NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands of U.S. dollars, unless otherwise stated)
(Unaudited)
1. Basis of
Presentation
IMAX Corporation, together with its consolidated subsidiaries (the Company), prepares its financial
statements in accordance with United States Generally Accepted Accounting Principles (U.S. GAAP).
The condensed
consolidated financial statements include the accounts of the Company together with its consolidated subsidiaries, except for subsidiaries which the Company has identified as variable interest entities (VIEs) where the Company is not the
primary beneficiary. The nature of the Companys business is such that the results of operations for the interim periods presented are not necessarily indicative of results to be expected for the fiscal year. In the opinion of management, the
information contained herein reflects all normal and recurring adjustments necessary to make the results of operations for the interim periods a fair statement of such operations.
The Company has evaluated its various variable interests to determine whether they are VIEs as required by the Consolidation Topic of the
Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC or Codification).
The Company has nine film production companies that are VIEs. For four of the Companys film production companies, the Company has
determined that it is the primary beneficiary of these entities as the Company has the power to direct the activities of the respective VIE that most significantly impact the respective VIEs economic performance and has the obligation to
absorb losses of the VIE that could potentially be significant to the respective VIE or the right to receive benefits from the respective VIE that could potentially be significant to the respective VIE. These consolidated production companies have
total assets of $5.8 million (December 31, 2016 $10.3 million) and total liabilities of $6.5 million as at March 31, 2017 (December 31, 2016 $6.4 million). The majority of these consolidated assets are held by
the IMAX Original Film Fund (the Film Fund) as described in note 16(b). For the other five film production companies which are VIEs, the Company did not consolidate these film entities since it does not have the power to direct
activities and does not absorb the majority of the expected losses or expected residual returns. The Company equity accounts for these entities. As at March 31, 2017, these five VIEs have total assets of $0.4 million (December 31,
2016 $0.4 million) and total liabilities of $0.4 million (December 31, 2016 $0.4 million). Earnings of the investees included in the Companys condensed consolidated statements of operations amounted to
$nil for the three months ended March 31, 2017 (2016 $nil). The carrying value of these investments in VIEs that are not consolidated is $nil at March 31, 2017 (December 31, 2016 $nil). A loss in value of an
investment other than a temporary decline is recognized as a charge to the condensed consolidated statements of operations. The Companys exposure, which is determined based on the level of funding contributed by the Company and the development
stage of the respective film, is $nil at March 31, 2017 (December 31, 2016 $nil).
The Company accounts for investments
in new business ventures using the guidance of the FASB ASC 323 Investments Equity Method and Joint Ventures (ASC 323) or ASC 320 Investments in Debt and Equity Securities (ASC 320), as
appropriate.
All intercompany accounts and transactions, including all unrealized intercompany profits on transactions with
equity-accounted investees, have been eliminated.
The
year-end
condensed consolidated balance
sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP.
These interim
financial statements should be read in conjunction with the consolidated financial statements included in the Companys 2016 Annual Report on
Form 10-K
for the year ended December 31, 2016
(the 2016
Form 10-K)
which should be consulted for a summary of the significant accounting policies utilized by the Company. These interim financial statements are prepared following
accounting policies consistent with the Companys financial statements for the year ended December 31, 2016, except as noted below. Certain prior period information has been revised to reflect the current period information.
9
2. New Accounting Standards and Accounting Changes
Adoption of New Accounting Policies
The Company adopted the following standards on January 1, 2017, which are effective for annual periods ending after December 31,
2016, and for annual and interim periods thereafter.
In July 2015, the FASB issued ASU
No. 2015-11,
Inventory (Topic 330): Simplifying the Measurement of Inventory (ASU
2015-11).
The purpose of the amendment is to more closely
align the measurement of inventory in U.S. GAAP with the measurement of inventory in International Financial Reporting Standards. Under the ASU inventory is measured at the lower of cost and net realizable value. The clarifications are not intended
to result in any changes in practice and to reduce the complexity in guidance on the subsequent measurement of inventory. This standard only applies to inventory being measured using the
first-in,
first-out
or average cost methods of accounting for inventory. The adoption of ASU
2015-11
did not have an impact to the Companys condensed consolidated financial
statements.
In March 2016, the FASB issued ASU
No. 2016-05,
Derivatives and Hedging
(Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships (ASU
2016-05).
The amendments in ASU
2016-05
apply to
all reporting entities for which there is a change in the counterparty to a derivative instrument that has been designated as a hedging instrument under Topic 815. The amendments clarify that a change in the counterparty to a derivative instrument
that has been designated as the hedging instrument under Topic 815 does not, in and of itself, require
de-designation
of that hedging relationship provided that all other hedge accounting criteria (including
those in paragraphs
815-20-35-14
through
35-18)
continue to be met. The adoption of this
ASU
2016-05
did not have an impact to the Companys condensed consolidated financial statements.
In March 2016, the FASB issued ASU
No. 2016-07,
Investments Equity Method and Joint
Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting (ASU
2016-07).
The purpose of the amendment is to eliminate the requirement that when an investment
qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a
step-by
step basis as if the equity method had been in effect during all previous periods that the investment had been held. The adoption of ASU
2016-07
did not have an impact
to the Companys condensed consolidated financial statements.
In October 2016, the FASB issued ASU
No. 2016-16,
Income Taxes (Topic 740). The purpose of ASU
2016-16
is to eliminate the exception for an intra-entity transfer of an asset other than
inventory. The amendments require the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The Company has elected to early adopt ASU
2016-16
during the quarter ended March 31, 2017. The impact from the adoption was reflected in the Companys condensed consolidated financial statements on a modified retrospective basis resulting in
an increase to Accumulated deficit of $8.3 million, a decrease to Other assets of $14.8 million, an increase to Deferred taxes of $7.9 million and an increase to Accrued and other liabilities of $1.4 million.
In October 2016, the FASB issued ASU
No. 2016-17,
Consolidation (Topic 810). The
purpose of ASU
2016-17
is to update the requirement of the reporting entity, in determining whether it satisfies the second characteristic of a primary beneficiary, to include all of its direct variable
interests in a VIE and, on a proportionate basis, its indirect variable interests in a VIE held through related parties, including related parties that are under common control with the reporting entity. The adoption of ASU
2016-17
did not have an impact to the Companys condensed consolidated financial statements.
Recently Issued
FASB Accounting Standard Codification Updates
In February 2016, the FASB issued ASU
No. 2016-02,
Leases (Topic 842) (ASU
2016-02).
The purpose of the amendment is to help investors and other financial statement users better
understand the amount, timing, and uncertainty of cash flows arising from leases. New disclosures will include qualitative and quantitative requirements to provide additional information about the amounts recorded in the financial statements. Lessor
accounting will remain largely unchanged from current guidance, however ASU
2016-02
will provide improvements that are intended to align lessor accounting with the lessee model and with updated revenue
recognition guidance. For public entities, the amendments in ASU
2016-02
are effective for interim and annual reporting periods beginning after December 15, 2018. While the Company continues to evaluate
the effect of the standard on its ongoing financial reporting, it anticipates that the adoption of ASU
2016-02
will result in a change to its financial statement disclosures.
10
In March 2016, the FASB issued ASU
No. 2016-08,
Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (ASU
2016-08).
The purpose of ASU
2016-08
is to clarify
the implementation of guidance on principal versus agent considerations.
In April 2016, the FASB issued ASU
No. 2016-10,
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (ASU
2016-10).
The purpose of
ASU
2016-10
is to provide more detailed guidance in the following key areas: identifying performance obligations and licenses of intellectual property.
In May 2016, the FASB issued ASU
No. 2016-11,
to rescind from the FASB Accounting Standards
Codification certain SEC paragraphs as a result of two SEC Staff Announcements at the March 3, 2016 meeting.
In May 2016, the FASB
issued ASU
No. 2016-12,
Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients (ASU
2016-12).
The purpose of ASU
2016-12
is to clarify certain narrow aspects of Topic 606 such as assessing the collectibility criterion, presentation of sales taxes and other similar taxes collected from customers,
noncash consideration, contract modifications at transition, completed contracts at transition, and technical corrections.
In December
2016, the FASB issued ASU
No. 2016-20,
Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The amendments in ASU
2016-20
represent changes to clarify the accounting standard codification, correct unintended application of guidance, or make minor improvements to the accounting standards codification that are related to
Topic 606, Revenue from Contracts with Customers.
For public companies, ASU
2016-08,
ASU
2016-10,
ASU
2016-11,
ASU
2016-12
and ASU
2016-20,
which are all related to Topic 606, are
effective for interim and annual reporting periods beginning after December 15, 2017. The Company has performed an analysis of its contracts to determine those in scope of the standard, has performed detailed analyses of those contracts and
identified its performance obligations. The Company is currently in the process of determining contract consideration and is determining the appropriate timing for revenue recognition of those performance obligations. Since many of the
Companys contracts involve variable payments tied to
box-office,
the Company is currently assessing an appropriate constraint to variable revenue streams in determining contract consideration under the
new standard. The Company currently intends to adopt the new standard using the modified retrospective method and has begun the process of gathering historical information on its contracts in preparation for the standards expanded
disclosure requirements.
In June 2016, the FASB issued ASU
No. 2016-13,
Financial
Instruments Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU
2016-13).
The purpose of ASU
2016-13
is to
require a financial asset measured on the amortized cost basis to be presented at the net amount expected to be collected. Credit losses relating to
available-for-sale
debt securities should be recorded through an allowance for credit losses. For public entities, the amendments in ASU
2016-13
are effective for interim and annual reporting periods beginning after
December 15, 2019. The Company is currently assessing the impact of ASU
2016-13
on its condensed consolidated financial statements.
In January 2017, the FASB issued ASU
No. 2017-01,
Business Combinations (Topic 805):
Clarifying the Definition of a Business (ASU
2017-01).
The purpose of the amendment is to clarify the definition of a business with the objective of adding guidance to assist entities with
evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. For public entities, the amendments in ASU
2017-01
are effective for interim and annual reporting
periods beginning after December 15, 2017. The adoption of this ASU
2017-01
is not expected to have a material impact to the Companys condensed consolidated financial statements.
In January 2017, the FASB issued ASU
No. 2017-04,
Intangibles Goodwill and Other
(Topic 350): Simplifying the Test for Goodwill Impairment (ASU
2017-04).
The purpose of the amendment is to simplify how an entity is required to test goodwill for impairment by eliminating
Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting units goodwill with the carrying amount of that goodwill. For public entities, the amendments in ASU
2017-04
are effective for interim and annual reporting periods beginning after December 15, 2019. The Company is currently assessing the impact of ASU
2017-04
on its
condensed consolidated financial statements.
In March 2017, the FASB issued ASU
No. 2017-07,
Compensation Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (ASU
2017-07).
The amendment
requires the service cost component of net periodic benefit cost be presented in the same income statement line item as other employee compensation costs arising from services rendered during the period and other components of the net periodic
benefit cost be presented separately from the line item that includes the service cost and outside of any subtotal of operating income. For public entities, the amendments in ASU
2017-07
are effective for
interim and annual reporting periods beginning after December 15, 2017. The Company is currently assessing the impact of ASU
2017-07
on its condensed consolidated financial statements.
11
The Company considers the applicability and impact of all recently issued FASB accounting
standard codification updates. Accounting standards updates that are not noted above were assessed and determined to be not applicable or not significant to the Companys condensed consolidated financial statements for the period ended
March 31, 2017.
3. Financing Receivables
Financing receivables, consisting of net investment in sales-type leases and receivables from financed sales of theater systems are as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Gross minimum lease payments receivable
|
|
$
|
10,119
|
|
|
$
|
10,466
|
|
Unearned finance income
|
|
|
(1,639
|
)
|
|
|
(1,710
|
)
|
|
|
|
|
|
|
|
|
|
Minimum lease payments receivable
|
|
|
8,480
|
|
|
|
8,756
|
|
Accumulated allowance for uncollectible amounts
|
|
|
(672
|
)
|
|
|
(672
|
)
|
|
|
|
|
|
|
|
|
|
Net investment in leases
|
|
|
7,808
|
|
|
|
8,084
|
|
|
|
|
|
|
|
|
|
|
Gross financed sales receivables
|
|
|
151,561
|
|
|
|
154,301
|
|
Unearned finance income
|
|
|
(38,385
|
)
|
|
|
(39,766
|
)
|
|
|
|
|
|
|
|
|
|
Financed sales receivables
|
|
|
113,176
|
|
|
|
114,535
|
|
Accumulated allowance for uncollectible amounts
|
|
|
(494
|
)
|
|
|
(494
|
)
|
|
|
|
|
|
|
|
|
|
Net financed sales receivables
|
|
|
112,682
|
|
|
|
114,041
|
|
|
|
|
|
|
|
|
|
|
Total financing receivables
|
|
$
|
120,490
|
|
|
$
|
122,125
|
|
|
|
|
|
|
|
|
|
|
Net financed sales receivables due within one year
|
|
$
|
22,645
|
|
|
$
|
21,980
|
|
Net financed sales receivables due after one year
|
|
$
|
90,037
|
|
|
$
|
92,061
|
|
As at March 31, 2017, the financed sale receivables had a weighted average effective interest rate of
9.3% (December 31, 2016 9.3%).
4. Inventories
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Raw materials
|
|
$
|
31,565
|
|
|
$
|
28,000
|
|
Work-in-process
|
|
|
3,994
|
|
|
|
3,818
|
|
Finished goods
|
|
|
9,874
|
|
|
|
10,303
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
45,433
|
|
|
$
|
42,121
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2017, finished goods inventory for which title had passed to the customer and revenue was
deferred amounted to $3.3 million (December 31, 2016 $2.3 million).
During the three months ended March 31,
2017, the Company recognized write-downs for excess and obsolete inventory based upon current estimates of net realizable value considering future events and conditions of $nil (2016 $0.2 million).
12
5. Property Plant and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at March 31, 2017
|
|
|
|
Cost
|
|
|
Accumulated
Depreciation
|
|
|
Net Book
Value
|
|
Equipment leased or held for use
|
|
|
|
|
|
|
|
|
|
|
|
|
Theater system components
|
|
$
|
227,636
|
|
|
$
|
93,280
|
|
|
$
|
134,356
|
|
Camera equipment
|
|
|
5,990
|
|
|
|
3,879
|
|
|
|
2,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
233,626
|
|
|
|
97,159
|
|
|
|
136,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets under construction
|
|
|
22,175
|
|
|
|
|
|
|
|
22,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
8,203
|
|
|
|
|
|
|
|
8,203
|
|
Buildings
|
|
|
70,692
|
|
|
|
15,439
|
|
|
|
55,253
|
|
Office and production equipment
|
|
|
42,513
|
|
|
|
23,412
|
|
|
|
19,101
|
|
Leasehold improvements
|
|
|
10,452
|
|
|
|
3,423
|
|
|
|
7,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131,860
|
|
|
|
42,274
|
|
|
|
89,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
387,661
|
|
|
$
|
139,433
|
|
|
$
|
248,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2016
|
|
|
|
Cost
|
|
|
Accumulated
Depreciation
|
|
|
Net Book
Value
|
|
Equipment leased or held for use
|
|
|
|
|
|
|
|
|
|
|
|
|
Theater system components
|
|
$
|
224,890
|
|
|
$
|
89,218
|
|
|
$
|
135,672
|
|
Camera equipment
|
|
|
5,739
|
|
|
|
3,732
|
|
|
|
2,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
230,629
|
|
|
|
92,950
|
|
|
|
137,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets under construction
|
|
|
18,315
|
|
|
|
|
|
|
|
18,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
8,203
|
|
|
|
|
|
|
|
8,203
|
|
Buildings
|
|
|
69,861
|
|
|
|
14,877
|
|
|
|
54,984
|
|
Office and production equipment
|
|
|
41,128
|
|
|
|
21,935
|
|
|
|
19,193
|
|
Leasehold improvements
|
|
|
10,067
|
|
|
|
3,026
|
|
|
|
7,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
129,259
|
|
|
|
39,838
|
|
|
|
89,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
378,203
|
|
|
$
|
132,788
|
|
|
$
|
245,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
6. Other Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at March 31, 2017
|
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net Book
Value
|
|
Patents and trademarks
|
|
$
|
11,578
|
|
|
$
|
7,216
|
|
|
$
|
4,362
|
|
Licenses and intellectual property
|
|
|
21,167
|
|
|
|
6,522
|
|
|
|
14,645
|
|
Other
|
|
|
16,686
|
|
|
|
4,587
|
|
|
|
12,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
49,431
|
|
|
$
|
18,325
|
|
|
$
|
31,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2016
|
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net Book
Value
|
|
Patents and trademarks
|
|
$
|
11,395
|
|
|
$
|
7,046
|
|
|
$
|
4,349
|
|
Licenses and intellectual property
|
|
|
22,490
|
|
|
|
7,620
|
|
|
|
14,870
|
|
Other
|
|
|
15,352
|
|
|
|
4,155
|
|
|
|
11,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
49,237
|
|
|
$
|
18,821
|
|
|
$
|
30,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets of $16.7 million are comprised mainly of the Companys investment in an
enterprise resource planning system. Fully amortized other intangible assets are still in use by the Company.
During the three months
ended March 31, 2017, the Company acquired $1.6 million in other intangible assets. The weighted average amortization period for these additions was 10 years.
During the three months ended March 31, 2017, the Company incurred costs of $0.1 million, to renew or extend the term of acquired
other intangible assets which were recorded in selling, general and administrative expenses (2016 $0.1 million).
As at
March 31, 2017, estimated amortization expense for each of the years ended December 31, are as follows:
|
|
|
|
|
2017 (nine months remaining)
|
|
$
|
2,774
|
|
2018
|
|
|
3,699
|
|
2019
|
|
|
3,699
|
|
2020
|
|
|
3,699
|
|
2021
|
|
|
3,699
|
|
14
7. Credit Facility and Playa Vista Loan
The Company maintains a senior secured credit facility (the Credit Facility) with a maximum borrowing capacity of
$200.0 million and a scheduled maturity of March 3, 2020. The Credit Facility is collateralized by a first priority security interest in substantially all of the present and future assets of the Company and the Guarantors. Certain of the
Companys subsidiaries serve as guarantors (the Guarantors) of the Companys obligations under the Credit Facility.
The terms of the Credit Facility are set forth in the Fourth Amended and Restated Credit Agreement (as amended, the Credit
Agreement), dated March 3, 2015, among the Company, the Guarantors, the lenders named therein, Wells Fargo Bank, National Association (Wells Fargo), as agent and issuing lender (Wells Fargo, together with the lenders named
therein, the Lenders) and Wells Fargo Securities, LLC, as Sole Lead Arranger and Sole Bookrunner and in various collateral and security documents entered into by the Company and the Guarantors. Each of the Guarantors has also entered
into a guarantee in respect of the Companys obligations under the Credit Facility. On February 22, 2016, the Company amended the terms of the Credit Agreement to increase the general restricted payment basket thereunder (which covers,
among other things, the repurchase of shares) from $150.0 million to $350.0 million in the aggregate after the amendment date.
The Company was in compliance with all of its requirements at March 31, 2017.
Total amounts drawn and available under the Credit Facility at March 31, 2017 were $nil and $200.0 million, respectively (December
31, 2016 $nil and $200.0 million, respectively).
As at March 31, 2017, the Company did not have any letters of credit
and advance payment guarantees outstanding (December 31, 2016 $nil), under the Credit Facility.
Playa Vista Financing
IMAX PV Development Inc., a Delaware corporation (PV Borrower) and wholly-owned subsidiary of the Company, entered into a loan
agreement with Wells Fargo. The loan (the Playa Vista Loan) was used to principally fund the costs of development and construction of the West Coast headquarters of the Company, located in the Playa Vista neighborhood of Los Angeles,
California (the Playa Vista Project).
In connection with the Playa Vista Project, the Playa Vista Loan was fully drawn at
$30.0 million and bears interest at a variable rate per annum equal to 2.0% above the
30-day
LIBOR rate. PV Borrower is required to make monthly payments of combined principal and interest over a
10-year
term with a lump sum payment at the end of year 10. The Playa Vista Loan is being amortized over 15 years. The Playa Vista Loan will be fully due and payable on October 19, 2025 (the Maturity
Date), and may be prepaid at any time without premium, but with all accrued interest and other applicable payments.
The Playa Vista
Loan is secured by a deed of trust from PV Borrower in favor of Wells Fargo and other documents evidencing and securing the loan (the Loan Documents), granting a first lien on and security interest in the Playa Vista property and the
Playa Vista Project, including all improvements to be constructed thereon. The Loan Documents include absolute and unconditional payment and completion guarantees provided by the Company to Wells Fargo for the performance by PV Borrower of all the
terms and provisions of the Playa Vista Loan.
The Loan Documents contain affirmative, negative and financial covenants (including
compliance with the financial covenants of the Companys outstanding Credit Facility), agreements, representations, warranties, borrowing conditions, and events of default customary for development projects such as the Playa Vista Project.
15
Bank indebtedness includes the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Playa Vista Loan
|
|
$
|
27,167
|
|
|
$
|
27,667
|
|
Deferred charges on debt financing
|
|
|
(341
|
)
|
|
|
(351
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26,826
|
|
|
$
|
27,316
|
|
|
|
|
|
|
|
|
|
|
Total amounts drawn under the loan at March 31, 2017 was $27.2 million (December 31, 2016
$27.7 million). The effective interest rate for the three months ended March 31, 2017 was 2.85% (2016 2.43%).
In accordance
with the loan agreement, the Company is obligated to make payments on the principal of the loan as follows:
|
|
|
|
|
2017 (nine months remaining)
|
|
$
|
1,500
|
|
2018
|
|
|
2,000
|
|
2019
|
|
|
2,000
|
|
2020
|
|
|
2,000
|
|
2021
|
|
|
2,000
|
|
Thereafter
|
|
|
17,667
|
|
|
|
|
|
|
|
|
$
|
27,167
|
|
|
|
|
|
|
Wells Fargo Foreign Exchange Facility
Within the Credit Facility, the Company is able to purchase foreign currency forward contracts and/or other swap arrangements. There is no
settlement risk on its foreign currency forward contracts at March 31, 2017, as the fair value exceeded the notional value of the forward contracts. As at March 31, 2017, the Company has $39.8 million in notional value of such
arrangements outstanding.
Bank of Montreal Facility
As at March 31, 2017, the Company has available a $10.0 million facility (December 31, 2016 $10.0 million) with the
Bank of Montreal for use solely in conjunction with the issuance of performance guarantees and letters of credit fully insured by Export Development Canada (the Bank of Montreal Facility). The Company did not have any letters of credit
and advance payment guarantees outstanding as at March 31, 2017 (December 31, 2016 $0.1 million) under the Bank of Montreal Facility.
16
8. Contingencies and Guarantees
The Company is involved in lawsuits, claims, and proceedings, including those identified below, which arise in the ordinary course of business.
In accordance with the Contingencies Topic of the FASB ASC, the Company will make a provision for a liability when it is both probable that a loss has been incurred and the amount of the loss can be reasonably estimated. The Company believes it has
adequate provisions for any such matters. The Company reviews these provisions in conjunction with any related provisions on assets related to the claims at least quarterly and adjusts these provisions to reflect the impacts of negotiations,
settlements, rulings, advice of legal counsel and other pertinent information related to the case. Should developments in any of these matters outlined below cause a change in the Companys determination as to an unfavorable outcome and result
in the need to recognize a material provision, or, should any of these matters result in a final adverse judgment or be settled for significant amounts, they could have a material adverse effect on the Companys results of operations, cash
flows, and financial position in the period or periods in which such a change in determination, settlement or judgment occurs.
The
Company expenses legal costs relating to its lawsuits, claims and proceedings as incurred.
(a) On May 15, 2006, the Company initiated
arbitration against Three-Dimensional Media Group, Ltd. (3DMG) before the International Centre for Dispute Resolution in New York (the ICDR), alleging breaches of the license and consulting agreements between the Company and
3DMG. On June 15, 2006, 3DMG filed an answer denying any breaches and asserting counterclaims that the Company breached the parties license agreement. On June 21, 2007, the ICDR unanimously denied 3DMGs Motion for Summary
Judgment filed on April 11, 2007 concerning the Companys claims and 3DMGs counterclaims. The proceeding was suspended on May 4, 2009 due to failure of 3DMG to pay fees associated with the proceeding. The proceeding was further
suspended on October 11, 2010 pending resolution of
re-examination
proceedings involving one of 3DMGs patents. Following a status conference on April 27, 2016 before the ICDR, the ICDR granted
3DMG leave to amend its answer and counterclaims, and subsequently lifted the stay in this matter. In its amended counterclaims, 3DMG seeks damages for alleged unpaid royalties and other fees under the license and consulting agreements. Discovery is
currently ongoing and a final hearing before the ICDR has been scheduled for the week of July 10, 2017. Given the stage of discovery, the Company is unable to determine a range of potential damages in this matter. However, the Company believes
that the amount of loss, if any, suffered in connection with the amended counterclaims would not have a material impact on the financial position or results of operations of the Company, although no assurance can be given with respect to the
ultimate outcome of the arbitration.
(b) In January 2004, the Company and IMAX Theatre Services Ltd., a subsidiary of the Company,
commenced an arbitration seeking damages before the International Court of Arbitration of the International Chamber of Commerce (the ICC) with respect to the breach by Electronic Media Limited (EML) of its December 2000
agreement with the Company. In June 2004, the Company commenced a related arbitration before the ICC against EMLs affiliate,
E-City
Entertainment (I) PVT Limited
(E-City).
On March 27, 2008, the arbitration panel issued a final award in favor of the Company in the amount of $11.3 million, consisting of past and future rents owed to the Company,
plus interest and costs, as well as an additional $2,512 each day in interest from October 1, 2007 until the date the award is paid. In July 2008,
E-City
commenced a proceeding in Mumbai, India seeking an
order that the ICC award may not be recognized in India. The Company has opposed that application on a number of grounds and seeks to have the ICC award recognized in India. On June 10, 2013, the Bombay High Court ruled that it has jurisdiction
over the proceeding filed by
E-City.
The Company appealed that ruling to the Supreme Court of India, and on March 10, 2017, the Supreme Court set aside the Bombay High Courts judgement and dismissed
E-Citys
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. On June 24, 2011, the Company commenced a proceeding in the Ontario Superior Court of Justice for recognition of the ICC final award. On December 2, 2011, the Ontario Court issued an order recognizing the final
award and requiring
E-City
to pay the Company $30,000 to cover the costs of the application. In January 2013, the Company filed an action in the New York Supreme Court seeking to collect the amount owed to the
Company by certain entities and individuals affiliated with
E-City.
On October 16, 2015, the New York Supreme Court denied the Companys petition, and the Company is appealing that decision. On
July 29, 2014, the Company commenced a separate proceeding to have the Canadian judgment against
E-City
recognized in New York, and on October 2, 2015, the New York Supreme Court granted IMAXs
request, recognizing the Canadian judgment and entering it as a New York judgment. On November 26, 2014,
E-City
filed a motion in the Bombay High Court seeking to enjoin IMAX from continuing the New York
legal proceedings. On February 2, 2015, the Bombay High Court denied
E-Citys
request for an injunction. On March 16, 2015,
E-City
filed an appeal of this
Bombay High Court decision.
(c) In March 2013, IMAX (Shanghai) Multimedia Technology Co., Ltd. (IMAX Shanghai), the
Companys majority-owned subsidiary in China, received notice from the Shanghai office of the General Administration of Customs (Customs Authority) that it had been selected for a customs audit (the Audit). A key
issue raised by the Audit is the transfer pricing policy basis for the importation of IMAX theater systems by IMAX Shanghai into the Peoples Republic of China and the applicability of customs duties
17
and taxes to the trademark and technology license fees paid by IMAX Shanghai to the Company. In December 2016, the Customs Authority conclusively determined that any trademark, technology and
warranty fees paid by IMAX Shanghai on systems revenue directly related to imported theater systems should be included as part of the tax cost base of these systems and subject to applicable duties and taxes. In connection with the conclusion,
for the period beginning January 1, 2012 through October 31, 2016, IMAX Shanghai recorded $2.95 million in duties and taxes on the trademark, technology and warranty fees applicable to theater systems imported during that period and
settled the payment in January 2017. In the course of the Audit, the Customs Authority discovered the underpayment by IMAX Shanghai of the freight and insurance portion of the customs duties and taxes applicable to the importation of certain IMAX
theater systems during the period from October 2011 through March 2013 of approximately $0.1 million. Though IMAX Shanghais importation agent accepted responsibility for the error giving rise to the underpayment, the matter has been
transferred to the Anti-Smuggling Bureau of the Customs Authority for further review. IMAX Shanghai is unable to assess the potential impact, if any, of this outstanding matter at this time.
(d) On November 11, 2013, Giencourt Investments, S.A. (Giencourt) initiated arbitration before the International Centre for
Dispute Resolution in Miami, Florida, based on alleged breaches by the Company of its theater agreement and related license agreement with Giencourt. Giencourt submitted its statement of claim in January 2015, the Company submitted its statement of
defense and counterclaim in April 2015 and Giencourt submitted its arbitration reply paper in September 2015. An arbitration hearing for witness testimony was held during the week of December 14, 2015. At the hearing, Giencourts expert
identified monetary damages of up to approximately $10.4 million, which Giencourt seeks to recover from the Company. The Company has asserted a counterclaim against Giencourt for breach of contract and seeks to recover lost profits in excess of
$24.0 million under the agreements. In addition, on December 10, 2015, Giencourt made a motion to the panel seeking to enforce a purported settlement of the matter based on negotiations between Giencourt and the Company. The panel held a
final hearing with closing arguments on October 20 and 21, 2016. On February 7, 2017, the panel issued a Partial Final Award (the Award), which held that the parties had reached a binding settlement, and therefore the panel did
not reach the merits of the dispute. The Company strongly disputes that discussions about a potential resolution of this matter amounted to an enforceable settlement. The Company is currently reviewing the Award and assessing its response and
potential next steps, including a potential challenge in Florida court on the grounds that the panel exceeded its jurisdiction. At this time, the Company is unable to determine the amounts that it may owe pursuant to the Award, or the timing of any
such payments, and therefore no assurances can be given with respect to the ultimate outcome of the matter.
(e) 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 Companys management, will not materially affect the Companys financial position or future operating
results, although no assurance can be given with respect to the ultimate outcome of any such proceedings.
(f) In the normal course of
business, the Company enters into agreements that may contain features that meet the definition of a guarantee. The Guarantees Topic of the FASB ASC defines a guarantee to be a contract (including an indemnity) that contingently requires the Company
to make payments (either in cash, financial instruments, other assets, shares of its stock or provision of services) to a third party based on (a) changes in an underlying interest rate, foreign exchange rate, equity or commodity instrument,
index or other variable, that is related to an asset, a liability or an equity security of the counterparty, (b) failure of another party to perform under an obligating agreement or (c) failure of another third party to pay its
indebtedness when due.
Financial Guarantees
The Company has provided no significant financial guarantees to third parties.
Product Warranties
The Companys accrual for product warranties, that was recorded as part of accrued liabilities in the condensed consolidated balance
sheets is less than $0.1 million at March 31, 2017 and December 31, 2016, respectively.
Director/Officer
Indemnifications
The Companys General
By-law
contains an indemnification of its
directors/officers, former directors/officers and persons who have acted at its request to be a director/officer of an entity in which the Company is a shareholder or creditor, to indemnify them, to the extent permitted by the
Canada Business
Corporations Act
, against expenses (including legal fees), judgments, fines and any amounts actually and reasonably incurred by them in connection with any action, suit or proceeding in which the directors and/or officers are sued as a result of
their service, if they acted honestly and in good faith with a view to the best interests of the Company. 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 condensed consolidated balance sheet as at March 31, 2017 and December 31, 2016 with respect to
this indemnity.
18
Other Indemnification Agreements
In the normal course of the Companys operations, the Company provides indemnifications to counterparties in transactions such as: theater
system lease and sale agreements and the supervision of installation or servicing of the theater systems; film production, exhibition and distribution agreements; real property lease agreements; and employment agreements. These indemnification
agreements require the Company to compensate the counterparties for costs incurred as a result of litigation claims that may be suffered by the counterparty as a consequence of the transaction or the Companys 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 Companys 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 condensed consolidated financial statements with respect to the contingent aspect of these indemnities.
9. Condensed Consolidated Statements of Operations Supplemental Information
The Company defers direct selling costs such as sales
commissions and other amounts related to its sale and sales-type lease arrangements until the related revenue is recognized. These costs and direct advertising and marketing, included in costs and expenses applicable to revenues-equipment and
product sales, totaled $0.4 million for the three months ended March 31, 2017 (2016 $0.7 million).
Film
exploitation costs, including advertising and marketing, totaled $2.4 million for the three months ended March 31, 2017 (2016 $3.0 million) and are recorded in costs and expenses applicable to revenues-services as
incurred.
Commissions are recognized as costs and expenses applicable to revenues-rentals in the month they are earned. These costs
totaled $0.1 million for the three months ended March 31, 2017 (2016 recovery of less than $0.1 million). Direct advertising and marketing costs for each theater are charged to costs and expenses applicable to
revenues-rentals as incurred. These costs totaled an expense of $0.3 million for the three months ended March 31, 2017 (2016 less than $0.1 million).
Included in selling, general and administrative expenses
for the three months ended March 31, 2017 is a loss of less than $0.1 million (2016 gain of $0.5 million), for net foreign exchange gains/losses related to the translation of foreign currency denominated monetary assets
and liabilities. See note 15(d) for additional information.
|
(c)
|
Collaborative Arrangements
|
Joint Revenue Sharing Arrangements
In a joint revenue sharing arrangement, the Company receives a portion of a theaters
box-office
and concession revenues, and in some cases a small upfront or initial payment, in exchange for placing a theater system at the theater operators venue. Under joint revenue sharing arrangements, the customer has the ability and the right to
operate the hardware components or direct others to operate them in a manner determined by the customer. The Companys joint revenue sharing arrangements are typically
non-cancellable
for 10 years or
longer with renewal provisions. Title to equipment under joint revenue sharing arrangements generally does not transfer to the customer. The Companys joint revenue sharing arrangements do not contain a guarantee of residual value at the end of
the term. The customer is required to pay for executory costs such as insurance and taxes and is required to pay the Company for maintenance and extended warranty throughout the term. The customer is responsible for obtaining insurance coverage for
the theater systems commencing on the date specified in the arrangements shipping terms and ending on the date the theater systems are delivered back to the Company.
19
The Company has signed joint revenue sharing agreements with 46 exhibitors for a total of
997 theater systems, of which 649 theaters were operating as at March 31, 2017, the terms of which are similar in nature, rights and obligations. The accounting policy for the Companys joint revenue sharing arrangements is
disclosed in note 2(m) of the Companys 2016
Form 10-K.
Amounts attributable to
transactions arising between the Company and its customers under joint revenue sharing arrangements are included in Equipment and Product Sales and Rentals revenue and for the three months ended March 31, 2017 amounted to $15.7 million
(2016 $23.4 million).
IMAX DMR
In an IMAX DMR arrangement, the Company transforms conventional motion pictures into the Companys large screen format, allowing the
release of Hollywood content to the global IMAX theater network. In a typical IMAX DMR film arrangement, the Company receives a percentage, which in recent years has averaged approximately 12.5%, of net box-office receipts, defined as gross box
office receipts less applicable sales taxes, of any commercial films released in the IMAX theater network outside of Greater China from the applicable film studio for the conversion of the film to the IMAX DMR format and for access to the
Companys premium distribution platform. Within Greater China, the Company receives a lower percentage of box-office receipts for certain films. The Company does not typically hold distribution rights or the copyright to these films.
For the three months ended March 31, 2017, the majority of IMAX DMR revenue was earned from the exhibition of 18 IMAX DMR films (2016
17) throughout the IMAX theater network. The accounting policy for the Companys IMAX DMR arrangements is disclosed in note 2(m) of the Companys 2016
Form 10-K.
Amounts attributable to transactions arising between the Company and its customers under IMAX DMR arrangements are included in Services
revenue and for the three months ended March 31, 2017 amounted to $23.4 million (2016 $29.8 million).
Co-Produced
Film Arrangements
In certain film arrangements, the Company
co-produces
a film with a third party whereby the third party retains the copyright and rights to the film and the Company obtains exclusive theatrical distribution rights to the film. Under these arrangements, both
parties contribute funding to the Companys wholly-owned production company for the production of the film and for associated exploitation costs. Clauses in the film arrangements generally provide for the third party to take over the production
of the film if the cost of the production exceeds its approved budget or if it appears as though the film will not be delivered on a timely basis.
The accounting policies relating to
co-produced
film arrangements are disclosed in notes 2(a) and
2(m) of the Companys 2016
Form 10-K.
As at March 31, 2017, the Company has one
significant
co-produced
film arrangement which represents the VIE total assets and liabilities balance of $0.4 million and four other
co-produced
film arrangements,
the terms of which are similar.
For the three months ended March 31, 2017, amounts totaling $0.5 million (2016
$0.2 million) attributable to transactions between the Company and other parties involved in the production of the films have been included in cost and expenses applicable to revenues-services.
20
10. Condensed Consolidated Statements of Cash Flows Supplemental Information
(a) Changes in other
non-cash
operating assets and liabilities are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Decrease (increase) in:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
161
|
|
|
$
|
6,070
|
|
Financing receivables
|
|
|
1,763
|
|
|
|
(1,748
|
)
|
Inventories
|
|
|
(3,312
|
)
|
|
|
(5,994
|
)
|
Prepaid expenses
|
|
|
(1,421
|
)
|
|
|
(2,345
|
)
|
Commissions and other deferred selling expenses
|
|
|
(228
|
)
|
|
|
34
|
|
Insurance recoveries
|
|
|
(96
|
)
|
|
|
132
|
|
Other assets
|
|
|
100
|
|
|
|
(441
|
)
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
(6,041
|
)
|
|
|
(2,470
|
)
|
Accrued and other liabilities
|
|
|
(18,825
|
)
|
|
|
(12,023
|
)
|
Deferred revenue
|
|
|
10,619
|
|
|
|
(2,998
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(17,280
|
)
|
|
$
|
(21,783
|
)
|
|
|
|
|
|
|
|
|
|
(b) Cash payments made on account of:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Income taxes
|
|
$
|
7,270
|
|
|
$
|
12,051
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
190
|
|
|
$
|
180
|
|
|
|
|
|
|
|
|
|
|
(c) Depreciation and amortization are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Film assets
|
|
$
|
3,805
|
|
|
$
|
3,356
|
|
Property, plant and equipment
|
|
|
|
|
|
|
|
|
Joint revenue sharing arrangements
|
|
|
4,246
|
|
|
|
3,738
|
|
Other property, plant and equipment
|
|
|
2,760
|
|
|
|
2,326
|
|
Other intangible assets
|
|
|
926
|
|
|
|
672
|
|
Other assets
|
|
|
220
|
|
|
|
205
|
|
Deferred financing costs
|
|
|
131
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,088
|
|
|
$
|
10,438
|
|
|
|
|
|
|
|
|
|
|
21
(d) Write-downs, net of recoveries, are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Accounts receivable
|
|
$
|
185
|
|
|
$
|
126
|
|
Financing receivables
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
|
|
|
|
184
|
|
Film assets
(1)
|
|
|
3,416
|
|
|
|
|
|
Property, plant and equipment
(2)
|
|
|
409
|
|
|
|
329
|
|
Impairment of investments
|
|
|
|
|
|
|
|
|
Other intangible assets
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,010
|
|
|
$
|
648
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The Company reviewed the carrying value of certain documentary film assets as a result of lower than expected revenue being generated during the period and revised expectations for future revenues based on the latest
information available. An impairment of $3.4 million was recorded based on the carrying value of these documentary films as compared to the related estimated future box office and revenues that would ultimately be generated by these films.
|
(2)
|
The Company recognized asset impairment charges of against property, plant and equipment after an assessment of the carrying value of certain assets in light of their future expected cash flows.
|
11. Income Taxes
The Companys effective tax rate differs from the statutory
tax rate and varies from year to year primarily as a result of permanent differences, investment and other tax credits, the provision for income taxes at different rates in foreign and other provincial jurisdictions, enacted statutory tax rate
increases or reductions in the year, changes due to foreign exchange, changes in the Companys valuation allowance based on the Companys recoverability assessments of deferred tax assets, and favorable or unfavorable resolution of various
tax examinations. During the quarter ended March 31, 2017, there was no change in the Companys estimates of the recoverability of its deferred tax assets based on an analysis of both positive and negative evidence including projected
future earnings.
As at March 31, 2017, the Company had net deferred income tax assets after valuation allowance of
$29.5 million (December 31, 2016 $20.8 million), which consists of a gross deferred income tax asset of $29.7 million (December 31, 2016 $21.0 million), against which the Company is carrying a $0.2 million
valuation allowance (December 31, 2016 $0.2 million).
For the quarter ended March 31, 2017, the Company recorded a
provision for income taxes of $0.1 million. Included in the provision for income taxes was a $0.3 million recovery for windfall tax benefits, offset by a $0.6 million provision related to the portion of losses applicable to
non-controlling
interests in the Companys Film Fund.
The Company has elected to early adopt ASU
2016-16
related to income taxes during the quarter ended March 31, 2017. The impact from the adoption was reflected in the Companys condensed consolidated financial statements on a modified retrospective
basis resulting in an increase to Accumulated deficit of $8.3 million, a decrease to Other assets of $14.8 million, an increase to Deferred taxes of $7.9 million and an increase to Accrued and other liabilities of $1.4 million.
The Company early adopted ASU
2016-09,
related to stock-based compensation, in June 2016. ASU
2016-09
eliminates additional paid in capital (APIC) pools and requires excess tax benefits and tax deficiencies to be recorded in the condensed consolidated statements of operations when the awards vest
or are settled. In addition, modified retrospective adoption of ASC
2016-09
eliminates the requirement that excess tax benefits be realized before they can be recognized. The Company has recorded an adjustment
of $0.9 million to Deferred income taxes related to the impact from adoption of the provisions related to forfeiture rates. See note 12 for further discussion of the impact from the adoption of ASU
2016-09.
22
|
(b)
|
Income Tax Effect on Other Comprehensive Income
|
The income tax expense included
in the Companys other comprehensive income are related to the following items:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Unrealized change in cash flow hedging instruments
|
|
$
|
(82
|
)
|
|
$
|
(574
|
)
|
Realized change in cash flow hedging instruments upon settlement
|
|
|
(75
|
)
|
|
|
(332
|
)
|
Amortization of actuarial loss on postretirement benefit plan
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(157
|
)
|
|
$
|
(911
|
)
|
|
|
|
|
|
|
|
|
|
12. Capital Stock
|
(a)
|
Stock-Based Compensation
|
The compensation costs recorded in the condensed
consolidated statements of operations for the Companys stock-based compensation plans were $5.3 million for the three months ended March 31, 2017 (2016 $5.9 million).
As at March 31, 2017, the Company has reserved a total of 11,226,190 (December 31, 2016 12,012,572) common shares for future
issuance under the Companys Stock Option Plan (SOP) and the IMAX Corporation Amended and Restated Long-Term Incentive Plan (IMAX LTIP). Of the common shares reserved for issuance, there are options in respect of
5,268,603 common shares and restricted share units (RSUs) in respect of 1,275,421 common shares outstanding at March 31, 2017. At March 31, 2017, options in respect of 3,945,034 common shares were vested and exercisable.
The Company early adopted ASU
2016-09,
related to stock-based compensation, in June 2016. ASU
2016-09
eliminates the requirement to estimate and apply a forfeiture rate to reduce stock compensation expense during the vesting period and, instead, account for forfeitures as they occur. ASU
2016-09
also requires the presentation of employee taxes as a financing activity on the condensed consolidated statement of cash flows. Where applicable, comparative figures have been restated as if the adoption of
ASU
2016-09
occurred on January 1, 2016.
Stock Option Plan
The Company recorded an expense of $1.3 million for the three months ended March 31, 2017 (2016 $2.4 million)
related to stock option grants issued to employees and directors in the IMAX LTIP and SOP plans. An income tax benefit is recorded in the condensed consolidated statements of operations of $0.4 million for the three months ended March 31,
2017 (2016 $1.3 million), for these costs.
The weighted average fair value of all stock options granted to employees and
directors for the three months ended March 31, 2017 at the grant date was $9.08 per share (2016 $8.55 per share). The following assumptions were used to estimate the average fair value of the stock options:
|
|
|
|
|
|
|
Three Months
|
|
|
Ended March 31,
|
|
|
2017
|
|
2016
|
Average risk-free interest rate
|
|
2.40%
|
|
1.72%
|
Expected option life (in years)
|
|
4.71 - 5.83
|
|
4.79 - 4.88
|
Expected volatility
|
|
30%
|
|
30%
|
Dividend yield
|
|
0%
|
|
0%
|
Stock options to
Non-Employees
There were no common share options issued to
non-employees
during the three months ended March 31,
2017 and 2016.
23
As at March 31, 2017,
non-employee
stock options
outstanding amounted to 17,000 stock options (2016 38,750) with a weighted average exercise price of $29.64 per share (2016 $26.79 per share). 17,000 stock options (2016 26,325) were exercisable with an average
weighted exercise price of $29.64 per share (2016 $26.99 per share) and the vested stock options have an aggregate intrinsic value of $0.1 million (2016 $0.1 million).
For the three months ended March 31, 2017, the Company recorded an expense of less than $0.1 million (2016 recovery of
less than $0.1 million) to selling, general and administrative expenses related to the
non-employee
stock options. There were no liabilities accrued for
non-employee
stock options as at March 31, 2017 (December 31, 2016 less than $0.1 million).
China Long Term Incentive Plan (China
LTIP)
The China LTIP was adopted by IMAX China Holding, Inc. (IMAX China), a subsidiary of the Company, in October
2012. Each stock option (China Option), RSU or cash settled share-based payment (CSSBP) issued under the China LTIP represents an opportunity to participate economically in the future growth and value creation of IMAX China.
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 issued additional China Options and China LTIP Restricted Share
Units (China RSUs) for the three months ended March 31, 2017.
During the three months ended March 31, 2017, the
Company recorded an expense related to the China Options, China RSUs and CSSBPs of $0.2 million, $0.1 million and $0.1 million (2016 $0.2 million, $nil and $0.1 million). The liability recognized with respect to the
CSSBPs as at March 31, 2017 was $0.4 million (December 31, 2016 $0.3 million).
Stock Option Summary
The following table summarizes certain information in respect of option activity under the SOP and IMAX LTIP for the three month periods ended
March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Exercise
|
|
|
|
Number of Shares
|
|
|
Price Per Share
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Options outstanding, beginning of period
|
|
|
5,190,542
|
|
|
|
4,805,244
|
|
|
$
|
28.35
|
|
|
$
|
27.03
|
|
Granted
|
|
|
679,030
|
|
|
|
323,925
|
|
|
|
32.16
|
|
|
|
31.85
|
|
Exercised
|
|
|
(584,589
|
)
|
|
|
(43,750
|
)
|
|
|
22.38
|
|
|
|
16.91
|
|
Forfeited
|
|
|
(16,380
|
)
|
|
|
(2,042
|
)
|
|
|
31.69
|
|
|
|
31.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, end of period
|
|
|
5,268,603
|
|
|
|
5,083,377
|
|
|
|
29.49
|
|
|
|
27.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, end of period
|
|
|
3,945,034
|
|
|
|
3,507,573
|
|
|
|
28.68
|
|
|
|
26.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No stock options were cancelled from its IMAX LTIP or SOP surrendered by Company employees during the three
months ended March 31, 2017 and 2016.
As at March 31, 2017, options that are exercisable have an intrinsic value of
$21.3 million and a weighted average remaining contractual life of 4.6 years. The intrinsic value of options exercised in the three months ended March 31, 2017 was $6.0 million (2016 $0.6 million).
Restricted Share Units
RSUs have been
granted to employees, consultants and directors under the IMAX LTIP. Each RSU represents a contingent right to receive one common share and is the economic equivalent of one common share. The grant date fair value of each RSU is equal to the share
price of the Companys stock at the grant date. The Company recorded an expense of $3.4 million for the three months ended March 31, 2017 (2016 $3.1 million), related to RSU grants issued to employees and directors in the
plan. The Company did not issue any RSU grants to certain advisors and strategic partners of the Company during the three months ended March 31, 2017 and 2016.
24
During the three months ended March 31, 2017, in connection with the vesting of RSUs, the
Company settled 201,793 (2016 190,298) common shares to IMAX LTIP participants, of which 7,127 (2016 5,563) common shares, net of shares withheld for tax withholdings of 4,582 (2016 3,508) were issued from treasury and 190,084
(2016 181,227) common shares were settled through the open market purchases by the IMAX LTIP trustee.
Total stock-based
compensation expense related to
non-vested
RSUs not yet recognized at March 31, 2017 and the weighted average period over which the awards are expected to be recognized is $37.1 million and 2.6
years, respectively (2016 $32.0 million and 2.7 years, respectively). The Companys actual tax benefits realized for the tax deductions related to the vesting of RSUs was $1.9 million for the three months ended
March 31, 2017 (2016 $1.9 million).
Historically, RSUs granted under the IMAX LTIP have vested between immediately and
four years from the grant date. In connection with the amendment and restatement of the IMAX LTIP at the Companys annual and special meeting of shareholders on June 6, 2016, the IMAX LTIP plan was amended to impose a minimum
one-year
vesting period on future RSU grants, with a
carve-out
for 300,000 RSUs that may vest on a shorter schedule. During 2016, 39,726 RSUs with a vesting period of less
than one year were issued from the
carve-out
of 300,000 RSUs under the amended IMAX LTIP plan. There were no RSUs issued during the three months ended March 31, 2017 from the remaining
carve-out
balance of 260,274 RSUs. Vesting of the RSUs is subject to continued employment or service with the Company.
The following table summarizes certain information in respect of RSU activity under the IMAX LTIP for the three months ended March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Awards
|
|
|
Weighted Average
Grant Date Fair
Value Per Share
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
RSUs outstanding, beginning of period
|
|
|
1,124,180
|
|
|
|
973,637
|
|
|
$
|
33.01
|
|
|
$
|
32.27
|
|
Granted
|
|
|
373,540
|
|
|
|
351,584
|
|
|
|
32.45
|
|
|
|
31.85
|
|
Vested and settled
|
|
|
(201,793
|
)
|
|
|
(190,298
|
)
|
|
|
31.25
|
|
|
|
29.47
|
|
Forfeited
|
|
|
(20,506
|
)
|
|
|
(3,092
|
)
|
|
|
32.31
|
|
|
|
32.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs outstanding, end of period
|
|
|
1,275,421
|
|
|
|
1,131,831
|
|
|
|
33.13
|
|
|
|
32.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer Purchases of Equity Securities
On June 16, 2014, the Companys board of directors approved a new $150.0 million share repurchase program for shares of the
Companys common stock, which program was amended on April 20, 2016 to increase the aggregate purchase allowance to $200.0 million. Purchases under the program commenced during the third quarter of 2014, and the program expires on
June 30, 2017. The repurchases may be made either in the open market or through private transactions, subject to market conditions, applicable legal requirements and other relevant factors. The Company has no obligation to repurchase
shares and the share repurchase program may be suspended or discontinued by the Company at any time.
During the three months ended
March 31, 2017, the Company did not repurchase any common shares. During the three months ended March 31, 2016, the Company repurchased 1,446,418 common shares at an average price of $30.82 per share. The retired shares were purchased for
$44.6 million. The average carrying value of the stock retired was deducted from common stock and the remaining excess over the average carrying value of stock was charged to accumulated deficit. The Company has $46.3 million available
under its approved repurchase program.
The total number of shares purchased during the three months ended March 31, 2017 does not
include any shares purchased in the administration of employee share-based compensation plans (which amounted to 368,624 (2016 181,277) common shares, at an average price of $32.38 (2016 $32.28) per share).
As at March 31, 2017, the IMAX LTIP trustee held 23,706 (December 31, 2016 66,093) shares purchased for $0.8 million
(December 31, 2016$2.0 million) in the open market to be issued upon the settlement of RSUs and stock options. The shares held with the trustee are recorded at cost and are reported as a reduction against capital stock on the condensed
consolidated balance sheet.
25
Canadian Securities Law Matters
The Company has received an exemption decision issued by the Ontario Securities Commission, dated April 1, 2016, for relief from the
formal issuer bid requirements under Canadian securities laws. The exemption decision permits the Company to repurchase up to 10% of its outstanding common shares in any twelve-month period through the facilities of the New York Stock Exchange
(NYSE) under repurchase programs that the Company may implement from time to time. The Canadian securities laws regulate an issuers ability to make repurchases of its own securities.
The Company sought the exemption so that it can make repurchases under its repurchase programs in excess of the maximum allowable in reliance
on the existing other published markets exemption from the formal issuer bid requirements available under Canadian securities laws. The other published markets exemption caps the Companys ability to repurchase its
securities through the facilities of the NYSE at 5% of the issuers outstanding securities during any
12-month
period.
The conditions of the exemption decision are as follows: (i) any repurchases made in reliance on the exemption decision must be permitted
under, and part of repurchase programs established and conducted in accordance with, U.S. securities laws and NYSE rules, (ii) the aggregate number of common shares acquired in reliance on the exemption decision by the Company and any person or
company acting jointly or in concert with the Company within any 12 months does not exceed 10% of the outstanding common shares at the beginning of the
12-month
period, (iii) the common shares are not
listed and posted for trading on an exchange in Canada, (iv) the exemption decision applies only to the acquisition of common shares by the Company within 36 months of the date of the decision, and (v) prior to purchasing common shares in
reliance on the exemption decision, the Company discloses the terms of the exemption decision and the conditions applicable thereto in a press release that is issued on SEDAR and includes such language as part of the news release required to be
issued in accordance with the other published markets exemption in respect of any repurchase program that may be implemented by the Company.
Reconciliations of the numerator and denominator of the
basic and diluted
per-share
computations are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Net income applicable to common shareholders
|
|
$
|
75
|
|
|
$
|
11,302
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares (000s):
|
|
|
|
|
|
|
|
|
Issued and outstanding, beginning of period
|
|
|
66,160
|
|
|
|
69,673
|
|
Weighted average number of shares issued (repurchased) during the period
|
|
|
203
|
|
|
|
(294
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in computing basic income per share
|
|
|
66,363
|
|
|
|
69,379
|
|
Assumed exercise of stock options and RSUs, net of shares assumed repurchased
|
|
|
817
|
|
|
|
741
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in computing diluted income per share
|
|
|
67,180
|
|
|
|
70,120
|
|
|
|
|
|
|
|
|
|
|
The calculation of diluted earnings per share excludes 1,785,013 shares that are issuable upon the vesting of
171,673 RSUs and the exercise of 1,613,340 stock options for the three months ended March 31, 2017, as the impact would be antidilutive. The calculation of diluted earnings per share excludes 3,245,033 shares that are issuable upon the vesting
of 615,028 RSUs and the exercise of 2,630,005 stock options for the three months ended March 31, 2016, as the impact would be antidilutive.
As part of the adoption of ASU
2016-09,
the excess tax benefit is no longer included in the
calculation of diluted shares under the treasury stock method.
26
|
(c)
|
Shareholders Equity Attributable to Common Shareholders
|
The following
summarizes the movement of Shareholders Equity attributable to common shareholders for the three months ended March 31, 2017:
|
|
|
|
|
Balance as at December 31, 2016
|
|
$
|
562,012
|
|
Net income attributable to common shareholders
|
|
|
75
|
|
Retrospective adjustment related to intra-entity transfers (notes 2 and 11)
|
|
|
(8,314
|
)
|
Adjustments to capital stock:
|
|
|
|
|
Cash received from the issuance of common shares
|
|
|
13,082
|
|
Issuance of common shares for vested RSUs
|
|
|
273
|
|
Fair value of stock options exercised at the grant date
|
|
|
3,270
|
|
Share held in treasury
|
|
|
1,160
|
|
Adjustments to other equity:
|
|
|
|
|
Employee stock options granted
|
|
|
1,596
|
|
Non-employee
stock options granted and vested
|
|
|
17
|
|
Fair value of stock options exercised at the grant date
|
|
|
(3,270
|
)
|
RSUs granted
|
|
|
3,554
|
|
RSUs vested
|
|
|
(6,506
|
)
|
Stock exercised from treasury shares
|
|
|
(7,025
|
)
|
Adjustments to accumulated other comprehensive loss:
|
|
|
|
|
Unrealized net gain from cash flow hedging instruments
|
|
|
313
|
|
Realization of cash flow hedging net loss upon settlement
|
|
|
285
|
|
Foreign currency translation adjustments
|
|
|
312
|
|
Tax effect of movement in other comprehensive income
|
|
|
(157
|
)
|
|
|
|
|
|
Balance as at March 31, 2017
|
|
$
|
560,677
|
|
|
|
|
|
|
27
13. Segmented Information
Management, including the Companys Chief Executive Officer (CEO) who is the Companys Chief Operating Decision Maker (as
defined in the Segment Reporting Topic of the FASB ASC), assesses segment performance based on segment revenues, gross margins and film performance. Selling, general and administrative expenses, research and development costs, amortization of
intangibles, receivables provisions (recoveries), write-downs net of recoveries, interest income, interest expense and tax (provision) recovery are not allocated to the segments.
In the first quarter of 2017, modifications have been made to the CEOs reporting package to move away from the Companys historical
two primary groups IMAX Theater Systems and Film and align with the way in which the CODM manages the business. The new structure is expected to assist users of the financial statements with an enhanced understanding of how management
views the business, and the drivers behind the Companys performance. Certain of the prior periods figures have been reclassified to conform to the current periods presentation.
The Company has identified new business as an additional reportable segment in the first quarter of 2017. The Company now has the following
eight reportable segments: IMAX systems; IMAX DMR; joint revenue sharing arrangements; theater system maintenance; film distribution; film post-production; new business; and other.
The Companys reportable segments are now under four primary groups identified by nature of product sold or service provided:
(1) Network Business, representing variable revenue generated by
box-office
results and which includes the reportable segment of IMAX DMR and contingent rent from the joint revenue sharing arrangements
and IMAX systems segments; (2) Theater Business, representing revenue generated by the sale and installation of theater systems and maintenance services, primarily related to the IMAX Systems and Theater System Maintenance reportable segments,
and also includes fixed hybrid revenues and upfront installation costs from the joint revenue sharing arrangements segment and after-market sales of projection system parts and 3D glasses from the other segment; (3) New Business, which includes
content licensing and distribution fees associated with the Companys original content investments, virtual reality initiatives, IMAX Home Entertainment, and other business initiatives that are in the development and/or start-up phase, and
(4) Other; which includes the film post-production and distribution segments and certain IMAX theaters that the Company owns and operates, camera rentals and other miscellaneous items from the other segment. The Company is presenting
information at a disaggregated level to provide more relevant information to readers, as permitted by the standard. The accounting policies of the segments are the same as those described in note 2 to the audited consolidated financial statements
included in the Companys 2016 Form
10-K.
In addition, refer to Item 2 of the Companys Form
10-Q
for additional information regarding the four primary groups
mentioned above.
Transactions between the IMAX DMR segment and the film post-production segment are valued at exchange value.
Inter-segment profits are eliminated upon consolidation, as well as for the disclosures below.
28
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Revenue
(1)
|
|
|
|
|
|
|
|
|
Network business
|
|
|
|
|
|
|
|
|
IMAX DMR
|
|
$
|
23,408
|
|
|
$
|
29,805
|
|
Joint revenue sharing arrangements contingent rent
|
|
|
15,233
|
|
|
|
21,315
|
|
IMAX systems contingent rent
|
|
|
688
|
|
|
|
1,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,329
|
|
|
|
52,307
|
|
|
|
|
|
|
|
|
|
|
Theater business
|
|
|
|
|
|
|
|
|
IMAX systems
|
|
|
9,527
|
|
|
|
20,674
|
|
Joint revenue sharing arrangements fixed fees
|
|
|
470
|
|
|
|
2,070
|
|
Theater system maintenance
|
|
|
11,045
|
|
|
|
9,826
|
|
Other theater
|
|
|
2,165
|
|
|
|
2,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,207
|
|
|
|
35,057
|
|
|
|
|
|
|
|
|
|
|
New business
|
|
|
1,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Film post-production
|
|
|
3,072
|
|
|
|
2,407
|
|
Film distribution
|
|
|
512
|
|
|
|
363
|
|
Other
|
|
|
1,257
|
|
|
|
1,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,841
|
|
|
|
4,764
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
68,657
|
|
|
$
|
92,128
|
|
|
|
|
|
|
|
|
|
|
Gross Margin
|
|
|
|
|
|
|
|
|
Network business
|
|
|
|
|
|
|
|
|
IMAX DMR
(2)
|
|
$
|
17,467
|
|
|
$
|
22,823
|
|
Joint revenue sharing arrangements contingent rent
(2)
|
|
|
10,250
|
|
|
|
17,487
|
|
IMAX systems contingent rent
|
|
|
688
|
|
|
|
1,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,405
|
|
|
|
41,497
|
|
|
|
|
|
|
|
|
|
|
Theater business
|
|
|
|
|
|
|
|
|
IMAX systems
(2)
|
|
|
5,741
|
|
|
|
6,648
|
|
Joint revenue sharing arrangements fixed
fees
(2)
|
|
|
88
|
|
|
|
504
|
|
Theater system maintenance
|
|
|
4,249
|
|
|
|
3,439
|
|
Other theater
|
|
|
430
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
10,508
|
|
|
|
10,559
|
|
|
|
|
|
|
|
|
|
|
New business
|
|
|
(337
|
)
|
|
|
(225
|
)
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Film post-production
|
|
|
1,101
|
|
|
|
1,249
|
|
Film distribution
(2)
|
|
|
(3,764
|
)
|
|
|
(679
|
)
|
Other
|
|
|
(142
|
)
|
|
|
(225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,805
|
)
|
|
|
345
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
35,771
|
|
|
$
|
52,176
|
|
|
|
|
|
|
|
|
|
|
29
(1)
|
The Companys largest customer represented 17.2% of total revenues for the three months ended March 31, 2017 (2016 16.0%).
|
(2)
|
IMAX DMR segment margins include marketing costs of $2.6 million for the three months ended March 31, 2017 (2016 $2.3 million). Joint revenue sharing arrangements segment margins include
advertising, marketing and commission costs of $0.4 million for the three months ended March 31, 2017 (2016 $0.1 million). IMAX systems segment margins include marketing and commission costs of $0.4 million for the three
months ended March 31, 2017 (2016 $0.5 million). Film distribution segment margins include a marketing recovery of $0.2 million for the three months ended March 31, 2017 (2016 expense of $0.7 million).
|
Geographic Information
Revenue by geographic area is based on the location of the customer. Revenue related to IMAX DMR is presented based upon the geographic
location of the theaters that exhibit the
re-mastered
films. IMAX DMR revenue is generated through contractual relationships with studios and other third parties and these may not be in the same geographical
location as the theater.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Revenue
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
25,198
|
|
|
$
|
35,544
|
|
Canada
|
|
|
3,282
|
|
|
|
7,077
|
|
Greater China
|
|
|
18,590
|
|
|
|
24,939
|
|
Asia (excluding Greater China)
|
|
|
8,429
|
|
|
|
5,559
|
|
Western Europe
|
|
|
5,813
|
|
|
|
11,486
|
|
Russia & the CIS
|
|
|
3,183
|
|
|
|
1,692
|
|
Latin America
|
|
|
1,654
|
|
|
|
3,527
|
|
Rest of the World
|
|
|
2,508
|
|
|
|
2,304
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
68,657
|
|
|
$
|
92,128
|
|
|
|
|
|
|
|
|
|
|
No single country in the Rest of the World, Western Europe, Latin America and Asia (excluding Greater China)
classifications comprises more than 10% of the total revenue.
30
14. Employees Pension and Postretirement Benefits
The Company has an unfunded U.S. defined benefit
pension plan (the SERP) covering Richard L. Gelfond, CEO of the Company.
The following table provides disclosure of the
pension obligation for the SERP:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Projected benefit obligation:
|
|
|
|
|
|
|
|
|
Obligation, beginning of period
|
|
$
|
19,580
|
|
|
$
|
19,478
|
|
Interest cost
|
|
|
107
|
|
|
|
261
|
|
Actuarial gain
|
|
|
|
|
|
|
(159
|
)
|
|
|
|
|
|
|
|
|
|
Obligation, end of period and unfunded status
|
|
$
|
19,687
|
|
|
$
|
19,580
|
|
|
|
|
|
|
|
|
|
|
The following table provides disclosure of pension expense for the SERP:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Interest cost
|
|
$
|
107
|
|
|
$
|
65
|
|
|
|
|
|
|
|
|
|
|
Pension expense
|
|
$
|
107
|
|
|
$
|
65
|
|
|
|
|
|
|
|
|
|
|
No contributions are expected to be made for the SERP during the remainder of 2017. The Company expects
interest costs of $0.3 million to be recognized as a component of net periodic benefit cost during the remainder of 2017.
The
accumulated benefit obligation for the SERP was $19.7 million at March 31, 2017 (December 31, 2016 $19.6 million).
The following benefit payments are expected to be made as per the current SERP assumptions and the terms of the SERP in each of the next 5
years, and in the aggregate:
|
|
|
|
|
2017 (nine months remaining)
|
|
$
|
|
|
2018
|
|
|
|
|
2019
|
|
|
|
|
2020
|
|
|
21,115
|
|
2021
|
|
|
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,115
|
|
|
|
|
|
|
The SERP assumptions are that Mr. Gelfond will receive a lump sum payment six months after retirement at
the end of the current term of his employment agreement (December 31, 2019), although Mr. Gelfond has not informed the Company that he intends to retire at that time.
|
(b)
|
Defined Contribution Pension Plan
|
The Company also maintains defined
contribution plans for its employees, including its executive officers. The Company makes contributions to these plans on behalf of employees in an amount up to 5% of their base salary subject to certain prescribed maximums. During the three months
ended March 31, 2017, the Company contributed and expensed an aggregate of $0.3 million (2016 $0.4 million) to its Canadian defined contribution plan and an aggregate of $0.2 million (2016 $0.2 million) to its
defined contribution employee plan under Section 401(k) of the U.S. Internal Revenue Code.
31
In September 2016, the Company entered into a new employment agreement with Greg Foster, CEO of
IMAX Entertainment and
Senior Executive Vice President of the Company, which provides for an employment term from July 2, 2016 through July 2,
2019. Under the agreement, the Company agreed to create a deferred compensation plan (the Retirement Plan) covering Mr. Foster, and to make a total contribution of $3.2 million over the three-year employment term. The
Retirement Plan is subject to a vesting schedule based on continued employment with the Company, such that 25% will vest July 2019; 50% will vest July 2022; 75% will vest July 2025; and Mr. Foster will be 100% vested in July 2027. As at
March 31, 2017, the Company had an unfunded benefit obligation recorded of $0.8 million (December 31, 2016 $0.5 million). The Company has expensed $0.3 million for the three months ended March 31, 2017
(2016 $nil).
|
(c)
|
Postretirement BenefitsExecutives
|
The Company has an unfunded
postretirement plan for Mr. Gelfond and Bradley J. Wechsler, Chairman of the Companys Board of Directors. The plan provides that the Company will maintain health benefits for Messrs. Gelfond and Wechsler until they become eligible for
Medicare and, thereafter, the Company will provide Medicare supplement coverage as selected by Messrs. Gelfond and Wechsler. The postretirement benefits obligation as at March 31, 2017 is $0.7 million (December 31, 2016
$0.6 million). The Company has expensed less than $0.1 million for the three months ended March 31, 2017 (2016 less than $0.1 million).
The following benefit payments are expected to be made as per the current plan assumptions in each of the next 5 years:
|
|
|
|
|
2017 (nine months remaining)
|
|
$
|
21
|
|
2018
|
|
|
24
|
|
2019
|
|
|
26
|
|
2020
|
|
|
33
|
|
2021
|
|
|
36
|
|
Thereafter
|
|
|
514
|
|
|
|
|
|
|
Total
|
|
$
|
654
|
|
|
|
|
|
|
|
(d)
|
Postretirement Benefits Canadian Employees
|
The Company has an unfunded
postretirement plan for its Canadian employees upon meeting specific eligibility requirements. The Company will provide eligible participants, upon retirement, with health and welfare benefits. The postretirement benefits obligation as at
March 31, 2017 is $1.8 million (December 31, 2016 $1.7 million). The Company has expensed less than $0.1 million for the three months ended March 31, 2017 (2016 less than $0.1 million).
The following benefit payments are expected to be made as per the current plan assumptions in each of the next 5 years:
|
|
|
|
|
2017 (nine months remaining)
|
|
$
|
92
|
|
2018
|
|
|
99
|
|
2019
|
|
|
105
|
|
2020
|
|
|
108
|
|
2021
|
|
|
110
|
|
Thereafter
|
|
|
1,244
|
|
|
|
|
|
|
Total
|
|
$
|
1,758
|
|
|
|
|
|
|
32
15. Financial Instruments
|
(a)
|
Financial Instruments
|
The Company maintains cash with various major financial
institutions. The Companys cash is invested with highly rated financial institutions.
The Companys accounts receivables and
financing receivables are subject to credit risk. The Companys accounts receivable and financing receivables are concentrated with the theater exhibition industry and film entertainment industry. To minimize the Companys credit risk, the
Company retains title to underlying theater systems leased, performs initial and ongoing credit evaluations of its customers and makes ongoing provisions for its estimate of potentially uncollectible amounts. The Company believes it has adequately
provided for related exposures surrounding receivables and contractual commitments.
|
(b)
|
Fair Value Measurements
|
The carrying values of the Companys
cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities due within one year approximate fair values due to the short-term maturity of these instruments. The Companys other financial instruments are comprised of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at March 31, 2017
|
|
|
As at December 31, 2016
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
Cash and cash equivalents
|
|
$
|
190,481
|
|
|
$
|
190,481
|
|
|
$
|
204,759
|
|
|
$
|
204,759
|
|
Net financed sales receivable
|
|
$
|
112,682
|
|
|
$
|
113,792
|
|
|
$
|
114,041
|
|
|
$
|
115,014
|
|
Net investment in sales-type leases
|
|
$
|
7,808
|
|
|
$
|
8,163
|
|
|
$
|
8,084
|
|
|
$
|
8,372
|
|
Convertible loan receivable
|
|
$
|
1,000
|
|
|
$
|
1,000
|
|
|
$
|
1,000
|
|
|
$
|
1,000
|
|
Available-for-sale
investment
|
|
$
|
1,000
|
|
|
$
|
1,010
|
|
|
$
|
1,000
|
|
|
$
|
1,007
|
|
Foreign exchange contracts designated forwards
|
|
$
|
302
|
|
|
$
|
302
|
|
|
$
|
(296
|
)
|
|
$
|
(296
|
)
|
Borrowings under the Playa Vista Loan
|
|
$
|
(27,167
|
)
|
|
$
|
(27,167
|
)
|
|
$
|
(27,667
|
)
|
|
$
|
(27,667
|
)
|
Cash and cash equivalents are comprised of cash and interest-bearing investments with original maturity dates
of 90 days or less. Cash and cash equivalents are recorded at cost, which approximates fair value (Level 1 input in accordance with the Fair Value Measurements Topic of the FASB ASC hierarchy) as at March 31, 2017 and
December 31, 2016, respectively.
The estimated fair values of the net financed sales receivable and net investment in sales-type
leases are estimated based on discounting future cash flows at currently available interest rates with comparable terms (Level 2 input in accordance with the Fair Value Measurements Topic of the FASB ASC hierarchy) as at March 31,
2017 and December 31, 2016, respectively.
The estimated fair value of the Companys convertible loan receivable is based on
discounting future cash flows at currently available interest rates with comparable terms (Level 2 input in accordance with the Fair Value Measurements Topic of the FASB ASC hierarchy) as at March 31, 2017 and December 31, 2016,
respectively.
The fair value of the Companys
available-for-sale
investment is determined using quoted prices in active markets (Level 2 input in accordance with the Fair Value Measurements Topic of the FASB ASC
hierarchy) as at March 31, 2017 and December 31, 2016, respectively.
The fair value of foreign currency derivatives is
determined using quoted prices in active markets (Level 2 input in accordance with the Fair Value Measurements Topic of the FASB ASC hierarchy) as at March 31, 2017 and December 31, 2016, respectively. These identical instruments are
traded on a closed exchange.
The carrying value of borrowings under the Playa Vista Loan approximates fair value as the interest rates
offered under the Playa Vista Loan are close to March 31, 2017 market rates for the Company for debt of the same remaining maturities (Level 2 input in accordance with the Fair Value Measurements Topic of the FASB ASC hierarchy) as at
March 31, 2017.
33
There were no significant transfers between Level 1 and Level 2 during the three months
ended March 31, 2017 or 2016. When a determination is made to classify an asset or liability within Level 3, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement. There were no
transfers in or out of the Companys level 3 assets during the three months ended March 31, 2017.
|
(c)
|
Financing Receivables
|
The Companys net investment in leases and its net
financed sale receivables are subject to the disclosure requirements of ASC 310 Receivables. Due to differing risk profiles of its net investment in leases and its net financed sales receivables, the Company views its net investment
in leases and its net financed sale receivables as separate classes of financing receivables. The Company does not aggregate financing receivables to assess impairment.
The Company monitors the credit quality of each customer on a frequent basis through collections and aging analyses. The Company also holds
meetings monthly in order to identify credit concerns and whether a change in credit quality classification is required for the customer. A customer may improve in their credit quality classification once a substantial payment is made on overdue
balances or the customer has agreed to a payment plan with the Company and payments have commenced in accordance to the payment plan. The change in credit quality indicator is dependent upon management approval.
The Company classifies its customers into four categories to indicate the credit quality worthiness of its financing receivables for internal
purposes only:
Good standing Theater continues to be in good standing with the Company as the clients payments and reporting
are
up-to-date.
Credit Watch Theater operator has
begun to demonstrate a delay in payments, and has been placed on the Companys credit watch list for continued monitoring, but active communication continues with the Company. Depending on the size of outstanding balance, length of time in
arrears and other factors, transactions may need to be approved by management. These financing receivables are considered to be in better condition than those receivables related to theaters in the
Pre-approved
transactions category, but not in as good of condition as those receivables in Good standing.
Pre-approved
transactions only Theater operator is demonstrating a delay in payments with
little or no communication with the Company. All service or shipments to the theater must be reviewed and approved by management. These financing receivables are considered to be in better condition than those receivables related to theaters in the
All transactions suspended category, but not in as good of condition as those receivables in Credit Watch. Depending on the individual facts and circumstances of each customer, finance income recognition may be suspended if
management believes the receivable to be impaired.
All transactions suspended Theater is severely delinquent,
non-responsive
or not negotiating in good faith with the Company. Once a theater is classified as All transactions suspended the theater is placed on nonaccrual status and all revenue recognitions
related to the theater are stopped.
34
The following table discloses the recorded investment in financing receivables by credit quality
indicator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at March 31, 2017
|
|
|
As at December 31, 2016
|
|
|
|
Minimum
|
|
|
Financed
|
|
|
|
|
|
Minimum
|
|
|
Financed
|
|
|
|
|
|
|
Lease
|
|
|
Sales
|
|
|
|
|
|
Lease
|
|
|
Sales
|
|
|
|
|
|
|
Payments
|
|
|
Receivables
|
|
|
Total
|
|
|
Payments
|
|
|
Receivables
|
|
|
Total
|
|
In good standing
|
|
$
|
7,465
|
|
|
$
|
110,249
|
|
|
$
|
117,714
|
|
|
$
|
7,741
|
|
|
$
|
111,568
|
|
|
$
|
119,309
|
|
Credit Watch
|
|
|
|
|
|
|
1,683
|
|
|
|
1,683
|
|
|
|
|
|
|
|
1,514
|
|
|
|
1,514
|
|
Pre-approved
transactions
|
|
|
|
|
|
|
633
|
|
|
|
633
|
|
|
|
|
|
|
|
842
|
|
|
|
842
|
|
Transactions suspended
|
|
|
1,015
|
|
|
|
611
|
|
|
|
1,626
|
|
|
|
1,015
|
|
|
|
611
|
|
|
|
1,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,480
|
|
|
$
|
113,176
|
|
|
$
|
121,656
|
|
|
$
|
8,756
|
|
|
$
|
114,535
|
|
|
$
|
123,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
While recognition of finance income is suspended, payments received by a customer are applied against the
outstanding balance owed. If payments are sufficient to cover any unreserved receivables, a recovery of provision taken on the billed amount, if applicable, is recorded to the extent of the residual cash received. Once the collectibility issues are
resolved and the customer has returned to being in good standing, the Company will resume recognition of finance income.
The
Companys investment in financing receivables on nonaccrual status is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at March 31, 2017
|
|
|
As at December 31, 2016
|
|
|
|
Recorded
|
|
|
Related
|
|
|
Recorded
|
|
|
Related
|
|
|
|
Investment
|
|
|
Allowance
|
|
|
Investment
|
|
|
Allowance
|
|
Net investment in leases
|
|
$
|
1,015
|
|
|
$
|
(672
|
)
|
|
$
|
1,015
|
|
|
$
|
(672
|
)
|
Net financed sales receivables
|
|
|
611
|
|
|
|
(494
|
)
|
|
|
611
|
|
|
|
(494
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,626
|
|
|
$
|
(1,166
|
)
|
|
$
|
1,626
|
|
|
$
|
(1,166
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company considers financing receivables with aging between
60-89
days as indications of theaters with potential collection concerns. The Company will begin to focus its review on these financing receivables and increase its discussions internally and with the theater regarding payment status. Once a
theaters aging exceeds 90 days, the Companys policy is to review and assess collectibility on the theaters past due accounts. Over 90 days past due is used by the Company as an indicator of potential impairment as invoices up to 90
days outstanding could be considered reasonable due to the time required for dispute resolution or for the provision of further information or supporting documentation to the customer.
35
The Companys aged financing receivables are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related
|
|
|
|
|
|
|
|
|
Recorded
|
|
|
|
Accrued
|
|
|
|
|
|
|
|
|
Billed
|
|
|
Unbilled
|
|
|
Total
|
|
|
|
|
|
Investment
|
|
|
|
and
|
|
|
30-89
|
|
|
|
|
|
Financing
|
|
|
Recorded
|
|
|
Recorded
|
|
|
Related
|
|
|
Net of
|
|
|
|
Current
|
|
|
Days
|
|
|
90+ Days
|
|
|
Receivables
|
|
|
Investment
|
|
|
Investment
|
|
|
Allowances
|
|
|
Allowances
|
|
Net investment in leases
|
|
$
|
41
|
|
|
$
|
94
|
|
|
$
|
763
|
|
|
$
|
898
|
|
|
$
|
7,582
|
|
|
$
|
8,480
|
|
|
$
|
(672
|
)
|
|
$
|
7,808
|
|
Net financed sales receivables
|
|
|
1,884
|
|
|
|
2,379
|
|
|
|
2,879
|
|
|
|
7,142
|
|
|
|
106,035
|
|
|
|
113,176
|
|
|
|
(494
|
)
|
|
|
112,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,925
|
|
|
$
|
2,473
|
|
|
$
|
3,642
|
|
|
$
|
8,040
|
|
|
$
|
113,617
|
|
|
$
|
121,656
|
|
|
$
|
(1,166
|
)
|
|
$
|
120,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related
|
|
|
|
|
|
|
|
|
Recorded
|
|
|
|
Accrued
|
|
|
|
|
|
|
|
|
Billed
|
|
|
Unbilled
|
|
|
Total
|
|
|
|
|
|
Investment
|
|
|
|
and
|
|
|
30-89
|
|
|
|
|
|
Financing
|
|
|
Recorded
|
|
|
Recorded
|
|
|
Related
|
|
|
Net of
|
|
|
|
Current
|
|
|
Days
|
|
|
90+ Days
|
|
|
Receivables
|
|
|
Investment
|
|
|
Investment
|
|
|
Allowances
|
|
|
Allowances
|
|
Net investment in leases
|
|
$
|
28
|
|
|
$
|
159
|
|
|
$
|
781
|
|
|
$
|
968
|
|
|
$
|
7,788
|
|
|
$
|
8,756
|
|
|
$
|
(672
|
)
|
|
$
|
8,084
|
|
Net financed sales receivables
|
|
|
2,393
|
|
|
|
1,724
|
|
|
|
2,368
|
|
|
|
6,485
|
|
|
|
108,050
|
|
|
|
114,535
|
|
|
|
(494
|
)
|
|
|
114,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,421
|
|
|
$
|
1,883
|
|
|
$
|
3,149
|
|
|
$
|
7,453
|
|
|
$
|
115,838
|
|
|
$
|
123,291
|
|
|
$
|
(1,166
|
)
|
|
$
|
122,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys recorded investment in past due financing receivables for which the Company continues to
accrue finance income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related
|
|
|
|
|
|
Recorded
|
|
|
|
Accrued
|
|
|
|
|
|
|
|
|
Billed
|
|
|
Unbilled
|
|
|
|
|
|
Investment
|
|
|
|
and
|
|
|
30-89
|
|
|
|
|
|
Financing
|
|
|
Recorded
|
|
|
Related
|
|
|
Past Due
|
|
|
|
Current
|
|
|
Days
|
|
|
90+ Days
|
|
|
Receivables
|
|
|
Investment
|
|
|
Allowance
|
|
|
and Accruing
|
|
Net investment in leases
|
|
$
|
38
|
|
|
$
|
61
|
|
|
$
|
293
|
|
|
$
|
392
|
|
|
$
|
2,237
|
|
|
$
|
|
|
|
$
|
2,629
|
|
Net financed sales receivables
|
|
|
146
|
|
|
|
968
|
|
|
|
2,280
|
|
|
|
3,394
|
|
|
|
25,876
|
|
|
|
|
|
|
|
29,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
184
|
|
|
$
|
1,029
|
|
|
$
|
2,573
|
|
|
$
|
3,786
|
|
|
$
|
28,113
|
|
|
$
|
|
|
|
$
|
31,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related
|
|
|
|
|
|
Recorded
|
|
|
|
Accrued
|
|
|
|
|
|
|
|
|
Billed
|
|
|
Unbilled
|
|
|
|
|
|
Investment
|
|
|
|
and
|
|
|
30-89
|
|
|
|
|
|
Financing
|
|
|
Recorded
|
|
|
Related
|
|
|
Past Due
|
|
|
|
Current
|
|
|
Days
|
|
|
90+ Days
|
|
|
Receivables
|
|
|
Investment
|
|
|
Allowance
|
|
|
and Accruing
|
|
Net investment in leases
|
|
$
|
|
|
|
$
|
54
|
|
|
$
|
244
|
|
|
$
|
298
|
|
|
$
|
1,646
|
|
|
$
|
|
|
|
$
|
1,944
|
|
Net financed sales receivables
|
|
|
284
|
|
|
|
634
|
|
|
|
1,854
|
|
|
|
2,772
|
|
|
|
20,147
|
|
|
|
|
|
|
|
22,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
284
|
|
|
$
|
688
|
|
|
$
|
2,098
|
|
|
$
|
3,070
|
|
|
$
|
21,793
|
|
|
$
|
|
|
|
$
|
24,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
The Company considers financing receivables to be impaired when it believes it to be probable
that it will not recover the full amount of principal or interest owing under the arrangement. The Company uses its knowledge of the industry and economic trends, as well as its prior experiences to determine the amount recoverable for impaired
financing receivables. The following table discloses information regarding the Companys impaired financing receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Interest
|
|
|
|
Recorded
|
|
|
Unpaid
|
|
|
Related
|
|
|
Recorded
|
|
|
Income
|
|
|
|
Investment
|
|
|
Principal
|
|
|
Allowance
|
|
|
Investment
|
|
|
Recognized
|
|
Recorded investment for which there is a related allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financed sales receivables
|
|
$
|
525
|
|
|
$
|
75
|
|
|
$
|
(494
|
)
|
|
$
|
525
|
|
|
$
|
|
|
Recorded investment for which there is no related allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financed sales receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recorded investment in impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financed sales receivables
|
|
$
|
525
|
|
|
$
|
75
|
|
|
$
|
(494
|
)
|
|
$
|
525
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Interest
|
|
|
|
Recorded
|
|
|
Unpaid
|
|
|
Related
|
|
|
Recorded
|
|
|
Income
|
|
|
|
Investment
|
|
|
Principal
|
|
|
Allowance
|
|
|
Investment
|
|
|
Recognized
|
|
Recorded investment for which there is a related allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financed sales receivables
|
|
$
|
748
|
|
|
$
|
414
|
|
|
$
|
(643
|
)
|
|
$
|
748
|
|
|
$
|
|
|
Recorded investment for which there is no related allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financed sales receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recorded investment in impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financed sales receivables
|
|
$
|
748
|
|
|
$
|
414
|
|
|
$
|
(643
|
)
|
|
$
|
748
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys activity in the allowance for credit losses for the period and the Companys recorded
investment in financing receivables are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
|
|
Three Months Ended March 31, 2016
|
|
|
|
Net Investment
|
|
|
Net Financed
|
|
|
Net Investment
|
|
|
Net Financed
|
|
|
|
in Leases
|
|
|
Sales Receivables
|
|
|
in Leases
|
|
|
Sales Receivables
|
|
Allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
672
|
|
|
$
|
494
|
|
|
$
|
672
|
|
|
$
|
568
|
|
Charge-offs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
672
|
|
|
$
|
494
|
|
|
$
|
672
|
|
|
$
|
643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
672
|
|
|
$
|
494
|
|
|
$
|
672
|
|
|
$
|
643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
8,480
|
|
|
$
|
113,176
|
|
|
$
|
10,577
|
|
|
$
|
110,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
|
(d)
|
Foreign Exchange Risk Management
|
The Company is exposed to market risk from
changes in foreign currency rates. A majority portion of the Companys revenues is denominated in U.S. dollars while a substantial portion of its costs and expenses is denominated in Canadian dollars. A portion of the net U.S. dollar cash flows
of the Company is periodically converted to Canadian dollars to fund Canadian dollar expenses through the spot market. In China and Japan the Company has ongoing operating expenses related to its operations in Chinese Renminbi and Japanese yen,
respectively. Net cash flows are converted to and from U.S. dollars through the spot market. The Company also has cash receipts under leases denominated in Chinese Renminbi, Japanese yen, Canadian dollars and Euros which are converted to U.S.
dollars through the spot market. In addition, because IMAX films generate
box-office
in 75 different countries, unfavourable exchange rates between applicable local currencies, and the U.S. dollar affect the
Companys reported gross
box-office
and revenues, further impacting the Companys results of operations. The Companys policy is to not use any financial instruments for trading or other
speculative purposes.
The Company entered into a series of foreign currency forward contracts to manage the Companys risks
associated with the volatility of foreign currencies. Certain of these foreign currency forward contracts met the criteria required for hedge accounting under the Derivatives and Hedging Topic of the FASB ASC at inception, and continue to meet
hedge effectiveness tests at March 31, 2017 (the Foreign Currency Hedges), with settlement dates throughout 2017 and 2018. Foreign currency derivatives are recognized and measured in the balance sheet at fair value. Changes in the
fair value (gains or losses) are recognized in the condensed consolidated statements of operations except for derivatives designated and qualifying as foreign currency cash flow hedging instruments. For foreign currency cash flow hedging
instruments, the effective portion of the gain or loss in a hedge of a forecasted transaction is reported in other comprehensive income and reclassified to the condensed consolidated statements of operations when the forecasted transaction occurs.
Any ineffective portion is recognized immediately in the condensed consolidated statements of operations. The Company currently does not hold any derivatives which are not designated as hedging instruments.
The following tabular disclosures reflect the impact that derivative instruments and hedging activities have on the Companys condensed
consolidated financial statements:
Notional value of foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Foreign exchange contracts Forwards
|
|
$
|
39,802
|
|
|
$
|
37,825
|
|
|
|
|
|
|
|
|
|
|
Fair value of derivatives in foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
Balance Sheet Location
|
|
2017
|
|
|
2016
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts Forwards
|
|
Other assets
|
|
$
|
604
|
|
|
$
|
480
|
|
|
|
Accrued and other liabilities
|
|
|
(302
|
)
|
|
|
(776
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
302
|
|
|
$
|
(296
|
)
|
|
|
|
|
|
|
|
|
|
|
|
38
Derivatives in Foreign Currency Hedging relationships for the three months ended March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
2017
|
|
|
2016
|
|
Foreign exchange contracts Forwards
|
|
Derivative Gain
|
|
|
|
|
|
|
|
|
|
|
Recognized in OCI
|
|
|
|
|
|
|
|
|
|
|
(Effective Portion)
|
|
$
|
313
|
|
|
$
|
2,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Derivative Loss
|
|
|
|
|
|
|
|
|
Reclassified from AOCI
|
|
Three Months Ended March 31,
|
|
|
|
into Income (Effective Portion)
|
|
2017
|
|
|
2016
|
|
Foreign exchange contracts Forwards
|
|
Selling, general and
|
|
|
|
|
|
|
|
|
|
|
administrative expenses
|
|
$
|
(285
|
)
|
|
$
|
(1,277
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
2017
|
|
|
2016
|
|
Foreign exchange contractsForwards
|
|
Derivative Loss
|
|
|
|
|
|
|
|
|
|
|
Recognized In and Out of
|
|
|
|
|
|
|
|
|
|
|
OCI (Effective Portion)
|
|
$
|
(47
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys estimated net amount of the existing gains as at March 31, 2017 is $0.4 million,
which is expected to be reclassified to earnings within the next twelve months
|
(e)
|
Investments in New Business Ventures
|
The Company accounts for investments in new
business ventures using the guidance of the FASB ASC 323 or FASB ASC 320, as appropriate. As at March 31, 2017, the equity method of accounting is being utilized for an investment with a carrying value of $nil (December 31,
2016 $nil). The Companys accumulated losses in excess of its equity investment were $0.7 million as at March 31, 2017, and are classified in Accrued and other liabilities. For the three months ended March 31, 2017,
gross revenues, cost of revenue and net loss for the Companys investments were $0.2 million, $0.9 million and $0.7 million, respectively (2016 $0.4 million, $2.2 million and $1.8 million,
respectively). The Company has determined it is not the primary beneficiary of this VIE, and therefore this entity has not been consolidated. In 2016, the Company issued a convertible loan of $1.0 million to this entity with a term of 3 years
with an annual effective interest rate of 5.0%. The instrument is classified as an
available-for-sale
investment due to certain features that allow for conversion to
common stock in the entity in the event of certain triggers occurring. In addition, the Company has an investment in preferred stock of another business venture of $1.5 million which meet the criteria for classification as a debt security under
the FASB ASC 320 and is recorded at a fair value of $nil at March 31, 2017 (December 31, 2016 $nil). This investment was classified as an
available-for-sale
investment. Furthermore, the Company has an investment of $1.0 million (December 31, 2016 $1.0 million) in the shares of an exchange
traded fund. This investment is also classified as an
available-for-sale
investment. As at March 31, 2017, the Company held investments with a total value of
$3.5 million in the preferred shares of enterprises which meet the criteria for classification as an equity security under FASB ASC 325, carried at historical cost, net of impairment charges. The carrying value of these equity security
investments was $1.0 million at March 31, 2017 (December 31, 2016 $nil). The total carrying value of investments in new business ventures at March 31, 2017 is $3.0 million (December 31, 2016
$2.0 million) and is recorded in Other assets.
39
16.
Non-Controlling
Interests
|
(a)
|
IMAX China
Non-Controlling
Interest
|
On
April 8, 2014, the Company announced sale and issuance of 20% of the shares of IMAX China to entities owned and controlled by CMC Capital Partners (CMC), an investment fund that is focused on media and entertainment, and
FountainVest Partners (FountainVest), a China-focused private equity firm. The sale price for the interest was $80.0 million, and was paid by the investors in two equal installments on April 8, 2014 and February 10, 2015.
On October 8, 2015, IMAX China completed the IMAX China IPO. Following the IMAX China IPO, the Company continues to indirectly own
approximately 68.2% of IMAX China, which remains a consolidated subsidiary of the Company. On October 15, 2015, in satisfaction of its obligations under the shareholders agreement, IMAX China paid a dividend of $9.5 million to the
non-controlling
interest shareholders.
The following summarizes the movement of the
non-controlling
interest in shareholders equity, in the Companys subsidiary for the three months ended March 31, 2017:
|
|
|
|
|
Balance as at December 31, 2016
|
|
$
|
59,562
|
|
Net income
|
|
|
1,463
|
|
Other comprehensive loss
|
|
|
146
|
|
|
|
|
|
|
Balance as at March 31, 2017
|
|
$
|
61,171
|
|
|
|
|
|
|
|
(b)
|
Other
Non-Controlling
Interest
|
In 2014,
the Company announced the creation of the Film Fund to
co-finance
a portfolio of 10 original large-format films. The Film Fund, which is intended to be capitalized with up to $50.0 million, will finance
an ongoing supply of original films that the Company believes will be more exciting and compelling than traditional documentaries. The initial investment in the Film Fund was committed to by a third party in the amount of $25.0 million, with
the possibility of contributing additional funds. The Company agreed to contribute $9.0 million to the Film Fund over five years starting in 2014 and sees the Film Fund as a self-perpetuating vehicle designed to generate a continuous, steady
flow of high-quality documentary content. As at March 31, 2017, the Film Fund invested $13.4 million toward the development of original films. The related production, financing and distribution agreement includes put and call rights
relating to change of control of the rights, title and interest in the
co-financed
pictures.
The
following summarizes the movement of the
non-controlling
interest in temporary equity, in the Companys subsidiary for the three months ended March 31, 2017:
|
|
|
|
|
Balance as at December 31, 2016
|
|
$
|
4,980
|
|
Net loss
|
|
|
(2,425
|
)
|
|
|
|
|
|
Balance as at March 31, 2017
|
|
$
|
2,555
|
|
|
|
|
|
|
40
IMAX CORPORATION