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