What changed in this filing

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Item 1. Financial Statements

2021-10-28 compared with 2021-07-27 · 332 added, 283 removed, 992 unchanged (38% of the section changed)

1 unchanged sentence

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

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

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

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

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

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

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

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020

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

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020

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

Notes to Condensed Consolidated Financial Statements

3 unchanged sentences

Dollars except share amounts)

September 30,

Cash and cash equivalents

15 unchanged sentences

Total liabilities

Commitments and contingencies

Commitments and contingencies (see Note 8)

Non-controlling interests

4 unchanged sentences

Treasury stock, 276 shares at cost (December 31, 2020 — 723 )

Statutory surplus reserve

Accumulated deficit

Accumulated other comprehensive income

Accumulated other comprehensive (loss) income

Total shareholders' equity attributable to common shareholders

8 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Technology sales

6 unchanged sentences

Technology rentals

Gross margin (margin loss)

Selling, general and administrative expenses

10 unchanged sentences

Loss before taxes

Income tax (expense) benefit

Income tax expense

Equity in losses of investees, net of tax

8 unchanged sentences

Three Months Ended

Six Months Ended

Other comprehensive income (loss), before tax

Unrealized net gain (loss) from cash flow hedging instruments

Nine Months Ended

September 30,

Other comprehensive (loss) income, before tax

Unrealized net (loss) gain from cash flow hedging instruments

Realized net (gain) loss from cash flow hedging instruments

2 unchanged sentences

Defined benefit and postretirement benefit plans

Total other comprehensive income (loss), before tax

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

Other comprehensive income (loss), net of tax

Total other comprehensive (loss) income, before tax

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

Other comprehensive (loss) income, net of tax

Comprehensive loss

5 unchanged sentences

(In thousands of U.S.

Six Months Ended

Nine Months Ended

September 30,

Operating Activities

3 unchanged sentences

Credit loss (reversal) expense, net

Deferred income tax expense

Deferred income tax (benefit) expense

Share-based and other non-cash compensation

Unrealized foreign currency exchange (gain) loss

Unrealized foreign currency exchange loss (gain)

Realized and unrealized investment (gains) losses

9 unchanged sentences

Acquisition of other intangible assets

Proceeds from sale of equity securities

Proceeds from sale of equity investment

Net cash provided by (used in) investing activities

22 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Adjustments to capital stock:

16 unchanged sentences

Balance, end of period

Adjustments to statutory surplus reserve:

Balance, beginning of period

Establishment of statutory surplus reserve, IMAX China

Balance, end of period

Adjustments to accumulated deficit:

1 unchanged sentence

Net loss attributable to common shareholders

Statutory surplus reserve deducted from retained earnings, IMAX China

Common shares repurchased and retired

2 unchanged sentences

Balance, beginning of period

Other comprehensive income (loss), net of tax

Other comprehensive (loss) income, net of tax

Balance, end of period

2 unchanged sentences

Net income (loss) attributable to non-controlling interests

Other comprehensive income (loss), net of tax

Other comprehensive (loss) income, net of tax

Establishment of statutory surplus reserve

Statutory surplus reserve deducted from retained earnings

Dividends paid to non-controlling shareholders

26 unchanged sentences

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

September 30,

(In thousands of U.S.

Total liabilities

In October 2021, the Company and Maximus Technologies Limited dissolved its previously announced joint venture, IMAX AI, and the intellectual property assets contributed to the joint venture were returned to each party.

Estimates and Assumptions

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

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

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

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

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

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

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

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

T he 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.

However, management is encouraged by the broad reopening of the IMAX theater network, the continued progress towards the resumption of normal theater operations, and recent box office results.

Accordingly, during the three and nine months ended September 30, 2021, the Company reversed $ 3.3 million and $ 4.9 million, respectively, of its allowance for current expected credit losses, reflecting the improving outlook for theater operators as the theatrical exhibition industry continues to recover from the COVID-19 global pandemic.

Despite the improving environment, there continues to be a degree of risk and uncertainty relating to future credit losses on receivables, inventory write downs, impairments of film assets, impairments of long-lived assets (including the theater system equipment supporting the Company’s joint revenue sharing arrangements), impairments of goodwill, a further valuation allowance against deferred tax assets, and the reversal of variable consideration receivables that are based on estimates of future box office performance.

In the current environment, assumptions about box office results, IMAX Theater System installations, and customer creditworthiness have greater variability than normal, which could in the future significantly impact management’s estimates and judgments relating to the recoverability of the Company’s financial and non-financial assets.

Impact of COVID-19 Pandemic

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.

At various points during the pandemic, authorities around the world imposed 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 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.

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

As of September 30, 2021, 93 % of the theaters in the global IMAX commercial multiplex network were open at various capacities, spanning 70 countries.

This included 100 % of Domestic theaters (i.e., in the United States and Canada), 93 % of the theaters in Greater China and 87 % 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.

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, to a lesser extent, during the nine months ended September 30, 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, 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.

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

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

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

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

For the three and nine months ended September 30, 2021, GBO receipts generated by IMAX DMR films totaled $ 141.9 million and $ 360.7 million, respectively, surpassing the totals for the same periods in 2020 by $ 71.7 million ( 102 %) and $ 192.6 million ( 115 %), respectively.

Moreover, GBO receipts for September 2021 approximated the levels achieved prior to the onset of the COVID-19 global pandemic.

Management is encouraged by these box office results, the return of the prevalence of exclusive theatrical windows beginning with the release of Shang-Chi and the Legend of the Ten Rings in September 2021, and the strong pipeline of Hollywood movies scheduled to be released for theatrical exhibition during the remainder of 2021 and in 2022.

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

Recently Issued Accounting Standards Not Yet Adopted

Recently Issued Accounting Standards

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

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An entity may elect to apply the amendments prospectively through December 31, 2022.

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

The only contract held by the Company that references the London Interbank Offered Rate ( LIBOR) is the Credit Agreement (as defined in Note 7), which utilizes USD LIBOR to determine the interest rate applicable to borrowings.

The Credit Agreement matures on June 28, 2023 , prior to the date that USD LIBOR rates will cease publication on June 30, 2023.

Accordingly, the Company does not expect ASU 2020-04 to have a material effect on its Condensed Consolidated Financial Statements.

In July 2021, the FASB issued ASU No.

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Early adoption is permitted.

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

The Company has not yet adopted ASU 2021-05, but has determined that the impact of adopting this guidance will not have a material impact on its Condensed Consolidated Financial Statements.

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

ASUs that are not noted above were assessed and determined to be not applicable or not significant to the Company’s Condensed Consolidated Financial Statements for the period ended June 30, 2021.

ASUs that are not noted above were assessed and determined to be not applicable or not significant to the Company’s Condensed Consolidated Financial Statements for the period ended September 30, 2021.

Current Expected Credit Losses

21 unchanged sentences

The ability of the Company to collect its accounts receivable balances is heavily dependent on the viability and solvency of individual theater operators which is significantly influenced by consumer behavior and general economic conditions.

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

Theater operators, or other customers, may experience financial difficulties, such as those caused by the COVID-19 global pandemic, that could result in their being unable to fulfill their payment obligations to the Company.

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

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

Three Months Ended June 30, 2021

Six Months Ended June 30, 2021

The write-off of any billed receivable balance requires the approval of management.

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

Three Months Ended September 30, 2021

Nine Months Ended September 30, 2021

(In thousands of U.S.

Beginning balance

Current period (reversal) provision, net

Current period reversal, net

Foreign exchange

Ending balance

Three Months Ended June 30, 2020

Six Months Ended June 30, 2020

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2020

(In thousands of U.S.

Beginning balance

Current period (reversal) provision, net

Current period provision (reversal), net

Foreign exchange

Ending balance

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

For the three and six months ended June 30, 2020, the Company increased it allowance for current expected credit losses related to Accounts Receivable by $ 1.1 million and $ 7.5 million, respectively, principally due to a reduction in the credit quality of and heightened collection risk associated with theater and foreign movie studio accounts receivable primarily due to the COVID-19 global pandemic.

Management believes that the June 30, 2021 allowance for current expected credit losses related to Accounts Receivable adequately addresses the risk of not collecting these receivables in full.

For the three and nine months ended September 30, 2021, the Company’s allowance for current expected credit losses related to Accounts Receivable decreased by $ 1.2 million and $ 3.2 million, respectively.

These decreases are principally due to the reversal of previously recorded credit loss expense as a result of an improving outlook for theater operators following the reopening of theaters and the resumption of normal film release schedules as the theatrical exhibition industry continues to recover from the COVID-19 global pandemic, as well as better than anticipated collection experience with respect to foreign studio receivable balances.

For the three and nine months ended September 30, 2020, the Company’s allowance for current expected credit losses related to Accounts Receivable increased by $ 1.5 million and $ 9.0 million, respectively, principally reflecting a reduction in the credit quality of and heightened collection risk associated with theater and foreign movie studio accounts receivable primarily due to the COVID-19 global pandemic.

Management believes that the September 30, 2021 allowance for current expected credit losses related to Accounts Receivable adequately addresses the risk of not collecting these receivables in full.

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

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The ability of the Company to collect its financing receivable balances is heavily dependent on the viability and solvency of individual theater operators which is significantly influenced by consumer behavior and general economic conditions.

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

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

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

Theater operators may experience financial difficulties, such as those caused by the COVID-19 global pandemic, that could result in their being unable to fulfill their payment obligations to the Company.

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

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

September 30,

(In thousands of U.S.

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Total financed sales receivables

As of June 30, 2021 and December 31, 2020, the weighted-average remaining lease term and weighted-average interest rate associated with the Company’s sales-type lease arrangements and financed sale receivables, as applicable, are as follows:

As of September 30, 2021 and December 31, 2020, the weighted-average remaining lease term and weighted-average interest rate associated with the Company’s sales-type lease arrangements and financed sale receivables, as applicable, are as follows:

September 30,

Weighted-average remaining lease term (in years)

3 unchanged sentences

Financed sales receivables

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

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

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

The amounts disclosed for each credit quality classification are determined on a customer-by-customer basis and include both billed and unbilled amounts.

(In thousands of U.S.

By Origination Year

As of June 30, 2021

As of September 30, 2021

Net investment in leases:

13 unchanged sentences

Total net investment in leases

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

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

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

The amounts disclosed for each credit quality classification are determined on a customer-by-customer basis and include both billed and unbilled amounts.

(In thousands of U.S.

By Origination Year

As of June 30, 2021

As of September 30, 2021

Financed sales receivables:

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Total financed sales receivables

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

As of June 30, 2021

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

As of September 30, 2021

(In thousands of U.S.

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

The following table provides information about the Company’s net investment in leases and financed sale receivables with billed amounts past due for which it continues to accrue finance income as of June 30, 2021 and December 31, 2020:

As of June 30, 2021

The amounts disclosed for each credit quality classification are determined on a customer-by-customer basis and include both billed and unbilled amounts.

As of September 30, 2021

(In thousands of U.S.

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Financed sales receivables

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

As of June 30, 2021

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

As of September 30, 2021

As of December 31, 2020

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

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

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

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

Three Months Ended June 30, 2021

Six Months Ended June 30, 2021

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

For the three and nine months ended September 30, 2021, the Company recognized $ 1.3 million and $ 3.6 million, respectively, (2020 — $ 1.4 million and $ 4.2 million, respectively) in Finance Income related to the financed sale receivables with billed amounts past due.

The following tables summarize the activity in the allowance for credit losses related to the Company’s net investment in leases and financed sale receivables for the three and nine months ended September 30, 2021 and 2020:

Three Months Ended September 30, 2021

Nine Months Ended September 30, 2021

Net Investment

4 unchanged sentences

Beginning balance

Current period (reversal) provision, net

Current period reversal, net

Foreign exchange

Ending balance

Three Months Ended June 30, 2020

Six Months Ended June 30, 2020

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2020

Net Investment

4 unchanged sentences

Beginning balance

Current period (reversal) provision, net

Current period provision

Foreign exchange

Ending balance

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

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

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

Management believes that the June 30, 2021 allowance for current expected credit losses related to Financing Receivables adequately addresses the risk of not collecting these receivables in full.

For the three and nine months ended September 30, 2021, the Company’s allowance for current expected credit losses related to its net investment in leases and financed sale receivables decreased by $ 1.6 million and $ 1.8 million, respectively.

For the three and nine months ended September 30, 2020 , the Company ’s allowance for current expected credit losses related to its investment in leases and financed sale receivables increased by $ 1.0 million and $ 4.1 million, respectively , principally reflecting a reduction in the credit quality of and heightened collection risk associated with these r eceivable s primarily due to the COVID-19 global pandemic .

Management believes that the September 30, 2021 allowance for current expected credit losses related to Financing Receivables adequately addresses the risk of not collecting these receivables in full.

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

6 unchanged sentences

The ability of the Company to collect its variable consideration receivables is heavily dependent on the viability and solvency of individual theater operators which is significantly influenced by consumer behavior and general economic conditions.

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

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

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

Three Months Ended June 30,

Six Months Ended June 30,

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

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands of U.S.

3 unchanged sentences

Ending balance

For the six months ended June 30, 2021 and 2020, the Company increased its allowance for current expected credit losses related to Variable Consideration Receivables by $ 0.1 million and $ 0.9 million, respectively.

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

Management believes that the June 30, 2021 allowance for current expected credit losses related to Variable Consideration Receivables adequately addresses the risk of not collecting these receivables in full.

For the three and nine months ended September 30, 2021, the Company’s allowance for current expected credit losses related to Variable Consideration Receivables decreased by $ 0.9 million and $ 0.8 million, respectively.

These decreases are principally due to the reversal of previously recorded credit loss expense as a result of an improving outlook for theater operators following the reopening of theaters and the resumption of normal film release schedules as the theatrical exhibition industry begins to recover from the COVID-19 global pandemic.

For the three and nine months ended September 30, 2020, the Company’s allowance for current expected credit losses related to Variable Consideration Receivables increased by $ 0.8 million and $ 1.7 million, respectively, principally reflecting a reduction in the credit quality of and heightened collection risk associated with Variable Consideration Receivables primarily due to the COVID-19 global pandemic.

Management believes that the September 30, 2021 allowance for current expected credit losses related to Variable Consideration Receivables adequately addresses the risk of not collecting these receivables in full.

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

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

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

Three Months Ended June 30,

Six Months Ended June 30,

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

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands of U.S.

3 unchanged sentences

Total lease cost

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

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

Six Months Ended

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

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

Nine Months Ended

September 30,

(In thousands of U.S.

1 unchanged sentence

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

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

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

September 30,

(In thousands of U.S.

5 unchanged sentences

Accrued and other liabilities

As of June 30, 2021 and December 31, 2020, the weighted-average remaining lease term and weighted-average interest rate associated with the Company’s operating leases are as follows:

As of September 30, 2021 and December 31, 2020, the weighted-average remaining lease term and weighted-average interest rate associated with the Company’s operating leases are as follows:

September 30,

Weighted-average remaining lease term (years)

Weighted-average discount rate

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

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

(In thousands of U.S.

2021 (six months remaining)

2021 (three months remaining)

Total lease payments

21 unchanged sentences

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

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

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

September 30,

(In thousands of U.S.

2 unchanged sentences

Finished goods

At June 30, 2021, Inventories include finished goods of $ 2.3 million (December 31, 2020 — $ 2.1 million) for which title had passed to the customer, but the criteria for revenue recognition were not met as of the balance sheet date.

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

At September 30, 2021, Inventories include finished goods of $ 2.2 million (December 31, 2020 — $ 2.1 million) for which title had passed to the customer, but the criteria for revenue recognition were not met as of the balance sheet date.

During the three and nine months ended September 30, 2021, the Company recognized write-downs of $ 0.3 million and $ 0.5 million, respectively, (2020 — $ 0.6 million and $ 0.7 million, respectively) for excess and damaged inventory.

Revolving Credit Facility Borrowings

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

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

September 30,

(In thousands of U.S.

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

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

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

As of June 30, 2021 and December 31, 2020, the Company did no t have any letters of credit or advance payment guarantees outstanding under the Credit Facility.

During the first half of 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 September 30, 2021, there were no outstanding borrowings under the Credit Facility.

As of September 30, 2021 and December 31, 2020, the Company did no t have any letters of credit or advance payment guarantees outstanding under the Credit Facility.

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

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

On March 15, 2021, the Company entered into the Second Amendment to the Credit Agreement (as 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 June 30, 2021, the Company was in compliance with all of its requirements under the Credit Agreement, as amended.

On July 28, 2021, the Company entered into the Third Amendment to the Credit Agreement (as previously amended by the First and Second Amendments) (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, (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, (vi) allow $ 30.0 million in permitted repurchases of the Company’s common shares, subject to a $ 300.0 million pro forma minimum liquidity covenant and (vii) increase permitted repurchases of the common shares of IMAX China Holding, Inc.

from $ 5.0 million to $ 20.0 million, subject to pro forma compliance with the existing financial covenants set forth in the Credit Agreement.

The modifications to the negative covenants, the minimum liquidity covenant, permitted share repurchases 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 September 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 and six months ended June 30, 2021 was 2.63 % and 2.64 %, respectively (2020 — 1.83 % and 1.86 %, respectively).

The effective interest rate for the three and nine months ended September 30, 2021 was nil and 2.64 %, respectively (2020 — 2.70 % and 2.24 %, respectively).

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

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The Working Capital Facility expires in July 2022 .

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 September 30, 2021, outstanding Working Capital Facility borrowings were RMB 71.2 million ($ 11.0 million) and outstanding letters of guarantee were RMB 0.3 million (less than $ 0.1 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).

As of September 30, 2021, the amount available for future borrowings under the Working Capital Facility was RMB 118.8 million ($ 18.3 million) and the amount available for letters of guarantee was RMB 9.7 million ($ 1.5 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 and six months ended June 30, 2021 was 4.35 % (2020 ― 4.35 %).

The effective interest rate for borrowings under the Working Capital Facility for the three and nine months ended September 30, 2021 was 4.29 % and 4.32 %, respectively (2020 ― 4.35 %, respectively).

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 June 30, 2021, the net unrealized gain on the Company’s outstanding foreign currency forward contracts was $ 1.3 million, representing the amount by which the fair value of these forward contracts exceeded their notional value (December 31, 2020 — $ 2.0 million).

As of June 30, 2021, the notional value of the Company’s outstanding foreign currency forward contracts was $ 13.7 million (December 31, 2020 — $ 31.9 million).

As of September 30, 2021, the net unrealized loss on the Company’s outstanding foreign currency forward contracts was $( 0.3 ) million, representing the amount by which the notional value of these forward contracts exceeded their fair value (December 31, 2020 — $ 2.0 million).

As of September 30, 2021, the notional value of the Company’s outstanding foreign currency forward contracts was $ 25.8 million (December 31, 2020 — $ 31.9 million).

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

The Company did no t have any letters of credit or advance payment guarantees outstanding as of June 30, 2021 and December 31, 2020 under the NBC Facility.

The NBC Facility is renewed on an annual basis.

It was renewed on October 15, 2021 for a one-year term on the same terms and conditions.

The Company did no t have any letters of credit or advance payment guarantees outstanding as of September 30, 2021 and December 31, 2020 under the NBC Facility.

Convertible Notes

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

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

September 30,

(In thousands of U.S.

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

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

In addition, the Company paid $ 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 is using the remainder for working capital or other general corporate purposes.

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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.

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.

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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.

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, or (v) 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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ASU 2020-06 simplifies the accounting for convertible debt that may be settled in cash.

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

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

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

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

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

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

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

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

On March 29, 2017, the Company filed an Execution Application in the Bombay High Court seeking to enforce the ICC award against E-City and several related parties, which award the Company calculates to be $ 24.2 million, inclusive of interest, as of September 30, 2021.

That matter is currently pending.

The Company has also taken steps to enforce the ICC final award outside of India.

In December 2011, the Ontario Superior Court of Justice issued an order recognizing the final award and requiring E-City to pay the Company $ 30,000 to cover the costs of the application , and in October 2015, the New York Supreme Court recognized the Canadian judgment and entered it as a New York judgment.

In December 2011, the Ontario Superior Court of Justice issued an order recognizing the final award and requiring E-City to pay the Company $ 30,000 to cover the costs of the application , and in May 2012, the New York Supreme Court recognized the Canadian judgment and entered it as a New York judgment.

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

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

An arbitration hearing for witness testimony was held during the week of December 14, 2015.

At the hearing, Giencourt’s expert identified monetary damages of up to approximately $ 10.4 million, which Giencourt sought to recover from the Company.

The Company asserted a counterclaim against Giencourt for breach of contract and sought to recover lost profits in excess of $ 24.0 million under the agreements.

Subsequently, in December 2015, Giencourt made a motion to the panel seeking to enforce a purported settlement of the matter based on negotiations between Giencourt and the Company.

The panel held a final hearing with closing arguments in October 2016.

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

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

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

On September 27, 2019, a Magistrate Judge filed a non-binding recommendation that the Company’s petition be dismissed.

On October 14, 2019, the Company filed an objection to that recommendation.

The Company’s petition to vacate the arbitration award was denied by the District Judge on January 10, 2020.

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

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

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

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

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

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

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

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

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

In the second quarter of 2021, the Company paid Giencourt $ 9.5 million as required by the terms of the Settlement Agreement.

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

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Product Warranties

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

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

Director/Officer Indemnifications

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

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

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

Other Indemnification Agreements

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

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

For the three and nine months ended September 30, 2021, the sales commission costs recognized within Costs and Expenses Applicable to Revenues – Technology Sales are $ 0.2 million and $ 0.6 million, respectively (2020 — $ 0.3 million and $ 0.4 million, respectively).

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

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

Sales commissions related to joint revenue sharing arrangements accounted for operating leases are recognized as Costs and Expenses Applicable to Revenues – Technology Rentals in the month they are earned by the salesperson, which is typically the month of installation.

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

For the three and nine months ended September 30, 2021, the total of all such costs recognized within Costs and Expenses Applicable to Revenues – Technology Sales was $ 0.1 million and $ 0.3 million, respectively (2020 — $ 0.3 million and $ 0.6 million, respectively).

For the three and nine months ended September 30, 2021, sales commissions related to such joint revenue sharing arrangements totaled $ 0.1 million and $ 0.4 million, respectively (2020 — $ 0.3 million and $ 0.5 million, respectively).

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

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

Film exploitation costs, including advertising and marketing expense, totaled $ 1.5 million and $ 2.7 million, respectively, for the three and six months ended June 30, 2021 (2020 — recovery of less than $ 0.1 million and expense of $ 2.6 million, respectively), and are expensed as incurred within Costs and Expenses Applicable to Revenues – Image Enhancement and Maintenance Services.

For the three and nine months ended September 30, 2021, the total of such costs recognized within Costs and Expenses Applicable to Revenues – Technology Rentals was $ 0.7 million and $ 1.5 million, respectively (2020 — $ 0.4 million and $ 0.8 million, respectively).

Film exploitation costs, including advertising and marketing expense, totaled $ 3.2 million and $ 5.9 million, respectively, for the three and nine months ended September 30, 2021 (2020 — $ 0.5 million and $ 3.1 million, respectively), and are expensed as incurred within Costs and Expenses Applicable to Revenues – Image Enhancement and Maintenance Services.

Foreign Exchange

Included in Selling, General and Administrative Expenses for the three and six months ended June 30, 2021 is a net gain of $ 1.1 million and $ 1.7 million, respectively (2020 — loss of $( 0.3 ) million and $( 1.0 ) million, respectively) resulting from changes in exchange rates related to foreign currency denominated monetary assets and liabilities.

Included in Selling, General and Administrative Expenses for the three and nine months ended September 30, 2021 is a net loss of $( 0.6 ) million and a net gain of $ 1.1 million, respectively (2020 — net gain of $ 0.2 million and net loss of $( 0.8 ) million, respectively) resulting from changes in exchange rates related to foreign currency denominated monetary assets and liabilities.

See Note 16(c) for additional information.

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

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

As of September 30, 2021, the Company has signed traditional and hybrid joint revenue sharing agreements with 42 exhibitors (2020 — 41 ) for a total of 1,228 IMAX Theater Systems (2020 — 1,233 ) , of which 904 theaters (2020 — 881 ) were operational and included in the network as of that date.

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

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

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

For the three and nine months ended September 30, 2021, such revenues totaled $ 10.9 million and $ 29.9 million, respectively (2020 — $ 4.5 million and $ 11.5 million, respectively).

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

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

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

For the three and six months ended June 30, 2021, the majority of IMAX DMR revenue was earned from the exhibition of 17 films ( 14 new and 3 carryovers) and 32 films ( 26 new and 6 carryovers), respectively, and the re-release of classic titles throughout the IMAX theater network, as compared to one new film and 14 films ( 4 new and 10 carryovers), respectively, in the three and six months ended June 30, 2020.

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

For the three and nine months ended September 30, 2021, the majority of IMAX DMR revenue was earned from the exhibition of 24 films ( 21 new and 3 carryovers) and 53 films ( 47 new and 6 carryovers), respectively, and the re-release of classic titles throughout the IMAX theater network, as compared to six new films and 20 films ( 16 new and 4 carryovers), respectively, and the re-release of classic titles in the three and nine months ended September 30, 2020.

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

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

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

For the three and nine months ended September 30, 2021, such revenues totaled $ 15.7 million and $ 39.4 million, respectively (2020 — $ 6.9 million and $ 18.1 million, respectively).

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

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

As of June 30, 2021, the Company has one co-produced film arrangement, which represents the VIE total assets balance of $ 1.6 million and liabilities balance of $ 0.3 million and three other co-produced film arrangements, the terms of which are similar.

As of September 30, 2021, the Company has one co-produced film arrangement, which represents the VIE total assets balance of $ 1.6 million and liabilities balance of $ 0.3 million and three other co-produced film arrangements, the terms of which are similar.

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

For the three and six months ended June 30, 2021, an expense of less than $ 0.1 million and $ 0.1 million, respectively (2020 — $ 1.2 million and $ 1.4 million, respectively) attributable to transactions between the Company and other parties involved in the production of the films have been included in Costs and Expenses Applicable to Revenues – Image Enhancement and Maintenance Services.

For the three and nine months ended September 30, 2021, an expense of $ 0.2 million and $ 0.3 million, respectively (2020 — $ 0.5 million and $ 1.9 million, respectively) attributable to transactions between the Company and other parties involved in the production of the films have been included in Costs and Expenses Applicable to Revenues – Image Enhancement and Maintenance Services.

Condensed Consolidated Statements of Cash Flows – Supplemental Information

Changes in other operating assets and liabilities

Six Months Ended

Nine Months Ended

September 30,

(In thousands of U.S.

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Variable consideration receivables

(Decrease) increase in:

Accounts payable

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Depreciation and amortization

Six Months Ended

Nine Months Ended

September 30,

(In thousands of U.S.

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Other assets (2)

Includes the amortization of licenses and intellectual property recorded in Research and Development on the Condensed Consolidated Statement of Operations of $ 1.0 million in the nine months ended September 30, 2021 ( 2020 — $ 1.0 million).

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

Six Months Ended

Nine Months Ended

September 30,

(In thousands of U.S.

Film assets (1)

Other assets (2)

Inventories (1)

Property, plant and equipment:

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Other intangible assets

Inventories (4)

In the six months ended June 30, 2020, the Company recorded impairment losses of $ 4.5 million in Costs and Expenses Applicable to Image Enhancement and Maintenance Services principally to write-down the carrying value of certain documentary and alternative film content due to a decrease in projected box office totals and related revenues based on management’s regular quarterly recoverability assessments .

Although no such impairment losses were recorded through the six months ended June 30, 2021, t here can be no assurances that there will not be additional write-downs to the carrying values of these assets as the Company continues to assess the ongoing impact of the COVID-19 pandemic (see Notes 1 and 2 ).

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

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

In the six months ended June 30, 2021, the Company recorded charges of $ 0.3 million (2020 — $ 0.9 million) in Costs and Expenses Applicable to Technology Rentals mostly related to the write-down of leased xenon-based digital systems which were taken out of service in connection with customer upgrades to laser-based digital systems.

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

Film assets (3)

Other assets (4)

In the nine months ended September 30, 2021, the Company recorded write-downs of $ 0.5 million (2020 — $ 0.7 million) in Costs and Expenses Applicable to Technology Sales related to excess and damaged inventory.

In the nine months ended September 30, 2021, the Company recorded charges of $ 0.3 million (2020 — $ 1.1 million) in Costs and Expenses Applicable to Technology Rentals mostly related to the write-down of leased xenon-based digital systems which were taken out of service in connection with customer upgrades to laser-based digital systems.

In the nine months ended September 30, 2020, the Company recorded impairment losses of $ 10.2 million in Costs and Expenses Applicable to Image Enhancement and Maintenance Services principally to write-down the carrying value of certain documentary and alternative film content due to a decrease in projected box office totals and related revenues based on management’s regular quarterly recoverability assessments.

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

In the nine months ended September 30, 2020, the Company recorded a write-down of $ 1.2 million in Asset Impairments related to content-related assets which became impaired in the period.

Significant non-cash investing activities

Six Months Ended

Nine Months Ended

September 30,

(In thousands of U.S.

Net (decrease) increase in accruals related to:

Investment in joint revenue sharing arrangements

Investment in equipment supporting joint revenue sharing arrangements

Acquisition of other intangible assets

Purchases of property, plant and equipment

Significant non-cash financing activities

In the six months ended June 30, 2021, the Company incurred $ 1.2 million of debt issuance costs related to the Convertible Notes (see Note 7), of which $ 1.0 million were not yet paid as of June 30, 2021 and are recorded on the Condensed Consolidated Balance Sheets within Accounts Payable and Accrued and Other Liabilities.

Income Tax Expense

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

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

For the three months ended September 30, 2021, the Company recorded income tax expense of $ 4.4 million (2020 — income tax expense of $ 19.3 million).

For the three months ended September 30, 2021 , t he Company’s effective tax rate of ( 226.6 )% varies from the Canadian statutory tax rate of 26.2 % that was in effect during the period as follows:

Three Months Ended

June 30, 2021

June 30, 2020

September 30, 2021

September 30, 2020

(In thousands of U.S.

6 unchanged sentences

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

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

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

Other non-deductible/non-taxable items

Income tax (expense) benefit

For the three months ended June 30, 2021, the Company recorded an additional $ 3.0 million valuation allowance against deferred tax assets in jurisdictions where management could not reliably forecast that future tax liabilities would arise, principally due to the uncertainties around the long-term impact of the COVID-19 global pandemic.

Income tax expense

For the three months ended September 30, 2021, the Company recorded an additional $ 4.3 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.

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

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

Six Months Ended

June 30, 2021

June 30, 2020

For the nine months ended September 30, 2021, the Company recorded income tax expense of $ 9.4 million (2020 — $ 24.6 million).

For the nine months ended September 30, 2021, the Company’s effective tax rate of ( 69.5 )% varies from the Canadian statutory tax rate of 26.2 % that was in effect during the period as follows:

Nine Months Ended

September 30, 2021

September 30, 2020

(In thousands of U.S.

9 unchanged sentences

Income tax expense

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

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

As of September 30, 2021, the Company’s Condensed Consolidated Balance Sheets include net deferred income tax assets of $ 18.7 million, net of a valuation allowance of $ 45.5 million (December 31, 2020 — $ 18.0 million, net of a valuation allowance of $ 28.8 million).

The $ 16.7 million valuation allowance change recorded during the nine months ended September 30, 2021 is reflected within Income Tax Expense in the Company’s Condensed Consolidated Statements of Operations ($ 14.2 million) and within Shareholder’s Equity on the Company’s Condensed Consolidated Balance Sheets ($ 2.5 million).

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

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

Income Tax Effect on Other Comprehensive Income (Loss)

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

During the three and nine months ended September 30, 2021, $ 20.4 million of historical earnings from a subsidiary in China were repatriated and, as a result $ 2.0 million of foreign withholding taxes were paid in the period (2020 — $nil).

Income Tax Effect on Other Comprehensive (Loss) Income

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

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands of U.S.

3 unchanged sentences

Defined benefit and postretirement benefit plans

Capital Stock

Capital Stock And Reserves

Share-Based Compensation

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

For the three and nine months ended September 30, 2021, share-based compensation expense totaled $ 6.1 million and $ 18.2 million, respectively (2020 — $ 5.3 million and $ 16.0 million, respectively) and is reflected in the following accounts in the Condensed Consolidated Statements of Operations:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In Thousands of U.S.

2 unchanged sentences

Research and development

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

For the three and nine months ended September 30, 2020, there was a lower level of share-based compensation expenses allocated to Costs and Expense Applicable to Revenues or Research and Development due to the lower level of production during the COVID-19 global pandemic.

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

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In Thousands of U.S.

5 unchanged sentences

IMAX China Long Term Incentive Plan Performance Stock Units

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

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

Stock Option Summary

The following table summarizes the activity under the Company’s Stock Option Plan (“SOP”) and IMAX Corporation Second Amended and Restated Long-Term Incentive Plan (as may be amended, “IMAX LTIP”) for the six months ended June 30, 2021 and 2020:

The following table summarizes the activity under the Company’s Stock Option Plan (“SOP”) and the IMAX Corporation Second Amended and Restated Long-Term Incentive Plan (as may be amended, “IMAX LTIP”) for the nine months ended September 30, 2021 and 2020:

Number of Shares

6 unchanged sentences

Restricted Share Units (“RSU”) Summary

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

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

Number of Awards

16 unchanged sentences

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

The expense recognized in the six months ended June 30, 2021 includes adjustments reflecting management’s estimate of the number of PSUs with EBITDA-based targets expected to vest.

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

The expense recognized in the nine months ended September 30, 2021 includes adjustments reflecting management’s estimate of the number of PSUs with EBITDA-based targets expected to vest.

The following table summarizes the activity in respect of PSUs issued under the IMAX LTIP for the nine months ended September 30, 2021 and 2020:

Number of Awards

3 unchanged sentences

PSUs outstanding, end of period

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

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

Issuer Purchases of Equity Securities

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

In April 2021, the Company’s Board of Directors approved a 12-month extension to its share repurchase program through June 30, 2022 .

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

In the second quarter of 2021, the Company’s Board of Directors approved a further 12-month extension of the current share repurchase program through June 30, 2022.

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

The repurchases may be made either in the open market or through private transactions, including repurchases made pursuant a plan intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, subject to market conditions, applicable legal requirements, and other relevant factors.

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

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

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

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

As of June 30, 2021, the IMAX LTIP trustee held 502 shares purchased for less than $ 0.1 million (December 31, 2020 — 723 shares for less than $ 0.1 million), in the open market to be issued upon the settlement of RSUs and certain stock options.

During the three and nine months ended September 30, 2021, the Company repurchased 316,812 common shares, respectively (2020 — nil and 2,484,123 common shares, respectively), at an average price of $ 14.53 per share, respectively (2020 — $nil and $ 14.72 per share, respectively), excluding commissions.

During the three and nine months ended September 30, 2021, there were no common shares purchased in the administration of employee share-based compensation plans (2020 — nil and 200,000 common shares at an average price of $nil and $ 15.43 per share, respectively).

As of September 30, 2021, the IMAX LTIP trustee held 276 shares purchased for less than $ 0.1 million (December 31, 2020 — 723 shares for less than $ 0.1 million), in the open market to be issued upon the settlement of RSUs and certain stock options.

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

3 unchanged sentences

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

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

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

$ 1.50 and $ 1.69 per share, respectively).

During the three and nine months ended September 30, 2021, IMAX China repurchased 3,569,000 common shares, respectively, at an average price of HKD 10.90 per share, respectively (U.S.

$ 1.40 per share, respectively).

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

$nil and $ 1.69 per share, respectively).

Basic and Diluted Weighted Average Shares Outstanding

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

Issued and outstanding, beginning of period

Weighted average number of shares issued (repurchased), net

Weighted average number of shares (repurchased) issued, net

Weighted average number of shares outstanding - basic

1 unchanged sentence

Weighted average number of shares outstanding - diluted

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

For the three and nine months ended September 30, 2021, the calculation of diluted weighted average shares outstanding excludes 6,115,389 shares (2020 — 6,959,515 shares) that are issuable upon the vesting or exercise of share-based compensation including:

(i) 1,592,965 RSUs (2020 — 1,674,348 RSUs), (ii) 783,920 PSUs (2020 — 367,739 PSUs) and (iii) 3,738,504 stock options (2020 — 4,917,428 stock options), as the effect would be anti-dilutive.

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

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

(See Note 7(b).)

Statutory Surplus Reserve

Pursuant to the corporate law of the People’s Republic of China (the “PRC”), entities registered in the PRC are required to maintain certain statutory reserves, which are appropriated from after-tax profits (after offsetting accumulated losses from prior years), as reported in their respective statutory financial statements, before the declaration or payment of dividends to equity holders.

All statutory reserves are created for specific purposes.

The Company’s PRC subsidiaries are required to appropriate 10 % of statutory net profits to statutory surplus reserves, upon distribution of their after-tax profits.

The Company’s PRC subsidiaries may discontinue the contribution when the aggregate sum of the statutory surplus reserve is more than 50 % of its registered capital.

The statutory surplus reserve is non-distributable other than during liquidation and only be used to fund losses from prior years, to expand production operations, or to increase the capital of the subsidiaries.

In addition, the subsidiaries may make further contribution to the discretional surplus reserve using post-tax profits in accordance with resolutions of the Board of Directors.

During the three months ended September 30, 2021, one of the Company’s PRC subsidiaries declared and paid dividend s of RMB 131.6 million ($ 20.4 million) .

In the third quarter of 2021, upon passage of the requisite resolution of the Board of Directors, a statutory surplus reserve of RMB 36.4 million ($ 5.6 million) was recorded within Shareholders’ Equity as an appropriation of the retained earnings of the Company’s PRC subsidiaries, of which $ 3.9 million is attributable to the Company’s common shareholder s and $ 1.7 million is attributable to non-controlling shareholders .

The statutory surplus reserve of RMB 36.4 million ($5.6 million) has reached 50 % of its PRC subsidiaries’ registered capital.

Revenue from Contracts with Customers

Disaggregated Information About Revenue

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

Three Months Ended June 30, 2021

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

Three Months Ended September 30, 2021

Contracts with Customers

15 unchanged sentences

Finance income

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Contracts with Customers

17 unchanged sentences

Other sales include revenues associated with New Business Initiatives.

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

Three Months Ended June 30, 2020

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

Three Months Ended September 30, 2020

Contracts with Customers

15 unchanged sentences

Finance income

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Contracts with Customers

16 unchanged sentences

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

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

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

Prior period comparatives have been revised to appropriately classify $ 1.1 million and $ 2.3 million, respectively, of fixed consideration under revenue from contracts with customers to revenue from lease arrangements for the three and nine months ended September 30, 2020.

Other sales include revenues associated with New Business Initiatives.

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

Deferred Revenue

2 unchanged sentences

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

At June 30, 2021, $ 19.6 million of consideration has been deferred in relation to outstanding maintenance services to be provided on existing maintenance contracts (December 31, 2020 — $ 21.6 million).

At September 30, 2021, $ 20.3 million of consideration has been deferred in relation to outstanding maintenance services to be provided on existing maintenance contracts (December 31, 2020 — $ 21.6 million).

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

25 unchanged sentences

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

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:

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

Gross Margin (Margin Loss) (4)

11 unchanged sentences

Post-Production

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:

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

Gross Margin (Margin Loss) (4)

11 unchanged sentences

Post-Production

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

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

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

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

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

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

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

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

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

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

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

During the three and six months ended June 30, 2020, Film Distribution segment results include impairment losses of $ 2.2 million and $ 4.5 million, respectively, to write-down the carrying value of certain documentary and alternative content film assets due to a decrease in projected box office totals and related revenues based on management’s regular quarterly recoverability assessments .

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

The Company’s largest customer represents 18.2 % and 22.2 %, respectively, of total Revenues for the three and nine months ended September 30, 2021 (2020 — 11.0 % and 11.3 %, respectively).

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

The revenue from this segment includes the initial upfront payments and the present value of fixed minimum payments from sales and sales-type lease arrangements of IMAX Theater Systems, as well as the present value of estimated variable consideration from sales of IMAX Theater Systems.

To a lesser extent, the revenue from this segment also includes finance income associated with these revenue streams.

The revenue from this segment principally includes after-market sales of IMAX projection system parts and 3D glasses.

IMAX DMR gross margin includes marketing costs of $ 3.2 million and $ 5.8 million, respectively, for the three and nine months ended September 30, 2021 (2020 — $ 0.4 million and $ 2.8 million, respectively).

JRSA gross margin includes advertising, marketing and commission expense of $ 0.8 million and $ 1.9 million, respectively, for the three and nine months ended September 30, 2021 (2020 — $ 0.7 million and $ 1.3 million, respectively).

IMAX Systems gross margin includes marketing and commission costs of $ 0.3 million and $ 0.9 million, respectively, for the three and nine months ended September 30, 2021 (2020 — $ 0.6 million and $ 1.0 million, respectively).

Film Distribution segment gross margin includes marketing expense of $nil and less than $ 0.1 million, respectively, for the three and nine months ended September 30, 2021 (2020 — $ 0.2 million and $ 0.4 million, respectively).

During the three and nine months ended September 30, 2020, Film Distribution segment results include impairment losses of $ 5.4 million and $ 9.9 million, respectively, to write-down the carrying value of certain documentary and alternative content film assets due to a decrease in projected box office totals and related revenues based on management’s regular quarterly recoverability assessments .

No such charges were incurred in the three and nine months ended September 30, 2021 .

Geographic Information

3 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Greater China

United States

Asia (excluding China)

Western Europe

Asia (excluding Greater China)

Russia & the CIS

1 unchanged sentence

Rest of the World

No single country in the Rest of the World, Western Europe, Latin America and Asia (excluding Greater China) comprises more than 10% of the Company’s total revenue in the three and six months ended June 30, 2021.

Employee's Pension and Postretirement Benefits

11 unchanged sentences

Gelfond under the SERP was fixed at $ 20.3 million.

As of June 30, 2021 and December 31, 2020, the Company’s projected benefit obligation and unfunded status related to the SERP are as follows:

As of September 30, 2021 and December 31, 2020, the Company’s projected benefit obligation and unfunded status related to the SERP are as follows:

September 30,

(In thousands of U.S.

4 unchanged sentences

Obligation, end of period and unfunded status (1)

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

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

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

For the three and nine months ended September 30, 2021, the Company recorded interest costs of less than $ 0.1 million and $ 0.1 million, respectively (2020 — $ 0.1 million and $ 0.3 million, respectively) related to the SERP.

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

3 unchanged sentences

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

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

During the three and nine months ended September 30, 2021, the Company contributed and recorded expense of $ 0.3 million and $ 0.8 million, respectively (2020 — $ 0.3 million and $ 0.8 million, respectively ) to its Canadian defined contribution plan and $ 0.1 million and $ 0.4 million, respectively (2020 — $ 0.1 million and $ 0.5 million, respectively ) to its defined contribution employee plan under Section 401(k) of the U.S.

Internal Revenue Code.

6 unchanged sentences

Gelfond and Wechsler.

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

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

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

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

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

4 unchanged sentences

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

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

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

As of September 30, 2021, the Company’s postretirement benefits obligation under this plan is $ 1.8 million (December 31, 2020 — $ 1.9 million).

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

Deferred Compensation Benefit Plan

2 unchanged sentences

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

As of 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 of September 30, 2021, the benefit obligation related to the Retirement Plan was $ 3.8 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 June 30, 2021, fair value of the COLI asset was $ 3.2 million (December 31, 2020 — $ 3.2 million).

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

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

3 unchanged sentences

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

The Company’s $ 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).

The Company’s $ 193.0 million balance of cash and cash equivalents as of September 30, 2021 includes $ 101.0 million in cash held outside of Canada (December 31, 2020 — $ 89.9 million), of which $ 70.3 million was held in the PRC (December 31, 2020 — $ 77.2 million).

Fair Value Measurements

1 unchanged sentence

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

As of June 30, 2021

As of September 30, 2021

As of December 31, 2020

15 unchanged sentences

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

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

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

Foreign Exchange Risk Management

13 unchanged sentences

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

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

Certain of these foreign currency forward contracts met the criteria required for hedge accounting under the Derivatives and Hedging Topic of the FASB ASC at inception, and continue to meet hedge effectiveness tests at September 30, 2021 (the “Foreign Currency Hedges”), with settlement dates throughout 2022 .

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

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

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

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

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

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

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

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

1 unchanged sentence

Notional value of foreign exchange contracts :

September 30,

(In thousands of U.S.

4 unchanged sentences

Fair value of derivatives in foreign exchange contracts :

September 30,

(In thousands of U.S.

2 unchanged sentences

Foreign exchange contracts — Forwards

Accrued and other liabilities

Derivatives not designated as hedging instruments:

Foreign exchange contracts — Forwards

Accrued and other liabilities

Derivatives in foreign currency hedging relationships are as follows :

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands of U.S.

Foreign exchange contracts

Derivative Gain (Loss)

Derivative (Loss) Gain

Recognized in OCI

2 unchanged sentences

Reclassified from AOCI

Three Months Ended June 30,

Six months ended June 30,

Three Months Ended September 30,

Nine months ended September 30,

(In thousands of U.S.

3 unchanged sentences

administrative expenses

Three Months Ended June 30,

Six months ended June 30,

Three Months Ended September 30,

Nine months ended September 30,

(In thousands of U.S.

2 unchanged sentences

and Out of OCI

(Effective Portion)

The Company's estimated net amount of the existing loss as of September 30, 2021 is $ 0.2 million, which is expected to be reclassified to earnings within the next twelve months.

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

Three Months Ended June 30,

Six months ended June 30,

Three Months Ended September 30,

Nine months ended September 30,

(In thousands of U.S.

Location of Derivative Gain

Foreign exchange contracts

Derivative Gain Reclassified

(Ineffective Portion)

Three Months Ended September 30,

Nine months ended September 30,

(In thousands of U.S.

Location of Derivative (Loss) Gain

Foreign exchange contracts

Selling, general and

administrative expenses

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

Investments in Equity Securities

As of June 30, 2021, the Condensed Consolidated Balance Sheets includes $ 1.1 million (December 31, 2020 — $ 13.6 million) of investments in equity securities.

As of September 30, 2021, the Condensed Consolidated Balance Sheets includes $ 1.1 million (December 31, 2020 — $ 13.6 million) of investments in equity securities.

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

3 unchanged sentences

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

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

For the three and nine months ended September 30, 2020, the fair value of the Company’s investment in Maoyan experienced an unrealized gain of $ 1.6 million and loss of $( 0.9 ) million, respectively.

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

1 unchanged sentence

This investment is classified as an equity investment.

As of June 30, 2021, the Company held investments in the preferred shares of enterprises which meet the criteria for classification as an equity security under FASB ASC 321, carried at historical cost, net of impairment charges.

The carrying value of these equity security investments was $ 1.0 million at June 30, 2021 (December 31, 2020 — $ 1.0 million) and is recorded in Other Assets.

As of September 30, 2021, the Company held investments in the preferred shares of enterprises which meet the criteria for classification as an equity security under FASB ASC 321, carried at historical cost, net of impairment charges.

The carrying value of these equity security investments was $ 1.0 million at September 30, 2021 (December 31, 2020 — $ 1.0 million) and is recorded in Other Assets.

Non-Controlling Interests

3 unchanged sentences

IMAX China remains a consolidated subsidiary of the Company.

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

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

As of September 30, 2021, the balance of the Company’s non-controlling interest in IMAX China is $ 82.8 million.

For the three and nine months ended September 30, 2021, the net income attributable to the non-controlling interest in IMAX China is $ 2.0 million and $ 9.5 million, respectively (2020 — net income of $ 2.2 million and net loss of $( 10.3 ) million, respectively).

Other Non-Controlling Interest

2 unchanged sentences

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

As of June 30, 2021, the Original Film Fund has invested $ 22.3 million toward the development of original films.

As of September 30, 2021, the Original Film Fund has invested $ 22.3 million toward the development of original films.

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

Non-Controlling Interest in Temporary Equity

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

Balance of at December 31, 2020

Balance as of June 30, 2021

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

Balance as of December 31, 2020

Balance as of September 30, 2021

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

What changed 10-Q

Item 1. Financial Statements