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Item 2. Management’s Discussion and Analysis

2021-10-28 compared with 2021-07-27 · 302 added, 260 removed, 675 unchanged (45% of the section changed)

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

Presented below is Management's Discussion and Analysis of Financial Condition and Results of Operations (or "MD&A") for IMAX Corporation and its consolidated subsidiaries (“IMAX” or the “Company”) for the three and six months ended June 30, 2021 and 2020.

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

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

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

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

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Certain statements included in this quarterly report may constitute "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995.

These forward-looking statements include, but are not limited to, references to business and technology strategies and measures to implement strategies, competitive strengths, goals, expansion and growth of business, operations and technology, future capital expenditures (including the amount and nature thereof), plans and references to the future success of the Company and expectations regarding its future operating, financial and technological results.

These forward-looking statements include, but are not limited to, references to business and technology strategies and measures to implement strategies, competitive strengths, goals, expansion and growth of business, operations and technology, future capital expenditures (including the amount and nature thereof), industry prospects and consumer behavior, plans and references to the future success of the Company and expectations regarding its future operating, financial and technological results.

These forward-looking statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances.

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

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

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

As of September 30, 2021, there were 1,664 IMAX Theater Systems operating in 85 countries and territories, including 1,580 commercial multiplexes, 12 commercial destinations and 72 institutional locations.

This compares to 1,632 IMAX Theater Systems operating in 82 countries and territories as of September 30, 2020 including 1,542 commercial multiplexes, 13 commercial destinations and 77 institutional locations.

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

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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%).

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 total s for the same period s 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, and GBO receipts for October 2021 have already exceeded the Company’s all-time record for that month.

Management is encouraged by these box office results and believes they indicate that moviegoers are eager to return to cinemas where and when theaters are open and they feel safe.

Management is further encouraged by the strong pipeline of Hollywood movies scheduled to be released for theatrical exhibition in the second half of 2021.

Management is further encouraged by 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 .

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

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.

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

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

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

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

During the nine months ended September 30, 2021, the films released to the global IMAX theater network include seven films with IMAX DNA, including five filmed with IMAX cameras and two with exclusive select scenes in expanded aspect ratio.

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

To support continued growth in international markets, the Company has sought to bolster its international film strategy, supplementing the Company’s film slate of Hollywood DMR titles with appealing local IMAX DMR releases in select markets, particularly in China.

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

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

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

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

During the year ended December 31, 2020 , 17 local language IMAX DMR films were released to the IMAX network , including ten in China, three in Russia, three in Japan, and one in South Korea.

During the nine months ended September 30, 2021 , 24 local language IMAX DMR films were released to the IMAX network, including 16 in China and seven in Japan and one in South Korea .

The Company expects to announce additional local language IMAX DMR films to be released to the IMAX network during the remainder of 2021 and in 2022 .

During the nine months ended September 30, 2021, 47 IMAX DMR films were released to the global IMAX theater network and the following 7 additional IMAX DMR films are scheduled to be released during the remainder of 2021:

Release Date (1)

Let There Be Carnage:

The IMAX Experience

Expanded Aspect Ratio

Sony Pictures

No Time to Die:

The IMAX Experience

Chinese Doctor:

Universal Pictures / MGM / United Artists

Filmed in IMAX

Sword Art Online Progressive:

The IMAX Experience

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Walt Disney Studios

November 2021

Filmed in IMAX

Ghostbusters:

The IMAX Experience

Sony Pictures

November 2021

The IMAX Experience

Sony Pictures

December 2021

Expanded Aspect Ratio

The Matrix Resurrections:

The IMAX Experience

December 2021

The scheduled release dates in the table above are subject to change, may vary by territory and may not reflect the date(s) of limited premiere events.

To date, the Company has announced the following 21 titles to be released in 2022 to the global IMAX theater network:

Release Date (1)

The IMAX Experience

Paramount Pictures

Sony Pictures

The IMAX Experience

Jungle Cruise:

February 2022

Death on the Nile:

The IMAX Experience

Walt Disney Studios

Escape From Mogadishu:

February 2022

The IMAX Experience

The Suicide Squad:

Sony Pictures

February 2022

Expanded Aspect Ratio

The IMAX Experience

Notre-Dame Brûle:

The IMAX Experience

Filmed in IMAX

Bullet Train:

The IMAX Experience

20th Century Studios

Reminiscence:

Sony Pictures

Fantastic Beasts:

The Secrets of Dumbledore:

The IMAX Experience

Shang-Chi and the Legend of the Ten Rings:

Doctor Strange In The Multiverse of Madness:

The IMAX Experience

Walt Disney Studios

September 2021

Filmed in IMAX

Let There Be Carnage:

The IMAX Experience

Sony Pictures

September 2021

No Time to Die:

The IMAX Experience

Universal Pictures / MGM / United Artists

Paramount Pictures

Filmed in IMAX

Jurassic World:

The IMAX Experience

Filmed in IMAX

The Eternals:

Universal Pictures

Transformers:

Rise of the Beasts:

The IMAX Experience

Paramount Pictures

The Rise Of Gru:

The IMAX Experience

Universal Pictures

Love & Thunder:

The IMAX Experience

Walt Disney Studios

November 2021

Filmed in IMAX

The IMAX Experience

Universal Pictures

Filmed in IMAX

The IMAX Experience

Mission Impossible 7:

The IMAX Experience

Paramount Pictures

November 2021

September 2022

Filmed in IMAX

Into the Spiderverse Sequel:

The IMAX Experience

Sony Pictures

The IMAX Experience

November 2022

Black Panther 2:

Wakanda Forever:

The IMAX Experience

Walt Disney Studios

December 2021

Expanded Aspect Ratio

Untitled MATRIX 4:

November 2022

The IMAX Experience

Walt Disney Studios

December 2022

To be determined

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

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

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

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

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

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

The introduction of joint revenue sharing arrangements has been an important factor in the expansion of the Company’s commercial theater network.

Joint revenue sharing arrangements have been an important factor in the expansion of the Company’s commercial theater network.

Joint revenue sharing arrangements allow commercial theater exhibitors to install IMAX Theater Systems without the significant initial capital investment required in a sale or sales-type lease arrangement.

Joint revenue sharing arrangements drive recurring cash flows and earnings for the Company, as customers under these arrangements pay the Company a portion of their ongoing box office receipts.

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

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

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

The Company funds its investment in equipment for joint revenue sharing arrangements through cash flows from operations.

As of September 30, 2021, the Company had 904 theaters in operation under joint revenue sharing arrangements, a 2.6% increase as compared to the 881 theaters in operation under joint revenue sharing arrangements as of September 30, 2020.

The Company also had contracts in backlog for 324 theaters under joint revenue sharing arrangements as of September 30, 2021, including 83 upgrades to existing theater locations and 241 new theater locations.

IMAX Technology Sales and Maintenance

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To the lesser extent, the IMAX Technology Sales and Maintenance category earns revenue from certain ancillary theater business activities and revenues from hybrid joint revenue sharing arrangements.

These activities are described in more detail below under each of their respective segments.

These activities are described in more detail below under the captioned section for each respective segment.

The IMAX Systems segment provides IMAX Theater Systems to exhibitors through sale arrangements or long-term lease arrangements that for accounting purposes are classified as sales-type leases.

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For all IMAX theaters, theater owners or operators are also responsible for paying the Company an annual maintenance and extended warranty fee.

Under these arrangements, the Company provides proactive and emergency maintenance services to every theater in its network to ensure that each presentation is up to the highest IMAX quality standard.

Under these arrangements, the Company provides preventative and emergency maintenance services to every theater in its network to ensure that each presentation is up to the highest IMAX quality standard.

Annual maintenance fees are paid throughout the duration of the term of the theater agreements.

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

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

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

IMAX Enhanced has more than six million certified devices in-market.

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

Film Distribution and Post-Production

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IMAX NETWORK AND BACKLOG

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

June 30, 2021

June 30, 2020

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

September 30, 2021

September 30, 2020

Institutional

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

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

The Company currently believes that over time its commercial multiplex network could grow to approximately 3,318 IMAX theaters worldwide from the 1,580 operating as of September 30, 2021.

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

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

As of September 30, 2021, 73.6% of IMAX Theater Systems in operation were located within international markets (defined as all countries other than the United States and Canada), compared to 72.2% as of September 30, 2020.

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

Risks associated with the Company’s international business are outlined in “Risk Factors – The Company conducts business internationally, which exposes it to uncertainties and risks that could negatively affect its operations, sales and future growth prospects” in Part I, Item 1A of the Company’s 2020 Form 10-K.

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

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

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

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

During the nine months ended September 30, 2021 , this percentage increased to 52% as the pace of the reopening of IMAX theaters in Greater China has exceeded that of theaters in Domestic and Rest of World markets.

As of September 30, 2021, the Company had 767 theaters operating in Greater China with an additional 229 theaters in backlog.

The Company’s backlog in Greater China represents 45.3% of its total current backlog, including upgrades in system type.

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

Wanda’s total commitment to the Company is for 363 IMAX Theater Systems in Greater China (of which 357 IMAX Theater Systems are under the parties’ joint revenue sharing arrangement).

(See “Risk Factors – The Company faces risks in connection with its significant presence in China and the continues expansion of its business there” and “Risk Factors – General political, social and economic conditions can affect the Company’s business by reducing both revenues generated from existing IMAX Theater Systems and the demand for new IMAX Theater Systems” in Part I, Item 1A of the Company’s 2020 Form 10-K.)

As of September 30, 2021, the total number of Wanda’s IMAX Theater Systems in Greater China that are operational is 367 (of which 361 are under the parties’ joint revenue sharing arrangement).

(See “Risk Factors – The Company faces risks in connection with its significant presence in China and the continues expansion of its business there,” “Risk Factors – General political, social and economic conditions can affect the Company’s business by reducing both revenues generated from existing IMAX Theater Systems and the demand for new IMAX Theater Systems,” and “Risk Factors – The Company may not convert all of its backlog into revenue and cash flows” in Part I, Item 1A of the Company’s 2020 Form 10-K.)

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

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

June 30, 2021

The following table s provide detailed information about the c ommercial m ultiplex theater s in operation within the IMAX network by arrangement type and geographic location as of September 30, 2021 and 2020 :

September 30, 2021

Commercial Multiplex Theaters in IMAX Network

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Worldwide Total (1)

June 30, 2020

September 30, 2020

Commercial Multiplex Theaters in IMAX Network

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

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

June 30, 2021

June 30, 2020

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

September 30, 2021

September 30, 2020

(in thousands)

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Future contingent payments are not reflected as these are based on negotiated shares of box office results.

The number of IMAX Theater Systems in the backlog reflects the minimum number of commitments under signed contracts.

The number of IMAX Theater Systems in backlog reflects the minimum number of commitments under signed contracts.

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

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

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

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

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Current backlog information reflects all known elections.

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

June 30, 2021

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

September 30, 2021

IMAX Theater System Backlog

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Worldwide Total

June 30, 2020

September 30, 2020

IMAX Theater System Backlog

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Includes 155 new IMAX with Laser projection system configurations and 92 upgrades of existing locations to IMAX with Laser projection system configurations.

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

Approximately 73.9% of IMAX Theater System arrangements in backlog as of September 30, 2021 are scheduled to be installed in international markets (2020 — 75.0%).

Signings and Installations

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

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

For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

September 30,

Theater System Signings:

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For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

September 30,

Theater System Installations:

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

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

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

For the three months ended June 30, 2021, the Company reported an adjusted net loss attributable to common shareholders* of $(7.0) million, or $(0.12) per diluted share*, as compared to an adjusted net loss attributable to common shareholders* of $(26.1) million, or $(0.44) per diluted share*, for the same period in 2020.

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

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

For the three months ended September 30, 2021, the Company reported a net loss attributable to common shareholders of $(8.4) million, or $(0.14) per diluted share, as compared to a net loss attributable to common shareholders of $(47.2) million, or $(0.80) per diluted share, for the same period in 2020.

For the three months ended September 30, 2021, the Company reported an adjusted net loss attributable to common shareholders* of $(5.0) million, or $(0.08) per diluted share*, as compared to an adjusted net loss attributable to common shareholders* of $(44.6) million, or $(0.75) per diluted share*, for the same period in 2020.

Revenues and Gross Margin

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)

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Film Distribution and Post-Production

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

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

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

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

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

The revenue from this segment includes the initial upfront payments and the present value of fixed minimum payments from sale 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.

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

Revenues and Gross Margin

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

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

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

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

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

Beginning in the third quarter of 2020, movie theaters throughout the IMAX network gradually reopened following the wide-scale closure of theaters upon the onset of the COVID-19 global pandemic.

However, although movie theaters were generally open during the third quarter of 2020, the availability of new film content was limited, especially in the Domestic and Rest of World markets, with only 6 new films released to the IMAX global network.

By contrast, in the third quarter of 2021, 21 new films were released, resulting in a $71.7 million (102%) increase in GBO receipts and corresponding increases in IMAX Technology Network revenue and gross margin of $14.2 million and $10.3 million, respectively.

Also impacting the comparison to the prior year are increases of $7.2 million and $5.7 million in IMAX Maintenance revenue and gross margin, respectively, due to the broader reopening of the IMAX theater network and the continued progress towards the resumption of normal operations as the theatrical exhibition industry continues to recover from the COVID-19 global pandemic.

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

IMAX Technology Network

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

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

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

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

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

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

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

For the three months ended September 30, 2021, IMAX Technology Network revenues and gross margin increased by $14.2 million and $10.3 million, respectively, when compared to the same period in 2020 primarily due to the reopening of the IMAX theater network, particularly in the United States, and the strong performance of Hollywood film releases.

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

For the three months ended September 30, 2021, IMAX DMR revenues and gross margin increased by $8.8 million and $4.2 million, respectively, when compared to the same period in 2020.

These increases are primarily due to a $71.7 million (102%) increase in GBO receipts generated by IMAX DMR films in the third quarter of 2021, from $70.2 million to $141.9 million.

In the third quarter of 2021, GBO was generated by the exhibition of 24 films (21 new films and 3 carryovers).

In the third quarter of 2020, GBO was generated by the exhibition of 6 new films and the re-release of classic titles.

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

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

For the three months ended September 30, 2021, marketing expenses were $3.2 million, as compared to $0.4 million during the same period in 2020.

Joint Revenue Sharing Arrangements – Contingent Rent

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

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

For the three months ended September 30, 2021, JRSA contingent rent revenue and gross margin increased by $5.4 million and $6.1 million, respectively, when compared to the same period in 2020.

These increases are largely due to a $34.8 million increase in GBO generated by theaters under joint revenue sharing arrangements in the third quarter of 2021 when compared to the same period in the prior year, from $36.4 million to $71.2 million.

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

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

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

For the three months ended September 30, 2021, JRSA gross margin included depreciation expense of $5.5 million, which represents a $0.6 million decrease as compared to $6.1 million recorded in the same period of the prior year.

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

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

For the three months ended September 30, 2021, JRSA gross margin includes advertising, marketing, and commission costs of $0.8 million, as compared to $0.7 million in the same period of the prior year.

IMAX Technology Sales and Maintenance

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

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

For the Three Months Ended June 30,

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

For the Three Months Ended September 30,

(In thousands of U.S.

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New IMAX Theater Systems:

Sales and sales-types lease arrangements (1)

Sales and sales-type lease arrangements (1)

Joint revenue sharing arrangements — hybrid

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IMAX Theater System upgrades:

Sales and sales-types lease arrangements

Sales and sales-type lease arrangements

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

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

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

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

The average revenue per full (i.e., not hybrid), new IMAX Theater System under sales and sales-type lease arrangements was $1.2 million for the three months ended September 30, 2021, as compared to $1.1 million during the same period of the prior year.

For the three months ended September 30, 2021, IMAX Technology Sales and Maintenance revenue and gross margin increased by $4.0 million and $5.5 million, respectively, when compared to the same period in the prior year.

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

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

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

For the three months ended September 30, 2021, IMAX Systems revenue and gross margin decreased by $4.2 million and $0.6 million, respectively, when compared to the same period in the prior year.

The lower level of revenue and gross margin is the result of five fewer IMAX Theater System installations in the current period under sales and sales-type lease arrangements, partially offset by a higher level of revenue generated by theater system renewals in the current period.

IMAX Maintenance

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

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

For the three months ended September 30, 2021, IMAX Maintenance segment revenues and gross margin increased by $7.2 million and $5.7 million, respectively, when compared to the same period in the prior year, due to the broader reopening of the IMAX theater network and the continued progress towards the resumption of normal operations as the theatrical exhibition industry continues to recover from the COVID-19 global pandemic.

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

Film Distribution and Post- P roduction

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

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

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

For the three months ended September 30, 2021, Film Distribution and Post-Production revenues decreased by $0.3 million while gross margin increased by $6.5 million, when compared to the same period in the prior year.

The comparison of gross margin to the prior year period is significantly influenced by $5.4 million of impairment losses recorded in the third quarter of 2020 principally to write-down the carrying value of certain documentary and alternative content film assets due to a decrease in projected box office totals and related revenues.

There were no such losses recorded in the third quarter of 2021.

Selling, General and Administrative Expenses

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

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

For the three months ended September 30, 2021, total Selling, General and Administrative Expenses increased by $3.6 million (14%), when compared to the same period in 2020.

For the three months ended September 30, 2021, Selling, General and Administrative Expenses, excluding the impact of share-based compensation of $5.7 million, were $22.7 million, as compared to $19.7 million in the same period in the prior year, excluding share-based compensation expense of $5.2 million, representing an increase of $3.0 million (15%).

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

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

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

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

CARES Act as reductions to Selling, General and Administrative Expenses ($2.9 million) and Costs and Expenses Applicable to Revenues ($0.3 million) in the Condensed Consolidated Statements of Operations.

The CEWS program has been extended to September 2021.

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

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

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

For the three months ended September 30, 2021, the Company recognized $2.0 million in benefits from the Canada Emergency Wage Subsidy (“CEWS”) program as reductions to Selling, General and Administrative Expenses ($1.5 million) and Costs and Expenses Applicable to Revenues ($0.5 million) in the Condensed Consolidated Statements of Operations.

For three months ended September 30, 2020, the Company recognized $2.0 million from the CEWS program as reductions to Selling, General and Administrative Expenses ($1.6 million), Costs and Expenses Applicable to Revenues ($0.3 million) and Research and Development ($0.1 million) in the Condensed Consolidated Statements of Operations.

The CEWS program has been extended to October 23, 2021.

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

The increase in third quarter Selling, General and Administrative Expenses versus the prior year is primarily the result of a higher level of staff and other costs due to a higher level of business activity during the current period as the effects of the COVID-19 pandemic subside.

This factor is partially offset by a $1.7 million (21%) increase in labor and other costs capitalized to inventory, film assets, and joint venture theater equipment or allocated to costs applicable to revenues, due to the higher level of business activity during current quarter as the effects of the COVID-19 global pandemic subside.

Research and Development

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

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

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

For the three months ended September 30, 2021, Research and Development expenses increased by $0.9 million (79%), when compared to the prior year.

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

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

Credit Loss (Reversal) Expense, Net

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

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

For the three months ended September 30, 2021, the Company recorded a net reversal of current expected credit losses of $3.3 million, 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 months ended September 30, 2020 , the Company recorded a provision for current expected credit losses of $3.9 million which reflect ed judgments made by management regarding the potential effects of the COVID-19 global pandemic on the credit quality of Company’s theater and studio related receivable balances .

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

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

Legal Judgment and Arbitration Awards

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

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

Realized and Unrealized Investment Gains

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

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

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

The Company’s effective tax rate for the three months ended June 30, 2021 of (46.7)% differs from the Canadian statutory tax rate of 26.2% primarily due to the fact that the company recorded an additional $3.0 million valuation allowance against deferred tax assets in jurisdictions where management could not reliably forecast that future tax liabilities would arise, principally due to the uncertainties around the long-term impact of the COVID-19 global pandemic.

For the three months ended September 30, 2020, the fair value of the Company’s investment in Maoyan experienced an unrealized gain of $1.6 million.

Interest Expense

For the three months ended September 30, 2021, interest expense was $1.5 million, as compared to $2.4 million during the same period of the prior year.

The decrease in interest expense versus the same period of the prior year is due to a lower level of indebtedness partially offset by the amortization of deferred financing costs associated with amendments to the Company’s Credit Agreement.

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

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).

The Company’s effective tax rate for the three months ended September 30, 2021 of (226.6)% differs from the Canadian statutory tax rate of 26.2% primarily due to the fact that 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.

Also impacting the Company’s effective tax rate for the three months ended June 30, 2021 are jurisdictional tax rate differences.

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

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

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

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

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

Also impacting the Company’s effective tax rate for the three months ended September 30, 2021 are jurisdictional tax rate differences.

In the third quarter of 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.

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

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

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

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

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

For the six months ended June 30, 2021, the Company reported an adjusted net loss attributable to common shareholders* of $(21.8) million, or $(0.37) per diluted share*, as compared to an adjusted net loss attributable to common shareholders* of $(54.8) million, or $(0.92) per diluted share*, for the same period in 2020.

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

For the three months ended September 30, 2021, the net income attributable to non-controlling interests of the Company’s subsidiaries was $2.0 million (2020 — net loss of $(1.3) million).

Results of Operations for the Nine Months Ended September 30, 2021 and 2020

For the nine months ended September 30, 2021, the Company reported a net loss attributable to common shareholders of $(32.4) million, or $(0.55) per diluted share, as compared to a net loss attributable to common shareholders of $(122.5) million, or $(2.06) per diluted share, for the same period in 2020.

For the nine months ended September 30, 2021, the Company reported an adjusted net loss attributable to common shareholders* of $(26.8) million, or $(0.45) per diluted share*, as compared to an adjusted net loss attributable to common shareholders* of $(99.4) million, or $(1.67) per diluted share*, for the same period in 2020.

Revenues and Gross Margin

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)

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Film Distribution and Post-Production

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

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

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.

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

Revenues and Gross Margin

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

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

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

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

Beginning in the third quarter of 2020, movie theaters throughout the IMAX network gradually reopened;

h owever, the availability of new film content was limited.

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

In addition, 47 new films were released to the IMAX global network during the nine months ended September 30, 2021, as compared to 16 in the same period of 2020, resulting in a $192.6 million ( 115 %) increase in GBO receipts and corresponding increases in IMAX Technology Network revenue and gross margin of $37.2 million and $32.8 million , respectively .

Also impacting the comparison to the prior year are increases of $20.0 million and $15.7 million in IMAX Maintenance revenue and gross margin, respectively, due to the broader reopening of the IMAX theater network and the continued progress towards the resumption of normal operations as the theatrical exhibition industry continue s to recover from the COVID-19 global pandemic.

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

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

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

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

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

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

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

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

For the nine months ended September 30, 2021, IMAX Technology Network revenues and gross margin increased $37.2 million and $32.8 million, respectively, when compared to the same period in 2020.

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

For the nine months ended September 30, 2021, IMAX DMR revenues and gross margin increased by $21.4 million and $14.9 million, respectively, when compared to the same period in 2020.

These increases are primarily due to a $192.6 million (115%) increase in GBO receipts generated by IMAX DMR films during the nine months ended September 30, 2021, from $168.1 million to $360.7 million.

During the nine months ended September 30, 2021, GBO was generated by the exhibition of 53 films (47 new and 6 carryovers) and the re-release of classic titles.

During the nine months ended September 30, 2020, GBO was generated by the exhibition of 20 films (16 new and 4 carryovers) and the re-release of classic titles.

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

For the nine months ended September 30, 2021, marketing expenses were $5.8 million, as compared to $2.8 million during the same period of 2020.

Joint Revenue Sharing Arrangements – Contingent Rent

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

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

For the nine months ended September 30, 2021, JRSA contingent rent revenue and gross margin increased by $15.8 million and $17.9 million, respectively, when compared to the same period in 2020.

These increases are largely due to a $114.7 million (140%) increase in GBO generated by theaters under joint revenue sharing arrangements during the nine months ended September 30, 2021, from $82.1 million to $196.8 million.

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

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

For the nine months ended September 30, 2021, JRSA gross margin included depreciation expense of $16.8 million, which represents a $2.5 million decrease when compared to the same period of the prior year.

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

For the nine months ended September 30, 2021, JRSA gross margin includes advertising, marketing, and commission costs of $1.9 million, as compared to $1.3 million in the same period of the prior year.

IMAX Technology Sales and Maintenance

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

For the Six Months Ended June 30,

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

For the Nine Months Ended September 30,

(In thousands of U.S.

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New IMAX Theater Systems:

Sales and sales-types lease arrangements (1)

Sales and sales-type lease arrangements (1)

Joint revenue sharing arrangements — hybrid

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Joint revenue sharing arrangements — hybrid

Sales and sales-types lease arrangements

Sales and sales-type lease arrangements

Total upgraded IMAX Theater Systems

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

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

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

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

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

The average revenue per full (i.e., not hybrid), new IMAX Theater System under sales and sales-type lease arrangements was $1.3 million for the nine months ended September 30, 2021, as compared to $1.0 million during the same period of the prior year.

For the nine months ended September 30, 2021, IMAX Technology Sales and Maintenance revenue and gross margin increased by $30.0 million and $23.7 million, respectively, when compared to the same period of the prior year.

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

For the nine months ended September 30, 2021, IMAX Systems revenue and gross margin increased $7.4 million and $7.1 million, respectively, when compared to the same period of the prior year.

The higher level of revenue and gross margin is the result of three additional IMAX Theater System installations under sales and sales-type lease arrangements in the current period due to an increased pace of theater system installations as the effects of the COVID-19 pandemic subside, as well as by a higher level of revenue generated by theater system renewals in the current period.

IMAX Maintenance

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

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

For the nine months ended September 30, 2021, IMAX Maintenance segment revenues and gross margin increased by $20.0 million and $15.7 million, respectively, when compared to the same period of the prior year, due to the broader reopening of the IMAX theater network and the continued progress towards the resumption of normal operations as the theatrical exhibition industry continues to recover from the COVID-19 global pandemic.

Film Distribution and Post-Production

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

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

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

For the nine months ended September 30, 2021, Film Distribution and Post-Production revenues decreased by $3.5 million and gross margin increased by $10.4 million, when compared to the same period of the prior year.

The comparison of gross margin to the prior year period is significantly influenced by $9.9 million of impairment losses recorded during the nine months ended September 30, 2020 principally to write-down the carrying value of certain documentary and alternative content film assets due to a decrease in projected box office totals and related revenues.

There were no such losses recorded during the nine months ended September 30, 2021.

Selling, General and Administrative Expenses

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

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

For the nine months ended September 30, 2021, total Selling, General and Administrative Expenses decreased by $0.9 million (1%), when compared to the same period in 2020.

For the nine months ended September 30, 2021, Selling, General and Administrative Expenses, excluding the impact of share-based compensation of $17.1 million, were $65.3 million, as compared to $67.9 million in the same period of the prior year, excluding share-based compensation expense of $15.3 million, representing a decrease of $2.6 million (4%).

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

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

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

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

The CEWS program has been extended to September 2021.

For the nine months ended September 30, 2021, the Company recognized $5.5 million in benefits from CEWS program as reductions to Selling, General and Administrative Expenses ($4.1 million) and Costs and Expenses Applicable to Revenues ($1.4 million) in the Condensed Consolidated Statements of Operations.

For the nine months ended September 30, 2020, the Company recognized $5.2 million from the CEWS program and the U.S.

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

The CEWS program has been extended to October 2021.

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

The decrease in September year-to-date Selling, General and Administrative Expenses versus the prior year is due, in part, to management’s cost control efforts and a lower level of business activity in the first half of 2021 amidst the COVID-19 global pandemic, resulting in lower staff costs, travel, and facilities related expenses, among others .

Also contributing to the lower level of current period Selling, General and Administrative Expenses is a $2.0 million (8%) increase in labor and other costs capitalized to inventory, film assets, and joint venture theater equipment or allocated to costs applicable to revenues, due to the higher level of business activity during the current period as the effects of the COVID-19 global pandemic subside.

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

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

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

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

For the nine months ended September 30, 2021, Research and Development expenses increased by $1.1 million (25%), when compared to the prior year.

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

Credit Loss (R eversal ) Expense , N et

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

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

For the nine months ended September 30, 2021, the Company recorded a net reversal of current expected credit losses of $4.9 million, 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 nine months ended September 30, 2020, the Company recorded a provision for current expected credit losses of $15.6 million which reflected judgments made by management regarding the potential effects of the COVID-19 global pandemic on the credit quality of Company’s theater and studio related receivable balances.

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Asset Impairments

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

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

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

There were no such impairments recorded during the nine months ended September 30, 2021.

Legal Judgment and Arbitration Awards

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

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

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

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

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

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

Interest Expense

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

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

For the nine months ended September 30, 2021, interest expense was $5.5 million, as compared to $4.6 million during the same period of the prior year.

The increase in interest expense versus the same period of the prior year is due to the amortization of deferred financing costs associated with amendments to the Company’s Credit Agreement and the issuance of the Convertible Notes.

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

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

The Company’s effective tax rate for the six months ended June 30, 2021 of (43.2)% differs from the Canadian statutory tax rate of 26.2% primarily due to the fact that the Company recorded an additional $10.0 million valuation allowance against deferred tax assets in jurisdictions where management could not reliably forecast that future tax liabilities would arise, principally due to the uncertainties around the long-term impact of the COVID-19 global pandemic.

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

The Company’s effective tax rate for the nine months ended September 30, 2021 of (69.5)% differs from the Canadian statutory tax rate of 26.2% primarily due to the fact that the Company recorded an additional $14.2 million valuation allowance against deferred tax assets in jurisdictions where management could not reliably forecast that future tax liabilities would arise, principally due to the uncertainties around the long-term impact of the COVID-19 global pandemic.

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

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

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

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

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

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

In the third quarter of 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.

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

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

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

For the nine months ended September 30, 2021, the net income attributable to non-controlling interests of the Company’s subsidiaries was $9.5 million (2020 — net loss of $(15.4) million).

CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

Operating Activities

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

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

For the six months ended June 30, 2021, the net cash used in the Company’s operating activities is principally due to an increase in Accounts Receivable of $11.0 million as a result of theaters reopening amidst the early stages of recovery from the COVID-19 global pandemic, as well as a $9.5 million payment made in the second quarter of 2021 in connection with the settlement of the Giencourt matter , as discussed in Note 8(b)(ii) of Notes to Condensed Consolidated Financial Statements, and the settlement of other payables .

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

For the nine months ended September 30, 2021, net cash used in the Company’s operating activities totaled $19.6 million, as compared to net cash used in operating activities of $30.8 million in the same period of the prior year.

For the nine months ended September 30, 2021, the net cash used in the Company’s operating activities is principally due to an increase in Accounts Receivable of $24.3 million as a result of revenue growth attributable to the reopening of theaters amidst the early stages of recovery from the COVID-19 global pandemic.

To a lesser extent, the net cash used in the Company’s operating activities is due to $10.0 million spent in connection with the development of Film Assets, as well as reductions in Accounts Payable and Accrued and Other Liabilities, including a $9.5 million payment made in the second quarter of 2021 in connection with the settlement of the Giencourt matter , as discussed in Note 8(b)(ii) of Notes to Condensed Consolidated Financial Statements .

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

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

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Investing Activities

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

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

For the nine months ended September 30, 2021, net cash provided by investing activities totaled $6.7 million, as compared to net cash used in investing activities of $7.6 million in the same period of the prior year.

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

This cash inflow is partially offset by $5.4 million invested in equipment to be used in the Company’s joint revenue sharing arrangements with exhibitors (2020 — $5.3 million ), $3.4 million of intangible assets acquired, principally related to the purchase or development of software (2020 — $1.7 million) , and $2.4 million for the purchase of property, plant and equipment (2020 — $0.7 million) .

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

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

Capital expenditures, including the Company’s investment in joint revenue sharing equipment, purchase of property, plant and equipment, other intangible assets and investments in film assets were $21.1 million for the nine months ended September 30, 2021, as compared to $13.8 million for the nine months ended September 30, 2020.

Financing Activities

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

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

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

For the nine months ended September 30, 2021, net cash used in financing activities totaled $110.5 million, as compared to $233.5 million provided by financing activities in the same period of the prior year.

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

The net cash used in financing activities for the current period is also the result of the $19.1 million purchase of capped calls related to the Convertible Notes, as well as $9.6 million used to repurchase common shares of the Company ($4.6 million) and IMAX China Holding, Inc.

($5.0 million).

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

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

For the nine months ended September 30, 2020, net cash provided by financing activities totaled $233.5 million and was principally due to $280.2 million in Credit Facility borrowings drawn in the period, partially offset by $36.6 million paid to repurchase common shares under the Company’s share repurchase program.

LIQUIDITY AND CAPITAL RESOURCES

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

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

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

As of June 30, 2021 and December 31, 2020, the Company did not have any letters of credit or advance payment guarantees outstanding under the Credit Facility.

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 not have any letters of credit or advance payment guarantees outstanding under the Credit Facility.

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

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

On March 15, 2021, the Company entered into the Second Amendment to the Credit Agreement (as 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 $0.9 million, representing the amount by which the fair value of these forward contracts exceeded their notional value (December 31, 2020 ― $2.0 million).

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

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 not 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 not 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

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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 Convertible Notes in certain circumstances and during specified periods.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Assessment of Liquidity and Capital Requirements

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

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

(i) its balances of cash and cash equivalents ($193.0 million);

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

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

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

In addition, as of September 30, 2021, the Company had $300.0 million in available borrowing capacity under the Credit Facility and $18.3 million in available borrowing capacity under the Working Capital Facility, as described above.

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 People’s Republic of China (the “PRC”) (December 31, 2020 — $77.2 million).

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

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

As of September 30, 2021, the Company’s Condensed Consolidated Balance Sheets include a deferred tax liability of $17.6 million for the applicable foreign withholding taxes associated with these historical earnings, which will become payable upon the repatriation of any such earnings.

In the third quarter of 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.

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

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

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

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 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 .

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

However, with approximately 93% of the Company’s global theater network open at various capacities as of September 30, 2021, GBO receipts generated by IMAX DMR films and joint revenue sharing arrangements increased in the current quarter and year-to-date periods, leading to improvement in the Company’s results, when compared to the prior year periods covered by this report.

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

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CONTRACTUAL OBLIGATIONS

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

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

Payments Due by Period

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

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

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

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

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

As of September 30, 2021, the Company’s Condensed Consolidated Balance Sheets include an unfunded benefit obligation of $1.8 million within Accrued and Other Liabilities related to this plan (December 31, 2020 — $1.9 million).

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

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

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

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

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

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

As of June 30, 2021, the benefit obligation related to the Retirement Plan was $3.7 million (December 31, 2020 — $3.7 million) and is recorded on the Company’s Condensed Consolidated Balance Sheets within Accrued and Other Liabilities.

As 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).

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(iii) legal judgment and arbitration awards;

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

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

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

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Three Months Ended

June 30, 2021

June 30, 2020

September 30, 2021

September 30, 2020

(In thousands of U.S.

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COVID-19 government relief benefits (2)

Legal judgment and arbitration awards

Unrealized investment gains

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Weighted average diluted shares outstanding

Six Months Ended

June 30, 2021

June 30, 2020

Nine Months Ended

September 30, 2021

September 30, 2020

(In thousands of U.S.

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Reflects amounts attributable to common shareholders.

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

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

For the three months ended September 30, 2021, the Company recognized $2.0 million in COVID-19 government relief benefits (2020 — $2.0 million), as reductions to Selling, General and Administrative Expenses ($1.5 million) (2020 — $1.6 million), Costs and Expenses Applicable to Revenues ($0.5 million) (2020 — $0.3 million) and Research and Development Expenses ($nil) (2020 — $0.1 million) in the Condensed Consolidated Statements of Operations.

For the nine months ended September 30, 2021, the Company recognized $5.5 million in COVID-19 government relief benefits (2020 — $5.2 million), as reductions to Selling, General and Administrative Expenses ($4.1 million) (2020 — $4.5 million), Costs and Expenses Applicable to Revenues ($1.4 million) (2020 — $0.6 million) and Research and Development Expenses ($nil) (2020 — $0.1 million) in the Condensed Consolidated Statements of Operations.

In addition to the non-GAAP financial measures discussed above , management also uses “EBITDA , ” as such term is defined in the C redit A greement , and which is referred to herein as “Adjusted EBITDA per Credit Facility .

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

(iv) legal judgment and arbitration awards;

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

and (iv) legal judgment and arbitration awards.

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

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

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

Attributable to

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

Legal judgment and arbitration awards

Adjusted EBITDA per Credit Facility

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

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

Attributable to

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Legal judgment and arbitration awards

Loss from equity accounted investments

Adjusted EBITDA per Credit Facility

6 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis