1Q1+
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
Canada
(State or other jurisdiction of
incorporation or organization)
2525 Speakman Drive,
Mississauga, Ontario, Canada L5K 1B1
(905) 403-6457
Commission file Number 001-35066
IMAX Corporation
(Exact name of registrant as specified in its charter)
98-0140269
(I.R.S. Employer
Identification Number)
902 Broadway, Floor 20
New York, New York, USA 10010
(212) 821-0142
(Address of principal executive offices, zip code, telephone numbers)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Shares, no par value
IMAX
The New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ 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 ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth Company. See the definitions of “large
accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
Large accelerated filer
Non-accelerated filer
☒
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to
Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-
Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued
financial statements. □
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant
recovery period pursuant to § 240.10D-1(b). □
Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
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, 2023 was
$758.9 million.
As of January 31, 2024, there were 52,951,334 common shares of the registrant outstanding.
Document Incorporated by Reference
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, 2023, 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.
IMAX CORPORATION
December 31, 2023
Table of Contents
Business
Risk Factors
Unresolved Staff Comments
Cybersecurity
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
PART I
Item 1.
Item 1A.
Item 1B.
Item 1C.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
Signatures
Page
4
17
31
31
33
33
33
34
36
37
64
66
138
138
138
138
139
139
139
139
139
139
142
143
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, 2023 was U.S. $0.7561.
Exchange rate at end of period
Average exchange rate during period
High exchange rate during period
Low exchange rate during period
2023
2022
Years Ended December 31,
2021
2020
2019
0.7561
0.7409
0.7617
0.7207
0.7383
0.7685
0.8031
0.7217
0.7888
0.7977
0.8306
0.7727
0.7854
0.7455
0.7863
0.6898
0.7699
0.7536
0.7699
0.7353
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain statements included in this annual report may constitute “forward-looking statements” within the meaning of the U.S. States Private Securities
Litigation Reform Act of 1995 or “forward-looking information” within the meaning of Canadian securities laws. These forward-looking statements
include, but are not limited to, references to business and technology strategies and measures to implement strategies, competitive strengths, goals,
expansion and growth of business, operations and technology, future capital expenditures (including the amount and nature thereof), industry prospects and
consumer behavior, plans and references to the future success of the Company and expectations regarding its future operating, financial and technological
results. These forward-looking statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception
of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. However,
whether actual results and developments will conform with the expectations and predictions of the Company is subject to a number of risks and
uncertainties, including, but not limited to, risks associated with investments and operations in foreign jurisdictions and any future international expansion,
including those related to economic, political and regulatory policies of local governments and laws and policies of the United States and Canada, as well
as geopolitical conflicts; risks related to the Company’s growth and operations in China; the performance of IMAX DMR® films and other films released to
the IMAX network; the signing of IMAX System agreements; conditions, changes and developments in the commercial exhibition industry; risks related to
currency fluctuations; the potential impact of increased competition in the markets within which the Company operates, including competitive actions by
other companies; the failure to respond to change and advancements in digital technology; risks relating to consolidation among commercial exhibitors and
studios; risks related to brand extensions and new business initiatives; conditions in the in-home and out-of-home entertainment industries; the
opportunities (or lack thereof) that may be presented to and pursued by the Company; risks related to cyber-security and data privacy; risks related to the
Company’s inability to protect its intellectual property; risks related to climate change; risks related to weather conditions and natural disasters that may
disrupt or harm the Company’s business; risks related to the Company’s indebtedness and compliance with its debt agreements; general economic, market
or business conditions; risks related to political, economic and social instability; the failure to convert system backlog into revenue; changes in laws or
regulations; any statements of belief and any statements of assumptions underlying any of the foregoing; other factors and risks outlined in the Company’s
periodic filings with the United States Securities and Exchange Commission (the “SEC”) or in Canada, the System for Electronic Document Analysis and
Retrieval (“SEDAR+”); 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 forward-looking statements herein are made
only as of the date hereof and the Company undertakes no obligation to update publicly or otherwise revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
IMAX®, IMAX® 3D, Experience It In IMAX®, The IMAX Experience®, DMR®, Filmed For IMAX®, IMAX LiveTM, IMAX Enhanced®, Stream SmartTM
and SSIMWAVE® 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
PART I
IMAX Corporation, together with its consolidated subsidiaries (the “Company” or “IMAX”) is a Canadian corporation that 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.
As of December 31, 2023, the Company indirectly owns 71.55% of IMAX China Holding, Inc. (“IMAX China”), whose shares trade on the Hong Kong
Stock Exchange. IMAX China is a consolidated subsidiary of the Company.
GENERAL
IMAX is a premier global technology platform for entertainment and events. Through its proprietary software, auditorium, architecture, patented
intellectual property, and specialized equipment, IMAX offers a unique end-to-end solution to create superior, awe-inspiring immersive content experiences
for which the IMAX® brand is globally renowned. Top filmmakers, movie studios, artists, and creators utilize the cutting-edge visual and sound technology
of IMAX to connect with audiences in innovative ways. As a result, IMAX is among the most important and successful global distribution platforms.
The Company leverages its proprietary technology and engineering in all aspects of its business, which principally consists of the IMAX film
remastering (“IMAX Film Remastering” and formerly known as “IMAX DMR”) and the sale or lease of premium IMAX theater systems (“IMAX
System(s)”).
IMAX Systems are based on proprietary and patented image, audio and other technology developed over the course of the Company’s history since its
founding in 1967. The customers for IMAX Systems are principally theatrical exhibitors that operate commercial multiplex theaters, and, to a much lesser
extent, museums, science centers and destination entertainment sites. The Company does not own the locations in the IMAX network, except for one, and
is not an exhibitor, but instead sells or leases the IMAX System to exhibitor customers along with a license to use its trademarks and ongoing maintenance
services for which there is an annual payment by the exhibitor to IMAX.
IMAX has the largest global premium format network, more than double the size of its nearest competitor. As of December 31, 2023, there were 1,772
IMAX Systems operating in 90 countries and territories, including 1,693 commercial multiplexes, 12 commercial destinations, and 67 institutional
locations in the Company’s global network. This compares to 1,716 IMAX Systems operating in 87 countries and territories as of December 31, 2022,
including 1,633 commercial multiplexes, 12 commercial destinations, and 71 institutional locations in the Company’s global network. Additional
information on the composition of the IMAX network is provided in the discussion of Marketing and Customers.
IMAX Systems provide the Company’s exhibitor customers with a combination of the following benefits:
•
•
•
•
•
•
•
the ability to exhibit content that has been enhanced through IMAX Film Remastering, which usually 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 auditorium 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;
advanced sound system components, which deliver more expansive sound imagery and pinpointed origination of sound to any specific spot in
an auditorium equipped with an IMAX System;
specialized theater acoustics, which result in a four-fold reduction in background noise;
ongoing maintenance and extended warranty services; and
a license to the globally recognized IMAX brand, as well as benefits from IMAX marketing of films being shown in its network and IMAX’s
growing social media followership.
4
In addition, certain movies shown in the IMAX network are filmed using proprietary IMAX film cameras or IMAX certified digital cameras, which
along with IMAX’s customized guidance and a workflow process provide filmmakers enhanced and differentiated image quality and an IMAX-exclusive
film aspect ratio that delivers up to 26% more image onto a standard IMAX movie screen. In select IMAX locations worldwide, movies filmed with IMAX
cameras have an IMAX-exclusive 1.43 film aspect ratio, with up to 67% more image.
Together, these components cause audiences in IMAX locations to feel as if they are a part of the on-screen action, creating a more intense, immersive,
and awe-inspiring exciting experience than a conventional cinematic format.
As a result of the engineering and scientific achievements that are a hallmark of The IMAX Experience®, the Company’s exhibitor customers typically
charge a premium for films released in IMAX’s format versus films exhibited in their other auditoriums. The premium pricing, combined with the higher
attendance levels associated with IMAX 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 films combined with IMAX’s unmatched global network footprint and
scale has helped establish IMAX as a key premium distribution and marketing platform for Hollywood and foreign local language movie studios.
The Company’s global content portfolio includes blockbuster films, both from Hollywood and local language film industries worldwide; IMAX
documentaries, both original and acquired (“IMAX Documentaries”), and IMAX events and experiences in emerging verticals including music, gaming,
and sports.
The Company achieved its second highest grossing year at the global box office (“GBO”) and its highest grossing year at the Domestic, United States
and Canada combined, box office in 2023. The year was highlighted by the Company’s highest grossing year for local language films, the $180.4 million in
IMAX box office generated by Christopher Nolan’s Oppenheimer, and strong indexing across titles including Super Mario Bros., Guardians of the Galaxy
Vol. 3, Spider-Man: Across the Spider-Verse, and Mission Impossible: Dead Reckoning.
A cornerstone of the IMAX brand for more than 50 years, IMAX recently relaunched its IMAX Documentaries unit to focus on a new generation of
narrative-driven original and acquired documentary films, as well as downstream revenue opportunities through partnerships with leading streaming
platforms. Additional forthcoming IMAX original documentaries include The Blue Angels and The Elephant Odyssey.
The Company also continues to evolve its platform to bring new, innovative events and experiences to audiences worldwide. During the year, the
Company partnered with A24 for the IMAX LiveTM 40th anniversary screening of Jonathan Demme’s Stop Making Sense at the Toronto International Film
Festival, which became the highest grossing IMAX Live event of all time. In January 2024, the Company and Pathé Live in partnership with Mercury
Studios and Queen Films released Queen Rock Montreal, a concert from 1981, exclusively in 450 IMAX locations globally.
As of December 31, 2023, the Company has a footprint of 252 connected locations in the IMAX network across North America, Europe, and Asia were
configured with connectivity to deliver live and interactive content with low latency and superior sight and sound. For more information on the Company’s
content, see section “FILM DISTRIBUTION AND POST-PRODUCTION” below.
As a premier global technology platform for entertainment and events, the Company strives to remain at the forefront of advancements in entertainment
technology. The Company offers a suite of laser-based digital projection systems (“IMAX Laser Systems”), which deliver increased resolution, sharper and
brighter images, deeper contrast, and the widest range of colors available to filmmakers today. The Company further believes that its suite of IMAX Laser
Systems are helping facilitate the next major renewal and upgrade cycle for the global IMAX network.
In September 2022, the Company acquired SSIMWAVE Inc. (“SSIMWAVE”), a leader in artificial intelligence (“AI”)-driven video quality solutions for
media and entertainment companies. The acquisition of SSIMWAVE marks a significant expansion of the Company’s streaming and consumer technology
strategy to deliver the highest quality images on any screen, while also creating cost efficiencies to streaming companies, broadcasters and other companies
that transmit visual data — to drive new, recurring revenue and grow its global leadership in entertainment technology. In 2023, the Company formed a
new business unit, Streaming and Consumer Technology to focus on in-home entertainment technology. The business unit includes the streaming
technology acquired in the SSIMWAVE acquisition as well as IMAX Enhanced® product services.
The Company utilizes AI for image enhancement, streaming technology, and data analysis to improve various aspects of its business. It is actively
exploring other global use cases for AI to improve its products, operations, and efficiency.
5
IMAX NETWORK
The IMAX network is the most extensive premium network in the world with 1,772 IMAX Systems operating in 90 countries and territories, including
1,693 commercial multiplexes, 12 commercial destinations and 67 institutional locations as of December 31, 2023. The Company currently estimates a
worldwide commercial multiplex addressable market of 3,619 locations, of which there are 1,693 IMAX Systems operating as of December 31, 2023,
representing a market penetration of only 46.8%.
IMAX grew its network by 3.7% in 2023 driven by 128 system installations and ended the year with a backlog of 450 IMAX Systems. The Company
believes that the majority of its future network growth will come from international markets outside of China. As of December 31, 2023, 76% of IMAX
Systems in the global commercial multiplex network were located within international markets (defined as all countries other than the United States and
Canada). Revenues and GBO derived from international markets continue to exceed revenues and GBO from the United States and Canada.
For the year ended December 31, 2023, the Company’s revenue generated from its Greater China (which includes the mainland of the People’s Republic
of China, Hong Kong, Macau, and Taiwan) operations represents 25% of consolidated revenue, compared to 24% in 2022 and 44% in 2021. Restrictions
resulting from the COVID-19 pandemic significantly impacted operations in China in 2022 and 2023. As of December 31, 2023, the Company had 807
IMAX Systems operating in Greater China with an additional 206 systems in backlog. The Company’s backlog in Greater China represents 46% of its total
current backlog, including system upgrades. The Company has a partnership in China with Wanda Film (“Wanda”) and as of December 31, 2023, through
the Company’s partnership with Wanda, there were 376 IMAX Systems operational in Greater China, of which 362 are under the parties’ joint revenue
sharing arrangements. In December 2023, Beijing Wanda Investment, which owns a 20% stake in Wanda Film Holding, was sold to China Ruyi Holdings,
a Tencent Holdings-backed company.
(Refer to “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”, “– The Company faces risks in connection with its significant presence in China and the continued
expansion of its business there”, “– General political, social and economic conditions can affect the Company’s business by reducing both revenues
generated from existing IMAX Systems and the demand for new IMAX Systems”, and “– The Company may not convert all of its backlog into revenue
and cash flows” in Part I, Item 1A.)
PRINCIPAL PRODUCTS AND SERVICES
The Company believes it is the world’s largest designer and manufacturer of specialty premium projection and sound system components for premium
large-format theaters around the world, and it is also a significant distributor of large-format films.
The Company’s principal products and services are as follows:
•
•
•
•
•
IMAX Film Remastering – The digital remastering of films and other content into IMAX formats for distribution to the IMAX network.
Film Distribution and Post-Production – The distribution of large-format documentary films, primarily to institutional theaters, and,
increasingly, the distribution of exclusive IMAX events and experiences including music, gaming, and sports, as well as the provision of film
post-production services.
IMAX Systems – The sale or lease of premium IMAX Systems to exhibitor customers.
IMAX Maintenance – The provision of preventative and emergency maintenance services and quality monitoring to the IMAX network.
Other – Principally includes the Company’s streaming and consumer technology business, including its streaming technology and IMAX
Enhanced product services, as well as other ancillary activities.
The Company assesses and evaluates the Company’s performance based on the operating results of the Content Solutions and Technology Products and
Services segments, which largely reflect the different customer bases the Company serves. The Content Solutions segment principally focuses on content
enhancement and distribution services for the Company’s movie studio customers. The Technology Products and Services segment primarily consists of
products and services for the Company’s exhibitor customers, including the sale, lease and ongoing service of IMAX Systems. The Company’s segment
information is provided in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 21 to
Consolidated Financial Statements in Part II, Item 8.
6
IMAX FILM REMASTERING
IMAX Film Remastering is a proprietary technology that digitally remasters films into IMAX formats. IMAX Film Remastering digitally enhances the
image resolution of 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. In addition, the original soundtrack of a film to be exhibited across the IMAX network is remastered for IMAX digital sound
systems. IMAX remastered soundtracks are uncompressed and full fidelity. IMAX sound systems use proprietary loudspeaker systems and proprietary
surround sound configurations that ensure every seat in an auditorium is an optimal listening position.
The IMAX Film Remastering process involves:
•
•
•
•
•
in certain instances, scanning, at the highest possible resolution, each individual frame of the film 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 into an IMAX digital cinema package format or onto IMAX 15/70-format film; and
specially remastering the soundtrack to take full advantage of the unique sound system of IMAX Systems.
IMAX films also benefit from enhancements made by individual filmmakers exclusively for the IMAX release of the film. Collectively, the Company
refers to these enhancements as “IMAX DNA.” Filmmakers and movie studios have sought IMAX-specific enhancements in recent years to generate
interest in and excitement for their films. Such enhancements include shooting films with IMAX cameras to increase the audience’s immersion in the film
and to take advantage of the unique dimensions of the IMAX screen by projecting the film in a larger aspect ratio that delivers up to 26% more image onto
a standard IMAX screen. In select IMAX locations worldwide, movies filmed with IMAX cameras have an IMAX-exclusive 1.43 film aspect ratio, with up
to 67% more image. The Company has a Filmed For IMAX® program under which filmmakers craft films from their inception in various ways in order to
optimize The IMAX Experience. The program includes incremental and bespoke marketing support, which box office metrics demonstrate audiences
respond extremely favorably to, and drives higher market share for IMAX.
Management believes that growth in international box office remains an important driver of growth for the Company. To support continued growth in
international markets, the Company is focused on the expansion of the IMAX network and has sought to bolster its international film strategy,
supplementing its slate of Hollywood films with appealing local language films released in select markets, including China, Japan, India, and South Korea.
7
The following table provides detailed information about the films that were released to the Company’s global network during the years ended December
31, 2023 and 2022:
(1)
Hollywood film releases
Local language film releases:
China
Japan
South Korea
India
France
Malaysia
Thailand
Indonesia
Total local language film releases
(2)(3)
Total film releases
For the Years Ended December 31,
2023
2022
36
28
11
9
8
1
1
1
—
59
95
32
15
8
5
6
1
—
—
1
36
68
(1)
Includes one re-released film for the year ended December 31, 2023 (2022 — five).
(2) For the year ended December 31, 2023, the films released to the Company’s global network include 10 with IMAX DNA (2022 — 12).
(3) Excludes three Alternative Content Experiences in 2023 (2022 — seven).
To date, in 2024, 18 titles have been released to the global IMAX network, including three re-releases, and the Company has announced the following
additional 24 titles to be released in 2024:
Title
Studio
Dune: Part II
Kung Fu Panda 4
Ghostbusters: Frozen Empire
Godzilla x Kong: The New Empire
Civil War
Spy x Family Code:White
The Fall Guy
Kingdom of The Planet of The Apes
Furiosa
Bad Boys 4
Inside Out 2
A Quiet Place: Day One
Despicable Me 4
Twisters
Deadpool & Wolverine
Alien: Romulus
Kraven the Hunter
Beetlejuice 2
Transformers One
Wolfs
Joker: Folie à Deux
Venom 3
Untitled Gladiator Sequel
Wicked – Part 1
Warner Bros. Pictures/Legendary Pictures
Universal Pictures
Sony Pictures
Warner Bros. Pictures/Legendary Pictures
A24
Sony Pictures/Crunchyroll
Universal Pictures
Walt Disney Studios
Warner Bros. Pictures
Sony Pictures
Walt Disney Studios/Pixar Animation Studios
Paramount Pictures
Universal Pictures
Universal Pictures/Warner Bros. Pictures
Marvel Studios/Walt Disney Studios
Walt Disney Studios
Sony Pictures/Marvel Studios
Warner Bros. Pictures
Paramount Pictures
Sony Pictures/Apple
Warner Bros. Pictures/DC Studios
Sony Pictures
Paramount Pictures
Universal Pictures
Scheduled
Release Date
(1)
March 2024
March 2024
March 2024
April 2024
April 2024
April 2024
May 2024
May 2024
May 2024
June 2024
June 2024
June 2024
July 2024
July 2024
July 2024
August 2024
August 2024
September 2024
September 2024
September 2024
October 2024
November 2024
November 2024
November 2024
IMAX DNA
Filmed For IMAX
—
—
Filmed For IMAX
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Filmed For IMAX
Filmed For IMAX
—
—
(1) The scheduled release dates in the table above are subject to change, may vary by territory, and may not reflect the date(s) of limited premiere events.
The Company remains in active negotiations with studios for additional films to fill out its short- and long-term film slate for the IMAX network. The
Company also expects to announce additional local language films and exclusive IMAX events and experiences to be released to its global network
throughout 2024.
8
FILM DISTRIBUTION AND POST-PRODUCTION
The Company continues to believe that the IMAX network serves as a valuable platform to launch and distribute original content. The Company
distributes large-format documentary films, primarily to institutional customers. The Company receives as its distribution fee either a fixed amount or a
fixed percentage of the box office receipts and, following the recoupment of its costs, is typically entitled to receive an additional percentage of gross
revenues as participation revenues.
The ownership rights to such films may be held by the film sponsors, the film investors and/or the Company. As of December 31, 2023, the Company
has distribution rights with respect to approximately 60 films, which cover subjects such as space, wildlife, music, sports, history and natural wonders.
In May 2023, the Company announced that Amazon Studios acquired worldwide rights to the Company’s original documentary, The Blue Angels,
filmed with IMAX digital certified cameras and produced in collaboration with Dolphin Entertainment, Bad Robot Productions, and Zipper Bros Films.
The documentary is expected to be delivered in the second quarter of 2024. In October 2023, Deep Sky, a documentary on NASA’s Webb Telescope in
collaboration with Crazy Boat Pictures Ltd. and filmmaker Nathaniel Kahn, was released to the IMAX network. In July 2023, the Company also
announced the start of production of The Elephant Odyssey, a documentary in collaboration with Beach House Pictures Pte Ltd and China International
Communications Group, which is expected to be released in 2025.
In addition, the Company continues to evolve its platform to bring new, innovative IMAX events and experiences to audiences worldwide. As of
December 31, 2023, the Company has a footprint of 252 connected locations in the IMAX network across the United States, Canada, Europe, and Asia
configured with connectivity to deliver live, interactive content with low latency and superior sight and sound.
In 2023, the Company partnered with Metro-Goldwyn-Studios Inc. (“MGM”) for an IMAX premiere event, consisting of red carpet interviews and
behind the scenes footage, followed by a special advanced screening of Creed III, which was released across the IMAX global network. The Company also
hosted a reunion of the iconic band Talking Heads at the Toronto International Film Festival, followed by a screening of Stop Making Sense, before the
movie was released to the IMAX network more broadly. This became the highest grossing IMAX Live event of all time. These events were broadcast live
to much of the IMAX Domestic connected network. In January 2024, the Company and Pathé Live in partnership with Mercury Studios and Queen Films
released Queen Rock Montreal, a concert film from 1981, exclusively in 450 IMAX locations globally.
The Company also provides film post-production and quality control services for large-format films, whether produced by IMAX or third-parties, and
digital post-production services. In addition, the Company also provides IMAX film and digital cameras to content creators under the IMAX certified
camera program.
IMAX SYSTEMS
The Company’s primary products are its various digital projection systems, which are either sold or leased to exhibitor customers along with a license
for the use of the globally recognized IMAX brand. The Company’s digital projection systems include a projector that offers superior image quality and
stability and a digital theater control system; a digital audio system delivering up to 12,000 watts of sound; a screen with a proprietary coating technology,
and, in certain situations, 3D glasses and cleaning equipment. IMAX’s digital projection systems also operate without the need for analog film prints. The
Company’s digital projection systems provide a premium and differentiated experience to audiences that is consistent with what they have come to expect
from the IMAX brand, while providing exhibitor customers with the compelling economics and flexibility that digital technology affords.
As part of the arrangement to sell or lease an IMAX System, the Company provides extensive advice on auditorium planning and design, and
supervision of installation services. The terms of each sale or lease arrangement vary according to the configuration of the IMAX System, as well as the
cinema and film distribution markets relevant to the geographic location of the customer.
Revenue from the sale or lease of an IMAX System may be recognized at a different time from when cash is collected from the exhibitor customer.
Further discussion of the Company’s revenue recognition policies is provided in Critical Accounting Estimates in Part II, Item 7 and Note 2(o) to
Consolidated Financial Statements in Part II, Item 8.
9
The following table presents the number of IMAX Systems that are in the network and in backlog, by configuration, as of December 31, 2023 and 2022:
IMAX Laser Systems
IMAX Xenon Systems
IMAX Film Systems
Total
IMAX Laser Systems
System
Network
Base
466
1,276
30
1,772
December 31, 2023
December 31, 2022
New
Backlog
Upgrade
Backlog
System
Network
Base
New
Backlog
Upgrade
Backlog
238
144
—
382
68
—
—
68
349
1,330
37
1,716
200
161
—
361
89
—
—
89
In 2014, the Company introduced its first laser-based digital projection system. Since then, the Company has continued research and development aimed
at creating more affordable laser-based solutions with various screen sizes for its commercial multiplex customers. Beginning in 2021, the Company began
offering an additional laser-based system product to provide customers with an opportunity to replace and upgrade IMAX Xenon Systems. The Company
currently sells two different configurations of its laser systems. The Company believes that IMAX Laser Systems present greater brightness and clarity,
higher contrast, a wider color gamut and deeper blacks, consume less power and last longer than other digital projection technologies, and are capable of
illuminating the largest screens in the IMAX network.
IMAX Xenon Systems
In 2008, the Company introduced its digital IMAX Xenon System. Prior to 2008, all of the IMAX Systems offered by the Company were film-based
and required analog film prints. The Company believes that IMAX Xenon Systems deliver higher quality imagery when compared with IMAX Film
Systems.
IMAX Film Systems
IMAX Film Systems include various configurations, including 2D and 3D systems, and screen sizes. Following the introduction of the digital IMAX
Xenon System in 2008, the number of IMAX Film Systems in the IMAX network has decreased significantly. However, IMAX’s proprietary format, the
IMAX 70mm Film System continues to be a sought after IMAX viewing experience. The existing network of 30 unique locations are being actively
supported and leveraged for special event releases throughout the year such as with the 2023 release of Oppenheimer in IMAX 70mm film, which garnered
significant consumer interest and demand for this format.
The following table provides information about the Company’s system backlog by deal type as of December 31, 2023 and 2022:
(In thousands of U.S. Dollars,
except number of systems)
(1)
Sales Arrangements
Hybrid JRSA
Traditional JRSA
(2)(3)
(2)
December 31, 2023
December 31, 2022
Number of
Systems
Dollar Value
Number of
Systems
Dollar Value
New
148
102
132
382
Upgrade
16
1
51
68
$
$
New
158,318
76,173
425
234,916
Upgrade
$ 16,068
910
1,975
$ 18,953
New
149
116
96
361
Upgrade
13
4
72
89
$
$
New
165,176
86,215
200
251,591
$
$
Upgrade
14,362
3,235
2,900
20,497
(1)
Includes Sales, Hybrid Sales, and Sales-Type Lease deal types.
(2) The consideration owed under traditional joint revenue sharing arrangements is typically a percentage of contingent box office receipts rather than a
fixed upfront fee or fixed annual minimum payments. Accordingly, such arrangements do not usually have a dollar value in backlog; however, hybrid
joint revenue sharing arrangements typically provide for contracted upfront payments and therefore carry a backlog value based on those payments.
(3)
Includes 30 IMAX Systems (2022 ― 38) where certain of the Company’s contracts contain options for the customer to elect to upgrade system type
or to alter the contract structure (for example, from a joint revenue sharing arrangement to a sale) after signing, but before installation. Current
backlog information reflects all known elections.
10
(4) As of December 31, 2023, the Company’s backlog includes 14 systems (2022 ― 14) in Russia, one system (2022 ― 1) in Ukraine, and five systems
(2022 ― 5) in Belarus with a total fixed contracted value of $22.9 million (2022 ― $22.9 million).
The backlog reflects the minimum number of commitments for IMAX Systems according to the signed contracts. The dollar value fluctuates depending
on the number of new arrangements signed from year-to-year, which adds to backlog, and the installation and acceptance of IMAX Systems and the
settlement of contracts, both of which reduce backlog. The dollar value of backlog typically represents the fixed contracted revenue according to the signed
IMAX System sale and lease agreements that the Company expects to recognize as revenue upon installation and acceptance of the associated system, as
well as an estimate of variable consideration in sales arrangements. The value of backlog does not include amounts allocated to maintenance and extended
warranty revenues or revenue from IMAX Systems in which the Company has an equity interest, operating leases, and long-term conditional theater
commitments. The Company believes that the contractual obligations for IMAX System installations that are listed in the 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 an IMAX 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. (Refer to “Risk Factors ― The Company may not convert all of its backlog into revenue and cash flows.”)
Certain of the Company’s contracts contain options for the customer to elect to upgrade system type during the term or to alter the contract structure (for
example, from a joint revenue sharing arrangement to a sale) after signing, but before installation. The current backlog information reflects all known
elections.
IMAX MAINTENANCE
IMAX System arrangements also include a requirement for the Company to provide maintenance services over the life of the arrangement in exchange
for an extended warranty and annual maintenance fee paid by the exhibitor. Under these arrangements, the Company provides preventative and emergency
maintenance services 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 system agreements. (Refer to “Maintenance and Extended Warranty Services” below.)
OTHER PRODUCTS AND SERVICES
Streaming and Consumer Technology
Streaming and Consumer Technology includes the Company’s Streaming Technology software offerings and IMAX Enhanced product services.
Streaming Technology consists of several software products including:
•
•
•
IMAX Stream Smart ― works within existing video compression workflows to reduce bitrates and retain picture quality across all devices and
formats and deliver significant cost savings.
IMAX StreamAware On-Demand ― all-in-one quality assurance and quality control to automate and standardize checks for comprehensive
content integrity and regulatory compliance for third-party content libraries, across an entire video compression workflow
IMAX StreamAware On-Air ― real-time monitoring software for live streams, which enables users to monitor video quality across their
networks and to identify and address streaming issues.
These AI-powered products allow streaming platforms and broadcasters to automate workflows. The Company believes that these products allow users
to deliver the highest quality viewing experiences to their subscribers while reducing costs.
IMAX Enhanced is a solution to bring The IMAX Experience into the home. IMAX Enhanced provides end-to-end premium technology across
streaming content and best-in-class entertainment devices, offering consumers high-fidelity playback of image and sound in the home and beyond,
including the following features:
•
•
IMAX’s expanded aspect ratio, which is available on select titles and streaming platforms, including Disney+;
IMAX’s proprietary remastering technology, which produces more vivid, higher-fidelity 4K HDR images on premium televisions; and
11
•
IMAX’s signature sound, which was specially recreated and calibrated for the home to unlock more immersive audio.
To be certified as IMAX Enhanced, leading consumer electronics manufacturers spanning 4K/8K televisions, projectors, A/V receivers, loudspeakers,
soundbars, smartphones, personal computers, tablets, and more must meet a carefully prescribed set of audiovisual performance standards, set by a
certification committee, along with some of Hollywood’s leading technical specialists.
At present, certified global device partners include Sony Electronics, Hisense, TCL, LG, Phillips, Hewlett Packard, Xiaomi, Sound United and Honor,
among others. As of December 31, 2023, more than 300 IMAX Enhanced titles have been released across five of the biggest streaming platforms
worldwide: Disney+, Sony Bravia CORE, Tencent Video, iQiyi and Rakuten TV. Over 15 million IMAX Enhanced certified devices are estimated to be in
the market today.
The Company’s collaboration with Disney allows fans to stream 20 Disney titles in IMAX’s expanded aspect ratio at home on Disney+. The presence of
IMAX Enhanced on Disney+ provides strong brand exposure for IMAX by expanding the Company’s in-home entertainment footprint to Disney+ and
most of its 150 million global subscribers. The Company believes that IMAX Enhanced enables an elevated end-to-end experience on Disney+, with
IMAX signature sound coming to subscribers with IMAX Enhanced certified devices. IMAX Enhanced is part of the Company’s next evolutionary step to
extend the IMAX brand and technology further into new use cases, including streaming entertainment and the consumer electronics market.
(Refer to “Risk Factors ― Failure to respond adequately or in a timely fashion to changes and advancements in technology could negatively affect the
Company’s business.”)
Other
The Company derives a small portion of its revenue from other sources including one owned and operated IMAX System in Sacramento, California; a
commercial arrangement with one theater resulting in the sharing of profits and losses; the provision of management services to three other theaters; renting
the Company’s proprietary 2D and 3D large-format film cameras; and also offering production advice and technical assistance to both documentary and
Hollywood filmmakers.
MARKETING AND CUSTOMERS
The Company markets IMAX 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 system locations for the Company on a commission basis.
IMAX currently estimates a worldwide commercial multiplex addressable market of 3,619 locations, of which there are 1,693 IMAX Systems operating
as of December 31, 2023, representing a market penetration of only 46.8%. Commercial multiplex systems are the largest part of the IMAX network,
comprising 1,693 IMAX Systems, or 96%, of the 1,772 IMAX Systems in the IMAX network as of December 31, 2023. The Company’s institutional
customers include science and natural history museums, zoos, aquaria, and other educational and cultural centers. The Company also sells or leases IMAX
Systems to commercial destinations such as theme parks, private home theaters, tourist destination sites, fairs, and expositions. As of December 31, 2023,
approximately 75% of all open and operational IMAX Systems were in locations outside of the United States and Canada.
The following table provides detailed information about the IMAX network by system type and geographic location as of December 31, 2023 and 2022:
(1)
United States
Canada
Greater China
Asia (excluding Greater China)
Western Europe
(2)
Latin America
Rest of the World
Total
(3)
December 31, 2023
December 31, 2022
Commercial
Multiplex
Commercial
Destination
Institutional
Total
Commercial
Multiplex
Commercial
Destination
Institutional
Total
363
42
791
166
126
60
145
1,693
4
1
—
2
4
1
—
12
24
7
16
2
8
8
2
391
50
807
170
138
69
147
364
40
778
138
118
55
140
67
1,772
1,633
4
1
—
2
4
1
—
12
25
7
16
2
8
11
2
71
393
48
794
142
130
67
142
1,71
6
(1) Greater China includes China, Hong Kong, Taiwan, and Macau.
(2) Latin America includes South America, Central America, and Mexico.
12
(3) Period-to-period changes in the table above are reported net of the effect of permanently closed locations.
The Company has a partnership in China with Wanda which is its largest exhibitor customer. As of December 31, 2023, Wanda represented 22% of the
Company’s commercial network, 4% of the Company’s backlog and 10% of its revenues. As of December 31, 2022, Wanda represented 23% of the
Company’s commercial network, 4% of the Company’s backlog and 7% of its revenue. A geographic breakdown of the Company’s revenue is provided in
Note 21 to Consolidated Financial Statements in Part II, Item 8.
INDUSTRY OVERVIEW
Competition
The out-of-home entertainment industry is very diverse with numerous companies vying for the public’s leisure time, and the Company faces
competition as a consequence. Within the theatrical space, exhibitors and entertainment technology companies have introduced their own branded, large-
screen 3D auditoriums or other proprietary theater systems, some of which include laser-based projectors, and in many cases, have marketed those
auditoriums or theater systems as having similar quality or attributes to an IMAX System.
The Company also faces in-home competition from a number of alternative film distribution channels such as subscription streaming services,
transactional video-on-demand (both rentals and sales), advertiser-supported video-on-demand, internet, and broadcast and cable 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. Furthermore, the Company may continue to face competition in the future from companies in the entertainment
industry with new technologies and/or greater capital resources to develop and support them.
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 Systems (including the IMAX Laser Systems as well as the IMAX immersive sound system, the return on
investment of an IMAX System for exhibitors, the number and quality of IMAX films that it distributes, the tailored distribution and marketing support by
dedicated teams around the world, the relationships the Company maintains with prominent Hollywood and international filmmakers and other content
creators (a number of whom desire to film their movies and events with IMAX cameras), the availability of Hollywood and international films to the
IMAX network through IMAX Film Remastering technology, the availability of unique and innovative events and experiences such as distributed concerts,
special theatrical screenings, and live Q&A sessions with top content creators, consumer loyalty and the level of the Company’s service and maintenance
and extended warranty efforts. The Company believes that all of these alternative formats deliver overall experiences that are inferior to The IMAX
Experience and do not have IMAX's brand trust, filmmaker endorsement, loyal fan base, or global footprint and scale.
Exhibitor Consolidation
The Company’s primary customers are commercial multiplex exhibitors. Since 2016, the commercial exhibition industry has undergone significant
consolidation, including AMC Entertainment Holdings Inc.’s (“AMC”) acquisition of Carmike Cinemas and Odeon & UCI Cinemas Group (“Odeon”),
which includes Nordic Cinema Group (“Nordic”), and Cineworld Group plc's (“Cineworld”) acquisition of Regal Entertainment Group (“Regal”).
The Company believes that the consolidation of the commercial exhibition industry has helped facilitate the growth of the IMAX network. The
Company has historically enjoyed strong relationships with large commercial exhibitor chains, which have greater capital to purchase, lease or otherwise
acquire IMAX Systems. As larger commercial chains such as AMC and Cineworld have purchased smaller chains, those smaller chains have in turn
become part of the IMAX network. For instance, following AMC’s acquisition of Odeon and Nordic, the Company and AMC entered into an agreement for
25 new IMAX Systems across the Odeon and Nordic network. The Company believes that continued consolidation could facilitate further signings and
other strategic benefits going forward.
However, exhibitor consolidation has also resulted in individual exhibitor chains constituting a material portion of the Company’s revenue and network.
Continued industry consolidation, as well as consolidation in the movie studio industry, may present risks to the Company. (Refer to “Risk Factors –
Consolidation among commercial exhibitors and studios reduces the breadth of the Company’s customer base, and could result in a narrower market for the
Company’s products and reduced negotiating leverage. A deterioration in the Company’s relationship with key partners could materially and adversely
affect the Company’s business, financial condition or results of operation. In addition, an adverse economic impact on a significant customer’s business
operations could have a corresponding material adverse effect on the Company.” in Part I, Item 1A.)
13
THE IMAX BRAND
IMAX is a premier global technology platform for entertainment and events.
The Company relies on its brand to communicate its leadership and singular goal of creating entertainment experiences that exceed all expectations. Top
filmmakers, studios, and other content creators use the IMAX brand to message that a film will connect with audiences in unique and extraordinary ways.
The Company has a Filmed for IMAX program through which filmmakers partner closely with IMAX to craft films that fully leverage IMAX
technology and where every frame, from inception, is intentionally designed for The IMAX Experience. Box office metrics demonstrate audiences respond
extremely favorably to Filmed for IMAX titles.
To capture content in a resolution appropriate for IMAX screens, filmmakers utilize IMAX 70mm film cameras or IMAX-certified best-in-class digital
cameras with leading brands including ARRI, Panavision, RED Digital Cinema and Sony. When this content is paired with IMAX’s proprietary post-
production process, the resulting craftsmanship enthralls fans in 1,700+ IMAX locations around the world.
The IMAX brand is a promise to deliver what today’s audiences crave, which is a memorable, more emotionally engaging, more thrilling and shareable
experience. IMAX commissions on-going third party consumer research to measure the strength of its brand in numerous markets. The Company’s latest
2023 studies show that the IMAX brand has achieved near universal awareness, is uniquely recognized as a leading, ultra-premium brand, and offers one of
the most differentiated movie-going experiences. The IMAX brand has also been proven to signal a special, must-see event at levels far greater than any
other entertainment technology brand based on evidence. Across various measures of brand equity and health, the IMAX brand ranged from two to 10
times more powerful than other 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.
RESEARCH AND DEVELOPMENT
The Company believes that it is a premier global technology platform for awe-inspiring entertainment and events with significant proprietary expertise
in digital and film-based projection and sound system component design, engineering, and imaging technology, particularly in laser-based technology. A
significant portion of the Company’s research and development efforts have been focused on the IMAX Laser Systems, which the Company believes is
capable of illuminating the largest screens in the IMAX network and 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 cinematic experience available to consumers. The Company has continued research and development aimed at creating more affordable
laser-based solutions with various screen sizes for its commercial multiplex customers.
The Company intends to continue research and development to further evolve its end-to-end technology. This includes bringing connectivity to the
Company’s global network to support live and interactive events worldwide; developing new IMAX film cameras and certifying additional digital cameras;
further improving its proprietary film remastering and distribution process for the delivery of content for both theatrical (including local language content)
and home entertainment; and further improving the reliability of its projectors, as well as enhancing the Company’s image and sound quality. Within the
Company’s Streaming and Consumer Technology business, there is ongoing research and development in perceptual metrics including novel measurement
and optimization techniques. Investments are also being made to expand existing and/or develop new technologies which are expected to further enhance
video quality, delivery, and creation across devices. Furthermore, the Company intends to invest in activities that will capture opportunities to create/build
AI and automation into its operations and processes.
As of December 31, 2023 and 2022, 86 and 66 of the Company’s employees were connected with research and development projects, respectively.
MANUFACTURING AND SERVICE
Projector Component Manufacturing
The Company assembles IMAX System projectors at its facility in Mississauga, Ontario, Canada (near Toronto). With a few exceptions, the Company
develops and designs all of the key elements of the proprietary technology involved in this component. The 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. Historically, these projectors have had reliability rates based on scheduled shows of approximately 99%.
14
Sound System Component Manufacturing
The Company develops, designs, and assembles the key elements of the theater sound system component. The standard IMAX sound system component
consists of 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 to comprehensive testing as a system.
Screen and Other Components
The Company purchases its screen components and glasses cleaning equipment from third parties. The standard screen system component consists 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.
Maintenance and Extended Warranty Services
The Company provides ongoing maintenance and extended warranty services to IMAX Systems. These arrangements are usually for a separate fee,
although the Company sometimes includes free service in the initial year of the arrangement. The maintenance and extended warranty arrangements
include service, maintenance, and replacement parts for IMAX Systems.
To support the IMAX network, the Company has personnel stationed in major markets throughout the world who provide periodic and emergency
maintenance and extended warranty services on existing IMAX Systems. The Company provides various levels of maintenance and warranty services,
which are priced accordingly. Under full-service programs, Company personnel typically visit each IMAX location every six to twelve months to provide
preventative maintenance, cleaning and inspection services and emergency visits to resolve problems and issues with the 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.
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, China, Belgium, Japan, France, Germany, and the United
Kingdom. The subject matter covered by these patents and applications includes auditorium design and geometry, audio and display technology,
mechanisms employed in projectors and projection equipment (including 3D projection equipment), stereoscopic (3D) imaging, digitally re-mastering
35mm films into large-format, dynamic range and contrast of projectors, seaming or superimposing images from multiple projectors, and other inventions
relating to imaging technology, digital projectors, laser projection, and video quality assessment. Included in the Company’s patent portfolio are more than
30 patents and patent families acquired from the Eastman Kodak Company covering laser projection technology. In addition, the Company acquired more
than 15 patent families in connection with the acquisition of SSIMWAVE in September 2022. The Company has been and will continue to be diligent in the
protection of its proprietary interests.
As of December 31, 2023, the Company holds 92 patents, has 14 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 expire between 2024 and 2041.
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 3D, Experience It In
IMAX®, The IMAX Experience, DMR, Filmed For IMAX, IMAX Live, IMAX Enhanced, and SSIMWAVE®. These trademarks are widely protected by
registration or common law throughout the world.
15
HUMAN CAPITAL
The Company believes that effective human capital management is critical to its success. The Company’s human capital management objectives are
focused on attracting, engaging, and retaining exceptional talent who are passionate about IMAX’s business; and 2) fostering a work environment that
unites diverse teams around its mission to connect the world through extraordinary experiences that inspire us to reimagine what’s possible together.
To achieve these objectives, the Company’s people and culture strategy focuses on creating a compelling employee brand which attracts top talent to
join the Company; engaging its employee base to maximize overall performance and enhance retention; offering a competitive total rewards program (the
“Total Rewards Program”); developing and refining a diversity, equity, and inclusion (“DE&I”) plan that is unique to its business; and continuing its focus
on employee safety.
As of December 31, 2023, the Company employed 697 people, of which approximately 69% were employed outside of the United States. The global
workforce consists of approximately 96% full-time and 4% part-time employees. Some of the Company’s recent initiatives to achieve its’s human capital
management objectives include the following:
Recruiting Talent
The Company believes that a collaborative team of innovative employees from diverse backgrounds and experiences is essential to meet the demands of
technology and creativity. Additionally, the Company has and will continue to provide DE&I training for hiring managers to ensure the Company’s
interview and hiring processes are fair and equitable. The Company’s outreach efforts include using global job boards, engaging with community
associations and organizations, working with universities and colleges to build stronger partnerships, and maintaining relationships with IMAX alumni to
proactively expand its sources of talent. The Company continues to implement technologies and solutions to support human capital management strategies
and processes while supporting talent management for creative projects as it stays connected to the vision, foundation, and core of the Company.
Engaging Employees
During 2023, the Company created a comprehensive talent management plan to foster greater employee retention, engagement, and inclusivity. The plan
includes incorporating the Company’s values of collaboration, belonging, and excellence in its culture into talent management by rolling out development
programs to build manager and leader capabilities and enhancing the overall employee experience. The Company expects to implement the plan in 2024.
For 2024, the Company has updated its performance management process and launched an employee training program to foster a high-performance and
engaging work culture. For example, the performance management process includes a new mid-year talent review cycle to assess talent, understand the
Company’s bench strength and gaps for succession planning and engagement strategies.
In 2024, the Company plans to deploy an employee engagement survey to gather feedback and insights on how to continue to make IMAX a great place
to work.
Total Rewards
The Company takes a holistic view of the Total Rewards Program, focusing on providing competitive compensation and benefits packages to attract,
incentivize, and retain a talented, diverse, multi-generational workforce.
The Total Rewards Program balances base compensation, incentive compensation for both short-term and long-term performance, and a focus on total
well-being of the employee. The Company’s recent efforts to improve the Total Rewards Program include the following:
•
•
•
In 2023, the Company undertook a review of base compensation across various levels within the Company and established a career
development path for employees in the technical domain.
The Company introduced enhancements to its U.S. and Canadian benefits program in select regions, aiming to modernize its benefits offerings
to better align with the needs of the Company’s employees. These modifications were informed by both employee feedback and market
conditions.
Given the increased focus on mental health, in response to addressing the needs of the Company’s employees and their families, the Company
enhanced its health and family-friendly benefits to provide mental health support and access to mental health practitioners to its employees.
16
•
•
The Company supports new parents, including adoptive parents, through maternity and parental leave benefits. Furthermore, the Company has
broadened its company-subsidized reimbursement program to cover camps, complementing emergency backup childcare, ongoing childcare,
elder care, and pet care.
In 2023, the Company expanded its financial wellness offerings for U.S. employees, to include a subsidized membership for legal assistance.
Diversity, Equity, and Inclusion
In 2023, the Company continued its commitment to diversity, equity, and inclusion. The Company engaged its executive sponsorship committee to
revise its DE&I strategy, which focuses on the following areas:
•
•
•
•
Fostering a culture of engagement and inclusivity where employees feel a sense of understanding, acceptance, and belonging.
Implementing processes, policies, and practices that are fair and equitable.
Ensuring the diversity of the partners, filmmakers, and audiences IMAX serves are reflected through progressive recruiting and retention
efforts.
Impacting the workplace and communities in which IMAX operates in a positive way.
As of December 31, 2023, women represented approximately 35% of the Company’s global workforce. The Company currently has three female
directors (30%) and two directors who identify as ethnically diverse (20%) on its Board of Directors (the “Board”). There are four (25%) female members
of the Company’s management team of 16 as well as four (25%) members of the Company’s management team who identify as ethnically diverse.
Employee Safety
Risks to the safety of employees are present in day-to-day office work, building renovation, manufacturing, logistics, training, testing, research, and
development, and during the designing, installation, and servicing of IMAX Systems around the world. The Company has implemented a global program
for workplace safety that ensures it has the necessary controls in place to keep its employees and visitors safe. Every employee is responsible for
participating in workplace safety planning activities, and managers are responsible for employee safety program implementation within their business
function. This effort is supported by a cross-functional team dedicated to employee health and safety and business continuity.
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 SEC. Reports may be obtained free of
charge through the SEC’s website at www.sec.gov and through the Company’s website at www.imax.com or by calling the Company’s Investor Relations
Department at 212-821-0154. No information included on the Company’s website shall be deemed included or otherwise incorporated into this Form 10-K,
except where expressly indicated.
Item 1A. Risk Factors
Before you make an investment decision with respect to the Company’s common shares, you should carefully consider all of the information included in
this Form 10-K and the Company’s subsequent periodic filings with the SEC. In particular, you should carefully consider the risk factors described below
and the risks and uncertainties related to “Forward Looking Statements,” any of which could have a material adverse effect on the Company’s business,
results of operations, financial condition and the actual outcome of matters as to which forward looking statements are made in this annual report. The
following risk factors should be read in conjunction with the balance of this annual report, including the Consolidated Financial Statements and related
notes. The risks described below are not the only ones the Company faces. Additional risks that the Company currently deems immaterial or that are
currently unknown to the Company may also impair its business or operations.
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RISKS RELATED TO THE COMPANY’S BUSINESS AND OPERATIONS
General political, social and economic conditions can affect the Company’s business by reducing both revenues generated from existing IMAX
Systems and the demand for new IMAX Systems.
The Company’s success depends in part on general political, social and economic conditions and the willingness of consumers to purchase tickets to the
IMAX auditoriums. If movie-going becomes less popular globally, the Company’s business could be adversely affected, especially if such a decline occurs
in Greater China. There remains uncertainty around whether and when movie-going will return to pre-COVID levels in various markets and there can be no
assurance that the reduction in movie-going does not represent a permanent change in consumer behavior. The timing and extent of a recovery of consumer
behavior and willingness to spend discretionary income on movie-going may delay the Company’s ability to generate significant revenue from GBO
generated by its exhibitor customers in various markets. In addition, the Company’s operations could be adversely affected if consumers’ discretionary
income globally or in a particular geography falls as a result of an economic downturn or recession, sustained inflationary conditions, high interest rates,
supply chain issues, or otherwise. Such adverse impact on consumer’s discretionary income could result in a shift in consumer demand away from movie-
going. The majority of the Company’s revenue is directly derived from the box office results of its exhibitor partners. Accordingly, a decline in attendance
at commercial IMAX locations could materially and adversely affect several sources of key revenue streams for the Company. Sustained inflationary
pressures observed globally could materially increase the cost of our goods, services and personnel, which could cause an increase in the Company's
operating costs.
The Company also depends on the sale, lease and installation of IMAX Systems to commercial theatrical exhibitors to generate revenue. Commercial
theatrical 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 IMAX Systems. In addition, a significant portion of systems in the Company’s backlog are expected to be installed in newly built
multiplexes. An economic downturn, recession, significant increases in interest rates or other adverse economic developments could impact developers’
ability to secure financing on acceptable terms and complete the buildout of these locations, thereby negatively impacting the Company’s ability to install
IMAX Systems, grow its theater network and collects its contractual revenue.
The success of the IMAX network is directly related to the availability and success of the IMAX remastered films, and other films released to the
IMAX network, as well as the continued purchase or lease of IMAX Systems and other support by theatrical exhibitors, for which there can be no
guarantee.
An important factor affecting the growth and success of the IMAX network is the availability and strategic selection of films for IMAX locations 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 format. In
2023, 95 new IMAX films were released to the Company’s global network. There is no guarantee that filmmakers and studios will continue to release films
to the IMAX network, or that the films selected for release to the IMAX network will be commercially successful.
The Company is directly impacted by the commercial success and box office results of 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 films,
and the Company’s continued ability to secure films, find suitable partners for joint revenue sharing arrangements and to sell IMAX Systems. The
commercial success of films released to IMAX locations depends on a number of factors outside of the Company’s control, including whether the film
receives critical and consumer 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 films released to the Company’s global network. For example, the Writers Guild of America and the Screen Actors
Guild – American Federation of Television and Radio Artists went on strike in May and July 2023, respectively, over labor disputes with the Alliance
Motion Picture and Television Producers. Although these strikes ended in late 2023, they have and may result in further changes in film productions,
release, and promotion schedules and plans, which may adversely impact the Company’s revenues and results of operations.
In addition, as the Company’s international network has expanded, the Company has signed deals with studios in other countries to convert their films to
the Company’s format and release them to the IMAX network. 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 language films for a particular country or region, notably Greater China,
the Company’s largest market. Also, conflicts in international release schedules may make it difficult to release every IMAX film in certain markets.
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The Company depends principally on commercial theatrical exhibitors to purchase or lease IMAX Systems, to supply box office revenue under joint
revenue sharing arrangements and under its sale and sales-type lease agreements and to supply venues in which to exhibit IMAX films. The Company is
unable to predict the pace at which exhibitors will purchase or lease IMAX Systems or enter into joint revenue sharing arrangements with the Company, or
whether any of the Company’s existing exhibitor customers will continue to do any of the foregoing. If exhibitors choose to reduce their levels of presence
or expansion, negotiate economic terms that are less favorable to the Company, or decide not to enter into transactions 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 locations. As a result, the Company’s future revenues and cash flows could be adversely affected.
The Company is undertaking brand extensions and new business initiatives, and the Company’s investments and efforts in such business evolution
may not be successful.
The Company is undertaking brand extensions and new business initiatives. These initiatives represent potential 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. The Company has recently explored initiatives in the
field of in-home entertainment technology, which is an intensely competitive business and which is dependent on consumer demand, over which the
Company has no control. The Company is also exploring new technologies to connect the IMAX network to facilitate bringing more unique content,
including broadcasts of live events, to IMAX audiences and to expand the Company’s streaming and consumer technology strategy. If any new brand
extensions and business initiatives 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 assets, by the distraction of management from its core
business or by damage to its brand or reputation.
New initiatives could involve acquisitions or the formation of joint ventures and business alliances. For example, in September 2022, the Company
acquired SSIMWAVE. Such transactions and arrangements involve significant challenges and risks, including that they may not advance the Company’s
long-term business strategy, that the Company realizes an unsatisfactory return on its investments or fails to realize anticipated business synergies, that the
Company has difficulty integrating or retaining new employees, systems, and technology, that the Company has disagreements with a relevant partner with
respect to financing, management, and development, that the Company fails to identify or anticipate risks and liabilities of acquired companies in advance
of acquisition, or that management gets distracted from the Company’s core business. Also, it may take longer than expected to realize the full benefits
from these transactions and arrangements such as increased revenue or enhanced efficiencies, or the benefits may ultimately be smaller than the Company
expected.
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 Company must
also comply with a variety of data privacy regulations and failure to comply with such regulations may adversely affect the Company’s financial
performance.
The nature of the Company’s business involves access to and storage of confidential and proprietary content and other information, including its own
intellectual property and the intellectual property of certain movie studios or partners it may work with, as well as certain information regarding the
Company’s customers, employees, licensees, and suppliers. Although the Company maintains robust procedures, internal policies and technological
security measures to safeguard such content and information, as well as a cyber-security insurance policy, the Company’s information technology systems,
and the information technology systems of its current or future third-party vendors, collaborators, consultants and service providers, 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, including from emerging technologies, such as advanced forms of AI and quantum computing. The Company’s
information technology infrastructure may be vulnerable to such attacks, including through the use of malware, software bugs, computer viruses,
ransomware, social engineering, and denial of service. It is possible that such attacks could compromise the Company’s security measures or the security
measures of parties with whom the Company does business. Because the techniques that may be used to circumvent the Company’s safeguards change
frequently and may be difficult to detect, the Company may be unable to anticipate any new techniques or implement sufficient preventive security
measures. In addition, the Company’s sensitive, proprietary, or confidential information could be leaked, disclosed, or revealed as a result of or in
connection with the Company’s employees’ or third-party vendor’s use of generative AI technologies. The Company seeks to monitor such attempts and
incidents and to prevent their recurrence through modifications to the Company’s internal procedures and information technology infrastructure and
provides information security training and compliance program to its employees on an annual basis, but in some cases preventive action might not be
successful. Moreover, the development and maintenance of these security measures may be costly and will require ongoing updates as technologies evolve
and techniques to overcome the Company’s security measures become more sophisticated. Any such attack or unauthorized access could result in a
disruption of the Company’s operations, the theft, unauthorized use or publication of confidential or proprietary information of the Company or its
customers, employees, licensees or suppliers, 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
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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. Refer to Part 1C, Cybersecurity for additional information.
In addition, a variety of laws and regulations at the international, national, and state level govern the Company’s collection, use, protection and
processing of personal data. These laws, including but not limited to the General Data Protection Regulation and the California Privacy Rights Act, are
constantly evolving and may result in increasing regulatory oversight and public scrutiny in the future. The Company’s actual or perceived failure to
comply with such laws and regulations could result in fines, investigations, enforcement actions, penalties, sanctions, claims for damages by affected
individuals, and damage to the Company’s reputation, among other negative consequences, any of which could have a material adverse effect on its
financial performance.
RISKS RELATED TO THE COMPANY’S INTERNATIONAL OPERATIONS
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 GBO generated by the Company’s exhibitor customers and its revenues are generated by customers located outside the
United States and Canada. Approximately 64%, 62%, and 70% of the Company’s revenues were derived outside of the United States and Canada in 2023,
2022 and 2021, respectively. As of December 31, 2023, approximately 78% of IMAX Systems in backlog are scheduled to be installed in international
markets. The Company’s network spanned 90 different countries as of December 31, 2023, and the Company expects its international operations to
continue to account for an increasingly significant portion of its future revenues. 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:
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new restrictions on access to markets, both for IMAX Systems and films;
unusual or burdensome foreign laws or regulatory requirements or unexpected changes to those laws or requirements, including censorship of
content that may restrict what films the Company’s network can present;
fluctuations in the value of various foreign currencies versus the U.S. Dollar and potential currency devaluations;
new tariffs, trade protection measures, import or export licensing requirements, trade embargoes, sanctions, and other trade barriers;
difficulties in obtaining competitively priced key commodities, raw materials, and component parts from various international sources that are
needed to manufacture quality products on a timely basis;
imposition of foreign exchange controls in foreign jurisdictions;
dependence on foreign distributors and their sales channels;
reliance on local partners, including in connection with joint revenue sharing arrangements;
difficulties in staffing and managing foreign operations;
inability to complete installations of IMAX Systems, including as a result of material disruptions or delays in the Company’s supply chains, or
collect full payment on installations thereof;
local business practices that can present challenges to compliance with applicable anti-corruption and bribery laws;
difficulties in establishing market-appropriate pricing;
less accurate and/or less reliable box office reporting;
adverse changes in foreign government 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);
poor recognition of intellectual property rights;
difficulties in enforcing contractual rights;
economic conditions in foreign markets, including inflation;
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public health concerns, including pandemics or epidemics, and regulations in response thereto, which could adversely affect the Company’s
and its customers' operations;
requirements to provide performance bonds and letters of credit to international customers to secure system component deliveries;
harm to the IMAX brand from operating in countries with records of controversial government action, including human rights abuses; and
political, economic and social instability, which could result in adverse consequences for the Company’s interests in different regions of the
world.
Additionally, global geopolitical tensions, such as the Russia and Ukraine and Israel-Hamas Wars, and actions that governments take in response may
adversely impact the Company’s ability to operate in such regions and/or result in global or regional economic downturns. For example, in response to the
ongoing conflict between Russia and Ukraine, Canada, the United States, and other countries in which the Company operates have imposed broad
sanctions and other restrictive actions against governmental and other entities in Russia and Belarus, which in turn have and may continue to have an
adverse impact on the Company’s business and results of operations in affected regions. In addition, in the wake of the Russia-Ukraine conflict and
resulting sanctions, major movie studios suspended the theatrical release of films in Russia and Belarus and financial institutions halted transactions with
Russian entities. The Company has notified its exhibitor clients in Russia and Belarus that such sanctions and actions constitute a force majeure event
under their system agreements, resulting in the suspension of the Company’s obligations thereunder. Given the uncertainty as to the scope, intensity,
duration and outcome of geopolitical conflicts, it is difficult to predict the full extent of the adverse impact of geopolitical conflicts on the Company’s
business and results of operations. Additionally, given the global nature of the Company’s operations, any protracted conflict or the broader
macroeconomic impact of geopolitical conflicts and sanctions imposed in response thereto, could have an adverse impact on the Company’s business,
results of operations, financial condition, and future performance (the Company has 20 systems in its backlog from Russia, the CIS and Ukraine, and none
from Israel) and may also magnify the impact of other risks described herein, including the risk of cybersecurity attacks, which may impact information
technology systems unrelated to the conflict, or jeopardize critical infrastructure in jurisdictions where the Company operates.
In addition, changes in United States or Canadian foreign policy can present additional risks or uncertainties as the Company continues to expand its
international operations. Opening and operating theaters in markets that have experienced geopolitical or sociopolitical unrest or controversy, including
through partnerships with local entities, exposes the Company to the risks listed above, as well as additional risks of operating in a volatile region. Such
risks may negatively impact the Company’s business operations in such regions and may also harm the Company’s brand. Moreover, a deterioration of the
diplomatic relations between the United States or Canada and a given country may impede the Company’s ability to operate IMAX systems in such
countries and have a negative impact on the Company’s financial condition and future growth prospects.
The Company faces risks in connection with its significant presence in China and the continued expansion of its business there.
Greater China is the Company’s largest market by revenue, with approximately 25% of overall revenues generated from its Greater China operations in
2023. As of December 31, 2023, the Company had 807 IMAX Systems operating in Greater China with an additional 206 systems in backlog, which
represent 46% of the Company’s current backlog. Of the IMAX Systems currently scheduled to be installed in Greater China, 71% are under joint revenue
sharing arrangements, which further increases the Company’s ongoing exposure to box office performance in this market.
The China market faces a number of risks, including a continued slow recovery from the COVID-19 pandemic, changes in laws and regulations,
currency fluctuations, increased competition, and changes in economic conditions, including the risk of an economic downturn or recession, trade
embargoes, restrictions or other barriers, as well as other conditions that may impact the Company’s exhibitor and studio partners, and consumer spending.
The worsening of United States–China political tensions could exacerbate any or all of these risks, and 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.
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The Company does not believe that it is currently required to obtain any permission or approval from the China Securities Regulatory Commission, the
Cyberspace Administration of China or any other regulatory authority in the PRC for its operations, but there can be no assurance that such permissions or
approvals would not be required in the future and, if required, that they would be granted in a timely manner, on acceptable terms, or at all. Furthermore,
PRC regulators, including the Cyberspace Administration of China, the Ministry of Industry and Information Technology, and the Ministry of Public
Security, have been increasingly focused on regulation in data security and data protection. Regulatory requirements concerning data protection and
cybersecurity, as well as other requirements concerning operations of foreign businesses, in the PRC are evolving, and their enactment timetable,
interpretation and implementation involve significant uncertainties. To the extent any PRC laws and regulations become applicable to the Company, it may
be subject to the risks and uncertainties associated with the legal system in the PRC, including with respect to the enforcement of laws and the possibility of
changes of rules and regulations with little or no advance notice.
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 Company's business within China. For instance, the Chinese government regulates the
number, timing, and terms of Hollywood films released to the China market. A number of prominent Hollywood films were denied release dates in China
in 2021 and 2022, including several films released in IMAX format in other markets. While significantly more Hollywood films were given release dates in
China in 2023, several of the prominent Hollywood sequels or franchise films released into China in 2023 underperformed their predecessors in that
market. The Company cannot provide assurance that the Chinese government will continue to permit the release of Hollywood IMAX films in China or
that the timing, number or performance 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, or if the Company were unable to enforce its intellectual property or contract rights in China, the Company’s business
could be adversely impacted.
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 or requires
minimum payments in U.S. Dollars, significant local currency issues may impact the profitability of the Company’s arrangements with its customers,
which ultimately affect the ability to negotiate cost-effective arrangements and, therefore, the Company’s results of operations. In addition, because IMAX
films generate box office revenue in 90 different countries, unfavorable exchange rates between applicable local currencies and the U.S. Dollar could affect
the GBO generated by exhibitors and the Company’s reported revenues, further impacting the Company’s results of operations.
RISK RELATED TO THE COMPANY’S INDUSTRY AND COMPETITIVE ENVIRONMENT
Consolidation among commercial exhibitors and studios reduces the breadth of the Company’s customer base, and could result in a narrower
market for the Company’s products and reduced negotiating leverage. A deterioration in the Company’s relationship with key partners could materially
and adversely affect the Company’s business, financial condition or results of operation. In addition, an adverse economic impact on a significant
customer’s business operations could have a corresponding material adverse effect on the Company.
The Company’s primary customers are commercial multiplex exhibitors. Since 2016, the commercial exhibition industry has undergone significant
consolidation, including AMC’s acquisition of Carmike Cinemas and Odeon, which includes Nordic and Cineworld’s acquisition of Regal. Exhibitor
concentration has resulted in certain exhibitor chains constituting a material portion of the Company’s network and revenue. For instance, Wanda is the
Company’s largest exhibitor customer, representing approximately 10% of the Company’s total revenues in 2023. As of December 31, 2023, through the
Company’s partnership with Wanda, there were 376 IMAX Systems operational in Greater China and Wanda represented approximately 21% of the
commercial network and 4% of the Company’s backlog. The share of the Company’s revenue that is generated by Wanda is expected to continue to grow as
the number of IMAX Systems in backlog with Wanda are opened. No assurance can be given that significant customers such as Wanda will continue to
purchase IMAX 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 Wanda or other large exhibitor chains less frequently or on less favorable terms than currently, the Company’s business,
financial condition or results of operations may be adversely affected. In addition, an adverse economic impact on a significant customer’s business
operations could have a corresponding material adverse effect on the Company.
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The Company also receives revenues from studios releasing IMAX films. Hollywood studios have also experienced consolidation, as evidenced by the
Walt Disney Company’s acquisition of certain studio assets from Twenty First Century Fox in 2019. Studio consolidation could result in individual studios
comprising a greater percentage of the Company’s film slate and overall IMAX Film Remastering revenue, and could expose the Company to the same
risks described above in connection with exhibitor consolidation.
Failure to respond adequately or in a timely fashion to changes and advancements in technology could negatively affect the Company’s business.
In order to keep pace with changes and advancements in digital technology and in order to continue to provide an experience that is premium to and
differentiated from conventional entertainment 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. A significant
portion of the Company’s research and development efforts have been focused on its laser-based projection systems. The Company’s recent research and
development efforts have also focused on image enhancement technology, developing technologies and systems to help bring additional interactivity to its
global IMAX network. 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.
Furthermore, in September 2022, with the acquisition of SSIMWAVE, a leader in AI-driven video quality solutions for media and entertainment
companies, there is ongoing research and development in perceptual metrics including novel measurement and optimization techniques. Artificial
intelligence technologies and their use are currently undergoing rapid change. If the Company fails to enhance its current AI products and develop new
products in response to changes in technology or industry standards, or the Company fails to bring product enhancements or new product developments to
market quickly enough, the Company’s AI products could rapidly become less competitive or obsolete.
The introduction of new, competing products and technologies could harm the Company’s business.
The entertainment industry is very competitive. The Company faces competition both in the form of technological advances in in-home entertainment,
as well as those within the out-of-home entertainment, including the theater-going experience. For example, according to research conducted by Omdia,
there were approximately 42,000 conventional-sized screens in North American commercial multiplexes in 2022. In addition, exhibitors and entertainment
technology companies have 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 similar quality or attributes as an IMAX System. The Company competes with entertainment and
media companies with new technologies and/or substantially greater capital resources to develop and support them. The Company may be unable to
continue to produce theater systems or provide experiences which are premium to, or differentiated from, other theater systems or entertainment
experiences, respectively. Furthermore, many of the Company’s commercial exhibitor customers are reliant on the availability of retail shopping malls at
physical locations, which compete with other forms of retailing such as online retail websites, and may be adversely affected by the changes in the retail
shopping landscape and consumer purchasing pattern. In return, the Company may be adversely affected by the challenges faced by its exhibitor customers.
As noted above, the Company faces in-home competition from a number of alternative motion picture distribution channels such as home video,
streaming services, video-on-demand, internet, and broadcast and cable television. The average exclusive theatrical release window for Hollywood titles
has decreased over the years, and there can be no assurance that this release window, which is determined by the movie studios, will not shrink further
which could have an adverse impact on the Company’s business and results of operations. In addition, as a result of the COVID-19 pandemic and related
movie theater closures, in 2020 and 2021, a number of films were released directly or concurrently to streaming services the same day as to theaters. Most
major film studios have since recommitted to exclusive theatrical releases for blockbuster movies. However, there can be no assurance that direct or
concurrent release to streaming services will not resume or increase in the future, intensifying in-home competition. 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.
If the Company is unable to continue to produce a differentiated theater experience, consumers may be unwilling to pay the price premiums associated
with the cost of IMAX tickets and box office performance of IMAX films may decline. The declining box-office performance of IMAX films could
materially and adversely harm the Company’s business and prospects.
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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 Systems and digital and film technology, video quality assessment and image
enhancement. 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 the future growth of the Company is anticipated to come from foreign jurisdictions. The Company may develop
proprietary technology or knowledge, including AI-generated works, that are not entitled to intellectual property protection. 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 patents issued and patent applications pending, including those covering its digital projector, digital conversion technology, laser
illumination technology, and other inventions relating to imaging technology and video quality assessment. 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 advantage. The
patent applications may also be challenged by third parties. Several of the Company’s issued patents expire between 2024 and 2041. If the Company’s
patent claims are rendered invalid or unenforceable, or narrowed in scope, the patent coverage afforded the Company’s products and services could be
impaired, which could negatively affect its competitive position. In addition, competitors and other third-parties may be able to circumvent or design
around the Company’s patents and may develop and obtain patent protection for more effective technologies. If these developments were to occur, it could
have an adverse effect on the Company’s sales or market position.
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. If the Company chooses to go to court to stop a third-party from infringing its intellectual property, that third-party
may ask the court to rule that the Company’s intellectual property rights are invalid and/or should not be enforced against that third-party.
The Company relies upon trade secrets and other confidential and proprietary know how to develop and maintain the Company’s competitive position.
While it is the Company’s policy to enter into agreements imposing nondisclosure and confidentiality obligations upon its employees and third-parties to
protect the Company’s intellectual property, these obligations may be breached, may not provide meaningful protection for the Company’s trade secrets or
proprietary know-how, or adequate remedies may not be available in the event of an unauthorized access, use or disclosure of the Company’s trade secrets
and know-how. Furthermore, despite the existence of such nondisclosure and confidentiality agreements, or other contractual restrictions, the Company
may not be able to prevent the unauthorized disclosure or use of its confidential proprietary information or trade secrets by consultants, vendors and
employees. In addition, others could obtain knowledge of the Company’s trade secrets through independent development or other legal means.
The IMAX brand stands for the highest quality and most immersive entertainment experiences. Protecting the IMAX brand is a critical element in
maintaining the Company’s relationships with studios and its exhibitor clients and building and maintaining brand loyalty and recognition. 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. In addition, if any of the Company’s registered or unregistered
trademarks, trade names or service marks is challenged, infringed, circumvented, declared generic or determined to be infringing on other marks, it could
have an adverse effect on the Company’s sales or market position.
The Company may be subject to claims of infringement of third-party intellectual property rights that are costly to defend, result in the diversion of
management’s time and efforts, require the payment of damages, limit the Company’s ability to use particular technologies in the future or prevent the
Company from marketing its existing or future products and services.
The Company’s commercial success will depend in part on not infringing, misappropriating, or violating the intellectual property rights of others. A
third-party could assert a claim against the Company for alleged infringement of its patent, copyright, trademark, or other intellectual property rights,
including in relation to technologies that are important to the Company’s business. The Company may not be aware of whether its products or services do
or will infringe existing or future patents or the intellectual property rights of others. In addition, there can be no assurance that one or more of The
Company’s competitors who have developed competing technologies or the Company’s other competitors will not be granted patents for their technology
and allege that the Company has infringed.
24
Any claims that the Company’s business infringes the intellectual property rights of others, regardless of the merit or resolution of such claims, could
entail significant costs in responding to, defending, and resolving such claims. An adverse determination in any intellectual property claim could require
the Company to pay damages and/or stop using its technologies, trademarks, copyrighted works, and other material found to be in violation of another
party’s rights and could prevent the Company from licensing its technologies to others unless the Company enters into royalty or licensing arrangements
with the prevailing party or are able to redesign its products and services to avoid infringement. Such a license may not be available on reasonable terms, if
at all, and there can be no assurance that the Company would be able to redesign its services in a way that would not infringe the intellectual property rights
of others. Any payments the Company is required to make and any injunction the Company is required to comply with as a result of any infringement could
harm its reputation and financial results.
RISKS RELATED TO THE COMPANY’S REVENUES, EARNINGS, AND FINANCIAL POSITION
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 IMAX System
installations and GBO performance of IMAX films 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 IMAX 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 network;
the demand for, and acceptance of, the Company’s products and services;
the recognition of revenue of sale and sales-type leases;
the classification of leases as sales-type versus operating;
the volume of orders received and that can be filled in the period;
the level of its sales backlog;
the signing of film distribution agreements;
the financial performance of IMAX Systems operated by the Company’s customers;
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 success thereof; 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 Film Remastering revenue, which would harm operating results for a
particular period.
The Company’s systems revenue can vary significantly from its cash flows under IMAX System sales or lease agreements.
The Company’s systems revenue can vary significantly from the associated cash flows. The Company often provides financing to customers for IMAX
Systems on a long-term basis through long-term sale or lease arrangements. The terms of leases or financing receivables are typically 10 to 12 years. The
sale and sales-type lease agreements for IMAX Systems typically provide for three major sources of cash flow:
•
initial fees, which are paid in installments generally commencing upon the signing of the agreement until installation of the IMAX System;
25
•
•
ongoing fees, which are paid monthly after the IMAX System has been opened to the public 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 IMAX System sales or sales-type lease agreements for a theater arrangement.
For sale and sales-type leases, the revenue recorded is generally equal to the sum of initial fees and the present value of any future initial payments, and
fixed minimum ongoing payments. Sales arrangements also include an estimate of future variable consideration due under the agreement. Cash received
from initial fees in advance of meeting the revenue recognition criteria for the IMAX Systems is recorded as deferred revenue.
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 fixed minimum ongoing payments are recognized as revenue on a straight-line basis over the lease term. Contingent payments in excess of
fixed minimum ongoing payments are recognized as revenue when reported by theater operators, provided collectability is reasonably assured.
As a result of the above, the revenue set forth in the Company’s Consolidated 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 may not convert all of its backlog into revenue and cash flows.
As of December 31, 2023, the Company’s backlog included 450 IMAX Systems, consisting of 164 IMAX Systems under sales or lease arrangements
and 286 IMAX Systems under joint revenue sharing arrangements. The Company lists signed contracts for IMAX Systems for which revenue has not been
recognized as backlog prior to the time of revenue recognition. The total value of the backlog represents all signed IMAX System sale or lease agreements
that are expected to be recognized as revenue in the future and includes initial fees along with the estimated present value of contractual ongoing fees due
over the term, and a variable consideration estimate for the IMAX Systems under sales arrangements, but it excludes amounts allocated to maintenance and
extended warranty revenues. Notwithstanding the legal obligation to do so, some of the Company’s customers with which it has signed contracts may not
accept delivery of IMAX Systems that are included in the Company’s backlog. An economic or industry downturn may exacerbate the risk of customers
not accepting delivery of IMAX Systems. Any reduction in backlog could adversely affect the Company’s future revenues and cash flows. In addition,
customers with system obligations in backlog sometimes request that the Company agree to modify or reduce such obligations, which the Company has
agreed to do in the past under certain circumstances. Customer-requested delays in the installation of IMAX Systems in backlog remain a recurring and
unpredictable part of the Company’s business.
The Company’s inability to enter into renewals of new sales and lease agreements on favorable terms or at all would adversely affect its cash flows
and operating results.
Approximately 7% of the Company’s sales and lease agreements are due to expire in the next 12 months. If these agreements are not renewed, or if the
Company is unable to enter into new leases agreements comparable to those currently in effect in a timely manner, then the Company’s systems revenue
could be adversely affected.
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 distribution 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 it is owed in a timely fashion may be impaired. The Company’s contractual ability to audit IMAX locations may
not rectify payments lost or delayed as a result of customers not fulfilling their contractual obligations with respect to financial reporting.
26
There is collection risk associated with payments to be received over the terms of the Company’s IMAX 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 be subject to impairment losses on its film assets if such assets do not meet management’s estimates of total revenues.
The Company amortizes its film assets, including IMAX Film Remastering 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 will include the amortization of the Company’s film assets and may be significantly affected by periodic
adjustments in amortization rates.
The Company may be subject to impairment losses on its inventories if they become obsolete.
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 IMAX System contracts, technological developments, signings in negotiation and anticipated
market acceptance of the Company’s current and pending IMAX 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 share 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.
27
RISKS RELATED TO THE COMPANY’S COMMON SHARES
The market price for the Company’s common shares has historically been volatile and declines in market price, 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 shares, 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.
Because the Company is incorporated in Canada, it may be difficult for plaintiffs to enforce against the Company liabilities based solely upon
United States 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 United States plaintiffs to effect
service within the United States upon those directors or officers who are not residents of the United States, or to obtain or enforce against them or the
Company judgments of United States courts predicated solely upon civil liability under the United States 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 United States federal
securities laws.
RISKS RELATED TO THE COMPANY’S INDEBTEDNESS
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 its ability to engage in acts that may be in the
Company’s long-term best interests.
28
The Company’s indebtedness and liabilities could limit the cash flow available for its operations, and expose the Company to risks that could
adversely affect its business, financial condition, and results of operations.
As of December 31, 2023, the Company had approximately $389.5 million of consolidated indebtedness and liabilities. The Company may also incur
additional indebtedness to meet future financing needs. The Company’s indebtedness could have significant negative consequences for its security holders
and its business, results of operations and financial condition by, among other things:
•
•
•
•
•
•
increasing its vulnerability to adverse economic and industry conditions;
limiting its ability to obtain additional financing;
requiring the dedication of a substantial portion of its cash flow from operations to service its indebtedness, which will reduce the amount of
cash available for other purposes;
limiting its flexibility to plan for, or react to, changes in its business;
diluting the interests of its shareholders as a result of issuing common shares upon conversion of the 0.500% Convertible Senior Notes due
2026 (the “Convertible Notes”); and
placing the Company at a possible competitive disadvantage with competitors that are less leveraged than the Company or have better access
to capital.
The Company’s business may not generate sufficient funds, and the Company may otherwise be unable to maintain sufficient cash reserves, to pay
amounts due under its indebtedness, and the Company’s cash needs may increase in the future. In addition, the Credit Agreement contains, and any future
indebtedness that the Company incurs may contain, financial and other restrictive covenants that limit its ability to operate, raise capital or make payments
under its other indebtedness. If the Company fails to comply with these covenants or to make payments under its indebtedness when due, then the
Company would be in default under that indebtedness, which could, in turn, result in that and the Company’s other indebtedness becoming immediately
payable in full. A description of the Company’s outstanding indebtedness is provided in Note 14 to Consolidated Financial Statements in Part II, Item 8.
The Company may be unable to raise the funds necessary to repurchase the Convertible Notes for cash following a fundamental change, or to pay
the cash amounts due upon conversion, and the Company’s other indebtedness may limit its ability to repurchase the Convertible Notes or pay cash
upon their conversion.
Noteholders may, subject to a limited exception described in the indenture governing the Convertible Notes, require the Company to repurchase their
Convertible Notes following a fundamental change at a cash repurchase price generally equal to the principal amount of the Convertible Notes to be
repurchased, plus accrued and unpaid interest, if any. In addition, all conversions of Convertible Notes will be settled partially or entirely in cash. The
Company may not have enough available cash or be able to obtain financing at the time it is required to repurchase the Convertible Notes or pay the cash
amounts due upon conversion. In addition, applicable law, regulatory authorities and the agreements governing the Company’s other indebtedness may
restrict the Company’s ability to repurchase the Convertible Notes or pay the cash amounts due upon conversion. The Company’s failure to repurchase
Convertible Notes or pay the cash amounts due upon conversion when required will constitute a default under the indenture governing the Convertible
Notes. A default under the indenture or the fundamental change itself could also lead to a default under agreements governing the Company’s other
indebtedness, which may result in that other indebtedness becoming immediately payable in full. The Company may not have sufficient funds to satisfy all
amounts due under its other indebtedness and the Convertible Notes.
Provisions in the indenture could delay or prevent an otherwise beneficial takeover of the Company.
Certain provisions in the Convertible Notes and the related indenture could make a third-party attempt to acquire the Company more difficult or
expensive. For example, if a takeover constitutes a fundamental change, then noteholders will have the right to require the Company to repurchase their
Convertible Notes for cash. In addition, if a takeover constitutes a make-whole fundamental change, then the Company may be required to temporarily
increase the conversion rate of the Convertible Notes. In either case, and in other cases, the Company’s obligations under the Convertible Notes and the
indenture could increase the cost of acquiring the Company otherwise discourage a third party from acquiring the Company or removing incumbent
management, including in a transaction that noteholders or holders of the Company’s common shares may view as favorable.
29
The Company is subject to counterparty risk with respect to the Capped Call Transactions, and the capped call may not operate as planned.
In connection with the issuance of the Convertible Notes, the Company entered into privately negotiated capped call transactions with option
counterparties (the “Capped Call Transactions”). The Capped Call Transactions are expected to reduce potential dilution resulting from the common shares
the Company is required to issue and/or to offset any potential cash payments the Company is required to make in excess of the principal amount of the
Convertible Notes in the event that the market price per share of the Company’s common shares is greater than the strike price of the Capped Call
Transactions, with such reduction and/or offset subject to a cap. Collectively, the Capped Call Transactions cover, subject to anti-dilution adjustments
substantially similar to those applicable to the Convertible Notes, the number of the Company’s common shares underlying the Convertible Notes.
The option counterparties are financial institutions, and the Company will be subject to the risk that they might default under the Capped Call Transactions.
The Company’s exposure to the credit risk of the option counterparties will not be secured by any collateral. Global economic conditions have from time to
time resulted in the actual or perceived failure or financial difficulties of many financial institutions. If an option counterparty becomes subject to
insolvency proceedings, the Company will become an unsecured creditor in those proceedings with a claim equal to the Company’s exposure at that time
under our transactions with that option counterparty. The Company’s exposure will depend on many factors, but, generally, the increase in the Company’s
exposure will be correlated with increases in the market price or the volatility of its common shares. In addition, upon a default by an option counterparty,
the Company may suffer adverse tax consequences and more dilution than the Company currently anticipates with respect to its common shares. The
Company can provide no assurances as to the financial stability or viability of any option counterparty. In addition, the Capped Call Transactions are
complex, and they may not operate as planned. For example, the terms of the Capped Call Transactions may be subject to adjustment, modification or, in
some cases, renegotiation if certain corporate or other transactions occur. Accordingly, these transactions may not operate as the Company intends if it is
required to adjust their terms as a result of transactions in the future or upon unanticipated developments that may adversely affect the functioning of the
Capped Call Transactions.
GENERAL RISK FACTORS
The loss of one or more of the Company’s key personnel, or its failure to attract and retain its employee population, could adversely affect its
business.
The Company’s operations and prospects depend in large part on the performance and continued service of its senior management team. The
competition for experienced senior management in the Company’s industry is intense, and the Company may not find qualified replacements for any of
these individuals if their services are no longer available on the same terms or at all. 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.
In addition, the Company may experience challenges with respect to employee retention given the current competitive labor market. A number of
external factors beyond the Company’s control, including its industry’s highly competitive market for skilled workers and leaders, cost inflation,
development of non-compete laws, and workforce participation rates, may negatively affect the Company’s ability to retain and attract qualified employees.
If the Company experiences high attrition rates in its employee population, the results of our operations may be adversely affected.
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 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. More
information is provided in Critical Accounting Estimates within Management’s Discussion and Analysis of Financial Condition and Results of Operations
in Item 7.
Regulatory and market responses to climate change concerns may negatively impact our business and increase our operating costs.
Growing public concern about climate change has resulted in the increased focus of local, state, regional, national and international regulatory bodies on
climate change issues. As a result, climate change regulation and market reactions to climate change could adversely impact the Company’s business,
including the potential for an increase in climate risk assessment. Such enhanced governmental and societal attention to climate matters, including
expanding mandatory and voluntary reporting, diligence, and disclosure on topics such as climate change impacts, carbon emissions, water usage, waste
management, and risk oversight, could expand the nature, scope, and complexity of matters that the Company is required to control, assess, and report.
Furthermore, regulatory efforts to combat climate change could result in increases in the cost of raw materials, taxes, transportation and utilities for the
Company’s suppliers and vendors
30
which would result in higher operating costs for the Company and potentially impact the availability of components used in the Company’s systems. These
and other rapidly changing laws, regulations, policies, interpretations, and expectations may increase the cost of the Company’s compliance, divert
management attention, alter the environment in which it does business, and expose the Company to potentially significant fines or other penalties if it is
unable to comply with such laws, regulations or policies, any of which could have a material adverse effect on the Company’s business, results of
operations, and financial condition. In addition, the shift toward a lower-carbon economy, driven by policy regulations, low-carbon technology
advancement, consumer sentiment, and/or liability risks, may negatively impact the Company’s business and operating costs. However, the Company is
unable to predict at this time, the potential effects, if any, that any climate change initiatives may have on its business.
The Company’s business and financial results could be adversely affected by weather conditions and natural and man-made disasters.
Physical risks, including man-made disasters, such as infrastructure failures, structural collapse, fires, explosions, and acts of war and terror, as well as
weather conditions and natural disasters, such as earthquakes, droughts, floods, hailstorms, heavy or prolonged precipitation, wildfires, hurricanes, sea level
rise and others, affecting the IMAX global network or corporate locations, could harm the Company’s business. Additionally, the physical impacts of
climate change may cause occurrences of natural disasters to increase in frequency, severity and duration, magnifying the adverse impact of such
occurrences and the cost of insuring against them. The climates and geology of some of the regions in which the Company’s principal offices are located,
including California, present increased risks of adverse weather or natural disasters. Any such events in the future could disrupt the Company’s operations
and impact the Company’s ability to serve its customers.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Overview
The Company is not aware of any cybersecurity threats or incidents to date that have materially affected its strategy, results of operations, or financial
condition. However, the scope and impact of any future cybersecurity incident cannot be predicted with certainty. More information on how material
cybersecurity attacks may impact the Company’s business is provided in “Item 1A. Risk Factors”.
Cybersecurity Risk Management Framework
The Company employs a multi-faceted cybersecurity risk management framework, which is integrated into its enterprise risk management system. The
Company aligns its security policies and practices with the ISO 27001 framework and manages its cybersecurity risks through a dedicated information
security team, reporting to Mr. Preston. The information security team is tasked with, among other things, assessing, identifying and managing material
cybersecurity risks and overseeing the implementation of the Company’s cybersecurity strategy. The Company’s cybersecurity risk management includes,
but is not limited to, the following elements.
•
•
Risk Identification and Assessment:
o
The team conducts periodic risk assessments, which includes penetration testing and vulnerability scanning, on the Company’s
Information Technology (IT) infrastructure, systems, and networks to identify potential vulnerabilities, weaknesses, and risks, and
evaluates the potential impact of cybersecurity risks on the Company’s operations, financials, and business.
Risk Mitigation Measures:
o
The team implements and maintains a multi-layered defense approach to safeguard the Company’s information technology
infrastructure in accordance with industry best practices and updates the Company’s systems and software to address identified
vulnerabilities. The Company has also developed an incident response and disaster recovery plan to respond to cybersecurity
incidents.
•
Vendor Risk Management:
o
The Company evaluates the risk profile of its third-party service providers and may include cybersecurity enhancement or compliance
requirements in its service agreements, as needed. The information security team
31
periodically reviews key vendors and counterparties’ cybersecurity practices and may conduct audits or assessments at its discretion.
In addition, the Company has established clear lines of communication with key stakeholders, including executives, IT teams, employees, and
customers, to ensure transparency and an effective response to cybersecurity incidents. Furthermore, the information security team develops and provides
cybersecurity awareness training to the Company’s employees and regularly communicates updates on best cybersecurity practices and improvements in
the cybersecurity program.
The Company may use third-party programs and software and engage assessors, consultants, cybersecurity auditors, or other third parties to review, test,
and advise on improvements to the Company’s cybersecurity infrastructure.
Role of the Board of Directors
The Audit Committee oversees the Company’s risk management and assessment, including its mitigation strategies, and updates the entire Board on the
Company’s risk profile and exposures on an as needed basis. With respect to cybersecurity, the Company’s Chief Technology Officer (“CTO”) and Head of
Information Security updates the Audit Committee on at least an annual basis on matters such as external cybersecurity threats and attack trends; updates to
threat monitoring processes; the composition of the Company’s information security team; cybersecurity awareness training and testing; cybersecurity
strategy; cybersecurity metrics, and assessments the progress of cybersecurity programs; and the potential scope and impact of cybersecurity risks and
incidents on the Company’s operations and financial condition. The Audit Committee may also meet with management on an ad hoc basis to discuss and
review any material cybersecurity incidents or threats.
Role of Management
Management is responsible for managing risks and informing the Board of the Company’s material near- and long-term risks and risk management
strategies. Management presents the Company’s risk assessment, which includes its cybersecurity risks, to the Audit Committee on at least an annual basis.
The Chief Technology Officer (“CTO”) leads management’s assessment and management of cybersecurity risks. The Company’s Head of Information
Security leads the information security team, which is responsible for managing day-to-day cybersecurity risks and implementing and maintaining the
Company’s cybersecurity strategy. The Head of Information Security reports to and regularly briefs the CTO on cybersecurity matters, including results of
vulnerability testing and remediation, cyber incident responses, and progress on cybersecurity infrastructure initiatives. The CTO and Head of Information
Security update the Audit Committee about cybersecurity risks and any investigation of a material cybersecurity incident.
The Company’s current CTO has over 20 years of experience in senior technology leadership roles, involving oversight of all aspects of technology
development and technical operations, including cybersecurity.
The Company’s current Head of Information Securities has over 20 years of experience in cybersecurity roles, including in cybersecurity engineering,
information security assessment, and development and management of corporate security policies and governance problems.
32
Item 2. Properties
The Company’s principal executive offices are located in Mississauga, Ontario, Canada, New York, New York, and Playa Vista, California. As of
December 31, 2023, the Company’s principal facilities are as follows:
Operation
Own/Lease
Expiration
Mississauga, Ontario
(1)
Playa Vista, California
New York, New York
Tokyo, Japan
Shanghai, China
Waterloo, Ontario
Dublin, Ireland
London, United Kingdom
Headquarters, Administrative, Assembly, Research and Development,
and Maintenance Services
Sales, Marketing, Film Production and Post-Production
Executive
Sales, Marketing, and Maintenance Services
Sales, Marketing, Maintenance Services, and Administrative
Sales, Marketing, Administrative, and Research and Development
Sales, Marketing, Administrative, and Research and Development
Sales
Own
Own
Lease
Lease
Lease
Lease
Lease
Lease
N/A
N/A
2029
2024
2029
2024
2026
2024
(1) This facility is subject to a charge in favor of Wells Fargo Bank in connection with a secured revolving credit facility. More information is provided in
Note 14 to Consolidated Financial Statements in Part II, 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.
Item 3. Legal Proceedings
Refer to Note 16 to Consolidated Financial Statements in Part II, Item 8.
Item 4. Mine Safety Disclosures
Not applicable.
33
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
The Company’s common shares are traded on the NYSE under the symbol “IMAX”.
As of January 31, 2024, the Company had approximately 231 registered holders of record of its common shares.
PART II
Over the last few 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 14 to Consolidated
Financial Statements in Part II, Item 8). The payment of any future dividends will be determined by the Board 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.
The Company grants two types of performance stock units (“PSU”), one which vests based on a combination of employee service and the achievement
of certain Adjusted EBITDA targets, and one which vests based on a combination of employee service and the achievement of total shareholder return
(“TSR”) targets. The achievement of the Adjusted EBITDA and TSR targets in these PSUs is determined over a three-year performance period. At the
conclusion of the three-year performance period, the number of PSUs that ultimately vest can range from 0% to a maximum vesting opportunity of 175%
of the initial Adjusted EBITDA PSU award or 150% of the initial TSR PSU award depending upon actual performance versus the established Adjusted
EBITDA and TSR, respectively.
Equity Compensation Plans
The following table sets forth information regarding the Company’s Equity Compensation Plan as of December 31, 2023:
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
(1)
(A)
Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants and Rights
Weighted Average
Exercise Price of
Outstanding Options,
(2)
Warrants and Rights
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected
in Column (A))
5,538,873 $
nil
5,538,873 $
15.77
nil
15.77
4,895,941
nil
4,895,941
(1) The number of securities to be issued upon exercise of outstanding options, warrants, and rights excludes 668,708 common shares that may be issued
with respect to PSUs outstanding, assuming full achievement of the Adjusted EBITDA and TSR targets.
(2) The weighted average exercise price is calculated based solely on outstanding stock options and does not take into account common shares that are
subject to outstanding RSUs and PSUs, which do not have an exercise price.
34
Performance Graph
The following graph compares the total cumulative shareholder return for $100 invested on December 31, 2018 (assuming 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 to the end of the most recently completed fiscal year. The IMAX Peer Group consists of Ambarella, Inc., Cinemark Holdings, Inc.,
Cineplex Inc., Dolby Laboratories, Inc., Harmonic Inc., Knowles Corporation, Lions Gate Entertainment Corp., The Marcus Corporation, and WildBrain
Ltd. The performance period includes the COVID-19 pandemic, which significantly impacted the out-of-home entertainment industry. The impact of the
pandemic on the Company’s operations are discussed elsewhere herein.
35
Issuer Purchases of Equity Securities
On June 12, 2017, the Company announced that the Board approved a $200.0 million share repurchase program for its common shares that would have
initially expired on June 30, 2020, which was subsequently extended and increased in the total share repurchase authority to $400.0 million. In 2023, the
Company’s Board approved a 36-month extension to its share repurchase program through June 30, 2026. As of December 31, 2023, the Company had
$167.0 million authorized for repurchase under its approved share repurchase program. The repurchases may be made either in the open market or through
private transactions, including repurchases made pursuant a plan intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as
amended, subject to market conditions, applicable legal requirements, and other relevant factors. The Company has no obligation to repurchase shares and
the share repurchase program may be suspended or discontinued by the Company at any time. During the three months ended December 31, 2023, the
Company repurchased 1,459,948 common shares at an average price of $16.55 per share, for a total of $24.2 million, excluding commissions, of which
108,393 were common shares where settlement occurred subsequent to December 31, 2023, at an average price of $14.98 per share, for a total of $1.6
million, excluding commission.
As of December 31, 2023 and December 31, 2022, the IMAX LTIP trustee did not hold any shares. Any shares held with the trustee are recorded at cost
and are reported as a reduction against Capital Stock on the Company's Consolidated Balance Sheets.
Subsequent to December 31, 2023 and through February 26, 2024, the Company completed repurchases through a 10b5-1 program of 1,158,724 shares
at an average of $13.99 per share, for a total cost of $16.2 million, excluding commission.
The Company’s common share repurchase program activity for the three months ended December 31, 2023 was as follows:
October 1 through October 31, 2023
November 1 through November 30, 2023
December 1 through December 31, 2023
Total
Total number of
shares purchased
Average price paid
per share
Total number of
shares purchased
as part of publicly
announced program
Maximum value of
shares that may yet
be purchased under
the program
350,058 $
715,080
394,810
1,459,948 $
17.89
16.76
14.96
16.54
350,058 $
715,080
394,810
1,459,948
184,936,439
172,950,160
167,042,020
In 2022, IMAX China’s shareholders granted its Board of Directors (the “IMAX China Board”) a general mandate authorizing the IMAX China Board,
subject to applicable laws, to repurchase shares of IMAX China not to exceed 10% of the total number of issued shares as of June 23, 2022 (34,063,480
shares). This program expired on the date of the 2023 Annual General Meeting of IMAX China on June 7, 2023. During the 2023 Annual General Meeting,
shareholders approved the repurchase of shares of IMAX China not to exceed 10% of the total number of shares as of June 7, 2023 (33,959,314 shares).
This program will be valid until the 2024 Annual General Meeting of IMAX China. The repurchases may be made in the open market or through other
means permitted by applicable laws. IMAX China has no obligation to repurchase its shares and the share repurchase program may be suspended or
discontinued by IMAX China at any time. During the three months ended December 31, 2023, IMAX China repurchased 16,800 common shares at an
average price of HKD 7.11 per share ($0.91 per share) for a total of HKD 0.1 million or less than $0.1 million.
For the years ended December 31, 2023 and 2022, there were no shares purchases in the administration of employee share-based plans.
A summary of the material terms and conditions of the Company’s revolving credit facility, which include a limitation of the amount of permitted share
repurchases, is provided in Note 14 to Consolidated Financial Statements in Part II, Item 8.
Issuer Sales of Unregistered Securities
Refer to Note 17(c) to Consolidated Financial Statements in Part II, Item 8.
Item 6. Selected Financial Data
Reserved.
36
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
IMAX Corporation, together with its consolidated subsidiaries (the “Company” or “IMAX”) is a Canadian corporation that 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.
IMAX is a premier global technology platform for entertainment and events. Through its proprietary software, auditorium architecture, patented
intellectual property, and specialized equipment, IMAX offers a unique end-to-end solution to create superior, awe-inspiring immersive content
experiences for which the IMAX® brand is globally renowned. Top filmmakers, movie studios, artists, and creators utilize the cutting-edge visual and
sound technology of IMAX to connect with audiences in innovative ways. As a result, IMAX is among the most important and successful global
distribution platforms. The Company’s global content portfolio includes blockbuster films, both from Hollywood and local language film industries
worldwide; IMAX documentaries, both original and acquired (“IMAX Documentaries”); and IMAX events and experiences in emerging verticals including
music, gaming, and sports.
The Company leverages its proprietary technology and engineering in all aspects of its business, which principally consists of the IMAX film
remastering (“IMAX Film Remastering” and formerly known as “IMAX DMR”) and the sale or lease of premium IMAX theater systems (“IMAX
System(s)”).
IMAX Systems are based on proprietary and patented image, audio and other technology developed over the course of the Company’s history since its
founding in 1967. The customers for IMAX Systems are principally theatrical exhibitors that operate commercial multiplex theaters, and, to a much lesser
extent, museums, science centers and destination entertainment sites. The Company does not own the locations in the IMAX network, except for one, and
is not an exhibitor, but instead sells or leases the IMAX System to exhibitor customers along with a license to use its trademarks and ongoing maintenance
services for which there is an annual payment by the exhibitor to IMAX.
IMAX has the largest global premium format network, more than double the size of its nearest competitor. As of December 31, 2023, there were 1,772
IMAX Systems operating in 90 countries and territories, including 1,693 commercial multiplexes, 12 commercial destinations, and 67 institutional
locations in the Company’s global network. This compares to 1,716 IMAX Systems in 87 countries and territories as of December 31, 2022, including
1,633 commercial multiplexes, 12 commercial destinations, and 71 institutional locations in the Company’s global network. Additional information on the
composition of the IMAX network is provided in the discussion of IMAX Network and Backlog.
IMAX Systems provide the Company’s exhibitor customers with a combination of the following benefits:
•
•
•
•
•
•
•
the ability to exhibit content that has been enhanced through the IMAX Film Remastering, 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 auditorium 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;
advanced sound system components, which deliver more expansive sound imagery and pinpointed origination of sound to any specific spot in an
auditorium equipped with an IMAX System;
specialized theater acoustics, which result in a four-fold reduction in background noise;
ongoing maintenance and extended warranty services; and
a license to the globally recognized IMAX brand as well as benefits from IMAX marketing of films being shown in its network and IMAX’s
growing social media followership.
In addition, select movies shown in the IMAX network are filmed using proprietary IMAX film cameras or IMAX certified digital cameras, which offer
filmmakers customized guidance and a workflow process to provide further enhanced and differentiated image quality and an IMAX-exclusive film aspect
ratio that delivers up to 26% more image onto a standard IMAX movie screen. In select IMAX locations worldwide, movies filmed with IMAX cameras
have an IMAX-exclusive 1.43 film aspect ratio, with up to 67% more image.
37
Together, these components cause audiences in IMAX locations to feel as if they are a part of the on-screen action, creating a more intense, immersive,
and exciting experience than a conventional cinematic format.
As a result of the engineering and scientific achievements that are a hallmark of The IMAX Experience®, the Company’s exhibitor customers typically
charge a premium for films released in IMAX’s format versus films exhibited in their other auditoriums. The premium pricing, combined with the higher
attendance levels associated with IMAX 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 films combined with IMAX’s unmatched global network footprint and
scale has helped establish IMAX as the key premium distribution and marketing platform for Hollywood and foreign local language movie studios.
The Company achieved its second highest grossing year at the global box office (“GBO”) and its highest grossing year at the Domestic, United States
and Canada combined, box office in 2023. The year was highlighted by the Company’s highest grossing year for local language films, the $180.4 million in
IMAX box office generated by Christopher Nolan’s Oppenheimer, and strong indexing across titles including Super Mario Bros., Guardians of the Galaxy
Vol. 3, Spider-Man: Across the Spider-Verse, and Mission Impossible: Dead Reckoning.
A cornerstone of the IMAX brand for more than 50 years, IMAX recently relaunched its IMAX Documentaries unit to focus on a new generation of
narrative-driven original and acquired documentary films, as well as downstream revenue opportunities through partnerships with leading streaming
platforms. Additional forthcoming IMAX original documentaries include The Blue Angels and The Elephant Odyssey.
The Company also continues to evolve its platform to bring new, innovative events and experiences to audiences worldwide. During the year, the
Company partnered with A24 for the IMAX LiveTM 40th anniversary screening of Jonathan Demme’s Stop Making Sense at the Toronto International Film
Festival, which became the highest grossing IMAX Live event of all time. In January 2024, the Company and Pathé Live in partnership with Mercury
Studios and Queen Films released Queen Rock Montreal, a concert from 1981, exclusively in 450 IMAX locations globally.
As of December 31, 2023, the Company has a footprint of 252 connected locations in the IMAX network across North America, Europe, and Asia were
configured with connectivity to deliver live and interactive content with low latency and superior sight and sound.
As a premier global technology platform for entertainment and events, the Company strives to remain at the forefront of advancements in entertainment
technology. The Company offers a suite of laser-based digital projection systems (“IMAX Laser Systems”), which deliver increased resolution, sharper and
brighter images, deeper contrast, and the widest range of colors available to filmmakers today. The Company further believes that its suite of IMAX Laser
Systems are helping facilitate the next major renewal and upgrade cycle for the global IMAX network.
In September 2022, the Company acquired SSIMWAVE Inc. (“SSIMWAVE”), a leader in artificial intelligence (“AI”)-driven video quality solutions for
media and entertainment companies. The acquisition of SSIMWAVE marks a significant expansion of the Company’s streaming and consumer technology
strategy to deliver the highest quality images on any screen, while also creating cost efficiencies to streaming companies, broadcasters and other companies
that transmit visual data to drive new, recurring revenue and grow its global leadership in entertainment technology. In 2023, the Company formed a new
business unit, Streaming and Consumer Technology to focus on in-home entertainment technology. The business unit includes the streaming technology
acquired in the SSIMWAVE acquisition as well as IMAX Enhanced® products and services.
The Company utilizes AI for image enhancement, streaming technology, and data analysis to improve various aspects of its business. It is actively
exploring other global use cases for AI to improve its products, operations, and efficiency.
Commencing in March 2022, in response to numerous sanctions imposed by the United States, Canada and the European Union on companies
transacting in Russia and Belarus resulting from ongoing conflict between Russia and Ukraine, the Company suspended its operations in Russia and
Belarus. As of December 31, 2023, the IMAX network includes 54 systems in Russia, eight systems in Ukraine, and one system in Belarus, and the
Company’s backlog includes 14 systems in Russia, one system in Ukraine, and five systems in Belarus with a total fixed contracted value of $22.9 million.
In 2022, the Company recorded provisions for potential credit losses against substantially all of its receivables in Russia due to uncertainties associated
with the ongoing conflict. These receivables relate to existing sale agreements as the Company is not party to any joint revenue sharing arrangements in
these countries. In addition, exhibitors in Russia, Ukraine, and Belarus were placed on nonaccrual status for maintenance revenue and finance income. In
2023, due to the resumption of operations throughout Ukraine’s theatrical exhibition industry, as evidenced by the reopening of all IMAX Systems in
Ukraine and payments received from exhibitor customers therein, the Company recognized maintenance revenue and finance income in connection with
those theaters. The Company closely monitors geopolitical conflicts (including any government sanctions imposed in response thereto) and its effects on
the global economy and the Company. (Refer to “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 Part I, Item 1A, and Note 2(b) to Consolidated Financial Statements
in Part II, Item 8.)
38
On September 7, 2022, Cineworld Group plc (“Cineworld”), the parent company of Regal, and certain of its subsidiaries and Regal CineMedia
Holdings, LLC, filed petitions for reorganization under Chapter 11 of the United States Bankruptcy Code in the Southern District of Texas. The Court
approved Cineworld’s Plan of Reorganization (the “Plan”) on June 28, 2023, in which Cineworld disclosed that it plans to emerge from the Chapter 11
proceedings on or about July 28, 2023. On August 30, 2023, the Company and Cineworld entered into a Joint Stipulation and Agreed Order which was
entered by the Court on September 21, 2023 (the “Stipulation”) pursuant to which Cineworld assumed its global agreement with IMAX (the “Global
Agreement”). The Stipulation provides that all amounts owed to IMAX will be paid by Cineworld and set out a revised timetable for all systems
installations required of Cineworld under the Global Agreement. Cineworld has emerged from the Chapter 11 proceedings and the Stipulation finalizes all
matters between IMAX and Cineworld as a result of the restructuring. The Company has determined that no additional provision for expected credit losses
is required.
SOURCES OF REVENUE
The Company has organized its operating segments into the following two reportable segments: (i) Content Solutions, which principally includes
content enhancement and distribution services, and (ii) Technology Products and Services, which principally includes the sale, lease, and maintenance of
IMAX Systems. The Company’s activities that do not meet the criteria to be considered a reportable segment are disclosed within All Other. Additional
information is provided in Note 21 to the Consolidated Financial Statements in Part II, Item 8.
Content Solutions
The Content Solutions segment earns revenue principally from the digital remastering of films and other content into IMAX formats for distribution
across the IMAX network. To a lesser extent, the Content Solutions segment also earns revenue from the distribution of large-format documentary films
and IMAX events and experiences including music, gaming, and sports, as well as the provision of film post-production services.
Film Remastering and Distribution
IMAX Film Remastering is a proprietary technology that digitally remasters films and other content into IMAX formats for distribution across the
IMAX network. In a typical film remastering and distribution arrangement, the Company receives a percentage of the box office receipts from a movie
studio in exchange for converting a commercial film into the IMAX format and distributing it across the IMAX network. The fee earned by the Company
in a typical film remastering and distribution arrangement averages approximately 12.5% of box office receipts (i.e., GBO less applicable sales taxes),
except for within Greater China, where the Company receives a lower percentage of net box office receipts for certain Hollywood films due to an import
tax.
IMAX Film Remastering digitally enhances the image resolution of 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. In addition, the original soundtrack of a film to be exhibited across the
IMAX network is remastered for IMAX digital sound systems. IMAX remastered soundtracks are uncompressed for full fidelity. IMAX sound systems use
proprietary loudspeaker systems and proprietary surround sound configurations that ensure every seat in an auditorium is an optimal listening position.
IMAX films also benefit from enhancements made by individual filmmakers exclusively for the IMAX release of the film. Collectively, the Company
refers to these enhancements as “IMAX DNA.” Filmmakers and movie studios have sought IMAX-specific enhancements in recent years to generate
interest in and excitement for their films. Such enhancements include shooting films with IMAX cameras to increase the audience’s immersion in the film
and to take advantage of the unique dimensions of the IMAX screen by projecting the film in a larger aspect ratio that delivers up to 26% more image onto
a standard IMAX movie screen. In select IMAX locations worldwide, movies filmed with IMAX cameras have an IMAX-exclusive 1.43 film aspect ratio,
delivering up to 67% more image. The Company has a Filmed For IMAX® program for select films under which filmmakers craft films from their
inception in numerous ways to optimize The IMAX Experience. The program includes incremental and bespoke marketing support, which box office
metrics demonstrate audiences respond extremely favorably to, and drives higher market share for IMAX.
Management believes that growth in international box office remains an important driver of growth for the Company. To support continued growth in
international markets, the Company is focused on the expansion of the IMAX network and has sought to elevate its international film strategy,
supplementing its slate of Hollywood films with appealing local language films released in select markets, including China, Japan, India, France and South
Korea. More recently, the Company has further diversified its strategy by distributing local language films in both native and foreign markets.
39
The following table provides detailed information about the films that were released to the Company’s global network during the years ended December
31, 2023 and 2022:
(1)
Hollywood film releases
Local language film releases:
China
Japan
South Korea
India
France
Malaysia
Thailand
Indonesia
Total local language film releases
(2)(3)
Total film releases
For the Years Ended December 31,
2023
2022
36
28
11
9
8
1
1
1
—
59
95
32
15
8
5
6
1
—
—
1
36
68
(1)
Includes one re-released film for the year ended December 31, 2023 (2022 — five).
(2) For the year ended December 31, 2023, the films released to the Company’s global network include eight with IMAX DNA (2022 — 12).
(3) Excludes three Alternative Content Experiences in 2023 (2022 — seven).
The films distributed through the Company’s global network during the year ended December 31, 2023 include Oppenheimer, The Super Mario Bros.
Movie, The Wandering Earth 2, Guardians of the Galaxy Vol.3, Mission: Impossible - Dead Reckoning Part One, Ant-Man and the Wasp: Quantumania,
Fast X, Creation of the Gods I: Kingdom of Storms, Spider-Man: Across the Spider-Verse, and Aquaman and the Lost Kingdom.
To date, in 2024, 18 titles have been released to the global IMAX network, including three re-releases, and the Company has announced the following
additional 24 titles to be released in 2024:
Title
Dune: Part II
Kung Fu Panda 4
Ghostbusters: Frozen Empire
Godzilla x Kong: The New Empire
Civil War
Spy x Family Code:White
The Fall Guy
Kingdom of The Planet of The Apes
Furiosa
Bad Boys 4
Inside Out 2
A Quiet Place: Day One
Despicable Me 4
Twisters
Deadpool & Wolverine
Alien: Romulus
Kraven the Hunter
Beetlejuice 2
Transformers One
Wolfs
Joker: Folie à Deux
Venom 3
Untitled Gladiator Sequel
Wicked – Part 1
Studio
Warner Bros. Pictures/Legendary Pictures
Universal Pictures
Sony Pictures
Warner Bros. Pictures/Legendary Pictures
A24
Sony Pictures/Crunchyroll
Universal Pictures
Walt Disney Studios
Warner Bros. Pictures
Sony Pictures
Walt Disney Studios/Pixar Animation Studios
Paramount Pictures
Universal Pictures
Universal Pictures/Warner Bros. Pictures
Marvel Studios/Walt Disney Studios
Walt Disney Studios
Sony Pictures/Marvel Studios
Warner Bros. Pictures
Paramount Pictures
Sony Pictures/Apple
Warner Bros. Pictures/DC Studios
Sony Pictures
Paramount Pictures
Universal Pictures
(1)
Scheduled
Release Date
March 2024
March 2024
March 2024
April 2024
April 2024
April 2024
May 2024
May 2024
May 2024
June 2024
June 2024
June 2024
July 2024
July 2024
July 2024
August 2024
August 2024
September 2024
September 2024
September 2024
October 2024
November 2024
November 2024
November 2024
IMAX DNA
Filmed For IMAX
—
—
Filmed For IMAX
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Filmed For IMAX
Filmed For IMAX
—
—
(1) The scheduled release dates in the table above are subject to change, may vary by territory, and may not reflect the date(s) of limited premiere events.
40
The Company remains in active negotiations with studios for additional films to fill out its short- and long-term film slate for the IMAX network. The
Company also expects to announce additional local language films and exclusive IMAX events and experiences to be released to its global network
throughout 2024 with an expectation to exceed the 59 local language films released in 2023.
Other Content Solutions
The Company distributes large-format documentary films, primarily to institutional theaters. The Company receives as its distribution fee either a fixed
amount or a fixed percentage of the box office receipts and, following the recoupment of its costs, is typically entitled to receive an additional percentage as
participation revenues.
The Company continues to believe that the IMAX network serves as a valuable platform to launch and distribute original content. The ownership rights
to such films may be held by the film sponsors, the film investors and/or the Company. As of December 31, 2023, the Company has distribution rights with
respect to approximately 60 films, which cover subjects such as space, wildlife, music, sports, history and natural wonders.
In May 2023, the Company announced that Amazon Studios acquired worldwide rights to the Company’s original documentary, The Blue Angels,
filmed with IMAX digital certified cameras, and produced in collaboration with Dolphin Entertainment, Bad Robot Productions, and Zipper Bros Films.
The documentary is expected to be delivered in the second quarter of 2024. In October 2023, Deep Sky, a documentary on NASA’s Webb Telescope in
collaboration with Crazy Boat Pictures Ltd. and filmmaker Nathaniel Kahn, was released to the IMAX network. In July 2023, the Company also
announced the start of production of The Elephant Odyssey, a documentary in collaboration with Beach House Pictures Pte Ltd and China International
Communications Group, which is expected to be released in 2025.
In addition, the Company continues to evolve its platform to bring new, innovative IMAX events and experiences to audiences worldwide. As of
December 31, 2023, the Company has a footprint of 252 connected locations in the IMAX network across the United States, Canada, Europe, and Asia
configured with connectivity to deliver live and interactive events with low latency and superior sight and sound.
In 2023, the Company partnered with Metro-Goldwyn-Studios Inc. (“MGM”) for an IMAX premiere event, consisting of red carpet interviews and
behind the scenes footage, followed by a special advanced screening of Creed III, which was released across the IMAX global network. The Company also
hosted a reunion of the iconic band Talking Heads at the Toronto International Film Festival, followed by a screening of Stop Making Sense, before the
movie was released to the IMAX network more broadly. This became the highest grossing IMAX Live event of all time. These events were broadcast live
to much of the IMAX Domestic connected network. In January 2024, the Company and Pathé Live in partnership with Mercury Studios and Queen Films
released Queen Rock Montreal, a concert from 1981, exclusively in 450 IMAX locations globally.
The Company also provides film post-production and quality control services for large-format films, whether produced by IMAX or third parties, and
digital post-production services. In addition, the Company also provides IMAX film and digital cameras to content creators under the IMAX certified
camera program.
Technology Products and Services
The Technology Product and Services segment earns revenue principally from the sale or lease of IMAX Systems, as well as from the maintenance of
IMAX Systems. To a lesser extent, the Technology Product and Services segment also earns revenue from certain ancillary theater business activities,
including after-market sales of IMAX System parts and 3D glasses.
Sales Arrangements
The Company provides IMAX Systems to exhibitors through sale arrangements or long-term lease arrangements that for accounting purposes are
classified as sales-type leases. Under these arrangements, in exchange for providing the IMAX System, the Company earns initial fees and ongoing
consideration, which can include fixed annual minimum payments and contingent fees in excess of the minimum payments, as well as maintenance and
extended warranty fees (see “IMAX Maintenance” below). The initial fees vary depending on the system configuration and location of the IMAX System.
Initial fees are paid to the Company in installments typically between the time of signing the arrangement and the time of system installation. Once an
IMAX System is installed, the initial fees and the present value of future annual minimum payments, which are financing fees, are recognized as revenue.
In addition, in sale arrangements, the present value of the estimated contingent fees that may become due if certain annual minimum box office receipt
thresholds are exceeded is recorded as revenue in the period when the sale is recognized and is adjusted in future periods based on actual results and
changes in estimates. Such variable consideration is only recognized on sales transactions to the extent the Company believes there is not a risk of
significant revenue reversal. Finance income is recognized over the term of a financed sale or sales-type lease arrangement.
41
In sale arrangements, title to the IMAX System equipment generally transfers to the customer. However, in certain instances, the Company retains title
or a security interest in the equipment until the customer has made all payments required by the agreement or until certain shipment events for the
equipment have occurred. In a sales-type lease arrangement, title to the IMAX System equipment 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 IMAX System sale or sales-type lease agreements varies from quarter-to-quarter and year-to-
year based on a number of factors, including the number and mix of IMAX System configurations sold or leased, the timing of installation of the IMAX
Systems, the nature of the arrangement and other factors specific to individual contracts.
Joint Revenue Sharing Arrangements
The Company provides IMAX Systems to exhibitors through joint revenue sharing arrangements (“JRSA”). Under the traditional form of these
arrangements, the Company provides the IMAX System under a long-term lease in which the Company assumes the majority of the equipment and
installation costs. In exchange for its upfront investment, the Company, primarily, earns rent based on a percentage of contingent box office receipts rather
than a fixed upfront fee or fixed annual minimum payments. Rental payments from the customer are required throughout the term of the arrangement and
are typically due either monthly or quarterly. The Company retains title to the IMAX System equipment components throughout the lease term, and the
equipment is returned to the Company at the conclusion of the arrangement.
Under certain other joint revenue sharing arrangements, known as hybrid arrangements, the customer is responsible for making fixed upfront payments
prior to the delivery and installation of the IMAX System in an amount that is typically half of what the Company would receive from a typical sale
transaction. As with a traditional joint revenue sharing arrangement, the customer also pays the Company a percentage of contingent box office receipts
over the term of the arrangement, although this percentage is typically half that of a traditional joint revenue sharing arrangement. Hybrid joint revenue
sharing arrangements take the form of a sale. The fixed upfront payment is recognized when the lease term commences and is recorded within Revenues –
Technology Sales. The contingent rent is recognized as revenue over the lease term and is recorded within Revenues – Technology Rentals.
Under most joint revenue sharing arrangements (both traditional and hybrid), the initial non-cancellable term is 10 years or longer and is renewable by
the customer for one to two additional terms of between three to five years. The Company has the right to remove the equipment for non-payment or other
defaults by the customer. The contracts are non-cancellable by the customer unless the Company fails to perform its obligations.
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 that drive box office levels including film performance, the mix of IMAX System configurations, the timing of installation of IMAX
Systems, the nature of the arrangement, the location, size and management of the theater and other factors specific to individual arrangements.
Joint revenue sharing arrangements also require IMAX to provide maintenance and extended warranty services to the customer over the term of the
lease in exchange for a separate fixed annual fee. These fees are reported within IMAX Maintenance, as discussed below.
Joint revenue sharing arrangements have been an important factor in the expansion of the Company’s commercial system network. Joint revenue sharing
arrangements allow commercial theater exhibitors to install IMAX 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 these arrangements
pay the Company a portion of their ongoing box office receipts. The Company funds its investment in equipment for joint revenue sharing arrangements
through cash flows from operations. As of December 31, 2023, the Company had 924 locations under joint revenue sharing arrangements in its global
commercial multiplex network. The Company also had contracts in backlog for 286 systems under joint revenue sharing arrangements as of December 31,
2023, including 234 new locations and 52 upgrades to existing locations.
IMAX Maintenance
IMAX System arrangements also include a requirement for the Company to provide maintenance services over the life of the arrangement in exchange
for an extended warranty and annual maintenance fee paid by the exhibitor. Under these arrangements, the Company provides preventative and emergency
maintenance services 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 system agreements.
42
All Other
Streaming and Consumer Technology
Streaming and Consumer Technology includes the Company’s Streaming Technology software offerings and IMAX Enhanced product services.
Streaming Technology consists of several software products including:
•
•
•
IMAX Stream Smart – works within existing video compression workflows to reduce bitrates and retain picture quality across all devices and
formats and deliver significant cost savings.
IMAX StreamAware On-Demand – all-in-one quality assurance and quality control to automate and standardize checks for comprehensive
content integrity and regulatory compliance for third-party content libraries, across an entire video compression workflow.
IMAX StreamAware On-Air – real-time monitoring software for live streams, which enables users to monitor video quality across their
networks and to identify and address streaming issues.
These AI-powered products allow streaming platforms and broadcasters to automate workflows. The Company believes that these products allow users
to deliver the highest quality viewing experiences to their subscribers while reducing costs.
IMAX Enhanced is a solution to bring The IMAX Experience into the home. IMAX Enhanced provides end-to-end premium technology across
streaming content and best-in-class entertainment devices, offering consumers high-fidelity playback of image and sound in the home and beyond,
including the following features:
•
•
•
IMAX’s expanded aspect ratio, which is available on select titles and streaming platforms, including Disney+;
IMAX’s proprietary remastering technology, which produces more vivid, higher-fidelity 4K HDR images on premium televisions; and
IMAX’s signature sound, which was specially recreated and calibrated for the home to unlock more immersive audio.
To be certified as IMAX Enhanced, leading consumer electronics manufacturers spanning 4K/8K televisions, projectors, A/V receivers, loudspeakers,
soundbars, smartphones, personal computers, tablets, and more must meet a carefully prescribed set of audiovisual performance standards, set by a
certification committee, along with some of Hollywood's leading technical specialist.
At present, certified global device partners include Sony Electronics, Hisense, TCL, LG, Phillips, Hewlett Packard, Xiaomi, Sound United and Honor,
among others. As of December 31, 2023, more than 300 IMAX Enhanced titles have been released across five of the biggest streaming platforms
worldwide: Disney+, Sony Bravia CORE, Tencent Video, iQiyi and Rakuten TV. Over 15 million IMAX Enhanced certified devices are estimated to be in
the market today.
The Company's collaboration with Disney allows fans to stream 20 Disney titles in IMAX's expanded aspect ratio at home on Disney+. The presence of
IMAX Enhanced on Disney+ provides strong brand exposure for IMAX by expanding the Company’s in-home entertainment footprint to Disney+ and
most of its 150 million global subscribers. The Company believes that IMAX Enhanced enables an elevated end-to-end experience on Disney+, with
IMAX signature sound coming to subscribers with IMAX Enhanced certified devices. IMAX Enhanced is part of the Company's next evolutionary step to
extend the IMAX brand and technology further into new use cases, including streaming entertainment and the consumer electronics market.
(Refer to “Risk Factors ― Failure to respond adequately or in a timely fashion to changes and advancements in technology could negatively affect the
Company’s business.”)
Other
All Other also includes revenues from sources including one owned and operated IMAX System in Sacramento, California; a commercial arrangement
with one theater resulting in the sharing of profits and losses; the provision of management services to three other theaters; renting the Company’s
proprietary 2D and 3D large-format film cameras; and also offering production advice and technical assistance to both documentary and Hollywood
filmmakers.
43
IMAX NETWORK AND BACKLOG
IMAX Network
The following table provides detailed information about the IMAX network by system type and geographic location as of December 31, 2023 and 2022:
(1)
United States
Canada
Greater China
Asia (excluding Greater
China)
Western Europe
(2)
Latin America
Rest of the World
Total
(3)
December 31, 2023
December 31, 2022
Commercial
Multiplex
Commercial
Destination
Institutional
Total
Commercial
Multiplex
Commercial
Destination
Institutional
Total
363
42
791
166
126
60
145
1,693
4
1
—
2
4
1
—
12
24
7
16
2
8
8
2
67
391
50
807
170
138
69
147
1,772
364
40
778
138
118
55
140
1,633
4
1
—
2
4
1
—
12
25
7
16
2
8
11
2
71
393
48
794
142
130
67
142
1,716
(1) Greater China includes China, Hong Kong, Taiwan, and Macau.
(2) Latin America includes South America, Central America, and Mexico.
(3) Period-to-period changes in the table above are reported net of the effect of permanently closed locations.
IMAX currently estimates a worldwide commercial multiplex addressable market of 3,619 locations, of which there are 1,693 IMAX Systems operating
as of December 31, 2023, representing a market penetration of only 46.8%. The Company believes that the majority of its future growth will come from
international markets. As of December 31, 2023, 76% of IMAX Systems in operation were located within international markets (defined as all countries
other than the United States and Canada) (2022 ― 74%). Revenues and GBO derived from international markets continue to exceed revenues and GBO
from the United States and Canada.
For the year ended December 31, 2023, the Company’s revenues generated from its Greater China operations represents 25% of consolidated revenue,
compared to 24% in 2022 and 44% in 2021. Restrictions resulting from the COVID-19 pandemic significantly impacted operations in China in 2022 and
2023. As of December 31, 2023, the Company had 807 IMAX Systems operating in Greater China with an additional 206 systems in backlog. The
Company’s backlog in Greater China represents 46% of its total current backlog, including system upgrades.
The following tables provide detailed information about the commercial multiplex locations in operation within the IMAX network by arrangement type
and geographic location as of December 31, 2023 and 2022:
Domestic Total (United States & Canada)
International:
Greater China
Asia (excluding Greater China)
Western Europe
Latin America
Rest of the World
International Total
(2)
Worldwide Total
December 31, 2023
Commercial Multiplex Locations in IMAX Network
Traditional
JRSA
Hybrid
JRSA
Sales
Arrangements
(1)
Total
272
410
44
41
2
17
514
786
6
109
8
15
—
—
132
138
127
272
114
70
58
128
642
769
405
791
166
126
60
145
1,288
1,693
44
Domestic Total (United States & Canada)
International:
Greater China
Asia (excluding Greater China)
Western Europe
Latin America
Rest of the World
International Total
(2)
Worldwide Total
December 31, 2022
Commercial Multiplex Locations in IMAX Network
Traditional
JRSA
Hybrid
JRSA
Sales
Arrangements
(1)
Total
276
401
37
47
2
17
504
780
6
122
404
112
5
28
—
—
145
151
265
96
43
53
123
580
702
778
138
118
55
140
1,229
1,633
(1)
Includes Sales, Hybrid Sales and Sales-Type Lease deal types.
(2) Period-to-period changes in the tables above are reported net of permanently closed systems.
Backlog
The following table provides detailed information about the Company’s system backlog as of December 31, 2023 and 2022:
(In thousands of U.S. Dollars,
except number of systems)
(1)
Sales Arrangements
Hybrid JRSA
Traditional JRSA
(2)(3)
(2)
December 31, 2023
December 31, 2022
Number of
Systems
Dollar Value
Number of
Systems
Dollar Value
New
148
102
132
382
Upgrade
16
1
51
68
$
$
New
158,318
76,173
425
234,916
Upgrade
$ 16,068
910
1,975
$ 18,953
New
149
116
96
361
Upgrade
13
4
72
89
New
$ 165,176
86,215
200
$ 251,591
$
$
Upgrade
14,362
3,235
2,900
20,497
(1)
Includes Sales, Hybrid Sales and Sales-Type Lease deal types.
(2) The consideration owed under traditional joint revenue sharing arrangements is typically a percentage of contingent box office receipts rather than a
fixed upfront fee or fixed annual minimum payments. Accordingly, such arrangements do not usually have a dollar value in backlog; however, hybrid
joint revenue sharing arrangements typically provide for contracted upfront payments and therefore carry a backlog value based on those payments.
(3)
Includes 30 IMAX Systems (2022 ― 38) where certain of the Company’s contracts contain options for the customer to elect to upgrade system type
or to alter the contract structure (for example, from a joint revenue sharing arrangement to a sale) after signing, but before installation. Current
backlog information reflects all known elections.
The backlog reflects the minimum number of commitments for IMAX Systems according to the signed contracts. The dollar value fluctuates depending
on the number of new arrangements signed from year-to-year, which adds to backlog and the installation and acceptance of IMAX Systems and the
settlement of contracts, both of which reduce backlog. The dollar value of backlog typically represents the fixed contracted revenue according to the signed
IMAX System sale and lease agreements that the Company expects to recognize as revenue upon installation and acceptance of the associated system, as
well as an estimate of variable consideration in sales arrangements. The value of backlog does not include amounts allocated to maintenance and extended
warranty revenues or revenue from systems in which the Company has an equity interest, operating leases, and long-term conditional theater commitments.
The Company believes that the contractual obligations for IMAX System installations that are listed in backlog are valid and binding commitments.
45
From time to time, in the normal course of its business, the Company will have customers who are unable to proceed with an IMAX 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. (Refer to “Risk Factors ― The Company may not convert all of its backlog into revenue and cash flows.” in Part I,
Item 1A.)
Certain of the Company’s contracts contain options for the customer to elect to upgrade system type during the term or to alter the contract structure (for
example, from a joint revenue sharing arrangement to a sale) after signing, but before installation. Current backlog information reflects all known elections.
The following tables provide detailed information about the Company’s system backlog by arrangement type and geographic location as of December
31, 2023 and 2022:
Domestic Total (United States & Canada)
International:
Greater China
Asia (excluding Greater China)
Western Europe
Latin America
Rest of the World
International Total
Worldwide Total
Domestic Total (United States & Canada)
International:
Greater China
Asia (excluding Greater China)
Western Europe
Latin America
Rest of the World
International Total
Worldwide Total
December 31, 2023
IMAX System Backlog
Traditional
JRSA
Hybrid
JRSA
Sales
Arrangements
(1)
Total
81
56
24
16
3
3
102
183
2
90
7
3
—
1
101
103
12
60
21
18
2
51
152
164
December 31, 2022
IMAX System Backlog
Traditional
JRSA
Hybrid
JRSA
Sales
Arrangements
(1)
Total
101
42
3
17
3
2
67
168
2
93
13
11
—
1
118
120
9
69
26
3
3
52
153
162
95
206
52
37
5
55
355
450
(2)
112
204
42
31
6
55
338
450
(3)
(1)
Includes Sales, Hybrid Sales and Sales-Type Lease deal types.
(2)
Includes 239 new IMAX Laser Systems and 73 upgrades of existing locations to IMAX Laser Systems.
(3)
Includes 200 new IMAX Laser Systems and 89 upgrades of existing locations to IMAX Laser Systems.
Approximately 79% of IMAX System arrangements in backlog as of December 31, 2023 are scheduled to be installed in international markets (2022 ―
75%).
46
Signings and Installations
The following tables provide detailed information about IMAX System signings and installations for the years ended December 31, 2023 and 2022:
System Signings:
Sales Arrangements
Hybrid JRSA
Traditional JRSA
(1)
Total IMAX System signings
(2)
(3)
:
(1)
System Installations
Sales Arrangements
Hybrid JRSA
Traditional JRSA
Total IMAX System installations
(4)
(1)
Includes Sales, Hybrid Sales and Sales-Type Lease deal types.
(2)
Includes 21 IMAX System upgrades (2022 ― 17 upgrades).
Years Ended December 31,
2023
2022
64
—
65
129
Years Ended December 31,
2023
2022
70
5
53
128
21
3
23
47
38
8
46
92
(3) Three IMAX Xenon Systems were relocated from their original location (2022 ― 12). When a system under a sale or sales-type lease arrangement is
relocated, the amount of revenue earned by the Company may vary from transaction-to-transaction and is usually less than the amount earned for a
new sale. In certain situations when a system is relocated, the original location is upgraded to an IMAX Laser System.
(4)
Includes 42 IMAX System upgrades (2022 ― 36 upgrades).
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements and related disclosures in accordance with United States Generally Accepted Accounting Principles (“U.S.
GAAP”) requires management to make judgments, assumptions, and estimates that affect the amounts reported in the Company’s Consolidated Financial
Statements and accompanying notes. Management’s judgments, assumptions, and estimates are based on historical experience, future expectations, and
other factors that are believed to be reasonable as of the date of the Company’s Consolidated Financial Statements. Actual results may ultimately differ
from the Company’s original estimates, as future events and circumstances sometimes do not develop as expected, and the differences may be material.
Management believes that the following are the Company’s most critical accounting estimates, which are not ranked in any particular order, that may affect
the Company’s reported results of operations and/or financial condition. The Company’s significant accounting policies are described in Note 2 to
Consolidated Financial Statements in Part II, Item 8.
Revenue Recognition
The application of U.S. GAAP related to the measurement and recognition of revenue requires management to make judgments and estimates. In
addition, revenue contracts with nonstandard terms and conditions may require significant interpretation to determine the appropriate accounting.
IMAX Systems
The Company evaluates each of the performance obligations in an IMAX System arrangement to determine which are considered distinct, either
individually or in a group, for accounting purposes and which of the deliverables represent separate performance obligations. The transaction price in an
IMAX System arrangement is allocated to each good or service that is identified as a separate performance obligation based on estimated standalone selling
prices. This allocation is based on observable prices when the Company sells the good or service separately.
47
The Company’s “System Obligation” consists of the following: (i) an IMAX System, which includes the projector, sound system, screen system and, if
applicable, a 3D glasses cleaning machine; (ii) services associated with the IMAX System, including theater design support, the supervision of installation
services, and projectionist training; and (iii) a license to use the IMAX brand to market the location. The System Obligation, as a group, is a distinct
performance obligation. The Company is not responsible for the physical installation of the equipment in the customer’s facility; however, it 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 has established standalone prices for the System Obligation and maintenance and extended warranty services, as well as for film license
arrangements. The Company uses an adjusted market assessment approach for separate performance obligations that do not have standalone selling prices
or third-party evidence of estimated standalone selling prices. The Company considers multiple factors including its historical pricing practices, product
class, market competition and geography.
Constraints on the Recognition of Variable Consideration
The transaction price for the System Obligation, other than for IMAX Systems delivered pursuant to joint revenue sharing arrangements, consists of
upfront or initial payments made before and after the final installation of the system and ongoing payments throughout the term of the arrangement. The
Company estimates the transaction price, including an estimate of future variable consideration, received in exchange for the goods delivered or services
rendered. The arrangement for the sale of an IMAX System includes indexed minimum payment increases over the term of the arrangement, as well as the
potential for additional payments owed by the customer if certain minimum box office receipt thresholds are exceeded. In addition, hybrid sales
arrangements include amounts owed by the customer based on a percentage of their box office receipts over the term of the arrangement. These contract
provisions are considered to be variable consideration. An estimate of the present value of such variable consideration is recognized as revenue upon the
transfer of control of the System Obligation to the customer, subject to constraints to ensure that there is not a risk of significant revenue reversal.
Variable consideration related to indexed minimum payment increases is outside of the Company’s control, but the movement in the rates is historically
well documented and economic trends in inflation are easily accessible. Accordingly, for each contract subject to an indexed minimum payment increase,
the Company estimates the most likely amount using published indices. The amount of the estimated minimum payment increase is then recorded at its
present value as of the date of recognition using the customer’s implied borrowing rate.
Variable consideration related to the level of the customer’s box office receipts is outside of the Company’s control as it is dependent upon the future
commercial success of the films released to the IMAX network. The estimated variable consideration initially recognized by the Company is based on
management’s box office projections for the location, which are developed using historical box office data for that location and, if necessary, comparable
locations and territories. Using this data, management applies its understanding of these location markets to estimate the most likely amount of variable
consideration to be earned over the term of the arrangement. Management then applies a constraint to this estimate by reducing the projection by a
percentage factor for theaters or markets with no or limited historical box office experience. In cases where direct historical experience can be observed,
average historical box office results, eliminating significant outliers, are used. The resulting amount of variable consideration is then recorded at its present
value as of the date of recognition using a risk-weighted discount rate. The Company reviews its variable consideration assets on at least a quarterly basis
considering recent box office performance and, when applicable, updated box office projections for future periods.
Current Expected Credit Losses
The ability of the Company to collect its accounts receivable, financing receivables, and variable consideration receivables is dependent on the viability
and solvency of individual theater operators which is significantly influenced by consumer behavior and general economic conditions. Theater operators
and, in certain situations, movie studios, may experience financial difficulties that could cause them to be unable to fulfill their payment obligations to the
Company.
The Company develops its estimate of credit losses by class of receivable and customer type through a calculation that utilizes historical loss rates which
are then adjusted for specific receivables that are judged to have a higher-than-normal risk profile after taking into account management’s internal credit
quality classifications, as well as macro-economic and industry risk factors.
Judgments regarding the collectability of accounts receivable, financing receivables, and variable consideration receivables, and the amount of any
required allowance for credit losses, are based on management’s initial credit evaluation of the customer and the regular ongoing monitoring of the credit
quality of each customer. This monitoring process includes an analysis of collections history and aging for each customer, as well as meetings on at least a
monthly basis to identify credit concerns and potential changes in credit quality classification. A customer may improve their credit quality classification
once a substantial payment is made on an overdue balance or when the customer has agreed to a payment plan and payments have commenced in
accordance with that plan. Changes in credit quality classification are dependent upon management approval.
48
Management’s judgments regarding expected credit losses are based on the facts available to management at the time that the Consolidated Financial
Statements are prepared and involve estimates about the future. As a result, the Company’s judgments and associated estimates of credit losses may
ultimately prove, with the benefit of hindsight, to be incorrect.
Inventories
The Company records write-downs for excess and obsolete inventory based upon management’s judgments regarding future events and business
conditions, including the anticipated installation dates for the current backlog of theater system contracts, contracts in negotiation, technological
developments, growth prospects within the customers’ ultimate marketplace, and anticipated market acceptance of the Company’s current and pending
IMAX Systems.
(Refer to Note 8 to Consolidated Financial Statements in Part II, Item 8.)
Asset Impairments
Goodwill
Goodwill represents the excess of the purchase price paid over the fair value of net assets acquired in a business combination. Goodwill is not amortized
but is tested annually for impairment at the reporting unit level in the fourth quarter of the year and between annual tests if indicators of potential
impairment exist. These indicators could include a decline in the Company’s stock price and market capitalization, a significant change in the outlook for
the reporting unit’s business, including projections of future box office results and IMAX System installations, lower than expected operating results,
increased competition, legal factors, or the sale or disposition of a significant portion of a reporting unit. For reporting units with goodwill, an impairment
loss is recognized for the amount by which the reporting unit’s carrying value, including goodwill, exceeds its fair value. The carrying value of each
reporting unit is based on a systematic and rational allocation of certain assets and liabilities. The fair value of each reporting unit is assessed using a
discounted cash flow model based on management’s current short-term forecast and estimated long-term projections, against which various sensitivity
analyses are performed. The discount rates used in the cash flow model are derived based on the Company’s estimated weighted average cost of capital.
These estimates and the likelihood of future changes in these estimates depend on a number of underlying variables and a range of possible outcomes.
Actual results may materially differ from management’s estimates.
Long-Lived Assets
Long-lived assets are grouped and reviewed for impairment at the lowest level for which identifiable cash flows are largely independent whenever
events or changes in circumstances indicate that the carrying amount of the asset (or asset group) may not be recoverable. In such situations, long-lived
assets are considered impaired when estimated future cash flows (undiscounted and without interest charges) resulting from the use of the asset (or asset
group) and its eventual disposition are less than the carrying value of the asset (or asset group). In such situations, the asset (or asset group) is written down
to its fair value, which is the present value of the estimated future cash flows. Factors that are considered when evaluating long-lived assets for impairment
include a current expectation that it is more likely than not that the long-lived asset will be sold significantly before the end of its useful life, a significant
decrease in the market price of the long-lived asset, and a significant change in the extent or manner in which the long-lived asset is being used.
Film Assets
The recoverability of the Company’s film assets is dependent upon the commercial acceptance of the underlying films and the resulting level of box
office results and, in certain situations, ancillary revenues. If management’s projections of future net cash flows resulting from the exploitation of a film
indicate that the carrying value of the film asset is not recoverable, the film asset is written down to its fair value.
Valuation of Identifiable Intangible Assets Acquired
Management applies significant judgment in estimating the fair value of intangible assets. The estimates used to value the identifiable intangible assets
acquired through the acquisition of SSIMWAVE are based in part on historical experience and information obtained from the management of the acquired
business. The developed technology and in-process research and development acquired are valued utilizing income approaches, notable relief from royalty
and multi-period excess earnings methods using discounted cash flow models. The significant estimates used in valuing these intangible assets include
assumptions related to revenue and gross margin forecasts, attrition rate, royalty rate and discount rates. The estimates of fair value are based on
assumptions believed to be reasonable at that time. If management made different estimates or judgments, material differences in the fair values of the net
assets acquired may result.
49
The estimates of fair value are based on assumptions believed to be reasonable at that time. If management made different estimates or judgments,
material differences in the fair values of the net assets acquired may result.
(Refer to Note 4 to Consolidated Financial Statements in Part II, Item 8.)
Share-Based Compensation
The Company issues share-based compensation to eligible employees, directors, and consultants under the IMAX Corporation Second Amended and
Restated Long-Term Incentive Plan (as may be amended, the “IMAX LTIP”) and the China Long-Term Incentive Plan (the “China LTIP”) as summarized
below. The IMAX LTIP is the Company’s governing document and awards to employees, directors, and consultants under this plan may consist of stock
options, restricted share units (“RSUs”), performance stock units (“PSUs”) and other awards. A separate share-based compensation plan, the China LTIP,
was adopted by a subsidiary of the Company in October 2012.
The Company measures share-based compensation expense using the grant date fair value of the award (as defined below), which is recognized as an
expense in the Consolidated Statements of Operations on a straight-line basis over the requisite service period. Share-based compensation expense is not
adjusted for estimated forfeitures, but is instead adjusted when and if actual forfeitures occur.
The Company grants two types of PSU awards, one which vests based on a combination of employee service and the achievement of certain Adjusted
EBITDA targets, and one which vests based on a combination of employee service and the achievement of total shareholder return (“TSR”) targets. The
achievement of the Adjusted EBITDA and TSR targets in these PSUs is determined over a three-year performance period. At the conclusion of the three-
year performance period, the number of PSUs that ultimately vest can range from 0% to a maximum vesting opportunity of 175% of the initial Adjusted
EBITDA PSU award or 150% of the initial TSR PSU award, depending upon actual performance versus the established Adjusted EBITDA and TSR
targets.
The grant date fair value of PSUs with Adjusted EBITDA targets is equal to the closing price of the Company’s common shares on the date of grant or
the average closing price of the Company’s common shares for five days prior to the date of grant. The grant date fair value of PSUs with TSR targets is
determined on the grant date using a Monte Carlo simulation, which is a valuation model that considers the likelihood of achieving the TSR targets
embedded in the award (“Monte Carlo Model”). The compensation expense attributable to each type of PSU is recognized on a straight-line basis over the
requisite service period.
The fair value determined by the Monte Carlo Model is affected by the Company’s share price, as well as assumptions regarding a number of highly
complex and subjective variables. These variables include, but are not limited to, market conditions as of the grant date, the Company’s expected share
price volatility over the term of the award, and other relevant data. The compensation expense is fixed on the date of grant based on the dollar value of the
PSUs granted.
The amount and timing of compensation expense recognized for PSUs with Adjusted EBITDA targets is dependent upon management's assessment of
the likelihood of achieving these targets. If, as a result of management’s assessment, it is projected that a greater number of PSUs will vest than previously
anticipated, a life-to-date adjustment to increase compensation expense is recorded in the period that such determination is made. Conversely, if, as a result
of management’s assessment, it is projected that a lower number of PSUs will vest than previously anticipated, a life-to-date adjustment to decrease
compensation expense is recorded in the period that such determination is made.
(Refer to Note 17(b) to Consolidated Financial Statements in Part II, Item 8.)
Deferred Income Tax Assets
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.
Investment tax credits are recognized as a reduction of income tax expense.
The Company assesses the 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. In assessing the need for a valuation allowance, management considers, among other things, projections of future taxable income and ongoing
prudent and feasible tax planning strategies. If management determines that sufficient negative evidence exists, then management will consider recording a
valuation allowance against all or a portion of the deferred tax assets in that jurisdiction. If, after recording a valuation allowance, management’s
projections of future taxable income and other positive evidence considered in evaluating the need for a valuation allowance prove, with the benefit of
hindsight, to be inaccurate, it could prove more difficult to support the realization of these deferred tax assets. As a result, an additional valuation allowance
could be required, which would have an adverse impact on the Company’s effective income tax rate and results. Conversely, if, after recording a valuation
allowance, management determines that sufficient positive evidence exists in the jurisdiction in which a valuation allowance
50
is recorded, the Company may reverse all or a portion of the valuation allowance in that jurisdiction. In such situations, the adjustment made to the deferred
tax asset would have a favorable impact on the Company’s effective income tax rate and results in the period such determination was made.
(Refer to Notes 12(d) and 12(g) of Notes to Consolidated Financial Statements in Part II, Item 8.)
Uncertain Tax Positions
The Company is subject to ongoing tax exposures, examinations and assessments in various jurisdictions. Tax benefits are recognized only when it is
more likely than not, based on the technical merits, that the benefits will be sustained on examination. Tax benefits that meet the more-likely-than-not
recognition threshold are measured using a probability weighting of the largest amount of tax benefit that has greater than 50% likelihood of being realized
upon settlement. Whether the more-likely-than-not recognition threshold is met for a particular tax benefit is a matter of judgment based on the individual
facts and circumstances evaluated in light of all available evidence as of the balance sheet date. Although management believes that the Company has
adequately accounted for its uncertain tax positions, tax audits can result in subsequent assessments where the ultimate resolution may result in the
Company owing additional taxes above what was originally recognized in its financial statements.
Tax reserves for uncertain tax positions are adjusted by the Company to reflect management’s best estimate of the outcome of examinations and
assessments and in light of changing facts and circumstances, such as the completion of a tax audit, expiration of a statute of limitations, the refinement of
an estimate, and interest accruals associated with the uncertain tax positions until they are resolved. Some of these adjustments require significant judgment
in estimating the timing and amount of the additional tax expense.
(Refer to Note 12(h) to Consolidated Financial Statements in Part II, Item 8.)
RECENTLY ISSUED ACCOUNTING STANDARDS
Refer to Note 3 to Consolidated Financial Statements in Part II, Item 8 for a discussion of recently issued accounting standards and their impact on the
Company’s financial statements.
RESULTS OF OPERATIONS
The Company’s business and future prospects are evaluated by Richard L. Gelfond, its Chief Executive Officer (“CEO”), using a variety of factors and
financial and operational metrics including: (i) IMAX box office performance and the securing of new films and other events to be exhibited across the
IMAX network; (ii) the signing, installation, and financial performance of IMAX System arrangements, particularly those involving laser-based projection
systems; (iii) the success of the Company's investments in business evolution and brand extensions, including the integration and performance of
SSIMWAVE, the distribution of live events to the IMAX network, and IMAX Enhanced, (iv) revenues and gross margins earned by the Company's
segments, as discussed below; (v) consolidated earnings (loss) from operations, as adjusted for unusual items; (vi) the continuing ability to invest in and
improve the Company’s technology to enhance the differentiation of The IMAX Experience versus other out-of-home experiences; (vii) the overall
execution, reliability, and consumer acceptance of The IMAX Experience; and (viii) short- and long-term cash flow projections.
The CEO is the Company’s Chief Operating Decision Maker (“CODM”), as such term is determined under U.S. GAAP. The CODM, along with other
members of management, assesses segment performance based on segment revenues and gross margins. Selling, general and administrative expenses,
research and development costs, the amortization of intangible assets, provision for (reversal of) current expected credit losses, certain write-downs,
interest income, interest expense, and income tax (expense) benefit are not allocated to the Company’s segments.
In the first quarter of 2023, the Company revised its internal segment reporting, including information provided to the CODM to assess performance and
allocate resources. Accordingly, the Company has two reportable segments: (i) Content Solutions, which principally includes content enhancement and
distribution services, and (ii) Technology Products and Services, which principally includes the sale, lease, and maintenance of IMAX Systems. The
Company’s activities that do not meet the criteria to be considered a reportable segment are reported within All Other. Prior period comparatives have been
revised to conform with the current year presentation. Additional information on segment reporting is provided in Note 21 to Consolidated Financial
Statements in Part II, Item 8.
The discussion of the Company’s results of operations below compares results for the years ended December 31, 2023 and 2022 as well as for the years
ended December 31, 2022 and 2021.
51
Results of Operations for the Years Ended December 31, 2023 and 2022
The Company believes that its 2023 results of operations showed the strength of IMAX’s business model and the increasing global demand for The
IMAX Experience by consumers, exhibitors, filmmakers, and studios. In 2023, the Company achieved a number of significant box office records reflecting
the growing demand for IMAX. This contributed to the Company’s installation of 128 IMAX Systems compared to 92 in 2022, system signings of 129
IMAX Systems compared to 47 in 2022, and generating $58.6 million in net cash provided by the Company’s operating activities, compared to $17.3
million in the prior year.
Net Income (Loss) and Adjusted Net Income Attributable to Common Shareholders
The following table presents the Company’s net income (loss) attributable to common shareholders and the associated per share amounts, as well as
adjusted net income attributable to common shareholders* and adjusted net income attributable to common shareholders per share* for the years ended
December 31, 2023 and 2022:
(In thousands of U.S. Dollars, except per share amounts)
Net income (loss) attributable to common shareholders
Adjusted net income attributable to common shareholders*
Years Ended December 31,
2023
2022
Net Income
25,335
52,079
$
$
Per Diluted
Share
Net (Loss)
Per Diluted
Income
Share
$
$
0.46
0.94
$ (22,800 ) $
3,207 $
$
(0.40 )
0.06
* Refer to “Non-GAAP Financial Measures” below for a description of this non-GAAP financial measure and a reconciliation to the most comparable
GAAP amount.
Revenues and Gross Margin
For the year ended December 31, 2023, the Company’s revenues and gross margin increased by $74.0 million or 25% and $58.0 million or 37%,
respectively, from 2022 principally due to the strength of the IMAX GBO performance through the distribution of films such as Oppenheimer, Avatar: The
Way of Water, The Super Mario Bros. Movie, The Wandering Earth 2, Guardians of the Galaxy Vol.3, Mission: Impossible - Dead Reckoning Part One, Ant-
Man and the Wasp: Quantumania, Creation of the Gods I: Kingdom of Storms, and Spider-Man: Across the Spider-Verse and record performance of local
language content coupled with higher system sales and renewals in the current period.
The following table presents the Company’s revenue, gross margin and gross margin percentage by reportable segment for the years ended December
31, 2023 and 2022:
(In thousands of U.S. Dollars)
Content Solutions
Technology Products and Services
Sub-total for reportable segments
All Other
(1)
Total
Revenue
2023
126,698
234,303
361,001
13,838
374,839
$
$
$
$
2022
101,820
192,368
294,188
6,617
300,805
$
$
Gross Margin
Gross Margin %
2023
2022
2023
2022
74,106
129,946
204,052
10,289
214,341
$
$
51,240
101,055
152,295
4,060
156,355
58 %
55 %
57 %
74 %
57 %
50 %
53 %
52 %
61 %
52 %
(1) All Other includes the results from Streaming and Consumer Technology and other ancillary activities.
Segment Operating Results
The Company’s segment operating results are presented based on how the Company assesses operating performance and internally reports financial
information. See Note 21 to Consolidated Financial Statements in Part II, Item 8 for additional information on the Company’s reportable segments.
Content Solutions
Content Solutions segment results are influenced by the level of commercial success and box office performance of the films and other content released
to the IMAX network, as well as other factors including the timing of the releases, the length of play across the IMAX network, the box office share take
rates under the Company’s film remastering and distribution arrangements, the level of marketing spend associated with the releases in the year and the
fluctuations in the value of foreign currencies versus the U.S. Dollar.
52
For the year ended December 31, 2023, Content Solutions segment revenues and gross margin increased by $24.9 million or 24% to $126.7 million
from $101.8 million and $22.9 million or 45% to $74.1 million from $51.2 million, respectively, when compared to the same period in 2022 principally due
to better performance of the films distributed throughout the global IMAX network in 2023 including IMAX China, following the Chinese government
relaxing its dynamic zero-COVID policies and easing capacity restrictions at the end of 2022.
For the year ended December 31, 2023, GBO generated by IMAX films totaled $1.1 billion, a $209.3 million or 25% increase versus $849.7 million in
2022. The 2023 GBO was generated by the exhibition of 105 films, which consisted of 95 new films (2022 — 63), 10 carryovers (2022 — 10) and one re-
release (2022 — five). The impact of changes in foreign currency valuations versus the U.S. Dollar led to a decrease in GBO of $23.0 million in 2023 as
compared to prior year rates. The Company believes that if foreign currency exchange rates were consistent in 2023 and 2019 that IMAX GBO in 2023
would have exceeded its best box office year ever in 2019.
In addition, for the year ended December 31, 2023, local language films exhibited across the Company’s global IMAX network generated over $227.2
million in IMAX GBO, representing 21% of the Company’s total box office. Leading local language titles distributed across the IMAX network during
2023 included the Chinese Filmed For IMAX title The Wandering Earth 2, which generated IMAX GBO of $48.6 million, the Chinese film Creation of the
Gods I: Kingdom of Storms ($32.5 million), the Chinese film No More Bets ($11.2 million), and the Japanese anime film The First Slam Dunk ($10.8
million). Despite accounting for approximately 1% of all Domestic screens and less than 1% of all screens globally in 2023, the IMAX network had a
Domestic market share of 4.4% and a global market share of 3.2% in 2023.
In addition to the higher level of revenues, Content Solutions segment gross margin is also influenced by the costs associated with the films and other
content exhibited in the period and can vary from period-to-period, especially with respect to marketing expenses, which are expensed as incurred, for films
and the costs incurred to produce, market and distribute live events and documentary content during the period. For the year ended December 31, 2023,
marketing expenses incurred towards films were $14.2 million compared to $17.3 million in 2022. Gross margin percent for the year ended December 31,
2023 was 58% compared to 50% for the same period in 2022 with the increase being driven by the operating leverage that results from achieving higher
levels of box office with relatively fixed film distribution costs and strategic deployment of marketing dollars.
Technology Products and Services
The primary drivers of Technology Products and Services segment results are the number of IMAX Systems installed in a period, the costs associated
with each installation, lease payments tied to the box office performance of the films released to the IMAX network, as well as the associated maintenance
contracts that accompany each installation. The average revenue and gross margin per IMAX System under sale and sales-type lease arrangements varies
depending upon the number of IMAX System commitments with a single respective exhibitor, an exhibitor’s location, the type of system sold and various
other factors. The installation of IMAX Systems in theaters or multiplexes, which make up a large portion of the Company’s system backlog, depends
primarily on the timing of the construction of those projects, which is not under the Company’s control.
For the year ended December 31, 2023, Technology Products and Services segment revenue and gross margin increased by $41.9 million or 22% to
$234.3 million from $192.4 million and $28.9 million or 29% to $129.9 million from $101.1 million, respectively, when compared to the prior year. The
higher level of revenue is driven in part by an increase of $16.9 million in system sales revenue as a result of 29 additional IMAX System installations
under sales arrangements, including upgrades, partially offset by the impact of higher interest rates on future minimum payments and estimated variable
consideration, the mix of contract types and lower aftermarket sales of 3D glasses.
Also contributing to the higher level of revenue was an increase of $13.8 million in Revenues — Technology Rentals, as a result of IMAX GBO earned
from IMAX Systems under joint revenue sharing arrangements, which increased by $181.7 million or 42% in 2023 when compared to the prior year, from
$433.1 million to $614.8 million, resulting from the higher level of box office performance discussed above.
The Technology Products and Services segment gross margin increase of 29% year-over-year is primarily reflective of a higher number of IMAX
System installations and higher Revenues — Technology Rentals earned through the Company’s joint revenue sharing arrangements, driven by the stronger
box office performance, which led to incremental profit flow-through.
53
The following table provides detailed information about IMAX Systems installed and the associated revenue recognized at that time, except for
traditional joint revenue sharing arrangement as revenue is recognized over the lease term, during the years ended December 31, 2023 and 2022:
(In thousands of U.S. Dollars, except number of systems)
New IMAX Systems
Upgraded IMAX Systems
Total
All Other
Number of
Systems
2023
64 $
11
75 $
Revenue
Number of
Systems
56,508
9,376
65,884
2022
34 $
12
46 $
Revenue
32,522
16,419
48,941
For the year ended December 31, 2023, All Other revenue and gross margin increased by $7.2 million and $6.2 million, respectively, when compared to
the same period in 2022 principally due to growth in revenues earned by the Company’s Streaming and Consumer Technology business. Full year 2023
reflects the inclusion of both SSIMWAVE’s revenues as that acquisition was completed in late September 2022 and growth in the consumer technology
business of IMAX Enhanced.
Selling, General and Administrative Expenses
The following table presents information about the Company’s Selling, General and Administrative Expenses for the years ended December 31, 2023
and 2022:
(In thousands of U.S. Dollars)
Total selling, general and administrative expenses
Less: Share-based compensation
Total selling, general and administrative expenses, excluding share-
based compensation
(1)
$
$
Years Ended December 31,
2023
2022
Variance
$
%
144,406 $
22,534
138,043 $
25,438
121,872 $
112,605 $
6,363
(2,904 )
9,267
5%
(11%)
8%
(1) A portion of total share-based compensation expense is also recognized within Cost and Expenses Applicable to Revenue and Research and
Development. Refer to Note 17(c) to Consolidated Financial Statements in Part II, Item 8.
The increase in Selling, General and Administrative Expenses reflects the inclusion of $5.2 million related to the Company’s Streaming Technology
operation of SSIMWAVE, which was not included to the same extent in the prior year comparative as the acquisition was completed in late September
2022, and $3.3 million in non-recurring transaction expenses associated with the proposal to acquire the outstanding shares in IMAX China.
As a percentage of revenue, Selling, General and Administrative Expenses excluding share-based compensation improved to 33% as compared to 37%
in 2022, which reflected strong operating leverage coupled with management's continued focus on cost discipline.
Research and Development
The Company believes that it is a premier global technology platform for awe-inspiring entertainment and events with significant proprietary expertise
in digital and film-based projection and sound system component design, engineering, and imaging technology, particularly in laser-based technology. A
significant portion of the Company’s research and development efforts have been focused on the IMAX Laser Systems, which the Company believes is
capable of illuminating the largest screens in the IMAX network and 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 cinematic experience available to consumers. The Company has continued research and development aimed at creating more affordable
laser-based solutions with various screen sizes for its commercial multiplex customers.
For the year ended December 31, 2023, Research and Development expenses were $10.1 million, representing an increase of $4.8 million or 91% when
compared to $5.3 million during the same period in the prior year, primarily driven by increased compensation expense of $1.0 million in Streaming and
Consumer Technology business and $3.5 million in the Company’s other research and innovation initiatives. For the year ended December 31, 2023,
expenses include $1.4 million specifically related to the Company’s Streaming and Consumer Technology activities.
54
The Company intends to continue research and development to further evolve its end-to-end technology. This includes bringing connectivity to the
Company’s global network to support live and interactive events worldwide; developing new IMAX film cameras and certifying additional digital cameras;
further improving its proprietary film remastering and distribution process for the delivery of content for both theatrical (including local language content)
and home entertainment; and further improving the reliability of its projectors, as well as enhancing the Company’s image and sound quality. Within the
Company’s Streaming and Consumer Technology business, there is ongoing research and development in perceptual metrics involving novel measurement
and optimization techniques. Investments are also being made to expand existing and/or develop new technologies which are expected to further enhance
video quality, delivery, and creation across devices. Furthermore, the Company intends to invest in activities that will capture opportunities to create/build
AI and automation into its operations and processes.
As of December 31, 2023 and 2022, 86 and 66 of the Company’s employees were connected with research and development projects, respectively.
Credit Loss Expense, Net
For the year ended December 31, 2023, the Company recorded current expected credit losses of $1.8 million, as compared to credit losses of $8.5
million recognized in the prior year. The prior period expense was principally due to reserves established against substantially all of the Company’s
receivables in Russia due to uncertainties associated with the ongoing Russia-Ukraine conflict and resulting sanctions, partially offset by the reversal of
provisions associated with the COVID-19 pandemic as the outlook for the theatrical exhibition industry improved.
Consolidated Financial Statements are prepared and involve estimates about the future. As a result, the Company’s judgments and associated estimates
of credit losses may ultimately prove, with the benefit of hindsight, to be incorrect.
Asset Impairments
For the year ended December 31, 2023, the Company recorded asset impairments of $0.4 million principally related to the write-down of content-related
assets which became impaired in the year.
On January 10, 2022, IMAX (Shanghai) Culture and Technology Co., Ltd, a wholly-owned subsidiary of IMAX China, entered into a joint film
investment agreement with Wanda Film (Horgos) Co. Ltd. to invest RMB 30.0 million ($4.7 million) in the movie Mozart from Space, which was released
on July 15, 2022. Pursuant to the investment agreement, IMAX (Shanghai) Culture and Technology Co., Ltd. has the right to receive a share of the profits
or losses of the film distribution. IMAX (Shanghai) Culture and Technology Co., Ltd.’s commitment is limited to its investment and has no further
obligation if the actual movie production cost exceeds the original budget. The investment met the criteria for classification as a financial asset. The
investment was measured at amortized cost less impairment losses and was recorded within Other Assets in the Consolidated Balance Sheets.
For the year ended December 31, 2022, the Company recorded a full impairment of its RMB 30.0 million ($4.5 million) investment in Mozart from
Space based on projected box office results and distribution costs.
Interest Expense
For the year ended December 31, 2023, interest expense was $6.8 million, with $257.2 million of year-end total debt, representing an increase of $0.9
million or 15% when compared to interest expense of $5.9 million with $270.7 million of year-end total debt in the prior year. This increase is primarily
due to cash flows as well as timing of borrowings and repayments of revolving credit facility borrowings made during the year in support of investments in
the business, including capital expenditures to invest in equipment for joint revenue sharing arrangements as well as share repurchases, and the impact of
higher interest rates in 2023. (Refer to Note 14 to Consolidated Financial Statements in Part II, Item 8.)
Income Taxes
For the year ended December 31, 2023, the Company recorded an income tax expense of $13.1 million (2022 — $10.1 million). The Company’s
effective tax rate for year ended December 31, 2023 of 28.3% differs from the Canadian statutory tax rate of 26.5%, primarily due to tax rate differences in
foreign jurisdictions, a reduction in tax reserves of $0.4 million (2022 — $1.6 million) and a net decrease in the valuation allowance related to deferred
taxes of $0.7 million (2022 — increase of $16.8 million). This was offset by withholding taxes of $5.2 million (2022 — $3.8 million). The remainder of the
difference was due to normal course movements and non-material items.
For the year ended December 31, 2023, the deferred tax liability for the applicable foreign withholding taxes decreased by $2.4 million (2022 — $2.7
million). During the year ended December 31, 2023, $24.0 million (2022 — $27.4 million) of historical earnings from a subsidiary in China were
distributed and, as a result, $2.4 million (2022 — $2.7 million) of foreign withholding taxes were paid
55
to the relevant tax authorities. The remaining deferred tax liability on the Company’s Consolidated Balance Sheets as of December 31, 2023 is $12.5
million (2022 — $14.9 million).
(Refer to Note 12 to Consolidated Financial Statements in Part II, Item 8 for more information on the Company’s tax position.)
Non-Controlling Interests
The Company’s Consolidated Financial Statements include the non-controlling interest in the net income or loss of IMAX China, as well as the impact
of non-controlling interests in the activity of its Original Film Fund subsidiary. For the year ended December 31, 2023, the net income attributable to non-
controlling interests of the Company’s subsidiaries was $7.7 million (2022 — $2.9 million), an increase of 164.5% or $4.8 million year-over-year. The
increase reflects the recovery of IMAX China’s box office following the Chinese government relaxing its dynamic zero-COVID policies and easing
capacity restrictions at the end of 2022 and an increasing level of consumer confidence in attending public gatherings.
Results of Operations for the Years Ended December 31, 2022 and 2021
In the first quarter of 2023, the Company updated its reportable segments. See Note 21 to Consolidated Financial Statements in Part II, Item 8. The
following discussion and analysis related to the Company’s segment results for the years ended December 31, 2022 and 2021 have been revised to conform
with the current year presentation.
The discussion of the Company’s results of operations comparing results for the years ended December 31, 2022 and 2021 that was not impacted by the
segment change is included under the section entitled “Results of Operations” in Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2022, and is incorporated by reference into this Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Net Loss and Adjusted Net Income (Loss) Attributable to Common Shareholders
The following table presents the Company’s net loss attributable to common shareholders and the associated per share amounts, as well as adjusted net
income (loss) attributable to common shareholders* and adjusted net income (loss) attributable to common shareholders per share* for the years ended
December 31, 2022 and 2021:
(In thousands of U.S. Dollars, except per share amounts)
Net loss attributable to common shareholders
Adjusted net income (loss) attributable to common shareholders*
Years Ended December 31,
2022
2021
Net (Loss)
Income
Per Share
Net Loss
Per Share
$ (22,800 ) $
$
$
3,207
(0.40 ) $ (22,329 ) $
(8,420 ) $
0.06
$
(0.38 )
(0.14 )
For the year ended December 31, 2022, the Company recorded a net non-cash provision of $6.9 million, or $0.12 per share, due to an increase in
reserves given the uncertainty of collecting receivables in Russia. This provision was taken due to the ongoing conflict and resulting sanctions in Ukraine
and covers substantially all of the Company’s net receivable exposure in the Russian market. Excluding the impact of this provision, net loss attributable to
common shareholders* was $(15.9) million, or $(0.28) per share, and adjusted net income attributable to common shareholders* was $10.1 million, or
$0.18 per share. Over the past five years, Russia has represented on average approximately 3% of the GBO generated by IMAX films.
* See “Non-GAAP Financial Measures” below for a description of this non-GAAP financial measure and a reconciliation to the most comparable GAAP
amount.
Revenues and Gross Margin
For the year ended December 31, 2022, the Company’s revenues and gross margin increased by $45.9 million or 18% and $21.9 million or 16%,
respectively, when compared to the same period in 2021 principally due to the strength of the GBO performance through the distribution of films such as
Avatar: The Way of Water, Top Gun: Maverick, Doctor Strange in the Multiverse of Madness, Jurassic World Dominion, The Batman, Black Panther:
Wakanda Forever, Thor: Love and Thunder, The Battle at Lake Changjin 2, and Spider-Man: No Way Home.
56
The following table presents the Company’s revenue, gross margin and gross margin percentage by reportable segment for the years ended December
31, 2022 and 2021:
(In thousands of U.S. Dollars)
Content Solutions
Technology Products and Services
Sub-total for reportable segments
All Other
(1)
Total
Revenue
2022
101,820
192,368
294,188
6,617
300,805
$
$
$
$
2021
2022
2021
2022
2021
Gross Margin
Gross Margin %
76,989
172,952
249,941
4,942
254,883
$
$
51,240
101,055
152,295
4,060
156,355
$
$
45,269
86,041
131,310
3,096
134,406
50 %
53 %
52 %
61 %
52 %
59 %
50 %
53 %
63 %
53 %
(1) All Other includes the results from Streaming and Consumer Technology and other ancillary activities.
Segment Operating Results
The Company’s segment operating results are presented based on how the Company assesses operating performance and internally report financial
information. See Note 21 to Consolidated Financial Statements in Part II, Item 8 for additional information on the segments.
Content Solutions
Content Solutions segment results are influenced by the level of commercial success and box office performance of the films and other content released
to the IMAX network, as well as other factors including the timing of the releases, the length of play across the IMAX network, the box office share take
rates under the Company’s film remastering and distribution arrangements, the level of marketing spend associated with the releases in the year and the
fluctuations in the value of foreign currencies versus the U.S. Dollar.
For the year ended December 31, 2022, Content Solutions segment revenues and gross margin increased by $24.8 million or 32% to $101.8 million
from $77.0 million and $6.0 million or 13% from $51.2 million from $45.3 million, respectively, when compared to the prior year.
The performance of the films distributed through the IMAX network resulted in a $211.5 million or 33% increase in GBO, from $638.2 million in 2021
to $849.7 million in 2022, despite a 32% decline in Greater China box office driven by the COVID-19 restrictions instituted as part of China’s dynamic
zero-COVID policy. This overall improvement in GBO earned through the global IMAX network for the year was partially offset by unfavorable foreign
currency exchange rate movements. For the year ended December 31, 2022, GBO was generated by the exhibition of 78 films (63 new, 10 carryovers, and
five re-releases), including Avatar: The Way of Water, which generated GBO of $140.2 million (or 11% market share) and Top Gun: Maverick, which
generated GBO of $110.7 million (or 7% market share) in the year. During the year ended December 31, 2021, GBO was generated by the exhibition of 73
films (63 new, six carryovers and four re-releases).
In addition to the higher level of revenues, Content Solutions segment gross margin is also influenced by the costs associated with the films and other
content exhibited in the period, and can vary from period-to-period, especially with respect to marketing expenses, which are expensed as incurred, for
films and the costs incurred to produce, market and distribute live events and documentary content during the period. For the year ended December 31,
2022, the impact of the higher level of Content Solutions Segment revenues was partially offset by higher marketing expenses of $17.3 million, as
compared to $8.2 million in the prior year reflecting investments to drive higher levels of box office and enable the achievement of the Company’s highest
global and domestic market share of 3% and 5%, respectively, in 2022. The Content Solutions segment gross margin was also impacted by investments in
infrastructure costs, depreciation expense and network connection fees of $3.3 million to operate the IMAX connected network for the year ended
December 31, 2022.
Technology Products and Services
The primary drivers of Technology Products and Services segment results are the number of IMAX Systems installed in a period, the costs associated
with each installation, lease payments tied to the box office performance of the films released to the IMAX network, as well as the associated maintenance
contracts that accompany each installation. The average revenue and gross margin per IMAX System under sale and sales-type lease arrangements varies
depending upon the number of IMAX System commitments with a single respective exhibitor, an exhibitor’s location, the type of system sold and various
other factors. The installation of IMAX Systems in theaters or multiplexes, which make up a large portion of the Company’s system backlog, depends
primarily on the timing of the construction of those projects, which is not under the Company’s control.
57
For the year ended December 31, 2022, Technology Products and Services segment revenue increased by $19.4 million or 11% to $192.4 million from
$173.0 million while gross margin increased by $15.0 million or 17% to $101.1 million from $86.0 million, when compared to the prior year. The increase
in revenue was primarily reflective of an increase of $15.6 million in Technology Rentals and $3.3 million in recurring maintenance revenue partially offset
by a $2.7 million decrease in IMAX Systems revenue related to a lower number of system installations year-over-year.
The increase in Technology rentals revenue earned through the Company’s joint revenue sharing arrangements, was driven by the stronger box office
performance which led to incremental profit flow-through. IMAX GBO earned from IMAX Systems under joint revenue sharing arrangements increased
by $94.0 million or 28% in 2022 when compared to the prior year, from $339.1 million to $433.1 million, resulting from the higher level of box office
performance discussed above.
The increase in IMAX Maintenance revenue was due to the continued global reopening of the IMAX network amidst the ongoing recovery of the
theatrical exhibition industry from earlier stages of the COVID-19 pandemic, partially offset by a decrease of $1.2 million in revenue associated with
systems in Russia, Ukraine, and Belarus, which were placed on nonaccrual status due to the ongoing Russia-Ukraine conflict and resulting sanctions.
The year-over-year lower level of IMAX Systems revenue in 2022 was the result of four fewer IMAX System installations, including upgrades, in 2022
under sale and sales-type lease arrangements and a decrease of $1.1 million in Finance Income associated with locations in Russia, Ukraine, and Belarus,
which were placed on nonaccrual status due to the ongoing Russia-Ukraine conflict and resulting sanctions. These factors were partially offset by an
increase of $5.0 million from the impact of amendments to existing IMAX System arrangements, as well as an increase of $3.3 million as the Company
ended the temporary relief on annual minimum payment obligations for exhibitor customers during the COVID-19 pandemic.
The increase in Technology Products and Services segment gross margin of $15.0 million, when compared to the prior year as costs Rentals including
depreciation expense, advertising, marketing and system commission costs grew at a lower rate than revenue. This increase was partially offset by lower
year-over-year profit contribution from maintenance revenue due to the profit flowthrough of $2.5 million in maintenance revenue recognized in 2021 that
had been deferred from 2020 due to uncertainties associated with the COVID-19 pandemic. For the year ended December 31 2022, Technology Products
and Services segment depreciation expense of $22.6 million was consistent with the prior year and advertising, marketing and commission costs of $2.2
million, compared to $4.3 million in the prior year.
The following table provides detailed information about IMAX Systems installed and the associated revenue recognized at that time, except for
traditional joint revenue sharing arrangement as revenue is recognized over the lease term, during the years ended December 31, 2022 and 2021:
(In thousands of U.S. Dollars, except number of systems)
New IMAX Systems
Upgraded IMAX Systems
Total
All Other
Number of
Systems
2022
34 $
12
46 $
Revenue
Number of
Systems
32,522
16,419
48,941
2021
44 $
8
52 $
Revenue
48,289
11,371
59,660
For the year ended December 31, 2022, All Other revenue and gross margin increased by $1.7 million and $1.0 million, respectively, when compared to
the same period in 2021 principally due to the inclusion of SSIMWAVE’s revenues for three months as the acquisition was completed in late September
2022 as well as growth in the IMAX Enhanced consumer technology business.
58
CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
The discussion below compares the Company’s cash flows for the years ended December 31, 2023 and 2022. A comparison of the Company’s cash
flows for the years ended December 31, 2022 and 2021 is included in the section entitled “Cash Flows” in Item 7 of the Company’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2022, and is incorporated by reference into this Annual Report on Form 10-K for the fiscal year ended
December 31, 2023.
Operating Activities
The net cash used in or provided by the Company’s operating activities is affected by a number of factors, including: (i) the level of cash collections
from customers in respect of existing IMAX System sale and lease agreements, (ii) the amount of upfront payments collected in respect of IMAX System
sale and lease agreements in backlog, (iii) the box office performance of films and other content distributed by the Company and/or released to IMAX
locations, (iv) the level of inventory purchases and investment in joint revenue sharing arrangements, and (v) the level of the Company’s operating
expenses, including expenses for research and development and new business initiatives.
For the year ended December 31, 2023, the net cash provided by the Company’s operating activities totaled $58.6 million, as compared to $17.3 million
in the prior year, an improvement of $41.3 million. In 2023, the net cash provided by the Company’s operating activities is principally a result of revenue
growth attributable to the record box office performance of the films distributed through the IMAX network, revenue from the installation of IMAX
Systems and revenue associated with the amendments and renewals of IMAX Systems arrangements. This is partially offset by $20.3 million of variable
consideration receivables resulting from incremental sales arrangements, including upgrades and amendments, and change in variable consideration
estimate, and $20.4 million of expenditures incurred in connection with the development of Film Assets.
For the year ended December 31, 2022, the net cash inflow from operating activities of $17.3 million was principally a function of the Company’s cash
earnings, as well as Financing Receivables, partially offset by the increase in Accounts Receivable of $29.0 million resulting from revenue growth
attributable to the strength of the box office performance of the films distributed through the IMAX network during the last quarter of the year and $19.6
million spent in connection with the development of Film Assets.
Investing Activities
For the year ended December 31, 2023, the net cash used in the Company’s investing activities totaled $31.8 million, as compared to $53.3 million in
2022. In 2023, the net cash used in investing activities is driven by $18.0 million invested in equipment contributed to the Company’s joint revenue
sharing arrangements with exhibitor customers, $6.5 million related to the purchase of property, plant and equipment, and $8.3 million of intangible assets
acquired, principally related to the continued development or purchase of internal use software. The Company considers its investment in joint revenue
sharing arrangements to be reflective of growth capital expenditures.
In 2022, the net cash used in investing activities is driven by $15.9 million paid for the acquisition of SSIMWAVE, net of cash and cash equivalents
acquired, $19.8 million invested in equipment to be used in the Company’s joint revenue sharing arrangements with exhibitor customers, $4.7 million
invested by IMAX (Shanghai) Culture and Technology Co., Ltd, a wholly-owned subsidiary of IMAX China, in the movie Mozart from Space (see “Asset
Impairment” above), $8.4 million related to the purchase of property, plant and equipment, and $4.4 million of intangible assets acquired, principally
related to the development of internal use software.
Capital expenditures, including the Company’s investment in joint revenue sharing arrangements, the purchase of property, plant and equipment, the
acquisition of other intangible assets, and investments in films were $53.2 million in 2023 as compared to $57.0 million in 2022. Based on management’s
operating plan for 2023, the Company expects to continue to use cash to deploy additional IMAX Systems under joint revenue sharing arrangements.
Financing Activities
For the year ended December 31, 2023, the net cash used in the Company’s financing activities totaled $48.5 million, as compared to $58.5 million used
by financing activities in the prior year. In 2023, the net cash used in financing activities is principally due to $13.5 million in net repayments of revolving
credit facility borrowings, $26.8 million used to repurchase common shares of the Company, $6.5 million in taxes withheld on vested employee equity
awards, and $1.4 million of dividends paid to the non-controlling interests of IMAX China.
59
In 2022, the net cash used in financing activities is principally due to $83.2 million used to repurchase common shares of the Company ($80.1 million)
and IMAX China ($3.0 million), $3.7 million paid to purchase treasury stock for the settlement of RSUs and related taxes, $2.7 million of dividends paid to
the non-controlling interests of IMAX China, and $2.3 million in fees paid in relation to the Sixth Amended and Restated Credit Agreement entered into by
the Company during the first quarter of 2022, partially offset by $34.3 million in net cash inflow from revolving credit facility borrowings. (Refer to Note
14(b) to Consolidated Financial Statements in Part II, Item 8.)
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2023, the Company’s principal sources of liquidity included: (i) its balances of cash and cash equivalents of $76.2 million; (ii) the
anticipated collection of trade accounts receivable, which includes amounts owed under joint revenue sharing arrangements and film remastering
agreements with movie studios; (iii) the anticipated collection of financing receivables due in the next 12 months under sale and sales-type lease
arrangements for systems currently in operation; and (iv) installment payments expected in the next 12 months under sale and sales-type lease
arrangements in backlog. Under the terms of the Company’s typical sale and sales-type lease agreements, the Company receives substantial cash payments
before it completes the performance of its contractual obligations.
In addition, as of December 31, 2023, the Company also had $276.0 million in available borrowing capacity under its Sixth Amended and Restated
Credit Agreement, with Wells Fargo Bank, National Association (the “Credit Agreement”), $26.8 million in available borrowing capacity under the IMAX
(Shanghai) Multimedia Technology Co., Ltd. (“IMAX Shanghai”) revolving credit facility with the Bank of China (the “Bank of China Facility”), and
$28.2 million in available borrowing capacity under IMAX Shanghai’s revolving credit facility with HSBC Bank (China) Company Limited, Shanghai
Branch (the “HSBC China Facility”). (Refer to Note 14(a) to Consolidated Financial Statements in Part II, Item 8 for a description of the material terms of
the Credit Agreement, the Bank of China Facility, and the HSBC Facility.)
The Company’s $76.2 million balance of cash and cash equivalents as of December 31, 2023 (December 31, 2022 — $97.4 million) includes $68.5
million in cash held outside of Canada (December 31, 2022 — $79.7 million), of which $30.0 million was held in the People's Republic of China (“PRC”)
(December 31, 2022 — $43.7 million). Management reassessed its strategy with respect to the most efficient means of deploying the Company’s capital
resources globally and determined that historical earnings of certain foreign subsidiaries in excess of amounts required to sustain business operations would
no longer be indefinitely reinvested. During the year ended December 31, 2023, $24.0 million of historical earnings from a subsidiary in China were
distributed (December 31, 2022 — $27.4 million) and, as a result, $2.4 million of foreign withholding taxes were paid to the relevant tax authorities
(December 31, 2022 — $2.7 million). As of December 31, 2023, the Company’s Consolidated Balance Sheets include a deferred tax liability of $12.5
million (December 31, 2022 — $14.9 million) for the applicable foreign withholding taxes associated with the remaining balance of unrepatriated historical
earnings that will not be indefinitely reinvested outside of Canada. These taxes will become payable upon the repatriation of any such earnings.
The Company forecasts its future cash flow and short-term liquidity requirements on an ongoing basis. These forecasts are based on estimates and may
be materially impacted by factors that are outside of the Company’s control (including the factors described in “Risk Factors” in Part I, Item 1A). As a
result, there is no guarantee that these forecasts will come to fruition and that the Company will be able to fund its operations through cash flows from
operations. In particular, the Company’s operating cash flows and cash balances will be adversely impacted if management’s projections of future signings
and installations of IMAX Systems and box office performance of remastered content distributed to the IMAX network are not realized.
For the year ended December 31, 2023, the Company had $76.2 million balance of cash and cash equivalents and net cash provided by the Company’s
operating activities of $58.6 million which improved $41.3 million from 2022. Based on the Company’s current cash balances and operating cash flows,
management expects to have sufficient capital and liquidity to fund its anticipated operating needs and capital requirements during the next twelve-month
period following the date of this report.
60
CONTRACTUAL OBLIGATIONS
Payments to be made by the Company under contractual obligations as of December 31, 2023 are as follows:
Payments Due by Period
(3)
(1)
(In thousands of U.S. Dollars)
Purchase obligations
(2)
Pension obligations
Operating lease obligations
Finance lease obligations
Wells Fargo Facility
Federal Economic Development Loan
(5)
Convertible Notes
Postretirement benefits obligations
(4)
$
$
Total
Obligation
Year
Less Than One
33,723
$
—
2,740
518
24,000
965
1,150
106
63,202
$
35,210
20,298
14,898
518
24,000
3,200
232,875
2,489
333,488
1 to 3 years
3 to 5 years
Thereafter
$
$
1,192
20,298
5,026
—
—
2,235
231,725
221
260,697
$
$
24
—
4,965
—
—
—
—
228
5,217
$
$
271
—
2,167
—
—
—
—
1,934
4,372
(1) Represents 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 Company has an unfunded defined benefit pension plan, the Supplemental Executive Retirement Plan (the “SERP”), covering its CEO, Mr.
Richard L. Gelfond. The SERP has a fixed benefit payable of $20.3 million. The table above assumes that Mr. Gelfond will receive a lump sum
payment of $20.3 million six months after retirement at the end of the term of his current employment agreement, which expires on December 31,
2025, in accordance with the terms of the SERP, although Mr. Gelfond has not informed the Company that he intends to retire at that time. (Refer to
Note 23 to Consolidated Financial Statements in Part II, Item 8.)
(3) Represents total minimum annual rental payments due under the Company’s operating leases.
(4) The Federal Economic Development Loan will be repayable over 36 months, with repayments estimated to begin in January 2024. (Refer to Note
14(b) to Consolidated Financial Statements in Part II, Item 8.)
(5) The Convertible Notes bear interest at a rate of 0.500% per annum on the principal of $230.0 million, payable semi-annually in arrears on April 1 and
October 1 of each year. The Convertible Notes will mature on April 1, 2026, unless earlier repurchased, redeemed or converted. (Refer to Note 14(b)
Consolidated Financial Statements in Part II, Item 8.)
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.
NON-GAAP FINANCIAL MEASURES
GAAP refers to generally accepted accounting principles in the United States of America. In this report, the Company presents financial measures in
accordance with GAAP and also on a non-GAAP basis under the SEC regulations. Specifically, the Company presents the following non-GAAP financial
measures as supplemental measures of its performance:
•
•
•
•
Adjusted net income or loss attributable to common shareholders;
Adjusted net income or loss attributable to common shareholders per basic and diluted share;
EBITDA; and
Adjusted EBITDA per Credit Facility.
Adjusted net income or loss attributable to common shareholders and adjusted net income or loss attributable to common shareholders per basic and
diluted share exclude, where applicable: (i) share-based compensation; (ii) COVID-19 government relief benefits; (iii) realized and unrealized investment
gains or losses; (iv) transaction-related expenses; and (v) restructuring and executive transition costs, as well as the related tax impact of these adjustments.
61
The Company believes that these non-GAAP financial measures are important supplemental measures that allow management and users of the
Company’s financial statements to view operating trends and analyze controllable operating performance on a comparable basis between periods without
the after-tax impact of share-based compensation and certain unusual items included in net loss attributable to common shareholders. Although share-based
compensation is an important aspect of the Company’s employee and executive compensation packages, it is a non-cash expense and is excluded from
certain internal business performance measures.
Reconciliations of net income (loss) attributable to common shareholders and the associated per share amounts to adjusted net income (loss) attributable
to common shareholders and adjusted net income attributable to common shareholders per basic and diluted share are presented in the table below.
(In thousands of U.S. Dollars, except per share amounts)
Net income (loss) attributable to common shareholders
Adjustments
(1)
:
Share-based compensation
Unrealized investment gains
Transaction-related expenses
Restructuring and executive transition costs
COVID-19 government relief benefits, net
Tax impact on items listed above
(2)
(3)
Adjusted net income
(1)
Weighted average shares outstanding - basic
Weighted average shares outstanding - diluted
(1) Reflects amounts attributable to common shareholders.
Years Ended December 31,
2023
2022
Net Income
$
25,335
Per Diluted
Share
Net (Loss)
Income
Per Diluted
Share
$
0.46 $
(22,800 ) $
(0.40 )
23,184
(558 )
3,361
2,688
—
(1,931 )
52,079
$
$
26,382
(70 )
1,122
—
(373 )
(1,054 )
3,207 $
0.42
(0.01 )
0.06
0.05
—
(0.04 )
0.94 $
54,310
55,146
0.46
—
0.02
—
(0.01 )
(0.02 )
0.06
56,674
57,371
(2) Reflects costs in connection with the Company’s proposal to acquire the outstanding 96.3 million shares in IMAX China in 2023 and costs incurred
associated with the acquisition of SSIMWAVE in 2022.
(3) Reflects costs in connection with the departure of the President, IMAX Entertainment and Executive Vice President of the Company and other
employees to capture efficiencies and centralize certain operational roles. (Refer to Note 26 to Consolidated Financial Statements in Part II, Item 8.)
In addition to the non-GAAP financial measures discussed above, management also uses “EBITDA,” as such term is defined in the Credit Agreement,
and which is referred to herein as “Adjusted EBITDA per Credit Facility.” As allowed by the Credit Agreement, Adjusted EBITDA per Credit Facility
includes adjustments in addition to the exclusion of interest, taxes, depreciation and amortization. Accordingly, this non-GAAP financial measure is
presented to allow a more comprehensive analysis of the Company’s operating performance and to provide additional information with respect to the
Company’s compliance with its Credit Agreement requirements, when applicable. In addition, the Company believes that Adjusted EBITDA per Credit
Facility presents relevant and useful information widely used by analysts, investors and other interested parties in the Company’s industry to evaluate,
assess and benchmark the Company’s results.
EBITDA is defined as net income or loss excluding: (i) income tax expense or benefit; (ii) interest expense, net of interest income; (iii) depreciation and
amortization, including film asset amortization; and (iv) amortization of deferred financing costs. Adjusted EBITDA per Credit Facility is defined as
EBITDA excluding: (i) share-based and other non-cash compensation; (ii) realized and unrealized investment gains or losses; (iii) transaction-related
expenses; (iv) restructuring and executive transition costs; and (v) write-downs, net of recoveries, including asset impairments and credit loss expense.
62
Reconciliations of net income attributable to common shareholders, which is the most directly comparable GAAP measure, to EBITDA and Adjusted
EBITDA per Credit Facility are presented in the table below.
For the Twelve Months Ended December 31, 2023
(In thousands of U.S. Dollars)
Reported net income
Add (subtract):
Income tax expense
Interest expense, net of interest income
Depreciation and amortization, including film asset amortization
Amortization of deferred financing costs
EBITDA
Share-based and other non-cash compensation
Unrealized investment gains
Transaction-related expenses
Write-downs, including asset impairments and credit loss expense
Restructuring and executive transition costs
(1)
(3)
(2)
Adjusted EBITDA per Credit Facility
$
$
Attributable to
Non-controlling
Interests and
Common Shareholders
Less:
Attributable to
Attributable to
Non-controlling Interests Common Shareholders
7,731 $
25,335
33,066 $
13,051
2,101
60,022
2,235
110,475
24,230
(465 )
3,569
3,273
2,946
144,028 $
1,725
(408 )
5,312
—
14,360
774
(93 )
208
362
258
15,869 $
11,326
2,509
54,710
2,235
96,115
23,456
(372 )
3,361
2,911
2,688
128,159
(1) The amortization of deferred financing costs is recorded within Interest Expense in the Consolidated Statements of Operations.
(2) Reflects costs incurred resulting from the Company’s proposal to acquire the outstanding 96.3 million shares in IMAX China.
(3) Reflects costs in connection with the departure of the President, IMAX Entertainment and Executive Vice President of the Company and other
employees to capture efficiencies and centralize certain operational roles. (Refer to Note 26 to Consolidated Financial Statements in Part II, Item 8.)
The Company cautions users of its financial statements that these non-GAAP financial measures may not be comparable to similarly titled measures
reported by other companies. Additionally, the non-GAAP financial measures used by the Company should not be considered in isolation, or as a substitute
for, or superior to, the comparable GAAP amounts.
63
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
(“CAD”), and Chinese Renminbi (“RMB”). 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 90 different countries, and therefore unfavorable exchange rates between applicable local currencies
and the U.S. Dollar could have an impact on the GBO generated by the Company’s exhibitor customers and its revenues. The Company has incoming cash
flows from its revenue generating IMAX network and ongoing operating expenses in China through its majority-owned subsidiary IMAX Shanghai. In
Japan, the Company has ongoing Yen-denominated operating expenses related to its Japanese operations. Net RMB 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 RMB, Japanese Yen, British Pound
Sterling, Euros and Canadian Dollars.
The Company manages its exposure to foreign exchange rate risks through its 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.
Certain of the Company’s PRC subsidiaries held approximately RMB 213.0 million or $30.0 million in cash and cash equivalents as of December 31,
2023 (December 31, 2022 — RMB 303.8 million or $43.6 million) and are required to transact locally in RMB. Foreign currency exchange transactions,
including the remittance of any funds into and out of the PRC, are subject to controls and require the approval of the China State Administration of Foreign
Exchange to complete. Any developments relating to the Chinese economy and any actions taken by the Chinese government are beyond the control of the
Company; however, the Company monitors and manages its capital and liquidity requirements to ensure compliance with local regulatory and policy
requirements. (Refer to “Risk Factors – The Company faces risks in connection with its significant presence in China and the continued expansion of its
business there”)
For the year ended December 31, 2023, the Company recorded a foreign exchange net loss of $0.7 million as compared to a foreign exchange net loss of
$3.2 million in 2022, associated with the translation of foreign currency denominated monetary assets and liabilities, primarily due to the slower pace of
RMB weakening against the U.S. Dollar throughout 2023 compared to 2022. The impact of changes in foreign currency valuations versus the U.S. Dollar
led to a decrease in GBO of $30.4 million in 2023 as compared to prior year rates.
The Company has entered into a series of foreign currency forward contracts to manage the risks associated with the volatility of foreign currencies.
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 as of December 31, 2023, with settlement dates throughout 2024 and 2025. Foreign currency
derivatives are recognized and measured in the Consolidated Balance Sheets at fair value. Changes in the fair value (i.e., gains or losses) are recognized in
the Consolidated Statements of Operations except for derivatives designated and qualifying as foreign currency cash flow hedging instruments. The
Company currently has cash flow hedging instruments associated with Selling, General and Administrative Expenses. For foreign currency cash flow
hedging instruments related to Selling, General and Administrative Expenses, the effective portion of the gain or loss in a hedge of a forecasted transaction
is reported within Accumulated Other Comprehensive Loss and reclassified to the Consolidated Statements of Operations when the forecasted transaction
occurs. Any ineffective portion is recognized immediately in the Consolidated Statements of Operations.
The notional value of foreign currency cash flow hedging instruments that qualify for hedge accounting as of December 31, 2023 was $40.6 million
(December 31, 2022 — $24.7 million). A gain of $0.6 million was recorded to Other Comprehensive (Loss) Income with respect to the change in fair value
of these contracts in 2023 (2022 — loss of $1.3 million; 2021 — gain of $0.5 million ). A loss of $0.9 million was reclassified from Accumulated Other
Comprehensive Loss to Selling, General and Administrative Expenses in 2023 (2022 — loss of $0.6 million; 2021 — gain of $1.7 million), primarily due
to the fairly stabilized CAD against the U.S. Dollar through most of 2023 compared to 2022, when the CAD weakened against the U.S. Dollar. In 2023,
there were no gains or losses resulting from a change in the classification of certain forward contracts no longer meeting the requirements for hedge
accounting were reclassified from Accumulated Other Comprehensive Loss to Selling, General and Administrative Expenses (2022 — $nil). The notional
value of forward contracts that do not qualify for hedge accounting as of December 31, 2023 was $nil (December 31, 2022 — $nil).
64
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.
As of December 31, 2023, the Company’s Financing Receivables and working capital items denominated in Canadian Dollars, RMB, Japanese Yen,
Euros and other foreign currencies translated into U.S. Dollars was $172.7 million, of which $172.5 million was denominated in RMB. Assuming a 10%
appreciation or depreciation in foreign currency exchange rates from the quoted foreign currency exchange rates as of December 31, 2023, the potential
change in the fair value of foreign currency-denominated financing receivables and working capital items would have been $17.3 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 as of December 31, 2023, the potential change in the amount of Selling, General, and Administrative
Expenses would be $0.2 million.
Interest Rate Risk Management
The Company’s earnings may also be affected by changes in interest rates and the resulting impact of those changes on its interest income from cash,
and its interest expense from variable-rate borrowings.
For the year ended December 31, 2023 the Company had drawn down $24.0 million on its Credit Facility (December 31, 2022 — $25.0 million), $nil
on its HSBC China Facility (December 31, 2022 — $12.5 million) and $nil on its Bank of China Facility (December 31, 2022 — $0.4 million), which are
all subject to variable effective interest rates.
The Company’s variable rate debt instruments were $24.0 million as of December 31, 2023 or 37% less than $37.9 million as of December 31 2022.
Variable rate debt instruments represented 5% and 8% of its total liabilities as of December 31, 2023 and 2022, respectively. If the interest rates available to
the Company increased by 10%, the Company’s interest expense would increase by $0.2 million and interest income from cash would increase by $0.2
million. These amounts are determined by considering the impact of the hypothetical interest rates on the Company’s variable rate debt and cash balances
as of December 31, 2023.
65
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB Firm ID 271)
Consolidated Balance Sheets as of December 31, 2023 and 2022
Consolidated Statements of Operations for the years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Comprehensive income (loss) for the years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2023, 2022 and 2021
Notes to Consolidated Financial Statements
Page
67
70
71
72
73
74
75
************
66
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of IMAX Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of IMAX Corporation and its subsidiaries (together, the Company) as of
December 31, 2023 and 2022, and the related consolidated statements of operations, comprehensive income(loss), shareholders’ equity and
cash flows for each of the three years in the period ended December 31, 2023, including the related notes (collectively referred to as the
consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2023,
based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion,
the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on
criteria established in Internal Control – Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Annual
Report on Internal Control over Financial Reporting appearing under Item 9A of this Annual Report on Form 10-K. Our responsibility is to
express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based
on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or
fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. 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.
Definition and Limitations of Internal Control over Financial Reporting
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.
67
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.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that
was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to
the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to
which it relates.
Revenue Recognition - IMAX Systems
As described in notes 2(o) and 20(a) to the consolidated financial statements, the Company recognized revenue from System Sales related
to the IMAX Technology Products and Services segment of $93.3 million for the year ended December 31, 2023 ($65.5 million for the year
ended December 31, 2022). Management evaluates whether a system arrangement involves either a sale or a lease of a system, and for
those arrangements that are accounted for as a sale of a system, determines the transaction price and the allocation thereof to each
separate performance obligation based on estimated standalone selling prices. For arrangements accounted for as a sale of a system, the
transaction price allocated to the performance obligation is recognized when the conditions signifying transfer of control have been met. For
system arrangements, management applied significant judgement in (i) determining whether the system arrangement related to either a sale
or a lease by considering the terms of the arrangement including title to the system equipment and payment consideration; (ii) estimating the
transaction price which may include the discounted present value of fixed ongoing payments and variable consideration (such as indexed
minimum payment increases and additional payments owed by the customer if certain minimum box office receipt thresholds are exceeded);
(iii) allocating the transaction price to each separate performance obligation based on estimated standalone selling prices; and (iv)
determining the timing of revenue recognition based on when performance obligations are met.
The principal considerations for our determination that performing procedures relating to the revenue recognition of System Sales is a critical
audit matter are that management identified the matter as a critical accounting estimate, and there was significant judgement required by
management in (i) determining whether the system arrangement related to a sale or a lease, and based on the type of sale or lease each
arrangement represents, whether it falls in the scope of ASC 606 or ASC 842; (ii) estimating the transaction price which may include the
discounted present value of fixed ongoing payments and variable consideration; (iii) allocating the transaction price to each separate
performance obligation; and (iv) determining the timing of revenue recognition. This in turn led to a high degree of auditor judgement,
subjectivity and effort in performing procedures and evaluating audit evidence relating to the revenue recognition of System Sales.
68
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the
consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition
process, including controls over management’s review and approval of revenue recognition memoranda produced for each system
arrangement which include the determination of the type of system arrangement, the estimate of the transaction price and allocation thereof
and the timing of the related revenue recognition. These procedures also included, among others, evaluating the reasonableness of
management’s assessment of whether the system arrangement related to either a sale or a lease by considering the contractual terms and
conditions of the executed contracts. Procedures were also performed to test management’s process for estimating the transaction price for
a sample of contracts with customers, including (i) evaluating the appropriateness of management’s discounted present value method; (ii)
testing the completeness, accuracy and relevance of the data used in estimating the transaction price; and (iii) evaluating the
reasonableness of significant assumptions used by management, including the discount rate and expected future performance of underlying
theatres associated with the arrangement. Evaluating management’s assumption related to the discount rate involved evaluating whether the
assumption was reasonable considering consistency with external market data. Evaluating management’s assumption related to expected
future performance of underlying theatres associated with the arrangement involved evaluating whether the assumption was reasonable
considering the current and past performance of the underlying theatres. Procedures were also performed to test management’s process for
allocating the transaction price to each separate performance obligation, including (i) evaluating the appropriateness of management’s
method of allocating the transaction price; (ii) testing the completeness, accuracy and relevance of the data used in allocating the transaction
price; and (iii) evaluating the reasonableness of significant assumptions used by management, including estimated standalone selling prices.
Evaluating management’s assumption related to estimated standalone selling prices involved evaluating whether the assumption was
reasonable by comparing the estimate to current and historical transactions. Evaluating the appropriateness of management’s assessment of
the timing of revenue recognition involved inspecting the customers’ certificates of acceptance and theatre openings during the year.
/s/ PricewaterhouseCoopers LLP
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Canada
February 27, 2024
We have served as the Company’s auditor since 1987, which includes periods before the Company became subject to SEC reporting
requirements.
69
IMAX CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. Dollars except share amounts)
As of December 31,
2023
2022
Assets
Cash and cash equivalents
Accounts receivable, net of allowance for credit losses
Financing receivables, net of allowance for credit losses
Variable consideration receivables, net of allowance for credit losses
Inventories
Prepaid expenses
Film assets, net of accumulated amortization
Property, plant and equipment, net of accumulated depreciation
Investment in equity securities
Other assets
Deferred income tax assets, net of valuation allowance
Goodwill
Other intangible assets, net of accumulated amortization
Total assets
Liabilities
Accounts payable
Accrued and other liabilities
Deferred revenue
Revolving credit facility borrowings, net of unamortized debt issuance costs
Convertible notes and other borrowings, net of unamortized discounts and debt issuance costs
Deferred income tax liabilities
Total liabilities
Commitments, contingencies and guarantees (see Notes 15 and 16)
Non-controlling interests
Shareholders’ equity
Capital stock common shares — no par value. Authorized — unlimited number.
53,260,276 issued and outstanding (December 31, 2022 — 54,148,614 issued and outstanding)
Other equity
Statutory surplus reserve
Accumulated deficit
Accumulated other comprehensive loss
Total shareholders’ equity attributable to common shareholders
Non-controlling interests
Total shareholders’ equity
Total liabilities and shareholders’ equity
$
$
$
$
76,200 $
136,259
127,154
64,338
31,584
12,345
6,786
243,299
—
20,879
7,988
52,815
35,022
814,669 $
26,386 $
111,013
67,105
22,924
229,131
12,521
469,080
97,401
136,142
129,384
44,024
31,534
12,343
5,277
252,896
1,035
15,665
9,900
52,815
32,738
821,154
25,237
117,286
70,940
36,111
226,912
14,900
491,386
658
722
389,048
185,087
3,932
(292,845 )
(12,081 )
273,141
71,790
344,931
814,669 $
376,715
185,678
3,932
(293,124 )
(9,846 )
263,355
65,691
329,046
821,154
(See the accompanying notes, which are an integral part of these Consolidated Financial Statements)
70
IMAX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of U.S. Dollars, except per share amounts)
Revenues
Technology sales
Image enhancement and maintenance services
Technology rentals
Finance income
Costs and expenses applicable to revenues
Technology sales
Image enhancement and maintenance services
Technology rentals
Gross margin
Selling, general and administrative expenses
Research and development
Amortization of intangible assets
Credit loss expense (reversal), net
Asset impairments
Legal judgment and arbitration awards
Restructuring and executive transition costs
Income (loss) from operations
Realized and unrealized investment gains
Retirement benefits non-service expense
Interest income
Interest expense
Income (loss) before taxes
Income tax expense
Net income (loss)
Net income attributable to non-controlling interests
Net income (loss) attributable to common shareholders
Net income (loss) per share attributable to common shareholders:
Basic
Diluted
Weighted average shares outstanding (in thousands):
Basic
Diluted
$
$
$
$
Years Ended December 31,
2023
2022
2021
100,792 $
189,752
75,566
8,729
374,839
46,756
88,056
25,686
160,498
214,341
144,406
10,110
4,578
1,759
144
—
2,946
50,398
465
(411 )
2,486
(6,821 )
46,117
(13,051 )
33,066
(7,731 )
25,335 $
69,158 $
161,379
61,786
8,482
300,805
37,610
81,834
25,006
144,450
156,355
138,043
5,300
4,829
8,547
4,470
—
—
(4,834 )
70
(556 )
1,428
(5,877 )
(9,769 )
(10,108 )
(19,877 )
(2,923 )
(22,800 ) $
0.47 $
0.46 $
(0.40 ) $
(0.40 ) $
54,310
55,146
56,674
56,674
66,153
131,148
46,790
10,792
254,883
37,039
58,062
25,376
120,477
134,406
117,322
6,944
4,877
(3,951 )
—
(1,770 )
—
10,984
5,340
(463 )
2,218
(7,092 )
10,987
(20,564 )
(9,577 )
(12,752 )
(22,329 )
(0.38 )
(0.38 )
59,126
59,126
(See the accompanying notes, which are an integral part of these Consolidated Financial Statements)
71
IMAX CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands of U.S. Dollars)
Net income (loss)
Other comprehensive (loss) income, before tax
Unrealized defined benefit plan actuarial (loss) gain
Unrealized postretirement benefit plans actuarial (loss) gain
Amortization of defined benefit and postretirement benefit plans net gain
Amortization of prior service cost
Unrealized net gain (loss) from cash flow hedging instruments
Realized net loss (gain) from cash flow hedging instruments
Reclassification of unrealized gain from ineffective cash flow hedging instruments
Foreign currency translation adjustments
Total other comprehensive (loss) income, before tax
Income tax (expense) benefit related to other comprehensive income
Other comprehensive (loss) income, net of tax
Comprehensive income (loss)
Comprehensive (income) loss attributable to non-controlling interests
Comprehensive income (loss) attributable to common shareholders
Years Ended December 31,
2023
2022
2021
$
33,066
$
(19,877 )
$
(9,577 )
(75 )
(37 )
(604 )
—
575
892
—
(3,907 )
(3,156 )
(181 )
(3,337 )
29,729
(6,629 )
23,100
$
2,901
754
—
184
(1,323 )
596
—
(20,594 )
(17,482 )
(818 )
(18,300 )
(38,177 )
3,004
(35,173 )
$
132
140
—
185
468
(1,707 )
(318 )
3,364
2,264
286
2,550
(7,027 )
(13,763 )
(20,790 )
$
(See the accompanying notes, which are an integral part of these Consolidated Financial Statements)
72
IMAX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. Dollars)
Operating Activities
Net income (loss)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization
Amortization of deferred financing costs
Credit loss expense (reversal), net
Write-downs, including asset impairments
Deferred income tax (benefit) expense
Share-based and other non-cash compensation
Unrealized foreign currency exchange (gain) loss
Realized and unrealized investment gain
Changes in assets and liabilities:
Accounts receivable
Inventories
Film assets
Deferred revenue
Changes in other operating assets and liabilities
Net cash provided by operating activities
Investing Activities
Purchase of property, plant and equipment
Investment in equipment for joint revenue sharing arrangements
Interest in film classified as a financial instrument
Acquisition of other intangible assets
Proceeds from sale of equity securities
Acquisition of SSIMWAVE Inc., net of cash and cash equivalents acquired
Net cash used in investing activities
Financing Activities
Proceeds from issuance of convertible notes, net
Debt issuance costs related to convertible notes
Purchase of capped calls related to convertible notes
Proceeds from revolving credit facility borrowings
Repayments of revolving credit facility borrowings
Proceeds from other borrowings
Repayment of other borrowings
Credit facility amendment fees paid
Repurchase of common shares, IMAX Corporation
Repurchase of common shares, IMAX China
Taxes withheld and paid on employee stock awards vested
Common shares issued - stock options exercised
Principal payment under finance lease obligations
Dividends paid to non-controlling interests
Net cash used in by financing activities
Effects of exchange rate changes on cash
Decrease 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,
2023
2022
2021
$
33,066 $
(19,877 ) $
(9,577 )
60,022
2,235
1,759
1,884
(1,447 )
24,230
(212 )
(465 )
(1,907 )
(285 )
(20,394 )
(3,882 )
(35,989 )
58,615
(6,491 )
(18,000 )
—
(8,344 )
1,045
—
(31,790 )
56,661
3,177
8,547
7,176
(2,073 )
27,573
1,108
(70 )
(29,003 )
(5,529 )
(19,598 )
(11,572 )
801
17,321
(8,424 )
(19,803 )
(4,731 )
(4,394 )
—
(15,939 )
(53,291 )
—
—
—
39,717
(53,248 )
322
(53 )
(46 )
(26,823 )
(15 )
(6,466 )
—
(480 )
(1,438 )
(48,530 )
504
(21,201 )
97,401
76,200 $
—
—
—
37,871
(3,600 )
—
—
(2,279 )
(80,124 )
(3,043 )
(3,687 )
—
(948 )
(2,704 )
(58,514 )
2,174
(92,310 )
189,711
97,401 $
$
56,082
2,513
(3,951 )
1,764
2,996
26,079
256
(5,340 )
(52,453 )
11,451
(14,810 )
(6,591 )
(2,354 )
6,065
(3,590 )
(10,094 )
—
(4,092 )
17,769
—
(7 )
223,675
(1,161 )
(19,067 )
3,600
(307,609 )
—
—
(527 )
(13,905 )
(10,060 )
(3,660 )
883
—
(4,889 )
(132,720 )
(1,006 )
(127,668 )
317,379
189,711
(See the accompanying notes, which are an integral part of these Consolidated Financial Statements)
73
IMAX CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands of U.S. Dollars except share amounts)
2023
Years Ended December 31,
2022
2021
Adjustments to capital stock:
Balance, beginning of year
Change in shares held in treasury
Restricted share units vested, net of shares withheld for employee tax obligations
Employee stock options exercised, net of shares withheld for employee tax obligations
Grant date fair value of stock options exercised
Average carrying value of repurchased and retired common shares
Issuance of common shares in acquisition
Balance, end of year
Adjustments to other equity:
Balance, beginning of year
Amortization of share-based payment expense - stock options
Amortization of share-based payment expense - restricted share units
Amortization of share-based payment expense - performance stock units
Restricted share units vested
Grant date fair value of stock options exercised
Change in ownership interest related to IMAX China common share repurchases
Purchase of capped calls related to convertible notes
Balance, end of year
Adjustments to statutory surplus reserve:
Balance, beginning of year
Establishment of statutory surplus reserve, IMAX China
Balance, end of period
Adjustments to accumulated deficit:
Balance, beginning of year
Net income (loss) attributable to common shareholders
Statutory surplus reserve deducted from retained earnings, IMAX China
Common shares repurchased and retired
Balance, end of year
Adjustments to accumulated other comprehensive (loss) income:
Balance, beginning of year
Other comprehensive (loss) income, net of tax
Balance, end of year
Adjustments to non-controlling interests:
Balance, beginning of year
Net income attributable to non-controlling interests
Other comprehensive (loss) income, net of tax
Share-based compensation attributable to non-controlling interests
Establishment of statutory surplus reserve, IMAX China
Statutory surplus reserve deducted from IMAX China retained earnings
Dividends paid to non-controlling shareholders of IMAX China
Change in ownership interest related to IMAX China common share repurchases
Balance, end of year
Total Shareholders’ Equity
Common shares issued and outstanding:
Balance, beginning of year
Employee stock options exercised
Restricted share units and stock option exercises settled from treasury shares purchased on open market
Performance stock units settled with new treasury shares
Restricted share units settled with new treasury shares
Repurchase of common shares
Issuance of common shares in acquisition
Balance, end of year
$
$
$
376,715
—
13,701
—
—
(1,368 )
—
389,048
185,678
93
12,502
8,321
(21,074 )
—
(433 )
—
$
409,979
—
11,597
—
—
(46,808 )
1,947
376,715
174,620
637
18,952
8,495
(16,441 )
—
(585 )
—
185,087
185,678
3,932
—
3,932
(293,124 )
25,335
—
(25,056 )
(292,845 )
(9,846 )
(2,235 )
(12,081 )
65,691
7,793
(1,102 )
428
—
—
(1,438 )
418
71,790
344,931 $
3,932
—
3,932
(234,975 )
(22,800 )
—
(35,349 )
(293,124 )
2,527
(12,373 )
(9,846 )
73,531
2,959
(5,927 )
290
—
—
(2,704 )
(2,458 )
65,691
329,046 $
407,020
11
9,833
883
271
(8,039 )
—
409,979
188,845
1,267
17,116
5,733
(14,740 )
(271 )
(4,263 )
(19,067 )
174,620
—
3,932
3,932
(202,849 )
(22,329 )
(3,932 )
(5,865 )
(234,975 )
988
1,539
2,527
70,004
12,753
1,011
449
1,699
(1,699 )
(4,889 )
(5,797 )
73,531
429,614
54,148,614
—
—
233,306
514,383
(1,636,027 )
—
53,260,276
58,653,642
—
—
—
596,277
(5,261,852 )
160,547
54,148,614
58,921,008
41,613
723
—
531,629
(841,331 )
—
58,653,642
(See the accompanying notes, which are an integral part of these Consolidated Financial Statements)
74
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” or “IMAX”) is a Canadian corporation that 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. As of December 31, 2023, IMAX Corporation indirectly owns 71.55% of IMAX China Holding, Inc. (“IMAX China”), whose shares
trade on the Hong Kong Stock Exchange. IMAX China is a consolidated subsidiary of the Company.
IMAX is a premier global technology platform for entertainment and events. Through its proprietary software, auditorium architecture, patented
intellectual property, and specialized equipment, IMAX offers a unique end-to-end solution to create superior, immersive content experiences for which the
IMAX® brand is globally renowned. Top filmmakers, movie studios, artists, and creators utilize the cutting-edge visual and sound technology of IMAX to
connect with audiences in innovative ways. As a result, IMAX is among the most important and successful global distribution platforms. The Company’s
global content portfolio includes blockbuster films, both from Hollywood and local language film industries worldwide; IMAX documentaries, both
original and acquired (“IMAX Documentaries”); and IMAX events and experiences in emerging verticals including music, gaming, and sports.
The Company leverages its proprietary technology and engineering in all aspects of its business, which principally consists of the IMAX film
remastering (“IMAX Film Remastering” and formerly known as “IMAX DMR”) and the sale or lease of premium IMAX theater systems (“IMAX
System(s)”).
IMAX Systems are based on proprietary and patented image, audio and other technology developed over the course of the Company’s history since its
founding in 1967. The customers for IMAX Systems are principally theatrical exhibitors that operate commercial multiplex theaters, and, to a much lesser
extent, museums, science centers and destination entertainment sites. The Company does not own the locations in the IMAX network, except for one, and
is not an exhibitor, but instead sells or leases the IMAX System to exhibitor customers along with a license to use its trademarks and ongoing maintenance
services.
As of December 31, 2023, there were 1,772 IMAX Systems operating in 90 countries and territories, including 1,693 commercial multiplexes, 12
commercial destinations and 67 institutional locations in the Company’s global network. This compares to 1,716 IMAX Systems operating in 87 countries
and territories as of December 31, 2022 including 1,633 commercial multiplexes, 12 commercial destinations, and 71 institutional locations in the
Company’s global network.
The Company also distributes large-format documentary films, primarily to institutional theaters, and distributes exclusive IMAX events and
experiences. In addition, the Company provides film post-production and quality control services for large-format films, whether produced by IMAX or
third parties, and digital post-production services.
2. Summary of Significant Accounting Policies
The Company prepares its Consolidated Financial Statements in accordance with United States Generally Accepted Accounting Principles (“U.S.
GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The significant accounting policies used by the
Company are summarized below.
(a) Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company together with its consolidated subsidiaries, except for subsidiaries which
have been identified as variable interest entities (“VIEs”) where the Company is not the primary beneficiary. All intercompany accounts and transactions
have been eliminated. The Company has evaluated its various variable interests to determine whether they are VIEs as required by U.S. GAAP.
75
The Company has interests in 10 film production companies, which have been identified as VIEs. The Company is the primary beneficiary of and
consolidates five of these entities as it has the power to direct the activities that most significantly impact the economic performance of the VIE, and it has
the obligation to absorb losses or the right to receive benefits from the respective VIE that could potentially be significant. The majority of the assets
relating to these production companies are held by the IMAX Original Film Fund (the “Original Film Fund”) as described in Note 25(b). The Company
does not consolidate the other five film production companies because it does not have the power to direct their activities and it does not have the
obligation to absorb the majority of the expected losses or the right to receive expected residual returns. The Company uses the equity method of
accounting for these entities, which are not material to the Company’s Consolidated Financial Statements. A loss in value of an equity method investment
that is other than temporary is recognized as a charge in the Consolidated Statements of Operations.
As of December 31, 2023 and 2022, total assets and liabilities of the Company’s consolidated VIEs are as follows:
(In thousands of U.S. Dollars)
Total assets
Total liabilities
(b) Estimates and Assumptions
December 31,
2023
December 31,
2022
$
$
1,425 $
246 $
1,523
248
The preparation of financial statements and related disclosures in accordance with U.S. GAAP requires management to make judgments, assumptions,
and estimates that affect the amounts reported in the Company’s Consolidated Financial Statements and accompanying notes. Management’s judgments,
assumptions, and estimates are based on historical experience, future expectations and other factors that are believed to be reasonable as of the date of the
Consolidated Financial Statements. Actual results may ultimately differ from management’s original estimates, as future events and circumstances
sometimes do not develop as expected, and the differences may be material.
Significant estimates made by management include, but are not limited to: (i) the allocation of the transaction price in an IMAX System arrangement to
distinct performance obligations; (ii) the amount of variable consideration to be earned on sales of IMAX Systems based on projections of future box office
performance; (iii) expected credit losses on accounts receivable, financing receivables, and variable consideration receivables; (iv) provisions for the write-
down of excess and obsolete inventory; (v) the fair values of the reporting units used in assessing the recoverability of goodwill; (vi) the cash flow
projections used in testing the recoverability of long-lived assets such as the IMAX System equipment supporting joint revenue sharing arrangements; (vii)
the economic lives of the IMAX System equipment supporting joint revenue sharing arrangements; (viii) the useful lives of intangible assets; (ix) the
ultimate revenue forecasts used to test the recoverability of film assets; (x) the discount rates used to determine the present value of financing receivables
and lease liabilities, as well as to determine the fair values of the Company’s reporting units for the purpose of assessing the recoverability of goodwill; (xi)
pension plan assumptions; (xii) estimates related to the fair value and projected vesting of share-based payment awards; (xiii) the valuation of deferred
income tax assets; (xiv) reserves related to uncertain tax positions; and (xv) the allocation of the purchase price for the acquisition of SSIMWAVE Inc. and
its wholly-owned subsidiary (together, “SSIMWAVE”).
Commencing in March 2022, in response to numerous sanctions imposed by the United States, Canada and the European Union on companies
transacting in Russia and Belarus resulting from ongoing conflict between Russia and Ukraine, the Company suspended its operations in Russia and
Belarus. In 2022, the Company recorded provisions for potential credit losses against substantially all of its receivables in Russia due to uncertainties
associated with the ongoing conflict and resulting sanctions. These receivables relate to existing sale agreements as the Company is not party to any joint
revenue sharing arrangements in these countries. In addition, exhibitors in Russia, Ukraine, and Belarus were placed on nonaccrual status for maintenance
revenue and finance income. In 2023, due to the resumption of operations throughout Ukraine’s theatrical exhibition industry, as evidenced by the
reopening of all IMAX Systems in Ukraine and payments received from exhibitor customers therein, the Company recognized maintenance revenue and
finance income in connection with those theaters. The Company closely monitors geopolitical conflicts (including any government sanctions imposed in
response thereto) and its effects on the global economy and the Company.
76
On September 7, 2022, Cineworld Group plc (“Cineworld”), the parent company of Regal, and certain of its subsidiaries and Regal CineMedia
Holdings, LLC, filed petitions for reorganization under Chapter 11 of the United States Bankruptcy Code in the Southern District of Texas. The Court
approved Cineworld’s Plan of Reorganization (the “Plan”) on June 28, 2023, in which Cineworld disclosed that it plans to emerge from the Chapter 11
proceedings on or about July 28, 2023. On August 30, 2023, the Company and Cineworld entered into a Joint Stipulation and Agreed Order, which was
entered by the Court on September 21, 2023 (the “Stipulation”), pursuant to which Cineworld assumed its global agreement with IMAX (the “Global
Agreement”). The Stipulation provides that all amounts owed to IMAX will be paid by Cineworld and set out a revised timetable for all systems
installations required of Cineworld under the Global Agreement. Cineworld has emerged from the Chapter 11 proceedings, and the Stipulation finalizes all
matters between IMAX and Cineworld as a result of the restructuring. The Company has determined that no additional provision for expected credit losses
is required.
(c) Cash and Cash Equivalents
The Company considers all highly liquid investments convertible to a known amount of cash and with an original maturity of three months or less to be
cash equivalents.
(d) Receivables
The Company develops an estimate of expected credit losses by class of receivable and customer type through a calculation that utilizes historical loss
rates which are then adjusted for specific receivables that are judged to have a higher-than-normal risk profile after considering management’s internal
credit quality classifications, as well as macro-economic and industry risk factors. The write-off of any billed receivable balance requires the approval of
management.
(Refer to Note 5 for more information related to the Company’s receivables and current expected credit losses.)
(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 includes the cost of raw materials, direct labor, theater design costs, and an
applicable share of manufacturing overhead costs.
The costs related to IMAX Systems under sale and sales-type lease arrangements are transferred from Inventories to Costs and Expenses Applicable to
Revenues – Technology Sales in the period when the sale is recognized in the Consolidated Statements of Operations. The costs related to IMAX Systems
under joint revenue sharing arrangements are transferred from Inventories to assets under construction in Property, Plant and Equipment when allocated to
a signed joint revenue sharing arrangement.
The Company records write-downs for excess and obsolete inventory based upon management’s judgments regarding future events and business
conditions, including the anticipated installation dates for the current backlog of theater system contracts, contracts in negotiation, technological
developments, growth prospects within the customers’ ultimate marketplace and anticipated market acceptance of the Company’s current and pending
theater IMAX Systems.
Finished goods inventories includes IMAX Systems for which title has passed to the Company’s customer in situations when the IMAX System has
been delivered to the customer, but the criteria for revenue recognition were not met as of the balance sheet date.
(f) Film Assets
Film Assets consist of: (i) capitalized costs associated with the digital remastering of films where the copyright is owned by a third party, including labor
and allocated overhead, and (ii) capitalized costs associated with the production of films, including labor, allocated overhead, and the cost of acquiring film
rights. Production financing provided by third parties that acquire substantive rights in the film is recorded as a reduction of the cost of the film.
Capitalized film costs are amortized and participation costs are accrued to Costs and Expenses Applicable to Revenues using the individual-film-
forecast method, which amortizes such costs in the same ratio as the associated ultimate revenue. 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 reflect
management’s estimates of future revenue over a period not to exceed 10 years following the date of the film’s initial release.
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The recoverability of the Company’s film assets is dependent upon the commercial acceptance of the underlying films and the resulting level of box
office results and, in certain situations, ancillary revenues. If management’s projections of future net cash flows resulting from the exploitation of a film
indicate that the carrying value of the film asset is not recoverable, the film asset is written down to its fair value.
Film exploitation costs, including advertising and marketing, are recorded in Costs and Expenses Applicable to Revenues – Image Enhancement and
Maintenance Services as incurred, except for those costs that are made after recognizing revenue, which are recorded when the related revenues are
recognized.
(g) Property, Plant and Equipment
Property, Plant and Equipment is recorded at cost and is depreciated on a straight-line basis over the estimated useful lives of the underlying assets as
follows:
(1)
IMAX System components
Camera equipment and connectivity equipment
Buildings
Office and production equipment
Leasehold improvements
— Over the equipment’s expected useful life (7 to 20 years)
— Over a period between 5 to 10 years
— Over a period between 20 to 25 years
— Over a period between 3 to 5 years
— Over the shorter of the initial term of the underlying lease plus any reasonably
assured renewal periods, and the useful life of the asset
(1)
Includes equipment under joint revenue sharing arrangements.
The cost of IMAX System components and related equipment expected to be used in future joint revenue sharing arrangements, including related direct
labor costs and an allocation of direct production costs, are recorded within assets under construction until the underlying IMAX System is installed and in
working condition. These assets are depreciated to Costs and Expenses Applicable to Revenues on a straight-line basis over the lesser of the term of the
joint revenue sharing arrangement and the equipment’s expected useful life. The estimated useful lives of the system components and related equipment
used in joint revenue sharing arrangements are reviewed periodically to determine if any adjustments are required.
Property, Plant and Equipment is grouped at the lowest level for which identifiable cash flows are largely independent and reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of the asset (or asset group) may not be recoverable. In such situations, the
asset (or asset group) is considered impaired when estimated future cash flows (undiscounted and without interest charges) resulting from the use of the
asset (or asset group) and its eventual disposition are less than the carrying value of the asset (or asset group). In such situations, the asset (or asset group)
is written down to its fair value, which is the present value of the estimated future cash flows. Factors that are considered when evaluating such assets for
impairment include a current expectation that it is more likely than not that the long-lived asset will be sold significantly before the end of its useful life, a
significant decrease in the market price of the long-lived asset, and a significant change in the extent or manner in which the long-lived asset is being used.
(h)
Investment in Equity Securities
Equity securities with readily determinable fair values are reported at fair value with changes in fair value recorded within Realized and Unrealized
Investment Gains (Losses) in the Consolidated Statements of Operations.
(i) Other Assets
Other Assets principally includes lease incentives provided to certain exhibitor customers under joint revenue sharing arrangements classified as an
operating lease, as well as sales commissions and other deferred selling expenses that directly relate to the acquisition of the revenue generating contract
and are incremental to the Company’s other expenses. To a much lesser extent, Other Assets also includes various investments and foreign currency
derivatives.
Capitalized lease incentives are amortized on a straight-line basis over the term of the lease and are recorded within Costs and Expenses Applicable to
Revenues — Technology Rentals. Sales commissions and other selling expenses paid prior to the recognition of the related revenue are deferred and
recognized within Costs and Expenses Applicable to Revenues upon the client acceptance of the IMAX System or the abandonment of the sale
arrangement. Foreign currency derivatives are accounted for at fair value using quoted prices in active markets.
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In periods when there are no outstanding borrowings under the Company’s revolving credit facility arrangements, any related debt issuance costs are
recorded within Other Assets and amortized on a straight-line basis over the term of the facility. In periods when there are outstanding borrowings under
the Company’s revolving credit facility arrangements, any related debt issuance costs are reclassified to reduce the principal amount of outstanding
borrowings and amortized on a straight-line basis over the term of the facility. (Refer to Note 14 for information related to the Company’s borrowings.)
(j) Goodwill
Goodwill represents the excess of the purchase price paid over the fair value of net assets acquired in a business combination. Goodwill is not
amortized, but is tested annually for impairment at the reporting unit level in the fourth quarter of the year and between annual tests if indicators of
potential impairment exist. These indicators could include a decline in the Company’s stock price and market capitalization, a significant change in the
outlook for the reporting unit's business, including projections of future box office results and IMAX System installations, lower than expected operating
results, increased competition, legal factors, or the sale or disposition of a significant portion of a reporting unit. For reporting units with goodwill, an
impairment loss is recognized for the amount by which the reporting unit's carrying value, including goodwill, exceeds its fair value. The carrying value of
each reporting unit is based on a systematic and rational allocation of certain assets and liabilities. The fair value of each reporting unit is assessed using a
discounted cash flow model based on management’s current short-term forecast and estimated long-term projections, against which various sensitivity
analyses are performed. The discount rates used in the cash flow model are derived based on the Company’s estimated weighted average cost of capital.
These estimates and the likelihood of future changes in these estimates depend on a number of underlying variables and a range of possible outcomes.
(k) Other Intangible Assets
Other intangible assets with finite lives are generally amortized on a straight-line basis over estimated useful lives ranging from 3 to 20 years, except for
intangible assets that have an identifiable pattern of consumption of the economic benefit of the asset. Such intangible assets are amortized over the
consumption pattern.
Research and development acquired in a business combination is measured at fair value using market-participant assumptions and is initially classified
as an indefinite-lived intangible asset. The in-process intangible research and development (“IPR&D”) assets are considered indefinite-lived until the
abandonment or completion of the associated research and development efforts. If the acquired IPR&D project is abandoned, the related intangible would
be written off or impaired. Once the IPR&D activities are completed, management would determine the useful lives and the methods of amortization of the
related intangible assets.
The Company capitalizes costs associated with internally developed and/or purchased software systems for internal use that have reached the application
development stage. Capitalized costs include external direct costs of materials and services utilized in developing or obtaining internal-use software and
payroll and payroll-related expenses for employees who are directly associated with and allocate time to the internal-use software project. Capitalization of
such costs begins when the preliminary project stage is complete and ceases no later than the point at which the project is substantially complete and ready
for its intended purpose. Costs incurred during the preliminary project and post-implementation stages are charged to expense. These capitalized costs are
amortized on a straight-line basis over the estimated useful life.
Intangible Assets are grouped at the lowest level for which identifiable cash flows are largely independent and reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the asset (or asset group) may not be recoverable. In such situations, the asset (or
asset group) is considered impaired when estimated future cash flows (undiscounted and without interest charges) resulting from the use of the asset (or
asset group) and its eventual disposition are less than the carrying value of the asset (or asset group). In such situations, the asset (or asset group) is written
down to its fair value, which is the present value of the estimated future cash flows. Factors that are considered when evaluating intangible assets for
impairment include a current expectation that it is more likely than not that the intangible asset will be sold significantly before the end of its useful life, a
significant decrease in the market price of the intangible asset, and a significant change in the extent or manner in which the intangible asset is being used.
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(l) Deferred Revenue
In instances where the Company receives consideration prior to satisfying its performance obligations, the recognition of revenue is deferred. The
majority of the Deferred Revenue balance relates to payments received by the Company for IMAX Systems where control of the system has not transferred
to the customer. The Deferred Revenue balance related to an individual location increases as progress payments are made and is then derecognized when
control of the system is transferred to the customer. To a lesser extent, the Deferred Revenue balance also relates to situations when an exhibitor customer
pays the contractual maintenance fee prior to the recognition of revenue.
(m) Statutory Surplus Reserve
Pursuant to the corporate law of the People’s Republic of China (“PRC”), entities registered in the PRC are required to maintain certain statutory
reserves, which are appropriated from after-tax profits, after offsetting accumulated losses from prior year and before dividends can be declared or paid to
equity holders.
The Company’s PRC subsidiaries are required to appropriate 10% of statutory net profits to statutory surplus reserves, upon distribution of their after-
tax profits. The Company’s PRC subsidiaries may discontinue the appropriation of statutory surplus reserves when the aggregate sum of the statutory
surplus reserve is more than 50% of their registered capital. The statutory surplus reserve is non-distributable other than during liquidation and may only be
used to fund losses from prior years, to expand production operations, or to increase the capital of the subsidiaries. In addition, the subsidiaries may make
further contribution to a discretionary surplus reserve using post-tax profits in accordance with resolutions of the Board of Directors.
(n)
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 Company’s Consolidated Financial Statements
in the period in which the change is enacted. Investment tax credits are recognized as a reduction of income tax expense.
The Company assesses the 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 in the current period. In assessing the need for a valuation allowance, management considers, among other things, projections of future taxable
income and ongoing prudent and feasible tax planning strategies. If management determines that sufficient negative evidence exists, then management will
consider recording a valuation allowance against a portion or all of the deferred tax assets in that jurisdiction. If, after recording a valuation allowance,
management’s projections of future taxable income and other positive evidence considered in evaluating the need for a valuation allowance prove, with the
benefit of hindsight, to be inaccurate, it could prove more difficult to support the realization of these deferred tax assets. As a result, an additional valuation
allowance could be required, which would have an adverse impact on the Company’s effective income tax rate and results. Conversely, if, after recording a
valuation allowance, management determines that sufficient positive evidence exists in the jurisdiction in which a valuation allowance is recorded, the
Company may reverse all or a portion of the valuation allowance in that jurisdiction. In such situations, the adjustment made to the deferred tax asset would
have a favorable impact on the Company’s effective income tax rate and results in the period such determination was made.
The Company is subject to ongoing tax exposures, examinations and assessments in various jurisdictions. Tax benefits are recognized only when it is
more likely than not, based on the technical merits, that the benefits will be sustained on examination. Tax benefits that meet the more likely than not
recognition threshold are measured using a probability weighting of the largest amount of tax benefit that has greater than 50% likelihood of being realized
upon settlement. Whether the more likely than not recognition threshold is met for a particular tax benefit is a matter of judgment based on the individual
facts and circumstances evaluated in light of all available evidence as of the balance sheet date. Although management believes that the Company has
adequately accounted for its uncertain tax positions, tax audits can result in subsequent assessments where the ultimate resolution may result in the
Company owing additional taxes above what was originally recognized in its financial statements.
Tax reserves for uncertain tax positions are adjusted by the Company to reflect its best estimate of the outcome of examinations and assessments and in
light of changing facts and circumstances, such as the completion of a tax audit, expiration of a statute of limitations, the refinement of an estimate, and
interest accruals associated with the uncertain tax positions until they are resolved. Some of these adjustments require significant judgment in estimating
the timing and amount of the additional tax expense.
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(o) Revenue Recognition
IMAX Systems
The Company evaluates each of the performance obligations in an IMAX System arrangement to determine which are considered distinct, either
individually or in a group, for accounting purposes and which of the deliverables represent separate performance obligations.
The Company’s “System Obligation” consists of the following: (i) an IMAX System, which includes the projector, sound system, screen system and, if
applicable, a 3D glasses cleaning machine; (ii) services associated with the IMAX System, including auditorium design support, the supervision of
installation services, and projectionist training; and (iii) a license to use the IMAX brand to market the auditorium. The System Obligation, as a group, is a
distinct performance obligation. The Company is not responsible for the physical installation of the equipment in the customer’s facility; however, it
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.
IMAX System arrangements also include a requirement for the Company to provide maintenance services and an extended warranty over the life of the
arrangement in exchange for an annual maintenance fee, which is subject to a consumer price index increase on renewal each year. Consideration related to
the provision of maintenance services is included in the allocation of the transaction price to the separate performance obligations in the arrangement at
contract inception, as discussed in more detail below. The Company’s maintenance services are a stand ready obligation and, as a result, are recognized on
a straight-line basis over the contract term.
The transaction price in an IMAX System arrangement is allocated to each good or service that is identified as a separate performance obligation based
on estimated standalone selling prices. This allocation is based on observable prices when the Company sells the goods or services separately. The
Company has established standalone prices for the System Obligation and maintenance and extended warranty services, as well as for film license
arrangements. The Company uses an adjusted market assessment approach for separate performance obligations that do not have standalone selling prices
or third-party evidence of estimated standalone selling prices. The Company considers multiple factors including its historical pricing practices, product
class, market competition and geography.
IMAX System arrangements involve either the lease or the sale of an IMAX System. The transaction price for the System Obligation, other than for
IMAX Systems delivered pursuant to joint revenue sharing arrangements, consist of upfront or initial payments made before and after the final installation
of the system and ongoing payments throughout the term of the arrangement. The Company estimates the transaction price, including an estimate of future
variable consideration, received in exchange for the goods delivered or services rendered. The arrangement for the sale of an IMAX System includes
indexed minimum payment increases over the term of the arrangement, as well as the potential for additional payments owed by the exhibitor customer if
certain minimum box office receipt thresholds are exceeded. In addition, hybrid sales arrangements include amounts owed by the exhibitor customer based
on a percentage of their box office receipts over the term of the arrangement. These contract provisions are considered to be variable consideration. An
estimate of the present value of such variable consideration is recognized as revenue upon the transfer of control of the System Obligation to the customer,
subject to constraints to ensure that there is not a risk of significant revenue reversal. This estimate is based on management’s box office projections for the
individual location, which are developed using historical data for the location and, if necessary, comparable theaters and territories (see “Constraints on the
Recognition of Variable Consideration” below). Transfer of control of the System Obligation occurs at the earlier of client acceptance of the installation of
the IMAX System, including projectionist training, and the opening of the location to the public, as discussed in more detail below.
IMAX System 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.
Sales Arrangements
For IMAX System arrangements that qualify as a sale, the transaction price allocated to the System Obligation is recognized in the Consolidated
Statements of Operations upon the transfer of control of the system to the customer, which is 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) the 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) the public opening of the IMAX System.
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The initial revenue recognized in a sales arrangement consists of payments made before and in connection with the installation of the IMAX System and
the present value of any future payments, including ongoing fixed minimum payments, which are subject to indexed increases over the term of the
arrangement, and potential additional payments owed by the customer if certain minimum box office receipt thresholds are exceeded. In addition, hybrid
sales arrangements include amounts owed by the customer based on a percentage of their box office receipts over the term of the arrangement. Potential
payments based on the future box office receipts of the customer are considered to be variable consideration. An estimate of the present value of such
variable consideration is recognized as revenue upon the transfer of control of the System Obligation to the customer, subject to constraints to ensure that
there is not a risk of significant revenue reversal (see “Constraints on the Recognition of Variable Consideration” below).
The Company has also agreed, on occasion, to sell equipment under lease or at the end of a lease term. The transaction price agreed to for these lease
buyouts is reflected in the Company’s Consolidated Statements of Operations within Revenues – Technology Sales.
Taxes assessed by governmental authorities that are both imposed on and concurrent with the specific revenue-producing transactions and collected by
the Company have been excluded from the measurement of the transaction prices discussed above.
Constraints on the Recognition of Variable Consideration
The recognition of variable consideration involves a significant amount of judgment. Variable consideration is recognized subject to appropriate
constraints to avoid a significant reversal of revenue in future periods. The Company reviews its variable consideration assets on at least a quarterly basis
considering recent box office performance and, when applicable, updated box office projections for future periods. The relevant accounting guidance
identifies the following examples of situations when constraining the amount of variable consideration is appropriate:
•
•
•
•
The amount of consideration is highly susceptible to factors outside the entity’s influence;
The uncertainty about the amount of consideration is not expected to be resolved for a long period of time;
The Company’s experience (or other evidence) with similar types of contracts is limited, or that experience has limited predictive value; and
The entity has a practice of either offering a broad range of price concessions or changing the payment terms and conditions of similar contracts in
similar circumstances.
As discussed above, the Company’s significant streams of variable consideration relate to arrangements for the sale of IMAX Systems which include
indexed minimum payment increases over the term of the arrangement, as well as the potential for additional payments owed by the customer if certain
minimum box office receipt thresholds are exceeded. In addition, hybrid sales arrangements include variable consideration based on a percentage of the
customer’s box office receipts over the term of the arrangement.
Variable consideration related to indexed minimum payment increases is outside of the Company’s control, but the movement in the rates is historically
well documented and economic trends in inflation are easily accessible. For each contract subject to an indexed minimum payment increase, the Company
estimates the most likely amount using published indices. The amount of the estimated minimum payment increase is then recorded at its present value as
of the date of recognition using the customer’s implied borrowing rate.
Variable consideration related to the level of the customer’s box office receipts is outside of the Company’s control as it is dependent upon the future
commercial success of the films released to the IMAX network. The estimated variable consideration initially recognized by the Company is based on
management’s box office projections for the location, which are developed using historical box office data for that location and, if necessary, comparable
locations and territories. Using this data, management applies its understanding of these exhibition markets to estimate the most likely amount of variable
consideration to be earned over the term of the arrangement. Management then applies a constraint to this estimate by reducing the projection by a
percentage factor for locations or markets with no or limited historical box office experience. In cases where direct historical experience can be observed,
average historical box office results, eliminating significant outliers, is used. The resulting amount of variable consideration is then recorded at its present
value as of the date of recognition using a risk-weighted discount rate.
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Lease Arrangements
As a lessor, the Company provides IMAX Systems to customers through long-term lease arrangements. Under these arrangements, in exchange for
providing the IMAX System, the Company earns fixed upfront and ongoing consideration. A lease arrangement that transfers substantially all of the
benefits and risks incident to ownership of the IMAX System is classified as a sales-type lease; otherwise the lease is classified as an operating lease. Prior
to commencement of the lease term, 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 Obligation 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)
the 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) the public opening of the theater, provided collectability 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 collectability is reasonably assured.
For joint revenue sharing arrangements that are classified as operating leases, initial payments and fixed minimum ongoing payments are recognized as
revenue on a straight-line basis over the lease term. For these 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) the 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) the public opening of the
theater. Contingent payments in excess of fixed minimum ongoing payments are recognized as revenue when reported by theater operators, provided
collectability is reasonably assured.
Finance Income
Finance Income is recognized over the term of the sales-type lease or financed sale receivable, provided collectability is reasonably assured. A theater
operator that is classified within the “All Transactions Suspended” category under the Company’s internal credit quality guidelines is placed on nonaccrual
status and Finance Income recognition related to the location is stopped. While the recognition of Finance Income is suspended, payments received from 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 collectability issues are resolved and the customer has
returned to being in good standing, the Company will resume recognition of Finance Income.
Improvements and Modifications
Improvements and modifications to an IMAX System after installation are treated as a separate performance obligation, if and when the Company is
requested to perform these services. Revenue is recognized for these services once they have been provided.
Costs and Expenses Applicable to Revenues – Technology Sales
Costs and Expenses Applicable to Revenues – Technology Sales relates to sale and sales-type leases of IMAX Systems and other equipment, and
includes the cost of the equipment and costs related to project management, design, delivery and installation supervision services, as applicable. The costs
related to IMAX Systems under sale and sales-type lease arrangements are transferred from Inventories to Costs and Expenses Applicable to Revenues in
the period when the sale is recognized in the Consolidated Statements of Operations.
Sales commissions and other selling expenses that directly relate to the acquisition of the revenue generating contract and are incremental to the
Company’s other expenses are deferred and recognized in the Consolidated Statements of Operations upon the client acceptance of the IMAX System. The
Company may have warranty obligations at or after the time revenue is recognized which require the 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 – Technology Sales at the time revenue is recognized based on the Company’s past historical experience and cost estimates.
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Costs and Expenses Applicable to Revenues – Technology Rentals
Costs and Expenses Applicable to Revenues – Technology Rentals relates to joint revenue sharing arrangements classified as operating leases, and
primarily includes the depreciation of IMAX System components and related equipment used in the joint revenue sharing arrangement. Impairment losses,
if any, are also included in Costs and Expenses Applicable to Revenues – Technology Rentals. Sales commissions related to these arrangements are
deferred and recognized as Costs and Expenses Applicable to Revenues – Technology Rentals in the month they are earned by the salesperson, which is
typically the month of installation. Direct advertising and marketing costs for each location are charged to Costs and Expenses Applicable to Revenues –
Technology Rentals as incurred.
Terminations, Consensual Buyouts and Concessions
The Company enters into IMAX System arrangements with customers that contain customer payment obligations prior to the scheduled installation of
the IMAX System. During the period of time between signing and the installation of the IMAX System, which may extend several years, certain customers
may be unable to, or may elect not to, proceed with the 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.
In addition, the Company may agree with a customer to convert its obligations for one type of IMAX System configuration that has not yet been
installed to an arrangement to acquire or lease a different type of IMAX System. The Company considers these situations to be the termination of the
original arrangement and the origination of a new arrangement.
The Company may offer certain incentives to customers to complete IMAX 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 transaction price either by a
direct reduction in the sales price or a reduction of payments to be discounted. Free products and services are accounted for as separate performance
obligations.
Maintenance and Extended Warranty Services
Maintenance and extended warranty services may be provided under an arrangement with multiple performance obligations 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 within
Revenues – Image Enhancement and Maintenance Services in the Consolidated Statements of Operations. Maintenance and extended warranty services
include 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 contract exceeds the
related deferred revenue. As the maintenance services are a stand ready obligation with the cost of providing the service expected to increase throughout
the term, revenue is recognized over the term of the arrangement such that increased amounts are recognized in later periods.
IMAX Film Remastering Services
In a film remastering arrangement, the Company receives a percentage of the box-office receipts from a third party who owns the copyright to a film in
exchange for converting the film into an IMAX Film Remastering format and distributing it through the IMAX network. In these arrangements, although
the Company does not hold rights to the intellectual property in the form of the film content, it is compensated for the application of its intellectual property
in the form of its patented film remastering processes to create new intellectual property in the form of an IMAX Film Remastering version of film.
Revenues associated with film remastering arrangements qualify for the variable consideration exemption for sales- or usage-based royalties in the relevant
accounting guidance and are recognized within Revenues – Image Enhancement and Maintenance Services in the period when the corresponding box office
sales occur.
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Losses on IMAX Film Remastering services are recognized as Costs and Expenses Applicable to Revenues – Image Enhancement and Maintenance
Services in the period when it is determined that the Company’s estimate of total revenues to be realized by the remastered film will not exceed the
corresponding cost of IMAX Film Remastering services.
Film Production 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 retain, as a fee, the excess of gross
revenue over the cost of the production (the “production fee”). The third party receives a portion of the revenues received by the Company from
distributing the film, which is charged to Costs and Expenses Applicable to Revenues – Image Enhancement and Maintenance Services. 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, are recorded in Costs and
Expenses Applicable to Revenues – Image Enhancement and Maintenance Services as incurred, except for those costs that are made after recognizing
revenue, which are recorded when the related revenues are recognized.
Revenue from film production services where the Company does not hold the associated distribution rights are recognized in Revenues – Image
Enhancement and Maintenance Services when performance obligations associated with the contractual service are satisfied.
Losses on film production services are recognized as Costs and Expenses Applicable to Revenues – Image Enhancement and Maintenance 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.
Film Distribution Services
In a Film Distribution arrangement, the Company distributes large-format documentary films, primarily to institutional locations, and distributes
exclusive entertainment experiences ranging from live performances to interactive events with leading artists and creators. Revenue from the licensing of
films qualifies for the variable consideration exemption for sales- or usage-based royalties in the relevant accounting guidance and is recognized within
Revenues – Image Enhancement and Maintenance Services when all performance obligations have been satisfied, which includes the completion and
delivery of the film and the commencement of the license period. In situations when film license fees are based on a percentage of box-office receipts,
revenue is recognized when box-office receipts are reported by the exhibitor. Film exploitation costs, including advertising and marketing, are expensed as
incurred within Costs and Expenses Applicable to Revenues – Image Enhancement and Maintenance Services.
Film Post-Production Services
Revenues from post-production film services are recognized within Revenues – Image Enhancement and Maintenance Services when performance of
the contracted services is completed.
Software License and Subscription Services
Through SSIMWAVE, the Company provides term licenses, which give customers the right to use its software for a specific period, and perpetual
licenses, which give customers the right to use its software for an indefinite period. For both types of licenses, the associated revenue is recognized at the
point in time when the customer can use and benefit from the software, which is generally upon delivery to the customer or upon commencement of the
renewal term. For licenses that are deployed and hosted at the customer site, revenue is recognized upon delivery of the software to the customer or upon
commencement of the renewal term. For licenses where the software is provided through a hosting arrangement, if the customer does not have a contractual
right to take possession of the underlying software without significant penalty, or it is not feasible for the customer to run the software on its own hardware
or contract a third party to host the services, the arrangement is accounted for as a service transaction whereby the Company has a stand-ready obligation to
provide the software over the license period. Therefore, the related revenue is recognized ratably over the license period, as control of service is transferred
to the customer.
SSIMWAVE’s software license arrangements for both term and perpetual licenses typically include maintenance and support services which provide
technical support and unspecified updates and upgrades on a when-and-if-available basis. The contractual term of the arrangement to provide maintenance
and support services for perpetual licenses is renewable, generally on an annual basis, at the option of the customer. Maintenance and support services
represent stand-ready obligations for which revenue is recognized ratably over the term of the arrangements.
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Revenues from licenses and maintenance and support services are recognized within Revenues – Image Enhancement and Maintenance Services.
(p) Leases
As a lessee, the Company’s lease arrangements principally involve office and warehouse space, which are classified as operating leases. The
corresponding operating lease right-of-use (“ROU”) assets and liabilities are recorded within Property, Plant and Equipment and Accrued and Other
Liabilities in the Company’s Consolidated Balance Sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term.
Operating lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The incremental
borrowing rate used in the calculation of the Company’s lease liabilities is based on the location of each leased property. None of the Company’s leases
include options to purchase the leased property. Most of the Company’s leases include one or more options to renew, with renewal terms that can extend the
lease term from one to five years or more. The Company has determined that it is reasonably certain that the renewal options on its warehouse leases will
be exercised based on previous history, its current understanding of future business needs, and its level of investment in the leasehold improvements,
among other factors. The depreciable lives of ROU assets and related leasehold improvements are limited by the expected lease term. The Company’s lease
agreements do not contain any material residual value guarantees or material restrictive covenants. The Company rents or subleases certain office space to
third parties, which have a remaining term of less than 12 months and are not expected to be renewed. When there are modifications to the lease
agreements, the Company remeasures the lease liabilities to reflect changes to lease payments and recognizes the amount of the remeasurement of the lease
liability as an adjustment to the ROU assets. Amortization of ROU assets and interest on lease liabilities are included within Selling, General and
Administrative Expenses in the Company’s Consolidated Statements of Operations. (Refer to Note 6 for additional information related to the Company’s
operating leases.)
(q) Research and Development
Research and development costs, which are expensed as incurred, primarily include projector and sound parts, labor, consulting fees, allocation of
overheads, and other related materials which pertain to the Company’s development of new products 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.
(r) Foreign Currency Translation
Monetary assets and liabilities that are denominated in a currency other than the Company’s functional currency are translated into the relevant
functional currency using the exchange rate prevailing at the end of the period. Foreign exchange translation gains and losses are included in the
determination of earnings in the period in which they arise.
Assets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance sheet date. Revenues, expenses, gains, and losses
recorded in foreign currencies are translated using the exchange rates prevailing during the period in which they are recognized. Translation adjustments
resulting from this process are recorded to Other Comprehensive Income (Loss) and reported on the Company’s Consolidated Balance Sheets within
Accumulated Other Comprehensive Loss until the subsidiary is sold or liquidated, at which point the adjustments are recognized in Consolidated
Statements of Operations.
Foreign currency derivatives are recognized and measured in the Consolidated Balance Sheets at their fair value. Changes in the fair value (i.e., gains or
losses) are recognized in the Consolidated Statements of Operations except for derivatives designated and qualifying as foreign currency hedging
instruments. For foreign currency hedging instruments, the gain or loss related to the effective portion of the hedge of a forecasted transaction is reported
within Other Comprehensive (Loss) Income and reclassified to the Consolidated Statements of Operations when the forecasted transaction occurs. Any
ineffective portion is recognized immediately in the Consolidated Statements of Operations.
(s) Share-Based Compensation
The Company issues share-based compensation to eligible employees, directors, and consultants under the IMAX Corporation Second Amended and
Restated Long-Term Incentive Plan (as may be amended, the “IMAX LTIP”) and the China Long-Term Incentive Plan (the “China LTIP”) as summarized
in Note 17. The IMAX LTIP is the Company’s governing document and awards to employees, directors, and consultants under this plan may consist of
stock options, restricted share units (“RSUs”), performance stock units (“PSUs”) and other awards. A separate share-based compensation plan, the China
LTIP, was adopted by a subsidiary of the Company in October 2012.
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The Company measures share-based compensation expense using the grant date fair value of the award (see below), which is recognized as an expense
in the Consolidated Statements of Operations on a straight-line basis over the requisite service period. Share-based compensation expense is not adjusted
for estimated forfeitures but is instead adjusted when and if actual forfeitures occur.
Stock Options
The Company utilizes a lattice-binomial option-pricing model (“Binomial Model”) to determine the fair value of stock option awards on the grant date.
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 award, 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.
The Company stratifies its employees into homogeneous groups in order to calculate the grant date fair value of stock options using the Binomial
Model. As a result, ranges of assumptions are used for the expected life of the option. The Company uses historical data to estimate option exercise
behavior within the Binomial Model and various groups of employees that have similar historical exercise behavior are grouped together 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 determined in reference to observed current market prices for the Company’s traded options and the
Company’s peer group volatility.
The Company no longer issues stock options as a form of employee compensation.
(Refer to Note 17(c) for the assumptions used to determine the fair value of the Company’s stock options.)
Restricted Share Units
The fair value of RSU awards is equal to the closing price of the Company’s common stock on the date of grant or the average closing price of the
Company’s common shares for five days prior to the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as
compensation expense over the requisite service period in the Company’s Consolidated Statements of Operations. The Company’s RSUs are classified as
equity.
Performance Stock Units
The Company grants two types of PSU awards, one which vests based on a combination of employee service and the achievement of certain Adjusted
EBITDA targets and one which vests based on a combination of employee service and the achievement of total shareholder return (“TSR”) targets. The
achievement of the Adjusted EBITDA and TSR targets in these PSUs is determined over a three-year performance period. At the conclusion of the three-
year performance period, the number of PSUs that ultimately vest can range from 0% to a maximum vesting opportunity of 175% of the initial Adjusted
EBITDA PSU award or 150% of the initial TSR PSU award depending upon actual performance versus the established Adjusted EBITDA and TSR targets,
respectively. The Company’s PSUs are classified as equity.
The grant date fair value of PSUs with Adjusted EBITDA targets is equal to the closing price of the Company’s common shares on the date of grant or
the average closing price of the Company’s common shares for five days prior to the date of grant. The grant date fair value of PSUs with TSR targets is
determined on the grant date using a Monte Carlo simulation, which is a valuation model that considers the likelihood of achieving the TSR targets
embedded in the award (“Monte Carlo Model”). The compensation expense attributable to each type of PSU is recognized on a straight-line basis over the
requisite service period.
The fair value determined by the Monte Carlo Model is affected by the Company’s share price, as well as assumptions regarding a number of highly
complex and subjective variables. These variables include, but are not limited to, market conditions as of the grant date, the Company’s expected share
price volatility over the term of the awards, and other relevant data. The compensation expense is fixed on the date of grant based on the dollar value of the
PSUs granted.
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The amount and timing of compensation expense recognized for PSUs with Adjusted EBITDA targets is dependent upon management’s assessment of
the likelihood and timing of achieving these targets. If, as a result of management’s assessment, it is projected that a greater number of PSUs will vest than
previously anticipated, a life-to-date adjustment to increase compensation expense is recorded in the period such determination is made. Conversely, if, as a
result of management’s assessment, it is projected that a lower number of PSUs will vest than previously anticipated, a life-to-date adjustment to decrease
compensation expense is recorded in the period such determination is made.
Share-Based Payment Awards to Non-Employees
Share-based payment awards for services provided by non-employees are measured at grant date fair value of the equity instruments that the Company
is obligated to issue when the service has been rendered and any other conditions necessary to earn the right to benefit from the instruments have been
satisfied. The grant date is the date which the Company and the non-employees reach a mutual understanding of the key terms and conditions of the share-
based payment awards. When there are performance conditions related to the vesting of the share-based awards, the Company assesses the probability of
vesting at each reporting date and adjusts the compensation costs based on the probability assessment.
(t) 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
of December 31, 2023, a liability is recognized for the 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 (Loss) Income. Amounts recognized in Accumulated Other Comprehensive
Loss including unrecognized actuarial gains or losses and prior service costs are adjusted as they are subsequently recognized in the Consolidated
Statements 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, 2023 was two
years.
For defined contribution pension plans, required contributions by the Company are recorded as an expense within Selling, General and Administrative
Expenses in the Company’s Consolidated Statements of Operations.
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. Net benefit cost is split
between operating income and non-operating income, where only the service cost is included in income from operations and the non-service components
are included in Retirement Benefits Non-Service Expenses. Actuarial gains and losses are recognized as a component of Other Comprehensive (Loss)
Income. Amounts recognized in Accumulated Other Comprehensive Loss including unrecognized actuarial gains or losses are adjusted as they are
subsequently recognized within Retirement Benefits Non-Service Expense in the Consolidated Statements of Operations.
(u) Guarantees
In situations when the Company acts as a guarantor, at the inception of a guarantee, it recognizes a liability for the fair value of the underlying
guarantee. Disclosures as required under the relevant accounting guidance have been included in Note 16.
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3. New Accounting Standards and Accounting Changes
Adoption of New Accounting Policies
In March 2022, the FASB issued ASU No. 2022-02, “2022-02: Financial Instruments — Credit Losses (Topic 326): Troubled Debt Restructurings and
Vintage Disclosures” (“ASU 2022-02”). ASU 2022-02 amends and eliminates the accounting guidance for Troubled Debt Restructurings by creditors,
while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty
and requires public business entities to disclose current-period gross write offs by year of origination for financing receivables and net investments in
leases. The Company adopted ASU 2022-02 on January 1, 2023. The adoption of ASU 2022-02 did not have a material impact on the Company’s
Consolidated Financial Statements.
In September 2022, the FASB issued ASU No. 2022-04, “2022-04: Liabilities — Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier
Finance Program Obligations” (“ASU 2022-04”). ASU 2022-04 requires that a buyer in a supplier finance program disclose sufficient information about
the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and
potential magnitude. The Company adopted ASU 2022-04 on January 1, 2023. The adoption of ASU 2022-04 did not have a material impact on the
Company’s Consolidated Financial Statements.
Recently Issued FASB Accounting Standard Codification Updates Not Yet Adopted
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on
Financial Reporting” (“ASU 2020-04”). The purpose of ASU 2020-04 is to provide optional expedients and exceptions for applying U.S. GAAP to
contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 is effective for all entities
from the beginning of an interim period that includes the issuance date of the ASU. In October 2022, the FASB extended the temporary accounting relief to
December 31, 2024 from the current sunset date of December 31, 2022. As of December 31, 2023, the Company is not party to any third party contracts
that reference the London Interbank Offered Rate (LIBOR). Accordingly, the Company does not expect ASU 2020-04 to have a material effect on its
Consolidated Financial Statements.
In October 2023, the FASB issued Accounting Standards Update No. 2023-06, Disclosure Improvements: Codification Amendments in response to the
SEC’s Disclosure Update and Simplification Initiative (“ASU 2023-06”). This ASU incorporates into U.S. GAAP certain presentation and disclosure
requirements currently included in the SEC’s regulations. Each amendment will become effective prospectively from the date the SEC withdrawals the
corresponding SEC regulatory requirement. The Company is still evaluating this ASU, however, given that it is subject to the corresponding SEC
regulatory requirements, it does not expect the ASU to have a material impact on its Consolidated Financial Statements.
In November 2023, the FASB issued Accounting Standards Update No. 2023-07, Segment Reporting (Topic 820): Improvements to Reportable
Segment Reporting (“ASU 2023-07”). The purpose of ASU 2023-07 is to enhance the interim disclosure requirements by more closely aligning them with
the annual requirements. ASU 2023-07 requires interim and annual disclosures to include information about the company's significant segment expenses.
ASU 2023-07 will be effective for the Company’s year ended December 31, 2024 and all interim periods thereafter. The Company is still evaluating the
impact of this ASU on its financial statements.
In December 2023, the FASB issued Accounting Standard Update 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures
(“ASU 2023-09”). The amendments improve the transparency of income tax disclosures by requiring (i) consistent categories and greater disaggregation of
information in the rate reconciliation, and (ii) income taxes paid disaggregated by jurisdiction. ASU 2023-09 will be effective for the Company’s year
ended December 31, 2025. The Company is still evaluating the impact of this ASU on its financial statements.
The Company considers the applicability and impact of all recently issued FASB accounting standard codification updates. Accounting standard updates
that are not noted above were assessed and determined to be not applicable or not significant to the Company’s Consolidated Financial Statements for the
year ended December 31, 2023.
4. Acquisition
On September 22, 2022, the Company acquired all of the issued and outstanding shares of SSIMWAVE pursuant to a share purchase agreement by and
among the Company, SSIMWAVE, and related shareholders (the “Sellers”). SSIMWAVE provides perceptual quality measurement and optimization
solutions based on artificial intelligence technologies for leading media and entertainment companies. Following the acquisition, SSIMWAVE became a
wholly-owned subsidiary of the Company.
89
As consideration for the acquisition of SSIMWAVE, the Company paid an aggregate purchase price of $23.2 million, consisted of: (i) $19.5 million in
cash, (ii) 160,547 common shares of the Company with a fair value of $1.9 million (the “IMAX Share Consideration”), and (iii) contingent consideration
with a fair value of $1.8 million (the “Earn-Out Payment”). The fair value of the IMAX Share Consideration, which is based on the share price on the date
of the acquisition, is reduced to reflect the fair value of certain restrictions on the future transfer of the shares. The Earn-Out Payment may be paid to
certain Sellers in an aggregate amount of up to $2.0 million in cash, contingent upon and following the achievement of certain commercial and financial
milestones during the period from January 1, 2023 to December 31, 2024, or under certain terms March 31, 2025. The fair value of the Earn-Out Payment
is based on management’s assessment of the likelihood of achieving these milestones.
The revenues and earnings of SSIMWAVE for the period post-acquisition through December 31, 2022 were included in All Other for segment reporting
and were not material to the Company’s Consolidated Financial Statements. During the year ended December 31, 2022, the Company incurred $1.1 million
of professional fees in connection with the acquisition of SSIMWAVE, which were recorded within Selling, General and Administrative Expenses on the
Company’s Consolidated Statements of Operations.
The Company accounted for the acquisition of SSIMWAVE as a business combination. The following table summarizes the allocation of the purchase
price to the assets acquired and liabilities assumed as of December 31, 2022.
(In thousands of U.S. Dollars)
Purchase Price:
Cash payments
IMAX Share Consideration
Earn-Out Payment
Total Purchase Price
Allocation of Purchase Price:
Cash and cash equivalents
Accounts receivable
Property, plant and equipment
Intangible assets (see Note 13)
Other assets
Accounts payable and accrued liabilities
Deferred revenue
Federal economic development loan, net of unaccreted interest benefit
Deferred tax liability
Goodwill (see Note 13)
Total Purchase Price
The allocation of the fair value of identified intangible assets is as follows:
(In thousands of U.S. Dollars)
Patent and trademarks
Customer relationships
Developed technology
In-process research and development
Non-compete agreement
Total identifiable intangible assets
$
$
$
$
$
$
19,521
1,947
1,750
23,218
3,582
158
409
11,189
293
(1,092 )
(1,300 )
(1,772 )
(2,037 )
13,788
23,218
Fair Value
Weighted Average Useful Life
100
1,340
5,779
3,810
160
11,189
2 Years
7 Years
4 to 7 Years
Not yet in use
4 Years
Goodwill is the excess of the consideration transferred over the net assets recognized and primarily represents future economic benefits arising from
assets acquired that are not individually identified and separately recognized, including synergies and assembled workforce inherent in the acquired
business. The goodwill recorded is not expected to be deductible for income tax purposes.
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5. Receivables
The ability of the Company to collect its receivables is principally dependent on the viability and solvency of individual theater operators which is
significantly influenced by consumer behavior and general economic conditions. Theater operators, or other customers, may experience financial
difficulties that could result in them being unable to fulfill their payment obligations to the Company.
In order to mitigate the credit risk associated with its receivables, management performs an initial credit evaluation prior to entering into an arrangement
with a customer and then regularly monitors the credit quality of each customer through an analysis of collections history and aging. This monitoring
process includes meetings on at least a monthly basis to identify credit concerns and potential changes in credit quality classification. A customer may
improve their credit quality classification once a substantial payment is made on an overdue balance or when the customer has agreed to a payment plan
and payments have commenced in accordance with that plan. Changes in credit quality classification are dependent upon management approval. The
Company’s internal credit quality classifications are as follows:
•
•
•
•
Good Standing — The theater operator continues to be in good standing as payments and reporting are received on a regular basis.
Credit Watch — The theater operator has demonstrated a delay in payments, but continues to be in active communication with the Company.
Theater operators placed on Credit Watch are subject to enhanced monitoring. In addition, depending on the size of the outstanding balance, length
of time in arrears, and other factors, future transactions may need to be approved by management. These receivables are in better condition than
those in the Pre-Approved Transactions Only category, but are not in as good condition as the receivables in the Good Standing category.
Pre-Approved Transactions Only — The theater operator has demonstrated a delay in payments with little or no communication with the Company.
All services and shipments to the theater operator must be reviewed and approved by management. These receivables are in better condition than
those in the All Transactions Suspended category, but are not in as good condition as the receivables in the Credit Watch category. In certain
situations, a theater operator may be placed on nonaccrual status and all revenue recognition related to the theater may be suspended, including the
accretion of Finance Income for Financing Receivables.
All Transactions Suspended — The theater operator is severely delinquent, non-responsive or not negotiating in good faith with the Company.
Once a theater operator is classified within the All Transactions Suspended category, the theater is placed on nonaccrual status and all revenue
recognitions related to the theater are suspended, including the accretion of Finance Income for Financing Receivables.
During the period when the accretion of Finance Income is suspended for Financing Receivables, any payments received from a customer are applied
against the outstanding balance owed. If payments are sufficient to cover any unreserved receivables, a reversal of the provision is recorded to the extent of
the residual cash received. Once the collectability issues are resolved and the customer has returned to being in good standing, the Company will resume
recognition of Finance Income.
When a customer’s aging exceeds 90 days, the Company’s policy is to perform an enhanced review to assess collectability of the theater’s past due
accounts. The over 90 days past due category may be an indicator of potential impairment as up to 90 days outstanding is considered to be a reasonable
time to resolve any issues.
The Company develops an estimate of expected credit losses by class of receivable and customer type through a calculation that utilizes historical loss
rates which are then adjusted for specific receivables that are judged to have a higher-than-normal risk profile after considering management’s internal
credit quality classifications. Additional credit loss provisions are also recorded taking into account macro-economic and industry risk factors. The write-
off of any billed receivable balance requires the approval of management.
Management’s judgments regarding expected credit losses are based on the facts available to management and involve estimates about the future. As a
result, the Company’s judgments and associated estimates of credit losses may ultimately prove, with the benefit of hindsight, to be incorrect. The impacts
of inflation, and rising interest rates may impact future credit losses. The Company will continue to monitor economic trends and conditions and portfolio
performance and adjust its allowance for credit loss accordingly. Refer to Note 2(b), Estimates and Assumptions, for information regarding Cineworld and
theater operators in Russia, Ukraine, and Belarus.
91
Accounts Receivable
Accounts receivable principally includes amounts currently due to the Company under IMAX System sale and sales-type lease arrangements, contingent
fees owed by theater operators as a result of box office performance, and fees for maintenance services. Accounts receivable also includes amounts due to
the Company from movie studios and other content creators principally for digitally remastering films into IMAX formats, as well as for film distribution
and post-production services.
The following tables summarize the activity in the allowance for credit losses related to Accounts Receivable for the years ended December 31, 2023
and 2022:
(In thousands of U.S. Dollars)
Beginning balance
Current period provision (reversal), net
Write-offs, net of recoveries
Foreign exchange
Ending balance
(In thousands of U.S. Dollars)
Beginning balance
Current period provision (reversal), net
Write-offs, net of recoveries
Foreign exchange
Ending balance
Theater
Operators
Studios
Other
Total
Year Ended December 31, 2023
11,144 $
4,771
(1,225 )
(335 )
14,355 $
1,699 $
(944 )
(133 )
(6 )
616 $
1,276 $
(270 )
—
—
1,006 $
Theater
Operators
Studios
Other
Total
Year Ended December 31, 2022
8,867 $
2,687
(43 )
(367 )
11,144 $
1,994 $
(128 )
(128 )
(39 )
1,699 $
1,085 $
585
(394 )
—
1,276 $
14,119
3,557
(1,358 )
(341 )
15,977
11,946
3,144
(565 )
(406 )
14,119
$
$
$
$
For the year ended December 31, 2023, the Company’s allowance for current expected credit losses related to Accounts Receivable increased by $1.9
million, largely the result of an increase in aged receivables. In the fourth quarter of 2023, the $1.5 million COVID-19 reserve for China was released of
which $0.3 million related to Accounts Receivable and $1.2 million to Financing Receivables.
For the year ended December 31, 2022, the Company’s allowance for current expected credit losses related to Accounts Receivable increased by $2.2
million principally due to reserves established against its receivables in Russia due to uncertainties associated with the ongoing Russia-Ukraine conflict and
resulting sanctions, partially offset the reversal of provisions associated with the COVID-19 pandemic as the outlook for the theatrical exhibition industry
in Domestic and Rest of World markets continues to improve. As of December 31, 2022, there remains a $1.5 million of COVID-19 additional reserve for
China.
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Financing Receivables
Financing receivables are due from theater operators and consist of the Company’s net investment in sales-type leases and receivables associated with
financed sales of IMAX Systems. As of December 31, 2023 and 2022, financing receivables consist of the following:
(In thousands of U.S. Dollars)
Net investment in leases
Gross minimum payments due under sales-type leases
Unearned finance income
Present value of minimum payments due under sales-type leases
Allowance for credit losses
Net investment in leases
Financed sales receivables
Gross minimum payments due under financed sales
Unearned finance income
Present value of minimum payments due under financed sales
Allowance for credit losses
Net financed sales receivables
Total financing receivables
Net financed sales receivables due within one year
Net financed sales receivables due after one year
Total financed sales receivables
December 31,
December 31,
2023
2022
30,459 $
(467 )
29,992
(453 )
29,539
135,684
(28,452 )
107,232
(9,617 )
97,615
127,154 $
32,031 $
65,584
97,615 $
29,727
(619 )
29,108
(776 )
28,332
141,337
(29,340 )
111,997
(10,945 )
101,052
129,384
32,366
68,686
101,052
$
$
$
$
As of December 31, 2023 and 2022, the weighted-average remaining lease term and weighted-average interest rate associated with the Company’s sales-
type lease arrangements and financed sales receivables, as applicable, are as follows:
Weighted-average remaining lease term (in years)
Sales-Type lease arrangements
Weighted-average interest rate
Sales-Type lease arrangements
Financed sales receivables
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December 31,
2023
December 31,
2022
8.3
7.88 %
8.97 %
9.0
8.23 %
8.79 %
The tables below provide information on the Company’s net investment in leases by credit quality indicator as of December 31, 2023 and 2022. The
amounts disclosed for each credit quality classification are determined on a customer-by-customer basis and include both billed and unbilled amounts.
(In thousands of U.S. Dollars)
As of December 31, 2023
Net investment in leases:
Credit quality classification:
In good standing
Credit Watch
Pre-approved transactions
Transactions suspended
Total net investment in leases
(In thousands of U.S. Dollars)
As of December 31, 2022
Net investment in leases:
Credit quality classification:
In good standing
Credit Watch
Pre-approved transactions
Transactions suspended
Total net investment in leases
2023
2022
2021
2020
2019
Prior
Total
By Origination Year
2,435 $
—
—
—
2,435 $
3,262 $
490
—
—
3,752 $
6,241 $
—
3,462
—
9,703 $
2,173 $
—
1,182
—
3,355 $
1,677 $
—
5,221
—
6,898 $
1,138 $
313
1,997
401
3,849 $
16,926
803
11,862
401
29,992
2022
2021
2020
2019
2018
Prior
Total
By Origination Year
4,148 $
—
—
—
4,148 $
6,969 $
—
3,089
—
10,058 $
2,494 $
—
1,162
—
3,656 $
1,977 $
—
5,401
—
7,378 $
— $
—
2,451
—
2,451 $
1,016 $
—
—
401
1,417 $
16,604
—
12,103
401
29,108
$
$
$
$
The tables below provide information on the Company’s financed sales receivables by credit quality indicator as of December 31, 2023 and 2022. The
amounts disclosed for each credit quality classification are determined on a customer-by-customer basis and include both billed and unbilled amounts.
(In thousands of U.S. Dollars)
As of December 31, 2023
Financed sales receivables:
Credit quality classification:
In good standing
Credit Watch
Pre-approved transactions
Transactions suspended
Total financed sales receivables
(In thousands of U.S. Dollars)
As of December 31, 2022
Financed sales receivables:
Credit quality classification:
In good standing
Credit Watch
Pre-approved transactions
Transactions suspended
Total financed sales receivables
2023
2022
2021
2020
2019
Prior
Total
By Origination Year
$
$
$
$
6,660 $
—
607
—
7,267 $
5,921 $
30
313
—
6,264 $
5,961 $
—
2,619
728
9,308 $
5,415 $
—
1,455
345
7,215 $
8,058 $
317
2,084
1,546
12,005 $
44,870 $
796
8,508
10,999
65,173 $
76,885
1,143
15,586
13,618
107,232
2022
2021
2020
2019
2018
Prior
Total
By Origination Year
10,252 $
—
—
272
10,524 $
8,643 $
—
2,318
664
11,625 $
6,280 $
—
1,399
142
7,821 $
8,541 $
—
1,134
1,269
10,944 $
9,854 $
—
1,449
1,197
12,500 $
39,912 $
1,152
9,243
8,276
58,583 $
83,482
1,152
15,543
11,820
111,997
94
The balance of financed sales receivables classified within the Transactions Suspended category as of December 31, 2023 includes amounts due from
exhibitors in Russia, Ukraine, and Belarus which were reclassified from other credit quality classifications in 2022 as a result of the ongoing Russia-
Ukraine conflict and resulting sanctions.
The following tables provide an aging analysis for the Company’s net investment in leases and financed sales receivables as of December 31, 2023 and
2022:
(In thousands of U.S. Dollars)
Net investment in leases
Financed sales receivables
Total
(In thousands of U.S. Dollars)
Net investment in leases
Financed sales receivables
Total
As of December 31, 2023
Accrued
and
Current
30-89
Days
90+
Days
Billed
Unbilled
293
1,535
1,828
$
$
212
1,196
1,408
$
$
4,598
10,704
15,302
$
$
5,103
13,435
18,538
$
24,889
93,797
$ 118,686
As of December 31, 2022
Accrued
and
Current
30-89
Days
90+
Days
Billed
Unbilled
237
2,269
2,506
$
$
216
1,307
1,523
$
$
2,593
12,793
15,386
$
$
3,046
16,369
19,415
$
26,062
95,628
$ 121,690
$
$
$
$
Allowance
for Credit
Losses
Recorded
Receivable
29,992
$
107,232
$ 137,224
$
Net
29,539
97,615
$ (10,070 ) $ 127,154
(453 ) $
(9,617 )
Allowance
for Credit
Losses
Recorded
Receivable
$
29,108
111,997
$ 141,105
$
(776 ) $
Net
28,332
(10,945 ) 101,052
$ (11,721 ) $ 129,384
The following tables provide information about the Company’s net investment in leases and financed sales receivables with billed amounts past due for
which it continues to accrue finance income as of December 31, 2023 and 2022. The amounts disclosed for each credit quality classification are determined
on a customer-by-customer basis and include both billed and unbilled amounts.
(In thousands of U.S. Dollars)
Net investment in leases
Financed sales receivables
Total
(In thousands of U.S. Dollars)
Net investment in leases
Financed sales receivables
Total
As of December 31, 2023
Accrued
and
Current
30-89 Days
90+ Days
Billed
Unbilled
Allowance
for Credit
Losses
259
798
1,057
$
$
212
782
994
$
$
4,598
10,517
15,115
$
$
5,069
12,097
17,166
$
$
22,651
33,552
56,203
$
$
(9 ) $
(1,198 )
(1,207 ) $
As of December 31, 2022
Accrued
and
Current
30-89 Days
90+ Days
Billed
Unbilled
Allowance
for Credit
Losses
190
1,550
1,740
$
$
181
1,115
1,296
$
$
2,593
10,814
13,407
$
$
2,964
13,479
16,443
$
$
17,070
43,172
60,242
$
$
(230 ) $
(1,587 )
(1,817 ) $
$
$
$
$
Net
27,711
44,451
72,162
Net
19,804
55,064
74,868
The following table provides information about the Company’s net investment in leases and financed sales receivables that are on nonaccrual status as
of December 31, 2023 and 2022:
(In thousands of U.S. Dollars)
Net investment in leases
Net financed sales receivables
Total
As of December 31, 2023
Allowance
for Credit
Losses
Recorded
Receivable
Net
As of December 31, 2022
Allowance
for Credit
Losses
Recorded
Receivable
$
$
401 $
29,204
29,605 $
(401 ) $
(8,884 )
(9,285 ) $
— $
20,320
20,320 $
401 $
27,364
27,765 $
(401 ) $
(9,589 )
(9,990 ) $
Net
—
17,775
17,775
95
For the year ended December 31, 2023, the Company recognized less than $0.1 million (2022 — $0.1 million; 2021 —$0.1 million) in Finance Income
related to the net investment in leases with billed amounts past due. For the years ended December 31, 2023, 2022 and 2021, the Company did not
recognize any Finance Income related to the net investment in leases in nonaccrual status. For the year ended December 31, 2023, the Company recognized
$2.7 million (2022 — $3.6 million; 2021 — $3.7 million) in Finance Income related to the financed sales receivables with billed amounts past due. For the
year ended December 31, 2023, the Company recognized $0.2 million (2022 — $0.5 million; 2021 — $0.2 million) in Finance Income related to the
financed sales receivables in nonaccrual status.
The following tables summarize the activity in the allowance for credit losses related to the Company’s net investment in leases and financed sales
receivables for years ended December 31, 2023 and 2022:
(In thousands of U.S. Dollars)
Beginning balance
Current period reversal, net
Foreign exchange
Ending balance
(In thousands of U.S. Dollars)
Beginning balance
Current period provision, net
Foreign exchange
Ending balance
Year Ended December 31, 2023
Net Investment
in Leases
Financed
Sales Receivables
776
(61 )
(262 )
453
$
$
10,945
(1,644 )
316
9,617
Year Ended December 31, 2022
Net Investment
in Leases
Net Financed
Sales Receivables
798
5
(27 )
776
$
$
5,414
5,783
(252 )
10,945
$
$
$
$
For the year ended December 31, 2023, the Company’s allowance for current expected credit losses related to its net investment in leases and financed
sales receivables decreased by $1.7 million. This decrease is principally due to the release of China’s COVID-19 pandemic provision of $1.5 million, of
which $1.2 million relates to its net investment in leases and financed sales receivables.
For the year ended December 31, 2022, the Company’s allowance for current expected credit losses related to its net investment in leases and financed
sales receivables increased by $5.5 million. This decrease is principally due to reserves established against its receivables in Russia due to uncertainties
associated with the ongoing Russia-Ukraine conflict and resulting sanctions, partially offset by the reversal of provisions associated with the COVID-19
pandemic as the outlook for the theatrical exhibition industry in Domestic and Rest of World markets continues to improve.
Variable Consideration Receivables
In sale arrangements, variable consideration may become due to the Company from theater operators if certain annual minimum box office receipt
thresholds are exceeded. Such variable consideration is recorded as revenue in the period when the sale is recognized and adjusted in future periods based
on actual results and changes in estimates. Variable consideration is only recognized to the extent the Company believes there is not a risk of significant
revenue reversal.
The following table summarizes the activity in the Allowance for Credit Losses related to Variable Consideration Receivables for the years ended
December 31, 2023 and 2022:
(In thousands of U.S. Dollars)
Beginning balance
Current period provision (reversal), net
Foreign Exchange
Ending balance
Year Ended December 31,
2023
2022
610 $
35
(12 )
633 $
1,082
(440 )
(32 )
610
$
$
For the year ended December 31, 2023, the Company’s allowance for current expected credit losses related to Variable Consideration Receivables
remained consistent at $0.6 million. As of December 31, 2023, there was no COVID-19 pandemic provision remaining.
96
For the year ended December 31, 2022, the Company’s allowance for current expected credit losses related to Variable Consideration Receivables
decreased by $0.5 million. This decrease is principally due to the reversal of provisions associated with the COVID-19 pandemic as the outlook for the
theatrical exhibition industry in Domestic and Rest of World markets continues to improve.
6. Lease Arrangements
(a)
IMAX Corporation as a Lessee
The Company’s operating lease arrangements principally involve office and warehouse space. Office equipment is generally purchased outright. Leases
with an initial term of less than 12 months are not recorded on the Consolidated Balance Sheets and the related lease expense is recognized on a straight-
line basis over the lease term. Most of the Company’s leases include one or more options to renew, with renewal terms that can extend the lease term from
one to five years or more. The Company has determined that it is reasonably certain that the renewal options on its warehouse leases will be exercised
based on previous history, its current understanding of future business needs, and its level of investment in leasehold improvements, among other factors.
The incremental borrowing rate used in the calculation of the Company’s lease liabilities is based on the location of each leased property. None of the
Company’s leases include options to purchase the leased property. The depreciable lives of right-of-use assets and related leasehold improvements are
limited by the expected lease term. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive
covenants. The Company rents or subleases certain office space to third parties, which have a remaining term of less than 12 months and are not expected
to be renewed.
In 2022, the Company entered into a finance lease arrangement involving equipment used to facilitate the delivery of live events to certain IMAX
locations. The lease arrangement includes an option for the Company to purchase the equipment at the end of the lease term that is reasonably certain to be
exercised. The resulting right-of-use assets are being depreciated from the lease commencement dates over the useful life of the underlying equipment. The
incremental borrowing rate used in the calculation of the lease liabilities is based on the rate of interest the Company would have to pay to borrow on a
collateralized basis over a similar term.
For the years ended December 31, 2023, 2022, and 2021 the components of lease expense recorded within Selling, General and Administrative
Expenses are as follows:
(In thousands of U.S. Dollars)
Operating lease cost:
Amortization of operating lease assets
Interest on operating lease liabilities
Short-term and variable lease costs
Finance lease cost:
Amortization of finance lease assets
Interest on finance lease liabilities
Total lease cost
2023
2022
2021
Years Ended December 31,
$
$
2,677
768
507
398
45
4,395
$
$
2,734
825
616
171
22
4,368
$
$
For the years ended December 31, 2023, 2022, and 2021, supplemental cash and non-cash information related to leases is as follows:
(In thousands of U.S. Dollars)
Cash paid for amounts included in the measurement of lease liabilities:
Operating leases
Finance leases
Supplemental disclosure of non-cash leasing activities:
Right-of-use assets obtained in exchange for operating lease
obligations
Right-of-use assets obtained in exchange for finance lease obligations
Years Ended December 31,
2023
2022
2021
$
3,675 $
480
3,783 $
948
972
—
3,068
1,990
2,791
937
713
N/A
N/A
4,441
3,839
N/A
1,047
N/A
97
As of December 31, 2023 and 2022, supplemental balance sheet information related to leases is as follows:
(In thousands of U.S. Dollars)
Assets
Operating lease right-of-use assets
Finance lease right-of-use assets
Liabilities
Operating lease liabilities
(1)
Finance lease liabilities
Balance Sheet Location
Property, plant and equipment
Property, plant and equipment
Balance Sheet Location
Accrued and other liabilities
Accrued and other liabilities
December 31,
2023
2022
$
10,599 $
1,420
12,702
518
12,341
1,876
14,641
1,011
(1) Recorded net of $nil (2022 — $0.9 million) upfront payment made upon execution of the finance lease arrangement.
As of December 31, 2023 and 2022, the weighted-average remaining lease term and weighted-average interest rate associated with the Company’s
leases are as follows:
Operating leases:
Weighted-average remaining lease term (years)
Weighted-average discount rate
Finance leases:
Weighted-average remaining lease term (years)
Weighted-average discount rate
December 31,
2023
2022
4.9
5.85 %
3.6
6.0 %
6.0
5.90 %
4.7
6.0 %
As of December 31, 2023, the maturities of the Company’s operating and finance lease liabilities are as follows:
(In thousands of U.S. Dollars)
2024
2025
2026
2027
2028
Thereafter
Total lease payments
Less: interest expense
Present value of lease liabilities
(b)
IMAX Corporation as a Lessor
Operating Leases
Finance Leases
2,740 $
2,544
2,482
2,481
2,484
2,167
14,898
(2,196 )
12,702 $
535
—
—
—
—
—
535
(17 )
518
$
$
The Company provides IMAX Systems to customers through long-term lease arrangements that for accounting purposes are classified as sales-type
leases. Under these arrangements, in exchange for providing the IMAX System, the Company earns fixed upfront and ongoing consideration. Certain
arrangements that are legal sales are also classified as sales-type leases as certain clauses within the arrangements limit transfer of title or provide the
Company with conditional rights to the system. The customer’s rights under the Company’s sales-type lease arrangements are described in Note 2(o).
Under the Company’s sales-type lease arrangements, the customer has the ability and the right to operate the hardware components or direct others to
operate them in a manner determined by the customer. The Company’s lease portfolio terms are typically non-cancellable for 10 to 20 years with renewal
provisions from inception. The Company’s sales-type lease arrangements do not contain a guarantee of residual value at the end of the lease term. The
customer is required to pay for executory costs such as insurance and taxes and is required to pay the Company for maintenance and an 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 IMAX System
commencing on the date specified in the arrangement’s shipping terms and ending on the date the IMAX System is returned to the Company.
98
The Company also provides IMAX Systems to customers through joint revenue sharing arrangements. Under the traditional form of these arrangements,
in exchange for providing the IMAX System under a long-term lease, the Company earns rent based on a percentage of contingent box office receipts and,
in some cases, concession revenues, rather than a fixed upfront fee or annual minimum payments. Under certain other joint revenue sharing arrangements,
known as hybrid arrangements, the customer is responsible for making fixed upfront payments prior to the delivery and installation of the IMAX System.
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 the IMAX System under a joint revenue sharing arrangement 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 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 an extended warranty throughout the term. The customer is responsible for
obtaining insurance coverage for the IMAX System commencing on the date specified in the arrangement’s shipping terms and ending on the date the
IMAX System is returned to the Company.
The following lease payments are expected to be received by the Company for its sales-type leases and joint revenue sharing arrangements in each of
the next five years and thereafter following the December 31, 2023 balance sheet date:
(In thousands of U.S. Dollars)
2024
2025
2026
2027
2028
Thereafter
Total
Sales-Type
Leases
3,222
3,112
3,031
2,965
2,813
9,307
24,450
Joint Revenue
Sharing Arrangements
71
$
27
—
—
—
—
98
$
$
$
(Refer to Note 6 for additional information related to the net investment in leases related to the Company’s sales-type lease arrangements.)
99
7. Variable Consideration from Contracts with Customers
The arrangement for the sale of an IMAX System includes indexed minimum payment increases over the term of the arrangement, as well as the
potential for additional payments owed by the customer if certain minimum box office receipt thresholds are exceeded. In addition, hybrid sales
arrangements include amounts owed by the customer based on a percentage of their box office receipts over the term of the arrangement. These contract
provisions are considered to be variable consideration. An estimate of the present value of such variable consideration is recognized as revenue upon the
transfer of control of the System Obligation to the customer, subject to constraints to ensure that there is not a risk of significant revenue reversal. This
estimate is based on management’s box office projections for the individual IMAX System, which are developed using historical data for the location and,
if necessary, comparable theaters and territories. (Refer to Note 2(o) for a more detailed discussion of the Company’s accounting policy related to variable
consideration.)
The following table summarizes the activity related to variable consideration from contracts with customers for the years ended December 31, 2023,
2022, and 2021:
(In thousands of U.S. Dollars)
Balance as of January 1, 2021
Variable consideration for newly recognized sales
Accretion to finance income
Transferred to receivables from variable consideration assets
Movement in allowance for credit losses
Balance as of December 31, 2021
Variable consideration for newly recognized sales
Accretion to finance income
Transferred to receivables from variable consideration assets
Movement in allowance for credit losses (see Note 5)
Balance as of December 31, 2022
Variable consideration for newly recognized sales
Accretion to finance income
Transferred to receivables from variable consideration assets
Movement in allowance for credit losses (see Note 5)
Balance as of December 31, 2023
8. Inventories
(In thousands of U.S. Dollars)
Raw materials
Work-in-process
Finished goods
$
$
As of December 31,
2023
2022
$
$
27,660 $
2,570
1,354
31,584 $
40,526
4,696
1,985
(3,794 )
805
44,218
7,109
1,846
(9,621 )
472
44,024
28,580
2,644
(10,887 )
(23 )
64,338
25,365
2,034
4,135
31,534
As of December 31, 2023, Inventories include finished goods of $0.6 million (December 31, 2022 — $3.5 million) for which title had passed to the
customer, but the criteria for revenue recognition were not met as of the balance sheet date.
100
The following table summarizes the activity for the Company’s inventory valuation allowance account for the years ended December 31, 2023, 2022
and 2021:
(In thousands of U.S. Dollars)
Year ended December 31, 2023
Year ended December 31, 2022
Year ended December 31, 2021
Balance at
beginning
of year
Additions
charged to
(1)
expenses
Other
deductions
(2)
Balance at
end of year
$
$
5,739
4,897
5,752
$
64
919
629
$
(387 )
(77 )
(1,484 )
5,416
5,739
4,897
(1) Excludes an expense of $0.5 million charged directly to the Consolidated Statements of Operations during the year ended December 31, 2023 (2022
— recovery of $0.2 million; 2021 — expense of $0.3 million).
(2)
Includes the write-off of amounts previously charged to valuation allowance.
9. Film Assets
(In thousands of U.S. Dollars)
Completed and released films, net of accumulated amortization of
$236,275 (2022 ― $235,029)
Films in production
Films in development
As of December 31,
2023
2022
1,382 $
4,341
1,063
6,786 $
1,227
1,667
2,383
5,277
$
$
The Company expects to amortize $5.0 million of the Film Assets balance within three years from December 31, 2023, including $3.2 million expected
to be amortized in 2024, $0.9 million in 2025, and $0.9 million in 2026. In certain film arrangements, the Company co-produces a film with a third party
whereby the third party retaining certain rights to the film. The amount of participation payments owed to third parties related to co-produced films as of
December 31, 2023 is $3.8 million (December 31, 2022 — $3.8 million) and is recorded on the Consolidated Balance Sheets within Accrued and Other
Liabilities.
In 2023, the Company recorded impairment losses of $0.4 million related to the write-down of film assets (2022 — $0.8 million; 2021 — $0.2 million).
101
10. Property, Plant and Equipment
(In thousands of U.S. Dollars)
Equipment leased or held for use:
(1)(2)(3)
IMAX System components
Camera and connectivity equipment
(4)
(5)
Assets under construction
Right-of-use assets
Other property, plant and equipment:
Land
Buildings
Office and production equipment
Leasehold improvements
(6)
(In thousands of U.S. Dollars)
Equipment leased or held for use:
(1)(2)(3)
IMAX System components
Camera and connectivity equipment
(4)
(5)
Assets under construction
Right-of-use assets
Other property, plant and equipment:
Land
Buildings
Office and production equipment
Leasehold improvements
(6)
As of December 31, 2023
Cost
Accumulated
Depreciation
Net Book
Value
334,323 $
9,077
343,400
20,125
13,545
8,203
81,374
38,223
7,926
135,726
512,796 $
192,069 $
5,053
197,122
—
1,526
—
33,748
31,891
5,210
70,849
269,497 $
142,254
4,024
146,278
20,125
12,019
8,203
47,626
6,332
2,716
64,877
243,299
As of December 31, 2022
Cost
Accumulated
Depreciation
Net Book
Value
345,960 $
8,597
354,557
14,379
14,615
8,203
81,053
38,485
7,959
135,700
519,251 $
194,444 $
3,859
198,303
—
398
—
31,519
31,360
4,775
67,654
266,355 $
151,516
4,738
156,254
14,379
14,217
8,203
49,534
7,125
3,184
68,046
252,896
$
$
$
$
(1)
(2)
(3)
Included in system components are assets with costs of $1.4 million (2022 — $1.6 million) and accumulated depreciation of $1.2 million (2022 —
$1.2 million) that are leased to customers under operating leases.
Included in system components are assets with costs of $317.8 million (2022 — $323.7 million) and accumulated depreciation of $181.2 million
(2022 — $177.9 million) that are used in joint revenue sharing arrangements.
In 2023, the Company recorded charges of $0.8 million (2022 — $1.0 million; 2021 — $0.4 million) in Costs and Expenses Applicable to Technology
Rentals mostly related to the write-down of leased xenon-based digital systems which were taken out of service in connection with customer upgrades
to laser-based digital systems, as well as two IMAX Systems that was removed from their existing locations.
(4)
Included in assets under construction are components with costs of $16.4 million (2022 — $9.1 million) that will be utilized to construct assets to be
used in joint revenue sharing arrangements.
(5) The right-of-use assets primarily include operating leases for office and warehouse space.
(6) Fully depreciated office and production equipment is still in use by the Company. In 2023, the Company identified and wrote off $2.4 million (2022
— $3.5 million) of office and production equipment that is fully depreciated and no longer in use.
102
11. Other Assets
(In thousands of U.S. Dollars)
Lease incentives provided to exhibitor customers, net of accumulated amortization
Commissions and other deferred selling expenses
Other investments
Foreign currency derivatives
Other
12. Income Taxes
(a)
Income (loss) Before Taxes by Jurisdiction
As of December 31,
2023
2022
17,417 $
1,241
1,000
846
375
20,879 $
12,975
1,336
1,000
50
304
15,665
$
$
Income (loss) before taxes by tax jurisdiction for the years ended December 31, 2023, 2022, and 2021 consists of the following:
(In thousands of U.S. Dollars)
Canada
United States
China
Ireland
Other
(b)
Income Tax Expense
2023
Years Ended December 31,
2022
2021
(13,366 ) $
5,195
34,433
19,371
484
46,117 $
(55,623 ) $
4,281
11,466
24,070
6,037
(9,769 ) $
(55,480 )
3,218
53,792
829
8,628
10,987
$
$
Income tax expense for the years ended December 31, 2023, 2022, and 2021 consists of the following:
(In thousands of U.S. Dollars)
Income tax expense – current:
Canada
United States
China
Ireland
Other
Sub-total
(1)
Income tax (expense) benefit – deferred:
Canada
United States
(2)
China
Ireland
Other
Sub-total
(3)
Total
2023
Years Ended December 31,
2022
2021
$
$
(3,102 ) $
(1,638 )
(3,634 )
(3,481 )
(2,643 )
(14,498 )
2,456
1,537
(433 )
(2,040 )
(73 )
1,447
(13,051 ) $
(1,149 ) $
(274 )
(4,437 )
(2,802 )
(3,519 )
(12,181 )
943
(131 )
2,763
(1,562 )
60
2,073
(10,108 ) $
(915 )
(1,038 )
(11,045 )
(1,358 )
(3,212 )
(17,568 )
(231 )
(1,268 )
(381 )
(997 )
(119 )
(2,996 )
(20,564 )
(1) A valuation allowance is recorded in jurisdictions where management has determined, based on the weight of all available evidence, both positive and
negative, that a valuation allowance for deferred tax assets is required. For the year ended December 31, 2023, the Company recorded a $0.7 million
net decrease (2022 — net increase of $16.8 million) in the valuation allowance against its deferred tax assets in Canada. The $0.7 million net decrease
in the valuation allowance recorded in 2023 is reflected within Income Tax Expense in the Company’s Consolidated Statements of Operations.
103
(2) The Company’s deferred tax liability of $14.9 million as of December 31, 2022 relates to the estimated applicable foreign withholding taxes
associated with historical earnings that were not indefinitely reinvested which will become payable upon the repatriation of any such earnings. During
the year ended December 31, 2023, $24.0 million (2022 — $27.4 million) of historical earnings from a subsidiary in China were distributed and as a
result, $2.4 million (2022 — $2.7 million) of foreign withholding taxes were paid to the relevant tax authorities. The remaining deferred tax liability
on the Company’s Consolidated Balance Sheets as of December 31, 2023 is $12.5 million (2022 — $14.9 million).
(3) For the year ended December 31, 2023, Income Tax Expense excludes a tax expense of $0.2 million included in Other Comprehensive (Loss) Income
(2022 — expense of $0.8 million; 2021 — benefit of $0.3 million).
(c) Reconciliation of Income Tax Expense to Statutory Rates
For the years ended December 31, 2023, 2022, and 2021, the Company’s effective tax rate and income tax expense differs from the combined Canadian
federal and provincial statutory income tax rates due to the following factors:
(In thousands of U.S. Dollars, except rates)
Income tax (expense) benefit at combined statutory rates
Adjustments resulting from:
Decrease (increase) in valuation allowance
Changes to tax reserves
U.S. federal and state taxes
Withholding 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
Other items included in tax benefit (expense)
Income tax expense
(d) Deferred Tax Assets and Deferred Tax Liability
2023
2022
2021
Years Ended December 31,
Amount
$ (12,221 )
Rate
Amount
Rate
Amount
Rate
26.5% $
2,596
26.5% $
(2,912 )
26.5%
732
387
(250 )
(5,206 )
(1.6%)
(0.8%)
0.5%
11.3%
(16,848 )
1,643
(86 )
(3,825 )
(172.5%)
16.8%
(0.9%)
(39.2%)
(14,722 )
3,508
(80 )
(4,199 )
3,144
379
(6.8%)
(0.8%)
3,872
752
39.6%
7.7%
3,352
413
(273 )
257
$ (13,051 )
0.6%
2,278
(490 )
(0.6%)
28.3% $ (10,108 )
23.3%
(4.9%)
(103.6%) $
(5,336 )
(588 )
(20,564 )
As of December 31, 2023 and 2022, the Company’s deferred tax assets and deferred tax liability consists of the following:
(In thousands of U.S. Dollars)
Net operating loss carryforwards
Investment tax credit and other tax credit carryforwards
Write-downs of other assets
Excess of tax accounting basis in various assets
Accrued pension liability
Accrued share-based compensation
Income recognition on net investment in leases
Other accrued reserves
Total deferred income tax assets
Valuation allowance
Deferred income tax asset net of valuation allowance
Deferred tax liability
Net deferred tax liability
104
As of December 31,
2023
2022
$
$
29,490 $
5,348
1,223
15,379
5,583
8,460
(4,691 )
9,328
70,120
(62,132 )
7,988
(12,521 )
(4,533 ) $
134.0%
(31.9%)
0.7%
38.2%
(30.5%)
(3.8%)
48.6%
5.4%
187.2%
29,158
5,213
2,341
14,549
5,375
8,920
(3,344 )
10,552
72,764
(62,864 )
9,900
(14,900 )
(5,000 )
As of December 31, 2023, net deferred tax assets include a liability of $1.3 million (December 31, 2022 — liability of $1.1 million) associated with
amounts recognized within Accumulated Other Comprehensive Loss, including unrealized actuarial gains and losses related to the Company’s pension and
other postretirement benefit plans and unrealized net gains and losses on cash flow hedging instruments.
(e) Net Operating Loss Carryforwards
Estimated Canadian net operating loss carryforwards of $123.3 million can be used to reduce taxable income through 2043, China net operating losses
of $5.3 million can be used to reduce taxable income through 2028, and $14.4 million of Ireland net operating losses can be carried forward indefinitely.
Investment tax credits and other tax credits of $5.2 million can be carried forward to reduce income taxes payable through to 2043.
(f)
Indefinitely Reinvested Assertion
Income taxes are accrued for the earnings of non-Canadian affiliates and associated companies unless management determines that such earnings will be
indefinitely reinvested outside of Canada.
In 2020, management completed a reassessment of its strategy with respect to the most efficient means of deploying the Company’s capital resources
globally. Based on the results of this reassessment, management concluded that the historical earnings of certain foreign subsidiaries in excess of amounts
required to sustain business operations would no longer be indefinitely reinvested. During the year ended December 31, 2023, $24.0 million (2022 — $27.4
million) of historical earnings from a subsidiary in China were distributed and, as a result, $2.4 million (2022 — $2.7 million) of foreign withholding taxes
were paid to the relevant tax authorities. The Company has a deferred tax liability of $12.5 million as of December 31, 2023 (2022 — $14.9 million)
related to the estimated applicable foreign withholding taxes associated with these historical earnings.
(g) Valuation Allowance
As of December 31, 2023, the Company’s Consolidated Balance Sheets include net deferred income tax assets of $8.0 million, net of a valuation
allowance of $62.1 million (December 31, 2022 — $9.9 million, net of a valuation allowance of $62.9 million). For the year ended December 31, 2023, the
Company recorded a net decrease in valuation allowance of $0.7 million (2022 — net increase of $16.8 million). The net decrease includes an increase of
$2.0 million in reporting entities where it was concluded that it is more likely than not that the benefit from deferred tax assets will not be realized. This
was offset by a decrease of $1.3 million related to the recognition of certain losses in IMAX China that management now considers to be realizable and a
decrease of $1.4 million related to uncertain tax positions. The net decrease in the valuation allowance is reflected within Income Tax Expense in the
Company’s Consolidated Statements of Operations. The valuation allowance is expected to reverse at the point in time when management determines it is
more likely than not that the Company will incur sufficient tax liabilities to allow it to utilize the deferred tax assets against which the valuation allowance
is recorded.
(h) Uncertain Tax Positions
As of December 31, 2023, the Company had total tax reserves (including interest and penalties) of $12.0 million (2022 — $12.3 million) for various
uncertain tax positions. While the Company believes it has adequately provided for all tax positions, amounts asserted by taxing authorities could differ
from the Company’s accrued liability. Accordingly, additional provisions on federal, provincial, state and foreign tax-related matters may be required in the
future as revised estimates are made or the underlying matters are settled or otherwise resolved.
For the year ended December 31, 2023, the Company recorded a net decrease of $0.8 million (2022 — $2.2 million, 2021 —$2.1 million) related to tax
reserves (excluding interest and penalties) primarily related to tax years becoming statute barred for purposes of future tax examinations by local tax
jurisdictions, partially offset by additional tax positions related to prior years.
The Company has elected to classify interest and penalties related to income tax liabilities, when applicable, as part of the Income Tax Expense in its
Consolidated Statements of Operations rather than Interest Expense. The Company recorded a net increase of $0.6 million in potential interest and penalties
associated with its provision for uncertain tax positions for the years ended December 31, 2023 (2022 — $0.6 million; 2021 — $1.4 million).
105
The following table presents a reconciliation of the beginning and ending amount of tax reserves (excluding interest and penalties) for the years ended
December 31, 2023, 2022, and 2021:
(In thousands of U.S. Dollars)
Balance at beginning of the year
Additions based on tax positions related to the current year
Additions (reductions) for tax positions of prior years
Reductions resulting from lapse of applicable statute of limitations and
administrative practices
Balance at the end of the year
2023
Years Ended December 31,
2022
2021
9,733 $
—
1,552
(2,331 )
8,954 $
11,939 $
11
(94 )
(2,123 )
9,733 $
14,076
37
(991 )
(1,183 )
11,939
$
$
The number of years with open tax audits varies depending on the tax jurisdiction. The Company’s material taxing jurisdictions include Canada, the
United States, Ireland, and China. The Company’s 2020 through 2023 tax years remain subject to examination by the IRS for United States federal tax
purposes, and the 2016 through 2023 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 Consolidated Financial Statements.
The Company is subject to audit by tax authorities in the various jurisdictions in which it operates in the ordinary course of its business and believes that
it has adequately reserved for the expected exposures in its accounts. During the fourth quarter of 2022, the Company received a Notice of Reassessment
(the “Reassessment”) in the amount of $13.2 million (inclusive of interest). A revised Reassessment was issued by the CRA in May 2023 to reduce the
amount previously reassessed to $2.7 million (inclusive of interest). The Company has filed a Notice of Objection with respect to this Reassessment and
believes that the matter will be resolved on a basis that is consistent with its filing position.
(i)
Income Tax Effect on Other Comprehensive (Loss) Income
For the years ended December 31, 2023, 2022, and 2021, Income Tax Expense related to the components of Other Comprehensive (Loss) Income is as
follows:
(In thousands of U.S. Dollars)
Unrealized change in defined benefit plan
Unrealized change in postretirement benefit plans
Amortization of defined benefit and postretirement benefit plans
Amortization of prior service cost
Unrealized change in cash flow hedging instruments
Realized change in cash flow hedging instruments
Reclassification of unrealized change in ineffective cash flow hedging instruments
Years Ended December 31,
2023
2022
2021
20 $
9
175
—
(151 )
(234 )
—
(181 ) $
(198 ) $
(762 )
—
(48 )
346
(156 )
—
(818 ) $
(37 )
(35 )
—
(48 )
(123 )
446
83
286
$
$
13. Goodwill and Other Intangible Assets
(a) Goodwill
As of December 31, 2023, the Company’s total Goodwill was $52.8 million, of which $13.8 million relates to the SSIMWAVE reporting unit, which was
acquired on September 22, 2022, and $39.0 million relates to the Technology Products and Services reporting unit (December 31, 2022 — $39.0 million).
(Refer to Note 4 for additional information related to the Company’s acquisition of SSIMWAVE).
The Company performed a qualitative impairment test as of the annual assessment date, September 30, 2023, to evaluate whether it is more likely than
not that the fair value of its reporting units was less than their respective carrying amounts. Based on such assessment, the Company concluded, with
respect to all reporting units other than SSIMWAVE, that it is not more likely than not that the fair value of any such reporting unit is less than its carrying
value.
106
Accordingly, the Company performed the quantitative assessment of goodwill impairment for the SSIMWAVE reporting unit. Based on the quantitative
assessment, the Company concluded that there is no impairment in the year ended December 31, 2023 and the fair value of the SSIMWAVE reporting unit
exceeded its carrying value.
The Company’s significant assumptions, including revenue growth rates, discount rate and other factors may change in the future based on the changing
economic and competitive environment in which it operates. Assuming that all other components of the Company’s fair value estimate remain unchanged,
an increase of 100 basis points in discount rate decreases the goodwill headroom by $9.5 million, and a decrease of 10% in the revenue growth rate
decreases the goodwill headroom by $24.5 million, without triggering impairment charges of goodwill.
In the year ended December 31, 2022, the Company performed a qualitative impairment test as of the annual assessment date, September 30, 2022, to
evaluate whether it is more likely than not that the fair value of its reporting units was less than their respective carrying amounts. Based on its assessment,
the Company concluded that it was not more likely than not that the fair value of a reporting unit is less than its carrying amount for all reporting units.
(b) Other Intangible Assets
(In thousands of U.S. Dollars)
Licenses and intellectual property
Internal use software
Developed technology
In process research and development
Patents and trademarks
Customer relationships
Marketing-related intangibles
Other
(In thousands of U.S. Dollars)
Licenses and intellectual property
Internal use software
Developed technology
In process research and development
Patents and trademarks
Customer relationships
Marketing-related intangibles
Other
As of December 31, 2023
Accumulated
Amortization
Net Book
Value
26,168 $
36,647
6,282
3,810
12,389
1,340
4,338
160
91,134 $
16,657 $
27,342
1,329
—
9,530
251
952
51
56,112 $
9,511
9,305
4,953
3,810
2,859
1,089
3,386
109
35,022
As of December 31, 2022
Accumulated
Amortization
Net Book
Value
26,168 $
30,454
5,821
3,810
13,031
1,340
3,041
160
83,825 $
15,232 $
25,413
267
—
9,771
50
344
10
51,087 $
10,936
5,041
5,554
3,810
3,260
1,290
2,697
150
32,738
Cost
$
$
Cost
$
$
During 2023, the Company capitalized $8.2 million related to the development of internal use software, marketing-related intangibles, as well as
additions in patents and trademarks and other intangible assets (2022 — $5.1 million). The weighted average amortization period for these additions is 4.3
years (2022 — 4.7 years). The net book value of the other intangible assets capitalized in 2023 was $8.1 million as of December 31, 2023 (2022 — $15.5
million). During 2022, the Company acquired $11.2 million of intangible assets through its acquisition of SSIMWAVE. (Refer to Note 4.)
During 2023, the Company incurred costs of $0.4 million to renew or extend the term of acquired patents and trademarks which were recorded in
Selling, General and Administrative expenses (2022 — $0.4 million); 2021 — $0.1 million).
Fully amortized other intangible assets are still in use by the Company. In 2023, the Company identified and wrote off $1.0 million (2022 — $0.1
million; 2021—$0.1 million) of fully amortized patents and trademarks that are no longer in use.
107
The estimated amortization expense for each of the next five years following the December 31, 2023 balance sheet date is as follows:
(In thousands of U.S. Dollars)
2024
2025
2026
2027
2028
14. Borrowings
$
7,749
8,063
7,266
5,015
3,794
(a) Revolving Credit Facility Borrowings, Net
As of December 31, 2023 and 2022, Revolving Credit Facility Borrowings, Net includes the following:
(In thousands of U.S. Dollars)
Wells Fargo Credit Facility borrowings
HSBC China Facility borrowings
Bank of China Facility borrowings
Unamortized debt issuance costs
Revolving Credit Facility Borrowings, net
Wells Fargo Credit Agreement
December 31,
2023
December 31,
2022
24,000 $
—
—
(1,076 )
22,924 $
25,000
12,496
374
(1,759 )
36,111
$
$
On March 25, 2022, the Company entered into a Sixth Amended and Restated Credit Agreement with Wells Fargo Bank, National Association, as agent
(the “Agent”), and a syndicate of lenders party thereto (the “Credit Agreement”), which extended the maturity date of the credit facility under the Credit
Agreement (the “Credit Facility”) from June 28, 2023 to March 25, 2027. The Company’s obligations under the Credit Agreement are guaranteed by
certain of the Company’s subsidiaries (the “Guarantors”), and are secured by first-priority security interests in substantially all of the assets of the Company
and the Guarantors.
The Credit Agreement has a revolving borrowing capacity of $300.0 million, and contains an uncommitted accordion feature allowing the Company to
further increase its borrowing capacity by the greater of $140.0 million, for a total of $440.0 million, or by the Company's EBITDA for the sum of the four
most recently ended fiscal quarters, subject to certain conditions, depending on the mix of revolving loans and/or term loans under the incremental facility
and subject to conditions set forth in the Credit Agreement.
The Credit Facility requires that the Company maintain a maximum Senior Secured Net Leverage Ratio (as defined in the Credit Agreement) of no
greater than 3.25:1.00, on the last day of each Fiscal Quarter. The Senior Secured Net Leverage Ratio is the ratio of Total Debt (as defined in the Credit
Agreement), secured by liens, net of unrestricted cash and cash equivalents held outside of the PRC to a maximum of $75.0 million, relative to Adjusted
EBITDA per Credit Facility for the four prior quarters. The Senior Secured Net Leverage Ratio is calculated using Adjusted EBITDA per Credit Facility
determined on a trailing twelve-month basis. The Company was in compliance with this requirement as of December 31, 2023 as the Senior Secured Net
Leverage Ratio was 0.00:1.00.
Loans under the Credit Facility bear interest, at the Company’s option, at (i) Term Secure Overnight Financing Rate (“SOFR“), Eurocurrency Rate or
Canadian Dollar Offered Rate (“CDOR”) plus a margin ranging from 1.00% to 1.75% per annum; or (ii) the U.S. base rate or the Canadian prime rate plus
a margin ranging from 0.25% to 1.00% per annum, in each case depending on the Company’s total leverage ratio. In no event will Term SOFR,
Eurocurrency Rate or CDOR be less than 0.00% per annum.
As of December 31, 2023, borrowings under the Credit Facility were $24.0 million (December 31, 2022 — $25.0 million) and bear interest at Term
SOFR, plus a margin up to 1.75% per annum (December 31, 2022 — 1.75%) based on the Company’s total leverage ratio. The effective interest rate for the
year ended December 31, 2023 was 6.83% (2022 — 5.64%).
The Credit Agreement contains customary affirmative and negative covenants, including covenants that limit indebtedness, liens, asset sales,
investments and restricted payments, in each case subject to negotiated exceptions and baskets. The Credit Agreement also contains customary
representations, warranties and event of default provisions.
108
The Company incurred fees of approximately $2.5 million in connection with the March 2022 amendment of the Credit Agreement, which are being
amortized on a straight-line basis over the term of the Credit Agreement. In the first quarter of 2022, the Company expensed $0.4 million in unamortized
deferred financing costs associated with lenders that are no longer parties to the Credit Agreement.
On May 25, 2022, the Company delivered a “Designated Period” suspension notice to the Agent, and the Company, the Agent and the lenders under the
Credit Agreement entered into a limited consent, which notice and limited consent evidenced and effectuated the termination of the Designated Period
under the Credit Agreement. From and after the termination of the Designated Period, the $75.0 million minimum liquidity covenant in the Credit
Agreement was no longer in effect.
In conjunction with the proposal to acquire the outstanding 96.3 million shares in IMAX China Holding, Inc. (“IMAX China”) (the “China
Transaction”), the Company obtained a consent on June 30, 2023 under the Credit Facility to temporarily increase the Letter of Credit (“LC”)
Accommodations Sublimit from $25.0 million to $130.0 million. On July 11, 2023, the Company obtained a LC in the amount of $130.0 million in favor of
Morgan Stanley Asia Limited, the financial adviser for the China Transaction, to provide certainty of funds for the proposed proceeds and transaction costs
payable with respect to the China Transaction. At the Extraordinary General Meeting of IMAX China shareholders held on October 9, 2023, the vast
majority voted in favor of the China Transaction; however, the Company did not receive approval from 90% of disinterested IMAX China shareholders as
required by Hong Kong law and, as a result, the Company’s proposal to acquire IMAX China’s outstanding shares did not proceed. Consequently, the LC
and the temporary increase of the LC Accommodations Sublimit were canceled effective October 11, 2023.
As of December 31, 2023 and 2022, the Company had no letters of credit or advance payment guarantees outstanding under the Credit Facility.
As of December 31, 2023, the amount available for future borrowings under the Credit Facility was $276.0 million.
Foreign Exchange Facility
Within the Credit Facility, the Company is able to purchase foreign currency forward contracts and/or other swap arrangements. As of December 31,
2023, the net unrealized gain on the Company’s outstanding foreign currency forward contracts was $0.8 million, representing the amount by which the fair
value of these forward contracts exceeded their nominal value ( 2022 — net unrealized loss of $0.6 million; 2021 — net unrealized gain of $0.1 million).
As of December 31, 2023, the notional value of the Company’s outstanding foreign currency forward contracts was $40.6 million (December 31, 2022 —
$24.7 million).
Bank of China Facility
In June 2022, IMAX (Shanghai) Multimedia Technology Co., Ltd. (“IMAX Shanghai”), one of the Company’s majority-owned subsidiaries in China,
renewed its unsecured revolving facility with Bank of China for up to 200.0 million Chinese Renminbi (“RMB”) ($28.2 million), including RMB 10.0
million ($1.4 million) for letters of guarantee, to fund ongoing working capital requirements (the “Bank of China Facility”). The Bank of China Facility
expired in September 2023 and has been renewed to February 21, 2025.
As of December 31, 2023, no borrowings were outstanding under the Bank of China Facility and outstanding letters of guarantee were RMB 0.2 million
(less than $0.1 million). As of December 31, 2022, outstanding Bank of China Facility borrowings were RMB 2.6 million ($0.4 million) and outstanding
letters of guarantee were RMB 2.8 million ($0.4 million).
As of December 31, 2023, the amount available for future borrowings under the Bank of China Facility was RMB 190.0 million ($26.8 million) and the
amount available for letters of guarantee was RMB 9.8 million ($1.4 million). The amount available for future borrowings under the Bank of China Facility
is not subject to a standby fee. The effective interest rate for the year ended December 31, 2023 was 3.85% (2022 — 4.12%).
HSBC China Facility
In June 2022, IMAX Shanghai entered into an unsecured revolving facility for up to RMB 200.0 million ($28.2 million) with HSBC Bank (China)
Company Limited, Shanghai Branch to fund ongoing working capital requirements (the “HSBC China Facility”). As of December 31, 2023, no borrowings
were outstanding under the HSBC China facility (December 31, 2022 - RMB 87 million or $12.5 million). As of December 31, 2023, the amount available
for future borrowings under the HSBC China Facility was RMB 200.0 million ($28.2 million). The effective interest rate for the year ended December 31,
2023 was 3.88% (2022— 3.91%).
109
NBC Facility
In October 2019, the Company entered into a $5.0 million facility with National Bank of Canada (the “NBC Facility”) fully insured by Export
Development Canada for use solely in conjunction with the issuance of performance guarantees and letters of credit. The NBC Facility has been renewed to
August 21, 2024. The NBC Facility is renewable on the same terms and conditions on an annual basis. The Company did not have any letters of credit or
advance payment guarantees outstanding as of December 31, 2023 and 2022 under the NBC Facility.
(b) Convertible Notes and Other Borrowings, Net
As of December 31, 2023 and December 31, 2022, Convertible Notes and Other Borrowings, Net includes the following:
(In thousands of U.S. Dollars)
Convertible Notes
Unamortized discounts and debt issuance costs
Convertible Notes, net
Federal Economic Development Loan
Unaccreted interest benefit
Federal Economic Development Loan, net
$
December 31,
2023
December 31,
2022
230,000 $
(3,367 )
226,633
3,200
(702 )
2,498
230,000
(4,870 )
225,130
2,812
(1,030 )
1,782
Convertible Notes and Other Borrowings, net
$
229,131 $
226,912
Convertible Notes
On March 19, 2021, the Company issued $230.0 million of 0.500% Convertible Senior Notes due 2026 (the “Convertible Notes”) in a private placement
conducted pursuant to Rule 144A under the Securities Act of 1933, as amended. The net proceeds from the issuance of the Convertible Notes were $223.7
million, after deducting the initial purchasers’ discounts and commissions.
The Convertible Notes are senior unsecured obligations of the Company and bear interest at a rate of 0.500% per annum on the principal of $230.0
million, payable semi-annually in arrears on April 1 and October 1 of each year, beginning on October 1, 2021. The Convertible Notes will mature on April
1, 2026, unless they are redeemed or repurchased by the Company or converted on an earlier date.
Holders of the Convertible Notes have the right to convert their Convertible Notes in certain circumstances and during specified periods. Before January
1, 2026, holders of the Convertible Notes have the right to convert their Convertible Notes only upon the occurrence of certain events. From and after
January 1, 2026, holders of the Convertible Notes may convert their Convertible Notes at any time at their election until the close of business on the second
scheduled trading day immediately before the maturity date. Upon conversion, the Company will pay or deliver, as applicable, cash or a combination of
cash (in an amount no less than the principal amount of the Convertible Notes being converted) and common shares, at its election, based on the applicable
conversion rates. The initial conversion rate is 34.7766 common shares per $1,000 principal amount of Convertible Notes, which represents an initial
conversion price of approximately $28.75 per common share, and is subject to adjustment upon the occurrence of certain events.
The Convertible Notes are redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or after April 6, 2024 and on
or before the 40th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the Convertible
Notes to be redeemed, plus accrued and unpaid interest, if any, but only if the last reported sale price per share of the Company’s common stock exceeds
130% of the conversion price for a specified period of time. In addition, calling any Convertible Notes for redemption will constitute a “make-whole
fundamental change” with respect to such notes, in which case the conversion rate applicable to the conversion of such notes will be increased in certain
circumstances if such notes are converted after they are called for redemption.
110
In connection with the pricing of the Convertible Notes, the Company entered into privately negotiated capped call transactions (the “Capped Call
Transactions”) with certain financial institutions. The Capped Call Transactions are expected to reduce potential dilution resulting from the common shares
the Company is required to issue and/or to offset any potential cash payments the Company is required to make in excess of the principal amount of the
Convertible Notes in the event that the market price per share of the Company’s common shares is greater than the strike price of the Capped Call
Transactions with such reduction and/or offset subject to a cap. The Capped Call Transactions have an initial cap price of $37.2750 per share of the
Company’s common shares, which represents a premium of 75% over the last reported sale price of the common shares when they were priced on March
16, 2021, and are subject to certain adjustments under the terms of the Capped Call Transactions. Collectively, the Capped Call Transactions cover, subject
to anti-dilution adjustments substantially similar to those applicable to the Convertible Notes, the number of the Company’s common shares underlying the
Convertible Notes. The cost of the Capped Call Transactions was approximately $19.1 million.
The Capped Call Transactions are separate transactions, are not part of the terms of the Convertible Notes and will not affect any holder’s rights under
the Convertible Notes. Holders of the Convertible Notes will not have any rights with respect to the Capped Call Transactions.
The Capped Call Transactions meet all of the applicable criteria for equity classification in accordance with ASC 815-10-15-74(a), “Derivatives and
Hedging — Embedded Derivatives — Certain Contracts Involving an Entity’s Own Equity,” and, as a result, the related $19.1 million cost was recorded as
a reduction to Other Equity within Shareholders’ Equity on the Company’s Consolidated Statements of Shareholders’ Equity and Consolidated Balance
Sheets.
In addition, upon the occurrence of a “fundamental change” (as defined below), holders may require the Company to repurchase their Convertible Notes
at a cash repurchase price equal to the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest, if any. Subject to the
terms and conditions of the indenture governing the Convertible Notes, a “fundamental change” means, among other things, an event resulting in (i) a
change of control, (ii) a transfer of all or substantially all of the assets of the Company, (iii) a merger, (iv) liquidation or dissolution of the Company, or (v)
delisting of the Company’s common shares from a national securities exchange.
The Company recorded the Convertible Notes entirely as a liability in the Consolidated Balance Sheets, net of initial purchasers' discounts and
commissions and other debt issuance costs, with interest expense reflecting the cash coupon plus the amortization of the discounts and capitalized costs.
Additionally, under the “if-converted” method, because the principal amount of the Convertible Notes is settled in cash and the conversion spread is
settleable in the Company’s common shares, diluted earnings per share is calculated by including the net number of incremental shares that would be issued
upon conversion of the Convertible Notes, using the average market price during the period. Accordingly, the application of the “if-converted” method may
reduce the Company’s reported diluted earnings per share.
Federal Economic Development Loan
The Company’s wholly-owned subsidiary, SSIMWAVE, entered into a contribution agreement with the Federal Economic Development Agency for
Southern Ontario (the “Federal Economic Development Loan”) on May 29, 2019, under which SSIMWAVE received $4.2 million Canadian Dollar ($3.2
million) by way of repayable contributions toward certain eligible projects costs. The contributions under the agreement covered 35% of the eligible and
supported costs incurred by SSIMWAVE between January 10, 2019 and December 31, 2022. The contributions were repayable over 60 months, with
repayments to begin in January 2024 and an annual interest rate of 0%. As a result of SSIMWAVE amalgamating with the Company on January 1, 2024,
the Federal Economic Development Loan was reassigned to the Company on January 4, 2024. Under the reassigned and amended agreement, the
contributions are repayable over 36 months beginning January 2024, with an annual interest rate of 0%.
The benefit of the interest-free loan has been determined by calculating the present value of the payments using a market-based interest rate and
comparing this to the proceeds received. The benefit is recorded as the interest-free benefit of government funding within Interest Income on the
Company’s Consolidated Statements of Operations. The obligation is being accreted to its maturity amount, resulting in an interest accretion expense of
$0.5 million in 2023 (2022 — less than $0.1 million) which is being recorded within Interest Expense on the Company’ Consolidated Statements of
Operations.
As of December 31, 2023, the Federal Economic Development Loan has a carrying value of $2.5 million, net of unaccreted interest benefit and is
recorded within Convertible Notes and Other Borrowings, Net on the Company’s Consolidated Balance Sheets.
111
15. Commitments
In the ordinary course of its business, the Company enters into contractual agreements with third parties that include non-cancelable payment
obligations, for which it is liable in future periods. These arrangements can include terms binding the Company to minimum payments and/or penalties if it
terminates the agreement for any reason other than an event of default as described by the agreement. The following table presents a summary of the
Company’s contractual obligations and commitments as of December 31, 2023:
Payments Due by Period
(3)
(1)
(In thousands of U.S. Dollars)
Purchase obligations
(2)
Pension obligations
Operating lease obligations
Finance lease obligations
Wells Fargo Facility
Federal Economic Development Loan
(5)
Convertible Notes
Postretirement benefits obligations
(4)
$
$
Total
Obligation
Year
Less Than One
33,723
$
—
2,740
518
24,000
965
1,150
106
63,202
$
35,210
20,298
14,898
518
24,000
3,200
232,875
2,489
333,488
1 to 3 years
3 to 5 years
Thereafter
$
$
1,192
20,298
5,026
—
—
2,235
231,725
221
260,697
$
$
24
—
4,965
—
—
—
—
228
5,217
$
$
271
—
2,167
—
—
—
—
1,934
4,372
(1) Represents 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 Company has an unfunded defined benefit pension plan covering its Chief Executive Officer. (Refer to Note 23.)
(3) Represents total minimum annual rental payments due under the Company’s operating leases. (Refer to Note 6.)
(4) The Federal Economic Development Loan will be repayable over 36 months, with repayments estimated to begin in January 2024. (Refer to Note
14(b).)
(5) The Convertible Notes bear interest at a rate of 0.500% per annum on the principal of $230.0 million, payable semi-annually in arrears on April 1 and
October 1 of each year, beginning on October 1, 2021. The Convertible Notes will mature on April 1, 2026, unless earlier repurchased, redeemed or
converted. (Refer to Note 14(b).)
The Company compensates its sales force with both fixed and variable compensation. Commissions on the sale or lease of IMAX 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.
As of December 31, 2023, $2.7 million (December 31, 2022 — $2.2 million) of commissions have been accrued and will be payable in future periods.
16. Contingencies and Guarantees
The Company is involved in lawsuits, claims, and proceedings, including those identified below, which arise in the ordinary course of business.
Management is required to assess the likelihood of any adverse judgments or outcomes related to these legal contingencies, as well as potential ranges of
probable or reasonably possible losses. The Company records a provision for a liability when it is probable that a loss has been incurred and the amount of
the loss can be reasonably estimated. The determination of the amount of any liability recorded or disclosed is reviewed at least quarterly based on a careful
analysis of each individual exposure with, in some cases, the assistance of outside legal counsel, taking into account the impact of negotiations, settlements,
rulings, and other pertinent information related to the case. The amount of liabilities recorded or disclosed for these contingencies may change in the future
due to changes in management's judgments resulting from new developments or changes in settlement strategy. Any resulting adjustment to the liabilities
recorded by the Company could have a material adverse effect on its results of operations, cash flows, and financial position in the period or periods in
which such changes in judgment occur. The Company believes it has adequate provisions for any such matters. The Company expenses legal costs relating
to its lawsuits, claims and proceedings as incurred.
112
(i) 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, 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 to prevent recognition of the ICC award in India. On March 10, 2017, the Supreme Court of India dismissed E-City’s
petition. On March 29, 2017, the Company filed an Execution Application in the Bombay High Court seeking to enforce the ICC award against E-City and
several related parties, which award the Company calculates to be $26.2 million, inclusive of interest, as of December 31, 2023. That matter is currently
pending. The Company has also taken steps to enforce the ICC final award outside of India. In December 2011, the Ontario Superior Court of Justice
issued an order recognizing the final award and requiring E-City to pay the Company $30,000 to cover the costs of the application, and in May 2012, the
New York Supreme Court recognized the Canadian judgment and entered it as a New York judgment. The Company intends to continue pursuing its rights
and seeking to enforce the award, although no assurances can be given with respect to the ultimate outcome.
(ii) 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.
(iii) In the normal course of business, the Company enters into agreements that may contain features that meet the definition of a guarantee. A guarantee
is a contract (including an indemnity) that contingently requires the Company to make payments (either in cash, financial instruments, other assets, shares
of its stock, or provision of services) to a third party based on (a) changes in an underlying interest rate, foreign exchange rate, equity or commodity
instrument, index or other variable, that is related to an asset, a liability or an equity security of the counterparty, (b) failure of another party to perform
under an obligating agreement or (c) failure of another third party to pay its indebtedness when due.
Financial Guarantees
Certain subsidiaries of the Company have provided significant financial guarantees to third parties under the Credit Agreement (see Note 14).
Product Warranties
The Company’s accrual for product warranties, which is recorded within Accrued and Other Liabilities in the Consolidated Balance Sheets, was less
than $0.1 million and $nil as of December 31, 2023 and 2022, respectively.
Director/Officer Indemnifications
The Company’s by-laws contain an indemnification of its directors/officers, former directors/officers, and persons who have acted at its request to be a
director/officer of an entity in which the Company is a shareholder or creditor, to indemnify them, to the extent permitted by the Canada Business
Corporations Act, against expenses (including legal fees), judgments, fines and any amounts actually and reasonably incurred by them in connection with
any action, suit or proceeding in which the directors and/or officers are sued as a result of their service, if they acted honestly and in good faith with a view
to the best interests of the Company. In addition, the Company has entered into indemnification agreements with each of its directors in order to effectuate
the foregoing. The nature of the indemnification prevents the Company from making a reasonable estimate of the maximum potential amount it could be
required to pay to counterparties. The Company has purchased directors’ and officers’ liability insurance. No amount has been accrued in the Company’s
Consolidated Balance Sheets as of December 31, 2023 and December 31, 2022 with respect to this indemnity.
113
Other Indemnification Agreements
In the normal course of its operations, the Company provides indemnifications to counterparties in transactions such as: IMAX System lease and sale
agreements and the supervision of installation or servicing of IMAX 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 IMAX 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.
17. 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 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) Settlements of Share-Based Compensation
During the years ended December 31, 2023, 2022, and 2021, the Company settled the exercise of stock options and the vesting of PSUs and RSUs with
its common shares. These settlements were either through newly issued common shares from treasury or through the purchase of common shares in the
open market by the IMAX LTIP trustee. The following table summarizes the settlement of stock option, PSU and RSU transactions:
Stock options
Issued from treasury
Total stock options exercised
PSUs
Issued from treasury
Shares withheld for tax withholdings
Total PSUs vested
RSUs
Issued from treasury
Plan trustee purchases
Shares withheld for tax withholdings
Total RSUs vested
(c) Share-Based Compensation
2023
Years Ended December 31,
2022
2021
—
—
233,306
135,296
368,602
514,383
—
232,749
747,132
—
—
—
—
—
596,277
—
203,954
800,231
41,613
41,613
—
—
—
531,629
723
157,520
689,872
The Company issues share-based compensation to eligible employees, directors, and consultants under the IMAX LTIP and the China LTIP, as
summarized below. On June 3, 2020, the Company’s shareholders approved the IMAX LTIP at its Annual and Special Meeting.
Awards under the IMAX LTIP may consist of stock options, RSUs, PSUs, and other awards. Stock options are no longer granted under the Company’s
previously approved Stock Option Plan (“SOP”).
114
For the year ended December 31, 2023, share-based compensation expense totaled $23.6 million (2022 — $27.0 million; 2021 — $25.6 million) and is
reflected in the following accounts in the Consolidated Statements of Operations:
(In thousands of U.S. Dollars)
Cost and expenses applicable to revenues
Selling, general and administrative expenses
Research and development
Exit costs, restructuring charges and associated impairments
Years Ended December 31,
2023
2022
2021
850 $
22,534
434
(267 )
23,551 $
1,156 $
25,438
419
—
27,013 $
1,490
23,776
348
—
25,614
$
$
As of December 31, 2023, the Company has reserved a total of 5,538,873 (December 31, 2022 — 5,788,499) common shares for future issuance under
the IMAX LTIP. Of this amount, 3,329,422 common shares are reserved for the future exercise of stock options (December 31, 2022 — 3,604,739),
922,621 common shares are reserved for the future vesting of PSUs (December 31, 2022 — 931,716), and 1,286,830 common shares are reserved for the
future vesting of RSUs (December 31, 2022 — 1,252,044). As of December 31, 2023, 3,329,422 stock options in respect of common shares (December 31,
2022 — 3,523,335) were vested and exercisable.
IMAX LTIP and SOP Stock Options
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 no longer intends to issue new stock option awards.
The Company utilizes a Binomial Model to determine the fair value of stock option awards on the grant date. 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 award, 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 stock option awards are granted at the 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 is based on the higher of the closing price of a common share on either: (i) the grant date or (ii) 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. All stock options have been vested and expire 10 years or less from the date of the grant. The SOP and IMAX LTIP provide for double-trigger
accelerated vesting in the event of a change in control, as defined in each plan.
The Company recorded the following expenses related to stock options issued to employees and directors under the IMAX LTIP and SOP:
(In thousands of U.S. Dollars)
Stock option expense
2023
Years Ended December 31,
2022
2021
$
84 $
572 $
1,064
For the year ended December 31, 2023, the Company’s Consolidated Statements of Operations includes an income tax benefit of $nil related to stock
option expense (2022 — $0.1 million; 2021 — $0.1 million).
As of December 31, 2023, 2022, and 2021, unrecognized share-based compensation expense related to non-vested employee stock options is as follows:
(In thousands of U.S. Dollars)
Expense not yet recognized related to non-vested employee stock options
2023
As of December 31,
2022
2021
$
— $
86 $
662
115
As of 2023, 2022, and 2021, unrecognized share-based compensation expense related to non-vested employee stock options is expected to be recognized
over the following weighted-average periods:
Weighted average period (in years)
2023
As of December 31,
2022
2021
—
0.2
1.1
During the years ended December 31, 2023, 2022 and 2021, the Company did not grant any stock options.
The following table summarizes the stock option activity under the SOP and IMAX LTIP for the years ended December 31, 2023, 2022, and 2021:
Stock options outstanding, beginning of year
Granted
Exercised
Forfeited
Expired
Cancelled
Stock options outstanding, end of year
Stock options exercisable, end of year
2023
3,604,739
—
—
—
(275,317 )
—
3,329,422
Number of Shares
2022
3,736,157
—
—
(796 )
(126,569 )
(4,053 )
3,604,739
3,329,422
3,523,335
Weighted Average Exercise
Price Per Share
2021
2023
2022
2021
4,892,962 $
—
(41,613 )
(88,934 )
(903,038 )
(123,220 )
3,736,157
3,488,107
26.36 $
—
—
—
27.95
—
26.61 $
—
—
22.49
33.61
27.92
26.23
26.36
26.23
26.45
26.81
—
21.23
22.49
28.31
26.68
26.61
26.93
As of December 31, 2023, 3,329,422 options outstanding included both fully vested and unvested options with a weighted average exercise price of
$26.23, an aggregate intrinsic value of $nil and a weighted average remaining contractual life of 2.4 years. The intrinsic value of options exercised in 2023
was $nil (2022 —$ nil; 2021 — $0.1 million).
IMAX LTIP Restricted Share Units
RSUs have been granted to employees and directors under the IMAX LTIP. Each RSU represents a contingent right to receive a 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 or
the average closing price of the Company’s common share for five days prior to the date of grant. For the years ended December 31, 2023, 2022, and 2021,
the Company recorded the following expenses related to RSUs issued to employees and directors in the IMAX LTIP:
(In thousands of U.S. Dollars)
RSU expenses
2023
Years Ended December 31,
2022
2021
$
12,612 $
15,498 $
15,555
The Company’s actual tax benefits realized for the tax deductions related to the vesting of RSUs was $0.8 million for the year ended December 31, 2023
(2022 — $0.9 million; 2021 — $0.6 million).
The Company’s accrued liability for granted RSUs was $2.7 million as of December 31, 2023 (December 31, 2022 — $0.8 million).
Total share-based compensation expense related to non-vested RSUs not yet recognized and the weighted average period over which the awards are
expected to be recognized are as follows:
(In thousands of U.S. Dollars)
Expense not yet recognized related to non-vested RSUs
2023
Years Ended December 31,
2022
2021
$
16,256 $
17,457 $
15,913
Weighted average period awards are expected to be recognized (in years)
1.7
1.5
1.6
116
The following table summarizes the activity in respect of RSUs issued under the IMAX LTIP for the years ended December 31, 2023, 2022, and 2021:
RSUs outstanding, beginning of year
Granted
Vested and settled
Forfeited
RSUs outstanding, end of year
2023
1,252,044
900,199
(747,132 )
(118,281 )
1,286,830
Number of Awards
2022
1,457,883
708,313
(800,231 )
(113,921 )
1,252,044
2021
1,564,838 $
831,123
(689,872 )
(248,206 )
1,457,883
Weighted Average Grant Date Fair
Value Per Share
2022
2023
2021
19.16 $
17.82
18.65
19.12
18.53
19.16 $
19.31
19.10
20.39
19.16
18.33
21.03
19.46
19.38
19.16
Historically, RSUs granted under the IMAX LTIP have vested between immediately and three years from the grant date. On June 3 2020, the IMAX
LTIP was amended to require a minimum vesting period of one year on future RSU grants, with a carve-out for an aggregate of no more than 5% of the
total number of common shares authorized for issuance under the plan that may vest on a shorter schedule. Vesting of the RSUs is subject to continued
employment or service with the Company. The following table summarizes the number of RSUs issued from the carve-out balance:
Approved under the IMAX LTIP
Issued during previous years
Issued during 2023
Outstanding, December 31, 2023
Restricted Share Units to Non-Employees
1,030,000
(541,942 )
(63,443 )
424,615
During the years ended December 31, 2023, 2022 and 2021, the Company did not grant any restricted share units to non-employees. The Company did
not record any expenses for the year ended December 31, 2023 related to RSU grants issued to non-employees of the Company (2022 ― $nil; 2021 ―
$nil).
IMAX LTIP Performance Stock Units Summary
The Company grants two types of PSUs awards, one which vests based on a combination of employee service and the achievement of certain Adjusted
EBITDA targets and one which vests based on a combination of employee service and the achievement of total TSR targets. The achievement of the
Adjusted EBITDA and TSR targets in these PSUs is determined over a three-year performance period. At the conclusion of the three-year performance
period, the number of PSUs that ultimately vest can range from 0% to a maximum vesting opportunity of 175% of the initial Adjusted EBITDA PSU award
or 150% of the initial TSR PSU award, depending upon actual performance versus the established Adjusted EBITDA and TSR targets, respectively.
The grant date fair value of PSUs with Adjusted EBITDA targets is equal to the closing price of the Company’s common shares on the date of grant or
the average closing price of the Company’s common shares for five days prior to the date of grant. The grant date fair value of PSUs with TSR targets is
determined on the grant date using a Monte Carlo Model. The compensation expense attributable to each type of PSU is recognized on a straight-line basis
over the requisite service period.
The fair value determined by the Monte Carlo Model is affected by the Company’s share price, as well as assumptions regarding a number of highly
complex and subjective variables. These variables include, but are not limited to, market conditions as of the grant date, the Company’s expected share
price volatility over the term of the awards, and other relevant data. The compensation expense is fixed on the date of grant based on the fair value of the
PSUs granted.
The amount and timing of compensation expense recognized for PSUs with Adjusted EBITDA targets is dependent upon management's assessment of
the likelihood of achieving these targets. If, as a result of management’s assessment, it is projected that a greater number of PSUs will vest than previously
anticipated, a life-to-date adjustment to increase compensation expense is recorded in the period that such determination is made. Conversely, if, as a result
of management’s assessment, it is projected that a lower number of PSUs will vest than previously anticipated, a life-to-date adjustment to decrease
compensation expense is recorded in the period that such determination is made.
117
For the years ended December 31, 2023, 2022, and 2021, the Company recorded the following expenses related to outstanding PSUs, which includes
adjustments reflecting management’s estimate of the number of PSUs with Adjusted EBITDA targets expected to vest:
(In thousands of U.S. Dollars)
PSU expenses
2023
Years Ended December 31,
2022
2021
$
7,859 $
8,306 $
5,322
The Company’s actual tax benefits realized for the tax deductions related to the vesting of PSUs was $0.3 million for the year ended December 31, 2023
(2022 ― $nil; 2021 ― $nil).
Total share-based compensation expense related to non-vested PSUs not yet recognized and the weighted average period over which the awards are
expected to be recognized are as follows:
(In thousands of U.S. Dollars)
Expense not yet recognized related to non-vested PSUs
2023
Years Ended December 31,
2022
2021
$
10,907 $
10,800 $
9,254
Weighted average period awards are expected to be recognized (in years)
1.8
1.8
1.8
The following table summarizes the activity in respect of PSUs issued under the IMAX LTIP:
(1)
PSUs outstanding, beginning of year
Granted
Vested and settled
(2)
Forfeited
PSUs outstanding, end of year
(1)
(3)
Number of Awards
2023
931,716
585,602
(368,602 )
(226,095 )
922,621
2022
613,405
359,138
—
(40,827 )
931,716
2021
361,844 $
309,574
—
(58,013 )
613,405
Weighted Average Grant Date
Fair Value Per Share
2023
2022
2021
18.96 $
17.69
16.92
18.19
18.21 $
20.34
—
19.90
19.16
18.96
15.68
20.77
—
16.11
18.21
(1) For the year ended December 31, 2023, the balance of shares granted includes 157,963 additional shares, at a weighted average grant date fair value
per share of $16.92, as PSUs granted in 2020 with Adjusted EBITDA targets vested at 175% on account of full achievement of the targets.
(2) Forfeited PSUs include the TSR awards issued in 2020 which did not vest as the market condition was not satisfied. The Company recorded an
expense of $1.5 million associated with these 104,633 shares that were not adjusted at the time of forfeiture.
(3) Outstanding PSUs include the TSR awards issued in 2021 which are not anticipated to vest. The Company recorded an expense of $1.5 million
associated with these 68,850 shares that will not be adjusted at the time of forfeiture.
As of December 31, 2023, the maximum number of shares of common stock that may be issued with respect to PSUs outstanding is
1,591,329, assuming full achievement of the Adjusted EBITDA and TSR targets.
China Long-Term Incentive Plan
Each stock option (“China Option”), RSU, or PSU issued under the China LTIP represents an opportunity to participate economically in the future
growth and value creation of IMAX China.
In connection with the IMAX China IPO and in accordance with the China LTIP, IMAX China adopted a post-IPO share option plan and a post-IPO
restricted stock unit plan. Pursuant to these plans, IMAX China has issued additional China Options, China LTIP Performance Stock Units (“China PSUs”),
and China LTIP Restricted Share Units (“China RSUs”).
118
For the years ended December 31, 2023, 2022, and 2021, share-based compensation expense related to China Options, China RSUs and China PSUs
was as follows:
(In thousands of U.S. Dollars)
Expense
China Options
China RSUs
China PSUs
Total
2023
Years Ended December 31,
2022
2021
$
$
12 $
2,337
647
2,996 $
91 $
2,284
262
2,637 $
285
2,810
578
3,673
In 2022, IMAX China modified the terms of certain fully vested stock options to extend their contractual life by one year and recorded an associated
expense of $0.1 million (2021 ― $0.1 million). No such charges were incurred in 2023.
Issuer Purchases of Equity Securities
On June 12, 2017, the Company announced that the Board of Directors approved a $200.0 million share repurchase program for its common shares that
would have initially expired on June 30, 2020, which was subsequently extended and increased in the total share repurchase authority to $400.0 million. In
2023, the Company’s Board of Directors approved a 36-month extension to its share repurchase program through June 30, 2026. As of December 31,
2023, the Company has $167.0 million authorized for repurchase under its approved repurchase program. The repurchases may be made either in the open
market or through private transactions, including repurchases made pursuant a plan intended to comply with Rule 10b5-1 under the Securities Exchange
Act of 1934, as amended, 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 2023, the Company repurchased
1,604,420 (2022 ― 5,401,852) common shares at an average price of $16.45 per share (2022 ― $15.19 per share), for a total of $26.4 million (2022 ―
$82.0 million), excluding commissions, of which 108,393 were common shares (2022 ― 140,000) where settlement occurred subsequent to December 31,
2023, at an average price of $14.98 per share for a total of $1.6 million, excluding commissions.
The following table summarizes the Company’s share repurchases during the years ended December 31, 2023 and 2022:
(in thousands of U.S. Dollars)
Shares repurchased
Total Number of Shares Repurchased
Average Price Paid Per Share
2023
1,604,420
2022
5,401,852 $
2023
2022
16.45 $
15.19
For the years ended December 31, 2023 and 2022, there were no shares purchases in the administration of employee share based plans.
As of December 31, 2023, the IMAX LTIP trustee held nil shares. Any shares held with the trustee are recorded at cost and are reported as a reduction
against Capital Stock on the Company’s Consolidated Balance Sheets.
In 2022, IMAX China’s shareholders granted its Board of Directors (“IMAX China Board”) a general mandate authorizing the IMAX China Board,
subject to applicable laws, to repurchase shares of IMAX China not to exceed 10% of the total number of issued shares as of June 23, 2022 (34,063,480
shares). This program expired on the date of the 2023 Annual General Meeting of IMAX China on June 7, 2023. During the 2023 Annual General Meeting,
shareholders approved the repurchase of shares of IMAX China not to exceed 10% of the total number of shares as of June 7, 2023 (33,959,314 shares).
This program will be valid until the 2024 Annual General Meeting of IMAX China. The repurchases may be made in the open market or through other
means permitted by applicable laws. IMAX China has no obligation to repurchase its shares and the share repurchase program may be suspended or
discontinued by IMAX China at any time.
In 2023, IMAX China repurchased 16,800 (2022 ― 2,961,800) common shares at an average price of HKD 7.11 per share (U.S. $0.91 per share) for a
total of HKD 0.1 million or less than U.S. $0.1 million (2022 ― HKD 8.0 per share or U.S. $1.02 per share, for a total of HKD 23.7 million or U.S. $3.0
million). The change in non-controlling interest as a result of common shares repurchased by IMAX China is recorded within Non-Controlling Interest in
the Consolidated Balance Sheets and the Consolidated Statements of Shareholders’ Equity. The difference between the consideration paid and the
ownership interest obtained as a result of IMAX China share repurchases is recorded within Other Equity in the Consolidated Balance Sheets and the
Consolidated Statements of Shareholders’ Equity (see Note 2(a)).
119
The following table summarizes the IMAX China’s share repurchases during the years ended December 31, 2023 and 2022:
(in thousands of U.S. Dollars)
Shares repurchased
(d) Basic and Diluted Weighted Average Shares Outstanding
Total Number of Shares Repurchased
Average Price Paid Per Share
2023
16,800
2022
2,961,800 $
2023
2022
0.91 $
1.02
The following table reconciles the denominator of the basic and diluted weighted average share computations:
(In thousands)
Issued and outstanding, beginning of period
Weighted average number of shares issued (repurchased) , net
Weighted average number of shares outstanding - basic and diluted
Weighted average effect of potential common shares, if dilutive
Weighted average number of shares outstanding - diluted
Years Ended December 31,
2023
2022
2021
54,149
161
54,310
836
55,146
58,654
(1,980 )
56,674
—
56,674
58,921
205
59,126
—
59,126
For the year ended December 31, 2023, the calculation of diluted earnings per share excludes 3,380,142 (2022 ― 4,523,121; 2021 ― 6,131,792) shares
that are issuable upon the vesting of 18,877 RSUs (2022 ― 637,120; 2021 ― 1,457,883), the vesting of 31,843 PSUs (2022 ― 281,262; 2021 ―
937,752), and the exercise of 3,329,422 stock options (2022 ― 3,604,739; 2021 ― 3,736,157 ), as the effect would be anti-dilutive.
The calculation of diluted weighted average shares outstanding for the year ended December 31, 2023 also excludes any shares potentially issuable upon
the conversion of the Convertible Notes as the average market price of the Company’s common shares during the period of time they were outstanding was
less than the conversion price of the Convertible Notes. (Refer to Note 14(b).)
(e) Statutory Surplus Reserve
Pursuant to the corporate law of the PRC, entities registered in the PRC are required to maintain certain statutory reserves, which are appropriated from
after-tax profits, after offsetting accumulated losses from prior years, before dividends can be declared or paid to equity holders.
The Company’s PRC subsidiaries are required to appropriate 10% of statutory net profits to statutory surplus reserves, upon distribution of their after-
tax profits. The Company’s PRC subsidiaries may discontinue the contribution when the when the aggregate sum of the statutory surplus reserve is more
than 50% of their registered capital. The statutory surplus reserve is non-distributable other than during liquidation and may only be used to fund losses
from prior years, to expand production operations, or to increase the capital of the subsidiaries. In addition, the subsidiaries may make further contribution
to the discretional surplus reserve using post-tax profits in accordance with resolutions of the Board of Directors.
The statutory surplus reserve of RMB 36.4 million ($5.6 million) has reached 50% of its PRC subsidiaries’ registered capital, as such no further
contributions to the reserve are required.
120
18. Consolidated Statements of Operations Supplemental Information
(a) Selling Expenses
The following table summarizes the Company’s selling expenses, including sales commissions and marketing and other, which are recognized within
Costs and Expenses Applicable to Revenues in the Consolidated Statements of Operations, for the years ended December 31, 2023, 2022 and 2021:
(1)
(In thousands of U.S. Dollars)
Technology sales
Image enhancement and maintenance services
Technology rentals
Total
(3)
(2)
Years Ended December 31,
2023
2022
2021
Sales
Commissions
Marketing
and Other
Sales
Commissions
Marketing and
Other
Sales
Commissions
Marketing
and Other
$
$
1,575 $
—
478
2,053 $
1,103
15,200
734
17,037
$
$
479 $
—
85
564 $
810 $
20,284
663
21,757 $
1,885 $
—
399
2,284 $
989
8,923
1,109
11,021
(1) Sales commissions paid prior to the recognition of the related revenue are deferred and recognized upon the client acceptance of the IMAX System.
Direct advertising and marketing costs for each IMAX System are expensed as incurred.
(2) Film exploitation costs, including advertising and marketing costs are expensed as incurred.
(3) Sales commissions related to joint revenue sharing arrangements accounted for operating leases are recognized in the month they are earned by the
salesperson, which is typically the month in which the IMAX System is installed, and are subject to subsequent performance-based adjustments.
Direct advertising and marketing costs for each IMAX System are expensed as incurred.
(b) Foreign Exchange
Included in Selling, General and Administrative Expenses for the year ended December 31, 2023 is a foreign currency net loss of $0.7 million resulting
from changes in exchange rates related to foreign currency denominated monetary assets and liabilities, primarily due to the slower pace of RMB
weakening against the U.S. Dollar throughout 2023, as compared to a net loss of $3.2 million and a net gain of $1.3 million for the years ended December
31, 2022 and 2021, respectively. Refer to Note 22(c) for additional information.
(c) Collaborative Arrangements
Joint Revenue Sharing Arrangements
Refer to Note 6 for a description of the material terms of the Company’s collaborative joint revenue sharing arrangements. The accounting policy for the
Company’s joint revenue sharing arrangements is disclosed in Note 2(o).
Revenue attributable to transactions arising between the Company and its customers under joint revenue sharing arrangements are recorded within
Revenues – Technology Sales (for hybrid joint revenue sharing arrangements) and Revenues – Technology Rentals (for traditional joint revenue sharing
arrangements). For the year ended December 31, 2023, such revenues totaled $78.2 million (2022 — $66.6 million; 2021 — $51.6 million). (Refer to Note
20(a) for a disaggregated presentation of the Company’s revenues.)
Film Remastering and Distribution
In a film remastering and distribution arrangement, the Company receives a percentage of the box office receipts from a third party who owns the
copyright to a film in exchange for converting the film into IMAX format and distributing it through the IMAX network. The fee earned by the Company
in a typical film remastering and distribution arrangement averages approximately 12.5% of box office receipts (i.e., gross box office receipts less
applicable sales taxes), except for within Greater China, where the Company receives a lower percentage of net box office receipts for certain Hollywood
films. The accounting policy for the Company’s film remastering and distribution arrangements is disclosed in Note 2(o).
121
Revenue attributable to transactions arising between the Company and its customers under the Company’s film remastering and distribution
arrangements are included in Revenues – Image Enhancement and Maintenance Services. For the year ended December 31, 2023, such revenues totaled
$118.6 million (2022 — $94.9 million; 2021 — $70.7 million). (Refer to Note 20(a) for a disaggregated presentation of the Company’s revenues.)
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 certain other rights to
the film. In some cases, the Company obtains exclusive theatrical distribution rights to the film. Under these arrangements, both parties contribute to the
funding of the production, distribution and exploitation costs associated with the film.
As of December 31, 2023, the Company is party to one co-produced film arrangement, which represents the VIE total assets balance of $1.4 million and
liabilities balance of $0.2 million and four 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(o).
In 2023, an expense of $0.6 million (2022 — $0.8 million; 2021 — $0.4 million) attributable to transactions between the Company and other parties
involved in the production of the films have been included in Costs and Expenses Applicable to Revenues – Image Enhancement and Maintenance
Services.
19. Consolidated Statements of Cash Flows Supplemental Information
(a) Changes in other operating assets and liabilities
(In thousands of U.S. Dollars)
Decrease (Increase) in:
Financing receivables
Prepaid expenses
Variable consideration receivables
Other assets
Increase (Decrease) in:
Accounts payable
Accrued and other liabilities
(b) Cash payments made on account
(In thousands of U.S. Dollars)
(1)
Income taxes
Interest
Years Ended December 31,
2023
2022
2021
$
$
2,642 $
(1,273 )
(20,337 )
(10,473 )
(535 )
(6,013 )
(35,989 ) $
5,411 $
(1,892 )
667
968
8,496
(12,849 )
801 $
(7,637 )
(3,230 )
(2,905 )
1,003
(4,752 )
15,167
(2,354 )
Years Ended December 31,
2023
2022
2021
$
$
17,812 $
13,963 $
3,930 $
715 $
18,475
3,251
(1)
In 2021, the Canadian tax authorities denied the Company’s deduction of certain foreign taxes accrued in 2015, but not yet paid as discussions with
the local authorities are ongoing. This resulted in the payment of $8.9 million in income taxes and $1.6 million in associated interest to the Canadian
tax authorities in the fourth quarter of 2021. The Company has filed a waiver with the Canadian tax authorities in respect of 2015 so that when the
foreign taxes are paid, the Company would be entitled to receive a refund of the $8.9 million in tax, which is recorded on the Company’s Consolidated
Balance Sheets within Accounts Receivable, and the $1.6 million in associated interest.
122
(c) Depreciation and amortization
(In thousands of U.S. Dollars)
Film assets
Property, plant and equipment:
Equipment supporting joint revenue sharing arrangements
Other property, plant and equipment
(1)
Other intangible assets
Other assets
(3)
(2)
Total
Years Ended December 31,
2023
2022
2021
$
20,281 $
16,881 $
16,316
22,857
9,125
5,952
1,807
60,022 $
22,165
9,757
6,103
1,755
56,661 $
22,320
9,479
6,079
1,888
56,082
$
(1)
(2)
Includes the amortization of laser projection systems, camera, and lens upgrades recorded in Research and Development on the Statements of
Operations of $0.5 million in the year ended December 31, 2023 (2022 — $0.6 million; 2021 — $0.8 million).
Includes the amortization of licenses and intellectual property recorded in Research and Development on the Consolidated Statements of Operations
of $1.3 million in the year ended December 31, 2023 (2022 — $1.3 million; 2021 — $1.3 million).
(3)
Includes the amortization of lessee incentives provided by the Company to its customers under joint revenue sharing arrangements.
(d) Write-downs, including asset impairments
(1)
(In thousands of U.S. Dollars)
Other assets
(2)
Inventories
Property, plant and equipment:
Equipment supporting joint revenue sharing arrangements
Other property, plant and equipment
Other intangible assets
(4)
Film assets
(3)
Years Ended December 31,
2023
2022
2021
$
144 $
542
4,470 $
741
756
31
—
411
973
57
87
848
—
890
364
217
142
151
$
1,884 $
7,176 $
1,764
(1)
(2)
(3)
In 2022, the Company recognized a full impairment of its RMB 30.0 million ($4.5 million) investment in the film Mozart from Space based on
projected box office results and distribution costs. (Refer to Note 22(e).)
In 2023, the Company recorded write-downs of $0.5 million, net of a recovery of $0.4 million in Costs and Expenses Applicable to Technology Sales.
The write-downs recorded during the year ended December 31, 2023 include $0.5 million related to damaged system pending insurance claim. For the
years ended December 31, 2022 and 2021, the Company recorded write-downs of $0.7 million and $0.9 million, respectively, in Costs and Expenses
Applicable to Technology Sales to reduce the carrying value of inventory.
In 2023, the Company recorded charges of $0.8 million (2022 — $1.0 million; 2021 — $0.4 million) in Costs and Expenses Applicable to Revenues -
Technology Rentals mostly related to the write-downs of leased xenon-based digital systems which were taken out of service in connection with
customer upgrades to laser-based digital systems, as well as two IMAX Systems that were removed from their existing locations.
(4)
In 2023, the Company recorded impairment losses of $0.4 million (2022 — $0.8 million; 2021 — $0.2 million) related to the write-down of content-
related film assets.
123
(e) Significant non-cash investing activities
(In thousands of U.S. Dollars)
Net increase (decrease) in accruals related to:
Investment in equipment supporting joint revenue sharing arrangements
Acquisition of other intangible assets
Purchases of property, plant and equipment
(1)
(1) Refer to Note 6 for supplemental disclosure of non-cash leasing activities.
(f) Significant non-cash financing activities
Years Ended December 31,
2023
2022
2021
$
$
(600 ) $
(942 )
(541 )
(2,083 ) $
790 $
30
311
1,131 $
1,009
(891 )
(188 )
(70 )
In the fourth quarter of 2023, the Company recognized a $1.6 million liability on the Consolidated Balance Sheets within Accounts Payable related to
repurchase of its common shares, which settled subsequent to December 31, 2023 (2022 — $2.0 million liability within Accrued and Other Liabilities).
20. Revenue from Contracts with Customers
(a) Disaggregated Information About Revenue
In the first quarter of 2023, the Company updated its reportable segments (refer to Note 21). Prior year comparatives have been revised to conform with
the current year presentation. The following tables summarize the Company’s revenues by type and reportable segment for the years ended December 31,
2023, 2022, and 2021:
(In thousands of U.S. Dollars)
Content Solutions Segment
Film Remastering and Distribution
Other Content Solutions
Technology Products and Services Segment
System Sales
System Rentals
Maintenance
Finance Income
Sub-total for reportable segments
All Other
Total
Year Ended December 31, 2023
Technology Sales
Image
Enhancement and
Maintenance
Services
Technology
Rentals
Finance
Income
Total
$
$
— $
—
—
118,637 $
8,061
126,698
— $
—
—
— $
—
—
118,637
8,061
126,698
93,271
—
—
—
93,271
93,271
7,521
100,792 $
—
—
56,737
—
56,737
183,435
6,317
189,752 $
—
75,566
—
—
75,566
75,566
—
75,566 $
—
—
—
8,729
8,729
8,729
—
8,729 $
93,271
75,566
56,737
8,729
234,303
361,001
13,838
374,839
124
(In thousands of U.S. Dollars)
Content Solutions Segment
Film Remastering and Distribution
Other Content Solutions
Technology Products and Services Segment
System Sales
System Rentals
Maintenance
Finance Income
Sub-total for reportable segments
All Other
Total
(In thousands of U.S. Dollars)
Content Solutions Segment
Film Remastering and Distribution
Other Content Solutions
Technology Products and Services Segment
System Sales
System Rentals
Maintenance
Finance Income
Sub-total for reportable segments
All Other
Total
(b)
Deferred Revenue
Year Ended December 31, 2022
Technology Sales
Image
Enhancement and
Maintenance
Services
Technology
Rentals
Finance
Income
Total
$
$
— $
—
—
94,867 $
6,935
101,802
— $
18
18
— $
—
—
94,867
6,953
101,820
65,510
—
—
—
65,510
65,510
3,648
69,158 $
—
—
56,608
—
56,608
158,410
2,969
161,379 $
—
61,768
—
—
61,768
61,786
—
61,786 $
—
—
—
8,482
8,482
8,482
—
8,482 $
65,510
61,768
56,608
8,482
192,368
294,188
6,617
300,805
Year Ended December 31, 2021
Technology Sales
Image
Enhancement and
Maintenance
Services
Technology
Rentals
Finance
Income
Total
$
$
— $
—
—
70,659 $
5,724
76,383
— $
606
606
— $
—
—
70,659
6,330
76,989
62,637
—
—
—
62,637
62,637
3,516
66,153 $
—
—
53,339
—
53,339
129,722
1,426
131,148 $
—
46,184
—
—
46,184
46,790
—
46,790 $
—
—
—
10,792
10,792
10,792
—
10,792 $
62,637
46,184
53,339
10,792
172,952
249,941
4,942
254,883
IMAX System sale and lease arrangements include a requirement for the Company to provide maintenance services over the life of the arrangement,
subject to a consumer price index adjustment each year. In circumstances where customers prepay the entire term’s maintenance fee, additional payments
are due to the Company for the years after its extended warranty and maintenance obligations expire. Payments upon renewal each year are either prepaid
or made in arrears and can vary in frequency from monthly to annually. As of December 31, 2023, $22.8 million of consideration has been deferred in
relation to outstanding maintenance services to be provided on existing maintenance contracts (December 31, 2022 — $21.0 million and 2021 — $20.2
million). Maintenance revenue is recognized evenly over the contract term which coincides with the period over which maintenance services are provided.
In the event of customer default, any payments made by the customer may be retained by the Company.
In instances where the Company receives consideration prior to satisfying its performance obligations, the recognition of revenue is deferred. The
majority of the deferred revenue balance relates to payments received by the Company for IMAX Systems where control of the system has not transferred
to the customer. The deferred revenue balance related to an individual system increases as progress payments are made and is then derecognized when
control of the system is transferred to the customer. Recognition dates are variable and depend on numerous factors, including some outside of the
Company’s control.
125
For the year ended December 31, 2023, $43.1 million of revenue was recognized that was included in the $70.9 million balance of deferred revenue as
of December 31, 2022. For the year ended December 31, 2022, $26.5 million of revenue was recognized that was included in the $81.2 million balance of
deferred revenue as of December 31, 2021.
21. Segment Reporting
The Company’s Chief Executive Officer (“CEO”) is its Chief Operating Decision Maker (“CODM”), as such term is determined under U.S. GAAP. The
CODM, along with other members of management, assess segment performance based on segment revenues and gross margins. Selling, general and
administrative expenses, research and development costs, the amortization of intangible assets, provision for (reversal of) current expected credit losses,
certain write-downs, interest income, interest expense, and income tax (expense) benefit are not allocated to the Company’s segments.
In the first quarter of 2023, the Company revised its internal segment reporting, including the information provided to the CODM to assess segment
performance and allocate resources. Accordingly, the Company has two reportable segments:
(1)
(2)
Content Solutions – principally includes the digital remastering of films and other content into IMAX formats for distribution across the
IMAX network. To a lesser extent, the Content Solutions segment also earns revenue from the distribution of large-format documentary films
and IMAX events and experiences including music, gaming, and sports, as well as the provision of film post-production services.
Technology Products and Services – principally includes the sale, lease, and maintenance of IMAX Systems. To a lesser extent, the
Technology Product and Services segment also earns revenue from certain ancillary theater business activities, including after-market sales of
IMAX System parts and 3D glasses.
The Company’s activities that do not meet the criteria to be considered a reportable segment are reported within All Other. Prior period comparatives
have been revised to conform with the current period presentation.
(a) Segment Financial Information
The following table presents the Company’s revenue and gross margin by reportable segment for the years ended December 31, 2023, 2022, and 2021:
(In thousands of U.S. Dollars)
Content Solutions
Technology Products and Services
Sub-total for reportable segments
All Other
Total
Years Ended December 31,
Revenue
(1)
Gross Margin
2023
126,698
234,303
361,001
13,838
374,839
$
$
2022
101,820
192,368
294,188
6,617
300,805
$
$
2021
2023
2022
2021
76,989 $
172,952
249,941
4,942
254,883 $
74,106
129,946
204,052
10,289
214,341
$
$
51,240
101,055
152,295
4,060
156,355
$
$
45,269
86,041
131,310
3,096
134,406
$
$
The following table presents the Company’s assets by reportable segment, reconciled to consolidated assets, as of December 31, 2023 and 2022:
(In thousands of U.S. Dollars)
Content Solutions
Technology Products and Services
Sub-total for reportable segments
All Other
Corporate and other non-segment specific assets
Total
As of December 31,
2023
2022
97,123 $
529,057
626,180
43,994
144,495
814,669 $
92,706
524,309
617,015
29,686
174,453
821,154
$
$
126
The following table presents the Company’s amortization by reportable segment, and on a consolidated basis, for the years ended December 31, 2023,
2022, and 2021:
(In thousands of U.S. Dollars)
Content Solutions
Technology Products and Services
Sub-total for reportable segments
All Other
Corporate and other non-segment specific assets
Total
Years Ended December 31,
2023
2022
2021
24,032 $
28,497
52,529
1,395
6,098
60,022 $
18,790 $
24,089
42,879
309
13,473
56,661 $
17,441
26,284
43,725
—
12,357
56,082
$
$
The following table presents the Company’s write-downs, including asset impairments and credit loss expense (reversal) by reportable segment, and on
a consolidated basis, for the years ended December 31, 2023, 2022, and 2021:
(In thousands of U.S. Dollars)
Content Solutions
Technology Products and Services
Sub-total for reportable segments
All Other
Corporate and other non-segment specific assets
(2)
Total
Years Ended December 31,
(2)
2023
2022
2021
411 $
1,233
1,644
151
1,848
3,643 $
848 $
1,714
2,562
—
13,161
15,723 $
151
1,254
1,405
—
(3,592 )
(2,187 )
$
$
The following table presents the Company’s purchases of Property, Plant and Equipment within the Consolidated Statements of Cash Flows by
reportable segment for the years ended December 31, 2023, 2022, and 2021:
(In thousands of U.S. Dollars)
Content Solutions
Technology Products and Services
Sub-total for reportable segments
All Other
Corporate and other non-segment specific assets
Total
Years Ended December 31,
2023
2022
2021
722 $
17,883
18,605
566
5,320
24,491 $
5,321 $
22,381
27,702
9
516
28,227 $
2,208
10,740
12,948
—
736
13,684
$
$
(1) The Company’s largest customer represents 10% of total Revenues as of December 31, 2023 (2022 ― 12%; 2021 ― 10%). No single customer
comprises more than 10% of the Company’s total Accounts Receivable as of December 31, 2023 and 2022.
(2)
Includes a provision for current expected credit losses of $1.8 million (2022 ― provision of $8.5 million; 2021 ― net reversal of $4.0 million). (Refer
to Note 5.) In 2022, the Company recognized a full impairment of its RMB 30.0 million ($4.5 million) investment in the film Mozart from Space
based on projected box office results and distribution costs. (Refer to Note 22(e).)
127
(b) Geographic Information
Revenue by geographic area is based on the location of the customer. Revenue related to the IMAX Film Remastering process is presented based upon
the geographic location of the IMAX System that exhibit the remastered films. IMAX Film Remastering revenue is generated through contractual
relationships with studios and other third parties and these may not be in the same geographical location as the IMAX System.
The following table summarizes the Company’s revenues by geographic area for the years ended December 31, 2023, 2022, and 2021:
(In thousands of U.S. Dollars)
United States
Greater China
Asia (excluding Greater China)
Western Europe
Latin America
Canada
Rest of the World
Total
Years Ended December 31,
2023
2022
2021
117,925 $
91,901
59,690
54,908
13,788
18,746
17,881
374,839 $
107,734 $
73,330
47,145
40,245
9,418
7,550
15,383
300,805 $
73,499
112,801
23,682
20,942
3,601
3,266
17,092
254,883
$
$
No single country in the Rest of the World, Western Europe, Latin America, and Asia (excluding Greater China) classifications comprises more than
10% of total revenue.
The following table presents the breakdown of Property, Plant and Equipment by geography as of December 31, 2023 and 2022:
(In thousands of U.S. Dollars)
United States
Greater China
Canada
Western Europe
Asia (excluding Greater China)
Rest of the World
Total
22. Financial Instruments
(a) Financial Instruments
As of December 31,
2023
2022
98,831 $
72,492
37,877
12,763
16,538
4,798
243,299 $
94,505
86,665
36,385
20,132
10,471
4,738
252,896
$
$
The Company maintains cash with various major financial institutions. The Company’s cash is invested with highly rated financial institutions. The
Company’s $76.2 million balance of cash and cash equivalents as of December 31, 2023 (December 31, 2022 — $97.4 million) includes $68.5 million in
cash held outside of Canada (December 31, 2022 — $79.7 million), of which $30.0 million was held in the PRC (December 31, 2022 — $43.7 million).
128
(b) Fair Value Disclosures
The carrying values of the Company’s Cash and Cash Equivalents, Accounts Receivable, Accounts Payable, and Accrued Liabilities due within one year
approximate their fair values due to the short-term maturity of these instruments. Including these instruments, the Company’s financial instruments consist
of the following:
(2)
(3)
(1)
(In thousands of U.S. Dollars)
Level 1
Cash and cash equivalents
Equity securities
Level 2
Net financed sales receivables
Net investment in sales-type leases
(1)
Equity securities
COLI
Foreign exchange contracts — designated forwards
Wells Fargo Credit Facility borrowings
HSBC China Facility borrowings
Bank of China Facility borrowings
Federal Economic Development Loan
(5)
Convertible Notes
(3)
(1)
(4)
(1)
(1)
(3)
(2)
As of December 31, 2023
As of December 31, 2022
Carrying
Amount
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
$
$
76,200 $
—
76,200 $
—
97,401 $
1,035
97,401
1,035
97,615 $
29,539
1,000
3,522
819
(24,000 )
—
—
(2,498 )
(230,000 )
96,500 $
28,751
1,000
3,522
819
(24,000 )
—
—
(2,498 )
(205,850 )
101,052 $
28,332
1,000
3,398
(649 )
(25,000 )
(12,496 )
(374 )
(1,782 )
(230,000 )
100,059
27,972
1,000
3,398
(649 )
(25,000 )
(12,496 )
(374 )
(1,782 )
(196,717 )
(1) Recorded at cost, which approximates fair value.
(2) Fair value is determined using quoted prices in active markets.
(3) Fair value is estimated based on discounting future cash flows at currently available interest rates with comparable terms.
(4) Measured at cash surrender value, which approximates fair value.
(5) Fair value is determined using quoted market prices that are observable in the market or that could be derived from observable market data.
(c) Foreign Exchange Risk Management
The Company is exposed to market risk from changes in foreign currency rates.
A majority of the Company’s revenues is denominated in U.S. Dollars while a significant portion of its costs and expenses is denominated in Canadian
Dollars. A portion of the Company’s net U.S. Dollar cash is 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 RMB 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 RMB, Japanese Yen,
Canadian Dollars, and Euros which are converted to U.S. Dollars through the spot market. In addition, because IMAX films generate box office in 90
different countries, unfavorable exchange rates between applicable local currencies and the U.S. Dollar could have an impact on box office receipts and the
Company’s revenues and results of operations. The Company’s policy is to not use any financial instruments for trading or other speculative purposes.
129
The Company has entered into a series of foreign currency forward contracts to manage the 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 as of December 31, 2023 (the “Foreign Currency Hedges”), with settlement dates
throughout 2024 and 2025. Foreign currency derivatives are recognized and measured in the Consolidated Balance Sheets at fair value. Changes in the fair
value (i.e., gains or losses) are recognized in the Consolidated Statements of Operations except for derivatives designated and qualifying as foreign
currency cash flow hedging instruments. The Company currently has cash flow hedging instruments associated with Selling, General and Administrative
Expenses. For foreign currency cash flow hedging instruments related to Selling, General and Administrative Expenses, the effective portion of the gain or
loss in a hedge of a forecasted transaction is reported in Accumulated Other Comprehensive Loss and reclassified to the Consolidated Statements of
Operations when the forecasted transaction occurs. Any ineffective portion is recognized immediately in the Consolidated Statements of Operations.
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:
(In thousands of U.S. Dollars)
Derivatives designated as hedging instruments:
Foreign exchange contracts — Forwards
Fair value of derivatives in foreign exchange contracts:
(In thousands of U.S. Dollars)
Derivatives designated as hedging instruments:
Foreign exchange contracts — Forwards
As of December 31,
2023
2022
$
40,563 $
24,707
Balance Sheet Location
Other assets
Accrued and other liabilities
As of December 31,
2023
2022
$
$
846 $
(27 )
819 $
50
(699 )
(649 )
Derivatives in foreign currency hedging relationships are as follows:
(In thousands of U.S. Dollars)
Foreign exchange contracts
— Forwards
Derivative Gain (Loss)
Recognized in OCI
(Effective Portion)
(In thousands of U.S. Dollars)
Foreign exchange contracts
Location of Derivative (Loss) Gain
Reclassified from AOCI
(Effective Portion)
Selling, general and
administrative expenses
Non-designated derivatives in foreign currency relationships are as follows:
(In thousands of U.S. Dollars)
Foreign exchange contracts
— Forwards
Derivative Gain Reclassified
From AOCI
(Ineffective Portion)
(In thousands of U.S. Dollars)
Foreign exchange contracts
— Forwards
Location of Derivative Gain
Selling, general and
administrative expenses
2023
Years Ended December 31,
2022
2021
$
$
$
$
575 $
(1,323 ) $
468
2023
Years Ended December 31,
2022
2021
(892 ) $
(596 ) $
1,707
2023
Years Ended December 31,
2022
2021
— $
— $
(318 )
2023
Years Ended December 31,
2022
2021
— $
— $
398
130
The Company’s estimated net amount of the existing gain as of December 31, 2023 is $0.6 million, which is expected to be reclassified to earnings
within the next twelve months.
(d)
Investments in Equity Securities
As of December 31, 2023, the Consolidated Balance Sheets includes $nil (December 31, 2022 — $1.0 million) of shares of an exchange traded fund
which is classified as an investment in equity securities.
As of December 31, 2023, the Company held investments in the preferred shares of enterprises which meet the criteria for classification as an equity
security carried at historical cost, net of impairment charges. The carrying value of these equity security investments was $1.0 million as of December 31,
2023 (December 31, 2022 — $1.0 million) and is recorded in Other Assets.
(e) Interest in Film
In 2022, IMAX (Shanghai) Culture and Technology Co., Ltd, a wholly-owned subsidiary of IMAX China, entered into a joint film investment
agreement with Wanda Film (Horgos) Co. Ltd. to invest RMB 30.0 million ($4.7 million) in the movie Mozart from Space, which was released on July 15,
2022. Pursuant to the investment agreement, IMAX (Shanghai) Culture and Technology Co., Ltd. has the right to receive a share of the profits or losses of
the film distribution. IMAX (Shanghai) Culture and Technology Co., Ltd.’s commitment is limited to its investment and has no further obligation if the
actual movie production cost exceeds the original budget. The investment meets the criteria for classification as a financial asset. The investment is
measured at amortized cost less impairment losses and is recorded within Other Assets in the Consolidated Balance Sheets.
In 2022, the Company recognized a full impairment of its RMB 30.0 million ($4.5 million) investment in Mozart from Space based on projected box
office results and distribution costs.
No contributions to film investments were made in 2023.
23. Employee’s Pension and Postretirement Benefits
(a) Defined Benefit Plan
The Company has an unfunded defined benefit pension plan, the Supplemental Executive Retirement Plan (the “SERP”), covering its CEO, Richard L.
Gelfond. 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 amendment to his employment agreement dated September 19, 2022, the term of Mr. Gelfond’s employment
was extended through December 31, 2025, although Mr. Gelfond has not informed the Company that he intends to retire at that time. Under the terms of his
employment agreement, as amended, the total benefit payable to Mr. Gelfond under the SERP is fixed at $20.3 million.
As of December 31, 2023 and 2022, the projected benefit obligation for SERP are as follows:
(In thousands of U.S. Dollars)
Projected benefit obligation:
Obligation, beginning of period
Interest cost
Actuarial loss (gain)
Obligation, end of period and unfunded status
Years Ended December 31,
2023
2022
$
$
17,315 $
788
75
18,178 $
20,056
160
(2,901 )
17,315
As of December 31, 2023, 2022, and 2021, the following amounts related to the SERP were recorded on the Company’s Consolidated Balance Sheets
within Accumulated Other Comprehensive Loss and will be recognized as components of net periodic benefit cost in future periods:
(In thousands of U.S. Dollars)
Unrealized actuarial gain
Unamortized prior service cost
Net periodic benefit costs to be recognized in future periods
2023
As of December 31,
2022
2021
$
$
(2,889 ) $
—
(2,889 ) $
(3,580 ) $
—
(3,580 ) $
(679 )
184
(495 )
131
For the years ended December 31, 2023, 2022, and 2021, the components of pension expense related to the SERP were as follows:
(In thousands of U.S. Dollars)
Interest cost
Amortization of prior service cost
Amortization of actuarial gain
Pension expense
2023
Years ended December 31,
2022
2021
788 $
—
(616 )
172 $
160 $
184
—
344 $
72
185
—
257
$
$
The following assumptions were used to determine the SERP obligation and any related costs as of and for the years ended December 31, 2023, 2022,
and 2021:
Discount rate
Lump sum interest rate:
First 25 years
First 20 years
Thereafter
Cost of living adjustment on benefits
2023
As of December 31,
2022
2021
4.42 %
4.55 %
0.80 %
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
No contributions were made for the SERP during 2023. The Company expects interest costs of $0.8 million to be recognized as a component of pension
cost for the year ended December 31, 2024.
(b) Defined Contribution Pension Plan
The Company also maintains defined contribution plans for its employees, including its executive officers. The Company makes contributions to these
plans on behalf of employees in an amount up to 5% of their base salary subject to certain prescribed maximums. During 2023, the Company contributed
and recorded expense of $1.2 million (2022 — $1.1 million; 2021 — $1.1 million) to its Canadian plan and $0.8 million (2022 — $0.7 million; 2021 —
$0.5 million) to its defined contribution employee plan under Section 401(k) of the U.S. Internal Revenue Code.
(c) Postretirement Benefits - Executives
The Company has an unfunded postretirement plan for Mr. Gelfond and Bradley J. Wechsler, former Chairman of the Company’s Board of Directors
(the “Executive Postretirement Benefit Plan”). The Executive Postretirement Benefit 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. Mr. Wechsler retired from the Company’s Board of Directors on June 9, 2021. The Company maintained Mr.
Wechsler’s health benefits through December 31, 2021, and thereafter is providing him with Medicare supplemental coverage or its equivalent value.
As of December 31, 2023 and 2022, the Company’s Consolidated Balance Sheets include the following amounts within Accrued and Other Liabilities
related to the Executive Postretirement Benefit Plan:
(In thousands of U.S. Dollars)
Projected benefit obligation:
Obligation, beginning of year
Interest cost
Benefits paid
Actuarial loss (gain)
Obligation, end of year and unfunded status
As of December 31,
2023
2022
$
$
457 $
23
(10 )
37
507 $
662
18
(8 )
(215 )
457
132
For the years ended December 31, 2023, 2022, and 2021, the components of pension expense related to the Executive Postretirement Benefit Plan were
as follows:
(In thousands of U.S. Dollars)
Interest cost
Amortization of actuarial gain
Pension expense
2023
Years Ended December 31,
2022
2021
23 $
(65 )
(42 ) $
18 $
—
18 $
16
—
16
$
$
As of December 31, 2023, 2022, and 2021, the following amounts related to the Executive Postretirement Benefit Plan were recorded on the Company’s
Consolidated Balance Sheets within Accumulated Other Comprehensive Loss and will be recognized as components of net pension cost in future periods:
(In thousands of U.S. Dollars)
Unrealized actuarial gain
2023
$
As of December 31,
2022
2021
(140 ) $
(242 ) $
(27 )
As of December 31, 2023, 2022, and 2021, the weighted average assumptions used to determine the benefit obligation related to the Executive
Postretirement Benefit Plan are as follows:
Discount rate
2023
As of December 31,
2022
2021
4.80 %
5.01 %
2.71 %
For the years ended December 31, 2023, 2022, and 2021, the weighted average assumptions used to determine the net postretirement benefit expense
related to the Executive Postretirement Benefit Plan are as follows:
Discount rate
2023
Years Ended December 31,
2022
2021
5.01 %
2.71 %
2.36 %
The following benefit payments are expected to be made as per the current plan assumptions for the Executive Postretirement Benefit Plan in each of the
next five years and thereafter following the December 31, 2023 balance sheet date:
(In thousands of U.S. Dollars)
2024
2025
2026
2027
2028
Thereafter
Total
$
$
10
11
23
25
27
914
1,010
(d) Postretirement Benefits – Canadian Employees
The Company has an unfunded postretirement plan for its Canadian employees meeting specific eligibility requirements (the “Canadian Postretirement
Benefit Plan”). The Company will provide eligible participants, upon retirement, with health and welfare benefits.
133
As of December 31, 2023 and 2022, the Company’s Consolidated Balance Sheets include the following amounts within Accrued and Other Liabilities
related to the Canadian Postretirement Benefit Plan:
(In thousands of U.S. Dollars)
Projected benefit obligations:
Obligation, beginning of year
Interest cost
Benefits paid
Actuarial loss (gain)
Unrealized foreign exchange loss (gain)
Obligation, end of year and unfunded status
(1)
_____________________
(1)
In 2023, the actuarial loss was $nil.
As of December 31,
2023
2022
$
$
976 $
48
(140 )
—
98
982 $
1,702
46
(155 )
(539 )
(78 )
976
For the years ended December 31, 2023, 2022, and 2021, the components of pension expense related to the Canadian Postretirement Benefit Plan were
as follows:
(In thousands of U.S. Dollars)
Interest cost
Amortization of actuarial gain
Pension expense
2023
Years Ended December 31,
2022
2021
48 $
(18 )
30 $
46 $
—
46 $
42
—
42
$
$
The Company expects interest costs of less than $0.1 million to be recognized as a component of benefit cost for the year ended December 31, 2024.
As of December 31, 2023, 2022, and 2021, the following amounts related to the Canadian Postretirement Benefit Plan were recorded on the Company’s
Consolidated Balance Sheets within Accumulated Other Comprehensive Loss and will be recognized as components of net pension cost in future periods:
(In thousands of U.S. Dollars)
Unrealized actuarial (gain) loss
2023
$
As of December 31,
2022
2021
(336 ) $
(354 ) $
185
As December 31, 2023, 2022, and 2021, the weighted average assumptions used to determine the benefit obligation related to the Canadian
Postretirement Benefit Plan are as follows:
Discount rate
2023
As of December 31,
2022
2021
4.60 %
5.00 %
2.80 %
For the years ended December 31, 2023, 2022, and 2021, the weighted average assumptions used to determine the net postretirement benefit expense
related to the Canadian Postretirement Benefit Plan are as follows:
Discount rate
2023
Years Ended December 31,
2022
2021
5.00 %
2.80 %
2.30 %
134
The following benefit payments are expected to be made as per the current plan assumptions for the Canadian Postretirement Benefit Plan in each of the
next five years and thereafter following the December 31, 2023 balance sheet date:
(In thousands of U.S. Dollars)
2024
2025
2026
2027
2028
Thereafter
Total
$
$
96
97
90
88
88
1,020
1,479
(e) Deferred Compensation Benefit Plan
The Company maintained a nonqualified deferred compensation benefit plan (the “Retirement Plan”) covering the former CEO of IMAX Entertainment
and Senior Executive Vice President of the Company. Under the terms of the Retirement Plan, the benefits were due to vest in full if the executive incurred
a separation from service from the Company (as defined therein). In 2018, the executive incurred a separation from service from the Company, and as such,
the Retirement Plan benefits became fully vested as of December 31, 2018.
As of December 31, 2023, the benefit obligation related to the Retirement Plan was $4.1 million (December 31, 2022 — $3.9 million) and is recorded
on the Company’s Consolidated Balance Sheets within Accrued and Other Liabilities. As the Retirement Plan is fully vested, the benefit obligation is
measured at the present value of the benefits expected to be paid in the future with the accretion of interest recognized in the Consolidated Statements of
Operations within Retirement Benefits Non-Service Expense.
The Retirement Plan is funded by an investment in company-owned life insurance (“COLI”), which is recorded at its fair value on the Company’s
Consolidated Balance Sheets within Prepaid Expenses. As of December 31, 2023, fair value of the COLI asset was $3.5 million (December 31, 2022 —
$3.4 million). Gains and losses resulting from changes in the cash surrender value of the COLI asset are recognized in the Consolidated Statements of
Operations within Realized and Unrealized Investment Gains (Losses).
24. Government Assistance
(a) COVID-19 Relief
For the year ended December 31, 2023, the Company did not recognize any benefits from COVID relief legislation.
During the year ended December 31, 2022, the Company applied for and received financial support under COVID relief legislation that had been
enacted in the countries in which it operates. The Company recognized $0.4 million (2021 — $3.8 million) in benefits principally from the Hardest-Hit
Businesses Recovery program, and recorded such amounts as reductions to Selling, General and Administrative Expenses ($0.3 million) and Costs and
Expenses Applicable to Revenues ($0.1 million).
For the year ended December 31, 2021, the Company recognized $3.8 million in benefits from various COVID-19 government relief programs,
principally the Canada Emergency Wage Subsidy program, which expired in October 2021. The Company recognized these benefits as a reduction to
Selling, General and Administrative Expenses ($2.9 million) and to Costs and Expenses Applicable to Revenues ($0.9 million).
(b) Federal Economic Development Loan
Refer to Note 14, Borrowings.
(c) China Grant
IMAX China receives local district grants primarily related to taxes paid, including corporate income taxes, value-added taxes, individual income taxes,
and withholding taxes for dividends and/or cross-border activities. Government grants are recognized in the period the costs were incurred.
135
For the year ended December 31, 2023, $5.4 million was recognized primarily as a reduction in Costs and Expenses Applicable to Revenues and Income
Tax Expense. The impact to net income attributable to common shareholders was $3.4 million.
For the years ended December 2022 and 2021, $1.3 million and $2.7 million was recognized primarily as a reduction in Costs and Expenses Applicable
to Revenues and Income Tax Expense, respectively. The impact to net income attributable to common shareholders of $0.8 million and $1.7 million for the
years ended December 2022 and 2021, respectively.
25. Non-Controlling Interests
(a)
IMAX China Non-Controlling Interest
As of December 31, 2023, the Company indirectly owns 71.55% of IMAX China, whose shares trade on the Hong Kong Stock Exchange (December
31, 2022 — 71.73%). IMAX China remains a consolidated subsidiary of the Company. The balance of non-controlling interest in IMAX China as of
December 31, 2023 is $71.8 million (December 31, 2022 — $65.7 million). The net income attributable to non-controlling interest of IMAX China for the
year ended December 31, 2023 is $7.8 million (2022 — $3.0 million; 2021 — $12.8 million).
(b) Other Non-Controlling Interests
The Company’s Original Film Fund was established in 2014 to co-finance a portfolio of 10 original large-format films. The initial investment in the
Original Film Fund was committed by a third party in the amount of $25.0 million, with the possibility of contributing additional funds. The Company has
contributed $9.0 million to the Original Film Fund since 2014, and has reached its maximum contribution. Through December 31, 2023, the Original Film
Fund has invested $22.3 million toward the development of original films. The related production, financing and distribution agreement includes put and
call rights relating to change of control of the rights, title and interest in the co-financed pictures.
(c) Non-Controlling Interest in Temporary Equity
The following summarizes the movement of the non-controlling interest in temporary equity, in the Original Film Fund for the years ended December
31, 2023, 2022 and 2021:
(In thousands of U.S. Dollars)
Balance as of January 1, 2021
Net loss
Balance as of December 31, 2021
Net loss
Balance as of December 31, 2022
Net loss
Balance as of December 31, 2023
$
$
759
(1 )
758
(36 )
722
(64 )
658
26. Restructuring and Executive Transition Costs
In March 2023, the Company and the President, IMAX Entertainment and Executive Vice President of the Company, (the “President”) agreed to
conclude the President’s employment with the Company, effective April 30, 2023. Pursuant to the employment agreement between the Company and the
President, dated as of October 10, 2018, and the letter agreement between the Company and the President, dated as of March 15, 2023, the Company
recognized executive transition costs of $1.4 million associated with the departure of the President. The costs included severance of $1.6 million, transition
services covering three months of $0.8 million, and the reversal of previously recognized share-based compensation costs of $1.0 million for PSU
forfeitures.
In December 2023, the Company incurred $1.3 million in connection with the restructuring of other employees to capture efficiencies and centralize
certain operational roles. These charges have been recognized in Restructuring and Executive Transition costs on the Consolidated Statements of
Operations.
136
27. Related Party Transactions
On January 13, 2023, the Company, China International Communications Group (“CICG”), and Beach House Pictures Pte Ltd (“Beach House”) entered
into an agreement to co-finance a documentary film, The Elephant Odyssey. A member of the Company’s Board of Directors and its Audit Committee, is
the ultimate controlling shareholder of Blue Ant Media (“Blue Ant”), a media company which he co-founded in 2011. Blue Ant owns 70% of Beach
House. The total budget for the film is approximately $2.6 million, of which CICG is responsible for $0.3 million or 10%. The Company and Beach House
have agreed to finance $1.7 million or 75% and $0.6 million or 25% of the remaining budget, respectively. As of December 31, 2023, the Company has
made payments of $1.0 million under the agreement. On February 8, 2024, Blue Ant sold 100% of its interest in Beach House.
137
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 of December 31, 2023 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 and has concluded that such internal control over
financial reporting were effective as of December 31, 2023.
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, an independent registered public accounting firm, audited the effectiveness of the Company’s internal control over
financial reporting as of December 31, 2023, as stated in their report, which appears in Part II, Item 8.
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, 2023,
that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information
a)
b)
None.
None of the Company’s directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1
trading arrangement during the Company’s fiscal quarter ended December 31, 2023.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
N/A.
138
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;” “Delinquent Section 16(a) Reports;” “Code of Business Conduct and Ethics and Insider
Trading Policy;” and “Corporate Governance.”
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;” "Compensation Committee Report;" “Summary Compensation Table;” “Grants of Plan-Based Awards;”
“Outstanding Equity Awards at Fiscal Year-End;” “Option Exercise and Stock Vested;” “Pension Benefits;” “Pay Ratio Disclosure;” “Potential Payments
upon Termination or Change-in-Control;” "Pay Versus Performance;" “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 or 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-Approval Policies and Procedures.”
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) Financial Statements and Schedules
The Consolidated Financial Statements filed as part of this Report are included under Item 8 in Part II. Financial Statement Schedules have been omitted
since they either are not required, not applicable, or the information required is included in the financial statements or the accompanying notes thereto.
Report of Independent Registered Public Accounting Firm, which covers the financial statements, the accompanying notes to the financial statements
and the Company’s internal control over financial reporting, is included under Part II, Item 8.
139
(b) Exhibits
Exhibit
No.
3.1
3.2
4.1
4.2
4.3
+10.1
+10.2
+10.3
+10.4
+10.5
Description
Form
File No
Exhibit
Filing
Date
Restated Articles of Incorporation of IMAX Corporation, dated July 30, 2013.
10-Q 001-35066
Second Amended and Restated By-Law No. 1 of IMAX Corporation, enacted on February
8-K 001-35066
7, 2023.
3.1
3.1
10/24/13
02/10/23
Description of IMAX Corporation’s Securities Registered Pursuant to Section 12 of the
10-K 001-35066
4.4
2/19/20
Securities Exchange Act of 1934.
Indenture, dated as of March 19, 2021, between IMAX Corporation and U.S. Bank
10-Q 001-35066
4.1
4/29/21
National Association.
Form of 0.500% Convertible Senior Notes due April 1, 2026 (included as Exhibit A to
10-Q 001-35066
4.2
4/29/21
Exhibit 4.3)
Stock Option Plan of IMAX Corporation, dated June 18, 2008.
10-K 001-35066
10.1
2/24/16
IMAX Corporation Form of Restricted Stock Unit Award Agreement.
10-K 001-35066
10.4
2/19/20
IMAX Corporation Second Amended and Restated Long-Term Incentive Plan, dated June
8-K 001-35066
10.1
6/5/20
3, 2020.
Amendment No.1 to Second Amended and Restated Long-Term Incentive Plan
8-K 001-35066
10.1
06/14/23
Form of IMAX Corporation Second Amended and Restated Long-Term Incentive Plan
10-Q 001-35066
10.11
4/29/21
Restricted Stock Unit Award Agreement.
+10.6
Form of IMAX Second Amended and Restated Long-Term Incentive Plan Performance
10-Q 001-35066
10.12
4/29/21
Stock Unit Award Agreement.
+10.7
Form of IMAX Corporation Second Amended and Restated Long-Term Incentive Plan
10-Q 001-35066
10.2
7/27/21
Restricted Stock Unit Award Agreement for Non-employee Directors.
+10.8
IMAX Corporation Supplemental Executive Retirement Plan, as amended and restated as
10-K 001-35066
10.2
2/21/13
of January 1, 2006.
+10.9
Employment Agreement, dated July 1, 1998, between IMAX Corporation and Richard L.
10-K 001-35066
10.10
2/21/13
Gelfond.
+10.10
Amended Employment Agreement, dated July 12, 2000, between IMAX Corporation and
10-K 001-35066
10.11
2/21/13
Richard L. Gelfond.
+10.11
Amended Employment Agreement, dated March 8, 2006, between IMAX Corporation and
10-K 001-35066
10.12
2/24/12
Richard L. Gelfond.
+10.12
Amended Employment Agreement, dated February 15, 2007, between IMAX Corporation
10-K 001-35066
10.13
2/24/12
and Richard L. Gelfond.
+10.13
Amended Employment Agreement, dated December 31, 2007, between IMAX Corporation
10-K 001-35066
10.16
2/20/14
and Richard L. Gelfond.
+10.14
Amended Employment Agreement, dated December 11, 2008, between IMAX Corporation
10-K 001-35066
10.17
2/19/15
and Richard L. Gelfond.
+10.15
Amended Employment Agreement, dated December 20, 2010, between IMAX Corporation
10-K 001-35066
10.18
2/24/16
and Richard L. Gelfond.
+10.16
Amended Employment Agreement, dated December 12, 2011, between IMAX Corporation
10-K 001-35066
10.17
2/24/12
and Richard L. Gelfond.
140
Exhibit
No.
Description
Form
File No
Exhibit
Filing
Date
+10.17
Employment Agreement, dated January 1, 2014, between IMAX Corporation and Richard
10-Q 001-35066
10.12
10/23/14
L. Gelfond.
+10.18
First Amending Agreement, dated December 9, 2015, between IMAX Corporation and
10-K 001-35066
10.21
2/24/16
Richard L. Gelfond.
+10.19
Employment Agreement, dated November 8, 2016, between IMAX Corporation and
10-K 001-35066
10.24
2/23/17
Richard L. Gelfond.
+10.20
Amendment to Employment Agreement, dated November 1, 2019, between IMAX
10-K 001-35066
10.26
2/19/20
Corporation and Richard L. Gelfond.
+10.21
Second Amendment to Employment Agreement, dated as of September 19, 2022, between
10-K 001-35066
10.1
10/31/22
IMAX Corporation and Richard L. Gelfond.
+10.22
Employment Agreement, dated December 18, 2017, between IMAX Corporation and
10-K 001-35066
10.30
2/27/18
Robert D. Lister.
+10.23
First Amending Agreement, dated March 11, 2020, between IMAX Corporation and
10-Q 001-35066
10.47
4/30/20
Robert D. Lister.
*+10.24
Second Amending Agreement, dated as of October 20, 2023, between IMAX Corporation
and Robert D. Lister
+10.25
Employment Agreement, dated October 10, 2018, between IMAX Corporation and Megan
10-Q 001-35066
10.48
7/28/20
Colligan.
+10.26
Employment Memorandum, dated September 18, 2020, between IMAX Corporation and
10-Q 001-35066
10.52
10/29/20
Mark Welton.
+10.27
Amendment to Employment Memorandum, dated October 13, 2021, between IMAX
10-K 001-35066
10.38
02/24/22
Corporation and Mark Welton.
+10.28
Offer Letter, effective May 14, 2021, between IMAX Corporation and Joseph Sparacio.
10-Q 001-35066
10.1
07/27/21
+10.29
Employment Agreement, dated April 25, 2022, between IMAX Corporation and Natasha
10-Q 001-35066
10.1
07/29/22
Fernandes.
+10.30
Letter Agreement by and between Megan Colligan and IMAX Corporation.
8-K 001-35066
10.2
04/27/23
+10.31
Statement of Directors’ Compensation as of January 2023.
10-K 001-35066
10.37
02/22/22
10.32
10.33
Form of Director Indemnification Agreement.
10-Q 001-35066
10.39
07/25/18
Sixth Amended and Restated Credit Agreement, dated March 25, 2022, by and between
10-Q 001-35066
10.1
4/28/22
IMAX Corporation, the Guarantors referred to therein, the Lenders referred to therein, and
Wells Fargo Bank, National Association, as Administrative Agent.
10.34
Base Call Option Confirmation, dated as of March 16, 2021 between IMAX Corporation
10-Q 001-35066
10.1
4/29/21
and Wells Fargo Bank, National Association.
10.35
Base Call Option Confirmation, dated as of March 16, 2021 between IMAX Corporation
10-Q 001-35066
10.2
4/29/21
and Mizuho Markets Americas LLC.
10.36
Base Call Option Confirmation, dated as of March 16, 2021 between IMAX Corporation
10-Q 001-35066
10.3
4/29/21
and JPMorgan Chase Bank, National Association.
10.37
Base Call Option Confirmation, dated as of March 16, 2021 between IMAX Corporation
10-Q 001-35066
10.4
4/29/21
and HSBC Bank USA, National Association.
141
Exhibit
No.
10.38
Description
Form
File No
Exhibit
Filing
Date
Additional Call Option Confirmation, dated as of March 18, 2021 between IMAX
10-Q 001-35066
10.5
4/29/21
Corporation and Wells Fargo Bank, National Association.
10.39
Additional Call Option Confirmation, dated as of March 18, 2021 between IMAX
10-Q 001-35066
10.6
4/29/21
Corporation and Mizuho Markets Americas LLC.
10.40
Additional Call Option Confirmation, dated as of March 18, 2021 between IMAX
10-Q 001-35066
10.7
4/29/21
Corporation and JPMorgan Chase Bank, National Association.
10.41
Additional Call Option Confirmation, dated as of March 18, 2021 between IMAX
10-Q 001-35066
10.8
4/29/21
Corporation and HSBC Bank USA, National Association.
*21.1
Subsidiaries of IMAX Corporation.
*23.1
*24.1
*31.1
*31.2
*32.1
*32.2
*97.1
Consent of PricewaterhouseCoopers LLP.
Power of Attorney of certain directors.
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated February 27, 2024, by Richard L. Gelfond.
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated February 27, 2024, by Natasha Fernandes.
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated February 27, 2024, by Richard L. Gelfond.
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated February 27, 2024, by Natasha Fernandes.
Clawback Policy.
*101.INS
Inline XBRL Instance Document – The instance document does not appear in the interactive data file because its XBRL tags are embedded
within the Inline XBRL document.
*101.SCH Inline XBRL Taxonomy Extension Schema Document
*101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
*101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
*101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
*101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
*104
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
Filed herewith
*
+ Management contract or compensatory plan, contract or arrangement
Item 16. Form 10-K Summary
Not applicable.
142
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/ NATASHA FERNANDES
Natasha Fernandes
Chief Financial Officer
Date: February 27, 2024
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 27, 2024.
/s/ RICHARD L. GELFOND
Richard L. Gelfond
Chief Executive Officer &
Director
(Principal Executive Officer)
*
Darren D. Throop
Chairman of the Board & Director
*
Kevin Douglas
Director
*
Steve Pamon
Director
/s/ NATASHA FERNANDES
Natasha Fernandes
Chief Financial Officer &
Executive Vice-President
(Principal Financial Officer)
/s/ ELIZABETH GITAJN
Elizabeth Gitajn
Senior Vice-President, Finance & Controller
(Principal Accounting Officer)
*
Eric A. Demirian
Director
*
Michael MacMillan
Director
*
Jennifer Wong
Director
* /s/ NATASHA FERNANDES
Natasha Fernandes
(as attorney-in-fact)
*
Gail Berman
Director
*
David W. Leebron
Director
*
Dana Settle
Director
By
143
IMAX CORPORATION
EXHIBIT 10.24
SECOND AMENDING AGREEMENT
This Second Amending Agreement, dated as of October 20, 2023 (the “Second Amending Agreement”), is made between IMAX
CORPORATION, a corporation organized under the laws of Canada (the “Company”), and ROBERT D. LISTER (the
“Executive”).
WHEREAS, the Executive currently serves as the Chief Legal Officer and Senior Executive Vice President of the
Company pursuant to an Employment Agreement dated as of December 18, 2017, as previously amended by the First Amending
Agreement dated as of March 11, 2020 (collectively, the “Agreement”); and
WHEREAS, the Company 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 meanings set forth in the Agreement.
Section 2 of the Agreement is hereby deleted in its entirety and replaced with the following:
Term. The Executive’s employment pursuant to this Agreement shall commence on January 1, 2018 (the
“Effective Date”) and shall terminate upon the earlier to occur of (i) the Executive’s termination of employment
pursuant to Section 4 hereunder and (ii) December 31, 2026. The period commencing as of the Effective Date
and ending on December 31, 2026, or such earlier date on which this Agreement is terminated, is hereinafter
referred to as the “Term”.
3.
Section 3(a) of the Agreement is hereby deleted in its entirety and replaced with the following:
Base Salary. The Company shall pay to the Executive an annual salary (the “Base Salary”) at the rate of
$775,816.08, subject to annual review. The Base Salary will be payable in substantially equal installments in
accordance with the Company’s ordinary payroll practices as established from time to time.
4.
Section 3(b) of the Agreement is hereby deleted in its entirety and replaced with the following:
Bonus. The Executive shall be eligible to receive a discretionary incentive bonus as determined in the sole
discretion of the Company (the “Bonus”). The target amount of the Bonus shall be 60% of Base Salary (the
“Target Bonus”);
provided, however, that in the event of a Change of Control transaction to which the Executive has
meaningfully contributed, the Target Bonus for that year will be 100% of Base Salary; and provided further that
with the approval of the Compensation Committee of the Board of Directors of the Company (the “Board”) in
its sole discretion, the total Bonus for the year in which a Change of Control transaction occurs may be up to
200% of Base Salary. The actual amount of the Bonus shall be based upon the attainment of individual and
Company performance goals and objectives consistent with the Company’s practices with respect to similarly-
situated executives and approved by the Compensation Committee of the Board in its sole discretion, and to the
extent that the Company maintains incentive compensation plan(s) intended to provide for qualified
performance-based compensation under Section 162(m) of the Internal Revenue Code, as amended, and the
regulations and guidance promulgated thereunder (the “Code”), established in conformity with such plan(s).
The Bonus (if any) shall be paid on the date on which the Company pays out bonuses to senior executives
generally; provided, however, that the Executive remains employed by the Company as of such date (except as
otherwise provided herein); and provided, further, that in no event shall the Bonus be paid later than March 15th
of the subsequent year.
5.
Section 3(j) of the Agreement is hereby deleted in its entirety and replaced with the following:
Other Benefits. The Company shall reimburse the Executive for up to $15,000 per year for financial, estate and
tax planning services, life insurance premiums, and charitable contributions, which shall be a taxable benefit to
the Executive.
6.
Section 4(e)(ii) of the Agreement is hereby deleted in its entirety and replaced with the following:
(ii) All equity that remains unvested as of December 31, 2026 will, pursuant to the Service Factor provision in
the LTIP and the grant agreements entered into between the Company and the Executive pursuant to the LTIP,
continue to vest in accordance with the original vesting schedule (in the case of PSUs, subject to the
achievement of the original performance conditions, measured at the conclusion of the relevant performance
period).
7.
Section 21 of the Agreement is hereby revised by deleting the notice address for the Company therein and replacing it
with the following:
IMAX Corporation
902 Broadway, 20th Floor
New York, NY 10010
Attention: EVP & Chief People Officer
mgolden@imax.com
2
8.
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:
/s/ Richard L. Gelfond
Name: Richard L. Gelfond
Title: Chief Executive Officer
EXECUTIVE
/s/ Robert D. Lister
Robert D. Lister
3
Company Name
3183 Films Ltd.
12582 Productions Inc.
1329507 Ontario Inc.
2328764 Ontario Ltd.
4507592 Canada Ltd.
6822967 Canada Ltd.
7096267 Canada Ltd.
7103077 Canada Ltd.
7109857 Canada Ltd.
7214316 Canada Ltd.
7550391 Canada Ltd.
7550405 Canada Ltd.
7742266 Canada Ltd.
7742274 Canada Ltd.
9733248 Canada Ltd.
Animal Orphans 3D Ltd.
Arizona Big Frame Theatres, L.L.C.
Baseball Tour, LLC
ILW Productions Inc.
IMAX II U.S.A. Inc.
IMAX 3D TV Ventures, LLC
IMAX AI Limited
IMAX (Barbados) Holding, Inc.
IMAX Chicago Theatre LLC
IMAX China Holding, Inc.
IMAX China (Hong Kong), Limited
IMAX Documentary Films Capital, LLC
IMAX Film Holding Co.
IMAX GWG Inc.
IMAX (Hong Kong) Holding, Limited
IMAX Indianapolis LLC
IMAX International Sales Corporation
IMAX Investment Management, LLC
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 CORPORATION
Exhibit 21.1
SUBSIDIARIES OF IMAX CORPORATION
Place of
Incorporation
Canada
Delaware
Ontario
Ontario
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Ontario
Arizona
Delaware
Delaware
Delaware
Delaware
Ireland
Barbados
Delaware
Cayman Islands
Hong Kong
Delaware
Delaware
Delaware
Hong Kong
Indiana
Canada
Delaware
Japan
Delaware
Ontario
Delaware
Delaware
Delaware
Delaware
Rhode Island
Delaware
Delaware
IMAX (Shanghai) Commerce and Trade Co., Ltd.
IMAX (Shanghai) Culture & Technology Co., Ltd.
IMAX (Shanghai) Digital Media Co., Ltd.
IMAX (Shanghai) Multimedia Technology Co., Ltd.
IMAX (Shanghai) Theatre Technology Services Co., Ltd.
IMAX Space Productions Ltd.
IMAX Spaceworks Ltd.
People’s Republic of China
People’s Republic of China
People’s Republic of China
People’s Republic of China
People’s Republic of China
Canada
Canada
Company Name
IMAX Theatre Holding (California I) Co.
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 Theatres International Limited
IMAX (Titanic) Inc. (50 % owned by IMAX Corp.)
IMAX U.S.A. Inc.
IMAX VR, LLC
IMAX Virtual Reality Content Fund, LLC
IMAXSHIFT, LLC
Line Drive Films Inc.
Madagascar Doc 3D Ltd.
Night Fog Productions Ltd.
Nyack Theatre LLC
Plymouth 135-139, LLC
Raining Arrows Productions Ltd.
Ridefilm Corporation
Ruth Quentin Films Ltd.
Sacramento Theatre LLC
SSIMWAVE Inc.
SSIMWAVE USA Inc.
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.
Walking Bones Pictures Ltd.
Place of
Incorporation
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Ontario
Ireland
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Canada
Canada
New York
Delaware
Canada
Delaware
Canada
Delaware
Ontario
Delaware
Alabama
Canada
Delaware
Delaware
Hong Kong
People’s Republic of China
Canada
IMAX CORPORATION
EXHIBIT 23.1
Consent of Independent Registered Public Accounting Firm
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-189274; No. 333-211888; No. 333-238934; No.
333-274898) of IMAX Corporation of our report dated February 27, 2024 relating to the financial statements 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, Canada
February 27, 2024
IMAX CORPORATION
EXHIBIT 24.1
POWER OF ATTORNEY
Each of the persons whose signature appears below hereby constitutes and appoints Natasha Fernandes 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 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 27th day of February, 2024.
Signature
/s/ Darren D. Throop
Darren D. Throop
/s/ Richard Gelfond
Richard Gelfond
/s/ Gail Berman
Gail Berman
/s/ Eric Demirian
Eric Demirian
/s/ Kevin Douglas
Kevin Douglas
/s/ David Leebron
David Leebron
/s/ Michael MacMillan
Michael MacMillan
/s/ Steve Pamon
Steve Pamon
/s/ Dana Settle
Dana Settle
/s/ Jennifer Wong
Jennifer Wong
/s/ Natasha Fernandes
Natasha Fernandes
/s/ Elizabeth Gitajn
Elizabeth Gitajn
Title
Chairman of the Board & Director
Chief Executive Officer
(Principal Executive Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Chief Financial Officer
(Principal Financial Officer)
Senior Vice-President, Finance
(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.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2023 of the registrant, IMAX Corporation;
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;
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;
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 27, 2024
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, Natasha Fernandes, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2023 of the registrant, IMAX Corporation;
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;
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;
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 27, 2024
By:
/s/ Natasha Fernandes
Natasha Fernandes
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, 2023 (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 27, 2024
/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,
Natasha Fernandes, 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, 2023 (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 27, 2024
/s/ Natasha Fernandes
Natasha Fernandes
Chief Financial Officer
IMAX CORPORATION
EXHIBIT 97.1
IMAX CLAWBACK POLICY
The Board of Directors (the “Board”) of IMAX Corporation (the “Company”) has adopted this Clawback Policy (this “Policy”)
in accordance with the applicable provisions of The New York Stock Exchange Listed Company Manual (the “Clawback Rules”),
promulgated pursuant to the final rules adopted by the Securities and Exchange Commission enacting the clawback standards
under Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Board or a delegated committee
thereof is designated to administer this Policy (the “Administrator”). Capitalized terms not otherwise defined in this Policy have
the meanings given to them under the Clawback Rules, which are attached to this Policy as Appendix A. This Policy repeals and
replaces the previous clawback policy adopted by the Board on February 19, 2020.
Recovery of Erroneously Awarded Incentive Compensation. The Company shall comply with the Clawback Rules and
reasonably promptly recover Erroneously Awarded Compensation Received by current or former Executive Officers of the
Company (“Covered Individuals") in the event the Company is required to prepare an accounting restatement due to the
Company’s material noncompliance with any financial reporting requirements under the securities laws, including any required
accounting restatement to correct an error in previously issued financial statements that is material to the previously issued
financial statements, or that would result in a material misstatement if the error were corrected in the current period or left
uncorrected in the current period (a “Clawback Trigger”). Voluntary restatements due solely to a change in applicable accounting
rules or interpretations will not be considered a Clawback Trigger. The Administrator may determine not to recover Erroneously
Awarded Compensation pursuant to this Policy in circumstances where non-enforcement is expressly permitted by the Clawback
Rules.
No-fault Basis. This Policy applies on a no-fault basis, and Covered Individuals will be subject to recovery under this Policy
without regard to their personal culpability.
Covered Compensation: This Policy applies to any Incentive-based Compensation Received by a Covered Individual: (1) after
such Covered Individual began service as an Executive Officer; (2) who served as an Executive Officer at any time during the
performance period for that Incentive-based Compensation; (3) while the Company has a class of securities listed on a national
securities exchange or a national securities association; and (4) during the three completed fiscal years immediately preceding the
date that the Company is required to prepare an accounting restatement as described above (or during any transition period that
results from a change in the Company’s fiscal year, within or immediately following those three completed fiscal years, as
determined in accordance with the Clawback Rules). Such Incentive-based Compensation includes, but may not be limited to, the
following:
• Any portion of a cash bonus that is earned based wholly or in part upon the attainment of a financial reporting
measure.
• Any portion of equity awards received under the Company’s Second Amended and Restated Long Term Incentive
Plan, or any successor plans thereto, that is granted or vested based wholly or in part upon the attainment of a
financial reporting measure.
Amount of Erroneously Award Compensation: The amount of Incentive-based Compensation subject to recovery by the
Company under this Policy is the Erroneously Awarded Compensation, which is the amount of Incentive-based Compensation
Received by a Covered Individual that exceeds the amount of Incentive-based Compensation that otherwise would have been
Received by the Covered Individual had it been determined based on the restated amount (or otherwise determined in accordance
with the Clawback Rules) and will be computed without regard to any taxes paid by the Covered Individual (or withheld from the
Incentive-based Compensation). The Administrator shall determine the amount of Erroneously Awarded Compensation.
Method of Recovery: The Administrator shall determine, in its sole discretion, the manner in which any Erroneously Awarded
Compensation will be recovered. Methods of Clawback may include, but are not limited to: (i) seeking repayment from the
Covered Individual, (ii) reducing (subject to applicable law and the terms and conditions of applicable agreements) the amount
that would otherwise be payable to the Covered Individual under any compensation, bonus or equity plan, (iii) canceling any
awards (whether cash- or equity-based) or portion thereof previously granted to the Covered Individual, (iv) withholding
payment of future increases in compensation (including annual or discretionary bonus payments) or grants of equity awards, (v)
if the Covered Individual’s employment has terminated as of the date of the Clawback Trigger, or terminates following the date of
the Clawback Trigger, withholding or reducing (subject to applicable law and the terms and conditions of applicable agreements)
payment of any amount (including, without limitation, any bonus or equity compensation) that would otherwise be payable to the
Covered Individual in connection with his or her termination; or (vi) any combination of the foregoing.
Administration: The Administrator shall interpret and construe this Policy consistent with the Clawback Rules and applicable
laws and regulations and shall make all determinations necessary for the administration of this Policy. Any determinations made
by the Administrator shall be final, binding and conclusive on all affected individuals. As required by the Clawback Rules, the
Company shall provide public disclosures related to this Policy and any applicable recoveries of Erroneously Awarded
Compensation. To the extent this Policy conflicts or is inconsistent with the Clawback Rules, the Clawback Rules shall govern.
Indemnification: The Company or any of its affiliates shall not indemnify any Covered Individual against the loss of any portion
of the amount that is and may be recovered by the Company pursuant to this Policy or any consequential loss or damage arising
therefrom; provided, however, that to the extent expense advancement or reimbursement is available to a Covered Individual, this
Policy shall not serve to prohibit such advancement or reimbursement.
Other Clawback Rights: This Policy shall be in addition to, and not in lieu of, any other clawback, recovery or recoupment policy
maintained by the Company from time to time, as well as any clawback, recovery or recoupment provision in any of the
Company’s plans, awards or individual agreements (including the clawback, recovery, and recoupment provisions in the
Company’s equity award agreements) (collectively, “Other Company Arrangement”) and any other remedies or rights that may
be available to the Company, including termination of employment; provided, however, that there is no intention to, nor shall
there be, any duplicative recoupment of the same compensation under more than one policy, plan, award, or agreement. In
addition, no Other Company Arrangement shall serve to restrict the scope or the recoverability of Erroneously Awarded
Compensation under this Policy or in any way limit recovery in compliance with the Clawback Rules.
Amendment; Termination: The Board may amend this Policy at any time in its discretion, subject to applicable law and the
Clawback Rules. To the extent that the Clawback Rules cease to be in force or cease to apply to the Company, this Policy shall
also cease to be in force.
Successors: This Policy shall be binding and enforceable against all Covered Individuals and their beneficiaries, heirs, executors,
administrators or other legal representatives.
Approved and Adopted: July 26, 2023