IMAX
Annual Report 2014

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 Form 10-K (Mark One)xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2014 ¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934Commission file Number 001-35066 IMAX Corporation(Exact name of registrant as specified in its charter) Canada 98-0140269(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification Number)2525 Speakman Drive,Mississauga, Ontario, Canada L5K 1B1(905) 403-6500 110 E. 59th Street, Suite 2100New York, New York, USA 10022(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 Name of Exchange on Which RegisteredCommon Shares, no par value The New York Stock ExchangeSecurities registered pursuant to Section 12(g) of the Act:None(Title of class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes x No ¨Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No xIndicate 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 1934during 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 filingrequirements for the past 90 days. Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorterperiod that the registrant was required to submit and post such files). Yes x No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, tothe best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendmentto this Form 10-K xIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer x Accelerated filer ¨Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting Company ¨Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Act). Yes ¨ No xThe aggregate market value of the common shares of the registrant held by non-affiliates of the registrant, computed by reference to the last sale priceof such shares as of the close of trading on June 30, 2014 was $1,651.6 million.As of January 31, 2015, there were 68,988,050 common shares of the registrant outstanding.Document Incorporated by ReferencePortions of the registrant’s definitive Proxy Statement to be filed within 120 days of the close of IMAX Corporation’s fiscal year ended December 31,2014, with the Securities and Exchange Commission pursuant to Regulation 14A involving the election of directors and the annual meeting of thestockholders of the registrant (the “Proxy Statement”) are incorporated by reference in Part III of this Form 10-K to the extent described therein. Table of ContentsIMAX CORPORATIONDecember 31, 2014Table of Contents Page PART I Item 1. Business 4 Item 1A. Risk Factors 19 Item 1B. Unresolved Staff Comments 27 Item 2. Properties 28 Item 3. Legal Proceedings 29 Item 4. Mine Safety Disclosures 30 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 31 Item 6. Selected Financial Data 35 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 38 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 78 Item 8. Financial Statements and Supplementary Data 80 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 143 Item 9A. Controls and Procedures 143 Item 9B. Other Information 143 PART III Item 10. Directors, Executive Officers and Corporate Governance 144 Item 11. Executive Compensation 144 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 144 Item 13. Certain Relationships and Related Transactions, and Director Independence 144 Item 14. Principal Accounting Fees and Services 144 PART IV Item 15. Exhibits, Financial Statement Schedules 144 Signatures 148 2Table of ContentsIMAX CORPORATIONEXCHANGE RATE DATAUnless otherwise indicated, all dollar amounts in this document are expressed in United States (“U.S.”) dollars. The following table sets forth, for theperiods indicated, certain exchange rates based on the noon buying rate in the City of New York for cable transfers in foreign currencies as certified forcustoms purposes by the Bank of Canada (the “Noon Buying Rate”). Such rates quoted are the number of U.S. dollars per one Canadian dollar and are theinverse of rates quoted by the Bank of Canada for Canadian dollars per U.S. $1.00. The average exchange rate is based on the average of the exchange rateson the last day of each month during such periods. The Noon Buying Rate on December 31, 2014 was U.S. $0.8620. Years Ended December 31, 2014 2013 2012 2011 2010 Exchange rate at end of period 0.8620 0.9402 1.0051 0.9833 1.0054 Average exchange rate during period 0.9022 0.9713 1.0006 1.0151 0.9709 High exchange rate during period 0.9422 1.0164 1.0299 1.0583 1.0054 Low exchange rate during period 0.8589 0.9348 0.9599 0.9430 0.9278 SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATIONCertain statements included in this annual report may constitute “forward-looking statements” within the meaning of the United States PrivateSecurities 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, expansionand growth of business, operations and technology, plans and references to the future success of IMAX Corporation together with its wholly-ownedsubsidiaries (the “Company”) and expectations regarding the Company’s future operating, financial and technological results. These forward-lookingstatements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, currentconditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. However, whether actual results anddevelopments will conform with the expectations and predictions of the Company is subject to a number of risks and uncertainties, including, but not limitedto, the signing of theater system agreements; conditions, changes and developments in the commercial exhibition industry; the performance of IMAX DMRfilms; the potential impact of increased competition in the markets within which the Company operates; competitive actions by other companies; the failureto respond to change and advancements in digital technology; risks associated with investments and operations in foreign jurisdictions and any futureinternational expansion, including those related to economic, political and regulatory policies of local governments and laws and policies of the UnitedStates and Canada; risks related to the Company’s growth and operations in China; the Company’s largest customer accounting for a significant portion ofthe Company’s revenue and backlog; risks related to new business initiatives; conditions in the in-home and out-of-home entertainment industries; theopportunities (or lack thereof) that may be presented to and pursued by the Company; risks related to the Company’s inability to protect the Company’sintellectual property; risks related to the Company’s implementation of a new enterprise resource planning system; general economic, market or businessconditions; the failure to convert theater system backlog into revenue; changes in laws or regulations; risks related to the Company’s dependence on a solesupplier for its analog film; risks related to cyber-security; and other factors, many of which are beyond the control of the Company. Consequently, all of theforward-looking statements made in this annual report are qualified by these cautionary statements, and actual results or anticipated developments by theCompany may not be realized, and even if substantially realized, may not have the expected consequences to, or effects on, the Company. The Companyundertakes no obligation to update publicly or otherwise revise any forward-looking information, whether as a result of new information, future events orotherwise. 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 itssubsidiaries that are registered or otherwise protected under laws of various jurisdictions. 3Table of ContentsPART I Item 1.BusinessGENERALIMAX Corporation, together with its wholly-owned subsidiaries (the “Company”), is one of the world’s leading entertainment technology companies,specializing in motion picture technologies and presentations. IMAX offers a unique end-to-end cinematic solution combining proprietary software, theaterarchitecture and equipment to create the highest-quality, most immersive motion picture experience for which the IMAX® brand has become known globally.Top filmmakers and studios utilize IMAX theaters to connect with audiences in innovative ways, and as such, IMAX’s theater network is among the mostimportant and successful theatrical distribution platforms for major event films around the world.The Company’s principal businesses are: • the design and manufacture of premium theater systems (“IMAX theater systems”) and the sale, lease or contribution of those systems tocustomers under theater system arrangements; and • the Digital Re-Mastering of films into the IMAX format and the exhibition of those films in the IMAX theater network.IMAX theater systems are based on proprietary and patented technology developed over the course of the Company’s 47-year history. The Company’scustomers who purchase, lease or otherwise acquire the IMAX theater systems are theater exhibitors that operate commercial theaters (particularlymultiplexes), museums, science centers, or destination entertainment sites. The Company generally does not own IMAX theaters, but licenses the use of itstrademarks to exhibitors along with the sale, lease or contribution of its equipment. The Company refers to all theaters using the IMAX theater system as“IMAX theaters.”IMAX theater systems combine: • IMAX DMR (Digital Re-Mastering) movie conversion technology, which results in higher image and sound fidelity than conventional cinemaexperiences; • advanced, high-resolution projectors with specialized equipment and automated theater control systems, which generate significantly morecontrast 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 aviewer’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 IMAXtheater; and • specialized theater acoustics, which result in a four-fold reduction in background noise.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, immersiveand exciting experience than a traditional theater.As a result of the immersiveness and superior image and sound quality of The IMAX Experience, the Company’s exhibitor customers typically charge apremium for IMAX DMR films over films exhibited in their other auditoriums. The premium pricing, combined with the higher attendance levels associatedwith IMAX DMR films, generates incremental box-office for the Company’s exhibitor customers and for the movie studios releasing their films to the IMAXnetwork. The incremental box-office generated by IMAX DMR films has helped establish IMAX as a key premium distribution and marketing platform forHollywood blockbuster films.The Company believes the IMAX theater network is the most extensive premium theater network in the world with 934 theater systems (828commercial, 106 institutional) operating in 62 countries as at December 31, 2014. This compares to 837 theater systems (720 commercial, 117 institutional)operating in 57 countries as at December 31, 2013. The success of the Company’s digital and joint revenue sharing strategies and the strength of its film slatehas enabled the Company’s theater network to expand significantly since the beginning of 2008, with the Company’s overall network increasing by 212%and its commercial network increasing by 363%. In 2014 and 2013, the Company signed theater agreements for 118 and 277 theater systems, respectively,which are expected to drive additional growth in the Company’s theater network in 2015 and thereafter.The Company has identified approximately 1,700 IMAX zones worldwide. The Company believes that these zones present the potential for the IMAXtheater network to grow significantly from the 809 commercial multiplex IMAX theaters operating as of December 31, 2014. While the Company continuesto grow domestically, particularly in small to mid-tier markets, a significant 4Table of Contentsportion of the Company’s recent growth has come from international markets, a trend that the Company anticipates will continue into the future. In fact, 2013marked the first year in the Company’s history that revenues and gross box-office derived from outside the United States and Canada exceeded revenues andgross box-office from the United States and Canada. This trend has continued in 2014, when 77.1% of the Company’s 118 new theater signings were fortheaters in international markets. Key international growth markets include Greater China (which includes the People’s Republic of China, Hong Kong,Taiwan and Macau), Japan, Latin America (which includes South America, Central America and Mexico) and Eastern and Western Europe.Greater China continues to be the Company’s second-largest and fastest-growing market. As at December 31, 2014, the Company had 234 theatersoperating in Greater China and an additional 217 theaters (including 2 upgrades) in backlog which represents 54.7% of the Company’s current backlog andwhich are scheduled to be installed in Greater China by 2021. The Company continues to invest in joint revenue sharing arrangements with select partners toensure ongoing revenue in this key market. The Company’s largest single international partnership is in China with Wanda Cinema Line Corporation(“Wanda”). Wanda’s total commitment to the Company is for 210 IMAX theater systems, of which 195 theater systems are under the parties’ joint revenuesharing arrangement. Furthermore, the Company has a partnership with CJ CGV Holdings, Ltd., for a commitment of 95 IMAX theater systems, of which 75theater systems will reside in China. The Company believes that the China market presents opportunities for additional growth with favorable market trends,including government initiatives to foster cinema screen growth, to support the film industry and to increase the number of Hollywood films distributed inChina. Recent initiatives include a 2012 agreement between the U.S. and Chinese governments to permit 14 additional IMAX or 3D format films to bedistributed in China each year and to permit distributors to receive higher distribution fees. The Company cautions, however, that its expansion in Chinafaces a number of challenges. See Risk Factors – “The Company faces risks in connection with the continued expansion of its business in China” in Item 1A.In 2010, the Company formed IMAX China Holding, Inc. (“IMAX China”) to facilitate the Company’s expansion in China. As of December 31, 2014,IMAX China had offices in Shanghai and Beijing and a total of 62 employees. On April 8, 2014, the Company announced the investment (the “IMAX ChinaInvestment”) in its Greater China business by CMC Capital Partners (“CMC”), an investment fund that is focused on media and entertainment, andFountainVest Partners (“FountainVest”), a China-focused private equity firm. The IMAX China Investment provides for the sale and issuance of 20% of theshares of IMAX China to entities owned and controlled by CMC and FountainVest, with the intent of further strengthening the Company’s competitiveposition in China.The Company believes there have been a number of financial, strategic and operating benefits resulting from the IMAX China Investment. Inparticular, the Company believes that the investors’ knowledge of, and influence in, the Chinese media and entertainment industry has contributed to thecontinued expansion of IMAX’s theater network in China, and the further strengthening of the Company’s government and industry relationships withinChina.The sale price for the interest was $80.0 million, to be paid by the investors in two equal installments. The first installment was received on April 8,2014, and the second installment was received on February 10, 2015. IMAX China remains a consolidated subsidiary of the Company.Over the years, several technological breakthroughs have established IMAX as an important distribution platform for Hollywood’s biggest event films.These include: • DMR – IMAX’s proprietary DMR technology digitally converts live-action digital films or 35mm to its large-format, while meeting the Company’shigh standards of image and sound quality. In a typical IMAX DMR film arrangement, the Company will receive a percentage, which generally rangesfrom 10-15%, of net box-office receipts of a film from the film studio in exchange for the conversion of the film to the IMAX DMR format and foraccess to the IMAX distribution platform. At December 31, 2014, the Company had released 197 IMAX DMR films since the introduction of IMAXDMR in 2002. The number of films released on an annual basis that have been converted through the DMR process has increased significantly inrecent years with the advent of digital technology that has reduced the DMR conversion time and with the strengthening of the Company’srelationships with major Hollywood studios. Accordingly, 40 films converted through the IMAX DMR process were released in 2014, as compared to 6in 2007. • IMAX Digital Projection System – The Company introduced its digital xenon projection system in 2008. Prior to 2008, all of IMAX’s large formatprojectors were film-based and required analog film prints. The IMAX digital projection system, which operates without the need for such film prints,was designed specifically for use by commercial multiplex operators and allows operators to reduce the capital and operating costs required to run anIMAX theater without sacrificing the image and sound quality of The IMAX Experience. By making The IMAX Experience more accessible forcommercial multiplex operators, the introduction of the IMAX digital projection system paved the way for a number of important joint revenue sharingarrangements 5Table of Contents which have allowed the Company to rapidly expand its theater network. Since announcing that the Company was developing digital projectiontechnology, the vast majority of the Company’s theater system signings have been for digital systems. As at December 31, 2014, the Company hassigned agreements for 1,149 xenon-based digital systems since 2007 (including the upgrade of film-based systems), 108 of which were signed in 2014alone. As at December 31, 2014, 817 IMAX digital xenon projection systems were in operation, an increase of 17.4% over the 696 digital projectionsystems in operation as at December 31, 2013.As one of the world’s leaders in entertainment technology, the Company strives to remain at the forefront of advancements in cinema technology.Accordingly, one of the Company’s key short-term initiatives has been the development of a next-generation laser-based digital projection system, which itbegan rolling out at the end of 2014. In order to develop the laser-based digital projection system, the Company obtained exclusive rights to certain laserprojection technology and other technology with applicability in the digital cinema field from Eastman Kodak Company (“Kodak”) in 2011 and entered aco-development arrangement with Barco N.V. (“Barco”) to co-develop a laser-based digital projection system that incorporates Kodak technology in 2012.Furthermore, in 2014, the Company announced an agreement with Necsel IP, Inc. (“Necsel”) to be the exclusive worldwide provider of specified lasers forIMAX’s laser projection systems in exchange for preferred pricing and supply terms. The Company believes that these arrangements with Kodak, Barco andNecsel enable IMAX laser projectors to present greater brightness and clarity, higher contrast, a wider color gamut and deeper blacks, and consume less powerand last longer than existing digital technology. The Company also believes that its laser projection solution is the first IMAX digital projection systemcapable of illuminating the largest screens in its network. As of December 31, 2014, the Company had 71 laser-based digital theater systems in its backlog,one of which is now operational.The Company is also undertaking new lines of business, particularly in the area of home entertainment. In 2013, the Company announced new hometheater initiatives, including a joint venture with TCL Multimedia Technology Holding Limited (“TCL”) to design, develop, manufacture and sell a premiumhome theater system. The Company and TCL expect to launch the new home theater system in China, the Middle East and other select global markets in2015. In April 2014, the Company, TCL and Wasu Digital TV media group (“WASU”) announced a joint-venture partnership whereby WASU will licenseand distribute IMAX-enhanced Hollywood and Chinese current theatrical and other content to the new home theater system. The Company is alsodeveloping other, related facets of a premium home entertainment platform designed to allow consumers to experience elements of The IMAX Experience® intheir homes.In addition to the design and manufacture of premium theater systems, the Company is also engaged in the production and distribution of originallarge-format films, the provision of services in support of the IMAX theater network, the provision of post-production services for large-format films, theoperation of three IMAX theaters and, from time-to-time the conversion of two-dimensional (“2D”) and three-dimensional (“3D”) Hollywood feature films forexhibition on IMAX theater systems around the world. IMAX Corporation, a Canadian corporation, was formed in March 1994 as a result of an amalgamationbetween WGIM Acquisition Corp. and the former IMAX Corporation (“Predecessor IMAX”). Predecessor IMAX was incorporated in 1967.On May 21, 2014, the Company announced the creation of the IMAX Original Film Fund (the “Film Fund”) to co-finance a portfolio of 10 originallarge-format films. The Film Fund, which is intended to be capitalized with up to $50.0 million, will finance an ongoing supply of original films that theCompany believes will be more exciting and compelling than traditional documentaries. The initial investment in the Film Fund was committed to by a thirdparty in the amount of $25.0 million, with the possibility of contributing additional funds. The Company, which will contribute $9.0 million to the FilmFund over five years, anticipates the Film Fund will be self-perpetuating, with a portion of box office proceeds reinvested into the Film Fund to generate acontinuous, steady flow of high-quality documentary content.The Company also recently began marketing and selling the IMAX Private Theatre, a cinema-grade, ultra-premium home theater system, and hassigned agreements for 7 of such theaters to date.PRODUCT LINESThe Company believes it is the world’s largest designer and manufacturer of specialty premium projection and sound system components for large-format theaters around the world, as well as a significant producer and distributor of large-format films. The Company’s theater systems include specializedIMAX projectors, advanced sound systems and specialty screens. The Company derives its revenues from: • IMAX theater systems (design, manufacture, sale or lease of, and provision of services related to, its theater systems); • Films (production and digital re-mastering of films, the distribution of film products to the IMAX theater network, post-production and printservices for films); • Joint revenue sharing arrangements (the provision of its theater system to an exhibitor in exchange for a certain percentage of theater revenueand, in some cases, a small upfront or initial payment); 6Table of Contents • Theater system maintenance (the use of maintenance services related to its theater systems); and • Other activities, which include theater operations (owning equipment, operating, managing or participating in the revenues of IMAX theaters),the sale of after-market parts and camera rentals.Segmented information is provided in note 19 to the accompanying audited consolidated financial statements in Item 8.IMAX Theater Systems, Theater System Maintenance and Joint Revenue Sharing ArrangementsThe Company’s primary products are its theater systems. The Company’s digital projection systems include a projector that offers superior imagequality and stability and a digital theater control system; a 6-channel, digital audio system delivering up to 12,000 watts of sound; a screen with a proprietarycoating technology, and, if applicable, 3D glasses cleaning equipment. IMAX’s digital projection system also operates without the need for analog filmprints. Traditional IMAX film-based theater systems contain the same components as the digital projection systems but include a rolling loop 15/70-formatprojector and require the use of analog film prints. Since its introduction in 2008, the vast majority of the Company’s theater sales have been digital systems.Furthermore, a majority of the Company’s existing film-based theater systems have been upgraded, at a cost to the exhibitor, to an IMAX digital system. Aspart of the arrangement to sell or lease its theater systems, the Company provides extensive advice on theater planning and design and supervision ofinstallation services. Theater systems are also leased or sold with a license for the use of the world-famous IMAX brand. IMAX theater systems consist of thefollowing configurations: • IMAX digital systems, which are digital-based theater systems, represents 87.5% of the IMAX theater network; • IMAX GT projection systems, which are film-based theater systems for the largest IMAX theaters; • IMAX SR systems, which are film-based theater systems for smaller theaters than the IMAX GT systems; and • theater systems featuring heavily curved and tilted screens that are used in dome-shaped theaters.The Company has installed one digital laser-based theater system and is expecting the roll-out of additional laser systems in 2015.The Company’s digital projection system provides a premium and differentiated experience to moviegoers that is consistent with what they have cometo expect from the IMAX brand, while providing for the compelling economics and flexibility that digital technology affords. The relatively low cost of adigital file delivery (approximately $100 per movie per system compared to $30 thousand per 2D print and $60 thousand per 3D print for an IMAX analogfilm print) ensures programming flexibility, which in turn allows theaters to program significantly more IMAX DMR films per year. More programmingincreases customer choice and potentially increases total box-office revenue significantly. In 2014, 40 films converted through the IMAX DMR process werereleased to the IMAX theater network as compared to 6 films in 2007. To date, the Company has contracted for the release of 26 DMR titles to its theaternetwork for 2015; however, the Company expects a similar number of films to be released to the network in 2015 as experienced in 2014. The Companyremains in active discussions with all the major studios regarding future titles for 2015 and beyond. Furthermore, the Company expects to announceadditional local language IMAX DMR films to be released to the IMAX theater network in 2015 and beyond. Supplementing the Company’s film slate ofHollywood DMR titles with appealing local DMR titles is an important component of the Company’s international film strategy.To complement its viewing experience, the Company provides digital sound system components which are specifically designed for IMAX theaters.These components are among the most advanced in the industry and help to heighten the realistic feeling of an IMAX presentation, thereby providing IMAXtheater systems with an important competitive edge over other theater systems. The Company believes it is a world leader in the design and manufacture ofdigital sound system components for applications including traditional movie theaters, auditoriums and IMAX theaters.The GT, SR and IMAX digital systems are “flat” screens that have a minimum of curvature and tilt and can exhibit both 2D and 3D films, while thescreen components in dome shaped theaters are 2D only and are popular with the Company’s institutional clients. All IMAX theaters, with the exception ofdome configurations, feature a steeply inclined floor to provide each audience member with a clear view of the screen. The Company holds patents on thegeometrical design of IMAX theaters.The Company’s arrangements for theater system equipment involve a sale, sales-type lease or joint revenue sharing arrangement. As part of thepurchase, lease or other acquisition of an IMAX theater system, the Company also advises the customer on theater design, supervises the installation of thetheater systems and provides projectionists with training in using the equipment. The supervision of installation requires that the equipment also be putthrough a complete functional start-up and test procedure to ensure 7Table of Contentsproper operation. Theater owners or operators are responsible for providing the theater location, the design and construction of the theater building, theinstallation of the system components and any other necessary improvements, as well as the theater’s marketing and programming. The Company’s typicalarrangement also includes trademark license rights whose term tracks the term of the underlying agreement. The theater system equipment components(including the projector, sound system, screen system, and, if applicable, 3D glasses cleaning machine), theater design support, supervision of installation,projectionist training and trademark rights are all elements of what the Company considers the system deliverable (the “System Deliverable”). For a separatefee, the Company provides ongoing maintenance and extended warranty services for the theater system. The Company’s contracts are generally denominatedin U.S. dollars, except in Canada, China, Japan and parts of Europe, where contracts are sometimes denominated in local currency.Sales-type leases generally have a 10-year initial term and are typically renewable by the customer for one or more additional 5 to 10-year terms. Underthe terms of the typical lease agreement, the title to the theater system equipment (including the projector, the sound system and the projection screen)remains with the Company. The Company has the right to remove the equipment for non-payment or other defaults by the customer. The contracts aregenerally not cancelable by the customer unless the Company fails to perform its obligations.Under a sales agreement, by contrast, the title to the theater system transfers to the customer. In certain instances, however, the Company retains title ora security interest in the equipment until the customer has made all payments required under the agreement.The typical sales-type lease or sales arrangement provides for three major sources of cash flows for the Company: (i) initial fees; (ii) ongoing minimumfixed and contingent fees; and (iii) ongoing maintenance and extended warranty fees. Initial fees generally are received over the period of time from the datethe arrangement is executed to the date the equipment is installed and customer acceptance has been received. However, in certain cases, the payments of theinitial fee may be scheduled over a period of time after the equipment is installed and customer acceptance has been received. Ongoing minimum fixed andcontingent fees and ongoing maintenance and extended warranty fees are generally received over the life of the arrangement and are usually adjustedannually based on changes in the local consumer price index. The ongoing minimum fixed and contingent fees generally provide for a fee which is thegreater of a fixed amount or a certain percentage of the theater box-office. The terms of each arrangement vary according to the configuration of the theatersystem provided, the cinema market and the film distribution market relevant to the geographic location of the customer.The Company also offers certain commercial clients IMAX theater systems under joint revenue sharing arrangements. The Company has two basictypes of joint revenue sharing arrangements: traditional and hybrid. Under a traditional joint revenue sharing arrangement, the Company provides the IMAXtheater system in return for a portion of the customer’s IMAX box-office receipts and, in some cases, concession revenues, rather than requiring the customerto pay a fixed upfront payment or annual minimum payments. Payments, which are based on box-office receipts, are required throughout the term of thearrangement and are due either monthly or quarterly. Certain maintenance and extended warranty services are provided to the customer for a separate fixedannual fee. The Company retains title to the theater system equipment components, and the equipment is returned to the Company at the conclusion of thearrangement.Under a hybrid joint revenue sharing arrangement, by contrast, the customer is responsible for making upfront payments prior to the delivery andinstallation of the IMAX theater system in an amount that is typically half of what the Company would receive from a straight sale transaction. As with atraditional joint revenue sharing arrangement, the customer also pays the Company a portion of the customer’s IMAX box-office receipts over the term of thearrangement, although the percentage of box-office receipts owing to the Company is typically half that of a traditional joint revenue sharing arrangement.The Company generally retains title to the theater system equipment components, and the equipment is returned to the Company at the conclusion of thearrangement. In limited instances, however, title to the theater system equipment components passes to the customer.Under the significant majority of joint revenue sharing arrangements (both traditional and hybrid), the initial non-cancellable term of IMAX theatersystems 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 toremove the equipment for non-payment or other defaults by the customer. The contracts are non-cancellable by the customer unless the Company fails toperform its obligations. In rare cases, the contract provides certain performance thresholds that, if not met by either party, allows the other party to terminatethe agreement. By offering arrangements in which exhibitors do not need to invest the significant initial capital required of a sales-type lease or a salearrangement, the Company has been able to expand its theater network at a significantly faster pace than it had previously. As at December 31, 2014, theCompany has entered into joint revenue sharing arrangements for 672 systems with 41 partners, 451 of which were in operation as at December 31, 2014. 8Table of ContentsIn 2012, Dalian Wanda Group Co., Ltd., the parent company of Wanda, acquired AMC Entertainment Holdings, Inc. (“AMC”). Prior to this transaction,AMC and Wanda were, respectively, the Company’s first and third largest customers. Under common ownership, Wanda and AMC together is the Company’slargest customer, representing approximately 14.5%, 13.9% and 12.2% of the Company’s total revenue in 2014, 2013 and 2012, respectively. In addition,Wanda and AMC together represented approximately 25.8% of the Company’s backlog as of December 31, 2014. See Risk Factors – “Under commonownership, Wanda and AMC together account for a significant and growing portion of the Company’s revenue and backlog. A deterioration in theCompany’s relationship with Wanda and/or AMC could materially, adversely affect the Company’s business, financial condition or results of operations.” inItem 1A.Sales Backlog. The Company’s sales backlog is as follows: December 31, 2014 December 31, 2013 Number ofSystems Dollar Value(in thousands) Number ofSystems Dollar Value(in thousands) Sales and sales-type lease arrangements 176 $223,482 144 $177,956 Joint revenue sharing arrangements 221 45,648 263 51,983 397(1)(2) $269,130 407(1)(3) $229,939 (1)Includes 71 laser theater system configurations (2013 – 62), including upgrades and one of which is now operational. The Company continues todevelop and roll out its laser projection system. See “Research and Development” in this Part I for additional information.(2)Includes 27 upgrades to a digital theater system, in an existing IMAX theater location (2 xenon and 25 laser, of which 4 are under joint revenue sharingarrangements).(3)Includes 23 upgrades to a digital theater system, in an existing IMAX theater location (3 xenon and 20 laser, of which 4 are under joint revenue sharingarrangements).The number of theater systems in the backlog reflects the minimum number of commitments from signed contracts. The Company believes that thecontractual obligations for theater system installations that are listed in sales backlog are valid and binding commitments. Signed contracts for theatersystems are listed as sales backlog prior to the time of revenue recognition. The value of sales backlog does not include revenue from theaters in which theCompany has an equity-interest, operating leases, letters of intent or long-term conditional theater commitments. The value of sales backlog represents thetotal value of all signed theater system agreements that are expected to be recognized as revenue in the future. Sales backlog includes initial fees along withthe estimated present value of contractual fixed minimum fees due over the term, however it excludes amounts allocated to maintenance and extendedwarranty revenues as well as fees in excess of contractual minimums that may be received in the future. The value of theaters under joint revenue sharingarrangements is excluded from the dollar value of sales backlog, although certain theater systems under joint revenue sharing arrangements provide forcontracted upfront payments and therefore carry a backlog value based on those payments, which is reflected in the table above. 9Table of ContentsThe following chart shows the number of the Company’s theater systems by configuration, opened theater network base and backlog as atDecember 31: 2014 2013 TheaterNetworkBase Backlog TheaterNetworkBase Backlog Flat Screen (2D) 14 — 22 — Dome Screen (2D) 56 — 58 — IMAX 3D Dome (3D) 2 — 2 — IMAX 3D GT (3D) 29 — 41 — IMAX 3D SR (3D) 16 — 18 — IMAX Digital: Xenon (3D) 817 326(1) 696 345(3) IMAX Digital: Laser (3D) — 71(2) — 62(4) Total 934 397 837 407 (1)Includes 2 upgrades from film-based theater systems to digital xenon theater systems in existing IMAX theater locations (1 commercial and 2institutional).(2)Backlog includes 25 upgrades to IMAX digital laser theater systems from IMAX digital xenon theater systems in existing IMAX theater locations (12commercial and 13 institutional), of which one is now operational.(3)Includes 3 upgrades from film-based theater systems to digital xenon theater systems in existing IMAX theater locations (all institutional).(4)Backlog includes 20 upgrades to IMAX digital laser theater systems from IMAX digital xenon theater systems in existing IMAX theater locations (12commercial and 8 institutional).The Company estimates that it will install a similar number of new theater systems (excluding digital upgrades) as the Company installed in 2014. TheCompany’s installation estimates includes scheduled systems from backlog, as well as the Company’s estimate of installations from arrangements that willsign and install in the same calendar year. The Company cautions, however, that theater system installations may slip from period to period over the course ofthe Company’s business, usually for reasons beyond its control.IMAX Digital: Xenon Theater Systems. In July 2008, the Company introduced a proprietary IMAX xenon-based digital projection system that itbelieves delivers higher quality imagery compared with other digital systems and that is consistent with the Company’s brand. As at December 31, 2014, theCompany had installed 817 xenon-based digital theater systems, including 138 upgrades, and has an additional 326 xenon-based digital theater systems inits backlog.IMAX Digital: Laser Theater Systems. One of the Company’s key initiatives has been the development of a next-generation laser-based digitalprojection system, which it began rolling out at the end of 2014. The Company believes the IMAX laser projectors present greater brightness and clarity,higher contrast, a wider color gamut and deeper blacks, and consume less power and last longer than existing digital technology, capable of illuminating thelargest screens in the IMAX theater network. As at December 31, 2014, the Company had 71 laser-based digital theater systems in its backlog and one ofwhich is now operational.IMAX Flat Screen and IMAX Dome Theater Systems. As at December 31, 2014, there were 72 IMAX flat screen and IMAX Dome theater systems in theIMAX network, as compared to 82 IMAX flat screen and IMAX Dome theater systems as at December 31, 2013. IMAX flat screen and IMAX Dome systemsprimarily have been installed in institutions such as museums and science centers. Flat screen IMAX theaters were introduced in 1970, while IMAX Dometheaters, which are designed for tilted dome screens, were introduced in 1973. There have been several significant proprietary and patented enhancements tothese systems since their introduction. With the introduction of the IMAX digital theater systems, there has been a decrease in the number of IMAX flat screentheater systems in the network.IMAX 3D GT and IMAX 3D SR Theater Systems. IMAX 3D theaters utilize a flat screen 3D system, which produces realistic 3D images on an IMAXscreen. As at December 31, 2014, there were 45 IMAX 3D GT and IMAX 3D SR theater systems in operation compared to 59 IMAX 3D GT and IMAX 3D SRtheater systems in operation as at December 31, 2013. The decrease in the number of 10Table of Contents3D GT and 3D SR theater systems is largely attributable to the conversion of existing 3D GT and 3D SR theater systems to IMAX digital theater systems.FilmsFilm Production and Digital Re-mastering (IMAX DMR)In 2002, the Company developed a proprietary technology to digitally re-master Hollywood films into IMAX digital cinema package format or 15/70-format film for exhibition in IMAX theaters at a modest cost that is incurred by the Company. This technology, known as IMAX DMR, digitally enhances theimage resolution of motion picture films for projection on IMAX screens while maintaining or enhancing the visual clarity and sound quality to levels forwhich The IMAX Experience is known. In a typical IMAX DMR film arrangement, the Company will receive a percentage, which generally ranges from 10-15%, of net box-office receipts of a film from the film studio in exchange for the conversion of the film to the IMAX DMR format and for access to IMAX’spremium distribution and marketing platform. The box-office performance of IMAX DMR releases has positioned IMAX theaters as a key premiumdistribution platform for Hollywood films, which is separate and distinct from their wider theatrical release.Factors other than the IMAX DMR format, and IMAX’s proprietary projection and sound technology, are increasingly differentiating IMAX contentfrom other film content. Filmmakers are choosing IMAX cameras to shoot selected scenes to increase the audience’s immersion in the film and are takingadvantage of the unique dimensions of the IMAX screen by shooting the film in a larger aspect ratio. Several recent films have featured select sequences shotwith IMAX cameras including Transformers: Age of Extinction: An IMAX 3D Experience, released in June 2014 and Interstellar: The IMAX Experience,released in November 2014, which featured over an hour of footage shot with IMAX film cameras. In addition, several recent movies, including Guardians ofthe Galaxy: An IMAX 3D Experience, released in August 2014 and I, Frankenstein: An IMAX 3D Experience, released in January 2014, have featuredfootage taking advantage of the larger projected IMAX aspect ratio. IMAX theaters therefore serve as an additional distribution platform for Hollywood films,just as home video and pay-per-view are ancillary distribution platforms. In some cases, the Company may also have certain distribution rights to the filmsproduced using its IMAX DMR technology.The IMAX DMR process involves the following: • in certain instances, scanning, at the highest possible resolution, each individual frame of the movie and converting it into a digital image; • optimizing the image using proprietary image enhancement tools; • enhancing the digital image using techniques such as sharpening, color correction, grain and noise removal and the elimination of unsteadinessand removal of unwanted artifacts; • recording the enhanced digital image onto IMAX 15/70-format film or IMAX digital cinema package (“DCP”) format; and • specially re-mastering the sound track to take full advantage of the unique sound system of IMAX theater systems.The first IMAX DMR film, Apollo 13: The IMAX Experience, produced in conjunction with Universal Pictures and Imagine Entertainment, wasreleased in September 2002 to 48 IMAX theaters. One of the more recent IMAX DMR films, The Hobbit: The Battle of the Five Armies: An IMAX 3DExperience, was released in December 2014 to 592 IMAX theaters. Since the release of Apollo 13: The IMAX Experience, to December 31, 2014, anadditional 196 IMAX DMR films have been released to the IMAX theater network.Recent advances in the IMAX DMR process allow the re-mastering process to meet aggressive film production schedules. The Company has decreasedthe length of time it takes to reformat a film with its IMAX DMR technology. Apollo 13: The IMAX Experience, released in September 2002, was re-masteredin 16 weeks, while certain current films can be re-mastered in less than one week. The IMAX DMR conversion of simultaneous, or “day-and-date” releases aredone in parallel with the movie’s filming and editing, which is necessary for the simultaneous release of an IMAX DMR film with the domestic release toconventional theaters.The original soundtrack of a film to be released to the IMAX network is re-mastered for the IMAX five or six-channel digital sound systems for theIMAX DMR release. Unlike the soundtracks played in conventional theaters, IMAX re-mastered soundtracks are uncompressed and full fidelity. IMAX soundsystems use proprietary loudspeaker systems and proprietary surround sound configurations that ensure every theater seat is in a good listening position. 11Table of ContentsThe Company believes that its international expansion is an important driver of future growth for the Company. In fact, during the year endedDecember 31, 2014, 60.9% of the Company’s gross box-office from IMAX DMR films was generated in international markets. The Company believes that thegrowth in international box-office has been bolstered by the Company’s strategy of supplementing the Company’s film slate of Hollywood DMR titles withappealing local IMAX DMR releases in select markets. In 2014, the Company released seven local language IMAX DMR films, including six in China andone in India, and in 2013, the Company released nine local language IMAX DMR films, including five in China and one in each of Japan, Russia, France,and India. The Company expects to announce additional local language IMAX DMR films to be released to the IMAX network in 2015 and beyond.In 2014, 40 films were converted through the IMAX DMR process and released to theaters in the IMAX network by film studios as compared to 38films in 2013. These films were: • Jack Ryan: Shadow Recruit: The IMAX Experience (Paramount Pictures, January 2014); • I, Frankenstein: An IMAX 3D Experience (Lionsgate, January 2014); • The Monkey King: The IMAX Experience (Global Star Productions, January 2014, China only); • Robocop: The IMAX Experience (Metro-Goldwyn-Mayer Studios, Inc., February 2014); • 300: Rise of an Empire: An IMAX 3D Experience (Warner Bros. Pictures, March 2014); • Need for Speed: An IMAX 3D Experience (Walt Disney Studios, March 2014, select international markets); • Divergent: The IMAX Experience (Summit Entertainment, March 2014); • Noah: The IMAX Experience (Paramount Pictures, March 2014); • Captain America: The Winter Soldier: An IMAX 3D Experience (Marvel Entertainment, April 2014); • Transcendence: The IMAX Experience (Warner Bros. Pictures, April 2014); • The Amazing Spider-Man 2: An IMAX 3D Experience (Sony Pictures, May 2014); • Godzilla: An IMAX 3D Experience (Warner Bros. Pictures, May 2014); • Coming Home: The IMAX Experience (Le Vision Pictures, May 2014, China Only); • Maleficent: An IMAX 3D Experience (Walt Disney Studios, May 2014); • Edge of Tomorrow: An IMAX 3D Experience (Warner Bros. Pictures, June 2014); • How to Train Your Dragon 2: An IMAX 3D Experience (DreamWorks Animation, June 2014, select international markets); • Transformers: Age of Extinction: An IMAX 3D Experience (Paramount Pictures, June 2014); • Hercules: An IMAX 3D Experience (Paramount Pictures, July 2014); • Lucy: The IMAX Experience (Universal Pictures, August 2014); • The White Haired Witch of Lunar Kingdom: An IMAX 3D Experience (Bona Film Group, August 2014, China only); • Guardians of the Galaxy: An IMAX 3D Experience (Walt Disney Studios, August 2014); • Teenage Mutant Ninja Turtles: An IMAX 3D Experience (Paramount Pictures, August 2014); • The Expendables 3: The IMAX Experience (Lionsgate, September 2014, China only); • Forrest Gump: The IMAX Experience (Paramount Pictures, September 2014); • The Maze Runner: The IMAX Experience (20th Century Fox, September 2014); • The Equalizer: The IMAX Experience (Sony Pictures, September 2014); • Breakup Buddies: The IMAX Experience (China Film Group, September 2014, China only); • Bang Bang: The IMAX Experience (Fox Star Studios, October 2014, India only); • Dracula Untold: The IMAX Experience (Universal Studios, October 2014); • John Wick: The IMAX Experience (Summit Entertainment, October 2014); • Fury: The IMAX Experience (Sony Pictures Entertainment, October 2014, select international markets); • Interstellar: The IMAX Experience (Paramount Pictures and Warner Bros. Pictures, November 2014); • Big Hero 6: An IMAX 3D Experience (Walt Disney Studios, November 2014, select international markets); • Penguins of Madagascar: An IMAX 3D Experience (20th Century Fox, November 2014, select international markets); • Exodus: Gods and Kings: An IMAX 3D Experience (20th Century Fox, December 2014, select international markets); • The Hobbit: The Battle of the Five Armies: An IMAX 3D Experience (Warner Bros. Pictures, December 2014); • Gone with the Bullets: An IMAX 3D Experience (Dongwang Yibudaowei Films Co., December 2014, China only);  • Seventh Son: An IMAX 3D Experience (Universal Studios, December 2014, China only); • The Crossing Part 1: An IMAX 3D Experience (LeVision, December 2014, China only); and 12Table of Contents • Night at the Museum: Secret of the Tomb: An IMAX 3D Experience (20th Century Fox, December 2014, select international markets).In addition, in 2014, the Company had a wide release of Island of Lemurs: Madagascar, an IMAX original production, in conjunction with WarnerBros. Pictures. Also in 2014, the Company broadly released Journey to the South Pacific, an IMAX original production, in conjunction with MacGillivrayFreeman Films, which previously had a limited release in 2013.To date, the Company has announced the following 26 DMR titles to be released in 2015 to the IMAX theater network: • Taken 3: The IMAX Experience (20th Century Fox, January 2015, select international markets); • American Sniper: The IMAX Experience (Warner Bros. Pictures, January 2015); • Game of Thrones: The IMAX Experience (Season 4, Episodes 9 and 10)(Warner Bros. Pictures, January 2015); • Kingsman: The Secret Service: The IMAX Experience (20th Century Fox, January 2015, international only); • Seventh Son: An IMAX 3D Experience (Universal Studios, January 2015, wide release); • Jupiter Ascending: An IMAX 3D Experience (Warner Bros. Pictures, February 2015); • Fifty Shades of Grey: The IMAX Experience (Universal Studios, February 2015, Domestic only); • Wolf Totem: The IMAX Experience (China Film Group, February 2015, China only); • Dragon Blade: An IMAX 3D Experience (Shanghai Film Group, February 2015, China only); • Focus: The IMAX Experience (Warner Bros. Pictures, February 2015); • Chappie: The IMAX Experience (Sony Pictures Entertainment, March 2015); • Cinderella: The IMAX Experience (Walt Disney Studios, March 2015); • The Divergent Series: Insurgent: An IMAX 3D Experience (Summit Entertainment, March 2015); • Furious 7: The IMAX Experience (Universal Studios, April 2015); • Dragon Ball Z: Revival of ‘F’: An IMAX 3D Experience (Toei Animation, April 2015, Japan only); • The Avengers: Age of Ultron: An IMAX 3D Experience (Walt Disney Studios, May 2015); • Tomorrowland: The IMAX Experience (Walt Disney Studios, May 2015); • Jurassic World: An IMAX 3D Experience (Universal Studios, June 2015); • Terminator Genisys: The IMAX Experience (Paramount Pictures, July 2015); • Mission: Impossible 5: The IMAX Experience (Paramount Pictures, July 2015); • Crouching Tiger, Hidden Dragon: The Green Legend: The IMAX Experience (China Film Group, August 2015); • Everest: An IMAX 3D Experience (Universal Studios, September 2015); • The Walk: The IMAX Experience (Sony Pictures Entertainment, October 2015); • Crimson Peak: The IMAX Experience (Universal Studios, October 2015); • The Hunger Games: Mockingjay Part 2: An IMAX 3D Experience (Lionsgate, November 2015); and • Star Wars: The Force Awakens: An IMAX 3D Experience (Walt Disney Studios, December 2015).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,and anticipates that a similar number of IMAX DMR films will be released to the IMAX theater network in 2015 to the films that were released to the IMAXtheater network in 2014 .The Company also expects to announce additional local language IMAX DMR films to be released to the IMAX theater network in 2015 and beyond.Supplementing the Company’s film slate of Hollywood DMR titles with appealing local DMR titles is an important component of the Company’sinternational film strategy.Film DistributionThe Company is also a distributor of large-format films, primarily for its institutional theater partners. The Company generally distributes films which itproduces or for which it has acquired distribution rights from independent producers. The Company receives either a percentage of the theater box-officereceipts or a fixed amount as a distribution fee.Films produced by the Company are typically financed through third parties, whereby the Company will generally receive a film production fee inexchange for producing the film and a distribution fee for distributing the film. The ownership rights to such films may be held by the film sponsors, the filminvestors and/or the Company. As at December 31, 2014, the Company’s film library consisted of 483 large-format films, which cover such subjects as space,wildlife, music, history and natural wonders. The Company currently has distribution rights with respect to 45 of such films. Large-format films that havebeen successfully distributed by the Company include: Island of Lemurs: Madagascar, which was released in April 2014 and has grossed over $9.5 millionas at the end of 13Table of Contents2014; Journey to the South Pacific, which had a limited release in November 2013 and a broader release in 2014 and has grossed $1.1 million as at the end of2014; To the Arctic 3D, which was released in April 2012 and has grossed over $23.1 million as at the end of 2014; Born to be Wild 3D, which was releasedby the Company and WB in April 2011 and has grossed over $38.3 million as at the end of 2014; Hubble 3D, which was released by the Company and WB inMarch 2010 and has grossed over $66.6 million as at the end of 2014; Under the Sea 3D, which was released by the Company and WB in February 2009 andhas grossed over $50.5 million as at the end of 2014; Deep Sea 3D, which was released by the Company and WB in March 2006 and has grossed more than$96.2 million as at the end of 2014; SPACE STATION, which was released in April 2002 and has grossed over $126.9 million as at the end of 2014 and T-REX: Back to the Cretaceous, which was released by the Company in 1998 and has grossed over $104.0 million as at the end of 2014. Large-format filmshave significantly longer exhibition periods than conventional commercial films and many of the films in the large-format library have remained popular formany decades, including the films To Fly! (1976), Grand Canyon — The Hidden Secrets (1984) and The Dream Is Alive (1985).Film Post-ProductionIMAX Post/DKP Inc. (formerly David Keighley Productions 70MM Inc.), a wholly-owned subsidiary of the Company, provides film post-productionand quality control services for large-format films (whether produced internally or externally), and digital post-production services.OtherTheater OperationsAs at December 31, 2014, the Company had three owned and operated theaters on leased premises as compared to four owned and operated theaters atthe end of 2013. In addition, the Company has a commercial arrangement with one theater resulting in the sharing of profits and losses. The Company alsoprovides management services to two theaters.CamerasThe Company rents its proprietary 2D and 3D large-format film and digital cameras to third party production companies. The Company also providesproduction technical support and post-production services for a fee. All IMAX 2D and 3D film cameras run 65mm negative film, exposing 15 perforations perframe and resulting in an image area nearly 10x larger than standard 35mm film. The Company’s film-based 3D camera, which is a patented, state-of-the-artdual and single filmstrip 3D camera, is among the most advanced motion picture cameras in the world and is the only 3D camera of its kind. The IMAX 3Dcamera simultaneously shoots left-eye and right-eye images and enables filmmakers to access a variety of locations, such as underwater or aboard aircraft. TheCompany has also developed a high speed 3D digital camera which utilizes a pair of the world’s largest digital sensors.Due to the increasing success major Hollywood filmmakers have had with IMAX cameras, the Company has identified the development andmanufacture of additional IMAX cameras as an important research and development initiative.The Company maintains cameras and other film equipment and also offers production advice and technical assistance to both documentary andHollywood filmmakers.MARKETING AND CUSTOMERSThe Company markets its theater systems through a direct sales force and marketing staff located in offices in Canada, the United States, Greater China,Europe and Asia. In addition, the Company has agreements with consultants, business brokers and real estate professionals to locate potential customers andtheater sites for the Company on a commission basis. During 2012, the Company re-invested in its brand with a consumer brand marketing campaign thatencompasses social media, in-theater marketing and Internet advertising. During 2013 and 2014, the Company restructured its Marketing team to improveefficiency, partner more closely with exhibitors and studios and improve direct-to-consumer communication efforts. The Company has developed asignificant and growing social media presence and makes heavy use of digital communications to reach a global audience, with a particular emphasis onChina.The commercial multiplex theater segment of the Company’s theater network is now its largest segment, comprising 809 IMAX theaters, or 86.6%, ofthe 934 IMAX theaters open as at December 31, 2014. The Company’s institutional customers include science and natural history museums, zoos, aquariaand other educational and cultural centers. Over the last several years the Company has not been able to digitally upgrade many of its institutional locationsdue to the size of the screen. The development of the IMAX digital laser-based system, which was recently demonstrated to members of the institutionalcommunity, and the completion of the Film Fund should assist in supporting this segment of the Company’s customer base. The Company also sells or leasesits theater 14Table of Contentssystems to theme parks, private home theaters, tourist destination sites, fairs and expositions (the Commercial Destination segment). At December 31, 2014,approximately 53.9% of all opened IMAX theaters were in locations outside of the United States and Canada.The following table outlines the breakdown of the theater network by type and geographic location as at December 31: 2014 Theater Network Base 2013 Theater Network Base CommercialMultiplex CommercialDestination Institutional Total CommercialMultiplex CommercialDestination Institutional Total United States 329 6 50 385 319 6 55 380 Canada 36 2 8 46 34 2 8 44 Greater China(1) 215 — 19 234 150 — 23 173 Asia (excluding Greater China) 68 3 6 77 61 3 7 71 Western Europe 56 7 10 73 49 7 11 67 Russia & the CIS 45 — — 45 40 — — 40 Latin America(2) 31 — 11 42 25 — 11 36 Rest of the World 29 1 2 32 23 1 2 26 Total(3) 809 19 106 934 701 19 117 837 (1)Greater China includes the People’s Republic of China, Hong Kong, Taiwan and Macau.(2)Latin America includes South America, Central America and Mexico.(3)Includes 451 and 382 theater systems in operation as at December 31, 2014 and 2013, respectively, under joint revenue sharing arrangements.For information on revenue breakdown by geographic area, see note 19 to the accompanying audited consolidated financial statements in Item 8. TheCompany’s foreign operations are subject to certain risks. See “Risk Factors – The Company conducts business internationally which exposes it touncertainties and risks that could negatively affect its operations and sales” and “Risk Factors – The Company faces risks in connection with the continuedexpansion of its business in China” in Item 1A. The Company’s two largest customers as at December 31, 2014, collectively represent 37.9% of theCompany’s network base of theaters, 25.8% of the Company’s theater system backlog and 18.3% of revenues.INDUSTRY AND COMPETITIONIn recent years, as the motion picture industry has transitioned from film projection to digital projection, a number of companies have introduceddigital 3D projection technology and, since 2008, an increasing number of Hollywood features have been exhibited using these technologies. According tothe National Association of Theater Owners, as at December 31, 2014, there were approximately 16,000 conventional-sized screens in North Americanmultiplexes equipped with such digital 3D systems. In 2008, the Company introduced its proprietary digitally-based projector which is capable of 2D and 3Dpresentations on large screens and which comprises the majority of its current theater system sales. Over the last several years, a number of commercialexhibitors have introduced their own large screen branded theaters, while certain projection manufacturers and entertainment technology companies havealso announced their own proprietary theater systems. The Company believes that all of these alternative film formats deliver images and experiences that areinferior to The IMAX Experience.The Company may also face competition in the future from companies in the entertainment industry with new technologies and/or substantially greatercapital resources to develop and support them. The Company also faces in-home competition from a number of alternative motion picture distributionchannels such as home video, pay-per-view, video-on-demand, DVD, Internet and syndicated and broadcast television. The Company further competes forthe public’s leisure time and disposable income with other forms of entertainment, including gaming, sporting events, concerts, live theater, social media andrestaurants.The Company believes that its competitive strengths include the value of the IMAX brand name, the premium IMAX consumer experience, the design,quality and historic reliability rate of IMAX theater systems, the return on investment of an IMAX theater, the number and quality of IMAX films that itdistributes, the relationships the Company maintains with prominent Hollywood filmmakers, a number of whom desire to film portions of their movies withIMAX cameras, the quality of the sound system components included with the IMAX theater, the availability of Hollywood event films to IMAX theatersthrough IMAX DMR 15Table of Contentstechnology, consumer loyalty and the level of the Company’s service and maintenance and extended warranty efforts. The Company believes that its next-generation laser-based projection system increases further the technological superiority of the consumer experience it delivers. The Company believes thatall of the best performing premium theaters in the world are IMAX theaters.THE IMAX BRANDThe world-famous IMAX brand stands for the highest-quality, most immersive motion picture entertainment. Consumer research conducted for theCompany in the U.S. by a third-party research firm shows that the IMAX brand is known for cutting-edge technology and an experience that immersesaudiences in the movie. The research also shows that the brand inspires strong consumer loyalty and that consumers place a premium on it, often willing totravel significantly farther and pay more for The IMAX Experience than for a conventional movie. The Company believes that its significant brand loyaltyamong consumers provides it with a strong, sustainable position in the exhibition industry. Recognition of the IMAX brand name cuts across geographic anddemographic boundaries. The Company believes that the strength of the IMAX brand has resulted in IMAX DMR films significantly outperforming otherformats on a per screen basis.The Company believes the strength of the IMAX brand is an asset that has helped to establish the IMAX theater network as a unique and desirablerelease window for Hollywood movies. In 2014 and 2013, the Company reinvested in its brand with consumer brand marketing that encompassed socialmedia, in-theater marketing and traditional and digital advertising. The Company also recruited a team of seasoned international marketing talent to improvethe global reach and relevance of its marketing activities.RESEARCH AND DEVELOPMENTThe Company believes that it is one of the world’s leading entertainment technology companies with significant proprietary expertise in digital andfilm-based projection and sound system component design, engineering and imaging technology, particularly in 3D. During 2012, 2013 and 2014, theCompany increased its level of research and development in order to develop its next-generation laser-based projection system. The laser-based projectionsystem provides greater brightness and clarity, higher contrast, a wider color gamut and deeper blacks, while consuming less power and lasting longer thanexisting digital technology, to ensure that the Company continues to provide the highest quality, premier movie going experience available to consumers.The Company intends for additional research and development to continue in 2015 to support the further development of the laser-based digital projectionsystem. In addition, the Company plans to continue research and development activity in the future in other areas considered important to the Company’scontinued commercial success, including further improving the reliability of its projectors, developing and manufacturing more IMAX cameras, enhancingthe Company’s 2D and 3D image quality, expanding the applicability of the Company’s digital technology, and using such technology to help expand theCompany’s home entertainment platform, developing IMAX theater systems’ capabilities in both home and live entertainment and further enhancing theIMAX theater and sound system design through the addition of more channels, improvements to the Company’s proprietary tuning system and masteringprocesses.The Company has also made significant investments in other areas of digital technologies, including the development of a proprietary technology todigitally enhance image resolution and quality of motion picture films, the creation of an IMAX digital projector and the licensing of prominent laserillumination technology. Accordingly, the Company holds a number of patents, patents pending and other intellectual property rights in these areas. Inaddition, the Company holds numerous digital patents and relationships with key manufacturers and suppliers in digital technology.In 2009, the Company developed its first 3D digital camera primarily for use in IMAX documentary productions. Portions of Born to Be Wild 3D andIsland of Lemurs: Madagascar were filmed with the IMAX 3D digital camera and the camera has subsequently been used to film footage for Transformers:Age of Extinction: An IMAX 3D Experience, released in June 2014 and over one hour of footage for Interstellar: The IMAX Experience, released inNovember 2014. Due to the increasing success major Hollywood filmmakers have had with IMAX cameras, the Company has identified the development andmanufacture of additional IMAX cameras as an important research and development initiative. To that end, the Company is also in early stages ofdevelopment of an IMAX 2D digital camera for use by Hollywood directors who are seeking IMAX differentiation for portions of their movies.The Company expects to deploy its proprietary expertise in image technology and 3D technology, as well as its proprietary film content and the IMAXbrand, for applications in in-home entertainment technology. In December 2013, the Company announced a joint venture with TCL to design, develop,manufacture and sell a premium home theater system. The premium home theater system is expected to incorporate 4K projection technology, as well ascomponents of IMAX’s projection and sound technology adapted for a broader home environment. The premium home theater system is also expected toincorporate technology that will enable the viewing of current theatrical releases that have been digitally re-mastered with IMAX enhancement technology.The Company is also 16Table of Contentsdeveloping other, related facets of a premium home entertainment platform designed to allow consumers to experience elements of The IMAX Experience® intheir homes.For the years ended December 31, 2014, 2013, and 2012, the Company recorded research and development expenses of $16.1 million, $14.8 millionand $11.4 million, respectively. As at December 31, 2014, 88 of the Company’s employees were connected with research and development projects.MANUFACTURING AND SERVICEProjector Component ManufacturingThe Company assembles the projector of its theater systems at its office in Mississauga, Ontario, Canada (near Toronto). The Company develops anddesigns all of the key elements of the proprietary technology involved in this component. Fabrication of a majority of parts and sub-assemblies issubcontracted to a group of carefully pre-qualified third-party suppliers. Manufacture and supply contracts are signed for the delivery of the component on anorder-by-order basis. The Company believes its significant suppliers will continue to supply quality products in quantities sufficient to satisfy its needs. TheCompany inspects all parts and sub-assemblies, completes the final assembly and then subjects the projector to comprehensive testing individually and as asystem prior to shipment. In 2014, these projectors, including the Company’s digital projection system, had reliability rates based on scheduled shows ofapproximately 99.9%.Sound System Component ManufacturingThe Company develops, designs and assembles the key elements of its theater sound system component. The standard IMAX theater sound systemcomponent comprises parts from a variety of sources, with approximately 50% of the materials of each sound system attributable to proprietary parts providedunder original equipment manufacturers agreements with outside vendors. These proprietary parts include custom loudspeaker enclosures and horns,specialized amplifiers, and signal processing and control equipment. The Company inspects all parts and sub-assemblies, completes the final assembly andthen subjects the sound system component to comprehensive testing individually and as a system prior to shipment.Screen and Other ComponentsThe Company purchases its screen component and glasses cleaning equipment from third parties. The standard screen system component is comprisedof a projection screen manufactured to IMAX specifications and a frame to hang the projection screen. The proprietary glasses cleaning machine is a stand-alone unit that is connected to the theater’s water and electrical supply to automate the cleaning of 3D glasses.Maintenance and Extended Warranty ServicesThe Company also provides ongoing maintenance and extended warranty services to IMAX theater systems. These arrangements are usually for aseparate fee, although the Company often includes free service in the initial year of an arrangement. The maintenance and extended warranty arrangementsinclude service, maintenance and replacement parts for theater systems.To support the IMAX theater network, the Company has personnel stationed in major markets throughout the world who provide periodic andemergency maintenance and extended warranty services on existing theater systems. The Company provides various levels of maintenance and warrantyservices, which are priced accordingly. Under full service programs, Company personnel typically visit each theater every six months to provide preventativemaintenance, cleaning and inspection services and emergency visits to resolve problems and issues with the theater system. Under some arrangements,customers can elect to participate in a service partnership program whereby the Company trains a customer’s technician to carry out certain aspects ofmaintenance. Under such shared maintenance arrangements, the Company participates in certain of the customer’s maintenance checks each year, provides aspecified number of emergency visits and provides spare parts, as necessary. For digital systems, the Company provides pre-emptive maintenance throughminor bug fixes, and also provides remote system monitoring and a network operations center that provides continuous access to product experts. 17Table of ContentsPATENTS AND TRADEMARKSThe Company’s inventions cover various aspects of its proprietary technology and many of these inventions are protected by Letters of Patent orapplications filed throughout the world, most significantly in the United States, Canada, Belgium, Japan, France, Germany and the United Kingdom. Thesubject matter covered by these patents, applications and other licenses encompasses theater design and geometry, electronic circuitry and mechanismsemployed in projectors and projection equipment (including 3D projection equipment), a method for synchronizing digital data, a method of generatingstereoscopic (3D) imaging data from a monoscopic (2D) source, a process for digitally re-mastering 35mm films into large-format, a method for increasing thedynamic range and contrast of projectors, a method for visibly seaming or superimposing images from multiple projectors and other inventions relating todigital projectors. In 2011, the Company entered into a deal in which it secured the exclusive license rights from Kodak to a portfolio of more than 50 patentfamilies covering laser projection technology as well as certain exclusive rights to a broad range of Kodak patents in the field of digital cinema. TheCompany has been and will continue to be diligent in the protection of its proprietary interests.As at December 31, 2014, the Company holds or licenses 105 patents, has 24 patents pending in the United States and has corresponding patents orfiled applications in many countries throughout the world. While the Company considers its patents to be important to the overall conduct of its business, itdoes not consider any particular patent essential to its operations. Certain of the Company’s patents in the United States, Canada and Japan for improvementsto the IMAX projection system components expire between 2016 and 2031.The Company owns or otherwise has rights to trademarks and trade names used in conjunction with the sale of its products, systems and services. Thefollowing trademarks are considered significant in terms of the current and contemplated operations of the Company: IMAX®, IMAX® Dome, IMAX® 3D,IMAX® 3D Dome, Experience It In IMAX®, The IMAX Experience®, An IMAX Experience®, An IMAX 3D Experience®, IMAX DMR®, DMR®, IMAXnXos®, IMAX think big®, think big® and IMAX Is Believing®. These trademarks are widely protected by registration or common law throughout the world.The Company also owns the service mark IMAX THEATRETM.EMPLOYEESThe Company had 600 employees as at December 31, 2014, compared to 541 employees as at December 31, 2013. Both employee counts excludehourly employees at the Company’s owned and operated theaters.AVAILABLE INFORMATIONThe 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 ExchangeCommission (the “SEC”). The public may read and copy any materials the Company files with the SEC at the SEC’s Public Reference Room at 100 F Street,NE, Washington, DC 20549, as well as obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Reportsmay 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 theCompany’s Investor Relations Department at 212-821-0100. 18Table of ContentsItem 1A.Risk FactorsIf any of the risks described below occurs, the Company’s business, operating results and financial condition could be materially adversely affected.The risks described below are not the only ones the Company faces. Additional risks not presently known to the Company or that it deems immaterial,may also impair its business or operations.The Company depends principally on commercial movie exhibitors to purchase or lease IMAX theater systems, to supply box-office revenue underjoint revenue sharing arrangements and under its sales and sales-type lease agreements and to supply venues in which to exhibit IMAX DMR films and theCompany can make no assurances that exhibitors will continue to do any of these things.The Company’s primary customers are commercial multiplex exhibitors, whose systems represent 94.5% of the 397 systems in the Company’s backlogas at December 31, 2014. The Company is unable to predict if, or when, they or other exhibitors will purchase or lease IMAX theater systems or enter intojoint revenue sharing arrangements with the Company, or whether any of the Company’s existing customers will continue to do any of the foregoing. Ifexhibitors choose to reduce their levels of expansion or decide not to purchase or lease IMAX theater systems or enter into joint revenue sharingarrangements with the Company, the Company’s revenues would not increase at an anticipated rate and motion picture studios may be less willing to converttheir films into the Company’s format for exhibition in commercial IMAX theaters. As a result, the Company’s future revenues and cash flows could beadversely affected.The success of the IMAX theater network is directly related to the availability and success of IMAX DMR films for which there can be no guarantee.An important factor affecting the growth and success of the IMAX theater network is the availability of films for IMAX theaters and the box-officeperformance of such films. The Company itself produces only a small number of such films and, as a result, the Company relies principally on films producedby third party filmmakers and studios, including both Hollywood and local language features converted into the Company’s large format using theCompany’s IMAX DMR technology. In 2014, 40 IMAX DMR films were released by studios to the worldwide IMAX theater network. There is no guaranteethat filmmakers and studios will continue to release films to the IMAX theater network, or that the films they produce will be commercially successful. Thesteady flow and successful box-office performance of IMAX DMR releases have become increasingly important to the Company’s financial performance asthe number of joint revenue sharing arrangements included in the overall IMAX network has grown considerably. The Company is directly impacted by box-office results for the films released to the IMAX network through its joint revenue sharing arrangements as well as through the percentage of the box-officereceipts the Company receives from the studios releasing IMAX DMR films, and the Company’s continued ability to secure films, find suitable partners forjoint revenue share arrangements and to sell IMAX theater systems also depends on the number and commercial success of films released to its network. Thecommercial success of films released to IMAX theaters depends on a number of factors outside of the Company’s control, including whether the film receivescritical acclaim, the timing of its release, the success of the marketing efforts of the studio releasing the film and consumer preferences. Moreover, films can besubject to delays in production or changes in release schedule, which can negatively impact the number, timing and quality of IMAX DMR and IMAXoriginal films released to the IMAX theater network.The introduction of new, competing products and technologies could harm the Company’s business.The out-of-home entertainment industry is very competitive, and the Company faces a number of competitive challenges. According to the NationalAssociation of Theater Owners, as at December 31, 2014, there were approximately 16,000 conventional-sized screens in North American multiplexesequipped with digital 3D systems. In addition, some commercial exhibitors, projection manufacturers and entertainment technology companies haveannounced or introduced their own branded, large-screen 3D auditoriums or other proprietary theater systems, and in many cases have marketed thoseauditoriums or theater systems as having the same quality or attributes as an IMAX theater. The Company also may face competition in the future fromcompanies in the entertainment industry with new technologies and/or substantially greater capital resources to develop and support them. If the Company isunable to continue to deliver a premium movie-going experience, or if other technologies surpass those of the Company, the Company may be unable tocontinue to produce theater systems which are premium to, or differentiated from, other theater systems. If the Company is unable to produce a differentiatedtheater experience, consumers may be unwilling to pay the price premiums associated with the cost of IMAX theater tickets and box-office performance ofIMAX films may decline. Declining box-office performance of IMAX films would materially and adversely harm the Company’s business and prospects. TheCompany also faces in-home competition from a number of alternative motion picture distribution channels such as home video, pay-per-view, 19Table of Contentsvideo-on-demand, DVD, Internet and syndicated and broadcast television. The Company further competes for the public’s leisure time and disposableincome with other forms of entertainment, including gaming, sporting events, concerts, live theater, social media and restaurants.Failure to respond adequately or in a timely fashion to changes and advancements in digital technology could negatively affect the Company’sbusiness.There have been a number of advancements in the digital cinema field in recent years. In order to keep pace with these changes and in order tocontinue to provide an experience which is premium to and differentiated from conventional cinema experiences, the Company has made, and expects tocontinue to make, significant investments in digital technology in the form of research and development and the acquisition of third party intellectualproperty and/or proprietary technology. Recently, the Company has made significant investments in laser technology as part of its effort to develop a next-generation laser-based digital projection system, which it began rolling out at the end of 2014. The process of developing new technologies is inherentlyuncertain and subject to certain factors that are outside of the Company’s control, including reliance on third party partners and suppliers, and the Companycan provide no assurance its investments will result in commercially viable advancements to the Company’s existing products or in commercially successfulnew products, or that any such advancements or products will be developed within the timeframe expected.The Company conducts business internationally, which exposes it to uncertainties and risks that could negatively affect its operations, sales andfuture growth prospects.A significant portion of the Company’s revenues are generated by customers located outside the United States and Canada. Approximately 60%, 53%and 48% of the Company’s revenues were derived outside of the United States and Canada in 2014, 2013 and 2012, respectively, with 2013 marking the firstyear in the Company’s history that revenues and gross box-office derived from outside the United States and Canada exceeded revenues and gross box-officefrom the United States and Canada. This trend has continued in 2014. As at December 31, 2014, approximately 85.6% of IMAX theater systems arrangementsin backlog are scheduled to be installed in international markets. Accordingly, the Company expects its international operations to account for anincreasingly significant portion of its revenues in the future. There are a number of risks associated with operating in international markets that couldnegatively affect the Company’s operations, sales and future growth prospects. These risks include: • new restrictions on access to markets, both for theater systems and films; • unusual or burdensome foreign laws or regulatory requirements or unexpected changes to those laws or requirements; • fluctuations in the value of foreign currency versus the U.S. dollar and potential currency devaluations; • new tariffs, trade protection measures, import or export licensing requirements, trade embargoes and other trade barriers; • imposition of foreign exchange controls in such foreign jurisdictions; • dependence on foreign distributors and their sales channels; • difficulties in staffing and managing foreign operations; • local business practices that can present challenges to compliance with applicable anti-corruption and bribery laws; • difficulties in establishing market-appropriate pricing; • adverse changes in monetary and/or tax policies; • poor recognition of intellectual property rights; • difficulties in enforcing contractual rights; • inflation; • requirements to provide performance bonds and letters of credit to international customers to secure system component deliveries; and 20Table of Contents • political, economic and social instability.As the Company continues to expand the number of its theaters under joint revenue sharing arrangements in international markets, the Company’srevenues from its international operations are becoming increasingly dependent on the box-office performance of its films. In addition, as the Company’sinternational network has expanded, the Company has signed deals with movie studios in other countries to convert their films to the Company’s largeformat and release them to IMAX theaters. The Company may be unable to select films which will be successful in international markets or may beunsuccessful in selecting the right mix of Hollywood and local DMR films for a particular country or region. Also, conflicts in international release schedulesmay make it difficult to release every IMAX film in certain markets. Finally, box-office reporting in certain countries may be less accurate and therefore lessreliable than in the United States and Canada.The Company faces risks in connection with the continued expansion of its business in China.At present, Greater China is the Company’s second-largest and fastest growing market. As at December 31, 2014, the Company had 234 theatersoperating in Greater China with an additional 217 theaters (includes 2 upgrades) in backlog that are scheduled to be installed in Greater China by 2021. TheCompany has made, and continues to make significant investments in its China business. In 2010, the Company formed IMAX China, a wholly-ownedsubsidiary of the Company established for the purposes of overseeing the Company’s business in the Greater China region, and which as of December 31,2014 had offices in Shanghai and Beijing and a total of 62 employees. The Company’s largest single international partnership is in China with Wanda.Wanda’s total commitment to the Company is for 210 theater systems, of which 195 theater systems are under the parties’ joint revenue sharing arrangement.Furthermore, the Company has a partnership with CJ CGV Holdings, Ltd., for a commitment of 95 theater systems, of which 75 theater systems will reside inChina. In addition, the Company has released an increasing number of Chinese IMAX DMR films to its growing network in Greater China in recent years,including six films in 2014. In October 2013, the Company announced its joint venture with TCL to design, develop and manufacture a premium hometheater system, and in April 2014, the Company, TCL and Wasu announced a joint venture for the distribution of content to the new home theater system,each of which is set to further expand the scope of the Company’s operations in China. As the Company continues to further its commitment to China, it isincreasingly exposed to risks in that region. These risks include changes in laws and regulations, currency fluctuations, increased competition and changes ineconomic conditions, including those related to consumer spending. Adverse developments in these areas could cause the Company to lose some or all of itsinvestment in China and could cause the Company to fail to achieve anticipated growth.Moreover, certain risks and uncertainties of doing business in China are solely within the control of the Chinese government, and Chinese lawregulates both the scope of the Company’s investment in China and the business conducted by it within China. For instance, the Chinese governmentregulates both the number and timing or terms of Hollywood films released to the China market. The Company cannot provide assurance that the Chinesegovernment will continue to permit the release of IMAX films in China or that the timing of IMAX releases will be favorable to the Company. There are alsouncertainties regarding the interpretation and application of laws and regulations and the enforceability of intellectual property and contract rights in China.If the Company were unable to navigate China’s regulatory environment, including with respect to its current customs inquiry, or if the Company wereunable to enforce its intellectual property or contract rights in China, the Company’s business could be adversely impacted. See note 13(g) “Contingenciesand Guarantees” to the accompanying audited consolidated financial statements in Item 8 for more information.In addition, on April 8, 2014, the Company announced the sale of a 20% stake in IMAX China to entities owned and controlled by FountainVestPartners and China Media Capital. The sale is comprised of two equal payment installments, the first of which was received on April 8, 2014, and the secondof which was received on February 10, 2015. The Company believes that the sale has provided IMAX China with financial, strategic and operating benefits;however, there can be no assurances that these benefits will continue to be realized. Moreover, under certain circumstances, the investors have rights toredeem their interest in IMAX China, including for Company shares, which could have a potentially dilutive impact on the Company’s commonshareholders.Under common ownership, Wanda and AMC together account for a significant and growing portion of the Company’s revenue and backlog. Adeterioration in the Company’s relationship with Wanda and/or AMC could materially, adversely affect the Company’s business, financial condition orresults of operation.In 2012, Dalian Wanda Group Co., Ltd. (“Dalian Wanda”), the parent company of Wanda, acquired AMC. Prior to the acquisition, AMC and Wandawere, respectively, the Company’s first and third largest customers. In December 2013, AMC completed an initial public offering of approximately 20% of itsoutstanding shares, with Dalian Wanda retaining the approximately 80% remaining. Under common ownership, Wanda and AMC together representapproximately 14.5%, 13.9% and 12.2% of the Company’s total revenue in 2014, 2013 and 2012, respectively. On December 18, 2013, Wanda exercised itsoption to expand its joint revenue sharing 21Table of Contentsarrangement with IMAX with 80 additional IMAX theater systems. With the latest expansion of the Company’s joint revenue sharing arrangement withWanda, Wanda and AMC together represented approximately 25.8% of the Company’s backlog as of December 31, 2014. The share of the Company’srevenue that is generated by Wanda and AMC is expected to continue to grow as the significant number of Wanda theater systems currently in backlog areopened. No assurance can be given that either Wanda and/or AMC will continue to purchase theater systems and/or enter into joint revenue sharingarrangements with the Company and if so, whether contractual terms will be affected. If the Company does business with either Wanda and/or AMC lessfrequently or on less favorable terms than currently, the Company’s business, financial condition or results of operations may be adversely affected.The Company is undertaking new lines of business and these new business initiatives may not be successful.The Company is undertaking new lines of business. These initiatives represent new areas of growth for the Company and could include the offering ofnew products and services that may not be accepted by the market. Some areas of potential growth for the Company are in the field of in-home entertainmenttechnology, which is an intensively competitive business and which is dependent on consumer demand, over which the Company has no control. If any newbusiness in which the Company invests or attempts to develop does not progress as planned, the Company may be adversely affected by investment expensesthat have not led to the anticipated results, by write-downs of its equity investments, by the distraction of management from its core business or by damage toits brand or reputation.In addition, these initiatives may involve the formation of joint ventures and business alliances. While the Company seeks to employ the optimalstructure for each such business alliance, the alliance may require a high level of cooperation with and reliance on the Company’s partners and there is apossibility that the Company may have disagreements with its relevant partner with respect to financing, technological management, product development,management strategies or otherwise. Any such disagreement may cause the joint venture or business alliance to be terminated.The Company may not be able to adequately protect its intellectual property, and competitors could misappropriate its technology or brand, whichcould weaken its competitive position.The Company depends on its proprietary knowledge regarding IMAX theater systems and digital and film technology. The Company relies principallyupon a combination of copyright, trademark, patent and trade secret laws, restrictions on disclosures and contractual provisions to protect its proprietary andintellectual property rights. These laws and procedures may not be adequate to prevent unauthorized parties from attempting to copy or otherwise obtain theCompany’s processes and technology or deter others from developing similar processes or technology, which could weaken the Company’s competitiveposition and require the Company to incur costs to secure enforcement of its intellectual property rights. The protection provided to the Company’sproprietary technology by the laws of foreign jurisdictions may not protect it as fully as the laws of Canada or the United States. The lack of protectionafforded to intellectual property rights in certain international jurisdictions may be increasingly problematic given the extent to which future growth of theCompany is anticipated to come from foreign jurisdictions. Finally, some of the underlying technologies of the Company’s products and system componentsare not covered by patents or patent applications.The Company owns or licenses patents issued and patent applications pending, including those covering its digital projector, digital conversiontechnology and laser illumination technology. The Company’s patents are filed in the United States, often with corresponding patents or filed applications inother jurisdictions, such as Canada, China, Belgium, Japan, France, Germany and the United Kingdom. The patent applications pending may not be issued orthe patents may not provide the Company with any competitive advantages. The patent applications may also be challenged by third parties. Several of theCompany’s issued patents in the United States, Canada and Japan for improvements to IMAX projectors, IMAX 3D Dome and sound system componentsexpire between 2016 and 2031. Any claims or litigation initiated by the Company to protect its proprietary technology could be time consuming, costly anddivert the attention of its technical and management resources.The IMAX brand stands for the highest quality, most immersive motion picture entertainment. Protecting the IMAX brand is a critical element inmaintaining the Company’s relationships with studios and its exhibitor clients. Though the Company relies on a combination of trademark and copyrightlaw as well as its contractual provisions to protect the IMAX brand, those protections may not be adequate to prevent erosion of the brand over time,particularly in foreign jurisdictions. Erosion of the brand could threaten the demand for the Company’s products and services and impair its ability to growfuture revenue streams. 22Table of ContentsThe Company’s implementation of a new enterprise resource planning (“ERP”) system may adversely affect the Company’s business and results ofoperations or the effectiveness of internal control over financial reporting.The Company began implementation of a new ERP system in the first quarter of 2013. The Company continues to implement the ERP system andexpand upon its functionality, with the next phase focused on implementation in additional business units and in its international operations. Whenimplementation is complete, the new ERP system is expected to deliver a new generation of work processes and information systems. However, ERPimplementations are complex and time-consuming projects that involve substantial expenditures on system software and implementation activities that takeseveral years. ERP implementations also require transformation of business and financial processes in order to reap the benefits of the ERP system. If theCompany does not effectively implement the ERP system as planned or if the system does not operate as intended, it could adversely affect the Company’soperations, financial reporting systems, the Company’s ability to produce financial reports, and/or the effectiveness of internal control over financialreporting. The Company continues to review the implementation effort as well as the impact on its internal controls over financial reporting and, whereappropriate, is making changes to these controls over financial reporting to address these system changes.General political, social and economic conditions can affect the Company’s business by reducing both revenue generated from existing IMAXtheater systems and the demand for new IMAX theater systems.The Company’s success depends in part on general political, social and economic conditions and the willingness of consumers to purchase tickets toIMAX movies. If going to the movies becomes less popular, the Company’s business could be adversely affected. In addition, our operations could beadversely affected if consumers’ discretionary income falls as a result of an economic downturn. In recent years, the majority of the Company’s revenue hasbeen directly derived from the box-office revenues of its films. Accordingly, any decline in attendance at commercial IMAX theaters could materially andadversely affect several sources of key revenue streams for the Company.The Company also depends on the sale and lease of IMAX theater systems to commercial movie exhibitors to generate revenue. Commercial movieexhibitors generate revenues from consumer attendance at their theaters, which depends on the willingness of consumers to visit movie theaters and spenddiscretionary income at movie theaters. In the event of declining box-office and concession revenues, commercial exhibitors may be less willing to investcapital in new IMAX theaters.The Company may experience adverse effects due to exchange rate fluctuations.A substantial portion of the Company’s revenues are denominated in U.S. dollars, while a substantial portion of its expenses are denominated inCanadian dollars. The Company also generates revenues in Chinese Yuan Renminbi, Euros and Japanese Yen. While the Company periodically enters intoforward contracts to hedge its exposure to exchange rate fluctuations between the U.S. and the Canadian dollar, the Company may not be successful inreducing its exposure to these fluctuations. The use of derivative contracts is intended to mitigate or reduce transactional level volatility in the results offoreign operations, but does not completely eliminate volatility. Even in jurisdictions in which the Company does not accept local currency, significant localcurrency issues may impact the profitability of the Company’s arrangements for the Company’s customers, which ultimately affect the Company’s ability tonegotiate cost-effective arrangements and, therefore, the Company’s results of operations.The Company’s revenues from existing customers are derived in part from financial reporting provided by its customers, which may be inaccurate orincomplete, resulting in lost or delayed revenues.The Company’s revenue under its joint revenue sharing arrangements, a portion of the Company’s payments under lease or sales arrangements and itsfilm license fees are based upon financial reporting provided by its customers. If such reporting is inaccurate, incomplete or withheld, the Company’s abilityto receive the appropriate payments in a timely fashion that are due to it may be impaired. The Company’s contractual ability to audit IMAX theaters may notrectify payments lost or delayed as a result of customers not fulfilling their contractual obligations with respect to financial reporting.There is collection risk associated with payments to be received over the terms of the Company’s theater system agreements.The Company is dependent in part on the viability of its exhibitors for collections under long-term leases, sales financing agreements and jointrevenue sharing arrangements. Exhibitors or other operators may experience financial difficulties that could cause them to be unable to fulfill theircontractual payment obligations to the Company. As a result, the Company’s future revenues and cash flows could be adversely affected. 23Table of ContentsThe Company may not convert all of its backlog into revenue and cash flows.At December 31, 2014, the Company’s sales backlog included 397 theater systems, consisting of 176 systems under sales arrangements and 221 theatersystems under joint revenue sharing arrangements. The Company lists signed contracts for theater systems for which revenue has not been recognized as salesbacklog prior to the time of revenue recognition. The total value of the sales backlog represents all signed theater system sale or lease agreements that areexpected to be recognized as revenue in the future and includes initial fees along with the present value of fixed minimum ongoing fees due over the term,but excludes contingent fees in excess of fixed minimum ongoing fees that might be received in the future and maintenance and extended warranty fees.Notwithstanding the legal obligation to do so, not all of the Company’s customers with which it has signed contracts may accept delivery of theater systemsthat are included in the Company’s backlog. This could adversely affect the Company’s future revenues and cash flows. In addition, customers with theatersystem obligations in backlog sometimes request that the Company agree to modify or reduce such obligations, which the Company has agreed to in the pastunder certain circumstances. Customer requested delays in the installation of theater systems in backlog remain a recurring and unpredictable part of theCompany’s business.The Company’s operating results and cash flow can vary substantially from period to period and could increase the volatility of its share price.The Company’s operating results and cash flow can fluctuate substantially from period to period. In particular, fluctuations in theater systeminstallations and gross box-office performance of IMAX DMR content can materially affect operating results. Factors that have affected the Company’soperating results and cash flow in the past, and are likely to affect its operating results and cash flow in the future, include, among other things: • the timing of signing and installation of new theater systems (particularly for installations in newly-built multiplexes, which can result in delaysthat are beyond the Company’s control); • the timing and commercial success of films distributed to the Company’s theater network; • the demand for, and acceptance of, its products and services; • the recognition of revenue of sales and sales-type leases; • the classification of leases as sales-type versus operating leases; • the volume of orders received and that can be filled in the quarter; • the level of its sales backlog; • the signing of film distribution agreements; • the financial performance of IMAX theaters operated by the Company’s customers and by the Company; • financial difficulties faced by customers, particularly customers in the commercial exhibition industry; • the magnitude and timing of spending in relation to the Company’s research and development efforts and related investments as well as newbusiness initiatives; and • the number and timing of joint revenue sharing arrangement installations, related capital expenditures and timing of related cash receipts.Most of the Company’s operating expenses are fixed in the short term. The Company may be unable to rapidly adjust its spending to compensate forany unexpected shortfall in sales, joint revenue sharing arrangements revenue or IMAX DMR revenue which would harm operating results for a particularperiod, although the results of any particular period are not necessarily indicative of its results for any period. 24Table of ContentsThe Company’s theater system revenue can vary significantly from its cash flows under theater system sales or lease agreements.The Company’s theater systems revenue can vary significantly from the associated cash flows. The Company often provides financing to customers fortheater systems on a long-term basis through long-term leases or notes receivables. The terms of leases or notes receivable are typically 10 years. TheCompany’s sale and lease-type agreements typically provide for three major sources of cash flow related to theater systems: • initial fees, which are paid in installments generally commencing upon the signing of the agreement until installation of the theater systems; • ongoing fees, which are paid monthly after all theater systems have been installed and are generally equal to the greater of a fixed minimumamount per annum and a percentage of box-office receipts; and • ongoing annual maintenance and extended warranty fees, which are generally payable commencing in the second year of theater operations.Initial fees generally make up the vast majority of cash received under theater system sales or lease agreements for a theater arrangement.For sales and sales-type leases, the revenue recorded is generally equal to the sum of initial fees and the present value of minimum ongoing fees dueunder the agreement. Cash received from initial fees in advance of meeting the revenue recognition criteria for the theater systems is recorded as deferredrevenue. Contingent fees are recognized as they are reported by the theaters after annual minimum fixed fees are exceeded.Leases that do not transfer substantially all of the benefits and risks of ownership to the customer are classified as operating leases. For these leases,initial fees and minimum fixed ongoing fees are recognized as revenue on a straight-line basis over the lease term. Contingent fees are recognized as they arereported by the theaters after annual minimum fixed fees are exceeded.As a result of the above, the revenue set forth in the Company’s financial statements does not necessarily correlate with the Company’s cash flow orcash position. Revenues include the present value of future contracted cash payments and there is no guarantee that the Company will receive such paymentsunder its lease and sale agreements if its customers default on their payment obligations.The Company faces risks in connection with political instability in Ukraine and Russia.As at December 31, 2014, the Company had 45 theaters operating and a backlog of 25 theaters in Russia and the CIS. The continuation or escalation ofthe current geopolitical instability in Russia and the CIS could negatively impact the Company’s operations, sales, and future growth prospects in thatregion.The Company’s stock price has historically been volatile and declines in market price, including as a result a market downturn, may negativelyaffect its ability to raise capital, issue debt, secure customer business and retain employees.The Company is listed on the New York Stock Exchange (“NYSE”) and its publicly traded shares have in the past experienced, and may continue toexperience, significant price and volume fluctuations. This market volatility could reduce the market price of its common stock, regardless of the Company’soperating performance. A decline in the capital markets generally, or an adjustment in the market price or trading volumes of the Company’s publicly tradedsecurities, may negatively affect its ability to raise capital, issue debt, secure customer business or retain employees. These factors, as well as generaleconomic and geopolitical conditions, may have a material adverse effect on the market price of the Company’s publicly traded securities.The credit agreement governing the Company’s senior secured credit facility contains significant restrictions that limit its operating and financialflexibility.The credit agreement governing the Company’s senior secured credit facility contains certain restrictive covenants that, among other things, limit itsability to: • incur additional indebtedness; 25Table of Contents • pay dividends and make distributions; • repurchase stock; • make certain investments; • transfer or sell assets; • create liens; • enter into transactions with affiliates; • issue or sell stock of subsidiaries; • create dividend or other payment restrictions affecting restricted subsidiaries; and • merge, consolidate, amalgamate or sell all or substantially all of its assets to another person.These restrictive covenants impose operating and financial restrictions on the Company that limit the Company’s ability to engage in acts that may bein the Company’s long-term best interests.The Company is subject to impairment losses on its film assets.The Company amortizes its film assets, including IMAX DMR costs capitalized using the individual film forecast method, whereby the costs of filmassets are amortized and participation costs are accrued for each film in the ratio of revenues earned in the current period to management’s estimate of totalrevenues ultimately expected to be received for that title. Management regularly reviews, and revises when necessary, its estimates of ultimate revenues on atitle-by-title basis, which may result in a change in the rate of amortization of the film assets and write-downs or impairments of film assets. Results ofoperations in future years include the amortization of the Company’s film assets and may be significantly affected by periodic adjustments in amortizationrates.The Company is subject to impairment losses on its inventories.The Company records write-downs for excess and obsolete inventory based upon current estimates of future events and conditions, including theanticipated installation dates for the current backlog of theater system contracts, technological developments, signings in negotiation and anticipated marketacceptance of the Company’s current and pending theater systems.The Company is dependent on a single supplier, the Eastman Kodak Company, for its analog film.Kodak is the Company’s sole supplier of analog film. Kodak has stated publicly that it intends to continue to own and operate its film productsbusiness, and to date, Kodak has continued to supply the Company with analog film. However, the Company can provide no assurance that Kodak either willcontinue to supply analog film under terms acceptable to the Company, or that it will continue to manufacture film at all. Furthermore, Fujifilm Corporation,which had been another significant supplier of analog film to the movie industry, announced in September 2012 that it would cease production for motionpictures beginning in March 2013. Although the Company released analog film print for only one film in 2014 and expects to release a very small number ofanalog film prints in 2015, as of December 31, 2014, the Company had 117 film-based theaters in its network, and the Company also uses analog film in itsfilm-based cameras. Without a sufficient supply of analog film, the Company may be unable to supply film prints to its film-based theater customers, and itmay be unable to utilize its film-based cameras for shooting IMAX films.If the Company’s goodwill or long lived assets become impaired the Company may be required to record a significant charge to earnings.Under United States Generally Accepted Accounting Principles (“U.S. GAAP”), the Company reviews its long lived assets for impairment when eventsor changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be qualitatively assessed at least annually and whenevents or changes in circumstances arise or can be quantitatively tested for impairment. Factors that may be considered a change in circumstances include(but are not limited to) a decline in stock price and market capitalization, declines in future cash flows, and slower growth rates in the Company’s industry.The Company may be 26Table of Contentsrequired to record a significant charge to earnings in its financial statements during the period in which any impairment of its goodwill or long lived assets isdetermined.Changes in accounting and changes in management’s estimates may affect the Company’s reported earnings and operating income.U.S. GAAP and accompanying accounting pronouncements, implementation guidelines and interpretations for many aspects of the Company’sbusiness, such as revenue recognition, film accounting, accounting for pensions and other postretirement benefits, accounting for income taxes, andtreatment of goodwill or long lived assets, are highly complex and involve many subjective judgments. Changes in these rules, their interpretation,management’s estimates, or changes in the Company’s products or business could significantly change its reported future earnings and operating income andcould add significant volatility to those measures, without a comparable underlying change in cash flow from operations. See “Critical Accounting Policies”in Item 7.The Company relies on its key personnel, and the loss of one or more of those personnel could harm its ability to carry out its business strategy.The Company’s operations and prospects depend in large part on the performance and continued service of its senior management team. The Companymay not find qualified replacements for any of these individuals if their services are no longer available. The loss of the services of one or more members ofthe Company’s senior management team could adversely affect its ability to effectively pursue its business strategy.The Company faces cyber-security and similar risks, which could result in the disclosure, theft or loss of confidential or other proprietaryinformation, including intellectual property; damage to the Company’s brand and reputation; legal exposure and financial losses.The nature of the Company’s business involves access to and storage of confidential and proprietary content and other information includingintellectual property, as well as information regarding the Company’s customers, employees, licensees and suppliers. Although the Company maintainsrobust procedures to safeguard such content and information, the Company’s information technology systems could be penetrated by internal or externalparties intent on extracting information, corrupting information, stealing intellectual property or trade secrets, or disrupting business processes. Informationsecurity risks have increased in recent years because of the proliferation of new technologies and the increased sophistication and activities of perpetrators ofcyber-attacks. It is possible that computer hackers could compromise the Company’s security measures or the security measures of parties with whom theCompany does business, and thereby obtain the confidential or proprietary information of the Company or its customers, employees, licensees and suppliers.Any such breach or unauthorized access could result in a disruption of the Company’s operations, the theft, unauthorized use or publication of theCompany’s intellectual property and other proprietary information, a reduction of the revenues the Company is able to generate from its operations, damageto the Company’s brand and reputation, a loss of confidence in the security of the Company’s business and products, and significant legal and financialexposure, each of which could potentially have an adverse effect on the Company’s business.Because the Company is incorporated in Canada, it may be difficult for plaintiffs to enforce against the Company liabilities based solely upon U.S.federal securities laws.The Company is incorporated under the federal laws of Canada, some of its directors and officers are residents of Canada and a substantial portion of itsassets and the assets of such directors and officers are located outside the United States. As a result, it may be difficult for U.S. plaintiffs to effect servicewithin the United States upon those directors or officers who are not residents of the United States, or to realize against them or the Company in the UnitedStates upon judgments of courts of the United States predicated upon the civil liability under the U.S. federal securities laws. In addition, it may be difficultfor plaintiffs to bring an original action outside of the United States against the Company to enforce liabilities based solely on U.S. federal securities laws. Item 1B.Unresolved Staff CommentsNone. 27Table of ContentsItem 2.PropertiesThe Company’s principal executive offices are located in Mississauga, Ontario, Canada, New York, New York, and Santa Monica, California. TheCompany’s principal facilities are as follows: Operation Own/Lease Expiration Mississauga, Ontario(1) Headquarters, Administrative, Assembly and Research and Development Own N/A Playa Vista, California(2) Sales, Marketing, Film Production and Post-Production Own N/A Santa Monica, California Sales, Marketing, Film Production and Post-Production Lease 2015 New York, New York Executive Lease 2019 Beijing, China Sales Lease 2015 Tokyo, Japan Sales, Marketing and Maintenance Lease 2015 Shanghai, China Sales, Marketing, Maintenance and Administrative Lease 2016 Moscow, Russia Sales Lease 2015 London, United Kingdom Sales Lease 2015 (1)This facility is subject to a charge in favor of Wells Fargo Bank in connection with a secured term and revolving credit facility (see note 11 to theaccompanying audited consolidated financial statements in Item 8).(2)The lease on the Company’s current facility in Santa Monica, California is scheduled to expire in 2015. In 2014, the Company purchased land andcommenced construction of a new Los Angeles-area facility in Playa Vista. The Company anticipates that construction of the new Playa Vista facilitywill be completed in 2015. A significant portion of the project is financed through a construction loan. 28Table of ContentsItem 3.Legal ProceedingsIn March 2005, the Company, together with Three-Dimensional Media Group, Ltd. (“3DMG”), filed a complaint in the U.S. District Court for theCentral District of California, Western Division, against In-Three, Inc. (“In-Three”) alleging patent infringement. On March 10, 2006, the Company and In-Three entered into a settlement agreement settling the dispute between the Company and In-Three. Despite the settlement reached between the Company andIn-Three, co-plaintiff 3DMG refused to dismiss its claims against In-Three. Accordingly, the Company and In-Three moved jointly for a motion to dismiss theCompany’s and In-Three’s claims. On August 24, 2010, the Court dismissed all of the claims pending between the Company and In-Three, thus dismissingthe Company from the litigation.On May 15, 2006, the Company initiated arbitration against 3DMG before the International Centre for Dispute Resolution in New York (the “ICDR”),alleging breaches of the license and consulting agreements between the Company and 3DMG. On June 15, 2006, 3DMG filed an answer denying anybreaches and asserting counterclaims that the Company breached the parties’ license agreement. On June 21, 2007, the ICDR unanimously denied 3DMG’sMotion for Summary Judgment filed on April 11, 2007 concerning the Company’s claims and 3DMG’s counterclaims. The proceeding was suspended onMay 4, 2009 due to failure of 3DMG to pay fees associated with the proceeding. The proceeding was further suspended on October 11, 2010 pendingresolution of reexamination proceedings currently pending involving one of 3DMG’s patents. The Company will continue to pursue its claims vigorouslyand believes that all allegations made by 3DMG are without merit. The Company further believes that the amount of loss, if any, suffered in connection withthe counterclaims would not have a material impact on the financial position or results of operations of the Company, although no assurance can be givenwith respect to the ultimate outcome of the arbitration.In January 2004, the Company and IMAX Theatre Services Ltd., a subsidiary of the Company, commenced an arbitration seeking damages before theInternational Court of Arbitration of the International Chamber of Commerce (the “ICC”) with respect to the breach by Electronic Media Limited (“EML”) ofits December 2000 agreement with the Company. In June 2004, the Company commenced a related arbitration before the ICC against EML’s affiliate, E-CityEntertainment (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 $11.3million, 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 berecognized in India. The Company has opposed that application on a number of grounds and seeks to have the ICC award recognized in India. On June 13,2013, the Bombay High Court ruled that it has jurisdiction over the proceeding but on November 19, 2013, the Supreme Court of India stayed proceedings inthe High Court pending Supreme Court review of the High Court’s ruling. On June 24, 2011, the Company commenced a proceeding in the Ontario SuperiorCourt of Justice for recognition of the ICC final award. On December 2, 2011, the Ontario Court issued an order recognizing the final award and requiring E-City to pay the Company $30,000 to cover the costs of the application. On December 22, 2014, E-City filed a notice of motion in Ontario to set aside or staythe 2011 order recognizing the arbitral award in Ontario. In January 2013, the Company filed an action in the New York Supreme Court seeking to collect theamount owed to the Company by certain entities and individuals affiliated with E-City, and on July 11, 2014, the Company moved to amend its petition inthe New York matter to have the Canadian judgment recognized as part of this proceeding. The Respondents in the New York action have answered andobjected to the Company’s petition, and they have moved to dismiss for improper service of process. On July 29, 2014, the Company commenced a separateproceeding to have the Canadian judgment recognized in New York. On November 26, 2014, E-City filed a motion in the Bombay High Court seeking toenjoin IMAX from continuing the New York legal proceedings. On February 2, 2015, the Bombay High Court denied E-City’s request for an ad interiminjunction.The Company and certain of its officers and directors were named as defendants in eight purported class action lawsuits filed between August 11, 2006and September 18, 2006, alleging violations of U.S. federal securities laws. These eight actions were filed in the U.S. District Court for the Southern District ofNew York (the “Court”) and were subsequently consolidated by the Court. The plaintiffs filed a consolidated amended class action complaint on October 2,2007, which added PricewaterhouseCoopers LLP, the Company’s auditors, as a defendant. The amended complaint, brought on behalf of shareholders whopurchased the Company’s common stock on the NASDAQ between February 27, 2003 and July 20, 2007 (the “U.S. Class”), alleged primarily that thedefendants engaged in securities fraud by disseminating materially false and misleading statements during the class period regarding the Company’s revenuerecognition of theater system installations, and failing to disclose material information concerning the Company’s revenue recognition practices. OnMarch 26, 2012, the parties executed and filed with the Court an amended formal stipulation of settlement and proposed form of notice to the class. OnJune 20, 2012 the Court issued an order granting final approval of the settlement. Under the terms of the settlement, members of the U.S. Class who did notopt out of the settlement released defendants from liability for all claims that were alleged in this action or could have been alleged in this action or any otherproceeding (including the action in Canada as described in (d) of this note (the “Canadian Action”) relating to the purchase of the Company’s securities onthe NASDAQ between February 27, 2003 and July 20, 2007 or the subject matter and facts relating to this 29Table of Contentsaction. As part of the settlement and in exchange for the release, defendants agreed to pay $12.0 million to a settlement fund which amount was funded by thecarriers of the Company’s directors and officers insurance policy and by PricewaterhouseCoopers LLP. The settlement was distributed to the U.S. Class onMay 5, 2014.A class action lawsuit was filed on September 20, 2006 in the Canadian Court against the Company and certain of its officers and directors, allegingviolations of Canadian securities laws. This lawsuit was brought on behalf of shareholders who acquired the Company’s securities between February 17, 2006and August 9, 2006. The lawsuit seeks $210.0 million in compensatory and punitive damages, as well as costs. For reasons released December 14, 2009, theCanadian Court granted leave to the plaintiffs to amend their statement of claim to plead certain claims pursuant to the Securities Act (Ontario) against theCompany and certain individuals (“the Defendants”) and granted certification of the action as a class proceeding. These are procedural decisions, and do notcontain any conclusions binding on a judge at trial as to the factual or legal merits of the claim. Leave to appeal those decisions was denied. In March 2013,the Defendants obtained an Order enforcing the settlement Order in the parallel class action in the United States in this Canadian class action lawsuit, withthe result that the class in this case was reduced in size by approximately 85%. A motion by the Plaintiffs for leave to appeal that Order was dismissed. TheCompany believes the allegations made against it in the statement of claim are meritless and will vigorously defend the matter, although no assurance can begiven with respect to the ultimate outcome of such proceedings. The Company’s directors’ and officers’ insurance policy provides for reimbursement of costsand expenses incurred in connection with this lawsuit as well as potential damages awarded, if any, subject to certain policy limits, exclusions anddeductibles.The Company has also been involved in litigation against Gary Tsui (“Tsui”) and related parties in both Canada and China based on Tsui’s theft anduse of the Company’s trade secrets. The Company filed a lawsuit against Tsui and other related individuals and entities in the Ontario Superior Court ofJustice on December 8, 2009, through which the Company sought injunctive relief to prohibit Tsui from disclosing or using the Company’s confidential andproprietary information and from competing with the Company. The Ontario Court awarded the injunctive relief sought by the Company on December 22,2009. On April 30, 2013, a warrant was issued for Tsui’s arrest based on his refusal to comply with the orders of the Ontario Court, including with respect tothe continued use of the Company’s trade secrets. The Ontario action was heard in June 2014 and judgment was rendered in the Company’s favor. The Courtawarded the Company $6.0 million in damages against all defendants for conversion and misuse of confidential information, $456,000 against all defendantsfor disgorgement of profits from the lost business opportunity, $50,000 from Tsui in punitive damages of prejudgment interest on the forgoing and $300,000in costs against all defendants. The Company also initiated suits against Tsui in Beijing No. 1 Intermediate People’s Court in Beijing, China on February 16,2013 and December 3, 2013, seeking relief similar to that sought in the Ontario action (the “Beijing Action”). In October, 2013, Jiangsu Sunway DigitalTechnology Co. Ltd (a company incorporated by Tsui), commenced an action against the Company in Zhenjiang Intermediate People’s Court, in Zhenjiang,China, alleging that the Company defamed and slandered the plaintiff through the commencement of the actions against Tsui in Canada and China referredto above, as well as several written communications to third parties (the “Zhenjiang Action”). In December 2014, the parties entered into a settlementagreement to settle, on terms which they agreed to maintain as confidential, all outstanding matters in connection with the Beijing Action and the ZhenjiangAction. The Company does not expect the settlement agreement to have a material impact on the financial position of the Company.In November 2013, a purported class action complaint was filed in the United States District Court for the Northern District of Illinois (the “Court”)against IMAX Chicago Theatre LLC (“IMAX Chicago Theatre”), a subsidiary of the Company. The plaintiff, Scott Redman, alleges that IMAX ChicagoTheatre provided certain credit card and debit card receipts to customers that were purportedly not in compliance with the applicable truncation requirementsof the Fair and Accurate Credit Transactions Act. The plaintiff seeks statutory damages individually and on behalf of a putative class. On February 20, 2014,IMAX Chicago Theatre filed a motion to dismiss the complaint, which the Court denied on January 23, 2015. IMAX Chicago Theatre believes that it hasmeritorious defenses and intends to defend the lawsuit vigorously. However, given the early stage of the proceedings, IMAX Chicago Theatre is unable topredict the outcome of this matter and is unable to assess the potential impact, if any, of the lawsuit at this time.In March 2013, IMAX (Shanghai) Multimedia Technology Co., Ltd., the Company’s wholly-owned subsidiary in China, received notice from theShanghai office of the General Administration of Customs that it had been selected for a customs audit. The Company is unable to assess the potentialimpact, if any, of the audit at this time.In addition to the matters described above, the Company is currently involved in other legal proceedings or governmental inquiries which, in theopinion of the Company’s management, will not materially affect the Company’s financial position or future operating results, although no assurance can begiven with respect to the ultimate outcome of any such proceedings. Item 4.Mine Safety DisclosuresNot applicable. 30Table of ContentsPART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity SecuritiesThe Company’s common shares are listed for trading under the trading symbol “IMAX” on the NYSE. Prior to the Company’s voluntary delisting onJanuary 19, 2015, the Company’s shares were also listed for trading on the Toronto Stock Exchange (“TSX”). Prior to February 11, 2011, the Company’scommon shares were listed for trading on the NASDAQ. The following table sets forth the range of high and low sales prices per share for the common shareson NYSE and the TSX. U.S. Dollars High Low NYSE Year ended December 31, 2014 Fourth quarter $31.38 $26.18 Third quarter $28.56 $24.29 Second quarter $28.51 $24.77 First quarter $29.28 $25.97 Year ended December 31, 2013 Fourth quarter $30.83 $25.84 Third quarter $30.24 $24.70 Second quarter $28.74 $23.80 First quarter $26.80 $22.67 Canadian Dollars High Low TSX Year ended December 31, 2014 Fourth quarter $36.12 $29.13 Third quarter $32.50 $26.17 Second quarter $31.17 $26.97 First quarter $31.61 $28.47 Year ended December 31, 2013 Fourth quarter $32.47 $26.77 Third quarter $31.05 $25.83 Second quarter $29.43 $24.99 First quarter $27.41 $22.31 As at January 31, 2015, the Company had approximately 283 registered holders of record of the Company’s common shares.Over the last four years, the Company has not paid, nor does the Company have any current plans to pay, cash dividends on its common shares. Thepayment of dividends by the Company is subject to certain restrictions under the terms of the Company’s indebtedness (see note 11 to the accompanyingaudited consolidated financial statements in Item 8 and “Liquidity and Capital Resources” in Item 7). The payment of any future dividends will bedetermined by the Board of Directors in light of conditions then existing, including the Company’s financial condition and requirements, future prospects,restrictions in financing agreements, business conditions and other factors deemed relevant by the Board of Directors. 31Table of ContentsEquity Compensation PlansThe following table sets forth information regarding the Company’s Equity Compensation Plan as at December 31, 2014: Plan Category Number of Securities to beIssued Upon Exercise ofOutstanding Options,Warrants and Rights(a) Weighted AverageExercise Price ofOutstanding Options,Warrants and Rights(b) Number of SecuritiesRemaining Available forFuture Issuance UnderEquity Compensation Plans(Excluding SecuritiesReflected in Column (a))(c) Equity compensation plans approved by securityholders 6,521,494 $24.50 2,651,612 Equity compensation plans not approved bysecurity holders nil nil nil Total 6,521,494 $24.50 2,651,612 Performance GraphThe following graph compares the total cumulative shareholder return for $100 invested (assumes that all dividends were reinvested) in common sharesof the Company against the cumulative total return of the NYSE Composite Index, the S&P/TSX Composite Index and the Bloomberg Hollywood ReporterIndex on December 31, 2009 to the end of the most recently completed fiscal year. 32Table of ContentsIssuer Purchases of Equity SecuritiesThe Company’s common stock repurchase program activity for the three months ended December 31, 2014 was as follows: Total number of sharespurchased Average price paid pershare Total number of sharespurchased as part ofpublicly announcedprogram (a) Maximum value ofshares that may yet bepurchased under theprogram October 1 through October 31, 2014 26,629 $26.00 26,629 $146,941,074 November 1 through November 30, 2014 — — — $146,941,074 December 1 through December 31, 2014 — — — $146,941,074 Total 26,629 $26.00 26,629 (a)On June 16, 2014, the Company’s Board of Directors approved a new $150.0 million share repurchase program for shares of the Company’s commonstock, which expires June 30, 2017. The repurchases may be made either in the open market or through private transactions, subject to marketconditions, applicable legal requirements and other relevant factors. The Company has no obligation to repurchase shares, and the share repurchaseprogram may be suspended or discontinued by the Company at any time.The total number of shares purchased during the three months ended December 31, 2014 does not include any shares received in the administration ofemployee share-based compensation plans.CERTAIN INCOME TAX CONSIDERATIONSUnited States Federal Income Tax ConsiderationsThe following discussion is a general summary of the material U.S. federal income tax consequences of the ownership and disposition of the commonshares by a holder of common shares that is an individual resident of the United States or a United States corporation (a “U.S. Holder”). This discussion doesnot discuss all aspects of U.S. federal income taxation that may be relevant to investors subject to special treatment under U.S. federal income tax law(including, for example, owners of 10.0% or more of the voting shares of the Company).Distributions on Common SharesIn general, distributions (without reduction for Canadian withholding taxes) paid by the Company with respect to the common shares will be taxed to aU.S. Holder as dividend income to the extent that such distributions do not exceed the current and accumulated earnings and profits of the Company (asdetermined for U.S. federal income tax purposes). Subject to certain limitations, under current law dividends paid to non-corporate U.S. Holders may beeligible for a reduced rate of taxation as long as the Company is considered to be a “qualified foreign corporation”. A qualified foreign corporation includes aforeign corporation that is eligible for the benefits of an income tax treaty with the United States. The amount of a distribution that exceeds the earnings andprofits of the Company will be treated first as a non-taxable return of capital to the extent of the U.S. Holder’s tax basis in the common shares and thereafter astaxable capital gain. Corporate holders generally will not be allowed a deduction for dividends received in respect of distributions on common shares.Subject to the limitations set forth in the U.S. Internal Revenue Code, as modified by the U.S.-Canada Income Tax Treaty, U.S. Holders may elect to claim aforeign tax credit against their U.S. federal income tax liability for Canadian income tax withheld from dividends. Alternatively, U.S. Holders may claim adeduction for such amounts of Canadian tax withheld.Disposition of Common SharesUpon the sale or other disposition of common shares, a U.S. Holder generally will recognize capital gain or loss equal to the difference between theamount realized on the sale and such holder’s tax basis in the common shares. Gain or loss upon the disposition of the common shares will be long-term if, atthe time of the disposition, the common shares have been held for more than one year. Long-term capital gains of non-corporate U.S. Holders may be eligiblefor a reduced rate of taxation. The deduction of capital losses is subject to limitations for U.S. federal income tax purposes. 33Table of ContentsCanadian Federal Income Tax ConsiderationsThis summary is applicable to a holder or prospective purchaser of common shares who, for the purposes of the Income Tax Act (Canada) and anyapplicable treaty and at all relevant times, is not (and is not deemed to be) resident in Canada, does not (and is not deemed to) use or hold the common sharesin, or in the course of, carrying on a business in Canada, and is not an insurer that carries on an insurance business in Canada and elsewhere.This summary is based on the current provisions of the Income Tax Act (Canada), the regulations thereunder, all specific proposals to amend such Actand regulations publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof and the Company’s understanding of theadministrative policies and assessing practices published in writing by the Canada Revenue Agency prior to the date hereof. This summary does nototherwise take into account any change in law or administrative policy or assessing practice, whether by judicial, governmental, legislative or administrativedecision or action, nor does it take into account other federal or provincial, territorial or foreign tax consequences, which may vary from the Canadian federalincome tax considerations described herein.This summary is of a general nature only and it is not intended to be, nor should it be construed to be, legal or tax advice to any holder of the commonshares and no representation with respect to Canadian federal income tax consequences to any holder of common shares is made herein. Accordingly,prospective purchasers and holders of the common shares should consult their own tax advisers with respect to their individual circumstances.Dividends on Common SharesCanadian withholding tax at a rate of 25.0% (subject to reduction under the provisions of any applicable tax treaty) will be payable on dividends (oramounts paid or credited on account or in lieu of payment of, or in satisfaction of, dividends) paid or credited to a holder of common shares. Under theCanada - U.S. Income Tax Convention (1980), as amended (the “Canada - U.S. Income Tax Treaty”) the withholding tax rate is generally reduced to 15.0%for a holder entitled to the benefits of the Canada - U.S. Income Tax Treaty who is the beneficial owner of the dividends (or 5.0% if the holder is a companythat owns at least 10.0% of the common shares).Capital Gains and LossesSubject to the provisions of any relevant tax treaty, capital gains realized by a holder on the disposition or deemed disposition of common shares heldas capital property will not be subject to Canadian tax unless the common shares are taxable Canadian property (as defined in the Income Tax Act (Canada)),in which case the capital gains will be subject to Canadian tax at rates which will approximate those payable by a Canadian resident. Common sharesgenerally will not be taxable Canadian property to a holder provided that, at the time of the disposition or deemed disposition, the common shares are listedon a designated stock exchange (which currently includes the NYSE) unless at any time within the 60 month period immediately preceding such time (a) anycombination of (i) such holder, (ii) persons with whom such holder did not deal at arm’s length or (iii) a partnership in which such holder or any such personsholds a membership interest either directly or indirectly through one or more partnerships, owned 25.0% or more of the issued shares of any class or series ofshares of the Company and (b) more than 50% of the fair market value of the common shares was derived directly or indirectly from one or any combinationof (i) real or immovable property situated in Canada, (ii) Canadian resource properties, (iii) timber resource properties, and (iv) options in respect of, orinterests in, or for civil law rights in, property described in any of paragraphs (i) to (iii), whether or not the property exists. In certain circumstances set out inthe Income Tax Act (Canada), the common shares may be deemed to be taxable Canadian property. Under the Canada-U.S. Income Tax Treaty, a holderentitled to the benefits of the Canada - U.S. Income Tax Treaty and to whom the common shares are taxable Canadian property will not be subject toCanadian tax on the disposition or deemed disposition of the common shares unless at the time of disposition or deemed disposition, the value of thecommon shares is derived principally from real property situated in Canada. 34Table of ContentsItem 6.Selected Financial DataThe selected financial data set forth below is derived from the consolidated financial information of the Company. The financial information has beenprepared in accordance with U.S. GAAP. All financial information referred to herein is expressed in U.S. dollars unless otherwise noted. Years Ended December 31, (In thousands of U.S. dollars, except per share amounts) 2014 2013 (12) 2012 2011 2010 Statements of Operations Data: Revenues Equipment and product sales $78,705 $78,663 $78,161 $85,016 $72,578 Services 142,607 139,464 135,071 105,262 121,026 Rentals 60,705 61,293 61,268 34,810 46,936 Finance income 8,524 8,142 7,523 6,162 4,789 Other(1) — 375 732 3,848 400 290,541 287,937 282,755 235,098 245,729 Costs and expenses applicable to revenuesEquipment and product sales(2)(3) 36,997 37,517 37,538 38,742 36,394 Services(2)(3) 62,228 68,844 70,570 66,972 60,287 Rentals(3) 17,928 16,973 21,402 14,301 11,111 Other — — — 1,018 32 117,153 123,334 129,510 121,033 107,824 Gross margin 173,388 164,603 153,245 114,065 137,905 Selling, general and administrative expenses(4) 93,260 84,854 81,560 73,157 78,757 Gain on curtailment of postretirement benefit plan(5) — (2,185) — — — Provision for arbitration award(6) — — — 2,055 — Research and development 16,096 14,771 11,411 7,829 6,249 Amortization of intangibles 1,724 1,618 706 465 513 Receivable provisions, net of recoveries 918 445 524 1,570 1,443 Asset impairments(7) 314 — — 20 — Impairment of investments(8) 3,206 — 150 — — Income from operations 57,870 65,100 58,894 28,969 50,943 Interest income 405 55 85 57 399 Interest expense (924) (1,345) (689) (1,827) (1,886) Income from operations before income taxes 57,351 63,810 58,290 27,199 49,456 (Provision for) recovery of income taxes(9) (14,466) (16,629) (15,079) (9,293) 52,574 Loss from equity-accounted investments, net of tax (1,071) (2,757) (1,362) (1,791) (493) Income from continuing operations 41,814 44,424 41,849 16,115 101,537 Income (loss) from discontinued operations, net of tax(10) 355 (309) (512) (855) (297) Net income$42,169 $44,115 $41,337 $15,260 $101,240 Less: net income attributable to non-controlling interests(11) (2,433) — — — — Net income attributable to common shareholders$39,736 $44,115 $41,337 $15,260 $101,240 Net income per share attributable to common shareholders - basic and diluted:Net income per share - basic:Net income per share from continuing operations$0.57 $0.66 $0.64 $0.25 $1.60 Net income (loss) per share from discontinued operations 0.01 — (0.01) (0.01) (0.01) $0.58 $0.66 $0.63 $0.24 $1.59 Net income per share - diluted:Net income per share from continuing operations$0.56 $0.64 $0.62 $0.23 $1.52 Net income (loss) per share from discontinued operations — — (0.01) (0.01) — $0.56 $0.64 $0.61 $0.22 $1.52 35Table of Contents (1)The Company enters into theater system arrangements with customers that typically contain customer payment obligations prior to the scheduledinstallation of the theater systems. Each year, during the period of time between signing and theater system installation, certain customers are unableto, or elect not to, proceed with the theater system installation for a number of reasons, including business considerations, or the inability to obtaincertain consents, approvals or financing. Once the determination is made that the customer will not proceed with installation, the customer and/or theCompany may terminate the arrangement by default or by entering into a consensual buyout. In these situations the parties are released from theirfuture obligations under the arrangement, and the initial payments that the customer previously made to the Company and recognized as revenue aretypically not refunded. In addition, the Company enters into agreements with customers to terminate their obligations for a theater systemconfiguration and enter into a new arrangement for a different configuration. Other revenues from settlement arrangements were $nil, $0.4 million, $0.7million, $3.8 million, and $0.4 million in 2014, 2013, 2012, 2011 and 2010, respectively.(2)In 2014, the Company recognized a charge of $0.4 million in costs and expenses applicable to revenues for the write-down of certain service parts andtheater system inventories. Included for the periods 2010 through 2014 are the following inventory write-downs: 2014 2013 2012 2011 2010 Equipment and product sales $209 $274 $795 $— $827 Services 150 170 103 — 172 $359 $444 $898 $— $999 (3)The Company recorded advertising, marketing, and commission costs for the periods 2010 through 2014 as listed below: 2014 2013 2012 2011 2010 Equipment and product sales $3,271 $2,522 $2,690 $2,394 $1,925 Services 7,701 4,552 4,773 5,648 2,793 Rentals 2,579 3,582 3,382 5,432 4,236 Advertising, marketing, and commission costs$13,551 $10,656 $10,845 $13,474 $8,954 (4)Includes share-based compensation expense of $15.1 million, $11.9 million, $13.1 million, $11.7 million and $26.0 million for 2014, 2013, 2012,2011 and 2010, respectively.(5)In 2013, the Company amended its Canadian postretirement plan to reduce future benefits provided under the plan. As a result of this amendment, theCompany recognized a pre-tax curtailment gain of $2.2 million. See note 21(d) of the accompanying audited consolidated financial statements inItem 8 for more information.(6)In 2011, the Company recorded a provision of $2.1 million regarding an award issued in connection with an arbitration proceeding brought against theCompany, relating to agreements entered into in 1994 and 1995 by its former Ridefilm subsidiary, whose business the Company discontinued througha sale to a third party in March 2001. The award was vacated as the parties entered into a confidential settlement agreement in which the parties agreedto dismiss any outstanding disputes among them.(7)In 2014, the Company recorded asset impairment charges of $0.3 million. Asset impairment charges related to the impairment of property, plant andequipment amounted to $nil, $nil, less than $0.1 million and less than $0.1 million in 2013, 2012, 2011 and 2010, respectively, after the Companyassessed the carrying value of certain assets.(8)In 2014, the Company recognized a $3.2 million other-than-temporary impairment of its investments as the value is not expected to recover based onthe length of time and extent to which the market value has been less than cost. See notes 20(b) and 20(e) of the accompanying audited consolidatedfinancial statements in Item 8 for more information. Charges resulting from the impairment of investments amounted to $nil, $0.2 million, $nil and $nilin 2013, 2012, 2011 and 2010, respectively. 36Table of Contents(9)The recovery for income taxes in the year ended December 31, 2010 includes a net non-cash income tax benefit of $55.5 million related to a decreasein the valuation allowance for the Company’s deferred tax assets and other tax adjustments. This release of the valuation allowance was recorded afterit was determined that realization of this deferred income tax benefit is now more likely than not based on current and anticipated future earningstrends.(10)In 2014, the Company discontinued the operations of its owned and operated Nyack IMAX theater. The net income (loss) from the operation of thetheater is reflected as a discontinued operation. See note 23 of the accompanying audited consolidated financial statements in Item 8 for moreinformation.(11)Beginning in 2014, the Company’s consolidated financial statements include the non-controlling interest in the net income of IMAX China resultingfrom the IMAX China Investment and the net proceeds are classified as redeemable non-controlling interest in temporary equity. In addition, theCompany recognized the impact of a non-controlling interest in its subsidiary created for the Film Fund activity. See note 22 of the accompanyingaudited consolidated financial statements in Item 8 for more information.(12)Certain of the prior year’s figures have been reclassified to conform to the current year’s presentation.BALANCE SHEET DATA (in thousands of U.S. dollars) As at December 31, 2014 2013 2012 2011 2010 Cash and cash equivalents $106,503 $29,546 $21,336 $18,138 $30,390 Total assets $621,533 $481,145 $421,872 $407,249 $349,948 Total indebtedness $4,710 $— $11,000 $55,083 $17,500 Total shareholders’ equity $382,775 $319,585 $253,079 $189,868 $155,878 QUARTERLY STATEMENTS OF OPERATIONS SUPPLEMENTARY DATA (UNAUDITED) (in thousands of U.S. dollars, except per share amounts) 2014 Q1 Q2 Q3 Q4 Revenues $48,197 $79,145 $60,742 $102,457 Costs and expenses applicable to revenues 21,789 31,351 25,300 38,713 Gross margin$26,408 $47,794 $35,442 $63,744 Income from continuing operations$224 $13,779 $5,297 $22,514 Income from discontinued operations, net of tax 355 — — — Net income$579 $13,779 $5,297 $22,514 Net income attributable to common shareholders$579 $13,307 $4,858 $20,992 Net income per share - basic$0.01 $0.19 $0.07 $0.30 Net income per share - diluted$0.01 $0.19 $0.07 $0.30 2013 Q1 Q2 Q3 Q4 Revenues $49,666 $81,713 $51,507 $105,051 Costs and expenses applicable to revenues 23,476 38,078 24,055 37,725 Gross margin$26,190 $43,635 $27,452 $67,326 Income from continuing operations$2,961 $11,855 $1,737 $27,871 Loss from discontinued operations, net of tax (100) (39) (128) (42) Net income$2,861 $11,816 $1,609 $27,829 Net income attributable to common shareholders$2,861 $11,816 $1,609 $27,829 Net income per share - basic$0.04 $0.18 $0.03 $0.41 Net income per share - diluted$0.04 $0.17 $0.03 $0.40 37Table of ContentsItem 7.Management’s Discussion and Analysis of Financial Condition and Results of OperationsGENERALIMAX Corporation, together with its wholly-owned subsidiaries (the “Company”), is one of the world’s leading entertainment technology companies,specializing in motion picture technologies and presentations. The Company refers to all theaters using the IMAX theater system as “IMAX theaters.” IMAXoffers a unique end-to-end cinematic solution combining proprietary software, theater architecture and equipment to create the highest-quality, mostimmersive motion picture experience for which the IMAX® brand has become known globally. Top filmmakers and studios utilize IMAX theaters to connectwith audiences in innovative ways, and, as such, IMAX’s network is among the most important and successful theatrical distribution platforms for majorevent films around the world. There were 934 IMAX theater systems (809 commercial multiplexes, 19 commercial destinations, 106 institutional) operatingin 62 countries as of December 31, 2014. This compares to 837 theater systems (701 commercial multiplexes, 19 commercial destinations, 117 institutional)operating in 57 countries as of December 31, 2013.IMAX theater systems combine: • IMAX DMR (Digital Re-Mastering) movie conversion technology, which results in higher image and sound fidelity than conventional cinemaexperiences; • advanced, high-resolution projectors with specialized equipment and automated theater control systems, which generate significantly morecontrast 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 aviewer’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 IMAXtheater; and • specialized theater acoustics, which result in a four-fold reduction in background noise.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, immersiveand exciting experience than in a traditional theater.As a result of the immersiveness and superior image and sound quality of The IMAX Experience, the Company’s exhibitor customers typically charge apremium for IMAX DMR films over films exhibited in their other auditoriums. The premium pricing, combined with the higher attendance levels associatedwith IMAX DMR films, generates incremental box-office for the Company’s exhibitor customers and for the movie studios releasing their films to the IMAXnetwork. The incremental box-office generated by IMAX DMR films has helped establish IMAX as a key premium distribution and marketing platform forHollywood blockbuster films. Driven by the advent of digital technology that reduced the IMAX DMR conversion time and with the strengthening of theCompany’s relationships with the major studios, the number of IMAX DMR films released to the theater network per year has increased to 40 films in 2014,up from 38 films in 2013 and 6 films in 2007. The Company expects to release a similar number of IMAX DMR films in 2015 as compared to 2014.As one of the world’s leaders in entertainment technology, the Company strives to remain at the forefront of advancements in cinema technology.Accordingly, one of the Company’s key short-term initiatives has been the development of a next-generation laser-based digital projection system, which itbegan rolling out at the end of 2014. In order to develop the laser-based digital projection system, the Company obtained exclusive rights to certain laserprojection technology and other technology with applicability in the digital cinema field from Eastman Kodak Company (“Kodak”) in 2011 and entered aco-development arrangement with Barco N.V. (“Barco”) to co-develop a laser-based digital projection system that incorporates Kodak technology in 2012.Furthermore, in the second quarter of 2014, the Company announced an agreement with Necsel IP, Inc. (“Necsel”) to be the exclusive worldwide provider ofspecified lasers for IMAX’s laser projection systems in exchange for preferred pricing and supply terms. The Company believes that these arrangements withKodak, Barco and Necsel enable IMAX laser projectors to present greater brightness and clarity, higher contrast, a wider color gamut and deeper blacks, andconsume less power and last longer than existing digital technology. The Company also believes that its laser projection solution is the first IMAX digitalprojection system capable of illuminating the largest screens in its network.The Company is also undertaking new lines of business, particularly in the area of home entertainment. In 2013, the Company announced new hometheater initiatives, including a joint venture with TCL Multimedia Technology Holding Limited (“TCL”) to design, develop, manufacture and sell a premiumhome theater. The Company and TCL expect to launch the new home theater system in China, the Middle East and other select global markets in 2015. InApril 2014, the Company, TCL and Wasu Digital TV media group (“WASU”) announced a joint-venture partnership whereby WASU will license anddistribute IMAX-enhanced Hollywood and Chinese current 38Table of Contentstheatrical and other content to the new home theater system. The Company is also developing other, related facets of a premium home entertainment platformdesigned to allow consumers to experience elements of The IMAX Experience® in their homes. The Company also recently began marketing and selling theIMAX Private Theatre, a cinema-grade, ultra-premium home theater system, and has signed agreements for 7 of such theaters to date.Important factors that the Company’s Chief Executive Officer (“CEO”) Richard L. Gelfond uses in assessing the Company’s business and prospectsinclude: • the signing, installation and financial performance of theater system arrangements (particularly its joint revenue sharing arrangements and newlaser-based projection system); • film performance and the securing of new film projects (particularly IMAX DMR films); • revenue and gross margins from the Company’s operating segments; • operating leverage; • earnings from operations as adjusted for unusual items that the Company views as non-recurring; • short- and long-term cash flow projections; • the continuing ability to invest in and improve the Company’s technology to enhance its differentiation of presentation versus other cinematicexperiences; • the overall execution, reliability and consumer acceptance of The IMAX Experience; and • the success of new business initiatives.The primary revenue sources for the Company can be categorized into two main groups: theater systems and films. On the theater systems side, theCompany derives revenues from theater exhibitors primarily through either a sale or sales-type lease arrangement or a joint revenue sharing arrangement.Theater exhibitors also pay for associated maintenance and extended warranty services. Film revenue is derived primarily from film studios for the provisionof film production and digital re-mastering services for exhibition on IMAX theater systems around the world. The Company derives other film revenues fromthe distribution of certain films and the provision of post-production services. The Company also derives a small portion of other revenues from the operationof its own theaters, the provision of aftermarket parts for its system components, and camera rentals.IMAX Theater Systems: IMAX Systems (Sales and Sales-type Leases), Joint Revenue Sharing Arrangements and Theater System MaintenanceOne of the Company’s principal businesses is the design, manufacture and delivery of premium theater systems (“IMAX theater systems”). The theatersystem equipment components (including the projection system, sound system, screen system and, if applicable, 3D glasses cleaning machine), theater designsupport, supervision of installation, projectionist training and the use of the IMAX brand are all elements of what the Company considers the systemdeliverable. The IMAX theater systems are based on proprietary and patented technology developed over the course of the Company’s 47-year history. TheCompany provides IMAX theater systems to customers through sales, long-term leases or under joint revenue sharing arrangements. The Company’scustomers who purchase, lease or otherwise acquire the IMAX theater systems through joint revenue sharing arrangements are theater exhibitors that operatecommercial theaters (particularly multiplexes), museums, science centers, or destination entertainment sites. The Company generally does not own IMAXtheaters, but licenses the use of its trademarks along with the sale, lease or contribution of the IMAX theater system.IMAX SystemsSales and Sales-Type Lease ArrangementsThe Company provides IMAX theater systems to customers on a sales or long-term lease basis, typically with an initial 10-year term. These agreementstypically require the payment of initial fees and ongoing fees (which can include a fixed minimum amount per annum and contingent fees in excess of theminimum payments), as well as maintenance and extended warranty fees. The initial fees vary depending on the system configuration and location of thetheater. Initial fees are paid to the Company in installments between the time of system signing and the time of system installation, which is when the total ofthese fees, in addition to the present value of future annual minimum payments, are recognized as revenue. Ongoing fees are paid over the term of thecontract, commencing after the theater system has been installed, and are equal to the greater of a fixed minimum amount per annum or a percentage of box-office receipts. Contingent payments in excess of fixed minimum ongoing payments are recognized as revenue when reported by theater operators, providedcollectibility is reasonably assured. Typically, ongoing fees are indexed to a local consumer price index. Finance income is derived over the term of afinanced sale or sales-type lease arrangement as the unearned income on that financed sale or sales-type lease is earned. 39Table of ContentsUnder the Company’s sales agreements, title to the theater system equipment components passes to the customer. In certain instances, however, theCompany retains title or a security interest in the equipment until the customer has made all payments required under the agreement. Under the terms of asales-type lease agreement, title to the theater system equipment components remains with the Company. The Company has the right to remove theequipment for non-payment or other defaults by the customer.The revenue earned from customers under the Company’s theater system sales or lease agreements varies from quarter to quarter and year to year basedon a number of factors, including the number and mix of theater system configurations sold or leased, the timing of installation of the theater systems, thenature of the arrangement and other factors specific to individual contracts.Joint Revenue Sharing ArrangementsThe Company also provides IMAX theater systems to customers under joint revenue sharing arrangements. The Company has two basic types of jointrevenue sharing arrangements: traditional and hybrid.Under a traditional joint revenue sharing arrangement, the Company provides the IMAX theater system in return for a portion of the customer’s IMAXbox-office receipts and, in some cases, concession revenues, rather than requiring the customer to pay a fixed upfront payment or annual minimum payments.Payments, which are based on box-office receipts, are required throughout the term of the arrangement and are due either monthly or quarterly. Certainmaintenance and extended warranty services are provided to the customer for a separate fixed annual fee. The Company retains title to the theater systemequipment components, and the equipment is returned to the Company at the conclusion of the arrangement.Under a hybrid joint revenue sharing arrangement, by contrast, the customer is responsible for making upfront payments prior to the delivery andinstallation of the IMAX theater system in an amount that is typically half of what the Company would receive from a straight sale transaction. As with atraditional joint revenue sharing arrangement, the customer also pays the Company a portion of the customer’s IMAX box-office receipts over the term of thearrangement, although the percentage of box-office receipts owing to the Company is typically half that of a traditional joint revenue sharing arrangement.The Company generally retains title to the theater system equipment components, and the equipment is returned to the Company at the conclusion of thearrangement. In limited instances, however, title to the theater system equipment components passes to the customer.Under the significant majority of joint revenue sharing arrangements (both traditional and hybrid), the initial non-cancellable term of IMAX theatersystems 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 toremove the equipment for non-payment or other defaults by the customer. The contracts are non-cancellable by the customer unless the Company fails toperform its obligations.The introduction of joint revenue sharing arrangements has been an important factor in the expansion of the Company’s commercial theater network,which has grown by approximately 363% since the beginning of 2008. Joint revenue sharing arrangements allow commercial theater exhibitors to installIMAX theater systems without the significant initial capital investment required in a sale or sales-type lease arrangement. Joint revenue sharing arrangementsdrive recurring cash flows and earnings for the Company, as customers under joint revenue sharing arrangements pay the Company a portion of their ongoingbox-office. The Company funds its joint revenue sharing arrangements through cash flows from operations and the Company’s credit facility. As atDecember 31, 2014, the Company had 451 theaters in operation under joint revenue sharing arrangements, a 18.1% increase as compared to the 382 jointrevenue sharing arrangements open as at December 31, 2013. The Company also had contracts in backlog for an additional 221 theaters under joint revenuesharing arrangements as at December 31, 2014.The revenue earned from customers under the Company’s joint revenue sharing arrangements can vary from quarter to quarter and year to year based ona number of factors including film performance, the mix of theater system configurations, the timing of installation of these theater systems, the nature of thearrangement, the location, size and management of the theater and other factors specific to individual arrangements.Theater System MaintenanceFor 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 eachpresentation is up to the highest IMAX quality standard. Annual maintenance fees are paid throughout the duration of the term of the theater agreements andare typically indexed to a local consumer price index. 40Table of ContentsOther Theater RevenuesThe Company derives a small portion of its revenues from other sources. As at December 31, 2014, the Company had three owned and operated IMAXtheaters (December 31, 2013 – four owned and operated theaters). On January 30, 2014, the Company discontinued the operations of its owned and operatedtheater in Nyack, New York. In addition, the Company has a commercial arrangement with one theater resulting in the sharing of profits and losses andprovides management services to two theaters. The Company also rents its proprietary 2D and 3D large-format film and digital cameras to third partyproduction companies. The Company maintains cameras and other film equipment and also offers production advice and technical assistance to bothdocumentary and Hollywood filmmakers. Additionally, the Company generates revenues from the sale of after-market parts and 3D glasses.Revenue from theater system arrangements is recognized at a different time from when cash is collected. See “Critical Accounting Policies” below forfurther discussion on the Company’s revenue recognition policies.IMAX Theater NetworkThe following table outlines the breakdown of the theater network by type and geographic location as at December 31: 2014 Theater Network Base 2013 Theater Network Base CommercialMultiplex CommercialDestination Institutional Total CommercialMultiplex CommercialDestination Institutional Total United States 329 6 50 385 319 6 55 380 Canada 36 2 8 46 34 2 8 44 Greater China(1) 215 — 19 234 150 — 23 173 Asia (excluding Greater China) 68 3 6 77 61 3 7 71 Western Europe 56 7 10 73 49 7 11 67 Russia & the CIS 45 — — 45 40 — — 40 Latin America(2) 31 — 11 42 25 — 11 36 Rest of the World 29 1 2 32 23 1 2 26 Total 809 19 106 934 701 19 117 837 (1)Greater China includes China, Hong Kong, Taiwan and Macau.(2)Latin America includes South America, Central America and Mexico.As of December 31, 2014, 46.1% of IMAX systems in operation were located in the United States and Canada compared to 50.7% as at the end of lastyear. To minimize the Company’s credit risk, the Company retains title to the underlying theater systems leased, performs initial and ongoing creditevaluations of its customers and makes ongoing provisions for its estimates of potentially uncollectible amounts.The Company currently believes that over time its commercial multiplex theater network could grow to approximately 1,700 IMAX theaters worldwidefrom 809 commercial multiplex IMAX theaters operating as of December 31, 2014. While the Company continues to grow in the United States and Canada, itbelieves that the majority of its future growth will come from international markets. As at December 31, 2014, 53.9% of IMAX theater systems in operationwere located within international markets (defined as all countries other than the United States and Canada), up from 49.3% as at December 31, 2013 with2013 marking the first year in the Company’s history that revenues and gross box-office derived from outside the United States and Canada exceededrevenues and gross box-office from the United States and Canada. This trend has continued in 2014. Risks associated with the Company’s internationalbusiness are described in Risk Factors – “The Company conducts business internationally, which exposes it to uncertainties and risks that could negativelyaffect its operations, sales and future growth prospects” in Item 1A of Part I.Greater China continues to be the Company’s second-largest and fastest-growing market. As at December 31, 2014, the Company had 234 theatersoperating in Greater China with an additional 217 theaters (including two upgrades) in backlog that are scheduled to be installed in Greater China by 2021.The Company’s backlog in Greater China represents 54.7% of the Company’s current backlog. The Company continues to invest in joint revenue sharingarrangements with select partners to ensure ongoing revenue in this key market. The Company’s largest single international partnership is in China withWanda Cinema Line Corporation (“Wanda”). 41Table of ContentsWanda’s total commitment to the Company is for 210 theater systems, of which 195 theater systems are under the parties’ joint revenue sharing arrangement.Furthermore, the Company has a partnership with CJ CGV Holdings, Ltd., for a commitment of 95 theater systems, of which 75 theater systems will reside inChina. The Company believes that the China market presents opportunities for additional growth with favorable market trends, including governmentinitiatives to foster cinema screen growth, to support the film industry and to increase the number of Hollywood films distributed in China, including a 2012agreement between the U.S. and the Chinese government to permit 14 additional IMAX or 3D format films to be distributed in China each year and to permitdistributors to receive higher distribution fees. The Company cautions, however, that its expansion in China faces a number of challenges. See Risk Factors –“The Company faces risks in connection with the continued expansion of its business in China” in Item 1A of Part I. In 2010, the Company formed IMAXChina Holding, Inc. (“IMAX China”) to facilitate the Company’s expansion in China. As of December 31, 2014, IMAX China had offices in Shanghai andBeijing and a total of 62 employees.On April 8, 2014, the Company announced the investment (the “IMAX China Investment”) in its Greater China business by CMC Capital Partners(“CMC”), an investment fund that is focused on media and entertainment, and FountainVest Partners (“FountainVest”), a China-focused private equity firm.The IMAX China Investment provides for the sale and issuance of 20% of the shares of IMAX China to entities owned and controlled by CMC andFountainVest, with the intent of further strengthening the Company’s competitive position in China.The sale price for the interest was $80.0 million, to be paid by the investors in two equal installments. The first installment was received on April 8,2014, and the second installment was received on February 10, 2015. IMAX China remains a consolidated subsidiary of the Company.The Company believes there have been a number of financial, strategic and operating benefits resulting from the IMAX China Investment. Inparticular, the Company believes that the investors’ knowledge of, and influence in, the Chinese media and entertainment industry has contributed to thecontinued expansion of IMAX’s theater network in China and the further strengthening of the Company’s government and industry relationships withinChina.The following table outlines the breakdown of the Commercial Multiplex theater network by arrangement type and geographic location as atDecember 31: 2014 2013 IMAX Commercial Multiplex Theater Network IMAX Commercial Multiplex Theater Network JRSA Sale / Sales-type lease Total JRSA Sale / Sales-type lease Total Domestic Total (United States & Canada) 252 113 365 237 116 353 International:Greater China 127 88 215 85 65 150 Asia (excluding Greater China) 36 32 68 30 31 61 Western Europe 31 25 56 29 20 49 Russia & the CIS — 45 45 — 40 40 Latin America — 31 31 — 25 25 Rest of the World 5 24 29 1 22 23 International Total 199 245 444 145 203 348 Worldwide Total 451 358 809 382 319 701 As at December 31, 2014, 252 (2013 — 237) of the 451 (2013 — 382) theaters under joint revenue sharing arrangements in operation, or 55.9%(2013 — 62.0%) were located in the United States and Canada, with the remaining 199 (2013 — 145) or 44.1% (2013 — 38.0%) of arrangements beinglocated in international markets. The Company continues to seek to expand its network of theaters under joint revenue sharing arrangements, particularly inselect international markets. 42Table of ContentsSales BacklogThe Company’s current sales backlog is as follows: December 31, 2014 December 31, 2013 Number ofSystems Dollar Value(in thousands) Number ofSystems Dollar Value(in thousands) Sales and sales-type lease arrangements 176 $223,482 144 $177,956 Joint revenue sharing arrangements 221 45,648 263 51,983 397(1)(2)$269,130 407(1)(3) $229,939 (1)Includes 71 laser theater system configurations (2013 – 62), including upgrades and one of which is now operational. The Company continues todevelop and roll out its laser projection system. See “Research and Development” in Item 1 of Part I for additional information.(2)Includes 27 upgrades to a digital theater system, in existing IMAX theater locations (2 xenon and 25 laser, of which 4 are under joint revenue sharingarrangements).(3)Includes 23 upgrades to a digital theater system, in existing IMAX theater locations (3 xenon and 20 laser, of which 4 are under joint revenue sharingarrangements).The number of theater systems in the backlog reflects the minimum number of commitments under signed contracts. The dollar value fluctuatesdepending on the number of new theater system arrangements signed from quarter to quarter, which adds to backlog, and the installation and acceptance oftheater systems and the settlement of contracts, both of which reduce backlog. Sales backlog typically represents the fixed contracted revenue under signedtheater system sale and lease agreements that the Company believes will be recognized as revenue upon installation and acceptance of the associated theater.Sales backlog includes initial fees along with the estimated present value of contractual ongoing fees due over the lease term; however, it excludes amountsallocated to maintenance and extended warranty revenues as well as fees in excess of contractual ongoing fees that may be received in the future. The valueof sales backlog does not include revenue from theaters in which the Company has an equity interest, operating leases, letters of intent or long-termconditional theater commitments. The value of theaters under joint revenue sharing arrangements is excluded from the dollar value of sales backlog,although certain theater systems under joint revenue sharing arrangements provide for contracted upfront payments and therefore carry a backlog value basedon those payments. The Company believes that the contractual obligations for theater system installations that are listed in sales backlog are valid andbinding 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 system installationfor a variety of reasons, including the inability to obtain certain consents, approvals or financing. Once the determination is made that the customer will notproceed with installation, the agreement with the customer is terminated or amended. If the agreement is terminated, once the Company and the customer arereleased 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 Companyare recognized as revenue. 43Table of ContentsThe following table outlines the breakdown of the total backlog by arrangement type and geographic location as at December 31: 2014 2013 JRSA Sale / Lease Total JRSA Sale / Lease Total Domestic Total (United States & Canada) 30 27 57 33 22 55 International:Greater China 164 53 217 200 39 239 Asia (excluding Greater China) 14 24 38 17 22 39 Western Europe 10 9 19 10 3 13 Russia & the CIS — 25 25 — 19 19 Latin America — 27 27 — 32 32 Rest of the World 3 11 14 3 7 10 International Total 191 149 340 230 122 352 Worldwide Total 221 176 397(1)(2) 263 144 407(1)(3) (1)Includes 71 laser theater system configurations (2013 – 62), including upgrades and one of which is now operational. The Company continues todevelop and roll out its laser projection system. See “Research and Development” in Part I for additional information.(2)Includes 27 upgrades to a digital theater system, in existing IMAX theater locations (2 xenon and 25 laser, of which 4 are under joint revenue sharingarrangements).(3)Includes 23 upgrades to a digital theater system, in existing IMAX theater locations (3 xenon and 20 laser, of which 4 are under joint revenue sharingarrangements).Approximately 85.6% of IMAX theater system arrangements in backlog as at December 31, 2014 are scheduled to be installed in international markets(2013 – 86.5%).The following reflects the Company’s signings and installations for the years ended December 31: Years Ended December 31, 2014 2013 Theater System Signings: Full new sales and sales-type lease arrangements 81(1) 56(1) New joint revenue sharing arrangements 23 190 Total new theaters 104 246 Upgrades of IMAX theater systems 14(2)(3) 31(2)(3) Total theater signings 118 277 Years Ended December 31, 2014 2013 Theater System Installations: Full new sales and sales-type lease arrangements 46 47(4) New joint revenue sharing arrangements 67 65 Total new theaters 113 112 Upgrades of IMAX theater systems 8(3) 21(4) Total theater installations 121 133 44Table of Contents (1)Includes three signings which replaced theaters under an existing arrangement in backlog (2013 – three signings) and one new xenon-based digitalsystem under a short-term operating lease arrangement.(2)Includes five signings for the installation of laser-based digital systems in existing theater locations (2013 – 15 signings).(3)Includes three signings and two installations of upgrades to xenon-based digital systems under short-term operating lease arrangements (2013 - 10signings, 8 installations).(4)Includes the following items: (i) one new xenon-based digital system under a short-term operating lease arrangement in an existing theater location;(ii) one theater system which has increased the Company’s institutional theater network; and (iii) one IMAX Private Theater (the first of its kind in theIMAX theater network).The Company estimates that it will install a similar number of new theater systems (excluding digital upgrades) in 2015 as the Company installed in2014. The Company’s installation estimates includes scheduled systems from backlog, as well as the Company’s estimate of installations from arrangementsthat will sign and install in the same calendar year. The Company cautions, however, that theater system installations may slip from period to period over thecourse of the Company’s business, usually for reasons beyond its control.Films: Digital Re-Mastering (IMAX DMR) and other film revenueDigital Re-Mastering (IMAX DMR)In 2002, the Company developed a proprietary technology to digitally re-master Hollywood films into IMAX digital cinema package format or 15/70-format film for exhibition in IMAX theaters at a modest cost that is incurred by the Company. This system, known as IMAX DMR, digitally enhances theimage resolution of motion picture films for projection on IMAX screens while maintaining or enhancing the visual clarity and sound quality to levels forwhich The IMAX Experience is known. This technology enabled the IMAX theater network to release Hollywood films simultaneously with their broaderdomestic release. The development of this technology was critical in helping the Company execute its strategy of expanding its commercial theater networkby establishing IMAX theaters as a key, premium distribution platform for Hollywood films. In a typical IMAX DMR film arrangement, the Companyreceives a percentage, which ranges between 10-15%, of net box-office receipts of any commercial films released in the IMAX network from the applicablefilm studio for the conversion of the film to the IMAX DMR format and for access to the Company’s premium distribution platform.IMAX films benefit from enhancements made by individual filmmakers exclusively for the IMAX release, and filmmakers and studios have soughtIMAX-specific enhancements in recent years to generate interest in and excitement for their films. Such enhancements include shooting selected scenes withIMAX cameras to increase the audience’s immersion in the film and taking advantage of the unique dimensions of the IMAX screen by shooting the film in alarger aspect ratio. Certain films also enjoy early release windows exclusively in IMAX. Several recent films have featured select sequences shot with IMAXcameras including Interstellar: The IMAX Experience, released in November 2014; Transformers Age of Extinction: An IMAX 3D Experience, released inJune 2014; Star Trek Into Darkness: An IMAX 3D Experience, released in May 2013; The Hunger Games: Catching Fire: The IMAX Experience, released inNovember 2013 and The Dark Knight Rises: The IMAX Experience, released in July 2012, which featured over an hour of footage shot with IMAX cameras.In addition, several recent movies, including Guardians of the Galaxy: An IMAX 3D Experience, released in August 2014; Transformers; Age of Extinction:An IMAX 3D Experience, released in June 2014; I, Frankenstein: An IMAX 3D Experience, released in January 2014; Oblivion: The IMAX Experience,released in 2013 and Skyfall: The IMAX Experience, released in 2012 have featured footage taking advantage of the larger projected IMAX aspect ratio.The original soundtrack of a film to be released to the IMAX network is re-mastered for the IMAX five or six-channel digital sound systems inconnection with the IMAX DMR release. Unlike the soundtracks played in conventional theaters, IMAX re-mastered soundtracks are uncompressed and fullfidelity. IMAX sound systems use proprietary loudspeaker systems and proprietary surround sound configurations that ensure every theater seat is in a goodlistening position.The Company believes that the growth in international box-office is an important driver of future growth for the Company. During 2014, 60.9% of theCompany’s gross box-office from IMAX DMR films was generated in international markets, as compared to 54.0% in 2013. To support growth ininternational markets, the Company has sought to bolster its international film strategy, supplementing the Company’s film slate of Hollywood DMR titleswith appealing local IMAX DMR releases in select markets. During 2014, the Company released seven local language IMAX DMR films, including six inChina and one in India. In 2013, nine local language IMAX DMR films were released, including five in China and one in each of Japan, Russia, France, andIndia. The Company expects to announce additional local language IMAX DMR films to be released to the IMAX network in 2015 and beyond. 45Table of ContentsTo date, the Company has announced the following 26 DMR titles to be released in 2015 to the IMAX theater network: • Taken 3: The IMAX Experience (20th Century Fox, January 2015, select international markets); • American Sniper: The IMAX Experience (Warner Bros. Pictures, January 2015); • Game of Thrones: The IMAX Experience (Season 4, Episodes 9 and 10)(Warner Bros. Pictures, January 2015); • Kingsman: The Secret Service: The IMAX Experience (20th Century Fox, January 2015, international only); • Seventh Son: An IMAX 3D Experience (Universal Studios, January 2015, wide release); • Jupiter Ascending: An IMAX 3D Experience (Warner Bros. Pictures, February 2015); • Fifty Shades of Grey: The IMAX Experience (Universal Studios, February 2015, Domestic only); • Wolf Totem: The IMAX Experience (China Film Group, February 2015, China only); • Dragon Blade: An IMAX 3D Experience (Shanghai Film Group, February 2015, China only); • Focus: The IMAX Experience (Warner Bros. Pictures, February 2015); • Chappie: The IMAX Experience (Sony Pictures Entertainment, March 2015); • Cinderella: The IMAX Experience (Walt Disney Studios, March 2015); • The Divergent Series: Insurgent: An IMAX 3D Experience (Summit Entertainment, March 2015); • Furious 7: The IMAX Experience (Universal Studios, April 2015); • Dragon Ball Z: Revival of ‘F’: An IMAX 3D Experience (Toei Animation, April 2015, Japan only); • The Avengers: Age of Ultron: An IMAX 3D Experience (Walt Disney Studios, May 2015); • Tomorrowland: The IMAX Experience (Walt Disney Studios, May 2015); • Jurassic World: An IMAX 3D Experience (Universal Studios, June 2015); • Terminator Genisys: The IMAX Experience (Paramount Pictures, July 2015); • Mission: Impossible 5: The IMAX Experience (Paramount Pictures, July 2015); • Crouching Tiger, Hidden Dragon: The Green Legend: The IMAX Experience (China Film Group, August 2015); • Everest: An IMAX 3D Experience (Universal Studios, September 2015); • The Walk: The IMAX Experience (Sony Pictures Entertainment, October 2015); • Crimson Peak: The IMAX Experience (Universal Studios, October 2015); • The Hunger Games: Mockingjay Part 2: An IMAX 3D Experience (Lionsgate, November 2015); and • Star Wars: The Force Awakens: An IMAX 3D Experience (Walt Disney Studios, December 2015).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,and anticipates that a similar number of IMAX DMR films will be released to the IMAX network in 2015 to the films that were released to the IMAX networkin 2014 .Other Film Revenues: Film Distribution and Post-ProductionThe Company is also a distributor of large-format films, primarily for its institutional theater partners. The Company generally distributes films which itproduces or for which it has acquired distribution rights from independent producers. The Company receives either a percentage of the theater box-officereceipts or a fixed amount as a distribution fee.In 2014, the Company announced the creation of the Film Fund to co-finance a portfolio of 10 original large format films. The Film Fund, which isintended to be capitalized with up to $50.0 million, will finance an ongoing supply of original films that the Company believes will be more exciting andcompelling than traditional documentaries. The initial investment in the Film Fund was committed to by a third party in the amount of $25.0 million, withthe possibility of contributing additional funds. The Company, which will contribute $9.0 million to the Film Fund over five years, anticipates the Film Fundwill be self-perpetuating, with a portion of box office proceeds reinvested into the Film Fund to generate a continuous, steady flow of high-qualitydocumentary content. In 2014, the Film Fund invested $7.5 million toward the development original films.The Company anticipates that the Film Fund will finance a number of Company-produced films going forward. Previously, films produced by theCompany were typically financed through third parties, whereby the Company generally received a film production fee and a distribution fee in exchange forproducing and distributing the film. The ownership rights to such films were held by the film sponsors, the film investors and/or the Company. The Companyutilizes third-party funding for the majority of original films it produces and distributes. In 2014, the Company, in conjunction with WB, the Companyreleased an IMAX original production, Island of Lemurs: Madagascar. In 2012, the Company, along with WB and MacGillivray Freeman Films, Inc.(“MFF”), released an original title, To the Artic 3D. In 2011, the Company, along with WB, released Born to be Wild 3D. In January 2013, the Companyannounced an agreement with MFF to jointly finance, market and distribute up to four films (with an option for four additional films) produced 46Table of Contentsby MFF to be released exclusively to IMAX theaters. The agreement will ensure IMAX’s institutional theater partners access to a steady flow of the highest-quality, large-format documentaries over the years to come. One of the four films produced under the MFF agreement, Journey to the South Pacific had alimited release in November 2013 and a wide release in early 2014.IMAX Post/DKP Inc. (formerly David Keighley Productions 70MM Inc.), a wholly-owned subsidiary of the Company, provides film post-productionand quality control services for large-format films (whether produced internally or externally), and digital post-production services.CRITICAL ACCOUNTING POLICIES AND ESTIMATESThe Company prepares its 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 that affect the reported amounts ofassets, liabilities, revenues and expenses. On an ongoing basis, management evaluates its estimates, including those related to selling prices associated withthe individual elements in multiple element arrangements; residual values of leased theater systems; economic lives of leased assets; allowances for potentialuncollectibility of accounts receivable, financing receivables and net investment in leases; write-downs for inventory obsolescence; ultimate revenues forfilm assets; impairment provisions for film assets, long-lived assets and goodwill; depreciable lives of property, plant and equipment; useful lives ofintangible assets; pension plan and post retirement assumptions; accruals for contingencies including tax contingencies; valuation allowances for deferredincome tax assets; and, estimates of the fair value and expected exercise dates of stock-based payment awards. Management bases its estimates on historicalexperience, future expectations and other assumptions that are believed to be reasonable at the date of the consolidated financial statements. Actual resultsmay differ from these estimates due to uncertainty involved in measuring, at a specific point in time, events which are continuous in nature, and differencesmay be material. The Company’s significant accounting policies are discussed in note 2 to its audited consolidated financial statements in Item 8 of theCompany’s 2014 Form 10-K.The Company considers the following significant estimates, assumptions and judgments to have the most significant effect on its results:Revenue RecognitionThe Company generates revenue from various sources as follows: • design, manufacture, sale and lease of proprietary theater systems for IMAX theaters principally owned and operated by commercial andinstitutional customers located in 62 countries as at December 31, 2014; • production, digital re-mastering, post-production and/or distribution of certain films shown throughout the IMAX theater network; • operation of certain IMAX theaters primarily in the United States; • provision of other services to the IMAX theater network, including ongoing maintenance and extended warranty services for IMAX theatersystems; and • other activities, which includes short-term rental of cameras and aftermarket sales of projector system components.Multiple Element ArrangementsThe Company’s revenue arrangements with certain customers may involve multiple elements consisting of a theater system (projector, sound system,screen system and, if applicable, 3D glasses cleaning machine); services associated with the theater system including theater design support, supervision ofinstallation, and projectionist training; a license to use of the IMAX brand; 3D glasses; maintenance and extended warranty services; and licensing of films.The Company evaluates all elements in an arrangement to determine what are considered typical deliverables for accounting purposes and which of thedeliverables represent separate units of accounting based on the applicable accounting guidance in the Leases Topic of the Financial Accounting StandardsBoard (“FASB”) Accounting Standards Codification (“ASC” or “Codification”); the Guarantees Topic of the FASB ASC; the Entertainment – Films Topic ofthe FASB ASC; and the Revenue Recognition Topic of the FASB ASC. If separate units of accounting are either required 47Table of Contentsunder the relevant accounting standards or determined to be applicable under the Revenue Recognition Topic, the total consideration received or receivablein the arrangement is allocated based on the applicable guidance in the above noted standards.Theater SystemsThe Company has identified the projection system, sound system, screen system and, if applicable, 3D glasses cleaning machine, theater designsupport, supervision of installation, projectionist training and the use of the IMAX brand to be a single deliverable and a single unit of accounting (“theSystem Deliverable”). When an arrangement does not include all the elements of a System Deliverable, the elements of the System Deliverable included inthe arrangement are considered by the Company to be a single deliverable and a single unit of accounting. The Company is not responsible for the physicalinstallation of the equipment in the customer’s facility; however, the Company supervises the installation by the customer. The customer has the right to usethe IMAX brand from the date the Company and the customer enter into an arrangement.The Company’s System Deliverable arrangements involve either a lease or a sale of the theater system. Consideration in the Company’s arrangementsthat are not joint revenue sharing arrangements, consists of upfront or initial payments made before and after the final installation of the theater systemequipment and ongoing payments throughout the term of the lease or over a period of time, as specified in the arrangement. The ongoing payments are thegreater of an annual fixed minimum amount or a certain percentage of the theater box-office. Amounts received in excess of the annual fixed minimumamounts are considered contingent payments. The Company’s arrangements are non-cancellable, unless the Company fails to perform its obligations. In theabsence of a material default by the Company, there is no right to any remedy for the customer under the Company’s arrangements. If a material default by theCompany exists, the customer has the right to terminate the arrangement and seek a refund only if the customer provides notice to the Company of a materialdefault and only if the Company does not cure the default within a specified period.For arrangements entered into or materially modified after January 1, 2011, consideration is allocated to each unit of accounting based on the unit’srelative selling prices. The Company uses vendor-specific objective evidence of selling price (VSOE) when the Company sells the deliverable separately andis the price actually charged by the Company for that deliverable. VSOE is established for the Company’s System Deliverable, maintenance and extendedwarranty services and film license arrangements. The Company uses a best estimate of selling price (BESP) for units of accounting that do not have VSOE orthird party evidence of selling price. The Company determines BESP for a deliverable by considering multiple factors including the Company’s historicalpricing practices, product class, market competition and geography.Sales ArrangementsFor arrangements qualifying as sales, the revenue allocated to the System Deliverable is recognized in accordance with the Revenue RecognitionTopic of the FASB ASC, when all of the following conditions have been met: (i) the projector, sound system and screen system have been installed and are infull working condition, (ii) the 3D glasses cleaning machine, if applicable, has been delivered, (iii) projectionist training has been completed, and (iv) theearlier of (a) receipt of written customer acceptance certifying the completion of installation and run-in testing of the equipment and the completion ofprojectionist training or (b) public opening of the theater, provided there is persuasive evidence of an arrangement, the price is fixed or determinable andcollectibility is reasonably assured.The initial revenue recognized consists of the initial payments received and the present value of any future initial payments and fixed minimumongoing payments that have been attributed to this unit of accounting. Contingent payments in excess of the fixed minimum ongoing payments arerecognized when reported by theater operators, provided collectibility is reasonably assured.The Company has also agreed, on occasion, to sell equipment under lease or at the end of a lease term. Consideration agreed to for these lease buyoutsis included in revenues from equipment and product sales, when persuasive evidence of an arrangement exists, the fees are fixed or determinable,collectibility is reasonably assured and title to the theater system passes from the Company to the customer.Lease ArrangementsThe Company uses the Leases Topic of the FASB ASC to evaluate whether an arrangement is a lease and the classification of the lease. Arrangementsnot within the scope of the accounting standard are accounted for either as a sales or services arrangement, as applicable. 48Table of ContentsFor lease arrangements, the Company determines the classification of the lease in accordance with the Leases Topic of the FASB ASC. A leasearrangement that transfers substantially all of the benefits and risks incident to ownership of the equipment is classified as a sales-type lease based on thecriteria established in the accounting standard; otherwise the lease is classified as an operating lease. Prior to commencement of the lease term for theequipment, the Company may modify certain payment terms or make concessions. If these circumstances occur, the Company reassesses the classification ofthe lease based on the modified terms and conditions.For sales-type leases, the revenue allocated to the System Deliverable is recognized when the lease term commences, which the Company deems to bewhen all of the following conditions have been met: (i) the projector, sound system and screen system have been installed and are in full working condition,(ii) the 3D glasses cleaning machine, if applicable, has been delivered, (iii) projectionist training has been completed, and (iv) the earlier of (a) receipt of thewritten customer acceptance certifying the completion of installation and run-in testing of the equipment and the completion of projectionist training or(b) public opening of the theater, provided collectibility is reasonably assured.The initial revenue recognized for sales-type leases consists of the initial payments received and the present value of future initial payments and fixedminimum ongoing payments computed at the interest rate implicit in the lease. Contingent payments in excess of the fixed minimum payments arerecognized when reported by theater operators, provided collectibility is reasonably assured.For operating leases, initial payments and fixed minimum ongoing payments are recognized as revenue on a straight-line basis over the lease term. Foroperating leases, the lease term is considered to commence when all of the following conditions have been met: (i) the projector, sound system and screensystem have been installed and are in full working condition, (ii) the 3D glasses cleaning machine, if applicable, has been delivered, (iii) projectionisttraining has been completed, and (iv) the earlier of (a) receipt of the written customer acceptance certifying the completion of installation and run-in testingof the equipment and the completion of projectionist training or (b) public opening of the theater. Contingent payments in excess of fixed minimum ongoingpayments are recognized as revenue when reported by theater operators, provided collectibility is reasonably assured.Revenues from joint revenue sharing arrangements with upfront payments that qualify for classification as sales and sales-type leases are recognized inaccordance with the sales and sales-type lease criteria discussed above. Contingent revenues from joint revenue sharing arrangements are recognized as box-office results and concessions revenues are reported by the theater operator, provided collectibility is reasonably assured.Equipment and components allocated to be used in future joint revenue sharing arrangements, as well as direct labor costs and an allocation of directproduction costs, are included in assets under construction until such equipment is installed and in working condition, at which time the equipment isdepreciated on a straight-line basis over the lesser of the term of the joint revenue sharing arrangement and the equipment’s anticipated useful life.Finance IncomeFinance income is recognized over the term of the lease or over the period of time specified in the sales arrangement, provided collectibility isreasonably assured. Finance income recognition ceases when the Company determines that the associated receivable is not collectible.Finance income is suspended when the Company identifies a theater that is delinquent, non-responsive or not negotiating in good faith with theCompany. Once the collectibility issues are resolved the Company will resume recognition of finance income.Terminations, Consensual Buyouts and ConcessionsThe Company enters into theater system arrangements with customers that provide for customer payment obligations prior to the scheduled installationof the theater system. During the period of time between signing and the installation of the theater system, which may extend several years, certain customersmay be unable to, or elect not to, proceed with the theater system installation for a number of reasons including business considerations, or the inability toobtain certain consents, approvals or financing. Once the determination is made that the customer will not proceed with installation, the arrangement may beterminated under the default provisions of the arrangement or by mutual agreement between the Company and the customer (a “consensual buyout”).Terminations by default are situations when a customer does not meet the payment obligations under an arrangement and the Company retains the amountspaid by the customer. Under a consensual buyout, the Company and the customer agree, in writing, to a settlement and to release each other of any furtherobligations under the arrangement or an arbitrated settlement is reached. Any initial payments retained or additional payments received by the Company arerecognized as revenue when the settlement arrangements are executed and the cash is received, respectively. These termination and consensual buyoutamounts are recognized in Other revenues. 49Table of ContentsIn addition, the Company could agree with customers to convert their obligations for other theater system configurations that have not yet beeninstalled to arrangements to acquire or lease the IMAX digital theater system. The Company considers these situations to be a termination of the previousarrangement and origination of a new arrangement for the IMAX digital theater system. For all arrangements entered into or modified prior to the date ofadoption of the amended FASB ASC 605-25, the Company continues to defer an amount of any initial fees received from the customer such that theaggregate of the fees deferred and the net present value of the future fixed initial and ongoing payments to be received from the customer equals the sellingprice of the IMAX digital theater system to be leased or acquired by the customer. Any residual portion of the initial fees received from the customer for theterminated theater system is recorded in Other revenues at the time when the obligation for the original theater system is terminated and the new theatersystem arrangement is signed. Under the amended FASB ASC 605-25, as described in note 2(m) to the accompanying notes to the audited consolidatedfinancial statements, for all arrangements entered into or materially modified after the date of adoption, the total arrangement consideration to be received isallocated on a relative selling price basis to the digital upgrade and the termination of the previous theater system. The arrangement consideration allocatedto the termination of the existing arrangement is recorded in Other revenues at the time when the obligation for the original theater system is terminated andthe new theater system arrangement is signed.The Company may offer certain incentives to customers to complete theater system transactions including payment concessions or free services andproducts such as film licenses or 3D glasses. Reductions in, and deferral of, payments are taken into account in determining the sales price either by a directreduction in the sales price or a reduction of payments to be discounted in accordance with the Leases or Interests Topic of the FASB ASC. Free products andservices are accounted for as separate units of accounting. Other consideration given by the Company to customers are accounted for in accordance with theRevenue Recognition Topic of the FASB ASC.Maintenance and Extended Warranty ServicesMaintenance and extended warranty services may be provided under a multiple element arrangement or as a separately priced contract. Revenuesrelated to these services are deferred and recognized on a straight-line basis over the contract period and are recognized in Services revenues. Maintenanceand extended warranty services includes maintenance of the customer’s equipment and replacement parts. Under certain maintenance arrangements,maintenance services may include additional training services to the customer’s technicians. All costs associated with this maintenance and extendedwarranty program are expensed as incurred. A loss on maintenance and extended warranty services is recognized if the expected cost of providing the servicesunder the contracts exceeds the related deferred revenue.OtherThe Company recognizes revenue in Services revenue from its owned and operated theaters resulting from box-office ticket and concession sales astickets are sold, films are shown and upon the sale of various concessions. The sales are cash or credit card transactions with theatergoers based on fixedprices per seat or per concession item.In addition, the Company enters into commercial arrangements with third party theater owners resulting in the sharing of profits and losses which arerecognized in Service revenues when reported by such theaters. The Company also provides management services to certain theaters and recognizes revenueover the term of such services.Revenues on camera rentals are recognized in Rental revenue over the rental period.Revenue from the sale of 3D glasses is recognized in Equipment and product sales revenue when the 3D glasses have been delivered to the customer.Other service revenues are recognized in Service revenues when the performance of contracted services is complete.Film Production and IMAX DMR ServicesIn certain film arrangements, the Company produces a film financed by third parties, whereby the third party retains the copyright and the Companyobtains exclusive distribution rights. Under these arrangements, the Company is entitled to receive a fixed fee or to retain as a fee the excess of funding overcost of production (the “production fee”). The third parties receive a portion of the revenues received by the Company from distributing the film, which ischarged to costs and expenses applicable to revenues-services. The 50Table of Contentsproduction fees are deferred, and recognized as a reduction in the cost of the film, based on the ratio of the Company’s distribution revenues recognized inthe current period to the ultimate distribution revenues expected from the film.Revenue from film production services where the Company does not hold the associated distribution rights are recognized in Service revenues whenperformance of the contractual service is complete, provided there is persuasive evidence of an agreement, the fee is fixed or determinable and collectibilityis reasonably assured.Revenues from digitally re-mastering (IMAX DMR) films where third parties own or hold the copyrights and the rights to distribute the film are derivedin the form of processing fees and recoupments calculated as a percentage of box-office receipts generated from the re-mastered films. Processing fees arerecognized as Service revenues when the performance of the related re-mastering service is completed, provided there is persuasive evidence of anarrangement, the fee is fixed or determinable and collectibility is reasonably assured. Recoupments, calculated as a percentage of box-office receipts, arerecognized as Services revenues when box-office receipts are reported by the third party that owns or holds the related film rights, provided collectibility isreasonably assured.Losses on film production and IMAX DMR services are recognized as costs and expenses applicable to revenues-services in the period when it isdetermined that the Company’s estimate of total revenues to be realized by the Company will not exceed estimated total production costs to be expended onthe film production and the cost of IMAX DMR services.Film DistributionRevenue from the licensing of films is recognized in Services revenues when persuasive evidence of a licensing arrangement exists, the film has beencompleted and delivered, the license period has begun, the fee is fixed or determinable and collectibility is reasonably assured. When license fees are basedon a percentage of box-office receipts, revenue is recognized when box-office receipts are reported by exhibitors, provided collectibility is reasonablyassured.Film Post-Production ServicesRevenues from post-production film services are recognized in Services revenue when performance of the contracted services is complete providedthere is persuasive evidence of an arrangement, the fee is fixed or determinable and collectibility is reasonably assured.Allowances for Accounts Receivable and Financing ReceivablesAllowances for doubtful accounts receivable are based on the Company’s assessment of the collectibility of specific customer balances, which is basedupon a review of the customer’s credit worthiness, past collection history and the underlying asset value of the equipment, where applicable. Interest onoverdue accounts receivable is recognized as income as the amounts are collected.The Company monitors the performance of the theaters to which it has leased or sold theater systems which are subject to ongoing payments. Whenfacts and circumstances indicate that there is a potential impairment in the accounts receivable, net investment in lease or a financing receivable, theCompany will evaluate the potential outcome of either renegotiations involving changes in the terms of the receivable or defaults on the existing lease orfinanced sale agreements. The Company will record a provision if it is considered probable that the Company will be unable to collect all amounts due underthe contractual terms of the arrangement or a renegotiated lease amount will cause a reclassification of the sales-type lease to an operating lease.When the net investment in lease or the financing receivable is impaired, the Company will recognize a provision for the difference between thecarrying value in the investment and the present value of expected future cash flows discounted using the effective interest rate for the net investment in thelease or the financing receivable. If the Company expects to recover the theater system, the provision is equal to the excess of the carrying value of theinvestment over the fair value of the equipment.When the minimum lease payments are renegotiated and the lease continues to be classified as a sales-type lease, the reduction in payments is appliedto reduce unearned finance income.These provisions are adjusted when there is a significant change in the amount or timing of the expected future cash flows or when actual cash flowsdiffer from cash flow previously expected. 51Table of ContentsOnce a net investment in lease or financing receivable is considered impaired, the Company does not recognize interest income until the collectibilityissues are resolved. When finance income is not recognized, any payments received are applied against outstanding gross minimum lease amounts receivableor gross receivables from financed sales.InventoriesInventories are carried at the lower of cost, determined on an average cost basis, and net realizable value except for raw materials, which are carried outat the lower of cost and replacement cost. Finished goods and work-in-process include the cost of raw materials, direct labor, theater design costs, and anapplicable share of manufacturing overhead costs.The costs related to theater systems under sales and sales-type lease arrangements are relieved from inventory to costs and expenses applicable torevenues-equipment and product sales when revenue recognition criteria are met. The costs related to theater systems under operating lease arrangements andjoint revenue sharing arrangements are transferred from inventory to assets under construction in property, plant and equipment when allocated to a signedjoint revenue sharing arrangement or when the arrangement is first classified as an operating lease.The Company records write-downs for excess and obsolete inventory based upon current estimates of future events and conditions, including theanticipated installation dates for the current backlog of theater system contracts, technological developments, signings in negotiation, growth prospectswithin the customers’ ultimate marketplace and anticipated market acceptance of the Company’s current and pending theater systems.Finished goods inventories can contain theater systems for which title has passed to the Company’s customer, under the contract, but the revenuerecognition criteria as discussed above have not been met.Asset ImpairmentsThe Company performs a qualitative, and when necessary quantitative, impairment test on its goodwill on an annual basis, coincident with the year-end, as well as in quarters where events or changes in circumstances suggest that the carrying amount may not be recoverable.Goodwill impairment is assessed at the reporting unit level by comparing the unit’s carrying value, including goodwill, to the fair value of the unit.The Company completed a full quantitative analysis as required by ASC 350 – “Intangibles – Goodwill and Other” (Step 1) in 2014. The carrying values ofeach unit are subject to allocations of certain assets and liabilities that the Company has applied in a systematic and rational manner. The fair value of theCompany’s units is assessed using a discounted cash flow model. The model is constructed using the Company’s budget and long-range plan as a base. TheCompany performs a qualitative assessment of its reporting units and certain select quantitative calculations against its current long range plan to determinewhether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount (Step 0).Long-lived asset impairment testing is performed at the lowest level of an asset group at which identifiable cash flows are largely independent. Inperforming its review for recoverability, the Company estimates the future cash flows expected to result from the use of the asset or asset group and itseventual disposition. If the sum of the expected future cash flows is less than the carrying amount of the asset or asset group, an impairment loss is recognizedin the consolidated statement of operations. Measurement of the impairment loss is based on the excess of the carrying amount of the asset or asset group overthe fair value calculated using discounted expected future cash flows.The Company’s estimates of future cash flows involve anticipating future revenue streams, which contain many assumptions that are subject tovariability, as well as estimates for future cash outlays, the amounts of which, and the timing of which are both uncertain. Actual results that differ from theCompany’s budget and long-range plan could result in a significantly different result to an impairment test, which could impact earnings.Pension Plan and Postretirement Benefit Obligations AssumptionsThe Company’s pension plan and postretirement benefit obligations and related costs are calculated using actuarial concepts, within the framework ofthe Compensation – Retirement Benefits Topic of the FASB ASC. A critical assumption to this accounting is the 52Table of Contentsdiscount rate. The Company evaluates this critical assumption annually or when otherwise required to by accounting standards. Other assumptions includefactors such as expected retirement date, mortality rate, rate of compensation increase, and estimates of inflation.The discount rate enables the Company to state expected future cash payments for benefits as a present value on the measurement date. The guidelinefor setting this rate is a high-quality long-term corporate bond rate. A lower discount rate increases the present value of benefit obligations and increasespension expense. The Company’s discount rate was determined by considering the average of pension yield curves constructed from a large population ofhigh-quality corporate bonds. The resulting discount rate reflects the matching of plan liability cash flows to the yield curves.The discount rate used is a key assumption in the determination of the pension benefit obligation and expense. A 1.0% change in the discount rateused would result in a $2.4 million reduction or a $2.9 million increase in the pension benefit obligation with a corresponding benefit or charge recognizedin other comprehensive income in the year.Deferred Tax Asset ValuationAs at December 31, 2014, the Company had net deferred income tax assets of $23.1 million. The Company’s management assesses realization of itsdeferred tax assets based on all available evidence in order to conclude whether it is more likely than not that the deferred tax assets will be realized.Available evidence considered by the Company includes, but is not limited to, the Company’s historical operating results, projected future operating results,reversing temporary differences, contracted sales backlog at December 31, 2014, changing business circumstances, and the ability to realize certain deferredtax assets through loss and tax credit carry-back and carry-forward strategies.When there is a change in circumstances that causes a change in judgment about the realizability of the deferred tax assets, the Company would adjustthe applicable valuation allowance in the period when such change occurs.Tax ExposuresThe Company is subject to ongoing tax exposures, examinations and assessments in various jurisdictions. Accordingly, the Company may incuradditional tax expense based upon the outcomes of such matters. In addition, when applicable, the Company adjusts tax expense to reflect the Company’songoing assessments of such matters which require judgment and can materially increase or decrease its effective rate as well as impact operating results. TheCompany provides for such exposures in accordance with Income Taxes Topic of the FASB ASC.Stock-Based CompensationThe Company’s stock-based compensation generally includes stock options, restricted share units (“RSUs”) and stock appreciation rights (“SARs”).The Company estimates the fair value of stock option and SAR awards on the date of grant using fair value measurement techniques. The fair value ofRSU awards is equal to the closing price of the Company’s common stock on the date of grant.The Company utilizes a lattice-binomial option-pricing model (the “Binomial Model”) to determine the fair value of stock option and SAR awards.The fair value determined by the Binomial Model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex andsubjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and actualand projected employee stock option exercise behaviors. The Binomial Model also considers the expected exercise multiple which is the multiple of exerciseprice to grant price at which exercises are expected to occur on average. Option-pricing models were developed for use in estimating the value of tradedoptions that have no vesting or hedging restrictions and are fully transferable. Because the Company’s employee stock options and SARs have certaincharacteristics that are significantly different from traded options, and because changes in the subjective assumptions can materially affect the estimatedvalue, in management’s opinion, the Binomial Model best provides an accurate measure of the fair value of the Company’s employee stock options andSARs. Although the fair value of employee stock options and SARs are determined in accordance with the Equity topic of the FASB ASC using an option-pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction. 53Table of ContentsImpact of Recently Issued Accounting PronouncementsSee note 3 to the audited consolidated financial statements in Item 8 of the Company’s 2014 Form 10-K for information regarding the Company’srecent changes in accounting policies and the impact of recently issued accounting pronouncements impacting the Company.DISCONTINUED OPERATIONSOn January 30, 2014, the Company’s lease with respect to its owned and operated Nyack IMAX theater ended and the Company decided not to renewthe lease. In 2014, revenues for the Nyack IMAX theater were less than $0.1 million (2013 – $1.3 million, 2012 – $1.5 million) and the Company recognizedincome of $0.4 million, net of a tax expense of $0.2 million, in 2014 (2013 – loss of $0.3 million, 2012 – loss of $0.5 million) from the operation of thetheater. The transactions of the Company’s owned and operated Nyack theater are reflected as discontinued operations. See note 23 to the auditedconsolidated financial statements in Item 8 of the Company’s 2014 Form 10-K for more information.ASSET IMPAIRMENTS AND OTHER CHARGES (RECOVERIES)The following table identifies the Company’s charges (recoveries) relating to the impairment of assets: Years Ended December 31, (in thousands of U.S. dollars) 2014 2013 2012 Asset impairments Property, plant and equipment $314 $— $— Other charges (recoveries): Accounts receivable 725 (35) 606 Financing receivables 193 480 (82) Inventories 359 444 898 Impairment of investments 3,206 — 150 Property, plant and equipment 440 384 18 Other intangible assets 57 63 11 Other assets — — 6 Total asset impairments and other charges$5,294 $1,336 $1,607 Asset ImpairmentsThe Company records asset impairment charges for property, plant and equipment after an assessment of the carrying value of certain asset groups inlight of their future expected cash flows. During 2014, the Company recorded total asset impairment charges of $0.3 million as the Company recognized thatthe carrying values for the assets exceeded the expected undiscounted future cash flows. No such charges were recognized in 2013 and 2012.Other Charges (Recoveries)The Company recorded a $0.4 million provision (2013 — $0.5 million; 2012 — $0.9 million) in costs and expenses applicable to revenues due to areduction in the net realizable value of its inventories. These charges primarily resulted from a reduction in the net realizable value of its theater systemequipment inventories and certain service part inventories due to normal operational activity.The Company recorded a net provision of $0.7 million in 2014 (2013 — less than $0.1 million recovery; 2012 — $0.6 million provision) in accountsreceivable based on the Company’s ongoing assessment of the collectability of specific customer balances.In 2014, the Company also recorded a net provision of $0.2 million in financing receivables (2013 — $0.5 million provision; 2012 — $0.1 millionrecovery). Provisions of the Company’s financing receivables is recorded when the collectibility associated with certain financing receivables is uncertain.These provisions are adjusted when there is a significant change in the amount or timing of the expected future cash flows or when actual cash flows differfrom cash flows previously expected. 54Table of ContentsIn 2014, the Company recognized a $3.2 million other-than-temporary impairment of its investments as the value is not expected to recover based onthe length of time and extent to which the market value has been less than cost (2013 — $nil; 2012 — $0.2 million).In 2014, the Company recorded a charge of $0.5 million (2013 — $0.4 million; 2012 — less than $0.1 million) reflecting assets that were no longer inuse.NON-GAAP FINANCIAL MEASURESIn this report, the Company presents adjusted net income, adjusted net income per diluted share, adjusted net income attributable to commonshareholders and adjusted net income attributable to common shareholders per diluted share as supplemental measures of performance of the Company,which are not recognized under U.S. GAAP. The Company presents adjusted net income and adjusted net income per diluted share because it believes thatthey are important supplemental measures of its comparable controllable operating performance and it wants to ensure that its investors fully understand theimpact of its stock-based compensation (net of any related tax impact) on net income. In addition, the Company presents adjusted net income attributable tocommon shareholders and adjusted net income attributable to common shareholders per diluted share because it believes that they are importantsupplemental measures of its comparable financial results and could potentially distort the analysis of trends in business performance and it wants to ensurethat its investors fully understand the impact of net income attributable to non-controlling interests and its stock-based compensation (net of any related taximpact) in determining net income attributable to common shareholders. The Company presents adjusted gross margin from its joint revenue sharingarrangements segment excluding initial launch costs because it believes that it is an important supplemental measure used by management to evaluateongoing joint revenue sharing arrangement theater performance. Management uses these measures to review operating performance on a comparable basisfrom period to period. However, these non-GAAP measures may not be comparable to similarly titled amounts reported by other companies. Adjusted netincome, adjusted net income per diluted share, adjusted net income attributable to common shareholders and adjusted net income attributable to commonshareholders per diluted share should be considered in addition to, and not as a substitute for, net income and net income attributable to commonshareholders and other measures of financial performance reported in accordance with U.S. GAAP. 55Table of ContentsRESULTS OF OPERATIONSManagement, including the Company’s CEO, who is the Company’s Chief Operating Decision Maker (as defined in the Segment Reporting Topic ofthe FASB ASC), assesses segment performance based on segment revenues, gross margins and film performance. Selling, general and administrative expenses,research and development costs, amortization of intangibles, receivables provisions (recoveries), write-downs net of recoveries, interest income, interestexpense and tax (provision) recovery are not allocated to the segments. As identified in note 19 to the audited consolidated financial statements in Item 8 ofthe Company’s 2014 Form 10-K, the Company has the following seven reportable segments identified by category of product sold or service provided: • IMAX Theater Systems • The IMAX systems segment, which is comprised of the design, manufacture, sale or lease of IMAX theater projection system equipment. • The theater system maintenance segment, which is comprised of the maintenance of IMAX theater projection system equipment in theIMAX theater network. • The joint revenue sharing arrangements segment, which is comprised of the provision of IMAX theater projection system equipment toexhibitors in exchange for a certain percentage of box-office receipts, and in some cases, concession revenue and/or a small upfront orinitial payment. • The other segment, which includes certain IMAX theaters that the Company owns and operates, camera rentals and other miscellaneousitems. • Film • The film production and IMAX DMR segment, which is comprised of the production of films and performance of film re-masteringservices. • The film distribution segment, which includes the distribution of films for which the Company has distribution rights. • The film post-production segment, which includes the provision of film post-production and film print services.The accounting policies of the segments are the same as those described in note 2 to the audited consolidated financial statements in Item 8 of theCompany’s 2014 Form 10-K.The Company’s Management’s Discussion and Analysis (“MD&A”) of Financial Condition and Results of Operations has been organized by theCompany into two primary reporting groups – IMAX Theater Systems and Film. Each of the Company’s reportable segments, as identified above, have beenclassified into one of these broader reporting groups for purposes of MD&A discussion. The Company believes that this approach is consistent withmanagement’s view of the business and is not expected to have an impact on the readers’ ability to understand the Company’s business. Management feelsthat a discussion and analysis based on its reporting groups is significantly more relevant as the Company’s consolidated statements of operations captionscombine results from several segments. 56Table of ContentsThe following table sets forth the breakdown of revenue and gross margin by category: Revenue Gross Margin (In thousands of U.S. dollars) Years Ended December 31, Years Ended December 31, 2014 2013 2012 2014 2013 2012 IMAX Theater Systems IMAX Systems Sales and sales-type leases(1) $58,875 $65,944 $69,988 $34,483 $35,652 $36,974 Ongoing rent, fees, and finance income(2) 14,117 14,245 13,417 13,445 13,388 13,271 Other 12,154 11,182 13,019 129 102 1,057 85,146 91,371 96,424 48,057 49,142 51,302 Theater System Maintenance 34,042 31,978 28,629 12,375 12,096 10,970 Joint Revenue Sharing Arrangements 68,418 64,130 57,526 44,714 44,565 37,308 FilmProduction and IMAX DMR 83,172 83,496 78,050 62,922 56,088 49,355 Film distribution and post-production 19,763 16,962 22,126 5,320 2,712 4,310 102,935 100,458 100,176 68,242 58,800 53,665 $290,541 $287,937 $282,755 $173,388 $164,603 $153,245 (1)Includes initial payments and the present value of fixed minimum payments from equipment, sales and sales-type lease transactions.(2)Includes rental income from operating leases, contingent rents from operating and sales-type leases, contingent fees from sales arrangements andfinance income. 57Table of ContentsYear Ended December 31, 2014 Versus Year Ended December 31, 2013The Company reported net income of $42.2 million or $0.61 per basic share and $0.59 per diluted share for the year ended December 31, 2014 ascompared to net income of $44.1 million or $0.66 per basic share and $0.64 per diluted share for the year ended December 31, 2013. Net income for the yearended December 31, 2014 includes a $15.1 million charge or $0.22 per diluted share (2013 — $11.9 million or $0.17 per diluted share) for stock-basedcompensation. Adjusted net income, which consists of net income excluding the impact of stock-based compensation and the related tax impact, was $54.9million or $0.78 per diluted share for the year ended December 31, 2014 as compared to adjusted net income of $55.7 million or $0.81 per diluted share forthe year ended December 31, 2013. Adjusted net income attributable to common shareholders, which consists of net income attributable to commonshareholders excluding the impact of stock-based compensation and the related tax impact, was $52.5 million or $0.75 per diluted share for the year endedDecember 31, 2014 as compared to adjusted net income attributable to common shareholders of $55.7 million or $0.81 per diluted share for the year endedDecember 31, 2013. 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 attributableto common shareholders per diluted share is presented in the table below: Year Ended December 31, 2014 2013 Net Income Diluted EPS Net Income Diluted EPS Reported net income $42,169 $0.59(1) $44,115 $0.64 Adjustments: Stock-based compensation 15,128 0.22 11,928 0.17 Tax impact on items listed above (2,370) (0.03) (344) — Adjusted net income 54,927 0.78 55,699 0.81 Net income attributable to non-controlling interests (2,433) (0.03) — — Adjusted net income attributable to common shareholders$52,494 $0.75(1) $55,699 $0.81 Weighted average diluted shares outstanding 69,754 68,961 (1)Includes impact of $0.4 million of accretion charges associated with redeemable common stock.Revenues and Gross MarginThe Company’s revenues for the year ended December 31, 2014 increased 0.9% to $290.5 million from $287.9 million in 2013, primarily due to an increasein revenues from the Company’s joint revenue sharing arrangements, theater system maintenance and film segments, mostly offset by a decrease in revenuesfrom the Company’s IMAX systems segment. The gross margin across all segments in 2014 was $173.4 million, or 59.7% of total revenue, compared to$164.6 million, or 57.2% of total revenue in 2013.IMAX SystemsIMAX systems revenue decreased 6.8% to $85.1 million in 2014 as compared to $91.4 million in 2013 resulting primarily from the revenuerecognition in 2013 of a number of previously installed digital upgrade theater systems which had been deferred from a prior period.Revenue from sales and sales-type leases decreased 10.7% to $58.9 million in 2014 from $65.9 million in 2013. The Company recognized revenue on46 full, new theater systems which qualified as either sales or sales-type leases in 2014, with a total value of $55.6 million, versus 45 full, new theater systemsin 2013 with a total value of $54.9 million. The Company also recognized revenue on the installation of 3 xenon-based digital upgrades in 2014, with a totalvalue of $2.3 million, as compared to 5 xenon-based digital upgrades in 2013, with a total value of $3.2 million. Digital upgrades typically have lower salesprices and gross margin than full theater system installations. The Company has decided to offer digital upgrades at lower selling prices for strategic reasonssince the Company believes that digital theater systems increase flexibility and profitability for the Company’s existing exhibition customers. There were noused theater systems installed in the year ended December 31, 2014. In 2013, the Company installed and recognized one used 3D GT theater system with atotal value of $1.2 million.In 2013, the Company recognized revenue under a digital upgrade arrangement for 13 theater systems (10 sales and 3 operating leases) which werepreviously installed, but for which revenue recognition was deferred. The arrangement provided the customer with 58Table of Contentsstandard digital upgrades, which were installed, and a number of as-of-yet undeveloped upgrades. The Company’s policy is to defer revenue recognition untilthe upgrade right expires, if applicable, or a digital upgrade is delivered. In 2013, the upgrade right in the agreement expired such that contract considerationbecame fixed. Therefore, the Company recognized revenue and gross margin of $3.1 million and a loss of $0.3 million, respectively, from the 10 theatersystems which qualify as sales. Revenue earned from the 3 theater systems, which qualify as operating leases, are included in the Company’s ongoing rentrevenue and finance income discussion below.In 2013, one of the Company’s customers acquired an IMAX theater from another existing customer that had been operating under a joint revenuesharing arrangement. This theater was purchased from the Company under a sale arrangement. As a result of this sale transaction, the Company recordedrevenue and margin of $0.9 million and $0.6 million, respectively. The above-referenced theater was included in the Company’s 2013 signings total.Average revenue per full, new sales and sales-type lease systems was $1.2 million in 2014, which was consistent with the prior year. Average revenueper digital upgrade was $0.8 million in 2014, as compared to $0.6 million in 2013. The average revenue per full, new sales and sales-type lease systems variesdepending upon the number of theater system commitments with a single respective exhibitor, an exhibitor’s location or other various factors.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 arrangements (see discussion below) installations by theater system configuration for 2014 and 2013 is outlined in thetable below: 2014 2013 New IMAX xenon-based digital theater systems - installed and recognized Sales and sales-types lease arrangements 46 46(2)(3) Short-term operating lease arrangement — 1(1) Joint revenue sharing arrangements 67 65(1) Total new theater systems 113 112 IMAX xenon-based digital theater system upgrades - installed and recognizedSales and sales-types lease arrangements 3 5 Short-term operating lease arrangements 3(1) 13(1) Joint revenue sharing arrangements 2 3(1) Total upgraded theater systems 8 21 Total theater systems installed 121 133 (1)Reflects xenon-based digital system configurations, which will be upgraded to a laser-based digital system configuration at a future date.(2)Includes one used IMAX 3D GT system resulting in an addition to the Company’s institutional theater network.(3)Includes one IMAX Private Theater, the first of its kind in the Company’s theater network.Revenues from sales and sales-type leases include settlement revenue of $nil in 2014 as compared to $0.4 million in 2013.IMAX theater system margin from full, new sales and sales-type lease systems, excluding the impact of settlements, was 63.4% in 2014, as compared to63.3% in 2013. Gross margin from digital upgrades was $1.2 million in 2014, as compared to $1.3 million in 2013. Gross margin varies depending upon thenumber of theater system commitments with a single respective exhibitor, an exhibitor’s location and other various factors. In addition, in 2014, theCompany incurred a charge of $0.8 million for equipment to enable certain theaters to elect to exhibit certain films in analog format. Furthermore, in 2014,the Company recorded a write-down of certain film-based projector inventories of $0.2 million, as compared to $0.3 million in 2013.In 2014, the Company donated, and recognized the associated costs, of a full, new xenon-based digital theater system to the University of SouthernCalifornia’s School of Cinematic Arts. The theater, which is the first teaching lab of its kind in a collegiate setting, will give students the opportunity to learnabout the latest innovations in filmmaking, set design, sound and post-production. 59Table of ContentsOngoing rent revenue and finance income decreased to $14.1 million in 2014 compared to $14.2 million in 2013. Gross margin for ongoing rent andfinance income was consistent at $13.4 million in 2014 and 2013, respectively. Contingent fees included in this caption amounted to $3.0 million and$3.7 million in 2014 and 2013, respectively.Other revenue increased to $12.2 million in 2014 as compared to $11.2 million in 2013, primarily due to an increase in revenue from the Company’safter-market sales of 3D glasses. Other revenue primarily includes revenue generated from the Company’s theater operations, camera rental business and after-market sales of projection system parts and 3D glasses.The gross margin recognized from other revenue was $0.1 million in 2014, which was consistent with the prior year.Theater System MaintenanceTheater system maintenance revenue increased 6.5% to $34.0 million in 2014 from $32.0 million in 2013. Theater system maintenance gross marginincreased to $12.4 million in 2014 from $12.1 million in 2013. The Company recorded a write-down of $0.2 million for certain service parts inventories in2014 and 2013, respectively. Maintenance revenue continues to grow as the number of theaters in the IMAX theater network grows. Maintenance marginsvary depending on the mix of theater system configurations in the theater network, volume - pricing related to larger relationships and the timing and thedate(s) of installation and/or service.Joint Revenue Sharing ArrangementsRevenues from joint revenue sharing arrangements increased 6.7% to $68.4 million in 2014 from $64.1 million in 2013. The Company ended the yearwith 451 theaters operating under joint revenue sharing arrangements, as compared to 382 theaters at the end of 2013, an increase of 18.1%. The increase inrevenues from joint revenue sharing arrangements was largely due to the greater number of theaters under joint revenue sharing arrangements in operation ascompared to the prior year. During 2014, the Company installed 67 full, new theaters under joint revenue sharing arrangements, as compared to 65 full newtheaters during 2013.The gross margin from joint revenue sharing arrangements was $44.7 million in 2014 as compared to $44.6 million in 2013. Included in thecalculation of the 2014 gross margin were certain advertising, marketing and commission costs primarily associated with new theater launches of$3.2 million, as compared to $3.6 million for such expenses in 2013. Adjusted gross margin from joint revenue sharing arrangements, which excludes theseexpenses from both periods, was $47.9 million in 2014, compared to $48.1 million in 2013. A reconciliation of gross margin from the joint revenue sharingarrangement segment, the most directly comparable U.S. GAAP measure, to adjusted gross margin is presented in the table below: (In thousands of U.S. Dollars) 2014 2013 Gross margin from joint revenue sharing arrangements $44,714 $44,565 Add: Advertising, marketing and commission costs 3,154 3,582 Adjusted gross margin from joint revenue sharing arrangements$47,868 $48,147 FilmRevenue from the Company’s film segments was $102.9 million in 2014 and $100.5 million in 2013. Gross box-office generated by IMAX DMR filmsincreased 3.2% to $750.2 million in 2014 from $726.6 million in 2013, primarily due to continued network growth. Film production and IMAX DMRrevenues were consistent at $83.2 million in 2014 and $83.5 million in 2013. Gross box-office per screen for 2014 averaged $1,020,600, in comparison to$1,150,900 in 2013. In 2014, gross box-office was generated primarily from the exhibition of 50 films listed below (40 new and 10 carryovers), as comparedto 44 (38 new and 6 carryover) films exhibited in 2013: 602014 Films ExhibitedDespicable Me 2: An IMAX 3D ExperienceGravity: An IMAX 3D ExperienceThor: The Dark World: An IMAX 3D ExperienceEnder’s Game: The IMAX ExperienceThe Hunger Games: Catching Fire: The IMAX Experience2013 Films ExhibitedThe Polar Express: An IMAX 3D ExperienceSkyfall: The IMAX ExperienceLife of Pi: An IMAX 3D ExperienceCZ12: An IMAX 3D ExperienceThe Hobbit: An Unexpected Journey: An IMAX 3D ExperienceTable of Contents 61The Hobbit: The Desolation of Smaug: An IMAX 3D ExperienceDhoom 3: The IMAX ExperiencePolice Story: An IMAX 3D ExperienceJack Ryan: Shadow Recruit: The IMAX ExperienceI, Frankenstein: An IMAX 3D ExperienceThe Monkey King: The IMAX ExperienceRobocop: The IMAX ExperienceStalingrad: An IMAX 3D Experience300: Rise of an Empire: An IMAX 3D ExperienceNeed for Speed: An IMAX 3D ExperienceDivergent: The IMAX ExperienceNoah: The IMAX ExperienceCaptain America: The Winter Soldier: An IMAX 3D ExperienceTranscendence: The IMAX ExperienceThe Amazing Spider-Man 2: An IMAX 3D ExperienceGodzilla: An IMAX 3D Experience Coming Home: The IMAX ExperienceMaleficent: An IMAX 3D ExperienceEdge of Tomorrow: An IMAX 3D ExperienceHow to Train Your Dragon 2: An IMAX 3D ExperienceTransformers: Age of Extinction: An IMAX 3D ExperienceHercules: An IMAX 3D ExperienceLucy: The IMAX ExperienceThe White Haired Witch of Lunar Kingdom: An IMAX 3D ExperienceGuardians of the Galaxy: An IMAX 3D ExperienceTeenage Mutant Ninja Turtles: An IMAX 3D ExperienceThe Expendables 3: The IMAX ExperienceForrest Gump: The IMAX ExperienceThe Maze Runner: The IMAX ExperienceThe Equalizer: The IMAX ExperienceBreakup Buddies: The IMAX ExperienceBang Bang: The IMAX ExperienceDracula Untold: The IMAX ExperienceJohn Wick: The IMAX ExperienceFury: The IMAX ExperienceInterstellar: The IMAX ExperienceBig Hero 6: An IMAX 3D ExperiencePenguins of Madagascar: An IMAX 3D ExperienceExodus: Gods and Kings: An IMAX 3D ExperienceThe Hobbit: The Battle of the Five Armies: An IMAX 3D ExperienceGone with the Bullets: An IMAX 3D ExperienceSeventh Son: An IMAX 3D ExperienceLes Misérables: The IMAX ExperienceThe Grandmaster: The IMAX ExperienceHansel & Gretel: Witch Hunters: An IMAX 3D ExperienceJourney to the West: Conquering the Demons: An IMAX 3D ExperienceTop Gun: An IMAX 3D ExperienceA Good Day to Die Hard: The IMAX ExperienceJack the Giant Slayer: An IMAX 3D ExperienceOz: The Great and Powerful: An IMAX 3D ExperienceG.I. Joe: Retaliation: An IMAX 3D ExperienceDragon Ball Z: Battle of the Gods: An IMAX 3D ExperienceJurassic Park: An IMAX 3D ExperienceOblivion: The IMAX ExperienceIron Man 3: An IMAX 3D ExperienceStar Trek Into Darkness: An IMAX 3D ExperienceFast & Furious 6: The IMAX ExperienceAfter Earth: The IMAX ExperienceMan of Steel: An IMAX 3D ExperienceWorld War Z: An IMAX 3D ExperienceDespicable Me 2: An IMAX 3D ExperienceWhite House Down: The IMAX ExperienceMan of Tai Chi: The IMAX ExperienceLone Ranger: The IMAX ExperiencePacific Rim: An IMAX 3D ExperienceElysium: An IMAX 3D ExperienceThe Mortal Instruments: City of Bones: An IMAX 3D ExperienceRiddick: An IMAX 3D ExperienceThe Wizard of Oz: An IMAX 3D ExperienceYoung Detective Dee: Rise of the Sea Dragon: An IMAX 3D ExperienceMetallica Through the Never: An IMAX 3D ExperienceGravity: An IMAX 3D ExperienceStalingrad: An IMAX 3D ExperienceCaptain Phillips: The IMAX ExperienceThe Young and Prodigious T.S. Spivet: An IMAX 3D ExperienceThor: The Dark World: An IMAX 3D ExperienceEnder’s Game: The IMAX ExperienceThe Hunger Games: Catching Fire: The IMAX ExperienceThe Hobbit: The Desolation of Smaug: An IMAX 3D ExperienceDhoom 3: The IMAX ExperiencePolice Story: An IMAX 3D ExperienceTable of Contents Other revenues attributable to the film segment increased 16.5% to $19.8 million in 2014 from $17.0 million in 2013. This increase was attributable tothe wide release of two IMAX original productions, Journey to the South Pacific and Island of Lemurs: Madagascar, in 2014, whereas, in 2013, theCompany only had a limited release of Journey to the South Pacific and an increase in post-production as compared to the prior year.The Company’s gross margin from its film segments increased 16.1% in 2014 to $68.2 million from $58.8 million in 2013. Film production and IMAXDMR gross margins increased to $62.9 million from $56.1 million primarily due to continued network growth and lower DMR production and print costs.Other gross margin attributable to the film segment was $5.3 million in 2014 as compared to $2.7 million in 2013, primarily due to the wide release of twoIMAX original productions, as described above, and an increase in post-production business.Selling, General and Administrative ExpensesSelling, general and administrative expenses increased to $93.3 million in 2014, as compared to $84.9 million in 2013. The $8.4 million increaseexperienced from the prior year comparative period was largely the result of the following: • a $3.2 million increase in the Company’s stock-based compensation; • a $2.9 million increase in salaries and benefits and other staff costs; • a $0.8 million increase due to a change in foreign exchange rates. During the year ended December 31, 2014, the Company recorded a foreignexchange loss of $1.5 million for net foreign exchange gains/losses related to the translation of foreign currency denominated monetary assetsand liabilities as compared to a loss of $0.7 million recorded in 2013. See note 15(b) of the audited consolidated financial statements in Item 8 ofthe Company’s 2014 Form 10-K for more information; • a $0.7 million net increase in advertising and promotion related activities; and • a $0.9 million net increase other general corporate expenditures.Gain on Curtailment of Postretirement Benefit PlanIn 2013, the Company amended the Canadian postretirement plan to reduce future benefits provided under the plan. As a result of this change, theCompany recognized a pre-tax curtailment gain of $2.2 million.Research and DevelopmentResearch and development expenses increased to $16.1 million in 2014 compared to $14.8 million in 2013 and are primarily attributable to thedevelopment of the Company’s new laser-based digital projection system. The Company developed its next-generation laser projector, which providesgreater brightness and clarity, higher contrast, a wider color gamut and deeper blacks, while consuming less power and lasting longer than existing digitaltechnology, to ensure that the Company continues to provide the highest quality, premier movie going experience available to consumers. As ofDecember 31, 2014, the Company had 71 laser-based digital theater systems in its backlog, of which one is now operational.The Company intends for additional research and development to continue throughout 2015 as the Company supports further development of thelaser-based projection system. In addition, the Company plans to continue research and development activity in the future in other areas consideredimportant to the Company’s continued commercial success, including further improving the reliability of its projectors, developing and manufacturing moreIMAX cameras, enhancing the Company’s 2D and 3D image quality, expanding the applicability of the Company’s digital technology, and using suchtechnology to help expand the Company’s home entertainment platform, developing IMAX theater systems’ capabilities in both home and liveentertainment, and further enhancing 62The Crossing Part 1: An IMAX 3D ExperienceNight at the Museum: Secret of the Tomb: An IMAX 3D ExperienceThe Polar Express: An IMAX 3D ExperienceTable of Contentsthe IMAX theater and sound system design through the addition of more channels, improvements to the Company’s proprietary tuning system and masteringprocesses.Receivable Provisions, Net of RecoveriesReceivable provisions, net of recoveries for accounts receivable and financing receivables amounted to a net provision of $0.9 million in 2014, ascompared to $0.4 million in 2013.The Company’s accounts receivables and financing receivables are subject to credit risk. These receivables are concentrated with the leading theaterexhibitors and studios in the film entertainment industry. To minimize the Company’s credit risk, the Company retains title to underlying theater systemsleased, performs initial and ongoing credit evaluations of its customers and makes ongoing provisions for its estimate of potentially uncollectible amounts.Accordingly, the Company believes it has adequately protected itself against exposures relating to receivables and contractual commitments.Asset Impairments and Other ChargesThe Company recorded an asset impairment charge of $0.3 million in 2014 against property, plant and equipment after the Company assessed thecarrying value of certain assets in light of their future expected cash flows. The Company did not recognize any asset impairment charges in the prior yearcomparative period.In 2014, the Company recognized a $3.2 million other-than-temporary impairment of its investments as the value is not expected to recover based onthe length of time and extent to which the market value has been less than cost. No such charge was recognized in 2013.In 2014 and 2013, the Company recorded a charge of $0.5 million and $0.4 million, respectively, reflecting assets that no longer meet capitalizationrequirements as the assets were no longer in use.Interest Income and ExpenseInterest income was $0.4 million in 2014, as compared to $0.1 million in 2013.Interest expense was $0.9 million in 2014, as compared to $1.3 million in 2013. Consistent with its historical financial reporting, the Company haselected to classify interest and penalties related to income tax liabilities, when applicable, as part of the interest expense in its consolidated statements ofoperations rather than income tax expense. In 2014 and 2013, the Company recovered $0.2 million and less than $0.1 million, respectively, in potentialinterest and penalties associated with its provision for uncertain tax positions. Also included in interest expense is the amortization of deferred finance costsin the amount of $0.5 million in 2014 and 2013, respectively. The Company’s policy is to defer and amortize all the costs relating to debt financing whichare paid directly to the debt provider, over the life of the debt instrument.Income TaxesThe 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 rateincreases or reductions in the year, changes due to foreign exchange, changes in the Company’s valuation allowance based on the Company’s recoverabilityassessments of deferred tax assets, and favorable or unfavorable resolution of various tax examinations.The Company recorded an income tax provision of $14.5 million for 2014, of which $0.2 million is related to a decrease in its provision for uncertaintax positions. For 2013, the Company recorded an income tax provision of $16.6 million, of which $0.1 million was related to a decrease in its provision foruncertain tax positions.The provision for income taxes in the year ended December 31, 2014 includes a net income tax recovery of $0.4 million (2013 - $0.3 million recovery)in continuing operations related to a decrease in the valuation allowance for the Company’s deferred tax assets and other tax adjustments. In 2014, theCompany reversed $4.4 million in valuation allowance relating to current period deductible temporary differences and the utilization of loss carryforwards,of which $0.4 million was included in the provision for income taxes and $4.0 million, was included directly to shareholders’ equity. 63Table of ContentsDuring the year ended December 31, 2014, after considering all available evidence, both positive (including recent profits, projected futureprofitability, backlog, carryforward periods for, and utilization of net operating loss carryovers and tax credits, discretionary deductions and other factors)and negative (including cumulative losses in past years and other factors), it was concluded that the valuation allowance against the Company’s deferred taxassets should be reversed by approximately $4.4 million. The remaining $0.3 million balance in the valuation allowance as at December 31, 2014 isprimarily attributable to certain U.S. state net operating loss carryovers that may expire without being utilized.Equity-Accounted InvestmentsThe Company accounts for investments in new business ventures using the guidance of the FASB ASC 323. At December 31, 2014, the equity methodof accounting is being utilized for investments with a total carrying value of $2.8 million (December 31, 2013 — $0.4 million). In 2013, the Companycontributed $1.4 million, net of its share of costs, to a new business venture in the early-stage of start-up. In the first quarter of 2014, this new business venturewas operational. For the year ended December 31, 2014, gross revenues, cost of revenue and net loss for these investments were $3.1 million, $5.9 million and$4.9 million, respectively (2013 — $6.6 million, $26.0 million and $26.3 million, respectively). In 2014, the Company recognized a gain of $0.1 millionresulting from the sale of its interest in an equity-accounted investment. The Company recorded its proportionate share of the net loss which amounted to$1.1 million for 2014 compared to $2.8 million in 2013.Discontinued OperationsOn January 30, 2014, the Company’s lease with respect to its owned and operated Nyack IMAX theater ended and the Company decided not to renewthe lease. In 2014, revenues for the Nyack IMAX theater were less than $0.1 million (2013 — $1.3 million) and the Company recognized income of $0.4million, net of a tax expense of $0.2 million (2013 — loss of $0.3 million) from the operation of the theater. The transactions of the Company’s owned andoperated Nyack theater are reflected as discontinued operations.Non-Controlling InterestsBeginning in the second quarter of 2014, the Company’s consolidated financial statements include the non-controlling interest in the net income ofIMAX China resulting from the IMAX China Investment and the net proceeds are classified as redeemable non-controlling interest in temporary equity. Inaddition, in 2014, the Company recognized the impact of a non-controlling interest in its subsidiary created for the Film Fund activity. For the year endedDecember 31, 2014, the net income attributable to non-controlling interests of the Company’s subsidiaries was $2.4 million.Pension PlanThe Company has an unfunded defined benefit pension plan, the Supplemental Executive Retirement Plan (the “SERP”), covering Messrs. Gelfondand Bradley J. Wechsler, the Company’s former Co-CEO and current Chairman of its Board of Directors. As at December 31, 2014, the Company had anunfunded and accrued projected benefit obligation of approximately $19.4 million (December 31, 2013 — $18.3 million) in respect of the SERP.The net periodic benefit cost was $0.3 million and $0.6 million in 2014 and 2013, respectively. The components of net periodic benefit cost were asfollows: Years ended December 31 2014 2013 Interest cost $264 $196 Amortization of actuarial loss — 444 Pension expense$264 $640 The plan experienced an actuarial loss of $0.9 million and an actuarial gain of $2.3 million during 2014 and 2013, respectively, resulting primarilyfrom the continuing change in the Pension Benefit Guaranty Corporation (“PBGC”) published annuity interest rates year-over-year used to determine thelump sum payment under the plan.Under the terms of the SERP, if Mr. Gelfond’s employment is terminated other than for cause (as defined in his employment agreement), he is entitledto receive SERP benefits in the form of a lump sum payment. SERP benefit payments to Mr. Gelfond are 64Table of Contentssubject to a deferral for six months after the termination of his employment, at which time Mr. Gelfond will be entitled to receive interest on the deferredamount credited at the applicable federal rate for short-term obligations. Pursuant to an employment agreement dated January 1, 2014, the term ofMr. Gelfond’s employment was extended through December 31, 2016, although Mr. Gelfond has not informed the Company that he intends to retire at thattime. Under the terms of the arrangement, no compensation earned beginning in 2011 is to be included in calculating this entitlement under the SERP.The Company has a postretirement plan to provide health and welfare benefits to Canadian employees meeting certain eligibility requirements. As atDecember 31, 2014, the Company had an unfunded benefit obligation of $2.1 million (December 31, 2013 — $2.2 million). In 2013, the Company amendedthe Canadian postretirement plan to reduce future benefits provided under the plan. As a result of this change, the Company postretirement liability wasreduced by $2.6 million, resulting in a pre-tax curtailment gain of $2.2 million. See note 21(d) to the audited consolidated financial statements in Item 8 ofthe Company’s 2014 Form 10-K for additional information.In July 2000, the Company agreed to maintain health benefits for Messrs. Gelfond and Wechsler upon retirement. As at December 31, 2014, theCompany had an unfunded benefit obligation recorded of $0.8 million (December 31, 2013 — $0.4 million).Stock-Based CompensationThe Company estimates the fair value of stock option and SAR awards on the date of grant using fair value measurement techniques. The fair value ofRSU awards is equal to the closing price of the Company’s common stock on the date of grant.Stock-based compensation expense recognized under FASB ASC 718, “Compensation – Stock Compensation” (“ASC 718”) for 2014 and 2013 was$15.1 million and $11.9 million, respectively. 65Table of ContentsYears Ended December 31, 2013 versus Years Ended December 31, 2012The Company reported net income attributable to common shareholders of $44.1 million or $0.66 per basic share and $0.64 per diluted share for theyear ended December 31, 2013 as compared to net income attributable to common shareholders of $41.3 million or $0.63 per basic share and $0.61 perdiluted share for the year ended December 31, 2012. Net income attributable to common shareholders for the year ended December 31, 2013 includes a $11.9million charge or $0.17 per diluted share (2012 — $13.1 million or $0.19 per diluted share) for stock-based compensation. Adjusted net income attributableto common shareholders, which consists of net income attributable to common shareholders excluding the impact of stock-based compensation and therelated tax impact, was $55.7 million or $0.81 per diluted share for the year ended December 31, 2013 as compared to adjusted net income attributable tocommon shareholders of $54.3 million or $0.80 per diluted share for the year ended December 31, 2012. A reconciliation of net income attributable tocommon shareholders, the most directly comparable U.S. GAAP measure, to adjusted net income attributable to common shareholders and adjusted netincome attributable to common shareholders per diluted share is presented in the table below: Year Ended December 31, 2013 2012 Net Income Diluted EPS Net Income Diluted EPS Reported net income attributable to common shareholders $44,115 $0.64 $41,337 $0.61 Adjustments: Stock-based compensation 11,928 0.17 13,113 0.19 Tax impact on items listed above (344) — (160) — Adjusted net income attributable to common shareholders$55,699 $0.81 $54,290 $0.80 Weighted average diluted shares outstanding 68,961 67,933 Revenues and Gross MarginThe Company’s revenues for the year ended December 31, 2013 increased 1.8% to $287.9 million from $282.8 million in 2012, largely due to anincrease in revenues from the Company’s joint revenue sharing arrangements, production and DMR, and theater system maintenance segments, offsetpartially by a decrease in revenue from the IMAX systems segment. The gross margin across all segments in 2013 was $164.6 million, or 57.2% of totalrevenue, compared to $153.3 million, or 54.2% of total revenue in 2012.IMAX SystemsIMAX systems revenue decreased 5.2% to $91.4 million in 2013 as compared to $96.4 million in 2012. Revenue from sales and sales-type leasesdecreased 5.8% to $65.9 million in 2013 from $70.0 million in 2012. The Company recognized revenue on 45 full, new theater systems which qualified aseither sales or sales-type leases in 2013, with a total value of $54.9 million, versus 47 full, new theater systems in 2012 with a total value of $60.7 million.Additionally, the Company recognized revenue on the installation of 5 xenon-based digital upgrades in 2013, with a total value of $3.2 million, as comparedto 12 xenon-based digital upgrades and one 3D GT upgrade (from a 2D GT system) in 2012, with a total value of $5.4 million. Digital upgrades typicallyhave lower sales prices and gross margin than full theater system installations. The Company has decided to offer digital upgrades at lower selling prices forstrategic reasons since the Company believes that digital theater systems increase flexibility and profitability for the Company’s existing exhibitioncustomers. In 2013, the Company installed and recognized one used 3D GT theater system with a total value of $1.2 million. There were no used theatersystems installed in the year ended December 31, 2012.Average revenue per full, new sales and sales-type lease systems was $1.2 million in 2013, compared to $1.3 million 2012. Average revenue per digitalupgrade was $0.6 million in 2013, as compared to $0.4 million in 2012. The average revenue per full, new sales and sales-type lease systems variesdepending upon the number of theater system commitments with a single respective exhibitor, an exhibitor’s location or other various factors. 66Table of ContentsThe breakdown in mix of sales and sales-type lease and joint revenue sharing arrangements (see discussion below) installations by theater systemconfiguration for 2013 and 2012 is outlined in the table below: 2013 2012 New IMAX xenon-based digital theater systems - installed and recognized Sales and sales-types lease arrangements 46(1)(2) 47 Short-term operating lease arrangement 1(3) — Joint revenue sharing arrangements 65(3) 60 Total new theater systems 112 107 IMAX xenon-based digital theater system upgrades - installed and recognizedSales and sales-types lease arrangements 5 13(4) Short-term operating lease arrangements 13(3) — Joint revenue sharing arrangements 3(3) 2 Total upgraded theater systems 21 15 IMAX xenon-based digital theater system upgrades - installed and deferred — 3 Total theater systems installed 133 125 (1)Includes one used IMAX 3D GT system resulting in an addition to the Company’s institutional theater network.(2)Includes one IMAX Private Theater, the first of its kind in the Company’s theater network.(3)Reflects xenon-based digital system configurations, which will be upgraded to a laser-based digital system configuration at a future date.(4)Includes one upgrade under a sale arrangement from a 2D GT projection system to a 3D projection systemRevenues from sales and sales-type leases include settlement revenue of $0.4 million in 2013 as compared to $0.7 million in 2012.IMAX theater system margin from full, new sales and sales-type lease systems, excluding the impact of settlements, was 63.3% in 2013, as compared to62.4% in 2012. Gross margin from digital upgrades was $1.3 million in 2013, as compared to $1.4 million in 2012. In addition, in 2012, the Companyincurred a charge of $1.7 million for equipment to enable certain theaters to elect to exhibit certain films in either digital or analog format. Furthermore, in2013, the Company recorded a write-down of certain film-based projector inventories of $0.3 million, as compared to $0.8 million in 2012.In 2013, the Company recognized revenue for 10 theater systems under a digital upgrade sales arrangement which were previously installed, but forwhich revenue recognition was deferred. The arrangement provided the customer with standard digital upgrades, which were installed, and a number of as-of-yet undeveloped upgrades. The Company’s policy is to defer revenue recognition until the upgrade right expires, if applicable, or a digital upgrade isdelivered. In 2013, the upgrade right in the agreement expired resulting in the contract consideration becoming fixed. Therefore, the Company recognizedrevenue and gross margin of $3.1 million and a loss of $0.3 million, respectively, from these 10 theater systems which qualify as sales.In 2013, one of the Company’s customers acquired an IMAX theater from another existing customer that had been operating under a joint revenuesharing arrangement. This theater was purchased from the Company under a sale arrangement. As a result of this sale transaction, the Company recordedrevenue and margin of $0.9 million and $0.6 million, respectively. The above-referenced theater was included in the Company’s 2013 signings total. In2012, one of the Company’s customers acquired 3 IMAX theaters from another existing customer that had been operating under a joint revenue sharingarrangement. These theaters were purchased from IMAX under a sales arrangement. As a result of this sale transaction, the Company recorded revenue andmargin of $3.0 million and $2.1 million, respectively. The above-referenced theaters were included in the Company’s 2012 signings total. In addition, duringthe 2012 comparative period, the Company recognized the xenon-based digital upgrade of two theaters under a joint revenue sharing arrangement, whichwere previously operated under sales/sales-type lease arrangements.Ongoing rent revenue and finance income increased to $14.2 million in 2013 compared to $13.4 million in 2012. Gross margin for ongoing rent andfinance income increased to $13.4 million in 2013 from $13.3 million in 2012. Contingent fees included in this caption amounted to $3.7 million and $3.0million in 2013 and 2012, respectively. 67Table of ContentsOther revenue decreased to $11.2 million in 2013 as compared to $13.0 million in 2012, largely due to a decrease in revenue from the Company’safter-market sales of 3D glasses. Other revenue primarily includes revenue generated from the Company’s theater operations, camera rental business and after-market sales of projection system parts and 3D glasses.The gross margin on other revenue was $1.0 million lower in 2013 as compared to 2012, primarily due to a lower level of aftermarket sales.Theater System MaintenanceTheater system maintenance revenue increased 11.7% to $32.0 million in 2013, as compared to $28.6 million in 2012. Theater system maintenancegross margin increased to $12.1 million in 2013 from $11.0 million in 2012. In 2013, the Company recorded a write-down of $0.2 million for certain serviceparts inventories as compared to $0.1 million in 2012. Maintenance margins vary depending on the mix of theater system configurations in the theaternetwork and the timing and the date(s) of installation and/or service.Joint Revenue Sharing ArrangementsRevenues from joint revenue sharing arrangements increased 11.5% to $64.1 million in 2013, as compared to $57.5 million in 2012. The Companyended the year with 382 theaters operating under joint revenue sharing arrangements, as compared to 316 theaters at the end of 2012, an increase of 20.9%.The increase in revenues from joint revenue sharing arrangements was largely due to the greater number of theaters under joint revenue sharing arrangementsin operation as compared to the prior year. During 2013, the Company installed 65 full, new theaters under joint revenue sharing arrangements, as comparedto 60 full new theaters during 2012.The gross margin from joint revenue sharing arrangements in 2013 increased 19.5% to $44.6 million compared to $37.3 million in 2012. Included inthe calculation of the 2013 gross margin were certain advertising, marketing and commission costs primarily associated with new theater launches of $3.6million, as compared to $3.4 million for such expenses in 2012. Adjusted gross margin from joint revenue sharing arrangements, which excludes theseexpenses from both periods, was $48.1 million in 2013, compared to $40.7 million in 2012. A reconciliation of gross margin from the joint revenue sharingarrangement segment, the most directly comparable U.S. GAAP measure, to adjusted gross margin is presented in the table below: (In thousands of U.S. Dollars) 2013 2012 Gross margin from joint revenue sharing arrangements $44,565 $37,308 Add: Advertising, marketing and commission costs 3,582 3,382 Adjusted gross margin from joint revenue sharing arrangements$48,147 $40,690 FilmRevenue from the Company’s film segments was $100.5 million in 2013 and $100.2 million in 2012. Gross box-office generated by IMAX DMR filmsincreased 17.1% to $726.6 million in 2013 from $620.6 million in 2012, largely driven by continued network growth. Film production and IMAX DMRrevenues increased 7.0% to $83.5 million in 2013 from $78.1 million in 2012. Gross box-office per screen for 2013 averaged $1,150,900, in comparison to$1,153,200 in 2012. In 2013, gross box-office was generated primarily from the exhibition of 44 films listed below (38 new and 6 carryovers), as compared to39 (35 new and 4 carryover) films exhibited in 2012: 682013 Films ExhibitedThe Polar Express: An IMAX 3D ExperienceSkyfall: The IMAX ExperienceLife of Pi: An IMAX 3D ExperienceCZ12: An IMAX 3D ExperienceThe Hobbit: An Unexpected Journey: An IMAX 3D ExperienceLes Misérables: The IMAX ExperienceThe Grandmaster: The IMAX ExperienceHansel & Gretel: Witch Hunters: An IMAX 3D Experience2012 Films ExhibitedHappy Feet Two: An IMAX 3D ExperienceMission: Impossible – Ghost Protocol: The IMAX ExperienceThe Adventures of Tintin: The Secret of the Unicorn: An IMAX 3DExperienceFlying Swords of Dragon Gate: An IMAX 3D ExperienceUnderworld: Awakening: An IMAX 3D ExperienceJourney 2: The Mysterious Island: An IMAX 3D ExperienceThe Lorax: An IMAX 3D ExperienceTable of Contents Other revenues attributable to the film segment decreased 23.3% to $17.0 million in 2013 from $22.1 million in 2012. This decrease was largely due tothe result of the limited release of one IMAX original film in 2013. In November 2013, in conjunction with MFF, the Company did a limited release of anIMAX original production, Journey to the South Pacific, whereas in 2012, the Company released the original film To the Arctic 3D. 69Journey to the West: Conquering the Demons: An IMAX 3D ExperienceTop Gun: An IMAX 3D ExperienceA Good Day to Die Hard: The IMAX ExperienceJack the Giant Slayer: An IMAX 3D ExperienceOz: The Great and Powerful: An IMAX 3D ExperienceG.I. Joe: Retaliation: An IMAX 3D ExperienceDragon Ball Z: Battle of the Gods: An IMAX 3D ExperienceJurassic Park: An IMAX 3D ExperienceOblivion: The IMAX ExperienceIron Man 3: An IMAX 3D ExperienceStar Trek Into Darkness: An IMAX 3D ExperienceFast & Furious 6: The IMAX ExperienceAfter Earth: The IMAX ExperienceMan of Steel: An IMAX 3D ExperienceWorld War Z: An IMAX 3D ExperienceDespicable Me 2: An IMAX 3D ExperienceWhite House Down: The IMAX ExperienceMan of Tai Chi: The IMAX ExperienceLone Ranger: The IMAX ExperiencePacific Rim: An IMAX 3D ExperienceElysium: An IMAX 3D ExperienceThe Mortal Instruments: City of Bones: An IMAX 3D ExperienceRiddick: An IMAX 3D ExperienceThe Wizard of Oz: An IMAX 3D ExperienceYoung Detective Dee: Rise of the Sea Dragon: An IMAX 3D ExperienceMetallica Through the Never: An IMAX 3D ExperienceGravity: An IMAX 3D ExperienceStalingrad: An IMAX 3D ExperienceCaptain Phillips: The IMAX ExperienceThe Young and Prodigious T.S. Spivet: An IMAX 3D ExperienceThor: The Dark World: An IMAX 3D ExperienceEnder’s Game: The IMAX ExperienceThe Hunger Games: Catching Fire: The IMAX ExperienceThe Hobbit: The Desolation of Smaug: An IMAX 3D ExperienceDhoom 3: The IMAX ExperiencePolice Story: An IMAX 3D ExperienceJohn Carter: An IMAX 3D ExperienceThe Hunger Games: An IMAX 3D ExperienceWrath of the Titans: An IMAX 3D ExperienceTitanic: An IMAX 3D ExperienceHouba! On the Trail of the Marsupilami: The IMAX ExperienceBattleship: The IMAX ExperienceThe Avengers: An IMAX 3D ExperienceDark Shadows: The IMAX ExperienceMen In Black III: An IMAX 3D ExperiencePrometheus: An IMAX 3D ExperienceMadagascar 3: Europe’s Most Wanted: An IMAX 3D ExperienceRock of Ages: The IMAX ExperienceThe Amazing Spiderman: An IMAX 3D ExperienceThe Dark Knight Rises: The IMAX ExperienceTotal Recall: The IMAX ExperienceThe Bourne Legacy: The IMAX ExperienceIndiana Jones and the Raiders of the Lost Ark: The IMAX ExperienceResident Evil: Retribution: An IMAX 3D ExperienceTai Chi 0: An IMAX 3D ExperienceFrankenweenie: An IMAX 3D ExperienceParanormal Activity 4:The IMAX ExperienceTai Chi Hero: An IMAX 3D ExperienceCloud Atlas: The IMAX ExperienceSkyfall: The IMAX ExperienceCirque du Soleil: Worlds Away: An IMAX 3D ExperienceThe Twilight Saga: Breaking Dawn – Part 2: The IMAX ExperienceBack to 1942: The IMAX ExperienceRise of the Guardians: An IMAX 3D ExperienceLife of Pi: An IMAX 3D ExperienceCZ12: An IMAX 3D ExperienceThe Hobbit: An Unexpected Journey: An IMAX 3D ExperienceLes Misérables: The IMAX ExperienceTable of ContentsThe Company’s gross margin from its film segments increased 9.6% in 2013 to $58.8 million from $53.7 million in 2012. Film production and IMAXDMR gross margins increased to $56.1 million from $49.4 million. Other gross margin attributable to the film segment was $2.7 million in 2013 as comparedto $4.3 million in 2012.Selling, General and Administrative ExpensesSelling, general and administrative expenses increased to $84.9 million in 2013, as compared to $81.6 million in 2012. The $3.3 million increaseexperienced from the prior year comparative period was largely the result of the following: • a $2.4 million increase in salaries and benefits and other staff costs, net of lower travel and entertainment costs of $0.7 million; • a $1.9 million increase due to a change in foreign exchange rates. During the year ended December 31, 2013, the Company recorded a foreignexchange loss of $0.7 million for net foreign exchange gains/losses related to the translation of foreign currency denominated monetary assetsand liabilities and foreign currency forward contracts as compared to a gain of $1.2 million recorded in 2012; and • a $0.2 million net increase in other general corporate expenditures.These increases were partially offset by a $1.2 million decrease in the Company’s stock-based compensation charges.Gain on Curtailment of Postretirement Benefit PlanIn 2013, the Company amended the Canadian postretirement plan to reduce future benefits provided under the plan. As a result of this change, theCompany recognized a pre-tax curtailment gain of $2.2 million.Research and DevelopmentResearch and development expenses increased to $14.8 million in 2013 compared to $11.4 million in 2012 and are primarily attributable to thedevelopment of the Company’s new laser-based digital projection system. The Company has been developing its next-generation laser projector, whichprovides greater brightness and clarity, higher contrast, a wider color gamut and deeper blacks, while consuming less power and lasting longer than existingdigital technology, to ensure that the Company continues to provide the highest quality, premier movie going experience available to consumers. As ofDecember 31, 2013, the Company had 62 laser-based digital theater systems in its backlog.Receivable Provisions, Net of RecoveriesReceivable provisions, net of recoveries for accounts receivable and financing receivables amounted to a net provision of $0.4 million in 2013, ascompared to $0.5 million in 2012.The Company’s accounts receivables and financing receivables are subject to credit risk. These receivables are concentrated with the leading theaterexhibitors and studios in the film entertainment industry. To minimize the Company’s credit risk, the Company retains title to underlying theater systemsleased, performs initial and ongoing credit evaluations of its customers and makes ongoing provisions for its estimate of potentially uncollectible amounts.Accordingly, the Company believes it has adequately protected itself against exposures relating to receivables and contractual commitments.Asset Impairments and Other ChargesThe Company did not record any asset impairment charge in 2013 and 2012, against property, plant and equipment after the Company assessed thecarrying value of certain assets in its theater operations segment in light of their future expected cash flows. The Company recognized that the carryingvalues for the assets did not exceed the expected undiscounted future cash flows.In 2012, the Company recognized a $0.2 million other-than-temporary impairment of its available-for-sale investment as the value is not expected torecover based on the length of time and extent to which the market value has been less than cost. No such charge was recognized in 2013.In 2013 and 2012, the Company recorded a charge of $0.4 million and less than $0.1 million, respectively, reflecting assets that no longer meetcapitalization requirements as the assets were no longer in use. 70Table of ContentsInterest Income and ExpenseInterest income was $0.1 million in 2013, as compared to $0.1 million in 2012.Interest expense was $1.3 million in 2013, as compared to $0.7 million in 2012. Consistent with its historical financial reporting, the Company haselected to classify interest and penalties related to income tax liabilities, when applicable, as part of the interest expense in its consolidated statements ofoperations rather than income tax expense. In 2013 and 2012, the Company recovered less than $0.1 million and $0.8 million, respectively, in potentialinterest and penalties associated with its provision for uncertain tax positions. Also included in interest expense is the amortization of deferred finance costsin the amount of $0.5 million and $0.2 million in 2013 and 2012, respectively. The Company’s policy is to defer and amortize all the costs relating to debtfinancing which are paid directly to the debt provider, over the life of the debt instrument.Income TaxesThe 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 rateincreases or reductions in the year, changes due to foreign exchange, changes in the Company’s valuation allowance based on the Company’s recoverabilityassessments of deferred tax assets, and favorable or unfavorable resolution of various tax examinations.In 2013, there was a $1.4 million increase in the Company’s estimates of the recoverability of its deferred tax assets based on an analysis of bothpositive and negative evidence including projected future earnings, as compared to a $0.1 million increase in the valuation allowance in the prior yearcomparative period. The Company recorded an income tax provision of $16.6 million for 2013, of which $0.1 million is related to a decrease in its provisionfor uncertain tax positions. For 2012, the Company recorded an income tax provision of $15.1 million, of which $0.8 million was related to a decrease in itsprovision for uncertain tax positions.During the year ended December 31, 2013, after considering all available evidence, both positive (including recent profits, projected futureprofitability, backlog, carryforward periods for utilization of net operating loss carryovers and tax credits, discretionary deductions and other factors) andnegative (including cumulative losses in past years and other factors), it was concluded that the valuation allowance against the Company’s deferred taxassets should be decreased by approximately $1.4 million. The remaining $4.8 million balance in the valuation allowance as at December 31, 2013 isprimarily attributable to certain U.S. federal and state net operating loss carryovers and federal tax credits that may expire without being utilized.The Company anticipates utilizing the majority of its currently-available tax attributes over the next year. If utilized the related valuation allowancerelease would be recorded against other equity.Equity-Accounted InvestmentsThe Company accounts for investments in new business ventures using the guidance of the FASB ASC 323. December 31, 2013, the equity method ofaccounting is being utilized for investments with a total carrying value of $0.4 million (December 31, 2012 – $3.0 million). For the year ended December 31,2013, gross revenues, cost of revenue and net loss for these investments were $6.6 million, $26.0 million and $26.3 million, respectively (2012 – $9.0million, $12.7 million and $13.4 million, respectively). The Company recorded its proportionate share of the net loss which amounted to $2.8 million for2013 compared to $1.4 million in 2012.Discontinued OperationsOn January 30, 2014, the Company’s lease with respect to its owned and operated Nyack IMAX theater ended and the Company has decided not torenew the lease. In 2013, revenues for the Nyack IMAX theater were $1.3 million (2012 – $1.5 million) and the Company recognized a loss of $0.3 million,net of a tax recovery of $0.2 million (2012 – loss of $0.5 million) from the operation of the theater. The transactions of the Company’s owned and operatedNyack theater are reflected as discontinued operations.Pension PlanThe Company has an unfunded defined benefit pension plan, the Supplemental Executive Retirement Plan (the “SERP”), covering Messrs. Gelfondand Bradley J. Wechsler, the Company’s former Co-CEO and current Chairman of its Board of Directors. As at December 31, 2013, the Company had anunfunded and accrued projected benefit obligation of approximately $18.3 million (December 31, 2012 — $20.4 million) in respect of the SERP. 71Table of ContentsThe net periodic benefit cost was $0.6 million and $0.6 million in 2013 and 2012, respectively. The components of net periodic benefit cost were asfollows: Years ended December 31 2013 2012 Interest cost $196 $272 Amortization of actuarial loss 444 365 Pension expense$640 $637 The plan experienced an actuarial gain of $2.3 million and a loss of $1.1 million during 2013 and 2012, respectively, resulting primarily from thecontinuing change in the Pension Benefit Guaranty Corporation (“PBGC”) published annuity interest rates year-over-year used to determine the lump sumpayment under the plan.Under the terms of the SERP, if Mr. Gelfond’s employment is terminated other than for cause (as defined in his employment agreement), he is entitledto receive SERP benefits in the form of a lump sum payment. SERP benefit payments to Mr. Gelfond are subject to a deferral for six months after thetermination of his employment, at which time Mr. Gelfond will be entitled to receive interest on the deferred amount credited at the applicable federal rate forshort-term obligations. Pursuant to an employment agreement dated January 1, 2014, the term of Mr. Gelfond’s current employment agreement was extendedthrough December 31, 2016, although Mr. Gelfond has not informed the Company that he intends to retire at that time. Under the terms of the arrangement,no compensation earned beginning in 2011 is to be included in calculating this entitlement under the SERP.The Company has a postretirement plan to provide health and welfare benefits to Canadian employees meeting certain eligibility requirements. As atDecember 31, 2013, the Company had an unfunded benefit obligation of $2.2 million (December 31, 2012 — $4.6 million). In 2013, the Company amendedthe Canadian postretirement plan to reduce future benefits provided under the plan. As a result of this change, the Company postretirement liability wasreduced by $2.6 million, resulting in a pre-tax curtailment gain of $2.2 million. See note 21(d) to the audited consolidated financial statements in Item 8 ofthe Company’s 2013 Form 10-K for additional information.In July 2000, the Company agreed to maintain health benefits for Messrs. Gelfond and Wechsler upon retirement. As at December 31, 2013, theCompany had an unfunded benefit obligation recorded of $0.4 million (December 31, 2012 — $0.5 million).Stock-Based CompensationThe Company estimates the fair value of stock option and SAR awards on the date of grant using fair value measurement techniques. The fair value ofRSU awards is equal to the closing price of the Company’s common stock on the date of grant.Stock-based compensation expense recognized under FASB ASC 718, “Compensation – Stock Compensation” (“ASC 718”) for 2013 and 2012 was$11.9 million and $13.1 million, respectively. 72Table of ContentsLIQUIDITY AND CAPITAL RESOURCESCredit FacilityOn February 7, 2013, the Company amended and restated the terms of its existing senior secured credit facility (the “Prior Credit Facility”). Theamended and restated facility (the “Credit Facility”), with a scheduled maturity of February 7, 2018, has a maximum borrowing capacity of $200.0 million.The Prior Credit Facility had a maximum borrowing capacity of $110.0 million. Certain of the Company’s subsidiaries serve as guarantors (the “Guarantors”)of the Company’s obligations under the Credit Facility. The Credit Facility is collateralized by a first priority security interest in substantially all of thepresent and future assets of the Company and the Guarantors. In 2014, the Company amended the terms of the Credit Facility to obtain consents from thelenders named therein to allow it to enter into certain corporate transactions, including the sale of a 20.0% interest in IMAX China and the Playa Vista Loandescribed below.Total amounts drawn and available under the Credit Facility at December 31, 2014 were $nil and $200.0 million, respectively (December 31, 2013 –$nil and $200.0 million, respectively).Under the Credit Facility, the effective interest rate for the year ended December 31, 2014 for the revolving loan portion was $nil, as no amounts wereoutstanding during the period (2013 – 2.41%).The terms of the Credit Facility are set forth in the Third Amended and Restated Credit Agreement (the “Credit Agreement”), dated February 7, 2013,among the Company, the Guarantors, the lenders named therein, Wells Fargo Bank, National Association (“Wells Fargo”), as agent and issuing lender (WellsFargo, together with the lenders named therein, the “Lenders”) and Wells Fargo Securities, LLC, as Sole Lead Arranger and Sole Bookrunner and in variouscollateral and security documents entered into by the Company and the Guarantors. Each of the Guarantors has also entered into a guarantee in respect of theCompany’s obligations under the Credit Facility.The Credit Facility permits the Company to undertake up to $150.0 million in stock buybacks and dividends, provided certain covenants in the CreditAgreement are maintained. In the event that the Company undertakes stock buybacks or makes dividend payments, any amounts outstanding under therevolving portion of the Credit Facility up to the first $75.0 million of any such stock buybacks and dividend payments will be converted to a term loan.The amounts outstanding under the Credit Facility bear interest, at the Company’s option, at (i) LIBOR plus a margin of (a) 1.50%, 1.75% or 2.00%depending on the Company’s Total Leverage Ratio (as defined in the Credit Agreement) per annum, or (ii) Wells Fargo’s prime rate plus a margin of0.50% per annum. In addition, the Company is obligated to pay a Commitment Fee (as defined in the Credit Agreement) per annum of between 0.25% and0.50% of the unused portion of the Credit Facility, depending on the Company’s Total Leverage Ratio. Term loans, if any, under the Credit Facility must berepaid under a 5-year straight line amortization, with a balloon payment due at maturity. The Company is required to provide an interest rate hedge for 50%of any term loans outstanding after January 1, 2015. Under the Credit Facility, the effective interest rate for the year ended December 31, 2014 for therevolving term loan portion was n/a (2013 – 2.41%).The Credit Facility provides that the Company will be required to maintain a Fixed Charge Coverage Ratio (as defined in the credit agreement) of notless than 1.1:1. The Company will also be required to maintain minimum EBITDA (as defined in the credit agreement) of $90.0 million on December 31,2014, which requirement increases to $100.0 million on December 31, 2015. The Company must also maintain a Maximum Total Leverage Ratio (as definedin the credit agreement) of 2.00:1 on December 31, 2014, which requirement decreases to 1.75:1 on December 31, 2015. The Company was in compliancewith all of these requirements at December 31, 2014. The ratio of total debt to EBITDA was 0.04:1 as at December 31, 2014, where Total Debt (as defined inthe credit agreement) is the sum of all obligations evidenced by notes, bonds, debentures or similar instruments and was $4.7 million. EBITDA is calculatedas follows: 73Table of ContentsEBITDA per Credit Facility:(In thousands of U.S. Dollars) Net income $42,169 Add (subtract): Loss from equity accounted investments 1,071 Provision for income taxes(1) 14,683 Interest expense, net of interest income 519 Depreciation and amortization, including film asset amortization(2) 33,230 Write-downs, net of recoveries including asset impairments and receivableprovisions(2) 5,294 Stock and other non-cash compensation 15,467 EBITDA attributable to non-controlling interests(3) (3,937) $108,496 (1)Includes a tax expense in discontinued operations of $0.2 million.(2)See note 18 to the audited consolidated financial statements in Item 8 of the Company’s 2014 Form 10-K.(3)The EBITDA calculation specified for purposes of the minimum EBITDA covenant excludes the reduction in EBITDA from the Company’s non-controlling interests.Playa Vista Construction FinancingOn October 6, 2014, IMAX PV Development Inc., a Delaware corporation (“PV Borrower”) and direct wholly-owned subsidiary of IMAX U.S.A. Inc., aDelaware corporation and direct wholly-owned subsidiary of the Company, entered into a construction loan agreement with Wells Fargo. The constructionloan is being used to fund up to $25.7 million (the “Playa Vista Loan”) of the costs of development and construction of the previously announced new WestCoast headquarters of the Company, located in a new office facility in the Playa Vista neighborhood of Los Angeles, California (the “Playa Vista Project”).The total cost of development of the Playa Vista Project is expected to be approximately $50.0 million, with all costs in excess of the Playa Vista Loanbeing provided through funding by the Company.The Playa Vista Loan is secured by a deed of trust from PV Borrower in favor of Wells Fargo, granting a first lien on and security interest in the PlayaVista property and the Playa Vista Project, including all improvements to be constructed thereon, and other documents evidencing and securing the loan (the“Loan Documents”). The Loan Documents include absolute and unconditional payment and completion guarantees provided by the Company to WellsFargo for the performance by PV Borrower of all the terms and provisions of the Playa Vista Loan and the construction and completion of the Playa VistaProject, and an environmental indemnity also provided by the Company.Unless converted from a construction to permanent loan as described below, the Playa Vista Loan will be fully due and payable on April 6, 2016 (the“Maturity Date”).Absent a default, the Playa Vista Loan bears interest at a variable interest rate per annum equal to 2.25% above the 30-day LIBOR rate. The interest rateis subject to adjustment monthly based on the latest 30-day LIBOR rate. Prior to the Maturity Date, PV Borrower is required to make monthly payments ofinterest only. The Playa Vista Loan may be prepaid at any time without premium, but with all accrued interest and other applicable payments.The Loan Documents require the completion of construction no later than 90 days prior to the Maturity Date, subject to delays for certainunforeseeable events. The Loan Documents contain affirmative, negative and financial covenants (including compliance with the financial covenants of theCompany’s outstanding revolving and term senior secured facility with Wells Fargo), agreements, representations, warranties, borrowing conditions, andevents of default customary for development projects such as the Playa Vista Project.PV Borrower has the right to convert the Playa Vista Loan from a construction to a permanent loan with a term of 120 months (from the date ofconversion), subject to the satisfaction of certain conditions including, completion of the Playa Vista Project. If PV Borrower converts the Playa Vista Loan toa permanent loan, PV Borrower will have the right, subject to certain conditions, to increase the principal balance of the loan up to but not in excess of $30.0million. Upon conversion, the interest rate under the 74Table of Contentspermanent loan will decrease from 2.25% to 2.0% above the 30-day LIBOR rate and PV Borrower will be required to make monthly payments of combinedprincipal and interest sufficient to fully amortize the loan based on a 15-year straight line amortization.Total amount drawn under the construction loan as at December 31, 2014 was $4.7 million (December 31, 2013 – $nil) at an effective interest rate of2.42%.Letters of Credit and Other CommitmentsAs at December 31, 2014, the Company did not have any letters of credit and advance payment guarantees outstanding (December 31, 2013 — $nil),under the Credit Facility.The Company also has a $10.0 million facility for advance payment guarantees and letters of credit through the Bank of Montreal for use solely inconjunction with guarantees fully insured by EDC (the “Bank of Montreal Facility”). The Bank of Montreal Facility is unsecured and includes typicalaffirmative and negative covenants, including delivery of annual consolidated financial statements within 120 days of the end of the fiscal year. The Bank ofMontreal Facility is subject to periodic annual reviews. As at December 31, 2014, the Company had letters of credit and advance payment guaranteesoutstanding of $0.3 million under the Bank of Montreal Facility as compared to $0.3 million as at December 31, 2013.Cash and Cash EquivalentsAs at December 31, 2014, the Company’s principal sources of liquidity included cash and cash equivalents of $106.5 million, the Credit Facility,anticipated collection from trade accounts receivable of $76.1 million including receivables from theaters under joint revenue sharing arrangements andDMR agreements with studios, anticipated collection from financing receivables due in the next 12 months of $17.9 million and payments expected in thenext 12 months on existing backlog deals. As at December 31, 2014, the Company did not have any amount drawn on the Credit Facility (remainingavailability of $200.0 million). As at December 31, 2014, the Company had $4.7 million drawn on the Playa Vista construction loan (remaining availabilityof $21.0 million). There were $nil letters of credit and advance payment guarantees outstanding under the Credit Facility and $0.3 million under the Bank ofMontreal Facility. Cash held outside of Canada as at December 31, 2014 was $61.0 million (2013 — $14.3 million).During the year ended December 31, 2014, the Company’s operations provided cash of $86.6 million and the Company used cash of $59.9 million tofund capital expenditures, principally to build equipment for use in joint revenue sharing arrangements, to purchase other intangible assets, and to purchaseproperty, plant and equipment. Based on management’s current operating plan for 2015, the Company expects to continue to use cash to deploy additionaltheater systems under joint revenue sharing arrangements, to fund DMR agreements with studios, and to invest in the construction of the Playa Vista Project.Cash flows from joint revenue sharing arrangements are derived from the theater box-office and concession revenues and the Company invested directly inthe roll out of 67 new theater systems under joint revenue sharing arrangements in 2014.On April 8, 2014, the Company announced the sale and issuance of 20.0% of the shares in IMAX China to entities owned and controlled by investorsCMC and FountainVest. The sale price for the interest was $80.0 million to be paid by the investors in two equal installments, the first of which was receivedon April 8, 2014 and the second of which was received on February 10, 2015. Approximately half of the net proceeds of the transaction will remain in IMAXChina, to be used toward the continued build-out of the Company’s business in China, including additional joint revenue sharing locations and other growthinitiatives. The remaining funds will be available for general corporate purposes.On May 21, 2014, the Company announced the creation of the Film Fund to co-finance a portfolio of 10 original large format films. The Film Fund,which is intended to be capitalized with up to $50.0 million, will finance an ongoing supply of original films that the Company believes will be moreexciting and compelling than traditional documentaries. The initial investment in the Film Fund was committed to by a third party in the amount of $25.0million, with the possibility of contributing additional funds. The Company, which will contribute $9.0 million to the Film Fund over five years, anticipatesthe Film Fund will be self-perpetuating, with a portion of box office proceeds reinvested into the Film Fund to generate a continuous, steady flow of high-quality documentary content.On June 16, 2014, the Company’s Board of Directors approved a new $150.0 million share repurchase program for shares of the Company’s commonstock. Purchases under the program commenced during the third quarter of 2014. The share repurchase program expires June 30, 2017. The repurchases maybe made either in the open market or through private transactions, subject to market conditions, applicable legal requirements and other relevant factors. TheCompany has no obligation to repurchase shares, and the share repurchase program may be suspended or discontinued by the Company at any time. 75Table of ContentsThe Company believes that cash flow from operations together with existing cash and borrowing available under the Credit Facility will be sufficientto fund the Company’s business operations, including its strategic initiatives relating to existing joint revenue sharing arrangements for the next 12 months.The Company’s operating cash flow will be adversely affected if management’s projections of future signings for theater systems and film performance,theater installations and film productions are not realized. The Company forecasts its short-term liquidity requirements on a quarterly and annual basis. Sincethe 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 inthe Company’s 2014 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, the Company receives substantial cash payments before the Companycompletes the performance of its obligations. Similarly, the Company receives cash payments for some of its film productions in advance of related cashexpenditures.Operating ActivitiesThe Company’s net cash provided by operating activities is affected by a number of factors, including the proceeds associated with new signings oftheater system lease and sale agreements in the year, costs associated with contributing systems under joint revenue sharing arrangements, the box-officeperformance of films distributed by the Company and/or released to IMAX theaters, increases or decreases in the Company’s operating expenses, includingresearch and development, and the level of cash collections received from its customers.Cash provided by operating activities amounted to $86.6 million in 2014. Changes in other non-cash operating assets as compared to 2013 include: anincrease of $4.3 million in accounts receivable; an increase of less than $0.1 million in financing receivables; an increase of $7.6 million in inventories; anincrease of $1.3 million in prepaid expenses; and a decrease of $6.7 million in other assets which includes a $11.0 million decrease in insurance recoveriesreceivable offset by an increase of $3.0 million related to prepaid tax, an increase of $0.8 million in commissions and other deferred selling expenses and anincrease of $0.5 million in other assets. Changes in other operating liabilities as compared to December 31, 2013 include: an increase in deferred revenue of$12.1 million related to backlog payments received in the current year, offset partially by amounts relieved from deferred revenue related to theater systeminstallations; a decrease in accounts payable of $5.2 million; and an increase of $5.7 million in accrued liabilities.Investing ActivitiesNet cash used in investing activities amounted to $61.9 million in 2014, which includes purchases of $40.1 million in property, plant and equipment,an investment in joint revenue sharing equipment of $16.8 million, net investment in new business ventures of $2.0 million and an increase in otherintangible assets of $2.9 million. Included in the Company’s purchase of property, plant and equipment for 2014 is $26.5 million for the purchase of land forand the commencement of the construction of the Playa Vista Project. Net cash used in investment activities amounted to $42.3 million in 2013.Financing ActivitiesNet cash provided by financing activities in 2014, amounted to $52.3 million as compared to cash used in financing activities of $4.4 million in 2013.In 2014, the Company received cash proceeds for the issuance of common shares net of related issuance costs of $37.2 million related to the IMAX ChinaInvestment by CMC and FountainVest, which represents a non-controlling interest in the Company’s subsidiary. The Company also received $10.8 millionfrom the issuance of common shares resulting from stock option exercises offset by $3.6 million paid for the repurchase of common shares under theCompany’s share repurchase program. The Company also borrowed $4.7 million under the Playa Vista Loan.Capital ExpendituresCapital expenditures, including the Company’s investment in joint revenue sharing equipment, purchase of property, plant and equipment, net of salesproceeds, other intangible assets and investments in film assets were $79.1 million in 2014 as compared to $59.2 million in 2013. In 2015 the Companyanticipates a similar level of capital expenditures due in large part to the roll-out of theaters pursuant to joint revenue sharing arrangements and the PlayaVista Project. As discussed above, a significant portion of the Playa Vista project is financed through the Playa Vista Loan, which will offset the cash outlayassociated with the project. See “Properties” in Item 2 in the Company’s 2014 Form 10-K. 76Table of ContentsPrior Year Cash Flow ActivitiesNet cash provided by operating activities amounted to $55.0 million in the year ended December 31, 2013. Changes in other non-cash operating assetsas compared to 2012 include: an increase of $31.0 million in accounts receivable; an increase of $13.4 million in financing receivables; a decrease of $1.9million in inventories; a decrease of $0.2 million in prepaid expenses; and a $0.4 million decrease in insurance recoveries receivable and a $0.1 milliondecrease in commissions and other deferred selling expenses offset by a $0.3 million increase in other assets. Changes in other operating liabilities ascompared to December 31, 2012 include: an increase in deferred revenue of $2.5 million related to backlog payments received in the current year, offsetpartially by amounts relieved from deferred revenue related to theater system installations; an increase in accounts payable of $7.2 million; and a decrease of$1.3 million in accrued liabilities which is net of $2.4 million for stock-based compensation payments in the year.Net cash used in investing activities amounted to $42.3 million in 2013, which includes an investment in joint revenue sharing equipment of $22.8million, purchases of $13.0 million in property, plant and equipment, an investment in new business ventures of $4.0 million and an increase in otherintangible assets of $2.5 million. Net cash used in investment activities amounted to $35.5 million in 2012.Net cash used in financing activities in 2013, amounted to $4.4 million as compared to $34.8 million in 2012, which includes net bank indebtednessrepayments of $11.0 million, fees paid of $2.2 million relating to the Credit Facility amendment and $0.2 million in share issuance expenses. These paymentswere offset by proceeds from the issuance of common shares resulting from stock option exercises of $9.0 million.Capital expenditures including the Company’s investment in joint revenue sharing equipment, purchase of property, plant and equipment net of salesproceeds and investments in film assets were $59.2 million in the year ended December 31, 2013.CONTRACTUAL OBLIGATIONSPayments to be made by the Company under contractual obligations as of December 31 2014 are as follows: Payments Due by Period (In thousands of U.S. Dollars) TotalObligations 2015 2016 2017 2018 2019 Thereafter Purchase obligations (1) $35,329 $35,202 $127 $— $— $— $— Pension obligations (2) 20,042 — — 20,042 — — — Operating lease obligations (3) 12,953 5,364 2,493 1,908 1,851 1,288 49 Playa Vista construction loan 4,710 — 4,710 — — — — Postretirement benefits obligations 2,969 127 150 188 205 212 2,087 $76,003 $40,693 $7,480 $22,138 $2,056 $1,500 $2,136 (1)The Company’s total payments to be made under binding commitments with suppliers and outstanding payments to be made for supplies ordered butyet to be invoiced. Includes the Company’s budgeted investment for the construction of the Playa Vista Project.(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 hisemployment agreement (December 31, 2016), although Mr. Gelfond has not informed the Company that he intends to retire at that time.(3)The Company’s total minimum annual rental payments to be made under operating leases, mostly consisting of rent at the Company’s properties inNew York and Santa Monica, and at the various owned and operated theaters.Pension and Postretirement ObligationsThe Company has an unfunded defined benefit pension plan, the SERP, covering Messrs. Gelfond and Wechsler. As at December 31, 2014, theCompany had an unfunded and accrued projected benefit obligation of approximately $19.4 million (December 31, 2013 — $18.3 million) in respect of theSERP. 77Table of ContentsPursuant to an employment agreement dated January 1, 2014, the term of Mr. Gelfond’s employment was extended through December 31, 2016,although Mr. Gelfond has not informed the Company that he intends to retire at that time. Under the terms of the arrangement, no compensation earnedbeginning in 2011 is to be included in calculating his entitlement under the SERP.The Company has a postretirement plan to provide health and welfare benefits to Canadian employees meeting certain eligibility requirements. As atDecember 31, 2014, the Company had an unfunded benefit obligation of $2.1 million (December 31, 2013 — $2.2 million). In 2013, the Company amendedthe Canadian postretirement plan to reduce future benefits provided under the plan. As a result of this change, the Company’s postretirement liability wasreduced by $2.6 million, resulting in a pre-tax curtailment gain of $2.2 million. See note 21(d) in Item 8 of the audited consolidated financial statements inthe Company’s 2014 Form 10-K for additional details.In July 2000, the Company agreed to maintain health benefits for Messrs. Gelfond and Wechsler upon retirement. As at December 31, 2014, theCompany had an unfunded benefit obligation of $0.8 million (December 31, 2013 — $0.4 million).OFF-BALANCE SHEET ARRANGEMENTSThere are currently no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on the Company’sfinancial condition. Item 7A.Quantitative and Qualitative Factors about Market RiskThe Company is exposed to market risk from foreign currency exchange rates and interest rates, which could affect operating results, financial positionand cash flows. Market risk is the potential change in an instrument’s value caused by, for example, fluctuations in interest and currency exchange rates. TheCompany’s primary market risk exposure is the risk of unfavorable movements in exchange rates between the U.S. dollar, the Canadian dollar and theChinese Yuan Renminbi. The Company does not use financial instruments for trading or other speculative purposes.Foreign Exchange Rate RiskA majority of the Company’s revenue is denominated in U.S. dollars while a significant portion of its costs and expenses is denominated in Canadiandollars. 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.The Company has incoming cash flows from its revenue generating theaters and ongoing operating expenses in China through its wholly-owned subsidiaryIMAX Shanghai Multimedia Technology Co., Ltd. In Japan, the Company has ongoing Yen-denominated operating expenses related to its Japaneseoperations. Net Renminbi and Japanese Yen cash flows are converted to U.S. dollars through the spot market. The Company also has cash receipts underleases denominated in 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, whenappropriate, through the use of derivative financial instruments. These derivative financial instruments are utilized to hedge economic exposures as well asreduce earnings and cash flow volatility resulting from shifts in market rates.For the year ended December 31, 2014, the Company recorded a foreign exchange net loss of $1.5 million as compared to a foreign exchange net lossof $0.7 million in 2013, 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 foreigncurrencies. The forward contracts have settlement dates throughout 2016. Foreign currency derivatives are recognized and measured in the balance sheet atfair value. Changes in the fair value (gains or losses) are recognized in the consolidated statement of operations except for derivatives designated andqualifying as foreign currency hedging instruments. All foreign currency forward contracts held by the Company as at December 31, 2014, are designated andqualify as foreign currency hedging instruments. For foreign currency hedging instruments, the effective portion of the gain or loss in a hedge of a forecastedtransaction is reported in other comprehensive income and reclassified to the consolidated statement of operations when the forecasted transaction occurs.Any ineffective portion is recognized immediately in the consolidated statement of operations. The notional value of foreign currency hedging instrumentsat December 31, 2014 was $36.8 million (December 31, 2013 — $23.6 million). A loss of $2.5 million was recorded to Other Comprehensive Income withrespect to the depreciation/appreciation in the value of these contracts 78Table of Contentsin 2014 (2013 — loss of $1.0 million). A loss of $1.2 million was reclassified from Accumulated Other Comprehensive Income to selling, general andadministrative expenses in 2014 (2013 — loss of $0.3 million). Appreciation or depreciation on forward contracts not meeting the requirements for hedgeaccounting in the Derivatives and Hedging Topic of the FASB Accounting Standards Codification are recorded to selling, general and administrativeexpenses.For all derivative instruments, the Company is subject to counterparty credit risk to the extent that the counterparty may not meet its obligations to theCompany. To manage this risk, the Company enters into derivative transactions only with major financial institutions.At December 31, 2014, the Company’s financing receivables and working capital items denominated in Canadian dollars, Renminbi, Yen and Euroswas $29.4 million. Assuming a 10% appreciation or depreciation in foreign currency exchange rates from the quoted foreign currency exchange rates atDecember 31, 2014, the potential change in the fair value of foreign currency-denominated financing receivables and working capital items would have been$2.9 million. A significant portion of the Company’s selling, general, and administrative expenses is denominated in Canadian dollars. Assuming a 1%change appreciation or depreciation in foreign currency exchange rates at December 31, 2014, the potential change in the amount of selling, general, andadministrative expenses would be $0.1 million for every $10.0 million in Canadian denominated expenditures.Interest Rate Risk ManagementThe 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 itsinterest expense from variable-rate borrowings under the Credit Facility.As at December 31, 2014, the Company had not drawn down on its Credit Facility (December 31, 2013 — $nil).As at December 31, 2014, the Company had drawn down $4.7 million on its Playa Vista construction loan (December 31, 2013 — $nil).The Company’s largest exposure with respect to variable rate debt comes from changes in the LIBOR. The Company had variable rate debt instrumentsrepresenting 2.4% and nil of its total liabilities at December 31, 2014 and 2013, respectively. If the interest rates available to the Company increased by 10%,the Company’s interest expense would increase by less than $0.1 million and interest income from cash would increase by approximately less than $0.1million. These amounts are determined by considering the impact of the hypothetical interest rates on the Company’s variable rate debt and cash balances atDecember 31, 2014. 79Table of ContentsItem 8.Financial Statements and Supplementary DataINDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm 81 Consolidated Balance Sheets as at December 31, 2014 and 2013 82 Consolidated Statements of Operations for the years ended December 31, 2014, 2013 and 2012 83 Consolidated Statements of Comprehensive Income for the years ended December 31, 2014, 2013 and 2012 84 Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012 85 Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2014, 2013 and 2012 86 Notes to Consolidated Financial Statements 87 ************ 80Table of ContentsReport of Independent Registered Public Accounting FirmTo the Shareholders of IMAX CorporationWe have audited the accompanying consolidated balance sheets of IMAX Corporation and its subsidiaries as of December 31, 2014 and December 31, 2013and the related consolidated statements of operations, comprehensive income, cash flows and shareholders’ equity for each of the years in the three-yearperiod ended December 31, 2014. In addition, we have audited the financial statements schedule listed in the index appearing under item 15 (a) (2). We alsohave audited IMAX Corporation’s and its subsidiaries’ internal control over financial reporting as of December 31, 2014, based on criteria established inInternal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management isresponsible for these consolidated financial statements and financial statement schedule, for maintaining effective internal control over financial reportingand for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on InternalControl over Financial Reporting under Item 9A. Our responsibility is to express an opinion on these consolidated financial statements, the financialstatements schedule and the company’s internal control over financial reporting based on our integrated audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements and the financial statement schedule arefree of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of theconsolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financialstatements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financialstatement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting,assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessedrisk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide areasonable basis for our opinions.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of IMAX Corporation andits subsidiaries as of December 31, 2014 and December 31, 2013 and the results of their operations and their cash flows for each of the years in the three-yearperiod ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion,the financial statements schedule listed in the index appearing under item 15 (a) (2) presents fairly, in all material respects, the information set forth thereinwhen read in conjunction with the related consolidated financial statements. Also, in our opinion, IMAX Corporation and its subsidiaries maintained, in allmaterial respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - IntegratedFramework (2013) issued by COSO./s/ PricewaterhouseCoopers LLPChartered Professional Accountants, Licensed Public AccountantsToronto, OntarioFebruary 19, 2015 81Table of ContentsIMAX CORPORATIONCONSOLIDATED BALANCE SHEETSIn accordance with United States Generally Accepted Accounting Principles(In thousands of U.S. dollars) As at December 31, 2014 2013 Assets Cash and cash equivalents $106,503 $29,546 Accounts receivable, net of allowance for doubtful accounts of $947 (December 31, 2013 — $887) 76,051 73,074 Financing receivables (notes 4 and 20(c)) 105,700 107,110 Inventories (note 5) 17,063 9,825 Prepaid expenses 4,946 3,602 Film assets (note 6) 15,163 7,076 Property, plant and equipment (note 7) 183,424 132,847 Other assets (notes 8 and 20(e)) 23,047 27,034 Deferred income taxes (note 9) 23,058 24,259 Other intangible assets (note 10) 27,551 27,745 Goodwill 39,027 39,027 Total assets$621,533 $481,145 LiabilitiesBank indebtedness (note 11)$4,710 $— Accounts payable 26,145 19,396 Accrued and other liabilities (notes 6, 12(a), 12(c), 13, 14(c), 20(b), 20(d), 21 and 24) 75,425 65,232 Deferred revenue 88,566 76,932 Total liabilities 194,846 161,560 Commitments and contingencies (notes 12 and 13)Non-controlling interests (note 22) 43,912 — Shareholders’ equityCapital stock (note 14) common shares — no par value. Authorized — unlimited number.Issued and outstanding — 68,988,050 (December 31, 2013 — 67,841,233) 344,862 327,313 Other equity 47,319 36,452 Accumulated deficit (6,259) (43,051) Accumulated other comprehensive loss (3,147) (1,129) Total shareholders’ equity 382,775 319,585 Total liabilities and shareholders’ equity$621,533 $481,145 (the accompanying notes are an integral part of these consolidated financial statements) 82Table of ContentsIMAX CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONSIn accordance with United States Generally Accepted Accounting Principles(In thousands of U.S. dollars, except per share amounts) Years Ended December 31, 2014 2013 2012 (note 25) Revenues Equipment and product sales $78,705 $78,663 $78,161 Services (note 15(c)) 142,607 139,464 135,071 Rentals (note 15(c)) 60,705 61,293 61,268 Finance income 8,524 8,142 7,523 Other (note 15(a)) — 375 732 290,541 287,937 282,755 Costs and expenses applicable to revenues (note 2(m))Equipment and product sales 36,997 37,517 37,538 Services (note 15(c)) 62,228 68,844 70,570 Rentals 17,928 16,973 21,402 117,153 123,334 129,510 Gross margin 173,388 164,603 153,245 Selling, general and administrative expenses (note 15(b)) 93,260 84,854 81,560 (including share-based compensation expense of $15.1 million, $11.9 million and $13.1 million for 2014,2013, 2012, respectively)Gain on curtailment of postretirement benefit plan (note 21(d)) — (2,185) — Research and development 16,096 14,771 11,411 Amortization of intangibles 1,724 1,618 706 Receivable provisions, net of recoveries (note 16) 918 445 524 Asset impairments (note 17) 314 — — Impairment of investments (notes 20(b) and 20(e)) 3,206 — 150 Income from operations 57,870 65,100 58,894 Interest income 405 55 85 Interest expense (note 9(g)) (924) (1,345) (689) Income from operations before income taxes 57,351 63,810 58,290 Provision for income taxes (14,466) (16,629) (15,079) Loss from equity-accounted investments, net of tax (1,071) (2,757) (1,362) Income from continuing operations 41,814 44,424 41,849 Income (loss) from discontinued operations, net of tax (note 23) 355 (309) (512) Net income 42,169 44,115 41,337 Less: net income attributable to non-controlling interests (note 22) (2,433) — — Net income attributable to common shareholders$39,736 $44,115 $41,337 Net income per share attributable to common shareholders - basic and diluted: (note 14(d))Net income per share - basic:Net income per share from continuing operations$0.57 $0.66 $0.64 Net income (loss) per share from discontinued operations 0.01 — (0.01) $0.58 $0.66 $0.63 Net income per share - diluted:Net income per share from continuing operations$0.56 $0.64 $0.62 Net income (loss) per share from discontinued operations — — (0.01) $0.56 $0.64 $0.61 (the accompanying notes are an integral part of these consolidated financial statements) 83Table of ContentsIMAX CORPORATIONCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEIn accordance with United States Generally Accepted Accounting Principles(In thousands of U.S. dollars) Years Ended December 31, 2014 2013 2012 Net income $42,169 $44,115 $41,337 Unrealized defined benefit plan actuarial (loss) gain (note 21(a)) (857) 2,277 (1,104) Amortization of defined benefit plan actuarial loss (note 21(a)) — 444 365 Unrealized postretirement benefit plans actuarial loss (notes 21(c) and 21(d)) (574) (169) (129) Amortization of postretirement benefit plan actuarial gain (note 21(c)) (32) — — Gain on curtailment of postretirement benefit plan (note 21(d)) — 398 — Unrealized net (loss) gain from cash flow hedging instruments (note 20(d)) (2,524) (1,031) 716 Realization of cash flow hedging net loss (gain) upon settlement (note 20(d)) 1,186 312 (236) Foreign currency translation adjustments (note 2) (259) (115) — Change in market value of available-for-sale investment (note 20(b)) — (350) 338 Other-than-temporary impairment of available-for-sale investment (note 20(b)) 350 — 150 Other comprehensive (loss) income, before tax (2,710) 1,766 100 Income tax benefit (expense) related to other comprehensive (loss) income (note 9(h)) 750 (504) 43 Other comprehensive (loss) income, net of tax (1,960) 1,262 143 Comprehensive income 40,209 45,377 41,480 Less: Comprehensive income attributable to non-controlling interests, net of tax (2,491) — — Comprehensive income attributable to common shareholders$37,718 $45,377 $41,480 (the accompanying notes are an integral part of these consolidated financial statements) 84Table of ContentsIMAX CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWSIn accordance with United States Generally Accepted Accounting Principles(In thousands of U.S. dollars) Years Ended December 31, 2014 2013 2012 Cash provided by (used in): Operating Activities Net income $42,169 $44,115 $41,337 (Income) loss from discontinued operations, net of tax (note 23) (355) 309 512 Adjustments to reconcile net income to cash from operations: Depreciation and amortization (notes 18(c) and 19(a)) 33,756 37,172 32,788 Write-downs, net of recoveries (notes 18(d) and 19(a)) 5,294 1,336 1,607 Change in deferred income taxes 627 12,899 14,724 Stock and other non-cash compensation 15,467 12,685 14,220 Unrealized foreign currency exchange loss (gain) 1,180 1,183 (329) Gain on curtailment of postretirement benefit plan (note 21(d)) — (2,185) — Loss from equity-accounted investments 1,774 2,757 1,362 Gain on non-cash contribution to equity-accounted investees (703) — — Investment in film assets (19,233) (20,935) (16,817) Changes in other non-cash operating assets and liabilities (note 18(a)) 6,057 (33,755) (15,262) Net cash provided by (used in) operating activities from discontinued operations 572 (548) (512) Net cash provided by operating activities 86,605 55,033 73,630 Investing ActivitiesPurchase of property, plant and equipment (40,104) (13,016) (6,055) Investment in joint revenue sharing equipment (16,838) (22,775) (23,257) Investment in new business ventures (2,500) (4,000) (381) Proceeds from sale of business venture 507 — — Acquisition of other intangible assets (2,918) (2,486) (5,826) Net cash used in investing activities (61,853) (42,277) (35,519) Financing ActivitiesIncrease in bank indebtedness (note 11) 4,710 12,000 9,917 Repayment of bank indebtedness (note 11) — (23,000) (54,000) Issuance of subsidiary shares to non-controlling interests 44,551 — — Share issuance costs from the issuance of subsidiary shares to non-controlling interests (3,556) — — Repurchase of common shares (3,063) — — Common shares issued - stock options exercised (note 14(b)) 10,834 8,970 8,920 Settlement of restricted share units (790) — Proceeds from disgorgement of stock sale profits — — 314 Credit facility amendment fees paid (427) (2,151) — Share issuance expenses — (202) — Net cash provided by (used in) financing activities 52,259 (4,383) (34,849) Effects of exchange rate changes on cash (54) (163) (64) Increase in cash and cash equivalents during year 76,957 8,210 3,198 Cash and cash equivalents, beginning of year 29,546 21,336 18,138 Cash and cash equivalents, end of year$106,503 $29,546 $21,336 (the accompanying notes are an integral part of these consolidated financial statements) 85Table of ContentsIMAX CORPORATIONCONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITYIn accordance with United States Generally Accepted Accounting Principles(In thousands of U.S. dollars) CommonSharesIssued andOutstanding Capital Stock Other Equity Deficit AccumulatedOtherComprehensiveLoss TotalShareholders’Equity Balance as at December 31, 2011 65,052,740 $303,395 $17,510 $(128,503) $(2,534) $189,868 Net income — — — 41,337 — 41,337 Other comprehensive income, net of tax — — — — 143 143 Paid-in capital for non-employee stock options granted(note 14(c)) — — 115 — — 115 Employee stock options exercised 1,414,685 9,946 (1,279) — — 8,667 Non-employee stock options exercised(note 14(c)) 15,000 403 (150) — — 253 Paid-in capital for employee stock options granted (note14(c)) — — 12,359 — — 12,359 Disgorgement of profit — — 314 — — 314 Utilization of windfall tax benefits from employee stockoptions (note 9(f)) — — 23 — — 23 Balance as at December 31, 2012 66,482,425 $313,744 $28,892 $(87,166) $(2,391) $253,079 Net income — — — 44,115 — 44,115 Other comprehensive income, net of tax — — — — 1,262 1,262 Paid-in capital for non-employee stock options granted(note 14(c)) — — 174 — — 174 Employee stock options exercised 1,291,347 12,044 (3,455) — — 8,589 Non-employee stock options exercised 25,000 613 (232) — — 381 Paid-in capital for employee stock options granted (note14(c)) — — 9,150 — — 9,150 Paid-in capital for restricted share units granted (note 14(c)) — — 2,120 — — 2,120 Restricted share units vested (net of shares withheld for tax)(note 14(c)) 42,461 1,114 (1,215) — — (101) Share issuance expenses — (202) — — — (202) Utilization of windfall tax benefits from employee stockoptions (note 9(f)) — — 1,018 — — 1,018 Balance as at December 31, 2013 67,841,233 $327,313 $36,452 $(43,051) $(1,129) $319,585 Net income — — — 42,169 — 42,169 Other comprehensive loss, net of tax — — — — (1,960) (1,960) Other comprehensive loss attributable to a non-controllinginterest, net (note 22(a)) — — — — (58) (58) Net income attributable to non-controlling interests — — — (2,433) — (2,433) Paid-in capital for non-employee stock options granted(note 14(c)) — — 149 — — 149 Employee stock options exercised 1,116,586 14,810 (4,260) — — 10,550 Non-employee stock options exercised 33,001 448 (165) — — 283 Paid-in capital for employee stock options granted (note14(c)) — — 9,275 — — 9,275 Paid-in capital for restricted share units granted (note 14(c)) — — 5,780 — — 5,780 Restricted share units vested (net of shares withheld for tax)(note 14(c)) 109,264 2,836 (3,148) — — (312) Restricted share units vested and issued to employees — — (790) — — (790) Repurchase of common shares (112,034) (545) — (2,518) — (3,063) Accretion charges associated with redeemable commonstock — — — (426) — (426) Utilization of windfall tax benefits from employee stockoptions (note 9(f)) — — 4,015 — — 4,015 Utilization of windfall tax benefits from vested restrictedshare units (note 9(f)) — — 11 — — 11 Balance as at December 31, 2014 68,988,050 $344,862 $47,319 $(6,259) $(3,147) $382,775 (The accompanying notes are an integral part of these consolidated financial statements) 86Table of ContentsIMAX CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn accordance with United States Generally Accepted Accounting Principles(Tabular amounts in thousands of U.S. dollars, unless otherwise stated)1. Description of the BusinessIMAX Corporation, together with its consolidated wholly-owned subsidiaries (the “Company”), is an entertainment technology company specializingin digital and film-based motion picture technologies, whose principal activities are the: • design, manufacture, sale and lease of proprietary theater systems for IMAX theaters principally owned and operated by commercial andinstitutional customers located in 62 countries as at December 31, 2014; • production, digital re-mastering, post-production and/or distribution of certain films shown throughout the IMAX theater network; • provision of other services to the IMAX theater network, including ongoing maintenance and extended warranty services for IMAXtheater systems; • operation of certain theaters primarily in the United States; and • other activities, which includes short-term rental of cameras and aftermarket sales of projector system components.The Company refers to all theaters using the IMAX theater system as “IMAX theaters.”The Company’s revenues from equipment and product sales include the sale and sales-type leasing of its theater systems and sales of their associatedparts and accessories, contingent rentals on sales-type leases and contingent additional payments on sales transactions.The Company’s revenues from services include the provision of maintenance and extended warranty services, digital re-mastering services, filmproduction and film post-production services, film distribution, and the operation of certain theaters.The Company’s rentals include revenues from the leasing of its theater systems that are operating leases, contingent rentals on operating leases, jointrevenue sharing arrangements and the rental of the Company’s cameras and camera equipment.The Company’s finance income represents interest income arising from the sales-type leases and financed sales of the Company’s theater systems.The Company’s other revenues include the settlement of contractual obligations with customers.2. Summary of Significant Accounting PoliciesSignificant accounting policies are summarized as follows:The Company prepares its consolidated financial statements in accordance with U.S. GAAP.(a) Basis of ConsolidationThe consolidated financial statements include the accounts of the Company together with its wholly-owned subsidiaries, except for subsidiaries whichthe Company has identified as variable interest entities (“VIEs”) where the Company is not the primary beneficiary.The Company has evaluated its various variable interests to determine whether they are VIEs as required by the Consolidation Topic of the FinancialAccounting Standards Board (“FASB”) Accounting Standards Codification (“ASC” or “Codification”).The Company has 10 film production companies that are VIEs. For 4 of the Company’s film production companies, the Company has determined thatit is the primary beneficiary of these entities as the Company has the power to direct the activities of the respective 87Table of ContentsVIE that most significantly impact the respective VIE’s economic performance and has the obligation to absorb losses of the VIE that could potentially besignificant to the respective VIE or the right to receive benefits from the respective VIE that could potentially be significant to the respective VIE. Theseconsolidated production companies have total assets of $7.7 million (December 31, 2013 — $nil) and total liabilities of $0.3 million as at December 31,2014 (December 31, 2013 — $nil). The majority of these consolidated assets are held by the IMAX Original Film Fund (the “Film Fund”) as described in note22(b). For the other 6 film production companies which are VIEs, the Company did not consolidate these film entities since it does not have the power todirect activities and does not absorb the majority of the expected losses or expected residual returns. The Company equity accounts for these entities. As atDecember 31, 2014, these 6 VIEs have total assets and total liabilities of $0.4 million (December 31, 2013 — $5.2 million). Earnings of the investeesincluded in the Company’s consolidated statement of operations amounted to $nil in 2014 (2013 — $nil). The carrying value of these investments in VIEsthat are not consolidated is $nil at December 31, 2014 (December 31, 2013 — $nil). A loss in value of an investment other than a temporary decline isrecognized as a charge to the consolidated statement of operations. The Company’s exposure, which is determined based on the level of funding contributedby the Company and the development stage of the respective film, is $nil at December 31, 2014 (2013 — $1.5 million).The Company accounts for investments in new business ventures using the guidance of the FASB ASC 323 “Investments – Equity Method and JointVentures” (“ASC 323”) and ASC 320 “Investments in Debt and Equity Securities” (“ASC 320”), as appropriate.All significant intercompany accounts and transactions, including all unrealized intercompany profits on transactions with equity-accounted investees,have been eliminated.In 2013, the Company determined that the functional currency of one of its wholly-owned subsidiaries had changed from the Company’s reportingcurrency to the currency of the nation is which it is domiciled. As a result, in accordance with the FASB ASC 830 “Foreign Currency Matters”, the adjustmentattributable to the current-rate translation of non-monetary assets as of the date of the change was reported in other comprehensive income.(b) Use of EstimatesThe preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affectthe reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of consolidated financial statements and thereported amounts of revenues and expenses during the reporting period. Actual results could be materially different from these estimates. Significantestimates made by management include, but are not limited to: selling prices associated with the individual elements in multiple element arrangements;residual values of leased theater systems; economic lives of leased assets; allowances for potential uncollectibility of accounts receivable, financingreceivables and net investment in leases; provisions for inventory obsolescence; ultimate revenues for film assets; impairment provisions for film assets, long-lived assets and goodwill; depreciable lives of property, plant and equipment; useful lives of intangible assets; pension plan assumptions; accruals forcontingencies including tax contingencies; valuation allowances for deferred income tax assets; and, estimates of the fair value of stock-based paymentawards.(c) Cash and Cash EquivalentsThe Company considers all highly liquid investments convertible to a known amount of cash and with an original maturity to the Company of threemonths or less to be cash equivalents.(d) Accounts Receivable and Financing ReceivablesAllowances for doubtful accounts receivable are based on the Company’s assessment of the collectibility of specific customer balances, which is basedupon a review of the customer’s credit worthiness, past collection history and the underlying asset value of the equipment, where applicable. Interest onoverdue accounts receivable is recognized as income as the amounts are collected.For trade accounts receivable that have characteristics of both a contractual maturity of one year or less, and arose from the sale of other goods orservices, the Company charges off the balance against the allowance for doubtful accounts when it is known that a provided amount will not be collected.The Company monitors the performance of the theaters to which it has leased or sold theater systems which are subject to ongoing payments. Whenfacts and circumstances indicate that there is a potential impairment in the net investment in lease or a financing receivable, the Company will evaluate thepotential outcome of either renegotiations involving changes in the terms of the receivable or defaults on the existing lease or financed sale agreements. TheCompany will record a provision if it is considered probable that the 88Table of ContentsCompany will be unable to collect all amounts due under the contractual terms of the arrangement or a renegotiated lease amount will cause a reclassificationof the sales-type lease to an operating lease.When the net investment in lease or the financing receivable is impaired, the Company will recognize a provision for the difference between thecarrying value in the investment and the present value of expected future cash flows discounted using the effective interest rate for the net investment in thelease or the financing receivable. If the Company expects to recover the theater system, the provision is equal to the excess of the carrying value of theinvestment over the fair value of the equipment.When the minimum lease payments are renegotiated and the lease continues to be classified as a sales-type lease, the reduction in payments is appliedto reduce unearned finance income.These provisions are adjusted when there is a significant change in the amount or timing of the expected future cash flows or when actual cash flowsdiffer from cash flow previously expected.Once a net investment in lease or financing receivable is considered impaired, the Company does not recognize interest income until the collectibilityissues are resolved. When finance income is not recognized, any payments received are applied against outstanding gross minimum lease amounts receivableor gross receivables from financed sales. Once the collectability issues are resolved, the Company will once again commence the recognition of interestincome.(e) InventoriesInventories are carried at the lower of cost, determined on an average cost basis, and net realizable value except for raw materials, which are carried atthe lower of cost and replacement cost. Finished goods and work-in-process include the cost of raw materials, direct labor, theater design costs, and anapplicable share of manufacturing overhead costs.The costs related to theater systems under sales and sales-type lease arrangements are relieved from inventory to costs and expenses applicable torevenues-equipment and product sales when revenue recognition criteria are met. The costs related to theater systems under operating lease arrangements andjoint revenue sharing arrangements are transferred from inventory to assets under construction in property, plant and equipment when allocated to a signedjoint revenue sharing arrangement or when the arrangement is first classified as an operating lease.The Company records provisions for excess and obsolete inventory based upon current estimates of future events and conditions, including theanticipated installation dates for the current backlog of theater system contracts, technological developments, signings in negotiation, growth prospectswithin the customers’ ultimate marketplace and anticipated market acceptance of the Company’s current and pending theater systems.Finished goods inventories can contain theater systems for which title has passed to the Company’s customer (as the theater system has been deliveredto the customer) but the revenue recognition criteria as discussed in note 2(m) have not been met.(f) Film AssetsCosts of producing films, including labor, allocated overhead, capitalized interest, and costs of acquiring film rights are recorded as film assets andaccounted for in accordance with Entertainment-Films Topic of the FASB ASC. Production financing provided by third parties that acquire substantive rightsin the film is recorded as a reduction of the cost of the production. Film assets are amortized and participation costs are accrued using the individual-film-forecast method in the same ratio that current gross revenues bear to current and anticipated future ultimate revenues. Estimates of ultimate revenues areprepared on a title-by-title basis and reviewed regularly by management and revised where necessary to reflect the most current information. Ultimaterevenues for films include estimates of revenue over a period not to exceed ten years following the date of initial release.Film exploitation costs, including advertising costs, are expensed as incurred.Costs, including labor and allocated overhead, of digitally re-mastering films where the copyright is owned by a third party and the Company shares inthe revenue of the third party are included in film assets. These costs are amortized using the individual-film-forecast method in the same ratio that currentgross revenues bear to current and anticipated future ultimate revenues from the re-mastered film.The recoverability of film assets is dependent upon commercial acceptance of the films. If events or circumstances indicate that the recoverable amountof a film asset is less than the unamortized film costs, the film asset is written down to its fair value. The Company determines the fair value of its film assetsusing a discounted cash flow model. 89Table of Contents(g) Property, Plant and EquipmentProperty, plant and equipment are recorded at cost and are depreciated on a straight-line basis over their estimated useful lives as follows: Theater system components (1)—over the equipment’s anticipated useful life (7 to 20 years)Camera equipment—5 to 10 yearsBuildings—20 to 25 yearsOffice and production equipment—3 to 5 yearsLeasehold improvements—over the shorter of the initial term of the underlying leases plus any reasonably assured renewal terms,and the useful life of the asset (1)includes equipment under joint revenue sharing arrangements.Equipment and components allocated to be used in future operating leases and joint revenue sharing arrangements, as well as direct labor costs and anallocation of direct production costs, are included in assets under construction until such equipment is installed and in working condition, at which time theequipment is depreciated on a straight-line basis over the lesser of the term of the joint revenue sharing arrangement and the equipment’s anticipated usefullife.The Company reviews the carrying values of its property, plant and equipment for impairment whenever events or changes in circumstances indicatethat the carrying amount of an asset or asset group might not be recoverable. Assets are grouped at the lowest level for which identifiable cash flows arelargely independent when testing for, and measuring for, impairment. In performing its review of recoverability, the Company estimates the future cash flowsexpected to result from the use of the asset or asset group and its eventual disposition. If the sum of the expected undiscounted future cash flows is less thanthe carrying amount of the asset or asset group, an impairment loss is recognized in the consolidated statements of operations. Measurement of theimpairment loss is based on the excess of the carrying amount of the asset or asset group over the fair value calculated using discounted expected future cashflows.A liability for the fair value of an asset retirement obligation associated with the retirement of tangible long-lived assets and the associated assetretirement costs are recognized in the period in which the liability and costs are incurred if a reasonable estimate of fair value can be made using a discountedcash flow model. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset and subsequently amortized overthe asset’s useful life. The liability is accreted over the period to expected cash outflows.(h) Other AssetsOther assets include insurance recoverable, deferred charges on debt financing, deferred selling costs that are direct and incremental to the acquisitionof sales contracts, foreign currency derivatives, lease incentives and investments in new business ventures.Costs of debt financing are deferred and amortized over the term of the debt using the effective interest method.Selling costs related to an arrangement incurred prior to recognition of the related revenue are deferred and expensed to costs and expenses applicableto revenues upon: (i) recognition of the contract’s theater system revenue; or (ii) abandonment of the sale arrangement.Foreign currency derivatives are accounted for at fair value using quoted prices in closed exchanges (Level 2 input in accordance with the Fair ValueMeasurements Topic of the FASB ASC hierarchy).The Company may provide lease incentives to certain exhibitors which are essential to entering into the respective lease arrangement. Lease incentivesinclude payments made to or on behalf of the exhibitor. These lease incentives are recognized as a reduction in rental revenue on a straight-line basis over theterm of the lease.Investments in new business ventures are accounted for using ASC 323 as described in note 2(a). The Company currently accounts for its 10.1%investment in 3net, a 3D television channel operated by a limited liability corporation owned by the Company and its joint venture investment with TCLMultimedia Technology Holdings Limited, using the equity method of accounting. The Company 90Table of Contentsaccounts for in-kind contributions to its equity investment in accordance with ASC 845 “Non-Monetary Transactions” (“ASC 845”) whereby if the fair valueof the asset or assets contributed is greater than the carrying value a partial gain shall be recognized.The Company’s investment in debt securities is classified as an available-for-sale investment in accordance with ASC 320. Unrealized holding gainsand losses for this investment is excluded from earnings and reported in other comprehensive income until realized. Realization occurs upon sale of a portionof or the entire investment. The investment is impaired if the fair value is less than cost, which is assessed in each reporting period. When the Companyintends to sell a specifically identified beneficial interest, a write-down for other-than-temporary impairment shall be recognized in earnings.The Company’s investment in preferred shares, which meets the criteria for classification as an equity security in accordance with ASC 325, isaccounted for at cost. The Company records the related warrants at fair value upon recognition date. Warrants are recognized over the term of the agreement.(i) GoodwillGoodwill represents the excess of purchase price over the fair value of net identifiable assets acquired in a purchase business combination. Goodwill isnot subject to amortization and is tested for impairment annually, or more frequently if events or circumstances indicate that the asset might be impaired. TheCompany performs a qualitative assessment of its reporting units and certain select quantitative calculations against its current long range plan to determinewhether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount. TheCompany first assesses certain qualitative factors to determine whether the existence of events or circumstances leads to determination that it is more likelythan not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, the Companydetermines it is not more likely than not that the fair value of a reporting unit is less than its carry amount, then performing the two-step impairment test isunnecessary. When necessary, impairment of goodwill is tested at the reporting unit level by comparing the reporting unit’s carrying amount, includinggoodwill, to the fair value of the reporting unit. The fair value of the reporting unit is estimated using a discounted cash flow approach. If the carrying amountof the reporting unit exceeds its fair value, then a second step is performed to measure the amount of impairment loss, if any, by comparing the fair value ofeach identifiable asset and liability in the reporting unit to the total fair value of the reporting unit. Any impairment loss is expensed in the consolidatedstatement of operations and is not reversed if the fair value subsequently increases.(j) Other Intangible AssetsPatents, trademarks and other intangibles are recorded at cost and are amortized on a straight-line basis over estimated useful lives ranging from 4 to 10years except, for intangible assets that have an identifiable pattern of consumption of the economic benefit of the asset, which are amortized over theconsumption pattern.The Company reviews the carrying values of its other intangible assets for impairment whenever events or changes in circumstances indicate that thecarrying amount of an asset or asset group might not be recoverable. Assets are grouped at the lowest level for which identifiable cash flows are largelyindependent when testing for, and measuring for, impairment. In performing its review for recoverability, the Company estimates the future cash flowsexpected to result from the use of the asset or asset group and its eventual disposition. If the sum of the expected undiscounted future cash flows is less thanthe carrying amount of the asset or asset group, an impairment loss is recognized in the consolidated statement of operations. Measurement of the impairmentloss is based on the excess of the carrying amount of the asset or asset group over the fair value calculated using discounted expected future cash flows.(k) Deferred RevenueDeferred revenue represents cash received prior to revenue recognition criteria being met for theater system sales or leases, film contracts, maintenanceand extended warranty services, film related services and film distribution.(l) Income TaxesIncome taxes are accounted for under the liability method whereby deferred income tax assets and liabilities are recognized for the expected future taxconsequences of temporary differences between the accounting and tax bases of assets and liabilities. Deferred income tax assets and liabilities are measuredusing enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect ondeferred income tax assets and liabilities of a change in 91Table of Contentstax rates or laws is recognized in the consolidated statement of operations in the period in which the change is enacted. Investment tax credits are recognizedas a reduction of income tax expense.The Company assesses realization of deferred income tax assets and, based on all available evidence, concludes whether it is more likely than not thatthe net deferred income tax assets will be realized. A valuation allowance is provided for the amount of deferred income tax assets not considered to berealizable.The Company is subject to ongoing tax exposures, examinations and assessments in various jurisdictions. Accordingly, the Company may incuradditional tax expense based upon the outcomes of such matters. In addition, when applicable, the Company adjusts tax expense to reflect the Company’songoing assessments of such matters which require judgment and can materially increase or decrease its effective rate as well as impact operating results. TheCompany provides for such exposures in accordance with the Income Taxes Topic of the FASB ASC.(m) Revenue RecognitionMultiple Element ArrangementsThe Company’s revenue arrangements with certain customers may involve multiple elements consisting of a theater system (projector, sound system,screen system and, if applicable, 3D glasses cleaning machine); services associated with the theater system including theater design support, supervision ofinstallation, and projectionist training; a license to use of the IMAX brand; 3D glasses; maintenance and extended warranty services; and licensing of films.The Company evaluates all elements in an arrangement to determine what are considered deliverables for accounting purposes and which of the deliverablesrepresent separate units of accounting based on the applicable accounting guidance in the Leases Topic of the FASB ASC; the Guarantees Topic of the FASBASC; the Entertainment – Films Topic of FASB ASC; and the Revenue Recognition Topic of the FASB. If separate units of accounting are either requiredunder the relevant accounting standards or determined to be applicable under the Revenue Recognition Topic, the total consideration received or receivablein the arrangement is allocated based on the applicable guidance in the above noted standards.Theater SystemsThe Company has identified the projection system, sound system, screen system and, if applicable, 3D glasses cleaning machine, theater designsupport, supervision of installation, projectionist training and the use of the IMAX brand to be a single deliverable and a single unit of accounting (the“System Deliverable”). When an arrangement does not include all the elements of a System Deliverable, the elements of the System Deliverable included inthe arrangement are considered by the Company to be a single deliverable and a single unit of accounting. The Company is not responsible for the physicalinstallation of the equipment in the customer’s facility; however, the Company supervises the installation by the customer. The customer has the right to usethe IMAX brand from the date the Company and the customer enter into an arrangement.The Company’s System Deliverable arrangements involve either a lease or a sale of the theater system. Consideration for the System Deliverable, otherthan for those delivered pursuant to joint revenue sharing arrangements, consist of upfront or initial payments made before and after the final installation ofthe theater system equipment and ongoing payments throughout the term of the lease or over a period of time, as specified in the arrangement. The ongoingpayments are the greater of an annual fixed minimum amount or a certain percentage of the theater box-office. Amounts received in excess of the annual fixedminimum amounts are considered contingent payments. The Company’s arrangements are non-cancellable, unless the Company fails to perform itsobligations. In the absence of a material default by the Company, there is no right to any remedy for the customer under the Company’s arrangements. If amaterial default by the Company exists, the customer has the right to terminate the arrangement and seek a refund only if the customer provides notice to theCompany of a material default and only if the Company does not cure the default within a specified period.For arrangements entered into or materially modified after January 1, 2011, consideration is allocated to each unit of accounting based on the unit’srelative selling prices. The Company uses vender-specific objective evidence of selling price (VSOE) when the Company sells the deliverable separately andis the price actually charged by the Company for that deliverable. VSOE is established for the Company’s System Deliverable, maintenance and extendedwarranty services and film license arrangements. The Company uses a best estimate of selling price (BESP) for units of accounting that do not have VSOE orthird party evidence of selling price. The Company determines BESP for a deliverable by considering multiple factors including the Company’s historicalpricing practices, product class, market competition and geography. 92Table of ContentsSales ArrangementsFor arrangements qualifying as sales, the revenue allocated to the System Deliverable is recognized in accordance with the Revenue RecognitionTopic of the FASB ASC, when all of the following conditions have been met: (i) the projector, sound system and screen system have been installed and are infull working condition, (ii) the 3D glasses cleaning machine, if applicable, has been delivered, (iii) projectionist training has been completed and (iv) theearlier of (a) receipt of written customer acceptance certifying the completion of installation and run-in testing of the equipment and the completion ofprojectionist training or (b) public opening of the theater, provided there is persuasive evidence of an arrangement, the price is fixed or determinable andcollectibility is reasonably assured.The initial revenue recognized consists of the initial payments received and the present value of any future initial payments and fixed minimumongoing payments that have been attributed to this unit of accounting. Contingent payments in excess of the fixed minimum ongoing payments arerecognized when reported by theater operators, provided collectibility is reasonably assured.The Company has also agreed, on occasion, to sell equipment under lease or at the end of a lease term. Consideration agreed to for these lease buyoutsis included in revenues from equipment and product sales, when persuasive evidence of an arrangement exists, the fees are fixed or determinable,collectibility is reasonably assured and title to the theater system passes from the Company to the customer.Lease ArrangementsThe Company uses the Leases Topic of FASB ASC to evaluate whether an arrangement is a lease within the scope of the accounting standard.Arrangements not within the scope of the accounting standard are accounted for either as a sales or services arrangement, as applicable.For lease arrangements, the Company determines the classification of the lease in accordance with the Lease Topic of FASB ASC. A lease arrangementthat transfers substantially all of the benefits and risks incident to ownership of the equipment is classified as a sales-type lease based on the criteriaestablished by the accounting standard; otherwise the lease is classified as an operating lease. Prior to commencement of the lease term for the equipment, theCompany may modify certain payment terms or make concessions. If these circumstances occur, the Company reassesses the classification of the lease basedon the modified terms and conditions.For sales-type leases, the revenue allocated to the System Deliverable is recognized when the lease term commences, which the Company deems to bewhen all of the following conditions have been met: (i) the projector, sound system and screen system have been installed and are in full working condition;(ii) the 3D glasses cleaning machine, if applicable, has been delivered; (iii) projectionist training has been completed; and (iv) the earlier of (a) receipt of thewritten customer acceptance certifying the completion of installation and run-in testing of the equipment and the completion of projectionist training or(b) public opening of the theater, provided collectibility is reasonably assured.The initial revenue recognized for sales-type leases consists of the initial payments received and the present value of future initial payments and fixedminimum ongoing payments computed at the interest rate implicit in the lease. Contingent payments in excess of the fixed minimum payments arerecognized when reported by theater operators, provided collectibility is reasonably assured.For operating leases, initial payments and fixed minimum ongoing payments are recognized as revenue on a straight-line basis over the lease term. Foroperating leases, the lease term is considered to commence when all of the following conditions have been met: (i) the projector, sound system and screensystem have been installed and in full working condition; (ii) the 3D glasses cleaning machine, if applicable, has been delivered; (iii) projectionist traininghas been completed; and (iv) the earlier of (a) receipt of written customer acceptance certifying the completion of installation and run-in testing of theequipment and the completion of projectionist training or (b) public opening of the theater. Contingent payments in excess of fixed minimum ongoingpayments are recognized as revenue when reported by theater operators, provided collectibility is reasonably assured.Revenues from joint revenue sharing arrangements with upfront payments that qualify for classification as sales and sales-type leases are recognized inaccordance with the sales and sales-type lease criteria discussed above. Contingent revenues from joint revenue sharing arrangements are recognized as box-office results and concessions revenues are reported by the theater operator, provided collectibility is reasonably assured. 93Table of ContentsFinance IncomeFinance income is recognized over the term of the sales-type lease or financed sales receivable, provided collectibility is reasonably assured. Financeincome recognition ceases when the Company determines that the associated receivable is not collectible.Finance income is suspended when the Company identifies a theater that is delinquent, non-responsive or not negotiating in good faith with theCompany. Once the collectability issues are resolved the Company will resume recognition of finance income.Improvements and ModificationsImprovements and modifications to the theater system after installation are treated as separate revenue transactions, if and when the Company isrequested to perform these services. Revenue is recognized for these services when the performance of the services has been completed, provided there ispersuasive evidence of an arrangement, the fee is fixed or determinable and collectibility is reasonably assured.Cost of Equipment and Product SalesTheater systems and other equipment subject to sales-type leases and sales arrangements includes the cost of the equipment and costs related to projectmanagement, design, delivery and installation supervision services as applicable. The costs related to theater systems under sales and sales-type leasearrangements are relieved from inventory to costs and expenses applicable to revenues-equipment and product sales when revenue recognition criteria aremet. In addition, the Company defers direct selling costs such as sales commissions and other amounts related to these contracts until the related revenue isrecognized. These costs included in costs and expenses applicable to revenues-equipment and product sales, totaled $2.5 million in 2014 (2013 – $2.5million, 2012 – $2.7 million). The cost of equipment and product sales prior to direct selling costs was $34.5 million in 2014 (2013 – $35.0 million, 2012 –$34.8 million). The Company may have warranty obligations at or after the time revenue is recognized which require replacement of certain parts that do notaffect the functionality of the theater system or services. The costs for warranty obligations for known issues are accrued as charges to costs and expensesapplicable to revenues-equipment and product sales at the time revenue is recognized based on the Company’s past historical experience and cost estimates.Cost of RentalsFor theater systems and other equipment subject to an operating lease or placed in a theater operators’ venue under a joint revenue sharingarrangement, the cost of equipment and those costs that result directly from and are essential to the arrangement, is included within property, plant andequipment. Depreciation and impairment losses, if any, are included in cost of rentals based on the accounting policy set out in note 2(g). Commissions arerecognized as costs and expenses applicable to revenues-rentals in the month they are earned, which is typically the month of installation. These costs totaled$1.1 million in 2014 (2013 — $1.9 million, 2012 — $1.5 million). Direct advertising and marketing costs for each theater are charged to costs and expensesapplicable to revenues-rentals as incurred. These costs totaled $1.5 million in 2014 (2013 — $1.7 million, 2012 — $1.9 million).Terminations, Consensual Buyouts and ConcessionsThe Company enters into theater system arrangements with customers that contain customer payment obligations prior to the scheduled installation ofthe theater system. During the period of time between signing and the installation of the theater system, which may extend several years, certain customersmay be unable to, or may elect not to, proceed with the theater system installation for a number of reasons including business considerations, or the inabilityto obtain certain consents, approvals or financing. Once the determination is made that the customer will not proceed with installation, the arrangement maybe terminated under the default provisions of the arrangement or by mutual agreement between the Company and the customer (a “consensual buyout”).Terminations by default are situations when a customer does not meet the payment obligations under an arrangement and the Company retains the amountspaid by the customer. Under a consensual buyout, the Company and the customer agree, in writing, to a settlement and to release each other of any furtherobligations under the arrangement or an arbitrated settlement is reached. Any initial payments retained or additional payments received by the Company arerecognized as revenue when the settlement arrangements are executed and the cash is received, respectively. These termination and consensual buyoutamounts are recognized in Other revenues.In addition, the Company could agree with customers to convert their obligations for other theater system configurations that have not yet beeninstalled to arrangements to acquire or lease the IMAX digital theater system. The Company considers these situations to be a termination of the previousarrangement and origination of a new arrangement for the IMAX digital theater system. For all arrangements entered into or modified prior to the date ofadoption of the amended FASB ASC 605-25, the Company continues to 94Table of Contentsdefer an amount of any initial fees received from the customer such that the aggregate of the fees deferred and the net present value of the future fixed initialand ongoing payments to be received from the customer equals the selling price of the IMAX digital theater system to be leased or acquired by the customer.Any residual portion of the initial fees received from the customer for the terminated theater system is recorded in other revenues at the time when theobligation for the original theater system is terminated and the new theater system arrangement is signed. Under the amended FASB ASC 605-25, for allarrangements entered into or materially modified after the date of adoption, the total arrangement consideration to be received is allocated on a relativeselling price basis to the digital upgrade and the termination of the previous theater system. The arrangement consideration allocated to the termination ofthe existing arrangement is recorded in Other revenues at the time when the obligation for the original theater system is terminated and the new theatersystem arrangement is signed.The Company may offer certain incentives to customers to complete theater system transactions including payment concessions or free services andproducts such as film licenses or 3D glasses. Reductions in, and deferral of, payments are taken into account in determining the sales price either by a directreduction in the sales price or a reduction of payments to be discounted in accordance with the Leases or Interests Topic of the FASB ASC. Free products andservices are accounted for as separate units of accounting. Other consideration given by the Company to customers are accounted for in accordance with theRevenue Recognition Topic of the FASB ASC.Maintenance and Extended Warranty ServicesMaintenance and extended warranty services may be provided under a multiple element arrangement or as a separately priced contract. Revenuesrelated to these services are deferred and recognized on a straight-line basis over the contract period and are recognized in Services revenues. Maintenanceand extended warranty services includes maintenance of the customer’s equipment and replacement parts. Under certain maintenance arrangements,maintenance services may include additional training services to the customer’s technicians. All costs associated with this maintenance and extendedwarranty program are expensed as incurred. A loss on maintenance and extended warranty services is recognized if the expected cost of providing the servicesunder the contracts exceeds the related deferred revenue.Film Production and IMAX DMR ServicesIn certain film arrangements, the Company produces a film financed by third parties whereby the third party retains the copyright and the Companyobtains exclusive distribution rights. Under these arrangements, the Company is entitled to receive a fixed fee or to retain as a fee the excess of funding overcost of production (the “production fee”). The third parties receive a portion of the revenues received by the Company from distributing the film, which ischarged to costs and expenses applicable to revenues-services. The production fees are deferred, and recognized as a reduction in the cost of the film based onthe ratio of the Company’s distribution revenues recognized in the current period to the ultimate distribution revenues expected from the film. Filmexploitation costs, including advertising and marketing totaled $7.1 million in 2014 (2013 — $4.2 million, 2012 — $3.3 million) and are recorded in costsand expenses applicable to revenues-services as incurred.Revenue from film production services where the Company does not hold the associated distribution rights are recognized in Services revenues whenperformance of the contractual service is complete, provided there is persuasive evidence of an agreement, the fee is fixed or determinable and collectibilityis reasonably assured.Revenues from digitally re-mastering (IMAX DMR) films where third parties own or hold the copyrights and the rights to distribute the film are derivedin the form of processing fees and recoupments calculated as a percentage of box-office receipts generated from the re-mastered films. Processing fees arerecognized as Services revenues when the performance of the related re-mastering service is completed provided there is persuasive evidence of anarrangement, the fee is fixed or determinable and collectibility is reasonably assured. Recoupments, calculated as a percentage of box-office receipts, arerecognized as Services revenue when box-office receipts are reported by the third party that owns or holds the related film rights, provided collectibility isreasonably assured.Losses on film production and IMAX DMR services are recognized as costs and expenses applicable to revenues-services in the period when it isdetermined that the Company’s estimate of total revenues to be realized by the Company will not exceed estimated total production costs to be expended onthe film production and the cost of IMAX DMR services.Film Distribution 95Table of ContentsRevenue from the licensing of films is recognized in Services revenues when persuasive evidence of a licensing arrangement exists, the film has beencompleted and delivered, the license period has begun, the fee is fixed or determinable and collectibility is reasonably assured. When license fees are basedon a percentage of box-office receipts, revenue is recognized when box-office receipts are reported by exhibitors, provided collectibility is reasonablyassured. Film exploitation costs, including advertising and marketing, totaled $0.6 million in 2014 (2013 — $0.4 million, 2012 — $1.5 million) and arerecorded in costs and expenses applicable to revenues-services as incurred.Film Post-Production ServicesRevenues from post-production film services are recognized in Services revenues when performance of the contracted services is complete providedthere is persuasive evidence of an arrangement, the fee is fixed or determinable and collectibility is reasonably assured.OtherThe Company recognizes revenue in Services revenues from its owned and operated theaters resulting from box-office ticket and concession sales astickets are sold, films are shown and upon the sale of various concessions. The sales are cash or credit card transactions with theatergoers based on fixedprices per seat or per concession item.In addition, the Company enters into commercial arrangements with third party theater owners resulting in the sharing of profits and losses which arerecognized in Services revenues when reported by such theaters. The Company also provides management services to certain theaters and recognizes revenueover the term of such services.Revenues on camera rentals are recognized in Rental revenues over the rental period.Revenue from the sale of 3D glasses is recognized in Equipment and product sales revenue when the 3D glasses have been delivered to the customer.Other service revenues are recognized in Service revenues when the performance of contracted services is complete.(n) Research and DevelopmentResearch and development costs are expensed as incurred and primarily include projector and sound parts, labor, consulting fees, allocation ofoverheads and other related materials which pertain to the Company’s development of ongoing product and services. Research and development costspertaining to fixed and intangible assets that have alternative future uses are capitalized and amortized under their related policies.(o) Foreign Currency TranslationMonetary assets and liabilities of the Company’s operations which are denominated in currencies other than the functional currency are translated intothe functional currency at the exchange rates prevailing at the end of the period. Non-monetary items are translated at historical exchange rates. Revenue andexpense transactions are translated at exchange rates prevalent at the transaction date. In 2013, the Company determined that the functional currency of oneof its wholly-owned subsidiaries had changed from the Company’s reporting currency to the currency of the nation in which it is domiciled. As a result, inaccordance with the FASB ASC 830 “Foreign Currency Matters”, the adjustment attributable to current-rate translation of non-monetary assets as of the dateof the change was reported in other comprehensive income (“OCI”). The functional currency of its other wholly-owned subsidiaries continues to be theUnited States dollar. Foreign exchange translation gains and losses are included in the determination of earnings in the period in which they arise.Foreign currency derivatives are recognized and measured in the balance sheet at fair value. Changes in the fair value (gains or losses) are recognizedin the consolidated statement of operations except for derivatives designated and qualifying as foreign currency hedging instruments. For foreign currencyhedging instruments, the effective portion of the gain or loss in a hedge of a forecasted transaction is reported in other comprehensive income and reclassifiedto the consolidated statement of operations when the forecasted transaction occurs. Any ineffective portion is recognized immediately in the consolidatedstatement of operations. 96Table of Contents(p) Stock-Based CompensationThe Company’s stock-based compensation generally includes stock options, restricted share units (“RSUs”) and stock appreciation rights (“SARs”).Stock-based compensation is recognized in accordance with the FASB ASC Topic 505, “Equity” and Topic 718, “Compensation-Stock Compensation.”The Company estimates the fair value of stock option and SAR awards on the date of grant using fair value measurement techniques such as an option-pricing model. The fair value of RSU awards is equal to the closing price of the Company’s common stock on the date of grant. The value of the portion ofthe employee award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s consolidated statementof operations.The Company utilizes a lattice-binomial option-pricing model (“Binomial Model”) to determine the fair value of stock option and SAR awards. Thefair value determined by the Binomial Model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex andsubjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and actualand projected employee stock option exercise behaviors. The Binomial Model also considers the expected exercise multiple which is the multiple of exerciseprice to grant price at which exercises are expected to occur on average. Option-pricing models were developed for use in estimating the value of tradedoptions that have no vesting or hedging restrictions and are fully transferable. Because the Company’s employee stock options have certain characteristicsthat are significantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, inmanagement’s opinion, the Binomial Model best provides a fair measure of the fair value of the Company’s employee stock options. See note 14(c) for theassumptions used to determine the fair value of stock-based payment awards.Stock-based compensation expense includes compensation cost for employee stock-based payment awards granted and all modified, repurchased orcancelled employee awards. In addition, compensation expense includes the compensation cost, based on the grant-date fair value calculated for pro formadisclosures under ASC 718-10-55, for the portion of awards for which required service had not been rendered that were outstanding. Compensation expensefor these employee awards is recognized using the straight-line single-option method. As stock-based compensation expense recognized is based on awardsultimately expected to vest, it has been adjusted for estimated forfeitures. The Codification requires forfeitures to be estimated at the time of grant andrevised, if subsequent information indicates that the actual forfeitures are likely to be different from previous estimates. The Company utilizes the marketyield on U.S. treasury securities (also known as nominal rate) over the contractual term of the instrument being issued.Stock OptionsAs the Company stratifies its employees into homogeneous groups in order to calculate fair value under the Binomial Model, ranges of assumptionsused are presented for expected option life and annual termination probability. The Company uses historical data to estimate option exercise and employeetermination within the valuation model; various groups of employees that have similar historical exercise behavior are considered separately for valuationpurposes. The expected volatility rate is estimated based on a blended volatility method which takes into consideration the Company’s historical share pricevolatility, the Company’s implied volatility which is implied by the observed current market prices of the Company’s traded options and the Company’s peergroup volatility. The Company utilizes an expected term method to determine expected option life based on such data as vesting periods of awards, historicaldata that includes past exercise and post-vesting cancellations and stock price history.The Company’s policy is to issue new shares from treasury to satisfy stock options which are exercised.Restricted Share UnitsThe Company’s RSUs have been classified as equity in accordance with Topic 505. The fair value of RSU awards is equal to the closing price of theCompany’s common stock on the date of grant.Stock Appreciation RightsThe Company’s SARs have been classified as liabilities in accordance with Topic 505. The Company utilizes the Binomial Model to determine thevalue of these instruments settleable in cash. 97Table of ContentsAwards to Non-EmployeesStock-based awards for services provided by non-employees are accounted for based on the fair value of the services received or the stock-based award,whichever is more reliably determinable. If the fair value of the stock-based award is used, the fair value is measured at the date of the award and remeasureduntil the earlier of the date that the Company has a performance commitment from the non-employees, the date performance is completed, or the date theawards vest.(q) Pension Plans and Postretirement BenefitsThe Company has a defined benefit pension plan, the Supplemental Executive Retirement Plan (the “SERP”). As the Company’s SERP is unfunded, asat December 31, 2014, a liability is recognized for the projected benefit obligation.Assumptions used in computing the defined benefit obligations are reviewed annually by management in consultation with its actuaries and adjustedfor current conditions. Actuarial gains or losses and prior service costs or credits that arise during the period but are not recognized as components of netperiodic benefits cost are recognized as a component of other comprehensive income. Amounts recognized in accumulated other comprehensive incomeincluding unrecognized actuarial gains or losses and prior service costs are adjusted as they are subsequently recognized in the consolidated statement ofoperations as components of net periodic benefit cost. Prior service costs resulting from the pension plan inception or amendments are amortized over theexpected future service life of the employees, cumulative actuarial gains and losses in excess of 10% of the projected benefit obligation are amortized overthe expected average remaining service life of the employees, and current service costs are expensed when earned. The remaining weighted average futureservice life of the employee used in computing the defined benefit obligation for the year ended December 31, 2014 was 2.0 years.For defined contribution pension plans, required contributions by the Company are recorded as an expense.A liability is recognized for the unfunded accumulated benefit obligation of the postretirement benefits plan. Assumptions used in computing theaccumulated benefit obligation are reviewed by management in consultation with its actuaries and adjusted for current conditions. Current service cost isrecognized as incurred and actuarial gains and losses are recognized as a component of other comprehensive income (loss). Amounts recognized inaccumulated other comprehensive income (loss) including unrecognized actuarial gains or losses are adjusted as they are subsequently recognized in theconsolidated statement of operations as components of net periodic benefit cost.(r) GuaranteesThe FASB ASC Guarantees Topic requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of certain guarantees.Disclosures as required under the accounting guidance have been included in note 13(i).3. New Accounting Standards and Accounting ChangesAdoption of New Accounting PoliciesIn February 2013, the FASB issued ASU No. 2013-04, “Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangementsfor Which the Total Amount of the Obligation Is Fixed at the Reporting Date” (“ASU 2013-04”). The purpose of ASU 2013-04 is to provide guidance for therecognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligationwithin the scope of this guidance is fixed at the reporting date, except for obligations addressed within existing guidance in U.S. GAAP. ASU 2013-04requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scopeof this guidance is fixed at the reporting date, as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors, as well as the nature and amount of the obligation as wellas other information about those obligations. For public entities, the amendments are effective for fiscal years and interim reporting periods beginning afterDecember 15, 2013. The Company adopted the amended standard on January 1, 2014. The adoption of the amended standard did not have a material impacton the Company’s consolidated financial statements.In March 2013, the FASB issued ASU No. 2013-05, “Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative TranslationAdjustment upon Derecognition of Certain subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity” (“ASU 2013-05”). The purpose of ASU 2013-05 is to resolve the diversity in practice in relation to the treatment of the release of cumulative translation adjustments(“CTA”) upon sale (in full or part) of a foreign investment. It applies 98Table of Contentsto the release of the CTA into net income when a parent either sells a part of all of its investment in a foreign entity or no longer holds a controlling financialinterest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. For public entities, the amendments are effective forfiscal years and interim reporting periods beginning after December 15, 2013. The Company adopted the amended standard on January 1, 2014. Theadoption of the amended standard did not have a material impact on the Company’s consolidated financial statements.In April 2013, the FASB issued ASU No. 2013-07, “Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting” (“ASU 2013-07”). The amendments of ASU 2013-07 require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation isimminent and to present relevant information about an entity’s expected resources in liquidation by measuring and presenting assets at the amount of theexpected cash proceeds from liquidation. The amendments are effective for entities that determine liquidation is imminent during annual reporting periodsbeginning after December 15, 2013 and interim periods therein. Standards should be applied prospectively from the day liquidation becomes imminent. TheCompany adopted the amended standard on January 1, 2014. The adoption of the amended standard did not have a material impact on the Company’sconsolidated financial statements.In July 2013, the FASB issued ASU No. 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net OperatingLoss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force)” (“ASU 2013-11”). Theamendments of ASU 2013-11 provide entities with guidance of how to present a provision for uncertain tax positions in the financial statements when a netoperating loss carryforward, a similar tax loss, or a tax credit carryforward exists. For public entities, the amendments are effective for fiscal years and interimreporting periods beginning after December 15, 2013. The Company adopted the amended standard on January 1, 2014. The adoption of the amendedstandard did not have a material impact on the Company’s consolidated financial statements.In December 2013, the FASB issued ASU No. 2013-12, “Definition of a Public Business Entity” (“ASU 2013-12”). The amendments of ASU 2013-12provide entities with a single definition of a Public Business Entity for use in future financial accounting and reporting guidance in 2014 and onwards. TheCompany adopted the amended standard on January 1, 2014. The adoption of the amended standard did not have a material impact on the Company’sconsolidated financial statements.Recently Issued FASB Accounting Standard Codification UpdatesIn May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contract with Customers (Topic 606)” “ASU 2014-09”). The purpose of theamendment is to clarify the principles for recognizing revenue and developing common revenue standards between U.S. GAAP and IFRS, through theapplication of a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers. Under this amendedstandard, the Company will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration towhich the Company expects to be entitled in exchange for those goods or services. For public entities, the amendments are effective for interim and annualreporting periods beginning after December 15, 2016. The Company is currently assessing the impact of ASU 2014-09 on its consolidated financialstatements.Recently issued FASB accounting standard codification updates, except for ASU No. 2014-09, were not material to the Company’s consolidatedfinancial statements for the year ended December 31, 2014. 99Table of Contents4. Lease Arrangements(a) General Terms of Lease ArrangementsA number of the Company’s leases are classified as sales-type leases. Certain arrangements that are legal sales are also classified as sales-type leases ascertain clauses within the arrangements limit transfer of title or provide the Company with conditional rights to the system. The customer’s rights under theCompany’s lease arrangements are described in note 2(m). The Company classifies its lease arrangements at inception of the arrangement and, if required,after a modification of the lease arrangement, to determine whether they are sales-type leases or operating leases. Under the Company’s lease arrangements,the customer has the ability and the right to operate the hardware components or direct others to operate them in a manner determined by the customer. TheCompany’s lease portfolio terms are typically non-cancellable for 10 to 20 years with renewal provisions from inception. Except for those sales arrangementsthat 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. TheCompany’s lease arrangements do not contain a guarantee of residual value at the end of the lease term. The customer is required to pay for executory costssuch 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 endof the lease term. The customer is responsible for obtaining insurance coverage for the theater systems commencing on the date specified in the arrangement’sshipping terms and ending on the date the theater systems are delivered back to the Company.The Company has assessed the nature of its joint revenue sharing arrangements and concluded that, based on the guidance in the Revenue RecognitionTopic of the ASC, the arrangements contain a lease. Under joint revenue sharing arrangements, the customer has the ability and the right to operate thehardware components or direct others to operate them in a manner determined by the customer. The Company’s joint revenue sharing arrangements aretypically non-cancellable for 10 years or longer with renewal provisions. Title to equipment under joint revenue sharing arrangements does not transfer to thecustomer. 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 topay for executory costs such as insurance and taxes and is required to pay the Company for maintenance and extended warranty throughout the term. Thecustomer is responsible for obtaining insurance coverage for the theater systems commencing on the date specified in the arrangement’s shipping terms andending on the date the theater systems are delivered back to the Company. See additional details regarding the Company’s traditional and hybrid jointrevenue sharing arrangements as described in note 2(m).(b) Financing ReceivablesFinancing receivables, consisting of net investment in sales-type leases and receivables from financed sales of theater systems are as follows: As at December 31, 2014 2013 Gross minimum lease payments receivable $13,928 $17,475 Unearned finance income (2,357) (3,052) Minimum lease payments receivable 11,571 14,423 Accumulated allowance for uncollectible amounts (972) (806) Net investment in leases 10,599 13,617 Gross financed sales receivables 131,155 129,398 Unearned finance income (35,560) (35,669) Financed sales receivables 95,595 93,729 Accumulated allowance for uncollectible amounts (494) (236) Net financed sales receivables 95,101 93,493 Total financing receivables$105,700 $107,110 Net financed sales receivables due within one year$15,544 $17,335 Net financed sales receivables due after one year$79,557 $76,158 In 2014, the financed sales receivables had a weighted average effective interest rate of 9.6% (2013 — 9.8%). 100Table of Contents(c) Contingent FeesContingent fees that meet the Company’s revenue recognition policy, from customers under various arrangements, have been reported in revenue asfollows: Years Ended December 31, 2014 2013 2012 Sales $2,058 $2,493 $1,797 Sales-type leases 102 184 308 Operating leases 886 1,009 930 Subtotal - sales, sales-type leases and operating leases 3,046 3,686 3,035 Joint revenue sharing arrangements 57,973 58,694 48,133 $61,019 $62,380 $51,168 (d) Future Minimum Rental PaymentsFuture minimum rental payments receivable from operating and sales-type leases at December 31, 2014, for each of the next five years are as follows: Operating Leases Sales-Type Leases 2015 $1,912 $2,543 2016 1,278 2,284 2017 1,249 1,871 2018 1,155 1,550 2019 1,005 2,728 Thereafter 4,026 2,398 Total$10,625 $13,374 Total future minimum rental payments receivable from sales-type leases at December 31, 2014 exclude $0.6 million which represents amounts billedbut not yet received.5. Inventories As at December 31, 2014 2013 Raw materials $9,147 $4,321 Work-in-process 1,211 500 Finished goods 6,705 5,004 $17,063 $9,825 At December 31, 2014, finished goods inventory for which title had passed to the customer and revenue was deferred amounted to $1.4 million(December 31, 2013 — $1.7 million).Inventories at December 31, 2014 include write-downs for excess and obsolete inventory based upon current estimates of net realizable valueconsidering future events and conditions of $0.4 million (December 31, 2013 — $0.4 million). 101Table of Contents6. Film Assets As at December 31, 2014 2013 Completed and released films, net of accumulated amortization of $96,214 (2013 — $84,363) $8,018 $5,583 Films in production 1,758 750 Films in development 5,387 743 $15,163 $7,076 The Company expects to amortize film costs of $7.1 million for released films within three years from December 31, 2014 (December 31, 2013 —$5.0 million), including $3.1 million, which reflects the portion of the costs of the Company’s completed films that are expected to be amortized within thenext year. The amount of participation payments to third parties related to these films that the Company expects to pay during 2015, which is included inaccrued liabilities at December 31, 2014, is $5.0 million (2013 — $3.6 million).7. Property, Plant and Equipment As at December 31, 2014 Cost AccumulatedDepreciation Net BookValue Equipment leased or held for use Theater system components(1)(2)(3)(4) $179,236 $63,862 $115,374 Camera equipment(8) 5,253 2,874 2,379 184,489 66,736 117,753 Assets under construction(5)(6) 43,250 — 43,250 Other property, plant and equipmentLand 8,180 — 8,180 Buildings 16,584 10,998 5,586 Office and production equipment(7) 27,996 19,659 8,337 Leasehold improvements 9,937 9,619 318 62,697 40,276 22,421 $290,436 $107,012 $183,424 As at December 31, 2013 Cost AccumulatedDepreciation Net BookValue Equipment leased or held for use Theater system components(1)(2)(3) $158,192 $51,537 $106,655 Camera equipment(8) 4,591 2,736 1,855 162,783 54,273 108,510 Assets under construction(5) 8,055 — 8,055 Other property, plant and equipmentLand 1,593 — 1,593 Buildings 15,832 10,410 5,422 Office and production equipment(7) 27,190 18,707 8,483 Leasehold improvements 9,884 9,100 784 54,499 38,217 16,282 $225,337 $92,490 $132,847 102Table of Contents(1)Included in theater system components are assets with costs of $15.3 million (2013 — $14.3 million) and accumulated depreciation of $9.1 million(2013 — $8.6 million) that are leased to customers under operating leases.(2)Included in theater system components are assets with costs of $157.6 million (2013 — $138.1 million) and accumulated depreciation of $50.2 million(2013 — $38.4 million) that are used in joint revenue sharing arrangements.(3)In 2014 and 2013, the Company identified and wrote off $0.3 million and less than $0.1 million, respectively of theater system components that are nolonger in use and fully amortized.(4)During 2013, the Company signed an amending agreement governing one of its joint revenue sharing arrangements which increased the length of theterm for all IMAX theater systems under that arrangement from 10 to 13 years. As a result, the Company adjusted the estimated useful life of its IMAXdigital projection systems in use for those joint revenue sharing theaters, on a prospective basis, to reflect the change in term from 10 years to 13 years.This has resulted in decreased depreciation expense of $0.7 million in 2013 and $1.4 million in each of the next 5 years as the theater systems will nowbe depreciated over a longer estimated useful life.(5)Included in assets under construction are components with costs of $0.1 million (2013 — $4.8 million) that will be utilized to construct assets to beused in joint revenue sharing arrangements.(6)Included in assets under construction is $40.1 million, including accrued expenditures of $12.2 million, for the construction of a new office facility inCalifornia.(7)Fully amortized office and production equipment is still in use by the Company. In 2014, the Company identified and wrote off $2.0 million (2013 -$0.3 million) of office and production equipment that is no longer in use and fully amortized.(8)Fully amortized camera equipment is still in use by the Company. In 2014 and 2013, the Company identified and wrote off $0.3 million and $1.8million, respectively of camera equipment that is no longer in use and fully amortized.8. Other Assets As at December 31, 2014 2013 Prepaid taxes (note 9) $8,174 $— Lease incentives provided to theaters 5,785 5,172 Commissions and other deferred selling expenses 3,448 2,586 Equity-accounted investments 2,765 404 Deferred charges on debt financing 2,120 2,218 Investment in new business ventures 619 5,380 Insurance recoverable (note 13) 136 11,094 Other — 180 $23,047 $27,034 9. Income Taxes(a) Income (loss) from continuing operations before income taxes by tax jurisdiction are comprised of the following: Years Ended December 31, 2014 2013 2012 Canada $15,453 $51,593 $55,477 United States 10,350 678 3,148 China 26,327 12,012 (476) Other 5,221 (473) 141 $57,351 $63,810 $58,290 103Table of Contents(b) The (provision for) recovery of income taxes related to income from continuing operations is comprised of the following: Years Ended December 31, 2014 2013 2012 Current: Canada $(3,495) $(1,068) $(370) United States (4,072) (144) 15 China (6,023) (2,317) — Other (249) (201) — (13,839) (3,730) (355) Deferred:(1)Canada 433 (13,198) (14,441) United States (791) 214 (420) China (216) (252) 137 Other (53) 337 — (627) (12,899) (14,724) $(14,466) $(16,629) $(15,079) (1)For the year ended December 31, 2014, the Company has decreased the valuation allowance by $4.4 million (2013 - $1.4 million decrease) relating tothe future utilization of deductible temporary differences, tax credits, and certain net operating loss carryforwards, of which $0.4 million was recordedto deferred income tax expense and $4.0 million was recorded to share capital. Also included in the provision for income taxes is the deferred taxrelated to amounts recorded in and reclassified from other comprehensive income in the year of $0.8 million.(c) The provision for income taxes from continuing operations differs from the amount that would have resulted by applying the combined Canadianfederal and provincial statutory income tax rates to earnings due to the following: Years Ended December 31, 2014 2013 2012 Income tax provision at combined statutory rates $(15,189) $(16,914) $(15,447) Adjustments resulting from: Non-deductible stock based compensation (2,244) (2,603) (3,166) Other non-deductible/non-includable items 1,257 (341) 12 Decrease in valuation allowance relating to current year temporary differences 429 341 43 Changes to tax reserves 230 84 833 U.S. federal and state taxes (200) (144) 45 Income tax at different rates in foreign and other provincial jurisdictions 516 918 (56) Investment and other tax credits (non-refundable) 1,773 1,041 1,368 Effect of changes in legislation relating to enacted tax rate increases — — 494 Changes to deferred tax assets and liabilities resulting from audit and other taxreturn adjustments (1,013) 11 483 Tax effect of loss from equity-accounted investments (41) 1,040 463 Other 16 (62) (151) Provision for income taxes, as reported$(14,466) $(16,629) $(15,079) 104Table of Contents(d) The net deferred income tax asset is comprised of the following: As at December 31, 2014 2013 Net operating loss carryforwards $1,091 $15,377 Investment tax credit and other tax credit carryforwards 225 6,615 Write-downs of other assets 681 255 Excess tax over accounting basis in property, plant and equipment and inventories 8,062 (852) Accrued pension liability 6,496 5,287 Other accrued reserves 7,955 4,138 Total deferred income tax assets 24,510 30,820 Income recognition on net investment in leases (1,142) (1,807) 23,368 29,013 Valuation allowance (310) (4,754) Net deferred income tax asset$23,058 $24,259 The gross deferred tax assets include an asset of $0.7 million relating to the remaining tax effect resulting from the Company’s defined benefit pensionplan and postretirement benefit plans, the related actuarial gains and losses and unrealized net gains and losses on cash flow hedging instruments recorded inaccumulated other comprehensive loss.During the year, the Company and its subsidiaries completed a number of intra-entity sale of assets. The Company has deferred or eliminated therelated tax expense and deferred taxes specifically associated with such intra-entity transfers, and is included in Other Assets as disclosed in note 8.The Company has not provided Canadian taxes on cumulative earnings of non-Canadian affiliates and associated companies that have been reinvestedindefinitely. Taxes are provided for earnings of non-Canadian affiliates and associated companies when the Company determines that such earnings are nolonger indefinitely reinvested.(e) Estimated net operating loss carryforwards (excluding state losses) and estimated tax credit carryforwards expire as follows: Investment TaxCredits andOtherTax CreditCarryforwards Net OperatingLossCarryforwards 2015 $— $20 2016 — — 2017 — — 2018 — — 2019 — — Thereafter 1,709 665 $1,709 $685 Estimated net operating loss carryforwards can be carried forward to reduce taxable income through to 2028. Investment tax credits and other taxcredits can be carried forward to reduce income taxes payable through to 2034.(f) Valuation allowanceThe provision for income taxes in the year ended December 31, 2014 includes a net income tax recovery of $0.4 million (2013 - $0.3 million recovery)in continuing operations related to a decrease in the valuation allowance for the Company’s deferred tax assets and other tax adjustments. In 2014, theCompany reversed $4.4 million in valuation allowance relating to current period deductible temporary differences and the utilization of loss carryforwards,of which $0.4 million was included in the provision for income taxes 105Table of Contentsand $4.0 million was included directly to shareholders’ equity. During the year ended December 31, 2014, after considering all available evidence, bothpositive (including recent and historical profits, projected future profitability, backlog, carryforward periods for, and utilization of net operating losscarryovers and tax credits, discretionary deductions and other factors) and negative (including cumulative losses in past years and other factors), it wasconcluded that the valuation allowance against the Company’s deferred tax assets should be reversed by approximately $4.4 million (2013 - $1.4 milliondecrease). The remaining $0.3 million (2013 - $4.8 million) balance in the valuation allowance as at December 31, 2014 is primarily attributable to certainU.S. state net operating loss carryovers that may expire unutilized.(g) Uncertain tax positionsIn connection with the Company’s adoption of FIN 48, as of January 1, 2007, the Company recorded a net increase to its deficit of $2.1 million(including approximately $0.9 million related to accrued interest and penalties) related to the measurement of potential international withholding taxrequirements and a decrease in reserves for income taxes. As at December 31, 2014 and December 31, 2013, the Company had total unrecognized tax benefits(including interest and penalties) of $2.3 million and $2.7 million, respectively, for international withholding taxes. All of the unrecognized tax benefitscould impact the Company’s effective tax rate if recognized. While the Company believes it has adequately provided for all tax positions, amounts assertedby taxing authorities could differ from the Company’s accrued position. Accordingly, additional provisions on federal, provincial, state and foreign tax-related matters could be recorded in the future as revised estimates are made or the underlying matters are settled or otherwise resolved.A reconciliation of the beginning and ending amount of unrecognized tax benefits (excluding interest and penalties) for the years ended December 31,is as follows: (In thousands of U.S. Dollars) 2014 2013 2012 Balance at beginning of the year $2,202 $2,286 $3,119 Additions based on tax positions related to the current year 237 210 392 Reductions for tax positions of prior years — — (77) Settlements — — (38) Reductions resulting from lapse of applicable statute of limitations and administrativepractices (467) (294) (1,110) Balance at the end of the year$1,972 $2,202 $2,286 Consistent with its historical financial reporting, the Company has elected to classify interest and penalties related to income tax liabilities, whenapplicable, as part of the interest expense in its consolidated statements of operations rather than income tax expense. The Company recovered $0.2 millionin potential interest and penalties associated with its provision for uncertain tax positions for the years ended December 31, 2014 (2013 - less than $0.1million recovery, 2012 - $0.8 million recovery).The number of years with open tax audits varies depending on the tax jurisdiction. The Company’s major taxing jurisdictions include Canada, theprovince of Ontario, the United States (including multiple states) and China.The Company’s 2009 through 2014 tax years remain subject to examination by the IRS for U.S. federal tax purposes, and the 2006 through 2014 taxyears remain subject to examination by the appropriate governmental agencies for Canadian federal tax purposes. There are other on-going audits in variousother jurisdictions that are not material to the financial statements. 106Table of Contents(h) Income Tax Effect on Comprehensive IncomeThe income tax benefit (expense) related to the following items included in other comprehensive income are: 2014 2013 2012 Unrecognized actuarial gain or loss on defined benefit plan $225 $(588) $285 Amortization of actuarial loss on defined benefit plan — (114) (91) Unrecognized actuarial gain or loss on postretirement benefit plans 151 43 33 Amortization of actuarial gain on postretirement benefit plan 8 — — Gain on curtailment of postretirement benefit plan — (100) — Other-than-temporary impairment of available-for-sale investment (45) — (19) Change in market value of available-for-sale investment — 45 (42) Unrealized change in cash flow hedging instruments 658 264 (185) Realized change in cash flow hedging instruments upon settlement (306) (80) 62 Foreign currency translation adjustments 59 26 — $750 $(504) $43 107Table of Contents10. Other Intangible Assets As at December 31, 2014 Cost AccumulatedAmortization Net BookValue Patents and trademarks $9,686 $5,967 $3,719 Licenses and intellectual property 20,490 4,867 15,623 Other 9,873 1,664 8,209 $40,049 $12,498 $27,551 As at December 31, 2013 Cost AccumulatedAmortization Net BookValue Patents and trademarks $8,774 $5,741 $3,033 Licenses and intellectual property 19,950 3,260 16,690 Other 8,843 821 8,022 $37,567 $9,822 $27,745 Other intangible assets of $9.9 million are comprised mainly of the Company’s investment in a new enterprise resource planning system, which theCompany started amortizing on January 1, 2013. Fully amortized other intangible assets are still in use by the Company. In 2014, the Company identifiedand wrote off $0.1 million (2013 – $0.1 million) of patents and trademarks that are no longer in use.During 2014, the Company acquired $2.9 million in other intangible assets. The net book value of these other intangible assets was $2.6 million as atDecember 31, 2014. The weighted average amortization period for these additions is 10 years.During 2014, the Company incurred costs of $0.1 million to renew or extend the term of acquired patents and trademarks which were recorded inselling, general and administrative expenses (2013 – $0.1 million).The estimated amortization expense for each of the years ended December 31, are as follows: 2015$ 2,961 2016 2,787 2017 2,787 2018 2,787 2019 2,787 108Table of Contents11. Credit Facility and Playa Vista Construction LoanOn February 7, 2013, the Company amended and restated the terms of its existing senior secured credit facility (the “Prior Credit Facility”). Theamended and restated facility (the “Credit Facility”), with a scheduled maturity of February 7, 2018, has a maximum borrowing capacity of $200.0 million.The Prior Credit Facility had a maximum borrowing capacity of $110.0 million. Certain of the Company’s subsidiaries serve as guarantors (the “Guarantors”)of the Company’s obligations under the Credit Facility. The Credit Facility is collateralized by a first priority security interest in substantially all of thepresent and future assets of the Company and the Guarantors. In 2014, the Company amended the terms of the Credit Facility to obtain consents from thelenders named therein to allow it to enter into certain corporate transactions, including the sale of a 20.0% interest in IMAX China Holding, Inc. (“IMAXChina”), and the Playa Vista Loan described below.The terms of the Credit Facility are set forth in the Third Amended and Restated Credit Agreement (as amended, the “Credit Agreement”), datedFebruary 7, 2013, among the Company, the Guarantors, the lenders named therein, Wells Fargo Bank, National Association (“Wells Fargo”), as agent andissuing lender (Wells Fargo, together with the lenders named therein, the “Lenders”) and Wells Fargo Securities, LLC, as Sole Lead Arranger and SoleBookrunner and in various collateral and security documents entered into by the Company and the Guarantors. Each of the Guarantors has also entered into aguarantee in respect of the Company’s obligations under the Credit Facility.Under the Credit Facility, the effective interest rate for the year ended December 31, 2014 for the revolving loan portion was nil, as no amounts wereoutstanding during the period (2013 – 2.41%).The Company was in compliance with all of its requirements at December 31, 2014.Total amounts drawn and available under the Credit Facility at December 31, 2014 were $nil and $200.0 million, respectively (December 31, 2013 —$nil and $200.0 million, respectively).As at December 31, 2014, the Company did not have any letters of credit and advance payment guarantees outstanding (December 31, 2013 — $nil),under the Credit Facility.Playa Vista Construction FinancingOn October 6, 2014, IMAX PV Development Inc., a Delaware corporation (“PV Borrower”) and direct wholly-owned subsidiary of IMAX U.S.A. Inc., aDelaware corporation and direct wholly-owned subsidiary of the Company, entered into a construction loan agreement with Wells Fargo. The constructionloan is being used to fund up to $25.7 million (the “Playa Vista Loan”) of the costs of development and construction of the previously announced new WestCoast headquarters of the Company, located in a new office facility in the Playa Vista neighborhood of Los Angeles, California (the “Playa Vista Project”).The total cost of development of the Playa Vista Project is expected to be approximately $50.0 million, with all costs in excess of the Playa Vista Loanbeing provided through funding by the Company.The Playa Vista Loan is secured by a deed of trust from PV Borrower in favor of Wells Fargo, granting a first lien on and security interest in the PlayaVista property and the Playa Vista Project, including all improvements to be constructed thereon, and other documents evidencing and securing the loan (the“Loan Documents”). The Loan Documents include absolute and unconditional payment and completion guarantees provided by the Company to WellsFargo for the performance by PV Borrower of all the terms and provisions of the Playa Vista Loan and the construction and completion of the Playa VistaProject, and an environmental indemnity also provided by the Company.Unless converted from a construction to permanent loan as described below, the Playa Vista Loan will be fully due and payable on April 6, 2016 (the“Maturity Date”).Absent a default, the Playa Vista Loan bears interest at a variable interest rate per annum equal to 2.25% above the 30-day LIBOR rate. The interest rateis subject to adjustment monthly based on the latest 30-day LIBOR rate. Prior to the Maturity Date, PV Borrower is required to make monthly payments ofinterest only. The Playa Vista Loan may be prepaid at any time without premium, but with all accrued interest and other applicable payments.The Loan Documents require the completion of construction no later than 90 days prior to the Maturity Date, subject to delays for certainunforeseeable events. The Loan Documents contain affirmative, negative and financial covenants (including compliance with 109Table of Contentsthe financial covenants of the Company’s outstanding revolving and term senior secured facility with Wells Fargo), agreements, representations, warranties,borrowing conditions, and events of default customary for development projects such as the Playa Vista Project.PV Borrower has the right to convert the Playa Vista Loan from a construction to a permanent loan with a term of 120 months (from the date ofconversion), subject to the satisfaction of certain conditions including completion of the Playa Vista Project. If PV Borrower converts the Playa Vista Loan toa permanent loan, PV Borrower will have the right, subject to certain conditions, to increase the principal balance of the loan up to but not in excess of $30.0million. Upon conversion, the interest rate under the permanent loan will decrease from 2.25% to 2.0% above the 30-day LIBOR rate and PV Borrower will berequired to make monthly payments of combined principal and interest sufficient to fully amortize the loan based on a 15-year straight line amortization.Bank indebtedness includes the following: As at December 31, 2014 2013 Playa Vista Construction Loan $4,710 $— Total amounts drawn and available under the construction loan at December 31, 2014 was $4.7 million and $21.0 million, respectively (December 31,2013 — $nil) at an effective interest rate of 2.42%.In accordance with the loan agreement, the Company is obligated to make payments on the principal of the construction loan as follows: 2015$— 2016 4,710 2017 — 2018 — 2019 — Thereafter — $4,710 Wells Fargo Foreign Exchange FacilityUnder the Credit Facility, the Company is able to purchase foreign currency forward contracts and/or other swap arrangements. The settlement risk onits foreign currency forward contracts was $1.8 million at December 31, 2014 as the notional value exceeded the fair value of the forward contracts. As atDecember 31, 2014, the Company has $36.8 million of such arrangements outstanding.Bank of Montreal FacilityAs at December 31, 2014, the Company has available a $10.0 million facility (December 31, 2013 — $10.0 million) with the Bank of Montreal for usesolely in conjunction with the issuance of performance guarantees and letters of credit fully insured by EDC (the “Bank of Montreal Facility”). As atDecember 31, 2014, the Company has letters of credit and advance payment guarantees outstanding of $0.3 million (2013 — $0.3 million) under the Bank ofMontreal Facility. 110Table of Contents12. Commitments(a) The Company’s lease commitments consist of rent and equipment under operating leases. The Company accounts for any incentives provided overthe term of the lease. Total minimum annual rental payments to be made by the Company as at December 31, 2014 for each of the years ended December 31,are as follows: Operating Leases 2015 $5,364 2016 2,493 2017 1,908 2018 1,851 2019 1,288 Thereafter 49 $12,953 Rent expense was $6.6 million for 2014 (2013 — $6.5 million, 2012 — $6.2 million).Recorded in the accrued liabilities balance as at December 31, 2014 is $1.6 million (December 31, 2013 — $1.7 million) related to accrued rent andlease inducements being recognized as an offset to rent expense over the term of the respective leases.Purchase obligations under long-term supplier contracts as at December 31, 2014 were $35.3 million (December 31, 2013 — $11.8 million).(b) As at December 31, 2014 the Company did not have any letters of credit and advance payment guarantees outstanding (December 31, 2013 —$nil), under the Credit Facility. As at December 31, 2014 the Company had letters of credit and advance payment guarantees outstanding of $0.3 million ascompared to $0.3 million as at December 31, 2013, under the Bank of Montreal Facility.(c) The Company compensates its sales force with both fixed and variable compensation. Commissions on the sale or lease of the Company’s theatersystems are payable in graduated amounts from the time of collection of the customer’s first payment to the Company up to the collection of the customer’slast initial payment. At December 31, 2014, $1.5 million (December 31, 2013 — $1.5 million) of commissions have been accrued and will be payable infuture periods.13. Contingencies and GuaranteesThe Company is involved in lawsuits, claims, and proceedings, including those identified below, which arise in the ordinary course of business. Inaccordance with the Contingencies Topic of the FASB ASC, the Company will make a provision for a liability when it is both probable that a loss has beenincurred and the amount of the loss can be reasonably estimated. The Company believes it has adequate provisions for any such matters. The Companyreviews these provisions in conjunction with any related provisions on assets related to the claims at least quarterly and adjusts these provisions to reflect theimpacts of negotiations, settlements, rulings, advice of legal counsel and other pertinent information related to the case. Should developments in any of thesematters outlined below cause a change in the Company’s determination as to an unfavorable outcome and result in the need to recognize a materialprovision, or, should any of these matters result in a final adverse judgment or be settled for significant amounts, they could have a material adverse effect onthe Company’s results of operations, cash flows, and financial position in the period or periods in which such a change in determination, settlement orjudgment occurs.The Company expenses legal costs relating to its lawsuits, claims and proceedings as incurred.(a) In March 2005, the Company, together with Three-Dimensional Media Group, Ltd. (“3DMG”), filed a complaint in the U.S. District Court for theCentral District of California, Western Division, against In-Three, Inc. (“In-Three”) alleging patent infringement. On March 10, 2006, the Company and In-Three entered into a settlement agreement settling the dispute between the Company and In-Three. Despite the settlement reached between the Company andIn-Three, co-plaintiff 3DMG refused to dismiss its claims against In-Three. Accordingly, the Company and In-Three moved jointly for a motion to dismiss theCompany’s and In-Three’s claims. On August 24, 2010, the Court dismissed all of the claims pending between the Company and In-Three, thus dismissingthe Company from the litigation. 111Table of ContentsOn May 15, 2006, the Company initiated arbitration against 3DMG before the International Centre for Dispute Resolution in New York (the “ICDR”),alleging breaches of the license and consulting agreements between the Company and 3DMG. On June 15, 2006, 3DMG filed an answer denying anybreaches and asserting counterclaims that the Company breached the parties’ license agreement. On June 21, 2007, the ICDR unanimously denied 3DMG’sMotion for Summary Judgment filed on April 11, 2007 concerning the Company’s claims and 3DMG’s counterclaims. The proceeding was suspended onMay 4, 2009 due to failure of 3DMG to pay fees associated with the proceeding. The proceeding was further suspended on October 11, 2010 pendingresolution of reexamination proceedings currently pending involving one of 3DMG’s patents. The Company will continue to pursue its claims vigorouslyand believes that all allegations made by 3DMG are without merit. The Company further believes that the amount of loss, if any, suffered in connection withthe counterclaims would not have a material impact on the financial position or results of operations of the Company, although no assurance can be givenwith respect to the ultimate outcome of the arbitration.(b) In January 2004, the Company and IMAX Theatre Services Ltd., a subsidiary of the Company, commenced an arbitration seeking damages beforethe 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’saffiliate, 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 theamount 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 interestfrom 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 awardmay not be recognized in India. The Company has opposed that application on a number of grounds and seeks to have the ICC award recognized in India. OnJune 13, 2013, the Bombay High Court ruled that it has jurisdiction over the proceeding but on November 19, 2013, the Supreme Court of India stayedproceedings in the High Court pending Supreme Court review of the High Court’s ruling. On June 24, 2011, the Company commenced a proceeding in theOntario Superior Court of Justice for recognition of the ICC final award. On December 2, 2011, the Ontario Court issued an order recognizing the final awardand requiring E-City to pay the Company $30,000 to cover the costs of the application. On December 22, 2014, E-City filed a notice of motion in Ontario toset aside or stay the 2011 order recognizing the arbitral award in Ontario. In January 2013, the Company filed an action in the New York Supreme Courtseeking to collect the amount owed to the Company by certain entities and individuals affiliated with E-City, and on July 11, 2014, the Company moved toamend its petition in the New York matter to have the Canadian judgment recognized as part of this proceeding. The Respondents in the New York actionhave answered and objected to the Company’s petition, and they have moved to dismiss for improper service of process. On July 29, 2014, the Companycommenced a separate proceeding to have the Canadian judgment recognized in New York. On November 26, 2014, E-City filed a motion in the BombayHigh Court seeking to enjoin IMAX from continuing the New York legal proceedings. On February 2, 2015, the Bombay High Court denied E-City’s requestfor an ad interim injunction.(c) The Company and certain of its officers and directors were named as defendants in eight purported class action lawsuits filed between August 11,2006 and September 18, 2006, alleging violations of U.S. federal securities laws. These eight actions were filed in the U.S. District Court for the SouthernDistrict of New York (the “Court”) and were subsequently consolidated by the Court. The plaintiffs filed a consolidated amended class action complaint onOctober 2, 2007, which added PricewaterhouseCoopers LLP, the Company’s auditors, as a defendant. The amended complaint, brought on behalf ofshareholders who purchased the Company’s common stock on the NASDAQ between February 27, 2003 and July 20, 2007 (the “U.S. Class”), allegedprimarily that the defendants engaged in securities fraud by disseminating materially false and misleading statements during the class period regarding theCompany’s revenue recognition of theater system installations, and failing to disclose material information concerning the Company’s revenue recognitionpractices. On March 26, 2012, the parties executed and filed with the Court an amended formal stipulation of settlement and proposed form of notice to theclass. On June 20, 2012 the Court issued an order granting final approval of the settlement. Under the terms of the settlement, members of the U.S. Class whodid not opt out of the settlement released defendants from liability for all claims that were alleged in this action or could have been alleged in this action orany other proceeding (including the action in Canada as described in (d) of this note (the “Canadian Action”) relating to the purchase of the Company’ssecurities on the NASDAQ between February 27, 2003 and July 20, 2007 or the subject matter and facts relating to this action. As part of the settlement and inexchange for the release, defendants agreed to pay $12.0 million to a settlement fund which amount was funded by the carriers of the Company’s directorsand officers insurance policy and by PricewaterhouseCoopers LLP. The settlement was distributed to the U.S. Class on May 5, 2014.(d) A class action lawsuit was filed on September 20, 2006 in the Canadian Court against the Company and certain of its officers and directors, allegingviolations of Canadian securities laws. This lawsuit was brought on behalf of shareholders who acquired the Company’s securities between February 17, 2006and August 9, 2006. The lawsuit seeks $210.0 million in compensatory and punitive damages, as well as costs. For reasons released December 14, 2009, theCanadian Court granted leave to the plaintiffs to amend their statement of claim to plead certain claims pursuant to the Securities Act (Ontario) against theCompany and certain individuals (“the 112Table of ContentsDefendants”) and granted certification of the action as a class proceeding. These are procedural decisions, and do not contain any conclusions binding on ajudge at trial as to the factual or legal merits of the claim. Leave to appeal those decisions was denied. In March 2013, the Defendants obtained an Orderenforcing the settlement Order in the parallel class action in the United States in this Canadian class action lawsuit, with the result that the class in this casewas reduced in size by approximately 85%. A motion by the Plaintiffs for leave to appeal that Order was dismissed. The Company believes the allegationsmade against it in the statement of claim are meritless and will vigorously defend the matter, although no assurance can be given with respect to the ultimateoutcome of such proceedings. The Company’s directors’ and officers’ insurance policy provides for reimbursement of costs and expenses incurred inconnection with this lawsuit as well as potential damages awarded, if any, subject to certain policy limits, exclusions and deductibles.(e) The Company has also been involved in litigation against Gary Tsui (“Tsui”) and related parties in both Canada and China based on Tsui’s theftand use of the Company’s trade secrets. The Company filed a lawsuit against Tsui and other related individuals and entities in the Ontario Superior Court ofJustice on December 8, 2009, through which the Company sought injunctive relief to prohibit Tsui from disclosing or using the Company’s confidential andproprietary information and from competing with the Company. The Ontario Court awarded the injunctive relief sought by the Company on December 22,2009. On April 30, 2013, a warrant was issued for Tsui’s arrest based on his refusal to comply with the orders of the Ontario Court, including with respect tothe continued use of the Company’s trade secrets. The Ontario action was heard in June 2014 and judgment was rendered in the Company’s favor. The Courtawarded the Company $6.0 million in damages against all defendants for conversion and misuse of confidential information, $456,000 against all defendantsfor disgorgement of profits from the lost business opportunity, $50,000 from Tsui in punitive damages of prejudgment interest on the forgoing and $300,000in costs against all defendants. The Company also initiated suits against Tsui in Beijing No. 1 Intermediate People’s Court in Beijing, China on February 16,2013 and December 3, 2013, seeking relief similar to that sought in the Ontario action (the “Beijing Action”). In October, 2013, Jiangsu Sunway DigitalTechnology Co. Ltd (a company incorporated by Tsui), commenced an action against the Company in Zhenjiang Intermediate People’s Court, in Zhenjiang,China, alleging that the Company defamed and slandered the plaintiff through the commencement of the actions against Tsui in Canada and China referredto above, as well as several written communications to third parties (the “Zhenjiang Action”). In December 2014, the parties entered into a settlementagreement to settle, on terms which they agreed to maintain as confidential, all outstanding matters in connection with the Beijing Action and the ZhenjiangAction. The Company does not expect the settlement agreement to have a material impact on the financial position of the Company.(f) In November 2013, a purported class action complaint was filed in the United States District Court for the Northern District of Illinois (the “Court”)against IMAX Chicago Theatre LLC (“IMAX Chicago Theatre”), a subsidiary of the Company. The plaintiff, Scott Redman, alleges that IMAX ChicagoTheatre provided certain credit card and debit card receipts to customers that were purportedly not in compliance with the applicable truncation requirementsof the Fair and Accurate Credit Transactions Act. The plaintiff seeks statutory damages individually and on behalf of a putative class. On February 20, 2014,IMAX Chicago Theatre filed a motion to dismiss the complaint, which the Court denied on January 23, 2015. IMAX Chicago Theatre believes that it hasmeritorious defenses and intends to defend the lawsuit vigorously. However, given the early stage of the proceedings, IMAX Chicago Theatre is unable topredict the outcome of this matter and is unable to assess the potential impact, if any, of the lawsuit at this time.(g) In March 2013, IMAX (Shanghai) Multimedia Technology Co., Ltd., the Company’s wholly-owned subsidiary in China, received notice from theShanghai office of the General Administration of Customs that it had been selected for a customs audit. The Company is unable to assess the potentialimpact, if any, of the audit at this time.(h) In addition to the matters described above, the Company is currently involved in other legal proceedings or governmental inquiries which, in theopinion of the Company’s management, will not materially affect the Company’s financial position or future operating results, although no assurance can begiven with respect to the ultimate outcome of any such proceedings.(i) In the normal course of business, the Company enters into agreements that may contain features that meet the definition of a guarantee. TheGuarantees Topic of the FASB ASC defines a guarantee to be a contract (including an indemnity) that contingently requires the Company to make payments(either in cash, financial instruments, other assets, shares of its stock or provision of services) to a third party based on (a) changes in an underlying interestrate, foreign exchange rate, equity or commodity instrument, index or other variable, that is related to an asset, a liability or an equity security of thecounterparty, (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 GuaranteesThe Company has provided no significant financial guarantees to third parties. 113Table of ContentsProduct WarrantiesThe following summarizes the accrual for product warranties that was recorded as part of accrued liabilities in the consolidated balance sheets: As at December 31, 2014 2013 Balance at the beginning of the year $7 $32 Warranty redemptions (5) (77) Warranties issued 11 52 Revisions (7) — Balance at the end of the year$6 $7 Director/Officer IndemnificationsThe Company’s General By-law contains an indemnification of its directors/officers, former directors/officers and persons who have acted at its requestto 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 BusinessCorporations Act, against expenses (including legal fees), judgments, fines and any amount actually and reasonably incurred by them in connection with anyaction, 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 thebest interests of the Company. The nature of the indemnification prevents the Company from making a reasonable estimate of the maximum potential amountit could be required to pay to counterparties. The Company has purchased directors’ and officers’ liability insurance. No amount has been accrued in theconsolidated balance sheet as at December 31, 2014 and December 31, 2013 with respect to this indemnity.Other Indemnification AgreementsIn the normal course of the Company’s operations, the Company provides indemnifications to counterparties in transactions such as: theater systemlease and sale agreements and the supervision of installation or servicing of the theater systems; film production, exhibition and distribution agreements; realproperty lease agreements; and employment agreements. These indemnification agreements require the Company to compensate the counterparties for costsincurred 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 ofthe agreements. A small number of agreements do not provide for any limit on the maximum potential amount of indemnification; however, virtually all ofthe Company’s system lease and sale agreements limit such maximum potential liability to the purchase price of the system. The fact that the maximumpotential amount of indemnification required by the Company is not specified in some cases prevents the Company from making a reasonable estimate of themaximum potential amount it could be required to pay to counterparties. Historically, the Company has not made any significant payments under suchindemnifications and no amounts have been accrued in the consolidated financial statements with respect to the contingent aspect of these indemnities. 114Table of Contents14. Capital Stock(a) AuthorizedCommon SharesThe authorized capital of the Company consists of an unlimited number of common shares. The following is a summary of the rights, privileges,restrictions and conditions of the common shares.The holders of common shares are entitled to receive dividends if, as and when declared by the directors of the Company, subject to the rights of theholders of any other class of shares of the Company entitled to receive dividends in priority to the common shares.The holders of the common shares are entitled to one vote for each common share held at all meetings of the shareholders.(b) Changes during the YearIn 2014, the Company issued 1,149,587 (2013 — 1,316,347, 2012 — 1,429,685) common shares pursuant to the exercise of stock options for cashproceeds of $10.8 million (2013 — $9.0 million, 2012 — $8.9 million). In addition, the Company issued 109,264 common shares (net of shares withheld fortax) pursuant to the vesting of RSUs (2013 – 42,461, 2012 – nil).(c) Stock-Based CompensationThe Company issues stock-based compensation to eligible employees, directors and consultants under the Company’s 2013 Long- Term IncentivePlan and the China Long-Term Incentive Plan, as described below.On June 11, 2013, the Company’s shareholders approved the IMAX 2013 Long-Term Incentive Plan (“IMAX LTIP”) at the Company’s Annual andSpecial Meeting. Awards to employees, directors and consultants under the IMAX LTIP may consist of stock options, RSUs and other awards.The Company’s Stock Option Plan (“SOP”) which shareholders approved in June 2008, permitted the grant of stock options to employees, directorsand consultants. As a result of the implementation of the IMAX LTIP on June 11, 2013, stock options will no longer be granted under the SOP.A separate stock option plan, the China Long-Term Incentive Plan (the “China LTIP”) was adopted by a subsidiary of the Company in October 2012.The compensation costs recorded in the consolidated statement of operations for these plans were $15.1 million in 2014 (2013 — $11.9 million,2012 — $13.1 million).As at December 31, 2014, the Company has reserved a total of 9,173,106 (December 31, 2013— 10,530,723) common shares for future issuance underthe SOP and IMAX LTIP. Of the common shares reserved for issuance, there are options in respect of 5,925,660 common shares and RSUs in respect of595,834 common shares outstanding at December 31, 2014. At December 31, 2014 options in respect of 3,368,558 common shares were vested andexercisable.Stock Option PlanThe Company’s policy is to issue new common shares from treasury to satisfy stock options which are exercised.The Company utilizes a Binomial Model to determine the fair value of stock-based payment awards. The fair value determined by the Binomial Modelis affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, butare not limited to, the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercisebehaviors. The Binomial Model also considers the expected exercise multiple which is the multiple of exercise price to grant price at which exercises areexpected to occur on average. Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedgingrestrictions and are fully transferable. Because the Company’s employee stock options have certain characteristics that are significantly different from tradedoptions, and because changes in the subjective assumptions can materially affect the estimated value, in management’s opinion, the Binomial Model bestprovides a fair measure of the fair value of the Company’s employee stock options. 115Table of ContentsAll awards of stock options are made at fair market value of the Company’s common shares on the date of grant. The fair market value of a commonshare on a given date means the higher of the closing price of a common share on the grant date (or the most recent trading date if the grant date is not atrading date) on the New York Stock Exchange (“NYSE”), the Toronto Stock Exchange (the “TSX”) and such national exchange, as may be designated by theCompany’s Board of Directors (the “Fair Market Value”). The stock options vest within 5 years and expire 10 years or less from the date granted. The SOPand IMAX LTIP provide that vesting will be accelerated if there is a change of control, as defined in each plan and upon certain conditions.The Company recorded an expense of $8.9 million in 2014 (2013 — $8.9 million, 2012 — $12.4 million) related to stock option grants issued toemployees and directors in the IMAX LTIP and SOP plans. An income tax benefit of $1.5 million is recorded in the consolidated statement of operations forthese costs. Total stock-based compensation expense related to non-vested employee stock options not yet recognized at December 31, 2014 and theweighted average period over which the awards are expected to be recognized is $14.8 million and 2.3 years respectively (2013 — $14.3 million and 3.0years, 2012 — $20.6 million and 3.6 years).The weighted average fair value of all stock options, granted to employees and directors in 2014 at the measurement date was $8.25 per share (2013 —$7.10 per share, 2012 — $7.45 per share). For the years ended December 31, the following assumptions were used to estimate the average fair value of thestock options: 2014 2013 2012Average risk-free interest rate 2.46% 1.63% 1.36%Expected option life (in years) 4.15 - 5.82 4.51 - 4.63 2.89 - 6.26Expected volatility 32.5% - 37.5% 40% 50%Annual termination probability 0% - 8.40% 0% - 8.52% 0% - 8.76%Dividend yield 0% 0% 0%Stock options to Non-EmployeesDuring 2014, an aggregate of 10,000 (2013 — 2,500, 2012 — 12,500) stock options to purchase the Company’s common stock with an averageexercise price of $26.47 (2013 — $26.28, 2012 — $22.82) were granted to certain advisors and strategic partners of the Company. These stock optionsgranted have a maximum contractual life of 7 years. The stock options granted in 2014 were granted under the IMAX LTIP.As at December 31, 2014 non-employee options outstanding amounted to 31,500 stock options (2013 — 76,751, 2012 — 120,001) with a weightedaverage exercise price of $21.75 (2013 — $15.67, 2012 — $14.14). 16,100 stock options (2013 — 31,509, 2012 — 35,717) were exercisable with an averageweighted exercise price of $18.14 (2013 — $12.38, 2012 — $11.57) and the vested options have an aggregate intrinsic value of $0.2 million (2013 — $0.5million, 2012 — $0.4 million). The weighted average fair value of stock options granted to non-employees during 2014 at the measurement date was $4.84per share (2013 — $11.50 per share, 2012 — $11.73 per share), utilizing a Binomial Model with the following underlying assumptions: Years Ended December 31 2014 2013 2012 Average risk-free interest rate 0.53% 1.64% 1.28% Contractual option life 2 years 7 years 7 years Average expected volatility 32.5% 40.0% 50.0% Dividend yield 0% 0% 0% In 2014, the Company recorded a charge of $0.1 million, (2013 — $0.2 million, 2012 — $0.1 million) to costs and expenses related to revenues –services and selling, general and administrative expenses related to the non-employee stock options. Included in accrued liabilities is an accrual of less than$0.1 million for non-employee stock options (December 31, 2013 — $0.1 million). 116Table of ContentsChina Long-Term Incentive Plan (“China LTIP”)The China LTIP was adopted by IMAX China in October 2012. Each stock option issued under the China LTIP represents an opportunity to participateeconomically in the future growth and value creation of the subsidiary. The China LTIP options issued by IMAX China (“China Options”) operate in tandemwith options granted to certain employees of the subsidiary under the Company’s SOP and IMAX LTIP (“Tandem Options”).In 2012, an aggregate of 146,623 Tandem Options were granted to certain employees in conjunction with the China Options with an average price of$22.39 in accordance with the China LTIP. During 2014, an additional 39,823 Tandem Options were granted in conjunction with China Options with anaverage price of $28.52 per share. The Tandem Options have a maximum contractual life of 7 years. As at December 31, 2014 there were 186,446 (December31, 2013 – 146,623) outstanding and unvested Tandem Options issued under the China LTIP with a weighted average exercise price of $23.70 per share(December 31, 2013 – $22.39 per share). The weighted average fair value of the Tandem Options granted during 2014 was $6.41 per share. The total fairvalue of the Tandem Options granted with respect to the China LTIP was $1.9 million. The Company is recognizing this expense over a 5 year period. If aperformance event occurs, including upon the occurrence of a qualified initial public offering or upon a change in control on or prior to the fifth anniversaryof the grant date, the 186,446 Tandem Options issued forfeit immediately and the related charge would be reversed. There were no option awards issuedunder the China LTIP during 2013.The Company recorded an expense of $0.3 million (2013 – $0.3 million, 2012 – less than $0.1 million) related to SOP Options issued under the ChinaLTIP.Stock Option SummaryThe following table summarizes certain information in respect of option activity under the SOP and IMAX LTIP: Number of Shares Weighted Average ExercisePrice Per Share 2014 2013 2012 2014 2013 2012 Options outstanding, beginning of year 6,263,121 7,441,068 7,200,721 $21.11 $18.48 $14.60 Granted 872,155 375,650 1,833,485 27.48 25.29 24.59 Exercised (1,149,587) (1,316,347) (1,429,685) 9.42 6.81 6.24 Forfeited (36,242) (228,190) (154,958) 24.63 24.55 23.03 Expired — — — — — — Cancelled (23,787) (9,060) (8,495) 33.60 30.90 22.07 Options outstanding, end of year 5,925,660 6,263,121 7,441,068 24.24 21.11 18.48 Options exercisable, end of year 3,368,558 3,578,006 3,480,160 22.69 18.56 14.50 In 2014, the Company cancelled 23,787 stock options from its SOP (2013 — 9,060, 2012 — 8,495) surrendered by Company employees.As at December 31, 2014, 5,461,704 options were fully vested or are expected to vest with a weighted average exercise price of $24.04, aggregateintrinsic value of $38.5 million and weighted average remaining contractual life of 4.3 years. As at December 31, 2014, options that are exercisable have anintrinsic value of $28.4 million and a weighted average remaining contractual life of 4.2 years. The intrinsic value of options exercised in 2014 was$21.8 million (2013 — $26.7 million, 2012 — $23.4 million).Restricted Share UnitsRSUs have been granted to employees, consultants and directors under the IMAX LTIP. Each RSU represents a contingent right to receive one commonshare and is the economic equivalent of one common share. The grant date fair value of each RSU is equal to the share price of the Company’s stock at thegrant date. The Company recorded an expense of $5.8 million for the year ended December 31, 2014 (2013 — $2.1 million), related to RSU grants issued toemployees and directors in the plan. The annual termination 117Table of Contentsprobability assumed for the year ended December 31, 2014, ranged from 0% to 9.50%. In addition, the Company recorded an expense of less than $0.1million for the year ended December 31, 2014 (2013 — less than $0.1 million), related to RSU grants issued to certain advisors and strategic partners of theCompany.Total stock-based compensation expense related to non-vested RSU’s not yet recognized at December 31, 2014 and the weighted average period overwhich the awards are expected to be recognized is $11.0 million and 2.9 years (2013 — $4.7 million and 2.9 years). The Company’s actual tax benefitsrealized for the tax deductions related to the vesting of RSUs was $0.4 million for the year ended December 31, 2014 (2013 — $nil).RSUs granted under the IMAX LTIP vest between immediately and four years from the date granted. Vesting of the RSUs is subject to continuedemployment or service with the Company.The following table summarizes certain information in respect of RSU activity under the IMAX LTIP: Number of Awards Weighted Average Grant Date FairValue Per Share 2014 2013 2014 2013 RSUs outstanding, beginning of year 264,140 — $26.14 $— Granted 484,088 322,561 27.42 26.16 Vested and settled (148,001) (46,360) 26.29 26.23 Forfeited (4,393) (12,061) 26.88 26.28 RSUs outstanding, end of year 595,834 264,140 27.13 26.14 Stock Appreciation RightsThere have been no stock appreciation rights (“SARs”) granted since 2007. For the year ended December 31, 2013, 118,000 SARs were cash settled for$2.4 million. The average exercise price for the settled SARs for the year ended December 31, 2013 was $6.86 per SAR. As at December 31, 2014, no SARSwere outstanding. None of the SARs were forfeited, cancelled, or expired for the years ended December 31, 2014 and 2013. The Company has recorded anexpense of $nil for 2014 (2013 — $0.4 million, 2012 — $0.6 million) to selling, general and administrative expenses related to these SARs.Issuer Purchases of Equity SecuritiesOn June 16, 2014, the Company’s board of directors approved a new $150.0 million share repurchase program for shares of the Company’s commonstock. Purchases under the program commenced during the third quarter of 2014. The share repurchase program expires on June 30, 2017. The repurchasesmay 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 2014, the Company repurchased 112,034 common shares at an average price of $27.30 per share. The retired shares were repurchased for $3.1 million.The average carrying value of the stock retired was deducted from common stock and the remaining excess over the average carrying value of stock wascharged to accumulated deficit.The total number of shares purchased during the year ended December 31, 2014 does not include any shares received in the administration ofemployee share-based compensation plans. 118Table of Contents(d) Income per shareReconciliations of the numerator and denominator of the basic and diluted per-share computations are comprised of the following: Years Ended December 31, 2014 2013 2012 Net income attributable to common shareholders $39,736 $44,115 $41,337 Less: Accretion charges associated with redeemable common stock (426) — — Net income applicable to common shareholders$39,310 $44,115 $41,337 Weighted average number of common shares (000’s):Issued and outstanding, beginning of period 67,841 66,482 65,053 Weighted average number of shares issued during the period 505 669 801 Weighted average number of shares used in computing basic earnings per Share 68,346 67,151 65,854 Assumed exercise of stock options and RSUs, net of shares assumed 1,408 1,810 2,079 Weighted average number of shares used in computing diluted earnings per Share 69,754 68,961 67,933 The calculation of diluted earnings per share excludes 4,151,008 shares that are issuable upon exercise of 1,500 RSUs and 4,149,508 stock options forthe year ended December 31, 2014, as the impact of these exercises would be antidilutive.15. Consolidated Statements of Operations Supplemental Information(a) Other RevenuesThe Company enters into theater system arrangements with customers that typically contain customer payment obligations prior to the scheduledinstallation of the theater systems. During the period of time between signing and theater system installation, certain customers each year are unable to, orelect not to, proceed with the theater system installation for a number of reasons, including business considerations, or the inability to obtain certainconsents, approvals or financing. Once the determination is made that the customer will not proceed with installation, the customer and/or the Company mayterminate the arrangement by default or by entering into a consensual buyout. In these situations the parties are released from their future obligations underthe arrangement, and the initial payments that the customer previously made to the Company are typically not refunded and are recognized as OtherRevenues. In addition, the Company enters into agreements with customers to terminate their obligations for additional theater system configurations, whichwere in the Company’s backlog. Other revenues from settlement arrangements were $nil, $0.4 million and $0.7 million in 2014, 2013 and 2012, respectively.(b) Foreign ExchangeIncluded in selling, general and administrative expenses for the year ended December 31, 2014 is $1.5 million for net foreign exchange losses relatedto the translation of foreign currency denominated monetary assets and liabilities as compared to a net loss of $0.7 million for the year ended December 31,2013 and a net gain of $1.2 million for the year ended December 31, 2012, respectively. See note 20(d) for additional information.(c) Collaborative ArrangementsJoint Revenue Sharing ArrangementsIn a joint revenue sharing arrangement, the Company receives a portion of a theater’s box-office and concession revenues, and in some cases a smallupfront or initial payment, in exchange for placing a theater system at the theater operator’s venue. Under joint revenue sharing arrangements, the customerhas 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’sjoint revenue sharing arrangements are typically non-cancellable for 10 years or longer with renewal provisions. Title to equipment under joint revenuesharing arrangements generally 119Table of Contentsdoes 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. Thecustomer is required to pay for executory costs such as insurance and taxes and is required to pay the Company for maintenance and extended warrantythroughout the term. The customer is responsible for obtaining insurance coverage for the theater systems commencing on the date specified in thearrangement’s shipping terms and ending on the date the theater systems are delivered back to the Company.The Company has signed joint revenue sharing agreements with 41 exhibitors (2013 — 38) for a total of 672 theater systems (2013 — 645), of which451 theaters (2013 — 382) were operating as at December 31, 2014. The terms of the Company’s joint revenue sharing arrangements are similar in nature,rights and obligations. The accounting policy for the Company’s joint revenue sharing arrangements is disclosed in note 2(m).Amounts attributable to transactions arising between the Company and its customers under joint revenue sharing arrangements are included inEquipment and Product Sales and Rentals revenue and for the year ended December 31, 2014 amounted to $68.4 million (2013 — $64.1 million, 2012 —$57.5 million).IMAX DMRIn an IMAX DMR arrangement, the Company converts conventional motion pictures into the Company’s large screen format, enabling the release ofHollywood 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 from a percentage of the gross box-office receipts of the film, which generally range from 10-15%. The Company does nottypically hold distribution rights or the copyright to these films.In 2014, the majority of IMAX DMR revenue was earned from the exhibition of 40 IMAX DMR films (2013 — 38) throughout the IMAX theaternetwork. The accounting policy for the Company’s IMAX DMR arrangements is disclosed in note 2(m).Amounts attributable to transactions arising between the Company and its customers under IMAX DMR arrangements are included in Servicesrevenues and for December 31, 2014 amounted to $83.2 million (2013 — $83.5 million, 2012 — $78.1 million).Co-Produced Film ArrangementsIn certain film arrangements, the Company co-produces a film with a third party whereby the third party retains the copyright and certain rights to thefilm other than exclusive theatrical distribution rights to the film, which are held by the Company. Under these arrangements, both parties contribute fundingto the Company’s wholly-owned production company for the production of the film and for associated exploitation costs. Clauses in these arrangementsgenerally provide for the third party to take over the production of the film if the cost of the production exceeds its approved budget or if it appears as thoughthe film will not be delivered on a timely basis.As at December 31, 2014, the Company has one significant co-produced film arrangement which primarily represents the VIE total assets and liabilitiesbalance of $0.4 million and 5 other co-produced film arrangements, the terms of which are similar. The accounting policies relating to co-produced filmarrangements are disclosed in notes 2(a) and 2(m).In 2014, amounts totaling $3.5 million (2013 —$2.9 million, 2012 — $6.1 million) attributable to transactions between the Company and otherparties involved in the production of the films have been included in cost and expenses applicable to revenues-services.16. Receivable Provisions, Net of RecoveriesThe following table reflects the Company’s receivable provisions net of recoveries recorded in the consolidated statements of operations: Years Ended December 31, 2014 2013 2012 Accounts receivable provisions, net of recoveries $725 $(35) $606 Financing receivable provisions, net of recoveries 193 480 (82) Receivable provisions, net of recoveries$918 $445 $524 120Table of Contents17. Asset Impairments Years Ended December 31, 2014 2013 2012 Property, plant and equipment $314 $— $— Total$314 $— $— The Company records asset impairment charges against property, plant and equipment after an assessment of the carrying value of certain assets inlight of their future expected cash flows.18. Consolidated Statements of Cash Flows Supplemental Information(a) Changes in other non-cash operating assets and liabilities are comprised of the following: Years Ended December 31, 2014 2013 2012 Decrease (increase) in: Accounts receivable $(4,318) $(31,032) $4,110 Financing receivables (40) (13,397) (7,349) Inventories (7,603) 1,884 (422) Prepaid expenses (1,346) 231 (706) Commissions and other deferred selling expenses (769) 59 322 Insurance recoveries 10,958 380 444 Other assets, prepaid tax (2,984) — — Other assets (459) (341) (752) Increase (decrease) in: Accounts payable (5,186) 7,238 (8,139) Accrued and other liabilities(1) 5,702 (1,289) (2,266) Deferred revenue 12,102 2,512 (504) $6,057 $(33,755) $(15,262) (1)Decrease in accruals and other liabilities for 2014 includes payments of $nil for stock-based compensation (2013 - $2.4 million, 2012 - $0.3 million). 121Table of Contents(b) Cash payments made on account of: Years Ended December 31, 2014 2013 2012 Income taxes $8,885 $1,056 $1,283 Interest$48 $315 $1,374 (c) Depreciation and amortization are comprised of the following: Years Ended December 31, 2014 2013 2012 Film assets (1) $11,851 $17,000 $15,515 Property, plant and equipment Joint revenue sharing arrangements 12,148 11,519 10,125 Other property, plant and equipment 5,616 4,720 4,440 Other intangible assets 2,988 2,854 2,006 Other assets 627 592 532 Deferred financing costs 526 487 170 $33,756 $37,172 $32,788 (1)Included in film asset amortization is a charge of $0.3 million (2013 —$0.2 million, 2012 —$0.1 million) relating to changes in estimates based on theultimate recoverability of future films.(d) Write-downs, net of recoveries, are comprised of the following: Years Ended December 31, 2014 2013 2012 Asset impairments Property, plant and equipment $314 $— $— Other charges (recoveries) Accounts receivables 725 (35) 606 Financing receivables 193 480 (82) Inventories(1) 359 444 898 Impairment of investments 3,206 — 150 Property, plant and equipment(2) 440 384 18 Other intangible assets 57 63 11 Other assets — — 6 $5,294 $1,336 $1,607 Inventory chargesRecorded in costs and expenses applicable to revenues - product & equipment sales$209 $274 $795 Recorded in costs and expenses applicable to revenues - services 150 170 103 $359 $444 $898 (1)In 2014, the Company recorded a charge of $0.4 million (2013 — $0.5 million, 2012 — $0.9 million, respectively) in costs and expenses applicable torevenues, primarily for its film-based projector inventories. Specifically, IMAX systems includes an inventory charge of $0.2 million (2013 — $0.3million, 2012 — $0.8 million). Theater system maintenance includes inventory write-downs of $0.2 million (2013 — $0.2 million, 2012 — $0.1million).(2)The Company disposed of assets that were no longer in use. No cash was received for these assets. 122Table of Contents19. Segmented InformationThe Company has seven reportable segments identified by category of product sold or service provided: IMAX systems; theater system maintenance;joint revenue sharing arrangements; film production and IMAX DMR; film distribution; film post-production; and other. The IMAX systems segmentdesigns, manufactures, sells or leases IMAX theater projection system equipment. The theater system maintenance segment maintains IMAX theaterprojection system equipment in the IMAX theater network. The joint revenue sharing arrangements segment provides IMAX theater projection systemequipment to an exhibitor in exchange for a share of the box-office and concession revenues. The film production and IMAX DMR segment produces filmsand performs film re-mastering services. The film distribution segment distributes films for which the Company has distribution rights. The film post-production segment provides film post-production and film print services. The other segment includes certain IMAX theaters that the Company owns andoperates, camera rentals and other miscellaneous items. The accounting policies of the segments are the same as those described in note 2.Management, including the Company’s Chief Executive Officer (“CEO”) who is the Company’s Chief Operating Decision Maker (as defined in theSegment Reporting Topic of the FASB ASC), assesses segment performance based on segment revenues, gross margins and film performance. Selling, generaland administrative expenses, research and development costs, amortization of intangibles, receivables provisions (recoveries), write-downs net of recoveries,interest income, interest expense and tax (provision) recovery are not allocated to the segments.Transactions between the film production and IMAX DMR segment and the film post-production segment are valued at exchange value. Inter-segmentprofits are eliminated upon consolidation, as well as for the disclosures below.Transactions between the other segments are not significant. 123Table of Contents(a) Operating Segments Years Ended December 31, 2014 2013 2012 Revenue(1) IMAX theater systems IMAX systems $72,992 $80,189 $83,405 Theater system maintenance 34,042 31,978 28,629 Joint revenue sharing arrangements 68,418 64,130 57,526 175,452 176,297 169,560 FilmsProduction and IMAX DMR 83,172 83,496 78,050 Distribution 8,932 7,770 14,222 Post-production 10,831 9,192 7,904 102,935 100,458 100,176 Other 12,154 11,182 13,019 Total$290,541 $287,937 $282,755 Gross marginIMAX theater systemsIMAX systems(2)(3)$47,928 $49,040 $50,245 Theater system maintenance(2) 12,375 12,096 10,970 Joint revenue sharing arrangements(3) 44,714 44,565 37,308 105,017 105,701 98,523 FilmsProduction and IMAX DMR(3) 62,922 56,088 49,355 Distribution(3) 2,274 1,371 2,356 Post-production 3,046 1,341 1,954 68,242 58,800 53,665 Other 129 102 1,057 Total$173,388 $164,603 $153,245 124Table of Contents Years Ended December 31, 2014 2013 2012 Depreciation and amortization IMAX systems $1,910 $3,287 $2,946 Theater systems maintenance 225 141 212 Joint revenue sharing arrangements 14,614 13,535 11,836 Films Production and IMAX DMR 10,751 16,298 14,471 Distribution 1,512 1,048 1,631 Post-production 481 424 608 Other 671 347 172 Corporate and other non-segment specific assets 3,592 2,092 912 Total$33,756 $37,172 $32,788 Years Ended December 31, 2014 2013 2012 Asset impairments and write-downs, net of recoveries IMAX systems $1,128 $1,109 $1,480 Theater systems maintenance 150 188 103 Joint revenue sharing arrangements 397 39 24 Other 314 — — Corporate and other non-segment specific assets 3,305 — — Total$5,294 $1,336 $1,607 Years Ended December 31, 2014 2013 2012 Purchase of property, plant and equipment IMAX systems $8,822 $6,181 $2,958 Theater system maintenance 229 130 36 Joint revenue sharing arrangements 16,838 22,775 23,257 Films Production and IMAX DMR 15,245 408 1,175 Distribution 1,582 — 178 Post-production 2,176 2,185 — Other 1,337 2,036 — Corporate and other non-segment specific assets 10,713 2,076 1,708 Total$56,942 $35,791 $29,312 125Table of Contents As at December 31, 2014 2013 Assets IMAX systems(4) $174,531 $170,719 Theater systems maintenance(4) 17,986 16,619 Joint revenue sharing arrangements(4) 162,097 153,399 Films Production and IMAX DMR 45,549 22,315 Distribution 17,768 8,675 Post-production 13,384 5,351 Other 19,405 7,645 Corporate and other non-segment specific assets 170,813 96,422 Total$621,533 $481,145 (1)The Company’s two largest customers as at December 31, 2014 collectively represent 18.3% of total revenues (2013 – 19.9%, 2012 – 15.9%).(2)In 2014, the Company recorded a charge of $0.4 million (2013 – $0.5 million, 2012 – $0.9 million, respectively) in costs and expenses applicable torevenues, primarily for its film-based projector inventories. Specifically, IMAX systems includes an inventory charge of $0.2 million (2013 – $0.3million, 2012 – $0.8 million). Theater system maintenance includes inventory write-downs of $0.2 million (2013 – $0.2 million, 2012 – $0.1 million).(3)IMAX systems include marketing and commission costs of $2.7 million, $2.5 million and $2.7 million in 2014, 2013 and 2012, respectively. Jointrevenue sharing arrangements segment margins include advertising, marketing, and commission costs of $3.2 million, $3.6 million and $3.4 million in2014, 2013 and 2012, respectively. Production and DMR segment margins include marketing costs of $7.1 million, $4.2 million and $3.3 million in2014, 2013 and 2012, respectively. Distribution segment margins include marketing costs of $0.6 million, $0.4 million and $1.5 million in 2014, 2013and 2012, respectively.(4)Goodwill is allocated on a relative fair market value basis to the IMAX systems segment, theater system maintenance segment and joint revenuesharing segment. There has been no change in the allocation of goodwill from the prior year. 126Table of Contents(b) Geographic InformationRevenue by geographic area is based on the location of the customer. Revenue related to IMAX DMR is presented based upon the geographic locationof the theaters that exhibit the re-mastered films. IMAX DMR revenue is generated through contractual relationships with studios and other third parties andthese may not be in the same geographical location as the theater. Years Ended December 31, 2014 2013 2012 Revenue United States $107,282 $125,166 $126,547 Canada 10,309 11,049 19,109 Greater China 78,766 56,480 44,922 Western Europe 30,245 26,000 26,309 Asia (excluding Greater China) 26,276 30,451 28,899 Russia & the CIS 15,700 19,600 20,130 Latin America 12,672 13,017 9,419 Rest of the World 9,291 6,174 7,420 Total$290,541 $287,937 $282,755 No single country in the Rest of the World, Western Europe, Latin America and Asia (excluding Greater China) classifications comprise more than 10%of total revenue. As at December 31, 2014 2013 Property, plant and equipment United States $101,499 $60,285 Canada 25,795 23,687 Greater China 40,065 32,958 Asia (excluding Greater China) 8,454 9,200 Western Europe 5,720 6,012 Rest of the World 1,891 705 Total$183,424 $132,847 127Table of Contents20. Financial Instruments(a) Financial InstrumentsThe 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 receivable and financingreceivables are concentrated with the theater exhibition industry and film entertainment industry. To minimize the Company’s credit risk, the Companyretains title to underlying theater systems leased, performs initial and ongoing credit evaluations of its customers and makes ongoing provisions for itsestimate of potentially uncollectible amounts. The Company believes it has adequately provided for related exposures surrounding receivables andcontractual commitments.(b) Fair Value MeasurementsThe carrying values of the Company’s cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities due within one yearapproximate fair values due to the short-term maturity of these instruments. The Company’s other financial instruments at December 31, are comprised of thefollowing: As at December 31, 2014 As at December 31, 2013 CarryingAmount EstimatedFair Value CarryingAmount EstimatedFair Value Cash and cash equivalents $106,503 $106,503 $29,546 $29,546 Net financed sales receivable $95,101 $98,675 $93,493 $92,043 Net investment in sales-type leases $10,599 $10,503 $13,617 $13,214 Available-for-sale investment $— $— $1,000 $1,000 Foreign exchange contracts — designated forwards $(1,760) $(1,760) $(421) $(421) Borrowings under the Playa Vista construction loan $(4,710) $(4,710) $— $— Cash and cash equivalents are comprised of cash and interest-bearing investments with original maturity dates to the Company of 90 days or less. Cashand cash equivalents are recorded at cost, which approximates fair value (Level 1 input in accordance with the Fair Value Measurements Topic of the FASBASC hierarchy) as at December 31, 2014 and 2013, respectively.The estimated fair values of the net financed sales receivable and net investment in sales-type leases are estimated based on discounting future cashflows at currently available interest rates with comparable terms (Level 2 input in accordance with the Fair Value Measurements Topic of the FASB ASChierarchy) as at December 31, 2014 and 2013, respectively.The fair value of the Company’s available-for-sale investment is determined using the present value of expected cash flows based on projectedearnings and other information readily available from the business venture (Level 3 input in accordance with the Fair Value Measurements Topic of theFASB ASC hierarchy) as at December 31, 2014 and 2013, respectively. The discounted cash flow valuation technique is based on significant unobservableinputs of revenue and expense projections, appropriately risk weighted, as the investment is in a start-up entity. The significant unobservable inputs used inthe fair value measurement of the Company’s available-for-sale investment are long-term revenue growth and pretax operating margin. A significant increase(decrease) in any of those inputs in isolation would result in a lower or higher fair value measurement.The fair value of foreign currency derivatives are determined using quoted prices in active markets (Level 2 input in accordance with the Fair ValueMeasurements Topic of the FASB ASC hierarchy) as at December 31, 2014 and 2013, respectively. These identical instruments are traded on a closedexchange.The carrying value of borrowings under the Playa Vista construction loan approximates fair value as the interest rates offered under the constructionloan are close to December 31, 2014 market rates for the Company for debt of the same remaining maturities (Level 2 input in accordance with the Fair ValueMeasurements Topic of the FASB ASC hierarchy) as at December 31, 2014.There were no significant transfers between Level 1 and Level 2 during the year ended December 31, 2014 or 2013. When a determination is made toclassify an asset or liability within Level 3, the determination is based upon the significance of the 128Table of Contentsunobservable inputs to the overall fair value measurement. The table below sets forth a summary of changes in the fair value of the Company’s available-for-sale investment measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the period: Available For Sale Investments 2014 2013 Beginning balance, January 1, $1,000 $1,350 Transfers into/out of Level 3 — — Total gains or losses (realized/unrealized) Included in earnings (1,350) — Included in other comprehensive income 350 (350) Purchases, issuances, sales and settlements — — Ending balance, December 31,$— $1,000 The amount of total gains or losses for the period included in earningsattributable to the change in unrealized gains or losses relating to assets stillheld at the reporting date$(1,350) $— There were no transfers in or out of the Company’s Level 3 assets during the year ended December 31, 2014.In the year ended December 31, 2014, the Company recognized a $1.4 million other-than-temporary impairment of its available-for-sale investment, in“Impairment of investments” in the consolidated statement of operations, as the value is not expected to recover based on the length of time and extent towhich the market value has been less than cost.(c) Financing ReceivablesThe Company’s net investment in leases and its net financed sale receivables are subject to the disclosure requirements of ASC 310 “Receivables”. Dueto 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 netfinanced 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 holdsmeetings monthly in order to identify credit concerns and whether a change in credit quality classification is required for the customer. A customer mayimprove in their credit quality classification once a substantial payment is made on overdue balances or the customer has agreed to a payment plan with theCompany and payments have commenced in accordance to the payment plan. The change in credit quality indicator is dependent upon managementapproval.The Company classifies its customers into four categories to indicate the credit quality worthiness of its financing receivables for internal purposesonly: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 continuedmonitoring, but active communication continues with the Company. Depending on the size of outstanding balance, length of time in arrears and otherfactors, transactions may need to be approved by management. These financing receivables are considered to be in better condition than those receivablesrelated 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. Allservice or shipments to the theater must be reviewed and approved by management. These financing receivables are considered to be in better condition thanthose 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 receivableto be impaired. 129Table of ContentsAll transactions suspended — Theater is severely delinquent, non-responsive or not negotiating in good faith with the Company. Once a theater isclassified as “All transactions suspended” the theater is placed on nonaccrual status and all revenue recognitions related to the theater are stopped.The following table discloses the recorded investment in financing receivables by credit quality indicator: As at December 31, 2014 As at December 31, 2013 MinimumLeasePayments FinancedSalesReceivables Total MinimumLeasePayments FinancedSalesReceivables Total In good standing $10,457 $94,212 $104,669 $12,318 $89,017 $101,335 Credit Watch — — — 420 3,895 4,315 Pre-approved transactions — 855 855 288 — 288 Transactions suspended 1,114 528 1,642 1,397 817 2,214 $11,571 $95,595 $107,166 $14,423 $93,729 $108,152 While recognition of finance income is suspended, payments received by a customer are applied against the outstanding balance owed. If payments aresufficient to cover any unreserved receivables, a recovery of provision taken on the billed amount, if applicable, is recorded to the extent of the residual cashreceived. Once the collectibility issues are resolved and the customer has returned to being in good standing, the Company will resume recognition offinance income.The Company’s investment in financing receivables on nonaccrual status is as follows: As at December 31, 2014 As at December 31, 2013 RecordedInvestment RelatedAllowance RecordedInvestment RelatedAllowance Net investment in leases $1,114 $(972) $1,684 $(606) Net financed sales receivables 528 (494) 817 (236) Total$1,642 $(1,466) $2,501 $(842) The Company considers financing receivables with aging between 60-89 days as indications of theaters with potential collection concerns. TheCompany 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 dueis used by the Company as an indicator of potential impairment as invoices up to 90 days outstanding could be considered reasonable due to the timerequired for dispute resolution or for the provision of further information or supporting documentation to the customer. 130Table of ContentsThe Company’s aged financing receivables are as follows: As at December 31, 2014 AccruedandCurrent 30-89 Days 90+ Days BilledFinancingReceivables RelatedUnbilledRecordedInvestment TotalRecordedInvestment RelatedAllowances RecordedInvestmentNet ofAllowances Net investment in leases $420 $175 $253 $848 $10,723 $11,571 $(972) $10,599 Net financed sales receivables 1,558 1,260 2,659 5,477 90,118 95,595 (494) 95,101 Total$1,978 $1,435 $2,912 $6,325 $100,841 $107,166 $(1,466) $105,700 As at December 31, 2013 AccruedandCurrent 30-89 Days 90+ Days BilledFinancingReceivables RelatedUnbilledRecordedInvestment TotalRecordedInvestment RelatedAllowances RecordedInvestmentNet ofAllowances Net investment in leases $444 $218 $841 $1,503 $12,920 $14,423 $(806) $13,617 Net financed sales receivables 2,502 1,211 3,018 6,731 86,998 93,729 (236) 93,493 Total$2,946 $1,429 $3,859 $8,234 $99,918 $108,152 $(1,042) $107,110 The Company’s recorded investment in past due financing receivables for which the Company continues to accrue finance income is as follows: As at December 31, 2014 AccruedandCurrent 30-89 Days 90+ Days BilledFinancingReceivables RelatedUnbilledRecordedInvestment RelatedAllowance RecordedInvestmentPast Dueand Accruing Net investment in leases $90 $102 $130 $322 $2,024 $— $2,346 Net financed sales receivables 258 425 1,671 2,354 12,512 — 14,866 Total$348 $527 $1,801 $2,676 $14,536 $— $17,212 As at December 31, 2013 AccruedandCurrent 30-89 Days 90+ Days BilledFinancingReceivables RelatedUnbilledRecordedInvestment RelatedAllowance RecordedInvestmentPast Dueand Accruing Net investment in leases $168 $108 $205 $481 $4,865 $(200) $5,146 Net financed sales receivables 450 469 2,056 2,975 19,282 — 22,257 Total$618 $577 $2,261 $3,456 $24,147 $(200) $27,403 131Table of ContentsThe Company considers financing receivables to be impaired when it believes it to be probable that it will not recover the full amount of principal orinterest owing under the arrangement. The Company uses its knowledge of the industry and economic trends, as well as its prior experiences to determine theamount recoverable for impaired financing receivables. The following table discloses information regarding the Company’s impaired financing receivables: Impaired Financing ReceivablesFor the Year Ended December 31, 2014 RecordedInvestment UnpaidPrincipal RelatedAllowance AverageRecordedInvestment InterestIncomeRecognized Recorded investment for which there is a related allowance: Net financed sales receivables $525 $2 $(494) $526 $— Recorded investment for which there is no related allowance: Net financed sales receivables — — — — — Total recorded investment in impaired loans: Net financed sales receivables$525 $2 $(494) $526 $— Impaired Financing ReceivablesFor the Year Ended December 31, 2013 RecordedInvestment UnpaidPrincipal RelatedAllowance AverageRecordedInvestment InterestIncomeRecognized Recorded investment for which there is a related allowance: Net financed sales receivables $535 $283 $(236) $545 $34 Recorded investment for which there is no related allowance: Net financed sales receivables — — — — — Total recorded investment in impaired loans: Net financed sales receivables$535 $283 $(236) $545 $34 The Company’s activity in the allowance for credit losses for the period and the Company’s recorded investment in financing receivables is as follows: Year Ended December 31, 2014 Net Investmentin Leases Net FinancedSales Receivables Allowance for credit losses: Beginning balance $806 $236 Charge-offs (20) — Recoveries (74) — Provision 260 258 Ending balance$972 $494 Ending balance: individually evaluated for impairment$972 $494 Financing receivables:Ending balance: individually evaluated for impairment$11,571 $95,595 132Table of Contents Year Ended December 31, 2013 Net Investmentin Leases Net FinancedSales Receivables Allowance for credit losses: Beginning balance $1,130 $66 Charge-offs (624) — Provision 300 170 Ending balance$806 $236 Ending balance: individually evaluated for impairment$806 $236 Financing receivables:Ending balance: individually evaluated for impairment$14,423 $93,729 (d) Foreign Exchange Risk ManagementThe Company is exposed to market risk from changes in foreign currency rates. A majority portion of the Company’s revenues is denominated in U.S.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 isperiodically converted to Canadian dollars to fund Canadian dollar expenses through the spot market. In China and Japan the Company has ongoingoperating expenses related to its operations in Chinese Renminbi and Japanese yen, respectively. Net cash flows are converted to and from U.S. dollarsthrough the spot market. The Company also has cash receipts under leases denominated in Chinese Renminbi, Japanese yen, Canadian dollar and Euroswhich are converted to U.S. dollars through the spot market. The Company’s policy is to not use any financial instruments for trading or other speculativepurposes.The Company entered into a series of foreign currency forward contracts to manage the Company’s risks associated with the volatility of foreigncurrencies. Certain of these foreign currency forward contracts met the criteria required for hedge accounting under the Derivatives and Hedging Topic of theFASB ASC at inception, and continue to meet hedge effectiveness tests at December 31, 2014 (the “Foreign Currency Hedges”), with settlement datesthroughout 2016. Foreign currency derivatives are recognized and measured in the balance sheet at fair value. Changes in the fair value (gains or losses) arerecognized in the consolidated statement of operations except for derivatives designated and qualifying as foreign currency hedging instruments. For foreigncurrency hedging instruments, the effective portion of the gain or loss in a hedge of a forecasted transaction is reported in other comprehensive income andreclassified to the consolidated statement of operations when the forecasted transaction occurs. Any ineffective portion is recognized immediately in theconsolidated statement of operations. The Company currently does not hold any derivatives which are not designated as hedging instruments and thereforeno gain or loss pertaining to an ineffective portion has been recognized.The following tabular disclosures reflect the impact that derivative instruments and hedging activities have on the Company’s consolidated financialstatements: 133Table of ContentsNotional value of foreign exchange contracts: As at December 31, 2014 2013 Derivatives designated as hedging instruments: Foreign exchange contracts — Forwards $36,754 $23,555 Fair value of derivatives in foreign exchange contracts: As at December 31, Balance Sheet Location 2014 2013 Derivatives designated as hedging instruments: Foreign exchange contracts — Forwards Accrued and other liabilities (1,760) (421) $(1,760) $(421) Derivatives in Foreign Currency Hedging relationships are as follows: Years Ended December 31, 2014 2013 2012 Foreign exchange contracts - Forwards Derivative (Loss) Gain Recognized in OCI (EffectivePortion) $(2,524) $(1,031) $716 $(2,524) $(1,031) $716 Location of Derivative (Loss) GainReclassified from AOCI Years Ended December 31, into Income (Effective Portion) 2014 2013 2012 Foreign exchange contracts - Forwards Selling, general and administrative expenses $(1,186) $(312) $236 $(1,186) $(312) $236 Years Ended December 31, 2014 2013 Foreign exchange contracts - Forwards Derivative Loss Recognized In and Out of OCI (EffectivePortion) $— $(486) $— $(486) Non Designated Derivatives in Foreign Currency relationships are as follows: Years Ended December 31, Location of Derivative Gain (Loss) 2014 2013 2012 Foreign exchange contracts - Forwards Selling, general and administrative expenses $— $— $1,184 $— $— $1,184 134Table of Contents(e) Investments in New Business VenturesThe Company accounts for investments in new business ventures using the guidance of the FASB ASC 323 and the FASB ASC 320, as appropriate. Asat December 31, 2014, the equity method of accounting is being utilized for investments with a total carrying value of $2.8 million (December 31, 2013 —$0.4 million). In 2013, the Company contributed $1.4 million, net of its share of costs, to a new business venture in the early-stage of start-up. In the firstquarter of 2014, this new business venture was operational. For the year ended December 31, 2014, gross revenues, cost of revenue and net loss for theinvestment were $3.1 million, $5.9 million and $4.9 million, respectively (2013 — $6.6 million, $26.0 million, and $26.3 million, respectively). TheCompany has determined it is not the primary beneficiary of these VIEs, and therefore it has not been consolidated. In 2014, the Company sold its investmentin an equity-accounted investment. The Company disposed of the related carrying value and recognized a gain of $0.4 million and $0.1 million,respectively. In addition, the Company has an investment in preferred stock of another business venture of $1.5 million which meets the criteria forclassification as a debt security under the FASB ASC 320 and is recorded at a fair value of $nil at December 31, 2014 (December 31, 2013 — $1.0 million).For the year ended December 31, 2014, the Company recognized an other-than-temporary impairment for its investment of $1.4 million (2013 — $nil, 2012— $0.2 million) of which $0.4 million was recognized out of other comprehensive income and $1.0 million as a direct impairment in the consolidatedstatement of operations. This investment was classified as an available-for-sale investment. The Company has invested $2.5 million in the preferred shares ofan enterprise which meet the criteria for classification as an equity security under FASB ASC 325. In 2014, the Company recognized a $1.9 millionimpairment of its investment. As at December 31, 2014, the carrying value of the Company’s investment in preferred shares is $0.6 million (December 31,2013 — investment of $2.5 million and $0.5 million pertaining to warrants). The total carrying value of investments in new business ventures atDecember 31, 2014 and 2013 is $3.4 million and $5.8 million, respectively, and is recorded in Other Assets.21. Employees’ Pension and Postretirement Benefits(a) Defined Benefit PlanThe Company has an unfunded U.S. defined benefit pension plan, the SERP, covering Richard L. Gelfond, Chief Executive Officer (“CEO”) of theCompany and Bradley J. Wechsler, Chairman of the Company’s Board of Directors. The SERP provides for a lifetime retirement benefit from age 55determined as 75% of the member’s best average 60 consecutive months of earnings over the member’s employment history. The benefits were 50% vested asat July 2000, the SERP initiation date. The vesting percentage increases on a straight-line basis from inception until age 55. As at December 31, 2014, thebenefits of Mr. Gelfond were 100% vested. Upon a termination for cause, prior to a change of control, the executive shall forfeit any and all benefits to whichsuch executive may have been entitled, whether or not vested.Under the terms of the SERP, if Mr. Gelfond’s employment terminated other than for cause (as defined in his employment agreement), he is entitled toreceive SERP benefits in the form of a lump sum payment. SERP benefit payments to Mr. Gelfond are subject to a deferral for six months after the terminationof his employment, at which time Mr. Gelfond will be entitled to receive interest on the deferred amount credited at the applicable federal rate for short-termobligations. Pursuant to an employment agreement dated January 1, 2014, the term of Mr. Gelfond’s employment was extended through December 31, 2016,although Mr. Gelfond has not informed the Company that he intends to retire at that time. Under the terms of the arrangement, no compensation earnedbeginning in 2011 is included in calculating his entitlement under the SERP.The following assumptions were used to determine the obligation and cost of the Company’s SERP at the plan measurement dates: As at December 31, 2014 2013 2012 Discount rate 1.30% 1.45% 0.96% Lump sum interest rate: First 20 years 2.89% 3.35% 2.67% Thereafter 3.12% 3.50% 3.01% Cost of living adjustment on benefits 1.20% 1.20% 1.20% 135Table of ContentsThe amounts accrued for the SERP are determined as follows: Years Ended December 31, 2014 2013 Projected benefit obligation: Obligation, beginning of year $18,284 $20,366 Interest cost 264 195 Actuarial loss (gain) 857 (2,277) Obligation, end of year and unfunded status$19,405 $18,284 The following table provides disclosure of the pension benefit obligation recorded in the consolidated balance sheets: As at December 31, 2014 2013 Accrued benefits cost $(19,405) $(18,284) Accumulated other comprehensive loss 1,503 646 Net amount recognized in the consolidated balance sheets$(17,902) $(17,638) The following table provides disclosure of pension expense for the SERP for the year ended December 31: Years ended December 31 2014 2013 2012 Interest cost 264 195 272 Amortization of actuarial loss — 444 365 Pension expense$264 $639 $637 The accumulated benefit obligation for the SERP was $19.4 million at December 31, 2014 (2013 — $18.3 million).The following amounts were included in accumulated other comprehensive income and will be recognized as components of net periodic benefit costin future periods: As at December 31, 2014 2013 2012 Unrealized actuarial loss $1,503 $646 $3,367 No contributions were made for the SERP during 2014. The Company expects interest costs of $0.3 million to be recognized as a component of netperiodic benefit cost in 2015.The following benefit payments are expected to be made as per the current SERP assumptions and the terms of the SERP in each of the next five years,and in the aggregate: 2015$— 2016 — 2017 20,042 2018 — 2019 — Thereafter — $20,042 136Table of Contents(b) Defined Contribution Pension PlanThe Company also maintains defined contribution pension plans for its employees, including its executive officers. The Company makes contributionsto these plans on behalf of employees in an amount up to 5% of their base salary subject to certain prescribed maximums. During 2014, the Companycontributed and expensed an aggregate of $1.4 million (2013 — $1.3 million, 2012 — $1.1 million) to its Canadian plan and an aggregate of $0.4 million(2013 — $0.3 million, 2012 — $0.3 million) to its defined contribution employee pension plan under Section 401(k) of the U.S. Internal Revenue Code.(c) Postretirement Benefits - ExecutivesThe Company has an unfunded postretirement plan for Messrs. Gelfond and Wechsler. The plan provides that the Company will maintain healthbenefits for Messrs. Gelfond and Wechsler until they become eligible for Medicare and, thereafter, the Company will provide Medicare supplementalcoverage as selected by Messrs. Gelfond and Wechsler.The amounts accrued for the plan are determined as follows: As at December 31, 2014 2013 Obligation, beginning of year $392 $524 Interest cost 17 19 Benefits paid (27) (17) Actuarial loss (gain) 448 (134) Obligation, end of year$830 $392 The following details the net cost components, all related to continuing operations, and underlying assumptions of postretirement benefits other thanpensions: Years Ended December 31, 2014 2013 2012 Interest cost $17 $19 $13 Amortization of actuarial (gain) loss (32) — 9 $(15) $19 $22 The following amounts were included in accumulated other comprehensive income and will be recognized as components of net periodic benefit costin future periods: As at December 31, 2014 2013 2012 Unrealized actuarial loss (gain) $346 $(134) $— Weighted average assumptions used to determine the benefit obligation are: As at December 31, 2014 2013 2012 Discount rate 3.70% 4.50% 3.75% Weighted average assumptions used to determine the net postretirement benefit expense are: Years Ended December 31 2014 2013 2012 Discount rate 4.50% 3.75% 4.20% 137Table of ContentsThe following benefit payments are expected to be made as per the current plan assumptions in each of the next five years: 2015$32 2016 43 2017 70 2018 77 2019 84 Thereafter 524 Total$830 (d) Postretirement Benefits – Canadian EmployeesThe Company has an unfunded postretirement plan for its Canadian employees upon meeting specific eligibility requirements. The Company willprovide eligible participants, upon retirement, with health and welfare benefits.In 2013, the Company amended the Canadian post-retirement plan to reduce future benefits provided under the plan. As a result of this change, theCompany recognized a pre-tax curtailment gain in 2013 of $2.2 million (included in selling, general and administrative expenses) and a reduction in thepostretirement liability of $2.6 million.The amounts accrued for the plan are determined as follows: As at December 31, 2014 2013 Obligation, beginning of year $2,179 $4,606 Curtailment gain — (2,185) Interest cost 93 72 Service cost 6 27 Benefits paid (84) (81) Actuarial loss (gain) 126 (95) Unrealized foreign exchange gain (181) (165) Obligation, end of year$2,139 $2,179 The following details the net cost components, all related to continuing operations, and underlying assumptions of postretirement benefits other thanpensions: Years Ended December 31, 2014 2013 2012 Curtailment gain $— $(2,185) $— Interest cost 93 72 194 Service cost 6 27 231 $99 $(2,086) $425 138Table of ContentsThe following amounts were included in accumulated other comprehensive income and will be recognized as components of net periodic benefit costin future periods: As at December 31, 2014 2013 2012 Unrealized actuarial loss $429 $303 $129 Weighted average assumptions used to determine the benefit obligation are: As at December 31, 2014 2013 2012 Discount rate 3.75% 4.50% 4.00% Weighted average assumptions used to determine the net postretirement benefit expense are: Years Ended December 31 2014 2013 2012 Discount rate 4.50% 4.00% 4.50% The Company expects interest costs of $0.1 million and service costs of less than $0.1 million to be recognized as a component of net periodic benefitcost in 2015.The following benefit payments are expected to be made as per the current plan assumptions in each of the next five years: 2015 $95 2016 $107 2017 $118 2018 $128 2019 $128 Thereafter $1,563 Total$2,139 139Table of Contents22. Non-Controlling Interests(a) IMAX China Non-Controlling InterestOn April 8, 2014, the Company announced the investment (the “IMAX China Investment”) in its Greater China business by CMC Capital Partners(“CMC”), an investment fund that is focused on media and entertainment, and FountainVest Partners (“FountainVest”), a China-focused private equity firm.The IMAX China Investment provides for the sale and issuance of 20.0% of the shares in IMAX China to entities owned and controlled by CMC andFountainVest, with the intent of further strengthening the Company’s competitive position in China.Pursuant to the transaction, IMAX China issued the investors 337,500 Common C Shares of par value $0.01 each in the authorized capital of IMAXChina (the “Class C Shares”) for an aggregate subscription price of $40.0 million (the “First Closing”) on April 8, 2014 (the “First Completion Date”), andissued the investors another 337,500 Class C Shares for an aggregate subscription price of $40.0 million (the “Second Closing”) on February 10, 2015 (the“Second Completion Date”). IMAX China remains a consolidated subsidiary of the Company. Beginning in the second quarter of 2014, the Company’scondensed consolidated financial statements include the non-controlling interest in the net income of IMAX China resulting from this transaction and the netproceeds are classified as redeemable non-controlling interest in temporary equity.Under the shareholders’ agreement, except under limited circumstances, holders of Class C Shares were not permitted to transfer any Class C Sharesprior to the Second Completion Date. After the Second Completion Date, holders of Class C Shares may not transfer any Class C Shares except (i) to certainpermitted transferees, (ii) pursuant to any sale of Class C Shares on the public market in connection with or following an IPO, and (iii) subject to the right offirst offer of the holder of common A shares of par value $0.01 each in the authorized capital of IMAX China (the “Class A Shares”). With respect to transfersClass A Shares prior to an IPO, the shareholders’ agreement also provides certain drag-along rights to the holder of Class A Shares and certain tag-along rightsand put rights to holders of Class C Shares.The board of directors of IMAX China currently consists of nine members. The shareholders’ agreement provides that each of FountainVest and CMChas the right to nominate one member of IMAX China’s board of directors if it owns, (a) at any time prior to the Second Completion Date, at least 90.0% ofthe Class C Shares issued to such Person at the First Completion Date and (b) at any time following the Second Completion Date, at least 90.0% of the ClassC Shares issued to such Person at both the First Completion Date and Second Completion Date. The holder of Class A Shares has the right to nominate sevenmembers, among which one nominee shall be an independent director reasonably satisfactory to the holders of Class C Shares.The shareholders’ agreement entered into in connection with the transaction contains restrictions on the transfer of IMAX China’s common shares,certain provisions related to the composition of IMAX China’s board of directors and certain provisions relating to the redemption and share issuance in lieuof an initial public offering of IMAX China’s shares and put and call rights relating to a change of control of the Company.The shareholders’ agreement entered into in connection with the transaction provides that IMAX China intends to conduct an IPO of its shares by thefifth anniversary of the First Completion Date. If a qualified IPO (as defined in the shareholders’ agreement) has not occurred by such date, each holder ofClass C Shares may request that all of such holders’ Class C Shares be, at their election, either: (i) redeemed by IMAX China at par value together with theissuance of 2,846,000 of the Company’s common shares, (ii) redeemed by IMAX China at par value together with the payment by the Company in cash of theconsideration paid by the holders of the Class C Shares, or (iii) exchanged and/or redeemed by IMAX China in a combination of cash and the shares of theCompany equal to the pro rata fair market value of IMAX China.In the event that the Company reasonably believes that a transaction involving a change of control of the Company will occur, the Company will servea notice on each holder of Class C Shares. Upon receipt of such notice, each holder of Class C Shares will have the right to cause the Company to purchase allof its Class C Shares, and the holder of Class A Shares will also have the right to purchase from each holder of Class C Shares all of its Class C Shares, each forconsideration based upon the pro rata equity value of IMAX China.The shareholders’ agreement will terminate on the earliest to occur of (i) an IPO, (ii) a redemption or share exchange in lieu of an IPO after the fifthanniversary on the First Completion Date, (iii) completion of a put or call transaction pursuant to a change of control of the Company, and (iv) any dateagreed upon in writing by all of the parties to the shareholders’ agreement. The 140Table of Contentsshareholders’ agreement will also terminate with respect to any shareholder at such time as such shareholder no longer beneficially and legally holds anyshares.The following summarizes the movement of the non-controlling interest in the Company’s subsidiary for the year ended December 31, 2014: Balance as at December 31, 2013$— Issuance of subsidiary shares to a non-controlling interest 40,000 Share issuance costs from the issuance of subsidiary shares to a non-controlling interest (2,843) Net income 2,631 Other comprehensive loss, net of tax 58 Accretion charges associated with redeemable common stock 426 Balance as at December 31, 2014$40,272 (b) Other Non-Controlling InterestIn 2014, the Company announced the creation of the Film Fund to co-finance a portfolio of 10 original large-format films. The Film Fund, which isintended to be capitalized with up to $50.0 million, will finance an ongoing supply of original films that the Company believes will be more exciting andcompelling than traditional documentaries. The initial investment in the Film Fund was committed to by a third party in the amount of $25.0 million, withthe possibility of contributing additional funds. The Company, which will contribute $9.0 million to the Film Fund over five years, anticipates the Film Fundwill be self-perpetuating, with a portion of box office proceeds reinvested into the Film Fund to generate a continuous, steady flow of high-qualitydocumentary content. 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. For the year ended December 31, 2014, the Film Fund has contributed $7.5 million toward an investment in filmassets. Balance as at December 31, 2013$— Issuance of subsidiary shares to a non-controlling interest 4,551 Share issuance costs from the issuance of subsidiary shares to a non-controlling interest (713) Net loss (198) Balance as at December 31, 2014$3,640 23. Discontinued Operations(a) Nyack TheaterIn 2014, the Company’s lease with respect to its owned and operated Nyack IMAX Theater ended and the Company decided not to renew the lease.The transactions of the Company’s owned and operated Nyack theater are reflected as a discontinued operation.(b) Operating Results for Discontinued Operations Years Ended December 31, 2014 2013 2012 Services revenue $35 $1,291 $1,535 Services cost of sales applicable to revenues(1) 537 (1,758) (2,047) Selling, general and administrative expenses — (2) — Interest recovery — 1 — Tax (expense) recovery (217) 159 — Income (loss) from discontinued operations, net of tax$355 $(309) $(512) (1)Upon the expiration of the lease, lease inducements contingent upon the completion of the full term of the lease were recognized as a reduction in rentexpense of $0.8 million (2013 — $nil, 2012 — $nil). 141Table of Contents24. Asset Retirement ObligationsThe Company has accrued costs related to obligations in respect of required reversion costs for its owned and operated theaters under long-term realestate leases which will become due in the future. The Company does not have any legal restrictions with respect to settling any of these long-term leases. Areconciliation of the Company’s liability in respect of required reversion costs is shown below: Years Ended December 31, 2014 2013 2012 Beginning balance, January 1 $143 $249 $230 Accretion expense 12 6 19 Reduction in asset retirement obligation (6) (112) — Ending balance, December 31$149 $143 $249 25. Prior Years’ FiguresCertain of the prior years’ figures have been reclassified to conform to the current year’s presentation. 142Table of ContentsItem 9.Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone Item 9A.Controls and ProceduresEVALUATION OF DISCLOSURE CONTROLS AND PROCEDURESThe Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under theSecurities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the specified time periods and that such information isaccumulated and communicated to management, including the CEO and CFO, to allow timely discussions regarding required disclosure. There are inherentlimitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention oroverriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance ofachieving their control objectives.The Company’s management, with the participation of its CEO and its Chief Financial Officer (“CFO”), has evaluated the effectiveness of theCompany’s “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) as at December 31, 2014and has concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective. The Companywill continue to periodically evaluate its disclosure controls and procedures and will make modifications from time to time as deemed necessary to ensurethat information is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTINGManagement is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.Management has used the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) framework in Internal Control-IntegratedFramework (2013) to assess the effectiveness of the Company’s internal control over financial reporting.Management has assessed the effectiveness of the Company’s internal control over financial reporting, as at December 31, 2014, and has concludedthat such internal control over financial reporting were effective as at that date.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degreeof compliance with the policies or procedures may deteriorate.PricewaterhouseCoopers LLP has audited the effectiveness of the Company’s internal control over financial reporting as at December 31, 2014 asstated in their report on page 81.CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTINGThere were no changes in the Company’s internal control over financial reporting which occurred during the three months ended December 31, 2014,that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Item 9B.Other InformationNone. 143Table of ContentsPART III Item 10.Directors, Executive Officers and Corporate GovernanceThe information required by Item 10 is incorporated by reference from the information under the following captions in the Company’s ProxyStatement: “Item No. 1 - Election of Directors;” “Executive Officers;” “Section 16(a) Beneficial Ownership Reporting Compliance;” “Code of Ethics;” and“Audit Committee.” Item 11.Executive CompensationThe information required by Item 11 is incorporated by reference from the information under the following captions in the Company’s ProxyStatement: “Compensation Discussion and Analysis;” “Summary Compensation Table;” “Grant of Plan-Based Awards;” “Outstanding Equity Awards atFiscal Year-End;” “Options Exercised;” “Pension Benefits;” “Employment Agreements and Potential Payments upon Termination or Change-in-Control;”“Compensation of Directors;” and “Compensation Committee Interlocks and Insider Participation.” Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information required by Item 12 is incorporated by reference from the information under the following captions in the Company’s ProxyStatement: “Equity Compensation Plans;” “Principal Shareholders of Voting Shares;” and “Security Ownership of Directors and Management.” Item 13.Certain Relationships and Related Transactions, and Director IndependenceThe information required by Item 13 is incorporated by reference from the information under the following caption in the Company’s Proxy Statement:“Certain Relationships and Related Transactions,” “Review, Approval and Ratification of Transactions with Related Persons,” and “Director Independence.” Item 14.Principal Accounting Fees and ServicesThe information required by Item 14 is incorporated by reference from the information under the following captions in the Company’s ProxyStatement: “Audit Fees;” “Audit-Related Fees;” “Tax Fees;” “All Other Fees;” and “Audit Committee’s Pre-Approved Policies and Procedures.”PART IV Item 15.Exhibits and Financial Statement Schedules(a)(1) Financial StatementsThe consolidated financial statements filed as part of this Report are included under Item 8 in Part II.Report of Independent Registered Public Accounting Firm, which covers both the financial statements and financial statement schedule in (a)(2), isincluded under Item 8 in Part II.(a)(2) Financial Statement SchedulesFinancial statement schedule for each year in the three-year period ended December 31, 2014.II. Valuation and Qualifying Accounts.(a)(3) ExhibitsThe items listed as Exhibits 10.1 to 10.31 relate to management contracts or compensatory plans or arrangements. 144Table of ContentsExhibitNo. Description 3.1 Restated Articles of Incorporation of IMAX Corporation, dated July 30, 2013. Incorporated by reference to Exhibit 3.1 to IMAX Corporation’sForm 10-Q, for the quarter ended September 30, 2013 (File No. 001-35066). 3.2 By-Law No. 1 of IMAX Corporation enacted on June 2, 2014. Incorporated by reference to Exhibit 3.2 to IMAX Corporation’s Form 8-K, datedJune 3, 2014 (File No. 001-35066). 4.1 Shareholders’ Agreement, dated as of January 3, 1994, among WGIM Acquisition Corporation, the Selling Shareholders as defined therein,Wasserstein Perella Partners, L.P., Wasserstein Perella Offshore Partners, L.P., Bradley J. Wechsler, Richard L. Gelfond and Douglas Trumbull (the“Selling Shareholders’ Agreement”). Incorporated by reference to Exhibit 4.1 to IMAX Corporation’s Form 10-K, for the year ended December31, 2012 (File No. 001-35066). 4.2 Amendment, dated as of March 1, 1994, to the Selling Shareholders’ Agreement. Incorporated by reference to Exhibit 4.2 to IMAX Corporation’sForm 10-K, for the year ended December 31, 2012 (File No. 001-35066). 4.3 Registration Rights Agreement, dated as of February 9, 1999, by and among IMAX Corporation, Wasserstein Perella Partners, L.P., WassersteinPerella Offshore Partners, L.P., WPPN Inc., the Michael J. Biondi Voting Trust, Bradley J. Wechsler and Richard L. Gelfond. Incorporated byreference to Exhibit 4.3 to IMAX Corporation’s Form 10-K, for the year ended December 31, 2012 (File No. 001-35066). 10.1 Stock Option Plan of IMAX Corporation, dated June 18, 2008. Incorporated by reference to Exhibit 10.1 to IMAX Corporation’s Form 10-K, forthe year ended December 31, 2010 (File No. 001-35066). 10.2 IMAX Corporation 2013 Long Term Incentive Plan. Incorporated by referenced to Exhibit 10.1 to IMAX Corporation’s Form 8-K, dated June 11,2013 (File No. 001-35066). 10.3 IMAX Corporation Supplemental Executive Retirement Plan, as amended and restated as of January 1, 2006 Incorporated by reference to Exhibit10.2 to IMAX Corporation’s Form 10-K, for year ended December 31, 2012 (File No. 001-35066). 10.4 Employment Agreement, dated July 1, 1998, between IMAX Corporation and Bradley J. Wechsler. Incorporated by reference to Exhibit 10.3 toIMAX Corporation’s Form 10-K, for the year ended December 31, 2012 (File No. 001-35066). 10.5 Amended Employment Agreement, dated July 12, 2000, between IMAX Corporation and Bradley J. Wechsler. Incorporated by reference toExhibit 10.4 to IMAX Corporation’s Form 10-K, for the year ended December 31, 2012 (File No. 001-35066). 10.6 Amended Employment Agreement, dated March 8, 2006, between IMAX Corporation and Bradley J. Wechsler. Incorporated by reference toExhibit 10.5 to IMAX Corporation’s Form 10-K, for the year ended December 31, 2011 (File No. 001-35066). 10.7 Amended Employment Agreement, dated February 15, 2007, between IMAX Corporation and Bradley, J. Wechsler. Incorporated by reference toExhibit 10.6 to IMAX Corporation’s Form 10-K, for the year ended December 31, 2011 (File No. 001-35066). 10.8 Amended Employment Agreement, dated December 31, 2007, between IMAX Corporation and Bradley J. Wechsler. Incorporated by reference toExhibit 10.8 to IMAX Corporation’s Form 10-K, for the year ended December 31, 2013 (File No. 001-35066).*10.9 Services Agreement, dated December 11, 2008, between IMAX Corporation and Bradley J. Wechsler. 10.10 Services Agreement Amendment, dated February 14, 2011, between IMAX Corporation and Bradley J. Wechsler. Incorporated by reference toExhibit 10.9 to IMAX Corporation’s Form 10-K, for the year ended December 31, 2010 (File No. 001-35066). 10.11 Services Agreement Amendment dated April 1, 2013, between IMAX Corporation and Bradley J. Wechsler. Incorporated by reference to Exhibit10.11 to IMAX Corporation’s Form 10-K, for the year ended December 31, 2013 (File No. 001-35066). 10.12 Employment Agreement, dated July 1, 1998, between IMAX Corporation and Richard L. Gelfond. Incorporated by reference to Exhibit 10.10 toIMAX Corporation’s Form 10-K, for the year ended December 31, 2012 (File No. 001-35066). 10.13 Amended Employment Agreement, dated July 12, 2000, between IMAX Corporation and Richard L. Gelfond. Incorporated by reference toExhibit 10.11 to IMAX Corporation’s Form 10-K for the year ended December 31, 2012 (File No. 001-35066). 10.14 Amended Employment Agreement, dated March 8, 2006, between IMAX Corporation and Richard L. Gelfond. Incorporated by reference toExhibit 10.12 to IMAX Corporation’s Form 10-K, for the year ended December 31, 2011 (File No. 001-35066). 10.15 Amended Employment Agreement, dated February 15, 2007, between IMAX Corporation and Richard L. Gelfond. 145Table of ContentsIncorporated by reference to Exhibit 10.13 to IMAX Corporation’s Form 10-K, for the year ended December 31, 2011 (File No. 001-35066). 10.16Amended Employment Agreement, dated December 31, 2007, between IMAX Corporation and Richard L. Gelfond. Incorporated by reference toExhibit 10.16 to IMAX Corporation’s Form 10-K, for the year ended December 31, 2013 (File No. 001-35066).*10.17Amended Employment Agreement, dated December 11, 2008, between IMAX Corporation and Richard L. Gelfond. 10.18Amended Employment Agreement, dated December 20, 2010, between IMAX Corporation and Richard L. Gelfond. Incorporated by reference toExhibit 10.16 to IMAX Corporation’s Form 10-K, for the year ended December 31, 2010 (File No. 001-35066). 10.19Amended Employment Agreement, dated December 12, 2011, between IMAX Corporation and Richard L. Gelfond. Incorporated by reference toExhibit 10.17 to IMAX Corporation’s Form 10-K, for the year ended December 31, 2011 (File No. 001-35066). 10.20Employment Agreement, dated January 1, 2014, between IMAX Corporation and Richard L. Gelfond. Incorporated by reference to Exhibit 10.12to IMAX Corporation’s Form 10-Q, for the quarter ended September 30, 2014 (File No. 001-35066). 10.21Employment Agreement, dated March 9, 2006, between IMAX Corporation and Greg Foster. Incorporated by reference to Exhibit 10.18 to IMAXCorporation’s Form 10-K, for the year ended December 31, 2011 (File No. 001-35066). 10.22First Amending Agreement, dated December 31, 2007, between IMAX Corporation and Greg Foster. Incorporated by reference to Exhibit 10.22to IMAX Corporation’s Form 10-K, for the year ended December 31, 2013 (File No. 001-35066). 10.23Second Amending Agreement, dated April 29, 2010, between IMAX Corporation and Greg Foster. Incorporated by reference to Exhibit 10.31 toIMAX Corporation’s Form 10-Q, for the quarter ended June 30, 2010 (File No. 000-24216). 10.24Third Amending Agreement, dated June 12, 2013, between IMAX Corporation and Greg Foster. Incorporated by reference to Exhibit 10.21 toIMAX Corporation’s Form 10-Q, for the quarter ended June 30, 2013 (File No. 001-35066). 10.25Employment Agreement, dated May 14, 2007, between IMAX Corporation and Joseph Sparacio. Incorporated by reference to Exhibit 10.21 toIMAX Corporation’s Form 10-K, for the year ended December 31, 2012 (File No. 001-35066). 10.26First Amending Agreement, dated May 14, 2009, between IMAX Corporation and Joseph Sparacio. Incorporated by reference to Exhibit 10.27 toIMAX Corporation’s Form 10-K, for the year ended December 31, 2009 (File No. 000-24216). 10.27Second Amending Agreement, dated May 14, 2010, between IMAX Corporation and Joseph Sparacio. Incorporated by reference to Exhibit10.32 to IMAX Corporation’s Form 10-Q, for the quarter ended June 30, 2010 (File No. 000-24216). 10.28Third Amending Agreement, dated January 23, 2012, between IMAX Corporation and Joseph Sparacio. Incorporated by reference toExhibit 10.24 to IMAX Corporation’s Form 10-K, for the year ended December 31, 2011 (File No. 001-35066). 10.29Fourth Amending Agreement, dated May 15, 2014, between IMAX Corporation and Joseph Sparacio. Incorporated by reference to Exhibit 10.29to IMAX Corporation’s Form 10-Q, for the quarter ended September 30, 2014 (File No. 001-35066). 10.30Summary of Employment Agreement, effective October 3, 2011, between IMAX Corporation and Mark Welton. Incorporated by reference toExhibit 10.38 to IMAX Corporation’s Form 10-Q for the quarter ended September 30, 2011 (File No. 001-35066). 10.31Statement of Directors’ Compensation, dated June 11, 2013. Incorporated by reference to Exhibit 10.26 to IMAX Corporation’s Form 10-Q forthe quarter ended June 30, 2013 (File No. 001-35066). 10.32Third Amended and Restated Credit Agreement, dated February 7, 2013, by and between IMAX Corporation, the Guarantors referred to therein,the Lenders referred to therein, Wells Fargo Bank National Association and Wells Fargo Securities, LLC. Incorporated by reference to Exhibit10.28 to IMAX Corporation’s Form 10-K, for year ended December 31, 2012 (File No. 001-35066). 10.33Construction Loan Agreement, dated October 6, 2014, between IMAX PV Development, Inc., Wells Fargo Bank, National Association and thefinancial institutions referred to therein. Incorporated by reference to Exhibit 10.45 to IMAX Corporation’s Form 10-Q, for the quarter endedSeptember 30, 2014 (File No. 001-35066). 10.34Securities Purchase Agreement, dated as of May 5, 2008, by and between IMAX Corporation, Douglas Family Trust, James Douglas and JeanDouglas Irrevocable Descendants’ Trust, James E. Douglas, III, and K&M Douglas Trust. Incorporated by reference to Exhibit 10.43 to IMAXCorporation’s Form 10-K, for the year ended December 31, 2013 (File No. 001-35066). 146Table of Contents*10.35Amendment No. 1 to Securities Purchase Agreement, dated December 1, 2008, by and between IMAX Corporation, Douglas Family Trust, JamesDouglas and Jean Douglas Irrevocable Descendants’ Trust, James E. Douglas, III, and K&M Douglas Trust. 10.36Subscription Agreement, dated April 7, 2014, by and among IMAX China Holding, Inc., IMAX Corporation, IMAX (Barbados) Holding, Inc.,China Movie Entertainment FV Limited, CMCCP Dome Holdings Limited and China Movie Entertainment CMC Limited. Incorporated byreference to Exhibit 10.1 to IMAX Corporation’s Form 8-K, dated April 7, 2014 (File No. 001-35066).*21Subsidiaries of IMAX Corporation.*23Consent of PricewaterhouseCoopers LLP.*24Power of Attorney of certain directors.*31.1Certification Pursuant to Section 302 of the Sarbanes — Oxley Act of 2002, dated February 19, 2015, by Richard L. Gelfond.*31.2Certification Pursuant to Section 302 of the Sarbanes — Oxley Act of 2002, dated February 19, 2015, by Joseph Sparacio.*32.1Certification Pursuant to Section 906 of the Sarbanes — Oxley Act of 2002, dated February 19, 2015, by Richard L. Gelfond.*32.2Certification Pursuant to Section 906 of the Sarbanes — Oxley Act of 2002, dated February 19, 2015, by Joseph Sparacio. *Filed herewith 147Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized. IMAX CORPORATIONBy /s/ JOSEPH SPARACIOJoseph SparacioExecutive Vice-President & Chief Financial OfficerDate: February 19, 2015Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities indicated on February 19, 2015. /s/ RICHARD L. GELFOND/s/ JOSEPH SPARACIO/s/ JEFFREY VANCERichard L. GelfondChief Executive Officer &Director(Principal Executive Officer)Joseph SparacioExecutive Vice President &Chief Financial Officer(Principal Financial Officer)Jeffrey VanceSenior Vice-President,Finance & Controller(Principal Accounting Officer)***Bradley J. WechslerChairman of the Board & DirectorNeil S. BraunDirectorEric A. DemirianDirector***Garth M. GirvanDirectorDavid W. LeebronDirectorMichael LynneDirector***Michael MacMillanDirectorI. Martin PompadurDirectorMarc A. UtayDirector By* /s/ JOSEPH SPARACIOJoseph Sparacio(as attorney-in-fact) 148Table of ContentsIMAX CORPORATIONSchedule IIValuation and Qualifying Accounts(In thousands of U.S. dollars) Balance atbeginningof year Additions/(recoveries)charged toexpenses Otheradditions/(deductions)(1) Balance atend of year Allowance for net investment in leases Year ended December 31, 2012 $1,833 $316 $(1,019) $1,130 Year ended December 31, 2013 $1,130 $300 $(624) $806 Year ended December 31, 2014 $806 $— $166 $972 Allowance for financed sale receivables Year ended December 31, 2012 $316 $(141) $(109) $66 Year ended December 31, 2013 $66 $180 $(10) $236 Year ended December 31, 2014 $236 $193 $65 $494 Allowance for doubtful accounts receivable Year ended December 31, 2012 $1,840 $606 $(882) $1,564 Year ended December 31, 2013 $1,564 $(35) $(642) $887 Year ended December 31, 2014 $887 $725 $(665) $947 Deferred income tax valuation allowance Year ended December 31, 2012 $6,054 $93 $(34) $6,113 Year ended December 31, 2013 $6,113 $(341) $(1,018) $4,754 Year ended December 31, 2014 $4,754 $(430) $(4,014) $310 (1)Deductions represent write-offs of amounts previously charged to the provision.IMAX CORPORATIONEXHIBIT 10.9SERVICES AGREEMENTSERVICES AGREEMENT dated and effective as of December 11, 2008 (the “Agreement”) between IMAX CORPORATION (“IMAX,” the “Company”) andBRADLEY J. WECHSLER (the “Chairman”).WHEREAS, Chairman, the Company and IMAX’s Board of Directors (the “Board”) have all agreed to the termination of Chairman’s employment as Co-Chief Executive Officer of the Company and of his July 1, 1998 employment agreement, as amended (the “Employment Agreement”), effective as ofApril 1, 2009 (the “Effective Date”);WHEREAS, the Board has approved terms under which Chairman shall serve as Chairman of the Board of the Company for the Term (as defined below)effective as of the Effective Date; andWHEREAS, the Company wishes to enter into this Agreement to engage Chairman to provide services to the Company and Chairman wishes to be soengaged, pursuant to the terms and conditions hereinafter set forth;NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, the parties hereto agree as follows: 1.Term. The term of the Agreement shall begin on the Effective Date and run through the earlier of (i) such date that Chairman is not re-elected to theBoard, and (ii) April 1, 2011 (the “Term”); provided, however, that the Board agrees to use its best efforts to cause Chairman to be re-elected to theBoard in 2010 unless Chairman has engaged in activity that would have constituted dismissal for Cause as that term is defined in the EmploymentAgreement. 2.Services. Chairman shall serve as Chairman of the Board of the Company throughout the Term. In such capacity, Chairman shall serve as the primaryliaison on the Board’s behalf with management, and be responsible for the following items, including but not limited to: (a) leading the Board andworking with the senior corporate team to create transparency for the Board, particularly with regard to key operational and financial metrics, strategiesand controls; (b) providing input to the CEO in determining company-wide strategic objectives to be presented and discussed with the full Board; and(c) receiving regularly scheduled updates from the CEO, COO and CFO as needed. Certain of Chairman’s specific responsibilities are outlined inSchedule “A” attached hereto. It is the intention of the parties that the services (the “Services”) provided to the Company under this Agreement shallinitially require no more than between 20% - 40% of the full working time of Chairman. Subsequently during the Term, if it becomes clear that lessthan 20% of the full working time of Chairman is required for the Services, the parties agree to negotiate in good faith to revise the Fee (as definedbelow). 3.Compensation and Benefits. During the Term, Chairman shall receive a cash stipend of $200,000 for each year served as Chairman of the Board,payable in equal parts fifteen (15) days after the end of each calendar quarter (the “Fee”). The Company shall also reimburse Chairman for allreasonable out-of-pocket expenses in the performance of his obligations under this Agreement for which documentation reasonably satisfactory toIMAX is provided, including expenses relating to Chairman’s travel and performance of duties outside of his office in New York. The Company shall additionally provide Chairmanwith reimbursement of all reasonable automobile expenses, office space in the Company’s New York office and an assistant throughout the Term. 4.Retirement Benefits. Chairman shall receive retirement benefits, including health benefits, as provided under that July 2000 Supplemental ExecutiveRetirement Plan, as amended (the “SERP”) and/or the corresponding July 2000 employment agreement between Chairman and the Company. It is theintention of the parties that the termination of Chairman’s employment as co-Chief Executive Officer, and of the Employment Agreement, shallconstitute a “Separation of Service” as defined in Section 4.09A(a)(2)(B) of the Internal Revenue Code of 1986, as amended. 5.Existing Stock Options and Other Awards. Throughout the Term, all stock options and stock appreciation rights (SARs) granted to Chairman duringhis employment with IMAX shall continue to vest in accordance with their original vesting schedules and all such stock options and SARs shallremain exercisable for the entirety of their original terms. All of the other material terms of such stock options and SARs shall remain subject to theprovisions of the Employment Agreement and IMAX’s Stock Option Plan (the “SOP”); provided, however, that where there is a conflict between theEmployment Agreement and the SOP, the terms of the Employment Agreement shall preside. In addition, the Special Bonus (as defined in Section 1(g)of the employment agreement between Chairman and the Company dated March 1, 1994 shall survive the termination of the Employment Agreement. 6.General. The entering into this agreement shall not prejudice any rights or waive any obligations under any provision of the Employment Agreementintended to survive its expiration.DATED as of December 11, 2008. AGREED AND ACCEPTED:/s/ Bradley J. WechslerBradley J. WechslerIMAX CORPORATIONPer:/s/ Garth M. GirvanName:Garth M. GirvanTitle:DirectorSchedule “A”Board • Serve as the primary liaison on the Board’s behalf with management • Work with the CEO to set Board agendas • Facilitate discussion and manage process of getting approval of material variations from the Board-approved budget • Design the form and substance of Board reports, setting out key operational and financial metrics (quarterly and monthly)Strategy • Provide input to the CEO in determining company-wide strategic objectives, to be presented and discussed with the full Board • Assist IMAX in developing capital market strategies • Bring expertise to bear in key strategic initiatives; provide feedback on significant corporate transactions which might have strategicimplications • Maintain strategic third-party relationships on behalf of the Company • Serve an “Ambassadorial” role on behalf of the Company at conferences, trade shows and openings • Represent the Board at one or more management retreats per yearFinance • Advise the CEO in determining major allocations of capital • Receive regularly scheduled updates from CEO, COO, and CFO as needed • Receive updates on SEC/ OSC/ litigation matters from Company and from outside counsel; review and comment on briefs and SEC submissions • Review quarterly reforecasts with COO and CFO • Participate in quarterly Research & Development meetingIMAX CORPORATIONEXHIBIT 10.17AMENDED EMPLOYMENT AGREEMENTThis agreement amends the amended employment agreement (the “Agreement”) between Richard L. Gelfond (the “Executive”) and IMAX Corporation(the “Company”) dated July 1, 1998, as amended, on the same terms and conditions except as set out below: 1.Employment. Effective April 1, 2009, the Executive shall assume the role of the Company’s sole Chief Executive Officer through the remainder of theTerm. 2.Term. The term of the Agreement is extended until December 31, 2010 (the “Term”). 3.Cash Compensation. The Executive shall continue to be paid a base salary at the rate of $500,000 per year for 2009. Effective January 1, 2010, theExecutive shall be paid a base salary at the rate of $600,000 per year. Executive’s bonus shall continue to be up to two times salary. Such bonus shallbe at the discretion of the Board of Directors and shall be based upon the success of the Company in achieving the goals and objectives set by theBoard after consultation with the Executive. If the Executive’s employment is terminated without Cause prior to the end of the Term, the Executiveshall be entitled to no less than a pro-rata portion of his median bonus target (i.e. one times salary). For purposes of clarity, if Executive’s employmentis terminated for any reason during the Term and Executive becomes eligible to receive retirement benefits as provided under that July 2000Supplemental Executive Retirement Plan, as amended, Executive shall no longer be entitled to receive any cash compensation hereunder. 4.Incentive Compensation. The Executive shall be granted as soon as practicable, in accordance with the terms of the IMAX Stock Option Plan (the“Plan”), stock options to purchase 500,000 common shares of the Company (the “Options”) at an exercise price per Common Share equal to the FairMarket Value, as defined in the Plan. The Options shall have a 10-year term and vest as follows: Number of Options Vesting Date 100,000 April 1, 2009 100,000 October 1, 2009 100,000 January 1, 2010 100,000 May 1, 2010 100,000 September 1, 2010 The vesting of the Options shall be accelerated upon a “change of control” as defined in the Agreement, and shall be governed, to the extentapplicable, by the provisions in the Agreement regarding change of control. 5.The entering into this agreement shall not prejudice any rights or waive any obligations under any other agreement between the Executive and theCompany.DATED as of December 11, 2008. AGREED AND ACCEPTED:/s/ Richard L. GelfondRichard L. GelfondIMAX CORPORATIONPer:/s/ Garth M. GirvanName:Garth M. GirvanTitle:DirectorIMAX CORPORATIONEXHIBIT 10.35AMENDMENT NO. 1 TOSECURITIES PURCHASE AGREEMENTAMENDMENT NO. 1, dated as of December 31, 2008, to the Securities Purchase Agreement (the “Agreement”), dated as of May 5, 2008, by andbetween IMAX Corporation, a corporation incorporated under the federal laws of Canada (the “Company”) and each of the entities appearing on thesignature pages hereof and thereof (each, an “Investor” and collectively, the “Investors”). All capitalized terms used and note otherwise defined herein shallhave the meanings ascribed thereto in the Agreement.WHEREAS, the parties entered into the Agreement providing for the sale and purchase of the Securities, all upon the terms and subject to theconditions set forth therein; andWHEREAS, the parties wish to amend certain terms and conditions of the Agreement;NOW, THEREFORE, in consideration of the promises and mutual agreements and covenants hereinafter set forth, and intending to be legally bound,the Company and the Investors hereby agree as follows: 1.Section 1.2 is hereby amended to add the following defined term in the appropriate alphabetical position:““Registration Demand” has the meaning specified in Section 4.2(a) of this Agreement.”” 2.Section 4.2(a) is hereby amended and restated in its entirety:“upon receipt of a written demand from all of the Investors (the “Registration Demand”), and subject to receipt of necessary information from theInvestors, prepare and file with the Commission within 10 days after receipt of the Registration Demand (the “Filing Deadline”), a registrationstatement (the “Registration Statement”) to enable the resale of the Securities by the Investors from time to time on the Principal Market or inprivately-negotiated transactions; provided, however, that for the avoidance of doubt, the Investors may make only one Registration Demand and theCompany shall only be required to file one such Registration Statement; provided, further, that the Company may postpone the filing of theRegistration Statement in accordance with Section 4.4(c) hereof;” 3.Section 4.4(c)(i) is hereby amended and restated in its entirety:“(i) that the filing of the Registration Statement or the continued use by the Investors of the Registration Statement for purposes of effecting offers orsales of the Securities pursuant thereto would require, under the Securities Act, premature disclosure in the Registration Statement (or the prospectusrelating thereto) of material, nonpublic information concerning the Company, its business or prospects or any of its proposed material transactions,and” 4.Except as expressly amended hereby, the terms and conditions of the Agreement shall remain full force and effect. 5.This Amendment may be executed and delivered (including by facsimile transmission) in one or more counterparts, each of which when executed shallbe deemed to be an original, but all of which taken together constitute one and the same agreement.IN WITNESS WHEREOF, the Company and the Investors have caused this Amendment to be executed as of the date first written above. IMAX CORPORATIONBy:/s/ RICHARD L. GELFONDName:Richard L. GelfondTitle:Co-Chief Executive OfficerK&M DOUGLAS TRUSTJAMES DOUGLAS AND JEANDOUGLAS IRREVOCABLEDESCENDANTS’ TRUSTBy:/s/ KEVIN DOUGLASBy:/s/ KEVIN DOUGLASName:Kevin DouglasName:Kevin DouglasTitle:TrusteeTitle:TrusteeBy:/s/ MICHELLE DOUGLASBy:/s/ MICHELLE DOUGLASName:Michelle DouglasName:Michelle DouglasTitle:TrusteeTitle:TrusteeDOUGLAS FAMILY TRUSTJAMES E. DOUGLAS IIIBy:/s/ JAMES DOUGLASBy:/s/ JAMES E. DOUGLAS IIIName:James DouglasTitle:TrusteeBy:/s/ JEAN DOUGLASName:Jean DouglasTitle:TrusteeIMAX CORPORATIONEXHIBIT 21SUBSIDIARIES OF IMAX CORPORATION Company Name Place ofIncorporation PercentageHeld 3183 Films Ltd. Canada 100 1329507 Ontario Inc. Ontario 100 2328764 Ontario Ltd. Ontario 100 4507592 Canada Ltd. Canada 100 6822967 Canada Ltd. Canada 100 7096194 Canada Ltd. Canada 100 7096267 Canada Ltd. Canada 100 7096291 Canada Ltd. Canada 100 7103077 Canada Ltd. Canada 100 7109857 Canada Ltd. Canada 100 7214316 Canada Ltd. Canada 100 7550324 Canada Inc. Canada 100 7550391 Canada Ltd. Canada 100 7550405 Canada Ltd. Canada 100 7742266 Canada Ltd. Canada 100 7742274 Canada Ltd. Canada 100 Animal Orphans 3D Ltd. Ontario 100 Arizona Big Frame Theatres, L.L.C. Arizona 100 Baseball Tour, LLC Delaware 15.625 Coral Sea Films Ltd. Canada 100 ILW Productions Inc. Delaware 100 IMAX II U.S.A. Inc. Delaware 100 IMAX 3D TV Ventures, LLC Delaware 100 IMAX (Barbados) Holding, Inc. Barbados 100 IMAX Chicago Theatre LLC Delaware 100 IMAX China Holding, Inc. Cayman Islands 88.9 IMAX China (Hong Kong), Limited Hong Kong 100 IMAX Documentary Films Capital, LLC Delaware 47.37 IMAX Europe SA (1.6% owned by IMAX (Barbados)) Belgium 100 IMAX Film Holding Co. Delaware 100 IMAX (Hong Kong) Holding, Limited Hong Kong 100 IMAX Indianapolis LLC Indiana 100 IMAX International Sales Corporation Canada 100 IMAX Japan Inc. Japan 100 IMAX Labs, LLC Delaware 100 IMAX Minnesota Holding Co. Delaware 100 IMAX Music Ltd. Ontario 100 IMAX Post/DKP Inc. Delaware 100 IMAX Providence General Partner Co. Delaware 100 IMAX Providence Limited Partner Co. Delaware 100 IMAX PV Development Inc. Delaware 100 IMAX Rhode Island Limited Partnership Rhode Island 100 IMAX (Rochester) Inc. Delaware 100 IMAX Scribe Inc. Delaware 100 IMAX (Shanghai) Multimedia Technology Co., Ltd. People’s Republic of China 100 IMAX (Shanghai) Theatre Technology Services Co., Ltd. People’s Republic of China 100 IMAX Space Ltd. Ontario 100 IMAX Space Productions Ltd. Canada 100 IMAX Spaceworks Ltd. Canada 100 IMAX Theatre Holding (California I) Co. Delaware 100 IMAX Theatre Holding (California II) Co. Delaware 100 IMAX Theatre Holding Co. Delaware 100 IMAX Theatre Holdings (OEI), Inc. Delaware 100 IMAX Theatre Holding (Nyack I) Co. Delaware 100 IMAX Theatre Holding (Nyack II) Co. Delaware 100 IMAX Theatre Management Company Delaware 100 Company Name Place ofIncorporation PercentageHeld IMAX Theatre Services Ltd. Ontario 100 IMAX (Titanic) Inc. (50 % owned by 7096194 Canada Ltd.) Delaware 100 IMAX U.S.A. Inc. Delaware 100 Madagascar Doc 3D Ltd. Canada 100 Magnitude Productions Ltd. Canada 100 Nyack Theatre LLC New York 100 Raining Arrows Productions Ltd. Canada 100 Ridefilm Corporation Delaware 100 Ruth Quentin Films Ltd. Canada 100 Sacramento Theatre LLC Delaware 100 Sonics Associates, Inc. Alabama 100 Starboard Theatres Ltd. Canada 100 Strategic Sponsorship Corporation Delaware 100 Taurus-Littrow Productions Inc. Delaware 100 TCL-IMAX Entertainment Co., Limited Hong Kong 50 TCL-IMAX (Shanghai) Digital Technology Co. Ltd. People’s Republic of China 100 The Deep Magic Company Ltd. Canada 100 Walking Bones Pictures Ltd. Canada 100 IMAX CORPORATIONExhibit 23CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in (i) the Registration Statements on Form S-8 (No. 333-2076; No. 333-5720; No. 333-30970; No. 333-44412; No. 333-155262, No. 333-165400; No. 333-189274), (ii) the Post-Effective Amendments No. 1 to Form S-8 (No. 333-5720 as amended and No. 333-165400) and (iii) the Registration Statement on Form S-3 (No. 333-194082) of IMAX Corporation of our report dated February 19, 2015, relating to thefinancial statements, financial statements schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K./s/ PricewaterhouseCoopers LLPChartered Accountants, Licensed Public AccountantsToronto, OntarioFebruary 19 , 2015 PricewaterhouseCoopers LLPPwC Tower, 18 York Street, Suite 2600, Toronto, Ontario, Canada M5J 0B2T: +1 416 863 1133, F: +1 416 365 8215, www.pwc.com/ca“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.IMAX CORPORATIONEXHIBIT 24POWER OF ATTORNEYEach of the persons whose signature appears below hereby constitutes and appoints Joseph Sparacio and Robert D. Lister, and each of them severally,as his true and lawful attorney or attorneys with power of substitution and re-substitution to sign in his name, place and stead in any and all such capacitiesthe Form 10-K, including the French language version thereof, and any and all amendments thereto and documents in connection therewith, and to file thesame with the United States Securities Exchange Commission (the “SEC”) and such other regulatory authorities as may be required, each of said attorneys tohave power to act with and without the other, and to have full power and authority to do and perform, in the name and on behalf of each of the directors of theCorporation, every act whatsoever which such attorneys, or either of them, may deem necessary or desirable to be done in connection therewith as fully andto all intents and purposes as such directors of the Corporation might or could do in person.Dated this 19th day of February, 2015. Signature Title /s/ Bradley J. Wechsler Chairman of the Board & Director Bradley J. Wechsler /s/ Richard L. Gelfond Chief Executive Officer Richard L. Gelfond (Principal Executive Officer) /s/ Neil S. Braun Director Neil S. Braun /s/ Eric A. Demirian Director Eric A. Demirian /s/ Garth M. Girvan Director Garth M. Girvan /s/ David W. Leebron Director David W. Leebron /s/ Michael Lynne Director Michael Lynne /s/ Michael MacMillan Director Michael MacMillan /s/ I. Martin Pompadur Director I. Martin Pompadur /s/ Marc A. Utay Director Marc A. Utay /s/ Joseph Sparacio Chief Financial Officer Joseph Sparacio (Principal Financial Officer) /s/ Jeffrey Vance Controller Jeffrey Vance (Principal Accounting Officer) IMAX CORPORATIONEXHIBIT 31.1Certification Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002I, Richard L. Gelfond, certify that: 1.I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2014 of the registrant, IMAX Corporation; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date: February 19, 2015By: /s/ Richard L. GelfondRichard L. GelfondChief Executive OfficerIMAX CORPORATIONEXHIBIT 31.2Certification Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002I, Joseph Sparacio, certify that: 1.I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2014 of the registrant, IMAX Corporation; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date: February 19, 2015By: /s/ Joseph SparacioJoseph SparacioExecutive Vice President &Chief Financial OfficerIMAX CORPORATIONEXHIBIT 32.1CERTIFICATIONSPursuant to Section 906 of the Sarbanes-Oxley Act of 2002(Subsections (A) and (B) of Section 1350, Chapter 63 of Title 18, United States Code)Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), I,Richard L. Gelfond, Chief Executive Officer of IMAX Corporation, a Canadian corporation (the “Company”), hereby certify, to my knowledge, that:The Annual Report on Form 10-K for the year ended December 31, 2014 (the “Form 10-K”) of the Company fully complies with the requirements ofsection 13(a) or 15(d) of the Securities Exchange Act of 1934, and information contained in the Form 10-K fairly presents, in all material respects, thefinancial condition and results of operations of the Company. Date: February 19, 2015/s/ Richard L. GelfondRichard L. GelfondChief Executive OfficerIMAX CORPORATIONEXHIBIT 32.2CERTIFICATIONSPursuant to Section 906 of the Sarbanes-Oxley Act of 2002(Subsections (A) and (B) of Section 1350, Chapter 63 of Title 18, United States Code)Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), I,Joseph Sparacio, Chief Financial Officer of IMAX Corporation, a Canadian corporation (the “Company”), hereby certify, to my knowledge, that:The Annual Report on Form 10-K for the year ended December 31, 2014 (the “Form 10-K”) of the Company fully complies with the requirements ofsection 13(a) or 15(d) of the Securities Exchange Act of 1934, and information contained in the Form 10-K fairly presents, in all material respects, thefinancial condition and results of operations of the Company. Date: February 19, 2015/s/ Joseph SparacioJoseph SparacioExecutive Vice President &Chief Financial Officer

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