What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-10-29 compared with 2020-07-28 · 268 added, 298 removed, 582 unchanged (49% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Presented below is Management's Discussion and Analysis of Financial Condition and Results of Operations (or "MD&A") for IMAX Corporation and its consolidated subsidiaries (“IMAX” or the “Company”) for the three and six months ended June 30, 2020 and 2019.

Management’s Discussion and Analysis o f Financial Condition and Results of Operations

MD&A should be read in conjunction with Note 14, "Segment Reporting" in the accompanying Condensed Consolidated Financial Statements in Item 1.

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the failure to fully realize the projected cost savings and benefits from any of the Company’s restructuring initiatives;

the impact of COVID-19 on our business, financial condition, and results of operations and on the businesses of our customers and exhibitor partners;

the impact of COVID-19 on the Company’s business, financial condition, and results of operations and on the businesses of the Company’s customers and exhibitor partners;

and other factors, many of which are beyond the control of the Company.

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The Company generally does not own the theaters in the IMAX network, but licenses the use of its trademarks along with the sale or lease of the IMAX Theater System.

As at June 30, 2020, there were 1,615 IMAX Theater Systems operating in 81 countries and territories, including 1,527 commercial multiplexes, 13 commercial destinations and 75 institutional locations.

This compares to 1,541 IMAX Theater Systems operating in 81 countries and territories as of June 30, 2019 including 1,445 commercial multiplexes, 15 commercial destinations and 81 institutional locations.

(See the table below under “IMAX Network and Backlog” for additional information on the composition of the IMAX network.)

As at September 30, 2020, there were 1,632 IMAX Theater Systems operating in 82 countries and territories, including 1,542 commercial multiplexes, 13 commercial destinations and 77 institutional locations.

This compares to 1,568 IMAX Theater Systems operating in 81 countries and territories as of September 30, 2019 including 1,473 commercial multiplexes, 14 commercial destinations and 81 institutional locations.

(See the table below under “IMAX Network and Backlog” for additional information on the composition of the IMAX network.) In North America, IMAX accounts for approximately 450 screens out of a total of roughly 42,000 screens, and in 2019, about 85% of IMAX’s box office was generated in the top 20% of North American complexes.

In contrast, in 2019, only 5% of IMAX’s North American box office was generated from the bottom 65% of multiplexes as ranked by revenue.

The IMAX Theater System provides the Company’s exhibitor customers with a combination of the following benefits:

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a license to the globally recognized IMAX brand.

In addition, certain movies shown in IMAX theaters are filmed using proprietary IMAX film and IMAX certified digital cameras, which offer filmmakers customized guidance and workflow process to provide further enhanced and differentiated image quality and a film aspect ratio that delivers up to 26% more image onto a movie screen.

In addition, certain movies shown in IMAX theaters are filmed using proprietary IMAX film and IMAX certified digital cameras, which offer filmmakers customized guidance and a workflow process to provide further enhanced and differentiated image quality and a film aspect ratio that delivers up to 26% more image onto a movie screen.

Together these components cause audiences in IMAX theaters to feel as if they are a part of the on-screen action, creating a more intense, immersive and exciting experience than a traditional theater.

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As one of the world’s leaders in entertainment technology, the Company strives to remain at the forefront of advancements in cinema technology.

In 2018, t he Company introduced IMAX with Laser, a laser projection system designed for IMAX theaters in commercial multiplexes, which represents a further evolution of IMAX’s proprietary technology.

In 2018, the Company introduced IMAX with Laser, a laser projection system designed for IMAX theaters in commercial multiplexes, which represents a further evolution of IMAX’s proprietary technology.

The Company believes that IMAX with Laser delivers increased resolution, sharper and brighter images, deeper contrast as well as the widest range of colors available to filmmakers today.

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(“AMC”), Cineworld Group PLC (“Cineworld”), CGV Holdings Limited (“CGV”) and Les Cinémas Pathé Gaumont (“Pathé”) (among others) which includes new theaters, upgrades to existing IMAX theaters, and upgrades to existing backlog arrangements.

As at June 30, 2020, 141 IMAX with Laser systems have been installed, and the Company’s backlog included 154 new IMAX with Laser systems and 94 upgrades to IMAX with Laser systems.

As at September 30, 2020, 150 IMAX with Laser systems have been installed, and the Company’s backlog included 155 new IMAX with Laser systems and 92 upgrades to IMAX with Laser systems.

The Company is also experimenting with new technologies and new content as a way to deepen consumer engagement and brand loyalty, which includes curating unique, differentiated alternative content to be exhibited in IMAX theaters, particularly during those periods when Hollywood blockbuster film content is not available.

In 2019, the Company piloted filmed events including Anima , a one-night only event featuring music from Radiohead’s Thom Yorke, Soundgarden:

Live from the Artist’s Den:

The IMAX Experience , and the Kanye West film Jesus is King:

The IMAX Experience in select IMAX theaters.

IMPACT OF COVID-19 PANDEMIC

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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.

The Company may continue to be significantly impacted by the COVID-19 global pandemic even after some or all theaters are reopened.

As a result of the theater closures, Hollywood and Chinese movie studios postponed the theatrical release of multiple films, including many scheduled to be shown in IMAX theaters, while certain other films have been released directly to streaming platforms.

More recently, stay-at-home orders have been lifted in many countries and movie theaters throughout the IMAX network gradually reopened in the third quarter of 2020 with reduced capacities, physical distancing requirements, and other safety measures.

During the third quarter of 2020, 85% of the theaters in the IMAX commercial multiplex network spanning 57 countries reopened, including 73% of the theaters in Domestic (i.e., United States and Canada) locations, 97% of the theaters in Greater China and 78% of the theaters in Rest of World markets.

In many parts of Asia, audiences have returned to theaters, particularly IMAX theaters, in numbers consistent with pre-pandemic attendance.

The Company believes this indicates that moviegoers are eager to return to cinemas where and when theaters are open and they feel safe.

However, ticket sales have been significantly lower than normal levels in theaters outside of Asia and, in recent weeks, Hollywood movie studios further delayed a number of films due to be released in the fourth quarter of 2020.

As a result, certain theater chains have recently closed again or have reduced their operating hours.

In addition, theaters in major markets such as New York City and Los Angeles continue to remain temporarily closed.

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 nine months ended September 30, 2020 as gross box office (“ GBO ”) results declined significantly, the installation s of certain theater systems w ere delayed, and maintenance services were generally suspended for theaters that were closed .

During time period s in which there is a lack of new films released by movie studios and 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 theater s 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 is likely to 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.

In response, the Company has provided temporary relief to exhibitor partners by waiving maintenance fees during periods when theaters are closed and, in certain situations, by providing extended payment terms on annual minimum payment obligations in exchange for a corresponding extension of the term of the underlying sale or lease arrangement.

F or the three and nine months ended September 30, 2020, the Company increased its provision for current expected credit losses by $3.9 million and $15.6 million , respectively, principally reflecting a reduction in the credit quality of its theater related accounts receivable , financing receivables and variable consideration receivables .

The Company may continue to be significantly impacted by the COVID-19 global pandemic even after a significant portion or all theaters are reopened.

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.

In response to uncertainties associated with the COVID-19 global pandemic, the Company has taken and is continuing to take significant steps to preserve cash by eliminating non-essential costs, placing certain employees on a temporary furlough for at least the remainder of the current fiscal year, reducing the working hours of other employees 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, 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 of Notes to Condensed Consolidated Financial Statements.) 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 received approximately $2.2 million in July 2020 under the Canada Emergency Wage Subsidy program and expects to receive $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 administrative expenses ($2.9 million) and costs and expenses applicable to revenues ($0.3 million) in the Condensed Consolidated Statements of Operations.

In addition, in the first quarter of 2020, the Company drew down the $280.0 million in remaining 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 and substitute quarterly EBITDA from the third and fourth quarters of 2019 in lieu of the EBITDA for the corresponding quarters of 2020 to meet the original senior secured net leverage ratio financial covenant (see Note 7 of Notes to Condensed Consolidated Financial Statements).

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

During 2020, the Company recognized $4.5 million under the Canada Emergency Wage Subsidy (“CEWS”) program and $0.7 million under the U.S.

CARES Act, as reductions to Selling, General and Administrative Expenses ($4.5 million), Costs and Expenses Applicable to Revenues ($0.6 million) and Research and Development ($0.1 million) in the Condensed Consolidated Statements of Operations.

The CEWS program has been extended to June 2021.

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 not impaired as of June 30, 2020.

Consistent with the first and second quarters of 2020, the Company performed a quantitative goodwill impairment test considering the latest available information and determined that its goodwill was not impaired as of September 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.

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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 of Notes to Condensed Consolidated Financial Statements.)

Actual results may materially differ from management’s estimates, especially due to the uncertainties associated with the COVID-19 pandemic (see Note 1 of Notes to Condensed Consolidated Financial Statements).

In the third 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 September 30, 2020.

The cash flow estimates used in these tests 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 global pandemic;

therefore, management’s estimated cash flows factor in a number of underlying variables and ranges of possible cash flow scenarios.

In the third quarter of 2020, the Company also assessed the recoverability of its deferred tax assets due to losses recognized in the period associated with the COVID-19 global pandemic.

The recoverability of these deferred tax assets is subject to certain levels of future taxable income and the uncertainties associated with accounting estimates.

In the third quarter of 2020, the Company recorded a $23.7 million valuation allowance to reduce the value of deferred tax assets in certain jurisdictions where the Company incurs corporate leadership and administrative costs and where management could not reliably estimate future taxable income in those jurisdictions due to uncertainties associated with the COVID-19 global pandemic.

At the point in time when the uncertainties of COVID-19 resolve and the Company is able to reliably forecast sufficient future taxable income in the impacted jurisdictions, the valuation allowance may be reversed.

Despite this valuation allowance, the Company remains entitled to benefit from tax attributes which currently have a valuation allowance applied.

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 and deferred tax assets could also be materially impacted by changes in estimates in the future.

(See Notes 1, 4 and 11 of Notes to Condensed Consolidated Financial Statements.)

In addition, estimates related to future expected credit losses and the recoverability of deferred tax assets could also be further materially impacted by changes in management’s estimates (see Notes 1, 4 and 11 of Notes to Condensed Consolidated Financial Statements).

See “Risk Factors – The Company has experienced a significant decrease in its revenues, earnings and cash flows due to the COVID-19 global pandemic and its business, financial condition and results of operations may continue to be significantly harmed in future reporting periods” in Part II, Item 1A of this Form 10-Q.

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IMAX DMR digitally enhances the image resolution of motion picture films for projection on IMAX screens while maintaining or enhancing the visual clarity and sound quality to levels for which The IMAX Experience is known.

In addition, the original soundtrack of a film to be exhibited in IMAX theaters is remastered for IMAX digital sound systems in connection with the IMAX DMR release of the film.

In addition, the original soundtrack of a film to be exhibited in IMAX theater s is remastered for IMAX digital sound systems in connection with the IMAX DMR release of the film .

Unlike the soundtracks played in conventional theaters, IMAX remastered soundtracks are uncompressed and full fidelity.

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IMAX films also benefit from enhancements made by individual filmmakers exclusively for the IMAX release of the film.

collectively, the Company refers to those enhancements as “IMAX DNA”.

Collectively, the Company refers to these enhancements as “IMAX DNA”.

Filmmakers and movie studios have sought IMAX-specific enhancements in recent years to generate interest in and excitement for their films.

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Endgame , the highest-grossing film in history, released in April 2019, was shot entirely using IMAX cameras.

In addition, in 2020, Universal Pictures’ 1917 was released with select scenes specifically formatted for IMAX screens.

In addition, in 2020, Universal Pictures’ 1917 was released with select scenes specifically formatted for IMAX screens and Warner Bros.

Pictures’ Tenet , released in the third quarter, was filmed with IMAX cameras.

The Company believes that growth in international box office remains an important driver of growth for the Company.

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The IMAX Experience was released in China in July 2019 and was the Company’s first Chinese animated local language film title.

During the six months ended June 30, 2020, two local language IMAX DMR films were released to the IMAX network, one in Russia and one in Japan.

The Company expects to announce additional local language IMAX DMR films to be released to the IMAX network in the remainder of 2020 and beyond.

During the nine months ended September 30, 2020, six local language IMAX DMR films were released to the IMAX network, including two in Russia, two in China, and one in each of Japan and South Korea.

The Company released additional local language IMAX DMR films in the fourth quarter of 2020 and expects to announce additional local language IMAX DMR films to be released to the IMAX network in 2021.

The Company remains in active negotiations with all of the major Hollywood studios for additional films to fill out its short and long-term film slate for the IMAX network.

However, as a result of the theater closures associated with the COVID-19 global pandemic, 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.

Accordingly, the anticipated release dates for any films are uncertain.

However, as a result of the theater closures associated with the COVID-19 global pandemic, Hollywood movie studios in particular 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.

Accordingly, there remains uncertainty around the release dates of certain major films.

Joint Revenue Sharing Arrangements – Contingent Rent

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These fees are reported within IMAX Technology Sales and Maintenance, as discussed below.

IMAX Technology Sales and Mai n tenance

IMAX Technology Sales and Maintenance

The IMAX Technology Sales and Maintenance category includes results from the IMAX Systems, IMAX Maintenance, and Other Theater Business segments, as well as certain revenues from the JRSA segment, as described in more detail below.

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In September 2018, the Company announced a new home entertainment licensing and certification program called IMAX Enhanced.

This initiative was launched along with audio leader DTS (an Xperi subsidiary), capitalizing on the companies’ decades of combined expertise in image and sound science.

This initiative was launched along with audio leader DTS (an Xperi subsidiary), capitalizing on the Company’s decades of combined expertise in image and sound science.

The certification program combines high-end consumer electronics products with IMAX digitally remastered 4K high dynamic range (HDR) content and DTS audio technologies to offer consumers immersive sight and sound experiences for the home.

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The Company receives either a percentage of the theater box office receipts or a fixed amount as a distribution fee.

The Company expects to release the IMAX original production, Asteroid Hunters , later in 2020.

The Company released the IMAX original production, Asteroid Hunters , in October 2020.

The Film Post-production segment provides film post-production and quality control services for large-format films (whether produced by IMAX or third parties), and digital post-production services.

IMAX N ETWORK AND BACKLOG

The following table provides detailed information about the IMAX network by type and geographic location as at June 30, 2020 and 2019:

June 30, 2020

June 30, 2019

The following table provides detailed information about the IMAX network by type and geographic location as at September 30, 2020 and 2019:

September 30, 2020

September 30, 2019

Institutional

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Latin America includes South America, Central America and Mexico.

The Company currently believes that over time its commercial multiplex network could grow to approximately 3,318 IMAX theaters worldwide from the 1,527 operating as at June 30, 2020.

The Company currently believes that over time its commercial multiplex network could grow to approximately 3,318 IMAX theaters worldwide from the 1,542 operating as at September 30, 2020.

The Company believes that the majority of its future growth will come from international markets.

As at June 30, 2020, 72.0% of IMAX Theater Systems in operation were located within international markets (defined as all countries other than the United States and Canada), up from 70.7% as at June 30, 2019.

As at September 30, 2020, 72.2% of IMAX Theater Systems in operation were located within international markets (defined as all countries other than the United States and Canada), an increase from 71.0% as at September 30, 2019.

Revenues and gross box office derived from international markets continue to exceed revenues and gross box office from the United States and Canada.

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Greater China is the Company’s largest market, measured by revenues, with approximately 31% of overall revenues generated from its Greater China operations in the year ended December 31, 2019.

As at June 30, 2020, the Company had 714 theaters operating in Greater China with an additional 271 theaters in backlog that are scheduled to be installed by 2023.

The Company’s backlog in Greater China represents 48.5% of the Company’s current backlog including upgrades.

As at September 30, 2020, the Company had 726 theaters operating in Greater China with an additional 258 theaters in backlog that are scheduled to be installed by 2028.

The Company’s backlog in Greater China represents 47.3% of its total current backlog, including upgrades.

The Company’s largest single international partnership is in China with Wanda Film (“Wanda”).

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See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Impact of COVID-19 Pandemic” in Item 2 of this Form 10-Q and “Risk Factors – The Company has experienced a significant decrease in its revenues, earnings and cash flows due to the COVID-19 global pandemic and its business, financial condition and results of operations may continue to be significantly harmed in future reporting periods” in Part II, Item 1A of this Form 10-Q.

The following table s provide detailed information about the Commercial Multiplex theater s in operation within the IMAX network by arrangement type and geographic location as at June 30, 2020 and 2019 :

June 30, 2020

September 30, 2020

Commercial Multiplex Theaters in IMAX Network

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Worldwide Total (1)

June 30, 2019

September 30, 2019

Commercial Multiplex Theaters in IMAX Network

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Worldwide Total (1)

Period-to-period changes in tables above are reported net of the effect of permanently closed theaters.

As at June 30, 2020, 278 (2019 — 275) of the 730 (2019 — 693) theaters under traditional joint revenue sharing arrangements in operation, or 38.1% (2019 — 39.7%), were located in the United States and Canada, with the remaining 452 (2019 — 418) or 61.9% (2019 — 60.3%) of theaters being located in international markets.

Period-to-period changes in the tables above are reported net of the effect of permanently closed theaters.

As at September 30, 2020, 279 (2019 — 276) of the 742 (2019 — 706) theaters under traditional joint revenue sharing arrangements in operation, or 37.6% (2019 — 39.1%), were located in the United States or Canada, with the remaining 463 (2019 — 430) or 62.4% (2019 — 60.9%) of theaters under traditional joint revenue sharing arrangements located in international markets.

Sales Backlog

The following table provides detailed information about the Company’s sales backlog as at June 30, 2020 and 2019:

June 30, 2020

June 30, 2019

The following table provides detailed information about the Company’s sales backlog as at September 30, 2020 and 2019:

September 30, 2020

September 30, 2019

(in thousands)

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The dollar value fluctuates depending on the number of new arrangements signed from year-to-year, which adds to backlog and the installation and acceptance of IMAX Theater Systems and the settlement of contracts, both of which reduce backlog.

Sales backlog typically represents the fixed contracted revenue under signed IMAX Theater System sale and lease agreements that the Company believes will be recognized as revenue upon installation and acceptance of the associated system, as well as an estimate of variable consideration, however it excludes amounts allocated to maintenance and extended warranty revenues.

Sales backlog typically represents the fixed contracted revenue under signed IMAX Theater System sale and lease agreements that the Company believes will be recognized as revenue upon installation and acceptance of the associated system, as well as an estimate of variable consideration in sales arrangements, however it excludes amounts allocated to maintenance and extended warranty revenues.

The value of sales backlog does not include revenue from theaters in which the Company has an equity interest, operating leases and long-term conditional theater commitments.

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Current backlog information reflects all known elections.

The following table s provide detailed information about the Company’s sales backlog by arrangement type and geographic location as at June 30, 2020 and 2019 :

June 30, 2020

The following table s provide detailed information about the Company’s sales backlog by arrangement type and geographic location as at September 30, 2020 and 2019 :

September 30, 2020

IMAX Theater System Backlog

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Worldwide Total

June 30, 2019

September 30, 2019

IMAX Theater System Backlog

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Includes 145 new IMAX with Laser projection system configurations and 119 upgrades of existing locations to IMAX with Laser projection system configurations.

Approximately 75.3% of IMAX Theater System arrangements in backlog as at June 30, 2020 are scheduled to be installed in international markets (2019 — 72.7%).

Approximately 75.0% of IMAX Theater System arrangements in backlog as at September 30, 2020 are scheduled to be installed in international markets (2019 — 73.1%).

Signings and Installations

The following tables provide detailed information about IMAX Theater System signings and installations for the three and six months ended June 30, 2020 and 2019:

The following tables provide detailed information about IMAX Theater System signings and installations for the three and nine months ended September 30, 2020 and 2019:

For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

September 30,

Theater System Signings:

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For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

September 30,

Theater System Installations:

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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 income tax (expense) benefit are not allocated to the segments.

The Company has organized its reportable segments into the following four categories:

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Management believes that a discussion and analysis based on the four categories listed above is significantly more relevant and useful to readers, as the Company’s consolidated statements of operations captions combine results from several segments.

Results of Operations for the Three Months Ended June 30 , 2020 and June 30 , 2019

For the three months ended June 30, 2020, the Company reported a net loss attributable to common shareholders of $(26.0) million, or $(0.44) per basic and diluted share, as compared to net income attributable to common shareholders of $11.4 million, or $0.19 per basic and diluted share, for the same period in 2019.

For the three months ended June 30, 2020, the Company reported an adjusted net loss attributable to common shareholders* of $(26.1) million, or $(0.44) per basic and diluted share*, as compared to adjusted net income attributable to common shareholders* of $19.7 million, or $0.32 per diluted share*, for the same period in 2019.

The following table sets forth the breakdown of revenue and (margin loss) gross margin by category and reportable segment for the three months ended June 30, 2020 and 2019:

Results of Operations for the Three Months Ended September 30 , 2020 and September 30 , 2019

For the three months ended September 30, 2020, the Company reported a net loss attributable to common shareholders of $(47.2) million, or $(0.80) per basic and diluted share, as compared to net income attributable to common shareholders of $9.0 million, or $0.15 per basic and diluted share, for the same period in 2019.

For the three months ended September 30, 2020, the Company reported an adjusted net loss attributable to common shareholders* of $(44.6) million, or $(0.75) per basic and diluted share*, as compared to adjusted net income attributable to common shareholders* of $12.8 million, or $0.21 per diluted share*, for the same period in 2019.

The following table sets forth the breakdown of revenue and gross margin (margin loss) by category and reportable segment for the three months ended September 30, 2020 and 2019:

(In thousands of U.S.

(Margin Loss) Gross Margin

Gross Margin (Margin Loss)

IMAX Technology Network

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Includes initial upfront payments and the present value of fixed minimum payments from sale 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.

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

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

(3) 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 in the period due to the COVID-19 global pandemic, as discussed in Note 2 of Notes to Condensed Consolidated Financial Statements.

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

See "Non-GAAP Financial Measures" below for a description of this non-GAAP financial measure and a reconciliation to the most comparable GAAP amount.

Revenues and Gross Margin

Due to the COVID-19 global pandemic, substantially all of the theaters in the IMAX network were closed in the second quarter of 2020.

In the third quarter of 2020, approximately 85% of the theaters in the commercial multiplex network gradually reopened subject to capacity restrictions due to the COVID-19 global pandemic;

however, the availability of new film content was limited, especially in the Domestic and Rest of World markets, and ticket sales were significantly lower than normal levels in theaters outside of Asia.

As a result, the Company’s results of operations for the period materially declined when compared to the prior year.

For the three months ended June 30, 2020, revenues and gross margin decreased by $95.9 million (92%) and $67.2 million (113%), respectively, when compared to the same period in 2019.

For the three months ended September 30, 2020, revenues and gross margin decreased by $49.1 million (57%) and $43.3 million (92%), respectively, when compared to the same period in 2019.

IMAX Technology Network

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dollar and potential currency devaluations.

For the three months ended June 30, 2020, IMAX Technology Network revenues and gross margin decreased by $64.4 million (99%) and $49.8 million (115%), respectively, when compared to the same period in 2019.

For the three months ended September 30, 2020, IMAX Technology Network revenues and gross margin decreased by $31.9 million (74%) and $26.8 million (98%), respectively, when compared to the same period in 2019.

See below for separate discussions of IMAX DMR and JRSA contingent rent results for the period.

Due to the COVID-19 global pandemic, substantially all of the theaters in the IMAX network were closed in the second quarter of 2020.

As a result, for the three months ended June 30, 2020, IMAX DMR revenues and gross margin decreased by $38.7 million (99%) and $24.0 million (100%), respectively, when compared to the same period in 2019.

These decreases are due to a $362.3 million (99%) reduction in GBO receipts generated by IMAX DMR films in the second quarter of 2020 as a result of the COVID-19 theater closures.

In the second quarter of 2020, GBO was generated by the exhibition of one new film as compared to 19 films (15 new and 4 carryovers) exhibited in the second quarter of 2019.

In the third quarter of 2020, approximately 85% of the theaters in the commercial multiplex network gradually reopened subject to capacity restrictions due to the COVID-19 global pandemic;

As a result, for the three months ended September 30, 2020, IMAX DMR revenues and gross margin decreased by $19.8 million (74%) and $14.8 million (83%), respectively, when compared to the same period in 2019.

These decreases are due to a $175.9 million (72%) reduction in GBO receipts generated by IMAX DMR films in the third quarter of 2020, from $246.1 million to $70.2 million.

In the third quarter of 2020, GBO was generated by the exhibition of six new films and the re-release of classic titles as compared to 26 films (20 new and 6 carryovers) exhibited in the third quarter of 2019.

In addition to the level of revenues, IMAX DMR gross margin is also influenced by the costs associated with the films exhibited in the period, and can vary from period-to-period, particularly with respect to marketing expenses.

For the three months ended June 30, 2020, marketing expenses related to IMAX DMR films were $nil, as compared to $9.5 million during the same period of 2019.

For the three months ended September 30, 2020, marketing expenses were $0.4 million, as compared to $4.3 million during the same period of 2019.

Joint Revenue Sharing Arrangements – Contingent Rent

Due to the COVID-19 global pandemic, substantially all of the theaters in the IMAX network were closed in the second quarter of 2020.

As a result, for the three months ended June 30, 2020, JRSA contingent rent revenue and gross margin decreased by $25.7 million (101%) and $25.8 million (134%), respectively, when compared to the same period in 2019.

These decreases are due to an $185.1 million (100%) reduction in GBO generated by theaters under joint revenue sharing arrangements in the second quarter of 2020 as a result of the COVID-19 theater closures.

In the third quarter of 2020, approximately 85% of the theaters in the commercial multiplex network gradually reopened subject to capacity restrictions due to the COVID-19 global pandemic;

As a result, for the three months ended September 30, 2020, JRSA contingent rent revenue and gross margin decreased by $12.1 million (73%) and $12.0 million (126%), respectively, when compared to the same period in 2019.

These decreases are due to an $85.5 million (70%) reduction in GBO generated by theaters under joint revenue sharing arrangements in the third quarter of 2020, from $121.9 million to $36.4 million.

As at September 30, 2020, 881 theaters were operating under joint revenue sharing arrangements, as compared to 841 theaters as at September 30, 2019, an increase of 5%.

In addition to the level of revenues, JRSA margin is also influenced by the level of costs associated with such arrangements, such as depreciation expense related to the underlying theater systems and costs incurred to upgrade theater systems from digital xenon to IMAX with Laser, as well as advertising, marketing and commission costs primarily for the launch of new theaters.

The level of depreciation expense in a period relative to the prior year is a function of the growth of the theater network and the mix of theater system configurations in the network.

For the three months ended June 30, 2020, JRSA gross margin included depreciation expense of $6.2 million, as compared to $5.7 million in the same period of the prior year as a result of the 5% increase in the number of theaters operating under joint revenue sharing arrangements.

For the three months ended June 30, 2020, JRSA gross margin includes advertising, marketing and commission costs of less than $0.1 million, as compared to $0.2 million in the same period of the prior year.

For the three months ended September 30, 2020, JRSA gross margin included depreciation expense of $6.1 million, as compared to $5.9 million in the same period of the prior year as a result of the 5% increase in the number of theaters operating under joint revenue sharing arrangements.

For the three months ended September 30, 2020, JRSA gross margin includes advertising, marketing and commission costs of $0.7 million, as compared to $0.8 million in the same period of the prior year.

IMAX Technology Sales and Maintenance

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The installation of IMAX Theater Systems in newly built theaters or multiplexes, which make up a large portion of the Company’s theater system backlog, depends primarily on the timing of the construction of those projects, which is not under the Company’s control.

The following table provides detailed information about the mix of IMAX Theater System installations for the three months ended June 30, 2020 and 2019:

For the Three Months Ended June 30,

The following table provides detailed information about the mix of IMAX Theater System installations for the three months ended September 30, 2020 and 2019:

For the Three Months Ended September 30,

New IMAX Theater Systems — installed and recognized

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Total IMAX Theater Systems installed and recognized

The arrangement for the sale of an IMAX Theater System includes fixed upfront and ongoing consideration, including indexed annual minimum payment increases over the term of the arrangement, as well as the provision for additional payments in excess of the minimum agreed payments in situations when the theater exceeds certain box office thresholds.

The arrangement for the sale of an IMAX Theater System includes fixed upfront and ongoing consideration, including indexed annual minimum payment increases over the term of the arrangement, as well as an estimate of the contingent fees that may become due if certain annual minimum box office receipt thresholds are exceeded.

Digital theater system relocated from a previous location.

This installation is incremental to the IMAX network but full revenue for the digital system was not received.

The average revenue per IMAX Theater System under sales and sales-type lease arrangements varies depending upon the number of IMAX Theater System commitments with a single respective exhibitor, an exhibitor’s location and various other factors.

Average revenue per IMAX Theater System under sales and sales-type lease arrangements was $0.9 million for the three months ended June 30, 2020, as compared to $1.3 million during the same period of the prior year.

For the three months ended June 30, 2020, IMAX Technology Sales and Maintenance revenue and gross margin decreased by $30.2 million (87%) and $15.1 million (99%), respectively, when compared to the same period in the prior year as the pace of theater system installations slowed significantly and regular maintenance services were suspended due to the COVID-19 global pandemic.

The average revenue per full (i.e., not hybrid), new IMAX Theater System under sales and sales-type lease arrangements was $1.1 million for the three months ended September 30, 2020, as compared to $1.2 million during the same period of the prior year.

For the three months ended September 30, 2020, IMAX Technology Sales and Maintenance revenue and gross margin decreased by $14.0 million (37%) and $9.0 million (49%), respectively, when compared to the same period in the prior year as the pace of theater system installations slowed significantly and maintenance revenue was not recognized for theaters that remained closed during the period due to the COVID-19 global pandemic.

See below for separate discussions of IMAX Systems and IMAX Maintenance results for the period.

For the three months ended June 30, 2020, IMAX Systems revenue and gross margin decreased by $12.0 million (72%) and $5.4 million (67%), respectively, when compared to the same period in the prior year.

These decreases are the result of the twelve fewer IMAX Theater System installations in the current period as the pace of theater system installations slowed significantly due to the COVID-19 global pandemic.

For the three months ended September 30, 2020, IMAX Systems revenue and gross margin decreased by $3.5 million (17%) and $3.0 million (26%), respectively, when compared to the same period in the prior year.

These decreases are the result of five fewer IMAX Theater System installations in the current period as the pace of theater system installations slowed significantly due to the COVID-19 global pandemic.

IMAX Maintenance

For the three months ended June 30, 2020, IMAX Maintenance revenue and gross margin decreased by $13.2 million (100%) and $7.5 million (134%), respectively, as regular maintenance services were suspended and the associated revenue was not recognized during the period due to the COVID-19 global pandemic.

In the third quarter of 2020, as the theaters in the IMAX network gradually reopened, the Company was able to again provide its normal maintenance services and, accordingly, resumed revenue recognition for those theaters.

For the three months ended September 30, 2020, IMAX Maintenance revenue and gross margin decreased by $7.8 million (57%) and $5.3 million (87%), respectively, due to the pace and extent of theater reopenings during the period.

Maintenance margins vary depending on the mix of theater system configurations in the theater network, volume-pricing related to larger relationships and the timing and the date(s) of installation and/or service.

Film Distribution and Post- p roduction

For the three months ended June 30, 2020, Film Distribution and Post-production revenue decreased by $0.4 million (12%) and gross margin decreased by $1.9 million, respectively, when compared to the same period in the prior year.

The results for second quarter of 2020 are significantly influenced by a $2.2 million impairment loss recorded in the period 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 of Notes to Condensed Consolidated Financial Statements.)

For the three months ended September 30, 2020, Film Distribution and Post-production revenue and gross margin decreased by $1.7 million (47%) and $6.1 million, respectively, when compared to the same period in the prior year.

The results for the third quarter of 2020 are significantly influenced by a $5.4 million impairment loss recorded in the period principally 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 September 30, 2020 , following the recording of these write-downs, the Company’s film assets totaled $7.5 million, which principally consists of DMR and documentary content.

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 of Notes to Condensed Consolidated Financial Statements).

Selling, General and Administrative Expenses

For the three months ended June 30, 2020, Selling, General and Administrative Expenses decreased by $2.3 million (7%), when compared to the same period in 2019.

For the three months ended June 30, 2020, Selling, General and Administrative Expenses excluding the impact of share-based compensation were $23.3 million, as compared to $25.6 million in the same period in 2019, representing a decrease of $2.3 million (9%).

The comparison to the prior year is significantly influenced by COVID-19 government relief that the Company became entitled to receive during the period under the Canada Emergency Wage Subsidy program and the U.S.

CARES Act, of which $2.9 million was recognized in the second quarter of 2020 as a reduction to Selling, General and Administrative Expenses.

For the three months ended September 30, 2020, Selling, General and Administrative Expenses decreased by $4.7 million (16%), when compared to the same period in 2019.

For the three months ended September 30, 2020, Selling, General and Administrative Expenses excluding the impact of share-based compensation were $19.7 million, as compared to $24.5 million in the same period in 2019, representing a decrease of $4.8 million (20%).

The comparison to the prior year is significantly influenced by COVID-19 government relief that the Company became entitled to receive during the period, of which $1.7 million was recognized in the third quarter of 2020 as a reduction to Selling, General and Administrative Expenses.

Also impacting the comparison to the prior period are management’s cost control efforts amidst the COVID-19 global pandemic, resulting in lower staff costs, travel, facilities and marketing related expenses, among others.

These factors are partially offset by an approximate $8.0 million decrease in labor and other costs capitalized to inventory, film assets, and joint venture theater equipment or allocated to costs applicable to revenues, due to the idling of the Company’s productive capacity during the COVID-19 global pandemic.

These factors are partially offset by a $4.5 million (35%) decrease in labor and other costs capitalized to inventory, film assets, and joint venture theater equipment or allocated to costs applicable to revenues, due to the lower level of production during the COVID-19 global pandemic.

In response to uncertainties associated with the COVID-19 global pandemic, the Company has taken and is continuing to take significant steps to preserve cash by eliminating non-essential costs, placing certain employees on a temporary furlough for at lease the remainder of the current fiscal year, reducing the working hours of other employees and deferring all non-essential capital expenditures to minimum levels.

Credit Loss Expense

For the three months ended June 30, 2020, the Company recorded a provision for current expected credit losses of $1.4 million reflecting a reduction in the credit quality of its theater and studio related receivable balances, which management believes is primarily related to the COVID-19 pandemic, as discussed in Note 2 of Notes to Condensed Consolidated Financial Statements.

For the three months ended September 30, 2020, the Company recorded a provision for current expected credit losses of $3.9 million, reflecting a reduction in the credit quality of its theater and studio related receivable balances, which management believes is primarily related to the COVID-19 pandemic, as discussed in Note 2 of Notes to Condensed Consolidated Financial Statements.

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

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As a result, the Company’s judgments and associated estimates of credit losses may ultimately prove, with the benefit of hindsight, to be incorrect.

For the three months ended June 30, 2019, credit loss expense was $0.9 million.

For the three months ended September 30, 2019, credit loss expense was $0.6 million.

(See Notes 2 and 3 of Notes to Condensed Consolidated Financial Statements.)

Gain (loss) in fair value of equity securities

Gain (loss) in fair value of investments

In the first quarter of 2019, IMAX China (Hong Kong), Limited, a wholly-owned subsidiary of IMAX China, entered into a cornerstone investment agreement with Maoyan Entertainment (“Maoyan”) and purchased equity securities for $15.2 million.

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This adjustment will fluctuate based on the closing market price at the end of each period.

For the three months ended June 30, 2020, the fair value of the Company’s investment in Maoyan experienced an unrealized gain of $2.0 million, as compared to an unrealized loss of $4.5 million in the same period of the prior year, which are both recognized in the Condensed Consolidated Statements of Operations.

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 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.

As at June 30, 2020, the Company’s Condensed Consolidated Balance Sheets include net deferred income tax assets of $46.8 million, 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 of Notes to Condensed Consolidated Financial Statements.

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.

For the three months ended September 30, 2020, the fair value of the Company’s investment in Maoyan increased by $1.6 million resulting in a corresponding unrealized gain, as compared to an unrealized loss of $0.5 million in the same period of the prior year, which are both recognized in the Condensed Consolidated Statements of Operations.

For the three months ended September 30, 2020, the Company recorded income tax expense of $19.3 million (2019 — tax expense of $3.0 million), which includes a $23.7 million valuation allowance to reduce the value of deferred tax assets in certain jurisdictions where the Company incurs corporate leadership and administrative costs and where management could not reliably estimate future taxable income in those jurisdictions due to uncertainties associated with the COVID-19 global pandemic.

Despite this valuation allowance, the Company remains entitled to benefit from tax attributes which currently have a valuation allowance applied .

The Company’s effective tax rate for the three months ended September 30, 2020 of (69.6)% differs from the Canadian statutory tax rate of 26.2%, primarily due to the recording of this valuation allowance, permanent book to tax differences, jurisdictional tax rate differences, and management’s estimates of contingent liabilities related to the resolution of various tax examinations.

As at September 30, 2020, the Company’s Condensed Consolidated Balance Sheets include net deferred income tax assets of $17.7 million, net of a valuation allowance of $23.9 million (December 31, 2019 — $23.9 million, net of a valuation allowance of $0.2 million).

The utilization of the Company’s deferred tax assets is dependent on having a sufficient level of future tax benefits, such as taxable income in each of the jurisdictions to which the deferred tax assets relate.

Accordingly, the net amount recorded on the Condensed Consolidated Balance Sheets relies on management’s estimates of future taxable income and is therefore subject to the uncertainties associated with accounting estimates, as discussed in Note 1 of Notes to Condensed Consolidated Financial Statements.

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.

There may be a requirement for future investment of funds into China in order to secure the deduction.

Should the Company proceed, any such future investment would come from existing capital invested in the IMAX China group of companies being redeployed amongst the IMAX China group of companies, including the Chinese subsidiary.

As at September 30, 2020, the Company’s Condensed Consolidated Balance Sheets include a deferred income tax liability of $18.7 million (December 31, 2019 — $nil).

Equity Method Investments

For the three months ended September 30, 2020, the Company reported a loss of $1.3 million due to the write-off of deferred tax assets related to an equity method investment, as compared to a gain of $0.2 million in the same period in the prior year related to its proportionate share of equity investee results.

Non-Controlling Interests

The Company’s Condensed Consolidated Financial Statements primarily include the non-controlling interest in the net income (loss) of IMAX China, as well as the impact of non-controlling interests in the activity of its Original Film Fund subsidiary.

For the three months ended June 30, 2020, the net loss attributable to non-controlling interests of the Company’s subsidiaries was $4.1 million (2019 ─ net income of $2.4 million).

Results of Operations for the Six Months Ended June 30 , 2020 and 2019

For the six months ended June 30, 2020, the Company reported a net loss attributable to common shareholders of $(75.3) million, or $(1.26) per basic and diluted share, as compared to net income attributable to common shareholders of $19.7 million, or $0.32 per basic and diluted share, for the same period in 2019.

For the six months ended June 30, 2020, the Company reported an adjusted net loss attributable to common shareholders* of $(54.8) million, or $(0.92) per basic and diluted share*, as compared to adjusted net income attributable to common shareholders* of $30.5 million, or $0.50 per diluted share*, for the same period in 2019.

The following table sets forth the breakdown of revenue and (margin loss) gross margin by category and reportable segment for the six months ended June 30, 2020 and 2019:

For the three months ended September 30, 2020, the net loss attributable to non-controlling interests of the Company’s subsidiaries was $1.3 million (2019 ─ net income of $1.9 million).

Results of Operations for the Nine Months Ended S e ptember 30 , 2020 and 2019

For the nine months ended September 30, 2020, the Company reported a net loss attributable to common shareholders of $(122.5) million, or $(2.06) per basic and diluted share, as compared to net income attributable to common shareholders of $28.7 million, or $0.47 per basic and diluted share, for the same period in 2019.

For the nine months ended September 30, 2020, the Company reported an adjusted net loss attributable to common shareholders* of $(99.4) million, or $(1.67) per basic and diluted share*, as compared to adjusted net income attributable to common shareholders* of $43.3 million, or $0.70 per diluted share*, for the same period in 2019.

The following table sets forth the breakdown of revenue and gross margin (margin loss) by category and reportable segment for the nine months ended September 30, 2020 and 2019:

(In thousands of U.S.

(Margin Loss) Gross Margin

Gross Margin (Margin Loss)

IMAX Technology Network

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Revenues and Gross Margin

Due to the COVID-19 global pandemic, substantially all of the theaters in the IMAX network were closed for a significant portion of the six months ended June 30, 2020, with the theaters in Greater China closed since late-January and substantially all of the Company’s remaining theaters closed since mid-to-late March.

As a result, the Company’s results of operations for the six-month period materially declined versus the prior year.

For the six months ended June 30, 2020, revenues and gross margin decreased by $141.2 million (76%) and $107.3 million (102%), respectively, when compared to the same period in 2019.

Due to the COVID-19 global pandemic, substantially all of the theaters in the IMAX network were closed for a significant portion of the six months ended June 30, 2020, with the theaters in Greater China closed beginning in late-January and substantially all of the Company’s remaining theaters closed beginning in mid-to-late March.

In the third quarter of 2020, approximately 85% of the theaters in the commercial multiplex network gradually reopened subject to capacity restrictions;

As a result of these factors, the Company’s results of operations for the nine months ended September 30, 2020 materially declined versus the prior year with revenues and gross margin decreasing by $190.4 million (70%) and $150.6 million (99%), respectively, when compared to the same period in 2019.

IMAX Technology Network

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dollar and potential currency devaluations.

For the six months ended June 30, 2020 , IMAX Technology Network revenues and gross margin decreased by $93.8 million ( 85 %) and $78.7 million ( 105 %), respec tively, when compared to the same period in 2019 .

See below for separate discussion s of IMAX DMR and JRSA contingent rent results for the period .

As a result, for the six months ended June 30, 2020, IMAX DMR revenues and gross margin decreased by $56.1 million (83%) and $39.3 million (90%), respectively, when compared to the same period in 2019.

These decreases are due to a $523.4 million (84%) reduction in GBO generated by IMAX DMR films as a result of the theater closures.

For the six months ended June 30, 2020, GBO was generated primarily by the exhibition of 14 films (10 new and 4 carryovers), as compared to 39 films (27 new and 12 carryovers) exhibited in the six months ended June 30, 2019.

For the nine months ended September 30, 2020, IMAX Technology Network revenues and gross margin decreased by $125.7 million (82%) and $105.5 million (103%), respectively, when compared to the same period in 2019.

See below for separate discussions of IMAX DMR and JRSA contingent rent results for the period.

Due to the COVID-19 global pandemic, substantially all of the theaters in the IMAX network were closed for a significant portion of the six months ended June 30, 2020, with the theaters in Greater China closed beginning in late-January and substantially all of the Company’s remaining theaters closed beginning in mid-to-late March.

In the third quarter of 2020, approximately 85% of the theaters in the commercial multiplex network gradually reopened subject to capacity restrictions;

As a result of these factors, for the nine months ended September 30, 2020, IMAX DMR revenues and gross margin decreased by $75.8 million (81%) and $54.1 million (88%), respectively, when compared to the same period in 2019.

These decreases are due to a $699.2 million (81%) reduction in GBO generated by IMAX DMR films, from $867.3 million to $168.1 million.

For the nine months ended September 30, 2020, GBO was generated primarily by the exhibition of 20 films (16 new and 4 carryovers) and the re-release of classic titles, as compared to 59 films (47 new and 12 carryovers) exhibited in the nine months ended September 30, 2019.

For the six months ended June 30, 2020, marketing expenses related to IMAX DMR films were $2.4 million, as compared to $13.4 million during the same period of 2019.

For the nine months ended September 30, 2020, marketing expenses were $2.8 million, as compared to $17.7 million during the same period of 2019.

Joint Revenue Sharing Arrangements – Contingent Rent

As a result, for the six months ended June 30, 2020, JRSA contingent rent revenue and gross margin decreased by $37.8 million (87%) and $39.4 million (126%), respectively, when compared to the same period in 2019.

The decreases in revenue and gross margin are due to a $274.0 million (86%) reduction in GBO generated by theaters under joint revenue sharing arrangements during the current period due to the theater closures.

As at June 30, 2020, 868 theaters were operating under joint revenue sharing arrangements, as compared to 826 theaters as at June 30, 2019, an increase of 5%.

Due to the COVID-19 global pandemic, substantially all of the theaters in the IMAX network were closed for a significant portion of the six months ended June 30, 2020, with the theaters in Greater China closed beginning in late-January and substantially all of the Company’s remaining theaters closed beginning in mid-to-late March.

In the third quarter of 2020, approximately 85% of the theaters in the commercial multiplex network gradually reopened subject to capacity restrictions;

As a result of these factors, for the nine months ended September 30, 2020, JRSA contingent rent revenue and gross margin decreased by $49.9 million (83%) and $51.4 million (126%), respectively, when compared to the same period in 2019.

These decreases are due to a $359.5 million (81%) reduction in GBO generated by theaters under joint revenue sharing arrangements during the current period, from $441.6 million to $82.1 million.

As at September 30, 2020, 881 theaters were operating under joint revenue sharing arrangements, as compared to 841 theaters as at September 30, 2019, an increase of 5%.

The level of depreciation expense in a period relative to the prior year is a function of the growth of the theater network and the mix of theater system configurations in the network.

For the six months ended June 30, 2020, JRSA gross margin included depreciation expense of $13.2 million, as compared to $11.3 million in the same period of the prior year as a result of the 5% increase in the number of theaters operating under joint revenue sharing arrangements.

For the six months ended June 30, 2020, JRSA gross margin includes certain advertising, marketing and commission costs of $0.6 million, as compared to $0.3 million in the same period of the prior year.

For the nine months ended September 30, 2020 , JRSA gross margin included depreciation expense of $19.2 million , as compared to $17.2 million in the same period of the prior year as a result of the 5 % increase in the number of theaters operating under joint revenue sharing arrangements.

For the nine months ended September 30, 2020 , JRSA gross margin includes certain advertising, marketing and commission costs of $1.3 million , as compared to $1.1 million in the same period of the prior year .

IMAX Technology Sales and Maintenance

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The following table provides detailed information about the mix of IMAX Theater System installations for the six months ended June 30, 2020 and 2019:

For the Six Months Ended June 30,

The following table provides detailed information about the mix of IMAX Theater System installations for the nine months ended September 30, 2020 and 2019:

For the Nine Months Ended September 30,

New IMAX Theater Systems — installed and recognized

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Total IMAX Theater Systems installed and recognized

The arrangement for the sale of an IMAX Theater System includes fixed upfront and ongoing consideration, including indexed annual minimum payment increases over the term of the arrangement, as well as an estimate of the contingent fees that may become due if certain annual minimum box office receipt thresholds are exceeded.

Includes a digital theater system relocated from a previous location.

This installation is incremental to the IMAX network but full revenue for the digital system was not received.

Average revenue per IMAX Theater System under sales and sales-type lease arrangements was $0.9 million during the six months ended June 30, 2020, compared to $1.3 million during the same period of the prior year.

For the six months ended June 30, 2020, IMAX Technology Sales and Maintenance revenue and gross margin decreased by $45.3 million (70%) and $23.5 million (83%), respectively, when compared to the same period in the prior year as the pace of theater system installations slowed significantly and regular maintenance services were suspended due to the temporary closure of theaters in the network due to the public health risks associated with the COVID-19 global pandemic.

The average revenue per full (i.e., not hybrid) IMAX Theater System under sales and sales-type lease arrangements was $1.0 million during the nine months ended September 30, 2020, compared to $1.3 million during the same period of the prior year.

For the nine months ended September 30, 2020, IMAX Technology Sales and Maintenance revenue and gross margin decreased by $59.3 million (58%) and $32.6 million (69%), respectively, when compared to the same period in the prior year as the pace of theater system installations slowed significantly and maintenance revenue was not recognized during the periods of time when theaters were closed due to the COVID-19 global pandemic.

See below for separate discussions of IMAX Systems and IMAX Maintenance results for the period.

For the six months ended June 30, 2020, IMAX Systems revenue and gross margin decreased by $19.3 million (65%) and $9.2 million (61%), respectively, when compared to the same period in the prior year.

For the nine months ended September 30, 2020, IMAX Systems revenue and gross margin decreased by $22.8 million (45%) and $12.2 million (46%), respectively, when compared to the same period in the prior year.

These decreases are the result of 25 fewer IMAX Theater System installations in the current period as the pace of theater system installations slowed significantly due to the COVID-19 global pandemic.

IMAX Maintenance

For the six months ended June 30, 2020, IMAX Maintenance revenue and gross margin decreased by $18.8 million (72%) and $12.1 million (111%), respectively, as regular maintenance services were suspended and the associated revenue was not recognized during the period when substantially all of the theaters in the network were temporarily closed due to the COVID-19 global pandemic.

For the nine months ended September 30, 2020, IMAX Maintenance revenue and gross margin decreased by $26.6 million (67%) and $17.4 million (102.1%), respectively, as maintenance revenue was not recognized during the periods of time when theaters were closed due to the COVID-19 global pandemic.

Film Distribution and Post-production

For the six months ended June 30, 2020, Film Distribution and Post-production revenue decreased by $0.6 million (9%) and gross margin decreased by $3.8 million, respectively, when compared to the same period in the prior year.

The results for the current six-month period are significantly influenced by a $4.5 million impairment loss recorded in the period 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 of Notes to Condensed Consolidated Financial Statements.)

For the nine months ended September 30, 2020, Film Distribution and Post-production revenue and gross margin decreased by $2.3 million (23%) and $9.9 million, respectively, when compared to the same period in the prior year.

The results for the current nine-month period are significantly influenced by a $9.9 million impairment loss recorded in the period principally 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 September 30, 2020 , following the recording of these write-downs, the Company’s film assets totaled $7.5 million, which principally consists of DMR and documentary content.

Selling, General and Administrative Expenses

For the six months ended June 30, 2020, Selling, General and Administrative Expenses decreased by $1.4 million (2%), when compared to the same period in 2019.

For the three months ended June 30, 2020, Selling, General and Administrative Expenses excluding the impact of share-based compensation were $48.2 million, as compared to $49.4 million in the same period in 2019, representing a decrease of $1.2 million (2%).

For the nine months ended September 30, 2020, Selling, General and Administrative Expenses decreased by $6.0 million (7%), when compared to the same period in 2019.

For the nine months ended September 30, 2020, Selling, General and Administrative Expenses excluding the impact of share-based compensation were $67.9 million, as compared to $73.9 million in the same period in 2019, representing a decrease of $6.0 million (8%).

CARES Act, of which $2.9 million was recognized in the second quarter of 2020 as a reduction to Selling, General and Administrative Expenses.

CARES Act, of which $4.5 million was recognized in the nine months ended September 30, 2020 as a reduction to Selling, General and Administrative Expenses.

Also impacting the comparison to the prior period are management’s cost control efforts amidst the COVID-19 global pandemic resulting in lower staff costs, travel, facilities and marketing related expenses, among others.

These factors are partially offset by an approximate $9.0 million decrease in labor and other costs capitalized to inventory, film assets, and joint venture theater equipment or allocated to costs applicable to revenues, due to the idling of the Company’s productive capacity during the COVID-19 global pandemic.

These factors are partially offset by a $13.6 million (36%) decrease in labor and other costs capitalized to inventory, film assets, and joint venture theater equipment or allocated to costs applicable to revenues, due to the lower level of production during the COVID-19 global pandemic.

In response to uncertainties associated with the COVID-19 global pandemic, the Company has taken and is continuing to take significant steps to preserve the cash by eliminating non-essential costs, placing certain employees on a temporary furlough for at least the remainder of the current fiscal year, reducing the working hours of other employees and deferring all non-essential capital expenditures to minimum levels.

Research and Development

A significant portion of the Company’s research and development efforts over the past several years have been focused on IMAX with Laser, the Company’s laser-based projection system, which the Company believes delivers increased resolution, sharper and brighter images, deeper contrast as well as the widest range of colors available to filmmakers today.

For the six months ended June 30, 2020, Research and Development expenses increased by $1.1 million (46%), when compared to the same period in the prior year, primarily due to costs associated with the Connected Theaters initiative.

For the nine months ended September 30, 2020, Research and Development expenses increased by $0.9 million (23%), when compared to the same period in the prior year, primarily due to costs associated with the Connected Theaters initiative.

The Company also intends to continue research and development in other areas considered important to the Company’s continued commercial success, including further improving the reliability of its projectors, certifying more IMAX cameras, enhancing the Company’s image quality, expanding the applicability of the Company’s digital technology in both theater and home entertainment and improvements to the DMR process.

In addition, the Company has been, and intends to continue, using time and resources during the theater shutdown caused by the COVID-19 global pandemic to work on leveraging and developing technologies and systems to help bring additional interactivity to its theater network, better manage certain of the Company’s internal workflows and better organize and codify certain of the Company’s data.

In addition, the Company has been, and intends to continue, using time and resources during the business slowdown caused by the COVID-19 global pandemic to work on leveraging and developing technologies and systems to help bring additional interactivity to its theater network, better manage certain of the Company’s internal workflows and better organize and codify certain of the Company’s data.

During previous adverse events and downturns in the cinema business, the Company fostered many of the innovations that helped enable its global growth in recent years, including the development of its proprietary DMR process and the creation of its joint-revenue sharing business model.

Credit Loss Expense

For the six months ended June 30, 2020, the Company recorded a provision for current expected credit losses of $11.7 million reflecting a reduction in the credit quality of its theater and studio related receivable balances, which management believes is primarily related to the COVID-19 pandemic, as discussed in Note 2 of Notes to Condensed Consolidated Financial Statements.

For the nine months ended September 30, 2020, the Company recorded a provision for current expected credit losses of $15.6 million reflecting a reduction in the credit quality of its theater and studio related receivable balances, which management believes is primarily related to the COVID-19 pandemic, as discussed in Note 2 of Notes to Condensed Consolidated Financial Statements.

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

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As a result, the Company’s judgments and associated estimates of credit losses may ultimately prove, with the benefit of hindsight, to be incorrect.

For the six months ended June 30, 2019, credit loss expense was $1.4 million.

For the nine months ended September 30, 2019, credit loss expense was $2.0 million.

(See Notes 2 and 3 of Notes to Condensed Consolidated Financial Statements.)

Asset Impairments

For the six months ended June 30, 2020, the Company recorded asset impairments of $1.2 million (2019 — $nil) principally related to write-down of content-related assets which became impaired in the period.

(See Notes 1 and 2 of Notes to Condensed Consolidated Financial Statements.)

Gain (loss) in fair value of equity securities

In the second quarter of 2019, IMAX China (Hong Kong), Limited, a wholly-owned subsidiary of IMAX China, entered into a cornerstone investment agreement with Maoyan Entertainment (“Maoyan”) and purchased equity securities for $15.2 million.

For the nine months ended September 30, 2020, the Company recorded asset impairments of $1.2 million (2019 — $nil) principally related to write-down of content-related assets which became impaired in the period (see Notes 1 and 2 of Notes to Condensed Consolidated Financial Statements).

Gain (loss) in fair value of investments

In the third quarter of 2019, IMAX China (Hong Kong), Limited, a wholly-owned subsidiary of IMAX China, entered into a cornerstone investment agreement with Maoyan Entertainment (“Maoyan”) and purchased equity securities for $15.2 million.

These equity securities are traded on the Hong Kong Stock Exchange, and the Company is required to adjust the fair value of the securities each period to reflect the current market value.

This adjustment will fluctuate based on the closing market price at the end of each

For the six months ended June 30, 2020 , the fair value of the Company’s investment in Maoyan experienced an unrealized loss of $2.5 million , as compared to an unrealized loss of $2.1 million in the same period in the prior year , which are both recognized in the Condensed Consolidated Statements of Operations.

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 below.

This adjustment will fluctuate based on the closing market price at the end of each period.

For the nine months ended September 30, 2020, the fair value of the Company’s investment in Maoyan decreased by $0.9 million resulting in a corresponding unrealized loss, as compared to an unrealized loss of $2.5 million in the same period in the prior year, which are both recognized in the Condensed Consolidated Statements of Operations.

For the nine months ended September 30, 2020 , the Company recorded income tax expense of $24.6 million (2019 — tax expense of $12.0 million) , which includes the $23.7 million valuation allowance recorded in the third quarter of 2020, to reduce the value of deferred tax assets in certain jurisdictions where the Company incurs corporate leadership and administrative costs and where management could not reliably estimate future taxable income in those jurisdictions due to uncertainties associated with the COVID-19 global pandemic.

At the point in time when the uncertainties of COVID-19 resolve and the Company is able to reliably forecast sufficient future taxable income in the impacted jurisdictions, the $23.7 million valuation allowance recorded in the third quarter of 2020 may be reversed.

Despite this valuation allowance, the Company remains entitled to benefit from tax attributes which currently have a valuation allowance applied.

T he Company’s effective tax rate for the nine months ended September 30, 2020 of (22.1)% differs from the Canadian statutory tax rate of 26.2%, primarily due to the recording of this valuation allowance, withholding taxes associated with the reversal of the indefinite reinvestment assertion for certain foreign subsidiaries, as discussed below, permanent book to tax differences, jurisdictional tax rate differences, and management’s estimates of contingent liabilities related to the resolution of various tax examinations.

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.

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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 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 a deferred income tax liability of $18.5 million (December 31, 2019 — $nil).

During the six months ended June 30, 2020, deferred tax assets increased by $22.9 million due to losses recognized in the period.

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 estimate of the applicable foreign withholding taxes was subsequently reduced by $1.0 million, principally in the second quarter of 2020, to $18.7 million due to a reduction in the amount of distributable historical earnings .

Cash held outside of Canada as at September 30, 2020 was $76.4 million ( December 31, 2019 — $90.1 million ), of which $62.6 million was held in the People’s Republic of China (“PRC”) ( December 31, 2019 — $67.6 million ).

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

Chinese regulatory authorities responsible for capital and exchange controls will need to review and approve the proposed settlement of these transactions before they can be completed.

There may be a requirement for future investment of funds into China in order to secure the deduction.

As at September 30, 2020, the Company’s Condensed Consolidated Balance Sheets include a deferred income tax liability of $18.7 million (December 31, 2019 — $nil).

Equity Method Investments

For the six months ended June 30, 2020, the Company reported a loss of $0.5 million related its proportionate share of equity investee results, as compared to $0.2 million in the same period in the prior year, due to the write-off of deferred tax assets related to an equity method investment.

For the nine months ended September 30, 2020, the Company reported a loss of $1.9 million due to the write-off of deferred tax assets related to an equity method investment, as compared to $0.1 million in the same period in the prior year related to its proportionate share of equity investee results.

Non-Controlling Interests

The Company’s Condensed Consolidated Financial Statements include the non-controlling interest in the net income (loss) of IMAX China as well as the impact of non-controlling interests in the activity of its Original Film Fund subsidiary.

For the six months ended June 30, 2020, the net loss attributable to non-controlling interests of the Company’s subsidiaries was $14.1 million (2019 ─ net income of $6.7 million).

For the nine months ended September 30, 2020, the net loss attributable to non-controlling interests of the Company’s subsidiaries was $15.4 million (2019 ─ net income of $8.5 million).

LIQUIDITY AND CAPITAL RESOURCES

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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.

The modifications to the negative covenants, the minimum liquidity covenant and modifications to certain other provisions in the Credit Agreement pursuant to the Amendment are effect ive 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 September 30, 2020 , and based on current projections expects to be in compliance through the next twelve months .

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;

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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).

The effective interest rate for the three and nine months ended September 30, 2020 was 2.70% and 2.24%, respectively (2019 ― 3.34% and 3.50%, 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;

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(“IMAX Shanghai”), the Company’s majority-owned subsidiary 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.

As at September 30, 2020, there was 1.7 million Renminbi ($0.3 million) in borrowings outstanding under the Working Capital Facility, and 198.3 million Renminbi ($29.7 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.

The effective interest rate related to the Working Capital Facility for the three and nine months ended September 30, 2020 was 4.35%.

Letters of Credit and Other Commitments

As at June 30, 2020, the Company did not have any letters of credit or advance payment guarantees outstanding (December 31, 2019 — $nil), under the Credit Facility.

As at September 30, 2020, the Company did not have any letters of credit or advance payment guarantees outstanding (December 31, 2019 — $nil), under the Credit Facility.

On October 28, 2019, the Company entered into a $5.0 million facility for advance payment guarantees and letters of credit through the National Bank of Canada for use solely in conjunction with guarantees fully insured by Export Development Canada (the “NBC Facility”) to replace a Bank of Montreal Facility with substantially the same terms which expired on September 30, 2019.

The NBC Facility is unsecured and includes typical affirmative and negative covenants, including delivery of annual consolidated financial statements within 120 days of the end of the fiscal year.

As at June 30, 2020, the Company did not have any letters of credit or advance payment guarantees outstanding under the NBC Facility.

As at September 30, 2020, the Company did not have any letters of credit or advance payment guarantees outstanding under the NBC Facility.

Cash and Cash Equivalents

As of June 30, 2020, the Company’s principal sources of liquidity included:

(i) its balances of cash and cash equivalents ($319.0 million, which reflects the full draw of the Credit Facility in the first quarter of 2020), (ii) the anticipated collection of trade accounts receivable, which includes amounts owed under joint revenue sharing arrangements and DMR agreements with movie studios, (iii) the anticipated collection from financing receivables due in the next 12 months and (iv) payments expected in the next 12 months on its existing sales and sales type lease backlog.

The Company’s $319.0 million balance of cash and cash equivalents as of June 30, 2020 includes $75.0 million in cash held outside of Canada (December 31, 2019 — $90.1 million), of which $61.5 million was held in the People’s Republic of China (the “PRC”) (December 31, 2019 — $67.6 million).

As of September 30, 2020, the Company’s principal sources of liquidity included:

(i) its balances of cash and cash equivalents ($305.2 million, which reflects the full draw of the Credit Facility in the first quarter of 2020);

(ii) the anticipated collection of trade accounts receivable, which includes amounts owed under joint revenue sharing arrangements and DMR agreements with movie studios;

(iii) the anticipated collection of financing receivables due in the next 12 months;

and (iv) payments expected in the next 12 months on its existing sales and sales type lease backlog.

The Company’s $305.2 million balance of cash and cash equivalents as of September 30, 2020 includes $76.4 million in cash held outside of Canada (December 31, 2019 — $90.1 million), of which $62.6 million was held in the People’s Republic of China (the “PRC”) (December 31, 2019 — $67.6 million).

In the first quarter of 2020, management completed a reassessment of its strategy with respect to the most efficient means of deploying the Company’s capital resources globally.

As a result, during the six months ended June 30, 2020 , the Company recognized a deferred tax liability of $18.5 million for the applicable foreign withholding taxes associated with these historical earnings, which will become payable upon the repatriation of any such earnings.

During the six months ended June 30, 2020, cash and cash equivalents increased by $209.5 million, which reflects the full draw of the Credit Facility in the first quarter of 2020, as discussed above.

This financing cash inflow was partially offset by $20.9 million in cash used to fund the Company’s operating activities as the COVID-19 global pandemic resulted in a significant decline in revenue and earnings.

In addition, during the six months ended June 30, 2020, the Company repurchased $36.6 million of its common shares under the share repurchase program and invested $3.9 million in equipment to be used in its joint revenue sharing arrangements with exhibitors.

As a result, during the nine months ended September 30, 2020 , the Company recognized a deferred tax liability of $18.7 million for the applicable foreign withholding taxes associated with these historical earnings, which will become payable upon the repatriation of any such earnings.

During the nine months ended September 30, 2020, cash and cash equivalents increased by $195.7 million principally due to financing cash inflows of $233.5 million, which include the full draw of the Credit Facility in the first quarter of 2020, as discussed above.

These financing cash inflows are partially offset by $30.8 million of cash used to fund the Company’s operating activities as the COVID-19 global pandemic resulted in a significant decline in revenue and earnings.

In addition, during the nine months ended September 30, 2020, the Company invested $7.6 million in equipment to be used in its joint revenue sharing arrangements with exhibitors, intangible assets and property, plant and equipment.

Based on management’s current operating plan for 2020, the Company expects to continue to use cash to deploy additional IMAX Theater Systems under joint revenue sharing arrangements.

The Company’s operating cash flow will be adversely affected if management’s projections of future signings for IMAX Theater Systems and film performance, theater installations and film productions are not realized.

The Company’s operating cash flows will be adversely affected if management’s projections of future signings of IMAX Theater Systems and film performance, theater installations and film productions are not realized.

The Company forecasts its short-term liquidity requirements on a quarterly and annual basis.

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Similarly, the Company receives cash payments for some of its film productions in advance of related cash expenditures.

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 nine months ended September 30, 2020 as GBO results declined significantly, the installation of certain theater systems was delayed, and maintenance services were generally suspended for theaters that were closed .

During time periods in which there is a lack of new films released by movie studios and 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 facing financial difficulties as a result of the theater closures.

Based on the Company’s current cash balances and operating cash flows, it expects to have sufficient capital and liquidity to fund its operations in the normal course for the next 12 months.

Based on the Company’s current cash forecasts, management expects the Company’s average monthly change in cash and cash equivalents for the fourth quarter of 2020 and first quarter of 2021 to be approximately break-even.

This reflects an improvement when compared to the Company’s average monthly change in cash and cash equivalents of $7.8 million in the second and third quarters of 2020.

Based on the Company’s current cash balances and operating cash flows, it expects to have sufficient capital and liquidity to fund its operations in the normal course for the next twelve months.

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(i) the level of cash collections from customers in respect of existing IMAX Theater System sale and lease agreements, (ii) the amount of upfront payments collected from newly signed IMAX Theater System sale and lease agreements, (iii) the box-office performance of films distributed by the Company and/or released to IMAX theaters, (iv) the level of inventory purchases and (v) the level of the Company’s operating expenses, including expenses for research and development and new business initiatives.

Net cash used in operating activities totaled $20.9 million for the six months ended June 30, 2020 as compared to net cash provided by operating activities of $48.5 million for the six months ended June 30, 2019.

In the six months ended June 30, 2020, the net cash outflow from operating activities is principally due to the significant decrease in the Company’s revenue and earnings as a result of the COVID-19 global pandemic.

Net cash used in operating activities totaled $30.8 million for the nine months ended September 30, 2020 as compared to net cash provided by operating activities of $67.3 million for the nine months ended September 30, 2019.

In the nine months ended September 30, 2020, the net cash outflow from operating activities is principally due to the significant decrease in the Company’s revenue and earnings as a result of the COVID-19 global pandemic.

In addition, the Company has experienced a slowdown in manufacturing, shipments and installation of IMAX Theater Systems at customer sites, resulting in an increase in inventories.

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Investing Activities

Net cash used in investing activities totaled $5.7 million for the six months ended June 30, 2020, which includes $3.9 million invested in equipment to be used in the Company’s joint revenue sharing arrangements with exhibitors.

In addition, the Company acquired $1.2 million of intangible asset, principally related to the purchase or development of software, and purchased $0.6 million of property, plant and equipment.

In the six months ended June 30, 2019, net cash used in investing activities totaled $42.7 million including the purchase by IMAX China (Hong Kong), Limited, a wholly-owned subsidiary of IMAX China of equity securities in Maoyan for $15.2 million.

Capital expenditures, including the Company’s investment in joint revenue sharing equipment, purchase of property, plant and equipment, other intangible assets and investments in film assets were $9.8 million for the six months ended June 30, 2020 as compared to $35.7 million for the six months ended June 30, 2019.

Net cash used in investing activities totaled $7.6 million for the nine months ended September 30, 2020, which includes $5.3 million invested in equipment to be used in the Company’s joint revenue sharing arrangements with exhibitors.

In addition, the Company acquired $1.7 million of intangible assets, principally related to the purchase or development of software, and purchased $0.7 million of property, plant and equipment.

In the nine months ended September 30, 2019, net cash used in investing activities totaled $53.7 million including the purchase by IMAX China (Hong Kong), Limited, a wholly-owned subsidiary of IMAX China of equity securities in Maoyan for $15.2 million.

Capital expenditures, including the Company’s investment in joint revenue sharing equipment, purchase of property, plant and equipment, other intangible assets and investments in film assets were $13.8 million for the nine months ended September 30, 2020 as compared to $53.9 million for the nine months ended September 30, 2019.

Financing Activities

Net cash provided by financing activities totaled $235.7 million for the six months ended June 30, 2020, as compared to $41.3 million used in financing activities in the six months ended June 30, 2019.

During the six months ended June 30, 2020, the net cash provided by financing activities was principally due to the $280.0 million in Credit Facility borrowings drawn in the first quarter of 2020, as discussed above, and $0.2 million drawn on IMAX China’s Working Capital Facility, partially offset by $36.6 million paid to repurchase common shares under the Company’s share repurchase program, $3.3 million paid to purchase treasury stock for the settlement of restricted share units and related taxes, $1.5 million for the repurchase of common shares under the IMAX China share repurchase program, $2.1 million of dividends paid to the non-controlling interest shareholders of IMAX China and $1.0 million in credit agreement amendment fees.

Net cash provided by financing activities totaled $233.5 million for the nine months ended September 30, 2020, as compared to $53.4 million used in financing activities in the nine months ended September 30, 2019.

During the nine months ended September 30, 2020, the net cash provided by financing activities was principally due to the $280.0 million in Credit Facility borrowings drawn in the first quarter of 2020, as discussed above, and $0.2 million drawn on IMAX China’s Working Capital Facility, partially offset by $36.6 million paid to repurchase common shares under the Company’s share repurchase program, $3.3 million paid to purchase treasury stock for the settlement of restricted share units and related taxes, $1.5 million for the repurchase of common shares under the IMAX China share repurchase program, $4.2 million of dividends paid to the non-controlling interest shareholders of IMAX China and $1.0 million in credit agreement amendment fees.

CONTRACTUAL OBLIGATIONS

Payments to be made by the Company under contractual obligations as at June 30, 2020 are as follows:

Payments to be made by the Company under contractual obligations as at September 30, 2020 are as follows:

Payments Due by Period

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The Company is not required to make any minimum payments on the Credit Facility.

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

Pension and Postretirement Obligations

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Gelfond under the SERP has been fixed at $20.3 million.

As at June 30, 2020, the Company’s Condensed Consolidated Balance Sheet includes the related benefit obligation of approximately $19.0 million recorded within accrued and other liabilities (December 31, 2019— $18.8 million).

As at September 30, 2020, the Company’s Condensed Consolidated Balance Sheet includes the present value of the related benefit obligation of approximately $19.1 million recorded within accrued and other liabilities (December 31, 2019— $18.8 million).

The Company has a postretirement plan to provide health and welfare benefits to Canadian employees meeting certain eligibility requirements.

As at June 30, 2020, the Company’s Condensed Consolidated Balance Sheet includes an unfunded benefit obligation of $1.5 million recorded within accrued and other liabilities (December 31, 2019 — $1.6 million).

As at September 30, 2020, the Company’s Condensed Consolidated Balance Sheet includes an unfunded benefit obligation of $1.5 million recorded within accrued and other liabilities (December 31, 2019 — $1.6 million).

In July 2000, the Company agreed to maintain health benefits for Messrs.

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Wechsler, the Company’s former Co-CEO and current Chairman of its Board of Directors, upon retirement.

As at June 30, 2020, the Company’s Condensed Consolidated Balance Sheet includes an unfunded benefit obligation of $0.6 million recorded within accrued and other liabilities (December 31, 2019 — $0.7 million).

As at September 30, 2020, the Company’s Condensed Consolidated Balance Sheet includes an unfunded benefit obligation of $0.6 million recorded within accrued and other liabilities (December 31, 2019 — $0.7 million).

The Company maintained a nonqualified deferred compensation benefit plan (the “Retirement Plan”) covering the former CEO of IMAX Entertainment and Senior Executive Vice President of the Company.

Under the terms of the Retirement Plan, the benefits were due to vest in full if 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 in the Consolidated Statement of Operations.

As at June 30, 2020, the Company’s Condensed Consolidated Balance Sheet includes a funded benefit obligation of $3.6 million recorded within accrued and other liabilities (December 31, 2019 —$3.6 million).

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

In the fourth quarter of 2018, the executive incurred a separation from service from the Company, 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 in the Consolidated Statement of Operations.

As at September 30, 2020, the benefit obligation related to the Retirement Plan was $3.6 million (December 31, 2019 — $3.6 million) and is recorded on the Company’s Condensed Consolidated Balance Sheets within Accrued and Other Liabilities.

As the Retirement Plan is fully vested, the benefit obligation is measured at the present value of the benefits expected to be paid in the future with the accretion of interest recognized in the Condensed Consolidated Statements of Operations within Retirement Benefits Non-service Expenses.

The Retirement Plan is funded by an investment in company-owned life insurance (“COLI”), which is recorded at its fair value on the Company’s Condensed Consolidated Balance Sheets within Prepaid Expenses.

As at September 30, 2020 , fair value of the COLI asset was $ 3.1 million (December 31, 2019 — $ 3.2 million).

Gains and losses resulting from changes in the cash surrender value of the COLI asset are recognized in the Condensed Consolidated Statement of Operations within Gain (Loss) In Fair Value of Investments.

RECENTLY ISSUED ACCOUNTING STANDARDS

10 unchanged sentences

(i) share-based compensation;

(ii) exit costs, restructuring charges and associated impairments, (iii) changes in the fair value of equity investments, (iv) COVID-19 government relief benefits, as well as the related tax impact of these adjustments, and (v) the income tax effects related to the removal of the indefinitely reinvested assertion on the historical earnings of certain subsidiaries.

(ii) exit costs, restructuring charges and associated impairments, (iii) gain (loss) in the fair value of investments, (iv) COVID-19 government relief benefits, as well as the related tax impact of these adjustments, and (v) the income tax effects related to the removal of the indefinitely reinvested assertion on the historical earnings of certain subsidiaries.

The Company believes that these non-GAAP financial measures are important supplemental measures that allow management and users of the Company’s financial statements to view operating trends and analyze controllable operating performance on a comparable basis between periods without the after-tax impact of share-based compensation and certain unusual items included in net (loss) income attributable to common shareholders .

5 unchanged sentences

Three Months Ended

June 30, 2020

June 30, 2019

September 30, 2020

September 30, 2019

(In thousands of U.S.

3 unchanged sentences

Share-based compensation

Changes in the fair value of equity securities

(Gain) loss in fair value of investments

COVID-19 government relief benefits

4 unchanged sentences

Weighted average diluted shares outstanding

Six Months Ended

June 30, 2020

June 30, 2019

Nine Months Ended

September 30, 2020

September 30, 2019

(In thousands of U.S.

4 unchanged sentences

Exit costs, restructuring charges and associated impairments

Change in the fair value of equity securities

Loss in fair value of investments

COVID-19 government relief benefits

5 unchanged sentences

Reflects amounts attributable to common shareholders.

The tax impact on the listed items includes a year-to-date additive adjustment in the current year related to the valuation allowance recorded in respect of certain deferred tax assets in the three months ended September 30, 2020.

In addition to the non-GAAP financial measures discussed above, management also uses “EBITDA,” as such term is defined in the Credit Agreement, and which is referred to herein as “Adjusted EBITDA per Credit Facility.” As allowed by the Credit Agreement, Adjusted EBITDA per Credit Facility includes adjustments in addition to the exclusion of interest, taxes, depreciation and amortization.

6 unchanged sentences

Adjusted EBITDA per Credit Facility is defined as EBITDA excluding:

(i) share-based and other non-cash compensation;

(ii) gain (loss) in fair value of equity investment;

(iii) write-downs, net of recoveries, including asset impairments and credit loss expense;

(i) s hare-based and other non-cash compensation ;

(ii) g ain (loss) in fair value of investment s ;

( i ii ) w rite-downs, net of recoveries , including asset impairments and credit loss expense ;

and (iv) ( gain ) loss from equity accounted investments .

2 unchanged sentences

As such, beginning in the first quarter of 2020, the Company has updated the reconciliations for such non-GAAP financial measures included herein.

For the Three Months Ended June 30, 2020 (1)

For the Three Months Ended September 30, 2020 (1)

Attributable to

9 unchanged sentences

Add (subtract):

Income tax (benefit) expense

Income tax expense (benefit)

Interest expense, net of interest income

1 unchanged sentence

Share-based and other non-cash compensation

Gain in fair value of equity investment

Gain in fair value of investments

Write-downs, including asset impairments and credit loss expense

Loss from equity accounted investments

Adjusted EBITDA per Credit Facility

For the Twelve Months Ended June 30, 2020 (1)

For the Twelve Months Ended September 30, 2020 (1)

Attributable to

13 unchanged sentences

Share-based and other non-cash compensation

Loss in fair value of equity investment

Gain in fair value of investments

Write-downs, including asset impairments and credit loss expense

8 unchanged sentences

There are currently no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on the Company’s financial condition.

Quantitative and Qualit ative Disclosures about Market Risk

The Company is exposed to market risk from foreign currency exchange rates and interest rates, which could affect operating results, financial position and cash flows.

Market risk is the potential change in an instrument’s value caused by, for example, fluctuations in interest and currency exchange rates.

The Company’s primary market risk exposure is the risk of unfavorable movements in exchange rates between the U.S.

dollar, the Canadian dollar and the Chinese Yuan Renminbi.

The Company does not use financial instruments for trading or other speculative purposes.

Foreign Exchange Rate Risk

A majority of the Company’s revenue is denominated in U.S.

dollars while a significant portion of its costs and expenses is denominated in Canadian dollars.

A portion of the Company’s net U.S.

dollar cash flows is converted to Canadian dollars to fund Canadian dollar expenses through the spot market.

In addition, IMAX films generate box office in 81 different countries, and therefore unfavorable exchange rates between applicable local currencies and the U.S.

dollar could have an impact on the Company’s reported gross box office and revenues.

The Company has incoming cash flows from its revenue generating theaters and ongoing operating expenses in China through its majority-owned subsidiary IMAX (Shanghai) Multimedia Technology Co., Ltd.

In Japan, the Company has ongoing Yen-denominated operating expenses related to its Japanese operations.

Net Renminbi and Japanese Yen cash flows are converted to U.S.

dollars through the spot market.

The Company also has cash receipts under leases denominated in Renminbi, Japanese Yen, Euros and Canadian dollars.

The Company manages its exposure to foreign exchange rate risks through the Company’s regular operating and financing activities and, when appropriate, through the use of derivative financial instruments.

These derivative financial instruments are utilized to hedge economic exposures as well as reduce earnings and cash flow volatility resulting from shifts in market rates.

Certain of the Company’s subsidiaries held approximately 434.9 million Renminbi ($61.5 million) in cash and cash equivalents as at June 30, 2020 (December 31, 2019 — 471.6 million Renminbi or $67.6 million) and are required to transact locally in Renminbi.

Foreign currency exchange transactions, including the remittance of any funds into and out of the PRC, are subject to controls and require the approval of the China State Administration of Foreign Exchange to complete.

Any developments relating to the Chinese economy and any actions taken by the China government are beyond the control of the Company;

however, the Company monitors and manages its capital and liquidity requirements to ensure compliance with local regulatory and policy requirements.

For the three and six months ended June 30, 2020, the Company recorded a foreign exchange net loss of $0.3 million and net loss of $1.0 million, respectively, as compared to a foreign exchange net loss of $0.2 million and net loss of $0.4 million for the three and six months ended June 30, 2019, respectively, associated with the translation of foreign currency denominated monetary assets and liabilities.

The Company entered into a series of foreign currency forward contracts to manage the Company’s risks associated with the volatility of foreign currencies.

The forward contracts have settlement dates throughout 2020 and 2021.

Foreign currency derivatives are recognized and measured in the balance sheet at fair value.

Changes in the fair value (gains or losses) are recognized in the Condensed Consolidated Statements of Operations except for derivatives designated and qualifying as foreign currency cash flow hedging instruments.

The Company currently has cash flow hedging instruments associated with selling, general and administrative expenses and 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 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 inventories, the effective portion of the gain or loss in a hedge of a forecasted transaction is reported in Other Comprehensive Income and reclassified to Inventories on the Condensed Consolidated Balance Sheets when the forecasted transaction occurs.

Any ineffective portion is recognized immediately in the Condensed Consolidated Statement of Operations.

The notional value of foreign currency cash flow hedging instruments that qualify for hedge accounting at June 30, 2020 was $32.4 million (December 31, 2019 — $36.1 million).

A gain of $1.3 million and a loss of $1.5 million was recorded to Other Comprehensive Income with respect to the change in fair value of these contracts for the three and six months ended June 30, 2020, respectively (2019 — gain of $0.3 million and a gain of $0.4 million, respectively).

A loss of $0.3 million and a loss of $0.7 million was reclassified from Accumulated Other Comprehensive Income to Selling, General and Administrative Expenses, Inventories and Property, Plant and Equipment for the three and six months ended June 30, 2020, respectively (2019 — loss of $0.4 million and a loss of $0.7 million, respectively).

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

Appreciation or depreciation on forward contracts not meeting the requirements for hedge accounting in the Derivatives and Hedging Topic of the FASB Accounting Standards Codification are

recorded to S elling, G eneral and A dministrative E xpenses.

The notional value of forward contracts that do not qualify for hedge accounting at June 30, 2020 was $3.6 million (December 31, 2019 — $ nil ).

For all derivative instruments, the Company is subject to counterparty credit risk to the extent that the counterparty may not meet its obligations to the Company.

To manage this risk, the Company enters into derivative transactions only with major financial institutions.

At June 30, 2020, the Company’s financing receivables and working capital items denominated in Canadian dollars, Renminbi, Japanese yen and Euros translated into U.S.

dollars was $119.9 million.

Assuming a 10% appreciation or depreciation in foreign currency exchange rates from the quoted foreign currency exchange rates at June 30, 2020, the potential change in the fair value of foreign currency-denominated financing receivables and working capital items would have been $12.0 million.

A significant portion of the Company’s selling, general, and administrative expenses is denominated in Canadian dollars.

Assuming a 1% appreciation or depreciation in foreign currency exchange rates at June 30, 2020, the potential change in the amount of selling, general, and administrative expenses would be $0.1 million.

Interest Rate Risk Management

The Company’s earnings are also affected by changes in interest rates due to the impact those changes have on its interest income from cash, and its interest expense from variable-rate borrowings under the Credit Facility.

As at June 30, 2020, the Company had drawn down $300.0 million on its Credit Facility (December 31, 2019 — $20.0 million) and $0.2 million on IMAX China’s Working Capital Facility (December 31, 2019 — $nil).

The Company’s largest exposure with respect to variable rate debt comes from changes in the LIBOR.

The Company had variable rate debt instruments representing 55.3% and 8.1% of its total liabilities as at June 30, 2020 and December 31, 2019, respectively.

If the interest rates available to the Company increased by 10%, the Company’s interest expense would increase by $0.4 million and interest income from cash would increase by $0.2 million.

These amounts are determined by considering the impact of the hypothetical interest rates on the Company’s variable rate debt and cash balances at June 30, 2020.

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 2. Management’s Discussion and Analysis