UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form10-Q

(Mark One)

For the quarterly period ended September 30, 2017March 31, 2019

OR

Commission fileFile Number001-35066

IMAX Corporation

(Exact name of registrant as specified in its charter)

(Address of principal executive offices, zip code, telephone numbers)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

(Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-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” inRule 12b-2 of the Exchange Act. (Check one):

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 is a shell Company (as defined inRule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

Indicate the number of outstanding shares of each of the issuer’s classes of common stock, as of the latest practicable date:

IMAX CORPORATION

Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION

Certain statements included in this quarterly report may constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, references to future capital expenditures (including the amount and nature thereof), business and technology strategies and measures to implement strategies, competitive strengths, goals, expansion and growth of business, operations and technology, plans and references to the future success of IMAX Corporation together with its consolidated subsidiaries (the “Company”) and expectations regarding the Company’s future operating, financial and technological results. These forward-looking statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. However, whether actual results and developments will conform with the expectations and predictions of the Company is subject to a number of risks and uncertainties, including, but not limited to, risks associated with investments and operations in foreign jurisdictions and any future international expansion, including those related to economic, political and regulatory policies of local governments and laws and policies of the United States and Canada; risks related to the Company’s growth and operations in China; the performance of IMAX DMR films; the signing of theater system agreements; conditions, changes and developments in the commercial exhibition industry; risks related to currency fluctuations; the potential impact of increased competition in the markets within which the Company operates; competitive actions by other companies; the failure to respond to change and advancements in digital technology; the Company’s largest customer accounting for a significant portion of the Company’s revenuerisks relating to recent consolidation among commercial exhibitors and backlog;studios; risks related to new business initiatives; conditions in thein-home andout-of-home entertainment industries; the opportunities (or lack thereof) that may be presented to and pursued by the Company; risks related to cyber-security;cyber-security and data privacy; risks related to the Company’s inability to protect the Company’s intellectual property; general economic, market or business conditions; the failure to convert theater system backlog into revenue; changes in laws or regulations; the failure to fully realize the projected cost savings and benefits from any of the Company’s restructuring initiative;initiatives; and other factors, many of which are beyond the control of the Company. Consequently, all of the forward-looking statements made in this quarterly 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 Company undertakes no obligation to update publicly or otherwise revise any forward-looking information, whether as a result of new information, future events or otherwise.

IMAX^®, IMAX^® Dome, IMAX^® 3D, IMAX^® 3D Dome, Experience It In IMAX^®,TheIMAXExperience^®,AnIMAXExperience^®,AnIMAX3D Experience^®, IMAX DMR^®, DMR^®, IMAX nXos^®, IMAX think big^®, think big^® and IMAX Is Believing^®, are trademarks and trade names of the Company or its subsidiaries that are registered or otherwise protected under laws of various jurisdictions.

IMAX CORPORATION

IMAX CORPORATION

PART I. FINANCIAL INFORMATION

IMAX CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of U.S. dollars)

(Unaudited)

(the accompanying notes are an integral part of these condensed consolidated financial statements)

IMAX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands of U.S. dollars, except per share amounts)

(Unaudited)

(the accompanying notes are an integral part of these condensed consolidated financial statements)

IMAX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands of U.S. dollars)

(Unaudited)

(the accompanying notes are an integral part of these condensed consolidated financial statements)

IMAX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars)

(Unaudited)

(the accompanying notes are an integral part of these condensed consolidated financial statements)

IMAX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands of U.S. dollars)

(Unaudited)

(The accompanying notes are an integral part of these condensed consolidated financial statements)

IMAX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands of U.S. dollars, unless otherwise stated)

(Unaudited)

IMAX Corporation, together with its consolidated subsidiaries (the “Company”), prepares its financial statements in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP”).

TheThese condensed consolidated financial statements include the accounts of the Company, together with its consolidated subsidiaries, except for subsidiaries which the Company has identified as variable interest entities (“VIEs”) where the Company is not the primary beneficiary. The nature of the Company’s business is such that the results of operations for the interim periods presented are not necessarily indicative of results to be expected for the fiscal year. In the opinion of management, the information contained herein reflects all normal and recurring adjustments necessary to make the results of operations for the interim periods a fair statement of such operations.

The Company has evaluated its various variable interests to determine whether they are VIEs as required by the Consolidation Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC” or “Codification”).

The Company has nineten film production companies that are VIEs. For fourfive of the Company’s film production companies, the Company has determined that it is the primary beneficiary of these entities as the Company has the power to direct the activities of the respective VIE that most significantly impact the respective VIE’s economic performance and has the obligation to absorb losses of the VIE that could potentially be significant to the respective VIE or the right to receive benefits from the respective VIE that could potentially be significant to the respective VIE. The majority of these consolidated assets are held by the IMAX Original Film Fund (the “Original Film Fund”) as described in note 17(b)16(b). For the other five film production companies which are VIEs, the Company diddoes not consolidate these film entities since it does not have the power to direct activities and does not absorb the majority of the expected losses or expected residual returns. The Company used the equity accountsmethod of accounting for these entities. A loss in value of an investment other than a temporary decline is recognized as a charge to the condensed consolidated statements of operations.

Total assets and liabilities of the Company’s consolidated VIEs are as follows:

Total assets and liabilities of the VIE entities which the Company does not consolidate are as follows:

The Company’s exposure, which is determined based on the level of funding contributed by the Company and the development stage of the respective film, is $nil at September 30, 2017 (December 31, 2016 — $nil).

The Company accounts for investments in new business ventures using the guidance of the FASB ASC 323 “Investments – Equity Method and Joint Ventures” (“ASC 323”) or ASC 320 “Investments in Debt and Equity Securities” (“ASC 320”), as appropriate.

All intercompany accounts and transactions, including all unrealized intercompany profits on transactions with equity-accounted investees, have been eliminated.

Theyear-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP.

These interim financial statements should be read in conjunction with the consolidated financial statements included in the Company’s 20162018 Annual Report onForm 10-K for the year ended December 31, 20162018 (“the 20162018Form 10-K”) which should be consulted for a summary of the significant accounting policies utilized by the Company. These interim financial statements are

prepared following accounting policies consistent with the Company’s financial statements for the year ended December 31, 2016,2018, except as noted below. Certain prior period information has been revised to reflect the current period information.

Adoption of New Accounting Policies

The Company adopted several standards including the following material standards on January 1, 2017,2019, which are effective for annual periods ending after December 31, 2016,2018, and for annual and interim periods thereafter.

In July 2015,2016, the FASB issued ASU2016-02, “Leases (Topic 842)” (“ASC Topic 842”). The Company adopted2016-02 and several associated ASUs on January 1, 2019. See note 3 for a further discussion of the Company’s adoption of ASC Topic 842.

In January 2017, the FASB issued ASUNo. 2015-11,2017-04, “Inventory“Intangibles – Goodwill and Other (Topic 330)350): Simplifying the Measurement of Inventory”Test for Goodwill Impairment” (“ASU2015-11”2017-04”). The purpose of the amendment is to more closely align the measurement of inventory in U.S. GAAP with the measurement of inventory in International Financial Reporting Standards. Under the ASU inventory is measured at the lower of cost and net realizable value. The clarifications are not intended to result in any changes in practice and to reduce the complexity in guidance on the subsequent measurement of inventory. This standard only applies to inventory being measured using thefirst-in,first-out or average cost methods of accounting for inventory. The adoption of ASU2015-11this standard will be applied prospectively and did not have ana material impact toon the Company’s condensed consolidated financial statements.

In March 2016,December 2017, the FASB issued ASUNo. 2016-05,2017-12, “Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing HedgeTargeted Improvements to Accounting Relationships”for Hedging Activities” (“ASU2016-05”2017-12”). The amendments in ASU2016-05 apply to all reporting entities for which there is a change in the counterparty to a derivative instrument that has been designated as a hedging instrument under Topic 815. The amendments clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815 does not, in and of itself, requirede-designation of that hedging relationship provided that all other hedge accounting criteria (including those in paragraphs815-20-35-14 through35-18) continue to be met. The adoption of this ASU2016-05standard will be applied prospectively and did not have an impact toon the Company, see note 15(d) for additional disclosure regarding the Company’s condensed consolidated financial statements.hedging arrangements.

In March 2016, the FASB issued ASUNo. 2016-07, “Investments – Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting” (“ASU2016-07”). The purpose of the amendment is to eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on astep-by step basis as if the equity method had been in effect during all previous periods that the investment had been held. The adoption of ASU2016-07 did not have an impact to the Company’s condensed consolidated financial statements.

In October 2016, the FASB issued ASUNo. 2016-16, “Income Taxes (Topic 740)”. The purpose of ASU2016-16 is to eliminate the exception for an intra-entity transfer of an asset other than inventory. The amendments require the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The Company elected to early adopt ASU2016-16 during the first quarter of 2017. The impact from the adoption was reflected in the Company’s condensed consolidated financial statements on a modified retrospective basis resulting in an increase to Accumulated deficit of $8.3 million, a decrease to Other assets of $14.8 million, an increase to Deferred taxes of $7.9 million and an increase to Accrued and other liabilities of $1.4 million.

In October 2016, the FASB issued ASUNo. 2016-17, “Consolidation (Topic 810)”. The purpose of ASU2016-17 is to update the requirement of the reporting entity, in determining whether it satisfies the second characteristic of a primary beneficiary, to include all of its direct variable interests in a VIE and, on a proportionate basis, its indirect variable interests in a VIE held through related parties, including related parties that are under common control with the reporting entity. The adoption of ASU2016-17 did not have an impact to the Company’s condensed consolidated financial statements.

Recently Issued FASB Accounting Standard Codification Updates

In February 2016,March 2019, the FASB issued ASUNo. 2016-02,2019-02, “Leases (Topic 842)“Entertainment—Films—Other Assets—Film Costs (Subtopic926-20) and Entertainment—Broadcasters—Intangibles—Goodwill and Other (Subtopic920-350)” (“ASU2016-02”2019-02”). The purpose of the amendmentASU2019-02 is to help investors and other financial statement users better understandalign the amount, timing, and uncertaintyaccounting for production costs of cash flows arising from leases. New disclosures will include qualitative and quantitative requirementsan episodic television series with the accounting for production costs of films by removing the content distinction for capitalization, as well as requiring an entity to provide additional information aboutreassess estimates of the amounts recordeduse of a film in the financial statements. Lessor accounting will remain largely unchanged from current guidance; however,a film group. In addition, ASU2016-022019-02 will provide improvements that are intendedrequire an entity to align lessor accountingtest for impairment at a film group level if it is predominantly monetized with the lessee modelother films. Amendments in this update would be applied prospectively, and with updated revenue recognition guidance. Forfor public entities, the amendments in ASU2016-022019-02 are effective for interim and annual reporting periods beginning after December 15, 2018. As a lessor,2019. The Company is currently assessing the Company has a significant portion of its revenue derived from leases, including its joint revenue sharing arrangements, and while the lessor accounting model is not fundamentally different, the Company continues to evaluate the effect of the standard on this revenue stream.

In March 2016, the FASB issued ASUNo. 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations” (“ASU2016-08”). The purposeimpact of ASU2016-082019-02 is to clarify the implementation of guidance on principal versus agent considerations.

In April 2016, the FASB issued ASUNo. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” (“ASU2016-10”). The purpose of ASU2016-10 is to provide more detailed guidance in the following key areas: identifying performance obligations and licenses of intellectual property.

In May 2016, the FASB issued ASUNo. 2016-11, to rescind from the FASB Accounting Standards Codification certain SEC paragraphs as a result of two SEC Staff Announcements at the March 3, 2016 meeting.

In May 2016, the FASB issued ASUNo. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” (“ASU2016-12”). The purpose of ASU2016-12 is to clarify certain narrow aspects of Topic 606 such as assessing the collectibility criterion, presentation of sales taxes and other similar taxes collected from customers, noncash consideration, contract modifications at transition, completed contracts at transition, and technical corrections.

In December 2016, the FASB issued ASUNo. 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers”. The amendments in ASU2016-20 represent changes to clarify the accounting standard codification, correct unintended application of guidance, or make minor improvements to the accounting standards codification that are related to Topic 606, Revenue from Contracts with Customers.

For public companies, ASU2016-08, ASU2016-10, ASU2016-11, ASU2016-12 and ASU2016-20, which are all related to Topic 606, are effective for interim and annual reporting periods beginning after December 15, 2017. The Company has performed an analysis of its contracts to determine those in scope of the standard, has performed detailed analyses of those contracts and identified its performance obligations. At this time, the Company does not believe its future distinct performance obligations will be significantly different from its current deliverables, including its existing system deliverable. The Company has also determined that its revenues from the DigitalRe-mastering (“DMR”) of films, theater system hybrid sales and sales contracts will be impacted to varying degrees by the inclusion of variable consideration in the calculation of contract consideration. Revenues from film distribution are expected to use the sales-based royalty model of revenue recognition and as a result, the Company does not expect a significant difference from the current revenue recognition methodology. Revenue recognition practices for aftermarket sales, new business and owned and operated theaters are not expected to change. Hybrid sales revenues will increase by an estimated amount of variable consideration earned from gross box office over the term of the arrangement, appropriately constrained on account of the extent of time until resolution of the contingency. Sales contract consideration will also increase by a component of variable consideration for consumer price index increases and gross box office returns, though the Company does not expect the number to be significant to any one contract. The Company currently intends to adopt the new standard using the modified retrospective method and continues to make considerable progress in gathering historical information on its contracts in preparation applying the opening adjustment and for preparing the standard’s expanded disclosure requirements.condensed consolidated financial statements.

In June 2016, the FASB issued ASUNo. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU2016-13”). The purpose of ASU2016-13 is to require a financial asset measured on the amortized cost basis to be presented at the net amount expected to be collected. Credit losses relating toavailable-for-sale debt securities should be recorded through an allowance for credit losses. For public entities, the amendments in ASU2016-13 are effective for interim and annual reporting periods beginning after December 15, 2019. The Company is currently assessing the impact of ASU2016-13 on its condensed consolidated financial statements.

In January 2017, the FASB issued ASUNo. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU2017-01”). The purpose of the amendment is to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. For public entities, the amendments in ASU2017-01 are effective for interim and annual reporting periods beginning after December 15, 2017. The Company is currently assessing the impact of ASU2017-01 on its condensed consolidated financial statements.

In January 2017, the FASB issued ASUNo. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU2017-04”). The purpose of the amendment is to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. For public entities, the amendments in ASU2017-04 are effective for interim and annual reporting periods beginning after December 15, 2019. The Company is currently assessing the impact of ASU2017-04 on its condensed consolidated financial statements.

In March 2017, the FASB issued ASUNo. 2017-07, “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (“ASU2017-07”). The amendment requires the service cost component of net periodic benefit cost be presented in the same income statement line item as other employee compensation costs arising from services rendered during the period and other components of the net periodic benefit cost be presented separately from the line item that includes the service cost and outside of any subtotal of operating income. For public entities, the amendments in ASU2017-07 are effective for interim and annual reporting periods beginning after December 15, 2017. The Company is currently assessing the impact of ASU2017-07 on its condensed consolidated financial statements.

In May 2017, the FASB issued ASUNo. 2017-09, “Compensation - Stock compensation (Topic 718): Scope of modification accounting” (“ASU2017-09”). The purpose of the amendment is to clarify which changes to the terms or condition of a share-based payment award require an entity to apply modification accounting. For all entities that offer share based payment awards, ASU2017-09 are effective for interim and annual reporting periods beginning after December 15, 2017. The Company is currently assessing the impact of ASU2017-09 on its condensed consolidated financial statements.

In August 2017, the FASB issued ASUNo. 2017-12, “Derivatives and Hedging (Topic 815)”. The purpose of the amendment is to better align the results of cash flow and fair value hedge accounting with risk management activities through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results in the financial statements. For public entities, the amendments in ASU2017-12 are effective for interim and annual reporting periods beginning after December 15, 2018. The Company is currently assessing the impact of ASU2017-12 on its condensed 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 condensed consolidated financial statements for the period ended September 30, 2017.March 31, 2019.

On January 1, 2019, the Company adopted ASC Topic 842 “Leases”. The standard was issued to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases.

As a lessee, the adoption of the standard resulted in the Company recording a net increase to net lease assets and lease liabilities of approximately $17.5 million as at January 1, 2019. The grossright-of-use assets and lease liabilities amounted to $20.0 million, while prepaid expenses of less than $0.1 million and unamortized lease inducements and other accruals of $2.5 million were reclassed from accrued liabilities to offset the applicableright-of-use asset. The Company mainly leases office and warehouse storage space. Office equipment is generally purchased outright. Adoption of ASC Topic 842 did not change the lease classification of its leases. The leases continue to be classified as operating leases similar to the 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 cash flows.

As a lessor, a number of the Company’s leases of IMAX theater systems are classified as sales-type leases. The accounting treatment of its lease arrangements for IMAX theater systems has not changed under Topic ASC 842 as compared to guidance under ASC Topic 840, as the Company has very few sales-type leases with variable consideration tied to an index.

The Company adopted ASC Topic 842, utilizing the modified retrospective transition method, which allowed the Company to adopt the standard as of the date of initial application. Prior year comparative amounts are not required to be restated and are presented in accordance with ASC Topic 840, “Leases” or other applicable standards effective prior to January 1, 2019. The Company has elected the ‘package of practical expedients’ permitted under the transition guidance within ASC Topic 842, which permits the Company to carry forward the historical lease classification and not reassess whether any expired or existing contracts are or contain leases. In addition, the Company is not required to reassess initial direct costs for any 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 for all leases that qualify. As a result, for those leases with a term of less than 12 months, it will not recognizeright-of-use assets or lease liabilities. The Company also elected the practical expedient to not separate lease andnon-lease components for all of its leases regardless of whether the Company is the lessee or a lessor to the lease.

The following table presents the impact from the adoption of ASC Topic 842 on the Company’s assets and liabilities in the condensed consolidated balance sheet:

IMAX Corporation as a Lessor:

A number of the Company’s leases are classified as sales-type leases for transactions related to the lease of IMAX theater systems. 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 lease arrangements are described in note 2(m) in the Company’s 2018 Form10-K. The Company classifies its lease arrangements at inception of the arrangement and, if required, after a modification of the lease arrangement, to determine whether they are sales-type leases or operating leases. Under the Company’s 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 aretypically non-cancellable for 10 to 20 years with renewal provisions from inception. Except for those sales arrangements that are classified as sales-type leases, the Company’s leases generally do not contain an automatic transfer of title at the end of the lease term. The Company’s 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 extended warranty generally after the first year of the lease until the end of the lease term. The customer is responsible for obtaining insurance coverage for the theater systems commencing on the date specified in the arrangement’s shipping terms and ending on the date the theater systems are delivered back to the Company.

The Company has assessed the nature of its joint revenue sharing arrangements and concluded that, based on the guidance in the Revenue Recognition Topic of the ASC, the arrangements contain a lease. 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 aretypically non-cancellable for 10 years or longer with renewal provisions. Title to equipment under joint revenue sharing arrangements 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 term. The customer is required to pay for executory costs such as insurance and taxes and is required to pay the Company for maintenance and extended warranty throughout the term. The customer is responsible for obtaining insurance coverage for the theater systems commencing on the date specified in the arrangement’s shipping terms and ending on the date the theater systems are delivered back to the Company. See additional details regarding the Company’s traditional and hybrid joint revenue sharing arrangements as described in note 2(m) in the Company’s 2018 Form10-K.

Financing receivables, consisting of net investment in sales-type leases and receivables from financed sales of theater systems are as follows:

As at September 30, 2017,March 31, 2019, the financed sale receivables had a weighted average effective interest rate of 9.1%9.0% (December 31, 20162018 — 9.3%9.1%). As at March 31, 2019, sales-type lease arrangements had a weighted average effective interest rate of 7.9% and weighted average remaining lease term of 7.2 years (December 31, 2018 — 8.0% and 7.3 years, respectively).

IMAX Corporation as a Lessee:

The Company mainly leases office and warehouse storage space and office equipment is generally purchased outright. Leases with an initial term of less than 12 months are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 5 years or more. The Company assumed that it was reasonably certain that the renewal options on its warehouse leases would be exercised, based on previous history and knowledge, current understanding of future business needs and level of investment in leasehold improvements among other considerations. The incremental borrowing rate used in the calculation of the lease liability is based on the location of each leased property. None of the Company’s leases include options to purchase the leased property. The depreciable life of assets and 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.

The components of lease expense are as follows:

Supplemental balance sheet information related to leases are as follows:

Maturities of lease liabilities are as follows:

As of December 31, 2018, under ASC Topic 840, minimum lease payments undernon-cancelable operating leases by period were expected to be as follows:

At September 30, 2017,March 31, 2019, finished goods inventory for which title had passed to the customer and revenue was deferred amounted to $9.7$2.7 million (December 31, 20162018 — $2.3$1.9 million).

During the three and nine months ended September 30, 2017, the Company recognizedThere were no write-downs for excess and obsolete inventory based uponon current estimates of net realizable value considering future events and conditions, of $0.3 million, respectively (2016 — recovery of less than $0.1 million and an expense of $0.2 million, respectively).

5.	Film Assets

The Company expects to amortize episodic costs of $11.8 million for a television series within the next three months.

The Company recognized an impairment on its episodic content assets, in its new business segment, of $11.1 million forduring the three and nine months ended September 30, 2017, respectively, as a result of lower than anticipated revenue generated for the television series’ first season.March 31, 2019 and 2018.

7.	Other Intangible Assets

Other intangible assets of $18.5 million are comprised mainly of the Company’s investment in an enterprise resource planning system. Fully amortized other intangible assets of $5.9 million are still in use by the Company.

During the nine months ended September 30, 2017, the Company acquired $3.9 million in other intangible assets. The weighted average amortization period for these additions was 10 years.

During the three and nine months ended September 30, 2017, the Company incurred costs of less than $0.1 million and $0.1 million, respectively to renew or extend the term of acquired other intangible assets which were recorded in selling, general and administrative expenses (2016 – less than $0.1 million and $0.2 million, respectively).

As at September 30, 2017, estimated amortization expense for each of the years ended December 31, are as follows:

8.	Credit Facility and Playa Vista LoanOther Financing Arrangements

The Company maintains a senior secured credit facility (the “Credit Facility”) with a maximum borrowing capacity of $200.0 million and a scheduled maturity of March 3, 2020. The Credit Facility is collateralized by a first priority security interest in substantially all of the present and future assets of

On June 28, 2018, the Company and the Guarantors. Certain of the Company’s subsidiaries serve as guarantors (the “Guarantors”) of the Company’s obligations under the Credit Facility.

The terms of the Credit Facility are set forth in the Fourthentered into a Fifth Amended and Restated Credit Agreement (as amended, the(the “Credit Agreement”), dated March 3, 2015, among the Company, the Guarantors, the lenders named therein, with Wells Fargo Bank, National Association (“Wells Fargo”), as agent, and issuing lender (Wells Fargo, together witha syndicate of lenders party thereto. The Credit Agreement expands the lenders named therein,Company’s revolving borrowing capacity from $200.0 million to $300.0 million, and also contains an uncommitted accordion feature allowing the “Lenders”Company to further expand its borrowing capacity to $440.0 million or greater, depending on the mix of revolving and term loans comprising the incremental facility. The new facility (the “Credit Facility”) matures on June 28, 2023.

Loans under the Credit Facility will 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 Agreement provides that the Company is required 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 Wells Fargo Securities, LLC, as Sole Lead Arrangernegative covenants for a transaction of this type, including covenants that limit indebtedness, liens, capital expenditures, asset sales, investments and Sole Bookrunnerrestricted payments, in each case subject to negotiated exceptions and baskets. The Credit Agreement also contains representations, warranties and event of default provisions customary for a transaction of this type.

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 various collateral and security documents entered into bysubstantially all the assets of the Company and the Guarantors. Each of the Guarantors has also entered into a guarantee in respect of the Company’s obligations under the Credit Facility. On February 22, 2016, the Company amended the terms of the Credit Agreement to increase the general restricted payment basket thereunder (which covers, among other things, the repurchase of shares) from $150.0 million to $350.0 million in the aggregate after the amendment date.

The Company was in compliance with all of its requirements at September 30, 2017.March 31, 2019.

Total amounts drawn and available under the Credit Facility at September 30, 2017March 31, 2019 were $nil$60.0 million and $200.0$240.0 million, respectively (December 31, 20162018 — $nil$40.0 million and $200.0$260.0 million, respectively). The effective interest rate for the three months ended March 31, 2019 was 3.57% (2018 — n/a).

As at September 30, 2017,March 31, 2019, the Company did not have any letters of credit and advance payment guarantees outstanding (December 31, 20162018 — $nil), under the Credit Facility.

Playa Vista FinancingWorking Capital Loan

On July 5, 2018, IMAX PV Development Inc.(Shanghai) Multimedia Technology Co., a Delaware corporationLtd. (“PV Borrower”) and wholly-owned subsidiary of the Company, entered into a loan agreement with Wells Fargo. The loan (the “Playa Vista Loan”) was used to principally fund the costs of development and construction of the West Coast headquarters of the Company, located in the Playa Vista neighborhood of Los Angeles, California (the “Playa Vista Project”).

In connection with the Playa Vista Project, the Playa Vista Loan was fully drawn at $30.0 million and bears interest at a variable rate per annum equal to 2.0% above the30-day LIBOR rate. PV Borrower is required to make monthly payments of combined principal and interest over a10-year term with a lump sum payment at the end of year 10. The Playa Vista Loan is being amortized over 15 years. The Playa Vista Loan will be fully due and payable on October 19, 2025 (the “Maturity Date”IMAX Shanghai”), and may be prepaid at any time without premium, but with all accrued interest and other applicable payments.

The Playa Vista Loan is secured by a deed of trust from PV Borrower in favor of Wells Fargo and other documents evidencing and securing the loan (the “Loan Documents”), granting a first lien on and security interest in the Playa Vista property and the Playa Vista Project, including all improvements to be constructed thereon. The Loan Documents include absolute and unconditional payment and completion guarantees provided by the Company to Wells Fargo for the performance by PV Borrower of all the terms and provisions of the Playa Vista Loan.

The Loan Documents contain affirmative, negative and financial covenants (including compliance with the financial covenantsone of the Company’s outstanding Credit Facility), agreements, representations, warranties, borrowing conditions,majority-owned subsidiaries in China, entered into an unsecured revolving facility for up to 200.0 million Renminbi (approximately $30.0 million U.S. Dollars) to fund ongoing working capital requirements. The total amounts drawn and events of default customary for development projects such asavailable under the Playa Vista Project.working capital loan at March 31, 2019 and December 31, 2018 were nil and 200.0 million Renminbi, respectively ($nil and approximately $30.0 million U.S. Dollars, respectively).

Bank indebtedness includes the following:

Total amounts drawn under the loan at September 30, 2017 was $26.2 million (December 31, 2016 — $27.7 million). The effective interest rate for the three and nine months ended September 30, 2017 was 3.26% and 3.06%, respectively (2016 — 2.51% and 2.46%, respectively).

In accordance with the loan agreement, the Company is obligated to make payments on the principal of the loan as follows:

Wells Fargo Foreign Exchange Facility

Within the Credit Facility, the Company is able to purchase foreign currency forward contracts and/or other swap arrangements. There is noThe net settlement risk on its foreign currency forward contracts was $0.8 million at September 30, 2017,March 31, 2019, as the fairnotional value exceeded the notionalfair value of the forward contracts. As at September 30, 2017,March 31, 2019, the Company has $35.1$43.9 million in notional value of such arrangements outstanding.

Bank of Montreal Facility

As at September 30, 2017,March 31, 2019, the Company hashad available a $10.0 million facility (December 31, 20162018 — $10.0 million) with the Bank of Montreal for use solely in conjunction with the issuance of performance guarantees and letters of credit fully insured by Export Development Canada (the “Bank of Montreal Facility”). TheAs at March 31, 2019, the Company did not have any letters of credit and advance payment guarantees outstanding as at September 30, 2017 (December 31, 20162018 — $0.1 million)$nil) under the Bank of Montreal Facility.

9.7.	Commitments, Contingencies and Guarantees

Commitments

In the ordinary course of business, the Company enters into contractual agreements with third parties that includenon-cancelablenon-cancellable 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 Company has a minimum commitment of $50.2 million toward the development, production, post-production and marketing related to certain film and new content initiatives. As of September 30, 2017, the Company has spent $35.1 million, and expects to spend $4.4 million during the remainder of the year.

Contingencies and guarantees

The Company is involved in lawsuits, claims, and proceedings, including those identified below, which arise in the ordinary course of business. In accordance with the Contingencies Topic of the FASB ASC, (“FASB ASC Topic 450”), the Company will make a provision for a liability when it is both probable that a loss has been incurred and the amount of the loss can be reasonably estimated. The Company believes it has adequate provisions for any such matters. The Company reviews these provisions in conjunction with any related provisions on assets related to the claims at least quarterly and adjusts these provisions to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other pertinent information related to the case. Should developments in any of these matters outlined below cause a change in the Company’s determination as to an unfavorable outcome and result in the need to recognize a material provision, or, should any of these matters result in a final adverse judgment or be settled for significant amounts, they could have a material adverse effect on the Company’s results of operations, cash flows, and financial position in the period or periods in which such a change in determination, settlement or judgment occurs.

The Company expenses legal costs relating to its lawsuits, claimsclaim and proceedings as incurred.

(a)    On May 15, 2006, the Company initiated arbitration against Three-Dimensional Media Group, Ltd. (“3DMG”) before the International Centre for Dispute Resolution in New York (the “ICDR”), alleging breaches of the license and consulting agreements between the Company and 3DMG. On June 15, 2006, 3DMG filed an answer denying any breaches and asserting counterclaims that the Company breached the parties’ license agreement. On June 21, 2007, the ICDR unanimously denied 3DMG’s Motion for Summary Judgment filed on April 11, 2007 concerning the Company’s claims and 3DMG’s counterclaims. The proceeding was suspended on May 4, 2009 due to failure of 3DMG to pay fees associated with the proceeding. The proceeding was further suspended on October 11, 2010 pending resolution ofre-examination proceedings involving one of 3DMG’s patents. Following a status conference on April 27, 2016 before the ICDR, the ICDR granted 3DMG leave to amend its answer and counterclaims, and subsequently lifted the stay in this matter. In its amended counterclaims, 3DMG seeks damages for alleged unpaid royalties and other fees under the license and consulting agreements. The ICDR held the first phase of a final hearing during the week of July 10, 2017, and the final hearing occurred during the week of October 16, 2017. Final briefings are due in December 2017, with a judgment expected in the first quarter of 2018. The Company believes that the amount of loss, if any, suffered in connection with the amended counterclaims would not have a material impact on the financial position or results of operations of the Company, although no assurance can be given with respect to the ultimate outcome of the arbitration. The minimum amount in the range has been used to measure the amount to be accrued for this loss contingency in accordance with FASB ASC Topic 450.

(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. The Company has opposed that applicationIndia and on a number of grounds and seeks to have the ICC award recognized in India. On June 10, 2013, the Bombay High Court ruled that it hashad jurisdiction over the proceeding filed byE-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 judgement and dismissedE-City’s petition. On March 29, 2017, the Company filed an Execution Application in the Bombay High Court

seeking to enforce the ICC award againstE-City and several related parties. On June 24,That matter is currently pending. The Company has also taken steps to enforce the ICC final award outside of India. In December 2011, the Company commenced a proceeding in the Ontario Superior Court of Justice for recognition of the ICC final award. On December 2, 2011, the Ontario Court issued an order recognizing the final award and requiringE-City to pay the Company $30,000 to cover the costs of the application. In January 2013, the Company filed an actionapplication, and in the New York Supreme Court seeking to collect the amount owed to the Company by certain entities and individuals affiliated withE-City. On October 16, 2015, the New York Supreme Court denied the Company’s petition, and in October 2017, the New York Appellate Division affirmed that decision. On July 29, 2014, the Company commenced a separate proceeding to have the Canadian judgment againstE-Cityrecognized in New York, and on October 2, 2015, the New York Supreme Court granted IMAX’s request, recognizing the Canadian judgment and enteringentered it as a New York judgment. On November 26, 2014,E-City filed a motion in the Bombay High CourtThe Company intends to continue pursuing its rights and seeking to enjoin IMAX from continuingenforce the New York legal proceedings. On February 2, 2015,award, although no assurances can be given with respect to the Bombay High Court deniedE-City’s request for an injunction. On March 16, 2015,E-City filed an appeal of this Bombay High Court decision.ultimate outcome.

(c)(b)    In March 2013, IMAX (Shanghai) Multimedia Technology Co., Ltd. (“IMAX Shanghai”), the Company’s majority-owned subsidiary in China,Shanghai received notice from the Shanghai office of the General Administration of Customs (“Customs Authority”) that it had been selected for a customs audit (the “Audit”). In the course of the Audit, the Customs Authority discovered the underpayment by IMAX Shanghai of the freight and insurance portion of the customs duties and taxes applicable to the importation of certain IMAX theater systems during the period from October 2011 through March 2013 of approximately $0.1 million, for which payment was remitted in June 2017.2013. Though IMAX Shanghai’s importation agent accepted responsibility for the error giving rise to the underpayment, the matter has beenwas transferred first to the Anti-Smuggling Bureau (the “ASB”) of the Customs Authority and then to the Third Division of Shanghai People’s Procuratorate for further review. During the year ended December 31, 2017, at the request of the ASB, IMAX Shanghai paid approximately $0.15 million to the ASB to satisfy the amount owing as a result of the underpayment and accrued approximately $0.3 million in respect of the fines that it believed to be likely to result from the matter. Given that the amount of the underpayment exceedsexceeded RMB 200,000, (the the

applicable ASB threshold), the Company has been advised that the matter may be treatedthreshold for treatment as a criminal rather than as an administrative matter. In 2017,matter, on August 8, 2018, IMAX Shanghai recorded an estimate of $0.3 million in respect of fineswas informed that it believes are likely to result from the matter.its logistics function, but not IMAX Shanghai itself, would face criminal charges. A preliminary court conference was held on September 5, 2018, and hearings took place on October 24, 2018 and January 22, 2019. On March 6, 2019, the Shanghai No. 3 Intermediate People’s Court imposed a fine of RMB 570,000, approximately $85,000 or 75% of the underpayment, on IMAX Shanghai’s logistics function. As of March 31, 2019, this fine has been advised that the range of potential penalties is between three and five times the underpayment whether the matter is assessed as criminal or administrative; however, the actual amount of any fines or other penalties remains unknownpaid and the Company cautions that these actual fines or other penalties maybe be greater or less than the amount accrued or the expected range.legal proceedings were concluded.

(d)(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. Giencourt submitted its statement of claim in January 2015, the Company submitted its statement of defense and counterclaim in April 2015 and Giencourt submitted its arbitration reply paper in September 2015. 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. In addition, onSubsequently, in December 10, 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 onin October 20 and 21, 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. TheIn October 2017, the Company is filingfiled a motionpetition to vacate the arbitration award in the United States Court for the Southern District of Florida on thevarious grounds, including that the panel exceeded its jurisdiction. The petition is still pending. At this time, the Company is unable to determine the amounts that it may owe pursuant to the Award, or the timing of any such payments, and therefore no assurances can be given with respect to the ultimate outcome of the matter.

(e)(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.

(f)(e)    In the normal course of business, the Company enters into agreements that may contain features that meet the definition of a guarantee. The Guarantees Topic of the FASB ASC defines a guarantee to be 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

The Company has provided no significant financial guarantees to third parties.

Product Warranties

The Company’s accrual for product warranties, thatwhich was recorded as part of accrued and other liabilities in the condensed consolidated balance sheets, is less than $0.1was $0.2 million and $0.2 million at September 30, 2017March 31, 2019 and December 31, 2016,2018, respectively.

Director/Officer Indemnifications

The Company’s GeneralBy-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. No amount has been accrued in the condensed consolidated balance sheets as at September 30, 2017March 31, 2019 and December 31, 2016,2018, 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: theater system lease and sale agreements and the supervision of installation or servicing of the 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 ornon-performance under these agreements. While the terms of these indemnification agreements vary based upon the contract, they normally extend for the life of the agreements. A small number of agreements do not provide for any limit on the maximum potential amount of indemnification; however, virtually all of the Company’s 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 condensed consolidated financial statements with respect to the contingent aspect of these indemnities.