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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

Form 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-35066

 

IMAX Corporation

(Exact name of registrant as specified in its charter)

 

 

Canada

98-0140269

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

 

 

2525 Speakman Drive,

Mississauga, Ontario, Canada L5K 1B1

(905) 403-6457

902 Broadway, Floor 20

New York, New York, USA 10010

(212) 821-0142

 

(Address of principal executive offices, zip code, telephone numbers)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Shares, no par value

 

IMAX

 

The New York Stock Exchange

 

 

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

Class

 

Outstanding as of March 31, 2024

Common Shares, no par value

 

52,622,200

 

 

 

 


 

 

IMAX CORPORATION

 

Table of Contents

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements

3

Item 2.

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

40

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

62

Item 4.

Controls and Procedures

64

 

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

65

Item 1A.

Risk Factors

65

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

65

Item 5.

Other Information

66

Item 6.

Exhibits

67

Signatures

 

68

 

2


 

IMAX CORPORATION

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

 

Page

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

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023

4

Condensed Consolidated Statements of Operations for the three months ended March 31, 2024 and 2023

5

Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2024 and 2023

6

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023

7

Condensed Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2024 and 2023

8

Notes to Condensed Consolidated Financial Statements

9

 

3


 

IMAX CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of U.S. Dollars, except share amounts)

(Unaudited)

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

81,017

 

 

$

76,200

 

Accounts receivable, net of allowance for credit losses

 

 

140,579

 

 

 

136,259

 

Financing receivables, net of allowance for credit losses

 

 

125,614

 

 

 

127,154

 

Variable consideration receivables, net of allowance for credit losses

 

 

64,503

 

 

 

64,338

 

Inventories

 

 

36,153

 

 

 

31,584

 

Prepaid expenses

 

 

12,711

 

 

 

12,345

 

Film assets, net of accumulated amortization

 

 

8,050

 

 

 

6,786

 

Property, plant and equipment, net of accumulated depreciation

 

 

240,450

 

 

 

243,299

 

Other assets

 

 

19,634

 

 

 

20,879

 

Deferred income tax assets, net of valuation allowance

 

 

7,712

 

 

 

7,988

 

Goodwill

 

 

52,815

 

 

 

52,815

 

Other intangible assets, net of accumulated amortization

 

 

34,902

 

 

 

35,022

 

Total assets

 

$

824,140

 

 

$

814,669

 

Liabilities

 

 

 

 

 

 

Accounts payable

 

$

18,734

 

 

$

26,386

 

Accrued and other liabilities

 

 

101,038

 

 

 

111,013

 

Deferred revenue

 

 

60,999

 

 

 

67,105

 

Revolving credit facility borrowings, net of unamortized debt issuance costs

 

 

68,034

 

 

 

22,924

 

Convertible notes and other borrowings, net of unamortized discounts and debt issuance costs

 

 

229,435

 

 

 

229,131

 

Deferred income tax liabilities

 

 

12,521

 

 

 

12,521

 

Total liabilities

 

 

490,761

 

 

 

469,080

 

Commitments, contingencies and guarantees (see Note 7)

 

 

 

 

 

 

Non-controlling interests

 

 

649

 

 

 

658

 

Shareholders' equity

 

 

 

 

 

 

Capital stock common shares — no par value. Authorized — unlimited number.

 

 

 

 

 

 

52,622,200 issued and outstanding (December 31, 2023 — 53,260,276 issued and outstanding)

 

 

393,597

 

 

 

389,048

 

Other equity

 

 

171,877

 

 

 

185,087

 

Statutory surplus reserve

 

 

3,932

 

 

 

3,932

 

Accumulated deficit

 

 

(297,284

)

 

 

(292,845

)

Accumulated other comprehensive loss

 

 

(13,320

)

 

 

(12,081

)

Total shareholders' equity attributable to common shareholders

 

 

258,802

 

 

 

273,141

 

Non-controlling interests

 

 

73,928

 

 

 

71,790

 

Total shareholders' equity

 

 

332,730

 

 

 

344,931

 

Total liabilities and shareholders' equity

 

$

824,140

 

 

$

814,669

 

 

(See the accompanying notes, which are an integral part of these Condensed Consolidated Financial Statements.)

4


 

IMAX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands of U.S. Dollars, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Revenues

 

 

 

 

 

 

Technology sales

 

$

7,904

 

 

$

17,822

 

Image enhancement and maintenance services

 

 

50,348

 

 

 

47,127

 

Technology rentals

 

 

18,601

 

 

 

20,058

 

Finance income

 

 

2,270

 

 

 

1,939

 

 

 

79,123

 

 

 

86,946

 

Costs and expenses applicable to revenues

 

 

 

 

 

 

Technology sales

 

 

4,767

 

 

 

7,232

 

Image enhancement and maintenance services

 

 

21,195

 

 

 

23,085

 

Technology rentals

 

 

6,272

 

 

 

6,578

 

 

 

32,234

 

 

 

36,895

 

Gross margin

 

 

46,889

 

 

 

50,051

 

Selling, general and administrative expenses

 

 

31,257

 

 

 

34,148

 

Research and development

 

 

2,187

 

 

 

1,855

 

Amortization of intangible assets

 

 

1,343

 

 

 

1,074

 

Credit loss expense, net

 

 

35

 

 

 

220

 

Restructuring and executive transition costs

 

 

 

 

 

1,353

 

Income from operations

 

 

12,067

 

 

 

11,401

 

Realized and unrealized investment gains

 

 

30

 

 

 

44

 

Retirement benefits non-service expense

 

 

(107

)

 

 

(77

)

Interest income

 

 

534

 

 

 

407

 

Interest expense

 

 

(1,945

)

 

 

(1,767

)

Income before taxes

 

 

10,579

 

 

 

10,008

 

Income tax expense

 

 

(5,159

)

 

 

(4,885

)

Net income

 

 

5,420

 

 

 

5,123

 

Net income attributable to non-controlling interests

 

 

(2,146

)

 

 

(2,669

)

Net income attributable to common shareholders

 

$

3,274

 

 

$

2,454

 

 

 

 

 

 

 

 

Net income per share attributable to common shareholders:

 

Basic

 

$

0.06

 

 

$

0.05

 

Diluted

 

$

0.06

 

 

$

0.04

 

Weighted average shares outstanding (in thousands):

 

 

 

 

 

 

Basic

 

 

52,501

 

 

 

54,064

 

Diluted

 

 

53,406

 

 

 

54,991

 

 

(See the accompanying notes, which are an integral part of these Condensed Consolidated Financial Statements.)

5


 

IMAX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands of U.S. Dollars)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Net income

 

$

5,420

 

 

$

5,123

 

Other comprehensive (loss) income, before tax

 

 

 

 

 

 

Unrealized net (loss) gain from cash flow hedging instruments

 

 

(916

)

 

 

134

 

Realized net loss from cash flow hedging instruments

 

 

11

 

 

 

339

 

Foreign currency translation adjustments

 

 

(542

)

 

 

2,440

 

Defined benefit and postretirement benefit plans

 

 

(249

)

 

 

(176

)

Total other comprehensive (loss) income, before tax

 

 

(1,696

)

 

 

2,737

 

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

 

 

303

 

 

 

(78

)

Other comprehensive (loss) income, net of tax

 

 

(1,393

)

 

 

2,659

 

Comprehensive income

 

 

4,027

 

 

 

7,782

 

Comprehensive income attributable to non-controlling interests

 

 

(1,992

)

 

 

(3,358

)

Comprehensive income attributable to common shareholders

 

$

2,035

 

 

$

4,424

 

 

(See the accompanying notes, which are an integral part of these Condensed Consolidated Financial Statements.)

6


 

IMAX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. Dollars)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Operating Activities

 

 

 

 

 

 

Net income

 

$

5,420

 

 

$

5,123

 

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

 

 

 

 

 

 

Depreciation and amortization

 

 

15,164

 

 

 

13,320

 

Amortization of deferred financing costs

 

 

492

 

 

 

625

 

Credit loss expense, net

 

 

35

 

 

 

220

 

Write-downs, including asset impairments

 

 

109

 

 

 

304

 

Deferred income tax expense (benefit)

 

 

571

 

 

 

(193

)

Share-based and other non-cash compensation

 

 

4,783

 

 

 

5,135

 

Unrealized foreign currency exchange loss (gain)

 

 

33

 

 

 

(78

)

Realized and unrealized investment gains

 

 

(30

)

 

 

(44

)

Changes in assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(4,502

)

 

 

12,374

 

Inventories

 

 

(4,672

)

 

 

(5,946

)

Film assets

 

 

(4,912

)

 

 

(3,884

)

Deferred revenue

 

 

(6,075

)

 

 

2,606

 

Changes in other operating assets and liabilities

 

 

(17,384

)

 

 

(8,344

)

Net cash (used in) provided by operating activities

 

 

(10,968

)

 

 

21,218

 

Investing Activities

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(1,104

)

 

 

(364

)

Investment in equipment for joint revenue sharing arrangements

 

 

(4,442

)

 

 

(2,157

)

Acquisition of other intangible assets

 

 

(1,594

)

 

 

(1,760

)

Net cash used in investing activities

 

 

(7,140

)

 

 

(4,281

)

Financing Activities

 

 

 

 

 

 

Revolving credit facility borrowings

 

 

45,000

 

 

 

25,717

 

Repayments of revolving credit facility borrowings

 

 

 

 

 

(31,180

)

Other borrowings

 

 

 

 

 

315

 

Repayment of other borrowings

 

 

(156

)

 

 

 

Repurchase of common shares

 

 

(17,856

)

 

 

(3,656

)

Taxes withheld and paid on employee stock awards vested

 

 

(4,194

)

 

 

(6,233

)

Net cash provided by (used in) financing activities

 

 

22,794

 

 

 

(15,037

)

Effects of exchange rate changes on cash

 

 

131

 

 

 

(55

)

Increase in cash and cash equivalents during period

 

 

4,817

 

 

 

1,845

 

Cash and cash equivalents, beginning of period

 

 

76,200

 

 

 

97,401

 

Cash and cash equivalents, end of period

 

$

81,017

 

 

$

99,246

 

 

(See the accompanying notes, which are an integral part of these Condensed Consolidated Financial Statements.)

7


 

IMAX CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In thousands of U.S. Dollars)

(Unaudited)

 

Three Months Ended

 

 

March 31,

 

 

2024

 

 

2023

 

Adjustments to capital stock:

 

 

 

 

 

Balance, beginning of period

$

389,048

 

 

$

376,715

 

Average carrying value of repurchased and retired common shares

 

(8,517

)

 

 

109

 

Restricted share units vested, net of shares withheld for employee tax obligations

 

13,066

 

 

 

12,676

 

Balance, end of period

 

393,597

 

 

 

389,500

 

Adjustments to other equity:

 

 

 

 

 

Balance, beginning of period

 

185,087

 

 

 

185,678

 

Amortization of share-based payment expense - stock options

 

 

 

 

91

 

Amortization of share-based payment expense - restricted share units

 

2,924

 

 

 

3,314

 

Amortization of share-based payment expense - performance stock units

 

1,887

 

 

 

1,021

 

Restricted share units vested

 

(17,943

)

 

 

(19,233

)

Change in ownership interest related to IMAX China

 

(78

)

 

 

 

Balance, end of period

 

171,877

 

 

 

170,871

 

Adjustments to statutory surplus reserve:

 

 

 

 

 

Balance, beginning of period

 

3,932

 

 

 

3,932

 

Balance, end of period

 

3,932

 

 

 

3,932

 

Adjustments to accumulated deficit:

 

 

 

 

 

Balance, beginning of period

 

(292,845

)

 

 

(293,124

)

Net income attributable to common shareholders

 

3,274

 

 

 

2,454

 

Common shares repurchased and retired

 

(7,713

)

 

 

(1,739

)

Balance, end of period

 

(297,284

)

 

 

(292,409

)

Adjustments to accumulated other comprehensive (loss) income:

 

 

 

 

 

Balance, beginning of period

 

(12,081

)

 

 

(9,846

)

Other comprehensive (loss) income, net of tax

 

(1,239

)

 

 

1,970

 

Balance, end of period

 

(13,320

)

 

 

(7,876

)

Adjustments to non-controlling interests:

 

 

 

 

 

Balance, beginning of period

 

71,790

 

 

 

65,691

 

Net income attributable to non-controlling interests

 

2,155

 

 

 

2,660

 

Other comprehensive (loss) income, net of tax

 

(154

)

 

 

689

 

Share-based compensation attributable to non-controlling interests

 

59

 

 

 

50

 

Change in ownership interest related to IMAX China

 

78

 

 

 

 

Balance, end of period

 

73,928

 

 

 

69,090

 

Total Shareholders' Equity

$

332,730

 

 

$

333,108

 

 

(See the accompanying notes, which are an integral part of these Condensed Consolidated Financial Statements.)

8


 

IMAX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands of U.S. Dollars, unless otherwise stated)

(Unaudited)

1. Basis of Presentation

Accounting Principles

IMAX Corporation, together with its consolidated subsidiaries (the “Company” or “IMAX”), prepares its financial statements in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from this report, as is permitted by such rules and regulations. In the Company’s opinion, the unaudited Condensed Consolidated Financial Statements reflect all adjustments of a normal recurring nature that are necessary for a fair statement of the results for the interim periods presented. The Condensed Consolidated Balance Sheet at December 31, 2023 was derived from the Company’s audited annual Consolidated Financial Statements, but does not contain all of the footnote disclosures included in the annual financial statements. The interim results presented in the Company’s Condensed Consolidated Statements of Operations are not necessarily indicative of results for a full year.

These Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements included in the Company’s 2023 Annual Report on Form 10-K (the “2023 Form 10-K”), which should be consulted for a summary of the significant accounting policies utilized by the Company. These Condensed Consolidated Financial Statements are prepared following the same accounting policies disclosed in the 2023 Form 10-K.

Principles of Consolidation

These Condensed Consolidated Financial Statements include the accounts of IMAX Corporation together with its consolidated subsidiaries, except for subsidiaries which have been identified as variable interest entities (“VIEs”) where the Company is not the primary beneficiary. All intercompany accounts and transactions have been eliminated. The Company has evaluated its various variable interests to determine whether they are VIEs as required by U.S. GAAP.

The Company has interests in ten film production companies, which have been identified as VIEs. The Company is the primary beneficiary of and consolidates five of these entities as it has the power to direct the activities that most significantly impact the economic performance of the VIE, and it has the obligation to absorb losses or the right to receive benefits from the respective VIE that could potentially be significant. The majority of the assets relating to these production companies are held by the IMAX Original Film Fund (the “Original Film Fund”) as described in Note 17(b). The Company does not consolidate the other five film production companies because it does not have the power to direct their activities and it does not have the obligation to absorb the majority of the expected losses or the right to receive expected residual returns. The Company uses the equity method of accounting for these entities, which are not material to the Company’s Condensed Consolidated Financial Statements. A loss in the value of an equity method investment that is other than temporary is recognized as a charge in the Condensed Consolidated Statements of Operations.

As of March 31, 2024 and December 31, 2023, total assets and liabilities of the Company’s consolidated VIEs are as follows:

 

 

 

March 31,

 

 

December 31,

 

(In thousands of U.S. Dollars)

 

2024

 

 

2023

 

Total assets

 

$

1,410

 

 

$

1,425

 

Total liabilities

 

$

246

 

 

$

246

 

9


 

Estimates and Assumptions

In preparing the Company’s Condensed Consolidated Financial Statements, management makes judgments in applying various accounting policies. The areas of policy judgment are consistent with those reported in Note 2(b) of the Company’s audited Consolidated Financial Statements included in its 2023 Form 10-K. Management also considers that its determination of operating and reporting segments represents an area of judgment, and has made this conclusion on the basis of what comprises the discrete financial information produced, but not provided to or used by its Chief Operating Decision Maker (“CODM”) to carry out this function. In addition, management makes assumptions about the Company’s future operating results and cash flows in deriving critical accounting estimates used in preparing the Condensed Consolidated Financial Statements. The significant estimates made by management include, but are not limited to: (i) the allocation of the transaction price in an IMAX System arrangement to distinct performance obligations; (ii) the amount of variable consideration to be earned on sales of IMAX Systems based on projections of future box office performance; (iii) expected credit losses on accounts receivable, financing receivables, and variable consideration receivables; (iv) provisions for the write-down of excess and obsolete inventory; (v) the fair values of the reporting units used in assessing the recoverability of goodwill; (vi) the cash flow projections used in testing the recoverability of long-lived assets such as the system equipment supporting joint revenue sharing arrangements; (vii) the economic lives of the system equipment supporting joint revenue sharing arrangements; (viii) the useful lives of intangible assets; (ix) the ultimate revenue forecasts used to test the recoverability of film assets; (x) the discount rates used to determine the present value of financing receivables and lease liabilities, as well as to determine the fair values of the Company’s reporting units for the purpose of assessing the recoverability of goodwill; (xi) pension plan assumptions; (xii) estimates related to the fair value and projected vesting of share-based payment awards; (xiii) the valuation of deferred income tax assets; and (xiv) reserves related to uncertain tax positions.

2. New Accounting Standards and Accounting Changes

Adoption of New Accounting Standards

In October 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2023-06, “Disclosure Improvements: Codification Amendments in response to the SEC’s Disclosure Update and Simplification Initiative” (“ASU 2023-06”). ASU 2023-06 incorporates into U.S. GAAP certain presentation and disclosure requirements currently included in the SEC’s regulations. Each amendment will become effective prospectively from the date the SEC withdrawals the corresponding SEC regulatory requirement. The Company adopted ASU 2023-06 on January 1, 2024. The adoption of ASU 2023-06 did not have a material impact on the Company’s Consolidated Financial Statements.

Recently Issued FASB Accounting Standard Codification Updates Not Yet Adopted

In March 2020, the FASB issued Accounting Standards Update No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”). The purpose of ASU 2020-04 is to provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 is effective for all entities from the beginning of an interim period that includes the issuance date of the ASU 2020-04. In October 2022, the FASB extended the temporary accounting relief to December 31, 2024 from the current sunset date of December 31, 2022. As of March 31, 2024, the Company is not party to any third party contracts that reference the London Interbank Offered Rate (“LIBOR”). Accordingly, the Company does not expect ASU 2020-04 to have a material effect on its Consolidated Financial Statements.

In November 2023, the FASB issued Accounting Standards Update No. 2023-07, Segment Reporting (Topic 820): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). The purpose of ASU 2023-07 is to enhance the interim disclosure requirements by more closely aligning them with the annual requirements. ASU 2023-07 requires interim and annual disclosures to include information about the company's significant segment expenses. ASU 2023-07 will be effective for the Company’s year ended December 31, 2024 and all interim periods thereafter. The Company is in the process of evaluating the impact of ASU 2023-07 on its financial statements.

In December 2023, the FASB issued Accounting Standard Update 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). The amendments in ASU 2023-09 improve the transparency of income tax disclosures by requiring (i) consistent categories and greater disaggregation of information in the rate reconciliation, and (ii) income taxes paid disaggregated by jurisdiction. ASU 2023-09 will be effective for the Company’s year ended December 31, 2025. The Company is in the process of evaluating the impact of ASU 2023-09 on its financial statements.

10


 

In March 2024, the FASB issued Accounting Standard Update 2024-01, Compensation - Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards (“ASU 2024-01”). ASU 2024-01 amends the guidance in Accounting Standard Codification 718 (“ASC 718”) by adding an illustrative example to demonstrate and clarify how to apply the scope guidance to determine whether profits interests and similar awards should be accounted for as share-based payment arrangement under ASC 718 or another standard. ASU 2024-01 will be effective for the Company’s period ended March 31, 2025. The Company is in the process of evaluating the impact of ASU 2024-01 on its financial statements.

The Company considers the applicability and impact of all recently issued FASB accounting standard codification updates. Accounting standard updates that are not noted above were assessed and determined to be not applicable or not significant to the Company’s Condensed Consolidated Financial Statements for the period ended March 31, 2024.

3. Receivables

The ability of the Company to collect its receivables is principally dependent on the viability and solvency of individual theater operators which is significantly influenced by consumer behavior and general economic conditions. Theater operators, or other customers, may experience financial difficulties that could result in them being unable to fulfill their payment obligations to the Company.

In order to mitigate the credit risk associated with its receivables, management performs an initial credit evaluation prior to entering into an arrangement with a customer and then regularly monitors the credit quality of each customer through an analysis of collections history and aging. This monitoring process includes meetings on at least a monthly basis to identify credit concerns and potential changes in credit quality classification. A customer may improve their credit quality classification once a substantial payment is made on an overdue balance or when the customer has agreed to a payment plan and payments have commenced in accordance with that plan. Changes in credit quality classification are dependent upon management approval. The Company’s internal credit quality classifications are as follows:

Good Standing — The theater operator continues to be in good standing as payments and reporting are received on a regular basis.
Credit Watch — The theater operator has demonstrated a delay in payments, but continues to be in active communication with the Company. Theater operators placed on Credit Watch are subject to enhanced monitoring. In addition, depending on the size of the outstanding balance, length of time in arrears, and other factors, future transactions may need to be approved by management. These receivables are in better condition than those in the Pre-Approved Transactions Only category, but are not in as good condition as the receivables in the Good Standing category.
Pre-Approved Transactions Only — The theater operator has demonstrated a delay in payments with little or no communication with the Company. All services and shipments to the theater operator must be reviewed and approved by management. These receivables are in better condition than those in the All Transactions Suspended category, but are not in as good condition as the receivables in the Credit Watch category. In certain situations, a theater operator may be placed on nonaccrual status and all revenue recognition related to the theater may be suspended, including the accretion of Finance Income for Financing Receivables.
All Transactions Suspended — The theater operator is severely delinquent, non-responsive or not negotiating in good faith with the Company. Once a theater operator is classified within the All Transactions Suspended category, the theater is placed on nonaccrual status and all revenue recognitions related to the theater are suspended, including the accretion of Finance Income for Financing Receivables.

During the period when the accretion of Finance Income is suspended for Financing Receivables, any payments received from a customer are applied against the outstanding balance owed. If payments are sufficient to cover any unreserved receivables, a reversal of the provision is recorded to the extent of the residual cash received. Once the collectability issues are resolved and the customer has returned to being in good standing, the Company will resume recognition of Finance Income.

When a customer’s aging exceeds 90 days, the Company’s policy is to perform an enhanced review to assess collectability of the theater’s past due accounts. The over 90 days past due category may be an indicator of potential impairment as up to 90 days outstanding is considered to be a reasonable time to resolve any issues.

11


 

The Company develops an estimate of expected credit losses by class of receivable and customer type through a calculation that utilizes historical loss rates, which are then adjusted for specific receivables that are judged to have a higher-than-normal risk profile after considering management’s internal credit quality classifications. Additional credit loss provisions are also recorded taking into account macro-economic and industry risk factors. The write-off of any billed receivable balance requires the approval of management.

Management’s judgments regarding expected credit losses are based on the facts available to management and involve estimates about the future. As a result, the Company’s judgments and associated estimates of credit losses may ultimately prove, with the benefit of hindsight, to be incorrect. The impacts of inflation, and rising interest rates may impact future credit losses. The Company will continue to monitor economic trends and conditions and portfolio performance and adjust its allowance for credit loss accordingly.

Accounts Receivable

Accounts receivable principally includes amounts currently due to the Company under IMAX System sale and sales-type lease arrangements, contingent fees owed by theater operators as a result of box office performance, and fees for maintenance services. Accounts receivable also includes amounts due to the Company from movie studios and other content creators principally for digitally remastering films into IMAX formats, as well as for film distribution and post-production services.

The following tables summarize the activity in the allowance for credit losses related to Accounts Receivable for the three months ended March 31, 2024 and 2023:

 

Three Months Ended March 31,2024

 

(In thousands of U.S. Dollars)

Theater
Operators

 

 

Studios

 

 

Other

 

 

Total

 

Beginning balance

$

14,355

 

 

$

616

 

 

$

1,006

 

 

$

15,977

 

Current period (reversal) provision, net

 

(94

)

 

 

14

 

 

 

73

 

 

 

(7

)

Foreign exchange

 

(14

)

 

 

 

 

 

 

 

 

(14

)

Ending balance

$

14,247

 

 

$

630

 

 

$

1,079

 

 

$

15,956

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2023

 

(In thousands of U.S. Dollars)

Theater
Operators

 

 

Studios

 

 

Other

 

 

Total

 

Beginning balance

$

11,144

 

 

$

1,699

 

 

$

1,276

 

 

$

14,119

 

Current period provision, net

 

(265

)

 

 

3

 

 

 

21

 

 

 

(241

)

Write-offs

 

(115

)

 

 

 

 

 

 

 

 

(115

)

Foreign exchange

 

60

 

 

 

5

 

 

 

 

 

 

65

 

Ending balance

$

10,824

 

 

$

1,707

 

 

$

1,297

 

 

$

13,828

 

For the three months ended March 31, 2024, the Company’s allowance for current expected credit losses related to Accounts Receivable decreased less than $0.1 million. There were no write-offs in the allowance for credit losses for the three months ended March 31, 2024.

For the three months ended March 31, 2023, the Company’s allowance for current expected credit losses related to Accounts Receivable decreased by $0.4 million.

12


 

Financing Receivables

Financing receivables are due from theater operators and consist of the Company’s net investment in sales-type leases and receivables associated with financed sales of IMAX Systems. As of March 31, 2024 and December 31, 2023, financing receivables consist of the following:

 

March 31,

 

 

December 31,

 

(In thousands of U.S. Dollars)

2024

 

 

2023

 

Net investment in leases

 

 

 

 

 

Gross minimum payments due under sales-type leases

$

30,215

 

 

$

30,459

 

Unearned finance income

 

(441

)

 

 

(467

)

Present value of minimum payments due under sales-type leases

 

29,774

 

 

 

29,992

 

Allowance for credit losses

 

(451

)

 

 

(453

)

Net investment in leases

 

29,323

 

 

 

29,539

 

Financed sales receivables

 

 

 

 

 

Gross minimum payments due under financed sales

 

133,511

 

 

 

135,684

 

Unearned finance income

 

(27,604

)

 

 

(28,452

)

Present value of minimum payments due under financed sales

 

105,907

 

 

 

107,232

 

Allowance for credit losses

 

(9,616

)

 

 

(9,617

)

Net financed sales receivables

 

96,291

 

 

 

97,615

 

Total financing receivables

$

125,614

 

 

$

127,154

 

 

 

 

 

 

 

Net financed sales receivables due within one year

$

31,700

 

 

$

32,031

 

Net financed sales receivables due after one year

 

64,591

 

 

 

65,584

 

Total financed sales receivables

$

96,291

 

 

$

97,615

 

As of March 31, 2024 and December 31, 2023, the weighted-average remaining lease term and weighted-average interest rate associated with the Company’s sales-type lease arrangements and financed sale receivables, as applicable, are as follows:

 

 

March 31,

 

 

 

December 31,

 

 

 

2024

 

 

 

2023

 

Weighted-average remaining lease term (in years)

 

 

 

 

 

 

Sales-type lease arrangements

 

 

8.1

 

 

 

 

8.3

 

Weighted-average interest rate

 

 

 

 

 

 

 

Sales-type lease arrangements

 

 

7.56

%

 

 

7.88%

 

Financed sales receivables

 

 

9.01

%

 

 

8.97%

 

 

13


 

The tables below provide information on the Company’s net investment in leases by credit quality indicator as of March 31, 2024 and December 31, 2023. The amounts disclosed for each credit quality classification are determined on a customer-by-customer basis and include both billed and unbilled amounts.

(In thousands of U.S. Dollars)

By Origination Year

 

 

 

 

As of March 31, 2024

2024

 

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

Prior

 

 

Total

 

Net investment in leases:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit quality classification:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In good standing

$

 

 

$

2,278

 

 

$

3,072

 

 

$

5,664

 

 

$

1,771

 

 

$

7,388

 

 

$

20,173

 

Credit Watch

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-approved transactions

 

 

 

 

 

 

 

490

 

 

 

2,602

 

 

 

809

 

 

 

5,299

 

 

 

9,200

 

Transactions suspended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

401

 

 

 

401

 

Total net investment in leases

$

 

 

$

2,278

 

 

$

3,562

 

 

$

8,266

 

 

$

2,580

 

 

$

13,088

 

 

$

29,774

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands of U.S. Dollars)

By Origination Year

 

 

 

 

As of December 31, 2023

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Total

 

Net investment in leases:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit quality classification:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In good standing

$

2,435

 

 

$

3,262

 

 

$

6,241

 

 

$

2,173

 

 

$

1,677

 

 

$

1,138

 

 

$

16,926

 

Credit Watch

 

 

 

 

490

 

 

 

 

 

 

 

 

 

 

 

 

313

 

 

 

803

 

Pre-approved transactions

 

 

 

 

 

 

 

3,462

 

 

 

1,182

 

 

 

5,221

 

 

 

1,997

 

 

 

11,862

 

Transactions suspended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

401

 

 

 

401

 

Total net investment in leases

$

2,435

 

 

$

3,752

 

 

$

9,703

 

 

$

3,355

 

 

$

6,898