||||
Allowance for doubtful accounts receivable | ||||||||||||||||
Year ended December 31, 2015 | $ | 947 | $ | 677 | $ | (478 | ) | $ | 1,146 | |||||||
Year ended December 31, 2016 | $ | 1,146 | $ | 771 | $ | (667 | ) | $ | 1,250 | |||||||
Year ended December 31, 2017 | $ | 1,250 | $ | 1,967 | $ | (1,604 | ) | $ | 1,613 | |||||||
Inventories valuation allowance | ||||||||||||||||
Year ended December 31, 2015 | $ | 3,549 | $ | 572 | $ | (779 | ) | $ | 3,342 | |||||||
Year ended December 31, 2016 | $ | 3,342 | $ | — | $ | — | $ | 3,342 | ||||||||
Year ended December 31, 2017 | $ | 3,342 | $ | 500 | $ | 44 | $ | 3,886 | ||||||||
Deferred income tax valuation allowance | ||||||||||||||||
Year ended December 31, 2015 | $ | 310 | $ | 16 | $ | — | $ | 326 | ||||||||
Year ended December 31, 2016 | $ | 326 | $ | (129 | ) | $ | — | $ | 197 | |||||||
Year ended December 31, 2017 | $ | 197 | $ | — | $ | — | $ | 197 |
140