What changed in this filing

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Item 1. Financial Statements

2021-04-29 compared with 2020-10-29 · 503 added, 516 removed, 674 unchanged (60% of the section changed)

1 unchanged sentence

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

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

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019

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

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019

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

Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020

Condensed Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020

Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2021 and 2020

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020

Condensed Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2021 and 2020

Notes to Condensed Consolidated Financial Statements

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(In thousands of U.S.

dollars except per share amounts)

September 30,

Dollars except share amounts)

Cash and cash equivalents

Accounts receivable, net of allowance for credit losses

Financing receivables, net of allowance for credit losses

Variable consideration receivable, net of allowance for credit losses

Accounts receivable, net

Financing receivables, net

Variable consideration receivables, net

Prepaid expenses

Property, plant and equipment

Film assets, net

Property, plant and equipment, net

Investment in equity securities

Deferred income tax assets

Other intangible assets

Bank indebtedness

Deferred income tax assets, net

Other intangible assets, net

Accounts payable

Accrued and other liabilities

Revolving credit facility borrowings, net

Convertible notes, net

Deferred revenue

9 unchanged sentences

Accumulated deficit

Accumulated other comprehensive loss

Accumulated other comprehensive (loss) income

Total shareholders' equity attributable to common shareholders

8 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Technology sales

11 unchanged sentences

Asset impairments

Exit costs, restructuring charges and associated impairments

(Loss) income from operations

Gain (loss) in fair value of investments

Loss from operations

Realized and unrealized investment gains (losses)

Retirement benefits non-service expense

1 unchanged sentence

Interest expense

(Loss) income before taxes

Loss before taxes

Income tax expense

Equity in (losses) gains of investees, net of tax

Net (loss) income

Net loss (income) attributable to non-controlling interests

Net (loss) income attributable to common shareholders

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

Net (loss) income per share — basic and diluted

Equity in losses of investees, net of tax

Net (income) loss attributable to non-controlling interests

Net loss attributable to common shareholders

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

Net loss per share — basic and diluted

(See the accompanying notes, which are an integral part of these Condensed Consolidated Financial Statements.)

IMAX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands of U.S.

Three Months Ended

Nine Months Ended

September 30,

Net (loss) income

Unrealized net gain (loss) from cash flow hedging instruments

Realized net loss from cash flow hedging instruments

Realization of cash flow hedging net (gain) loss upon settlement

Reclassification of unrealized gain from ineffective cash flow hedging instruments

Foreign currency translation adjustments

Defined benefit and postretirement benefit plans

Other comprehensive income (loss), before tax

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

Other comprehensive income (loss), net of tax

Comprehensive (loss) income

Comprehensive loss (income) attributable to non-controlling interests

Comprehensive (loss) income attributable to common shareholders

Other comprehensive loss, before tax

Income tax (expense) benefit related to other comprehensive loss

Other comprehensive loss, net of tax

Comprehensive loss

Comprehensive (income) loss attributable to non-controlling interests

Comprehensive loss attributable to common shareholders

(See the accompanying notes, which are an integral part of these Condensed Consolidated Financial Statements.)

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(In thousands of U.S.

Nine Months Ended

September 30,

Cash (used in) provided by:

Three Months Ended

Operating Activities

Net (loss) income

Adjustments to reconcile net (loss) income to cash from operating activities:

Adjustments to reconcile net loss to cash (used in) provided by operating activities:

Depreciation and amortization

2 unchanged sentences

Share-based and other non-cash compensation

Unrealized foreign currency exchange (gain) loss

Loss in fair value of investments

Unrealized foreign currency exchange loss

Realized and unrealized investment (gains) losses

Equity in losses of investees

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Acquisition of other intangible assets

Investment in equity securities

Net cash used in investing activities

Proceeds from sale of equity securities

Net cash provided by (used in) investing activities

Financing Activities

Increase in revolving credit facility borrowings

Repayment of revolving credit facility borrowings

Proceeds from issuance of convertible notes, net

Purchase of capped calls related to convertible notes

Revolving credit facility borrowings

Repayments of revolving credit facility borrowings

Credit facility amendment fees paid

5 unchanged sentences

Repurchase of common shares

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

Dividends paid to non-controlling interests

Net cash provided by (used in) financing activities

Net cash (used in) provided by financing activities

Effects of exchange rate changes on cash

Increase (decrease) in cash and cash equivalents during period

(Decrease) increase in cash and cash equivalents during period

Cash and cash equivalents, beginning of period

5 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Adjustments to capital stock:

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Employee stock options exercised

Fair value of stock options exercised at the grant date

Grant date fair value of stock options exercised

Average carrying value of repurchased and retired common shares

Restricted share units vested, net of shares withheld for employee tax obligations

Balance, end of period

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Restricted share units vested

Cash received from the issuance of common shares in excess of par value

Fair value of stock options exercised at the grant date

Grant date fair value of stock options exercised

Common shares repurchased, IMAX China

Stock options exercised from treasury shares purchased on open market

Purchase of capped calls related to convertible notes

Balance, end of period

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Balance, beginning of period

Net (loss) income attributable to common shareholders

Net loss attributable to common shareholders

Common shares repurchased and retired

Balance, end of period

Adjustments to accumulated other comprehensive loss:

Adjustments to accumulated other comprehensive income (loss):

Balance, beginning of period

Other comprehensive income (loss), net of tax

Other comprehensive loss, net of tax

Balance, end of period

2 unchanged sentences

Net income (loss) attributable to non-controlling interests

Other comprehensive income (loss), net of tax

Dividends paid to non-controlling shareholders

Other comprehensive loss, net of tax

Balance, end of period

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These Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements included in the Company’s 2020 Annual Report on Form 10-K (the “2020 Form 10-K”), which should be consulted for a summary of the significant accounting policies utilized by the Company.

The Condensed Consolidated Financial Statements are prepared following the same accounting policies disclosed in the 2019 Form 10-K, except as described in Note 4 below.

In the first quarter of 2020, the Company updated certain account names within Revenues and Costs and Expenses Applicable to Revenues in its Condensed Consolidated Statements of Operations to better describe the nature of its revenue-generating activities and related costs.

The Condensed Consolidated Financial Statements are prepared following the same accounting policies disclosed in the 2020 Form 10-K.

Principles of Consolidation

These Condensed Consolidated Financial Statements include the accounts of the Company, except for subsidiaries which have been identified as variable interest entities (“VIEs”) where the Company is not the primary beneficiary.

These Condensed Consolidated Financial Statements include the accounts of the Company together with its consolidated subsidiaries, except for subsidiaries which have been identified as variable interest entities (“VIEs”) where the Company is not the primary beneficiary.

All intercompany accounts and transactions have been eliminated.

The Company has evaluated its various variable interests to determine whether they are VIEs as required by U.S.

The Company has interests in ten film production companies, which have been identified as VIEs.

The Company is the primary beneficiary of five of these entities as it has the power to direct the activities that most significantly impact the economic performance of the VIE, and it has the obligation to absorb losses or the right to receive benefits from the respective VIE that could potentially be significant.

The Company is the primary beneficiary of and consolidates five of these entities as it has the power to direct the activities that most significantly impact the economic performance of the VIE, and it has the obligation to absorb losses or the right to receive benefits from the respective VIE that could potentially be significant.

The majority of the assets relating to these production companies are held by the IMAX Original Film Fund (the “Original Film Fund”) as described in Note 17(b).

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

A loss in value of an investment that is other than temporary is recognized as a charge in the Condensed Consolidated Statements of Operations.

Total assets and liabilities of the Company’s consolidated VIEs are as follows:

September 30,

(In thousands of U.S.

Total liabilities

(1) Prior year comparative has been reclassified to conform with current period presentation.

In March 2021, the Company and Maximus Technologies Limited (“Maximus”), a next-generation visual effects company, established a joint venture, IMAX AI, to deliver A.I.-based solutions for Ultra High Definition (UHD) 4K enhancement across smart devices, new and library content, and real-time enhancement of live entertainment and sports.

IMAX and Maximus each own 50 % of IMAX AI.

In connection with the formation of the joint venture, IMAX and Maximus are each contributing $ 250,000 in cash, as well as certain intellectual property assets.

The intellectual property assets contributed by the Company had a nominal carrying value.

The Company is using the equity method to account for this investment as IMAX AI is jointly controlled.

Estimates and Assumptions

In preparing the Company’s Condensed Consolidated Financial Statements, management makes judgments in applying various accounting policies.

The areas of policy judgment are consistent with those reported in Note 2(b) in the 2019 Form 10-K, with the exception of the estimates used by the Company in applying ASU No.

2016-13, “Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments,” which was adopted on January 1, 2020 and also involves significant judgment and estimation (see Note 4).

The areas of policy judgment are consistent with those reported in Note 3(b) in the 2020 Form 10-K.

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

As disclosed in Note 2(b) in the 2019 Form 10-K, such sources of estimation include estimates used to determine the recoverable amounts of receivables, inventory, film assets, long-lived assets (including the theater system equipment supporting the Company’s joint revenue sharing arrangements), goodwill and deferred tax assets, as well as estimates of variable consideration related to future box office performance.

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

There continues to be significant ongoing uncertainty surrounding the extent and duration of the impacts that the pandemic will continue to have on box office results and the installation of IMAX Theater Systems, as well as the Company’s customers, suppliers, and employees.

There is heightened potential for future credit losses on receivables, inventory write downs, impairments of film assets, impairments of long-lived assets (including the theater system equipment supporting the Company’s joint revenue sharing arrangements), impairments of goodwill, valuation allowances against deferred tax assets, and the reversal of variable consideration receivables that are based on estimates of future box office performance.

In the current environment, assumptions about box office results, IMAX Theater System installations, and customer creditworthiness have greater variability than normal, which could in the future significantly affect the valuation of the Company’s assets, both financial and non-financial.

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

The significant estimates made by management include, but are not limited to:

(i) the allocation of the transaction price in an IMAX Theater System arrangement to distinct performance obligations;

(ii) estimates of variable consideration related to future box office performance ;

(iii) expected credit losses on accounts receivable, financing receivables and variable consideration receivables;

(iv) provisions for the write-down of excess and obsolete inventory;

(v) the fair values of the reporting units used in assessing the recoverability of goodwill;

(vi) the cash flow estimates used in testing the recoverability of long-lived assets such as the theater system equipment supporting joint revenue sharing arrangements;

(vii) the economic lives of the theater system equipment supporting joint revenue sharing arrangements;

(viii) the useful lives of intangible assets;

(ix) the ultimate revenue forecasts used to test the recoverability of film assets;

(x) the discount rates used to determine the present value of lease liabilities;

(xi) pension plan assumptions;

(xii) estimates related to the fair value and projected vesting of share-based payment awards;

(xiii) the valuation of deferred income tax assets;

and (xiv) reserves related to uncertain tax positions.

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

There is significant ongoing uncertainty surrounding the extent and duration of the impacts that the pandemic will continue to have on box office results and the installation of IMAX Theater Systems, as well as the Company’s customers, suppliers, and employees.

There is heightened potential for future credit losses on receivables, inventory write downs, impairments of film assets, impairments of long-lived assets (including the theater system equipment supporting the Company’s joint revenue sharing arrangements), impairments of goodwill, a further valuation allowance against deferred tax assets, and the reversal of variable consideration receivables that are based on estimates of future box office performance.

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

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

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

As an understanding of the longer-term impacts of COVID-19 on the Company’s customers and business develops, there is a heightened potential for changes in management’s estimates over the remainder of 2020 and into 2021.

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 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.

As a result of the theater closures, movie studios postponed the theatrical release of most films originally scheduled for release in 2020 and early 2021, including many scheduled to be shown in IMAX theaters, while several other films were released directly or concurrently 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, a significant number of the theaters in the IMAX commercial multiplex network reopened, including substantially all of the theaters in Greater China and the majority of the theaters in Domestic (i.e., United States and Canada) locations and Rest of World markets.

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

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 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 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.

A s discussed in Note 4, for 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 .

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

As of March 31, 2021, 77 % of the theaters in the global IMAX commercial multiplex network were open, including substantially all of the theaters in Greater China .

In many parts of Asia, audiences have returned to theaters, particularly IMAX theaters, in numbers approximating pre-pandemic attendance levels despite the continued delay of Hollywood theatrical releases, which typically account for 70 % of box office ticket sales in those regions.

However, ticket sales have been significantly lower than normal levels in theaters outside of Asia due in significant part to the continued delays in the Hollywood theatrical release schedule.

As a result, during the first quarter of 2021, certain theater chains have remained closed or operated with capacity restrictions and reduced their operating hours.

The impact of the COVID-19 global pandemic has resulted in significantly lower levels of revenues, earnings and operating cash flows during 2020 and through the end of the first quarter of 2021, when compared to periods prior to the onset of the pandemic, as gross box office (“GBO”) results from the Company’s theater customers declined significantly, the installation of certain theater systems was delayed, and maintenance services were generally suspended for theaters that were closed.

Even as the pandemic has receded in many markets around the world, there continues to be few new films released by Hollywood movie studios and a significant number of theaters in the IMAX network remain either closed or operating with capacity restrictions.

The Company continues to experience a significant decline in earnings and operating cash flows as it is generating 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 been, and may continue to be delayed.

However, with approximately 77 % of the Company’s global theater network open as of March 31, 2021 (including substantially all of the theaters in Greater China), GBO receipts generated by IMAX DMR films and joint revenue sharing arrangements increased in the current quarter, leading to improvement in the Company’s segment results, when compared to the prior year period.

In addition, as a result of the financial difficulties faced by certain of the Company’s exhibition customers as a result of theater closures during the pandemic, the Company has experienced and may continue to experience delays in collecting payments due under existing theater sale or lease arrangements.

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

T he Company may continue to be significantly impacted by the COVID-19 global pandemic even after theaters reopen and resume normal operations.

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 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 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 consumer behavior normalizes and consumer spending recovers.

In response to uncertainties associated with the COVID-19 global pandemic, in the first quarter of 2021, the Company continued to take significant steps to preserve cash by eliminating non-essential costs, keeping certain employees on a temporary furlough, reducing the working hours of other employees and reducing 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 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).

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 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 .

The impairment test was performed on a reporting unit level by comparing each unit’s carrying value, including goodwill, to its fair value.

The fair value of each reporting unit was assessed using a discounted cash flow model based on management’s estimated long-term projections, against which various sensitivity analyses were performed.

These estimates and the likelihood of future changes in these estimates depend on a number of underlying variables and a range of possible outcomes.

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

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.

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

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

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 th ose jurisdiction s 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 (see Note 11).

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.

In addition, estimates related to future expected credit losses (Note 4) and the recoverability of deferred tax assets (Note 11) could also be further materially impacted by changes in estimates in the future (see Note 1).

In the first quarter of 2021, the Company issued $ 230.0 million of Convertible Notes.

The net proceeds from the issuance of the Convertible Notes were approximately $ 223.7 million, after deducting the initial purchasers’ discounts and commissions, which were used in part to repay a portion of outstanding borrowings under the Credit Facility provided by the Company’s Credit Agreement with Wells Fargo .

In addition, during the first quarter of 2021, the Company entered into the Second Amendment to the Credit Agreement which, among other things, suspends the Senior Secured Net Leverage Ratio financial covenant in the Credit Agreement through the first quarter of 2022 and, once re-established, permits the Company to use EBITDA from the third and fourth quarters of 2019 in lieu of EBITDA for the corresponding quarters of 2021.

As of March 31, 2021, the Company was in compliance with all of its requirements under the Credit Agreement, as amended.

(Each defined term used, but not defined in this paragraph is defined in Note 7.)

The Company has applied for and received $ 8.6 million to date in wage subsidies, tax credits and other financial support under COVID-19 relief legislation that has been enacted in the countries in which it operates.

During the three months ended March 31, 2021, the Company recognized $ 1.5 million under the Canada Emergency Wage Subsidy (“CEWS”) program as reductions to Selling, General and Administrative Expenses ($ 1.2 million) and Costs and Expenses Applicable to Revenues ($ 0.3 million) in the Condensed Consolidated Statements of Operations.

The CEWS program has been extended to September 2021.

The Company will continue to review for the availability of additional subsidies and credits for the remaining terms of these programs, where applicable, although there are no guarantees that the Company will ultimately apply for or receive any such additional benefits.

Recently Issued Accounting Standards Not Yet Adopted

In March 2020, the FASB issued ASU No.

In March 2020, the FASB issued Accounting Standards Update (“ASU”) No.

2020-04, “Reference Rate Reform (Topic 848):

Facilitation of the effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”).

The purpose of ASU 2019-05 is to provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The purpose of ASU 2020-04 is to provide optional expedients and exceptions for applying U.S.

GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The amendments are effective for all entities from the beginning of an interim period that includes the issuance date of the ASU.

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The Company is currently assessing the impact of ASU 2020-04 on its Condensed Consolidated Financial Statements.

The Company considers the applicability and impact of all recently issued FASB accounting standard codification updates.

Accounting standards updates that are not noted above were assessed and determined to be not applicable or not significant to the Company’s Condensed Consolidated Financial Statements for the period ended September 30, 2020.

The Company considers the applicability and impact of all recently issued FASB ASUs.

ASUs that are not noted above were assessed and determined to be not applicable or not significant to the Company’s Condensed Consolidated Financial Statements for the period ended March 31, 2021.

Current Expected Credit Losses

In 2016, the FASB issued ASU No.

2016-13, “Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments” (“ASC Topic 326”), which amends previously issued guidance regarding the impairment of financial instruments by creating an impairment model that is based on expected losses rather than incurred losses.

The standard requires financial assets measured on the amortized cost basis to be presented at the net amount expected to be collected.

The Company’s accounts receivable, financing receivables and variable consideration receivables are within the scope of ASU No.

The Company adopted ASU No.

2016-13 and several associated ASUs on January 1, 2020 with no required cumulative-effect adjustment to accumulated deficit.

The Company’s accounts receivable, financing receivables and variable consideration receivables are measured on the amortized cost basis to be presented at the net amount expected to be collected .

Accounts Receivable

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These receivables are in better condition than those in the All Transactions Suspended category but are not in as good condition as the receivables in the Credit Watch category.

In certain situation, depending on the individual facts and circumstances related to each customer, finance income recognition may be suspended for the net investment in lease and financed sale receivable balances for customers in the Pre-Approved Transactions Only category.

In certain situations, depending on the individual facts and circumstances related to each customer, finance income recognition may be suspended for the net investment in lease and financed sale receivable balances for customers in the Pre-Approved Transactions Only category.

See below for a discussion of the Company’s net investment in leases and financed sale receivables.

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The Company develops its estimate of credit losses by class of receivable and customer type through a calculation that utilizes historical loss rates which are then adjusted for specific receivables that are judged to have a higher than normal risk profile after taking into account management’s internal credit quality classifications, as well as macro-economic and industry risk factors.

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

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2020

The following tables summarize the activity in the Allowance for Credit Losses related to Accounts Receivable for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31, 2021

(In thousands of U.S.

Beginning balance

Current period provision

Current period provision (reversal)

Foreign exchange

Ending balance

For the three and nine months ended September 30, 2020, the Company recorded provisions for current expected credit losses of $ 1.8 million and $ 9.5 million, respectively, reflecting a reduction in the credit quality of its theater and studio related accounts receivable, which management believes is primarily related to the COVID-19 global pandemic.

For the three months ended September 30, 2020, the reduction to the provision for Studios is principally due to improved collection experience with a particular customer.

Three Months Ended March 31, 2020

(In thousands of U.S.

Beginning balance

Current period provision

Ending balance

For the three months ended March 31, 2021, the Company reduced its allowance for current expected credit losses related to Accounts Receivable by $ 0.6 million principally as a result of the write-off of certain receivable balances ($ 0.3 million) and a net current period reversal to Credit Loss Expense ($ 0.1 million).

The net current period reversal to Credit Loss Expense is due to better than expected collection experience with respect to foreign movie studios, partially offset by an increase in the provision associated with a higher level of accounts receivable in the period.

For the three months ended March 31, 2020, the Company recorded provisions for current expected credit losses of $ 6.4 million, reflecting a reduction in the credit quality of and heightened collection risk associated with theater and foreign movie studio accounts receivable primarily due to the COVID-19 global pandemic.

Management believes that the March 31, 2021 allowance for current expected credit losses related to Accounts Receivable adequately addresses the risk of not collecting these receivables in full.

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

Due to the unprecedented nature of the COVID-19 pandemic, its effect on the Company’s customers and their ability to meet their financial obligations to the Company is difficult to predict.

As a result, the Company’s judgments and associated estimates of credit losses may ultimately prove, with the benefit of hindsight, to be incorrect (see Notes 1 and 2).

As a result, the Company’s judgments and associated estimates of credit losses may ultimately prove, with the benefit of hindsight, to be incorrect (see Note 2).

Financing Receivables

8 unchanged sentences

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

September 30,

As of March 31, 2021 and December 31, 2020, financing receivables consist of the following:

(In thousands of U.S.

Net investment in leases

14 unchanged sentences

Total financed sales receivables

As at September 30, 2020 and December 31, 2019, the weighted-average remaining lease term and weighted-average interest rate associated with the Company’s sales-type lease arrangements and financed sale receivables, as applicable, are as follows:

September 30,

As of March 31, 2021 and December 31, 2020, the weighted-average remaining lease term and weighted-average interest rate associated with the Company’s sales-type lease arrangements and financed sale receivables, as applicable, are as follows:

Weighted-average remaining lease term (in years)

3 unchanged sentences

Financed sales receivables

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

The following tables provide information on the Company’s net investment in leases by credit quality indicator as of March 31, 2021 and December 31, 2020:

(In thousands of U.S.

By Origination Year

As at September 30, 2020

As of March 31, 2021

Net investment in leases:

4 unchanged sentences

Total net investment in leases

(In thousands of U.S.

By Origination Year

As at December 31, 2019

As of December 31, 2020

Net investment in leases:

4 unchanged sentences

Total net investment in leases

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

The following tables provide information on the Company’s financed sale receivables by credit quality indicator as of March 31, 2021 and December 31, 2020:

(In thousands of U.S.

By Origination Year

As at September 30, 2020

As of March 31, 2021

Financed sales receivables:

4 unchanged sentences

Total financed sales receivables

(In thousands of U.S.

By Origination Year

As at December 31, 2019

As of December 31, 2020

Financed sales receivables:

4 unchanged sentences

Total financed sales receivables

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

As at September 30, 2020

The following tables provide an aging analysis for the Company’s net investment in leases and financed sale receivables as of March 31, 2021 and December 31, 2020:

As of March 31, 2021

(In thousands of U.S.

Net investment in leases

Financed sales receivables

As at December 31, 2019

As of December 31, 2020

(In thousands of U.S.

Net investment in leases

4 unchanged sentences

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

Given the potential impacts of the COVID-19 global pandemic on the Company’s customers, management is enhancing its monitoring procedures with respect to overdue receivables.

The following table provides information about the Company’s net investment in leases and financed sale receivables with billed amounts past due for which it continues to accrue finance income as at September 30, 2020 and December 31, 2019:

As at September 30, 2020

Given the potential impacts of the COVID-19 global pandemic on the Company’s customers, management has enhanced its monitoring procedures with respect to overdue receivables.

As of March 31, 2021

(In thousands of U.S.

Net investment in leases

Financed sales receivables

As at December 31, 2019

As of December 31, 2020

(In thousands of U.S.

Net investment in leases

Financed sales receivables

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

As at September 30, 2020

As at December 31, 2019

The following table provides information about the Company’s net investment in leases and financed sale receivables that are on nonaccrual status as of March 31, 2021 and December 31, 2020:

As of March 31, 2021

As of December 31, 2020

(In thousands of U.S.

Net investment in leases

4 unchanged sentences

Once the collectibility issues are resolved and the customer has returned to being in good standing, the Company will resume recognition of Finance Income.

For the nine months ended September 30, 2020, the Company recognized $ 0.1 million (2019 —$ 0.1 million) in finance income related to the net investment in leases with billed amounts past due.

There was no such finance income recognized for the three months ended September 30, 2020 and 2019.

For the three and nine months ended September 30, 2020, the Company recognized $ 1.4 million and $ 4.2 million, respectively (2019 —$ 1.5 million and $ 5.1 million, respectively) in finance income related to the financed sale receivables with billed amounts past due.

The following table summarizes the activity in the allowance for credit losses related to the Company’s net investment in leases and financed sale receivables for the three and nine months ended September 30, 2020 and 2019:

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2020

Net Investment

For the three months ended March 31, 2021, the Company recognized less than $ 0.1 million (2020 — $ 0.1 million) in Finance Income related to the net investment in leases with billed amounts past due.

For the three months ended March 31, 2021, the Company recognized $ 1.2 million, respectively (2020 —$ 2.1 million) in Finance Income related to the financed sale receivables with billed amounts past due.

The following table summarizes the activity in the allowance for credit losses related to the Company’s net investment in leases and financed sale receivables for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31, 2021

Net Investment

Sales Receivables

(In thousands of U.S.

Sales Receivables

3 unchanged sentences

Ending balance

Three Months Ended September 30, 2019

Nine Months Ended September 30, 2019

Net Investment

Three Months Ended March 31, 2020

Net Investment

Sales Receivables

(In thousands of U.S.

Sales Receivables

Beginning balance

Current period provision

Ending balance

For the three and nine months ended September 30, 2020, the Company recorded a provision for current expected credit losses of $ 1.3 million and $ 4.4 million, respectively, reflecting a reduction in the credit quality of its theater related financing receivables, which management believes is primarily related to the COVID-19 global pandemic.

For the three months ended March 31, 2021 and 2020, the Company recorded provisions for current expected credit losses related to Financing Receivables of $ 0.3 million and $ 3.0 million, respectively.

The provision recorded in the prior year period reflects a reduction in the credit quality of and heightened collection risk associated with theater related Financing Receivables primarily due to the COVID-19 global pandemic.

Management believes that the March 31, 2021 allowance for current expected credit losses related to Financing Receivables adequately addresses the risk of not collecting these receivables in full.

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

Due to the unprecedented nature of the COVID-19 pandemic, its effect on the Company’s customers and their ability to meet their financial obligations to the Company is difficult to predict.

As a result, the Company’s judgments and associated estimates of credit losses may ultimately prove, with the benefit of hindsight, to be incorrect (see Notes 1 and 2).

Variable Consideration Receivable

As a result, the Company’s judgments and associated estimates of credit losses may ultimately prove, with the benefit of hindsight, to be incorrect (see Note 2).

Variable Consideration Receivables

In sale arrangements, variable consideration may become due to the Company from theater operators if certain annual minimum box office receipt thresholds are exceeded.

4 unchanged sentences

The Company develops its estimate of credit losses by class of receivable and customer type through a calculation utiliz ing historic al loss rates for financed sale receivables which are then adjusted for specific receivables that are judged to have a higher than normal risk profile after taking into account management’s internal credit quality classifications, as well as macro-economic and industry risk factors.

The following table summarizes the activity in the allowance for credit losses related to variable consideration receivables for the three and nine months ended September 30, 2020:

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2020

The following table summarizes the activity in the Allowance for Credit Losses related to Variable Consideration Receivables for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,

(In thousands of U.S.

Beginning balance

2 unchanged sentences

Ending balance

For the nine months ended September 30, 2020, the Company recorded a provision of $ 1.7 million for current expected credit losses, reflecting a reduction in the credit quality of its theater related variable consideration receivables, which management believes is primarily related to the COVID-19 global pandemic.

For the three months ended March 31, 2021 and 2020, the Company recorded provisions for current expected credit losses related to Variable Consideration Receivables of $ 0.2 million and $ 0.9 million, respectively.

The provision recorded in the prior year period reflects a reduction in the credit quality of and heightened collection risk associated with Variable Consideration Receivables primarily due to the COVID-19 global pandemic.

Management believes that the March 31, 2021 allowance for current expected credit losses related to Variable Consideration Receivables adequately addresses the risk of not collecting these receivables in full.

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

Due to the unprecedented nature of the COVID-19 pandemic, its effect on the Company’s customers and their ability to meet their financial obligations to the Company is difficult to predict.

As a result, the Company’s judgments and associated estimates of credit losses may ultimately prove, with the benefit of hindsight, to be incorrect (see Notes 1 and 2).

As a result, the Company’s judgments and associated estimates of credit losses may ultimately prove, with the benefit of hindsight, to be incorrect (see Note 2).

Lease Arrangements

10 unchanged sentences

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

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

Three Months Ended September 30,

Nine Months Ended September 30,

For the three months ended March 31, 2021 and 2020, the components of lease expense recorded within Selling, General and Administrative expenses are as follows:

Three Months Ended March 31,

(In thousands of U.S.

Operating lease cost (1)

2 unchanged sentences

Total lease cost

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

For three and nine months ended September 30, 2020 and 2019, supplemental cash and non-cash information related to leases is as follows:

Nine Months Ended

September 30,

Includes short-term leases and variable lease costs, which are not significant for the three months ended March 31, 2021 and 2020.

For the three months ended March 31, 2021 and 2020, supplemental cash and non-cash information related to leases is as follows:

Three Months Ended

(In thousands of U.S.

Cash paid for amounts included in the measurement of lease liabilities

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

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

September 30,

As of March 31, 2021 and December 31, 2020, supplemental balance sheet information related to leases is as follows:

(In thousands of U.S.

Balance Sheet Classification

Right-of-Use Assets

Property, plant and equipment

Balance Sheet Classification

Operating Leases

Accrued and other liabilities

As at September 30, 2020 and December 31, 2019, the weighted-average remaining lease term and weighted-average interest rate associated with the Company’s operating leases are as follows:

September 30,

As of March 31, 2021 and December 31, 2020, the weighted-average remaining lease term and weighted-average interest rate associated with the Company’s operating leases are as follows:

Weighted-average remaining lease term (years)

Weighted-average discount rate

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

Operating Leases

2020 (three months remaining)

As of March 31, 2021, the maturities of the Company’s operating lease liabilities are as follows:

(In thousands of U.S.

2021 (nine months remaining)

Total lease payments

7 unchanged sentences

Under the Company’s sales-type lease arrangements, the customer has the ability and the right to operate the hardware components or direct others to operate them in a manner determined by the customer.

The Company’s sales-type leases are typically non-cancellable for 10 to 20 years with renewal provisions from inception.

Except for those sales arrangements that are classified as sales-type leases, the Company’s leases generally do not contain an automatic transfer of title at the end of the lease term .

The Company’s lease portfolio terms are typically non-cancellable for 10 to 20 years with renewal provisions from inception.

The Company’s sales-type lease arrangements do not contain a guarantee of residual value at the end of the lease term.

The customer is required to pay for executory costs such as insurance and taxes and is required to pay the Company for maintenance and extended warranty generally after the first year of the lease until the end of the lease term.

The customer is required to pay for executory costs such as insurance and taxes and is required to pay the Company for maintenance and an extended warranty generally after the first year of the lease until the end of the lease term.

The customer is responsible for obtaining insurance coverage for the IMAX Theater System commencing on the date specified in the arrangement’s shipping terms and ending on the date the IMAX Theater System is returned to the Company.

1 unchanged sentence

Under the traditional form of these arrangements, in exchange for providing the IMAX Theater System under a long-term lease, the Company earns rent based on a percentage of contingent box office receipts and, in some cases, concession revenues, rather than requiring the customer to pay a fixed upfront fee or annual minimum payments.

The Company has assessed the nature of its joint revenue sharing arrangements and concluded that the arrangements contain an operating lease.

Under certain other joint revenue sharing arrangements, known as hybrid arrangements, the customer is responsible for making fixed upfront payments prior to the delivery and installation of the IMAX Theater System.

Under joint revenue sharing arrangements, the customer has the ability and the right to operate the hardware components or direct others to operate them in a manner determined by the customer.

The Company’s joint revenue sharing arrangements are typically non-cancellable for 10 years or longer with renewal provisions.

Title to equipment under joint revenue sharing arrangements does not transfer to the customer.

The Company’s joint revenue sharing arrangements do not contain a guarantee of residual value at the end of the term.

The customer is required to pay for executory costs such as insurance and taxes and is required to pay the Company for maintenance and extended warranty throughout the term.

Title to the IMAX Theater System under a joint revenue sharing arrangement generally does not transfer to the customer.

The Company’s joint revenue sharing arrangements do not contain a guarantee of residual value at the end of the lease term.

The customer is required to pay for executory costs such as insurance and taxes and is required to pay the Company for maintenance and an extended warranty throughout the term.

The Company classifies its lease arrangements at inception of the arrangement and, if required, after a modification of the lease arrangement, to determine whether they are sales-type leases or operating leases.

On April 10, 2020, the FASB staff issued a question-and-answer document to address stakeholder questions on the application of the lease accounting guidance for lease concessions related to the effects of the COVID-19 pandemic.

The guidance allows concessions related to the timing of payments, where the total consideration has not changed, to not be accounted for as lease modifications.

Instead, any such concessions can be accounted for as if no change was made to the contract or as variable lease payments.

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

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

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

September 30,

(See Note 4 for information related to the net investment in leases related to the Company’s sales-type lease arrangements.)

As of March 31, 2021 and December 31, 2020, Inventories consist of the following:

(In thousands of U.S.

Raw materials

1 unchanged sentence

Finished goods

When compared to December 31, 2019, inventories increased by $ 10.0 million due to delays in manufacturing, shipments and installation of IMAX Theater Systems at customer sites due to the COVID-19 global pandemic.

At September 30, 2020, inventories include finished goods of $ 4.8 million (December 31, 2019 — $ 0.7 million) for which title had passed to the customer, but the criteria for revenue recognition were not met as of the balance sheet date.

During the three and nine months ended September 30, 2020, the Company recognized write-downs of $ 0.6 million and $ 0.7 million, respectively, for excess and obsolete inventory based on current estimates of net realizable value.

There were no write-downs recorded during the three and nine months ended September 30, 2019.

Credit Facility and Other Financing Arrangements

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

September 30,

Credit Facility

Working Capital Facility

At March 31, 2021, Inventories include finished goods of $ 3.3 million (December 31, 2020 — $ 2.1 million) for which title had passed to the customer, but the criteria for revenue recognition were not met as of the balance sheet date.

During the three months ended March 31, 2021, the Company recognized write-downs of $ 0.1 million for excess and obsolete inventory based on current estimates of net realizable value.

There were no write-downs recorded during the three months ended March 31, 2020.

Revolving Credit Facility Borrowings

As of March 31, 2021 and December 31, 2020, Revolving Credit Facility Borrowings consists of the following:

(In thousands of U.S.

Credit Facility borrowings

Working Capital Facility borrowings

Unamortized debt issuance costs

Revolving Credit Facility Borrowings, net

Credit Agreement

3 unchanged sentences

The Credit Agreement has a revolving borrowing capacity of $ 300.0 million, and contains an uncommitted accordion feature allowing the Company to further expand its borrowing capacity to $ 440.0 million or greater, subject to certain conditions, depending on the mix of revolving and term loans comprising the incremental facility.

In the first quarter of 2020, in response to uncertainties associated with the outbreak of the COVID-19 global pandemic and its impact on the Company’s business, the Company drew down the $ 280.0 million in available borrowing capacity under the Credit Facility, resulting in total outstanding borrowings of $ 300.0 million.

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

In the first quarter of 2020, in response to uncertainties associated with the outbreak of the COVID-19 global pandemic and its impact on the Company’s business, the Company drew down $ 280.0 million in available borrowing capacity under the Credit Facility, resulting in total outstanding borrowings of $ 300.0 million, which remained outstanding as of December 31, 2020.

In the first quarter of 2021, the Company repaid $ 255.0 million of Credit Facility borrowings, using cash on hand following the issuance of the Convertible Notes (as discussed below).

As of March 31, 2021, outstanding borrowings under the Credit Facility were $ 45.0 million.

As of March 31, 2021 and December 31, 2020, the Company did no t have any letters of credit or advance payment guarantees outstanding under the Credit Facility.

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

In addition, the Credit Agreement contains customary affirmative and negative covenants, including covenants that limit indebtedness, liens, capital expenditures, asset sales, investments and restricted payments, in each case subject to negotiated exceptions and baskets.

The Credit Agreement also contains customary representations, warranties, and event of default provisions.

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

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

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

On March 15, 2021, the Company entered into the Second Amendment to the Credit Agreement (as amended by the First Amendment to the Credit Agreement, dated as of June 10, 2020) (collectively, the “Amendments”).

The Amendments, among other things, (i) suspend the Senior Secured Net Leverage Ratio covenant through the first quarter of 2022, (ii) re-establish 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 EBITDA for the corresponding quarters of 2021, (iii) add a $ 75.0 million minimum liquidity covenant measured at the end of each calendar month, (iv) restrict 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 and (v) permit the issuance of the Convertible Notes (as discussed below) and related transactions, including the capped call transactions, or other unsecured debt, in an amount not to exceed $ 290.0 million.

The modifications to the negative covenants, the minimum liquidity covenant and modifications to certain other provisions in the Credit Agreement pursuant to the Amendments are effective until the earlier of the delivery of the compliance certificate for the fourth quarter of 2022 or 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”).

As of March 31, 2021, the Company was in compliance with all of its requirements under the Credit Agreement, as amended.

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;

1 unchanged sentence

base rate plus a margin ranging from 0.25 % to 1.00 % per annum, in each case depending on the Company’s Total Leverage Ratio (as defined in the Credit Agreement);

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

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

base rate borrowings will be 1.75 % per annum.

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

The effective interest rate for the three months ended March 31, 2021 was 2.65 % (2020 — 2.03 %).

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;

The Company incurred fees of approximately $ 1.1 million in connection with the Amendment, which are being amortized on a straight-line basis through December 31, 2021.

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

The Company incurred fees of approximately $ 1.2 million in connection with the Amendments, which are being amortized on a straight-line basis to Interest Expense over the relevant amendment periods.

Working Capital Facility

1 unchanged sentence

(“IMAX Shanghai”), one of the Company’s majority-owned subsidiaries in China, renewed its unsecured revolving facility for up to 200.0 million Renminbi (approximately $ 30.4 million) to fund ongoing working capital requirements (the “Working Capital Facility”).

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 nine months ended September 30, 2020 was 4.35 %, respectively.

The Working Capital Facility expires in July 2021 .

As of March 31, 2021 and December 31, 2020, outstanding Working Capital Facility borrowings were 49.9 million Renminbi ($ 7.6 million).

As of March 31, 2021, the amount available for future borrowings under the Working Capital Facility was 140.1 million Renminbi ($ 21.3 million) and 10.0 million Renminbi ($ 1.5 million) was available for letters of guarantee.

The amount available for future borrowings under the Working Capital Facility is not subject to a standby fee.

The effective interest rate for borrowings under the Working Capital Facility for the three months ended March 31, 2021 was 4.34 % (December 31, 2020 — 4.31 %).

Subsequent to March 31, 2021, IMAX Shanghai made a repayment of Working Capital Facility borrowings of 1.7 million Renminbi ($ 0.3 million).

Wells Fargo Foreign Exchange Facility

Within the Credit Facility, the Company is able to purchase foreign currency forward contracts and/or other swap arrangements.

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

As at September 30, 2020, the Company has $ 40.2 million in notional value of such arrangements outstanding (December 31, 2019 — $ 36.1 million).

Within the Credit Facility, the Company is able to enter into foreign currency forward contracts and/or other swap arrangements.

As of March 31, 2021, the net unrealized gain on the Company’s outstanding foreign currency forward contracts was $ 1.7 million, representing the amount by which the fair value of these forward contracts exceeded their notional value (December 31, 2020 — $ 2.0 million).

As of March 31, 2021, the notional value of the Company’s outstanding foreign currency forward contracts was $ 21.9 million (December 31, 2020 — $ 31.9 million).

On October 28, 2019, the Company entered into a $ 5.0 million facility with the National Bank of Canada (the “NBC Facility”) fully insured by Export Development Canada for use solely in conjunction with the issuance of performance guarantees and letters of credit.

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

The Company did no t have any letters of credit or advance payment guarantees outstanding as of March 31, 2021 and December 31, 2020 under the NBC Facility.

Convertible Notes

As of March 31, 2021 and December 31, 2020, Convertible Notes consists of the following:

(In thousands of U.S.

Convertible Notes

Unamortized discounts and debt issuance costs

On March 19, 2021, the Company issued $ 230.0 million of 0.500 % Convertible Senior Notes due 2026 (the "Convertible Notes") in a private placement conducted pursuant to Rule 144A under the Securities Act of 1933, as amended .

The net proceeds from the issuance of the Convertible Notes were $ 223.7 million, after deducting the initial purchasers’ discounts and commissions.

In addition, the Company incurred $ 1.2 million of debt issuance costs associated with the Convertible Notes.

The Company used a portion of the net proceeds from the issuance of the Convertible Notes to make a partial repayment of outstanding Credit Facility borrowings (as discussed above), and intends to use the remainder for working capital or other general corporate purposes.

The Convertible Notes are senior unsecured obligations of the Company and bear interest at a rate of 0.500 % per annum on the principal thereof, payable semi-annually in arrears on April 1 and October 1 of each year, beginning on October 1, 2021 .

The Convertible Notes will mature on April 1, 2026 , unless they are redeemed or repurchased by the Company or converted on an earlier date.

Holders of the Convertible Notes have the right to convert their notes in certain circumstances and during specified periods.

Before January 1, 2026, holders of the Convertible Notes have the right to convert their notes only upon the occurrence of certain events.

From and after January 1, 2026, holders of the Convertible Notes may convert their notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date.

Upon conversion, the Company will pay or deliver, as applicable, cash or a combination of cash (in an amount no less than the principal amount of the Convertible Notes being converted) and common shares, at its election, based on the applicable conversion rates.

The initial conversion rate is 34.7766 common shares per $ 1,000 principal amount of Convertible Notes, which represents an initial conversion price of approximately $ 28.75 per common share, and is subject to adjustment upon the occurrence of certain events.

The Convertible Notes are redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or after April 6, 2024 and on or before the 40th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, but only if the last reported sale price per share of the Company’s common stock exceeds 130 % of the conversion price for a specified period of time.

In addition, calling any note for redemption will constitute a “make-whole fundamental change” with respect to that note, in which case the conversion rate applicable to the conversion of that note will be increased in certain circumstances if such note is converted after it is called for redemption.

In addition, upon the occurrence of a “fundamental change” (as defined in the indenture governing the Convertible Notes), holders may require the Company to repurchase their notes at a cash repurchase price equal to the principal amount of the notes to be repurchased, plus accrued and unpaid interest, if any.

On January 1, 2021, the Company elected to early adopt ASU No.

2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”).

ASU 2020-06 simplifies the accounting for convertible debt that may be settled in cash.

As a result, the Company recorded the Convertible Notes entirely as a liability in the Condensed Consolidated Balance Sheets, net of initial purchasers’ discounts and commissions and other debt issuance costs, with interest expense reflecting the cash coupon plus the amortization of the discounts and capitalized costs.

Additionally, ASU 2020-06 modifies the treatment of convertible debt securities that may be settled in cash or shares by requiring the use of the “if-converted” method.

Under the “if-converted” method, because the principal amount of the Convertible Notes is settled in cash and the conversion spread is settleable in the Company’s common shares, diluted earnings per share is calculated by including the net number of incremental shares that would be issued upon conversion of the Convertible Notes, using the average market price during the period.

Accordingly, the application of the “if-converted” method may reduce the Company’s reported diluted earnings per share.

In connection with the pricing of the Convertible Notes, the Company entered into privately negotiated capped call transactions (the “Capped Call Transactions”) with certain financial institutions.

The Capped Call Transactions are expected to reduce potential dilution resulting from the common shares the Company is required to issue and/or to offset any potential cash payments the Company is required to make in excess of the principal amount of the Convertible Notes in the event that the market price per share of the Company’s common shares is greater than the strike price of the Capped Call Transactions, with such reduction and/or offset subject to a cap.

The Capped Call Transactions have an initial cap price of $ 37.2750 per share of the Company’s common shares, which represents a premium of 75 % over the last reported sale price of the common shares on March 16, 2021, and is subject to certain adjustments under the terms of the Capped Call Transactions.

Collectively, the Capped Call Transactions cover, subject to anti-dilution adjustments substantially similar to those applicable to the Convertible Notes, the number of the Company’s common shares underlying the Convertible Notes.

The cost of the Capped Call Transactions was approximately $ 19.1 million.

The Capped Call Transactions are separate transactions, and are not part of the terms of the Convertible Notes and will not affect any holder’s rights under the notes.

Holders of the Convertible N otes will not have any rights with respect to the Capped Call Transactions.

The Capped Call Transactions meet all of the applicable criteria for equity classification in accordance with ASC 815-10-15-74(a), “Derivatives and Hedging—Embedded Derivatives—Certain Contracts Involving an Entity’s Own Equity,” and, as a result, the related $ 19.1 million cost was recorded as a reduction to Other Equity within Shareholders’ Equity on the Company’s Condensed Consolidated Statements of Shareholder’s Equity and Condensed Consolidated Balance Sheets.

Commitments, Contingencies and Guarantees

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Management is required to assess the likelihood of any adverse judgments or outcomes related to these legal contingencies, as well as potential ranges of probable or reasonably possible losses.

The Company will record a provision for a liability when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated.

The Company records a provision for a liability when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated.

The determination of the amount of any liability recorded or disclosed is reviewed at least quarterly based on a careful analysis of each individual exposure with, in some cases, the assistance of outside legal counsel, taking into account the impact of negotiations, settlements, rulings, and other pertinent information related to the case.

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The Company believes it has adequate provisions for any such matters.

(a) In January 2004, the Company and IMAX Theatre Services Ltd., a subsidiary of the Company, commenced an arbitration seeking damages before the International Court of Arbitration of the International Chamber of Commerce (the “ICC”) with respect to the breach by Electronic Media Limited (“EML”) of its December 2000 agreement with the Company.

The Company expenses legal costs relating to its lawsuits, claims and proceedings as incurred.

(i) In January 2004, the Company and IMAX Theatre Services Ltd., a subsidiary of the Company, commenced an arbitration seeking damages before the International Court of Arbitration of the International Chamber of Commerce (the “ICC”) with respect to the breach by Electronic Media Limited (“EML”) of its December 2000 agreement with the Company.

In June 2004, the Company commenced a related arbitration before the ICC against EML’s affiliate, E-City Entertainment (I) PVT Limited (“E-City”).

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In July 2008, E-City commenced a proceeding in Mumbai, India seeking an order that the ICC award may not be recognized in India and on June 10, 2013, the Bombay High Court ruled that it had jurisdiction over the proceeding filed by E-City.

The Company appealed that ruling to the Supreme Court of India, and on March 10, 2017, the Supreme Court set aside the Bombay High Court’s judgement and dismissed E-City’s petition.

The Company appealed that ruling to the Supreme Court of India, and on March 10, 2017, the Supreme Court set aside the Bombay High Court’s judgment and dismissed E-City’s petition.

On March 29, 2017, the Company filed an Execution Application in the Bombay High Court seeking to enforce the ICC award against E-City and several related parties.

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The Company intends to continue pursuing its rights and seeking to enforce the award, although no assurances can be given with respect to the ultimate outcome.

(b) On November 11, 2013, Giencourt Investments, S.A.

(ii) On November 11, 2013, Giencourt Investments, S.A.

(“Giencourt”) initiated arbitration before the International Centre for Dispute Resolution in Miami, Florida, based on alleged breaches by the Company of its theater agreement and related license agreement with Giencourt.

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

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

On December 3, 2020, the District Judge entered a Final Judgment against the Company in the total amount of $ 11.3 million as damages under the Award.

As of March 31, 2021 and December 31, 2020, the Company’s Condensed Consolidated Balance Sheets include a liability within Accrued and Other Liabilities of $ 11.3 million related to the Final Judgment, consisting of $ 7.2 million related to amounts previously collected from or owed to Giencourt principally in respect of theater systems that were not delivered and $ 4.1 million recorded during the year ended December 31, 2020 in the Company’s Condensed Consolidated Statements of Operations within Legal Judgment and Arbitration Awards in respect of the remaining amounts owed under the Final Judgment.

The $ 4.1 million recorded in the Condensed Consolidated Statements of Operations within Legal Judgment and Arbitration Awards includes $ 3.2 million recorded in the fourth quarter of 2020 as a result of the Final Judgment.

On January 4, 2021, the Company filed an appeal of this judgment with the Eleventh Circuit Court of Appeals.

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

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

(c) In addition to the matters described above, the Company is currently involved in other legal proceedings or governmental inquiries which, in the opinion of the Company’s management, will not materially affect the Company’s financial position or future operating results, although no assurance can be given with respect to the ultimate outcome of any such proceedings.

(d) In the normal course of business, the Company enters into agreements that may contain features that meet the definition of a guarantee.

(iii) In addition to the matters described above, the Company is currently involved in other legal proceedings or governmental inquiries which, in the opinion of the Company’s management, will not materially affect the Company’s financial position or future operating results, although no assurance can be given with respect to the ultimate outcome of any such proceedings.

(iv) In the normal course of business, the Company enters into agreements that may contain features that meet the definition of a guarantee.

A guarantee is a contract (including an indemnity) that contingently requires the Company to make payments (either in cash, financial instruments, other assets, shares of its stock or provision of services) to a third party based on (a) changes in an underlying interest rate, foreign exchange rate, equity or commodity instrument, index or other variable, that is related to an asset, a liability or an equity security of the counterparty, (b) failure of another party to perform under an obligating agreement or (c) failure of another third party to pay its indebtedness when due.

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Product Warranties

The Company’s accrual for product warranties, which was recorded as part of accrued and other liabilities in the Condensed Consolidated Balance Sheets, was less than $ 0.1 million and $ 0.2 million at September 30, 2020 and December 31, 2019 , respectively.

The Company’s accrual for product warranties, which is recorded within Accrued and Other Liabilities in the Condensed Consolidated Balance Sheets, was less than $ 0.1 million as of March 31, 2021 and December 31, 2020 , respectively.

Director/Officer Indemnifications

The Company’s General By-law contains an indemnification of its directors/officers, former directors/officers and persons who have acted at its request to be a director/officer of an entity in which the Company is a shareholder or creditor, to indemnify them, to the extent permitted by the Canada Business Corporations Act , against expenses (including legal fees), judgments, fines and any amounts actually and reasonably incurred by them in connection with any action, suit or proceeding in which the directors and/or officers are sued as a result of their service, if they acted honestly and in good faith with a view to the best interests of the Company.

The Company’s by-laws contain an indemnification of its directors/officers, former directors/officers and persons who have acted at its request to be a director/officer of an entity in which the Company is a shareholder or creditor, to indemnify them, to the extent permitted by the Canada Business Corporations Act , against expenses (including legal fees), judgments, fines and any amounts actually and reasonably incurred by them in connection with any action, suit or proceeding in which the directors and/or officers are sued as a result of their service, if they acted honestly and in good faith with a view to the best interests of the Company.

In addition, the Company has entered into indemnification agreements with each of its directors in order to effectuate the foregoing.

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The Company has purchased directors’ and officers’ liability insurance.

No amount has been accrued in the Condensed Consolidated Balance Sheets as at September 30, 2020 and December 31, 2019, with respect to this indemnity.

No amount has been accrued in the Company’s Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020, with respect to this indemnity.

Other Indemnification Agreements

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Selling Expenses

The Company defers direct selling costs such as sales commissions and other amounts related to its sales and sales-type lease arrangements until the related revenue is recognized.

These costs and direct advertising and marketing, which are included in Costs and Expenses Applicable to Revenues – Technology Sales, totaled $ 0.6 million and $ 1.0 million for the three and nine months ended September 30, 2020, respectively (2019 — $ 0.6 million and $ 1.5 million, respectively).

Film exploitation costs, including advertising and marketing expense, totaled $ 0.5 million and $ 3.1 million for the three and nine months ended September 30, 2020, respectively (2019 — expense of $ 4.3 million and $ 18.4 million, respectively), and are expensed as incurred in Costs and Expenses Applicable to Revenues – Image Enhancement and Maintenance Services.

Sales commissions related to joint revenue sharing arrangements accounted for operating leases are recognized as Costs and Expenses Applicable to Revenues – Technology Rentals in the month they are earned.

These costs totaled $ 0.3 million and $ 0.5 million for the three and nine months ended September 30, 2020, respectively (2019 — expense of $ 0.3 million and recovery of $ 0.3 million, respectively).

Direct advertising and marketing costs for each theater are charged to Costs and Expenses Applicable to Revenues – Technology Rentals as incurred.

These costs totaled $ 0.4 million and $ 0.8 million for the three and nine months ended September 30, 2020, respectively (2019 — $ 0.5 million and $ 1.4 million, respectively).

Sales commissions and other selling expenses paid prior to the recognition of the related revenue are deferred and recognized in the Condensed Consolidated Statements of Operations upon the recognition of the related theater system revenue.

For the three months ended March 31, 2021, the sales commission costs recognized within Costs and Expenses Applicable to Revenues – Technology Sales are $ 0.1 million (2020 — $ 0.1 million).

Direct advertising and marketing costs for each theater are expensed as incurred.

For the three months ended March 31, 2021, the total of all such costs recognized within Costs and Expenses Applicable to Revenues – Technology Sales was $ 0.1 million (2020 — $ 0.1 million).

For the three months ended March 31, 2021, sales commissions related to such joint revenue sharing arrangements totaled $ 0.2 million (2020 — $ 0.2 million).

Direct advertising and marketing costs for each theater are expensed as incurred.

For the three months ended March 31, 2021, the total of such costs recognized within Costs and Expenses Applicable to Revenues – Technology Rentals was $ 0.6 million (2020 — $ 0.3 million).

Film exploitation costs, including advertising and marketing expense, totaled $ 1.2 million for the three months ended March 31, 2021 (2020 — $ 2.6 million), and are expensed as incurred within Costs and Expenses Applicable to Revenues – Image Enhancement and Maintenance Services.

Foreign Exchange

Included in Selling, General and Administrative Expenses for the three and nine months ended September 30, 2020 is a gain of $ 0.2 million and a loss of $( 0.8 ) million, respectively (2019 — loss of ($ 0.7 ) million and $( 1.1 ) million, respectively) for net foreign exchange gains/losses related to the translation of foreign currency denominated monetary assets and liabilities.

Included in Selling, General and Administrative Expenses for the three months ended March 31, 2021 is a net gain of $ 0.6 million of (2020 — loss of $( 0.7 ) million) resulting from changes in exchange rates related to foreign currency denominated monetary assets and liabilities.

See Note 16(c) for additional information.

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Joint Revenue Sharing Arrangements

In a joint revenue sharing arrangement, the Company receives a portion of a theater’s box office receipts and in certain arrangements a portion of concession revenues and a small upfront or initial payment, in exchange for placing an IMAX Theater System at the theater operator’s venue.

The Company provides IMAX Theater Systems to customers through joint revenue sharing arrangements.

Under joint revenue sharing arrangements, the customer has the ability and the right to operate the hardware components or direct others to operate them in a manner determined by the customer.

The Company’s joint revenue sharing arrangements are typically non-cancellable for 10 years or longer with renewal provisions.

Title to equipment under joint revenue sharing arrangements generally does not transfer to the customer.

The Company’s joint revenue sharing arrangements do not contain a guarantee of residual value at the end of the term.

The customer is required to pay for executory costs such as insurance and taxes and is required to pay the Company for maintenance and extended warranty throughout the term.

Title to the IMAX Theater System under a joint revenue sharing arrangement generally does not transfer to the customer.

The Company’s joint revenue sharing arrangements do not contain a guarantee of residual value at the end of the lease term.

The customer is required to pay for executory costs such as insurance and taxes and is required to pay the Company for maintenance and an extended warranty throughout the term.

The Company has signed traditional and hybrid joint revenue sharing agreements with 41 exhibitors for a total of 1,233 IMAX Theater Systems, of which 881 theaters were included in the IMAX network as at September 30, 2020, the terms of which are similar in nature, rights and obligations.

As of March 31, 2021, the Company has signed traditional and hybrid joint revenue sharing agreements with 41 exhibitors (2020 — 41 ) for a total of 1,228 IMAX Theater Systems (2020 — 1,220 ) , of which 896 theaters (2020 — 867 ) were operational and included in the network as of that date.

The terms of these arrangements are similar in nature, rights and obligations.

The accounting policy for the Company’s joint revenue sharing arrangements is disclosed in Note 3(n) of the Company’s 2020 Form 10-K.

Amounts attributable to transactions arising between the Company and its customers under joint revenue sharing arrangements are included in Revenues — Technology Sales and Revenues — Technology Rentals and for the three and nine months ended September 30, 2020 amounted to $ 4.5 million and $ 11.5 million, respectively (2019 — $ 17.9 million and $ 66.1 million, respectively).

In an IMAX DMR arrangement, the Company transforms conventional motion pictures into the Company’s large screen format, allowing the release of Hollywood content to the global IMAX theater network.

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

Revenue attributable to transactions arising between the Company and its customers under joint revenue sharing arrangements are recorded within Revenues — Technology Sales and Revenues — Technology Rentals.

For the three months ended March 31, 2021, such revenues totaled $ 10.1 million (2020 — $ 6.8 million).

(See Note 13(a) for a disaggregated presentation of the Company’s revenues.)

In an IMAX DMR arrangement, the Company receives a percentage of the box office receipts from a third party who owns the copyright to a film in exchange for converting the film into IMAX DMR format and distributing it through the IMAX network .

In recent years, the percentage of gross box office receipts earned in IMAX DMR arrangements has averaged approximately 12.5 %, except for within Greater China, where the Company receives a lower percentage of net box office receipts for certain Hollywood films.

For the three and nine months ended September 30, 2020, the majority of IMAX DMR revenue was earned from the exhibition of six and 20 IMAX DMR films, respectively (2019 – 26 and 59 , respectively) and the re-release of classic titles throughout the IMAX theater network.

For the three months ended March 31, 2021, the majority of IMAX DMR revenue was earned from the exhibition of 18 IMAX DMR films ( 12 new and 6 carryovers) and the re-release of classic titles throughout the IMAX theater network, as compared to 13 films ( 9 new and 4 carryovers) in the first quarter of 2020.

The accounting policy for the Company’s IMAX DMR arrangements is disclosed in Note 3(n) of the Company’s 2020 Form 10-K.

Amounts attributable to transactions arising between the Company and its customers under IMAX DMR arrangements are included in Revenues – Image Enhancement and Maintenance Services and for the three and nine months ended September 30, 2020 amounted to $ 6.9 million and $ 18.1 million, respectively (2019 — $ 26.7 million and $ 93.9 million, respectively).

Revenue attributable to transactions arising between the Company and its customers under IMAX DMR arrangements are included in Revenues – Image Enhancement and Maintenance Services.

For the three months ended March 31, 2021, such revenues totaled $ 11.9 million (2020 — $ 10.6 million).

(See Note 13(a) for a disaggregated presentation of the Company’s revenues.)

Co-Produced Film Arrangements

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Under these arrangements, both parties contribute funding to the Company’s partly-owned subsidiary for the production and distribution of the film and for associated exploitation costs.

As at September 30, 2020, the Company has two co-produced film arrangements which represent the VIE total assets balance of $ 1.6 million and liabilities balance of $ 0.2 million and three other co-produced film arrangements, the terms of which are similar.

As of March 31, 2021, the Company has one co-produced film arrangement, which represents the VIE total assets balance of $ 1.6 million and liabilities balance of $ 0.3 million and three other co-produced film arrangements, the terms of which are similar.

The accounting policies relating to co-produced film arrangements are disclosed in Notes 3(a) and 3(n) of the Company’s 2020 Form 10-K.

For the three and nine months ended September 30, 2020, expenses totaling $ 0.5 million and $ 1.9 million, respectively (2019 —$ 0.1 million and $ 0.3 million, respectively) attributable to transactions between the Company and other parties involved in the production of the films have been included in Costs and Expenses Applicable to Revenues – Image Enhancement and Maintenance Services.

For the three months ended March 31, 2021, an expense of less than $ 0.1 million (2020 —$ 0.2 million) attributable to transactions between the Company and other parties involved in the production of the films have been included in Costs and Expenses Applicable to Revenues – Image Enhancement and Maintenance Services.

Condensed Consolidated Statements of Cash Flows – Supplemental Information

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

Nine Months Ended

September 30,

Changes in other operating assets and liabilities

Three Months Ended

(In thousands of U.S.

Decrease (increase) in:

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Prepaid expenses

Variable consideration receivable

Variable consideration receivables

Increase (decrease) in:

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Accrued and other liabilities

Depreciation and amortization are comprised of the following:

Nine Months Ended

September 30,

Depreciation and amortization

Three Months Ended

(In thousands of U.S.

Property, plant and equipment:

Joint revenue sharing arrangements

Equipment supporting joint revenue sharing arrangements

Other property, plant and equipment

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Deferred financing costs

Write-downs are comprised of the following:

Nine Months Ended

September 30,

Three Months Ended

(In thousands of U.S.

Film assets (1)

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Property, plant and equipment

Joint revenue sharing arrangements (3)

Equipment supporting joint revenue sharing arrangements (3)

Other property, plant and equipment

Inventories (4)

Other intangible assets

In the nine months ended September 30, 2020, the Company recorded impairment losses of $ 10.2 million (2019 — $ 0.2 million) 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.

To a much lesser extent, the impairment losses also relate to the write-down of DMR related film assets.

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).

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

In the nine months ended September 30, 2020, the Company recorded charges of $ 1.1 million in Costs and Expenses Applicable to Technology Rentals principally related to the write-down of leased xenon-based digital systems which were taken out of service in connection with customer upgrades to laser-based digital systems.

In the nine months ended September 30, 2019, the Company recorded a charge of $ 0.1 million in Costs and Expenses Applicable to Technology Rentals and $ 0.1 million in Revenues -Technology Rentals related to the write-down of leased xenon-based digital systems which were taken out of service in connection with customer upgrades to laser-based digital systems.

In the nine months ended September 30, 2020, the Company recorded write-downs of $ 0.7 million (2019 — $nil) related to excess inventory .

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

Nine Months Ended

September 30,

In the first quarter of 2020, the Company recorded impairment losses of $ 2.3 million in Costs and Expenses Applicable to Image Enhancement and Maintenance Services principally to write-down the carrying value of certain documentary and alternative film content due to a decrease in projected box office totals and related revenues based on management’s regular quarterly recoverability assessments .

Although no such impairment losses were recorded in the first quarter of 2021, t here can be no assurances that there will not be additional write-downs to the carrying values of these assets as the Company continues to assess the ongoing impact of the COVID-19 pandemic (see Notes 1 and 2 ).

In the first quarter of 2020, the Company recorded a write-down of $ 1.0 million in Asset Impairments related to content-related assets which became impaired in the period.

No such impairment loss was recorded in the first quarter of 2021.

In the first quarter of 2021, the Company recorded charges of $ 0.2 million in Costs and Expenses Applicable to Technology Rentals principally related to the write-down of leased xenon-based digital systems which were taken out of service in connection with customer upgrades to laser-based digital systems.

In the three months ended March 31, 2021, the Company recorded write-downs of $ 0.1 million (2020 — $nil) in Costs and Expenses Applicable to Technology Sales related to excess inventory.

Significant non-cash investing activities

Three Months Ended

(In thousands of U.S.

Net (decrease) increase in accruals related to:

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Purchases of property, plant and equipment

Significant non-cash financing activities

In the first quarter of 2021, the Company incurred $ 1.2 million of debt issuance costs related to the Convertible Notes (see Note 7), which were not yet paid as of March 31, 2021 and are recorded on the Condensed Consolidated Balance Sheets within Accounts Payable and Accrued and Other Liabilities.

Income Tax Expense

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.

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.

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, as discussed above.

The 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 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.

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

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.

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

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).

For the three months ended March 31, 2021, the Company recorded income tax expense of $ 3.1 million (2020 — $ 15.5 million).

The Company’s effective tax rate for the three months ended March 31, 2021 of ( 41.1 )% differs from the Canadian statutory tax rate of 26.2 % primarily due to the fact that the Company recorded an additional $ 7.0 million valuation allowance against deferred tax assets in jurisdictions where management could not reliably forecast that future tax liabilities would arise, primarily due to the uncertainties around the long-term impact of the COVID-19 global pandemic.

Accordingly, the tax benefit associated with the current period losses in these jurisdictions is not ultimately reflected in the Company’s Condensed Consolidated Statements of Operations.

Also impacting the Company’s effective tax rate for the three months ended March 31, 2021 are jurisdictional tax rate differences, including a difference related to the gain on the sale of the Maoyan investment (see Note 16), as well as changes in estimated 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.

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 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).

Income Tax Effect on Other Comprehensive (Loss) Income

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

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

As of March 31, 2021, the Company’s Condensed Consolidated Balance Sheets include net deferred income tax assets of $ 18.3 million, net of a valuation allowance of $ 38.3 million (December 31, 2020 — $ 18.0 million, net of a valuation allowance of $ 28.8 million).

The $ 9.5 million valuation allowance recorded in the current period is reflected within Income Tax Expense in the Company’s Condensed Consolidated Statements of Operations ($ 7.0 million) and within Shareholder’s Equity on the Company’s Condensed Consolidated Balance Sheets ($ 2.5 million).

The valuation allowance recorded against the Company’s deferred tax assets is primarily the result of uncertainties related to the long-term impact of the COVID-19 global pandemic.

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

Accordingly, the net amount recorded on the Condensed Consolidated Balance Sheets relies on management’s projections of future taxable income.

The valuation allowance is expected to reverse at the point in time when management determines it is more likely than not that the Company will incur sufficient tax liabilities to allow it to utilize the deferred tax assets against which the valuation allowance is recorded.

However, as discussed in Note 1, should actual results differ from management’s projections of future taxable income, an increased valuation allowance may be required.

Despite the valuation allowance recorded against its deferred tax assets, the Company remains entitled to benefit from tax attributes which currently have a valuation allowance applied to them.

Income Tax Effect on Other Comprehensive Loss

The income tax (expense) benefit related to the following items included in Other Comprehensive Loss are:

Three Months Ended

Nine Months Ended

September 30,

(In thousands of U.S.

Unrealized change in cash flow hedging instruments

Realized change in cash flow hedging instruments upon settlement

Unrecognized actuarial gain on defined benefit plan

Reclassification of unrealized change in ineffective cash flow hedging instruments

Defined benefit and postretirement benefit plans

Capital Stock

Share-Based Compensation

For the three and nine months ended September 30, 2020, share-based compensation expense totaled $ 5.3 million and $ 16.0 million, respectively (2019 — $ 5.5 million and $ 16.9 million, respectively) and is reflected in the following accounts in the Condensed Consolidated Statements of Operations:

For the three months ended March 31, 2021, share-based compensation expense totaled $ 5.3 million (2020 — $ 4.2 million) and is reflected in the following accounts in the Condensed Consolidated Statements of Operations:

Three Months Ended

Nine Months Ended

September 30,

(In Thousands of U.S.

Cost and expenses applicable to revenues

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Research and development

For the three and nine months ended September 30, 2020, there was a decrease in share-based compensation expenses allocated to Costs and Expenses Applicable to Revenues and Research and Development, when compared to same period in 2019, due to the lower level of production during the COVID-19 global pandemic.

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

Three Months Ended

Nine Months Ended

September 30,

(In Thousands of U.S.

Stock Options

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IMAX China Long Term Incentive Plan Performance Stock Units

Included in the above table is an expense of $nil and $ 0.1 million in the three and nine months ended September 30, 2020, respectively (2019 — less than $ 0.1 million and less than $ 0.1 million, respectively) related to restricted share units granted to a certain advisor of the Company.

In the third quarter of 2020, IMAX China modified the terms of certain fully vested stock options to extend their contractual life by two years and recorded an associated expense of $ 0.6 million.

Included in the above table is an expense of $nil in the three months ended March 31, 2021 (2020 — $ 0.1 million) related to restricted share units granted to a certain advisor of the Company.

Stock Option Summary

The following table summarizes the activity under the Company’s Stock Option Plan (“SOP”) and IMAX Amended and Restated Long Term Incentive Plan (as amended, “IMAX LTIP”) for the nine months ended September 30, 2020 and 2019:

The following table summarizes the activity under the Company’s Stock Option Plan (“SOP”) and IMAX Corporation Second Amended and Restated Long-Term Incentive Plan (as may be amended, “IMAX LTIP”) for the three months ended March 31, 2021 and 2020:

Number of Shares

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Restricted Share Units (“RSU”) Summary

The following table summarizes the activity in respect of RSUs issued under the IMAX LTIP for the nine months ended September 30, 2020 and 2019:

The following table summarizes the activity in respect of RSUs issued under the IMAX LTIP for the three months ended March 31, 2021 and 2020:

Number of Awards

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RSUs outstanding, end of period

Performance S tock Units Summary

In the first quarter of 2020, the Company expanded its share-based compensation program to include performance stock units (“PSUs”).

The Company grants two types of PSU awards, one which vests based on a combination of employee service and the achievement of certain EBITDA-based targets and one which vests based on a combination of employee service and the achievement of certain stock-price targets.

These awards vest over a three-year performance period.

The grant date fair value of PSUs with EBITDA-based targets is equal to the closing price on date of grant or the average closing price of the Company’s common stock for five days prior to the date of grant.

The grant date fair value of PSUs with stock-price targets is determined on the grant date using a Monte Carlo simulation, which is a valuation model that takes into account the likelihood of achieving the stock-price targets embedded in the award (“Monte Carlo Model”).

Performance Stock Units Summary

The Company grants awards for two types of performance stock units (“PSUs”), one which vests based on a combination of employee service and the achievement of certain EBITDA-based targets and one which vests based on a combination of employee service and the achievement of total shareholder return (“TSR”) targets.

The achievement of the EBITDA and TSR targets in these PSUs is determined over a three-year performance period.

The grant date fair value of PSUs with EBITDA-based targets is equal to the closing price of the Company’s common stock on the date of grant or the average closing price of the Company’s common stock for five days prior to the date of grant.

The grant date fair value of PSUs with TSR targets is determined on the grant date using a Monte Carlo simulation, which is a valuation model that takes into account the likelihood of achieving the TSR targets embedded in the award (“Monte Carlo Model”).

The compensation expense attributable to each type of PSU is recognized on a straight-line basis over the requisite service period.

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These variables include, but are not limited to, market conditions as of the grant date, the Company’s expected stock price volatility over the term of the awards, and other relevant data.

The compensation expense is fixed on the date of grant based on the dollar value granted.

The amount and timing of compensation expense recognized for PSUs with EBITDA-based targets is dependent upon management's assessment of the likelihood and timing of achieving these targets.

If, as a result of management’s assessment, it is projected that a greater number of PSUs will vest than previously anticipated, a life-to-date adjustment to increase compensation expense is recorded in the period such determination is made.

Conversely, if, as a result of management’s assessment, it is projected that a lower number of PSUs will vest than previously anticipated, a life-to-date adjustment to decrease compensation expense is recorded in the period such determination is made.

The Company will complete an assessment of the likelihood of achieving these targets in the fourth quarter of 2020 in connection with its annual budget process for 2021.

As a result, no adjustment to compensation expense has been recognized in the three and nine months ended September 30, 2020, respectively, related to the PSUs granted in 2020.

Compensation expense is not adjusted for estimated forfeitures, but is instead adjusted based upon the actual forfeiture of the award.

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

The compensation expense is fixed on the date of grant based on the fair value of the PSUs granted.

The amount and timing of compensation expense recognized for PSUs with EBITDA-based targets is dependent upon management's assessment of the likelihood of achieving these targets.

The expense recognized in the three months ended March 31, 2021, includes adjustments reflecting management’s estimate of the number of PSUs with EBITDA-based targets expected to vest.

The following table summarizes the activity in respect of PSUs issued under the IMAX LTIP for the three months ended March 31, 2021 and 2020:

Number of Awards

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Fair Value Per Share

PSUs outstanding, beginning of period

PSUs outstanding, end of period

As of March 31, 2021, the maximum number of shares of common stock that may be issued with respect to PSUs outstanding is 1,168,573 , assuming full achievement of the EBITDA and TSR targets.

Issuer Purchases of Equity Securities

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

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

In June 2020, the Company’s Board of Directors approved a 12-month extension to its share repurchase program, through June 30, 2021 .

The extension authorized the Company to repurchase up to approximately $ 89.4 million worth of common shares, the remaining amount available of the original $ 200.0 million initially authorized under the share-repurchase program when it commenced on July 1, 2017.

Subsequent to March 31, 2021, the Company’s Board of Directors approved a further 12-month extension of the current share repurchase program through June 30, 2022.

The repurchases may be made either in the open market or through private transactions, subject to market conditions, applicable legal requirements, and other relevant factors.

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

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

During the nine months ended September 30, 2020, the Company repurchased 2,484,123 shares of its common stock at an average price of $ 14.72 per share, excluding commissions.

During the three and nine months ended September 30, 2019, the Company repurchased 46,615 and 134,384 common shares, respectively at an average price of $ 20.35 and $ 19.76 per share, respectively excluding commissions.

The total number of shares purchased during the three and nine months ended September 30, 2020 does not include nil and 200,000 common shares (2019 — 45,000 and 445,000 common shares, respectively) purchased in the administration of employee share-based compensation plans, at an average price of $nil and $ 15.43 per share (2019 — $ 21.52 and $ 22.83 per share, respectively).

As at September 30, 2020, the IMAX LTIP trustee held 17,578 shares (December 31, 2019 — 187,020 shares) purchased for $ 0.3 million (December 31, 2019 — $ 4.0 million) in the open market to be issued upon the settlement of RSUs and certain stock options.

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

In 2019, IMAX China announced that its shareholders granted its Board of Directors a general mandate authorizing the Board, subject to applicable laws, to repurchase shares of IMAX China in an amount not to exceed 10 % of the total number of issued shares as at June 6, 2019 ( 35,605,560 shares).

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

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

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

The Company did no t repurchase any common shares during the three months ended March 31, 2021.

During the three months ended March 31, 2020, the Company repurchased 2,484,123 common shares at an average price of $ 14.72 per share, excluding commissions.

The total number of shares purchased during the three months ended March 31, 2020 does not include the 200,000 common shares purchased in the administration of employee share-based compensation plans, at an average price of $ 15.43 per share.

As of March 31, 2021 and December 31, 2020, the IMAX LTIP trustee held 723 shares purchased for less than $ 0.1 million, respectively, in the open market to be issued upon the settlement of RSUs and certain stock options.

The shares held with the trustee are recorded at cost and are reported as a reduction against Capital Stock on the Company’s Condensed Consolidated Balance Sheets.

In 2020, IMAX China announced that its shareholders granted its Board of Directors a general mandate authorizing the Board, subject to applicable laws, to repurchase of shares of IMAX China not to exceed 10 % of the total number of issued shares as of June 11, 2020 ( 34,848,398 shares).

This program will be valid until the 2021 Annual General Meeting of IMAX China, which is scheduled for May 6, 2021.

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

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

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

$nil and U.S.

$ 1.69 , respectively).

During the three and nine months ended September 30, 2019, IMAX China repurchased 1,025,800 and 8,051,500 of its common shares, respectively, at an average price of HKD 17.90 and HKD 18.63 per share, respectively (U.S.

$ 2.29 and U.S.

$ 2.38 , respectively).

IMAX China did not repurchase any common shares during the three months ended March 31, 2021.

During the three months ended March 31, 2020, IMAX China repurchased 480,600 common shares at an average price of HKD $ 14.42 per share (U.S.

$ 1.85 per share).

Basic and Diluted Weighted Average Shares Outstanding

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Three Months Ended

Nine Months Ended

September 30,

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

(In thousands)

Issued and outstanding, beginning of period

Weighted average number of shares repurchased, net of shares

issued during the period

Weighted average number of shares used in computing basic

income per share

Assumed exercise of stock options, RSUs and PSUs, net of shares

assumed repurchased, if dilutive

Weighted average number of shares used in computing diluted

income per share

For the three and nine months ended September 30, 2020, the calculation of diluted weighted average shares outstanding excludes 6,959,515 and 6,959,515 shares, respectively (2019 — 5,289,172 and 5,902,208 shares, respectively) of common shares issuable upon the vesting of RSUs and PSUs and the exercise of stock options as the effect would be anti-dilutive.

Weighted average number of shares issued (repurchased), net

Weighted average number of shares outstanding - basic

Weighted average effect of potential common shares, if dilutive

Weighted average number of shares outstanding - diluted

The calculation of diluted weighted average shares outstanding excludes 6,494,829 shares (2020 — 6,995,927 shares) that are issuable upon the vesting or exercise of share-based compensation including:

(i) 1,735,714 RSUs (2020 — 1,692,066 RSUs), (ii) 845,884 PSUs (2020 — 359,784 PSUs) and (iii) 3,913,231 stock options (2020 — 4,944,077 stock options), as the effect would be anti-dilutive.

The calculation of diluted weighted average shares outstanding for the three months ended March 31, 2021 also excludes any shares potentially issuable upon the conversion of the Convertible Notes as the average market price of the Company’s common stock during the period of time they were outstanding was less than the conversion price of the Convertible Notes.

(See Note 7(b).)

Revenue from Contracts with Customers

(a) Disaggregated Information About Revenue

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

Three Months Ended September 30, 2020

Contracts with Customers

Consideration

Finance Income

Technology sales

Joint Revenue Sharing Arrangements, fixed fees

Other Theater Business

Other sales (1)

Image enhancement and maintenance services

IMAX Maintenance

Film Post-Production

Film Distribution

Technology rentals

Joint Revenue Sharing Arrangements, contingent rent

Finance income

Nine Months Ended September 30, 2020

Contracts with Customers

consideration

Finance Income

Technology sales

Joint Revenue Sharing Arrangements, fixed fees

Other Theater Business

Other sales (1)

Image enhancement and maintenance services

IMAX Maintenance

Film Post-Production

Film Distribution

Technology rentals

Joint Revenue Sharing Arrangements, contingent rent

Finance income

(1) Other sales include revenues associated with New Business Initiatives such as IMAX Enhanced.

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

Three Months Ended September 30, 2019

Disaggregated Information About Revenue

The following tables summarize the Company’s revenues by type and reportable segment for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31, 2021

Contracts with Customers

(In thousands of U.S.

Consideration

2 unchanged sentences

Technology sales

IMAX Systems (1)

Joint Revenue Sharing Arrangements, fixed fees

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Finance income

Nine Months Ended September 30, 2019

Includes r evenues earned from sales or sales-type lease arrangements involving new and upgraded IMAX Theater Systems, as well as the impact on revenue of renewals and amendments to existing theater system arrangements.

Other sales include revenues associated with New Business Initiatives.

Three Months Ended March 31, 2020

Contracts with Customers

(In thousands of U.S.

Consideration

2 unchanged sentences

Technology sales

IMAX Systems (1)(3)

Joint Revenue Sharing Arrangements, fixed fees

8 unchanged sentences

Finance income

(1) Other sales include revenues associated with New Business Initiatives, such as IMAX Enhanced.

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

(b) Deferred Revenue

Other sales include revenues associated with New Business Initiatives.

Prior period comparatives have been revised to appropriately classify $ 1.1 million of fixed consideration under revenue from contracts with customers to revenue from lease arrangements.

Deferred Revenue

IMAX Theater System sale and lease arrangements include a requirement for the Company to provide maintenance services over the life of the arrangement, subject to a consumer price index adjustment each year.

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

At September 30, 2020, $ 16.7 million of consideration has been deferred in relation to outstanding maintenance services to be provided on existing maintenance contracts (December 31, 2019 — $ 17.7 million).

At March 31, 2021, $ 24.3 million of consideration has been deferred in relation to outstanding maintenance services to be provided on existing maintenance contracts (December 31, 2020 — $ 21.6 million).

Maintenance revenue is recognized evenly over the contract term which coincides with the period over which maintenance services are provided.

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

Selling, general and administrative expenses, research and development costs, the amortization of intangible assets, 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 Company’s segments.

The Company has the following reportable segments:

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Inter-segment profits are eliminated upon consolidation, as well as for the disclosures below.

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

Gross Margin (Margin Loss) (3)

IMAX Technology Network

Joint revenue sharing arrangements, contingent rent

IMAX Technology Sales and Maintenance

IMAX Systems (1)

Joint revenue sharing arrangements, fixed fees

IMAX Maintenance

Other Theater Business (2)

New Business Initiatives

Film Distribution and Post-production

Film Distribution (4)

Post-production

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

The following table presents the breakdown of revenue and gross margin (loss) by category for the three months ended March 31, 2021 and 2020:

Gross Margin (Margin Loss) (4)

(In thousands of U.S.

IMAX Technology Network

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Post-Production

The Company’s largest customer represents 31.2 % of total Revenues for the three months ended March 31, 2021 (2020 — 14.4 %) and 15.9 % of total Accounts Receivable as of March 31, 2021.

No single customer comprises more than 10% of the Company’s total Accounts Receivable as of December 31, 2020.

Includes initial upfront payments and the present value of fixed minimum payments from sales and sales-type lease arrangements of IMAX Theater Systems, and the present value of estimated variable consideration from sales of IMAX Theater Systems.

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

IMAX DMR gross margin includes marketing costs of $ 0.4 million and $ 2.8 million for the three and nine months ended September 30, 2020, respectively (2019 — $ 4.3 million and $ 17.7 million, respectively).

JRSA gross margin includes advertising, marketing and commission expense of $ 0.7 million and $ 1.3 million for the three and nine months ended September 30, 2020, respectively (2019 —$ 0.8 million and $ 1.1 million, respectively).

IMAX Systems gross margin includes marketing and commission costs of $ 0.6 million and $ 1.0 million for the three and nine months ended September 30, 2020, respectively, (2019 — $ 0.6 million and $ 1.5 million, respectively).

Film Distribution segment gross margin includes marketing expense of $ 0.2 million and $ 0.4 million for the three and nine months ended September 30, 2020, respectively (2019 — $ 0.1 million and $ 0.7 million, respectively).

During the three and nine months ended September 30, 2020, Film Distribution segment results were significantly influenced by impairment losses of $ 5.4 million and $ 9.9 million, respectively, 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 (2019 – $ 0.2 million and $ 0.2 million ).

IMAX DMR gross margin includes marketing costs of $ 1.1 million for the three months ended March 31, 2021 (2020 — $ 2.4 million).

JRSA gross margin includes advertising, marketing and commission expense of $ 0.8 million for the three months ended March 31, 2021 (2020 — $ 0.5 million).

IMAX Systems gross margin includes marketing and commission costs of $ 0.2 million for the three months ended March 31, 2021 (2020 — $ 0.2 million).

Film Distribution segment gross margin includes a marketing recovery of less than $ 0.1 million for the three months ended March 31, 2021 (2020 — expense of $ 0.2 million).

During the three months ended March 31, 2020, Film Distribution segment results include impairment losses of $ 2.3 million 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 .

No such charges were incurred in the three months ended March 31, 2021 .

Geographic Information

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Three Months Ended

Nine Months Ended

September 30,

Greater China

Western Europe

Asia (excluding China)

United States

Latin America

Russia & the CIS

Western Europe

Latin America

Rest of the World

No single country in the Rest of the World, Western Europe, Latin America and Asia (excluding Greater China) comprises more than 10% of the Company’s total revenue in the three months ended September 30, 2020 .

For the three months ended March 31, 2021, the amount attributable to Canada includes a $ 0.5 million reversal of previously recorded revenue and a corresponding reduction in the net investment in lease as a result of a lease modification entered into in the period.

Employee's Pension and Postretirement Benefits

Defined Benefit Plan

The Company has an unfunded defined benefit supplemental executive retirement plan (the “SERP”) covering Richard L.

Gelfond, its CEO.

The accounting for the SERP assumes that Mr.

Gelfond will receive a lump sum payment of $ 20.3 million six months after retirement at the end of the current term of his employment agreement (December 31, 2022), although Mr.

The Company has an unfunded defined benefit pension plan, the Supplemental Executive Retirement Plan (the “SERP”), covering its CEO, Richard L.

Under the terms of the SERP, if Mr.

Gelfond’s employment is terminated other than for cause (as defined in his employment agreement), he is entitled to receive SERP benefits in the form of a lump sum payment.

SERP benefit payments to Mr.

Gelfond are subject to a deferral for six months after the termination of his employment, at which time Mr.

Gelfond will be entitled to receive interest on the deferred amount credited at the applicable federal rate for short-term obligations.

Pursuant to an amendment to his employment agreement dated November 1, 2019, the term of Mr.

Gelfond’s employment was extended through December 31, 2022, although Mr.

Gelfond has not informed the Company that he intends to retire at that time.

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

September 30,

Under the terms of this amendment to his employment agreement, the total benefit payable to Mr.

Gelfond under the SERP was fixed at $ 20.3 million.

As of March 31, 2021 and December 31, 2020, the Company’s projected benefit obligation and unfunded status related to the SERP are as follows:

(In thousands of U.S.

Projected benefit obligation:

Obligation, beginning of period

Prior Service cost

Interest cost

1 unchanged sentence

Obligation, end of period and unfunded status (1)

The accumulated benefit obligation for the SERP was $ 19.1 million at September 30, 2020 (December 31, 2019 —$ 18.8 million).

For the three and nine months ended September 30, 2020, the Company recorded interest costs of $ 0.1 million and $ 0.3 million, respectively, (2019 — $ 0.1 million and $ 0.4 million, respectively) related to the SERP.

The accumulated benefit obligation for the SERP was $ 20.1 million at March 31, 2021 (December 31, 2020 —$ 20.1 million).

For the three months ended March 31, 2021, the Company recorded interest costs of less than $ 0.1 million (2020 — $ 0.1 million) related to the SERP.

The Company expects to recognize additional interest costs of $ 0.1 million related to the SERP during the remainder of 2021.

No contributions are expected to be made for the SERP during the remainder of 2020.

No contributions are expected to be made to the SERP in 2021.

Defined Contribution Pension Plan

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The Company makes contributions to these plans on behalf of employees in an amount up to 5 % of their base salary subject to certain prescribed maximums.

During the three and nine months ended September 30, 2020, the Company contributed and recorded expense of $ 0.3 million and $ 0.8 million, respectively, (2019 — $ 0.3 million and $ 0.9 million, respectively) to its Canadian defined contribution plan and $ 0.1 million and $ 0.5 million, respectively, (2019 — $ 0.1 million and $ 0.5 million, respectively) to its defined contribution employee plan under Section 401(k) of the U.S.

During the three months ended March 31, 2021, the Company contributed and recorded expense of $ 0.3 million (2020 — $ 0.3 million) to its Canadian defined contribution plan and $ 0.2 million (2020 — $ 0.2 million) to its defined contribution employee plan under Section 401(k) of the U.S.

Internal Revenue Code.

6 unchanged sentences

Gelfond and Wechsler.

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

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

As of March 31, 2021, the Company’s postretirement benefits obligation under this plan is $ 0.7 million (December 31, 2020 — $ 0.7 million).

For the three months ended March 31, 2021, the Company has recorded an expense of less than $ 0.1 million (2020 — less than $ 0.1 million) related to this plan.

In the first quarter of 2021, Mr.

Wechsler notified the Company’s Board of Directors that he will not stand for re-election as a director at the Company’s annual meeting of shareholders on June 9, 2021.

Upon his departure, the Company will maintain Mr.

Wechsler’s current health benefits through December 31, 2021, and thereafter will provide him with Medicare supplemental coverage.

Postretirement Benefits – Canadian Employees

1 unchanged sentence

The Company will provide eligible participants, upon retirement, with health and welfare benefits.

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

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

As of March 31, 2021, the Company’s postretirement benefits obligation under this plan is $ 1.8 million (December 31, 2020 — $ 1.9 million).

For the three months ended March 31, 2021, the Company has recorded expense of less than $ 0.1 million (2020 — $ 0.1 million) related to this plan.

Deferred Compensation Benefit Plan

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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 on 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.

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 of December 31, 2018 and the accelerated costs were recognized and reflected in Executive Transition Costs in the Consolidated Statements of Operations.

As of March 31, 2021, the benefit obligation related to the Retirement Plan was $ 3.7 million (December 31, 2020 — $ 3.7 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.

As of March 31, 2021, fair value of the COLI asset was $ 3.2 million (December 31, 2020 — $ 3.2 million).

Gains and losses resulting from changes in the cash surrender value of the COLI asset are recognized in the Condensed Consolidated Statements of Operations within Realized and Unrealized Investment Gains (Losses).

Financial Instruments

Cash and Cash Equivalents

Financial Instruments

The Company maintains cash with various major financial institutions.

The Company’s cash is invested with highly rated financial institutions.

The Company’s $ 267.8 million balance of cash and cash equivalents as of March 31, 2021 includes $ 115.1 million in cash held outside of Canada (December 31, 2020 — $ 89.9 million), of which $ 84.2 million was held in the People’s Republic of China (the “PRC”) (December 31, 2020 — $ 76.7 million).

Fair Value Measurements

1 unchanged sentence

Including these instruments, the Company’s financial instruments consist of the following:

As at September 30, 2020

As at December 31, 2019

As of March 31, 2021

As of December 31, 2020

(In thousands of U.S.

Cash and cash equivalents (1)

2 unchanged sentences

Net investment in sales-type leases (3)

Convertible loan receivable (2)

Equity securities (1)

1 unchanged sentence

Foreign exchange contracts — non-designated forwards (3)

Bank indebtedness - under the Working Capital Facility (1)

Bank indebtedness - under the Credit Facility (1)

Working Capital Facility borrowings (1)

Credit Facility borrowings (1)

Convertible Notes (5)

Recorded at cost, which approximates fair value.

Estimated based on discounting future cash flows at currently available interest rates with comparable terms.

Value determined using quoted prices in active markets.

Fair value is determined using quoted prices in active markets .

Fair value is estimated based on discounting future cash flows at currently available interest rates with comparable terms .

Measured at cash surrender value, which approximates fair value .

Fair value is determined using quoted market prices that are observable in the market or that could be derived from observable market data .

When a determination is made to classify an asset or liability within Level 3, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement.

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

There were no transfers in or out of the Company’s Level 3 assets during the three months ended March 31, 2021 and 2020.

Foreign Exchange Risk Management

10 unchanged sentences

In addition, because IMAX films generate box office in 84 different countries, unfavourable exchange rates between applicable local currencies and the U.S.

dollar affect the Company’s reported gross box-office and revenues, further impacting the Company’s results of operations.

Dollar affect the Company’s reported gross box-office receipts and revenues, further impacting the Company’s results of operations.

The Company’s policy is to not use any financial instruments for trading or other speculative purposes.

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

Certain of these foreign currency forward contracts met the criteria required for hedge accounting under the Derivatives and Hedging Topic of the FASB ASC at inception, and continue to meet hedge effectiveness tests at September 30, 2020 (the “Foreign Currency Hedges”), with settlement dates throughout 2020 and 2021 .

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

Certain of these foreign currency forward contracts met the criteria required for hedge accounting under the Derivatives and Hedging Topic of the FASB ASC at inception, and continue to meet hedge effectiveness tests at March 31, 2021 (the “Foreign Currency Hedges”), with settlement dates throughout 2021 .

Foreign currency derivatives are recognized and measured in the Condensed Consolidated Balance Sheets at fair value.

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

Changes in the fair value (i.e., 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 in the Condensed Consolidated Balance Sheets when the forecasted transaction occurs.

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

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

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

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

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

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

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 (Loss) 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 (Loss) and reclassified to Inventories in the Condensed Consolidated Balance Sheets when the forecasted transaction occurs.

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

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

Notional value of foreign exchange contracts :

September 30,

(In thousands of U.S.

Derivatives designated as hedging instruments:

3 unchanged sentences

Fair value of derivatives in foreign exchange contracts :

September 30,

(In thousands of U.S.

Balance Sheet Location

1 unchanged sentence

Foreign exchange contracts — Forwards

Accrued and other liabilities

Derivatives not designated as hedging instruments:

Foreign exchange contracts — Forwards

Accrued and other liabilities

Derivatives in foreign currency hedging relationships are as follows :

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands of U.S.

Foreign exchange contracts

2 unchanged sentences

(Effective Portion)

Location of Derivative Loss

Location of Derivative Gain (Loss)

Reclassified from AOCI

Three Months Ended September 30,

Nine months ended September 30,

Three Months Ended March 31,

(In thousands of U.S.

(Effective Portion)

2 unchanged sentences

administrative expenses

Property, plant and equipment

Three Months Ended September 30,

Nine months ended September 30,

Three Months Ended March 31,

(In thousands of U.S.

Foreign exchange contracts

Derivative Gain (Loss) Recognized In

Derivative Loss Recognized In

and Out of OCI

Non-designated derivatives in foreign currency relationships are as follows :

Three Months Ended September 30,

Nine months ended September 30,

Three Months Ended March 31,

(In thousands of U.S.

Location of Derivative Gain

2 unchanged sentences

administrative expenses

The Company's estimated net amount of the existing gains as at September 30, 2020 is $ 0.5 million, which is expected to be reclassified to earnings within the next twelve months.

The Company's estimated net amount of the existing gains as of March 31, 2021 is $ 1.7 million, which is expected to be reclassified to earnings within the next twelve months.

Investments in Equity Securities

As at September 30, 2020, the Condensed Consolidated Balance Sheets includes $ 14.8 million (December 31, 2019 — $ 15.7 million) of investments in equity securities.

As of March 31, 2021, the Condensed Consolidated Balance Sheets includes $ 1.1 million (December 31, 2020 — $ 13.6 million) of investments in equity securities.

On January 17, 2019, IMAX China (Hong Kong), Limited, a wholly-owned subsidiary of IMAX China, as an investor entered into a cornerstone investment agreement with Maoyan Entertainment (“Maoyan”) (as the issuer) and Morgan Stanley Asia Limited (as a sponsor, underwriter and the underwriters’ representative).

1 unchanged sentence

On February 4, 2019, Maoyan completed its global offering, upon which, IMAX China (Hong Kong), Limited became a less than 1 % shareholder in Maoyan.

This investment is classified as an equity security, with a readily determinable market value through the Hong Kong Stock Exchange.

The changes in fair value are recorded in Gain (Loss) in Fair Value of Investment in the Company’s Condensed Consolidated Statement of Operations.

As at September 30, 2020, the value of the Company’s investment in Maoyan was $ 13.7 million (December 31, 2019 — $ 14.6 million).

For the three and nine months ended September 30, 2020, the Company has recorded a net unrealized gain of $ 1.6 million and a net unrealized loss of $ 0.9 million, respectively (2019— unrealized losses of $ 0.5 million and $ 2.5 million, respectively).

In February 2021, IMAX China (Hong Kong), Limited sold all of its 7,949,000 shares of Maoyan for gross proceeds of $ 17.8 million, which represents a $ 2.6 million gain relative to the Company’s acquisition cost and a $ 5.2 million gain compared to the fair value of the investment as of December 31, 2020.

Prior to this sale, the Company accounted for its investment in Maoyan at fair value with any changes in fair value recorded to the Condensed Consolidated Statements of Operations.

For the three months ended March 31, 2020, the fair value of the Company’s investment in Maoyan experienced an unrealized loss of $ 4.5 million.

As of December 31, 2020, the value of the Company’s investment in Maoyan was $ 12.6 million.

The Company has an investment of $ 1.1 million (December 31, 2020 — $ 1.1 million) in the shares of an exchange traded fund.

This investment is classified as an equity investment.

As at September 30, 2020, the Company held investments in the preferred shares of enterprises which meet the criteria for classification as an equity security under FASB ASC 325, carried at historical cost, net of impairment charges.

The carrying value of these equity security investments was $ 1.0 million at September 30, 2020 (December 31, 2019 — $ 1.0 million) and is recorded in Other Assets.

As of March 31, 2021, the Company held investments in the preferred shares of enterprises which meet the criteria for classification as an equity security under FASB ASC 321, carried at historical cost, net of impairment charges.

The carrying value of these equity security investments was $ 1.0 million at March 31, 2021 (December 31, 2020 — $ 1.0 million) and is recorded in Other Assets.

Non-Controlling Interests

IMAX China Non-Controlling Interest

The Company indirectly owns approximately 69.89 % of IMAX China Holding, Inc.

The Company indirectly owns 69.83 % of IMAX China Holding, Inc.

(“IMAX China”), whose shares trade on the Hong Kong Stock Exchange.

IMAX China is a consolidated subsidiary of the Company.

The balance of the non-controlling interest in IMAX China as at September 30, 2020 is $ 75.5 million.

For the three months ended September 30, 2020, the net income attributable to the non-controlling interest in IMAX China is $ 2.2 million (2019 — $ 2.3 million).

For the nine months ended September 30, 2020, the net loss attributable to the non-controlling interest in IMAX China is $ 10.3 million (2019 — net income of $ 9.3 million).

IMAX China remains a consolidated subsidiary of the Company.

As of March 31, 2021, the balance of the Company’s non-controlling interest in IMAX China is $ 82.2 million.

For the three months ended March 31, 2021, the net income attributable to the non-controlling interest in IMAX China is $ 4.3 million (2020 — net loss of $( 9.6 ) million).

Other Non-Controlling Interest

2 unchanged sentences

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

As at September 30, 2020, the Original Film Fund has invested $ 22.3 million toward the development of original films.

As of March 31, 2021, the Original Film Fund has invested $ 22.3 million toward the development of original films.

The related production, financing and distribution agreement includes put and call rights relating to change of control of the rights, title and interest in the co-financed pictures.

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

Balance as at December 31, 2019

Balance as at September 30, 2020

Exit costs, restructuring charges and associated impairments

In 2018, the Company performed a strategic review of its business and decided to exit from certain non-core businesses or initiatives, which included closing its VR locations.

In addition, as part of management’s efforts to decrease costs, the Company reduced certain functions and realigned resources.

During the nine months ended September 30, 2019, the Company recognized charges of $ 0.9 million associated with these actions in its Condensed Consolidated Statements of Operations, consisting of restructuring charges and costs to exit leases.

Restructuring charges relate to the Company’s corporate unit and are comprised of employee severance costs including benefits and share-based compensation, costs of consolidating facilities and contract termination costs.

Non-Controlling Interest in Temporary Equity

The following table summarizes the movement of the non-controlling interest in temporary equity related to the Original Film Fund for the three months ended March 31, 2021:

Balance of at December 31, 2020

Balance as of March 31, 2021

Subsequent Event

In October 2020, the Company furloughed approximately 150 employees for at least two months beginning on October 26, 2020 .

This action will enable the Company to temporarily reduce expenses, conserve resources and adjust its operations during the continuing business slowdown associated with the COVID-19 global pandemic.

On April 24, 2021, Patrick McClymont, the Company’s Chief Financial Officer, notified the Company that he would be resigning his position effective May 14, 2021, to pursue other career and personal interests.

Joseph Sparacio, Mr.

McClymont’s immediate predecessor as Chief Financial Officer, has agreed to serve as the Company’s interim Chief Financial Officer, reporting to Richard L.

Gelfond, the Company’s CEO, beginning on June 1, 2021, until the sooner of December 31, 2021 or when a permanent replacement is named.

The terms of Mr.

Sparacio’s compensation have not yet been finalized.

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

What changed 10-Q

Item 1. Financial Statements