e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2010
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file Number 0-24216
IMAX Corporation
(Exact name of registrant as specified in its charter)
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Canada
(State or other jurisdiction of
incorporation or organization)
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98-0140269
(I.R.S. Employer
Identification Number) |
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2525 Speakman Drive, |
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Mississauga, Ontario, Canada
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L5K 1B1 |
(Address of principal executive offices)
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(Postal Code) |
Registrants telephone number, including area code
(905) 403-6500
N/A
(Former name or former address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting Company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
Indicate the number of shares of each of the issuers classes of common stock, as of the
latest practicable date:
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Class |
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Outstanding as of July 22, 2010 |
Common stock, no par value
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63,704,180 |
IMAX CORPORATION
Table of Contents
2
IMAX CORPORATION
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
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 future
capital expenditures (including the amount and nature thereof), business and technology strategies
and measures to implement strategies, competitive strengths, goals, expansion and growth of
business, operations and technology, plans and references to the future success of IMAX Corporation
together with its wholly-owned subsidiaries (the Company) and expectations regarding the
Companys 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. However, whether actual results
and developments will conform with the expectations and predictions of the Company is subject to a
number of risks and uncertainties, including, but not limited to, general economic, market or
business conditions; including the length and severity of the current economic downturn, the
opportunities (or lack thereof) that may be presented to and pursued by the Company; competitive
actions by other companies; the performance of IMAX DMR films; conditions in the in-home and
out-of-home entertainment industries; the signing of theater system agreements; changes in laws or
regulations; conditions, changes and developments in the commercial exhibition industry; the
failure to convert theater system backlog into revenue; risks associated with the Companys
transition to a digitally-based projector; risks related to new business initiatives; risks
associated with investments and operations in foreign jurisdictions and any future international
expansion, including those related to economic, political and regulatory policies of local
governments and laws and policies of the United States and Canada; the potential impact of
increased competition in the markets the Company operates within; risks related to foreign currency
transactions; risks related to the Companys prior restatements and the related litigation and
ongoing inquiry by the Securities and Exchange Commission (the SEC) and the Ontario Securities
Commission (the OSC); and other factors, many of which are beyond the control of the Company.
Consequently, all of the forward-looking statements made in this annual report are qualified by
these cautionary statements, and actual results or anticipated developments by the Company may not
be realized, and even if substantially realized, may not have the expected consequences to, or
effects on, the Company. The Company undertakes no obligation to update publicly or otherwise
revise any forward-looking information, whether as a result of new information, future events or
otherwise.
IMAX®, IMAX® Dome, IMAX® 3D, IMAX® 3D Dome, Experience It In IMAX®,
The IMAX Experience®, An IMAX Experience®,
IMAX DMR®, DMR®, IMAX MPX®, IMAX think big® and think big® are trademarks and trade names of the Company or its
subsidiaries that are registered or otherwise protected under laws of various jurisdictions.
3
IMAX CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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Page |
The following Condensed Consolidated Financial Statements are filed as part of this Report: |
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5 |
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6 |
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7 |
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8 |
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4
IMAX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
In accordance with United States Generally Accepted Accounting Principles
(In thousands of U.S. dollars)
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June 30, |
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December 31, |
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2010 |
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2009 |
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(unaudited) |
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Assets |
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Cash and cash equivalents |
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$ |
37,008 |
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$ |
20,081 |
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Accounts receivable, net of allowance for doubtful accounts of $2,577 (December 31, 2009 $2,770) |
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40,281 |
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37,652 |
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Financing receivables (note 3) |
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63,235 |
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62,585 |
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Inventories (note 4) |
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11,880 |
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10,271 |
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Prepaid expenses |
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5,333 |
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2,609 |
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Film assets |
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3,384 |
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3,218 |
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Property, plant and equipment (note 5) |
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59,015 |
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54,820 |
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Other assets (notes 18(c)) |
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11,015 |
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15,140 |
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Goodwill |
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39,027 |
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39,027 |
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Other intangible assets (note 6) |
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2,212 |
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2,142 |
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Total assets |
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$ |
272,390 |
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$ |
247,545 |
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Liabilities |
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Bank indebtedness (note 8) |
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$ |
24,792 |
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$ |
50,000 |
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Accounts payable |
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18,407 |
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16,803 |
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Accrued liabilities (notes 9(a), 9(c), 10, 14(a), 15(b), 17(a), 17(c), and 18(c)) |
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76,247 |
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77,853 |
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Deferred revenue |
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61,849 |
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57,879 |
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Total liabilities |
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181,295 |
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202,535 |
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Commitments and contingencies (notes 9 and 10) |
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Shareholders equity |
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Capital stock (note 15) common shares no par value. Authorized unlimited number.
Issued and outstanding 63,670,180 (December 31, 2009 62,831,974) |
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286,792 |
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280,048 |
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Other equity |
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6,223 |
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6,044 |
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Deficit |
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(202,105 |
) |
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(241,988 |
) |
Accumulated other comprehensive income |
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185 |
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906 |
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Total shareholders equity |
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91,095 |
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45,010 |
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Total liabilities and shareholders equity |
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$ |
272,390 |
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$ |
247,545 |
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(the accompanying notes are an integral part of these condensed consolidated financial statements)
5
IMAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
In accordance with United States Generally Accepted Accounting Principles
(In thousands of U.S. dollars, except per share amounts)
(Unaudited)
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Three Months |
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Six Months |
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Ended June 30, |
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Ended June 30, |
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2010 |
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2009 |
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2010 |
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2009 |
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(note 19) |
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(note 19) |
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Revenues |
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Equipment and product sales |
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$ |
16,363 |
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$ |
7,138 |
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$ |
27,994 |
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$ |
20,497 |
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Services (note 11(c)) |
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28,792 |
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24,164 |
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69,023 |
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38,466 |
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Rentals (note 11(c)) |
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9,352 |
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7,999 |
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29,203 |
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11,246 |
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Finance income |
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1,091 |
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1,061 |
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2,161 |
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2,073 |
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Other |
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1,216 |
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55,598 |
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40,362 |
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128,381 |
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73,498 |
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Costs and expenses applicable to revenues |
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Equipment and product sales (note 11(a)) |
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8,019 |
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3,825 |
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16,153 |
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11,067 |
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Services (note 11(a) and 11(c)) |
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18,210 |
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12,688 |
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32,177 |
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21,964 |
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Rentals (note 11(a)) |
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2,329 |
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3,166 |
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4,712 |
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5,332 |
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Other (note 11(a)) |
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245 |
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28,558 |
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19,679 |
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53,042 |
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38,608 |
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Gross margin |
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27,040 |
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20,683 |
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75,339 |
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34,890 |
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Selling, general and administrative expenses (note 11(b))
(including share-based compensation recovery of $3.8
million and $5.6 million expense for the three and
six months ended June 30, 2010, respectively (2009 -
$4.2 million and $4.6 million, respectively)) |
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11,133 |
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12,258 |
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30,662 |
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23,162 |
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Research and development |
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1,219 |
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1,185 |
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2,462 |
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1,732 |
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Amortization of intangibles |
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115 |
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136 |
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245 |
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281 |
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Receivable provisions, net of recoveries (note 13) |
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353 |
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480 |
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366 |
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990 |
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Income from operations |
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14,220 |
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6,624 |
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41,604 |
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8,725 |
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Interest income |
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13 |
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5 |
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297 |
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26 |
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Interest expense |
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(535 |
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(4,071 |
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(1,187 |
) |
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(8,498 |
) |
Gain on repurchase of Senior Notes due December 2010 (note 7) |
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444 |
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444 |
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Income from continuing operations before income taxes |
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13,698 |
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3,002 |
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40,714 |
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697 |
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Provision for income taxes |
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(396 |
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(282 |
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(831 |
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(541 |
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Income from continuing operations |
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13,302 |
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2,720 |
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39,883 |
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156 |
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Loss from discontinued operations (note 19) |
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(159 |
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(236 |
) |
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Net Income (loss) |
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$ |
13,302 |
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$ |
2,561 |
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$ |
39,883 |
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$ |
(80 |
) |
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Net income per share Basic and Diluted: (note 15(c)) |
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Net income per share from continuing operations |
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$ |
0.21 |
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$ |
0.06 |
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$ |
0.63 |
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$ |
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Net income per share from discontinued operations |
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$ |
0.21 |
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$ |
0.06 |
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$ |
0.63 |
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$ |
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Net income per share from continuing operations diluted |
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$ |
0.20 |
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$ |
0.05 |
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$ |
0.60 |
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$ |
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Net income per share from discontinued operations diluted |
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$ |
0.20 |
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$ |
0.05 |
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$ |
0.60 |
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$ |
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Comprehensive income consists of: (note 14(b)) |
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Net income (loss) |
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$ |
13,302 |
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$ |
2,561 |
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$ |
39,883 |
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|
$ |
(80 |
) |
Amortization of prior service cost |
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27 |
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53 |
|
Amortization of actuarial gain on defined benefit plan |
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(124 |
) |
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(248 |
) |
Unrealized hedging gain (loss) (note 18(c)) |
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(387 |
) |
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|
1,312 |
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(179 |
) |
|
|
831 |
|
Realization of hedging gains upon settlement (note 18(c)) |
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7 |
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(398 |
) |
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(542 |
) |
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(313 |
) |
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Comprehensive income, net of income taxes |
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$ |
12,922 |
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$ |
3,378 |
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$ |
39,162 |
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$ |
243 |
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(the accompanying notes are an integral part of these condensed consolidated financial statements)
6
IMAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
In accordance with United States Generally Accepted Accounting Principles
(In thousands of U.S. dollars)
(Unaudited)
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Six Months |
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Ended June 30, |
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2010 |
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2009 |
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(note 19) |
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Cash provided by (used in): |
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Operating Activities |
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Net income (loss) |
|
$ |
39,883 |
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|
$ |
(80 |
) |
Net loss from discontinued operations |
|
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|
236 |
|
Items not involving cash: |
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Depreciation and amortization (note 12(c)) |
|
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10,696 |
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|
9,062 |
|
Write-downs, net of recoveries (note 12(d)) |
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|
578 |
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|
1,623 |
|
Change in deferred income taxes |
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|
121 |
|
Stock and other non-cash compensation |
|
|
6,050 |
|
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|
5,441 |
|
Foreign currency exchange (gain) loss |
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|
729 |
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|
(751 |
) |
Gain on repurchase of Senior Notes due December 2010 |
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(444 |
) |
Change in cash surrender value of life insurance |
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47 |
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(36 |
) |
Investment in film assets |
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(5,725 |
) |
|
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(4,990 |
) |
Changes in other non-cash operating assets and liabilities (note 12(a)) |
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(12,335 |
) |
|
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(8,040 |
) |
Net cash provided by operating activities from discontinued operations (note 19) |
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(155 |
) |
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|
Net cash provided by operating activities |
|
|
39,923 |
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|
1,987 |
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Investing Activities |
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Purchase of property, plant and equipment |
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(2,808 |
) |
|
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(506 |
) |
Investment in joint revenue sharing equipment |
|
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(2,325 |
) |
|
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(12,747 |
) |
Investment
in joint venture |
|
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(667 |
) |
|
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|
|
Cash surrender value of life insurance |
|
|
3,179 |
|
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|
|
Acquisition of other assets |
|
|
(39 |
) |
|
|
(374 |
) |
Acquisition of other intangible assets |
|
|
(298 |
) |
|
|
(190 |
) |
|
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|
|
Net cash used in investing activities |
|
|
(2,958 |
) |
|
|
(13,817 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
Repayment of bank indebtedness |
|
|
(25,208 |
) |
|
|
|
|
Repurchase of Senior Notes Due December 2010 |
|
|
|
|
|
|
(43,367 |
) |
Common shares issued public offerings, net of offering expenses paid |
|
|
|
|
|
|
76,755 |
|
Shelf registration fees paid |
|
|
|
|
|
|
(38 |
) |
Common shares issued stock options exercised (note 15(b)) |
|
|
5,057 |
|
|
|
969 |
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(20,151 |
) |
|
|
34,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of exchange rate changes on cash |
|
|
113 |
|
|
|
(506 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents during the period |
|
|
16,927 |
|
|
|
21,983 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period |
|
|
20,081 |
|
|
|
27,017 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
37,008 |
|
|
$ |
49,000 |
|
|
|
|
|
|
|
|
(the accompanying notes are an integral part of these condensed consolidated financial statements)
7
IMAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In accordance with U.S. Generally Accepted Accounting Principles
(Tabular amounts in thousands of U.S. dollars unless otherwise stated)
(Unaudited)
1. Basis of Presentation
IMAX Corporation, together with its wholly-owned subsidiaries (the Company), reports its
results under United States Generally Accepted Accounting Principles (U.S. GAAP).
The condensed consolidated financial statements include the accounts of the Company, except for
subsidiaries which the Company has identified as variable interest entities (VIEs) where the
Company is not the primary beneficiary. The nature of the Companys business is such that the
results of operations for the interim periods presented are not necessarily indicative of results
to be expected for the fiscal year. In the opinion of management, the information contained herein
reflects all adjustments necessary to make the results of operations for the interim periods a fair
statement of such operations.
The Company has evaluated its various variable interests to determine whether they are VIEs as
required by the Consolidation Topic of the Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC or Codification). The Company has 8 film production companies that
are VIEs. As the Company has the power to direct the activities of the VIE that most significantly
impact the VIEs economic performance and has the obligation to absorb losses of the VIE that could
potentially be significant to the VIE or the right to receive benefits from the VIE that could
potentially be significant to the VIE for 2 of the film production companies, the Company has
determined that it is the primary beneficiary of these entities. The Company continues to
consolidate these entities, with no material impact on the operating results or financial condition
of the Company, as these production companies have total assets and total liabilities of $nil as at
June 30, 2010 (December 31, 2009 less than $0.1 million). For the other 6 film production
companies which are VIEs, the Company did not consolidate these film entities since it does not
have the power to direct activities and does not absorb the majority of the expected losses or
expected residual returns. The Company equity accounts for these entities. As at June 30, 2010,
these 6 VIEs have total assets of $3.5 million (December 31, 2009 $3.8 million) and total
liabilities of $3.5 million (December 31, 2009 $3.8 million). Earnings of the investees included
in the Companys condensed consolidated statement of operations amounted to $nil for the three and
six months ended June 30, 2010, respectively (2009 $nil). The carrying value of these investments
in VIEs that are not consolidated is $nil at June 30, 2010 (December 31, 2009 $nil). A loss in
value of an investment other than a temporary decline is recognized as a charge to the condensed
consolidated statement of operations.
During the second quarter of 2010, the Company invested in an ownership interest in a new
business venture. The Company accounts for this investment using the cost method of accounting as
the Companys rights under the agreement or percentage of ownership currently do not grant it
significant influence over the ventures operations. The Company has determined it is not the
primary beneficiary of this VIE. The investment has been recorded at historical cost and has been
included in other assets. Any additional contributions will increase the investment cost and any
dividends or distributions received will reduce the investment cost. The Companys investments are
evaluated for impairment periodically and the investment cost will be adjusted accordingly if there
are indications that the possibility of recovery is doubtful. The carrying value of this investment
at June 30, 2010 is $0.7 million.
All significant intercompany accounts and transactions, including all unrealized intercompany
profits on transactions with equity-accounted investees, have been eliminated.
The year-end condensed consolidated balance sheet data was derived from audited financial
statements, but does not include all disclosures required by U.S. GAAP.
These interim financial statements should be read in conjunction with the consolidated
financial statements included in the Companys 2009 Annual Report on Form 10-K for the year ended
December 31, 2009 (the 2009 Form 10-K) which should be consulted for a summary of the significant
accounting policies utilized by the Company. These interim financial statements are prepared
following accounting policies consistent with the Companys financial statements for the year ended
December 31, 2009, except as noted below.
8
2. New Accounting Standards and Accounting Changes
Changes in Accounting Policies
In June 2009, the FASB issued Statement of Financial Accounting Standards No. 166, Accounting
for Transfers of Financial Assetsan amendment to FASB Statement No. 140 (SFAS 166). SFAS 166
amends FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities (SFAS 140) to improve the relevance, representational
faithfulness, and comparability of the information that a reporting entity provides in its
financial reports about a transfer of financial assets; the effects of a transfer on its financial
position, financial performance, and cash flows; and a transferors continuing involvement in
transferred financial assets. It also removes the concept of qualifying special-purpose entities
(SPEs) from SFAS 140 and removes the exception from applying FIN 46R to VIEs that are qualifying
SPEs. SFAS 166 applies to all entities and is effective for the first annual reporting period
beginning after November 15, 2009, for interim periods within that first annual reporting period,
and for interim and annual reporting periods thereafter, with earlier application prohibited. In
December 2009, the FASB issued ASU No. 2009-16, Accounting for Transfers of Financial Assets
(ASU 2009-16). The purpose of this ASU is to bring SFAS 166 into the Codification. The
application of ASU 2009-16 did not have a material impact on the Companys financial condition or
results of operations.
In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167, Amendments
to FASB Interpretation No. 46(R) (SFAS 167). SFAS 167 amends certain requirements of FIN 46R to
improve financial reporting by enterprises involved with VIEs and provides more relevant and
reliable information to users of financial statements. Specifically, SFAS 167 eliminates the
quantitative approach previously required under FIN 46R for determining the primary beneficiary of
a VIE. SFAS 167 has the same scope as FIN 46R, with the addition of entities previously considered
qualifying SPEs and is effective for the first annual reporting period beginning after November 15,
2009, for interim periods within that first annual reporting period, and for interim and annual
reporting periods thereafter, with earlier application prohibited. In December 2009, the FASB
issued ASU No. 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable
Interest Entities (ASU 2009-17). The purpose of this ASU is to bring SFAS 167 into the
Codification. The application of ASU 2009-17 did not have a material impact on the Companys
financial condition or results of operations.
In January 2010, the FASB issued ASU No. 2010-06, Improving Disclosures about Fair Value
Measurements, (ASU 2010-06) to amend topic ASC 820 Fair Value Measurements and Disclosures, by
improving disclosure requirements in order to increase transparency in financial reporting. ASU
2010-06 requires that an entity disclose separately the amounts of significant transfers in and out
of Level 1 and 2 fair value measurements and describe the reasons for the transfers. Furthermore,
an entity should present information about purchases, sales, issuances, and settlements for Level 3
fair value measurements. ASU 2010-06 also clarifies existing disclosures for the level of
disaggregation and disclosures about input and valuation techniques. The new disclosures and
clarifications of existing disclosures are effective for interim and annual reporting periods
beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances,
and settlements for the activity in Level 3 fair value measurements. Those disclosures are
effective for fiscal years beginning after December 15, 2010, and for interim periods within those
fiscal years. On January 1, 2010, the Company adopted the disclosure amendments in ASU 2010-06,
except for the amendments to Level 3 fair value measurements as described above, and has expanded
disclosures as presented in Note 18.
Recently Issued FASB Accounting Standard Codification Updates
In October 2009, the FASB issued ASU No. 2009-13, Revenue Recognition (Topic 605):
Multiple-Deliverable Revenue Arrangements (a consensus of the FASB Emerging Issues Task Force)
(ASU 2009-13) which amends ASC 605-25, Revenue Recognition: Multiple-Element Arrangements. ASU
2009-13 addresses how to determine whether an arrangement involving multiple deliverables contains
more than one unit of accounting and how to allocate consideration to each unit of accounting in
the arrangement. This ASU replaces all references to fair value as the measurement criteria with
the term selling price and establishes a hierarchy for determining the selling price of a
deliverable. ASU No. 2009-13 also eliminates the use of the residual value method for determining
the allocation of arrangement consideration. Additionally, ASU 2009-13 requires expanded
disclosures and is effective for fiscal years beginning on or after June 15, 2010. Earlier
application is permitted with required transition disclosures based on the period of adoption. The
Company is currently evaluating the potential impact of ASU 2009-13 on its condensed consolidated
financial statements.
In October 2009, the FASB issued ASU No. 2009-14, Software (Topic 985): Certain Revenue
Arrangements That Include Software Elements (a consensus of the FASB Emerging Issues Task Force)
(ASU 2009-14). ASU 2009-14 amends ASC 985-605, Software: Revenue Recognition, such that
tangible products, containing both software and non-software components that function
9
together to
deliver the tangible products essential functionality, are no longer within the scope of ASC
985-605. It also amends the determination of how arrangement consideration should be allocated to
deliverables in a multiple-deliverable revenue arrangement. The amendments in this update are
effective, on a prospective basis, for revenue arrangements entered into or materially modified in
fiscal years beginning on or after June 15, 2010. Earlier application is permitted with required
transition disclosures based on the period of adoption. Both ASU 2009-13 and ASU 2009-14 must be
adopted in the same period and must use the same transition disclosures. The Company is currently
evaluating the potential impact of this standard on its condensed consolidated financial
statements.
During 2010, the FASB has issued several ASUs ASU No. 2010-01 through ASU No. 2010-19.
Except for ASU No. 2010-06 discussed above, the ASUs entail technical
corrections to existing guidance or affect guidance related to specialized industries or entities
and therefore have minimal, if any, impact on the Company.
3. Financing Receivables
Financing receivables, consisting of net investment in sales-type leases and receivables from
financed sales of theater systems are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Gross minimum lease payments receivable |
|
$ |
56,500 |
|
|
$ |
64,779 |
|
Unearned finance income |
|
|
(15,540 |
) |
|
|
(18,939 |
) |
|
|
|
|
|
|
|
Minimum lease payments receivable |
|
|
40,960 |
|
|
|
45,840 |
|
Accumulated allowance for uncollectible amounts |
|
|
(6,089 |
) |
|
|
(5,734 |
) |
|
|
|
|
|
|
|
Net investment in leases |
|
|
34,871 |
|
|
|
40,106 |
|
|
|
|
|
|
|
|
Gross financed sales receivables |
|
|
41,540 |
|
|
|
32,526 |
|
Unearned finance income |
|
|
(13,009 |
) |
|
|
(9,869 |
) |
|
|
|
|
|
|
|
Financed sales receivables |
|
|
28,531 |
|
|
|
22,657 |
|
Accumulated allowance for uncollectible amounts |
|
|
(167 |
) |
|
|
(178 |
) |
|
|
|
|
|
|
|
Net financed sales receivables |
|
|
28,364 |
|
|
|
22,479 |
|
|
|
|
|
|
|
|
Total financing receivables |
|
$ |
63,235 |
|
|
$ |
62,585 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financed sales receivables due within one year |
|
$ |
3,399 |
|
|
$ |
4,304 |
|
Net financed sales receivables due after one year |
|
$ |
24,965 |
|
|
$ |
18,175 |
|
As at June 30, 2010, the financed sale receivables had a weighted average effective interest
rate of 9.3% (December 31, 2009 9.4%).
4. Inventories
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Raw materials |
|
$ |
5,033 |
|
|
$ |
4,045 |
|
Work-in-process |
|
|
1,329 |
|
|
|
983 |
|
Finished goods |
|
|
5,518 |
|
|
|
5,243 |
|
|
|
|
|
|
|
|
|
|
$ |
11,880 |
|
|
$ |
10,271 |
|
|
|
|
|
|
|
|
At June 30, 2010, finished goods inventory for which title had passed to the customer and
revenue was deferred amounted to $2.5 million (December 31, 2009 $1.6 million).
Inventories at June 30, 2010 include provisions for excess and obsolete inventory based upon
current estimates of net realizable value considering future events and conditions of $3.7 million
(December 31, 2009 $3.8 million).
10
5. Property, Plant and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at June 30, 2010 |
|
|
|
|
|
|
|
Accumulated |
|
|
Net Book |
|
|
|
Cost |
|
|
Depreciation |
|
|
Value |
|
Equipment leased or held for use |
|
|
|
|
|
|
|
|
|
|
|
|
Theater system components(1)(2) |
|
$ |
73,120 |
|
|
$ |
32,869 |
|
|
$ |
40,251 |
|
Camera equipment(5) |
|
|
6,355 |
|
|
|
5,968 |
|
|
|
387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,475 |
|
|
|
38,837 |
|
|
|
40,638 |
|
|
|
|
|
|
|
|
|
|
|
Assets under construction(3) |
|
|
5,652 |
|
|
|
|
|
|
|
5,652 |
|
|
|
|
|
|
|
|
|
|
|
Other property, plant and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
Land |
|
|
1,593 |
|
|
|
|
|
|
|
1,593 |
|
Buildings |
|
|
14,723 |
|
|
|
8,655 |
|
|
|
6,068 |
|
Office and production equipment(4) |
|
|
26,138 |
|
|
|
23,204 |
|
|
|
2,934 |
|
Leasehold improvements |
|
|
8,604 |
|
|
|
6,474 |
|
|
|
2,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,058 |
|
|
|
38,333 |
|
|
|
12,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
136,185 |
|
|
$ |
77,170 |
|
|
$ |
59,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2009 |
|
|
|
|
|
|
|
Accumulated |
|
|
Net Book |
|
|
|
Cost |
|
|
Depreciation |
|
|
Value |
|
Equipment leased or held for use |
|
|
|
|
|
|
|
|
|
|
|
|
Theater system components(1)(2) |
|
$ |
68,349 |
|
|
$ |
30,240 |
|
|
$ |
38,109 |
|
Camera equipment(5) |
|
|
5,954 |
|
|
|
5,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,303 |
|
|
|
36,194 |
|
|
|
38,109 |
|
|
|
|
|
|
|
|
|
|
|
Assets under construction(3) |
|
|
3,700 |
|
|
|
|
|
|
|
3,700 |
|
|
|
|
|
|
|
|
|
|
|
Other property, plant and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
Land |
|
|
1,593 |
|
|
|
|
|
|
|
1,593 |
|
Buildings |
|
|
14,723 |
|
|
|
8,404 |
|
|
|
6,319 |
|
Office and production equipment(4) |
|
|
27,145 |
|
|
|
24,347 |
|
|
|
2,798 |
|
Leasehold improvements |
|
|
8,421 |
|
|
|
6,120 |
|
|
|
2,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,882 |
|
|
|
38,871 |
|
|
|
13,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
129,885 |
|
|
$ |
75,065 |
|
|
$ |
54,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included in theater system components are assets with costs of $21.1 million (December 31,
2009 $21.3 million) and accumulated depreciation of $20.0 million (December 31, 2009
$20.2 million) that are leased to customers under operating leases. |
|
(2) |
|
Included in theater system components are assets with costs of $47.7 million (December 31,
2009 $42.7 million) and accumulated depreciation of $9.5 million (December 31, 2009
$6.7 million) that are used in joint revenue sharing arrangements. |
|
(3) |
|
Included in assets under construction are components with costs of $4.3 million (December 31,
2009 $3.1 million) that will be utilized to construct assets to be used in joint revenue
sharing arrangements. |
|
(4) |
|
Included in office and production equipment are assets under capital lease with costs of $1.5
(December 31, 2009 $1.5 million) and accumulated depreciation of $1.4 (December 31, 2009
$1.3 million). |
|
(5) |
|
Included in camera equipment is fully amortized equipment still in use by the Company. |
11
6. Other Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at June 30, 2010 |
|
|
|
|
|
|
|
Accumulated |
|
|
Net Book |
|
|
|
Cost |
|
|
Amortization |
|
|
Value |
|
Patents and trademarks |
|
$ |
6,830 |
|
|
$ |
4,664 |
|
|
$ |
2,166 |
|
Intellectual property rights |
|
|
100 |
|
|
|
54 |
|
|
|
46 |
|
Other |
|
|
250 |
|
|
|
250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,180 |
|
|
$ |
4,968 |
|
|
$ |
2,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2009 |
|
|
|
|
|
|
|
Accumulated |
|
|
Net Book |
|
|
|
Cost |
|
|
Amortization |
|
|
Value |
|
Patents and trademarks |
|
$ |
6,543 |
|
|
$ |
4,452 |
|
|
$ |
2,091 |
|
Intellectual property rights |
|
|
100 |
|
|
|
49 |
|
|
|
51 |
|
Other |
|
|
250 |
|
|
|
250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,893 |
|
|
$ |
4,751 |
|
|
$ |
2,142 |
|
|
|
|
|
|
|
|
|
|
|
The Company expects to amortize approximately $0.2 million of other intangible assets for the
remainder of 2010 and $0.3 million for each of the next 5 years, respectively. Fully amortized
other intangible assets are still in use by the Company.
During the six months ended June 30, 2010, the Company acquired $0.3 million in patents and
trademarks. The residual value of these patents and trademarks was $0.3 million as at June 30,
2010. The weighted average amortization period for these additions was 10 years.
During the three and six months ended June 30, 2010, the Company did not incur costs to renew
or extend the term of acquired other intangible assets.
7. Senior Notes due December 2010
As at June 30, 2009, the Company had outstanding $115.7 million in principal amount of Senior
Notes due December 1, 2010 (the Senior Notes). During the remainder of 2009, the Company
repurchased all $160.0 million aggregate principal amount outstanding.
On June 9, 2009, the Company entered into an agreement with funds managed by Plainfield Asset
Management LLC (collectively, Plainfield), pursuant to which the Company repurchased
$44.3 million aggregate principal amount of the Companys 9.625% Senior Notes from Plainfield at a
price of $977.50 per $1,000 principal amount of Senior Notes. The Company paid cash to Plainfield
and as a result, reacquired its bonds, thereby releasing the Company from further obligations to
Plainfield under the indenture governing the Senior Notes. The Company accounted for the bond
repurchase in accordance with Accounting Principles Board Opinion No. 26 Early Extinguishment of
Debt, whereby the net carrying amount of the debt extinguished was the face value of the bonds
($44.3 million) adjusted for any unamortized premium, discount and costs of issuance, which
resulted in a gain of $0.4 million in the three and six month periods ended June 30, 2009.
The Senior Notes bore interest at a rate of 9.625% per annum and were unsecured obligations
that ranked equally with all of the Companys existing and future senior indebtedness and senior to
all of the Companys existing and future subordinated indebtedness. The payment of principal,
premium, if any, and interest on the Senior Notes was unconditionally guaranteed, jointly and
severally, by certain of the Companys wholly-owned subsidiaries. Interest was paid on a
semi-annual basis on June 1 and December 1. The Senior Notes were subject to redemption for cash by
the Company, in whole or in part, from July 1, 2009 to November 30, 2009 at 102.406%, together with
accrued and unpaid interest thereon to the redemption date. Beginning December 1, 2009, and
thereafter, the Senior Notes would have been redeemable by the Company at 100.000%, together with
accrued and unpaid interest thereon to the redemption date. If certain changes were to result in
the imposition of withholding taxes under Canadian law, the Senior Notes were subject to redemption
at the Companys option, in whole but not in part, at a redemption price of 100% of the principal
amount thereof plus accrued and unpaid interest to the date of redemption.
12
The terms of the Companys Senior Notes imposed certain restrictions on its operating and
financing activities, including certain restrictions on the Companys ability to: incur certain
additional indebtedness; make certain distributions or certain other restricted payments; grant
liens; make certain dividends and other payment restrictions affecting the Companys subsidiaries;
sell certain assets or merge with or into other companies; and enter into certain transactions with
affiliates.
8. Credit Facility
On November 16, 2009, the Company amended and restated the terms of its senior secured credit
facility, which had been scheduled to mature on October 31, 2010. The amended and restated facility
(the Credit Facility), with a scheduled maturity of October 31, 2013, has a maximum borrowing
capacity of $75.0 million, consisting of revolving loans subject to a borrowing base calculation
(as described below) of up to $40.0 million, including a sublimit of $20.0 million for letters of
credit and a term loan of $35.0 million. Certain of the Companys subsidiaries serve as guarantors
(the Guarantors) of the Companys obligations under the Credit Facility. The Credit Facility is
collateralized by a first priority security interest in all of the present and future assets of the
Company and the Guarantors.
The terms of the Credit Facility are set forth in the Amended and Restated Credit Agreement
(the Credit Agreement), dated November 16, 2009, between the Company; Wells Fargo Capital Finance
Corporation Canada (formerly Wachovia Capital Finance Corporation (Canada)), as agent, lender, sole
lead arranger and sole bookrunner (Wells Fargo); and Export Development Canada, as lender (EDC,
together with Wells Fargo, the Lenders) and in various collateral and security documents entered
into by the Company and the Guarantors. Each of the Guarantors has also entered into a guarantee in
respect of the Companys obligations under the Credit Facility.
The revolving portion of the Credit Facility permits maximum aggregate borrowings equal to the
lesser of:
(i) $40.0 million, and
(ii) a collateral calculation based on the percentages of the book values of the Companys net
investment in sales-type leases, financing receivables, certain trade accounts receivable, finished
goods inventory allocated to backlog contracts and the appraised values of the expected future cash
flows related to operating leases and the Companys owned real property, reduced by certain
accruals and accounts payable and subject to other conditions, limitations and reserve right
requirements. It is also reduced by the settlement risk on its foreign currency forward contracts
when the notional value exceeds the fair value of the forward contracts.
The revolving portion of the Credit Facility bears interest at either (i) LIBOR plus a margin
of 2.75% per annum, or (ii) Wells Fargos prime rate plus a margin of 1.25% per annum, at the
Companys option. The term loan portion of the Credit Facility bears interest at the Companys
option, at either (i) LIBOR plus a margin of 3.75% per annum, or (ii) Wells Fargos prime rate plus
a margin of 2.25% per annum. Under the Credit Facility, the effective interest rate for the three
and six months ended June 30, 2010 for the term loan portion was 4.04% and 4.03%, respectively
(2009 n/a) and 4.50% and 3.56%, respectively for the revolving portion (2009 2.16% and
2.22%).
The Credit Facility provides that so long as the term loan remains outstanding, the Company
will be required to maintain: (i) a ratio of funded debt (as defined in the Credit Agreement) to
EBITDA (as defined in the Credit Agreement) of not more than 2:1 through December 31, 2010, and
(ii) a ratio of funded debt to EBITDA of not more than 1.75:1 thereafter. If the Company repays the
term loan in full, it will remain subject to such ratio requirements only if Excess Availability
(as defined in the Credit Agreement) is less than $10.0 million or Cash and Excess Availability (as
defined in the Credit Agreement) is less than $15.0 million. The Company will also be required to
maintain a Fixed Charge Coverage Ratio (as defined in the Credit Agreement) of not less than
1.1:1.0; provided, however, that if the Company repays the term loan in full, it will remain
subject to such ratio requirement only if Excess Availability is less than $10.0 million or Cash
and Excess Availability is less than $15.0 million. At all times, under the terms of the Credit
Facility, the Company is required to maintain minimum Excess Availability of not less than
$5.0 million and minimum Cash and Excess Availability of not less than $15.0 million. These amounts
were $45.0 million and $82.0 million at June 30, 2010 respectively. The Company was in compliance
with all of these requirements at June 30, 2010.
The Credit Facility contains typical affirmative and negative covenants, including covenants
that limit or restrict the ability of the Company and the Guarantors to: incur certain additional
indebtedness; make certain loans, investments or guarantees; pay dividends; make certain asset
sales; incur certain liens or other encumbrances; conduct certain transactions with affiliates and
enter into certain corporate transactions.
13
The Credit Facility also contains customary events of default, including upon an acquisition
or change of control or upon a change in the business and assets of the Company or a Guarantor that
in each case is reasonably expected to have a material adverse effect on the Company or Guarantor.
If an event of default occurs and is continuing under the Credit Facility, the Lenders may, among
other things, terminate their commitments and require immediate repayment of all amounts owed by
the Company.
Bank indebtedness includes the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Term Loan |
|
$ |
24,792 |
|
|
$ |
35,000 |
|
Revolving Credit Facility |
|
|
|
|
|
|
15,000 |
|
|
|
|
|
|
|
|
|
|
$ |
24,792 |
|
|
$ |
50,000 |
|
|
|
|
|
|
|
|
During 2010, the Company repaid $15.0 million of its remaining outstanding indebtedness under
the revolving portion of the Credit Facility and $10.2 million of its term loan. Total amounts
drawn and available under the Credit Facility at June 30, 2010 were $24.8 million and
$40.0 million, respectively (December 31, 2009 were $50.0 million and $24.8 million, respectively).
As at June 30, 2010, the Companys current borrowing capacity under the revolving portion of
the Credit Facility was $40.0 million after deduction for the minimum Excess Availability reserve
of $5.0 million. Outstanding borrowings and letters of credit and advance payment guarantees were
$nil as at June 30, 2010. As at December 31, 2009, the borrowing capacity was $24.8 million after
deduction for outstanding borrowings of $15.0 million, letters of credit and advanced payment
guarantees of $0.3 million and the minimum Excess Availability reserve of $5.0 million.
In accordance with the loan agreement, the Company is obligated to make payments on the
principal of the term loan as follows:
|
|
|
|
|
2010 (six months remaining) |
|
$ |
1,459 |
|
2011 |
|
|
17,500 |
|
2012 |
|
|
5,833 |
|
2013 |
|
|
|
|
2014 |
|
|
|
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
$ |
24,792 |
|
|
|
|
|
Wells Fargo Foreign Exchange Facility
Within the Credit Facility entered into on November 16, 2009, the Company has a $10.0 million
sublimit to cover the Companys settlement risk on its purchased foreign currency forward contracts
and/or other swap arrangements as defined in the Credit Facility. The settlement risk on its
foreign currency forward contracts was $0.6 million at June 30, 2010 as the notional value exceeded
the fair value of the forward contracts. The Company can enter into such arrangements up to a
notional amount of $50.0 million, of which $18.2 million is remaining.
Bank of Montreal Facilities
At June 30, 2010, the Company has available a $10.0 million facility (December 31, 2009
$10.0 million) with the Bank of Montreal for use solely in conjunction with the issuance of
performance guarantees and letters of credit fully insured by EDC (the Bank of Montreal
Facility). As at June 30, 2010, the Company has letters of credit outstanding of $4.2 million as
compared to $3.6 million as at December 31, 2009 under the Bank of Montreal Facility.
During 2009, the Company had available a $5.0 million facility solely used to cover the
Companys settlement risk on its purchased foreign currency forward contracts entered into prior to
December 2009. The facility was fully insured by EDC. As at June 30, 2010, all of the foreign
currency contracts subject to the $5.0 million facility have matured and the facility is no longer
available to the Company. The settlement risk on its foreign currency forward contracts was $nil on
December 31, 2009 as the fair value exceeded the notional value of the forward contracts.
14
9. Commitments
(a) The Companys lease commitments consist of rent and equipment under operating leases. The
Company accounts for any incentives provided by amortizing the benefit straight-line over the
remaining term of the lease. Total minimum annual rental payments to be made by the Company under
operating leases as at June 30, 2010 for each of the years ended December 31, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
|
|
|
|
Leases |
|
|
Capital Leases |
|
2010 (six months remaining) |
|
$ |
3,097 |
|
|
$ |
32 |
|
2011 |
|
|
5,922 |
|
|
|
26 |
|
2012 |
|
|
5,566 |
|
|
|
22 |
|
2013 |
|
|
2,075 |
|
|
|
20 |
|
2014 |
|
|
869 |
|
|
|
|
|
Thereafter |
|
|
2,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
19,777 |
|
|
$ |
100 |
|
|
|
|
|
|
|
|
Rent expense was $1.2 million and $2.3 million for three and six months ended June 30, 2010,
respectively (2009 $1.3 million and $2.6 million, respectively) net of sublease rental of
$0.1 million and $0.2 million, respectively (2009 $0.1 million and $0.2 million, respectively).
Recorded in the accrued liabilities balance as at June 30, 2010 is $4.4 million (December 31,
2009 $5.0 million) related to accrued rent and lease inducements being recognized as an offset to
rent expense over the term of the lease.
Purchase obligations under long-term supplier contracts as at June 30, 2010 were $13.5 million
(December 31, 2009 $9.3 million).
(b) As at June 30, 2010, the Company has letters of credit and advance payment guarantees
secured by the Credit Facility of $nil (December 31, 2009 $0.3 million) outstanding. As at
June 30, 2010, the Company also has letters of credit outstanding of $4.2 million as compared to
$3.6 million as at December 31, 2009, under the Bank of Montreal Facility.
(c) The Company compensates its sales force with both fixed and variable compensation.
Commissions on the sale or lease of the Companys theater systems are payable in graduated amounts
from the time of collection of the customers first payment to the Company up to the collection of
the customers last initial payment. At June 30, 2010, $1.2 million (December 31,
2009 $0.7 million) of commissions have been accrued and will be payable in future periods.
10. Contingencies and Guarantees
The Company is involved in lawsuits, claims, and proceedings, including those identified
below, which arise in the ordinary course of business. In accordance with the Contingencies Topic
of the FASB ASC, the Company will make a provision for a liability when it is both probable that a
loss has been incurred and the amount of the loss can be reasonably estimated. The Company believes
it has adequate provisions for any such matters. The Company reviews these provisions in
conjunction with any related provisions on assets related to the claims at least quarterly and
adjusts these provisions to reflect the impacts of negotiations, settlements, rulings, advice of
legal counsel and other pertinent information related to the case. Should developments in any of
these matters outlined below cause a change in the Companys determination as to an unfavorable
outcome and result in the need to recognize a material provision, or, should any of these matters
result in a final adverse judgment or be settled for significant amounts, they could have a
material adverse effect on the Companys results of operations, cash flows, and financial position
in the period or periods in which such a change in determination, settlement or judgment occurs.
The Company expenses legal costs relating to its lawsuits, claims and proceedings as incurred.
(a) In March 2005, the Company, together with Three-Dimensional Media Group, Ltd. (3DMG),
filed a complaint in the U.S. District Court for the Central District of California, Western
Division, against In-Three, Inc. (In-Three) alleging patent infringement. On March 10, 2006, the
Company and In-Three entered into a settlement agreement settling the dispute between the Company
and In-Three. Despite the settlement reached between the Company and In-Three, co-plaintiff 3DMG
refused to dismiss its
15
claims against In-Three. Accordingly, the Company and In-Three moved jointly
for a motion to dismiss In-Threes claims. On July 8, 2010, the Court denied the joint motion to
dismiss. On May 15, 2006, the Company initiated arbitration against 3DMG before the International
Centre for Dispute Resolution in New York (ICDR), alleging breaches of the license and consulting
agreements between the Company and 3DMG. On June 15, 2006, 3DMG filed an answer denying any
breaches and asserting counterclaims that the Company breached the parties license agreement. On
June 21, 2007, the Arbitration Panel unanimously denied 3DMGs Motion for Summary Judgment filed on
April 11, 2007 concerning the Companys claims and 3DMGs counterclaims. The proceeding was
suspended on May 4, 2009 due to failure of 3DMG to pay fees associated with the proceeding. The
Company will continue to pursue its claims vigorously and believes that all allegations made by
3DMG are without merit. The Company further believes that the amount of loss, if any, suffered in
connection with the counterclaims would not have a material impact on the financial position or
results of operations of the Company, although no assurance can be given with respect to the
ultimate outcome of the arbitration.
(b) In January 2004, the Company and IMAX Theatre Services Ltd., a subsidiary of the Company,
commenced an arbitration seeking damages before the International Court of Arbitration of the
International Chambers of Commerce (the ICC) with respect to the breach by Electronic Media
Limited (EML) of its December 2000 agreement with the Company. In June 2004, the Company
commenced a related arbitration before the ICC against EMLs affiliate, E-CITI Entertainment
(I) PVT Limited (E-Citi), seeking damages as a result of E-Citis breach of a September 2000
lease agreement. An arbitration hearing took place in November 2005 against E-Citi which considered
all claims by the Company. On February 1, 2006, the ICC issued an award on liability finding
unanimously in the Companys favor on all claims. Further hearings took place in July 2006 and
December 2006. On August 24, 2007, the ICC issued an award unanimously in favor of the Company in
the amount of $9.4 million, consisting of past and future rents owed to the Company under its lease
agreements, plus interest and costs. In the award, the ICC upheld the validity and enforceability
of the Companys theater system contract. The Company thereafter submitted its application to the
arbitration panel for interest and costs. On March 27, 2008, the Panel issued a final award in
favor of the Company in the amount of $11,309,496, plus an additional $2,512 each day in interest
from October 1, 2007 until the date the award is paid, which the Company is seeking to enforce and
collect in full.
(c) In June 2004, Robots of Mars, Inc. (Robots) initiated an arbitration proceeding against
the Company in California with the American Arbitration Association pursuant to arbitration
provisions in two film production agreements between Robots predecessor-in-interest and a
subsidiary of the Company (Ridefilm), asserting claims for breach of contract, fraud, breach of
fiduciary duty and intentional interference with the contract. Robots is seeking an award of
contingent compensation that it claims is owed under two production agreements, damages for tort
claims, and punitive damages. The arbitration hearing of this matter occurred in June and October
2009. The parties are currently awaiting a final award from the arbitrator. The Company believes
the amount of loss, if any, that may be suffered in connection with this proceeding will not have a
material impact on the financial position or results of operations of the Company, although no
assurance can be given with respect to the ultimate outcome of such arbitration.
(d) The Company and certain of its officers and directors were named as defendants in eight
purported class action lawsuits filed between August 11, 2006 and September 18, 2006, alleging
violations of U.S. federal securities laws. These eight actions were filed in the U.S. District
Court for the Southern District of New York. On January 18, 2007, the Court consolidated all eight
class action lawsuits and appointed Westchester Capital Management, Inc. as the lead plaintiff and
Abbey Spanier Rodd & Abrams, LLP as lead plaintiffs counsel. On October 2, 2007, plaintiffs filed
a consolidated amended class action complaint. The amended complaint, brought on behalf of
shareholders who purchased the Companys common stock between February 27, 2003 and July 20, 2007,
alleges primarily that the defendants engaged in securities fraud by disseminating materially false
and misleading statements during the class period regarding the Companys revenue recognition of
theater system installations, and failing to disclose material information concerning the Companys
revenue recognition practices. The amended complaint also added PricewaterhouseCoopers LLP, the
Companys auditors, as a defendant. The lawsuit seeks unspecified compensatory damages, costs, and
expenses. The defendants filed a motion to dismiss the amended complaint on December 10, 2007. On
September 16, 2008, the Court issued a memorandum opinion and order, denying the motion. On
October 6, 2008, the defendants filed an answer to the amended complaint. On October 31, 2008, the
plaintiffs filed a motion for class certification. Fact discovery on the merits commenced on
November 14, 2008 and is ongoing. On March 13, 2009, the Court granted a second prospective lead
plaintiffs request to file a motion for reconsideration of the Courts order naming Westchester
Capital Management, Inc. as the lead plaintiff and issued an order denying without prejudice
plaintiffs class certification motion pending resolution of the motion for reconsideration. On
June 29, 2009, the Court granted the motion for reconsideration and appointed Snow Capital
Investment Partners, L.P. as the lead plaintiff and Coughlin Stoia Geller Rudman & Robbins LLP as
lead plaintiffs counsel. Westchester Capital Management, Inc. appealed this decision, but the U.S.
Court of Appeals for the Second Circuit denied its petition on October 1, 2009. On April 22, 2010,
the new lead plaintiff filed its motion for class certification, and defendants filed their
oppositions to the motion on June 10, 2010. The lawsuit is at an early stage and as a result the
Company is not able to estimate a potential loss exposure at this time. The Company will vigorously
defend the matter, although no assurances can be given with respect to the outcome of such
proceedings. The Companys directors and officers
16
insurance policy provides for reimbursement of
costs and expenses incurred in connection with this lawsuit as well as potential damages awarded,
if any, subject to certain policy limits and deductibles.
(e) A class action lawsuit was filed on September 20, 2006 in the Ontario Superior Court of
Justice against the Company and certain of its officers and directors, alleging violations of
Canadian securities laws. This lawsuit was brought on behalf of shareholders who acquired the
Companys securities between February 17, 2006 and August 9, 2006. The lawsuit is in an early
procedural stage and seeks unspecified compensatory and punitive damages, as well as costs and
expenses. As a result, the Company is unable to estimate a potential loss exposure at this time.
For reasons released December 14, 2009, the Court granted leave to the Plaintiffs to amend their
statement of claim to plead certain claims pursuant to the Securities Act (Ontario) against the
Company and certain individuals and granted certification of the action as a class proceeding.
These are procedural decisions, and do not contain any binding conclusions on the factual or legal
merits of the claim. The Company has commenced certain appeal proceedings with respect to each of
the Courts decisions and it is not known when the Ontario court will render decisions on those
appeal proceedings. The Company believes the allegations made against it in the statement of claim
are meritless and will vigorously defend the matter, although no assurance can be given with
respect to the ultimate outcome of such proceedings. The Companys directors and officers insurance
policy provides for reimbursement of costs and expenses incurred in connection with this lawsuit as
well as potential damages awarded, if any, subject to certain policy limits and deductibles.
(f) On September 7, 2007, Catalyst Fund Limited Partnership II (Catalyst), a holder of the
Companys Senior Notes, commenced an application against the Company in the Ontario Superior Court
of Justice for a declaration of oppression pursuant to sections 229 and 241 of the Canada Business
Corporations Act (CBCA) and for a declaration that the Company is in default of the Indenture
governing its now retired Senior Notes. In its application against the Company, Catalyst challenged
the validity of the consent solicitation through which the Company requested and obtained a waiver
of any and all defaults arising from a failure to comply with the reporting covenant under the
Indenture and alleged common law fraud. On September 26, 2008, on the Companys motion, the Ontario
Superior Court stayed Catalysts application in Canada on the basis of Catalyst having brought
similar claims against the Company in the State of New York, and ordered Catalyst to pay the
Companys costs associated with the motion. On April 27, 2009, the Supreme Court of the State of
New York disposed of Catalysts claims against the Company in the State of New York (see note 10(g)
for additional information). The time for Catalyst to appeal the dismissal of its claim by the New
York court expired on February 8, 2010, without Catalyst perfecting an appeal.
(g) In a related matter, on December 21, 2007, U.S. Bank National Association, trustee under
the Indenture, filed a complaint in the Supreme Court of the State of New York against the Company
and Catalyst, requesting a declaration that the theory of default asserted by Catalyst before the
Ontario Superior Court of Justice is without merit and further that Catalyst has failed to satisfy
certain prerequisites to bondholder action, which are contained in the Indenture (the U.S. Bank
Action). On February 22, 2008, Catalyst served a Verified Answer to the U.S. Bank Action and filed
several cross-claims (the Cross-Claims) against the Company in the same proceeding. On
January 16, 2009, the Company moved for summary judgment, seeking a ruling that the Company
satisfies the terms of the declaratory relief requested by the Trustee and the dismissal of the
Cross-Claims. On April 27, 2009, the Court granted the Companys motion for summary judgment,
disposing of the Cross-Claims. On May 7, 2009, Catalyst filed a notice preserving for a period of
nine months its right to appeal the Courts ruling on summary judgment. The time for Catalyst to
perfect its appeal has now expired.
(h) On November 4, 2009, Cinemark USA, Inc. (Cinemark) filed a complaint in the United
States District Court for the Eastern District of Texas against the Company seeking a declaratory
judgment that Cinemark is not infringing certain of the Companys patents related to theater
geometry and that such patents are invalid. The complaint does not set forth a claim by Cinemark
for monetary damages against the Company. The Company filed an answer to Cinemarks complaint on
January 8, 2010. The lawsuit is at an early stage and as a result the Company is unable to predict
its outcome at this time. The Company will vigorously defend any and all challenges to its patents
and other intellectual property rights.
(i) On December 12, 2009, the Company filed a complaint in the Supreme Court of New York
against Cinemark alleging breach of contract, fraud, tortious interference with existing and
prospective economic relations, breach of the implied warranty of good faith and fair dealing,
misappropriation of trade secrets, unjust enrichment and deliberate acts of bad faith in connection
with the introduction and operation of a new Cinemark theater prototype. The lawsuit has since been
removed to federal court in New York and the tort claims have been dismissed without prejudice to
the Companys right to replead those claims. The Company seeks unspecified damages from Cinemark on
its breach of contract claims. The lawsuit is at a very early stage and no assurances can be given
with respect to the ultimate outcome of the suit.
17
(j) In November 2009, the Company filed suit against Sanborn Theatres (Sanborn) in the
United States District Court for the Central District of California alleging breach of Sanborns
agreement to make payments for the purchase of two IMAX theater systems from the Company and
seeking $1.7 million in compensatory damages. After granting Sanborn notice of default in
connection with the failure to make required payments under the agreement and upon Sanborns
failure to cure, IMAX terminated its agreement with Sanborn. On April 8, 2010, Sanborn filed suit
against the Company and AMC Entertainment Inc. (AMC) and Regal Cinemas, Inc. (Regal) in
California Superior Court alleging breach of contract, fraud and unfair competition against the
Company and alleging intentional interference with contractual relations against AMC and Regal. The
lawsuits are at early stages and as a result the Company is not able to estimate a potential loss
exposure, if any, at this time. The Company will vigorously prosecute its claims and defenses in
both matters, although no assurances can be given with respect to the outcome of such proceedings.
(k) Since June 2006, the Company has been subject to ongoing informal inquiries by the SEC and
the OSC. The Company has been cooperating with these inquiries and believes that they principally
relate to the timing of recognition of the Companys theater system installation revenue in 2005
and related matters. Although the Company cannot predict the timing of developments and outcomes in
these inquiries, they could result at any time in developments (including charges or settlement of
charges) that could have material adverse effects on the Company. These effects could include
payments of fines or disgorgement or other relief with respect to the Company or its officers or
employees that could be material to the Company. Such developments could also have an adverse
effect on the Companys defense of the class action lawsuits referred to above.
(l) In addition to the matters described above, the Company is currently involved in other
legal proceedings which, in the opinion of the Companys management, will not materially affect the
Companys financial position or future operating results, although no assurance can be given with
respect to the ultimate outcome of any such proceedings.
(m) In the normal course of business, the Company enters into agreements that may contain
features that meet the definition of a guarantee. The Guarantees Topic of the FASB ASC defines a
guarantee to be a contract (including an indemnity) that contingently requires the Company to make
payments (either in cash, financial instruments, other assets, shares of its stock or provision of
services) to a third party based on (a) changes in an underlying interest rate, foreign exchange
rate, equity or commodity instrument, index or other variable, that is related to an asset, a
liability or an equity security of the counterparty, (b) failure of another party to perform under
an obligating agreement or (c) failure of another third party to pay its indebtedness when due.
Financial Guarantees
The Company has provided no significant financial guarantees to third parties.
Product Warranties
The following summarizes the accrual for product warranties that was recorded as part of
accrued liabilities in the condensed consolidated balance sheets:
18
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Balance at the beginning of period |
|
$ |
36 |
|
|
$ |
33 |
|
Warranty expenses |
|
|
(65 |
) |
|
|
(41 |
) |
Warranties issued |
|
|
80 |
|
|
|
115 |
|
Revisions |
|
|
|
|
|
|
(71 |
) |
|
|
|
|
|
|
|
Balance at the end of period |
|
$ |
51 |
|
|
$ |
36 |
|
|
|
|
|
|
|
|
Director/Officer Indemnifications
The Companys General By-law contains an indemnification of its directors/officers, former
directors/officers and persons who have acted at its request to be a director/officer of an entity
in which the Company is a shareholder or creditor, to indemnify them, to the extent permitted by
the Canada Business Corporations Act, against expenses (including legal fees), judgments, fines and
any amount actually and reasonably incurred by them in connection with any action, suit or
proceeding in which the directors and/or officers are sued as a result of their service, if they
acted honestly and in good faith with a view to the best interests of the Company. The nature of
the indemnification prevents the Company from making a reasonable estimate of the maximum potential
amount it could be required to pay to counterparties. The Company has purchased directors and
officers liability insurance. No amount has been accrued in the condensed consolidated balance
sheets as at June 30, 2010 and December 31, 2009 with respect to this indemnity.
Other Indemnification Agreements
In the normal course of the Companys operations, the Company provides indemnifications to
counterparties in transactions such as: theater system lease and sale agreements and the
supervision of installation or servicing of the theater systems; film production, exhibition and
distribution agreements; real property lease agreements; and employment agreements. These
indemnification agreements require the Company to compensate the counterparties for costs incurred
as a result of litigation claims that may be suffered by the counterparty as a consequence of the
transaction or the Companys breach or non-performance under these agreements. While the terms of
these indemnification agreements vary based upon the contract, they normally extend for the life of
the agreements. A small number of agreements do not provide for any limit on the maximum potential
amount of indemnification; however, virtually all of the Companys system lease and sale agreements
limit such maximum potential liability to the purchase price of the system. The fact that the
maximum potential amount of indemnification required by the Company is not specified in some cases
prevents the Company from making a reasonable estimate of the maximum potential amount it could be
required to pay to counterparties. During the second quarter of 2009, the Company provided an
indemnity to a third party in connection with a terminated service arrangement. Historically, the
Company has not made any significant payments under such indemnifications and less than
$0.1 million has been accrued in the condensed consolidated financial statements with respect to
the contingent aspect of these indemnities.
11. Condensed Consolidated Statements of Operations Supplemental Information
(a) Selling Expenses
The Company defers direct selling costs such as sales commissions and other amounts related to
its sale and sales-type lease arrangements until the related revenue is recognized. These costs,
included in costs and expenses applicable to revenues-equipment and product sales, totaled
$0.4 million and $0.6 million for the three and six months ended June 30, 2010, respectively
(2009 $0.3 million and $0.6 million, respectively).
Film exploitation costs, including advertising and marketing, totaled $0.5 million and
$1.1 million for the three and six months ended June 30, 2010, respectively (2009 $0.5 million
and $1.1 million, respectively) and are recorded in costs and expenses applicable to
revenues-services as incurred.
Commissions are recognized as costs and expenses applicable to revenues-rentals in the month
they are earned. These costs totaled $0.4 million and $0.8 million for the three and six months
ended June 30, 2010, respectively (2009 $0.6 million and $1.0 million, respectively). Direct
advertising and marketing costs for each theater are charged to costs and expenses applicable to
revenues-rental as incurred. These costs totaled $0.2 million and $0.4 million for the three and
six months ended June 30, 2010, respectively (2009 $0.9 million and $1.2 million, respectively).
19
(b) Foreign Exchange
Included in selling, general and administrative expenses for the three and six months ended
June 30, 2010 is a $0.9 million and $0.6 million loss, respectively, for net foreign exchange losses related to the translation of foreign currency denominated monetary assets and
liabilities and foreign exchange contracts compared with a translation gain of $2.5 million and
$1.3 million for the three and six months ended June 30, 2009, respectively. See note 18(c) for
additional information.
(c) Collaborative Arrangements
Joint Revenue Sharing Arrangements
In a joint revenue sharing arrangement, the Company receives a portion of a theaters
box-office and concession revenues in exchange for placing a theater system at the theater
operators venue. Under joint revenue sharing arrangements, the customer has the ability and the
right to operate the hardware components or direct others to operate them in a manner determined by
the customer. The Companys joint revenue sharing arrangements are typically non-cancellable for 7
to 10 years with renewal provisions. Title to equipment under joint revenue sharing arrangements
does not transfer to the customer. The Companys joint revenue sharing arrangements do not contain
a guarantee of residual value at the end of the term. The customer is required to pay for executory
costs such as insurance and taxes and is required to pay the Company for maintenance and extended
warranty throughout the term. The customer is responsible for obtaining insurance coverage for the
theater systems commencing on the date specified in the arrangements shipping terms and ending on
the date the theater systems are delivered back to the Company.
The Company has signed joint revenue sharing agreements with 10 exhibitors for a total of
196 theater systems, of which 126 theaters were operating as of June 30, 2010, the terms of which
are similar in nature, rights and obligations. The accounting policy for the Companys joint
revenue sharing arrangements is disclosed in note 2(n) of the Companys 2009 Form 10-K.
Amounts attributable to transactions arising between the Company and its customers under joint
revenue sharing arrangements are included in Rentals revenue and for the three and six months ended
June 30, 2010 amounted to $8.5 million and $27.4 million, respectively (2009 $7.2 million and
$9.1 million, respectively).
IMAX DMR
In an IMAX DMR arrangement, the Company transforms conventional motion pictures into the
Companys large screen format, allowing the release of Hollywood content to the IMAX theater
network. In a typical IMAX DMR film arrangement, the Company will absorb its costs for the digital
re-mastering and then recoup this cost from a percentage of the gross box-office receipts of the
film, which generally range from 10-15%. The Company does not typically hold distribution rights or
the copyright to these films.
For the six months ended June 30, 2010, 8 IMAX DMR films were exhibited through the IMAX
theater network. The Company has entered into arrangements with film
producers to convert 7
additional films which are expected to be released during the remainder of 2010, the terms of which
are similar in nature, rights and obligations. The accounting policy for the Companys IMAX DMR
arrangements is disclosed in note 2(n) of the Companys 2009 Form 10-K.
Amounts attributable to transactions arising between the Company and its customers under IMAX
DMR arrangements are included in Services revenue and for the three and six months ended June 30,
2010 amounted to $14.5 million and $38.0 million, respectively (2009 $12.1 million and
$15.8 million, respectively).
Co-Produced Film Arrangements
In certain film arrangements, the Company co-produces a film with a third party whereby the
third party retains the copyright and rights to the film, except that the Company obtains exclusive
theatrical distribution rights to the film. Under these arrangements, both parties contribute
funding to the Companys wholly-owned production company for the production of the film and for
associated exploitation costs. Clauses in the film arrangements generally provide for the third
party to take over the production of the film if the cost of the production exceeds its approved
budget or if it appears as though the film will not be delivered on a timely basis.
The accounting policies relating to co-produced film arrangements are disclosed in notes 2(a)
and 2(n) of the Companys 2009 Form 10-K.
20
At June 30, 2010, the Company has 1 significant co-produced film arrangement which makes up
50% of the VIE total assets and liabilities balance of $3.5 million and 3 other co-produced film
arrangements, the terms of which are similar.
For the three and six months ended June 30, 2010, amounts totaling $2.1 million and
$3.7 million, respectively (2009 $2.0 million and $3.8 million, respectively) attributable to
transactions between the Company and other parties involved in the production of the films have
been included in cost and expenses applicable to revenues-services.
12. Condensed Consolidated Statements of Cash Flows Supplemental Information
(a) Changes in other non-cash operating assets and liabilities are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
|
Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
Decrease (increase) in: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
$ |
(2,563 |
) |
|
$ |
(7,645 |
) |
Financing receivables |
|
|
(1,232 |
) |
|
|
(2,812 |
) |
Inventories |
|
|
(4,513 |
) |
|
|
2,421 |
|
Prepaid expenses |
|
|
(2,724 |
) |
|
|
(913 |
) |
Commissions and other deferred selling expenses |
|
|
(757 |
) |
|
|
(1,107 |
) |
Insurance recoveries |
|
|
521 |
|
|
|
554 |
|
Other assets |
|
|
845 |
|
|
|
|
|
Increase (decrease) in: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
671 |
|
|
|
2,148 |
|
Accrued and other liabilities |
|
|
(6,553 |
) |
|
|
1,441 |
|
Deferred revenue |
|
|
3,970 |
|
|
|
(2,127 |
) |
|
|
|
|
|
|
|
|
|
$ |
(12,335 |
) |
|
$ |
(8,040 |
) |
|
|
|
|
|
|
|
(b) Cash payments made on account of:
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
|
Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
Income taxes |
|
$ |
332 |
|
|
$ |
190 |
|
|
|
|
|
|
|
|
Interest |
|
$ |
1,104 |
|
|
$ |
8,112 |
|
|
|
|
|
|
|
|
(c) Depreciation and amortization are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
|
Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
Film assets |
|
$ |
5,741 |
|
|
$ |
3,826 |
|
Property, plant and equipment |
|
|
|
|
|
|
|
|
Joint revenue sharing arrangements |
|
|
2,815 |
|
|
|
1,914 |
|
Other property, plant and equipment |
|
|
1,743 |
|
|
|
2,364 |
|
Other intangible assets |
|
|
229 |
|
|
|
281 |
|
Deferred financing costs |
|
|
168 |
|
|
|
677 |
|
|
|
|
|
|
|
|
|
|
$ |
10,696 |
|
|
$ |
9,062 |
|
|
|
|
|
|
|
|
21
(d) Write-downs, net of recoveries, are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
|
Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
Asset Impairments |
|
|
|
|
|
|
|
|
Property, plant and equipment(1) |
|
$ |
17 |
|
|
$ |
|
|
Accounts receivables |
|
|
10 |
|
|
|
110 |
|
Financing receivables |
|
|
355 |
|
|
|
1,317 |
|
Inventories(2) |
|
|
196 |
|
|
|
196 |
|
|
|
|
|
|
|
|
|
|
$ |
578 |
|
|
$ |
1,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory Charges |
|
|
|
|
|
|
|
|
Recorded in costs and expenses applicable to revenues product & equip. sales |
|
$ |
|
|
|
$ |
50 |
|
Recorded in costs and expenses applicable to revenues services |
|
|
196 |
|
|
|
146 |
|
|
|
|
|
|
|
|
|
|
$ |
196 |
|
|
$ |
196 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company recorded an asset impairment charge of $nil (2009 $0.1 million) against
property, plant and equipment after the Company assessed the carrying values of certain assets
in light of their future expected use. |
|
(2) |
|
In the six months ended June 30, 2010, the Company recorded a charge of $nil (2009
$0.1 million) in costs and expenses applicable to revenues equipment and product sales and
$0.2 million (2009 $0.1 million) in costs and expenses applicable to revenues services,
primarily for its film-based projector inventories due to lower net realizable values
resulting from the Companys development of a digital projection system. |
13. Receivable Provisions, Net of Recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Accounts receivable provisions, net of recoveries |
|
$ |
16 |
|
|
$ |
91 |
|
|
$ |
10 |
|
|
$ |
110 |
|
Financing receivables, net of recoveries |
|
|
337 |
|
|
|
389 |
|
|
|
356 |
|
|
|
880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable provisions, net of recoveries |
|
$ |
353 |
|
|
$ |
480 |
|
|
$ |
366 |
|
|
$ |
990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14. Income Taxes
(a) Income Taxes
The Companys effective tax rate differs from the statutory tax rate and varies from year to
year primarily as a result of numerous permanent differences, investment and other tax credits, the
provision for income taxes at different rates in foreign and other provincial jurisdictions,
enacted statutory tax rate increases or reductions in the year, changes due to foreign exchange,
changes in the Companys valuation allowance based on the Companys recoverability assessments of
deferred tax assets, and favourable or unfavourable resolution of various tax examinations. There
was no change in the Companys estimates of the recoverability of its deferred tax assets based on
an analysis of both positive and negative evidence including projected future earnings.
As at June 30, 2010, the Company had net deferred income tax assets after valuation allowance
of $nil (December 31, 2009 $nil). As at June 30, 2010, the Company had a net deferred income tax
asset before valuation allowance of $61.9 million (December 31, 2009 $71.6 million), against
which the Company is carrying a $61.9 million valuation allowance (December 31, 2009
$71.6 million). Based on current trends, the Company believes it is reasonably possible that some
or all of the valuation allowance will be released in a subsequent period. The determination of
whether a valuation allowance is required will be based on the weight of available evidence, both
positive and negative, available to the Company.
22
As at June 30, 2010 and December 31, 2009, the Company had total unrecognized tax benefits
(including interest and penalties) of $4.7 million and $4.4 million, respectively, for
international withholding taxes. All of the unrecognized tax benefits could impact the Companys
effective tax rate if recognized. While the Company believes it has adequately provided for all tax
positions, amounts asserted by taxing authorities could differ from the Companys accrued position.
Accordingly, additional provisions on federal, state, provincial and foreign tax-related matters
could be recorded in the future as revised estimates are made or the underlying matters are settled
or otherwise resolved.
Consistent with its historical financial reporting, the Company has elected to classify
interest and penalties related to income tax liabilities, when applicable, as part of the interest
expense in its condensed consolidated statement of operations rather than income tax expense. The
Company recognized approximately $0.1 million and $0.1 million in potential interest and penalties
associated with unrecognized tax benefits for the three and six months ended June 30, 2010,
respectively (2009 $0.1 million and $0.1 million, respectively).
(b) Income Tax Effect on Comprehensive Income
The income tax expense related to the following items comprising other comprehensive income are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Amortization of prior service cost |
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
20 |
|
Amortization of actuarial gain on defined benefit plan |
|
|
|
|
|
|
47 |
|
|
|
|
|
|
|
94 |
|
Unrealized hedging gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
57 |
|
|
$ |
|
|
|
$ |
161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15. Capital Stock
(a) Authorized
Common Shares
The authorized capital of the Company consists of an unlimited number of common shares. The
following is a summary of the rights, privileges, restrictions and conditions of the common shares.
The holders of common shares are entitled to receive dividends if, as and when declared by the
directors of the Company, subject to the rights of the holders of any other class of shares of the
Company entitled to receive dividends in priority to the common shares.
The holders of the common shares are entitled to one vote for each common share held at all
meetings of the shareholders.
(b) Stock-Based Compensation
The Company has five stock-based compensation plans that are described below. The compensation
costs recorded in the condensed consolidated statement of operations for these plans were a
recovery of $3.7 million and an expense of $5.6 million for the three and six months ended June 30,
2010, respectively (2009 expense of $4.2 million and $4.7 million, respectively). No income tax
benefit is recorded in the condensed consolidated statement of operations for these costs.
Stock Option Plan
The Companys Stock Option Plan, which is shareholder approved, permits the grant of options
to employees, directors and consultants. The Company recorded an expense of $1.1 million and
$1.7 million for the three and six months ended June 30, 2010, respectively (2009 $0.5 million
and $0.9 million, respectively), related to grants issued to employees and directors in the plan.
The Companys policy is to issue new shares from treasury to satisfy stock options which are
exercised.
23
The Company utilizes a lattice-binomial option-pricing model (Binomial Model) to determine
the fair value of stock-based payment awards. The fair value determined by the Binomial Model is
affected by the Companys stock price as well as assumptions regarding a number of highly complex
and subjective variables. These variables include, but are not limited to, the Companys expected
stock price volatility over the term of the awards, and actual and projected employee stock option
exercise behaviors. The Binomial Model also considers the expected exercise multiple which is the
multiple of exercise price to grant price at which exercises are expected to occur on average.
Option-pricing models were developed for use in estimating the value of traded options that have no
vesting or hedging restrictions and are fully transferable. Because the Companys employee stock
options have certain characteristics that are significantly different from traded options, and
because changes in the subjective assumptions can materially affect the estimated value, in
managements opinion, the Binomial Model best provides a fair measure of the fair value of the
Companys employee stock options.
The weighted average fair value of all common share options, granted to employees for the
three and six months ended June 30, 2010 at the measurement date was $8.00 per share and $7.27 per
share, respectively (2009 $3.84 per share and $3.34 per share, respectively). The following
assumptions were used:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Six Months |
|
|
Ended June 30, |
|
Ended June 30, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
Average risk-free interest rate |
|
|
3.09% |
|
|
|
3.33% |
|
|
|
3.11% |
|
|
|
3.11% |
|
Expected option life (in years) |
|
|
2.99 - 5.33 |
|
|
|
5.41 - 5.59 |
|
|
|
2.99 - 5.39 |
|
|
|
5.41 - 5.85 |
|
Expected volatility |
|
|
61% |
|
|
|
62% |
|
|
|
61% |
|
|
|
62% |
|
Annual termination probability |
|
|
0% - 9.69% |
|
|
|
0% - 10.30% |
|
|
|
0% - 9.69% |
|
|
|
0% - 10.30% |
|
Dividend yield |
|
|
0% |
|
|
|
0% |
|
|
|
0% |
|
|
|
0% |
|
As at June 30, 2010, the Company has reserved a total of 12,734,036 (December 31, 2009
12,566,395) common shares for future issuance under the Stock Option Plan, of which options in
respect of 6,360,976 common shares are outstanding at June 30, 2010. All awards of stock options
are made at fair market value of the Companys Common Shares on the date of grant. The fair market
value of a Common Share on a given date means the higher of the closing price of a Common Share on
the grant date (or the most recent trading date if the grant date is not a trading date) on the
NASDAQ Global Market, the Toronto Stock Exchange (the TSX) and such national exchange, as may be
designated by the Companys Board of Directors (the Fair Market Value). The options generally
vest between one and 5 years and expire 10 years or less from the date granted. The Stock Option
Plan provides that vesting will be accelerated if there is a change of control, as defined in the
plan. At June 30, 2010, options in respect of 3,093,225 common shares were vested and exercisable.
The following table summarizes certain information in respect of option activity under the
Stock Option Plan for the six month periods ended June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Exercise |
|
|
Number of Shares |
|
Price Per Share |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
Options outstanding, beginning of year |
|
|
6,173,795 |
|
|
|
6,686,182 |
|
|
$ |
6.52 |
|
|
$ |
5.97 |
|
Granted |
|
|
1,047,689 |
|
|
|
191,858 |
|
|
|
17.76 |
|
|
|
5.25 |
|
Exercised |
|
|
(838,206 |
) |
|
|
(262,959 |
) |
|
|
6.03 |
|
|
|
3.68 |
|
Forfeited |
|
|
|
|
|
|
(22,750 |
) |
|
|
|
|
|
|
5.94 |
|
Expired |
|
|
(22,302 |
) |
|
|
(100,729 |
) |
|
|
22.68 |
|
|
|
9.84 |
|
Cancelled |
|
|
|
|
|
|
(9,250 |
) |
|
|
|
|
|
|
18.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, end of period |
|
|
6,360,976 |
|
|
|
6,482,352 |
|
|
|
8.38 |
|
|
|
5.96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, end of period |
|
|
3,093,225 |
|
|
|
4,402,330 |
|
|
|
6.05 |
|
|
|
6.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
During the three and six months ended June 30, 2010, the Company did not cancel any stock
options from its Stock Option Plan (2009 3,250 and 9,250, respectively) surrendered by Company
employees. Compensation cost which is fully recognized at the cancellation date was not reversed
for options cancelled.
As at June 30, 2010, 5,794,288 options were fully vested or are expected to vest with a
weighted average exercise price of $8.30, aggregate intrinsic value of $40.6 million and weighted
average remaining contractual life of 4.5 years. As at June 30, 2010, options that are exercisable
have an intrinsic value of $27.4 million and a weighted average remaining contractual life of 3.2
years. The intrinsic value of options exercised in the three and six months ended June 30, 2010 was
$2.6 million and $8.3 million, respectively (2009 $0.1 million and $0.3 million, respectively).
Options to Non-Employees
During the three and six months ended June 30, 2010, an aggregate of 50,000 and 61,217 common
share options to purchase the Companys common stock with an average exercise price of $18.98 and
$18.12, respectively (2009 $4.05 and $4.05, respectively) were granted to certain advisors and
strategic partners of the Company. These options have a maximum contractual life of 7 years. The
option vesting ranges from immediately to five years. These options were granted under the Stock
Option Plan.
As at June 30, 2010, non-employee options outstanding amounted to 91,885 options (2009
423,314) with a weighted average exercise price of $13.43 (2009 $5.79). 11,217 options (2009
330,980) were exercisable with an average weighted exercise price of $14.31 (2009 $6.28) and the
vested options have an aggregate intrinsic value of less than $0.1 million (2009 $0.7 million).
The weighted average fair value of options granted to non-employees during the three and six months
ended June 30, 2010 at the measurement date was $8.08 and $8.15 per share, respectively (2009
$2.34 per share), utilizing a Binomial Model with the following underlying assumptions for periods
ended June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Six Months |
|
|
Ended June 30, |
|
Ended June 30, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
Average risk-free interest rate |
|
|
3.12% |
|
|
|
N/A |
|
|
|
3.10% |
|
|
|
2.03% |
|
Contractual option life |
|
6.84 years |
|
|
N/A |
|
|
6 - 6.84 years |
|
6 years |
Average expected volatility |
|
|
61% |
|
|
|
N/A |
|
|
|
61% |
|
|
|
62% |
|
Dividend yield |
|
|
0% |
|
|
|
N/A |
|
|
|
0% |
|
|
|
0% |
|
For the three and six months ended June 30, 2010, the Company recorded a charge of less than
$0.1 million and $0.1 million, respectively (2009 less than $0.1 million and less than $0.1
million, respectively) to cost and expenses related to the non-employee stock options.
Restricted Common Shares
Under the terms of certain employment agreements dated July 12, 2000, the Company is required
to issue either 160,000 restricted common shares or pay their cash equivalent. The restricted
shares are required to be issued, or payment of their cash equivalent, upon request by the
employees at any time. The aggregate intrinsic value of the awards outstanding at June 30, 2010 is
$2.3 million (December 31, 2009 $2.1 million). The Company accounts for the obligation as a
liability, which is classified within accrued liabilities. The Company has recorded a recovery of
$0.5 million and an expense of $0.2 million for the three and six months ended June 30, 2010,
respectively (2009 expense of $0.6 million and $0.6 million, respectively), due to the changes in
the Companys stock price during the period.
Stock Appreciation Rights
There were no stock appreciation rights (SARs) granted during the second quarter of 2010 and
2009. During 2007, 2,280,000 SARs with a weighted average exercise price of $6.20 per right were
granted to certain Company executives. During the first quarter of 2010, 210,000 SARS were cash
settled for $2.1 million. The average exercise price for the settled SARS during the first quarter
of 2010 was $4.34 per SAR. During the second quarter of 2010, 270,000 SARS were cash settled for
$3.3 million. The average exercise price for the settled SARS during the second quarter of 2010 was
$5.74 per SAR. As at June 30, 2010, 1,530,000 SARs were outstanding, of which 1,335,000 SARs were
exercisable. The SARs vesting period ranges from immediately upon granting to 5 years,
25
with a remaining contractual life ranging from 3.51 to 7.51 years as at June 30, 2010. The
SARs had an average fair value of $8.20 per right as at June 30, 2010 (December 31, 2009 $7.37).
The Company accounts for the obligation of these SARs as a liability (June 30, 2010 $12.4
million; December 31, 2009 $14.1 million), which is classified within accrued liabilities. The
Company has recorded a recovery of $4.4 million and a $3.6 million expense for the three and six
months ended June 30, 2010, respectively (2009 expense of $3.1 million and $3.2 million,
respectively) to selling, general and administrative expenses related to these SARs. The following
assumptions were used for measuring the fair value of the SARs:
|
|
|
|
|
|
|
As at |
|
As at |
|
|
June 30, |
|
December 31, |
|
|
2010 |
|
2009 |
Average risk-free interest rate |
|
0.90% |
|
1.17% |
Expected option life (in years) |
|
0.62 - 3.96 |
|
0.15 - 3.48 |
Expected volatility |
|
61% |
|
62% |
Annual termination probability |
|
0% - 9.69% |
|
0% - 9.69% |
Dividend yield |
|
0% |
|
0% |
Warrants
There were no warrants issued during the three and six months ended or outstanding as at June
30, 2010 and 2009.
(c) Earnings (loss) per Share
Reconciliations of the numerator and denominator of the basic and diluted per-share
computations are comprised of the following:
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Net income (loss) from continuing operations applicable to
common shareholders |
|
$ |
13,302 |
|
|
$ |
2,561 |
|
|
$ |
39,883 |
|
|
$ |
(80 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares (000s): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued and outstanding, beginning of period |
|
|
63,460 |
|
|
|
43,731 |
|
|
|
62,832 |
|
|
|
43,491 |
|
Weighted average number of shares issued during the period |
|
|
104 |
|
|
|
2,762 |
|
|
|
478 |
|
|
|
1,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in computing basic
income (loss) per
share |
|
|
63,564 |
|
|
|
46,493 |
|
|
|
63,310 |
|
|
|
45,095 |
|
Assumed exercise of stock, net of shares assumed |
|
|
3,424 |
|
|
|
1,473 |
|
|
|
3,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in computing diluted
income (loss) per
share |
|
|
66,988 |
|
|
|
47,966 |
|
|
|
66,494 |
|
|
|
45,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The calculation of diluted earnings (loss) per share for the six months ended June 30, 2009
excludes all shares that are issuable upon exercise of options as the impact of these exercises
would be antidilutive.
(d) Shareholders Equity
The following summarizes the movement of Shareholders Equity for the six months ended June
30, 2010:
|
|
|
|
|
Balance as at December 31, 2009 |
|
$ |
45,010 |
|
Issuance of common shares for stock options exercised |
|
|
5,057 |
|
Net earnings |
|
|
39,883 |
|
Adjustment to other equity for employee stock options granted |
|
|
1,708 |
|
Adjustment to other equity for non-employee stock options granted |
|
|
158 |
|
Adjustment to capital stock for stock options exercised |
|
|
1,687 |
|
Adjustment to other equity for stock options exercised |
|
|
(1,687 |
) |
Adjustments to accumulated other comprehensive income to record unrealized hedging losses |
|
|
(179 |
) |
Adjustments to accumulated other comprehensive income to record the realization of
hedging gains upon settlement |
|
|
(542 |
) |
|
|
|
|
Balance as at June 30, 2010 |
|
$ |
91,095 |
|
|
|
|
|
16. Segmented Information
The Company has 8 reportable segments identified by category of product sold or service
provided: IMAX systems; theater system maintenance; joint revenue sharing arrangements; film
production and IMAX DMR; film distribution; film post-production; theater operations; and other.
The IMAX systems segment designs, manufactures, sells or leases IMAX theater projection system
equipment. The theater system maintenance segment maintains IMAX theater projection system
equipment in the IMAX theater network. The joint revenue sharing arrangements segment provides IMAX
theater projection system equipment to an exhibitor in exchange for a share of the box-office and
concession revenues. The film production and IMAX DMR segment produces films and performs film
re-mastering services. The film distribution segment distributes films for which the Company has
distribution rights. The film post-production segment provides film post-production and film print
services. The theater operations segment owns and operates certain IMAX theaters. The Company
refers to all theaters using the IMAX theater system as IMAX theaters. The other segment includes
camera rentals and other miscellaneous items. The accounting policies of the segments are the same
as those described in note 2 to the audited consolidated financial statements included in the
Companys 2009 Form 10-K.
The Companys Chief Operating Decision Maker (CODM), as defined in the Segment Reporting
Topic of the FASB Accounting Standards Codification, assesses segment performance based on segment
revenues, gross margins and film performance. Selling, general and administrative expenses,
research and development costs, amortization of intangibles, receivables provisions (recoveries),
interest revenue, interest expense and tax provision (recovery) are not allocated to the segments.
27
Transactions between the film production and IMAX DMR segment and the film post-production
segment are valued at exchange value. Inter-segment profits are eliminated upon consolidation, as
well as for the disclosures below.
Transactions between the other segments are not significant.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX systems |
|
$ |
17,329 |
|
|
$ |
8,339 |
|
|
$ |
28,282 |
|
|
$ |
24,792 |
|
Theater system maintenance |
|
|
5,102 |
|
|
|
4,433 |
|
|
|
10,068 |
|
|
|
8,793 |
|
Joint revenue sharing arrangements |
|
|
8,494 |
|
|
|
7,193 |
|
|
|
27,430 |
|
|
|
9,100 |
|
Films |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production and IMAX DMR |
|
|
14,540 |
|
|
|
12,135 |
|
|
|
37,992 |
|
|
|
15,836 |
|
Distribution |
|
|
3,870 |
|
|
|
3,494 |
|
|
|
7,142 |
|
|
|
6,736 |
|
Post-production |
|
|
2,326 |
|
|
|
515 |
|
|
|
4,918 |
|
|
|
1,387 |
|
Theater operations |
|
|
2,954 |
|
|
|
3,586 |
|
|
|
8,903 |
|
|
|
5,714 |
|
Other |
|
|
983 |
|
|
|
667 |
|
|
|
3,646 |
|
|
|
1,140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
55,598 |
|
|
$ |
40,362 |
|
|
$ |
128,381 |
|
|
$ |
73,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margins |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX systems(1) |
|
$ |
9,918 |
|
|
|
4,535 |
|
|
$ |
14,418 |
|
|
|
13,430 |
|
Theater system maintenance |
|
|
2,051 |
|
|
|
2,319 |
|
|
|
4,360 |
|
|
|
4,631 |
|
Joint revenue sharing arrangements(1) |
|
|
6,501 |
|
|
|
4,635 |
|
|
|
23,313 |
|
|
|
4,980 |
|
Films |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production and IMAX DMR(1) |
|
|
6,823 |
|
|
|
7,914 |
|
|
|
26,324 |
|
|
|
9,684 |
|
Distribution(1) |
|
|
719 |
|
|
|
654 |
|
|
|
1,461 |
|
|
|
989 |
|
Post-production |
|
|
837 |
|
|
|
55 |
|
|
|
2,891 |
|
|
|
695 |
|
Theater operations |
|
|
152 |
|
|
|
534 |
|
|
|
1,810 |
|
|
|
501 |
|
Other |
|
|
39 |
|
|
|
37 |
|
|
|
762 |
|
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
27,040 |
|
|
$ |
20,683 |
|
|
$ |
75,339 |
|
|
$ |
34,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
IMAX systems include commission costs of $0.4 million and $0.6 million for the three and six
months ended June 30, 2010, respectively (2009 $0.3 million and $0.6 million,
respectively). Joint revenue sharing arrangements segment margins include advertising,
marketing and commission costs of $0.6 million and $1.2 million for the three and six months
ended June 30, 2010, respectively (2009 $1.5 million and $2.2 million, respectively).
Production and DMR segment margins include marketing costs of $0.6 million and $0.8 million
for the three and six months ended June 30, 2010, respectively (2009 $0.4 million and $0.6
million, respectively). Distribution segment margins include marketing costs of ($0.2) million
and $0.3 million for the three and six months ended June 30, 2010, respectively (2009 $0.1
million and $0.5 million, respectively). |
28
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Assets |
|
|
|
|
|
|
|
|
IMAX systems |
|
$ |
99,467 |
|
|
$ |
98,530 |
|
Theater system maintenance |
|
|
13,787 |
|
|
|
12,415 |
|
Joint revenue sharing arrangements |
|
|
65,520 |
|
|
|
62,812 |
|
Films |
|
|
|
|
|
|
|
|
Production and IMAX DMR |
|
|
21,808 |
|
|
|
15,357 |
|
Distribution |
|
|
8,421 |
|
|
|
5,688 |
|
Post-production |
|
|
3,740 |
|
|
|
7,554 |
|
Theater operations |
|
|
665 |
|
|
|
776 |
|
Other |
|
|
1,496 |
|
|
|
1,864 |
|
Corporate and other non-segment specific assets |
|
|
57,486 |
|
|
|
42,549 |
|
|
|
|
|
|
|
|
Total |
|
$ |
272,390 |
|
|
$ |
247,545 |
|
|
|
|
|
|
|
|
17. Employees Pension and Postretirement Benefits
(a) Defined Benefit Plan
The Company has an unfunded U.S. defined benefit pension plan, the SERP, covering Richard L.
Gelfond, Chief Executive Officer (CEO) of the Company and Bradley J. Wechsler, Chairman of the
Companys Board of Directors. The SERP provides for a lifetime retirement benefit from age 55
determined as 75% of the members best average 60 consecutive months of earnings over the members
employment history. The benefits were 50% vested as at July 2000, the SERP initiation date. The
vesting percentage increases on a straight-line basis from inception until age 55. As at June 30,
2010, the benefits of Mr. Wechsler were 100% vested while the benefits of Mr. Gelfond were
approximately 99.6% vested. The vesting percentage of a member whose employment terminates other
than by voluntary retirement or upon a change in control shall be 100%. Upon a termination for
cause, prior to a change of control, the executive shall forfeit any and all benefits to which such
executive may have been entitled, whether or not vested.
Under the terms of the SERP, if Mr. Gelfonds employment terminates other than for cause prior
to August 1, 2010, he is entitled to receive SERP benefits in the form of monthly annuity payments
until the earlier of a change of control or August 1, 2010, at which time he is entitled to receive
remaining benefits in the form of a lump sum payment. If Mr. Gelfonds employment terminates other
than for cause on or after August 1, 2010, he is entitled to receive SERP benefits in the form of a
lump sum payment. SERP benefit payments to Mr. Gelfond are subject to a deferral for six months
after the termination of his employment, at which time Mr. Gelfond will be entitled to receive
interest on the deferred amount credited at the applicable federal rate for short-term obligations.
Under the terms of the SERP, monthly annuity payments payable to Mr. Wechsler, whose
employment as Co-CEO terminated effective April 1, 2009, were deferred for six months and were paid
in the form of a lump sum plus interest on the deferred amount on October 1, 2009. Thereafter, in
accordance with the terms of the SERP, Mr. Wechsler is entitled to receive monthly annuity payments
until the earlier of a change of control or August 1, 2010, at which time he is entitled to receive
remaining benefits in the form of a lump sum payment.
The amounts accrued for the SERP are determined as follows:
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at |
|
|
|
As at |
|
|
December 31, |
|
|
|
June 30, 2010 |
|
|
2009 |
|
Projected benefit obligation: |
|
|
|
|
|
|
|
|
Obligation, beginning of period |
|
$ |
29,862 |
|
|
$ |
26,381 |
|
Service cost |
|
|
224 |
|
|
|
643 |
|
Interest cost |
|
|
175 |
|
|
|
1,341 |
|
Benefits paid |
|
|
(447 |
) |
|
|
(894 |
) |
Actuarial loss |
|
|
|
|
|
|
2,391 |
|
|
|
|
|
|
|
|
Obligation, end of period and unfunded status |
|
$ |
29,814 |
|
|
$ |
29,862 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides disclosure of pension expense for the SERP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Service cost |
|
$ |
112 |
|
|
$ |
161 |
|
|
$ |
224 |
|
|
$ |
322 |
|
Interest cost |
|
|
88 |
|
|
|
335 |
|
|
|
175 |
|
|
|
670 |
|
Amortization of prior service cost |
|
|
|
|
|
|
37 |
|
|
|
|
|
|
|
73 |
|
Amortization of actuarial gain |
|
|
|
|
|
|
(171 |
) |
|
|
|
|
|
|
(341 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension expense |
|
$ |
200 |
|
|
$ |
362 |
|
|
$ |
399 |
|
|
$ |
724 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accumulated benefit obligation for the SERP was $29.8 million at June 30, 2010 and $29.9
million at December 31 2009.
The following amounts were included in accumulated other comprehensive income (AOCI) and
will be recognized as components of net periodic benefit cost in future periods:
|
|
|
|
|
|
|
|
|
|
|
As at |
|
|
As at |
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Unrecognized actuarial gain |
|
|
(793 |
) |
|
|
(793 |
) |
|
|
|
|
|
|
|
|
|
$ |
(793 |
) |
|
$ |
(793 |
) |
|
|
|
|
|
|
|
No contributions are expected to be made for the SERP during 2010 except to meet benefit
payment obligations as they come due. The Company expects amortization of actuarial gains of $0.4
million to be recognized as a component of net periodic benefit cost during the remainder of 2010.
The following benefit payments are expected to be made as per the current SERP assumptions and
the terms of the SERP in each of the next 5 years, and in the aggregate:
|
|
|
|
|
2010 (six months remaining) |
|
$ |
14,748 |
(1) |
2011 |
|
|
15,581 |
(1) |
2012 |
|
|
|
|
2013 |
|
|
|
|
2014 |
|
|
|
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
$ |
30,329 |
|
|
|
|
|
|
|
|
(1) |
|
The SERP assumptions include that Mr. Wechsler will receive a lump sum payment at August 1,
2010 and that Mr. Gelfond will receive a lump sum payment in 2011 upon retirement at the end
of the current term of his employment agreement, although Mr. Gelfond has informed the Company
that he does not currently intend to retire at that time. |
30
At the time the Company established the SERP, it also took out life insurance policies on
Messrs. Gelfond and Wechsler with coverage amounts of $21.5 million in aggregate to which the
Company is the beneficiary. The Company may use the cash surrender value or the proceeds of the
life insurance policies taken on Messrs. Gelfond and Wechsler to be applied towards the benefits
due and payable under the SERP, although there can be no assurance that the Company will ultimately
do so. During the quarter ended June 30, 2010, the Company obtained $3.2 million representing the
cash surrender value of Mr. Gelfonds policy. At June 30, 2010, the cash surrender value of Mr. Wechslers
policy was $4.5 million (December 31, 2009 $7.3 million) and has been
included in other assets.
(b) Defined Contribution Plan
The Company also maintains defined contribution pension plans for its employees, including its
executive officers. The Company makes contributions to these plans on behalf of employees in an
amount up to 5% of their base salary subject to certain prescribed maximums. During the three and
six months ended June 30, 2010, the Company contributed and expensed an aggregate of $0.2 million
and $0.4 million, respectively (2009 $0.2 million and $0.3 million, respectively), to its
Canadian plan and an aggregate of less than $0.1 million and $0.1 million, respectively (2009
less than $0.1 million and $0.1 million, respectively), to its defined contribution employee
pension plan under Section 401(k) of the U.S. Internal Revenue Code.
(c) Postretirement Benefits
The Company has an unfunded postretirement plan covering Messrs. Gelfond and Wechsler. The
plan provides that the Company will maintain health benefits for Messrs. Gelfond and Wechsler until
they become eligible for Medicare and, thereafter, the Company will provide Medicare supplement
coverage as selected by Messrs. Gelfond and Wechsler. The postretirement benefits obligation as at
June 30, 2010 is $0.4 million (December 31, 2009 $0.4 million). The Company has expensed less
than $0.1 million and less than $0.1 million for the three and six months ended June 30, 2010,
respectively (2009 less than $0.1 million and less than $0.1 million, respectively).
The following benefit payments are expected to be made as per the current plan assumptions in
each of the next 5 years:
|
|
|
|
|
2010 (six months remaining) |
|
$ |
13 |
|
2011 |
|
$ |
26 |
|
2012 |
|
$ |
29 |
|
2013 |
|
$ |
33 |
|
2014 |
|
$ |
36 |
|
18. Financial Instruments
(a) Financial Instruments
The Company maintains cash with various major financial institutions. The Companys cash is
invested with highly rated financial institutions.
The Companys accounts receivables and financing receivables are subject to credit risk. The
Companys accounts receivable and financing receivables are concentrated with the theater
exhibition industry and film entertainment industry. To minimize the Companys credit risk, the
Company retains title to underlying theater systems leased, performs initial and ongoing credit
evaluations of its customers and makes ongoing provisions for its estimate of potentially
uncollectible amounts. The Company believes it has adequately provided for related exposures
surrounding receivables and contractual commitments. The Companys policy is to not use any
financial instruments for trading or other speculative purposes.
(b) Fair Value Measurements
The carrying values of the Companys cash and cash equivalents, accounts receivable, accounts
payable and accrued liabilities due within one year approximate fair values due to the short-term
maturity of these instruments. The Companys other financial instruments are comprised of the
following:
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at June 30, 2010 |
|
As at December 31, 2009 |
|
|
Carrying |
|
Estimated |
|
Carrying |
|
Estimated |
|
|
Amount |
|
Fair Value |
|
Amount |
|
Fair Value |
Borrowings under Credit Facility |
|
$ |
(24,792 |
) |
|
$ |
(24,792 |
) |
|
$ |
(50,000 |
) |
|
$ |
(50,000 |
) |
Financed sales receivable |
|
$ |
28,363 |
|
|
$ |
31,001 |
|
|
$ |
22,479 |
|
|
$ |
22,745 |
|
Net investment in sales-type leases |
|
$ |
34,873 |
|
|
$ |
34,050 |
|
|
$ |
40,106 |
|
|
$ |
40,910 |
|
Foreign exchange contracts designated forwards |
|
$ |
(189 |
) |
|
$ |
(189 |
) |
|
$ |
532 |
|
|
$ |
532 |
|
Foreign exchange contracts non-designated forwards |
|
$ |
(395 |
) |
|
$ |
(395 |
) |
|
$ |
857 |
|
|
$ |
857 |
|
The carrying value of borrowings under the Credit Facility approximates fair value as the
interest rates offered under the Credit Facility are close to June 30, 2010 and December 31, 2009
market rates for the Company for debt of the same remaining maturities (Level 2 input in accordance
with the Fair Value Measurements Topic of the FASB ASC hierarchy) at June 30, 2010 and December 31,
2009, respectively.
The estimated fair values of the Financed sales receivable and Net investment in sales-type
leases are estimated based on discounting future cash flows at currently available interest rates
with comparable terms (Level 2 input in accordance with the Fair Value Measurements Topic of the
FASB Accounting Standards Codification hierarchy) at June 30, 2010.
The fair value of foreign currency derivatives are determined using quoted prices in active
markets (Level 1 input in accordance with the Fair Value Measurements Topic of the FASB Accounting
Standards Codification hierarchy) for identical instruments at the measurement date.
(c) Foreign Exchange Risk Management
The Company is exposed to market risk from changes in foreign currency rates. A major portion
of the Companys revenues is denominated in U.S. dollars while a substantial portion of its costs
and expenses is denominated in Canadian dollars. A portion of the net U.S. dollar cash flows of the
Company is periodically converted to Canadian dollars to fund Canadian dollar expenses through the
spot market. In Japan, the Company has ongoing operating expenses related to its operations in
Japanese yen. Net Japanese yen cash flows are converted to U.S. dollars generally through the spot
market. The Company also has cash receipts under leases denominated in Japanese yen, Canadian
dollar and Euros which are converted to U.S. dollars generally through the spot market.
The Company entered into a series of foreign currency forward contracts to manage the
Companys risks associated with the volatility of foreign currencies. Certain of these foreign
currency forward contracts met the criteria required for hedge accounting under the Derivatives and
Hedging Topic of the FASB Accounting Standards Codification at inception, and continue to meet
hedge effectiveness tests at June 30, 2010 (the Foreign Currency Hedges), with settlement dates
throughout 2009 and 2010. In addition, at June 30, 2010, the Company held foreign currency forward
contracts to manage foreign currency risk on future anticipated Canadian dollar expenditures that
were not considered Foreign Currency Hedges by the Company. Foreign currency derivatives are
recognized and measured in the balance sheet at fair value. Changes in the fair value (gains or
losses) are recognized in the condensed consolidated statement of operations except for derivatives
designated and qualifying as foreign currency hedging instruments. For foreign currency hedging
instruments, the effective portion of the gain or loss in a hedge of a forecasted transaction is
reported in other comprehensive income (OCI) and reclassified to the condensed consolidated
statement of operations when the forecasted transaction occurs. Any ineffective portion is
recognized immediately in the consolidated statement of operations.
The following tabular disclosures reflect the impact that derivative instruments and hedging
activities have on the Companys condensed consolidated financial statements:
Notional value foreign exchange contracts as at:
32
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
Foreign exchange contracts Forwards |
|
$ |
8,744 |
|
|
$ |
2,815 |
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
Foreign exchange contracts Forwards |
|
|
23,050 |
|
|
|
4,500 |
|
|
|
|
|
|
|
|
|
|
$ |
31,793 |
|
|
$ |
7,315 |
|
|
|
|
|
|
|
|
Fair value of foreign exchange contracts as at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
Balance Sheet Location |
|
2010 |
|
|
2009 |
|
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts Forwards |
|
Other assets/(Accrued liabilities) |
|
$ |
(189 |
) |
|
$ |
532 |
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts Forwards |
|
Other assets/(Accrued liabilities) |
|
|
(395 |
) |
|
|
857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(584 |
) |
|
$ |
1,389 |
|
|
|
|
|
|
|
|
|
|
Derivatives in Foreign Currency Hedging relationships for the three and six months ended June
30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Foreign exchange contracts Forwards |
|
Derivative Gain(Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized in OCI |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Effective Portion) |
|
$ |
(387 |
) |
|
$ |
1,312 |
|
|
$ |
(179 |
) |
|
$ |
783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(387 |
) |
|
$ |
1,312 |
|
|
$ |
(179 |
) |
|
$ |
783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Derivative Gain |
|
|
|
|
|
|
|
|
(Loss) Reclassified from |
|
|
|
|
|
|
|
|
AOCI into Income |
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
(Effective Portion) |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Foreign exchange contracts Forwards |
|
Selling, general and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
administrative expenses |
|
$ |
(7 |
) |
|
$ |
398 |
|
|
$ |
542 |
|
|
$ |
313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(7 |
) |
|
$ |
398 |
|
|
$ |
542 |
|
|
$ |
313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non Designated Derivatives in Foreign Currency relationships for the three and six months
ended June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Derivative Gain |
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
(Loss) |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Foreign exchange contracts Forwards |
|
Selling, general |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expenses |
|
$ |
(602 |
) |
|
$ |
1,217 |
|
|
$ |
(178 |
) |
|
$ |
642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(602 |
) |
|
$ |
1,217 |
|
|
$ |
(178 |
) |
|
$ |
642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
19. Discontinued Operations
(a) Tempe Theater
On December 11, 2009, the Company closed its owned and operated Tempe IMAX theater. The
Company recognized lease termination and guarantee obligations of $0.5 million to the landlord,
which were offset by derecognition of other liabilities of $0.9 million, for a net gain of $0.4
million in December 2009. In a related transaction, the Company leased the projection system and
inventory of the Tempe IMAX theater to a third party theater exhibitor. Revenue from this operating
lease transaction will be recognized on a straight-line basis over the term of the lease. The above
transactions are reflected as discontinued operations as there are no significant continuing cash
flows from either a migration or a continuation of activities.
In addition, the prior years amounts in the condensed consolidated statements of operations
and the condensed consolidated statements of cash flows have been adjusted to reflect the
reclassification of the owned and operated Tempe IMAX theater as a discontinued operation.
(b) Starboard Theater Ltd
On September 30, 2009, the Company closed its owned and operated Vancouver IMAX theater. The
amount of loss to the Company pertaining to lease and guarantee obligations owing to the landlord
was estimated at $0.3 million which the Company recognized as at September 30, 2009. The above
transactions are reflected as discontinued operations as there are no continuing cash flows from
either a migration or a continuation of activities.
In addition, the prior years amounts in the condensed consolidated statements of operations
and the condensed consolidated statements of cash flows have been adjusted to reflect the
reclassification of the owned and operated Vancouver IMAX theater as a discontinued operation.
(c) Assets and Liabilities of Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Cash |
|
$ |
|
|
|
$ |
299 |
|
Accounts Receivable |
|
|
2 |
|
|
|
129 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2 |
|
|
$ |
428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
44 |
|
|
$ |
149 |
|
Accrued liabilities |
|
|
|
|
|
|
1,018 |
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
44 |
|
|
$ |
1,167 |
|
|
|
|
|
|
|
|
34
IMAX CORPORATION
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
OVERVIEW
IMAX Corporation, together with its wholly-owned subsidiaries (the Company), is one of the
worlds leading entertainment technology companies, specializing in motion picture technologies and
large-format motion picture presentations. The Companys principal business is the design and
manufacture of large-format digital and film-based theater systems (IMAX theater systems) and the
sale or lease of IMAX theater systems or the contribution of IMAX theater systems under
revenue-sharing arrangements to its customers. The IMAX theater systems are based on proprietary
and patented technology developed over the course of the Companys 47-year history. The Companys
customers who purchase, lease or otherwise acquire the IMAX theater systems are theater exhibitors
that operate commercial theaters (particularly multiplexes), museums, science centers, or
destination entertainment sites. The Company generally does not own IMAX theaters, but licenses the
use of its trademarks along with the sale, lease or contribution of its equipment. The Company
refers to all theaters using the IMAX theater system as IMAX theaters.
The Company derives revenue principally from the sale or long-term lease of IMAX theater
systems and associated maintenance and extended warranty services, the installation of IMAX theater
systems under joint revenue sharing arrangements, the provision of film production and digital
re-mastering services, the distribution of certain films, and the provision of post-production
services, including the conversion of two-dimensional (2D) and three-dimensional (3D) Hollywood
feature films for exhibition on IMAX theater systems around the world. The Company also derives
revenue from the operation of its own theaters, camera rentals and the provision of aftermarket
parts for its system components.
The Company believes the IMAX theater network is the most extensive large-format theater
network in the world with 447 IMAX theaters (325 commercial, 122 institutional) operating in 47
countries as at June 30, 2010. This compares to 394 IMAX theaters (273 commercial, 121
institutional) operating in 44 countries as at June 30, 2009.
Important factors that the Companys Chief Executive Officer (CEO) Richard L. Gelfond uses
in assessing the Companys business and prospects include revenue, gross margins from the Companys
operating segments, film performance, earnings from operations as adjusted for unusual items that
the Company views as non-recurring, the success of strategic initiatives such as the securing of
new film projects (particularly IMAX DMR films) and the viability of new businesses, the signing
and financial performance of theater system arrangements (particularly its joint revenue sharing
arrangements), the overall execution, reliability and consumer acceptance of the Companys
proprietary digital projector and related technologies and short- and long-term cash flow
projections.
IMAX Systems, Theater System Maintenance and Joint Revenue Sharing Arrangements
The Company provides IMAX theater systems to customers on a sales or long-term lease basis,
typically with initial terms of approximately 10 years. These agreements typically provide for
three major sources of cash flows: initial fees, ongoing fees (which include a fixed minimum amount
per annum and contingent fees in excess of the minimum payments) and maintenance and extended
warranty fees. The initial fees vary depending on the system configuration and location of the
theater and generally are paid to the Company in installments commencing upon the signing of the
agreement. Finance income is derived over the term of the sales or sales-type lease arrangement as
the unearned income on financed sales or sales-type leases is earned. Ongoing fees are paid monthly
over the term of the contract, commencing after the theater system has been installed and are
generally equal to the greater of a fixed minimum amount per annum or a percentage of box-office
receipts. An annual maintenance and extended warranty fee is generally payable commencing in the
second year of theater operations. Both ongoing fees and maintenance and extended warranty fees are
typically indexed to a local consumer price index.
The Company also offers certain commercial clients joint revenue sharing arrangements, where
the Company receives a portion of a theaters box-office and concession revenue in exchange for
placing an IMAX theater system at the theater operators venue.
Revenue from theater system arrangements is recognized at a different time than when cash is
collected. See Critical Accounting Policies below for further discussion on the Companys revenue
recognition policies.
Sales Backlog and Theater Network
35
The Companys sales backlog fluctuates from quarter to quarter in both the dollar value and
number of systems from quarter to quarter depending on the signing of new theater system
arrangements, which adds to backlog, and the installation and acceptance of theater systems and the
settlement of contracts, both of which reduce backlog. Sales backlog typically represents the fixed
contracted revenue under signed theater system sale and lease agreements that the Company believes
will be recognized as revenue upon installation and acceptance of the associated theater. Sales
backlog includes initial fees along with the estimated present value of contractual ongoing fees
due over the lease term, but excludes amounts allocated to maintenance and extended warranty
revenues as well as fees in excess of contractual ongoing fees that may be received in the future.
The value of sales backlog does not include revenue from theaters in which the Company has an
equity interest, joint revenue sharing arrangements, operating leases, letters of intent or
long-term conditional theater commitments.
The Companys theater signings are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
Number of |
|
|
Dollar Value |
|
|
Number of |
|
|
Dollar Value |
|
|
Number of |
|
|
Dollar Value |
|
|
Number of |
|
|
Dollar Value |
|
|
|
Systems |
|
|
(in millions) |
|
|
Systems |
|
|
(in millions) |
|
|
Systems |
|
|
(in millions) |
|
|
Systems |
|
|
(in millions) |
|
Full new sales
and sale-type lease
arrangements |
|
|
31 |
(1) |
|
$ |
40.7 |
|
|
|
4 |
(1) |
|
$ |
5.6 |
|
|
|
39 |
(2) |
|
$ |
51.5 |
|
|
|
7 |
(2) |
|
$ |
9.8 |
|
Digital upgrades
under sales and
sale-type lease
arrangements |
|
|
8 |
(3) |
|
|
4.6 |
|
|
|
3 |
(3) |
|
|
1.8 |
|
|
|
22 |
(4) |
|
|
10.5 |
|
|
|
3 |
(4) |
|
|
1.8 |
|
Joint revenue
sharing
arrangements |
|
|
18 |
(5) |
|
|
n/a |
|
|
|
|
(5) |
|
|
n/a |
|
|
|
37 |
(6) |
|
|
n/a |
|
|
|
|
(6) |
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57 |
|
|
$ |
45.3 |
|
|
|
7 |
|
|
$ |
7.4 |
|
|
|
98 |
|
|
$ |
62.0 |
|
|
|
10 |
|
|
$ |
11.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes 1 installation and 30 in backlog as at June 30, 2010 (2009 nil and 4,
respectively). |
|
(2) |
|
Includes 3 installations and 36 in backlog as at June 30, 2010 (2009 1 and 6,
respectively). |
|
(3) |
|
Includes 4 installations and 4 in backlog as at June 30, 2010 (2009 1 and 2,
respectively). |
|
(4) |
|
Includes 18 installations and 4 in backlog as at June 30, 2010 (2009 1 and 2,
respectively). |
|
(5) |
|
No systems were installed and 18 in backlog as at June 30, 2010 (2009 nil and nil,
respectively). |
|
(6) |
|
Includes 1 installation and 36 in backlog as at June 30, 2010 (2009 nil and nil,
respectively). |
The Companys sales backlog is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 |
|
|
June 30, 2009 |
|
|
|
Number of |
|
|
Dollar Value |
|
|
Number of |
|
|
Dollar Value |
|
|
|
Systems |
|
|
(in thousands) |
|
|
Systems |
|
|
(in thousands) |
|
Sales and sale-type lease arrangements |
|
|
117 |
|
|
$ |
156,091 |
|
|
|
104 |
|
|
$ |
131,726 |
|
Joint revenue sharing arrangements |
|
|
70 |
|
|
|
n/a |
|
|
|
67 |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
187 |
|
|
$ |
156,091 |
|
|
|
171 |
|
|
$ |
131,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theater systems under joint revenue sharing arrangements carry no assigned backlog value. The
Company believes that the contractual obligations for theater system installations that are listed
in sales backlog are valid and binding commitments.
The following chart shows the number of the Companys theater systems by configuration, opened
theater network base and backlog as at June 30:
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
2009 |
|
|
Theater |
|
|
|
|
|
Theater |
|
|
|
|
Network |
|
|
|
|
|
Network |
|
|
|
|
Base |
|
Backlog |
|
Base |
|
Backlog |
Flat Screen (2D) |
|
|
35 |
|
|
|
|
|
|
|
38 |
|
|
|
|
|
Dome Screen (2D) |
|
|
66 |
|
|
|
|
|
|
|
67 |
|
|
|
2 |
|
IMAX 3D Dome (3D) |
|
|
2 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
IMAX 3D GT (3D) |
|
|
88 |
(1) |
|
|
1 |
|
|
|
86 |
|
|
|
7 |
|
IMAX 3D SR (3D) |
|
|
46 |
(1) |
|
|
2 |
|
|
|
52 |
|
|
|
4 |
|
IMAX MPX (3D) |
|
|
20 |
(1) |
|
|
9 |
|
|
|
44 |
|
|
|
26 |
|
IMAX digital (3D) |
|
|
190 |
(1) |
|
|
175 |
(2) |
|
|
102 |
(1) |
|
|
132 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
447 |
|
|
|
187 |
|
|
|
394 |
|
|
|
171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
During the six months ended June 30, 2010, the Company
upgraded 21 IMAX theater systems to
IMAX digital theater systems (20 sales arrangements and 1 joint revenue sharing arrangement).
During the six months ended June 30, 2009, the Company upgraded 12 IMAX MPX theater systems to
IMAX digital theater systems (4 sales arrangements, 1 operating lease arrangement and 7 joint
revenue sharing arrangements). |
|
(2) |
|
Includes 70 and 67 theater systems as at June 30, 2010 and 2009, respectively, under joint
revenue sharing arrangements. |
The following table outlines the breakdown of the theater network by type and geographic
location as of June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 Theater Network Base |
|
2009 Theater Network Base |
|
|
Commercial |
|
Commercial |
|
|
|
|
|
|
|
|
|
Commercial |
|
Commercial |
|
|
|
|
|
|
Multiplex |
|
Destination |
|
Institutional |
|
Total |
|
Multiplex |
|
Destination |
|
Institutional |
|
Total |
United States |
|
|
182 |
|
|
|
8 |
|
|
|
66 |
|
|
|
256 |
|
|
|
150 |
|
|
|
9 |
|
|
|
67 |
|
|
|
226 |
|
Canada |
|
|
13 |
|
|
|
2 |
|
|
|
7 |
|
|
|
22 |
|
|
|
14 |
|
|
|
2 |
|
|
|
7 |
|
|
|
23 |
|
Mexico |
|
|
8 |
|
|
|
|
|
|
|
11 |
|
|
|
19 |
|
|
|
8 |
|
|
|
|
|
|
|
11 |
|
|
|
19 |
|
Europe |
|
|
45 |
|
|
|
7 |
|
|
|
9 |
|
|
|
61 |
|
|
|
35 |
|
|
|
7 |
|
|
|
10 |
|
|
|
52 |
|
Japan |
|
|
5 |
|
|
|
2 |
|
|
|
7 |
|
|
|
14 |
|
|
|
4 |
|
|
|
2 |
|
|
|
7 |
|
|
|
13 |
|
China |
|
|
12 |
|
|
|
|
|
|
|
14 |
|
|
|
26 |
|
|
|
8 |
|
|
|
|
|
|
|
10 |
|
|
|
18 |
|
Rest of World |
|
|
38 |
|
|
|
3 |
|
|
|
8 |
|
|
|
49 |
|
|
|
32 |
|
|
|
2 |
|
|
|
9 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
303 |
|
|
|
22 |
|
|
|
122 |
|
|
|
447 |
|
|
|
251 |
|
|
|
22 |
|
|
|
121 |
|
|
|
394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CRITICAL ACCOUNTING POLICIES
The Company prepares its interim condensed consolidated financial statements in accordance
with United States Generally Accepted Accounting Principles (U.S. GAAP).
The preparation of these condensed consolidated financial statements requires management to
make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and
expenses. On an ongoing basis, management evaluates its estimates, including those related to fair
values associated with the individual elements in multiple element arrangements; residual values of
leased theater systems; economic lives of leased assets; allowances for potential uncollectibility
of accounts receivable, financing receivables and net investment in leases; provisions for
inventory obsolescence; ultimate revenues for film assets; impairment provisions for film assets,
long-lived assets and goodwill; depreciable lives of property, plant and equipment; useful lives of
intangible assets; pension plan and post retirement assumptions; accruals for contingencies
including tax contingencies; valuation allowances for deferred income tax assets; and, estimates of
the fair value and expected exercise dates of stock-based payment awards. Management bases its
estimates on historic experience, future expectations and other assumptions that are believed to be
reasonable at the date of the consolidated financial statements. Actual results may differ from
these estimates due to uncertainty involved in measuring, at a specific point in time, events which
are continuous in nature, and differences may be material. The Companys significant accounting
policies are discussed in note 2 to its audited consolidated financial statements in the Companys
2009 Annual Report on Form 10-K for the year ended December 31, 2009 (the 2009 Form 10-K) and are
summarized below.
37
The Company considers the following significant estimates, assumptions and judgements to have
the most significant effect on its results:
Revenue Recognition
The Company generates revenue from various sources as follows:
|
|
|
Design, manufacture, sale and lease of proprietary theater systems for IMAX theaters
principally owned and operated by commercial and institutional customers located in 47
countries as at June 30, 2010; |
|
|
|
Production, digital re-mastering, post-production and/or distribution of certain films
shown throughout the IMAX theater network; |
|
|
|
Operation of certain IMAX theaters primarily in the United States and Canada; |
|
|
|
Provision of other services to the IMAX theater network, including ongoing maintenance and
extended warranty services for IMAX theater systems; and |
|
|
|
Other activities, which includes short-term rental of cameras and aftermarket sales of
projector system components. |
Multiple Element Arrangements
The Companys revenue arrangements with certain customers may involve multiple elements
consisting of a theater system (projector, sound system, screen system and, if applicable, 3D
glasses cleaning machine); services associated with the theater system including theater design
support, supervision of installation, and projectionist training; a license to use the IMAX brand;
3D glasses; maintenance and extended warranty services; and licensing of films. The Company
evaluates all elements in an arrangement to determine what are considered typical deliverables for
accounting purposes and which of the deliverables represent separate units of accounting based on
the applicable accounting standards in the Leases Topic of the Financial Accounting Standards Board
(FASB) Accounting Standards Codification (ASC or Codification); the Guarantees Topic of the
FASB ASC; the Entertainment Films Topic of the FASB ASC; and the Revenue Recognition Topic of
the FASB ASC. If separate units of accounting are either required under the relevant accounting
standards or determined to be applicable under the Revenue Recognition Topic, the total
consideration received or receivable in the arrangement is allocated based on the applicable
guidance in the above noted standards.
Theater Systems
The Company has identified the projection system, sound system, screen system and, if
applicable, 3D glasses cleaning machine, theater design support, supervision of installation,
projectionist training and the use of the IMAX brand to be a single deliverable and a single unit
of accounting (the System Deliverable). When an arrangement does not include all the elements of
a System Deliverable, the elements of the System Deliverable included in the arrangement are
considered by the Company to be a single deliverable and a single unit of accounting. The Company
is not responsible for the physical installation of the equipment in the customers facility;
however, the Company supervises the installation by the customer. The customer has the right to use
the IMAX brand from the date the Company and the customer enter into an arrangement.
The Companys System Deliverable arrangements involve either a lease or a sale of the theater
system. Consideration in the Companys arrangements that are not joint revenue sharing arrangements
consists of upfront or initial payments made before and after the final installation of the theater
system equipment and ongoing payments throughout the term of the lease or over a period of time, as
specified in the arrangement. The ongoing payments are the greater of an annual fixed minimum
amount or a certain percentage of the theater box-office. Amounts received in excess of the annual
fixed minimum amounts are considered contingent payments. The Companys arrangements are
non-cancellable, unless the Company fails to perform its obligations. In the absence of a material
default by the Company, there is no right to any remedy for the customer under the Companys
arrangements. If a material default by the Company exists, the customer has the right to terminate
the arrangement and seek a refund only if the customer provides notice to the Company of a material
default and only if the Company does not cure the default within a specified period. Recently, the
Company has entered into a number of joint revenue sharing arrangements, where the Company receives
a portion of a theaters box-office and concession revenue in exchange for placing a theater system
at theater operators venues. Under these arrangements, the Company
38
receives no up-front fee, and the Company retains title to the theater system. Joint revenue
sharing arrangements typically have 7 to 10 year terms with renewal provisions. The Companys joint
revenue sharing arrangements are non-cancellable.
Sales Arrangements
For arrangements qualifying as sales, the revenue allocated to the System Deliverable is
recognized in accordance with the Revenue Recognition Topic of the FASB ASC, when all of the
following conditions have been met: (i) the projector, sound system and screen system have been
installed and are in full working condition, (ii) the 3D glasses cleaning machine, if applicable,
has been delivered, (iii) projectionist training has been completed, and (iv) the earlier of (a)
receipt of written customer acceptance certifying the completion of installation and run-in testing
of the equipment and the completion of projectionist training or (b) public opening of the theater,
provided there is persuasive evidence of an arrangement, the price is fixed or determinable and
collectibility is reasonably assured.
The initial revenue recognized consists of the initial payments received and the present value
of any future initial payments and fixed minimum ongoing payments that have been attributed to this
unit of accounting. Contingent payments in excess of the fixed minimum ongoing payments are
recognized when reported by theater operators, provided collectibility is reasonably assured.
The Company has also agreed, on occasion, to sell equipment under lease or at the end of a
lease term. Consideration agreed to for these lease buyouts is included in revenues from equipment
and product sales, when persuasive evidence of an arrangement exists, the fees are fixed or
determinable, collectibility is reasonably assured and title to the theater system passes from the
Company to the customer.
In a limited number of sales arrangements for the theater systems designed for multiplex
owners (the MPX theater systems), the Company provided customers with a right to acquire, for a
specified period of time, digital upgrades (each upgrade consisting of a projector, certain sound
system components and screen enhancements) at a fixed or variable discount towards a future price
of such digital upgrades. Up to the end of the second quarter of 2009, the Company was not able to
determine the fair value of a digital upgrade. Accordingly, the Company deferred all consideration
received and receivable under such arrangements for the delivered MPX and the upgrade right, except
for the amount allocated to maintenance and extended warranty services provided to the customers
for the installed system. This revenue was deferred until the upgrade right expired, if
applicable, or a digital upgrade was delivered. In the third quarter of 2009, the Company
determined the fair value of digital upgrades and the upgrade rights. For any such sales
arrangements where the upgrade right has not expired and the digital upgrade has not yet been
delivered, the Company has allocated the consideration received and receivable (excluding the
amount allocated to maintenance and extended warranty services) to the upgrade right based on its
fair value and to the delivered MPX theater system based on the residual of the consideration
received and receivable. The revenue related to the digital upgrade continues to be deferred until
the digital upgrade is delivered provided the other revenue recognition criteria are met. The
revenue related to the MPX system is recognized at the allocation date as the system was previously
delivered provided the other revenue recognition criteria are met. Costs related to the installed
MPX systems for which revenue has not been recognized are included in inventories until the
conditions for revenue recognition are met. The Company also provides customers, in certain cases,
with sales arrangements for multiple systems consisting of a combination of MPX theater systems and
complete digital theater systems for a specified price. The Company allocates the actual or implied
discount between the delivered and undelivered theater systems on a relative fair value basis,
provided all of the other conditions for recognition of a theater system are met.
Lease Arrangements
The Company uses the Leases Topic of the FASB ASC to evaluate whether an arrangement is a
lease and the classification of the lease. Arrangements not within the scope of the accounting
standard are accounted for either as a sales or services arrangement, as applicable.
A lease arrangement that transfers substantially all of the benefits and risks incident to
ownership of the equipment is classified as a sales-type lease based on the criteria established in
the accounting standard; otherwise the lease is classified as an operating lease. Prior to
commencement of the lease term for the equipment, the Company may modify certain payment terms or
make concessions. If these circumstances occur, the Company reassesses the classification of the
lease based on the modified terms and conditions.
For sales-type leases, the revenue allocated to the System Deliverable is recognized when the
lease term commences, which the Company deems to be when all of the following conditions have been
met: (i) the projector, sound system and screen system have been installed and are in full working
condition, (ii) the 3D glasses cleaning machine, if applicable, has been delivered,
39
(iii) projectionist training has been completed, and (iv) the earlier of (a) receipt of the written
customer acceptance certifying the completion of installation and run-in testing of the equipment
and the completion of projectionist training or (b) public opening of the theater, provided
collectibility is reasonably assured.
The initial revenue recognized for sales-type leases consists of the initial payments received
and the present value of future initial payments and fixed minimum ongoing payments computed at the
interest rate implicit in the lease. Contingent payments in excess of the fixed minimum payments
are recognized when reported by theater operators, provided collectibility is reasonably assured.
The determination of the fair value of the leased equipment requires judgment and can impact
the split between initial revenue and finance income over the lease term.
For operating leases, initial payments and fixed minimum ongoing payments are recognized as
revenue on a straight-line basis over the lease term. For operating leases, the lease term is
considered to commence when all of the following conditions have been met: (i) the projector, sound
system and screen system have been installed and are in full working condition, (ii) the 3D glasses
cleaning machine, if applicable, has been delivered, (iii) projectionist training has been
completed, and (iv) the earlier of (a) receipt of the written customer acceptance certifying the
completion of installation and run-in testing of the equipment and the completion of projectionist
training or (b) public opening of the theater. Contingent payments in excess of fixed minimum
ongoing payments are recognized as revenue when reported by theater operators, provided
collectibility is reasonably assured.
For joint revenue sharing arrangements, where the Company receives a portion of a theaters
box-office and concession revenue in exchange for placing a theater system at the theater
operators venue, revenue is recognized when box-office and concession revenues are reported by the
theater operator, provided collectibility is reasonably assured.
Equipment and components allocated to be used in future joint revenue sharing arrangements, as
well as direct labor costs and an allocation of direct production costs, are included in assets
under construction until such equipment is installed and in working condition, at which time the
equipment is depreciated on a straight-line basis over the lesser of the term of the joint revenue
sharing arrangement and the equipments anticipated useful life.
Finance Income
Finance income is recognized over the term of the lease or over the period of time specified
in the sales arrangement, provided collectibility is reasonably assured. Finance income recognition
ceases when the Company determines that the associated receivable is not recoverable.
Terminations, Consensual Buyouts and Concessions
The Company enters into theater system arrangements with customers that provide for customer
payment obligations prior to the scheduled installation of the theater system. During the period of
time between signing and the installation of the theater system, which may extend several years,
certain customers may be unable to, or elect not to, proceed with the theater system installation
for a number of reasons including business considerations, or the inability to obtain certain
consents, approvals or financing. Once the determination is made that the customer will not proceed
with installation, the arrangement may be terminated under the default provisions of the
arrangement or by mutual agreement between the Company and the customer (a consensual buyout).
Terminations by default are situations when a customer does not meet the payment obligations under
an arrangement and the Company retains the amounts paid by the customer. Under a consensual buyout,
the Company and the customer agree, in writing, to a settlement and to release each other of any
further obligations under the arrangement or an arbitrated settlement is reached. Any initial
payments retained or additional payments received by the Company are recognized as revenue when the
settlement arrangements are executed and the cash is received, respectively. These termination and
consensual buyout amounts are recognized in Other revenues.
In addition, the Company could agree with customers to convert their obligations for other
theater system configurations that have not yet been installed to arrangements to acquire or lease
the IMAX digital theater system. The Company considers these situations to be a termination of the
previous arrangement and origination of a new arrangement for the IMAX digital theater system. The
Company continues to defer an amount of any initial fees received from the customer such that the
aggregate of the fees deferred and the net present value of the future fixed initial and ongoing
payments to be received from the customer equals the fair value of the IMAX digital theater system
to be leased or acquired by the customer. Any residual portion of the initial fees received from
the customer for the terminated theater system is recorded in Other revenues at the time when the
obligation for the original theater system is terminated and the new theater system arrangement is
signed.
40
The Company may offer certain incentives to customers to complete theater system transactions
including payment concessions or free services and products such as film licenses or 3D glasses.
Reductions in, and deferral of, payments are taken into account in determining the sales price
either by a direct reduction in the sales price or a reduction of payments to be discounted in
accordance with the Leases or Interest Topics of the FASB ASC. Free products and services are
accounted for as separate units of accounting. Other consideration given by the Company to
customers are accounted for in accordance with the Revenue Recognition Topic of the FASB ASC.
Maintenance and Extended Warranty Services
Maintenance and extended warranty services may be provided under a multiple element
arrangement or as a separately priced contract. Revenues related to these services are deferred and
recognized on a straight-line basis over the contract period and are recognized in Services
revenues. Maintenance and extended warranty services includes maintenance of the customers
equipment and replacement parts. Under certain maintenance arrangements, maintenance services may
include additional training services to the customers technicians. All costs associated with this
maintenance and extended warranty program are expensed as incurred. A loss on maintenance and
extended warranty services is recognized if the expected cost of providing the services under the
contracts exceeds the related deferred revenue.
Film Production and IMAX DMR Services
In certain film arrangements, the Company produces a film financed by third parties, whereby
the third party retains the copyright and the Company obtains exclusive distribution rights. Under
these arrangements, the Company is entitled to receive a fixed fee or to retain as a fee the excess
of funding over cost of production (the production fee). The third parties receive a portion of
the revenues received by the Company on distributing the film, which is charged to costs and
expenses applicable to revenues-services. The production fees are deferred, and recognized as a
reduction in the cost of the film, based on the ratio of the Companys distribution revenues
recognized in the current period to the ultimate distribution revenues expected from the film.
Revenue from film production services where the Company does not hold the associated
distribution rights are recognized in Services revenue when performance of the contractual service
is complete, provided there is persuasive evidence of an agreement, the fee is fixed or
determinable and collectibility is reasonably assured.
Revenues from digitally re-mastering (IMAX DMR) films where third parties own or hold the
copyrights and the rights to distribute the film are derived in the form of processing fees and
recoupments calculated as a percentage of box-office receipts generated from the re-mastered films.
Processing fees are recognized as Services revenue when the performance of the related re-mastering
service is completed, provided there is persuasive evidence of an arrangement, the fee is fixed or
determinable and collectibility is reasonably assured. Recoupments, calculated as a percentage of
box-office receipts, are recognized as Services revenues when box-office receipts are reported by
the third party that owns or holds the related film right, provided collectibility is reasonably
assured.
Losses on film production and IMAX DMR services are recognized as costs and expenses
applicable to revenues-services in the period when it is determined that the Companys estimate of
total revenues to be realized by the Company will not exceed estimated total production costs to be
expended on the film production and the cost of IMAX DMR services.
Film Distribution
Revenue from the licensing of films is recognized in Services revenues when persuasive
evidence of a licensing arrangement exists, the film has been completed and delivered, the license
period has begun, the fee is fixed or determinable and collectibility is reasonably assured. When
license fees are based on a percentage of box-office receipts, revenue is recognized when
box-office receipts are reported by exhibitors, provided collectibility is reasonably assured.
Film Post-Production Services
Revenues from post-production film services are recognized in Services revenue when
performance of the contracted services is complete provided there is persuasive evidence of an
arrangement, the fee is fixed or determinable and collectibility is reasonably assured.
41
Theater Operations Revenue
The Company recognizes revenue in Services revenue from its owned and operated theaters
resulting from box-office ticket and concession sales as tickets are sold, films are shown and upon
the sale of various concessions. The sales are cash or credit card transactions with theatergoers
based on fixed prices per seat or per concession item.
In addition, the Company enters into commercial arrangements with third party theater owners
resulting in the sharing of profits and losses which are recognized in Services revenue when
reported by such theaters. The Company also provides management services to certain theaters and
recognizes revenue over the term of such services.
Other
Revenues on camera rentals are recognized in Rental revenue over the rental period.
Revenue from the sale of 3D glasses is recognized in Equipment and product sales revenue when
the 3D glasses have been delivered to the customer.
Other service revenues are recognized in Services revenues when the performance of contracted
services is complete.
Allowances for Accounts Receivable and Financing Receivables
Allowances for doubtful accounts receivable are based on the Companys assessment of the
collectibility of specific customer balances, which is based upon a review of the customers credit
worthiness, past collection history and the underlying asset value of the equipment, where
applicable. Interest on overdue accounts receivable is recognized as income as the amounts are
collected.
The Company monitors the performance of the theaters to which it has leased or sold theater
systems which are subject to ongoing payments. When facts and circumstances indicate that there is
a potential impairment in the accounts receivable, net investment in lease or a financing
receivable, the Company will evaluate the potential outcome of either renegotiations involving
changes in the terms of the receivable or defaults on the existing lease or financed sale
agreements. The Company will record a provision if it is considered probable that the Company will
be unable to collect all amounts due under the contractual terms of the arrangement or a
renegotiated lease amount will cause a reclassification of the sales-type lease to an operating
lease.
When the net investment in lease or the financing receivable is impaired, the Company will
recognize a provision for the difference between the carrying value in the investment and the
present value of expected future cash flows discounted using the effective interest rate for the
net investment in the lease or the financing receivable. If the Company expects to recover the
theater system, the provision is equal to the excess of the carrying value of the investment over
the fair value of the equipment.
When the minimum lease payments are renegotiated and the lease continues to be classified as a
sales-type lease, the reduction in payments is applied to reduce unearned finance income.
These provisions are adjusted when there is a significant change in the amount or timing of
the expected future cash flows or when actual cash flows differ from cash flow previously expected.
Once a net investment in lease or financing receivable is considered impaired, the Company
does not recognize interest income until the collectibility issues are resolved. When finance
income is not recognized, any payments received are applied against outstanding gross minimum lease
amounts receivable or gross receivables from financed sales.
Inventories
Inventories are carried at the lower of cost, determined on an average cost basis, and net
realizable value except for raw materials, which are carried out at the lower of cost and
replacement cost. Finished goods and work-in-process include the cost of raw materials, direct
labor, theater design costs, and an applicable share of manufacturing overhead costs.
The costs related to theater systems under sales and sales-type lease arrangement are relieved
from inventory to costs and expenses applicable to revenues-equipment and product sales when
revenue recognition criteria are met. The costs related to theater systems under operating lease
arrangements and joint revenue sharing arrangements are transferred from inventory to assets under
construction
42
in property, plant and equipment when allocated to a signed joint revenue sharing arrangement
or when the arrangement is first classified as an operating lease.
The Company records provisions for excess and obsolete inventory based upon current estimates
of future events and conditions, including the anticipated installation dates for the current
backlog of theater system contracts, technological developments, signings in negotiation, growth
prospects within the customers ultimate marketplace and anticipated market acceptance of the
Companys current and pending theater systems.
Finished goods inventories can contain theater systems for which title has passed to the
Companys customer, under the contract, but the revenue recognition criteria as discussed above
have not been met.
Asset Impairments
The Company performs an impairment test on its goodwill on an annual basis, coincident with
the year-end, as well as in quarters where events or changes in circumstances suggest that the
carrying amount may not be recoverable.
Goodwill impairment is assessed at the reporting unit level by comparing the units carrying
value, including goodwill, to the fair value of the unit. Significant estimates are involved in the
impairment test. The carrying values of each unit are subject to allocations of certain assets and
liabilities that the Company has applied in a systematic and rational manner. The fair value of the
Companys units is assessed using a discounted cash flow model. The model is constructed using the
Companys budget and long-range plan as a base.
Long-lived asset impairment testing is performed at the lowest level of an asset group at
which identifiable cash flows are largely independent. In performing its review for recoverability,
the Company estimates the future cash flows expected to result from the use of the asset or asset
group and its eventual disposition. If the sum of the expected future cash flows is less than the
carrying amount of the asset or asset group, an impairment loss is recognized in the consolidated
statement of operations. Measurement of the impairment loss is based on the excess of the carrying
amount of the asset or asset group over the fair value calculated using discounted expected future
cash flows.
The Companys estimates of future cash flows involve anticipating future revenue streams,
which contain many assumptions that are subject to variability, as well as estimates for future
cash outlays, the amounts of which, and the timing of which are both uncertain. Actual results that
differ from the Companys budget and long-range plan could result in a significantly different
result to an impairment test, which could impact earnings.
Foreign Currency Translation
Monetary assets and liabilities of the Companys operations which are denominated in
currencies other than the functional currency are translated into the functional currency at the
exchange rates prevailing at the end of the period. Non-monetary items are translated at historical
exchange rates. Revenue and expense transactions are translated at exchange rates prevalent at the
transaction date. Such exchange gains and losses are included in the determination of earnings in
the period in which they arise.
Foreign currency derivatives are recognized and measured on the balance sheet at fair value.
Changes in the fair value (gains or losses) are recognized in the consolidated statement of
operations except for derivatives designated and qualifying as foreign currency hedging
instruments. For foreign currency hedging instruments, the effective portion of the gain or loss in
a hedge of a forecasted transaction is reported in other comprehensive income and reclassified to
the consolidated statement of operations when the forecasted transaction occurs. Any ineffective
portion is recognized immediately in the consolidated statement of operations.
Pension Plan and Postretirement Benefit Obligations Assumptions
The Companys pension plan and postretirement benefit obligations and related costs are
calculated using actuarial concepts, within the framework of the Compensation Retirement
Benefits Topic of the FASB ASC. A critical assumption to this accounting is the discount rate. The
Company evaluates this critical assumption annually or when otherwise required to by accounting
standards. Other assumptions include factors such as expected retirement date, mortality rate, rate
of compensation increase, and estimates of inflation.
The discount rate enables the Company to state expected future cash payments for benefits as a
present value on the measurement date. The guideline for setting this rate is a high-quality
long-term corporate bond rate. A lower discount rate increases the present
43
value of benefit obligations and increases pension expense. The Companys discount rate was
determined by considering the average of pension yield curves constructed from a large population
of high-quality corporate bonds. The resulting discount rate reflects the matching of plan
liability cash flows to the yield curves.
The discount rate used is a key assumption in the determination of the pension benefit
obligation and expense. A 1.0% change in the discount rate used in the annual revaluation could
result in a $1.7 $2.0 million increase or decrease in the pension benefit obligation with a
corresponding benefit or charge recognized in other comprehensive income in the year. A one year
delay in Mr. Gelfonds retirement date would increase the discount rate by 0.5% and have a less
than $0.2 million impact on the expected pension payment.
Deferred Tax Asset Valuation
As at June 30, 2010, the Company had net deferred income tax assets of $nil. The Companys
management assesses realization of its deferred tax assets based on all available evidence in order
to conclude whether it is more likely than not that the deferred tax assets will be realized.
Available evidence considered by the Company includes, but is not limited to, the Companys
historic operation results, projected future operating earnings results, reversing temporary
differences, contracted sales backlog at June 30, 2010, changing business circumstances, and the
ability to realize certain deferred tax assets through loss and tax credit carry-back and
carry-forward strategies. At June 30, 2010, the Company has determined that based on the weight of
the available evidence, both positive and negative, a full valuation allowance for the net deferred
tax assets was required. However, the Company believes that, based on current trends, it is
reasonably possible that some or all of the valuation allowance will be released in a subsequent
period.
When there is a change in circumstances that causes a change in judgment about the
realizability of the deferred tax assets, the Company would adjust all or a portion of the
applicable valuation allowance in the period when such change occurs.
Tax Exposures
The Company is subject to ongoing tax exposures, examinations and assessments in various
jurisdictions. Accordingly, the Company may incur additional tax expense based upon the outcomes of
such matters. In addition, when applicable, the Company adjusts tax expense to reflect the
Companys ongoing assessments of such matters which require judgment and can materially increase or
decrease its effective rate as well as impact operating results. The Company provides for such
exposures in accordance with Income Taxes Topic of the FASB ASC.
Stock-Based Compensation
The Company utilizes a lattice-binomial option-pricing model (the Binomial Model) to
determine the fair value of stock-based payment awards. The fair value determined by the Binomial
Model is affected by the Companys stock price as well as assumptions regarding a number of highly
complex and subjective variables. These variables include, but are not limited to, the Companys
expected stock price volatility over the term of the awards, and actual and projected employee
stock option exercise behaviors. The Binomial Model also considers the expected exercise multiple
which is the multiple of exercise price to grant price at which exercises are expected to occur on
average. Option-pricing models were developed for use in estimating the value of traded options
that have no vesting or hedging restrictions and are fully transferable. Because the Companys
employee stock options and stock appreciation rights (SARs) have certain characteristics that are
significantly different from traded options, and because changes in the subjective assumptions can
materially affect the estimated value, in managements opinion, the Binomial Model best provides an
accurate measure of the fair value of the Companys employee stock options and SARs. Although the
fair value of employee stock options and SARs are determined in accordance with the Equity topic of
the FASB ASC using an option-pricing model, that value may not be indicative of the fair value
observed in a willing buyer/willing seller market transaction.
Impact of Recently Issued Accounting Pronouncements
See note 2 to the interim condensed consolidated financial statements in Item 1. for
information regarding the Companys recent changes in accounting policies and the impact of
recently issued accounting pronouncements on the Companys financial condition.
44
RESULTS OF OPERATIONS
As identified in note 16 to the accompanying consolidated financial statements in Item 1, the
Company has 8 reportable segments identified by category of product sold or service provided: IMAX
systems; theater system maintenance; joint revenue sharing arrangements; film production and IMAX
DMR; film distribution; film post-production; theater operations; and other. The IMAX systems
segment designs, manufactures, sells or leases IMAX theater projection system equipment. The
theater system maintenance segment maintains IMAX theater projection system equipment in the IMAX
theater network. The joint revenue sharing arrangements segment installs IMAX theater projection
system equipment to an exhibitor in exchange for a certain percentage of box-office and concession
revenue. The film production and IMAX DMR segment produces films and performs film re-mastering
services. The film distribution segment distributes films for which the Company has distribution
rights. The film post-production segment provides film post-production and film print services. The
theater operations segment owns and operates certain IMAX theaters. The other segment includes
camera rentals and other miscellaneous items. The accounting policies of the segments are the same
as those described in note 2 to the audited consolidated financial statements included in the
Companys 2009 Form 10-K.
The Companys Managements Discussion and Analysis of Financial Condition and Results of
Operations have been organized and discussed with respect to the above stated segments. Management
feels that a discussion and analysis based on its segments is significantly more relevant as the
Companys Consolidated Statements of Operations captions combine results from several segments.
Three Months Ended June 30, 2010 Versus Three Months Ended June 30, 2009
The Company reported net income of $13.3 million or $0.21 per basic share and $0.20 per
diluted share for the second quarter of 2010, as compared to net income of $2.6 million or $0.06
per share and $0.05 per share on a diluted basis for the second quarter of 2009. Net income for the
quarter includes a $4.9 million recovery (2009 $3.7 million expense) or $0.07 per diluted share
for variable share-based compensation expense primarily due to the decrease in the Companys stock
price during the quarter (from $17.99 per share to $14.60 per share) and its impact on SARs and
restricted common shares. Excluding the impact of variable share-based compensation expense, net
income would have been $8.4 million or $0.13 per diluted share in the second quarter of 2010 as
compared to net income of $6.2 million or $0.13 per diluted share for the second quarter of 2009.
At present, the Company has no intention to issue such variable
awards in the future. A foreign exchange loss related to the Canadian
dollar and expenses associated with the increase in global sales
activity and new business initiatives negatively impacted the quarter
by approximately $0.03 per share.
The following table sets forth the breakdown of revenue and gross margin by category:
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
Gross Margin |
|
|
|
Three Months Ended June 30, |
|
|
Three Months Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
IMAX Systems |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and sales-type leases(1) |
|
$ |
14,428 |
|
|
$ |
6,029 |
|
|
$ |
7,216 |
|
|
$ |
2,756 |
|
Ongoing rent, fees, and finance income(2) |
|
|
2,901 |
|
|
|
2,310 |
|
|
|
2,702 |
|
|
|
1,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,329 |
|
|
|
8,339 |
|
|
|
9,918 |
|
|
|
4,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theater System Maintenance |
|
|
5,102 |
|
|
|
4,433 |
|
|
|
2,051 |
|
|
|
2,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint Revenue Sharing Arrangements |
|
|
8,494 |
|
|
|
7,193 |
|
|
|
6,501 |
|
|
|
4,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production and IMAX DMR |
|
|
14,540 |
|
|
|
12,135 |
|
|
|
6,823 |
|
|
|
7,914 |
|
Distribution |
|
|
3,870 |
|
|
|
3,494 |
|
|
|
719 |
|
|
|
654 |
|
Post-production |
|
|
2,326 |
|
|
|
515 |
|
|
|
837 |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,736 |
|
|
|
16,144 |
|
|
|
8,379 |
|
|
|
8,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theater Operations(3) |
|
|
2,954 |
|
|
|
3,586 |
|
|
|
152 |
|
|
|
534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
983 |
|
|
|
667 |
|
|
|
39 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
55,598 |
|
|
$ |
40,362 |
|
|
$ |
27,040 |
|
|
$ |
20,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes initial rents and fees and the present value of fixed minimum rents and fees from
equipment, sales and sales-type lease transactions. |
|
(2) |
|
Includes rental income from operating leases, contingent rents from sales-type leases,
contingent fees from sales arrangements and finance income. |
|
(3) |
|
Excludes the impact of discontinued operations. |
Revenues and Gross Margin
The Companys revenues for the second quarter of 2010 increased by 37.7% to $55.6 million from
$40.4 million in the same period last year due in large part to increases in revenue from IMAX
systems, joint revenue sharing arrangements, and film. The gross margin across all segments in the
second quarter of 2010 was $27.0 million, or 48.6% of total revenue, compared to $20.7 million, or
51.3% of total revenue in the second quarter of 2009.
IMAX Systems
IMAX systems revenue increased 107.8% to $17.3 million in the second quarter of 2010 as
compared to $8.3 million in the second quarter of 2009, resulting primarily from an increase in the
number of systems installed and recognized as compared to the prior year comparative period. In the
second quarter of 2010, an amount of $nil was charged against revenues relating to a termination of
a sales-type arrangement (2009 $0.4 million). Settlement revenue was $nil for both the three
months ended June 30, 2010 and the three months ended June 30, 2009.
Revenue from sales and sales-type leases increased 139.3% to $14.4 million in the second
quarter of 2010 from $6.0 million in the second quarter of 2009. The Company recognized revenue on
6 full, new theater systems which qualified as either sales or sales-type leases in the second
quarter of 2010, with a total value of $9.4 million, as compared to 3 in the second quarter of 2009
with a total value of $4.3 million. The Company also recognized revenue on 11 digital upgrades in
the second quarter of 2010, with a total value of $4.9 million, as compared to 2 in the second
quarter of 2009 with a total value of $2.1 million. The second quarter of 2009 included revenues
associated with the installation of one MPX projection system and its subsequent digital upgrade.
The Companys policy was to defer revenue recognition until such time as the fair value of the
digital upgrade became known or the digital upgrade was delivered. Digital upgrades also have lower
sales prices and gross margin than full theater system installations. The Company has decided to
offer digital upgrades at lower selling prices for strategic reasons since the Company believes
that digital systems increase flexibility and profitability for the Companys existing exhibition
customers. There were no used systems installed during the three months ended June 30, 2010 or
during the three months ended June 30, 2009.
46
Average revenue per full, new sales and sales-type lease system was $1.6 million for the three
months ended June 30, 2010, as compared to $1.4 million for the three months ended June 30, 2009.
Average revenue per full, new sale and sales-type lease system was higher in the second quarter of
2010 compared to the same year ago period due to the mix of units sold in the quarter (one GT
system versus none last year). Average revenue per digital upgrade was $0.4 million for the three
months ended June 30, 2010, as compared to $1.1 million for the three months ended June 30, 2009.
Average revenue per digital upgrade was higher during the second quarter of 2009 due to revenue
associated with the installation of one projection system and its subsequent digital upgrade.
Revenues associated with the installation of a projection system and its subsequent digital upgrade
are typically higher than a single digital upgrade installation. The breakdown in mix of sales and
sales-type lease and joint revenue sharing arrangement (see discussion below) installations by
theater system configuration for the second quarter of 2010 and 2009 is outlined in the table
below.
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Ended June 30, |
|
|
2010 |
|
2009 |
Sales and Sales-type lease systems installed and recognized |
|
|
|
|
|
|
|
|
IMAX 3D GT |
|
|
1 |
|
|
|
|
|
IMAX digital |
|
|
16 |
(1) |
|
|
5 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
17 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
Joint revenue sharing arrangements installed and operating |
|
|
|
|
|
|
|
|
IMAX digital |
|
|
4 |
(1) |
|
|
24 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
21 |
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes the digital upgrade of 11 systems (all sales arrangements) from film-based to
digital. |
|
(2) |
|
Includes the digital upgrade of 4 systems (2 sales arrangements and 2 systems under a joint
revenue sharing arrangement) from film-based to digital. |
It is the Companys policy that once a digital upgrade is provided or the fair value for the
upgrade is established, the Company allocates total contract consideration, including any upgrade
revenues, between the delivered and undelivered elements on a residual basis and recognizes the
revenue allocated to the delivered elements with their associated costs. The Company did not
recognize revenue on any theater systems under a sales arrangement that was previously deferred
during the three months ended June 30, 2010. During the three months ended June 30, 2009, one of
the digital upgrades recognized related to a sales arrangement that had been previously deferred.
At June 30, 2010, there were no systems deferred under the Companys digital upgrade policy. At
June 30, 2009, there was one system that was deferred under the Companys digital upgrade policy
that was recognized in the third quarter of 2009.
Settlement revenue was $nil for both the three months ended June 30, 2010 and the three months
ended June 30, 2009.
IMAX theater systems gross margin from full, new sales and sale-type leases, excluding the
impact of settlements and asset impairment charges, decreased to 66.1% in the second quarter of
2010, from 66.9% in the second quarter of 2009. The gross margin on digital upgrades was $1.6
million in the second quarter of 2010 in comparison with $0.9 million in the prior year quarter. As
previously mentioned, the second quarter of 2010 does not include any revenues associated with the
installation of projection systems and their subsequent digital upgrade, as compared with the
installation of one MPX projection system and the subsequent digital upgrade in the prior year
comparative period.
Ongoing rent revenue and finance income increased to $2.9 million in the second quarter of
2010 from $2.3 million in the second quarter of 2009. Gross margin for ongoing rent and finance
income increased to $2.7 million in the second quarter of 2010 from $1.8 million in the second
quarter of 2009. The increase in revenue and gross margin is primarily due to an increase in
additional rent recognized in the second quarter of 2010 as compared to the second quarter of 2009,
which is itself largely a result of an increase in gross box office generated by IMAX films in the
current quarter as compared to the prior year comparative period. Contingent fees included in this
caption amounted to $0.3 million in the second quarter of 2010 and less than $0.1 million in the
second quarter of 2009, respectively.
Theater System Maintenance
47
Theater system maintenance revenue increased 15.1% to $5.1 million during the second quarter
of 2010 as compared to $4.4 million in the second quarter of 2009. Theater system maintenance gross
margin was $2.1 million in the second quarter of 2010 as compared to $2.3 million in the prior year
comparative period. Maintenance revenue will continue to grow as the number of theaters in the IMAX
theater network grows.
Joint Revenue Sharing Arrangements
Revenue from joint revenue sharing arrangements increased 18.1% to $8.5 million in the second
quarter of 2010 compared to $7.2 million in the second quarter of 2009. The Company ended the
second quarter with 126 theaters under joint revenue sharing arrangements as compared to 91
theaters at the end of the second quarter of 2009. The increase in revenues from joint revenue
sharing arrangements was due to the greater number of theaters operating in the second quarter of
2010 as compared to the second quarter of 2009. During the quarter, the Company installed 4 full,
new theaters under joint revenue sharing arrangements, as compared to 22 new theaters during the
prior year quarter.
The gross margin from joint revenue sharing arrangements in the second quarter of 2010
increased to $6.5 million compared to $4.6 million in the second quarter of 2009. The increase in
gross margin was largely due to a greater number of joint revenue sharing theaters operating in the
second quarter of 2010 as compared to the second quarter of 2009 and lower launch and marketing
costs. Included in the calculation of second quarter gross margin were certain advertising,
marketing and selling expenses of $0.7 million, as compared to $1.5 million incurred in the prior
year period.
Film
Revenues from the Companys film segments increased 28.4% to $20.7 million in the second
quarter of 2010 from $16.1 million in the second quarter of 2009. Film production and IMAX DMR
revenues increased to $14.5 million in the second quarter of 2010 from $12.1 million in the second
quarter of 2009. The increase in film production and IMAX DMR revenues was due primarily to the
increase in the size of the commercial theater network of approximately 20% and an increase in the
average gross box office per theater for the quarter of approximately 18% ($487 thousand in the
current quarter as compared to $412 thousand in the prior year comparative period). Gross box
office generated by IMAX DMR films increased to $114.6 million for the second quarter of 2010 from
$84.2 million for the second quarter of 2009. Films exhibited in the second quarter of 2010
included Avatar: An IMAX 3D Experience, Alice in Wonderland: An IMAX 3D Experience, How To Train
Your Dragon: An IMAX 3D Experience, Iron Man 2: The IMAX Experience, Shrek Forever After: An IMAX
3D Experience, Prince of Persia: The Sands of Time: The IMAX Experience, Toy Story 3: An IMAX 3D
Experience and the first day of The Twilight Saga: Eclipse: The IMAX Experience, in comparison to
Monsters vs. Aliens: An IMAX 3D Experience, Star Trek: The IMAX Experience, Night at the Museum:
Battle of the Smithsonian: The IMAX Experience, and Transformers: Revenge of the Fallen: The IMAX
Experience exhibited in the second quarter of 2009.
Film distribution revenues increased 10.8% to $3.9 million in the second quarter of 2010 from
$3.5 million in the second quarter of 2009, due to the performance of Hubble 3D, which was released
during March 2010, and the continued strong performance of Under the Sea 3D, which was released
during Q1 2009. The Company did not distribute any new, original titles in the second quarter of
2010 or in the second quarter of 2009.
Film post-production revenues increased to $2.3 million in the second quarter of 2010 from
$0.5 million in the second quarter of 2009 due to increases in third party business activities.
The Companys gross margin from its film segments decreased in the second quarter of 2010 to
$8.4 million from $8.6 million in the second quarter of 2009. Film production and IMAX DMR gross
margin decreased to $6.8 million in the second quarter of 2010 from $7.9 million in the second
quarter of 2009 primarily due to higher DMR costs, including those associated with the increase in
the number of films exhibited in the second quarter of 2010 (8 titles) as compared to the second
quarter of 2009 (4 titles). The film distribution gross margin of $0.7 million in the second
quarter of 2010 was consistent with the comparable period last year. During the second quarter of
2010, the gross margin from post-production was $0.8 million as compared to less than $0.1 million
in 2009, driven largely by an increase in third party business.
Theater Operations
Theater operations revenue in the second quarter of 2010 decreased to $3.0 million compared to
the $3.6 million experienced in the second quarter of 2009. This decrease was primarily
attributable to a 19% decrease in attendance from the second quarter of 2009, while the average
ticket price remained relatively consistent as compared to the quarter ended June 30, 2009.
48
Theater operations gross margin decreased to $0.2 million in the second quarter of 2010 as
compared to $0.5 million in the second quarter of 2009 due to a decrease in revenues.
Other
Other revenue increased to $1.0 million in the second quarter of 2010 compared to $0.7 million
in the same period in 2009. Other revenue primarily includes revenue generated from the Companys
camera and rental business and after market sales of projection system parts and 3D glasses.
The gross margin on other revenue remained relatively consistent with the quarter ended June
30, 2009.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased to $11.1 million in the second quarter
of 2010 as compared to $12.3 million in the second quarter of 2009. The $1.2 million decrease
experienced from the prior year comparative period was largely the result of the following:
|
|
|
an $8.0 million decrease in the Companys stock-based compensation expense primarily due
to the decrease in the Companys stock price during the period (a decrease from $17.99 to
$14.60 per share this year as compared to an increase from $4.31 to $8.12 per share in the
prior year) and its impact on variable awards such as SARs. At present, the Company has no
intention to issue such variable awards in the future. |
These decreases were partially offset by:
|
|
|
a $3.4 million increase due to foreign exchange. During the second quarter of 2010, the
Company recorded a foreign exchange loss of $0.9 million due to the impact of a decrease in
exchange rates on foreign currency denominated working capital balances, unmatured and
un-hedged foreign currency forward contracts as compared to a gain of $2.5 million recorded
in the second quarter of 2009. See note 11(b) of the accompanying condensed consolidated
financial statements in Item 1. for more information; and |
|
|
|
a $3.5 million increase in staff-related and compensation costs relating primarily to
increased business activity, including (i) an increase in salaries and benefits of $2.5
million including a higher average Canadian dollar denominated salary expense, normal merit
increases and a one time charge of $0.5 million for statutory
retirement benefits to certain international employees, and
(ii) a $0.6 million increase in travel
and entertainment costs; and |
|
|
|
a $0.7 million increase in legal and professional fees, including work performed relating
to new business initiatives, such as the Companys investment in a 3D cable channel joint
venture with Discovery Communications and Sony Corp. of America. |
Research and Development
Research and development expenses were $1.2 million in the second quarter of 2010, which was
consistent with the level experienced in the second quarter of 2009. Through research and
development, the Company continues to design and develop digital technologies, cinema-based
equipment, software and other technologies to enhance its product offerings. The Company believes
that the motion picture industry is being positively affected by the development of digital
technologies, particularly in the areas of content creation (image capture), post-production
(editing and special effects), distribution and display. Consequently, the Company continues to
make significant investments in technologies to digitally enhance image resolution and quality of
motion picture films and convert monoscopic (2D) to stereoscopic (3D) images. The Company also
holds a number of patents, patents pending and intellectual property rights in these areas. In
addition, the Company has long-term relationships with key manufacturers and suppliers in digital
technology. However, there can be no assurance that the Company will be awarded patents covering
its technology or that competitors will not develop similar technologies.
In recent years, a number of companies have introduced digital 3D projection technology and
more and more Hollywood features are being exhibited in 3D using these technologies. The Company
believes that there are approximately 5,700 conventionally-sized screens in the U.S. multiplexes
equipped with such digital 3D systems. The Company believes that its many competitive strengths,
including the IMAX brand name, the quality and immersiveness of The IMAX Experience, its IMAX DMR
technology and its
49
patented theater geometry, significantly differentiate the Companys 3D presentations from any
other 3D presentation. Consistent with this view, the IMAX theaters have consistently outperformed
conventional theaters on a per-screen revenue basis for the films released to both IMAX 3D theaters
and conventional 3D theaters.
The Company expects to explore new areas of brand extension including: 3D in-home
entertainment technology, the digital re-mastering and 2D-to-3D conversion of movie and television
content; increased post-production opportunities, alternative theater content partnerships with
technology, studio programming, content and consumer electronics companies. Accordingly, the
Company anticipates increased research and development costs for 2010 compared with 2009. On June
2, 2010, the Company entered into a joint venture arrangement with Discovery Communications and
Sony Corp. of America to launch among the worlds first 3D television channels. The channel is
anticipated to have a wide array of 3D content, including IMAX 3D films. The Company believes this
is a highly strategic investment as it looks to expand the breadth of its 3D technology and
content.
Receivable Provisions, Net of Recoveries
Receivable provisions net of recoveries for accounts receivable and financing receivables
amounted to a net provision of $0.4 million and $0.5 million in the second quarter of 2010 and
2009, respectively.
The Companys accounts receivables and financing receivables are subject to credit risk. The
Companys accounts receivable and financing receivables are concentrated with the theater
exhibition industry and film entertainment industry. To minimize the Companys credit risk, the
Company retains title to underlying theater systems leased, performs initial and ongoing credit
evaluations of its customers and makes ongoing provisions for its estimate of potentially
uncollectible amounts. Accordingly, the Company believes it has adequately protected itself against
exposures relating to receivables and contractual commitments. The Companys policy is to not use
any financial instruments for trading or other speculative purposes.
Interest Income and Expense
Interest income increased to less than $0.1 million in the second quarter of 2010, which was
relatively consistent with the level experienced in the second quarter of 2009.
Interest expense decreased to $0.5 million in the second quarter of 2010 as compared to $4.1
million in the second quarter of 2009. In 2009, the Company repurchased all $160.0 million
aggregate principal amount of the outstanding 9.625% Senior Notes due December 1, 2010 (the Senior
Notes), which resulted in a decrease in the Companys interest expense for the quarter ended June
30, 2010. Included in interest expense is the amortization of deferred finance costs of less than
$0.1 million in the second quarter of 2010 and $0.3 million in the second quarter of 2009. The
Companys policy is to defer and amortize all the costs relating to debt financing which are paid
directly to the debt provider, over the life of the debt instrument.
Gain on Repurchase of Senior Notes due December 2010
On June 9, 2009, the Company entered into an agreement with funds managed by Plainfield Asset
Management LLC (collectively, Plainfield), pursuant to which the Company repurchased $44.3
million aggregate principal amount of the Companys 9.625% Senior Notes from Plainfield at a price
of $977.50 per $1,000 principal amount of Senior Notes. The Company paid cash to Plainfield and as
a result, reacquired its bonds, thereby releasing the Company from further obligations to
Plainfield under the indenture governing the Senior Notes. The Company accounted for the bond
repurchase in accordance with Accounting Principles Board Opinion No. 26 Early Extinguishment of
Debt, whereby the net carrying amount of the debt extinguished was the face value of the bonds
($44.3 million) adjusted for any unamortized premium, discount and costs of issuance, which
resulted in a gain of $0.4 million in the three and six month periods ended June 30, 2009.
Income Taxes
The Companys effective tax rate differs from the statutory tax rate and will vary from
year to year primarily as a result of numerous permanent differences, investments and other tax
credits, the provision for income taxes at different rates in foreign and other provincial
jurisdictions, enacted statutory tax rate increases or reductions in the year, changes due to
foreign exchange, changes in the Companys valuation allowance based on the Companys
recoverability assessments of deferred tax assets, and favourable or unfavourable resolution of
various tax examinations. There was no change in the Companys estimates of the
recoverability of its deferred tax assets based on an analysis of both positive and negative
evidence including projected future earnings. As at June 30, 2010, the Company had a gross
deferred income tax asset of $61.9 million, against which the Company is carrying a $61.9 million
50
valuation allowance. The Company recorded an income tax provision of $0.4 million for the
three months ended June 30, 2010, of which $0.1 million is related to an increase in unrecognized
tax benefits. For the three months ended June 30, 2009, the Company recorded an income tax
provision of $0.3 million, of which $0.1 million was related to an increase in unrecognized tax
benefits.
Six Months Ended June 30, 2010 Versus Six Months Ended June 30, 2009
The Company reported net income of $39.9 million or $0.63 per basic share and $0.60 per
diluted share for the six months ended June 30, 2010, as compared to a net loss of less than
$0.1 million or $nil per share on a basic and diluted basis for the six months ended June 30, 2009.
Net income for the six months ended June 30, 2010 includes a $3.8 million charge (2009 -
$3.7 million) or $0.06 per diluted share for variable share-based compensation expense primarily
due to the increase in the Companys stock price during the six months ended June 30, 2010 (from
$13.31 per share to $14.60 per share) and its impact on SARs and restricted common shares.
Excluding the impact of variable share-based compensation expense, net income would have been
$43.7 million or $0.66 per diluted share in the six months ended June 30, 2010 as compared to net
income of $3.7 million or $0.08 per diluted share for the six months ended June 30, 2009.
The following table sets forth the breakdown of revenue and gross margin by category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
Gross Margin |
|
|
|
Six Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
IMAX Systems |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and sales-type leases(1) |
|
$ |
22,959 |
|
|
$ |
19,817 |
|
|
$ |
9,279 |
|
|
$ |
9,477 |
|
Ongoing rent, fees, and finance income(2) |
|
|
5,323 |
|
|
|
4,975 |
|
|
|
5,139 |
|
|
|
3,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,282 |
|
|
|
24,792 |
|
|
|
14,418 |
|
|
|
13,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theater System Maintenance |
|
|
10,068 |
|
|
|
8,793 |
|
|
|
4,360 |
|
|
|
4,631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint Revenue Sharing Arrangements |
|
|
27,430 |
|
|
|
9,100 |
|
|
|
23,313 |
|
|
|
4,980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production and IMAX DMR |
|
|
37,992 |
|
|
|
15,836 |
|
|
|
26,324 |
|
|
|
9,684 |
|
Distribution |
|
|
7,142 |
|
|
|
6,736 |
|
|
|
1,461 |
|
|
|
989 |
|
Post-production |
|
|
4,918 |
|
|
|
1,387 |
|
|
|
2,891 |
|
|
|
695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,052 |
|
|
|
23,959 |
|
|
|
30,676 |
|
|
|
11,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theater Operations(3) |
|
|
8,903 |
|
|
|
5,714 |
|
|
|
1,810 |
|
|
|
501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
3,646 |
|
|
|
1,140 |
|
|
|
762 |
|
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
128,381 |
|
|
$ |
73,498 |
|
|
$ |
75,339 |
|
|
$ |
34,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes initial rents and fees and the present value of fixed minimum rents and fees from
equipment, sales and sales-type lease transactions. |
|
(2) |
|
Includes rental income from operating leases, contingent rents from sales-type leases,
contingent fees from sales arrangements and finance income. |
|
(3) |
|
Excludes the impact of discontinued operations. |
Revenues and Gross Margin
The Companys revenues for the six months ended June 30, 2010 increased by 74.7% to
$128.4 million from $73.5 million in the same period last year due in large part to increases in
revenue from IMAX systems, joint revenue sharing arrangements, and film. The gross margin across
all segments in the six months ended June 30, 2010 was $75.3 million, or 58.7% of total revenue,
compared to $34.9 million, or 47.5% of total revenue in the six months ended June 30, 2009.
51
IMAX Systems
IMAX systems revenue increased 14.1% to $28.3 million in the six months ended June 30, 2010 as
compared to $24.8 million in the six months ended June 30, 2009 resulting primarily from an
increase in the number of systems installed and recognized as compared to the prior year
comparative period. During the six months ended June 30, 2010, an amount of $nil was charged
against revenues relating to a termination of a sales-type lease arrangement (2009 $0.4 million).
In addition, the six months ended June 30, 2010 included settlement revenue of $nil as compared to
$1.2 million in the comparable period last year.
Revenue from sales and sales-type leases increased 15.9% to $23.0 million in the six months
ended June 30, 2010 from $19.8 million in the six months ended June 30, 2009. The Company
recognized revenue on 9 full, new theater systems which qualified as either sales or sales-type
leases in the six months ended June 30, 2010, with a total value of $14.1 million, versus 8 in the
six months ended June 30, 2009 with a total value of $12.4 million. Additionally, the Company
recognized revenue on 1 used system in the six months ended June 30, 2010 with a value of $0.9
million, versus 1 used system with a value of $0.5 million installed and recognized in the prior
year comparative period. The Company also recognized revenue on 20 digital upgrades in the six
months ended June 30, 2010, with a total value of $7.6 million, as compared to 5 in the six months
ended June 30, 2009 with a total value of $5.9 million. The first six months of 2009 included
revenues associated with the installation of 3 MPX projection systems and their subsequent digital
upgrades. The Companys policy was to defer revenue recognition until such time as the fair value
of the digital upgrade became known or the digital upgrade was delivered. Digital upgrades also
have lower sales prices and gross margin than a full theater installation. The Company has decided
to offer digital upgrades at lower selling prices for strategic reasons since the Company believes
that digital systems increase flexibility and profitability for the Companys existing exhibition
customers.
Average revenue per full, new sales and sales-type lease systems was $1.6 million for the six
months ended June 30, 2010 as compared to $1.6 million for the six months ended June 30, 2009.
Average revenue per digital upgrade was $0.4 million for the the six months ended June 30, 2010, as
compared to $1.2 million for the six months ended June 30, 2009. Average revenue per digital
upgrade was higher during the six months ended June 30, 2009 due to revenue associated with the
installation of three digital projections systems and their subsequent digital upgrades. Revenues
associated with the installation of a projection system and its digital upgrade are typically
higher than a single digital upgrade installation. The breakdown in mix of sales and sales-type
lease, joint revenue sharing arrangements (see discussion below) and operating lease installations
by theater system configuration for the six months ended June 30, 2010 and 2009 is outlined in the
table below.
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
Ended June 30, |
|
|
2010 |
|
2009 |
Sales and Sales-type lease systems installed and recognized |
|
|
|
|
|
|
|
|
IMAX 3D GT |
|
|
1 |
|
|
|
1 |
|
IMAX Dome |
|
|
1 |
|
|
|
|
|
IMAX 3D SR |
|
|
1 |
|
|
|
2 |
|
IMAX digital |
|
|
27 |
(1) |
|
|
11 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
30 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
Operating lease installed and operating |
|
|
|
|
|
|
|
|
IMAX 3D MPX |
|
|
|
|
|
|
1 |
|
Joint revenue sharing arrangements installed and operating |
|
|
|
|
|
|
|
|
IMAX digital |
|
|
10 |
(1) |
|
|
46 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
40 |
|
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes the digital upgrade of 21 systems (20 sales arrangements and 1 system under a joint
revenue sharing arrangement) from film-based to digital. |
|
(2) |
|
Includes the digital upgrade of 12 systems (4 sales arrangements, 1 operating lease
arrangement and 7 systems under a joint revenue sharing arrangement) from film-based to
digital. |
It is the Companys policy that once the digital upgrade is provided or the fair value for the
upgrade is established, the Company allocates total contract consideration, including any upgrade
revenues, between the delivered and undelivered elements on a residual
52
basis and recognizes the revenue allocated to the delivered elements with their associated
costs. In the six month period ended June 30, 2010, the Company did not recognize revenue on any
theater systems under a sales arrangement that was previously deferred. During the six months ended
June 30, 2009, 3 of the digital upgrades recognized related to a sales arrangement that had been
previously deferred. At June 30, 2010, there were no systems deferred under the Companys digital
upgrade policy. At June 30, 2009, there was one system deferred under the Companys digital upgrade
policy that was recognized in the third quarter of 2009.
Settlement revenue was $nil for the six months ended June 30, 2010 as compared to $1.2 million
in the six months ended June 30, 2009.
IMAX theater systems margin from full, new sales and sale-type leases, excluding the impact of
settlements and asset impairment charges, was 63.8% in the six months ended June 30, 2010, as
compared to 65.7% in the six months ended June 30, 2009. The gross margin on digital upgrades was
$1.3 million in the six months ended June 30, 2010 in comparison with $2.5 million in the six
months ended June 30, 2009. As previously mentioned, revenues recognized in the six months ended
June 30, 2009 included the total proceeds from three previously deferred MPX projection systems and
their digital upgrades. The gross margin on the sale of one used system recognized in the six
months ended June 30, 2010 was $0.1 million as compared to a loss of $0.2 million for one used unit
recognized in the comparable period last year.
Ongoing rent revenue and finance income increased to $5.3 million in the six months ended June
30, 2010 from $5.0 million in the six months ended June 30, 2009. Gross margin for ongoing rent and
finance income increased 30.0% to $5.1 million in the six months ended June 30, 2010 from
$4.0 million in the six months ended June 30, 2009. The change in revenue and gross margin is
primarily due to an increase in additional rent recognized in the six months ended June 30, 2010 as
compared to the six months ended June 30, 2009, which is itself a result of an increase in gross
box office generated by IMAX films in the six months ended June 30, 2010 as compared to the prior
year comparative period. Contingent fees included in this caption amounted to $0.4 million and
$0.1 million in the six months ended June 30, 2010 and 2009, respectively.
Theater System Maintenance
Theater system maintenance revenue increased 14.5% to $10.1 million during the six months
ended June 30, 2010 as compared to $8.8 million in the six months ended June 30, 2009. Theater
system maintenance gross margin was $4.4 million in the six months ended June 30, 2010 as compared
to $4.6 million in the six months ended June 30, 2009. Maintenance revenue will continue to grow as
the number of theaters in the IMAX theater network grows.
Joint Revenue Sharing Arrangements
Revenue from joint revenue sharing arrangements increased to $27.4 million in the six months
ended June 30, 2010 compared to $9.1 million in the six months ended June 30, 2009. The Company
ended the six month period with 126 theaters under joint revenue sharing arrangements in operation
as compared to 91 theaters in operation at June 30, 2009. The increase in revenues from joint
revenue sharing arrangements was due to the greater number of theaters operating, and the strong
performance of films exhibited during the six months ended June 30, 2010 as compared to the six
months ended June 30, 2009. During the six months ended June 30, 2010, the Company installed 9
full, new theaters under joint revenue sharing arrangements, as compared to 39 new theaters during
the prior year comparative period.
The gross margin from joint revenue sharing arrangements in the six months ended June 30, 2010
increased to $23.3 million from $5.0 million in the six months ended June 30, 2009. The increase
was largely due to a greater number of joint revenue sharing theaters operating in the six months
ended June 30, 2010 as compared to the six months ended June 30, 2009, as well as stronger film
performance. Included in the calculation of gross margin in the first six months of 2010 were
certain advertising, marketing and selling expenses of $1.3 million, as compared to $2.2 million
for such expenses in the prior year comparative period.
Film
The Companys revenues from its film segments increased 108.9% to $50.1 million in the six
months ended June 30, 2010 from $24.0 million in the six months ended June 30, 2009. Film
production and IMAX DMR revenues increased 139.9% to $38.0 million in the six months ended June 30,
2010 from $15.8 million in the six months ended June 30, 2009. The increase in film production and
IMAX DMR revenues was due primarily to the overall growth of the IMAX theater network and stronger
film performance by the films exhibited. Gross box office generated by IMAX DMR films was $347.4
million for the six months ended June 30, 2010 versus $112.7 million for the six months ended June
30, 2009, a 208% increase over year-to-year. Films exhibited in the six months ended June 30, 2010
included Avatar: An IMAX 3D Experience, Alice in Wonderland: An IMAX 3D Experience, How To Train
Your
53
Dragon: An IMAX 3D Experience, Iron Man 2: The IMAX Experience, Shrek Forever After: An IMAX
3D Experience, Prince of Persia: The Sands of Time: The IMAX Experience, Toy Story 3: An IMAX 3D
Experience and The Twilight Saga: Eclipse: The IMAX Experience, in comparison to The Day The Earth
Stood Still: The IMAX Experience, The Dark Knight: The IMAX Experience, Watchmen: The IMAX
Experience, Monsters vs. Aliens: An IMAX 3D Experience, Star Trek: The IMAX Experience, Night at
the Museum: Battle of the Smithsonian: The IMAX Experience, and Transformers: Revenge of the
Fallen: The IMAX Experience exhibited in the first six months of 2009. Film distribution revenues
increased 6.0% to $7.1 million in the six months ended June 30, 2010 from $6.7 million in the six
months ended June 30, 2009 due to the strong performance of Hubble 3D: An IMAX Experience, which
was released during March 2010, and the continued strong performance of Under The Sea 3D, which was
released during Q1 2009. Film post-production revenues increased to $4.9 million in the six months
ended June 30, 2010 from $1.4 million in the six months ended June 30, 2009, primarily due to an
increase in third party business.
The Companys gross margin from its film segments increased 169.8% in the six months ended
June 30, 2010 to $30.7 million from $11.4 million in the six months ended June 30, 2009. Film
production and IMAX DMR gross margins increased to $26.3 million from $9.7 million in the six
months ended June 30, 2009 largely due to an increase in IMAX DMR revenue. The film distribution
margin of $1.5 million in the six months ended June 30, 2010 was $0.5 million higher than the
$1.0 million experienced in the six months ended June 30, 2009. Film post-production gross margin
increased by $2.2 million due to an increase in third party business as compared to the prior year
period.
Theater Operations
Theater operations revenue in the six months ended June 30, 2010 increased to $8.9 million in
comparison to $5.7 million experienced in the six months ended June 30, 2009. This increase was
attributable to a 20% increase in average ticket price and a 29% increase in attendance over the
first six months of 2009, primarily as a result of the record performance of Avatar: An IMAX 3D
Experience in the six months ended June 30, 2010, as compared to the film performance as a whole in
the prior year comparative period.
Theater operations margin increased by $1.3 million to $1.8 million in the six months ended
June 30, 2010 as compared to $0.5 million in the six months ended June 30, 2009.
Other
Other revenue increased to
$3.6 million in the six months ended June 30, 2010 compared to
$1.1 million in the same period in 2009. Other revenue primarily includes revenue generated from
the Companys camera and rental business and after market sales of projection system parts and 3D
glasses.
The gross margin on other revenue was $0.8 million higher in the six months ended June 30,
2010 as compared to 2009.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $30.7 million in the six months
ended June 30, 2010 as compared to $23.2 million in 2009. The $7.5 million increase experienced
from the prior year comparative period was largely the result of the following:
|
|
|
a $1.9 million increase due to foreign exchange. During the six months ended June 30,
2010, the Company recorded a foreign exchange loss of $0.6 million due to the impact of a
decrease in exchange rates on foreign currency denominated working capital balances and
unmatured and un-hedged foreign currency forward contracts as compared to a gain of
$1.3 million recorded in the six months ended June 30, 2009. See note 11(b) of the
accompanying condensed consolidated financial statements in Item 1 for more information; and |
|
|
|
a $0.9 million increase in the Companys stock-based compensation expense primarily due
to the cost associated with stock options granted during the period; and |
|
|
|
a $5.0 million increase in staff-related costs and compensation costs relating primarily
to increased business activity, including (i) an increase in salaries and benefits of
$3.5 million including a higher average Canadian dollar denominated salary expense, normal
merit increases and a one time charge of
$0.4 million for statutory retirement benefits to certain
international employees, and (ii) a
$1.1 million increase in travel and entertainment costs; and |
54
|
|
|
a $1.3 million increase in legal and professional fees and other expenses, including work
performed related to new business initiatives, such as the Companys investment in a 3D
cable channel joint venture with Disney Communications and Sony Corp. of America. |
Research and Development
Research and development expenses increased to $2.5 million in the six months ended June 30,
2010 compared to $1.7 million in the six months ended June 30, 2009. The increased research and
development expenses for the six months ended June 30, 2010 compared to the prior year period are
primarily attributable to ongoing enhancements to the Companys digital projection technology.
Through research and development, the Company continues to design and develop digital technologies,
cinema-based equipment, software and other technologies to enhance its product offerings. The
Company believes that the motion picture industry is being positively affected by the development
of digital technologies, particularly in the areas of content creation (image capture),
post-production (editing and special effects), distribution and display. Consequently, the Company
continues to make significant investments in technologies to digitally enhance image resolution and
quality of motion picture films and convert monoscopic (2D) to stereoscopic (3D) images. The
Company also holds a number of patents, patents pending and intellectual property rights in these
areas. In addition, the Company has long-term relationships with key manufacturers and suppliers in
digital technology. However, there can be no assurance that the Company will be awarded patents
covering its technology or that competitors will not develop similar technologies.
In recent years, a number of companies have introduced digital 3D projection technology and
more and more Hollywood features are being exhibited in 3D using these technologies. The Company
believes that there are approximately 5,700 conventionally-sized screens in the U.S. multiplexes
equipped with such digital 3D systems. The Company believes that its many competitive strengths,
including the IMAX brand name, the quality and immersiveness of The IMAX Experience, its IMAX DMR
technology and its patented theater geometry, significantly differentiate the Companys 3D
presentations from any other 3D presentation. Consistent with this view, the IMAX theaters have
consistently outperformed conventional theaters on a per-screen revenue basis for the films
released to both IMAX 3D theaters and conventional 3D theaters.
The Company expects to explore new areas of brand extension including: 3D in-home
entertainment technology, the digital re-mastering and 2D-to-3D conversion of movie and television
content; increased post-production opportunities, alternative theater content partnerships with
technology, studio programming, content and consumer electronics companies. Accordingly, the
Company anticipates increased research and development costs for 2010 compared with 2009. On June
2, 2010, the Company entered into a joint venture arrangement with Discovery Communications and
Sony Corp. of America to launch among the worlds first 3D television channels. The channel is
anticipated to have a wide array of 3D content, including IMAX 3D films. The Company believes this
is a highly strategic investment as it looks to expand the breadth of its 3D technology and
content.
Receivable Provisions, Net of Recoveries
Receivable provisions net of recoveries for accounts receivable and financing receivables
amounted to a net provision of $0.4 million in the six months ended June 30, 2010 as compared to
$1.0 million in the six months ended June 30, 2009.
The Companys accounts receivables and financing receivables are subject to credit risk. These
receivables are concentrated with the leading theater exhibitors and studios in the film
entertainment industry. To minimize the Companys credit risk, the Company retains title to
underlying theater systems leased, performs initial and ongoing credit evaluations of its customers
and makes ongoing provisions for its estimate of potentially uncollectible amounts. Accordingly,
the Company believes it has adequately protected itself against exposures relating to receivables
and contractual commitments. The Companys policy is to not use any financial instruments for
trading or other speculative purposes.
Interest Income and Expense
Interest income increased to $0.3 million in the six months ended June 30, 2010 as compared to
less than $0.1 million in the six months ended June 30, 2009. The increase was largely due to
interest recorded during the first six months related to tax refunds.
Interest expense decreased to $1.2 million in the six months ended June 30, 2010 as compared
to $8.5 million in the six months ended June 30, 2009. In 2009, the Company repurchased all $160.0
million aggregate principal amount of the Senior Notes, which resulted in a decrease in the
Companys interest expense for the six months ended June 30, 2010. Included in interest expense is
the
55
amortization of deferred finance costs in the amount of $0.2 million in the six months ended
June 30, 2010 and $0.6 million in the six months ended June 30, 2009. The Companys policy is to
defer and amortize all the costs relating to debt financing which are paid directly to the debt
provider, over the life of the debt instrument.
Gain on Repurchase of Senior Notes due December 2010
On June 9, 2009, the Company entered into an agreement with funds managed by Plainfield Asset
Management LLC (collectively, Plainfield), pursuant to which the Company repurchased
$44.3 million aggregate principal amount of the Companys 9.625% Senior Notes from Plainfield at a
price of $977.50 per $1,000 principal amount of Senior Notes. The Company paid cash to Plainfield
and as a result, reacquired its bonds, thereby releasing the Company from further obligations to
Plainfield under the indenture governing the Senior Notes. The Company accounted for the bond
repurchase in accordance with Accounting Principles Board Opinion No. 26 Early Extinguishment of
Debt, whereby the net carrying amount of the debt extinguished was the face value of the bonds
($44.3 million) adjusted for any unamortized premium, discount and costs of issuance, which
resulted in a gain of $0.4 million in the three and six month periods ended June 30, 2009.
Outlook
Based on the Companys expectation of the total number of 2010 theater system installations,
particularly those under joint revenue sharing arrangements, and its estimate of the box office
performance of films to be released in 2010, the Company continues to anticipate higher revenues in
2010 as compared to 2009. Actual revenue for the first half of 2010 was higher than for the first
half of 2009 and the Company continues to expect higher revenues for the second half of 2010 as
compared to the prior year period.
In addition to the 19 theaters installed in the first and second quarters of 2010 (excluding
21 digital upgrades), the Company currently estimates that
approximately 49 to 63 (excluding digital upgrades) of the 187 IMAX
theaters in its backlog as at June 30, 2010 will be installed and
accepted in the last six months of 2010. In addition, the Company typically signs a number of
agreements for theater systems each year which are installed in the same calendar year in which
they are signed. By the end of 2010, the Companys total theater network is expected to have
increased by approximately 19% over the prior year and its commercial multiplex theater network by
approximately 26% over the prior year as the vast majority of the new 2010 systems are to be
installed in commercial settings. However, the Company cautions that theater system installations
slip from period to period in the course of the Companys business and such slippages remain a
recurring and unpredictable part of its business. These slippages and delays could impact the
timing of revenue recognition.
In addition to achieving record box office results in the first six months of 2010, the
Companys pace of IMAX theater system signings increased significantly in the first half of 2010 as
compared to the prior year. The Company signed deals for 98 theater systems during the first half
of 2010, as compared to 35 IMAX theater signings for all of 2009. The Company believes that this
increase in IMAX theater system signings will result in a larger IMAX theater network and,
accordingly, increased revenue for the Company over the longer term. In addition, the Company
anticipates that the elevated pace of signings in the first half of 2010 will continue for the
remainder of 2010.
The recent significant growth of the IMAX theater network is largely attributable to the
introduction of the Companys digital projector in 2008, which the Company believes provides the
differentiated experience that is consistent with what moviegoers have come to expect from the IMAX
brand, and is a compelling proposition for a large portion of its customer base for a number of
reasons. The savings to the studios as a result of eliminating film prints are considerable, as the
typical cost of an IMAX film print ranges from $20 thousand per 2D print to $45 thousand per 3D
print. Removing those costs significantly increases the profit of an IMAX release for studios
which, the Company believes, provides more incentive for studios to release their films to IMAX
theaters. The Company similarly believes that economics change favorably for its exhibition
clients, since the elimination of print costs (digital file delivery totals approximately $200 per
movie per system), and the increased programming flexibility that digital delivery provides,
allows theaters to program at least 12-14 IMAX DMR films per year, thereby increasing both customer
choice and total box-office revenue. The Company anticipates the
release of at least 7 additional
IMAX DMR films to the IMAX theater network in the remainder of 2010, for a year-end total of 14
IMAX DMR films and 1 IMAX original film exhibited in the calendar year. Finally, the Company
believes that digital transmission will ultimately allow attractive alternate programming, such as
live sporting events and concerts, to be shown, in the immersive environment of an IMAX theater. To
date, the Company has signed agreements with exhibitors for 365 digital projection systems, of
which 190 theaters were open to the public as at June 30, 2010. In addition, the Company intends to
continue to provide digital upgrades to its customers at lower margins for strategic reasons since
the Company believes that digital systems increase flexibility and profitability for the Companys
existing exhibition customers.
56
Expectations for 2010 performance are based in part on the Companys improved performance in
the first six months of 2010, which is attributable not only to the growth of the IMAX theater
network, but also to the strength of the first half of 2010 film slate. Avatar: An IMAX 3D
Experience alone achieved $181.2 million in worldwide box office results for the first six months
of 2010 on 297 IMAX screens, making the movie the highest grossing IMAX DMR film to date. The
Company cautions that future IMAX DMR films may not be able to achieve this level of box office
success, although the Company believes that it continues to be positively affected by long-term
benefits stemming at least in part from the box office success of Avatar: An IMAX 3D Experience,
including a significant increase in new signings for IMAX systems and an increase in agreements
with studios to release major Hollywood films to the IMAX theater network.
In the second quarter of 2010, the Company announced two multi-picture studio deals.
On April 27, 2010, the Company and Warner Bros. Pictures, a unit of Time Warner Inc.,
announced that they had entered into an agreement to release up to 20 Warner Bros. films to the
IMAX theater network beginning in 2010 and continuing through 2013. Under the terms of the
agreement, the Company and Warner Bros. have finalized the terms for release of the following 5
films to IMAX theaters: Legends of the Guardian: the Owls of GaHoole: An IMAX 3D Experience
(September 2010); Harry Potter and the Deathly Hallows: Part I: An IMAX 3D Experience (November
2010); Harry Potter and the Deathly Hallows: Part II: An IMAX 3D Experience (July 2011); Batman 3:
The IMAX Experience (July 2012); and The Hobbit: The IMAX Experience (December 2013). The parties
will select and agree on terms for the release of up to 15 additional Warner Bros. movies to the
IMAX theater network during the same period.
The Company and The Walt Disney Studios announced on June 23, 2010 that they had entered into
an agreement to release 3 additional 3D pictures to the IMAX theater network in 2011. Under the
terms of the agreement, the Company and Disney have finalized the terms for release of the
following 3 films to IMAX theaters: Mars Needs Moms: An IMAX 3D Experience (March 2011); Pirates of
the Caribbean: On Stranger Tides: An IMAX 3D Experience (May 2011); and Cars 2: An IMAX 3D
Experience (June 2011).
Also
in the second quarter, the Company and Sony Pictures announced that
they had entered into agreements to release Resident Evil:
Afterlife: An IMAX 3D Experience (September 2010) and
The Green Hornet: The IMAX Experience (January 2011).
In addition to the 8 titles that have already been shown in the IMAX theater network
year-to-date, the Company believes that 7 additional titles will be released to its theater network
during the remaining six months of 2010:
|
|
|
Inception: The IMAX Experience (WB, July 2010); |
|
|
|
|
Aftershock: The IMAX Experience (Huayi Brothers Group, July 2010, primarily to be
distributed in China and Asia); |
|
|
|
|
Resident Evil: Afterlife: An IMAX 3D Experience
(Sony Pictures, September 2010); |
|
|
|
|
Legends of the Guardian: The Owls of GaHoole: An IMAX 3D Experience (WB, September
2010); |
|
|
|
|
Megamind: An IMAX 3D Experience
(DreamWorks Animation, November 2010); |
|
|
|
|
Harry Potter and the Deathly Hallows: Part I: An IMAX 3D Experience (WB, November 2010);
and |
|
|
|
|
Tron Legacy: An IMAX 3D Experience (Walt Disney Pictures, December 2010). |
The Company and 20th Century Fox announced on July 9, 2010 that they will be re-releasing Avatar:
An IMAX 3D Experience beginning August 27, 2010.
In
addition to the continued exhibition of Tron Legacy: An IMAX
3D Experience in early 2011, the Company has announced the
release of 7 additional DMR films to its theater network in 2011:
|
|
|
|
The Green Hornet: An IMAX 3D Experience (Sony Pictures, January 2011) |
|
|
|
|
Mars Needs Moms: An IMAX 3D Experience (Walt Disney Pictures, March 2011) |
|
|
|
|
Sucker Punch: An IMAX 3D Experience (WB, March 2011) |
|
|
|
|
Pirates of the Caribbean: On Stranger Tides: An IMAX 3D Experience (Walt Disney
Pictures, May 2011) |
|
|
|
|
Cars 2: An IMAX 3D Experience (Walt Disney Pictures, June 2011) |
|
|
|
|
Harry Potter and the Deathly Hallows Part 2: An IMAX 3D Experience (WB, July 2011) |
|
|
|
|
Happy Feet 2: An IMAX 3D Experience (WB, November 2011) |
The Company also remains in active negotiations with virtually all of the Hollywood studios
for additional films to fill out its short and long-term film slate. The Company anticipates the
release of additional DMR films to IMAX theaters in 2010.
In addition, the Company, in conjunction with WB and the National Aeronautics and Space
Administration (NASA), released Hubble 3D: The IMAX Experience to its network on March 19, 2010,
which chronicles a team of astronauts journey to the Hubble Space Telescope.
57
The introduction of the digital projector in 2008 has not only allowed the Company to increase
the size of its network, but it has also allowed for an increased number of IMAX DMR films to be
exhibited in IMAX theaters. The increased number of IMAX DMR films released to the IMAX theater
network can minimize the impact of an individual films weak performance. In addition, the
increased number of titles, more closely spaced, can mean a greater opportunity to capitalize on
the early weeks of a movies release, when over half of a given titles gross box office is
typically generated. However, the Company cautions that films can be subject to delays in
production or changes in release schedule, which can negatively impact the number, timing and type
of IMAX DMR and IMAX original films released to the IMAX theater network.
The Company has been evaluating DMR opportunities in other international markets as it
believes that making local content available in IMAX theaters abroad will support the Companys
growth in international markets. In June 2009, the Company and Huayi Bros. Media Corporation Ltd.,
Chinas largest privately owned media group, announced an agreement to release up to 3 mainstream,
commercial Chinese films to IMAX theaters in China, other parts of Asia and key North American
markets beginning in July 2010 with the film Aftershock: The IMAX Experience. The Companys
international-only release of Prince of Persia: Sands of Time: The IMAX Experience during the
second quarter of 2010 marks another effort by the Company to enhance its international film slate.
The Company anticipates additional international-only releases in the future.
As previously noted, the Company anticipates continued improved financial performance for 2010
compared to prior years. The global financial-environment, however, remains volatile and the U.S.
and global economies could remain significantly challenged for an indeterminate period of time.
While historically the movie industry has been somewhat resistant to economic downturns, present
economic conditions, which are beyond the Companys control, could lead to a decrease in
discretionary consumer spending. It is difficult to predict the severity and duration of any
decrease in consumer spending resulting from the economic downturn and what affect it may have on
the movie industry in general and IMAX DMR box-office results in particular.
To date, the Company has signed joint revenue sharing arrangements for 196 theater systems,
126 of which have been installed as at June 30, 2010. As the Company continues to add joint revenue
sharing systems to its theater base, the Companys revenues become more dependent on the box-office
performance of the films released to the IMAX network and therefore increasingly exposed to any
decline in attendance at commercial IMAX theaters. More broadly, if the industry were to face
declining admissions, commercial exhibitors could become less willing or, as a result of
disruptions in the capital and credit markets that may limit exhibitors access to capital, less
able to invest capital in new IMAX theaters or to fulfil their existing obligations to the Company.
As a result, the Companys revenues could be lower than expected. Despite the economic downturn,
domestic gross box office as at July 26, 2010 totalled approximately $6.7 billion, a 4.3% increase
over the same period of 2009 according to various industry reports and trade publications, and IMAX
DMR films continued to significantly outperform other lower-cost formats on a per screen basis.
During the remainder of 2010, the Company expects to continue to explore new areas of brand
extension including: 3D in-home entertainment technology; digital re-mastering and 2D-to-3D
conversion of movie and television content; increased post-production opportunities; alternative
theater content and partnering with technology, studio, programming, content and consumer
electronics companies.
On June 2, 2010, the Company entered into a joint venture arrangement with Discovery
Communications and Sony Corp. of America to launch among the worlds first 3D television channels.
The channel is anticipated to have a wide array of 3D content, including IMAX 3D films. The Company
believes this is a highly strategic investment as it looks to expand the breadth of its 3D
technology and content.
LIQUIDITY AND CAPITAL RESOURCES
On November 16, 2009, the Company amended and restated the terms of its senior secured credit
facility, which had been scheduled to mature on October 31, 2010. The amended and restated facility
(the Credit Facility) with a scheduled maturity of October 31, 2013, has a maximum borrowing
capacity of $75.0 million, consisting of revolving loans subject to a borrowing base calculation
(as described below) and including a sublimit of $20.0 million for letters of credit of up to
$40.0 million and a term loan of $35.0 million. Certain of the Companys subsidiaries serve as
guarantors (the Guarantors) of the Companys obligations under the Credit Facility. The Credit
Facility is collateralized by a first priority security interest in all of the present and future
assets of the Company and the Guarantors.
The terms of the Credit Facility are set forth in the Amended and Restated Credit Agreement
(the Credit Agreement), dated November 16, 2009, among the Company; Wells Fargo Capital Finance
Corporation Canada (formerly Wachovia Capital Finance
58
Corporation (Canada)), as agent, lender, sole lead arranger and sole bookrunner (Wells
Fargo); and Export Development Canada, as lender (EDC, together with Wells Fargo, the Lenders)
and in various collateral and security documents entered into by the Company and the Guarantors.
Each of the Guarantors has also entered into a guarantee in respect of the Companys obligations
under the Credit Facility.
The revolving portion of the Credit Facility permits maximum aggregate borrowings equal to the
lesser of:
(i) $40.0 million, and
(ii) a collateral calculation based on the percentages of the book values of the Companys net
investment in sales-type leases, financing receivables, certain trade accounts receivable, finished
goods inventory allocated to backlog contracts and the appraised values of the expected future cash
flows related to operating leases and the Companys owned real property, reduced by certain
accruals and accounts payable and subject to other conditions, limitations and reserve right
requirements. It is also reduced by the settlement risk on its foreign currency forward contracts
when the notional value exceeds the fair value of the forward contracts.
The revolving portion of the Credit Facility bears interest at either (i) LIBOR plus a margin
of 2.75% per annum, or (ii) Wells Fargos prime rate plus a margin of 1.25% per annum, at the
Companys option. The term loan portion of the Credit Facility bears interest at the Companys
option, at either (i) LIBOR plus a margin of 3.75% per annum, or (ii) Wells Fargos prime rate plus
a margin of 2.25% per annum. Under the Credit Facility, the effective interest rate for the three
and six months ended June 30, 2010 for the term loan portion was 4.04% and 4.03%, respectively
(2009 n/a) and 4.50% and 3.56%, respectively for the revolving portion (2009 2.16% and
2.22%).
The Credit Facility provides that so long as the term loan remains outstanding, the Company
will be required to maintain: (i) a ratio of funded debt (as defined in the Credit Agreement) to
EBITDA (as defined in the Credit Agreement) of not more than 2:1 through December 31, 2010, and
(ii) a ratio of funded debt to EBITDA of not more than 1.75:1 thereafter. If the Company repays the
term loan in full, it will remain subject to such ratio requirements only if Excess Availability
(as defined in the Credit Agreement) is less than $10.0 million or Cash and Excess Availability (as
defined in the Credit Agreement) is less than $15.0 million. The ratio of funded debt to EBITDA was
0.27:1 at June 30, 2010, where Funded Debt (as defined in the Credit Agreement) is the sum of all
obligations evidenced by notes, bonds, debentures or similar instruments and was $40.0 million.
EBITDA is calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
For the |
|
|
For the |
|
EBITDA per Credit Facility: |
|
3 months ended |
|
|
12 months ended |
|
(In thousands of U.S. Dollars) |
|
June 30, 2010 |
|
|
June 30, 2010(1) |
|
Net earnings |
|
$ |
13,302 |
|
|
$ |
44,984 |
|
Add (subtract): |
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
396 |
|
|
|
564 |
|
Interest expense, net of interest income |
|
|
522 |
|
|
|
6,165 |
|
Depreciation and amortization, including film asset amortization |
|
|
5,453 |
|
|
|
19,987 |
|
Write-downs net of recoveries including asset impairments and receivable
provisions |
|
|
469 |
|
|
|
1,408 |
|
Stock and other non-cash compensation |
|
|
(3,529 |
) |
|
|
19,792 |
|
Other, net |
|
|
(269 |
) |
|
|
(242 |
) |
|
|
|
|
|
|
|
|
|
$ |
16,344 |
|
|
$ |
92,658 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Ratio of funded debt calculated using twelve months ended EBITDA |
The Company will also be required to maintain a Fixed Charge Coverage Ratio (as defined in the
Credit Agreement) of not less than 1.1:1.0; provided, however, that if the Company repays the term
loan in full, it will remain subject to such ratio requirement only if Excess Availability is less
than $10.0 million or Cash and Excess Availability is less than $15.0 million. At all times, under
the terms of the Credit Facility, the Company is required to maintain minimum Excess Availability
of not less than $5.0 million and minimum Cash and Excess Availability of not less than
$15.0 million. These amounts were $45.0 million and $82.0 million at June 30, 2010 respectively.
The Company was in compliance with all of these requirements at June 30, 2010.
The Credit Facility contains typical affirmative and negative covenants, including covenants
that limit or restrict the ability of the Company and the Guarantors to: incur certain additional
indebtedness; make certain loans, investments or guarantees; pay dividends;
59
make certain asset sales; incur certain liens or other encumbrances; conduct certain
transactions with affiliates and enter into certain corporate transactions.
The Credit Facility also contains customary events of default, including upon an acquisition
or change of control or upon a change in the business and assets of the Company or a Guarantor that
in each case is reasonably expected to have a material adverse effect on the Company or Guarantor.
If an event of default occurs and is continuing under the Credit Facility, the Lenders may, among
other things, terminate their commitments and require immediate repayment of all amounts owed by
the Company.
Bank indebtedness includes the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Term Loan |
|
$ |
24,792 |
|
|
$ |
35,000 |
|
Revolving Credit Facility |
|
|
|
|
|
|
15,000 |
|
|
|
|
|
|
|
|
|
|
$ |
24,792 |
|
|
$ |
50,000 |
|
|
|
|
|
|
|
|
During 2010, the Company repaid $15.0 million of its remaining outstanding indebtedness under
the revolving portion of the Credit Facility and $10.2 million of its term loan. Total amounts
drawn and available under the Credit Facility at June 30, 2010 were $24.8 million and
$40.0 million, respectively (December 31, 2009 were $50.0 million and $24.8 million, respectively).
As at June 30, 2010, the Companys current borrowing capacity under the revolving portion of
the Credit Facility was $40.0 million after deduction for the minimum Excess Availability reserve
of $5.0 million. Outstanding borrowings and letters of credit and advance payment guarantees were
$nil as at June 30, 2010. As at December 31, 2009, the borrowing capacity was $24.8 million after
deduction for outstanding borrowings of $15.0 million, letters of credit and advanced payment
guarantees of $0.3 million and the minimum Excess Availability reserve of $5.0 million.
Letters of Credit and Other Commitments
As at June 30, 2010, the Company had letters of credit and advance payment guarantees of $nil
outstanding (December 31, 2009 $0.3 million), of which the entire balance has been secured by the
Credit Facility.
The Company also has a $10.0 million facility for advance payment guarantees and letters of
credit through the Bank of Montreal for use solely in conjunction with guarantees fully insured by
EDC (the Bank of Montreal Facility). The Bank of Montreal Facility is unsecured and includes
typical affirmative and negative covenants, including delivery of annual consolidated financial
statements within 120 days of the end of the fiscal year. The Bank of Montreal Facility is subject
to periodic annual reviews. As at June 30, 2010, the Company had letters of credit outstanding of
$4.2 million under the Bank of Montreal Facility as compared to $3.6 million as at December 31,
2009.
Cash and Cash Equivalents
As at June 30, 2010, the Companys principal sources of liquidity included cash and cash
equivalents of $37.0 million, the Credit Facility, anticipated collection from trade accounts
receivable of $40.3 million, anticipated collection from financing receivables due in the next
12 months of $10.1 million, and payments expected in the next 12 months on existing backlog deals.
As at June 30, 2010, the Company has drawn down $nil on the revolving portion of the Credit
Facility, and had letters of credit of $nil outstanding under the Credit Facility and $4.2 million
under the Bank of Montreal Facility.
During the six months ended June 30, 2010, the Companys operations, including investment in
film assets, provided cash of $39.9 million and the Company used cash of $5.1 million to fund
capital expenditures. Based on managements current operating plan for 2010, the Company expects to
continue to use cash as it deploys additional theater systems under joint revenue sharing
arrangements. Cash flows from joint revenue sharing arrangements are derived from the theater box
office and concession revenues and the Company invested directly in the roll out of 9 new theater
systems and 1 digital upgrade under joint revenue sharing arrangements during the six months ended
June 30, 2010.
60
The Company believes that the cash flow from operations together with existing cash and
borrowing available under the Credit Facility will be sufficient to fund the Companys business
operations, including its strategic initiatives relating to existing joint revenue sharing
arrangements for the next 12 months.
The Companys operating cash flow will be adversely affected if managements projections of
future signings for theater systems and film productions, installations and film performance are
not realized. The Company forecasts its short-term liquidity requirements on a quarterly and annual
basis. Since the Companys future cash flows are based on estimates and there may be factors that
are outside of the Companys control (see Risk Factors in Item 1A in the Companys 2009
Form 10-K), there is no guarantee that the Company will continue to be able to fund its operations
through cash flows from operations. Under the terms of the Companys typical sale and sales-type
lease agreement, the Company receives substantial cash payments before the Company completes the
performance of its obligations. Similarly, the Company receives cash payments for some of its film
productions in advance of related cash expenditures.
Operating Activities
The Companys net cash provided by operating activities is affected by a number of factors,
including the proceeds associated with new signings of theater system lease and sale agreements in
the year, costs associated with contributing systems under joint revenue sharing arrangements, the
box-office performance of films distributed by the Company and/or exhibited in the Companys
theaters, increases or decreases in the Companys operating expenses, including research and
development, and the level of cash collections received from its customers.
Cash provided by operating activities amounted to $39.9 million for the six months ended June
30, 2010. Changes in other non-cash operating assets as compared to December 31, 2009 include: an
increase of $1.2 million in financing receivables; an increase of $2.6 million in accounts
receivable; an increase of $4.5 million in inventories; an increase of $2.7 million in prepaid
expenses, which primarily relates to prepaid directors and officers liability insurance for 2010
and an increase in film distribution expenses; and a $0.6 million decrease in other assets which
includes a $0.5 million decrease in insurance recoveries receivable. Changes in other non-cash
operating liabilities as compared to December 31, 2009: an increase in deferred revenue of $4.0 million related to backlog payments received offset by amounts
relieved from deferred revenue related to theater system installations in the current period; an
increase in accounts payable of $0.7 million; and a decrease
of $6.6 million in accrued liabilities associated with operating activities. Included in accrued
liabilities at June 30, 2010, was $29.8 million in respect of accrued pension obligations.
Investing Activities
Net cash used in investing activities amounted to $3.0 million in the six months ended June
30, 2010, which includes an investment in joint revenue sharing equipment of $2.3 million,
purchases of $2.8 million in property, plant and equipment, an increase in other assets of
less than $0.1 million, a $0.7 million investment in a new business venture, an increase in other
intangible assets of $0.3 million, and a receipt of $3.2 million representing the cash surrender
value of a life insurance policy.
Financing Activities
Net cash used in financing activities in the six months ended June 30, 2010, amounted to
$20.2 million due to repayment of bank indebtedness of $25.2 million, offset by the proceeds from
the issuance of common shares from stock option redemptions in the period.
Capital Expenditures
Capital expenditures, including the Companys investment in joint revenue sharing equipment,
purchase of property, plant and equipment, net of sales proceeds, and investments in film assets
were $10.9 million for the six months ended June 30, 2010, as compared to $18.2 million for the six
months ended June 30, 2009.
Digital Projection System
In July 2008, the Company introduced its proprietary digital projection system. The IMAX
digital projection system delivers The IMAX Experience and helps drive profitability for studios,
exhibitors and IMAX theaters by eliminating the need for film prints,
61
increasing program flexibility and ultimately increasing the number of movies shown on IMAX
screens. The system can run both IMAX and IMAX 3D presentations.
As at June 30, 2010, the Company had 190 digital theaters installed and operating in exhibitor
theaters and 175 digital theater system arrangements in its backlog, which include the significant
transactions described below.
On December 7, 2007, the Company announced a significant joint revenue sharing arrangement
with American-Multi Cinemas, Inc. (AMC) for the installation of 100 digital projection systems to
be installed in the latter half of 2008 through 2010. On May 28, 2010, this arrangement was amended
to include an additional 15 to 25 digital projection systems to be installed at various times in
2011. As of June 30, 2010, the Company has installed 75 of the 100 digital projection systems
contracted for under the agreement with AMC. Included among the terms of the amended agreement is
an increase in the length of the term for all AMC IMAX theaters from 7 to 10 years as well as an
adjusted allocation of costs to help defray AMCs increased operating expenses.
The Company and Regal Cinemas, Inc (Regal) announced on March 24, 2008 a joint revenue
sharing agreement to install 31 digital projection systems at Regal locations in 20 major
U.S. markets. As of June 30, 2010, the Company has installed 27 of the 31 digital projection
systems. In June 2008, the Company and Hoyts Multiplex Cinemas PTY Ltd (Hoyts) entered into a
joint revenue sharing arrangement for 4 digital projection systems. To date, the Company has
installed 3 of the 4 digital projection systems. In July 2008, the Company signed a joint revenue
sharing arrangement with Tokyu Recreation Co., Ltd (Tokyu) to install up to 4 digital projection
systems, all 4 of which were installed as of June 30, 2010. On March 31, 2010, this arrangement
was amended to include an additional 5 digital theaters throughout Japan.
In September 2008, the Company signed a joint revenue sharing arrangement with Cineplexx
Kinobetriebe GMBH (Cineplexx) for 3 digital projection systems, 2 of which were installed as at
June 30, 2010.
On October 20, 2009, the Company and Pathé Netherlands, a Europalaces/Pathé company and the
largest exhibitor in The Netherlands, announced an agreement to install 2 new IMAX theater systems,
as well as a digital upgrade to the exhibitors existing film-based system, as part of an expanded
joint revenue sharing arrangement between the two companies. In the fourth quarter of 2009, the
Company installed 1 new digital theater system and the digital upgrade contracted for under the
Agreement. As of June 30, 2010, all theater systems required under the agreement had been
installed. During the first quarter of 2010, the Company signed a joint revenue sharing agreement
for 4 digital theater systems to be located in France with Europalaces SAS, a Europalaces/Pathé
company. As at June 30, 2010, the Company has installed one of such theaters.
On March 10, 2010, the Company announced a joint revenue sharing arrangement with CJ CGV Co.,
Ltd., the largest multiplex cinema chain in South Korea (CJ CGV), for up to 15 digital projection
systems. Under the terms of its agreement with the Company, CJ CGV will add 10 new digital theaters
under joint revenue sharing arrangements, with the option for 5 additional systems, and will
upgrade 4 of its existing film-based IMAX theaters, which are not under joint revenue sharing
arrangements, to digital. As at June 30, 2010, the Company has upgraded 3 of such theaters from
film-based to digital.
On July 12, 2010, the Company announced a joint revenue sharing arrangement with United
Cinemas, one of the leading movie theater chains in Japan, for 3 digital projection systems. Under
the terms of this agreement, the companies will have the option to install 2 additional IMAX
theater systems in Japan at a later date. The deal brings the total number of confirmed joint
revenue sharing arrangements scheduled to be operating in Japan by the end of 2010 to 8.
The Company anticipates meeting the cash requirements needed to manufacture the digital
projection systems it is obligated to deliver under its joint revenue sharing arrangements through
a combination of cash on hand, cash inflows from future operations and draws on its Credit
Facility.
In addition, on March 10, 2008, the Company announced an agreement for 35 digital theater
systems (under its traditional sales/sales-type-lease structure) with RACIMEC to be installed in
Central and South America and the Caribbean. RACIMEC has made an initial cash-payment in connection
with the terms of its agreement with the Company.
Pension and Postretirement Obligations
The Company has an unfunded defined benefit pension plan, the SERP, covering Messrs. Gelfond
and Wechsler. As at June 30, 2010, the Company had an unfunded and accrued projected benefit
obligation of approximately $29.8 million (December 31, 2009 $29.9 million) in respect of the
SERP. At the time the Company established the SERP, it also took out life insurance policies on
62
Messrs. Gelfond and Wechsler with coverage amounts of $21.5 million in aggregate. The Company
may use the cash surrender value or the proceeds of the life insurance policies taken on Messrs.
Gelfond and Wechsler to be applied towards the benefits due and payable under the SERP, although
there can be no assurance that the Company will ultimately do so. During the quarter ended June 30,
2010, the Company obtained $3.2 million representing the cash surrender value of Mr. Gelfonds
policy. At June 30, 2010, the cash surrender value of
Mr. Wechslers policy was
$4.5 million (December 31, 2009 $7.3 million) and has been included in other assets.
In July 2000, the Company agreed to maintain health benefits for Messrs. Gelfond and Wechsler
upon retirement. As at June 30, 2010, the Company had an unfunded benefit obligation recorded of
$0.4 million (December 31, 2009 $0.4 million).
Under the terms of the SERP, if Mr. Gelfonds employment terminates other than for cause prior
to August 1, 2010, he is entitled to receive SERP benefits in the form of monthly annuity payments
until the earlier of a change of control or August 1, 2010, at which time he is entitled to receive
remaining benefits in the form of a lump sum payment. If Mr. Gelfonds employment terminates other
than for cause on or after August 1, 2010, he is entitled to receive SERP benefits in the form of a
lump sum payment. SERP benefit payments to Mr. Gelfond are subject to a deferral for six months
after the termination of his employment, at which time Mr. Gelfond will be entitled to receive
interest on the deferred amount credited at the applicable federal rate for short-term obligations.
Under the terms of SERP, monthly annuity payments payable to Mr. Wechsler, whose employment as
Co-CEO terminated effective April 1, 2009, were deferred for six months and were paid in the form
of a lump sum plus interest on the deferred amount on October 1, 2009. Thereafter, in accordance
with the terms of the SERP, Mr. Wechsler is entitled to receive monthly annuity payments until the
earlier of a change of control or August 1, 2010, at which time he is entitled to receive remaining
benefits in the form of a lump sum payment.
OFF-BALANCE SHEET ARRANGEMENTS
There are currently no off-balance sheet arrangements that have or are reasonably likely to
have a current or future material effect on the Companys financial condition.
CONTRACTUAL OBLIGATIONS
Payments to be made by the Company under contractual obligations are as follows:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands of U.S. Dollars) |
|
Obligations |
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
Thereafter |
|
Credit Facility |
|
|
24,792 |
|
|
|
1,459 |
|
|
|
17,500 |
|
|
|
5,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations |
|
|
100 |
|
|
|
32 |
|
|
|
26 |
|
|
|
22 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
Operating lease obligations |
|
|
19,777 |
|
|
|
3,097 |
|
|
|
5,922 |
|
|
|
5,566 |
|
|
|
2,075 |
|
|
|
869 |
|
|
|
2,248 |
|
Pension obligations (1) |
|
|
30,329 |
|
|
|
14,748 |
|
|
|
15,581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement benefits obligations |
|
|
137 |
|
|
|
13 |
|
|
|
26 |
|
|
|
29 |
|
|
|
33 |
|
|
|
36 |
|
|
|
|
|
Purchase obligations |
|
|
13,529 |
|
|
|
13,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
88,664 |
|
|
$ |
32,878 |
|
|
$ |
39,055 |
|
|
$ |
11,450 |
|
|
$ |
2,128 |
|
|
$ |
905 |
|
|
$ |
2,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The SERP assumptions include that Mr. Wechsler will receive a lump sum payment at August 1,
2010 and that Mr. Gelfond will receive a lump sum payment in 2011 upon retirement at the end
of the current term of his employment agreement, although Mr. Gelfond has informed the Company
that he does not currently intend to retire at that time. |
Item 3. Quantitative and Qualitative Factors about Market Risk
The Company is exposed to market risk from foreign currency exchange rates and interest rates,
which could affect operating results, financial position and cash flows. Market risk is the
potential change in an instruments value caused by, for example, fluctuations in interest and
currency exchange rates. The Companys primary market risk exposure is the risk of unfavorable
63
movements in exchange rates between the U.S. dollar and the Canadian dollar. The Company does
not use financial instruments for trading or other speculative purposes.
Foreign Exchange Rate Risk
A majority of the Companys revenue is denominated in U.S. dollars while a significant portion
of its costs and expenses is denominated in Canadian dollars. A portion of the Companys net
U.S. dollar cash flows is converted to Canadian dollars to fund Canadian dollar expenses through
the spot market. In Japan, the Company has ongoing operating expenses related to its operations.
Net Japanese yen cash flows are converted to U.S. dollars through the spot market. The Company also
has cash receipts under leases denominated in Japanese yen, Euros and Canadian dollars.
The Company manages its exposure to foreign exchange rate risks through our regular operating
and financing activities and, when appropriate, through the use of derivative financial
instruments. These derivative financial instruments are utilized to hedge economic exposures as
well as reduce earnings and cash flow volatility resulting from shifts in market rates.
For the three and six months ended June 30, 2010, the Company recorded a foreign exchange loss
of $0.9 million and $0.6 million, respectively, as compared with a foreign exchange gain of
$2.5 million and $1.3 million, respectively, in 2009.
The Company entered into a series of foreign currency forward contracts to manage the
Companys risks associated with the volatility of foreign currencies with settlement dates
throughout 2009 and 2010. In addition, at June 30, 2010, the Company held foreign currency forward
contracts to manage foreign currency risk on future anticipated Canadian dollar expenditures that
were not considered foreign currency hedges by the Company. Foreign currency derivatives are
recognized and measured in the balance sheet at fair value. Changes in the fair value (gains or
losses) are recognized in the consolidated statement of operations except for derivatives
designated and qualifying as foreign currency hedging instruments. For foreign currency hedging
instruments, the effective portion of the gain or loss in a hedge of a forecasted transaction is
reported in other comprehensive income and reclassified to the consolidated statement of operations
when the forecasted transaction occurs. Any ineffective portion is recognized immediately in the
consolidated statement of operations. The notional value of these contracts at June 30, 2010 was
$8.7 million (December 31, 2009 $2.8 million). A loss of $0.4 million and $0.2 million was
recorded to Other Comprehensive Income with respect to the depreciation in the value of these
contracts in the three and six months ended June 30, 2010, respectively (2009 appreciation of
$1.3 million and $0.8 million respectively). A loss of less than $0.1 million and a gain of
$0.5 million for the three and six months ended June 30, 2010, respectively (2009 $0.4 million
and $0.3 million, respectively) was reclassified from Accumulated Other Comprehensive Income to
selling, general and administrative expenses. Appreciation or depreciation on forward contracts not
meeting the requirements for hedge accounting in the Derivatives and Hedging Topic of the FASB
Accounting Standards Codification are recorded to selling, general and administrative expenses. The
notional value of forward contracts that do not qualify for hedge accounting at June 30, 2010 was
$23.0 million (December 31, 2009 $4.5 million).
For all derivative instruments, the Company is subject to counterparty credit risk to the
extent that the counterparty may not meet its obligations to the Company. To manage this risk, the
Company enters into derivative transactions only with major financial institutions.
At June 30, 2010, the Companys net investment in leases and working capital items denominated
in Canadian dollar and Euros aggregated to $3.9 million. Assuming a 10% appreciation or
depreciation in foreign currency exchange rates from the quoted foreign currency exchange rates at
June 30, 2010, the potential change in the fair value of foreign currency-denominated net
investment in leases and working capital items would be $0.4 million.
Interest Rate Risk Management
The Companys earnings are also affected by changes in interest rates due to the impact those
changes have on its interest income from cash, and its interest expense from variable-rate
borrowings under the Credit Facility.
As at June 30, 2010, the Company borrowings under the Credit Facility were $24.8 million
(December 31, 2009 $50.0 million).
The Companys largest exposure with respect to variable rate debt comes from changes in the
London Interbank Offered Rate (LIBOR). The Company had variable rate debt instruments representing
approximately 20.0% and 24.7% of its total liabilities as at June 30, 2010 and December 31, 2009,
respectively. If interest rates available to the Company increased by 10 percent, the Companys
interest expense would increase by approximately $0.1 million and interest income from cash would
increase by
64
approximately
less than $0.1 million for the quarter ended June 30, 2010. These amounts are
determined by considering the impact of the hypothetical interest rates on the Companys
variable-rate debt and cash balances at June 30, 2010.
At June 30, 2010 the Company is not exposed to any market risk for fixed rate debt as the
Company repurchased all of the remaining $160.0 million of its Senior Notes due December 2010 in
2009.
Item 4. Controls and Procedures
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures designed to ensure that information
required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the specified time periods and that such
information is accumulated and communicated to management, including the CEO and CFO, to allow
timely discussions regarding required disclosure. There are inherent limitations to the
effectiveness of any system of disclosure controls and procedures, including the possibility of
human error and the circumvention or overriding of the controls and procedures. Accordingly, even
effective disclosure controls and procedures can only provide reasonable assurance of achieving
their control objectives.
The Companys management, with the participation of its CEO and its CFO, has evaluated the
effectiveness of the Companys disclosure controls and procedures (as defined in the Securities
Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) as at June 30, 2010 and has concluded that, as
of the end of the period covered by this report, the Companys disclosure controls and procedures
were adequate and effective. The Company will continue to periodically evaluate its disclosure
controls and procedures and will make modifications from time to time as deemed necessary to ensure
that information is recorded, processed, summarized and reported within the time periods specified
in the SECs rules and forms.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in the
Companys internal control over financial reporting which
occurred during the six months ended June 30, 2010, that have materially affected, or are
reasonably likely to materially affect, the Companys internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See note 10 to the interim condensed consolidated financial statements for information
regarding legal proceedings involving the Company.
Item 1A. Risk Factors
There have been no material changes to the factors disclosed in Item 1A. Risk Factors in the
Companys Annual Report on Form 10-K for the year ended December 31, 2009.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of the Companys shareholders held on June 9, 2010, shareholders
represented at the meeting voted on the following matters:
1. Election of Directors
By a vote by way of show of hands, Richard L. Gelfond and Bradley J. Wechsler were elected as Class
III directors of the Company for a term expiring in 2013. Management received proxies from the
shareholders to vote for the two directors nominated for election as follows:
65
|
|
|
|
|
|
|
|
|
Director |
|
|
Votes For |
|
|
Votes Withheld |
Richard L. Gelfond |
|
|
34,879,575 |
|
|
|
398,991 |
|
Bradley J. Wechsler |
|
|
34,557,855 |
|
|
|
720,711 |
|
In addition to the foregoing directors, the following directors continued in office: Neil S.
Braun, Kenneth G. Copland, Garth M. Girvan, David W. Leebron and Marc A. Utay.
2. Appointment of Auditor
By a vote by way of show of hands, PricewaterhouseCoopers, LLP (PWC) were appointed auditors of
the Company to hold office until the next annual meeting of shareholders and authorizing the
directors to fix their remuneration. Management received proxies from the shareholders to vote for
the re-appointment of PWC as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Votes For |
|
|
|
Votes Against |
|
|
|
Votes Withheld |
|
Appointment of Auditor |
|
|
53,635,012 |
|
|
|
356,583 |
|
|
|
89,014 |
|
There were no other matters coming before the meeting that required a vote by the shareholders.
Item 5. Other Information
None.
Item 6. Exhibits
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
|
|
10.31
|
|
Second Amending Agreement, dated April 29, 2010, between IMAX Corporation and Greg Foster. |
|
|
|
10.32
|
|
Second Amending Agreement, dated May 14, 2010, between IMAX Corporation and Joseph Sparacio. |
|
|
|
31.1
|
|
Certification Pursuant to Section 302 of the Sarbanes Oxley Act of 2002, dated July 29, 2010, by Richard L. Gelfond. |
|
|
|
31.2
|
|
Certification Pursuant to Section 302 of the Sarbanes Oxley Act of 2002, dated July 29, 2010, by Joseph Sparacio. |
|
|
|
32.1
|
|
Certification Pursuant to Section 906 of the Sarbanes Oxley Act of 2002, dated July 29, 2010, by Richard L. Gelfond. |
|
|
|
32.2
|
|
Certification Pursuant to Section 906 of the Sarbanes Oxley Act of 2002, dated July 29, 2010, by Joseph Sparacio. |
66
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
IMAX CORPORATION
|
|
Date: July 29, 2010 |
By: |
/s/ JOSEPH SPARACIO
|
|
|
|
Joseph Sparacio |
|
|
|
Executive Vice-President & Chief Financial Officer
(Principal Financial Officer) |
|
|
|
|
|
Date: July 29, 2010 |
By: |
/s/ JEFFREY VANCE
|
|
|
|
Jeffrey Vance |
|
|
|
Vice-President, Finance & Controller
(Principal Financial Officer) |
|
|
67
exv10w31
IMAX CORPORATION
Exhibit 10.31
SECOND AMENDING AGREEMENT
This Amendment to Employment Agreement dated as of April 29, 2010 (the Amending Agreement) is
made between:
IMAX CORPORATION, a corporation incorporated under the laws of Canada (hereinafter referred to as
the Company),
and
GREG FOSTER, of the City of Los Angeles in the State of California
(the Employee),
WHEREAS, the Company wishes to enter into this Amending Agreement to amend and extend the
Employment Agreement dated as of March 1, 2006 between the Company and Employee as modified and
amended by the First Amending Agreement dated December 31, 2007 (together, the Agreement),
whereunder the Employee provides services to the Company, and the Employee wishes to so continue
such engagement, as hereinafter set forth;
NOW, THEREFORE, in consideration of good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
1. Section 1.3 of the Agreement shall be deleted and replaced with the following:
Section 1.3 Term of Employment. The Employees employment with the Company
commenced on the 19th day of March, 2001 (the Commencement Date) and shall terminate on the
earlier of (i) July 1, 2013, or (ii) the termination of the Employees employment pursuant to this
Agreement. The period commencing as of the Commencement Date and ending on July 1, 2013 or such
later date to which the term of the Employees employment under this Agreement shall have been
extended is hereinafter referred to as the Employment Term.
2. Section 2.2 of the Agreement shall be deleted and replaced with the following:
Section 2.2 Bonus. In addition to the Base Salary, the Employee shall continue to
be entitled to participate in the management bonus plan of the Company which applies to senior
executives of the Company. The Employee will be eligible, subject to the terms of the plan, to
receive a bonus (the Management Bonus) for the applicable year which is typically paid in March
of each year. Notwithstanding the foregoing, the Employee shall receive a minimum bonus (the
Minimum Bonus) of $500,000 in connection with his employment in 2010 (prorated), 2011 and 2012
3. Section 2.3.1 of the Agreement shall be deleted and replaced with the following:
Section 2.3.1 Incentive Compensation. As soon as practicable following the execution
of this Amending Agreement, the Employee shall be granted non-qualified options (the Options) to
purchase 600,000 shares of common stock of the Company (the Common Shares), subject to the
approval by the Companys Board of Directors and vested according to the following schedule:
200,000 Options shall vest on each of July 1, 2011, July 1, 2012 and July 1, 2013. The Options
granted hereunder shall be subject to the terms and conditions of the IMAX Stock Option Plan
(SOP) and the stock option agreement to be entered into between the Company and the Employee
pursuant to, and in accordance with, the terms of the SOP. The vesting of all Options shall be
accelerated upon a change of control as defined in the Agreement, and shall be governed, to the
extent applicable, by the provisions in the Agreement regarding change of control.
4. Section 2.3.3 of the Agreement shall be deleted and replaced with the following:
Section 2.3.3 Life Insurance. (a) As soon as practicable and for the duration of the
Employment Term the Company shall take out and pay premiums on a term life insurance policy or
policies in the aggregate amount of $3,000,000 for the benefit of a beneficiary (or beneficiaries)
designated by the Employee.
(b) In addition to the policy referred to in Section 2.3.3 (a) above, as soon as practicable, the
Company will arrange for a whole life insurance policy in the amount of $5,000,000 for the benefit
of a beneficiary designated by the Employee. All premiums on this policy will be paid by the
Company over the three (3) year term of this Agreement The Company agrees that it will work with
the Employee, in good faith, to structure premium payments on this policy to be most tax effective
to the Employee, provided there is no additional cost to the Company. The policy may only be
terminated by the Employee if he is terminated by the Company without cause or if the Agreement is
not renewed by the Company at the end of the Employment Term. The policy may only be terminated by
the Company if the Employees employment is terminated for cause. At the end of the Employment
Term, there will be no further premiums owing on the policy.
5. The Company agrees that it will continue to use its best efforts to ensure that the Employee is
invited to attend regularly scheduled meetings of the Board of Directors of the Company to the
extent that the Employees attendance is agreeable to the Board and is not inconsistent with good
corporate governance. The Employee understands and accepts that there may be meetings, or portions
of meetings, where his attendance would be inappropriate and that he will not attend on these
occasions.
6. The Company agrees to reimburse the Employee for tuition and his reasonable expenses incurred in
connection with his attendance at an executive MBA program of his choice in the US during the
Employment Term.
Except as amended herein, all other terms of the Agreement shall remain in full force, unamended.
IN WITNESS WHEREOF, the Company and the Employee have duly executed and delivered this Amending
Agreement on this 29th of April, 2010.
|
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|
|
IMAX CORPORATION |
|
|
By: |
/s/ G. Mary Ruby
|
|
|
|
Name: |
G. Mary Ruby |
|
|
|
Title: |
Exec. VP Corporate Services,
& Corporate Secretary |
|
|
|
|
|
|
By: |
/s/ Ed MacNeil |
|
|
|
Name: |
Ed MacNeil |
|
|
|
Title: |
Senior Vice President, Finance |
|
|
|
|
|
SIGNED, SEALED AND DELIVERED
|
|
EMPLOYEE: |
in the presence of: |
|
|
|
|
|
/s/ Eduardo Oboza
|
|
/s/ Greg Foster |
|
|
|
Witness Eduardo Oboza |
|
Greg Foster |
exv10w32
IMAX CORPORATION
Exhibit 10.32
SECOND AMENDING AGREEMENT
This Amendment to Employment Agreement dated as of May 14th, 2010 (the Amending Agreement) is
made between:
IMAX CORPORATION, a corporation incorporated under the laws of Canada (hereinafter referred to as
the Company),
and
JOSEPH SPARACIO, of the Town of Holmdel in the State of New Jersey
(the Executive),
WHEREAS, the Company wishes to enter into this Amending Agreement to amend and extend the
Employment Agreement dated as of May 14th, 2007 between the Company and Executive as
amended by the First Amending Agreement dated May 14th, 2009 (together, the
Agreement), whereunder the Executive provides services to the Company, and the Executive wishes
to so continue such engagement, as on the same terms and conditions as set out thereunder.
NOW, THEREFORE, in consideration of good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
1. Section 1.3 of the Agreement shall be deleted and replaced with the following:
Section 1.3 Term of Employment. The Employees employment under this Agreement
commenced on the 14th day of May, 2007 (the Commencement Date) and shall terminate on the earlier
of (i) May 14, 2012, or (ii) the termination of the Employees employment pursuant to this
Agreement. The period commencing as of the Commencement Date and ending on May 13, 2012 or such
later date to which the term of the Employees employment under this Agreement shall have been
extended is hereinafter referred to as the Employment Term. The Company shall notify the Executive
at least six (6) months prior to the second anniversary of this Amending agreement of its
intentions with respect to renewing the Agreement.
2. Section 2.1 of the Agreement shall be deleted and replaced with the following:
Section 2.1 Base Salary. Effective May 14th, 2010, the Executives
Base Salary shall be
US$ 385,000. Effective May 14th, 2011, the Executives Base Salary shall be US$
400,000.
3. Section 4 (b) of the Agreement will be deleted and replaced with the following:
(b) Without Cause means termination of the Executives employment by the Company other than for
Cause (as defined in Section 4.2), death or disability (as set forth in Section 5) and shall also
be deemed to include a change in the principal place of employment of the Executive to a location
outside of the borough of Manhattan in New York City where the travel time from the Executives
home exceeds 1 hour.
4. Section 6 of the Agreement shall be deleted and replaced with the following:
Section 6 Mitigation. Subject to Section 7.1 and 7.2, and other than in the
case of a termination without cause following a Change of Control as defined in Section 4.1.1, the
Executive shall be required to mitigate the amount of any payment provided for in Section 4.1.1 by
seeking other employment or remunerative activity reasonably comparable to his duties hereunder.
The Executive shall be required as a condition of any payment under Section 4.1.1 (other than the
Termination Payment) promptly to disclose to the Company any such mitigation compensation.
Except as amended herein, all other terms of the Agreement shall remain in full force, unamended.
IN WITNESS WHEREOF, the Company and the Executive have duly executed and delivered this Amending
Agreement on this 14th day of May, 2010.
|
|
|
|
|
|
IMAX CORPORATION
|
|
|
By: |
/s/ G. Mary Ruby
|
|
|
|
Name: |
G. Mary Ruby |
|
|
|
Title: |
Exec. VP Corporate Services,
& Corporate Secretary |
|
|
|
|
|
|
By: |
/s/ Gary Moss
|
|
|
|
Name: |
Gary Moss |
|
|
|
Title: |
Chief Operating Officer |
|
|
|
|
|
SIGNED, SEALED AND DELIVERED
|
|
EXECUTIVE: |
in the presence of: |
|
|
|
|
|
/s/ Lauren Russell
|
|
/s/ Joe Sparacio |
|
|
|
Witness Lauren Russell
|
|
Joe Sparacio |
exv31w1
IMAX CORPORATION
Exhibit 31.1
Certification Pursuant to Section 302 of the Sarbanes Oxley Act of 2002
I, Richard L. Gelfond, certify that:
|
1. |
|
I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 of the
registrant, IMAX Corporation; |
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
|
3. |
|
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
|
4. |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
|
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in
which this report is being prepared; |
|
(b) |
|
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles; |
|
(c) |
|
Evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and |
|
(d) |
|
Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and |
|
5. |
|
The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent
functions): |
|
(a) |
|
All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrants ability to record, process, summarize and report
financial information; and |
|
(b) |
|
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal control over
financial reporting. |
|
|
|
|
|
|
|
Date: July 29, 2010
|
|
By:
Name:
|
|
/s/ Richard L. Gelfond
Richard L. Gelfond
|
|
|
|
|
Title:
|
|
Chief Executive Officer |
|
|
exv31w2
IMAX CORPORATION
Exhibit 31.2
Certification Pursuant to Section 302 of the Sarbanes Oxley Act of 2002
I, Joseph Sparacio, certify that:
|
1. |
|
I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 of the
registrant, IMAX Corporation; |
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
|
3. |
|
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
|
4. |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
|
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in
which this report is being prepared; |
|
(b) |
|
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles; |
|
(c) |
|
Evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and |
|
(d) |
|
Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and |
|
5. |
|
The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent
functions): |
|
(a) |
|
All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrants ability to record, process, summarize and report
financial information; and |
|
(b) |
|
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal control over
financial reporting. |
|
|
|
|
|
|
|
Date: July 29, 2010
|
|
By:
Name:
|
|
/s/ Joseph Sparacio
Joseph Sparacio
|
|
|
|
|
Title:
|
|
Executive Vice President & Chief Financial Officer |
|
|
exv32w1
IMAX CORPORATION
Exhibit 32.1
CERTIFICATIONS
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (A) and (B) of Section 1350, Chapter 63 of Title 18, United States Code)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of
section 1350, chapter 63 of title 18, United States Code), I, Richard L. Gelfond, Chief Executive
Officer of IMAX Corporation, a Canadian corporation (the Company), hereby certify, to my
knowledge, that:
The Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (the Form 10-Q) of the
Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange
Act of 1934, and information contained in the Form 10-Q fairly presents, in all material respects,
the financial condition and results of operations of the Company.
|
|
|
|
|
|
|
|
Date: July 29, 2010 |
/s/ Richard L. Gelfond
|
|
|
Richard L. Gelfond |
|
|
Chief Executive Officer |
|
|
exv32w2
IMAX CORPORATION
Exhibit 32.2
CERTIFICATIONS
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (A) and (B) of Section 1350, Chapter 63 of Title 18, United States Code)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of
section 1350, chapter 63 of title 18, United States Code), I, Joseph Sparacio, Executive Vice
President & Chief Financial Officer of IMAX Corporation, a Canadian corporation (the Company),
hereby certify, to my knowledge, that:
The Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (the Form 10-Q) of the
Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange
Act of 1934, and information contained in the Form 10-Q fairly presents, in all material respects,
the financial condition and results of operations of the Company.
|
|
|
|
|
|
|
|
Date: July 29, 2010 |
/s/ Joseph Sparacio
|
|
|
Joseph Sparacio |
|
|
Executive Vice President & Chief Financial Officer |
|
|