In addition, the Company will be releasing an IMAX original production,Superpower Dogs, in March 2019.

The Company remains in active negotiations with all of the major Hollywood studios for additional films to fill out its short and long-term film slate for the IMAX theater network in 2019.network.

IMAX Theater 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 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 IMAX digital systems. 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 moviegoers 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 Theater System, the Company provides extensive advice on theater 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 Theater 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 Theater System may be recognized at a different time from when cash is collected. Seecollected from the exhibitor customer. (See “Critical Accounting Policies and Estimates” in Part II, Item 7 and note 4Note 20 of Notes to Consolidated Financial Statements in Part II, Item 8 of this 2018 Form10-K for further discussion on the Company’s revenue recognition policies.)

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The following table presents the number of IMAX Theater BacklogSystems that are open and Networkin backlog, by configuration, as of December 31, 2021 and 2020:

IMAX Laser Theater Systems

In 2014, the Company introduced 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 late-2021, the Company began offering an additional laser-based theater system product to provide a broader array of customers with an opportunity to replace and upgrade IMAX Xenon Theater Systems. The Company believes that IMAX Laser Theater 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 Theater Systems

In 2008, the Company introduced its digital IMAX Xenon Theater System. Prior to 2008, all of the IMAX Theater Systems offered by the Company were film-based and required analog film prints. The Company believes that IMAX Xenon Theater Systems deliver higher quality imagery when compared with IMAX Film Theater Systems.

IMAX Film Theater Systems

IMAX Film Theater Systems include various configurations, including 2D and 3D systems, and screen sizes. Following the introduction of the digital IMAX Xenon Theater System in 2008, the number of IMAX Film Theater Systems in the IMAX network has decreased significantly.

The following table provides information about the Company’s salestheater system backlog is as follows:of December 31, 2021 and 2020:

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The number of theater systemsIMAX 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,year-to-year, which adds to backlog, and the installation and acceptance of theater systemsIMAX Theater Systems and the settlement of contracts, both of which reduce backlog. SalesThe dollar value of backlog typically represents the fixed contracted revenue under signed theater systemIMAX Theater System sale and lease agreements that the Company believes will be recognizedexpects to recognize as revenue upon installation and acceptance of the associated theater,system, as well as aan estimate of variable consideration estimate, however it excludesin sales arrangements. The value of backlog does not include amounts allocated to maintenance and extended warranty revenues. The value of sales backlog does not includerevenues or revenue from theaters in which the Company has an equity interest, operating leases, orand long-term conditional theater commitments. The value of theaters under joint revenue sharing arrangements is excluded from the dollar value of sales backlog, although certain theater systems under joint revenue sharing arrangements provide for contracted upfront payments and therefore carry a backlog value based on those payments. The Company believes that the contractual obligations for theater systemIMAX Theater System installations that are listed in sales 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 Theater 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.

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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. Current backlog as at December 31:information reflects all known elections.

IMAX Maintenance

In 2018,IMAX Theater System arrangements also include a requirement for the Company installed 149to provide maintenance services over the life of the arrangement in exchange for an extended warranty and annual maintenance fee paid by the theater owner or operator. Under these arrangements, the Company provides preventative and emergency maintenance services 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 theater systems in new locations.agreements. (See “Maintenance and Extended Warranty Services” below.)

Film Distribution and Post-Production

Through its Film Distribution segment, the Company distributes large-format documentary films, primarily to institutional theaters. The Company estimates that it will installreceives as its distribution fee either a similar number of new theater systems (excluding upgrades) in 2019. The Company cautions, however, that theater system installations may slip from period to period over the coursefixed amount or a fixed percentage of the Company’s business, usually for reasons beyondtheater box office receipts and following the recoupment of its control.

IMAX theater systems consistcosts, is typically entitled to receive an additional percentage of the following configurations:

IMAX Digital: Xenon Theater Systemsgross revenues as participation revenues.

The vast majorityownership rights to the films distributed by the Company may be held by the film’s sponsors, third-party film investors and/or the Company. As of the Company’s theater system signings have been for the Company’s proprietary xenon-based digital systems. The Company believes that its xenon-based digital projection system delivers high quality imagery compared with other xenon systems. AlthoughDecember 31, 2021, the Company has introduced a new laser-based digital projection solution,distribution rights with respect to 53 films, which cover subjects such as space, wildlife, music, sports, history, and natural wonders.

In addition, the Company does not believe this will decrease the numbercontinues to evolve its platform to bring new, innovative events and experiences to audiences worldwide. The Company has a connected IMAX theater footprint capable of xenon-based digital theater systems installed in the immediate future.delivering live, interactive content with low latency and superior sight and sound. As atof December 31, 2018, the Company had installed 1,346 xenon-based digital theater systems and has an additional 381 xenon-based digital theater systems in its backlog.

IMAX Digital: Laser Theater Systems

At the end of 2014, the Company introduced its laser-based digital projection system. As a result of continued research and development aimed at creating a solution that is more affordable for its commercial multiplex partners, the Company rolled out IMAX with Laser in 2018, the Company’s next-generation laser projection system designed for IMAX2021, 68 theaters in commercial multiplexes. The Company believes IMAX laser-based digital projectors 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 theater network. As at December 31, 2018, the Company had installed 59 laser-based digital systems as compared to 51 as at December 31, 2017. As at December 31, 2018, the Company had installed 37 IMAX with Laser systems.

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, 2018, there were 44 IMAX flat screen and IMAX dome theater systems in the IMAX network as comparedwere configured to 48enable the streaming of live events with additional theaters expected to go-live throughout 2022.

In the fourth quarter of 2021, the Company distributed a Kanye West and Drake concert to 35 IMAX flat screentheaters across the United States and IMAX dome theater systems as at December 31, 2017. WithCanada through a partnership with Amazon Music. In the introductionfourth quarter of 2021, the Company also held special screenings of Joel Coen’s The Tragedy of Macbeth, including a live Q&A with Mr. Coen and actress Frances McDormand streamed from the IMAX digital theater systems, there has beenin Lincoln Square, New York, and West Side Story, featuring a decreaselive Q&A with director Steven Spielberg and his cast, which was streamed from the IMAX theater of Century City, California. Also, in the numberfirst quarter of IMAX flat screen and IMAX dome theater systems in the network. With the introduction of laser-based digital systems, the Company has been able to create a new Laser Dome solution for its institutional customers. As at December 31, 2018, the Company had installed two IMAX with Laser Domes, which are included in the above numbers.

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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, 2018, there were 19 IMAX 3D GT and IMAX 3D SR theater systems in operation compared to 21 IMAX 3D GT and IMAX 3D SR theater systems in operation as at December 31, 2017. 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

In recent years, the Company has been exploring several new lines of business outside of its core business.

IMAX Home Entertainment Technologies and Services

In September 2018, the Company announced a new home entertainment licensing and certification program called IMAX Enhanced. This initiative was launched along with audio leader DTS (an Xperi subsidy), capitalizing on the companies’ decades of combined expertise in image and sound science. The certification program combineshigh-end consumer electronics products with IMAX digitallyre-mastered 4K high dynamic range (HDR) content and DTS audio technologies to offer consumers immersive sight and sound experiences for the home.

To be accepted into the program, leading consumer electronics manufacturers must design 4K HDR televisions, A/V receivers, sound systems and other home theater equipment to meet a carefully prescribed set of audio and video performance standards, set by a certification committee of IMAX and DTS engineers and some of Hollywood’s leading technical specialists.

The program will digitallyre-master content to produce more vibrant colors, greater contrast and sharper clarity, and will also deliver an IMAX signature sound experience.

IMAX Enhanced Program launch partners include Sony Electronics, Sony Pictures, Paramount Pictures, Sound United.

In 2013, the Company established a joint venture with TCL Multimedia Technology Holding Limited (“TCL”) to design, develop, manufacture and sell a premium home theater system. 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.

Original Content

The Company has created two film funds to help finance the production of original content. The Company formed the IMAX China Film Fund (the “China Film Fund”) with its subsidiary IMAX China, its partner CMC and several other large investors to help fund Mandarin language commercial films. The China Film Fund targets productions that can leverage the Company’s brand, relationships, technology and release windows in China.

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 has contributed $9.0 million to the Original Film Fund since 2014, and has reached its maximum contribution. The Company sees the Original Film Fund as a vehicle designed to generate a continuous, steady flow of high-quality documentary content. As at December 31, 2018, the Original Film Fund has invested $20.9 million toward the development of original films.

In 2017,2022, the Company partnered with Marvel Television Inc. (“Marvel”)Disney to hold a special screening of The Beatles: Get Back – The Rooftop Concert, featuring a live Q&A with director and Disney|ABC Television Groupproducer Peter Jackson streaming toco-produce and premiere theatrically the television series “Marvel’s Inhumans” in IMAX theaters. The first two episodes of the series ran worldwide in 68 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.worldwide.

The Company continues to believe that the IMAX network serves as a valuable platform to launch and distribute a broad variety of original content, especially during shoulder periods. However,content.

Through its Film Post-Production segment, the Company does not expect to make meaningful direct investments in original content going forward.

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Virtual Reality

In 2017, the Company piloted a virtual reality (“VR”) initiative which included several pilot IMAX VR Centers located in a number of multiplexes, as well as a stand-alone venue, each retrofitted with proprietary VR pods that permitted interactive, moveable VR experiences.

The Company also established its VR Fund among the Company, its subsidiary IMAX China and other strategic investors to help finance the creation of interactive VR content experiences for use across all VR platforms, including in the pilot IMAX VR Centers.

In December 2018, the Company announced, in connection with its strategic review of its VR pilot initiative, that it had decided to close its remaining VR locations andwrite-off certain VR content investments. In January 2019, the Company decided to dissolve the VR Fund. For the year ended December 31, 2018, the Company has recognized asset impairment and exit costs related to its VR investments of $7.2 million. For additional information refer to note 24 in Item 8 of this 2018 Form10-K.

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 ownership rights to such films may be held by the film sponsors, the film investors and/or the Company. As at December 31, 2018, the Company currently has distribution rights with respect to 47 of such films, which cover subjects such as space, wildlife, music, history and natural wonders.

Several more recent large-format films that have been distributed by the Company include:Pandas, which was released in April 2018 and has grossed over $6.8 million as at the end of 2018;A Beautiful Planet, which was released in April 2016 and has grossed over $24.1 million as at the end of 2018;Voyage of Time, which was released in October 2016 and has grossed over $0.5 million as at the end of 2018;Island of Lemurs: Madagascar, which was released in April 2014 and has grossed over $14.1 million as at the end of 2018;Journey to the South Pacific, which was released in 2013 and has grossed $14.1 million as at the end of 2018. 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 3D andT-REX: Back to the Cretaceous.

In addition, the Company also provides film post-production and quality control services for large-format films, (whetherwhether produced internallyby IMAX or externally),third parties, and digital post-production services.

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New Business Initiatives

The New Business Initiatives segment includes activities related to the expansion of the IMAX brand across new lines of business and initiatives, which seek to leverage the Company’s proprietary, innovative technologies, its leadership position in the entertainment technology space, its unique relationship with content creators, and its brand.

In September 2018, the Company launched IMAX Enhanced^TM, a new initiative to bring The IMAX Experience into the home, in partnership with audio leader DTS (an Xperi subsidiary). 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:

To be certified as IMAX Enhanced, leading consumer electronics manufacturers spanning 4K/8K televisions, projectors, A/V receivers, loudspeakers, soundbars and smartphones must meet a carefully prescribed set of audiovisual performance standards, set by a certification committee of IMAX and DTS engineers, along with some of Hollywood’s leading technical specialists.

At present, certified global device partners include Sony Electronics, Hisense, TCL, Phillips, Xiaomi, Sound United and Honor, among others. More than 150 IMAX Enhanced titles are now available across six of the biggest streaming platforms worldwide, including Disney+, Sony Bravia CORE, Tencent Video, iQiyi, Tsutaya TV and Rakuten TV.

The Company’s collaboration with Disney, which was announced in November 2021, allows fans to stream 14 Marvel titles in IMAX’s Expanded Aspect Ratio at home on Disney+. The 14 titles available on Disney+ include Shang-Chi and The Legend of The Ten Rings and Eternals, as well as Iron Man, Guardians of the Galaxy, Guardians of the Galaxy Vol. 2, Captain America: Civil War, Doctor Strange, Thor: Ragnarok, Black Panther, Avengers: Infinity War, Ant-Man and The Wasp, Captain Marvel, Avengers: Endgame, and Black Widow (content availability varies by region). The launch of IMAX Enhanced on Disney+ served as a focal point of Disney’s “Disney+ Day” two-year anniversary event, earning significant positive media coverage and providing strong brand exposure for IMAX by expanding the Company’s in-home entertainment footprint to more than 80 million subscribers.

IMAX Enhanced and the collaboration with Disney is part of the Company’s next evolutionary step to grow beyond Hollywood blockbusters and extend the IMAX brand and technology further into the streaming environment.

Other

The Company derives a small portion of its revenues from other sources including: twoincluding one owned and operated IMAX theaters;theater in Sacramento, California; a commercial arrangement with one theater resulting in the sharing of profits and losses; the provision of management services to fourthree other theaters; renting its proprietary 2D and 3D large-format film and digital cameras to third-party production companies; and also offering production advice and technical assistance to both documentary and Hollywood filmmakers.

As at December 31, 2018, the Company had two (December 31, 2017 — two) owned and operated IMAX theaters. In addition, the Company has a commercial arrangement with one theater resulting in the sharing of profits and losses and provides management services to three other theaters. In January 2019, the Company closed its owned and operated theater in Minneapolis, Minnesota and now has one remaining owned and operated theater in Sacramento, California. The Company also rents its proprietary 2D and 3D large-format film and digital cameras to third party production companies. The Company maintains cameras and other film equipment and also offers production advice and technical assistance to both documentary and Hollywood filmmakers.

MARKETING AND CUSTOMERS

The Company markets its theater systemsIMAX Theater 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 sites for the Company on a commission basis.

The commercialCommercial multiplex theater segmenttheaters are the largest part of the IMAX theater network, is the Company’s largest segment, comprising 1,4091,599 IMAX theaters, or 93.6%95%, of the 1,5051,683 IMAX theaters open or operationalin the IMAX network as atof December 31, 2018.2021. 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 Theater Systems to commercial destinations such as theme parks, private home theaters, tourist destination sites, fairs and expositions (the Commercial Destination

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segment). Atexpositions. As of December 31, 2018,2021, approximately 70.1%74% of all openedopen IMAX theaters were in locations outside of the United States and Canada.

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The following table outlinesprovides detailed information about the breakdown of the theaterIMAX network by theater type and geographic location as atof December 31:31, 2021 and 2020:

(For information on revenue breakdown by geographic area, see note 19Note 21 of Notes to the accompanying audited consolidated financial statementsConsolidated Financial Statements in Part II, Item 8 of this 2018 Form10-K. The Company’s foreign operations are subject to certain risks.8. See “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” and “Risk Factors – The Company faces risks in connection with its significant presence in China and the continued expansion of its business in China”there” in Item 1A. TheAs of December 31, 2021, the Company’s largest customer, Wanda, as at December 31, 2018,is based in China and represents 34.8%22% of the Company’s network of theaters, 29.1%4% of the Company’s theater system backlog and 17.1%10% of its revenues. As of December 31, 2020, Wanda and AMC, which was then controlled by Wanda, represented 35% of the Company’s network of theaters, 19% of the Company’s theater backlog and 16% of its revenue. Wanda sold its controlling interest in AMC in 2021.)

INDUSTRY OVERVIEW

Competition

Theout-of-home entertainment industry is very competitive, and the Company faces a number of competitive challenges. In recent years, forFor instance, 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 similar quality or attributes asto an IMAX theater.Theater System. The Company believes that all of these alternative formats deliver images and experiences that are inferior toThe IMAX Experience.

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 picture distribution channels such as home video,pay-per-view,subscription streaming services, transactional video-on-demandBlu-ray Disc, Internet (both rentals and syndicatedsales), advertiser-supported video-on-demand, pay-per-view, internet, and broadcast and cable television. During the COVID-19 pandemic, when theaters were closed in many global markets, certain movie studios released several high-profile films directly or concurrently to streaming platforms rather than exclusively to theaters within the traditional theatrical release window. While there can be no assurances whether or when this practice will end once the effects of the COVID-19 pandemic fully recede, several Hollywood studios have recently reiterated their commitment to maintaining exclusive theatrical release windows. 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.

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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,Theater Systems (including the quality of the sound system components included with an IMAX Theater System), the return on investment of an IMAX theater,Theater System for exhibitors, the number and quality of IMAX films that it distributes, the relationships the Company maintains with prominent Hollywood and international filmmakers aand other content creators (a number of whom desire to film 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 IMAX theaters through IMAX DMR 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 increasessystems further increase 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 world are IMAX theaters.

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Exhibitor Consolidation

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 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. In 2018,recent years, the commercial exhibition industry continueshas continued to consolidate, as evidenced by Cineworld Group’s acquisition of Regal Entertainment Group the Company’s second largest customer.(“Regal”) in 2018.

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.Theater Systems. As larger commercial chains such as AMC 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 systemsTheater Systems across the Odeon and Nordic theater network. 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(See “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 1A of this 2018 Form10-K.1A.)

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. In 2020, IMAX launched the “Filmed in IMAX” program, a partnership with the world's leading camera manufacturers to meet filmmaker demand for The IMAX Experience. Through the program, IMAX will certify high-end, best-in-class digital cameras with leading brands including ARRI, Panavision, RED Digital Cinema and Sony to work in the IMAX format when paired with its proprietary post-production process.

The IMAX brand is a promise to deliver what today’s movie audiences crave — a memorable, more emotionally engaging, more thrilling and shareable experience. Consumer research conducted in six countries worldwide by aFrom 2015 to 2019, the Company commissioned leading third-party research firm showsfirms to conduct multiple consumer research studies in eleven countries. The studies show that the IMAX brand has near universal awareness, creates a special experience for the audience, and is one of the most differentiated movie-going brands. On a standardized measure of brand equity, the IMAX brand ranged from two to 10 times more powerful than other 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.

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RESEARCH AND DEVELOPMENT

The Company believes that it is one of the world’s leadinga premier global technology platform for 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, the Company increased its level of research and development in order to develop laser-based projection systems. The Company rolled out its flagship laser-based projection system at the end of 2014, which is capable of illuminating the largest screens in the Company’s network. TheThis laser-based projection system 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 going experience available to consumers. In 2018,Since then, the Companyrolled-out IMAX with Laser, the Company’s next generation laser-based projection system, which is targeted primarily for screens in commercial multiplexes. With most of the laser development completed, the Company expects their has continued research and development efforts will center around innovation projects and DMR enhancementsaimed at creating more affordable laser-based solutions with various screen sizes for its commercial multiplex customers. Beginning in 2019.

Going forward,late 2021, the Company plansbegan offering an additional laser-based theater system product to provide a broader array of customers with an opportunity to replace and upgrade IMAX Xenon Theater Systems.

The Company intends 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 theater network and experimenting with live and interactive events worldwide; developing new IMAX film cameras and certifying additional digital cameras; further improving its proprietary DMR process for the delivery of content for both theatrical and home entertainment; and further improving the reliability of its projectors;projectors, as well as enhancing the Company’s image quality; expanding the applicability of the Company’s digital technology in both theater and home entertainment; developing IMAX theater systems’ capabilities; and improving the Company’s proprietary DMR process. 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 important research and development project and is working with other parties on this initiative.sound quality.

As atof December 31, 2018, 862021, 34 of the Company’s employees were connected with research and development projects.projects, as compared to 45 employees as of December 31, 2020.

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MANUFACTURING AND SERVICE

Projector Component Manufacturing

The Company assembles the projector of its theater systemsIMAX Theater System projectors at its officefacility in Mississauga, Ontario, Canada (near Toronto). TheWith few exceptions, the Company develops and designs all of the key elements of the proprietary technology involved in this component. 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 2018,Historically, these projectors, including both the Company’s xenonIMAX Laser Theater Systems and laser-based projection systems,IMAX Xenon Theater Systems, have had reliability rates based on scheduled shows of approximately 99.9%99%.

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 component 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.Theater Systems. These arrangements are usually for a separate fee, although the Company oftensometimes includes free service in the initial year of an arrangement. The maintenance and extended warranty arrangements include service, maintenance and replacement parts for theater systems.IMAX Theater Systems.

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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 Theater 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 theater every six 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 xenonIMAX Laser Theater Systems and laser-based digital systems,IMAX Xenon Theater 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 encompassesincludes theater 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 and laser projection. Included in the exclusive license rightsCompany’s patent portfolio are more than 40 patent and patent families acquired from The Eastman Kodak Company (“Kodak”) to a portfolio of more

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than 50 patent families covering laser projection technology as well as certain exclusive rights to a broad range of Kodak patents in the field of digital cinema.technology. The Company has been and will continue to be diligent in the protection of its proprietary interests.

As atof December 31, 2018,2021, the Company holds 106107 patents, has 139 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 20202022 and 2034.2038.

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 In IMAX^®,The IMAXExperience^®,AnIMAXExperience^®,AnIMAX3D Experience^®, IMAX DMR^®, DMR^®, IMAX nXos^®, IMAX think big^®, think big^® and IMAX Is BelievingFilms to the Fullest^®. These trademarks are widely protected by registration or common law throughout the world. The Company also owns the service mark IMAX THEATRE^TM.

EMPLOYEESHUMAN CAPITAL

The Company had 660is a globally diverse brand with the mission to connect the world through extraordinary experiences that inspire us to reimagine what’s possible, together. The Company has the power to inspire, ignite and involve its teams, customers and partners across the 1,683 IMAX Theater Systems in its network to transcend the ordinary. However, the Company understands that these experiences are only made possible through its employees’ diverse range of unique abilities and perspectives and its ability to attract, retain, and engage a talented, inclusive and respected workforce.

The Company is committed to acquiring talent and developing internal talent to create a high-performing, diverse workforce. In order to achieve this objective, the Company offers competitive pay programs and benefits to its people globally. Please see “—Total Rewards” below for additional information regarding the Company’s compensation practices. The Company supports and develops its employees through a variety of training and development programs that build and strengthen leadership and professional skills, including an education reimbursement program, career development planning, and in-house learning opportunities that support its people as atthey grow in their careers. In addition, to promote a safe and inclusive environment for its employees, the Company provides specific annual compliance and trainings on cultivating respect in the workplace and harassment prevention.

The Company obtains and reviews employee feedback to monitor employee satisfaction and engagement on an annual basis. The most recent employee survey resulted in the participation of over 81% of the global workforce, and an engagement score 5 points higher than the cross-industry and cross-country benchmark provided by a third-party employee engagement platform, showcasing a highly engaged and dedicated workforce. The survey also provides management with insightful feedback to help build, drive, and measure the success of people initiatives in the future.Following this year’s survey, focus groups were conducted to engage employees further to help the Company plan and execute programs with respect to people initiatives by highlighting potential opportunities, such as increasing communication throughout the business, building supportive resources for the managers, and building programs to highlight career development opportunities.

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As of December 31, 2018, compared2021, the Company had 665 full-time employees, of whom 147 employees were based outside of North America.

Total Rewards

The Company continues to 606have a total rewards mindset that encompasses all that is provided to its employees in the form of financial and nonfinancial compensation, benefits, well-being, and growth opportunities. The goal of these total rewards programs is to provide employees with market competitive offerings, opportunities and experiences that evolve over time.

As the Company continues to evolve as atan organization, it continues to modernize its total rewards programs to improve the employee experience and adequately reflect a diverse, multigenerational, and talented workforce.

The structure of the Company’s total rewards programs balances base compensation, incentive compensation for both short-term and long-term performance and a focus on total well-being. In addition:

Diversity, Equity, and Inclusion

The Company believes that a culture of diversity and inclusion is a competitive advantage that fuels innovation and strengthens a company’s reputation. The Company is committed to Diversity, Equity, and Inclusion (“DE&I”), and its culture is defined by its core values of Inspire, Ignite, and Involve. The Company’s focus with respect to DE&I is to attract, retain, and engage a talented, inclusive and respected workforce. As a part of its ongoing commitment to expanding its diverse and inclusive workforce, the Company has assembled a DE&I council of employees across levels, tenures and demographic backgrounds to assist the Company in executing the four key pillars of its global DE&I strategy, which includes the following objectives:

In 2021, the DE&I council hosted multiple Company-wide events and launched educational awareness campaigns that represent, support and spark dialogue among the diverse communities that make up IMAX’s workforce. As of December 31, 2017. Both employee counts exclude hourly employees at2021, women represented approximately 36% of the Company’s ownedglobal workforce. The Company currently has one female director on the Board of Directors (13%) and operatedfive female members on the Company’s management team of 17 (29%). Moreover, four members of the Company’s management team identify as ethnically diverse (24%).

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Employee Health and Safety

Recognizing the various employee health and safety risks associated with the delivery of the world’s most immersive movie-going experience, 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.

Employee health and safety is one of the Company’s top priorities. Risks to the health and safety of the Company’s employees are present in day-to-day office work, building renovation, manufacturing, logistics, training, testing, research and development, and during the designing, installation and service of the Company’s theaters around the world. Every employee at each IMAX location, workplace, business unit and certain other newdepartment is responsible for participating in workplace safety planning activities and managers are responsible for employee health and safety program implementation for their business initiatives.function. This effort is supported by a cross-functional Health and Safety team dedicated to employee health and safety and business continuity.

This continuous focus on and commitment to the health and safety of the Company’s employees has remained central to the Company’s continued response to COVID-19. Specifically, the Company:

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”). 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. No information included on the Company’sCompany's website shall be deemed included or otherwise incorporated into this 2018 Form10-K, except where expressly indicated.

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Item 1A.Risk Factors

IfBefore you make an investment decision with respect to the Company’s common stock, 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, which are not ranked in any particular order, 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 deems immaterial or that are currently unknown to the Company or that it deems immaterial, may also impair its business or operations.

RISKS RELATED TO THE COMPANY’S BUSINESS AND OPERATIONS

The Company conductshas experienced a significant decrease in its revenues, earnings, and cash flows due to the COVID-19 pandemic and its business, internationally, which exposes itfinancial condition and results of operations may continue to uncertainties and risks that could negatively affect its operations, sales andbe significantly harmed in future growth prospects.reporting periods.

A significant portionThe impact of the COVID-19 pandemic is complex and continuously evolving, resulting in significant disruption to the Company’s revenuesbusiness and gross box office are generated by customers located outsidethe global economy. At various points during the pandemic, authorities around the world imposed measures intended to control the spread of COVID-19, including stay-at-home orders and restrictions on large public gatherings, which caused movie theaters in countries around the world to temporarily close, including the IMAX theaters in those countries. As a result of these theater closures, movie studios postponed the theatrical release of most films originally scheduled for release in 2020 and early 2021, including many scheduled to be shown in IMAX theaters, while several other films were released directly or concurrently to streaming platforms. Beginning in the third quarter of 2020, stay-at-home orders and capacity restrictions were lifted in many key markets and movie theaters throughout the IMAX network gradually reopened. However, following the emergence of the Omicron variant and the rise of COVID-19 cases in late 2021 and early 2022, some governments reinstituted capacity restrictions and safety protocols on large public gatherings, leading to the temporary closure of theaters or the imposition of capacity restrictions in certain markets. As such, there is no assurance that movie theaters will remain open if there is a continued rise of or resurgence in COVID-19 cases in certain jurisdictions. As of December 31, 2021, 95% of the theaters in the global IMAX commercial multiplex network were open at various capacities, spanning 75 countries. This included 99% of Domestic theaters (i.e., in the United States and Canada. Approximately 66%Canada), 61% and 62%95% of the Company’s revenues were derived outside of the United States and Canada in 2018, 2017 and 2016, respectively. As at December 31, 2018, approximately 73% of IMAX theater systems arrangements in backlog are scheduled to be installed in international markets. The Company’s network currently spans 80 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 negatively affect the Company’s operations, sales and future growth prospects. These risks include:

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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 31% of overall revenues generated from the Company’s China operations in 2018. As at December 31, 2018, the Company had 639 theaters operating in Greater China with an additional 272and 91% of the theaters in backlog, which represent 48.2%Rest of World markets.

The COVID-19 pandemic resulted in significantly lower levels of revenues, earnings, and operating cash flows for the Company during 2020 and, to a lesser extent, during 2021, when compared to periods prior to the onset of the Company’s current backlog and which are scheduled to be installed in Greater China by 2022. Of the systems currently scheduled to be installed in Greater China, 72.1% are under joint revenue sharing arrangements, which further increase the Company’s ongoing exposure topandemic, as gross box office performance(“GBO”) results from theaters 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 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, as well as 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.

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 scope of the Company’s continued expansion in China and the business conducted by it within China. For instance, the Chinese government regulates both the number and timing or terms of Hollywood films released to the China market. The Company cannot provide assurance that the Chinese government will continue to permit the release of IMAX films in China or that the timing or number 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 rights 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 business could be adversely impacted.

The success of the IMAX network declined, the installation of certain theater network is directly relatedsystems was delayed, and maintenance fees were generally not recognized for theaters that were closed or operating with reduced capacities. Given the uncertainty around when movie-going will return to the availability and success of IMAX DMR films for whichhistorical levels, 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 theaters and the 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 party filmmakers and studios, including both Hollywood and local language features converted into the Company’s large format using the Company’s IMAX DMR technology. In 2018, 70 IMAX DMR films were released by studios to the worldwide IMAX theater network. There is no guarantee that filmmakersthe effects of the COVID-19 pandemic will end even after theaters are reopened. The timing and studiosextent of a recovery of consumer behavior and willingness to spend discretionary income on movie-going may delay the Company’s ability to generate significant revenue from GBO generated by its exhibitor customers until consumer behavior normalizes and consumer spending recovers.

In 2020 and 2021, the Company applied for and received wage subsidies, tax credits and other financial support under COVID-19 relief legislation that has been enacted in the countries in which it operates. There are no guarantees that the Company will continue to release films toapply for or receive such benefits in the IMAX theater network,future or that the films selected for release toCompany will receive any additional material financial support through these or other programs that may be created, expanded, or implemented by governments in the IMAX theater network will be commercially successful. Thecountries in which the Company is directly impacted by the box office results for the films released to the IMAX network through its joint revenue sharing arrangements as well as through the percentageoperates.

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As a result of the 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 share arrangements and to sell IMAX theater systems also depends on the number and commercial success of films released to its network. The commercial success of films released to IMAX theaters depends on a number of factors outsidefinancial difficulties faced by certain of the Company’s control, including whether the film receives critical acclaim, the timingexhibition customers arising out 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 IMAXpandemic-related theater network.

In addition, as the Company’s international network has expanded,closures, the Company has signed dealsexperienced and may continue to experience delays in collecting payments due under existing theater sale or lease arrangements. In response, beginning in the second quarter of 2020 through the fourth quarter of 2021, the Company provided temporary relief to certain exhibitor customers by waiving or reducing maintenance fees during periods when theaters were closed or operating with studiosreduced capacities and, in other countries to convert their films to the Company’s large format and release them to IMAX theaters. The Company may be unable to select films which will be successfulcertain situations, by providing extended payment terms on annual minimum payment obligations in international markets or may be unsuccessful in selecting the right mix of Hollywood and local DMR filmsexchange for a particular countrycorresponding or region, notably Greater China,longer extension of 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 movie exhibitors to purchaseterm of the underlying sale or lease IMAX theater systems, to supply box office revenue under joint revenue sharing arrangements and under its sales 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 systems or enter into joint revenue sharing arrangements with the Company, or whether anyarrangement. However, certain of the Company’s exhibitor partners that had reopened theaters have temporarily suspended operations of their theater network in certain jurisdictions and other exhibitor partners have reduced their theaters’ operating hours, which may exacerbate existing financial difficulties. The Company’s exhibitor customers willpartners may continue to do anyexperience operational and/or financial difficulties if the COVID-19 pandemic continues or consumers change their behavior and consumption patterns in response to the prolonged suspension of movie-going, or for other reasons, which would further increase the foregoing. If exhibitors choose to reduce their levels of expansion, negotiate less favorable economic terms, or decide not to enter into transactionsrisks associated with payments due under existing agreements with the Company. The ability of such partners to make payments cannot be guaranteed and is subject to changing economic circumstances. Further, the Company the Company’s revenues would not increase at an anticipated ratehas had to delay certain theater system installations from backlog and motion picture studios may be less willingrequired to convert their films intofurther delay or cancel such installations in the Company’s format for exhibition in commercial IMAX theaters.future. As a result, the Company’s future revenues and cash flows couldmay be adversely affected.

Recent consolidation among commercial exhibitorsGiven the dynamic nature of the circumstances, while the Company has been negatively impacted as of the date of filing of this report, it is difficult to predict the full extent of the adverse impact of the COVID-19 pandemic on the Company’s financial condition, liquidity, business and studios reducesresults of operations in future reporting periods. The extent and duration of such impact on the breadthCompany will depend on future developments, including, but not limited to, the duration and scope of the pandemic, the emergence, spread and severity of variants of the virus, the progress made on administering vaccines and developing treatment and the effectiveness of such vaccines and treatments, the progress towards the resumption of normal operations of movie theaters worldwide and their return to historical levels of attendance, the timing of when new films are released, consumer behavior, the solvency of the Company’s customer base,exhibitor partners, their ability to make timely payments, any potential construction or installation delays involving our exhibitor partners, the continuing impact of the pandemic on global economic conditions and could result in a narrower market forongoing government responses to the pandemic. Such events are highly uncertain and cannot be accurately forecast. Moreover, there can be no guarantees that the Company’s products and reduced negotiating leverage. A deterioration inliquidity needs will not increase materially as the Company’s relationship with key partners could materially, adversely affectCOVID-19 pandemic continues. In addition, liquidity needs as well as other changes to the Company’s business financial condition or resultsand operations may impact the Company’s ability to maintain compliance with certain covenants under the Company’s credit agreement with Wells Fargo Bank (see Note 14 of operation. In addition, an adverse economic impactNotes to Consolidated Financial Statements in Part II, Item 8). The Company may also be subject to impairment losses based on long-term estimated projections. These estimates and the likelihood of future changes in these estimates depend on a significant customer’s business operations could havenumber of underlying variables and a corresponding material adverse effect on 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 acquisitionsrange 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. In the current year the industry continues to consolidate, as evidenced by Cineworld Group’s acquisition of Regal Entertainment Group. Exhibitor concentration has resulted in individual exhibitor chains constituting a material portion of the Company’s network and revenue. For instance, Wanda and AMC continue to be the Company’s largest exhibitor customer, representing approximately, 20.2%, 16.4% and 13.5% of the Company’s total revenues in 2018, 2017 and 2016, respectively. Wanda’s current commitmentpossible outcomes. Actual results may differ materially from management’s estimates, especially due to the Company stands at 359 IMAX theater systems,uncertainties associated with the COVID-19 pandemic. If business conditions deteriorate further, or should they remain depressed for a more prolonged period of time, management’s estimates of operating results and Wandafuture cash flows for reporting units may be insufficient to support the goodwill assigned to them, thus requiring impairment charges. Estimates related to future expected credit losses and AMC together represented approximately 34.8% of the commercial network and 29.1% of the Company’s backlogdeferred tax assets, as at December 31, 2018. The share of the Company’s revenue that is generated by Wanda and AMC is expected to continue to growwell as the numberrecoverability of Wanda theater systems currently in backlog 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 intoequipment supporting joint revenue sharing arrangements withand the Companyrealization of variable consideration assets, could also be materially impacted by changes in estimates in the future.

The COVID-19 pandemic and if so, whether contractual terms will be affected. Ifpublic health measures implemented to contain it may also have the Company does business with either Wanda and/or AMC oreffect of heightening many of the other large exhibitor chains less frequently or on less favorable terms than currently,risks described in this Form 10-K, including, but not limited to, risks relating to harm to the Company’s key personnel, diverting management’s resources and time to addressing the impacts of COVID-19, which may negatively affect the Company’s ability to implement its 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 onplan and pursue certain opportunities, potential impairments, 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, expected to occur during early 2019. Studio consolidation could result in individual studios comprising a greater percentageeffectiveness of the Company’s film slateinternal control of financial reporting, cybersecurity and overall DMR revenue,data privacy risks due to employees working from home, and could exposerisks of increased indebtedness under the Company’s revolving credit facility with Wells Fargo Bank, including the Company’s ability to seek waivers of covenants or to refinance any of the Company’s borrowings, among others (see Note 14 of Notes to Consolidated Financial Statements in Part II, Item 8). The longer the COVID-19 pandemic and associated protective measures persist, the more severe the extent of the adverse impact of the pandemic on the Company is likely to the same risks described above in connection with exhibitor consolidation.be.

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General political, social and economic conditions can affect the Company’s business by reducing both revenuerevenues generated from existing IMAX theater systemsTheater Systems and the demand for new IMAX theater systems.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, the Company’s business could be adversely affected, especially if such a decline occurs in Greater China. In addition, the Company’s operations could be adversely affected if consumers’consumers' discretionary income globally or in a particular geography falls as a result of an economic downturn.downturn resulting from the COVID-19 pandemic or otherwise, as a result of increased inflation, or for any other reason. Such adverse impact on consumer’s discretionary income could result in a shift in consumer demand away from movie-going. In recent years, the majority of the Company’s revenue has been directly derived from the box office revenuesresults of its films.exhibitor partners. Accordingly, a decline in attendance at commercial IMAX theaters could materially and adversely affect several sources of key revenue streams for the Company.

The Company also depends on the sale and lease of IMAX theater systemsTheater 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 declining box 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 success of the IMAX network is directly related to the availability and success of IMAX DMR films, and other films released to the IMAX network, as well as the continued purchase or lease of IMAX Theater Systems and other support by movie exhibitors, for which there can be no guarantee.

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information of the Company or its customers, employees, licensees and suppliers. 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. 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, 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 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, other proprietary information or the personal information of 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 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.

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 the General Data Protection Regulation, 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 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.

The introduction of new, competing products and technologies could harm 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, 2018, there were approximately 43,000conventional-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 similar quality or attributes as an IMAX theater. The Company may continuebe subject to face competitionclaims of infringement of third-party intellectual property rights that are costly to defend, result in the future from companies in the entertainment industry 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 thosediversion 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,Blu-ray Disc, Internet and syndicated and broadcast television. The Company further competes for the public’s leisuremanagement’s time and disposable income with other formsefforts, require the payment 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 and box office performance of IMAX films may decline. Decliningbox-office performance of IMAX films could materially and adversely harm the Company’s business and prospects.

The Company is undertaking new lines of business and these new business initiatives may not be successful.

The Company is undertaking new lines of business. These initiatives represent 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 fields of original content andin-home entertainment technology, both 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, the Company may be adversely affected by investment expenses that have not led to the anticipated results, by write-downs of its equity investments, by the distraction of management from its core business or by damage to its brand or reputation. In December 2018, the Company recognized asset impairments and exit costs of $7.2 million related to investments in virtual reality.

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 reliance on the Company’s partners and there is a possibility that the Company may have disagreements with its relevant partner with respect to financing, technological management, product development, management strategies or otherwise. Any such disagreement may cause the joint venture or business alliance to be terminated.

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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,damages, limit the Company’s ability to receiveuse particular technologies in the appropriate paymentsfuture 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.

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 we enter into royalty or licensing arrangements with the prevailing party or are able to redesign our products and services to avoid infringement. Any such 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 timely fashionway that are duewould not infringe the intellectual property rights of others. Any payments the Company is required to it may be impaired. The Company’s contractual abilitymake and any injunction the Company is required to audit IMAX theaters may not rectify payments lost or delayedcomply with as a result of customers not fulfilling their contractual obligations with respect toany infringement could harm its reputation and financial reporting.results.

There is collection risk associated with payments to be received over the terms of the Company’s theater system agreements.RISKS RELATED TO THE COMPANY’S REVENUES, EARNINGS, AND FINANCIAL POSITION

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, 2018, the Company’s sales backlog included 564 theater systems, consisting of 177 systems under sales or lease arrangements and 387 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 estimated present value of contractual ongoing fees due over the term, and a variable consideration estimate for the theater 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 theater systems that are included in the Company’s backlog. An economic downturn may further exacerbate the risk of customers not accepting delivery of theater systems, especially in places such as Greater China that represent a large portion of the Company’s backlog. Any reduction in backlog 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 systemIMAX Theater System installations and gross box officeGBO performance of IMAX DMR contentfilms 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:

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