IMAX
Annual Report 2015

Plain-text annual report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [ ] For the fiscal year ended December 31, 2015 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file Number 001-35066 IMAX Corporation (Exact name of registrant as specified in its charter) Canada (State or other jurisdiction of incorporation or organization) 2525 Speakman Drive, Mississauga, Ontario, Canada L5K 1B1 (905) 403-6500 98-0140269 (I.R.S. Employer Identification Number) 110 E. 59th Street, Suite 2100 New 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 Common Shares, no par value Name of Exchange on Which Registered The New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None (Title of class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [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 [X] Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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, to the 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 amendment to this Form 10-K [ ] Indicate 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] Smaller reporting Company [ ] Accelerated filer [ ] Non-accelerated filer [ ] (Do not check if a 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 [X] The aggregate market value of the common shares of the registrant held by non-affiliates of the registrant, computed by reference to the last sale price of such shares as of the close of trading on June 30, 2015 was $2,433.6 million. As of January 31, 2016, there were 69,686,502 common shares of the registrant outstanding. Portions of the registrant’s definitive Proxy Statement to be filed within 120 days of the close of IMAX Corporation’s fiscal year ended December 31, 2015, with the Securities and Exchange Commission pursuant to Regulation 14A involving the election of directors and the annual meeting of the stockholders of the registrant (the “Proxy Statement”) are incorporated by reference in Part III of this Form 10-K to the extent described therein. Document Incorporated by Reference IMAX CORPORATION December 31, 2015 Table of Contents PART I Item 1. Business…………………………………………………………………………………………………………….. Item 1A. Risk Factors………………………………………………………………………………………………………… Item 1B. Unresolved Staff Comments……………………………………………………………………………………….. Properties…………………………………………………………………………………………………………… Item 2. Item 3. Legal Proceedings…………………………………………………………………………………………………... Item 4. Mine Safety Disclosures……………………………………………………………………………………………. PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities…………………………………………………………………………………………………………… Item 6. Selected Financial Data……………………………………………………………………………………………. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations …………………….... Item 7A. Quantitative and Qualitative Disclosures about Market Risk……………………………………………………… Item 8. Financial Statements and Supplementary Data…………………………………………………………………….. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ……………………… Item 9. Item 9A. Controls and Procedures…………………………………………………………………………………………… Item 9B. Other Information………………………………………………………………………………………………….. Item 10. Directors, Executive Officers and Corporate Governance………………………………..………………………... Item 11. Executive Compensation…………………………………………………………….……………………………... Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Item 12. Matters……………………………………………………………………………………………………………… Item 13. Certain Relationships and Related Transactions, and Director Independence…………………………………….. Principal Accounting Fees and Services…………………………………………………………………………… Item 14. PART III Item 15. Exhibits, Financial Statement Schedules…………………………………………………………………………... PART IV Signatures …………………………………………………………………………………………………………………….... Page 4 19 27 28 29 30 31 35 38 79 81 143 143 143 144 144 144 144 144 144 149 2 EXCHANGE RATE DATA IMAX CORPORATION Unless otherwise indicated, all dollar amounts in this document are expressed in United States (“U.S.”) dollars. The following table sets forth, for the periods indicated, certain exchange rates based on the noon buying rate in the City of New York for cable transfers in foreign currencies as certified for customs purposes by the Bank of Canada (the “Noon Buying Rate”). Such rates quoted are the number of U.S. dollars per one Canadian dollar and are the inverse of rates quoted by the Bank of Canada for Canadian dollars per U.S. $1.00. The average exchange rate is based on the average of the exchange rates on the last day of each month during such periods. The Noon Buying Rate on December 31, 2015 was U.S. $0.7225. Exchange rate at end of period Average exchange rate during period High exchange rate during period Low exchange rate during period Years Ended December 31, 2015 0.7225 0.7748 0.8527 0.7148 2014 0.8620 0.9022 0.9422 0.8589 2013 0.9402 0.9713 1.0164 0.9348 2012 1.0051 1.0006 1.0299 0.9599 2011 0.9833 1.0151 1.0583 0.9430 SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION Certain statements included in this annual report may constitute "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, references to future capital expenditures (including the amount and nature thereof), business and technology strategies and measures to implement strategies, competitive strengths, goals, expansion and growth of business, operations and technology, plans and references to the future success of IMAX Corporation together with its consolidated subsidiaries (the "Company") and expectations regarding the Company's future operating, financial and technological results. These forward-looking statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. However, whether actual results and developments will conform with the expectations and predictions of the Company is subject to a number of risks and uncertainties, including, but not limited to, the signing of theater system agreements; conditions, changes and developments in the commercial exhibition industry; the performance of IMAX DMR films; the potential impact of increased competition in the markets within which the Company operates; competitive actions by other companies; the failure to respond to change and advancements in digital technology; risks associated with investments and operations in foreign jurisdictions and any future international expansion, including those related to economic, political and regulatory policies of local governments and laws and policies of the United States and Canada; risks related to the Company’s growth and operations in China; the Company’s largest customer accounting for a significant portion of the Company’s revenue and backlog; risks related to new business initiatives; conditions in the in-home and out-of-home entertainment industries; the opportunities (or lack thereof) that may be presented to and pursued by the Company; risks related to cyber-security; risks related to the Company’s inability to protect the Company’s intellectual property; risks related to the Company’s implementation of a new enterprise resource planning system; general economic, market or business conditions; the failure to convert theater system backlog into revenue; changes in laws or regulations; and other factors, many of which are beyond the control of the Company. Consequently, all of the forward-looking statements made in this annual report are qualified by these cautionary statements, and actual results or anticipated developments by the Company may not be realized, and even if substantially realized, may not have the expected consequences to, or effects on, the Company. The Company undertakes no obligation to update publicly or otherwise revise any forward-looking information, whether as a result of new information, future events or otherwise. IMAX®, IMAX® Dome, IMAX® 3D, IMAX® 3D Dome, Experience It In IMAX®, The IMAX Experience®, An IMAX Experience®, An IMAX 3D Experience®, IMAX DMR®, DMR®, IMAX nXos®, IMAX think big®, think big® and IMAX Is Believing®, are trademarks and trade names of the Company or its subsidiaries that are registered or otherwise protected under laws of various jurisdictions. 3 Item 1. Business GENERAL PART I IMAX Corporation, together with its consolidated 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, theater architecture 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 most important 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 to customers 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 48-year history. The Company’s customers who purchase, lease or otherwise acquire the IMAX theater systems through joint revenue sharing arrangements are theater exhibitors that operate commercial theaters (particularly multiplexes), museums, science centers, or destination entertainment sites. The Company generally does not own IMAX theaters, but licenses the use of its trademarks along with the sale, lease or contribution of the IMAX theater system. 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 cinema experiences; advanced, high-resolution projectors with specialized equipment and automated theater control systems, which generate significantly more contrast and brightness than conventional theater systems; large screens and proprietary theater geometry, which result in a substantially larger field of view so that the screen extends to the edge of a viewer’s peripheral vision and creates more realistic images; sound system components, which deliver more expansive sound imagery and pinpointed origination of sound to any specific spot in an IMAX theater; 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, immersive and 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 a premium for IMAX DMR films over films exhibited in their other auditoriums. The premium pricing, combined with the higher attendance levels associated with IMAX DMR films, generates incremental box-office for the Company’s exhibitor customers and for the movie studios releasing their films to the IMAX network. The incremental box-office generated by IMAX DMR films has helped establish IMAX as a key premium distribution and marketing platform for Hollywood blockbuster films. The Company believes the IMAX theater network is the most extensive premium theater network in the world with 1,061 theater systems (962 commercial, 99 institutional) operating in 67 countries as at December 31, 2015. This compares to 934 theater systems (828 commercial, 106 institutional) operating in 62 countries as at December 31, 2014. The success of the Company’s digital and joint revenue sharing strategies and the strength of its film slate have enabled the Company’s theater network to expand significantly since the beginning of 2008, with the Company’s overall network increasing by 255% and its commercial network increasing by 437%. In 2015 and 2014, the Company signed theater agreements for 138 and 118 theater systems, respectively, which are expected to drive additional growth in the Company’s theater network in 2016 and thereafter. 4 The Company has identified approximately 2,450 IMAX zones worldwide. The Company believes that these zones present the potential for the IMAX theater network to grow significantly from the 943 commercial multiplex IMAX theaters in operation as of December 31, 2015. While the Company continues to grow domestically, particularly in small to mid-tier markets, a significant portion of the Company’s recent growth has come from international markets, a trend that the Company anticipates will continue into the future. In fact, starting in 2013, revenues and gross box-office derived from outside the United States and Canada exceeded revenues and gross box-office from the United States and Canada. This trend has continued in 2014 and 2015. In 2015, 87.0% of the Company’s 138 new theater signings were for theaters 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 Europe. Greater China continues to be the Company’s second-largest and fastest-growing market. In recent years, the Company’s Greater China operations have accounted for an increasingly significant portion of its overall revenues, with approximately 30% of overall revenues generated from the Company’s China operations in 2015. As at December 31, 2015, the Company had 307 theaters operating in Greater China and an additional 215 theaters (including two upgrades) in backlog, which represents 57.8% of the Company’s current backlog and which are scheduled to be installed in Greater China by 2021. The Company continues to invest in joint revenue sharing arrangements with select partners to ensure 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 revenue sharing arrangement. Furthermore, the Company has a partnership with CJ CGV Holdings, Ltd., for a commitment of 120 IMAX theater systems, of which 100 theater systems will reside in China. Recent developments involving the Company’s China operations include the sale and issuance of 20% of the shares of the Company’s subsidiary, IMAX China Holding, Inc. (“IMAX China”), to entities owned and controlled 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 (collectively, the “IMAX China Investment”). The sale price for the interest was $80.0 million, and was paid by the investors in two equal installments on April 8, 2014 and February 10, 2015. In addition, on October 8, 2015, IMAX China completed an initial public offering of its ordinary shares on the Main Board of the Hong Kong Stock Exchange Limited (the “IMAX China IPO”). Following the IMAX China IPO, the Company continues to indirectly own approximately 68.5% of IMAX China, which remains a consolidated subsidiary of the Company, while CMC and FountainVest continue to own approximately 5.7% each of IMAX China. The Company believes that there have been a number of financial, strategic and operating benefits resulting from both the IMAX China Investment and the IMAX China IPO. With respect to the IMAX China Investment, the Company believes that the investors’ knowledge of, and influence in, the Chinese media and entertainment industry has contributed to the continued expansion of IMAX’s theater network in China and the further strengthening of the Company’s government and industry relationships. In addition, the Company believes that the IMAX China IPO provides investors the ability to directly access and evaluate the IMAX China business, and provides greater clarity into the business’s performance in the fastest-growing entertainment market in the world. 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 in China. Such initiatives include a 2012 agreement between the U.S. and Chinese governments to permit 14 additional IMAX or 3D format films to be distributed in China each year and to permit distributors to receive higher distribution fees. The Company cautions, however, that its increasing dependence on its operations in China involve a number of risks. See Risk Factors – “The Company faces risks in connection with the continued expansion of its business in China” in Item 1A. Over the years, several technological breakthroughs have established IMAX as an important distribution platform for Hollywood’s biggest event films. These include: 5  DMR ─ IMAX’s proprietary DMR technology digitally converts live-action digital films or 35mm to its large-format, while meeting the Company’s high standards of image and sound quality. In a typical IMAX DMR film arrangement, the Company will receive a percentage, which in recent years has ranged 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 the IMAX distribution platform. At December 31, 2015, the Company had released 241 IMAX DMR films since the introduction of IMAX DMR in 2002. The number of films released on an annual basis that have been converted through the DMR process has increased significantly in recent years with the advent of digital technology that has reduced the DMR conversion time and with the strengthening of the Company’s relationships with major Hollywood studios. Accordingly, 44 films converted through the IMAX DMR process were released in 2015, as compared to six in 2007.   IMAX Xenon-based Digital Projection System ─ The Company introduced its xenon-based digital projection system in 2008. Prior to 2008, all of IMAX’s large format projectors were film-based and required analog film prints. The IMAX xenon-based 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 an IMAX theater without sacrificing the image and sound quality of The IMAX Experience. By making The IMAX Experience more accessible for commercial multiplex operators, the introduction of the IMAX xenon-based digital projection system paved the way for a number of important joint revenue sharing arrangements which have allowed the Company to rapidly expand its theater network. Since announcing that the Company was developing xenon-based digital projection technology, the vast majority of the Company’s theater system signings have been for xenon-based digital systems. As at December 31, 2015, the Company has signed agreements for 1,287 xenon-based digital systems since 2007, 127 of which were signed in 2015 alone. As at December 31, 2015, 939 IMAX xenon-based digital projection systems were in operation, an increase of 14.9% over the 817 xenon-based digital projection systems in operation as at December 31, 2014 and 348 IMAX xenon-based digital projection systems were in backlog as compared to 326 xenon-based digital systems in backlog as at December 31, 2014. IMAX Laser-based Digital Projection System ─ 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 its next-generation laser-based digital projection system, which it began rolling out at the end of 2014. In order to develop the laser-based digital projection system, the Company obtained exclusive rights to certain laser projection technology and other technology with applicability in the digital cinema field from Eastman Kodak Company (“Kodak”) in 2011 and entered a co-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 for IMAX's laser-based digital projection systems in exchange for preferred pricing and supply terms. The Company believes that these arrangements with Kodak, Barco and Necsel enable IMAX laser-based digital projectors to 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. The laser projection solution is the first IMAX digital projection system capable of illuminating the largest screens in its network. As of December 31, 2015, 18 laser-based digital theater systems were operational. The Company is also undertaking new lines of business, particularly in the area of home entertainment. In 2013, the Company announced new home theater initiatives, including a joint venture with TCL Multimedia Technology Holding Limited (“TCL”) to design, develop, manufacture and sell a premium home theater system. In June 2015, the Company and TCL unveiled the new premium home theater system in Shanghai, and expect to focus sales of the new system in China, the Middle East and other select global markets. To date, the Company has signed agreements for more than 80 premium home theater systems. Beyond its premium home theater system, the Company is also developing other components of a broader home entertainment platform designed to allow consumers to experience elements of The IMAX Experience® in their homes. In addition to the design and manufacture of premium theater systems, the Company is also engaged in the production and distribution of original large-format films, the provision of services in support of the IMAX theater network, the provision of post- production services for large-format films, the operation of three IMAX theaters and, from time-to-time the conversion of two- dimensional (“2D”) and three-dimensional (“3D”) Hollywood feature films for exhibition on IMAX theater systems around the world. In 2014, the Company announced the creation of the IMAX Original Film Fund (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 more exciting and compelling than traditional documentaries. The initial investment in the Film Fund was committed to by a third party in the amount of $25.0 million, with the possibility of contributing additional funds. The Company, which will contribute $9.0 million to the Film Fund over five years starting in 2014, anticipates the 6 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. Furthermore, on June 16, 2015, the Company announced the creation of the IMAX China Film Fund (the “China Film Fund”) with its subsidiary IMAX China and its partner CMC to help fund Mandarin language commercial films. The China Film Fund, which is expected initially to be capitalized with $50.0 million, will target productions that can leverage the Company’s brand, relationships, technology and release windows in China. IMAX Corporation, a Canadian corporation, was formed in March 1994 as a result of an amalgamation between WGIM Acquisition Corp. and the former IMAX Corporation (“Predecessor IMAX”). Predecessor IMAX was incorporated in 1967. PRODUCT LINES The 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 specialized IMAX 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 print services for films); Joint revenue sharing arrangements (the provision of its theater system to an exhibitor in exchange for a certain percentage of theater revenue and, in some cases, a small upfront or initial payment); 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 Arrangements The Company’s primary products are its theater systems. The Company’s digital projection systems include a projector that offers superior image quality and stability and a digital theater control system; a six or twelve-channel, digital audio system delivering up to 12,000 watts of sound; a screen with a proprietary coating technology, and, if applicable, 3D glasses cleaning equipment. IMAX’s digital projection system also operates without the need for analog film prints. Traditional IMAX film-based theater systems contain the same components as the digital projection systems but include a rolling loop 15/70-format projector and require the use of analog film prints. Since its introduction in 2008, the vast majority of the Company’s theater sales have been digital systems. Furthermore, a majority of the Company’s existing film-based theater systems have been upgraded, at a cost to the exhibitor, to an IMAX digital system. As part of the arrangement to sell or lease its theater systems, the Company provides extensive advice on theater planning and design and supervision of installation services. Theater systems are also leased or sold with a license for the use of the world-famous IMAX brand. IMAX theater systems consist of the following configurations:     IMAX digital systems, which are digital-based theater systems, represent 90.2% 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 18 laser-based digital theater systems and is expecting the roll-out of additional laser-based digital systems in 2016. The Company’s digital projection system provides a premium and differentiated experience to moviegoers that is consistent with what they have come to expect from the IMAX brand, while providing for the compelling economics and flexibility that digital technology affords. The relatively low cost of a digital file delivery (approximately $100 per movie per system compared to $30 thousand per 2D print and $60 thousand per 3D print for an IMAX analog film print) ensures programming flexibility, which in turn allows theaters to program significantly more IMAX DMR films per year. More programming increases customer choice and potentially increases total box-office revenue significantly. In 2015, 44 films converted through the IMAX DMR process were released to the IMAX theater network as compared to six films in 2007. To date, the Company has contracted for the release of 26 7 DMR titles to its theater network for 2016; however, the Company expects a similar number of films to be released to the network in 2016 as experienced in 2015. The Company remains in active discussions with all the major studios regarding future titles for 2016 and beyond. Furthermore, the Company expects to announce both additional local language IMAX DMR films and original and alternative content to be released to the IMAX theater network in 2016 and beyond. Supplementing the Company’s film slate of Hollywood 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 IMAX theater systems with an important competitive edge over other theater systems. The Company believes it is a world leader in the design and manufacture of digital 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 the screen components in dome shaped theaters are 2D only and are popular with the Company’s institutional clients. All IMAX theaters, with the exception of dome configurations, feature a steeply inclined floor to provide each audience member with a clear view of the screen. The Company holds patents on the geometrical 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 the purchase, lease or other acquisition of an IMAX theater system, the Company also advises the customer on theater design, supervises the installation of the theater systems and provides projectionists with training in using the equipment. The supervision of installation requires that the equipment also be put through a complete functional start-up and test procedure to ensure proper operation. Theater owners or operators are responsible for providing the theater location, the design and construction of the theater building, the installation of the system components and any other necessary improvements, as well as the theater’s marketing and programming. The Company’s typical arrangement 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 separate fee, the Company provides ongoing maintenance and extended warranty services for the theater system. The Company’s contracts are generally denominated in U.S. dollars, except in Canada, China, Japan and parts of Europe, where contracts are sometimes denominated in local currency. Sales-type leases typically have an initial 10-year term and are typically renewable by the customer for one or more additional 5 to 10-year terms. Under the 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 are generally 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 equipment components passes to the customer. In certain instances, however, the Company retains title or a 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 minimum fixed and contingent fees; and (iii) ongoing maintenance and extended warranty fees. Initial fees generally are received over the period of time from the date the arrangement is executed to the date the equipment is installed and customer acceptance has been received. However, in certain cases, the payments of the initial fee may be scheduled over a period of time after the equipment is installed and customer acceptance has been received. Ongoing minimum fixed and contingent fees and ongoing maintenance and extended warranty fees are generally received over the life of the arrangement and are usually adjusted annually based on changes in the local consumer price index. The ongoing minimum fixed and contingent fees generally provide for a fee which is the greater 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 theater system 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 basic types of joint revenue 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 IMAX box-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 8 quarterly. Certain maintenance and extended warranty services are provided to the customer for a separate fixed annual fee. The Company retains title to the theater system equipment 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 and installation 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 a traditional joint revenue sharing arrangement, the customer also pays the Company a portion of the customer’s IMAX box-office receipts over the term of the arrangement, 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 the arrangement. 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 theater systems is 10 years or longer, and is renewable by the customer for one to two additional terms of between three to five years. The Company has the right to remove the equipment for non-payment or other defaults by the customer. The contracts are non-cancellable by the customer unless the Company fails to perform its obligations. In rare cases, the contract provides certain performance thresholds that, if not met by either party, allow the other party to terminate the agreement. By offering arrangements in which exhibitors do not need to invest the significant initial capital required of a sales-type lease or a sale arrangement, the Company has been able to expand its theater network at a significantly faster pace than it had previously. As at December 31, 2015, the Company has entered into joint revenue sharing arrangements for 741 systems with 43 partners, 529 of which were in operation as at December 31, 2015. In 2012, Dalian Wanda Group Co., Ltd. (“Dalian Wanda”), the parent company of Wanda, acquired AMC Entertainment Holdings, Inc. (“AMC”). Under common ownership, Wanda and AMC together is the Company’s largest customer, representing approximately 16.0%, 14.5% and 13.9% of the Company’s total revenue in 2015, 2014 and 2013, respectively. In addition, Wanda and AMC together represented approximately 31.1% of the commercial network and 18.8% of the Company’s backlog as of December 31, 2015. See Risk Factors – “Under common ownership, Wanda and AMC together account for a significant and growing portion of the Company’s revenue and backlog. A deterioration in the Company’s relationship with Wanda and/or AMC could materially, adversely affect the Company’s business, financial condition or results of operations.” in Item 1A. Sales Backlog. The Company’s sales backlog is as follows: Sales and sales-type lease arrangements Joint revenue sharing arrangements December 31, 2015 December 31, 2014 Number of Dollar Value Number of Dollar Value Systems 160 212 372 (in thousands) $ 207,858 63,056 $ 270,914 (1)(2) Systems 176 221 397 (in thousands) $ 223,482 45,648 $ 269,130 (1)(3) ______________ (1) Includes 24 laser-based digital theater system configurations (2014 – 71), including upgrades. The Company continues to develop and roll out its laser-based digital projection system. See “Research and Development” in this Part I for additional information. (2) Includes 15 upgrades to a digital theater system, in existing IMAX theater locations (two xenon and 13 laser). (3) Includes 27 upgrades to a digital theater system, in existing IMAX theater locations (two xenon and 25 laser, of which four are under joint revenue sharing arrangements). The number of theater systems in the backlog reflects the minimum number of commitments under signed contracts. The dollar value fluctuates depending on the number of new theater system arrangements signed from year to year, which adds to backlog and the installation and acceptance of theater systems and the settlement of contracts, both of which reduce backlog. Sales backlog typically represents the fixed contracted revenue under signed theater 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 amounts allocated to maintenance 9 and extended warranty revenues as well as fees in excess of contractual ongoing fees that may be received in the future. The value of sales backlog does not include revenue from theaters in which the Company has an equity interest, operating leases, letters of intent or long-term conditional theater commitments. The value of theaters under joint revenue sharing arrangements is excluded from the dollar value of sales backlog, although certain theater systems under joint revenue sharing arrangements provide for contracted upfront payments and therefore carry a backlog value based on those payments. The Company believes that the contractual obligations for theater system installations that are listed in sales backlog are valid and binding commitments. The following chart shows the number of the Company’s theater systems by configuration, opened theater network base and backlog as at December 31: Flat Screen (2D) Dome Screen (2D) IMAX 3D Dome (3D) IMAX 3D GT (3D) IMAX 3D SR (3D) IMAX Digital: Xenon (3D) IMAX Digital: Laser (3D) 2015 2014 Theater Network Base 12 53 2 24 13 939 18 Total 1,061 Backlog - - - - - 348 24 372 (1) (2) Theater Network Base Backlog 14 56 2 29 16 817 - 934 - - - - - 326 71 397 (3) (4) ______________ (1) Includes two upgrades from film-based theater systems to xenon-based digital theater systems in existing IMAX theater locations (one commercial and one institutional). (2) Backlog includes 13 upgrades to laser-based digital theater systems from xenon-based digital theater systems in existing IMAX theater locations (three commercial and 10 institutional). (3) Includes two upgrades from film-based theater systems to xenon-based digital theater systems in existing IMAX theater locations (all institutional). (4) Backlog includes 25 upgrades to laser-based digital theater systems from xenon-based digital theater systems in existing IMAX theater locations (12 commercial and 13 institutional). The Company estimates that it will install 135 to 140 new theater systems (excluding upgrades) in 2016. The Company’s installation estimates includes scheduled systems from backlog, as well as the Company’s estimate of installations from arrangements that will sign and install in the same calendar year. The Company cautions, however, that theater system installations may slip from period to period over the course of the 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 it believes delivers higher quality imagery compared with other digital systems and that is consistent with the Company’s brand. As at December 31, 2015, the Company had installed 939 xenon-based digital theater systems, including 156 upgrades, and has an additional 348 xenon-based digital theater systems in its backlog. IMAX Digital: Laser Theater Systems. One of the Company’s key initiatives has been the development of a next-generation laser- based digital projection system, which it began rolling out at the end of 2014. The Company believes the IMAX laser-based digital 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 the largest screens in the IMAX theater network. As at December 31, 2015, the Company had installed 18 laser-based digital systems. IMAX Flat Screen and IMAX Dome Theater Systems. As at December 31, 2015, there were 67 IMAX flat screen and IMAX Dome theater systems in the IMAX network, as compared to 72 IMAX flat screen and IMAX Dome theater systems as at December 31, 2014. IMAX flat screen and IMAX Dome systems primarily have been installed in institutions such as museums and science centers. Flat screen IMAX theaters were introduced in 1970, while IMAX Dome theaters, which are designed for tilted dome screens, were 10 introduced in 1973. There have been several significant proprietary and patented enhancements to these systems since their introduction. With the introduction of the IMAX digital theater systems, there has been a decrease in the number of IMAX flat screen theater 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 IMAX screen. As at December 31, 2015, there were 37 IMAX 3D GT and IMAX 3D SR theater systems in operation compared to 45 IMAX 3D GT and IMAX 3D SR theater systems in operation as at December 31, 2014. The decrease in the number of 3D GT and 3D SR theater systems is largely attributable to the conversion of existing 3D GT and 3D SR theater systems to IMAX digital theater systems. Films Film 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 system, known as IMAX DMR, digitally enhances the image resolution of motion picture films for projection on IMAX screens while maintaining or enhancing the visual clarity and sound quality to levels for which The IMAX Experience is known. This technology has enabled the IMAX theater network to release Hollywood films simultaneously with their broader domestic release. The development of this technology was critical in helping the Company execute its strategy of expanding its commercial theater network by establishing IMAX theaters as a key, premium distribution platform for Hollywood films. In a typical IMAX DMR film arrangement, the Company receives a percentage, which in recent years has ranged between 10-15%, of net box-office receipts of any commercial films released in the IMAX network from the applicable film studio for the conversion of the film to the IMAX DMR format and for access to the Company’s premium distribution and marketing platform. Other factors beyond the IMAX DMR format, and IMAX’s proprietary projection and sound technology, further differentiate IMAX content from other film content. Filmmakers are choosing IMAX cameras to shoot selected scenes to increase the audience’s immersion in the film and are taking advantage of the unique dimensions of the IMAX screen by shooting the film in a larger aspect ratio. Certain films also enjoy early release windows in IMAX, including Everest: An IMAX 3D Experience and The Walk: The IMAX Experience, which were released one week early in IMAX theaters in September 2015. Several recent films have featured select sequences shot with IMAX cameras including Star Wars: The Force Awakens: An IMAX 3D Experience, released in December 2015; Interstellar: The IMAX Experience, released in November 2014; Transformers: Age of Extinction: An IMAX 3D Experience, released in June 2014; The Hunger Games: Catching Fire: The IMAX Experience, released in November 2013; and Star Trek Into Darkness: An IMAX 3D Experience, released in May 2013. Several upcoming films, including Captain America: Civil War: An IMAX 3D Experience and Batman v Superman: Dawn of Justice: An IMAX 3D Experience will contain certain sequences shot using the IMAX cameras. In addition, Marvel's Avengers: Infinity War ― Part 1: An IMAX 3D Experience and Avengers: Infinity War ― Part 2: An IMAX 3D Experience are expected to be shot in their entireties using the IMAX cameras, which is the first time a full feature length movie will be filmed with the IMAX cameras. In addition, several recent movies, including Tomorrowland: The IMAX Experience, released in May 2015, Guardians of the Galaxy: An IMAX 3D Experience, released in August 2014 and Oblivion: The IMAX Experience, released in 2013 have featured footage 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 films produced 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 unsteadiness and 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, was released in September 2002 to 48 IMAX theaters. One of the more recent IMAX DMR films, Spectre: The IMAX 11 Experience was released in November 2015 to 903 IMAX theaters. Since the release of Apollo 13: The IMAX Experience, to December 31, 2015, an additional 240 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 decreased the 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-mastered in 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 are done 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 to conventional theaters. The original soundtrack of a film to be released to the IMAX network is re-mastered for the IMAX six or twelve-channel digital sound systems in connection with the IMAX DMR release. Unlike the soundtracks played in conventional theaters, IMAX re- mastered soundtracks are uncompressed and full fidelity. IMAX sound systems use proprietary loudspeaker systems and proprietary surround sound configurations that ensure every theater seat is in a good listening position. The Company believes that the growth in international box-office will continue to be an important driver of future growth for the Company. In fact, during the year ended December 31, 2015, 60.8% of the Company’s gross box-office from IMAX DMR films was generated in international markets. To support growth in international markets, the Company has sought to bolster its international film strategy, supplementing the Company’s film slate of Hollywood DMR titles with appealing local IMAX DMR releases in select markets. In 2015, the Company released eleven local language IMAX DMR films, including eight in China and three in Japan, and in 2014, the Company released seven local language IMAX DMR films, including six in China and one in India. In 2015, 44 films were converted through the IMAX DMR process and released to theaters in the IMAX network by film studios as compared to 40 films in 2014. These films were: Jupiter Ascending: An IMAX 3D Experience (Warner Bros. Pictures, February 2015);  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);   Fifty Shades of Grey: The IMAX Experience (Universal Studios, February 2015, Domestic only);  Wolf Totem: An IMAX 3D 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);  The Water Diviner: The IMAX Experience (Warner Bros. Pictures, 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);  San Andreas: An IMAX 3D Experience (Warner Bros. Pictures, May 2015);  Mad Max: Fury Road: An IMAX 3D Experience (Warner Bros. Pictures, May 2015);   The Monk Comes Down the Mountain: An IMAX 3D Experience (Columbia Pictures, June 2015, China only);   Minions: An IMAX 3D Experience (Universal Pictures, July 2015, international only);  Terminator Genisys: The IMAX Experience (Paramount Pictures, July 2015);  Monster Hunt: An IMAX 3D Experience (Edko Films, July 2015, China only);  Ant Man: An IMAX 3D Experience (Walt Disney Pictures, July 2015);  Pixels: An IMAX 3D Experience (Sony Pictures, July 2015);  Mission: Impossible ― Rogue Nation: The IMAX Experience (Paramount Pictures, July 2015);  Attack on Titan: Part 1: The IMAX Experience (Toho Pictures, August 2015, Japan only);  To the Fore: The IMAX Experience (Emperor Motion Pictures, August 2015, China only);  The Man from U.N.C.L.E: The IMAX Experience (Warner Bros. Pictures, August 2015); Inside Out: An IMAX 3D Experience (Walt Disney Pictures, June 2015, select theaters); Jurassic World: An IMAX 3D Experience (Universal Studios, June 2015); 12  Go Away Mr. Tumor: The IMAX Experience (Wanda Media Co. Ltd., August 2015, China only);  The Transporter Refueled: The IMAX Experience (EuropaCorp, September 2015);  Everest: An IMAX 3D Experience (Universal Studios, September 2015);  Attack on Titan: Part 2: The IMAX Experience (Toho Pictures, September 2015, Japan only);  Lost in Hong Kong: The IMAX Experience (PULIN Production, September 2015, China only);  The Walk: The IMAX Experience (Sony Pictures Entertainment, October 2015);  Crimson Peak: The IMAX Experience (Universal Studios, October 2015);  The Martian: An IMAX 3D Experience (20th Century Fox, October 2015);   The Hunger Games: Mockingjay Part 2: An IMAX 3D Experience (Lionsgate, November 2015);  In the Heart of the Sea: An IMAX 3D Experience (Warner Bros. Pictures, December 2015);  Star Wars: The Force Awakens: An IMAX 3D Experience (Walt Disney Studios, December 2015); and  Mojin: The Lost Legend (aka “The Ghouls”): An IMAX 3D Experience (Wanda Media Co. Ltd., China only). Spectre: The IMAX Experience (Sony Pictures Entertainment, November 2015); To date, the Company has announced the following 26 DMR titles to be released in 2016 to the IMAX theater network:  The Revenant: The IMAX Experience (20th Century Fox , January 2016);  The Finest Hours: An IMAX 3D Experience (Walt Disney Studios, January 2016);  Kung Fu Panda 3: An IMAX 3D Experience (Oriental Dreamworks, January 2016, China only);  The Monkey King 2: An IMAX 3D Experience (Filmko Entertainment, February 2016, China only);  Crouching Tiger, Hidden Dragon: Sword of Destiny: An IMAX 3D Experience (Netflix Distribution, LLC, February 2016); 10 Cloverfield Lane: The IMAX Experience (Paramount Pictures, March 2016);  Deadpool: The IMAX Experience (20th Century Fox, February 2016);  Gods of Egypt: An IMAX 3D Experience (Lionsgate Entertainment, February 2016);  Zootopia: An IMAX 3D Experience (Walt Disney Studios, February 2016);   The Divergent Series: Allegiant: The IMAX Experience (Lionsgate Entertainment, March 2016);  Batman v Superman: Dawn of Justice: An IMAX 3D Experience (Warner Bros. Pictures, March 2016);  The Crew: An IMAX 3D Experience (Russia-1 Channel, April 2016);  The Jungle Book: An IMAX 3D Experience (Walt Disney Studios, April 2016);  Captain America: Civil War: An IMAX 3D Experience (Walt Disney Studios, May 2016);  Alice in Wonderland: Through the Looking Glass: An IMAX 3D Experience (Walt Disney Studios, May 2016);  Warcraft: An IMAX 3D Experience (Universal Studios, June 2016);  Finding Dory: An IMAX 3D Experience (Walt Disney Studios, June 2016);   The Legend of Tarzan: An IMAX 3D Experience (Warner Bros. Pictures, July 2016);    Deepwater Horizon: The IMAX Experience (Lionsgate Entertainment, September 2016);  The Duelist: The IMAX Experience (Non-Stop Production LLC, October 2016, Russia only);  Doctor Strange: An IMAX 3D Experience (Walt Disney Studios, November 2016);  Fantastic Beasts and Where to Find Them: An IMAX 3D Experience (Warner Bros. Pictures, November 2016); and  Rogue One: A Star Wars Story: An IMAX 3D Experience (Walt Disney Studios, December 2016). Star Trek Beyond: An IMAX 3D Experience (Paramount Pictures, July 2016); Suicide Squad: An IMAX 3D Experience (Warner Bros. Pictures, August 2016); Independence Day Resurgence: An IMAX 3D Experience (20th Century Fox, June 2016); In addition, the Company will be releasing an IMAX original production, A Beautiful Planet, on April 29, 2016 and a documentary film, Voyage of Time, on October 7, 2016. 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 2016 to the films that were released to the IMAX theater network in 2015. The Company also expects to announce both additional local language IMAX DMR films and original and alternative content to be released to the IMAX theater network in 2016 and beyond. Supplementing the Company’s film slate of Hollywood DMR titles with appealing local DMR titles is an important component of the Company’s international film strategy. 13 Film Distribution The Company is also a distributor of large-format films, primarily for its institutional theater partners. The Company generally distributes films which it produces or for which it has acquired distribution rights from independent producers. The Company receives either a percentage of the theater box-office receipts or a fixed amount as a distribution fee. Films produced by the Company are typically financed through third parties, whereby the Company will generally receive a film production fee in exchange 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 film investors and/or the Company. As at December 31, 2015, the Company’s film library consisted of 529 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 have been successfully distributed by the Company include: Island of Lemurs: Madagascar, which was released in April 2014 and has grossed over $12.4 million as at the end of 2015; Journey to the South Pacific, which had a limited release in November 2013 and a broader release in 2014 and has grossed $11.4 million as at the end of 2015; To the Arctic 3D, which was released in April 2012 and has grossed over $23.3 million as at the end of 2015; Born to be Wild 3D, which was released by the Company and Warner Bros. Pictures (“WB”) in April 2011 and has grossed over $39.6 million as at the end of 2015; Hubble 3D, which was released by the Company and WB in March 2010 and has grossed over $71.0 million as at the end of 2015; Under the Sea 3D, which was released by the Company and WB in February 2009 and has grossed over $52.3 million as at the end of 2015; Deep Sea 3D, which was released by the Company and WB in March 2006 and has grossed more than $96.7 million as at the end of 2015; SPACE STATION, which was released in April 2002 and has grossed over $127.5 million as at the end of 2015 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 2015. Large-format films have significantly longer exhibition periods than conventional commercial films and many of the films in the large-format library have remained popular for many decades, including the films To Fly! (1976), Grand Canyon — The Hidden Secrets (1984) and The Dream Is Alive (1985). Film Post-Production IMAX Post/DKP Inc., a wholly-owned subsidiary of the Company, provides film post-production and quality control services for large-format films (whether produced internally or externally), and digital post-production services. Other Theater Operations As at December 31, 2015 and 2014, the Company had three owned and operated theaters on leased premises, respectively. In addition, the Company has a commercial arrangement with one theater resulting in the sharing of profits and losses. The Company also provides management services to two theaters. Cameras The Company rents its proprietary 2D and 3D large-format film and digital cameras to third party production companies. The Company also provides production technical support and post-production services for a fee. All IMAX 2D and 3D film cameras run 65mm negative film, exposing 15 perforations per frame and resulting in an image area nearly 10x larger than standard 35mm film. The Company believes that its film-based 3D camera, which is a patented, state-of-the-art dual 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 3D camera simultaneously shoots left-eye and right-eye images and enables filmmakers to access a variety of locations, such as underwater or aboard aircraft. The Company 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 and manufacture 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 and Hollywood filmmakers. 14 MARKETING AND CUSTOMERS The 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 and theater sites for the Company on a commission basis. In 2015, concurrent with the release of Star Wars: The Force Awakens: An IMAX 3D Experience, the Company launched a new “IMAX Movies” brand campaign and a new website designed to reinforce the IMAX difference and a love of movies the Company shares with its fans and with filmmakers. Throughout 2016, an integrated brand campaign is scheduled to include events, local activations, social media, in-theater marketing and traditional and digital advertising. Supported by an updated roster of world-class agencies and a seasoned team of marketing executives, IMAX is committed to investing in the brand on a worldwide basis in 2016 and beyond. The commercial multiplex theater segment of the Company’s theater network is now its largest segment, comprising 943 IMAX theaters, or 88.9%, of the 1,061 IMAX theaters open as at December 31, 2015. The Company’s institutional customers include science and natural history museums, zoos, aquaria and other educational and cultural centers. Over the last several years the Company has not been able to digitally upgrade many of the institutional locations due to the size of the screens. The development of the IMAX digital laser-based system, which was recently demonstrated to members of the institutional community, and the completion of the Film Fund should assist in supporting this segment of the Company’s customer base. The Company also sells or leases its theater systems to theme parks, private home theaters, tourist destination sites, fairs and expositions (the Commercial Destination segment). At December 31, 2015, approximately 58.5% 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: 2015 Theater Network Base 2014 Theater Network Base Commercial Multiplex Commercial Destination Institutional Total Commercial Multiplex Commercial Destination Institutional Total United States Canada Greater China(1) Asia (excluding Greater China) Western Europe Russia & the CIS Latin America(2) Rest of the World Total 342 37 290 81 69 49 35 40 943 6 2 - 3 7 - - 1 19 45 8 17 6 10 - 11 2 99 393 47 307 90 86 49 46 43 1,061 329 36 215 68 56 45 31 29 809 6 2 - 3 7 - - 1 19 50 8 19 6 10 - 11 2 106 385 46 234 77 73 45 42 32 934 ______________ (1) (2) Greater China includes the People’s Republic of China, Hong Kong, Taiwan and Macau. Latin America includes South America, Central America and Mexico. For information on revenue breakdown by geographic area, see note 19 to the accompanying audited consolidated financial statements in Item 8. The Company’s foreign operations are subject to certain risks. See “Risk Factors – The Company conducts business internationally, which exposes it to uncertainties and risks that could negatively affect its operations sales and future growth prospects” and “Risk Factors – The Company faces risks in connection with the continued expansion of its business in China” in Item 1A. The Company’s two largest customers as at December 31, 2015, collectively represent 36.6% of the Company’s network base of theaters, 18.8% of the Company’s theater system backlog and 20.0% of revenues. INDUSTRY AND COMPETITION In recent years, as the motion picture industry has transitioned from film projection to digital projection, a number of companies have introduced digital 3D projection technology and, since 2008, an increasing number of Hollywood features have been exhibited using these technologies. According to the National Association of Theater Owners, as at December 31, 2015, there were approximately 16,770 conventional-sized screens in North American multiplexes equipped with such digital 3D systems. In 2008, the Company introduced its proprietary digitally-based projector which is capable of 2D and 3D presentations on large screens and which comprises the majority of its current theater system sales. Over the last several years, a number of commercial exhibitors have introduced their own large screen branded theaters, while certain projection manufacturers and entertainment technology companies 15 have also announced their own proprietary theater systems. The Company believes that all of these alternative film formats deliver images and experiences that are inferior 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 greater capital resources to develop and support them. The Company also faces in-home competition from a number of alternative motion picture distribution channels such as home video, pay-per-view, video-on-demand, DVD, Internet and syndicated and broadcast television. The Company further competes for the public’s leisure time and disposable income with other forms of entertainment, including gaming, sporting events, concerts, live theater, social media and restaurants. 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 it distributes, the relationships the Company maintains with prominent Hollywood filmmakers, a number of whom desire to film portions of their movies with IMAX cameras, the quality of the sound system components included with the IMAX theater, the availability of Hollywood event films to IMAX theaters through IMAX DMR technology, 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 that all of the best performing premium theaters in the world are IMAX theaters. THE IMAX BRAND IMAX is a world leader in entertainment technology. The Company relies on its brand to communicate its leadership and singular goal of creating entertainment experiences that exceed all expectations. Top filmmakers and studios use the IMAX brand to message that a film will connect with audiences in unique and extraordinary ways. The IMAX brand is a promise to deliver what today’s movie audiences crave — a memorable, more emotionally engaging, more thrilling and shareable experience. Consumer research conducted in six countries worldwide by a leading third-party research firm shows that the IMAX brand has near universal awareness, creates a special experience and is by far the most differentiated movie-going brand. On a standardized measure of brand equity, the IMAX brand ranged from two to ten times more powerful than other exhibition and entertainment technology brands. The Company believes that its strong brand equity supports consumers’ predisposition to choose IMAX over competing brands and to pay a premium for The IMAX Experience now and into the future. IMAX brand strength is evidenced by growing market share, high average ticket prices and per screen averages that outperform the industry. In 2015, concurrent with the release of Star Wars: The Force Awakens: An IMAX 3D Experience, the Company launched a new “IMAX Movies" brand campaign and a new website designed to reinforce the IMAX difference and a love of movies the Company shares with its fans and with filmmakers. Throughout 2016, an integrated brand campaign is scheduled to include events, local activations, social media, in-theater marketing and traditional and digital advertising. Supported by an updated roster of world-class agencies and a seasoned team of marketing executives, IMAX is committed to investing in the brand on a worldwide basis in 2016 and beyond. RESEARCH AND DEVELOPMENT The Company believes that it is one of the world’s leading entertainment technology companies with significant proprietary expertise in digital and film-based projection and sound system component design, engineering and imaging technology, particularly in 3D. During 2013 and 2014, the Company increased its level of research and development in order to develop its next-generation laser-based projection system. The laser-based projection system provides greater brightness and clarity, higher contrast, a wider color gamut and deeper blacks, while consuming less power and lasting longer than existing digital technology, to ensure that the Company continues to provide the highest quality, premier movie going experience available to consumers. The Company intends for additional research and development to continue in 2016 to support the further development of the laser-based digital projection system. In addition, the Company plans to continue research and development activity in the future in other areas considered important to the Company’s continued commercial success, including further improving the reliability of its projectors, developing and manufacturing more IMAX cameras, enhancing the Company’s 2D and 3D image quality, expanding the applicability of the Company’s digital technology, and using such technology to help expand the Company’s home entertainment platform, developing IMAX theater systems’ capabilities in both home and live entertainment and further enhancing the IMAX theater and sound system design through the addition of more channels, improvements to the Company’s proprietary tuning system and mastering processes. The Company has also made significant investments in other areas of digital technologies, including the development of a proprietary technology to digitally enhance image resolution and quality of motion picture films, the creation of an IMAX digital projector and the licensing of prominent laser illumination technology. Accordingly, the Company holds a number of patents, patents 16 pending and other intellectual property rights in these areas. In addition, 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 and Island 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 in November 2014 and Star Wars: The Force Awakens: An IMAX 3D Experience, released in December 2015. Several upcoming films, including Captain America: Civil War: An IMAX 3D Experience and Batman v Superman: Dawn of Justice: An IMAX 3D Experience will contain certain sequences shot using the IMAX cameras and it has been announced that Marvel's Avengers: Infinity War - Parts 1: An IMAX 3D Experience and Avengers: Infinity War ―Part 2: An IMAX 3D Experience will be shot in their entireties using the IMAX camera, which is the first time a full feature length movie will be filmed with the IMAX cameras. Due to the increasing success major Hollywood filmmakers have experienced with IMAX cameras, the Company has identified the development and manufacture of additional IMAX cameras as an important research and development initiative. To that end, the Company is also in process of developing 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 IMAX brand, for applications in its in-home entertainment technology initiatives, including its premium home theater system with TCL. The premium home theater system incorporates 4K projection technology and incorporates technology that enables the viewing of current theatrical releases that have been digitally re-mastered with IMAX enhancement technology. To date, the Company has signed agreements for more than 80 theater systems. The Company also continues to actively pursue opportunities in newly emerging areas of digital media and entertainment. For the years ended December 31, 2015, 2014, and 2013, the Company recorded research and development expenses of $12.7 million, $16.1 million and $14.8 million, respectively. As at December 31, 2015, 76 of the Company’s employees were connected with research and development projects. MANUFACTURING AND SERVICE Projector Component Manufacturing The Company assembles the projector of its theater systems at its office in Mississauga, Ontario, Canada (near Toronto). The Company develops and designs all of the key elements of the proprietary technology involved in this component. Fabrication of a majority of parts and sub-assemblies is subcontracted to a group of carefully pre-qualified third-party suppliers. Manufacture and supply contracts are signed for the delivery of the component on an order-by-order basis. The Company believes its significant suppliers will continue to supply quality products in quantities sufficient to satisfy its needs. The Company inspects all parts and sub- assemblies, completes the final assembly and then subjects the projector to comprehensive testing individually and as a system prior to shipment. In 2015, these projectors, including the Company’s digital projection system, had reliability rates based on scheduled shows of approximately 99.9%. Sound System Component Manufacturing The Company develops, designs and assembles the key elements of its theater sound system component. The standard IMAX theater sound system component comprises parts from a variety of sources, with approximately 50% of the materials of each sound system attributable to proprietary parts provided under original equipment manufacturers agreements with outside vendors. These proprietary parts include custom loudspeaker enclosures and horns, specialized amplifiers, and signal processing and control equipment. The Company inspects all parts and sub-assemblies, completes the final assembly and then subjects the sound system component to comprehensive testing individually and as a system prior to shipment. Screen and Other Components The Company purchases its screen component and glasses cleaning equipment from third parties. The standard screen system component is comprised of a projection screen manufactured to IMAX specifications and a frame to hang the projection screen. The proprietary glasses cleaning machine is a stand-alone unit that is connected to the theater’s water and electrical supply to automate the cleaning of 3D glasses. 17 Maintenance and Extended Warranty Services The Company also provides ongoing maintenance and extended warranty services to IMAX theater systems. These arrangements are usually for a separate fee, although the Company often includes free service in the initial year of an arrangement. The maintenance and extended warranty arrangements include service, maintenance and replacement parts for theater systems. To support the IMAX theater network, the Company has personnel stationed in major markets throughout the world who provide periodic and emergency maintenance and extended warranty services on existing theater systems. The Company provides various levels of maintenance and warranty services, which are priced accordingly. Under full service programs, Company personnel typically visit each theater every six months to provide preventative maintenance, cleaning and inspection services and emergency visits to resolve problems and issues with the theater system. Under some arrangements, customers can elect to participate in a service partnership program whereby the Company trains a customer’s technician to carry out certain aspects of maintenance. Under such shared maintenance arrangements, the Company participates in certain of the customer’s maintenance checks each year, provides a specified number of emergency visits and provides spare parts, as necessary. For both xenon and laser-based digital systems, the Company provides pre-emptive maintenance, remote system monitoring and a network operations center that provides continuous access to product experts. PATENTS AND TRADEMARKS The Company’s inventions cover various aspects of its proprietary technology and many of these inventions are protected by Letters of Patent or applications filed throughout the world, most significantly in the United States, Canada, Belgium, Japan, France, Germany and the United Kingdom. The subject matter covered by these patents, applications and other licenses encompasses theater design and geometry, electronic circuitry and mechanisms employed in projectors and projection equipment (including 3D projection equipment), a method for synchronizing digital data, a method of generating stereoscopic (3D) imaging data from a monoscopic (2D) source, a process for digitally re-mastering 35mm films into large-format, a method for increasing the dynamic range and contrast of projectors, a method for visibly seaming or superimposing images from multiple projectors and other inventions relating to digital 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 patent families covering laser projection technology as well as certain exclusive rights to a broad range of Kodak patents in the field of digital cinema. The Company has been and will continue to be diligent in the protection of its proprietary interests. As at December 31, 2015, the Company holds or licenses 109 patents, has 18 patents pending in the United States and has corresponding patents or filed applications in many countries throughout the world. While the Company considers its patents to be important to the overall conduct of its business, it does not consider any particular patent essential to its operations. Certain of the Company’s patents in the United States, Canada and Japan for improvements to the IMAX projection system components expire between 2016 and 2032. The Company owns or otherwise has rights to trademarks and trade names used in conjunction with the sale of its products, systems and services. The following trademarks are considered significant in terms of the current and contemplated operations of the Company: IMAX®, IMAX® Dome, IMAX® 3D, IMAX® 3D Dome, Experience It in IMAX®, The IMAX Experience®, An IMAX Experience®, An IMAX 3DExperience®, IMAX DMR®, DMR®, IMAX nXos®, 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. EMPLOYEES The Company had 646 employees as at December 31, 2015, compared to 600 employees as at December 31, 2014. Both employee counts exclude hourly employees at the Company’s owned and operated theaters. AVAILABLE INFORMATION The Company makes available, free of charge, its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and any amendments to such reports, as soon as reasonably practicable after such filings have been made with the United States Securities and Exchange Commission (the “SEC”). 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. Reports may be obtained free of charge through the SEC’s website at www.sec.gov and through the Company’s website at www.imax.com or by calling the Company’s Investor Relations Department at 212-821-0100. 18 Item 1A. Risk Factors If 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 under joint revenue sharing arrangements and under its sales and sales-type lease agreements and to supply venues in which to exhibit IMAX DMR films and the Company 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 94.6% of the 372 systems in the Company’s backlog as at December 31, 2015. The Company is unable to predict if, or when, they or other exhibitors will purchase or lease IMAX theater systems or enter into joint revenue sharing arrangements with the Company, or whether any of the Company’s existing customers will continue to do any of the foregoing. If exhibitors choose to reduce their levels of expansion or decide not to purchase or lease IMAX theater systems or enter into joint revenue sharing arrangements with the Company, the Company’s revenues would not increase at an anticipated rate and motion picture studios may be less willing to convert their films into the Company’s format for exhibition in commercial IMAX theaters. As a result, the Company’s future revenues and cash flows could be adversely affected. The Company conducts business internationally, which exposes it to uncertainties and risks that could negatively affect its operations, sales and future growth prospects. A significant portion of the Company’s revenues are generated by customers located outside the United States and Canada. Approximately 60%, 60% and 53% of the Company’s revenues were derived outside of the United States and Canada in 2015, 2014 and 2013, respectively, with 2013 marking the first year in the Company’s history that revenues and gross box-office derived from outside the United States and Canada exceeded revenues and gross box-office from the United States and Canada. This trend has continued since 2013. As at December 31, 2015, approximately 88.2% of IMAX theater systems arrangements in backlog are scheduled to be installed in international markets. Accordingly, the Company expects its international operations to continue to account for an increasingly significant portion of its revenues in the future. There are a number of risks associated with operating in international markets that could negatively affect the Company’s operations, sales and future growth prospects. These risks include:  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, and/or difficulties in repatriating cash from foreign jurisdictions (including with respect to China, where approval of the State Administration of Foreign Exchange is required); 19  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  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’s revenues from its international operations are becoming increasingly dependent on the box-office performance of its films. In addition, as the Company’s international network has expanded, the Company has signed deals with movie studios in other countries to convert their films to the Company’s large format and release them to IMAX theaters. The Company may be unable to select films which will be successful in international markets or may be unsuccessful in selecting the right mix of Hollywood and local DMR films for a particular country or region. Also, conflicts in international release schedules may make it difficult to release every IMAX film in certain markets. Finally, box-office reporting in certain countries may be less accurate and therefore less reliable 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. In recent years, the Company’s Greater China operations have accounted for an increasingly significant portion of its overall revenues, with nearly 30% of overall revenues generated from the Company’s China operations in 2015. As at December 31, 2015, the Company had 307 theaters operating in Greater China with an additional 215 theaters (includes two upgrades) in backlog, which represent 57.8% of the Company’s current backlog and which are scheduled to be installed in Greater China by 2021. In addition, the Company’s largest single international partnership is in China with Wanda, with a total commitment 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 120 theater systems, of which 100 theater systems will reside in China. The China market faces a number of risks, including changes in laws and regulations, currency fluctuations, increased competition and changes in economic conditions, including the risk of an economic downturn or recession, as well as other conditions that may impact consumer spending. Adverse developments in any of these areas could impact the Company’s future revenues and cash flows and could cause the Company to fail to achieve anticipated growth. Moreover, certain risks and uncertainties of doing business in China are solely within the control of the Chinese government, and Chinese law regulates both the scope of the Company’s continued expansion in China and the business conducted by it within China. For instance, the Chinese government regulates both the number and timing or terms of Hollywood films released to the China market. The Company cannot provide assurance that the Chinese government will continue to permit the release of IMAX films in China or that the timing of IMAX releases will be favorable to the Company. There are also uncertainties regarding the interpretation and application of laws and regulations and the enforceability of intellectual property and contract rights in China. If the Company were unable to navigate China’s regulatory environment, including with respect to its current customs inquiry, or if the Company were unable to enforce its intellectual property or contract rights in China, the Company’s business could be adversely impacted. See note 13(e) “Contingencies and Guarantees” to the accompanying audited consolidated financial statements in Item 8 for more information. 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-office performance of such films. The Company itself produces only a small number of such films and, as a result, the Company relies principally on films produced by third party filmmakers and studios, including both Hollywood and local language features converted into the Company’s large format using the Company’s IMAX DMR technology. In 2015, 44 IMAX DMR films were released by studios to the worldwide IMAX theater network. There is no guarantee that filmmakers and studios will continue to release films to the IMAX theater network, or that the films they produce will be commercially successful. The steady flow and 20 successful box-office performance of IMAX DMR releases have become increasingly important to the Company’s financial performance as the 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-office receipts the Company receives from the studios releasing IMAX DMR films, and the Company’s continued ability to secure films, find suitable partners for joint revenue share arrangements and to sell IMAX theater systems also depends on the number and commercial success of films released to its network. The commercial success of films released to IMAX theaters depends on a number of factors outside of the Company’s control, including whether the film receives critical acclaim, the timing of its release, the success of the marketing efforts of the studio releasing the film, consumer preferences and trends in cinema attendance. Moreover, films can be subject to delays in production or changes in release schedule, which can negatively impact the number, timing and quality of IMAX DMR and IMAX original films released to the 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 National Association of Theater Owners, as at December 31, 2015, there were approximately 16,770 conventional- sized screens in North American multiplexes equipped with digital 3D systems. In addition, some commercial exhibitors, projection manufacturers and entertainment technology companies have announced or introduced their own branded, large-screen 3D auditoriums or other proprietary theater systems, and in many cases have marketed those auditoriums or theater systems as having the same quality or attributes as an IMAX theater. The Company also may face competition in the future from companies in the entertainment industry with new technologies and/or substantially greater capital resources to develop and support them. If the Company is unable to continue to deliver a premium movie-going experience, or if other technologies surpass those of the Company, the Company may be unable to continue to produce theater systems which are premium to, or differentiated from, other theater systems. If the Company is unable to produce a differentiated theater experience, consumers may be unwilling to pay the price premiums associated with the cost of IMAX theater tickets and box-office performance of IMAX films may decline. Declining box office performance of IMAX films would materially and adversely harm the Company’s business and prospects. The Company also faces in-home competition from a number of alternative motion picture distribution channels such as home video, pay-per-view, video-on-demand, DVD, Internet and syndicated and broadcast television. The Company further competes for the public’s leisure time and disposable income with other forms of entertainment, including gaming, sporting events, concerts, live theater, social media and restaurants. Failure to respond adequately or in a timely fashion to changes and advancements in digital technology could negatively affect the Company’s business. There have been a number of advancements in the digital cinema field in recent years. In order to keep pace with these changes and in order to continue to provide an experience which is premium to and differentiated from conventional cinema experiences, the Company has made, and expects to continue to make, significant investments in digital technology in the form of research and development and the acquisition of third party intellectual property and/or proprietary technology. Recently, the Company has made significant investments in laser technology as part of the development of its next-generation laser-based digital projection system, which it began rolling out to the largest theaters in the IMAX network at the end of 2014. The Company intends to continue to invest in the development of additional laser-based products. The process of developing new technologies is inherently uncertain and subject to certain factors that are outside of the Company’s control, including reliance on third party partners and suppliers, and the Company can provide no assurance its investments will result in commercially viable advancements to the Company’s existing products or in commercially successful new products, or that any such advancements or products will improve upon existing technology or will be developed within the timeframe expected. Under common ownership, Wanda and AMC together account for a significant and growing portion of the Company’s revenue and backlog. A deterioration in the Company’s relationship with Wanda and/or AMC could materially, adversely affect the Company’s business, financial condition or results of operation. In 2012, Dalian Wanda, the parent company of Wanda, acquired AMC. In December 2013, AMC completed an initial public offering of approximately 20% of its outstanding shares, with Dalian Wanda retaining the approximately 80% remaining. Under common ownership, Wanda and AMC together represent approximately 16.0%, 14.5% and 13.9% of the Company’s total revenue in 2015, 2014 and 2013, respectively. On December 18, 2013, Wanda exercised its option to expand its joint revenue sharing arrangement with IMAX with 80 additional IMAX theater systems. With the latest expansion of the Company’s joint revenue sharing arrangement with Wanda, Wanda and AMC together represented approximately 31.1% of the commercial network and 18.8% of the Company’s backlog as of December 31, 2015. The share of the Company’s revenue that is generated by Wanda and AMC is expected 21 to continue to grow as the significant number of Wanda theater systems currently in backlog are opened. No assurance can be given that either Wanda and/or AMC will continue to purchase theater systems and/or enter into joint revenue sharing arrangements with the Company and if so, whether contractual terms will be affected. If the Company does business with either Wanda and/or AMC less frequently 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 of new 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 entertainment technology, which is an intensively competitive business and which is dependent on consumer demand, over which the Company has no control. If any new business in which the Company invests or attempts to develop does not progress as planned, the Company may be adversely affected by investment expenses that have not led to the anticipated results, by write-downs of its equity investments, by the distraction of management from its core business or by damage to its brand or reputation. In addition, these initiatives may involve the formation of joint ventures and business alliances. While the Company seeks to employ the optimal structure for each such business alliance, the alliance may require a high level of cooperation with and reliance on the Company’s partners and there is a possibility that the Company may have disagreements with its relevant partner with respect to financing, technological management, product development, management strategies or otherwise. Any such disagreement may cause the joint venture or business alliance to be terminated. The Company may not be able to adequately protect its intellectual property, and competitors could misappropriate its technology or brand, which could weaken its competitive position. The Company depends on its proprietary knowledge regarding IMAX theater systems and digital and film technology. The Company relies principally upon a combination of copyright, trademark, patent and trade secret laws, restrictions on disclosures and contractual provisions to protect its proprietary and intellectual property rights. These laws and procedures may not be adequate to prevent unauthorized parties from attempting to copy or otherwise obtain the Company’s processes and technology or deter others from developing similar processes or technology, which could weaken the Company’s competitive position and require the Company to incur costs to secure enforcement of its intellectual property rights. The protection provided to the Company’s proprietary technology by the laws of foreign jurisdictions may not protect it as fully as the laws of Canada or the United States. The lack of protection afforded to intellectual property rights in certain international jurisdictions may be increasingly problematic given the extent to which future growth of the Company is anticipated to come from foreign jurisdictions. Finally, some of the underlying technologies of the Company’s products and system components are not covered by patents or patent applications. The Company owns or licenses patents issued and patent applications pending, including those covering its digital projector, digital conversion technology and laser illumination technology. The Company’s patents are filed in the United States, often with corresponding patents or filed applications in other jurisdictions, such as Canada, China, Belgium, Japan, France, Germany and the United Kingdom. The patent applications pending may not be issued or the patents may not provide the Company with any competitive advantages. The patent applications may also be challenged by third parties. Several of the Company’s issued patents in the United States, Canada and Japan for improvements to IMAX projectors, IMAX 3D Dome and sound system components expire between 2016 and 2032. Any claims or litigation initiated by the Company to protect its proprietary technology could be time consuming, costly and divert the attention of its technical and management resources. The IMAX brand stands for the highest quality, most immersive motion picture entertainment. Protecting the IMAX brand is a critical element in maintaining the Company’s relationships with studios and its exhibitor clients. Though the Company relies on a combination of trademark and copyright law as well as its contractual provisions to protect the IMAX brand, those protections may not be adequate to prevent erosion of the brand over time, particularly in foreign jurisdictions. Erosion of the brand could threaten the demand for the Company’s products and services and impair its ability to grow future revenue streams. The Company faces cyber-security and similar risks, which could result in the disclosure, theft or loss of confidential or other proprietary information, including intellectual property; damage to the Company’s brand and reputation; legal exposure and financial losses. The nature of the Company’s business involves access to and storage of confidential and proprietary content and other information, including intellectual property, as well as information regarding the Company’s customers, employees, licensees and suppliers. 22 Although the Company maintains robust procedures to safeguard such content and information, the Company’s information technology systems could be penetrated by internal or external parties’ intent on extracting information, corrupting information, stealing intellectual property or trade secrets, or disrupting business processes. Information security risks have increased in recent years because of the proliferation of new technologies and the increased sophistication and activities of perpetrators of cyber-attacks. It is possible that computer hackers could compromise the Company’s security measures or the security measures of parties with whom the Company 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 the Company’s intellectual property and other proprietary information, a reduction of the revenues the Company is able to generate from its operations, damage to the Company’s brand and reputation, a loss of confidence in the security of the Company’s business and products, and significant legal and financial exposure, each of which could potentially have an adverse effect on the Company’s business. The Company’s implementation of a new enterprise resource planning (“ERP”) system may adversely affect the Company’s business and results of operations 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 and expand upon its functionality, with the next phase focused on implementation in additional business units and in its international operations. When implementation is complete, the new ERP system is expected to deliver a new generation of work processes and information systems. However, ERP implementations are complex and time-consuming projects that involve substantial expenditures on system software and implementation activities that take several years. ERP implementations also require transformation of business and financial processes in order to reap the benefits of the ERP system. If the Company does not effectively implement the ERP system as planned or if the system does not operate as intended, it could adversely affect the Company’s operations, financial reporting systems, the Company’s ability to produce financial reports, and/or the effectiveness of internal control over financial reporting. The Company continues to review the implementation effort as well as the impact on its internal controls over financial reporting and, where appropriate, 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 IMAX theater systems and the demand for new IMAX theater systems. The Company’s success depends in part on general political, social and economic conditions and the willingness of consumers to purchase tickets to IMAX movies. If going to the movies becomes less popular, the Company’s business could be adversely affected. In addition, our operations could be adversely affected if consumers' discretionary income falls as a result of an economic downturn. In recent years, the majority of the Company’s revenue has been directly derived from the box-office revenues of its films. Accordingly, any decline in attendance at commercial IMAX theaters could materially and adversely affect several sources of key revenue streams for the Company. The Company also depends on the sale and lease of IMAX theater systems to commercial movie exhibitors to generate revenue. Commercial movie exhibitors generate revenues from consumer attendance at their theaters, which depends on the willingness of consumers to visit movie theaters and spend discretionary income at movie theaters. In the event of declining box-office and concession revenues, commercial exhibitors may be less willing to invest capital in new IMAX theaters. The Company may experience adverse effects due to exchange rate fluctuations. A substantial portion of the Company’s revenues are denominated in U.S. dollars, while a substantial portion of its expenses are denominated in Canadian dollars. The Company also generates revenues in Chinese Yuan Renminbi, Euros and Japanese Yen. While the Company periodically enters into forward contracts to hedge its exposure to exchange rate fluctuations between the U.S. and the Canadian dollar, the Company may not be successful in reducing its exposure to these fluctuations. The use of derivative contracts is intended to mitigate or reduce transactional level volatility in the results of foreign operations, but does not completely eliminate volatility. Even in jurisdictions in which the Company does not accept local currency, significant local currency issues may impact the profitability of the Company’s arrangements for the Company’s customers, which ultimately affect the Company’s ability to negotiate cost-effective arrangements and, therefore, the Company’s results of operations. In addition, because IMAX films generate box office in 67 different countries, unfavorable exchange rates between applicable local currencies and the U.S. dollar could affect the Company’s reported gross box office and revenues, further impacting the Company’s results of operations. 23 The Company’s revenues from existing customers are derived in part from financial reporting provided by its customers, which may be inaccurate or incomplete, resulting in lost or delayed revenues. The Company’s revenue under its joint revenue sharing arrangements, a portion of the Company’s payments under lease or sales arrangements and its film license fees are based upon financial reporting provided by its customers. If such reporting is inaccurate, incomplete or withheld, the Company’s ability to receive the appropriate payments in a timely fashion that are due to it may be impaired. The Company’s contractual ability to audit IMAX theaters may not rectify 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 joint revenue sharing arrangements. Exhibitors or other operators may experience financial difficulties that could cause them to be unable to fulfill their contractual payment obligations to the Company. As a result, the Company’s future revenues and cash flows could be adversely affected. The Company may not convert all of its backlog into revenue and cash flows. At December 31, 2015, the Company’s sales backlog included 372 theater systems, consisting of 160 systems under sales arrangements and 212 theater systems under joint revenue sharing arrangements. The Company lists signed contracts for theater systems for which revenue has not been recognized as sales backlog prior to the time of revenue recognition. The total value of the sales backlog represents all signed theater system sale or lease agreements that are expected to be recognized as revenue in the future and includes initial fees along with the 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 systems that are included in the Company’s backlog. This could adversely affect the Company’s future revenues and cash flows. In addition, customers with theater system obligations in backlog sometimes request that the Company agree to modify or reduce such obligations, which the Company has agreed to in the past under certain circumstances. Customer requested delays in the installation of theater systems in backlog remain a recurring and unpredictable part of the Company’s business. The Company’s operating results and cash flow can vary substantially from period to period and could increase the volatility of its share price. The Company’s operating results and cash flow can fluctuate substantially from period to period. In particular, fluctuations in theater system installations and gross box-office performance of IMAX DMR content can materially affect operating results. Factors that have affected the Company’s operating results and cash flow in the past, and are likely to affect its operating results and cash flow in the future, include, among other things:  the timing of signing and installation of new theater systems (particularly for installations in newly-built multiplexes, which can result in delays that are beyond the Company’s control);  the timing and commercial success of films distributed to the Company’s 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; 24  financial difficulties faced by customers, particularly customers in the commercial exhibition industry;  the magnitude and timing of spending in relation to the Company’s research and development efforts and related investments as well as new business initiatives; and  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 for any unexpected shortfall in sales, joint revenue sharing arrangements revenue or IMAX DMR revenue which would harm operating results for a particular period, although the results of any particular period are not necessarily indicative of its results for any period. The 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 for theater systems on a long-term basis through long-term leases or notes receivables. The terms of leases or notes receivable are typically 10 years. The Company’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 minimum amount 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 due under the agreement. Cash received from initial fees in advance of meeting the revenue recognition criteria for the theater systems is recorded as deferred revenue. 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 are reported 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 or cash position. Revenues include the present value of future contracted cash payments and there is no guarantee that the Company will receive such payments under its lease and sale agreements if its customers default on their payment obligations. The Company’s stock price has historically been volatile and declines in market price, including as a result a market downturn, may negatively affect its ability to raise capital, issue debt, secure customer business and retain employees. The Company is listed on the New York Stock Exchange (“NYSE”) and its publicly traded shares have in the past experienced, and may continue to experience, significant price and volume fluctuations. This market volatility could reduce the market price of its common stock, regardless of the Company’s operating performance. A decline in the capital markets generally, or an adjustment in the market price or trading volumes of the Company’s publicly traded securities, may negatively affect its ability to raise capital, issue debt, secure customer business or retain employees. These factors, as well as general economic and geopolitical conditions, may have a material adverse effect on the market price of the Company’s publicly traded securities. 25 The credit agreement governing the Company’s senior secured credit facility contains significant restrictions that limit its operating and financial flexibility. The credit agreement governing the Company’s senior secured credit facility contains certain restrictive covenants that, among other things, limit its ability to:  incur additional indebtedness;  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 be in 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 film assets are amortized and participation costs are accrued for each film in the ratio of revenues earned in the current period to management’s estimate of total revenues ultimately expected to be received for that title. Management regularly reviews, and revises when necessary, its estimates of ultimate revenues on a title-by-title basis, which may result in a change in the rate of amortization of the film assets and write-downs or impairments of film assets. Results of operations in future years include the amortization of the Company’s film assets and may be significantly affected by periodic adjustments in amortization rates. 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 the anticipated installation dates for the current backlog of theater system contracts, technological developments, signings in negotiation and anticipated market acceptance of the Company’s current and pending theater systems. If the Company’s goodwill or long lived assets become impaired the Company may be required to record a significant charge to earnings. Under United States Generally Accepted Accounting Principles (“U.S. GAAP”), the Company reviews its long lived assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be qualitatively assessed at least annually and when events or changes in circumstances arise or can be quantitatively tested for impairment. Factors that may be considered a change in circumstances include (but are not limited to) a decline in stock price and market capitalization, declines in future cash flows, and slower growth rates in the Company’s industry. The Company may be required to record a significant charge to earnings in its financial statements during the period in which any impairment of its goodwill or long lived assets is determined. 26 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’s business, such as revenue recognition, film accounting, accounting for pensions and other postretirement benefits, accounting for income taxes, and treatment 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 and could 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 Company may not find qualified replacements for any of these individuals if their services are no longer available. The loss of the services of one or more members of the Company’s senior management team could adversely affect its ability to effectively pursue its business strategy. 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 its assets and the assets of such directors and officers are located outside the United States. As a result, it may be difficult for U.S. plaintiffs to effect service within 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 United States 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 difficult for 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 Comments None. 27 Item 2. Properties The Company’s principal executive offices are located in Mississauga, Ontario, Canada, New York, New York, and Playa Vista, California. The Company’s principal facilities are as follows: Mississauga, Ontario(1) ............................. Headquarters, Administrative, Assembly and Research and Own N/A Operation Own/Lease Expiration Development Playa Vista, California(2) .......................... Sales, Marketing, Film Production and Post-Production New York, New York .............................. Executive Beijing, China .......................................... Sales Tokyo, Japan ............................................ Sales, Marketing and Maintenance Shanghai, China ....................................... Sales, Marketing, Maintenance and Administrative Moscow, Russia ....................................... Sales London, United Kingdom ........................ Sales ______________ (1) This facility is subject to a charge in favor of Wells Fargo Bank in connection with a secured term and revolving credit facility Own Lease Lease Lease Lease Lease Lease N/A 2019 2018 2017 2019 2016 2016 (see note 11 to the accompanying audited consolidated financial statements in Item 8). (2) This facility is subject to a charge in favor of Wells Fargo Bank in connection with the Playa Vista Loan (see note 11 to the accompanying audited consolidated financial statements in Item 8). The Company believes that its existing facilities and equipment are in good operating condition and are suitable for the conduct of its business. 28 Item 3. Legal Proceedings On May 15, 2006, the Company initiated arbitration against Three-Dimensional Media Group, Ltd. (“3DMG”) before the International Centre for Dispute Resolution in New York (the “ICDR”), alleging breaches of the license and consulting agreements between the Company and 3DMG. On June 15, 2006, 3DMG filed an answer denying any breaches and asserting counterclaims that the Company breached the parties’ license agreement. On June 21, 2007, the ICDR unanimously denied 3DMG’s Motion for Summary Judgment filed on April 11, 2007 concerning the Company’s claims and 3DMG’s counterclaims. The proceeding was suspended on May 4, 2009 due to failure of 3DMG to pay fees associated with the proceeding. The proceeding was further suspended on October 11, 2010 pending resolution of re-examination proceedings currently pending involving one of 3DMG’s patents. The proceeding remains suspended pending 3DMG obtaining new counsel to represent it. If the proceeding resumes, the Company will continue to pursue its claims vigorously and believes that all allegations made by 3DMG are without merit. The Company further believes that the amount of loss, if any, suffered in connection with the counterclaims would not have a material impact on the financial position or results of operations of the Company, although no assurance can be given with respect to the ultimate outcome of the arbitration. In January 2004, the Company and IMAX Theatre Services Ltd., a subsidiary of the Company, commenced an arbitration seeking damages before the International Court of Arbitration of the International Chamber of Commerce (the “ICC”) with respect to the breach by Electronic Media Limited (“EML”) of its December 2000 agreement with the Company. In June 2004, the Company commenced a related arbitration before the ICC against EML’s affiliate, E-City Entertainment (I) PVT Limited (“E-City”). On March 27, 2008, the arbitration panel issued a final award in favor of the Company in the amount of $11.3 million, consisting of past and future rents owed to the Company, plus interest and costs, as well as an additional $2,512 each day in interest from October 1, 2007 until the date the award is paid. In July 2008, E-City commenced a proceeding in Mumbai, India seeking an order that the ICC award may not be recognized in India. The Company has opposed that 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 in the High Court pending Supreme Court review of the High Court’s ruling. On June 24, 2011, the Company commenced a proceeding in the Ontario Superior Court of Justice for recognition of the ICC final award. On December 2, 2011, the Ontario Court issued an order recognizing the final award and requiring E-City to pay the Company $30,000 to cover the costs of the application. In January 2013, the Company filed an action in the New York Supreme Court seeking to collect the amount owed to the Company by certain entities and individuals affiliated with E-City. On October 16, 2015, New York Supreme Court denied the Company’s petition, and on November 12, 2015, the Company filed a notice of appeal. On July 29, 2014, the Company commenced a separate proceeding to have the Canadian judgment against E-City recognized in New York and on October 2, 2015, the New York Supreme Court granted IMAX’s request recognizing the Canadian judgement and entering it as a New York judgment. On November 26, 2014, E-City filed a motion in the Bombay High Court seeking to enjoin IMAX from continuing the New York legal proceedings. On February 2, 2015, the Bombay High Court denied E-City’s request for an ad interim injunction. On March 16, 2015, E-City filed an appeal of this Bombay High Court decision. A class action lawsuit was filed on September 20, 2006 in the Canadian Court against the Company and certain of its officers and directors, alleging violations of Canadian securities laws. This lawsuit was brought on behalf of shareholders who acquired the Company’s securities between February 17, 2006 and August 9, 2006. The lawsuit sought $210.0 million in compensatory and punitive damages, as well as costs. For reasons released December 14, 2009, the Canadian Court granted leave to the plaintiffs to amend their statement of claim to plead certain claims pursuant to the Securities Act (Ontario) against the Company and certain individuals (“the Defendants”) and granted certification of the action as a class proceeding. In March 2013, the Defendants obtained an Order enforcing the settlement Order in a parallel class action in the United States in this Canadian class action lawsuit, with the result that the class in this case was reduced in size by approximately 85%. The United States class action was conclusively settled in May 2014 for $12.0 million. A motion by the Plaintiffs for leave to appeal that Order was dismissed. On October 15, 2015, the parties to the Canadian Class action lawsuit executed a formal Settlement Agreement. On December 15, 2015, the Canadian Court issued an Order approving that Settlement Agreement, with the effect that the Canadian class action lawsuit was deemed to be dismissed on January 14, 2016. Under the terms of the Settlement Agreement, members of the Canadian class who did 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 or any other proceeding relating to the purchase of the Company’s securities between February 17, 2006 to and including August 9, 2006. As part of the settlement and in exchange for the release, the Defendants agreed to pay CAD$3.75 million to a settlement fund, which amount will be funded by the carriers of the Company’s directors and officers insurance policy. The settlement will be distributed to the Canadian class after May 31, 2016, the closing date for claims to be submitted to the Court-appointed administrator. On November 4, 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 Chicago Theatre provided certain credit card and debit card receipts to customers that were 29 purportedly not in compliance with the applicable truncation requirements of the Fair and Accurate Credit Transactions Act, which IMAX Chicago Theatre denies. The plaintiff does not allege actual damages but 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. On October 26, 2015, the parties filed with the Court a class action settlement agreement and proposed form of class notice, which the Court preliminarily approved on November 10, 2015. Under the terms of the proposed settlement, members of the class who do not opt out of the settlement will release IMAX Chicago Theatre and its affiliates from liability for all claims that were alleged or could have been alleged in this action or any other proceeding relating to the subject matter of this action. As part of the settlement and in exchange for the release, IMAX Chicago Theatre will pay a total of at least $400,000 and no more than $455,000 to a settlement fund, depending on the number of participating class members who submit claims. The hearing on final approval of the settlement is scheduled for March 1, 2016. In March 2013, IMAX (Shanghai) Multimedia Technology Co., Ltd., the Company’s majority-owned subsidiary in China, received notice from the Shanghai office of the General Administration of Customs that it had been selected for a customs audit. The Company is unable to assess the potential impact, if any, of the audit at this time. On November 11, 2013, Giencourt Investments, S.A. (“Giencourt”) initiated arbitration before the International Centre for Dispute Resolution in Miami, Florida, based on alleged breaches by the Company of its theater agreement and related license agreement with Giencourt. Giencourt submitted its statement of claim in January 2015, the Company submitted its statement of defense and counterclaim in April 2015 and Giencourt submitted its arbitration reply paper in September 2015. An arbitration hearing for witness testimony was held during the week of December 14, 2015. At the hearing, Giencourt’s expert identified monetary damages of up to approximately $10.4 million, which Giencourt seeks to recover from the Company. The Company has asserted a counterclaim against Giencourt for breach of contract and seeks to recover lost profits in excess of $24.0 million under the agreements. A final hearing with closing statements is scheduled for March 30 to April 1, 2016. In addition, on December 10, 2015, Giencourt made a motion to the panel seeking to enforce a purported settlement of the matter based on negotiations between Giencourt and the Company. The Company strongly disputes that discussions about a potential resolution of this matter amounted to an enforceable settlement. The panel has asked the parties to brief this issue, and oral arguments will be held during the upcoming March 30th to April 1st hearings. Although no assurances can be given with respect to the ultimate outcome of the proceedings, the Company believes that it has meritorious defenses and claims, and will continue to vigorously pursue them. In addition to the matters described above, the Company is currently involved in other legal proceedings or governmental inquiries which, in the opinion of the Company’s management, will not materially affect the Company’s financial position or future operating results, although no assurance can be given with respect to the ultimate outcome of any such proceedings. Item 4. Mine Safety Disclosures Not applicable. 30 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities The Company’s common shares are listed for trading under the trading symbol “IMAX” on the NYSE. Prior to the Company’s voluntary delisting on January 19, 2015, the Company’s shares were also listed for trading on the Toronto Stock Exchange (“TSX”). The following table sets forth the range of high and low sales prices per share for the common shares on NYSE and the TSX. NYSE Year ended December 31, 2015 Fourth quarter Third quarter Second quarter First quarter Year ended December 31, 2014 Fourth quarter Third quarter Second quarter First quarter TSX Year ended December 31, 2015 Fourth quarter Third quarter Second quarter First quarter Year ended December 31, 2014 Fourth quarter Third quarter Second quarter First quarter U.S. Dollars High Low $ $ $ $ $ $ $ $ 39.58 39.37 43.22 35.54 31.38 28.56 28.51 29.28 $ $ $ $ $ $ $ $ 33.30 29.18 33.53 29.49 26.18 24.29 24.77 25.97 Canadian Dollars High Low n/a n/a n/a n/a n/a n/a n/a n/a $ $ $ $ 36.12 32.50 31.17 31.61 $ $ $ $ 29.13 26.17 26.97 28.47 As at January 31, 2016, the Company had approximately 245 registered holders of record of the Company’s common shares. Over the last two years, the Company has not paid, nor does the Company have any current plans to pay, cash dividends on its common shares. The payment of dividends by the Company is subject to certain restrictions under the terms of the Company’s indebtedness (see note 11 to the accompanying audited consolidated financial statements in Item 8 and “Liquidity and Capital Resources” in Item 7). The payment of any future dividends will be determined by the Board of Directors in light of conditions then existing, including the Company’s financial condition and requirements, future prospects, restrictions in financing agreements, business conditions and other factors deemed relevant by the Board of Directors. 31 Equity Compensation Plans The following table sets forth information regarding the Company’s Equity Compensation Plan as at December 31, 2015: Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights Weighted Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) Plan Category Equity compensation plans approved by security holders Equity compensation plans not approved by security Total (a) 5,778,881 nil 5,778,881 $ $ (b) 27.91 nil 27.91 (c) 1,244,377 nil 1,244,377 Performance Graph The following graph compares the total cumulative shareholder return for $100 invested (assumes that all dividends were reinvested) in common shares of the Company against the cumulative total return of the NYSE Composite Index, the S&P/TSX Composite Index and the IMAX Peer Group on December 31, 2010 to the end of the most recently completed fiscal year. The IMAX Peer Group consists of DTS, Inc., TIVO Inc., RealD Inc., World Wrestling Entertainment, Inc., Rovi Corporation, DreamWorks Animation SKG, Inc., Corus Entertainment Inc., Take-Two Interactive Software, Inc., Dolby Laboratories, Inc., Six Flags Entertainment Corporation, Lions Gate Entertainment Corp. and Cinemark Holdings, Inc. The Company has elected to include an index based on the IMAX Peer Group beginning in this 2015 Form 10-K because the Bloomberg Hollywood Reporter index, included in the Company’s 2014 Form 10-K, has been discontinued. CUMULATIVE VALUE OF $100 INVESTMENT IMAX NYSE Composite S&P/TSX Composite Peer Group 150.00 100.00 50.00 0.00 2010 2011 2012 2013 2014 2015 IMAX 31-Dec-10 100.00 31-Dec-11 65.30 31-Dec-12 80.09 31-Dec-13 105.02 31-Dec-14 110.08 31-Dec-15 126.61 NYSE Composite S&P/TSX Composite Peer Group 100.00 100.00 100.00 93.89 88.93 67.60 106.02 92.49 79.04 130.59 101.33 110.32 136.10 108.85 113.53 127.37 96.78 110.10 32 CERTAIN INCOME TAX CONSIDERATIONS United States Federal Income Tax Considerations The following discussion is a general summary of the material U.S. federal income tax consequences of the ownership and disposition of the common shares 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 does not 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 Shares In general, distributions (without reduction for Canadian withholding taxes) paid by the Company with respect to the common shares will be taxed to a U.S. Holder as dividend income to the extent that such distributions do not exceed the current and accumulated earnings and profits of the Company (as determined for U.S. federal income tax purposes). Subject to certain limitations, under current law dividends paid to non-corporate U.S. Holders may be eligible for a reduced rate of taxation as long as the Company is considered to be a “qualified foreign corporation”. A qualified foreign corporation includes a foreign corporation that is eligible for the benefits of an income tax treaty with the United States or a foreign corporation the stock of which is regularly tradable on an established securities market in the United States. The amount of a distribution that exceeds the current and accumulated earnings and profits 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 as taxable capital gain. Corporate holders generally will not be allowed a deduction for dividends received in respect of distributions on common shares. Subject to the limitations set forth in the U.S. Internal Revenue Code of 1986, as amended, as modified by the U.S.-Canada Income Tax Treaty, U.S. Holders may elect to claim a foreign tax credit against their U.S. federal income tax liability for Canadian income tax withheld from dividends. Alternatively, U.S. Holders may claim a deduction for such amounts of Canadian tax withheld. Disposition of Common Shares Upon the sale or other disposition of common shares, a U.S. Holder generally will recognize capital gain or loss equal to the difference between the amount realized on the sale or other disposition and such holder’s tax basis in the common shares. Gain or loss upon the sale or other disposition of the common shares will be long-term if, at the time of the sale or other disposition, the common shares have been held for more than one year. Long-term capital gains of non-corporate U.S. Holders may be eligible for a reduced rate of taxation. The deduction of capital losses is subject to limitations for U.S. federal income tax purposes. Canadian Federal Income Tax Considerations This summary is applicable to a holder or prospective purchaser of common shares who, for the purposes of the Income Tax Act (Canada) and any applicable treaty and at all relevant times, is not (and is not deemed to be) resident in Canada, does not (and is not deemed to) use or hold the common shares in, or in the course of, carrying on a business in Canada, and is not an insurer that carries on an insurance business in Canada and elsewhere. This summary is based on the current provisions of the Income Tax Act (Canada), the regulations thereunder, all specific proposals to amend such Act and regulations publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof and the Company’s understanding of the administrative policies and assessing practices published in writing by the Canada Revenue Agency prior to the date hereof. This summary does not otherwise take into account any change in law or administrative policy or assessing practice, whether by judicial, governmental, legislative or administrative decision or action, nor does it take into account other federal or provincial, territorial or foreign tax consequences, which may vary from the Canadian federal income tax considerations described herein. 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 common shares 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. 33 Dividends on Common Shares Canadian withholding tax at a rate of 25.0% (subject to reduction under the provisions of any applicable tax treaty) will be payable on dividends (or amounts paid or credited on account or in lieu of payment of, or in satisfaction of, dividends) paid or credited to a holder of common shares. Under the Canada-U.S. Income Tax Convention (1980), as amended (the “Canada - U.S. Income Tax Treaty”) the withholding tax rate is 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 company that owns at least 10.0% of the common shares). Capital Gains and Losses Subject to the provisions of any relevant tax treaty, capital gains realized by a holder on the disposition or deemed disposition of common shares held as capital property will not be subject to Canadian tax unless the common shares are taxable Canadian property (as defined in the Income Tax Act (Canada)), in which case the capital gains will be subject to Canadian tax at rates which will approximate those payable by a Canadian resident. Common shares generally will not be taxable Canadian property to a holder provided that, at the time of the disposition or deemed disposition, the common shares are listed on a designated stock exchange (which currently includes the NYSE) unless at any time within the 60 month period immediately preceding such time (a) any combination of (i) such holder, (ii) persons with whom such holder did not deal at arm’s length or (iii) a partnership in which such holder or any such persons holds a membership interest either directly or indirectly through one or more partnerships, owned 25.0% or more of the issued shares of any class or series of shares of the Company and (b) more than 50% of the fair market value of the common shares was derived directly or indirectly from one or any combination of (i) real or immovable property situated in Canada, (ii) Canadian resource properties, (iii) timber resource properties, and (iv) options in respect of, or interests in, or for civil law rights in, property described in any of paragraphs (i) to (iii), whether or not the property exists. In certain circumstances set out in the Income Tax Act (Canada), the common shares may be deemed to be taxable Canadian property. Under the Canada-U.S. Income Tax Treaty, a holder entitled to the benefits of the Canada - U.S. Income Tax Treaty and to whom the common shares are taxable Canadian property will not be subject to Canadian tax on the disposition or deemed disposition of the common shares unless at the time of disposition or deemed disposition, the value of the common shares is derived principally from real property situated in Canada. 34 Item 6. Selected Financial Data The selected financial data set forth below is derived from the consolidated financial information of the Company. The financial information has been prepared in accordance with U.S. GAAP. All financial information referred to herein is expressed in U.S. dollars unless otherwise noted. (In thousands of U.S. dollars, except per share amounts) 2015 Years Ended December 31, 2013 2012 2014 2011 Statements of Operations Data: Revenues Equipment and product sales Services Rentals Finance income Other(1) Costs and expenses applicable to revenues Equipment and product sales(2)(3) Services(2)(3) Rentals(3) Other Gross margin Selling, general and administrative expenses(4) Gain on curtailment of postretirement benefit plan(5) Provision for arbitration award(6) Research and development Amortization of intangibles Receivable provisions, net of recoveries Asset impairments(7) Impairment of investments(8) Income from operations Interest income Interest expense Income from operations before income taxes Provision for income taxes Loss from equity-accounted investments, net of tax Income from continuing operations Income (loss) from discontinued operations, net of tax(9) Net income Less: net income attributable to non-controlling interests(10) Net income attributable to common shareholders $ 118,937 161,964 83,651 9,112 141 373,805 63,635 70,855 20,027 - 154,517 219,288 115,345 - - 12,730 1,860 752 405 425 87,771 968 (1,661) 87,078 (20,052) (2,402) 64,624 - 64,624 (8,780) $ 55,844 $ 78,705 142,607 60,705 8,524 - 290,541 36,997 62,228 17,928 - 117,153 173,388 93,260 - - 16,096 1,724 918 314 3,206 57,870 405 (924) 57,351 (14,466) (1,071) 41,814 355 42,169 (2,433) $ 39,736 Net income per share attributable to common shareholders - basic and diluted: Net income per share - basic: Net income per share from continuing operations Net income (loss) per share from discontinued operations $ $ Net income per share - diluted: Net income per share from continuing operations Net loss per share from discontinued operations $ $ $ 0.57 0.01 0.58 0.56 - 0.56 $ $ $ 0.79 - 0.79 0.78 - 0.78 35 $ 78,663 139,464 61,293 8,142 375 287,937 $ 78,161 135,071 61,268 7,523 732 282,755 37,517 68,844 16,973 - 123,334 164,603 84,854 (2,185) - 14,771 1,618 445 - - 65,100 55 (1,345) 63,810 (16,629) (2,757) 44,424 37,538 70,570 21,402 - 129,510 153,245 81,560 - - 11,411 706 524 - 150 58,894 85 (689) 58,290 (15,079) (1,362) 41,849 (512) 41,337 - $ 41,337 (309) 44,115 - $ 44,115 $ 85,016 105,262 34,810 6,162 3,848 235,098 38,742 66,972 14,301 1,018 121,033 114,065 73,157 - 2,055 7,829 465 1,570 20 - 28,969 57 (1,827) 27,199 (9,293) (1,791) 16,115 (855) 15,260 - $ 15,260 $ $ $ $ 0.66 - 0.66 0.64 - 0.64 $ $ $ $ 0.64 (0.01) 0.63 0.62 (0.01) 0.61 $ $ $ $ 0.25 (0.01) 0.24 0.23 (0.01) 0.22 ______________ (1) The Company enters into theater system arrangements with customers that typically contain customer payment obligations prior to the scheduled installation of the theater systems. Each year, during the period of time between signing and theater system installation, certain customers are unable to, or elect not to, proceed with the theater system installation for a number of reasons, including business considerations, or the inability to obtain certain consents, approvals or financing. Once the determination is made that the customer will not proceed with installation, the customer and/or the Company may terminate the arrangement by default or by entering into a consensual buyout. In these situations the parties are released from their future obligations under the arrangement, and the initial payments that the customer previously made to the Company and recognized as revenue are typically not refunded. In addition, the Company enters into agreements with customers to terminate their obligations for a theater system configuration and enter into a new arrangement for a different configuration. Other revenues from settlement arrangements were $0.1 million, $nil, $0.4 million, $0.7 million, and $3.8 million in 2015, 2014, 2013, 2012 and 2011, respectively. (2) In 2015, the Company recognized a charge of $0.6 million in costs and expenses applicable to revenues for the write-down of certain service parts and theater system inventories. Included for the periods 2011 through 2015 are the following inventory write-downs: Equipment and product sales Services 2015 2014 2013 2012 2011 $ $ 537 35 572 $ $ 209 150 359 $ $ 274 170 444 $ $ 795 103 898 $ $ - - - (3) The Company recorded advertising, marketing, and commission costs for the periods 2011 through 2015 as listed below: Equipment and product sales Services Rentals Advertising, marketing, and commission costs 2015 $ 2,985 13,236 3,040 $ 19,261 $ $ 2014 3,271 7,701 2,579 13,551 $ $ 2013 2,522 4,552 3,582 10,656 $ $ 2012 2,690 4,773 3,382 10,845 $ $ 2011 2,394 5,648 5,432 13,474 (4) (5) (6) (7) (8) Includes share-based compensation expense of $21.9 million, $15.1 million, $11.9 million, $13.1 million and $11.7 million for 2015, 2014, 2013, 2012 and 2011, respectively. Also includes consulting and other professional fees associated with the IMAX China IPO of $1.3 million for 2015. In 2013, the Company amended its Canadian postretirement plan to reduce future benefits provided under the plan. As a result of this amendment, the Company recognized a pre-tax curtailment gain of $2.2 million. See note 21(d) of the accompanying audited consolidated financial statements in Item 8 for more information. In 2011, the Company recorded a provision of $2.1 million regarding an award issued in connection with an arbitration proceeding brought against the Company, relating to agreements entered into in 1994 and 1995 by its former Ridefilm subsidiary, whose business the Company discontinued through a 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 agreed to dismiss any outstanding disputes among them. In 2015, the Company recorded asset impairment charges of $0.4 million. Asset impairment charges related to the impairment of property, plant and equipment amounted to $0.3 million, $nil, $nil and less than $0.1 million in 2014, 2013, 2012 and 2011, respectively, after the Company assessed the carrying value of certain assets. In 2015, the Company recognized a $0.4 million other-than-temporary impairment of its investments as the value is not expected to recover based on the length of time and extent to which the market value has been less than cost. See note 20(b) of the accompanying audited consolidated financial statements in Item 8 for more information. Charges resulting from the impairment of investments amounted to $3.2 million, $nil, $0.2 million and $nil in 2014, 2013, 2012 and 2011, respectively. (9) In 2014, the Company discontinued the operations of its owned and operated Nyack IMAX theater. The net income (loss) from the operation of the theater is reflected as a discontinued operation. See note 23 of the accompanying audited consolidated 36 financial statements in Item 8 for more information. (10) The Company’s consolidated financial statements include the non-controlling interest in the net income of IMAX China resulting from the IMAX China Investment and IMAX China IPO. In addition, the Company recognized the impact of a non- controlling interest in its subsidiary created for the Film Fund activity. See note 22 of the accompanying audited consolidated financial statements in Item 8 for more information. BALANCE SHEET DATA (in thousands of U.S. dollars) Cash and cash equivalents Total assets Total bank indebtedness Total shareholders' equity As at December 31, 2015 2014 2011 $ 317,449 $ 106,503 $ 18,138 $ 931,020 $ 621,533 $ 481,145 $ 421,872 $ 407,249 55,083 $ $ 673,850 $ 382,775 $ 319,585 $ 253,079 $ 189,868 2013 29,546 $ 21,336 $ - $ 11,000 $ 4,710 $ 29,667 $ 2012 QUARTERLY STATEMENTS OF OPERATIONS SUPPLEMENTARY DATA (UNAUDITED) Q2 $ $ $ 107,160 38,125 69,035 26,380 - 26,380 24,350 0.34 0.34 $ $ $ $ Q2 79,145 31,351 47,794 13,779 - 13,779 13,307 0.19 0.19 $ $ $ $ $ $ $ 2015 $ $ $ $ $ $ $ 2014 $ $ $ $ $ $ $ Q3 85,101 42,712 42,389 10,514 - 10,514 8,610 0.12 0.12 Q3 60,742 25,300 35,442 5,297 - 5,297 4,858 0.07 0.07 $ $ $ $ $ $ $ $ $ $ $ $ $ $ Q4 119,333 47,450 71,883 26,245 - 26,245 22,493 0.33 0.32 Q4 102,457 38,713 63,744 22,514 - 22,514 20,992 0.30 0.30 (in thousands of U.S. dollars, except per share amounts) Revenues Costs and expenses applicable to revenues Gross margin Income from continuing operations Income from discontinued operations, net of tax Net income Net income attributable to common shareholders Net income per share - basic Net income per share - diluted Revenues Costs and expenses applicable to revenues Gross margin Income from continuing operations Loss from discontinued operations, net of tax Net income Net income attributable to common shareholders Net income per share - basic Net income per share - diluted Q1 62,211 26,230 35,981 1,485 - 1,485 391 - - Q1 48,197 21,789 26,408 224 355 579 579 0.01 0.01 $ $ $ $ $ $ $ $ $ $ $ $ $ $ 37 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations GENERAL IMAX Corporation, together with its consolidated 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”. IMAX offers a unique end-to-end cinematic solution combining proprietary software, theater architecture and equipment to create the highest-quality, most immersive motion picture 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 network is among the most important and successful theatrical distribution platforms for major event films around the world. There were 1,061 IMAX theater systems (943 commercial multiplexes, 19 commercial destinations, 99 institutional) operating in 67 countries as of December 31, 2015. This compares to 934 theater systems (809 commercial multiplexes, 19 commercial destinations, 106 institutional) operating in 62 countries as of December 31, 2014. IMAX theater systems combine:  IMAX DMR (Digital Re-Mastering) movie conversion technology, which results in higher image and sound fidelity than conventional cinema experiences;  advanced, high-resolution projectors with specialized equipment and automated theater control systems, which generate significantly more contrast and brightness than conventional theater systems;  large screens and proprietary theater geometry, which result in a substantially larger field of view so that the screen extends to the edge of a viewer’s peripheral vision and creates more realistic images;  sound system components, which deliver more expansive sound imagery and pinpointed origination of sound to any specific spot in an IMAX theater; 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, immersive and 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 a premium for IMAX DMR films over films exhibited in their other auditoriums. The premium pricing, combined with the higher attendance levels associated with IMAX DMR films, generates incremental box-office for the Company’s exhibitor customers and for the movie studios releasing their films to the IMAX network. The incremental box-office generated by IMAX DMR films has helped establish IMAX as a key premium distribution and marketing platform for Hollywood blockbuster films. Driven by the advent of digital technology that reduced the IMAX DMR conversion time and with the strengthening of the Company’s relationships with the major studios, the number of IMAX DMR films released to the theater network per year has increased to 44 films in 2015, up from six films in 2007. The Company expects to release a similar number of IMAX DMR films in 2016 as compared to 2015. 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 initiatives has been the development of its next-generation laser-based digital projection system, which it began rolling out at the end of 2014. In order to develop the laser-based digital projection system, the Company obtained exclusive rights to certain laser projection technology and other technology with applicability in the digital cinema field from Eastman Kodak Company (“Kodak”) in 2011 and entered a co-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 for IMAX's laser-based digital projection systems in exchange for preferred pricing and supply terms. The Company believes that these arrangements with Kodak, Barco and Necsel have enabled IMAX laser-based projectors to 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. The laser projection solution is the first IMAX digital projection system capable of illuminating the largest screens in its network. As at December 31, 2015, 18 laser-based digital systems were operational. The Company is also undertaking new lines of business, particularly in the area of home entertainment. In 2013, the Company announced new home theater initiatives, including a joint venture with TCL Multimedia Technology Holding Limited (“TCL”) to design, develop, manufacture and sell a premium home theater system. In June 2015, the Company and TCL unveiled the new premium home theater system in Shanghai, and expect to focus sales of the new premium home theater system in China, the Middle East and other select global markets. To date, the Company has signed agreements for more than 80 such systems. Beyond its 38 premium home theater, the Company is also developing other components of broader home entertainment platform designed to allow consumers to experience elements of The IMAX Experience® in their homes. Important factors that the Company’s Chief Executive Officer (“CEO”) Richard L. Gelfond uses in assessing the Company’s business and prospects include:          the signing, installation and financial performance of theater system arrangements (particularly its joint revenue sharing arrangements and new laser-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 cinematic experiences; 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, the Company 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 provision of film production and digital re-mastering services for exhibition on IMAX theater systems around the world. The Company derives other film revenues from the distribution of certain films and the provision of post-production services. The Company also derives a small portion of other revenues from the operation of 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 Maintenance One of the Company’s principal businesses is the design, manufacture and delivery of premium theater systems (“IMAX theater systems”). The theater system equipment components (including the projection system, sound system, screen system and, if applicable, 3D glasses cleaning machine), theater design support, supervision of installation, projectionist training and the use of the IMAX brand are all elements of what the Company considers the system deliverable. The IMAX theater systems are based on proprietary and patented technology developed over the course of the Company’s 48-year history. The Company provides IMAX theater systems to customers through sales, long-term leases or under joint revenue sharing arrangements. The Company’s customers who purchase, lease or otherwise acquire the IMAX theater systems through joint revenue sharing arrangements are theater exhibitors that operate commercial theaters (particularly multiplexes), museums, science centers, or destination entertainment sites. The Company generally does not own IMAX theaters, but licenses the use of its trademarks along with the sale, lease or contribution of the IMAX theater system. IMAX Systems Sales and Sales-Type Lease Arrangements The Company provides IMAX theater systems to customers on a sales or long-term lease basis, typically with an initial 10-year term. These agreements typically require the payment of initial fees and ongoing fees (which can include a fixed minimum amount per annum and contingent fees in excess of the minimum payments), as well as maintenance and extended warranty fees. The initial fees vary depending on the system configuration and location of the theater. Initial fees are paid to the Company in installments between the time of system signing and the time of system installation, which is when the total of these fees, in addition to the present value of future annual minimum payments, are recognized as revenue. Ongoing fees are paid over the term of the contract, 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, provided collectability is reasonably assured. Typically, ongoing fees are indexed to a local consumer price index. Finance income is derived over the term of a financed sale or sales-type lease arrangement as the unearned income on that financed sale or sales-type lease is earned. 39 Under the Company’s sales agreements, title to the theater system equipment components passes to the customer. In certain instances, however, the Company retains title or a security interest in the equipment until the customer has made all payments required under the agreement. Under the terms of a sales-type lease agreement, title to the theater system equipment components remains with the Company. The Company has the right to remove the equipment for non-payment or other defaults by the customer. The revenue earned from customers under the Company’s theater system sales or lease agreements varies from quarter to quarter and year to year based on a number of factors, including the number and mix of theater system configurations sold or leased, the timing of installation of the theater systems, the nature of the arrangement and other factors specific to individual contracts. Joint Revenue Sharing Arrangements The Company also provides IMAX theater systems to customers under joint revenue sharing arrangements (“JRSA”). The Company has two basic types of joint revenue 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 IMAX box-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. Certain maintenance and extended warranty services are provided to the customer for a separate fixed annual fee. The Company retains title to the theater system equipment 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 and installation 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 a traditional joint revenue sharing arrangement, the customer also pays the Company a portion of the customer’s IMAX box-office receipts over the term of the arrangement, 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 the arrangement. 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 theater systems is 10 years or longer, and is renewable by the customer for one to two additional terms of between three to five years. The Company has the right to remove the equipment for non-payment or other defaults by the customer. The contracts are non-cancellable by the customer unless the Company fails to perform its obligations. 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 437% since the beginning of 2008. Joint revenue sharing arrangements allow commercial theater exhibitors to install IMAX theater systems without the significant initial capital investment required in a sale or sales-type lease arrangement. Joint revenue sharing arrangements drive recurring cash flows and earnings for the Company, as customers under joint revenue sharing arrangements pay the Company a portion of their ongoing box-office. The Company funds its joint revenue sharing arrangements through cash flows from operations. As at December 31, 2015, the Company had 529 theaters in operation under joint revenue sharing arrangements, a 17.3% increase as compared to the 451 joint revenue sharing arrangements open as at December 31, 2014. The Company also had contracts in backlog for an additional 212 theaters under joint revenue sharing arrangements as at December 31, 2015. The revenue earned from customers under the Company’s joint revenue sharing arrangements can vary from quarter to quarter and year to year based on a number of factors including film performance, the mix of theater system configurations, the timing of installation of these theater systems, the nature of the arrangement, the location, size and management of the theater and other factors specific to individual arrangements. Theater System Maintenance For all IMAX theaters, theater owners or operators are also responsible for paying the Company an annual maintenance and extended warranty fee. Under these arrangements, the Company provides proactive and emergency maintenance services to every theater in its network to ensure that each presentation is up to the highest IMAX quality standard. Annual maintenance fees are paid throughout the duration of the term of the theater agreements and are typically indexed to a local consumer price index. 40 Other Theater Revenues The Company derives a small portion of its revenues from other sources. As at December 31, 2015, the Company had three owned and operated IMAX theaters (December 31, 2014 ― three owned and operated theaters). In addition, the Company has a commercial arrangement with one theater resulting in the sharing of profits and losses and provides management services to two other theaters. The Company also rents its proprietary 2D and 3D large-format film and digital cameras to third party production companies. The Company maintains cameras and other film equipment and also offers production advice and technical assistance to both documentary and Hollywood filmmakers. Additionally, the Company generates revenues from the sale of aftermarket 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 for further discussion on the Company’s revenue recognition policies. IMAX Theater Network The following table outlines the breakdown of the theater network by type and geographic location as at December 31: 2015 Theater Network Base 2014 Theater Network Base Commercial Multiplex Commercial Destination Institutional Total Commercial Multiplex Commercial Destination Institutional Total United States Canada Greater China(1) Asia (excluding Greater China) Western Europe Russia & the CIS Latin America(2) Rest of the World Total 342 37 290 81 69 49 35 40 943 6 2 - 3 7 - - 1 19 45 8 17 6 10 - 11 2 99 393 47 307 90 86 49 46 43 1,061 329 36 215 68 56 45 31 29 809 6 2 - 3 7 - - 1 19 50 8 19 6 10 - 11 2 106 385 46 234 77 73 45 42 32 934 ______________ (1) Greater China includes China, Hong Kong, Taiwan and Macau. (2) Latin America includes South America, Central America and Mexico. As of December 31, 2015, 41.5% of IMAX systems in operation were located in the United States and Canada compared to 46.1% as at the end of last year. To minimize the Company’s credit risk, the Company retains title to the underlying theater systems leased, performs initial and ongoing credit evaluations 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 2,450 IMAX theaters worldwide from 943 commercial multiplex IMAX theaters operating as of December 31, 2015. While the Company continues to grow in the United States and Canada, it believes that the majority of its future growth will come from international markets. As at December 31, 2015, 58.5% of IMAX theater systems in operation were located within international markets (defined as all countries other than the United States and Canada), up from 53.9% as at December 31, 2014. Revenues and gross box-office derived from outside the United States and Canada continue to exceed revenues and gross box-office from the United States and Canada. Risks associated with the Company’s international business are outlined in Risk Factors – “The Company conducts business internationally, which exposes it to uncertainties and risks that could negatively affect its operations, sales and future growth prospects” in Item 1A of Part I. Greater China continues to be the Company’s second-largest and fastest-growing market. In recent years, the Company’s Greater China operations have accounted for an increasingly significant portion of its overall revenues, with nearly 30% of overall revenues generated from the Company’s China operations in 2015. As at December 31, 2015, the Company had 307 theaters operating in Greater China with an additional 215 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 57.8% of the Company’s current backlog. The Company continues to invest in joint revenue sharing arrangements with select partners to ensure 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 41 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 120 theater systems, of which 100 theater systems will be located in China. Recent developments involving the Company’s China operations include the sale and issuance of 20% of the shares of the Company’s subsidiary, IMAX China Holding, Inc. (“IMAX China”), to entities owned and controlled 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 (collectively, the “IMAX China Investment”). The sale price for the interest was $80.0 million, and was paid by the investors in two equal installments on April 8, 2014 and February 10, 2015. In addition, on October 8, 2015, IMAX China completed an initial public offering of its ordinary shares on the Main Board of the Hong Kong Stock Exchange Limited (the “IMAX China IPO”). Following the IMAX China IPO, the Company continues to indirectly own approximately 68.5% of IMAX China, which remains a consolidated subsidiary of the Company, while CMC and FountainVest continue to own approximately 5.7% each of IMAX China. The Company believes there have been a number of financial, strategic and operating benefits resulting from both the IMAX China Investment and the IMAX China IPO. With respect to the IMAX China Investment, the Company believes that the investors’ knowledge of, and influence in, the Chinese media and entertainment industry has contributed to the continued expansion of IMAX’s theater network in China and the further strengthening of the Company’s government and industry relationships. In addition, the Company believes that the IMAX China IPO provides investors the ability to directly access and evaluate the IMAX China business, and provides greater clarity into the business’s performance in the fastest-growing entertainment market in the world. 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 in China, including a 2012 agreement 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 permit distributors 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. The following table outlines the breakdown of the Commercial Multiplex theater network by arrangement type and geographic location as at December 31: 2015 2014 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) 261 118 379 International: Greater China Asia (excluding Greater China) Western Europe Russia & the CIS Latin America Rest of the World International Total Worldwide Total 177 42 39 - - 10 268 529 113 39 30 49 35 30 296 414 290 81 69 49 35 40 564 943 252 127 36 31 - - 5 199 451 113 365 88 32 25 45 31 24 245 358 215 68 56 45 31 29 444 809 As at December 31, 2015, 261 (2014 — 252) of the 529 (2014 — 451) theaters under joint revenue sharing arrangements in operation, or 49.3% (2014 — 55.9%) were located in the United States and Canada, with the remaining 268 (2014 — 199) or 50.7% (2014 — 44.1%) of arrangements being located in international markets. The Company continues to seek to expand its network of theaters under joint revenue sharing arrangements, particularly in select international markets. 42 Sales Backlog The Company’s current sales backlog is as follows: Sales and sales-type lease arrangements Joint revenue sharing arrangements December 31, 2015 December 31, 2014 Number of Dollar Value Number of Dollar Value Systems 160 212 372 (in thousands) $ 207,858 63,056 $ 270,914 (1)(2) Systems 176 221 397 (in thousands) $ 223,482 45,648 $ 269,130 (1)(3) ______________ (1) Includes 24 laser-based digital theater system configurations (2014 – 71), including upgrades. The Company continues to develop and roll out its laser-based digital projection system. See “Research and Development” in Item 1 of Part I for additional information. (2) Includes 15 upgrades to a digital theater system, in existing IMAX theater locations (two xenon and 13 laser). (3) Includes 27 upgrades to a digital theater system, in existing IMAX theater locations (two xenon and 25 laser, of which four are under joint revenue sharing arrangements). The number of theater systems in the backlog reflects the minimum number of commitments under signed contracts. The dollar value fluctuates depending on the number of new theater system arrangements signed from year to year, which adds to backlog, and the installation and acceptance of theater systems and the settlement of contracts, both of which reduce backlog. Sales backlog typically represents the fixed contracted revenue under signed theater 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 amounts allocated to maintenance and extended warranty revenues as well as fees in excess of contractual ongoing fees that may be received in the future. The value of sales backlog does not include revenue from theaters in which the Company has an equity interest, operating leases, letters of intent or long-term conditional theater commitments. The value of theaters under joint revenue sharing arrangements is excluded from the dollar value of sales backlog, although certain theater systems under joint revenue sharing arrangements provide for contracted upfront payments and therefore carry a backlog value based on those payments. The Company believes that the contractual obligations for theater system installations that are listed in sales backlog are valid and binding commitments. From time to time, in the normal course of its business, the Company will have customers who are unable to proceed with a theater system installation for a variety of reasons, including the inability to obtain certain consents, approvals or financing. Once the determination is made that the customer will not proceed with installation, the agreement with the customer is terminated or amended. If the agreement is terminated, once the Company and the customer are released from all their future obligations under the agreement, all or a portion of the initial rents or fees that the customer previously made to the Company are recognized as revenue. 43 The following table outlines the breakdown of the total backlog by arrangement type and geographic location as at December 31: 2015 2014 IMAX Theater Backlog IMAX Theater Backlog JRSA Sale / Lease Total JRSA Sale / Lease Total Domestic Total (United States & Canada) 23 21 44 30 27 57 International: Greater China Asia (excluding Greater China) Western Europe Russia & the CIS Latin America Rest of the World International Total Worldwide Total 158 19 7 - - 5 189 212 57 17 6 23 20 16 139 160 215 36 13 23 20 21 328 372 (1)(2) 164 14 10 - - 3 191 221 53 24 9 25 27 11 149 176 217 38 19 25 27 14 340 397 (1)(3) ______________ (1) Includes 24 laser-based digital theater system configurations (2014 – 71), including upgrades. The Company continues to develop and roll out its laser-based digital projection system. See “Research and Development” in Part I for additional information. (2) Includes 15 upgrades to a digital theater system, in existing IMAX theater locations (two xenon and 13 laser). (3) Includes 27 upgrades to a digital theater system, in existing IMAX theater locations (two xenon and 25 laser, of which four are under joint revenue sharing arrangements). Approximately 88.2% of IMAX theater system arrangements in backlog as at December 31, 2015 are scheduled to be installed in international markets (2014 – 85.6%). The following reflects the Company’s signings and installations for the years ended December 31: Theater System Signings: Full new sales and sales-type lease arrangements New joint revenue sharing arrangements Total new theaters Upgrades of IMAX theater systems Total theater signings Theater System Installations: Full new sales and sales-type lease arrangements New joint revenue sharing arrangements Total new theaters Upgrades of IMAX theater systems Total theater installations 44 Years Ended December 31, 2015 2014 (1) (2)(3) 55 78 133 5 138 (1) (2)(3) 81 23 104 14 118 Years Ended December 31, 2015 2014 56 80 136 18 154 (4)(5) 46 67 113 8 121 (4) _____________ (1) Includes four signings which replaced theaters under an existing arrangement in backlog (2014 – four signings). (2) Includes three signings for the installation of laser-based digital systems under sales and sales-type lease arrangements in existing theater locations (2014 – five signings). (3) Includes two signings for the installation of an upgrade to a xenon-based digital system under sales and sales-type lease arrangements (2014 – three signings under sales and sales-type lease arrangements, three signings under short-term operating lease arrangements and three signings under joint revenue sharing arrangements). (4) Includes two installations of an upgrade to a xenon-based digital system, one of which is under a sales and sales-type lease arrangement and another under a short-term operating lease arrangement (2014 – three under sales and sales-type lease arrangements, two under short-term lease arrangement, one under an operating lease arrangement and two under joint revenue sharing arrangement). (5) Includes 16 installations of an upgrade to a laser-based digital system (10 under sales and sales-type lease arrangements, one under an operating lease arrangement and five under joint revenue sharing arrangements) The Company estimates that it will install 135 to 140 new theater systems (excluding upgrades) in 2016. The Company’s installation estimates includes scheduled systems from backlog, as well as the Company’s estimate of installations from arrangements that will sign and install in the same calendar year. The Company cautions, however, that theater system installations may slip from period to period over the course of the Company’s business, usually for reasons beyond its control. Films: Digital Re-Mastering (IMAX DMR) and other film revenue 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 system, known as IMAX DMR, digitally enhances the image resolution of motion picture films for projection on IMAX screens while maintaining or enhancing the visual clarity and sound quality to levels for which The IMAX Experience is known. This technology enabled the IMAX theater network to release Hollywood films simultaneously with their broader domestic release. The development of this technology was critical in helping the Company execute its strategy of expanding its commercial theater network by establishing IMAX theaters as a key, premium distribution platform for Hollywood films. In a typical IMAX DMR film arrangement, the Company receives a percentage, which in recent years has ranged between 10-15%, of net box-office receipts of any commercial films released in the IMAX network from the applicable film 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 sought IMAX-specific enhancements in recent years to generate interest in and excitement for their films. Such enhancements include shooting selected scenes with IMAX 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 a larger aspect ratio. Certain films also enjoy early release windows in IMAX, including Everest: An IMAX 3D Experience and The Walk: The IMAX Experience, which were released one week early in IMAX theaters in September 2015. Several recent films have featured select sequences shot with IMAX cameras including Star Wars: The Force Awakens: An IMAX 3D Experience, released in December 2015; Interstellar: The IMAX Experience, released in November 2014; Transformers Age of Extinction: An IMAX 3D Experience, released in June 2014; Star Trek Into Darkness: An IMAX 3D Experience, released in May 2013; and The Hunger Games: Catching Fire: The IMAX Experience, released in November 2013. Several upcoming films, including Captain America: Civil War: An IMAX 3D Experience and Batman v Superman: Dawn of Justice: An IMAX 3D Experience will contain certain sequences shot using the IMAX cameras. In addition, Marvel's Avengers: Infinity War ― Part 1: An IMAX 3D Experience and Avengers: Infinity War ― Part 2: An IMAX 3D Experience are expected to be shot in their entireties using the IMAX camera, which is the first time a full feature length movie will be filmed with the IMAX cameras. In addition, several recent movies, including Tomorrowland: The IMAX Experience, released in May 2015, Guardians of the Galaxy: An IMAX 3D Experience, released in August 2014 and Oblivion: The IMAX Experience, released in 2013 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 six or twelve-channel digital sound systems in connection with the IMAX DMR release. Unlike the soundtracks played in conventional theaters, IMAX re- 45 mastered soundtracks are uncompressed and full fidelity. IMAX sound systems use proprietary loudspeaker systems and proprietary surround sound configurations that ensure every theater seat is in a good listening position. The Company believes that the growth in international box-office is an important driver of future growth for the Company. During 2015 60.8% of the Company’s gross box-office from IMAX DMR films was generated in international markets, as compared to 60.9% in 2014. To support growth in international markets, the Company has sought to bolster its international film strategy, supplementing the Company’s film slate of Hollywood DMR titles with appealing local IMAX DMR releases in select markets. During 2015, the Company released eleven local language IMAX DMR films, including eight in China and three in Japan. In 2014, seven local language IMAX DMR films were released, including six in China and one in India. To date, the Company has announced the following 26 DMR titles to be released in 2016 to the IMAX theater network:  The Revenant: The IMAX Experience (20th Century Fox, January 2016);  The Finest Hours: An IMAX 3D Experience (Walt Disney Studios, January 2016);  Kung Fu Panda 3: An IMAX 3D Experience (Oriental Dreamworks, January 2016, China only);  The Monkey King 2: An IMAX 3D Experience (Filmko Entertainment, February 2016, China only);  Crouching Tiger, Hidden Dragon: Sword of Destiny: An IMAX 3D Experience (Netflix Distribution, LLC, February 2016); 10 Cloverfield Lane: The IMAX Experience (Paramount Pictures, March 2016);  Deadpool: The IMAX Experience (20th Century Fox, February 2016);  Gods of Egypt: An IMAX 3D Experience (Lionsgate Entertainment, February 2016);  Zootopia: An IMAX 3D Experience (Walt Disney Studios, February 2016);   The Divergent Series: Allegiant: The IMAX Experience (Lionsgate Entertainment, March 2016);  Batman v Superman: Dawn of Justice: An IMAX 3D Experience (Warner Bros. Pictures, March 2016);  The Crew: An IMAX 3D Experience (Russia-1 Channel, April 2016);  The Jungle Book: An IMAX 3D Experience (Walt Disney Studios, April 2016);  Captain America: Civil War: An IMAX 3D Experience (Walt Disney Studios, May 2016);  Alice in Wonderland: Through the Looking Glass: An IMAX 3D Experience (Walt Disney Studios, May 2016);  Warcraft: An IMAX 3D Experience (Universal Studios, June 2016);  Finding Dory: An IMAX 3D Experience (Walt Disney Studios, June 2016);   The Legend of Tarzan: An IMAX 3D Experience (Warner Bros. Pictures, July 2016);    Deepwater Horizon: The IMAX Experience (Lionsgate Entertainment, September 2016);  The Duelist: The IMAX Experience (Non-Stop Production LLC, October 2016, Russia only);  Doctor Strange: An IMAX 3D Experience (Walt Disney Studios, November 2016);  Fantastic Beasts and Where to Find Them: An IMAX 3D Experience (Warner Bros. Pictures, November 2016); and  Rogue One: A Star Wars Story: An IMAX 3D Experience (Walt Disney Studios, December 2016). Star Trek Beyond: An IMAX 3D Experience (Paramount Pictures, July 2016); Suicide Squad: An IMAX 3D Experience (Warner Bros. Pictures, August 2016); Independence Day Resurgence: An IMAX 3D Experience (20th Century Fox, June 2016); In addition, the Company will be releasing an IMAX original production, A Beautiful Planet, on April 29, 2016 and a documentary film, Voyage of Time, on October 7, 2016. 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 2016 to the films that were released to the IMAX network in 2015. The Company also expects to announce both additional local language IMAX DMR films and original and alternative content to be released to the IMAX theater network in 2016 and beyond. Supplementing the Company’s film slate of Hollywood DMR titles with appealing local DMR titles is an important component of the Company’s international film strategy. 46 Other Film Revenues: Film Distribution and Post-Production The Company is also a distributor of large-format films, primarily for its institutional theater partners. The Company generally distributes films which it produces or for which it has acquired distribution rights from independent producers. The Company receives either a percentage of the theater box-office receipts or a fixed amount as a distribution fee. In 2014, the Company announced the creation of the IMAX Original Film Fund (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 more exciting and compelling than traditional documentaries. The initial investment in the Film Fund was committed to by a third party in the amount of $25.0 million, with the possibility of contributing additional funds. The Company, which will contribute $9.0 million to the Film Fund over five years starting in 2014, anticipates the Film Fund will be self-perpetuating, with a portion of box office proceeds reinvested into the Film Fund to generate a continuous flow of high-quality documentary content. In 2014, the Film Fund invested $7.5 million toward the development of original films. The Company anticipates that the Film Fund will finance a number of Company-produced films going forward. Previously, films produced by the Company were typically financed through third parties, whereby the Company generally received a film production fee and a distribution fee in exchange for producing and distributing the film. The ownership rights to such films were held by the film sponsors, the film investors and/or the Company. In 2014, the Company, in conjunction with Warner Bros., released an IMAX original production, Island of Lemurs: Madagascar. In January 2013, the Company announced an agreement with MacGillivray Freeman Films (“MFF”) to jointly finance, market and distribute up to four films (with an option for four additional films) produced by MFF to be released exclusively to IMAX theaters. The agreement is designed to ensure IMAX’s institutional theater partners have access to a continuous 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 a limited release in November 2013 and a wide release in early 2014. Furthermore, on June 16, 2015, the Company announced the creation of the IMAX China Film Fund (the “China Film Fund”) with its subsidiary IMAX China and its partner CMC to help fund Mandarin language commercial films. The China Film Fund, which is expected initially to be capitalized with $50.0 million, will target productions that can leverage the Company’s brand, relationships, technology and release windows in China. IMAX Post/DKP Inc. (formerly David Keighley Productions 70MM Inc.), a wholly-owned subsidiary of the Company, provides film post-production and quality control services for large-format films (whether produced internally or externally), and digital post- production services. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The 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 of assets, liabilities, revenues and expenses. On an ongoing basis, management evaluates its estimates, including those related 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 uncollectability of accounts receivable, financing receivables and net investment in leases; write-downs 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 and post retirement assumptions; accruals for contingencies including tax contingencies; valuation allowances for deferred income tax assets; and, estimates of the fair value and expected exercise dates of stock-based payment awards. Management bases its estimates on historical experience, future expectations and other assumptions that are believed to be reasonable at the date of the consolidated financial statements. Actual results may differ from these estimates due to uncertainty involved in measuring, at a specific point in time, events which are continuous in nature, and differences may be material. The Company’s significant accounting policies are discussed in note 2 to its audited consolidated financial statements in Item 8 of the Company’s 2015 Form 10-K. The Company considers the following significant estimates, assumptions and judgments to have the most significant effect on its results: 47 Revenue Recognition The 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 and institutional customers located in 67 countries as at December 31, 2015;  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 theater systems; and  other activities, which includes short-term rental of cameras and aftermarket sales of projector system components. Multiple Element Arrangements The 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 of installation, 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 the deliverables represent separate units of accounting based on the applicable accounting guidance in the Leases Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC” or “Codification”); the Guarantees Topic of the FASB ASC; the Entertainment – Films Topic of the FASB ASC; and the Revenue Recognition Topic of the FASB ASC. If separate units of accounting are either required under the relevant accounting standards or determined to be applicable under the Revenue Recognition Topic, the total consideration received or receivable in the arrangement is allocated based on the applicable guidance in the above noted standards. Theater Systems The Company has identified the projection system, sound system, screen system and, if applicable, 3D glasses cleaning machine, theater design support, 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 in the arrangement are considered by the Company to be a single deliverable and a single unit of accounting. The Company is not responsible for the physical installation of the equipment in the customer’s facility; however, the Company supervises the installation by the customer. The customer has the right to use the IMAX brand from the date the Company and the customer enter into an arrangement. The Company’s System Deliverable arrangements involve either a lease or a sale of the theater system. Consideration in the Company’s arrangements that are not joint revenue sharing arrangements, consists of upfront or initial payments made before and after the final installation of the theater system equipment and ongoing payments throughout the term of the lease or over a period of time, as specified in the arrangement. The ongoing payments 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 fixed minimum amounts are considered contingent payments. The Company’s arrangements are non-cancellable, unless the Company fails to perform its obligations. In the absence of a material default by the Company, there is no right to any remedy for the customer under the Company’s arrangements. If a material default by the Company exists, the customer has the right to terminate the arrangement and seek a refund only if the customer provides notice to the Company of a material default and only if the Company does not cure the default within a specified period. For arrangements entered into or materially modified after January 1, 2011, consideration is allocated to each unit of accounting based on the unit’s relative selling prices. The Company uses vendor-specific objective evidence of selling price (VSOE) when the Company sells the deliverable separately and is the price actually charged by the Company for that deliverable. VSOE is established for the Company’s System Deliverable, maintenance and extended warranty services and film license arrangements. The Company uses a best estimate of selling price (BESP) for units of accounting that do not have VSOE or third party evidence of selling price. The 48 Company determines BESP for a deliverable by considering multiple factors including the Company’s historical pricing practices, product class, market competition and geography. Sales Arrangements For arrangements qualifying as sales, the revenue allocated to the System Deliverable is recognized in accordance with the Revenue Recognition Topic 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 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 written 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 there is persuasive evidence of an arrangement, the price is fixed or determinable and collectibility is reasonably assured. The initial revenue recognized consists of the initial payments received and the present value of any future initial payments and fixed minimum ongoing payments that have been attributed to this unit of accounting. Contingent payments in excess of the fixed minimum ongoing payments are recognized 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 buyouts is 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 Arrangements The Company uses the Leases Topic of the FASB ASC to evaluate whether an arrangement is a lease and the classification of the lease. 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 Leases Topic of the FASB ASC. A lease arrangement that transfers substantially all of the benefits and risks incident to ownership of the equipment is classified as a sales-type lease based on the criteria established in the accounting standard; otherwise the lease is classified as an operating lease. Prior to commencement of the lease term for the equipment, the Company may modify certain payment terms or make concessions. If these circumstances occur, the Company reassesses the classification of the lease based on the modified terms and conditions. For sales-type leases, the revenue allocated to the System Deliverable is recognized when the lease term commences, which the Company deems to be when all of the following conditions have been met: (i) the projector, sound system and screen system have been installed and are in full working condition, (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 the written 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 fixed minimum ongoing payments computed at the interest rate implicit in the lease. Contingent payments in excess of the fixed minimum payments are recognized when reported by theater operators, provided 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. For operating leases, the lease term is considered to commence when all of the following conditions have been met: (i) the projector, sound system and screen system have been installed and are in full working condition, (ii) the 3D glasses cleaning machine, if applicable, has been delivered, (iii) projectionist training has been completed, and (iv) the earlier of (a) receipt of the written customer acceptance certifying the completion of installation and run-in testing of the equipment and the completion of projectionist training or (b) public opening of the theater. Contingent payments in excess of fixed minimum ongoing payments 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 in accordance 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. 49 Equipment and components allocated to be used in future joint revenue sharing arrangements, as well as direct labor costs and an allocation of direct production costs, are included in assets under construction until such equipment is installed and in working condition, at which time the equipment is depreciated 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 Income Finance income is recognized over the term of the lease or over the period of time specified in the sales arrangement, provided collectibility is reasonably 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 the Company. Once the collectibility issues are resolved the Company will resume recognition of finance income. Terminations, Consensual Buyouts and Concessions The Company enters into theater system arrangements with customers that provide for customer payment obligations prior to the scheduled installation of the theater system. During the period of time between signing and the installation of the theater system, which may extend several years, certain customers may be unable to, or elect not to, proceed with the theater system installation for a number of reasons including business considerations, or the inability to obtain certain consents, approvals or financing. Once the determination is made that the customer will not proceed with installation, the arrangement may be terminated under the default provisions of the arrangement or by mutual agreement between the Company and the customer (a “consensual buyout”). Terminations by default are situations when a customer does not meet the payment obligations under an arrangement and the Company retains the amounts paid by the customer. Under a consensual buyout, the Company and the customer agree, in writing, to a settlement and to release each other of any further obligations under the arrangement or an arbitrated settlement is reached. Any initial payments retained or additional payments received by the Company are recognized as revenue when the settlement arrangements are executed and the cash is received, respectively. These termination and consensual buyout amounts 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 been installed to arrangements to acquire or lease the IMAX digital theater system. The Company considers these situations to be a termination of the previous arrangement and origination of a new arrangement for the IMAX digital theater system. For all arrangements entered into or modified prior to the date of adoption of the amended FASB ASC 605-25, the Company continues to defer 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 initial and 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 the obligation for the original theater system is terminated and the new theater system arrangement is signed. Under the amended FASB ASC 605-25, as described in note 2(m) to the accompanying notes to the audited consolidated financial statements, for all arrangements entered into or materially modified after the date of adoption, the total arrangement consideration to be received is allocated on a relative selling price basis to the digital upgrade and the termination of the previous theater system. The arrangement consideration allocated to the termination of the existing arrangement is recorded in Other revenues at the time when the obligation for the original theater system is terminated and the 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 and products 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 direct reduction 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 and services are accounted for as separate units of accounting. Other consideration given by the Company to customers are accounted for in accordance with the Revenue Recognition Topic of the FASB ASC. Maintenance and Extended Warranty Services Maintenance and extended warranty services may be provided under a multiple element arrangement or as a separately priced contract. Revenues related to these services are deferred and recognized on a straight-line basis over the contract period and are recognized in Services revenues. Maintenance and 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 extended warranty program are expensed as incurred. A loss on 50 maintenance and extended warranty services is recognized if the expected cost of providing the services under the contracts exceeds the related deferred revenue. Other The Company recognizes revenue in Services revenue from its owned and operated theaters resulting from box-office ticket and concession sales as tickets are sold, films are shown and upon the sale of various concessions. The sales are cash or credit card transactions with theater goers based on fixed prices per seat or per concession item. In addition, the Company enters into commercial arrangements with third party theater owners resulting in the sharing of profits and losses which are recognized in Service revenues when reported by such theaters. The Company also provides management services to certain theaters and recognizes revenue over 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 Services In certain film arrangements, the Company produces a film financed by third parties, whereby the third party retains the copyright and the Company obtains exclusive distribution rights. Under these arrangements, the Company is entitled to receive a fixed fee or to retain as a fee the excess of funding over cost of production (the “production fee”). The third parties receive a portion of the revenues received by the Company from distributing the film, which is charged 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 on the ratio of the Company’s distribution revenues recognized in the 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 when performance of the contractual service is complete, provided there is persuasive evidence of an agreement, the fee is fixed or determinable and collectibility is 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 derived in the form of processing fees and recoupments calculated as a percentage of box-office receipts generated from the re-mastered films. Processing fees are recognized as Service revenues when the performance of the related re-mastering service is completed, provided there is persuasive evidence of an arrangement, the fee is fixed or determinable and collectibility is reasonably assured. Recoupments, calculated as a percentage of box-office receipts, are recognized as Services revenues when box-office receipts are reported by the third party that owns or holds the related film rights, provided collectibility is reasonably assured. Losses on film production and IMAX DMR services are recognized as costs and expenses applicable to revenues-services in the period when it is determined that the Company’s estimate of total revenues to be realized by the Company will not exceed estimated total production costs to be expended on the film production and the cost of IMAX DMR services. Film Distribution Revenue from the licensing of films is recognized in Services revenues when persuasive evidence of a licensing arrangement exists, the film has been completed and delivered, the license period has begun, the fee is fixed or determinable and collectibility is reasonably assured. When license fees are based on a percentage of box-office receipts, revenue is recognized when box-office receipts are reported by exhibitors, provided collectibility is reasonably assured. Film Post-Production Services Revenues from post-production film services are recognized in Services revenue when performance of the contracted services is complete provided there is persuasive evidence of an arrangement, the fee is fixed or determinable and collectibility is reasonably assured. 51 Allowances for Accounts Receivable and Financing Receivables Allowances for doubtful accounts receivable are based on the Company’s assessment of the collectibility of specific customer balances, which is based upon a review of the customer’s credit worthiness, past collection history and the underlying asset value of the equipment, where applicable. Interest on overdue 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. When facts and circumstances indicate that there is a potential impairment in the accounts receivable, net investment in lease or a financing receivable, the Company will evaluate the potential outcome of either renegotiations involving changes in the terms of the receivable or defaults on the existing lease or financed sale agreements. The Company will record a provision if it is considered probable that the Company will be unable to collect all amounts due under the 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 the carrying value in the investment and the present value of expected future cash flows discounted using the effective interest rate for the net investment in the lease 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 the investment 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 applied to 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 flows differ 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 collectibility issues are resolved. When finance income is not recognized, any payments received are applied against outstanding gross minimum lease amounts receivable or gross receivables from financed sales. Inventories Inventories are carried at the lower of cost, determined on an average cost basis, and net realizable value except for raw materials, which are carried out at 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 an applicable 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 to revenues-equipment and product sales when revenue recognition criteria are met. The costs related to theater systems under operating lease arrangements and joint revenue sharing arrangements are transferred from inventory to assets under construction in property, plant and equipment when allocated to a signed joint 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 the anticipated installation dates for the current backlog of theater system contracts, technological developments, signings in negotiation, growth prospects within 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 revenue recognition criteria as discussed above have not been met. Asset Impairments The 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 of each unit are subject to allocations of certain assets and liabilities that the Company has 52 applied in a systematic and rational manner. The fair value of the Company’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. The Company performs a qualitative assessment of its reporting units and certain select quantitative calculations against its current long range plan to determine whether 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. In performing its review for recoverability, the Company estimates the future cash flows expected to result from the use of the asset or asset group and its eventual 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 recognized in 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 over the 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 to variability, 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 the Company’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 Assumptions The Company’s pension plan and postretirement benefit obligations and related costs are calculated using actuarial concepts, within the framework of the Compensation – Retirement Benefits Topic of the FASB ASC. A critical assumption to this accounting is the discount rate. The Company evaluates this critical assumption annually or when otherwise required to by accounting standards. Other assumptions include factors 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 guideline for setting this rate is a high-quality long-term corporate bond rate. A lower discount rate increases the present value of benefit obligations and increases pension expense. The Company’s discount rate was determined by considering the average of pension yield curves constructed from a large population of high-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 rate used would result in a $2.2 million reduction or a $2.7 million increase in the pension benefit obligation with a corresponding benefit or charge recognized in other comprehensive income in the year. Deferred Tax Asset Valuation As at December 31, 2015, the Company had net deferred income tax assets of $25.8 million. The Company’s management assesses realization of its deferred 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, 2015, changing business circumstances, and the ability to realize certain deferred tax 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 adjust the applicable valuation allowance in the period when such change occurs. Tax Exposures The Company is subject to ongoing tax exposures, examinations and assessments in various jurisdictions. Accordingly, the Company may incur additional tax expense based upon the outcomes of such matters. In addition, when applicable, the Company adjusts tax expense to reflect the Company’s ongoing assessments of such matters which require judgment and can materially increase or decrease its effective rate as well as impact operating results. The Company provides for such exposures in accordance with Income Taxes Topic of the FASB ASC. 53 Stock-Based Compensation The 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 of RSU 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 and subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The Binomial Model also considers the expected exercise multiple which is the multiple of exercise price to grant price at which exercises are expected to occur on average. Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable. Because the Company’s employee stock options and SARs have certain characteristics that are significantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, in management’s opinion, the Binomial Model best provides an accurate measure of the fair value of the Company’s employee stock options and SARs. 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. Impact of Recently Issued Accounting Pronouncements See note 3 to the audited consolidated financial statements in Item 8 of the Company’s 2015 Form 10-K for information regarding the Company’s recent changes in accounting policies and the impact of recently issued accounting pronouncements impacting the Company. DISCONTINUED OPERATIONS On January 30, 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. In 2014, revenues for the Nyack IMAX theater were less than $0.1 million (2013 ─ $1.3 million) and the Company recognized income of $0.4 million, net of a tax expense of $0.2 million, in 2014 (2013 ─ loss of $0.3 million) from the operation of the theater. The transactions of the Company’s owned and operated Nyack theater are reflected as discontinued operations. ASSET IMPAIRMENTS AND OTHER CHARGES (RECOVERIES) The following table identifies the Company’s charges (recoveries) relating to the impairment of assets: (in thousands of U.S. dollars) Asset impairments Property, plant and equipment Other charges (recoveries): Accounts receivable Financing receivables Inventories Impairment of investments Property, plant and equipment Other intangible assets Total asset impairments and other charges Years Ended December 31, 2015 2014 2013 $ 405 $ 314 $ - 677 75 572 425 1,485 86 3,725 $ $ 725 193 359 3,206 440 57 5,294 $ (35) 480 444 - 384 63 1,336 54 Asset Impairments The Company records asset impairment charges for property, plant and equipment after an assessment of the carrying value of certain asset groups in light of their future expected cash flows. During 2015, the Company recorded total asset impairment charges of $0.4 million (2014 ― $0.3 million; 2013 ― $nil) as the Company recognized that the carrying values for the assets exceeded the expected undiscounted future cash flows. The charge recorded in 2015 was primarily related to the upgrade of xenon-based digital systems operating under operating lease arrangements to laser-based digital systems under sales or sales-type lease arrangements. Other Charges (Recoveries) The Company recorded a $0.6 million provision (2014 — $0.4 million; 2013 — $0.5 million) in costs and expenses applicable to revenues due to a reduction in the net realizable value of its inventories. These charges primarily resulted from a reduction in the net realizable value of its theater system equipment inventories and certain service part inventories due to normal operational activity. The Company recorded a net provision of $0.7 million in 2015 (2014 — $0.7 million provision; 2013 — less than $0.1 million recovery) in accounts receivable based on the Company’s ongoing assessment of the collectability of specific customer balances. In 2015, the Company also recorded a net provision of $0.1 in financing receivables (2014 — $0.2 million; 2013 — $0.5 million). 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 differ from cash flows previously expected. In 2015, the Company recognized a $0.4 million other-than-temporary impairment of its investments as the value is not expected to recover based on the length of time and extent to which the market value has been less than cost (2014 — $3.2 million; 2013 — $nil). In 2015, the Company recorded a charge of $0.4 million (2014 — $0.5 million; 2013 — $0.4 million) reflecting assets that were no longer in use. The Company also recorded a charge of $0.6 million in cost of sales applicable to Equipment and product sales upon the upgrade of xenon-based digital systems under operating lease arrangements to laser-based digital systems under sales or sales-type lease arrangements. In addition, the Company recorded a charge of $0.5 million in cost of sales applicable to Rentals upon the upgrade of certain xenon-based digital systems to laser-based digital systems operating under joint revenue sharing arrangements. NON-GAAP FINANCIAL MEASURES In this report, the Company presents adjusted net income, adjusted net income per diluted share, adjusted net income attributable to common shareholders and adjusted net income attributable to common shareholders per diluted share 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 that they are important supplemental measures of its comparable controllable operating performance and it wants to ensure that its investors fully understand the impact of its stock-based compensation (net of any related tax impact) on net income. In addition, the Company presents adjusted net income attributable to common shareholders and adjusted net income attributable to common shareholders per diluted share because it believes that they are important supplemental measures of its comparable financial results and could potentially distort the analysis of trends in business performance and it wants to ensure that its investors fully understand the impact of net income attributable to non-controlling interests and its stock-based compensation (net of any related tax impact) in determining net income attributable to common shareholders. The Company presents adjusted gross margin from its joint revenue sharing arrangements segment excluding initial launch costs because it believes that it is an important supplemental measure used by management to evaluate ongoing joint revenue sharing arrangement theater performance. Management uses these measures to review operating performance on a comparable basis from period to period. However, these non- GAAP measures may not be comparable to similarly titled amounts reported by other companies. Adjusted net income, adjusted net income per diluted share, adjusted net income attributable to common shareholders and adjusted net income attributable to common shareholders per diluted share should be considered in addition to, and not as a substitute for, net income and net income attributable to common shareholders and other measures of financial performance reported in accordance with U.S. GAAP. 55 RESULTS OF OPERATIONS Management, including the Company’s CEO, who is the Company’s Chief Operating Decision Maker (as defined in the Segment Reporting Topic of the 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, interest expense and tax (provision) recovery are not allocated to the segments. As identified in note 19 to the audited consolidated financial statements in Item 8 of the Company’s 2015 Form 10-K, the Company has the following seven reportable segments identified by category of product sold or service provided:  IMAX Theater Systems o The IMAX systems segment, which is comprised of the design, manufacture, sale or lease of IMAX theater projection system equipment. o The theater system maintenance segment, which is comprised of the maintenance of IMAX theater projection system equipment in the IMAX theater network. o The joint revenue sharing arrangements segment, which is comprised of the provision of IMAX theater projection system equipment to exhibitors in exchange for a certain percentage of box-office receipts, and in some cases, concession revenue and/or a small upfront or initial payment. o The other segment, which includes certain IMAX theaters that the Company owns and operates, camera rentals and other miscellaneous items.  Film o The film production and IMAX DMR segment, which is comprised of the production of films and performance of film re-mastering services. o The film distribution segment, which includes the distribution of films for which the Company has distribution rights. o 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 the Company’s 2015 Form 10-K. The Company’s Management’s Discussion and Analysis (“MD&A”) of Financial Condition and Results of Operations has been organized by the Company into two primary reporting groups – IMAX Theater Systems and Film. Each of the Company’s reportable segments, as identified above, has been classified into one of these broader reporting groups for purposes of MD&A discussion. The Company believes that this approach is consistent with management’s view of the business and is not expected to have an impact on the readers’ ability to understand the Company’s business. Management feels that a discussion and analysis based on its reporting groups is significantly more relevant as the Company’s consolidated statements of operations captions combine results from several segments. 56 The following table sets forth the breakdown of revenue and gross margin by category: (In thousands of U.S. dollars) Years Ended December 31, Years Ended December 31, 2015 2014 2013 2015 2014 2013 Revenue Gross Margin IMAX Theater Systems IMAX Systems Sales and sales-type leases(1) Ongoing rent, fees, and finance income(2) Other $ 86,935 $ 15,193 17,579 119,707 58,875 $ 14,117 12,154 85,146 65,944 $ 14,245 11,182 91,371 44,790 $ 14,378 279 59,447 34,483 $ 13,445 129 48,057 35,652 13,388 102 49,142 Theater System Maintenance 36,944 34,042 31,978 12,702 12,375 12,096 Joint Revenue Sharing Arrangements 99,120 68,418 64,130 68,372 44,714 44,565 Film Production and IMAX DMR Film distribution and post-production 107,089 10,945 118,034 83,172 19,763 83,496 16,962 102,935 100,458 77,645 1,122 78,767 62,922 5,320 68,242 56,088 2,712 58,800 $ 373,805 $ 290,541 $ 287,937 $ 219,288 $ 173,388 $ 164,603 ______________ (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 and finance income. 57 Year Ended December 31, 2015 Versus Year Ended December 31, 2014 The Company reported net income of $64.6 million or $0.92 per basic share and $0.90 per diluted share for the year ended December 31, 2015 as compared to 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. Net income for the year ended December 31, 2015 includes a $21.9 million charge or $0.31 per diluted share (2014 — $15.1 million or $0.22 per diluted share) for stock-based compensation. Adjusted net income, which consists of net income excluding the impact of stock-based compensation and the related tax impact, was $82.4 million or $1.15 per diluted share for the year ended December 31, 2015 as compared to adjusted net income of $54.9 million or $0.78 per diluted share for the year ended December 31, 2014. Adjusted net income attributable to common shareholders, which consists of net income attributable to common shareholders excluding the impact of stock-based compensation and the related tax impact, was $73.0 million or $1.02 per diluted share for the year ended December 31, 2015 as compared to adjusted net income attributable to common shareholders of $52.5 million or $0.75 per diluted share for the year ended December 31, 2014. A reconciliation of net income and net income attributable to common shareholders, the most directly comparable U.S. GAAP measure, to adjusted net income, adjusted net income per diluted share, adjusted net income attributable to common shareholders and adjusted net income attributable to common shareholders per diluted share is presented in the table below: Reported net income Adjustments: Stock-based compensation Tax impact on items listed above Adjusted net income Net income attributable to non-controlling interests Stock-based compensation (net of tax) attributable to non-controlling interests Adjusted net income attributable to common shareholders $ Years Ended December 31, 2015 2014 Net Income 64,624 $ Diluted EPS 0.90 $ Net Income 42,169 Diluted EPS 0.59 $ (1) (1) $ 21,880 (4,056) 82,448 (8,780) (703) 72,965 $ 0.31 (0.06) 1.15 (0.12) (0.01) 1.02 (1) 15,128 (2,370) 54,927 (2,433) 0.22 (0.03) 0.78 (0.03) (1) $ - 52,494 $ - 0.75 (1) (1) Weighted average diluted shares outstanding ______________ (1) Includes impact of $0.8 million (2014 – $0.4 million) of accretion charges associated with redeemable Class C shares of IMAX 69,754 71,058 China. Revenues and Gross Margin The Company’s revenues for the year ended December 31, 2015 increased 28.7% to $373.8 million from $290.5 million in 2014, primarily due to an increase in revenues from the Company’s IMAX systems, joint revenue sharing arrangements and film production and IMAX DMR segments. The gross margin across all segments in 2015 was $219.3 million, or 58.7% of total revenue, compared to $173.4 million, or 59.7% of total revenue in 2014. Impacting the gross margin in 2015 was the installation of 10 laser-based digital upgrades under sales or sales-type lease arrangements which had lower margins. Gross margin, excluding the impact of these laser- based digital upgrades, was 60.9% of total revenue in 2015. IMAX Systems IMAX systems revenue increased 40.6% to $119.7 million in 2015 as compared to $85.1 million in 2014 resulting primarily from the installation in 2015 of nine additional full, new theater systems and 11 digital upgrades including 10 laser-based digital upgrades and one xenon-based digital upgrade under sales or sales-type lease arrangements versus the prior year. Revenue from sales and sales-type leases increased 47.7% to $86.9 million in 2015 from $58.9 million in 2014. The Company recognized revenue on 55 full, new theater systems which qualified as either sales or sales-type leases in 2015, with a total value of $68.6 million, versus 46 full, new theater systems in 2014 with a total value of $55.6 million. The Company also recognized revenue on the installation of 11 digital upgrades in 2015, of which 10 were laser-based and one was xenon-based, with a total value of $15.0 million, as compared to three xenon-based digital upgrades in 2014, with a total value of $2.3 million. Digital upgrades 58 typically have lower sales prices and gross margin than full theater system installations. One used theater system was installed in the year ended December 31, 2015 with a total value of $0.2 million while no used systems were installed and recognized in 2014. Average revenue per full, new sales and sales-type lease systems was $1.2 million in 2015, which was consistent with the prior year. The average revenue per full, new sales and sales-type lease systems varies depending upon the number of theater system commitments with a single respective exhibitor, an exhibitor’s location or other various factors. Average revenue per digital upgrade was $1.4 million in 2015, as compared to $0.8 million in 2014. For 2015, the average revenue per upgrade was higher as 10 of the 11 system upgrades were for laser-based digital system configurations which are priced higher than xenon-based digital upgrades. 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 2015 and 2014 is outlined in the table below: New IMAX digital theater systems - installed and recognized Sales and sales-types lease arrangements Joint revenue sharing arrangements Total new theater systems IMAX digital theater system upgrades - installed and recognized Sales and sales-types lease arrangements Short-term operating lease arrangements Joint revenue sharing arrangements Total upgraded theater systems 2015 2014 (1)(2) 56 80 136 (2) (3) (4) 11 2 5 18 46 67 113 (5) 3 3 2 8 Total theater systems installed ______________ (1) Includes one used xenon-based digital system resulting in an addition to the Company’s commercial multiplex theater network. (2) Includes the installation of one new laser-based digital system and 10 upgrades to a laser-based digital system. (3) Includes one upgrade to a laser-based digital system and one upgrade to a xenon-based digital system under a short-term 154 121 operating lease arrangement. (4) Includes five upgrades to a laser-based digital system. (5) Reflects xenon-based digital system configurations under short-term operating lease arrangements, which will be upgraded to a laser-based digital system configuration at a future date. Revenues from sales and sales-type leases include settlement revenue of $0.1 million in 2015 as compared to $nil in 2014. IMAX theater system margin from full, new sales and sales-type lease systems, excluding the impact of settlements, was 65.9% in 2015 which was higher than the 63.4% experienced in 2014. Gross margin from digital upgrades was $0.8 million in 2015, as compared to $1.2 million in 2014. In addition, the Company recorded a charge of $0.7 million upon the upgrade of xenon-based digital systems under operating lease arrangements to laser-based digital systems under sales or sales-type lease arrangements in IMAX Systems margin. Furthermore, included in IMAX systems margin is a charge of $0.1 million and $0.2 million in 2015 and 2014, respectively, due to a reduction in the net realizable value of its inventories. Gross margin varies depending upon the number of theater system commitments with a single respective exhibitor, an exhibitor’s location and other various factors. Gross margin from the sale of a used system was a loss of $0.2 million in 2015 as compared to $nil in 2014. In 2015, due to change in agreement terms, an IMAX theater that had been operating under a joint revenue sharing arrangement became a sales-type lease arrangement. As a result of this transaction, the Company recorded revenue and margin of $1.2 million and $0.9 million, respectively. Furthermore, one of the Company’s customers acquired an IMAX theater from another customer that had been operating under an operating lease arrangement. This theater was purchased from the Company under a sale arrangement. As result of this sale transaction, the Company recorded revenue and margin of $0.8 million and $0.4 million, respectively. The above- referenced theaters were included in the Company’s 2014 network total. 59 In 2014, the Company donated, and recognized the associated costs, of a full, new xenon-based digital theater system to the University of Southern California'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 learn about the latest innovations in filmmaking, set design, sound and post-production. Ongoing rent revenue and finance income increased to $15.2 million in 2015 compared to $14.1 million in 2014. Gross margin for ongoing rent and finance income increased to $14.4 million in 2015 compared to $13.4 million in 2014. Contingent fees included in this caption amounted to $3.8 million and $3.0 million in 2015 and 2014, respectively. Other revenue increased to $17.6 million in 2015 as compared to $12.2 million in 2014. 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 growth in revenue is primarily the result of an increase in revenue from 3D glasses and higher box office generated by the films exhibited in the IMAX owned and operated theaters during 2015 as compared to the prior year period. The gross margin recognized from other revenue increased to $0.3 million in 2015 as compared to $0.1 million in 2014. Theater System Maintenance Theater system maintenance revenue increased 8.5% to $36.9 million in 2015 from $34.0 million in 2014. Theater system maintenance gross margin increased to $12.7 million in 2015 from $12.4 million in 2014. The Company recorded a write-down of less than $0.1 million and $0.2 million for certain service parts inventories in 2015 and 2014, respectively. Maintenance revenue continues to grow as the number of theaters in the IMAX theater network grows. Maintenance margins vary depending on the mix of theater system configurations in the theater network, volume-pricing related to larger relationships and the timing and the date(s) of installation and/or service. Joint Revenue Sharing Arrangements Revenues from joint revenue sharing arrangements increased 44.9% to $99.1 million in 2015 from $68.4 million in 2014. The Company ended the year with 529 theaters operating under joint revenue sharing arrangements, as compared to 451 theaters at the end of 2014, an increase of 17.3%. The increase in revenues from joint revenue sharing arrangements was largely due to the greater number of theaters under joint revenue sharing arrangements in operation as compared to the prior year and stronger film performance. During 2015, the Company installed 80 full, new theaters under joint revenue sharing arrangements, as compared to 67 full new theaters during 2014. The gross margin from joint revenue sharing arrangements was $68.4 million in 2015 as compared to $44.7 million in 2014. Included in the calculation of the 2015 gross margin were certain advertising, marketing and commission costs primarily associated with new theater launches of $4.3 million, as compared to $3.2 million for such expenses in 2014. Adjusted gross margin from joint revenue sharing arrangements, which excludes these expenses from both periods, was $72.6 million in 2015, compared to $47.9 million in 2014. A reconciliation of gross margin from the joint revenue sharing arrangement 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) Gross margin from joint revenue sharing arrangements Add: Advertising, marketing and commission costs Adjusted gross margin from joint revenue sharing arrangements Film Years Ended December 31, 2015 68,372 $ 2014 44,714 4,267 72,639 $ 3,154 47,868 $ $ Revenue from the Company’s film segments increased to $118.0 million in 2015 from $102.9 million in 2014 primarily due to stronger film performance and continued network growth. Gross box-office generated by IMAX DMR films increased 31.3% to $985.3 million in 2015 from $750.2 million in 2014. With the addition of gross box-office from IMAX original films, the Company’s gross box-office exceeded $1 billion in 2015. Film production and IMAX DMR revenues increased 28.8% to $107.1 million in 2015 from $83.2 million in 2014. Gross box-office per screen for 2015 averaged $1,155,800, in comparison to $1,020,600 in 2014. In 2015, gross box-office was generated primarily from the exhibition of 57 films listed below (44 new and 13 carryovers), as compared to 50 (40 new and 10 carryover) films exhibited in 2014: 60 2015 Films Exhibited 2014 Films Exhibited Teenage Mutant Ninja Turtles: An IMAX 3D Experience Fury: The IMAX Experience Interstellar: The IMAX Experience Big Hero 6: An IMAX 3D Experience Penguins of Madagascar: An IMAX 3D Experience Exodus: Gods and Kings: An IMAX 3D Experience The Hobbit: The Battle of the Five Armies: An IMAX 3D Experience Gone with the Bullets: An IMAX 3D Experience Seventh Son: An IMAX 3D Experience Night at the Museum: Secret of the Tomb: An IMAX 3D Experience Taken 3: The IMAX Experience American Sniper: The IMAX Experience Game of Thrones: The IMAX Experience Kingsman: The Secret Service: The IMAX Experience Jupiter Ascending: An IMAX 3D Experience Fifty Shades of Grey: The IMAX Experience Wolf Totem: An IMAX 3D Experience Dragon Blade: An IMAX 3D Experience Focus: The IMAX Experience Chappie: The IMAX Experience Cinderella: The IMAX Experience The Divergent Series: Insurgent: An IMAX 3D Experience Furious 7: The IMAX Experience The Water Diviner: The IMAX Experience Dragon Ball Z: Revival of "F": An IMAX 3D Experience The Avengers: Age of Ultron: An IMAX 3D Experience Tomorrowland: The IMAX Experience Maze Runner: The IMAX Experience John Wick: The IMAX Experience San Andreas: An IMAX 3D Experience Mad Max: Fury Road: An IMAX 3D Experience Inside Out: An IMAX 3D Experience The Monk Comes Down the Mountain: An IMAX 3D Experience Jurassic World: An IMAX 3D Experience Minions: An IMAX 3D Experience Terminator Genisys: The IMAX Experience Monster Hunt: An IMAX 3D Experience Ant Man: An IMAX 3D Experience Pixels: An IMAX 3D Experience Mission Impossible ― Rogue Nation: The IMAX Experience Attack on Titan: Part 1: The IMAX Experience Despicable Me 2: An IMAX 3D Experience Gravity: An IMAX 3D Experience Thor: The Dark World: An IMAX 3D Experience Ender’s Game: The IMAX Experience The Hunger Games: Catching Fire: The IMAX Experience The Hobbit: The Desolation of Smaug: An IMAX 3D Experience Dhoom 3: The IMAX Experience Police Story: An IMAX 3D Experience Jack Ryan: Shadow Recruit: The IMAX Experience I, Frankenstein: An IMAX 3D Experience The Monkey King: The IMAX Experience Robocop: The IMAX Experience Stalingrad: An IMAX 3D Experience 300: Rise of an Empire: An IMAX 3D Experience Need for Speed: An IMAX 3D Experience Divergent: The IMAX Experience Noah: The IMAX Experience Captain America: The Winter Soldier: An IMAX 3D Experience Transcendence: The IMAX Experience The Amazing Spider-Man 2: An IMAX 3D Experience Godzilla: An IMAX 3D Experience Coming Home: The IMAX Experience Maleficent: An IMAX 3D Experience Edge of Tomorrow: An IMAX 3D Experience How to Train Your Dragon 2: An IMAX 3D Experience Transformers: Age of Extinction: An IMAX 3D Experience Hercules: An IMAX 3D Experience Lucy: The IMAX Experience The White Haired Witch of Lunar Kingdom: An IMAX 3D Experience Guardians of the Galaxy: An IMAX 3D Experience Teenage Mutant Ninja Turtles: An IMAX 3D Experience The Expendables 3: The IMAX Experience Forrest Gump: The IMAX Experience The Maze Runner: The IMAX Experience The Equalizer: The IMAX Experience Breakup Buddies: The IMAX Experience Bang Bang: The IMAX Experience Dracula Untold: The IMAX Experience John Wick: The IMAX Experience Fury: The IMAX Experience Interstellar: The IMAX Experience Big Hero 6: An IMAX 3D Experience 61 Penguins of Madagascar: An IMAX 3D Experience Exodus: Gods and Kings: An IMAX 3D Experience The Hobbit: The Battle of the Five Armies: An IMAX 3D Experience Gone with the Bullets: An IMAX 3D Experience Seventh Son: An IMAX 3D Experience The Crossing Part 1: An IMAX 3D Experience Night at the Museum: Secret of the Tomb: An IMAX 3D Experience The Polar Express: An IMAX 3D Experience To the Fore: The IMAX Experience The Man from U.N.C.L.E: The IMAX Experience Go Away Mr. Tumor: The IMAX Experience The Transporter Refueled: The IMAX Experience Everest: An IMAX 3D Experience Attack on Titan: Part 2: The IMAX Experience Lost in Hong Kong: The IMAX Experience The Walk: The IMAX Experience Crimson Peak: The IMAX Experience The Martian: An IMAX 3D Experience Spectre: The IMAX Experience The Hunger Games: Mockingjay Part 2: An IMAX 3D Experience In the Heart of the Sea: An IMAX 3D Experience Star Wars: The Force Awakens: An IMAX 3D Experience Mojin: The Lost Legend (aka " The Ghouls"): An IMAX 3D Experience The Polar Express: An IMAX 3D Experience Other revenues attributable to the film segment decreased 44.6% to $10.9 million in 2015 from $19.8 million in 2014. This decrease was attributable to the wide release of two IMAX original productions, Journey to the South Pacific and Island of Lemurs: Madagascar, in 2014, whereas, in 2015, the Company did not release any IMAX original productions as well as a decrease in post- production revenues as compared to the prior year. The Company’s gross margin from its film segments increased 15.4% in 2015 to $78.8 million from $68.2 million in 2014. Film production and IMAX DMR gross margins increased to $77.6 million from $62.9 million primarily due to continued network growth and stronger film performance. Other gross margin attributable to the film segment was $1.1 million in 2015 as compared to $5.3 million in 2014, since no original productions were released in 2015, as described above, and a decrease in post-production business. Selling, General and Administrative Expenses Selling, general and administrative expenses increased to $115.3 million in 2015, as compared to $93.3 million in 2014. Selling, general and administrative expenses excluding the impact of stock-based compensation were $93.4 million in 2015, as compared to $78.1 million in 2014. The following reflects the significant items impacting selling, general and administrative expenses as compared to the prior year period:  an $8.8 million increase in staff costs related to the core business, including salaries and benefits and certain incentive awards based on the Company’s performance, the completion of the IMAX China IPO, and the achievement of pre-determined performance metrics;  an $6.8 million increase in the Company’s stock-based compensation;  a $2.6 million net increase in staff costs and other expenses associated with new business initiatives, from $0.7 million in 2014 to $3.3 million in 2015;  an $0.9 million increase due to a change in foreign exchange rates. During the year ended December 31, 2015, the Company recorded a foreign exchange loss of $2.4 million for net foreign exchange gains/losses related to the translation of foreign currency denominated monetary assets and liabilities as compared to a loss of $1.5 million recorded in 2014. See note 15(b) of the audited consolidated financial statements in Item 8 of the Company’s 2015 Form 10-K for more information;  a $0.8 million net increase in advertising and promotion related activities; and 62  a $2.1 million net increase in other general corporate expenditures including an increase in consulting and other professional fees and costs associated with the IMAX China IPO. Research and Development Research and development expenses decreased to $12.7 million in 2015 compared to $16.1 million in 2014 and are primarily attributable to the development of the Company’s new laser-based digital projection system and its new private home theater. In 2014, the Company developed its next-generation laser-based digital projector, which provides greater brightness and clarity, higher contrast, a wider color gamut and deeper blacks, while consuming less power and lasting longer than existing digital technology, to ensure that the Company continues to provide the highest quality, premier movie going experience available to consumers. As of December 31, 2015, the Company had 18 laser-based digital theater systems in operation. In 2015, the Company introduced its new Private Home Theater in China. To date, the Company has signed agreements for more than 80 such systems. The Company intends for additional research and development to continue throughout 2016 as the Company supports further development of the laser-based projection system. In addition, the Company plans to continue research and development activity in the future in other areas considered important to the Company’s continued commercial success, including further improving the reliability of its projectors, developing and manufacturing more IMAX cameras, enhancing the Company’s 2D and 3D image quality, expanding the applicability of the Company’s digital technology, and using such technology to help expand the Company’s home entertainment platform, developing IMAX theater systems’ capabilities in both home and live entertainment, and further enhancing the IMAX theater and sound system design through the addition of more channels, improvements to the Company’s proprietary tuning system and mastering processes. The Company also continues to actively pursue opportunities in newly emerging areas of digital and media technology. Receivable Provisions, Net of Recoveries Receivable provisions, net of recoveries for accounts receivable and financing receivables amounted to a net provision of $0.8 million in 2015, as compared to $0.9 million in 2014. The Company’s accounts receivables and financing receivables are subject to credit risk. These receivables are concentrated with the leading theater exhibitors and studios in the film entertainment industry. To minimize the Company’s credit risk, the Company retains title to underlying theater systems leased, performs initial and ongoing credit evaluations of its customers and makes ongoing provisions for its estimate of potentially uncollectible amounts. Accordingly, the Company believes it has adequately protected itself against exposures relating to receivables and contractual commitments. Asset Impairments and Other Charges The Company recorded an asset impairment charge of $0.4 million and $0.3 million in 2015 and 2014, respectively, against property, plant and equipment after the Company assessed the carrying value of certain assets in light of their future expected cash flows. In 2015, the Company recognized a $0.4 million other-than-temporary impairment of its investments as the value is not expected to recover based on the length of time and extent to which the market value has been less than cost, as compared to $3.2 million in 2014. In 2015 and 2014, the Company recorded a charge of $0.3 million and $0.5 million, respectively, reflecting assets that no longer meet capitalization requirements as the assets were no longer in use. Interest Income and Expense Interest income was $1.0 million in 2015, as compared to $0.4 million in 2014. Interest expense was $1.7 million in 2015, as compared to $0.9 million in 2014. Consistent with its historical financial reporting, the Company has elected to classify interest and penalties related to income tax liabilities, when applicable, as part of the interest expense in its consolidated statements of operations rather than income tax expense. In 2015 and 2014, the Company recovered less than $0.1 million, respectively, in potential interest and penalties associated with its provision for uncertain tax positions. Also included in interest expense is the amortization of deferred finance costs in the amount of $1.0 million and $0.5 million in 2015 and 63 2014, respectively. The Company’s policy is to defer and amortize all the costs relating to debt financing which are paid directly to the debt provider, over the life of the debt instrument. Income Taxes The Company’s effective tax rate differs from the statutory tax rate and varies from year to year primarily as a result of numerous permanent differences, investment and other tax credits, the provision for income taxes at different rates in foreign and other provincial jurisdictions, enacted statutory tax rate increases or reductions in the year, changes due to foreign exchange, changes in the Company’s valuation allowance based on the Company’s recoverability assessments of deferred tax assets, and favorable or unfavorable resolution of various tax examinations. The Company recorded an income tax provision of $20.1 million for 2015, of which $0.5 million is related to an increase in its provision for uncertain tax positions. For 2014, the Company recorded an income tax provision of $14.5 million, of which $0.2 million was related to a decrease in its provision for uncertain tax positions. The provision for income taxes in the year ended December 31, 2015 includes a net income tax charge of less than $0.1 million (2014 - $0.4 million recovery) in continuing operations related to an increase in the valuation allowance for the Company’s deferred tax assets and other tax adjustments. In 2015, the Company recorded an adjustment of $14.0 million to the deferred tax assets, $5.9 million to the income tax provision and $8.1 million to shareholders’ equity related to tax benefits generated on the exercise of certain employee stock options. In conjunction with this, a provision for uncertain tax positions of $3.9 million was also recorded to the income tax provision and $7.9 million was recorded against shareholders’ equity. During the year ended December 31, 2015, after considering all available evidence, both positive (including recent profits, projected future profitability, backlog, carry forward 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), the Company concluded that the valuation allowance against the Company’s deferred tax assets should increase by less than $0.1 million. The remaining $0.3 million balance in the valuation allowance as at December 31, 2015 is primarily attributable to certain U.S. state net operating loss carryovers that may expire without being utilized. Equity-Accounted Investments The Company accounts for investments in new business ventures using the guidance of the FASB ASC 323. At December 31, 2015, the equity method of accounting is being utilized for investments with a total carrying value of $1.0 million (December 31, 2014 ─ $2.8 million). For the year ended December 31, 2015, gross revenues, cost of revenue and net loss for these investments were $nil, $9.3 million and $9.1 million, respectively (2014 ─ $3.1 million, $5.9 million and $4.9 million, respectively). The Company recorded its proportionate share of the net loss which amounted to $2.4 million for 2015 compared to $1.1 million in 2014. In 2014, the Company recognized a gain of $0.1 million resulting from the sale of its interest in an equity-accounted investment. No such transactions were recorded in 2015 Discontinued Operations On January 30, 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. In 2014, revenues for the Nyack IMAX theater were less than $0.1 million and the Company recognized income of $0.4 million, net of a tax expense of $0.2 million from the operation of the theater. The transactions of the Company’s owned and operated Nyack theater are reflected as discontinued operations. Non-Controlling Interests The Company’s consolidated financial statements include the non-controlling interest in the net income of IMAX China resulting from the IMAX China Investment and the IMAX China IPO as well as the impact of a non-controlling interest in its subsidiary created for the Film Fund activity. For the year ended December 31, 2015, the net income attributable to non-controlling interests of the Company’s subsidiaries was $8.8 million (2014 - $2.4 million). 64 Pension Plan The Company has an unfunded defined benefit pension plan, the Supplemental Executive Retirement Plan (the “SERP”), covering Messrs. Gelfond and Bradley J. Wechsler, the Company’s former Co-CEO and current Chairman of its Board of Directors. As at December 31, 2015, the Company had an unfunded and accrued projected benefit obligation of approximately $19.5 million (December 31, 2014 — $19.4 million) in respect of the SERP. The net periodic benefit cost was $0.3 million and $0.3 million in 2015 and 2014, respectively. The components of net periodic benefit cost were as follows: Interest cost Pension expense Years ended December 31 2015 2014 $ $ 253 253 $ $ 264 264 The plan experienced an actuarial gain of $0.2 million and an actuarial loss of $0.9 million during 2015 and 2014, respectively, resulting primarily from the continuing change in the Pension Benefit Guaranty Corporation (“PBGC”) published annuity interest rates year-over-year used to determine the lump 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 entitled to receive SERP benefits in the form of a lump sum payment. SERP benefit payments to Mr. Gelfond are subject to a deferral for six months after the termination of his employment, at which time Mr. Gelfond will be entitled to receive interest on the deferred amount credited at the applicable federal rate for short-term obligations. Pursuant to an 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, and is currently in discussions regarding an extension of his employment agreement with the Company. 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 at December 31, 2015, the Company had an unfunded benefit obligation of $1.8 million (December 31, 2014 — $2.1 million). In July 2000, the Company agreed to maintain health benefits for Messrs. Gelfond and Wechsler upon retirement. As at December 31, 2015, the Company had an unfunded benefit obligation recorded of $0.8 million (December 31, 2014 — $0.8 million). Stock-Based Compensation The Company estimates the fair value of stock option awards on the date of grant using fair value measurement techniques. The fair value of RSU 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 2015 and 2014 was $21.9 million and $15.1 million, respectively. 65 Year Ended December 31, 2014 versus Year Ended December 31, 2013 The 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 as compared 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 year ended 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-based compensation. Adjusted net income, which consists of net income excluding the impact of stock-based compensation and the related tax impact, was $54.9 million 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 for the year ended December 31, 2013. Adjusted net income attributable to common shareholders, which consists of net income attributable to common shareholders 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 ended December 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 ended December 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 attributable to common shareholders per diluted share is presented in the table below: Years Ended December 31, 2014 2013 Net Income 42,169 $ Diluted EPS 0.59 $ Net Income 44,115 Diluted EPS 0.64 $ (1) $ Reported net income Adjustments: Stock-based compensation Tax impact on items listed above Adjusted net income Net income attributable to non-controlling interests Adjusted net income attributable to common shareholders $ 15,128 (2,370) 54,927 (2,433) 52,494 $ 0.22 (0.03) 0.78 (0.03) 0.75 11,928 (344) 55,699 - 55,699 (1) (1) $ $ Weighted average diluted shares outstanding 69,754 (1) Includes impact of $0.4 million of accretion charges associated with redeemable Class C shares of IMAX China. Revenues and Gross Margin 0.17 - 0.81 - 0.81 68,961 The Company’s revenues for the year ended December 31, 2014 increased 0.9% to $290.5 million from $287.9 million in 2013, largely due to an increase in revenues from the Company’s joint revenue sharing arrangements, theater system maintenance segments and film segments, mostly offset by a decrease in revenue from 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 Systems IMAX systems revenue decreased 6.8% to $85.1 million in 2014 as compared to $91.4 million in 2013 resulting primarily from the revenue recognition 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 on 46 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 systems in 2013 with a total value of $54.9 million. The Company also recognized revenue on the installation of three xenon-based digital upgrades in 2014, with a total value of $2.3 million, as compared to five xenon-based digital upgrades in 2013, with a total value of $3.2 million. Digital upgrades typically have lower sales prices and gross margin than full theater system installations. The Company has decided to offer digital upgrades at lower selling prices for strategic reasons since the Company believes that digital theater systems increase flexibility and profitability for the Company’s existing exhibition customers. There were no used theater systems installed in the year ended December 31, 2014. In 2013, the Company installed and recognized one used 3D GT theater system with a total value of $1.2 million. 66 In 2013, the Company recognized revenue under a digital upgrade arrangement for 13 theater systems (10 sales and three operating leases) which were previously installed, but for which 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 is delivered. In 2013, the upgrade right in the agreement expired such that contract consideration became fixed. Therefore, the Company recognized revenue and gross margin of $3.1 million and a loss of $0.3 million, respectively, from the 10 theater systems which qualify as sales. Revenue earned from the three theater systems, which qualify as operating leases, are included in the Company’s ongoing rent revenue 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 revenue sharing arrangement. This theater was purchased from the Company under a sale arrangement. As a result of this sale transaction, the Company recorded revenue 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 revenue per 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 varies depending upon the number of theater system commitments with a single respective exhibitor, an exhibitor’s location or other various factors. 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 the table below: New IMAX xenon-based digital theater systems - installed and recognized Sales and sales-types lease arrangements Short-term operating lease arrangement Joint revenue sharing arrangements Total new theater systems IMAX xenon-based digital theater system upgrades - installed and recognized Sales and sales-types lease arrangements Short-term operating lease arrangements Joint revenue sharing arrangements Total upgraded theater systems 2014 2013 46 - 67 113 (1) 3 3 2 8 (2)(3) (1) (1) 46 1 65 112 (1) (1) 5 13 3 21 Total theater systems installed ______________ (1) Reflects xenon-based digital system configurations, which will be upgraded to a laser-based digital system configuration at a 121 133 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 to 63.3% 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 the number of theater system commitments with a single respective exhibitor, an exhibitor’s location and other various factors. In addition, in 2014, the Company 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 Southern California'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 learn about the latest innovations in filmmaking, set design, sound and post-production. 67 Ongoing rent revenue and finance income decreased to $14.1 million in 2014 compared to $14.2 million in 2013. Gross margin for ongoing rent and finance 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’s after-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 Maintenance Theater system maintenance revenue increased 6.5% to $34.0 million in 2014 from $32.0 million in 2013. Theater system maintenance gross margin increased 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 in 2014 and 2013, respectively. Maintenance revenue continues to grow as the number of theaters in the IMAX theater network grows. Maintenance margins vary depending on the mix of theater system configurations in the theater network, volume-pricing related to larger relationships and the timing and the date(s) of installation and/or service. Joint Revenue Sharing Arrangements Revenues from joint revenue sharing arrangements increased 6.7% to $68.4 million in 2014 from $64.1 million in 2013. The Company ended the year with 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 in revenues from joint revenue sharing arrangements was largely due to the greater number of theaters under joint revenue sharing arrangements in operation as compared to the prior year. During 2014, the Company installed 67 full, new theaters under joint revenue sharing arrangements, as compared to 65 full new theaters 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 the calculation 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 these expenses 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 sharing arrangement 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) Gross margin from joint revenue sharing arrangements Add: Advertising, marketing and commission costs Adjusted gross margin from joint revenue sharing arrangements Film Years Ended December 31, 2014 44,714 $ 2013 44,565 3,154 47,868 $ 3,582 48,147 $ $ Revenue 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 films increased 3.2% to $750.2 million in 2014 from $726.6 million in 2013, primarily due to continued network growth. Film production and IMAX DMR revenues were relatively consistent at $83.2 million in 2014 from $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 compared to 44 (38 new and 6 carryover) films exhibited in 2013: 2014 Films Exhibited 2013 Films Exhibited Despicable Me 2: An IMAX 3D Experience Gravity: An IMAX 3D Experience Thor: The Dark World: An IMAX 3D Experience Ender’s Game: The IMAX Experience The Polar Express: An IMAX 3D Experience Skyfall: The IMAX Experience Life of Pi: An IMAX 3D Experience CZ12: An IMAX 3D Experience 68 The Hunger Games: Catching Fire: The IMAX Experience The Hobbit: The Desolation of Smaug: An IMAX 3D Experience Dhoom 3: The IMAX Experience Police Story: An IMAX 3D Experience Jack Ryan: Shadow Recruit: The IMAX Experience I, Frankenstein: An IMAX 3D Experience The Monkey King: The IMAX Experience Robocop: The IMAX Experience Stalingrad: An IMAX 3D Experience 300: Rise of an Empire: An IMAX 3D Experience Need for Speed: An IMAX 3D Experience Divergent: The IMAX Experience Noah: The IMAX Experience Captain America: The Winter Soldier: An IMAX 3D Experience Transcendence: The IMAX Experience The Amazing Spider-Man 2: An IMAX 3D Experience Godzilla: An IMAX 3D Experience Coming Home: The IMAX Experience Maleficent: An IMAX 3D Experience Edge of Tomorrow: An IMAX 3D Experience How to Train Your Dragon 2: An IMAX 3D Experience Transformers: Age of Extinction: An IMAX 3D Experience Hercules: An IMAX 3D Experience Lucy: The IMAX Experience The White Haired Witch of Lunar Kingdom: An IMAX 3D Experience Guardians of the Galaxy: An IMAX 3D Experience Teenage Mutant Ninja Turtles: An IMAX 3D Experience The Expendables 3: The IMAX Experience Forrest Gump: The IMAX Experience The Maze Runner: The IMAX Experience The Equalizer: The IMAX Experience Breakup Buddies: The IMAX Experience Bang Bang: The IMAX Experience Dracula Untold: The IMAX Experience John Wick: The IMAX Experience Fury: The IMAX Experience Interstellar: The IMAX Experience Big Hero 6: An IMAX 3D Experience Penguins of Madagascar: An IMAX 3D Experience Exodus: Gods and Kings: An IMAX 3D Experience The Hobbit: The Battle of the Five Armies: An IMAX 3D Experience Gone with the Bullets: An IMAX 3D Experience The Hobbit: An Unexpected Journey: An IMAX 3D Experience Les Misérables: The IMAX Experience The Grandmaster: The IMAX Experience Hansel & Gretel: Witch Hunters: An IMAX 3D Experience Journey to the West: Conquering the Demons: An IMAX 3D Experience Top Gun: An IMAX 3D Experience A Good Day to Die Hard: The IMAX Experience Jack the Giant Slayer: An IMAX 3D Experience Oz: The Great and Powerful: An IMAX 3D Experience G.I. Joe: Retaliation: An IMAX 3D Experience Dragon Ball Z: Battle of the Gods: An IMAX 3D Experience Jurassic Park: An IMAX 3D Experience Oblivion: The IMAX Experience Iron Man 3: An IMAX 3D Experience Star Trek Into Darkness: An IMAX 3D Experience Fast & Furious 6: The IMAX Experience After Earth: The IMAX Experience Man of Steel: An IMAX 3D Experience World War Z: An IMAX 3D Experience Despicable Me 2: An IMAX 3D Experience White House Down: The IMAX Experience Man of Tai Chi: The IMAX Experience Lone Ranger: The IMAX Experience Pacific Rim: An IMAX 3D Experience Elysium: An IMAX 3D Experience The Mortal Instruments: City of Bones: An IMAX 3D Experience Riddick: An IMAX 3D Experience The Wizard of Oz: An IMAX 3D Experience Young Detective Dee: Rise of the Sea Dragon: An IMAX 3D Experience Metallica Through the Never: An IMAX 3D Experience Gravity: An IMAX 3D Experience Stalingrad: An IMAX 3D Experience Captain Phillips: The IMAX Experience The Young and Prodigious T.S. Spivet: An IMAX 3D Experience Thor: The Dark World: An IMAX 3D Experience Ender’s Game: The IMAX Experience The Hunger Games: Catching Fire: The IMAX Experience The Hobbit: The Desolation of Smaug: An IMAX 3D Experience Dhoom 3: The IMAX Experience Police Story: An IMAX 3D Experience 69 Seventh Son: An IMAX 3D Experience The Crossing Part 1: An IMAX 3D Experience Night at the Museum: Secret of the Tomb: An IMAX 3D Experience The Polar Express: An IMAX 3D Experience 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 to the wide release of two IMAX original productions, Journey to the South Pacific and Island of Lemurs: Madagascar, in 2014, whereas in 2013, the Company 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 IMAX DMR 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 two IMAX original productions, as described above, and an increase in post-production business. Selling, General and Administrative Expenses Selling, general and administrative expenses increased to $93.3 million in 2014, as compared to $84.9 million in 2013. The $8.4 million increase experienced 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 foreign exchange loss of $1.5 million for net foreign exchange gains/losses related to the translation of foreign currency denominated monetary assets and liabilities as compared to a loss of $0.7 million recorded in 2013;  a $0.7 million net increase in advertising and promotion related activities; and  a $0.9 million net increase in other general corporate expenditures. Gain on Curtailment of Postretirement Benefit Plan In 2013, the Company amended the Canadian postretirement plan to reduce future benefits provided under the plan. As a result of this change, the Company recognized a pre-tax curtailment gain of $2.2 million. Research and Development Research and development expenses increased to $16.1 million in 2014 compared to $14.8 million in 2013 and are primarily attributable to the development of the Company’s new laser-based digital projection system. The Company developed its next- generation laser-based digital projector, which provides greater brightness and clarity, higher contrast, a wider color gamut and deeper blacks, while consuming less power and lasting longer than existing digital technology, to ensure that the Company continues to provide the highest quality, premier movie going experience available to consumers. 70 Receivable Provisions, Net of Recoveries Receivable provisions, net of recoveries for accounts receivable and financing receivables amounted to a net provision of $0.9 million in 2014, as compared 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 theater exhibitors and studios in the film entertainment industry. To minimize the Company’s credit risk, the Company retains title to underlying theater systems leased, performs initial and ongoing credit evaluations of its customers and makes ongoing provisions for its estimate of potentially uncollectible amounts. Accordingly, the Company believes it has adequately protected itself against exposures relating to receivables and contractual commitments. Asset Impairments and Other Charges The Company recorded an asset retirement charge of $0.3 million in 2014 against property, plant and equipment after the Company assessed the carrying value of certain assets in light of their future expected cash flows. The Company did not recognize any asset impairment charges in the prior year comparative 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 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 2014 and 2013, the Company recorded a charge of $0.5 million and $0.4 million, respectively, reflecting assets that no longer meet capitalization requirements as the assets were no longer in use. Interest Income and Expense Interest 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 has elected to classify interest and penalties related to income tax liabilities, when applicable, as part of the interest expense in its consolidated statements of operations rather than income tax expense. In 2014 and 2013, the Company recovered $0.2 million and less than $0.1 million, respectively, in potential interest and penalties associated with its provision for uncertain tax positions. Also included in interest expense is the amortization of deferred finance costs in 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 which are paid directly to the debt provider, over the life of the debt instrument. Income Taxes The Company’s effective tax rate differs from the statutory tax rate and varies from year to year primarily as a result of numerous permanent differences, investment and other tax credits, the provision for income taxes at different rates in foreign and other provincial jurisdictions, enacted statutory tax rate increases or reductions in the year, changes due to foreign exchange, changes in the Company’s valuation allowance based on the Company’s recoverability assessments of deferred tax assets, and favorable or unfavorable resolution of various tax examinations. 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 uncertain tax 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 for uncertain 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, the Company 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 During the year ended December 31, 2014, after considering all available evidence, both positive (including recent profits, projected future profitability, backlog, carry forward periods for 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 71 that the valuation allowance against the Company’s deferred tax assets should be decreased by approximately $4.4 million. The remaining $0.3 million balance in the valuation allowance as at December 31, 2014 is primarily attributable to certain U.S. state net operating loss carryovers that may expire without being utilized. Equity-Accounted Investments The Company accounts for investments in new business ventures using the guidance of the FASB ASC 323. At December 31, 2014, the equity method of accounting is being utilized for investments with a total carrying value of $2.8 million (December 31, 2014 ― $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 first quarter of 2014, this new business venture was 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 million resulting 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 Operations On January 30, 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. In 2014, revenues for the Nyack IMAX theater were less than $0.1 million (2013 ― $1.3 million) and the Company recognized income of $0.4 million, 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 and operated Nyack theater are reflected as discontinued operations. Non-Controlling Interests Beginning in the second quarter of 2014, the Company’s consolidated financial statements included the non-controlling interest in the net income of IMAX China resulting from the IMAX China Investment and the net proceeds were classified as redeemable non- controlling interest in temporary equity. In addition, in 2014, the Company recognized the impact of a non-controlling interest in its subsidiary created for the Film Fund activity. For the year ended December 31, 2014, the net income attributable to non-controlling interests of the Company’s subsidiaries was $2.4 million. Pension Plan The Company has an unfunded defined benefit pension plan, the SERP, covering Messrs. Gelfond and 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 an unfunded 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 as follows: Interest cost Amortization of actuarial loss Pension expense Years ended December 31 2014 2013 $ $ 264 - 264 $ $ 195 444 639 The plan experienced an actuarial loss of $0.9 million and an actuarial gain of $2.3 million during 2014 and 2013, respectively, resulting primarily from the continuing change in the Pension Benefit Guaranty Corporation (“PBGC”) published annuity interest rates year-over-year used to determine the lump 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 entitled to receive SERP benefits in the form of a lump sum payment. SERP benefit payments to Mr. Gelfond are subject to a deferral for six months after the termination of his employment, at which time Mr. Gelfond will be entitled to receive interest on the deferred amount credited at the applicable federal rate for short-term obligations. Pursuant to an employment agreement dated January 1, 2014, the term of Mr. Gelfond’s current employment agreement was extended through December 31, 2016, although Mr. Gelfond has not informed the Company that he intends to retire at that time, and is currently in discussions regarding an extension 72 of his employment agreement with the Company. 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 at December 31, 2014, the Company had an unfunded benefit obligation of $2.1 million (December 31, 2013 —$2.2 million). In 2013, the Company amended the Canadian postretirement plan to reduce future benefits provided under the plan. As a result of this change, the Company postretirement liability was reduced 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 of the 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, the Company had an unfunded benefit obligation recorded of $0.8 million (December 31, 2013 — $0.4 million). Stock-Based Compensation 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 of RSU 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. 73 LIQUIDITY AND CAPITAL RESOURCES Credit Facility On March 3, 2015, the Company amended and restated the terms of its existing senior secured credit facility (the “Prior Credit Facility”) in order to, among other things, eliminate the fixed charge coverage ratio under the Prior Credit Facility and reset certain financial maintenance covenants. The amended and restated facility (the “Credit Facility”), with a scheduled maturity of March 3, 2020, has a maximum borrowing capacity of $200.0 million, the same maximum borrowing capacity as under the Prior Credit Facility. 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 the present and future assets of the Company and the Guarantors. The terms of the Credit Facility are set forth in the Fourth Amended and Restated Credit Agreement (the “Credit Agreement”), dated March 3, 2015, among the Company, the Guarantors, the lenders named therein, Wells Fargo Bank, National Association (“Wells Fargo”), as agent and issuing lender (Wells Fargo, together with the lenders named therein, the “Lenders”) and Wells Fargo Securities, LLC, as Sole Lead Arranger and Sole Bookrunner and in various collateral and security documents entered into by the Company and the Guarantors. Each of the Guarantors has also entered into a guarantee in respect of the Company’s obligations under the Credit Facility. Total amounts drawn and available under the Credit Facility at December 31, 2015 were $nil and $200.0 million, respectively (December 31, 2014 – $nil and $200.0 million, respectively). Under the Credit Facility, the effective interest rate for the year ended December 31, 2015 was nil, as no amounts were outstanding during the period (2014 – nil). The Credit Facility provides that the Company is required at all times to satisfy a Minimum Liquidity Test (as defined in the Credit Agreement) of at least $50.0 million. The Company is also required to maintain minimum EBITDA (as defined in the Credit Agreement) of $100.0 million. The Company is also required to maintain a Maximum Total Leverage Ratio (as defined in the Credit Agreement) of 2.25:1.0, which requirement decreases to (i) 2.0:1.0 on December 31, 2016; and (ii) 1.75:1.0 on December 31, 2017. The Company was in compliance with all of these requirements at December 31, 2015. The Maximum Total Leverage Ratio was 0.21:1 as at December 31, 2015, where Total Debt (as defined in the Credit Agreement) is the sum of all obligations evidenced by notes, bonds, debentures or similar instruments and was $29.7 million. EBITDA is calculated as follows: EBITDA per Credit Facility: (In thousands of U.S. Dollars) Net income Add (subtract): Loss from equity accounted investments Provision for income taxes Interest expense, net of interest income Depreciation and amortization, including film asset amortization(1) Write-downs, net of recoveries including asset impairments and receivable provisions(1) Stock and other non-cash compensation EBITDA attributable to non-controlling interests(2) $ 64,624 2,402 20,052 693 41,787 3,725 22,379 (14,885) 140,777 $ ______________ (1) See note 18 to the audited consolidated financial statements in Item 8 of the Company’s 2015 Form 10-K. (2) The EBITDA calculation specified for purposes of the minimum EBITDA covenant excludes the reduction in EBITDA from the Company’s non-controlling interests. 74 Playa Vista Financing On October 6, 2014, IMAX PV Development Inc., a Delaware corporation (“PV Borrower”) and direct wholly-owned subsidiary of IMAX U.S.A. Inc., a Delaware corporation and direct wholly-owned subsidiary of the Company, entered into a construction loan agreement with Wells Fargo. The construction loan (the “Playa Vista Construction Loan”) was used to fund $22.3 million of the costs of development and construction of the new West Coast headquarters of the Company, located in the Playa Vista neighborhood of Los Angeles, California (the “Playa Vista Project”). The total cost of development of the Playa Vista Project was approximately $54.0 million, with all costs in excess of the Playa Vista Construction Loan provided through funding by the Company. On October 19, 2015, PV Borrower converted the Playa Vista Construction Loan from a construction loan into a permanent loan (“Playa Vista Loan”) pursuant to the terms of the loan documents. Pursuant to the conversion, PV Borrower increased the principal balance of the loan by an additional $7.7 million, to $30.0 million. Prior to the conversion, the Playa Vista Construction Loan bore interest at a variable interest rate per annum equal to 2.25% above the 30-day LIBOR rate, and PV Borrower was required to make monthly payments of interest only. However, as a result of the conversion, the interest rate decreased from 2.25% to 2.0% above the 30-day LIBOR rate, and PV Borrower will be required to make monthly payments of combined principal and interest over a 10-year term with a lump sum payment at the end of year 10. The Playa Vista Loan is being amortized over 15 years. The Playa Vista Loan will be fully due and payable on October 19, 2025 (the “Maturity Date”) and may be prepaid at any time without premium, but with all accrued interest and other applicable payments. The Playa Vista Loan is secured by a deed of trust from PV Borrower in favor of Wells Fargo, granting a first lien on and security interest in the Playa Vista property and the Playa Vista Project, including all improvements to be constructed thereon, 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 Wells Fargo for the performance by PV Borrower of all the terms and provisions of the Playa Vista Loan and an environmental indemnity also provided by the Company. The Loan Documents contain affirmative, negative and financial covenants (including compliance with the 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. Total amount drawn under the Playa Vista Loan as at December 31, 2015 was $29.7 million (December 31, 2014 – $4.7 million). Under the Playa Vista Loan, the effective interest rate for December 31, 2015 was 2.40% (December 31, 2014 ― 2.42%). Letters of Credit and Other Commitments As at December 31, 2015, the Company did not have any letters of credit and advance payment guarantees outstanding (December 31, 2014 — $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 in conjunction with guarantees fully insured by EDC (the “Bank of Montreal Facility”). The Bank of Montreal Facility is unsecured and includes typical affirmative and negative covenants, including delivery of annual consolidated financial statements within 120 days of the end of the fiscal year. The Bank of Montreal Facility is subject to periodic annual reviews. As at December 31, 2015, the Company had letters of credit and advance payment guarantees outstanding of $0.3 million under the Bank of Montreal Facility as compared to $0.3 million as at December 31, 2014. Cash and Cash Equivalents As at December 31, 2015, the Company’s principal sources of liquidity included cash and cash equivalents of $317.4 million, the Credit Facility, anticipated collection from trade accounts receivable of $98.0 million including receivables from theaters under joint revenue sharing arrangements and DMR agreements with studios, anticipated collection from financing receivables due in the next 12 months of $20.3 million and payments expected in the next 12 months on existing backlog deals. As at December 31, 2015, the Company did not have any amount drawn on the Credit Facility (remaining availability of $200.0 million). As at December 31, 2015, the Company had $29.7 million drawn on the Playa Vista Loan. There were $nil letters of credit and advance payment guarantees outstanding under the Credit Facility and $0.3 million under the Bank of Montreal Facility. Cash held outside of Canada as at December 31, 2015 was $122.2 million (December 31, 2014 — $61.0 million). 75 During the year ended December 31, 2015, the Company’s operations provided cash of $83.7 million which reflects a $21.1 million increase in inventory partly related to all roll-out of its laser-based projection system. The Company used cash of $76.8 million to fund capital expenditures, principally for the construction of the Playa Vista Project, to build equipment for use in joint revenue sharing arrangements, to purchase other intangible assets, and to purchase property, plant and equipment. Based on management’s current operating plan for 2016, the Company expects to continue to use cash to deploy additional theater systems under joint revenue sharing arrangements and to fund DMR agreements with studios. Cash flows from joint revenue sharing arrangements are derived from the theater box-office and concession revenues and the Company invested directly in the roll out of 80 new theater systems under joint revenue sharing arrangements in 2015. In October 2015, IMAX China completed the IMAX China IPO. As part of the offering, IMAX China received net proceeds of approximately $58.3 million, after deducting commissions, from the issuance of 17,825,000 new shares. IMAX Corporation, through a wholly owned subsidiary, received net proceeds of approximately $103.7 million, after deducting commissions, from the sale of 26,737,400 sale shares (after exercise in full of the over-allotment). The Company anticipates that proceeds from the IMAX China IPO will be used to expand the IMAX theater network in Greater China, to increase the number of revenue sharing arrangements with the Company’s exhibitor partners, to strengthen the Company’s cooperation with Chinese studios and filmmakers and for general corporate purposes. In 2014, the Company announced the sale and issuance of 20.0% of the shares in IMAX China to entities owned and controlled by investors CMC and FountainVest. The sale price for the interest was $80.0 million and was paid by the investors in two equal installments, the first of which was received on April 8, 2014 and the second of which was received on February 10, 2015. In 2014, the Company’s Board of Directors approved a $150.0 million share repurchase program for shares of the Company’s common stock. Purchases under the program commenced in 2014. The share repurchase program expires June 30, 2017. The repurchases may be made either in the open market or through private transactions, subject to market conditions, applicable legal requirements and other relevant factors. The Company has no obligation to repurchase shares, and the share repurchase program may be suspended or discontinued by the Company at any time. In 2015, the Company repurchased 1,000,000 (2014 ― 112,034) common shares at an average price of $34.25 (2014 ― $27.30) per share. The retired shares were purchased for $34.3 million (2014 ― $3.1 million). The Company believes that cash flow from operations together with existing cash and borrowing available under the Credit Facility will be sufficient to 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. Since the Company’s future cash flows are based on estimates and there may be factors that are outside of the Company’s control (see “Risk Factors” in Item 1A in the Company’s 2015 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 Company completes the performance of its obligations. Similarly, the Company receives cash payments for some of its film productions in advance of related cash expenditures. Operating Activities The Company’s net cash provided by operating activities is affected by a number of factors, including the proceeds associated with new signings of theater system lease and sale agreements in the year, costs associated with contributing systems under joint revenue sharing arrangements, the box-office performance of films distributed by the Company and/or released to IMAX theaters, increases or decreases in the Company’s operating expenses, including research and development, and the level of cash collections received from its customers. Cash provided by operating activities amounted to $83.7 million in 2015. Changes in other non-cash operating assets as compared to 2014 include: an increase of $22.5 million in accounts receivable; an increase of $13.6 million in financing receivables; an increase of $21.1 million in inventories; an increase of $1.6 million in prepaid expenses; and an increase of $0.7 million in other assets which includes an increase of $0.2 million in commissions and other deferred selling expenses and an increase of $0.5 million in other assets. Changes in other operating liabilities as compared to December 31, 2014 include: an increase in deferred revenue of $16.2 million related to backlog payments received in the current year, offset partially by amounts relieved from deferred revenue related to theater system installations; an increase in accounts payable of $9.2 million; and a decrease of $2.6 million in accrued liabilities. 76 Investing Activities Net cash used in investing activities amounted to $78.8 million in 2015, which includes purchases of $43.3 million in property, plant and equipment, an investment in joint revenue sharing equipment of $28.5 million, net investment in new business ventures of $2.0 million and an increase in other intangible assets of $5.1 million. Included in the Company’s purchase of property, plant and equipment for 2015 is $27.7 million for the construction of the Playa Vista Project. Net cash used in investing activities amounted to $61.9 million in 2014. Financing Activities Net cash provided by financing activities in 2015 amounted to $205.2 million as compared to $52.3 million in 2014. In 2015, the Company received cash proceeds for the issuance of common shares net of related issuance costs of $38.0 million related to the IMAX China Investment by CMC and FountainVest, which represents a non-controlling interest in the Company’s subsidiary. The Company also received $162.0 million in net proceeds from the IMAX China IPO. Furthermore, the Company received $35.6 million from the issuance of common shares resulting from stock option exercises offset by $34.3 million paid for the repurchase of common shares under the Company’s share repurchase program. The Company spent $10.0 million to purchase treasury stock for the settlement of restricted share units and stock options and paid $9.5 million in dividends to the non-controlling interest shareholders of IMAX China as a result of the IMAX China IPO. The Company also borrowed $25.3 million under the Playa Vista Loan. Capital Expenditures Capital expenditures, including the Company’s investment in joint revenue sharing equipment, purchase of property, plant and equipment, net of sales proceeds, other intangible assets and investments in film assets were $91.9 million in 2015 as compared to $79.1 million in 2014. Capital expenditures were higher in 2015 due in large part to the Playa Vista Project. As discussed above, a significant portion of the Playa Vista project was financed through the Playa Vista Loan, which offset the cash outlay associated with the project. See “Properties” in Item 2 in the Company’s 2015 Form 10-K. Prior Year Cash Flow Activities Net cash provided by operating activities amounted to $86.6 million in the year ended December 31, 2014. Changes in other non- cash operating assets as compared to 2013 included: an increase 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; an increase 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 recoveries receivable 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 an increase of $0.5 million in other assets. Changes in other operating liabilities as compared to December 31, 2013 included: an increase in deferred revenue of $12.1 million related to backlog payments received in 2014, offset partially by amounts relieved from deferred revenue related to theater system installations; a decrease in accounts payable of $5.2 million; and an increase of $5.7 million in accrued liabilities. Net cash used in investing activities amounted to $61.9 million in 2014, which included 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 other intangible assets of $2.9 million. Included in the Company’s purchase of purchase of property, plant and equipment for 2014 was $28.5 million for the purchase of land for and the commencement of the construction of the Playa Vista Project. Net cash used in investment activities amounted to $42.3 million in 2013. Net 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 $32.7 million related to the IMAX China Investment by CMC and Fountain Vest, which represented a non-controlling interest in the Company’s subsidiary. The Company also received $10.8 million from the issuance of common shares resulting from stock option exercises offset by $3.6 million paid for the repurchase of common shares under the Company’s share repurchase program. The Company also borrowed $4.7 million under the Playa Vista Loan. Capital expenditures including the Company’s investment in joint revenue sharing equipment, purchase of property, plant and equipment net of sales proceeds and investments in film assets were $79.1 million in the year ended December 31, 2014. 77 CONTRACTUAL OBLIGATIONS Payments to be made by the Company under contractual obligations as of December 31 2015 are as follows: (In thousands of U.S. Dollars) Purchase obligations(1) Pension obligations(2) Operating lease obligations(3) Playa Vista Loan(4) Postretirement benefits obligations Total Obligations 2016 2017 2018 2019 2020 Thereafter Payments Due by Period $ 22,199 $ 22,199 $ - $ 19,871 18,478 29,667 2,541 $ 92,756 - 4,987 2,000 124 $ 29,310 19,871 3,996 2,000 148 $ 26,015 $ - - $ - - $ - - - - 3,546 1,759 438 3,752 2,000 162 $ 5,708 2,000 175 $ 3,934 2,000 144 $ 2,582 19,667 1,788 $ 25,207 ______________ (1) The Company’s total payments to be made under binding commitments with suppliers and outstanding payments to be made for supplies ordered but yet to be invoiced. (2) The SERP assumptions are that Mr. Gelfond will receive a lump sum payment six months after retirement at the end of the current term of his employment agreement (December 31, 2016), although Mr. Gelfond has not informed the Company that he intends to retire at that time, and is currently in discussions regarding an extension of his employment agreement with the Company. (3) The Company’s total minimum annual rental payments to be made under operating leases, mostly consisting of rent at the Company’s property in New York and at the various owned and operated theaters. (4) The Playa Vista Loan is fully due and payable on October 19, 2025. The Company is required to make monthly payments of combined principal and interest. Pension and Postretirement Obligations The Company has an unfunded defined benefit pension plan, the SERP, covering Messrs. Gelfond and Wechsler. As at December 31, 2015, the Company had an unfunded and accrued projected benefit obligation of approximately $19.5 million (December 31, 2014 — $19.4 million) in respect of the SERP. 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, and is currently in discussions regarding an extension of his employment agreement with the Company. Under the terms of the arrangement, no compensation earned beginning 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 at December 31, 2015, the Company had an unfunded benefit obligation of $1.8 million (December 31, 2014 — $2.1 million). In July 2000, the Company agreed to maintain health benefits for Messrs. Gelfond and Wechsler upon retirement. As at December 31, 2015, the Company had an unfunded benefit obligation of $0.8 million (December 31, 2014 — $0.8 million). OFF-BALANCE SHEET ARRANGEMENTS There are currently no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on the Company’s financial condition. 78 Item 7A. Quantitative and Qualitative Factors about Market Risk The Company is exposed to market risk from foreign currency exchange rates and interest rates, which could affect operating results, financial position and cash flows. Market risk is the potential change in an instrument’s value caused by, for example, fluctuations in interest and currency exchange rates. The Company’s primary market risk exposure is the risk of unfavorable movements in exchange rates between the U.S. dollar, the Canadian dollar and the Chinese Yuan Renminbi. The Company does not use financial instruments for trading or other speculative purposes. Foreign Exchange Rate Risk A majority of the Company’s revenue is denominated in U.S. dollars while a significant portion of its costs and expenses is denominated in Canadian dollars. A portion of the Company’s net U.S. dollar cash flows is converted to Canadian dollars to fund Canadian dollar expenses through the spot market. In addition, IMAX films generate box office in 67 different countries, and therefore unfavorable exchange rates between applicable local currencies and the U.S. dollar could have an impact on the Company’s reported gross box office and revenues. The Company has incoming cash flows from its revenue generating theaters and ongoing operating expenses in China through its majority-owned subsidiary IMAX Shanghai Multimedia Technology Co., Ltd. In Japan, the Company has ongoing Yen-denominated operating expenses related to its Japanese operations. Net Renminbi and Japanese Yen cash flows are converted to U.S. dollars through the spot market. The Company also has cash receipts under leases denominated in Renminbi, Japanese Yen, Euros and Canadian dollars. The Company manages its exposure to foreign exchange rate risks through the Company’s regular operating and financing activities and, when appropriate, through the use of derivative financial instruments. These derivative financial instruments are utilized to hedge economic exposures as well as reduce earnings and cash flow volatility resulting from shifts in market rates. For the year ended December 31, 2015, the Company recorded a foreign exchange net loss of $2.4 million as compared to a foreign exchange net loss of $1.5 million in 2014, associated with the translation of foreign currency denominated monetary assets and liabilities. The Company entered into a series of foreign currency forward contracts to manage the Company’s risks associated with the volatility of foreign currencies. The forward contracts have settlement dates throughout 2016 and 2017. Foreign currency derivatives are recognized and measured in the balance sheet at fair value. Changes in the fair value (gains or losses) are recognized in the consolidated statement of operations except for derivatives designated and qualifying as foreign currency hedging instruments. All foreign currency forward contracts held by the Company as at December 31, 2015, are designated and qualify as foreign currency hedging instruments. For foreign currency hedging instruments, the effective portion of the gain or loss in a hedge of a forecasted transaction is reported in other comprehensive income and reclassified to the 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 instruments at December 31, 2015 was $30.7 million (December 31, 2014 — $36.8 million). A loss of $5.9 million was recorded to Other Comprehensive Income with respect to the depreciation/appreciation in the value of these contracts in 2015 (2014 — loss of $2.5 million). A loss of $3.2 million was reclassified from Accumulated Other Comprehensive Income to selling, general and administrative expenses in 2015 (2014 — loss of $1.2 million). Appreciation or depreciation on forward contracts not meeting the requirements for hedge accounting in the Derivatives and Hedging Topic of the FASB Accounting Standards Codification are recorded to selling, general and administrative expenses. For all derivative instruments, the Company is subject to counterparty credit risk to the extent that the counterparty may not meet its obligations to the Company. To manage this risk, the Company enters into derivative transactions only with major financial institutions. At December 31, 2015, the Company’s financing receivables and working capital items denominated in Canadian dollars, Renminbi, Yen and Euros was $41.6 million. Assuming a 10% appreciation or depreciation in foreign currency exchange rates from the quoted foreign currency exchange rates at December 31, 2015, the potential change in the fair value of foreign currency- denominated financing receivables and working capital items would have been $4.2 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, 2015, the potential change in the amount of selling, general, and administrative expenses would be $0.1 million for every $10.0 million in Canadian denominated expenditures. 79 Interest Rate Risk Management The Company’s earnings are also affected by changes in interest rates due to the impact those changes have on its interest income from cash, and its interest expense from variable-rate borrowings under the Credit Facility. As at December 31, 2015, the Company had not drawn down on its Credit Facility (December 31, 2014 — $nil). As at December 31, 2015, the Company had drawn down $29.7 million on its Playa Vista Loan (December 31, 2014 — $4.7 million). The Company’s largest exposure with respect to variable rate debt comes from changes in the LIBOR. The Company had variable rate debt instruments representing 11.7% and 2.4% of its total liabilities at December 31, 2015 and 2014, respectively. If the interest rates available to the Company increased by 10%, the Company’s interest expense would increase by approximately $0.1 million and interest income from cash would increase by approximately $0.1 million. These amounts are determined by considering the impact of the hypothetical interest rates on the Company’s variable rate debt and cash balances at December 31, 2015. 80 Item 8. Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm……………………………………………………………………….. Consolidated Balance Sheets as at December 31, 2015 and 2014………………………………………………………………… Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013………………………………... Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, 2014 and 2013………………….. Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013………………………………. Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2015, 2014 and 2013…………………….. Notes to Consolidated Financial Statements………………………………………………………………………..……………... Page 82 83 84 85 86 87 88 ************ 81 Report of Independent Registered Public Accounting Firm To the Shareholders of IMAX Corporation We have audited the accompanying consolidated balance sheets of IMAX Corporation and its subsidiaries as of December 31, 2015 and December 31, 2014 and the related consolidated statements of operations, comprehensive income, cash flows and shareholders’ equity for each of the years in the three-year period ended December 31, 2015. In addition, we have audited the financial statement schedule listed in the index appearing under item 15 (a) (2). We also have audited IMAX Corporation’s and its subsidiaries’ internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management is responsible for these consolidated financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting under Item 9A. Our responsibility is to express an opinion on these consolidated financial statements, the financial statement 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 that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements and the financial statement schedule are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement 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 assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of IMAX Corporation and its subsidiaries as of December 31, 2015 and December 31, 2014 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under item 15 (a) (2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also, in our opinion, IMAX Corporation and its subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO. /s/ PricewaterhouseCoopers LLP Chartered Professional Accountants, Licensed Public Accountants Toronto, Ontario February 24, 2016 82 IMAX CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands of U.S. dollars) Assets Cash and cash equivalents Accounts receivable, net of allowance for doubtful accounts of $1,146 (December 31, 2014 — $947) Financing receivables (notes 4 and 20(c)) Inventories (note 5) Prepaid expenses Film assets (note 6) Property, plant and equipment (note 7) Other assets (notes 8 and 20(e)) Deferred income taxes (note 9) Other intangible assets (note 10) Goodwill Total assets Liabilities Bank indebtedness (note 11) Accounts payable Accrued and other liabilities (notes 6, 12(a), 12(c), 13, 14(c), 20(b), 20(d), 21 and 24) Deferred revenue Total liabilities Commitments and contingencies (notes 12 and 13) As at December 31, 2015 2014 $ 317,449 97,981 117,231 38,753 6,498 14,571 218,267 26,527 25,766 28,950 39,027 $ 931,020 $ 106,503 76,051 105,700 17,063 4,946 15,163 183,424 23,047 23,058 27,551 39,027 $ 621,533 $ 29,667 23,455 95,748 104,993 253,863 $ 4,710 26,145 75,425 88,566 194,846 Non-controlling interests (note 22) 3,307 43,912 Shareholders' equity Capital stock (note 14) common shares — no par value. Authorized — unlimited number. Issued and outstanding — 69,673,244 (December 31, 2014 — 68,988,050) Other equity Accumulated earnings (deficit) Accumulated other comprehensive loss Total shareholders' equity attributable to common shareholders Non-controlling interests (note 22) Total shareholders' equity Total liabilities and shareholders' equity 448,310 163,094 19,930 (7,443) 623,891 49,959 673,850 $ 931,020 344,862 47,319 (6,259) (3,147) 382,775 - 382,775 $ 621,533 (the accompanying notes are an integral part of these consolidated financial statements) 83 IMAX CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands of U.S. dollars, except per share amounts) Revenues Equipment and product sales (note 15(c)) Services (note 15(c)) Rentals (note 15(c)) Finance income Other (note 15(a)) Costs and expenses applicable to revenues (note 2(m)) Equipment and product sales Services (note 15(c)) Rentals Gross margin Selling, general and administrative expenses (note 15(b)) (including share-based compensation expense of $21.9 million, $15.1 million and $11.9 million for 2015, 2014 and 2013, respectively) Gain on curtailment of postretirement benefit plan (note 21(d)) Research and development Amortization of intangibles Receivable provisions, net of recoveries (note 16) Asset impairments (note 17) Impairment of investments (notes 20(b) and 20(e)) Income from operations Interest income Interest expense (note 9(g)) Income from operations before income taxes Provision for income taxes Loss from equity-accounted investments, net of tax Income from continuing operations Income (loss) from discontinued operations, net of tax (note 23) Net income Less: net income attributable to non-controlling interests (note 22) Net income attributable to common shareholders Years Ended December 31, 2014 2015 2013 $ $ 118,937 161,964 83,651 9,112 141 373,805 63,635 70,855 20,027 154,517 219,288 115,345 $ 78,705 142,607 60,705 8,524 - 290,541 36,997 62,228 17,928 117,153 173,388 93,260 - 12,730 1,860 752 405 425 87,771 968 (1,661) 87,078 (20,052) (2,402) 64,624 - 64,624 (8,780) 55,844 $ - 16,096 1,724 918 314 3,206 57,870 405 (924) 57,351 (14,466) (1,071) 41,814 355 42,169 (2,433) 39,736 $ $ 78,663 139,464 61,293 8,142 375 287,937 37,517 68,844 16,973 123,334 164,603 84,854 (2,185) 14,771 1,618 445 - - 65,100 55 (1,345) 63,810 (16,629) (2,757) 44,424 (309) 44,115 - 44,115 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 Net income per share from discontinued operations $ Net income per share - diluted: Net income per share from continuing operations Net income per share from discontinued operations $ $ $ 0.79 - 0.79 0.78 - 0.78 $ $ $ $ 0.57 0.01 0.58 0.56 - 0.56 $ $ $ $ 0.66 - 0.66 0.64 - 0.64 (the accompanying notes are an integral part of these consolidated financial statements) 84 IMAX CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands of U.S. dollars) Years Ended December 31, 2015 2014 2013 $ 42,169 $ Net income Unrealized defined benefit plan actuarial gain (loss) (note 21(a)) Amortization of defined benefit plan actuarial loss (note 21(a)) Unrealized postretirement benefit plans actuarial gain (loss) (notes 21(c) and 21(d)) Amortization of postretirement benefit plan actuarial loss (gain) (note 21(c)) Gain on curtailment of postretirement benefit plan (note 21(d)) Unrealized net loss from cash flow hedging instruments (note 20(d)) Realization of cash flow hedging net loss upon settlement (note 20(d)) Foreign currency translation adjustments (note 2) Change in market value of available-for-sale investment (note 20(b)) Other-than-temporary impairment of available-for-sale investment (note 20(b)) Other comprehensive (loss) income, before tax Income tax benefit (expense) related to other comprehensive (loss) income (note 9(h)) Other comprehensive (loss) income, net of tax Comprehensive income Less: Comprehensive income attributable to non-controlling interests Comprehensive income attributable to common shareholders $ 64,624 180 - 79 135 - (5,881) 3,217 (2,121) - - (4,391) 511 (3,880) 60,744 (9,196) $ 51,548 $ (857) - (574) (32) - (2,524) 1,186 (259) - 350 (2,710) 750 (1,960) 40,209 (2,491) 37,718 $ 44,115 2,277 444 (169) - 398 (1,031) 312 (115) (350) - 1,766 (504) 1,262 45,377 - 45,377 (the accompanying notes are an integral part of these consolidated financial statements) 85 IMAX CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of U.S. dollars) Cash provided by (used in): Operating Activities Net income (Income) loss from discontinued operations, net of tax (note 23) Adjustments to reconcile net income to cash from operations: Depreciation and amortization (notes 18(c) and 19(a)) Write-downs, net of recoveries (notes 18(d) and 19(a)) Change in deferred income taxes Stock and other non-cash compensation Unrealized foreign currency exchange loss Gain on curtailment of postretirement benefit plan (note 21(d)) Loss from equity-accounted investments Gain on non-cash contribution to equity-accounted investees Investment in film assets Changes in other non-cash operating assets and liabilities (note 18(a)) Net cash provided by (used in) operating activities from discontinued operations Net cash provided by operating activities Investing Activities Purchase of property, plant and equipment Investment in joint revenue sharing equipment Investment in new business ventures Proceeds from sale of business venture Acquisition of other intangible assets Net cash used in investing activities Financing Activities Increase in bank indebtedness (note 11) Repayment of bank indebtedness (note 11) Issuance of subsidiary shares to non-controlling interests - private offering Share issuance costs from the issuance of subsidiary shares to non-controlling interests - private offering Issuance of subsidiary shares to non-controlling interests - public offering Share issuance expenses - public offering Exercise of stock options (note 14(b)) Treasury stock repurchased for settlement of share based compensation Repurchase of common shares Dividends paid to non-controlling interests Credit facility amendment fees paid Net cash provided by (used in) financing activities Effects of exchange rate changes on cash Increase in cash and cash equivalents during year Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Years Ended December 31, 2014 2015 2013 $ 64,624 - $ 42,169 (355) $ 44,115 309 42,803 3,725 (1,336) 22,379 785 - 3,838 (1,436) (15,119) (36,578) - 83,685 (43,257) (28,474) (2,000) - (5,065) (78,796) 25,290 (333) 40,000 (2,000) 178,226 (16,257) 35,609 (10,000) (34,276) (9,511) (1,533) 205,215 842 210,946 106,503 33,756 5,294 627 15,467 1,180 - 1,774 (703) (19,233) 6,057 572 86,605 (40,104) (16,838) (2,500) 507 (2,918) (61,853) 4,710 - 44,551 (3,556) - - 10,834 (790) (3,063) - (427) 52,259 (54) 76,957 29,546 37,172 1,336 12,899 12,685 1,183 (2,185) 2,757 - (20,935) (33,755) (548) 55,033 (13,016) (22,775) (4,000) - (2,486) (42,277) 12,000 (23,000) - - - (202) 8,970 - - - (2,151) (4,383) (163) 8,210 21,336 $ 317,449 $ 106,503 $ 29,546 (the accompanying notes are an integral part of these consolidated financial statements) 86 IMAX CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands of U.S. dollars) Accumulated (Deficit) Earnings Accumulated Other Comprehensive Loss Non- controlling Interests Total Shareholders' Equity Balance as at December 31, 2012 Net income Other comprehensive income, net of tax Paid-in capital for non-employee stock options granted (note 14(c)) Employee stock options exercised Non-employee stock options exercised Paid-in capital for employee stock options granted (note 14(c)) Paid-in capital for restricted share units granted (note 14(c)) Restricted share units vested (net of shares withheld for tax) (note 14(c)) Share issuance expenses Utilization of windfall tax benefits from employee stock options (note 9(f)) Balance as at December 31, 2013 Net income Other comprehensive loss, net of tax Other comprehensive loss attributable to a non-controlling interest (note 22(a)) Net income attributable to non-controlling interests Paid-in capital for non-employee stock options granted (note 14(c)) Employee stock options exercised Non-employee stock options exercised Paid-in capital for employee stock options granted (note 14(c)) Paid-in capital for restricted share units granted (note 14(c)) Restricted share units vested (net of shares withheld for tax) Capital Stock Common Shares Issued and Outstanding 66,482,425 $ 313,744 - - - 12,044 613 - - - - - 1,291,347 25,000 - - $ $ Other Equity 28,892 - - 174 (3,455) (232) 9,150 2,120 42,461 - 1,114 (202) (1,215) - - - 67,841,233 $ 327,313 - - - - $ 1,018 36,452 - - $ - - - 1,116,586 33,001 - - - - - 14,810 448 - - - - 149 (4,260) (165) 9,275 5,780 Restricted share units vested and issued to employees purchased on open market Repurchase of common shares Accretion charges associated with redeemable common stock Utilization of windfall tax benefits from vested restricted share units and expensed stock options (note 9(f)) Balance as at December 31, 2014 Net income Other comprehensive loss, net of tax Net income attributable to non-controlling interests Paid-in capital for non-employee stock options granted (note 14(c)) Employee stock options exercised Non-employee stock options exercised Paid-in capital for employee stock options granted (note 14(c)) Paid-in capital for restricted share units granted (note 14(c)) Restricted share units vested (net of shares withheld for tax) - (112,034) - - (545) - - - 68,988,050 $ 344,862 - - - - 49,756 206 - - - - - - 1,650,643 9,000 - - $ $ (790) - - 4,026 47,319 - - - 81 (14,278) (75) 12,225 8,075 (note 14(c)) 25,551 626 (1,151) (note 14(c)) 109,264 2,836 (3,148) - (87,166) $ 44,115 - - - - - - - - - (43,051) $ 42,169 - - (2,433) - - - - - - (2,518) (426) - (6,259) $ 64,624 - (8,780) - - - - - - - Restricted share units vested and issued to employees purchased on open market Stock options exercises settled from treasury shares purchased on open market Repurchase of common shares Accretion charges associated with redeemable common stock Utilization of windfall tax benefits from vested restricted share units and expensed stock options (note 9(f)) Issuance of subsidiary shares, initial public offering Share issuance expenses, initial public offering Dividends paid (note 22) Tax impact of sale of subsidiary shares in initial public offering Reduction in non-controlling interest value upon qualified initial - - (6,203) - (1,000,000) - - (5,390) - (3,797) - - - (28,886) (769) - - - - - - 71,291 (13,041) - - 529 106,935 (3,216) - (12,450) - - - - - public offering Conversion of Class C Shares upon initial public offering Balance as at December 31, 2015 - - 69,673,244 $ 448,310 - - 29,100 - $ 163,094 $ - - 19,930 $ - - (7,443) $ (29,100) 79,041 49,959 $ (The accompanying notes are an integral part of these consolidated financial statements) 87 (2,391) $ - 1,262 - - - - - - - - (1,129) $ - (1,960) (58) - - - - - - - - - - - $ - - - - - - - - - - - $ - - - - - - - - - - - - - - (3,147) $ - (4,296) - - - - - - - - $ - 416 9,113 - - - - - - - - - - - - - - - - - - - - - - - (9,511) - 253,079 44,115 1,262 174 8,589 381 9,150 2,120 (101) (202) 1,018 319,585 42,169 (1,960) (58) (2,433) 149 10,550 283 9,275 5,780 (312) (790) (3,063) (426) 4,026 382,775 64,624 (3,880) 333 81 35,478 131 12,225 8,075 (525) (6,203) (3,797) (34,276) (769) 529 178,226 (16,257) (9,511) (12,450) - 79,041 673,850 IMAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Tabular amounts in thousands of U.S. dollars, unless otherwise stated) 1. Description of the Business IMAX Corporation, together with its consolidated subsidiaries (the “Company”), is an entertainment technology company specializing in 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 and institutional customers located in 67 countries as at December 31, 2015; 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 IMAX theater 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 associated parts 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, film production 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, joint revenue 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 Policies Significant accounting policies are summarized as follows: The Company prepares its consolidated financial statements in accordance with U.S. GAAP. (a) Basis of Consolidation The consolidated financial statements include the accounts of the Company together with its consolidated subsidiaries, except for subsidiaries which the Company has identified as variable interest entities (“VIEs”) where the Company is not the primary beneficiary. The Company has evaluated its various variable interests to determine whether they are VIEs as required by the Consolidation Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC” or “Codification”). The Company has 11 film production companies that are VIEs. For five of the Company’s film production companies, the Company has determined that it is the primary beneficiary of these entities as the Company has the power to direct the activities of the 88 respective VIE that most significantly impact the respective VIE's economic performance and has the obligation to absorb losses of the VIE that could potentially be significant to the respective VIE or the right to receive benefits from the respective VIE that could potentially be significant to the respective VIE. These consolidated production companies have total assets of $7.2 million (December 31, 2014 — $7.7 million) and total liabilities of $4.1 million as at December 31, 2015 (December 31, 2014 — $0.3 million). The majority of these consolidated assets are held by the IMAX Original Film Fund (the “Film Fund”) as described in note 22(b). For the other six film production companies which are VIEs, the Company did not consolidate these film entities since it does not have the power to direct activities and does not absorb the majority of the expected losses or expected residual returns. The Company equity accounts for these entities. As at December 31, 2015, these six VIEs have total assets and total liabilities of $0.4 million (December 31, 2014 — $0.4 million). Earnings of the investees included in the Company’s consolidated statement of operations amounted to $nil in 2015 (2014 — $nil). The carrying value of these investments in VIEs that are not consolidated is $nil at December 31, 2015 (December 31, 2014 — $nil). A loss in value of an investment other than a temporary decline is recognized as a charge to the consolidated statement of operations. The Company’s exposure, which is determined based on the level of funding contributed by the Company and the development stage of the respective film, is $nil at December 31, 2015 (2014 — $nil). The Company accounts for investments in new business ventures using the guidance of the FASB ASC 323 “Investments – Equity Method and Joint Ventures” (“ASC 323”) and ASC 320 “Investments in Debt and Equity Securities” (“ASC 320”), as appropriate. All intercompany accounts and transactions, including all unrealized intercompany profits on transactions with equity-accounted investees, have been eliminated. (b) Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could be materially different from these estimates. Significant estimates 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, financing receivables 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 for contingencies including tax contingencies; valuation allowances for deferred income tax assets; and, estimates of the fair value of stock-based payment awards. (c) Cash and Cash Equivalents The Company considers all highly liquid investments convertible to a known amount of cash and with an original maturity to the Company of three months or less to be cash equivalents. (d) Accounts Receivable and Financing Receivables Allowances for doubtful accounts receivable are based on the Company’s assessment of the collectibility of specific customer balances, which is based upon a review of the customer’s credit worthiness, past collection history and the underlying asset value of the equipment, where applicable. Interest on overdue 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 or services, 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. When facts and circumstances indicate that there is a potential impairment in the net investment in lease or a financing receivable, the Company will evaluate the potential outcome of either renegotiations involving changes in the terms of the receivable or defaults on the existing lease or financed sale agreements. The Company will record a provision if it is considered probable that the Company will be unable to collect all amounts due under the 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 the carrying value in the investment and the present value of expected future cash flows discounted using the effective 89 interest rate for the net investment in the lease 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 the investment 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 applied to 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 flows differ 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 collectibility issues are resolved. When finance income is not recognized, any payments received are applied against outstanding gross minimum lease amounts receivable or gross receivables from financed sales. Once the collectability issues are resolved, the Company will once again commence the recognition of interest income. (e) Inventories Inventories are carried at the lower of cost, determined on an average cost basis, and net realizable value except for raw materials, which are carried at the lower of cost and replacement cost. Finished goods and work-in-process include the cost of raw materials, direct labor, theater design costs, and an applicable 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 to revenues-equipment and product sales when revenue recognition criteria are met. The costs related to theater systems under operating lease arrangements and joint revenue sharing arrangements are transferred from inventory to assets under construction in property, plant and equipment when allocated to a signed joint 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 the anticipated installation dates for the current backlog of theater system contracts, technological developments, signings in negotiation, growth prospects within 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 delivered to the customer) but the revenue recognition criteria as discussed in note 2(m) have not been met. (f) Film Assets Costs of producing films, including labor, allocated overhead, capitalized interest, and costs of acquiring film rights are recorded as film assets and accounted for in accordance with Entertainment-Films Topic of the FASB ASC. Production financing provided by third parties that acquire substantive rights in the film is recorded as a reduction of the cost of the production. Film 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 are prepared on a title-by-title basis and reviewed regularly by management and revised where necessary to reflect the most current information. Ultimate revenues for films 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 in the revenue of the third party are included in film assets. These costs are amortized using the individual-film- forecast method in the same ratio that current gross revenues bear to current and anticipated future ultimate revenues from the re- mastered film. The recoverability of film assets is dependent upon commercial acceptance of the films. If events or circumstances indicate that the recoverable amount of 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 assets using a discounted cash flow model. 90 (g) Property, Plant and Equipment Property, 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 Buildings Office and product equipment — 3 to 5 years Leasehold improvements — 5 to 10 years — 20 to 25 years — 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 an allocation of direct production costs, are included in assets under construction until such equipment is installed and in working condition, at which time the equipment is depreciated on a straight-line basis over the lesser of the term of the joint revenue sharing arrangement and the equipment’s anticipated useful life. The Company reviews the carrying values of its property, plant and equipment for impairment whenever events or changes in circumstances indicate that 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 are largely independent when testing for, and measuring for, impairment. In performing its review of recoverability, the Company estimates the future cash flows expected 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 than the carrying amount of the asset or asset group, an impairment loss is recognized in the consolidated statements of operations. Measurement of the impairment 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 cash flows. A liability for the fair value of an asset retirement obligation associated with the retirement of tangible long-lived assets and the associated asset retirement costs are recognized in the period in which the liability and costs are incurred if a reasonable estimate of fair value can be made using a discounted cash flow model. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset and subsequently amortized over the asset’s useful life. The liability is accreted over the period to expected cash outflows. (h) Other Assets Other assets include insurance recoverable, deferred charges on debt financing, deferred selling costs that are direct and incremental to the acquisition of 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 applicable to 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 Value Measurements 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 incentives include 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 the term 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 joint venture investment with TCL Multimedia Technology Holdings Limited, using the equity method of accounting. The Company accounts for in-kind contributions to its equity investment in accordance with ASC 845 “Non-Monetary Transactions” (“ASC 845”) whereby if the fair value of the asset or assets contributed is greater than the carrying value a partial gain shall be recognized. 91 The Company’s investment in debt securities is classified as an available-for-sale investment in accordance with ASC 320. Unrealized holding gains and losses for this investment is excluded from earnings and reported in other comprehensive income until realized. Realization occurs upon sale of a portion of 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 Company intends 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, is accounted for at cost. (i) Goodwill Goodwill represents the excess of purchase price over the fair value of net identifiable assets acquired in a purchase business combination. Goodwill is not subject to amortization and is tested for impairment annually, or more frequently if events or circumstances indicate that the asset might be impaired. The Company performs a qualitative assessment of its reporting units and certain select quantitative calculations against its current long range plan to determine whether 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. The Company first assesses certain qualitative factors to determine whether the existence of events or circumstances leads to determination that it is more likely than 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 Company determines 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 is unnecessary. When necessary, impairment of goodwill is tested at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, 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 amount of 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 of each identifiable asset and liability in the reporting unit to the total fair value of the reporting unit. Any impairment loss is expensed in the consolidated statement of operations and is not reversed if the fair value subsequently increases. (j) Other Intangible Assets Patents, trademarks and other intangibles are recorded at cost and are amortized on a straight-line basis over estimated useful lives ranging from 4 to 10 years except, for intangible assets that have an identifiable pattern of consumption of the economic benefit of the asset, which are amortized over the consumption pattern. The Company reviews the carrying values of its other intangible assets for impairment whenever events or changes in circumstances indicate that 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 are largely independent when testing for, and measuring for, impairment. In performing its review for recoverability, the Company estimates the future cash flows expected 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 than the carrying amount of the asset or asset group, an impairment loss is recognized in 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 over the fair value calculated using discounted expected future cash flows. (k) Deferred Revenue Deferred revenue represents cash received prior to revenue recognition criteria being met for theater system sales or leases, film contracts, maintenance and extended warranty services, film related services and film distribution. (l) Income Taxes Income taxes are accounted for under the liability method whereby deferred income tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the accounting and tax bases of assets and liabilities. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates or laws is recognized in the consolidated statement of operations in the period in which the change is enacted. Investment tax credits are recognized as a reduction of income tax expense. 92 The Company assesses realization of deferred income tax assets and, based on all available evidence, concludes whether it is more likely than not that the net deferred income tax assets will be realized. A valuation allowance is provided for the amount of deferred income tax assets not considered to be realizable. The Company is subject to ongoing tax exposures, examinations and assessments in various jurisdictions. Accordingly, the Company may incur additional tax expense based upon the outcomes of such matters. In addition, when applicable, the Company adjusts tax expense to reflect the Company’s ongoing assessments of such matters which require judgment and can materially increase or decrease its effective rate as well as impact operating results. The Company provides for such exposures in accordance with the Income Taxes Topic of the FASB ASC. (m) Revenue Recognition Multiple Element Arrangements The 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 of installation, 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 deliverables represent separate units of accounting based on the applicable accounting guidance in the Leases Topic of the FASB ASC; the Guarantees Topic of the FASB ASC; the Entertainment – Films Topic of FASB ASC; and the Revenue Recognition Topic of the FASB. If separate units of accounting are either required under the relevant accounting standards or determined to be applicable under the Revenue Recognition Topic, the total consideration received or receivable in the arrangement is allocated based on the applicable guidance in the above noted standards. Theater Systems The Company has identified the projection system, sound system, screen system and, if applicable, 3D glasses cleaning machine, theater design support, 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 in the arrangement are considered by the Company to be a single deliverable and a single unit of accounting. The Company is not responsible for the physical installation of the equipment in the customer’s facility; however, the Company supervises the installation by the customer. The customer has the right to use the IMAX brand from the date the Company and the customer enter into an arrangement. The Company’s System Deliverable arrangements involve either a lease or a sale of the theater system. Consideration for the System Deliverable, other than for those delivered pursuant to joint revenue sharing arrangements, consist of upfront or initial payments made before and after the final installation of the theater system equipment and ongoing payments throughout the term of the lease or over a period of time, as specified in the arrangement. The ongoing payments 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 fixed minimum amounts are considered contingent payments. The Company’s arrangements are non-cancellable, unless the Company fails to perform its obligations. In the absence of a material default by the Company, there is no right to any remedy for the customer under the Company’s arrangements. If a material default by the Company exists, the customer has the right to terminate the arrangement and seek a refund only if the customer provides notice to the Company of a material default and only if the Company does not cure the default within a specified period. For arrangements entered into or materially modified after January 1, 2011, consideration is allocated to each unit of accounting based on the unit’s relative selling prices. The Company uses vender-specific objective evidence of selling price (VSOE) when the Company sells the deliverable separately and is the price actually charged by the Company for that deliverable. VSOE is established for the Company’s System Deliverable, maintenance and extended warranty services and film license arrangements. The Company uses a best estimate of selling price (BESP) for units of accounting that do not have VSOE or third party evidence of selling price. The Company determines BESP for a deliverable by considering multiple factors including the Company’s historical pricing practices, product class, market competition and geography. 93 Sales Arrangements For arrangements qualifying as sales, the revenue allocated to the System Deliverable is recognized in accordance with the Revenue Recognition Topic 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 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 written 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 there is persuasive evidence of an arrangement, the price is fixed or determinable and collectibility is reasonably assured. The initial revenue recognized consists of the initial payments received and the present value of any future initial payments and fixed minimum ongoing payments that have been attributed to this unit of accounting. Contingent payments in excess of the fixed minimum ongoing payments are recognized 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 buyouts is 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 Arrangements The 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 arrangement that transfers substantially all of the benefits and risks incident to ownership of the equipment is classified as a sales-type lease based on the criteria established by the accounting standard; otherwise the lease is classified as an operating lease. Prior to commencement of the lease term for the equipment, the Company may modify certain payment terms or make concessions. If these circumstances occur, the Company reassesses the classification of the lease based on the modified terms and conditions. For sales-type leases, the revenue allocated to the System Deliverable is recognized when the lease term commences, which the Company deems to be when all of the following conditions have been met: (i) the projector, sound system and screen system have been installed and are in full working condition; (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 the written 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 fixed minimum ongoing payments computed at the interest rate implicit in the lease. Contingent payments in excess of the fixed minimum payments are recognized when reported by theater operators, provided 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. For operating leases, the lease term is considered to commence when all of the following conditions have been met: (i) the projector, sound system and screen system have been installed and 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 written 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. Contingent payments in excess of fixed minimum ongoing payments 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 in accordance 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. 94 Finance Income Finance income is recognized over the term of the sales-type lease or financed sales receivable, provided collectibility is reasonably 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 the Company. Once the collectability issues are resolved the Company will resume recognition of finance income. Improvements and Modifications Improvements and modifications to the theater system after installation are treated as separate revenue transactions, if and when the Company is requested to perform these services. Revenue is recognized for these services when the performance of the services has been completed, provided there is persuasive evidence of an arrangement, the fee is fixed or determinable and collectibility is reasonably assured. Cost of Equipment and Product Sales Theater systems and other equipment subject to sales-type leases and sales arrangements includes the cost of the equipment and costs related to project management, design, delivery and installation supervision services as applicable. The costs related to theater systems under sales and sales-type lease arrangements are relieved from inventory to costs and expenses applicable to revenues- equipment and product sales when revenue recognition criteria are met. In addition, the Company defers direct selling costs such as sales commissions and other amounts related to these contracts until the related revenue is recognized. These costs included in costs and expenses applicable to revenues-equipment and product sales, totaled $3.4 million in 2015 (2014 – $2.5 million, 2013 – $2.5 million). The cost of equipment and product sales prior to direct selling costs was $60.2 million in 2015 (2014 – $34.5 million, 2013 – $35.0 million). The Company may have warranty obligations at or after the time revenue is recognized which require replacement of certain parts that do not affect the functionality of the theater system or services. The costs for warranty obligations for known issues are accrued as charges to costs and expenses applicable to revenues-equipment and product sales at the time revenue is recognized based on the Company’s past historical experience and cost estimates. Cost of Rentals For theater systems and other equipment subject to an operating lease or placed in a theater operators’ venue under a joint revenue sharing arrangement, the cost of equipment and those costs that result directly from and are essential to the arrangement, is included within property, plant and equipment. Depreciation and impairment losses, if any, are included in cost of rentals based on the accounting policy set out in note 2(g). Commissions are recognized 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 2015 (2014 – $1.1 million, 2013 – $1.9 million). Direct advertising and marketing costs for each theater are charged to costs and expenses applicable to revenues-rentals as incurred. These costs totaled $1.9 million in 2015 (2014 – $1.5 million, 2013 – $1.7 million). Terminations, Consensual Buyouts and Concessions The Company enters into theater system arrangements with customers that contain customer payment obligations prior to the scheduled installation of the theater system. During the period of time between signing and the installation of the theater system, which may extend several years, certain customers may be unable to, or may elect not to, proceed with the theater system installation for a number of reasons including business considerations, or the inability to obtain certain consents, approvals or financing. Once the determination is made that the customer will not proceed with installation, the arrangement may be terminated under the default provisions of the arrangement or by mutual agreement between the Company and the customer (a “consensual buyout”). Terminations by default are situations when a customer does not meet the payment obligations under an arrangement and the Company retains the amounts paid by the customer. Under a consensual buyout, the Company and the customer agree, in writing, to a settlement and to release each other of any further obligations under the arrangement or an arbitrated settlement is reached. Any initial payments retained or additional payments received by the Company are recognized as revenue when the settlement arrangements are executed and the cash is received, respectively. These termination and consensual buyout amounts 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 been installed to arrangements to acquire or lease the IMAX digital theater system. The Company considers these situations to be a termination of the previous arrangement and origination of a new arrangement for the IMAX digital theater system. For all arrangements entered into or modified prior to the date of adoption of the amended FASB ASC 605-25, the Company continues to 95 defer 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 initial and 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 the obligation for the original theater system is terminated and the new theater system arrangement is signed. Under the amended FASB ASC 605-25, for all arrangements entered into or materially modified after the date of adoption, the total arrangement consideration to be received is allocated on a relative selling price basis to the digital upgrade and the termination of the previous theater system. The arrangement consideration allocated to the termination of the existing arrangement is recorded in Other revenues at the time when the obligation for the original theater system is terminated and the 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 and products 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 direct reduction 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 and services are accounted for as separate units of accounting. Other consideration given by the Company to customers are accounted for in accordance with the Revenue Recognition Topic of the FASB ASC. Maintenance and Extended Warranty Services Maintenance and extended warranty services may be provided under a multiple element arrangement or as a separately priced contract. Revenues related to these services are deferred and recognized on a straight-line basis over the contract period and are recognized in Services revenues. Maintenance and 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 extended warranty program are expensed as incurred. A loss on maintenance and extended warranty services is recognized if the expected cost of providing the services under the contracts exceeds the related deferred revenue. Film Production and IMAX DMR Services In certain film arrangements, the Company produces a film financed by third parties whereby the third party retains the copyright and the Company obtains exclusive distribution rights. Under these arrangements, the Company is entitled to receive a fixed fee or to retain as a fee the excess of funding over cost of production (the “production fee”). The third parties receive a portion of the revenues received by the Company from distributing the film, which is charged 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 on the ratio of the Company’s distribution revenues recognized in the current period to the ultimate distribution revenues expected from the film. Film exploitation costs, including advertising and marketing totaled $13.3 million in 2015 (2014 — $7.1 million, 2013 — $4.2 million) and are recorded in costs and 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 when performance of the contractual service is complete, provided there is persuasive evidence of an agreement, the fee is fixed or determinable and collectibility is 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 derived in the form of processing fees and recoupments calculated as a percentage of box-office receipts generated from the re-mastered films. Processing fees are recognized as Services revenues when the performance of the related re-mastering service is completed provided there is persuasive evidence of an arrangement, the fee is fixed or determinable and collectibility is reasonably assured. Recoupments, calculated as a percentage of box-office receipts, are recognized as Services revenue when box-office receipts are reported by the third party that owns or holds the related film rights, provided collectibility is reasonably assured. Losses on film production and IMAX DMR services are recognized as costs and expenses applicable to revenues-services in the period when it is determined that the Company’s estimate of total revenues to be realized by the Company will not exceed estimated total production costs to be expended on the film production and the cost of IMAX DMR services. Film Distribution Revenue from the licensing of films is recognized in Services revenues when persuasive evidence of a licensing arrangement exists, the film has been completed and delivered, the license period has begun, the fee is fixed or determinable and collectibility is 96 reasonably assured. When license fees are based on a percentage of box-office receipts, revenue is recognized when box-office receipts are reported by exhibitors, provided collectibility is reasonably assured. Film exploitation costs, including advertising and marketing, totaled a recovery of $0.1 million in 2015 (2014 — expense of $0.6 million, 2013 — expense of $0.4 million) and are recorded in costs and expenses applicable to revenues-services as incurred. Film Post-Production Services Revenues from post-production film services are recognized in Services revenues when performance of the contracted services is complete provided there is persuasive evidence of an arrangement, the fee is fixed or determinable and collectibility is reasonably assured. Other The Company recognizes revenue in Services revenues from its owned and operated theaters resulting from box-office ticket and concession sales as tickets are sold, films are shown and upon the sale of various concessions. The sales are cash or credit card transactions with theater goers based on fixed prices per seat or per concession item. In addition, the Company enters into commercial arrangements with third party theater owners resulting in the sharing of profits and losses which are recognized in Services revenues when reported by such theaters. The Company also provides management services to certain theaters and recognizes revenue over 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 Development Research and development costs are expensed as incurred and primarily include projector and sound parts, labor, consulting fees, allocation of overheads and other related materials which pertain to the Company’s development of ongoing product and services. Research and development costs pertaining to fixed and intangible assets that have alternative future uses are capitalized and amortized under their related policies. (o) Foreign Currency Translation Monetary assets and liabilities of the Company’s operations which are denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the end of the period. Non-monetary items are translated at historical exchange rates. Revenue and expense transactions are translated at exchange rates prevalent at the transaction date. In 2013, the Company determined that the functional currency of one of its consolidated subsidiaries had changed from the Company’s reporting currency to the currency of the nation in which it is domiciled. As a result, in accordance with the FASB ASC 830 “Foreign Currency Matters”, the adjustment attributable to current-rate translation of non-monetary assets as of the date of the change was reported in other comprehensive income (“OCI”). The functional currency of its other consolidated subsidiaries continues to be the United 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 recognized in the consolidated statement of operations except for derivatives designated and qualifying as foreign currency hedging instruments. For foreign currency hedging instruments, the effective portion of the gain or loss in a hedge of a forecasted transaction is reported in other comprehensive income and reclassified to the consolidated statement of operations when the forecasted transaction occurs. Any ineffective portion is recognized immediately in the consolidated statement of operations. 97 (p) Stock-Based Compensation The 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 of the employee award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s consolidated statement of operations. The Company utilizes a lattice-binomial option-pricing model (“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 and subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The Binomial Model also considers the expected exercise multiple which is the multiple of exercise price to grant price at which exercises are expected to occur on average. Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable. Because the Company’s employee stock options have certain characteristics that are significantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, in management’s opinion, the Binomial Model best provides a fair measure of the fair value of the Company’s employee stock options. See note 14(c) for the assumptions 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 or cancelled employee awards. In addition, compensation expense includes the compensation cost, based on the grant-date fair value calculated for pro forma disclosures under ASC 718-10-55, for the portion of awards for which required service had not been rendered that were outstanding. Compensation expense for these employee awards is recognized using the straight-line single-option method. As stock-based compensation expense recognized is based on awards ultimately expected to vest, it has been adjusted for estimated forfeitures. The Codification requires forfeitures to be estimated at the time of grant and revised, if subsequent information indicates that the actual forfeitures are likely to be different from previous estimates. The Company utilizes the market yield on U.S. treasury securities (also known as nominal rate) over the contractual term of the instrument being issued. Stock Options As the Company stratifies its employees into homogeneous groups in order to calculate fair value under the Binomial Model, ranges of assumptions used are presented for expected option life and annual termination probability. The Company uses historical data to estimate option exercise and employee termination within the valuation model; various groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected volatility rate is estimated based on a blended volatility method which takes into consideration the Company’s historical share price volatility, the Company’s implied volatility which is implied by the observed current market prices of the Company’s traded options and the Company’s peer group volatility. The Company utilizes the Binomial Model to determine expected option life based on such data as vesting periods of awards, historical data 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 Units The 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 the Company’s common stock on the date of grant. Stock Appreciation Rights The Company’s SARs have been classified as liabilities in accordance with Topic 505. The Company utilizes the Binomial Model to determine the value of these instruments settleable in cash. 98 Awards to Non-Employees Stock-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 remeasured until the earlier of the date that the Company has a performance commitment from the non-employees, the date performance is completed, or the date the awards vest. (q) Pension Plans and Postretirement Benefits The Company has a defined benefit pension plan, the Supplemental Executive Retirement Plan (the “SERP”). As the Company’s SERP is unfunded, as at December 31, 2015, 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 adjusted for current conditions. Actuarial gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefits cost are recognized as a component of other comprehensive income. Amounts recognized in accumulated other comprehensive income including unrecognized actuarial gains or losses and prior service costs are adjusted as they are subsequently recognized in the consolidated statement of operations as components of net periodic benefit cost. Prior service costs resulting from the pension plan inception or amendments are amortized over the expected future service life of the employees, cumulative actuarial gains and losses in excess of 10% of the projected benefit obligation are amortized over the expected average remaining service life of the employees, and current service costs are expensed when earned. The remaining weighted average future service life of the employee used in computing the defined benefit obligation for the year ended December 31, 2015 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 the accumulated benefit obligation are reviewed by management in consultation with its actuaries and adjusted for current conditions. Current service cost is recognized as incurred and actuarial gains and losses are recognized as a component of other comprehensive income (loss). Amounts recognized in accumulated other comprehensive income (loss) including unrecognized actuarial gains or losses are adjusted as they are subsequently recognized in the consolidated statement of operations as components of net periodic benefit cost. (r) Guarantees The 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(h). 3. New Accounting Standards and Accounting Changes Adoption of New Accounting Policies In April 2014, the FASB issued ASU No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosure of Disposals of Components of an Entity” (“ASU 2014- 08”). The amendments in ASU 2014-08 change the requirements for reporting discontinued operations in Subtopic 205-20. The amendments improve the definition of discontinued operations by limiting discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity’s operations and financial results. The amendments also require expanded disclosures for discontinued operations. For public companies, the amendments apply to all disposals of components of an entity that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years and are to be applied prospectively. The Company adopted the standard on January 1, 2015. The adoption of the amended standard did not have a material impact on the Company’s consolidated financial statements. In June 2015, the FASB issued ASU No. 2015-10, “Technical Corrections and Improvements” (“ASU 2015-10”). The amendments in ASU 2015-10 represent changes to clarify, correct unintended application of guidance, or make minor improvements to the accounting standards codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. For public companies, the standard is effective immediately for amendments that do not have transition guidance. Amendments that are subject to transition guidance, the effective date is interim and annual reporting periods beginning after December 15, 2015. The Company adopted the standard immediately upon issuance for amendments that do 99 not have transition guidance. The adoption of the amended standard did not have a material impact on the Company’s consolidated financial statements. Recently Issued FASB Accounting Standard Codification Updates In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”), and in August 2015 issued ASU No. 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of- Credit Arrangements” (“ASU 2015-15”). Under ASU 2015-03, debt issuance costs reported on the consolidated balance sheet would be reflected as a direct deduction from the related debt liability rather than as an asset. While ASU 2015-03 addresses costs related to term debt, ASU No. 2015-15 provides clarification regarding costs to secure revolving lines of credit, which are, at the outset, not associated with an outstanding borrowing. ASU No. 2015-15 provides commentary that the SEC staff would not object to an entity deferring and presenting costs associated with line-of-credit arrangements as an asset and subsequently amortizing them ratably over the term of the revolving debt arrangement. For public companies, ASU No. 2015-03 is effective January 1, 2016, with early adoption permitted. The Company is currently assessing the impact of ASU 2015-11 on its consolidated financial statements. In July 2015, the FASB issued ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory” (“ASU 2015-11”). The purpose of the amendment is to more closely align the measurement of inventory in U.S. GAAP with the measurement of inventory in International Financial Reporting Standards. The clarifications are not intended to result in any changes in practice and to reduce the complexity in guidance on the subsequent measurement of inventory. This standard only applies to inventory being measured using the first-in, first-out or average cost methods of accounting for inventory. For public entities, the amendments are effective for interim and annual reporting periods beginning after December 15, 2016. The Company is currently assessing the impact of ASU 2015-11 on its consolidated financial statements. In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date” (“ASU 2015-14”). The purpose of the amendment is to defer the effective date of ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”) for all entities by one year. For public entities, the amendments in ASU 2014-09 are effective for interim and annual reporting periods beginning after December 15, 2017. The company is currently assessing the impact of ASU 2014-09 on its consolidated financial statements. Recently issued FASB accounting standard codification updates, except for ASU No. 2015-11 and ASUC 2015-14, were not material to the Company’s consolidated financial statements for the year ended December 31, 2015. 4. Lease Arrangements (a) General Terms of Lease Arrangements A 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 as certain clauses within the arrangements limit transfer of title or provide the Company with conditional rights to the system. The customer’s rights under the Company’s lease arrangements are described in note 2(m). The Company classifies its lease arrangements at inception of the arrangement and, if required, after a modification of the lease arrangement, to determine whether they are sales-type leases or operating leases. Under the Company’s lease arrangements, the customer has the ability and the right to operate the hardware components or direct others to operate them in a manner determined by the customer. The Company’s lease portfolio terms are typically non-cancellable for 10 to 20 years with renewal provisions from inception. Except for those sales arrangements that are classified as sales-type leases, the Company’s leases generally do not contain an automatic transfer of title at the end of the lease term. The Company’s lease arrangements do not contain a guarantee of residual value at the end of the lease term. The customer is required to pay for executory costs such as insurance and taxes and is required to pay the Company for maintenance and extended warranty generally after the first year of the lease until the end of the lease term. The customer is responsible for obtaining insurance coverage for the theater systems commencing on the date specified in the arrangement’s shipping terms and ending on the date the theater systems are delivered back to the Company. The Company has assessed the nature of its joint revenue sharing arrangements and concluded that, based on the guidance in the Revenue Recognition Topic of the ASC, the arrangements contain a lease. Under joint revenue sharing arrangements, the customer has the ability and the right to operate the hardware components or direct others to operate them in a manner determined by the customer. The Company’s joint revenue sharing arrangements are typically non-cancellable for 10 years or longer with renewal provisions. Title to equipment under joint revenue sharing arrangements does not transfer to the customer. The Company’s joint revenue sharing arrangements do not contain a guarantee of residual value at the end of the term. The customer is required to pay for executory costs such as insurance and taxes and is required to pay the Company for maintenance and extended warranty throughout 100 the term. The customer is responsible for obtaining insurance coverage for the theater systems commencing on the date specified in the arrangement’s shipping terms and ending on the date the theater systems are delivered back to the Company. See additional details regarding the Company’s traditional and hybrid joint revenue sharing arrangements as described in note 2(m). (b) Financing Receivables Financing receivables, consisting of net investment in sales-type leases and receivables from financed sales of theater systems are as follows: Gross minimum lease payments receivable Unearned finance income Minimum lease payments receivable Accumulated allowance for uncollectible amounts Net investment in leases Gross financed sales receivables Unearned finance income Financed sales receivables Accumulated allowance for uncollectible amounts Net financed sales receivables Total financing receivables Net financed sales receivables due within one year Net financed sales receivables due after one year As at December 31, 2015 $ 13,998 (2,381) 11,617 (672) 10,945 146,232 (39,378) 106,854 (568) 106,286 $ 117,231 $ 2014 13,928 (2,357) 11,571 (972) 10,599 131,155 (35,560) 95,595 (494) 95,101 $ 105,700 $ 19,068 $ 87,218 $ $ 15,544 79,557 In 2015, the financed sales receivables had a weighted average effective interest rate of 9.4% (2014 — 9.6%). (c) Contingent Fees Contingent fees that meet the Company’s revenue recognition policy, from customers under various arrangements, have been reported in revenue as follows: Sales Sales-type leases Operating leases Subtotal - sales, sales-type leases and operating leases Joint revenue sharing arrangements Years Ended December 31, $ 2015 2,492 363 901 3,756 82,016 $ 85,772 $ 2014 2,058 102 886 3,046 57,973 $ 61,019 $ 2013 2,493 184 1,009 3,686 58,694 $ 62,380 101 (d) Future Minimum Rental Payments Future minimum rental payments receivable from operating and sales-type leases at December 31, 2015, for each of the next five years are as follows: 2016 2017 2018 2019 2020 Thereafter Total Operating Leases Sales-Type Leases $ $ 993 794 688 527 478 2,074 5,554 $ $ 2,705 1,876 1,667 1,504 1,403 3,627 12,782 Total future minimum rental payments receivable from sales-type leases at December 31, 2015 exclude $1.2 million which represents amounts billed but not yet received. 5. Inventories Raw materials Work-in-process Finished goods As at December 31, 2015 $ 25,750 2,628 10,375 $ 38,753 $ 2014 9,147 1,211 6,705 $ 17,063 At December 31, 2015, finished goods inventory for which title had passed to the customer and revenue was deferred amounted to $5.4 million (December 31, 2014 — $1.4 million). Inventories at December 31, 2015 include write-downs for excess and obsolete inventory based upon current estimates of net realizable value considering future events and conditions of $0.6 million (December 31, 2014 — $0.4 million). 6. Film Assets Completed and released films, net of accumulated amortization of $112,571 (2014 ― $96,214) Films in production Films in development As at December 31, 2015 6,445 $ $ 2014 8,018 1,538 6,588 $ 14,571 1,758 5,387 $ 15,163 The Company expects to amortize film costs of $6.3 million for released films within three years from December 31, 2015 (December 31, 2014 — $7.1 million), including $3.6 million, which reflects the portion of the costs of the Company’s completed films that are expected to be amortized within the next year. The amount of participation payments to third parties related to these films that the Company expects to pay during 2016, which is included in accrued liabilities at December 31, 2015, is $3.9 million (2014 — $5.0 million). 102 7. Property Plant and Equipment Equipment leased or held for use Theater system components(1)(2)(3) Camera equipment(7) Assets under construction(4) Other property, plant and equipment Land Buildings Office and production equipment(6) Leasehold improvements Equipment leased or held for use Theater system components(1)(2)(3) Camera equipment(7) Assets under construction(4)(5) Other property, plant and equipment Land Buildings Office and production equipment(6) Leasehold improvements As at December 31, 2015 Accumulated Net Book Cost Depreciation Value $ $ 199,974 5,393 205,367 9,616 74,568 3,368 77,936 - $ 125,406 2,025 127,431 9,616 8,203 67,150 34,396 3,512 113,261 $ 328,244 - 12,679 17,035 2,327 32,041 $ 109,977 8,203 54,471 17,361 1,185 81,220 $ 218,267 As at December 31, 2014 Accumulated Net Book Cost Depreciation Value $ $ 179,236 5,253 184,489 43,250 63,862 2,874 66,736 - $ 115,374 2,379 117,753 43,250 8,180 16,584 27,996 9,937 62,697 $ 290,436 - 10,998 19,659 9,619 40,276 $ 107,012 8,180 5,586 8,337 318 22,421 $ 183,424 ______________ (1) Included in theater system components are assets with costs of $11.5 million (2014 — $15.3 million) and accumulated depreciation of $7.3 million (2014 — $9.1 million) that are leased to customers under operating leases. (2) Included in theater system components are assets with costs of $178.0 million (2014 — $157.6 million) and accumulated depreciation of $62.2 million (2014 — $50.2 million) that are used in joint revenue sharing arrangements. (3) In 2015, the Company identified and wrote off $1.1 million of theater system components upon the upgrade of xenon-based digital systems under operating lease arrangements to laser-based digital systems under sales or sales-type lease arrangements. In 2015, the Company recorded $2.2 million (2014 — $0.3 million) related to theater system components that are no longer in use and fully amortized. (4) Included in assets under construction are components with costs of $6.0 million (2014 — $0.1 million) that will be utilized to construct assets to be used in joint revenue sharing arrangements. (5) In 2014, included in assets under construction is $40.1 million, including accrued expenditures of $12.2 million for the construction of a new office facility in California. (6) Fully amortized office and production equipment is still in use by the Company. In 2015, the Company identified and wrote off $3.1 million (2014 - $2.0 million) of office and production equipment that is no longer in use and fully amortized. 103 (7) Fully amortized camera equipment is still in use by the Company. In 2015 and 2014, the Company identified and wrote off $nil and $0.3 million, respectively of camera equipment that is no longer in use and fully amortized. 8. Other Assets Prepaid taxes (note 9) Lease incentives provided to theaters Commissions and other deferred selling expenses Equity-accounted investments Deferred charges on debt financing Other investments Insurance recoverable 9. Income Taxes As at December 31, 2015 9,064 5,852 3,933 1,005 2,638 1,193 2,842 26,527 $ $ 2014 8,174 5,785 3,448 2,765 2,120 619 136 23,047 $ $ (a) Income (loss) from continuing operations before income taxes by tax jurisdiction are comprised of the following: Years Ended December 31, 2015 2014 2013 Canada United States China Ireland Other $ $ 41,099 4,504 45,818 (10,581) 6,238 87,078 $ $ 15,453 10,350 26,327 - 5,221 57,351 $ $ 51,593 678 12,012 - (473) 63,810 (b) The (provision for) recovery of income taxes related to income from continuing operations is comprised of the following: Current: Canada United States China Ireland Other Deferred:(1) Canada United States China Ireland Other Years Ended December 31, 2015 2014 2013 $ (10,862) $ 985 (10,591) (3,495) $ (4,072) (6,023) - (920) (21,388) - (249) (13,839) (1,068) (144) (2,317) - (201) (3,730) (518) 147 (83) 1,840 (50) 1,336 $ (20,052) $ 433 (791) (216) - (53) (627) (13,198) 214 (252) - 337 (12,899) (14,466) $ (16,629) 104 ______________ (1) For the year ended December 31, 2015, the Company has increased the valuation allowance by less than $0.1 million (2014 — $4.4 million decrease) relating to the future utilization of deductible temporary differences, tax credits, and certain net operating loss carryforwards. Also included in the provision for income taxes is the deferred tax related to amounts recorded in and reclassified from other comprehensive income in the year of $0.5 million. (c) The provision for income taxes from continuing operations differs from the amount that would have resulted by applying the combined Canadian federal and provincial statutory income tax rates to earnings due to the following: Income tax provision at combined statutory rates Adjustments resulting from: Stock based compensation Other non-deductible/non-includable items Change in valuation allowance relating to current year temporary differences Changes to tax reserves U.S. federal and state taxes Income tax at different rates in foreign and other provincial jurisdictions Investment and other tax credits (non-refundable) Changes to deferred tax assets and liabilities resulting from audit and other tax return adjustments Tax effect of loss from equity-accounted investments Other Provision for income taxes, as reported (d) The net deferred income tax asset is comprised of the following: Years Ended December 31, 2015 2014 2013 $ (23,081) $ (15,189) $ (16,914) 2,387 (439) (16) (453) (27) 961 881 (242) (2,244) 1,257 429 230 (200) 516 1,773 (1,013) (2,603) (341) 341 84 (144) 918 1,041 11 - (23) $ (20,052) (41) 16 $ (14,466) 1,040 (62) $ (16,629) Net operating loss carryforwards Investment tax credit and other tax credit carryforwards Write-downs of other assets Excess tax over accounting basis in property, plant and equipment, inventories and other assets Accrued pension liability Other accrued reserves Total deferred income tax assets Income recognition on net investment in leases Valuation allowance Net deferred income tax asset As at December 31, 2015 2014 $ 1,158 - 720 11,741 6,626 7,656 27,901 (1,809) 26,092 (326) $ 25,766 $ 1,091 225 681 8,062 6,496 7,955 24,510 (1,142) 23,368 (310) $ 23,058 The gross deferred tax assets include an asset of $1.2 million relating to the remaining tax effect resulting from the Company’s defined benefit pension plan and postretirement benefit plans, the related actuarial gains and losses and unrealized net gains and losses on cash flow hedging instruments recorded in accumulated other comprehensive loss. In 2015, the Company recorded an adjustment of $14.0 million to deferred tax assets, $5.9 million to the income tax provision and $8.1 million to shareholders’ equity related to excess tax benefits generated on the exercise of certain employee stock options. In conjunction with this, a provision for uncertain tax positions of $3.9 million was recorded to income tax provision and $7.9 million was recorded against shareholders’ equity. 105 During the year, the Company and its subsidiaries completed a number of intra-entity sales of assets. The Company has deferred or eliminated the related 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 reinvested indefinitely. Taxes are provided for earnings of non-Canadian affiliates and associated companies when the Company determines that such earnings are no longer indefinitely reinvested. (e) Estimated net operating loss carryforwards (excluding state losses) and estimated tax credit carryforwards expire as follows: 2016 2017 2018 2019 2020 Thereafter Investment Tax Credits and Other Net Operating Tax Credit Loss Carryforwards Carryforwards $ $ - - - - - 2,119 2,119 $ $ - - - - - 15,705 15,705 Estimated net operating loss carryforwards can be carried forward to reduce taxable income through to 2036. Investment tax credits and other tax credits can be carried forward to reduce income taxes payable through to 2036. (f) Valuation allowance The provision for income taxes in the year ended December 31, 2015 includes a net income tax expense of less than $0.1 million (2014 — $0.4 million recovery) in continuing operations related to an increase in the valuation allowance for the Company’s deferred tax assets and other tax adjustments. During the year ended December 31, 2015, after considering all available evidence, both positive (including recent and historical profits, projected future profitability, 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 tax assets should be increased by less than $0.1 million (2014 — $4.4 million decrease). The remaining $0.3 million (2014 — $0.3 million) balance in the valuation allowance as at December 31, 2015 is primarily attributable to certain U.S. state net operating loss carryovers that may expire unutilized. (g) Uncertain tax positions In 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 tax requirements and a decrease in reserves for income taxes. As at December 31, 2015 and December 31, 2014, the Company had total unrecognized tax benefits (including interest and penalties) of $14.6 million and $2.3 million, respectively, for deductibility of stock based compensation, international withholding taxes and other items. Approximately $6.3 million of the unrecognized tax benefits could impact the Company's effective tax rate if recognized. While the Company believes it has adequately provided for all tax positions, amounts asserted by 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. 106 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) Balance at beginning of the year Additions based on tax positions related to the current year Reductions resulting from lapse of applicable statute of limitations and administrative $ 2015 1,972 12,694 $ 2014 2,202 237 $ 2013 2,286 210 practices Balance at the end of the year (445) $ 14,221 $ (467) 1,972 $ (294) 2,202 Consistent with its historical financial reporting, the Company has elected to classify interest and penalties related to income tax liabilities, when applicable, as part of the interest expense in its consolidated statements of operations rather than income tax expense. The Company recovered less than $0.1 million in potential interest and penalties associated with its provision for uncertain tax positions for the years ended December 31, 2015 (2014 — $0.2 million recovery, 2013 — less than $0.1 million recovery). The number of years with open tax audits varies depending on the tax jurisdiction. The Company's major taxing jurisdictions include Canada, the province of Ontario, the United States (including multiple states), Ireland and China. The Company's 2010 through 2015 tax years remain subject to examination by the IRS for U.S. federal tax purposes, and the 2006 through 2015 tax years remain subject to examination by the appropriate governmental agencies for Canadian federal tax purposes. There are other on-going audits in various other jurisdictions that are not material to the financial statements. (h) Income Tax Effect on Comprehensive Income The income tax benefit (expense) related to the following items included in other comprehensive (loss) income are: Years Ended December 31, 2015 2014 2013 $ 225 - 151 8 - (45) - 658 (306) 59 750 $ (588) (114) 43 - (100) - 45 264 (80) 26 (504) Unrecognized actuarial gain or loss on defined benefit plan Amortization of actuarial loss on defined benefit plan Unrecognized actuarial gain or loss on postretirement benefit plans Amortization of actuarial gain or loss on postretirement benefit plan Gain on curtailment of postretirement benefit plan Other-than-temporary impairment of available-for-sale investment Change in market value of available-for-sale investment Unrealized change in cash flow hedging instruments Realized change in cash flow hedging instruments upon settlement Foreign currency translation adjustments $ (47) $ - (21) (35) - - - 1,543 (844) (85) 511 $ $ 107 10. Other Intangible Assets Patents and trademarks Licenses and intellectual property Other Patents and trademarks Licenses and intellectual property Other As at December 31, 2015 Cost $ 10,399 22,390 11,878 $ 44,667 Accumulated Amortization $ 6,502 6,464 2,751 $ 15,717 Net Book Value $ 3,897 15,926 9,127 $ 28,950 As at December 31, 2014 Cost $ 9,686 20,490 9,873 $ 40,049 Accumulated Amortization $ 5,967 4,867 1,664 $ 12,498 Net Book Value $ 3,719 15,623 8,209 $ 27,551 Other intangible assets of $11.9 million are comprised mainly of the Company’s investment in a new enterprise resource planning system. Fully amortized other intangible assets are still in use by the Company. In 2015, the Company identified and wrote off $0.1 million (2014 ─ $0.1 million) of patents and trademarks that are no longer in use. During 2015, the Company acquired $4.8 million in other intangible assets. The net book value of these other intangible assets was $4.4 million as at December 31, 2015. The weighted average amortization period for these additions is 10 years. During 2015, the Company incurred costs of less than $0.1 million to renew or extend the term of acquired patents and trademarks which were recorded in selling, general and administrative expenses (2014 ─ $0.1 million). The estimated amortization expense for each of the years ended December 31, are as follows: 2016 2017 2018 2019 2020 $ 3,669 3,669 3,669 3,669 3,669 108 11. Credit Facility and Playa Vista Loan On March 3, 2015, the Company amended and restated the terms of its existing senior secured credit facility (the “Prior Credit Facility”) in order to, among other things, eliminate the fixed charge coverage ratio under the Prior Credit Facility and reset certain financial maintenance covenants. The amended and restated facility (the “Credit Facility”), with a scheduled maturity of March 3, 2020, has a maximum borrowing capacity of $200.0 million, the same maximum borrowing capacity as under the Prior Credit Facility. 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 the present and future assets of the Company and the Guarantors. The terms of the Credit Facility are set forth in the Fourth Amended and Restated Credit Agreement (as amended, the “Credit Agreement”), dated March 3, 2015, among the Company, the Guarantors, the lenders named therein, Wells Fargo Bank, National Association (“Wells Fargo”), as agent and issuing lender (Wells Fargo, together with the lenders named therein, the “Lenders”) and Wells Fargo Securities, LLC, as Sole Lead Arranger and Sole Bookrunner and in various collateral and security documents entered into by the Company and the Guarantors. Each of the Guarantors has also entered into a guarantee in respect of the Company’s obligations under the Credit Facility. The Company was in compliance with all of its requirements at December 31, 2015. Total amounts drawn and available under the Credit Facility at December 31, 2015 were $nil and $200.0 million, respectively (December 31, 2014 — $nil and $200.0 million, respectively). As at December 31, 2015, the Company did not have any letters of credit and advance payment guarantees outstanding (December 31, 2014 — $nil), under the Credit Facility. Playa Vista Financing On October 6, 2014, IMAX PV Development Inc., a Delaware corporation (“PV Borrower”) and direct wholly-owned subsidiary of IMAX U.S.A. Inc., a Delaware corporation and direct wholly-owned subsidiary of the Company, entered into a construction loan agreement with Wells Fargo. The construction loan (the “Playa Vista Construction Loan”) was used to fund $22.3 million of the costs of development and construction of the West Coast headquarters of the Company, located in the Playa Vista neighborhood of Los Angeles, California (the “Playa Vista Project”). The total cost of development of the Playa Vista Project was approximately $54.0 million, with all costs in excess of the Playa Vista Construction Loan provided through funding by the Company. The Company began occupying the Playa Vista facility in March of 2015. On October 19, 2015, PV Borrower converted the Playa Vista Construction Loan from a construction loan into a permanent loan (“Playa Vista Loan”) pursuant to the terms of the loan documents. Pursuant to the conversion, PV Borrower increased the principal balance of the loan by an additional $7.7 million, to $30.0 million. Prior to the conversion, the Playa Vista Construction Loan bore interest at a variable interest rate per annum equal to 2.25% above the 30-day LIBOR rate, and PV Borrower was required to make monthly payments of interest only. However, as a result of the conversion, the interest rate decreased from 2.25% to 2.0% above the 30-day LIBOR rate, and PV Borrower will be required to make monthly payments of combined principal and interest over a 10-year term with a lump sum payment at the end of year 10. The Playa Vista Loan is being amortized over 15 years. The Playa Vista Loan will be fully due and payable on October 19, 2025 (the “Maturity Date”), and may be prepaid at any time without premium, but with all accrued interest and other applicable payments. The Playa Vista Loan is secured by a deed of trust from PV Borrower in favor of Wells Fargo, granting a first lien on and security interest in the Playa Vista property and the Playa Vista Project, including all improvements to be constructed thereon, 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 Wells Fargo for the performance by PV Borrower of all the terms and provisions of the Playa Vista Loan and an environmental indemnity also provided by the Company. The Loan Documents contain affirmative, negative and financial covenants (including compliance with the 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. 109 Bank indebtedness includes the following: Playa Vista Loan As at December 31, 2015 29,667 $ 2014 4,710 $ Total amounts drawn under the loan at December 31, 2015 was $29.7 million (December 31, 2014 — $4.7 million) at an effective interest rate of 2.40% (December 31, 2014 — 2.42%). In accordance with the loan agreement, the Company is obligated to make payments on the principal of the loan as follows: 2016 2017 2018 2019 2020 Thereafter $ $ 2,000 2,000 2,000 2,000 2,000 19,667 29,667 Wells Fargo Foreign Exchange Facility Within the Credit Facility, the Company is able to purchase foreign currency forward contracts and/or other swap arrangements. The settlement risk on its foreign currency forward contracts was $4.4 million at December 31, 2015 as the notional value exceeded the fair value of the forward contracts. As at December 31, 2015, the Company has $30.7 million in notional value of such arrangements outstanding. Bank of Montreal Facility As at December 31, 2015, the Company has available a $10.0 million facility (December 31, 2014 — $10.0 million) with the Bank of Montreal for use solely in conjunction with the issuance of performance guarantees and letters of credit fully insured by EDC (the “Bank of Montreal Facility”). As at December 31, 2015, the Company has letters of credit and advance payment guarantees outstanding of $0.3 million (2014 — $0.3 million) under the Bank of Montreal Facility. 110 12. Commitments (a) The Company’s lease commitments consist of rent and equipment under operating leases. The Company accounts for any incentives provided over the term of the lease. Total minimum annual rental payments under operating lease arrangements to be made by the Company as at December 31, 2015 for each of the years ended December 31, are as follows: 2016 2017 2018 2019 2020 Thereafter $ $ 4,987 3,996 3,546 1,759 438 3,752 18,478 Rent expense was $4.8 million for 2015 (2014 — $6.6 million, 2013 — $6.5 million). Recorded in the accrued liabilities balance as at December 31, 2015 is $1.1 million (December 31, 2014 — $1.6 million) related to accrued rent and lease 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, 2015 were $22.2 million (December 31, 2014 — $35.3 million). (b) As at December 31, 2015 the Company did not have any letters of credit and advance payment guarantees outstanding (December 31, 2014 — $nil), under the Credit Facility. As at December 31, 2015 the Company had letters of credit and advance payment guarantees outstanding of $0.3 million as compared to $0.3 million as at December 31, 2014, 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 theater systems are payable in graduated amounts from the time of collection of the customer’s first payment to the Company up to the collection of the customer’s last initial payment. At December 31, 2015, $1.7 million (December 31, 2014 — $1.5 million) of commissions have been accrued and will be payable in future periods. 111 13. Contingencies and Guarantees The Company is involved in lawsuits, claims, and proceedings, including those identified below, which arise in the ordinary course of business. In accordance with the Contingencies Topic of the FASB ASC, the Company will make a provision for a liability when it is both probable that a loss has been incurred and the amount of the loss can be reasonably estimated. The Company believes it has adequate provisions for any such matters. The Company reviews these provisions in conjunction with any related provisions on assets related to the claims at least quarterly and adjusts these provisions to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other pertinent information related to the case. Should developments in any of these matters outlined below cause a change in the Company’s determination as to an unfavorable outcome and result in the need to recognize a material provision, or, should any of these matters result in a final adverse judgment or be settled for significant amounts, they could have a material adverse effect on the Company’s results of operations, cash flows, and financial position in the period or periods in which such a change in determination, settlement or judgment occurs. The Company expenses legal costs relating to its lawsuits, claims and proceedings as incurred. (a) On May 15, 2006, the Company initiated arbitration against Three-Dimensional Media Group, Ltd. (“3DMG”) before the International Centre for Dispute Resolution in New York (the “ICDR”), alleging breaches of the license and consulting agreements between the Company and 3DMG. On June 15, 2006, 3DMG filed an answer denying any breaches and asserting counterclaims that the Company breached the parties’ license agreement. On June 21, 2007, the ICDR unanimously denied 3DMG’s Motion for Summary Judgment filed on April 11, 2007 concerning the Company’s claims and 3DMG’s counterclaims. The proceeding was suspended on May 4, 2009 due to failure of 3DMG to pay fees associated with the proceeding. The proceeding was further suspended on October 11, 2010 pending resolution of re-examination proceedings currently pending involving one of 3DMG’s patents. The proceeding remains suspended pending 3DMG obtaining new counsel to represent it. If the proceeding resumes, the Company will continue to pursue its claims vigorously and believes that all allegations made by 3DMG are without merit. The Company further believes that the amount of loss, if any, suffered in connection with the counterclaims would not have a material impact on the financial position or results of operations of the Company, although no assurance can be given with respect to the ultimate outcome of the arbitration. (b) In January 2004, the Company and IMAX Theatre Services Ltd., a subsidiary of the Company, commenced an arbitration seeking damages before the International Court of Arbitration of the International Chamber of Commerce (the “ICC”) with respect to the breach by Electronic Media Limited (“EML”) of its December 2000 agreement with the Company. In June 2004, the Company commenced a related arbitration before the ICC against EML’s affiliate, E-City Entertainment (I) PVT Limited (“E-City”). On March 27, 2008, the arbitration panel issued a final award in favor of the Company in the amount of $11.3 million, consisting of past and future rents owed to the Company, plus interest and costs, as well as an additional $2,512 each day in interest from October 1, 2007 until the date the award is paid. In July 2008, E-City commenced a proceeding in Mumbai, India seeking an order that the ICC award may not be recognized in India. The Company has opposed that 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 in the High Court pending Supreme Court review of the High Court’s ruling. On June 24, 2011, the Company commenced a proceeding in the Ontario Superior Court of Justice for recognition of the ICC final award. On December 2, 2011, the Ontario Court issued an order recognizing the final award and requiring E-City to pay the Company $30,000 to cover the costs of the application. In January 2013, the Company filed an action in the New York Supreme Court seeking to collect the amount owed to the Company by certain entities and individuals affiliated with E-City. On October 16, 2015, the New York Supreme Court denied the Company’s petition, and on November 12, 2015, the Company filed a notice of appeal. On July 29, 2014, the Company commenced a separate proceeding to have the Canadian judgment against E-City recognized in New York, and on October 2, 2015, the New York Supreme Court granted IMAX’s request, recognizing the Canadian judgment and entering it as a New York judgment. On November 26, 2014, E-City filed a motion in the Bombay High Court seeking to enjoin IMAX from continuing the New York legal proceedings. On February 2, 2015, the Bombay High Court denied E-City’s request for an ad interim injunction. On March 16, 2015, E-City filed an appeal of this Bombay High Court decision. (c) A class action lawsuit was filed on September 20, 2006 in the Canadian Court against the Company and certain of its officers and directors, alleging violations of Canadian securities laws. This lawsuit was brought on behalf of shareholders who acquired the Company’s securities between February 17, 2006 and August 9, 2006. The lawsuit sought $210.0 million in compensatory and punitive damages, as well as costs. For reasons released December 14, 2009, the Canadian Court granted leave to the plaintiffs to amend their statement of claim to plead certain claims pursuant to the Securities Act (Ontario) against the Company and certain individuals (“the Defendants”) and granted certification of the action as a class proceeding. In March 2013, the Defendants obtained an Order enforcing the settlement Order in a parallel class action in the United States in this Canadian class action lawsuit, with the result that the class in this case was reduced in size by approximately 85%. The United States class action was conclusively settled in 112 May 2014 for $12.0 million. A motion by the Plaintiffs for leave to appeal that Order was dismissed. On October 15, 2015, the parties to the Canadian Class action lawsuit executed a formal Settlement Agreement. On December 15, 2015, the Canadian Court issued an Order approving that Settlement Agreement, with the effect that the Canadian class action lawsuit was deemed to be dismissed on January 14, 2016. Under the terms of the Settlement Agreement, members of the Canadian class who did 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 or any other proceeding relating to the purchase of the Company’s securities between February 17, 2006 to and including August 9, 2006. As part of the settlement and in exchange for the release, the Defendants agreed to pay CAD$3.75 million to a settlement fund, which amount will be funded by the carriers of the Company’s directors and officers insurance policy. The settlement will be distributed to the Canadian class after May 31, 2016, the closing date for claims to be submitted to the Court-appointed administrator. (d) On November 4, 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 Chicago Theatre provided certain credit card and debit card receipts to customers that were purportedly not in compliance with the applicable truncation requirements of the Fair and Accurate Credit Transactions Act, which IMAX Chicago Theatre denies. The plaintiff does not allege actual damages but 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. On October 26, 2015, the parties filed with the Court a class action settlement agreement and proposed form of class notice, which the Court preliminarily approved on November 10, 2015. Under the terms of the proposed settlement, members of the class who do not opt out of the settlement will release IMAX Chicago Theatre and its affiliates from liability for all claims that were alleged or could have been alleged in this action or any other proceeding relating to the subject matter of this action. As part of the settlement and in exchange for the release, IMAX Chicago Theatre will pay a total of at least $400,000 and no more than $455,000 to a settlement fund, depending on the number of participating class members who submit claims. The hearing on final approval of the settlement is scheduled for March 1, 2016. (e) In March 2013, IMAX (Shanghai) Multimedia Technology Co., Ltd., the Company’s majority-owned subsidiary in China, received notice from the Shanghai office of the General Administration of Customs that it had been selected for a customs audit. The Company is unable to assess the potential impact, if any, of the audit at this time. (f) On November 11, 2013, Giencourt Investments, S.A. (“Giencourt”) initiated arbitration before the International Centre for Dispute Resolution in Miami, Florida, based on alleged breaches by the Company of its theater agreement and related license agreement with Giencourt. Giencourt submitted its statement of claim in January 2015, the Company submitted its statement of defense and counterclaim in April 2015 and Giencourt submitted its arbitration reply paper in September 2015. An arbitration hearing for witness testimony was held during the week of December 14, 2015. At the hearing, Giencourt’s expert identified monetary damages of up to approximately $10.4 million, which Giencourt seeks to recover from the Company. The Company has asserted a counterclaim against Giencourt for breach of contract and seeks to recover lost profits in excess of $24.0 million under the agreements. A final hearing with closing statements is scheduled for March 30 to April 1, 2016. In addition, on December 10, 2015, Giencourt made a motion to the panel seeking to enforce a purported settlement of the matter based on negotiations between Giencourt and the Company. The Company strongly disputes that discussions about a potential resolution of this matter amounted to an enforceable settlement. The panel has asked the parties to brief this issue, and oral arguments will be held during the upcoming March 30th to April 1st hearings. Although no assurances can be given with respect to the ultimate outcome of the proceedings, the Company believes that it has meritorious defenses and claims, and will continue to vigorously pursue them. (g) In addition to the matters described above, the Company is currently involved in other legal proceedings or governmental inquiries which, in the opinion of the Company’s management, will not materially affect the Company’s financial position or future operating results, although no assurance can be given with respect to the ultimate outcome of any such proceedings. (h) In the normal course of business, the Company enters into agreements that may contain features that meet the definition of a guarantee. The Guarantees Topic of the FASB ASC defines a guarantee to be a contract (including an indemnity) that contingently requires the Company to make payments (either in cash, financial instruments, other assets, shares of its stock or provision of services) to a third party based on (a) changes in an underlying interest rate, foreign exchange rate, equity or commodity instrument, index or other variable, that is related to an asset, a liability or an equity security of the counterparty, (b) failure of another party to perform under an obligating agreement or (c) failure of another third party to pay its indebtedness when due. 113 Financial Guarantees The Company has provided no significant financial guarantees to third parties. Product Warranties The following summarizes the accrual for product warranties that was recorded as part of accrued liabilities in the consolidated balance sheets: Balance at the beginning of the year Warranty redemptions Warranties issued Revisions Balance at the end of the year Director/Officer Indemnifications As at December 31, 2015 2014 $ $ 6 (6) - - - $ $ 7 (5) 11 (7) 6 The Company’s General By-law contains an indemnification of its directors/officers, former directors/officers and persons who have acted at its request to be a director/officer of an entity in which the Company is a shareholder or creditor, to indemnify them, to the extent permitted by the Canada Business Corporations Act, against expenses (including legal fees), judgments, fines and any amount actually and reasonably incurred by them in connection with any action, suit or proceeding in which the directors and/or officers are sued as a result of their service, if they acted honestly and in good faith with a view to the best interests of the Company. The nature of the indemnification prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay to counterparties. The Company has purchased directors’ and officers’ liability insurance. No amount has been accrued in the consolidated balance sheet as at December 31, 2015 and December 31, 2014 with respect to this indemnity. Other Indemnification Agreements In the normal course of the Company’s operations, the Company provides indemnifications to counterparties in transactions such as: theater system lease and sale agreements and the supervision of installation or servicing of the theater systems; film production, exhibition and distribution agreements; real property lease agreements; and employment agreements. These indemnification agreements require the Company to compensate the counterparties for costs incurred as a result of litigation claims that may be suffered by the counterparty as a consequence of the transaction or the Company’s breach or non-performance under these agreements. While the terms of these indemnification agreements vary based upon the contract, they normally extend for the life of the agreements. A small number of agreements do not provide for any limit on the maximum potential amount of indemnification; however, virtually all of the Company’s system lease and sale agreements limit such maximum potential liability to the purchase price of the system. The fact that the maximum potential amount of indemnification required by the Company is not specified in some cases prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay to counterparties. Historically, the Company has not made any significant payments under such indemnifications and no amounts have been accrued in the consolidated financial statements with respect to the contingent aspect of these indemnities. 114 14. Capital Stock (a) Authorized Common Shares The authorized capital of the Company consists of an unlimited number of common shares. The following is a summary of the rights, privileges, restrictions and conditions of the common shares. The holders of common shares are entitled to receive dividends if, as and when declared by the directors of the Company, subject to the rights of the holders of any other class of shares of the Company entitled to receive dividends in priority to the common shares. The holders of the common shares are entitled to one vote for each common share held at all meetings of the shareholders. (b) Changes during the Year During 2015, the Company settled 1,761,675 (2014 — 1,149,587, 2013 — 1,316,347) common shares pursuant to the exercise of stock options for cash proceeds of $35.6 million (2014 — $10.8 million, 2013 — $9.0 million). 1,659,643 (2014 — 1,149,587, 2013 — 1,316,347) common shares were newly issued from treasury and 102,032 (2014 — nil, 2013 — nil) common shares were purchased in the open market by the IMAX LTIP trustee. In addition, during 2015, in connection with the vesting of RSUs, the Company settled 207,371 (2014 — 148,001, 2013 — 46,360) common shares to IMAX LTIP participants, of which 25,551 (2014 – 109,264, 2013 – 42,461) common shares, net of shares withheld for tax withholdings of 14,351 (2014 – 10,921, 2013 – 3,899) were issued as new shares from treasury and 167,469 (2014 — 27,816, 2013 — nil) common shares were purchased in the open market by the IMAX LTIP trustee. (c) Stock-Based Compensation The Company issues stock-based compensation to eligible employees, directors and consultants under the Company’s 2013 Long- Term Incentive Plan 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 and Special 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, directors and 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 $21.9 million in 2015 (2014 — $15.1 million, 2013 — $11.9 million). As at December 31, 2015, the Company has reserved a total of 7,023,258 (December 31, 2014 — 9,173,106) common shares for future issuance under the SOP and IMAX LTIP. Of the common shares reserved for issuance, there are options in respect of 4,805,244 common shares and RSUs in respect of 973,637 common shares outstanding at December 31, 2015. At December 31, 2015 options in respect of 2,800,723 common shares were vested and exercisable. Stock Option Plan The Company’s policy is to issue new common shares from treasury or shares purchased in the open market to satisfy stock options which are exercised. The Company utilizes a Binomial Model to determine the fair value of stock-based payment 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 and 115 subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The Binomial Model also considers the expected exercise multiple which is the multiple of exercise price to grant price at which exercises are expected to occur on average. Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable. Because the Company’s employee stock options have certain characteristics that are significantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, in management’s opinion, the Binomial Model best provides a fair measure of the fair value of the Company’s employee stock options. All 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 common share 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 a trading date) on the New York Stock Exchange (“NYSE”) or such national exchange as may be designated by the Company’s Board of Directors (the “Fair Market Value”). The stock options vest within 5 years and expire 10 years or less from the date granted. The SOP and 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 $10.7 million in 2015 (2014 — $8.9 million, 2013 — $8.9 million) related to stock option grants issued to employees and directors in the IMAX LTIP and SOP plans. An income tax benefit is recorded in the consolidated statement of operations of $2.3 million for these costs. Total stock-based compensation expense related to non-vested employee stock options not yet recognized at December 31, 2015 and the weighted average period over which the awards are expected to be recognized is $12.6 million and 1.7 years respectively (2014 — $14.8 million and 2.3 years, 2013 — $14.3 million and 3.0 years). The weighted average fair value of all stock options, granted to employees and directors in 2015 at the measurement date was $8.07 per share (2014 — $8.25 per share, 2013 — $7.10 per share). For the years ended December 31, the following assumptions were used to estimate the average fair value of the stock options: Average risk-free interest rate Expected option life (in years) Expected volatility Annual termination probability Dividend yield Stock options to Non-Employees 2015 2014 2013 1.97% 3.55 - 5.76 30% 0% - 9.50% 0% 2.46% 4.15 - 5.82 32.5% - 37.5% 0% - 8.40% 0% 1.63% 4.51 - 4.63 40% 0% - 8.52% 0% There were no common share options issued to non-employees in 2015. During 2014, an aggregate of 10,000 (2013 — 2,500) stock options to purchase the Company’s common stock with an average exercise price of $26.47 (2013 — $26.28) were granted to certain advisors and strategic partners of the Company. These stock options granted have a maximum contractual life of 7 years. The stock options granted in 2014 were granted under the IMAX LTIP. As at December 31, 2015 non-employee options outstanding amounted to 38,750 stock options (2014 — 31,500, 2013 — 76,751) with a weighted average exercise price of $26.79 (2014 — $21.75, 2013 — $15.67). 21,525 stock options (2014 — 16,100, 2013 — 31,509) were exercisable with an average weighted exercise price of $26.34 (2014 — $18.14, 2013 — $12.38) and the vested options have an aggregate intrinsic value of $0.2 million (2014 — $0.2 million, 2013 — $0.5 million). The weighted average fair value of stock options granted to non-employees during 2014 at the measurement date was $4.84 per share (2013 — $11.50 per share), utilizing a Binomial Model with the following underlying assumptions: Average risk-free interest rate Contractual option life Average expected volatility Dividend yield Years Ended December 31 2015 2014 2013 n/a n/a n/a n/a 0.53% 2 years 32.5% 0% 1.64% 7 years 40.0% 0% 116 In 2015, the Company recorded a charge of $0.1 million, (2014 — $0.1 million, 2013 — $0.2 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, 2014 — less than $0.1 million). China Long-Term Incentive Plan (“China LTIP”) The China LTIP was adopted by IMAX China in October 2012. Each stock option or cash settled share-based payment (“CSSBP”) issued under the China LTIP represents an opportunity to participate economically in the future growth and value creation of IMAX China Holding, Inc. (“IMAX China”), a subsidiary of the Company. The China LTIP options (“China Options”) and CSSBPs issued by IMAX China operate in tandem with options granted to certain employees of IMAX China under the Company’s SOP and IMAX LTIP (“Tandem Options”). In 2012 and 2014, 146,623 and 39,823 Tandem Options, respectively, were granted to certain employees in conjunction with China Options and CSSBPs with an average price of $22.39 per share and $28.52 per share, respectively, in accordance with the China LTIP. During 2015, no additional Tandem Options were granted in conjunction with China Options or CSSBPs. Immediately prior to the initial public offering on October 8, 2015, there were 186,446 (December 31, 2014 — 186,446) outstanding and unvested Tandem Options issued under the China LTIP with a weighted average exercise price of $23.70 per share (December 31, 2014 — $23.70 per share). The Tandem Options had a maximum contractual life of 7 years. The total fair value of the Tandem Options granted with respect to the China LTIP was $1.9 million. The Company was recognizing this expense over a 5 year period. Upon the occurrence of a qualified initial public offering or upon a change in control on or prior to the fifth anniversary of the grant date, the 186,446 Tandem Options issued would forfeit immediately and the related charge would be reversed. IMAX China completed an initial public offering on October 8, 2015. As a result, the 186,446 Tandem Options with an average price of $23.70 per share were forfeited immediately. The Company recorded a recovery of $0.6 million in 2015 (2014 — $0.3 million expense, 2013 — $0.3 million expense) related to the forfeiture of Tandem Options issued under the China LTIP. The Company subsequently recognized an immediate charge related to the vesting of China Options and certain CSSBPs for China employees. The total fair value of the China Options and CSSBP awards granted with respect to the China LTIP was $3.9 million and $2.1 million, respectively. During the fourth quarter of 2015, a charge of $2.1 million and $1.4 million was recorded relating to the China Options and CSSBPs, respectively. The remaining charge will be recognized over the related requisite period. The CSSBPs represent the right to receive cash payments in an amount equal to a certain percentage of the excess of the total equity value of IMAX China based on the per share price in the initial public offering over the strike price of the CSSBPs. The CSSBPs were issued in conjunction with the CLTIP, with similar terms and conditions as the China Options. The CSSBP awards are accounted as liability awards, however the fair value of the liability is fixed at the time of the initial public offering. During the fourth quarter of 2015, a portion of the CSSBPs vested and were settled in cash for $1.0 million. The liability recognized with respect to the CSSBPs at December 31, 2015 is $0.4 million. Stock Option Summary The following table summarizes certain information in respect of option activity under the SOP and IMAX LTIP: Number of Shares Weighted Average Exercise Price Per Share 2015 2014 2013 2015 2014 2013 Options outstanding, beginning of year Granted Exercised Forfeited Expired Cancelled Options outstanding, end of year Options exercisable, end of year $ 5,925,660 873,929 (1,761,675) (232,670) - - 4,805,244 2,800,723 6,263,121 872,155 (1,149,587) (36,242) - (23,787) 5,925,660 3,368,558 7,441,068 $ 375,650 (1,316,347) (228,190) - (9,060) 6,263,121 3,578,006 24.24 31.59 20.21 24.60 - - 27.03 25.83 $ 21.11 27.48 9.42 24.63 - 33.60 24.24 22.69 18.48 25.29 6.81 24.55 - 30.90 21.11 18.56 117 In 2015, the Company did not cancel any stock options from its SOP. In 2014 the Company cancelled 23,787 stock options from its SOP (2013 — 9,060) surrendered by Company employees. As at December 31, 2015, 4,633,777 options were fully vested or are expected to vest with a weighted average exercise price of $26.97, aggregate intrinsic value of $39.9 million and weighted average remaining contractual life of 4.4 years. As at December 31, 2015, options that are exercisable have an intrinsic value of $27.3 million and a weighted average remaining contractual life of 4.1 years. The intrinsic value of options exercised in 2015 was $29.8 million (2014 — $21.8 million, 2013 — $26.7 million). Restricted Share Units RSUs have been granted to employees, consultants and directors under the IMAX LTIP. Each RSU represents a contingent right to receive one common share 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 the grant date. The Company recorded an expense of $8.2 million for the year ended December 31, 2015 (2014 — $5.8 million, 2013 — $2.1 million), related to RSU grants issued to employees and directors in the plan. The annual termination probability assumed for the year ended December 31, 2015, ranged from 0% to 9.50%. In addition, the Company recorded an expense of less than $0.1 million for the year ended December 31, 2015 (2014 — less than $0.1 million, 2013 — less than $0.1 million), related to RSU grants issued to certain advisors and strategic partners of the Company. Total stock-based compensation expense related to non-vested RSU’s not yet recognized at December 31, 2015 and the weighted average period over which the awards are expected to be recognized is $24.4 million and 3.0 years (2014 — $11.0 million and 2.9 years, 2013 — $4.7 million and 2.9 years). The Company’s actual tax benefits realized for the tax deductions related to the vesting of RSUs was $2.0 million for the year ended December 31, 2015 (2014 — $0.4 million, 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 continued employment or service with the Company. The following table summarizes certain information in respect of RSU activity under the IMAX LTIP: RSUs outstanding, beginning of year Granted Vested and settled Forfeited RSUs outstanding, end of year Stock Appreciation Rights Number of Awards Weighted Average Grant Date Fair Value Per Share 2015 2014 2015 2014 595,834 605,349 (207,371) (20,175) 973,637 $ 264,140 484,088 (148,001) (4,393) 595,834 27.13 36.04 28.81 29.27 32.27 $ 26.14 27.42 26.29 26.88 27.13 There 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, 2015, no SARS were outstanding. None of the SARs were forfeited, cancelled, or expired for the years ended December 31, 2015 and 2014. The Company has recorded an expense of $nil for 2015 (2014 ― $nil, 2013 ― $0.4 million) to selling, general and administrative expenses related to these SARs. Issuer Purchases of Equity Securities On June 16, 2014, the Company’s board of directors approved a $150.0 million share repurchase program for shares of the Company’s common stock. Purchases under the program commenced during the third quarter of 2014. The share repurchase program expires on June 30, 2017. The repurchases may be made either in the open market or through private transactions, subject to market conditions, applicable legal requirements and other relevant factors. The Company has no obligation to repurchase shares and the share repurchase program may be suspended or discontinued by the Company at any time. In 2015, the Company repurchased 1,000,000 (2014 ― 112,034) common shares at an average price of $34.25 per share (2014 ― 27.30 per share). The retired shares 118 were purchased for $34.3 million (2014 ― $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 was charged to accumulated deficit. The total number of shares purchased during the year ended December 31, 2015 and 2014 does not include any shares received in the administration of employee share-based compensation plans. (d) Income per share Reconciliations of the numerator and denominator of the basic and diluted per-share computations are comprised of the following: Net income attributable to common shareholders Less: Accretion charges associated with redeemable common stock Net income applicable to common shareholders Weighted average number of common shares (000's): Issued and outstanding, beginning of period Weighted average number of shares issued during the period Weighted average number of shares used in computing basic earnings per share Assumed exercise of stock options and RSUs, net of shares assumed repurchased Weighted average number of shares used in computing diluted earnings per share Years Ended December 31, 2015 2014 2013 $ 55,844 (769) $ 55,075 $ 39,736 (426) $ 39,310 $ 44,115 - $ 44,115 68,988 538 69,526 1,532 71,058 67,841 505 68,346 1,408 69,754 66,482 669 67,151 1,810 68,961 The calculation of diluted earnings per share excludes 1,249,343 (2014 ― 4,151,008) shares that are issuable upon exercise of 313,645 (2014 ― 1,500) RSUs and 935,698 (2014 ― 4,149,508) stock options for the years ended December 31, 2015 and 2014, as the impact of these exercises would be antidilutive. 119 15. Consolidated Statements of Operations Supplemental Information (a) Other Revenues The Company enters into theater system arrangements with customers that typically contain customer payment obligations prior to the scheduled installation of the theater systems. During the period of time between signing and theater system installation, certain customers each year are unable to, or elect not to, proceed with the theater system installation for a number of reasons, including business considerations, or the inability to obtain certain consents, approvals or financing. Once the determination is made that the customer will not proceed with installation, the customer and/or the Company may terminate the arrangement by default or by entering into a consensual buyout. In these situations the parties are released from their future obligations under the arrangement, and the initial payments that the customer previously made to the Company are typically not refunded and are recognized as Other Revenues. In addition, the Company enters into agreements with customers to terminate their obligations for additional theater system configurations, which were in the Company’s backlog. Other revenues from settlement arrangements were $0.1 million, $nil and $0.4 million in 2015, 2014 and 2013, respectively. (b) Foreign Exchange Included in selling, general and administrative expenses for the year ended December 31, 2015 is $2.4 million for net foreign exchange losses related to the translation of foreign currency denominated monetary assets and liabilities as compared to a net loss of $1.5 million and net loss of $0.7 million for the year ended December 31, 2014 and 2013, respectively. See note 20(d) for additional information. (c) Collaborative Arrangements Joint Revenue Sharing Arrangements In a joint revenue sharing arrangement, the Company receives a portion of a theater’s box-office and concession revenues, and in some cases a small upfront or initial payment, in exchange for placing a theater system at the theater operator’s venue. Under joint revenue sharing arrangements, the customer has the ability and the right to operate the hardware components or direct others to operate them in a manner determined by the customer. The Company’s joint revenue sharing arrangements are typically non- cancellable for 10 years or longer with renewal provisions. Title to equipment under joint revenue sharing arrangements generally does not transfer to the customer. The Company’s joint revenue sharing arrangements do not contain a guarantee of residual value at the end of the term. The customer is required to pay for executory costs such as insurance and taxes and is required to pay the Company for maintenance and extended warranty throughout the term. The customer is responsible for obtaining insurance coverage for the theater systems commencing on the date specified in the arrangement’s shipping terms and ending on the date the theater systems are delivered back to the Company. The Company has signed joint revenue sharing agreements with 43 exhibitors (2014 — 41) for a total of 741 theater systems (2014 — 672), of which 529 theaters (2014 — 451) were operating as at December 31, 2015. 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 in Equipment and Product Sales and Rentals revenue and for the year ended December 31, 2015 amounted to $99.1 million (2014 — $68.4 million, 2013 — $64.1 million). IMAX DMR In an IMAX DMR arrangement, the Company transforms conventional motion pictures into the Company’s large screen format, allowing the release of Hollywood content to the global IMAX theater network. In a typical IMAX DMR film arrangement, the Company will absorb its costs for the digital re-mastering and then recoup this cost from a percentage of the gross box-office receipts of the film, which in recent years has ranged from 10-15%. The Company does not typically hold distribution rights or the copyright to these films. In 2015, the majority of IMAX DMR revenue was earned from the exhibition of 44 IMAX DMR films (2014 — 40) throughout the IMAX theater network. The accounting policy for the Company’s IMAX DMR arrangements is disclosed in note 2(m). 120 Amounts attributable to transactions arising between the Company and its customers under IMAX DMR arrangements are included in Services revenues and for December 31, 2015 amounted to $107.1 million (2014 — $83.2 million, 2013 — $83.5 million). Co-Produced Film Arrangements In certain film arrangements, the Company co-produces a film with a third party whereby the third party retains the copyright and rights to the film except that the Company obtains exclusive theatrical distribution rights to the film. Under these arrangements, both parties contribute funding to the Company’s wholly-owned production company for the production of the film and for associated exploitation costs. Clauses in the film arrangements generally 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 though the film will not be delivered on a timely basis. As at December 31, 2015, the Company has one significant co-produced film arrangement which primarily represents the VIE total assets and liabilities balance of $0.4 million and five other co-produced film arrangements, the terms of which are similar. The accounting policies relating to co-produced film arrangements are disclosed in notes 2(a) and 2(m). In 2015, amounts totaling $1.5 million (2014 — $3.5 million, 2013 — $2.9 million) attributable to transactions between the Company and other parties involved in the production of the films have been included in cost and expenses applicable to revenues- services. 16. Receivable Provisions, Net of Recoveries The following table reflects the Company’s receivable provisions net of recoveries recorded in the consolidated statements of operations: Accounts receivable provisions, net of recoveries Financing receivable provisions, net of recoveries Receivable provisions, net of recoveries 17. Asset Impairments Property, plant and equipment Total Years Ended December 31, 2015 2014 2013 677 75 752 $ $ 725 193 918 $ $ (35) 480 445 Years Ended December 31, 2015 2014 2013 405 405 $ $ 314 314 $ $ - - $ $ $ $ The Company records asset impairment charges against property, plant and equipment after an assessment of the carrying value of certain assets in light of their future expected cash flows. 121 18. Consolidated Statements of Cash Flows Supplemental Information (a) Changes in other non-cash operating assets and liabilities are comprised of the following: Decrease (increase) in: Accounts receivable Financing receivables Inventories Prepaid expenses Commissions and other deferred selling expenses Insurance recoveries Other assets, prepaid tax Other assets Increase (decrease) in: Accounts payable Accrued and other liabilities Deferred revenue (b) Cash payments made on account of: Income taxes Interest (c) Depreciation and amortization are comprised of the following: Film assets(1) Property, plant and equipment Joint revenue sharing arrangements Other property, plant and equipment Other intangible assets Other assets Deferred financing costs Years Ended December 31, 2015 2014 2013 $ (22,521) (13,628) (21,070) (1,552) (203) 4 - (456) $ (4,318) (40) (7,603) (1,346) (769) 10,958 (2,984) (459) $ (31,032) (13,397) 1,884 231 59 380 - (341) 9,183 (2,577) 16,242 $ (36,578) (5,186) 5,702 12,102 6,057 7,238 (1,289) 2,512 $ (33,755) $ Years Ended December 31, 2015 22,798 411 $ $ 2014 8,885 48 2013 1,056 315 $ $ $ $ Years Ended December 31, 2015 16,357 $ 2014 11,851 $ 2013 17,000 $ 13,663 7,698 3,285 784 1,016 42,803 $ 12,148 5,616 2,988 627 526 33,756 $ 11,519 4,720 2,854 592 487 37,172 $ ______________ (1) Included in film asset amortization is a charge of $0.9 million (2014 —$0.3 million, 2013 —$0.2 million) relating to changes in estimates based on the ultimate recoverability of future films. 122 (d) Write-downs, net of recoveries, are comprised of the following: Asset impairments Property, plant and equipment Other charges (recoveries) Accounts receivables Financing receivables Inventories(1) Impairment of investments Property, plant and equipment(2) Other intangible assets Years Ended December 31, 2015 2014 2013 $ 405 $ 314 $ - 677 75 572 425 1,485 86 3,725 $ 725 193 359 3,206 440 57 5,294 $ (35) 480 444 - 384 63 1,336 $ Inventory charges Recorded in costs and expenses applicable to revenues - product & equipment sales $ Recorded in costs and expenses applicable to revenues - services $ 537 35 572 $ $ 209 150 359 $ $ 274 170 444 ______________ (1) In 2015, the Company recorded a charge of $0.6 million (2014 — $0.4 million, 2013 — $0.5 million, respectively) in costs and expenses applicable to revenues, primarily for its laser-based projector inventories. Specifically, IMAX systems includes an inventory charge of $0.5 million (2014 — $0.2 million, 2013 — $0.3 million). Theater system maintenance includes inventory write-downs of less than $0.1 million (2014 — $0.2 million, 2013 — $0.2 million). (2) In 2015, the Company recorded a charge of $0.6 million in cost of sales applicable to Equipment and product sales upon upgrade of xenon-based digital systems under operating lease arrangements to laser-based digital systems under sales or sales- type lease arrangements. In addition, the Company recorded a charge of $0.5 million in cost of sales applicable to Rentals upon the upgrade of certain xenon-based digital systems to laser-based digital systems operating under joint revenue sharing arrangements. 123 19. Segmented Information The 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 segment includes the design, manufacture, sale or lease of IMAX theater projection system equipment. The theater system maintenance segment includes the maintenance of IMAX theater projection system equipment in the IMAX theater network. The joint revenue sharing arrangements segment includes the provision of IMAX theater projection system equipment to an exhibitor in exchange for a share of the box-office and concession revenues. The film production and IMAX DMR segment includes the production of films and the performance of film re-mastering services. The film distribution segment includes the distribution of films for which the Company has distribution rights. The film post-production segment provides film post-production and film print services. The Company refers to all theaters using the IMAX theater system as “IMAX theaters”. The other segment includes certain IMAX theaters that the Company owns and operates, 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 the Segment Reporting Topic of the 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, 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-segment profits are eliminated upon consolidation, as well as for the disclosures below. Transactions between the other segments are not significant. 124 (a) Operating Segments Revenue(1) IMAX theater systems IMAX systems Theater system maintenance Joint revenue sharing arrangements Films Production and IMAX DMR Distribution Post-production Other Total Gross margin IMAX theater systems IMAX systems(2) Theater system maintenance(2) Joint revenue sharing arrangements(3) Films Production and IMAX DMR(3) Distribution(3) Post-production Other Total Years Ended December 31, 2015 2014 2013 $ 102,128 36,944 99,120 238,192 $ 72,992 34,042 68,418 175,452 $ 80,189 31,978 64,130 176,297 107,089 3,876 7,069 118,034 83,172 8,932 10,831 102,935 83,496 7,770 9,192 100,458 17,579 12,154 11,182 $ 373,805 $ 290,541 $ 287,937 $ 59,168 12,702 68,372 140,242 $ 47,928 12,375 44,714 105,017 $ 49,040 12,096 44,565 105,701 77,645 (259) 1,381 78,767 62,922 2,274 3,046 68,242 56,088 1,371 1,341 58,800 279 129 102 $ 219,288 $ 173,388 $ 164,603 125 Depreciation and amortization IMAX systems Theater systems maintenance Joint revenue sharing arrangements Films Production and IMAX DMR Distribution Post-production Other Corporate and other non-segment specific assets Total Asset impairments and write-downs, net of recoveries IMAX systems Theater systems maintenance Joint revenue sharing arrangements Other Corporate and other non-segment specific assets Total Purchase of property, plant and equipment IMAX systems Theater system maintenance Joint revenue sharing arrangements Films Production and IMAX DMR Distribution Post-production Other Corporate and other non-segment specific assets Total Years Ended December 31, 2015 2014 2013 5,685 72 14,443 14,330 2,129 1,465 704 3,975 42,803 $ $ 1,910 225 14,614 10,751 1,512 481 671 3,592 $ 33,756 $ 3,287 141 13,535 16,298 1,048 424 347 2,092 37,172 Years Ended December 31, 2015 2014 2013 2,298 277 528 - 622 3,725 $ $ 1,128 150 397 314 3,305 5,294 $ $ 1,109 188 39 - - 1,336 Years Ended December 31, 2015 2014 2013 8,846 555 28,474 1,350 830 16,337 1,986 13,353 71,731 $ $ 8,822 229 16,838 15,245 1,582 2,176 1,337 10,713 $ 56,942 $ 6,181 130 22,775 408 - 2,185 2,036 2,076 35,791 $ $ $ $ $ $ 126 As at December 31, 2015 2014 Assets IMAX systems(4) Theater systems maintenance(4) Joint revenue sharing arrangements(4) Films Production and IMAX DMR Distribution Post-production Other Corporate and other non-segment specific assets Total ______________ (1) The Company’s largest customer represents 16.0% of total revenues as at December 31, 2015 (2014 – 14.5%, 2013 – 13.9%). 45,549 17,768 13,384 19,405 170,813 $ 621,533 46,262 17,534 26,759 23,485 401,315 $ 931,020 17,986 162,097 20,907 179,156 $ 174,531 $ 215,602 (2) (3) In 2015, the Company recorded a charge of $0.6 million (2014 –$0.4 million, 2013 – $0.5 million, respectively) in costs and expenses applicable to revenues, primarily for its laser-based projector inventories. Specifically, IMAX systems includes an inventory charge of $0.5 million (2014 – $0.2 million, 2013 – $0.3 million). Theater system maintenance includes inventory write-downs of less than $0.1 million (2014 – $0.2 million, 2013 – $0.2 million). IMAX systems include marketing and commission costs of $3.0 million, $2.7 million and $2.5 million in 2015, 2014 and 2013, respectively. Joint revenue sharing arrangements segment margins include advertising, marketing, and commission costs of $4.3 million, $3.2 million and $3.6 million in 2015, 2014 and 2013, respectively. Production and DMR segment margins include marketing costs of $13.3 million, $7.1 million and $4.2 million in 2015, 2014 and 2013, respectively. Distribution segment margins include marketing recovery of $0.1 million, expense of $0.6 million and expense of $0.4 million in 2015, 2014 and 2013, respectively. (4) Goodwill is allocated on a relative fair market value basis to the IMAX systems segment, theater system maintenance segment and joint revenue sharing segment. There has been no change in the allocation of goodwill from the prior year. 127 (b) Geographic Information Revenue by geographic area is based on the location of the customer. Revenue related to IMAX DMR is presented based upon the geographic location of the theaters that exhibit the re-mastered films. IMAX DMR revenue is generated through contractual relationships with studios and other third parties and these may not be in the same geographical location as the theater. Revenue United States Canada Greater China Western Europe Asia (excluding Greater China) Russia & the CIS Latin America Rest of the World Total Years Ended December 31, 2015 2014 2013 $ $ 136,017 11,665 110,591 39,569 38,143 12,412 10,179 15,229 373,805 $ 107,830 10,309 78,218 30,245 26,276 15,700 12,672 9,291 $ 290,541 $ 125,697 11,049 55,949 26,000 30,451 19,600 13,017 6,174 $ 287,937 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. Property, plant and equipment United States Canada Greater China Asia (excluding Greater China) Western Europe Rest of the World Total As at December 31, 2015 2014 $ 105,641 40,943 51,990 10,369 8,359 965 $ 218,267 $ 101,499 23,044 42,816 8,454 5,720 1,891 $ 183,424 128  20. Financial Instruments (a) Financial Instruments The Company maintains cash with various major financial institutions. The Company’s cash is invested with highly rated financial institutions. The Company’s accounts receivables and financing receivables are subject to credit risk. The Company’s accounts receivable and financing receivables are concentrated with the theater exhibition industry and film entertainment industry. To minimize the Company’s credit risk, the Company retains title to underlying theater systems leased, performs initial and ongoing credit evaluations of its customers and makes ongoing provisions for its estimate of potentially uncollectible amounts. The Company believes it has adequately provided for related exposures surrounding receivables and contractual commitments. (b) Fair Value Measurements The carrying values of the Company’s cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities due within one year approximate fair values due to the short-term maturity of these instruments. The Company’s other financial instruments at December 31, are comprised of the following: Cash and cash equivalents Net financed sales receivable Net investment in sales-type leases Available-for-sale investment Foreign exchange contracts — designated forwards Borrowings under the Playa Vista Loan As at December 31, 2015 As at December 31, 2014 Carrying Amount 317,449 106,286 10,945 1,000 (4,423) (29,667) $ $ $ $ $ $ $ $ $ $ $ $ Estimated Fair Value Carrying Amount 317,449 108,184 11,154 997 (4,423) (29,667) $ $ $ $ $ $ 106,503 95,101 10,599 - (1,760) (4,710) $ $ $ $ $ $ Estimated Fair Value 106,503 98,675 10,503 - (1,760) (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. Cash and cash equivalents are recorded at cost, which approximates fair value (Level 1 input in accordance with the Fair Value Measurements Topic of the FASB ASC hierarchy) as at December 31, 2015 and 2014, respectively. The estimated fair values of the net financed sales receivable and net investment in sales-type leases are estimated based on discounting future cash flows at currently available interest rates with comparable terms (Level 2 input in accordance with the Fair Value Measurements Topic of the FASB ASC hierarchy) as at December 31, 2015 and 2014, respectively. The fair value of the Company’s available-for-sale investment is determined using quoted prices in active markets (Level 2 input in accordance with the Fair Value Measurements Topic of the FASB ASC hierarchy) as at December 31, 2015. The fair value of foreign currency derivatives are determined using quoted prices in active markets (Level 2 input in accordance with the Fair Value Measurements Topic of the FASB ASC hierarchy) as at December 31, 2015 and 2014, respectively. These identical instruments are traded on a closed exchange. The carrying value of borrowings under the Playa Vista Loan approximates fair value as the interest rates offered under the loan are close to December 31, 2015 market rates for the Company for debt of the same remaining maturities (Level 2 input in accordance with the Fair Value Measurements Topic of the FASB ASC hierarchy) as at December 31, 2015. There were no significant transfers between Level 1 and Level 2 during the year ended December 31, 2015 or 2014. When a determination is made to classify an asset or liability within Level 3, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement. 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: 129 Beginning balance, January 1, Transfers into/out of Level 3 Total gains or losses (realized/unrealized) Included in earnings Included in other comprehensive income Purchases, issuances, sales and settlements Ending balance, December 31, The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held at the reporting date Available For Sale Investments 2015 2014 $ $ $ - - - - - - $ $ 1,000 - (1,350) 350 - - - $ (1,350) There were no transfers in or out of the Company’s Level 3 assets during the year ended December 31, 2015. In the year ended December 31, 2015, the Company recognized a $0.4 million other-than-temporary impairment of its investments, 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 to which the market value has been less than cost. (c) Financing Receivables The Company’s net investment in leases and its net financed sale receivables are subject to the disclosure requirements of ASC 310 “Receivables”. Due to differing risk profiles of its net investment in leases and its net financed sales receivables, the Company views its net investment in leases and its net financed sale receivables as separate classes of financing receivables. The Company does not aggregate financing receivables to assess impairment. The Company monitors the credit quality of each customer on a frequent basis through collections and aging analyses. The Company also holds meetings monthly in order to identify credit concerns and whether a change in credit quality classification is required for the customer. A customer may improve in their credit quality classification once a substantial payment is made on overdue balances or the customer has agreed to a payment plan with the Company and payments have commenced in accordance to the payment plan. The change in credit quality indicator is dependent upon management approval. The Company classifies its customers into four categories to indicate the credit quality worthiness of its financing receivables for internal purposes only: Good standing — Theater continues to be in good standing with the Company as the client’s payments and reporting are up-to-date. Credit Watch — Theater operator has begun to demonstrate a delay in payments, and has been placed on the Company's credit watch list for continued monitoring, but active communication continues with the Company. Depending on the size of outstanding balance, length of time in arrears and other factors, transactions may need to be approved by management. These financing receivables are considered to be in better condition than those receivables related to theaters in the "Pre-approved transactions" category, but not in as good of condition as those receivables in "Good standing." Pre-approved transactions only — Theater operator is demonstrating a delay in payments with little or no communication with the Company. All service or shipments to the theater must be reviewed and approved by management. These financing receivables are considered to be in better condition than those receivables related to theaters in the "All transactions suspended" category, but not in as good of condition as those receivables in "Credit Watch." Depending on the individual facts and circumstances of each customer, finance income recognition may be suspended if management believes the receivable to be impaired. All transactions suspended — Theater is severely delinquent, non-responsive or not negotiating in good faith with the Company. Once a theater is classified as “All transactions suspended” the theater is placed on nonaccrual status and all revenue recognitions related to the theater are stopped. 130 The following table discloses the recorded investment in financing receivables by credit quality indicator: As at December 31, 2015 As at December 31, 2014 Minimum Financed Lease Sales Minimum Financed Lease Sales Payments Receivables Total Payments Receivables Total In good standing Credit Watch Pre-approved transactions Transactions suspended $ 10,252 - - 1,365 $ 11,617 $ 105,352 - 757 745 $ 106,854 $ 115,604 - 757 2,110 $ 118,471 $ $ 10,457 - - 1,114 11,571 $ $ 94,212 - 855 528 95,595 $ 104,669 - 855 1,642 $ 107,166 While recognition of finance income is suspended, payments received by a customer are applied against the outstanding balance owed. If payments are sufficient to cover any unreserved receivables, a recovery of provision taken on the billed amount, if applicable, is recorded to the extent of the residual cash received. Once the collectibility issues are resolved and the customer has returned to being in good standing, the Company will resume recognition of finance income. The Company’s investment in financing receivables on nonaccrual status is as follows: As at December 31, 2015 As at December 31, 2014 Recorded Investment Related Allowance Recorded Investment Related Allowance Net investment in leases Net financed sales receivables $ $ 1,365 1,502 2,867 $ $ (672) (568) (1,240) $ $ 1,114 528 1,642 $ $ (972) (494) (1,466) Total The Company considers financing receivables with aging between 60-89 days as indications of theaters with potential collection concerns. The Company will begin to focus its review on these financing receivables and increase its discussions internally and with the theater regarding payment status. Once a theater’s aging exceeds 90 days, the Company’s policy is to review and assess collectibility on the theater’s past due accounts. Over 90 days past due is used by the Company as an indicator of potential impairment as invoices up to 90 days outstanding could be considered reasonable due to the time required for dispute resolution or for the provision of further information or supporting documentation to the customer. 131 The Company’s aged financing receivables are as follows: Accrued and As at December 31, 2015 Billed Related Unbilled Total Financing Recorded Recorded Current 30-89 Days 90+ Days Receivable Investment Investment Recorded Investment Net of Allowances Related Allowances Net investment in leases $ Net financed sales receivables 840 908 Total $ 1,748 $ 177 1,013 $ 1,190 $ 446 1,177 $ 1,623 $ 1,463 3,098 $ 4,561 $ 10,154 103,756 $ 113,910 $ 11,617 106,854 $ 118,471 $ (672) $ 10,945 (568) 106,286 $ (1,240) $ 117,231 Accrued and As at December 31, 2014 Billed Related Unbilled Total Financing Recorded Recorded Current 30-89 Days 90+ Days Receivable Investment Investment Recorded Investment Net of Allowances Related Allowances Net investment in leases 420 Net financed sales receivables 1,558 Total $ 1,978 $ $ 175 1,260 $ 1,435 $ 253 2,659 $ 2,912 $ 848 5,477 $ 6,325 $ 10,723 90,118 $ 100,841 $ 11,571 95,595 $ 107,166 $ (972) $ 10,599 (494) 95,101 $ (1,466) $ 105,700 The Company’s recorded investment in past due financing receivables for which the Company continues to accrue finance income is as follows: Accrued and As at December 31, 2015 Billed Related Unbilled Financing Recorded Current 30-89 Days 90+ Days Receivables Investment Recorded Investment Past Due and Accruing Related Allowance Net investment in leases $ Net financed sales receivables Total $ 41 129 170 $ $ 47 224 271 $ $ 205 839 1,044 $ $ 293 1,192 1,485 $ 1,076 10,795 $ 11,871 $ $ - - - $ 1,369 11,987 $ 13,356 Accrued and As at December 31, 2014 Billed Related Unbilled Financing Recorded Current 30-89 Days 90+ Days Receivables Investment Recorded Investment Past Due and Accruing Related Allowance Net investment in leases $ Net financed sales receivables Total $ 90 258 348 $ $ 102 425 527 $ $ 130 1,671 1,801 $ $ 322 2,354 2,676 $ 2,024 12,512 $ 14,536 $ $ - - - $ 2,346 14,866 $ 17,212 132 The Company considers financing receivables to be impaired when it believes it to be probable that it will not recover the full amount of principal or interest owing under the arrangement. The Company uses its knowledge of the industry and economic trends, as well as its prior experiences to determine the amount recoverable for impaired financing receivables. The following table discloses information regarding the Company’s impaired financing receivables: Impaired Financing Receivables For the Year Ended December 31, 2015 Recorded Unpaid Related Average Recorded Interest Income Investment Principal Allowance Investment Recognized Recorded investment for which there is a related allowance: Net financed sales receivables $ 748 $ 298 $ (568) $ 748 $ Recorded investment for which there is no related allowance: Net financed sales receivables Total recorded investment in impaired loans: - - - - Net financed sales receivables $ 748 $ 298 $ (568) $ 748 $ - - - Impaired Financing Receivables For the Year Ended December 31, 2014 Recorded Unpaid Related Average Recorded Interest Income Investment Principal Allowance Investment Recognized Recorded investment for which there is a related allowance: Net financed sales receivables Recorded investment for which there is no related allowance: Net financed sales receivables Total recorded investment in impaired loans: $ 525 $ 2 $ (494) $ 526 $ - - - - Net financed sales receivables $ 525 $ 2 $ (494) $ 526 $ - - - 133 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: Allowance for credit losses: Beginning balance Charge-offs Recoveries Provision Ending balance Ending balance: individually evaluated for impairment Financing receivables: Ending balance: individually evaluated for impairment Allowance for credit losses: Beginning balance Charge-offs Recoveries Provision Ending balance Ending balance: individually evaluated for impairment Financing receivables: Ending balance: individually evaluated for impairment (d) Foreign Exchange Risk Management Year Ended December 31, 2015 Net Investment in Leases Net Financed Sales Receivables 972 (300) - - 672 $ $ 672 $ 494 - - 74 568 568 11,617 $ 106,854 Year Ended December 31, 2014 Net Investment in Leases Net Financed Sales Receivables 806 (20) (74) 260 972 $ $ 972 $ 236 - - 258 494 494 11,571 $ 95,595 $ $ $ $ $ $ $ $ The 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 is periodically converted to Canadian dollars to fund Canadian dollar expenses through the spot market. In China and Japan the Company has ongoing operating expenses related to its operations in Chinese Renminbi and Japanese yen, respectively. Net cash flows are converted to and from U.S. dollars through the spot market. The Company also has cash receipts under leases denominated in Chinese Renminbi, Japanese yen, Canadian dollars and Euros which are converted to U.S. dollars through the spot market. The Company’s policy is to not use any financial instruments for trading or other speculative purposes. The Company entered into a series of foreign currency forward contracts to manage the Company’s risks associated with the volatility of foreign currencies. Certain of these foreign currency forward contracts met the criteria required for hedge accounting under the Derivatives and Hedging Topic of the FASB ASC at inception, and continue to meet hedge effectiveness tests at December 31, 2015 (the “Foreign Currency Hedges”), with settlement dates throughout 2016 and 2017. Foreign currency derivatives are recognized and measured in the balance sheet at fair value. Changes in the fair value (gains or losses) are recognized in the 134 consolidated statement of operations except for derivatives designated and qualifying as foreign currency hedging instruments. For foreign currency hedging instruments, the effective portion of the gain or loss in a hedge of a forecasted transaction is reported in other comprehensive income and reclassified to the consolidated statement of operations when the forecasted transaction occurs. Any ineffective portion is recognized immediately in the consolidated statement of operations. The Company currently does not hold any derivatives which are not designated as hedging instruments and therefore no 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 financial statements: Notional value of foreign exchange contracts: Derivatives designated as hedging instruments: Foreign exchange contracts — Forwards Fair value of derivatives in foreign exchange contracts: Derivatives designated as hedging instruments: Foreign exchange contracts — Forwards As at December 31, 2015 2014 $ 30,710 $ 36,754 Balance Sheet Location 2015 2014 As at December 31, Accrued and other liabilities $ $ (4,423) (4,423) $ $ (1,760) (1,760) Derivatives in Foreign Currency Hedging relationships are as follows: Foreign exchange contracts - Forwards Derivative Loss Recognized in OCI (Effective Portion) $ $ (5,881) $ (2,524) $ (1,031) (5,881) $ (2,524) $ (1,031) Years Ended December 31, 2015 2014 2013 Foreign exchange contracts - Forwards Location of Derivative Loss Reclassified from AOCI Years Ended December 31, into Income (Effective Portion) 2015 2014 2013 Selling, general and administrative expenses $ $ (3,217) $ (1,186) $ (3,217) $ (1,186) $ (312) (312) (e) Investments in New Business Ventures The Company accounts for investments in new business ventures using the guidance of the FASB ASC 323 and the FASB ASC 320, as appropriate. As at December 31, 2015, the equity method of accounting is being utilized for investments with a total carrying value of $1.0 million (December 31, 2014 ─ $2.8 million). For the year ended December 31, 2015, gross revenues, cost of revenue and net loss for the investment were $nil, $9.3 million and $9.1 million, respectively (2014 ─ $3.1 million, $5.9 million, and $4.9 million, respectively). The Company has determined it is not the primary beneficiary of this VIE, and therefore this entity has not been consolidated. In 2014, the Company sold its investment in 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 for classification as a debt security under the FASB ASC 320 and is recorded at a fair value of $nil at December 31, 2015 (December 31, 2014 — $nil). This investment was classified as an available-for-sale investment. Furthermore, during 2015, the Company invested $1.0 million in the shares of an exchange traded fund. This investment is also classified as an available-for-sale investment. The Company has an investment of $2.5 135 million in the preferred shares of an enterprise which meet the criteria for classification as an equity security under FASB ASC 325. As at December 31, 2015, the carrying value of the Company’s investment in preferred shares is $0.2 million (December 31, 2014 — $0.6 million). The total carrying value of investments in new business ventures at December 31, 2015 and 2014 is $2.2 million and $3.4 million, respectively, and is recorded in Other Assets. 21. Employee's Pension and Postretirement Benefits (a) Defined Benefit Plan The Company has an unfunded U.S. defined benefit pension plan, the SERP, covering Richard L. Gelfond, Chief Executive Officer (“CEO”) of the Company and Bradley J. Wechsler, Chairman of the Company’s Board of Directors. The SERP provides for a lifetime retirement benefit from age 55 determined as 75% of the member’s best average 60 consecutive months of earnings over the member’s employment history. The benefits were 50% vested as at July 2000, the SERP initiation date. The vesting percentage increases on a straight-line basis from inception until age 55. As at December 31, 2015, the benefits 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 which such 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 to receive SERP benefits in the form of a lump sum payment. SERP benefit payments to Mr. Gelfond are subject to a deferral for six months after the termination of his employment, at which time Mr. Gelfond will be entitled to receive interest on the deferred amount credited at the applicable federal rate for short-term obligations. Pursuant to an 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, and is currently in discussion regarding an extension of his employment agreement with the Company. Under the terms of the arrangement, no compensation earned beginning 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: Discount rate Lump sum interest rate: First 20 years Thereafter Cost of living adjustment on benefits The amounts accrued for the SERP are determined as follows: Projected benefit obligation: Obligation, beginning of year Interest cost Actuarial (gain) loss Obligation, end of year and unfunded status As at December 31, 2015 1.34% 2.82% 2.95% 1.20% 2014 1.30% 2.89% 3.12% 1.20% 2013 1.45% 3.35% 3.50% 1.20% Years Ended December 31, 2015 2014 $ $ 19,405 253 (180) $ 19,478 $ 18,284 264 857 19,405 The following table provides disclosure of the pension benefit obligation recorded in the consolidated balance sheets: Accrued benefits cost Accumulated other comprehensive loss Net amount recognized in the consolidated balance sheets As at December 31, 2015 (19,478) $ $ 1,323 $ (18,155) $ 2014 (19,405) 1,503 (17,902) 136 The following table provides disclosure of pension expense for the SERP for the year ended December 31: Interest cost Amortization of actuarial loss Pension expense Years ended December 31, 2015 2014 2013 $ $ 253 - 253 $ $ 264 - 264 $ $ 195 444 639 The accumulated benefit obligation for the SERP was $19.5 million at December 31, 2015 (2014 — $19.4 million). The following amounts were included in accumulated other comprehensive income and will be recognized as components of net periodic benefit cost in future periods: Unrealized actuarial loss As at December 31, 2015 1,323 $ $ 2014 1,503 $ 2013 646 No contributions were made for the SERP during 2015. The Company expects interest costs of $0.3 million to be recognized as a component of net periodic benefit cost in 2016. 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: 2016 2017 2018 2019 2020 Thereafter $ $ - 19,871 - - - - 19,871 (b) Defined Contribution Pension Plan The Company also maintains defined contribution pension plans for its employees, including its executive officers. The Company makes contributions to these plans on behalf of employees in an amount up to 5% of their base salary subject to certain prescribed maximums. During 2015, the Company contributed and expensed an aggregate of $1.1 million (2014 — $1.4 million, 2013 — $1.3 million) to its Canadian plan and an aggregate of $0.4 million (2014 — $0.4 million, 2013 — $0.3 million) to its defined contribution employee pension plan under Section 401(k) of the U.S. Internal Revenue Code. 137 (c) Postretirement Benefits - Executives The Company has an unfunded postretirement plan for Messrs. Gelfond and Wechsler. The plan provides that the Company will maintain health benefits for Messrs. Gelfond and Wechsler until they become eligible for Medicare and, thereafter, the Company will provide Medicare supplemental coverage as selected by Messrs. Gelfond and Wechsler. The amounts accrued for the plan are determined as follows: As at December 31, 2015 2014 Obligation, beginning of year Interest cost Benefits paid Actuarial (gain) loss Obligation, end of year $ $ $ 830 30 (24) (73) 763 $ 392 17 (27) 448 830 The following details the net cost components, all related to continuing operations, and underlying assumptions of postretirement benefits other than pensions: Interest cost Amortization of actuarial loss (gain) Years Ended December 31, 2015 2014 2013 $ $ 30 135 165 $ $ $ 17 (32) (15) $ 19 - 19 The following amounts were included in accumulated other comprehensive income and will be recognized as components of net periodic benefit cost in future periods: Unrealized actuarial loss (gain) Weighted average assumptions used to determine the benefit obligation are: Discount rate As at December 31, 2015 2014 $ 146 $ 346 $ 2013 (134) As at December 31, 2015 4.20% 2014 3.70% 2013 4.50% Weighted average assumption used to determine the net postretirement benefit expense are: Discount rate Years Ended December 31, 2015 3.70% 2014 4.50% 2013 3.75% The following benefit payments are expected to be made as per the current plan assumptions in each of the next five years: 2016 2017 2018 2019 2020 Thereafter Total $ $ 34 54 60 66 33 516 763 138 (d) Postretirement Benefits – Canadian Employees The Company has an unfunded postretirement plan for its Canadian employees upon meeting specific eligibility requirements. The Company will provide eligible participants, upon retirement, with health and welfare benefits. In 2013, the Company amended the Canadian post-retirement plan to reduce future benefits provided under the plan. As a result of this change, the Company recognized a pre-tax curtailment gain in 2013 of $2.2 million (included in selling, general and administrative expenses) and a reduction in the postretirement liability of $2.6 million. The amounts accrued for the plan are determined as follows: As at December 31, Obligation, beginning of year Interest cost Service cost Benefits paid Actuarial (gain) loss Unrealized foreign exchange gain Obligation, end of year $ $ 2015 2,139 71 1 (80) (6) (347) 1,778 $ $ 2014 2,179 93 6 (84) 126 (181) 2,139 The following details the net cost components, all related to continuing operations, and underlying assumptions of postretirement benefits other than pensions: Curtailment gain Interest cost Service cost Years Ended December 31, 2015 2014 $ $ - 71 1 72 $ $ - 93 6 99 $ $ 2013 (2,185) 72 27 (2,086) The following amounts were included in accumulated other comprehensive income and will be recognized as components of net periodic benefit cost in future periods: Unrealized actuarial loss Weighted average assumptions used to determine the benefit obligation are: Discount rate As at December 31, 2015 2014 $ 423 $ 429 $ 2013 303 As at December 31, 2015 3.75% 2014 3.75% 2013 4.50% Weighted average assumptions used to determine the net postretirement benefit expense are: Discount rate Years Ended December 31, 2015 3.75% 2014 4.50% 2013 4.00% The Company expects interest costs of $0.1 million and service costs of $nil to be recognized as a component of net periodic benefit cost in 2016. 139 The following benefit payments are expected to be made as per the current plan assumptions in each of the next five years: 2016 2017 2018 2019 2020 Thereafter Total 22. Non-Controlling Interests (a) IMAX China Non-Controlling Interest $ $ 90 94 102 109 111 1,272 1,778 On April 8, 2014, the Company announced sale and issuance of 20% of the shares of IMAX China Holding, Inc. (“IMAX China”) to entities owned and controlled 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 (collectively, the “IMAX China Investment”). 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 IMAX China (the “Class C Shares”) for an aggregate subscription price of $40.0 million on April 8, 2014 and issued the investors another 337,500 Class C Shares for an aggregate subscription price of $40.0 million on February 10, 2015. IMAX China remains a consolidated subsidiary of the Company. Since the second quarter of 2014, the Company’s consolidated financial statements have included the non-controlling interest in the net income of IMAX China resulting from this transaction and the net proceeds have been classified as redeemable non-controlling interest in temporary equity and were moved into other equity upon the completion of the IMAX China IPO. The parties entered into a shareholders’ agreement in connection with the IMAX China Investment, which terminated upon completion of the initial public offering of IMAX China on the Main Board of the Hong Kong Stock Exchange Limited (the “IMAX China IPO”) on October 8, 2015. While the shareholders’ agreement was in effect, the Class C shareholders had certain redemption rights. Specifically, if a qualified IPO (as defined in the shareholders’ agreement) had not occurred by April 8, 2019, each holder of Class C Shares would have been entitled to request that all of such holders’ Class C Shares be, at their election, either: (i) redeemed by IMAX China at par value together with the issuance 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 the consideration 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 the Company equal to the pro rata fair market value of IMAX China. These rights terminated as a result of the IMAX China IPO, which was a qualified initial public offering for purposes of the shareholders’ agreement. All IMAX China shares have been re-designated into a single class of common shares. On October 15, 2015, in satisfaction of its obligations under the Shareholders’ Agreement, IMAX China paid a dividend of $9.5 million to the non-controlling interest shareholders. 140 The following summarizes the movement of the non-controlling interest in temporary equity, in the Company’s subsidiary for the year ended December 31, 2015: Balance as at January 1, 2014 Issuance of subsidiary shares to a non-controlling interest Share issuance costs from the issuance of subsidiary shares to a non-controlling interest Net income Other comprehensive loss, net of tax Accretion charges associated with redeemable common stock Balance as at December 31, 2014 Issuance of subsidiary shares to a non-controlling interest Share issuance costs from the issuance of subsidiary shares to a non-controlling interest Net income prior to IMAX China IPO Other comprehensive loss prior to IMAX China IPO Accretion charges associated with redeemable common stock Redemption of redeemable common stock upon qualified IPO Balance as at October 7, 2015 $ $ $ - 40,000 (2,843) 2,631 58 426 40,272 40,000 (2,000) 5,401 164 769 (84,606) - The following summarizes the movement of the non-controlling interest in shareholders’ equity, in the Company’s subsidiary for the year ended December 31, 2015: Balance as at October 8, 2015 Net income after IMAX China IPO Other comprehensive loss after IMAX China IPO Dividends paid to non-controlling shareholders Reduction in value due to qualified initial public offering Balance as at December 31, 2015 (b) Other Non-Controlling Interest $ $ 84,606 3,712 252 (9,511) (29,100) 49,959 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 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 more exciting and compelling than traditional documentaries. The initial investment in the Film Fund was committed to by a third party in the amount of $25.0 million, with the possibility of contributing additional funds. The Company, which will contribute $9.0 million to the Film Fund over five years starting in 2014, anticipates the 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. 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. During the years ended December 31, 2015 and 2014, the Film Fund contributed $0.2 million and $7.5 million, respectively, toward an investment in film assets. Balance as at January 1, 2014 Issuance of subsidiary shares to a non-controlling interest Share issuance costs from the issuance of subsidiary shares to a non-controlling interest Net loss Balance as at December 31, 2014 Net loss Balance as at December 31, 2015 $ $ $ - 4,551 (713) (198) 3,640 (333) 3,307 141 23. Discontinued Operations On January 30, 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. In 2014, revenues for the Nyack IMAX theater were less than $0.1 million (2013 ― $1.3 million) and the Company recognized income of $0.4 million, 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 and operated Nyack theater are reflected as discontinued operations. 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 rent expense of $0.8 million (2013 ― $nil). 24. Asset Retirement Obligations The Company has accrued costs related to obligations in respect of required reversion costs for its owned and operated theaters under long-term real estate 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. A reconciliation of the Company’s liability in respect of required reversion costs is shown below: Beginning balance, January 1 Accretion expense Reduction in asset retirement obligation Ending balance, December 31 25. Prior Year's Figures Years Ended December 31, 2015 2014 2013 $ $ 149 13 (80) 82 $ $ 143 12 (6) 149 $ $ 249 6 (112) 143 Certain of the prior years’ figures have been reclassified to conform to the current year’s presentation. 142 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None Item 9A. Controls and Procedures EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the specified time periods and that such information is accumulated and communicated to management, including the CEO and Chief Financial Officer (“CFO”), to allow timely discussions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. The Company’s management, with the participation of its CEO and its CFO, has evaluated the effectiveness of the Company’s “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) as at December 31, 2015 and has concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective. The Company will continue to periodically evaluate its disclosure controls and procedures and will make modifications from time to time as deemed necessary to ensure that information is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Management has used the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) framework in Internal Control-Integrated Framework (2013) to assess the effectiveness of the Company’s internal control over financial reporting. Management has assessed the effectiveness of the Company’s internal control over financial reporting, as at December 31, 2015, and has concluded that 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 any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. PricewaterhouseCoopers LLP has audited the effectiveness of the Company’s internal control over financial reporting as at December 31, 2015 as stated in their report on page 82. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING There were no changes in the Company’s internal control over financial reporting which occurred during the three months ended December 31, 2015, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Item 9 B. Other Information None. 143 Item 10. Directors, Executive Officers and Corporate Governance PART III The information required by Item 10 is incorporated by reference from the information under the following captions in the Company’s Proxy Statement: “Item No. 1 - Election of Directors;” “Executive Officers;” “Section 16(a) Beneficial Ownership Reporting Compliance;” “Code of Ethics;” and “Audit Committee.” Item 11. Executive Compensation The information required by Item 11 is incorporated by reference from the information under the following captions in the Company’s Proxy Statement: “Compensation Discussion and Analysis;” “Summary Compensation Table;” “Grant of Plan-Based Awards;” “Outstanding Equity Awards at Fiscal 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 Matters The information required by Item 12 is incorporated by reference from the information under the following captions in the Company’s Proxy Statement: “Equity Compensation Plans;” “Principal Shareholders of Voting Shares;” and “Security Ownership of Directors and Management.” Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by Item 13 is incorporated by reference from the information under the following caption in the Company’s Proxy Statement: “Certain Relationships and Related Transactions,” “Review, Approval and Ratification of Transactions with Related Persons,” and “Director Independence.” Item 14. Principal Accounting Fees and Services The information required by Item 14 is incorporated by reference from the information under the following captions in the Company’s Proxy Statement: “Audit Fees;” “Audit-Related Fees;” “Tax Fees;” “All Other Fees;” and “Audit Committee’s Pre- Approved Policies and Procedures.” Item 15. Exhibits and Financial Statement Schedules (a)(1) Financial Statements PART IV The 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), is included under Item 8 in Part II. (a)(2) Financial Statement Schedules Financial statement schedule for each year in the three-year period ended December 31, 2015. II. Valuation and Qualifying Accounts. 144 (a)(3) Exhibits The items listed as Exhibits 10.1 to 10.34 relate to management contracts or compensatory plans or arrangements. Exhibit No. Description 3.1 Restated Articles of Incorporation of IMAX Corporation, dated July 30, 2013. Incorporated by reference to Exhibit 3.1 to IMAX Corporation’s Form 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, dated June 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 December 31, 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’s Form 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., Wasserstein Perella Offshore Partners, L.P., WPPN Inc., the Michael J. Biondi Voting Trust, Bradley J. Wechsler and Richard L. Gelfond. Incorporated by reference 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. 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 Exhibit 10.2 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 to IMAX 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 to Exhibit 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 to Exhibit 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 to Exhibit 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 to Exhibit 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. Incorporated by reference to Exhibit 10.9 to IMAX Corporation’s Form 10-K, for the year ended December 31, 2014 (File No. 001-35066). 145 *10.10 Services Agreement Amendment, dated February 14, 2011, between IMAX Corporation and Bradley J. Wechsler. 10.11 Services Agreement Amendment, dated April 1, 2013, between IMAX Corporation and Bradley J. Wechsler. Incorporated by reference to Exhibit 10.11 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 to IMAX 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 to Exhibit 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 to Exhibit 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. Incorporated by reference to Exhibit 10.13 to IMAX Corporation’s Form 10-K, for the year ended December 31, 2011 (File No. 001-35066). 10.16 Amended Employment Agreement, dated December 31, 2007, between IMAX Corporation and Richard L. Gelfond. Incorporated by reference to Exhibit 10.16 to IMAX Corporation’s Form 10-K, for the year ended December 31, 2013 (File No. 001-35066). 10.17 Amended Employment Agreement, dated December 11, 2008, between IMAX Corporation and Richard L. Gelfond. Incorporated by reference to Exhibit 10.17 to IMAX Corporation’s Form 10-K, for the year ended December 31, 2014 (File No. 001-35066). *10.18 Amended Employment Agreement, dated December 20, 2010, between IMAX Corporation and Richard L. Gelfond. 10.19 Amended Employment Agreement, dated December 12, 2011, between IMAX Corporation and Richard L. Gelfond. Incorporated by reference to Exhibit 10.17 to IMAX Corporation’s Form 10-K, for the year ended December 31, 2011 (File No. 001-35066). 10.20 Employment Agreement, dated January 1, 2014, between IMAX Corporation and Richard L. Gelfond. Incorporated by reference to Exhibit 10.12 to IMAX Corporation’s Form 10-Q, for the quarter ended September 30, 2014 (File No. 001- 35066). *10.21 First Amending Agreement, dated December 9, 2015, between IMAX Corporation and Richard L. Gelfond. 10.22 Employment Agreement, dated March 9, 2006, between IMAX Corporation and Greg Foster. Incorporated by reference to Exhibit 10.18 to IMAX Corporation’s Form 10-K, for the year ended December 31, 2011 (File No. 001-35066). 10.23 First Amending Agreement, dated December 31, 2007, between IMAX Corporation and Greg Foster. Incorporated by reference to Exhibit 10.22 to IMAX Corporation’s Form 10-K, for the year ended December 31, 2013 (File No. 001-35066). *10.24 Second Amending Agreement, dated April 29, 2010, between IMAX Corporation and Greg Foster. 10.25 Third Amending Agreement, dated June 12, 2013, between IMAX Corporation and Greg Foster. Incorporated by reference to Exhibit 10.21 to IMAX Corporation’s Form 10-Q, for the quarter ended June 30, 2013 (File No. 001-35066). 10.26 Employment Agreement, dated May 14, 2007, between IMAX Corporation and Joseph Sparacio. Incorporated by reference to Exhibit 10.21 to IMAX Corporation’s Form 10-K, for the year ended December 31, 2012 (File No. 001-35066). 146 *10.27 First Amending Agreement, dated May 14, 2009, between IMAX Corporation and Joseph Sparacio. *10.28 Second Amending Agreement, dated May 14, 2010, between IMAX Corporation and Joseph Sparacio. 10.29 Third Amending Agreement, dated January 23, 2012, between IMAX Corporation and Joseph Sparacio. Incorporated by reference to Exhibit 10.24 to IMAX Corporation’s Form 10-K, for the year ended December 31, 2011 (File No. 001-35066). 10.30 Fourth Amending Agreement, dated May 15, 2014, between IMAX Corporation and Joseph Sparacio. Incorporated by reference to Exhibit 10.29 to IMAX Corporation’s Form 10-Q, for the quarter ended September 30, 2014 (File No. 001- 35066). *10.31 Fifth Amending Agreement, dated November 18, 2015, between IMAX Corporation and Joseph Sparacio. 10.32 Employment Agreement, dated January 1, 2014, between IMAX Corporation and Robert D. Lister. Incorporated by reference to Exhibit 10.37 to IMAX Corporation’s Form 10-Q, for the quarter ended March 31, 2015 (File No. 001-35066). 10.33 Service Agreement, dated March 6, 2014, between IMAX International Sales Corporation and Andrew Cripps. Incorporated by reference to Exhibit 10.38 to IMAX Corporation’s Form 10-Q, for the quarter ended March 31, 2015 (File No. 001- 35066). 10.34 Statement of Directors’ Compensation, dated June 11, 2013. Incorporated by reference to Exhibit 10.26 to IMAX Corporation’s Form 10-Q, for the quarter ended June 30, 2013 (File No. 001-35066). 10.35 Fourth Amended and Restated Credit Agreement, dated March 3, 2015, 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 Exhibit 10.39 to IMAX Corporation’s Form 10-Q, for the quarter ended March 31, 2015 (File No. 001-35066). 10.36 Construction Loan Agreement, dated October 6, 2014, between IMAX PV Development, Inc., Wells Fargo Bank, National Association and the financial institutions referred to therein. Incorporated by reference to Exhibit 10.45 to IMAX Corporation’s Form 10-Q, for the quarter ended September 30, 2014 (File No. 001-35066). 10.37 Securities Purchase Agreement, dated as of May 5, 2008, by and between IMAX Corporation, Douglas Family Trust, James Douglas and Jean Douglas Irrevocable Descendants’ Trust, James E. Douglas, III, and K&M Douglas Trust. Incorporated by reference to Exhibit 10.43 to IMAX Corporation’s Form 10-K, for the year ended December 31, 2013 (File No. 001-35066). 10.38 Amendment No. 1 to Securities Purchase Agreement, dated December 1, 2008, by and between IMAX Corporation, Douglas Family Trust, James Douglas and Jean Douglas Irrevocable Descendants’ Trust, James E. Douglas, III, and K&M Douglas Trust. Incorporated by reference to Exhibit 10.35 to IMAX Corporation’s Form 10-K, for the year ended December 31, 2014 (File No. 001-35066). 10.39 Subscription 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 by reference to Exhibit 10.1 to IMAX Corporation’s Form 8-K, dated April 7, 2014 (File No. 001-35066). *21 Subsidiaries of IMAX Corporation. *23 Consent of PricewaterhouseCoopers LLP. *24 Power of Attorney of certain directors. *31.1 Certification Pursuant to Section 302 of the Sarbanes — Oxley Act of 2002, dated February 24, 2016, by Richard L. Gelfond. 147 *31.2 Certification Pursuant to Section 302 of the Sarbanes — Oxley Act of 2002, dated February 24, 2016, by Joseph Sparacio. *32.1 Certification Pursuant to Section 906 of the Sarbanes — Oxley Act of 2002, dated February 24, 2016, by Richard L. Gelfond. *32.2 Certification Pursuant to Section 906 of the Sarbanes — Oxley Act of 2002, dated February 24, 2016, by Joseph Sparacio. ________________________ * Filed herewith 148 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES IMAX CORPORATION By /s/ JOSEPH SPARACIO Joseph Sparacio Executive Vice-President & Chief Financial Officer Date: February 24, 2016 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 24, 2016. /s/ RICHARD L. GELFOND Richard L. Gelfond Chief Executive Officer & Director (Principal Executive Officer) * Bradley J. Wechsler Chairman of the Board & Director * David W. Leebron Director * I. Martin Pompadur Director /s/ JOSEPH SPARACIO Joseph Sparacio Executive Vice President & Chief Financial Officer (Principal Financial Officer) /s/ JEFFREY VANCE Jeffrey Vance Senior Vice-President, Finance & Controller (Principal Accounting Officer) * Neil S. Braun Director * Michael Lynne Director * Dana Settle Director By * Eric A. Demirian Director * Michael MacMillan Director * Darren D. Throop Director * /s/ JOSEPH SPARACIO Joseph Sparacio (as attorney-in-fact) 149 IMAX CORPORATION Schedule II Valuation and Qualifying Accounts (In thousands of U.S. dollars) Balance at beginning of year Additions/ (recoveries) charged to expenses Other additions/ (deductions)(1) Balance at end of year Allowance for net investment in leases Year ended December 31, 2013 Year ended December 31, 2014 Year ended December 31, 2015 Allowance for financed sale receivables Year ended December 31, 2013 Year ended December 31, 2014 Year ended December 31, 2015 Allowance for doubtful accounts receivable Year ended December 31, 2013 Year ended December 31, 2014 Year ended December 31, 2015 Inventories valuation allowance Year ended December 31, 2013 Year ended December 31, 2014 Year ended December 31, 2015 Deferred income tax valuation allowance Year ended December 31, 2013 Year ended December 31, 2014 Year ended December 31, 2015 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 1,130 806 972 66 236 494 1,564 887 947 4,418 3,982 3,549 6,113 4,754 310 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 300 - - 180 193 75 (35) 725 677 444 359 572 (341) (429) 16 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ (624) 166 (300) (10) 65 (1) (642) (665) (478) (880) (792) (779) (1,018) (4,015) - $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 806 972 672 236 494 568 887 947 1,146 3,982 3,549 3,342 4,754 310 326 (1) Deductions represent write-offs of amounts previously charged to the provision. IMAX Corporation EXHIBIT 10.1 IMAX CORPORATION STOCK OPTION PLAN June 2008 IMAX CORPORATION AMENDED & RESTATED STOCK OPTION PLAN 1. Purpose The purposes of the IMAX Stock Option Plan (the “Plan”) are to attract, retain and motivate directors, officers, key employees and consultants of the Company and its Subsidiaries and to provide to such persons incentives and awards for superior performance. 2. Definitions As used in this Plan the following terms have the following meanings: “Agreement” has the meaning set forth in Section 6 below. “Award” means an Option. “Blackout Period” means any period during which a policy of the Company prevents an Insider from trading in the Common Shares. “Board” means the Board of Directors of the Company. “Cause” means a termination of the Participant’s employment with the Company or one of its Subsidiaries (a) for “cause” as defined in an employment agreement applicable to the Participant, or (b) in the case of a Participant who does not have an employment agreement that defines “cause”, because of: (i) any act or omission that constitutes a material breach by the Participant of any of his obligations under his employment agreement with the Company or one of its Subsidiaries or the applicable Agreement; (ii) the continued failure or refusal of the Participant to substantially perform the duties reasonably required of him as an employee of the Company or one of its Subsidiaries; (iii) any wilful and material violation by the Participant of any law or regulation applicable to the business of the Company or one of its Subsidiaries, or the Participant’s conviction of a felony, or any wilful perpetration by the Participant of a common law fraud; or (iv) any other wilful misconduct by the Participant which is materially injurious to the financial condition or business reputation of, or is otherwise materially injurious to, the Company or any of its Subsidiaries. “Change of Control” means an event or series of events where any person, or group of persons acting in concert, not including Bradley J. Wechsler and Richard L. Gelfond, acquire greater than fifty percent (50%) of the outstanding Common Shares of the Company whether by direct or indirect acquisition or as a result of a merger, reorganization or sale of substantially all of the assets of the Company. “Code” means the U.S. Internal Revenue Code of 1986, as amended. “Committee” means a committee of the Board comprised of at least two directors selected by the Board to administer the Plan. “Common Share” means a share of common stock, no par value, of the Company. “Company” means IMAX Corporation, a corporation organized under the laws of Canada. “Date of Grant” means the date specified by the Board or the Committee on which an Award shall become effective (which date shall not be earlier than the date on which the Board or the Committee takes action with respect thereto). The “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time. “Fair Market Value” of a Common Share on a given date means the higher of the closing price of a Common Share on such date (or the most recent trading date if such date is not a trading date) on Stock Exchanges. “Insider” means any person who is a director or an officer of the Company or any Subsidiary, or who is directly or indirectly the beneficial owner of, or who exercises control or direction, more than 10% of total Common Shares issued by the Company. “Option” means the right to purchase a Common Share upon exercise of a stock option granted pursuant to the Plan. “Option Price” means the purchase price per Common Share payable on exercise of an Option, as determined by the Committee in its sole discretion (subject to the terms of the Plan) and as set forth in the applicable Agreement. “Participant” means a person to whom an Award is to be made under the Plan and who is at the time of such Award an employee or consultant of the Company, or any of its Subsidiaries, or a person who is a director of the Company or any of its Subsidiaries and who is not also an employee of the Company or any of its Subsidiaries at the Date of Grant, or a person who has agreed to commence serving in any such capacity within 90 days of the Date of Grant, or any personal holding corporation controlled by any such person, the shares of which are held directly or indirectly by such person or such person’s spouse, minor children or minor grandchildren, or any registered retirement savings plan or registered educational savings plan for the sole benefit of any such person. “Permanent Disability” means a physical or mental disability or infirmity of the Participant that prevents the normal performance of substantially all his duties as an employee of the Company or any Subsidiary, which disability or infirmity shall exist for any continuous period of 180 days within any twelve-month period. “Stock Exchanges” means one or more, as the context requires, of the New York Stock Exchange, the Toronto Stock Exchange and such securities exchange, if any, as may be designated by the Board, from time to time. “Subsidiary” means any corporation or other entity in which the Company owns or controls, directly or indirectly, not less than 50% of the total combined voting power represented by all voting securities or other voting interests in such entity. “Vested Options” means, as of any date, Options which by their terms are exercisable on such date. 3. Administration of the Plan (a) (b) The Plan shall be administered, and Awards shall be granted hereunder, by the Board or by or under the authority of the Committee. A majority of the Committee shall constitute a quorum, and the action of the members of the Committee present at any meeting at which a quorum is present, or acts unanimously approved in writing, shall be the acts of the Committee. The interpretation and construction by the Committee of any provision of the Plan or of any Agreement, and any determination by the Committee pursuant to any provision of this Plan or of any Agreement shall be final and conclusive. No member of the Committee shall be liable for any such action or determination made in good faith. 4. Shares Available Under Plan The maximum number of Common Shares which may be issued upon the exercise of Options granted under the Plan is 20% of the issued and outstanding Common Shares, subject to adjustment as provided in Section 10. Such Common Shares may be shares previously issued or treasury shares or a combination of the foregoing. Any Common Shares which are subject to Options which have been exercised, have expired or which have been surrendered without being exercised in full shall again be available for issuance under this Plan, resulting in a “reloading” of the Plan up to this maximum percentage of issued and outstanding Common Shares. 5. Limitations on Certain Grants Section 162(m) of the Code requires that the Plan include a limitation on the number of Options which may be granted to certain Participants. The Board or Committee may, from time to time and upon such terms and conditions as it may determine, grant Options to Participants provided, however, the maximum number of Options intended to qualify for exemption under Section 162(m) of the Code that may be awarded to any Participant in any calendar year shall not exceed 4,000,000. 6. Agreement The terms and conditions of each Option shall be embodied in a written agreement (the “Agreement”) in a form approved by the Committee which shall contain terms and conditions not inconsistent with the Plan and which shall incorporate the Plan by reference. Options granted under the Plan shall comply with the following terms and conditions: (a) (b) (c) (d) (e) (f) (g) (h) Each Agreement shall specify the number of Common Shares for which Options have been granted. Each Agreement shall specify the Option Price, which shall not be less than 100% of the Fair Market Value per Common Share on the Date of Grant. Each Agreement shall specify that the Option Price shall be payable in cash or by cheque acceptable to the Company or by a combination of such methods of payment. Successive grants may be made to the same Participant whether or not any Options previously granted to such Participant remain unexercised. Each Agreement shall specify the applicable vesting schedule and the effective term of the Option. In the event of a termination of a Participant’s employment by reason of death or Permanent Disability, 50% of such Participant’s Options shall become Vested Options if such Options were less than 50% vested at the time of such termination. Options granted under the Plan are not intended to qualify as “incentive stock options” within the meaning of Section 422A of the Code. No Option issued prior to June 18, 2008 shall be exercisable more than ten years from the Date of Grant. No Options issued on or after June 18, 2008, subject to earlier cancellation, shall be exercisable for the later of ten years from the Date of Grant, or in the event the 10 year anniversary of the Date of Grant falls within a Blackout Period, the date which is ten days after the date on which the Blackout Period has ended. Each Option granted under the Plan shall be subject to such additional terms and conditions, not inconsistent with the Plan, which are prescribed by the Board or the Committee and set forth in the applicable Agreement. (i) As soon as practicable following the exercise of any Options, the Common Shares subject to the exercised Options shall be issued in the name of the Participant or as the Participant shall otherwise, in writing, direct. 7. Termination of Employment, Consulting Agreement or Term of Office (a) (b) In the event that a Participant’s employment, consulting arrangement or term of office with the Company or one of its Subsidiaries terminates for any reason, unless the Board or the Committee determines otherwise, any Options which have not become Vested Options shall terminate and be cancelled without any consideration being paid therefor. In the event that a Participant’s employment with the Company or one of its Subsidiaries is terminated without Cause, or the Participant’s employment is terminated by reason of the Participant’s voluntary resignation (including by reason of retirement), death or Permanent Disability, or upon the termination of a Participant’s consulting arrangement or term of office, the Participant (or the Participant’s estate) shall be entitled to exercise the Participant’s Options which have become Vested Options as of the date of termination for a period of 30 days, or such longer period as the Board or the Committee determines, following the date of termination. (c) In the event that a Participant’s employment, consulting arrangement or term of office with the Company or one of its Subsidiaries is terminated for Cause, such Participant’s Vested Options shall terminate and be cancelled without any consideration being paid therefor. 8. Transferability No Option shall be transferable by a Participant other than by will or the laws of descent and distribution, provided, however, that Options may be transferred if approved by the Board or the Committee and by any regulatory authority having jurisdiction or stock exchange on which the Common Shares subject to Options are listed. Options shall be exercisable during the Participant’s lifetime only by the Participant or by the Participant’s guardian or legal representative. 9. Change of Control All Options granted under the Plan (or any predecessor of the Plan) shall immediately vest and become fully exercisable upon the occurrence of (a) a Change of Control; and (b) the occurrence of one or more of the following: (i) the Participant’s employment or term of office with the Company, or one of its Subsidiaries, is terminated without Cause; (ii) the diminution of the Participant’s title and/or responsibilities; and (iii) the Participant is asked to relocate more than twenty-five (25) miles from his/her existing office. 10. Adjustments The Committee shall make or provide for such adjustments in the maximum number of Common Shares specified in Section 4, in the number of Common Shares or other securities or consideration covered by outstanding Options granted hereunder, and/or in the Option Price applicable to such Options as the Board or the Committee in their sole discretion may determine is equitably required to prevent dilution or enlargement of the rights of Participants that otherwise would result from any stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Company, merger, consolidation, spin-off, reorganization, partial or complete liquidation, issuance of rights or warrants to purchase securities or any other corporate transaction or event having an effect similar to any of the foregoing. 11. Fractional Shares The Company shall not be required to issue any fractional Common Shares pursuant to the Plan. The Committee may provide for the elimination of fractions or for the settlement of fractions in cash. 12. Withholding Taxes The Company and its Subsidiaries shall have the right to require any individual entitled to receive Common Shares pursuant to an Option to remit to the Company, prior to the issuance of any Common Share following the exercise of any Options, any amount sufficient to satisfy any Canadian or United States federal, state, provincial or local tax withholding requirements. Prior to the Company’s determination of such withholding liability, such individual may make an irrevocable election to satisfy, in whole or in part, such obligation to remit taxes by directing the Company to withhold Common Shares that would otherwise be received by such individual. Such election may be denied by the Company in its discretion, or may be made subject to certain conditions specified by the Company, including, without limitation, conditions intended to avoid accounting charges and the imposition of liability against the individual under Section 16(b) of the Exchange Act, as amended, and the rules and regulations thereunder. 13. Registration Restrictions An Option shall not be exercisable unless and until (i) a registration statement under the Securities Act of 1933, as amended, has been duly filed and declared effective pertaining to the Common Shares subject to such Option, or (ii) the Committee, in its sole discretion determines that such registration, qualification and status is not required as a result of the availability of an exemption from such registration, qualification, and status under such laws. 14. Shareholder Rights A Participant shall have no rights as a shareholder with respect to any Common Shares issuable upon exercise of an Option until the Participant has duly exercised the Option in accordance with its terms and this Plan, and the Common Shares have been paid for in full and issued to the Participant. 15. Breach of Restrictive Covenants If (i) a Participant is a party to an employment agreement with the Company or any of its Subsidiaries or affiliates and (ii) such Participant materially breaches any of the restrictive covenants set forth in such employment agreement (including, without limitation, any restrictive covenants relating to non-competition, non-solicitation or confidentiality), then all of such Participant’s Options (whether or not Vested Options) shall terminate and be cancelled without consideration being paid therefor. 16. Section 409A of the Code If any provision of the Plan or any Agreement contravenes any regulations or Treasury guidance promulgated under Section 409A of the Code or would cause the Awards to be subject to the interest and penalties under Section 409A of the Code, such provision of the Plan or any Agreement shall be modified to maintain, to the maximum extent practicable, the original intent of the applicable provision without violating the provisions of Section 409A of the Code. 17. Amendments The Board or the Committee reserves the right, in its sole discretion, to amend, suspend or terminate the Plan or any portion thereof at any time, and outstanding Options or Agreements thereunder, in accordance with applicable legislation, without obtaining the approval of shareholders; provided, however, that no termination or amendment of the Plan or any waiver of any provision of any Option or Agreement may, without the consent of the Participant to whom any Award shall have been granted, adversely affect the rights of such Participant in such Award; provided further, however that amendments shall be subject to (i) the approval of a majority of the Common Shares entitled to vote if the Committee determines that such approval is necessary in order for the Company to rely on the exemptive relief provided under Rule 16b-3 under the Exchange Act and (ii) all other approvals, whether regulatory, shareholder or otherwise, which are required by regulatory authority having jurisdiction or a Stock Exchange. Notwithstanding the foregoing, the Company will be required to obtain the approval of the shareholders of the Company for any amendment related to: a) reduces the Option Price of an Award held by an Insider; b) extends the term of an Award held by an Insider, except as otherwise provided in Section 19; or c) increases the number of Common Shares reserved under the Plan. 18. Miscellaneous The Plan shall not confer upon a Participant any right with respect to continuance of employment or other service with the Company or any Subsidiary, nor will it interfere in any way with any right the Company or any Subsidiary would otherwise have to terminate such Participant’s employment or other service at any time. 19. Black Out Periods Except as otherwise provided in Section 6(g) or in any Option Agreement, if the date on which an Option expires occurs during or within 10 days after the last day of a Blackout Period, the expiry date for the Option will be 10 days after the date on which the Blackout Period has ended. 20. Effective Date The Plan, as amended, shall be effective as of June 18, 2008. 21. Governing Law The Plan and all rights hereunder shall be construed in accordance with and governed by the laws of the Province of Ontario and the laws of Canada applicable therein. June 2008 IMAX CORPORATION EXHIBIT 10.10 AMENDING AGREEMENT This Amendment to Services Agreement dated as of February 14, 2011 (the “Amending Agreement”) is made between: IMAX CORPORATION, a corporation incorporated under the laws of Canada (hereinafter referred to as the “Company”), and BRAD WECHSLER (the “Executive”) WHEREAS, the Company wishes to enter into this Amending Agreement to amend and extend the Services Agreement dated as of December 11, 2008 (the “Agreement”). NOWTHEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, the parties hereto agree as follows: Section 1 of the Agreement shall be deleted and replaced with the following: 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 the Board, and (ii) April 1, 2013 (the “Term”) provided, however, that the Board agrees to use its best efforts to cause Chairman to be re-elected to the Board in 2013 provided the Agreement has been renewed for an additional term, unless Chairman has engaged in activity that would have constituted dismissal for Cause as that term is defined in the Employment Agreement. 2. General. Except as amended herein, all other terms of the Agreement shall remain in full force and unamended. DATED as of February 14, 2011. AGREED AND ACCEPTED: /s/ Bradley J. Wechsler Bradley J. Wechsler IMAX CORPORATION Per /s/ Garth M. Girvan Name: Garth M. Girvan Title: Director IMAX CORPORATION EXHIBIT 10.18 AMENDED EMPLOYMENT AGREEMENT This 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. 2. 3. Term. The term of the Agreement (the “Term”) is extended until December 31, 2012 (the “Term End”). Cash Compensation. Effective January 1, 2011 (the “Renewal Commencement Date”), the Executive shall be paid a base salary at the rate of $750,000 per year. Executive’s bonus shall continue to be up to two times salary. Such bonus shall be 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 the Board after consultation with the Executive. SERP. In connection with that July 2000 Supplemental Executive Retirement Plan, as amended (the “SERP”), the Executive and the Company agree that no compensation paid to Executive between the Renewal Commencement Date and the Term End shall be included in the calculation of benefits payable to Executive under the SERP (the “Gelfond SERP Payout”). The Company agrees that it will investigate in good faith the notion of fixing the Gelfond SERP Payout and will proceed to fix the Gelfond SERP Payout provided, and to the extent, (a) the Company’s Board of Directors concludes it is in the reasonable best interests of the Company to do so and (b) Executive agrees. 4. Incentive Compensation. On December 31, 2010, the Executive shall be granted, in accordance with the terms of the IMAX Stock Option Plan (the “Plan”), stock options to purchase 800,000 common shares of the Company (the “Options”) at an exercise price per Common Share equal to the Fair Market Value, as defined in the Plan. The Options shall have a 10-year term and vest as follows: Number of Options Vesting Date 160,000 160,000 160,000 160,000 160,000 May 1, 2011 September 1, 2011 January 1, 2012 May 1, 2012 September 1, 2012 The vesting of the Options shall be accelerated upon a “change of control” as defined in the Agreement, and shall be governed, to the extent applicable, by the provisions in the Agreement regarding change of control. 1 5. The entering into this agreement shall not prejudice any rights or waive any obligations under any other agreement between the Executive and the Company. DATED as of December 20, 2010. AGREED AND ACCEPTED: /s/ Richard L. Gelfond Richard L. Gelfond IMAX CORPORATION Per: /s/ Garth M. Girvan Name: Garth M. Girvan Title: Director 2 IMAX CORPORATION EXHIBIT 10.21 FIRST AMENDING AGREEMENT This First Amending Agreement, dated as of December 9, 2015 (the “First Amending Agreement”), is made between IMAX CORPORATION, a corporation organized under the laws of Canada (the “Company”), and RICHARD L. GELFOND (the “Executive”). WHEREAS, the Executive is currently the Chief Executive Officer of the Company and is employed pursuant to an Employment Agreement dated as of January 1, 2014, by and between the Company and the Executive (the “Agreement”); and WHEREAS, the Board of Directors of the Company (the “Board”) and the Executive wish to amend certain provisions of the Agreement as set forth herein; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. 2. Capitalized terms used but not defined herein shall have the meaning set forth in the Agreement. 2016 Options: The 2016 Options which were to be granted to the Executive on January 5, 2016, shall instead be granted to the Executive as soon as practicable after, and conditional upon, shareholder approval of additional shares for issuance under the LTIP. Such approval is expected to be obtained on or around June 3, 2016 and in no event will such 2016 Options be granted to Executive later than July 1, 2016. The 2016 Options shall vest as follows: (i) 1/3 shall vest upon grant; (ii) 1/3 shall vest on September 1, 2016; and (iii) 1/3 shall vest on December 31, 2016. 3. Except as amended herein, all other terms of the Agreement shall remain in full force, unamended. IN WITNESS WHEREOF, the Company and the Executive have duly executed and delivered this First Amending Agreement as of the date first set forth above. IMAX CORPORATION By: By: /s/ Michael Lynne Name: Michael Lynne Title: Director /s/ Robert D. Lister Name: Robert D. Lister Title: Chief Legal Officer and Chief Business Development Officer EXECUTIVE: /s/ Richard L. Gelfond Richard L. Gelfond IMAX CORPORATION Exhibit 10.24 SECOND AMENDING AGREEMENT This Amendment to Employment Agreement dated as of April 29, 2010 (the “Amending Agreement”) is made between: IMAX CORPORATION, a corporation incorporated under the laws of Canada (hereinafter referred to as the “Company”), and GREG FOSTER, of the City of Los Angeles in the State of California (the “Employee”), WHEREAS, the Company wishes to enter into this Amending Agreement to amend and extend the Employment Agreement dated as of March 1, 2006 between the Company and Employee as modified and amended by the First Amending Agreement dated December 31, 2007 (together, the “Agreement”), whereunder the Employee provides services to the Company, and the Employee wishes to so continue such engagement, as hereinafter set forth; NOW, THEREFORE, in consideration of good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Section 1.3 of the Agreement shall be deleted and replaced with the following: “Section 1.3 Term of Employment. The Employee’s employment with the Company commenced on the 19th day of March, 2001 (the “Commencement Date”) and shall terminate on the earlier of (i) July 1, 2013, or (ii) the termination of the Employee’s employment pursuant to this Agreement. The period commencing as of the Commencement Date and ending on July 1, 2013 or such later date to which the term of the Employee’s employment under this Agreement shall have been extended is hereinafter referred to as the “Employment Term.” 2. Section 2.2 of the Agreement shall be deleted and replaced with the following: Section 2.2 Bonus. In addition to the Base Salary, the Employee shall continue to be entitled to participate in the management bonus plan of the Company which applies to senior executives of the Company. The Employee will be eligible, subject to the terms of the plan, to receive a bonus (the “Management Bonus”) for the applicable year which is typically paid in March of each year. Notwithstanding the foregoing, the Employee shall receive a minimum bonus (the “Minimum Bonus”) of $500,000 in connection with his employment in 2010 (prorated), 2011 and 2012 3. Section 2.3.1 of the Agreement shall be deleted and replaced with the following: Section 2.3.1 Incentive Compensation. As soon as practicable following the execution of this Amending Agreement, the Employee shall be granted non-qualified options (the “Options”) to purchase 600,000 shares of common stock of the Company (the “Common Shares”), subject to the approval by the Company’s Board of Directors and vested according to the following schedule: 200,000 Options shall vest on each of July 1, 2011, July 1, 2012 and July 1, 2013. The Options granted hereunder shall be subject to the terms and conditions of the IMAX Stock Option Plan (“SOP”) and the stock option agreement to be entered into between the Company and the Employee pursuant to, and in accordance with, the terms of the SOP. The vesting of all Options shall be accelerated upon a "change of control" as defined in the Agreement, and shall be governed, to the extent applicable, by the provisions in the Agreement regarding change of control. 4. Section 2.3.3 of the Agreement shall be deleted and replaced with the following: Section 2.3.3 Life Insurance. (a) As soon as practicable and for the duration of the Employment Term the Company shall take out and pay premiums on a term life insurance policy or policies in the aggregate amount of $3,000,000 for the benefit of a beneficiary (or beneficiaries) designated by the Employee. (b) In addition to the policy referred to in Section 2.3.3 (a) above, as soon as practicable, the Company will arrange for a whole life insurance policy in the amount of $5,000,000 for the benefit of a beneficiary designated by the Employee. All premiums on this policy will be paid by the Company over the three (3) year term of this Agreement The Company agrees that it will work with the Employee, in good faith, to structure premium payments on this policy to be most tax effective to the Employee, provided there is no additional cost to the Company. The policy may only be terminated by the Employee if he is terminated by the Company without cause or if the Agreement is not renewed by the Company at the end of the Employment Term. The policy may only be terminated by the Company if the Employee’s employment is terminated for cause. At the end of the Employment Term, there will be no further premiums owing on the policy. 5. The Company agrees that it will continue to use its best efforts to ensure that the Employee is invited to attend regularly scheduled meetings of the Board of Directors of the Company to the extent that the Employee’s attendance is agreeable to the Board and is not inconsistent with good corporate governance. The Employee understands and accepts that there may be meetings, or portions of meetings, where his attendance would be inappropriate and that he will not attend on these occasions. 6. The Company agrees to reimburse the Employee for tuition and his reasonable expenses incurred in connection with his attendance at an executive MBA program of his choice in the US during the Employment Term. Except as amended herein, all other terms of the Agreement shall remain in full force, unamended. IN WITNESS WHEREOF, the Company and the Employee have duly executed and delivered this Amending Agreement on this 29th of April, 2010. IMAX CORPORATION By: By: /s/ G. Mary Ruby Name: G. Mary Ruby Title: Exec. VP Corporate Services, & Corporate Secretary /s/ Ed MacNeil Name: Ed MacNeil Title: Senior Vice President, Finance SIGNED, SEALED AND DELIVERED in the presence of: EMPLOYEE: /s/ Eduardo Oboza Witness Eduardo Oboza /s/ Greg Foster Greg Foster IMAX CORPORATION EXHIBIT 10.27 FIRST AMENDING AGREEMENT This Amendment to Employment Agreement dated as of May 14th, 2009 (the “Amending Agreement”) is made between: IMAX CORPORATION, a corporation incorporated under the laws of Canada (hereinafter referred to as the “Company”), and JOESPH SPARACIO, of the Town of Holmdel in the State of New Jersey (the “Executive”), WHEREAS, the Company wishes to enter into this Amending Agreement to amend and extend the Employment Agreement dated as of May 14, 2007 between the Company and Executive (together, the “Agreement”), whereunder the Executive provides services to the Company, and the Executive wishes to so continue such engagement, as on the same terms and conditions as set out thereunder. NOW, THEREFORE, in consideration of good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Section 1.3 of the Agreement shall be deleted and replaced with the following: “Section 1.3 Term of Employment. The Executive’s employment under this Agreement commenced on the 14th day of May, 2007 (the “Commencement Date”) and shall terminate on the earlier of (i) May 14, 2010, or (ii) the termination of the Executive’s employment pursuant to this Agreement. The period commencing as of the Commencement Date and ending on May 13, 2010 or such later date to which the term of the Executive’s employment under this Agreement shall have been extended is hereinafter referred to as the “Employment Term. The Company shall notify the Executive at least six (6) months prior to the anniversary of this Amending agreement of its intentions with respect to renewing the Agreement. Except as amended herein, all other terms of the Agreement shall remain in full force, unamended. IN WITNESS WHEREOF, the Company and the Executive have duly executed and delivered this mending Agreement on this 14th day of May, 2009. IMAX CORPORATION By: /s/ Robert D. Lister Title: Name: Robert D. Lister Senior Exec VP & General Counsel /s/ G. Mary Ruby By: Name: G. Mary Ruby Title: Exec VP, Corporate Services & Corporate Secretary SIGNED, SEALED AND DELIVERED in the presence of: /s/ Tamara R. Steele Witness EXECUTIVE: /s/ Joe Sparacio Joe Sparacio IMAX CORPORATION EXHIBIT 10.28 SECOND AMENDING AGREEMENT This Amendment to Employment Agreement dated as of May 14th, 2010 (the “Amending Agreement”) is made between: IMAX CORPORATION, a corporation incorporated under the laws of Canada (hereinafter referred to as the “Company”), and JOESPH SPARACIO, of the Town of Holmdel in the State of New Jersey (the “Executive”), WHEREAS, the Company wishes to enter into this Amending Agreement to amend and extend the Employment Agreement dated as of May 14th, 2007 between the Company and Executive as amended by the First Amending Agreement dated May 14th, 2009 (together, the “Agreement”), whereunder the Executive provides services to the Company, and the Executive wishes to so continue such engagement, as on the same terms and conditions as set out thereunder. NOW, THEREFORE, in consideration of good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Section 1.3 of the Agreement shall be deleted and replaced with the following: “Section 1.3 Term of Employment. The Employee’s employment under this Agreement commenced on the 14th day of May, 2007 (the “Commencement Date”) and shall terminate on the earlier of (i) May 14, 2012, or (ii) the termination of the Employee’s employment pursuant to this Agreement. The period commencing as of the Commencement Date and ending on May 13, 2012 or such later date to which the term of the Employee’s employment under this Agreement shall have been extended is hereinafter referred to as the “Employment Term. The Company shall notify the Executive at least six (6) months prior to the second anniversary of this Amending agreement of its intentions with respect to renewing the Agreement. 2. Section 2.1 of the Agreement shall be deleted and replaced with the following: “Section 2.1 Base Salary. Effective May 14th, 2010, the Executive’s Base Salary shall be US$ 385,000. Effective May 14th, 2011, the Executive’s Base Salary shall be US$ 400,000.” 3. Section 4 (b) of the Agreement will be deleted and replaced with the following: (b) "Without Cause" means termination of the Executive's employment by the Company other than for Cause (as defined in Section 4.2), death or disability (as set forth in Section 5) and shall also be deemed to include a change in the principal place of employment of the Executive to a location outside of the borough of Manhattan in New York City where the travel time from the Executive’s home exceeds 1 hour. 4. Section 6 of the Agreement shall be deleted and replaced with the following: Section 6 Mitigation. Subject to Section 7.1 and 7.2, and other than in the case of a termination without cause following a Change of Control as defined in Section 4.1.1, the Executive shall be required to mitigate the amount of any payment provided for in Section 4.1.1 by seeking other employment or remunerative activity reasonably comparable to his duties hereunder. The Executive shall be required as a condition of any payment under Section 4.1.1 (other than the Termination Payment) promptly to disclose to the Company any such mitigation compensation. Except as amended herein, all other terms of the Agreement shall remain in full force, unamended. IN WITNESS WHEREOF, the Company and the Executive have duly executed and delivered this Amending Agreement on this 14th day of May, 2010. IMAX CORPORATION By: /s/ G. Mary Ruby Name: G. Mary Ruby Title: Exec. VP Corporate Services, & Corporate Secretary By: /s/ Gary Moss Name: Gary Moss Title: Chief Operating Officer SIGNED, SEALED AND DELIVERED in the presence of: /s/ Lauren Russell Witness Lauren Russell EXECUTIVE: /s/ Joe Sparacio Joe Sparacio IMAX CORPORATION EXHIBIT 10.31 FIFTH AMENDING AGREEMENT This Amendment to Employment Agreement dated as of November 18, 2015 (the “Fifth Amending Agreement”) is made between: IMAX CORPORATION, a corporation incorporated under the laws of Canada (hereinafter referred to as the “Company”), and JOSEPH SPARACIO, of the Town of Holmdel in the State of New Jersey (the “Executive”). WHEREAS, the Company wishes to enter into this Fifth Amending Agreement to amend and extend the Employment Agreement dated as of May 14, 2007 between the Company and Executive as modified and amended by the First Amending Agreement dated as of May 14, 2009, the Second Amending Agreement dated as of May 14, 2010, the Third Amending Agreement dated as of January 23, 2012, and the Fourth Amending Agreement dated as of May 15, 2014 (together, the “Agreement”), whereunder the Executive provides services to the Company, and the Executive wishes to so continue such engagement, on the terms set out under the Agreement as modified by this Fifth Amending Agreement. NOW, THEREFORE, in consideration of good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Section 1.3 of the Agreement shall be deleted and replaced with the following: Term of Employment. The Executive’s employment under this Section 1.3 Agreement commenced on May 14, 2007 (the “Commencement Date”) and shall terminate on the earlier of (i) November 13, 2016, or (ii) the termination of the Executive’s employment pursuant to this Agreement. The period commencing as of the Commencement Date and ending on November 13, 2016 is hereinafter referred to as the “Employment Term.” The Company shall notify the Executive on or before May 13, 2016 of its intentions with respect to renewing the Agreement. 2. The first and second paragraphs of Section 4.4 of the Agreement shall be deleted in their entirety and replaced with the following: Non-Renewal. If (a) the Company provides notice to the Executive Section 4.4 pursuant to Section 1.3 that this Agreement will not be renewed or (b) the Company notifies the Executive pursuant to Section 1.3 that it wishes to renew this Agreement but the Executive informs the Company within 10 business days after receiving such notice that he declines the offered renewal, the parties agree that no further notice will be required for the Employment Term to end on November 13, 2016, that this Section 4.4 contains the entirety of the payment and benefits to which the Executive will be entitled, 1 and that such payment and benefits are fair and reasonable. The Executive shall have no action, cause of action, claim, or demand against the Company or any other person as a consequence of the non-renewal of the Agreement, other than to enforce this Section 4.4. Notification to the Executive by the Company pursuant to Section 1.3 that this Agreement will not be renewed or the Executive’s notification to the Company pursuant to the previous paragraph that he declines the offered renewal will result in the following: 3. Section 4.4(i) of the Agreement shall be deleted and replaced with the following: (i) The Company will initiate a transition plan. If this transition plan is completed to the CEO’s satisfaction prior to the end of the Employment Term, a one-time bonus of US$75,000 (less applicable deductions) will be paid to the Executive as soon as practicable after the Employment Term. 4. Section 4.4(iii) of the Agreement shall be deleted and replaced with the following: All RSUs and Options that have been granted but remain unvested will vest on (iii) November 10, 2016, if the Executive remains employed on that date. 5. Section 4.4(iv) of the Agreement shall be modified by deleting the last sentence thereof. Except as amended herein, all other terms of the Agreement shall remain in full force, unamended. [Signature page follows] 2 IN WITNESS WHEREOF, the Company and the Employee have duly executed and delivered this Fifth Amending Agreement as of the 18th day of November, 2015. IMAX CORPORATION By: /s/ Robert D. Lister Name: Robert D. Lister Title: Chief Legal Officer & Chief Business Development Officer By: /s/ Carrie Lindzon-Jacobs Name: Carrie Lindzon-Jacobs Title: Executive Vice President, Human Resources SIGNED, SEALED AND DELIVERED in the presence of: EXECUTIVE: /s/ Christopher Utecht Witness Christopher Utecht /s/ Joseph Sparacio_________________ Joseph Sparacio 3 IMAX CORPORATION EXHIBIT 21 SUBSIDIARIES OF IMAX CORPORATION Company Name 3183 Films Ltd. 12582 Productions Inc. 1329507 Ontario Inc. 2328764 Ontario Ltd. 4507592 Canada Ltd. 6822967 Canada Ltd. 7096194 Canada Ltd. 7096267 Canada Ltd. 7096291 Canada Ltd. 7103077 Canada Ltd. 7109857 Canada Ltd. 7214316 Canada Ltd. 7550324 Canada Inc. 7550391 Canada Ltd. 7550405 Canada Ltd. 7742266 Canada Ltd. 7742274 Canada Ltd. Animal Orphans 3D Ltd. Arizona Big Frame Theatres, L.L.C. Baseball Tour, LLC Coral Sea Films Ltd. ILW Productions Inc. IMAX II U.S.A. Inc. IMAX 3D TV Ventures, LLC IMAX (Barbados) Holding, Inc. IMAX Chicago Theatre LLC IMAX China Holding, Inc. IMAX China (Hong Kong), Limited IMAX Documentary Films Capital, LLC IMAX EMEA Limited IMAX Europe SA (98.4% owned by IMAX Corp.) IMAX Film Holding Co. IMAX FZE IMAX (Hong Kong) Holding, Limited IMAX Indianapolis LLC IMAX International Sales Corporation IMAX Japan Inc. IMAX Minnesota Holding Co. IMAX Music Ltd. IMAX Post/DKP Inc. IMAX Providence General Partner Co. IMAX Providence Limited Partner Co. IMAX PV Development Inc. IMAX Rhode Island Limited Partnership IMAX (Rochester) Inc. IMAX Scribe Inc. IMAX (Shanghai) Multimedia Technology Co., Ltd. IMAX (Shanghai) Theatre Technology Services Co., Ltd. IMAX Space Ltd. IMAX Space Productions Ltd. IMAX Spaceworks Ltd. IMAX Theatre Holding (California I) Co. Place of Incorporation Canada Delaware Ontario Ontario Canada Canada Canada Canada Canada Canada Canada Canada Canada Canada Canada Canada Canada Ontario Arizona Delaware Canada Delaware Delaware Delaware Barbados Delaware Cayman Islands Hong Kong Delaware Ireland Belgium Delaware JAFZA, Dubai, UAE Hong Kong Indiana Canada Japan Delaware Ontario Delaware Delaware Delaware Delaware Rhode Island Delaware Delaware People’s Republic of China People’s Republic of China Ontario Canada Canada Delaware Percentage Held 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 15.625 100 100 100 100 100 100 68.46 100 47.37 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Company Name IMAX Theatre Holding (California II) Co. IMAX Theatre Holding Co. IMAX Theatre Holdings (OEI), Inc. IMAX Theatre Holding (Nyack I) Co. IMAX Theatre Holding (Nyack II) Co. IMAX Theatre Services Ltd. IMAX (Titanic) Inc. (50 % owned by IMAX Corp.) IMAX U.S.A. Inc. IMAXSHIFT, LLC Line Drive Films Inc. Madagascar Doc 3D Ltd. Magnitude Productions Ltd. Nyack Theatre LLC Plymouth 135-139, LLC Raining Arrows Productions Ltd. Ridefilm Corporation Ruth Quentin Films Ltd. Sacramento Theatre LLC Sonics Associates, Inc. Starboard Theatres Ltd. Strategic Sponsorship Corporation Taurus-Littrow Productions Inc. TCL-IMAX Entertainment Co., Limited TCL-IMAX (Shanghai) Digital Technology Co. Ltd. The Deep Magic Company Ltd. Walking Bones Pictures Ltd. Place of Incorporation Delaware Delaware Delaware Delaware Delaware Ontario Delaware Delaware Delaware Delaware Canada Canada New York Delaware Canada Delaware Canada Delaware Alabama Canada Delaware Delaware Hong Kong People’s Republic of China Canada Canada Percentage Held 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 50 100 100 100 IMAX CORPORATION Exhibit 23 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We 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 24, 2016, relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP Chartered Professional Accountants, Licensed Public Accountants Toronto, Ontario February 24, 2016 PricewaterhouseCoopers LLP PwC Tower, 18 York Street, Suite 2600, Toronto, Ontario, Canada M5J 0B2 T: +1 416 863 1133, F: +1 416 365 8215, www.pwc.com/ca “PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership. IMAX CORPORATION EXHIBIT 24 POWER OF ATTORNEY Each 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 capacities the Form 10-K, including the French language version thereof, and any and all amendments thereto and documents in connection therewith, and to file the same with the United States Securities Exchange Commission (the “SEC”) and such other regulatory authorities as may be required, each of said attorneys to have 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 the Corporation, every act whatsoever which such attorneys, or either of them, may deem necessary or desirable to be done in connection therewith as fully and to all intents and purposes as such directors of the Corporation might or could do in person. Dated this 24TH day of February, 2016. Signature Title /s/ Bradley J. Wechsler Chairman of the Board & Director Bradley J. Wechsler /s/ Richard L. Gelfond Richard L. Gelfond Chief Executive Officer (Principal Executive Officer) /s/ Neil S. Braun Director Neil S. Braun /s/ Eric A. Demirian Director Eric A. Demirian /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/ Dana Settle Director Dana Settle /s/ Darren Throop Director Darren Throop /s/ Joseph Sparacio Joseph Sparacio Chief Financial Officer (Principal Financial Officer) /s/ Jeffrey Vance Jeffrey Vance Controller (Principal Accounting Officer) IMAX CORPORATION EXHIBIT 31.1 Certification Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 I, Richard L. Gelfond, certify that: 1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2015 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 the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial 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 in Exchange 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 our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others 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 our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness 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 most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely 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 the registrant'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 are reasonably 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 internal control over financial reporting. Date: February 24, 2016 By: /s/ Richard L. Gelfond Richard L. Gelfond Chief Executive Officer IMAX CORPORATION EXHIBIT 31.2 Certification Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 I, Joseph Sparacio, certify that: 1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2015 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 the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial 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 in Exchange 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 our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others 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 our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness 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 most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely 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 the registrant'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 are reasonably 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 internal control over financial reporting. Date: February 24, 2016 By: /s/ Joseph Sparacio Joseph Sparacio Executive Vice President & Chief Financial Officer IMAX CORPORATION EXHIBIT 32.1 CERTIFICATIONS 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) 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, 2015 (the “Form 10-K”) of the Company fully complies with the requirements of section 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, the financial condition and results of operations of the Company. Date: February 24, 2016 /s/ Richard L. Gelfond Richard L. Gelfond Chief Executive Officer IMAX CORPORATION EXHIBIT 32.2 CERTIFICATIONS 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) 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, 2015 (the “Form 10-K”) of the Company fully complies with the requirements of section 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, the financial condition and results of operations of the Company. Date: February 24, 2016 /s/ Joseph Sparacio Joseph Sparacio Executive Vice President & Chief Financial Officer 

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