What changed in this filing

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Item 1. Financial Statements

2021-07-27 compared with 2021-04-29 · 365 added, 267 removed, 910 unchanged (41% 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 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

Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2021 and 2020

Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2021 and 2020

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020

Condensed Consolidated Statements of Shareholders’ Equity for the three and six months ended June 30, 2021 and 2020

Notes to Condensed Consolidated Financial Statements

28 unchanged sentences

Accumulated deficit

Accumulated other comprehensive (loss) income

Accumulated other comprehensive income

Total shareholders' equity attributable to common shareholders

8 unchanged sentences

Three Months Ended

Six Months Ended

Technology sales

6 unchanged sentences

Technology rentals

Gross margin (margin loss)

Selling, general and administrative expenses

1 unchanged sentence

Amortization of intangibles

Credit loss expense

Credit loss (reversal) expense, net

Asset impairments

Legal judgment and arbitration awards (see Note 8)

Loss from operations

4 unchanged sentences

Loss before taxes

Income tax expense

Income tax (expense) benefit

Equity in losses of investees, net of tax

8 unchanged sentences

Three Months Ended

Six Months Ended

Other comprehensive income (loss), before tax

Unrealized net gain (loss) from cash flow hedging instruments

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

Realized net (gain) loss from cash flow hedging instruments

Reclassification of unrealized gain from ineffective cash flow hedging instruments

1 unchanged sentence

Defined benefit and postretirement benefit plans

Other comprehensive loss, before tax

Income tax (expense) benefit related to other comprehensive loss

Other comprehensive loss, net of tax

Total other comprehensive income (loss), before tax

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

Other comprehensive income (loss), net of tax

Comprehensive loss

5 unchanged sentences

(In thousands of U.S.

Three Months Ended

Six Months Ended

Operating Activities

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

Adjustments to reconcile net loss to cash used in operating activities:

Depreciation and amortization

Credit loss expense

Amortization of deferred financing costs

Credit loss (reversal) expense, net

Deferred income tax expense

Share-based and other non-cash compensation

Unrealized foreign currency exchange loss

Unrealized foreign currency exchange (gain) loss

Realized and unrealized investment (gains) losses

4 unchanged sentences

Changes in other operating assets and liabilities

Net cash (used in) provided by operating activities

Net cash used in operating activities

Investing Activities

6 unchanged sentences

Proceeds from issuance of convertible notes, net

Debt issuance costs related to convertible notes

Purchase of capped calls related to convertible notes

2 unchanged sentences

Credit facility amendment fees paid

Settlement of restricted share units and options

Treasury stock repurchased for future settlement of restricted share units

Repurchase of common shares

Repurchase of common shares, IMAX China

Treasury stock purchased for future settlement of restricted share units

Taxes withheld and paid on employee stock awards vested

Common shares issued - stock options exercised

Repurchase of common shares

Dividends paid to non-controlling interests

Net cash (used in) provided by financing activities

8 unchanged sentences

Three Months Ended

Six Months Ended

Adjustments to capital stock:

21 unchanged sentences

Balance, end of period

Adjustments to accumulated other comprehensive income (loss):

Adjustments to accumulated other comprehensive (loss) income:

Balance, beginning of period

Other comprehensive loss, net of tax

Other comprehensive income (loss), net of tax

Balance, end of period

2 unchanged sentences

Net income (loss) attributable to non-controlling interests

Other comprehensive loss, net of tax

Other comprehensive income (loss), net of tax

Dividends paid to non-controlling shareholders

Balance, end of period

27 unchanged sentences

Total liabilities

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

26 unchanged sentences

Impact of COVID-19 Pandemic

In late January 2020, in response to the public health risks associated with the novel coronavirus and the disease that it causes (“COVID-19”), the Chinese government directed exhibitors in China to temporarily close more than 70,000 movie theaters, including all of the approximately 700 IMAX theaters in mainland China.

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.

The impact of the COVID-19 pandemic is complex and continuously evolving, resulting in significant disruption to the Company’s business and the global economy.

The pandemic has led authorities around the world to impose measures intended to control the spread of COVID-19, including stay-at-home orders and restrictions on large public gatherings, which caused movie theaters in countries around the world to temporarily close, including the IMAX theaters in those countries.

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.

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 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 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.

More recently, stay-at-home orders and capacity restrictions have been lifted in many key markets and, beginning in the third quarter of 2020, movie theaters throughout the IMAX network gradually reopened.

As of June 30, 2021, 89 % of the theaters in the global IMAX commercial multiplex network were open, spanning 62 countries.

This included 93 % of Domestic theaters (i.e., in the United States and Canada), 90 % of the theaters in Greater China and 75 % of the theaters in Rest of World markets.

The impact of the COVID-19 global pandemic has resulted in significantly lower levels of revenues, earnings and operating cash flows for the Company during 2020 and through the end of the second 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.

In response to uncertainties associated with the pandemic, the Company took significant steps to preserve cash by eliminating non-essential costs, temporarily furloughing certain employees, reducing the working hours of other employees and reducing all non-essential capital expenditures to minimum levels.

The Company also implemented an active cash management process, which, among other things, required senior management approval of all outgoing payments.

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

The Company has provided temporary relief to certain 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.

For the six months ended June 30, 2021, GBO receipts generated by IMAX DMR films totaled $ 218.8 million, surpassing the total for the second half of 2020 by $ 57.6 million ( 36 %).

Management is encouraged by these box office results and the strong pipeline of Hollywood movies scheduled to be released for theatrical exhibition in the second half of 2021.

However, the impact of the COVID-19 global pandemic on the Company’s business and financial results will continue to depend on numerous evolving factors that cannot be accurately predicted and that will vary by jurisdiction and market, including the duration and scope of the pandemic, the emergence of variants of the virus, the progress made on administering vaccines, the continuing impact of the pandemic on global economic conditions and ongoing government responses to the pandemic, which could lead to further theater closures, theater capacity restrictions and/or delays in the release of films.

Recently Issued Accounting Standards Not Yet Adopted

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

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

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

5 unchanged sentences

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

In July 2021, the FASB issued ASU No.

2021-05, “Leases (Topic 842):

Lessors - Certain Leases with Variable Lease Payments” (“ASU 2021-05”), which requires sales-type or direct financing leases that have variable payments (that do not depend on a rate or an index) and result in a day-one loss to be classified as operating leases.

When a lease is classified as operating, the lessor does not recognize a net investment in the lease, does not derecognize the underlying asset, and, therefore, does not recognize a selling profit or loss.

The amendments are effective for annual periods beginning after December 15, 2021 including interim periods within those periods.

Early adoption is permitted.

The Company is currently assessing the impact of ASU 2021-05 on its Condensed Consolidated Financial Statements.

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.

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 June 30, 2021.

Current Expected Credit Losses

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 .

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

Accounts Receivable

Accounts receivable principally includes amounts currently due to the Company under theater sale and sales-type lease arrangements, contingent fees owed by theater operators as a result of box office performance and fees for theater maintenance services.

Accounts receivable also includes amounts due from movie studios and other content creators for digitally remastering films into IMAX formats, as well as for film distribution and post-production services.

Accounts receivable also includes amounts due to the Company from movie studios and other content creators for digitally remastering films into IMAX formats, as well as for film distribution and post-production services.

In order to mitigate the credit risk associated with accounts receivable, management performs an initial credit evaluation prior to entering into an arrangement with a customer and then regularly monitors the credit quality of each customer through an analysis of collections history and aging.

18 unchanged sentences

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 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

The following tables summarize the activity in the Allowance for Credit Losses related to Accounts Receivable for the three and six months ended June 30, 2021 and 2020:

Three Months Ended June 30, 2021

Six Months Ended June 30, 2021

(In thousands of U.S.

Beginning balance

Current period provision (reversal)

Current period (reversal) provision, net

Foreign exchange

Ending balance

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

Six Months Ended June 30, 2020

(In thousands of U.S.

Beginning balance

Current period provision

Current period (reversal) provision, net

Foreign exchange

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.

For the three and six months ended June 30, 2021, the Company reduced its allowance for current expected credit losses related to Accounts Receivable by $ 1.4 million and $ 2.0 million, respectively, principally as a result of better than anticipated collection experience with respect to foreign theater and studio receivable balances, which allowed the reversal of previously recorded Credit Loss Expense .

For the three and six months ended June 30, 2020, the Company increased it allowance for current expected credit losses related to Accounts Receivable by $ 1.1 million and $ 7.5 million, respectively, principally due to 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 June 30, 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.

11 unchanged sentences

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

As of June 30, 2021 and December 31, 2020, financing receivables consist of the following:

(In thousands of U.S.

15 unchanged sentences

Total financed sales receivables

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:

As of June 30, 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 of March 31, 2021 and December 31, 2020:

The tables below provide information on the Company’s net investment in leases by credit quality indicator as of June 30, 2021 and December 31, 2020.

The amounts disclosed in these tables are determined on a customer-by-customer basis and include both billed and unbilled amounts.

(In thousands of U.S.

By Origination Year

As of March 31, 2021

As of June 30, 2021

Net investment in leases:

13 unchanged sentences

Total net investment in leases

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:

The tables below provide information on the Company’s financed sale receivables by credit quality indicator as of June 30, 2021 and December 31, 2020.

The amounts disclosed in these tables are determined on a customer-by-customer basis and include both billed and unbilled amounts.

(In thousands of U.S.

By Origination Year

As of March 31, 2021

As of June 30, 2021

Financed sales receivables:

13 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 of March 31, 2021 and December 31, 2020:

As of March 31, 2021

The following tables provide an aging analysis for the Company’s net investment in leases and financed sale receivables as of June 30, 2021 and December 31, 2020:

As of June 30, 2021

(In thousands of U.S.

10 unchanged sentences

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.

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 of March 31, 2021 and December 31, 2020:

As of March 31, 2021

As of June 30, 2021

(In thousands of U.S.

5 unchanged sentences

Financed sales receivables

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

As of March 31, 2021

The following table provides information about the Company’s net investment in leases and financed sale receivables that are on nonaccrual status as of June 30, 2021 and December 31, 2020:

As of June 30, 2021

As of December 31, 2020

3 unchanged sentences

A theater operator that is classified within the “All Transactions Suspended” category is placed on nonaccrual status and all revenue recognitions related to the theater are stopped.

In certain cases, a theater operator classified within the “Pre-Approved Transactions” category may also be placed on nonaccrual status.

While the recognition of Finance Income is suspended, payments received by a customer are applied against the outstanding balance owed.

1 unchanged sentence

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

For the three months ended March 31, 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

For the three and six months ended June 30, 2021, the Company recognized less than $ 0.1 million and $ 0.1 million, respectively, (2020 — $ 0.1 million and $ 0.2 million, respectively) in Finance Income related to the net investment in leases with billed amounts past due.

For the three and six months ended June 30, 2021, the Company recognized $ 1.1 million and $ 2.3 million, respectively, (2020 — $ 0.9 million and $ 3.0 million, respectively) in Finance Income related to the financed sale receivables with billed amounts past due.

The following table summarizes the activity in the allowance for credit losses related to the Company’s net investment in leases and financed sale receivables for the three and six months ended June 30, 2021 and 2020:

Three Months Ended June 30, 2021

Six Months Ended June 30, 2021

Net Investment

(In thousands of U.S.

Sales Receivables

Beginning balance

Current period provision

Current period (reversal) provision, net

Foreign exchange

Ending balance

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

Six Months Ended June 30, 2020

Net Investment

(In thousands of U.S.

Sales Receivables

Beginning balance

Current period provision

Current period (reversal) provision, net

Foreign exchange

Ending balance

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.

For the three and six months ended June 30, 2021, the Company reduced its allowance for current expected credit losses related to Financing Receivables by $ 0.4 million and $ 0.1 million, respectively, principally as a result of better than anticipated collection experience with respect to foreign theater customers, which allowed the reversal of previously recorded Credit Loss Expense.

For the three and six months ended June 30, 2020, the Company increased its allowance for current expected credit losses related to Financing Receivables by $ 0.2 million and $ 3.1 million, respectively.

The provisions recorded in the prior year period reflect 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 June 30, 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.

7 unchanged sentences

Theater operators may experience financial difficulties , such as those imposed by the COVID-19 global pandemic, that could cause them to be unable to fulfill their payment obligations to the Company.

The Company develops its estimate of credit losses by class of receivable and customer type through a calculation 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 months ended March 31, 2021 and 2020:

Three Months Ended March 31,

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

The following table summarizes the activity in the Allowance for Credit Losses related to Variable Consideration Receivables for the three and six months ended June 30, 2021 and 2020:

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands of U.S.

Beginning balance

Current period provision

Current period (reversal) provision, net

Foreign Exchange

Ending balance

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.

For the six months ended June 30, 2021 and 2020, the Company increased its allowance for current expected credit losses related to Variable Consideration Receivables by $ 0.1 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 believes that the June 30, 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.

13 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 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,

For the three and six months ended June 30, 2021 and 2020, the components of lease expense recorded within Selling, General and Administrative expenses are as follows:

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands of U.S.

3 unchanged sentences

Total lease cost

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

Includes short-term leases and variable lease costs, which are not significant for the three and six months ended June 30, 2021 and 2020.

For the six months ended June 30, 2021 and 2020, supplemental cash and non-cash information related to leases is as follows:

Six Months Ended

(In thousands of U.S.

1 unchanged sentence

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

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

As of June 30, 2021 and December 31, 2020, supplemental balance sheet information related to leases is as follows:

(In thousands of U.S.

5 unchanged sentences

Accrued and other liabilities

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:

As of June 30, 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 of March 31, 2021, the maturities of the Company’s operating lease liabilities are as follows:

As of June 30, 2021, the maturities of the Company’s operating lease liabilities are as follows:

(In thousands of U.S.

2021 (nine months remaining)

2021 (six months remaining)

Total lease payments

21 unchanged sentences

(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:

As of June 30, 2021 and December 31, 2020, Inventories consist of the following:

(In thousands of U.S.

2 unchanged sentences

Finished goods

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.

At June 30, 2021, Inventories include finished goods of $ 2.3 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 and six months ended June 30, 2021, the Company recognized write-downs of $ 0.1 million and $ 0.2 million, respectively, (2020 — $ 0.1 million) for excess and obsolete inventory based on current estimates of net realizable value.

Revolving Credit Facility Borrowings

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

As of June 30, 2021 and December 31, 2020, Revolving Credit Facility Borrowings consist of the following:

(In thousands of U.S.

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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.

During the six months ended June 30, 2021, the Company completely repaid the $ 300.0 million of Credit Facility borrowings, using cash on hand following the issuance of the Convertible Notes (as discussed below).

Accordingly, as of June 30, 2021, there were no outstanding borrowings under the Credit Facility.

As of June 30, 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.

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

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”).

On March 15, 2021, the Company entered into the Second Amendment to the Credit Agreement (as previously 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.

As of June 30, 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;

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base rate borrowings will be 1.75 % per annum.

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

The effective interest rate for the three and six months ended June 30, 2021 was 2.63 % and 2.64 %, respectively (2020 — 1.83 % and 1.86 %, respectively).

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

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On July 1, 2021, IMAX (Shanghai) Multimedia Technology Co., Ltd.

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

(“IMAX Shanghai”), one of the Company’s majority-owned subsidiaries in China, renewed its unsecured revolving facility for up to 200.0 million Chinese Renminbi (“RMB”) (approximately $ 30.9 million) to fund ongoing working capital requirements (the “Working Capital Facility”).

The Working Capital Facility expires in July 2022 .

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.

As of June 30, 2021, outstanding Working Capital Facility borrowings were RMB 71.2 million ($ 11.0 million) and outstanding letters of guarantee were RMB 2.4 million ($ 0.4 million).

As of December 31, 2020, outstanding Working Capital Facility borrowings were RMB 49.9 million ($ 7.6 million) and no letters of guarantee were issued.

As of June 30, 2021, the amount available for future borrowings under the Working Capital Facility was RMB 118.8 million ($ 18.4 million) and the amount available for letters of guarantee was RMB 7.6 million ($ 1.1 million).

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).

The effective interest rate for borrowings under the Working Capital Facility for the three and six months ended June 30, 2021 was 4.35 % (2020 ― 4.35 %).

Wells Fargo Foreign Exchange Facility

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).

As of June 30, 2021, the net unrealized gain on the Company’s outstanding foreign currency forward contracts was $ 1.3 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 June 30, 2021, the notional value of the Company’s outstanding foreign currency forward contracts was $ 13.7 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 of March 31, 2021 and December 31, 2020 under the NBC Facility.

The Company did no t have any letters of credit or advance payment guarantees outstanding as of June 30, 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:

As of June 30, 2021 and December 31, 2020, Convertible Notes (as defined below) consist of the following:

(In thousands of U.S.

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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 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 is using 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 .

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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.

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

From and after January 1, 2026, holders of the Convertible Notes may convert their Convertible 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.

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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.

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

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

Subject to the terms and conditions of the indenture governing the Convertible Notes, a “fundamental change” means, among other things, an event resulting in (i) a change of control, (ii) a transfer of all or substantially all of the assets of the Company, (iii) a merger, (iv) liquidation or dissolution of the Company, (v) or delisting of the Company’s common shares from a national securities exchange.

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

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

Holders of the Convertible Notes 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.

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On February 7, 2017, the panel issued a Partial Final Award and on July 21, 2017, the panel issued a Final Award (collectively, the “Award”), which held that the parties had reached a binding settlement, and therefore the panel did not reach the merits of the dispute.

The Company strongly disputes that discussions about a potential resolution of this matter amounted to an enforceable settlement.

The Company strongly disputed that discussions about a potential resolution of this matter amounted to an enforceable settlement.

In October 2017, the Company filed a petition to vacate the arbitration award in the United States Court for the Southern District of Florida on various grounds, including that the panel exceeded its jurisdiction, and a hearing was held on June 27, 2019.

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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.

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.

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

As of December 31, 2020, the Company’s Consolidated Balance Sheets included 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 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 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 the Final Judgment with the Eleventh Circuit Court of Appeals.

In addition to the above, the Company 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.

On June 23, 2021, the Company entered into a final settlement agreement with Giencourt to fully resolve all disputes between the parties in the United States and Ontario (the “Settlement Agreement”).

The Company has paid Giencourt $ 9.5 million as required by the terms of the Settlement Agreement.

As a result of the Settlement Agreement, the Final Judgment has been vacated, all litigation between the parties in all jurisdictions has been dismissed and full and final releases have been exchanged by the parties.

Accordingly, upon entry in the Settlement Agreement on June 23, 2021, the remaining $ 1.8 million liability recorded within Accrued and Other Liabilities was reversed and a corresponding $ 1.8 million benefit was recorded in the Company’s Condensed Consolidated Statements of Operations within Legal Judgment and Arbitration Awards.

(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.

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Product Warranties

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.

The Company’s accrual for product warranties, which is recorded within Accrued and Other Liabilities in the Condensed Consolidated Balance Sheets, was $nil and less than $ 0.1 million as of June 30, 2021 and December 31, 2020 , respectively.

Director/Officer Indemnifications

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

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.

No amount has been accrued in the Company’s Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020, with respect to this indemnity.

Other Indemnification Agreements

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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).

For the three and six months ended June 30, 2021, the sales commission costs recognized within Costs and Expenses Applicable to Revenues – Technology Sales are $ 0.3 million and $ 0.4 million, respectively (2020 — $ 0.1 million and $ 0.1 million, respectively).

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 and six months ended June 30, 2021, the total of all such costs recognized within Costs and Expenses Applicable to Revenues – Technology Sales was $ 0.1 million and $ 0.2 million, respectively (2020 — $ 0.1 million and $ 0.3 million, respectively).

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 by the salesperson, which is typically the month of installation.

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).

For the three and six months ended June 30, 2021, sales commissions related to such joint revenue sharing arrangements totaled $ 0.1 million and $ 0.3 million, respectively (2020 — less than $ 0.1 million and $ 0.2 million, respectively).

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.

For the three and six months ended June 30, 2021, the total of such costs recognized within Costs and Expenses Applicable to Revenues – Technology Rentals was $ 0.2 million and $ 0.8 million, respectively (2020 — less than $ 0.1 million and $ 0.4 million, respectively).

Film exploitation costs, including advertising and marketing expense, totaled $ 1.5 million and $ 2.7 million, respectively, for the three and six months ended June 30, 2021 (2020 — recovery of less than $ 0.1 million and expense of $ 2.6 million, respectively), 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 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.

Included in Selling, General and Administrative Expenses for the three and six months ended June 30, 2021 is a net gain of $ 1.1 million and $ 1.7 million, respectively (2020 — loss of $( 0.3 ) million and $( 1.0 ) million, respectively) 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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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.

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.

As of June 30, 2021, the Company has signed traditional and hybrid joint revenue sharing agreements with 42 exhibitors (2020 — 41 ) for a total of 1,226 IMAX Theater Systems (2020 — 1,237 ) , of which 897 theaters (2020 — 868 ) were operational and included in the network as of that date.

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

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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).

For the three and six months ended June 30, 2021, such revenues totaled $ 8.9 million and $ 19.0 million, respectively (2020 — $ 0.1 million and $ 6.9 million, respectively).

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

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

For the three months ended March 31, 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.

For the three and six months ended June 30, 2021, the majority of IMAX DMR revenue was earned from the exhibition of 17 films ( 14 new and 3 carryovers) and 32 films ( 26 new and 6 carryovers), respectively, and the re-release of classic titles throughout the IMAX theater network, as compared to one new film and 14 films ( 4 new and 10 carryovers), respectively, in the three and six months ended June 30, 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.

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).

For the three and six months ended June 30, 2021, such revenues totaled $ 11.8 million and $ 23.7 million, respectively (2020 — $ 0.6 million and $ 11.2 million, respectively).

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

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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 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.

As of June 30, 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 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.

For the three and six months ended June 30, 2021, an expense of less than $ 0.1 million and $ 0.1 million, respectively (2020 — $ 1.2 million and $ 1.4 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.

Condensed Consolidated Statements of Cash Flows – Supplemental Information

Changes in other operating assets and liabilities

Three Months Ended

Six Months Ended

(In thousands of U.S.

Decrease (increase) in:

(Increase) decrease in:

Financing receivables

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Variable consideration receivables

Increase (decrease) in:

(Decrease) increase in:

Accounts payable

Accrued and other liabilities (1)

Includes a $ 9.5 million payment made in the second quarter of 2021 in connection with the settlement of the Giencourt matter, as discussed in Note 8(b)(ii) .

Depreciation and amortization

Three Months Ended

Six Months Ended

(In thousands of U.S.

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Other intangible assets

Deferred financing costs

Three Months Ended

Other assets (1)

Includes the amortization of lessee incentives provided by the Company to its customers under joint revenue sharing arrangements.

Six Months Ended

(In thousands of U.S.

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Other property, plant and equipment

Other intangible assets

Inventories (4)

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.

In the six months ended June 30, 2020, the Company recorded impairment losses of $ 4.5 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 through the six months ended June 30, 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 six months ended June 30, 2020, the Company recorded a write-down of $ 1.2 million in Asset Impairments related to content-related assets which became impaired in the period.

No such impairment loss was recorded in the six months ended June 30, 2021.

In the six months ended June 30, 2021, the Company recorded charges of $ 0.3 million (2020 — $ 0.9 million) in Costs and Expenses Applicable to Technology Rentals mostly 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 six months ended June 30, 2021, the Company recorded write-downs of $ 0.2 million (2020 — $nil) in Costs and Expenses Applicable to Technology Sales related to excess inventory.

Significant non-cash investing activities

Three Months Ended

Six Months Ended

(In thousands of U.S.

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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.

In the six months ended June 30, 2021, the Company incurred $ 1.2 million of debt issuance costs related to the Convertible Notes (see Note 7), of which $ 1.0 million were not yet paid as of June 30, 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 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.

For the three months ended June 30, 2021, the Company recorded income tax expense of $ 1.9 million (2020 — income tax benefit of $ 10.2 million).

For the three months ended June 30, 2021 , t he Company’s effective tax rate of ( 46.7 )% varies from the Canadian statutory tax rate of 26.2 % that was in effect during the period as follows:

Three Months Ended

June 30, 2021

June 30, 2020

(In thousands of U.S.

Dollars, except rates)

Income tax benefit at combined statutory rates

Adjustments resulting from:

Unrealized investment gains not taxable

Increase of valuation allowance

Changes to tax reserves

Withholding taxes resulting from management's decision to no longer indefinitely reinvest the historical earnings of certain foreign subsidiaries

(Reduction) increase in tax benefits resulting from the vesting of share-based compensation

Other non-deductible/non-taxable items

Income tax (expense) benefit

For the three months ended June 30, 2021, the Company recorded an additional $ 3.0 million valuation allowance against deferred tax assets in jurisdictions where management could not reliably forecast that future tax liabilities would arise, principally 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, 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.

For the six months ended June 30, 2021, the Company recorded income tax expense of $ 5.0 million (2020 — $ 5.3 million).

For the six months ended June 30, 2021, the Company’s effective tax rate of ( 43.2 )% varies from the Canadian statutory tax rate of 26.2 % that was in effect during the period as follows:

Six Months Ended

June 30, 2021

June 30, 2020

(In thousands of U.S.

Dollars, except rates)

Income tax benefit at combined statutory rates

Adjustments resulting from:

Realized and unrealized investment gains (losses) not taxable

Increase of valuation allowance

Changes to tax reserves

Withholding taxes resulting from management's decision to no longer indefinitely reinvest the historical earnings of certain foreign subsidiaries

Increase in tax benefits resulting from the vesting of share-based compensation

Other non-deductible/non-taxable items

Income tax expense

As of June 30, 2021, the Company’s Condensed Consolidated Balance Sheets include net deferred income tax assets of $ 18.7 million, net of a valuation allowance of $ 41.3 million (December 31, 2020 — $ 18.0 million, net of a valuation allowance of $ 28.8 million).

The $ 12.5 million valuation allowance change recorded during the six months ended June 30, 2021 is reflected within Income Tax Expense in the Company’s Condensed Consolidated Statements of Operations ($ 10.0 million) and within Shareholder’s Equity on the Company’s Condensed Consolidated Balance Sheets ($ 2.5 million).

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:

Income Tax Effect on Other Comprehensive Income (Loss)

For the three and six months ended June 30, 2021 and 2020, the income tax (expense) benefit related to the following items in Other Comprehensive Income (Loss) are:

Three Months Ended

Six Months Ended

(In thousands of U.S.

Unrealized change in cash flow hedging instruments

Realized change in cash flow hedging instruments upon settlement

Realized change in cash flow hedging instruments

Reclassification of unrealized change in ineffective cash flow hedging instruments

2 unchanged sentences

Share-Based Compensation

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:

For the three and six months ended June 30, 2021, share-based compensation expense totaled $ 6.8 million and $ 12.1 million, respectively (2020 — $ 6.5 million and $ 10.7 million, respectively) and is reflected in the following accounts in the Condensed Consolidated Statements of Operations:

Three Months Ended

Six Months Ended

(In Thousands of U.S.

2 unchanged sentences

Research and development

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

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

Three Months Ended

Six Months Ended

(In Thousands of U.S.

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IMAX China Long Term Incentive Plan Performance Stock Units

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.

Included in the above table is an expense of $nil in the three and six months ended June 30, 2021 (2020 — $ 0.1 million and $ 0.1 million, respectively) related to restricted share units granted to a certain advisor of the Company.

Stock Option Summary

The following table summarizes the activity under the Company’s Stock Option Plan (“SOP”) and IMAX 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 three months ended March 31, 2021 and 2020:

The following table summarizes the activity in respect of RSUs issued under the IMAX LTIP for the six months ended June 30, 2021 and 2020:

Number of Awards

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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 EBITDA-based targets is equal to the closing price of the Company’s common shares on the date of grant or the average closing price of the Company’s common shares 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.

The fair value determined by the Monte Carlo Model is affected by the Company’s stock price, as well as assumptions regarding a number of highly complex and subjective variables.

These variables include, but are not limited to, 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 fair value determined by the Monte Carlo Model is affected by the Company’s share price, as well as assumptions regarding a number of highly complex and subjective variables.

These variables include, but are not limited to, market conditions as of the grant date, the Company’s expected share 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 fair value of the PSUs granted.

2 unchanged sentences

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 that such determination is made.

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:

The expense recognized in the six months ended June 30, 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 six months ended June 30, 2021 and 2020:

Number of Awards

3 unchanged sentences

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.

As of June 30, 2021, the maximum number of shares of common stock that may be issued with respect to PSUs outstanding is 1,079,372 , assuming full achievement of the EBITDA and TSR targets.

Issuer Purchases of Equity Securities

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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.

In the second quarter of 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.

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 Company did no t repurchase any common shares during the three and six months ended June 30, 2021.

During the three and six months ended June 30, 2020, the Company repurchased nil and 2,484,123 common shares, respectively, at an average price of $nil and $ 14.72 per share, respectively, excluding commissions.

The total number of shares purchased during the three and six months ended June 30, 2020, does not include nil and 200,000 common shares, respectively, purchased in the administration of employee share-based compensation plans, at an average price of $nil and $ 15.43 per share, respectively.

As of June 30, 2021, the IMAX LTIP trustee held 502 shares purchased for less than $ 0.1 million (December 31, 2020 — 723 shares for less than $ 0.1 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 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.

In 2021, 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 May 6, 2021 ( 34,835,824 shares).

This program will be valid until the 2022 Annual General Meeting of IMAX China.

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

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

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).

IMAX China did not repurchase any common shares during the three and six months ended June 30, 2021.

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

$ 1.50 and $ 1.69 per share, respectively).

Basic and Diluted Weighted Average Shares Outstanding

1 unchanged sentence

Three Months Ended

Six Months Ended

(In thousands)

4 unchanged sentences

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:

For the three and six months ended June 30, 2021, the calculation of diluted weighted average shares outstanding excludes 6,239,713 shares (2020 — 6,973,840 shares) that are issuable upon the vesting or exercise of share-based compensation including:

(i) 1,604,986 RSUs (2020 — 1,689,678 RSUs), (ii) 783,920 PSUs (2020 — 366,734 PSUs) and (iii) 3,850,807 stock options (2020 — 4,917,428 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.

The calculation of diluted weighted average shares outstanding for the three and six months ended June 30, 2021 also excludes any shares potentially issuable upon the conversion of the Convertible Notes as the average market price of the Company’s common shares during the period of time they were outstanding was less than the conversion price of the Convertible Notes.

(See Note 7(b).)

1 unchanged sentence

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

The following tables summarize the Company’s revenues by type and reportable segment for the three and six months ended June 30, 2021:

Three Months Ended June 30, 2021

Contracts with Customers

15 unchanged sentences

Finance income

Six Months Ended June 30, 2021

Contracts with Customers

(In thousands of U.S.

consideration

Finance Income

Technology sales

IMAX Systems (1)

Joint Revenue Sharing Arrangements, fixed fees

Other Theater Business

Other sales (2)

Image enhancement and maintenance services

IMAX Maintenance

Film Post-Production

Film Distribution

Technology rentals

Joint Revenue Sharing Arrangements, contingent rent

Finance income

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

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

Three Months Ended June 30, 2020

Contracts with Customers

15 unchanged sentences

Finance income

Six Months Ended June 30, 2020

Contracts with Customers

(In thousands of U.S.

consideration

Finance Income

Technology sales

IMAX Systems (1)(2)

Joint Revenue Sharing Arrangements, fixed fees

Other Theater Business

Other sales (4)

Image enhancement and maintenance services

IMAX Maintenance

Film Post-production

Film Distribution

Technology rentals

Joint Revenue Sharing Arrangements, contingent rent

Finance income

Prior period comparatives have been revised to appropriately classify less than $ 0.1 million and $ 1.2 million, respectively, of fixed consideration under revenue from contracts with customers to revenue from lease arrangements for the three and six months ended June 30, 2020.

For the three months ended June 30, 2020, the Company reported negative revenue due to an adjustment to prior period 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.

For the three months ended June 30, 2020, the Company reported negative revenue due to the continued amortization of lessee incentives that are typically netted against lease revenues, which are abnormally low during the period due to the COVID-19 global pandemic.

Deferred Revenue

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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 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).

At June 30, 2021, $ 19.6 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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Recognition dates are variable and depend on numerous factors, including some outside of the Company’s control.

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

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

Segment Reporting

1 unchanged sentence

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 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.

Selling, general and administrative expenses, research and development costs, the amortization of intangible assets, provision for (reversal 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:

14 unchanged sentences

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

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

The following table presents the Company’s revenue and gross margin (margin loss) by category and reportable segment for the three months ended June 30, 2021 and 2020:

Gross Margin (Margin Loss) (5)

11 unchanged sentences

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.

The following table presents the Company’s revenue and gross margin (margin loss) by category and reportable segment for the six months ended June 30, 2021 and 2020:

Gross Margin (Margin Loss) (5)

(In thousands of U.S.

IMAX Technology Network

Joint Revenue Sharing Arrangements, contingent rent

IMAX Technology Sales and Maintenance

IMAX Systems (3)

Joint Revenue Sharing Arrangements, fixed fees

IMAX Maintenance

Other Theater Business (4)

New Business Initiatives

Film Distribution and Post-Production

Film Distribution (6)

Post-Production

The Company’s largest customer represents 19.8 % and 24.7 %, respectively, of total Revenues for the three and six months ended June 30, 2021 (2020 — 13.8 % and 11.5 %, respectively).

No single customer comprises more than 10% of the Company’s total Accounts Receivable as of June 30, 2021 and December 31, 2020.

For the three months ended June 30, 2020, the Company reported negative revenue due to the continued amortization of lessee incentives that are typically netted against lease revenue, which are abnormally low during the period due to the COVID-19 global pandemic.

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.

1 unchanged sentence

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

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 .

The Company is reporting negative revenue for the three months ended June 30, 2020 due to an adjustment to prior period revenue.

IMAX DMR gross margin includes marketing costs of $ 1.5 million and $ 2.6 million, respectively, for the three and six months ended June 30, 2021 (2020 — $nil and $ 2.4 million, respectively).

JRSA gross margin includes advertising, marketing and commission expense of $ 0.3 million and $ 1.1 million, respectively, for the three and six months ended June 30, 2021 (2020 — less than $ 0.1 million and $ 0.6 million, respectively).

IMAX Systems gross margin includes marketing and commission costs of $ 0.4 million and $ 0.6 million, respectively, for the three and six months ended June 30, 2021 (2020 — $ 0.2 million and $ 0.4 million, respectively).

Film Distribution segment gross margin includes a marketing expense of $nil and less than $ 0.1 million, respectively, for the three and six months ended June 30, 2021 (2020 — less than $ 0.1 million and $ 0.2 million, respectively).

During the three and six months ended June 30, 2020, Film Distribution segment results include impairment losses of $ 2.2 million and $ 4.5 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 .

No such charges were incurred in the three and six months ended June 30, 2021 .

Geographic Information

3 unchanged sentences

Three Months Ended

Six Months Ended

Greater China

Asia (excluding China)

United States

Russia & the CIS

Asia (excluding China)

Western Europe

Russia & the CIS

Latin America

Rest of the World

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.

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 March 31, 2021.

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 and six months ended June 30, 2021.

Employee's Pension and Postretirement Benefits

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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:

As of June 30, 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.

4 unchanged sentences

Obligation, end of period and unfunded status (1)

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.

The accumulated benefit obligation for the SERP was $ 20.2 million at June 30, 2021 (December 31, 2020 — $ 20.1 million).

For the three and six months ended June 30, 2021, the Company recorded interest costs of less than $ 0.1 million (2020 — $ 0.1 million and $ 0.2 million, respectively) related to the SERP.

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

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

2 unchanged sentences

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

During the three months ended March 31, 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.

During the three and six months ended June 30, 2021, the Company contributed and recorded expense of $ 0.3 million and $ 0.6 million, respectively (2020 — $ 0.2 million and $ 0.5 million, respectively ) to its Canadian defined contribution plan and $ 0.1 million and $ 0.3 million, respectively (2020 — $ 0.1 million and $ 0.4 million, respectively ) to its defined contribution employee plan under Section 401(k) of the U.S.

Internal Revenue Code.

2 unchanged sentences

Gelfond and Bradley J.

Wechsler, Chairman of the Company’s Board of Directors.

Wechsler, former Chairman of the Company’s Board of Directors.

The plan provides that the Company will maintain health benefits for Messrs.

1 unchanged sentence

Gelfond and Wechsler.

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.

As of June 30, 2021, the Company’s postretirement benefits obligation under this plan is $ 0.7 million (December 31, 2020 — $ 0.7 million).

For the three and six months ended June 30, 2021, the Company has recorded an expense of less than $ 0.1 million (2020 — less than $ 0.1 million) related to this plan.

Wechsler retired from the Company’s Board of Directors on June 9, 2021.

The Company will maintain Mr.

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

2 unchanged sentences

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

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.

As of June 30, 2021, the Company’s postretirement benefits obligation under this plan is $ 1.9 million (December 31, 2020 — $ 1.9 million).

For the three and six months ended June 30, 2021, the Company has recorded expense of less than $ 0.1 million (2020 — less than $ 0.1 million) related to this plan.

Deferred Compensation Benefit Plan

2 unchanged sentences

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 of June 30, 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 of March 31, 2021, fair value of the COLI asset was $ 3.2 million (December 31, 2020 — $ 3.2 million).

As of June 30, 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).

3 unchanged sentences

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).

The Company’s $ 214.1 million balance of cash and cash equivalents as of June 30, 2021 includes $ 118.5 million in cash held outside of Canada (December 31, 2020 — $ 89.9 million), of which $ 94.2 million was held in the People’s Republic of China (the “PRC”) (December 31, 2020 — $ 77.2 million).

Fair Value Measurements

1 unchanged sentence

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

As of March 31, 2021

As of June 30, 2021

As of December 31, 2020

15 unchanged sentences

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 transfers in or out of the Company’s Level 3 assets during the three months ended March 31, 2021 and 2020.

The Company did not have any material amounts of Level 3 assets or liabilities as of June 30, 2021 and December 31, 2020.

Foreign Exchange Risk Management

4 unchanged sentences

Dollar cash flows of the Company is periodically converted to Canadian Dollars to fund Canadian Dollar expenses through the spot market.

In China and Japan, the Company has ongoing operating expenses related to its operations in Chinese Renminbi and Japanese Yen, respectively.

In China and Japan, the Company has ongoing operating expenses related to its operations in RMB and Japanese Yen, respectively.

Net cash flows are converted to and from U.S.

Dollars through the spot market.

The Company also has cash receipts under leases denominated in Chinese Renminbi, Japanese Yen, Canadian Dollars and Euros which are converted to U.S.

The Company also has cash receipts under leases denominated in RMB, Japanese Yen, Canadian Dollars and Euros which are converted to U.S.

Dollars through the spot market.

3 unchanged sentences

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 .

Certain of these foreign currency forward contracts met the criteria required for hedge accounting under the Derivatives and Hedging Topic of the FASB ASC at inception, and continue to meet hedge effectiveness tests at June 30, 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.

19 unchanged sentences

Derivatives in foreign currency hedging relationships are as follows :

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands of U.S.

5 unchanged sentences

Reclassified from AOCI

Three Months Ended March 31,

Three Months Ended June 30,

Six months ended June 30,

(In thousands of U.S.

3 unchanged sentences

administrative expenses

Three Months Ended March 31,

Three Months Ended June 30,

Six months ended June 30,

(In thousands of U.S.

3 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

Six months ended June 30,

(In thousands of U.S.

3 unchanged sentences

administrative expenses

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.

The Company's estimated net amount of the existing gains as of June 30, 2021 is $ 0.9 million, which is expected to be reclassified to earnings within the next twelve months.

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.

As of June 30, 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).

3 unchanged sentences

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.

For the three and six months ended June 30, 2020, the fair value of the Company’s investment in Maoyan experienced an unrealized gain of $ 2.0 million and loss of $ 2.5 million, respectively.

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

1 unchanged sentence

This investment is classified as an equity investment.

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.

As of June 30, 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 June 30, 2021 (December 31, 2020 — $ 1.0 million) and is recorded in Other Assets.

Non-Controlling Interests

3 unchanged sentences

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).

As of June 30, 2021, the balance of the Company’s non-controlling interest in IMAX China is $ 84.1 million.

For the three and six months ended June 30, 2021, the net income attributable to the non-controlling interest in IMAX China is $ 3.1 million and $ 7.4 million, respectively (2020 — net loss of $( 2.8 ) million and $( 12.5 ) million, respectively).

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

As of June 30, 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.

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:

The following table summarizes the movement of the non-controlling interest in temporary equity related to the Original Film Fund for the six months ended June 30, 2021:

Balance of at December 31, 2020

Balance as of March 31, 2021

Subsequent Event

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.

Balance as of June 30, 2021

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