What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-07-27 compared with 2021-04-29 · 403 added, 279 removed, 532 unchanged (56% of the section changed)

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

Presented below is Management's Discussion and Analysis of Financial Condition and Results of Operations (or "MD&A") for IMAX Corporation and its consolidated subsidiaries (“IMAX” or the “Company”) for the three months ended March 31, 2021 and 2020.

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

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

As of March 31, 2021, the Company indirectly owns 69.83% of IMAX China Holding, Inc.

As of June 30, 2021, the Company indirectly owns 69.83% of IMAX China Holding, Inc.

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

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risks related to the Company’s inability to protect its intellectual property;

risks related to the Company’s indebtedness and compliance with its debt agreement;

risks related to the Company’s indebtedness and compliance with its debt agreements;

general economic, market or business conditions;

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any statements of belief and any statements of assumptions underlying any of the foregoing;

other factors and risks outlined in the Company’s periodic filings with the Securities and Exchange Commission;

other factors and risks outlined in the Company’s periodic filings with the United States Securities and Exchange Commission (the “SEC”);

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

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The forward-looking statements herein are made only as of the date hereof and the Company undertakes no obligation to update publicly or otherwise revise any forward-looking statements, whether as a result of new information, future events or otherwise.

The Company makes available, free of charge, its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and any amendments to such reports, as soon as reasonably practicable after such filings have been made with the United States Securities and Exchange Commission (the “SEC”).

Reports may be obtained free of charge through the SEC’s website at www.sec.gov and through the Company’s website at www.imax.com or by calling the Company’s Investor Relations Department at 212-821-0100.

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IMAX Theater Systems are based on proprietary and patented image, audio and other technology developed over the course of the Company’s 53-year history.

The Company’s customers are theater exhibitors that operate commercial theaters (particularly multiplexes), museums, science centers, or destination entertainment sites.

The Company generally does not own the theaters in the IMAX network, but sells or leases the IMAX Theater System along with a license to use its trademarks.

As of March 31, 2021, there were 1,652 IMAX Theater Systems operating in 84 countries and territories, including 1,567 commercial multiplexes, 12 commercial destinations and 73 institutional locations.

This compares to 1,616 IMAX Theater Systems operating in 81 countries and territories as of March 31, 2020 including 1,526 commercial multiplexes, 14 commercial destinations and 76 institutional locations.

The Company’s customers for IMAX Theater Systems are principally theater exhibitors that operate commercial theaters (particularly multiplexes) and, to a much lesser extent, museums, science centers, and destination entertainment sites.

The Company generally does not own the theaters in the IMAX network, but sells or leases the IMAX Theater System to the exhibitor along with a license to use its trademarks.

As of June 30, 2021, there were 1,654 IMAX Theater Systems operating in 85 countries and territories, including 1,569 commercial multiplexes, 12 commercial destinations and 73 institutional locations.

This compares to 1,615 IMAX Theater Systems operating in 81 countries and territories as of June 30, 2020 including 1,527 commercial multiplexes, 13 commercial destinations and 75 institutional locations.

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

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

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

The Company offers IMAX with Laser, a laser projection system designed for IMAX theaters in commercial multiplexes.

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

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

RECENT DEVELOPMENTS

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.

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, spanning 41 countries.

This included 66% of the theaters in Domestic (i.e., United States and Canada) locations, 97% of the theaters in Greater China and 52% of the theaters in Rest of World markets.

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.

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

However, ticket sales have been significantly lower than normal levels in theaters outside of Asia due in significant part to 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 operating hours.

The impact of the COVID-19 global pandemic ha s 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 w as 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.

T he Company continues to experienc e 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.

Management is encouraged by recent box office results in markets like China, Japan and South Korea where the virus is better controlled and audiences have demonstrated a willingness to return to cinema.

In addition, vaccine distribution is accelerating in the United States and the pipeline of Hollywood movies scheduled for the second half of 2021 appears strong.

However, the 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 “Liquidity and Capital Resources”.) (See “Liquidity and Capital Resources” and Note 7 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1.)

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 believes they indicate that moviegoers are eager to return to cinemas where and when theaters are open and they feel safe.

Management is further encouraged by 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.

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

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The IMAX Technology Network category earns revenue based on contingent box office receipts.

Included in the IMAX Technology Network category are the IMAX DMR segment and contingent rent from the Joint Revenue Sharing Arrangement (“JRSA”) segment, each as described in more detail below.

Included in the IMAX Technology Network category are the IMAX DMR segment and contingent rent from the Joint Revenue Sharing Arrangement (“JRSA”) segment, which are each described in more detail below.

The Company has developed IMAX DMR, a proprietary technology that digitally remasters films into IMAX formats.

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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.

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

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

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

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Such enhancements include shooting films with IMAX cameras to increase the audience’s immersion in the film and to take advantage of the unique dimensions of the IMAX screen by projecting the film in a larger aspect ratio that delivers up to 26% more image onto a movie screen.

Detective Chinatown 3 and A Writer’s Odyssey , which were released in China in the first quarter of 2021, were filmed with IMAX cameras.

Detective Chinatown 3 and A Writer’s Odyssey , which were released in China in 2021, were filmed with IMAX cameras.

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

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During 2020, 17 local language IMAX DMR films were released to the IMAX network, including ten in China, three in Russia, three in Japan, and one in South Korea.

During the three months ended March 31, 2021, six local language IMAX DMR films were released to the IMAX network, including four in China and two in Japan.

During the six months ended June 30, 2021, 12 local language IMAX DMR films were released to the IMAX network, including seven in China and five in Japan.

The Company expects to announce additional local language IMAX DMR films to be released to the IMAX network in the remainder of 2021.

During the six months ended June 30, 2021, 26 IMAX DMR films were released to the global IMAX theater network and the following 20 additional IMAX DMR films are scheduled to be released during the remainder of 2021:

Release Date (1)

The IMAX Experience

Expanded Aspect Ratio

The IMAX Experience

Chinese Doctor:

The IMAX Experience

Walt Disney Studios

Expanded Aspect Ratio

The IMAX Experience

Paramount Pictures

The IMAX Experience

Jungle Cruise:

The IMAX Experience

Walt Disney Studios

Escape From Mogadishu:

The IMAX Experience

The Suicide Squad:

The IMAX Experience

Filmed in IMAX

The IMAX Experience

20th Century Studios

Reminiscence:

The IMAX Experience

Shang-Chi and the Legend of the Ten Rings:

The IMAX Experience

Walt Disney Studios

September 2021

Filmed in IMAX

Let There Be Carnage:

The IMAX Experience

Sony Pictures

September 2021

No Time to Die:

The IMAX Experience

Universal Pictures / MGM / United Artists

Filmed in IMAX

The IMAX Experience

Filmed in IMAX

The Eternals:

The IMAX Experience

Walt Disney Studios

November 2021

Filmed in IMAX

The IMAX Experience

Paramount Pictures

November 2021

Filmed in IMAX

The IMAX Experience

Walt Disney Studios

December 2021

Expanded Aspect Ratio

Untitled MATRIX 4:

The IMAX Experience

December 2021

To be determined

The scheduled release dates in the table above are subject to change and may vary by territory.

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

However, as a result of the theater closures associated with the COVID-19 global pandemic, Hollywood movie studios have postponed the theatrical release of most films originally scheduled for release in early 2021, including many scheduled to be shown in IMAX theaters, while several other films have been released directly or concurrently to streaming platforms.

Accordingly, as of the filing of this report, there remains uncertainty around the release dates of certain major films.

Joint Revenue Sharing Arrangements – Contingent Rent

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The contracts are non-cancellable by the customer unless the Company fails to perform its obligations.

The revenue earned from customers under the Company’s joint revenue sharing arrangements can vary from quarter-to-quarter and year-to-year based on a number of factors including film performance, the mix of theater system configurations, the timing of installation of IMAX Theater Systems, the nature of the arrangement, the location, size and management of the theater and other factors specific to individual arrangements.

The revenue earned from customers under the Company’s joint revenue sharing arrangements can vary from quarter - to - quarter and year - to - year based on a number of factors including film performance, the mix of theater system configurations, the timing of installation of IMAX T heater S ystems, the nature of the arrangement, the location, size and management of the theater and other factors specific to individual arrangements.

Joint revenue sharing arrangements also require IMAX to provide maintenance and extended warranty services to the customer over the term of the lease in exchange for a separate fixed annual fee.

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The Company funds its joint revenue sharing arrangements through cash flows from operations.

As of March 31, 2021, the Company had 896 theaters in operation under joint revenue sharing arrangements, a 3.3% increase as compared to the 867 theaters in operation under joint revenue sharing arrangements as of March 31, 2020.

The Company also had contracts in backlog for 332 theaters under joint revenue sharing arrangements as of March 31, 2021, including 84 upgrades to existing theater locations and 248 new theater locations.

As of June 30, 2021, the Company had 897 theaters in operation under joint revenue sharing arrangements, a 3.3% increase as compared to the 868 theaters in operation under joint revenue sharing arrangements as of June 30, 2020.

The Company also had contracts in backlog for 329 theaters under joint revenue sharing arrangements as of June 30, 2021, including 84 upgrades to existing theater locations and 245 new theater locations.

IMAX Technology Sales and Maintenance

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The New Business Initiatives segment includes activities related to the exploration of new lines of business and new initiatives outside of the Company’s core business, which seek to leverage its proprietary, innovative technologies, its leadership position in the entertainment technology space and its unique relationship with content creators.

The Company has developed a new home entertainment licensing and certification program called IMAX Enhanced .

IMAX Enhanced was launched in September 2018, along with audio leader DTS (an Xperi subsidiary) to capitalize on the companies’ decades of combined expertise in image and sound science.

IMAX Enhanced brings IMAX digitally re-mastered 4K high dynamic range (HDR) content and DTS audio technologies to premier streaming platforms and best-in-class consumer electronics devices worldwide, offering consumers high-fidelity sight and sound experiences for the home.

To be certified, leading consumer electronics manufacturers spanning 4K/8K televisions, projectors, A/V receivers, loudspeakers, subwoofers and soundbars must meet a carefully prescribed set of audio and video performance standards, set by a certification committee of IMAX and DTS engineers and some of Hollywood’s leading technical specialists.

IMAX Enhanced global device partners include Sony Electronics, Hisense, TCL, Phillips, Xiaomi, and Sound United, among others.

IMAX Enhanced has an estimated six million certified devices in-market.

IMAX Enhanced content is now available on six streaming platforms worldwide, with partners that include Sony Pictures Entertainment, Paramount Pictures, Huayi Brothers, Bona Film Group, Tencent Video, iQIYI and FandangoNOW, with more on the way.

Film Distribution and Post-Production

Through the Film Distribution segment, the Company licenses film content and distributes large-format films, primarily for its institutional theater partners.

The Company receives as its distribution fee either a fixed amount or fixed percentage of the theater box office receipts and, following the Company’s recoupment of its costs, is typically entitled to receive an additional percentage of gross revenues as participation revenues.

In addition, through its Connected Theaters initiative, the Company is currently exploring new technologies and forms of content as a way to deepen consumer engagement and brand loyalty, including new technologies to further connect the IMAX network and to facilitate bringing more unique content, including live events, to IMAX theater audiences.

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The Company continues to believe that the IMAX network serves as a valuable platform to launch and distribute original content, especially during periods between peak and off-peak seasons, known as "shoulder periods".

Film Distribution and Post- P roduction

Through the Film Distribution segment, the Company licenses film content and distributes large-format films, primarily for its institutional theater partners.

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

IMAX NETWORK AND BACKLOG

The following table provides detailed information about the IMAX network by type and geographic location as of March 31, 2021 and 2020:

March 31, 2021

March 31, 2020

The following table provides detailed information about the IMAX network by type and geographic location as of June 30, 2021 and 2020:

June 30, 2021

June 30, 2020

Institutional

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

The Company currently believes that over time its commercial multiplex network could grow to approximately 3,318 IMAX theaters worldwide from the 1,567 operating as of March 31, 2021.

The Company currently believes that over time its commercial multiplex network could grow to approximately 3,318 IMAX theaters worldwide from the 1,569 operating as of June 30, 2021.

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

As of March 31, 2021, 73.2% of IMAX Theater Systems in operation were located within international markets (defined as all countries other than the United States and Canada), compared to 72.0% as of March 31, 2020.

As of June 30, 2021, 73.5% of IMAX Theater Systems in operation were located within international markets (defined as all countries other than the United States and Canada), compared to 72.0% as of June 30, 2020.

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

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Greater China is the Company’s largest market, measured by revenues, with approximately 38% and 31% of overall revenues generated from its Greater China operations in the years ended December 31, 2020 and 2019, respectively.

For the three months ended March 31, 2021, this percentage increased to 66% as the pace and extent of the reopening of IMAX theaters in Greater China has exceeded that of theaters in Domestic and Rest of World markets.

As of March 31, 2021, the Company had 750 theaters operating in Greater China with an additional 248 theaters in backlog that are scheduled to be installed by 2028.

During the first half of 2021 , this percentage increased to 60% as the pace of the reopening of IMAX theaters in Greater China has exceeded that of theaters in Domestic and Rest of World markets.

As of June 30, 2021, the Company had 759 theaters operating in Greater China with an additional 237 theaters in backlog that are scheduled to be installed by 2028.

The Company’s backlog in Greater China represents 46.1% of its total current backlog, including upgrades in system type.

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

The following tables provide detailed information about the Commercial Multiplex theaters in operation within the IMAX network by arrangement type and geographic location as of March 31, 2021 and 2020:

March 31, 2021

The following table s provide detailed information about the Commercial Multiplex theater s in operation within the IMAX network by arrangement type and geographic location as of June 30, 2021 and 2020 :

June 30, 2021

Commercial Multiplex Theaters in IMAX Network

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Worldwide Total (1)

March 31, 2020

June 30, 2020

Commercial Multiplex Theaters in IMAX Network

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

The following table provides detailed information about the Company’s backlog as of March 31, 2021 and 2020:

March 31, 2021

March 31, 2020

The following table provides detailed information about the Company’s backlog as of June 30, 2021 and 2020:

June 30, 2021

June 30, 2020

(in thousands)

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Current backlog information reflects all known elections.

The following table s provide detailed information about the Company’s backlog by arrangement type and geographic location as of March 31, 2021 and 2020 :

March 31, 2021

The following tables provide detailed information about the Company’s backlog by arrangement type and geographic location as of June 30, 2021 and 2020:

June 30, 2021

IMAX Theater System Backlog

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Worldwide Total

March 31, 2020

June 30, 2020

IMAX Theater System Backlog

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Includes 154 new IMAX with Laser projection system configurations and 94 upgrades of existing locations to IMAX with Laser projection system configurations.

Approximately 74.9% of IMAX Theater System arrangements in backlog as of March 31, 2021 are scheduled to be installed in international markets (2020 — 74.1%).

Approximately 74.3% of IMAX Theater System arrangements in backlog as of June 30, 2021 are scheduled to be installed in international markets (2020 — 75.3%).

Signings and Installations

The following tables provide detailed information about IMAX Theater System signings and installations for the three months ended March 31, 2021 and 2020:

The following tables provide detailed information about IMAX Theater System signings and installations for the three and six months ended June 30, 2021 and 2020:

For the Three Months Ended

For the Six Months Ended

Theater System Signings:

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For the Three Months Ended

For the Six Months Ended

Theater System Installations:

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IMAX AI JOINT VENTURE

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 this investment as IMAX AI is jointly controlled.

Included in the intellectual property assets contributed by IMAX is IMAX Enhanced, a home entertainment licensing and certification program.

IMAX Enhanced was launched in September 2018, along with audio leader DTS (an Xperi subsidiary) to capitalize on the companies’ decades of combined expertise in image and sound science.

IMAX Enhanced global device partners include Sony Electronics, Hisense, TCL, Phillips, Xiaomi, and Sound United , among others.

IMAX Enhanced has an estimated six million certified devices in-market.

RESULTS OF OPERATIONS

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

Results of Operations for the Three Months Ended March 31, 2021 and March 31, 2020

For the three months ended March 31, 2021, the Company reported a net loss attributable to common shareholders of $(14.8) million, or $(0.25) per diluted share, as compared to net loss attributable to common shareholders of $(49.4) million, or $(0.82) per diluted share, for the same period in 2020.

For the three months ended March 31, 2021, the Company reported an adjusted net loss attributable to common shareholders* of $(14.8) million, or $(0.25) per basic and diluted share*, as compared to adjusted net loss attributable to common shareholders* of $(28.7) million, or $(0.48) per diluted share*, for the same period in 2020.

The following table presents the Company’s revenue and gross margin (margin loss) by category and reportable segment for the three months ended March 31, 2021 and 2020:

Results of Operations for the Three Months Ended June 30, 2021 and June 30, 2020

For the three months ended June 30, 2021, the Company reported a net loss attributable to common shareholders of $(9.2) million, or $(0.16) per diluted share, as compared to a net loss attributable to common shareholders of $(26.0) million, or $(0.44) per diluted share, for the same period in 2020.

For the three months ended June 30, 2021, the Company reported an adjusted net loss attributable to common shareholders* of $(7.0) million, or $(0.12) per diluted share*, as compared to an adjusted net loss attributable to common shareholders* of $(26.1) million, or $(0.44) per diluted share*, for the same period in 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)

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Film Distribution and Post-Production

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 were abnormally low in the period due to the COVID-19 global pandemic.

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

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

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

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

Revenues and Gross Margin

In the first quarter of 2020 , due to the outbreak of the COVID-19 global pandemic, substantially all of the theaters in the IMAX network were closed for some period of the time, with the theaters in Greater China closing in late-January 2020 and the remainder of the Company’s theaters closing in mid-to-late March 2020.

Since that time, stay-at-home orders have been lifted in many countries and movie theaters throughout the IMAX network have gradually reopened 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 the second quarter of 2020 , due to the outbreak of the COVID-19 global pandemic, substantially all of the theaters in the IMAX network were closed.

Since that time, stay-at-home orders and capacity restrictions have been lifted in many key markets and movie theaters throughout the IMAX network have gradually reopened.

As of June 30, 2021, 89% of the theaters in the global IMAX commercial multiplex network were open, including 93% of the theaters in Domestic theaters (i.e., United States and Canada), 90% of the theaters in Greater China and 75% of the theaters in Rest of World markets .

As a result, GBO receipts generated by IMAX DMR films and joint revenue sharing arrangements increased during the current quarter, leading to improvement in the Company’s segment results, when compared to the prior year.

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Other factors impacting IMAX Technology Network results include fluctuations in the value of foreign currencies versus the U.S.

For the three months ended March 31, 2021, IMAX Technology Network revenues and gross margin increased by $3.7 million (22%) and $7.3 million (259%), respectively, when compared to the same period in 2020.

For the three months ended June 30, 2021, IMAX Technology Network revenues and gross margin increased by $19.2 million and $15.2 million, respectively, when compared to the same period in 2020.

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

For the three months ended March 31, 2021, IMAX DMR revenues and gross margin increased by $1.3 million (12%) and $3.8 million (86%), respectively, when compared to the same period in 2020.

These increases are primarily due to a $15.0 million (16%) increase in GBO receipts generated by IMAX DMR films in the first quarter of 2021, from $95.2 million to $110.2 million.

In the first quarter of 2021, GBO was generated by the exhibition of 18 films (12 new and 6 carryovers), including four local language films in China, and the re-release of classic titles.

In the first quarter of 2020, GBO was generated by the exhibition of 13 films (9 new and 4 carryovers).

For the three months ended June 30, 2021, IMAX DMR revenues and gross margin increased by $11.2 million and $6.9 million, respectively, when compared to the same period in 2020.

These increases are primarily due to a $106.0 million increase in GBO receipts generated by IMAX DMR films in the second quarter of 2021, from $2.6 million to $108.6 million.

In the second quarter of 2021, GBO was generated by the exhibition of 17 films (14 new films and 3 carryovers), including six local language films in China and Japan, and the re-release of classic titles.

In the second quarter of 2020, GBO was generated by the exhibition of 1 new film and the re-release of classic titles.

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

For the three months ended March 31, 2021, marketing expenses were $1.1 million, as compared to $2.4 million during the same period of 2020.

The lower level of marketing expenses and other cost of sales in the current period is a reflection of the number and mix of films exhibited in the first quarter of 2021 relative to the same period in the prior year.

For the three months ended June 30, 2021, marketing expenses were $1.5 million, as compared to $nil during the same period in 2020.

Joint Revenue Sharing Arrangements – Contingent Rent

For the three months ended March 31, 2021, JRSA contingent rent revenue and gross margin increased by $2.4 million (40%) and $3.5 million (216%), respectively, when compared to the same period in 2020.

These increases are largely due to a $21.2 million (48%) increase in GBO generated by theaters under joint revenue sharing arrangements in the first quarter of 2021 when compared to the same period in the prior year, from $44.6 million to $65.8 million.

As of March 31, 2021, 896 theaters were operating under joint revenue sharing arrangements, as compared to 867 theaters as of March 31, 2020, an increase of 3%.

For the three months ended June 30, 2021, JRSA contingent rent revenue and gross margin increased by $8.0 million and $8.3 million, respectively, when compared to the same period in 2020.

These increases are largely due to a $58.7 million increase in GBO generated by theaters under joint revenue sharing arrangements in the second quarter of 2021 when compared to the same period in the prior year, from $1.0 million to $59.7 million.

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

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

For the three months ended March 31, 2021, JRSA gross margin included depreciation expense of $5.7 million, which represents a $1.2 million decrease as compared to $6.9 million recorded in the same period of the prior year.

The lower level of depreciation expense in the current period is due, in part, to the effect of lease term extensions entered into with exhibitor customers as a result of the COVID-19 global pandemic, partially offset by the 3% increase in the number of theaters operating under joint revenue sharing arrangements.

For the three months ended March 31, 2021, JRSA gross margin includes advertising, marketing and commission costs of $0.8 million, as compared to $0.5 million in the same period of the prior year.

For the three months ended June 30, 2021, JRSA gross margin included depreciation expense of $5.5 million, which represents a $0.7 million decrease as compared to $6.2 million recorded in the same period of the prior year.

The lower level of depreciation expense in the current period is due, in part, to the effect of lease term extensions entered into with exhibitor customers as a result of the COVID-19 global pandemic, partially offset by incremental depreciation expense associated with a 3% increase in the number of theaters operating under joint revenue sharing arrangements.

For the three months ended June 30, 2021, JRSA gross margin includes advertising, marketing and commission costs of $0.3 million, as compared to less than $0.1 million in the same period of the prior year.

IMAX Technology Sales and Maintenance

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

For the three months ended March 31, 2021, IMAX Technology Sales and Maintenance revenue and gross margin increased by $1.9 million (13%) and $2.3 million (49%), respectively, when compared to the same period in the prior year.

IMAX Maintenance segment revenues and gross margin increased by $1.5 million (21%) and $3.1 million (404%), respectively, when compared to the same period in the prior year, due to the continued reopening of the IMAX network.

The following table provides detailed information about the mix of IMAX Theater System installed and recognized during the three months ended June 30, 2021 and 2020:

For the Three Months Ended June 30,

(In thousands of U.S.

Dollars, except number of systems)

New IMAX Theater Systems:

Sales and sales-types lease arrangements (1)

Joint revenue sharing arrangements — hybrid

Total new IMAX Theater Systems

IMAX Theater System upgrades:

Sales and sales-types lease arrangements

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

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

The average revenue per full (i.e., not hybrid), new IMAX Theater System under sales and sales-type lease arrangements was $1.3 million for the three months ended June 30, 2021, as compared to $0.9 million during the same period of the prior year.

For the three months ended June 30, 2021, IMAX Technology Sales and Maintenance revenue and gross margin increased by $24.1 million and $15.9 million, respectively, when compared to the same period in the prior year as the pace of theater system installations increased when compared to the prior year and regular maintenance services began to resume with the reopening of theaters as the effects of the COVID-19 pandemic began to subside.

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

For the three months ended June 30, 2021, IMAX Systems revenue and gross margin increased by $11.4 million and $7.9 million, respectively, when compared to the same period in the prior year.

The higher level of revenue and gross margin is the result of seven additional IMAX Theater System installations in the current period due to an increased pace of installations as the effects of the COVID-19 pandemic began to subside.

IMAX Maintenance

For the three months ended June 30, 2021, IMAX Maintenance segment revenues and gross margin increased by $11.2 million and $7.0 million, respectively, when compared to the same period in the prior year, due to the gradual reopening of the IMAX network.

In 2020, regular maintenance services were suspended and the associated revenue was not recognized during the period when substantially all of the theaters in the network were temporarily closed due to the COVID-19 global pandemic.

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

The following table provides detailed information about the mix of IMAX Theater System installed and recognized during the three months ended March 31, 2021 and 2020:

For the Three Months Ended March 31,

Film Distribution and Post- P roduction

For the three months ended June 30, 2021, Film Distribution and Post-Production revenues decreased by $1.6 million and gross margin increased by $2.0 million, when compared to the same period in the prior year.

The comparison to the prior year period is significantly influenced by $2.2 million of impairment losses recorded in the second quarter of 2020 principally to write-down the carrying value of certain documentary and alternative content film assets due to a decrease in projected box office totals and related revenues.

No such impairment losses were recorded in the second quarter of 2021 .

Selling, General and Administrative Expenses

For the three months ended June 30, 2021, total Selling, General and Administrative Expenses decreased by $1.0 million (3%), when compared to the same period in 2020.

For the three months ended June 30, 2021, Selling, General and Administrative Expenses, excluding the impact of share-based compensation of $6.4 million, were $22.4 million, as compared to $23.3 million in the same period in the prior year, excluding share-based compensation expense of $6.5 million, representing a decrease of $0.9 million (4%).

A portion of share-based compensation expense is recognized within Cost and Expenses Applicable to Revenue and Research and Development.

(See Note 12 of Notes to Condensed Consolidated Financial Statements.)

For the three months ended June 30, 2021, the Company recognized $2.0 million in benefits from the Canada Emergency Wage Subsidy (“CEWS”) program as reductions to Selling, General and Administrative Expenses ($1.4 million) and Costs and Expenses Applicable to Revenues ($0.6 million) in the Condensed Consolidated Statements of Operations.

For the three months ended June 30, 2020, the Company recognized $3.2 million from the CEWS program and the U.S.

CARES Act as reductions to Selling, General and Administrative Expenses ($2.9 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 decrease in second quarter Selling, General and Administrative Expenses versus the prior year is primarily due to a $4.3 million (97%) increase in labor and other costs capitalized to inventory, film assets, and joint venture theater equipment or allocated to costs applicable to revenues, due to the higher level of business activity during current quarter as the effects of the COVID-19 global pandemic began to subside.

This factor is partially offset by a $1.5 million decrease in wage subsidies, tax credits and other financial support that the Company is entitled to receive under various COVID-19 relief programs in the countries in which it operates, as well as a higher level of staff and other costs due to a return to a more normal level of business activities.

Research and Development

A significant portion of the Company’s recent research and development efforts have been focused on laser-based projection systems, which the Company believes deliver increased resolution, sharper and brighter images, deeper contrast as well as the widest range of colors available to filmmakers today.

For the three months ended June 30, 2021, Research and Development expenses increased by $1.0 million (79%), when compared to the prior year.

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

In addition, in the second quarter of 2021, the Company used time and resources to work on leveraging and developing technologies and systems to help bring additional interactivity to its theater network, better manage certain of the Company’s internal workflows and better organize and codify certain of the Company’s data.

Credit Loss (Reversal) Expense, Net

For the three months ended June 30, 2021, the Company recorded a reversal of current expected credit losses of $1.9 million, reflecting a reduction to previously recorded provisions for foreign theater and studio receivable balances due to better than anticipated collection experience.

For the three months ended June 30, 2020, the Company recorded a provision for current expected credit losses of $1.4 million, which reflected judgments made by management at the onset of the COVID-19 global pandemic regarding the credit quality of Company’s theater and studio related receivable balances.

Management’s judgments regarding expected credit losses are based on the facts available to management at the time that the Condensed Consolidated Financial Statements are prepared and involve estimates about the future.

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

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

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

Legal Judgment and Arbitration Awards

In the second quarter of 2021, the Company recorded a $1.8 million benefit within Legal Judgment and Arbitration Awards as a result of the settlement of the Giencourt matter, as discussed in Note 8(b)(ii) of Notes to Condensed Consolidated Financial Statements.

There was no comparable amount recorded during the same period of the prior year.

Realized and Unrealized Investment Gains

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

In February 2021, IMAX China (Hong Kong), Limited sold all of its shares of Maoyan.

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 June 30, 2020, the fair value of the Company’s investment in Maoyan experienced an unrealized gain of $2.0 million.

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).

The Company’s effective tax rate for the three months ended June 30, 2021 of (46.7)% differs from the Canadian statutory tax rate of 26.2% primarily due to the fact that 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 June 30, 2021 are jurisdictional tax rate differences.

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

Based on the results of this reassessment, management concluded that the historical earnings of certain foreign subsidiaries in excess of amounts required to sustain business operations would no longer be indefinitely reinvested.

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

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

In the first quarter of 2021, the applicable foreign withholding taxes was increased by $0.5 million due to an increase in the amount of distributable historical earnings.

(See Note 11 of Notes to Condensed Consolidated Financial Statements.)

Non-Controlling Interests

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

For the three months ended June 30, 2021, the net income attributable to non-controlling interests of the Company’s subsidiaries was $3.1 million (2020 — net loss of $(4.1) million).

Results of Operations for the Six Months Ended June 30, 2021 and June 30, 2020

For the six months ended June 30, 2021, the Company reported a net loss attributable to common shareholders of $(24.1) million, or $(0.41) per diluted share, as compared to a net loss attributable to common shareholders of $(75.3) million, or $(1.26) per diluted share, for the same period in 2020.

For the six months ended June 30, 2021, the Company reported an adjusted net loss attributable to common shareholders* of $(21.8) million, or $(0.37) per diluted share*, as compared to an adjusted net loss attributable to common shareholders* of $(54.8) million, or $(0.92) per diluted share*, for the same period in 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)

(In thousands of U.S.

IMAX Technology Network

Joint Revenue Sharing Arrangements, contingent rent

IMAX Technology Sales and Maintenance

IMAX Systems (1)

Joint Revenue Sharing Arrangements, fixed fees

IMAX Maintenance

Other Theater Business (2)

New Business Initiatives

Film Distribution and Post-Production

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

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

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

Revenues and Gross Margin

During the six months ended June 30, 2020 , due to the outbreak of the COVID-19 global pandemic, substantially all of the theaters in the IMAX network were closed for some period of the time, with the theaters in Greater China closing in late-January 2020 and the remainder of the Company’s theaters closing in mid-to-late March 2020.

Since that time, stay-at-home orders and capacity restrictions have been lifted in many key markets and movie theaters throughout the IMAX network have gradually reopened.

As a result, GBO receipts generated by IMAX DMR films and joint revenue sharing arrangements increased during the current year-to-date period, leading to improvement in the Company’s segment results, when compared to the prior year.

See the captioned sections below for a discussion of the Company’s segment results.

IMAX Technology Network

IMAX Technology Network results are influenced by the level of commercial success and box office performance of the films released to the network, as well as other factors including the timing of the films released, the length of the theatrical distribution window, the take rates under the Company’s DMR and joint revenue sharing arrangements and the level of marketing spend associated with the films released in the year.

Other factors impacting IMAX Technology Network results include fluctuations in the value of foreign currencies versus the U.S.

For the six months ended June 30, 2021, IMAX Technology Network revenues and gross margin increased $22.9 million and $22.5 million, respectively, when compared to the same period in 2020.

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

For the six months ended June 30, 2021, IMAX DMR revenues and gross margin increased by $12.6 million and $10.7 million, respectively, when compared to the same period in 2020.

These increases are primarily due to a $120.9 million increase in GBO receipts generated by IMAX DMR films during the six months ended June 30, 2021, from $97.9 million to $218.8 million.

During the six months ended June 30, 2021, GBO was generated by the exhibition of 32 films (26 new and 6 carryovers), including 12 local language films in China and Japan, and the re-release of classic titles.

During the six months ended June 30, 2020, GBO was generated by the exhibition of 14 films (10 new and 4 carryovers) and the re-release of classic titles.

For the six months ended June 30, 2021, marketing expenses were $2.6 million, as compared to $2.4 million during the same period of 2020.

Joint Revenue Sharing Arrangements – Contingent Rent

For the six months ended June 30, 2021, JRSA contingent rent revenue and gross margin increased by $10.4 million and $11.8 million, respectively, when compared to the same period in 2020.

These increases are largely due to a $79.9 million increase in GBO generated by theaters under joint revenue sharing arrangements during the six months ended June 30, 2021, from $45.6 million to $125.5 million.

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

For the six months ended June 30, 2021, JRSA gross margin included depreciation expense of $11.3 million, which represents a $1.9 million decrease when compared to the same period of the prior year.

The lower level of depreciation expense in the current period is due, in part, to the effect of lease term extensions entered into with exhibitor customers as a result of the COVID-19 global pandemic, partially offset by incremental depreciation expense associated with a 3% increase in the number of theaters operating under joint revenue sharing arrangements.

For the six months ended June 30, 2021, JRSA gross margin includes advertising, marketing and commission costs of $1.1 million, as compared to $0.6 million in the same period of the prior year.

IMAX Technology Sales and Maintenance

The primary drivers of IMAX Technology Sales and Maintenance results are the number of IMAX Theater Systems installed in a year, and the level of gross margin percentage earned on each installation, as well as the associated maintenance contracts that accompany each theater installation.

The following table provides detailed information about the mix of IMAX Theater System installed and recognized during the six months ended June 30, 2021 and 2020:

For the Six Months Ended June 30,

(In thousands of U.S.

Dollars, except number of systems)

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Joint revenue sharing arrangements — hybrid

Sales and sales-types lease arrangements

Total upgraded IMAX Theater Systems

The average revenue per full (i.e., not hybrid), new IMAX Theater System under sales and sales-type lease arrangements was $1.5 million for the three months ended March 31, 2021, as compared to $1.0 million during the same period of the prior year.

The average revenue per full (i.e., not hybrid), new IMAX Theater System under sales and sales-type lease arrangements was $1.4 million for the six months ended June 30, 2021, as compared to $0.9 million during the same period of the prior year.

For the six months ended June 30, 2021, IMAX Technology Sales and Maintenance revenue and gross margin increased by $26.0 million and $18.2 million, respectively, when compared to the same period of the prior year as the pace of theater system installations increased when compared to the prior year and regular maintenance services began to resume with the reopening of theaters as the effects of the COVID-19 pandemic began to subside.

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

For the six months ended June 30, 2021, IMAX Systems revenue and gross margin increased $11.6 million and $7.7 million, respectively, when compared to the same period of the prior year.

The higher level of revenue and gross margin is the result of seven additional IMAX Theater System installation in the current period due to an increased pace of theater system installations as the effects of the COVID-19 pandemic began to subside.

IMAX Maintenance

For the six months ended June 30, 2021, IMAX Maintenance segment revenues and gross margin increased by $12.8 million and $10.0 million, respectively, when compared to the same period of the prior year, due to the gradual reopening of the IMAX network.

In 2020, regular maintenance services were suspended and the associated revenue was not recognized during the period when theaters in the network were temporarily closed due to the COVID-19 global pandemic.

Film Distribution and Post-Production

For the three months ended March 31, 2021, Film Distribution and Post-Production revenue and margin loss decreased by $1.7 million (67%) and $1.9 million, respectively, when compared to the same period in the prior year.

The comparison to the prior year period is significantly influenced by $2.3 million of impairment losses recorded in the first quarter of 2020 principally to write-down the carrying value of certain documentary and alternative content film assets due to a decrease in projected box office totals and related revenues.

No such impairment losses were recorded in the first quarter of 2021 .

For the six months ended June 30, 2021, Film Distribution and Post-Production revenues decreased by $3.3 million and gross margin increased by $3.9 million, when compared to the same period of the prior year.

The comparison to the prior year period is significantly influenced by $4.5 million of impairment losses recorded during the six months ended June 30, 2020 principally to write-down the carrying value of certain documentary and alternative content film assets due to a decrease in projected box office totals and related revenues.

No such impairment losses were recorded during the six months ended June 30, 2021.

Selling, General and Administrative Expenses

For the three months ended March 31, 2021, total Selling, General and Administrative Expenses decreased by $3.4 million (12%), when compared to the same period in 2020.

For the three months ended March 31, 2021, Selling, General and Administrative Expenses, excluding the impact of share-based compensation of $4.9 million, were $20.3 million, as compared to $24.9 million in the same period in the prior year, excluding share-based compensation expense of $3.7 million, representing a decrease of $4.6 million (18%).

For the six months ended June 30, 2021, total Selling, General and Administrative Expenses decreased by $4.4 million (8%), when compared to the same period in 2020.

For the six months ended June 30, 2021, Selling, General and Administrative Expenses, excluding the impact of share-based compensation of $11.3 million, were $42.7 million, as compared to $48.3 million in the same period of the prior year, excluding share-based compensation expense of $10.2 million, representing a decrease of $5.6 million (12%).

A portion of share-based compensation expense is recognized within Cost and Expenses Applicable to Revenue and Research and Development.

(See Note 12 of Notes to Condensed Consolidated Financial Statements.)

The comparison to the prior year is influenced by COVID-19 government relief that the Company became entitled to receive during the period under the CEWS, of which $1.2 million was recognized as a reduction to Selling, General and Administrative Expenses.

There were no comparable amounts recognized in the prior year.

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

These factors are partially offset by a $4.0 million (35%) decrease in labor and other costs capitalized to inventory, film assets, and joint venture theater equipment or allocated to costs applicable to revenues, due to the lower level of production during the COVID-19 global pandemic.

In response to uncertainties associated with the COVID-19 global pandemic, 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 deferring all non-essential capital expenditures to minimum levels.

For the six months ended June 30, 2021, the Company recognized $3.5 million in benefits from CEWS program as reductions to Selling, General and Administrative Expenses ($2.6 million) and Costs and Expenses Applicable to Revenues ($0.9 million) in the Condensed Consolidated Statements of Operations.

For the six months ended June 30, 2020, the Company recognized $3.2 million from the CEWS program and the U.S.

The CEWS program has been extended to September 2021.

The decrease in June year-to-date Selling, General and Administrative Expenses versus the prior year is primarily due to management’s cost control efforts and lower business activity amidst the COVID-19 global pandemic resulting in lower staff costs, travel, and facilities related expenses, among others.

In response to uncertainties associated with the COVID-19 global pandemic, management is continuing to take steps to preserve the Company’s cash and liquidity by closely monitoring and controlling operating expenses and capital expenditures.

Research and Development

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

For the three months ended March 31, 2021, Research and Development expenses decreased by $0.7 million (33%), when compared to the prior year.

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

To a lesser extent, the Company’s recent research and development efforts have also focused on image enhancement technology.

For the six months ended June 30, 2021, Research and Development expenses increased by $0.2 million (7%), when compared to the prior year.

In addition, in the first quarter of 2021, the Company used time and resources to work on leveraging and developing technologies and systems to help bring additional interactivity to its theater network, better manage certain of the Company’s internal workflows and better organize and codify certain of the Company’s data.

Credit Loss Expense

For the three months ended March 31, 2021, the Company recorded a provision for current expected credit losses of $0.3 million, as compared to $10.2 million in the same period of the prior year.

The credit losses recorded in the first quarter of 2020 reflect the judgments made by management at the onset of the COVID-19 global pandemic regarding the credit quality of Company’s theater and studio related receivable balances.

In addition, during the six months ended June 30, 2021, the Company used time and resources to work on leveraging and developing technologies and systems to help bring additional interactivity to its theater network, better manage certain of the Company’s internal workflows and better organize and codify certain of the Company’s data.

Credit Loss (R eversal ) Expense , N et

For the six months ended June 30, 2021, the Company recorded a reversal of current expected credit losses of $1.6 million, reflecting a reduction to previously recorded provisions for foreign theater and studio receivable balances due to better than anticipated collection experience.

For the six months ended June 30, 2020, the Company recorded a provision for current expected credit losses of $11.7 million, which reflected judgments made by management at the onset of the COVID-19 global pandemic regarding the credit quality of Company’s theater and studio related receivable balances.

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Asset Impairments

For the three months ended March 31, 2020, the Company recorded asset impairments of $1.2 million principally related to the write-down of content-related assets which became impaired in the period.

There were no such impairments recorded during the three months ended March 31, 2021.

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

There were no such impairments recorded during the six months ended June 30, 2021.

Legal Judgment and Arbitration Awards

In the six months ended June 30, 2021, the Company recorded a $1.8 million benefit within Legal Judgment and Arbitration Awards as a result of the settlement of the Giencourt matter, as discussed in Note 8(b)(ii) of Notes to Condensed Consolidated Financial Statements.

There was no comparable amount recorded during the same period of the prior year.

Realized and Unrealized Investment Gains (Losses)

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

Interest Expense

For the three months ended March 31, 2021, interest expense was $2.3 million, as compared to $0.6 million during the same period of the prior year.

The increase in interest expense versus the prior year is due to a higher level of revolving credit facility borrowings coupled with a higher interest rate applicable during the designated amendment period.

For the six months ended June 30, 2021, interest expense was $4.0 million, as compared to $2.2 million during the same period of the prior year.

The increase in interest expense versus the same period of the prior year is due to a higher level of indebtedness coupled with a higher interest rate applicable during the designated amendment period.

(See Note 7 of Notes to Condensed Consolidated Financial Statements.)

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

The Company’s effective tax rate for the six months ended June 30, 2021 of (43.2)% differs from the Canadian statutory tax rate of 26.2% primarily due to the fact that the Company recorded an additional $10.0 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 “Realized and Unrealized Investment Gains (Losses) ” above ), as well as changes in estimated contingent liabilities related to the resolution of various tax examinations.

Also impacting the Company’s effective tax rate for the six months ended June 30, 2021 are jurisdictional tax rate differences, including a difference related to the gain on the sale of the Maoyan investment (see “Realized and Unrealized Investment Gains (Losses)” above) and a change in the estimated contingent liabilities related to the potential 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.

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

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

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

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

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

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

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

However, as discussed in Note 1 of Notes to Condensed Consolidated Financial Statements , 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.

In the first quarter of 2021, the applicable foreign withholding taxes was increased by $0.5 million due to an increase in the amount of distributable historical earnings.

(See Note 11 of Notes to Condensed Consolidated Financial Statements.)

Non-Controlling Interests

For the three months ended March 31, 2021, the net income attributable to non-controlling interests of the Company’s subsidiaries was $4.3 million (2020 ─ net loss of $(10.1) million ).

CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020

For the six months ended June 30, 2021, the net income attributable to non-controlling interests of the Company’s subsidiaries was $7.4 million (2020 — net loss of $(14.1) million).

CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020

Operating Activities

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

For the three months ended March 31, 2021, net cash used in the Company’s operating activities totaled $11.0 million, as compared to net cash provided by operating activities of $6.0 million in the same period of the prior year.

For the three months ended March 31, 2021, the net cash used in the Company’s operating activities is principally due to an increase in Accounts Receivable of $13.7 million as a result of theaters reopening amidst the early stages of recovery from the COVID-19 global pandemic, partially offset by cash collected in respect of IMAX Theater System sale and lease agreements in backlog and cash collected in advance of providing maintenance services.

For the three months ended March 31, 2020, net cash provided by operating activities was primarily driven by a decrease in Accounts Receivable of $28.2 million, which reflects cash receipts reduced by amounts billed, partially offset by an increase in inventories of $18.3 million resulting from a slowdown in manufacturing, shipments and installation of IMAX Theater Systems at customer sites due to government restrictions in various countries limiting public gatherings as a result of the outbreak of the COVID-19 global pandemic.

For the six months ended June 30, 2021, net cash used in the Company’s operating activities totaled $17.0 million, as compared to net cash used in operating activities of $20.9 million in the same period of the prior year.

For the six months ended June 30, 2021, the net cash used in the Company’s operating activities is principally due to an increase in Accounts Receivable of $11.0 million as a result of theaters reopening amidst the early stages of recovery from the COVID-19 global pandemic, as well as 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) of Notes to Condensed Consolidated Financial Statements, and the settlement of other payables .

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

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

These cash outflows were partially offset by a $37.0 million decrease in Accounts Receivable.

Investing Activities

For the three months ended March 31, 2021, net cash provided by investing activities totaled $14.3 million, as compared to net cash used in investing activities of $2.7 million in the same period of the prior year.

For the three months ended March 31, 2021, the net cash provided by investing activities is primarily driven by $17.8 million in cash proceeds received from the sale of the Company’s investment in Maoyan (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Realized and Unrealized Investment Gains (Losses) ”).

This cash inflow is partially offset by $1.5 million invested in equipment to be used in the Company’s joint revenue sharing arrangements with exhibitors, $1.5 million of intangible assets acquired, principally related to the purchase or development of software (2020 — $0.9 million) , and $0.5 million for the purchase of property, plant and equipment (2020 — $0.3 million) .

For the six months ended June 30, 2021, net cash provided by investing activities totaled $11.4 million, as compared to net cash used in investing activities of $5.7 million in the same period of the prior year.

For the six months ended June 30, 2021, the net cash provided by investing activities is primarily driven by $17.8 million in cash proceeds received from the sale of the Company’s investment in Maoyan in the first quarter of 2021 (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Realized and Unrealized Investment Gains (Losses) ”).

This cash inflow is partially offset by $2.4 million invested in equipment to be used in the Company’s joint revenue sharing arrangements with exhibitors (2020 — $3.9 million ), $2.6 million of intangible assets acquired, principally related to the purchase or development of software (2020 — $1.2 million) , and $1.4 million for the purchase of property, plant and equipment (2020 — $0.6 million) .

Based on management’s current operating plan for 2021, the Company expects to continue to use cash to deploy additional IMAX Theater Systems under joint revenue sharing arrangements.

Capital expenditures, including the Company’s investment in joint revenue sharing equipment, purchase of property, plant and equipment, other intangible assets and investments in film assets were $5.7 million for the three months ended March 31, 2021, as compared to $5.8 million for the three months ended March 31, 2020.

Capital expenditures, including the Company’s investment in joint revenue sharing equipment, purchase of property, plant and equipment, other intangible assets and investments in film assets were $12.2 million for the six months ended June 30, 2021, as compared to $9.8 million for the six months ended June 30, 2020.

Financing Activities

For the three months ended March 31, 2021, net cash used in financing activities totaled $52.6 million, as compared to $239.2 million provided by financing activities in the same period of the prior year.

In the first quarter of 2021, the net cash used in financing activities is principally due to $255.0 million in repayments of Credit Facility borrowings, which were funded in part with a portion of the $223.7 million in net proceeds received from the issuance of the Convertible Notes (as defined in “Liquidity and Capital Resources”) .

For the six months ended June 30, 2021, net cash used in financing activities totaled $96.6 million, as compared to $235.7 million provided by financing activities in the same period of the prior year.

For the six months ended June 30, 2021, the net cash used in financing activities is principally due to $296.6 million in net repayments of revolving credit facility borrowings, which were funded in part with a portion of the $223.7 million in net proceeds received from the issuance of the Convertible Notes (as defined in “Liquidity and Capital Resources”) .

The net cash used in financing activities for the current period is also the result of the $19.1 million purchase of capped calls related to the Convertible Notes.

(See Note 7 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 for additional information on the issuance of the Convertible Notes and the related capped call transactions.)

For the three months ended March 31, 2020, net cash provided by financing activities was principally due to the $280.0 million in revolving credit facility borrowings drawn in the period, partially offset by $36.6 million paid to repurchase common shares under the Company’s share repurchase program, $3.1 million paid to purchase treasury stock for the settlement of restricted share units and related taxes, $0.9 million for the repurchase of common shares under the IMAX China share repurchase program, and $0.2 million of taxes withheld and paid on vested employee stock awards.

For the six months ended June 30, 2020, net cash provided by financing activities totaled $235.7 million and was principally due to $280.2 million in Credit Facility borrowings drawn in the period, partially offset by $36.6 million paid to repurchase common shares under the Company’s share repurchase program.

LIQUIDITY AND CAPITAL RESOURCES

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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 not 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 not 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;

provided, however, that from the effective date of the First Amendment to the Credit Agreement until the Company delivers a compliance certificate under the Credit Facility following the end of the Designated Period, the standby fee will be 0.50% per annum.

The Company incurred fees of approximately $ 1.

2 million in connection with the Amendment s , which are being amortized on a straight-line basis to Interest Expense over the relevant amendment period s .

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

Working Capital Facility

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 $0.9 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 not 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 not 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

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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.

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

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

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

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

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

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 note s , in which case the conversion rate applicable to the conversion of such note s will be increased in certain circumstances if such note s 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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Assessment of Liquidity and Capital Requirements

As of March 31, 2021, the Company’s principal sources of liquidity included:

As of June 30, 2021, the Company’s principal sources of liquidity included:

(i) its balances of cash and cash equivalents ($214.1 million);

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

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 ).

In addition, as of June 30, 2021, the Company had $300.0 million in available borrowing capacity under the Credit Facility and $18.4 million in available borrowing capacity under the Working Capital Facility, as described above.

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 ).

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

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

As of June 30, 2021, the Company ’s Condensed Consolidated Balance Sheets include a deferred tax liability of $19.7 million for the applicable foreign withholding taxes associated with these historical earnings, which will become payable upon the repatriation of any such earnings.

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

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

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 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 .

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.

In response, the Company has provided temporary relief to exhibitor partners by waiving or reducing maintenance fees during periods when theaters are closed or operational 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.

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 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 .

However, with approximately 89% of the Company’s global theater network open as of June 30, 2021, GBO receipts generated by IMAX DMR films and joint revenue sharing arrangements increased in the current quarter and year-to-date periods, leading to improvement in the Company’s results, when compared to the prior year periods covered by this report.

Based on the Company’s current cash balances and operating cash flows, management expects to have sufficient capital and liquidity to fund its anticipated operating needs and capital requirements during the next twelve month period following the date of this report.

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CONTRACTUAL OBLIGATIONS

Payments to be made by the Company under contractual obligations as of March 31, 2021 are as follows:

Payments to be made by the Company under contractual obligations as of June 30, 2021 are as follows:

Payments Due by Period

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Operating lease obligations (3)

Credit Facility (4)

Working Capital Facility (4)

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Represents total minimum annual rental payments due under the Company’s operating leases, which almost entirely consist of rent at the Company’s leased office space in New York.

The Company is not required to make any minimum payments on the Credit Facility, which matures on June 28, 2023.

On July 1, 2021, IMAX Shanghai renewed the Working Capital Facility through July 2022.

The Convertible Notes bear interest at a rate of 0.500% per annum on the principal of $230.0 million, payable semi-annually in arrears on April 1 and October 1 of each year, beginning on October 1, 2021.

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

As of March 31, 2021, the Company’s Condensed Consolidated Balance Sheets include the present value of the related SERP benefit obligation of approximately $20.1 million recorded within Accrued and Other Liabilities (December 31, 2020— $20.1 million).

As of June 30, 2021, the Company’s Condensed Consolidated Balance Sheets include the present value of the related SERP benefit obligation of approximately $20.2 million recorded within Accrued and Other Liabilities (December 31, 2020 — $20.1 million).

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

As of March 31, 2021, the Company’s Condensed Consolidated Balance Sheets include an unfunded benefit obligation of $1.8 million within Accrued and Other Liabilities related to this plan (December 31, 2020 — $1.9 million).

As of June 30, 2021, the Company’s Condensed Consolidated Balance Sheets include an unfunded benefit obligation of $1.9 million within Accrued and Other Liabilities related to this plan (December 31, 2020 — $1.9 million).

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

Gelfond and Bradley J.

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

As of March 31, 2021 , the Company ’s Condensed Consolidated Balance Sheet s include an unfunded benefit obligation of $0.7 million within A ccrued and O ther L iabilities ( December 31, 2020 — $0.7 million ).

In the first quarter of 2021, Mr.

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

Upon his departure, the Company will maintain Mr.

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

As of June 30, 2021, the Company’s Condensed Consolidated Balance Sheets include an unfunded benefit obligation of $0.7 million within Accrued and Other Liabilities (December 31, 2020 — $0.7 million).

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.

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

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

In the fourth quarter of 2018, the executive incurred a separation from service from the Company, and as such, the Retirement Plan benefits became fully vested as 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.

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

In the fourth quarter of 2018, the executive incurred a separation from service from the Company , and as such, the Retirement Plan benefits became fully vested as of December 31, 2018 and the accelerated costs were recognized and reflected in E xecutive T ransition C osts in the C onsolidated S tatement s of O perations.

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).

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GAAP refers to generally accepted accounting principles in the United States of America.

In this report, the Company presents financial measures in accordance with GAAP and also on a non-GAAP basis under U.S.

Securities and Exchange Commission rules.

In this report, the Company presents financial measures in accordance with GAAP and also on a non-GAAP basis under the SEC regulations.

Specifically, the Company presents the following non-GAAP financial measures as supplemental measures of its performance:

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(ii) COVID-19 government relief benefits;

(iii) realized and unrealized investment gains or losses, as well as the related tax impact of these adjustments, and (iv) income taxes resulting from management’s decision to no longer indefinitely reinvest the historical earnings of certain foreign subsidiaries.

(iii) legal judgment and arbitration awards;

(iv) realized and unrealized investment gains, as well as the related tax impact of these adjustments, and (v) income taxes resulting from management’s decision to no longer indefinitely reinvest the historical earnings of certain foreign subsidiaries.

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

Although share-based compensation is an important aspect of the Company’s employee and executive compensation packages, it is a non-cash expense and is excluded from certain internal business performance measures.

A reconciliation of net loss attributable to common shareholders and the associated per share amounts to adjusted net loss attributable to common shareholders and adjusted net loss attributable to common shareholder s per diluted share is presented in the table below.

Reconciliations of net loss attributable to common shareholders and the associated per share amounts to adjusted net loss attributable to common shareholders and adjusted net loss attributable to common shareholders per diluted share are presented in the tables below.

Three Months Ended

March 31, 2021

March 31, 2020

June 30, 2021

June 30, 2020

(In thousands of U.S.

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COVID-19 government relief benefits (2)

Legal judgment and arbitration awards

Unrealized investment gains

Tax impact on items listed above

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

Adjusted net loss (1)

Weighted average basic shares outstanding

Weighted average diluted shares outstanding

Six Months Ended

June 30, 2021

June 30, 2020

(In thousands of U.S.

dollars, except per share amounts)

Reported net loss attributable to common shareholders

Adjustments (1) :

Share-based compensation

COVID-19 government relief benefits (3)

Legal judgment and arbitration awards

Realized and unrealized investment (gains) losses

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Reflects amounts attributable to common shareholders.

For the three months ended March 31, 2021, the Company recognized $1.5 million in benefits from the 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.

No such benefits were incurred in same period of 2020.

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

Accordingly, this non-GAAP financial measure is presented to allow a more comprehensive analysis of the Company’s operating performance and to provide additional information with respect to the Company’s compliance against its Credit Agreement requirements in the current period, if applicable.

In addition, the Company believes that Adjusted EBITDA per Credit Facility presents relevant and useful information widely used by analysts, investors and other interested parties in the Company’s industry to evaluate, assess and benchmark the Company’s results.

For the three months ended June 30, 2021, the Company recognized $2.0 million in COVID-19 government relief benefits (2020 — $3.2 million), as reductions to Selling, General and Administrative Expenses ($1.4 million) (2020 — $2.9 million) and Costs and Expenses Applicable to Revenues ($0.6 million) (2020 — $0.3 million) in the Condensed Consolidated Statements of Operations.

For the six months ended June 30, 2021, the Company recognized $3.5 million in COVID-19 government relief benefits (2020 —$3.2 million), as reductions to Selling, General and Administrative Expenses ($2.6 million) (2020 — $2.9 million) and Costs and Expenses Applicable to Revenues ($0.9 million) (2020 — $0.3 million) in the Condensed Consolidated Statements of Operations.

” As allowed by the Credit Agreement, Adjusted EBITDA per Credit Facility includes adjustments in addition to the exclusion of interest, taxes, depreciation and amortization .

Accordingly, this non-GAAP financial measure is presented to allow a more comprehensive analysis of the Company’s operating performance and to provide additional information with respect to the Company’s compliance against its C redit A greement requirements in the current period, if applicable .

In addition, the Company believes that Adjusted EBITDA per Credit Facility present s relevant and useful information widely used by analysts, investors and other interested parties in the Company’s industry to evaluate, assess and benchmark the Company’s results.

EBITDA is defined as net income or loss excluding:

(i) interest expense, net of interest income;

(ii) income tax expense or benefit;

and (iii) depreciation and amortization, including film asset amortization.

(i) income tax expense or benefit;

(ii) interest expense, net of interest income;

(iii) depreciation and amortization, including film asset amortization;

and (iv) amortization of deferred financing costs.

Adjusted EBITDA per Credit Facility is defined as EBITDA excluding:

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and (v) the gain or loss from equity accounted investments.

A reconciliation of net loss attributable to common shareholders, which is the most directly comparable GAAP measure, to EBITDA and Adjusted EBITDA per Credit Facility is presented in the table below.

For the Three Months Ended March 31, 2021 (1)

Reconciliations of net loss attributable to common shareholders, which is the most directly comparable GAAP measure, to EBITDA and Adjusted EBITDA per Credit Facility are presented in the tables below.

For the Three Months Ended June 30, 2021 (1)

Attributable to

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Depreciation and amortization, including film asset amortization

Amortization of deferred financing costs (2)

Share-based and other non-cash compensation

Realized and unrealized investment gains

Write-downs, including asset impairments and credit loss expense

Unrealized investment gains

(Recoveries) write-downs, including asset impairments and credit loss expense

Legal judgment and arbitration awards

Adjusted EBITDA per Credit Facility

For the Twelve Months Ended March 31, 2021 (1)

For the Twelve Months Ended June 30, 2021 (1)

Attributable to

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Depreciation and amortization, including film asset amortization

Amortization of deferred financing costs (2)

Share-based and other non-cash compensation

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(See Note 7 of Notes to Condensed Consolidated Financial Statements.)

(2) The amortization of deferred financing costs is recorded within Interest Expense in the Condensed Consolidated Statements of Operations.

The Company cautions users of its financial statements that these non-GAAP financial measures may not be comparable to similarly titled measures reported by other companies.

Additionally, the non-GAAP financial measures used by the Company should not be considered as a substitute for, or superior to, the comparable GAAP amounts.

Quantitative and Qualit ative Disclosures about Market Risk

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

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

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

Dollar, the Canadian Dollar and the Chinese Yuan Renminbi.

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

Foreign Exchange Rate Risk

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

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

A portion of the Company’s net U.S.

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

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

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

The Company has incoming cash flows from its revenue generating theaters and ongoing operating expenses in China through its majority-owned subsidiary IMAX Shanghai.

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

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

Dollars through the spot market.

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

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

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

Certain of the Company’s subsidiaries held approximately 550.0 million Renminbi ($83.7 million ) in cash and cash equivalents as of March 31, 2021 (December 31, 2020 — 500.3 million Renminbi or $76.7 million) and are required to transact locally in Renminbi.

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

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

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

For the three months ended March 31, 2021, the Company recorded a foreign exchange net gain of $0.6 million as compared to a foreign exchange net loss of $(0.7) million for the three months ended March 31, 2020, associated with the translation of foreign currency denominated monetary assets and liabilities.

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

The forward contracts have settlement dates throughout 2021.

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

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

Certain of these foreign currency forward contracts held by the Company as of March 31, 2021, are designated and qualify as foreign currency cash flow hedging instruments.

The Company currently has cash flow hedging instruments associated with Selling, General and Administrative Expenses, Inventories and capital expenditures.

For foreign currency cash flow hedging instruments related to Selling, General and Administrative Expenses, the effective portion of the gain or loss in a hedge of a forecasted transaction is reported in Other Comprehensive Income and reclassified to the Condensed Consolidated Statements of Operations when the forecasted transaction occurs.

For foreign currency cash flow hedging instruments related to Inventories, the effective portion of the gain or loss in a hedge of a forecasted transaction is reported in Other Comprehensive Income and reclassified to Inventories on the Condensed Consolidated Balance Sheets when the forecasted transaction occurs.

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

The notional value of foreign currency cash flow hedging instruments that qualify for hedge accounting at March 31, 2021 was $21.5 million (December 31, 2020 — $26.4 million).

A gain of $0.3 million was recorded to Other Comprehensive Loss with respect to the change in fair value of these contracts for the three months ended March 31, 2021 (2020 — loss of $(2.9) million).

A gain of $0.2 million was reclassified from Accumulated Other Comprehensive Income to Selling, General and Administrative Expenses and Inventories for the three months ended March 31, 2021 (2020 — loss of $(0.4) million).

An unrealized gain of less than $0.1 million resulting from a change in the classification of certain forward contracts no longer meeting the requirements for hedge accounting was reclassified from Accumulated Other Comprehensive Loss to Selling, General and Administrative Expenses.

The notional value of forward contracts that do not qualify for hedge accounting at March 31, 2021 was $0.4 million (December 31, 2020 — $5.6 million).

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

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

At March 31, 2021, the Company’s Financing Receivables and working capital items denominated in Canadian Dollars, Renminbi, Japanese Yen, Euros and other foreign currencies translated into U.S.

Dollars was $147.2 million.

Assuming a 10% appreciation or depreciation in foreign currency exchange rates from the quoted foreign currency exchange rates at March 31, 2021, the potential change in the fair value of foreign currency-denominated financing receivables and working capital items would have been $14.7 million.

A significant portion of the Company’s Selling, General, and Administrative Expenses is denominated in Canadian Dollars.

Assuming a 1% change appreciation or depreciation in foreign currency exchange rates at March 31, 2021, the potential change in the amount of Selling, General, and Administrative Expenses would be less than $0.1 million.

Interest Rate Risk Management

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

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

As of March 31, 2021, the Company had drawn down $45.0 million on its Credit Facility (December 31, 2020 — $300.0 million), which is subject to a variable effective interest rate.

The Company had variable rate debt instruments representing 8.9% and 56.3% of its total liabilities as of March 31, 2021 and December 31, 2020, respectively.

If the interest rates available to the Company increased by 10%, the Company’s interest expense would increase by $0.1 million and interest income from cash would increase by $0.3 million.

These amounts are determined by considering the impact of the hypothetical interest rates on the Company’s variable rate debt and cash balances at March 31, 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 2. Management’s Discussion and Analysis