1Q1+
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 2020, 2023
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file Number 001-35066
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
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(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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth Company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
Large accelerated filer |
| Accelerated filer |
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Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
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 in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the common shares of the registrant held by non-affiliates of the registrant, computed by reference to the last sale price of such shares as of the close of trading on June 30, 20202023 was $549.8$758.9 million.
As of January 31, 2021,2024, there were 58,948,82952,951,334 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, 2020,2023, 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 this Form 10-K to the extent described therein.
IMAX CORPORATION
December 31, 20202023
Table of Contents
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Item 1. | 4 | ||||
Item 1A. |
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Item 1B. | 31 | ||||
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 7A. |
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Item 8. |
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Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
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Item 9A. |
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Item 9B. |
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Item 9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 138 | |||
Item 10. |
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Item 11. |
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Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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Item 13. | Certain Relationships and Related Transactions, and Director Independence |
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Item 14. |
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Item 15. |
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Item 16. |
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IMAX CORPORATION
EXCHANGE RATE DATA
Unless otherwise indicated, all dollar amounts in this document are expressed in United States (“U.S.”) 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. Dollars per one Canadian Dollar and are the inverse of rates quoted by the Bank of Canada for Canadian Dollars 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, 20202023 was U.S. $0.7854.$0.7561.
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| Years Ended December 31, |
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| 2023 |
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| 2022 |
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| 2021 |
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| 2020 |
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| 2019 |
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Exchange rate at end of period |
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| 0.7561 |
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| 0.7383 |
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| 0.7888 |
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| 0.7854 |
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| 0.7699 |
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Average exchange rate during period |
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| 0.7409 |
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| 0.7685 |
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| 0.7977 |
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| 0.7455 |
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| 0.7536 |
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High exchange rate during period |
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| 0.7617 |
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| 0.8031 |
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| 0.8306 |
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| 0.7863 |
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| 0.7699 |
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Low exchange rate during period |
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| 0.7207 |
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| 0.7217 |
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| 0.7727 |
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| 0.6898 |
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| 0.7353 |
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| Years Ended December 31, |
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| 2020 |
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| 2019 |
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| 2018 |
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| 2017 |
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| 2016 |
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Exchange rate at end of period |
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| 0.7854 |
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| 0.7699 |
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| 0.7330 |
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| 0.7971 |
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| 0.7448 |
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Average exchange rate during period |
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| 0.7455 |
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| 0.7536 |
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| 0.7718 |
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| 0.7712 |
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| 0.7558 |
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High exchange rate during period |
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| 0.7863 |
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| 0.7699 |
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| 0.8138 |
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| 0.8245 |
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| 0.7972 |
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Low exchange rate during period |
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| 0.6898 |
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| 0.7353 |
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| 0.7330 |
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| 0.7276 |
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| 0.6854 |
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SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain statements included in this annual report may constitute "forward-looking statements"“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 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 the Company and expectations regarding its 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, the impact of COVID-19 on the Company’s business, financial condition and results of operations and on the businesses of the Company’s customers and exhibitor partners; 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 IMAX theater systemSystem agreements; conditions, changes and developments in the commercial exhibition industry and broader entertainment industry, including both in-home and out-of-home entertainment markets;industry; risks related to currency fluctuations; the potential impact of increased competition in the markets within which the Company operates, including competitive actions by other companies; the failure to respond to change and advancements in entertainmentdigital technology; risks relating to consolidation among commercial exhibitors and movie studios; risks related to brand extensions and new business initiativesinitiatives; conditions in the in-home and out-of-home entertainment industries; the opportunities (or lack thereof) that may be presented to and pursued by the Company; risks related to 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 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 IMAX theater system backlog into revenue; changes in laws or regulations; the failure to fully realize the projected cost savingsany statements of belief and benefits from any statements of the Company’s restructuring initiatives; assumptions relating tounderlying any of the foregoing; other factors and risks outlined in the Company’s periodic filings with the United States Securities and Exchange Commission;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 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 IMAX Experience®, DMRAn® IMAX Experience®, Filmed For IMAXAn® IMAX 3D Experience®, IMAX DMR®, DMR®LiveTM, IMAX nXosEnhanced®, Stream SmartTM and Films To The FullestSSIMWAVE®are trademarks and trade names of the Company or its subsidiaries that are registered or otherwise protected under laws of various jurisdictions.
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PART I
Item 1. Business
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.
As of December 31, 2020,2023, the Company indirectly owns 69.89%71.55% of IMAX China Holding, Inc. (“IMAX China”), whose shares trade on the Hong Kong Stock Exchange. IMAX China is a consolidated subsidiary of the Company.
GENERAL
IMAX is one of the world’s leadinga premier global technology platform for entertainment technology companies, specializing in technological innovations powering the presentation of some of today’s most immersive entertainment experiences.and events. Through its proprietary software, theaterauditorium, architecture, patented intellectual property, and specialized equipment, IMAX offers a unique end-to-end cinematic solution to create the highest-quality, mostsuperior, awe-inspiring immersive motion picture and other entertainment eventcontent experiences for which the IMAX®IMAX® brand has becomeis globally known.renowned. Top filmmakers, and movie studios, artists, and creators utilize the cutting-edge visual and sound technology of IMAX to connect with audiences in innovative ways, and asways. As a result, IMAX’s networkIMAX is among the most important and successful global distribution platforms for major films and other events around the world.platforms.
The Company leverages its innovativeproprietary technology and engineering in all aspects of its core business, which principally consists of the digitalIMAX film remastering of films(“IMAX Film Remastering” and other presentations into the IMAX format (“IMAXformerly known as “IMAX DMR”) and the sale or lease of premium IMAX theater systems (“IMAX Theater Systems”System(s)”).
IMAX Theater Systems are based on proprietary and patented image, audio and other technology developed over the course of the Company’s 53-year history.history since its founding in 1967. The Company’s customers for IMAX Systems 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 theaterslocations in the IMAX network, except for one, and is not an exhibitor, but instead sells or leases the IMAX Theater System to exhibitor customers along with a license to use its trademarks.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, 2020,2023, there were 1,6501,772 IMAX Theater Systems operating in 8490 countries and territories, including 1,5621,693 commercial multiplexes, 12 commercial destinations, and 7667 institutional locations.locations in the Company’s global network. This compares to 1,6241,716 IMAX Theater Systems operating in 8187 countries and territories as of December 31, 20192022, including 1,5291,633 commercial multiplexes, 1412 commercial destinations, and 8171 institutional locations. (Seelocations in the table below under “IMAX Network and Backlog” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, for additionalCompany’s global network. Additional information on the composition of the IMAX network.)network is provided in the discussion of Marketing and Customers.
The IMAX Theater System providesSystems provide the Company’s exhibitor customers with a combination of the following benefits:
• the ability to exhibit content that has been enhanced through IMAX Film Remastering, which usually results in higher image and sound fidelity than conventional cinema experiences; • advanced, high-resolution projectors with specialized equipment and automated theater control systems, which generate significantly more contrast and brightness than conventional theater systems; • large screens and proprietary auditorium geometry, which result in a substantially larger field of view so that the screen extends to the edge of a viewer’s peripheral vision and creates more realistic images; • advanced sound system components, which deliver more expansive sound imagery and pinpointed origination of sound to any specific spot in an auditorium equipped with an IMAX System; • specialized theater acoustics, which result in a four-fold reduction in background noise; • ongoing maintenance and extended warranty services; and • a license to the globally recognized IMAX brand, as well as benefits from IMAX marketing of films being shown in its network and IMAX’s growing social media followership. 4
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In addition, certain movies shown in the IMAX theatersnetwork are filmed using proprietary IMAX film andcameras or IMAX certified digital cameras, which offer filmmakersalong with IMAX’s customized guidance and a workflow process to provide furtherfilmmakers enhanced and differentiated image quality and aan 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.
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Together, these components cause audiences in IMAX theaterslocations to feel as if they are a part of the on-screen action, creating a more intense, immersive, and awe-inspiring exciting experience than a traditional theater.conventional cinematic format.
As a result of the engineering and scientific achievements that are a hallmark of The IMAX Experience®, 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 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 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.
As oneThe Company achieved 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 world’s leadersGalaxy 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, 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 technology,and events, the Company strives to remain at the forefront of advancements in cinema technology. In 2018, the Company introduced IMAX with Laser, a laser projection system designed for IMAX theaters in commercial multiplexes, which represents a further evolution of IMAX’s proprietaryentertainment technology. The Company believes that offers a suite of laser-based digital projection systems (“IMAX with Laser deliversSystems”), which deliver increased resolution, sharper and brighter images, deeper contrast, as well asand the widest range of colors available to filmmakers today. The Company further believes that its suite of IMAX with Laser isSystems are helping facilitate the next major lease renewal and upgrade cycle for the global IMAX network.
TheIn September 2022, the Company is also experimenting with new technologies and new content as a way to deepen consumer engagement and brand loyalty, which includes curating unique, differentiated alternative content to be exhibited in IMAX theaters, particularly during those periods when Hollywood blockbuster film content is not available.
IMPACT OF COVID-19 PANDEMIC
In late January 2020, in response to the public health risks associated with the novel coronavirus and the disease that it causesacquired SSIMWAVE Inc. (“COVID-19”SSIMWAVE”), the Chinese government directed exhibitorsa leader in China to temporarily close more than 70,000 movie theaters, including allartificial intelligence (“AI”)-driven video quality solutions for media and entertainment companies. The acquisition of SSIMWAVE marks a significant expansion of the approximately 700 IMAX theatersCompany’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 mainland China. On March 11, 2020, dueentertainment 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 worsening public health crisis associated with the novel coronavirus, COVID-19 was characterized as a pandemic by the World Health Organization, andstreaming technology acquired in the following weeks, local, state and national governments instituted stay-at-home orders and restrictions on large public gatherings which caused movie theaters in countries around the world to temporarily close, including substantially all of the IMAX theaters in those countries. As a result of the 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. More recently, stay-at-home orders have been lifted in many countries and movie theaters throughout the IMAX network gradually reopened in the third quarter of 2020 with reduced capacities, physical distancing requirements, and other safety measures. As of December 31, 2020, 71% of the theaters in the IMAX commercial multiplex network were open, spanning 41 countries. This included 44% of the theaters in Domestic (i.e., United States and Canada) locations, 97% of the theaters in Greater China and 53% of the theaters in Rest of World markets. In many parts of Asia, audiences have returned to theaters, particularly IMAX theaters, in numbers consistent with pre-pandemic attendance levels despite the continued delay of Hollywood theatrical releases, which typically account for 70% of box office ticket sales in those regions. Management believes this indicates that moviegoers are eager to return to cinemas where and when theaters are open and moviegoers feel safe. However, ticket sales have been significantly lower than normal levels in theaters outside of Asia as Hollywood movie studios have further delayed the theatrical release dates for a number of films. As a result, certain theater chains have remained closed or have reduced their operating hours. In addition, theaters in major markets remain temporarily closed.
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The repercussions of the COVID-19 global pandemic resulted in a significant decrease in the Company’s revenues, earnings and operating cash flows in 2020 as gross box office (“GBO”) results from the Company’s theater customers declined significantly, the installation of certain theater systems was delayed, and maintenance services were generally suspended for theaters that were closed. While there continues to be a lack of new films released by movie studios and a significant number of theaters in the IMAX network are closed, the Company is experiencing a significant decline in earnings and operating cash flows as it is generating significantly lower than normal levels of GBO-based revenue from its joint revenue sharing arrangements and digital remastering services, it is unable to provide normal maintenance services to any of the theaters that remain closed, and while some installation activity is continuing, certain theater system installations have, and may continue to be delayed. In addition, the Company has experienced and is likely to continue to experience delays in collecting payments due under existing theater sale or lease arrangements from its exhibitor customers who are facing financial difficulties as a result of the theater closures. In response, the Company has provided temporary relief to exhibitor customers by waiving or reducing maintenance fees during periods when theaters are closed or operating with reduced capacities and, in certain situations, by providing extended payment terms on annual minimum payment obligations in exchange for a corresponding or longer extension of the term of the underlying sale or lease arrangement. In 2020, the Company increased its provision for current expected credit losses by $18.6 million, in part reflecting a reduction in the credit quality of its theater related accounts receivable, financing receivables and variable consideration receivables, which management believes is primarily related to the COVID-19 pandemic and adequately addresses the risk of not collecting these receivables in full.
Management is encouraged by recent box office results in markets like China, Japan and South Korea where the virus is under control and audiences have demonstrated a willingness to return to cinema. However, the Company may continue to be significantly impacted by the COVID-19 global pandemic even after a significant portion or all theaters are reopened. The global economic impact of COVID-19 has led to record levels of unemployment in certain countries, which has led to, and may continue to result in lower consumer spending. The timing and extent of a recovery of consumer behavior and willingness to spend discretionary income on movie-going may delay the Company’s ability to generate significant GBO-based revenue until consumer behavior normalizes and consumer spending recovers.
In response to uncertainties associated with the COVID-19 global pandemic, the Company has taken and is continuing to take significant steps to preserve cash by eliminating non-essential costs, placing certain employees on a temporary furlough, reducing the working hours of other employees and reducing all non-essential capital expenditures to minimum levels.
The Company has also implemented an active cash management process, which, among other things, requires senior management approval of all outgoing payments. In addition, in the first quarter of 2020, the Company drew down $280.0 million in remaining available borrowing capacity under the Credit Facility provided by its Credit Agreement with Wells Fargo Bank, National Association (both as defined in Part II, Item 7, “Liquidity and Capital Resources”), which was then amended in June 2020 to, among other things,suspend the Senior Secured Net Leverage Ratio financial covenant in the Credit Agreement through the first quarter of 2021 and substitute quarterly EBITDA from the third and fourth quarters of 2019 in lieu of the EBITDA for the corresponding quarters of 2020 to meet the original Senior Secured Net Leverage Ratio financial covenant.
As of December 31, 2020, the Company was in compliance with all of its requirements under the Credit Agreement, as amended. The Company’s continued compliance with the requirements of the Credit Agreement will depend on the Company’s ability to generate sufficient EBITDA to ensure compliance with the Senior Secured Net Leverage Ratio covenant throughout the next twelve months, which is dependent on the timing of when theaters in the IMAX network resume normal operations. The risk of breaching this covenant within the next twelve months increases significantly as the ongoing COVID-19 pandemic continues to adversely impact the Company’s ability to generate EBITDA. A violation of this covenant would represent an event of default under the terms of the Credit Agreement, allowing lenders to declare the principal and interest on all outstanding Credit Facility indebtedness due or payable immediately. If a breach of the Senior Secured Net Leverage Ratio covenant were to occur, however, management believes the Company would be able to either reduce a sufficient portion of the drawn amount on the Credit Facility with existing cash balances to achieve compliance, obtain additional sources of liquidity prior to the time when the repayment of its outstanding Credit Facility indebtedness would be required, or negotiate a further amendment with its lenders to the Credit Agreement to provide further covenant relief.
Furthermore, the Company has 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. During 2020, the Company recognized $6.4 million in benefits from the Canada Emergency Wage Subsidy (“CEWS”) program and $0.7 million in benefits from the U.S. CARES Act, as reductions to Selling, General and Administrative Expenses ($6.0 million), Costs and Expenses Applicable to Revenues ($1.0 million) and Research and Development ($0.1 million) in the Consolidated Statements of Operations. The CEWS program has been extended to June 2021. The Company will continue to review and apply for additional subsidies and credits for the remaining terms of these programs, where applicable.
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In the fourth quarter of 2020, the Company performed its annual goodwill impairment test considering the latest available information and determined that its goodwill was not impaired. As of December 31, 2020, the Company’s total Goodwill was $39.0 million, of which $19.1 million relates to the IMAX Systems reporting unit, $13.5 million relates to the Joint Revenue Sharing Arrangement reporting unit, and $6.4 million relates to the IMAX Maintenance reporting unit. The impairment test was performed on a reporting unit level by comparing each unit’s carrying value, including goodwill, to its fair value. The carrying value of each reporting unit is based on a systematic and rational allocation of certain assets and liabilities. The fair value of each reporting unit is assessed using a discounted cash flow 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 are derived based on the Company’s estimated weighted average cost of capital. These estimates and the likelihood of future changes in these estimates depend on a number of underlying variables and a range of possible outcomes. Actual results may differ materially from management’s estimates, especially due to the uncertainties associated with the COVID-19 pandemic. (See “Critical Accounting Estimates” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.)
In the fourth quarter of 2020, the Company also updated its recoverability tests of the carrying values of the theater system equipment supporting its joint revenue sharing arrangements, which are recorded within Property, Plant and Equipment. In performing its reviews of recoverability, the Company estimated the undiscounted future cash flows expected to result from the use of the assets. The cash flow estimates used in these tests are consistent with management’s estimated long-term projections, against which various sensitivity analyses were performed. These estimates are highly uncertain due to the COVID-19 global pandemic; therefore, management’s estimated cash flows factor in a number of underlying variables and ranges of possible cash flow scenarios. Actual results may differ materially from management’s estimates, especially due to the uncertainties associated with the COVID-19 pandemic. For the year ended December 31, 2020, the Company recorded impairment losses of $0.3 million related to the theater system equipment supporting its joint revenue sharing arrangements. (See Note 3 of Notes to Consolidated Financial Statements in Part II, Item 8.)
In the third quarter of 2020, the Company assessed the recoverability of its deferred tax assets and recorded a $23.7 million valuation allowance to reduce the value of deferred tax assets. The valuation allowance was recorded in the jurisdictions where management could not reliably forecast that future tax liabilities would arise within the next five years, primarily due to the uncertainties around the long-term impact of the COVID-19 global pandemic. In the fourth quarter of 2020, the Company increased the valuation allowance against its deferred tax assets by $4.9 million due to additional losses recorded in the period. The valuation allowance is expected to reverse when the Company determines it is more likely than not that the deferred tax assets in these jurisdictions will be realized. Despite this valuation allowance, the Company remains entitled to benefit from the tax attributes which currently have a valuation allowance applied to them.
If business conditions deteriorate further, or should they remain depressed for a more prolonged period of time, management’s estimates of operating results and future cash flows for the IMAX Systems and Joint Revenue Sharing Arrangements reporting units may be insufficient to support the goodwill assigned to them, thus requiring impairment charges. The Company will continue to evaluate the recoverability of goodwill at the reporting unit level on an annual basis and whenever events or changes in circumstances indicate there may be a potential impairment. In addition, estimates related to future expected credit losses and the recoverability of deferred tax assets,SSIMWAVE acquisition as well as the recoverability of joint revenue sharing equipment assets and the realization of variable consideration assets, could also be further impacted by changes in management’s estimates. IMAX Enhanced(see Notes 3, ®5 and 12 product services.of Notes to Consolidated Financial Statements in Part II, Item 8).
(See “Risk Factors – The Company has experienced a significant decrease inutilizes AI for image enhancement, streaming technology, and data analysis to improve various aspects of its revenues, earningsbusiness. It is actively exploring other global use cases for AI to improve its products, operations, and cash flows due to the COVID-19 global pandemic and its business, financial condition and results of operations may continue to be significantly harmed in future reporting periods”efficiency. in Part I, Item 1A, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Impact of COVID-19 Pandemic” in Part II, Item 7, and Note 2 of Notes to Consolidated Financial Statements in Part II, Item 8.)
5
IMAX NETWORK
The Company believes the IMAX network is one of the most extensive premium networksnetwork in the world with 1,6501,772 IMAX Theater Systems operating in 8490 countries and territories, including 1,5621,693 commercial multiplex,multiplexes, 12 commercial destinationdestinations and 7667 institutional locations as of December 31, 2020. (See the table below under “IMAX Network and Backlog” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, for additional information on the composition of the IMAX network.)
7
2023. The Company currently believes that over time itsestimates a worldwide commercial multiplex network could grow to approximately 3,318addressable market of 3,619 locations, of which there are 1,693 IMAX theaters worldwide from the 1,562 commercial multiplex IMAX theatersSystems operating as of December 31, 2020.2023, 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 believes that the majority of its future network growth will come from international markets.markets outside of China. As of December 31, 2020, 72.8%2023, 76% of IMAX Theater Systems in operationthe global commercial multiplex network were located within international markets (defined as all countries other than the United States and Canada), an increase from 71.9% as of December 31, 2019, and approximately 86.0% of the new IMAX Theater Systems in backlog are scheduled to be installed in international markets, compared to 85.7% as of December 31, 2019.. Revenues and gross box officeGBO derived from international markets continue to exceed revenues and gross box officeGBO from the United States and Canada. This was especially true during 2020 as
For the pace and extent of the reopening of IMAX theaters in Greater China amidst the COVID-19 global pandemic exceeded that of theaters in Domestic (i.e., United States and Canada) and Rest of World markets. (See “Impact of COVID-19 Pandemic” above.)
Greater China isyear ended December 31, 2023, the Company’s largest market, measured by revenues, with approximately 38% and 31% of overall revenuesrevenue generated from its Greater China (which includes the mainland of the People’s Republic of China, Hong Kong, Macau, and Taiwan) operations represents 25% of consolidated revenue, compared to 24% in 2022 and 44% in 2021. Restrictions resulting from the COVID-19 pandemic significantly impacted operations in the years ended December 31, 2020China in 2022 and 2019, respectively.2023. As of December 31, 2020,2023, the Company had 745 theaters807 IMAX Systems operating in Greater China andwith an additional 238 new theaters (plus 13 upgrades)206 systems in backlog that are scheduled to be installed in Greater China by 2028.backlog. The Company’s backlog in Greater China represents 47.6%46% of its total current backlog, including system upgrades. The Company’s largest single internationalCompany has a partnership is in China with Wanda Film (“Wanda”). Wanda’s total commitment to and as of December 31, 2023, through the Company is for 361Company’s partnership with Wanda, there were 376 IMAX Theater Systems operational in Greater China, (ofof which 347 IMAX 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.
(SeeRefer 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”there”, “– General political, social and economic conditions can affect the Company’s business by reducing both revenues generated from existing IMAX Systems and the demand for new IMAX Systems”, and “– The Company may not convert all of its backlog into revenue and cash flows” in Part I, Item 1A.)
(See “Risk Factors – The Company has experienced a significant decrease in its revenues, earnings and cash flows due to the COVID-19 global pandemic and its business, financial condition and results of operations may continue to be significantly harmed in future reporting periods” in Part I, Item 1A.)
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, and it is also a significant 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:
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These product lines do not fullyThe Company assesses and evaluates the Company’s performance based on the operating results of the Content Solutions and Technology 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 segment information is provided in Part II, Item 7, “Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations”Operations and Note 21 of Notes to the Consolidated Financial Statements in Part II, Item 8.
6
IMAX FILM REMASTERING
IMAX DMR
The Company has developed IMAX DMR,Film Remastering is a proprietary technology that digitally remasters Hollywood films into IMAX formats. 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 which The IMAX Experience is known. In addition, the original soundtrack of a film to be exhibited inacross the IMAX theatersnetwork is remastered for IMAX digital sound systems in connection with the IMAX DMR release of the film. Unlike the soundtracks played in conventional theaters,systems. IMAX remastered soundtracks are uncompressed and full fidelity. IMAX sound systems use proprietary loudspeaker systems and proprietary surround sound configurations that ensure every theater seat in an auditorium is in an optimal listening position.
8
The IMAX DMRFilm Remastering process involves:
• in certain instances, scanning, at the highest possible resolution, each individual frame of the film and converting it into a digital image; • optimizing the image using proprietary image enhancement tools; • enhancing the digital image using techniques such as sharpening, color correction, grain and noise removal and the elimination of unsteadiness and removal of unwanted artifacts; • recording the enhanced digital image into an IMAX digital cinema package format or onto IMAX 15/70-format film; and • specially remastering the soundtrack to take full advantage of the unique sound system of IMAX Systems.
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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”.DNA.” Filmmakers and movie studios have sought IMAX-specific enhancements in recent years to generate interest in and excitement for their films. Such enhancements include shooting films 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 that delivers up to 26% more image onto a moviestandard IMAX screen. Avengers: Endgame, the highest-grossing film in history, released in April 2019, was shot entirely usingIn select IMAX cameras. In 2020, Universal Pictures’ 1917 was released with select scenes specifically formatted for IMAX screens, Warner Bros. Pictures’ Tenet waslocations 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 Warner Bros. Pictures’ bespoke marketing support, which box office metrics demonstrate audiences respond extremely favorably to, and drives higher market share for IMAX.Wonder Woman 1984,
Management believes that growth in international box office remains an important driver of growth for the Company. To support continued growth in international markets, the Company is focused on the expansion of the IMAX network and has sought to bolster its international film strategy, supplementing its slate of Hollywood films with appealing local language films released globally in select markets, including China, Japan, India, and South Korea.
7
The following table provides detailed information about the films that were released to the Company’s global network during the years ended December 2020, was partially shot31, 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 additional 24 titles to be released in China2024:
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 New Empire | 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 Fall Guy | 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 | — |
The Company remains in active negotiations with all major Hollywood studios for additional films to fill out its shortshort- and long-term film slate for the IMAX network. However,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.
8
FILM DISTRIBUTION AND POST-PRODUCTION
The Company continues to believe that the IMAX network serves as a resultvaluable 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 theater closures associatedbox 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 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 COVID-19 global pandemic, Hollywood movie studios have postponedCompany announced that Amazon Studios acquired worldwide rights to the theatrical release of most films originally scheduled for releaseCompany’s original documentary, The Blue Angels, filmed with IMAX digital certified cameras and produced in 2020collaboration with Dolphin Entertainment, Bad Robot Productions, and early 2021, including many scheduledZipper Bros Films. The documentary is expected to be showndelivered 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 theaters, while several other films have beennetwork. 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 directly or concurrentlyin 2025.
In addition, the Company continues to streaming platforms. Accordingly, asevolve 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 filingiconic band Talking Heads at the Toronto International Film Festival, followed by a screening of this report, there remains uncertainty aroundStop Making Sense,before the release datesmovie was released to the IMAX network more broadly. This became the highest grossing IMAX Live event of certain major films.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 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 Theater 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 IMAX 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. As part of the arrangement to sell or lease its IMAX Theater Systems, the Company provides extensive advice on theater planning and design, and supervision of installation services.
The Company’s digital projection systems providesprovide a premium and differentiated experience to moviegoersaudiences that is consistent with what they have come to expect from the IMAX brand, while providing exhibitor 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 IMAX Theater System, as well as the cinema and film distribution markets relevant to the geographic location of the customer.
Revenue from the sale or lease of an IMAX Theater SystemsSystem may be recognized at a different time from when cash is collected from the exhibitor customer. (See “CriticalFurther discussion of the Company’s revenue recognition policies is provided in Critical Accounting Policies and Estimates”Estimates in Part II, Item 7 and Note 20 of Notes2(o) to Consolidated Financial Statements in Part II, Item 88.
9
The following table presents the number of IMAX Systems that are in the network and in backlog, by configuration, as of December 31, 2023 and 2022:
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| December 31, 2023 |
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|
| 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 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 further discussion onits commercial multiplex customers. Beginning in 2021, the Company’s revenue recognition policies.)Company began offering an additional 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
9In 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 and demand for this format.
The following table provides information about the Company’s system backlog by deal type as of December 31, 20202023 and 2019:2022:
|
| 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 |
|
|
|
| December 31, 2020 |
|
|
| December 31, 2019 |
|
| ||||||||||||||||||||||||||||||||
|
| Number of |
|
|
| Dollar Value |
|
|
| Number of |
|
|
| Dollar Value |
|
| ||||||||||||||||||||||||
|
| Systems |
|
|
| (in thousands) |
|
|
| Systems |
|
|
| (in thousands) |
|
| ||||||||||||||||||||||||
|
| New |
|
|
| Upgrade |
|
|
| New |
|
|
| Upgrade |
|
|
| New |
|
|
| Upgrade |
|
|
| New |
|
|
| Upgrade |
|
| ||||||||
Sales and sales-type lease arrangements |
|
| 175 |
|
|
|
| 10 |
|
|
|
| 200,296 |
|
|
| $ | 13,135 |
|
|
|
| 168 |
|
|
|
| 10 |
|
|
|
| 205,574 |
|
|
| $ | 12,874 |
|
|
Hybrid joint revenue sharing arrangements |
|
| 140 |
|
|
|
| 7 |
|
|
|
| 99,911 |
|
|
|
| 5,560 |
|
|
|
| 133 |
|
|
|
| 7 |
|
|
|
| 97,736 |
|
|
|
| 5,560 |
|
|
Traditional joint revenue sharing arrangements |
|
| 115 |
| (1) |
|
| 80 |
| (1) |
|
| 200 |
| (2) |
|
| 5,500 |
| (2) |
|
| 133 |
| (1) |
|
| 80 |
| (1) |
|
| 400 |
| (2) |
|
| 5,800 |
| (2) |
|
|
| 430 |
|
|
|
| 97 |
|
|
|
| 300,407 |
|
|
| $ | 24,195 |
|
|
|
| 434 |
|
|
|
| 97 |
|
|
|
| 303,710 |
|
|
| $ | 24,234 |
|
|
10
|
|
|
|
The number of IMAX Theater Systems in the backlog reflects the minimum number of commitments underfor 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 Theater Systems and the settlement of contracts, both of which reduce backlog. BacklogThe dollar value of backlog typically represents the fixed contracted revenue underaccording to the signed IMAX Theater System sale and lease agreements that the Company believes will be recognizedexpects to recognize as revenue upon installation and acceptance of the associated system, as well as an estimate of variable consideration in sales arrangements, however it excludesarrangements. The value of backlog does not include amounts allocated to maintenance and extended warranty revenues. The value of backlog does not includerevenues or revenue from theatersIMAX Systems in which the Company has an equity interest, operating leases, and long-term conditional theater commitments. Theaters under joint revenue sharing arrangements do not usually have dollar value backlog, although certain IMAX 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 IMAX Theater System installations that are listed in the 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 an 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.
10
(Refer to “Risk Factors ― The following table presents the numberCompany may not convert all of IMAX Theater Systems that are openits backlog into revenue and in backlog, by configuration, as of December 31, 2020 and 2019:cash flows.”)
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. The current backlog information reflects all known elections.
|
| December 31, 2020 |
|
|
| December 31, 2019 |
|
| ||||||||||||||||||
|
| Theater |
|
|
|
|
|
|
|
|
|
|
| Theater |
|
|
|
|
|
|
|
|
|
| ||
|
| Network |
|
| New |
|
| Upgrade |
|
|
| Network |
|
| New |
|
| Upgrade |
|
| ||||||
|
| Base |
|
| Backlog |
|
| Backlog |
|
|
| Base |
|
| Backlog |
|
| Backlog |
|
| ||||||
Flat Screen (2D) |
|
| 4 |
|
|
| — |
|
|
| — |
|
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
Dome Screen (2D) |
|
| 28 |
|
|
| — |
|
|
| — |
|
|
|
| 34 |
|
|
| — |
|
|
| — |
|
|
IMAX 3D Dome (3D) |
|
| 1 |
|
|
| — |
|
|
| — |
|
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
IMAX 3D GT (3D) |
|
| 9 |
|
|
| — |
|
|
| — |
|
|
|
| 10 |
|
|
| — |
|
|
| — |
|
|
IMAX 3D SR (3D) |
|
| 5 |
|
|
| — |
|
|
| — |
|
|
|
| 7 |
|
|
| — |
|
|
| — |
|
|
IMAX Digital: Xenon (3D) |
|
| 1,377 |
|
|
| 273 |
|
|
| — |
|
|
|
| 1,374 |
|
|
| 281 |
|
|
| — |
|
|
IMAX Digital: GT Laser (3D) |
|
| 66 |
|
|
| 9 |
|
|
| 2 |
|
|
|
| 63 |
|
|
| 9 |
|
|
| 5 |
|
|
IMAX Digital: IMAX with Laser (3D) |
|
| 160 |
|
|
| 148 |
|
|
| 95 |
|
|
|
| 130 |
|
|
| 144 |
|
|
| 92 |
|
|
Total |
|
| 1,650 |
|
|
| 430 |
|
|
| 97 |
|
|
|
| 1,624 |
|
|
| 434 |
|
|
| 97 |
|
|
IMAX Flat Screen and MAINTENANCE
IMAX Dome Theater Systems
IMAX flat screen and IMAX dome systems have been installed primarily in institutions such as museums and science centers. Flat screen IMAX theaters were introduced in 1970, while IMAX dome theaters, which are designedSystem arrangements also include a requirement for tilted dome screens, were introduced in 1973. There have been several significant proprietary and patented enhancements to these systems since their introduction. As of December 31, 2020, there were 33 IMAX flat screen and IMAX dome theater systems in the IMAX network, as compared to 40 IMAX flat screen and IMAX dome theater systems as of December 31, 2019. With the introduction of digital IMAX Theater Systems, there has been a decrease in the number of IMAX flat screen and IMAX dome theaters in the network. With the introduction of laser-based digital systems, the Company has been able to create a new Laser Dome solutionprovide maintenance services over the life of the arrangement in exchange for its institutional customers. As of December 31, 2020, the Company had installed six IMAX with Laser Domes, which are included in the table above.
IMAX 3D GTan extended warranty 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 of December 31, 2020, there were 14 IMAX 3D GT and IMAX 3D SR Theater Systems in operation compared to 17 IMAX 3D GT and IMAX 3D SR Theater Systems in operation as of December 31, 2019. The decrease in the number of 3D GT and 3D SR Theater Systems is largely attributable to theater closures during the year.
IMAX Digital: Xenon Theater Systems
The Company believes that its xenon-based digital projection system delivers high quality imagery compared with other xenon systems. As of December 31, 2020, the Company had 1,377 xenon-based digital theater systems in the network and had an additional 273 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 laser projection system designed for IMAX 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 network. As of December 31, 2020, the Company had 66 GT laser-based digital systems as compared to 63 as of December 31, 2019 in the IMAX network. As of December 31, 2020, the Company had 160 IMAX with Laser systems as compared to 130 as of December 31, 2019 in the IMAX network.
IMAX Maintenance
For all IMAX theaters, theater owners or operators are also responsible for paying the Company an annual maintenance and extended warranty fee.fee paid by the 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. (See(Refer to “Maintenance and Extended Warranty Services” below.)
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New Business Initiatives
The New Business Initiatives segmentOTHER PRODUCTS AND SERVICES
Streaming and Consumer Technology
Streaming and Consumer Technology includes activities related to the exploration of new lines of business and new initiatives outside of the Company’s core business, which seek to leverage its proprietary, innovative technologies, its leadership position in the entertainment technology spaceStreaming Technology software offerings and its unique relationship with content creators. Such new business initiatives currently include 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 has developedbelieves that these products allow users to deliver the highest quality viewing experiences to their subscribers while reducing costs.
IMAX Enhanced is a new homesolution to bring The IMAX Experience into the home. IMAX Enhanced provides end-to-end premium technology across streaming content and best-in-class entertainment licensing and certification program called IMAX Enhanced. This initiative was launched along with audio leader DTS (an Xperi subsidiary), capitalizing on the companies’ decadesdevices, offering consumers high-fidelity playback of combined expertise in image and sound science.in the home and beyond, including the following features:
11
To be certified as IMAX Enhanced, brings IMAX digitally re-mastered 4K high dynamic range (HDR) content and DTS audio technologies to premier streaming platforms and best-in-class consumer electronics devices worldwide, offering consumers high-fidelity sight and sound experiences for the home.
To be certified, leading consumer electronics manufacturers spanning 4K/8K televisions, projectors, A/V receivers, loudspeakers, subwooferssoundbars, smartphones, personal computers, tablets, and soundbarsmore must meet a carefully prescribed set of audio and videoaudiovisual performance standards, set by a certification committee, of IMAX and DTS engineers andalong with some of Hollywood’s leading technical specialists.
IMAX EnhancedAt present, certified global device partners include Sony Electronics, Hisense, TCL, LG, Phillips, Hewlett Packard, Xiaomi, Sound United and Honor, among others. By March 2021, IMAX Enhanced will have over six million certified devices in-market. IMAX Enhanced content is now available on six streaming platforms worldwide, with partners that include Sony Pictures Entertainment, Paramount Pictures, Huayi Brothers, Bona Film Group, Tencent Video, iQIYI and FandangoNOW, with more on the way.
Connected Theaters
The Company is currently exploring new technologies and forms of content as a way to deepen consumer engagement and brand loyalty, including new technologies to further connect the IMAX network and to facilitate bringing more unique content, including live events, to IMAX theater audiences. The Company believes such additional connectivity can provide more innovative content to the IMAX network and in turn permit the Company to engage audiences in new ways.
The Company continues to believe that the IMAX network serves as a valuable platform to launch and distribute original content, especially during periods between peak and off-peak seasons, known as "shoulder periods".
Other
Through the Film Distribution segment, the Company licenses film content and distributes large-format documentary films, primarily for its institutional theater partners. The Company receives as its distribution fee either a fixed amount or a fixed percentage of the theater box office receipts and following the Company’s recoupment of its costs the Company typically is entitled to receive an additional percentage of gross revenues as participation revenues. The Company released the IMAX original production, Asteroid Hunters, in October 2020.
The ownership rights to such films may be held by the film sponsors, the film investors and/or the Company. As of December 31, 2020,2023, more than 300 IMAX Enhanced titles have been released across five of the Company has distribution rights with respectbiggest streaming platforms worldwide: Disney+, Sony Bravia CORE, Tencent Video, iQiyi and Rakuten TV. Over 15 million IMAX Enhanced certified devices are estimated to 52 such films, which cover subjects such as space, wildlife, music, sports, history and natural wonders.be in the market today.
ThroughThe 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 Film Post-Production segment,Company’s in-home entertainment footprint to Disney+ and most of its 150 million global subscribers. The Company believes that IMAX Enhanced enables an elevated end-to-end experience on Disney+, with IMAX signature sound coming to subscribers with IMAX Enhanced certified devices. IMAX Enhanced is part of the Company provides film post-productionCompany’s next evolutionary step to extend the IMAX brand and quality control services for large-format films (whether produced by IMAXtechnology further into new use cases, including streaming entertainment and the consumer electronics market.
(Refer to “Risk Factors ― Failure to respond adequately or third parties),in a timely fashion to changes and digital post-production services.advancements in technology could negatively affect the Company’s business.”)
Other
The Company derives a small portion of its revenuesrevenue from other sources including:including one owned and operated IMAX theaterSystem in Sacramento, California; a commercial arrangement with one theater resulting in the sharing of profits and losses; the provision of management services to three other theaters; renting itsthe Company’s proprietary 2D and 3D large-format film and digital cameras to third-party production companies;cameras; and also offering production advice and technical assistance to both documentary and Hollywood filmmakers.
12
MARKETING AND CUSTOMERS
The Company markets IMAX 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 sitessystem locations for the Company on a commission basis.
IMAX 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%. Commercial multiplex theaterssystems are the largest part of the IMAX network, comprising 1,5621,693 IMAX theaters,Systems, or 94.7%96%, of the 1,6501,772 IMAX theatersSystems in the IMAX network as of December 31, 2020.2023. 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 IMAX Theater Systems to commercial destinations such as theme parks, private home theaters, tourist destination sites, fairs, and expositions. As of December 31, 2020,2023, approximately 72.8%75% of all open and operational IMAX theatersSystems were in locations outside of the United States and Canada.
The following table provides detailed information about the IMAX network by system type and geographic location as of December 31, 20202023 and 2019:2022:
|
| 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 |
|
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||||||||||||||||||||||||||
|
| Commercial Multiplex |
|
| Commercial Destination |
|
| Institutional |
|
| Total |
|
| Commercial Multiplex |
|
| Commercial Destination |
|
| Institutional |
|
| Total |
| ||||||||
United States |
|
| 367 |
|
|
| 4 |
|
|
| 30 |
|
|
| 401 |
|
|
| 371 |
|
|
| 4 |
|
|
| 33 |
|
|
| 408 |
|
Canada |
|
| 39 |
|
|
| 1 |
|
|
| 7 |
|
|
| 47 |
|
|
| 39 |
|
|
| 2 |
|
|
| 7 |
|
|
| 48 |
|
Greater China(1) |
|
| 729 |
|
|
| — |
|
|
| 16 |
|
|
| 745 |
|
|
| 702 |
|
|
| — |
|
|
| 15 |
|
|
| 717 |
|
Western Europe |
|
| 115 |
|
|
| 4 |
|
|
| 8 |
|
|
| 127 |
|
|
| 115 |
|
|
| 4 |
|
|
| 10 |
|
|
| 129 |
|
Asia (excluding Greater China) |
|
| 123 |
|
|
| 2 |
|
|
| 2 |
|
|
| 127 |
|
|
| 119 |
|
|
| 2 |
|
|
| 2 |
|
|
| 123 |
|
Russia & the CIS |
|
| 68 |
|
|
| — |
|
|
| — |
|
|
| 68 |
|
|
| 68 |
|
|
| — |
|
|
| — |
|
|
| 68 |
|
Latin America(2) |
|
| 51 |
|
|
| 1 |
|
|
| 11 |
|
|
| 63 |
|
|
| 50 |
|
|
| 1 |
|
|
| 12 |
|
|
| 63 |
|
Rest of the World |
|
| 70 |
|
|
| — |
|
|
| 2 |
|
|
| 72 |
|
|
| 65 |
|
|
| 1 |
|
|
| 2 |
|
|
| 68 |
|
Total(3) |
|
| 1,562 |
|
|
| 12 |
|
|
| 76 |
|
|
| 1,650 |
|
|
| 1,529 |
|
|
| 14 |
|
|
| 81 |
|
|
| 1,624 |
|
12
|
|
|
|
|
|
(For information on revenue breakdown by geographic area, see Note 21 of Notes to Consolidated Financial Statements in Part II, Item 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 there” in Item 1A. The Company’s largest customer, Wanda, as of December 31, 2020, represents 35.1% (2019 ― 33.9%) of the Company’s network of theaters, 19.0% (2019 ― 25.6%) of the Company’s theater system backlog and 16.4% (2019 ― 16.5%) of its revenues.)
INDUSTRY OVERVIEW
Competition
The out-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 similar quality or attributes to an IMAX Theater System. The Company believes that all of these alternative formats deliver images and experiences that are inferior to The IMAX Experience.
13
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 faces in-home competition from a number of alternative motion picturefilm distribution channels such as subscription streaming services, transactional video-on-demand (both rentals and sales), advertiser-supported video-on-demand, pay-per-view, Blu-ray Disc,internet, and broadcast and cable television. During the COVID-19 pandemic, with theaters closed in many global markets, certain movie studios have 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 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. 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 (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 and 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 an IMAX Theater System,, 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.Experience and do not have IMAX's brand trust, filmmaker endorsement, loyal fan base, or global footprint and scale.
Exhibitor Consolidation
The Company’s primary customers are commercial multiplex exhibitors. TheSince 2016, the commercial exhibition industry has undergone significant consolidation, with Wanda’s acquisitions ofincluding AMC Entertainment Holdings Inc.’s (“AMC”) and Hoyts Group in 2012 and 2015, respectively, and AMC’s acquisition of Carmike Cinemas and Odeon & UCI Cinemas Group (“Odeon”), which includes Nordic Cinema Group (“Nordic”), in 2016. In recent years, the industry has continued to consolidate, as evidenced byand Cineworld Group’sGroup plc's (“Cineworld”) acquisition of Regal Entertainment Group (“Regal”), the Company’s second largest customer..
The Company believes that recent exhibitorthe consolidation of the commercial exhibition industry has helped facilitate the growth of the IMAX 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. As larger commercial chains such as AMC and Cineworld have purchased smaller chains, those smaller chains have in turn become part of the IMAX network. For instance, following AMC’s acquisition of Odeon and Nordic, the Company and AMC entered into an agreement for 25 new IMAX Theater Systems across the Odeon and Nordic 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, as well as consolidation in the movie studio industry, may present risks to the Company. (See(Refer to “Risk 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.)
13
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,
The Company has a Filmed for IMAX launched the “Filmedprogram 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 IMAX” program, a new partnership with the world's leading camera manufacturers to meet filmmaker demandresolution appropriate for TheIMAX Experience. Through the program,screens, filmmakers utilize IMAX will certify high-end,70mm film cameras or IMAX-certified best-in-class digital cameras with leading brands including ARRI, Panavision, RED Digital Cinema and Sony to work in the IMAX format whenSony. When this content is paired with itsIMAX’s proprietary post-production process.process, the resulting craftsmanship enthralls fans in 1,700+ IMAX locations around the world.
14
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 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 for The IMAX Experience 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. TheA significant portion of the Company’s research and development efforts have been focused on the IMAX Laser Systems, which the Company rolled out its flagship laser-based projection system at the end of 2014, whichbelieves is capable of illuminating the largest screens in the Company’s network. This 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. In 2018, theThe Company rolled-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 relatedhas continued research and development spending has declined in recent years.aimed at creating more affordable laser-based solutions with various screen sizes for its commercial multiplex customers.
The Company plansintends to continue research and development activity into further evolve its end-to-end technology. This includes bringing connectivity to the future in other areas considered importantCompany’s global network to support live and interactive events worldwide; developing new IMAX film cameras and certifying additional digital cameras; further improving its continued commercial success, includingproprietary 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 costs associated with its projectors; enhancing its image quality; expandingsound quality. Within the applicability of its digital technology in both theaterCompany’s Streaming and home entertainment; developing IMAX Theater Systems’ capabilities, including through its Connected Theaters initiative; and improving its proprietary DMR process. The Company expects itsConsumer Technology business, there is ongoing research and development effortsin perceptual metrics including novel measurement and optimization techniques. Investments are also being made to center around innovation projectsexpand existing and/or develop new technologies which are expected to further enhance video quality, delivery, and DMR enhancementscreation across devices. Furthermore, the Company intends to invest in 2021.activities that will capture opportunities to create/build AI and automation into its operations and processes.
As of December 31, 2020, 452023 and 2022, 86 and 66 of the Company’s employees were connected with research and development projects, compared to 52 employees as of December 31, 2019.respectively.
MANUFACTURING AND SERVICE
Projector Component Manufacturing
The Company assembles the projector of IMAX Theater SystemsSystem projectors at its facility 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 and sub-assemblies is subcontracted to a group of carefully pre-qualified third-party suppliers. Manufacture and supply contracts are signed for the delivery of the component on an order-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 and sub-assemblies, completes the final assembly, and then subjects the projector to comprehensive testing individually and as a system prior to shipment. 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%.
14
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 and sub-assemblies, completes the final assembly, and then subjects the sound system to comprehensive testing as a 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.
15
Maintenance and Extended Warranty Services
The Company also provides ongoing maintenance and extended warranty services to IMAX Theater 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 IMAX Theater Systems.
To support the IMAX network, the Company has personnel stationed in major markets throughout the world who provide periodic and emergency maintenance and extended warranty services on existing IMAX Theater Systems. The Company provides various levels of maintenance and warranty services, which are priced accordingly. Under full-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 provides pre-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 monoscope (2D) source, a process for digitally re-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, laser projection, and video quality assessment. Included in the Company’s patent portfolio are more than 30 patents and patent families acquired from the Eastman Kodak Company covering laser projection technology. TheIn addition, the Company has the exclusive license rights from The Eastman Kodak Company (“Kodak”) to a portfolio ofacquired more than 5015 patent families covering laser projection technology as well as certain exclusive rights to a broad rangein 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 of December 31, 2020,2023, the Company holds 11092 patents, has 1514 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 20212024 and 2038.2041.
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 In IMAX®, The IMAX Experience®, An IMAX Experience®, AnDMR, Filmed For IMAX, 3D Experience®, IMAX DMR®, DMR®,Live, IMAX nXos®Enhanced, and Films To The FullestSSIMWAVE®. These trademarks are widely protected by registration or common law throughout the world.
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HUMAN CAPITAL
The Company believes 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 globallywork environment that unites diverse brand with theteams around its mission to connect the world through extraordinary experiences that inspire us to reimagine what’s possible together. The Company has
To achieve these objectives, the powerCompany’s people and culture strategy focuses on creating a compelling employee brand which attracts top talent to inspire, ignitejoin the Company; engaging its employee base to maximize overall performance and involveenhance 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 teams, customersbusiness; and partners across the 1,650 IMAX Theater Systems incontinuing 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.focus on employee safety.
As of December 31, 2020,2023, the Company had 622 full-time employees,employed 697 people, of whom 142 employeeswhich approximately 69% were basedemployed outside of North America.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:
Total RewardsRecruiting Talent
The Company believes 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 have a total rewards mindset that encompasses all that is providedimplement technologies and solutions to its employees insupport human capital management strategies and processes while supporting talent management for creative projects as it stays connected to the formvision, foundation, and core 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.the Company.
16Engaging Employees
AsDuring 2023, the Company continuescreated a comprehensive talent management plan to evolve as an organization, it continues to modernizefoster greater employee retention, engagement, and inclusivity. The plan includes incorporating the Company’s values of collaboration, belonging, and excellence in its total rewardsculture into talent management by rolling out development programs to deliverbuild manager and driveleader 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 betterhigh-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 experienceengagement survey to gather feedback and adequately reflectinsights 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, multigenerational and talentedmulti-generational workforce.
The structure of the Company’s total rewards programsTotal Rewards Program balances base compensation, incentive compensation for both short-term and long-term performance, and a focus on total well-being. 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
The Company’s culture is defined by its core values of Inspire, Ignite, and Involve andIn 2023, the Company is committedcontinued its commitment to Diversitydiversity, equity, and Inclusion (“D&I”),inclusion. The Company engaged its executive sponsorship committee to revise its DE&I strategy, which focuses on the Company views asfollowing areas:
As of December 31, 2023, women represented approximately 35% of the Company’s focus with respect to D&I is to attract, retain, and engage a talented, inclusive and respectedglobal workforce. The Company currently has assembled a D&I councilthree female directors (30%) and two directors who identify as ethnically diverse (20%) on its Board of employees across levels, tenure and demographic background to assist the Company in executing theDirectors (the “Board”). There are four key pillars of its global D&I strategy:
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Employee Health and Safety
Recognizing the various employee heath and safety risks associated with the delivery(25%) female members of the world’s most immersive movie-going experience,Company’s management team of 16 as well as four (25%) members of the Company has implemented a global program for workplace safety that ensures it has the necessary controls in place to strive to keep its employees and visitors safe.Company’s management team who identify as ethnically diverse.
Employee heath and safety at the Company is a shared responsibility that requires continuous effort. Safety
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 serviceservicing of the Company’s theatersIMAX 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 at each IMAX location, workplace, business unit and department is responsible for participating in workplace safety planning activities, and managers are responsible for employee health and safety program implementation forwithin their business function. This effort is supported by a cross-functional Heath and Safety team dedicated to employee health and safety and business continuity.
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This relentless focus and commitment to the health and safety of the Company’s employees was never more evident than in the Company’s approach to COVID-19. Specifically, the Company:
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AVAILABLE INFORMATION
The Company makes available, free of charge, its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 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”).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 at 212-821-0100.212-821-0154. No information included on the Company'sCompany’s website shall be deemed included or otherwise incorporated into this Form 10-K, except where expressly indicated.
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Item 1A. Risk Factors
Before you make an investment decision with respect to the Company’s common stock,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“Forward Looking Statements,"” any of which could have a material adverse effect on the Company’s business, results of operations, financial condition and 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 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 that the Company currently deems immaterial or that are currently unknown to the Company may also impair its business or operations.
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RISKS RELATED TO THE COMPANY’S BUSINESS AND OPERATIONS
General political, social and economic conditions can affect the Company’s business by reducing both revenues generated from existing IMAX Systems and the demand for new IMAX Systems.
The Company has experienced a significant decreaseCompany’s success depends in its revenues, earnings,part on general political, social and cash flows dueeconomic conditions and the willingness of consumers to purchase tickets to the COVID-19 global pandemic and itsIMAX auditoriums. If movie-going becomes less popular globally, the Company’s business financial condition and results of operations may continue tocould be significantly harmed in future reporting periods.
In late January 2020, in response to the public health risks associated with COVID-19, the Chinese government directed exhibitors in China to temporarily close more than 70,000 movie theaters, including all of the approximately 700 IMAX theaters in mainland China. On March 11, 2020, due to the worsening public health crisis associated with the novel coronavirus, COVID-19 was characterized asadversely affected, especially if such a pandemic by the World Health Organization, and in the following weeks, local, state and national governments instituted stay-at-home orders and restrictions on large public gatherings which caused movie theaters in countries around the world to temporarily close, including substantially all of the IMAX theaters in those countries. As a result of the 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. More recently, stay-at-home orders have been lifted in many countries and movie theaters throughout the IMAX network gradually reopened in the third quarter of 2020 with reduced capacities, physical distancing requirements, and other safety measures. As of December 31, 2020, 71% of the theaters in the IMAX commercial multiplex network were open, spanning 41 countries. This included 44% of the theaters in Domestic (i.e., United States and Canada) locations, 97% of the theatersdecline occurs in Greater China and 53% of the theaters in Rest of World markets. However, ticket sales have been significantly lower than normal levels in theaters outside of Asia as Hollywood movie studios have further delayed the theatrical release date for a number of films. As a result, certain theater chains have remained closed or have reduced their operating hours. In addition, theaters in major markets remain temporarily closed.
The repercussions of the COVID-19 global pandemic resulted in a significant decrease in the Company’s revenues, earnings, and operating cash flows in 2020 due to a decline in the box office related revenues from its joint revenue sharing arrangements and digital remastering services, delays in the installation of certain theater systems and the suspension of maintenance services for theaters that were closed. While there continues to be a lack of new films released by movie studios and a significant number of theaters in the IMAX network are closed, the Company is experiencing a significant decline in earnings and operating cash flows as it is generating significantly lower than normal levels of GBO-based revenue from its joint revenue sharing arrangements and digital remastering services, it is unable to provide normal maintenance services to any of the theaters that remain closed, and while some installation activity is continuing, certain theater system installations have, and may continue to be delayed. Moreover, given theChina. There remains uncertainty around whether and when movie-going will return to historicalpre-COVID levels in various markets and there iscan be no guaranteeassurance that the impacts of the COVID-19 global pandemic on the Company will end even after some or all theaters are reopened. In addition, the global economic impact of COVID-19 has resultedreduction in record levels of unemploymentmovie-going does not represent a permanent change in certain countries, which has led to, and may continue to result in, lower consumer spending.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 ability to generate significant GBO-based revenue until consumer behavior normalizes and consumer spending recovers.
In response to uncertainties associated with the COVID-19 global pandemic, the Company has taken and is continuing to take significant steps to preserve cashfrom GBO generated by eliminating non-essential costs, placing certain employees on a temporary furlough, reducing the working hours of other employees and reducing all non-essential capital expenditures to minimum levels. The Company has also implemented an active cash management process, which, among other things, requires senior management approval of all outgoing payments. In addition, in the first quarter of 2020, the Company drew down $280.0 million in remaining available borrowing capacity under its credit facility, which was then amended in June 2020 to, among other things,suspend the Senior Secured Net Leverage Ratio financial covenant in the underlying credit agreement through the first quarter of 2021 and substitute quarterly EBITDA from the third and fourth quarters of 2019 in lieu of the EBITDA for the corresponding quarters of 2020 to meet the original Senior Secured Net Leverage Ratio financial covenant.
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As of December 31, 2020, the Company was in compliance with all of its requirements under the Credit Agreement, as amended. The Company’s continued compliance with the requirements of the Credit Agreement will depend on the Company’s ability to generate sufficient EBITDA to ensure compliance with the Senior Secured Net Leverage Ratio covenant throughout the next twelve months, which is dependent on the timing of when theaters in the IMAX network resume normal operations. The risk of breaching this covenant within the next twelve months increases significantly as the ongoing COVID-19 pandemic continues to adversely impact the Company’s ability to generate EBITDA. A violation of this covenant would represent an event of default under the terms of the Credit Agreement, allowing lenders to declare the principal and interest on all outstanding Credit Facility indebtedness due or payable immediately. If a breach of the Senior Secured Net Leverage Ratio covenant were to occur, however, management believes the Company would be able to either reduce a sufficient portion of the drawn amount on the Credit Facility with existing cash balances to achieve compliance, obtain additional sources of liquidity prior to the time when the repayment of its outstanding Credit Facility indebtedness would be required, or negotiate a further amendment with its lenders to the Credit Agreement to provide further covenant relief.
The Company has applied for 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 can, however, be no guarantees that the steps the Company has taken and continues to take to preserve cash and manage its expenditures will result in the cost savings the Company anticipates. There can also be no guarantees that any wage subsidies, tax credits and other financial support or any other governmental benefits and support for which the Company is eligible will materialize in the amounts expected. The Company cannot predict the manner in which such benefits will be allocated or administered, and the Company cannot guarantee that it will be able to access such benefits in a timely manner or at all. Certain of the benefits the Company seeks to access or may apply for in the future have not previously been administered on the present scale or at all. Any benefits the Company expects to receive, or may apply for in the future, may not be at the same levels as currently estimated, may impose additional conditions and restrictions on the Company’s operations or may otherwise provide less relief than currently contemplated. There can be no guarantees that the Company will receive any additional material financial support through these or other programs that may be created, expanded, or implemented by governments in the countries in which the Company operates.
In addition, the Company has experienced and is likely to continue to experience delays in collecting payments due under existing theater sale or lease arrangements from its exhibitor partners who are facing financial difficulties as a result of the theater closures. Certain of the Company’s exhibitor partners that had reopened theaters have temporarily suspended operations of their theater networkcustomers in certain jurisdictions and other exhibitor partners have reduced their theaters’ operating hours, which may exacerbate existing financial difficulties. Other exhibitor partners in the future may make similar decisions to close all or part of their global theater networks or to reduce their operating hours if the COVID-19 pandemic continues and Hollywood movie studios continue to delay the release of new films, or for other reasons, which would further increase the risks associated with payments under existing agreements with the Company. The ability of such partners to make payments cannot be guaranteed and is subject to changing economic circumstances. Such theater closures and other challenges in the theatrical industry may force some of the Company’s exhibitor partners into bankruptcy proceedings. In such cases, local laws governing restructurings would apply, and there can be no guarantees of the Company’s success in obtaining complete or partial payments owed to it by the applicable exhibitor partners. Further, the Company has had to delay movie theater installations from backlog and may be required to further delay or cancel such installations in the future. As a result, the Company’s future revenues and cash flows may be adversely affected.
Given 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 such adverse impact of the COVID-19 global pandemic on the Company’s financial condition, liquidity, business and results of operations in future reporting periods. The extent and duration of such impact on the Company will depend on future developments, including, but not limited to, the timing of reopening of movie theaters worldwide and their return to historical levels of attendance, the timing of when new films are released, consumer behavior and general economic conditions, the solvency of the Company’s exhibitor partners, their ability to make timely payments and any potential construction or installation delays involving our exhibitor partners. Such events are highly uncertain and cannot be accurately forecast. Moreover, there can be no guarantees that the Company’s liquidity needs will not increase materially over the course of this pandemic. In addition, liquidity needs as well as other changes to the Company’s business and operations may impact the Company’s ability to maintain compliance with certain covenants under the amended Credit Agreement. 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 number of underlying variables and a range of possible outcomes. Actual results may differ materially from management’s estimates, especially due to the 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 future 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 deferred tax assets, as well as the recoverability of joint revenue sharing equipment and the realization of variable consideration assets, could also be materially impacted by changes in estimates in the future.
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The COVID-19 pandemic and public health measures implemented to contain it may also have the effect of heightening many of the other risks described in this Form 10-K, including, but not limited to, risks relating to harm to our 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 plan and pursue certain opportunities, potential impairments, the effectiveness of our internal control of financial reporting, cybersecurity and data privacy risks due to employees working from home, and risks of increased indebtedness due to the full draw down of the Credit Facility, including the Company’s ability to seek waivers of covenants or to refinance such borrowings, among others. 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 be.
General political, social and economic conditions can affect the Company’s business by reducing both revenues 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, the Company’s business could be adversely affected, especially if such a decline occurs in Greater China.various markets. 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. In recent years, thedownturn or recession, sustained inflationary conditions, high interest rates, supply chain issues, or otherwise. Such adverse impact on consumer’s discretionary income could result in a shift in consumer demand away from movie-going. The majority of the Company’s revenue has beenis directly derived from the box office revenuesresults of its films.exhibitor partners. Accordingly, a decline in attendance at commercial IMAX theaterslocations could materially and adversely affect several sources of key revenue streams for the Company. Sustained inflationary pressures observed globally could materially increase the cost of our goods, services and personnel, which could cause an increase in the Company's operating costs.
The Company also depends on the sale, lease and leaseinstallation of IMAX Theater Systems to commercial movietheatrical exhibitors to generate revenue. Commercial movietheatrical 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.Systems. In addition, a significant portion of theaterssystems in the Company’s backlog are expected to be installed in newly built multiplexes. An economic downturn, recession, significant increases in interest rates or other adverse economic developments could 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.network and collects its contractual revenue.
The success of the IMAX 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 network is the availability and strategic selection of films for IMAX theaterslocations 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 usingformat. In 2023, 95 new IMAX DMR technology. In 2020, 31 IMAX DMR films were released by studios to the worldwide IMAXCompany’s global network. There is no guarantee that filmmakers and studios will continue to release films to the IMAX network, or that the films selected for release to the IMAX network will be commercially successful.
The Company is directly impacted by the commercial success and box office results of the films released to the IMAX network through its joint revenue sharing arrangements, as well as through the percentage 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 sharesharing arrangements and to sell IMAX Theater 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 IMAXCompany’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, 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, to supply 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.
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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 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.
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 part on 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 members of the Company’s senior management team could adversely affect its ability to effectively pursue its business strategy.
The Company is undertaking new lines of businessbrand extensions and these new business initiatives, and the Company’s investments and efforts in such business evolution may not be successful.
The Company is undertaking brand extensions and new lines of business.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 fieldsfield of original content and in-home entertainment technology, both of which areis an intensely competitive businessesbusiness and which areis 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 theater audiences.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 equity investments,assets, by the distraction of management from its core business or by damage to its brand or reputation.
In addition, these
New initiatives maycould involve acquisitions or the formation of joint ventures and business alliances. WhileFor example, in September 2022, the Company seeks to employ the optimal structure for each such business alliance, the allianceacquired SSIMWAVE. Such transactions and arrangements involve significant challenges and risks, including that they may require a high level of cooperation with and reliance onnot advance the Company’s partners and there is a possibilitylong-term business strategy, that the Company may haverealizes 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, technological management, productand development, that the Company fails to identify or anticipate risks and liabilities of acquired companies in advance of acquisition, or that management strategies or otherwise. Any such disagreementgets distracted from the Company’s core business. Also, it may causetake longer than expected to realize the joint venture or business alliance to be terminated.
The Company may not realize cost savings or otherfull benefits from any of its restructuring initiativesthese transactions and arrangements such as increased revenue or enhanced efficiencies, or the failure to do sobenefits may have an adverse impact on its business, financial condition, or results of operations.
In connection with the ongoing analysis and evaluation of its business operations,ultimately be smaller than the Company has implemented, and may from time to time implement, initiatives that it believes will position the Company for future success and long-term sustainable growth, including the elimination of certain business ventures, consolidation of properties, staff reductions and the realignment of resources. Although the Company expects its restructuring initiatives to result in cost savings aimed at increasing efficiency, profitability, operating leverage and free cash flow, there can be no assurances that these benefits will be realized to the extent projected. Some of these initiatives may also result in unintended consequences, such as additional employee attrition, business disruptions and distraction of management. If the Company does not achieve projected savings as a result 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.expected.
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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 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. 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. 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, and thereby could result in obtaining the confidential or proprietary information of the Company or its customers, employees, licensees, and suppliers.Becausebusiness. 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 breachattack 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, otherconfidential or proprietary information of the Company or the personal information ofits 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 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 Consumer 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.
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:
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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.
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 significant portion of the GBO generated by the Company’s revenuesexhibitor customers and gross box officeits revenues are generated by customers located outside the United States and Canada. Approximately 77%64%, 66%62%, and 66%70% of the Company’s revenues were derived outside of the United States and Canada in 2020, 20192023, 2022 and 2018,2021, respectively. As of December 31, 2020,2023, approximately 74.8%78% of IMAX Theater Systems in backlog are scheduled to be installed in international markets. The Company’s network spanned 8490 different countries as of December 31, 2020,2023, 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:
• new restrictions on access to markets, both for IMAX Systems and films; • unusual or burdensome foreign laws or regulatory requirements or unexpected changes to those laws or requirements, including censorship of content that may restrict what films the Company’s network can present; • fluctuations in the value of various foreign currencies versus the U.S. Dollar and potential currency devaluations; • new tariffs, trade protection measures, import or export licensing requirements, trade embargoes, sanctions, and other trade barriers; • difficulties in obtaining competitively priced key commodities, raw materials, and component parts from various international sources that are needed to manufacture quality products on a timely basis; • imposition of foreign exchange controls in foreign jurisdictions; • dependence on foreign distributors and their sales channels; • reliance on local partners, including in connection with joint revenue sharing arrangements; • difficulties in staffing and managing foreign operations; • inability to complete installations of IMAX Systems, including as a result of material disruptions or delays in the Company’s supply chains, or collect full payment on installations thereof; • local business practices that can present challenges to compliance with applicable anti-corruption and bribery laws; • difficulties in establishing market-appropriate pricing; • less accurate and/or less reliable box office reporting; • adverse changes in foreign government monetary and/or tax policies, and/or difficulties in repatriating cash from foreign jurisdictions (including with respect to China, where approval of the State Administration of Foreign Exchange is required); • poor recognition of intellectual property rights; • difficulties in enforcing contractual rights; • economic conditions in foreign markets, including inflation; 20 • public health concerns, including pandemics or epidemics, and regulations in response thereto, which could adversely affect the Company’s and its customers' operations; • requirements to provide performance bonds and letters of credit to international customers to secure system component deliveries; • harm to the IMAX brand from operating in countries with records of controversial government action, including human rights abuses; and • political, economic and social instability, which could result in adverse consequences for the Company’s interests in different regions of the world. 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 and results of operations in affected regions. In addition, in 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 force majeure event under their system agreements, resulting in the suspension of the Company’s obligations thereunder. Given the uncertainty as to the scope, intensity, duration and outcome of geopolitical conflicts, it is difficult to predict the full extent of the adverse impact of geopolitical conflicts on the Company’s business and results 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 the conflict, or jeopardize critical infrastructure in jurisdictions where the Company operates. |
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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. 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 theatersIMAX 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 market by revenue, with approximately 38%25% of overall revenues generated from its Greater China operations in 2020.2023. As of December 31, 2020,2023, the Company had 745 theaters807 IMAX Systems operating in Greater China with an additional 251 theaters206 systems in backlog, which represent 47.6%46% of the Company’s current backlog and which are scheduled to be installed in Greater China by 2028.backlog. Of the IMAX Systems currently scheduled to be installed in Greater China, 65.3%71% are under 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. AdverseThe 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.
Moreover, certainCertain 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 conducted by it 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 cannot provide assurance that the Chinese government will continue to permit the release of Hollywood IMAX films in China or that the timing, number or numberperformance 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, 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 Company may experience adverse effects due to exchange rate fluctuations.
A substantial portion of the Company’s revenues are denominated in U.S. Dollars, while a substantial portion of its expenses are denominated in Canadian 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, 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, 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 generate box office revenue in 8490 different countries, unfavorable exchange rates between applicable local currencies and the U.S. Dollar could affect the GBO generated by exhibitors and the Company’s reported gross box office and revenues, further impacting the Company’s results of operations.
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RISK RELATED TO THE COMPANY’S INDUSTRY AND COMPETITIVE ENVIRONMENT
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.
The Company’s primary customers are commercial multiplex exhibitors. TheSince 2016, the commercial exhibition industry has undergone significant consolidation, with Wanda’s acquisitions of AMC and Hoyts Group in 2012 and 2015, respectively, andincluding AMC’s acquisition of Carmike Cinemas and Odeon, & UCI Cinemas Group, which includes Nordic Cinema Group, in 2016. In recent years, the industry has continued to consolidate, as evidenced by Cineworld Group’sand Cineworld’s acquisition of Regal Entertainment Group in 2018.Regal. Exhibitor concentration has resulted in certain exhibitor chains constituting a material portion of the Company’s network and revenue. For instance, Wanda and AMC continue to beis the Company’s largest exhibitor customer, representing approximately 16.4%, 16.5% and 17.1%10% of the Company’s total revenues in 2020, 2019 and 2018, respectively. Wanda’s current commitment to2023. As of December 31, 2023, through the Company stands at 361Company’s partnership with Wanda, there were 376 IMAX Theater Systems operational in Greater China and Wanda and AMC together represented approximately 35.1%21% of the commercial network and 19.0%4% of the Company’s backlog as of December 31, 2020.backlog. The share of the Company’s revenue that is generated by Wanda and AMC is expected to continue to grow as the number of Wanda theater systems currentlyIMAX Systems in backlog with Wanda are opened. No assurance can be given that significant customers such as Wanda and/or AMC will continue to purchase IMAX Theater 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 either Wanda and/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.
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The Company also receives revenues from studios releasing IMAX DMR 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 DMRIMAX Film Remastering revenue, and could expose the Company to the same risks described above in connection with exhibitor consolidation.
RISKS RELATED TO THE COMPANY’S COMPETITVE ENVIRONMENT
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 that 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. In recent years, 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 2018efforts 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 and roll-out ofhelp bring additional interactivity to its global IMAX with Laser projection system, which is targeted primarily for screens in commercial multiplexes.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.
26Furthermore, 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 out-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 of December 31, 2020, there were approximately 43,800 conventional-sized screens in North American multiplexes.competitive. The Company faces competition both in the form of technological 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 recent years, for instance,addition, 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 System. The Company may continue to face competition in the future fromcompetes with entertainment and media 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 those of the Company, theThe Company may be unable to continue to produce theater systems or provide experiences which are premium to, or differentiated from, other theater systems.systems or entertainment experiences, respectively. Furthermore, many of the Company’s commercial exhibitor customers are reliant on the availability of retail shopping malls at physical locations, which compete with other forms of retailing such as online retail websites, and may be adversely affected by the changes in the retail shopping landscape and consumer purchasing pattern. In return, the Company may be adversely affected by the 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, pay-per-view, streaming services, video-on-demand, Blu-ray Disc, Internet and syndicatedinternet, 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 this release window, which is determined by the movie studios, will not shrink further which could have an adverse impact on the Company’s business 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 at the same timeday as being released in theaters or instead of being released in theaters, andto theaters. Most major film studios have since recommitted to exclusive theatrical releases for blockbuster movies. However, there can be no assurance that this practice will end once movie theaters reopen. Should this practice continue, in-home competition withdirect or concurrent release to streaming services will further intensify.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 be unwilling to pay the price premiums associated with the cost of IMAX theater tickets and box office performance of IMAX films may decline. DecliningThe declining box-office performance of IMAX films could materially and adversely harm the Company’s business 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 Systems 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 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 projection system components expire between 20212024 and 2038. 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. In addition, if any of the Company’s registered or unregistered trademarks, trade names or service marks is challenged, infringed, circumvented, declared generic or determined to be infringing on other marks, it could have an adverse effect on the Company’s sales or market position.
27The 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 Theater System installations and GBO 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:
• the timing of signing and installation of new IMAX Systems (particularly for installations in newly-built multiplexes, which can result in delays that are beyond the Company’s control); • the timing and commercial success of films distributed to the Company’s network; • the demand for, and acceptance of, the Company’s products and services; • the recognition of revenue of sale and sales-type leases; • the classification of leases as sales-type versus operating; • the volume of orders received and that can be filled in the period; • the level of its sales backlog; • the signing of film distribution agreements; • the financial performance of IMAX Systems operated by the Company’s customers; • financial difficulties faced by customers, particularly customers in the commercial exhibition industry; • the magnitude and timing of spending in relation to the Company’s research and development efforts and related investments, as well as new business initiatives, and success thereof; and • the number and timing of joint revenue sharing arrangement installations, related capital expenditures, and timing of related cash receipts.
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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 DMRFilm Remastering revenue, which would harm operating results for a particular period, although the results of any particular period are not necessarily indicative of the Company’s results for any other period.
The Company’s theater systemsystems revenue can vary significantly from its cash flows under IMAX Theater System sales or lease agreements.
The Company’s theater systemsystems revenue can vary significantly from the associated cash flows. The Company often provides financing to customers for IMAX Theater Systems on a long-term basis through long-term sale or lease arrangements. The terms of leases or notes receivablefinancing receivables are typically 10 to 12 years. The sale and lease-typesales-type lease agreements for IMAX Theater 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 Theater System sales or sales-type lease agreements for a theater arrangement.
For salessale 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 and salespayments. 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 Theater 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 collectibilitycollectability 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.
AtAs of December 31, 2020,2023, the Company’s backlog included 527450 IMAX Theater Systems, consisting of 185164 IMAX Theater Systems under sales or lease arrangements and 342286 IMAX Theater Systems under joint revenue sharing arrangements. The Company lists signed contracts for IMAX Theater 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 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 IMAX 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 IMAX Theater 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 Theater Systems, especially in places such as Greater China that represent a large portion of the Company’s backlog.Systems. 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 do in the past under certain circumstances. Customer-requested delays in the installation of IMAX Theater 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 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.
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The Company may be subject to further impairment losses on its film 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 a title-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 may be subject to impairment losses on its 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 IMAX Theater 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.
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 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 “Critical Accounting Policies and Estimates” in Item 7.)27
RISKS RELATED TO THE COMPANY’S COMMON STOCKSHARES
The market price for the Company’s stock pricecommon shares has historically been volatile and declines in market price, including as a result of 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,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 U.S.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 U.S.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 U.S.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 U.S.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.
28
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.
29
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 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. More information is provided in Critical Accounting 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
30
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 use third-party programs and software and engage assessors, consultants, cybersecurity auditors, or other third parties to review, test, and advise on improvements to the Company’s cybersecurity infrastructure.
Role of the Board of Directors
The Audit Committee oversees the Company’s risk management and assessment, including its mitigation strategies, and updates the entire 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 Information Security updates the Audit Committee on at least an annual basis on matters such as external cybersecurity threats and attack trends; updates to threat monitoring processes; the composition of the Company’s information security team; cybersecurity awareness training and testing; cybersecurity strategy; cybersecurity metrics, and assessments the progress of cybersecurity programs; and the potential scope and impact of cybersecurity risks and incidents on the Company’s operations and financial 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 Board 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 of corporate security policies and governance problems.
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Item 2. Properties
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, | |||||
| 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 |
| |||
Shanghai, China | Sales, Marketing, Maintenance Services, and Administrative | Lease |
| |||
| Sales, Marketing, Administrative, and Research and Development | Lease | 2024 | |||
Dublin, Ireland | Sales, Marketing, Administrative, and Research and Development | Lease | 2026 | |||
| Sales | Lease |
| |||
|
|
|
|
|
|
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
SeeRefer to Note 16 of Notes to Consolidated Financial Statements in Part II, Item 8.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
The Company’s common shares are traded on the NYSE under the symbol “IMAX”.
As of January 31, 2021,2024, the Company had approximately 223231 registered holders of record of its 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 14 of Notes to Consolidated Financial Statements in Part II, Item 8 and “Liquidity and Capital Resources” in Part II, Item 7)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 Board of Directors.Board.
In 2020, theThe Company expanded its share-based compensation program to include the issuancegrants two types of performance sharestock units (“PSUs”PSU”). Performance share units vest only if, one which vests based on a combination of employee service and the achievement of certain profitabilityAdjusted EBITDA targets, and marketone 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 are achieved at the end ofin these PSUs is determined over a three-year performance period. The amount of compensation expense recognized for such performance-based share awards is dependent upon an assessmentAt the conclusion of the likelihood of achieving these defined future profitability or market targets at the end of thethree-year performance period. These assessments could result in a change toperiod, the number of PSUs that will ultimately vest as comparedcan range from 0% to a maximum vesting opportunity of 175% of the units granted.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 of December 31, 2020:2023:
|
| (A) |
|
| Weighted Average |
|
| Number of Securities |
| ||||
Plan Category |
|
|
|
|
|
|
|
|
| ||||
Equity compensation plans approved by security holders |
|
| 5,538,873 |
|
| $ |
| 15.77 |
|
|
| 4,895,941 |
|
Equity compensation plans not approved by security holders |
| nil |
|
|
| nil |
|
| nil |
| |||
Total(1) |
|
| 5,538,873 |
|
| $ |
| 15.77 |
|
|
| 4,895,941 |
|
|
| 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)) |
| ||||
Plan Category |
| (a) |
|
| (b) |
|
| (c) |
| ||||
Equity compensation plans approved by security holders |
|
| 6,819,644 |
|
| $ |
| 19.23 |
|
|
| 7,436,333 |
|
Equity compensation plans not approved by security holders |
| nil |
|
|
| nil |
|
| nil |
| |||
Total |
|
| 6,819,644 |
|
| $ |
| 19.23 |
|
|
| 7,436,333 |
|
34
32
Performance Graph
The following graph compares the total cumulative shareholder return for $100 invested on December 31, 20132018 (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 Ambarella, Inc., Avid Technologies, Inc., Cinemark Holdings, Inc., Cineplex Inc., Dolby Laboratories, Inc., Glu MobileHarmonic Inc., Harmonic Inc.,Knowles Corporation, Lions Gate Entertainment Corp., The Marcus Corporation, TiVo Corporation, World Wrestling Entertainment, Inc., and Zynga Inc.WildBrain Ltd. The performance period includes the COVID-19 pandemic, which significantly impacted the out-of-home entertainment industry. The impact of the pandemic on the Company’s operations are discussed elsewhere herein.
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Issuer Purchases of Equity Securities
InOn June 12, 2017, the Company’sCompany announced that the Board of Directors approved a new $200.0 million share repurchase program for shares of the Company’sits common stockshares that 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 June 2020,2023, the Company’s Board of Directors approved a 12-month36-month extension of thisto its share repurchase program which will now expire onthrough June 30, 2021.2026. 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. During the three months ended December 31, 2020, the Company did not repurchase any shares under this program. In 2020,2023, the Company repurchased 2,484,123 (2019 ― 134,384)1,459,948 common shares at an average price of $14.72$16.55 per share, (2019 ― $19.76for a total of $24.2 million, excluding commissions, of which 108,393 were common shares where settlement occurred subsequent to December 31, 2023, at an average price of $14.98 per share),share, for a total of $1.6 million, excluding commissions. commission.
As of December 31, 2020,2023 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 has $89.4completed repurchases through 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, available under its approvedexcluding commission.
The Company’s common share repurchase program.program activity for the three 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 |
|
|
|
|
|
33
In 2019,2022, IMAX China announced that itsChina’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 in an amount not to exceed 10% of the total number of issued shares of IMAX China as of June 6, 2019 (35,605,56023, 2022 (34,063,480 shares). This program expired on the date of the 20202023 Annual General Meeting of IMAX China on June 11, 2020.7, 2023. During the 20202023 Annual General Meeting, shareholders approved the repurchase of shares of IMAX China not to exceed 10% of the total number of issued shares as of June 11, 2020 (34,848,3987, 2023 (33,959,314 shares). This program will be valid until the 20212024 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, 2020, IMAX China did not repurchase any shares under this program. In 2020,2023, IMAX China repurchased 906,400 (2019 ― 8,051,500)16,800 common shares at an average price of HKD $13.137.11 per share (U.S. $1.69($0.91 per share) (2019 ―for a total of HKD $18.63 per share; U.S. $2.38 per share).0.1 million or less than $0.1 million.
The total number of shares purchased during
For the yearyears ended December 31, 2020, under both the Company2023 and IMAX China’s repurchase plans, does not include any2022, there were no shares purchasedpurchases 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, a United States corporation, or an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source (a “U.S. Holder”). This discussion does not address 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 or value 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 foreign-source 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 to non-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 current and accumulated earnings and profitspermitted share repurchases, is provided in Note 14 to Consolidated Financial Statements in Part II, Item 8.
Issuer Sales of the Company will be treated first as a non-taxable return of capitalUnregistered Securities
Refer to the extent of the U.S. Holder’s tax basisNote 17(c) to Consolidated Financial Statements 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.
Disposition of Common Shares
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 of non-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. A U.S. Holder’s gain or loss will generally be treated as U.S.-source income or loss for foreign tax credit purposes.
Canadian Federal Income Tax Considerations
This summary is applicable to a holder or prospective purchaser of common shares who, for the purposes of the Income 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.
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This summary is based on the current provisions of the Income 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.Part II, Item 8.
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 the Canada - U.S. Income Tax Convention (1980), as amended (the “Canada - U.S. Income Tax Treaty”), the withholding tax rate is reduced to 15.0% for a holder who is entitled to the benefits of the Canada - U.S. Income Tax Treaty and who is the beneficial owner of the dividends (or to 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 the Income 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 the Income Tax Act (Canada), the common shares may be deemed to be taxable Canadian property. Under the Canada - U.S. Income Tax Treaty, a holder who is 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.
Item 6. Selected Financial Data
Reserved.
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36
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
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.
IMAX is one of the world’s leadinga premier global technology platform for entertainment technology companies, specializing in technological innovations powering the presentation of some of today’s most immersive entertainment experiences.and events. Through its proprietary software, theaterauditorium architecture, patented intellectual property, and specialized equipment, IMAX offers a unique end-to-end cinematic solution to create the highest quality, mostsuperior, awe-inspiring immersive motion picture and other entertainment eventcontent experiences for which the IMAX® brand has become known globally.is globally renowned. Top filmmakers, and movie studios, artists, and creators utilize the cutting-edge visual and sound technology of IMAX to connect with audiences in innovative ways, and, asways. As a result, IMAX’s networkIMAX is among the most important and successful global distribution platforms for majorplatforms. The Company’s global content portfolio includes blockbuster films, both from Hollywood and otherlocal language film industries worldwide; IMAX documentaries, both original and acquired (“IMAX Documentaries”); and IMAX events around the world.and experiences in emerging verticals including music, gaming, and sports.
The Company leverages its innovativeproprietary technology and engineering in all aspects of its core business, which principally consists of the digitalIMAX film remastering of films(“IMAX Film Remastering” and other presentations into the IMAX format (“IMAXformerly known as “IMAX DMR”) and the sale or lease of premium IMAX theater systems (“IMAX Theater Systems”System(s)”).
IMAX Theater Systems are based on proprietary and patented image, audio and other technology developed over the course of the Company’s 53-year history.history since its founding in 1967. The Company’s customers for IMAX Systems 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 theaterslocations in the IMAX network, except for one, and is not an exhibitor, but instead sells or leases the IMAX Theater System to exhibitor customers along with a license to use its trademarks.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, 2020,2023, there were 1,6501,772 IMAX Theater Systems operating in 8490 countries and territories, including 1,5621,693 commercial multiplexes, 12 commercial destinations, and 7667 institutional locations.locations in the Company’s global network. This compares to 1,6241,716 IMAX Theater Systems operating in 8187 countries and territories as of December 31, 20192022, including 1,5291,633 commercial multiplexes, 1412 commercial destinations, and 8171 institutional locations. (Seelocations in the table below under “IMAX Network and Backlog” for additionalCompany’s global network. Additional information on the composition of the IMAX network.)network is provided in the discussion of IMAX Network and Backlog.
The IMAX Theater System providesSystems provide the Company’s exhibitor customers with a combination of the following benefits:
• the ability to exhibit content that has been enhanced through the IMAX Film Remastering, which results in higher image and sound fidelity than conventional cinema experiences; • advanced, high-resolution projectors with specialized equipment and automated theater control systems, which generate significantly more contrast and brightness than conventional theater systems; • large screens and proprietary auditorium geometry, which result in a substantially larger field of view so that the screen extends to the edge of a viewer’s peripheral vision and creates more realistic images; • advanced sound system components, which deliver more expansive sound imagery and pinpointed origination of sound to any specific spot in an auditorium equipped with an IMAX System; • specialized theater acoustics, which result in a four-fold reduction in background noise; • ongoing maintenance and extended warranty services; and • a license to the globally recognized IMAX brand as well as benefits from IMAX marketing of films being shown in its network and IMAX’s growing social media followership.
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In addition, certainselect movies shown in the IMAX theatersnetwork are filmed using proprietary IMAX film andcameras or IMAX certified digital cameras, which offer filmmakers customized guidance and a workflow process to provide further enhanced and differentiated image quality and aan 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.
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Together, these components cause audiences in IMAX theaterslocations to feel as if they are a part of the on-screen action, creating a more intense, immersive, and exciting experience than a traditional theater.conventional cinematic format.
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As a result of the engineering and scientific achievements that are a hallmark of TheIMAX Experience®, 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 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.
As oneThe Company achieved 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 world’s leadersGalaxy 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, 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.
As a premier global technology platform for entertainment technology,and events, the Company strives to remain at the forefront of advancements in cinema technology. In 2018, the Company introduced IMAX with Laser, a laser projection system designed for IMAX theaters in commercial multiplexes, which represents a further evolution of IMAX’s proprietaryentertainment technology. The Company believes that offers a suite of laser-based digital projection systems (“IMAX with Laser deliversSystems”), which deliver increased resolution, sharper and brighter images, deeper contrast, as well asand the widest range of colors available to filmmakers today. The Company further believes that its suite of IMAX with Laser isSystems are helping facilitate the next major lease 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® products and services.
The Company utilizes AI for image enhancement, streaming technology, and data analysis to improve various aspects of its business. It is also experimenting with new technologiesactively exploring other global use cases for AI to improve its products, operations, and new content as a way to deepen consumer engagement and brand loyalty, which includes curating unique, differentiated alternative content to be exhibitedefficiency.
Commencing in IMAX theaters, particularly during those periods when Hollywood blockbuster film content is not available.
IMPACT OF COVID-19 PANDEMIC
In late January 2020,March 2022, in response to the public health risks associated with COVID-19, the Chinese government directed exhibitors in China to temporarily close more than 70,000 movie theaters, including all of the approximately 700 IMAX theaters in mainland China. On March 11, 2020, due to the worsening public health crisis associated with the novel coronavirus, COVID-19 was characterized as a pandemicnumerous sanctions imposed by the World Health Organization,United States, Canada and the European Union on companies transacting in Russia and Belarus resulting from ongoing conflict between Russia and Ukraine, the following weeks, local, stateCompany suspended its operations in Russia and national governments instituted stay-at-home orders and restrictions on large public gatherings which caused movie theaters in countries around the world to temporarily close, including substantially all of the IMAX theaters in those countries. As a result of the 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. More recently, stay-at-home orders have been lifted in many countries and movie theaters throughout the IMAX network gradually reopened in the third quarter of 2020 with reduced capacities, physical distancing requirements, and other safety measures.Belarus. As of December 31, 2020, 71% of the theaters in the IMAX commercial multiplex network were open, spanning 41 countries. This included 44% of the theaters in Domestic (i.e., United States and Canada) locations, 97% of the theaters in Greater China and 53% of the theaters in Rest of World markets. In many parts of Asia, audiences have returned to theaters, particularly IMAX theaters, in numbers consistent with pre-pandemic attendance levels despite the continued delay of Hollywood theatrical releases, which typically account for 70% of box office ticket sales in those regions. Management believes this indicates that moviegoers are eager to return to cinemas where and when theaters are open and moviegoers feel safe. However, ticket sales have been significantly lower than normal levels in theaters outside of Asia as Hollywood movie studios have further delayed the theatrical release dates for a number of films. As a result, certain theater chains have remained closed or have reduced their operating hours. In addition, theaters in major markets remain temporarily closed.
The repercussions of the COVID-19 global pandemic resulted in a significant decrease in the Company’s revenues, earnings and operating cash flows in 2020 as gross box office (“GBO”) results from the Company’s theater customers declined significantly, the installation of certain theater systems was delayed, and maintenance services were generally suspended for theaters that were closed. While there continues to be a lack of new films released by movie studios and a significant number of theaters in2023, the IMAX network are closed,includes 54 systems in Russia, eight systems in Ukraine, and one system in Belarus, and the Company’s 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 is experiencing a significant decline in earnings and operating cash flows as it is generating significantly lower than normal levels of GBO-based revenue from its joint revenue sharing arrangements and digital remastering services, it is unable to provide normal maintenance services to any of the theaters that remain closed, and while some installation activity is continuing, certain theater system installations have, and may continue to be delayed. In addition, the Company has experienced and is likely to continue to experience delays in collecting payments due under existing theater sale or lease arrangements from its exhibitor customers who are facing financial difficulties as a result of the theater closures. In response, the Company has provided temporary relief to exhibitor customers by waiving or reducing maintenance fees during periods when theaters are closed or operating with reduced capacities and, in certain situations, by providing extended payment terms on annual minimum payment obligations in exchangerecorded provisions for a corresponding or longer extension of the term of the underlying sale or lease arrangement. In 2020, the Company increased its provision for current expectedpotential credit losses by $18.6 million, in part reflecting a reduction in the credit qualityagainst substantially all of its theater related accounts receivable, financing receivables and variable consideration receivables, which management believes is primarily related to the COVID-19 pandemic and adequately addresses the risk of not collecting these receivables in full.
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Management is encouraged by recent box office results in markets like China, Japan and South Korea where the virus is under control and audiences have demonstrated a willingness to return to cinema. However, the Company may continue to be significantly impacted by the COVID-19 global pandemic even after a significant portion or all theaters are reopened. The global economic impact of COVID-19 has led to record levels of unemployment in certain countries, which has led to, and may continue to result in lower consumer spending. The timing and extent of a recovery of consumer behavior and willingness to spend discretionary income on movie-going may delay the Company’s ability to generate significant GBO-based revenue until consumer behavior normalizes and consumer spending recovers.
In responseRussia due to uncertainties associated with the COVID-19 global pandemic,ongoing conflict. These receivables relate to existing sale agreements as the Company has taken and is continuingnot party to take significant steps to preserve cash by eliminating non-essential costs, placing certain employees on a temporary furlough, reducing the working hours of other employees and reducing all non-essential capital expenditures to minimum levels.
The Company has also implemented an active cash management process, which, among other things, requires senior management approval of all outgoing payments. In addition, in the first quarter of 2020, the Company drew down $280.0 million in remaining available borrowing capacity under the Credit Facility provided by its Credit Agreement with Wells Fargo Bank, National Association (both as defined in “Liquidity and Capital Resources”), which was then amended in June 2020 to, among other things,suspend the Senior Secured Net Leverage Ratio financial covenant in the Credit Agreement through the first quarter of 2021 and substitute quarterly EBITDA from the third and fourth quarters of 2019 in lieu of the EBITDA for the corresponding quarters of 2020 to meet the original Senior Secured Net Leverage Ratio financial covenant.
As of December 31, 2020, the Company was in compliance with all of its requirements under the Credit Agreement, as amended. The Company’s continued compliance with the requirements of the Credit Agreement will depend on the Company’s ability to generate sufficient EBITDA to ensure compliance with the Senior Secured Net Leverage Ratio covenant throughout the next twelve months, which is dependent on the timing of when theaters in the IMAX network resume normal operations. The risk of breaching this covenant within the next twelve months increases significantly as the ongoing COVID-19 pandemic continues to adversely impact the Company’s ability to generate EBITDA. A violation of this covenant would represent an event of default under the terms of the Credit Agreement, allowing lenders to declare the principal and interest on all outstanding Credit Facility indebtedness due or payable immediately. If a breach of the Senior Secured Net Leverage Ratio covenant were to occur, however, management believes the Company would be able to either reduce a sufficient portion of the drawn amount on the Credit Facility with existing cash balances to achieve compliance, obtain additional sources of liquidity prior to the time when the repayment of its outstanding Credit Facility indebtedness would be required, or negotiate a further amendment with its lenders to the Credit Agreement to provide further covenant relief.
The Company has 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. During 2020, the Company recognized $6.4 million in benefits from the Canada Emergency Wage Subsidy (“CEWS”) program and $0.7 million in benefits from the U.S. CARES Act, as reductions to Selling, General and Administrative Expenses ($6.0 million), Costs and Expenses Applicable to Revenues ($1.0 million) and Research and Development ($0.1 million) in the Consolidated Statements of Operations. The CEWS program has been extended to June 2021. The Company will continue to review and apply for additional subsidies and credits for the remaining terms of these programs, where applicable.
In the fourth quarter of 2020, the Company performed its annual goodwill impairment test considering the latest available information and determined that its goodwill was not impaired. As of December 31, 2020, the Company’s total Goodwill was $39.0 million, of which $19.1 million relates to the IMAX Systems reporting unit, $13.5 million relates to the Joint Revenue Sharing Arrangement reporting unit, and $6.4 million relates to the IMAX Maintenance reporting unit. The impairment test was performed on a reporting unit level by comparing each unit’s carrying value, including goodwill, to its fair value. The carrying value of each reporting unit is based on a systematic and rational allocation of certain assets and liabilities. The fair value of each reporting unit is assessed using a discounted cash flow 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 are derived based on the Company’s estimated weighted average cost of capital. These estimates and the likelihood of future changes in these estimates depend on a number of underlying variables and a range of possible outcomes. Actual results may materially differ from management’s estimates, especially due to the uncertainties associated with the COVID-19 pandemic.
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In the fourth quarter of 2020, the Company also updated its recoverability tests of the carrying values of the theater system equipment supporting itsany joint revenue sharing arrangements which are recorded within Property, Plant and Equipment. In performing its reviews of recoverability, the Company estimated the undiscounted future cash flows expected to result from the use of the assets. The cash flow estimates used in these tests are consistent with management’s estimated long-term projections, against which various sensitivity analysescountries. In addition, exhibitors in Russia, Ukraine, and Belarus were performed. These estimates are highly uncertainplaced on nonaccrual status for maintenance revenue and finance income. In 2023, due to the COVID-19 global pandemic; therefore, management’s estimated cash flows factorresumption of operations throughout Ukraine’s theatrical exhibition industry, as evidenced by the reopening of all IMAX Systems in a number of underlying variablesUkraine and ranges of possible cash flow scenarios. Actual results may materially differpayments received from management’s estimates, especially due to the uncertainties associated with the COVID-19 pandemic. For the year ended December 31, 2020,exhibitor customers therein, the Company recorded impairment losses of $0.3 million relatedrecognized 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 the theater system equipment supporting“Risk Factors — The Company conducts business internationally, which exposes it to uncertainties and risks that could negatively affect its joint revenue sharing arrangements. (See Note 3 of Notes to Consolidated Financial Statements in Part II, Item 8.)
In the third quarter of 2020, the Company assessed the recoverability of its deferred tax assets and recorded a $23.7 million valuation allowance to reduce the value of deferred tax assets. The valuation allowance was recorded in the jurisdictions where management could not reliably forecast that future tax liabilities would arise within the next five years, primarily due to the uncertainties around the long-term impact of the COVID-19 global pandemic. In the fourth quarter of 2020, the Company increased the valuation allowance against its deferred tax assets by $4.9 million due to additional losses recorded in the period. The valuation allowance is expected to reverse when the Company determines it is more likely than not that the deferred tax assets in these jurisdictions will be realized. Despite this valuation allowance, the Company remains entitled to benefit from the tax attributes which currently have a valuation allowance applied to them.
If business conditions deteriorate further, or should they remain depressed for a more prolonged period of time, management’s estimates of operating resultsoperations, sales, and future cash flows for the IMAX Systems and Joint Revenue Sharing Arrangements reporting units may be insufficient to support the goodwill assigned to them, thus requiring impairment charges. The Company will continue to evaluate the recoverability of goodwill at the reporting unit level on an annual basis and whenever events or changes in circumstances indicate there may be a potential impairment. In addition, estimates related to future expected credit losses and the recoverability of deferred tax assets, as well as the recoverability of joint revenue sharing equipment assets and the realization of variable consideration assets, could also be further impacted by changes in management’s estimates. (see Notes 3, 5 and 12 of Notes to Consolidated Financial Statements in Part II, Item 8).
(See “Risk Factors – The Company has experienced a significant decrease in its revenues, earnings and cash flows due to the COVID-19 global pandemic and its business, financial condition and results of operations may continue to be significantly harmed in future reporting periods” growth prospects.” in Part I, Item 1A, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Impact of COVID-19 Pandemic” and Note 2 of Notes2(b) to Consolidated Financial Statements in Part II, Item 8.)
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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.
SOURCES OF REVENUE
For the purposes of MD&A theThe Company has organized its reportableoperating segments into the following four categories: (i) IMAX Technology Network; (ii) IMAX Technology Sales and Maintenance; (iii) New Business Initiatives; and (iv) Film Distribution and Post-Production. Within these four categories are the Company’s followingtwo 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 DMR; (ii) Joint Revenue Sharing Arrangements; (iii) IMAX Systems; (iv) IMAX Maintenance; (v) Other Theater Business; (vi) New Business Initiatives; (vii) Film Distribution; and (viii) Film Post-Production. InSystems. The Company’s activities that do not meet the first quarter of 2020, the Company updated certain financial statement line descriptions (with no changecriteria to be considered a reportable segment are disclosed within All Other. Additional information is provided in Note 21 to the classification of amounts) within Revenues and Costs and Expenses Applicable to RevenuesConsolidated Financial Statements in its Consolidated Statements of Operations to better describe the nature of its revenue-generating activities and related costs.Part II, Item 8.
IMAX Technology NetworkContent Solutions
The IMAX Technology Network categoryContent Solutions segment earns revenue based on contingent box office receiptsprincipally from the digital remastering of films and includesother content into IMAX formats for distribution across the IMAX DMRnetwork. To a lesser extent, the Content Solutions segment and contingent rentalso earns revenue from the Joint Revenue Sharing Arrangement (“JRSA”) segment,distribution of large-format documentary films and IMAX events and experiences including music, gaming, and sports, as described in more detail below.well as the provision of film post-production services.
Film Remastering and Distribution
IMAX DMR
The Company has developed IMAX DMR,Film Remastering is a proprietary technology that digitally remasters Hollywood films and other content into IMAX formats.formats for distribution across the IMAX network. In a typical IMAX DMR film remastering and distribution arrangement, the Company receives a percentage of the box office receipts from a movie studio in exchange for converting a commercial film into the IMAX DMR format and distributing it throughacross the IMAX network. In recent years,The fee earned by the percentageCompany in a typical film remastering and distribution arrangement averages approximately 12.5% of gross box office receipts earned in IMAX DMR arrangements has averaged approximately 12.5%(i.e., GBO less applicable sales taxes), except for within Greater China, where the Company receives a lower percentage of net box office receipts for certain Hollywood films.films due to an import tax.
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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 which The IMAX Experience is known. In addition, the original soundtrack of a film to be exhibited inacross the IMAX theatersnetwork is remastered for IMAX digital sound systems in connection with the IMAX DMR release of the film. Unlike the soundtracks played in conventional theaters,systems. IMAX remastered soundtracks are uncompressed andfor full fidelity. IMAX sound systems use proprietary loudspeaker systems and proprietary surround sound configurations that ensure every theater seat in an auditorium 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”.DNA.” Filmmakers and movie studios have sought IMAX-specific enhancements in recent years to generate interest in and excitement for their films. Such enhancements include shooting films 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 that delivers up to 26% more image onto a standard IMAX movie screen. Avengers: Endgame, the highest-grossing film in history, released in April 2019, was shot entirely usingIn select IMAX cameras. In 2020, Universal Pictures’ 1917 was released with select scenes specifically formatted for IMAX screens, Warner Bros. Pictures’ Tenet waslocations worldwide, movies filmed with IMAX cameras and Warner Bros. Pictures’ Wonder Woman 1984, released globally in December 2020, was partially shot with IMAX cameras. In addition, Bona Film’s The Rescue, which was released in China in December 2020, hashave an expandedIMAX-exclusive 1.43 film aspect ratio, that is exclusivedelivering up to IMAX.
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 growth in international box office remains an important driver of growth for the Company. 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, particularly in China. During 2019, 18including China, Japan, India, France and South Korea. More recently, the Company has further diversified its strategy by distributing local language IMAX DMR films in both native and foreign markets.
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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:
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| For the Years Ended December 31, |
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| 2023 |
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| 2022 |
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Hollywood film releases(1) |
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| 36 |
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| 32 |
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Local language film releases: |
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China |
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| 28 |
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| 15 |
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Japan |
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| 11 |
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| 8 |
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South Korea |
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| 9 |
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| 5 |
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India |
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| 8 |
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| 6 |
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France |
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| 1 |
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| 1 |
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Malaysia |
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| 1 |
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| — |
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Thailand |
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| 1 |
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| — |
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Indonesia |
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| — |
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| 1 |
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Total local language film releases |
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| 59 |
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| 36 |
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Total film releases(2)(3) |
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| 95 |
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| 68 |
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The films distributed 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 network, including 14 in Chinathree re-releases, and one in each of Japan, South Korea, India and Russia. The blockbuster Ne Zha: The IMAX Experience was released in China in July 2019 and it is the Company’s first Chinese animated local language film title. During 2020, 17 local language IMAX DMR films were released intoCompany has announced the IMAX network, including ten in China, three in Russia, three in Japan, and one in South Korea. The Company expects to announcefollowing additional local language IMAX DMR films24 titles to be released in 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 New Empire | 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 Fall Guy | 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 | — |
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The Company remains in active negotiations with all major Hollywood studios for additional films to fill out its shortshort- and long-term film slate for the IMAX network. However,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 resultvaluable 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 closures associatedbusiness 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 COVID-19 global pandemic, Hollywood movie studios have postponedCompany. The Company has the theatrical releaseright 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 most films originally scheduled for release in 2020factors, including the number and early 2021, including many scheduled to be shown inmix of IMAX theaters, while several other films have been released directlySystem configurations sold or concurrently to streaming platforms. Accordingly, asleased, the timing of installation of the filingIMAX Systems, the nature of this report, there remains uncertainty around the release dates of certain major films.arrangement and other factors specific to individual contracts.
Joint Revenue Sharing Arrangements – Contingent Rent
The JRSA segmentCompany provides IMAX Theater Systems to exhibitors through joint revenue sharing arrangements.arrangements (“JRSA”). Under the traditional form of these arrangements, IMAXthe Company provides the IMAX projection and sound systemSystem under a long-term lease in which the Company assumes the majority of the equipment 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 fee or fixed annual minimum payments. Rental payments from the customer are required throughout the term of the arrangement and are typically due either monthly or quarterly. The Company retains title to the IMAX Theater System equipment components throughout the lease term, and the equipment is returned to the Company at the conclusion of the arrangement.
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 installation of the IMAX Theater System in an amount that is typically half of what the Company would receive from a typical sale transaction. As with a traditional joint revenue sharing arrangement, the customer also pays the Company a percentage of contingent box office receipts over the term of the arrangement, although this percentage is typically half that of a traditional joint revenue sharing arrangement. For hybridHybrid joint revenue sharing arrangements that take the form of a lease, the contingent rent is reported within the IMAX Technology Network, while thesale. The fixed upfront payment is recognized when the lease term commences and is recorded within Revenues – Technology Sales. The contingent rent is recognized as revenue over the lease term and is recorded within IMAXRevenues – Technology Sales and Maintenance, as discussed below. For hybrid joint revenue sharing arrangements that take the form of a sale, see the discussion below under IMAX Technology Sales and Maintenance. Rentals.
Under most joint revenue sharing arrangements (both traditional and hybrid), the initial non-cancellable term 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 for non-payment or other defaults by the customer. The contracts are non-cancellable by the customer unless the Company fails to perform its obligations.
40
The revenue earned from customers under the Company’s joint revenue sharing arrangements can 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 theater systemIMAX System configurations, the timing of installation of these IMAX Theater 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 Technology Sales and Maintenance, as discussed below.
The introduction of jointJoint revenue sharing arrangements hashave 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 Systems 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 of December 31, 2020,2023, the Company had 890 theaters in operation924 locations under joint revenue sharing arrangements a 2.3% increase as compared to the 870 theaters in operationits global commercial multiplex network. The Company also had contracts in backlog for 286 systems under joint revenue sharing arrangements as of December 31, 2019. The Company also had contracts in backlog for 342 theaters under joint revenue sharing arrangements as of December 31, 2020,2023, including 87234 new locations and 52 upgrades to existing theater locations and 255 new theater locations.
IMAX Technology Sales and Maintenance
The IMAX Technology Sales and Maintenance category earns revenue principally from the sale or sale-type lease of IMAX Theater Systems, as well as from the maintenance of IMAX Theater Systems. To a lesser extent, the IMAX Technology Sales and Maintenance category earns revenue from certain ancillary theater business activities and revenues from hybrid joint revenue sharing arrangements. These activities are described in more detail below under each of their respective segments.
IMAX Systems
The IMAX Systems segment provides IMAX Theater 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 Theater 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 theater. Initial fees are paid to the Company in installments between the time of signing the arrangement 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. Finance income is recognized over the term of a financed sale or sales-type lease arrangement. In addition, in sale arrangements, an estimate of the 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.
In sale arrangements, title to the IMAX Theater 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 Theater 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 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 IMAX Theater Systems, the nature of the arrangement and other factors specific to individual contracts.
Joint Revenue Sharing Arrangements – Fixed Fees
Under certain joint revenue sharing arrangements, known as hybrid arrangements, the customer is responsible for making fixed 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 typical sale transaction. For hybrid joint revenue sharing arrangements that take the form of a lease, the contingent rent is reported within the IMAX Technology Network, as discussed above, while the fixed upfront payment is reported within IMAX Technology Sales and Maintenance.
41
IMAX Maintenance
For all IMAX theaters, theater owners or operators areSystem arrangements also responsibleinclude a requirement for paying the Company to provide maintenance services over the life of the arrangement in exchange for an extended warranty and annual maintenance and extended warranty fee.fee paid by the 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 Business
The Other Theater Business segment principallyStreaming and Consumer Technology
Streaming and Consumer Technology includes after-market sales of IMAX projection system parts and 3D glasses.
New Business Initiatives
The New Business Initiatives segment includes activities related to the exploration of new lines of business and new initiatives outside of the Company’s core business, which seek to leverage its proprietary, innovative technologies, its leadership position in the entertainment technology spaceStreaming Technology software offerings and its unique relationship with content creators. Such new business initiatives currently include 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 has developedbelieves that these products allow users to deliver the highest quality viewing experiences to their subscribers while reducing costs.
IMAX Enhanced is a new homesolution to bring The IMAX Experience into the home. IMAX Enhanced provides end-to-end premium technology across streaming content and best-in-class entertainment licensing and certification program called IMAX Enhanced. This initiative was launched along with audio leader DTS (an Xperi subsidiary), capitalizing on the companies’ decadesdevices, offering consumers high-fidelity playback of combined expertise in image and sound science.in the home and beyond, including the following features:
To be certified as IMAX Enhanced, brings IMAX digitally re-mastered 4K high dynamic range (HDR) content and DTS audio technologies to premier streaming platforms and best-in-class consumer electronics devices worldwide, offering consumers high-fidelity sight and sound experiences for the home.
To be certified, leading consumer electronics manufacturers spanning 4K/8K televisions, projectors, A/V receivers, loudspeakers, subwooferssoundbars, smartphones, personal computers, tablets, and soundbarsmore must meet a carefully prescribed set of audio and videoaudiovisual performance standards, set by a certification committee, of IMAX and DTS engineers andalong with some of Hollywood’sHollywood's leading technical specialists.specialist.
IMAX EnhancedAt present, certified global device partners include Sony Electronics, Hisense, TCL, LG, Phillips, Hewlett Packard, Xiaomi, Sound United and Honor, among others. By March 2021,As of December 31, 2023, more than 300 IMAX Enhanced willtitles have over sixbeen released across five of the biggest streaming platforms worldwide: Disney+, Sony Bravia CORE, Tencent Video, iQiyi and Rakuten TV. Over 15 million IMAX Enhanced certified devices in-market.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 content is now available on six streaming platforms worldwide, with partners that include Sony Pictures Entertainment, Paramount Pictures, Huayi Brothers, Bona Film Group, Tencent Video, iQIYIDisney+ provides strong brand exposure for IMAX by expanding the Company’s in-home entertainment footprint to Disney+ and FandangoNOW, with more on the way.
Connected Theaters
The Company is currently exploring new technologies and formsmost of content as a way to deepen consumer engagement and brand loyalty, including new technologies to further connect the IMAX network and to facilitate bringing more unique content, including live events, to IMAX theater audiences.its 150 million global subscribers. The Company believes such additional connectivity can provide more innovative contentthat IMAX Enhanced enables an elevated end-to-end experience on Disney+, with IMAX signature sound coming to subscribers with IMAX Enhanced certified devices. IMAX Enhanced is part of the Company's next evolutionary step to extend the IMAX networkbrand 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 turn permit the Companya timely fashion to engage audienceschanges and advancements in new ways.
The Company continues to believe that the IMAX network serves as a valuable platform to launch and distribute original content, especially during periods between peak and off-peak seasons, known as "shoulder periods".
Film Distribution and Post-Production
Through the Film Distribution segment, the Company licenses film content and distributes large-format films, primarily for its institutional theater partners. The Company receives as its distribution fee either a fixed amount or a fixed percentage of the theater box office receipts and followingtechnology could negatively affect the Company’s recoupmentbusiness.”)
Other
All Other also includes revenues from sources including one owned and operated IMAX System in Sacramento, California; a commercial arrangement with one theater resulting in the sharing of its costsprofits and losses; the Company typically is entitledprovision of management services to receive an additional percentage of gross revenues as participation revenues. The Company releasedthree other theaters; renting the IMAX originalCompany’s proprietary 2D and 3D large-format film cameras; and also offering production Asteroid Hunters, in October 2020.
The Film Post-Production segment provides film post-productionadvice and quality control services for large-format films (whether produced by IMAX or third parties),technical assistance to both documentary and digital post-production services.Hollywood filmmakers.
4243
IMAX NETWORK AND BACKLOG
IMAX Network
The following table provides detailed information about the IMAX network by system type and geographic location as of December 31, 20202023 and 2019:2022:
|
| 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 |
|
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||||||||||||||||||||||||||
|
| Commercial Multiplex |
|
| Commercial Destination |
|
| Institutional |
|
| Total |
|
| Commercial Multiplex |
|
| Commercial Destination |
|
| Institutional |
|
| Total |
| ||||||||
United States |
|
| 367 |
|
|
| 4 |
|
|
| 30 |
|
|
| 401 |
|
|
| 371 |
|
|
| 4 |
|
|
| 33 |
|
|
| 408 |
|
Canada |
|
| 39 |
|
|
| 1 |
|
|
| 7 |
|
|
| 47 |
|
|
| 39 |
|
|
| 2 |
|
|
| 7 |
|
|
| 48 |
|
Greater China(1) |
|
| 729 |
|
|
| — |
|
|
| 16 |
|
|
| 745 |
|
|
| 702 |
|
|
| — |
|
|
| 15 |
|
|
| 717 |
|
Western Europe |
|
| 115 |
|
|
| 4 |
|
|
| 8 |
|
|
| 127 |
|
|
| 115 |
|
|
| 4 |
|
|
| 10 |
|
|
| 129 |
|
Asia (excluding Greater China) |
|
| 123 |
|
|
| 2 |
|
|
| 2 |
|
|
| 127 |
|
|
| 119 |
|
|
| 2 |
|
|
| 2 |
|
|
| 123 |
|
Russia & the CIS |
|
| 68 |
|
|
| — |
|
|
| — |
|
|
| 68 |
|
|
| 68 |
|
|
| — |
|
|
| — |
|
|
| 68 |
|
Latin America(2) |
|
| 51 |
|
|
| 1 |
|
|
| 11 |
|
|
| 63 |
|
|
| 50 |
|
|
| 1 |
|
|
| 12 |
|
|
| 63 |
|
Rest of the World |
|
| 70 |
|
|
| — |
|
|
| 2 |
|
|
| 72 |
|
|
| 65 |
|
|
| 1 |
|
|
| 2 |
|
|
| 68 |
|
Total(3) |
|
| 1,562 |
|
|
| 12 |
|
|
| 76 |
|
|
| 1,650 |
|
|
| 1,529 |
|
|
| 14 |
|
|
| 81 |
|
|
| 1,624 |
|
|
|
|
|
|
|
The CompanyIMAX currently believes that over time itsestimates a worldwide commercial multiplex network could grow to approximately 3,318addressable market of 3,619 locations, of which there are 1,693 IMAX theaters worldwide from the 1,562Systems operating as of December 31, 2020.2023, representing a market penetration of only 46.8%. The Company believes that the majority of its future growth will come from international markets. As of December 31, 2020, 72.8%2023, 76% of IMAX Theater Systems in operation were located within international markets (defined as all countries other than the United States and Canada), an increase from 71.9% as of December 31, 2019. (2022 ― 74%). Revenues and gross box officeGBO derived from international markets continue to exceed revenues and gross box officeGBO from the United States and Canada. This was especially true during 2020 as
For the pace and extent ofyear ended December 31, 2023, the reopening of IMAX theaters in Greater China amidst the COVID-19 global pandemic exceeded that of theaters in Domestic (i.e., United States and Canada) and Rest of World markets. (See “Impact of COVID-19 Pandemic” above.) Risks associated with 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 Part I, Item 1A.
Greater China is the Company’s largest market, measured by revenues, with approximately 38% and 31% of overall revenues generated from its Greater China operations represents 25% of consolidated revenue, compared to 24% in 2022 and 44% in 2021. Restrictions resulting from the years ended December 31, 2020COVID-19 pandemic significantly impacted operations in China in 2022 and 2019, respectively.2023. As of December 31, 2020,2023, the Company had 745 theaters807 IMAX Systems operating in Greater China with an additional 251 theaters206 systems in backlog that are scheduled to be installed by 2028.backlog. The Company’s backlog in Greater China represents 47.6%46% of its total current backlog, including system upgrades. The Company’s largest single international partnership is in China with Wanda Film (“Wanda”). Wanda’s total commitment to the Company is for 361 IMAX Theater Systems in Greater China (of which 347 IMAX Theater Systems are under the parties’ joint revenue sharing arrangement).
(See “Risk Factors – The Company faces risks in connection with its significant presence in China and the continued expansion of its business there” and “Risk Factors – 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” in Part I, Item 1A.)
(See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Impact of COVID-19 Pandemic” and “Risk Factors – The Company has experienced a significant decrease in its revenues, earnings and cash flows due to the COVID-19 global pandemic and its business, financial condition and results of operations may continue to be significantly harmed in future reporting periods” in Part I, Item 1A.)
43
The following tables provide detailed information about the Commercial Multiplex theaterscommercial multiplex locations in operation within the IMAX network by arrangement type and geographic location as of December 31, 20202023 and 2019:2022:
|
| December 31, 2023 |
| |||||||||||||
|
| Commercial Multiplex Locations in IMAX Network |
| |||||||||||||
|
| Traditional |
|
| Hybrid |
|
| Sales Arrangements(1) |
|
| Total |
| ||||
Domestic Total (United States & Canada) |
|
| 272 |
|
|
| 6 |
|
|
| 127 |
|
|
| 405 |
|
International: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Greater China |
|
| 410 |
|
|
| 109 |
|
|
| 272 |
|
|
| 791 |
|
Asia (excluding Greater China) |
|
| 44 |
|
|
| 8 |
|
|
| 114 |
|
|
| 166 |
|
Western Europe |
|
| 41 |
|
|
| 15 |
|
|
| 70 |
|
|
| 126 |
|
Latin America |
|
| 2 |
|
|
| — |
|
|
| 58 |
|
|
| 60 |
|
Rest of the World |
|
| 17 |
|
|
| — |
|
|
| 128 |
|
|
| 145 |
|
International Total |
|
| 514 |
|
|
| 132 |
|
|
| 642 |
|
|
| 1,288 |
|
Worldwide Total(2) |
|
| 786 |
|
|
| 138 |
|
|
| 769 |
|
|
| 1,693 |
|
|
| December 31, 2020 |
| |||||||||||||
|
| Commercial Multiplex Theaters in IMAX Network |
| |||||||||||||
|
| Traditional JRSA |
|
| Hybrid JRSA |
|
| Sale / Sales- type Lease |
|
| Total |
| ||||
Domestic Total (United States & Canada) |
|
| 276 |
|
|
| 5 |
|
|
| 125 |
|
|
| 406 |
|
International: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater China |
|
| 376 |
|
|
| 106 |
|
|
| 247 |
|
|
| 729 |
|
Asia (excluding Greater China) |
|
| 33 |
|
|
| 2 |
|
|
| 88 |
|
|
| 123 |
|
Western Europe |
|
| 48 |
|
|
| 27 |
|
|
| 40 |
|
|
| 115 |
|
Russia & the CIS |
|
| — |
|
|
| — |
|
|
| 68 |
|
|
| 68 |
|
Latin America |
|
| 1 |
|
|
| — |
|
|
| 50 |
|
|
| 51 |
|
Rest of the World |
|
| 16 |
|
|
| — |
|
|
| 54 |
|
|
| 70 |
|
International Total |
|
| 474 |
|
|
| 135 |
|
|
| 547 |
|
|
| 1,156 |
|
Worldwide Total(1) |
|
| 750 |
|
|
| 140 |
|
|
| 672 |
|
|
| 1,562 |
|
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 |
|
|
| December 31, 2019 |
| |||||||||||||
|
| Commercial Multiplex Theaters in IMAX Network |
| |||||||||||||
|
| Traditional JRSA |
|
| Hybrid JRSA |
|
| Sale / Sales- type Lease |
|
| Total |
| ||||
Domestic Total (United States & Canada) |
|
| 277 |
|
|
| 5 |
|
|
| 128 |
|
|
| 410 |
|
International: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater China |
|
| 357 |
|
|
| 106 |
|
|
| 239 |
|
|
| 702 |
|
Asia (excluding Greater China) |
|
| 34 |
|
|
| 1 |
|
|
| 84 |
|
|
| 119 |
|
Western Europe |
|
| 46 |
|
|
| 27 |
|
|
| 42 |
|
|
| 115 |
|
Russia & the CIS |
|
| — |
|
|
| — |
|
|
| 68 |
|
|
| 68 |
|
Latin America |
|
| 2 |
|
|
| — |
|
|
| 48 |
|
|
| 50 |
|
Rest of the World |
|
| 15 |
|
|
| — |
|
|
| 50 |
|
|
| 65 |
|
International Total |
|
| 454 |
|
|
| 134 |
|
|
| 531 |
|
|
| 1,119 |
|
Worldwide Total(1) |
|
| 731 |
|
|
| 139 |
|
|
| 659 |
|
|
| 1,529 |
|
| (2) Period-to-period changes |
As of December 31, 2020, 276 (2019 ― 277) of the 750 (2019 ― 731) theaters under traditional joint revenue sharing arrangements in operation, or 36.8% (2019 ― 37.9%) were located in the United States or Canada, with the remaining 474 (2019 ― 454) or 63.2% (2019 ― 62.1%)tables above are reported net of theaters under traditional joint revenue sharing arrangements located in international markets.
44
Backlog
The following table provides detailed information about the Company’s system backlog as of December 31, 20202023 and 2019:2022:
|
| 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 |
|
|
|
| December 31, 2020 |
|
|
| December 31, 2019 |
|
| ||||||||||||||||||||||||||||||||
|
| Number of |
|
|
| Dollar Value |
|
|
| Number of |
|
|
| Dollar Value |
|
| ||||||||||||||||||||||||
|
| Systems |
|
|
| (in thousands) |
|
|
| Systems |
|
|
| (in thousands) |
|
| ||||||||||||||||||||||||
|
| New |
|
|
| Upgrade |
|
|
| New |
|
|
| Upgrade |
|
|
| New |
|
|
| Upgrade |
|
|
| New |
|
|
| Upgrade |
|
| ||||||||
Sales and sales-type lease arrangements |
|
| 175 |
|
|
|
| 10 |
|
|
|
| 200,296 |
|
|
| $ | 13,135 |
|
|
|
| 168 |
|
|
|
| 10 |
|
|
|
| 205,574 |
|
|
| $ | 12,874 |
|
|
Hybrid joint revenue sharing arrangements |
|
| 140 |
|
|
|
| 7 |
|
|
|
| 99,911 |
|
|
|
| 5,560 |
|
|
|
| 133 |
|
|
|
| 7 |
|
|
|
| 97,736 |
|
|
|
| 5,560 |
|
|
Traditional joint revenue sharing arrangements |
|
| 115 |
| (1) |
|
| 80 |
| (1) |
|
| 200 |
| (2) |
|
| 5,500 |
| (2) |
|
| 133 |
| (1) |
|
| 80 |
| (1) |
|
| 400 |
| (2) |
|
| 5,800 |
| (2) |
|
|
| 430 |
|
|
|
| 97 |
|
|
|
| 300,407 |
|
|
| $ | 24,195 |
|
|
|
| 434 |
|
|
|
| 97 |
|
|
|
| 303,710 |
|
|
| $ | 24,234 |
|
|
|
|
|
|
The number of IMAX Theater Systems in the backlog reflects the minimum number of commitments underfor 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 Theater Systems and the settlement of contracts, both of which reduce backlog. BacklogThe dollar value of backlog typically represents the fixed contracted revenue underaccording to the signed IMAX Theater System sale and lease agreements that the Company believes will be recognizedexpects to recognize as revenue upon installation and acceptance of the associated system, as well as an estimate of variable consideration in sales arrangements, however it excludesarrangements. The value of backlog does not include amounts allocated to maintenance and extended warranty revenues. The value of backlog does not includerevenues or revenue from theaterssystems in which the Company has an equity interest, operating leases, and long-term conditional theater commitments. Theaters under joint revenue sharing arrangements do not usually have dollar value backlog, although certain IMAX 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 IMAX Theater System installations that are listed in 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 an 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. (Refer to “Risk Factors ― The Company may not convert all of its backlog into revenue and cash flows.” in Part I, Item 1A.)
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.
45
The following tables provide detailed information about the Company’s system backlog by arrangement type and geographic location as of December 31, 20202023 and 2019:2022:
|
| 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) |
|
| December 31, 2022 |
|
| |||||||||||||
|
| IMAX System Backlog |
|
| |||||||||||||
|
| Traditional |
|
| Hybrid |
|
| Sales Arrangements(1) |
|
| Total |
|
| ||||
Domestic Total (United States & Canada) |
|
| 101 |
|
|
| 2 |
|
|
| 9 |
|
|
| 112 |
|
|
International: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Greater China |
|
| 42 |
|
|
| 93 |
|
|
| 69 |
|
|
| 204 |
|
|
Asia (excluding Greater China) |
|
| 3 |
|
|
| 13 |
|
|
| 26 |
|
|
| 42 |
|
|
Western Europe |
|
| 17 |
|
|
| 11 |
|
|
| 3 |
|
|
| 31 |
|
|
Latin America |
|
| 3 |
|
|
| — |
|
|
| 3 |
|
|
| 6 |
|
|
Rest of the World |
|
| 2 |
|
|
| 1 |
|
|
| 52 |
|
|
| 55 |
|
|
International Total |
|
| 67 |
|
|
| 118 |
|
|
| 153 |
|
|
| 338 |
|
|
Worldwide Total |
|
| 168 |
|
|
| 120 |
|
|
| 162 |
|
|
| 450 |
| (3) |
|
| December 31, 2020 |
|
| |||||||||||||
|
| IMAX Theater System Backlog |
|
| |||||||||||||
|
| Traditional JRSA |
|
| Hybrid JRSA |
|
| Sale / Lease |
|
| Total |
|
| ||||
Domestic Total (United States & Canada) |
|
| 122 |
|
|
| 3 |
|
|
| 8 |
|
|
| 133 |
|
|
International: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater China |
|
| 50 |
|
|
| 114 |
|
|
| 87 |
|
|
| 251 |
|
|
Asia (excluding Greater China) |
|
| 5 |
|
|
| 15 |
|
|
| 30 |
|
|
| 50 |
|
|
Western Europe |
|
| 12 |
|
|
| 13 |
|
|
| 5 |
|
|
| 30 |
|
|
Russia & the CIS |
|
| — |
|
|
| 1 |
|
|
| 15 |
|
|
| 16 |
|
|
Latin America |
|
| 3 |
|
|
| — |
|
|
| 7 |
|
|
| 10 |
|
|
Rest of the World |
|
| 3 |
|
|
| 1 |
|
|
| 33 |
|
|
| 37 |
|
|
International Total |
|
| 73 |
|
|
| 144 |
|
|
| 177 |
|
|
| 394 |
|
|
Worldwide Total |
|
| 195 |
|
|
| 147 |
|
|
| 185 |
|
|
| 527 |
| (1) |
|
| December 31, 2019 |
|
| |||||||||||||
|
| IMAX Theater System Backlog |
|
| |||||||||||||
|
| Traditional JRSA |
|
| Hybrid JRSA |
|
| Sale / Lease |
|
| Total |
|
| ||||
Domestic Total (United States & Canada) |
|
| 128 |
|
|
| 3 |
|
|
| 9 |
|
|
| 140 |
|
|
International: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater China |
|
| 58 |
|
|
| 124 |
|
|
| 71 |
|
|
| 253 |
|
|
Asia (excluding Greater China) |
|
| 9 |
|
|
| — |
|
|
| 35 |
|
|
| 44 |
|
|
Western Europe |
|
| 11 |
|
|
| 13 |
|
|
| 7 |
|
|
| 31 |
|
|
Russia & the CIS |
|
| — |
|
|
| — |
|
|
| 12 |
|
|
| 12 |
|
|
Latin America |
|
| 3 |
|
|
| — |
|
|
| 11 |
|
|
| 14 |
|
|
Rest of the World |
|
| 4 |
|
|
| — |
|
|
| 33 |
|
|
| 37 |
|
|
International Total |
|
| 85 |
|
|
| 137 |
|
|
| 169 |
|
|
| 391 |
|
|
Worldwide Total |
|
| 213 |
|
|
| 140 |
|
|
| 178 |
|
|
| 531 |
| (2) |
|
|
|
|
Approximately 74.8%79% of IMAX Theater System arrangements in backlog as of December 31, 20202023 are scheduled to be installed in international markets (2019(2022 ― 73.6%75%).
(See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Impact of COVID-19 Pandemic” and “Risk Factors – The Company has experienced a significant decrease in its revenues, earnings and cash flows due to the COVID-19 global pandemic and its business, financial condition and results of operations may continue to be significantly harmed in future reporting periods” in Part I, Item 1A.)46
46
Signings and Installations
The following tables provide detailed information about IMAX Theater System signings and installations for the years ended December 31, 20202023 and 2019:2022:
|
| 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, |
|
| ||||||
|
| December 31, 2020 |
|
|
| December 31, 2019 |
|
| ||
Theater System Signings: |
|
|
|
|
|
|
|
|
|
|
New IMAX Theater Systems |
|
|
|
|
|
|
|
|
|
|
Sales and sales-type lease arrangements |
|
| 28 |
|
|
|
| 49 |
|
|
Hybrid joint revenue sharing lease arrangements |
|
| 18 |
|
|
|
| 48 |
|
|
Traditional joint revenue sharing arrangements |
|
| 2 |
|
|
|
| 7 |
|
|
Total new IMAX Theater Systems |
|
| 48 |
|
|
|
| 104 |
|
|
Upgrades of IMAX Theater Systems |
|
| 17 |
|
|
|
| 39 |
|
|
Total IMAX Theater System signings |
|
| 65 |
|
|
|
| 143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years Ended December 31, |
|
| ||||||
|
| December 31, 2020 |
|
|
| December 31, 2019 |
|
| ||
Theater System Installations: |
|
|
|
|
|
|
|
|
|
|
New IMAX Theater Systems |
|
|
|
|
|
|
|
|
|
|
Sales and sales-type lease arrangements |
|
| 27 |
|
|
|
| 55 |
|
|
Hybrid joint revenue sharing lease arrangements |
|
| 5 |
|
|
|
| 20 |
|
|
Traditional joint revenue sharing arrangements |
|
| 23 |
|
|
|
| 54 |
|
|
Total new IMAX Theater Systems |
|
| 55 |
|
|
|
| 129 |
|
|
Upgrades of IMAX Theater Systems |
|
| 16 |
|
|
|
| 57 |
|
|
Total IMAX Theater System installations |
|
| 71 |
|
|
|
| 186 |
|
|
(See “Management’s Discussion(1)
47
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements and related disclosures in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAPGAAP”) requires management to make judgments, assumptions, and estimates that affect the amounts reported in 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 the date of the Company’s Consolidated Financial Statements. Actual results may ultimately differ from the Company’s original estimates, as future events and circumstances sometimes do not develop as expected, and the differences may be material. ManagementManagement believes that the following are the Company’s most critical accounting policies and 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 other significant accounting policies are described in Note 3 of Notes2 to Consolidated Financial Statements in Part II, Item 8.
Revenue Recognition
The application of U.S. GAAP related to the measurement and recognition of revenue requires management to make judgments and estimates. In addition, revenue contracts with nonstandard terms and conditions may require significant interpretation to determine the appropriate accounting.
On January 1, 2018, the Company adopted ASC Topic 606, “Revenue from Contracts with Customers,” utilizing the modified retrospective transition method and recorded a cumulative catch-up adjustment to retained earnings as of the date of adoption. In conjunction with its adoption, the Company applied ASC Topic 606 only to contracts that were not completed as of the date of adoption, referred to as open contracts. IMAX Theater System sales and maintenance contracts within the existing network of open theaters and sales backlog comprise 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, and aftermarket sales orders that have been received but for which control of the product has not yet transferred to the customer are all also considered open contracts.Systems
Revenues from the sale of IMAX Theater Systems, the provision of maintenance services for IMAX Theater Systems, the sale of aftermarket projection system parts and 3D glasses, the conversion of film content into the IMAX DMR format, the distribution of documentary film content and the provision of post-production services are all within the scope of ASC Topic 606. The Company’s joint revenue sharing revenue arrangements, with the exception of those where title of the IMAX Theater System transfers to the customer, known as hybrid sales, are not in scope of ASC Topic 606 as they are classified as leases. Similarly, any IMAX Theater System arrangements classified as sales-type leases are also excluded from ASC Topic 606.
IMAX Theater Systems
The Company evaluates each of the performance obligations in an IMAX Theater System arrangement to determine which are considered distinct, either individually or in a group, for accounting purposes and which of the deliverables represent separate units of accountingperformance obligations. The transaction price in an 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 accounting guidance in ASC Topic 606, “Revenue from Contracts with Customers,” ASC Topic 842, “Leases,” and ASC Topic 460, “Guarantees”.Company sells the good or service separately.
47
The Company’s “System Obligation” consists of the following: (i) an IMAX Theater System, which includes the projector, sound system, screen system and, if applicable, a 3D glasses cleaning machine; (ii) services associated with the IMAX Theater System, including theater design support, the supervision of installation services, and projectionist training; and (iii) a license to use the IMAX brand to market the theater.location. The System Obligation, as a group, is a distinct performance obligation and a single unit of accounting.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 the customer enter into an arrangement.
IMAX Theater System arrangements also include a requirement for the Company to provide maintenance services over the life of the arrangement in exchange for an extended warranty and 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.
48
The transaction price in an IMAX Theater 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 Company sells the good or service 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.
Constraints on the Recognition of Variable Consideration
The transaction price for the System Obligation, other than for IMAX Systems delivered pursuant to joint revenue sharing arrangements, consists of upfront or initial payments made before and after the final installation of the IMAX Theater Systemsystem and ongoing payments throughout the term of the arrangement. 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 Theater 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 under ASC Topic 606.consideration. An estimate of the present value of such 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. This estimate is based on management’s box office projections for the individual theater, which are developed using historical data for the theater and, if necessary, comparable theaters and territories. Transfer of control of the System Obligation occurs at the earlier of client acceptance of the installation of the IMAX Theater System, including projectionist training, and the opening of the theater to the public.
IMAX Theater System arrangements are non-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.
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. ASC Topic 606 identifies several examples of situations when constraining variable consideration is appropriate:
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As discussed above, the Company’s significant streams of variable consideration relate to arrangements for the sale of IMAX Theater 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 arrangements 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. ForAccordingly, 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.
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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 commercial success of film content in future periods.the films released to the IMAX network. The estimated variable consideration initially recognized by the Company tracks numerous performance statistics foris based on management’s box office performance in regions worldwideprojections 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 theaterlocation markets to estimate the most likely amount of variable consideration to be earned over the term of the arrangement. The CompanyManagement then applies a constraint to this estimate 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 experience,historical box office results, eliminating significant outliers, isare used. The resulting amount of variable consideration is then recorded at its present value as of the date of recognition using a risk-weighted discount rate.
IMAX DMR and Film Distribution Services
In an IMAX DMR arrangement, the The Company receivesreviews its variable consideration assets on at least a percentage of thequarterly basis considering recent box office receipts from a third party who owns the copyright to a film in exchangeperformance and, when applicable, updated box office projections for converting the film into IMAX DMR format and distributing it through the IMAX network. In these arrangements, although future periods.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 DMR processes to create new intellectual property in the form of an IMAX DMR version of film.
In a Film Distribution arrangement, the Company licenses film content and distributes large-format films, primarily for its institutional theater partners. 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 exclusive distribution rights.
Revenues associated with both IMAX DMR and Film Distribution arrangements qualify for the variable consideration exemption for sales- or usage-based royalties in ASC Topic 606 and are recognized in the period when the corresponding box office sales occur.
Current Expected Credit Losses
In 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASC Topic 326”), which amends previously issued guidance regarding the impairment of financial instruments by creating an impairment model that is based on expected losses rather than incurred losses. The standard requires financial assets measured on the amortized cost basis to be presented at the net amount expected to be collected. The Company’s accounts receivable, financing receivables and variable consideration receivables are within the scope of ASU No. 2016-13. The Company adopted ASU No. 2016-13 and several associated ASUs on January 1, 2020 with no required cumulative-effect adjustment to accumulated deficit. (See Note 5 of Notes to Consolidated Financial Statements in Part II, Item 8.)
The ability of the Company to collect its accounts receivable, financing receivablereceivables, and variable consideration receivables is heavily dependent on the 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.
The Company develops its estimate of 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 normalhigher-than-normal risk profile after taking into account management’s internal credit quality classifications, as well as macro-economic and industry risk factors.
Judgments regarding the collectibilitycollectability of accounts receivable, financing receivables, and variable consideration receivables, and the amount of any required allowance for credit losses, are based on management’s initial credit evaluation of the customer and the regular ongoing monitoring of the credit quality of each customer. This monitoring process includes an analysis of collections history and aging for each customer, as well as 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.
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Management’s judgments with respectregarding expected credit losses are based on the facts available to management at the collectibilitytime that the Consolidated Financial Statements are prepared and involve estimates about the future. As a result, the Company’s judgments and associated estimates of accounts receivable, financing receivables and variable consideration receivables, and the amount of any required allowance for credit losses may ultimately prove, with the benefit of hindsight, to be incorrect.
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As a result of the COVID-19 pandemic, the Company has experienced and is likely to continue to experience delays in collecting payments due under existing theater sale or lease arrangements from its exhibitor partners who are facing financial difficulties as a result of the disruption in their normal business operations during the pandemic. Accordingly, for the year ended December 31, 2020, the Company increased its provision for current expected credit losses by $18.6 million, reflecting a reduction in the credit quality of its theater related receivables balances and the heightened collection risk associated with certain movie studios in foreign markets. Due to the unprecedented nature of the COVID-19 pandemic, its effect on the Company’s customers and their ability to meet their financial obligations to the Company is difficult to predict.
(See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Impact of COVID-19 Pandemic”. See InventoriesNote 5 of Notes to Consolidated Financial Statements in Part II, Item 8.)
Inventories
The Company records write-downs for excess and obsolete inventory based upon management’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, 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
Goodwill
Goodwill represents the excess of the purchase price paid over the fair value of net assets acquired in a business combination. Goodwill is not amortized but is tested annually for impairment 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'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'sunit’s carrying value, including goodwill, exceeds its fair value. The carrying value of each reporting unit is based on a systematic and rational allocation of certain assets and liabilities. The fair value of each reporting unit is assessed using a discounted cash flow 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 are derived based on the Company’s estimated weighted average cost of capital. These estimates and the likelihood of future changes in these estimates depend on a number of underlying variables and a range of possible outcomes.
In the fourth quarter of 2020, the Company performed its annual goodwill impairment test considering the latest available information and determined that its goodwill was not impaired. As of December 31, 2020, the Company’s total Goodwill was $39.0 million, of which $19.1 million relates to the IMAX Systems reporting unit, $13.5 million relates to the Joint Revenue Sharing Arrangement reporting unit, and $6.4 million relates to the IMAX Maintenance reporting unit.
The estimates used in the Company’s goodwill impairment tests and the likelihood of future changes in these estimates depend on a number of underlying variables and a range of possible outcomes. Actual results may materially differ from management’s estimates, especially due to the 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 future cash flows for the IMAX Systems and Joint Revenue Sharing Arrangements reporting units may be insufficient to support the goodwill assigned to them, thus requiring impairment charges. The Company will continue to evaluate the recoverability of goodwill at the reporting unit level on an annual basis and whenever events or changes in circumstances indicate there may be a potential impairment.estimates.
Long-Lived Assets
Long-lived assets are grouped and reviewed for impairment at the lowest level for which identifiable cash flows are largely independent whenever events or changes in circumstances indicate that the carrying amount of the asset (or asset group) may not be recoverable. In such situations, long-lived assets are considered impaired when estimated future cash flows (undiscounted and without interest charges) resulting from the use of the asset (or asset group) and its eventual disposition are less than the carrying value of the asset (or asset group). 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 long-lived assets for impairment include a current expectation that it is more likely than not that the long-lived asset will be sold significantly before the end 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.
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In the fourth quarter of 2020, the Company updated its recoverability tests of the carrying values of the theater system equipment supporting its joint revenue sharing arrangements, which are recorded within Property, Plant and Equipment. In performing its reviews of recoverability, the Company estimated the undiscounted future cash flows expected to result from the use of the assets. The cash flow estimates used in these tests are consistent with management’s estimated long-term projections, against which various sensitivity analyses were performed. These estimates are highly uncertain due to the COVID-19 global pandemic; therefore, management’s estimated cash flows factor in a number of underlying variables and ranges of possible cash flow scenarios. Actual results may materially differ from management’s estimates, especially due to the uncertainties associated with the COVID-19 pandemic. For the year ended December 31, 2020, the Company recorded impairment losses of $0.3 million related to the theater system equipment supporting its joint revenue sharing arrangements.
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 recoverable, the film asset is written down to its fair value.
ForValuation of Identifiable Intangible Assets Acquired
Management applies significant judgment in estimating the year ended December 31, 2020, the Company recorded $10.8 million in impairment losses principally to write-down the carryingfair value of certain documentary, alternative content filmintangible assets. The estimates used to value the identifiable intangible assets acquired through the acquisition of SSIMWAVE are based in part on historical experience and DMRinformation 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 film assets due to a decrease in projected box office totalsrevenue and related revenuesgross margin forecasts, attrition rate, royalty rate and discount rates. The estimates of fair value are based on management’s regular quarterly recoverability assessments. As of December 31, 2020, followingassumptions believed to be reasonable at that time. If management made different estimates or judgments, material differences in the recording of these write-downs, the Company’s film assets totaled $5.8 million, which principally consists of DMR and documentary content. There can be no assurances that there will not be additional write-downs to the carryingfair values of thesethe net assets asacquired 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 Company continues to assess the ongoing impactfair values of the COVID-19 pandemic.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 CorporateCorporation 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. On June 3, 2020, the Company’s shareholders approved the IMAX LTIP at the Company’s Annual and Special Meeting. The IMAX LTIP is the Company’s governing document and awards to employees, directors, and consultants under this plan may consist of stock options, restricted share units (“RSUs”), performance sharestock units (“PSUs”) and other awards. A separate stock optionshare-based compensation plan, the China LTIP, was adopted by a subsidiary of the Company in October 2012.
The Company measures share-based compensation expense using the grant date fair value of the 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.
Stock Options
The Company utilizes a lattice-binomial option-pricing model (“Binomial Model”) to determine the fair value of 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 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.
The Company stratifies its employees into homogeneous groups in order to calculate the grant date fair value of stock options using the Binomial Model. As a result, ranges of assumptions are used for the expected life of the option. The Company uses historical data to estimate option exercise behavior within the Binomial Model and various groups of employees that have similar historical exercise behavior are grouped 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 determined in reference to observed current market prices for the Company’s traded options and the Company’s peer group volatility.
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(See Note 17(c) of Notes to Consolidated Financial Statements in Part II, Item 8 for the assumptions used to determine the fair value of the Company’s stock options.)
Restricted Share Units
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 award that is ultimately expected to vest is recognized as compensation expense over the requisite service periods in the Company’s Consolidated Statements of Operations.
Performance Share Units
The Company grants two types of PSU awards, one which vests based on a combination of employee service and the achievement of certain EBITDA-basedAdjusted EBITDA targets, and one which vests based on a combination of employee service and the achievement of certain stock-pricetotal shareholder return (“TSR”) targets. These awards vestThe achievement of the Adjusted EBITDA and TSR targets in these PSUs is determined over a three-year performance period. The grant date fair value of PSUs with EBITDA-based targets is equal to the closing price on the date of grant or the average closing price of the Company’s common stock for five days prior to the date of grant. The grant date fair value of PSUs with stock-price targets is determined on the grant date using a Monte Carlo simulation, which is a valuation model that takes into account the likelihood of achieving the stock-price 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. 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 stock-priceTSR targets.
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 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 other relevant data. The compensation expense is fixed on the date of grant based on the dollar value of the PSUs granted.
The amount and timing of compensation expense recognized for PSUs with EBITDA-basedAdjusted 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 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.
(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 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 Company’s Consolidated Statements of Operations 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. 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, (for example, if the Company experiences cumulative three-year losses in a certain jurisdiction), then management will consider recording a valuation allowance against all or 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
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is recorded, (for example, if the Company is no longer in a three-year cumulative loss position in the jurisdiction, and management expects to have future taxable income in that jurisdiction based upon management’s forecasts and the expected timing of deferred tax asset reversals), the Company may reverse all or a portion or all 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.
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In the third quarter of 2020, the Company assessed the recoverability of its deferred tax assets and recorded a $23.7 million valuation allowance to reduce the value of deferred tax assets. The valuation allowance was recorded in the jurisdictions where management could not reliably forecast that future tax liabilities would arise within the next five years, primarily due to the uncertainties around the long-term impact of the COVID-19 global pandemic. In the fourth quarter of 2020, the Company increased the valuation allowance against its deferred tax assets by $4.9 million due to additional losses recorded in the period. The valuation allowance is expected to reverse when the Company determines it is more likely than not that the deferred tax assets in these jurisdictions will be realized. Despite this valuation allowance, the Company remains entitled to benefit from the tax attributes which currently have a valuation allowance applied to them.
(Refer to Notes 12(d) and 12(g) of Notes to Consolidated Financial Statements in Part II, Item 8.)
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 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 result in the Company owing additional taxes above what was originally recognized in its financial statements.
Tax reserves for uncertain tax positions are adjusted by the Company to reflect management’s best estimate of the outcome of examinations and assessments and in light of changing facts and circumstances, such as the completion of a tax audit, expiration of a statute of limitations, the refinement of an estimate, and interest accruals associated with the uncertain tax positions until they are resolved. Some of these adjustments require significant judgment in estimating the timing and amount of the additional tax expense.
(Refer to Note 12(h) to Consolidated Financial Statements in Part II, Item 8.)
RECENTLY ISSUED ACCOUNTING STANDARDS
Please seeRefer to Note 4 of Notes3 to Consolidated Financial Statements in Part II, Item 8 for a discussion of recently issued accounting standards and their impact on the Company’s financial statements.
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RESULTS OF OPERATIONS
The Company’s business and future prospects are evaluated by Richard L. Gelfond, its Chief Executive Officer (“CEO”), using a variety of factors and financial and operational metrics including: (i) IMAX box office performance and the securing of new films and other events to be exhibited across the IMAX network; (ii) the signing, installation, and financial performance of theater systemIMAX System arrangements, particularly joint revenue sharing arrangements and those involving laser-based projection systems; (ii) film(iii) the success of the Company's investments in business evolution and brand extensions, including the integration and performance of SSIMWAVE, the distribution of live events to the IMAX network, and IMAX Enhanced, (iv) revenues and gross margins earned by the securing of new film projects, particularly IMAX DMR films; (iii)Company's segments, as discussed below; (v) consolidated earnings (loss) from operations, as adjusted for unusual items; (vi) the continuing ability to invest in and improve the Company’s technology to enhance the differentiation of TheIMAX Experience versus other cinematicout-of-home experiences; (iv) revenues and gross margins earned by the Company’s segments, as discussed below; (v) consolidated earnings from operations, as adjusted for unusual items; (vi)(vii) the overall execution, reliability, and consumer acceptance of TheIMAX Experience; (vii) the success of new business initiatives; and (viii) short- and long-term cash flow projections.
The CEO is the Company’s Chief Operating Decision Maker (“CODM”), as such term is defineddetermined under U.S. GAAP. The CODM, along with other members of management, assessassesses segment performance based on segment revenues and gross margins. Selling, general and administrative expenses, research and development costs, the amortization of intangible assets, provisionsprovision for (recoveries(reversal of) current expected credit losses, certain write-downs, interest income, interest expense, and income tax (expense) benefit are not allocated to the Company’s segments.
The Company’s reportable segments are organized intoIn the following four categories: (i) IMAX Technology Network; (ii) IMAX Technology Salesfirst quarter of 2023, the Company revised its internal segment reporting, including information provided to the CODM to assess performance and Maintenance; (iii) New Business Initiatives; and (iv) Film Distribution and Post-Production. Within these categories areallocate resources. Accordingly, the Company’s followingCompany has 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 DMR; (ii) Joint Revenue Sharing Arrangements; (iii) IMAX Systems, (iv) IMAX Maintenance; (v) Other Theater Business; (vi) New Business Initiatives; (vii) Film Distribution; and (viii) Film Post-Production, each of whichSystems. The Company’s activities that do not meet the criteria to be considered a reportable segment are described above under “Sources of Revenue.” This categorizationreported within All Other. Prior period comparatives have been revised to conform with the current year presentation. Additional information on segment reporting is consistent with how the CODM reviews the financial performance of the Company and makes strategic decisions regarding resource allocation and investmentsprovided in Note 21 to meet long-term business goals. Management believes that a discussion and analysis based on the four categories listed above is significantly more relevant and useful to readers, as the Company’s Consolidated Financial Statements of Operations captions combine results from several segments.in Part II, Item 8.
The discussion of the Company’s results of operations below compares results for the years ended December 31, 20202023 and 2022 as well as for the years ended December 31, 2022 and 2021.
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Results of Operations for the Years Ended December 31, 2023 and 2022
The Company believes that its 2023 results of operations showed the strength of IMAX’s business model and the increasing 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 growing demand for IMAX. This contributed to the Company’s installation of 128 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.
Net Income (Loss) and Adjusted Net Income Attributable to Common Shareholders
The following table presents the Company’s net income (loss) attributable to common shareholders and the associated per share amounts, as well as adjusted net income attributable to common shareholders* and adjusted net income attributable to common shareholders per share* for the years ended December 31, 2023 and 2022:
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| Years Ended December 31, |
| ||||||||||||||||
|
| 2023 |
|
|
| 2022 |
| ||||||||||||
(In thousands of U.S. Dollars, except per share amounts) |
| Net Income |
|
|
| Per Diluted Share |
|
|
| Net (Loss) Income |
|
|
| 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 |
|
|
| $ | 0.94 |
|
|
| $ | 3,207 |
|
|
| $ | 0.06 |
|
* 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.
Revenues and Gross Margin
For the year ended December 31, 2023, the Company’s revenues and gross margin increased by $74.0 million or 25% and $58.0 million or 37%, respectively, from 2022 principally due to the strength of the 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, gross margin and gross margin percentage by reportable segment for the years ended December 31, 2023 and 2022:
|
| Revenue |
|
| Gross Margin |
|
| Gross Margin % |
| |||||||||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||
Content Solutions |
| $ | 126,698 |
|
| $ | 101,820 |
|
| $ | 74,106 |
|
| $ | 51,240 |
|
|
| 58 | % |
|
| 50 | % |
Technology Products and Services |
|
| 234,303 |
|
|
| 192,368 |
|
|
| 129,946 |
|
|
| 101,055 |
|
|
| 55 | % |
|
| 53 | % |
Sub-total for reportable segments |
|
| 361,001 |
|
|
| 294,188 |
|
|
| 204,052 |
|
|
| 152,295 |
|
|
| 57 | % |
|
| 52 | % |
All Other(1) |
|
| 13,838 |
|
|
| 6,617 |
|
|
| 10,289 |
|
|
| 4,060 |
|
|
| 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 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.
52
For the year ended December 31, 2023, Content Solutions segment revenues and gross margin increased by $24.9 million or 24% to $126.7 million from $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, 2023, GBO generated by IMAX films totaled $1.1 billion, a $209.3 million or 25% increase versus $849.7 million in 2022. The 2023 GBO was generated by the exhibition 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 foreign currency valuations versus the U.S. Dollar led to a decrease in GBO of $23.0 million in 2023 as compared to prior year rates. The Company believes that if foreign currency exchange rates were consistent in 2023 and 2019 that IMAX GBO in 2023 would have exceeded its best box office year ever in 2019.
In addition, for the year ended December 31, 2023, local language films exhibited across the Company’s global IMAX network generated over $227.2 million in IMAX 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 the Japanese anime film The First Slam Dunk ($10.8 million). Despite accounting for approximately 1% of all Domestic screens and less than 1% of all screens globally in 2023, 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 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, 2023, marketing expenses incurred towards films were $14.2 million compared to $17.3 million in 2022. Gross margin percent for the year ended December 31, 2023 was 58% compared to 50% for the 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 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 IMAX System under sale and sales-type lease arrangements varies depending upon the number of IMAX 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 multiplexes, 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 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 higher 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 of 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, 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 the 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 traditional joint revenue sharing arrangement as revenue is recognized over the lease term, during the years ended December 31, 2023 and 2022:
|
| 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 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.
As a percentage of revenue, Selling, General and Administrative Expenses excluding share-based compensation improved to 33% as compared to 37% in 2022, which reflected strong operating leverage coupled with management's continued focus on cost discipline.
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, 20192022 and 20182021 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, 2019,2022, and is incorporated by reference into this Annual Report on Form 10-K for the fiscal year ended December 31, 2020.2023.
55Net Loss and Adjusted Net Income (Loss) Attributable to Common Shareholders
Results of OperationsThe 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 Endedyears ended December 31, 20202022 and 20192021:
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, 2020,2022, the Company reportedrecorded a net loss attributable to common shareholdersnon-cash provision of $(143.8)$6.9 million, or $(2.43)$0.12 per diluted share, as compareddue 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 income attributable to common shareholdersreceivable exposure in the Russian market. Excluding the impact of $46.9 million, or $0.76 per diluted share, for the year ended December 31, 2019. For the year ended December 31, 2020, the Company reported an adjustedthis provision, net loss attributable to common shareholders* of $(112.1)was $(15.9) million, or $(1.89)$(0.28) per diluted share*, as compared toshare, and adjusted net income attributable to common shareholders* of $64.8was $10.1 million, or $1.05$0.18 per diluted share*,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, 2019.2022, 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 (margin loss)percentage by category and reportable segment for the years ended December 31, 20202022 and 2019:2021:
|
| Revenue |
|
| Gross Margin (Margin Loss) |
| ||||||||||
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
IMAX Technology Network |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX DMR |
| $ | 28,265 |
|
| $ | 120,765 |
|
| $ | 13,731 |
|
| $ | 78,592 |
|
Joint revenue sharing arrangements, contingent rent |
|
| 17,841 |
|
|
| 76,673 |
|
|
| (9,500 | ) |
|
| 48,446 |
|
|
|
| 46,106 |
|
|
| 197,438 |
|
|
| 4,231 |
|
|
| 127,038 |
|
IMAX Technology Sales and Maintenance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX Systems (1) |
|
| 54,055 |
|
|
| 107,321 |
|
|
| 24,816 |
|
|
| 58,168 |
|
Joint revenue sharing arrangements, fixed fees |
|
| 2,056 |
|
|
| 11,014 |
|
|
| 529 |
|
|
| 2,613 |
|
IMAX Maintenance |
|
| 21,999 |
|
|
| 53,151 |
|
|
| 3,068 |
|
|
| 23,010 |
|
Other Theater Business (2) |
|
| 1,666 |
|
|
| 8,390 |
|
|
| (438 | ) |
|
| 2,624 |
|
|
|
| 79,776 |
|
|
| 179,876 |
|
|
| 27,975 |
|
|
| 86,415 |
|
New Business Initiatives |
|
| 2,226 |
|
|
| 2,754 |
|
|
| 1,878 |
|
|
| 2,106 |
|
Film Distribution and Post-Production |
|
| 8,719 |
|
|
| 12,210 |
|
|
| (10,198 | ) |
|
| (1,262 | ) |
Sub-total |
|
| 136,827 |
|
|
| 392,278 |
|
|
| 23,886 |
|
|
| 214,297 |
|
Other |
|
| 176 |
|
|
| 3,386 |
|
|
| (2,346 | ) |
|
| (125 | ) |
Total |
| $ | 137,003 |
|
| $ | 395,664 |
|
| $ | 21,540 |
|
| $ | 214,172 |
|
|
|
|
|
|
|
56
|
| 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 | % |
Revenues and Gross Margin
Due to
(1) All Other includes the COVID-19 global pandemic, substantially all of the theaters in the IMAX network were closed for a significant portion of 2020. In the third quarter of 2020,stay-at-home orders were lifted in many countriesresults from Streaming and movie theaters throughout the IMAX network gradually reopened with reduced capacities, physical distancing requirements,Consumer Technology and other safety measures. ancillary activities.
As of December 31, 2020, 71% of
Segment Operating Results
The Company’s segment operating results are presented based on how the theatersCompany assesses operating performance and internally report financial information. See Note 21 to Consolidated Financial Statements in the commercial multiplex network spanning 41 countries were open, including 44% of the theaters in Domestic (i.e., United States and Canada) locations, 97% of the theaters in Greater China and 53% of the theaters in Rest of World markets. In many parts of Asia, audiences have returned to theaters, particularly IMAX theaters, in numbers consistent with pre-pandemic attendance levels despite the continued delay of Hollywood theatrical releases, which typically accountPart II, Item 8 for 70% of box office ticket sales in those regions. Management believes this indicates that moviegoers are eager to return to cinemas where and when theaters are open and moviegoers feel safe. However, ticket sales have been significantly lower than normal levels in theaters outside of Asia as Hollywood movie studios have further delayed the theatrical release dates for a number of films. As a result, certain theater chains have remained closed or have reduced their operating hours. In addition, theaters in major markets remain temporarily closed.
As a result of the factors discussed in the previous paragraph, the Company’s consolidated results of operations and segment results for the year ended December 31, 2020 materially declined versus the prior year with total revenues and gross margin decreasing by $258.7 million (65%) and $192.7 million (90%), respectively.
(See “Impact of COVID-19 Pandemic” above for a more detailed discussion of the impacts of the pandemicadditional information on the Company’s business.)segments.
IMAX Technology Network
IMAX Technology NetworkContent 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 films released,releases, the length of play across the theatrical distribution window,IMAX network, the box office share take rates under the Company’s DMRfilm remastering and joint revenue sharingdistribution arrangements, and the level of marketing spend associated with the films releasedreleases in the year. Other factors impacting IMAX Technology Network results includeyear and the fluctuations in the value of foreign currencies versus the U.S. Dollar.
ForFor the year ended December 31, 2020, IMAX Technology Network2022, Content Solutions segment revenues and gross margin decreasedincreased by $151.3$24.8 million (77%)or 32% to $101.8 million from $77.0 million and $(122.8)$6.0 million (97%),or 13% from $51.2 million from $45.3 million, respectively, when compared to the prior year principally due to the impactyear.
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 pandemic,restrictions instituted as discussed above. See below for separate discussionspart of China’s dynamic zero-COVID policy. This overall improvement in GBO earned through the global IMAX DMR and JRSA contingent rent resultsnetwork for the year.
(See “Impact of COVID-19 Pandemic” above for a more detailed discussion of the impacts of the pandemic on the Company’s business.)
IMAX DMR
year was partially offset by unfavorable foreign currency exchange rate movements. For the year ended December 31, 2020, IMAX DMR revenues and gross margin decreased by $92.5 million (77%) and $64.9 million (83%), respectively, when compared to the prior year. These decreases are due to a $849.3 million (77%) reduction in2022, GBO was generated by IMAX DMRthe exhibition of 78 films from $1,108.5(63 new, 10 carryovers, and five re-releases), including Avatar: The Way of Water, which generated GBO of $140.2 million to $259.2(or 11% market share) and Top Gun: Maverick, which generated GBO of $110.7 million due to(or 7% market share) in the COVID-19 pandemic. Foryear. During the year ended December 31, 2020,2021, GBO was generated primarily by the exhibition of 3573 films (31(63 new, six carryovers and 4 carryovers) and the re-release of classic titles, as compared to 72 films (60 new and 12 carryovers) exhibited in 2019.four re-releases).
In addition to the higher level of revenues, IMAX DMRContent Solutions segment gross margin is also influenced by the costs associated with the films and other content exhibited in the year,period, and can vary from year to year, particularlyperiod-to-period, especially with respect to marketing expenses.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, 2020,2022, the impact of the higher level of Content Solutions Segment revenues was partially offset by higher marketing expenses were $3.4of $17.3 million, as compared to $22.5 million in the prior year.
Joint Revenue Sharing Arrangements – Contingent Rent
For the year ended December 31, 2020, JRSA contingent rent revenue and gross margin decreased by $58.8 million (77%) and $57.9 million (120%), respectively, when compared to the prior year. These decreases are due to a $429.3 million (77%) reduction in GBO generated by theaters under joint revenue sharing arrangements during the current year, from $560.3 million to $131.0 million, due to the COVID-19 pandemic. As of December 31, 2020, 890 theaters were operating under joint revenue sharing arrangements, as compared to 870 theaters as of December 31, 2019, an increase of 2%. However, as discussed above, a portion of the theaters in the IMAX network remain closed as of December 31, 2020 due to the COVID-19 pandemic.
57
In addition to the level of revenues, JRSA margin is also influenced by the level of costs associated with such arrangements, such as depreciation expense related to the underlying Theater Systems and costs incurred to upgrade Theater Systems from digital xenon to IMAX with Laser, as well as advertising, marketing and commission costs primarily for the launch of new theaters. The level of depreciation expense in a year relative to the prior year is a function of the growth of the theater network and the mix of theater system configurations in the network. For the year ended December 31, 2020, JRSA gross margin included depreciation expense of $24.9 million, as compared to $23.2$8.2 million in the prior year reflecting a 2% increaseinvestments 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 number of theaters operating under joint revenue sharing arrangements during the year and the impact of new theaters operating throughout 2019. ForIMAX connected network for the year ended December 31, 2020, JRSA gross margin includes certain advertising, marketing2022.
Technology Products and commission costs of $1.4 million, as compared to $3.3 million in the prior year.Services
IMAX Technology Sales and Maintenance
The primary drivers of IMAX Technology SalesProducts and MaintenanceServices segment results are the number of IMAX Theater Systems installed in a year, andperiod, the levelcosts associated with each installation, lease payments tied to the box office performance of gross margin percentage earned on each installation,the films released to the IMAX network, as well as the associated maintenance contracts that accompany each theater installation. The average revenue and gross margin per IMAX System under sale and sales-type lease arrangements varies depending upon the number of IMAX System commitments with a single respective exhibitor, an exhibitor’s location, the type of system sold and various other factors. The installation of IMAX Theater 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.
57
For the year ended December 31, 2020,2022, 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 the 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 Sales andrentals 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 decreased by $100.1of $15.0 million, (56%) and $58.4 million (68%), respectively, when compared to the prior year as the pace of theatercosts Rentals including depreciation expense, advertising, marketing and system installations slowed significantly andcommission costs grew at a lower rate than revenue. This increase was partially offset by lower year-over-year profit contribution from maintenance revenue was not recognized for theaters that remained closed during the year 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, as discussed above. See below for separate discussionspandemic. For the year ended December 31 2022, Technology Products and Services segment depreciation expense of IMAX Systems$22.6 million was consistent with the prior year and IMAX Maintenance results foradvertising, 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 mixassociated 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, 2022, All Other revenue and gross margin increased by $1.7 million and $1.0 million, respectively, when compared to the same period in 2021 principally due to the inclusion of SSIMWAVE’s revenues for three months as the acquisition was completed in late September 2022 as well as growth in the IMAX Theater System installationsEnhanced consumer technology business.
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CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
The discussion below compares the Company’s cash flows for the years ended December 31, 20202023 and 2019:
|
| 2020 |
|
| 2019 |
|
| ||||||||||
(In thousands of U.S. Dollars, except number of systems) |
| Number of Systems |
|
| Revenue |
|
| Number of Systems |
|
| Revenue |
|
| ||||
New IMAX Theater Systems — installed and recognized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and sales-types lease arrangements(1) |
|
| 27 |
|
| $ | 32,420 |
|
|
| 55 |
|
| $ | 70,367 |
| (2) |
Joint revenue sharing arrangements — hybrid |
|
| 5 |
|
|
| 2,000 |
|
|
| 20 |
|
|
| 10,610 |
|
|
Total new IMAX Theater Systems |
|
| 32 |
|
|
| 34,420 |
|
|
| 75 |
|
|
| 80,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX theater system upgrades — installed and recognized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and sales-types lease arrangements |
|
| 6 |
|
|
| 10,087 |
|
|
| 17 |
|
|
| 19,630 |
|
|
Total IMAX Theater Systems installed and recognized |
|
| 38 |
|
| $ | 44,507 |
| (3) |
| 92 |
|
| $ | 100,607 |
| (3) |
|
|
|
|
|
|
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The average revenue per IMAX Theater System under sales2022. A comparison of the Company’s cash flows for the years ended December 31, 2022 and sales-type lease arrangements varies depending upon2021 is included in the numbersection entitled “Cash Flows” in Item 7 of IMAX Theater System commitments with a single respective exhibitor, an exhibitor’s location and various other factors. The average revenue per full (i.e., not hybrid) IMAX Theater System under sales and sales-type lease arrangements was $1.2 millionthe Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as compared2022, and is incorporated by reference into this Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Operating 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 lease agreements, (ii) the amount of upfront payments collected in respect of IMAX System sale and lease agreements in backlog, (iii) the box office performance of films and other content distributed by the Company and/or released to $1.3 millionIMAX locations, (iv) the level of inventory purchases and investment in joint revenue sharing arrangements, and (v) the prior year.
(See “Impact of COVID-19 Pandemic” above for a more detailed discussionlevel of the impacts of the pandemic on the Company’s business.)operating expenses, including expenses for research and development and new business initiatives.
IMAX Systems
For the year ended December 31, 2020,2023, the net cash provided by the Company’s operating activities totaled $58.6 million, as compared to $17.3 million in the prior year, an improvement of $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 gross margin decreasedrenewals of IMAX Systems arrangements. This is partially offset by $53.3$20.3 million (50%)of variable consideration receivables resulting from incremental sales arrangements, including upgrades and $33.4amendments, and change in variable consideration estimate, and $20.4 million (57%), respectively, when compared toof expenditures incurred in connection with the year ended December 31, 2019. These decreases are principally the resultdevelopment of 28 fewer IMAX Theater System installations and 11 fewer IMAX Theater System upgrades in the current year as the pace of theater system installations slowed significantly due to the COVID-19 pandemic.Film Assets.
IMAX Maintenance
For the year ended December 31, 2020,2022, the net cash inflow from operating activities of $17.3 million was principally a function of the 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 Maintenance revenue and gross margin decreased by $31.2 million (59%) and $19.9 million (87%), respectively, as maintenance revenue was not recognizednetwork during the periodslast quarter of time when theaters were closed due to the COVID-19 pandemic.year and $19.6 million spent in connection with the development of Film Assets.
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.Investing Activities
Film Distribution and Post-Production
For the year ended December 31, 2020, Film Distribution and Post-Production revenue and gross margin decreased by $3.52023, the net cash used in the Company’s investing activities totaled $31.8 million, (29%) and $8.9 million, respectively, whenas compared to $53.3 million in 2022. In 2023, the prior year.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 resultsCompany considers its investment 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 the year are significantly influencedacquisition of SSIMWAVE, net of cash and cash equivalents acquired, $19.8 million invested in equipment to be used in the Company’s joint revenue sharing arrangements with exhibitor customers, $4.7 million invested by $10.0IMAX (Shanghai) Culture and Technology Co., Ltd, a wholly-owned subsidiary of IMAX China, in the movie Mozart from Space (see “Asset Impairment” above), $8.4 million related to the 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 impairment losses recorded2023 as compared to $57.0 million in the year principally to write-down the carrying value of certain documentary and alternative content film assets due to a decrease in projected box office totals and related revenues based2022. Based on management’s regular quarterly recoverability assessments. As of December 31, 2020, following the recording of these write-downs, the Company’s film assets totaled $5.8 million, which principally consists of DMR and documentary content. There can be no assurances that there will not be additional write-downs to the carrying values of these assets asoperating plan for 2023, the Company continuesexpects to assess the ongoing impact of the COVID-19 pandemic (see Note 2 of Notescontinue to Consolidated Financial Statements in Part II, Item 8).use cash to deploy additional IMAX Systems under joint revenue sharing arrangements.
Selling, General and Administrative ExpensesFinancing Activities
For the year ended December 31, 2020, Selling, General and Administrative Expenses decreased by $15.0 million (12%), when compared to2023, the year ended December 31, 2019. Fornet cash used in the year ended December 31, 2020, Selling, General, and Administrative Expenses, excluding the impact of share-based compensation of $20.7 million, were $87.8Company’s financing activities totaled $48.5 million, as compared to $102.7$58.5 million used by financing activities in the prior year, excluding share-based compensationyear. In 2023, the net cash used in financing activities is principally due to $13.5 million in net repayments of $20.8revolving credit facility borrowings, $26.8 million representing a decreaseused to repurchase common shares of $14.9the Company, $6.5 million (14.5%). A portionin taxes withheld on vested employee equity awards, and $1.4 million of share-based compensation expensedividends paid to the non-controlling interests of IMAX China.
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In 2022, the net cash used in financing activities is recognized within Costprincipally due to $83.2 million used to repurchase common shares of the Company ($80.1 million) and Expenses ApplicableIMAX China ($3.0 million), $3.7 million paid to Revenuepurchase treasury stock for the settlement of RSUs and Researchrelated taxes, $2.7 million of dividends paid to the non-controlling interests of IMAX China, and Development. (See$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 17 of Notes14(b) to Consolidated Financial Statements in Part II, Item 8.)
The comparison to the prior year is significantly influenced by COVID-19 government relief that the Company became entitled to receive during the year under the Canada Emergency Wage Subsidy program and the U.S. CARES Act, of which $6.0 million was recognized in 2020 as a reduction to Selling, General and Administrative Expenses. Also impacting the comparison to the prior year are management’s cost control efforts and lower business activity amidst the COVID-19 global pandemic resulting in lower staff costs, travel, facilities and marketing related expenses, among others. These factors are partially offset by a $19.6 million (38%) decrease in labor and other costs capitalized to inventory, film assets, and joint venture theater equipment or allocated to costs applicable to revenues, due to the lower level of production during the COVID-19 global pandemic.
In response to uncertainties associated with the COVID-19 global pandemic, the Company has taken and is continuing to take significant steps to preserve the cash by eliminating non-essential costs, placing certain employees on a temporary furlough, reducing the working hours of other employees and deferring all non-essential capital expenditures to minimum levels.
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Research and Development
A significant portionLIQUIDITY 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 researchtypical sale and development efforts over the past several years have been focused on IMAX with Laser, the Company’s laser-based projection system, whichsales-type lease agreements, the Company believes delivers increased resolution, sharper and brighter images, deeper contrastreceives substantial cash payments before it completes the performance of its contractual obligations.
In addition, as well as the widest range of colors available to filmmakers today.
For the year ended December 31, 2020, Research2023, the Company also had $276.0 million in available borrowing capacity under its Sixth Amended and Development expenses increased by $0.4Restated Credit Agreement, with Wells Fargo Bank, National Association (the “Credit Agreement”), $26.8 million (8%)in available borrowing capacity under the IMAX (Shanghai) Multimedia Technology Co., when compared to the prior year, primarily due to costs associatedLtd. (“IMAX Shanghai”) revolving credit facility with the Connected Theaters initiative.
TheBank 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 also intendsLimited, Shanghai Branch (the “HSBC China Facility”). (Refer 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, certifying more IMAX cameras, enhancing the Company’s image quality, expanding the applicability of the Company’s digital technology in both theater and home entertainment and improvements to the DMR process.
In addition, the Company has been, and intends to continue, using time and resources during the business slowdown caused by the COVID-19 global pandemic to work on leveraging and developing technologies and systems to help bring additional interactivity to its theater network, better manage certain of the Company’s internal workflows and better organize and codify certain of the Company’s data. During previous adverse events and downturns in the cinema business, the Company fostered many of the innovations that helped enable its global growth in recent years, including the development of its proprietary DMR process and the creation of its joint-revenue sharing business model.
Credit Loss Expense
For the year ended December 31, 2020, the Company recorded a provision for current expected credit losses of $18.6 million reflecting a reduction in the credit quality of its theater and studio related receivable balances, which management believes is primarily related to the COVID-19 pandemic and adequately addresses the risk of not collecting these receivables in full. Management’s judgments regarding expected credit losses are based on the facts available to management and involve estimates about the future. Due to the unprecedented nature of the COVID-19 pandemic, its effect on the Company’s customers and their ability to meet their financial obligations to the Company is difficult to predict. As a result, the Company’s judgments and associated estimates of credit losses may ultimately prove, with the benefit of hindsight, to be incorrect. For the year ended December 31, 2019, credit loss expense was $2.4 million. (See Notes 2 and 5 of NotesNote 14(a) to Consolidated Financial Statements in Part II, Item 8.)
Asset Impairments
For the year ended December 31, 2020, the Company recorded asset impairments of $1.2 million (2019 — $nil) principally related to write-down of content-related assets which became impaired in the year. (See Note 2 of Notes to Consolidated Financial Statements in Part II, Item 8.).
Legal Judgment and Arbitration Awards
For the year ended December 31, 2020, the Company recorded8 for a charge of $4.1 million associated with the Final Judgment issued on December 3, 2020 in respectdescription of the Giencourt matter, as discussed in Note 16(c)material terms of Notes to Consolidated Financial Statements in Part II, Item 8. No such charges were incurred in 2019.
Loss in Fair Value of Investments
In the first quarter of 2019, IMAX China (Hong Kong), Limited, a wholly-owned subsidiary of IMAX China, entered into a cornerstone investment agreement with Maoyan Entertainment (“Maoyan”) and purchased equity securities for $15.2 million. These equity securities are traded on the Hong Kong Stock Exchange, and the Company is required to adjust the fair value of the securities each period to reflect the current market value. This adjustment will fluctuate based on the closing market price at the end of each period. For the year ended December 31, 2020, the fair value of the Company’s investment in Maoyan resulted in an unrealized loss of $2.1 million, as compared to an unrealized loss of $0.5 million in the prior year, which are both recognized in the Consolidated Statements of Operations. In February 2021, IMAX China (Hong Kong) sold all of its 7,949,000 shares of Maoyan for gross proceeds of $17.8 million, which represents a $2.6 million gain relative to the Company’s acquisition cost. No shares of Maoyan are currently held by IMAX China (Hong Kong).
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Interest Expense
Interest expense was $7.0 million in 2020, as compared to $2.8 million in the prior year. The increase in interest expense versus the prior year is due to a higher level of Credit Facility borrowings, which were outstanding for most of the year. In the first quarter of 2020, in response to uncertainties associated with the outbreak of the COVID-19 global pandemic and its impact on the Company’s business, the Company drew down $280.0 million in available borrowing capacity under the Credit Facility, resulting in total outstanding borrowings of $300.0 million. Furthermore, the Company entered into a First Amendment to the Credit Agreement, the Bank of China Facility, and the HSBC Facility.)
The Company’s $76.2 million balance of cash and cash equivalents as of December 31, 2023 (December 31, 2022 — $97.4 million) includes $68.5 million in June 2020, primarily to suspend the Senior Secured Net Leverage Ratio covenant through the first quartercash held outside of 2021. During the amendment period, the applicable margin increased by 150 basis points. The fully drawn Credit Facility coupled with the increase to the applicable margin during the amendment period has resulted in higher interest expense in current year versus prior year period. (See Note 14Canada (December 31, 2022 — $79.7 million), of Notes to Consolidated Financial Statements in Part II, Item 8.)
Included in interest expense is the amortization of deferred finance costswhich $30.0 million was held in the amountPeople's Republic of $0.9 million and $0.5 million in 2020 and 2019, respectively. The Company incurred fees of approximately $1.1 million in connection with the Credit Facility amendment, which are being amortized on a straight-line basis through DecemberChina (“PRC”) (December 31, 2021. The Company’s policy is to defer and amortize all the costs relating to debt financing which are paid directly to the debt provider, over the life of the debt instrument.
Income Taxes
For the year ended December 31, 2020, the Company recorded income tax expense of $26.5 million (20192022 — $16.8$43.7 million), which includes a $28.6 million valuation allowance recorded in 2020. The valuation allowance was recorded in the jurisdictions where management could not reliably forecast that future tax liabilities would arise within the next five years, primarily due to the uncertainties around the long-term impact of the COVID-19 global pandemic.At the point in time when the Company determines it is more likely than not that the deferred tax assets in these jurisdictions will be realized, the $28.6 million valuation allowance recorded in 2020 is expected to reverse. Despite this valuation allowance, the Company remains entitled to benefit from tax attributes which currently have a valuation allowance applied to them.
The Company’s effective tax rate for year ended December 31, 2020 of (20.5)% differs from the Canadian statutory tax rate of 26.2%, primarily due to the recording of the valuation allowance discussed above, withholding taxes associated with the reversal of the indefinite reinvestment assertion for certain foreign subsidiaries, as discussed below, permanent book to tax differences, jurisdictional tax rate differences, and management’s estimates of contingent liabilities related to the resolution of various tax examinations.
In the first quarter of 2020, management completed a reassessment of Management reassessed its strategy with respect to the most efficient means of deploying the Company’s capital resources globally. Based on the results of this reassessment, management concludedglobally and determined that the historical earnings of certain foreign subsidiaries in excess of amounts required to sustain business operations would no longer be indefinitely reinvested. AsDuring the year ended December 31, 2023, $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 Company recognizedrelevant 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 $19.1$12.5 million (December 31, 2022 — $14.9 million) for the year for the estimated applicable foreign withholding taxes associated with thesethe remaining balance of unrepatriated historical earnings whichthat will not be indefinitely reinvested outside of Canada. These taxes will become payable upon the repatriation of any such earnings.
As of December 31, 2020, the Company’s Consolidated Balance Sheets include net deferred income tax assets of $18.0 million, net of a valuation allowance of $28.8 million (December 31, 2019 — $23.9 million, net of a valuation allowance of $0.2 million).
As of December 31, 2020, the Company’s Consolidated Balance Sheets include a deferred income tax liability of $19.1 million (December 31, 2019 — $nil).
Equity Method Investments
For the year ended December 31, 2020, the Company reported a loss of $1.9 million due to the write-off of deferred tax assets related to an equity method investment, as compared to $nil in 2019 related to its proportionate share of equity investee results.
Non-Controlling Interests
The Company’s Consolidated Financial Statements include the non-controlling interest in the net income (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, 2020, the net loss attributable to non-controlling interests of the Company’s subsidiaries was $13.7 million (2019 ─ net income attributable to non-controlling interests of $11.7 million).
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LIQUIDITY AND CAPITAL RESOURCES
Credit Facility
The Company has a credit agreement, the Fifth Amended and Restated Credit Agreement, with Wells Fargo Bank, National Association (“Wells Fargo”), as agent, and a syndicate of lenders party thereto (the “Credit Agreement”). The Company’s obligations under the Credit Agreement are guaranteed by certain of its subsidiaries (the “Guarantors”) and are secured by first-priority security interests in substantially all the assets of the Company and the Guarantors. The facility provided by the Credit Agreement (the “Credit Facility”) matures on June 28, 2023.
The Credit Agreement has a revolving borrowing capacity of $300.0 million, and contains an uncommitted accordion feature allowing the Company to further expand its borrowing capacity to $440.0 million or greater, subject to certain conditions, depending on the mix of revolving and term loans comprising the incremental facility.
In the first quarter of 2020, in response to uncertainties associated with the outbreak of the COVID-19 global pandemic and its impact on the Company’s business, the Company drew down $280.0 million in available borrowing capacity under the Credit Facility, resulting in total outstanding borrowings of $300.0 million.
The Credit Agreement contains a covenant that requires the Company to maintain a Senior Secured Net Leverage Ratio (as defined in the Credit Agreement), as of the last day of any Fiscal Quarter (as defined in the Credit Agreement) of no greater than 3.25:1.00. In addition, the Credit Agreement contains customary affirmative and negative covenants, including covenants that limit indebtedness, liens, capital expenditures, 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.
On June 10, 2020, the Company entered into the First Amendment to the Credit Agreement (the “Amendment”), which, among other things, (i) suspends the Senior Secured Net Leverage Ratio covenant through the first quarter of 2021, (ii) re-establishes the Senior Secured Net Leverage Ratio covenant thereafter, provided that for subsequent quarters that such covenant is tested, as applicable, the Company will be permitted to use its quarterly EBITDA (as defined in the Credit Agreement) from the third and fourth quarters of 2019 in lieu of the EBITDA for the corresponding quarters of 2020, (iii) adds a $75.0 million minimum liquidity covenant measured at the end of each calendar month and (iv) restricts the Company’s ability to make certain restricted payments, dispositions and investments, create or assume liens and incur debt that would otherwise have been permitted by the Credit Agreement. The modifications to the negative covenants, the minimum liquidity covenant and modifications to certain other provisions in the Credit Agreement pursuant to the Amendment were effective from the date of the Amendment until the earlier of the delivery of the compliance certificate for the fourth quarter of 2021 and the date on which the Company, in its sole discretion, elects to calculate its compliance with the Senior Secured Net Leverage Ratio by using either its actual EBITDA or annualized EBITDA (the “Designated Period”).
As of December 31, 2020, the Company was in compliance with all of its requirements under the Credit Agreement, as amended. The Company’s continued compliance with the requirements of the Credit Agreement will depend on the Company’s ability to generate sufficient EBITDA to ensure compliance with the Senior Secured Net Leverage Ratio covenant throughout the next twelve months, which is dependent on the timing of when theaters in the IMAX network resume normal operations. The risk of breaching this covenant within the next twelve months increases significantly as the ongoing COVID-19 pandemic continues to adversely impact the Company’s ability to generate EBITDA. A violation of this covenant would represent an event of default under the terms of the Credit Agreement, allowing lenders to declare the principal and interest on all outstanding Credit Facility indebtedness due or payable immediately. If a breach of the Senior Secured Net Leverage Ratio covenant were to occur, however, management believes the Company would be able to either reduce a sufficient portion of the drawn amount on the Credit Facility with existing cash balances to achieve compliance, obtain additional sources of liquidity prior to the time when the repayment of its outstanding Credit Facility indebtedness would be required, or negotiate a further amendment with its lenders to the Credit Agreement to provide further covenant relief.
Borrowings under the Credit Facility bear interest, at the Company’s option, at (i) LIBOR plus a margin ranging from 1.00% to 1.75% per annum; or (ii) the U.S. base rate plus a margin ranging from 0.25% to 1.00% per annum, in each case depending on the Company’s Total Leverage Ratio (as defined in the Credit Agreement); provided, however, that from the effective date of the Amendment until the Company delivers a compliance certificate under the Credit Facility following the end of the Designated Period, the applicable margin for LIBOR borrowings will be 2.50% per annum and the applicable margin for U.S. base rate borrowings will be 1.75% per annum. The effective interest rate for the year ended December 31, 2020 was 2.38% (2019 — 3.43%).
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In addition, the Credit Facility has standby fees ranging from 0.25% to 0.38% per annum, based on the Company’s Total Leverage Ratio with respect to the unused portion of the Credit Facility; provided, however, that from the effective date of the Amendment until the Company delivers a compliance certificate under the Credit Facility following the end of the Designated Period, the standby fee will be 0.50% per annum.
The Company incurred fees of approximately $1.1 million in connection with the Amendment, which are being amortized on a straight-line basis through December 31, 2021.
As of December 31, 2020 and 2019, the Company did not have any letters of credit and advance payment guarantees outstanding under the Credit Facility.
(See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Impact of COVID-19 Pandemic” and “Risk Factors – The Company has experienced a significant decrease in its revenues, earnings and cash flows due to the COVID-19 global pandemic and its business, financial condition and results of operations may continue to be significantly harmed in future reporting periods” in Part I, Item 1A.)
Working Capital Facility
On July 24, 2020, IMAX (Shanghai) Multimedia Technology Co., Ltd. (“IMAX Shanghai”), one of the Company’s majority-owned subsidiaries in China, renewed its unsecured revolving facility for up to 200.0 million Renminbi (approximately $30.6 million) to fund ongoing working capital requirements (the “Working Capital Facility”). The facility expires in July 2021. As of December 31, 2020, there was 49.9 million Renminbi ($7.6 million) in borrowings outstanding, 140.1 million Renminbi ($21.5 million) available for future borrowings and 10.0 million Renminbi ($1.5 million) available for letters of guarantees under the Working Capital Facility. There were no amounts drawn under the Working Capital facility at December 31, 2019. The amounts available for borrowing under the Working Capital Facility are not subject to a standby fee. The effective interest rate for the year ended December 31, 2020 was 4.31% (2019 — nil).
Wells Fargo Foreign Exchange Facility
Within the Credit Facility, the Company is able to purchase foreign currency forward contracts and/or other swap arrangements. The net settlement gain on its foreign currency forward contracts was $2.0 million at December 31, 2020, as the fair value of the forward contracts exceeded the notional value (December 31, 2019 — $0.5 million). As of December 31, 2020, the Company has $31.9 million in notional value of such arrangements outstanding (December 31, 2019 — $36.1 million).
NBC Facility
On October 28, 2019, the Company entered into a $5.0 million facility with the National Bank of Canada (the “NBC Facility”) fully insured by Export Development Canada for use solely in conjunction with the issuance of performance guarantees and letters of credit. The Company did not have any letters of credit and advance payment guarantees outstanding as of December 31, 2020 and 2019 under the NBC Facility.
Assessment of Liquidity and Capital Requirements
As of December 31, 2020, the Company’s principal sources of liquidity included: (i) its balances of cash and cash equivalents ($317.4 million, which reflects the full draw of the Credit Facility in the first quarter of 2020); (ii) the anticipated collection of trade accounts receivable, which includes amounts owed under joint revenue sharing arrangements and DMR agreements with movie studios; (iii) the anticipated collection of financing receivables due in the next 12 months; and (iv) installment payments expected in the next 12 months on its existing sales and sales-type lease arrangements in backlog.
The Company’s $317.4 million balance of cash and cash equivalents as of December 31, 2020 includes $89.9 million in cash held outside of Canada (December 31, 2019—$90.1 million), of which $77.2 million was held in the People’s Republic of China (the “PRC”) (December 31, 2019—$67.6 million). In the first quarter of 2020, management completed a reassessment of its strategy with respect to the 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 excess of amounts required to sustain business operations would no longer be indefinitely reinvested. As a result, during the year ended December 31, 2020, the Company recognized a deferred tax liability of $19.1 million for the applicable foreign withholding taxes associated with these historical earnings, which will become payable upon the repatriation of any such earnings.
63
The Company’s operating cash flows and cash balances will be adversely affected if management’s projections of future signings of IMAX Theater Systems and film performance, theater installations and film productions are not realized. The Company forecasts its future cash flow and short-term liquidity requirements on a quarterly and annualan ongoing basis. Since the Company’s future cash flowsThese forecasts are based on estimates and there may be materially impacted by factors that are outside of the Company’s control (see(including 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 that the Company will be able to fund its operations through cash flows from operations. UnderIn particular, the terms of the Company’s typical sale and sales-type lease agreements, 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.
The repercussions of the COVID-19 global pandemic resulted in a significant decrease in the Company’s revenues, earnings and operating cash flows in 2020as GBO results from theater exhibitors declined significantly, the installationand cash balances will be adversely impacted if management’s projections of certain Theaterfuture signings and installations of IMAX Systems was delayed, and maintenance services were generally suspended for theaters that were closed. During time periods when there is a lackbox office performance of new films released by movie studios and a significant number of theaters inremastered content distributed to the IMAX network are closed,not realized.
For the year ended December 31, 2023, the Company is experiencing a significant decline in earningshad $76.2 million balance of cash and cash equivalents and net cash provided by the Company’s operating cash flows as it is generating significantly lower than normal levelsactivities of GBO-based revenue$58.6 million which improved $41.3 million from its joint revenue sharing arrangements and digital remastering services, it is unable to provide normal maintenance services to any of the theaters that remain closed, and while some installation activity is continuing, certain theater system installations have, and may continue to be delayed. In addition, the Company has experienced and is likely to continue to experience delays in collecting payments due under existing theater sale or lease arrangements from its exhibitor partners who are facing financial difficulties as a result of the theater closures. In response, the Company has provided temporary relief to exhibitor partners by waiving2022. or reducing maintenance fees during periods when theaters are closed or operating with reduced capacities and, in certain situations, by providing extended payment terms on annual minimum payment obligations in exchange for a corresponding or longer extension of the term of the underlying sale or lease arrangement.
Based on the Company’s current cash balances and operating cash flows, management expects to have sufficient capital and liquidity to fund its anticipated operating needs and capital requirements during the twelve monthnext twelve-month period following the date of this report. However, as discussed above, the risk of breaching the Senior Secured Net Leverage Ratio within the next twelve months increases significantly as the ongoing COVID-19 pandemic continues to adversely impact the Company’s ability to generate EBITDA. A violation of this covenant would represent an event of default under the terms of the Credit Agreement, allowing lenders to declare the principal and interest on all outstanding Credit Facility indebtedness due or payable immediately. If a breach of the Senior Secured Net Leverage Ratio covenant were to occur, however, management believes the Company would be able to either reduce a sufficient portion of the drawn amount on the Credit Facility with existing cash balances to achieve compliance, obtain additional sources of liquidity prior to the time when the repayment of its outstanding Credit Facility borrowings would be required, or negotiate a further amendment with its lenders to the Credit Agreement to provide further covenant relief.
(See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Impact of COVID-19 Pandemic” and “Risk Factors – The Company has experienced a significant decrease in its revenues, earnings and cash flows due to the COVID-19 global pandemic and its business, financial condition and results of operations may continue to be significantly harmed in future reporting periods” in Part I, Item 1A.)
Cash Flows for the Years Ended December 31, 2020 and 2019
During the year ended December 31, 2020, cash and cash equivalents increased by $207.9 million principally due to financing cash inflows of $240.6 million, which include the full draw of the Credit Facility in the first quarter of 2020, as discussed above. These financing cash inflows are partially offset by $23.0 million of cash used to fund the Company’s operating activities as the COVID-19 global pandemic resulted in a significant decline in revenue and earnings. In addition, during the year ended December 31, 2020, the Company invested $9.3 million in equipment to be used in its joint revenue sharing arrangements with exhibitors, intangible assets and property, plant and equipment. Based on management’s current operating plan for 2021, the Company expects to continue to use cash to deploy additional IMAX Theater Systems under joint revenue sharing arrangements.
Operating Activities
The Company’s net cash used in or provided by operating activities is affected by a number of factors, including: (i) the level of cash collections from customers in respect of existing IMAX Theater System sale and lease agreements, (ii) the amount of upfront payments collected from newly signed IMAX Theater System sale and lease agreements, (iii) the box-office performance of films distributed by the Company and/or released to IMAX theaters, (iv) the level of inventory purchases and (v) the level of the Company’s operating expenses, including expenses for research and development and new business initiatives.
64
Net cash used in operating activities totaled to $23.0 million for the year ended December 31, 2020, as compared to net cash provided by operating activities of $90.4 million for the year ended December 31, 2019. For the year ended December 31, 2020, the net cash outflow from operating activities is principally due to the significant decrease in the Company’s revenue and earnings as a result of the COVID-19 global pandemic.
Investing Activities
Net cash used in investing activities totaled $9.3 million in the year ended December 31, 2020 (2019 — $66.0 million) which includes $6.7 million (2019 — $40.5 million) invested in equipment to be used in the Company’s joint revenue sharing arrangements with exhibitors. In addition, the Company acquired $1.9 million (2019 — $2.9 million) of intangible assets, principally related to the purchase of internal use software, and purchased $0.7 million in property, plant and equipment (2019 — $7.4 million). Furthermore, in the year ended December 31, 2019, IMAX China (Hong Kong), Limited, a wholly-owned subsidiary of IMAX China purchased equity securities in Maoyan for $15.2 million. No investments of equity securities occurred in 2020.60
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 $16.9 million in 2020 as compared to $74.3 million in 2019.
Financing Activities
Net cash provided by financing activities totaled $240.6 million for the year ended December 31, 2020, as compared to net cash used of $57.1 million in 2019. In 2020, the net cash provided by financing activities was principally due to $280.0 million in Credit Facility borrowings drawn in the first quarter of 2020, as discussed above, and $7.6 million drawn on IMAX Shanghai’s Working Capital Facility, partially offset by $36.6 million paid to repurchase common shares under the Company’s share repurchase program, $3.6 million paid to purchase treasury stock for the settlement of restricted share units and related taxes, $1.5 million for the repurchase of common shares under the IMAX China share repurchase program, $4.2 million of dividends paid to the non-controlling interest shareholders of IMAX China and $1.1 million in Credit Facility amendment fees.
In 2019, the net cash used in financing activities was principally due to the net repayment of $20.0 million in Credit Facility borrowings, $19.2 million for the repurchase of common shares under the IMAX China share repurchase program, $14.4 million paid to purchase treasury stock for the settlement of restricted share units and related taxes, $4.4 million of dividends paid to the non-controlling interest shareholders of IMAX China, and $2.7 million paid to repurchase common shares under the Company’s share repurchase program, partially offset by $2.4 million common shares issued for stock options exercised and $1.1 million received for the issuance of subsidiary shares to non-controlling interests.
CONTRACTUAL OBLIGATIONS
Payments to be made by the Company under contractual obligations as of December 31, 20202023 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 |
|
|
| Payments Due by Period |
| |||||||||||||||||
(In thousands of U.S. Dollars) |
| Total Obligation |
|
| Less Than One Year |
|
| 1 to 3 years |
|
| 3 to 5 years |
|
| Thereafter |
| |||||
Purchase obligations(1) |
| $ | 35,348 |
|
| $ | 35,247 |
|
| $ | 83 |
|
| $ | — |
|
| $ | 18 |
|
Pension obligations(2) |
|
| 20,298 |
|
|
| — |
|
|
| 20,298 |
|
|
| — |
|
|
| — |
|
Operating lease obligations(3) |
|
| 21,493 |
|
|
| 3,715 |
|
|
| 5,190 |
|
|
| 4,258 |
|
|
| 8,330 |
|
Credit Facility(4) |
|
| 300,000 |
|
|
| — |
|
|
| 300,000 |
|
|
| — |
|
|
| — |
|
Working Capital Facility |
|
| 7,643 |
|
|
| 7,643 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Postretirement benefits obligations |
|
| 3,299 |
|
|
| 126 |
|
|
| 265 |
|
|
| 273 |
|
|
| 2,635 |
|
|
| $ | 388,081 |
|
| $ | 46,731 |
|
| $ | 325,836 |
|
| $ | 4,531 |
|
| $ | 10,983 |
|
|
|
(2) |
|
65
|
|
|
|
Pension and Postretirement Obligations
The Company has an unfunded defined benefit pension plan, the SERP,Supplemental Executive Retirement Plan (the “SERP”), covering the Company’sits CEO, Mr. Richard L. Gelfond. UnderThe SERP has a fixed benefit payable of $20.3 million. The table above assumes that Mr. Gelfond will receive a lump sum payment of $20.3 million six months after retirement at the end 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 amendment to his employment agreement dated November 1, 2019, the term of Mr. Gelfond’s employment was extended through December 31, 2022, although Mr. Gelfond has not informed the Company that he intends to retire at that time. Under the terms of this amendment(Refer to his employment agreement, theNote 23 to Consolidated Financial Statements in Part II, Item 8.)
The Company has a postretirement plan to provide health and welfare benefits to Canadian employees meeting certain eligibility requirements. As of December 31, 2020, the Company’s Consolidated Balance Sheet includes an unfunded benefit obligation of $1.9 million within Accrued and Other Liabilities related to this plan (December 31, 2019 — $1.6 million).
In July 2000, the Company agreed to maintain health benefits for Messrs. Gelfond and Bradley J. Wechsler, the Company’s former Co-CEO and current Chairman of its Board of Directors, upon retirement. As of December 31, 2020, the Company’s Consolidated Balance Sheet includes an unfunded benefit obligation of $0.7 million within Accrued and Other Liabilities related to this plan (December 31, 2019 — $0.7 million).
The Company maintained a non-qualified 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 the fourth quarter of 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 and the accelerated costs were recognized and reflected in Executive Transition Costs in the Consolidated Statements of Operations.
As of December 31, 2020, the benefit obligation related to the Retirement Plan was $3.7 million (December 31, 2019 — $3.6 million) and is recorded0.500% per annum on the Company’sprincipal of $230.0 million, payable semi-annually in arrears on April 1 and October 1 of each year. The Convertible Notes will mature on April 1, 2026, unless earlier repurchased, redeemed or converted. (Refer to Note 14(b) 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 paidFinancial Statements in the future with the accretion of interest recognized in the Consolidated Statements of Operations within Retirement Benefits Non-Service Expenses.
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, 2020, fair value of the COLI asset was $3.2 million (December 31, 2019 — $3.2 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 Gain (Loss) In Fair Value of Investments.
OFF-BALANCE SHEET ARRANGEMENTS
There are currently no off-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 U.S. Securities and Exchange Commission rules.the SEC regulations. Specifically, the Company presents the following non-GAAP financial measures as supplemental measures of its performance:
|
|
|
|
66
|
|
|
|
For the years ended December 31, 2020 and 2019, adjustedAdjusted net (loss) income or loss attributable to common shareholders and adjusted net (loss) 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) legal judgmentrealized and arbitration awards;unrealized investment gains or losses; (iv) exittransaction-related expenses; and (v) restructuring and executive transition costs, restructuring charges and associated impairments; (v) loss in the fair value of investments, as well as the related tax impact of these adjustments, and (vi) income taxes resulting from management’s decision to no longer indefinitely reinvest the historical earnings of certain foreign subsidiaries.adjustments.
61
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) incomeloss attributable to common shareholders. 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.
A reconciliation fromReconciliations of net income (loss) income attributable to common shareholders and the associated per share amounts to adjusted net income (loss) income attributable to common shareholders and adjusted net (loss) income attributable to common shareholders per basic and diluted share isare presented in the table below. Net (loss) income
|
| Years Ended December 31, |
| |||||||||||||
|
| 2023 |
|
| 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): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
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 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Weighted average shares outstanding - basic |
|
|
|
|
| 54,310 |
|
|
|
|
|
| 56,674 |
| ||
Weighted average shares outstanding - diluted |
|
|
|
|
| 55,146 |
|
|
|
|
|
| 57,371 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| Years Ended December 31, |
| |||||||||||||
|
| 2020 |
|
| 2019 |
| ||||||||||
(In thousands of U.S. Dollars, except per share amounts) |
| Net Loss |
|
| Per Share |
|
| Net Income |
|
| Per Share |
| ||||
Net (loss) income attributable to common shareholders |
| $ | (143,775 | ) |
| $ | (2.43 | ) |
| $ | 46,866 |
|
| $ | 0.76 |
|
Adjustments(1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
| 20,558 |
|
|
| 0.35 |
|
|
| 22,236 |
|
|
| 0.36 |
|
COVID-19 government relief benefits(2) |
|
| (7,115 | ) |
|
| (0.12 | ) |
|
| — |
|
|
| — |
|
Legal judgment and arbitration awards |
|
| 4,105 |
|
|
| 0.07 |
|
|
| — |
|
|
| — |
|
Exit costs, restructuring charges and associated impairments |
|
| — |
|
|
| — |
|
|
| 850 |
|
|
| 0.01 |
|
Loss in fair value of investments |
|
| 1,450 |
|
|
| 0.02 |
|
|
| 333 |
|
|
| 0.01 |
|
Tax impact on items listed above(3) |
|
| (630 | ) |
|
| (0.01 | ) |
|
| (5,500 | ) |
|
| (0.09 | ) |
Income taxes resulting from management's decision to no longer indefinitely reinvest the historical earnings of certain foreign subsidiaries |
|
| 13,344 |
|
|
| 0.23 |
|
|
| — |
|
|
| — |
|
Adjusted net (loss) income(1) |
| $ | (112,063 | ) |
| $ | (1.89 | ) |
| $ | 64,785 |
|
| $ | 1.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding |
|
|
|
|
|
| 59,237 |
|
|
|
|
|
|
| 61,489 |
|
|
|
|
|
|
|
67
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, and depreciation and amortization. Adjusted EBITDA per Credit FacilityAccordingly, 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 againstwith 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; (ii) income tax expense or benefit; and (iii) depreciation and amortization, including film asset amortization.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) gainrealized and unrealized investment gains or loss in the fair value of investments;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; (iv) legal judgment and arbitration awards; and (iv) the gain or loss from equity accounted investments.expense.
A reconciliation62
Reconciliations of net lossincome attributable to common shareholders, which is the most directly comparable GAAP measure, to EBITDA and Adjusted EBITDA per Credit Facility isare presented in the table below. Net loss attributable to common shareholders
| For the Twelve Months Ended December 31, 2023 |
| ||||||||||||
| Attributable to |
|
|
|
|
|
|
| ||||||
| Non-controlling |
|
| Less: |
|
|
|
|
| |||||
| Interests and |
|
| Attributable to |
|
| Attributable to |
| ||||||
(In thousands of U.S. Dollars) | Common Shareholders |
|
| Non-controlling Interests |
|
| Common Shareholders |
| ||||||
Reported net income | $ |
| 33,066 |
|
| $ |
| 7,731 |
|
| $ |
| 25,335 |
|
Add (subtract): |
|
|
|
|
|
|
|
|
|
|
| |||
Income tax expense |
|
| 13,051 |
|
|
|
| 1,725 |
|
|
|
| 11,326 |
|
Interest expense, net of interest income |
|
| 2,101 |
|
|
|
| (408 | ) |
|
|
| 2,509 |
|
Depreciation and amortization, including film asset amortization |
|
| 60,022 |
|
|
|
| 5,312 |
|
|
|
| 54,710 |
|
Amortization of deferred financing costs(1) |
|
| 2,235 |
|
|
|
| — |
|
|
|
| 2,235 |
|
EBITDA |
|
| 110,475 |
|
|
|
| 14,360 |
|
|
|
| 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 |
|
|
|
| 2,688 |
|
Adjusted EBITDA per Credit Facility | $ |
| 144,028 |
|
| $ |
| 15,869 |
|
| $ |
| 128,159 |
|
| For the Twelve Months Ended December 31, 2020 (1) |
| ||||||||||||
| Attributable to |
|
|
|
|
|
|
| ||||||
| Non-controlling |
|
| Less: Attributable to |
|
|
|
|
|
| ||||
| Interests and |
|
| Non-controlling |
|
| Attributable to |
| ||||||
| Common Shareholders |
|
| Interests |
|
| Common Shareholders |
| ||||||
(In thousands of U.S. Dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported net loss | $ |
| (157,486 | ) |
| $ |
| (13,711 | ) |
| $ |
| (143,775 | ) |
Add (subtract): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
| 26,504 |
|
|
|
| 5,408 |
|
|
|
| 21,096 |
|
Interest expense, net of interest income |
|
| 3,720 |
|
|
|
| (370 | ) |
|
|
| 4,090 |
|
Depreciation and amortization, including film asset amortization |
|
| 53,606 |
|
|
|
| 4,570 |
|
|
|
| 49,036 |
|
EBITDA | $ |
| (73,656 | ) |
| $ |
| (4,103 | ) |
| $ |
| (69,553 | ) |
Share-based and other non-cash compensation |
|
| 22,038 |
|
|
|
| 968 |
|
|
|
| 21,070 |
|
Loss in fair value of investments |
|
| 2,081 |
|
|
|
| 631 |
|
|
|
| 1,450 |
|
Write-downs, including asset impairments and credit loss expense |
|
| 36,337 |
|
|
|
| 8,364 |
|
|
|
| 27,973 |
|
Legal judgment and arbitration awards |
|
| 4,105 |
|
|
|
| — |
|
|
|
| 4,105 |
|
Loss from equity accounted investments |
|
| 1,858 |
|
|
|
| — |
|
|
|
| 1,858 |
|
Adjusted EBITDA per Credit Facility | $ |
| (7,237 | ) |
| $ |
| 5,860 |
|
| $ |
| (13,097 | ) |
|
|
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
68
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, the Canadian Dollar (“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. Dollars while a significant portion of its costs and expenses is denominated in Canadian Dollars. A portion of the Company’s net U.S. Dollar cash flows is converted to Canadian Dollars to fund Canadian Dollar expenses through the spot market. In addition, IMAX films generate box office in 8490 different countries, and therefore unfavorable exchange rates between applicable local currencies and the U.S. Dollar 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 ongoing Yen-denominated operating expenses related to its Japanese operations. Net RenminbiRMB and Japanese Yen cash flows are converted to U.S. Dollars 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.
The Company manages its exposure to foreign exchange rate risks through its 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.
Certain of the Company’s PRC subsidiaries held approximately 500.3RMB 213.0 million Renminbi ($76.7 million)or $30.0 million in cash and cash equivalents as of December 31, 20202023 (December 31, 20192022 — 471.6RMB 303.8 million Renminbi or $67.6$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 Administration of Foreign Exchange to complete. Any developments relating to the Chinese economy and any actions taken by the Chinese government are beyond the control of the 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, 2020,2023, the Company recorded a foreign exchange net gainloss of $0.8$0.7 million as compared to a foreign exchange net loss of $(0.9)$3.2 million in 2019,2022, 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 2021.2024 and 2025. Foreign currency derivatives are recognized and measured in the Company’s Consolidated Balance Sheets at fair value. Changes in the fair value (gains(i.e., gains or losses) are recognized in the Consolidated Statements of Operations except for derivatives designated and qualifying as foreign currency cash flow hedging instruments. Certain of these foreign currency forward contracts held by the Company as of December 31, 2020, are designated and qualify as foreign currency cash flow hedging instruments. The Company currently has cash flow hedging instruments associated with Selling, General and Administrative Expenses, Inventories and capital expenditures.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 inwithin Accumulated Other Comprehensive IncomeLoss and reclassified to the Consolidated Statements of Operations when the forecasted transaction occurs. For foreign currency cash flow hedging instruments related to Inventories, the effective portion of the gain or loss in a hedge of a forecasted transaction is reported in Other Comprehensive Income and reclassified to Inventories on the Consolidated Balance Sheets when the forecasted transaction occurs. For foreign currency cash flow hedging instruments related to capital expenditures, the effective portion of the gain or loss in a hedge of a forecasted transaction is reported in Other Comprehensive Income and reclassified to Property, Plant and Equipment on the Consolidated Balance Sheets when the forecasted transaction occurs. Any ineffective portion is recognized immediately in the Consolidated Statements of Operations.
69
The notional value of foreign currency cash flow hedging instruments that qualify for hedge accounting atas of December 31, 20202023 was $26.4$40.6 million (December 31, 20192022 — $36.1$24.7 million). A gain of $0.6 million was recorded to Other Comprehensive (Loss) Income with respect to the change in fair value of these contracts in 2020 (20192023 (2022 — aloss of $1.3 million; 2021 — gain of $0.6 million).$0.5 million ). A loss of $0.6$0.9 million was reclassified from Accumulated Other Comprehensive IncomeLoss to Selling, General and Administrative Expenses Inventories and Property, Plant and Equipment in 2020 (20192023 (2022 — loss of $1.2 million). A$0.6 million; 2021 — gain of $0.3 million$1.7 million), 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 losses resulting from thea change in fair value onthe classification of certain forward contracts notno longer meeting the requirements for hedge accounting was recordedwere reclassified from Accumulated Other Comprehensive Loss to Selling, General and Administrative Expenses.Expenses (2022 — $nil). The notional value of forward contracts that do not qualify for hedge accounting atas of December 31, 20202023 was $5.6 million$nil (December 31, 20192022 — $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, 2020,2023, the Company’s Financing Receivables and working capital items denominated in Canadian Dollars, Renminbi,RMB, Japanese Yen, Euros and other foreign currencies translated into U.S. Dollars was $133.5 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, 2020,2023, the potential change in the fair value of foreign currency-denominated financing receivables and working capital items would have been $13.3$17.3 million. A significant portion of the Company’s Selling, General, and Administrative Expenses is denominated in Canadian Dollars. Assuming a 1% change appreciation or depreciation in foreign currency exchange rates atas of December 31, 2020,2023, the potential change in the amount of Selling, General, and Administrative Expenses would be $0.1$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 ofyear ended December 31, 2020,2023 the Company had drawn down $300.0$24.0 million on its Credit Facility (December 31, 20192022 — $20.0$25.0 million) and $7.6 million, $nil on IMAX China’s Working Capitalits HSBC China Facility (December 31, 20192022 — $nil).
The Company’s largest exposure with respect$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 56.3%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 8.1%8% of its total liabilities atas of December 31, 20202023 and 2019,2022, respectively. If the interest rates available to the Company increased by 10%, the Company’s interest expense would increase by $0.4$0.2 million and interest income from cash would increase by $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, 2020.2023.
On July 27, 2017, the Chief Executive of the U.K. Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced that the FCA will no longer compel banks to submit rates for the calculation of the LIBOR benchmark after 2021. This announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021, and it appears likely that LIBOR will be discontinued or modified by 2021. Loans under the Credit Facility bear interest, at the Company’s option, at (i) LIBOR plus a margin ranging from 1.00% to 1.75% per annum; or (ii) the U.S. base rate plus a margin ranging from 0.25% to 1.00% per annum, in each case depending on the Company’s Total Leverage Ratio (as defined in the Credit Agreement). The Credit Facility also allows for the selection of a replacement rate in the event of the discontinuation of LIBOR, subject to the approval of the administrative agent. The Company expects that the Credit Facility will transition to the Secured Overnight Financing Rate (“SOFR”) as the replacement rate. Given the Company’s current level of indebtedness and based on the historic differences between LIBOR and SOFR, the Company does not expect that the future discontinuation of LIBOR will have a material impact on future interest expense.
7065
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page | |||
Report of Independent Registered Public Accounting Firm(PCAOB Firm ID 271) |
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Consolidated Balance Sheets as of December 31, |
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************
71
66
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, 20202023 and 2019,2022, and the related consolidated statements of operations, comprehensive (loss) income,income(loss), shareholders’ equity and cash flows and shareholders’ equity for each of the three years in the period ended December 31, 2020,2023, including the related notes and the financial statement schedule listed in the accompanying index for each of the three years in the period ended December 31, 2020 (collectively referred to as the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2020,2023, based on criteria established in Internal 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 financial position of the Company as of December 31, 20202023 and 2019,2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20202023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020,2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in notes 3, 4, 5 and 6 to the consolidated financial statements, the Company changed the manner in which it accounts for its allowance for current expected credit losses in 2020, the manner in which it accounts for leases in 2019 and the manner in which it accounts for revenues from contracts with customers in 2018.
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 of this Annual Report on Form 10-K. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’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 Company 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.
72
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A 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 company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the 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 mattersmatter communicated below are mattersis a matter arising from the current period audit of the consolidated financial statements that werewas communicated or required to be communicated to the audit committee and that (i) relaterelates 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 mattersmatter below, providing a separate opinionsopinion on the critical audit mattersmatter or on the accounts or disclosures to which they relate.it relates.
Revenue Recognition – Theater- IMAX Systems Revenue
As described in notes 3(n)2(o) and 2120(a) to the consolidated financial statements, the Company recognized revenue from IMAX SystemsSystem Sales related to the IMAX Technology SalesProducts and Maintenance category (theater systems)Services segment of $54.1$93.3 million for the year ended December 31, 2020.2023 ($65.5 million for the year ended December 31, 2022). Management evaluates whether a theater system arrangement involves either a sale or a lease of a theater system, and for those arrangements that are accounted for as a sale of a theater 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 theater system, the transaction price allocated to the performance obligation is recognized when the conditions signifying transfer of control have been met. For theater system arrangements, management applied significant judgmentjudgement in (i) determining whether the theater system arrangement related to either a sale or a lease by considering the terms of the arrangement including title to the theater 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 theater systems revenueSystem Sales is a critical audit matter are that management identified the matter as a critical accounting estimate, and there was significant judgmentjudgement required by management in (i) determining whether the theater system arrangement related to a sale or a lease;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 judgment,judgement, subjectivity and effort in performing procedures and evaluating audit evidence relating to the revenue recognition of theater systems revenue.System Sales.
7368
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 memorandumsmemoranda produced for each theater system arrangement which include the determination of the type of theater 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 theater 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 theaterstheatres 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 theaterstheatres associated with the arrangement involved evaluating whether the assumption was reasonable considering the current and past performance of the underlying theaters.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 theatertheatre openings during the year.
Uncertain Tax Positions
As described in notes 3(m) and 12 to the consolidated financial statements, the Company had total tax reserves of $17.4 million as of December 31, 2020 related to uncertain tax positions. The Company is subject to ongoing tax exposures, examinations and assessments in various jurisdictions. As disclosed by management, 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. As disclosed by management, tax audits can result in subsequent assessments where the ultimate resolution may result in the Company owing additional taxes above what was originally recognized. Tax reserves for uncertain tax positions are adjusted by management to reflect their best estimate of the outcome of examinations and assessments and in light of changing facts and circumstances, such as the completion of a tax audit, expiration of a statute of limitations, the refinement of an estimate, and interest accruals associated with the uncertain tax positions until they are resolved. The estimate of the Company’s tax reserves relating to uncertain tax positions required management to assess uncertainties and to make significant judgments about the application of complex tax laws.
The principal considerations for our determination that performing procedures relating to uncertain tax positions is a critical audit matter are (i) the significant judgment by management in determining uncertain tax positions, including a high degree of estimation uncertainty relative to the numerous and complex tax laws, frequency of tax audits, and potential for significant adjustments as a result of such audits; (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating management’s timely identification, recognition and measurement of uncertain tax positions; (iii) the evaluation of audit evidence available to support the tax reserves for uncertain tax positions resulted in significant auditor judgment as the nature of the evidence is often subjective; and (iv) the audit effort involved the use of professionals with specialized skill and knowledge.
74
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 identification and recognition of the tax reserves for uncertain tax positions, controls addressing completeness of the uncertain tax positions, and controls over measurement of the tax reserves. These procedures also included, among others (i) testing the information used in the calculation of the tax reserves for uncertain tax positions; (ii) testing the calculation of the tax reserves for uncertain tax positions by jurisdiction; and (iii) evaluating the status and results of income tax audits with the relevant tax authorities, as applicable. Professionals with specialized skill and knowledge were used to assist in the evaluation of the completeness and measurement of the Company’s uncertain tax positions, including evaluating the reasonableness of management’s assessment of whether tax positions are more-likely-than-not of being sustained and the amount of potential benefit to be realized, the application of relevant tax laws, and estimated interest and penalties.
Annual Goodwill Impairment Assessment
As described in notes 2 and 3(j) to the consolidated financial statements, the Company’s goodwill balance was $39.0 million as of December 31, 2020, of which $19.1 million relates to the IMAX Systems reporting unit, $13.5 million relates to the Joint Revenue Sharing Arrangement reporting unit, and $6.4 million relates to the IMAX Maintenance reporting unit. Management conducts an impairment test annually in the fourth quarter of the year and between annual tests if indicators of potential impairment exist. As a result of the negative effects of the COVID-19 pandemic on revenue and earnings, management also performed quantitative goodwill impairment tests as of the reporting date of each of the first, second and third quarters of 2020 considering the latest available information and determined that its goodwill was not impaired. The impairment test was performed on a reporting unit level by comparing each unit’s carrying value, including goodwill, to its fair value. The fair value of each reporting unit was estimated using a discounted cash flow model based on management’s current short-term forecast and estimated long-term projections, against which various sensitivity analyses were performed. Management applied significant judgment in estimating the fair value of each reporting unit, which included the use of significant assumptions relating to estimated long-term projections and discount rates.
The principal considerations for our determination that performing procedures relating to the annual goodwill impairment assessment is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the reporting units; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to estimated long-term projections and discount rates; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
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 management’s goodwill impairment assessment, including controls over the valuation of the Company’s reporting units. These procedures also included, among others, (i) testing management’s process for developing the fair value estimate of the reporting units; (ii) evaluating the appropriateness of the discounted cash flow models; (iii) testing the completeness and accuracy of underlying data used in the models; and (iv) evaluating the reasonableness of the significant assumptions used by management related to estimated long-term projections and discount rates. Evaluating management’s assumptions related to estimated long-term projections involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting units; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of the Company’s discounted cash flow models and the reasonableness of the discount rate assumptions.
75
Allowance for Credit Losses on Accounts Receivable, Financing Receivables and Variable Consideration Receivables/s/ PricewaterhouseCoopers LLP
As described in notes 2, 3(d) and 5 to the consolidated financial statements, the Company’s allowance for credit losses related to accounts receivable was $14.3 million, the allowance for credit losses related to financing receivables was $7.8 million and the allowance for credit losses related to variable consideration receivables was $1.9 million as of December 31, 2020 (together allowance for credit losses on receivables). Accounts receivable, financing receivables and variable consideration receivables are measured on the amortized cost basis and presented at the net amount expected to be collected. As disclosed by management, management increased its provision for current expected credit losses by $18.6 million for the year ended December 31, 2020, in part reflecting a reduction in the credit quality of its theater related accounts receivable, financing receivables and variable consideration receivables, which management believes is primarily related to the COVID-19 pandemic. Management develops its estimate of 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 taking into account management’s internal credit quality classifications, as well as macro-economic and industry risk factors. Management applied significant judgment in estimating the allowance for credit losses on receivables, which included assessing credit quality classifications, macro-economic and industry risk factors.
The principal considerations for our determination that performing procedures relating to the allowance for credit losses on accounts receivable, financing receivables and variable consideration receivables is a critical audit matter are (i) the significant judgment by management in estimating the allowance for credit losses on receivables; and (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s assessment of credit quality classifications, macro-economic and industry risk factors.
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 management’s estimate of the allowance for credit losses on receivables, including controls related to management’s assessment of credit quality classifications, macro-economic and industry risk factors. These procedures also included, among others (i) testing management’s process for estimating the allowance for credit losses on receivables; (ii) evaluating the appropriateness of management’s method; (iii) testing the completeness and accuracy of underlying data used in the method; and (iv) evaluating the reasonableness of management’s assessment of credit quality classifications, macro-economic and industry risk factors. Evaluating the reasonableness of management’s assessment of credit quality classifications, macro-economic and industry risk factors on a sample basis involved considering (i) recent payment patterns of customers; (ii) consistency with external market and industry data; (iii) inquiries with management regarding adjustments for forward-looking information on economic factors affecting the ability of customers to settle the receivables; (iv) recent correspondence with customers; (v) recent public filings by customers; and (vi) whether this assessment was consistent with evidence obtained in other areas of the audit.
/s/ PricewaterhouseCoopers LLP
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Canada
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We have served as the Company'sCompany’s auditor since 1987, which includes periods before the entityCompany became subject to SEC reporting requirements.
69
76
IMAX CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. Dollars except share amounts)
|
| As of December 31, |
|
| As of December 31, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2023 |
|
| 2022 |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 317,379 |
|
| $ | 109,484 |
|
| $ | 76,200 |
|
| $ | 97,401 |
|
Accounts receivable, net of allowance for credit losses (see Note 5) |
|
| 56,300 |
|
|
| 99,513 |
| ||||||||
Financing receivables, net of allowance for credit losses (see Note 5) |
|
| 131,810 |
|
|
| 128,038 |
| ||||||||
Variable consideration receivable, net of allowance for credit losses (see Note 5) |
|
| 40,526 |
|
|
| 40,040 |
| ||||||||
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 |
|
| 39,580 |
|
|
| 42,989 |
|
|
| 31,584 |
|
|
| 31,534 |
|
Prepaid expenses |
|
| 10,420 |
|
|
| 10,237 |
|
|
| 12,345 |
|
|
| 12,343 |
|
Film assets, net of accumulated amortization |
|
| 5,777 |
|
|
| 17,921 |
|
|
| 6,786 |
|
|
| 5,277 |
|
Property, plant and equipment, net of accumulated depreciation |
|
| 277,397 |
|
|
| 306,849 |
|
|
| 243,299 |
|
|
| 252,896 |
|
Investment in equity securities |
|
| 13,633 |
|
|
| 15,685 |
|
|
| — |
|
|
| 1,035 |
|
Other assets |
|
| 21,673 |
|
|
| 25,034 |
|
|
| 20,879 |
|
|
| 15,665 |
|
Deferred income tax assets |
|
| 17,983 |
|
|
| 23,905 |
| ||||||||
Deferred income tax assets, net of valuation allowance |
|
| 7,988 |
|
|
| 9,900 |
| ||||||||
Goodwill |
|
| 52,815 |
|
|
| 52,815 |
| ||||||||
Other intangible assets, net of accumulated amortization |
|
| 26,245 |
|
|
| 30,347 |
|
|
| 35,022 |
|
|
| 32,738 |
|
Goodwill |
|
| 39,027 |
|
|
| 39,027 |
| ||||||||
Total assets |
| $ | 997,750 |
|
| $ | 889,069 |
|
| $ | 814,669 |
|
| $ | 821,154 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Bank indebtedness, net of unamortized debt issuance costs |
| $ | 305,676 |
|
| $ | 18,229 |
| ||||||||
Accounts payable |
|
| 20,837 |
|
|
| 20,414 |
|
| $ | 26,386 |
|
| $ | 25,237 |
|
Accrued and other liabilities |
|
| 99,354 |
|
|
| 112,779 |
|
|
| 111,013 |
|
|
| 117,286 |
|
Deferred revenue |
|
| 87,982 |
|
|
| 94,552 |
|
|
| 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 |
|
| 19,134 |
|
|
| — |
|
|
| 12,521 |
|
|
| 14,900 |
|
Total liabilities |
|
| 532,983 |
|
|
| 245,974 |
|
|
| 469,080 |
|
|
| 491,386 |
|
Commitments and contingencies (see Notes 15 and 16) |
|
|
|
|
|
|
|
| ||||||||
Commitments, contingencies and guarantees (see Notes 15 and 16) |
|
|
|
|
|
| ||||||||||
Non-controlling interests |
|
| 759 |
|
|
| 5,908 |
|
|
| 658 |
|
|
| 722 |
|
Shareholders' equity |
|
|
|
|
|
|
|
| ||||||||
Shareholders’ equity |
|
|
|
|
|
| ||||||||||
Capital stock common shares — no par value. Authorized — unlimited number. |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
58,921,731 issued and 58,921,008 outstanding (December 31, 2019 — 61,362,872 issued and 61,175,852 outstanding) |
|
| 407,031 |
|
|
| 423,386 |
| ||||||||
Less: Treasury stock, 723 shares at cost (December 31, 2019 — 187,020) |
|
| (11 | ) |
|
| (4,038 | ) | ||||||||
53,260,276 issued and outstanding (December 31, 2022 — 54,148,614 issued and outstanding) |
|
| 389,048 |
|
|
| 376,715 |
| ||||||||
Other equity |
|
| 180,330 |
|
|
| 171,789 |
|
|
| 185,087 |
|
|
| 185,678 |
|
Statutory surplus reserve |
|
| 3,932 |
|
|
| 3,932 |
| ||||||||
Accumulated deficit |
|
| (202,849 | ) |
|
| (40,253 | ) |
|
| (292,845 | ) |
|
| (293,124 | ) |
Accumulated other comprehensive income (loss) |
|
| 988 |
|
|
| (3,190 | ) | ||||||||
Total shareholders' equity attributable to common shareholders |
|
| 385,489 |
|
|
| 547,694 |
| ||||||||
Accumulated other comprehensive loss |
|
| (12,081 | ) |
|
| (9,846 | ) | ||||||||
Total shareholders’ equity attributable to common shareholders |
|
| 273,141 |
|
|
| 263,355 |
| ||||||||
Non-controlling interests |
|
| 78,519 |
|
|
| 89,493 |
|
|
| 71,790 |
|
|
| 65,691 |
|
Total shareholders' equity |
|
| 464,008 |
|
|
| 637,187 |
| ||||||||
Total liabilities and shareholders' equity |
| $ | 997,750 |
|
| $ | 889,069 |
| ||||||||
Total shareholders’ equity |
|
| 344,931 |
|
|
| 329,046 |
| ||||||||
Total liabilities and shareholders’ equity |
| $ | 814,669 |
|
| $ | 821,154 |
|
(See the accompanying notes, which are an integral part of these Consolidated Financial Statements)
70
77
IMAX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of U.S. Dollars, except per share amounts)
|
| Years Ended December 31, |
|
| Years Ended December 31, |
| ||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Technology sales |
| $ | 49,728 |
|
| $ | 118,245 |
|
| $ | 106,591 |
|
| $ | 100,792 |
|
| $ | 69,158 |
|
| $ | 66,153 |
|
Image enhancement and maintenance services |
|
| 59,318 |
|
|
| 188,547 |
|
|
| 181,740 |
|
|
| 189,752 |
|
|
| 161,379 |
|
|
| 131,148 |
|
Technology rentals |
|
| 17,841 |
|
|
| 77,961 |
|
|
| 74,472 |
|
|
| 75,566 |
|
|
| 61,786 |
|
|
| 46,790 |
|
Finance income |
|
| 10,116 |
|
|
| 10,911 |
|
|
| 11,598 |
|
|
| 8,729 |
|
|
| 8,482 |
|
|
| 10,792 |
|
|
|
| 137,003 |
|
|
| 395,664 |
|
|
| 374,401 |
|
|
| 374,839 |
|
|
| 300,805 |
|
|
| 254,883 |
|
Costs and expenses applicable to revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Technology sales |
|
| 33,170 |
|
|
| 63,627 |
|
|
| 54,853 |
|
|
| 46,756 |
|
|
| 37,610 |
|
|
| 37,039 |
|
Image enhancement and maintenance services |
|
| 53,598 |
|
|
| 88,175 |
|
|
| 84,236 |
|
|
| 88,056 |
|
|
| 81,834 |
|
|
| 58,062 |
|
Technology rentals |
|
| 28,695 |
|
|
| 29,690 |
|
|
| 27,383 |
|
|
| 25,686 |
|
|
| 25,006 |
|
|
| 25,376 |
|
|
|
| 115,463 |
|
|
| 181,492 |
|
|
| 166,472 |
|
|
| 160,498 |
|
|
| 144,450 |
|
|
| 120,477 |
|
Gross margin |
|
| 21,540 |
|
|
| 214,172 |
|
|
| 207,929 |
|
|
| 214,341 |
|
|
| 156,355 |
|
|
| 134,406 |
|
Selling, general and administrative expenses |
|
| 108,485 |
|
|
| 123,456 |
|
|
| 117,477 |
|
|
| 144,406 |
|
|
| 138,043 |
|
|
| 117,322 |
|
Research and development |
|
| 5,618 |
|
|
| 5,203 |
|
|
| 13,728 |
|
|
| 10,110 |
|
|
| 5,300 |
|
|
| 6,944 |
|
Amortization of intangibles |
|
| 5,394 |
|
|
| 4,955 |
|
|
| 4,145 |
| ||||||||||||
Credit loss expense (see Note 5) |
|
| 18,608 |
|
|
| 2,430 |
|
|
| 3,130 |
| ||||||||||||
Amortization of intangible assets |
|
| 4,578 |
|
|
| 4,829 |
|
|
| 4,877 |
| ||||||||||||
Credit loss expense (reversal), net |
|
| 1,759 |
|
|
| 8,547 |
|
|
| (3,951 | ) | ||||||||||||
Asset impairments |
|
| 1,151 |
|
|
| — |
|
|
| — |
|
|
| 144 |
|
|
| 4,470 |
|
|
| — |
|
Legal judgment and arbitration awards (see Note 16) |
|
| 4,105 |
|
|
| — |
|
|
| 11,737 |
| ||||||||||||
Executive transition costs (see Note 25) |
|
| — |
|
|
| — |
|
|
| 2,994 |
| ||||||||||||
Exit costs, restructuring charges and associated impairments (see Note 26) |
|
| — |
|
|
| 850 |
|
|
| 9,542 |
| ||||||||||||
(Loss) income from operations |
|
| (121,821 | ) |
|
| 77,278 |
|
|
| 45,176 |
| ||||||||||||
Loss in fair value of investments |
|
| (2,081 | ) |
|
| (517 | ) |
|
| — |
| ||||||||||||
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 |
|
| (600 | ) |
|
| (737 | ) |
|
| (499 | ) |
|
| (411 | ) |
|
| (556 | ) |
|
| (463 | ) |
Interest income |
|
| 2,388 |
|
|
| 2,105 |
|
|
| 1,844 |
|
|
| 2,486 |
|
|
| 1,428 |
|
|
| 2,218 |
|
Interest expense |
|
| (7,010 | ) |
|
| (2,793 | ) |
|
| (2,916 | ) |
|
| (6,821 | ) |
|
| (5,877 | ) |
|
| (7,092 | ) |
(Loss) income before taxes |
|
| (129,124 | ) |
|
| 75,336 |
|
|
| 43,605 |
| ||||||||||||
Income (loss) before taxes |
|
| 46,117 |
|
|
| (9,769 | ) |
|
| 10,987 |
| ||||||||||||
Income tax expense |
|
| (26,504 | ) |
|
| (16,768 | ) |
|
| (9,518 | ) |
|
| (13,051 | ) |
|
| (10,108 | ) |
|
| (20,564 | ) |
Equity in (losses) income of investees, net of tax |
|
| (1,858 | ) |
|
| 3 |
|
|
| (492 | ) | ||||||||||||
Net (loss) income |
|
| (157,486 | ) |
|
| 58,571 |
|
|
| 33,595 |
| ||||||||||||
Net loss (income) attributable to non-controlling interests |
|
| 13,711 |
|
|
| (11,705 | ) |
|
| (10,751 | ) | ||||||||||||
Net (loss) income attributable to common shareholders |
| $ | (143,775 | ) |
| $ | 46,866 |
|
| $ | 22,844 |
| ||||||||||||
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 (loss) income per share attributable to common shareholders - basic and diluted: |
| |||||||||||||||||||||||
Net (loss) income per share — basic and diluted |
| $ | (2.43 | ) |
| $ | 0.76 |
|
| $ | 0.36 |
| ||||||||||||
Net income (loss) per share attributable to common shareholders: | 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)
71
78
IMAX CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) INCOME
(In thousands of U.S. Dollars)
|
| Years Ended December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Net (loss) income |
| $ | (157,486 | ) |
| $ | 58,571 |
|
| $ | 33,595 |
|
Unrealized defined benefit plan actuarial (loss) gain |
|
| (897 | ) |
|
| 157 |
|
|
| 1,448 |
|
Unrealized postretirement benefit plans actuarial (loss) gain |
|
| (351 | ) |
|
| (153 | ) |
|
| 85 |
|
Prior service cost arising during the period |
|
| — |
|
|
| (456 | ) |
|
| — |
|
Amortization of prior service cost |
|
| 87 |
|
|
| — |
|
|
| — |
|
Unrealized net gain (loss) from cash flow hedging instruments |
|
| 500 |
|
|
| 552 |
|
|
| (2,219 | ) |
Realization of cash flow hedging net loss (gain) upon settlement |
|
| 604 |
|
|
| 1,183 |
|
|
| (408 | ) |
Foreign currency translation adjustments |
|
| 5,992 |
|
|
| (729 | ) |
|
| (3,170 | ) |
Other comprehensive income (loss), before tax |
|
| 5,935 |
|
|
| 554 |
|
|
| (4,264 | ) |
Income tax benefit (expense) related to other comprehensive income (loss) |
|
| 55 |
|
|
| (378 | ) |
|
| 286 |
|
Other comprehensive income (loss), net of tax |
|
| 5,990 |
|
|
| 176 |
|
|
| (3,978 | ) |
Comprehensive (loss) income |
|
| (151,496 | ) |
|
| 58,747 |
|
|
| 29,617 |
|
Comprehensive loss (income) attributable to non-controlling interests |
|
| 11,899 |
|
|
| (11,483 | ) |
|
| (9,735 | ) |
Comprehensive (loss) income attributable to common shareholders |
| $ | (139,597 | ) |
| $ | 47,264 |
|
| $ | 19,882 |
|
|
| 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)
72
79
IMAX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. Dollars)
|
| Years Ended December 31, |
| |||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| Years Ended December 31, |
| ||||||||||||||||||
Cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Net (loss) income |
| $ |
| (157,486 | ) |
| $ |
| 58,571 |
|
| $ |
| 33,595 |
| |||||||||||||||
Adjustments to reconcile net (loss) income to cash from operations: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Net income (loss) |
| $ |
| 33,066 |
|
| $ |
| (19,877 | ) |
| $ |
| (9,577 | ) | |||||||||||||||
Adjustments to reconcile net income (loss) to cash provided by operating activities: |
|
|
|
|
|
|
| |||||||||||||||||||||||
Depreciation and amortization |
|
|
| 53,606 |
|
|
| 63,487 |
|
|
| 57,437 |
|
|
|
| 60,022 |
|
|
| 56,661 |
|
|
| 56,082 |
| ||||
Credit loss expense |
|
|
| 18,608 |
|
|
| 2,430 |
|
|
| 3,130 |
| |||||||||||||||||
Write-downs |
|
|
| 17,729 |
|
|
| 4,376 |
|
|
| 8,640 |
| |||||||||||||||||
Deferred income tax expense (benefit) |
|
|
| 23,618 |
|
|
| 6,762 |
|
|
| (6,923 | ) | |||||||||||||||||
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 |
|
|
| 22,038 |
|
|
| 23,570 |
|
|
| 23,723 |
|
|
|
| 24,230 |
|
|
| 27,573 |
|
|
| 26,079 |
| ||||
Unrealized foreign currency exchange (gain) loss |
|
|
| (1,355 | ) |
|
| 32 |
|
|
| 631 |
|
|
|
| (212 | ) |
|
| 1,108 |
|
|
| 256 |
| ||||
Loss in fair value of investments |
|
|
| 2,081 |
|
|
| 517 |
|
|
| — |
| |||||||||||||||||
Equity in losses (income) of investees |
|
|
| 1,858 |
|
|
| (3 | ) |
|
| 492 |
| |||||||||||||||||
Realized and unrealized investment gain |
|
|
| (465 | ) |
|
| (70 | ) |
|
| (5,340 | ) | |||||||||||||||||
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Accounts receivable |
|
|
| 33,597 |
|
|
| (8,621 | ) |
|
| 33,942 |
|
|
|
| (1,907 | ) |
|
| (29,003 | ) |
|
| (52,453 | ) | ||||
Inventories |
|
|
| 1,637 |
|
|
| 1,942 |
|
|
| (14,022 | ) |
|
|
| (285 | ) |
|
| (5,529 | ) |
|
| 11,451 |
| ||||
Film assets |
|
|
| (7,665 | ) |
|
| (23,437 | ) |
|
| (23,200 | ) |
|
|
| (20,394 | ) |
|
| (19,598 | ) |
|
| (14,810 | ) | ||||
Deferred revenue |
|
|
| (6,637 | ) |
|
| (12,242 | ) |
|
| (6,494 | ) |
|
|
| (3,882 | ) |
|
| (11,572 | ) |
|
| (6,591 | ) | ||||
Changes in other operating assets and liabilities |
|
| (24,640 | ) |
|
| (27,008 | ) |
|
| (979 | ) |
|
| (35,989 | ) |
|
| 801 |
|
|
| (2,354 | ) | ||||||
Net cash (used in) provided by operating activities |
|
|
| (23,011 | ) |
|
|
| 90,376 |
|
|
|
| 109,972 |
| |||||||||||||||
Net cash provided by operating activities |
|
|
| 58,615 |
|
|
|
| 17,321 |
|
|
|
| 6,065 |
| |||||||||||||||
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Purchase of property, plant and equipment |
|
| (697 | ) |
|
| (7,421 | ) |
|
| (13,368 | ) |
|
| (6,491 | ) |
|
| (8,424 | ) |
|
| (3,590 | ) | ||||||
Investment in equipment for joint revenue sharing arrangements |
|
| (6,654 | ) |
|
| (40,489 | ) |
|
| (34,810 | ) |
|
| (18,000 | ) |
|
| (19,803 | ) |
|
| (10,094 | ) | ||||||
Interest in film classified as a financial instrument |
|
| — |
|
|
| (4,731 | ) |
|
| — |
| ||||||||||||||||||
Acquisition of other intangible assets |
|
| (1,904 | ) |
|
| (2,931 | ) |
|
| (8,696 | ) |
|
| (8,344 | ) |
|
| (4,394 | ) |
|
| (4,092 | ) | ||||||
Investment in equity securities |
|
|
| — |
|
|
|
| (15,153 | ) |
|
| — |
| ||||||||||||||||
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 |
|
|
| (9,255 | ) |
|
|
| (65,994 | ) |
|
|
| (56,874 | ) |
|
|
| (31,790 | ) |
|
|
| (53,291 | ) |
|
|
| (7 | ) |
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Increase in revolving credit facility borrowings |
|
|
| 287,610 |
|
|
| 35,000 |
|
|
| 65,000 |
| |||||||||||||||||
Repayment of revolving credit facility borrowings |
|
|
| — |
|
|
| (55,000 | ) |
|
| (50,667 | ) | |||||||||||||||||
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 |
|
|
| (1,073 | ) |
|
| — |
|
|
| (1,909 | ) |
|
| (46 | ) |
|
| (2,279 | ) |
|
| (527 | ) | |||||
Settlement of restricted share units and options |
|
| (3,075 | ) |
|
| (9,795 | ) |
|
| (5,249 | ) | ||||||||||||||||||
Treasury stock repurchased for future settlement of restricted share units |
|
| (11 | ) |
|
| (4,038 | ) |
|
| (916 | ) | ||||||||||||||||||
Repurchase of common shares, IMAX Corporation |
|
| (26,823 | ) |
|
| (80,124 | ) |
|
| (13,905 | ) | ||||||||||||||||||
Repurchase of common shares, IMAX China |
|
|
| (1,534 | ) |
|
|
| (19,162 | ) |
|
| (6,084 | ) |
|
| (15 | ) |
|
| (3,043 | ) |
|
| (10,060 | ) | ||||
Taxes withheld and paid on employee stock awards vested |
|
| (512 | ) |
|
| (590 | ) |
|
| (1,437 | ) |
|
| (6,466 | ) |
|
| (3,687 | ) |
|
| (3,660 | ) | ||||||
Common shares issued - stock options exercised |
|
| — |
|
|
| 2,404 |
|
|
| 1,017 |
|
|
| — |
|
|
| — |
|
|
| 883 |
| ||||||
Repurchase of common shares |
|
| (36,624 | ) |
|
| (2,659 | ) |
|
| (71,479 | ) | ||||||||||||||||||
Issuance of subsidiary shares to non-controlling interests (net of return on capital) |
|
|
| — |
|
|
| 1,106 |
|
|
| 7,796 |
| |||||||||||||||||
Principal payment under finance lease obligations |
|
| (480 | ) |
|
| (948 | ) |
|
| — |
| ||||||||||||||||||
Dividends paid to non-controlling interests |
|
|
| (4,214 | ) |
|
|
| (4,384 | ) |
|
| (6,934 | ) |
|
|
| (1,438 | ) |
|
|
| (2,704 | ) |
|
| (4,889 | ) | ||
Net cash provided by (used in) financing activities |
|
|
| 240,567 |
|
|
|
| (57,118 | ) |
|
|
| (70,862 | ) | |||||||||||||||
Net cash used in by financing activities |
|
|
| (48,530 | ) |
|
|
| (58,514 | ) |
|
|
| (132,720 | ) | |||||||||||||||
Effects of exchange rate changes on cash |
|
|
| (406 | ) |
|
|
| 630 |
|
|
|
| 629 |
|
|
|
| 504 |
|
|
|
| 2,174 |
|
|
|
| (1,006 | ) |
Increase (decrease) in cash and cash equivalents during year |
|
|
| 207,895 |
|
|
| (32,106 | ) |
|
| (17,135 | ) | |||||||||||||||||
Decrease in cash and cash equivalents during year |
|
| (21,201 | ) |
|
| (92,310 | ) |
|
| (127,668 | ) | ||||||||||||||||||
Cash and cash equivalents, beginning of year |
|
|
| 109,484 |
|
|
| 141,590 |
|
|
| 158,725 |
|
|
| 97,401 |
|
|
| 189,711 |
|
|
| 317,379 |
| |||||
Cash and cash equivalents, end of year |
| $ |
| 317,379 |
|
| $ |
| 109,484 |
|
| $ |
| 141,590 |
|
| $ |
| 76,200 |
|
| $ |
| 97,401 |
|
| $ |
| 189,711 |
|
(See the accompanying notes, which are an integral part of these Consolidated Financial Statements)
73
80
IMAX CORPORATION
(In thousands of U.S. 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 |
|
|
| Years Ended December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Adjustments to capital stock: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
| $ | 419,348 |
|
| $ | 421,539 |
|
| $ | 440,664 |
|
Change in shares held in treasury |
|
| 4,027 |
|
|
| (3,122 | ) |
|
| 4,216 |
|
Restricted share units vested |
|
| 1,448 |
|
|
| — |
|
|
| — |
|
Employee stock options exercised |
|
| — |
|
|
| 1,752 |
|
|
| 218 |
|
Fair value of stock options exercised at the grant date |
|
| — |
|
|
| 104 |
|
|
| 70 |
|
Average carrying value of repurchased and retired common shares |
|
| (17,803 | ) |
|
| (925 | ) |
|
| (23,629 | ) |
Balance, end of year |
|
| 407,020 |
|
|
| 419,348 |
|
|
| 421,539 |
|
Adjustments to other equity: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
| 171,789 |
|
|
| 179,595 |
|
|
| 175,300 |
|
Amortization of share-based payment expense - stock options |
|
| 2,707 |
|
|
| 8,910 |
|
|
| 5,907 |
|
Amortization of share-based payment expense - restricted share units |
|
| 14,162 |
|
|
| 13,985 |
|
|
| 16,325 |
|
Amortization of share-based payment expense - performance stock units |
|
| 2,771 |
|
|
| — |
|
|
| — |
|
Restricted share units vested |
|
| (9,565 | ) |
|
| (10,525 | ) |
|
| (12,582 | ) |
Cash received from the issuance of common shares in excess of par value |
|
| — |
|
|
| 651 |
|
|
| 799 |
|
Fair value of stock options exercised at the grant date |
|
| — |
|
|
| (104 | ) |
|
| (70 | ) |
Common shares repurchased, IMAX China |
|
| (1,534 | ) |
|
| (19,162 | ) |
|
| (6,084 | ) |
Stock options exercised from treasury shares purchased on open market |
|
| — |
|
|
| (1,561 | ) |
|
| — |
|
Balance, end of year |
|
| 180,330 |
|
|
| 171,789 |
|
|
| 179,595 |
|
Adjustments to accumulated deficit: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
| (40,253 | ) |
|
| (85,385 | ) |
|
| (87,592 | ) |
Retrospective adoption of ASC Topic 606, Revenue from Contracts with Customers |
|
| — |
|
|
| — |
|
|
| 27,213 |
|
Net (loss) income attributable to common shareholders |
|
| (143,775 | ) |
|
| 46,866 |
|
|
| 22,844 |
|
Common shares repurchased and retired |
|
| (18,821 | ) |
|
| (1,734 | ) |
|
| (47,850 | ) |
Balance, end of year |
|
| (202,849 | ) |
|
| (40,253 | ) |
|
| (85,385 | ) |
Adjustments to accumulated other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
| (3,190 | ) |
|
| (3,588 | ) |
|
| (626 | ) |
Other comprehensive income (loss), net of tax |
|
| 4,178 |
|
|
| 398 |
|
|
| (2,962 | ) |
Balance, end of year |
|
| 988 |
|
|
| (3,190 | ) |
|
| (3,588 | ) |
Adjustments to non-controlling interests: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
| 89,493 |
|
|
| 80,757 |
|
|
| 74,511 |
|
Retrospective adoption of ASC Topic 606, Revenue from Contracts with Customers |
|
| — |
|
|
| — |
|
|
| 735 |
|
Net (loss) income attributable to non-controlling interests |
|
| (8,572 | ) |
|
| 13,343 |
|
|
| 13,461 |
|
Other comprehensive income (loss), net of tax |
|
| 1,812 |
|
|
| (223 | ) |
|
| (1,016 | ) |
Dividends paid to non-controlling shareholders |
|
| (4,214 | ) |
|
| (4,384 | ) |
|
| (6,934 | ) |
Balance, end of year |
|
| 78,519 |
|
|
| 89,493 |
|
|
| 80,757 |
|
Total Shareholders' Equity |
| $ | 464,008 |
|
| $ | 637,187 |
|
| $ | 592,918 |
|
Common shares issued and outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
| 61,175,852 |
|
|
| 61,433,589 |
|
|
| 64,695,550 |
|
Employee stock options exercised |
|
| — |
|
|
| 19,088 |
|
|
| 12,750 |
|
Restricted share units and stock option exercises settled from treasury shares purchased on open market |
|
| 187,020 |
|
|
| 44,579 |
|
|
| 206,651 |
|
Restricted share units settled with new treasury shares |
|
| 42,982 |
|
|
| — |
|
|
| — |
|
Repurchase of common shares |
|
| (2,484,123 | ) |
|
| (134,384 | ) |
|
| (3,436,783 | ) |
Shares held in treasury |
|
| (723 | ) |
|
| (187,020 | ) |
|
| (44,579 | ) |
Balance, end of year |
|
| 58,921,008 |
|
|
| 61,175,852 |
|
|
| 61,433,589 |
|
(See the accompanying notes, which are an integral part of these Consolidated Financial Statements)
74
81
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands of U.S. 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 onea consolidated subsidiary of the world’s leadingCompany.
IMAX is a premier global technology platform for entertainment technology companies, specializing in technological innovations powering the presentation of some of today’s most immersive entertainment experiences.and events. Through its proprietary software, theaterauditorium architecture, patented intellectual property, and specialized equipment, IMAX offers a unique end-to-end cinematic solution to create the highest-quality, mostsuperior, immersive motion picture and other entertainment eventcontent experiences for which the IMAX®IMAX® brand has become known globally.is globally renowned. Top filmmakers, and movie studios, artists, and creators utilize the cutting-edge visual and sound technology of IMAX to connect with audiences in innovative ways, and asways. As a result, IMAX’s networkIMAX is among the most important and successful global distribution platforms for majorplatforms. The Company’s global content portfolio includes blockbuster films, both from Hollywood and otherlocal language film industries worldwide; IMAX documentaries, both original and acquired (“IMAX Documentaries”); and IMAX events around the world.and experiences in emerging verticals including music, gaming, and sports.
The Company leverages its innovativeproprietary technology and engineering in all aspects of its business, which principally consists of the digitalIMAX film remastering of films(“IMAX Film Remastering” and other presentations into the IMAX format (“IMAXformerly known as “IMAX DMR”) and the sale or lease of premium IMAX theater systems (“IMAX Theater Systems”System(s)”).
IMAX Systems are based on proprietary and patented image, audio and other technology developed over the course of the Company’s history since its founding in 1967. The customers for IMAX Systems are principally theatrical exhibitors that operate commercial multiplex theaters, and, to a much lesser extent, museums, science centers and destination entertainment sites. The Company refers to all theaters usingdoes not own the locations in the IMAX Theaternetwork, except for one, and is not an exhibitor, but instead sells or leases the IMAX System as “IMAX theaters.”to exhibitor customers along with a license to use its trademarks and ongoing maintenance services.
For all IMAX theaters, theater owners or operators are also responsible for paying the Company an annual maintenance and extended warranty fee. Under these arrangements, the Company provides proactive and emergency maintenance services to every theater in its network to ensure that each presentation is up to the highest IMAX quality standard. The Company’s theater business activities also include the after-market sale of IMAX projection system parts and 3D glasses.
As of December 31, 2020,2023, there were 1,6501,772 IMAX Theater Systems operating in 8490 countries and territories, including 1,5621,693 commercial multiplexes, 12 commercial destinations and 7667 institutional locations.locations in the Company’s global network. This compares to 1,6241,716 IMAX Theater Systems operating in 8187 countries and territories as of December 31, 20192022 including 1,5291,633 commercial multiplexes, 1412 commercial destinations, and 8171 institutional locations.locations in the Company’s global network.
The Company also licenses film contentdistributes large-format documentary films, primarily to institutional theaters, and distributes large-format films, primarily for its institutional theater partnersexclusive IMAX events and experiences. In addition, the Company provides film post-production and quality control services for large-format films, (whetherwhether produced by IMAX or third parties),parties, and digital post-production services.
The Company has the following reportable segments: (i) IMAX DMR; (ii) Joint Revenue Sharing Arrangements; (iii) IMAX Systems, (iv) IMAX Maintenance; (v) Other Theater Business; (vi) New Business Initiatives; (vii) Film Distribution; and (viii) Film Post-Production, which are described in Note 21.
2. Impact of COVID-19 Pandemic
In late January 2020, in response to the public health risks associated with the novel coronavirus and the disease that it causes (“COVID-19”), the Chinese government directed exhibitors in China to temporarily close more than 70,000 movie theaters, including all of the approximately 700 IMAX theaters in mainland China. On March 11, 2020, due to the worsening public health crisis associated with the novel coronavirus, COVID-19 was characterized as a pandemic by the World Health Organization, and in the following weeks, local, state and national governments instituted stay-at-home orders and restrictions on large public gatherings which caused movie theaters in countries around the world to temporarily close, including substantially all of the IMAX theaters in those countries. As a result of the 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. More recently, stay-at-home orders have been lifted in many countries and movie theaters throughout the IMAX network gradually reopened in the third quarter of 2020 with reduced capacities, physical distancing requirements, and other safety measures. As of December 31, 2020, a significant number of the theaters in the IMAX commercial multiplex network were open, including substantially all of the theaters in Greater China. In many parts of Asia, audiences have returned to theaters, particularly IMAX theaters, in numbers consistent with pre-pandemic attendance levels despite the continued delay of Hollywood theatrical releases, which typically account for 70% of box office ticket sales in those regions. Management believes this indicates that moviegoers are eager to return to cinemas where and when theaters are open and they feel safe. However, ticket sales have been significantly lower than normal levels in theaters outside of Asia as Hollywood movie studios have further delayed the theatrical release dates for a number of films. As a result, certain theater chains have remained closed or have reduced their operating hours. In addition, theaters in major markets remain temporarily closed.
82
The repercussions of the COVID-19 global pandemic resulted in a significant decrease in the Company’s revenues, earnings and operating cash flows in 2020 as gross box office (“GBO”) results from the Company’s theater customers declined significantly, the installation of certain theater systems was delayed, and maintenance services were generally suspended for theaters that were closed. While there continues to be a lack of new films released by movie studios and a significant number of theaters in the IMAX network are closed, the Company is experiencing a significant decline in earnings and operating cash flows as it is generating significantly lower than normal levels of GBO-based revenue from its joint revenue sharing arrangements and digital remastering services, it is unable to provide normal maintenance services to any of the theaters that remain closed, and while some installation activity is continuing, certain theater system installations have, and may continue to be delayed. In addition, the Company has experienced and is likely to continue to experience delays in collecting payments due under existing theater sale or lease arrangements from its exhibitor customers who are facing financial difficulties as a result of the theater closures. In response, the Company has provided temporary relief to exhibitor customers by waiving or reducing maintenance fees during periods when theaters are closed or operating with reduced capacities and, in certain situations, by providing extended payment terms on annual minimum payment obligations in exchange for a corresponding or longer extension of the term of the underlying sale or lease arrangement. As discussed in Note 5, in 2020, the Company increased its provision for current expected credit losses by $18.6 million, in part reflecting a reduction in the credit quality of its theater related accounts receivable, financing receivables and variable consideration receivables, which management believes is primarily related to the COVID-19 pandemic and adequately addresses the risk of not collecting these receivables in full.
The Company may continue to be significantly impacted by the COVID-19 global pandemic even after a significant portion or all theaters are reopened. The global economic impact of COVID-19 has led to record levels of unemployment in certain countries, which has led to, and may continue to result in lower consumer spending. The timing and extent of a recovery of consumer behavior and willingness to spend discretionary income on movie-going may delay the Company’s ability to generate significant GBO-based revenue as consumer behavior normalizes and consumer spending recovers.
In response to uncertainties associated with the COVID-19 global pandemic, the Company has taken and is continuing to take significant steps to preserve cash by eliminating non-essential costs, placing certain employees on a temporary furlough, reducing the working hours of other employees and reducing all non-essential capital expenditures to minimum levels.
The Company has also implemented an active cash management process, which, among other things, requires senior management approval of all outgoing payments. In addition, in the first quarter of 2020, the Company drew down $280.0 million in remaining available borrowing capacity under the Credit Facility provided by the Credit Agreement, which was then amended in June 2020 to, among other things,suspend the Senior Secured Net Leverage Ratio financial covenant in the Credit Agreement through the first quarter of 2021 and substitute quarterly EBITDA from the third and fourth quarters of 2019 in lieu of the EBITDA for the corresponding quarters of 2020 to meet the original Senior Secured Net Leverage Ratio financial covenant (see Note 14).
As of December 31, 2020, the Company was in compliance with all of its requirements under the Credit Agreement, as amended. The Company’s continued compliance with the requirements of the Credit Agreement will depend on the Company’s ability to generate sufficient EBITDA to ensure compliance with the Senior Secured Net Leverage Ratio covenant throughout the next twelve months, which is dependent on the timing of when theaters in the IMAX network resume normal operations. The risk of breaching this covenant within the next twelve months increases significantly as the ongoing COVID-19 pandemic continues to adversely impact the Company’s ability to generate EBITDA. A violation of this covenant would represent an event of default under the terms of the Credit Agreement, allowing lenders to declare the principal and interest on all outstanding Credit Facility indebtedness due or payable immediately. If a breach of the Senior Secured Net Leverage Ratio covenant were to occur, however, management believes the Company would be able to either reduce a sufficient portion of the drawn amount on the Credit Facility with existing cash balances to achieve compliance, obtain additional sources of liquidity prior to the time when the repayment of its outstanding Credit Facility indebtedness would be required, or negotiate a further amendment with its lenders to the Credit Agreement to provide further covenant relief.
Furthermore, the Company has 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. During 2020, the Company recognized $6.4 million in benefits from the Canada Emergency Wage Subsidy (“CEWS”) program and $0.7 million in benefits from the U.S. CARES Act, as reductions to Selling, General and Administrative Expenses ($6.0 million), Costs and Expenses Applicable to Revenues ($1.0 million) and Research and Development ($0.1 million) in the Consolidated Statements of Operations. The CEWS program has been extended to June 2021. The Company will continue to review and apply for additional subsidies and credits for the remaining terms of these programs, where applicable.
83
In the fourth quarter of 2020, the Company performed its annual goodwill impairment test considering the latest available information and determined that its goodwill was not impaired. As of December 31, 2020, the Company’s total Goodwill was $39.0 million, of which $19.1 million relates to the IMAX Systems reporting unit, $13.5 million relates to the Joint Revenue Sharing Arrangement reporting unit, and $6.4 million relates to the IMAX Maintenance reporting unit. The impairment test was performed on a reporting unit level by comparing each unit’s carrying value, including goodwill, to its fair value. The carrying value of each reporting unit is based on a systematic and rational allocation of certain assets and liabilities. The fair value of each reporting unit is assessed using a discounted cash flow 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 are derived based on the Company’s estimated weighted average cost of capital. These estimates and the likelihood of future changes in these estimates depend on a number of underlying variables and a range of possible outcomes. Actual results may differ materially from management’s estimates, especially due to the uncertainties associated with the COVID-19 pandemic (see Note 3).
In the fourth quarter of 2020, the Company also updated its recoverability tests of the carrying values of the theater system equipment supporting its joint revenue sharing arrangements, which are recorded within Property, Plant and Equipment. In performing its reviews of recoverability, the Company estimated the undiscounted future cash flows expected to result from the use of the assets. The cash flow estimates used in these tests are consistent with management’s estimated long-term projections, against which various sensitivity analyses were performed. These estimates are highly uncertain due to the COVID-19 global pandemic; therefore, management’s estimated cash flows factor in a number of underlying variables and ranges of possible cash flow scenarios. Actual results may differ materially from management’s estimates, especially due to the uncertainties associated with the COVID-19 pandemic. For the year ended December 31, 2020, the Company recorded impairment losses of $0.3 million related to the theater system equipment supporting its joint revenue sharing arrangements. (See Note 3.)
In the third quarter of 2020, the Company assessed the recoverability of its deferred tax assets and recorded a $23.7 million valuation allowance to reduce the value of deferred tax assets. The valuation allowance was recorded in the jurisdictions where management could not reliably forecast that future tax liabilities would arise within the next five years, primarily due to the uncertainties around the long-term impact of the COVID-19 global pandemic. In the fourth quarter of 2020, the Company increased the valuation allowance against its deferred tax assets by $4.9 million due to additional losses recorded in the period. The valuation allowance is expected to reverse when the Company determines it is more likely than not that the deferred tax assets in these jurisdictions will be realized. Despite this valuation allowance, the Company remains entitled to benefit from the tax attributes which currently have a valuation allowance applied to them. (See Note 12.)
If business conditions deteriorate further, or should they remain depressed for a more prolonged period of time, management’s estimates of operating results and future cash flows for the IMAX Systems and Joint Revenue Sharing Arrangements reporting units may be insufficient to support the goodwill assigned to them, thus requiring impairment charges. The Company will continue to evaluate the recoverability of goodwill at the reporting unit level on an annual basis and whenever events or changes in circumstances indicate there may be a potential impairment. In addition, estimates related to future expected credit losses (see Note 5) and the recoverability of deferred tax assets (see Note 12), as well as the recoverability of joint revenue sharing equipment assets and the realization of variable consideration assets, could be further impacted by changes in estimates in the future (see Note 3).
3. Summary of Significant Accounting Policies
The Company prepares its Consolidated 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.
(a) Principles of Consolidation
|
|
The Consolidated Financial Statements include the accounts of the Company together with its consolidated subsidiaries, except for subsidiaries which have been identified as variable interest entities (“VIEs”) where the Company is not the primary beneficiary. 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 U.S. GAAP.
8475
The Company has interests in ten10 film production companies, which have been identified as VIEs. VIEs. The Company is the primary beneficiary of and consolidates five of these entities as it has the power to direct the activities that most significantly impact the economic performance of the VIE, and it has the obligation to absorb losses or the right to receive benefits from the respective VIE that could potentially be significant. The majority of the assets relating to these production companies are held by the IMAX Original Film Fund (the “Original Film Fund”) as described in Note 24(b)25(b). The Company does not consolidate the other five film production companies because 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 method of accounting for these 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 temporary is recognized as a charge in the Consolidated Statements of Operations.
As of December 31, 20202023 and 2019,2022, total assets and liabilities of the Company'sCompany’s consolidated VIEs are as follows:
|
| December 31, |
|
| December 31, |
| ||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
| ||
Total assets |
| $ | 1,425 |
|
| $ | 1,523 |
|
Total liabilities |
| $ | 246 |
|
| $ | 248 |
|
|
| December 31, |
|
| December 31, |
| ||
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
| ||
Total assets |
| $ | 1,543 |
|
| $ | 9,677 |
|
Total liabilities(1) |
| $ | 230 |
|
| $ | 308 |
|
|
|
|
|
The preparation of financial statements and related disclosures in accordance with U.S. GAAP requires management to make judgments, assumptions, and estimates that affect the amounts reported in 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 the date of the Company’s Consolidated Financial Statements. Actual results may ultimately differ from the Company’smanagement’s original estimates, as future events and circumstances sometimes do not develop as expected, and the differences may be material.
Significant estimates made by management include, but are not limited to: (i) the allocation of the transaction price in an IMAX Theater System arrangement to distinct performance obligations; (ii) constraints on the recognitionamount of variable consideration related to be earned on sales of IMAX Theater Systems;Systems based on projections of future box office performance; (iii) expected credit losses on accounts receivable, financing receivables, and variable consideration receivables; (iv) provisions for 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 estimatesprojections used in testing the recoverability of long-lived assets such as the theater systemIMAX System equipment supporting joint revenue sharing arrangements;arrangements; (vii) the economic lives of the theater systemIMAX System equipment supporting joint revenue sharing arrangements;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;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; (xii) estimates related to the fair value and projected vesting of share-based payment awards; (xiii) the valuation of deferred income tax assets; and (xiv) reserves related to uncertain tax positions.positions; and (xv) the allocation of the purchase price for the acquisition of 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. (c) Cash and Cash Equivalents
|
|
The Company considers all highly liquid investments convertible to a known amount of cash and with an original maturity of three months or less to be cash equivalents.
|
|
In 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASC Topic 326”), which amends previously issued guidance regarding the impairment of financial instruments by creating an impairment model that is based on expected losses rather than incurred losses. The standard requires financial assets measured on the amortized cost basis to be presented at the net amount expected to be collected. The Company’s accounts receivable, financing receivables and variable consideration receivables are within the scope of ASU No. 2016-13. The Company adopted ASU No. 2016-13 and several associated ASUs on January 1, 2020 with no required cumulative-effect adjustment to accumulated deficit.
85
The ability of the Company to collect its accounts receivable balances is heavily dependent on the 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.
The Company develops itsan 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 normalhigher-than-normal risk profile after taking into accountconsidering 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.
The Company considers financing receivables with an aging between 60-89 days as indications of theaters with potential collection concerns. At this point, the Company will begin(Refer 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 perform an enhanced review to assess collectibility 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. Given the impacts of the COVID-19 global pandemic on the Company’s customers, management has enhanced its monitoring procedures with respect to overdue receivables.
(See Note 5 for more information related to the Company’s receivables and current expected credit losses.)
(e) Inventories
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|
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 and work-in-process includes the cost of raw materials, direct labor, theater design costs, and an applicable share of manufacturing overhead costs.
The costs related to IMAX Theater Systems under salessale and sales-type lease arrangements are transferred from Inventories to Costs and Expenses Applicable to Revenues – Technology Sales in the period when the sale is recognized in the Consolidated Statements of Operations. The costs related to IMAX Theater Systems under joint revenue sharing arrangements are transferred from Inventories to assets under construction in Property, Plant and Equipment when allocated to a signed joint revenue sharing arrangement.
The Company records write-downs for excess and obsolete inventory based upon management’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, 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 includes IMAX Theater Systems for which title has passed to the Company’s customer in situations when the theater systemIMAX System has been delivered to the customer, but the criteria for revenue recognition criteria discussed in Note 3(n) havewere not been met.met as of the balance sheet date.
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|
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, and coststhe cost of acquiring film rights are recorded as Film Assets.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 a title-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.
Film exploitation costs, including advertising costs, are expensed as incurred.77
Costs, including labor and allocated overhead, of digitally remastering films where the copyright is owned by a third party and the Company shares in the revenue 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 the remastered film.
86
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. 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 recoverable, the film asset is written down to its fair value.
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 related revenues are recognized.
(g) Property, Plant and Equipment
|
|
Property, Plant and Equipment is recorded at cost and is depreciated on a straight-line basis over the estimated useful lives of the underlying assets as follows:
| — | Over the equipment’s |
Camera equipment and connectivity equipment | — | Over a period between 5 to 10 years |
Buildings | — | Over a period between 20 to 25 years |
Office and | — | Over a period between 3 to 5 years |
Leasehold improvements | — | Over the shorter of the initial term of the underlying |
|
|
|
EquipmentThe cost of IMAX System components and theater system components allocatedrelated equipment expected to be used in future 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 equipmentsystem components and theater system componentsrelated equipment used in joint revenue sharing arrangements are reviewed periodically to determine if any adjustments are required.
Property, Plant and Equipment is grouped and reviewed for impairment 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 estimated future cash flows (undiscounted and without interest charges) resulting from the use of the asset (or asset group) and its eventual disposition are less than the carrying value of the asset (or asset group). 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 include a current expectation that it is more likely than not that the long-lived asset will be sold significantly before the end 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.
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
Equity Securities
|
|
Equity securities with readily determinable fair values are reported at fair value with changes in fair value recorded within Gain (Loss) in Fair Value of InvestmentsRealized and Unrealized Investment Gains (Losses) in the Consolidated Statements of Operations.
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|
Other assets includeAssets principally includes lease incentives provided to theatercertain exhibitor customers under joint revenue sharing arrangements classified as an operating lease, as well as sales commissions and other deferred selling expenses 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 and foreign currency derivatives.
The Company may provide lease incentives to certain exhibitors which are essential to entering into the respective lease arrangement. Lease incentives include payments made to or on behalf of the exhibitor. TheseCapitalized lease incentives are recognized as a reduction in rental revenueamortized on a straight-line basis over the term of the lease.
87
lease and are recorded within Costs and Expenses Applicable to Revenues — Technology Rentals. Sales commissions and other selling expenses paid prior to the recognition of the related revenue are deferred and recognized within Costs and Expenses Applicable to Revenues upon the recognitionclient acceptance of the related theater system revenueIMAX System or the abandonment of the sale arrangement.
Foreign currency derivatives are accounted for at fair value using quoted prices in closed exchanges.active markets.
78
In periods when there are no outstanding borrowings under the Company’s revolving credit facility arrangements, any related debt issuance costs are recorded within Other Assets and amortized on a straight-line basis over the term of the facility. In periods when there are outstanding borrowings under the Company’s revolving credit facility arrangements, any related debt issuance costs are reclassified to reduce the principal amount of outstanding borrowings and amortized on a straight-line basis over the term of the facility. (See(Refer to Note 14 for information related to the Company’s credit facilities.borrowings.)
(j) Goodwill
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|
Goodwill represents the excess of the purchase price paid over the fair value of net assets acquired in a business combination. Goodwill is not amortized, but is tested annually for impairment 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 which the reporting unit's carrying value, including goodwill, exceeds its fair value. The carrying value of each reporting unit is based on a systematic and rational allocation of certain assets and liabilities. The fair value of each reporting unit is assessed using a discounted cash flow 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 are derived based on the Company’s estimated weighted average cost of capital. These estimates and the likelihood of future changes in these estimates depend on a number of underlying variables and a range of possible outcomes.
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Patents, trademarks and otherOther 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. 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 capitalizes costs associated with internally developed and/or purchased software systems for internal use that have reached the application 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 intended purpose. Costs incurred during the 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 and reviewed for impairment 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 estimated future cash flows (undiscounted and without interest charges) resulting from the use of the asset (or asset group) and its eventual disposition are less than the carrying value of the asset (or asset group). 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 include a current expectation that it is more likely than not that the intangible asset will be sold significantly before the end of its useful life, a significant decrease in the market price of the intangible asset, and a significant change in the extent or manner in which the intangible asset is being used.
79 (l) Deferred Revenue
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In instances where the Company receives consideration prior to satisfying its performance obligations, the recognition of revenue is deferred.The majority of the Deferred Revenue balance relates to payments received by the Company for IMAX Theater Systems where control of the system has not transferred to the customer. The Deferred Revenue balance related to an individual theaterlocation 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 balance also relates to situations when a theateran exhibitor customer pays the contractual maintenance fee prior to the recognition of 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 paid to equity holders.
88The 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 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.
(n) Income Taxes
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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 Company’s Consolidated Financial Statements of Operations 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, (for example, if the Company experiences cumulative three-year losses in a certain jurisdiction), 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, (for example, if the Company is no longer in a three-year cumulative loss position in the jurisdiction, and management expects to have future taxable income in that jurisdiction based upon management’s forecasts and the expected timing of deferred tax asset reversals), the Company may reverse all or a portion or all 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. 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-notmore 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-notmore 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 result in the Company owing additional taxes above what was originally recognized in its financial statements.
Tax reserves for uncertain tax positions are adjusted by the Company to reflect its best estimate of the outcome of examinations and assessments and in light of changing facts and circumstances, such as the completion of a tax audit, expiration of a statute of limitations, the refinement of an estimate, and interest accruals associated with the uncertain tax positions until they are resolved. Some of these adjustments require significant judgment in estimating the timing and amount of the additional tax expense.
80 (o) Revenue Recognition IMAX Systems |
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IMAX Theater Systems
The Company evaluates each of the performance obligations in an IMAX Theater System arrangement to determine which are considered distinct, 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 ASC Topic 606, “Revenue from Contracts with Customers,” ASC Topic 842, “Leases,” and ASC Topic 460, “Guarantees”.performance obligations.
The Company’s “System Obligation” consists of the following: (i) an IMAX Theater System, which includes the projector, sound system, screen system and, if applicable, a 3D glasses cleaning machine; (ii) services associated with the IMAX Theater System, including theaterauditorium design support, the supervision of installation services, and projectionist training; and (iii) a license to use the IMAX brand to market the theater.auditorium. The System Obligation, as a group, is a distinct performance obligation and a single unit of accounting.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 the customer enter into an arrangement.
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IMAX Theater 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 extended warranty and 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 Theater 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 Company sells the goodgoods or serviceservices 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 Theater System arrangements involve either the lease or the sale of an IMAX Theater System. The transaction price for the System 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 IMAX Theater Systemsystem and ongoing payments throughout the term of the arrangement. 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 Theater 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 percentage of their box office receipts over the term of the arrangement. These contract provisions are considered to be variable consideration under ASC Topic 606.consideration. An estimate of the present value of such 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. This estimate is based on management’s box office projections for the individual theater,location, which are developed using historical data for the theaterlocation and, if necessary, comparable theaters and territories.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 Theater System, including projectionist training, and the opening of the theaterlocation to the public, as discussed in more detail below.
IMAX Theater System arrangements are non-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.
Sales Arrangements
For IMAX Theater System arrangements that qualify as a sale, the transaction price allocated to the System Obligation is recognized in the Consolidated Statements of Operations upon the transfer of control of the 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 and run-in testing of the equipment and the completion of projectionist training or (b) the public opening of the theater.IMAX System.
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The initial revenue recognized in a sales arrangement consists of payments made before and in connection with the installation of the IMAX Theater System and the present value of any future payments, including ongoing fixed minimum payments, which are subject to indexed increases over the term of the arrangement, and 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 provisionsPotential payments based on the future box office receipts of the customer are considered to be variable consideration under ASC Topic 606.consideration. An estimate of the present value of such 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.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. The transaction price agreed to for these lease buyouts is reflected in the 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 the measurement of the transaction prices discussed above.
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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. ASC Topic 606basis considering recent box office performance and, when applicable, updated box office projections for future periods. The relevant accounting guidance identifies severalthe following examples of situations when constraining the amount of variable consideration is appropriate:
• The amount of consideration is highly susceptible to factors outside the entity’s influence; • The uncertainty about the amount of consideration is not expected to be resolved for a long period of time; • The Company’s experience (or other evidence) with similar types of contracts is limited, or that experience has limited predictive value; and • The entity has a practice of either offering a broad range of price concessions or changing the payment terms and conditions of similar contracts in similar circumstances.
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As discussed above, the Company’s significant streams of variable consideration relate to arrangements for the sale of IMAX Theater 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 arrangements 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 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 commercial success of film content in future periods.the films released to the IMAX network. The estimated variable consideration initially recognized by the Company tracks numerous performance statistics foris based on management’s box office performance in regions worldwideprojections 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 theaterexhibition markets to estimate the most likely amount of variable consideration to be earned over the term of the arrangement. The CompanyManagement then applies a constraint to this estimate by reducing the projection by a percentage factor for theaterslocations or markets with no or limited historical box office experience. In cases where direct historical experience can be observed, average experience,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 date of recognition using a risk-weighted discount rate.
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Lease Arrangements
As a lessor, the Company provides IMAX Theater Systems to customers through long-term lease arrangements. Under these arrangements, in exchange for providing the IMAX Theater System, the Company earns fixed upfront and ongoing consideration. A lease arrangement that transfers substantially all of the benefits and risks incident to ownership of the IMAX Theater System is classified as a sales-type lease; otherwise the lease is classified as an operating lease. Prior to commencement of the lease term, for the IMAX Theater System, 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 Obligation 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 and run-in testing of the equipment and the completion of projectionist training or (b) the public opening of the theater, provided collectibilitycollectability 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 collectibilitycollectability is reasonably assured.
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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 these 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 and run-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 collectibilitycollectability is reasonably assured.
Revenues from joint revenue sharing arrangements with upfront payments that qualify for classification as sales-type leases are recognized in accordance with the sales-type lease criteria discussed above. Contingent revenues from joint revenue sharing arrangements are recognized as box-office results and concessions revenues are reported by the theater operator, provided collectibility is reasonably assured.
On April 10, 2020, the FASB staff issued a question-and-answer document to address stakeholder questions on the application of the lease accounting guidance for lease concessions related to the effects of the COVID-19 pandemic. The guidance allows concessions related to the timing of payments, where the total consideration has not changed, to not be accounted for as lease modifications. Instead, any such concessions can be accounted for as if no change was made to the contract or as variable lease payments. Entities do not have to adopt the FASB relief guidance for all lease concessions related to the effects of the COVID-19 pandemic and can choose to apply the FASB relief guidance consistently to leases with similar characteristics and in similar circumstances and should apply reasonable judgment in doing so. In the second quarter of 2020, the Company adopted the FASB relief guidance and elected to account for any such lease concessions as if no change was made to the underlying contracts except for the sales-type leases of which IMAX China is a lessor as they are in different economic environments. The lease concessions for these sales-type leases were accounted for in accordance with the lease modification guidance, which did not have a material effect on the Company’s Consolidated Financial Statements. The adoption of the FASB relief guidance did not have a material effect on the Company’s Consolidated Financial Statements.
Finance Income
Finance Income is recognized over the term of the sales-type lease or financed sale receivable, provided collectibilitycollectability 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 RevenueIncome recognition related to the theaterlocation is stopped. While the recognition of Finance Income is suspended, payments received from 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 collectibilitycollectability issues are resolved and the customer has returned to being in good standing, the Company will resume recognition of Finance Income.
Improvements and Modifications
Improvements and modifications to an IMAX Theater System after installation are treated as a separate performance obligation, if and when the Company is requested to perform these services. Revenue is recognized for these services once they have been provided.
CostCosts and Expenses Applicable to Revenues – Technology Sales
CostCosts and Expenses Applicable to Revenues – Technology Sales relates to salessale and sales-type leases of IMAX Theater Systems and other equipment, and includes the cost of the equipment and costs related to project management, design, delivery and installation supervision services, as applicable. The costs related to IMAX Theater Systems under salessale and sales-type lease arrangements are transferred from Inventories to Costs and Expenses Applicable to Revenues – Technology Sales in the period when the sale is recognized in the Consolidated Statements of Operations.
In addition, the Company defers direct selling costs such as salesSales commissions and other amounts relatedselling expenses that directly relate to these contracts until the relatedacquisition of the revenue is recognized.generating contract and are incremental to the Company’s other expenses are deferred and recognized in the Consolidated Statements of 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 Costs and Expenses Applicable to Revenues – Technology Sales at the time revenue is recognized based on the Company’s past historical experience and cost estimates.
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Cost
Costs and Expenses Applicable to Revenues – Technology Rentals
CostCosts and Expenses Applicable to Revenues – Technology Rentals relates to operating leases of IMAX Theater Systems under joint revenue sharing 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 joint revenue sharing arrangement. Depreciation and impairmentImpairment losses, if any, are also included in CostCosts and Expenses Applicable to Revenues – Technology Rentals based on the accounting policy set out in Note 3(g).Rentals. Sales commissions related to these arrangements are deferred and recognized as Costs and Expenses Applicable to Revenues – Technology Rentals in the month they are earned by the salesperson, which is typically the month of installation. Direct advertising and marketing costs for each theaterlocation are charged to Costs and Expenses Applicable to Revenues – Technology Rentals as incurred.
Terminations, Consensual Buyouts and Concessions
The Company enters into IMAX Theater 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 IMAX Theater 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.
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 a digitaldifferent type of IMAX Theater System. The Company considers these situations to be athe termination of the previousoriginal arrangement and the origination of a new arrangement for the digital IMAX Theater System.arrangement.
The Company may offer certain incentives to customers to complete IMAX Theater 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 transaction price either by a direct reduction in the sales price or a reduction of payments to be discounted. Free products and services are accounted for as separate units of accounting.performance obligations.
Maintenance and Extended Warranty Services
Maintenance and extended warranty services may be provided under an arrangement with multiple performance 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 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.
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IMAX DMRFilm Remastering Services
In an IMAX DMRa film remastering arrangement, the Company receives a percentage of the box officebox-office receipts from a third party who owns the copyright to a film in exchange for converting the film into an IMAX DMRFilm 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 DMRfilm remastering processes to create new intellectual property in the form of an IMAX DMRFilm Remastering version of film. Revenues associated with both IMAX DMRfilm remastering arrangements qualify for the variable consideration exemption for sales- or usage-based royalties in ASC Topic 606the 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 DMRFilm 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 DMRFilm Remastering services.
Film Production 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 Costs and Expenses Applicable to Revenues – Image Enhancement and Maintenance Services. The productionProduction fees are deferred and are 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, are recorded in Costs and Expenses Applicable to Revenues – Image Enhancement and Maintenance Services as incurred.incurred, except for those costs 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 obligations associated with the contractual service are satisfied.
Losses on film production 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 Company will not exceed estimated total production costs to be expended on the film production.
Film Distribution Services
In a Film Distribution arrangement, the Company licenses film contentdistributes large-format documentary films, primarily to institutional locations, and distributes large-format films, primarily for its institutional theater partners. The Company’s Film Distribution revenues are strictlyexclusive entertainment experiences ranging from the license of its intellectual property in the form of documentary film contentlive performances to which the Company holds exclusive distribution rights.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 ASC Topic 606the relevant accounting guidance and is recognized within Revenues – Image Enhancement and Maintenance Services when all performance obligations have been satisfied, which includes the completion and delivery of the film and the commencement of the license period. WhenIn situations when film license fees are based on a percentage of box-office receipts, revenue is recognized when box-office receipts are reported by exhibitors.the exhibitor. Film exploitation costs, including advertising and marketing, are recorded inexpensed as incurred within Costs and Expenses Applicable to Revenues – Image Enhancement and Maintenance Services as incurred.Services.
Film Post-Production Services
Revenues from post-production film services are recognized within Revenues – Image Enhancement and Maintenance Services when performance of the contracted services are satisfied.is completed.
OtherSoftware License and Subscription Services
The Company reports revenue related to its owned and operated theaters within Revenues – Image Enhancement and Maintenance Services. Such revenues include box-office ticket and concession sales, which are recognized in the Consolidated Statements of Operations as tickets are sold 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.
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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 provide 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 ratably over the term of the arrangements.
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Revenues from licenses and maintenance and support services are recognized within Revenues – Image Enhancement and Maintenance Services when reported by such theaters. The Company also provides management services to certain theaters and recognizes such revenue over the term of such services.Services.
Revenues on camera rentals are recognized within Revenues – Technology Rentals over the rental period.
Revenue from the sale of 3D glasses is recognized within Revenues – Technology Sales when the 3D glasses have been delivered to the customer.
Other service revenues are recognized within Revenues – Image Enhancement and Maintenance Services when the performance of contracted services is complete.
(p) Leases
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As a lessee, the Company’s lease arrangements principally involve office and warehouse space, which are classified as operating leases.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 the Company’s Consolidated Balance Sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and operatingterm. Operating lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The incremental borrowing rate used in the calculation of the Company’s lease liabilityliabilities is based on the location of each leased property. NaNNone 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 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 the leasehold improvements, among other factors. The depreciable lives of ROU 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. When there are modifications to the lease 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. The Company reviews the carrying values of the ROU assets for impairment whenever events or changes in circumstances indicate that the carrying amount might not be recoverable. Impairment losses, if any, are recognized in the Consolidated Statements of Operations. Amortization of ROU assets and interest on lease liabilities are included in thewithin Selling, General and Administrative Expenses in the Company’s Consolidated Statements of Operations. (See(Refer to Note 6 for additional information related to the Company’s operating leases.)
(q) Research and Development
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Research and development costs, which are expensed as incurred, primarily include projector and sound parts, labor, consulting fees, allocation of overheads, and other related materials which pertain to the Company’s development of new 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.
(r) Foreign Currency Translation
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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 of non-monetary assets as of the date of the change was reported in Other Comprehensive Income (Loss). The functional currency of its other consolidated subsidiaries continues to be the U.S. dollars. 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 Consolidated Balance Sheets at their fair value. Changes in the fair value (gains(i.e., gains or losses) are recognized in the Consolidated Statements of Operations 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 within Other Comprehensive (Loss) Income (Loss) and reclassified to the Consolidated Statements of Operations when the forecasted transaction occurs. Any ineffective portion is recognized immediately in the Consolidated Statements of Operations.
95
|
|
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 governing document and awards to employees, directors, and consultants under this plan may consist of stock options, restricted share units (“RSUs”), performance sharestock units (“PSUs”) and other awards. A separate stock optionshare-based compensation plan, the China LTIP, was adopted by a subsidiary of the Company in October 2012.
86
The Company measures share-based compensation expense using the grant date fair value of the award (see 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.
Stock Options
The Company utilizes a lattice-binomial option-pricing model (“Binomial Model”) to determine the fair value of 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 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.
The Company stratifies its employees into homogeneous groups in order to calculate the grant date fair value of stock options using the Binomial Model. As a result, ranges of assumptions are used for the expected life of the option. The Company uses historical data to estimate option exercise behavior within the Binomial Model and various groups of employees that have similar historical exercise behavior are grouped 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 determined in reference to observed current market prices for the Company’s traded options and the Company’s peer group volatility.
(See Note 17(c) for the assumptions used to determine the fair value of the Company’s stock options.)
Restricted Share Units
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 award that is ultimately expected to vest is recognized as compensation expense over the requisite service periods in the Company’s Consolidated Statements of Operations. The Company’s RSUs have been classified as equity.
Performance Share Units
The Company grants two types of PSU awards, one which vests based on a combination of employee service and the achievement of certain EBITDA-based targets and one which vests based on a combination of employee service and the achievement of certain stock-price targets. These awards vest over a three-year performance period. The grant date fair value of PSUs with EBITDA-based targets is equal to the closing price on the date of grant or the average closing price of the Company’s common stock for five days prior to the date of grant. The grant date fair value of PSUs with stock-price targets is determined on the grant date using a Monte Carlo simulation, which is a valuation model that takes into account the likelihood of achieving the stock-price 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. 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 award, depending upon actual performance versus the established EBITDA and stock-price targets.
The fair value determined by the Monte Carlo 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, market conditions as of the grant date, the Company’s expected stock 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 granted.
96
The amount and timing of compensation expense recognized for PSUs with EBITDA-based 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.
The Company’s PSUs have been classified as equity.
Share-Based Payment Awards to Non-Employees
Share-based payment awards for services provided by non-employees are measured at grant date fair value of the equity instruments that the Company is obligated to issue when the service has been rendered and any other conditions necessary to earn the right to benefit from the 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 conditions related to the vesting of the share-based awards, the Company assesses the probability of vesting at each reporting date and adjusts the compensation costs based on the probability assessment.
|
|
The Company has a defined benefit pension plan, the Supplemental Executive Retirement Plan (the “SERP”). As the Company’s SERP is unfunded, as of December 31, 2020, a liability is recognized for the 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. Amounts recognized in Accumulated Other Comprehensive Income including unrecognized actuarial gains or losses and prior service costs are adjusted as they are subsequently recognized in the Consolidated Statements of Operations 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% 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, 2020 was 2.0 year.
For defined contribution pension plans, required contributions by the Company are recorded as an expense.
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. Net benefit cost is split between operating income and non-operating income, where only the service cost is included in income from operations and the 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). Amounts recognized in Accumulated Other Comprehensive Income (Loss) including unrecognized actuarial gains or losses are adjusted as they are subsequently recognized within Retirement Benefits Non-Service Expense in the Consolidated Statements of Operations.
|
|
The ASC Topic 460 “Guarantees” requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of certain guarantees. Disclosures as required under the accounting guidance have been included in Note 16(e).
97
4. New Accounting Standards and Accounting Changes
Adoption of New Accounting Policies
The Company adopted several standards in 2020, as summarized below.
In 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which amends previously issued guidance regarding the impairment of financial instruments by creating an impairment model that is based on expected losses rather than incurred losses. The standard requires financial assets measured on the amortized cost basis to be presented at the net amount expected to be collected. The Company’s accounts receivable, financing receivables and variable consideration receivables are within the scope of ASU No. 2016-13. The Company adopted 2016-13 and several associated ASUs on January 1, 2020 with no required cumulative-effect adjustment to accumulated deficit. See Note 5 for a further discussion of the Company’s adoption of ASC Topic 326.
In March 2019, the FASB issued ASU No. 2019-02, “Entertainment—Films—Other Assets—Film Costs (Subtopic 926-20) and Entertainment—Broadcasters—Intangibles—Goodwill and Other (Subtopic 920-350)” (“ASU 2019-02”). The adoption of this standard was applied prospectively and did not have an 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 2019-05 is to provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments are effective for all entities from the beginning of an interim period that includes the issuance date of the ASU. An entity may elect to apply the amendments prospectively through December 31, 2022. The Company is currently assessing the impact of ASU 2020-04 on its Consolidated Financial Statements.
In August 2020, the FASB issued ASU No. 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity's Own Equity” (“ASU 2020-06”), which eliminates certain models associated with accounting for convertible instruments, makes targeted improvements to the disclosures for convertible instruments and earnings per share guidance, and amends the guidance for the derivative scope exception for contracts in an entity's own equity. The amendments are effective for annual periods beginning after December 15, 2021 including interim periods within those periods. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those periods. The Company is currently assessing the impact of ASU 2020-06 on its Consolidated Financial Statements.
The Company considers the applicability and impact of all recently issued FASB accounting standard codification updates. Accounting standards updates that are not noted above were assessed and determined to be not applicable or not significant to the Company’s Consolidated Financial Statements for the period ended December 31, 2020.
5. Current Expected Credit Losses
In 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASC Topic 326”), which amends previously issued guidance regarding the impairment of financial instruments by creating an impairment model that is based on expected losses rather than incurred losses. The standard requires financial assets measured on the amortized cost basis to be presented at the net amount expected to be collected. The Company’s accounts receivable, financing receivables and variable consideration receivables are within the scope of ASU No. 2016-13. The Company adopted ASU No. 2016-13 and several associated ASUs on January 1, 2020 with no required cumulative-effect adjustment to accumulated deficit.
Accounts Receivable
Accounts receivable principally includes amounts currently due to the Company under theater sale and sales-type lease arrangements such as contingent fees owed by theater operators as a result of box office performance and fees for theater maintenance services. Accounts receivable also includes amounts due to the Company from movie studios and other content creators for digital remastering services, as well as for film distribution and post-production services.
98
In order to mitigate the credit risk associated with accounts receivable, 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 for theater operators are as follows:
|
|
|
|
|
|
|
|
The ability of the Company to collect its accounts receivable balances is heavily dependent on the 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, such as those imposed by the COVID-19 global pandemic, that could cause them to be unable to fulfill their payment obligations to the Company.
The Company develops its estimate of 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 taking into account management’s internal credit quality classifications, as well as macro-economic and industry risk factors.
The following table summarizes the activity in the Allowance for Credit Losses related to Accounts Receivable for the year ended December 31, 2020:
|
| Year Ended December 31, 2020 |
| |||||||||||||
(In thousands of U.S. Dollars) |
| Theater Operators |
|
| Studios |
|
| Other |
|
| Total |
| ||||
Beginning balance |
| $ | 3,302 |
|
| $ | 893 |
|
| $ | 943 |
|
| $ | 5,138 |
|
Current period provision |
|
| 5,793 |
|
|
| 3,393 |
|
|
| 522 |
|
|
| 9,708 |
|
Write-offs |
|
| (975 | ) |
|
| — |
|
|
| — |
|
|
| (975 | ) |
Recoveries |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Foreign exchange |
|
| 248 |
|
|
| 195 |
|
|
| (19 | ) |
|
| 424 |
|
Ending balance |
| $ | 8,368 |
|
| $ | 4,481 |
|
| $ | 1,446 |
|
| $ | 14,295 |
|
For the year ended December 31, 2020, the Company recorded provisions for current expected credit losses of $9.7 million, reflecting a reduction in the credit quality of its theater and studio related accounts receivable and the heightened collection risk associated with certain movie studios in foreign markets, which management believes is primarily related to the COVID-19 global pandemic and adequately addresses the risk of not collecting these receivables in full. Management’s judgments regarding expected credit losses are based on the facts available to management and involve estimates about the future. Due to the unprecedented nature of the COVID-19 pandemic, its effect on the Company’s customers and their ability to meet their financial obligations to the Company is difficult to predict. As a result, the Company’s judgments and associated estimates of credit losses may ultimately prove, with the benefit of hindsight, to be incorrect (see Note 2).
99
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 Theater Systems. Similar to accounts receivable, 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 internal credit quality classifications utilized by the Company for accounts receivable, as described above, are also used for financing receivables.
The ability of the Company to collect its financing receivable balances is heavily dependent on the viability and solvency of individual theater operators which is significantly influenced by consumer behavior and general economic conditions. Theater operators may experience financial difficulties, such as those imposed by the COVID-19 global pandemic, that could cause them to be unable to fulfill their payment obligations to the Company.
The Company develops its estimate of 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 taking into account management’s internal credit quality classifications, as well as macro-economic and industry risk factors.
As of December 31, 2020 and December 31, 2019, financing receivables consist of the following:
|
| December 31, |
|
| December 31, |
| ||
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
| ||
Net investment in leases |
|
|
|
|
|
|
|
|
Gross minimum payments due under sales-type leases |
| $ | 20,830 |
|
| $ | 16,766 |
|
Unearned finance income |
|
| (859 | ) |
|
| (1,005 | ) |
Present value of minimum payments due under sales-type leases |
|
| 19,971 |
|
|
| 15,761 |
|
Allowance for credit losses |
|
| (557 | ) |
|
| (155 | ) |
Net investment in leases |
|
| 19,414 |
|
|
| 15,606 |
|
Financed sales receivables |
|
|
|
|
|
|
|
|
Gross minimum payments due under financed sales |
|
| 150,917 |
|
|
| 146,660 |
|
Unearned finance income |
|
| (31,247 | ) |
|
| (33,313 | ) |
Present value of minimum payments due under financed sales |
|
| 119,670 |
|
|
| 113,347 |
|
Allowance for credit losses |
|
| (7,274 | ) |
|
| (915 | ) |
Net financed sales receivables |
|
| 112,396 |
|
|
| 112,432 |
|
Total financing receivables |
| $ | 131,810 |
|
| $ | 128,038 |
|
|
|
|
|
|
|
|
|
|
Net financed sales receivables due within one year |
| $ | 34,937 |
|
| $ | 27,595 |
|
Net financed sales receivables due after one year |
| $ | 77,459 |
|
| $ | 84,837 |
|
Total financed sales receivables |
| $ | 112,396 |
|
| $ | 112,432 |
|
As of December 31, 2020 and December 31, 2019, the weighted-average remaining lease term and weighted-average interest rate associated with the Company’s sales-type lease arrangements and financed sale receivables, as applicable, are as follows:
|
|
| December 31, |
| December 31, | ||||||
|
|
| 2020 |
| 2019 | ||||||
Weighted-average remaining lease term (in years) |
|
|
|
|
|
|
|
|
|
| |
Sales-type lease arrangements |
|
|
| 8.3 |
|
|
|
| 8.1 |
|
|
Weighted-average interest rate |
|
|
|
|
|
|
|
|
|
|
|
Sales-type lease arrangements |
|
|
| 6.56 |
| % |
|
| 6.68 |
| % |
Financed sales receivables |
|
|
| 8.92 |
| % |
|
| 9.00 |
| % |
100
The following tables provide information on the Company’s net investment in leases by credit quality indicator as of December 31, 2020 and December 31, 2019:
(In thousands of U.S. Dollars) |
| By Origination Year |
|
|
|
|
| |||||||||||||||||||||
As of December 31, 2020 |
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
|
| Prior |
|
| Total |
| |||||||
Net investment in leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality classification: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In good standing |
| $ | 2,143 |
|
| $ | 1,190 |
|
| $ | 2,730 |
|
| $ | — |
|
| $ | — |
|
| $ | 1,826 |
|
| $ | 7,889 |
|
Credit Watch |
|
| 2,005 |
|
|
| 7,278 |
|
|
| — |
|
|
| 988 |
|
|
| — |
|
|
| 1,047 |
|
|
| 11,318 |
|
Pre-approved transactions |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Transactions suspended |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 764 |
|
|
| 764 |
|
Total net investment in leases |
| $ | 4,148 |
|
| $ | 8,468 |
|
| $ | 2,730 |
|
| $ | 988 |
|
| $ | — |
|
| $ | 3,637 |
|
| $ | 19,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands of U.S. Dollars) |
| By Origination Year |
|
|
|
|
| |||||||||||||||||||||
As of December 31, 2019 |
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| Prior |
|
| Total |
| |||||||
Net investment in leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality classification: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In good standing |
| $ | 7,874 |
|
| $ | 3,045 |
|
| $ | 989 |
|
| $ | — |
|
| $ | — |
|
| $ | 3,186 |
|
| $ | 15,094 |
|
Credit Watch |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 667 |
|
|
| 667 |
|
Pre-approved transactions |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Transactions suspended |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total net investment in leases |
| $ | 7,874 |
|
| $ | 3,045 |
|
| $ | 989 |
|
| $ | — |
|
| $ | — |
|
| $ | 3,853 |
|
| $ | 15,761 |
|
The following tables provide information on the Company’s financed sale receivables by credit quality indicator as of December 31, 2020 and December 31, 2019:
(In thousands of U.S. Dollars) |
| By Origination Year |
|
|
|
|
| |||||||||||||||||||||
As of December 31, 2020 |
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
|
| Prior |
|
| Total |
| |||||||
Financed sales receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality classification: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In good standing |
| $ | 6,830 |
|
| $ | 5,480 |
|
| $ | 3,547 |
|
| $ | 3,740 |
|
| $ | 5,072 |
|
| $ | 12,660 |
|
| $ | 37,329 |
|
Credit Watch |
|
| 1,986 |
|
|
| 6,501 |
|
|
| 11,356 |
|
|
| 12,520 |
|
|
| 11,446 |
|
|
| 34,351 |
|
|
| 78,160 |
|
Pre-approved transactions |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 613 |
|
|
| 755 |
|
|
| 1,368 |
|
Transactions suspended |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 987 |
|
|
| 728 |
|
|
| 1,098 |
|
|
| 2,813 |
|
Total financed sales receivables |
| $ | 8,816 |
|
| $ | 11,981 |
|
| $ | 14,903 |
|
| $ | 17,247 |
|
| $ | 17,859 |
|
| $ | 48,864 |
|
| $ | 119,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands of U.S. Dollars) |
| By Origination Year |
|
|
|
|
| |||||||||||||||||||||
As of December 31, 2019 |
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| Prior |
|
| Total |
| |||||||
Financed sales receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality classification: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In good standing |
| $ | 11,981 |
|
| $ | 14,414 |
|
| $ | 16,556 |
|
| $ | 15,208 |
|
| $ | — |
|
| $ | 44,291 |
|
| $ | 102,450 |
|
Credit Watch |
|
| — |
|
|
| — |
|
|
| 637 |
|
|
| 1,687 |
|
|
| — |
|
|
| 6,955 |
|
|
| 9,279 |
|
Pre-approved transactions |
|
| — |
|
|
| — |
|
|
| 250 |
|
|
| 295 |
|
|
| — |
|
|
| 285 |
|
|
| 830 |
|
Transactions suspended |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 165 |
|
|
| — |
|
|
| 623 |
|
|
| 788 |
|
Total financed sales receivables |
| $ | 11,981 |
|
| $ | 14,414 |
|
| $ | 17,443 |
|
| $ | 17,355 |
|
| $ | — |
|
| $ | 52,154 |
|
| $ | 113,347 |
|
101
The following tables provide an aging analysis for the Company’s net investment in leases and financed sale receivables as of December 31, 2020 and December 31, 2019:
|
| As of December 31, 2020 |
| |||||||||||||||||||||||||||||
(In thousands of U.S. Dollars) |
| Accrued and Current |
|
| 30-89 Days |
|
| 90+ Days |
|
| Billed |
|
| Unbilled |
|
| Recorded Receivable |
|
| Allowance for Credit Losses |
|
| Net |
| ||||||||
Net investment in leases |
| $ | 298 |
|
| $ | 180 |
|
| $ | 689 |
|
| $ | 1,167 |
|
| $ | 18,804 |
|
| $ | 19,971 |
|
| $ | (557 | ) |
| $ | 19,414 |
|
Financed sales receivables |
|
| 3,307 |
|
|
| 1,943 |
|
|
| 10,699 |
|
|
| 15,949 |
|
|
| 103,721 |
|
|
| 119,670 |
|
|
| (7,274 | ) |
|
| 112,396 |
|
Total |
| $ | 3,605 |
|
| $ | 2,123 |
|
| $ | 11,388 |
|
| $ | 17,116 |
|
| $ | 122,525 |
|
| $ | 139,641 |
|
| $ | (7,831 | ) |
| $ | 131,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, 2019 |
| |||||||||||||||||||||||||||||
(In thousands of U.S. Dollars) |
| Accrued and Current |
|
| 30-89 Days |
|
| 90+ Days |
|
| Billed |
|
| Unbilled |
|
| Recorded Receivable |
|
| Allowance for Credit Losses |
|
| Net |
| ||||||||
Net investment in leases |
| $ | 30 |
|
| $ | 68 |
|
| $ | 251 |
|
| $ | 349 |
|
| $ | 15,412 |
|
| $ | 15,761 |
|
| $ | (155 | ) |
| $ | 15,606 |
|
Financed sales receivables |
|
| 1,678 |
|
|
| 2,772 |
|
|
| 5,446 |
|
|
| 9,896 |
|
|
| 103,451 |
|
|
| 113,347 |
|
|
| (915 | ) |
|
| 112,432 |
|
Total |
| $ | 1,708 |
|
| $ | 2,840 |
|
| $ | 5,697 |
|
| $ | 10,245 |
|
| $ | 118,863 |
|
| $ | 129,108 |
|
| $ | (1,070 | ) |
| $ | 128,038 |
|
The Company considers Financing Receivables with an aging between 60-89 days as indications of theaters with potential collection concerns. At this point, 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 perform an enhanced review to assess collectibility 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. Given the potential impacts of the COVID-19 global pandemic on the Company’s customers, management is enhancing its monitoring procedures with respect to overdue receivables.
The following tables provide information about the Company’s net investment in leases and financed sale receivables with billed amounts past due for which it continues to accrue finance income as of December 31, 2020 and December 31, 2019:
|
| As of December 31, 2020 |
| |||||||||||||||||||||||||
(In thousands of U.S. Dollars) |
| Accrued and Current |
|
| 30-89 Days |
|
| 90+ Days |
|
| Billed |
|
| Unbilled |
|
| Allowance for Credit Losses |
|
| Net |
| |||||||
Net investment in leases |
| $ | 231 |
|
| $ | 162 |
|
| $ | 359 |
|
| $ | 752 |
|
| $ | 13,912 |
|
| $ | (310 | ) |
| $ | 14,354 |
|
Financed sales receivables |
|
| 2,026 |
|
|
| 1,551 |
|
|
| 10,249 |
|
|
| 13,826 |
|
|
| 62,602 |
|
|
| (4,434 | ) |
|
| 71,994 |
|
Total |
| $ | 2,257 |
|
| $ | 1,713 |
|
| $ | 10,608 |
|
| $ | 14,578 |
|
| $ | 76,514 |
|
| $ | (4,744 | ) |
| $ | 86,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, 2019 |
| |||||||||||||||||||||||||
(In thousands of U.S. Dollars) |
| Accrued and Current |
|
| 30-89 Days |
|
| 90+ Days |
|
| Billed |
|
| Unbilled |
|
| Allowance for Credit Losses |
|
| Net |
| |||||||
Net investment in leases |
| $ | 9 |
|
| $ | 19 |
|
| $ | 251 |
|
| $ | 279 |
|
| $ | 578 |
|
| $ | — |
|
| $ | 857 |
|
Financed sales receivables |
|
| 1,146 |
|
|
| 1,290 |
|
|
| 5,523 |
|
|
| 7,959 |
|
|
| 29,173 |
|
|
| — |
|
|
| 37,132 |
|
Total |
| $ | 1,155 |
|
| $ | 1,309 |
|
| $ | 5,774 |
|
| $ | 8,238 |
|
| $ | 29,751 |
|
| $ | — |
|
| $ | 37,989 |
|
The following table provides information about the Company’s net investment in leases and financed sale receivables that are on nonaccrual status as of December 31, 2020 and December 31, 2019:
|
| As of December 31, 2020 |
|
| As of December 31, 2019 |
| ||||||||||||||||||
(In thousands of U.S. Dollars) |
| Recorded Receivable |
|
| Allowance for Credit Losses |
|
| Net |
|
| Recorded Receivable |
|
| Allowance for Credit Losses |
|
| Net |
| ||||||
Net investment in leases |
| $ | 764 |
|
| $ | (18 | ) |
| $ | 746 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Net financed sales receivables |
|
| 2,813 |
|
|
| (1,482 | ) |
|
| 1,331 |
|
|
| 788 |
|
|
| (732 | ) |
|
| 56 |
|
Total |
| $ | 3,577 |
|
| $ | (1,500 | ) |
| $ | 2,077 |
|
| $ | 788 |
|
| $ | (732 | ) |
| $ | 56 |
|
102
A theater operator that is classified within the “All Transactions Suspended” category is placed on nonaccrual status and all revenue recognitions related to the theater are stopped. While the 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 collectibility issues are resolved and the customer has returned to being in good standing, the Company will resume recognition of Finance Income.
For the year ended December 31, 2020, the Company recognized $0.2 million (2019 — $0.1 million) in Finance Income related to the net investment in leases with billed amounts past due. For the year ended December 31, 2020, the Company recognized $5.7 million (2019 — $6.2 million) in Finance Income related to the financed sale receivables with billed amounts past due.
The following table summarizes the activity in the Allowance for Credit Losses related to the Company’s net investment in leases and financed sale receivables for years ended December 31, 2020 and 2019:
|
| Year Ended December 31, 2020 |
| |||||
|
| Net Investment |
|
| Financed |
| ||
(In thousands of U.S. Dollars) |
| in Leases |
|
| Sales Receivables |
| ||
Beginning balance |
| $ | 155 |
|
| $ | 915 |
|
Current period provision |
|
| 451 |
|
|
| 6,574 |
|
Write-offs |
|
| (69 | ) |
|
| (330 | ) |
Recoveries |
| — |
|
| — |
| ||
Foreign exchange |
|
| 20 |
|
|
| 115 |
|
Ending balance |
| $ | 557 |
|
| $ | 7,274 |
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, 2019 |
| |||||
|
| Net Investment |
|
| Net Financed |
| ||
(In thousands of U.S. Dollars) |
| in Leases |
|
| Sales Receivables |
| ||
Beginning balance |
| $ | 155 |
|
| $ | 839 |
|
Charge-offs |
|
| — |
|
|
| — |
|
Recoveries |
|
| — |
|
|
| — |
|
Provision |
|
| — |
|
|
| 76 |
|
Ending balance |
| $ | 155 |
|
| $ | 915 |
|
For the year ended December 31, 2020, the Company recorded a provision for current expected credit losses of $7.0 million reflecting a reduction in the credit quality of its theater related financing receivables, which management believes is primarily related to the COVID-19 global pandemic and adequately addresses the risk of not collecting these receivables in full. Management’s judgments regarding expected credit losses are based on the facts available to management and involve estimates about the future. Due to the unprecedented nature of the COVID-19 pandemic, its effect on the Company’s customers and their ability to meet their financial obligations to the Company is difficult to predict. As a result, the Company’s judgments and associated estimates of credit losses may ultimately prove, with the benefit of hindsight, to be incorrect (see Note 2).
Variable Consideration Receivable
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 ability of the Company to collect its variable consideration receivables is heavily dependent on the viability and solvency of individual theater operators which is significantly influenced by consumer behavior and general economic conditions. Theater operators may experience financial difficulties, such as those imposed by the COVID-19 global pandemic, that could cause them to be unable to fulfill their payment obligations to the Company.
The Company develops its estimate of credit losses by class of receivable and customer type through a calculation utilizing historical loss rates for financed sale receivables 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.
103
The following table summarizes the activity in the Allowance for Credit Losses related to Variable Consideration Receivables for the year ended December 31, 2020:
|
| Year Ended December 31, 2020 |
| |
(In thousands of U.S. Dollars) |
| Theater Operators |
| |
Beginning balance |
| $ | — |
|
Current period provision |
|
| 1,875 |
|
Write-offs |
|
| — |
|
Recoveries |
|
| — |
|
Foreign Exchange |
|
| 12 |
|
Ending balance |
| $ | 1,887 |
|
For the year ended December 31, 2020, the Company recorded a provision of $1.9 million for current expected credit losses, reflecting a reduction in the credit quality of its theater related Variable Consideration Receivables, which management believes is primarily related to the COVID-19 global pandemic and adequately addresses the risk of not collecting these receivables in full. Management’s judgments regarding expected credit losses are based on the facts available to management and involve estimates about the future. Due to the unprecedented nature of the COVID-19 pandemic, its effect on the Company’s customers and their ability to meet their financial obligations to the Company is difficult to predict. As a result, the Company’s judgments and associated estimates of credit losses may ultimately prove, with the benefit of hindsight, to be incorrect (see Note 2).
6. Lease Arrangements
On January 1, 2019, the Company adopted ASC Topic 842, “Leases,” utilizing the modified retrospective transition method and elected not to recast comparative prior year periods. Accordingly, comparative amounts for periods prior to January 1, 2019 are presented in accordance with the previous guidance in ASC Topic 840 or other applicable standards.
The Company elected the package of practical expedients available under the transition provisions of ASC Topic 842, including (i) not reassessing whether expired or existing contracts contain leases, (ii) not reassessing previous lease classification, and (iii) not revaluing initial direct costs for existing leases. The Company did not elect the land easements and the use of hindsight practical expedients in determining the lease term for existing leases. ASC Topic 842 also provides practical expedients for an entity’s ongoing accounting. The Company has elected the short-term lease recognition exemption. As a result, for qualifying leases with a term of less than 12 months, the Company does not recognize right-of-use assets or lease liabilities. The Company also elected the practical expedient to not separate lease and non-lease components for all its leases regardless of whether the Company is the lessee or a lessor.
For situations where the Company is a lessee, the adoption of ASC Topic 842 on January 1, 2019 resulted in the recording an increase to net lease assets and lease liabilities of approximately $17.4 million. This amount consists of gross right-of-use assets and lease liabilities of $20.0 million, while unamortized lease incentives, prepaid expenses, and other accruals of $2.6 million were reclassified from accrued liabilities to partially offset the applicable right-of-use asset. The adoption of ASC Topic 842 did not change the lease classification for situations when the Company is a lessee. As a result, these leases continued to be classified as operating leases similar to the previous guidance under ASC Topic 840. For situations where the Company is a lessor, the adoption of ASC Topic 842 on January 1, 2019 did not result in any material changes to the Company’s accounting when compared to the previous guidance under ASC Topic 840. The adoption of ASC Topic 842 did not materially impact the Company’s net earnings and had no impact on its cash flows.
104
IMAX Corporation as a Lessee
The Company’s operating lease arrangements principally involve office and warehouse space. Office equipment is generally purchased outright. Leases with an initial term of less 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 liability is based on the location of each leased property. NaN 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.
For the years ended December 31, 2020 and 2019, 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) |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Operating lease cost (1) |
| $ | 540 |
|
| $ | 850 |
|
| $ | 4,863 |
|
Amortization of lease assets |
|
| 3,114 |
|
|
| 2,370 |
|
|
| 0 |
|
Interest on lease liabilities |
|
| 1,052 |
|
|
| 1,102 |
|
|
| 0 |
|
Total lease cost |
| $ | 4,706 |
|
| $ | 4,322 |
|
| $ | 4,863 |
|
(1) Includes rent expense associated with short-term leases and variable lease costs, which are not significant for the years ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019, supplemental cash and non-cash information related to leases is as follows:
|
| Years Ended December 31, |
| |||||
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
| ||
Cash paid for amounts included in the measurement of lease liabilities |
| $ | 3,743 |
|
| $ | 3,607 |
|
Right-of-use assets obtained in exchange for lease obligations |
| $ | 563 |
|
| $ | 17,147 |
|
(1) Mainly includes right-of-use assets recognized upon the adoption of ASC Topic 842 “Leases”.
For the years ended December 31, 2020 and 2019, supplemental balance sheet information related to leases is as follows:
|
|
| Years ended December 31, |
| |||||
(In thousands of U.S. Dollars) |
|
| 2020 |
|
| 2019 |
| ||
Assets | Balance Sheet Classification |
|
|
|
|
|
|
|
|
Right-of-Use-Assets | Property, plant and equipment |
| $ | 13,911 |
|
| $ | 16,262 |
|
Liabilities | Balance Sheet Classification |
|
|
|
|
|
|
|
|
Operating Leases | Accrued and other liabilities |
| $ | 16,634 |
|
| $ | 18,677 |
|
For the years ended December 31, 2020 and 2019, the weighted-average remaining lease term and weighted-average interest rate associated with the Company’s operating leases are as follows:
|
|
| Years ended December 31, |
|
| |||||
|
|
| 2020 |
|
| 2019 |
|
| ||
Weighted-average remaining lease term (years) |
|
| 7.6 |
|
|
| 8.1 |
|
| |
Weighted-average discount rate |
|
|
| 5.91 |
| % |
| 5.90 |
| % |
105
As of December 31, 2020, the maturities of the Company’s operating lease liabilities are as follows:
(In thousands of U.S. Dollars) |
| Operating Leases |
| |
2021 |
| $ | 3,398 |
|
2022 |
|
| 2,942 |
|
2023 |
|
| 2,299 |
|
2024 |
|
| 2,236 |
|
2025 |
|
| 2,082 |
|
Thereafter |
|
| 8,022 |
|
Total undiscounted operating lease payments |
| $ | 20,979 |
|
Less: imputed interest |
|
| (4,345 | ) |
Present value of operating lease liabilities |
| $ | 16,634 |
|
IMAX Corporation as a Lessor
The Company provides IMAX Theater 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 Theater 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 3(n). 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 typically non-cancellable for 10 to 20 years with renewal provisions from inception. 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 IMAX Theater System commencing on the date specified in the arrangement’s shipping terms and ending on the date the IMAX Theater System is returned to the Company.
The Company provides IMAX Theater Systems to customers through joint revenue sharing arrangements. Under the traditional form of these arrangements, in exchange for providing the IMAX Theater 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 requiring the customer to pay a fixed upfront fee or annual minimum payments. Under certain other joint revenue sharing arrangements, knowns as hybrid arrangements, the customer is responsible for making fixed upfront payments prior to the delivery and installation of the IMAX Theater 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 typically non-cancellable for 10 years or longer with renewal provisions. Title to the IMAX Theater System under a joint revenue sharing arrangement 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 IMAX Theater System commencing on the date specified in the arrangement’s shipping terms and ending on the date the IMAX Theater System is returned to the Company.
106
7. Variable Consideration from Contracts with Customers
The arrangement for the sale of an IMAX Theater 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 under ASC Topic 606. An estimate of the present value of such variable consideration is recognized as revenue upon the transfer of control of the IMAX Theater System 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 theater, which are developed using historical data for the theater and, if necessary, comparable theaters and territories.
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. ASC Topic 606, “Revenue from Contracts with Customers,” identifies several examples of situations when constraining variable consideration is appropriate:
|
|
|
|
|
|
|
|
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 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 commercial success of film content in future periods. The Company tracks numerous performance statistics for box office performance in regions worldwide and applies its understanding of these theater markets to estimate the most likely amount of variable consideration to be earned over the term of the arrangement. The Company then applies a constraint to this estimate 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 experience, eliminating significant outliers, is used. The resulting amount of variable consideration is then recorded at its present value as of the date of recognition using a risk-weighted discount rate.
The following table summarizes the activity related to variable consideration from contracts with customers for the year ended December 31, 2020:
|
| Variable Consideration Receivable from Contracts with customers |
| |
(In thousands of U.S. Dollars) |
|
|
|
|
Balance as of December 31, 2019 |
| $ | 40,040 |
|
Variable consideration for newly recognized sales |
|
| 5,550 |
|
Accretion to finance income |
|
| 2,133 |
|
Transferred to receivables from variable consideration assets |
|
| (5,310 | ) |
Allowance for credit losses (see Note 5) |
|
| (1,887 | ) |
Balance as of December 31, 2020 |
| $ | 40,526 |
|
107
8. Inventories
|
| As of December 31, |
| |||||
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
| ||
Raw materials |
| $ | 30,096 |
|
| $ | 26,538 |
|
Work-in-process |
|
| 3,014 |
|
|
| 4,608 |
|
Finished goods |
|
| 6,470 |
|
|
| 11,843 |
|
|
| $ | 39,580 |
|
| $ | 42,989 |
|
At December 31, 2020, inventories include finished goods of $2.1 million (December 31, 2019 — $0.7 million) for which title had passed to the customer, but the criteria for revenue recognition were not met as of the balance sheet date.
For the year ended December 31, 2020, the Company recognized write-downs of $3.6 million (December 31, 2019 — $0.4 million), for excess and obsolete inventory based on current estimates of net realizable value.
9. Film Assets
|
| As of December 31, |
| |||||
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
| ||
Completed and released films, net of accumulated amortization of |
| $ | 2,678 |
|
| $ | 7,193 |
|
$201,832 (2019 ― $192,999) |
|
|
|
|
|
|
|
|
Films in production |
|
| 195 |
|
|
| 4,250 |
|
Films in development |
|
| 2,904 |
|
|
| 6,478 |
|
|
| $ | 5,777 |
|
| $ | 17,921 |
|
The Company expects to amortize film costs of $5.3 million for released films within three years from December 31, 2020 (December 31, 2019 — $11.4 million), including $4.4 million (December 31, 2019 — $7.3 million) related to completed films that are expected to be amortized within the next year. In certain film arrangements, the Company co-produces a film with a third party with the third party retaining certain rights to the film. The amount of participation payments owed to third parties related to co-produced films at December 31, 2020, is $2.7 million (2019 — $1.6 million) and is recorded on the Consolidated Balance Sheets within Accrued and Other Liabilities.
In 2020, the Company recorded impairment losses of $10.8 million (December 31, 2019 — $1.4 million) principally to write-down the carrying value of certain documentary, alternative content film assets and DMR related film assets due to a decrease in projected box office totals and related revenues based on management’s regular quarterly recoverability assessments.
108
10. Property, Plant and Equipment
|
| As of December 31, 2020 |
| ||||||||||||
|
|
|
|
|
|
| Accumulated |
|
| Net Book |
| ||||
(In thousands of U.S. Dollars) |
| Cost |
|
| Depreciation |
|
| Value |
| ||||||
Equipment leased or held for use: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theater system components(1)(2)(3) |
| $ |
| 337,271 |
|
| $ |
| 158,647 |
|
| $ |
| 178,624 |
|
Camera equipment |
|
|
| 5,399 |
|
|
|
| 4,653 |
|
|
|
| 746 |
|
|
|
|
| 342,670 |
|
|
|
| 163,300 |
|
|
|
| 179,370 |
|
Assets under construction(4) |
|
|
| 5,660 |
|
|
|
| 0 |
|
|
|
| 5,660 |
|
Right-of-use assets(5) |
|
|
| 15,553 |
|
|
|
| 1,642 |
|
|
|
| 13,911 |
|
Other property, plant and equipment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land |
|
|
| 8,203 |
|
|
|
| 0 |
|
|
|
| 8,203 |
|
Buildings |
|
|
| 80,875 |
|
|
|
| 25,921 |
|
|
|
| 54,954 |
|
Office and production equipment(6) |
|
|
| 40,362 |
|
|
|
| 29,156 |
|
|
|
| 11,206 |
|
Leasehold improvements |
|
|
| 8,061 |
|
|
|
| 3,968 |
|
|
|
| 4,093 |
|
|
|
|
| 137,501 |
|
|
|
| 59,045 |
|
|
|
| 78,456 |
|
|
| $ |
| 501,384 |
|
| $ |
| 223,987 |
|
| $ |
| 277,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, 2019 |
| ||||||||||||
|
|
|
|
|
|
| Accumulated |
|
| Net Book |
| ||||
(In thousands of U.S. Dollars) |
| Cost |
|
| Depreciation |
|
| Value |
| ||||||
Equipment leased or held for use: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theater system components(1)(2)(3) |
| $ |
| 322,492 |
|
| $ |
| 133,739 |
|
| $ |
| 188,753 |
|
Camera equipment |
|
|
| 5,192 |
|
|
|
| 4,239 |
|
|
|
| 953 |
|
|
|
|
| 327,684 |
|
|
|
| 137,978 |
|
|
|
| 189,706 |
|
Assets under construction(4) |
|
|
| 14,483 |
|
|
|
| 0 |
|
|
|
| 14,483 |
|
Right-of-use assets(5) |
|
|
| 17,147 |
|
|
|
| 885 |
|
|
|
| 16,262 |
|
Other property, plant and equipment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land |
|
|
| 8,203 |
|
|
|
| 0 |
|
|
|
| 8,203 |
|
Buildings |
|
|
| 80,850 |
|
|
|
| 22,931 |
|
|
|
| 57,919 |
|
Office and production equipment(6) |
|
|
| 41,673 |
|
|
|
| 25,654 |
|
|
|
| 16,019 |
|
Leasehold improvements |
|
|
| 7,614 |
|
|
|
| 3,357 |
|
|
|
| 4,257 |
|
|
|
|
| 138,340 |
|
|
|
| 51,942 |
|
|
|
| 86,398 |
|
|
| $ |
| 497,654 |
|
| $ |
| 190,805 |
|
| $ |
| 306,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
109
In 2020, the Company recorded a charge of $0.2 million (2019 — $0.2 million; 2018 — $0.8 million) reflecting Property, Plant and Equipment that were no longer in use.
In addition, as a result of the Company’s restructuring activities in 2018, 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. In 2018, the Company recognized property, plant and equipment charges of $3.7 million. NaN such charge was recorded in the years ended 2020 and 2019.
11. Other Assets
|
| As of December 31, |
| |||||||
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
| ||||
Lease incentives provided to theaters |
| $ |
| 15,651 |
|
| $ |
| 19,125 |
|
Commissions and other deferred selling expenses |
|
|
| 2,608 |
|
|
|
| 1,501 |
|
Other investments(1) |
|
|
| 1,000 |
|
|
|
| 2,500 |
|
Investment in content(2) |
|
|
| — |
|
|
|
| 955 |
|
Foreign currency derivatives |
|
|
| 1,979 |
|
|
|
| 602 |
|
Other |
|
|
| 435 |
|
|
|
| 351 |
|
|
| $ |
| 21,673 |
|
| $ |
| 25,034 |
|
|
|
|
|
110
12. Income Taxes
|
|
(Loss) income before taxes by tax jurisdiction for the years ended December 31, 2020, 2019 and 2018 consists of the following:
|
| Years Ended December 31, |
| ||||||||||||
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
|
| 2018 |
| ||||||
Canada |
| $ |
| (104,166 | ) |
| $ |
| 884 |
|
| $ |
| (14,749 | ) |
United States |
|
|
| (6,437 | ) |
|
|
| (234 | ) |
|
|
| (6,079 | ) |
China |
|
|
| (8,253 | ) |
|
|
| 51,809 |
|
|
|
| 50,446 |
|
Ireland |
|
|
| (7,473 | ) |
|
|
| 17,630 |
|
|
|
| 8,071 |
|
Other |
|
|
| (2,795 | ) |
|
|
| 5,247 |
|
|
|
| 5,916 |
|
|
| $ |
| (129,124 | ) |
| $ |
| 75,336 |
|
| $ |
| 43,605 |
|
|
|
Income tax (expense) benefit for the years ended December 31, 2020, 2019 and 2018 consists of the following:
|
| Years Ended December 31, |
| ||||||||||||
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
|
| 2018 |
| ||||||
Income tax (expense) benefit - current: |
|
|
|
| �� |
|
|
|
|
|
|
|
|
|
|
Canada |
| $ |
| 555 |
|
| $ |
| 2,369 |
|
| $ |
| (4,893 | ) |
United States |
|
|
| 488 |
|
|
|
| 595 |
|
|
|
| 1,300 |
|
China |
|
|
| (1,980 | ) |
|
|
| (11,789 | ) |
|
|
| (11,259 | ) |
Ireland |
|
|
| (1,462 | ) |
|
|
| (762 | ) |
|
|
| (1,095 | ) |
Other |
|
|
| (487 | ) |
|
|
| (419 | ) |
|
|
| (494 | ) |
Sub-total |
|
|
| (2,886 | ) |
|
|
| (10,006 | ) |
|
|
| (16,441 | ) |
Income tax (expense) benefit - deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada(1) |
|
|
| (10,801 | ) |
|
|
| (3,913 | ) |
|
|
| 5,993 |
|
United States |
|
|
| 867 |
|
|
|
| (949 | ) |
|
|
| 2,386 |
|
China(2) |
|
|
| (15,756 | ) |
|
|
| (18 | ) |
|
|
| (6 | ) |
Ireland |
|
|
| 2,161 |
|
|
|
| (1,923 | ) |
|
|
| (1,423 | ) |
Other |
|
|
| (89 | ) |
|
|
| 41 |
|
|
|
| (27 | ) |
Sub-total |
|
|
| (23,618 | ) |
|
|
| (6,762 | ) |
|
|
| 6,923 |
|
Total(3) |
| $ |
| (26,504 | ) |
| $ |
| (16,768 | ) |
| $ |
| (9,518 | ) |
|
|
|
|
|
|
111
(c)Reconciliation of Income Tax Expense to Statutory Rates
For the years ended December 31, 2020, 2019 and 2018, income tax expense 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 factors:
|
| Years Ended December 31, |
| ||||||||||||
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
|
| 2018 |
| ||||||
Income tax benefit (expense) at combined statutory rates |
| $ |
| 34,218 |
|
| $ |
| (19,964 | ) |
| $ |
| (11,555 | ) |
Adjustments resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NCI share of partnership losses |
|
|
| (1,229 | ) |
|
|
| (397 | ) |
|
|
| (614 | ) |
Other non-deductible/non-includable items |
|
|
| (2,243 | ) |
|
|
| 198 |
|
|
|
| 447 |
|
Increase in valuation allowance |
|
|
| (28,589 | ) |
|
|
| 0 |
|
|
|
| 0 |
|
Changes to tax reserves |
|
|
| (2,699 | ) |
|
|
| 1,418 |
|
|
|
| (204 | ) |
U.S. federal and state taxes |
|
|
| (250 | ) |
|
|
| (300 | ) |
|
|
| 30 |
|
Withholding taxes |
|
|
| (20,943 | ) |
|
|
| (1,071 | ) |
|
|
| (1,418 | ) |
Income tax at different rates in foreign and other provincial jurisdictions |
|
|
| (2,607 | ) |
|
|
| 5,019 |
|
|
|
| 3,477 |
|
Investment and other tax credits (non-refundable) |
|
|
| 643 |
|
|
|
| 701 |
|
|
|
| 783 |
|
Changes to deferred tax assets and liabilities resulting from audit and other tax return adjustments |
|
|
| (1,219 | ) |
|
|
| (1,998 | ) |
|
|
| 768 |
|
Reduction in tax benefits resulting from the vesting of share-based compensation |
|
|
| (1,237 | ) |
|
|
| (374 | ) |
|
|
| (1,232 | ) |
Impact of changes in enhanced tax rates and other legislation |
|
|
| (349 | ) |
|
|
| 0 |
|
|
|
| 0 |
|
Income tax expense |
| $ |
| (26,504 | ) |
| $ |
| (16,768 | ) |
| $ |
| (9,518 | ) |
The Company recorded income tax expense of $26.5 million for the year-ended December 31, 2020. The effective tax rate for the year of (20.5)% differs from the Canadian statutory combined Federal and Provincial rate of 26.2% primarily due to the recording of a valuation allowance against its deferred tax assets, withholding taxes associated with the reversal of the indefinite reinvestment assertion for certain foreign subsidiaries, permanent book to tax differences, jurisdictional tax rate differences, and management’s estimates of contingent liabilities related to the resolution of various tax examinations.
Comparatively, the Company recorded income tax expense of $16.8 million for the year-ended December 31, 2019. The effective tax rate for the year of 22.3% was lower than the Canadian statutory combined Federal and Provincial rate of 26.2% primarily due to income earned in Greater China and Ireland at lower effective rates. The effective tax rate for the year ended December 31, 2019 was consistent with the effective tax rate for the year ended December 31, 2018 of 21.8%.
|
|
As of December 31, 2020 and 2019, the Company’s deferred tax assets and deferred tax liability consists of the following:
|
| As of December 31, |
| |||||||
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
| ||||
Net operating loss carryforwards |
| $ |
| 17,120 |
|
| $ |
| 888 |
|
Investment tax credit and other tax credit carryforwards |
|
|
| 1,344 |
|
|
|
| 3,650 |
|
Write-downs of other assets |
|
|
| 1,219 |
|
|
|
| 1,220 |
|
Excess of tax accounting basis in property, plant and equipment, inventories and other assets |
|
|
| 9,692 |
|
|
|
| 6,257 |
|
Accrued pension liability |
|
|
| 6,942 |
|
|
|
| 6,393 |
|
Accrued share-based compensation |
|
|
| 7,350 |
|
|
|
| 5,360 |
|
Income recognition on net investment in leases |
|
|
| (2,018 | ) |
|
|
| (4,283 | ) |
Other accrued reserves |
|
|
| 5,120 |
|
|
|
| 4,617 |
|
Total deferred income tax assets |
|
|
| 46,769 |
|
|
|
| 24,102 |
|
Valuation allowance |
|
|
| (28,786 | ) |
|
|
| (197 | ) |
Deferred income tax asset net of valuation allowance |
|
|
| 17,983 |
|
|
|
| 23,905 |
|
Deferred tax liability(1) |
|
|
| (19,134 | ) |
|
|
| — |
|
Net deferred tax asset |
| $ |
| (1,151 | ) |
| $ |
| 23,905 |
|
112
|
|
The gross deferred tax assets include a liability of $0.6 million (December 31, 2019 — $0.4 million) relating to the remaining tax effect resulting from the Company’s defined benefit pension plan, the related actuarial gains and losses, and unrealized net gains and losses on cash flow hedging instruments recorded in Accumulated Other Comprehensive Loss.
(e)Net Operating Loss Carryforwards
Estimated U.S. and Canadian net operating loss carryforwards of $72.2 million can be used to reduce taxable income through 2040 and $22.7 million can be carried forward indefinitely. Investment tax credits and other tax credits can be carried forward to reduce income taxes payable through to 2040.
|
|
Taxes are provided for earnings of non-Canadian affiliates and associated companies when the Company determines that such earnings are no longer indefinitely reinvested.
In the first quarter of 2020, management completed a reassessment of its strategy with respect to the 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 excess of amounts required to sustain business operations would no longer be indefinitely reinvested. As a result, the Company recognized a deferred tax liability of $19.1 million for the year for the estimated applicable foreign withholding taxes associated with these historical earnings, which will become payable upon the repatriation of any such earnings.
|
|
The Company assessed the realization of deferred income tax assets considering all available evidence, both positive and negative. On the basis of this evaluation, income tax expense for the year ended December 31, 2020 includes a $28.6 million valuation allowance (2019 — $nil) to reduce the value of deferred tax assets in certain jurisdictions. The valuation allowance was recorded in the jurisdictions where management could not reliably establish that it was more likely than not that the deferred tax assets would be realized, primarily due uncertainty around the long term impact of the COVID-19 global pandemic. The $28.8 million (2019 — $0.2 million) balance in the valuation allowance as of December 31, 2020 is primarily attributable to certain net operating loss carryovers and investment tax credits that may expire unutilized.
The valuation allowance recorded in 2020 is expected to reverse when the Company determines it is more likely than not that the deferred tax assets in these jurisdictions will be realized. Despite this valuation allowance, the Company remains entitled to benefit from tax attributes which currently have a valuation allowance applied.
113
|
|
For the year ended, December 31, 2020, the Company recorded a net increase of $2.7 million related to reserves for income taxes. As of December 31, 2020 and December 31, 2019, the Company had total tax reserves (including interest and penalties) of $17.4 million and $14.7 million, respectively, for various uncertain tax 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 liability. Accordingly, additional provisions on federal, provincial, state and foreign tax-related matters could be recorded in the future as revised estimates are made or the underlying matters are settled or otherwise resolved.
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, 2020, 2019 and 2018:
|
| Years Ended December 31, |
| ||||||||||||
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
|
| 2018 |
| ||||||
Balance at beginning of the year |
| $ |
| 14,718 |
|
| $ |
| 16,136 |
|
| $ |
| 15,927 |
|
Additions based on tax positions related to the current year |
|
|
| 2,301 |
|
|
|
| 812 |
|
|
|
| 4,329 |
|
Reductions for tax positions of prior years |
|
|
| — |
|
|
|
| (2,230 | ) |
|
|
| (170 | ) |
Reductions resulting from lapse of applicable statute of limitations and administrative practices |
|
|
| (2,943 | ) |
|
|
| — |
|
|
|
| (3,950 | ) |
Balance at the end of the year |
| $ |
| 14,076 |
|
| $ |
| 14,718 |
|
| $ |
| 16,136 |
|
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. The Company expensed $3.3 million in potential interest and penalties associated with its provision for uncertain tax positions for the years ended December 31, 2020 (2019 — $0.2 million; 2018 — less than $0.1 million).
The number of years with open tax audits varies depending on the tax jurisdiction. The Company's taxing jurisdictions include Canada, the province of Ontario, the United States (including multiple states), Ireland and China.
The Company's 2016 through 2020 tax years remain subject to examination by the IRS for U.S. federal tax purposes, and the 2016 through 2020 tax years remain subject to examination by the appropriate governmental agencies for Canadian federal tax purposes. There are other on-going audits in various other jurisdictions that are not material to the Consolidated Financial Statements.
|
|
The income tax benefit (expense) related to the following items included in Other Comprehensive (Loss) Income are:
|
| Years Ended December 31, |
| ||||||||||||
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
|
| 2018 |
| ||||||
Unrealized defined benefit plan actuarial loss (gain) |
| $ |
| 276 |
|
| $ |
| (42 | ) |
| $ |
| (379 | ) |
Unrealized postretirement benefit plans actuarial loss (gain) |
|
|
| 92 |
|
|
|
| 0 |
|
|
|
| (23 | ) |
Prior service cost arising during the period |
|
|
| 0 |
|
|
|
| 145 |
|
|
|
| 0 |
|
Amortization of prior service cost |
|
|
| (23 | ) |
|
|
| (26 | ) |
|
|
| 0 |
|
Unrealized change in cash flow hedging instruments |
|
|
| (132 | ) |
|
|
| (145 | ) |
|
|
| 581 |
|
Realized change in cash flow hedging instruments upon settlement |
|
|
| (158 | ) |
|
|
| (310 | ) |
|
|
| 107 |
|
|
| $ |
| 55 |
|
| $ |
| (378 | ) |
| $ |
| 286 |
|
114
13. Other Intangible Assets
|
| As of December 31, 2020 |
| ||||||||||||
|
|
|
|
| Accumulated |
|
| Net Book |
| ||||||
(In thousands of U.S. Dollars) |
| Cost |
|
| Amortization |
|
| Value |
| ||||||
Patents and trademarks |
| $ |
| 12,714 |
|
| $ |
| 8,878 |
|
| $ |
| 3,836 |
|
Licenses and intellectual property |
|
|
| 26,168 |
|
|
|
| 12,182 |
|
|
|
| 13,986 |
|
Internal use software |
|
|
| 25,009 |
|
|
|
| 17,568 |
|
|
|
| 7,441 |
|
Other |
|
|
| 1,445 |
|
|
|
| 463 |
|
|
|
| 982 |
|
|
| $ |
| 65,336 |
|
| $ |
| 39,091 |
|
| $ |
| 26,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, 2019 |
| ||||||||||||
|
|
|
|
| Accumulated |
|
| Net Book |
| ||||||
(In thousands of U.S. Dollars) |
| Cost |
|
| Amortization |
|
| Value |
| ||||||
Patents and trademarks |
| $ |
| 12,779 |
|
| $ |
| 8,587 |
|
| $ |
| 4,192 |
|
Licenses and intellectual property |
|
|
| 26,168 |
|
|
|
| 10,747 |
|
|
|
| 15,421 |
|
Internal use software |
|
|
| 23,791 |
|
|
|
| 13,239 |
|
|
|
| 10,552 |
|
Other |
|
|
| 576 |
|
|
|
| 394 |
|
|
|
| 182 |
|
|
| $ |
| 63,314 |
|
| $ |
| 32,967 |
|
| $ |
| 30,347 |
|
Fully amortized other intangible assets are still in use by the Company. In 2020, the Company identified and wrote off $0.2 million (2019 ─ $0.1 million) of patents and trademarks that are no longer in use.
During 2020, the Company acquired $2.8 million in other intangible assets, mainly related to the development of internal use software, as well as additions in patents and trademark and other intangible assets. The weighted average amortization period for these additions is 6.6 years. The net book value of the other intangible assets acquired in 2020 was $2.6 million as of December 31, 2020.
During 2020, the Company incurred costs of $0.4 million to renew or extend the term of acquired patents and trademarks which were recorded in selling, general and administrative expenses (2019 ─ $0.4 million).
The estimated amortization expense for each of the next five years following the December 31, 2020 balance sheet date is as follows:
(In thousands of U.S. Dollars) |
|
|
|
|
|
2021 |
| $ |
| 6,616 |
|
2022 |
|
|
| 6,616 |
|
2023 |
|
|
| 5,676 |
|
2024 |
|
|
| 2,090 |
|
2025 |
|
|
| 1,975 |
|
14. Credit Facility and Other Financing Arrangements
As of December 31, 2020 and 2019, Bank Indebtedness includes the following:
|
| December 31, |
|
| December 31, |
| ||
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
| ||
Credit Facility |
| $ | 300,000 |
|
| $ | 20,000 |
|
Working Capital Facility |
| $ | 7,643 |
|
|
| — |
|
Unamortized debt issuance costs |
|
| (1,967 | ) |
|
| (1,771 | ) |
|
| $ | 305,676 |
|
| $ | 18,229 |
|
115
Credit Agreement
The Company has a credit agreement, the Fifth Amended and Restated Credit Agreement, with Wells Fargo Bank, National Association (“Wells Fargo”), as agent, and a syndicate of lenders party thereto (the “Credit Agreement”). The Company’s obligations under the Credit Agreement are guaranteed by certain of its subsidiaries (the “Guarantors”) and are secured by first-priority security interests in substantially all the assets of the Company and the Guarantors. The Credit Facility provided by the Credit Agreement matures on June 28, 2023.
The Credit Agreement has a revolving borrowing capacity of $300.0 million, and contains an uncommitted accordion feature allowing the Company to further expand its borrowing capacity to $440.0 million or greater, subject to certain conditions, depending on the mix of revolving and term loans comprising the incremental facility.
In the first quarter of 2020, in response to uncertainties associated with the outbreak of the COVID-19 global pandemic and its impact on the Company’s business, the Company drew down $280.0 million in available borrowing capacity under the Credit Facility, resulting in total outstanding borrowings of $300.0 million.
The Credit Agreement contains a covenant that requires the Company to maintain a Senior Secured Net Leverage Ratio (as defined in the Credit Agreement), as of the last day of any Fiscal Quarter (as defined in the Credit Agreement) of no greater than 3.25:1.00. In addition, the Credit Agreement contains customary affirmative and negative covenants, including covenants that limit indebtedness, liens, capital expenditures, 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.
On June 10, 2020, the Company entered into the First Amendment to the Credit Agreement (the “Amendment”), which, among other things, (i) suspends the Senior Secured Net Leverage Ratio covenant through the first quarter of 2021, (ii) re-establishes the Senior Secured Net Leverage Ratio covenant thereafter, provided that for subsequent quarters that such covenant is tested, as applicable, the Company will be permitted to use its quarterly EBITDA (as defined in the Credit Agreement) from the third and fourth quarters of 2019 in lieu of the EBITDA for the corresponding quarters of 2020, (iii) adds a $75.0 million minimum liquidity covenant measured at the end of each calendar month and (iv) restricts the Company’s ability to make certain restricted payments, dispositions and investments, create or assume liens and incur debt that would otherwise have been permitted by the Credit Agreement. The modifications to the negative covenants, the minimum liquidity covenant and modifications to certain other provisions in the Credit Agreement pursuant to the Amendment were effective from the date of the Amendment until the earlier of the delivery of the compliance certificate for the fourth quarter of 2021 and the date on which the Company, in its sole discretion, elects to calculate its compliance with the Senior Secured Net Leverage Ratio by using either its actual EBITDA or annualized EBITDA (the “Designated Period”).
As of December 31, 2020, the Company was in compliance with all of its requirements under the Credit Agreement, as amended. The Company’s continued compliance with the requirements of the Credit Agreement will depend on the Company’s ability to generate sufficient EBITDA to ensure compliance with the Senior Secured Net Leverage Ratio covenant throughout the next twelve months, which is dependent on the timing of when theaters in the IMAX network resume normal operations. The risk of breaching this covenant within the next twelve months increases significantly as the ongoing COVID-19 pandemic continues to adversely impact the Company’s ability to generate EBITDA. A violation of this covenant would represent an event of default under the terms of the Credit Agreement, allowing lenders to declare the principal and interest on all outstanding Credit Facility indebtedness due or payable immediately. If a breach of the Senior Secured Net Leverage Ratio covenant were to occur, however, management believes the Company would be able to either reduce a sufficient portion of the drawn amount on the Credit Facility with existing cash balances to achieve compliance, obtain additional sources of liquidity prior to the time when the repayment of its outstanding Credit Facility indebtedness would be required, or negotiate a further amendment with its lenders to the Credit Agreement to provide further covenant relief.
Borrowings under the Credit Facility bear interest, at the Company’s option, at (i) LIBOR plus a margin ranging from 1.00% to 1.75% per annum; or (ii) the U.S. base rate plus a margin ranging from 0.25% to 1.00% per annum, in each case depending on the Company’s Total Leverage Ratio (as defined in the Credit Agreement); provided, however, that from the effective date of the Amendment until the Company delivers a compliance certificate under the Credit Facility following the end of the Designated Period, the applicable margin for LIBOR borrowings will be 2.50% per annum and the applicable margin for U.S. base rate borrowings will be 1.75% per annum. The effective interest rate for the year ended December 31, 2020 was 2.38% (2019 — 3.43%).
116
In addition, the Credit Facility has standby fees ranging from 0.25% to 0.38% per annum, based on the Company’s Total Leverage Ratio with respect to the unused portion of the Credit Facility; provided, however, that from the effective date of the Amendment until the Company delivers a compliance certificate under the Credit Facility following the end of the Designated Period, the standby fee will be 0.50% per annum.
The Company incurred fees of approximately $1.1 million in connection with the Amendment, which are being amortized on a straight-line basis through December 31, 2021.
As of December 31, 2020 and 2019, the Company did 0t have any letters of credit and advance payment guarantees outstanding under the Credit Facility.
Working Capital Facility
On July 24, 2020, IMAX (Shanghai) Multimedia Technology Co., Ltd. (“IMAX Shanghai”), one of the Company’s majority-owned subsidiaries in China, renewed its unsecured revolving facility for up to 200.0 million Renminbi (approximately $30.6 million) to fund ongoing working capital requirements (the “Working Capital Facility”). The facility expires in July 2021. As of December 31, 2020, there was 49.9 million Renminbi ($7.6 million) in borrowings outstanding, 140.1 million Renminbi ($21.5 million) available for future borrowings and 10.0 million Renminbi ($1.5 million) available for letters of guarantees under the Working Capital Facility. There were no amounts drawn under the Working Capital facility at December 31, 2019. The amounts available for borrowing under the Working Capital Facility are not subject to a standby fee. The effective interest rate for the year ended December 31, 2020 was 4.31% (2019 — nil).
Wells Fargo Foreign Exchange Facility
Within the Credit Facility, the Company is able to purchase foreign currency forward contracts and/or other swap arrangements. The net settlement gain on its foreign currency forward contracts was $2.0 million at December 31, 2020, as the fair value of the forward contracts exceeded the notional value (December 31, 2019 — $0.5 million). As of December 31, 2020, the Company has $31.9 million in notional value of such arrangements outstanding (December 31, 2019 — $36.1 million).
NBC Facility
On October 28, 2019, the Company entered into a $5.0 million facility with the National Bank of Canada (the “NBC Facility”) fully insured by Export Development Canada for use solely in conjunction with the issuance of performance guarantees and letters of credit. The Company did 0t have any letters of credit and advance payment guarantees outstanding as of December 31, 2020 and 2019 under the NBC Facility.
15. Commitments
In the ordinary course of its business, the Company enters into contractual agreements with third parties that include non-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 of December 31, 2020:
|
| Payments Due by Fiscal Year |
| ||||||||||||||||||||||||||||||||
|
| Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
(In thousands of U.S. Dollars) |
| Obligations |
|
| 2021 |
|
| 2022 |
|
| 2023 |
|
| 2024 |
|
| 2025 |
|
| Thereafter |
| ||||||||||||||
Purchase obligations(1) |
| $ |
| 35,348 |
|
| $ |
| 35,247 |
|
| $ |
| 81 |
|
| $ |
| 2 |
|
| $ |
| 0 |
|
| $ |
| 0 |
|
| $ |
| 18 |
|
Pension obligations(2) |
|
|
| 20,298 |
|
|
|
| 0 |
|
|
|
| 0 |
|
|
|
| 20,298 |
|
|
|
| 0 |
|
|
|
| 0 |
|
|
|
| 0 |
|
Operating lease obligations(3) |
|
|
| 21,493 |
|
|
|
| 3,715 |
|
|
|
| 2,932 |
|
|
|
| 2,258 |
|
|
|
| 2,191 |
|
|
|
| 2,067 |
|
|
|
| 8,330 |
|
Credit Facility(4) |
|
|
| 300,000 |
|
|
|
| 0 |
|
|
|
| 0 |
|
|
|
| 300,000 |
|
|
|
| 0 |
|
|
|
| 0 |
|
|
|
| 0 |
|
Working Capital Facility(5) |
|
|
| 7,643 |
|
|
|
| 7,643 |
|
|
|
| 0 |
|
|
|
| 0 |
|
|
|
| 0 |
|
|
|
| 0 |
|
|
|
| 0 |
|
Postretirement benefits obligations(2) |
|
|
| 3,299 |
|
|
|
| 126 |
|
|
|
| 128 |
|
|
|
| 137 |
|
|
|
| 137 |
|
|
|
| 136 |
|
|
|
| 2,635 |
|
|
| $ |
| 388,081 |
|
| $ |
| 46,731 |
|
| $ |
| 3,141 |
|
| $ |
| 322,695 |
|
| $ |
| 2,328 |
|
| $ |
| 2,203 |
|
| $ |
| 10,983 |
|
|
|
117
|
|
|
|
|
|
|
|
The Company compensates its sales force with both fixed and variable compensation. Commissions on the sale or lease of IMAX Theater 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. At December 31, 2020, $1.6 million (December 31, 2019 — $0.6 million) of commissions have been accrued and will be payable in future periods.
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. Management is required to assess the likelihood of any adverse judgments or outcomes related to these legal contingencies, as well as potential ranges of probable or reasonably possible losses. The Company will record a provision for a liability when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. The determination of the amount of any liability recorded or disclosed is reviewed at least quarterly based on a careful analysis of each individual exposure with, in some cases, the assistance of outside legal counsel, taking into account the impact of negotiations, settlements, rulings, and other pertinent information related to the case. The amount of liabilities recorded or disclosed for these contingencies may change in the future due to changes in management’s judgments resulting from new developments or changes in settlement strategy. Any resulting adjustment to the liabilities recorded by the Company could have a material adverse effect on its results of operations, cash flows, and financial position in the period or periods in which such changes in judgment 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. 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 of re-examination proceedings involving one of 3DMG’s patents. Following a status conference on April 27, 2016, the ICDR granted 3DMG leave to amend its answer and counterclaims, and subsequently lifted the stay in this matter. In its amended counterclaims, 3DMG sought damages for alleged unpaid royalties, damages and other fees under the license and consulting agreements, and the arbitration panel of ICDR also permitted 3DMG to advance new damage theories. The ICDR held a final hearing in July and October 2017, the parties submitted final, post-hearing briefs in December 2017, and the ICDR held closing oral arguments in March 2018. On July 11, 2018, the ICDR issued a Partial Final Award that found for 3DMG on certain claims and for the Company on other claims. As part of the Partial Final Award, the ICDR awarded damages in favor of 3DMG in the amount of $8.8 million, which is inclusive of approximately $1.8 million in pre-award interest. In August 2018, 3DMG filed a motion seeking modification and correction of portions of the award, and also filed an application to recover its attorney fees and expenses. On November 1, 2018, the ICDR issued a Final Award that denied in its entirety 3DMG’s motion for modification and correction of the award. The ICDR also granted in part 3DMG’s request for attorney fees and expenses, in the amount of $5.2 million. A charge of $11.7 million was recorded in the year ended December 31, 2018, and classified within Legal Judgment and Arbitration Awards in Consolidated Statements of Operations.
118
(b)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 million, consisting of past and future rents owed to the Company, plus interest and costs, as well as an additional $2,512 each day in interest from October 1, 2007 until the date the award is paid. In July 2008, E-City commenced a proceeding in Mumbai, India seeking an order that 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 by E-City. The Company appealed that ruling to the Supreme Court of India, and on March 10, 2017, the Supreme Court set aside the Bombay High Court’s judgment and dismissed E-City’s petition. On March 29, 2017, the Company filed an Execution Application in the Bombay High Court seeking to enforce the ICC award against E-City and several related parties. 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 requiring E-City to pay the Company $30,000 to cover the costs of the application, and in October 2015, 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)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, and a hearing was held on June 27, 2019. On September 27, 2019, a Magistrate Judge filed a non-binding recommendation that the Company’s petition be dismissed. On October 14, 2019, the Company filed an objection to that recommendation. The Company’s petition to vacate the arbitration award was denied by the District Judge on January 10, 2020. The Company filed an appeal of this decision on February 7, 2020 with the Eleventh Circuit Court of Appeals, but such appeal was dismissed on May 29, 2020. On December 3, 2020, the District Judge entered a Final Judgment against the Company in the total amount of $11.3 million as damages under the Award. As of December 31, 2020, the Company’s Consolidated Balance Sheets include a liability within Accrued and Other Liabilities of $11.3 million related to the Final Judgment, consisting principally of $7.2 million related to amounts previously collected from or owed to Giencourt principally in respect of theater systems that were not delivered and $4.1 million recorded in the Consolidated Statements of Operations within Legal Judgment and Arbitration Awards in respect of the remaining amounts owed under the Final Judgment. The $4.1 million recorded in the Consolidated Statements of Operations within Legal Judgment and Arbitration Awards includes $3.2 million recorded in the fourth quarter of 2020 as a result of the Final Judgment. On January 4, 2021 the Company filed an appeal of this judgment with the Eleventh Circuit Court of Appeals. In addition to the above, the Company has initiated a claim against Giencourt in the Ontario Superior Court seeking damages from Giencourt with respect to contractual claims under various terminated agreements between the parties. These proceedings are in preliminary stages, and no assurances can be given with respect to the ultimate outcome of the matter, but any amounts, if awarded to the Company under these proceedings, may reduce the Company’s overall financial obligations to Giencourt.
(d)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.
(e)In the normal course of business, the Company enters into agreements that may contain features that meet the definition of a guarantee. A guarantee is 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.
119
Financial Guarantees
Certain subsidiaries of the Company have provided significant financial guarantees to third parties under the Credit Agreement.
Product Warranties
The Company’s accrual for product warranties, which was recorded within Accrued and Other Liabilities in the Consolidated Balance Sheets is less than $0.1 million and $0.2 million as of December 31, 2020 and 2019, respectively.
Director/Officer Indemnifications
The Company’s General By-law contains 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 amounts 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. NaN amount has been accrued in the Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019 with respect to this indemnity.
Other Indemnification Agreements
In the normal course of the Company’s operations, the Company provides indemnifications to counterparties in transactions such as: IMAX Theater System lease and sale agreements and the supervision of installation or servicing of IMAX Theater 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 or non-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 IMAX Theater 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 0t made any significant payments under such indemnifications and no amounts have been accrued in the Consolidated Financial Statements with respect to the contingent aspect of these indemnities.
17. Capital Stock
|
|
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 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.
120
|
|
During the years ended December 31, 2020, 2019 and 2018, the Company settled the exercise of stock options and the vesting of RSUs with its common shares. These settlements were either through newly issued common shares from treasury or through the purchase of common shares in the open market by the IMAX Long-Term Incentive Plan trustee. The following table summarizes the settlement of stock option and RSU transactions:
|
| Years Ended December 31, |
| ||||||||||||
(Cash proceeds in thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
|
| 2018 |
| ||||||
Stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued from treasury |
|
|
| — |
|
|
|
| 19,088 |
|
|
|
| 12,750 |
|
Plan trustee purchases |
|
|
| — |
|
|
|
| 67,840 |
|
|
|
| — |
|
Total stock options exercised |
|
|
| — |
|
|
|
| 86,928 |
|
|
|
| 12,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash proceeds from stock option exercises |
| $ |
| — |
|
| $ |
| 1,752 |
|
| $ |
| 218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued from treasury |
|
|
| 42,982 |
|
|
|
| — |
|
|
|
| — |
|
Plan trustee purchases |
|
|
| 386,297 |
|
|
|
| 404,719 |
|
|
|
| 462,137 |
|
Shares withheld for tax withholdings |
|
|
| 24,714 |
|
|
|
| 29,577 |
|
|
|
| 72,056 |
|
Total RSUs vested |
|
|
| 453,993 |
|
|
|
| 434,296 |
|
|
|
| 534,193 |
|
|
|
The Company issues share-based compensation to eligible employees, directors, and consultants under the IMAX LTIP and the China LTIP, as summarized below. On June 3, 2020, the Company’s shareholders approved the IMAX LTIP at its Annual and Special Meeting.
Awards under the IMAX LTIP may consist of stock options, RSUs, PSUs and other awards. Stock options are no longer granted under the Company’s previous approved Stock Option Plan (“SOP”).
For the year ended December 31, 2020, compensation costs recorded in the Consolidated Statements of Operations for the Company’s share-based compensation plans were $21.5 million (2019 — $22.8 million; 2018 —$22.6 million). The following reflects the share-based compensation expense recorded to the respective financial statement line items:
|
| Years Ended December 31, |
| ||||||||||||
(In thousands of U.S. Dollars) |
|
| 2020 |
|
|
| 2019 |
|
|
| 2018 |
| |||
Cost and expenses applicable to revenues |
| $ |
| 691 |
|
| $ |
| 1,709 |
|
| $ |
| 1,657 |
|
Selling, general and administrative expenses |
|
|
| 20,652 |
|
|
|
| 20,750 |
|
|
|
| 20,102 |
|
Research and development |
|
|
| 150 |
|
|
|
| 371 |
|
|
|
| 452 |
|
Executive transition costs |
|
|
| — |
|
|
|
| — |
|
|
|
| 320 |
|
Exit costs, restructuring charges and associated impairments |
|
|
| — |
|
|
|
| — |
|
|
|
| 54 |
|
|
| $ |
| 21,493 |
|
| $ |
| 22,830 |
|
| $ |
| 22,585 |
|
For the year ended December 31, 2020, there was a decrease in share-based compensation expenses allocated to Costs and Expenses Applicable to Revenues and Research and Development, when compared to 2019, due to the lower level of revenue generating and research activities during the COVID-19 global pandemic.
As of December 31, 2020, the Company has reserved a total of 15,486,807 (December 31, 2019 — 8,944,999) common shares for future issuance under the IMAX LTIP. Of this amount, 4,892,962 common shares are reserved for the future exercise of stock options (December 31, 2019 — 5,732,209), 361,844 common shares are reserved for the future vesting of PSUs (December 31, 2019 — nil), and 1,564,838 common shares are reserved for the future vesting of RSUs (December 31, 2019 — 1,065,347). At December 31, 2020 stock options in respect of 4,311,761 (December 31, 2019 — 4,801,272) common shares were vested and exercisable.
121
Stock Option Plan
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 utilizes a Binomial Model to determine the fair value of 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 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.
The Company stratifies its employees into homogeneous groups in order to calculate the grant date fair value of stock options using the Binomial Model. As a result, ranges of assumptions are used for the expected life of the option. The Company uses historical data to estimate option exercise behavior within the Binomial Model and various groups of employees that have similar historical exercise behavior are grouped 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 determined in reference to observed current market prices for the Company’s traded options and the Company’s peer group volatility.
The Company no longer issues stock options as a form of employee compensation.
(Refer to Note 17(c) for the assumptions used to determine the fair value of the Company’s stock options.)
Restricted Share Units
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.
87
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 to Non-Employees
Share-based payment awards for services provided by non-employees are measured at grant date fair value of the equity instruments that the Company is obligated to issue when the service has been rendered and any other conditions necessary to earn the right to benefit from the 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 conditions related to the vesting of the share-based awards, the Company assesses the probability of vesting at each reporting date and adjusts the compensation costs based on the probability assessment.
The Company has a defined benefit pension plan, the Supplemental Executive Retirement Plan (the “SERP”). As the Company’s SERP is unfunded, as of December 31, 2023, a liability is recognized for the 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 (Loss) Income. Amounts recognized in Accumulated Other Comprehensive Loss including unrecognized actuarial gains or losses and prior service costs are adjusted as they are subsequently recognized in the Consolidated Statements of Operations 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% 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, 2023 was two years.
For defined contribution pension plans, required contributions by the Company are recorded as an 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. Net benefit cost is split between operating income and non-operating income, where only the service cost is included in income from operations and the non-service components are included in Retirement Benefits Non-Service Expenses. Actuarial gains and losses are recognized as a component of Other Comprehensive (Loss) Income. Amounts recognized in 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 Statements of Operations.
In situations when the Company acts as a guarantor, at the inception of a guarantee, it recognizes a liability for the fair value of the underlying guarantee. Disclosures as required under the relevant accounting guidance have been included in Note 16.
88
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 ASU 2022-02 on January 1, 2023. 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 all 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, 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 Simplification Initiative (“ASU 2023-06”). This ASU incorporates into U.S. GAAP certain presentation and disclosure 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.
In November 2023, the FASB issued Accounting Standards Update No. 2023-07, Segment Reporting (Topic 820): Improvements to Reportable Segment Reporting (“ASU 2023-07”). The purpose of ASU 2023-07 is to enhance the interim 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 the Company’s year ended December 31, 2024 and all interim periods thereafter. The Company is still evaluating the impact of this ASU on its financial statements.
In December 2023, the FASB issued Accounting Standard Update 2023-09, Income Taxes (Topic 740) - Improvements to 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 the rate reconciliation, and (ii) income taxes paid disaggregated by jurisdiction. ASU 2023-09 will be effective for the Company’s year ended December 31, 2025. The Company is still evaluating the impact of this ASU on its financial statements.
TheCompany considers the applicability and impact of all recently issued FASB accounting standard codification updates. Accounting standard updates that are not noted above were assessed and determined to be not applicable or not significant to the Company’s Consolidated 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 milestones 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, 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.
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
The Company’s operating lease arrangements principally involve office and warehouse space. Office equipment is generally purchased outright. Leases with an initial term of less 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(o). 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 typically non-cancellable for 10 to 20 years with renewal provisions from inception. 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 IMAX System commencing on the date specified in the arrangement’s shipping terms and ending on the date the IMAX System is returned to the Company.
98
The Company also provides IMAX Systems to customers through joint revenue sharing arrangements. Under the traditional form of these 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 installation of the 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 typically non-cancellable for 10 years or longer with renewal provisions. Title to the IMAX System under a joint revenue sharing arrangement 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 IMAX System commencing on the date specified in the arrangement’s shipping terms and ending on the date the IMAX System is returned to the Company.
The following lease payments are expected to be received by the Company for its sales-type leases and joint revenue sharing arrangements in 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 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
|
| 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 |
|
As of December 31, 2023, Inventories include finished goods of $0.6 million (December 31, 2022 — $3.5 million) for which title had passed to the customer, but the criteria for revenue recognition were not met as of the balance sheet date.
100
The following table summarizes the activity for the Company’s inventory valuation allowance account for the years ended December 31, 2023, 2022 and 2021:
|
| 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 |
|
9. Film Assets
|
| As of December 31, |
| |||||
(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 |
|
| 4,341 |
|
|
| 1,667 |
|
Films in development |
|
| 1,063 |
|
|
| 2,383 |
|
| $ | 6,786 |
|
| $ | 5,277 |
|
The Company expects to amortize $5.0 million of the Film Assets balance within three years from December 31, 2023, including $3.2 million expected to be amortized in 2024, $0.9 million in 2025, and $0.9 million in 2026. In certain film arrangements, the 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 co-produced films as 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 recorded impairment losses of $0.4 million related to 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, 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 | ) |
103
For the years ended December 31, 2023, 2022, and 2021, the Company’s effective tax rate and income tax expense differs from the combined Canadian federal and provincial statutory income tax rates due to the 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% |
As of December 31, 2023 and 2022, the Company’s deferred tax assets and deferred tax liability consists of the following:
|
| As of December 31, |
| |||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
| ||||
Net operating loss carryforwards |
| $ |
| 29,490 |
|
| $ |
| 29,158 |
|
Investment tax credit and other tax credit carryforwards |
|
|
| 5,348 |
|
|
|
| 5,213 |
|
Write-downs of other assets |
|
|
| 1,223 |
|
|
|
| 2,341 |
|
Excess of tax accounting basis in various assets |
|
| 15,379 |
|
|
|
| 14,549 |
| |
Accrued pension liability |
|
|
| 5,583 |
|
|
|
| 5,375 |
|
Accrued share-based compensation |
|
|
| 8,460 |
|
|
|
| 8,920 |
|
Income recognition on net investment in leases |
|
|
| (4,691 | ) |
|
|
| (3,344 | ) |
Other accrued reserves |
|
|
| 9,328 |
|
|
|
| 10,552 |
|
Total deferred income tax assets |
|
|
| 70,120 |
|
|
|
| 72,764 |
|
Valuation allowance |
|
|
| (62,132 | ) |
|
|
| (62,864 | ) |
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 | ) |
104
As of December 31, 2023, net deferred tax assets include a liability of $1.3 million (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.
Estimated Canadian net operating loss carryforwards of $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 $14.4 million of Ireland net operating losses can be carried forward indefinitely. Investment tax credits and other tax credits of $5.2 million can be carried forward to reduce income taxes payable through to 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.
In 2020, management completed a reassessment of its strategy with respect to the 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 excess of amounts required to sustain business operations would no longer be indefinitely reinvested. 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 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 earnings.
As of December 31, 2023, the Company’s Consolidated Balance Sheets include net deferred income tax assets 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 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 benefit from deferred tax assets will not be realized. This was offset by a decrease of $1.3 million 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 net decrease in the valuation allowance is 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, 2023, the Company had total tax reserves (including interest and penalties) of $12.0 million (2022 — $12.3 million) for various uncertain tax 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 liability. Accordingly, additional provisions on federal, provincial, state and foreign tax-related matters may be required in the future as revised estimates are made or the underlying matters are settled or otherwise resolved.
For the year ended December 31, 2023, the Company recorded a net decrease of $0.8 million (2022 — $2.2 million, 2021 —$2.1 million) related to tax reserves (excluding interest and penalties) primarily related to tax years becoming statute barred for purposes of future tax examinations by local tax jurisdictions, partially offset by additional tax positions related to prior years.
The Company has elected to classify interest and penalties related to income tax liabilities, when applicable, as part of the Income Tax Expense in its Consolidated Statements of Operations rather than Interest Expense. The Company recorded 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, 2023 (2022 — $0.6 million; 2021 — $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 material taxing jurisdictions include Canada, the United States, Ireland, and China. The Company’s 2020 through 2023 tax years remain subject to examination by the IRS for United States federal tax purposes, and the 2016 through 2023 tax years remain subject to examination by the appropriate governmental agencies for Canadian federal tax purposes. There are other on-going audits in various other jurisdictions that are not material to the Consolidated Financial Statements.
The Company is subject to audit by tax authorities in the various jurisdictions in which it operates in the ordinary course of 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”) 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 has filed a Notice of Objection with respect to this Reassessment and believes that the matter will be resolved on a basis that is consistent with its filing position.
For the years ended December 31, 2023, 2022, and 2021, Income Tax Expense related to the 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 |
|
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).
The Company performed a qualitative impairment test as of the 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 fair value estimate remain unchanged, an increase of 100 basis points in discount 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 (2022 — $5.1 million). The weighted average amortization period for these additions is 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 2023, the Company incurred costs of $0.4 million to renew or extend the term of acquired patents and trademarks which were recorded in Selling, General and Administrative expenses (2022 — $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 following the December 31, 2023 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 |
|
14. Borrowings
As of December 31, 2023 and 2022, 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
On March 25, 2022, the Company entered into a Sixth 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”) from June 28, 2023 to March 25, 2027. The Company’s obligations under the Credit Agreement are guaranteed by certain of the Company’s subsidiaries (the “Guarantors”), and are secured by first-priority security interests in substantially all of the assets of the Company and the Guarantors.
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 four most recently ended fiscal quarters, subject to certain conditions, depending on the mix of revolving loans and/or term loans under the incremental facility and subject to conditions set forth in the Credit Agreement.
The Credit Facility requires that the Company maintain a maximum Senior Secured Net Leverage Ratio (as defined in the Credit Agreement) of no greater than 3.25:1.00, on the last day of each Fiscal Quarter. The Senior Secured Net Leverage Ratio is the ratio of Total Debt (as defined in the Credit Agreement), secured by liens, net of unrestricted cash and cash equivalents held outside of the PRC to a maximum of $75.0 million, relative to Adjusted EBITDA per Credit Facility for the 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 this requirement as of December 31, 2023 as the Senior Secured Net Leverage Ratio was 0.00:1.00.
Loans 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, 2023, borrowings under the Credit Facility were $24.0 million (December 31, 2022 — $25.0 million) and bear 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, 2023 was 6.83% (2022 — 5.64%).
The Credit Agreement contains customary affirmative and 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 receive 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 or advance payment guarantees outstanding under the Credit Facility.
As of December 31, 2023, the amount available for future borrowings under the Credit Facility was $276.0 million.
Foreign Exchange Facility
Within the Credit Facility, the Company is able to purchase foreign currency forward contracts and/or other swap arrangements. As of December 31, 2023, the net unrealized gain on the Company’s outstanding foreign currency forward contracts was $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 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 of December 31, 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%).
109
NBC Facility
In October 2019, the Company entered into a $5.0 million facility with National Bank of Canada (the “NBC Facility”) fully insured by Export Development Canada for use solely in conjunction with the issuance of performance guarantees and letters of 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 not have any letters of credit or advance payment guarantees outstanding as of December 31, 2023 and 2022 under the NBC Facility.
As of 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
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 include non-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 of December 31, 2023:
|
| 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 |
|
The Company compensates its sales force with both fixed and variable compensation. Commissions on the sale or lease of IMAX 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. As of December 31, 2023, $2.7 million (December 31, 2022 — $2.2 million) of commissions have been accrued and will be payable in future periods.
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. Management is required to assess the likelihood of any adverse judgments or outcomes related to these legal contingencies, as well as potential ranges of probable or reasonably possible losses. The Company records a provision for a liability when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. The determination of the amount of any liability recorded or disclosed is reviewed at least quarterly based on a careful analysis of each individual exposure with, in some cases, the assistance of outside legal counsel, taking into account the impact of negotiations, settlements, rulings, and other pertinent information related to the case. The amount of liabilities recorded or disclosed for these contingencies may change in the future due to changes in management's judgments resulting from new developments or changes in settlement strategy. Any resulting adjustment to the liabilities recorded by the Company could have a material adverse effect on its results of operations, cash flows, and financial position in the period or periods in which such changes in judgment 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.
112
(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 million, as well as an additional $2,512 each day in interest from October 1, 2007 until the date the award is paid. In July 2008, E-City commenced a proceeding in Mumbai, India seeking to prevent recognition of the ICC award in India. On March 10, 2017, the Supreme Court of India dismissed E-City’s petition. On March 29, 2017, the Company filed an Execution Application in the Bombay High Court seeking to enforce the ICC award against E-City and several related 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 requiring E-City to pay the Company $30,000 to cover the costs of the application, and in 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.
(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.
(iii) In the normal course of business, the Company enters into agreements that may contain features that meet the definition of a guarantee. A guarantee is 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
Certain subsidiaries of the Company have provided significant financial guarantees to third parties under the Credit Agreement (see Note 14).
Product Warranties
The Company’s accrual for product warranties, which is recorded within Accrued and Other Liabilities in the Consolidated Balance Sheets, was less than $0.1 million and $nil as of December 31, 2023 and 2022, respectively.
Director/Officer Indemnifications
The Company’s by-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 amounts 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 Company’s Consolidated Balance Sheets as of December 31, 2023 and December 31, 2022 with respect to this indemnity.
113
Other Indemnification Agreements
In the normal course of its operations, the Company provides indemnifications to counterparties in transactions such as: IMAX System lease and sale agreements and the supervision of installation or servicing of 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 or non-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 IMAX 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 not made any significant payments under such indemnifications and no amounts have been accrued in the Consolidated Financial Statements with respect to the contingent aspect of these indemnities.
17. Capital Stock
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 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.
During the years ended December 31, 2023, 2022, and 2021, the Company settled the exercise of stock options and the vesting of PSUs and RSUs with its common shares. These settlements were either through newly issued common shares from treasury or through the purchase of common shares in the open market by the IMAX LTIP trustee. The following table summarizes the settlement of stock option, PSU and RSU 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 |
|
The Company issues share-based compensation to eligible employees, directors, and consultants under the IMAX LTIP and the China LTIP, as summarized below. On June 3, 2020, the Company’s shareholders approved the IMAX LTIP at its Annual and Special Meeting.
Awards under the IMAX LTIP may consist of stock options, RSUs, PSUs, and other awards. Stock options are no longer granted under the Company’s previously approved Stock Option Plan (“SOP”).
114
For the year 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 following accounts in the Consolidated Statements of 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 |
|
As of December 31, 2023, the Company has reserved a total of 5,538,873 (December 31, 2022 — 5,788,499) common shares for future issuance under the IMAX LTIP. Of this amount, 3,329,422 common shares are reserved for the 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 common shares (December 31, 2022 — 3,523,335) were vested and exercisable.
IMAX LTIP and SOP Stock 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. The Company no longer intends to issue new stock option awards.
The Company utilizes a Binomial Model to determine the fair value of 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 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 are granted 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 is based on the higher of the closing price of a common share on either: (i) the grant date or (ii) the most recent trading date if the grant date is not a trading date on the New York Stock Exchange (“NYSE”) or such national exchange as may be designated by the Company’s Board of Directors. TheAll stock options vest within 4 yearshave been vested and expire 10 years or less from the date 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 under the IMAX LTIP and SOP:
|
| Years Ended December 31, |
|
| Years Ended December 31, |
| ||||||||||||||||||||||||
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||||||||
Stock option expense |
| $ |
| 1,847 |
|
| $ |
| 8,329 |
|
| $ |
| 5,950 |
|
| $ |
| 84 |
|
| $ |
| 572 |
|
| $ |
| 1,064 |
|
For the year ended December 31, 2020,2023, the Company’s Consolidated Statements of Operations includes an income tax benefit of $0.1 million$nil related to stock option expense (2019 —$1.9(2022 — $0.1 million; 2018 —$1.22021 — $0.1 million).
As of December 31, 2020, 20192023, 2022, and 2018,2021, unrecognized share-based compensation expense related to non-vested employee stock options is 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 |
|
|
| As of December 31, |
| ||||||||||||
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
|
| 2018 |
| ||||||
Expense related to non-vested employee stock options |
| $ |
| 2,029 |
|
| $ |
| 4,073 |
|
| $ |
| 8,482 |
|
115
As of December 31, 2020, 20192023, 2022, and 2018,2021, unrecognized share-based compensation expense related to non-vested employee stock options is expected to be recognized over the following weighted-average periods:
|
| As of December 31, |
| ||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| ||||||
Weighted average period (in years) |
|
|
| 1.8 |
|
|
|
| 2.7 |
|
|
|
| 1.9 |
|
|
| As of December 31, |
| ||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
Weighted average period (in years) |
|
|
| — |
|
|
|
| 0.2 |
|
|
|
| 1.1 |
|
ForDuring the years ended December 31, 2020, 20192023, 2022 and 2018,2021, the weighted average fair value ofCompany did not grant any stock options granted to employees and directors at the measurement date and the assumptions used to estimate the average fair value of the stock options are as follows:
options.
|
|
| Years Ended December 31, |
| |||||||
|
|
| 2020 |
|
| 2019 |
|
|
| 2018 |
|
Weighted average fair value per share |
|
| N/A |
| $ | 6.65 |
|
| $ | 6.74 |
|
Average risk-free interest rate |
|
| N/A |
|
| 2.64% |
|
|
| 2.67% |
|
Expected option life (in years) |
|
| N/A |
|
| 6.73 - 10.00 |
|
|
| 5.06 - 7.00 |
|
Expected volatility |
|
| N/A |
|
| 31% |
|
|
| 30% |
|
Dividend yield |
|
| N/A |
|
| 0% |
|
|
| 0% |
|
122
Stock Option Summary
The following table summarizes the stock option activity under the SOP and IMAX LTIP for the years ended December 31, 2020, 20192023, 2022, and 2018:2021:
|
|
|
|
|
|
|
|
| Weighted Average Exercise |
| ||||||||||||||||||||||||||||||||||||||||||||
|
| Number of Shares |
|
|
| Price Per Share |
|
|
|
|
|
|
|
| Weighted Average Exercise |
| ||||||||||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| Number of Shares |
|
|
| Price Per Share |
| |||||||||||||||||||||||||||||
Options outstanding, beginning of year |
|
| 5,732,209 |
|
|
| 5,465,046 |
|
|
| 5,082,100 |
|
| $ |
| 26.82 |
|
| $ |
| 27.63 |
|
| $ |
| 29.31 |
| |||||||||||||||||||||||||||
|
| 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 |
|
| — |
|
|
| 1,016,882 |
|
|
| 1,082,123 |
|
|
| — |
|
|
| 20.66 |
|
|
| 21.95 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||
Exercised |
|
| — |
|
|
| (86,928 | ) |
|
| (12,750 | ) |
|
| — |
|
|
| 20.16 |
|
|
| 17.08 |
|
|
| — |
|
|
| — |
|
|
| (41,613 | ) |
|
| — |
|
|
| — |
|
|
| 21.23 |
| ||||||
Forfeited |
|
| (34,678 | ) |
|
| (336,493 | ) |
|
| (69,332 | ) |
|
| 22.49 |
|
|
| 23.63 |
|
|
| 29.99 |
|
|
| — |
|
|
| (796 | ) |
|
| (88,934 | ) |
|
| — |
|
|
| 22.49 |
|
|
| 22.49 |
| ||||||
Expired |
|
| (786,086 | ) |
|
| (299,134 | ) |
|
| (507,977 | ) |
|
| 27.07 |
|
|
| 25.82 |
|
|
| 31.69 |
|
|
| (275,317 | ) |
|
| (126,569 | ) |
|
| (903,038 | ) |
|
| 27.95 |
|
|
| 33.61 |
|
|
| 28.31 |
| ||||||
Cancelled |
|
| (18,483 | ) |
|
| (27,164 | ) |
|
| (109,118 | ) |
|
| 27.97 |
|
|
| 31.13 |
|
|
| 30.44 |
|
|
| — |
|
|
| (4,053 | ) |
|
| (123,220 | ) |
|
|
| — |
|
|
| 27.92 |
|
|
| 26.68 |
| |||||
Options outstanding, end of year |
|
| 4,892,962 |
|
|
| 5,732,209 |
|
|
| 5,465,046 |
|
|
| 26.81 |
|
|
| 26.82 |
|
|
| 27.63 |
| ||||||||||||||||||||||||||||||
Options exercisable, end of year |
|
| 4,311,761 |
|
|
| 4,801,272 |
|
|
| 3,990,970 |
|
|
| 27.30 |
|
|
| 27.40 |
|
|
| 28.48 |
| ||||||||||||||||||||||||||||||
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, 2020, 4,892,9622023, 3,329,422 options outstanding included both fully vested and unvested options with a weighted average exercise price of $26.81,$26.23, an aggregate intrinsic value of $nil and a weighted average remaining contractual life of 4.1 years. As of December 31, 2020, options that are exercisable have an aggregate intrinsic value of $nil and a weighted average remaining contractual life of 4.12.4 years. The intrinsic value of options exercised in 20202023 was $nil as no options were exercised (2019$nil (2022 —$ nil; 2021 — $0.2 million; 2018 — $0.1$0.1 million).
IMAX LTIP Restricted Share Units
RSUs have been granted to employees and directors under the IMAX LTIP. Each RSU represents a contingent right to receive 1a common share and is the economic equivalent of 1one 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.date 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, 2020, 20192023, 2022, and 2018,2021, the Company recorded the following expenses related to RSUs issued to employees and directors in the IMAX LTIP:
|
| Years Ended December 31, |
|
| Years Ended December 31, |
| ||||||||||||||||||||||||
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||||||||
RSU expenses |
| $ |
| 13,761 |
|
| $ |
| 12,394 |
|
| $ |
| 15,189 |
|
| $ |
| 12,612 |
|
| $ |
| 15,498 |
|
| $ |
| 15,555 |
|
The Company’s actual tax benefits realized for the tax deductions related to the vesting of RSUs was $0.3$0.8 million for the year ended December 31, 2020 (20192023 (2022 — $1.6$0.9 million; 20182021 — $1.4$0.6 million).
The Company’s accrued liability for granted RSUs deemed as granted, was $2.1$2.7 million as of December 31, 20202023 (December 31, 20192022 — $0.4$0.8 million).
Total share-based compensation expense related to non-vested RSUs 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 RSUs |
| $ |
| 16,256 |
|
| $ |
| 17,457 |
|
| $ |
| 15,913 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average period awards are expected to be recognized (in years) |
|
|
| 1.7 |
|
|
|
| 1.5 |
|
|
|
| 1.6 |
|
|
| Years Ended December 31, |
| ||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| ||||||
Expense related to non-vested RSUs not yet recognized |
| $ |
| 17,343 |
|
| $ |
| 23,548 |
|
| $ |
| 18,597 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average period awards are expected to be recognized (in years) |
|
|
| 1.9 |
|
|
|
| 2.7 |
|
|
|
| 2.2 |
|
116
123
The following table summarizes the activity in respect of RSUs issued under the IMAX LTIP for the years ended December 31, 2020, 20192023, 2022, and 2018:2021:
|
| Number of Awards |
|
| Weighted Average Grant Date Fair Value Per Share |
|
| Number of Awards |
|
| Weighted Average Grant Date Fair |
| ||||||||||||||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
|
| 2020 |
|
|
| 2019 |
|
|
| 2018 |
|
| 2023 |
|
| 2022 |
|
| 2021 |
|
|
| 2023 |
|
|
| 2022 |
|
|
| 2021 |
| ||||||||||||
RSUs outstanding, beginning of year |
|
| 1,065,347 |
|
|
| 1,033,871 |
|
|
| 995,329 |
|
| $ |
| 23.17 |
|
| $ |
| 25.70 |
|
| $ |
| 32.68 |
|
|
| 1,252,044 |
|
|
| 1,457,883 |
|
|
| 1,564,838 |
|
| $ |
| 19.16 |
|
| $ |
| 19.16 |
|
| $ |
| 18.33 |
|
Granted |
|
| 1,050,385 |
|
|
| 687,475 |
|
|
| 659,282 |
|
|
|
| 15.35 |
|
|
| 22.30 |
|
|
| 20.99 |
|
|
| 900,199 |
|
|
| 708,313 |
|
|
| 831,123 |
|
|
| 17.82 |
|
|
| 19.31 |
|
|
| 21.03 |
| |||||
Vested and settled |
|
| (453,993 | ) |
|
| (434,296 | ) |
|
| (534,193 | ) |
|
|
| 22.71 |
|
|
| 27.54 |
|
|
| 32.33 |
|
|
| (747,132 | ) |
|
| (800,231 | ) |
|
| (689,872 | ) |
|
| 18.65 |
|
|
| 19.10 |
|
|
| 19.46 |
| |||||
Forfeited |
|
| (96,901 | ) |
|
| (221,703 | ) |
|
| (86,547 | ) |
|
|
| 18.81 |
|
|
| 23.68 |
|
|
| 29.19 |
|
|
| (118,281 | ) |
|
| (113,921 | ) |
|
| (248,206 | ) |
|
|
| 19.12 |
|
|
| 20.39 |
|
|
| 19.38 |
| ||||
RSUs outstanding, end of year |
|
| 1,564,838 |
|
|
| 1,065,347 |
|
|
| 1,033,871 |
|
|
|
| 18.33 |
|
|
| 23.17 |
|
|
| 25.70 |
|
|
| 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 three years from the grant date. In connection with the second amendment and restatement of the IMAX LTIP at the Company’s annual and special meeting of the shareholders onOn June 3 2020, the IMAX LTIP plan retained thewas amended to require a minimum one-yearvesting period of one year on future RSU grants, with a carve-out for an aggregate of no more than 5%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 the carve-out balance:
Approved under the |
| |||
Issued during | ( | ) | ||
Issued during 2023 | (63,443 | ) | ||
Outstanding, December 31, |
|
Restricted Share Units to Non-Employees
There were 0 RSU awards grantedDuring the years ended December 31, 2023, 2022 and 2021, the Company did not grant any restricted share units to non-employees in 2020 (2019 ― 12,580; 2018 ― nil).non-employees. The Company recorded an expense of $0.1 milliondid not record any expenses for the year ended December 31, 2020 (2019 ― $0.1 million; 2018 ― $nil)2023 related to RSU grants issued to advisors and strategic partnersnon-employees of the Company in 2019. (2022 ― $nil; 2021 ― $nil).
IMAX LTIP Performance Stock Units Summary
In the first quarter of 2020, the Company expanded its share-based compensation program to include PSUs. The Company grants two types of PSUPSUs awards, one which vests based on a combination of employee service and the achievement of certain EBITDA-basedAdjusted EBITDA targets and one which vests based on a combination of employee service and the achievement of certain stock-pricetotal TSR targets. These awards vestThe 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. 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 EBITDA-basedAdjusted 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 stockshares for five days prior to the date of grant. The grant date fair value of PSUs with stock-priceTSR targets is determined on the grant date using a Monte Carlo simulation, which is a valuation model that takes into account the likelihood of achieving the stock-price targets embedded in the award (“Monte Carlo Model”).Model. The compensation expense attributable to each type of PSU is recognized on a straight-line basis over the requisite service 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 award, depending upon actual performance versus the established EBITDA and stock-price targets.
The fair value determined by the Monte 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, and other relevant data. The compensation expense is fixed on the date of grant based on the dollarfair value of the PSUs granted.
The amount and timing of compensation expense recognized for PSUs with EBITDA-basedAdjusted 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 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 yearyears ended December 31, 2020,2023, 2022, and 2021, the Company recognized expense of $2.6 millionrecorded the following expenses related to outstanding PSUs, which includes adjustments reflecting management’s estimate of the number of PSUs with EBITDA-basedAdjusted EBITDA targets expected to vest.vest:
|
| Years Ended December 31, |
| ||||||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
PSU expenses |
| $ |
| 7,859 |
|
| $ |
| 8,306 |
|
| $ |
| 5,322 |
|
124
The Company’s actual tax benefits realized for the tax deductions related to the vesting of PSUs was $nil$0.3 million for the year ended December 31, 2020 (2019 and 20182023 (2022 ― $nil)$nil; 2021 ― $nil).
As of December 31, 2020, total unrecognizedTotal share-based compensation expense related to unvestednon-vested PSUs not yet recognized and the weighted average period over which the expense isawards are expected to be recognized is $6.0 million and 2.1 years, respectively.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 |
|
|
| Number of Awards |
|
| Weighted Average Grant Date Fair Value Per Share | |||||
|
| 2020 |
|
|
| 2020 |
|
| ||
Granted |
|
| 370,265 |
|
| $ |
| 15.66 |
|
|
Forfeited |
|
| (8,421 | ) |
|
|
| 14.84 |
|
|
PSUs outstanding, end of year |
|
| 361,844 |
|
|
|
| 15.68 |
|
|
As of December 31, 2020,2023, the maximum number of shares of common stock that may be issued with respect to PSUs outstanding is 633,227,1,591,329, assuming full achievement of the Adjusted EBITDA and stock-priceTSR 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, 2020, 20192023, 2022, and 2018,2021, share-based compensation expense related to China Options, China RSUs and China PSUs was as follows:
|
| Years Ended December 31, |
|
| Years Ended December 31, |
| ||||||||||||||||||||||||
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||||||||
Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
China Options |
| $ |
| 875 |
|
| $ |
| 320 |
|
| $ |
| 217 |
|
| $ |
| 12 |
|
| $ |
| 91 |
|
| $ |
| 285 |
|
China RSUs |
|
|
| 2,093 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 2,337 |
|
|
|
| 2,284 |
|
|
|
| 2,810 |
|
China PSUs |
|
|
| 208 |
|
|
|
| 1,664 |
|
|
|
| 1,229 |
|
|
|
| 647 |
|
|
|
| 262 |
|
|
|
| 578 |
|
Total |
| $ |
| 3,176 |
|
| $ |
| 1,984 |
|
| $ |
| 1,446 |
|
| $ |
| 2,996 |
|
| $ |
| 2,637 |
|
| $ |
| 3,673 |
|
In 2020,2022, IMAX China modified the terms of certain fully vested stock options to extend their contractual life by two yearsone year and recorded an associated expense of $0.7 million.$0.1 million (2021 ― $0.1 million). No such charges were incurred in 2023.
Issuer Purchases of Equity Securities
On June 12, 2017, the Company announced that the Board of Directors approved a $200.0 million share repurchase program for its common shares that 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 2017,2023, the Company’s Board of Directors approved a new $200.0 million36-month extension to its share repurchase program which would have expired onthrough June 30, 2020. In June 2020,2026. As of December 31, 2023, the Board of DirectorsCompany has $167.0 million authorized for repurchase under its approved a 12-month extension of this program which will now expire on June 30, 2021.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. In 2020,2023, the Company repurchased 2,484,123 (20191,604,420 (2022 ― 134,384)5,401,852) common shares at an average price of $14.72$16.45 per share (2019(2022 ― $19.76$15.19 per share), 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, 2023, at an average price of $14.98 per share for a total of $1.6 million, excluding commissions.
The total number of shares purchasedfollowing table summarizes the Company’s share repurchases during the years ended December 31, 20202023 and 2019 does not include 200,0002022:
|
| 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 615,000 common2022, there were no shares purchasedpurchases in the administration of employee share-based compensation plans, at an average price of $15.43 and $22.49 per share respectively.based plans.
As of December 31, 2020,2023, the IMAX LTIP trustee held 723 shares purchased for less than $0.1 million in the open market to be issued upon the settlement of RSUs and certain stock options. Thenil 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.
125
In 2018,2022, IMAX China announced that itsChina’s shareholders granted its Board of Directors (“IMAX China Board”) a general mandate authorizing the Board, subject to applicable laws, to buy back shares of IMAX China in an amount not to exceed 10% of the total number of issued shares of IMAX China as of May 3, 2018 (35,818,112 shares). The share repurchase program expired on June 6, 2019. In 2019, IMAX China announced that its shareholders granted its Board of Directors a general mandate authorizing the Board, subject to applicable laws, to repurchase shares of IMAX China in an amount not to exceed 10%10% of the total number of issued shares of IMAX China as of June 6, 2019 (35,605,56023, 2022 (34,063,480 shares). The share purchaseThis program expired on the date of the 20202023 Annual General Meeting of IMAX China on June 11, 2020.7, 2023. During the 20202023 Annual General Meeting, shareholders approved the repurchase of shares of IMAX China not to exceed 10%10% of the total number of issued shares as of June 11, 2020 (34,848,3987, 2023 (33,959,314 shares). This program will be valid until the 20212024 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 2020,2023, IMAX China repurchased 906,400 (201916,800 (2022 ― 8,051,500)2,961,800) common shares at an average price of HKD $13.137.11 per share (U.S. $1.69$0.91 per share) (2019for a total of HKD 0.1 million or less than U.S. $0.1 million (2022 ― HKD $18.638.0 per share;share or U.S. $2.38$1.02 per share)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)).
(d)
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 diluted weighted average share computations:
|
| Years Ended December 31, |
| ||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| ||||||
Weighted average number of common shares (000's): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued and outstanding, beginning of period |
|
|
| 61,176 |
|
|
|
| 61,434 |
|
|
|
| 64,696 |
|
Weighted average number of shares repurchased, net of shares issued during the period |
|
|
| (1,939 | ) |
|
|
| (124 | ) |
|
|
| (1,621 | ) |
Weighted average number of shares used in computing basic income per share |
|
|
| 59,237 |
|
|
|
| 61,310 |
|
|
|
| 63,075 |
|
Assumed exercise of stock options, and vesting of RSUs and PSUs, net of shares assumed repurchased, if dilutive |
|
|
| — |
|
|
|
| 179 |
|
|
|
| 132 |
|
Weighted average number of shares used in computing diluted income per share |
|
|
| 59,237 |
|
|
|
| 61,489 |
|
|
|
| 63,207 |
|
|
| 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 |
|
TheFor the year ended December 31, 2023, the calculation of diluted earnings per share exclude 6,999,667 (2019 and 2018excludes 3,380,142 (2022 ― 5,809,468 and 5,666,976, respectively)4,523,121; 2021 ― 6,131,792) shares that are issuable upon the vesting of 1,564,83818,877 RSUs (2019 and 2018(2022 ― 77,259 and 277,543, respectively)637,120; 2021 ― 1,457,883), the vesting of 541,86731,843 PSUs (2019 and 2018(2022 ― nil)281,262; 2021 ― 937,752), and the exercise of 4,892,9623,329,422 stock options (2019(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 2018 ― 5,732,209may 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 5,389,433, respectively)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, 2020, 20192023, 2022 and 2018, as the effect would be anti-dilutive.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 |
|
18. Consolidated Statements of Operations Supplemental Information
|
|
(1)
Film exploitation costs, including advertising and marketing expenses, totaled $4.3 million for the year ended December 31, 2020 (2019 — $22.9 million; 2018 — $21.2 million), and are expensed as incurred within Costs and Expenses Applicable to Revenues – Image Enhancement and Maintenance Services.
126
(b) Foreign Exchange
|
|
Included in Selling, General and Administrative Expenses for the year ended December 31, 20202023 is a foreign currency net gainloss of $0.8$0.7 million resulting from changes in exchange rates related to 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 $1.7$1.3 million for the years ended December 31, 20192022 and 2018,2021, respectively. SeeRefer to Note 22(c) for additional information.
(c) Collaborative Arrangements
|
|
Joint Revenue Sharing Arrangements
The Company provides IMAX Theater SystemsRefer to customers throughNote 6 for a description of the material terms of the Company’s collaborative joint revenue sharing arrangements. Under the traditional form of these arrangements, in exchange for providing the IMAX Theater 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 requiring the customer to pay a fixed upfront fee or annual minimum payments. Under certain other joint revenue sharing arrangements, knowns as hybrid arrangements, the customer is responsible for making fixed upfront payments prior to the delivery and installation of the IMAX Theater 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 typically non-cancellable for 10 years or longer with renewal provisions. Title to the IMAX Theater System under a joint revenue sharing arrangement 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 IMAX Theater System commencing on the date specified in the arrangement’s shipping terms and ending on the date the IMAX Theater System is returned to the Company.
As of December 31, 2020, the Company has signed traditional and hybrid joint revenue sharing agreements with 43 exhibitors (2019 — 39) for a total of 1,232 IMAX Theater Systems (2019 — 1,223), of which 890 theaters (2019 — 870) were operational and included in the network as of that date. The terms of these arrangements are similar in nature, rights, and obligations. The accounting policy for the Company’s joint revenue sharing arrangements is disclosed in Note 3(n)2(o).
RevenuesRevenue attributable to transactions arising between the Company and its customers under joint revenue sharing arrangements are recorded within Revenues – Technology Sales (for hybrid joint revenue sharing arrangements) and Revenues – Technology Rentals.Rentals (for traditional joint revenue sharing arrangements). For the year ended December 31, 20202023, such revenues totals $19.9totaled $78.2 million (2019(2022 — $92.0$66.6 million; 20182021 — $86.6$51.6 million). (See(Refer to 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 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 IMAX DMR format and distributing it through the IMAX network. In recent years,network. The fee earned by the percentageCompany in a typical film remastering and distribution arrangement averages approximately 12.5% of box office receipts (i.e., gross box office receipts earned in IMAX DMR arrangements has averaged approximately 12.5%less applicable sales taxes), except for within Greater China, where the Company receives a lower percentage of net box office receipts for certain Hollywood films.
In 2020, the majority of IMAX DMR revenue was earned from the exhibition of 35 IMAX DMR films (2019 — 72) and the re-release of classic titles throughout the IMAX network. The accounting policy for the Company’s IMAX DMRfilm remastering and distribution arrangements is disclosed in Note 3(n)2(o).
Revenues121
Revenue attributable to transactions arising between the Company and its customers under IMAX DMRthe Company’s film remastering and distribution arrangements are recorded withinincluded in Revenues – Image Enhancement and Maintenance Services. For the year ended December 31, 20202023, such revenues totaled $28.3$118.6 million (2019 —$120.8(2022 — $94.9 million; 20182021 — $110.8$70.7 million). (See(Refer to Note 20(a) for a disaggregated presentation of the Company’s revenues.)
Co-Produced Film Arrangements
In certain film arrangements, the Company co-produces a film with a third party whereby the third party retains the copyright and certain other rights to the film. In some cases, the Company obtains exclusive theatrical distribution rights to the film. Under these arrangements, both parties contribute funding to the Company’s partly-owned subsidiary forfunding of the production, distribution and distribution ofexploitation costs associated with the film and for associated exploitation costs.film.
127
As of December 31, 2020,2023, the Company has 1is party to one co-produced film arrangement, which primarily represents the VIE total assets balance of $1.5$1.4 million and liabilities balance of $0.2$0.2 million and 3four other co-produced film arrangements, the terms of which are similar. The accounting policies relating to co-produced film arrangements are disclosed in Notes 3(a)2(a) and 3(n)2(o).
In 2020,2023, an expense of $2.0$0.6 million (2019(2022 — expense of $0.6$0.8 million; 20182021 — recovery of $0.5$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 – Image Enhancement and Maintenance Services.
In 2017, the Company participated in 1 significant co-produced television arrangement. This arrangement was not a VIE. For the year ended December 31, 2020, revenues of $0.3 million (2019 — $0.4 million; 2018 — $0.3 million) and Costs and Expenses Applicable to Revenues of $nil (2019 — less than $0.1 million; 2018 — $0.3 million) attributable to this collaborative arrangement were recorded within Revenue – Image Enhancement and Maintenance Services and Costs and Expenses Applicable to Revenues – Image Enhancement and Maintenance Services.
19.19. Consolidated Statements of Cash Flows Supplemental Information
|
|
| Years Ended December 31, |
| Years Ended December 31, |
| ||||||||||||||||||||||||
(In thousands of U.S. Dollars) |
| 2020 |
|
|
| 2019 |
|
|
| 2018 |
|
| 2023 |
|
|
| 2022 |
|
|
| 2021 |
| ||||||
Decrease (increase) in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Decrease (Increase) in: |
|
|
|
|
|
|
| |||||||||||||||||||||
Financing receivables | $ |
| (10,568 | ) |
| $ |
| (320 | ) |
| $ |
| 1,325 |
| $ |
| 2,642 |
|
| $ |
| 5,411 |
|
| $ |
| (7,637 | ) |
Prepaid expenses |
|
| (979 | ) |
|
| (290 | ) |
|
| (3,703 | ) |
|
| (1,273 | ) |
|
| (1,892 | ) |
|
| (3,230 | ) | ||||
Variable consideration receivable |
|
| (2,361 | ) |
|
| (4,056 | ) |
|
| 0 |
| ||||||||||||||||
Variable consideration receivables |
|
| (20,337 | ) |
|
| 667 |
|
|
| (2,905 | ) | ||||||||||||||||
Other assets |
|
| (4,747 | ) |
|
| (2,063 | ) |
|
| (3,084 | ) |
|
| (10,473 | ) |
|
| 968 |
|
|
| 1,003 |
| ||||
Increase (decrease) in: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Increase (Decrease) in: |
|
|
|
| ||||||||||||||||||||||||
Accounts payable |
|
| 414 |
|
|
| (11,774 | ) |
|
| 7,749 |
|
|
| (535 | ) |
|
| 8,496 |
|
|
| (4,752 | ) | ||||
Accrued and other liabilities |
|
| (6,399 | ) |
|
| (8,505 | ) |
|
| (3,266 | ) |
|
| (6,013 | ) |
|
| (12,849 | ) |
|
| 15,167 |
| ||||
| $ |
| (24,640 | ) |
| $ |
| (27,008 | ) |
| $ |
| (979 | ) | $ |
| (35,989 | ) |
| $ |
| 801 |
|
| $ |
| (2,354 | ) |
|
|
|
| Years Ended December 31, |
| ||||||||||||
(In thousands of U.S. Dollars) |
| 2020 |
|
|
| 2019 |
|
|
| 2018 |
| |||
Income taxes | $ |
| 4,763 |
|
| $ |
| 17,298 |
|
| $ |
| 12,684 |
|
Interest | $ |
| 5,773 |
|
| $ |
| 1,231 |
|
| $ |
| 502 |
|
|
|
| Years Ended December 31, |
| ||||||||||||
(In thousands of U.S. Dollars) |
| 2020 |
|
|
| 2019 |
|
|
| 2018 |
| |||
Film assets | $ |
| 8,838 |
|
| $ |
| 19,176 |
|
| $ |
| 15,679 |
|
Property, plant and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint revenue sharing arrangements |
|
| 24,930 |
|
|
|
| 23,153 |
|
|
|
| 20,739 |
|
Other property, plant and equipment |
|
| 11,225 |
|
|
|
| 12,477 |
|
|
|
| 13,164 |
|
Other intangible assets |
|
| 6,565 |
|
|
|
| 6,290 |
|
|
|
| 5,507 |
|
Other assets |
|
| 1,146 |
|
|
|
| 1,882 |
|
|
|
| 1,242 |
|
Deferred financing costs |
|
| 902 |
|
|
|
| 509 |
|
|
|
| 1,106 |
|
| $ |
| 53,606 |
|
| $ |
| 63,487 |
|
| $ |
| 57,437 |
|
128
|
|
|
|
| ||||||||||||
| Years Ended December 31, |
| ||||||||||||
(In thousands of U.S. Dollars) |
| 2020 |
|
|
| 2019 |
|
|
| 2018 |
| |||
Film assets(1) | $ |
| 10,804 |
|
| $ |
| 1,379 |
|
| $ |
| 0 |
|
Other assets(2) (4) |
|
| 1,151 |
|
|
|
| — |
|
|
|
| 2,565 |
|
Property, plant and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint revenue sharing arrangements(3) (4) |
|
| 1,784 |
|
|
|
| 2,207 |
|
|
|
| 1,194 |
|
Other property, plant and equipment(4) |
|
| 174 |
|
|
|
| 249 |
|
|
|
| 4,293 |
|
Inventories(5) |
|
| 3,632 |
|
|
|
| 446 |
|
|
|
| 250 |
|
Other intangible assets(4) |
|
| 184 |
|
|
|
| 95 |
|
|
|
| 217 |
|
Prepaid expenses |
|
| — |
|
|
|
| — |
|
|
|
| 121 |
|
| $ |
| 17,729 |
|
| $ |
| 4,376 |
|
| $ |
| 8,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years Ended December 31, |
| |||||||
(In thousands of U.S. Dollars) |
| 2020 |
|
|
| 2019 |
| ||
Net (decrease) increase in accruals related to: |
|
|
|
|
|
|
|
|
|
Investment in joint revenue sharing arrangements | $ |
| (1,888 | ) |
| $ |
| (2,013 | ) |
Acquisition of other intangible assets |
|
| 792 |
|
|
|
| (51 | ) |
Purchases of property, plant and equipment |
|
| 158 |
|
|
|
| 496 |
|
| $ |
| (938 | ) |
| $ |
| (1,568 | ) |
129
20.
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, 2020, 20192023, 2022, and 2018:
2021:
| Year Ended December 31, 2020 |
| |||||||||||||||||||||||
| Revenue from |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
| Contracts with Customers |
|
| Revenue from |
|
|
|
|
|
|
|
|
| ||||||||||||
| Fixed consideration |
|
| Variable consideration |
|
| Lease Arrangements |
|
| Finance Income |
|
| Total |
| |||||||||||
Technology sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX Systems(1) | $ |
| 38,140 |
|
| $ |
| 5,799 |
|
| $ |
|
| 0 |
|
| $ |
| 0 |
|
| $ |
| 43,939 |
|
Joint Revenue Sharing Arrangements, fixed fees |
|
| 0 |
|
|
|
| 0 |
|
|
|
|
| 2,056 |
|
|
|
| 0 |
|
|
|
| 2,056 |
|
Other Theater Business |
|
| 1,666 |
|
|
|
| 0 |
|
|
|
|
| 0 |
|
|
|
| 0 |
|
|
|
| 1,666 |
|
Other sales(2) |
|
| 1,957 |
|
|
|
| 110 |
|
|
|
|
| 0 |
|
|
|
| 0 |
|
|
|
| 2,067 |
|
Sub-total |
|
| 41,763 |
|
|
|
| 5,909 |
|
|
|
|
| 2,056 |
|
|
|
| 0 |
|
|
|
| 49,728 |
|
Image enhancement and maintenance services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX DMR |
|
| 0 |
|
|
|
| 28,265 |
|
|
|
|
| 0 |
|
|
|
| 0 |
|
|
|
| 28,265 |
|
IMAX Maintenance |
|
| 21,999 |
|
|
|
| 0 |
|
|
|
|
| 0 |
|
|
|
| 0 |
|
|
|
| 21,999 |
|
Film Post-Production |
|
| 3,878 |
|
|
|
| 0 |
|
|
|
|
| 0 |
|
|
|
| 0 |
|
|
|
| 3,878 |
|
Film Distribution |
|
| 3,000 |
|
|
|
| 1,841 |
|
|
|
|
| 0 |
|
|
|
| 0 |
|
|
|
| 4,841 |
|
Other |
|
| 0 |
|
|
|
| 335 |
|
|
|
|
| 0 |
|
|
|
| 0 |
|
|
|
| 335 |
|
Sub-total |
|
| 28,877 |
|
|
|
| 30,441 |
|
|
|
|
| 0 |
|
|
|
| 0 |
|
|
|
| 59,318 |
|
Technology rentals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint Revenue Sharing Arrangements, contingent rent |
|
| 0 |
|
|
|
| 0 |
|
|
|
|
| 17,841 |
|
|
|
| 0 |
|
|
|
| 17,841 |
|
Sub-total |
|
| 0 |
|
|
|
| 0 |
|
|
|
|
| 17,841 |
|
|
|
| 0 |
|
|
|
| 17,841 |
|
Finance income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX Systems |
|
| 0 |
|
|
|
| 0 |
|
|
|
|
| 0 |
|
|
|
| 10,116 |
|
|
|
| 10,116 |
|
Total | $ |
| 70,640 |
|
| $ |
| 36,350 |
|
| $ |
|
| 19,897 |
|
| $ |
| 10,116 |
|
| $ |
| 137,003 |
|
| 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 |
|
|
|
130
| Year Ended December 31, 2019 |
| |||||||||||||||||||||||
| Revenue from |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
| Contracts with Customers |
|
| Revenue from |
|
|
|
|
|
|
|
|
| ||||||||||||
| Fixed consideration |
|
| Variable consideration |
|
| Lease Arrangements |
|
| Finance Income |
|
| Total |
| |||||||||||
Technology sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX Systems(1) | $ |
| 86,163 |
|
| $ |
| 10,247 |
|
| $ |
|
| 0 |
|
| $ |
| 0 |
|
| $ |
| 96,410 |
|
Joint Revenue Sharing Arrangements, fixed fees |
|
| 0 |
|
|
|
| 0 |
|
|
|
|
| 11,014 |
|
|
|
| 0 |
|
|
|
| 11,014 |
|
Other Theater Business |
|
| 8,390 |
|
|
|
| 0 |
|
|
|
|
| 0 |
|
|
|
| 0 |
|
|
|
| 8,390 |
|
Other sales(2) |
|
| 2,209 |
|
|
|
| 222 |
|
|
|
|
| 0 |
|
|
|
| 0 |
|
|
|
| 2,431 |
|
Sub-total |
|
| 96,762 |
|
|
|
| 10,469 |
|
|
|
|
| 11,014 |
|
|
|
| 0 |
|
|
|
| 118,245 |
|
Image enhancement and maintenance services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX DMR |
|
| 0 |
|
|
|
| 120,765 |
|
|
|
|
| 0 |
|
|
|
| 0 |
|
|
|
| 120,765 |
|
IMAX Maintenance |
|
| 53,151 |
|
|
|
| 0 |
|
|
|
|
| 0 |
|
|
|
| 0 |
|
|
|
| 53,151 |
|
Film Post-Production |
|
| 7,392 |
|
|
|
| 0 |
|
|
|
|
| 0 |
|
|
|
| 0 |
|
|
|
| 7,392 |
|
Film Distribution |
|
| 0 |
|
|
|
| 4,818 |
|
|
|
|
| 0 |
|
|
|
| 0 |
|
|
|
| 4,818 |
|
Other |
|
|
|
|
|
|
| 2,421 |
|
|
|
|
| 0 |
|
|
|
| 0 |
|
|
|
| 2,421 |
|
Sub-total |
|
| 60,543 |
|
|
|
| 128,004 |
|
|
|
|
| 0 |
|
|
|
| 0 |
|
|
|
| 188,547 |
|
Technology rentals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint Revenue Sharing Arrangements, contingent rent |
|
| 0 |
|
|
|
| 0 |
|
|
|
|
| 76,673 |
|
|
|
| 0 |
|
|
|
| 76,673 |
|
Other |
|
| 0 |
|
|
|
| 25 |
|
|
|
|
| 1,263 |
|
|
|
| 0 |
|
|
|
| 1,288 |
|
Sub-total |
|
| 0 |
|
|
|
| 25 |
|
|
|
|
| 77,936 |
|
|
|
| 0 |
|
|
|
| 77,961 |
|
Finance income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX Systems |
|
| 0 |
|
|
|
| 0 |
|
|
|
|
| 0 |
|
|
|
| 10,911 |
|
|
|
| 10,911 |
|
Total | $ |
| 157,305 |
|
| $ |
| 138,498 |
|
| $ |
|
| 88,950 |
|
| $ |
| 10,911 |
|
| $ |
| 395,664 |
|
|
|
|
|
131
| Year Ended December 31, 2018 |
| |||||||||||||||||||||||
| Revenue from |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
| Contracts with Customers |
|
| Revenue from |
|
|
|
|
|
|
|
|
| ||||||||||||
| Fixed consideration |
|
| Variable consideration |
|
| Lease Arrangements |
|
| Finance Income |
|
| Total |
| |||||||||||
Technology sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX Systems(1) | $ |
| 81,442 |
|
| $ |
| 6,990 |
|
| $ |
|
| 0 |
|
| $ |
| 0 |
|
| $ |
| 88,432 |
|
Joint Revenue Sharing Arrangements, fixed fees |
|
| 0 |
|
|
|
| 0 |
|
|
|
|
| 9,706 |
|
|
|
| 0 |
|
|
|
| 9,706 |
|
Other Theater Business |
|
| 8,358 |
|
|
|
| 0 |
|
|
|
|
| 0 |
|
|
|
| 0 |
|
|
|
| 8,358 |
|
Other sales |
|
| 0 |
|
|
|
| 95 |
|
|
|
|
| 0 |
|
|
|
| 0 |
|
|
|
| 95 |
|
Sub-total |
|
| 89,800 |
|
|
|
| 7,085 |
|
|
|
|
| 9,706 |
|
|
|
| 0 |
|
|
|
| 106,591 |
|
Image enhancement and maintenance services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX DMR |
|
| 0 |
|
|
|
| 110,793 |
|
|
|
|
| 0 |
|
|
|
| 0 |
|
|
|
| 110,793 |
|
IMAX Maintenance |
|
| 49,684 |
|
|
|
| 0 |
|
|
|
|
| 0 |
|
|
|
| 0 |
|
|
|
| 49,684 |
|
Film Post-Production |
|
| 9,516 |
|
|
|
| 0 |
|
|
|
|
| 0 |
|
|
|
| 0 |
|
|
|
| 9,516 |
|
Film Distribution |
|
| 0 |
|
|
|
| 3,446 |
|
|
|
|
| 0 |
|
|
|
| 0 |
|
|
|
| 3,446 |
|
Other |
|
|
|
|
|
|
| 8,301 |
|
|
|
|
| 0 |
|
|
|
| 0 |
|
|
|
| 8,301 |
|
Sub-total |
|
| 59,200 |
|
|
|
| 122,540 |
|
|
|
|
| 0 |
|
|
|
| 0 |
|
|
|
| 181,740 |
|
Technology rentals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint Revenue Sharing Arrangements, contingent rent |
|
| 0 |
|
|
|
| 0 |
|
|
|
|
| 73,997 |
|
|
|
| 0 |
|
|
|
| 73,997 |
|
Other |
|
| 0 |
|
|
|
| 271 |
|
|
|
|
| 204 |
|
|
|
| 0 |
|
|
|
| 475 |
|
Sub-total |
|
| 0 |
|
|
|
| 271 |
|
|
|
|
| 74,201 |
|
|
|
| 0 |
|
|
|
| 74,472 |
|
Finance income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX Systems |
|
| 0 |
|
|
|
| 0 |
|
|
|
|
| 0 |
|
|
|
| 11,598 |
|
|
|
| 11,598 |
|
Total | $ |
| 149,000 |
|
| $ |
| 129,896 |
|
| $ |
|
| 83,907 |
|
| $ |
| 11,598 |
|
| $ |
| 374,401 |
|
|
|
(b) Deferred Revenue
IMAX Theater System sale and lease arrangements include a requirement for the Company to provide maintenance services over the life of the arrangement, subject to a consumer price index adjustment each year. In circumstances where customers prepay the entire term’s maintenance fee, additional payments are due to the Company for the years after its extended warranty and maintenance obligations expire. Payments upon renewal each year are either prepaid or made in arrears and can vary in frequency from monthly to annually. AtAs of December 31, 2020, $21.62023, $22.8 million of consideration has been deferred in relation to outstanding maintenance services to be provided on existing maintenance contracts (December 31, 20192022 — $17.7$21.0 million and 2018 —$21.92021 — $20.2 million). Maintenance revenue is recognized evenly over the contract term which coincides with the period over which maintenance services are provided. In the event of customer default, any payments made by the customer may be retained by the Company.
In instances where the Company receives consideration prior to satisfying its performance obligations, the recognition of revenue is deferred. The majority of the deferred revenue balance relates to payments received by the Company for IMAX Theater Systems where control of the system has not transferred to the customer. The deferred revenue balance related to an individual theatersystem increases as progress payments are made and is then derecognized when control of the system is transferred to the customer. Recognition dates are variable and depend on numerous factors, including some outside of the Company’s control.
(See Note 2 for information on125
For the current impactsyear ended December 31, 2023, $43.1 million of and uncertainties relating torevenue was recognized that was included in the COVID-19 global pandemic which are impacting Company’s revenues$.)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.
132
21. Segment Reporting
The Company’s Chief Executive Officer (“CEO”) is its Chief Operating Decision Maker (“CODM”), as such term is defineddetermined under U.S. GAAP. The CODM, along with other members of management, assess segment performance based on segment revenues and gross margins. Selling, general and administrative expenses, research and development costs, the amortization of intangible assets, provisionsprovision for (recoveries(reversal of) current expected credit losses, certain write-downs, interest income, interest expense, and income tax (expense) benefit are not allocated to the Company’s segments.
TheIn the first quarter of 2023, the Company revised its internal segment reporting, including the information provided to the CODM to assess segment performance and allocate resources. Accordingly, the Company has the followingtwo reportable segments: (i)
|
|
|
|
|
|
|
|
The Company is presenting information at a disaggregated level to provide more relevant information to readers.
Transactions between the film production and IMAX DMR segmentevents and the Film Post-Production segment are valued at exchange value. Inter-segment profits are eliminated upon consolidation,experiences including music, gaming, and sports, as well as for the disclosures below.provision of film post-production services.
The Company’s activities that do not meet the criteria to be considered a reportable segment are reported within All Other. Prior period comparatives have been revised to conform with the current period presentation.
133
(a) Segment Financial Information
|
|
The following table presents the breakdown ofCompany’s revenue and gross margin (loss) by category andreportable segment for the years ended December 31, 2020, 20192023, 2022, and 2018:2021:
| Years Ended December 31, |
| ||||||||||||||||||||||
|
| Revenue(1) |
|
| Gross Margin (Margin Loss)(4) |
| ||||||||||||||||||
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2018 |
| ||||||
IMAX Technology Network |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX DMR |
| $ | 28,265 |
|
| $ | 120,765 |
|
| $ | 110,793 |
|
| $ | 13,731 |
|
| $ | 78,592 |
|
| $ | 72,773 |
|
Joint revenue sharing arrangements, contingent rent |
|
| 17,841 |
|
|
| 76,673 |
|
|
| 73,997 |
|
|
| (9,500 | ) |
|
| 48,446 |
|
|
| 49,292 |
|
|
|
| 46,106 |
|
|
| 197,438 |
|
|
| 184,790 |
|
|
| 4,231 |
|
|
| 127,038 |
|
|
| 122,065 |
|
IMAX Technology Sales and Maintenance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX Systems(2) |
|
| 54,055 |
|
|
| 107,321 |
|
|
| 100,030 |
|
|
| 24,816 |
|
|
| 58,168 |
|
|
| 59,583 |
|
Joint revenue sharing arrangements, fixed fees |
|
| 2,056 |
|
|
| 11,014 |
|
|
| 9,706 |
|
|
| 529 |
|
|
| 2,613 |
|
|
| 1,982 |
|
IMAX Maintenance |
|
| 21,999 |
|
|
| 53,151 |
|
|
| 49,684 |
|
|
| 3,068 |
|
|
| 23,010 |
|
|
| 21,991 |
|
Other Theater Business(3) |
|
| 1,666 |
|
|
| 8,390 |
|
|
| 8,358 |
|
|
| (438 | ) |
|
| 2,624 |
|
|
| 1,806 |
|
|
|
| 79,776 |
|
|
| 179,876 |
|
|
| 167,778 |
|
|
| 27,975 |
|
|
| 86,415 |
|
|
| 85,362 |
|
New Business Initiatives |
|
| 2,226 |
|
|
| 2,754 |
|
|
| 5,769 |
|
|
| 1,878 |
|
|
| 2,106 |
|
|
| (350 | ) |
Film Distribution and Post-Production |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film Distribution(5) |
|
| 4,841 |
|
|
| 4,818 |
|
|
| 3,446 |
|
|
| (9,840 | ) |
|
| (2,942 | ) |
|
| (1,344 | ) |
Post-Production |
|
| 3,878 |
|
|
| 7,392 |
|
|
| 9,516 |
|
|
| (358 | ) |
|
| 1,680 |
|
|
| 3,107 |
|
|
|
| 8,719 |
|
|
| 12,210 |
|
|
| 12,962 |
|
|
| (10,198 | ) |
|
| (1,262 | ) |
|
| 1,763 |
|
Sub-total |
|
| 136,827 |
|
|
| 392,278 |
|
|
| 371,299 |
|
|
| 23,886 |
|
|
| 214,297 |
|
|
| 208,840 |
|
Other |
|
| 176 |
|
|
| 3,386 |
|
|
| 3,102 |
|
|
| (2,346 | ) |
|
| (125 | ) |
|
| (911 | ) |
Total |
| $ | 137,003 |
|
| $ | 395,664 |
|
| $ | 374,401 |
|
| $ | 21,540 |
|
| $ | 214,172 |
|
| $ | 207,929 |
|
The following table presents the breakdown of assets by category and segment as of December 31, 2020 and 2019:
|
| As of December 31, |
| |||||
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
| ||
IMAX Technology Network |
|
|
|
|
|
|
|
|
IMAX DMR |
| $ | 29,672 |
|
| $ | 46,417 |
|
Joint revenue sharing arrangements, contingent rent |
|
| 195,822 |
|
|
| 231,626 |
|
IMAX Technology Sales and Maintenance |
|
|
|
|
|
|
|
|
IMAX Systems |
|
| 240,972 |
|
|
| 277,720 |
|
Joint revenue sharing arrangements, fixed fees |
|
| 27,778 |
|
|
| 27,189 |
|
IMAX Maintenance |
|
| 36,949 |
|
|
| 22,869 |
|
Other Theater Business |
|
| 106 |
|
|
| 2,042 |
|
New Business Initiatives |
|
| 1,196 |
|
|
| — |
|
Film Distribution and Post-Production |
|
|
|
|
|
|
|
|
Film Distribution |
|
| 35,526 |
|
|
| 14,831 |
|
Post-Production |
|
| 5,984 |
|
|
| 36,562 |
|
Other |
|
| 20,307 |
|
|
| 23,809 |
|
Corporate and other non-segment specific assets |
|
| 403,438 |
|
|
| 206,004 |
|
Total |
| $ | 997,750 |
|
| $ | 889,069 |
|
134
|
| 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 following table presents the breakdownCompany’s assets by reportable segment, reconciled to consolidated assets, as of depreciationDecember 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 categoryreportable segment, and segmenton a consolidated basis, for the years ended December 31, 2020, 20192023, 2022, and 2018:2021:
|
| Years Ended December 31, |
| |||||||||
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
IMAX Technology Network |
|
|
|
|
|
|
|
|
|
|
|
|
IMAX DMR |
| $ | 10,269 |
|
| $ | 16,117 |
|
| $ | 13,602 |
|
Joint revenue sharing arrangements, contingent rent |
|
| 26,076 |
|
|
| 25,036 |
|
|
| 21,970 |
|
IMAX Technology Sales and Maintenance |
|
|
|
|
|
|
|
|
|
|
|
|
IMAX Systems |
|
| 3,548 |
|
|
| 3,878 |
|
|
| 3,615 |
|
IMAX Maintenance |
|
| 213 |
|
|
| 299 |
|
|
| 164 |
|
New Business Initiatives |
|
| 11 |
|
|
| 58 |
|
|
| 2,519 |
|
Film Distribution and Post-Production |
|
|
|
|
|
|
|
|
|
|
|
|
Film Distribution |
|
| 1,213 |
|
|
| 3,894 |
|
|
| 2,225 |
|
Post-Production |
|
| 1,281 |
|
|
| 1,301 |
|
|
| 1,500 |
|
Other |
|
| 601 |
|
|
| 747 |
|
|
| 790 |
|
Corporate and other non-segment specific assets |
|
| 10,394 |
|
|
| 12,157 |
|
|
| 11,052 |
|
Total |
| $ | 53,606 |
|
| $ | 63,487 |
|
| $ | 57,437 |
|
|
| 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 breakdown ofCompany’s write-downs, including asset impairments and credit loss expense (reversal) by categoryreportable 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, 2020, 20192023, 2022, and 2018:2021:
|
| 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 |
|
|
| Years Ended December 31, |
| |||||||||
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
IMAX Technology Network |
|
|
|
|
|
|
|
|
|
|
|
|
IMAX DMR |
|
| 1,057 |
|
| $ | — |
|
| $ | 15 |
|
Joint revenue sharing arrangements, contingent rent |
|
| 1,784 |
|
|
| 2,207 |
|
|
| 1,193 |
|
IMAX Technology Sales and Maintenance |
|
|
|
|
|
|
|
|
|
|
|
|
IMAX Systems |
|
| 2,872 |
|
|
| 276 |
|
|
| 250 |
|
IMAX Maintenance |
|
| 510 |
|
|
| 170 |
|
|
| — |
|
New Business Initiatives |
|
| 52 |
|
|
| 96 |
|
|
| 7,399 |
|
Film Distribution and Post-Production |
|
|
|
|
|
|
|
|
|
|
|
|
Film Distribution |
|
| 9,997 |
|
|
| 1,379 |
|
|
| — |
|
Post-Production |
|
| — |
|
|
| — |
|
|
| — |
|
Corporate and other non-segment specific assets(6) |
|
| 20,065 |
|
|
| 2,678 |
|
|
| 2,913 |
|
Total |
| $ | 36,337 |
|
| $ | 6,806 |
|
| $ | 11,770 |
|
135
(1)
127
|
| Years Ended December 31, |
| |||||||||
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
IMAX Technology Network |
|
|
|
|
|
|
|
|
|
|
|
|
IMAX DMR |
| $ | — |
|
| $ | 99 |
|
| $ | 55 |
|
Joint revenue sharing arrangements, contingent rent |
|
| 6,654 |
|
|
| 40,489 |
|
|
| 34,810 |
|
IMAX Technology Sales and Maintenance |
|
|
|
|
|
|
|
|
|
|
|
|
IMAX Systems |
|
| 50 |
|
|
| 452 |
|
|
| 2,813 |
|
IMAX Maintenance |
|
| — |
|
|
| 311 |
|
|
| 527 |
|
New Business Initiatives |
|
| — |
|
|
| — |
|
|
| 342 |
|
Film Distribution and Post-Production |
|
|
|
|
|
|
|
|
|
|
|
|
Film Distribution |
|
| — |
|
|
| — |
|
|
| — |
|
Post-Production |
|
| 456 |
|
|
| 1,210 |
|
|
| 1,067 |
|
Other |
|
| 68 |
|
|
| 504 |
|
|
| 193 |
|
Corporate and other non-segment specific assets |
|
| 123 |
|
|
| 4,845 |
|
|
| 8,371 |
|
Total |
| $ | 7,351 |
|
| $ | 47,910 |
|
| $ | 48,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
136
(b)
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 the 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, |
| ||||||||||||||||||
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
United States |
| $ | 117,925 |
|
| $ | 107,734 |
|
| $ | 73,499 |
| ||||||||||||
Greater China |
| $ | 52,331 |
|
| $ | 124,294 |
|
| $ | 117,520 |
|
|
| 91,901 |
|
|
| 73,330 |
|
|
| 112,801 |
|
United States |
|
| 30,157 |
|
|
| 121,264 |
|
|
| 118,495 |
| ||||||||||||
Asia (excluding Greater China) |
|
| 20,090 |
|
|
| 48,386 |
|
|
| 46,858 |
|
|
| 59,690 |
|
|
| 47,145 |
|
|
| 23,682 |
|
Western Europe |
|
| 13,683 |
|
|
| 46,911 |
|
|
| 40,497 |
|
|
| 54,908 |
|
|
| 40,245 |
|
|
| 20,942 |
|
Latin America |
|
| 6,114 |
|
|
| 9,438 |
|
|
| 12,952 |
|
|
| 13,788 |
|
|
| 9,418 |
|
|
| 3,601 |
|
Russia & the CIS |
|
| 2,927 |
|
|
| 16,124 |
|
|
| 10,133 |
| ||||||||||||
Canada |
|
| 1,365 |
|
|
| 9,220 |
|
|
| 10,507 |
|
|
| 18,746 |
|
|
| 7,550 |
|
|
| 3,266 |
|
Rest of the World |
|
| 10,336 |
|
|
| 20,027 |
|
|
| 17,439 |
|
|
| 17,881 |
|
|
| 15,383 |
|
|
| 17,092 |
|
Total |
| $ | 137,003 |
|
| $ | 395,664 |
|
| $ | 374,401 |
|
| $ | 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, 20202023 and 2019: 2022:
| As of December 31, |
| ||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
| ||
United States |
| $ | 98,831 |
|
| $ | 94,505 |
|
Greater China |
|
| 72,492 |
|
|
| 86,665 |
|
Canada |
|
| 37,877 |
|
|
| 36,385 |
|
Western Europe |
|
| 12,763 |
|
|
| 20,132 |
|
Asia (excluding Greater China) |
|
| 16,538 |
|
|
| 10,471 |
|
Rest of the World |
|
| 4,798 |
|
|
| 4,738 |
|
Total |
| $ | 243,299 |
|
| $ | 252,896 |
|
| As of December 31, |
| ||||||
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
| ||
United States |
| $ | 100,495 |
|
| $ | 109,240 |
|
Greater China |
|
| 104,731 |
|
|
| 105,312 |
|
Canada |
|
| 31,624 |
|
|
| 47,837 |
|
Western Europe |
|
| 25,487 |
|
|
| 27,748 |
|
Asia (excluding Greater China) |
|
| 9,930 |
|
|
| 9,948 |
|
Rest of the World |
|
| 5,130 |
|
|
| 6,764 |
|
Total |
| $ | 277,397 |
|
| $ | 306,849 |
|
137
22. Financial Instruments
(a) 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 $76.2 million balance of cash and cash 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 PRC (December 31, 2022 — $43.7 million).
128 (b) Fair Value Disclosures
|
|
The carrying values of the Company’s Cash and Cash Equivalents, Accounts Receivable, Accounts Payable, and Accrued Liabilities due within one year approximate their fair values due to the short-term maturity of these instruments. Including these instruments, the Company’s financial instruments consist 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 of December 31, 2020 |
|
| As of December 31, 2019 |
| ||||||||||||
(In thousands of U.S. Dollars) |
| Carrying Amount |
|
| Estimated Fair Value |
|
| Carrying Amount |
|
|
|
| Estimated Fair Value |
| ||||
Level 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents(1) |
| $ | 317,379 |
|
|
| 317,379 |
|
| $ | 109,484 |
|
|
|
| $ | 109,484 |
|
Equity securities (3) |
|
| 13,633 |
|
|
| 13,633 |
|
|
| 15,685 |
|
|
|
|
| 15,685 |
|
Level 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financed sales receivables(2) |
|
| 112,396 |
|
| $ | 112,603 |
|
| $ | 112,432 |
|
|
|
| $ | 111,441 |
|
Net investment in sales-type leases (2) |
|
| 19,414 |
|
|
| 19,373 |
|
|
| 15,606 |
|
|
|
|
| 15,309 |
|
Convertible loan receivable(2) |
|
| — |
|
|
| — |
|
|
| 1,500 |
|
|
|
|
| 1,500 |
|
Equity securities(1) |
|
| 1,000 |
|
|
| 1,000 |
|
|
| 1,000 |
|
|
|
|
| 1,000 |
|
COLI(4) |
|
| 3,155 |
|
|
| 3,155 |
|
|
| 3,150 |
|
|
|
|
| 3,150 |
|
Foreign exchange contracts — designated forwards(3) |
|
| 1,635 |
|
|
| 1,635 |
|
|
| 530 |
|
|
|
|
| 530 |
|
Foreign exchange contracts — non-designated forwards(3) |
|
| 344 |
|
|
| 344 |
|
|
| — |
|
|
|
|
| — |
|
Bank indebtedness - under the Working Capital Facility(1) |
|
| (7,643 | ) |
|
| (7,643 | ) |
|
| — |
|
|
|
|
| — |
|
Bank indebtedness - under the Credit Facility(1) |
|
| (300,000 | ) |
|
| (300,000 | ) |
|
| (20,000 | ) |
|
|
|
| (20,000 | ) |
|
|
|
|
|
|
|
|
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 0 transfers in or out of the Company’s Level 3 assets during the year ended December 31, 2020 and 2019.
|
|
The Company is exposed to market risk from changes in foreign currency rates.
A majority of the Company’s revenues is denominated in U.S. Dollars while a substantialsignificant portion of its costs and expenses is denominated in Canadian Dollars. A portion of the Company’s net U.S. Dollar cash flows of the Company is periodically converted to Canadian Dollars to fund Canadian Dollar 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, respectively. Net cash flows are converted to and from U.S. Dollars through the spot market. The Company also has cash receipts under leases denominated in Chinese Renminbi,RMB, Japanese Yen, Canadian Dollars, and Euros which are converted to U.S. Dollars through the spot market. In addition, because IMAX films generate box office in 8490 different countries, unfavourableunfavorable exchange rates between applicable local currencies and the U.S. Dollar affectcould have an impact on box office receipts and the Company’s reported gross box-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.
138129
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 at as of December 31, 20202023 (the “Foreign Currency Hedges”), with settlement dates throughout 2021.2024 and 2025. Foreign currency derivatives are recognized and measured in the Consolidated Balance Sheets at fair value. Changes in the fair value (gains(i.e., gains or losses) are recognized in the Consolidated Statements of Operations except for derivatives designated and qualifying as foreign currency cash flow hedging instruments. The Company currently has cash flow hedging instruments associated with selling, generalSelling, General and administrative expenses and inventories.Administrative Expenses. For foreign currency cash flow hedging instruments related to selling, generalSelling, General and administrative expenses,Administrative Expenses, the effective portion of the gain or loss in a hedge of a forecasted transaction is reported in Accumulated Other Comprehensive IncomeLoss and reclassified to the Consolidated Statements of Operations when the forecasted transaction occurs. For foreign currency cash flow hedging instruments related to inventories, the effective portion of the gain or loss in a hedge of a forecasted transaction is reported in Other Comprehensive Income and reclassified to Inventories in the Consolidated Balance Sheets when the forecasted transaction occurs.Any ineffective portion is recognized immediately in the Consolidated Statements of OperationsOperations..
On April 28, 2020, the FASB staff issued a question-and-answer document (Q&A) to respond to frequently asked questions about the disruptive effects of COVID-19 on cash flow hedge accounting. FASB Accounting Standards Codification Topic 815, Derivative and Hedging, provides guidance on when to discontinue cash flow hedge accounting and when and how to reclassify amounts deferred in Accumulated Other Comprehensive Income (AOCI) to earnings. The Q&A document addresses how the postponement or cancellation of forecasted transactions related to the effects of the COVID-19 pandemic should be considered when applying cash flow hedge accounting under Topic 815. The Company has considered the Q&A document when applying cash hedge flow accounting under Topic 815. The guidance did not have a material impact to the Company’s Consolidated Financial Statements.
The following tabular disclosures reflect the impact that derivative instruments and hedging activities have on the Company’s Consolidated Financial Statements:
Notional value of foreign exchange contracts:
| As of December 31, |
| ||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
| ||
Derivatives designated as hedging instruments: |
|
|
|
|
|
| ||
Foreign exchange contracts — Forwards |
| $ | 40,563 |
|
| $ | 24,707 |
|
|
| As of December 31, |
| |||||
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
| ||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
Foreign exchange contracts — Forwards |
| $ | 26,358 |
|
| $ | 36,052 |
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
Foreign exchange contracts — Forwards |
|
| 5,552 |
|
|
| — |
|
|
| $ | 31,910 |
|
| $ | 36,052 |
|
Fair value of derivatives in foreign exchange contracts:
|
|
| As of December 31, |
| ||||||
(In thousands of U.S. Dollars) |
| Balance Sheet Location |
| 2023 |
|
| 2022 |
| ||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
| ||
Foreign exchange contracts — Forwards |
| Other assets |
| $ | 846 |
|
| $ | 50 |
|
| Accrued and other liabilities |
|
| (27 | ) |
|
| (699 | ) | |
|
|
| $ | 819 |
|
| $ | (649 | ) |
|
|
|
| As of December 31, |
| |||||
(In thousands of U.S. Dollars) |
| Balance Sheet Location |
| 2020 |
|
| 2019 |
| ||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts — Forwards |
| Other assets |
| $ | 1,635 |
|
| $ | 602 |
|
|
| Accrued and other liabilities |
|
| 0 |
|
|
| (72 | ) |
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts — Forwards |
| Other assets |
|
| 344 |
|
|
| 0 |
|
|
| Accrued and other liabilities |
|
| 0 |
|
|
| 0 |
|
|
|
|
| $ | 1,979 |
|
| $ | 530 |
|
139
Derivatives in foreign currency hedging relationships are as follows:
|
|
| Years Ended December 31, |
| ||||||||||
(In thousands of U.S. Dollars) |
|
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Foreign exchange contracts |
| Derivative Gain (Loss) |
|
|
|
|
|
|
|
|
| |||
— Forwards |
| Recognized in OCI |
|
|
|
|
|
|
|
|
| |||
| (Effective Portion) |
| $ | 575 |
|
| $ | (1,323 | ) |
| $ | 468 |
| |
|
|
|
|
|
|
|
|
|
|
|
| |||
| Location of Derivative (Loss) Gain |
|
|
|
|
|
|
|
|
| ||||
| Reclassified from AOCI |
| Years Ended December 31, |
| ||||||||||
(In thousands of U.S. Dollars) |
| (Effective Portion) |
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Foreign exchange contracts |
| Selling, general and |
|
|
|
|
|
|
|
|
| |||
| administrative expenses |
| $ | (892 | ) |
| $ | (596 | ) |
| $ | 1,707 |
|
|
|
|
| Years Ended December 31, |
| |||||||||
(In thousands of U.S. Dollars) |
|
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Foreign exchange contracts |
| Derivative Gain (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
— Forwards |
| Recognized in OCI |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (Effective Portion) |
| $ | 550 |
|
| $ | 552 |
|
| $ | (2,219 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Location of Derivative (Loss) Gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Reclassified from AOCI |
| Years Ended December 31, |
| |||||||||
|
| (Effective Portion) |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Foreign exchange contracts |
| Selling, general and |
|
|
|
|
|
|
|
|
|
|
|
|
— Forwards |
| administrative expenses |
| $ | (578 | ) |
| $ | (1,109 | ) |
| $ | 408 |
|
|
| Inventory |
|
| (26 | ) |
|
| (42 | ) |
|
| 0 |
|
|
| Property, plant and equipment |
|
| 0 |
|
|
| (32 | ) |
|
| 0 |
|
|
|
|
| $ | (604 | ) |
| $ | (1,183 | ) |
| $ | 408 |
|
|
|
|
| Years Ended December 31, |
| |||||||||
(In thousands of U.S. Dollars) |
|
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Foreign exchange contracts |
| Derivative Gain (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
— Forwards |
| Recognized In |
|
|
|
|
|
|
|
|
|
|
|
|
|
| and Out of OCI |
| $ | 17 |
|
| $ | (22 | ) |
| $ | 21 |
|
Non-designated derivatives in foreign currency relationships are as follows:
|
|
| Years Ended December 31, |
| ||||||||||
(In thousands of U.S. Dollars) |
|
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Foreign exchange contracts |
| Derivative Gain Reclassified |
|
|
|
|
|
|
|
|
| |||
— Forwards |
| From AOCI |
|
|
|
|
|
|
|
|
| |||
| (Ineffective Portion) |
| $ | — |
|
| $ | — |
|
| $ | (318 | ) |
|
|
| Years Ended December 31, |
| ||||||||||
(In thousands of U.S. Dollars) |
| Location of Derivative Gain |
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Foreign exchange contracts |
| Selling, general and |
|
|
|
|
|
|
|
|
| |||
— Forwards |
| administrative expenses |
| $ | — |
|
| $ | — |
|
| $ | 398 |
|
|
|
|
| Years Ended December 31, |
| |||||||||
(In thousands of U.S. Dollars) |
| Location of Derivative Gain |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Foreign exchange contracts |
| Selling, general and |
|
|
|
|
|
|
|
|
|
|
|
|
— Forwards |
| administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 344 |
|
| $ | — |
|
| $ | — |
|
130
The Company'sCompany’s estimated net amount of the existing gainsgain as of December 31, 20202023 is $2.0$0.6 million, which is expected to be reclassified to earnings within the next twelve months.
(d) Investments in Equity Securities
|
|
As of December 31, 2020,2023, the Consolidated Balance Sheets includes $13.6 million$nil (December 31, 20192022 — $15.7$1.0 million) of investments in equity securities.
On January 17, 2019, IMAX China (Hong Kong), Limited, a wholly-owned subsidiary of IMAX China, as an investor entered into a cornerstone investment agreement with Maoyan Entertainment (“Maoyan”) (as the issuer) and Morgan Stanley Asia Limited (as a sponsor, underwriter and the underwriters’ representative). Pursuant to this agreement, IMAX China (Hong Kong), Limited agreed to invest $15.2 million to subscribe for a certain number of shares of Maoyan at the final offer price pursuant to the global offering of the share capital of Maoyan, and this investment would be subject to a lock-up period of six months following the date of the global offering. On February 4, 2019, Maoyan completed its global offering, upon which, IMAX China (Hong Kong), Limited became a less than 1% shareholder in Maoyan. This investment is classified as an equity security, with a readily determinable market value through the Hong Kong Stock Exchange. The changes in fair value are recorded in Gain (Loss) in Fair Value of Investment in the Company’s Consolidated Statements of Operations. As of December 31, 2020, the value of the Company’s investment in Maoyan was $12.6 million (December 31, 2019 — $14.6 million). For the year ended December 31, 2020, the Company has recorded a net unrealized loss of $2.1 million (2019 — loss of $0.5 million). In February 2021, IMAX China (Hong Kong) sold all of its 7,949,000 shares of Maoyan for gross proceeds of $17.8 million, which represents a $2.6 million gain relative to the Company’s acquisition cost.NaN shares of Maoyan are currently held by IMAX China (Hong Kong).
The Company has an investment of $1.1 million (December 31, 2019 — $1.0 million) in the shares of an exchange traded fund. This investmentfund which is classified as an investment in equity investment.securities.
140
As of December 31, 2020,2023, the Company held investments 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, 20202023 (December 31, 20192022 — $1.0$1.0 million) and is recorded in Other Assets.
(e) Interest in Film
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'sEmployee’s Pension and Postretirement Benefits
|
|
The Company has an unfunded defined benefit pension plan, the SERP,Supplemental Executive Retirement Plan (the “SERP”), covering its CEO, Richard L. 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 1, 2019,September 19, 2022, the term of Mr. Gelfond’s employment was extended through December 31, 2022,2025, although Mr. Gelfond has not informed the Company that he intends to retire at that time. Under the terms of this amendment to his employment agreement, as amended, the total benefit payable to Mr. Gelfond under the SERP wasis fixed at $20.3$20.3 million.
As of December 31, 20202023 and 2019,2022, the amounts recorded on the Company’s Consolidated Balance Sheets related to theprojected 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 |
|
|
| Years Ended December 31, |
| |||||
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
| ||
Obligation, beginning of period |
| $ | 18,840 |
|
| $ | 17,977 |
|
Prior service cost |
|
| — |
|
|
| 456 |
|
Interest cost |
|
| 379 |
|
|
| 564 |
|
Actuarial loss (gain) |
|
| 897 |
|
|
| (157 | ) |
Obligation, end of period and unfunded status(1) |
|
| 20,116 |
|
|
| 18,840 |
|
Accumulated other comprehensive gain |
|
| 178 |
|
|
| 988 |
|
Net amount recognized in the consolidated balance sheets |
| $ | 20,294 |
|
| $ | 19,828 |
|
|
|
The increase in the SERP obligation resulting from the November 1, 2019 amendment to Mr. Gelfond’s employment agreement was recognized as a prior service cost within Other Comprehensive Income. This prior service cost is being amortized on a straight-line basis over the remaining employment agreement term of 36 months. The related amortization expense, as well as interest cost, is recorded within Retirement Benefits Non-Service Expense in the Consolidated Statements of Operations.
As of December 31, 2020, 20192023, 2022, and 2018,2021, the following amounts related to the SERP were recorded 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 | ) |
|
|
| As of December 31, |
| |||||||||||
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
|
|
| 2018 |
| |||||
Unrealized actuarial gain |
| $ |
| (547 | ) |
| $ |
| (1,444 | ) |
| $ |
| (1,287 | ) |
Unamortized prior service cost |
|
|
| 369 |
|
|
|
| 456 |
|
|
|
| — |
|
Net periodic benefit costs to be recognized in future periods |
| $ |
| (178 | ) |
| $ |
| (988 | ) |
| $ |
| (1,287 | ) |
131
For the years ended December 31, 2020, 20192023, 2022, and 2018,2021, 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 |
|
|
| Years ended December 31, |
| ||||||||||||
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
|
| 2018 |
| ||||||
Interest cost |
| $ |
| 379 |
|
| $ |
| 564 |
|
| $ |
| 422 |
|
Amortization of prior service cost |
|
|
| 87 |
|
|
|
| — |
|
|
|
| — |
|
Pension expense |
| $ |
| 466 |
|
| $ |
| 564 |
|
| $ |
| 422 |
|
141
The following assumptions were used to determine the SERP obligation and any related costs as of and for the years ended December 31, 2020, 20192023, 2022, and 2018:2021:
|
| 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 of December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Discount rate |
|
| 0.36 | % |
|
| 2.00 | % |
|
| 3.14 | % |
Lump sum interest rate: |
|
|
|
|
|
|
|
|
|
|
|
|
First 25 years |
| N/A |
|
|
| 2.12 | % |
| N/A |
| ||
First 20 years |
| N/A |
|
| N/A |
|
|
| 3.09 | % | ||
Thereafter |
| N/A |
|
|
| 2.26 | % |
|
| 2.84 | % | |
Cost of living adjustment on benefits |
| N/A |
|
|
| 1.20 | % |
|
| 1.20 | % |
NaNNo contributions were made for the SERP during 2020.2023. The Company expects interest costs of $0.1$0.8 million to be recognized as a component of pension cost in for the year ended December 31, 2021.
2024.
|
|
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 2020,2023, the Company contributed and expensed an aggregaterecorded expense of $1.1$1.2 million (2019(2022 — $1.2$1.1 million; 20182021 — $1.2$1.1 million) to its Canadian plan and an aggregate of $0.6$0.8 million (2019 —$0.6(2022 — $0.7 million; 2018 —$2021 — $0.5 million) to its defined contribution employee pension plan under Section 401(k) of the U.S. Internal Revenue Code.
(c) Postretirement Benefits - Executives
|
|
The Company has an unfunded postretirement plan for Messrs.Mr. Gelfond and Bradley J. Wechsler, former Chairman of the Company’s Board of Directors (the “Executive Postretirement Benefit Plan”). The Executive 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, 20202023 and 2019,2022, the Company’s Consolidated Balance Sheets include the following amounts within Accrued and Other Liabilities related to the Executive Postretirement Benefit Plan:
|
| 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 |
|
|
| As of December 31, |
| |||||||
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
| ||||
Obligation, beginning of year |
| $ |
| 665 |
|
| $ |
| 639 |
|
Interest cost |
|
|
| 20 |
|
|
|
| 26 |
|
Benefits paid |
|
|
| (29 | ) |
|
|
| — |
|
Actuarial loss |
|
|
| 54 |
|
|
|
| — |
|
Obligation, end of year |
| $ |
| 710 |
|
| $ |
| 665 |
|
132
For the years ended December 31, 2020, 20192023, 2022, and 2018,2021, the components of pension expense related to the Executive Postretirement Benefit Plan were as follows:
|
| 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 |
|
|
| Years Ended December 31, |
| |||||||||
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Interest cost |
| $ | 20 |
|
| $ | 26 |
|
| $ | 24 |
|
Amortization of actuarial gain |
| $ | (17 | ) |
|
| — |
|
|
| — |
|
Pension expense |
| $ | 3 |
|
| $ | 26 |
|
| $ | 24 |
|
142
As of December 31, 2020,20192023, 2022, and 2018,2021, the following amounts related to the Executive Postretirement Benefit Plan were recorded on the Company’s Consolidated Balance Sheets within Accumulated Other Comprehensive Loss and will be recognized as components of net pension cost in future periods:
|
| As of December 31, |
| |||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Unrealized actuarial gain |
| $ | (140 | ) |
| $ | (242 | ) |
| $ | (27 | ) |
|
| As of December 31, |
| |||||||||
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Unrealized actuarial loss (gain) |
| $ | 21 |
|
| $ | (50 | ) |
| $ | (50 | ) |
As of December 31, 2020, 20192023, 2022, and 2018,2021, the weighted average assumptions used to determine the benefit obligation 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 of December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Discount rate |
|
| 2.36 | % |
|
| 3.13 | % |
|
| 4.15 | % |
For the years ended December 31, 2020, 20192023, 2022, and 2018,2021, the weighted average assumptions used to determine the net postretirement benefit expense related to the Executive Postretirement Benefit Plan are as follows:
|
| Years Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Discount rate |
|
| 5.01 | % |
|
| 2.71 | % |
|
| 2.36 | % |
|
| Years Ended December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Discount rate |
|
| 3.13 | % |
|
| 4.15 | % |
|
| 3.55 | % |
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 and thereafter following the December 31, 20202023 balance sheet date:
(In thousands of U.S. Dollars) |
|
|
|
| |
2024 |
| $ |
| 10 |
|
2025 |
|
|
| 11 |
|
2026 |
|
|
| 23 |
|
2027 |
|
|
| 25 |
|
2028 |
|
|
| 27 |
|
Thereafter |
|
|
| 914 |
|
Total |
| $ |
| 1,010 |
|
2021 |
| $ |
| 8 |
|
2022 |
|
|
| 9 |
|
2023 |
|
|
| 19 |
|
2024 |
|
|
| 19 |
|
2025 |
|
|
| 21 |
|
Thereafter |
|
|
| 981 |
|
Total |
| $ |
| 1,057 |
|
|
|
The Company has an unfunded postretirement plan for its Canadian employees who meet certainmeeting specific eligibility requirements (the “Canadian Postretirement Benefit Plan”). The Company will provide eligible participants, upon retirement, with health and welfare benefits.
133
As of December 31, 2020, 20192023 and 2018,2022, 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 |
|
_____________________
|
| As of December 31, |
| |||||||
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
| ||||
Obligation, beginning of year |
| $ |
| 1,581 |
|
| $ |
| 1,487 |
|
Interest cost |
|
|
| 47 |
|
|
|
| 49 |
|
Benefits paid |
|
|
| (110 | ) |
|
|
| (108 | ) |
Actuarial loss |
|
|
| 280 |
|
|
|
| 153 |
|
Unrealized foreign exchange loss |
|
|
| 64 |
|
|
|
| — |
|
Obligation, end of year |
| $ |
| 1,862 |
|
| $ |
| 1,581 |
|
143
For the years ended December 31, 2020, 20192023, 2022, and 2018,2021, 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 |
|
|
| Years Ended December 31, |
| |||||||||
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Interest cost |
| $ | 47 |
|
| $ | 49 |
|
| $ | 53 |
|
Pension expense |
| $ | 47 |
|
| $ | 49 |
|
| $ | 53 |
|
The Company expects interest costs of less than $0.1$0.1 million to be recognized as a component of benefit cost for the year ended December 31, 2021.2024.
As of December 31, 2020, 20192023, 2022, and 2018,2021, the following amounts related to the Canadian Postretirement Benefit Plan were recorded on the Company’s Consolidated Balance Sheets within Accumulated Other Comprehensive Loss and will be recognized as components of net pension cost in future periods:
|
| As of December 31, |
| |||||||||
(In thousands of U.S. Dollars) |
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Unrealized actuarial (gain) loss |
| $ | (336 | ) |
| $ | (354 | ) |
| $ | 185 |
|
|
| As of December 31, |
| |||||||||
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Unrealized actuarial loss (gain) |
| $ | 277 |
|
| $ | (3 | ) |
| $ | (156 | ) |
As December 31, 2020, 20192023, 2022, and 2018,2021, the weighted average assumptions used to determine the benefit obligation related to the Canadian Postretirement Benefit Plan are as follows:
|
| As of December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Discount rate |
|
| 4.60 | % |
|
| 5.00 | % |
|
| 2.80 | % |
|
| As of December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Discount rate |
|
| 2.30 | % |
|
| 3.05 | % |
|
| 3.35 | % |
For the years ended December 31, 2020, 20192023, 2022, and 2018,2021, the weighted average assumptions used to determine the net postretirement benefit expense related to the Canadian Postretirement Benefit Plan are as follows:
|
| Years Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Discount rate |
|
| 5.00 | % |
|
| 2.80 | % |
|
| 2.30 | % |
|
| Years Ended December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Discount rate |
|
| 3.05 | % |
|
| 3.80 | % |
|
| 3.35 | % |
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 and thereafter following the December 31, 20202023 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 |
|
2021 |
| $ | 118 |
|
2022 |
|
| 119 |
|
2023 |
|
| 118 |
|
2024 |
|
| 118 |
|
2025 |
|
| 115 |
|
Thereafter |
|
| 1,654 |
|
Total |
| $ | 2,242 |
|
144
|
|
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 the fourth quarter of 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 and the accelerated costs were recognized and reflected in Executive Transition Costs in the Consolidated Statements of Operations.2018.
As of December 31, 2020,2023, the benefit obligation related to the Retirement Plan was $3.7$4.1 million (December 31, 20192022 — $3.6$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 Expenses.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, 2020,2023, fair value of the COLI asset was $3.2$3.5 million (December 31, 20192022 — $3.2$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 Gain (Loss) In Fair ValueRealized 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.
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 receives 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 Investments.$0.8 million and $1.7 million for the years ended December 2022 and 2021, respectively.
24.25. Non-Controlling Interests
|
|
TheAs of December 31, 2023, the Company indirectly owns 69.89%71.55% of IMAX China, whose shares trade on the Hong Kong Stock Exchange.Exchange (December 31, 2022 — 71.73%). IMAX China remains a consolidated subsidiary of the Company. The balance of non-controlling interest in IMAX China as of December 31, 20202023 is $78.5 million.$71.8 million (December 31, 2022 — $65.7 million). The net lossincome attributable to the Company’s non-controlling interest inof IMAX China for the year ended December 31, 20202023 is $(8.6) million.$7.8 million (2022 — $3.0 million; 2021 — $12.8 million).
|
|
The Company’s Original Film Fund was established in 2014 to co-finance a portfolio of 10 original large-format films. The initial investment in the Original Film Fund was committed by a third party in the amount of $25.0$25.0 million, with the possibility of contributing additional funds. The Company has contributed $9.0$9.0 million to the Original Film Fund since 2014, and has reached its maximum contribution. Through December 31, 2020,2023, the Original Film Fund has invested $22.3$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 the co-financed pictures.
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
145
|
|
The following summarizes the movement of the non-controlling interest in temporary equity, in the Original Film Fund for the years ended December 31, 2020, 20192023, 2022 and 2018.2021:
(In thousands of U.S. Dollars) |
|
|
| |
Balance as of January 1, 2021 |
| $ | 759 |
|
Net loss |
|
| (1 | ) |
Balance as of December 31, 2021 |
|
| 758 |
|
Net loss |
|
| (36 | ) |
Balance as of December 31, 2022 |
|
| 722 |
|
Net loss |
|
| (64 | ) |
Balance as of December 31, 2023 |
| $ | 658 |
|
Balance as of January 1, 2018 |
| $ | 1,353 |
|
Issuance of subsidiary shares to non-controlling interests |
| $ | 7,796 |
|
Net loss |
|
| (2,710 | ) |
Balance as of December 31, 2018 |
| $ | 6,439 |
|
Return of capital to non-controlling interests |
| $ | (243 | ) |
Share issuance costs from the issuance of subsidiary shares to a non-controlling interest |
|
| 1,350 |
|
Net loss |
|
| (1,638 | ) |
Balance as of December 31, 2019 |
| $ | 5,908 |
|
Return of capital to non-controlling interests |
|
| (10 | ) |
Net loss |
|
| (5,139 | ) |
Balance as of December 31, 2020 |
| $ | 759 |
|
25.26. Restructuring and Executive Transition Costs
In 2018,March 2023, the Company recognized Executive Transition Costs of $3.0 million associated withand the separation from service of the former CEO ofPresident, IMAX Entertainment and Senior Executive Vice President of the Company. These costs include $1.9 million of accelerated costs relatedCompany, (the “President”) agreed to retirement benefits which became vested in full uponconclude the separation from service. In addition, expenses of $1.1 million were recorded within Executive Transition Costs for severance, bonus and share-based compensation relatingPresident’s employment with the Company, effective April 30, 2023. Pursuant to the exitemployment agreement between the Company and the President, dated as of thisOctober 10, 2018, and other executives. NaN such charges were incurred in the years ended December 31, 2020letter agreement between the Company and 2019.
26. Exit Costs, Restructuring Charges and Associated Impairments
Thethe President, dated as of March 15, 2023, the Company recognized executive transition costs of $1.4 million associated with the following charges in its Consolidated Statementsdeparture of Operations for the years ended December 31, 2020, 2019 and 2018:
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Restructuring charges |
| $ | — |
|
| $ | 628 |
|
| $ | 2,405 |
|
Asset impairments |
|
| — |
|
|
| — |
|
|
| 6,432 |
|
Costs to exit lease and restore facilities |
|
| — |
|
|
| 222 |
|
|
| 619 |
|
Other |
|
| — |
|
|
| — |
|
|
| 86 |
|
|
| $ | — |
|
| $ | 850 |
|
| $ | 9,542 |
|
|
|
In December 2018, the Company announced that it would be closing all remaining VR locations and, as a result, recognized New Business Initiatives segment expensePresident. The costs included severance of $0.2$1.6 million, transition services covering three months of $0.8 million, and $0.6 million for the years ended December 31, 2019 and 2018, respectively, reflecting the valuereversal of the remaining non-cancelable lease obligations for the closed VR location. NaN such costs were incurred in 2020.
|
|
Restructuring charges are comprised of employee severance costs including benefits andpreviously recognized share-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. A liability$1.0 million for a cost associated with an exit or disposal activity is recognized and measured at its fair value in the Company’s Consolidated Statements of Operations in the period in which the liability is incurred. When estimating the value of facility restructuring activities, assumptions are applied regarding estimated sub-lease payments to be received, which can differ from actual results.PSU forfeitures.
In December 2018, the Company performed a strategic review of its virtual reality pilot initiative and decided to close its remaining VR locations. In addition, as part of the Company’s ongoing efforts to decrease costs, the Company reduced certain functions and realigned resources.
146
In connection with these restructuring initiatives,2023, the Company incurred $0.6 million and $2.4$1.3 million in restructuring charges for the years ended December 31, 2019 and December 31, 2018, respectively. NaN such costs were incurred in 2020. A summary ofconnection with the restructuring costs incurred during the years ended December 31, 2020, 2019of other employees to capture efficiencies and 2018 are as follows:
(In thousands of U.S. Dollars) |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Corporate |
| $ | — |
|
| $ | 628 |
|
| $ | 1,529 |
|
New Business Initiatives |
|
| — |
|
|
| — |
|
|
| 611 |
|
Other |
|
| — |
|
|
| — |
|
|
| 215 |
|
IMAX DMR |
|
| — |
|
|
| — |
|
|
| 50 |
|
|
| $ | — |
|
| $ | 628 |
|
| $ | 2,405 |
|
The following table sets forth a summary of restructuring accrual activities for the years ended December 31, 2020centralize certain operational roles. These charges have been recognized in Restructuring and 2019:
|
| ||||
|
|
| |||
|
| ||||
|
|
| |||
|
|
| |||
|
|
| |||
|
|
|
|
|
As a result of the cost reduction plan discussed above, the Company recognizedExecutive Transition costs associated with the retirement of certain long-lived assets. The following impairments for the year ended December 31, 2018 are a direct result of the exit activities described in (a) above. In the years ended December 31, 2020 and 2019, the Company did not recognize any associated impairments.
(In thousands of U.S. Dollars) |
|
| 2020 |
|
|
| 2019 |
|
|
| 2018 |
| |||
Property, plant and equipment |
| $ |
| — |
|
| $ |
| — |
|
| $ |
| 3,680 |
|
Other assets |
|
|
| — |
|
|
|
| — |
|
|
|
| 2,565 |
|
Prepaid expenses |
|
|
| — |
|
|
|
| — |
|
|
|
| 121 |
|
Intangible assets |
|
|
| — |
|
|
|
| — |
|
|
|
| 66 |
|
|
| $ |
| — |
|
| $ |
| — |
|
| $ |
| 6,432 |
|
147
27. Selected Quarterly Financial Information (Unaudited)
|
| 2020 |
| |||||||||||||
(in thousands of U.S. Dollars, except per share amounts) | Q1 |
|
| Q2 |
|
| Q3 |
|
| Q4 |
| |||||
Revenues |
| $ | 34,902 |
|
| $ | 8,855 |
|
| $ | 37,256 |
|
| $ | 55,990 |
|
Costs and expenses applicable to revenues |
|
| 29,816 |
|
|
| 16,543 |
|
|
| 33,427 |
|
|
| 35,677 |
|
Gross margin (margin loss) |
| $ | 5,086 |
|
| $ | (7,688 | ) |
| $ | 3,829 |
|
| $ | 20,313 |
|
Net loss |
| $ | (59,411 | ) |
| $ | (30,047 | ) |
| $ | (48,484 | ) |
| $ | (19,544 | ) |
Net loss attributable to common shareholders |
| $ | (49,354 | ) |
| $ | (25,967 | ) |
| $ | (47,209 | ) |
| $ | (21,245 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic & diluted |
| $ | (0.82 | ) |
| $ | (0.44 | ) |
| $ | (0.80 | ) |
| $ | (0.36 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2019 |
| |||||||||||||
(in thousands of U.S. Dollars, except per share amounts) | Q1 |
|
| Q2 |
|
| Q3 |
|
| Q4 |
| |||||
Revenues |
| $ | 80,198 |
|
| $ | 104,797 |
|
| $ | 86,390 |
|
| $ | 124,279 |
|
Costs and expenses applicable to revenues |
|
| 35,058 |
|
|
| 45,244 |
|
|
| 39,270 |
|
|
| 61,920 |
|
Gross margin |
| $ | 45,140 |
|
| $ | 59,553 |
|
| $ | 47,120 |
|
| $ | 62,359 |
|
Net income |
| $ | 12,487 |
|
| $ | 13,836 |
|
| $ | 10,896 |
|
| $ | 21,352 |
|
Net income attributable to common shareholders |
| $ | 8,265 |
|
| $ | 11,397 |
|
| $ | 9,033 |
|
| $ | 18,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share - basic & diluted |
| $ | 0.13 |
|
| $ | 0.19 |
|
| $ | 0.15 |
|
| $ | 0.29 |
|
28. Reclassification of Prior Year Amounts
In the current year, the Company presented Credit Loss Expense separately from Write-downs on the Consolidated Statements of Cash Flows. In addition,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 documentary 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 current year, Loss From Equity-Accounted Investmentsfilm is approximately $2.6 million, of which CICG is responsible for $0.3 million or 10%. The Company and (Gain) Loss on Non-Cash ContributionBeach House have agreed to Equity-Accounted Investees have been combined into Equityfinance $1.7 million or 75% and $0.6 million or 25% of the remaining budget, respectively. As of December 31, 2023, the Company has made payments of $1.0 million under the agreement. On February 8, 2024, Blue Ant sold 100% of its interest in Losses (Income) of Investees on the Consolidated Statements of Cash Flows.Beach House.
137
148
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
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 1934 Rules 13a-15(e) or 15d-15(e)) as of December 31, 20202023 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 of December 31, 2020, and has concluded that such internal control over financial reporting were effective as of that date.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, an independent registered public accounting firm, audited the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020,2023, as stated in their report, which appears in Part II, 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, 2020,2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company has not experienced any material impact to its internal control over financial reporting despite the fact that most of its employees are working remotely due to the COVID-19 pandemic. The Company will continue to monitor the evolving COVID-19 situation to minimize its impact on the design and operating effectiveness
Item 9B. Other Information
149
Item 9 B.9C. Other InformationDisclosure Regarding Foreign Jurisdictions that Prevent Inspections
Our Amended and Restated By-Law No. 1 became effective on March 4, 2021, following approval by our board of directors on the same date. By-Law No. 1 was amended by the Amended and Restated By-Law No. 1 to (i) include provisions to allow us to hold shareholder meetings by means of a telephonic, electronic or other communication facility, and for shareholders to be present at such meeting by such means for purposes of establishing a quorum, (ii) require that a nominating shareholder include the country of residence of a director, including their Canadian residency status, in the notice nominating a director for election, (iii) specify that attendance at a meeting by a person constitutes a waiver of notice of the meeting, except where the attendance is for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called, and (iv) include certain other clarifying updates. The amendment is subject to confirmation by majority vote of our shareholders at the next annual general meeting to be held in June 2021. Absent such confirmation, the Amended and Restated By-Law No. 1 will cease to be effective and we will become subject to By-Law No.1 as it was in effect prior to March 4, 2021.N/A.
150138
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 Fiscal Year-End;” “Option Exercise and Stock Vested;” “Pension Benefits;” “Employment Agreements and Potential“Pay Ratio Disclosure;” “Potential Payments upon Termination or Change-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’s Pre-Approval Policies and Procedures.”
151
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)(1) Financial Statements and Schedules
The Consolidated 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 the financial statements, the accompanying notes to the financial statement schedule in (a)(2)statements and the Company’s internal control over financial reporting, is included under Part II, Item 8.
139
(b) Exhibits
(a)(2) Financial Statement Schedules
140
141
Exhibit No. |
| Description |
| Form |
| File No |
| Exhibit |
| Filing Date |
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10.38 |
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| 10-Q |
| 001-35066 |
| 10.5 |
| 4/29/21 | |
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10.39 |
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| 10-Q |
| 001-35066 |
| 10.6 |
| 4/29/21 | |
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10.40 |
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| 10-Q |
| 001-35066 |
| 10.7 |
| 4/29/21 | |
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10.41 |
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| 10-Q |
| 001-35066 |
| 10.8 |
| 4/29/21 | |
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*21.1 |
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*23.1 |
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*24.1 |
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*31.1 |
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*97.1 |
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*101.INS |
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*101.CAL |
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*101.LAB |
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*101.PRE |
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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, 2020.* Filed herewith
II. Valuation and Qualifying Accounts.
(a)(3) Exhibits
The items listed as Exhibits 10.1 to 10.43, 10.47, 10.48 and 10.51 relate to management contracts+ Management contract or compensatory plansplan, contract or arrangements.arrangement
Exhibit No. |
| Description |
| Form |
| File No |
| Exhibit |
| Filing Date |
|
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3.1 |
| Restated Articles of Incorporation of IMAX Corporation, dated July 30, 2013. |
| 10-Q |
| 001-35066 |
| 3.1 |
| 10/24/13 |
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*3.2 |
| Amended and Restated By-Law No. 1 of IMAX Corporation, enacted on March 4, 2021. |
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4.1 |
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| 001-35066 |
| 4.1 |
| 2/21/13 | |
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4.2 |
| Amendment, dated as of March 1, 1994, to the Selling Shareholders’ Agreement. |
| 10-K |
| 001-35066 |
| 4.2 |
| 2/21/13 |
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4.3 |
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| 001-35066 |
| 4.3 |
| 2/21/13 | |
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4.4 |
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| 001-35066 |
| 4.4 |
| 2/19/20 | |
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10.1 |
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| 001-35066 |
| 10.1 |
| 2/24/16 | |
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10.2 |
| IMAX Corporation Amended and Restated Long Term Incentive Plan, dated June 6, 2016. |
| 8-K |
| 001-35066 |
| 10.1 |
| 6/7/16 |
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10.3 |
| IMAX Corporation Second Amended and Restated Long-Term Incentive Plan, dated June 3, 2020. |
| 8-K |
| 001-35066 |
| 10.1 |
| 6/5/20 |
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10.4 |
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| 10-Q |
| 001-35066 |
| 10.41 |
| 7/20/16 | |
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10.5 |
| IMAX Corporation Form of Restricted Stock Unit Award Agreement. |
| 10-K |
| 001-35066 |
| 10.4 |
| 2/19/20 |
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10.6 |
| IMAX Corporation Form of Performance Stock Unit Award Agreement. |
| 10-K |
| 001-35066 |
| 10.5 |
| 2/19/20 |
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10.7 |
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| 10-K |
| 001-35066 |
| 10.2 |
| 2/21/13 | |
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152
153
154
Exhibit No. |
| Description |
| Form |
| File No |
| Exhibit |
| Filing Date |
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10.48 |
| Amended Employment Agreement, dated September 28, 2018, between IMAX Corporation and Don Savant. |
| 10-Q |
| 001-35066 |
| 10.40 |
| 10/25/18 |
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10.49 |
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| 10-Q |
| 001-35066 |
| 10.38 |
| 7/25/18 | |
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10.50 |
| First Amendment to Fifth Amendment and Restated Credit Agreement entered into on June 10, 2020. |
| 8-K |
| 001-35066 |
| 10.1 |
| 6/11/20 |
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10.51 |
|
| 10-Q |
| 001-35066 |
| 10.39 |
| 7/25/18 | |
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*21 |
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*23 |
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*24 |
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*31.1 |
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*31.2 |
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*32.1 |
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*32.2 |
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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 | ||||||||
*101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||||||||
*101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document | ||||||||
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*101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document | ||||||||
*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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*Filed herewith
Item 16. Form 10-K Summary
Not applicable.
142
SIGNATURES
155
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/ | |||
| ||||
Chief Financial Officer |
Date: March 4, 2021February 27, 2024
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 March 4, 2021.February 27, 2024.
/s/ RICHARD L. GELFOND | /s/ | /s/ | ||
Richard L. Gelfond Chief Executive Officer & Director (Principal Executive Officer) |
Chief Financial Officer & Executive
(Principal Financial Officer) |
Senior
(Principal Accounting Officer) | ||
* | * | * | ||
Chairman of the Board & Director |
Director | Eric A. Demirian Director | ||
* | * | * | ||
Kevin Douglas Director | David W. Leebron Director | Michael MacMillan Director | ||
* | * | * | ||
Director |
|
|
| Dana Settle Director | Jennifer Wong Director |
By | * /s/ NATASHA FERNANDES | |||
| ||||
|
156
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 credit losses related to net investment in leases |
|
|
|
|
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|
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|
Year ended December 31, 2018 |
| $ | 155 |
|
| $ | — |
|
| $ | — |
|
| $ | 155 |
|
Year ended December 31, 2019 |
| $ | 155 |
|
| $ | — |
|
| $ | — |
|
| $ | 155 |
|
Year ended December 31, 2020 |
| $ | 155 |
|
| $ | 451 |
|
| $ | (49 | ) |
| $ | 557 |
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
Allowance for credit losses related to financed sale receivables |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2018 |
| $ | 922 |
|
| $ | (83 | ) |
| $ | — |
|
| $ | 839 |
|
Year ended December 31, 2019 |
| $ | 839 |
|
| $ | 76 |
|
| $ | — |
|
| $ | 915 |
|
Year ended December 31, 2020 |
| $ | 915 |
|
| $ | 6,574 |
|
| $ | (215 | ) |
| $ | 7,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses related to doubtful accounts receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2018 |
| $ | 1,613 |
|
| $ | 3,030 |
|
| $ | (1,469 | ) |
| $ | 3,174 |
|
Year ended December 31, 2019 |
| $ | 3,174 |
|
| $ | 2,354 |
|
| $ | (390 | ) |
| $ | 5,138 |
|
Year ended December 31, 2020 |
| $ | 5,138 |
|
| $ | 9,708 |
|
| $ | (551 | ) |
| $ | 14,295 |
|
|
|
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|
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Allowance for credit losses related to variable consideration receivables |
|
|
|
|
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|
|
Year ended December 31, 2018 |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Year ended December 31, 2019 |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Year ended December 31, 2020 |
| $ | — |
|
| $ | 1,875 |
|
| $ | 12 |
|
| $ | 1,887 |
|
|
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|
|
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Inventories valuation allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2018 |
| $ | 3,886 |
|
| $ | 250 |
|
| $ | (251 | ) |
| $ | 3,885 |
|
Year ended December 31, 2019 |
| $ | 3,885 |
|
| $ | 446 |
|
| $ | (1,115 | ) |
| $ | 3,216 |
|
Year ended December 31, 2020 |
| $ | 3,216 |
|
| $ | 3,028 |
|
| $ | (492 | ) |
| $ | 5,752 |
|
|
|
|
|
|
|
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Deferred income tax valuation allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2018 |
| $ | 197 |
|
| $ | — |
|
| $ | — |
|
| $ | 197 |
|
Year ended December 31, 2019 |
| $ | 197 |
|
| $ | — |
|
| $ | — |
|
| $ | 197 |
|
Year ended December 31, 2020 |
| $ | 197 |
|
| $ | 28,589 |
|
| $ | — |
|
| $ | 28,786 |
|
|
| (as attorney-in-fact) |
143
157