UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019March 31, 2020
OR
☐ 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, Canada L5K 1B1 (905) 403-6500 | 902 Broadway, Floor 20 New York, New York, USA 10010 (212) 821-0100 |
(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 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 | ☐ |
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 is a shell Company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Class |
| Outstanding as of |
Common Shares, no par value |
|
|
IMAX CORPORATION
Table of Contents
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| Page |
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Item 1. |
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 6. |
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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; risks relating to recent consolidation among commercial exhibitors and studios; risks related to new business initiatives; 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 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 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®, The IMAX Experience®, An IMAX Experience®, An IMAX 3D 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
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
| Page |
The following unaudited Condensed Consolidated Financial Statements are filed as part of this Report: |
|
|
|
Condensed Consolidated Balance Sheets as at | 4 |
Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019 | 5 |
6 | |
7 | |
| |
| |
|
IMAX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars)dollars except per share amounts)
(Unaudited)
|
| June 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 106,451 |
|
| $ | 141,590 |
|
| $ | 352,277 |
|
| $ | 109,484 |
|
Accounts receivable, net of allowance for doubtful accounts of $4,641 (December 31, 2018 — $3,174) |
|
| 91,490 |
|
|
| 93,309 |
| ||||||||
Financing receivables, net of allowance for uncollectible amounts |
|
| 121,649 |
|
|
| 127,432 |
| ||||||||
Variable consideration receivable from contracts |
|
| 36,347 |
|
|
| 35,985 |
| ||||||||
Accounts receivable, net of allowance for credit losses |
|
| 64,818 |
|
|
| 99,513 |
| ||||||||
Financing receivables, net of allowance for credit losses |
|
| 121,112 |
|
|
| 128,038 |
| ||||||||
Variable consideration receivable, net of allowance for credit losses |
|
| 38,694 |
|
|
| 40,040 |
| ||||||||
Inventories |
|
| 47,976 |
|
|
| 44,560 |
|
|
| 61,635 |
|
|
| 42,989 |
|
Prepaid expenses |
|
| 11,447 |
|
|
| 10,294 |
|
|
| 11,558 |
|
|
| 10,237 |
|
Film assets |
|
| 17,266 |
|
|
| 16,367 |
|
|
| 15,645 |
|
|
| 17,921 |
|
Property, plant and equipment |
|
| 308,326 |
|
|
| 280,658 |
|
|
| 294,361 |
|
|
| 306,849 |
|
Investment in equity securities |
|
| 14,149 |
|
|
| 1,022 |
|
|
| 11,131 |
|
|
| 15,685 |
|
Other assets |
|
| 19,946 |
|
|
| 17,997 |
|
|
| 24,559 |
|
|
| 25,034 |
|
Deferred income taxes |
|
| 29,638 |
|
|
| 31,264 |
| ||||||||
Deferred income tax assets |
|
| 37,967 |
|
|
| 23,905 |
| ||||||||
Other intangible assets |
|
| 32,176 |
|
|
| 34,095 |
|
|
| 29,542 |
|
|
| 30,347 |
|
Goodwill |
|
| 39,027 |
|
|
| 39,027 |
|
|
| 39,027 |
|
|
| 39,027 |
|
Total assets |
| $ | 875,888 |
|
| $ | 873,600 |
|
| $ | 1,102,326 |
|
| $ | 889,069 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank indebtedness |
| $ | 22,976 |
|
| $ | 37,753 |
|
| $ | 298,355 |
|
| $ | 18,229 |
|
Accounts payable |
|
| 22,155 |
|
|
| 32,057 |
|
|
| 25,296 |
|
|
| 20,414 |
|
Accrued and other liabilities |
|
| 114,150 |
|
|
| 97,724 |
|
|
| 111,850 |
|
|
| 112,779 |
|
Deferred revenue |
|
| 105,384 |
|
|
| 106,709 |
|
|
| 103,267 |
|
|
| 94,552 |
|
Deferred income tax liabilities |
|
| 19,681 |
|
|
| — |
| ||||||||
Total liabilities |
|
| 264,665 |
|
|
| 274,243 |
|
|
| 558,449 |
|
|
| 245,974 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interests |
|
| 7,172 |
|
|
| 6,439 |
|
|
| 5,500 |
|
|
| 5,908 |
|
Shareholders' equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital stock common shares — no par value. Authorized — unlimited number. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,432,275 issued and 61,331,289 outstanding (December 31, 2018 — 61,478,168 issued and 61,433,589 outstanding) |
|
| 423,676 |
|
|
| 422,455 |
| ||||||||
Less: Treasury stock, 77,607 shares at cost (December 31, 2018 — 44,579) |
|
| (1,575 | ) |
|
| (916 | ) | ||||||||
58,878,749 issued and 58,786,792 outstanding (December 31, 2019 — 61,362,872 issued and 61,175,852 outstanding) |
|
| 405,583 |
|
|
| 423,386 |
| ||||||||
Less: Treasury stock, 91,957 shares at cost (December 31, 2019 — 187,020) |
|
| (1,419 | ) |
|
| (4,038 | ) | ||||||||
Other equity |
|
| 166,232 |
|
|
| 179,595 |
|
|
| 168,892 |
|
|
| 171,789 |
|
Accumulated deficit |
|
| (66,828 | ) |
|
| (85,385 | ) |
|
| (108,428 | ) |
|
| (40,253 | ) |
Accumulated other comprehensive loss |
|
| (2,926 | ) |
|
| (3,588 | ) |
|
| (5,759 | ) |
|
| (3,190 | ) |
Total shareholders' equity attributable to common shareholders |
|
| 518,579 |
|
|
| 512,161 |
|
|
| 458,869 |
|
|
| 547,694 |
|
Non-controlling interests |
|
| 85,472 |
|
|
| 80,757 |
|
|
| 79,508 |
|
|
| 89,493 |
|
Total shareholders' equity |
|
| 604,051 |
|
|
| 592,918 |
|
|
| 538,377 |
|
|
| 637,187 |
|
Total liabilities and shareholders' equity |
| $ | 875,888 |
|
| $ | 873,600 |
|
| $ | 1,102,326 |
|
| $ | 889,069 |
|
(See the accompanying notes, which are an integral part of these condensed consolidated financial statements)Condensed Consolidated Financial Statements)
IMAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of U.S. dollars, except per share amounts)
(Unaudited)
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and product sales |
| $ | 19,694 |
|
| $ | 15,368 |
|
| $ | 34,894 |
|
| $ | 34,881 |
|
Services |
|
| 56,662 |
|
|
| 54,785 |
|
|
| 100,809 |
|
|
| 99,531 |
|
Rentals |
|
| 25,863 |
|
|
| 25,124 |
|
|
| 44,033 |
|
|
| 43,326 |
|
Finance income |
|
| 2,578 |
|
|
| 3,068 |
|
|
| 5,259 |
|
|
| 5,591 |
|
|
|
| 104,797 |
|
|
| 98,345 |
|
|
| 184,995 |
|
|
| 183,329 |
|
Costs and expenses applicable to revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and product sales |
|
| 11,939 |
|
|
| 7,549 |
|
|
| 21,374 |
|
|
| 15,521 |
|
Services |
|
| 26,781 |
|
|
| 23,633 |
|
|
| 46,024 |
|
|
| 43,984 |
|
Rentals |
|
| 6,524 |
|
|
| 6,759 |
|
|
| 12,904 |
|
|
| 12,728 |
|
|
|
| 45,244 |
|
|
| 37,941 |
|
|
| 80,302 |
|
|
| 72,233 |
|
Gross margin |
|
| 59,553 |
|
|
| 60,404 |
|
|
| 104,693 |
|
|
| 111,096 |
|
Selling, general and administrative expenses |
|
| 32,136 |
|
|
| 32,484 |
|
|
| 59,785 |
|
|
| 60,443 |
|
Research and development |
|
| 1,222 |
|
|
| 3,922 |
|
|
| 2,358 |
|
|
| 7,514 |
|
Amortization of intangibles |
|
| 1,218 |
|
|
| 965 |
|
|
| 2,293 |
|
|
| 1,857 |
|
Receivable provisions, net of recoveries |
|
| 927 |
|
|
| 355 |
|
|
| 1,358 |
|
|
| 806 |
|
Legal arbitration award |
|
| — |
|
|
| 7,500 |
|
|
| — |
|
|
| 7,500 |
|
Exit costs, restructuring charges and associated impairments |
|
| — |
|
|
| 456 |
|
|
| 850 |
|
|
| 1,158 |
|
Income from operations |
|
| 24,050 |
|
|
| 14,722 |
|
|
| 38,049 |
|
|
| 31,818 |
|
Change in fair value of equity investment |
|
| (4,544 | ) |
|
| — |
|
|
| (2,053 | ) |
|
| — |
|
Retirement benefits non-service expense |
|
| (160 | ) |
|
| (124 | ) |
|
| (320 | ) |
|
| (248 | ) |
Interest income |
|
| 572 |
|
|
| 243 |
|
|
| 1,142 |
|
|
| 490 |
|
Interest expense |
|
| (636 | ) |
|
| (851 | ) |
|
| (1,317 | ) |
|
| (1,345 | ) |
Income before income taxes |
|
| 19,282 |
|
|
| 13,990 |
|
|
| 35,501 |
|
|
| 30,715 |
|
Provision for income taxes |
|
| (5,308 | ) |
|
| (3,635 | ) |
|
| (8,956 | ) |
|
| (8,088 | ) |
Loss from equity-accounted investments, net of tax |
|
| (138 | ) |
|
| (100 | ) |
|
| (222 | ) |
|
| (305 | ) |
Net income |
|
| 13,836 |
|
|
| 10,255 |
|
|
| 26,323 |
|
|
| 22,322 |
|
Less: net income attributable to non-controlling interests |
|
| (2,439 | ) |
|
| (2,630 | ) |
|
| (6,661 | ) |
|
| (6,192 | ) |
Net income attributable to common shareholders |
| $ | 11,397 |
|
| $ | 7,625 |
|
| $ | 19,662 |
|
| $ | 16,130 |
|
Net income per share attributable to common shareholders - basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share — basic and diluted |
| $ | 0.19 |
|
| $ | 0.12 |
|
| $ | 0.32 |
|
| $ | 0.25 |
|
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
|
|
|
|
|
| |||
|
|
|
|
|
|
| ||
Revenues |
|
|
|
|
|
|
|
|
Technology sales |
| $ | 5,662 |
|
| $ | 15,200 |
|
Image enhancement and maintenance services |
|
| 20,721 |
|
|
| 44,147 |
|
Technology rentals |
|
| 5,971 |
|
|
| 18,170 |
|
Finance income |
|
| 2,548 |
|
|
| 2,681 |
|
|
|
| 34,902 |
|
|
| 80,198 |
|
Costs and expenses applicable to revenues |
|
|
|
|
|
|
|
|
Technology sales |
|
| 3,869 |
|
|
| 9,435 |
|
Image enhancement and maintenance services |
|
| 17,816 |
|
|
| 19,243 |
|
Technology rentals |
|
| 8,131 |
|
|
| 6,380 |
|
|
|
| 29,816 |
|
|
| 35,058 |
|
Gross margin |
|
| 5,086 |
|
|
| 45,140 |
|
Selling, general and administrative expenses |
|
| 28,636 |
|
|
| 27,649 |
|
Research and development |
|
| 2,200 |
|
|
| 1,136 |
|
Amortization of intangibles |
|
| 1,321 |
|
|
| 1,075 |
|
Credit loss expense |
|
| 10,217 |
|
|
| 431 |
|
Asset impairments |
|
| 1,151 |
|
|
| — |
|
Exit costs, restructuring charges and associated impairments |
|
| — |
|
|
| 850 |
|
(Loss) income from operations |
|
| (38,439 | ) |
|
| 13,999 |
|
Change in fair value of equity securities |
|
| (4,539 | ) |
|
| 2,491 |
|
Retirement benefits non-service expense |
|
| (116 | ) |
|
| (160 | ) |
Interest income |
|
| 365 |
|
|
| 570 |
|
Interest expense |
|
| (648 | ) |
|
| (681 | ) |
(Loss) income before taxes |
|
| (43,377 | ) |
|
| 16,219 |
|
Income tax expense |
|
| (15,505 | ) |
|
| (3,648 | ) |
Equity in losses of investees, net of tax |
|
| (529 | ) |
|
| (84 | ) |
Net (loss) income |
|
| (59,411 | ) |
|
| 12,487 |
|
Less: Net loss (income) attributable to non-controlling interests |
|
| 10,057 |
|
|
| (4,222 | ) |
Net (loss) income attributable to common shareholders |
| $ | (49,354 | ) |
| $ | 8,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share attributable to common shareholders - basic and diluted: |
|
|
|
|
|
|
|
|
Net (loss) income per share — basic and diluted |
| $ | (0.82 | ) |
| $ | 0.13 |
|
(See the accompanying notes, which are an integral part of these condensed consolidated financial statements)Condensed Consolidated Financial Statements.)
IMAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In thousands of U.S. dollars)
(Unaudited)
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Net income |
| $ | 13,836 |
|
| $ | 10,255 |
|
| $ | 26,323 |
|
| $ | 22,322 |
|
Unrealized net gain (loss) from cash flow hedging instruments |
|
| 297 |
|
|
| (679 | ) |
|
| 365 |
|
|
| (1,686 | ) |
Realization of cash flow hedging net (gain) loss upon settlement |
|
| 374 |
|
|
| (112 | ) |
|
| 693 |
|
|
| (332 | ) |
Foreign currency translation adjustments |
|
| (1,257 | ) |
|
| (3,003 | ) |
|
| (172 | ) |
|
| (951 | ) |
Other comprehensive (loss) income, before tax |
|
| (586 | ) |
|
| (3,794 | ) |
|
| 886 |
|
|
| (2,969 | ) |
Income tax (expense) benefit related to other comprehensive (loss) income |
|
| (177 | ) |
|
| 207 |
|
|
| (278 | ) |
|
| 528 |
|
Other comprehensive (loss) income, net of tax |
|
| (763 | ) |
|
| (3,587 | ) |
|
| 608 |
|
|
| (2,441 | ) |
Comprehensive income |
|
| 13,073 |
|
|
| 6,668 |
|
|
| 26,931 |
|
|
| 19,881 |
|
Less: Comprehensive income attributable to non-controlling interests |
|
| (2,040 | ) |
|
| (1,667 | ) |
|
| (6,607 | ) |
|
| (5,887 | ) |
Comprehensive income attributable to common shareholders |
| $ | 11,033 |
|
| $ | 5,001 |
|
| $ | 20,324 |
|
| $ | 13,994 |
|
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Net (loss) income |
| $ | (59,411 | ) |
| $ | 12,487 |
|
Unrealized net (loss) gain from cash flow hedging instruments |
|
| (2,860 | ) |
|
| 68 |
|
Realized net loss from cash flow hedging instruments |
|
| 358 |
|
|
| 319 |
|
Foreign currency translation adjustments |
|
| (1,111 | ) |
|
| 1,085 |
|
Defined benefit and postretirement benefit plans |
|
| 13 |
|
|
| — |
|
Other comprehensive (loss) income, before tax |
|
| (3,600 | ) |
|
| 1,472 |
|
Income tax benefit (expense) related to other comprehensive (loss) income |
|
| 695 |
|
|
| (101 | ) |
Other comprehensive (loss) income, net of tax |
|
| (2,905 | ) |
|
| 1,371 |
|
Comprehensive (loss) income |
|
| (62,316 | ) |
|
| 13,858 |
|
Less: Comprehensive (loss) income attributable to non-controlling interests |
|
| 10,393 |
|
|
| (4,567 | ) |
Comprehensive (loss) income attributable to common shareholders |
| $ | (51,923 | ) |
| $ | 9,291 |
|
(See the accompanying notes, which are an integral part of these condensed consolidated financial statements)Condensed Consolidated Financial Statements.)
IMAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
(Unaudited)
|
| Six Months Ended |
|
| Three Months Ended |
| ||||||||||||||
|
| June 30, |
|
| March 31, |
| ||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||||||
Cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ |
| 26,323 |
|
| $ |
| 22,322 |
| ||||||||||
Adjustments to reconcile net income to cash from operations: |
|
|
|
|
|
|
|
| ||||||||||||
Net (loss) income |
| $ |
| (59,411 | ) |
| $ |
| 12,487 |
| ||||||||||
Adjustments to reconcile net (loss) income to cash from operating activities: |
|
|
|
|
|
|
|
| ||||||||||||
Depreciation and amortization |
|
|
| 29,804 |
|
|
| 28,034 |
|
|
|
| 15,252 |
|
|
| 14,211 |
| ||
Write-downs, net of recoveries |
|
|
| 1,866 |
|
|
| 1,686 |
| |||||||||||
Change in deferred income taxes |
|
|
| 1,296 |
|
|
| 347 |
| |||||||||||
Stock and other non-cash compensation |
|
|
| 11,710 |
|
|
| 11,920 |
| |||||||||||
Unrealized foreign currency exchange (gain) loss |
|
|
| (14 | ) |
|
| 473 |
| |||||||||||
Change in fair value of equity investment |
|
|
| 2,053 |
|
|
| — |
| |||||||||||
Loss from equity-accounted investments |
|
|
| 421 |
|
|
| 106 |
| |||||||||||
(Gain) loss on non-cash contribution to equity-accounted investees |
|
|
| (199 | ) |
|
| 199 |
| |||||||||||
Credit loss expense |
|
|
| 10,217 |
|
|
| 431 |
| |||||||||||
Write-downs |
|
|
| 4,403 |
|
|
| 266 |
| |||||||||||
Deferred income tax expense |
|
|
| 5,627 |
|
|
| 688 |
| |||||||||||
Share and other non-cash compensation |
|
|
| 4,309 |
|
|
| 4,524 |
| |||||||||||
Unrealized foreign currency exchange loss (gain) |
|
|
| 223 |
|
|
| (24 | ) | |||||||||||
Change in fair value of equity securities |
|
|
| 4,539 |
|
|
| (2,491 | ) | |||||||||||
Equity in losses of investees |
|
|
| 529 |
|
|
| 84 |
| |||||||||||
Investment in film assets |
|
| (8,214 | ) |
|
| (18,219 | ) |
|
| (3,064 | ) |
|
| (3,740 | ) | ||||
Changes in other non-cash operating assets and liabilities |
|
| (16,529 | ) |
|
| (214 | ) |
|
| 23,342 |
|
|
| (27,105 | ) | ||||
Net cash provided by operating activities |
|
|
| 48,517 |
|
|
|
| 46,654 |
| ||||||||||
Net cash provided by (used in) operating activities |
|
|
| 5,966 |
|
|
|
| (669 | ) | ||||||||||
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Purchase of property, plant and equipment |
|
| (4,175 | ) |
|
| (8,632 | ) |
|
| (271 | ) |
|
| (2,237 | ) | ||||
Investment in joint revenue sharing equipment |
|
| (22,235 | ) |
|
| (8,455 | ) | ||||||||||||
Purchase of equipment for joint revenue sharing arrangements |
|
| (1,580 | ) |
|
| (9,716 | ) | ||||||||||||
Acquisition of other intangible assets |
|
| (1,121 | ) |
|
| (1,705 | ) |
|
| (862 | ) |
|
| (540 | ) | ||||
Investment in equity securities |
|
|
| (15,153 | ) |
|
| — |
|
|
|
| — |
|
|
| (15,153 | ) | ||
Net cash used in investing activities |
|
|
| (42,684 | ) |
|
|
| (18,792 | ) |
|
|
| (2,713 | ) |
|
|
| (27,646 | ) |
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Increase in bank indebtedness |
|
|
| 35,000 |
|
|
| — |
|
|
|
| 280,000 |
|
|
| 35,000 |
| ||
Repayment of bank indebtedness |
|
|
| (50,000 | ) |
|
| (1,000 | ) |
|
|
| — |
|
|
| (15,000 | ) | ||
Settlement of restricted share units and options |
|
| (7,619 | ) |
|
| (1,529 | ) |
|
| (1,667 | ) |
|
| (4,987 | ) | ||||
Treasury stock repurchased for future settlement of restricted share units |
|
| (1,575 | ) |
|
| (4,636 | ) |
|
| (1,419 | ) |
|
| (4,207 | ) | ||||
Repurchase of common shares, IMAX China |
|
|
| (16,813 | ) |
|
| — |
|
|
|
| (891 | ) |
|
| (1,767 | ) | ||
Taxes withheld and paid on employee stock awards vested |
|
| (219 | ) |
|
| (1,279 | ) |
|
| (236 | ) |
|
| (219 | ) | ||||
Common shares issued - stock options exercised |
|
| 2,379 |
|
|
| 799 |
|
|
| — |
|
|
| 803 |
| ||||
Repurchase of common shares |
|
| (1,258 | ) |
|
| (46,452 | ) |
|
| (36,624 | ) |
|
| — |
| ||||
Issuance of subsidiary shares to non-controlling interests (net of return on capital) |
|
|
| 1,106 |
|
|
| 6,696 |
| |||||||||||
Dividends paid to non-controlling interests |
|
|
| (2,266 | ) |
|
| (4,623 | ) | |||||||||||
Credit facility amendment fees paid |
|
|
| — |
|
|
| (1,963 | ) | |||||||||||
Net cash used in financing activities |
|
|
| (41,265 | ) |
|
|
| (53,987 | ) | ||||||||||
Net cash provided by financing activities |
|
|
| 239,163 |
|
|
|
| 9,623 |
| ||||||||||
Effects of exchange rate changes on cash |
|
|
| 293 |
|
|
|
| 442 |
|
|
|
| 377 |
|
|
|
| 186 |
|
Decrease in cash and cash equivalents during period |
|
|
| (35,139 | ) |
|
| (25,683 | ) | |||||||||||
Increase (decrease) in cash and cash equivalents during period |
|
|
| 242,793 |
|
|
| (18,506 | ) | |||||||||||
Cash and cash equivalents, beginning of period |
|
|
| 141,590 |
|
|
| 158,725 |
|
|
|
| 109,484 |
|
|
| 141,590 |
| ||
Cash and cash equivalents, end of period |
| $ |
| 106,451 |
|
| $ |
| 133,042 |
|
| $ |
| 352,277 |
|
| $ |
| 123,084 |
|
(See the accompanying notes, which are an integral part of these condensed consolidated financial statements)Condensed Consolidated Financial Statements.)
IMAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands of U.S. dollars)
(Unaudited)
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| June 30, |
|
| June 30, |
|
| March 31, |
| |||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||||
Adjustments to capital stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
| $ | 418,907 |
|
| $ | 435,311 |
|
| $ | 421,539 |
|
| $ | 440,664 |
|
| $ | 419,348 |
|
| $ | 421,539 |
|
Change in shares held in treasury |
|
| 2,632 |
|
|
| 1,356 |
|
|
| (659 | ) |
|
| 497 |
|
|
| 2,619 |
|
|
| (3,291 | ) |
Employee stock options exercised |
|
| 1,092 |
|
|
| — |
|
|
| 1,728 |
|
|
| — |
|
|
| — |
|
|
| 636 |
|
Fair value of stock options exercised at the grant date |
|
| 74 |
|
|
| — |
|
|
| 97 |
|
|
| — |
|
|
| — |
|
|
| 23 |
|
Average carrying value of repurchased and retired common shares |
|
| (604 | ) |
|
| (10,300 | ) |
|
| (604 | ) |
|
| (14,794 | ) |
|
| (17,803 | ) |
|
| — |
|
Balance, end of period |
|
| 422,101 |
|
|
| 426,367 |
|
|
| 422,101 |
|
|
| 426,367 |
|
|
| 404,164 |
|
|
| 418,907 |
|
Adjustments to other equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
| 176,587 |
|
|
| 173,866 |
|
|
| 179,595 |
|
|
| 175,300 |
|
|
| 171,789 |
|
|
| 179,595 |
|
Paid-in-capital for employee stock options granted |
|
| 2,382 |
|
|
| 1,414 |
|
|
| 4,488 |
|
|
| 2,843 |
| ||||||||
Paid-in-capital for restricted share units granted |
|
| 4,842 |
|
|
| 5,342 |
|
|
| 7,253 |
|
|
| 8,740 |
| ||||||||
Paid-in-capital for restricted share units vested |
|
| (1,392 | ) |
|
| (1,654 | ) |
|
| (7,294 | ) |
|
| (7,915 | ) | ||||||||
Amortization of share-based payment expense - stock options |
|
| 598 |
|
|
| 2,106 |
| ||||||||||||||||
Amortization of share-based payment expense - restricted share units |
|
| 2,814 |
|
|
| 2,411 |
| ||||||||||||||||
Amortization of share-based payment expense - performance stock units |
|
| 287 |
|
|
| — |
| ||||||||||||||||
Restricted share units vested |
|
| (5,705 | ) |
|
| (5,902 | ) | ||||||||||||||||
Cash received from the issuance of common shares in excess of par value |
|
| 484 |
|
|
| 799 |
|
|
| 651 |
|
|
| 799 |
|
|
| — |
|
|
| 167 |
|
Fair value of stock options exercised at the grant date |
|
| (74 | ) |
|
| — |
|
|
| (97 | ) |
|
| — |
|
|
| — |
|
|
| (23 | ) |
Common shares repurchased, IMAX China |
|
| (15,046 | ) |
|
| — |
|
|
| (16,813 | ) |
|
| — |
|
|
| (891 | ) |
|
| (1,767 | ) |
Stock options exercised from treasury shares |
|
| (1,551 | ) |
|
| — |
|
|
| (1,551 | ) |
|
| — |
| ||||||||
Balance, end of period |
|
| 166,232 |
|
|
| 179,767 |
|
|
| 166,232 |
|
|
| 179,767 |
|
|
| 168,892 |
|
|
| 176,587 |
|
Adjustments to accumulated deficit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
| (77,120 | ) |
|
| (60,418 | ) |
|
| (85,385 | ) |
|
| (87,592 | ) |
|
| (40,253 | ) |
|
| (85,385 | ) |
Retrospective adoption of ASC Topic 606, Revenue from Contracts with Customers |
|
| — |
|
|
| (358 | ) |
|
| — |
|
|
| 27,213 |
| ||||||||
Net income attributable to common shareholders |
|
| 11,397 |
|
|
| 7,625 |
|
|
| 19,662 |
|
|
| 16,130 |
| ||||||||
Net (loss) income attributable to common shareholders |
|
| (49,354 | ) |
|
| 8,265 |
| ||||||||||||||||
Common shares repurchased and retired |
|
| (1,105 | ) |
|
| (22,757 | ) |
|
| (1,105 | ) |
|
| (31,659 | ) |
|
| (18,821 | ) |
|
| — |
|
Balance, end of period |
|
| (66,828 | ) |
|
| (75,908 | ) |
|
| (66,828 | ) |
|
| (75,908 | ) |
|
| (108,428 | ) |
|
| (77,120 | ) |
Adjustments to accumulated other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
| (2,562 | ) |
|
| (138 | ) |
|
| (3,588 | ) |
|
| (626 | ) |
|
| (3,190 | ) |
|
| (3,588 | ) |
Other comprehensive income (loss), net of tax |
|
| (364 | ) |
|
| (2,624 | ) |
|
| 662 |
|
|
| (2,136 | ) | ||||||||
Other comprehensive (loss) income, net of tax |
|
| (2,569 | ) |
|
| 1,026 |
| ||||||||||||||||
Balance, end of period |
|
| (2,926 | ) |
|
| (2,762 | ) |
|
| (2,926 | ) |
|
| (2,762 | ) |
|
| (5,759 | ) |
|
| (2,562 | ) |
Adjustments to non-controlling interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
| 85,434 |
|
|
| 79,439 |
|
|
| 80,757 |
|
|
| 74,511 |
|
|
| 89,493 |
|
|
| 80,757 |
|
Retrospective adoption of ASC Topic 606, Revenue from Contracts with Customers |
|
| — |
|
|
| 358 |
|
|
| — |
|
|
| 735 |
| ||||||||
Net income attributable to non-controlling interests |
|
| 2,703 |
|
|
| 2,770 |
|
|
| 7,035 |
|
|
| 6,663 |
| ||||||||
Other comprehensive loss, net of tax |
|
| (399 | ) |
|
| (963 | ) |
|
| (54 | ) |
|
| (305 | ) | ||||||||
Dividends paid to non-controlling shareholders |
|
| (2,266 | ) |
|
| (4,623 | ) |
|
| (2,266 | ) |
|
| (4,623 | ) | ||||||||
Net (loss) income attributable to non-controlling interests |
|
| (9,649 | ) |
|
| 4,332 |
| ||||||||||||||||
Other comprehensive (loss) income, net of tax |
|
| (336 | ) |
|
| 345 |
| ||||||||||||||||
Balance, end of period |
|
| 85,472 |
|
|
| 76,981 |
|
|
| 85,472 |
|
|
| 76,981 |
|
|
| 79,508 |
|
|
| 85,434 |
|
Total Shareholders' Equity |
| $ | 604,051 |
|
| $ | 604,445 |
|
| $ | 604,051 |
|
| $ | 604,445 |
|
| $ | 538,377 |
|
| $ | 601,246 |
|
(TheSee the accompanying notes, which are an integral part of these condensed consolidated financial statements)Condensed Consolidated Financial Statements.)
IMAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands of U.S. dollars, unless otherwise stated)
(Unaudited)(Unaudited)
1. Basis of Presentation
Accounting Principles
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”) and pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from this report, as is permitted by such rules and regulations. In the Company’s opinion, the unaudited Condensed Consolidated Financial Statements reflect all adjustments of a normal recurring nature that are necessary for a fair statement of the results for the interim periods presented. The interim results presented in the Company’s Condensed Consolidated Statements of Operations are not necessarily indicative of results for a full year, particularly in this interim period due to the impacts of the COVID-19 global pandemic (see Note 2).
The Company’s Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements included in the its 2019 Annual Report on Form 10-K (the “2019 Form 10-K”), which should be consulted for a summary of the significant accounting policies utilized by the Company. The Condensed Consolidated Financial Statements are prepared following the same accounting policies disclosed in the Company’s 2019 Form 10-K, except as described in Note 4 below. In the first quarter of 2020, the Company updated certain account names within revenues and costs and expenses applicable to revenues in its Condensed Consolidated Statements of Operations to better describe the nature of its revenue-generating activities and related costs.
Principles of Consolidation
These condensed consolidated financial statementsCondensed Consolidated Financial Statements include the accounts of the Company, except for subsidiaries which the Company hashave been 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.full year results. In the opinion of management, the information contained unaudited Condensed Consolidated Financial Statements presented herein reflectsreflect all normal and recurring adjustments necessary to makefor a fair presentation of the results of operations for the interim periods a fair statement of such operations.presented. All intercompany accounts and transactions, including all unrealized intercompany profits on transactions with equity method investees, have been eliminated.
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 hasin ten film production companies, that arewhich have been identified as VIEs. For five of the Company’s film production companies, theThe Company has determined that it is the primary beneficiary of five of these entities as the Companyit has the power to direct the activities of the respective VIE that most significantly impact the respective VIE’s economic performance of the VIE, and it has the obligation to absorb losses of the VIE that 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.significant. The majority of the assets relating to these consolidated assetsproduction companies are held by the IMAX Original Film Fund (the “Original Film Fund”) as described in note 16(b)Note 17(b). ForThe Company does not consolidate the other five film production companies which are VIEs, the Company does not consolidate these film entities sincebecause it does not have the power to direct their activities and does not have the obligation to absorb the majority of the expected losses or the right to receive expected residual returns. The Company used the equity method 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 statementsCondensed Consolidated Statements of operations.Operations.
Total assets and liabilities of the Company’s consolidated VIEs are as follows:
|
| June 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Total assets |
| $ | 12,169 |
|
| $ | 12,203 |
|
| $ | 8,573 |
|
| $ | 9,677 |
|
Total liabilities |
| $ | 15,611 |
|
| $ | 11,573 |
|
| $ | 15,563 |
|
| $ | 15,528 |
|
Total assets and liabilities of the VIE entities which the Company does not consolidate are as follows:
|
| June 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Total assets |
| $ | 448 |
|
| $ | 447 |
|
| $ | 447 |
|
| $ | 448 |
|
Total liabilities |
| $ | 375 |
|
| $ | 362 |
|
| $ | 351 |
|
| $ | 372 |
|
Estimates and Assumptions
In preparing the Company’s Condensed Consolidated Financial Statements, management makes judgments in applying various accounting policies. The Company accounts for investments in new business ventures using the guidanceareas 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 transactionspolicy judgment are consistent with equity-accounted investees, have been eliminated.
The year-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 includedthose reported in the Company’s 2018 Annual Report2019 Form 10-K. In addition, management makes assumptions about the future in deriving critical accounting estimates used in preparing the Condensed Consolidated Financial Statements. As disclosed in the Company’s 2019 Form 10-K, such sources of estimation include estimates used to determine the recoverable amounts of receivables, inventory, film assets, long-lived assets (including assets used to support joint revenue sharing arrangements), goodwill and deferred tax assets, as well as estimates of variable consideration related to future box office performance.
There is significant ongoing uncertainty surrounding the COVID-19 global pandemic (see Note 2) and the extent and duration of the impacts that it may have on Form 10-Kbox office results, as well as the Company’s customers, suppliers, and employees. There is heightened potential for future credit losses on receivables, inventory write downs, impairments of film assets, impairments of long-lived assets (including the theater system equipment supporting the Company’s joint revenue sharing arrangements), impairments of goodwill, valuation allowances against deferred tax assets, and the reversal of variable consideration receivables that are based on future box office performance. In the current environment, assumptions about box office results, IMAX Theater System installations, and customer creditworthiness have greater variability than normal, which could in the future significantly affect the valuation of the Company’s assets, both financial and non-financial. The Company’s cash flow estimates for certain assets are based on a longer time horizon due to the long-term nature of its underlying contracts, allowing time for a recovery of such assets as theaters reopen in the future. As an understanding of the longer-term impacts of COVID-19 on the Company’s customers and business develops, there is heightened potential for changes in these views over the remainder of 2020.
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. The theaters have been closed since late-January 2020, and have not yet reopened as of the date of this report. 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 have 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, Hollywood and Chinese movie studios have also postponed the release of multiple films, including many scheduled to be shown in IMAX theaters.
The repercussions of the COVID-19 global pandemic resulted in a significant decrease in the Company’s revenues and earnings in the first quarter of 2020 as gross box office (“GBO”) results declined significantly, the installation of theater systems was delayed, and maintenance services were suspended. During the time period when a significant number of theaters in the IMAX network are closed, the Company has and will continue to experience a significant decline in earnings as it will generate effectively no GBO-based revenue from its joint revenue sharing arrangements and digital remastering services, it will not charge maintenance fees to theater operators, and theater system installations will be delayed. In addition, the Company will also experience delays in collecting payments due under existing theater sale or lease arrangements from its exhibitor partners who may now be facing financial difficulties as a result of the theater closures.
The Company may continue to be significantly impacted by the COVID-19 global pandemic even after some or all theaters are reopened. The global economic impact of COVID-19 has led to record levels of unemployment in certain countries and may lead to lower consumer spending in the near term. The timing 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 such time as consumer spending recovers.
In response to uncertainties associated with the COVID-19 pandemic, the Company has taken and is continuing to take significant steps to preserve cash by eliminating non-essential costs, reducing employee hours and deferring 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, management decided to draw down the $280.0 million in remaining borrowing capacity under its credit facility. Furthermore, the Company is in the process of reviewing and applying for wage subsidies, tax credits and other financial support under the newly enacted COVID-19 relief legislation in the countries in which it operates. However, the legislation and guidance from the authorities continues to evolve and so the amount and timing of support, if any, that the Company could receive is not determinable at this time, and there can be no guarantees that the Company will receive financial support through these programs.
As a result of the events and factors described above, the Company performed a quantitative goodwill impairment test and determined that its goodwill was 0t impaired as of March 31, 2020. The 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 assessed using a discounted cash flow model based on management’s revised budget for the year ended December 31, 2018 (the “2018 Form 10-K”)and estimated long-term projections, against which should be consulted forvarious sensitivity analyses were performed. The precision of these estimates and the likelihood of future changes in these estimates depend on a summarynumber 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. (See Note 1)
Also, as a result of the significant accounting policies utilized byevents and factors described above, the Company. These interim financial statementsCompany performed a recoverability test of the carrying values of the theater system equipment supporting its joint revenue sharing arrangements, which are prepared following accounting policiesrecorded within property, plant and equipment. In performing its review of recoverability, the Company estimated the undiscounted future cash flows expected to result from the use of the assets and determined that there was 0 impairment as of March 31, 2020. The cash flow estimates used in this review are consistent with the Company’s financial statementsmanagement’s revised budget for the year ended December 31, 2018, except as noted below.and estimated long-term projections, against which various sensitivity analyses were performed. The precision of 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. (See Note 1)
2. New3. Recently Issued Accounting Standards and Accounting Changes
Adoption of New Accounting Policies
The Company adopted several standards including the following material standards on January 1, 2019, which are effective for annual periods ending after December 31, 2018, and for annual and interim periods thereafter.Not Yet Adopted
In 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASC Topic 842”). The Company adopted 2016-02 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,March 2020, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other2020-04, “Reference Rate Reform (Topic 350)848): SimplifyingFacilitation of the Test for Goodwill Impairment”effects of Reference Rate Reform on Financial Reporting” (“ASU 2017-04”). The adoption of this standard was applied prospectively and did not have a material impact on the Company’s condensed consolidated financial statements.
In December 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities” (“ASU 2017-12”). The adoption of this standard was applied prospectively and did not have an impact on the Company, see note 15(d) for additional disclosure regarding the Company’s hedging arrangements.
Recently Issued FASB Accounting Standard Codification Updates
In May 2019, the FASB issued ASU No. 2019-05, “Financial Instruments – Credit Losses (Topic 326)” (“ASU 2019-05”2020-04”). The purpose of ASU 2019-05 is to provide the optionoptional expedients and exceptions for applying GAAP to irrevocably elect the fair value option applied on an instrument-by-instrument basis forcontracts, hedging relationships, and other transactions affected by reference rate reform if certain financial assets upon adoption ofcriteria are met. The amendments in ASU 2016-13. Adoption of ASU 2019-05 coincides with the adoption of ASU 2016-13 and will therefore be2020-04 are effective for interim and annual reporting periods beginning afterall entities as of March 12, 2020 through December 15, 2019.31, 2022. The Company is currently assessing the impact of ASU 2019-052020-04 on its condensed consolidated financial statements.Condensed Consolidated Financial Statements.
InOn April 2019,10, 2020, the FASB staff issued ASU No. 2019-04, “Codification Improvementsa question-and-answer document to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments” (“ASU 2019-04”).address stakeholder questions on the application of the lease accounting guidance for lease concessions related to the effects of the COVID-19 pandemic. The purposeguidance will allow concessions related to the timing of ASU 2019-04 is to provide clarification and improvepayments, where the guidance provided by ASU 2016-01, ASU 2016-13, and ASU 2017-12. Adoption of these amendments are required at the time of adopting ASU 2016-01, ASU 2016-13, and ASU 2017-12. As the Companytotal consideration has not yet adopted ASU 2016-13,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 effective date and transition requirements for the amendments in ASU 2019-04 related to amendments in 2016-13, have the same effective date and transition requirementscontract or as ASU 2016-13. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019 (see below).variable lease payments. The Company is currently assessing the impact of the codification improvementsquestion-and-answer document on its condensed consolidated financial statements. The Company has previously adopted ASU 2016-01Condensed Consolidated Financial Statements, and ASU 2017-12. As a result,will adopt the effective date for adoptionguidance in the second quarter of ASU 2019-04 as it pertains2020, to ASU 2016-01 is the fiscal year beginning after December 15, 2019 and ASU 2017-12 is the beginning of the first annual period beginning after the issuance date. The Company is currently assessing the potential impacts of the codification improvements in ASU 2019-04 relating to ASU 2016-01 and 2017-12 on its condensed consolidated financial statements.
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 purpose of ASU 2019-02 is to align the accounting for production costs of an 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 reassess estimates of the use of a film in a film group. In addition, ASU 2019-02 will require an entity to test for impairment at a film group level if it is predominantly monetized with other films. Amendments in this update would be applied prospectively, and for public entities, the amendments in ASU 2019-02 are effective for interim and annual reporting periods beginning after December 15, 2019. The Company is currently assessing the impact of ASU 2019-02 on its condensed consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). The purpose of ASU 2016-13 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 to available-for-sale debt securities should be recorded through an allowance for credit losses. For public entities, the amendments in ASU 2016-13 are effective for interim and annual reporting periods beginning after December 15, 2019. The Company is currently assessing the impact of ASU 2016-13 on its condensed consolidated financial statements.extent applicable.
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 statementsCondensed Consolidated Financial Statements for the period ended June 30, 2019.March 31, 2020.
4. 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, contingent fees earned from theaters operators as a result of box office performance, and fees for theater maintenance services. To a lesser extent, accounts receivable also includes amounts due from movie studios and other content creators for digitally remastering films into IMAX formats, as well as for film distribution and post-production services.
3. AdoptionIn 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 ASC Topic 842, Leases, effective Januaryeach 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:
• | Good Standing — The theater operator continues to be in good standing as payments and reporting are up to date. |
• | Credit Watch — The theater operator has demonstrated a delay in payments, but continues to be in active communication with the Company. Theater operators placed on Credit Watch are subject to enhanced monitoring. In addition, depending on the size of the outstanding balance, length of time in arrears and other factors, future transactions may need to be approved by management. These receivables are in better condition than those in the Pre-Approved Transactions Only category, but are not in as good condition as the receivables in the Good Standing category. |
• | Pre-Approved Transactions Only — The theater operator has demonstrated a delay in payments with little or no communication with the Company. All services and shipments to the theater operator must be reviewed and approved by management. These receivables are in better condition than those in the All Transactions Suspended category, but are not in as good condition as the receivables in the Credit Watch category. In certain situation, depending on the individual facts and circumstances related to each customer, finance income recognition may be suspended for the net investment in lease and financed sale receivable balances for customers in the Pre-Approved Transactions Only category. See below for a discussion of the Company’s net investment in leases and financed sale receivables. |
• | All Transactions Suspended — The theater operator is severely delinquent, non-responsive or not negotiating in good faith with the Company. Once a theater operator is classified within the All Transactions Suspended category, the theater is placed on nonaccrual status and all revenue recognitions related to the theater are stopped. |
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, or other customers, 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 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 three months ended March 31, 2020:
|
| Three Months Ended March 31, 2020 |
| |||||||||||||
|
| Theater Operators |
|
| Studios |
|
| Other |
|
| Total |
| ||||
Balance as at January 1, 2020 |
|
| 3,302 |
|
|
| 893 |
|
|
| 942 |
|
|
| 5,137 |
|
Current period provision |
|
| 3,202 |
|
|
| 3,090 |
|
|
| 99 |
|
|
| 6,391 |
|
Write-offs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Recoveries |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Balance as at March 31, 2020 |
| $ | 6,504 |
|
| $ | 3,983 |
|
| $ | 1,041 |
|
| $ | 11,528 |
|
For the three months ended March 31, 2020, the Company recorded a provision for current expected credit losses of $6.4 million reflecting a reduction in the credit quality of its theater and studio related accounts receivable as a result of the COVID-19 global pandemic. Management’s judgments regarding expected credit losses are based on the facts available to management. 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 Notes 1 2019and 2)
On January 1,
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 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 at March 31, 2020 and December 31, 2019, financing receivables consist of the following:
|
| March 31, |
|
| December 31, |
| ||
|
| 2020 |
|
| 2019 |
| ||
Net investment in leases |
|
|
|
|
|
|
|
|
Gross minimum payments due under sales-type leases |
| $ | 17,084 |
|
| $ | 16,766 |
|
Unearned finance income |
|
| (937 | ) |
|
| (1,005 | ) |
Present value of minimum payments due under sales-type leases |
|
| 16,147 |
|
|
| 15,761 |
|
Allowance for credit losses |
|
| (464 | ) |
|
| (155 | ) |
Net investment in leases |
|
| 15,683 |
|
|
| 15,606 |
|
Financed sales receivables |
|
|
|
|
|
|
|
|
Gross minimum payments due under financed sales |
|
| 140,388 |
|
|
| 146,660 |
|
Unearned finance income |
|
| (31,402 | ) |
|
| (33,313 | ) |
Present value of minimum payments due under financed sales |
|
| 108,986 |
|
|
| 113,347 |
|
Allowance for credit losses |
|
| (3,557 | ) |
|
| (915 | ) |
Net financed sales receivables |
|
| 105,429 |
|
|
| 112,432 |
|
Total financing receivables |
| $ | 121,112 |
|
| $ | 128,038 |
|
|
|
|
|
|
|
|
|
|
Net financed sales receivables due within one year |
| $ | 27,163 |
|
| $ | 27,595 |
|
Net financed sales receivables due after one year |
| $ | 78,266 |
|
| $ | 84,837 |
|
Total financed sales receivables |
| $ | 105,429 |
|
| $ | 112,432 |
|
As at March 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:
|
|
| March 31, |
| December 31, | ||||||
|
|
| 2020 |
| 2019 | ||||||
Weighted-average remaining lease term (in years) |
|
|
|
|
|
|
|
|
|
| |
Sales-type lease arrangements |
|
|
| 8.2 |
|
|
|
| 8.1 |
|
|
Weighted-average interest rate |
|
|
|
|
|
|
|
|
|
|
|
Sales-type lease arrangements |
|
|
| 6.81 |
| % |
|
| 6.68 |
| % |
Financed sales receivables |
|
|
| 9.04 |
| % |
|
| 9.00 |
| % |
The following tables provide information on the Company’s net investment in leases by credit quality indicator as at March 31, 2020 and December 31, 2019:
|
| By Origination Year |
|
|
|
|
| |||||||||||||||||||||
As at March 31, 2020 |
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
|
| Prior |
|
| Total |
| |||||||
Net investment in leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality classification: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In good standing |
| $ | 924 |
|
| $ | 7,762 |
|
| $ | 2,977 |
|
| $ | 964 |
|
| $ | — |
|
| $ | 2,761 |
|
| $ | 15,388 |
|
Credit Watch |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 88 |
|
|
| 88 |
|
Pre-approved transactions |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Transactions suspended |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 671 |
|
|
| 671 |
|
Total net investment in leases |
| $ | 924 |
|
| $ | 7,762 |
|
| $ | 2,977 |
|
| $ | 964 |
|
| $ | — |
|
| $ | 3,520 |
|
| $ | 16,147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current-period gross write-offs |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Current-period recoveries |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Current-period net write-offs |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| By Origination Year |
|
|
|
|
| |||||||||||||||||||||
As at 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 at March 31, 2020 and December 31, 2019:
|
| By Origination Year |
|
|
|
|
| |||||||||||||||||||||
As at March 31, 2020 |
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
|
| Prior |
|
| Total |
| |||||||
Financed sales receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality classification: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In good standing |
| $ | 1,235 |
|
| $ | 11,321 |
|
| $ | 14,233 |
|
| $ | 15,111 |
|
| $ | 16,021 |
|
| $ | 46,339 |
|
| $ | 104,260 |
|
Credit Watch |
|
| — |
|
|
| 331 |
|
|
| — |
|
|
| — |
|
|
| 306 |
|
|
| 1,454 |
|
|
| 2,091 |
|
Pre-approved transactions |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 123 |
|
|
| 123 |
|
Transactions suspended |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 883 |
|
|
| 733 |
|
|
| 896 |
|
|
| 2,512 |
|
Total financed sales receivables |
| $ | 1,235 |
|
| $ | 11,652 |
|
| $ | 14,233 |
|
| $ | 15,994 |
|
| $ | 17,060 |
|
| $ | 48,812 |
|
| $ | 108,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current-period gross write-offs |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Current-period recoveries |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Current-period net write-offs |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| �� |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| By Origination Year |
|
|
|
|
| |||||||||||||||||||||
As at 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 |
|
The following tables provide an aging analysis for the Company’s net investment in leases and financed sale receivables as at March 31, 2020 and December 31, 2019:
|
| As at March 31, 2020 |
| |||||||||||||||||||||||||||||
|
| Accrued and Current |
|
| 30-89 Days |
|
| 90+ Days |
|
| Billed |
|
| Unbilled |
|
| Recorded Receivable |
|
| Allowance for Credit Losses |
|
| Net |
| ||||||||
Net investment in leases |
| $ | 28 |
|
| $ | 297 |
|
| $ | 319 |
|
| $ | 644 |
|
| $ | 15,503 |
|
| $ | 16,147 |
|
| $ | (464 | ) |
| $ | 15,683 |
|
Financed sales receivables |
|
| 842 |
|
|
| 3,230 |
|
|
| 6,005 |
|
|
| 10,077 |
|
|
| 98,909 |
|
|
| 108,986 |
|
|
| (3,557 | ) |
|
| 105,429 |
|
Total |
| $ | 870 |
|
| $ | 3,527 |
|
| $ | 6,324 |
|
| $ | 10,721 |
|
| $ | 114,412 |
|
| $ | 125,133 |
|
| $ | (4,021 | ) |
| $ | 121,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As at December 31, 2019 |
| |||||||||||||||||||||||||||||
|
| 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. 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 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 table provides 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 at March 31, 2020 and December 31, 2019:
|
| As at March 31, 2020 |
| |||||||||||||||||||||||||
|
| Accrued and Current |
|
| 30-89 Days |
|
| 90+ Days |
|
| Billed |
|
| Unbilled |
|
| Allowance for Credit Losses |
|
| Net |
| |||||||
Net investment in leases |
| $ | — |
|
| $ | 211 |
|
| $ | 316 |
|
| $ | 527 |
|
| $ | 7,721 |
|
| $ | (248) |
|
| $ | 8,000 |
|
Financed sales receivables |
|
| 264 |
|
|
| 1,737 |
|
|
| 5,805 |
|
|
| 7,806 |
|
|
| 35,032 |
|
|
| (2,194) |
|
|
| 40,644 |
|
Total |
| $ | 264 |
|
| $ | 1,948 |
|
| $ | 6,121 |
|
| $ | 8,333 |
|
| $ | 42,753 |
|
| $ | (2,442) |
|
| $ | 48,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As at December 31, 2019 |
| |||||||||||||||||||||||||
|
| 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 at March 31, 2020 and December 31, 2019:
|
| As at March 31, 2020 |
|
| As at December 31, 2019 |
| ||||||||||||||||||
|
| Recorded Receivable |
|
| Allowance for Credit Losses |
|
| Net |
|
| Recorded Receivable |
|
| Allowance for Credit Losses |
|
| Net |
| ||||||
Net investment in leases |
| $ | 671 |
|
| $ | (14 | ) |
| $ | 657 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Net financed sales receivables |
|
| 2,512 |
|
|
| (1,040 | ) |
|
| 1,472 |
|
|
| 788 |
|
|
| (732 | ) |
|
| 56 |
|
Total |
| $ | 3,183 |
|
| $ | (1,054 | ) |
| $ | 2,129 |
|
| $ | 788 |
|
| $ | (732 | ) |
| $ | 56 |
|
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 three months ended March 31, 2020 and 2019, the Company adopted ASC Topic 842 “Leases”. recognized $78.0 million and $82.0 million, respectively, in finance income related to the net investment in leases with billed amounts past due. For the three months ended March 31, 2020 and 2019, the Company recognized $2.1 million and $2.4 million, respectively, in finance income related to the financed sale receivables with billed amounts past due.
The standard was issuedfollowing table summarizes the activity in the allowance for credit losses related to help investorsthe Company’s net investment in leases and otherfinanced sale receivables for the three months ended March 31, 2020 and 2019:
|
| Three Months Ended March 31, 2020 |
|
| Three Months Ended March 31, 2019 |
| ||||||||||
|
| Net Investment |
|
| Financed |
|
| Net Investment |
|
| Financed |
| ||||
|
| in Leases |
|
| Sales Receivables |
|
| in Leases |
|
| Sales Receivables |
| ||||
Beginning balance |
| $ | 155 |
|
| $ | 915 |
|
| $ | 155 |
|
| $ | 839 |
|
Current period provision |
|
| 309 |
|
|
| 2,642 |
|
|
| — |
|
|
| — |
|
Write-offs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Recoveries |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Ending balance |
| $ | 464 |
|
| $ | 3,557 |
|
| $ | 155 |
|
| $ | 839 |
|
For the three months ended March 31, 2020, the Company recorded a provision for current expected credit losses of $3.0 million reflecting a reduction in the credit quality of its theater related financing receivables as a result of the COVID-19 global pandemic. Management’s judgments regarding expected credit losses are based on the facts available to management. Due to the unprecedented nature of the COVID-19 pandemic, its effect on the Company’s customers and their ability to meet their financial statement users better understandobligations to the amount, timing, and uncertainty of cash flows arising from leases.
Company is difficult to predict. As a lessee,result, the adoptionCompany’s judgments and associated estimates of credit losses may ultimately prove, with the benefit of hindsight, to be incorrect. (See Notes 1 and 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 standard resultedCompany 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 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 utilizes 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.
The following table summarizes the activity in the allowance for credit losses related to variable consideration receivables for the three months ended March 31, 2020:
|
| Three Months Ended March 31, 2020 |
| |
|
| Theater Operators |
| |
Balance as at January 1, 2020 |
| $ | — |
|
Current period provision |
|
| 875 |
|
Write-offs |
|
| — |
|
Recoveries |
|
| — |
|
Balance as at March 31, 2020 |
| $ | 875 |
|
For the three months ended March 31, 2020, the Company recordingrecorded a net increaseprovision for current expected credit losses of $0.9 million reflecting a reduction in the credit quality of its theater related variable consideration receivables as a result of the COVID-19 global pandemic. Management’s judgments regarding expected credit losses are based on the facts available to netmanagement. 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 Notes 1 and 2)
5. Lease Arrangements
IMAX Corporation as a Lessee:
The Company’s operating lease assets and lease liabilities of approximately $17.4 million as at January 1, 2019. The gross right-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 applicable right-of-use asset. The Company mainly leasesarrangements principally involve 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, several 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 leasesLeases 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 are not recorded on the Condensed Consolidated Balance Sheet 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 not recognizebe exercised based on previous history and knowledge, current understanding of future business needs and the level of investment in leasehold improvements, among other considerations. 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 life 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 lease liabilities.material restrictive covenants. The Company also electedrents 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 three months ended March 31, 2020 and 2019, the practical expedientcomponents of lease expense recorded within selling, general and administrative expenses are as follows:
| Three Months Ended |
|
| ||||||
| March 31, |
|
| ||||||
| 2020 |
|
|
| 2019 |
|
| ||
Operating lease cost (1) | $ | 101 |
|
|
| $ | 243 |
|
|
Amortization of lease assets |
| 748 |
|
|
|
| 531 |
|
|
Interest on lease liabilities |
| 262 |
|
|
|
| 268 |
|
|
Total lease cost | $ | 1,111 |
|
|
| $ | 1,042 |
|
|
(1) | Includes short-term leases and variable lease costs, which are not significant for the three months ended March 31, 2020 and 2019. |
For three months ended March 31, 2020 and 2019, supplemental cash flow information related to not separateleases is as follows:
| Three Months Ended |
| |||||||
| March 31, |
| |||||||
|
| 2020 |
|
|
| 2019 |
| ||
Cash paid for amounts included in the measurement of lease liabilities | $ |
| 954 |
|
| $ |
| 823 |
|
Right-of-use assets obtained in exchange for lease obligations |
|
| — |
|
|
|
| 17,515 |
|
| $ |
| 954 |
|
| $ |
| 18,338 |
|
As at March 31, 2020 and December 31, 2019, supplemental balance sheet information related to leases are as follows:
|
|
| March 31, |
|
| December 31, |
| ||
|
|
| 2020 |
|
| 2019 |
| ||
Assets |
|
|
|
|
|
|
|
|
|
Right-of-Use Assets | Property, plant and equipment |
| $ | 15,554 |
|
| $ | 16,262 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
Operating Leases | Accrued and other liabilities |
| $ | 18,035 |
|
| $ | 18,677 |
|
As at March 31, 2020 and December 31, 2019, the weighted-average remaining lease term and non-lease components for all 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 onweighted-average interest rate associated with the Company’s assets and liabilities in the condensed consolidated balance sheet:operating leases are as follows:
|
| Balance at |
|
|
|
|
|
| Balance at |
| ||
|
| December 31, |
|
| ASC Topic 842 |
|
| January 1, |
| |||
|
| 2018 |
|
| Adjustments |
|
| 2019 |
| |||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
| $ | 280,658 |
|
| $ | 17,462 |
|
| $ | 298,120 |
|
Prepaid expenses |
|
| 10,294 |
|
|
| (36 | ) |
|
| 10,258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Accrued and other liabilities |
|
| 97,724 |
|
|
| 17,426 |
|
|
| 115,150 |
|
|
|
| March 31, |
|
| December 31, |
|
| ||
|
|
| 2020 |
|
| 2019 |
|
| ||
Weighted-average remaining lease term (years) |
|
| 8.0 |
|
|
| 8.1 |
|
| |
Weighted-average discount rate |
|
|
| 5.90 |
| % |
| 5.90 |
| % |
4. Lease Arrangements and Financing ReceivablesAs at March 31, 2020, the maturities of the Company’s operating lease liabilities are as follows:
|
| Operating Leases |
| |
2020 (nine months remaining) |
| $ | 2,720 |
|
2021 |
|
| 3,252 |
|
2022 |
|
| 2,344 |
|
2023 |
|
| 2,228 |
|
2024 |
|
| 2,180 |
|
Thereafter |
|
| 10,243 |
|
Total lease payments |
| $ | 22,967 |
|
Less: interest expense |
|
| (4,932 | ) |
Present value of operating lease liabilities |
| $ | 18,035 |
|
IMAX Corporation as a Lessor:Lessor
Several of the Company’s leasesThe Company provides IMAX Theater Systems to customers through long-term lease arrangements that for accounting purposes are classified as sales-type leasesleases. Under these arrangements, in exchange for transactions related toproviding the lease of IMAX theater systems.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 2(m)Note 2(n) in the Company’s 20182019 Form 10-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 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 termssales-type leases are typically 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 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 extended warranty generally after the first year of the lease
until the end of the lease term. The customer is responsible for obtaining insurance coverage for the theater systemsIMAX Theater System commencing on the date specified in the arrangement’s shipping terms and ending on the date the theater systems are delivered backIMAX Theater System is returned to the Company.
The Company also provides IMAX Theater 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 requiring the customer to pay a fixed upfront fee or annual minimum payments. 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 aan operating 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 are typically 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 systemsIMAX Theater System commencing on the date specified in the arrangement’s shipping terms and ending on the date the theater systems are delivered backIMAX Theater System is returned to the Company. See additional details regarding
The Company classifies its lease arrangements at inception of the Company’s traditionalarrangement and, hybrid joint revenue sharing arrangements as described in note 2(m) inif required, after a modification of the Company’s 2018 Form 10-K.
Financing receivables, consisting of net investment inlease arrangement, to determine whether they are sales-type leases and receivables from financed sales of theater systems are as follows:or operating leases.
|
| June 30, |
|
| December 31, |
| ||
|
| 2019 |
|
| 2018 |
| ||
Gross minimum lease payments receivable |
| $ | 9,516 |
|
| $ | 10,499 |
|
Unearned finance income |
|
| (755 | ) |
|
| (902 | ) |
Minimum lease payments receivable |
|
| 8,761 |
|
|
| 9,597 |
|
Accumulated allowance for uncollectible amounts |
|
| (155 | ) |
|
| (155 | ) |
Net investment in leases |
|
| 8,606 |
|
|
| 9,442 |
|
Gross financed sales receivables |
|
| 147,797 |
|
|
| 155,044 |
|
Unearned finance income |
|
| (33,915 | ) |
|
| (36,215 | ) |
Financed sales receivables |
|
| 113,882 |
|
|
| 118,829 |
|
Accumulated allowance for uncollectible amounts |
|
| (839 | ) |
|
| (839 | ) |
Net financed sales receivables |
|
| 113,043 |
|
|
| 117,990 |
|
Total financing receivables |
| $ | 121,649 |
|
| $ | 127,432 |
|
|
|
|
|
|
|
|
|
|
Net financed sales receivables due within one year |
| $ | 27,533 |
|
| $ | 26,911 |
|
Net financed sales receivables due after one year |
| $ | 85,510 |
|
| $ | 91,079 |
|
6. Inventories
As at June 30,March 31, 2020 and December 31, 2019, inventories consist of the financed sale receivables hadfollowing:
|
| March 31, |
|
| December 31, |
| ||
|
| 2020 |
|
| 2019 |
| ||
Raw materials |
| $ | 35,936 |
|
| $ | 26,538 |
|
Work-in-process |
|
| 5,738 |
|
|
| 4,608 |
|
Finished goods |
|
| 19,961 |
|
|
| 11,843 |
|
|
| $ | 61,635 |
|
| $ | 42,989 |
|
When compared to December 31, 2019, inventories increased $18.6 million due to a weighted average effective interest rateslowdown in manufacturing, shipments and installation of 9.1%IMAX Theater Systems at customer sites due to government restrictions in various countries limiting public gatherings as a result of the outbreak of the COVID-19 global pandemic.
At March 31, 2020, inventories include finished goods of $3.3 million (December 31, 2018 —9.1%). As at June 30, 2019 sales-type lease arrangements had a weighted average effective interest rate of 7.9% and weighted average remaining lease term of 7.0 years, respectively. (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:
|
|
|
| Three months ended June 30, |
|
| Six months ended June 30, |
| ||||||||||
|
|
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Operating lease cost (1) |
| SG&A Expenses |
| $ | 220 |
|
| $ | 1,282 |
|
| $ | 463 |
|
| $ | 2,437 |
|
Amortization of lease assets |
| SG&A Expenses |
|
| 664 |
|
|
| — |
|
|
| 1,195 |
|
|
| — |
|
Interest on lease liabilities |
| SG&A Expenses |
|
| 274 |
|
|
| — |
|
|
| 542 |
|
|
| — |
|
Total lease cost |
|
|
| $ | 1,158 |
|
| $ | 1,282 |
|
| $ | 2,200 |
|
| $ | 2,437 |
|
|
|
Supplemental balance sheet information related to leases are as follows:
|
|
| June 30, |
|
| January 1, |
| ||
|
|
| 2019 |
|
| 2018 |
| ||
Assets |
|
|
|
|
|
|
|
|
|
Operating Leases | Property, plant and equipment |
| $ | 16,252 |
|
| $ | 17,462 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
Operating Leases(1) | Accrued and other liabilities |
| $ | 18,792 |
|
| $ | 19,960 |
|
|
|
|
|
| June 30, |
|
| January 1, |
|
| ||
|
|
| 2019 |
|
| 2018 |
|
| ||
Weighted-average remaining lease term (years) |
|
|
|
|
|
|
|
|
| |
Operating Leases |
|
|
| 8.0 |
|
|
| 8.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average discount rate |
|
|
|
|
|
|
|
|
|
|
Operating Leases |
|
|
| 5.80 |
| % |
| 5.80 |
| % |
Maturities of lease liabilities are as follows:
|
| Operating Leases |
| |
2019 (six months remaining) |
| $ | 1,795 |
|
2020 |
|
| 3,451 |
|
2021 |
|
| 3,047 |
|
2022 |
|
| 2,283 |
|
2023 |
|
| 2,175 |
|
Thereafter |
|
| 11,312 |
|
Total lease payments |
| $ | 24,063 |
|
Less: interest expense |
|
| (5,271 | ) |
Present value of lease liabilities |
| $ | 18,792 |
|
As of December 31, 2018, under ASC Topic 840, minimum lease payments under non-cancelable operating leases by period were expected to be as follows:
|
| Operating Leases |
| |
2019 |
| $ | 3,847 |
|
2020 |
|
| 2,790 |
|
2021 |
|
| 2,491 |
|
2022 |
|
| 1,843 |
|
2023 |
|
| 1,759 |
|
Thereafter |
|
| 9,657 |
|
Total lease payments |
| $ | 22,387 |
|
5. Inventories
|
| June 30, |
|
| December 31, |
| ||
|
| 2019 |
|
| 2018 |
| ||
Raw materials |
| $ | 30,298 |
|
| $ | 29,705 |
|
Work-in-process |
|
| 4,343 |
|
|
| 4,733 |
|
Finished goods |
|
| 13,335 |
|
|
| 10,122 |
|
|
| $ | 47,976 |
|
| $ | 44,560 |
|
At June 30, 2019, finished goods inventory$0.7 million) for which title had passed to the customer and revenue recognition was deferred amounted to $4.2 million (December 31, 2018 — $1.9 million).deferred.
There were no0 write-downs for excess and obsolete inventory based on current estimates of net realizable value, considering future events and conditions, during the three and six months ended June 30, 2019March 31, 2020 and 2018.2019.
6.7. Credit Facility and Other Financing Arrangements
As at March 31, 2020 and December 31, 2019, bank indebtedness includes the following:
|
| March 31, |
|
| December 31, |
| |||||||||||||||||||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
| |||||||||||||||||||||||||||||||||||||||||||||||
Credit Facility
|
| $ | 300,000 |
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
Unamortized debt issuance
|
|
|
| ) | (1,771 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
$ | 298,355 | $ | 18,229 |
Credit Facility
The Company has a Fifth Amended and Restated Credit Agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo”), as agent, and a syndicate of lenders party thereto. 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 the assets of the Company and the Guarantors.
Under the Credit Agreement, the Company’s revolving borrowing capacity is $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. The facility (the “Credit Facility”) matures on June 28, 2023.
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, management decided to draw down the remaining available Credit Facility borrowing capacity of $280.0 million, resulting in total outstanding borrowings of $300.0 million. The effective interest rate for the three months ended March 31, 2020 was 2.03% (2019 — 3.57%).
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). In addition, the Credit Facility has standby fees ranging from 0.25% to 0.38% based upon the Total Leverage Ratio.
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. The longer the COVID-19 pandemic and associated protective measures persist, the more likely it becomes, in the absence of other actions by the Company, that it will be unable to maintain compliance with this covenant. In such an event, however, the Company expects to be able to obtain an amendment or waiver from its lenders, refinance the borrowings subject to covenants or take other mitigating actions prior to a potential breach. In addition, the Credit Agreement contains customary affirmative and negative covenants for a transaction of this type, 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 representations, warranties and event of default provisions customary for a transaction of this type.
The Company was in compliance with all of its requirements at March 31, 2020.
As at March 31, 2020 and December 31, 2019, the Company did 0t have any letters of credit and advance payment guarantees outstanding under the Credit Facility.
Working Capital Loan
On July 24, 2019, 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 $30.0 million U.S. Dollars) to fund ongoing working capital requirements. There were 0 amounts drawn under the working capital facility at March 31, 2020 and December 31, 2019, and the amounts available for borrowing were 200.0 million Renminbi (approximately $30.0 million U.S. Dollars). The amounts available for borrowing are not subject to a standby fee.
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 loss on its foreign currency forward contracts was $2.0 million at March 31, 2020, as the notional value exceeded the fair value of the forward contracts (December 31, 2019 — $0.5 million net settlement gain). As at March 31, 2020, the Company has $44.6 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 at March 31, 2020 and December 31, 2019 under the NBC Facility.
8. Commitments, Contingencies and Guarantees
Commitments
In the ordinary course of business, the Company enters into contractual agreements with third parties that include non-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.
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 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.
(a)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 judgement 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.
(b)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. 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.
(c)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.
(d)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
The Company has provided no0 significant financial guarantees to third parties.
Product Warranties
The Company’s accrual for product warranties, which was recorded as part of accrued and other liabilities in the condensed consolidated balance sheets,Condensed Consolidated Balance Sheets, was $0.2less than $0.1 million and $0.2 million at March 31, 2020June 30, 2019 and December 31, 20182019, respectively.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. NoNaN amount has been accrued in the condensed consolidated balance sheetsCondensed Consolidated Balance Sheets as at June 30, 2019March 31, 2020 and December 31, 2018,2019, 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: theater systemIMAX Theater Systems lease and sale agreements and the supervision of installation or servicing of the theater systems;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 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 not0t made any significant payments under such indemnifications and no amounts have been accrued in the condensed consolidated financial statementsCondensed Consolidated Financial Statements with respect to the contingent aspect of these indemnities.
8.9. Condensed Consolidated Statements of Operations Supplemental Information
| (a) | Selling Expenses |
The Company defers direct selling costs such as sales commissions and other amounts related to its sales and sales-type lease arrangements until the related revenue is recognized. These costs and direct advertising and marketing, which are included in costs and expenses applicable to Revenues – Equipment and product sales,Technology Sales, totaled $0.4 million and $0.9$0.2 million for the three and six months ended June 30, 2019, respectively (2018March 31, 2020 (2019 — $0.5 million and $1.2 million, respectively)million).
Film exploitation costs, including advertising and marketing, totaled $9.6 million and $14.1$2.6 million for the three and six months ended June 30, 2019, respectively (2018March 31, 2020 (2019 — $7.3 million and $12.6 million, respectively)$4.5 million), and are recorded as incurred in costs and expenses applicable to revenues-services as incurred.Revenues – Image Enhancement and Maintenance Services.
Commissions are recognized as costs and expenses applicable to Revenues – Technology Rentals in the month they are earned. These costs totaled a recovery of $0.4 million and $0.6$0.2 million for the three and six months ended June 30, 2019, respectively (2018March 31, 2020 (2019 — expenserecovery of $0.5 million and $0.6 million, respectively)$0.2 million). Direct advertising and marketing costs for each theater are charged to costs and expenses applicable to Revenues – Technology Rentals as incurred. These costs totaled an expense of $0.7 million and $0.9$0.3 million for the three and six months ended June 30, 2019, respectively (2018March 31, 2020 (2019 — $0.6 million and $0.7 million, respectively)$0.2 million).
| (b) | Foreign Exchange |
Included in selling, general and administrative expenses for the three and six months ended June 30, 2019March 31, 2020 is a loss of $0.7 million (2019 — $0.2 million and a loss of $0.4 million, respectively (2018 — loss of $1.0 million and loss of $1.1 million, respectively)million) for net foreign exchange gains/losses related to the translation of foreign currency denominated monetary assets and liabilities. See note 15(d)Note 16(c) for additional information.
| (c) | Collaborative Arrangements |
Joint Revenue Sharing Arrangements
In a joint revenue sharing arrangement, the Company receives a portion of a theater’s box office and in certain arrangements a portion of concession revenues and a small upfront or initial payment, in exchange for placing a theater systeman IMAX Theater System at the theater operator’s venue. Under joint revenue sharing arrangements, the customer has the ability and the right to operate the hardware components or direct others to operate them in a manner determined by the customer. The Company’s joint revenue sharing arrangements are typically non-cancellable for 10 years or longer with renewal provisions. Title to equipment under joint revenue sharing arrangements generally does not transfer to the customer. The Company’s joint revenue sharing arrangements do not contain a guarantee of residual value at the 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 systemsIMAX Theater System commencing on the date specified in the arrangement’s shipping terms and ending on the date the theater systems are delivered backIMAX Theater System is returned to the Company.
The Company has signed traditional and hybrid joint revenue sharing agreements with 3841 exhibitors for a total of 1,256 theater systems,1,220 IMAX Theater Systems, of which 826867 theaters were operatingincluded in the IMAX network as at June 30, 2019,March 31, 2020, the terms of which are similar in nature, rights and obligations. The accounting policy for the Company’s joint revenue sharing arrangements is disclosed in note 2(m)Note 2(n) of the Company’s 20182019 Form 10-K.
Amounts attributable to transactions arising between the Company and its customers under joint revenue sharing arrangements are included in Revenue — Equipment and productTechnology sales and Revenue — Technology Rentals and for the three and six months ended June 30, 2019March 31, 2020 amounted to $27.8$6.8 million and $48.2 million, respectively (2018(2019 — $25.7 million and $43.6 million, respectively)$20.4 million).
IMAX DMR
In an IMAX DMR arrangement, the Company transforms conventional motion pictures into the Company’s large screen format, allowing the release of Hollywood content to the global IMAX theater network. In a typical IMAX DMR film arrangement, the Company will absorb its costs for the digital re-mastering and then recoup this cost fromreceives a percentage of the box-officebox office receipts offrom studios in exchange for converting commercial films into IMAX DMR format and distributing them through the film, which inIMAX network. In recent years, the percentage of gross box office receipts earned in IMAX DMR arrangements has averaged approximately 12.5% outside of, except for within Greater China, andwhere the Company receives a lower percentage of net box office receipts for certain films within Greater China. The Company does not typically hold distribution rights or the copyright to theseHollywood films.
For the sixthree months ended June 30, 2019,March 31, 2020, the majority of IMAX DMR revenue was earned from the exhibition of 3913 IMAX DMR films (2018(2019 – 33)24) throughout the IMAX theater network. The accounting policy for the Company’s IMAX DMR arrangements is disclosed in note 2(m)Note 2(n) of the Company’s 20182019 Form 10-K.
Amounts attributable to transactions arising between the Company and its customers under IMAX DMR arrangements are included in Revenues – ServicesImage enhancement and maintenance services and for the three and six months ended June 30, 2019March 31, 2020 amounted to $39.3$10.6 million and $67.2 million, respectively (2018(2019 — $36.1 million and $63.2 million, respectively)$28.0 million).
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 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 for the production and distribution of the film and for associated exploitation costs.
As at June 30, 2019,March 31, 2020, the Company has two2 significant co-produced film arrangements which represent the VIE total assets balance of $12.2$8.6 million and liabilities balance of $15.6 million and three3 other co-produced film arrangements, the terms of which are similar. The accounting policies relating to co-produced film arrangements are disclosed in notesNotes 2(a) and 2(m)2(n) of the Company’s 20182019 Form 10-K.
For the three and six months ended June 30, 2019,March 31, 2020, expenses totaling less than $0.1 million and $0.2 million respectively (2018(2019 — recovery of less than $0.1 million and an expense of $0.2 million, respectively)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.
As at June 30, 2019, the Company is participating in one significant co-produced television arrangement. This arrangement is not a VIE.
For the three and six months ended June 30,March 31, 2020 and 2019, 0 revenues of $nil and $nil, respectively (2018 — less than $0.1 million and $0.4 million, respectively) andor costs and expenses applicable to revenues of $nil and $nil, respectively (2018 — less than $0.1 million and $0.5 million, respectively) attributable to this collaborative arrangement have been recorded in Revenue – Image Enhancement and Maintenance Services and Costscosts and expenses applicable to Revenues – Services, respectively.Image Enhancement and Maintenance Services.
9.10. Condensed Consolidated Statements of Cash Flows Supplemental Information
| (a) | Depreciation and amortization are comprised of the following: |
| Six Months Ended |
| Three Months Ended |
| ||||||||||||||
| June 30, |
| March 31, |
| ||||||||||||||
|
| 2019 |
|
|
| 2018 |
|
| 2020 |
|
|
| 2019 |
| ||||
Film assets | $ |
| 8,492 |
|
| $ |
| 8,053 |
| $ |
| 2,975 |
|
| $ |
| 3,695 |
|
Property, plant and equipment |
|
|
|
|
|
|
|
| ||||||||||
Property, plant and equipment: |
|
|
|
|
|
|
|
| ||||||||||
Joint revenue sharing arrangements |
|
| 11,295 |
|
|
| 10,040 |
|
|
| 6,932 |
|
|
| 5,605 |
| ||
Other property, plant and equipment |
|
| 5,992 |
|
|
| 6,376 |
|
|
| 2,900 |
|
|
| 2,936 |
| ||
Other intangible assets |
|
| 2,952 |
|
|
| 2,398 |
|
|
| 1,661 |
|
|
| 1,425 |
| ||
Other assets |
|
| 829 |
|
|
| 612 |
|
|
| 651 |
|
|
| 433 |
| ||
Deferred financing costs |
|
| 244 |
|
|
|
| 555 |
|
|
| 133 |
|
|
|
| 117 |
|
| $ |
| 29,804 |
|
| $ |
| 28,034 |
| $ |
| 15,252 |
|
| $ |
| 14,211 |
|
| (b) | Write-downs |
| Six Months Ended |
| |||||||
| June 30, |
| |||||||
|
| 2019 |
|
|
| 2018 |
| ||
|
|
|
|
|
|
|
|
|
|
Accounts receivable | $ |
| 1,358 |
|
| $ |
| 706 |
|
Joint revenue sharing arrangements (1) |
|
| 404 |
|
|
|
| 336 |
|
Property, plant and equipment (1) |
|
| 81 |
|
|
|
| 506 |
|
Other intangible assets |
|
| 21 |
|
|
|
| 38 |
|
Inventories |
|
| 2 |
|
|
|
| - |
|
Financing receivables |
|
| - |
|
|
|
| 100 |
|
| $ |
| 1,866 |
|
| $ |
| 1,686 |
|
| Three Months Ended |
| |||||||
| March 31, |
| |||||||
|
| 2020 |
|
|
| 2019 |
| ||
Film assets (1) | $ |
| 2,302 |
|
| $ |
| — |
|
Other assets (2) |
|
| 1,151 |
|
|
|
| — |
|
Joint revenue sharing arrangements (3) |
|
| 944 |
|
|
|
| 180 |
|
Property, plant and equipment |
|
| 6 |
|
|
|
| 86 |
|
| $ |
| 4,403 |
|
| $ |
| 266 |
|
(1) | The Company |
(2) | In the three months ended March 31, 2020, the Company recorded a $1.0 million write-down of content-related assets which became impaired in the period. |
(3) | In the three months ended March 31, 2020, the Company recorded charges of |
| (c) | Significant non-cash investing and financing activities are comprised of the following: |
| Six Months Ended |
| Three Months Ended |
| ||||||||||||||
| June 30, |
| March 31, |
| ||||||||||||||
|
| 2019 |
|
|
| 2018 |
|
| 2020 |
|
|
| 2019 |
| ||||
Net accruals related to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in joint revenue sharing arrangements | $ |
| 3,651 |
|
| $ |
| (20 | ) | $ |
| (1,226 | ) |
| $ |
| 200 |
|
Acquisition of other intangible assets |
|
| 13 |
|
|
|
| (23 | ) |
|
| 20 |
|
|
|
| 12 |
|
Purchases of property, plant and equipment |
|
| (427 | ) |
|
|
| 500 |
|
|
| (22 | ) |
|
|
| (401 | ) |
| $ |
| 3,237 |
|
| $ |
| 457 |
| $ |
| (1,228 | ) |
| $ |
| (189 | ) |
10.11. Income Taxes
| (a) | Income |
The Company’s effective tax rate for the three months ended March 31, 2020, is -35.8% and differs from the Canadian statutory tax rate and varies from yearof 26.2%, primarily due to year primarily as a result of permanent book to tax differences, investment and other tax credits, the provision for income taxes at different rates in foreign and other provincial jurisdictions, enacted statutoryjurisdictional tax rate increasesdifferences, managements estimates for favourable or decreases in the year, changes due to foreign exchange, changes in the Company’s valuation allowance based on the Company’s recoverability assessments of deferred tax assets, and favorable or unfavorableunfavourable resolution of various tax examinations. Duringexaminations and the reversal of the indefinite reinvestment assertion.
For the quarter ended June 30, 2019, there wasMarch 31, 2020, the Company recorded income tax expense of $15.5 million (2019 — $3.6 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 changelonger be indefinitely reinvested. As a result, the Company recognized a deferred tax liability of $19.7 million in the Company’s estimatesfirst quarter of 2020 for the recoverabilityapplicable foreign withholding taxes associated with these historical earnings, which will become payable upon the repatriation of its deferredany such earnings. Cash held outside of Canada as at March 31, 2020 was $89.5 million (December 31, 2019 — $90.1 million), of which $67.8 million was held in the People’s Republic of China (“PRC”) (December 31, 2019 — $67.6 million).
In addition, in the first quarter of 2020, the Company recognized income tax assets basedexpense of $4.8 million (2019 — $0.4 million) related to a provision for uncertain tax positions and an expense of $0.7 million (2019 — $0.3 million) recognized to reduce the tax benefit available on an analysis of both positive and negative evidence including projected future earnings as necessary.share-based compensation costs recognized in the period.
As at June 30, 2019,March 31, 2020, the Company had net deferred income tax assets after valuation allowance of $29.6$38.0 million (December 31, 20182019 — $31.3$23.9 million), which consists of a gross deferred income tax asset of $29.8$38.2 million (December 31, 20182019 — $31.5$24.1 million), against which the Company is carrying a $0.2 million valuation allowance (December 31, 20182019 — $0.2 million), and a deferred income tax liability of $19.7 million (December 31, 2019 — $nil).
For During the quarterthree months ended June 30, 2019, the Company recorded a provision for income taxes of $5.3 million. Included in the provision for income taxes was an expense of $0.1March 31, 2020, deferred tax assets increased by $14.1 million relateddue to its provision for uncertain tax positions and there were no amounts recognized related to its provision for tax shortfalls related to stock-based compensation costslosses recognized in the period.
In 2018, The recoverability of these deferred tax assets is subject to certain levels of future taxable income and is subject to the uncertainties associated with accounting estimates, as discussed in Note 1. Based on a review of the projected future earnings of the Company finalised its accounting related to changesthere was no change in the U.S. Tax Act. Among other things, the Company has finalised provisionalmanagement’s estimates and tax calculations, which included an evaluation of recent interpretations and new guidance issued. No adjustments were recognised during the year ended December 31, 2018, and the provisional re-measurement effect on deferred taxes recorded in the 2017 year reflects the total effect of the changes inrecoverability of the U.S. Tax Act.
Company’s deferred tax assets.
The Company has not providedCompany’s Chinese subsidiary had taken a deduction for taxes on cumulative earningscertain share-based compensation issued by the Chinese subsidiary’s parent company in a prior period and had recognized a related deferred tax asset of non-Canadian affiliates and associated companies that have been reinvested indefinitely. Taxes are provided for earnings of non-Canadian affiliates and associated companies when the Company determines that such earnings are no longer indefinitely reinvested.
Cash held outside of North America as at June 30, 2019 was $97.6$1.4 million (December 31, 20182019 — $121.9$1.4 million),. Chinese regulatory authorities responsible for capital and exchange controls will need to review and approve the proposed settlement of which $64.9 million was heldthese transactions before they can be completed. There may be a requirement for future investment of funds into China in order to secure the deduction. Should the Company proceed, any such future investment would come from existing capital invested in the People’s RepublicIMAX China group of companies being redeployed amongst the IMAX China (“PRC”) (December 31, 2018 — $54.7 million). The Company's intent is to permanently reinvest these amounts outsidegroup of Canada andcompanies, including the Company does not currently anticipate that it will need funds generated from foreign operations to fund North American operations. In the event funds from foreign operations are needed to fund operations in North America and if withholding taxes have not already been previously provided, the Company would be required to accrue and pay these additional withholding tax amounts on repatriation of funds from China to Canada. The Company currently estimates this amount to be $9.8 million (December 31, 2018 — $8.4 million).Chinese subsidiary.
| (b) | Income Tax Effect on Other Comprehensive (Loss) Income |
The income tax benefit (expense) benefit included in the Company’s other comprehensive (loss) income are related to the following items:
| Three Months Ended | Six Months Ended |
| Three Months Ended |
| |||||||||||||||||||
|
| June 30, |
|
| June 30, |
|
| March 31, |
| |||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||||
Unrealized change in cash flow hedging instruments |
| $ | (99 | ) |
| $ | 178 |
|
| $ | (182 | ) |
| $ | 441 |
|
| $ | 749 |
|
| $ | (83 | ) |
Realized change in cash flow hedging instruments upon settlement |
|
| (78 | ) |
|
| 29 |
|
|
| (96 | ) |
|
| 87 |
|
|
| (94 | ) |
|
| (18 | ) |
Unrecognized actuarial gain on defined benefit plan |
|
| 40 |
|
|
| — |
| ||||||||||||||||
|
| $ | (177 | ) |
| $ | 207 |
|
| $ | (278 | ) |
| $ | 528 |
|
| $ | 695 |
|
| $ | (101 | ) |
11.12. Capital Stock
| (a) |
|
Compensation costs recordedFor the three months ended March 31, 2020, share-based compensation expense totaled $4.2 million (2019 — $4.4 million) and is reflected in the condensed consolidated statementsfollowing accounts in the Condensed Consolidated Statements of operations for the Company’s stock-based compensation plans were $7.0 million and $11.4 million for the three and six months ended June 30, 2019, respectively (2018 — $6.8 million and
$11.6 million, respectively). The following reflects the stock-based compensation expense recorded to the respective financial statement line items:Operations:
| Three Months Ended |
|
| Six Months Ended |
| Three Months Ended |
| |||||||||||||||||||||
| June 30, |
|
| June 30, |
| March 31, |
| |||||||||||||||||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| ||||||||||||
Cost and expenses applicable to revenues | $ |
| 447 |
|
| $ |
| 398 |
|
| $ |
| 821 |
|
| $ |
| 732 |
| $ |
| 400 |
|
| $ |
| 374 |
|
Selling, general and administrative expenses |
|
| 6,485 |
|
|
|
| 6,242 |
|
|
| 10,388 |
|
|
| 10,659 |
|
|
| 3,707 |
|
|
|
| 3,903 |
| ||
Research and development |
|
| 95 |
|
|
|
| 116 |
|
|
| 180 |
|
|
| 212 |
|
|
| 85 |
|
|
|
| 85 |
| ||
Exit costs, restructuring charges and associated impairments |
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (19 | ) | |||||||||
| $ |
| 7,027 |
|
| $ |
| 6,756 |
|
| $ |
| 11,389 |
|
| $ |
| 11,584 |
| $ |
| 4,192 |
|
| $ |
| 4,362 |
|
The following reflects a breakdown oftable summarizes the Company’s stock-basedshare-based compensation expense by each planaward type:
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||
| June 30, |
|
| June 30, |
| ||||||||||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||||
Stock options | $ |
| 2,177 |
|
| $ |
| 1,361 |
|
| $ |
| 4,084 |
|
| $ |
| 2,750 |
|
Restricted Share Units |
|
| 4,132 |
|
|
|
| 4,805 |
|
|
|
| 6,242 |
|
|
|
| 8,020 |
|
China Long Term Incentive Plan Restricted Share Units |
|
| 641 |
|
|
|
| 537 |
|
|
|
| 920 |
|
|
|
| 720 |
|
China Options |
|
| 77 |
|
|
|
| 53 |
|
|
|
| 143 |
|
|
|
| 94 |
|
| $ |
| 7,027 |
|
| $ |
| 6,756 |
|
| $ |
| 11,389 |
|
| $ |
| 11,584 |
|
| Three Months Ended |
| |||||||
| March 31, |
| |||||||
| 2020 |
|
| 2019 |
| ||||
Stock Options | $ |
| 513 |
|
| $ |
| 1,907 |
|
Restricted Share Units |
|
| 2,902 |
|
|
|
| 2,110 |
|
Performance Stock Units |
|
| 279 |
|
|
|
| — |
|
IMAX China Stock Options |
|
| 85 |
|
|
|
| 66 |
|
IMAX China Long Term Incentive Plan Restricted Share Units |
|
| 405 |
|
|
|
| 279 |
|
IMAX China Long Term Incentive Plan Performance Stock Units |
|
| 8 |
|
|
|
| — |
|
| $ |
| 4,192 |
|
| $ |
| 4,362 |
|
Included in the above table is an expense of $0.1 million in the three months ended March 31, 2020 (2019 — $nil) related to restricted share units granted to a certain advisor of the Company.
Stock Option Summary
The following table summarizes certain information in respect of optionthe activity under the Company’s Stock Option Plan (“SOP”) and IMAX Amended and Restated Long Term Incentive Plan (“IMAX LTIP”) for the sixthree months ended June 30:March 31:
|
| Number of Shares |
|
|
| Weighted Average Exercise Price Per Share |
|
| Number of Shares |
|
|
| Weighted Average Exercise Price Per Share |
| ||||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||||||
Options outstanding, beginning of period |
|
| 5,465,046 |
|
|
| 5,082,100 |
|
| $ |
| 27.63 |
|
| $ |
| 29.31 |
| ||||||||||||||||||
Stock options outstanding, beginning of period |
|
| 5,732,209 |
|
|
| 5,465,046 |
|
| $ |
| 26.82 |
|
| $ |
| 27.63 |
| ||||||||||||||||||
Granted |
|
| 1,016,882 |
|
|
| 878,629 |
|
|
| 20.66 |
|
|
| 22.06 |
|
|
| — |
|
|
| 1,006,931 |
|
|
| — |
|
|
| 20.66 |
| ||||
Exercised |
|
| (85,746 | ) |
|
| — |
|
|
| 20.15 |
|
|
| — |
|
|
| — |
|
|
| (31,235 | ) |
|
| — |
|
|
| 20.36 |
| ||||
Forfeited |
|
| (103,902 | ) |
|
| (147,307 | ) |
|
| 23.70 |
|
|
| 30.77 |
|
|
| (14,876 | ) |
|
| (79,055 | ) |
|
| 21.78 |
|
|
| 23.71 |
| ||||
Expired |
|
| (316,325 | ) |
|
| (470,752 | ) |
|
| 26.08 |
|
|
| 31.77 |
|
|
| (772,665 | ) |
|
| (304,472 | ) |
|
| 27.03 |
|
|
| 25.94 |
| ||||
Cancelled |
|
| (5,196 | ) |
|
| — |
|
|
| 32.80 |
|
|
| — |
|
|
| (591 | ) |
|
| — |
|
|
| 20.85 |
|
|
| — |
| ||||
Options outstanding, end of period |
|
| 5,970,759 |
|
|
| 5,342,670 |
|
|
| 26.70 |
|
|
| 27.86 |
| ||||||||||||||||||||
Options exercisable, end of period |
|
| 4,104,443 |
|
|
| 3,708,881 |
|
|
| 28.35 |
|
|
| 28.68 |
| ||||||||||||||||||||
Stock options outstanding, end of period |
|
| 4,944,077 |
|
|
| 6,057,215 |
|
|
| 26.80 |
|
|
| 26.64 |
| ||||||||||||||||||||
Stock options exercisable, end of period |
|
| 4,331,193 |
|
|
| 3,886,592 |
|
|
| 27.32 |
|
|
| 28.74 |
|
Stock options are no longer granted under the Company’s previous approved SOP.
Restricted Share Units (“RSU”) Summary
The following table summarizes certain informationthe activity in respect of RSU activityRSUs issued under the IMAX LTIP for the sixthree months ended June 30:March 31:
|
| Number of Awards |
|
| Weighted Average Grant Date Fair Value Per Share |
|
| Number of Awards |
|
| Weighted Average Grant Date Fair Value Per Share |
| ||||||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
|
| 2019 |
|
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
|
| 2020 |
|
|
| 2019 |
| ||||||||
RSUs outstanding, beginning of period |
|
| 1,033,871 |
|
|
| 995,329 |
|
| $ |
| 25.70 |
|
| $ |
| 32.68 |
|
|
| 1,065,347 |
|
|
| 1,033,871 |
|
| $ |
| 23.17 |
|
| $ |
| 25.70 |
|
Granted |
|
| 618,181 |
|
|
| 591,296 |
|
|
| 22.40 |
|
|
| 20.92 |
|
|
| 937,303 |
|
|
| 540,535 |
|
|
| 15.65 |
|
|
| 22.61 |
| ||||
Vested and settled |
|
| (302,232 | ) |
|
| (335,308 | ) |
|
| 26.69 |
|
|
| 31.02 |
|
|
| (295,063 | ) |
|
| (228,445 | ) |
|
| 23.96 |
|
|
| 27.46 |
| ||||
Forfeited |
|
| (124,527 | ) |
|
| (53,029 | ) |
|
| 23.66 |
|
|
| 31.33 |
|
|
| (15,521 | ) |
|
| (90,900 | ) |
|
| 21.64 |
|
|
| 23.77 |
| ||||
RSUs outstanding, end of period |
|
| 1,225,293 |
|
|
| 1,198,288 |
|
|
| 23.99 |
|
|
| 27.40 |
|
|
| 1,692,066 |
|
|
| 1,255,061 |
|
|
| 18.88 |
|
|
| 24.18 |
|
Performance Stock Units Summary
In the first quarter of 2020, the Company expanded its share-based compensation program to include performance stock units (“PSUs”). 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 fair value of PSUs with EBITDA-based targets is equal to the closing price on date of grant or the average closing price of the Company’s common stock for five days prior to the date of grant. The fair value of PSUs with stock-price return in relation to a market index 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.
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, the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The compensation expense is fixed on the date of grant based on the dollar value granted.
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.
Compensation expense is not adjusted for estimated, forfeitures, but is instead adjusted based upon the actual forfeiture of the award.
The following table summarizes the activity in respect of PSUs issued under the IMAX LTIP for the three months ended March 31:
|
| Number of Awards |
|
| Weighted Average Grant Date Fair Value Per Share |
| ||||||||||||
|
| 2020 |
|
| 2019 |
|
|
| 2020 |
|
|
| 2019 |
| ||||
Granted |
|
| 359,784 |
|
|
| — |
|
|
|
| 15.74 |
|
|
|
| — |
|
PSUs outstanding, end of period |
|
| 359,784 |
|
|
| — |
|
|
|
| 15.74 |
|
|
|
| — |
|
Issuer Purchases of Equity Securities
In 2017, the Company’s Board of Directors approved a new $200.0 million common stock share repurchase program, for shares of the Company’s common shares. The share repurchase programwhich expires on June 30, 2020. The repurchases may be made either in the open market or through private transactions, subject to market conditions, applicable legal requirements and other relevant factors. The Company has no obligation to repurchase shares and the share repurchase program may be suspended or discontinued by the Company at any time. During the three and six months ended June 30, 2019,March 31, 2020, the Company repurchased 87,7692,484,123 shares of its common shares,respectively,stock at an average price of $19.45$14.72 per share, respectively, excluding commissions (2018 – 1,500,465 and 2,154,689commissions. During the three months ended March 31, 2019, the Company did 0t repurchase any share of its common shares, respectively at an average price of $22.01 per share and $21.54 per share, respectively).stock.
In 2018, 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% of the total number of issued shares of IMAX China as at 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% of the total number of issued shares of IMAX China as at June 6, 2019 (35,605,560 shares). The share repurchase program expires on the date of the 2020 annual general meeting of IMAX China.China on June 11, 2020. 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 and six months ended June 30, 2019,March 31, 2020, IMAX China repurchased 6,315,900 and 7,025,700480,600 shares of its common sharesstock (2019 — 709,800) at an average price of HKD 18.5914.42 per share and(U.S. $1.85) (2019 — HKD 18.68, respectively19.47 per share (U.S. $2.37 and U.S. $2.38, respectively)$2.48)). No shares were repurchased during the three and six months ended June 30, 2018.
The total number of shares purchased during the three and six months ended June 30, 2019March 31, 2020 does not include any200,000 common shares (2019 — 400,000 common shares), purchased in the administration of employee share-based compensation plans, (which amounted to nil and 400,000 common shares, respectively (2018 — nil and 300,000 common shares, respectively), at an average price of $nil and$15.43 per share (2019 — $22.98 per share, respectively (2018 — $nil and $20.55 per share, respectively))share).
As at June 30, 2019,March 31, 2020, the IMAX LTIP trustee held 77,60791,957 shares (December 31, 2019 — 187,020 shares) purchased for $1.6$1.4 million (December 31, 2019 — $4.0 million) in the open market to be issued upon the settlement of RSUs and certain stock options.employee share-based compensation. The shares held with the trustee are recorded at cost and are reported as a reduction against capital stock on the condensed consolidated balance sheet.Condensed Consolidated Balance Sheet.
| (b) | Net (Loss) Income Per Share |
Reconciliations ofThe following table reconciles the numerator and denominator of the basic and diluted per-share computations are comprised of the following:weighted average share computations:
| Three Months Ended |
|
| Six Months Ended |
| Three Months Ended |
| |||||||||||||||||||||
| June 30, |
|
| June 30, |
| March 31, |
| |||||||||||||||||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net income applicable to common shareholders | $ |
| 11,397 |
|
| $ |
| 7,625 |
|
| $ |
| 19,662 |
|
| $ |
| 16,130 |
| |||||||||
Weighted average number of common shares (000's): |
|
|
|
|
|
|
| �� |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued and outstanding, beginning of period |
|
| 61,291 |
|
|
|
| 63,956 |
|
|
|
| 61,434 |
|
|
|
| 64,696 |
|
|
| 61,176 |
|
|
|
| 61,434 |
|
Weighted average number of shares repurchased, net of shares issued during the period |
|
| 40 |
|
|
|
| (642 | ) |
|
|
| (80 | ) |
|
|
| (765 | ) |
|
| (758 | ) |
|
|
| (57 | ) |
Weighted average number of shares used in computing basic income per share |
|
| 61,331 |
|
|
|
| 63,314 |
|
|
|
| 61,354 |
|
|
|
| 63,931 |
|
|
| 60,418 |
|
|
|
| 61,377 |
|
Assumed exercise of stock options and RSUs, net of shares assumed repurchased |
|
| 176 |
|
|
|
| 112 |
|
|
|
| 171 |
|
|
|
| 75 |
| |||||||||
Assumed exercise of stock options, RSUs and PSUs, net of shares assumed repurchased, if dilutive |
|
| — |
|
|
|
| 182 |
| |||||||||||||||||||
Weighted average number of shares used in computing diluted income per share |
|
| 61,507 |
|
|
|
| 63,426 |
|
|
|
| 61,525 |
|
|
|
| 64,006 |
|
|
| 60,418 |
|
|
|
| 61,559 |
|
The calculation of diluted earnings per shareweighted average shares outstanding for the three and six months ended June 30, 2019March 31, 2020 excludes 6,153,795 and 6,226,8876,995,927 shares respectively (2018(2019 — 5,696,638 and 5,810,623 shares, respectively)6,647,056 shares) that are issuable upon the vesting of 183,627 and 256,1281,692,066 RSUs respectively (2018(2019 — 442,331 and 556,316 RSUs, respectively)639,739 RSUs), 359,784 PSUs (2019 — nil PSUs) and the exercise of 5,970,168 and 5,970,7594,944,077 stock options respectively (2018(2019 — 5,254,307 and 5,254,3076,007,317 stock options, respectively)options), as the impact would be antidilutive.
12.13. Revenue from Contracts with Customers
(a) Disaggregated Information About Revenue
The following tables summarize the Company’s revenue arrangements with certain customers may involve performance obligations consistingrevenues by type and reportable segment for the three months ended March 31, 2020 and 2019:
| Three Months Ended |
| ||||||||||||||||||||||
| March 31, 2020 |
| ||||||||||||||||||||||
| Revenue from |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
| Contracts with Customers |
|
| Revenue from |
|
|
|
|
|
|
|
|
| |||||||||||
| Fixed Consideration |
|
| Variable Consideration |
|
| Lease Arrangements |
|
| Finance Income |
|
| Total |
| ||||||||||
Technology sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX Systems | $ |
| 2,243 |
|
| $ |
| 897 |
|
| $ |
| — |
|
| $ |
| — |
|
| $ |
| 3,140 |
|
Joint Revenue Sharing Arrangements, fixed fees |
|
| — |
|
|
|
| — |
|
|
|
| 770 |
|
|
|
| — |
|
|
|
| 770 |
|
Other Theater Business |
|
| 1,263 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 1,263 |
|
Other sales(1) |
|
| 489 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 489 |
|
|
|
| 3,995 |
|
|
|
| 897 |
|
|
|
| 770 |
|
|
|
| — |
|
|
|
| 5,662 |
|
Image enhancement and maintenance services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX DMR |
|
| — |
|
|
|
| 10,629 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 10,629 |
|
IMAX Maintenance |
|
| 7,370 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 7,370 |
|
Film Post-Production |
|
| 1,611 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 1,611 |
|
Film Distribution |
|
| — |
|
|
|
| 883 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 883 |
|
Other |
|
| — |
|
|
|
| 228 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 228 |
|
|
|
| 8,981 |
|
|
|
| 11,740 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 20,721 |
|
Technology rentals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint Revenue Sharing Arrangements, contingent rent |
|
| — |
|
|
|
| — |
|
|
|
| 5,971 |
|
|
|
| — |
|
|
|
| 5,971 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 5,971 |
|
|
|
| — |
|
|
|
| 5,971 |
|
Finance income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX Systems |
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 2,548 |
|
|
|
| 2,548 |
|
Total | $ |
| 12,976 |
|
| $ |
| 12,637 |
|
| $ |
| 6,741 |
|
| $ |
| 2,548 |
|
| $ |
| 34,902 |
|
| Three Months Ended |
| ||||||||||||||||||||||
| March 31, 2019 |
| ||||||||||||||||||||||
| Revenue from |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
| Contracts with Customers |
|
| Revenue from |
|
|
|
|
|
|
|
|
| |||||||||||
| Fixed Consideration |
|
| Variable Consideration |
|
| Lease Arrangements |
|
| Finance Income |
|
| Total |
| ||||||||||
Technology sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX Systems | $ |
| 8,164 |
|
| $ |
| 2,181 |
|
| $ |
| — |
|
| $ |
| — |
|
| $ |
| 10,345 |
|
Joint Revenue Sharing Arrangements, fixed fees |
|
| — |
|
|
|
| — |
|
|
|
| 2,539 |
|
|
|
| — |
|
|
|
| 2,539 |
|
Other Theater Business |
|
| 1,626 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 1,626 |
|
Other sales(1) |
|
| 690 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 690 |
|
|
|
| 10,480 |
|
|
|
| 2,181 |
|
|
|
| 2,539 |
|
|
|
| — |
|
|
|
| 15,200 |
|
Image enhancement and maintenance services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX DMR |
|
| — |
|
|
|
| 27,950 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 27,950 |
|
IMAX Maintenance |
|
| 12,951 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 12,951 |
|
Film Post-production |
|
| 1,947 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 1,947 |
|
Film Distribution |
|
| — |
|
|
|
| 715 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 715 |
|
Other(1) |
|
|
|
|
|
|
| 584 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 584 |
|
|
|
| 14,898 |
|
|
|
| 29,249 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 44,147 |
|
Technology rentals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint Revenue Sharing Arrangements, contingent rent |
|
| — |
|
|
|
| — |
|
|
|
| 18,044 |
|
|
|
| — |
|
|
|
| 18,044 |
|
Other(1) |
|
| — |
|
|
|
| 24 |
|
|
|
| 102 |
|
|
|
| — |
|
|
|
| 126 |
|
|
|
| — |
|
|
|
| 24 |
|
|
|
| 18,146 |
|
|
|
| — |
|
|
|
| 18,170 |
|
Finance income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX Systems |
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 2,681 |
|
|
|
| 2,681 |
|
Total | $ |
| 25,378 |
|
| $ |
| 31,454 |
|
| $ |
| 20,685 |
|
| $ |
| 2,681 |
|
| $ |
| 80,198 |
|
(1) | Other sales include New Business Initiatives. |
(See Note 2 for information on the current and anticipated impacts of the delivery of a theater system (projector, sound system, screen system and, if applicable, 3D glasses cleaning machine); services associated with the theater system including theater design support, supervision of installation, and projectionist training; a license to use the IMAX brand; 3D glasses; maintenance and extended warranty services; and licensing of films. The Company evaluates all of the performance obligations in an 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 basedCOVID-19 pandemic on the applicable accounting guidance in the Leases Topic of the FASB ASC; the Guarantees Topic of the FASB ASC; and theCompany’s revenues.)
(b) Deferred Revenue Recognition Topic of the FASB ASC. If separate units of accounting are either required under the relevant accounting standards or determined to be applicable under the Revenue Recognition Topic, the total transaction price received or receivable in the arrangement is allocated based on the applicable guidance in the above noted standards. The Company’s revenue recognition policies are described in note 2(m) in the Company’s 2018 Form 10-K.
The Company’s arrangements include a requirement for the provision ofit to provide maintenance services over the life of the arrangement, subject to a consumer price index increase on renewaladjustment each year. In circumstances where customers prepay the entire term’s maintenance arrangement,fee, payments are due to the Company for the years after theits extended warranty and maintenance services offered as part of the System Obligationobligations expire. Payments upon renewal each year can beare either prepaid or made in arrears or in advance and can vary in frequency from monthly to annually. At June 30, 2019 $13.7March 31, 2020, $20.9 million of consideration has been deferred in relation to outstanding stand ready performance obligations related to these maintenance services to be provided on existing maintenance contracts (December 31, 20182019 — $21.9$17.7 million). As theThe maintenance services are a stand ready obligation, revenue subject to appropriate constraint, is recognized evenly over the contract term.term which coincides with the maintenance services being 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 is received prior to satisfying its performance obligations beingare satisfied, itthe recognition of revenue is deferred. The majority of the Company’s deferred revenue balance relates to payments received by the Company for theater systems that haveIMAX Theater Systems where control of the system has not yet been recognized.transferred to the customer. The deferred revenue balance related to an individual theater increases as progress payments are made and is recognized at the timethen derecognized when control of the system obligation is satisfied.transferred to the customer. Recognition dates are variable and depend on numerous factors, including some outside of the Company’s control.
The recognition of variable consideration involves a significant amount of judgment. Variable consideration is to be recognized subject to appropriate constraints to avoid a significant reversal of revenue in future periods. The Company will review the variable interest assets on an ongoing basis. In the three and six months ended June 30, 2019, the Company recorded a true-up of variable consideration of $0.5 million and $1.9 million, respectively due to the modification of existing arrangements.
The following tables present a breakdown of the Company’s revenues between fixed and variable consideration and lease arrangements:14. Segment Reporting
| Three Months Ended |
| |||||||||||||||||
| June 30, 2019 |
| |||||||||||||||||
| Subject to the Revenue |
|
| Subject to the |
|
|
|
|
|
| |||||||||
| Recognition Standard |
|
| Lease Standard |
|
|
|
|
|
| |||||||||
| Fixed consideration |
|
| Variable consideration |
|
| Lease arrangements |
|
| Total |
| ||||||||
Network business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX DMR | $ |
| — |
|
| $ |
| 39,293 |
|
| $ |
| — |
|
| $ |
| 39,293 |
|
Joint revenue sharing arrangements – contingent rent |
|
| — |
|
|
|
| — |
|
|
|
| 25,301 |
|
|
|
| 25,301 |
|
IMAX systems – contingent rent |
|
| — |
|
|
|
| — |
|
|
|
| 131 |
|
|
|
| 131 |
|
|
|
| — |
|
|
|
| 39,293 |
|
|
|
| 25,432 |
|
|
|
| 64,725 |
|
Theater business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX systems |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and sales-type leases |
|
| 13,074 |
|
|
|
| 719 |
|
|
|
| — |
|
|
|
| 13,793 |
|
Ongoing fees and finance income |
|
| 2,816 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 2,816 |
|
Joint revenue sharing arrangements – fixed fees |
|
| — |
|
|
|
| — |
|
|
|
| 2,548 |
|
|
|
| 2,548 |
|
Theater system maintenance |
|
| 13,207 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 13,207 |
|
Other theater |
|
| 2,580 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 2,580 |
|
|
|
| 31,677 |
|
|
|
| 719 |
|
|
|
| 2,548 |
|
|
|
| 34,944 |
|
New business |
|
| 500 |
|
|
|
| (22 | ) |
|
|
| — |
|
|
|
| 478 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film post-production |
|
| 2,326 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 2,326 |
|
Film distribution |
|
| — |
|
|
|
| 1,275 |
|
|
|
| — |
|
|
|
| 1,275 |
|
Other |
|
| — |
|
|
|
| 728 |
|
|
|
| 321 |
|
|
|
| 1,049 |
|
|
|
| 2,326 |
|
|
|
| 2,003 |
|
|
|
| 321 |
|
|
|
| 4,650 |
|
Total | $ |
| 34,503 |
|
| $ |
| 41,993 |
|
| $ |
| 28,301 |
|
| $ |
| 104,797 |
|
| Six Months Ended |
| |||||||||||||||||
| June 30, 2019 |
| |||||||||||||||||
| Subject to the Revenue |
|
| Subject to the |
|
|
|
|
|
| |||||||||
| Recognition Standard |
|
| Lease Standard |
|
|
|
|
|
| |||||||||
| Fixed consideration |
|
| Variable consideration |
|
| Lease arrangements |
|
| Total |
| ||||||||
Network business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX DMR | $ |
| — |
|
| $ |
| 67,243 |
|
| $ |
| — |
|
| $ |
| 67,243 |
|
Joint revenue sharing arrangements – contingent rent |
|
| — |
|
|
|
| — |
|
|
|
| 43,158 |
|
|
|
| 43,158 |
|
IMAX systems – contingent rent |
|
| — |
|
|
|
| — |
|
|
|
| 157 |
|
|
|
| 157 |
|
|
|
| — |
|
|
|
| 67,243 |
|
|
|
| 43,315 |
|
|
|
| 110,558 |
|
Theater business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX systems |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and sales-type leases |
|
| 21,238 |
|
|
|
| 2,874 |
|
|
|
| — |
|
|
|
| 24,112 |
|
Ongoing fees and finance income |
|
| 5,685 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 5,685 |
|
Joint revenue sharing arrangements – fixed fees |
|
| — |
|
|
|
| — |
|
|
|
| 5,087 |
|
|
|
| 5,087 |
|
Theater system maintenance |
|
| 26,158 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 26,158 |
|
Other theater |
|
| 4,206 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 4,206 |
|
|
|
| 57,287 |
|
|
|
| 2,874 |
|
|
|
| 5,087 |
|
|
|
| 65,248 |
|
New business |
|
| 612 |
|
|
|
| 700 |
|
|
|
| — |
|
|
|
| 1,312 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film post-production |
|
| 4,273 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 4,273 |
|
Film distribution |
|
| — |
|
|
|
| 1,990 |
|
|
|
| — |
|
|
|
| 1,990 |
|
Other |
|
| — |
|
|
|
| 1,191 |
|
|
|
| 423 |
|
|
|
| 1,614 |
|
|
|
| 4,273 |
|
|
|
| 3,181 |
|
|
|
| 423 |
|
|
|
| 7,877 |
|
Total | $ |
| 62,172 |
|
| $ |
| 73,998 |
|
| $ |
| 48,825 |
|
| $ |
| 184,995 |
|
| Three Months Ended |
| |||||||||||||||||
| June 30, 2018 |
| |||||||||||||||||
| Subject to the Revenue |
|
| Subject to the |
|
|
|
|
|
| |||||||||
| Recognition Standard |
|
| Lease Standard |
|
|
|
|
|
| |||||||||
| Fixed consideration |
|
| Variable consideration |
|
| Lease arrangements |
|
| Total |
| ||||||||
Network business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX DMR | $ |
| — |
|
| $ |
| 36,161 |
|
| $ |
| — |
|
| $ |
| 36,161 |
|
Joint revenue sharing arrangements – contingent rent |
|
| — |
|
|
|
| — |
|
|
|
| 24,730 |
|
|
|
| 24,730 |
|
|
|
| — |
|
|
|
| 36,161 |
|
|
|
| 24,730 |
|
|
|
| 60,891 |
|
Theater business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX systems |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and sales-type leases |
|
| 9,874 |
|
|
|
| 2,107 |
|
|
|
| — |
|
|
|
| 11,981 |
|
Ongoing fees and finance income |
|
| 3,282 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 3,282 |
|
Joint revenue sharing arrangements – fixed fees |
|
| 1,022 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 1,022 |
|
Theater system maintenance |
|
| 12,335 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 12,335 |
|
Other theater |
|
| 2,255 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 2,255 |
|
|
|
| 28,768 |
|
|
|
| 2,107 |
|
|
|
| — |
|
|
|
| 30,875 |
|
New business |
|
| 2,825 |
|
|
|
| 291 |
|
|
|
| — |
|
|
|
| 3,116 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film post-production |
|
| 1,087 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 1,087 |
|
Film distribution |
|
| — |
|
|
|
| 1,273 |
|
|
|
| — |
|
|
|
| 1,273 |
|
Other |
|
| — |
|
|
|
| 1,103 |
|
|
|
| — |
|
|
|
| 1,103 |
|
|
|
| 1,087 |
|
|
|
| 2,376 |
|
|
|
| — |
|
|
|
| 3,463 |
|
Total | $ |
| 32,680 |
|
| $ |
| 40,935 |
|
| $ |
| 24,730 |
|
| $ |
| 98,345 |
|
| Six Months Ended |
| |||||||||||||||||
| June 30, 2018 |
| |||||||||||||||||
| Subject to the Revenue |
|
| Subject to the |
|
|
|
|
|
| |||||||||
| Recognition Standard |
|
| Lease Standard |
|
|
|
|
|
| |||||||||
| Fixed consideration |
|
| Variable consideration |
|
| Lease arrangements |
|
| Total |
| ||||||||
Network business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX DMR | $ |
| — |
|
| $ |
| 63,214 |
|
| $ |
| — |
|
| $ |
| 63,214 |
|
Joint revenue sharing arrangements – contingent rent |
|
| — |
|
|
|
| — |
|
|
|
| 42,593 |
|
|
|
| 42,593 |
|
|
|
| — |
|
|
|
| 63,214 |
|
|
|
| 42,593 |
|
|
|
| 105,807 |
|
Theater business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX systems |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and sales-type leases |
|
| 25,822 |
|
|
|
| 4,296 |
|
|
|
| — |
|
|
|
| 30,118 |
|
Ongoing fees and finance income |
|
| 6,012 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 6,012 |
|
Joint revenue sharing arrangements – fixed fees |
|
| 1,022 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 1,022 |
|
Theater system maintenance |
|
| 25,047 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 25,047 |
|
Other theater |
|
| 3,631 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 3,631 |
|
|
|
| 61,534 |
|
|
|
| 4,296 |
|
|
|
| — |
|
|
|
| 65,830 |
|
New business |
|
| 2,825 |
|
|
|
| 898 |
|
|
|
| — |
|
|
|
| 3,723 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film post-production |
|
| 4,250 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 4,250 |
|
Film distribution |
|
| — |
|
|
|
| 1,844 |
|
|
|
| — |
|
|
|
| 1,844 |
|
Other |
|
| 50 |
|
|
|
| 1,825 |
|
|
|
| — |
|
|
|
| 1,875 |
|
|
|
| 4,300 |
|
|
|
| 3,669 |
|
|
|
| — |
|
|
|
| 7,969 |
|
Total | $ |
| 68,659 |
|
| $ |
| 72,077 |
|
| $ |
| 42,593 |
|
| $ |
| 183,329 |
|
13. Segmented Information
Management, including theThe Company’s Chief Executive Officer (“CEO”) who is the Company’sits Chief Operating Decision Maker (as(“CODM”), as such term is defined in the Segment Reporting Topicunder U.S. GAAP. The CODM, along with other members of the FASB ASC),management, assesses segment performance based on segment revenues and gross margins. Selling, general and administrative expenses, research and development costs, amortization of intangibles, receivables provisions (recoveries), certain write-downs, net of recoveries, interest income, interest expense and tax (provision) recovery are not allocated to the segments.
The Company’sCompany 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. The Company organizes its reportable segments are organized underinto the following four primary groupscategories, identified by the nature of the product sold or service provided: (1) Network Business, representing variable revenue generated by box office results and which includes the reportable segment of IMAX DMR and contingent rent from the joint revenue sharing arrangements and IMAX systems segments (hybrid joint revenue sharing arrangements, which take the form of a sale are reflected under the IMAX systems segment of Theater Business); (2) Theater Business, representing revenue generated by the sale and installation of theater systems and maintenance services, primarily related to the IMAX Systems and Theater System Maintenance reportable segments, and also includes hybrid (fixed and contingent) revenues and upfront installation costs from sales arrangements previously reported in the joint revenue sharing arrangements segment and after-market sales of projection system parts and 3D glasses from the other segment; (3) New Business, which includes home entertainment, and other new business initiatives that are in the development, start-up and/or wind-up phases, and (4) Other; which includes the film post-production and distribution segments, certain IMAX theaters that the Company owns and operates, camera rentals and other miscellaneous items.
(i) | IMAX Technology Network, which earns revenue based on contingent box office receipts and includes the IMAX DMR segment and contingent rent from the Joint Revenue Sharing Arrangement (“JRSA”) segment; |
(ii) | IMAX Technology Sales and Maintenance, which includes results from the IMAX Systems, IMAX Maintenance and Other Theater Business segments, as well as fixed revenues from the JRSA segment; |
(iii) | New Business Initiatives, which is a segment that includes activities related to the exploration of new lines of business and new initiatives outside of the Company’s core business; and |
(iv) | Film Distribution and Post-production, which includes activities related to the distribution of films primarily for the Company’s institutional theater partners (through the Film Distribution segment) and the provision of film post-production and quality control services (through the Film Post-production segment). |
The Company is presenting information at a disaggregated level to provide more relevant information to readers, as permitted by the standard. readers.
Refer to Item 2 of the Company’s Form 10-Q for additional information regarding the four4 primary groups mentioned above.
Transactions between the film production IMAX DMR segment and the film post-productionFilm Post-production segment are valued at exchange value. Inter-segment profits are eliminated upon consolidation, as well as for the disclosures below.
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Revenue(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Network business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX DMR |
| $ | 39,293 |
|
| $ | 36,161 |
|
| $ | 67,243 |
|
| $ | 63,214 |
|
Joint revenue sharing arrangements – contingent rent |
|
| 25,301 |
|
|
| 24,730 |
|
|
| 43,158 |
|
|
| 42,593 |
|
IMAX systems – contingent rent |
|
| 131 |
|
|
| — |
|
|
| 157 |
|
|
| — |
|
|
|
| 64,725 |
|
|
| 60,891 |
|
|
| 110,558 |
|
|
| 105,807 |
|
Theater business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX systems |
|
| 16,609 |
|
|
| 15,263 |
|
|
| 29,797 |
|
|
| 36,130 |
|
Joint revenue sharing arrangements – fixed fees |
|
| 2,548 |
|
|
| 1,022 |
|
|
| 5,087 |
|
|
| 1,022 |
|
Theater system maintenance |
|
| 13,207 |
|
|
| 12,335 |
|
|
| 26,158 |
|
|
| 25,047 |
|
Other theater |
|
| 2,580 |
|
|
| 2,255 |
|
|
| 4,206 |
|
|
| 3,631 |
|
|
|
| 34,944 |
|
|
| 30,875 |
|
|
| 65,248 |
|
|
| 65,830 |
|
New business |
|
| 478 |
|
|
| 3,116 |
|
|
| 1,312 |
|
|
| 3,723 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film post-production |
|
| 2,326 |
|
|
| 1,087 |
|
|
| 4,273 |
|
|
| 4,250 |
|
Film distribution |
|
| 1,275 |
|
|
| 1,273 |
|
|
| 1,990 |
|
|
| 1,844 |
|
Other |
|
| 1,049 |
|
|
| 1,103 |
|
|
| 1,614 |
|
|
| 1,875 |
|
|
|
| 4,650 |
|
|
| 3,463 |
|
|
| 7,877 |
|
|
| 7,969 |
|
Total revenues |
| $ | 104,797 |
|
| $ | 98,345 |
|
| $ | 184,995 |
|
| $ | 183,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Network business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX DMR(2) |
| $ | 23,961 |
|
| $ | 24,280 |
|
| $ | 43,736 |
|
| $ | 43,063 |
|
Joint revenue sharing arrangements – contingent rent(2) |
|
| 19,128 |
|
|
| 18,621 |
|
|
| 30,923 |
|
|
| 31,362 |
|
IMAX systems – contingent rent |
|
| 131 |
|
|
| — |
|
|
| 157 |
|
|
| — |
|
|
|
| 43,220 |
|
|
| 42,901 |
|
|
| 74,816 |
|
|
| 74,425 |
|
Theater business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX systems(2) |
|
| 8,078 |
|
|
| 10,133 |
|
|
| 15,244 |
|
|
| 24,425 |
|
Joint revenue sharing arrangements – fixed fees(2) |
|
| 870 |
|
|
| 246 |
|
|
| 1,165 |
|
|
| 246 |
|
Theater system maintenance |
|
| 5,640 |
|
|
| 5,088 |
|
|
| 10,921 |
|
|
| 11,292 |
|
Other theater |
|
| 841 |
|
|
| 563 |
|
|
| 1,316 |
|
|
| 517 |
|
|
|
| 15,429 |
|
|
| 16,030 |
|
|
| 28,646 |
|
|
| 36,480 |
|
New business |
|
| 281 |
|
|
| 1,906 |
|
|
| 900 |
|
|
| 436 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film post-production |
|
| 81 |
|
|
| (150 | ) |
|
| 766 |
|
|
| 1,535 |
|
Film distribution(2) |
|
| 377 |
|
|
| (237 | ) |
|
| (333 | ) |
|
| (1,476 | ) |
Other |
|
| 165 |
|
|
| (46 | ) |
|
| (102 | ) |
|
| (304 | ) |
|
|
| 623 |
|
|
| (433 | ) |
|
| 331 |
|
|
| (245 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment margin |
| $ | 59,553 |
|
| $ | 60,404 |
|
| $ | 104,693 |
|
| $ | 111,096 |
|
The following table sets forth the breakdown of revenue and gross margin by category for the three months ended March 31, 2020:
(In thousands of U.S. dollars) |
| Revenue(1) |
|
| Gross Margin(4) |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
IMAX Technology Network |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX DMR |
| $ | 10,629 |
|
| $ | 27,950 |
|
| $ | 4,443 |
|
| $ | 19,775 |
|
Joint revenue sharing arrangements, contingent rent |
|
| 5,971 |
|
|
| 18,044 |
|
|
| (1,618 | ) |
|
| 11,935 |
|
|
|
| 16,600 |
|
|
| 45,994 |
|
|
| 2,825 |
|
|
| 31,710 |
|
IMAX Technology Sales and Maintenance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX Systems (2) |
|
| 5,688 |
|
|
| 13,026 |
|
|
| 3,176 |
|
|
| 7,052 |
|
Joint revenue sharing arrangements, fixed fees |
|
| 770 |
|
|
| 2,539 |
|
|
| 179 |
|
|
| 295 |
|
IMAX Maintenance |
|
| 7,370 |
|
|
| 12,951 |
|
|
| 759 |
|
|
| 5,281 |
|
Other Theater Business (3) |
|
| 1,263 |
|
|
| 1,626 |
|
|
| 610 |
|
|
| 475 |
|
|
|
| 15,091 |
|
|
| 30,142 |
|
|
| 4,724 |
|
|
| 13,103 |
|
New Business Initiatives |
|
| 478 |
|
|
| 834 |
|
|
| 361 |
|
|
| 619 |
|
Film Distribution and Post-production |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film Distribution |
|
| 883 |
|
|
| 715 |
|
|
| (2,158 | ) |
|
| (710 | ) |
Post-production |
|
| 1,611 |
|
|
| 1,947 |
|
|
| 223 |
|
|
| 685 |
|
|
|
| 2,494 |
|
|
| 2,662 |
|
|
| (1,935 | ) |
|
| (25 | ) |
|
|
| 34,663 |
|
|
| 79,632 |
|
|
| 5,975 |
|
|
| 45,407 |
|
Other |
|
| 239 |
|
|
| 566 |
|
|
| (889 | ) |
|
| (267 | ) |
Total |
| $ | 34,902 |
|
| $ | 80,198 |
|
| $ | 5,086 |
|
| $ | 45,140 |
|
(1) | The Company’s largest customer represented |
(2) | Includes initial payments and the present value of fixed minimum payments from sales and sales-type lease arrangements of IMAX Theater Systems, and the present value of estimates of variable consideration from sales of IMAX Theater Systems. To a lesser extent, also includes finance income associated with these revenue streams. |
(3) | Principally includes after-market sales of IMAX projection system parts and 3D glasses |
(4) | IMAX DMR |
Geographic Information
Revenue by geographic area is based on the location of the customer. Revenue related to IMAX DMR is presented based upon the geographic location of the theaters that exhibit the re-masteredremastered films. IMAX DMR 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.
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| June 30, |
|
| June 30, |
|
| March 31, |
| |||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
| $ | 35,944 |
|
| $ | 38,081 |
|
| $ | 60,237 |
|
| $ | 65,713 |
|
| $ | 12,965 |
|
| $ | 24,293 |
|
Asia (excluding Greater China) |
|
| 5,860 |
|
|
| 8,790 |
| ||||||||||||||||
Greater China |
|
| 32,575 |
|
|
| 23,341 |
|
|
| 59,256 |
|
|
| 51,487 |
|
|
| 5,269 |
|
|
| 26,681 |
|
Western Europe |
|
| 11,933 |
|
|
| 9,050 |
|
|
| 20,376 |
|
|
| 19,312 |
|
|
| 4,557 |
|
|
| 8,443 |
|
Asia (Excluding Greater China) |
|
| 9,963 |
|
|
| 11,371 |
|
|
| 18,753 |
|
|
| 20,601 |
| ||||||||
Russia & the CIS |
|
| 5,619 |
|
|
| 2,346 |
|
|
| 7,307 |
|
|
| 4,336 |
|
|
| 1,566 |
|
|
| 1,688 |
|
Latin America |
|
| 1,527 |
|
|
| 2,653 |
| ||||||||||||||||
Canada |
|
| 2,620 |
|
|
| 3,444 |
|
|
| 4,492 |
|
|
| 6,010 |
|
|
| 931 |
|
|
| 1,872 |
|
Latin America |
|
| 2,160 |
|
|
| 4,856 |
|
|
| 4,813 |
|
|
| 6,335 |
| ||||||||
Rest of the World |
|
| 3,983 |
|
|
| 5,856 |
|
|
| 9,761 |
|
|
| 9,535 |
|
|
| 2,227 |
|
|
| 5,778 |
|
Total |
| $ | 104,797 |
|
| $ | 98,345 |
|
| $ | 184,995 |
|
| $ | 183,329 |
|
| $ | 34,902 |
|
| $ | 80,198 |
|
No single country in the Rest of the World, Western Europe, Latin America and Asia (excluding Greater China) classifications comprises more than 10% of the Company’s total revenue.
14.15. Employee's Pension and Postretirement Benefits
| (a) | Defined Benefit Plan |
The Company has an unfunded U.S. defined benefit pensionsupplemental executive retirement plan (the “SERP”) covering Richard L. Gelfond, CEO of the Company.
its CEO. The following table provides disclosure of the pension obligation for the SERP:
|
| June 30, |
|
| December 31, |
| ||
|
| 2019 |
|
| 2018 |
| ||
Projected benefit obligation: |
|
|
|
|
|
|
|
|
Obligation, beginning of period |
| $ | 17,977 |
|
| $ | 19,003 |
|
Interest cost |
|
| 282 |
|
|
| 422 |
|
Actuarial gain |
|
| — |
|
|
| (1,448 | ) |
Obligation, end of period and unfunded status |
| $ | 18,259 |
|
| $ | 17,977 |
|
The following table provides disclosure of pension expense for the SERP:
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Interest cost |
| $ | 141 |
|
| $ | 105 |
|
| $ | 282 |
|
| $ | 211 |
|
No contributions are expected to be madeaccounting for the SERP during the remainder of 2019. The Company expects interest costs of to be $0.3 million recognized as a component of net periodic benefit cost during the remainder of 2019.
The accumulated benefit obligation for the SERP was $18.3 million at June 30, 2019 (December 31, 2018 —$18.0 million).
The SERP assumptions areassumes that Mr. Gelfond will receive a lump sum payment of $20.3 million six months after retirement at the end of the current term of his employment agreement (December 31, 2019)2022), although Mr. Gelfond has not informed the Company that he intends to retire at that time.
As at March 31, 2020 and December 31, 2019, the Company’s projected benefit obligation and unfunded status related to the SERP are as follows:
|
| March 31, |
|
| December 31, |
| ||
|
| 2020 |
|
| 2019 |
| ||
Projected benefit obligation: |
|
|
|
|
|
|
|
|
Obligation, beginning of period |
| $ | 18,840 |
|
| $ | 17,977 |
|
Prior Service cost |
|
| — |
|
| $ | 456 |
|
Interest cost |
|
| 95 |
|
|
| 564 |
|
Actuarial gain |
|
| — |
|
|
| (157 | ) |
Obligation, end of period and unfunded status |
| $ | 18,935 |
|
| $ | 18,840 |
|
The accumulated benefit obligation for the SERP was $18.9 million at March 31, 2020 (December 31, 2019 —$18.8 million). For the three months ended March 31, 2020 and 2019, the Company recorded interest cost of $0.1 million related to the SERP. The Company expects to recognize interest costs of $0.3 million related to the SERP during the remainder of 2020. NaN contributions are expected to be made for the SERP during the remainder of 2020.
| (b) | Defined Contribution Pension Plan |
The Company also maintains defined contribution 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% of their base salary subject to certain prescribed maximums. During the three and six months ended June 30, 2019,March 31, 2020, the Company contributed and expensed an aggregaterecorded expense of $0.3 million and $0.6 million, respectively (20182019 — $0.3 million and $0.6 million respectively)$0.4 million) to its Canadian defined contribution plan and an aggregate of $0.1$0.2 million and $0.3 million, respectively (20182019 —$0.1 million 0.2 million)and $0.3 million respectively) to its defined contribution employee plan under Section 401(k) of the U.S. Internal Revenue Code.
| (c) | Postretirement Benefits – Executives |
The Company has an unfunded postretirement plan for Mr. Gelfond and Bradley J. Wechsler, Chairman of the Company’s Board of Directors. The 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 supplement coverage as selected by Messrs. Gelfond and Wechsler. TheAs at March 31, 2020, the Company’s postretirement benefits obligation as at June 30, 2019under this plan is $0.7$0.6 million (December 31, 20182019 — $0.6$0.7 million). TheFor the three months ended March 31, 2020, the Company has expensedrecorded expense of less than $0.1 million and less than $0.1 million for the three and six months ended June 30, 2019, respectively (2018(2019 — less than $0.1 million and less than $0.1 million, respectively).million) related to this plan.
| (d) | Postretirement Benefits – Canadian Employees |
The Company has an unfunded postretirement plan for its Canadian employees upon meeting specific eligibility requirements. The Company will provide eligible participants, upon retirement, with health and welfare benefits. TheAs at March 31, 2020, the Company’s postretirement benefits obligation as at June 30, 2019under this plan is $1.5 million (December 31, 20182019 — $1.5$1.6 million). TheFor the three months ended March 31, 2020, the Company has expensed less thanrecorded expense of $0.1 million and less than $0.1 million for the three and six months ended June 30, 2019, respectively (2018(2019 — less than $0.1 million and less than $0.1 million, respectively).million) related to this plan.
| (e) | Deferred Compensation Benefit Plan |
The Company maintained a nonqualified deferred compensation benefit plan (the “Retirement Plan”) covering Greg Foster,the former CEO of IMAX Entertainment and Senior Executive Vice President of the Company. Under the terms of his Retirement Plan with the Company, the Retirement Plan will vest in full if Mr. Fosterhe incurs a separation from service (as defined therein). In the fourth quarter of 2018, Mr. Fosterhe incurred a separation from service, and as such, his Retirement Plan benefits became fully vested as at December 31, 2018 and the accelerated costs were recognized and reflected in the executive transition costs line on the consolidated statement of operations. As at June 30, 2019,March 31, 2020, the Company had a funded benefit obligation recorded of $3.6 million (December 31, 2018 ��2019 — $3.6 million). The Company did not0t recognize any additional expenses in the three and six months ended June 30,March 31, 2020 and 2019 (2018 —$0.2 million and $0.4 million, respectively).
15.16. Financial Instruments
| (a) |
|
The Company maintains cash with various major financial institutions. The Company’s cash is invested with highly rated financial institutions.
The Company’s accounts receivables and financing receivables are subject to credit risk. The Company’s accounts receivables and financing receivables are concentrated with the theater exhibition industry and film entertainment industry. To minimize the Company’s credit risk, the Company retains title to underlying theater systems leased, performs initial and ongoing credit evaluations of its customers and makes ongoing provisions for its estimate of potentially uncollectible amounts. The Company believes it has adequately provided for related exposures surrounding receivables and contractual commitments.
| (b) | Fair Value Measurements |
The carrying values of the Company’s cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities due within one year approximate fair values due to the short-term maturity of these instruments. The Company’s other financial instruments are comprised of the following:
|
| As of June 30, 2019 |
|
| As at December 31, 2018 |
|
| As at March 31, 2020 |
|
| As at December 31, 2019 |
| ||||||||||||||||||||
|
| Carrying Amount |
|
| Estimated Fair Value |
|
| Carrying Amount |
|
| Estimated Fair Value |
|
| Carrying Amount |
|
| Estimated Fair Value |
|
| Carrying Amount |
|
| Estimated Fair Value |
| ||||||||
Level 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents(1) |
| $ | 106,451 |
|
| $ | 106,451 |
|
| $ | 141,590 |
|
| $ | 141,590 |
|
| $ | 352,277 |
|
| $ | 352,277 |
|
| $ | 109,484 |
|
| $ | 109,484 |
|
Equity securities (3) |
|
| 14,149 |
|
|
| 14,149 |
|
|
| 1,022 |
|
|
| 1,022 |
|
|
| 11,132 |
|
|
| 11,132 |
|
|
| 15,685 |
|
|
| 15,685 |
|
Level 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financed sales receivables(2) |
| $ | 113,043 |
|
| $ | 112,292 |
|
| $ | 117,990 |
|
| $ | 117,428 |
|
| $ | 105,429 |
|
| $ | 105,849 |
|
| $ | 112,432 |
|
| $ | 111,441 |
|
Net investment in sales-type leases (2) |
|
| 8,606 |
|
|
| 8,662 |
|
|
| 9,442 |
|
|
| 9,529 |
|
|
| 15,683 |
|
|
| 15,418 |
|
|
| 15,606 |
|
|
| 15,309 |
|
Convertible loan receivable(2) |
|
| 1,500 |
|
|
| 1,500 |
|
|
| 1,500 |
|
|
| 1,500 |
| ||||||||||||||||
Equity securities(1) |
|
| 1,000 |
|
|
| 1,000 |
|
|
| 1,000 |
|
|
| 1,000 |
|
|
| 1,000 |
|
|
| 1,000 |
|
|
| 1,000 |
|
|
| 1,000 |
|
Foreign exchange contracts — designated forwards(3) |
|
| (146 | ) |
|
| (146 | ) |
|
| (1,202 | ) |
|
| (1,202 | ) |
|
| (1,972 | ) |
|
| (1,972 | ) |
|
| 530 |
|
|
| 530 |
|
Borrowings under the Credit Facility(1) |
|
| (25,000 | ) |
|
| (25,000 | ) |
|
| (40,000 | ) |
|
| (40,000 | ) | ||||||||||||||||
Bank indebtedness - under the Credit Facility(1) |
|
| (300,000 | ) |
|
| (300,000 | ) |
|
| (20,000 | ) |
|
| (20,000 | ) |
(1) | Recorded at cost, which approximates fair value. |
(2) | Estimated based on discounting future cash flows at currently available interest rates with comparable terms. |
(3) | Value determined using quoted prices in active markets. |
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 no0 significant transfers in or out of the Company’s Level 3 assets during the three and sixthree months ended June 30, 2019March 31, 2020 and 2018.2019.
| (c) |
|
The Company’s net investment in leases and its net financed sales receivables are subject to the disclosure requirements of ASC 310 “Receivables”. Due to differing risk profiles of its net investment in leases and its net financed sales receivables, the Company views its net investment in leases and its net financed sale receivables as separate classes of financing receivables. The Company does not aggregate financing receivables to assess impairment.
The Company monitors the credit quality of each customer on a frequent basis through collections and aging analyses. The Company also holds meetings monthly in order to identify credit concerns and whether a change in credit quality classification is required for the customer. A customer may improve in their credit quality classification once a substantial payment is made on overdue balances or the customer has agreed to a payment plan with the Company and payments have commenced in accordance to the payment plan. The change in credit quality indicator is dependent upon management approval.
The Company classifies its customers into four categories to indicate the credit quality worthiness of its financing receivables for internal purposes only:
Good standing — Theater continues to be in good standing with the Company as the client’s payments and reporting are up-to-date.
Credit Watch — Theater operator has begun to demonstrate a delay in payments, and has been placed on the Company's credit watch list for continued monitoring, but active communication continues with the Company. Depending on the size of outstanding balance, length of time in arrears and other factors, transactions may need to be approved by management. These financing receivables are considered to be in better condition than those receivables related to theaters in the "Pre-approved transactions" category, but not in as good of condition as those receivables in "Good standing".
Pre-approved transactions only — Theater operator is demonstrating a delay in payments with little or no communication with the Company. All service or shipments to the theater must be reviewed and approved by management. These financing receivables are considered to be in better condition than those receivables related to theaters in the "All transactions suspended" category, but not in as good of condition as those receivables in "Credit Watch". Depending on the individual facts and circumstances of each customer, finance income recognition may be suspended if management believes the receivable to be impaired.
All transactions suspended — Theater is severely delinquent, non-responsive or not negotiating in good faith with the Company. Once a theater is classified as “All transactions suspended” the theater is placed on nonaccrual status and all revenue recognitions related to the theater are stopped.
The following table discloses the recorded investment in financing receivables by credit quality indicator:
|
| As of June 30, 2019 |
|
| As at December 31, 2018 |
| ||||||||||||||||||
|
| Minimum Lease Payments |
|
| Financed Sales Receivables |
|
| Total |
|
| Minimum Lease Payments |
|
| Financed Sales Receivables |
|
| Total |
| ||||||
In good standing |
| $ | 8,149 |
|
| $ | 102,315 |
|
| $ | 110,464 |
|
| $ | 8,701 |
|
| $ | 108,574 |
|
| $ | 117,275 |
|
Credit Watch |
|
| 612 |
|
|
| 9,983 |
|
|
| 10,595 |
|
|
| 574 |
|
|
| 8,723 |
|
|
| 9,297 |
|
Pre-approved transactions |
|
| — |
|
|
| 587 |
|
|
| 587 |
|
|
| 322 |
|
|
| 565 |
|
|
| 887 |
|
Transactions suspended |
|
| — |
|
|
| 997 |
|
|
| 997 |
|
|
| — |
|
|
| 967 |
|
|
| 967 |
|
|
| $ | 8,761 |
|
| $ | 113,882 |
|
| $ | 122,643 |
|
| $ | 9,597 |
|
| $ | 118,829 |
|
| $ | 128,426 |
|
While recognition of finance income is suspended, payments received by a customer are applied against the outstanding balance owed. If payments are sufficient to cover any unreserved receivables, a recovery of provision taken on the billed amount, if applicable, is recorded to the extent of the residual cash received. Once the collectibility issues are resolved and the customer has returned to being in good standing, the Company will resume recognition of finance income.
The Company’s investment in financing receivables on nonaccrual status is as follows:
|
| As of June 30, 2019 |
|
| As at December 31, 2018 |
| ||||||||||
|
| Recorded Investment |
|
| Related Allowance |
|
| Recorded Investment |
|
| Related Allowance |
| ||||
Net investment in leases |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Net financed sales receivables |
|
| 997 |
|
|
| (739 | ) |
|
| 967 |
|
|
| (739 | ) |
Total |
| $ | 997 |
|
| $ | (739 | ) |
| $ | 967 |
|
| $ | (739 | ) |
The Company considers financing receivables with aging between 60-89 days as indications of theaters with potential collection concerns. The Company will begin to focus its review on these financing receivables and increase its discussions internally and with the theater regarding payment status. Once a theater’s aging exceeds 90 days, the Company’s policy is to review and assess collectibility on the theater’s past due accounts. Over 90 days past due is used by the Company as an indicator of potential impairment as invoices up to 90 days outstanding could be considered reasonable due to the time required for dispute resolution or for the provision of further information or supporting documentation to the customer.
The Company’s aged financing receivables are as follows:
|
| As of June 30, 2019 |
| |||||||||||||||||||||||||||||
|
| Accrued and Current |
|
| 30-89 Days |
|
| 90+ Days |
|
| Billed Financing Receivables |
|
| Related Unbilled Recorded Investment |
|
| Total Recorded Investment |
|
| Related Allowances |
|
| Recorded Investment Net of Allowances |
| ||||||||
Net investment in leases |
| $ | 24 |
|
| $ | 93 |
|
| $ | 253 |
|
| $ | 370 |
|
| $ | 8,391 |
|
| $ | 8,761 |
|
| $ | (155 | ) |
| $ | 8,606 |
|
Net financed sales receivables |
|
| 614 |
|
|
| 2,858 |
|
|
| 5,910 |
|
|
| 9,382 |
|
|
| 104,500 |
|
|
| 113,882 |
|
|
| (839 | ) |
|
| 113,043 |
|
Total |
| $ | 638 |
|
| $ | 2,951 |
|
| $ | 6,163 |
|
| $ | 9,752 |
|
| $ | 112,891 |
|
| $ | 122,643 |
|
| $ | (994 | ) |
| $ | 121,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As at December 31, 2018 |
| |||||||||||||||||||||||||||||
|
| Accrued and Current |
|
| 30-89 Days |
|
| 90+ Days |
|
| Billed Financing Receivables |
|
| Related Unbilled Recorded Investment |
|
| Total Recorded Investment |
|
| Related Allowances |
|
| Recorded Investment Net of Allowances |
| ||||||||
Net investment in leases |
| $ | 52 |
|
| $ | 18 |
|
| $ | 253 |
|
| $ | 323 |
|
| $ | 9,274 |
|
| $ | 9,597 |
|
| $ | (155 | ) |
| $ | 9,442 |
|
Net financed sales receivables |
|
| 1,442 |
|
|
| 2,066 |
|
|
| 5,241 |
|
|
| 8,749 |
|
|
| 110,080 |
|
|
| 118,829 |
|
|
| (839 | ) |
|
| 117,990 |
|
Total |
| $ | 1,494 |
|
| $ | 2,084 |
|
| $ | 5,494 |
|
| $ | 9,072 |
|
| $ | 119,354 |
|
| $ | 128,426 |
|
| $ | (994 | ) |
| $ | 127,432 |
|
The Company’s recorded investment in past due financing receivables for which the Company continues to accrue finance income is as follows:
|
| As of June 30, 2019 |
| |||||||||||||||||||||||||
|
| Accrued and Current |
|
| 30-89 Days |
|
| 90+ Days |
|
| Billed Financing Receivables |
|
| Related Unbilled Recorded Investment |
|
| Related Allowance |
|
| Recorded Investment Past Due and Accruing |
| |||||||
Net investment in leases |
| $ | 9 |
|
| $ | 46 |
|
| $ | 251 |
|
| $ | 306 |
|
| $ | 1,427 |
|
| $ | — |
|
| $ | 1,733 |
|
Net financed sales receivables |
|
| 201 |
|
|
| 1,516 |
|
|
| 5,855 |
|
|
| 7,572 |
|
|
| 33,585 |
|
|
| — |
|
|
| 41,157 |
|
Total |
| $ | 210 |
|
| $ | 1,562 |
|
| $ | 6,106 |
|
| $ | 7,878 |
|
| $ | 35,012 |
|
| $ | — |
|
| $ | 42,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As at December 31, 2018 |
| |||||||||||||||||||||||||
|
| Accrued and Current |
|
| 30-89 Days |
|
| 90+ Days |
|
| Billed Financing Receivables |
|
| Related Unbilled Recorded Investment |
|
| Related Allowance |
|
| Recorded Investment Past Due and Accruing |
| |||||||
Net investment in leases |
| $ | 28 |
|
| $ | 9 |
|
| $ | 246 |
|
| $ | 283 |
|
| $ | 1,523 |
|
| $ | — |
|
| $ | 1,806 |
|
Net financed sales receivables |
|
| 558 |
|
|
| 1,472 |
|
|
| 5,860 |
|
|
| 7,890 |
|
|
| 31,507 |
|
|
| — |
|
|
| 39,397 |
|
Total |
| $ | 586 |
|
| $ | 1,481 |
|
| $ | 6,106 |
|
| $ | 8,173 |
|
| $ | 33,030 |
|
| $ | — |
|
| $ | 41,203 |
|
The Company considers financing receivables to be impaired when it believes it to be probable that it will not recover the full amount of principal or interest owing under the arrangement. The Company uses its knowledge of the industry and economic trends, as well as its prior experiences to determine the amount recoverable for impaired financing receivables. The following table discloses information regarding the Company’s impaired financing receivables:
|
| For the Three Months Ended June 30, 2019 |
| |||||||||||||||||
|
| Recorded Investment |
|
| Unpaid Principal |
|
| Related Allowance |
|
| Average Recorded Investment |
|
| Interest Income Recognized |
| |||||
Recorded investment for which there is a related allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Net financed sales receivables |
|
| 869 |
|
|
| 128 |
|
|
| (739 | ) |
|
| 869 |
|
|
| — |
|
Recorded investment for which there is no related allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net financed sales receivables |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total recorded investment in impaired loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Net financed sales receivables |
| $ | 869 |
|
| $ | 128 |
|
| $ | (739 | ) |
| $ | 869 |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended June 30, 2018 |
| |||||||||||||||||
|
| Recorded Investment |
|
| Unpaid Principal |
|
| Related Allowance |
|
| Average Recorded Investment |
|
| Interest Income Recognized |
| |||||
Recorded investment for which there is a related allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Net financed sales receivables |
|
| 869 |
|
|
| 12 |
|
|
| (739 | ) |
|
| 930 |
|
|
| — |
|
Recorded investment for which there is no related allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net financed sales receivables |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total recorded investment in impaired loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Net financed sales receivables |
| $ | 869 |
|
| $ | 12 |
|
| $ | (739 | ) |
| $ | 930 |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Six Months Ended June 30, 2019 |
| |||||||||||||||||
|
| Recorded Investment |
|
| Unpaid Principal |
|
| Related Allowance |
|
| Average Recorded Investment |
|
| Interest Income Recognized |
| |||||
Recorded investment for which there is a related allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Net financed sales receivables |
|
| 869 |
|
|
| 128 |
|
|
| (739 | ) |
|
| 869 |
|
|
| — |
|
Recorded investment for which there is no related allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net financed sales receivables |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total recorded investment in impaired loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Net financed sales receivables |
| $ | 869 |
|
| $ | 128 |
|
| $ | (739 | ) |
| $ | 869 |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Six Months Ended June 30, 2018 |
| |||||||||||||||||
|
| Recorded Investment |
|
| Unpaid Principal |
|
| Related Allowance |
|
| Average Recorded Investment |
|
| Interest Income Recognized |
| |||||
Recorded investment for which there is a related allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Net financed sales receivables |
|
| 869 |
|
|
| 12 |
|
|
| (739 | ) |
|
| 991 |
|
|
| — |
|
Recorded investment for which there is no related allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net financed sales receivables |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total recorded investment in impaired loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Net financed sales receivables |
| $ | 869 |
|
| $ | 12 |
|
| $ | (739 | ) |
| $ | 991 |
|
| $ | — |
|
The Company’s activity in the allowance for credit losses for the period and the Company’s recorded investment in financing receivables are as follows:
|
| Three Months Ended June 30, 2019 |
|
| Six Months Ended June 30, 2019 |
| ||||||||||
|
| Net Investment |
|
| Net Financed |
|
| Net Investment |
|
| Net Financed |
| ||||
|
| in Leases |
|
| Sales Receivables |
|
| in Leases |
|
| Sales Receivables |
| ||||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 155 |
|
| $ | 839 |
|
| $ | 155 |
|
| $ | 839 |
|
Charge-offs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Recoveries |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Provision |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Ending balance |
| $ | 155 |
|
| $ | 839 |
|
| $ | 155 |
|
| $ | 839 |
|
Ending balance: individually evaluated for impairment |
| $ | 155 |
|
| $ | 839 |
|
| $ | 155 |
|
| $ | 839 |
|
Financing receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment |
| $ | 8,761 |
|
| $ | 113,368 |
|
| $ | 8,761 |
|
| $ | 113,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended June 30, 2018 |
|
| Six Months Ended June 30, 2018 |
| ||||||||||
|
| Net Investment |
|
| Net Financed |
|
| Net Investment |
|
| Net Financed |
| ||||
|
| in Leases |
|
| Sales Receivables |
|
| in Leases |
|
| Sales Receivables |
| ||||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 155 |
|
| $ | 922 |
|
| $ | 155 |
|
| $ | 922 |
|
Charge-offs |
|
| — |
|
|
| (183 | ) |
|
| — |
|
|
| (183 | ) |
Recoveries |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Provision |
|
| — |
|
|
| 100 |
|
|
| — |
|
|
| 100 |
|
Ending balance |
| $ | 155 |
|
| $ | 839 |
|
| $ | 155 |
|
| $ | 839 |
|
Ending balance: individually evaluated for impairment |
| $ | 155 |
|
| $ | 839 |
|
| $ | 155 |
|
| $ | 839 |
|
Financing receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment |
| $ | 6,935 |
|
| $ | 119,815 |
|
| $ | 6,935 |
|
| $ | 119,815 |
|
| Foreign Exchange Risk Management |
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 substantial portion of its costs and expenses is denominated in Canadian dollars. A portion of the 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 Renminbi 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, 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 81 different countries, unfavourable exchange rates between applicable local currencies and the U.S. dollar affect the Company’s reported gross box-office 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.
The Company 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 June 30, 2019March 31, 2020 (the “Foreign Currency Hedges”), with settlement dates throughout 20192020 and 2020.2021. Foreign currency derivatives are recognized and measured in the balance sheet at fair value. Changes in the fair value (gains or losses) are recognized in the condensed consolidated statementsCondensed Consolidated Statements of operationsOperations except for derivatives designated and qualifying as foreign currency cash flow hedging instruments. The Company currently has cash flow hedging instruments associated with selling, general and administrative expenses and capital expenditures. For foreign currency cash flow hedging instruments related to selling, general and administrative expenses, the effective portion of the gain or loss in a hedge of a forecasted transaction is reported in other comprehensive income and reclassified to the
condensed consolidated statements Condensed Consolidated Statements of operationsOperations 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 balance sheet when the forecasted transaction occurs. The Company currently does not hold any derivatives which are not designated as hedging instruments.
The following tabular disclosures reflect the impact that derivative instruments and hedging activities have on the Company’s condensed consolidated financial statements:Condensed Consolidated Financial Statements:
Notional value of foreign exchange contracts:
|
| June 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts — Forwards |
| $ | 42,430 |
|
| $ | 50,828 |
|
| $ | 44,571 |
|
| $ | 36,052 |
|
Fair value of derivatives in foreign exchange contracts:
|
|
|
| June 30, |
|
| December 31, |
|
|
|
| March 31, |
|
| December 31, |
| ||||
|
| Balance Sheet Location |
| 2019 |
|
| 2018 |
|
| Balance Sheet Location |
| 2020 |
|
| 2019 |
| ||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts — Forwards |
| Other assets |
| $ | 352 |
|
| $ | 649 |
|
| Other assets |
| $ | 106 |
|
| $ | 602 |
|
|
| Accrued and other liabilities |
|
| (498 | ) |
|
| (1,851 | ) |
| Accrued and other liabilities |
|
| (2,078 | ) |
|
| (72 | ) |
|
|
|
| $ | (146 | ) |
| $ | (1,202 | ) |
|
|
| $ | (1,972 | ) |
| $ | 530 |
|
Derivatives in Foreign Currency Hedging relationships are as follows:
|
|
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
|
|
|
| Three Months Ended March 31, |
| |||||||||||||||
|
|
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
|
|
| 2020 |
|
| 2019 |
| ||||||
Foreign exchange contracts |
| Derivative Gain (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Derivative (Loss) Gain |
|
|
|
|
|
|
|
|
— Forwards |
| Recognized in OCI |
| $ | 297 |
|
| $ | (679 | ) |
| $ | 365 |
|
| $ | (1,686 | ) |
| Recognized in OCI |
| $ | (2,860 | ) |
| $ | 68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Location of Derivative Gain (Loss) |
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
|
| Location of Derivative (Loss) Gain |
| Three Months Ended March 31, |
| |||||||||||||||
|
| Reclassified from AOCI |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| Reclassified from AOCI |
| 2020 |
|
| 2019 |
| ||||||
Foreign exchange contracts |
| Selling, general and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Selling, general and |
|
|
|
|
|
|
|
|
— Forwards |
| administrative expenses |
| $ | (355 | ) |
| $ | 112 |
|
| $ | (661 | ) |
| $ | 332 |
|
| administrative expenses |
| $ | (341 | ) |
| $ | (306 | ) |
|
| Property, plant and equipment |
|
| (19 | ) |
|
| — |
|
|
| (32 | ) |
|
| — |
|
| Property, plant and equipment |
|
| — |
|
|
| (13 | ) |
|
|
|
| $ | (374 | ) |
| $ | 112 |
|
|
| (693 | ) |
|
| 332 |
|
| Inventory |
|
| (17 | ) |
|
| — |
|
|
|
|
| $ | (358 | ) |
| $ | (319 | ) |
|
|
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
|
|
|
| Three Months Ended March 31, |
| |||||||||||||||
|
|
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
|
|
| 2020 |
|
| 2019 |
| ||||||
Foreign exchange contracts |
| Derivative Gain Recognized In |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Derivative Loss Recognized In |
|
|
|
|
|
|
|
|
— Forwards |
| and Out of OCI |
| $ | 2 |
|
| $ | — |
|
| $ | 2 |
|
| $ | 46 |
|
| and Out of OCI |
| $ | (36 | ) |
| $ | — |
|
The Company's estimated net amount of the existing losses as at June 30, 2019March 31, 2020 is $0.3$1.8 million, which is expected to be reclassified to earnings within the next twelve months.
|
| Investments in |
The Company accounts for investments in new business ventures using the guidance of the FASB ASC 323, FASB ASC 320 and FASB ASC 321, as appropriate.
As at June 30, 2019,March 31, 2020, the equity method of accounting is being utilized for an investment with a carrying value of $nil (December 31, 2018 — $nil). The Company’s accumulated losses in excess of its equity investment were $1.8 million as at June 30, 2019 and are classified in Accrued and other liabilities. For the three months ended June 30, 2019, gross revenues, cost of revenue and net loss for the Company’s investment was $0.5 million, $0.7 million and $0.5 million, respectively (2018 — $1.0 million, $0.8 million and $0.4 million, respectively). For the six months ended June 30, 2019, gross revenue, cost of revenue and net loss for the Company’s investment was $0.7 million, $1.3 million and $0.8 million, respectively (2018 — $1.5 million, $1.7 million and $1.0 million, respectively). The Company has determined it is not the primary beneficiary of this VIE, and therefore this entity has not been consolidated. In a prior year, the Company issued a convertible loan of $1.5 million to this entity with a term of three years with an annual effective interest rate of 5.0%. The instrument is classified as an available-for-sale investment due to certain features that allow for conversion to common stock in the entity in the event of certain triggers occurring.
In addition, the Company has an investment in preferred stock of another business venture of $1.5 million which meets the criteria for classification as a debt security under FASB ASC 320 and is recorded at a fair value of $nil at June 30, 2019 (December 31, 2018 — $nil).
Furthermore, the Company has an investment of $1.0Condensed Consolidated Balance Sheets includes $11.1 million (December 31, 20182019 — $1.0$15.7 million) of investments in the shares of an exchange traded fund. This investment is classified as an equity investment.
As at June 30, 2019, the Company held investments with a total value of $3.5 million in the preferred shares of enterprises which meet the criteria for classification as an equity security under FASB ASC 325, carried at historical cost, net of impairment charges. The carrying value of these equity security investments was $1.0 million at June 30, 2019 (December 31, 2018 — $1.0 million).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, under the FASB ASC 321, with a readily determinable market value through the Hong Kong Stock Exchange. The changes in fair value are recorded in the Change in fair value of equity investment line item in the Company’s condensed consolidated statementCondensed Consolidated Statement of operations.Operations. As at March 31, 2020, the value of the Company’s investment in Maoyan was $10.1 million (December 31, 2019 — $14.6 million). For the three and six months ended June 30, 2019,March 31, 2020, the Company has recorded a net unrealized loss of $4.5 million and $2.1 million, respectively.(2019 — gain of $2.5 million).
The totalCompany has an investment of $1.0 million (December 31, 2019 — $1.0 million) in the shares of an exchange traded fund. This investment is classified as an equity investment.
As at March 31, 2020, 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 in new business ventures, aswas $1.0 million at June 30, 2019 is $2.5 millionMarch 31, 2020 (December 31, 20182019 — $3.5$1.0 million) and is recorded in Other assets.Assets.
The investment in shares of an exchange traded fund and the investment in Maoyan are recorded in Investment in equity securities.
16.
17. Non-Controlling Interests
| (a) | IMAX China Non-Controlling Interest |
The Company indirectly owns approximately 69.54%69.71% of IMAX China Holding, Inc. (“IMAX China”), whose shares trade on the Hong Kong Stock Exchange. IMAX China remains a consolidated subsidiary of the Company. The balance of non-controlling interest in IMAX China as at March 31, 2020 is $79.5 million. The net loss attributable to non-controlling interest in IMAX China for the three months ended March 31, 2020 is $9.6 million.
| (b) | Other Non-Controlling Interest |
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 to by a third party in the amount of $25.0 million, with the possibility of contributing additional funds. The Company has contributed $9.0 million to the Original Film Fund since 2014 and has reached its maximum contribution. The Company sees the Original Film Fund as a vehicle designed to generate a continuous, steady flow of high-quality documentary content. As at June 30, 2019,March 31, 2020, the Original Film Fund has invested $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 in the pilot IMAX VR Centers. The VR Fund helped finance the production of one interactive VR experience, which debuted exclusively in the pilot IMAX VR Centers in November 2017 before being made available to other VR platforms. As at June 30, 2019, the Company invested $4.0 million toward the development of VR content.In December 2018, the Company announced in connection with its strategic review of its VR pilot initiative, that it had decided to close its remaining VR locations and write-off certain VR content investments. The Company has also decided to dissolve the VR Fund and not actively pursue any additional VR opportunities.
The following summarizes the movement of the non-controlling interest in temporary equity, in the Company’s subsidiary for the sixthree months ended June 30, 2019:March 31, 2020:
Balance as at 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 |
|
| (374 | ) |
Balance as at June 30, 2019 |
| $ | 7,172 |
|
Balance as at December 31, 2019 |
| $ | 5,908 |
|
Net loss |
|
| (408 | ) |
Balance as at March 31, 2020 |
| $ | 5,500 |
|
17.18. Exit costs, restructuring charges and associated impairments
In the prior year,2018, the Company performed a strategic review of its business and decided to exit from certain non-core businesses or initiatives, which included closing its VR locations. In addition, as part of the Company’s ongoingmanagement’s efforts to decrease costs, the Company has reduced certain functions and realigned resources. InDuring the current period, certain costs that did not meetthree months ended March 31, 2019, the recognition criteria in 2018 were recognized, including finalization of certain estimated costs.
The Company recognized the following$0.9 million of charges associated with these actions in its condensed consolidated statementsCondensed Consolidated Statements of operations:
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| Six Months Ended |
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| June 30, |
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| June 30, |
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| 2019 |
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| 2018 |
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| 2019 |
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| 2018 |
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Restructuring charges |
| $ | — |
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| $ | 456 |
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| $ | 628 |
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| $ | 1,158 |
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Costs to exit lease and restore facilities |
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| — |
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| — |
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| 222 |
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| — |
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| $ | — |
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| $ | 456 |
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| $ | 850 |
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| $ | 1,158 |
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Operations, consisting of restructuring charges and costs to exit leases. Restructuring charges relate to the Company’s corporate unit and are comprised of employee severance costs including benefits and stock-basedshare-based compensation, costs of consolidating facilities and contract termination costs. Restructuring charges are based upon plans that have been committed to by the Company but may be refined in subsequent periods. These charges are recognized pursuant to FASB ASC 420. A liability for a cost associated with an exit or disposal activity is recognized and measured at its fair value in the condensed consolidated statement of operations in the period in which the liability is incurred. When estimating the value of facility restructuring activities, assumptions are applied regarding estimated sub-lease payments to be received, which can differ from actual results.
In the current year, the Company incurred $nil and $0.6 million in restructuring charges for the three and six months ended June 30, 2019, respectively (2018 — $0.5 million and $1.2 million, respectively). A summary of the restructuring costs by reporting groups identified by nature of product sold, or service provided as disclosed in note 13 recognized are as follows:
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| June 30, |
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| 2018 |
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| 2019 |
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| 2018 |
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Corporate |
| $ | — |
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| $ | 132 |
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| $ | 628 |
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| $ | 332 |
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IMAX DMR |
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| — |
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| 231 |
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| — |
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| 611 |
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Theater system maintenance |
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| — |
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| 93 |
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| — |
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| 215 |
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| $ | — |
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| $ | 456 |
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| $ | 628 |
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| $ | 1,158 |
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At this time, the Company does not expect to recognize any additional restructuring charges during the remainder of 2019.
The following table sets forth a summary of restructuring accrual activities for the six months ended June 30, 2019:
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| Employee Severance and Benefits |
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Balance as at December 31, 2018 |
| $ | 1,936 |
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Restructuring charges |
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| 628 |
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Cash payments |
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| (1,525 | ) |
Balance as at June 30, 2019 |
| $ | 1,039 |
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In the three and six months ended June 30, 2019 and 2018, the Company did not recognize any associated impairments.
18. Prior Period's Figures
In the current year, Variable consideration receivable from contracts and Investment in equity securities are separate lines on the condensed consolidated balance sheet and have been removed from Other Assets. In addition, due to the adoption of ASU 2017-07, non-service pension costs are now recorded in the Retirement benefits non-service expense line item in the condensed consolidated statement of operations. Prior year comparatives, where applicable, have been reclassified to reflect these changes..
IMAX CORPORATION
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
Presented below is Management's Discussion and Analysis of Financial Condition and Results of Operations (or "MD&A") for IMAX Corporation together withand its consolidated subsidiaries (“IMAX” or the “Company”) for the three months ended March 31, 2020 and 2019. MD&A should be read in conjunction with Note 14, "Segment Reporting" in the accompanying Condensed Consolidated Financial Statements in Item 1.
The Company indirectly owns approximately 69.71% 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.
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 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), 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, 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 IMAX 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; risks relating to recent consolidation among commercial exhibitors and studios; risks related to new business initiatives; 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 the Company’s intellectual property; general economic, market or business conditions; the failure to convert IMAX 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 initiatives; the impact of COVID-19 on our financial condition and results of operations and on the businesses of our customers and exhibitor partners; 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.
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 “Company”“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. No information included on the Company's website shall be deemed included or otherwise incorporated into this filing, except where expressly indicated.
The information posted on the Company’s corporate and Investor Relations website may be deemed material to investors. Accordingly, investors, media and others interested in the Company should monitor the Company’s website in addition to the Company’s press releases, SEC filings and public conference calls and webcasts.
IMAX®, IMAX® Dome, IMAX® 3D, IMAX® 3D Dome, Experience It In IMAX®, The IMAX Experience®, An IMAX Experience®, An IMAX 3D Experience®, IMAX DMR®, DMR®, IMAX nXos® and Films to the FullestTM, are trademarks and trade names of the Company or its subsidiaries that are registered or otherwise protected under laws of various jurisdictions.
OVERVIEW
IMAX is one of the world’s leading entertainment technology companies, specializing in motion picture technologiestechnological innovations powering the presentation of some of today’s most immersive entertainment experiences. Through its proprietary software, theater architecture, patented intellectual property and presentations. The Company refers to all theaters using the IMAX theater system as “IMAX theaters”.specialized equipment, IMAX offers a unique end-to-end cinematic solution combining proprietary software, theater architecture and equipment to create the highest-quality, most immersive motion picture experienceand other entertainment event experiences for which the IMAX®IMAX® brand has become known globally. Top filmmakers and studios utilize the cutting-edge visual and sound technology of IMAX theaters to connect with audiences in innovative ways, and, as a result, IMAX’s network is among the most important and successful theatrical distribution platforms for major event films and other events around the world. There were 1,541 IMAX theater systems (1,445 commercial multiplexes, 15 commercial destinations, 81 institutional) operating in 81 countries as at June 30, 2019. This compares to 1,410 theater systems (1,314 commercial multiplexes, 12 commercial destinations, 84 institutional) operating in 79 countries as of June 30, 2018.
The Company’s coreCompany leverages its innovative technology and engineering in all aspects of its business, which principally consists of:
| • | the |
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IMAX theater systemsTheater Systems are based on proprietary and patented image, audio and other technology developed over the course of the Company’s 51-year history52-year history. The Company’s customers who purchase or lease IMAX Theater Systems are theater exhibitors that operate commercial theaters (particularly multiplexes), museums, science centers, or destination entertainment sites. The Company generally does not own the theaters in the IMAX network, but licenses the use of its trademarks along with the sale or lease of the IMAX Theater System.
The Company refers to all theaters using the IMAX Theater System as “IMAX theaters”. As at March 31, 2020, there were 1,616 IMAX Theater Systems operating in 81 countries and combine:territories including 1,526 commercial multiplexes, 14 commercial destinations and 76 institutional locations. This compares to 1,514 IMAX Theater Systems operating in 81 countries and territories as of March 31, 2019 including 1,420 commercial multiplexes, 14 commercial destinations, 80 institutional locations. (See table below under “IMAX Network and Backlog” for additional information.)
The IMAX Theater System combines:
| • | the ability to exhibit content that has undergone IMAX DMR® conversion, 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 theater 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; |
| • | sound system components, which deliver more expansive sound imagery and pinpointed origination of sound to any specific spot in an IMAX theater; |
| • | specialized theater acoustics, which result in a four-fold reduction in background noise; and |
| • | a license to the globally recognized IMAX brand. |
In addition, certain movies shown in IMAX theaters are filmed using proprietary IMAX film and IMAX certified digital cameras, which offer filmmakers customized guidance and workflow process to provide further enhanced and differentiated image quality and a film aspect ratio that delivers up to 26% more image onto a movie screen.
Together these components cause audiences in IMAX theaters to feel as if they are a part of the on-screen action, creating a more intense, immersive and exciting experience than in a traditional theater.
As a result of the immersivenessengineering and superior image and sound qualityscientific achievements that are a hallmark of The IMAX Experience®, the Company’s exhibitor customers typically charge a premium for IMAX DMR films over films exhibited in their other auditoriums. The premium pricing, combined with the higher attendance levels associated with IMAX DMR films, generates incremental box office for the Company’s exhibitor customers and for the movie studios releasing their films to the IMAX theater network. The incremental box office generated by IMAX DMR films has helped establish IMAX as a key premium distribution and marketing platform for Hollywood blockbuster films.
As one of the world’s leaders in entertainment technology, the Company strives to remain at the forefront of advancements in cinema technology. TheIn 2018, the Company recently introduced IMAX with Laser, the Company’s next-generation laser projection system designed for IMAX theaters in commercial multiplexes.multiplexes, which represents a further evolution of IMAX’s proprietary technology. The Company believes that IMAX with Laser delivers increased resolution, sharper and brighter images, deeper contrast as well as the widest range of colors available to filmmakers today. The Company further believes that IMAX with Laser can helpis helping facilitate the next major lease renewal and upgrade cycle for the global commercial IMAX network.
To dateAs at March 31, 2020, the Company has signed IMAX with Laser agreements with leading, global exhibitors such as AMC Entertainment Holdings, Inc. (“AMC”), Cineworld Group PLC (“Cineworld”), CGV Holdings Limited (“CGV”) and Les Cinémas Pathé Gaumont (“Pathé”) (among others), which includes for a total of 140 new theaters, 157 upgrades to existing IMAX theaters, and 52 upgrades to existing backlog arrangements.arrangements in the Company’s backlog. As at June 30, 2019,March 31, 2020, 140 IMAX with Laser systems have been installed, and the Company’s backlog had 139included 147 new IMAX with Laser systems and 11894 upgrades to IMAX with Laser systemssystems.
The Company is also experimenting with new technologies and expectsnew 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. In 2019, the Company piloted filmed events including Anima, a one-night only event featuring music from Radiohead’s Thom Yorke, Soundgarden: Live from the Artist’s Den: The IMAX Experience, and the Kanye West film Jesus is King: The IMAX Experience in select IMAX theaters.
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. The theaters have approximately 135 IMAXbeen closed since late-January 2020, and have not yet reopened as of the date of this report. On March 11, 2020, due to the worsening public health crisis associated with Laser systems installedthe novel coronavirus, COVID-19 was characterized as a pandemic by the endWorld Health Organization, and in the following weeks, local, state and national governments instituted stay-at-home orders and restrictions on large public gatherings which have caused movie theaters in countries around the world to temporarily close, including substantially all of 2019.the IMAX theaters in those countries. As a result of the theater closures, Hollywood and Chinese movie studios have also postponed the release of multiple films, including many scheduled to be shown in IMAX theaters.
The repercussions of the COVID-19 global pandemic resulted in a significant decrease in the Company’s revenues and earnings in the first quarter of 2020 as gross box office (“GBO”) results declined significantly, the installation of theater systems was delayed, and maintenance services were suspended. During the time period when a significant number of theaters in the IMAX network are closed, the Company has and will continue to experience a significant decline in earnings as it will generate effectively no GBO based revenue from its joint revenue sharing arrangements and digital remastering services, it will not charge maintenance fees to theater operators, and theater system installations will be delayed. In addition, the Company will also experience delays in collecting payments due under existing theater sale or lease arrangements from its exhibitor partners who may now be facing financial difficulties as a result of the theater closures.
The Company may continue to be significantly impacted by the COVID-19 global pandemic even after some or all theaters are reopened. The global economic impact of COVID-19 has led to record levels of unemployment in certain countries and may lead to lower consumer spending in the near term. The timing 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 such time as consumer spending recovers.
In response to uncertainties associated with the COVID-19 pandemic, the Company has taken and is continuing to take significant steps to preserve cash by eliminating non-essential costs, reducing employee hours and deferring 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, management decided to draw down the $280.0 million in remaining borrowing capacity under its credit facility. Furthermore, the Company is in the process of reviewing and applying for wage subsidies, tax credits and other financial support under the newly enacted COVID-19 relief legislation in the countries in which it operates. However, the legislation and guidance from the authorities continues to evolve and so the amount and timing of support, if any, that the Company could receive is not determinable at this time, and there can be no guarantees that the Company will receive financial support through these programs.
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 II, Item 1A of this Form 10-Q.
SOURCES OF REVENUE
The primary revenue sources forFor the purposes of MD&A the Company can be categorizedhas organized its reportable segments into the following four main groups: network business, theater business, new businesscategories: (i) IMAX Technology Network; (ii) IMAX Technology Sales and other.
Maintenance; (iii) New Business Initiatives; and (iv) Film Distribution and Post-production. Within these categories are the Company’s 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. In the first quarter of 2020, the Company updated certain account names within revenues and costs and expenses applicable to revenues in its Condensed Consolidated Statements of Operations to better describe the nature of its revenue-generating activities and related costs.For additional details regarding the Company’s sources of revenue, refer to the Company’s 2018its 2019 Form 10-K for the year ended December 31, 20182019 (the “2018“2019 Form 10-K”).
On January 1, 2018,IMAX Technology Network
The IMAX Technology Network earns revenue based on contingent box office receipts and includes the Company adopted ASU 2014-09, “RevenueIMAX DMR segment and contingent rent from Contracts with Customers (Topic 606)”, utilizing the modified retrospective transition method with a cumulative catch-up adjustment. The Company will review the variable interest assets on an ongoing basis.
Network Business: Digital Re-Mastering (IMAX DMR) and Joint Revenue Sharing ArrangementsArrangement (“JRSA”) segment, as described in more detail below.
Digital Re-Mastering (IMAX DMR)IMAX DMR
The Company has developed IMAX DMR, a proprietary technology known as IMAX DMR, tothat digitally re-masterremasters Hollywood films into IMAX digital cinema packageformats. In a typical IMAX DMR film arrangement, the Company receives a percentage of the box office receipts from studios in exchange for converting commercial films into IMAX DMR format or 15/70-format film for exhibitionand distributing them through the IMAX network. In recent years, the percentage of gross box office receipts earned in IMAX theaters. DMR arrangements has averaged approximately 12.5%, except for within Greater China, where the Company receives a lower percentage of net box office receipts for certain Hollywood films.
IMAX DMR 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. InThe original soundtrack of a typicalfilm to be exhibited in IMAX DMR film arrangement, the Company receives a percentage, whichtheaters is remastered for IMAX digital sound systems in recent years has averaged approximately 12.5%, of net box office receipts, defined as gross box office receipts less applicable sales taxes, of any commercial films released outside of Greater China in return for converting them toconnection with the IMAX DMR formatrelease. Unlike the soundtracks played in conventional theaters, IMAX remastered soundtracks are uncompressed and distributing them through thefull fidelity. IMAX sound systems use proprietary loudspeaker systems and proprietary surround sound configurations that ensure every theater network. Within Greater China, the Company receives a lower percentage of box office receipts for certain Hollywood films.seat is in an optimal listening position.
IMAX films also benefit from enhancements made by individual filmmakers exclusively for the IMAX release and filmmakersof the film: collectively, the Company refers to those enhancements as “IMAX DNA”. Filmmakers and studios have sought IMAX-specific enhancements in recent years to generate interest in and excitement for their films. Such enhancements include shooting select scenesfilms with IMAX cameras to increase the audience’s immersion in the film and taking advantage of the unique dimensions of the IMAX screen by projecting the film in a larger aspect ratio. For example,ratio that delivers up to 26% more image onto a movie screen. Avengers: Endgame, the highest-grossing film in history, released in April 2019, Avengers: Endgame, made history for the second time, as the second filmwas shot entirely using IMAX cameras. In addition, to date in 20192020 Universal Pictures’ Alita: Battle Angel and Captain Marvel1917 werewas released with select scenes specifically formatted for IMAX screens. In addition, Disney’s The Lion King released in July 2019, features select scenes which were specifically formatted for IMAX screens.
The original soundtrack of a film to be exhibited in the IMAX theater network is re-mastered for the IMAX digital sound systems in connection with the IMAX DMR release. Unlike the soundtracks played in conventional theaters, IMAX re-mastered soundtracks are uncompressed and full fidelity. IMAX sound systems use proprietary loudspeaker systems and proprietary surround sound configurations that ensure every theater seat is in an optimal listening position.
The Company believes that the growth in international box office remains an important driver of future growth for the Company. To support continued growth in international markets, the Company has sought to bolster its international film strategy, supplementing the Company’s film slate of Hollywood DMR titles with appealing local IMAX DMR releases in select markets (particularly in China). During 2018, 252019, 18 local language IMAX DMR films, including 1814 in China three in India,and one in each of France,Japan, South Korea, JapanIndia and Russia, were released to the IMAX theater network. 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 the sixthree months ended June 30, 2019, fourMarch 31, 2020, one local language IMAX DMR films, all of which were in China, werefilm was released to the IMAX theater network.network, in Russia. The Company expects to announce additional local language IMAX DMR films to be released to the IMAX theater network in the remainder of 20192020 and beyond. In March 2019, the Company released an IMAX original production, Superpower Dogs.
In addition to the 27 IMAX DMR films released to the IMAX theater network during the six months ended June 30, 2019, 23 additional IMAX DMR films have been announced so far to be released in the remainder of 2019 to the global IMAX theater network. The following dates noted for film release are subject to change and may vary by territory.
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To date, the Company has announced the following 9 titles to be released in 2020 to the IMAX theater network:
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The Company remains in active negotiations with all of the major Hollywood studios for additional films to fill out its short and long-term film slate for the IMAX network. However, as a result of the theater networkclosures associated with COVID-19, Hollywood and Chinese movie studios have postponed the release of multiple films, including many scheduled to be shown in 2019.IMAX theaters. Accordingly, the anticipated release dates for any films are uncertain.
Joint Revenue Sharing Arrangements – Contingent Rent
The CompanyJRSA segment provides IMAX theater systems to exhibitors through joint revenue sharing arrangements. Under the traditional form of these arrangements, IMAX provides the IMAX projection and sound system 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 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. The contingent rent earned from these arrangements is reported within the IMAX Technology Network. Rental payments from the customer are required throughout the term of the arrangement and are 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 of its exhibitor customers underother joint revenue sharing arrangements, (“JRSA”). Theknowns 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 has two basic types ofwould receive from a typical sale transaction. As with a traditional joint revenue sharing arrangements: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 and hybrid.
joint revenue sharing arrangement. For additional details regarding the two types ofhybrid joint revenue sharing arrangements that take the form of a lease, the contingent rent is reported within the IMAX Technology Network, while the fixed upfront payment is recorded as revenue within IMAX 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.
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.
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 has entered into withfails to perform its exhibitorobligations.
The revenue earned from customers refer tounder the Company’s 2018 Form 10-K.joint revenue sharing arrangements can vary from quarter to quarter and year to year based on a number of factors including film performance, the mix of theater system configurations, the timing of installation of these theater systems, the nature of the arrangement, the location, size and management of the theater and other factors specific to individual arrangements.
IMAX Technology Sales and Maintenance
The IMAX Technology Sales and Maintenance category includes results from the IMAX Systems, – Contingent RentIMAX Maintenance and Other Theater Business segments, as well as certain revenues from the JRSA segment, as described in more detail below.
Certain sales-type
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 rentfees in excess of fixedthe minimum ongoing payments. This contingent rent,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 includedwhen the total of these fees, in addition to the Company’s network business operations,present value of future annual minimum payments, are recognized as revenue. Finance income is recognized afterover the fixed minimum amount per annum is exceeded as driven by box office performance. Contingent payments in excessterm of fixed minimum ongoing payments of salesa financed sale or sales-type lease arrangement as the unearned income on that financed sale or sales-type lease is earned. In addition, in sale arrangements, the variable consideration that may become due if certain annual minimum box office receipt thresholds are recognizedexceeded, is recorded as revenue in the period when reported by theater operators, provided collectabilitythe sale is reasonably assured. In addition, contingent rent includes amounts realized forrecognized and adjusted in future periods based on actual results and changes in rent and maintenance payments which are indexedestimates. Variable consideration is only recognized on sales transactions to the extent the Company believes there is not a local consumer price index.
Theater Business: IMAX Systems, Theater System Maintenance and Fixed Fees from Joint Revenue Sharing Arrangementsrisk of significant revenue reversal.
IMAX Systems
UnderIn a sale agreement, the Company’s sales agreements,customer takes title to the theater system equipment components passesIMAX Theater System equipment. In a hybrid joint revenue sharing arrangement that takes the form of a sale, title and control of the IMAX Theater System generally transfers to the customer.customer upon the earlier of client acceptance of the theater installation, including projectionist training, or the theater opening to the public. In certain instances, however, the Company retains title or a security interest in the equipment until the customer has made all payments required underby the agreement. Underagreement or until certain shipment events for the terms ofequipment have occurred. In a sales-type lease agreement,arrangement, title to the theater systemIMAX Theater System equipment components remains with the Company. The Company has the right to remove the equipment for non-payment or other defaults by the customer.
Under hybrid jointThe revenue sharing arrangements that takeearned from customers under the formCompany’s theater system sales or lease agreements varies from quarter to quarter and year to year based on a number of sales arrangements, titlefactors, including the number and controlmix of theater system configurations sold or leased, the projection system transfer to the customer at the pointtiming of revenue recognition, which is the earlier of client acceptanceinstallation of the theater installation, including projectionist training, and theater opening tosystems, the public. Under the new revenue recognition standard, the percentage payment is considered variable consideration that must be estimated and recognized at the time of initial revenue recognition. Using box office projections and the Company’s history with theater and box office experience in different territories, the Company estimates the amount of percentage payment earned over the lifenature of the arrangement subjectand other factors specific to sufficient constraint such that there is not a risk of significant revenue reversal. Under the previous recognition standard, these amounts were recognized as reported by exhibitors (or customers) in future periods. As a result, the Company’s hybrid sales arrangements are grouped with the traditional sales segment since the total consideration received and the revenue recognition timing at transfer of control of the assets now resemble those of the traditional sale arrangements.individual contracts.
Joint Revenue Sharing Arrangements – Fixed Fees
As discussed inUnder certain joint revenue sharing arrangements, above, under aknown as hybrid joint revenue sharing arrangement that takes the form of a lease arrangement,arrangements, the customer is responsible for making fixed upfront payments prior to the delivery and installation of the IMAX theater system forTheater System in an amount that is typically half of what the Company would receive from a straighttypical sale transaction. TheseFor hybrid joint revenue sharing arrangements that take the form of a lease, the contingent rent is reported in the period of the underlying box results within the IMAX Technology Network, as discussed above, while the fixed upfront payments are included in the Company’s theater business operations.payment is recorded as revenue within IMAX Technology Sales and Maintenance.
Theater SystemIMAX Maintenance
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. Annual maintenance fees are paid throughout the duration of the term of the theater agreements.
Other Theater RevenuesBusiness
Additionally, the Company generates revenues from the saleThe Other Theater Business segment principally includes after-market sales of after-marketIMAX projection system parts and 3D glasses.
Revenues from theater business arrangements are recognized at a different time from when cash is collected. For additional details regarding the policy for revenue recognition, referNew Business Initiatives
The New Business Initiatives segment includes activities related to the Company’s 2018 Form 10-K.
New Business
In recent years, the Company has been exploring severalexploration of new lines of business and new initiatives outside of its core business.
For additional details regarding the Company’s core business to leverage its proprietary, innovative technologies, its leadership position in the entertainment technology space and its unique relationship with content creators. Such new business initiatives refer to the Company’s 2018 Form 10-K.currently include IMAX Enhanced and Connected Theaters, as discussed below.
IMAX Home Entertainment Technologies and ServicesEnhanced
In September 2018, the Company announced a new home entertainment licensing and certification program called IMAX Enhanced. This initiative was launched along with audio leader DTS (an Xperi subsidiary), capitalizing on the companies’ decades of combined expertise in image and sound science. The certification program combines high-end consumer electronics products with IMAX digitally re-masteredremastered 4K high dynamic range (HDR) content and DTS audio technologies to offer consumers immersive sight and sound experiences for the home.
To be accepted into the program, leading consumer electronics manufacturers must design 4K HDR televisions, A/V receivers, sound systems and other home theater equipment to meet a carefully prescribed set of audio and video performance standards, set by a certification committee of IMAX and DTS engineers and some of Hollywood’s leading technical specialists.
The program will digitally re-masterremaster content to produce more vibrant colors, greater contrast and sharper clarity, and will also deliver an IMAX signature sound experience.
IMAX Enhanced Program device partners include Sony Electronics, Denon, Marantz, Pioneer, TCL (among others) and studio partners include Sony Pictures and Paramount Pictures.
In 2013, the Company established a joint venture with TCL Multimedia Technology Holding Limited (“TCL”) to design, develop, manufacture and sell a premium home theater system. The Company does not intend to invest significant capital into the joint venture going forward, and instead expects any additional funding to be provided through third party capital.Connected Theaters
Original Content
The Company has created two film fundsis currently exploring new technologies and forms of content as a way to help financedeepen consumer engagement and brand loyalty. As such, the production of original content.Company is currently engaged in discussions regarding new technologies to further connect the IMAX network and to facilitate bringing more unique content, including live events, to IMAX theater audiences. The Company formedbelieves such additional connectivity can provide more innovative content to the IMAX China Film Fund (the “China Film Fund”) with its subsidiary IMAX China, its partner CMCnetwork and several other large investorsin turn permit the Company to help fund Mandarin language commercial films. The China Film Fund targets productions that can leverage the Company’s brand, relationships, technology and release windowsengage audiences in China.
In addition, the Company’s IMAX Original Film Fund (the “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 to by a third party in the amount of $25.0 million, with the possibility of contributing additional funds. The Company has contributed $9.0 million to the Original Film Fund since 2014 and has reached its maximum contribution. The Company sees the Original Film Fund as a vehicle designed to generate a continuous, steady flow of high-quality documentary content. As at June 30, 2019, the Original Film Fund has invested $22.3 million toward the development of original films.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.
Virtual RealityFilm Distribution and Post-production
In 2017,Through the Film Distribution segment, the Company piloted a virtual reality (“VR”) initiative which included several pilot IMAX VR Centers located in a number of multiplexes, as well as a stand-alone venue, each retrofitted with proprietary VR pods that permitted interactive, moveable VR experiences.
The Company also established its VR Fund among the Company, its subsidiary IMAX China and other strategic investors to help finance the creation of interactive VR content experiences for use across all VR platforms, including in the pilot IMAX VR Centers.
In December 2018, the Company announced, in connection with its strategic review of its VR pilot initiative, that it had decided to close its remaining VR locations and write-off certain VR content investments. In January 2019, the Company decided to dissolve the VR Fund. For information on the VR fund established among the Company, its subsidiary IMAX China and other strategic investors, please refer to note 16(b) in Item 1 of this Form 10-Q.
Other
The Company is also a distributor ofdistributes large-format films, primarily for its institutional theater partners. The Company generally distributes films which it produces or for which it has acquired distribution rights from independent producers. The Company receives either a percentage of the theater box office receipts or a fixed amount as a distribution fee. The Company expects to release the IMAX original production, Asteroid Hunters, later in 2020.
In addition, the Company alsoThe Film Post-production segment provides film post-production and quality control services for large-format films (whether produced internallyby IMAX or externally)third parties), and digital post-production services. The Company derives a small portion of its revenues from other sources including: one owned and operated IMAX theater; a commercial arrangement with one theater resulting in the sharing of profits and losses; the provision of management services to four other theaters; renting its proprietary 2D and 3D large-format film and digital cameras to third-party production companies; and also offering production advice and technical assistance to both documentary and Hollywood filmmakers. In January 2019, the Company closed its owned and operated theater in Minneapolis, Minnesota and now has one remaining owned and operated theater in Sacramento, California.
IMAX TheaterNETWORK AND BACKLOG
IMAX Network and Backlog
The following table outlinesprovides detailed information about the breakdown of the IMAX theater network by type and geographic location as at June 30:March 31:
|
| 2019 Theater Network Base |
|
| 2018 Theater Network Base |
|
| 2020 |
|
| 2019 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| Commercial Multiplex |
|
| Commercial Destination |
|
| Institutional |
|
| Total |
|
| Commercial Multiplex |
|
| Commercial Destination |
|
| Institutional |
|
| Total |
|
| Commercial Multiplex |
|
| Commercial Destination |
|
| Institutional |
|
| Total |
|
| Commercial Multiplex |
|
| Commercial Destination |
|
| Institutional |
|
| Total |
| ||||||||||||||||
United States |
|
| 367 |
|
|
| 4 |
|
|
| 33 |
|
|
| 404 |
|
|
| 367 |
|
|
| 4 |
|
|
| 33 |
|
|
| 404 |
|
|
| 371 |
|
|
| 4 |
|
|
| 30 |
|
|
| 405 |
|
|
| 364 |
|
|
| 4 |
|
|
| 32 |
|
|
| 400 |
|
Canada |
|
| 39 |
|
|
| 2 |
|
|
| 7 |
|
|
| 48 |
|
|
| 39 |
|
|
| 2 |
|
|
| 7 |
|
|
| 48 |
|
|
| 39 |
|
|
| 2 |
|
|
| 7 |
|
|
| 48 |
|
|
| 39 |
|
|
| 2 |
|
|
| 7 |
|
|
| 48 |
|
Greater China(1) |
|
| 648 |
|
|
| — |
|
|
| 15 |
|
|
| 663 |
|
|
| 552 |
|
|
| — |
|
|
| 17 |
|
|
| 569 |
|
|
| 699 |
|
|
| — |
|
|
| 15 |
|
|
| 714 |
|
|
| 631 |
|
|
| — |
|
|
| 15 |
|
|
| 646 |
|
Western Europe |
|
| 105 |
|
|
| 5 |
|
|
| 10 |
|
|
| 120 |
|
|
| 93 |
|
|
| 4 |
|
|
| 10 |
|
|
| 107 |
|
|
| 114 |
|
|
| 4 |
|
|
| 8 |
|
|
| 126 |
|
|
| 103 |
|
|
| 4 |
|
|
| 10 |
|
|
| 117 |
|
Asia (excluding Greater China) |
|
| 112 |
|
|
| 2 |
|
|
| 2 |
|
|
| 116 |
|
|
| 103 |
|
|
| 1 |
|
|
| 3 |
|
|
| 107 |
|
|
| 120 |
|
|
| 2 |
|
|
| 2 |
|
|
| 124 |
|
|
| 112 |
|
|
| 2 |
|
|
| 2 |
|
|
| 116 |
|
Russia & the CIS |
|
| 65 |
|
|
| — |
|
|
| — |
|
|
| 65 |
|
|
| 57 |
|
|
| — |
|
|
| — |
|
|
| 57 |
|
|
| 68 |
|
|
| — |
|
|
| — |
|
|
| 68 |
|
|
| 62 |
|
|
| — |
|
|
| — |
|
|
| 62 |
|
Latin America(2) |
|
| 48 |
|
|
| 1 |
|
|
| 12 |
|
|
| 61 |
|
|
| 44 |
|
|
| — |
|
|
| 12 |
|
|
| 56 |
|
|
| 50 |
|
|
| 1 |
|
|
| 12 |
|
|
| 63 |
|
|
| 48 |
|
|
| 1 |
|
|
| 12 |
|
|
| 61 |
|
Rest of the World |
|
| 61 |
|
|
| 1 |
|
|
| 2 |
|
|
| 64 |
|
|
| 59 |
|
|
| 1 |
|
|
| 2 |
|
|
| 62 |
|
|
| 65 |
|
|
| 1 |
|
|
| 2 |
|
|
| 68 |
|
|
| 61 |
|
|
| 1 |
|
|
| 2 |
|
|
| 64 |
|
Total |
|
| 1,445 |
|
|
| 15 |
|
|
| 81 |
|
|
| 1,541 |
|
|
| 1,314 |
|
|
| 12 |
|
|
| 84 |
|
|
| 1,410 |
|
|
| 1,526 |
|
|
| 14 |
|
|
| 76 |
|
|
| 1,616 |
|
|
| 1,420 |
|
|
| 14 |
|
|
| 80 |
|
|
| 1,514 |
|
(1) | Greater China includes China, Hong Kong, Taiwan and Macau. |
(2) | Latin America includes South America, Central America and Mexico. |
The Company currently believes that over time its commercial multiplex theater network could grow to approximately 2,8553,318 IMAX theaters worldwide from 1,445 commercial multiplex IMAX theatersthe 1,526 operating as at June 30, 2019.March 31, 2020. The Company believes that the majority of its future growth will come from international markets. As at June 30, 2019, 70.7%March 31, 2020, 72.0% of IMAX theater systemsTheater Systems in operation were located within international markets (defined as all countries other than the United States and Canada), up from 67.9%70.4% as at June 30, 2018.March 31, 2019. Revenues and gross box office derived from outside the United States and Canadainternational markets continue to exceed revenues and gross box office from the United States and Canada. 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 Item 1A of the Company’s 20182019 Form 10-K.
Greater China is currently the Company’s second-largestlargest market, measured by revenues, with approximately 32%31.4% of overall revenues generated from the Company’s Greater China operations in the sixyear ended December 31, 2019. This percentage decreased to 15.1% in the three months ended June 30, 2019.March 31, 2020 due to the repercussions of COVID-19 on the Company’s business during the period. As at June 30, 2019,March 31, 2020, the Company had 663714 theaters operating in Greater China with an additional 301260 theaters in backlog that are scheduled to be installed by 2022.2023. The Company’s backlog in Greater China represents 49.2%48.8% of the Company’s current backlog including upgrades. The Company’s largest single international partnership is in China with Wanda Film (“Wanda”). Wanda’s total commitment to the Company is for 359 theater systemsIMAX Theater Systems in Greater China (of which 344 theater systems354 IMAX Theater Systems are under the parties’ joint revenue sharing arrangement). See “Risk Factors – The Company faces risks in connection with the continued expansion of its business in China” in Item 1A of the Company’s 20182019 Form 10-K.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Impact of COVID-19 Pandemic” in Item 2 of this Form 10-Q 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 II, Item 1A of this Form 10-Q.
The following table outlines the breakdown oftables provide detailed information about the Commercial Multiplex theatertheaters in operation within IMAX network by arrangement type and geographic location as at June 30:March 31:
|
| 2019 |
|
| 2020 |
| ||||||||||||||||||||||||||||||
|
| IMAX Commercial Multiplex Theater Network |
|
| Commercial Multiplex Theaters in IMAX Network |
| ||||||||||||||||||||||||||||||
|
| Traditional JRSA |
|
| Hybrid JRSA |
|
| Total JRSA |
|
| Sale / Sales- type lease |
|
| Total |
|
| Traditional JRSA |
|
| Hybrid JRSA |
|
| Sale / Sales- type Lease |
|
| Total |
| |||||||||
Domestic Total (United States & Canada) |
|
| 275 |
|
|
| 5 |
|
|
| 280 |
|
|
| 126 |
|
|
| 406 |
|
|
| 278 |
|
|
| 5 |
|
|
| 127 |
|
|
| 410 |
|
International: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater China |
|
| 328 |
|
|
| 101 |
|
|
| 429 |
|
|
| 219 |
|
|
| 648 |
|
|
| 358 |
|
|
| 102 |
|
|
| 239 |
|
|
| 699 |
|
Asia (excluding Greater China) |
|
| 34 |
|
|
| 1 |
|
|
| 35 |
|
|
| 77 |
|
|
| 112 |
|
|
| 33 |
|
|
| 2 |
|
|
| 85 |
|
|
| 120 |
|
Western Europe |
|
| 41 |
|
|
| 26 |
|
|
| 67 |
|
|
| 38 |
|
|
| 105 |
|
|
| 45 |
|
|
| 27 |
|
|
| 42 |
|
|
| 114 |
|
Russia & the CIS |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 65 |
|
|
| 65 |
|
|
| — |
|
|
| — |
|
|
| 68 |
|
|
| 68 |
|
Latin America |
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| 47 |
|
|
| 48 |
|
|
| 2 |
|
|
| — |
|
|
| 48 |
|
|
| 50 |
|
Rest of the World |
|
| 14 |
|
|
| — |
|
|
| 14 |
|
|
| 47 |
|
|
| 61 |
|
|
| 15 |
|
|
| — |
|
|
| 50 |
|
|
| 65 |
|
International Total |
|
| 418 |
|
|
| 128 |
|
|
| 546 |
|
|
| 493 |
|
|
| 1,039 |
|
|
| 453 |
|
|
| 131 |
|
|
| 532 |
|
|
| 1,116 |
|
Worldwide Total |
|
| 693 |
|
|
| 133 |
|
|
| 826 |
|
|
| 619 |
| (1) |
| 1,445 |
|
|
| 731 |
|
|
| 136 |
|
|
| 659 |
|
|
| 1,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2018 |
|
| 2019 |
| ||||||||||||||||||||||||||||||
|
| IMAX Commercial Multiplex Theater Network |
|
| Commercial Multiplex Theaters in IMAX Network |
| ||||||||||||||||||||||||||||||
|
| Traditional JRSA |
|
| Hybrid JRSA |
|
| Total JRSA |
|
| Sale / Sales- type lease |
|
| Total |
|
| Traditional JRSA |
|
| Hybrid JRSA |
|
| Sale / Sales- type Lease |
|
| Total |
| |||||||||
Domestic Total (United States & Canada) |
|
| 274 |
|
|
| 5 |
|
|
| 279 |
|
|
| 127 |
|
|
| 406 |
|
|
| 273 |
|
|
| 5 |
|
|
| 125 |
|
|
| 403 |
|
International: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater China |
|
| 275 |
|
|
| 82 |
|
|
| 357 |
|
|
| 195 |
|
|
| 552 |
|
|
| 319 |
|
|
| 96 |
|
|
| 216 |
|
|
| 631 |
|
Asia (excluding Greater China) |
|
| 29 |
|
|
| 1 |
|
|
| 30 |
|
|
| 73 |
|
|
| 103 |
|
|
| 34 |
|
|
| 1 |
|
|
| 77 |
|
|
| 112 |
|
Western Europe |
|
| 36 |
|
|
| 22 |
|
|
| 58 |
|
|
| 35 |
|
|
| 93 |
|
|
| 40 |
|
|
| 26 |
|
|
| 37 |
|
|
| 103 |
|
Russia & the CIS |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 57 |
|
|
| 57 |
|
|
| — |
|
|
| — |
|
|
| 62 |
|
|
| 62 |
|
Latin America |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 44 |
|
|
| 44 |
|
|
| 1 |
|
|
| — |
|
|
| 47 |
|
|
| 48 |
|
Rest of the World |
|
| 14 |
|
|
| — |
|
|
| 14 |
|
|
| 45 |
|
|
| 59 |
|
|
| 14 |
|
|
| — |
|
|
| 47 |
|
|
| 61 |
|
International Total |
|
| 354 |
|
|
| 105 |
|
|
| 459 |
|
|
| 449 |
|
|
| 908 |
|
|
| 408 |
|
|
| 123 |
|
|
| 486 |
|
|
| 1,017 |
|
Worldwide Total |
|
| 628 |
|
|
| 110 |
|
|
| 738 |
|
|
| 576 |
|
|
| 1,314 |
|
|
| 681 |
|
|
| 128 |
|
|
| 611 |
|
|
| 1,420 |
|
As at June 30, 2019, 280 (2018March 31, 2020, 278 (2019 — 279)273) of the 826 (2018731 (2019 — 738)681) theaters under traditional joint revenue sharing arrangements in operation, or 33.9% (201838.0% (2019 — 37.8%40.1%), were located in the United States and Canada, with the remaining 546 (2018453 (2019 — 459)408) or 66.1% (201862.0% (2019 — 62.2%59.9%) of theaters being located in international markets.
Sales Backlog
The following table provides detailed information about the Company’s current sales backlog is as follows:backlog:
|
| March 31, 2020 |
|
|
| March 31, 2019 |
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| June 30, 2019 |
|
|
| June 30, 2018 |
|
|
| Number of |
|
|
| Dollar Value |
|
|
| Number of |
|
|
| Dollar Value |
|
| ||||||||||||||||||||||||||||||||||||
|
| Number of |
|
|
| Dollar Value |
|
|
| Number of |
|
|
| Dollar Value |
|
|
| Systems |
|
|
| (in thousands) |
|
|
| Systems |
|
|
| (in thousands) |
|
| ||||||||||||||||||||||||||||
|
| Systems |
|
|
| (in thousands) |
|
|
| Systems |
|
|
| (in thousands) |
|
|
| New |
|
|
| Upgrade |
|
|
| New |
|
|
| Upgrade |
|
|
| New |
|
|
| Upgrade |
|
|
| New |
|
|
| Upgrade |
|
| ||||||||||||
Sales and sales-type lease arrangements |
|
| 182 |
|
|
| $ | 232,097 |
| (1) |
|
| 181 |
|
|
| $ | 250,742 |
| (1) |
|
| 169 |
|
|
|
| 11 |
|
|
| $ | 206,317 |
| (1) |
| $ | 14,518 |
| (1) |
|
| 179 |
|
|
|
| 3 |
|
|
| $ | 231,074 |
| (1) |
| $ | 4,421 |
| (1) |
Joint revenue sharing arrangements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hybrid lease arrangements |
|
| 154 |
|
|
|
| 112,994 |
|
|
|
| 115 |
|
|
|
| 61,484 |
|
|
|
| 131 |
|
|
|
| 7 |
|
|
|
| 96,650 |
|
|
|
| 5,560 |
|
|
|
| 108 |
|
|
|
| 9 |
|
|
|
| 58,903 |
|
|
|
| 7,185 |
|
|
Traditional arrangements |
|
| 276 |
| (2) |
|
| 7,700 |
| (3) |
|
| 339 |
|
|
|
| 7,638 |
| (3) |
|
| 133 |
| (2) |
|
| 82 |
| (2) |
|
| 300 |
| (3) |
|
| 5,500 |
| (3) |
|
| 178 |
| (2) |
|
| 94 |
| (2) |
|
| 400 |
| (3) |
|
| 7,500 |
| (3) |
|
|
| 612 |
| (4) |
| $ | 352,791 |
|
|
|
| 635 |
| (5) |
| $ | 319,864 |
|
|
|
| 433 |
|
|
|
| 100 |
|
|
| $ | 303,267 |
|
|
| $ | 25,578 |
|
|
|
| 465 |
|
|
|
| 106 |
|
|
| $ | 290,377 |
|
|
| $ | 19,106 |
|
|
(1) | Includes a variable consideration estimate of |
(2) | Includes |
(3) | Reflects contractual upfront payments. Future contingent payments are not reflected as these are based on negotiated shares of box office results. |
|
|
|
|
The number of theater systemsIMAX Theater Systems in the backlog reflects the minimum number of commitments under signed contracts. The dollar value fluctuates depending on the number of new theater system arrangements signed from year to year, which adds to backlog and the installation and acceptance of theater systemsIMAX Theater Systems and the settlement of contracts, both of which reduce backlog. Sales backlog typically represents the fixed contracted revenue under signed theater systemIMAX Theater System sale and lease agreements that the Company believes will be recognized as revenue upon installation and acceptance of the associated theater,system, as well as aan estimate of variable consideration, estimate, however it excludes amounts allocated to maintenance and extended warranty revenues. The value of sales backlog does not include revenue from theaters in which the Company has an equity interest, operating leases orand long-term conditional theater commitments. The value of theatersTheaters under joint revenue sharing arrangements is excluded from thedo not usually have dollar value of salesin backlog, although certain theater systemsIMAX Theater Systems under joint revenue sharing arrangements provide for contracted upfront payments and therefore carry a backlog value based on those payments. The Company believes that the contractual obligations for theater systemIMAX Theater System installations that are listed in sales backlog are valid and binding commitments.
From time to time, in the normal course of its business, the Company will have customers who are unable to proceed with a theater systeman IMAX Theater System installation for a variety of reasons, including the inability to obtain certain consents, approvals or financing. Once the determination is made that the customer will not proceed with installation, the agreement with the customer is terminated or amended. If the agreement is terminated, once the Company and the customer are released from all their future obligations under the agreement, all or a portion of the initial rents or fees that the customer previously made to the Company are recognized as revenue.
Certain of the Company’s contracts contain options for the customer to elect to upgrade system type during the term or to alter the contract structure (for example, from a joint revenue sharing arrangement to a sale) after signing but before installation. Current backlog information reflects all known elections.
The following table outlinestables provide detailed information about the breakdown of the totalCompany’s sales backlog by arrangement type and geographic location as at June 30:
March 31:
|
| 2019 |
|
| |||||||||||||||||
|
| IMAX Theater Backlog |
|
| |||||||||||||||||
|
| Traditional JRSA |
|
| Hybrid JRSA |
|
| Total JRSA |
|
| Sale / Lease |
|
| Total |
|
| |||||
Domestic Total (United States & Canada) |
|
| 156 |
|
|
| 3 |
|
|
| 159 |
|
|
| 8 |
|
|
| 167 |
|
|
International: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater China |
|
| 86 |
|
|
| 135 |
|
|
| 221 |
|
|
| 80 |
|
|
| 301 |
|
|
Asia (excluding Greater China) |
|
| 12 |
|
|
| — |
|
|
| 12 |
|
|
| 38 |
|
|
| 50 |
|
|
Western Europe |
|
| 16 |
|
|
| 16 |
|
|
| 32 |
|
|
| 9 |
|
|
| 41 |
|
|
Russia & the CIS |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14 |
|
|
| 14 |
|
|
Latin America |
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| 10 |
|
|
| 11 |
|
|
Rest of the World |
|
| 5 |
|
|
| — |
|
|
| 5 |
|
|
| 23 |
|
|
| 28 |
|
|
International Total |
|
| 120 |
|
|
| 151 |
|
|
| 271 |
|
|
| 174 |
|
|
| 445 |
|
|
Worldwide Total |
|
| 276 |
|
|
| 154 |
|
|
| 430 |
|
|
| 182 |
|
|
| 612 |
| (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2018 |
|
|
| 2020 |
|
| ||||||||||||||||||||||||||||||
|
| IMAX Theater Backlog |
|
|
| IMAX Theater System Backlog |
|
| ||||||||||||||||||||||||||||||
|
| Traditional JRSA |
|
| Hybrid JRSA |
|
| Total JRSA |
|
| Sale / Lease |
|
| Total |
|
|
| Traditional JRSA |
|
| Hybrid JRSA |
|
| Sale / Lease |
|
| Total |
|
| |||||||||
Domestic Total (United States & Canada) |
|
| 155 |
|
|
| 3 |
|
|
| 158 |
|
|
| 7 |
|
|
| 165 |
|
|
|
| 124 |
|
|
| 3 |
|
|
| 11 |
|
|
| 138 |
|
|
International: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater China |
|
| 142 |
|
|
| 108 |
|
|
| 250 |
|
|
| 69 |
|
|
| 319 |
|
|
|
| 67 |
|
|
| 122 |
|
|
| 71 |
|
|
| 260 |
|
|
Asia (excluding Greater China) |
|
| 5 |
|
|
| — |
|
|
| 5 |
|
|
| 44 |
|
|
| 49 |
|
|
|
| 5 |
|
|
| — |
|
|
| 34 |
|
|
| 39 |
|
|
Western Europe |
|
| 31 |
|
|
| 4 |
|
|
| 35 |
|
|
| 10 |
|
|
| 45 |
|
|
|
| 12 |
|
|
| 13 |
|
|
| 7 |
|
|
| 32 |
|
|
Russia & the CIS |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 19 |
|
|
| 19 |
|
|
|
| — |
|
|
| — |
|
|
| 15 |
|
|
| 15 |
|
|
Latin America |
|
| 2 |
|
|
| — |
|
|
| 2 |
|
|
| 13 |
|
|
| 15 |
|
|
|
| 3 |
|
|
| — |
|
|
| 10 |
|
|
| 13 |
|
|
Rest of the World |
|
| 4 |
|
|
| — |
|
|
| 4 |
|
|
| 19 |
|
|
| 23 |
|
|
|
| 4 |
|
|
| — |
|
|
| 32 |
|
|
| 36 |
|
|
International Total |
|
| 184 |
|
|
| 112 |
|
|
| 296 |
|
|
| 174 |
|
|
| 470 |
|
|
|
| 91 |
|
|
| 135 |
|
|
| 169 |
|
|
| 395 |
|
|
Worldwide Total |
|
| 339 |
|
|
| 115 |
|
|
| 454 |
|
|
| 181 |
|
|
| 635 |
| (2) |
|
| 215 |
|
|
| 138 |
|
|
| 180 |
|
|
| 533 |
| (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
|
| 2019 |
|
| ||||||||||||||||||||||||||||||||||
|
| IMAX Theater System Backlog |
|
| ||||||||||||||||||||||||||||||||||
|
| Traditional JRSA |
|
| Hybrid JRSA |
|
| Sale / Lease |
|
| Total |
|
| |||||||||||||||||||||||||
Domestic Total (United States & Canada) |
|
| 144 |
|
|
| 3 |
|
|
| 9 |
|
|
| 156 |
|
| |||||||||||||||||||||
International: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Greater China |
|
| 95 |
|
|
| 99 |
|
|
| 82 |
|
|
| 276 |
|
| |||||||||||||||||||||
Asia (excluding Greater China) |
|
| 11 |
|
|
| — |
|
|
| 37 |
|
|
| 48 |
|
| |||||||||||||||||||||
Western Europe |
|
| 17 |
|
|
| 15 |
|
|
| 10 |
|
|
| 42 |
|
| |||||||||||||||||||||
Russia & the CIS |
|
| — |
|
|
| — |
|
|
| 17 |
|
|
| 17 |
|
| |||||||||||||||||||||
Latin America |
|
| 1 |
|
|
| — |
|
|
| 9 |
|
|
| 10 |
|
| |||||||||||||||||||||
Rest of the World |
|
| 4 |
|
|
| — |
|
|
| 18 |
|
|
| 22 |
|
| |||||||||||||||||||||
International Total |
|
| 128 |
|
|
| 114 |
|
|
| 173 |
|
|
| 415 |
|
| |||||||||||||||||||||
Worldwide Total |
|
| 272 |
|
|
| 117 |
|
|
| 182 |
|
|
| 571 |
| (2) |
(1) | Includes |
(2) | Includes |
Approximately 72.7%74.1% of IMAX theater systemTheater System arrangements in backlog as at June 30, 2019March 31, 2020 are scheduled to be installed in international markets (2018 – 74.0%(2019 — 72.7%).
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Impact of COVID-19 Pandemic” in Item 2 of this Form 10-Q 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 II, Item 1A of this Form 10-Q.
Signings and Installations
The following reflects the Company’stables provide detailed information about IMAX Theater System signings and installations:
| For the Three Months Ended |
|
| For the Six Months Ended |
| ||||||||||||||
| June 30, |
|
| June 30, |
| ||||||||||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||||
Theater System Signings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full new sales and sales-type lease arrangements |
|
| 7 |
|
|
|
| 9 |
|
|
|
| 16 |
|
|
|
| 24 |
|
New traditional joint revenue sharing arrangements |
|
| 2 |
|
|
|
| 31 |
|
|
|
| 4 |
|
|
|
| 53 |
|
New hybrid joint revenue sharing lease arrangements |
|
| 45 |
|
|
|
| — |
|
|
|
| 48 |
|
|
|
| 8 |
|
Total new theaters |
|
| 54 |
|
|
|
| 40 |
|
|
|
| 68 |
|
|
|
| 85 |
|
Upgrades of IMAX theater systems |
|
| 19 |
|
|
|
| 98 |
|
|
|
| 28 |
|
|
|
| 98 |
|
Total theater signings |
|
| 73 |
|
|
|
| 138 |
|
|
|
| 96 |
|
|
|
| 183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended |
|
| For the Six Months Ended |
| ||||||||||||||
| June 30, |
|
| June 30, |
| ||||||||||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||||
Theater System Installations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full new sales and sales-type lease arrangements |
|
| 9 |
|
|
|
| 9 |
|
|
|
| 15 |
|
|
|
| 22 |
|
New traditional joint revenue sharing arrangements |
|
| 13 |
|
|
|
| 19 |
|
|
|
| 17 |
|
|
|
| 22 |
|
New hybrid joint revenue sharing lease arrangement |
|
| 5 |
|
|
|
| 2 |
|
|
|
| 9 |
|
|
|
| 2 |
|
Total new theaters |
|
| 27 |
|
|
|
| 30 |
|
|
|
| 41 |
|
|
|
| 46 |
|
Upgrades of IMAX theater systems |
|
| 8 |
|
|
|
| 1 |
|
|
|
| 11 |
|
|
|
| 1 |
|
Total theater installations |
|
| 35 |
|
|
|
| 31 |
|
|
|
| 52 |
|
|
|
| 47 |
|
| For the Three Months Ended |
| |||||||
| March 31, |
| |||||||
| 2020 |
|
| 2019 |
| ||||
Theater System Signings: |
|
|
|
|
|
|
|
|
|
New IMAX Theater Systems |
|
|
|
|
|
|
|
|
|
Sales and sales-type lease arrangements |
|
| 2 |
|
|
|
| 9 |
|
Hybrid joint revenue sharing lease arrangements |
|
| — |
|
|
|
| 3 |
|
Traditional joint revenue sharing arrangements |
|
| 2 |
|
|
|
| 2 |
|
Total new IMAX Theater Systems |
|
| 4 |
|
|
|
| 14 |
|
Upgrades of IMAX Theater Systems |
|
| 11 |
|
|
|
| 9 |
|
Total IMAX Theater System signings |
|
| 15 |
|
|
|
| 23 |
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended |
| |||||||
| March 31, |
| |||||||
| 2020 |
|
| 2019 |
| ||||
Theater System Installations: |
|
|
|
|
|
|
|
|
|
New IMAX Theater Systems |
|
|
|
|
|
|
|
|
|
Sales and sales-type lease arrangements |
|
| 2 |
|
|
|
| 6 |
|
Hybrid joint revenue sharing lease arrangements |
|
| 1 |
|
|
|
| 4 |
|
Traditional joint revenue sharing arrangements |
|
| 2 |
|
|
|
| 4 |
|
Total new IMAX Theater Systems |
|
| 5 |
|
|
|
| 14 |
|
Upgrades of IMAX Theater Systems |
|
| 7 |
|
|
|
| 3 |
|
Total IMAX Theater System installations |
|
| 12 |
|
|
|
| 17 |
|
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Impact of COVID-19 Pandemic” in Item 2 of this Form 10-Q and “Risk Factors – The Company anticipates that it will installhas experienced a totalsignificant decrease in its revenues, earnings and cash flows due to the COVID-19 global pandemic and its business, financial condition and results of approximately 185operations may continue to 190 theater systems, which includes approximately 45 IMAX with Laser theater systems upgrades, during 2019. The Company cautions, however, that theater system installations may change from period to period over the coursebe significantly harmed in future reporting periods” in Part II, Item 1A of the Company’s business, usually for reasons beyond its control. this Form 10-Q.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company prepares its condensed consolidated financial statements in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP”).
The preparation of these consolidated financial statements requires management to make estimates and judgments under its accounting policies that affect the financial results. The precision of these estimates and the likelihood of future changes depend on a number of underlying variables and a range of possible outcomes.
Management bases its estimates on historical experience, future expectations and other assumptions that are believed to be reasonable at the date of the condensed consolidated financial statements. Actual results may differ from these estimates due to uncertainty involved in measuring, at a specific point in time, events which are continuous in nature, and differences may be material. The Company’s significant accounting policies are discussed in Item 7 of the Company’s 2018 Form 10-K.
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.
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 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 of its leases regardless of whether the Company is the lessee or a lessor to the lease.
The Company’s estimates as a lessee the term of the Company’s leases and the determination of the incremental borrowing rate to be used. 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. Please see notes 3 and 4 to the condensed consolidated financial statements in Item 1 for additional information regarding the adoption of ASC Topic 842.
Impact of Recently Issued Accounting Pronouncements
Please see notes 2 and 3 to the condensed consolidated financial statements in Item 1 for information regarding the Company’s recent changes in accounting policies and the impact of all recently issued accounting pronouncements.
NON-GAAP FINANCIAL MEASURES
In this report, the Company presents certain data which are not recognized under U.S. GAAP and are considered “non-GAAP financial measures” under U.S. Securities and Exchange Commission rules. Specifically, the Company presents the following non-GAAP financial measures as supplemental measures of its performance:
|
|
|
|
|
|
|
|
|
|
The Company presents adjusted net income and adjusted net income per diluted share, which excludes stock-based compensation, exit costs, restructuring charges and associated impairments, legal arbitration award, change in fair value of equity investment and the related tax impact of these adjustments, because it believes that they are important supplemental measures of the Company’s comparable controllable operating performance. Although stock-based compensation is an important aspect of the Company’s employee and executive compensation packages, it is mostly a non-cash expense and is excluded from certain internal business performance measures, and the Company wants to ensure that its investors fully understand the impact of its stock-based compensation (net of any related tax impact) and non-recurring charges on net income.
In addition, the Company presents adjusted net income attributable to common shareholders and adjusted net income attributable to common shareholders per diluted share because it believes that they are important supplemental measures of its comparable financial results. Without the presentation of these adjusted presentation measures the Company believes it could potentially distort the analysis of trends in business performance and it wants to ensure that its investors fully understand the impact of net income attributable to non-controlling interests, its stock-based compensation, exit costs, restructuring charges, associated impairments. legal arbitration award and change in fair value of equity investment (net of any related tax impact) in determining net income attributable to common shareholders.
Management uses these measures for internal reporting and forecasting purposes in order to review operating performance on a comparable basis from period to period. However, these non-GAAP measures may not be comparable to similarly titled amounts reported by other companies. The Company’s non-GAAP measures should be considered in addition to, and not as a substitute for, or superior to, net income and net income attributable to common shareholders and other measures of financial performance reported in accordance with U.S. GAAP.
In addition, management uses “EBITDA”, as such term is defined in the Company’s credit agreement (and which is referred to herein as “Adjusted EBITDA per Credit Facility”, as the credit agreement includes additional adjustments beyond interest, taxes, depreciation and amortization) to evaluate, assess and benchmark the Company’s operational results. 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. Accordingly, the Company is disclosing this information to permit a more comprehensive analysis of its operating performance and to provide additional information with respect to the Company’s ability to comply with its credit agreement requirements. EBITDA is defined as net income with adjustments for depreciation and amortization, interest income (expense)-net, and income tax provision (benefit). Adjusted EBITDA per Credit Facility is defined as EBITDA plus adjustments for loss from equity accounted investments, stock and other non-cash compensation, exit costs, restructuring charges and associated impairments, change in fair value of equity investment, legal arbitration award, executive transition costs and adjusted EBITDA attributable to non-controlling interests.
RESULTS OF OPERATIONS
Important factors that theThe Company’s business and future prospects are evaluated by Richard L. Gelfond, its Chief Executive Officer (“CEO”) Richard L. Gelfond uses in assessing the Company’s business, using a variety of financial and prospects include:operational metric including:
| • | the signing, installation and financial performance of theater system arrangements, |
| • | film performance and the securing of new film projects |
|
|
|
|
|
| • | the continuing ability to invest in and improve the Company’s technology to enhance |
• | revenues and gross margins from the Company’s segments, as discussed below; |
• | earnings from operations as adjusted for unusual items; |
| • | the overall execution, reliability and consumer acceptance of The IMAX Experience; |
| • | the success of new business initiatives; and |
| • | short- and long-term cash flow projections. |
Management, including the Company’sThe CEO who is the Company’s Chief Operating Decision Maker (“CODM”) (as, as such term is defined in the Segment Reporting Topicunder generally accepted accounting principles. The CODM, along with other members of the FASB ASC), assessesmanagement, assess segment performance based on segment revenues and gross margins. Selling, general and administrative expenses, research and development costs, the amortization of intangibles, receivables provisions (recoveries), write-downs net(net of recoveries,recoveries), interest income, interest expense and the income tax (provision) recoveryprovision are not allocated to the segments.
The Company has organized its reportable segments into the following eightfour categories: (i) IMAX Technology Network; (ii) IMAX Technology Sales and Maintenance; (iii) New Business Initiatives; and (iv) Film Distribution and Post-production. Within these categories are the Company’s following reportable segments: (i) IMAX DMR; joint revenue sharing arrangements;(ii) Joint Revenue Sharing Arrangements; (iii) IMAX systems; theater system maintenance; other; new business; film distribution; and film post-production. The Company is presenting the following information at a disaggregated level to provide more relevant information to readers, as permitted by the standard, and adjusted for the adoption of the new revenue recognition standard:
|
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| Systems, (iv) IMAX Maintenance; (v) Other |
The Company’s Management’s Discussion and Analysis (“MD&A”) of Financial Condition and Results of Operations has been organized by the Company into four primary groups – Network Business, Theater Business,Business; (vi) New Business Initiatives; (vii) Film Distribution; and Other. Each(viii) Film Post-production which are described above under “Sources of the Company’s reportable segments, as identified above, has been classified into one of these broader groups for purposes of MD&A discussion.Revenue.” The Company believes that this approach is consistent with how the CODM reviews the financial performance of the business and makes strategic decisions regarding resource allocation and investments to meet long-term business goals. Management believes that a discussion and analysis based on these groupsthe four categories listed above is significantly more relevant and useful to readers, as the Company’s condensed consolidated statements of operations captions combine results from several segments. For additional details regarding the four primary groups above, please refer to the Company’s 2018 Form 10-K.
Three Months Ended June 30, 2019March 31, 2020 versus Three Months Ended June 30, 2018March 31, 2019
TheFor the three months ended March 31, 2020, the Company reported a net loss attributable to common shareholders of $(49.4) million, or $(0.82) per basic and diluted share, as compared to net income attributable to common shareholders of $13.8$8.3 million, or $0.22$0.13 per basic and diluted share, for the second quartersame period in 2019. For the three months ended March 31, 2020, the Company reported an adjusted net loss attributable to common shareholders* of 2019 as compared to net income of $10.3$(28.7) million, or $0.16$(0.48) per basic and diluted share for the second quarter of 2018.
Net income for the second quarter of 2019 includes a $7.0 million charge, or $0.11 per diluted share (2018— $6.8 million or $0.10 per diluted share)share*, for stock-based compensation and a loss of $4.5 million, or $0.07 per diluted share, adjustment for the change in fair value of equity investment (2018 — $nil). The second quarter of 2018 includes a $0.5 million charge, or $0.01 per diluted share, for exit costs, restructuring charges and associated impairments and a $7.5 million charge, or $0.12 per diluted share, for a legal arbitration award related to one of the Company’s litigation matters from 2006.
Adjusted net income, which consists of net income excluding the impact of stock-based compensation, exit costs, restructuring charges and associated impairments, the legal arbitration award, the change in fair value of equity investment and the related tax impact of these adjustments, was $23.8 million, or $0.38 per diluted share, for the second quarter of 2019 as compared to adjusted net income of $21.7 million, or $0.34 per diluted share, for the second quarter of 2018.
The Company reported net income attributable to common shareholders of $11.4 million, or a $0.19 per basic and diluted share for the second quarter of 2019 (2018 — $7.6 million, or $0.12 per basic and diluted share).
Adjusted net income attributable to common shareholders, which consists of net income attributable to common shareholders excluding the impact of stock-based compensation, exit costs, restructuring charges and associated impairments, the legal arbitration award, the change in fair value of equity investment and the related tax impact of these adjustments, was $19.7 million, or $0.32 per diluted share, for the second quarter of 2019 as compared to adjusted net income attributable to common shareholdersshareholders* of $19.0$10.8 million, or $0.30$0.18 per diluted share,share*, for the second quarter of 2018.same period in 2019.
A reconciliation of net income and net income attributable to common shareholders, the most directly comparable U.S. GAAP measure, to adjusted net income, adjusted net income per diluted share, adjusted net income attributable to common shareholders and adjusted net income attributable to common shareholders per diluted share is presented in the table below:
(In thousands of U.S. dollars, except per share amounts) |
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| June 30, 2019 |
|
| June 30, 2018 |
| ||||||||||
|
| Net Income |
|
| Diluted EPS |
|
| Net Income |
|
| Diluted EPS |
| ||||
Reported net income |
| $ | 13,836 |
|
| $ | 0.22 |
|
| $ | 10,255 |
|
| $ | 0.16 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
| 7,027 |
|
|
| 0.11 |
|
|
| 6,756 |
|
|
| 0.10 |
|
Exit costs, restructuring charges and associated impairments |
|
| — |
|
|
| — |
|
|
| 456 |
|
|
| 0.01 |
|
Legal Arbitration |
|
| — |
|
|
| — |
|
|
| 7,500 |
|
|
| 0.12 |
|
Change in fair value of equity investment |
|
| 4,544 |
|
|
| 0.07 |
|
|
| — |
|
|
| — |
|
Tax impact on items listed above |
|
| (1,655 | ) |
|
| (0.02 | ) |
|
| (3,228 | ) |
|
| (0.05 | ) |
Adjusted net income |
|
| 23,752 |
|
|
| 0.38 |
|
|
| 21,739 |
|
|
| 0.34 |
|
Net income attributable to non-controlling interests(1) |
|
| (2,439 | ) |
|
| (0.04 | ) |
|
| (2,630 | ) |
|
| (0.04 | ) |
Stock-based compensation (net of tax of less than $0.1 million and less than $0.1 million, respectively)(1) |
|
| (177 | ) |
|
| — |
|
|
| (147 | ) |
|
| — |
|
Change in fair value of equity investment(1) |
|
| (1,443 | ) |
|
| (0.02 | ) |
|
| — |
|
|
| — |
|
Adjusted net income attributable to common shareholders |
| $ | 19,693 |
|
| $ | 0.32 |
|
| $ | 18,962 |
|
| $ | 0.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding |
|
|
|
|
|
| 61,507 |
|
|
|
|
|
|
| 63,426 |
|
|
|
The following table sets forth the breakdown of revenue and gross margin by naturecategory and reportable segment for the three months ended June 30:March 31:
(In thousands of U.S. dollars) |
| Revenue |
|
| Gross Margin |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Network business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX DMR |
| $ | 39,293 |
|
| $ | 36,161 |
|
| $ | 23,961 |
|
| $ | 24,280 |
|
Joint revenue sharing arrangements – contingent rent |
|
| 25,301 |
|
|
| 24,730 |
|
|
| 19,128 |
|
|
| 18,621 |
|
IMAX systems – contingent rent |
|
| 131 |
|
|
| — |
|
|
| 131 |
|
|
| — |
|
|
|
| 64,725 |
|
|
| 60,891 |
|
|
| 43,220 |
|
|
| 42,901 |
|
Theater business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX systems |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and sales-type leases(1) |
|
| 13,793 |
|
|
| 11,981 |
|
|
| 5,310 |
|
|
| 6,899 |
|
Ongoing fees and finance income(2) |
|
| 2,816 |
|
|
| 3,282 |
|
|
| 2,768 |
|
|
| 3,234 |
|
Joint revenue sharing arrangements – fixed fees |
|
| 2,548 |
|
|
| 1,022 |
|
|
| 870 |
|
|
| 246 |
|
Theater system maintenance |
|
| 13,207 |
|
|
| 12,335 |
|
|
| 5,640 |
|
|
| 5,088 |
|
Other theater |
|
| 2,580 |
|
|
| 2,255 |
|
|
| 841 |
|
|
| 563 |
|
|
|
| 34,944 |
|
|
| 30,875 |
|
|
| 15,429 |
|
|
| 16,030 |
|
New business |
|
| 478 |
|
|
| 3,116 |
|
|
| 281 |
|
|
| 1,906 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film distribution and post-production |
|
| 3,601 |
|
|
| 2,360 |
|
|
| 458 |
|
|
| (387 | ) |
Other |
|
| 1,049 |
|
|
| 1,103 |
|
|
| 165 |
|
|
| (46 | ) |
|
|
| 4,650 |
|
|
| 3,463 |
|
|
| 623 |
|
|
| (433 | ) |
|
| $ | 104,797 |
|
| $ | 98,345 |
|
| $ | 59,553 |
|
| $ | 60,404 |
|
(In thousands of U.S. dollars) |
| Revenue |
|
| Gross Margin |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
IMAX Technology Network |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX DMR |
| $ | 10,629 |
|
| $ | 27,950 |
|
| $ | 4,443 |
|
| $ | 19,775 |
|
Joint revenue sharing arrangements, contingent rent |
|
| 5,971 |
|
|
| 18,044 |
|
|
| (1,618 | ) |
|
| 11,935 |
|
|
|
| 16,600 |
|
|
| 45,994 |
|
|
| 2,825 |
|
|
| 31,710 |
|
IMAX Technology Sales and Maintenance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX Systems (1) |
|
| 5,688 |
|
|
| 13,026 |
|
|
| 3,176 |
|
|
| 7,052 |
|
Joint revenue sharing arrangements, fixed fees |
|
| 770 |
|
|
| 2,539 |
|
|
| 179 |
|
|
| 295 |
|
IMAX Maintenance |
|
| 7,370 |
|
|
| 12,951 |
|
|
| 759 |
|
|
| 5,281 |
|
Other Theater Business (2) |
|
| 1,263 |
|
|
| 1,626 |
|
|
| 610 |
|
|
| 475 |
|
|
|
| 15,091 |
|
|
| 30,142 |
|
|
| 4,724 |
|
|
| 13,103 |
|
New Business Initiatives |
|
| 478 |
|
|
| 834 |
|
|
| 361 |
|
|
| 619 |
|
Film Distribution and Post-production |
|
| 2,494 |
|
|
| 2,662 |
|
|
| (1,935 | ) |
|
| (25 | ) |
|
|
| 34,663 |
|
|
| 79,632 |
|
|
| 5,975 |
|
|
| 45,407 |
|
Other |
|
| 239 |
|
|
| 566 |
|
|
| (889 | ) |
|
| (267 | ) |
Total |
| $ | 34,902 |
|
| $ | 80,198 |
|
| $ | 5,086 |
|
| $ | 45,140 |
|
(1) | Includes initial payments and the present value of fixed minimum payments from |
(2) |
|
* | 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
TheIn the first quarter of 2020, substantially all of the theaters in the IMAX network were closed for some period of the time, with the theaters in Greater China closed since late-January and the remainder of the Company’s revenuestheaters closed in mid-to-late March, due to the outbreak of the COVID-19 global pandemic. As a result, the Company’s results of operations for the second quarter of 2019 increased 6.6% to $104.8 million from $98.3 million inperiod materially declined versus the second quarter of 2018, primarily due to an increase in bothprior year period. For the theater businessthree months ended March 31, 2020, revenues and network business segments, partially offset by the decrease in the new business segment. The gross margin across all segments in the second quarter of 2019 was $59.6decreased $45.3 million or 56.8% of total revenue,(56.5%) and $40.0 million (88.7%), respectively, when compared to $60.4 million, or 61.4% of total revenuethe same period in the second quarter of 2018.2019.
IMAX Technology Network Business
Gross box office generated by IMAX DMR films increased by 6.5% to $364.9 million in the second quarter of 2019 from $342.6 million in the second quarter of 2018. In the second quarter of 2019, gross box office was generated primarily by the exhibition of 19 films (15 new and 4 carryovers), as compared to 14 films (10 new and 4 carryovers) exhibited in the second quarter of 2018.
Technology Network business revenue increased by 6.3% to $64.7 million in the second quarter of 2019 from $60.9 million in the second quarter of 2018 due to an increase in IMAX DMR revenue. The gross margin experienced by the Company’s network business in the second quarter of 2019 was $43.2 million, or 66.8% of network business revenue, compared to $42.9 million, or 70.5% in the second quarter of 2018. The decreased gross margin ratio is primarily attributable to the increase in contractual marketing obligations related to IMAX DMR films that delivered particularly strong box office during the quarter. The Company’s network business performance is impacted by box office performance, as well as other factors including the timing of a film release to the IMAX theater network, the commercial success of the film, the level of marketing spend associated with films released in the period, the Company’s take rates under its DMR and joint revenue sharing arrangements, and the distribution window for the exhibition of films in the IMAX theater network. These arrangements are reflected under the IMAX systems segment of Theater Business. Other factors impacting IMAX Technology Network performance include fluctuations in the value of foreign currencies versus the U.S. dollar and potential currency devaluations.
For the three months ended March 31, 2020, IMAX Technology Network revenues and gross margin decreased $29.4 million (63.9%) and $28.9 million (91.1%), respectively, when compared to the same period in 2019. See below for a discussion of the performance of the IMAX DMR and JRSA, contingent rent, categories.
IMAX DMR
For the three months ended March 31, 2020, IMAX DMR revenues increasedand gross margin decreased by 8.7%$17.3 million (62.0%) and $15.4 million (77.5%), respectively, when compared to $39.3the same period in 2019. These decreases are due to a $161.1 million (62.8%) decrease in GBO generated by IMAX DMR films in the secondfirst quarter of 2019 from $36.2 million2020, due to the temporary closure of theaters in the secondnetwork due to the public health risks associated with the COVID-19 global pandemic. In the first quarter of 2018. The current year includes2020, GBO was generated primarily by the blockbuster performanceexhibition of Avengers: Endgame: The IMAX Experience13 films (9 new and 4 carryovers), whileas compared to 24 films (12 new and 12 carryovers) exhibited in the prior year included the blockbuster performancefirst quarter of Avengers: Infinity War: The IMAX Experience. 2019.
IMAX DMR gross margins decreased to $24.0 million in the second quarter of 2019 as compared to $24.3 million in the second quarter of 2018. Marginmargin is a function of the costs associated with the respective films exhibited in the period, and can vary particularly with respect to marketing expenses. DMR marketing expenses in the secondfirst quarter of 20192020 were $9.5$2.4 million, as compared to $6.5$3.9 million in the secondfirst quarter of 2018, which was primarily due to an increase in contractual marketing obligations related2019.
Joint Revenue Sharing Arrangements – Contingent Rent
For the three months ended March 31, 2020, JRSA contingent rent revenue and gross margin decreased $12.0 million (66.9%) and $13.6 million (113.6%), respectively, when compared to the strong performance for the films shown.
Contingent rent revenues from joint revenue sharing arrangementssame period in 2019. As at March 31, 2020, 867 theaters were $25.3 million in the second quarter of 2019, as compared to $24.7 million for the second quarter of 2018. The Company ended the second quarter of 2019 with 826 theaters operating under joint revenue sharing arrangements, as compared to 738809 theaters as at the end of the second quarter of 2018,March 31, 2019, an increase of 11.9%7.2%. Gross box officeThe decreases in revenue and gross margin are due to an $88.9 million (66.6%) decrease in GBO generated by the joint revenue sharing arrangements was higher at $186.1 millionIMAX DMR films in the secondfirst quarter of 2019 from $179.0 million2020 due to the temporary closure of theaters in the second quarter of 2018. The Company’s joint revenue sharing arrangement performance is impacted by box office performance, as well as the take rates under each of its joint revenue sharing agreements and where a film is exhibited. Other factors impacting performance include fluctuations in the value of foreign currencies versus the U.S. dollar and potential currency devaluations.
The gross margin from joint revenue sharing arrangements increased to $19.1 million in the second quarter of 2019 from $18.6 million in the second quarter of 2018. Included in the calculation of gross margin for the second quarter of 2019 was depreciation of $5.7 million, as compared to $5.0 million in the second quarter of 2018, as a result of the 11.9% increase in the number of joint revenue sharing arrangement theaters in operation comparednetwork due to the second quarter of 2018. Also included in gross margin were certain advertising, marketing and commission costs primarilypublic health risks associated with new theater launches of $0.2 million, as compared to $1.1 million during the second quarter of 2018. MarginCOVID-19 global pandemic.
JRSA margin is a function of the revenue generated at each JRSA theater system location, along with the costs associated with each theater system, such as the increase in depreciation on new IMAX with Laser systems and costs incurred for the upgrade of theater systems from a digital-xenon system to an IMAX with Laser system.
Contingent rent revenue from IMAX systems consists of variable payments received in excess of the fixed minimum ongoing payments which are primarily driven by box office performance reported by theater operators. The Company expects this revenue stream to be minimal on a go-forward basis. Contingent rent revenue of $0.1 million was recognized Included in the secondcalculation of JRSA gross margin for the first quarter of 2020 was depreciation of $6.9 million, as compared to $5.6 million in the first quarter of 2019, as a result of the 7.2% increase in the number of theaters operating under joint revenue sharing arrangements. The JRSA gross margin includes certain advertising, marketing and commission costs primarily associated with new theater launches of $0.5 million, as compared to $nil$0.1 million during the first quarter of 2019. Advertising, marketing and commission costs are driven by the number of JRSA theater systems deployed in a given quarter, for which there were 9 in the second quarter of 2018.quarter.
Theater BusinessIMAX Technology Sales and Maintenance
The primary drivers of this lineIMAX Technology Sales and Maintenance performance are the number of business are theater system installationsIMAX Theater systems installed in a period, and the Company’slevel of gross margin percentage earned on each installation, as well as the associated maintenance contracts that accompany each theater installation. For the second quarter of 2019, theater business revenue increased $4.1 million, or 13.2%, to $34.9 million as compared to the second quarter of 2018. The increase in theater business revenue in 2019 as compared to 2018 was primarily due to:
|
|
|
|
Theater business gross margin decreased 3.7% to $15.4 million in the second quarter of 2019 as compared to $16.0 million in the second quarter of 2018, due to the mix of systems installed in the quarter and the increased sustained engineering costs required to support the IMAX with Laser roll out, continued development and support. Specifically, gross margin increased from the one additional sale upgrade and also increased very slightly from the three hybrid lease installations, but that was more than offset by the increased sustained engineering spend.
The installation of theater systemsIMAX Theater Systems in newly-builtnewly 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. The breakdown infollowing table provides detailed information about the mix of sales and sales-type lease and joint revenue sharing arrangements (see discussion below)IMAX Theater System installations by theater system configuration for June 30 is outlined in the table below:three months March 31:
|
| For the Three Months Ended June 30, |
| |||||||||||||
|
| 2019 |
|
| 2018 |
| ||||||||||
|
| Number of Systems |
|
| Revenue |
|
| Number of Systems |
|
| Revenue |
| ||||
New IMAX digital theater systems — installed and recognized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and sales-types lease arrangements(1) |
|
| 9 |
|
| $ | 11,664 |
|
|
| 9 |
|
| $ | 11,096 |
|
Joint revenue sharing arrangements — hybrid |
|
| 5 |
|
|
| 2,525 |
|
|
| 2 |
|
|
| 1,044 |
|
Total new theater systems |
|
| 14 |
|
|
| 14,189 |
|
|
| 11 |
|
|
| 12,140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX digital theater system upgrades — installed and recognized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and sales-types lease arrangements |
|
| 1 |
|
|
| 1,533 |
|
|
| — |
|
|
| — |
|
Total upgraded theater systems |
|
| 1 |
|
|
| 1,533 |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total theater systems installed and recognized |
|
| 15 |
|
| $ | 15,722 |
|
|
| 11 |
|
| $ | 12,140 |
|
|
| For the Three Months Ended March 31, |
| |||||||||||||
|
| 2020 |
|
| 2019 |
| ||||||||||
|
| Number of Systems |
|
| Revenue |
|
| Number of Systems |
|
| Revenue |
| ||||
New IMAX Theater Systems — installed and recognized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and sales-types lease arrangements(1) |
|
| 2 |
|
| $ | 2,000 |
|
|
| 6 |
|
| $ | 8,278 |
|
Joint revenue sharing arrangements — hybrid |
|
| 1 |
|
|
| 770 |
|
|
| 4 |
|
|
| 2,539 |
|
Total new IMAX Theater Systems |
|
| 3 |
|
|
| 2,770 |
|
|
| 10 |
|
|
| 10,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX theater system upgrades — installed and recognized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and sales-types lease arrangements |
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 495 |
|
Total IMAX Theater Systems installed and recognized |
|
| 3 |
|
| $ | 2,770 |
|
|
| 11 |
|
| $ | 11,312 |
|
(1) | The arrangements for the sale of |
The average revenue per full, new theater systemIMAX Theater System under a sales and sales-type lease arrangement varies depending upon the number of theater systemIMAX Theater System commitments with a single respective exhibitor, an exhibitor’s location or various other various factors. Average revenue per full, new theater systemIMAX Theater System under a sales and sales-type lease arrangement was at $1.3$1.0 million during the first quarter of 2020, compared to $1.4 million during the first quarter of 2019.
For the three months ended March 31, 2020, IMAX Technology Sales and Maintenance revenue and gross margin decreased $15.1 million (49.9%) and $8.4 million (63.9%), respectively, when compared to the same period in 2019 due to the temporary closure of theaters in the network due to the public health risks associated with the COVID-19 global pandemic. See below for a discussion of the secondperformance of IMAX Systems and IMAX Maintenance.
IMAX Systems
For the three months ended March 31, 2020, IMAX Systems revenue and gross margin decreased $7.3 million (56.3%) and $3.9 million (55%), respectively, when compared to the same period in 2019. These decreases are the result of eight fewer IMAX Theater System installations in the first quarter of 2020, as compared to the first quarter of 2019, from $1.2due to a delay in theater system installations amidst the COVID-19 pandemic.
IMAX Maintenance
For the three months ended March 31, 2020, IMAX Maintenance revenue and gross margin decreased $5.6 million (43.1%) and $4.5 million (85.6%), respectively. These decreases are due to the second quartertemporary closure of 2018, respectively.
Theater system maintenance revenue increased 7.1% to $13.2 milliontheaters in the second quarter of 2019 from $12.3 millionnetwork due to the public health risks associated with the COVID-19 global pandemic. During the period while theaters are closed, the Company will not be able to provide maintenance services to the theaters in the second quarter of 2018. Theater system maintenance gross margin was $5.6 million innetwork and the second quarter of 2019 versus $5.1 million in the second quarter of 2018. associated revenue will not be recognized.
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.
Ongoing fees
Film Distribution and finance income were $2.8Post-production
For the three months ended March 31, 2020, film distribution and post-production revenue decreased $0.2 million in the second quarter of 2019 compared to $3.3 million in the second quarter of 2018. Gross margin for ongoing fees and finance income decreased to $2.8 million in the second quarter of 2019 from $3.2 million in the second quarter of 2018. The costs associated with ongoing fees are minimal as it usually consists of depreciation on the Company’s theaters under operating lease agreements and/or marketing.
Other theater revenue increased to $2.6 million in the second quarter of 2019 as compared to $2.3 million in the second quarter of 2018. Other theater revenue primarily includes revenue generated from the Company’s after-market sales of projection system parts and 3D glasses. The gross margin recognized from other theater revenue was $0.8 million in the second quarter of 2019 as compared to $0.6 million in the second quarter of 2018.
New Business
Revenue earned from the Company’s new business initiatives was $0.5 million(6.3%) and the new business segment experienced a gross margin of $0.3 million in the second quarter of 2019, as compared to revenue of $3.1 million and gross margin ofloss increased by $1.9 million, in the second quarter of 2018. In the second quarter of 2019 revenue in the new business segment is attributable to the IMAX Enhanced program which was launched at the end of 2018 and started generating revenue in the current year and other residual revenue from prior year initiatives,respectively, when compared to the prior year quarter where the income was primarily derived from IMAX VR and the final contractual payment owed to IMAX related to the IMAX VR camera. The decreasesame period in gross margin is primarily attributable to the decrease in IMAX VR revenue as locations which were open in the second quarter of 2018 have been closed.
2019. The Company is evaluating its new business initiatives separately from its core business asreviewed the naturecarrying value of its activities is separate and distinct from its ongoing operations, andcertain film assets as a result of lower than expected revenue being generated during the Company views it as helpful to discuss items beyond that of gross margin. The Company recognized net earnings from its new business initiativesyear and revised expectations for future revenues based on the secondlatest information available. In the first quarter of 20192020, an impairment of $0.1$2.3 million which includes a recoverywas recorded based on the carrying value of amortization of less than $0.1 million and an equity loss of $0.1 million. In addition, selling, general and administrative expenses of $0.1 million are included in the calculation of net income. In the prior year comparative period, net income of $1.6 million, which includes amortization of $1.2 million, and an equity loss of $0.1 million. In addition, the loss includes selling, general and administrative costs of $0.2 million and research and development costs of less than $0.1 million are included in the calculation of net income.
Other
Film distribution and post-production revenues were $3.6 million in the second quarter of 2019, as compared to $2.4 million in the second quarter of 2018. Film distribution and post-production gross margin was $0.5 million in the second quarter of 2019, as compared to a margin loss of $0.4 million in the second quarter of 2018, primarily due to an increase in post-production margin in the current quarter compared to the prior year comparative period.
Other revenue was consistent at $1.0 million in the second quarter of 2019, as compared to $1.1 million in the second quarter of 2018. Other revenue primarily includes revenue generated from the Company’s theater operations and camera rental business. The decrease in revenue is primarily the result of a decrease in theater operations revenue, including one less owned and operated theater in the second quarter of 2019,films as compared to the prior year comparative period, partially offsetestimated future box office and related revenues that are ultimately expected to be generated by an increase in camera rental revenue.
The gross margin recognized from other revenue was a gross margin of $0.2 million in the second quarter of 2019, as compared to a margin loss of less than $0.1 million in the second quarter of 2018.their exploitation.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased to $32.1 million in the second quarter of 2019, as compared to $32.5 million in the second quarter of 2018. Selling, general and administrative expenses excluding the impact of stock-based compensation were $25.6 million in the second quarter of 2019, as compared to $26.3 million in the second quarter of 2018.
The following reflects the significant items impacting selling, general and administrative expenses for the secondfirst quarter of 20192020 and 2018:2019:
|
| Three Months Ended |
|
|
| |||||||||||||||||||||||||||||
|
| March 31, |
|
| Variance | |||||||||||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 versus 2018 |
|
|
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
|
| |||||||||||
Staff costs |
| $ | 16,121 |
|
| $ | 15,836 |
|
| $ | 285 |
|
|
| 1.8 |
| % |
| $ | 16,344 |
|
| $ | 16,823 |
|
| $ | (479 | ) |
|
| (2.8 | ) | % |
Stock-based compensation |
|
| 6,485 |
|
|
| 6,242 |
|
|
| 243 |
|
|
| 3.9 |
| % | |||||||||||||||||
Share-based compensation |
|
| 3,707 |
|
|
| 3,903 |
|
|
| (196 | ) |
|
| (5.0 | ) | % | |||||||||||||||||
Consulting and professional fees |
|
| 3,550 |
|
|
| 2,191 |
|
|
| 1,359 |
|
|
| 62.0 |
| % |
|
| 3,125 |
|
|
| 2,358 |
|
|
| 767 |
|
|
| 32.5 |
| % |
Marketing |
|
| 1,851 |
|
|
| 3,031 |
|
|
| (1,180 | ) |
|
| (38.9 | ) | % |
|
| 1,018 |
|
|
| 1,528 |
|
|
| (510 | ) |
|
| (33.4 | ) | % |
Foreign exchange loss |
|
| 185 |
|
|
| 1,018 |
|
|
| (833 | ) |
|
| 81.8 |
| % |
|
| 699 |
|
|
| 222 |
|
|
| 477 |
|
|
| 214.9 |
| % |
Other general corporate expenditures |
|
| 3,944 |
|
|
| 4,166 |
|
|
| (222 | ) |
|
| (5.3 | ) | % |
|
| 3,743 |
|
|
| 2,815 |
|
|
| 928 |
|
|
| 33.0 |
| % |
Total |
| $ | 32,136 |
|
| $ | 32,484 |
|
| $ | (348 | ) |
|
| (1.1 | ) | % |
| $ | 28,636 |
|
| $ | 27,649 |
|
| $ | 987 |
|
|
| 3.6 |
| % |
Staff costs presented above are related to the Company’s core business and include salaries and benefits.
Other general corporate expenditures include professional fees and travel and entertainment.
For the three months ended March 31, 2020, selling, general and administrative expenses increased $1.0 million (3.6%), when compared to 2019. Selling, general and administrative expenses also includes asset impairment chargesexcluding the impact of share-based compensation were $24.9 million in the first quarter of 2020, as compared to $23.7 million in the first quarter of 2019, representing an increase of $1.2 million (5.0%). These increases are primarily driven by a $0.8 million increase to consulting and write-offs, if any,professional fees and miscellaneous items,a $0.9 million increase in other than interest.general corporate expenses, partially offset by decreases in marketing and staff costs.
Research and Development Expenses
Research and development expenses decreased to $1.2 million in the second quarter of 2019, as compared to $3.9 million in the second quarter of 2018. The decrease is primarily due to decreased spending on the Company’s updated laser-based digital projection system compared to the second quarter of 2018.
A significant portion of the Company’s research and development efforts over the past several years have been focused on IMAX with Laser, the Company’s next-generation laser-based projection system, which the Company believes delivers increased resolution, sharper and brighter images, deeper contrast as well as the widest range of colors available to filmmakers today. The Company expects
thatFor the three months ended March 31, 2020, research and development expense will continueexpenses increased $1.1 million (93.7%), when compared to decreasethe same period in 2019, asprimarily due to costs associated with the initial roll-out of IMAX with Laser occurred in the prior year.Connected Theaters initiative.
The Company also intends to continue research and development in other areas considered important to the Company’s continued commercial success, including further improving the reliability of its projectors, 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.
Receivable Provisions, NetThe Company has been, and intends to continue, using time and resources during the theater shutdown 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 Recoveries
Receivable provisions, netthe Company’s internal workflows and better organize and codify certain of recoveries for accounts receivablethe Company’s data. During previous adverse events and financing receivables amounted to a net provision of $0.9 milliondownturns in the second quartercinema business, the Company fostered many of 2019 as compared tothe 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 three months ended March 31, 2020, the Company recorded a net provision for current expected credit losses of $0.4$10.2 million reflecting a reduction in the second quarter of 2018.
The Company’s accounts receivables and financing receivables are subject to credit risk, as a result of geographical location, exchange rate fluctuations, and other unforeseeable financial difficulties. These receivables are concentrated with the leading theater exhibitors and studios in the film entertainment industry. To minimize the Company’s credit risk, the Company retains title to underlying theater systems leased, performs initial and ongoing credit evaluationsquality of its customerstheater and makes ongoing provisions for its estimate of potentially uncollectible amounts. Accordingly, the Company believes it has adequately protected itself against exposures relating to receivables and contractual commitments.
Interest Income and Expense
Interest income was $0.6 million in the second quarter of 2019, as compared to $0.2 million in the second quarter of 2018.
Interest expense was $0.6 million in the second quarter of 2019, as compared to $0.9 million in the second quarter of 2018. Included in interest expense is the amortization of deferred finance costs in the amount of $0.1 million in the second quarter of 2019, as compared to $0.4 million in the second quarter of 2018. Included in the second quarter of 2018 is $0.3 million of deferred finance costs relating to the prior Credit Facility, which was written-offstudio related receivable balances as a result of the new Credit Facility. The Company’s policy is to deferrisks and amortize alluncertainties associated with the costs relating to debt financing which are paid directlyCOVID-19 pandemic, as discussed in Note 2 of Notes to the debt provider, overCondensed Consolidated Financial Statements. Management’s judgments regarding expected credit losses are based on the lifefacts available to management. Due to the unprecedented nature of the debt instrument.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 three months ended March 31, 2019, credit loss expense was $0.4 million. (See Notes 2 and 3 of Notes to the Condensed Consolidated Financial Statements)
Legal arbitration awardAsset Impairments
InFor the second quarter of 2018,three months ended March 31, 2020, the Company recorded a chargeasset impairments of $7.5$1.2 million for a legal arbitration award(2019 – Nil) principally related to onewrite-down of the Company’s litigation matters from 2006. There were no legal arbitration award chargescontent-related assets which became impaired in the second quarter of 2019.period.
Change in fair value of equity investmentsecurities
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. InFor the second quarterthree months ended March 31, 2020, the fair value of 2019, athe Company’s investment in Maoyan had an unrealized loss of $4.5 million, wasas compared to an unrealized gain of $2.5 million in the same period of 2019, which are both recognized in the Condensed Consolidated Statements of Operations.
Exit costs, restructuring charges and associated impairments
There were no exit costs, restructuring charges and associated impairments in the second quarter of 2019. In the second quarter of 2018, an expense of $0.5 million was recognized which was comprised of employee severance costs.
Income Taxes
The Company’s effective tax rate for the three months ended March 31, 2020 is -35.8% and differs from the Canadian statutory tax rate and varies from yearof 26.2%, primarily due to year primarily as a result of numerous permanent book to tax differences, investment and other tax credits, the provision for income taxes at different rates in foreign and other provincial jurisdictions, enacted statutoryjurisdictional tax rate increasesdifferences, managements estimates for favourable or reductions in the year, including the impact of the Tax Act, changes due to foreign exchange, changes in the Company’s valuation allowance based on the Company’s recoverability assessments of deferred tax assets, and favorable or unfavorableunfavourable resolution of various tax examinations.examinations and the reversal of the indefinite reinvestment assertion.
For the quarter ended March 31, 2020, the Company recorded income tax expense of $15.5 million (2019 — $3.6 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, the Company recognized a deferred tax liability of $19.7 million in the first quarter of 2020 for the applicable foreign withholding taxes associated with these historical earnings, which will become payable upon the repatriation of any such earnings. Cash held outside of Canada as at March 31, 2020 was $89.5 million (December 31, 2019 — $90.1 million), of which $67.8 million was held in the People’s Republic of China (“PRC”) (December 31, 2019 — $67.6 million).
In addition, in the first quarter of 2020, the Company recognized income tax expense of $4.8 million (2019 — $0.4 million) related to a provision for uncertain tax positions and an expense of $0.7 million (2019 — $0.3 million) recognized to reduce the tax benefit available on share-based compensation costs recognized in the period.
As at June 30, 2019,March 31, 2020, the Company had net deferred income tax assets after valuation allowance of $38.0 million (December 31, 2019 — $23.9 million), which consists of a gross deferred income tax asset of $29.8$38.2 million (December 31, 2019 — $24.1 million), against which the Company is carrying a $0.2 million valuation allowance. Forallowance (December 31, 2019 — $0.2 million) and a deferred income tax liability of $19.7 million (December 31, 2019 — $nil). During the three months ended June 30, 2019,March 31, 2020, deferred tax assets increased by $14.1 million due to losses recognized in the period. The recoverability of these deferred tax assets is subject to certain levels of future taxable income and is subject to the uncertainties associated with accounting estimates, as discussed in Note 1 of Notes to the Condensed Consolidated Financial Statements. Based on a review of the projected future earnings of the Company recorded an incomethere was no change in management’s estimates of the recoverability of the Company’s deferred tax provision of $5.3 million, which includes an expense of $0.1 million related to its provision for uncertain tax positions. In addition, the three months ended
June 30, 2019 there were no amounts included in the provision for income taxes for tax shortfalls related to stock-based compensation costs.assets.
The Company’s Chinese subsidiary has made inquiries of the Chinese State Administration of Taxation regarding the potential deductibility ofhad taken a deduction for certain stock-basedshare-based compensation for stock options issued by the Chinese subsidiary’s parent company IMAX China. In addition,in a prior period and had recognized a related deferred tax asset of $1.4 million (December 31, 2019 — $1.4 million). Chinese regulatory authorities responsible for capital and exchange controls will need to review and approve the proposed settlement
of these transactions before they can be completed. There may be a requirement for future investment of funds into China in order to secure the deduction. Should the Company proceed, any such future investment would come from existing capital invested in the IMAX China group of companies being redeployed amongst the IMAX China group of companies, including the Chinese subsidiary. The Company’s Chinese Subsidiary has treated the stock-based compensation as deductible and has set up related deferred tax assets of $1.3 million.
Equity-AccountedEquity Method Investments
The Company accounts for investments in new business ventures using the guidance of the FASB ASC 323. As at June 30, 2019, the equity method of accounting is being utilized for an investment with a carrying value of $nil (December 31, 2018 ─ $nil). The Company’s accumulated losses in excess of its equity investment were $1.8 million as at June 30, 2019. For the three months ended June 30, 2019, gross revenues, costMarch 31, 2020, the Company reported a loss of revenue and net loss for these investments were $0.5 million $0.7 million and $0.5 million, respectively (2018 ─ $1.0 million, $0.8 million and $0.4 million, respectively). The Company recordedrelated its proportionate share of the netequity investee results, as compared to a loss which amounted toof $0.1 million in the second quartersame period of 2019, consistent with the second quarterprior year, due to the write-off of 2018.deferred tax assets related to an equity method investment.
Non-Controlling Interests
The Company’s condensed consolidated financial statementsCondensed Consolidated Financial Statements include athe non-controlling interest in the net income of IMAX China as well as the impact of non-controlling interests in its subsidiaries created for the Original Film Fund and VR Content Fund activity. For the three months ended June 30, 2019March 31, 2020 the net incomeloss attributable to non-controlling interests of the Company’s subsidiaries was $2.4$10.1 million (2018(2019 ─ $2.6 million).
Six Months Ended June 30, 2019 versus Six Months Ended June 30, 2018
The Company reported net income of $26.3 million, or $0.43 per basic and diluted share, for the six months ended June 30, 2019 as compared to net income of $22.3 million, or $0.35 per basic and diluted share for the six months ended June 30, 2018.
Net income for the six months ended June 30, 2019, includes a $11.4 million charge, or $0.19 per diluted share (2018 — $11.6 million or $0.18 per diluted share), for stock-based compensation, a $0.9 million charge, or $0.01 per diluted share for exit costs, restructuring charges and associated impairments (2018 — $1.2 million, or $0.02 per diluted share) and a loss of $2.1 million, or $0.03 per diluted share, adjustment for the change in fair value of equity investment (2018 — $nil). The six months ended June 30, 2018 includes a $7.5 million charge, or $0.12 per diluted share, for a legal arbitration award related to one of the Company’s litigation matters from 2006.
Adjusted net income, which consists of net income excluding the impact of stock-based compensation, exit costs, restructuring charges and associated impairments, the legal arbitration award, the change in fair value of equity investment and the related tax impact of these adjustments, was $38.1 million, or $0.62 per diluted share, for the six months ended June 30, 2019, as compared to adjusted net income of $38.8 million, or $0.61 per diluted share, for the six months ended June 30, 2018.
The Company reported net income attributable to common shareholders of $19.7 million, or $0.32 per basic and diluted share for the six months ended June 30, 2019 (2018 — $16.1 million, or $0.25 per basic and diluted share).
Adjusted net income attributable to common shareholders, which consists of net income attributable to common shareholders excluding the impact of stock-based compensation, exit costs, restructuring charges and associated impairments, the legal arbitration award, the change in fair value of equity investment and the related tax impact of these adjustments, was $30.5 million, or $0.49 per diluted share, for the six months ended June 30, 2019, as compared to adjusted net income attributable to common shareholders of $32.4 million, or $0.51 per diluted share, for the six months ended June 30, 2018.
A reconciliation of net income and net income attributable to common shareholders, the most directly comparable U.S. GAAP measure, to adjusted net income, adjusted net income per diluted share, adjusted net income attributable to common shareholders and adjusted net income attributable to common shareholders per diluted share is presented in the table below:
(In thousands of U.S. dollars, except per share amounts) | Six Months Ended |
|
| Six Months Ended |
| |||||||||||
|
| June 30, 2019 |
|
| June 30, 2018 |
| ||||||||||
|
| Net Income |
|
| Diluted EPS |
|
| Net Income |
|
| Diluted EPS |
| ||||
Reported net income |
| $ | 26,323 |
|
| $ | 0.43 |
|
| $ | 22,322 |
|
| $ | 0.35 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
| 11,389 |
|
|
| 0.19 |
|
|
| 11,603 |
|
|
| 0.18 |
|
Exit costs, restructuring charges and associated impairments |
|
| 850 |
|
|
| 0.01 |
|
|
| 1,158 |
|
|
| 0.02 |
|
Legal arbitration award |
|
| — |
|
|
| — |
|
|
| 7,500 |
|
|
| 0.12 |
|
Change in fair value of equity investment |
|
| 2,053 |
|
|
| 0.03 |
|
|
| — |
|
|
| — |
|
Tax impact on items listed above |
|
| (2,535 | ) |
|
| (0.04 | ) |
|
| (3,787 | ) |
|
| (0.06 | ) |
Adjusted net income |
|
| 38,080 |
|
|
| 0.62 |
|
|
| 38,796 |
|
|
| 0.61 |
|
Net income attributable to non-controlling interests(1) |
|
| (6,661 | ) |
|
| (0.12 | ) |
|
| (6,192 | ) |
|
| (0.10 | ) |
Stock-based compensation (net of tax of $0.1 million and $0.1 million, respectively) (1) |
|
| (262 | ) |
|
| — |
|
|
| (204 | ) |
|
| — |
|
Change in fair value of equity investment |
|
| (652 | ) |
|
| (0.01 | ) |
|
| — |
|
|
| — |
|
Adjusted net income attributable to common shareholders |
| $ | 30,505 |
|
| $ | 0.49 |
|
| $ | 32,400 |
|
| $ | 0.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding |
|
|
|
|
|
| 61,525 |
|
|
|
|
|
|
| 64,006 |
|
|
|
The following table sets forth the breakdown of revenue and gross margin by nature for the six months ended June 30:
(In thousands of U.S. dollars) |
| Revenue |
|
| Gross Margin |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Network Business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX DMR |
| $ | 67,243 |
|
| $ | 63,214 |
|
| $ | 43,736 |
|
| $ | 43,063 |
|
Joint revenue sharing arrangements - contingent rent |
|
| 43,158 |
|
|
| 42,593 |
|
|
| 30,923 |
|
|
| 31,362 |
|
IMAX systems - contingent rent |
|
| 157 |
|
|
| — |
|
|
| 157 |
|
|
| — |
|
|
|
| 110,558 |
|
|
| 105,807 |
|
|
| 74,816 |
|
|
| 74,425 |
|
Theater Business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX systems |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and sales-type leases(1) |
|
| 24,112 |
|
|
| 30,118 |
|
|
| 9,654 |
|
|
| 18,508 |
|
Ongoing fees and finance income(2) |
|
| 5,685 |
|
|
| 6,012 |
|
|
| 5,590 |
|
|
| 5,917 |
|
Joint revenue sharing arrangements – fixed fees |
|
| 5,087 |
|
|
| 1,022 |
|
|
| 1,165 |
|
|
| 246 |
|
Theater system maintenance |
|
| 26,158 |
|
|
| 25,047 |
|
|
| 10,921 |
|
|
| 11,292 |
|
Other theater |
|
| 4,206 |
|
|
| 3,631 |
|
|
| 1,316 |
|
|
| 517 |
|
|
|
| 65,248 |
|
|
| 65,830 |
|
|
| 28,646 |
|
|
| 36,480 |
|
New Business |
|
| 1,312 |
|
|
| 3,723 |
|
|
| 900 |
|
|
| 436 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film distribution and post-production |
|
| 6,263 |
|
|
| 6,094 |
|
|
| 433 |
|
|
| 59 |
|
Other |
|
| 1,614 |
|
|
| 1,875 |
|
|
| (102 | ) |
|
| (304 | ) |
|
|
| 7,877 |
|
|
| 7,969 |
|
|
| 331 |
|
|
| (245 | ) |
|
| $ | 184,995 |
|
| $ | 183,329 |
|
| $ | 104,693 |
|
| $ | 111,096 |
|
|
|
|
|
Revenues and Gross Margin
The Company’s revenues for the six months ended June 30, 2019 increased by 0.9% to $185.0 million from $183.3 million for the six months ended June 30, 2018, primarily due to an increase in revenues from the Company’s network business segment, partially offset by a decrease in the new business segment. The gross margin across all segments in the six months ended June 30, 2019 was $104.7 million, or 56.6% of total revenue, compared to $111.1 million, or 60.6% of total revenue in the six months ended June 30, 2018.
Network Business
Gross box office generated by IMAX DMR films increased 5.5% to $621.3 million in the six months ended June 30, 2019 from $588.8 million in the six months ended June 30, 2018. In the six months ended June 30, 2019, gross box office was generated primarily by the exhibition of 39 films (27 new and 12 carryovers), as compared to 33 films (24 new and 9 carryovers) exhibited in the six months ended June 30, 2018.
Network business revenue increased by 4.5% to $110.6 million in the six months ended June 30, 2019 from $105.8 million in the six months ended June 30, 2018, due to an increase in the number of films exhibited. The gross margins experienced by the Company’s network business in the six months ended June 30, 2019 was $74.8 million, or 67.7% of network business revenue, compared to $74.4 million, or 70.3% in the six months ended June 30, 2018. The decrease in gross margin ratio is primarily attributable to the IMAX DMR segment relating to an increase in contractual marketing obligations. The Company’s network business performance is impacted by box office performance, as well as other factors including the timing of a film release to the IMAX theater network, the commercial success of the film, marketing spend, the Company’s take rates under its DMR and joint revenue sharing arrangements, and the distribution window for the exhibition of films in the IMAX theater network. These arrangements are reflected under the IMAX systems segment of Theater Business. Other factors impacting performance include fluctuations in the value of foreign currencies versus the U.S. dollar and potential currency devaluations.
IMAX DMR revenues increased 6.4% to $67.2 million in the six months ended June 30, 2019 from $63.2 million in the six months ended June 30, 2018, due to an increase in the number of films exhibited, which includes the blockbuster performance of Captain Marvel: The IMAX Experience, Avengers: Endgame: The IMAX Experience, and local language blockbuster The Wandering Earth:
The IMAX Experience in China in the six months ended June 30, 2019. The six months ended June 30, 2018 included the blockbuster performance of Black Panther: The IMAX Experience and Avengers: Infinity War: The IMAX Experience and local language blockbuster Operation Red Sea: The IMAX Experience in China. The gross margin from the IMAX DMR segment was $43.7 million and $43.1 million in the six months ended June 30, 2019 and 2018, respectively. DMR marketing expenses in the six months ended June 30, 2019 were $13.4 million, as compared to $10.6 million in the six months ended June 30, 2018, which was primarily due to an increase in contractal marketing payments for the films shown.
Contingent rent revenues from joint revenue sharing arrangements increased to $43.2 million in the six months ended June 30, 2019 from $42.6 million in the six months ended June 30, 2018. The Company ended the current period with 826 theaters operating under joint revenue sharing arrangements, as compared to 738 theaters at the end of the six months ended June 30, 2018, an increase of 11.9%. Gross box office generated by the joint revenue sharing arrangements was 1.8% higher at $319.7 million in the six months ended June 30, 2019 from $314.0 million in the six months ended June 30, 2018. The Company’s joint revenue sharing arrangement performance is impacted by box office performance, as well as the take rates under each of its joint revenue sharing arrangements and where a film is exhibited. Other factors impacting performance include fluctuations in the value of foreign currencies versus the U.S. dollar and potential currency devaluations.
The gross margin from joint revenue sharing arrangements decreased by 1.4% to $30.9 million in the six months ended June 30, 2019 from $31.4 million in the six months ended June 30, 2018. Included in the calculation of gross margin for the six months ended June 30, 2019 was depreciation of $11.3 million, as compared to $10.0 million in the six months ended June 30, 2018. Also included in gross margin were certain advertising, marketing and commission costs primarily associated with new theater launches of $0.3 million, as compared to $1.2 million during the six months ended June 30, 2018. Margin is a function of the costs associated with each theater, such as the increase in depreciation on new IMAX with Laser systems and costs incurred for the upgrade of theater systems from a digital-xenon system to an IMAX with Laser system.
Contingent rent revenue from IMAX systems consists of variable payments received in excess of the fixed minimum ongoing payments which are primarily driven by box office performance reported by theater operators. The Company expects this revenue stream to be minimal on a go-forward basis. Contingent rent revenue of $0.2 million was recognized in the six months ended June 30, 2019, compared to $nil in the six months ended June 30, 2018.
Theater Business
The primary drivers of this line of business are theater system installations and the Company’s maintenance contract that accompanies each theater installation. In the six months ended June 30, 2019, theater business revenue decreased $0.6 million, or 0.9% to $65.2 million as compared to $65.8 million in six months ended June 30, 2018. The increase in theater business revenue was primarily due to:
|
|
|
|
|
|
Theater business gross margin decreased 21.5% to $28.6 million in the six months ended June 30, 2019, as compared to $36.5 million in the six months ended June 30, 2018 due to the mix of systems installed under sales and sales-type leases and joint revenue sharing lease arrangements, as well as an increase to sustained engineering costs related to the IMAX with Laser roll-out and continued development and support.
The installation of 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. The breakdown in mix of sales and sales-type lease and joint revenue sharing arrangement (see discussion below) installations by theater system configuration is outlined in the table below:
|
| 2019 |
|
| 2018 |
| ||||||||||
|
| Number of Systems |
|
| Revenue |
|
| Number of Systems |
|
| Revenue |
| ||||
New IMAX digital theater systems — installed and recognized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and sales-types lease arrangements(1) |
|
| 15 |
|
| $ | 19,942 |
|
|
| 22 |
|
| $ | 29,080 |
|
Joint revenue sharing arrangements — hybrid |
|
| 9 |
|
|
| 5,064 |
|
|
| 2 |
|
|
| 1,044 |
|
Total new theater systems |
|
| 24 |
|
|
| 25,006 |
|
|
| 24 |
|
|
| 30,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX digital theater system upgrades — installed and recognized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and sales-types lease arrangements |
|
| 2 |
|
|
| 2,028 |
|
|
| — |
|
|
| — |
|
Total upgraded theater systems |
|
| 2 |
|
|
| 2,028 |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total theater systems installed and recognized |
|
| 26 |
|
| $ | 27,034 |
|
|
| 24 |
|
| $ | 30,124 |
|
|
|
The average revenue per full, new theater system under a sales and sales-type lease arrangement varies depending upon the number of theater system commitments with a single respective exhibitor, an exhibitor’s location or other various factors. Average revenue per full, new theater system under a sales and sales-type lease arrangement was consistent for the six months ended June 30, 2019 and six months ended June 30, 2018 at $1.3 million. The average revenue per full, new theater system under a sales and sales-type lease arrangement varies depending upon the number of theater system commitments with a single respective exhibitor, an exhibitor’s location or other various factors. The higher average value is driven by the recognition of variable consideration at the time of recognition versus over the term of the arrangement.
Theater system maintenance revenue increased 4.4% to $26.2 million in the six months ended June 30, 2019 from $25.0 million in the six months ended June 30, 2018. Theater system maintenance gross margin was $10.9 million in the six months ended June 30, 2019 versus $11.3 million in the six months ended June 30, 2018. 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.
Ongoing fees and finance income was $5.7 million in the six months ended June 30, 2019 compared to $6.0 million in the six months ended June 30, 2018. Gross margin for ongoing rent and finance income decreased to $5.6 million in the six months ended June 30, 2019 from $5.9 million in the six months ended June 30, 2018. The costs associated with ongoing fees are minimal as it usually consists of depreciation on the Company’s theaters under operating lease agreements and/or marketing.
Other theater revenue increased to $4.2 million in the six months ended June 30, 2019 as compared to $3.6 million in the six months ended June 30, 2018. Other theater revenue primarily includes revenue generated from the Company’s after-market sales of projection system parts and 3D glasses. The gross margin recognized from other theater revenue was $1.3 million in the six months ended June 30, 2019, as compared to $0.5 million in the six months ended June 30, 2018.
New Business
Revenue earned from the Company’s new business initiatives was $1.3 million and the new business segment experienced gross margin of $0.9 million in the six months ended June 30, 2019, as compared to $3.7 million and gross margin of $0.4 million in the six months ended June 30, 2018. Revenue in the six months ended June 30, 2019 is attributable to the IMAX Enhanced program which was launched at the end of 2018 and other residual income from prior initiatives. In the six months ended June 30, 2018 the revenue was primarily attributable to final contractual payments owed to IMAX related to the previously announced VR camera, which were received in the prior year comparative period. The increase in gross margin is primarily attributable to the decrease in IMAX VR costs as locations which were open in the six months ended June 30, 2018 have been closed.
The Company is evaluating its new business initiatives separately from its core business as the nature of its activities is separate and distinct from its ongoing operations, and as a result the Company views it as helpful to discuss items beyond that of gross margin. The Company recognized a net loss before tax from its new business initiatives for the six months ended June 30, 2019, of $0.5 million, which includes exit costs and restructuring charges of $0.1 million, amortization of $0.1 million and an equity loss of $0.2 million. In
addition, the loss includes selling, general and administrative costs of less than $0.1 million and research and development costs of less than $0.1 million. In the prior year comparative period, the net loss of $0.9 million, included amortization of $1.9 million, income tax of $0.1 million and an equity loss of $0.3 million, selling, general and administrative expenses of $0.9 million and research and development costs of $0.2 million.
Other
Film distribution and post-production revenues were $6.3 million in the six months ended June 30, 2019, as compared to $6.1 million in the six months ended June 30, 2018. Film distribution and post-production gross margin was $0.4 million in the six months ended June 30, 2019 as compared to gross margin of $0.1 million in the six months ended June 30, 2018.
Other revenue decreased to $1.6 million in the six months ended June 30, 2019, as compared to $1.9 million in the six months ended June 30, 2018. Other revenue primarily includes revenue generated from the Company’s theater operations and camera rental business. The decrease in revenue is primarily the result of a decrease in theater operations revenue, including one less owned and operated theater in the six months ended June 30, 2019, as compared to the prior year comparative period, partially offset by an increase in cameral rental revenue.
The gross margin recognized from other revenue was a margin loss of $0.1 million in the six months ended June 30, 2019, as compared to margin loss of $0.3 million in the six months ended June 30, 2018.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased to $59.8 million in the six months ended June 30, 2019, as compared to $60.4 million in the six months ended June 30, 2018. Selling, general and administrative expenses excluding the impact of stock-based compensation were $49.4 million in the six months ended June 30, 2019, as compared to $49.7 million in the six months ended June 30, 2018.
The following reflects the significant items impacting selling, general and administrative expenses as compared to the prior year comparative period:
|
| 2019 |
|
| 2018 |
|
| 2019 versus 2018 |
|
| |||||||
Staff costs |
| $ | 31,395 |
|
| $ | 29,734 |
|
| $ | 1,661 |
|
|
| 5.6 |
| % |
Stock-based compensation |
|
| 10,388 |
|
|
| 10,659 |
|
|
| (271 | ) |
|
| (2.5 | ) | % |
Marketing |
|
| 3,379 |
|
|
| 4,444 |
|
|
| (1,065 | ) |
|
| (24.0 | ) | % |
Foreign exchange loss (gain) |
|
| 407 |
|
|
| 1,080 |
|
|
| (673 | ) |
|
| 62.3 |
| % |
Other general corporate expenditures |
|
| 14,216 |
|
|
| 14,526 |
|
|
| (310 | ) |
|
| (2.1 | ) | % |
Total |
| $ | 59,785 |
|
| $ | 60,443 |
|
| $ | (658 | ) |
|
| (1.1 | ) | % |
Staff costs presented above are related to the Company’s core business and include salaries and benefits.
Other general corporate expenditures include professional fees, travel and entertainment. Selling, general and administrative expenses also includes asset impairment charges and write-offs, if any, and miscellaneous items, other than interest.
Research and Development
Research and development expenses decreased to $2.4 million in the six months ended June 30, 2019 compared to $7.5 million in the six months ended June 30, 2018. The decrease is primarily due to lower spending on new business initiatives compared to the six months ended June 30, 2018.
A significant portion of the Company’s research and development efforts over the past several years have been focused on IMAX with Laser, the Company’s next-generation laser-based projection system, which the Company believes delivers increased resolution, sharper and brighter images, deeper contrast as well as the widest range of colors available to filmmakers today. The Company expects that research and development expense will continue to decrease in 2019, as the initial roll-out of IMAX with Laser occurred in the prior year.
The Company intends to continue research and development in other areas considered important to the Company’s continued commercial success, including further improving the reliability of its projectors, 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, improvements to the DMR process.
Receivable Provisions, Net of Recoveries
Receivable provisions, net of recoveries for accounts receivable and financing receivables amounted to a net provision of $1.4 million in the six months ended June 30, 2019 as compared to a net provision of $0.8 million in the six months ended June 30, 2018.
The Company’s accounts receivables and financing receivables are subject to credit risk, as a result of geographical location, exchange rate fluctuations, and other unforeseeable financial difficulties. These receivables are concentrated with the leading theater exhibitors and studios in the film entertainment industry. To minimize the Company’s credit risk, the Company retains title to underlying theater systems leased, performs initial and ongoing credit evaluations of its customers and makes ongoing provisions for its estimate of potentially uncollectible amounts. Accordingly, the Company believes it has adequately protected itself against exposures relating to receivables and contractual commitments.
Interest Income and Expense
Interest income was $1.1 million in the six months ended June 30, 2019, as compared to $0.5 million in the six months ended June 30, 2018.
Interest expense was $1.3 million in the six months ended June 30, 2019, as compared to $1.3 million in the six months ended June 30, 2018. Included in interest expense is the amortization of deferred finance costs in the amount of $0.2 million in the six months ended June 30, 2019 as compared to $0.6 million in the six months ended June 30, 2018. Included in the six months ended June 30, 2018 is $0.3 million of deferred finance costs relating to the prior Credit Facility written off as a result of the new Credit Facility. 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.
Legal arbitration award
In the six months ended June 30, 2018, the Company recorded a charge of $7.5 million for a legal arbitration award related to one of the Company’s litigation matters from 2006. There were no legal arbitration award charges in the second quarter of 2019.
Change in fair value of equity investment
In the six months ended June 30, 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. In the six months ended June 30, 2019, a loss of $2.1 million was recognized in the Condensed Consolidated Statements of Operations.
Exit costs, restructuring charges and associated impairments
Exit costs, restructuring charges and associated impairments were $0.9 million in the six months ended June 30, 2019, for employee severance costs, as compared to the six months ended June 30, 2018 an expense of $1.2 million was recognized for employee severance costs.
Income Taxes
The Company’s effective tax rate differs from the statutory tax rate and varies from year to year primarily as a result of numerous permanent differences, investment and other tax credits, the provision for income taxes at different rates in foreign and other provincial jurisdictions, enacted statutory tax rate increases or reductions in the year, including the impact of the Tax Act, changes due to foreign exchange, changes in the Company’s valuation allowance based on the Company’s recoverability assessments of deferred tax assets, and favorable or unfavorable resolution of various tax examinations.
As at June 30, 2019, the Company had a gross deferred income tax asset of $29.8 million, against which the Company is carrying a $0.2 million valuation allowance. For the six months ended June 30, 2019, the Company recorded an income tax provision of $9.0 million, which includes an expense of $0.5 million related to its provision for uncertain tax positions. In addition, included in the
provision for income taxes was a $0.3 million expense for tax shortfalls related to stock-based compensation costs recognized in the period.
The Company’s Chinese subsidiary has made inquiries of the Chinese State Administration of Taxation regarding the potential deductibility of certain stock-based compensation for stock options issued by the Chinese subsidiary’s parent company, IMAX China. In addition, Chinese regulatory authorities responsible for capital and exchange controls will need to review and approve the proposed transactions before they can be completed. There may be a requirement for future investment of funds into China in order to secure the deduction. Should the Company proceed, any such future investment would come from existing capital invested in the IMAX China group of companies being redeployed amongst the IMAX China group of companies, including the Chinese subsidiary. The Company’s Chinese Subsidiary has treated the stock-based compensation as deductible and has set up related deferred tax assets of $1.3 million
Equity-Accounted Investments
The Company accounts for investments in new business ventures using the guidance of the FASB ASC 323. As at June 30, 2019, the equity method of accounting is being utilized for an investment with a carrying value of $nil (December 31, 2018 ─ $nil). The Company’s accumulated losses in excess of its equity investment were $1.8 million as at June 30, 2019. For the six months ended June 30, 2019, gross revenues, cost of revenue and net loss for the Company’s investments were $0.7 million, $1.3 million and $0.8 million, respectively (2018 ─ $1.5 million, $1.7 million and $1.0 million, respectively). The Company recorded its proportionate share of the net loss which amounted to $0.2 million in the six months ended June 30, 2019, compared to a net loss of $0.3 million experienced in the six months ended June 30, 2018.
Non-Controlling Interests
The Company’s condensed consolidated financial statements include a non-controlling interest in the net income of IMAX China as well as the impact of non-controlling interests in its subsidiaries created for the Original Film Fund and VR Content Fund activity. For the six months ended June 30, 2019, the net income attributable to non-controlling interests of the Company’s subsidiaries were $6.7 million (2018 ─ $6.2 million).
LIQUIDITY AND CAPITAL RESOURCES
On June 28, 2018, theThe Company entered into ahas Fifth Amended and Restated Credit Agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo”), as agent, and a syndicate of lenders party thereto. 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 the assets of the Company and the Guarantors.
Under the Credit Agreement expands the Company’s revolving borrowing capacity from $200.0 million tois $300.0 million, and also 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. The facility (the “Credit Facility”) matures on June 28, 2023.
The Company’s obligations underIn the Credit Agreement are guaranteed by certainfirst quarter of 2020, in response to uncertainties associated with the outbreak of the COVID-19 global pandemic and its impact on the Company’s subsidiaries (the “Guarantors”), and are secured by first-priority security interests in substantially all the assets of the Company and the Guarantors.
The Company used a portion of the proceeds under the facilitybusiness, management decided to repay the outstanding term loan debt incurred to finance the construction of our West Coast headquarters and intends to usedraw down the remaining proceeds under the facility to finance ongoing working capital requirements and for other general corporate purposes. Theavailable Credit Facility coupled with recurring cash generated by the Company’s theater network, is expected to provide enhanced flexibility as the Company continues with the global expansionborrowing capacity of its business and pursues other avenues to increase shareholder value.
Total amounts drawn and available under the Credit Facility at June 30, 2019 were $25.0$280.0 million, and $275.0 million, respectively (December 31, 2018 – $40.0 million and $260.0 million, respectively).resulting in total outstanding borrowings of $300.0 million. The effective interest rate for the three and six months ended June 30, 2019March 31, 2020 was 3.52% and 3.55%, respectively (20182.03% (2019 ― n/a)3.57%).
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). In addition, the Credit Facility has standby fees ranging from 0.25% to 0.38% based upon the Total Leverage Ratio.
The Credit Facility requires that the Company maintain a Senior Secured Net Leverage Ratio, as at the last day of any Fiscal Quarter (as defined in the Credit Agreement) of no greater than 3.25:1.0.1.00. The Company was in compliance with this requirement at June 30, 2019.March 31, 2020. The Senior Secured Net Leverage Ratio (as defined in the Credit Agreement) was 0.00:1.93:1 as at June 30, 2019,March 31, 2020, where Total Debt (as defined in the Credit Agreement) is the sum of all obligations evidenced by notes, bonds, debentures or similar instruments, net of up to $75.0 million in unrestricted cash and cash equivalents outside of the People’s Republic of China (“PRC”), was $nil.$225.0 million. The longer the COVID-19 pandemic and associated protective measures persist, the more likely it becomes, in the absence of other actions by the Company, that it will be unable to maintain compliance with this covenant. In such an event, however, the Company expects to be able to obtain an amendment or waiver from its lenders, refinance the borrowings subject to covenants or take other mitigating actions prior to a potential breach. See “Non-GAAP Financial Measures” below for the Adjusted EBITDA per Credit Facility is calculated as follows:calculation.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Impact of COVID-19 Pandemic” in Item 2 of this Form 10-Q 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 II, Item 1A of this Form 10-Q.
| For the |
|
| For the |
|
| ||||
| Three Months Ended |
|
| Twelve Months Ended |
|
| ||||
Adjusted EBITDA per Credit Facility: | June 30, 2019 |
|
| June 30, 2019(1) |
|
| ||||
(In thousands of U.S. Dollars) |
|
|
|
|
|
|
|
|
|
|
Net income | $ |
| 13,836 |
|
| $ |
| 37,596 |
|
|
Add (subtract): |
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
| 5,308 |
|
|
|
| 10,386 |
|
|
Interest expense, net of interest income |
|
| 64 |
|
|
|
| 392 |
|
|
Depreciation and amortization, including film asset amortization |
|
| 15,593 |
|
|
|
| 59,207 |
|
|
EBITDA | $ |
| 34,801 |
|
| $ |
| 107,581 |
|
|
Stock and other non-cash compensation |
|
| 7,186 |
|
|
|
| 23,513 |
|
|
Change in fair value of equity investment |
|
| 4,544 |
|
|
|
| 2,053 |
|
|
Write-downs, net of recoveries including asset impairments and receivable provisions |
|
| 1,169 |
|
|
|
| 5,518 |
|
|
Exit costs, restructuring charges and associated impairments |
|
| — |
|
|
|
| 9,234 |
|
|
Legal arbitration award |
|
| — |
|
|
|
| 4,237 |
|
|
Executive transition costs |
|
| — |
|
|
|
| 2,994 |
|
|
Loss from equity accounted investments |
|
| 138 |
|
|
|
| 409 |
|
|
Adjusted EBITDA before non-controlling interests | $ |
| 47,838 |
|
| $ |
| 155,539 |
|
|
Adjusted EBITDA attributable to non-controlling interests(2) |
|
| (6,418 | ) |
|
|
| (23,398 | ) |
|
Adjusted EBITDA per Credit Facility | $ |
| 41,420 |
|
| $ |
| 132,141 |
|
|
|
|
|
|
Working Capital Loan
On July 5, 2018,24, 2019, IMAX (Shanghai) Multimedia Technology Co., Ltd. (“IMAX Shanghai”), the Company’s majority-owned subsidiary in China, entered into anrenewed its unsecured revolving facility for up to 200.0 million Renminbi (approximately $30.0 million USD) to fund ongoing working capital requirements. Subsequent to June 30, 2019 this facility was renewed. The totalThere were no amounts drawn and available under the working capital loanfacility at June 30, 2019March 31, 2020 and December 31, 20182019, and the amounts available for borrowing were nil and 200.0 million Renminbi respectively.(approximately $30.0 million U.S. Dollars). The amounts available for borrowing are not subject to a standby fee.
Letters of Credit and Other Commitments
As at June 30, 2019,March 31, 2020, the Company did not have any letters of credit and advance payment guarantees outstanding (December 31, 20182019 — $nil), under the Credit Facility.
TheOn October 28, 2019, the Company also hasentered into a $10.0$5.0 million facility for advance payment guarantees and letters of credit through the National Bank of MontrealCanada for use solely in conjunction with guarantees fully insured by Export Development Canada (the “Bank“NBC Facility”) to replace a Bank of Montreal Facility”).Facility with substantially the same terms which expired on September 30, 2019. The Bank of MontrealNBC Facility is unsecured and includes typical affirmative and negative covenants, including delivery of annual consolidated financial statements within 120 days of the end of the fiscal year. The Bank of Montreal Facility is subject to periodic annual reviews. As at June 30, 2019,March 31, 2020, the Company hasdid not have any letters of credit outstanding andor advance payment guarantees outstanding of $nil (December 31, 2018 ― $nil), under the Bank of MontrealNBC Facility.
Cash and Cash Equivalents
As at June 30, 2019,March 31, 2020, the Company’s principal sources of liquidity included cash and cash equivalents of $106.5$352.3 million (including the $280.0 million in Credit Facility borrowings drawn in the first quarter of 2020, as discussed above), the anticipated collection fromof trade accounts receivable of $91.5$64.8 million including receivables from theaters under joint revenue sharing arrangements and DMR agreements with studios, anticipated collection from financing receivables due in the next 12 months of $29.1$29.4 million and payments expected in the next 12 months on existing backlog deals. As at June 30, 2019, the Company had drawn $25.0 million on the Credit Facility (remaining availability of $275.0 million). There were no letters of credit and advance payment guarantees outstanding under the Credit Facility or the Bank of MontrealNBC Facility. Cash held outside of North AmericaCanada as at June 30, 2019March 31, 2020 was $97.6$89.5 million (December 31, 20182019 — $121.9$90.1 million), of which $64.9$67.8 million was held in the PRC (December 31, 20182019 — $54.7$67.6 million). The Company's intent isFunds repatriated from certain jurisdictions are subject to permanently reinvest these amounts outside of Canada and the Company does not currently anticipate that it will need funds generated from foreign operations to fund North American operations. In the event funds from foreign operations are needed to fund operations in North America and if withholding taxes have not already been previously provided, the Company would be required to accrue and pay these additional withholding tax amounts on repatriation of funds from China to Canada.when dividends are paid. The Company currently estimates this amount to be $9.8 million.
Duringrecognized a charge of $19.7 million in the sixthree months ended June 30, 2019, the Company used cash of $35.1 million. The Company used cash of $42.7 millionMarch 31, 2020 for withholding taxes applicable to fund capital expenditures, of which $22.2 million was invested in equipment for use in the Company’s joint revenue sharing arrangements with exhibitors and $15.2 million was used to purchase an investment in equity securities of Maoyan. In addition, $5.3 million was used to purchase other intangible assets and to purchase property, plant and equipment. Based on management’s current operating plan for 2019, the Company expects to continue to use cash to deploy additional theater systems under joint revenue sharing arrangements, to fund DMR agreements with studios, and to potentially make share repurchases. Cash flows from joint revenue sharing arrangements are derived from the theater box-office and concession revenues and the Company invested directly in the roll out of 17 new theater systems under joint revenue sharing arrangements during the six months ended June 30, 2019, which were capitalized by the Company.historical foreign earnings.
In 2017, the Company's Board of Directors announced a new share repurchase program which authorizes the repurchase of up to $200.0 million of its common shares by June 30, 2020. The repurchases may be made either in the open market or through private transactions, subject to market conditions, applicable legal requirements and other relevant factors. The Company has no obligation to repurchase shares and the share repurchase program may be suspended or discontinued by the Company at any time. During the sixthree months ended June 30, 2019,March 31, 2020, the Company repurchased 87,7692,484,123 common shares at an average price of $19.45$14.72 per share, excluding commission.commissions.
During the three months ended March 31, 2020, the Company had an increase in cash of $242.8 million. The Company used cash of $2.7 million to fund investing activities, of which $1.6 million was invested in equipment for use in the Company’s joint revenue sharing arrangements with exhibitors. In addition, $1.1 million was used to purchase other intangible assets and to purchase property, plant and equipment. Based on management’s current operating plan for 2020, the Company expects to continue to use cash to deploy additional IMAX Theater Systems under joint revenue sharing arrangements, to fund DMR agreements with studios, and to potentially make share repurchases. Cash flows from joint revenue sharing arrangements are derived from the theater box-office and concession revenues and the Company invested directly in the roll out of 2 new IMAX Theater Systems under joint revenue sharing arrangements during the three months ended March 31, 2020, which were capitalized by the Company.
The Company’s operating cash flow will be adversely affected if management’s projections of future signings for theater systemsIMAX Theater Systems and film performance, theater installations and film productions are not realized. The Company forecasts its short-term liquidity requirements on a quarterly and annual basis. Since the Company’s future cash flows are based on estimates and there may be factors that are outside of the Company’s control (see “Risk Factors” in Item 1A in the Company’s 20182019 Form 10-K), there is no guarantee that the Company will continue to be able to fund its operations through cash flows from operations. Under the terms of the Company’s typical sale and sales-type lease agreement,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. Based on the Company’s cash flow from operations and facilities, it expects to have sufficient capital and liquidity to fund its operations in the normal course for the next 12 months. The repercussions of COVID-19 resulted in a significant decrease in the Company’s revenues and earnings in the first quarter of 2020 as GBO results declined significantly, the
installation of theater systems was delayed, and maintenance services were suspended. The Company expects that it will continue to experience a significant decrease in revenues and earnings during the time period when a significant portion of the theaters in the IMAX network are closed.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Impact of COVID-19 Pandemic” in Item 2 of this Form 10-Q 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 II, Item 1A of this Form 10-Q.
Operating Activities
The Company’s net cash used in or provided by operating activities is affected by a number of factors, including the proceeds associated with new signings of theater systemIMAX Theater Systems lease and sale agreements in the year, costs associated with contributing systems under joint revenue sharing arrangements, the box-office performance of films distributed by the Company and/or released to IMAX theaters, increases or decreases in the Company’s operating expenses, including research and development and new business initiatives, and the level of cash collections received from its customers.
Cash provided by operating activities amounted to $48.5$6.0 million for the sixthree months ended June 30, 2019.March 31, 2020. Changes in other non-cash operating assets and liabilities as compared to December 31, 20182019 include:
| For the | |||
Three Months Ended | ||||
March 31, 2020 | ||||
Decrease (increase) in: | ||||
Accounts receivable (1) | $ | 28,191 | ||
Financing receivables | 3,471 | |||
Inventories (2) | (18,344 | ) | ||
Prepaid expenses | (1,395 | ) | ||
Variable consideration receivable | 472 | |||
Other assets | (2,961 | ) | ||
Increase (decrease) in: | ||||
Accounts payable | 5,160 | |||
Accrued and other liabilities | (59 | ) | ||
Deferred revenue | 8,807 | |||
$ | 23,342 |
|
|
|
|
|
|
|
|
|
|
|
|
Changes in other operating liabilities as compared to December 31, 2018 include: a decrease of $4.9 million in accrued liabilities primarily due to timing of payments and accruals; a decrease in accounts payable of $9.8 million due to timing of payments; and a decrease in deferred revenue of $1.3 million related to amounts relieved from deferred revenue related to theater system installations, offset by backlog payments received in the current period.
Investing Activities
Capital expenditures, including the Company’s investment in joint revenue sharing equipment, purchase of property, plant and equipment, other intangible assets and investments in film assets were $35.7$5.8 million for the sixthree months ended June 30, 2019March 31, 2020 as compared to $37.0$16.2 million for the sixthree months ended June 30, 2018. The Company expects its investment in capital expenditures to remain fairly consistent as the nature of these cash outlays in particular, joint revenue sharing arrangements and film assets, exist to strengthen operational performances.March 31, 2019.
Net cash used in investing activities amounted to $42.7$2.7 million in the sixthree months ended June 30, 2019,March 31, 2020, which includes an investment in joint revenue sharing equipment of $22.2$1.6 million, purchases of $4.2$0.3 million in property, plant and equipment and an investment in other intangible assets of $1.1$0.9 million, andprincipally related to the purchase by IMAX China (Hong Kong), Limited, a wholly-owned subsidiaryor development of IMAX China of equity securities in Maoyan for $15.2 million.software.
Financing Activities
Net cash used inprovided from financing activities in the sixthree months ended June 30, 2019March 31, 2020 amounted to $41.3$239.2 million as compared to $54.0$9.6 million in the sixthree months ended June 30, 2018.March 31, 2019.
In the sixthree months ended June 30, 2019,March 31, 2020, the Company made repaymentsdrew down the remaining $280.0 million in available capacity from its Credit Facility in response to uncertainties associated with the outbreak of $50.0 million, partially offset by borrowings of $35.0 million under the Company’s Credit Facility.COVID-19 global pandemic.
In addition, the Company paid $9.2$3.1 million to purchase treasury stock for the settlement of restricted share units, and options, $1.3$36.6 million for the repurchase of common shares under the Company’s share repurchase program, $16.8$0.9 million for the repurchase of common shares under the IMAX China share repurchase program and $0.2 million of taxes were withheld and paid on vested employee
stock option awards. The Company also paid $2.3 million in dividends to the non-controlling interest shareholders of IMAX China. These cash outlays were offset by $2.4 million received from the issuance of common shares resulting from stock option exercises and $1.1 million received from third party capital contributions to the Original Film Fund.
CONTRACTUAL OBLIGATIONS
Payments to be made by the Company under contractual obligations as at June 30, 2019March 31, 2020 are as follows:
|
| Payments Due by Period |
|
| Payments Due by Period |
| ||||||||||||||||||||||||||||||||||
(In thousands of U.S. Dollars) |
| Total Obligation |
|
| 1 Year |
|
| > 1 - 3 years |
|
| > 3 - 5 years |
|
| Thereafter |
|
| Total Obligation |
|
| 1 Year |
|
| > 1 - 3 years |
|
| > 3 - 5 years |
|
| Thereafter |
| ||||||||||
Purchase obligations(1) |
| $ | 38,892 |
|
| $ | 32,482 |
|
| $ | 6,410 |
|
| $ | — |
|
| $ | — |
|
| $ | 36,762 |
|
| $ | 33,925 |
|
| $ | 2,818 |
|
| $ | — |
|
| $ | 19 |
|
Pension obligations(2) |
|
| 18,831 |
|
|
| — |
|
|
| 18,831 |
|
|
| — |
|
|
| — |
|
|
| 20,298 |
|
|
| — |
|
|
| 20,298 |
|
|
| — |
|
|
| — |
|
Operating lease obligations(3) |
|
| 21,293 |
|
|
| 2,312 |
|
|
| 7,506 |
|
|
| 3,472 |
|
|
| 8,002 |
|
|
| 20,362 |
|
|
| 3,343 |
|
|
| 5,529 |
|
|
| 3,945 |
|
|
| 7,545 |
|
Credit Facility(4) |
|
| 25,000 |
|
|
| — |
|
|
| — |
|
|
| 25,000 |
|
|
| — |
|
|
| 300,000 |
|
|
| — |
|
|
| — |
|
|
| 300,000 |
|
|
| — |
|
Postretirement benefits obligations |
|
| 2,111 |
|
|
| 119 |
|
|
| 265 |
|
|
| 261 |
|
|
| 1,466 |
|
|
| 2,103 |
|
|
| 99 |
|
|
| 209 |
|
|
| 228 |
|
|
| 1,567 |
|
|
| $ | 106,127 |
|
| $ | 34,913 |
|
| $ | 33,012 |
|
| $ | 28,733 |
|
| $ | 9,468 |
|
| $ | 379,525 |
|
| $ | 37,367 |
|
| $ | 28,854 |
|
| $ | 304,173 |
|
| $ | 9,131 |
|
(1) | The Company’s total payments to be made under binding commitments with suppliers and outstanding payments to be made for supplies ordered but yet to be invoiced. |
(2) | The SERP assumptions are that Mr. Gelfond will receive a lump sum payment six months after retirement at the end of the current term of his employment agreement (December 31, |
(3) | The Company’s total minimum annual rental payments to be made under operating leases, mostly consisting of rent at the Company’s property in New York and at the various owned and operated theaters. |
(4) | The Company is not required to make any minimum payments on its Credit |
Pension and Postretirement Obligations
The Company has an unfunded defined benefit pension plan, the SERP, covering Mr. Gelfond. As at June 30, 2019,March 31, 2020, the Company had an unfunded and accrued projected benefit obligation of approximately $18.3$18.9 million (December 31, 2018— $18.02019— $18.8 million) in respect of the SERP.
Pursuant to an employment agreementamendment dated November 8, 2016,1, 2019 to the existing employment agreement, the term of Mr. Gelfond’s employment was extended through December 31, 2019,2022, although Mr. Gelfond has not informed the Company that he intends to retire at that time. Under the terms of the arrangement, no compensation earned beginning in 2011 isamendment to be included in calculating his entitlementemployment agreement, the total amount of benefit payable to Mr. Gelfond under the SERP.SERP has been fixed at 20.3 million.
The Company has a postretirement plan to provide health and welfare benefits to Canadian employees meeting certain eligibility requirements. As at June 30, 2019,March 31, 2020, the Company had an unfunded benefit obligation of $1.5 million (December 31, 20182019 — $1.5$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 at June 30, 2019,March 31, 2020, the Company had an unfunded benefit obligation of $0.7$0.6 million (December 31, 20182019 — $0.6$0.7 million).
The Company maintained a nonqualified deferred compensation benefit plan (the “Retirement Plan”) covering Greg Foster,the former CEO of IMAX Entertainment and Senior Executive Vice President of the Company. Under the terms of his Retirement Plan with the Company, the Retirement Plan will vest in full if Mr. Fosterhe incurs a separation from service (as defined therein). In the fourth quarter of 2018, Mr. Foster incurred a separation from service, and as such, his Retirement Plan benefits became fully vested as at December 31, 2018 and the accelerated costs were recognized and reflected in the executive transition costs line on the consolidated statement of operations. As at June 30, 2019,March 31, 2020, the Company had a funded benefit obligation recorded of $3.6 million (December 31, 20182019 — unfunded benefit obligation of $3.6 million).
RECENTLY ISSUED ACCOUNTING STANDARDS
See Note 3 of Notes to Condensed Consolidated Financial Statements in Item 1 for a discussion of recently issued accounting standards and their impact on the Company’s financial statements.
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. Specifically, the Company presents the following non-GAAP financial measures as supplemental measures of its performance:
• | Adjusted net (loss) income attributable to common shareholders; |
• | Adjusted net (loss) income attributable to common shareholders per basic and diluted share; |
• | EBITDA; and |
• | Adjusted EBITDA per Credit Facility. |
Adjusted net (loss) income attributable to common shareholders and adjusted net (loss) income attributable to common shareholders per basic and diluted share exclude, where applicable: (i) share-based compensation; (ii) exit costs, restructuring charges and associated impairments, and (iii) changes in the fair value of equity investments, as well as the related tax impact of these adjustments, and (iv) income tax expense related to the removal of the indefinitely reinvested assertion on the historical earnings of certain subsidiaries.
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 charges to net (loss) income attributable to common shareholders. Although share-based compensation is an important aspect of the Company’s employee and executive compensation packages, it is a non-cash expense and is excluded from certain internal business performance measures.
A reconciliation of net (loss) income attributable to common shareholders and the comparable per share amounts, the most directly comparable GAAP measures, to adjusted net (loss) income attributable to common shareholders and adjusted net (loss) income attributable to common shareholders per diluted share is presented in the table below. The Company believes that net (loss) income attributable to common shareholders is the most directly comparable GAAP measure because it reflects the earnings relevant to the Company’s shareholders, rather than including the non-controlling interest. As such, beginning in the first quarter of 2020, the Company has updated the reconciliations for such non-GAAP financial measures included herein.
(In thousands of U.S. dollars, except per share amounts) |
| Three Months Ended |
|
|
| Three Months Ended |
| ||||||||||||
|
| March 31, 2020 |
|
|
| March 31, 2019 |
| ||||||||||||
|
| Net Loss |
|
|
| Diluted EPS |
|
|
| Net Income |
|
|
| Diluted EPS |
| ||||
Reported net (loss) income attributable to common shareholders |
| $ | (49,354 | ) |
|
| $ | (0.82 | ) |
|
| $ | 8,265 |
|
|
| $ | 0.13 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
| 4,075 |
|
|
|
| 0.07 |
|
|
|
| 4,277 |
|
|
|
| 0.07 |
|
Exit costs, restructuring charges and associated impairments |
|
| — |
|
|
|
| — |
|
|
|
| 850 |
|
|
|
| 0.01 |
|
Change in fair value of equity securities |
|
| 3,165 |
|
|
|
| 0.05 |
|
|
|
| (1,700 | ) |
|
|
| (0.02 | ) |
Tax impact on items listed above |
|
| (338 | ) |
|
|
| (0.01 | ) |
|
|
| (881 | ) |
|
|
| (0.01 | ) |
Income tax expense related to removal of indefinitely reinvested assertion on the historical earnings of certain subsidiaries |
|
| 13,726 |
|
|
|
| 0.23 |
|
|
|
| — |
|
|
|
| — |
|
Adjusted net (loss) income |
| $ | (28,726 | ) |
|
| $ | (0.48 | ) |
|
| $ | 10,811 |
|
|
| $ | 0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic shares outstanding |
|
|
|
|
|
|
| 60,418 |
|
|
|
|
|
|
|
|
| 61,377 |
|
Weighted average diluted shares outstanding |
|
|
|
|
|
|
| 60,418 |
|
|
|
|
|
|
|
|
| 61,559 |
|
In addition to the non-GAAP financial measures discussed above, management also uses “EBITDA,” as such term is defined in the Company’s credit agreement, and which is referred to herein as “Adjusted EBITDA per Credit Facility.” As allowed by the Company’s credit agreement, Adjusted EBITDA per Credit Facility includes adjustments in addition to the exclusion of interest, taxes, depreciation and amortization. Accordingly, this non-GAAP financial measure is presented to allow a more comprehensive analysis of the Company’s operating performance and to provide additional information with respect to the Company’s compliance against its credit agreement requirements in the current period. 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 (loss) income excluding: (i) interest income (expense), net; (ii) income tax provision (benefit); and (iii) depreciation and amortization. Adjusted EBITDA per Credit Facility is defined as EBITDA excluding: (i) gain (loss) from equity accounted investments; (ii) stock and other non-cash compensation; (iii) exit costs, restructuring charges and associated impairments; (iv) change in fair value of equity investment; (v) write-downs, net of recoveries, including asset impairments and receivable provisions; and (vi) adjusted EBITDA attributable to non-controlling interests.
A reconciliation of net (loss) income attributable to common shareholders, the most directly comparable GAAP measure, to EBITDA and Adjusted EBITDA per Credit Facility is presented in the table below. The Company believes that net loss attributable to common shareholders is the most directly comparable GAAP measure because it reflects the earnings relevant to the Company’s shareholders, rather than including the non-controlling interest. As such, beginning in the first quarter of 2020, the Company has updated the reconciliations for such non-GAAP financial measures included herein.
| For the |
|
| For the |
|
| ||||
| Three Months Ended |
|
| Twelve Months Ended |
|
| ||||
Adjusted EBITDA per Credit Facility: | March 31, 2020 |
|
| March 31, 2020(1) |
|
| ||||
(In thousands of U.S. Dollars) |
|
|
|
|
|
|
|
|
|
|
Reported net loss attributable to common shareholders | $ |
| (49,354 | ) |
| $ |
| (10,753 | ) |
|
Add (subtract): |
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
| 10,949 |
|
|
|
| 21,369 |
|
|
Interest expense, net of interest income |
|
| 253 |
|
|
|
| 930 |
|
|
Depreciation and amortization, including film asset amortization |
|
| 14,012 |
|
|
|
| 59,502 |
|
|
EBITDA | $ |
| (24,140 | ) |
| $ |
| 71,048 |
|
|
Stock and other non-cash compensation |
|
| 4,158 |
|
|
|
| 22,697 |
|
|
Change in fair value of equity investment |
|
| 3,165 |
|
|
|
| 5,218 |
|
|
Write-downs, including asset impairments and credit loss expense |
|
| 11,928 |
|
|
|
| 17,040 |
|
|
Loss from equity accounted investments |
|
| 529 |
|
|
|
| 442 |
|
|
Adjusted EBITDA attributable to common shareholders | $ |
| (4,360 | ) |
| $ |
| 116,445 |
|
|
(1) | Senior Secured Net Leverage Ratio calculated using twelve months ended Adjusted EBITDA per Credit Facility. |
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 as a substitute for, or superior to, the comparable GAAP amounts.
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.
Item 3. Quantitative and Qualitative Disclosures 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 and the Chinese Yuan Renminbi. 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 81 different countries, and therefore unfavorable exchange rates between applicable local currencies and the U.S. dollar could have an impact on the Company’s reported gross box office and revenues. The Company has incoming cash flows from its revenue generating theaters and ongoing operating expenses in China through its majority-owned subsidiary IMAX (Shanghai) Multimedia Technology Co., Ltd. In Japan, the Company has ongoing Yen-denominated operating expenses related to its Japanese operations. Net Renminbi 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, Japanese Yen, Euros and Canadian dollars.
The Company manages its exposure to foreign exchange rate risks through the Company’s 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.
63
��
Certain of the Company’s subsidiaries held approximately 446.1479.6 million Renminbi ($64.967.8 million U.S. dollars) in cash and cash equivalents as at June 30, 2019March 31, 2020 (December 31, 20182019 — 375.7471.6 million Renminbi or $54.7$67.6 million U.S. dollars) and are required to transact locally in Renminbi. 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 China 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.
For the three and six months ended June 30, 2019,March 31, 2020, the Company recorded a foreign exchange net loss of $0.2$0.7 million, and a net loss of $0.4 million, respectively, as compared to a foreign exchange net loss of $1.0 million and a net loss of $1.1$0.2 million for the three and six months ended June 30, 2018, respectively,March 31, 2019, associated with the translation of foreign currency denominated monetary assets and liabilities.
The Company entered into a series of foreign currency forward contracts to manage the Company’s risks associated with the volatility of foreign currencies. The forward contracts have settlement dates throughout 20192020 and 2020.2021. Foreign currency derivatives are recognized and measured in the balance sheet at fair value. Changes in the fair value (gains or losses) are recognized in the consolidated statements of operations except for derivatives designated and qualifying as foreign currency cash flow hedging instruments. All foreign currency forward contracts held by the Company as at June 30, 2019,March 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, inventory and capital expenditures. For foreign currency cash flow hedging instruments related to selling, general and administrative expenses, the effective portion of the gain or loss in a hedge of a forecasted transaction is reported in other comprehensive income and reclassified to the condensed consolidated statementsCondensed Consolidated Statements of operationsOperations when the forecasted transaction occurs. For foreign currency cash flow hedging instruments related to inventory, the effective portion of the gain or loss in a hedge of a forecasted transaction is reported in other comprehensive income and reclassified to inventory on the balance sheet 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 balance sheet when the forecasted transaction occurs. The notional value of foreign currency cash flow hedging instruments at June 30, 2019March 31, 2020 was $42.4$44.6 million (December 31, 20182019 — $50.8$36.1 million). A gainloss of $0.3 million and a gain of $0.4$2.9 million was recorded to Other Comprehensive Income with respect to the change in fair value of these contracts for the three and six months ended June 30, 2019, respectively (2018March 31, 2020 (2019 — lossgain of $0.7 million and loss of $1.7 million, respectively)$0.1 million). A loss of $0.4 million and a loss of $0.7$0.3 million was reclassified from Accumulated Other Comprehensive Income to selling, general and administrative expenses, inventory and property, plant and equipment for the three and six months ended June 30, 2019, respectively (2018March 31, 2020 (2019 — gain of $0.1 million and gainloss of $0.3 million, respectively)million). The Company's estimated net amount of the existing losses as at June 30, 2019March 31, 2020 is $0.3$1.8 million, which is expected to be reclassified to earnings within the next twelve months. Appreciation or depreciation on forward contracts not meeting the requirements for hedge accounting in the Derivatives and Hedging Topic of the FASB Accounting Standards Codification are recorded to selling, general and administrative expenses.
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.
At June 30, 2019,March 31, 2020, the Company’s financing receivables and working capital items denominated in Canadian dollars, Renminbi, Yen and Euros translated into U.S. dollars was $97.6$113.7 million. Assuming a 10% appreciation or depreciation in foreign currency exchange rates from the quoted foreign currency exchange rates at June 30, 2019,March 31, 2020, the potential change in the fair value of foreign currency-denominated financing receivables and working capital items would have been $9.8$11.4 million. A significant portion of the Company’s selling, general, and administrative expenses is denominated in Canadian dollars. Assuming a 1% appreciation or depreciation in foreign currency exchange rates at June 30, 2019,March 31, 2020, the potential change in the amount of selling, general, and administrative expenses would be approximatelyless than $0.1 million.
Interest Rate Risk Management
The Company’s earnings are also affected by changes in interest rates due to the impact those changes have on its interest income from cash, and its interest expense from variable-rate borrowings under the Credit Facility.
As at June 30, 2019,March 31, 2020, the Company had drawn down $25.0$300.0 million on its Credit Facility (December 31, 20182019 — $40.0$20.0 million).
The Company’s largest exposure with respect to variable rate debt comes from changes in the LIBOR. The Company had variable rate debt instruments representing 9.4%53.7% and 14.6%8.1% of its total liabilities as at June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively. If the interest rates available to the Company increased by 10%, the Company’s interest expense would increase by approximately $0.1 million and interest income from cash would increase by approximately $0.1$0.2 million. These amounts are determined by considering the impact of the hypothetical interest rates on the Company’s variable rate debt and cash balances at June 30, 2019.March 31, 2020.
Item 4. 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 at June 30, 2019March 31, 2020 and has concluded that, as at 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.
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 June 30, 2019,March 31, 2020, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. We have not experienced any material impact to our internal control over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic. We will continue to monitor the evolving COVID-19 situation to minimize its impact on the design and operating effectiveness of our internal control.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See note 7Note 8 to the accompanying condensed consolidated financial statementsCondensed Consolidated Financial Statements in Item 1 for information regarding legal proceedings involving the Company.
Item 1A. Risk Factors
This Form 10-Q should be read together with the Item 1A. Risk Factors in the Company’s 20182019 Form 10-K, which describes various risks and uncertainties to which the Company is or may become subject. The risks described below and in the Company’s 20182019 Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect its business, financial condition and/or operating results.
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 late-January 2020, in response to the public health risks associated with an outbreak of COVID-19, the Chinese government directed exhibitors in China to temporarily close more than 70,000 movie theaters, including all the approximately 700 IMAX theaters in mainland China. The theaters have been closed since late-January 2020, and have not yet reopened as of the date of this report. 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 have 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, Hollywood and Chinese movie studios have also postponed the release of multiple films, including many scheduled to be shown in IMAX theaters.
The repercussions of the COVID-19 global pandemic resulted in a significant decrease in the Company’s revenues and earnings in the first quarter of 2020 due to a decline in the box office related revenues generated by IMAX theaters and delays in the installation of certain theater systems from backlog. During this period, the Company is generating effectively no box-office based revenue and expects that it will continue to experience a significant decrease in overall revenues and earnings during the time period when a significant number of the theaters in the IMAX network are closed. Moreover, given the uncertainty around when movie-going will return to historical levels, there can be no guarantees that the Company will not continue to be materially adversely affected by the COVID-19 pandemic even after some or all theaters are reopened. In addition, the global economic impact of COVID-19 has led to record levels of unemployment in certain countries and may lead to lower consumer spending in the near term. The timing of a recovery of consumer behavior and willingness to spend discretionary income on movie-going may delay the Company’s ability to generate significant box office revenue until such time as consumer spending recovers.
In response to the COVID-19 pandemic, the Company has taken and is continuing to take significant steps to preserve cash by eliminating non-essential costs and deferring all non-essential capital expenditures to minimum levels. In addition, the Company has implemented an active cash management process, which, among other things, requires senior management approval of all outgoing payments. However, there can be no guarantees that the Company’s efforts to manage its expenditures will result in the projected cost savings. Furthermore, the Company is in the process of reviewing and applying for wage subsidies, tax credits and other financial support under the newly enacted COVID-19 relief legislation in the countries in which it operates. However, the legislation and guidance from the authorities continues to evolve and so the amount and timing of support, if any, that the Company could receive is not determinable at this time, and there can be no guarantees that the Company will receive any material financial support through these programs.
In addition, the Company may also experience delays in collecting payments due under existing theater sale or lease arrangements from its exhibitor partners who may now be facing financial difficulties as a result of the theater closures. The ability of such partners to make payments cannot be guaranteed and is subject to changing economic circumstances. There are no guarantees that some of the Company’s exhibitor partners will not enter into bankruptcy proceedings. In such cases, the 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 under these regulatory regimes. 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 will depend on future developments, including, but not limited to, the timing of reopening of movie theaters worldwide, and the timing of when delayed films are released, consumer behavior and general economic conditions, the solvency of our 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. There can be no guarantees that the Company’s liquidity needs will not increase materially over the course of this pandemic and such changes may impact the Company’s ability to maintain compliance with certain covenants under the Credit Agreement, including a requirement the Company 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. The longer the COVID-19 pandemic and associated protective measures persist, the more likely it becomes, in the absence of other actions by the Company, that it will be unable to maintain compliance with such covenant. In addition, 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 the Company’s 2019 Form 10-K, including, but not limited to, risks relating to harm to our key personnel, 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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
In 2017, the Company’s Board of Directors approved a new $200.0 million share repurchase program for shares of the Company’s common shares. The share repurchase program expires on June 30, 2020. The repurchases may be made either in the open market or through private transactions, subject to market conditions, applicable legal requirements and other relevant factors. The Company has no obligation to repurchase shares and the share repurchase program may be suspended or discontinued by the Company at any time. During the three months ended June 30, 2019,March 31, 2020, the Company repurchased 87,7692,484,123 shares at an average price of $19.45$14.72 per share. As at June 30, 2019,March 31, 2020, the company has $126.9$89.4 million available under its approved repurchase program.
The Company’s common share repurchase program activity for the three months ended June 30, 2019March 31, 2020 was as follows:
| Total number of shares purchased |
|
| Average price paid per share |
|
| Total number of shares purchased as part of publicly announced program |
|
| Maximum value of shares that may yet be purchased under the program |
| ||||||
April 1 through April 30, 2019 |
| — |
|
| $ |
| — |
|
|
| — |
|
| $ |
| 128,590,960 |
|
May 1 through May 31, 2019 |
| — |
|
|
|
| — |
|
|
| — |
|
|
|
| 128,590,960 |
|
June 1 through June 30, 2019 |
| 87,769 |
|
|
|
| 19.45 |
|
|
| 87,769 |
|
|
|
| 126,883,462 |
|
Total |
| 87,769 |
|
| $ |
| 19.45 |
|
|
| 87,769 |
|
|
|
|
|
|
| Total number of shares purchased |
|
| Average price paid per share |
|
| Total number of shares purchased as part of publicly announced program |
|
| Maximum value of shares that may yet be purchased under the program |
| ||||||
January 1 through January 31, 2020 |
| — |
|
| $ |
| — |
|
|
| — |
|
| $ |
| 125,935,013 |
|
February 1 through February 29, 2020 |
| 925,823 |
|
|
|
| 16.00 |
|
|
| 925,823 |
|
|
|
| 111,122,835 |
|
March 1 through March 31, 2020 |
| 1,558,300 |
|
|
|
| 13.96 |
|
|
| 1,558,300 |
|
|
|
| 89,361,337 |
|
Total |
| 2,484,123 |
|
| $ |
| 14.72 |
|
|
| 2,484,123 |
|
|
|
|
|
|
In 2018, 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% of the total number of issued shares of IMAX China as at May 3, 2018 (35,818,112 shares). The share purchase 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% of the total number of issued shares of IMAX China as at June 6, 2019 (35,605,560 shares). The share repurchase program expires on the date of the 2020 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 the three and six months ended June 30, 2019,March 31, 2020, IMAX China repurchased 6,315,900 and 7,025,700480,600 common shares respectively at an average price of HKD 18.5914.42 per share and HKD 18.68, respectively (U.S. $2.37$1.85 per share and U.S. $2.38 per share, respectively)share).
The total number of shares purchased during the three and six months ended June 30, 2019,March 31, 2020, under both the Company and IMAX China’s repurchase plans, does not include any shares received in the administration of employee share-based compensation plans.
Item 6. Exhibits
Exhibit No. |
| Description |
10.47 | First Amending Agreement, dated March 11, 2020, between IMAX Corporation and Robert Lister. | |
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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 |
| 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 |
| XBRL Taxonomy Extension Schema Document |
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101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
| XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
| XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase Document |
104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
SIGNATURES
Pursuant to the requirements 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 | |
|
| |
Date: | By: | /s/ PATRICK MCCLYMONT |
|
| Patrick McClymont |
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| Executive Vice-President & Chief Financial Officer |
|
| (Principal Financial Officer) |
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Date: | By: | /s/ |
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|
|
| Senior Vice-President, Finance & Controller |
|
| (Principal Accounting Officer) |
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