What changed in this filing

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Item 1. Financial Statements

2020-07-28 compared with 2020-04-30 · 421 added, 269 removed, 737 unchanged (48% of the section changed)

1 unchanged sentence

The following unaudited Condensed Consolidated Financial Statements are filed as part of this Report:

Condensed Consolidated Balance Sheets as at March 31, 2020 and December 31, 2019

Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019

Condensed Consolidated Statements of Comprehensive (Loss) Income for the three months ended March 31, 2020 and 2019

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019

Condensed Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2020 and 2019

Condensed Consolidated Balance Sheets as at June 30, 2020 and December 31, 2019

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019

Condensed Consolidated Statements of Comprehensive (Loss) Income for the three and six months ended June 30, 2020 and 2019

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019

Condensed Consolidated Statements of Shareholders’ Equity for the three and six months ended June 30, 2020 and 2019

Notes to Condensed Consolidated Financial Statements

37 unchanged sentences

Three Months Ended

Six Months Ended

Technology sales

6 unchanged sentences

Technology rentals

(Margin loss) gross margin

Selling, general and administrative expenses

5 unchanged sentences

(Loss) income from operations

Change in fair value of equity securities

Gain (loss) in fair value of equity securities

Retirement benefits non-service expense

2 unchanged sentences

(Loss) income before taxes

Income tax expense

Income tax benefit (expense)

Equity in losses of investees, net of tax

2 unchanged sentences

Net (loss) income attributable to common shareholders

Net (loss) income per share attributable to common shareholders -

basic and diluted:

Net (loss) income per share attributable to common shareholders - basic and diluted:

Net (loss) income per share — basic and diluted

4 unchanged sentences

Three Months Ended

Six Months Ended

Net (loss) income

Unrealized net (loss) gain from cash flow hedging instruments

Unrealized net gain (loss) from cash flow hedging instruments

Realized net loss from cash flow hedging instruments

1 unchanged sentence

Defined benefit and postretirement benefit plans

Other comprehensive (loss) income, before tax

Income tax benefit (expense) related to other comprehensive (loss) income

Other comprehensive (loss) income, net of tax

Other comprehensive income (loss), before tax

Income tax (expense) benefit related to other comprehensive (loss) income

Other comprehensive income (loss), net of tax

Comprehensive (loss) income

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(In thousands of U.S.

Three Months Ended

Cash provided by (used in):

Six Months Ended

Cash (used in) provided by:

Operating Activities

3 unchanged sentences

Credit loss expense

Deferred income tax expense

Share and other non-cash compensation

Deferred income tax (benefit) expense

Share-based and other non-cash compensation

Unrealized foreign currency exchange loss (gain)

Change in fair value of equity securities

Loss in fair value of equity securities

Equity in losses of investees

Investment in film assets

Changes in other non-cash operating assets and liabilities

Net cash provided by (used in) operating activities

Changes in assets and liabilities:

Accounts receivable

Deferred revenue

Changes in other operating assets and liabilities

Net cash (used in) provided by operating activities

Investing Activities

5 unchanged sentences

Financing Activities

Increase in bank indebtedness

Repayment of bank indebtedness

Increase in credit facility borrowings

Repayment of credit facility borrowings

Credit facility amendment fees paid

Settlement of restricted share units and options

4 unchanged sentences

Repurchase of common shares

Net cash provided by financing activities

Issuance of subsidiary shares to non-controlling interests (net of return on capital)

Dividends paid to non-controlling interests

Net cash provided by (used in) financing activities

Effects of exchange rate changes on cash

7 unchanged sentences

Three Months Ended

Six Months Ended

Adjustments to capital stock:

14 unchanged sentences

Common shares repurchased, IMAX China

Stock options exercised from treasury shares purchased on open market

Balance, end of period

6 unchanged sentences

Balance, beginning of period

Other comprehensive (loss) income, net of tax

Other comprehensive income (loss), net of tax

Balance, end of period

2 unchanged sentences

Net (loss) income attributable to non-controlling interests

Other comprehensive (loss) income, net of tax

Other comprehensive income (loss), net of tax

Dividends paid to non-controlling shareholders

Balance, end of period

12 unchanged sentences

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).

(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.

3 unchanged sentences

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.

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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.

The Company uses the equity method of accounting for these entities, which are not material to the Company’s Condensed Consolidated Financial Statements.

A loss in value of an investment that is other than temporary 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:

Total liabilities

Total assets and liabilities of the VIE entities which the Company does not consolidate are as follows:

Total liabilities

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.

The areas of policy judgment are consistent with those reported in the Company’s 2019 Form 10-K, with the exception of the adoption of the estimate of current expected credit losses that became effective January 1, 2020, which also involves significant judgment and estimation, and is described in Note 4 below.

In addition, management makes assumptions about the Company’s future operating results and cash flows in deriving critical accounting estimates used in preparing the Condensed Consolidated Financial Statements.

joint revenue sharing arrangements), goodwill and deferred tax assets, as well as estimates of variable consideration related to future box office performance.

To date, the Company’s operations have been significantly impacted by the COVID-19 pandemic, as described in Note 2.

There continues to be significant ongoing uncertainty surrounding the extent and duration of the impacts that the pandemic will have on box office results and the installation of IMAX Theater Systems, 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.

The Company’s cash flow estimates for testing the recoverability of certain long-lived assets are based on a longer time horizon due to the long-term nature of its underlying contracts, allowing time for a recovery of the cash flows associated with the underlying assets groups, which management has factored into its estimates.

The accuracy of management’s estimates is dependent, in part, on the timing of the reopening of theaters in the IMAX network, and on the release of new films by production studios.

These theater reopening and film release scenarios are highly uncertain and have been factored into management’s cash flow estimates.

As an understanding of the longer-term impacts of COVID-19 on the Company’s customers and business develops, there is a heightened potential for changes in management’s estimates over the remainder of 2020.

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.

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 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 postponed the theatrical release of multiple films, including many scheduled to be shown in IMAX theaters, while other films have been released directly to streaming platforms.

As of the date of this report, stay-at-home orders have been lifted in many countries and movie theaters are gradually reopening with reduced capacities, physical distancing requirements, and other safety measures.

Subsequent to June 30, 2020, approximately 40 % of the theaters in the IMAX commercial multiplex network have begun to report gross box office (“GBO”) results in July.

These theaters span across 40 countries and include the Domestic, Greater China and Rest of World markets.

The repercussions of the COVID-19 global pandemic have resulted in a significant decrease in the Company’s revenues, earnings and operating cash flows during the three and six months ended June 30, 2020 as GBO results declined significantly, the installation of certain theater systems was delayed, and maintenance services were generally 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 and operating cash flows as it is generating significantly lower than normal levels of GBO-based revenue from its joint revenue sharing arrangements and digital remastering services, it is unable to provide normal maintenance services to any of the theaters that remain closed, and while some installation activity is continuing, certain theater system installations have, and may continue to be delayed.

In addition, the Company has experienced and may continue to experience delays in collecting payments due under existing theater sale or lease arrangements from its exhibitor partners who are now facing financial difficulties as a result of the theater closures.

T he 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.

The global economic impact of COVID-19 has led to record levels of unemployment in certain countries, which has led to, and may continue to result in, lower consumer spending.

The timing and extent of a recovery of consumer behavior and willingness to spend discretionary income on movie-going may delay the Company’s ability to generate significant GBO-based revenue until such time as consumer behavior normalizes and 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.

As a result of the events and factors described above, the Company perform ed a quantitative goodwill impairment test and determined that its goodwill was no t 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.

In addition, in the first quarter of 2020, the Company drew down the $ 280.0 million in available borrowing capacity under its credit facility, which was then amended in June 2020 to, among other things, suspend the senior secured net leverage ratio financial covenant in the underlying credit agreement through the first quarter of 2021

(see Note 7) .

Furthermore, the Company has applied for wage subsidies , tax credits and other financial support under the newly enacted COVID-19 relief legislation in the countries in which it operates .

The Company receive d approximately $ 2.2 million in July 2020 under the Canada Emergency Wage Subsidy program and expects to receive approximately $ 1.0 million under the U.S.

CARES Act, both of which were recognized in the second quarter of 2020 as reduction s to S elling, G eneral and A dministrative E xpenses ( $ 2.9 million) and C osts and E xpenses A pplicable to R evenues ( $ 0.3 million) in the Condensed Consolidated Statements of Operations .

The Company will continue to review and apply for additional subsidies and credits for the remaining terms of these programs , where applicable.

Consistent with the first quarter of 2020, the Company performed a quantitative goodwill impairment test taking into account the latest available information and determined that its goodwill was no t impaired as of June 30, 2020.

As of that date, the Company’s total Goodwill was $ 39.0 million, of which $ 19.0 million relates to the IMAX Systems reporting unit, $ 13.6 million relates to the Joint Revenue Sharing Arrangement reporting unit, and $ 6.4 million relates to the IMAX Maintenance reporting unit .

The impairment 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 estimated long-term projections, against which various sensitivity analyses were performed.

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.

In the second quarter of 2020, the Company also updated its recoverability tests 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 reviews 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 the date of each test.

The cash flow estimates used in these reviews are consistent with management’s estimated long-term projections, against which various sensitivity analyses were performed.

These estimates are highly uncertain due to the COVID-19 pandemic, therefore management’s estimated cash flows factor in a number of underlying variables and ranges of possible cash flow scenarios.

Actual results may materially differ from management’s estimates, especially due to the uncertainties associated with the COVID-19 pandemic .

(See Note 1.)

If business conditions deteriorate further, or should they remain depressed for a prolonged period of time, management’s estimates of operating results and future cash flows for the IMAX Systems and Joint Revenue Sharing Arrangements reporting units may be insufficient to support the goodwill assigned to them, thus requiring impairment charges.

The Company will continue to evaluate the recoverability of goodwill at the reporting unit level on an annual basis as of the beginning of its fourth fiscal quarter and whenever events or changes in circumstances indicate there may be a potential impairment.

Estimates related to future expected credit losses (Note 4) and deferred tax assets (Note 11) could also be materially impacted by changes in estimates in the future.

(See Note 1.)

Recently Issued Accounting Standards Not Yet Adopted

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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.

Current Expected Credit Losses

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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

Balance as at January 1, 2020

The following table summarizes the activity in the allowance for credit losses related to accounts receivable for the three and six months ended June 30, 2020:

Three Months Ended June 30, 2020

Six Months Ended June 30, 2020

Beginning balance

Current period provision

Balance as at March 31, 2020

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.

Foreign exchange

Ending balance

For the three and six months ended June 30, 2020, the Company recorded provisions for current expected credit losses of $ 1.3 million and $ 7.7 million, respectively, reflecting a reduction in the credit quality of its theater and studio related accounts receivable, which management believes is primarily related to the COVID-19 global pandemic.

For the three months ended June 30, 2020, the reductions to the provisions for the Theater Operators and Other categories are principally due to decreases in the underlying receivable balances.

Management’s judgments regarding expected credit losses are based on the facts available to management and involve estimates about the future.

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.

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As at March 31, 2020 and December 31, 2019, financing receivables consist of the following:

As at June 30, 2020 and December 31, 2019, financing receivables consist of the following:

Net investment in leases

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Total financed sales receivables

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:

As at June 30, 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:

Weighted-average remaining lease term (in years)

3 unchanged sentences

Financed sales receivables

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:

The following tables provide information on the Company’s net investment in leases by credit quality indicator as at June 30, 2020 and December 31, 2019:

By Origination Year

As at March 31, 2020

As at June 30, 2020

Net investment in leases:

15 unchanged sentences

Total net investment in leases

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:

The following tables provide information on the Company’s financed sale receivables by credit quality indicator as at June 30, 2020 and December 31, 2019:

By Origination Year

As at March 31, 2020

As at June 30, 2020

Financed sales receivables:

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Total financed sales receivables

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

The following tables provide an aging analysis for the Company’s net investment in leases and financed sale receivables as at June 30, 2020 and December 31, 2019:

As at June 30, 2020

Net investment in leases

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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.

G iven the potential impacts of the COVID-19 global pandemic on the Company’s customers , management is enhanc ing 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

The over 90 days past due category may be an indicator of potential impairment as up to 90 days outstanding is considered to be a reasonable time to resolve any issues.

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.

As at June 30, 2020

Net investment in leases

3 unchanged sentences

Financed sales receivables

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

The following table provides information about the Company’s net investment in leases and financed sale receivables that are on nonaccrual status as at June 30, 2020 and December 31, 2019:

As at June 30, 2020

As at December 31, 2019

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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.

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

For the three and six months ended June 30, 2020, the Company recognized $ 0.1 million and $ 0.2 million, respectively (2019 — $ 0.1 million and $ 0.2 million, respectively) in finance income related to the net investment in leases with billed amounts past due.

For the three and six months ended June 30, 2020, the Company recognized $ 0.9 million and $ 3.0 million, respectively (2019 —$ 2.1 million and $ 4.6 million, respectively) in finance income related to the financed sale receivables with billed amounts past due.

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 and six months ended June 30, 2020 and 2019:

Three Months Ended June 30, 2020

Six Months Ended June 30, 2020

Net Investment

4 unchanged sentences

Current period provision

Foreign exchange

Ending balance

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.

Three Months Ended June 30, 2019

Six Months Ended June 30, 2019

Net Investment

Sales Receivables

Beginning balance

Ending balance

For the three and six months ended June 30, 2020, the Company recorded a provision for current expected credit losses of $ 0.2 million and $ 3.1 million, respectively, reflecting a reduction in the credit quality of its theater related financing receivables, which management believes is primarily related to the COVID-19 global pandemic.

Management’s judgments regarding expected credit losses are based on the facts available to management and involve estimates about the future.

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.

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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

Balance as at January 1, 2020

The Company develops its estimate of credit losses by class of receivable and customer type through a calculation utilizing 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 and six months ended June 30, 2020 :

Three Months Ended June 30, 2020

Six Months Ended June 30, 2020

Beginning balance

Current period provision

Balance as at March 31, 2020

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.

Ending balance

For the six months ended June 30, 2020, the Company recorded a provision of $ 0.9 million for current expected credit losses, reflecting a reduction in the credit quality of its theater related variable consideration receivables, which management believes is primarily related to the COVID-19 global pandemic.

Management’s judgments regarding expected credit losses are based on the facts available to management and involve estimates about the future.

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.

5 unchanged sentences

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.

Leases with an initial term of less than 12 months are not recorded on the Condensed Consolidated Balance Sheets and the related lease expense is recognized on a straight-line basis over the lease term.

Most of the Company’s leases include one or more options to renew, with renewal terms that can extend the lease term from one to five years or more.

The Company has determined that it is reasonably certain that the renewal options on its warehouse leases will be exercised based on previous history and knowledge, current understanding of future business needs and the level of investment in leasehold improvements, among other considerations.

The Company has determined that it is reasonably certain that the renewal options on its warehouse leases will be exercised based on previous history, its current understanding of future business needs and its level of investment in leasehold improvements, among other factors.

The incremental borrowing rate used in the calculation of the Company’s lease 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 depreciable lives of right-of-use assets and related leasehold improvements are limited by the expected lease term.

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company rents or subleases certain office space to third parties, which have a remaining term of less than 12 months and are not expected to be renewed.

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

For three and six months ended June 30, 2020 and 2019, the components of lease expense recorded within Selling, General and Administrative expenses are as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Operating lease cost (1)

2 unchanged sentences

Total lease cost

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

Includes short-term leases and variable lease costs, which are not significant for the three and six months ended June 30, 2020 and 2019.

For three and six months ended June 30, 2020 and 2019, supplemental cash flow information related to leases is as follows:

Six Months Ended

Cash paid for amounts included in the measurement of lease liabilities

Right-of-use assets obtained in exchange for lease obligations

As at March 31, 2020 and December 31, 2019, supplemental balance sheet information related to leases are as follows:

As at June 30, 2020 and December 31, 2019, supplemental balance sheet information related to leases is as follows:

Right-of-Use Assets

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Accrued and other liabilities

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:

As at June 30, 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:

Weighted-average remaining lease term (years)

Weighted-average discount rate

As at March 31, 2020, the maturities of the Company’s operating lease liabilities are as follows:

As at June 30, 2020, the maturities of the Company’s operating lease liabilities are as follows:

Operating Leases

2020 (nine months remaining)

2020 (six months remaining)

Total lease payments

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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 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.

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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.

As at March 31, 2020 and December 31, 2019, inventories consist of the following:

The guidance allows 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.

In the second quarter of 2020, the Company adopted the FASB relief guidance and elected to account for any such lease concessions as if no change was made to the underlying contracts.

The adoption of this guidance did not have a material effect on the Company’s Condensed Consolidated Financial Statements.

As at June 30, 2020 and December 31, 2019, inventories consist of the following:

Raw materials

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Finished goods

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.

When compared to December 31, 2019, inventories increased by $ 17.2 million due to delays 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 COVID-19 global pandemic.

At June 30, 2020, inventories include finished goods of $ 4.0 million (December 31, 2019 — $ 0.7 million) for which title had passed to the customer, but the criteria for revenue recognition were not met as of the balance sheet date.

During the three and six months ended June 30, 2020, the Company recognized write-downs of $ 0.1 million for excess and obsolete inventory based on current estimates of net realizable value.

(2019 — $nil).

Credit Facility and Other Financing Arrangements

As at March 31, 2020 and December 31, 2019, bank indebtedness includes the following:

As at June 30, 2020 and December 31, 2019, bank indebtedness includes the following:

Credit Facility

Working Capital Facility

Unamortized debt issuance costs

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;

Credit Agreement

The Company has a credit agreement, the Fifth Amended and Restated Credit Agreement, with Wells Fargo Bank, National Association (“Wells Fargo”), as agent, and a syndicate of lenders party thereto (the “Credit Agreement”).

The Company’s obligations under the Credit Agreement are guaranteed by certain of its subsidiaries (the “Guarantors”) and are secured by first-priority security interests in substantially all the assets of the Company and the Guarantors.

The facility provided by the Credit Agreement (the “Credit Facility”) matures on June 28, 2023 .

The Credit Agreement has a revolving borrowing capacity of $ 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.

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, the Company drew down the $ 280.0 million in available borrowing capacity under the Credit Facility, resulting in total outstanding borrowings of $ 300.0 million.

The Credit Agreement contains a covenant that requires the Company to maintain a Senior Secured Net Leverage Ratio (as defined in the Credit Agreement), as at the last day of any Fiscal Quarter (as defined in the Credit Agreement) of no greater than 3.25 :1.00.

In addition, the Credit Agreement contains customary affirmative and negative covenants, 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 customary representations, warranties and event of default provisions.

On June 10, 2020, the Company entered into the First Amendment to the Credit Agreement (the “Amendment”), which, among other things, (i) suspends the Senior Secured Net Leverage Ratio covenant through the first quarter of 2021, (ii) re-establishes the Senior Secured Net Leverage Ratio covenant thereafter, provided that for subsequent quarters that such covenant is tested, as applicable, the Company will be permitted to use its quarterly EBITDA (as defined in the Credit Agreement) from the third and fourth quarters of 2019 in lieu of the EBITDA for the corresponding quarters of 2020, (iii) adds a $ 75.0 million minimum liquidity covenant measured at the end of each calendar month and (iv) restricts the Company’s ability to make certain restricted payments, dispositions and investments, create or assume liens and incur debt that would otherwise have been permitted by the Credit Agreement.

The modifications to the negative covenants, the minimum liquidity covenant and modifications to certain other provisions in the Credit Agreement pursuant to the Amendment were effective from the date of the Amendment until the earlier of the delivery of the compliance certificate for the fourth quarter of 2021 and the date on which the Company, in its sole discretion, elects to calculate its compliance with the Senior Secured Net Leverage Ratio by using either its actual EBITDA or annualized EBITDA (the “Designated Period”).

The Company was in compliance with all of its requirements under the Credit Agreement, as amended, as at June 30, 2020, and based on current projections expects to be in compliance through at least the next year.

Borrowings 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.

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 no t have any letters of credit and advance payment guarantees outstanding under the Credit Facility.

Working Capital Loan

provided, however, that from the effective date of the Amendment until the Company delivers a compliance certificate under the Credit Facility following the end of the Designated Period, the applicable margin for LIBOR borrowings will be 2.50 % per annum and the applicable margin for U.S.

base rate borrowings will be 1.75 % per annum.

The effective interest rate for the three and six months ended June 30, 2020 was 1.83 % and 1.86 %, respectively (2019 — 3.52 % and 3.55 %, respectively).

In addition, the Credit Facility has standby fees ranging from 0.25 % to 0.38 % per annum, based on the Company’s Total Leverage Ratio with respect to the unused portion of the Credit Facility;

provided, however, that from the effective date of the Amendment until

the Company delivers a compliance certificate under the Credit Facility following the end of the Designated Period, the standby fee will be 0.50 % per annum.

The Company incurred fees of approximately $ 1.0 million in connection with the Amendment, which are being amortized on a straight-line basis through December 31, 2021.

As at June 30, 2020 and December 31, 2019, the Company did no t have any letters of credit or advance payment guarantees outstanding under the Credit Facility.

Working Capital Facility

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.

The amounts available for borrowing are not subject to a standby fee.

(“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) to fund ongoing working capital requirements (the “Working Capital Facility”).

As at June 30, 2020, there was 1.7 million Renminbi ($ 0.2 million) in borrowings outstanding under the Working Capital Facility and 198.3 million Renminbi ($ 29.8 million) was available for future borrowings.

There were no amounts drawn under the Working Capital facility at December 31, 2019.

The amounts available for borrowing under the Working Capital Facility are not subject to a standby fee.

The effective interest rate for the three and six months ended June 30, 2020 was 4.35 %, respectively.

Subsequent to June 30, 2020, IMAX Shanghai renewed its Working Capital Facility.

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).

The net settlement loss on its foreign currency forward contracts was $ 0.3 million at June 30, 2020, as the notional value exceeded the fair value of the forward contracts (December 31, 2019 — $ 0.5 million net settlement gain).

As at June 30, 2020, the Company has $ 36.0 million in notional value of such arrangements outstanding (December 31, 2019 — $ 36.1 million).

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 no t have any letters of credit and advance payment guarantees outstanding as at March 31, 2020 and December 31, 2019 under the NBC Facility.

The Company did no t have any letters of credit or advance payment guarantees outstanding as at June 30, 2020 and December 31, 2019 under the NBC Facility.

Commitments, Contingencies and Guarantees

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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.

The amount of liabilities recorded or disclosed for these contingencies may change in the future due to changes in management’s judgments resulting from new developments or changes in settlement strategy.

Any resulting adjustment to the liabilities recorded by the Company could have a material adverse effect on its results of operations, cash flows, and financial position in the period or periods in which such changes in judgment occur.

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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.

The Company filed an appeal of this decision on February 7, 2020 with the Eleventh Circuit Court of Appeals, but such appeal was dismissed on May 29, 2020.

At this time, the Company is unable to determine the amounts that it may ultimately owe pursuant to the Award, or the timing of any such payments, but believes it has adequate provisions recorded in its Condensed Consolidated Balance Sheets related to the Award.

In addition to the above, the Company has initiated a claim against Giencourt in the Ontario Superior Court seeking damages from Giencourt with respect to contractual claims under various terminated agreements between the parties.

These proceedings are in preliminary stages, and no assurances can be given with respect to the ultimate outcome of the matter, but any amounts, if awarded to the Company under these proceedings, may reduce the Company’s overall financial obligations to Giencourt.

(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.

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Financial Guarantees

The Company has provided no significant financial guarantees to third parties.

Certain subsidiaries of the Company have provided significant financial guarantees to third parties under the Credit Agreement.

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.

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 June 30, 2020 and December 31, 2019 , respectively.

Director/Officer Indemnifications

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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.

No amount has been accrued in the Condensed Consolidated Balance Sheets as at June 30, 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;

IMAX Theater Systems lease and sale agreements and the supervision of installation or servicing of IMAX Theater Systems;

film production, exhibition and distribution agreements;

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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.

however, virtually all of the IMAX Theater 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.

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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.

These costs and direct advertising and marketing, which are included in Costs and Expenses Applicable to Revenues – Technology Sales, totaled $ 0.2 million and $ 0.4 million for the three and six months ended June 30, 2020, respectively (2019 — $ 0.4 million and $ 0.9 million, respectively).

Film exploitation costs, including advertising and marketing, totaled a recovery of less than $ 0.1 million and expense of $ 2.6 million for the three and six months ended June 30, 2020, respectively (2019 — expense of $ 9.6 million and $ 14.1 million, respectively), 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).

These costs totaled less than $ 0.1 million and $ 0.2 million for the three and six months ended June 30, 2020, respectively (2019 — recovery of $ 0.4 million and recovery of $ 0.6 million, respectively).

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).

These costs totaled less than $ 0.1 million and $ 0.4 million for the three and six months ended June 30, 2020, respectively (2019 — $ 0.7 million and $ 0.9 million, respectively).

Foreign Exchange

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.

Included in Selling, General and Administrative Expenses for the three and six months ended June 30, 2020 is a loss of $ 0.3 million and a loss of $ 1.0 million, respectively (2019 — loss of $ 0.2 million and loss of $ 0.4 million, respectively) 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.

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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 Company has signed traditional and hybrid joint revenue sharing agreements with 41 exhibitors for a total of 1,237 IMAX Theater Systems, of which 868 theaters were included in the IMAX network as at June 30, 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).

Amounts attributable to transactions arising between the Company and its customers under joint revenue sharing arrangements are included in Revenues — Technology Sales and Revenues — Technology Rentals and for the three and six months ended June 30, 2020 amounted to $ 0.1 million and $ 6.9 million, respectively (2019 — $ 27.8 million and $ 48.2 million, respectively).

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 a typical IMAX DMR film arrangement, the Company receives a percentage of the box office receipts from a movie studio in exchange for converting a commercial film into IMAX DMR format and distributing it 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.

For the six months ended June 30, 2020, the majority of IMAX DMR revenue was earned from the exhibition of 14 IMAX DMR films (2019 – 39 ) 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).

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 and six months ended June 30, 2020 amounted to $ 0.6 million and $ 11.2 million, respectively (2019 — $ 39.3 million and $ 67.2 million, respectively).

Co-Produced Film Arrangements

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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.

As at June 30, 2020, the Company has two significant co-produced film arrangements which represent the VIE total assets balance of $ 7.0 million and liabilities balance of $ 15.5 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.

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.

For the three and six months ended June 30, 2020, expenses totaling $ 1.2 million and $ 1.4 million, respectively (2019 — less than $ 0.1 million and $ 0.2 million, respectively) attributable to transactions between the Company and other parties involved in the production of the films have been included in Costs and Expenses Applicable to Revenues – Image Enhancement and Maintenance Services.

For the three and six months ended June 30, 2020, revenue of $ 0.1 million and $ 0.1 million, respectively (2019 — $nil and less than $ 0.1 million, respectively) and Costs and Expenses Applicable to Revenues of $nil and $nil, respectively (2019 — $nil and less than $ 0.1 million, respectively) 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.

Condensed Consolidated Statements of Cash Flows Supplemental Information

Changes in other operating assets and liabilities as reported in the Condensed Consolidated Statements of Cash Flows are comprised of the following:

Six Months Ended

Decrease (increase) in:

Financing receivables

Prepaid expenses

Variable consideration receivable

Increase (decrease) in:

Accounts payable

Accrued and other liabilities

Depreciation and amortization are comprised of the following:

Three Months Ended

Six Months Ended

Property, plant and equipment:

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Write-downs are comprised of the following:

Three Months Ended

Six Months Ended

Film assets (1)

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Property, plant and equipment

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.

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.

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.

Significant non-cash investing and financing activities are comprised of the following:

Three Months Ended

Net accruals related to:

Other intangible assets

In the six months ended June 30, 2020, the Company recorded an impairment loss of $ 4.5 million (2019 — $nil) to write-down the carrying value of certain documentary and alternative content film assets due to a decrease in projected box office totals and related revenues based on management’s regular quarterly recoverability assessments.

As of June 30, 2020 , following the recording of these write-downs, the Company’s film assets totaled $ 13.1 million, which principally consists of documentary and DMR content.

The recoverability of these assets assumes the return to historical levels of box office results as theaters reopen following the lifting of COVID-19 restrictions.

There can be no assurances that there will not be additional write-downs to the carrying values of these assets as the Company continues to assess the ongoing impact of the COVID-19 pandemic.

(See Notes 1 and 2.)

In the six months ended June 30, 2020, the Company recorded a $ 1.2 million (2019 - $ nil ) write-down of other assets, of which $ 1.0 million relates to the write-down of certain content-related assets which became impaired in the period.

In the six months ended June 30, 2020, the Company recorded charges of $ 0.9 million in Costs and Expenses 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 six months ended June 30, 2019, the Company recorded a charge of $ 0.1 million in Costs and Expenses Applicable to Technology Rentals and $ 0.1 million in Revenues -Technology Rentals upon the upgrade of xenon-based digital systems under joint revenue sharing arrangements to laser-based digital systems.

Significant non-cash investing activities are comprised of the following:

Six Months Ended

Net (decrease) increase in accruals related to:

Investment in joint revenue sharing arrangements

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Income Tax Expense

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).

The Company’s effective tax benefit rate for the three months ended June 30, 2020, is 25.4 % 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, management’s estimates of contingent liabilities related to the resolution of various tax examinations and withholding taxes associated with the reversal of the indefinite reinvestment assertion for certain foreign subsidiaries, as discussed below.

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.

As a result, the Company recognized a deferred tax liability of $ 19.7 million in the first quarter of 2020 for the estimated applicable foreign withholding taxes associated with these historical earnings, which will become payable upon the

repatriation of any such earnings.

In the second quarter of 2020, the estimate of the applicable foreign withholding taxes was reduced by $ 1.2 million to $ 18.5 million due to a reduction in the amount of distributable historical earnings .

Cash held outside of Canada as at June 30, 2020 was $ 75.0 million ( December 31, 2019 — $ 90.1 million ), of which $ 61.5 million was held in the People’s Republic of China (“PRC”) ( December 31, 2019 — $ 67.6 million ).

For the three months ended June 30, 2020, the Company recorded income tax benefit of $ 10.2 million (2019 — tax expense of $ 5.3 million), which includes the $ 1.2 million reduction to the foreign withholding taxes discussed above.

In addition, in the second quarter of 2020 , the Company recognized income tax expense of $ 0.3 million (2019 — $ 0.1 million) related to the provision for uncertain tax positions.

The Company’s effective tax rate for the six months ended June 30, 2020 is - 6.3 % 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 of contingent liabilities related to the resolution of various tax examinations and withholding taxes associated with the reversal of the indefinite reinvestment assertion for certain foreign subsidiaries, as discussed above.

For the six months ended June 30, 2020 , the Company recorded income tax expense of $ 5.3 million (2019 — $ 9.0 million) , which includes the $ 18.5 million foreign withholding taxes discussed above .

In addition, in the six months ended June 30, 2020, the Company recognized income tax expense of $ 5.1 million ( 2019 — $ 0.5 million) related to the 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 June 30, 2020, the Company’s Condensed Consolidated Balance Sheets include net deferred income tax assets of $ 46.8 million, which is net of a valuation allowance of $0.2 million (December 31, 2019 — $ 23.9 million).

As at June 30, 2020, the Company’s Condensed Consolidated Balance Sheets include a deferred income tax liability of $ 18.5 million (December 31, 2019 — $nil).

During the three months ended June 30, 2020, deferred tax assets increased by $ 8.9 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 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).

Should actual results differ from management’s estimates of future taxable income, an increased valuation allowance may be required.

The Company’s Chinese subsidiary had taken a deduction for certain share-based compensation issued by its 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.

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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:

The income tax (expense) benefit included in the Company’s other comprehensive (loss) income are related to the following items:

Three Months Ended

Six Months Ended

Unrealized change in cash flow hedging instruments

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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:

For the three and six months ended June 30, 2020, share-based compensation expense totaled $ 6.5 million and $ 10.7 million, respectively (2019 — $ 7.0 million and $ 11.4 million, respectively) and is reflected in the following accounts in the Condensed Consolidated Statements of Operations:

Three Months Ended

Six Months Ended

Cost and expenses applicable to revenues

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Research and development

There were no share-based compensation expenses allocated to Costs and Expenses Applicable to Revenues or Research and Development in the three months ended June 30, 2020 due to the idling of the Company’s productive capacity and slowdown in business activities during the COVID-19 global pandemic.

The following table summarizes the Company’s share-based compensation expense by each award type:

Three Months Ended

Six Months Ended

Stock Options

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IMAX China Long Term Incentive Plan Performance Stock Units

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.

For the six months ended June 30, 2020, the above includes expense of $ 0.1 million and $ 0.1 million in the three and six months ended June 30, 2020, respectively (2019 — $ nil and $ nil , respectively) 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:

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 six months ended June 30:

Number of Shares

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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:

The following table summarizes the activity in respect of RSUs issued under the IMAX LTIP for the six months ended June 30:

Number of Awards

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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 fair value of PSUs with stock-price targets 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.

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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:

The following table summarizes the activity in respect of PSUs issued under the IMAX LTIP for the six months ended June 30:

Number of Awards

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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 .

In 2017, the Company’s Board of Directors approved a new $ 200.0 million common stock share repurchase program, which would have expired on June 30, 2020.

In June 2020, the Board of Directors approved a 12-month extension of this program which will now expire on June 30, 2021 .

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 no t repurchase any share of its common stock.

There were no common stock repurchases during the three months ended June 30, 2020.

During the six months ended June 30, 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 and six months ended June 30, 2019, the Company repurchased 87,769 common shares at an average price of $ 19.45 per share, excluding commissions.

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 share repurchase program expired on the date of the 2020 Annual General Meeting of IMAX China on June 11, 2020 .

During the 2020 Annual General Meeting, shareholders approved the repurchase of shares of IMAX China not to exceed 10 % of the total number of issued shares as of June 11, 2020 ( 34,848,398 shares).

This program will be valid until the 2021 Annual General Meeting of IMAX China.

The repurchases may be made in the open market or through other means permitted by applicable laws.

IMAX China has no obligation to repurchase its shares and the share repurchase program may be suspended or discontinued by IMAX China at any time.

During the three months ended 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.

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.

Net (Loss) Income Per Share

During the three and six months ended June 30, 2020, IMAX China repurchased 425,800 and 906,400 shares of its common stock, respectively, at an average price of HKD 11.63 per share and HKD 13.13 per share, respectively (U.S.

$ 1.50 and U.S.

$ 1.69 , respectively).

During the three and six months ended June 30, 2019, IMAX China repurchased 6,315,900 and 7,025,700 of its common shares, respectively, at an average price of HKD 18.59 per share and HKD 18.68 per share, respectively (U.S.

$ 2.37 and U.S.

$ 2.38 , respectively).

The total number of shares purchased during the six months ended June 30, 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).

There were no such purchases made during the three months ended June 30, 2020 and 2019.

As at June 30, 2020, the IMAX LTIP trustee held 21,313 shares (December 31, 2019 — 187,020 shares) purchased for $ 0.3 million (December 31, 2019 — $ 4.0 million) in the open market to be issued upon the settlement of RSUs and certain stock options.

The shares held with the trustee are recorded at cost and are reported as a reduction against capital stock on the Condensed Consolidated Balance Sheets.

Basic and Diluted Weighted Average Shares Outstanding

The following table reconciles the denominator of the basic and diluted weighted average share computations:

Three Months Ended

Six Months Ended

Weighted average number of common shares (000's):

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income per share

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.

For three and six months ended June 30, 2020, the calculation of diluted weighted average shares outstanding excludes 6,973,840 and 6,973,840 shares, respectively (2019 — 6,153,795 and 6,226,887 shares, respectively) of common shares issuable upon the vesting of RSUs and PSUs and the exercise of stock options.

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

The following tables summarize the Company’s revenues by type and reportable segment for the three and six months ended June 30, 2020:

Three Months Ended June 30, 2020

Contracts with Customers

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Finance income

Three Months Ended

March 31, 2019

Six Months Ended June 30, 2020

Contracts with Customers

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Finance income

The Company is reporting negative revenue due to an adjustment to prior period revenue.

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.)

The Company is reporting negative revenue due to the continued amortization of lessee incentives that are typically netted against lease revenues, which are abnormally low during the period due to the COVID-19 global pandemic, as discussed in Note 2.

The following tables summarize the Company’s revenues by type and reportable segment for the three and six months ended June 30, 2019 :

Three Months Ended June 30, 2019

Contracts with Customers

Consideration

Finance Income

Technology sales

Joint Revenue Sharing Arrangements, fixed fees

Other Theater Business

Other sales (1)

Image enhancement and maintenance services

IMAX Maintenance

Film Post-production

Film Distribution

Technology rentals

Joint Revenue Sharing Arrangements, contingent rent

Finance income

Six Months Ended June 30, 2019

Contracts with Customers

consideration

Finance Income

Technology sales

Joint Revenue Sharing Arrangements, fixed fees

Other Theater Business

Other sales (1)

Image enhancement and maintenance services

IMAX Maintenance

Film Post-production

Film Distribution

Technology rentals

Joint Revenue Sharing Arrangements, contingent rent

Finance income

(1) Other sales include New Business Initiatives.

(See Note 2 for information on the current impacts and uncertainties relating to the COVID-19 pandemic, which are impacting 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.

The Company’s IMAX Theater System sale and lease 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, additional payments are due to the Company for the years after its extended warranty and maintenance obligations expire.

Payments upon renewal each year are either prepaid or made in arrears and can vary in frequency from monthly to annually.

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).

At June 30, 2020, $ 17.2 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.

In instances where the Company receives consideration prior to satisfying its performance obligations, the recognition of revenue is deferred.

The majority of the deferred revenue balance relates to payments received by the Company for IMAX Theater Systems where control of the system has not transferred to the customer.

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Recognition dates are variable and depend on numerous factors, including some outside of the Company’s control.

(See Note 2 for information on the current impacts of and uncertainties relating to the COVID-19 pandemic which are impacting Company’s revenues .)

Segment Reporting

The Company’s Chief Executive Officer (“CEO”) is its Chief Operating Decision Maker (“CODM”), as such term is defined under U.S.

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 CODM, along with other members of management, assess segment performance based on segment revenues and gross margins.

Selling, general and administrative expenses, research and development costs, the amortization of intangibles, provisions for (recoveries of) current expected credit losses, certain write-downs, interest income, interest expense and tax (expense) benefit are not allocated to the segments.

The Company has the following reportable segments:

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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;

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).

Film Distribution and Post-production, which includes activities related to the licensing of film content, and 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.

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.

Gross Margin (4)

The following table sets forth the breakdown of revenue and (margin loss) gross margin by category for the three months ended June 30, 2020:

(Margin Loss) Gross Margin (3)

IMAX Technology Network

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Post-production

The Company’s largest customer represented 14.4 % of total revenues for the three months ended March 31, 2020 (2019 — 18.9 %).

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.

The following table sets forth the breakdown of revenue and (margin loss) gross margin by category for six months ended June 30, 2020:

(Margin Loss) Gross Margin (3)

IMAX Technology Network

Joint revenue sharing arrangements, contingent rent

IMAX Technology Sales and Maintenance

IMAX Systems (1)

Joint revenue sharing arrangements, fixed fees

IMAX Maintenance

Other Theater Business (2)

New Business Initiatives

Film Distribution and Post-production

Film Distribution

Post-production

(1) Includes initial upfront 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 estimated variable consideration from sales of IMAX Theater Systems.

To a lesser extent, also includes finance income associated with these revenue streams.

Principally includes after-market sales of IMAX projection system parts and 3D glasses

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).

IMAX DMR gross margin includes marketing cost of $nil and $ 2.4 million for the three and six months ended June 30, 2020, respectively (2019 — $ 9.5 million and $ 13.4 million, respectively).

JRSA gross margin includes advertising, marketing and commission expense of less than $ 0.1 million and $ 0.6 million for the three and six months ended June 30, 2020, respectively (2019 —$ 0.2 million and $ 0.3 million, respectively).

IMAX Systems gross margin includes marketing and commission costs of $ 0.2 million and $ 0.4 million for the three and six months ended June 30, 2020, respectively, (2019 — $ 0.4 million and $ 0.9 million, respectively).

Film Distribution segment gross margin includes marketing expense of less than $ 0.1 million and $ 0.2 million for the three and six months ended June 30, 2020, respectively (2019 — less than $ 0.1 million and $ 0.6 million, respectively).

The Company is reporting negative revenue due to an adjustment to prior period revenue.

Geographic Information

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Three Months Ended

Six Months Ended

United States

1 unchanged sentence

Greater China

Western Europe

Russia & the CIS

Western Europe

Latin America

Rest of the World

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.

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, except for Japan in the three months ended June 30, 2020 .

Employee's Pension and Postretirement Benefits

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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:

As at June 30, 2020 and December 31, 2019 , the Company’s projected benefit obligation and unfunded status related to the SERP are as follows :

Projected benefit obligation:

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Obligation, end of period and unfunded status

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 accumulated benefit obligation for the SERP was $ 19.0 million at June 30, 2020 (December 31, 2019 —$ 18.8 million).

For the three and six months ended June 30, 2020, the Company recorded interest costs of $ 0.1 million and $ 0.2 million, respectively, (2019 — $ 0.1 million and $ 0.3 million, respectively) related to the SERP.

The Company expects to recognize interest costs of $ 0.2 million related to the SERP during the remainder of 2020.

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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.

During the three and six months ended June 30, 2020, the Company contributed and recorded expense of $ 0.2 million and $ 0.5 million, respectively, (2019 — $ 0.3 million and $ 0.6 million, respectively) to its Canadian defined contribution plan and $ 0.1 million and $ 0.4 million, respectively, (2019 — $ 0.1 million and $ 0.3 million, respectively) to its defined contribution employee plan under Section 401(k) of the U.S.

Internal Revenue Code.

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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.

As at June 30, 2020, the Company’s postretirement benefits obligation under this plan is $ 0.6 million (December 31, 2019 — $ 0.7 million).

For the three and six months ended June 30, 2020, the Company has recorded expense of less than $ 0.1 million and less than $ 0.1 million, respectively (2019 — less than $ 0.1 million and less than $ 0.1 million, respectively) related to this plan.

Postretirement Benefits – Canadian Employees

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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.

As at June 30, 2020, the Company’s postretirement benefits obligation under this plan is $ 1.5 million (December 31, 2019 — $ 1.6 million).

For the three and six months ended June 30, 2020, the Company has recorded expense of less than $ 0.1 million and $ 0.1 million, respectively (2019 — less than $ 0.1 million and less than $ 0.1 million, respectively) related to this plan.

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 no t recognize any additional expenses in the three months ended March 31, 2020 and 2019 .

Under the terms of the Retirement Plan, the benefits were due to vest in full if he incurred a separation from service (as defined therein).

In the fourth quarter of 2018, the executive incurred a separation from service, and as such, the Retirement Plan benefits became fully vested as at December 31, 2018 and the accelerated costs were recognized and reflected in Executive Transition Costs on the Consolidated Statement of Operations.

As at June 30, 2020, the Company had a funded benefit obligation recorded of $ 3.6 million (December 31, 2019 — $ 3.6 million).

The Company did no t recognize any additional expenses in the three and six months ended June 30, 2020 and 2019 .

Financial Instruments

Cash and Cash Equivalent

Cash and Cash Equivalents

The Company maintains cash with various major financial institutions.

3 unchanged sentences

The Company’s other financial instruments are comprised of the following:

As at March 31, 2020

As at June 30, 2020

As at December 31, 2019

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Net investment in sales-type leases (2)

Convertible loan receivable (2)

Equity securities (1)

Foreign exchange contracts — designated forwards (3)

Foreign exchange contracts — non-designated forwards (3)

Bank indebtedness - under the Working Capital Facility (1)

Bank indebtedness - under the Credit Facility (1)

3 unchanged sentences

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.

There were no significant transfers in or out of the Company’s Level 3 assets during the three and six months ended June 30, 2020 and 2019.

Foreign Exchange Risk Management

13 unchanged sentences

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.

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 June 30, 2020 (the “Foreign Currency Hedges”), with settlement dates throughout 2020 and 2021 .

Foreign currency derivatives are recognized and measured in the Condensed Consolidated Balance Sheets 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 Company currently has cash flow hedging instruments associated with selling, general and administrative

expenses and inventories .

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 O ther C omprehensive I ncome and reclassified to the C ondensed C onsolidated St atements of O perations when the forecasted transaction occurs.

For foreign currency cash flow hedging instruments related to inventories , the effective portion of the gain or loss in a hedge of a forecasted transaction is reported in O ther C omprehensive I ncome and reclassified to Inventories in the Condensed Consolidated B alance S heet s when the forecasted transaction occurs.

Any ineffective portion is recognized immediately in the Condensed C onsolidated S tatement of O perations.

On April 28, 2020, the FASB staff issued a question-and-answer document (Q&A) to respond to frequently asked questions about the disruptive effects of COVID-19 on cash flow hedge accounting.

FASB Accounting Standards Codification Topic 815, Derivative and Hedging, provides guidance on when to discontinue cash flow hedge accounting and when and how to reclassify amounts deferred in accumulated other comprehensive income (AOCI) to earnings.

The Q&A document addresses how the postponement or cancellation of forecasted transactions related to the effects of the COVID-19 pandemic should be considered when applying cash flow hedge accounting under Topic 815.

The Company has considered the Q&A document when applying cash hedge flow accounting under Topic 815.

The guidance did not have a material impact to the Company’s Condensed Consolidated Financial Statements.

The following tabular disclosures reflect the impact that derivative instruments and hedging activities have on the Company’s Condensed Consolidated Financial Statements:

2 unchanged sentences

Foreign exchange contracts — Forwards

Derivatives not designated as hedging instruments:

Foreign exchange contracts — Forwards

Fair value of derivatives in foreign exchange contracts:

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Accrued and other liabilities

Derivatives not designated as hedging instruments:

Foreign exchange contracts — Forwards

Accrued and other liabilities

Derivatives in Foreign Currency Hedging relationships are as follows:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Foreign exchange contracts

Derivative (Loss) Gain

Derivative Gain (Loss)

Recognized in OCI

Location of Derivative (Loss) Gain

Three Months Ended March 31,

(Effective Portion)

Location of Derivative Loss

Reclassified from AOCI

Three Months Ended June 30,

Six months ended June 30,

(Effective Portion)

Foreign exchange contracts

2 unchanged sentences

Property, plant and equipment

Three Months Ended March 31,

Three Months Ended June 30,

Six months ended June 30,

Foreign exchange contracts

Derivative Loss Recognized In

Derivative Gain (Loss) Recognized In

and Out of OCI

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.

Non Designated Derivatives in Foreign Currency relationships are as follows:

Three Months Ended June 30,

Six months ended June 30,

Location of Derivative Gain

Foreign exchange contracts

Selling, general and

administrative expenses

The Company's estimated net amount of the existing losses as at June 30, 2020 is $ 0.4 million, which is expected to be reclassified to earnings within the next twelve months.

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.

As at June 30, 2020, the Condensed Consolidated Balance Sheets includes $ 13.2 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).

2 unchanged sentences

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 changes in fair value are recorded in gain (loss) in fair value of equity investment line item in the Company’s Condensed Consolidated Statement of Operations.

As at June 30, 2020, the value of the Company’s investment in Maoyan was $ 12.1 million (December 31, 2019 — $ 14.6 million).

For the three and six months ended June 30, 2020, the Company has recorded a net unrealized gain of $ 2.0 million and loss of $ 2.5 million, respectively ( 2019— loss of $ 4.5 million and $ 2.1 million, respectively).

The Company has an investment of $ 1.1 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.

As at June 30, 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 June 30, 2020 ( December 31, 2019 — $ 1.0 million ) and is recorded in Other Assets.

Non-Controlling Interests

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(“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.

IMAX China is a consolidated subsidiary of the Company.

The balance of the non-controlling interest in IMAX China as at June 30, 2020 is $ 74.7 million.

The net loss attributable to the non-controlling interest in IMAX China for the three and six months ended June 30, 2020 is $ 2.8 million and $ 12.5 million, respectively (2019 — net income of $ 2.7 million and $ 7.0 million, respectively).

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 initial investment in the Original Film Fund was committed by a third party in the amount of $ 25.0 million, with the possibility of contributing additional funds.

The Company has contributed $ 9.0 million to the Original Film Fund since 2014 and has reached its maximum contribution.

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.

As at June 30, 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:

The following table summarizes the movement of the non-controlling interest in temporary equity, in the Company’s subsidiary for the six months ended June 30, 2020:

Balance as at December 31, 2019

Balance as at March 31, 2020

Balance as at June 30, 2020

Exit costs, restructuring charges and associated impairments

1 unchanged sentence

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.

During the six months ended June 30, 2019, the Company recognized charges of $ 0.9 million 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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements