Item 1. Financial Statements
(See the accompanying notes, which are an integral part of these Condensed Consolidated Financial Statements)
(See the accompanying notes, which are an integral part of these Condensed Consolidated Financial Statements.)
(See the accompanying notes, which are an integral part of these Condensed Consolidated Financial Statements.)
(See the accompanying notes, which are an integral part of these Condensed Consolidated Financial Statements.)
(See the accompanying notes, which are an integral part of these Condensed Consolidated Financial Statements.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands of U.S. dollars, unless otherwise stated)
(Unaudited)
1. Basis of Presentation
Accounting Principles
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”) and pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from this report, as is permitted by such rules and regulations. In the Company’s opinion, the unaudited Condensed Consolidated Financial Statements reflect all adjustments of a normal recurring nature that are necessary for a fair statement of the results for the interim periods presented. The interim results presented in the Company’s Condensed Consolidated Statements of Operations are not necessarily indicative of results for a full year, particularly in this interim period due to the impacts of the COVID-19 global pandemic (see Note 2).
The Company’s Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements included in the its 2019 Annual Report on Form 10-K (the “2019 Form 10-K”), which should be consulted for a summary of the significant accounting policies utilized by the Company. The Condensed Consolidated Financial Statements are prepared following the same accounting policies disclosed in the Company’s 2019 Form 10-K, except as described in Note 4 below. In the first quarter of 2020, the Company updated certain account names within revenues and costs and expenses applicable to revenues in its Condensed Consolidated Statements of Operations to better describe the nature of its revenue-generating activities and related costs.
Principles of Consolidation
These Condensed Consolidated Financial Statements include the accounts of the Company, except for subsidiaries which have been identified as variable interest entities (“VIEs”) where the Company is not the primary beneficiary. The nature of the Company’s business is such that results of operations for interim periods are not necessarily indicative of full year results. In the opinion of management, the unaudited Condensed Consolidated Financial Statements presented herein reflect all normal and recurring adjustments necessary for a fair presentation of the results for the interim periods presented. All intercompany accounts and transactions, including all unrealized intercompany profits on transactions with equity method investees, have been eliminated.
The Company has interests in ten film production companies, which have been identified as VIEs. The Company is the primary beneficiary of five of these entities as it has the power to direct the activities that most significantly impact the economic performance of the VIE, and it has the obligation to absorb losses or the right to receive benefits from the respective VIE that could potentially be significant. The majority of the assets relating to these production companies are held by the IMAX Original Film Fund (the “Original Film Fund”) as described in Note 17(b). The Company does not consolidate the other five film production companies because it does not have the power to direct their activities and does not have the obligation to absorb the majority of the expected losses or the right to receive expected residual returns. The Company used the equity method of accounting for these entities. A loss in value of an investment other than a temporary decline is recognized as a charge to the Condensed Consolidated Statements of Operations.
Total assets and liabilities of the Company’s consolidated VIEs are as follows:
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Total assets
|
|
$
|
8,573
|
|
|
$
|
9,677
|
|
|
Total liabilities
|
|
$
|
15,563
|
|
|
$
|
15,528
|
|
Total assets and liabilities of the VIE entities which the Company does not consolidate are as follows:
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Total assets
|
|
$
|
447
|
|
|
$
|
448
|
|
|
Total liabilities
|
|
$
|
351
|
|
|
$
|
372
|
|
9
Estimates and Assumptions
In preparing the Company’s Condensed Consolidated Financial Statements, management makes judgments in applying various accounting policies. The areas of policy judgment are consistent with those reported in the Company’s 2019 Form 10-K. In addition, management makes assumptions about the future in deriving critical accounting estimates used in preparing the Condensed Consolidated Financial Statements. As disclosed in the Company’s 2019 Form 10-K, such sources of estimation include estimates used to determine the recoverable amounts of receivables, inventory, film assets, long-lived assets (including assets used to support joint revenue sharing arrangements), goodwill and deferred tax assets, as well as estimates of variable consideration related to future box office performance.
There is significant ongoing uncertainty surrounding the COVID-19 global pandemic (see Note 2) and the extent and duration of the impacts that it may have on box office results, as well as the Company’s customers, suppliers, and employees. There is heightened potential for future credit losses on receivables, inventory write downs, impairments of film assets, impairments of long-lived assets (including the theater system equipment supporting the Company’s joint revenue sharing arrangements), impairments of goodwill, valuation allowances against deferred tax assets, and the reversal of variable consideration receivables that are based on future box office performance. In the current environment, assumptions about box office results, IMAX Theater System installations, and customer creditworthiness have greater variability than normal, which could in the future significantly affect the valuation of the Company’s assets, both financial and non-financial. The Company’s cash flow estimates for certain assets are based on a longer time horizon due to the long-term nature of its underlying contracts, allowing time for a recovery of such assets as theaters reopen in the future. As an understanding of the longer-term impacts of COVID-19 on the Company’s customers and business develops, there is heightened potential for changes in these views over the remainder of 2020.
2. Impact of COVID-19 Pandemic
In late-January 2020, in response to the public health risks associated with the novel coronavirus and the disease that it causes (“COVID-19”), the Chinese government directed exhibitors in China to temporarily close more than 70,000 movie theaters, including all of the approximately 700 IMAX theaters in mainland China. The theaters have been closed since late-January 2020, and have not yet reopened as of the date of this report. On March 11, 2020, due to the worsening public health crisis associated with the novel coronavirus, COVID-19 was characterized as a pandemic by the World Health Organization, and in the following weeks, local, state and national governments instituted stay-at-home orders and restrictions on large public gatherings which have caused movie theaters in countries around the world to temporarily close, including substantially all of the IMAX theaters in those countries. As a result of the theater closures, Hollywood and Chinese movie studios have also postponed the release of multiple films, including many scheduled to be shown in IMAX theaters.
The repercussions of the COVID-19 global pandemic resulted in a significant decrease in the Company’s revenues and earnings in the first quarter of 2020 as gross box office (“GBO”) results declined significantly, the installation of theater systems was delayed, and maintenance services were suspended. During the time period when a significant number of theaters in the IMAX network are closed, the Company has and will continue to experience a significant decline in earnings as it will generate effectively no GBO-based revenue from its joint revenue sharing arrangements and digital remastering services, it will not charge maintenance fees to theater operators, and theater system installations will be delayed. In addition, the Company will also experience delays in collecting payments due under existing theater sale or lease arrangements from its exhibitor partners who may now be facing financial difficulties as a result of the theater closures.
The Company may continue to be significantly impacted by the COVID-19 global pandemic even after some or all theaters are reopened. The global economic impact of COVID-19 has led to record levels of unemployment in certain countries and may lead to lower consumer spending in the near term. The timing of a recovery of consumer behavior and willingness to spend discretionary income on movie-going may delay the Company’s ability to generate significant GBO-based revenue until such time as consumer spending recovers.
In response to uncertainties associated with the COVID-19 pandemic, the Company has taken and is continuing to take significant steps to preserve cash by eliminating non-essential costs, reducing employee hours and deferring all non-essential capital expenditures to minimum levels. The Company has also implemented an active cash management process, which, among other things, requires senior management approval of all outgoing payments. In addition, in the first quarter of 2020, management decided to draw down the $280.0 million in remaining borrowing capacity under its credit facility. Furthermore, the Company is in the process of reviewing and applying for wage subsidies, tax credits and other financial support under the newly enacted COVID-19 relief legislation in the countries in which it operates. However, the legislation and guidance from the authorities continues to evolve and so the amount and timing of support, if any, that the Company could receive is not determinable at this time, and there can be no guarantees that the Company will receive financial support through these programs.
10
As a result of the events and factors described above, the Company performed a quantitative goodwill impairment test and determined that its goodwill was not impaired as of March 31, 2020. The test was performed on a reporting unit level by comparing each unit’s carrying value, including goodwill, to its fair value. The fair value of each reporting unit was assessed using a discounted cash flow model based on management’s revised budget for the year and estimated long-term projections, against which various sensitivity analyses were performed. The precision of these estimates and the likelihood of future changes in these estimates depend on a number of underlying variables and a range of possible outcomes. Actual results may materially differ from management’s estimates, especially due to the uncertainties associated with the COVID-19 pandemic. (See Note 1)
Also, as a result of the events and factors described above, the Company performed a recoverability test of the carrying values of the theater system equipment supporting its joint revenue sharing arrangements, which are recorded within property, plant and equipment. In performing its review of recoverability, the Company estimated the undiscounted future cash flows expected to result from the use of the assets and determined that there was no impairment as of March 31, 2020. The cash flow estimates used in this review are consistent with management’s revised budget for the year and estimated long-term projections, against which various sensitivity analyses were performed. The precision of these estimates and the likelihood of future changes in these estimates depend on a number of underlying variables and a range of possible outcomes. Actual results may materially differ from management’s estimates, especially due to the uncertainties associated with the COVID-19 pandemic. (See Note 1)
3. Recently Issued Accounting Standards Not Yet Adopted
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”). The purpose of ASU 2019-05 is to provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in ASU 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently assessing the impact of ASU 2020-04 on its Condensed Consolidated Financial Statements.
On April 10, 2020, the FASB staff issued a question-and-answer document to address stakeholder questions on the application of the lease accounting guidance for lease concessions related to the effects of the COVID-19 pandemic. The guidance will allow concessions related to the timing of payments, where the total consideration has not changed, to not be accounted for as lease modifications. Instead, any such concessions can be accounted for as if no change was made to the contract or as variable lease payments. The Company is currently assessing the impact of the question-and-answer document on its Condensed Consolidated Financial Statements, and will adopt the guidance in the second quarter of 2020, to the extent applicable.
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 Company’s Condensed Consolidated Financial Statements for the period ended March 31, 2020.
4. Current Expected Credit Losses
In 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASC Topic 326”), which amends previously issued guidance regarding the impairment of financial instruments by creating an impairment model that is based on expected losses rather than incurred losses. The standard requires financial assets measured on the amortized cost basis to be presented at the net amount expected to be collected. The Company’s accounts receivable, financing receivables and variable consideration receivables are within the scope of ASU No. 2016-13. The Company adopted ASU No. 2016-13 and several associated ASUs on January 1, 2020 with no required cumulative-effect adjustment to accumulated deficit.
Accounts Receivable
Accounts receivable principally includes amounts currently due to the Company under theater sale and sales-type lease arrangements, contingent fees earned from theaters operators as a result of box office performance, and fees for theater maintenance services. To a lesser extent, accounts receivable also includes amounts due from movie studios and other content creators for digitally remastering films into IMAX formats, as well as for film distribution and post-production services.
11
In order to mitigate the credit risk associated with accounts receivable, management performs an initial credit evaluation prior to entering into an arrangement with a customer and then regularly monitors the credit quality of each customer through an analysis of collections history and aging. This monitoring process includes meetings on at least a monthly basis to identify credit concerns and potential changes in credit quality classification. A customer may improve their credit quality classification once a substantial payment is made on an overdue balance or when the customer has agreed to a payment plan and payments have commenced in accordance with that plan. Changes in credit quality classification are dependent upon management approval. The Company’s internal credit quality classifications for theater operators are as follows:
|
|
•
|
Good Standing — The theater operator continues to be in good standing as payments and reporting are up to date.
|
|
|
•
|
Credit Watch — The theater operator has demonstrated a delay in payments, but continues to be in active communication with the Company. Theater operators placed on Credit Watch are subject to enhanced monitoring. In addition, depending on the size of the outstanding balance, length of time in arrears and other factors, future transactions may need to be approved by management. These receivables are in better condition than those in the Pre-Approved Transactions Only category, but are not in as good condition as the receivables in the Good Standing category.
|
|
|
•
|
Pre-Approved Transactions Only — The theater operator has demonstrated a delay in payments with little or no communication with the Company. All services and shipments to the theater operator must be reviewed and approved by management. These receivables are in better condition than those in the All Transactions Suspended category, but are not in as good condition as the receivables in the Credit Watch category. In certain situation, depending on the individual facts and circumstances related to each customer, finance income recognition may be suspended for the net investment in lease and financed sale receivable balances for customers in the Pre-Approved Transactions Only category. See below for a discussion of the Company’s net investment in leases and financed sale receivables.
|
|
|
•
|
All Transactions Suspended — The theater operator is severely delinquent, non-responsive or not negotiating in good faith with the Company. Once a theater operator is classified within the All Transactions Suspended category, the theater is placed on nonaccrual status and all revenue recognitions related to the theater are stopped.
|
The ability of the Company to collect its accounts receivable balances is heavily dependent on the viability and solvency of individual theater operators which is significantly influenced by consumer behavior and general economic conditions. Theater operators, or other customers, may experience financial difficulties that could cause them to be unable to fulfill their payment obligations to the Company.
The Company develops its estimate of credit losses by class of receivable and customer type through a calculation that utilizes historical loss rates which are then adjusted for specific receivables that are judged to have a higher than normal risk profile after taking into account management’s internal credit quality classifications, as well as macro-economic and industry risk factors.
The following table summarizes the activity in the allowance for credit losses related to accounts receivable for the three months ended March 31, 2020:
|
|
|
Three Months Ended March 31, 2020
|
|
|
|
|
Theater
Operators
|
|
|
Studios
|
|
|
Other
|
|
|
Total
|
|
|
Balance as at January 1, 2020
|
|
|
3,302
|
|
|
|
893
|
|
|
|
942
|
|
|
|
5,137
|
|
|
Current period provision
|
|
|
3,202
|
|
|
|
3,090
|
|
|
|
99
|
|
|
|
6,391
|
|
|
Write-offs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Recoveries
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Balance as at March 31, 2020
|
|
$
|
6,504
|
|
|
$
|
3,983
|
|
|
$
|
1,041
|
|
|
$
|
11,528
|
|
For the three months ended March 31, 2020, the Company recorded a provision for current expected credit losses of $6.4 million reflecting a reduction in the credit quality of its theater and studio related accounts receivable as a result of the COVID-19 global pandemic. Management’s judgments regarding expected credit losses are based on the facts available to management. Due to the unprecedented nature of the COVID-19 pandemic, its effect on the Company’s customers and their ability to meet their financial obligations to the Company is difficult to predict. As a result, the Company’s judgments and associated estimates of credit losses may ultimately prove, with the benefit of hindsight, to be incorrect. (See Notes 1 and 2)
12
Financing Receivables
Financing receivables are due from theater operators and consist of the Company’s net investment in sales-type leases and receivables associated with financed sales of IMAX Theater Systems. Similar to accounts receivable, management performs an initial credit evaluation prior to entering into an arrangement with a customer and then regularly monitors the credit quality of each customer through an analysis of collections history and aging. This monitoring process includes meetings on at least a monthly basis to identify credit concerns and potential changes in credit quality classification. A customer may improve their credit quality classification once a substantial payment is made on an overdue balance or when the customer has agreed to a payment plan and payments have commenced in accordance with that plan. Changes in credit quality classification are dependent upon management approval. The internal credit quality classifications utilized by the Company for accounts receivable, as described above, are also used for financing receivables.
The ability of the Company to collect its financing receivable balances is heavily dependent on the viability and solvency of individual theater operators which is significantly influenced by consumer behavior and general economic conditions. Theater operators may experience financial difficulties that could cause them to be unable to fulfill their payment obligations to the Company.
The Company develops its estimate of credit losses by class of receivable and customer type through a calculation that utilizes historical loss rates which are then adjusted for specific receivables that are judged to have a higher than normal risk profile after taking into account management’s internal credit quality classifications, as well as macro-economic and industry risk factors.
As at March 31, 2020 and December 31, 2019, financing receivables consist of the following:
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Net investment in leases
|
|
|
|
|
|
|
|
|
|
Gross minimum payments due under sales-type leases
|
|
$
|
17,084
|
|
|
$
|
16,766
|
|
|
Unearned finance income
|
|
|
(937
|
)
|
|
|
(1,005
|
)
|
|
Present value of minimum payments due under sales-type leases
|
|
|
16,147
|
|
|
|
15,761
|
|
|
Allowance for credit losses
|
|
|
(464
|
)
|
|
|
(155
|
)
|
|
Net investment in leases
|
|
|
15,683
|
|
|
|
15,606
|
|
|
Financed sales receivables
|
|
|
|
|
|
|
|
|
|
Gross minimum payments due under financed sales
|
|
|
140,388
|
|
|
|
146,660
|
|
|
Unearned finance income
|
|
|
(31,402
|
)
|
|
|
(33,313
|
)
|
|
Present value of minimum payments due under financed sales
|
|
|
108,986
|
|
|
|
113,347
|
|
|
Allowance for credit losses
|
|
|
(3,557
|
)
|
|
|
(915
|
)
|
|
Net financed sales receivables
|
|
|
105,429
|
|
|
|
112,432
|
|
|
Total financing receivables
|
|
$
|
121,112
|
|
|
$
|
128,038
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financed sales receivables due within one year
|
|
$
|
27,163
|
|
|
$
|
27,595
|
|
|
Net financed sales receivables due after one year
|
|
$
|
78,266
|
|
|
$
|
84,837
|
|
|
Total financed sales receivables
|
|
$
|
105,429
|
|
|
$
|
112,432
|
|
As at March 31, 2020 and December 31, 2019, the weighted-average remaining lease term and weighted-average interest rate associated with the Company’s sales-type lease arrangements and financed sale receivables, as applicable, are as follows:
|
|
|
|
March 31,
|
|
December 31,
|
|
|
|
|
2020
|
|
2019
|
|
Weighted-average remaining lease term (in years)
|
|
|
|
|
|
|
|
|
|
|
|
Sales-type lease arrangements
|
|
|
|
8.2
|
|
|
|
|
8.1
|
|
|
|
Weighted-average interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales-type lease arrangements
|
|
|
|
6.81
|
|
%
|
|
|
6.68
|
|
%
|
|
Financed sales receivables
|
|
|
|
9.04
|
|
%
|
|
|
9.00
|
|
%
|
13
The following tables provide information on the Company’s net investment in leases by credit quality indicator as at March 31, 2020 and December 31, 2019:
|
|
|
By Origination Year
|
|
|
|
|
|
|
As at March 31, 2020
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
Prior
|
|
|
Total
|
|
|
Net investment in leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality classification:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In good standing
|
|
$
|
924
|
|
|
$
|
7,762
|
|
|
$
|
2,977
|
|
|
$
|
964
|
|
|
$
|
—
|
|
|
$
|
2,761
|
|
|
$
|
15,388
|
|
|
Credit Watch
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
88
|
|
|
|
88
|
|
|
Pre-approved transactions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Transactions suspended
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
671
|
|
|
|
671
|
|
|
Total net investment in leases
|
|
$
|
924
|
|
|
$
|
7,762
|
|
|
$
|
2,977
|
|
|
$
|
964
|
|
|
$
|
—
|
|
|
$
|
3,520
|
|
|
$
|
16,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current-period gross write-offs
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Current-period recoveries
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Current-period net write-offs
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By Origination Year
|
|
|
|
|
|
|
As at December 31, 2019
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
Prior
|
|
|
Total
|
|
|
Net investment in leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality classification:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In good standing
|
|
$
|
7,874
|
|
|
$
|
3,045
|
|
|
$
|
989
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,186
|
|
|
$
|
15,094
|
|
|
Credit Watch
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
667
|
|
|
|
667
|
|
|
Pre-approved transactions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Transactions suspended
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total net investment in leases
|
|
$
|
7,874
|
|
|
$
|
3,045
|
|
|
$
|
989
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,853
|
|
|
$
|
15,761
|
|
14
The following tables provide information on the Company’s financed sale receivables by credit quality indicator as at March 31, 2020 and December 31, 2019:
|
|
|
By Origination Year
|
|
|
|
|
|
|
As at March 31, 2020
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
Prior
|
|
|
Total
|
|
|
Financed sales receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality classification:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In good standing
|
|
$
|
1,235
|
|
|
$
|
11,321
|
|
|
$
|
14,233
|
|
|
$
|
15,111
|
|
|
$
|
16,021
|
|
|
$
|
46,339
|
|
|
$
|
104,260
|
|
|
Credit Watch
|
|
|
—
|
|
|
|
331
|
|
|
|
—
|
|
|
|
—
|
|
|
|
306
|
|
|
|
1,454
|
|
|
|
2,091
|
|
|
Pre-approved transactions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
123
|
|
|
|
123
|
|
|
Transactions suspended
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
883
|
|
|
|
733
|
|
|
|
896
|
|
|
|
2,512
|
|
|
Total financed sales receivables
|
|
$
|
1,235
|
|
|
$
|
11,652
|
|
|
$
|
14,233
|
|
|
$
|
15,994
|
|
|
$
|
17,060
|
|
|
$
|
48,812
|
|
|
$
|
108,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current-period gross write-offs
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Current-period recoveries
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Current-period net write-offs
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By Origination Year
|
|
|
|
|
|
|
As at December 31, 2019
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
Prior
|
|
|
Total
|
|
|
Financed sales receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality classification:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In good standing
|
|
$
|
11,981
|
|
|
$
|
14,414
|
|
|
$
|
16,556
|
|
|
$
|
15,208
|
|
|
$
|
—
|
|
|
$
|
44,291
|
|
|
$
|
102,450
|
|
|
Credit Watch
|
|
|
—
|
|
|
|
—
|
|
|
|
637
|
|
|
|
1,687
|
|
|
|
—
|
|
|
|
6,955
|
|
|
|
9,279
|
|
|
Pre-approved transactions
|
|
|
—
|
|
|
|
—
|
|
|
|
250
|
|
|
|
295
|
|
|
|
—
|
|
|
|
285
|
|
|
|
830
|
|
|
Transactions suspended
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
165
|
|
|
|
—
|
|
|
|
623
|
|
|
|
788
|
|
|
Total financed sales receivables
|
|
$
|
11,981
|
|
|
$
|
14,414
|
|
|
$
|
17,443
|
|
|
$
|
17,355
|
|
|
$
|
—
|
|
|
$
|
52,154
|
|
|
$
|
113,347
|
|
The following tables provide an aging analysis for the Company’s net investment in leases and financed sale receivables as at March 31, 2020 and December 31, 2019:
|
|
|
As at March 31, 2020
|
|
|
|
|
Accrued
and
Current
|
|
|
30-89
Days
|
|
|
90+
Days
|
|
|
Billed
|
|
|
Unbilled
|
|
|
Recorded
Receivable
|
|
|
Allowance
for Credit
Losses
|
|
|
Net
|
|
|
Net investment in leases
|
|
$
|
28
|
|
|
$
|
297
|
|
|
$
|
319
|
|
|
$
|
644
|
|
|
$
|
15,503
|
|
|
$
|
16,147
|
|
|
$
|
(464
|
)
|
|
$
|
15,683
|
|
|
Financed sales receivables
|
|
|
842
|
|
|
|
3,230
|
|
|
|
6,005
|
|
|
|
10,077
|
|
|
|
98,909
|
|
|
|
108,986
|
|
|
|
(3,557
|
)
|
|
|
105,429
|
|
|
Total
|
|
$
|
870
|
|
|
$
|
3,527
|
|
|
$
|
6,324
|
|
|
$
|
10,721
|
|
|
$
|
114,412
|
|
|
$
|
125,133
|
|
|
$
|
(4,021
|
)
|
|
$
|
121,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2019
|
|
|
|
|
Accrued
and
Current
|
|
|
30-89
Days
|
|
|
90+
Days
|
|
|
Billed
|
|
|
Unbilled
|
|
|
Recorded
Receivable
|
|
|
Allowance
for Credit
Losses
|
|
|
Net
|
|
|
Net investment in leases
|
|
$
|
30
|
|
|
$
|
68
|
|
|
$
|
251
|
|
|
$
|
349
|
|
|
$
|
15,412
|
|
|
$
|
15,761
|
|
|
$
|
(155
|
)
|
|
$
|
15,606
|
|
|
Financed sales receivables
|
|
|
1,678
|
|
|
|
2,772
|
|
|
|
5,446
|
|
|
|
9,896
|
|
|
|
103,451
|
|
|
|
113,347
|
|
|
|
(915
|
)
|
|
|
112,432
|
|
|
Total
|
|
$
|
1,708
|
|
|
$
|
2,840
|
|
|
$
|
5,697
|
|
|
$
|
10,245
|
|
|
$
|
118,863
|
|
|
$
|
129,108
|
|
|
$
|
(1,070
|
)
|
|
$
|
128,038
|
|
15
The Company considers financing receivables with an aging between 60-89 days as indications of theaters with potential collection concerns. The Company will begin to focus its review on these financing receivables and increase its discussions internally and with the theater regarding payment status. Once a theater’s aging exceeds 90 days, the Company’s policy is to perform an enhanced review to assess collectibility of the theater’s past due accounts. The over 90 days past due category may an indicator of potential impairment as up to 90 days outstanding is considered to be a reasonable time to resolve any issues. Given the potential impacts of the COVID-19 global pandemic on the Company’s customers, management is enhancing its monitoring procedures with respect to overdue receivables.
The following table provides information about the Company’s net investment in leases and financed sale receivables with billed amounts past due for which it continues to accrue finance income as at March 31, 2020 and December 31, 2019:
|
|
|
As at March 31, 2020
|
|
|
|
|
Accrued
and
Current
|
|
|
30-89 Days
|
|
|
90+ Days
|
|
|
Billed
|
|
|
Unbilled
|
|
|
Allowance
for Credit
Losses
|
|
|
Net
|
|
|
Net investment in leases
|
|
$
|
—
|
|
|
$
|
211
|
|
|
$
|
316
|
|
|
$
|
527
|
|
|
$
|
7,721
|
|
|
$
|
(248)
|
|
|
$
|
8,000
|
|
|
Financed sales receivables
|
|
|
264
|
|
|
|
1,737
|
|
|
|
5,805
|
|
|
|
7,806
|
|
|
|
35,032
|
|
|
|
(2,194)
|
|
|
|
40,644
|
|
|
Total
|
|
$
|
264
|
|
|
$
|
1,948
|
|
|
$
|
6,121
|
|
|
$
|
8,333
|
|
|
$
|
42,753
|
|
|
$
|
(2,442)
|
|
|
$
|
48,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2019
|
|
|
|
|
Accrued
and
Current
|
|
|
30-89 Days
|
|
|
90+ Days
|
|
|
Billed
|
|
|
Unbilled
|
|
|
Allowance
for Credit
Losses
|
|
|
Net
|
|
|
Net investment in leases
|
|
$
|
9
|
|
|
$
|
19
|
|
|
$
|
251
|
|
|
$
|
279
|
|
|
$
|
578
|
|
|
$
|
—
|
|
|
$
|
857
|
|
|
Financed sales receivables
|
|
|
1,146
|
|
|
|
1,290
|
|
|
|
5,523
|
|
|
|
7,959
|
|
|
|
29,173
|
|
|
|
—
|
|
|
|
37,132
|
|
|
Total
|
|
$
|
1,155
|
|
|
$
|
1,309
|
|
|
$
|
5,774
|
|
|
$
|
8,238
|
|
|
$
|
29,751
|
|
|
$
|
—
|
|
|
$
|
37,989
|
|
The following table provides information about the Company’s net investment in leases and financed sale receivables that are on nonaccrual status as at March 31, 2020 and December 31, 2019:
|
|
|
As at March 31, 2020
|
|
|
As at December 31, 2019
|
|
|
|
|
Recorded
Receivable
|
|
|
Allowance
for Credit
Losses
|
|
|
Net
|
|
|
Recorded
Receivable
|
|
|
Allowance
for Credit
Losses
|
|
|
Net
|
|
|
Net investment in leases
|
|
$
|
671
|
|
|
$
|
(14
|
)
|
|
$
|
657
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Net financed sales receivables
|
|
|
2,512
|
|
|
|
(1,040
|
)
|
|
|
1,472
|
|
|
|
788
|
|
|
|
(732
|
)
|
|
|
56
|
|
|
Total
|
|
$
|
3,183
|
|
|
$
|
(1,054
|
)
|
|
$
|
2,129
|
|
|
$
|
788
|
|
|
$
|
(732
|
)
|
|
$
|
56
|
|
A theater operator that is classified within the “All Transactions Suspended” category is placed on nonaccrual status and all revenue recognitions related to the theater are stopped. While the 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.
For the three months ended March 31, 2020 and 2019, the Company recognized $78.0 million and $82.0 million, respectively, in finance income related to the net investment in leases with billed amounts past due. For the three months ended March 31, 2020 and 2019, the Company recognized $2.1 million and $2.4 million, respectively, in finance income related to the financed sale receivables with billed amounts past due.
16
The following table summarizes the activity in the allowance for credit losses related to the Company’s net investment in leases and financed sale receivables for the three months ended March 31, 2020 and 2019:
|
|
|
Three Months Ended March 31, 2020
|
|
|
Three Months Ended March 31, 2019
|
|
|
|
|
Net Investment
|
|
|
Financed
|
|
|
Net Investment
|
|
|
Financed
|
|
|
|
|
in Leases
|
|
|
Sales Receivables
|
|
|
in Leases
|
|
|
Sales Receivables
|
|
|
Beginning balance
|
|
$
|
155
|
|
|
$
|
915
|
|
|
$
|
155
|
|
|
$
|
839
|
|
|
Current period provision
|
|
|
309
|
|
|
|
2,642
|
|
|
|
—
|
|
|
|
—
|
|
|
Write-offs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Recoveries
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Ending balance
|
|
$
|
464
|
|
|
$
|
3,557
|
|
|
$
|
155
|
|
|
$
|
839
|
|
For the three months ended March 31, 2020, the Company recorded a provision for current expected credit losses of $3.0 million reflecting a reduction in the credit quality of its theater related financing receivables as a result of the COVID-19 global pandemic. Management’s judgments regarding expected credit losses are based on the facts available to management. Due to the unprecedented nature of the COVID-19 pandemic, its effect on the Company’s customers and their ability to meet their financial obligations to the Company is difficult to predict. As a result, the Company’s judgments and associated estimates of credit losses may ultimately prove, with the benefit of hindsight, to be incorrect. (See Notes 1 and 2)
Variable Consideration Receivable
In sale arrangements, variable consideration may become due to the Company from theater operators if certain annual minimum box office receipt thresholds are exceeded. Such variable consideration is recorded as revenue in the period when the sale is recognized and adjusted in future periods based on actual results and changes in estimates. Variable consideration is only recognized to the extent the Company believes there is not a risk of significant revenue reversal.
The ability of the Company to collect its variable consideration receivables is heavily dependent on the viability and solvency of individual theater operators which is significantly influenced by consumer behavior and general economic conditions. Theater operators may experience financial difficulties that could cause them to be unable to fulfill their payment obligations to the Company.
The Company develops its estimate of credit losses by class of receivable and customer type through a calculation utilizes historical loss rates for financed sale receivables which are then adjusted for specific receivables that are judged to have a higher than normal risk profile after taking into account management’s internal credit quality classifications, as well as macro-economic and industry risk factors.
The following table summarizes the activity in the allowance for credit losses related to variable consideration receivables for the three months ended March 31, 2020:
|
|
|
Three Months Ended March 31, 2020
|
|
|
|
|
Theater
Operators
|
|
|
Balance as at January 1, 2020
|
|
$
|
—
|
|
|
Current period provision
|
|
|
875
|
|
|
Write-offs
|
|
|
—
|
|
|
Recoveries
|
|
|
—
|
|
|
Balance as at March 31, 2020
|
|
$
|
875
|
|
For the three months ended March 31, 2020, the Company recorded a provision for current expected credit losses of $0.9 million reflecting a reduction in the credit quality of its theater related variable consideration receivables as a result of the COVID-19 global pandemic. Management’s judgments regarding expected credit losses are based on the facts available to management. Due to the unprecedented nature of the COVID-19 pandemic, its effect on the Company’s customers and their ability to meet their financial obligations to the Company is difficult to predict. As a result, the Company’s judgments and associated estimates of credit losses may ultimately prove, with the benefit of hindsight, to be incorrect. (See Notes 1 and 2)
17
5. Lease Arrangements
IMAX Corporation as a Lessee:
The Company’s operating lease arrangements principally involve office and warehouse space. Office equipment is generally purchased outright. Leases with an initial term of less than 12 months are not recorded on the Condensed Consolidated Balance Sheet and the related lease expense is recognized on a straight-line basis over the lease term. Most of the Company’s leases include one or more options to renew, with renewal terms that can extend the lease term from one to five years or more. The Company has determined that it is reasonably certain that the renewal options on its warehouse leases will be exercised based on previous history and knowledge, current understanding of future business needs and the level of investment in leasehold improvements, among other considerations. The incremental borrowing rate used in the calculation of the Company’s lease liability is based on the location of each leased property. None of the Company’s leases include options to purchase the leased property. The depreciable life of right-of-use assets and related leasehold improvements are limited by the expected lease term. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company rents or subleases certain office space to third parties, which have a remaining term of less than 12 months and are not expected to be renewed.
For three months ended March 31, 2020 and 2019, the components of lease expense recorded within selling, general and administrative expenses are as follows:
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
Operating lease cost (1)
|
$
|
101
|
|
|
|
$
|
243
|
|
|
|
Amortization of lease assets
|
|
748
|
|
|
|
|
531
|
|
|
|
Interest on lease liabilities
|
|
262
|
|
|
|
|
268
|
|
|
|
Total lease cost
|
$
|
1,111
|
|
|
|
$
|
1,042
|
|
|
|
(1)
|
Includes short-term leases and variable lease costs, which are not significant for the three months ended March 31, 2020 and 2019.
|
For three months ended March 31, 2020 and 2019, supplemental cash flow information related to leases is as follows:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
$
|
|
954
|
|
|
$
|
|
823
|
|
|
Right-of-use assets obtained in exchange for lease obligations
|
|
|
—
|
|
|
|
|
17,515
|
|
|
|
$
|
|
954
|
|
|
$
|
|
18,338
|
|
As at March 31, 2020 and December 31, 2019, supplemental balance sheet information related to leases are as follows:
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Right-of-Use Assets
|
Property, plant and equipment
|
|
$
|
15,554
|
|
|
$
|
16,262
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
Accrued and other liabilities
|
|
$
|
18,035
|
|
|
$
|
18,677
|
|
18
As at March 31, 2020 and December 31, 2019, the weighted-average remaining lease term and weighted-average interest rate associated with the Company’s operating leases are as follows:
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
Weighted-average remaining lease term (years)
|
|
|
8.0
|
|
|
|
8.1
|
|
|
|
Weighted-average discount rate
|
|
|
|
5.90
|
|
%
|
|
5.90
|
|
%
|
As at March 31, 2020, the maturities of the Company’s operating lease liabilities are as follows:
|
|
|
Operating Leases
|
|
|
2020 (nine months remaining)
|
|
$
|
2,720
|
|
|
2021
|
|
|
3,252
|
|
|
2022
|
|
|
2,344
|
|
|
2023
|
|
|
2,228
|
|
|
2024
|
|
|
2,180
|
|
|
Thereafter
|
|
|
10,243
|
|
|
Total lease payments
|
|
$
|
22,967
|
|
|
Less: interest expense
|
|
|
(4,932
|
)
|
|
Present value of operating lease liabilities
|
|
$
|
18,035
|
|
IMAX Corporation as a Lessor
The Company provides IMAX Theater Systems to customers through long-term lease arrangements that for accounting purposes are classified as sales-type leases. Under these arrangements, in exchange for providing the IMAX Theater System, the Company earns fixed upfront and ongoing consideration. Certain arrangements that are legal sales are also classified as sales-type leases as certain clauses within the arrangements limit transfer of title or provide the Company with conditional rights to the system. The customer’s rights under the Company’s sales-type lease arrangements are described in Note 2(n) in the Company’s 2019 Form 10-K. Under the Company’s sales-type lease arrangements, the customer has the ability and the right to operate the hardware components or direct others to operate them in a manner determined by the customer. The Company’s sales-type leases are typically non-cancellable for 10 to 20 years with renewal provisions from inception. Except for those sales arrangements that are classified as sales-type leases, the Company’s leases generally do not contain an automatic transfer of title at the end of the lease term. The Company’s sales-type lease arrangements do not contain a guarantee of residual value at the end of the lease term. The customer is required to pay for executory costs such as insurance and taxes and is required to pay the Company for maintenance and extended warranty generally after the first year of the lease until the end of the lease term. The customer is responsible for obtaining insurance coverage for the IMAX Theater System commencing on the date specified in the arrangement’s shipping terms and ending on the date the IMAX Theater System is returned to the Company.
The Company also provides IMAX Theater systems to customers through joint revenue sharing arrangements. Under the traditional form of these arrangements, in exchange for providing the IMAX system under a long-term lease, the Company earns rent based on a percentage of contingent box office receipts and, in some cases, concession revenues, rather than requiring the customer to pay a fixed upfront fee or annual minimum payments. The Company has assessed the nature of its joint revenue sharing arrangements and concluded that the arrangements contain an operating lease. Under joint revenue sharing arrangements, the customer has the ability and the right to operate the hardware components or direct others to operate them in a manner determined by the customer. The Company’s joint revenue sharing arrangements are typically non-cancellable for 10 years or longer with renewal provisions. Title to equipment under joint revenue sharing arrangements does not transfer to the customer. The Company’s joint revenue sharing arrangements do not contain a guarantee of residual value at the end of the term. The customer is required to pay for executory costs such as insurance and taxes and is required to pay the Company for maintenance and extended warranty throughout the term. The customer is responsible for obtaining insurance coverage for the IMAX Theater System commencing on the date specified in the arrangement’s shipping terms and ending on the date the IMAX Theater System is returned to the Company.
The Company classifies its lease arrangements at inception of the arrangement and, if required, after a modification of the lease arrangement, to determine whether they are sales-type leases or operating leases.
19
6. Inventories
As at March 31, 2020 and December 31, 2019, inventories consist of the following:
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Raw materials
|
|
$
|
35,936
|
|
|
$
|
26,538
|
|
|
Work-in-process
|
|
|
5,738
|
|
|
|
4,608
|
|
|
Finished goods
|
|
|
19,961
|
|
|
|
11,843
|
|
|
|
|
$
|
61,635
|
|
|
$
|
42,989
|
|
When compared to December 31, 2019, inventories increased $18.6 million due to a slowdown in manufacturing, shipments and installation of IMAX Theater Systems at customer sites due to government restrictions in various countries limiting public gatherings as a result of the outbreak of the COVID-19 global pandemic.
At March 31, 2020, inventories include finished goods of $3.3 million (December 31, 2019 — $0.7 million) for which title had passed to the customer and revenue recognition was deferred.
There were no write-downs for excess and obsolete inventory based on current estimates of net realizable value, during the three months ended March 31, 2020 and 2019.
7. Credit Facility and Other Financing Arrangements
As at March 31, 2020 and December 31, 2019, bank indebtedness includes the following:
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Credit Facility
|
|
$
|
300,000
|
|
|
$
|
20,000
|
|
|
Unamortized debt issuance costs
|
|
|
(1,645
|
)
|
|
|
(1,771
|
)
|
|
|
|
$
|
298,355
|
|
|
$
|
18,229
|
|
Credit Facility
The Company has a Fifth Amended and Restated Credit Agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo”), as agent, and a syndicate of lenders party thereto. The Company’s obligations under the Credit Agreement are guaranteed by certain of the Company’s subsidiaries (the “Guarantors”) and are secured by first-priority security interests in substantially all the assets of the Company and the Guarantors.
Under the Credit Agreement, the Company’s revolving borrowing capacity is $300.0 million, and contains an uncommitted accordion feature allowing the Company to further expand its borrowing capacity to $440.0 million or greater, subject to certain conditions, depending on the mix of revolving and term loans comprising the incremental facility. The facility (the “Credit Facility”) matures on June 28, 2023.
In the first quarter of 2020, in response to uncertainties associated with the outbreak of the COVID-19 global pandemic and its impact on the Company’s business, management decided to draw down the remaining available Credit Facility borrowing capacity of $280.0 million, resulting in total outstanding borrowings of $300.0 million. The effective interest rate for the three months ended March 31, 2020 was 2.03% (2019 — 3.57%).
Loans under the Credit Facility bear interest, at the Company’s option, at (i) LIBOR plus a margin ranging from 1.00% to 1.75% per annum; or (ii) the U.S. base rate plus a margin ranging from 0.25% to 1.00% per annum, in each case depending on the Company’s Total Leverage Ratio (as defined in the Credit Agreement). In addition, the Credit Facility has standby fees ranging from 0.25% to 0.38% based upon the Total Leverage Ratio.
20
The Credit Agreement provides that the Company is required to maintain a Senior Secured Net Leverage Ratio (as defined in the Credit Agreement) as of the last day of any Fiscal Quarter (as defined in the Credit Agreement) of no greater than 3.25:1.00. The longer the COVID-19 pandemic and associated protective measures persist, the more likely it becomes, in the absence of other actions by the Company, that it will be unable to maintain compliance with this covenant. In such an event, however, the Company expects to be able to obtain an amendment or waiver from its lenders, refinance the borrowings subject to covenants or take other mitigating actions prior to a potential breach. In addition, the Credit Agreement contains customary affirmative and negative covenants for a transaction of this type, including covenants that limit indebtedness, liens, capital expenditures, asset sales, investments and restricted payments, in each case subject to negotiated exceptions and baskets. The Credit Agreement also contains representations, warranties and event of default provisions customary for a transaction of this type.
The Company was in compliance with all of its requirements at March 31, 2020.
As at March 31, 2020 and December 31, 2019, the Company did not have any letters of credit and advance payment guarantees outstanding under the Credit Facility.
Working Capital Loan
On July 24, 2019, IMAX (Shanghai) Multimedia Technology Co., Ltd. (“IMAX Shanghai”), one of the Company’s majority-owned subsidiaries in China, renewed its unsecured revolving facility for up to 200.0 million Renminbi (approximately $30.0 million U.S. Dollars) to fund ongoing working capital requirements. There were no amounts drawn under the working capital facility at March 31, 2020 and December 31, 2019, and the amounts available for borrowing were 200.0 million Renminbi (approximately $30.0 million U.S. Dollars). The amounts available for borrowing are not subject to a standby fee.
Wells Fargo Foreign Exchange Facility
Within the Credit Facility, the Company is able to purchase foreign currency forward contracts and/or other swap arrangements. The net settlement loss on its foreign currency forward contracts was $2.0 million at March 31, 2020, as the notional value exceeded the fair value of the forward contracts (December 31, 2019 — $0.5 million net settlement gain). As at March 31, 2020, the Company has $44.6 million in notional value of such arrangements outstanding (December 31, 2019 — $36.1 million).
NBC Facility
On October 28, 2019, the Company entered into a $5.0 million facility with the National Bank of Canada (the “NBC Facility”) fully insured by Export Development Canada for use solely in conjunction with the issuance of performance guarantees and letters of credit. The Company did not have any letters of credit and advance payment guarantees outstanding as at March 31, 2020 and December 31, 2019 under the NBC Facility.
8. Commitments, Contingencies and Guarantees
Commitments
In the ordinary course of business, the Company enters into contractual agreements with third parties that include non-cancellable payment obligations, for which it is liable in future periods. These arrangements can include terms binding the Company to minimum payments and/or penalties if it terminates the agreement for any reason other than an event of default as described by the agreement.
Contingencies and guarantees
The Company is involved in lawsuits, claims, and proceedings, including those identified below, which arise in the ordinary course of business. Management is required to assess the likelihood of any adverse judgments or outcomes related to these legal contingencies, as well as potential ranges of probable or reasonably possible losses. The Company will record a provision for a liability when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. The determination of the amount of any liability recorded or disclosed is reviewed at least quarterly based on a careful analysis of each individual exposure with, in some cases, the assistance of outside legal counsel, taking into account the impact of negotiations, settlements, rulings, and other pertinent information related to the case. The amount of liabilities recorded or disclosed for these contingencies may change in the future due changes in management’s judgments resulting from new developments or changes in settlement strategy. Any resulting adjustment to the liabilities recorded by the Company could have a material adverse effect on its results of operations, cash flows, and financial position in the period or periods in which such changes in judgment occur. The Company believes it has adequate provisions for any such matters.
21
(a)In January 2004, the Company and IMAX Theatre Services Ltd., a subsidiary of the Company, commenced an arbitration seeking damages before the International Court of Arbitration of the International Chamber of Commerce (the “ICC”) with respect to the breach by Electronic Media Limited (“EML”) of its December 2000 agreement with the Company. In June 2004, the Company commenced a related arbitration before the ICC against EML’s affiliate, E-City Entertainment (I) PVT Limited (“E-City”). On March 27, 2008, the arbitration panel issued a final award in favor of the Company in the amount of $11.3 million, consisting of past and future rents owed to the Company, plus interest and costs, as well as an additional $2,512 each day in interest from October 1, 2007 until the date the award is paid. In July 2008, E-City commenced a proceeding in Mumbai, India seeking an order that the ICC award may not be recognized in India and on June 10, 2013, the Bombay High Court ruled that it had 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 Court’s judgement and dismissed E-City’s petition. On March 29, 2017, the Company filed an Execution Application in the Bombay High Court seeking to enforce the ICC award against E-City and several related parties. That matter is currently pending. The Company has also taken steps to enforce the ICC final award outside of India. In December 2011, the Ontario Superior Court of Justice issued an order recognizing the final award and requiring E-City to pay the Company $30,000 to cover the costs of the application, and in October 2015, the New York Supreme Court recognized the Canadian judgment and entered it as a New York judgment. The Company intends to continue pursuing its rights and seeking to enforce the award, although no assurances can be given with respect to the ultimate outcome.
(b)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. An arbitration hearing for witness testimony was held during the week of December 14, 2015. At the hearing, Giencourt’s expert identified monetary damages of up to approximately $10.4 million, which Giencourt sought to recover from the Company. The Company asserted a counterclaim against Giencourt for breach of contract and sought to recover lost profits in excess of $24.0 million under the agreements. Subsequently, in December 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 in October 2016. On February 7, 2017, the panel issued a Partial Final Award and on July 21, 2017, the panel issued a Final Award (collectively, 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. In October 2017, the Company filed a petition to vacate the arbitration award in the United States Court for the Southern District of Florida on various grounds, including that the panel exceeded its jurisdiction, and a hearing was held on June 27, 2019. On September 27, 2019, a Magistrate Judge filed a non-binding recommendation that the Company’s petition be dismissed. On October 14, 2019, the Company filed an objection to that recommendation. The Company’s petition to vacate the arbitration award was denied by the District Judge on January 10, 2020. The Company filed an appeal of this decision on February 7, 2020 with the Eleventh Circuit Court of Appeals. 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.
(c)In addition to the matters described above, the Company is currently involved in other legal proceedings or governmental inquiries which, in the opinion of the Company’s management, will not materially affect the Company’s financial position or future operating results, although no assurance can be given with respect to the ultimate outcome of any such proceedings.
(d)In the normal course of business, the Company enters into agreements that may contain features that meet the definition of a guarantee. A guarantee is a contract (including an indemnity) that contingently requires the Company to make payments (either in cash, financial instruments, other assets, shares of its stock or provision of services) to a third party based on (a) changes in an underlying interest rate, foreign exchange rate, equity or commodity instrument, index or other variable, that is related to an asset, a liability or an equity security of the counterparty, (b) failure of another party to perform under an obligating agreement or (c) failure of another third party to pay its indebtedness when due.
Financial Guarantees
The Company has provided no significant financial guarantees to third parties.
Product Warranties
The Company’s accrual for product warranties, which was recorded as part of accrued and other liabilities in the Condensed Consolidated Balance Sheets, was less than $0.1 million and $0.2 million at March 31, 2020 and December 31, 2019, respectively.
22
Director/Officer Indemnifications
The Company’s General By-law contains an indemnification of its directors/officers, former directors/officers and persons who have acted at its request to be a director/officer of an entity in which the Company is a shareholder or creditor, to indemnify them, to the extent permitted by the Canada Business Corporations Act, against expenses (including legal fees), judgments, fines and any amounts actually and reasonably incurred by them in connection with any action, suit or proceeding in which the directors and/or officers are sued as a result of their service, if they acted honestly and in good faith with a view to the best interests of the Company. In addition, the Company has entered into indemnification agreements with each of its directors in order to effectuate the foregoing. The nature of the indemnification prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay to counterparties. The Company has purchased directors’ and officers’ liability insurance. No amount has been accrued in the Condensed Consolidated Balance Sheets as at March 31, 2020 and December 31, 2019, with respect to this indemnity.
Other Indemnification Agreements
In the normal course of the Company’s operations, the Company provides indemnifications to counterparties in transactions such as: IMAX Theater Systems lease and sale agreements and the supervision of installation or servicing of the IMAX Theater Systems; film production, exhibition and distribution agreements; real property lease agreements; and employment agreements. These indemnification agreements require the Company to compensate the counterparties for costs incurred as a result of litigation claims that may be suffered by the counterparty as a consequence of the transaction or the Company’s breach or non-performance under these agreements. While the terms of these indemnification agreements vary based upon the contract, they normally extend for the life of the agreements. A small number of agreements do not provide for any limit on the maximum potential amount of indemnification; however, virtually all of the Company’s system lease and sale agreements limit such maximum potential liability to the purchase price of the system. The fact that the maximum potential amount of indemnification required by the Company is not specified in some cases prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay to counterparties. Historically, the Company has not made any significant payments under such indemnifications and no amounts have been accrued in the 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 sales and sales-type lease arrangements until the related revenue is recognized. These costs and direct advertising and marketing, which are included in costs and expenses applicable to Revenues – Technology Sales, totaled $0.2 million for the three months ended March 31, 2020 (2019 — $0.5 million).
Film exploitation costs, including advertising and marketing, totaled $2.6 million for the three months ended March 31, 2020 (2019 — $4.5 million), and are recorded as incurred in costs and expenses applicable to Revenues – Image Enhancement and Maintenance Services.
Commissions are recognized as costs and expenses applicable to Revenues – Technology Rentals in the month they are earned. These costs totaled $0.2 million for the three months ended March 31, 2020 (2019 — recovery of $0.2 million). Direct advertising and marketing costs for each theater are charged to costs and expenses applicable to Revenues – Technology Rentals as incurred. These costs totaled an expense of $0.3 million for the three months ended March 31, 2020 (2019 — $0.2 million).
Included in selling, general and administrative expenses for the three months ended March 31, 2020 is a loss of $0.7 million (2019 — $0.2 million) for net foreign exchange gains/losses related to the translation of foreign currency denominated monetary assets and liabilities. See Note 16(c) for additional information.
23
|
|
(c)
|
Collaborative Arrangements
|
Joint Revenue Sharing Arrangements
In a joint revenue sharing arrangement, the Company receives a portion of a theater’s box office and in certain arrangements a portion of concession revenues and a small upfront or initial payment, in exchange for placing an IMAX Theater System at the theater operator’s venue. Under joint revenue sharing arrangements, the customer has the ability and the right to operate the hardware components or direct others to operate them in a manner determined by the customer. The Company’s joint revenue sharing arrangements are typically non-cancellable for 10 years or longer with renewal provisions. Title to equipment under joint revenue sharing arrangements generally does not transfer to the customer. The Company’s joint revenue sharing arrangements do not contain a guarantee of residual value at the end of the term. The customer is required to pay for executory costs such as insurance and taxes and is required to pay the Company for maintenance and extended warranty throughout the term. The customer is responsible for obtaining insurance coverage for the IMAX Theater System commencing on the date specified in the arrangement’s shipping terms and ending on the date the IMAX Theater System is returned to the Company.
The Company has signed traditional and hybrid joint revenue sharing agreements with 41 exhibitors for a total of 1,220 IMAX Theater Systems, of which 867 theaters were included in the IMAX network as at March 31, 2020, the terms of which are similar in nature, rights and obligations. The accounting policy for the Company’s joint revenue sharing arrangements is disclosed in Note 2(n) of the Company’s 2019 Form 10-K.
Amounts attributable to transactions arising between the Company and its customers under joint revenue sharing arrangements are included in Revenue — Technology sales and Revenue — Technology Rentals and for the three months ended March 31, 2020 amounted to $6.8 million (2019 — $20.4 million).
IMAX DMR
In an IMAX DMR arrangement, the Company transforms conventional motion pictures into the Company’s large screen format, allowing the release of Hollywood content to the global IMAX theater network. In a typical IMAX DMR film arrangement, the Company receives a percentage of the box office receipts from studios in exchange for converting commercial films into IMAX DMR format and distributing them through the IMAX network. In recent years, the percentage of gross box office receipts earned in IMAX DMR arrangements has averaged approximately 12.5%, except for within Greater China, where the Company receives a lower percentage of net box office receipts for certain Hollywood films.
For the three months ended March 31, 2020, the majority of IMAX DMR revenue was earned from the exhibition of 13 IMAX DMR films (2019 – 24) throughout the IMAX theater network. The accounting policy for the Company’s IMAX DMR arrangements is disclosed in Note 2(n) of the Company’s 2019 Form 10-K.
Amounts attributable to transactions arising between the Company and its customers under IMAX DMR arrangements are included in Revenues – Image enhancement and maintenance services and for the three months ended March 31, 2020 amounted to $10.6 million (2019 — $28.0 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. In some cases, the Company obtains exclusive theatrical distribution rights to the film. Under these arrangements, both parties contribute funding to the Company’s partly-owned subsidiary for the production and distribution of the film and for associated exploitation costs.
As at March 31, 2020, the Company has two significant co-produced film arrangements which represent the VIE total assets balance of $8.6 million and liabilities balance of $15.6 million and three other co-produced film arrangements, the terms of which are similar. The accounting policies relating to co-produced film arrangements are disclosed in Notes 2(a) and 2(n) of the Company’s 2019 Form 10-K.
For the three months ended March 31, 2020, expenses totaling $0.2 million (2019 — $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 – Image Enhancement and Maintenance Services.
24
For the three months ended March 31, 2020 and 2019, no revenues or costs and expenses applicable to revenues attributable to this collaborative arrangement have been recorded in Revenue – Image Enhancement and Maintenance Services and costs and expenses applicable to Revenues – Image Enhancement and Maintenance Services.
10. Condensed Consolidated Statements of Cash Flows Supplemental Information
|
|
(a)
|
Depreciation and amortization are comprised of the following:
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
Film assets
|
$
|
|
2,975
|
|
|
$
|
|
3,695
|
|
|
Property, plant and equipment:
|
|
|
|
|
|
|
|
|
|
|
Joint revenue sharing arrangements
|
|
|
6,932
|
|
|
|
|
5,605
|
|
|
Other property, plant and equipment
|
|
|
2,900
|
|
|
|
|
2,936
|
|
|
Other intangible assets
|
|
|
1,661
|
|
|
|
|
1,425
|
|
|
Other assets
|
|
|
651
|
|
|
|
|
433
|
|
|
Deferred financing costs
|
|
|
133
|
|
|
|
|
117
|
|
|
|
$
|
|
15,252
|
|
|
$
|
|
14,211
|
|
|
|
(b)
|
Write-downs are comprised of the following:
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
Film assets (1)
|
$
|
|
2,302
|
|
|
$
|
|
—
|
|
|
Other assets (2)
|
|
|
1,151
|
|
|
|
|
—
|
|
|
Joint revenue sharing arrangements (3)
|
|
|
944
|
|
|
|
|
180
|
|
|
Property, plant and equipment
|
|
|
6
|
|
|
|
|
86
|
|
|
|
$
|
|
4,403
|
|
|
$
|
|
266
|
|
|
(1)
|
The Company reviewed the carrying value of certain film assets as a result of lower than expected revenue being generated during the year and revised expectations for future revenues based on the latest information available. In the first quarter of 2020, an impairment of $2.3 million (2019 — $nil) was recorded based on the carrying value of the films as compared to the estimated future box office and related revenues that are ultimately be generated by their exploitation.
|
|
(2)
|
In the three months ended March 31, 2020, the Company recorded a $1.0 million write-down of content-related assets which became impaired in the period.
|
|
(3)
|
In the three months ended March 31, 2020, the Company recorded charges of $0.9 million in cost of sales applicable to technology rentals principally related to the write-down of xenon-based digital systems which were upgraded by customers to laser-based digital systems and taken out of service. In the three months ended March 31, 2019, the Company recorded a charge of $0.1 million in cost of sales applicable to technology rentals and less than $0.1 million in revenue applicable to technology rentals upon the upgrade of xenon-based digital systems under joint revenue sharing arrangements to laser-based digital systems.
|
|
|
(c)
|
Significant non-cash investing and financing activities are comprised of the following:
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
Net accruals related to:
|
|
|
|
|
|
|
|
|
|
|
Investment in joint revenue sharing arrangements
|
$
|
|
(1,226
|
)
|
|
$
|
|
200
|
|
|
Acquisition of other intangible assets
|
|
|
20
|
|
|
|
|
12
|
|
|
Purchases of property, plant and equipment
|
|
|
(22
|
)
|
|
|
|
(401
|
)
|
|
|
$
|
|
(1,228
|
)
|
|
$
|
|
(189
|
)
|
25
11. Income Taxes
The Company’s effective tax rate for the three months ended March 31, 2020, is -35.8% and differs from the Canadian statutory tax rate of 26.2%, primarily due to permanent book to tax differences, investment and other tax credits, jurisdictional tax rate differences, managements estimates for favourable or unfavourable resolution of various tax examinations and the reversal of the indefinite reinvestment assertion.
For the quarter ended March 31, 2020, the Company recorded income tax expense of $15.5 million (2019 — $3.6 million). In the first quarter of 2020, management completed a reassessment of its strategy with respect to the most efficient means of deploying the Company’s capital resources globally. Based on the results of this reassessment, management concluded that the historical earnings of certain foreign subsidiaries in excess of amounts required to sustain business operations would no longer be indefinitely reinvested. As a result, the Company recognized a deferred tax liability of $19.7 million in the first quarter of 2020 for the applicable foreign withholding taxes associated with these historical earnings, which will become payable upon the repatriation of any such earnings. Cash held outside of Canada as at March 31, 2020 was $89.5 million (December 31, 2019 — $90.1 million), of which $67.8 million was held in the People’s Republic of China (“PRC”) (December 31, 2019 — $67.6 million).
In addition, in the first quarter of 2020, the Company recognized income tax expense of $4.8 million (2019 — $0.4 million) related to a provision for uncertain tax positions and an expense of $0.7 million (2019 — $0.3 million) recognized to reduce the tax benefit available on share-based compensation costs recognized in the period.
As at March 31, 2020, the Company had net deferred income tax assets after valuation allowance of $38.0 million (December 31, 2019 — $23.9 million), which consists of a gross deferred income tax asset of $38.2 million (December 31, 2019 — $24.1 million), against which the Company is carrying a $0.2 million valuation allowance (December 31, 2019 — $0.2 million), and a deferred income tax liability of $19.7 million (December 31, 2019 — $nil). During the three months ended March 31, 2020, deferred tax assets increased by $14.1 million due to losses recognized in the period. The recoverability of these deferred tax assets is subject to certain levels of future taxable income and is subject to the uncertainties associated with accounting estimates, as discussed in Note 1. Based on a review of the projected future earnings of the Company there was no change in management’s estimates of the recoverability of the Company’s deferred tax assets.
The Company’s Chinese subsidiary had taken a deduction for certain share-based compensation issued by the Chinese subsidiary’s parent company in a prior period and had recognized a related deferred tax asset of $1.4 million (December 31, 2019 — $1.4 million). Chinese regulatory authorities responsible for capital and exchange controls will need to review and approve the proposed settlement of these transactions before they can be completed. There may be a requirement for future investment of funds into China in order to secure the deduction. Should the Company proceed, any such future investment would come from existing capital invested in the IMAX China group of companies being redeployed amongst the IMAX China group of companies, including the Chinese subsidiary.
|
|
(b)
|
Income Tax Effect on Other Comprehensive (Loss) Income
|
The income tax benefit (expense) included in the Company’s other comprehensive (loss) income are related to the following items:
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Unrealized change in cash flow hedging instruments
|
|
$
|
749
|
|
|
$
|
(83
|
)
|
|
Realized change in cash flow hedging instruments upon settlement
|
|
|
(94
|
)
|
|
|
(18
|
)
|
|
Unrecognized actuarial gain on defined benefit plan
|
|
|
40
|
|
|
|
—
|
|
|
|
|
$
|
695
|
|
|
$
|
(101
|
)
|
26
12. Capital Stock
|
|
(a)
|
Share-Based Compensation
|
For the three months ended March 31, 2020, share-based compensation expense totaled $4.2 million (2019 — $4.4 million) and is reflected in the following accounts in the Condensed Consolidated Statements of Operations:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
Cost and expenses applicable to revenues
|
$
|
|
400
|
|
|
$
|
|
374
|
|
|
Selling, general and administrative expenses
|
|
|
3,707
|
|
|
|
|
3,903
|
|
|
Research and development
|
|
|
85
|
|
|
|
|
85
|
|
|
|
$
|
|
4,192
|
|
|
$
|
|
4,362
|
|
The following table summarizes the Company’s share-based compensation expense by each award type:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
Stock Options
|
$
|
|
513
|
|
|
$
|
|
1,907
|
|
|
Restricted Share Units
|
|
|
2,902
|
|
|
|
|
2,110
|
|
|
Performance Stock Units
|
|
|
279
|
|
|
|
|
—
|
|
|
IMAX China Stock Options
|
|
|
85
|
|
|
|
|
66
|
|
|
IMAX China Long Term Incentive Plan Restricted Share Units
|
|
|
405
|
|
|
|
|
279
|
|
|
IMAX China Long Term Incentive Plan Performance Stock Units
|
|
|
8
|
|
|
|
|
—
|
|
|
|
$
|
|
4,192
|
|
|
$
|
|
4,362
|
|
Included in the above table is an expense of $0.1 million in the three months ended March 31, 2020 (2019 — $nil) related to restricted share units granted to a certain advisor of the Company.
Stock Option Summary
The following table summarizes the activity under the Company’s Stock Option Plan (“SOP”) and IMAX Amended and Restated Long Term Incentive Plan (“IMAX LTIP”) for the three months ended March 31:
|
|
|
Number of Shares
|
|
|
|
Weighted Average Exercise
Price Per Share
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Stock options outstanding, beginning of period
|
|
|
5,732,209
|
|
|
|
5,465,046
|
|
|
$
|
|
26.82
|
|
|
$
|
|
27.63
|
|
|
Granted
|
|
|
—
|
|
|
|
1,006,931
|
|
|
|
|
—
|
|
|
|
|
20.66
|
|
|
Exercised
|
|
|
—
|
|
|
|
(31,235
|
)
|
|
|
|
—
|
|
|
|
|
20.36
|
|
|
Forfeited
|
|
|
(14,876
|
)
|
|
|
(79,055
|
)
|
|
|
|
21.78
|
|
|
|
|
23.71
|
|
|
Expired
|
|
|
(772,665
|
)
|
|
|
(304,472
|
)
|
|
|
|
27.03
|
|
|
|
|
25.94
|
|
|
Cancelled
|
|
|
(591
|
)
|
|
|
—
|
|
|
|
|
20.85
|
|
|
|
|
—
|
|
|
Stock options outstanding, end of period
|
|
|
4,944,077
|
|
|
|
6,057,215
|
|
|
|
|
26.80
|
|
|
|
|
26.64
|
|
|
Stock options exercisable, end of period
|
|
|
4,331,193
|
|
|
|
3,886,592
|
|
|
|
|
27.32
|
|
|
|
|
28.74
|
|
Stock options are no longer granted under the Company’s previous approved SOP.
27
Restricted Share Units (“RSU”) Summary
The following table summarizes the activity in respect of RSUs issued under the IMAX LTIP for the three months ended March 31:
|
|
|
Number of Awards
|
|
|
Weighted Average Grant Date
Fair Value Per Share
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
2020
|
|
|
|
2019
|
|
|
RSUs outstanding, beginning of period
|
|
|
1,065,347
|
|
|
|
1,033,871
|
|
|
$
|
|
23.17
|
|
|
$
|
|
25.70
|
|
|
Granted
|
|
|
937,303
|
|
|
|
540,535
|
|
|
|
|
15.65
|
|
|
|
|
22.61
|
|
|
Vested and settled
|
|
|
(295,063
|
)
|
|
|
(228,445
|
)
|
|
|
|
23.96
|
|
|
|
|
27.46
|
|
|
Forfeited
|
|
|
(15,521
|
)
|
|
|
(90,900
|
)
|
|
|
|
21.64
|
|
|
|
|
23.77
|
|
|
RSUs outstanding, end of period
|
|
|
1,692,066
|
|
|
|
1,255,061
|
|
|
|
|
18.88
|
|
|
|
|
24.18
|
|
Performance Stock Units Summary
In the first quarter of 2020, the Company expanded its share-based compensation program to include performance stock units (“PSUs”). The Company grants two types of PSU awards, one which vests based on a combination of employee service and the achievement of certain EBITDA-based targets and one which vests based on a combination of employee service and the achievement of certain stock-price targets. These awards vest over a three-year performance period. The fair value of PSUs with EBITDA-based targets is equal to the closing price on date of grant or the average closing price of the Company’s common stock for five days prior to the date of grant. The fair value of PSUs with stock-price return in relation to a market index is determined on the grant date using a Monte Carlo simulation, which is a valuation model that takes into account the likelihood of achieving the stock-price targets embedded in the award (“Monte Carlo Model”). The compensation expense attributable to each type of PSU is recognized on a straight-line basis over the requisite service period.
The fair value determined by the Monte Carlo Model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The compensation expense is fixed on the date of grant based on the dollar value granted.
The amount and timing of compensation expense recognized for PSUs with EBITDA-based targets is dependent upon management's assessment of the likelihood and timing of achieving these targets. If, as a result of management’s assessment, it is projected that a greater number of PSUs will vest than previously anticipated, a life-to-date adjustment to increase compensation expense is recorded in the period such determination is made. Conversely, if, as a result of management’s assessment, it is projected that a lower number of PSUs will vest than previously anticipated, a life-to-date adjustment to decrease compensation expense is recorded in the period such determination is made.
Compensation expense is not adjusted for estimated, forfeitures, but is instead adjusted based upon the actual forfeiture of the award.
The following table summarizes the activity in respect of PSUs issued under the IMAX LTIP for the three months ended March 31:
|
|
|
Number of Awards
|
|
|
Weighted Average Grant Date
Fair Value Per Share
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
2020
|
|
|
|
2019
|
|
|
Granted
|
|
|
359,784
|
|
|
|
—
|
|
|
|
|
15.74
|
|
|
|
|
—
|
|
|
PSUs outstanding, end of period
|
|
|
359,784
|
|
|
|
—
|
|
|
|
|
15.74
|
|
|
|
|
—
|
|
Issuer Purchases of Equity Securities
In 2017, the Company’s Board of Directors approved a new $200.0 million common stock share repurchase program, which expires on June 30, 2020. 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, 2020, the Company repurchased 2,484,123 shares of its common stock at an average price of $14.72 per share, excluding commissions. During the three months ended March 31, 2019, the Company did not repurchase any share of its common stock.
28
In 2019, IMAX China announced that its shareholders granted its Board of Directors a general mandate authorizing the Board, subject to applicable laws, to repurchase shares of IMAX China in an amount not to exceed 10% of the total number of issued shares as at June 6, 2019 (35,605,560 shares). The share repurchase program expires on the 2020 annual general meeting of IMAX China on June 11, 2020. The repurchases may be made in the open market or through other means permitted by applicable laws. IMAX China has no obligation to repurchase its shares and the share repurchase program may be suspended or discontinued by IMAX China at any time. During the three months ended March 31, 2020, IMAX China repurchased 480,600 shares of its common stock (2019 — 709,800) at an average price of HKD 14.42 per share (U.S. $1.85) (2019 — HKD 19.47 per share (U.S. $2.48)).
The total number of shares purchased during the three months ended March 31, 2020 does not include 200,000 common shares (2019 — 400,000 common shares), purchased in the administration of employee share-based compensation plans, at an average price of $15.43 per share (2019 — $22.98 per share).
As at March 31, 2020, the IMAX LTIP trustee held 91,957 shares (December 31, 2019 — 187,020 shares) purchased for $1.4 million (December 31, 2019 — $4.0 million) in the open market to be issued upon the settlement of employee share-based compensation. 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.
|
|
(b)
|
Net (Loss) Income Per Share
|
The following table reconciles the denominator of the basic and diluted weighted average share computations:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
Weighted average number of common shares (000's):
|
|
|
|
|
|
|
|
|
|
|
Issued and outstanding, beginning of period
|
|
|
61,176
|
|
|
|
|
61,434
|
|
|
Weighted average number of shares repurchased, net of shares
issued during the period
|
|
|
(758
|
)
|
|
|
|
(57
|
)
|
|
Weighted average number of shares used in computing basic
income per share
|
|
|
60,418
|
|
|
|
|
61,377
|
|
|
Assumed exercise of stock options, RSUs and PSUs, net of shares
assumed repurchased, if dilutive
|
|
|
—
|
|
|
|
|
182
|
|
|
Weighted average number of shares used in computing diluted
income per share
|
|
|
60,418
|
|
|
|
|
61,559
|
|
The calculation of diluted weighted average shares outstanding for the three months ended March 31, 2020 excludes 6,995,927 shares (2019 — 6,647,056 shares) that are issuable upon the vesting of 1,692,066 RSUs (2019 — 639,739 RSUs), 359,784 PSUs (2019 — nil PSUs) and the exercise of 4,944,077 stock options (2019 — 6,007,317 stock options), as the impact would be antidilutive.
29
13. Revenue from Contracts with Customers
(a) Disaggregated Information About Revenue
The following tables summarize the Company’s revenues by type and reportable segment for the three months ended March 31, 2020 and 2019:
|
|
Three Months Ended
|
|
|
|
March 31, 2020
|
|
|
|
Revenue from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracts with Customers
|
|
|
Revenue from
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
Consideration
|
|
|
Variable
Consideration
|
|
|
Lease
Arrangements
|
|
|
Finance Income
|
|
|
Total
|
|
|
Technology sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX Systems
|
$
|
|
2,243
|
|
|
$
|
|
897
|
|
|
$
|
|
—
|
|
|
$
|
|
—
|
|
|
$
|
|
3,140
|
|
|
Joint Revenue Sharing Arrangements, fixed fees
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
770
|
|
|
|
|
—
|
|
|
|
|
770
|
|
|
Other Theater Business
|
|
|
1,263
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
1,263
|
|
|
Other sales(1)
|
|
|
489
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
489
|
|
|
|
|
|
3,995
|
|
|
|
|
897
|
|
|
|
|
770
|
|
|
|
|
—
|
|
|
|
|
5,662
|
|
|
Image enhancement and maintenance services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX DMR
|
|
|
—
|
|
|
|
|
10,629
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
10,629
|
|
|
IMAX Maintenance
|
|
|
7,370
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
7,370
|
|
|
Film Post-Production
|
|
|
1,611
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
1,611
|
|
|
Film Distribution
|
|
|
—
|
|
|
|
|
883
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
883
|
|
|
Other
|
|
|
—
|
|
|
|
|
228
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
228
|
|
|
|
|
|
8,981
|
|
|
|
|
11,740
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
20,721
|
|
|
Technology rentals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint Revenue Sharing Arrangements, contingent rent
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
5,971
|
|
|
|
|
—
|
|
|
|
|
5,971
|
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
5,971
|
|
|
|
|
—
|
|
|
|
|
5,971
|
|
|
Finance income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX Systems
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
2,548
|
|
|
|
|
2,548
|
|
|
Total
|
$
|
|
12,976
|
|
|
$
|
|
12,637
|
|
|
$
|
|
6,741
|
|
|
$
|
|
2,548
|
|
|
$
|
|
34,902
|
|
30
|
|
Three Months Ended
|
|
|
|
March 31, 2019
|
|
|
|
Revenue from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracts with Customers
|
|
|
Revenue from
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
Consideration
|
|
|
Variable
Consideration
|
|
|
Lease
Arrangements
|
|
|
Finance Income
|
|
|
Total
|
|
|
Technology sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX Systems
|
$
|
|
8,164
|
|
|
$
|
|
2,181
|
|
|
$
|
|
—
|
|
|
$
|
|
—
|
|
|
$
|
|
10,345
|
|
|
Joint Revenue Sharing Arrangements, fixed fees
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
2,539
|
|
|
|
|
—
|
|
|
|
|
2,539
|
|
|
Other Theater Business
|
|
|
1,626
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
1,626
|
|
|
Other sales(1)
|
|
|
690
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
690
|
|
|
|
|
|
10,480
|
|
|
|
|
2,181
|
|
|
|
|
2,539
|
|
|
|
|
—
|
|
|
|
|
15,200
|
|
|
Image enhancement and maintenance services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX DMR
|
|
|
—
|
|
|
|
|
27,950
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
27,950
|
|
|
IMAX Maintenance
|
|
|
12,951
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
12,951
|
|
|
Film Post-production
|
|
|
1,947
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
1,947
|
|
|
Film Distribution
|
|
|
—
|
|
|
|
|
715
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
715
|
|
|
Other(1)
|
|
|
|
|
|
|
|
584
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
584
|
|
|
|
|
|
14,898
|
|
|
|
|
29,249
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
44,147
|
|
|
Technology rentals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint Revenue Sharing Arrangements, contingent rent
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
18,044
|
|
|
|
|
—
|
|
|
|
|
18,044
|
|
|
Other(1)
|
|
|
—
|
|
|
|
|
24
|
|
|
|
|
102
|
|
|
|
|
—
|
|
|
|
|
126
|
|
|
|
|
|
—
|
|
|
|
|
24
|
|
|
|
|
18,146
|
|
|
|
|
—
|
|
|
|
|
18,170
|
|
|
Finance income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX Systems
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
2,681
|
|
|
|
|
2,681
|
|
|
Total
|
$
|
|
25,378
|
|
|
$
|
|
31,454
|
|
|
$
|
|
20,685
|
|
|
$
|
|
2,681
|
|
|
$
|
|
80,198
|
|
|
(1)
|
Other sales include New Business Initiatives.
|
(See Note 2 for information on the current and anticipated impacts of the COVID-19 pandemic on the Company’s revenues.)
(b) Deferred Revenue
The Company’s arrangements include a requirement for it to provide maintenance services over the life of the arrangement, subject to a consumer price index adjustment each year. In circumstances where customers prepay the entire term’s maintenance fee, payments are due to the Company for the years after its extended warranty and maintenance obligations expire. Payments upon renewal each year are either prepaid or made in arrears and can vary in frequency from monthly to annually. At March 31, 2020, $20.9 million of consideration has been deferred in relation to outstanding maintenance services to be provided on existing maintenance contracts (December 31, 2019 — $17.7 million). The maintenance revenue is recognized evenly over the contract term which coincides with the maintenance services being provided. In the event of customer default, any payments made by the customer may be retained by the Company.
In instances where the Company receives consideration prior to satisfying its performance obligations are satisfied, the recognition of revenue is deferred. The majority of the deferred revenue balance relates to payments received by the Company for IMAX Theater Systems where control of the system has not transferred to the customer. The deferred revenue balance related to an individual theater increases as progress payments are made and is then derecognized when control of the system is transferred to the customer. Recognition dates are variable and depend on numerous factors, including some outside of the Company’s control.
31
14. Segment Reporting
The Company’s Chief Executive Officer (“CEO”) is its Chief Operating Decision Maker (“CODM”), as such term is defined under U.S. GAAP. The CODM, along with other members of management, assesses segment performance based on segment revenues and gross margins. Selling, general and administrative expenses, research and development costs, amortization of intangibles, receivables provisions (recoveries), certain write-downs, interest income, interest expense and tax (provision) recovery are not allocated to the segments.
The Company has the following reportable segments: (i) IMAX DMR; (ii) Joint Revenue Sharing Arrangements; (iii) IMAX Systems, (iv) IMAX Maintenance; (v) Other Theater Business; (vi) New Business Initiatives; (vii) Film Distribution; and (viii) Film Post-production. The Company organizes its reportable segments into the following four categories, identified by the nature of the product sold or service provided:
|
|
(i)
|
IMAX Technology Network, which earns revenue based on contingent box office receipts and includes the IMAX DMR segment and contingent rent from the Joint Revenue Sharing Arrangement (“JRSA”) segment;
|
|
|
(ii)
|
IMAX Technology Sales and Maintenance, which includes results from the IMAX Systems, IMAX Maintenance and Other Theater Business segments, as well as fixed revenues from the JRSA segment;
|
|
|
(iii)
|
New Business Initiatives, which is a segment that includes activities related to the exploration of new lines of business and new initiatives outside of the Company’s core business; and
|
|
|
(iv)
|
Film Distribution and Post-production, which includes activities related to the distribution of films primarily for the Company’s institutional theater partners (through the Film Distribution segment) and the provision of film post-production and quality control services (through the Film Post-production segment).
|
The Company is presenting information at a disaggregated level to provide more relevant information to readers.
Refer to Item 2 of the Company’s 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.
32
The following table sets forth the breakdown of revenue and gross margin by category for the three months ended March 31, 2020:
|
(In thousands of U.S. dollars)
|
|
Revenue(1)
|
|
|
Gross Margin(4)
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
IMAX Technology Network
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX DMR
|
|
$
|
10,629
|
|
|
$
|
27,950
|
|
|
$
|
4,443
|
|
|
$
|
19,775
|
|
|
Joint revenue sharing arrangements, contingent rent
|
|
|
5,971
|
|
|
|
18,044
|
|
|
|
(1,618
|
)
|
|
|
11,935
|
|
|
|
|
|
16,600
|
|
|
|
45,994
|
|
|
|
2,825
|
|
|
|
31,710
|
|
|
IMAX Technology Sales and Maintenance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX Systems (2)
|
|
|
5,688
|
|
|
|
13,026
|
|
|
|
3,176
|
|
|
|
7,052
|
|
|
Joint revenue sharing arrangements, fixed fees
|
|
|
770
|
|
|
|
2,539
|
|
|
|
179
|
|
|
|
295
|
|
|
IMAX Maintenance
|
|
|
7,370
|
|
|
|
12,951
|
|
|
|
759
|
|
|
|
5,281
|
|
|
Other Theater Business (3)
|
|
|
1,263
|
|
|
|
1,626
|
|
|
|
610
|
|
|
|
475
|
|
|
|
|
|
15,091
|
|
|
|
30,142
|
|
|
|
4,724
|
|
|
|
13,103
|
|
|
New Business Initiatives
|
|
|
478
|
|
|
|
834
|
|
|
|
361
|
|
|
|
619
|
|
|
Film Distribution and Post-production
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film Distribution
|
|
|
883
|
|
|
|
715
|
|
|
|
(2,158
|
)
|
|
|
(710
|
)
|
|
Post-production
|
|
|
1,611
|
|
|
|
1,947
|
|
|
|
223
|
|
|
|
685
|
|
|
|
|
|
2,494
|
|
|
|
2,662
|
|
|
|
(1,935
|
)
|
|
|
(25
|
)
|
|
|
|
|
34,663
|
|
|
|
79,632
|
|
|
|
5,975
|
|
|
|
45,407
|
|
|
Other
|
|
|
239
|
|
|
|
566
|
|
|
|
(889
|
)
|
|
|
(267
|
)
|
|
Total
|
|
$
|
34,902
|
|
|
$
|
80,198
|
|
|
$
|
5,086
|
|
|
$
|
45,140
|
|
|
(1)
|
The Company’s largest customer represented 14.4% of total revenues for the three months ended March 31, 2020 (2019 —18.9%).
|
|
(2)
|
Includes initial payments and the present value of fixed minimum payments from sales and sales-type lease arrangements of IMAX Theater Systems, and the present value of estimates of variable consideration from sales of IMAX Theater Systems. To a lesser extent, also includes finance income associated with these revenue streams.
|
|
(3)
|
Principally includes after-market sales of IMAX projection system parts and 3D glasses
|
|
(4)
|
IMAX DMR gross margin includes marketing costs of $2.4 million for the three months ended March 31, 2020 (2019 — $3.9 million). JRSA gross margin includes advertising, marketing and commission expense of $0.5 million for the three months ended March 31, 2020 (2019 — $0.1 million). IMAX Systems gross margin includes marketing and commission costs of $0.2 million for the three months ended March 31, 2020 (2019 — $0.5 million). Film Distribution segment gross margin includes marketing expense of $0.2 million for the three months ended March 31, 2020 (2019 — expense of $0.6 million).
|
33
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 remastered 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,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
12,965
|
|
|
$
|
24,293
|
|
|
Asia (excluding Greater China)
|
|
|
5,860
|
|
|
|
8,790
|
|
|
Greater China
|
|
|
5,269
|
|
|
|
26,681
|
|
|
Western Europe
|
|
|
4,557
|
|
|
|
8,443
|
|
|
Russia & the CIS
|
|
|
1,566
|
|
|
|
1,688
|
|
|
Latin America
|
|
|
1,527
|
|
|
|
2,653
|
|
|
Canada
|
|
|
931
|
|
|
|
1,872
|
|
|
Rest of the World
|
|
|
2,227
|
|
|
|
5,778
|
|
|
Total
|
|
$
|
34,902
|
|
|
$
|
80,198
|
|
No single country in the Rest of the World, Western Europe, Latin America and Asia (excluding Greater China) comprises more than 10% of the Company’s total revenue.
15. Employee's Pension and Postretirement Benefits
The Company has an unfunded defined benefit supplemental executive retirement plan (the “SERP”) covering Richard L. Gelfond, its CEO. The accounting for the SERP assumes that Mr. Gelfond will receive a lump sum payment of $20.3 million six months after retirement at the end of the current term of his employment agreement (December 31, 2022), although Mr. Gelfond has not informed the Company that he intends to retire at that time.
As at March 31, 2020 and December 31, 2019, the Company’s projected benefit obligation and unfunded status related to the SERP are as follows:
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Projected benefit obligation:
|
|
|
|
|
|
|
|
|
|
Obligation, beginning of period
|
|
$
|
18,840
|
|
|
$
|
17,977
|
|
|
Prior Service cost
|
|
|
—
|
|
|
$
|
456
|
|
|
Interest cost
|
|
|
95
|
|
|
|
564
|
|
|
Actuarial gain
|
|
|
—
|
|
|
|
(157
|
)
|
|
Obligation, end of period and unfunded status
|
|
$
|
18,935
|
|
|
$
|
18,840
|
|
The accumulated benefit obligation for the SERP was $18.9 million at March 31, 2020 (December 31, 2019 —$18.8 million). For the three months ended March 31, 2020 and 2019, the Company recorded interest cost of $0.1 million related to the SERP. The Company expects to recognize interest costs of $0.3 million related to the SERP during the remainder of 2020. No contributions are expected to be made for the SERP during the remainder of 2020.
|
|
(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, 2020, the Company contributed and recorded expense of $0.3 million (2019 — $0.4 million) to its Canadian defined contribution plan and $0.2 million (2019 —$0.2 million) to its defined contribution employee plan under Section 401(k) of the U.S. Internal Revenue Code.
34
|
|
(c)
|
Postretirement Benefits – Executives
|
The Company has an unfunded postretirement plan for Mr. Gelfond and Bradley J. Wechsler, Chairman of the Company’s 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. As at March 31, 2020, the Company’s postretirement benefits obligation under this plan is $0.6 million (December 31, 2019 — $0.7 million). For the three months ended March 31, 2020, the Company has recorded expense of less than $0.1 million (2019 — less than $0.1 million) related to this plan.
|
|
(d)
|
Postretirement Benefits – Canadian Employees
|
The Company has an unfunded postretirement plan for its Canadian employees meeting specific eligibility requirements. The Company will provide eligible participants, upon retirement, with health and welfare benefits. As at March 31, 2020, the Company’s postretirement benefits obligation under this plan is $1.5 million (December 31, 2019 — $1.6 million). For the three months ended March 31, 2020, the Company has recorded expense of $0.1 million (2019 — less than $0.1 million) related to this plan.
|
|
(e)
|
Deferred Compensation Benefit Plan
|
The Company maintained a nonqualified deferred compensation benefit plan (the “Retirement Plan”) covering the former CEO of IMAX Entertainment and Senior Executive Vice President of the Company. Under the terms of his Retirement Plan with the Company, the Retirement Plan will vest in full if he incurs a separation from service (as defined therein). In the fourth quarter of 2018, he incurred a separation from service, and as such, his Retirement Plan benefits became fully vested as at December 31, 2018 and the accelerated costs were recognized and reflected in the executive transition costs line on the consolidated statement of operations. As at March 31, 2020, the Company had a funded benefit obligation recorded of $3.6 million (December 31, 2019 — $3.6 million). The Company did not recognize any additional expenses in the three months ended March 31, 2020 and 2019.
16. Financial Instruments
|
|
(a)
|
Cash and Cash Equivalent
|
The Company maintains cash with various major financial institutions. The Company’s cash is invested with highly rated financial institutions.
|
|
(b)
|
Fair Value Measurements
|
The carrying values of the Company’s cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities due within one year approximate fair values due to the short-term maturity of these instruments. The Company’s other financial instruments are comprised of the following:
|
|
|
As at March 31, 2020
|
|
|
As at December 31, 2019
|
|
|
|
|
Carrying
Amount
|
|
|
Estimated
Fair Value
|
|
|
Carrying
Amount
|
|
|
Estimated
Fair Value
|
|
|
Level 1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents(1)
|
|
$
|
352,277
|
|
|
$
|
352,277
|
|
|
$
|
109,484
|
|
|
$
|
109,484
|
|
|
Equity securities (3)
|
|
|
11,132
|
|
|
|
11,132
|
|
|
|
15,685
|
|
|
|
15,685
|
|
|
Level 2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financed sales receivables(2)
|
|
$
|
105,429
|
|
|
$
|
105,849
|
|
|
$
|
112,432
|
|
|
$
|
111,441
|
|
|
Net investment in sales-type leases (2)
|
|
|
15,683
|
|
|
|
15,418
|
|
|
|
15,606
|
|
|
|
15,309
|
|
|
Equity securities(1)
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
1,000
|
|
|
Foreign exchange contracts — designated forwards(3)
|
|
|
(1,972
|
)
|
|
|
(1,972
|
)
|
|
|
530
|
|
|
|
530
|
|
|
Bank indebtedness - under the Credit Facility(1)
|
|
|
(300,000
|
)
|
|
|
(300,000
|
)
|
|
|
(20,000
|
)
|
|
|
(20,000
|
)
|
|
(1)
|
Recorded at cost, which approximates fair value.
|
|
(2)
|
Estimated based on discounting future cash flows at currently available interest rates with comparable terms.
|
|
(3)
|
Value determined using quoted prices in active markets.
|
35
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 significant transfers in or out of the Company’s Level 3 assets during the three and three months ended March 31, 2020 and 2019.
|
|
(c)
|
Foreign Exchange Risk Management
|
The Company is exposed to market risk from changes in foreign currency rates. A majority of the Company’s revenues is denominated in U.S. dollars while a 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 81 different countries, unfavourable exchange rates between applicable local currencies and the U.S. dollar affect the Company’s reported gross box-office and revenues, further impacting the Company’s results of operations. The Company’s policy is to not use any financial instruments for trading or other speculative purposes.
The Company entered into a series of foreign currency forward contracts to manage the Company’s risks associated with the volatility of foreign currencies. Certain of these foreign currency forward contracts met the criteria required for hedge accounting under the Derivatives and Hedging Topic of the FASB ASC at inception, and continue to meet hedge effectiveness tests at March 31, 2020 (the “Foreign Currency Hedges”), with settlement dates throughout 2020 and 2021. 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. The Company currently has cash flow hedging instruments associated with selling, general and administrative expenses and capital expenditures. For foreign currency cash flow hedging instruments related to selling, general and administrative expenses, the effective portion of the gain or loss in a hedge of a forecasted transaction is reported in other comprehensive income and reclassified to the Condensed Consolidated Statements of Operations when the forecasted transaction occurs. For foreign currency cash flow hedging instruments related to capital expenditures, the effective portion of the gain or loss in a hedge of a forecasted transaction is reported in other comprehensive income and reclassified to property, plant and equipment on the balance sheet when the forecasted transaction occurs. 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 Company’s Condensed Consolidated Financial Statements:
Notional value of foreign exchange contracts:
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts — Forwards
|
|
$
|
44,571
|
|
|
$
|
36,052
|
|
Fair value of derivatives in foreign exchange contracts:
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
Balance Sheet Location
|
|
2020
|
|
|
2019
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts — Forwards
|
|
Other assets
|
|
$
|
106
|
|
|
$
|
602
|
|
|
|
|
Accrued and other liabilities
|
|
|
(2,078
|
)
|
|
|
(72
|
)
|
|
|
|
|
|
$
|
(1,972
|
)
|
|
$
|
530
|
|
36
Derivatives in Foreign Currency Hedging relationships are as follows:
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Foreign exchange contracts
|
|
Derivative (Loss) Gain
|
|
|
|
|
|
|
|
|
|
— Forwards
|
|
Recognized in OCI
|
|
$
|
(2,860
|
)
|
|
$
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Derivative (Loss) Gain
|
|
Three Months Ended March 31,
|
|
|
|
|
Reclassified from AOCI
|
|
2020
|
|
|
2019
|
|
|
Foreign exchange contracts
|
|
Selling, general and
|
|
|
|
|
|
|
|
|
|
— Forwards
|
|
administrative expenses
|
|
$
|
(341
|
)
|
|
$
|
(306
|
)
|
|
|
|
Property, plant and equipment
|
|
|
—
|
|
|
|
(13
|
)
|
|
|
|
Inventory
|
|
|
(17
|
)
|
|
|
—
|
|
|
|
|
|
|
$
|
(358
|
)
|
|
$
|
(319
|
)
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Foreign exchange contracts
|
|
Derivative Loss Recognized In
|
|
|
|
|
|
|
|
|
|
— Forwards
|
|
and Out of OCI
|
|
$
|
(36
|
)
|
|
$
|
—
|
|
The Company's estimated net amount of the existing losses as at March 31, 2020 is $1.8 million, which is expected to be reclassified to earnings within the next twelve months.
|
|
(d)
|
Investments in Equity Securities
|
As at March 31, 2020, the Condensed Consolidated Balance Sheets includes $11.1 million (December 31, 2019 — $15.7 million) of investments in equity securities.
On January 17, 2019, IMAX China (Hong Kong), Limited, a wholly-owned subsidiary of IMAX China, as an investor entered into a cornerstone investment agreement with Maoyan Entertainment (“Maoyan”) (as the issuer) and Morgan Stanley Asia Limited (as a sponsor, underwriter and the underwriters’ representative). Pursuant to this agreement, IMAX China (Hong Kong), Limited agreed to invest $15.2 million to subscribe for a certain number of shares of Maoyan at the final offer price pursuant to the global offering of the share capital of Maoyan, and this investment would be subject to a lock-up period of six months following the date of the global offering. On February 4, 2019, Maoyan completed its global offering, upon which, IMAX China (Hong Kong), Limited became a less than 1% shareholder in Maoyan. This investment is classified as an equity security, with a readily determinable market value through the Hong Kong Stock Exchange. The changes in fair value are recorded in the Change in fair value of equity investment line item in the Company’s Condensed Consolidated Statement of Operations. As at March 31, 2020, the value of the Company’s investment in Maoyan was $10.1 million (December 31, 2019 — $14.6 million). For the three months ended March 31, 2020, the Company has recorded a net unrealized loss of $4.5 million (2019 — gain of $2.5 million).
The Company has an investment of $1.0 million (December 31, 2019 — $1.0 million) in the shares of an exchange traded fund. This investment is classified as an equity investment.
As at March 31, 2020, the Company held investments 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, 2020 (December 31, 2019 — $1.0 million) and is recorded in Other Assets.
37
17. Non-Controlling Interests
|
|
(a)
|
IMAX China Non-Controlling Interest
|
The Company indirectly owns approximately 69.71% of IMAX China Holding, Inc. (“IMAX China”), whose shares trade on the Hong Kong Stock Exchange. IMAX China remains a consolidated subsidiary of the Company. The balance of non-controlling interest in IMAX China as at March 31, 2020 is $79.5 million. The net loss attributable to non-controlling interest in IMAX China for the three months ended March 31, 2020 is $9.6 million.
|
|
(b)
|
Other Non-Controlling Interest
|
The Company’s Original Film Fund was established in 2014 to co-finance a portfolio of 10 original large-format films. The initial investment in the Original Film Fund was committed to by a third party in the amount of $25.0 million, with the possibility of contributing additional funds. The Company has contributed $9.0 million to the Original Film Fund since 2014 and has reached its maximum contribution. The Company sees the Original Film Fund as a vehicle designed to generate a continuous, steady flow of high-quality documentary content. As at March 31, 2020, the Original Film Fund has invested $22.3 million toward the development of original films. The related production, financing and distribution agreement includes put and call rights relating to change of control of the rights, title and interest in the co-financed pictures.
The Company also established its VR Fund among the Company, its subsidiary IMAX China and other strategic investors to help finance the creation of interactive VR content experiences for use across all VR platforms, including in the pilot IMAX VR Centers. The VR Fund helped finance the production of one interactive VR experience, which debuted exclusively in the pilot IMAX VR Centers in November 2017 before being made available to other VR platforms. In December 2018, the Company announced that it had decided to close its remaining VR locations and write-off certain VR content investments. The Company has also decided to dissolve the VR Fund and not actively pursue any additional VR opportunities.
The following summarizes the movement of the non-controlling interest in temporary equity, in the Company’s subsidiary for the three months ended March 31, 2020:
|
Balance as at December 31, 2019
|
|
$
|
5,908
|
|
|
Net loss
|
|
|
(408
|
)
|
|
Balance as at March 31, 2020
|
|
$
|
5,500
|
|
18. Exit costs, restructuring charges and associated impairments
In 2018, the Company performed a strategic review of its business and decided to exit from certain non-core businesses or initiatives, which included closing its VR locations. In addition, as part of management’s efforts to decrease costs, the Company reduced certain functions and realigned resources. During the three months ended March 31, 2019, the Company recognized $0.9 million of charges associated with these actions in its Condensed Consolidated Statements of Operations, consisting of restructuring charges and costs to exit leases. Restructuring charges relate to the Company’s corporate unit and are comprised of employee severance costs including benefits and share-based compensation, costs of consolidating facilities and contract termination costs.
.
38