e10vqza
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
Amendment No. 1 to Form 10-Q
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þ |
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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, 2007
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
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98-0140269 |
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(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification Number) |
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2525 Speakman Drive, Mississauga, Ontario, Canada
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L5K 1B1 |
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(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 is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12B-2 of the Exchange Act.
Large Accelerated Filer o Accelerated Filer þ Non-Accelerated Filer o
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 31, 2007 |
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Common stock, no par value
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40,288,074 |
IMAX CORPORATION
Amendment No. 1 to Form 10-Q
TABLE OF CONTENTS
Page 2
IMAX CORPORATION
EXPLANATORY NOTE TO QUARTERLY REPORT ON FORM 10-Q/A
IMAX Corporation together with its wholly-owned subsidiaries (the Company) previously announced
its intention to restate its consolidated financial statements for the years ended December 31,
2002, 2003, 2004, 2005 and 2006, and the first six months of 2007. The Company files this Amendment
No. 1 to its second quarter 2007 Quarterly Report on Form 10-Q (this Form 10-Q/A), to reflect the
correction of errors that were contained in the Companys second quarter 2007 Quarterly Report on
Form 10-Q, originally filed with the Securities and Exchange Commission (SEC) on August 9, 2007,
(the Original 2007 Second Quarter Form 10-Q). The Company also amends portions of its Original
2007 Second Quarter Form 10-Q in response to a comment letter received from the SEC. In this Form
10-Q/A, the Company has corrected certain errors with regard to its lease-related accounting
practices as they related to the Companys owned and operated theaters and office facilities,
sponsorship revenue at its owned and operated theaters, corrected a revenue recognition error for a
2002 transaction, revised the presentation of discontinued operations in the consolidated statement
of cash flows, enhanced disclosures relating to its credit facilities and revenue recognition
accounting policies and updated the disclosure with respect to its legal proceedings. The Company
is also updating Item 4. Controls and Procedures in connection with such changes.
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 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; the opportunities
(or lack thereof) that may be presented to and pursued by the Company; competitive actions by other
companies; U.S. or Canadian regulatory inquiries; conditions in the in-home and out-of-home
entertainment industries; changes in laws or regulations; conditions, changes and developments in
the commercial exhibition industry; the acceptance of the Companys new technologies (including in
particular its transition to digital projection technology); 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; and other factors, many of which are beyond the control of the Company.
Consequently, all of the forward-looking statements made in this quarterly 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, 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.
Page 3
IMAX CORPORATION
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Page 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, 2007 |
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December 31, |
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(unaudited) |
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2006 |
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As restated |
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As restated |
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(note 3) |
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(note 3) |
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Assets |
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Cash and cash equivalents |
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$ |
16,310 |
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$ |
25,123 |
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Short-term investments |
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|
2,164 |
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|
2,115 |
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Accounts receivable, net of allowance for doubtful accounts of $3,112
(2006 - $3,253) |
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26,354 |
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|
26,017 |
|
Financing receivables (note 4) |
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62,792 |
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|
65,878 |
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Inventories (note 5) |
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27,122 |
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26,913 |
|
Prepaid expenses |
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3,052 |
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|
3,432 |
|
Film assets |
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4,178 |
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|
1,235 |
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Property, plant and equipment |
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24,734 |
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24,639 |
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Other assets |
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12,174 |
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10,365 |
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Goodwill |
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39,027 |
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39,027 |
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Other intangible assets |
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2,526 |
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|
2,547 |
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Total assets |
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$ |
220,433 |
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$ |
227,291 |
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Liabilities |
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Accounts payable |
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$ |
8,454 |
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$ |
11,426 |
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Accrued liabilities (notes 9(h),14(a), 17(a), 17(c)) |
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61,574 |
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|
58,294 |
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Deferred revenue |
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60,205 |
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55,803 |
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Senior Notes due 2010 (note 6) |
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160,000 |
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160,000 |
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Total liabilities |
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290,233 |
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285,523 |
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Commitments and contingencies (notes 8 and 9) |
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Shareholders deficit |
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Capital stock (note 14) common shares no par value. Authorized
unlimited number. Issued and outstanding 40,288,074 (2006
40,285,574) |
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122,032 |
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|
122,024 |
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Other equity |
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3,400 |
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|
2,937 |
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Deficit |
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(195,742 |
) |
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(184,375 |
) |
Accumulated other comprehensive income |
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510 |
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1,182 |
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Total shareholders deficit |
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(69,800 |
) |
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(58,232 |
) |
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Total liabilities and shareholders deficit |
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$ |
220,433 |
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$ |
227,291 |
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(the accompanying notes are an integral part of these condensed consolidated financial statements)
Page 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 ended |
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Six months ended |
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June 30, |
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June 30, |
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2007 |
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2006 |
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2007 |
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2006 |
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As restated |
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As restated |
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As restated |
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As restated |
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(note 3) |
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(note 3) |
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(note 3) |
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(note 3) |
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Revenues |
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Equipment and product sales |
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$ |
6,781 |
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$ |
15,322 |
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$ |
13,855 |
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$ |
23,096 |
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Services |
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16,341 |
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19,728 |
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33,998 |
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33,197 |
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Rentals |
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1,672 |
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1,485 |
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2,958 |
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|
2,464 |
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Finance income |
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1,181 |
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|
1,627 |
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|
2,367 |
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|
2,739 |
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Other |
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1,539 |
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1,539 |
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27,514 |
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38,162 |
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54,717 |
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61,496 |
|
Cost of goods sold, services and rentals |
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Equipment and product sales |
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3,813 |
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8,910 |
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7,756 |
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|
13,116 |
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Services |
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10,698 |
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|
13,084 |
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|
|
21,990 |
|
|
|
23,745 |
|
Rentals |
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|
731 |
|
|
|
473 |
|
|
|
1,291 |
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|
|
950 |
|
Other |
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19 |
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19 |
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|
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|
|
|
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|
|
|
|
|
|
|
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|
15,261 |
|
|
|
22,467 |
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|
|
31,056 |
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|
37,811 |
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|
|
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|
|
|
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|
|
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Gross margin |
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12,253 |
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15,695 |
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|
23,661 |
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|
23,685 |
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|
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|
|
|
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|
|
|
|
|
|
|
|
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|
Selling, general and administrative expenses (note 10) |
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|
11,147 |
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|
9,533 |
|
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|
21,469 |
|
|
|
20,065 |
|
Research and development |
|
|
1,121 |
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|
|
664 |
|
|
|
2,616 |
|
|
|
1,579 |
|
Amortization of intangibles |
|
|
141 |
|
|
|
132 |
|
|
|
277 |
|
|
|
324 |
|
Receivable provisions net of (recoveries) (note 12) |
|
|
(31 |
) |
|
|
(252 |
) |
|
|
(25 |
) |
|
|
(109 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from operations |
|
|
(125 |
) |
|
|
5,618 |
|
|
|
(676 |
) |
|
|
1,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
227 |
|
|
|
280 |
|
|
|
453 |
|
|
|
533 |
|
Interest expense |
|
|
(4,375 |
) |
|
|
(4,242 |
) |
|
|
(8,624 |
) |
|
|
(8,399 |
) |
|
|
|
|
|
|
|
|
|
|
|
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|
Earnings (loss) from continuing operations before income taxes |
|
|
(4,273 |
) |
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|
1,656 |
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|
|
(8,847 |
) |
|
|
(6,040 |
) |
(Provision for) recovery of income taxes |
|
|
(260 |
) |
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2 |
|
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(427 |
) |
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1,694 |
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|
|
|
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|
|
|
|
|
|
|
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Net earnings (loss) from continuing operations |
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|
(4,533 |
) |
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|
1,658 |
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|
|
(9,274 |
) |
|
|
(4,346 |
) |
Net earnings from discontinued operations |
|
|
|
|
|
|
|
|
|
|
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|
2,300 |
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|
|
|
|
|
|
|
|
|
|
|
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|
Net earnings (loss) |
|
$ |
(4,533 |
) |
|
$ |
1,658 |
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|
$ |
(9,274 |
) |
|
$ |
(2,046 |
) |
|
|
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Earnings (loss) per share |
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|
|
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Earnings (loss) per share basic & diluted: |
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|
|
|
|
|
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|
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|
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Net earnings (loss) from continuing operations |
|
$ |
(0.11 |
) |
|
$ |
0.04 |
|
|
$ |
(0.23 |
) |
|
$ |
(0.10 |
) |
Net earnings from discontinued operations |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
(0.11 |
) |
|
$ |
0.04 |
|
|
$ |
(0.23 |
) |
|
$ |
(0.05 |
) |
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Other comprehensive loss consists of: |
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss resulting from amendment (net of tax
provision of $nil) |
|
$ |
(997 |
) |
|
$ |
|
|
|
$ |
(997 |
) |
|
$ |
|
|
Amortization of prior service credits (net of tax provision
of $73 and $nil for the three months ended June 30, 2007
and 2006, respectively, and $149 and $nil for the six
months ended June 30, 2007 and 2006, respectively) |
|
|
164 |
|
|
|
|
|
|
|
325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(833 |
) |
|
$ |
|
|
|
$ |
(672 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(the accompanying notes are an integral part of these condensed consolidated financial statements)
Page 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 ended |
|
|
|
June 30, |
|
|
|
2007 |
|
|
2006 |
|
|
|
As restated |
|
|
As restated |
|
|
|
(note 3) |
|
|
(note 3) |
|
Cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(9,274 |
) |
|
$ |
(2,046 |
) |
Net earnings from discontinued operations |
|
|
|
|
|
|
(2,300 |
) |
Items not involving cash: |
|
|
|
|
|
|
|
|
Depreciation and amortization (note 11) |
|
|
6,254 |
|
|
|
7,638 |
|
Write-downs (note 11) |
|
|
(25 |
) |
|
|
(109 |
) |
Change in deferred income taxes |
|
|
(149 |
) |
|
|
(1,604 |
) |
Stock and other non-cash compensation |
|
|
2,006 |
|
|
|
2,554 |
|
Non-cash foreign exchange gain |
|
|
(623 |
) |
|
|
(405 |
) |
Interest on short-term investments |
|
|
(49 |
) |
|
|
(179 |
) |
Increase in cash surrender value of life insurance |
|
|
(16 |
) |
|
|
(6 |
) |
Investment in film assets |
|
|
(5,590 |
) |
|
|
(5,696 |
) |
Changes in other non-cash operating assets and liabilities (note 11) |
|
|
2,227 |
|
|
|
(2,702 |
) |
Net cash used in operating activities from discontinued operations |
|
|
(775 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
(6,014 |
) |
|
|
(4,855 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
Purchases of short-term investments |
|
|
(4,275 |
) |
|
|
(10,322 |
) |
Proceeds from maturities of short-term investments |
|
|
4,274 |
|
|
|
10,321 |
|
Purchase of property, plant and equipment |
|
|
(723 |
) |
|
|
(739 |
) |
Increase in other assets |
|
|
(374 |
) |
|
|
(566 |
) |
Increase in other intangible assets |
|
|
(256 |
) |
|
|
(309 |
) |
Net cash provided by investing activities from discontinued operations |
|
|
|
|
|
|
3,493 |
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
(1,354 |
) |
|
|
1,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
Financing costs related to Senior Notes due 2010 |
|
|
(1,431 |
) |
|
|
|
|
Common shares issued |
|
|
8 |
|
|
|
286 |
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(1,423 |
) |
|
|
286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of exchange rate changes on cash |
|
|
(22 |
) |
|
|
(59 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents, during the period |
|
|
(8,813 |
) |
|
|
(2,750 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period |
|
|
25,123 |
|
|
|
24,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
16,310 |
|
|
$ |
21,574 |
|
|
|
|
|
|
|
|
(the accompanying notes are an integral part of these condensed consolidated financial statements)
Page 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)
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
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 in
accordance with Financial Accounting Standard Board (FASB) Interpretation No. 46R, Consolidation
of Variable Interest Entities (FIN 46R). The Company has six film production companies that are
VIEs. As the Company is exposed to the majority of the expected losses for one of the film
production companies, the Company has determined that it is the primary beneficiary of this entity.
The Company continues to consolidate this entity, with no material impact on the operating results
or financial condition of the Company, as this production company has total assets and total
liabilities of $nil as at June 30, 2007 (December 31, 2006 $nil). For the other five film
production companies which are VIEs, however, the Company did not consolidate these film entities
since it does not bear the majority of the expected losses or expected residual returns. The
Company equity accounts for these entities. As of June 30, 2007, these five VIEs have total assets
of $0.4 million (December 31, 2006 $0.4 million) and total liabilities of $0.4 million (December
31, 2006 $0.4 million).
All significant intercompany accounts and transactions, including all intercompany profits on
transactions with equity-accounted investees, have been eliminated.
These financial statements should be read in conjunction with the financial statements included in
the Companys Amended Annual Report on Form 10-K/A for the year ended December 31, 2006 (the 2006
Form 10-K/A) 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, 2006,
except as noted below.
2. |
|
Change in Accounting Policy |
Income Taxes
In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes
(an interpretation of FASB Statement No. 109), (FIN 48). This interpretation prescribes a more
likely than not recognition threshold and a measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48
also provided guidance on derecognition of a tax position, classification of a liability for
unrecognized tax benefits, accounting or interest and penalties, accounting in interim periods, and
expanded income tax disclosures. FIN 48 was effective for the Company on January 1, 2007. The
cumulative effect of the change in accounting principle recorded in the first quarter of 2007 upon
adoption of FIN 48 was an increase to accrued liabilities of $2.1 million and a charge to opening
deficit. For additional information see note 13.
Page 8
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)
3. |
|
Restatement of Previously Issued Financial Statements |
As a result of certain transactions occurring during the 2007 fiscal year, the Company identified
certain errors related to operating leases for its facilities and sponsorship revenues associated
with its owned and operated theaters. In addition, the Company identified an error relating to
revenue recognition, resulting from the Companys review of one theater system arrangement which
occurred in 2002 in response to comments received from the Staff of the Division of Corporate
Finance of the SEC. As a result, the previously issued consolidated financial statements as at June
30, 2007 and December 31, 2006 and for the three and six months ended June 2007 and 2006, have been
restated (the Second Restatement). The previously issued consolidated financial statements
included in the Original 2007 Second Quarter Form 10-Q, filed on August 9, 2007, had included
restatements related to the consolidated financial statements for the three and six months ended
June 30, 2006 (the First Restatement).
In 2006, the Company effected a restatement of its prior period financial results due to discovery
of certain errors related to: (a) revenue recognition resulting from the Companys review of its
theater system arrangements over the 5 year period ended December 31, 2006 in response to comments
received from the staff of both the United States Securities and Exchange Commission (SEC) and
the Ontario Securities Commission (OSC) which indicated insufficient analysis of various sales
and lease transactions and the accounting effect of certain contractual provisions within them; and
misallocations of consideration to elements within certain multiple element arrangements; (b)
capitalization of costs into inventory and film assets and amortization of film assets in
accordance with American Institute of Certified Public Accountants Statement of Position 00-2,
Accounting by Producers or Distributors of Films (SOP 00-2); (c) income tax liabilities
resulting from failure to make certain tax elections on a timely basis and (d) certain other items
described under Other Adjustments in this note. In addition, in the preparation of the consolidated
financial statements for the year ended December 31, 2006, the Company recorded other adjustments
related to prior periods unadjusted differences that had been deemed not to be material and
adjustments related to prior periods recorded through the 2006 opening shareholders deficit.
In October 2007, the Company announced that, after a review of its real estate leases, it had
identified certain errors related to its accounting practices as they relate to such leases for
certain of the Companys owned and operated theaters and office facilities. The Company conducted
this review after performing an analysis of a rent-abatement initiated in connection with the
higher level of Finance Department oversight and awareness contemplated by the companys ongoing
remediation plan (see Item 4). The review focused on the Companys historical accounting practice
for recording the impact of rent holidays, abatements, escalation clauses and landlord construction
allowances. The Company also reviewed its accounting for theater sponsorship revenue at its owned
and operated theaters. As a result of this review, the Company concluded that certain of its prior
practices were not in accordance with U.S. GAAP and the Company has restated its consolidated
financial statements for prior periods. Information on the restatement of the consolidated balance
sheet for the year ended December 31, 2006 is included in the
2006 Form 10-K/A.
The overall net impact of these restatement errors was an increase of $5.7 million in June 30, 2007
closing deficit.
Furthermore, the Company identified an error relating to the classification of a theater system
arrangement. The arrangement was originally treated as a sale with contingent minimums however,
after further review of significant terms in the agreement it was determined that the arrangement
should have been treated as an operating lease, the correction of which increased the June 30, 2007
closing deficit by $0.4 million.
Page 9
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)
3. |
|
Restatement of Previously Issued Financial Statements (contd) |
|
c) |
|
Impact of the First Restatement |
Revenue Recognition Theater Systems
The Companys revenue arrangements include multiple elements. In prior years, the Company
considered each component of its theater systems to be a separate element. As a result, revenue was
recognized when certain components were installed. As part of the review of its revenue recognition
policy, the Company concluded its policy for revenue recognition on theater systems should be
revised to treat all components of the theater system (including the projector, sound system, and
screen system and, if applicable, 3D glasses cleaning machine), theater design support, supervision
of installation, projectionist training and the use of that IMAX brand as a single deliverable and
a single unit of accounting, (the System Deliverable). In addition, the Company revised its
policy to recognize revenue only 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
projection training or (b) public opening of the theater. In conjunction with these changes, the
Company undertook an extensive review of all of its revenue arrangements for theater systems for
the period from 2002 to 2006.
For the three months ended June 30, 2006 (as restated), three transactions which were originally
recorded in 2005 (revenue and net earnings impact of $5.8 million and $3.1 million, respectively)
and one transaction which was originally recorded in the first quarter of 2006 (revenue and net
earnings impact of $1.8 million and $0.4 million, respectively) were moved to the second quarter of
2006. Six transactions which were originally recorded in the second quarter of 2006 (revenue and
net earnings impact of $8.4 million and $5.0 million, respectively) were moved to the third quarter of 2006; and, one transaction (revenue and net earnings impact of
$1.7 million and $0.6 million, respectively) was moved to the second quarter of 2007. The net
impact of these adjustments was a decrease in revenue and net earnings of $2.7 million and $2.2
million, respectively, for the quarter ended June 30, 2006.
For the six months ended June 30, 2006 (as restated), six transactions which were originally
recorded in 2005 (revenue and net earnings impact of $11.1 million and $5.7 million, respectively)
were moved to the six month period ended June 30, 2006. Six transactions which were originally
recorded in the six months period ended June 30, 2006 (revenue and net earnings impact of $10.1
million and $5.6 million, respectively) were moved to later periods: five transactions (revenue and
net earnings impact of $8.4 million and $5.0 million, respectively) were moved to the third quarter
of 2006 and one transaction (revenue and net earnings impact of $1.7 million and $0.6 million,
respectively) was moved to the second quarter of 2007. The net impact of these adjustments was an
increase in revenue of $0.6 million and a decrease in net earnings of less than $0.1 million for
the six month period ended June 30, 2006.
Page 10
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)
3. |
|
Restatement of Previously Issued Financial Statements (contd) |
|
c) |
|
Impact of the First Restatement (contd) |
Revenue Recognition Other
As a result of the review of the revenue arrangements, the Company identified additional errors
including the following:
|
§ |
|
Based on an analysis of fair values of elements within its arrangements, the Company
determined that the allocations of consideration received and receivable to elements of
multiple element arrangements were not updated to reflect the current fair values of
particular elements, in particular fair values of maintenance and extended warranty services
in the period affected were not updated in accordance with the accounting guidance in
Emerging Issues Task Force (EITF) Issue 00-21 and other applicable standards. This affected
allocations of consideration in various arrangements to the System Deliverable, maintenance
and extended warranty services, 3D glasses and film license credits. In addition, in certain
arrangements, settlement income was adjusted to reflect the residual amount based on other
elements being reflected at their fair values. |
|
|
§ |
|
The existence of certain non-standard contractual provisions resulted in: the
reclassification of certain sales arrangements to sales-type lease transactions, for
accounting purposes when the customer was not granted title to the system until all payments
were made and certain sales-type leases to operating leases given substantially all of the
benefits and risks of ownership had not passed to the customer; and the timing of recognition
of the minimum annual payments under certain arrangements. |
|
|
§ |
|
Finance income continued to be recognized when the related financing receivables were
impaired. The Company has corrected the error by discontinuing the recognition of finance
income until the impairment issues were resolved. |
The impact of these adjustments was a decrease to net earnings by $0.2 million for the three months
ended June 30, 2006 and an increase to net loss of $0.1 million for the six months ended June 30,
2006.
Inventory Costs
During the period from 2001 to 2006, the Company paid certain fees to a professional services firm
to assist the Company in identifying sales opportunities and provide assistance in negotiating and
concluding contracts in the developing Asian market. These fees were capitalized and allocated to
theater systems inventory for various Asian customers. The Company has determined that these fees
were promotional and selling expenses which should have been expensed as incurred as the costs were
not direct and incremental costs to a contract. The impact of the adjustments was a decrease to net
earnings of $0.1 million for the three months ended June 30, 2006 and an increase to net loss of
$0.1 million for the six months ended June 30, 2006.
Page 11
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)
3. |
|
Restatement of Previously Issued Financial Statements (contd) |
|
c) |
|
Impact of the First Restatement (contd) |
Film Accounting
The Company has determined that it had misclassified certain costs incurred in respect of
co-produced film productions between 2004 and the third quarter of 2006. Marketing and advertising
costs were co-mingled with film production costs, and both were capitalized to film assets, and
subsequently amortized into the income statement over the estimated total ultimate revenues
associated with the film productions. Film exploitation costs, which include marketing and
advertising costs, as defined in SOP 00-2, should have been expensed in the period incurred and not
capitalized to film assets. In addition, certain costs were accrued by the Company prior to being
incurred. These costs have been moved to the period they were incurred. On certain co-produced film
productions, the Company received production fees which should have been deferred and recognized
over the film ultimates. These production fees were previously recognized when production of the
film was complete. The Company also determined that it had not appropriately applied the
individual-film-forecast computation method when it amortized its film assets and deferred
production fees and accrued its participation liabilities for the periods between 2002 and the
third quarter of 2006. SOP 00-2 requires changes in estimates of ultimate revenues used in the
individual-film-forecast computation method to be adjusted prospectively from the beginning of the
year of the change. The Company had applied changes in estimates on a retroactive basis from the
original release date. In addition, the Company adjusted its amortization of prepaid print costs.
The impact of the adjustments was an increase to net earnings of $0.2 million for the three months
ended June 30, 2006 and an increase to net loss of $0.1 million for the six months ended June 30,
2006.
Branch Level Interest Taxes
The Company did not properly account for tax liabilities for branch level interest tax. For the
years ended December 31, 2002, 2003 and 2004, the Company failed to make timely tax elections that
would have prevented an allocation of the Companys interest expense on its long-term indebtedness
to the Companys U.S. branch income tax returns. In 2006, the Company was assessed branch level
interest taxes, interest and penalties due to the fact that these tax elections were not filed on a
timely basis. The Company has determined that an accrued liability for the tax obligations should
have been recorded at the time elections should have been filed and the taxes were due to be paid,
which was in the third quarter of each of the years ended December 31, 2003, 2004 and 2005. The
impact of the adjustments was an increase to net earnings of $0.4 million for the three months
ended June 30, 2006 and a decrease to net loss of $0.6 million for the six months ended June 30,
2006.
Other Adjustments
During the preparation of executive compensation information for the 2006 Annual Report on Form
10-K, the Company determined that the two Co-Chief Executive Officers (Co-CEOs) were entitled to
postretirement health benefits since 2000 for which the obligation had not been included in the
prior financial statements as required under SFAS No. 106, Employers Accounting for
Postretirement Benefits Other than Pensions. As a result the Company should have accrued $0.2
million in 2000. SG&A has been increased by less than $0.1 million for the three and six months
ended June 30, 2006.
Page 12
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)
3. |
|
Restatement of Previously Issued Financial Statements (contd) |
|
c) |
|
Impact of the First Restatement (contd) |
The following table presents the impact of the First Restatement on the Companys previously issued
consolidated statements of operations for the three months ended June 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated |
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Branch |
|
|
|
|
|
|
Per |
|
|
|
As |
|
|
Recognition- |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
Level |
|
|
|
|
|
|
Original |
|
|
|
Previously |
|
|
Theater |
|
|
Recognition- |
|
|
Inventory |
|
|
Film |
|
|
Interest |
|
|
Other |
|
|
2007 |
|
|
|
Reported(1) |
|
|
Systems |
|
|
Other |
|
|
Costs |
|
|
Accounting |
|
|
Taxes |
|
|
Adjustments |
|
|
Form 10-Q |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and product sales |
|
$ |
18,548 |
|
|
$ |
(2,605 |
) |
|
$ |
(585 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
15,358 |
|
Services |
|
|
19,837 |
|
|
|
|
|
|
|
317 |
|
|
|
|
|
|
|
(446 |
) |
|
|
|
|
|
|
|
|
|
|
19,708 |
|
Rentals |
|
|
1,354 |
|
|
|
|
|
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,416 |
|
Finance income |
|
|
1,659 |
|
|
|
(50 |
) |
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,398 |
|
|
|
(2,655 |
) |
|
|
(188 |
) |
|
|
|
|
|
|
(446 |
) |
|
|
|
|
|
|
|
|
|
|
38,109 |
|
Costs of goods sold, services and rentals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and product sales |
|
|
9,413 |
|
|
|
(503 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,910 |
|
Services |
|
|
13,685 |
|
|
|
(2 |
) |
|
|
7 |
|
|
|
|
|
|
|
(640 |
) |
|
|
|
|
|
|
|
|
|
|
13,050 |
|
Rentals |
|
|
440 |
|
|
|
|
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,538 |
|
|
|
(505 |
) |
|
|
28 |
|
|
|
|
|
|
|
(640 |
) |
|
|
|
|
|
|
|
|
|
|
22,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
17,860 |
|
|
|
(2,150 |
) |
|
|
(216 |
) |
|
|
|
|
|
|
194 |
|
|
|
|
|
|
|
|
|
|
|
15,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
9,451 |
|
|
|
31 |
|
|
|
|
|
|
|
69 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
9,554 |
|
Research and development |
|
|
664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
664 |
|
Amortization of intangibles |
|
|
132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132 |
|
Receivable provisions net of (recoveries) |
|
|
(252 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(252 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) from operations |
|
|
7,865 |
|
|
|
(2,181 |
) |
|
|
(216 |
) |
|
|
(69 |
) |
|
|
194 |
|
|
|
|
|
|
|
(3 |
) |
|
|
5,590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
280 |
|
Interest expense |
|
|
(4,231 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11 |
) |
|
|
|
|
|
|
(4,242 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
before income taxes |
|
|
3,914 |
|
|
|
(2,181 |
) |
|
|
(216 |
) |
|
|
(69 |
) |
|
|
194 |
|
|
|
(11 |
) |
|
|
(3 |
) |
|
|
1,628 |
|
Recovery of (provision for) income taxes |
|
|
(380 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
382 |
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing
operations |
|
|
3,534 |
|
|
|
(2,181 |
) |
|
|
(216 |
) |
|
|
(69 |
) |
|
|
194 |
|
|
|
371 |
|
|
|
(3 |
) |
|
|
1,630 |
|
Net earnings from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
3,534 |
|
|
$ |
(2,181 |
) |
|
$ |
(216 |
) |
|
$ |
(69 |
) |
|
$ |
194 |
|
|
$ |
371 |
|
|
$ |
(3 |
) |
|
$ |
1,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing
operations |
|
$ |
0.09 |
|
|
$ |
(0.05 |
) |
|
$ |
(0.01 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
0.01 |
|
|
$ |
|
|
|
$ |
0.04 |
|
Net earnings from discontinued operations |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings |
|
$ |
0.09 |
|
|
$ |
(0.05 |
) |
|
$ |
(0.01 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
0.01 |
|
|
$ |
|
|
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing
operations |
|
$ |
0.08 |
|
|
$ |
(0.05 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.01 |
|
|
$ |
|
|
|
$ |
0.04 |
|
Net earnings from discontinued operations |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
0.08 |
|
|
$ |
(0.05 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.01 |
|
|
$ |
|
|
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company has changed the presentation of revenues and cost of goods sold, services and
rentals to conform to the presentation requirements specified in Regulation S-X of the
Securities Exchange Act of 1934. |
Page 13
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)
3. |
|
Restatement of Previously Issued Financial Statements (contd) |
|
c) |
|
Impact of the First Restatement (contd) |
The following table presents the impact of the First Restatement on the Companys previously issued
consolidated statements of operations for the six months ended June 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated |
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Branch |
|
|
|
|
|
|
Per |
|
|
|
As |
|
|
Recognition- |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
Level |
|
|
|
|
|
|
Original |
|
|
|
Previously |
|
|
Theater |
|
|
Recognition- |
|
|
Inventory |
|
|
Film |
|
|
Interest |
|
|
Other |
|
|
2007 |
|
|
|
Reported(1) |
|
|
Systems |
|
|
Other |
|
|
Costs |
|
|
Accounting |
|
|
Taxes |
|
|
Adjustments |
|
|
Form 10-Q |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and product sales |
|
$ |
23,227 |
|
|
$ |
710 |
|
|
$ |
(759 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
23,178 |
|
Services |
|
|
33,545 |
|
|
|
|
|
|
|
560 |
|
|
|
|
|
|
|
(963 |
) |
|
|
|
|
|
|
|
|
|
|
33,142 |
|
Rentals |
|
|
2,208 |
|
|
|
|
|
|
|
107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,315 |
|
Finance income |
|
|
2,836 |
|
|
|
(131 |
) |
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,816 |
|
|
|
579 |
|
|
|
(58 |
) |
|
|
|
|
|
|
(963 |
) |
|
|
|
|
|
|
|
|
|
|
61,374 |
|
Costs of goods sold, services and rentals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and product sales |
|
|
12,534 |
|
|
|
582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,116 |
|
Services |
|
|
24,514 |
|
|
|
12 |
|
|
|
7 |
|
|
|
|
|
|
|
(865 |
) |
|
|
|
|
|
|
|
|
|
|
23,667 |
|
Rentals |
|
|
883 |
|
|
|
|
|
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,931 |
|
|
|
594 |
|
|
|
49 |
|
|
|
|
|
|
|
(865 |
) |
|
|
|
|
|
|
|
|
|
|
37,709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
23,885 |
|
|
|
(15 |
) |
|
|
(107 |
) |
|
|
|
|
|
|
(98 |
) |
|
|
|
|
|
|
|
|
|
|
23,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
19,956 |
|
|
|
31 |
|
|
|
|
|
|
|
114 |
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
20,107 |
|
Research and development |
|
|
1,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,579 |
|
Amortization of intangibles |
|
|
324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
324 |
|
Receivable provisions net of (recoveries) |
|
|
(109 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(109 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) from operations |
|
|
2,135 |
|
|
|
(46 |
) |
|
|
(107 |
) |
|
|
(114 |
) |
|
|
(98 |
) |
|
|
|
|
|
|
(6 |
) |
|
|
1,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
533 |
|
Interest expense |
|
|
(8,405 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
(8,399 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
before income taxes |
|
|
(5,737 |
) |
|
|
(46 |
) |
|
|
(107 |
) |
|
|
(114 |
) |
|
|
(98 |
) |
|
|
6 |
|
|
|
(6 |
) |
|
|
(6,102 |
) |
Recovery of income taxes |
|
|
1,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
544 |
|
|
|
|
|
|
|
1,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing operations |
|
|
(4,587 |
) |
|
|
(46 |
) |
|
|
(107 |
) |
|
|
(114 |
) |
|
|
(98 |
) |
|
|
550 |
|
|
|
(6 |
) |
|
|
(4,408 |
) |
Net earnings from discontinued operations |
|
|
2,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
(2,287 |
) |
|
$ |
(46 |
) |
|
$ |
(107 |
) |
|
$ |
(114 |
) |
|
$ |
(98 |
) |
|
$ |
550 |
|
|
$ |
(6 |
) |
|
$ |
(2,108 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing operations |
|
$ |
(0.11 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.01 |
|
|
$ |
|
|
|
$ |
(0.10 |
) |
Net earnings from discontinued operations |
|
$ |
0.05 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings |
|
$ |
(0.06 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.01 |
|
|
$ |
|
|
|
$ |
(0.05 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company has changed the presentation of revenues and cost of goods sold, services and
rentals to conform to the presentation requirements specified in Regulation S-X of the
Securities Exchange Act of 1934. |
Page 14
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)
3. |
|
Restatement of Previously Issued Financial Statements (contd) |
|
d) |
|
Impact of the Second Restatement |
|
|
|
Operating Leases |
|
|
|
FASB Statement No. 13, Accounting for Leases (SFAS 13), and related
interpretations require that rent expense related to operating leases be
recognized on a straight-line basis over the term of the lease commencing
when a lessee takes possession of or controls the use of the space. In addition,
FASB Technical Bulletin 88-1, Issues Related to Accounting for Leases, requires
lease incentives, such as landlord construction allowances received to defray
construction costs incurred by the Company, be reflected as a deferred lease
incentive, amortized over the lease term as a reduction to rent expense.
Previously, the Company had recognized certain rent reductions and escalation
clauses based on cash payments beginning from the date of occupancy or
lease commencement date, which had the effect of excluding any rent expense
during the build-out period. In addition, in certain cases,
the Company had not recorded landlord construction
allowances as a deferred lease incentive. The Company has restated
the current and prior periods consolidated financial statements
to recognize net rent expense on a straight-line basis over
the period from the date the Company obtains possession and control
of the property to the end of the lease term. Net rent
expense includes payments as required under the lease adjusted for
rent holidays, abatements, escalation clauses and construction allowances.
In addition, the Company adjusted depreciation and impairment charges to
reflect the full cost of the leaseholds acquired. The net impact of these
restatement errors on net earnings was a nominal reduction in the loss for
the three and six months ended June 30, 2007 and 2006. |
|
|
|
Sponsorship Revenue |
|
|
|
The Company also determined the accounting for theater sponsorship revenue
should have been recognized on a straight-line basis over the contractual
period of the sponsorship. Previously, the Company recorded these revenues
based on cash collections. The net impact of these restatement errors was a
nominal reduction in the loss for the three and six months ended June 30, 2007 and 2006. |
|
|
|
Revenue Recognition |
|
|
|
The Company also determined that one theater system revenue
transaction had been classified as a sale with contingent minimums, which should have been classified
as an operating lease. The Company reached this conclusion after consideration
of EITF Issue No. 95-1, Revenue Recognition on Sales with Guaranteed Minimum Resale
Value, and SFAS 13, since the arrangement contained an option, exercisable by the customer,
requiring the Company to repurchase the theater system equipment for a fixed amount under certain
conditions. The net impact of this restatement errors was a nominal reduction in the loss for the
three and six months ended June 30, 2007 and 2006. |
Page 15
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)
3. |
|
Restatement of Previously Issued Financial Statements (contd) |
|
d) |
|
Impact of the Second Restatement (contd) |
|
|
|
The following table presents the impact of the Second Restatement on the Companys previously
issued consolidated balance sheet as of June 30, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Previously |
|
|
|
|
|
|
|
|
|
Reported Per |
|
|
Second Restatement |
|
|
|
|
|
|
Original |
|
|
Real Estate |
|
|
|
|
|
|
|
|
|
|
As Restated |
|
|
|
2007 |
|
|
Operating |
|
|
Sponsorship |
|
|
Revenue |
|
|
Per 2007 |
|
|
|
Form 10-Q |
|
|
Leases |
|
|
Revenue |
|
|
Recognition |
|
|
Form 10-Q/A |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
16,310 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
16,310 |
|
Short-term investments |
|
|
2,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,164 |
|
Accounts Receivable |
|
|
26,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,354 |
|
Financing receivables |
|
|
62,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,792 |
|
Inventories |
|
|
27,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,122 |
|
Prepaid expenses |
|
|
3,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,052 |
|
Film assets |
|
|
4,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,178 |
|
Property, plant and equipment |
|
|
24,507 |
|
|
|
|
|
|
|
|
|
|
|
227 |
|
|
|
24,734 |
|
Other assets |
|
|
12,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,174 |
|
Goodwill |
|
|
39,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,027 |
|
Other intangible assets |
|
|
2,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
220,206 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
227 |
|
|
$ |
$220,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
8,454 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
8,454 |
|
Accrued liabilities |
|
|
54,454 |
|
|
|
7,120 |
|
|
|
|
|
|
|
|
|
|
|
61,574 |
|
Deferred revenue |
|
|
61,074 |
|
|
|
(1,552 |
) |
|
|
33 |
|
|
|
650 |
|
|
|
60,205 |
|
Senior Notes due 2010 |
|
|
160,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
283,982 |
|
|
$ |
5,568 |
|
|
$ |
33 |
|
|
$ |
650 |
|
|
$ |
290,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders deficit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Stock |
|
|
122,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122,032 |
|
Other equity |
|
|
3,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,400 |
|
Deficit |
|
|
(189,718 |
) |
|
|
(5,568 |
) |
|
|
(33 |
) |
|
|
(423 |
) |
|
|
(195,742 |
) |
Accumulated other comprehensive income |
|
|
510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders deficit |
|
|
(63,776 |
) |
|
|
(5,568 |
) |
|
|
(33 |
) |
|
|
(423 |
) |
|
|
(69,800 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders deficit |
|
$ |
220,206 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
227 |
|
|
$ |
220,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 16
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)
3. |
|
Restatement of Previously Issued Financial Statements (contd) |
|
d) |
|
Impact of the Second Restatement (contd) |
|
|
|
The following table presents the impact of the Second Restatement on the Companys previously
issued consolidated statements of operations for the three months ended June 30, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Previously |
|
|
|
|
|
|
|
|
|
Reported Per |
|
|
Second Restatement |
|
|
|
|
|
|
Original |
|
|
Real Estate |
|
|
|
|
|
|
|
|
|
|
As Restated |
|
|
|
2007 |
|
|
Operating |
|
|
Sponsorship |
|
|
Revenue |
|
|
Per 2007 |
|
|
|
Form 10-Q |
|
|
Leases |
|
|
Revenue |
|
|
Recognition |
|
|
Form 10-Q/A |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and product sales |
|
$ |
6,813 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(32 |
) |
|
$ |
6,781 |
|
Services |
|
|
16,329 |
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
16,341 |
|
Rentals |
|
|
1,607 |
|
|
|
|
|
|
|
|
|
|
|
65 |
|
|
|
1,672 |
|
Finance income |
|
|
1,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,181 |
|
Other |
|
|
1,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,469 |
|
|
|
|
|
|
|
12 |
|
|
|
33 |
|
|
|
27,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold, services and rentals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and product sales |
|
|
3,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,813 |
|
Services |
|
|
10,682 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
10,698 |
|
Rentals |
|
|
719 |
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
731 |
|
Other |
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,233 |
|
|
|
16 |
|
|
|
|
|
|
|
12 |
|
|
|
15,261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
12,236 |
|
|
|
(16 |
) |
|
|
12 |
|
|
|
21 |
|
|
|
12,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
expenses |
|
|
11,168 |
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
11,147 |
|
Research and development |
|
|
1,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,121 |
|
Amortization of intangibles |
|
|
141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141 |
|
Receivable provisions net of (recoveries) |
|
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from operations |
|
|
(163 |
) |
|
|
5 |
|
|
|
12 |
|
|
|
21 |
|
|
|
(125 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
227 |
|
Interest expense |
|
|
(4,375 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,375 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing
operations before income taxes |
|
|
(4,311 |
) |
|
|
5 |
|
|
|
12 |
|
|
|
21 |
|
|
|
(4,273 |
) |
Provision for income taxes |
|
|
(260 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(260 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing
operations |
|
|
(4,571 |
) |
|
|
5 |
|
|
|
12 |
|
|
|
21 |
|
|
|
(4,533 |
) |
Net earnings from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
(4,571 |
) |
|
$ |
5 |
|
|
$ |
12 |
|
|
$ |
21 |
|
|
$ |
(4,533 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share basic &
diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations |
|
$ |
(0.11 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(0.11 |
) |
Net earnings from discontinued operations |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(0.11 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(0.11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 17
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)
3. |
|
Restatement of Previously Issued Financial Statements (contd) |
|
d) |
|
Impact of the Second Restatement (contd) |
|
|
|
The following table presents the impact of the Second Restatement on the Companys previously
issued consolidated statements of operations for the six months ended June 30, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Previously |
|
|
|
|
|
|
|
|
|
Reported Per |
|
|
Second Restatement |
|
|
|
|
|
|
Original |
|
|
Real Estate |
|
|
|
|
|
|
|
|
|
|
As Restated |
|
|
|
2007 |
|
|
Operating |
|
|
Sponsorship |
|
|
Revenue |
|
|
Per 2007 |
|
|
|
Form 10-Q |
|
|
Leases |
|
|
Revenue |
|
|
Recognition |
|
|
Form 10-Q/A |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and product sales |
|
$ |
13,918 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(63 |
) |
|
$ |
13,855 |
|
Services |
|
|
33,974 |
|
|
|
|
|
|
|
24 |
|
|
|
|
|
|
|
33,998 |
|
Rentals |
|
|
2,828 |
|
|
|
|
|
|
|
|
|
|
|
130 |
|
|
|
2,958 |
|
Finance income |
|
|
2,367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,367 |
|
Other |
|
|
1,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,626 |
|
|
|
|
|
|
|
24 |
|
|
|
67 |
|
|
|
54,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold, services and rentals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and product sales |
|
|
7,756 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,756 |
|
Services |
|
|
21,958 |
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
21,990 |
|
Rentals |
|
|
1,268 |
|
|
|
|
|
|
|
|
|
|
|
23 |
|
|
|
1,291 |
|
Other |
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,001 |
|
|
|
32 |
|
|
|
|
|
|
|
23 |
|
|
|
31,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
23,625 |
|
|
|
(32 |
) |
|
|
24 |
|
|
|
44 |
|
|
|
23,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
21,510 |
|
|
|
(41 |
) |
|
|
|
|
|
|
|
|
|
|
21,469 |
|
Research and development |
|
|
2,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,616 |
|
Amortization of intangibles |
|
|
277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
277 |
|
Receivable provisions net of (recoveries) |
|
|
(25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from operations |
|
|
(753 |
) |
|
|
9 |
|
|
|
24 |
|
|
|
44 |
|
|
|
(676 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
453 |
|
Interest expense |
|
|
(8,624 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,624 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing
operations before income taxes |
|
|
(8,924 |
) |
|
|
9 |
|
|
|
24 |
|
|
|
44 |
|
|
|
(8,847 |
) |
Provision for income taxes |
|
|
(427 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(427 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing
operations |
|
|
(9,351 |
) |
|
|
9 |
|
|
|
24 |
|
|
|
44 |
|
|
|
(9,274 |
) |
Net earnings from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
(9,351 |
) |
|
$ |
9 |
|
|
$ |
24 |
|
|
$ |
44 |
|
|
$ |
(9,274 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share basic & diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations |
|
$ |
(0.23 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(0.23 |
) |
Net earnings from discontinued operations |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(0.23 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(0.23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 18
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)
3. |
|
Restatement of Previously Issued Financial Statements (contd) |
|
d) |
|
Impact of the Second Restatement (contd) |
|
|
|
Restated Statement of Operations for the Three Months Ended June 30, 2006 |
|
|
|
The following table presents the impact of the Second Restatement on the Companys previously
issued consolidated statements of operations for the three months ended June 30, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Restated |
|
|
|
|
|
|
|
|
|
Reported Per |
|
|
Second Restatement |
|
|
|
|
|
|
Original |
|
|
Real Estate |
|
|
|
|
|
|
|
|
|
|
As Restated |
|
|
|
2007 |
|
|
Operating |
|
|
Sponsorship |
|
|
Revenue |
|
|
Per 2007 |
|
|
|
Form 10-Q |
|
|
Leases |
|
|
Revenue |
|
|
Recognition |
|
|
Form 10-Q/A |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and product sales |
|
$ |
15,358 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(36 |
) |
|
$ |
15,322 |
|
Services |
|
|
19,708 |
|
|
|
|
|
|
|
20 |
|
|
|
|
|
|
|
19,728 |
|
Rentals |
|
|
1,416 |
|
|
|
|
|
|
|
|
|
|
|
69 |
|
|
|
1,485 |
|
Finance income |
|
|
1,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,109 |
|
|
|
|
|
|
|
20 |
|
|
|
33 |
|
|
|
38,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of goods sold, services and rentals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and product sales |
|
|
8,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,910 |
|
Services |
|
|
13,050 |
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
13,084 |
|
Rentals |
|
|
461 |
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,421 |
|
|
|
34 |
|
|
|
|
|
|
|
12 |
|
|
|
22,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
15,688 |
|
|
|
(34 |
) |
|
|
20 |
|
|
|
21 |
|
|
|
15,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
9,554 |
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
9,533 |
|
Research and development |
|
|
664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
664 |
|
Amortization of intangibles |
|
|
132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132 |
|
Receivable provisions net of (recoveries) |
|
|
(252 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(252 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from operations |
|
|
5,590 |
|
|
|
(13 |
) |
|
|
20 |
|
|
|
21 |
|
|
|
5,618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
280 |
|
Interest expense |
|
|
(4,242 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,242 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,628 |
|
|
|
(13 |
) |
|
|
20 |
|
|
|
21 |
|
|
|
1,656 |
|
Recovery of (provision for) income taxes |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing operations |
|
|
1,630 |
|
|
|
(13 |
) |
|
|
20 |
|
|
|
21 |
|
|
|
1,658 |
|
Net earnings from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
1,630 |
|
|
$ |
(13 |
) |
|
$ |
20 |
|
|
$ |
21 |
|
|
$ |
1,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share basic
& diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing operations |
|
$ |
0.04 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.04 |
|
Net earnings from discontinued operations |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
0.04 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 19
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)
3. |
|
Restatement of Previously Issued Financial Statements (contd) |
|
d) |
|
Impact of the Second Restatement (contd) |
|
|
|
Restated Statement of Operations for the Six Months Ended June 30, 2006 |
|
|
|
The following table presents the impact of the Second Restatement on the Companys previously
issued consolidated statements of operations for the six months ended June 30, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Restated |
|
|
|
|
|
|
|
|
|
Reported Per |
|
|
Second Restatement |
|
|
|
|
|
|
Original |
|
|
Real Estate |
|
|
|
|
|
|
|
|
|
|
As Restated |
|
|
|
2007 |
|
|
Operating |
|
|
Sponsorship |
|
|
Revenue |
|
|
Per 2007 |
|
|
|
Form 10-Q |
|
|
Leases |
|
|
Revenue |
|
|
Recognition |
|
|
Form 10-Q/A |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and product sales |
|
$ |
23,178 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(82 |
) |
|
$ |
23,096 |
|
Services |
|
|
33,142 |
|
|
|
|
|
|
|
55 |
|
|
|
|
|
|
|
33,197 |
|
Rentals |
|
|
2,315 |
|
|
|
|
|
|
|
|
|
|
|
149 |
|
|
|
2,464 |
|
Finance income |
|
|
2,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,374 |
|
|
|
|
|
|
|
55 |
|
|
|
67 |
|
|
|
61,496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of goods sold, services and rentals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and product sales |
|
|
13,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,116 |
|
Services |
|
|
23,667 |
|
|
|
78 |
|
|
|
|
|
|
|
|
|
|
|
23,745 |
|
Rentals |
|
|
926 |
|
|
|
|
|
|
|
|
|
|
|
24 |
|
|
|
950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,709 |
|
|
|
78 |
|
|
|
|
|
|
|
24 |
|
|
|
37,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
23,665 |
|
|
|
(78 |
) |
|
|
55 |
|
|
|
43 |
|
|
|
23,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
20,107 |
|
|
|
(42 |
) |
|
|
|
|
|
|
|
|
|
|
20,065 |
|
Research and development |
|
|
1,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,579 |
|
Amortization of intangibles |
|
|
324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
324 |
|
Receivable provisions net of (recoveries) |
|
|
(109 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(109 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from operations |
|
|
1,764 |
|
|
|
(36 |
) |
|
|
55 |
|
|
|
43 |
|
|
|
1,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
533 |
|
Interest expense |
|
|
(8,399 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,399 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
before income taxes |
|
|
(6,102 |
) |
|
|
(36 |
) |
|
|
55 |
|
|
|
43 |
|
|
|
(6,040 |
) |
Recovery of income taxes |
|
|
1,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing operations |
|
|
(4,408 |
) |
|
|
(36 |
) |
|
|
55 |
|
|
|
43 |
|
|
|
(4,346 |
) |
Net earnings from discontinued operations |
|
|
2,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
(2,108 |
) |
|
$ |
(36 |
) |
|
$ |
55 |
|
|
$ |
43 |
|
|
$ |
(2,046 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing operations |
|
$ |
(0.10 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(0.10 |
) |
Net earnings from discontinued operations |
|
|
0.05 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings |
|
$ |
(0.05 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(0.05 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 20
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)
3. |
|
Restatement of Previously Issued Financial Statements (contd) |
|
e) |
|
Consolidated Statements of Cash Flows |
|
|
|
As part of the Second Restatement, the Company changed the presentation of cash flows from
discontinued operations to include cash flows related to operating and investing activities within
those respective categories. Previously, the Company presented these cash flows on a net basis as a
single caption within the statement of cash flows. |
|
|
|
There were no other errors in the cash flow statements for the six months ended June 30, 2007 and
2006 other than conforming changes to the components of the reconciliation to net cash provided by
or used in operating activities related to the restatement adjustments described above. |
|
4. |
|
Financing Receivables |
|
|
|
Financing receivables, consisting of net investment in leases and receivables from financed sales
of its theater systems, are as follows: |
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
As restated |
|
|
As restated |
|
Gross minimum lease amounts receivable |
|
$ |
83,384 |
|
|
$ |
89,343 |
|
Residual value of equipment |
|
|
321 |
|
|
|
368 |
|
Unearned finance income |
|
|
(27,970 |
) |
|
|
(31,182 |
) |
|
|
|
|
|
|
|
Present value of minimum lease amounts receivable |
|
|
55,735 |
|
|
|
58,529 |
|
Accumulated allowance for uncollectible amounts |
|
|
(2,720 |
) |
|
|
(2,445 |
) |
|
|
|
|
|
|
|
Net investment in leases |
|
|
53,015 |
|
|
|
56,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross receivables from financed sales |
|
|
14,266 |
|
|
|
14,268 |
|
Unearned income |
|
|
(4,489 |
) |
|
|
(4,474 |
) |
|
|
|
|
|
|
|
Present value of financed sale receivables |
|
|
9,777 |
|
|
|
9,794 |
|
|
|
|
|
|
|
|
Total financing receivables |
|
$ |
62,792 |
|
|
$ |
65,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of financed sale receivables due within one year |
|
$ |
2,631 |
|
|
$ |
1,886 |
|
Present value of financed sale receivables due after one year |
|
$ |
7,146 |
|
|
$ |
7,908 |
|
|
|
As at March 31, 2007 the financed sale receivables had a weighted average effective interest rate
of 9.3% (December 31, 2006 8.3%). |
|
5. |
|
Inventories |
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
As restated |
|
|
As restated |
|
Raw materials |
|
$ |
10,672 |
|
|
$ |
11,504 |
|
Work-in-process |
|
|
2,791 |
|
|
|
2,677 |
|
Finished goods |
|
|
13,659 |
|
|
|
12,732 |
|
|
|
|
|
|
|
|
|
|
$ |
27,122 |
|
|
$ |
26,913 |
|
|
|
|
|
|
|
|
Page 21
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)
6. |
|
Senior Notes due 2010 |
|
|
|
As at June 30, 2007, the Company had outstanding $159.0 million aggregate principal of Registered
Senior Notes and $1.0 million aggregate principal of Unregistered Senior Notes. The Registered
Senior Notes and the Unregistered Senior Notes are referred to herein as the Senior Notes. |
|
|
|
The terms of the Companys Senior Notes impose 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; create
certain dividend 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. |
|
|
|
In addition, the terms of the Companys Senior Notes require that annual and quarterly financial
statements are filed with the Trustee within 15 days of the required public company filing
deadlines. If these financial reporting covenants are breached then this is considered an event of
default under the terms of the Senior Notes and the Company has 30 days to cure this default, after
which the Senior Notes become due and payable. |
|
|
|
In March 2007, the Company delayed the filing of its Annual Report on Form 10-K for the year ended
December 31, 2006 beyond the required public company filing deadline due to the discovery of
certain accounting errors, broadened its accounting review to include certain other accounting
matters based on comments received by the Company from the SEC and OSC, and ultimately restated
financial statements for certain periods during those years. The filing delay resulted in the
Company being in default of a financial reporting covenant under the indenture dated as of December
4, 2003, and as thereafter amended and supplemented, governing the Companys Senior Notes due 2010
(the Indenture). |
|
|
|
On April 16, 2007 the Company completed a consent solicitation, receiving consents from holders of
approximate 60% aggregate principal amount of the Senior Notes (the Consenting Holders) to
execute a ninth supplemental indenture (the Supplemental Indenture) to the Indenture with the
Guarantors named therein and U.S. Bank National Association. The Supplemental Indenture waived any
defaults existing at such time arising from a failure by the Company to comply with the reporting
covenant and extended until May 31, 2007, or at the Companys election until June 30, 2007 (the
Covenant Reversion Date), the date by which the Companys failure to comply with the reporting
covenant shall constitute a default, or be the basis for an event of default under the Indenture.
The Company paid consent fees of $1.0 million to the Consenting Holders. On May 30, 2007, the
Company provided notice to the holders of the Senior Notes of its election to extend the Covenant
Reversion Date to June 30, 2007. The Company paid additional consent fees of $0.4 million to the
Consenting Holders. In accordance with Emerging Issues Task Force Abstract 96-16 Debtors
Accounting for a Modification or Exchange of Debt Instruments, the Company concluded that the
payment of these fees did not result in an extinguishment of the debt and accordingly has
capitalized these costs as deferred financing costs and is amortizing them, utilizing the effective
interest method, as an adjustment of interest expense over the remaining term of the Senior Notes.
Because the Company did not file its Annual Report on Form 10-K for the year ended December 31,
2006 and its Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 by June 30, 2007,
it was in default of the reporting covenant under the Indenture on July 1, 2007, and received
notice of such default on July 2, 2007. The Company cured such default under the Indenture by
filing its 2006 Annual Report on Form 10-K and first quarter 2007
Form 10-Q on July 20, 2007. See note 9(f) for more
information. |
Page 22
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)
7. |
|
Credit Facility |
|
|
|
Under the Indenture governing the Companys Senior Notes, the Company is permitted to incur
indebtedness pursuant to a credit agreement, or the refinancing or replacement of a credit
facility, provided that the aggregate principal amount of indebtedness thereunder outstanding at
any time does not exceed the greater of a) $30,000,000 minus the amount of any such indebtedness
retired with the proceeds of an Asset Sale and (b) 15% of Total Assets, as defined in the
Indenture, of the Company. The Indenture also permits the Company to incur indebtedness solely in
respect of performances, surety or appeal bonds, letters of credit and letters of guarantee as
required in the ordinary course of business in accordance with customary industry practices. On
February 6, 2004, the Company entered into a Loan Agreement for a secured revolving credit facility
as amended on June 30, 2005 and as further amended by the Second Amendment to the Loan Agreement
which was entered into with effect from May 16, 2006 (the Credit Facility). The Credit Facility
is a revolving credit facility expiring on October 31, 2009 with an optional one year renewal
thereafter contingent upon approval by the lender, permitting maximum aggregate borrowings equal to
the lesser of (i) $40.0 million, (ii) a collateral calculation based on percentages of the book
values for the Companys net investment in sales-type leases, financing receivables, finished goods
inventory allocated to backlog contracts and the appraised values of the expected future cash flows
related to operating leases and of the Companys owned real property, reduced by certain accruals
and accounts payable and (iii) a minimum level of trailing cash collections in the preceding
twentysix week period ($55.3 million as of June 30, 2007), and is subject to certain limitations
under the Companys Senior Notes and is reduced for outstanding letters of credit. As at June 30,
2007, the Companys current borrowing capacity under such
calculation is $25.5 million after
deduction for outstanding letters of credit of $11.4 million. The Credit Facility bears interest at
the applicable prime rate per annum or LIBOR plus a margin as specified therein per annum and is
collateralized by a first priority security interest in all of the current and future assets of the
Company. The Credit Facility contains typical affirmative and negative covenants, including
covenants that restrict the Companys ability 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. In addition, the Credit Facility agreement contains customary events of
default, including upon an acquisition or a change of control that may have a material adverse
effect on the Company or a guarantor. The Credit Facility also requires the Company to maintain,
over a period of time, a minimum level of adjusted earnings before interest, taxes, depreciation
and amortization including film asset amortization, stock and other non-cash compensation, write
downs (recoveries), and asset impairment charges, and other non-cash uses of funds on a trailing
four quarter basis calculated quarterly, of not less than $20.0 million. In the event that the
Companys available borrowing base falls below the amount borrowed against the Credit Facility, the
excess above the available borrowing base becomes due upon demand by
the lender. If the Credit Facility
were to be terminated by either the Company or the lender, the Company would have the ability to
pursue another source of financing pursuant to the terms of the Indenture. |
|
|
|
Under the terms of the Credit Facility, the Company has to comply with several reporting
requirements including the delivery of audited consolidated financial statements within 120 days of
the end of the fiscal year. |
|
|
|
In March 2007, the Company delayed the filing of its Annual Report on Form 10-K for the year ended
December 31, 2006 beyond the filing deadline in order to restate financial statements for certain
periods during the fiscal years 2002 2006. On March 27, 2007, the Credit Facility lender waived
the requirement for the Company to deliver audited consolidated financial statements within 120
days of the end of the fiscal year ended December 31, 2006, provided such statements and documents
were delivered on or before June 30, 2007. On June 27, 2007, the Credit Facility lender agreed that
an event of default would not be deemed to have occurred unless the Companys 2006 Annual Report on
Form 10-K filing did not occur by July 31, 2007 or upon the occurrence and continuance of an event
of default under the Companys Indenture governing its Senior Notes which, had not been cured
within the applicable grace period. The Company cured such default under the Indenture by filing
its 2006 Annual Report on Form 10-K and first quarter 2007 Form 10-Q on July 20, 2007. |
Page 23
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)
8. |
|
Commitments |
|
(a) |
|
The Companys lease commitments consist of rent and equipment under operating lease. The
Company accounts for any incentives provided over the term of the lease. Total minimum annual
rental payments to be made by the Company under operating leases for premises and equipment as
of June 30, 2007 for each of the years ended December 31, are as follows: |
|
|
|
|
|
2007 (six months remaining) |
|
$ |
3,222 |
|
2008 |
|
|
6,127 |
|
2009 |
|
|
5,883 |
|
2010 |
|
|
6,029 |
|
2011 |
|
|
6,166 |
|
Thereafter |
|
|
14,686 |
|
|
|
|
|
|
|
$ |
42,113 |
|
|
|
|
|
|
|
Recorded in accrued liabilities balance as at June 30,
2007 is $9.4 million (December 31, 2006 -
$9.6 million) related to rent expense recognized in excess of rental payments made and landlord
incentives. |
|
(b) |
|
As at June 30, 2007, the Company has letters of credit of $11.5 million (December 31, 2006 -
$9.4 million) outstanding under the Companys credit facility arrangement (see note 7). In
addition, as at June 30, 2007, the Company has performance security guarantees of $0.6 million
(December 31, 2006 $0.6 million) outstanding that have been guaranteed through Export
Development Canada. |
|
(c) |
|
The Company compensates its sales force with both fixed and variable compensation.
Commissions on the sale or lease of the Companys theater system components are due 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, 2007, $0.2 million
(December 31, 2006 $0.3 million) of commissions will be payable in future periods if the
Company collects its initial payments as anticipated. |
|
9. |
|
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 SFAS No. 5, Accounting for
Contingencies, 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. |
Page 24
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)
9. |
|
Contingencies and Guarantees (contd) |
|
(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. On June 12, 2006, the U.S. District Court for the Central District of
California, Western Division, entered a stay in the proceedings against In-Three pending the
arbitration of disputes between the Company and 3DMG. Arbitration was initiated by the Company
against 3DMG on May 15, 2006 before the International Centre for Dispute Resolution in New
York, 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. On October 5, 2007, 3DMG amended its counterclaims
and added counterclaims from UNIPAT.ORG relating to fees allegedly owed to UNIPAT.ORG by IMAX.
An evidentiary hearing on liability issues has been set for January 2008 with further
proceedings on damages issues to be scheduled if and when necessary. 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
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 Theater Services Ltd., a subsidiary of the Company,
commenced an arbitration seeking damages of approximately $3.7 million 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 $17.8 million in
damages as a result of E-Citis breach of a September 2000 lease agreement. The damages sought
against E-Citi included the original claim sought against EML. An arbitration hearing took
place in November 2005 against E-Citi, which included 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 has now submitted its application to the
arbitration panel for interest and costs and is awaiting the Panels decision on that issue. |
|
(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 an arbitration
provision in a 1994 film production agreement between Robots predecessor-in-interest and a
subsidiary of the Company, asserting claims for breach of contract, fraud, breach of fiduciary
duty and intentional interference with contract. Robots is seeking an accounting of the
Companys revenues and an award of all sums alleged to be due to
Robots under the production
agreement, as well as punitive damages. The Company intends to vigorously defend the
arbitration proceeding and believes the amount of the 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. |
Page 25
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)
9. |
|
Contingencies and Guarantees (contd) |
|
(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 & Paradis 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 through July 30, 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 adds PricewaterhouseCoopers LLP, the Companys auditors,
as a defendant. The lawsuit seeks unspecified compensatory damages, costs, and expenses. The
lawsuit is at a very early stage and as a result the Company is not able to estimate a
potential loss exposure. The Company believes the allegations made against it in the amended
complaint are meritless and will vigorously defend the matter, although no assurances can be
given with respect to the outcome of such proceedings. The Companys directors and officers
insurance policy provides for reimbursement for costs and expenses incurred in connection with
this lawsuit as well as potential damages awarded, if any, subject to certain policy limits
and deductibles. The deadline for defendants to respond to the amended complaint is currently
December 3, 2007. |
|
(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 a very
early 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. 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 for 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, a holder of the Companys Senior Notes (Catalyst), commenced an application against the Company in the Ontario Superior Court of Justice
for a declaration of oppression pursuant to s. 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 Senior
Notes. The allegations of oppression are substantially the same as allegations Catalyst made in a
May 10, 2007 complaint filed against the Company in the Supreme Court of the State of New York, and
subsequently withdrawn on October 12, 2007, wherein 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. Catalyst has also requested the appointment of an inspector and an order that an
investigation be carried out pursuant to s. 229 of the CBCA. In addition, between March 2007 and
October 2007, Catalyst has sent the Company eight purported notices of default or acceleration
under the Indenture. It is the Companys position that no default or event of default (as those
terms are defined in the Indenture) has occurred or is continuing under the Indenture and,
accordingly, that Catalysts purported acceleration notice is of no force or effect. The Company
is in the process of responding to the Ontario application and a hearing is scheduled to take place
on January 15 and 16, 2008. The litigation is at a preliminary stage and as a result, the Company
is not able to estimate a potential loss exposure. The Company believes this application is
entirely without merit and plans to contest it vigorously and seek costs from Catalyst, although no
assurances can be given with respect to the outcome of the proceedings. |
Page 26
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)
9. |
|
Contingencies and Guarantees (contd) |
|
(g) |
|
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. |
|
(h) |
|
In the normal course of business, the Company enters into agreements that may contain
features that meet the FASB issued Interpretation No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others (FIN 45) definition of a guarantee. FIN 45 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 consolidated balance sheets as of June 30, 2007: |
|
|
|
|
|
Balance as at December 31, 2006 |
|
$ |
38 |
|
Payments |
|
|
(65 |
) |
Warranties provision |
|
|
15 |
|
Revisions |
|
|
24 |
|
|
|
|
|
Balance as of June 30, 2007 |
|
$ |
12 |
|
|
|
|
|
|
|
Director/Officer Indemnification |
|
|
|
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 consolidated balance sheet as of
June 30, 2007, with respect to this indemnity. |
Page 27
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)
9. |
|
Contingencies and Guarantees (contd) |
|
|
|
Other Indemnification Agreements |
|
|
|
In the normal course of the Companys operations, it 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. Historically, the Company has not made any significant payments under such
indemnifications and no amount has been accrued in the accompanying condensed consolidated
financial statements with respect to the contingent aspect of these indemnities. |
|
10. |
|
Condensed Consolidated Statements of Operations Supplemental Information |
|
|
|
Included in selling, general and administrative expenses for both the three and six months ended
June 30, 2007 is a gain of $0.5 million and $0.6 million, respectively (2006 $0.4 million and
$0.4 million, respectively), for net foreign exchange gains or losses related to the translation of
foreign currency denominated monetary assets, liabilities and integrated subsidiaries. |
|
11. |
|
Consolidated Statements of Cash Flows |
|
(a) |
|
Changes in other non-cash operating assets and liabilities are comprised of the following: |
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
|
June 30, |
|
|
|
2007 |
|
|
2006 |
|
|
|
As restated |
|
|
As restated |
|
Decrease (increase) in: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
$ |
(297 |
) |
|
$ |
(2,174 |
) |
Financing receivables |
|
|
3,712 |
|
|
|
(2,181 |
) |
Inventories |
|
|
(2,334 |
) |
|
|
(912 |
) |
Prepaid expenses |
|
|
380 |
|
|
|
(970 |
) |
Commissions and other deferred selling
expenses |
|
|
(564 |
) |
|
|
(100 |
) |
Increase (decrease) in: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
(2,971 |
) |
|
|
(380 |
) |
Accrued liabilities |
|
|
(101 |
) |
|
|
714 |
|
Deferred revenue |
|
|
4,402 |
|
|
|
3,301 |
|
|
|
|
|
|
|
|
|
|
$ |
2,227 |
|
|
$ |
(2,702 |
) |
|
|
|
|
|
|
|
Page 28
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)
11. |
|
Consolidated Statements of Cash Flows (contd) |
|
(b) |
|
Cash payments made during the quarter on account of: |
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
|
June 30, |
|
|
|
2007 |
|
|
2006 |
|
|
|
As restated |
|
|
As restated |
|
Income taxes |
|
$ |
154 |
|
|
$ |
649 |
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
8,049 |
|
|
$ |
7,783 |
|
|
|
|
|
|
|
|
(c) |
|
Depreciation and amortization are comprised of the following: |
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
|
June 30, |
|
|
|
2007 |
|
|
2006 |
|
|
|
As restated |
|
|
As restated |
|
Film assets |
|
$ |
2,646 |
|
|
$ |
4,148 |
|
Property, plant and equipment |
|
|
2,755 |
|
|
|
2,317 |
|
Other assets |
|
|
|
|
|
|
235 |
|
Other intangible assets |
|
|
277 |
|
|
|
324 |
|
Deferred financing costs |
|
|
576 |
|
|
|
614 |
|
|
|
|
|
|
|
|
|
|
$ |
6,254 |
|
|
$ |
7,638 |
|
|
|
|
|
|
|
|
(d) |
|
Write-downs (recoveries) are comprised of the following: |
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
|
June 30, |
|
|
|
2007 |
|
|
2006 |
|
Accounts receivable |
|
$ |
(58 |
) |
|
$ |
284 |
|
Financing receivables |
|
|
33 |
|
|
|
(393 |
) |
|
|
|
|
|
|
|
|
|
$ |
(25 |
) |
|
$ |
(109 |
) |
|
|
|
|
|
|
|
12. |
|
Receivable Provisions, Net of (Recoveries) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Accounts receivable provisions, net of
(recoveries) |
|
$ |
(47 |
) |
|
$ |
81 |
|
|
$ |
(58 |
) |
|
$ |
284 |
|
Financing receivables, net of (recoveries) |
|
|
16 |
|
|
|
(333 |
) |
|
|
33 |
|
|
|
(393 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable provisions, net of (recoveries) |
|
$ |
(31 |
) |
|
$ |
(252 |
) |
|
$ |
(25 |
) |
|
$ |
(109 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 29
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)
13. |
|
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, 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 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 projected future earnings and the recoverability of its deferred tax assets based on
an analysis of both positive and negative evidence. |
|
|
|
As at June 30, 2007, the Company has net deferred income tax assets of $nil (December 31, 2006 -
$nil). As of June 30, 2007, the Company had a gross deferred income tax asset of $57.3 million,
against which the Company is carrying a $57.3 million valuation allowance. |
|
|
|
In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes
An Interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprises financial statements in accordance with
SFAS No. 109, Accounting for Income Taxes. This Interpretation prescribes a recognition threshold
and measurement attribute for the financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. This Interpretation also provides guidance on
derecognition, classification, interest and penalties, accounting in interim periods, disclosure,
and transition. In connection with the Companys adoption of FIN 48, as of January 1, 2007, the
Company recorded a net increase to deficit of $2.1 million (including approximately $0.9 million
related to accrued interest and penalties) related to the measurement of potential international
withholding tax requirements and a decrease in reserves for income taxes. As of June 30, 2007 and
January 1, 2007, the Company had total unrecognized tax benefits of $4.0 million and $3.7 comprised
of (i) $3.8 million and $3.5 million for international withholding taxes, respectively, and (ii)
$0.2 million related to Large Corporations Tax as of both periods. 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 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 Consolidated Statements of Operations rather than income tax expense. In conjunction with
the adoption of FIN 48, the Company recognized approximately $0.1 million in potential interest and
penalties associated with uncertain tax positions for both the three and six months ended June 30,
2007. |
Page 30
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)
14. |
|
Capital Stock |
|
(a) |
|
Stock-Based Compensation |
|
|
|
The Company has four stock-based compensation plans that are described below. The compensation
costs recorded in the statement of operations for these plans were a less than $0.1 million
recovery and a $1.0 million expense for the three and six months ended June 30, 2007, respectively
(2006 $0.5 million expense and $1.4 million expense). No income tax benefit is recorded in the
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 Companys policy is to issue new shares from treasury to satisfy stock options which are
exercised. |
|
|
|
The weighted average fair value of all common share options granted to employees for the three and
six months ended June 30, 2007 at the date of grant was $2.39 and $2.40 per share, respectively
(2006 $2.95 and 3.74 per share). The Company utilizes a Binomial Model to determine the fair
value of common share options at the grant date. The following assumptions were used: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
Average risk-free interest rate |
|
|
5.04 |
% |
|
|
5.13 |
% |
|
|
5.02 |
% |
|
|
4.85 |
% |
Market risk premium |
|
|
5.16 |
% |
|
|
5.24 |
% |
|
|
5.16 5.73 |
% |
|
|
5.24 5.60 |
% |
Beta |
|
|
0.86 0.94 |
|
|
|
1.06 |
|
|
|
0.82 0.94 |
|
|
|
1.06 1.28 |
|
Expected option life (in years) |
|
|
5.28 5.34 |
|
|
|
2.47 3.03 |
|
|
|
5.28 5.34 |
|
|
|
2.47 5.33 |
|
Expected volatility |
|
|
61 |
% |
|
|
60 |
% |
|
|
61 |
% |
|
|
60 |
% |
Annual termination probability |
|
|
11.87 |
% |
|
|
8.06 |
% |
|
|
11.87 |
% |
|
|
8.06 |
% |
Dividend yield |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
As the Company stratifies its employees into two groups in order to calculate fair value under the
Binomial Model, ranges of assumptions used are presented for equity risk premium, Beta, expected
option life and annual termination probability. The Company uses historical data to estimate option
exercise and employee termination within the valuation model; separate groups of employees that
have similar historical exercise behavior are considered separately for valuation purposes. The
expected volatility rate is estimated based on the Companys historical share-price volatility. The
market risk premium reflects the amount by which the return on the market portfolio exceeds the
risk-free rate, where the return on the market portfolio is based on the Standard and Poors 500
index. The Company utilizes an expected term method to determine expected option life based on such
data as vesting periods of awards, historical data that includes past exercise and post-vesting
cancellations and stock price history. |
Page 31
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)
14. |
|
Capital Stock (contd) |
|
(a) |
|
Stock-Based Compensation (contd) |
|
|
|
Stock Option Plan (contd) |
|
|
|
As at June 30, 2007, the Company has reserved a total of 6,972,157 (December 31, 2006 6,974,657)
common shares for future issuance under the Stock Option Plan, of which options in respect of
5,287,140 common shares are outstanding at June 30, 2007. Options are granted with an exercise
price equal to the market value of the Companys stock at the grant date. The options generally
vest between one and five years and expire 10 years or less from the date granted. The Plan
provides that vesting will be accelerated if there is a change of control, as defined in the plan.
At June 30, 2007, options in respect of 4,535,617 common shares were vested and exercisable. |
|
|
|
The following table summarizes certain information in respect of option activity under the Stock
Option Plan for the periods ended June 30: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average |
|
|
Number of shares |
|
exercise price per share |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
Options outstanding, beginning of year |
|
|
5,100,995 |
|
|
|
5,262,824 |
|
|
$ |
7.12 |
|
|
$ |
6.82 |
|
Granted |
|
|
261,645 |
|
|
|
59,984 |
|
|
|
4.48 |
|
|
|
9.19 |
|
Exercised |
|
|
(2,500 |
) |
|
|
(72,032 |
) |
|
|
3.04 |
|
|
|
3.96 |
|
Forfeited |
|
|
(28,575 |
) |
|
|
(87,768 |
) |
|
|
7.54 |
|
|
|
8.01 |
|
Expired |
|
|
(28,000 |
) |
|
|
(20,000 |
) |
|
|
18.45 |
|
|
|
16.34 |
|
Cancelled |
|
|
(16,425 |
) |
|
|
(15,833 |
) |
|
|
6.89 |
|
|
|
21.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, end of period |
|
|
5,287,140 |
|
|
|
5,127,175 |
|
|
|
6.93 |
|
|
|
7.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, end of period |
|
|
4,535,617 |
|
|
|
4,343,947 |
|
|
|
6.97 |
|
|
|
7.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the first half of 2007, the Company cancelled 16,425 stock options from its Stock Option Plan
(2006 15,833) surrendered by Company employees for $nil consideration. |
|
|
|
As at June 30, 2007, 5,124,222 options are fully vested or are expected to vest with a weighted
average exercise price of $6.92, aggregate intrinsic value of $0.7 million and weighted average
remaining contractual life of 4.1 years. As at June 30, 2007, options that are exercisable have an
intrinsic value of $0.7 million and a weighted average remaining contractual life of 4.0 years. The
intrinsic value of options exercised in the six months ended June 30, 2007 was $0.5 million (2006 -
less than $0.1 million). |
|
|
|
In the fourth quarter of 2006, the Company determined it had exceeded, by approximately 1.6% or
789,286 options (of which 45,286 were granted in the second quarter of 2006), certain cap limits
for grants set by its Stock Option Plan. The options issued in excess of the cap limits were
treated as liability-based awards commencing in the third quarter of 2006 as the Company determined
it intended to settle the options in cash. The fair value of the options was recalculated each
period. In the first quarter of 2007, the Company accelerated the vesting period to March 31, 2007.
Immediately before the settlement date, the Company had accrued a liability of $0.7 million. In
June 2007, the Company settled all but 195,286 options for cash in an amount of $0.5 million. The
remaining 195,286 options were voluntarily surrendered by the Co-CEOs and members of the Board of
Directors for no consideration, as a result the $0.2 million remaining in accrued liabilities was
credited to Other Equity. |
Page 32
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)
14. |
|
Capital Stock (contd) |
|
(a) |
|
Stock-Based Compensation (contd) |
|
|
|
Stock Option Plan (contd) |
|
|
|
Options to Non-Employees |
|
|
|
In the three and six months ended June 30, 2007, an aggregate of 120,255 and 129,145, respectively
(2006 26,649 and 49,984) options to purchase the Companys common stock with an average exercise
price of $4.54 and $4.53, respectively (2006 $9.35 and $9.07) were issued to certain advisors and
strategic partners of the Company. These options have a maximum contractual life of seven years.
Certain of these options vest immediately and others upon the occurrence of certain events. These
options were granted under the Stock Option Plan. |
|
|
|
The Company has calculated the fair value of these options to non-employees for the three and six
months ended June 30, 2007 to be $0.1 million and $0.1 million, respectively (2006 $0.1 million
and $0.2 million), using a Binomial option-pricing model with the following underlying assumptions
for periods ended: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
Average risk-free interest rate |
|
|
4.99 |
% |
|
|
5.01 |
% |
|
|
4.97 |
% |
|
|
4.83 |
% |
Contractual option life |
|
6 years |
|
5-7 years |
|
6 years |
|
5-7 years |
Average expected volatility |
|
|
61 |
% |
|
|
60 |
% |
|
|
61 |
% |
|
|
60 |
% |
Dividend yield |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
For the three and six months ended June 30, 2007, the Company has recorded a charge of $0.1 million
and $0.1 million, respectively (2006 $0.1 million and $0.2 million) to film cost of sales related
to the non-employee stock options. |
|
|
|
As at June 30, 2007, non-employee options outstanding amounted to 245,804 options (2006 89,989)
with a weighted-average exercise price of $6.43 (2006 $9.46). 128,884 options (2006 79,989)
were exercisable with an average weighted exercise price of $7.80 (2006 $9.53) and the vested
options have an aggregate intrinsic value of less than $0.1 million. |
|
|
|
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 is $0.7 million. The Company
accounts for the obligation as a liability, which is classified within accrued liabilities. The
Company has recorded a $0.1 million recovery and $0.1 million expense for the three and six months
ended June 30, 2007, respectively (2006 $0.2 million recovery and $0.3 million expense), due to
the changes in the Companys stock price during the period. |
Page 33
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)
14. |
|
Capital Stock (contd) |
|
(a) |
|
Stock-Based Compensation (contd) |
|
|
|
Stock Appreciation Rights |
|
|
|
On February 15, 2007, 600,000 stock appreciation rights with an exercise price of $4.34 per right
were granted to Company executives. Half of the rights were vested upon issuance and were
exercisable immediately and the other 300,000 rights will vest and be exercisable by the end of
2007. The unvested rights were measured at fair value at the date of grant and are remeasured each
period until settled. At June 30, 2007, these unvested rights had a fair value of $1.93 per right.
The vested rights have an intrinsic value of $nil per right as the exercise price of the rights is
greater than the Companys stock price at June 30, 2007. The Company accounts for the obligation of
these rights as a liability, which is classified within accrued liabilities. The Company has
recorded a $0.1 million recovery and $0.2 million charge for the three and six months ended June
30, 2007, respectively to SG&A related to these rights. The following assumptions were used at June
30, 2007 for measuring the fair value of the rights that vest during 2007: |
|
|
|
|
|
Risk-free interest rate |
|
|
5.11 |
% |
Market risk premium |
|
|
5.16 |
% |
Beta |
|
|
0.91 |
|
Expected option life (in years) |
|
|
5.79 |
|
Expected volatility |
|
|
61 |
% |
Annual termination probability |
|
|
0 |
% |
Dividend yield |
|
|
0 |
% |
|
|
Warrants to Non-Employees |
|
|
|
There were no warrants issued during the three months ended or outstanding as of June 30, 2007 and
2006. |
|
(b) |
|
Earnings (Loss) per Share |
|
|
|
Reconciliations of the numerators and denominators of the basic and diluted per-share computations
are comprised of the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
As restated |
|
|
As restated |
|
|
As restated |
|
|
As restated |
|
Net (loss) earnings from continuing operations applicable
to common shareholders |
|
$ |
(4,533 |
) |
|
$ |
1,658 |
|
|
$ |
(9,274 |
) |
|
$ |
(2,046 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares (000s): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued and outstanding, beginning of period |
|
|
40,286 |
|
|
|
40,280 |
|
|
|
40,286 |
|
|
|
40,213 |
|
Weighted average number of shares issued during the period |
|
|
1 |
|
|
|
5 |
|
|
|
|
|
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in computing basic
earnings per share |
|
|
40,287 |
|
|
|
40,285 |
|
|
|
40,286 |
|
|
|
40,255 |
|
Assumed exercise of stock options, net of shares assumed
repurchased |
|
|
|
|
|
|
1,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in computing
diluted earnings per share |
|
|
40,287 |
|
|
|
42,204 |
|
|
|
40,286 |
|
|
|
40,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The calculation of diluted earnings per share for the three and six months ended June 30, 2007
excludes all shares that are issuable upon exercise of options as the impact of these exercises
would be antidilutive. |
Page 34
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)
14. |
|
Capital Stock (contd) |
|
(c) |
|
Shareholders Deficit |
|
|
|
The following summarizes the movement of Shareholders Deficit for the six months ended June 30,
2007: |
|
|
|
|
|
Balance as of December 31, 2006 (as restated) |
|
$ |
(58,232 |
) |
Issuance of common shares |
|
|
8 |
|
Net loss |
|
|
(9,274 |
) |
Adjustment to other equity for employee stock options granted |
|
|
213 |
|
Adjustment to other equity capital for non-employee stock options granted |
|
|
80 |
|
Adjustment to other equity capital for employee stock options cancelled |
|
|
170 |
|
Adjustment to deficit on adoption of FIN 48 |
|
|
(2,093 |
) |
Adjustments to accumulated other comprehensive income to amortize the
prior service credits related to pensions and record the actuarial loss |
|
|
(672 |
) |
|
|
|
|
Balance as of June 30, 2007 (as restated) |
|
$ |
(69,800 |
) |
|
|
|
|
15. |
|
Segmented Information |
|
|
|
The Company has six reportable segments identified by category of product sold or service provided:
IMAX systems; film production and IMAX DMR; film distribution; film post-production; theater
operations; and other. The IMAX systems segment designs, manufactures, sells or leases and
maintains IMAX theater projection system equipment. 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 Annual Report on Form 10-K for the year
ended December 31, 2006. The Company has conformed its segment information in the current year to
the current information used by the Companys Chief Operating Design Makers (CODM), as defined in
SFAS No. 131 Disclosures about Segments of an Enterprise and Related Information (SFAS 131). |
|
|
|
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. |
Page 35
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)
15. |
|
Segmented Information (contd) |
|
|
|
The CODM assess segment performance based on segment gross margins. 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. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
As restated |
|
|
As restated |
|
|
As restated |
|
|
As restated |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX systems |
|
$ |
13,984 |
|
|
$ |
21,122 |
|
|
$ |
27,102 |
|
|
$ |
33,919 |
|
Films |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production and IMAX DMR |
|
|
3,801 |
|
|
|
4,063 |
|
|
|
8,393 |
|
|
|
5,160 |
|
Distribution |
|
|
2,692 |
|
|
|
4,639 |
|
|
|
6,102 |
|
|
|
8,063 |
|
Post-production |
|
|
1,472 |
|
|
|
3,042 |
|
|
|
2,546 |
|
|
|
4,524 |
|
Theater operations |
|
|
4,579 |
|
|
|
4,071 |
|
|
|
9,066 |
|
|
|
7,763 |
|
Other |
|
|
986 |
|
|
|
1,225 |
|
|
|
1,508 |
|
|
|
2,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
27,514 |
|
|
$ |
38,162 |
|
|
$ |
54,717 |
|
|
$ |
61,496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margins |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX systems |
|
$ |
8,077 |
|
|
$ |
11,057 |
|
|
$ |
15,642 |
|
|
$ |
18,424 |
|
Films |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production and IMAX DMR |
|
|
1,545 |
|
|
|
1,244 |
|
|
|
3,927 |
|
|
|
706 |
|
Distribution |
|
|
942 |
|
|
|
1,560 |
|
|
|
2,298 |
|
|
|
2,104 |
|
Post-production |
|
|
1,132 |
|
|
|
1,009 |
|
|
|
1,234 |
|
|
|
1,438 |
|
Theater operations |
|
|
459 |
|
|
|
854 |
|
|
|
653 |
|
|
|
1,151 |
|
Other |
|
|
98 |
|
|
|
(29 |
) |
|
|
(93 |
) |
|
|
(138 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
12,253 |
|
|
$ |
15,695 |
|
|
$ |
23,661 |
|
|
$ |
23,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16. |
|
Discontinued Operations |
|
(a) |
|
Miami Theater LLC |
|
|
|
On December 23, 2003, the Company closed its owned and operated Miami IMAX theater. The Company
completed its abandonment of assets and removal of its projection system from the theater in the
first quarter of 2004, with no financial impact. The Company was involved in an arbitration
proceeding with the landlord of the theater with respect to the amount owing to the landlord by the
Company for lease and guarantee obligations. The amount of loss to the Company had been estimated
as between $0.9 million and $2.3 million. Prior to 2006, the Company paid out $0.8 million with
respect to amounts owing to the landlord. The Company paid out an additional $0.1 million and also
accrued $0.8 million in net loss from discontinued operations related to Miami IMAX Theater in the
fourth quarter of 2006. On January 4, 2007, as a result of a settlement negotiated between both
parties, the Company paid out a final $0.8 million, extinguishing its obligations to the landlord. |
|
(b) |
|
Digital Projection International |
|
|
|
On December 29, 2005, the Company and a previously wholly-owned subsidiary, Digital Projection
International, entered into an agreement to settle its loan agreements in exchange for a payment of
$3.5 million. During the six months ended June 30, 2006, the Company recognized $2.3 million in
income from discontinued operations as a result of this settlement. The other $1.2 million was
recognized in 2005. |
Page 36
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)
17. |
|
Employees Pension and Postretirement Benefits |
|
(a) |
|
Defined Benefit Plan |
|
|
|
The Company has an unfunded U.S. defined benefit pension plan, the Supplemental Executive
Retirement Plan (the SERP), covering its two Co-CEOs. The SERP provides for a lifetime retirement
benefit from age 55 determined as 75% of the members best average 60 consecutive months of
earnings. |
|
|
|
Under the original terms of the SERP, once benefit payments begin, the benefit is indexed annually
to the cost of living and further provides for 100% continuance for life to the surviving spouse.
On March 8, 2006, the Company and the Co-CEOs negotiated an amendment to the SERP effective January
1, 2006, which reduced the related pension expense to the Company. The Company was represented by
the independent directors (as defined in Rule 4200(a)(15) of the NASDAQ Marketplace Rules and
Section 1.4 of Multilateral Instrument 52-110, who retained Mercer Human Resources Consulting and
outside legal counsel to advise them on certain analyses regarding the SERP. Under the terms of the
SERP amendment, the cost of living adjustment and surviving spouse benefits previously owed to the
Co-CEOs are each reduced by 50%, subject to a recoupment of a percentage of such benefits upon a
change of control of the Company, and the net present value of the reduced pension benefit payments
is accelerated and paid out upon a change of control of the Company. The benefits were 50% vested
as of July 2000, the SERP initiation date. The vesting percentage increases on a straight-line
basis from inception until age 55. The vesting percentage of a member whose employment terminates
other than by voluntary retirement or upon a change in control shall be 100%. The actuarial
liability was remeasured as of March 8, 2006 to reflect the SERP changes adopted. Under the
original terms of the SERP, benefits were determined as 75% of the members best average 60
consecutive months of earnings during the 120 months preceding retirement. On May 4, 2007, the
Company amended the SERP to provide for the determination of benefits to be 75% of the members
best average 60 consecutive months of earnings over the members employment history. The actuarial
liability was remeasured to reflect this amendment. The amendment resulted in a $1.0 million
increase to the pension liability and a corresponding $1.0 million change to other comprehensive
income. As of June 30, 2007, one of the Co-CEOs benefits was 100% vested and the other Co-CEOs
benefits were approximately 84% vested. |
|
|
|
The amount accrued for the SERP is determined as follows: |
|
|
|
|
|
|
|
Six months ended |
|
|
|
June 30, 2007 |
|
Projected benefit obligation: |
|
|
|
|
Obligation, beginning of period |
|
$ |
26,109 |
|
Service cost |
|
|
344 |
|
Interest cost |
|
|
678 |
|
Actuarial loss resulting from the amendment |
|
|
997 |
|
Amortization of prior service credits |
|
|
(473 |
) |
|
|
|
|
Obligation, end of period |
|
$ |
27,655 |
|
|
|
|
|
Unfunded status: |
|
|
|
|
Obligation, end of period |
|
$ |
27,655 |
|
|
|
|
|
Accrued pension liability |
|
$ |
27,655 |
|
|
|
|
|
|
|
The following table provides disclosure of pension expense for the SERP for periods ended June 30: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
As restated |
|
|
|
|
|
|
As restated |
|
Service cost |
|
$ |
172 |
|
|
$ |
364 |
|
|
$ |
344 |
|
|
$ |
821 |
|
Interest cost |
|
|
339 |
|
|
|
297 |
|
|
|
678 |
|
|
|
659 |
|
Amortization of prior service credits |
|
|
|
|
|
|
(237 |
) |
|
|
|
|
|
|
(83 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension expense |
|
$ |
511 |
|
|
$ |
424 |
|
|
$ |
1,022 |
|
|
$ |
1,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accumulated benefit obligation for the SERP was $27.7 million at June 30, 2007 and $26.1
million at December 31, 2006. No contributions are expected to be made for the SERP during 2007. |
Page 37
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)
17. |
|
Employees Pension and Postretirement Benefits (contd) |
|
(a) |
|
Defined Benefit Plan (contd) |
|
|
|
As a result of the SERP amendment, in the first quarter of 2006, an adjustment to the unrecognized
actuarial losses of $2.8 million and unrecognized prior service cost of $3.4 million was recorded
in comprehensive income (loss) and other assets. |
|
|
|
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 five years, and in the aggregate over the five years
thereafter: |
|
|
|
|
2007 |
|
$ |
|
2008 |
|
|
1,045 |
2009 |
|
|
1,058 |
2010 |
|
|
32,496 |
2011 to 2016 |
|
|
|
|
|
At the time the Company established the SERP, it also took out life insurance policies on its two
Co-CEOs with coverage amounts of $21.5 million in aggregate. The Company intends to use the cash
surrender value proceeds of life insurance policies taken on its Co-CEOs 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. At June 30, 2007, the cash surrender value of the insurance policies is $4.6
million (December 31, 2006 $4.3 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, 2007 and 2006, the Company contributed and expensed an aggregate of $0.2
million and $0.4 million, respectively (2006 $0.2 million and $0.4 million), to its Canadian plan
and an aggregate of less than $0.1 million and
$0.1 million, respectively (2006 less than $0.1
million and $0.1 million), 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 its two Co-CEOs. The plan provides that
the Company will maintain health benefits for the Co-CEOs until they become eligible for Medicare
and, thereafter, the Company will provide Medicare supplement coverage as selected by the Co-CEO.
The postretirement benefits obligation as of June 30, 2007 is $0.4 million. The Company has
expensed less than $0.1 million for the three and six months ended June 30, 2007 with respect to
this obligation (2006 less than $0.1 million). |
|
18. |
|
Impact of Recently Issued Accounting Pronouncements |
|
|
|
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value
Measurements, which is effective for fiscal years beginning after November 15, 2007 and for
interim periods within those years. This statement defines fair value, establishes a framework for
measuring fair value and expands the related disclosure requirements. The Company is currently
evaluating the potential impact of this statement. |
|
|
|
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB
Statements No. 115 (SFAS 159). SFAS 159 allows the irrevocable election of fair value as the
initial and subsequent measurement attribute for certain financial assets and liabilities and other
items on an instrument-by-instrument basis. Changes in fair value would be reflected in earnings as
they occur. The objective of SFAS 159 is to improve financial reporting by providing entities with
the opportunity to mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 is
effective as of the beginning of the first fiscal year beginning after November 15, 2007. The
Company is currently evaluating if it will elect the fair value option for any of its eligible
financial instruments and other items. |
Page 38
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)
19. |
|
Supplemental Consolidating Financial Information |
|
|
|
The Companys Senior Notes are fully and unconditionally guaranteed, jointly and severally by
specific wholly-owned subsidiaries of the Company (the Guarantor Subsidiaries). The main
Guarantor Subsidiaries are David Keighley Productions 70MM Inc., Sonics Associates Inc., and the
subsidiaries that own and operate certain theaters. These guarantees are full and unconditional.
The information under the column headed Non-Guarantor Subsidiaries relates to the following
subsidiaries of the Company: IMAX Japan Inc. and IMAX B.V. (the Non-Guarantor Subsidiaries) which
have not provided any guarantees of the Senior Notes. |
|
|
|
Investments in subsidiaries are accounted for by the equity method for purposes of the supplemental
consolidating financial data. Some subsidiaries may be unable to pay dividends due to negative
working capital. |
|
|
|
Supplemental Consolidating Balance Sheets as at June 30, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
Adjustments |
|
|
|
|
|
|
IMAX |
|
|
Guarantor |
|
|
Guarantor |
|
|
and |
|
|
Consolidated |
|
|
|
Corporation |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
|
As restated |
|
|
As restated |
|
|
|
|
|
As restated |
|
|
As restated |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
10,061 |
|
|
$ |
5,935 |
|
|
$ |
314 |
|
|
$ |
|
|
|
$ |
16,310 |
|
Short-term investments |
|
|
2,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,164 |
|
Accounts receivable |
|
|
23,665 |
|
|
|
2,291 |
|
|
|
398 |
|
|
|
|
|
|
|
26,354 |
|
Financing receivables |
|
|
62,103 |
|
|
|
689 |
|
|
|
|
|
|
|
|
|
|
|
62,792 |
|
Inventories |
|
|
26,803 |
|
|
|
238 |
|
|
|
81 |
|
|
|
|
|
|
|
27,122 |
|
Prepaid expenses |
|
|
2,536 |
|
|
|
495 |
|
|
|
21 |
|
|
|
|
|
|
|
3,052 |
|
Intercompany receivables |
|
|
25,029 |
|
|
|
47,389 |
|
|
|
10,918 |
|
|
|
(83,336 |
) |
|
|
|
|
Film assets |
|
|
4,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,178 |
|
Property, plant and equipment |
|
|
23,601 |
|
|
|
1,127 |
|
|
|
6 |
|
|
|
|
|
|
|
24,734 |
|
Other assets |
|
|
12,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,174 |
|
Goodwill |
|
|
39,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,027 |
|
Other intangible assets |
|
|
2,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,526 |
|
Investments in subsidiaries |
|
|
31,082 |
|
|
|
|
|
|
|
|
|
|
|
(31,082 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
264,949 |
|
|
$ |
58,164 |
|
|
$ |
11,738 |
|
|
$ |
(114,418 |
) |
|
$ |
220,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
3,276 |
|
|
$ |
5,175 |
|
|
$ |
3 |
|
|
$ |
|
|
|
$ |
8,454 |
|
Accrued liabilities |
|
|
53,248 |
|
|
|
8,099 |
|
|
|
227 |
|
|
|
|
|
|
|
61,574 |
|
Intercompany payables |
|
|
61,785 |
|
|
|
44,603 |
|
|
|
6,204 |
|
|
|
(112,592 |
) |
|
|
|
|
Deferred revenue |
|
|
56,860 |
|
|
|
3,088 |
|
|
|
257 |
|
|
|
|
|
|
|
60,205 |
|
Senior Notes due 2010 |
|
|
160,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
335,169 |
|
|
|
60,965 |
|
|
|
6,691 |
|
|
|
(112,592 |
) |
|
|
290,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity (deficit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital stock |
|
|
122,032 |
|
|
|
|
|
|
|
117 |
|
|
|
(117 |
) |
|
|
122,032 |
|
Other equity / additional paid in capital /
contributed surplus |
|
|
2,366 |
|
|
|
46,960 |
|
|
|
|
|
|
|
(45,926 |
) |
|
|
3,400 |
|
Deficit |
|
|
(195,742 |
) |
|
|
(49,147 |
) |
|
|
4,930 |
|
|
|
44,217 |
|
|
|
(195,742 |
) |
Accumulated other comprehensive income (loss) |
|
|
1,124 |
|
|
|
(614 |
) |
|
|
|
|
|
|
|
|
|
|
510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity (deficit) |
|
$ |
(70,220 |
) |
|
$ |
(2,801 |
) |
|
$ |
5,047 |
|
|
$ |
(1,826 |
) |
|
$ |
(69,800 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities & shareholders equity (deficit) |
|
$ |
264,949 |
|
|
$ |
58,164 |
|
|
$ |
11,738 |
|
|
$ |
(114,418 |
) |
|
$ |
220,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In certain Guarantor Subsidiaries, accumulated losses have exceeded the original investment
balance. As a result of applying equity accounting, the parent company has consequently reduced
intercompany receivable balances with respect to these Guarantor Subsidiaries in the amounts of
$29.9 million as at June 30, 2007. |
Page 39
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)
19. |
|
Supplemental Consolidating Financial Information (contd) |
|
|
|
Supplemental Consolidating Balance Sheets as at December 31, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
Adjustments |
|
|
|
|
|
|
IMAX |
|
|
Guarantor |
|
|
Guarantor |
|
|
and |
|
|
Consolidated |
|
|
|
Corporation |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
|
As restated |
|
|
|
|
|
|
|
|
As restated |
|
|
As restated |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
16,402 |
|
|
$ |
8,556 |
|
|
$ |
165 |
|
|
$ |
|
|
|
$ |
25,123 |
|
Short-term investments |
|
|
2,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,115 |
|
Accounts receivable |
|
|
23,902 |
|
|
|
1,866 |
|
|
|
249 |
|
|
|
|
|
|
|
26,017 |
|
Financing receivables |
|
|
63,831 |
|
|
|
2,047 |
|
|
|
|
|
|
|
|
|
|
|
65,878 |
|
Inventories |
|
|
26,592 |
|
|
|
237 |
|
|
|
84 |
|
|
|
|
|
|
|
26,913 |
|
Prepaid expenses |
|
|
3,098 |
|
|
|
312 |
|
|
|
22 |
|
|
|
|
|
|
|
3,432 |
|
Intercompany receivables |
|
|
25,799 |
|
|
|
36,182 |
|
|
|
11,164 |
|
|
|
(73,145 |
) |
|
|
|
|
Film assets |
|
|
1,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,235 |
|
Property, plant and equipment |
|
|
23,412 |
|
|
|
1,212 |
|
|
|
15 |
|
|
|
|
|
|
|
24,639 |
|
Other assets |
|
|
10,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,365 |
|
Goodwill |
|
|
39,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,027 |
|
Other intangible assets |
|
|
2,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,547 |
|
Investments in subsidiaries |
|
|
29,543 |
|
|
|
|
|
|
|
|
|
|
|
(29,543 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
267,868 |
|
|
$ |
50,412 |
|
|
$ |
11,699 |
|
|
$ |
(102,688 |
) |
|
$ |
227,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities |
|
$ |
4,259 |
|
|
$ |
7,164 |
|
|
$ |
3 |
|
|
$ |
|
|
|
$ |
11,426 |
|
Intercompany payables |
|
|
49,792 |
|
|
|
8,293 |
|
|
|
209 |
|
|
|
|
|
|
|
58,294 |
|
Deferred revenue |
|
|
60,049 |
|
|
|
35,601 |
|
|
|
6,306 |
|
|
|
(101,956 |
) |
|
|
|
|
Senior Notes due 2010 |
|
|
52,420 |
|
|
|
3,261 |
|
|
|
122 |
|
|
|
|
|
|
|
55,803 |
|
Total liabilities |
|
|
160,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
326,520 |
|
|
|
54,319 |
|
|
|
6,640 |
|
|
|
(101,956 |
) |
|
|
285,523 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity (deficit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital stock |
|
$ |
122,024 |
|
|
$ |
|
|
|
$ |
117 |
|
|
$ |
(117 |
) |
|
$ |
122,024 |
|
Other equity |
|
|
1,903 |
|
|
|
46,960 |
|
|
|
|
|
|
|
(45,926 |
) |
|
|
2,937 |
|
Deficit |
|
|
(184,375 |
) |
|
|
(50,253 |
) |
|
|
4,942 |
|
|
|
45,311 |
|
|
|
(184,375 |
) |
Accumulated other comprehensive income (loss) |
|
|
1,796 |
|
|
|
(614 |
) |
|
|
|
|
|
|
|
|
|
|
1,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity (deficit) |
|
|
(58,652 |
) |
|
|
(3,907 |
) |
|
|
5,059 |
|
|
|
(732 |
) |
|
|
(58,232 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities & shareholders equity (deficit) |
|
$ |
267,868 |
|
|
$ |
50,412 |
|
|
$ |
11,699 |
|
|
$ |
(102,688 |
) |
|
$ |
227,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In certain Guarantor Subsidiaries accumulated losses have exceeded the original investment balance.
As a result of applying equity accounting, the parent company has consequently reduced intercompany
receivable balances with respect to these Guarantor Subsidiaries in the amounts of $29.0 million. |
Page 40
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)
19. |
|
Supplemental Consolidating Financial Information (contd) |
|
|
|
Supplemental Consolidating Statements of Operations for the three months ended June 30, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
Adjustments |
|
|
|
|
|
|
IMAX |
|
|
Guarantor |
|
|
Guarantor |
|
|
and |
|
|
Consolidated |
|
|
|
Corporation |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
|
As restated |
|
|
As restated |
|
|
|
|
|
As restated |
|
|
As restated |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and product sales |
|
$ |
6,773 |
|
|
$ |
177 |
|
|
$ |
2 |
|
|
$ |
(171 |
) |
|
$ |
6,781 |
|
Services |
|
|
10,409 |
|
|
|
6,482 |
|
|
|
164 |
|
|
|
(714 |
) |
|
|
16,341 |
|
Rentals |
|
|
1,595 |
|
|
|
66 |
|
|
|
11 |
|
|
|
|
|
|
|
1,672 |
|
Finance income |
|
|
1,170 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
1,181 |
|
Other revenues |
|
|
1,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,486 |
|
|
|
6,736 |
|
|
|
177 |
|
|
|
(885 |
) |
|
|
27,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold, services and rentals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and product sales |
|
|
3,740 |
|
|
|
170 |
|
|
|
2 |
|
|
|
(99 |
) |
|
|
3,813 |
|
Services |
|
|
6,287 |
|
|
|
5,150 |
|
|
|
47 |
|
|
|
(786 |
) |
|
|
10,698 |
|
Rentals |
|
|
731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
731 |
|
Other |
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,777 |
|
|
|
5,320 |
|
|
|
49 |
|
|
|
(885 |
) |
|
|
15,261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
10,709 |
|
|
|
1,416 |
|
|
|
128 |
|
|
|
|
|
|
|
12,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
10,671 |
|
|
|
285 |
|
|
|
191 |
|
|
|
|
|
|
|
11,147 |
|
Research and development |
|
|
1,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,121 |
|
Amortization of intangibles |
|
|
141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141 |
|
Loss (income) from equity-accounted investees |
|
|
(1,057 |
) |
|
|
|
|
|
|
|
|
|
|
1,057 |
|
|
|
|
|
Receivable provisions, net of (recoveries) |
|
|
(33 |
) |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from operations |
|
|
(134 |
) |
|
|
1,129 |
|
|
|
(63 |
) |
|
|
(1,057 |
) |
|
|
(125 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
227 |
|
Interest expense |
|
|
(4,375 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,375 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing
operations before income taxes |
|
|
(4,282 |
) |
|
|
1,129 |
|
|
|
(63 |
) |
|
|
(1,057 |
) |
|
|
(4,273 |
) |
Provision for income taxes |
|
|
(251 |
) |
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
(260 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
(4,533 |
) |
|
$ |
1,120 |
|
|
$ |
(63 |
) |
|
$ |
(1,057 |
) |
|
$ |
(4,533 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 41
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)
19. |
|
Supplemental Consolidating Financial Information (contd) |
|
|
|
Supplemental Consolidating Statements of Operations for the six months ended June 30, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
Adjustments |
|
|
|
|
|
|
IMAX |
|
|
Guarantor |
|
|
Guarantor |
|
|
and |
|
|
Consolidated |
|
|
|
Corporation |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
|
As restated |
|
|
As restated |
|
|
|
|
|
As restated |
|
|
As restated |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and product sales |
|
$ |
13,822 |
|
|
$ |
627 |
|
|
$ |
4 |
|
|
$ |
(598 |
) |
|
$ |
13,855 |
|
Services |
|
|
22,565 |
|
|
|
12,601 |
|
|
|
325 |
|
|
|
(1,493 |
) |
|
|
33,998 |
|
Rentals |
|
|
2,860 |
|
|
|
85 |
|
|
|
13 |
|
|
|
|
|
|
|
2,958 |
|
Finance income |
|
|
2,304 |
|
|
|
63 |
|
|
|
|
|
|
|
|
|
|
|
2,367 |
|
Other revenues |
|
|
1,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,090 |
|
|
|
13,376 |
|
|
|
342 |
|
|
|
(2,091 |
) |
|
|
54,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold, services and rentals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and product sales |
|
|
7,613 |
|
|
|
598 |
|
|
|
4 |
|
|
|
(459 |
) |
|
|
7,756 |
|
Services |
|
|
12,275 |
|
|
|
11,224 |
|
|
|
123 |
|
|
|
(1,632 |
) |
|
|
21,990 |
|
Rentals |
|
|
1,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,291 |
|
Other |
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,198 |
|
|
|
11,822 |
|
|
|
127 |
|
|
|
(2,091 |
) |
|
|
31,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
21,892 |
|
|
|
1,554 |
|
|
|
215 |
|
|
|
|
|
|
|
23,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
20,753 |
|
|
|
489 |
|
|
|
227 |
|
|
|
|
|
|
|
21,469 |
|
Research and development |
|
|
2,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,616 |
|
Amortization of intangibles |
|
|
277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
277 |
|
Loss (income) from equity-accounted investees |
|
|
(1,094 |
) |
|
|
|
|
|
|
|
|
|
|
1,094 |
|
|
|
|
|
Receivable provisions, net of (recoveries) |
|
|
(23 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
(25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from operations |
|
|
(637 |
) |
|
|
1,067 |
|
|
|
(12 |
) |
|
|
(1,094 |
) |
|
|
(676 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
405 |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
453 |
|
Interest expense |
|
|
(8,624 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,624 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing
operations before income taxes |
|
|
(8,856 |
) |
|
|
1,115 |
|
|
|
(12 |
) |
|
|
(1,094 |
) |
|
|
(8,847 |
) |
Provision for income taxes |
|
|
(418 |
) |
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
(427 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
(9,274 |
) |
|
$ |
1,106 |
|
|
$ |
(12 |
) |
|
$ |
(1,094 |
) |
|
$ |
(9,274 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 42
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)
19. |
|
Supplemental Consolidating Financial Information (contd) |
|
|
|
Supplemental Consolidating Statements of Operations for the three months ended June 30, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
Adjustments |
|
|
|
|
|
|
IMAX |
|
|
Guarantor |
|
|
Guarantor |
|
|
and |
|
|
Consolidated |
|
|
|
Corporation |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
|
As restated |
|
|
As restated |
|
|
|
|
|
As restated |
|
|
As restated |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and product sales |
|
$ |
15,319 |
|
|
$ |
|
|
|
$ |
3 |
|
|
$ |
|
|
|
$ |
15,322 |
|
Services |
|
|
13,301 |
|
|
|
7,314 |
|
|
|
174 |
|
|
|
(1,061 |
) |
|
|
19,728 |
|
Rentals |
|
|
1,430 |
|
|
|
47 |
|
|
|
8 |
|
|
|
|
|
|
|
1,485 |
|
Finance income |
|
|
1,573 |
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
1,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,623 |
|
|
|
7,415 |
|
|
|
185 |
|
|
|
(1,061 |
) |
|
|
38,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold, services and rentals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and product sales |
|
|
8,846 |
|
|
|
|
|
|
|
|
|
|
|
64 |
|
|
|
8,910 |
|
Services |
|
|
7,906 |
|
|
|
6,220 |
|
|
|
83 |
|
|
|
(1,125 |
) |
|
|
13,084 |
|
Rentals |
|
|
473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,225 |
|
|
|
6,220 |
|
|
|
83 |
|
|
|
(1,061 |
) |
|
|
22,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
14,398 |
|
|
|
1,195 |
|
|
|
102 |
|
|
|
|
|
|
|
15,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
9,311 |
|
|
|
224 |
|
|
|
(2 |
) |
|
|
|
|
|
|
9,533 |
|
Research and development |
|
|
664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
664 |
|
Amortization of intangibles |
|
|
132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132 |
|
Loss (income) from equity-accounted investees |
|
|
(1,072 |
) |
|
|
|
|
|
|
|
|
|
|
1,072 |
|
|
|
|
|
Receivable provisions, net of (recoveries) |
|
|
(252 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(252 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from operations |
|
|
5,615 |
|
|
|
971 |
|
|
|
104 |
|
|
|
(1,072 |
) |
|
|
5,618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
280 |
|
Interest expense |
|
|
(4,239 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
(4,242 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing
operations before income taxes |
|
|
1,656 |
|
|
|
968 |
|
|
|
104 |
|
|
|
(1,072 |
) |
|
|
1,656 |
|
Recovery of income taxes |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing
operations |
|
|
1,658 |
|
|
|
968 |
|
|
|
104 |
|
|
|
(1,072 |
) |
|
|
1,658 |
|
Net earnings from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
1,658 |
|
|
$ |
968 |
|
|
$ |
104 |
|
|
$ |
(1,072 |
) |
|
$ |
1,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 43
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)
19. |
|
Supplemental Consolidating Financial Information (contd) |
|
|
|
Supplemental Consolidating Statements of Operations for the six months ended June 30, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
Adjustments |
|
|
|
|
|
|
IMAX |
|
|
Guarantor |
|
|
Guarantor |
|
|
and |
|
|
Consolidated |
|
|
|
Corporation |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
|
As restated |
|
|
As restated |
|
|
|
|
|
As restated |
|
|
As restated |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and product sales |
|
$ |
23,090 |
|
|
$ |
|
|
|
$ |
6 |
|
|
$ |
|
|
|
$ |
23,096 |
|
Services |
|
|
21,825 |
|
|
|
12,976 |
|
|
|
365 |
|
|
|
(1,969 |
) |
|
|
33,197 |
|
Rentals |
|
|
2,341 |
|
|
|
111 |
|
|
|
12 |
|
|
|
|
|
|
|
2,464 |
|
Finance income |
|
|
2,631 |
|
|
|
108 |
|
|
|
|
|
|
|
|
|
|
|
2,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,887 |
|
|
|
13,195 |
|
|
|
383 |
|
|
|
(1,969 |
) |
|
|
61,496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold, services and rentals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and product sales |
|
|
13,014 |
|
|
|
|
|
|
|
5 |
|
|
|
97 |
|
|
|
13,116 |
|
Services |
|
|
14,007 |
|
|
|
11,646 |
|
|
|
158 |
|
|
|
(2,066 |
) |
|
|
23,745 |
|
Rentals |
|
|
950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,971 |
|
|
|
11,646 |
|
|
|
163 |
|
|
|
(1,969 |
) |
|
|
37,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
21,916 |
|
|
|
1,549 |
|
|
|
220 |
|
|
|
|
|
|
|
23,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
19,583 |
|
|
|
402 |
|
|
|
80 |
|
|
|
|
|
|
|
20,065 |
|
Research and development |
|
|
1,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,579 |
|
Amortization of intangibles |
|
|
324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
324 |
|
Loss (income) from equity-accounted investees |
|
|
(1,284 |
) |
|
|
|
|
|
|
|
|
|
|
1,284 |
|
|
|
|
|
Receivable provisions, net of (recoveries) |
|
|
(109 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(109 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from operations |
|
|
1,823 |
|
|
|
1,147 |
|
|
|
140 |
|
|
|
(1,284 |
) |
|
|
1,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
533 |
|
Interest expense |
|
|
(8,397 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
(8,399 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing
operations before income taxes |
|
|
(6,041 |
) |
|
|
1,145 |
|
|
|
140 |
|
|
|
(1,284 |
) |
|
|
(6,040 |
) |
Recovery of (provision for) income taxes |
|
|
1,695 |
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
1,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing
operations |
|
|
(4,346 |
) |
|
|
1,145 |
|
|
|
139 |
|
|
|
(1,284 |
) |
|
|
(4,346 |
) |
Net earnings from discontinued operations |
|
|
2,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
(2,046 |
) |
|
$ |
1,145 |
|
|
$ |
139 |
|
|
$ |
(1,284 |
) |
|
$ |
(2,046 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 44
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)
19. |
|
Supplemental Consolidating Financial Information (contd) |
|
|
|
Supplemental Consolidating Statements of Cash Flows for the six months ended June 30, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
Adjustments |
|
|
|
|
|
|
IMAX |
|
|
Guarantor |
|
|
Guarantor |
|
|
and |
|
|
Consolidated |
|
|
|
Corporation |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
|
As restated |
|
|
As restated |
|
|
|
|
|
As restated |
|
|
As restated |
|
Cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
(9,274 |
) |
|
$ |
1,106 |
|
|
$ |
(12 |
) |
|
$ |
(1,094 |
) |
|
$ |
(9,274 |
) |
Items not involving cash: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
6,038 |
|
|
|
205 |
|
|
|
11 |
|
|
|
|
|
|
|
6,254 |
|
Write-downs (recoveries) |
|
|
(23 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
(25 |
) |
Loss (income) from equity-accounted investees |
|
|
(1,094 |
) |
|
|
|
|
|
|
|
|
|
|
1,094 |
|
|
|
|
|
Change in deferred income taxes |
|
|
(149 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(149 |
) |
Stock and other non-cash compensation |
|
|
2,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,006 |
|
Non-cash foreign exchange gain |
|
|
(623 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(623 |
) |
Interest on short-term investments |
|
|
(49 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49 |
) |
Change in cash surrender value of
life insurance |
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16 |
) |
Investment in film assets |
|
|
(5,590 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,590 |
) |
Changes in other non-cash operating assets and liabilities |
|
|
5,092 |
|
|
|
(3,025 |
) |
|
|
160 |
|
|
|
|
|
|
|
2,227 |
|
Net cash used in operating activities from discontinued
operations |
|
|
|
|
|
|
(775 |
) |
|
|
|
|
|
|
|
|
|
|
(775 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
(3,682 |
) |
|
|
(2,491 |
) |
|
|
159 |
|
|
|
|
|
|
|
(6,014 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of short-term investments |
|
|
(4,275 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,275 |
) |
Proceeds from maturities of short-term investments |
|
|
4,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,274 |
|
Purchase of fixed assets |
|
|
(601 |
) |
|
|
(120 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
(723 |
) |
Increase in other assets |
|
|
(374 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(374 |
) |
Increase in other intangible assets |
|
|
(256 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(256 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(1,232 |
) |
|
|
(120 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
(1,354 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing costs related to new Senior Notes |
|
|
(1,431 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,431 |
) |
Common shares issued |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(1,423 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,423 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of exchange rate changes on cash |
|
|
(4 |
) |
|
|
(10 |
) |
|
|
(8 |
) |
|
|
|
|
|
|
(22 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents, during
the period |
|
|
(6,341 |
) |
|
|
(2,621 |
) |
|
|
149 |
|
|
|
|
|
|
|
(8,813 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period |
|
|
16,402 |
|
|
|
8,556 |
|
|
|
165 |
|
|
|
|
|
|
|
25,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
10,061 |
|
|
$ |
5,935 |
|
|
$ |
314 |
|
|
$ |
|
|
|
$ |
16,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 45
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)
19. |
|
Supplemental Consolidating Financial Information (contd) |
|
|
|
Supplemental Consolidating Statements of Cash Flows for the six months ended June 30, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
Adjustments |
|
|
|
|
|
|
IMAX |
|
|
Guarantor |
|
|
Guarantor |
|
|
and |
|
|
Consolidated |
|
|
|
Corporation |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
|
As restated |
|
|
As restated |
|
|
|
|
|
As restated |
|
|
As restated |
|
Cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
(2,046 |
) |
|
$ |
1,145 |
|
|
$ |
139 |
|
|
$ |
(1,284 |
) |
|
$ |
(2,046 |
) |
Net earnings from discontinued operations |
|
|
(2,300 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,300 |
) |
Items not involving cash: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
7,370 |
|
|
|
267 |
|
|
|
1 |
|
|
|
|
|
|
|
7,638 |
|
Write-downs |
|
|
(109 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(109 |
) |
Loss (income) from equity-accounted investees |
|
|
(1,284 |
) |
|
|
|
|
|
|
|
|
|
|
1,284 |
|
|
|
|
|
Change in deferred income taxes |
|
|
(1,600 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
(1,604 |
) |
Stock and other non-cash compensation |
|
|
2,554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,554 |
|
Unrealized foreign exchange loss |
|
|
(405 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(405 |
) |
Interest on short-term investments |
|
|
(179 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(179 |
) |
Change in cash surrender value of life insurance |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6 |
) |
Investment in film assets |
|
|
(5,696 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,696 |
) |
Changes in other non-cash operating assets and liabilities |
|
|
(2,851 |
) |
|
|
239 |
|
|
|
(90 |
) |
|
|
|
|
|
|
(2,702 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
(6,552 |
) |
|
|
1,647 |
|
|
|
50 |
|
|
|
|
|
|
|
(4,855 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of short-term investments |
|
|
(10,322 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,322 |
) |
Proceeds from maturities of short-term investments |
|
|
10,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,321 |
|
Purchase of fixed assets |
|
|
(568 |
) |
|
|
(169 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
(739 |
) |
Increase in other assets |
|
|
(566 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(566 |
) |
Increase in other intangible assets |
|
|
(309 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(309 |
) |
Net cash provided by investing activities from discontinued
operations |
|
|
3,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
2,049 |
|
|
|
(169 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
1,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued |
|
|
286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of exchange rate changes on cash |
|
|
(53 |
) |
|
|
7 |
|
|
|
(13 |
) |
|
|
|
|
|
|
(59 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents, during the
period |
|
|
(4,270 |
) |
|
|
1,485 |
|
|
|
35 |
|
|
|
|
|
|
|
(2,750 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period |
|
|
17,402 |
|
|
|
6,728 |
|
|
|
194 |
|
|
|
|
|
|
|
24,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
13,132 |
|
|
$ |
8,213 |
|
|
$ |
229 |
|
|
$ |
|
|
|
$ |
21,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 46
IMAX CORPORATION
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
The principal business of IMAX Corporation together with its wholly-owned subsidiaries (the
Company) is the design, manufacture, sale or lease of theater systems for large-format theaters
including commercial theaters, museums and science centers, and destination entertainment sites. In
addition, the Company specializes in digital and film based motion picture technologies, designs
and manufactures high-end sound systems and produces, remasters and distributes large-format films.
At June 30, 2007, there were 290 IMAX theaters operating in 40 countries.
The Company derives revenue principally from the sale or long-term lease of its theater systems and
associated maintenance and extended warranty services, the provision of film production and digital
re-mastering services, the distribution of certain films, and the provision of post-production
services. The Company also derives revenue from the operation of its own theaters, camera rentals
and the provision of aftermarket parts for its system components.
Important factors that the Companys Co-Chief Executive Officers (Co-CEOs) use in assessing the
Companys business and prospects include the signing of new theater systems arrangements, revenue,
gross margins from the Companys operating segments, earnings from operations as adjusted for
unusual items that the Company views as non-recurring and the success of strategic initiatives such
as the securing of new film projects, particularly IMAX DMR films, the signing and financial
performance of joint revenue sharing arrangements and the progress of the Companys development of
a digital projector and related technologies.
Accounting Policies and Estimates
The Company reports its results under United States Generally Accepted Accounting Principles (U.S.
GAAP).
The preparation of these 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 accounts receivable, net
investment in leases, inventories, property, plant and equipment, film assets, investments, other
assets, intangible assets, income taxes, contingencies and litigation. Management bases its
estimates on historical experience, future expectations and other assumptions that are believed to
be reasonable at the date of the condensed 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 the differences may be material. The Companys
significant accounting policies are discussed in note 2 to its audited consolidated financial
statements in the Companys Amended Annual Report on Form 10-K/A for the year ended December 31,
2006 (the 2006 Form 10-K/A), and are summarized below.
Restatement of Previously Issued Financial Statements
In October 2007, the Company announced that, after a review of its real estate leases, it had
identified certain errors related to its accounting practices as they relate to such leases for
certain of the Companys owned and operated theaters and office facilities. The Company conducted
this review after performing an analysis of a rent-abatement agreement initiated in connection with
the higher level of Finance Department oversight and awareness contemplated by Companys ongoing
remediation plan (see Item 4). The review focused on the Companys historical accounting practice
for recording the impact of rent holidays, abatements, escalation clauses and landlord construction
allowances. The Company also reviewed its accounting for theater sponsorship revenue at its owned
and operated theaters. As a result of the review, the Company concluded that certain of its prior
practices were not in accordance with U.S. GAAP. In addition, the Company identified an error
relating to revenue recognition, resulting from the Companys review of one theater system
arrangement which occurred in 2002, in response to comments received from the Staff of the Division
of Corporate Finance of the Securities and Exchange Commission (the SEC). As a result of these
errors, the Company has restated its condensed consolidated financial statements for the three and
six months ended June 30, 2007 and 2006.
Page 47
IMAX CORPORATION
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(contd)
OVERVIEW (contd)
Restatement of Previously Issued Financial Statements (contd)
In 2006,
the Company had identified certain errors related to: (a) revenue recognition resulting
from the Companys review of its theater system arrangements over the past 5 year period ended
December 31, 2006 in response to comments received from the staff of both the United States
Securities and Exchange Commission (SEC) and the Ontario Securities Commission (OSC) which
indicated insufficient analysis of various sales and lease transactions and the accounting effect
of certain contractual provisions within them; and misallocations of consideration to elements
within certain multiple element arrangements; (b) capitalization of costs into inventory and films
assets and amortization of film assets in accordance with Statement of Position 00-2, Accounting
by Producers or Distributors of Films (SOP 00-2 ); (c) income tax liabilities resulting from
failure to make certain tax elections on a timely basis and (d) certain other items in note 3 of
the condensed consolidated financial statements (referred to as the First Restatement). In
addition, in the preparation of the consolidated financial statements for the year ended December
31, 2006, the Company recorded other adjustments related to prior periods unadjusted differences
that had been deemed not to be material and adjustments related to prior periods recorded through
2006 opening shareholders deficit. The condensed consolidated financial statements for the three
and six months ended June 30, 2006 have been restated to reflect these error corrections under U.S.
GAAP.
See note 3 to the condensed consolidated financial statements for additional details.
Critical Accounting Policies
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; estimates of fair values for film
assets, long-lived assets and goodwill; depreciable lives of property, plant and equipment; useful
lives of intangible assets; pension plan assumptions; accruals for contingencies including tax
contingencies; valuation allowances for deferred income tax assets; and, estimates of the fair
value 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 condensed
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 the differences may be material. The Companys significant accounting policies are
discussed in note 2 to the audited consolidated financial statements included in the Companys 2006
Form 10-K/A.
The Company considers the following critical accounting policies to have the most significant
effect on its estimates, assumptions and judgments:
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 40
countries as of June 30, 2007; |
|
|
|
|
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. |
Page 48
IMAX CORPORATION
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(contd)
OVERVIEW (contd)
Critical Accounting Policies (contd)
Revenue Recognition (contd)
Multiple Element Arrangements
The Companys revenue arrangements with certain customers may involve multiple elements consisting
of a theater system (projector, sound system, and screen system and, if applicable, a 3D glasses
cleaning machine); services associated with the theater system including theater design support,
supervision of installation, and projectionist training; a license to use of 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 guidance in Statement of Financial Accounting Standards No. 13, Accounting
for Leases (SFAS 13); Financial Accounting Standard Board (FASB) Technical Bulletin No. 90-1,
Accounting for Separately Priced Extended Warranty and Product Maintenance Contracts (FTB
90-1); American Institute of Certified Public Accountants Statement of Position 00-2, Accounting
by Producers or Distributors of Films; and Emerging Issues Task Force (EITF) Issue No. 00-21,
Revenue Arrangements with Multiple Deliverables (EITF 00-21). If separate units of accounting
are either required under the relevant accounting standards or determined to be applicable under
EITF 00-21, 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, and sound system, and screen system and, if
applicable, the 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 arrangements 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. The consideration in the Companys arrangements consist 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 provide for a fee which is the greater of a fixed amount or a certain percentage
of the theater box-office. The amounts over the 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.
Sales Arrangements
For sales arrangements, the revenue allocated to the System Deliverable is recognized in accordance
with the SEC Staff Accounting Bulletin No. 104, Revenue Recognition (SAB 104), 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 fees in excess of the fixed minimum ongoing payments are recognized
when reported by theater operators, provided collection 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 the persuasive evidence of an arrangement exists, the fees are determinable and
collectibility is reasonably assured.
Page 49
IMAX CORPORATION
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(contd)
OVERVIEW (contd)
Critical Accounting Policies (contd)
Revenue Recognition (contd)
Lease Arrangements
The Company uses the guidance in EITF Issue No. 01-8, Determining Whether an Arrangement Contains
a Lease (EITF 01-8), to evaluate whether an arrangement is a lease within the scope of SFAS 13.
Arrangements not within the scope of SFAS 13 are accounted for either as a sales or services
arrangement, as applicable.
For lease arrangements, the Company determines the classification of the lease in accordance with
SFAS 13. 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 by
SFAS 13; 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, (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 rents received and the
present value of future initial rents and fixed minimum ongoing rents computed at the interest rate
implicit in the lease. Contingent rents in excess of the fixed minimum rents are recognized when
reported by theater operators, provided collection is reasonably assured.
For operating leases, initial rents and fixed minimum ongoing rents 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 fees in excess of fixed minimum ongoing fees are
recognized as revenue when reported by theater operators, provided that collection is reasonably
assured.
Joint Revenue Sharing Arrangements
For joint revenue sharing arrangements, where the Company receives a portion of the a theaters
box-office and concession revenue in exchange for placing a theater system at the theater
operators venue, revenue is recognized when reported by the theater operator, provided that
collection is reasonably assured. Revenue recognized related to these arrangements for the three
and six months ended June 30, 2007 included in rental revenues was $0.6 million and $1.0 million,
respectively (2006 $0.2 million and $0.3 million).
The Company believes that its joint revenue sharing arrangements represent an effective way for it
to deploy capital, add incremental theater growth and realize the benefits of network economics
more quickly. The Company believes that by contributing the theater system, with the exhibitor
responsible for the theater retrofit costs, it significantly lowers the capital cost for exhibitors
to deploy an IMAX theater, which, in turn, expands the IMAX network more rapidly and provides the
Company with an increasingly significant portion of the IMAX box office from its licensed theaters,
as well as a continuing portion of the IMAX DMR film revenue from the film studio.
Page 50
IMAX CORPORATION
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(contd)
OVERVIEW (contd)
Critical Accounting Policies (contd)
Revenue Recognition (contd)
Terminations and Consensual Buyouts
The Company enters into theater system arrangements with customers that contain 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 which are recorded in Other revenues.
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, since the introduction of IMAX MPX theater system components in 2003, the Company has
agreed with several customers to convert their obligations for other theater system configurations
that have not yet been installed to arrangements to acquire or lease the IMAX MPX theater system.
The Company considers these situations to be a termination of the previous arrangement and
origination of a new arrangement for the IMAX MPX theater system. The Company continues to defer an
amount of any initial fees received from the customer such that 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 MPX 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 IMAX MPX theater system arrangement is signed.
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.
The payment concessions do not affect the classification of leases. 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 SFAS 13 or Accounting
Principle Board Opinion No. 21, Interest on Receivables and Payables (APB 21). Free or
discounted products and services are accounted for as separate units of accounting.
Maintenance and Extended Warranty Services
Maintenance and extended warranty services may be provided under a multiple element arrangement or
as a separately priced contract. Revenue related to these services are deferred and recognized on a
straight-line basis over the contract period. Maintenance and extended warranty services includes
maintenance of the customers equipment and spare replacement parts. Under certain maintenance
arrangements, maintenance services may include the provision of training services to the customers
technicians. All costs associated with this maintenance 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 a fixed fee or retains 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 of revenue.
The production fees are deferred and recognized as a rebate of 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.
Page 51
IMAX CORPORATION
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(contd)
OVERVIEW (contd)
Critical Accounting Policies (contd)
Revenue Recognition (contd)
Film Production and IMAX DMR Services (contd)
Revenue from film production services where the Company does not hold the associated distribution
rights are recognized when performance of the contractual service is complete, provided there is
persuasive evidence of an agreement, the fee is fixed or determinable and collection is reasonably
assured.
Revenues from digitally re-mastering (IMAX DMR) film 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 revenues 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 collection is reasonably assured. Recoupments calculated as a percentage of
box-office receipts are recognized as revenue when reported by the third party that owns or holds
the related film right, provided that collection is reasonably assured.
Losses on film production and IMAX DMR services are recognized 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 when a licensing arrangement exists, the film has
been completed and delivered, the license period has begun, the fee is fixed and determinable and
collection is reasonably assured. When license fees are based on a percentage of box-office
receipts, revenue is recognized when reported by exhibitor, provided that collection is reasonably
assured.
Film Post-Production Services
Revenues from post-production film services are recognized when performance of the contracted
services is complete.
Theater Operations Revenue
The Company recognizes 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 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 over the rental period.
Revenue from the sale of 3D glasses is recognized when the 3D glasses have been delivered to the
customer.
Other service revenues are recognized 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.
Page 52
IMAX CORPORATION
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(contd)
OVERVIEW (contd)
Critical Accounting Policies (contd)
Revenue Recognition (contd)
Allowances for Accounts Receivable and Financing Receivables (contd)
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 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 valuation allowance 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 for a lease 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 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.
Inventory
In establishing the appropriate provisions for theater system and parts inventory, the Company
makes estimates of future events and conditions, including the anticipated installation dates for
the current backlog of theater system contracts, potential future signings, technology factors,
growth prospects within the customers ultimate marketplace and the market acceptance of the
Companys current and pending theater system configurations and film library. If the Companys
estimates of these events and conditions prove to be incorrect, it could result in inventory losses
in excess of the provisions determined to be adequate as at the balance sheet date.
The Company has, on occasion, reclaimed theater systems from customers who have not fulfilled their
contractual obligations. The valuation of returned theater systems is an area where significant
estimates are made by the Company. The Company considers the configuration of theater systems
returned and its current and anticipated future backlog in determining the fair value of the
returned theater systems. Returned systems from lease arrangements are valued in inventory at the
lower of original cost, carrying value or fair value. Returned systems from sales arrangements are
valued in inventory at the lower of carrying cost and fair value.
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 rationale 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. 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.
Long-lived asset impairment is performed at the lowest identifiable level of cash flows. For a
significant portion of long-lived assets, this is the reporting segment unit level used for
goodwill testing.
Page 53
IMAX CORPORATION
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(contd)
OVERVIEW (contd)
Critical Accounting Policies (contd)
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 SFAS No. 87, Employers Accounting for Pensions
and SFAS No. 106, Employers Accounting for Postretirement Benefits Other Than Pension. 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, mortality, 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 value of benefit
obligations and increases pension expense. The Companys discount rate was determined by
considering the average of pension yield curves constructed of a large population of high-quality
corporate bonds. The resulting discount rate reflects the matching of plan liability cash flows to
the yield curves.
Deferred Tax Asset Valuation
As at June 30, 2007, 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, 2007, changing business circumstances, and the
ability to realize certain deferred tax assets through loss and tax credit carryback strategies. At
June 30, 2007, the Company has determined that based on the weight of the available evidence,
positive and negative, a full valuation allowance for the net deferred tax assets was required.
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 changes occur.
Tax Exposures
The Company is subject to ongoing tax 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 both favorable and
unfavorable examination results. The Companys ongoing assessments of the outcomes of examinations
and related tax positions require judgment and can materially increase or decrease its effective
rate as well as impact operating results. The Company compiles these assessments using the guidance
of FIN 48, as discussed below.
Impact of Recently Issued Accounting Pronouncements
In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes
(an interpretation of FASB Statement No. 109), (FIN 48), which clarifies the relevant criteria
and approach for the recognition, de-recognition and measurement of uncertain tax positions. FIN 48
was effective for the Company beginning January 1, 2007. The Company has assessed the effects of
the provisions of FIN 48. The cumulative effect of the change in accounting principle recorded as
of January 1, 2007 was $2.1 million.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value
Measurements, which is effective for fiscal years beginning after November 15, 2007 and for
interim periods within those years. This statement defines fair value, establishes a framework for
measuring fair value and expands the related disclosure requirements. The Company is currently
evaluating the potential impact of this statement.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB
Statements No. 115 (SFAS 159). SFAS 159 allows the irrevocable election of fair value as the
initial and subsequent measurement attribute for certain financial assets and liabilities and other
items on an instrument-by-instrument basis. Changes in fair value would be reflected in earnings as
they occur. The objective of SFAS 159 is to improve financial reporting by providing entities with
the opportunity to mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 is
effective as of the beginning of the first fiscal year beginning after November 15, 2007. The
Company is currently evaluating if it will elect the fair value option for any of its eligible
financial instruments and other items.
Page 54
IMAX CORPORATION
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(contd)
RESULTS OF OPERATIONS
As identified in note 15 to the condensed consolidated financial statements, the Company has six
reportable segments identified by category of product sold or service provided: IMAX systems; film
production and IMAX DMR; film distribution; film post-production; theater operations; and other.
The IMAX systems segment designs, manufactures, sells or leases and maintains IMAX theater
projection system equipment. 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 2006 Form 10-K/A.
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 caption combines results from several segments.
Three Months Ended June 30, 2007 Versus Three Months Ended June 30, 2006
The Company reported a net loss from continuing operations before income taxes of $4.3 million or
$0.11 per share on a diluted basis and a net loss from continuing operations after taxes of $4.5
million or $0.11 per share on a diluted basis for the second quarter of 2007. For the second
quarter of 2006, the Company reported net earnings from continuing operations before income taxes
of $1.7 million or $0.04 per share on a diluted basis and net earnings from continuing operations
after taxes of $1.7 million or $0.04 per share on diluted basis.
Revenue
The Companys revenues for the second quarter of 2007 decreased by 27.9% to $27.5 million from
$38.1 million in the same period last year.
The following table sets forth the breakdown of revenue by category:
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
|
2007 |
|
|
2006 |
|
(In thousands of U.S. dollars) |
|
As restated |
|
|
As restated |
|
IMAX Systems Revenue |
|
|
|
|
|
|
|
|
Sales and sales-type leases(1) |
|
$ |
7,257 |
|
|
$ |
14,172 |
|
Ongoing rent(2) |
|
|
2,930 |
|
|
|
3,037 |
|
Maintenance |
|
|
3,797 |
|
|
|
3,913 |
|
|
|
|
|
|
|
|
|
|
|
13,984 |
|
|
|
21,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Films Revenue |
|
|
|
|
|
|
|
|
Production and IMAX DMR |
|
|
3,801 |
|
|
|
4,063 |
|
Distribution |
|
|
2,692 |
|
|
|
4,639 |
|
Post-production |
|
|
1,472 |
|
|
|
3,042 |
|
|
|
|
|
|
|
|
|
|
|
7,965 |
|
|
|
11,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theater Operations |
|
|
4,579 |
|
|
|
4,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Revenue |
|
|
986 |
|
|
|
1,225 |
|
|
|
|
|
|
|
|
|
|
$ |
27,514 |
|
|
$ |
38,162 |
|
|
|
|
|
|
|
|
|
|
|
(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, revenues from joint revenue sharing
arrangements, contingent rents from sales-type leases, contingent fees from sales
arrangements and finance income. |
Page 55
IMAX CORPORATION
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(contd)
RESULTS OF OPERATIONS (contd)
Three Months Ended June 30, 2007 Versus Three Months Ended June 30, 2006 (contd)
Revenue (contd)
IMAX systems revenue decreased to $14.0 million in the second quarter of 2007 from $21.1 million in
the second quarter of 2006, a decrease of 33.8%. Revenue from sales and sales-type leases decreased
to $7.3 million in the second quarter of 2007 from $14.2 million in the second quarter of 2006, a
decrease of 48.8%, mainly due to a lower number of theater system recognitions in 2007 versus 2006
(4 in 2007 versus 9 in 2006), partially offset by $1.5 million in settlement revenues from
termination of agreements recognized during of the second quarter of 2007 versus $nil in 2006.
The Company recognized revenue on four theater systems which qualified as either sales or
sales-type leases in the second quarter of 2007 versus nine in the second quarter of 2006. There
were two new theater systems with a value of $3.6 million recognized into revenue in the second
quarter of 2007 compared to six new theater systems with a total value of $9.2 million recognized
in the second quarter of 2006. Two of the theater systems recognized in 2007 were used theater
systems versus three used theater systems in the second quarter of 2006. The aggregate sales value
of the used systems in 2007 totaled $2.4 million compared to $3.2 million for the used systems in
the second quarter of 2006.
Average revenue per sales and sales-type lease systems increased slightly to $1.5 million from $1.4
million for the three months ended June 30, 2007 compared to the same period of 2006.
The table below illustrates the mix of theater systems recognized in the second quarter of 2007
compared to the same period in 2006.
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
June 30, |
|
|
2007 |
|
2006 |
|
|
|
|
|
|
As restated |
Sales and Sales-type lease systems recognized |
|
|
|
|
IMAX 3D GT |
|
2 |
|
4 |
IMAX 3D SR |
|
1 |
|
|
IMAX 3D MPX |
|
1 |
|
5 |
|
|
|
|
|
|
|
4 |
|
9 |
|
|
|
|
|
Ongoing rent revenue decreased slightly to $2.9 million in the second quarter of 2007 from $3.0
million in 2006, a decrease of 3.8% primarily due to the recording of non-recurring finance income
of $0.5 million in the second quarter of 2006. Revenues from joint revenue sharing arrangements,
included in ongoing rent, increased from $0.2 million in the second quarter of 2006 to $0.6 million
in the second quarter of 2007. The Company installed three new joint revenue sharing theaters in
the second quarter of 2007, for a total of eight to date. Maintenance revenue for the quarter was
$3.8 million as compared to $3.9 million in the prior year.
Film segment revenues decreased to $8.0 million in the second quarter of 2007 from $11.7 million in
the second quarter of 2006. Film production and IMAX DMR revenues decreased to $3.8 million in the
second quarter of 2007 from $4.1 million in the second quarter of 2006. The decrease in film
production and IMAX DMR revenues was due primarily to slightly lower IMAX DMR revenues from the
fact that two IMAX DMR films played in the second quarter of 2007 (300: An IMAX Experience,
released in early March 2007 and completed its run in the second quarter of 2007, and Spider-Man 3:
An IMAX Experience, which opened in May 2007), compared to three IMAX DMR films in the second
quarter of 2006 (V for Vendetta: An IMAX Experience, Poseidon: An IMAX Experience and Superman
Returns: An IMAX Experience). Film distribution revenues decreased to $2.7 million in the second
quarter of 2007 from $4.6 million in the second quarter of 2006 due to stronger performances of
Magnificent Desolation and Deep Sea 3D in the second quarter of 2006 compared to 2007. Film
post-production revenues decreased to $1.5 million in the second quarter of 2007 from $3.0 million
in the second quarter of 2006, mainly due to a decrease in third party business at the Companys
post-production unit.
Page 56
IMAX CORPORATION
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(contd)
RESULTS OF OPERATIONS (contd)
Three Months Ended June 30, 2007 Versus Three Months Ended June 30, 2006 (contd)
Revenue (contd)
Theater operations revenue increased to $4.6 million in the second quarter of 2007 from $4.1
million in the second quarter of 2006, due to an increase in average ticket prices of approximately
14%.
Other revenue decreased to $1.0 million in the second quarter of 2007 compared to $1.2 million in
the same period in 2006. Other revenue primarily includes revenue generated from the Companys
camera and rental business and after market sales of projection system parts.
Outlook
Theater system installations slip from period to period in the course of the Companys business,
and the Company has seen a significant number of theater system installations originally
anticipated for the third and fourth quarters of 2006 move to anticipated installations for 2007
and beyond. The Company currently has 17 complete theater systems in its backlog that it
anticipates will be installed in the second half of 2007, however it cautions that slippages remain
a recurring and unpredictable part of its business.
The Company has signed agreements with Sony Pictures and Warner Bros. Pictures (WB) respectively,
for the release of IMAX DMR versions of Spider-Man 3: The IMAX Experience which was released in May
of 2007, 300: The IMAX Experience which was released in March 2007 and Harry Potter and the Order
of the Phoenix: An IMAX 3D Experience which was released in July of 2007. The Company, in
conjunction with Paramount Pictures, Shangri-La Entertainment and Concert Productions
International, has signed an agreement to release the upcoming Rolling Stones concert film Shine a
Light: An IMAX Experience. In November 2007, the Company in conjunction with Paramount Pictures,
Shangri-La Entertainment and WB, will release Beowulf: An IMAX 3D Experience. The Company also has
an agreement with WB to release The Dark Knight: The IMAX Experience, the next installment of WBs
Batman franchise, in July 2008. In conjunction with WB, the Company has also commenced production
on a sequel to Deep Sea 3D, scheduled for release in 2009.
The Company supplements its sale and lease of theater systems by offering clients joint revenue
sharing arrangements, whereby the Company contributes its theater systems, accounted for at its
manufactured cost for manufactured components and at the Companys cost for purchased components.
Under some arrangements, the client contributes its retrofitted auditorium and there is a
negotiated split of box-office revenues and concession revenues. The Company believes that, by
offering such arrangements where exhibitors do not need to pay the initial capital required in a
lease or a sale, the Companys theater network can be expanded more rapidly and provide the Company
with a significant portion of the IMAX box-office receipts from its theaters, as well as greater
revenue from the studios releasing IMAX DMR films, for which the Company typically receives a
percentage of the studios box-office receipts. In addition to the 5 joint revenue sharing
arrangements in operation at the end of the first quarter 2007, the Company installed three
additional joint revenue sharing theaters during the second quarter of 2007.
Page 57
IMAX CORPORATION
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(contd)
RESULTS OF OPERATIONS (contd)
Three Months Ended June 30, 2007 Versus Three Months Ended June 30, 2006 (contd)
Outlook (contd)
The Company believes that digital technology has evolved sufficiently that it can develop an IMAX
digital projection system that delivers high quality imagery consistent with the Companys brand to
deliver to theaters by early 2009. The Company believes that the dramatic print cost savings that
would result from an IMAX digital system could lead to more profitability for the Company by
increasing the number of films released to the IMAX network, which in turn could result in more
theaters in the Companys network, more profits per theater and more profits for studios amortizing
their films over the network. There are a number of risks inherent in the Companys digital
strategy including the risk of exhibitors delaying theater system purchases during the Companys
transition period to digital, and the need to finance the Companys investments necessary for
implementing this strategy. In addition, the Companys theater system contracts are increasingly
including provisions providing for customer upgrades to digital systems, when available. The
accounting impact of such provisions may include the deferral of some or all of the revenue (though
not the cash) associated with such system until the time of such digital upgrade. Such deferral
could result in a significant increase in the Companys deferred revenue accounts and a significant
decrease in the Companys reported profits prior to the delivery of the digital upgrade. The
Companys goal is to create a digital product that provides a differentiated experience to
moviegoers that is consistent with what they have come to expect from the IMAX brand. The Company
believes that transitioning from a film-based platform to a digital platform for a large portion of
its customer base is compelling 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
$22,500 per 2D print to $45,000 per 3D print. Removing those costs will significantly increase the
profit of an IMAX release for a studio 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 as a result of a digital transition, since lower print
costs and the increased programming flexibility that digital delivery provides should allow
theaters to program three to four additional IMAX DMR films per year, thereby increasing both
customer choice and total box-office revenue. Finally, digital transmission allows for the
opportunity to show attractive alternate programming, such as live events like the Super Bowl or
World Cup, in the immersive environment of an IMAX theater.
Gross Margin
The gross margin across all segments in the second quarter of 2007 was $12.2 million, or 44.5% of
total revenue, compared to $15.7 million, or 41.1% of total revenue in the second quarter of 2006.
IMAX theater systems margin, excluding the impact of settlement revenues from termination of
arrangements, was 52.6% in the second quarter of 2007, compared to 52.3% in the second quarter of
2006. Gross margins on sale of new systems were 63.5% in the second quarter of 2007 compared to
55.9% in the prior year quarter due mainly to the product mix sold. Gross margins on the sale of
two used systems, in the second quarter of 2007 were 58.6% compared to 56.7% for the three used
systems recognized in the prior year quarter.
The Companys gross margin from its film segment decreased in the second quarter of 2007 by $0.2
million. Film production and IMAX DMR gross margin increased by $0.3 million due primarily to the
improved margins from the successful releases of 300: An IMAX Experience and Spider-Man 3: An IMAX
Experience versus the films released in the second quarter of 2006. Film distribution margin
decreased by $0.6 million primarily due to higher margins earned on Magnificent Desolation and Deep
Sea 3D in 2006 versus 2007. Film post-production gross margin increased by $0.1 million primarily
due to a change in mix between internal and third party business.
Theater operations margin decreased $0.4 million in the second quarter of 2007 as compared to
second quarter of 2006 primarily due to higher film rentals fees (related to the strong box office
performance of 300: The IMAX Experience and Spider-Man 3: An IMAX Experience) partially offset by
the impact of higher revenues.
Other gross margin increased slightly by $0.1 million in the second quarter of 2007, primarily as a
result of increased activity from the Companys camera and rental business.
Page 58
IMAX CORPORATION
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(contd)
RESULTS OF OPERATIONS (contd)
Three Months Ended June 30, 2007 Versus Three Months Ended June 30, 2006 (contd)
Other
Selling, general and administrative expenses were $11.1 million in the second quarter of 2007,
which included $1.2 million of professional and legal expenses the Company incurred costs to
respond to inquiries made by the SEC and OSC, as compared to $9.6 million in 2006. Compensation
expenses increased by $0.3 million in the second quarter of 2007 over 2006 due to higher salary
costs. There was a decrease in non-cash stock-based compensation including stock options, stock
appreciation rights and restricted shares issued to employees of $0.4 million from 2006. Travel and
entertainment expenses decreased by $0.3 million in the second quarter of 2007 compared to the
second quarter of 2006. The Company recorded a foreign exchange gain of $0.5 million in the second
quarter of 2007, compared to a gain of $0.4 million in the second quarter of 2006. The Company
records foreign exchange translation gains and losses primarily on a portion of its financing
receivable balances which are denominated in Canadian dollars, Euros and Japanese Yen.
Receivable provisions net of recoveries for accounts receivable and financing receivables amounted
to a net recovery of less than $0.1 million in the second quarter of 2007, compared to a net
recovery of $0.3 million in the second quarter of 2006.
Interest income decreased slightly to $0.2 million in the second quarter of 2007 compared to $0.3
million in the prior year quarter.
Interest expense increased slightly to $4.4 million in the second quarter of 2007 compared to $4.2
in the second quarter of 2006. Included in interest expense is the amortization of deferred finance
costs in the amount of $0.3 million and $0.3 million in the second quarter of 2007 and 2006,
respectively, relating to the Companys 9.625% Senior Notes due December 1, 2010 (the Senior
Notes). The Companys policy is to defer and amortize all the costs relating to a debt financing
over the life of the debt instrument.
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 in the Companys valuation
allowance based on the Companys recoverability assessments of deferred tax assets, and favorable
or unfavorable resolution of various tax examinations. As of June 30, 2007, the Company had a gross
deferred income tax asset of $57.3 million, against which the Company is carrying a $57.3 million
valuation allowance.
Research and Development
Research and development expenses amounted to $1.1 million in the second quarter of 2007 compared
to $0.7 million in 2006. The expenses primarily reflect research and development activities
pertaining to a new digitally-based theater projector. Through research and development, the
Company continues to design and develop cinema-based equipment, software and other technologies to
enhance its product offering. The Company believes that the motion picture industry will be
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 has made significant investments in digital technologies, including the
development of proprietary, patent-pending technology related to a digitally-based projector, as
well as 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.
The motion picture industry is in the early stages of transitioning from film projection to digital
projection, and the Company itself is developing a digitally-based projector. In recent years, a
number of companies have introduced digital 3D projection technology and a small number of
Hollywood features have been exhibited in 3D using these technologies. 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 presentations.
Page 59
IMAX CORPORATION
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(contd)
RESULTS OF OPERATIONS (contd)
Six Months Ended June 30, 2007 Versus Six Months Ended June 30, 2006
The Company reported a net loss from continuing operations before income taxes of $8.8 million or
$0.23 per share on a diluted basis and a net loss from continuing operations after taxes of $9.3
million or $0.23 per share on a diluted basis for the six months ended June 30, 2007. For the six
months ended June 30, 2006, the Company reported net loss from continuing operations before income
taxes of $6.0 million or $0.15 per share on a diluted basis and net loss from continuing operations
after taxes of $4.3 million or $0.11 per share on diluted basis.
Revenue
The Companys revenues for the six months ended June 30, 2007 decreased 11.0% to $54.7 million from
$61.5 million in the same period last year.
The following table sets forth the breakdown of revenue by category:
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
|
June 30, |
|
|
|
2007 |
|
|
2006 |
|
(In thousands of U.S. dollars) |
|
As restated |
|
|
As restated |
|
IMAX Systems Revenue |
|
|
|
|
|
|
|
|
Sales and sales-type leases(1) |
|
$ |
13,669 |
|
|
$ |
20,943 |
|
Ongoing rent(2) |
|
|
5,542 |
|
|
|
5,290 |
|
Maintenance |
|
|
7,891 |
|
|
|
7,686 |
|
|
|
|
|
|
|
|
|
|
|
27,102 |
|
|
|
33,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Films Revenue |
|
|
|
|
|
|
|
|
Production and IMAX DMR |
|
|
8,393 |
|
|
|
5,160 |
|
Distribution |
|
|
6,102 |
|
|
|
8,063 |
|
Post-production |
|
|
2,546 |
|
|
|
4,524 |
|
|
|
|
|
|
|
|
|
|
|
17,041 |
|
|
|
17,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theater Operations |
|
|
9,066 |
|
|
|
7,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Revenue |
|
|
1,508 |
|
|
|
2,067 |
|
|
|
|
|
|
|
|
|
|
$ |
54,717 |
|
|
$ |
61,496 |
|
|
|
|
|
|
|
|
|
|
|
(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, revenues from joint revenue sharing
arrangements, contingent rents from sales-type leases, contingent fees from sales
arrangements and finance income. |
IMAX systems revenue decreased to $27.1 million in the six months ended June 30, 2007 from $33.9
million in the six months ended June 30, 2006, a decrease of 20.1%. Revenue from sales and
sales-type leases decreased to $13.7 million in the six months ended June 30, 2007 from $20.9
million in the six months ended June 30, 2006, a decrease of 34.7%, mainly due to a lower number of
theater system recognitions (9 in 2007 versus 14 in 2006) in the period. The Company also
recognized $1.5 million in settlement revenue during the six months ended June 30, 2007 versus $nil
in 2006.
The Company recognized revenue on nine theater systems which qualified as either sales or
sales-type leases in the six months ended June 30, 2007 compared to fourteen in the same period in
2006. There were six new theater systems with a value of $9.6 million recognized into revenue in
the six months ended June 30, 2007 compared to eight new theater systems with a total value of
$13.5 million recognized in the six months ended June 30, 2006. Three of the theater systems
recognized in 2007 were used theater systems versus six used theater systems in the six months
ended June 30, 2006. The aggregate sales value of the used systems in 2007 totaled $2.9 million
compared to $5.7 million for the used systems in the six months ended June 30, 2006.
Page 60
IMAX CORPORATION
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(contd)
RESULTS OF OPERATIONS (contd)
Six Months Ended June 30, 2007 Versus Six Months Ended June 30, 2006 (contd)
Revenue (contd)
Average revenue per sales and sales-type lease systems remained consistent at $1.4 million for the
six month periods ended June 30, 2007 and 2006.
The table below illustrates the mix of theater systems recognized in the six months ended June 30,
2007 compared to the same period in 2006.
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
June 30, |
|
|
2007 |
|
2006 |
|
|
|
|
|
|
As restated |
Sales and Sales-type lease systems recognized |
|
|
|
|
IMAX 2D GT |
|
1 |
|
1 |
IMAX 3D GT |
|
2 |
|
8 |
IMAX 2D SR |
|
1 |
|
|
IMAX 3D SR |
|
1 |
|
|
IMAX 3D MPX |
|
4 |
|
5 |
|
|
|
|
|
|
|
9 |
|
14 |
|
|
|
|
|
Ongoing rent revenue increased to $5.5 million in the six months ended June 30, 2007 from $5.3
million in 2006, an increase of 4.8%. Ongoing rent revenue for the first six months of 2006
included the recording of non-recurring finance income of $0.5 million. Absent this non recurring
increase, ongoing rent revenue increase 17% over the prior year. Revenues from joint revenue
sharing arrangements, included in ongoing rent, increased from $0.3 million in the six months ended
June 30, 2006 to $1.0 million in the six months ended June 30, 2007. The Company installed three
new joint revenue sharing theaters in the second quarter of 2007. Maintenance revenue increased
2.7% to $7.9 million over the prior year due to an increase in the theater network. The Company
expects to see an increase in 2007 compared to 2006 in both ongoing rent and maintenance revenue as
the Companys theater network continues to grow in 2007.
Film segment revenues decreased to $17.0 million in the six months ended June 30, 2007 from $17.7
million in the six months ended June 30, 2006, due primarily to a decrease in film distribution and
post-production revenues, offset by an increase in IMAX DMR revenues. Film production and IMAX DMR
revenues increased to $8.4 million in the six months ended June 30, 2007 from $5.2 million in the
six months ended June 30, 2006. The increase in film production and IMAX DMR revenues was due
primarily to IMAX DMR revenues gross box office performance of Spider-Man 3: An IMAX Experience,
released in 2007, 300: An IMAX Experience, released in March 2007 and the continued success of
Night at the Museum: An IMAX Experience, released in December 2006, Happy Feet: An IMAX Experience,
released November 2006, which together performed better than the 2006 release of Superman Returns:
An IMAX Experience, released in June 2006, Poseidon: An IMAX Experience, released in May 2006, V
for Vendetta: An IMAX Experience, released in March 2006, and the first quarter performance of
Harry Potter and the Goblet of Fire: The IMAX Experience, released in November 2005. Film
distribution revenues decreased to $6.1 million in the six months ended June 30, 2007 from $8.1
million in the six months ended June 30, 2006 due to lower distribution revenues from Magnificent
Desolation and Deep Sea 3D in 2007 compared to 2006. Film post-production revenues decreased to
$2.5 million in the six months ended June 30, 2007 from $4.5 million in the six months ended June
30, 2006, mainly due to a decrease in third party business at the Companys post-production unit.
Theater operations revenue increased to $9.1 million in the six months ended June 30, 2007 from
$7.8 million in the six months ended June 30, 2006, due to an increase in average ticket prices of
approximately 20%.
Other revenue decreased to $1.5 million in the six months ended June 30, 2007 compared to $2.1
million in the same period in 2006. Other revenue primarily includes revenue generated from the
Companys camera and rental business and after market sales of projection system parts.
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IMAX CORPORATION
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(contd)
RESULTS OF OPERATIONS (contd)
Six Months Ended June 30, 2007 Versus Six Months Ended June 30, 2006 (contd)
Gross Margin
The gross margin across all segments in the six months ended June 30, 2007 was $23.7 million, or
43.2% of total revenue, compared to $23.7 million, or 38.5% of total revenue in the six months
ended June 30, 2006. The increase in gross margin for the six months ended June 30, 2007 is largely
driven by the improved performance in the film segment.
IMAX theater systems margin, excluding the impact of settlement revenues from termination of
arrangements, was 55.2% in the six months ended June 30, 2007, compared to 54.3% experienced in the
six months ended June 30, 2006. The increase in gross margin of IMAX theater systems is due to a
different mix of theater systems sold in the six months ended June 30, 2007 compared to the same
period in 2006. Gross margins on sale of new systems was 57.9% in the six months ended June 30,
2007 compared to 52.5% in the prior year. Gross margins on the sale of used systems in the six
months ended June 30, 2007 was 65.7% compared to 68.2% for the used systems recognized in the same
period of 2006.
The Companys gross margin from its film segment increased in the six months ended June 30, 2007 by
$3.2 million. Film production and IMAX DMR gross margin increased by $3.2 million due primarily to
the successful releases of Spider-Man 3: An IMAX Experience and 300: An IMAX Experience and Night
at the Museum: An IMAX Experience as compared to the films released last year. Film distribution
margin increased by $0.2 million primarily due to higher ongoing margins earned on Deep Sea 3D in
2007 over 2006 due to the Companys expensing of associated film exploitation costs in the first
and second quarters of 2006. Film post-production gross margin decreased by $0.2 million to $1.2
million.
Theater operations margin decreased $0.5 million in the six months ended June 30, 2007 as compared
to six months ended June 30, 2006 primarily due to higher film rentals fees (related to the strong
box office performance of 300: The IMAX Experience and Spider-Man 3: An IMAX Experience) partially
offset by the impact of higher revenues.
Other gross margin remained consistent at negative $0.1 million for both the six months ended June
30, 2007 and 2006.
Other
Selling, general and administrative expenses were $21.5 million in the first six months of 2007,
which included $2.0 million of professional and legal expenses the Company incurred to respond to
inquiries made by the SEC and OSC, compared to $20.1 million in 2006. The $0.6 million decrease in
SG&A when subtracting the above-referenced legal fees, includes a decrease in the Companys SERP
pension expense as it amended the SERP on March 8, 2006 to reduce certain benefits, resulted in
savings of $0.4 million in compensation expense for six months ended June 30, 2007 compared to the
same period in 2006. There was also an increase in professional fees of $0.3 million in the six
months ended June 30, 2007 due to increased spending on restatement related activities, which were
partially offset by reduced spending for SFAS 123R implementation and SERP amendment, which were
not repeated in 2007. Compensation expenses decreased by $0.5 million during the six months ended
June 30, 2007 as the Company incurred lower severance costs and employee bonus accruals which
offset higher salary and compensation costs. There was a decrease in non-cash stock-based
compensation for employees of $0.3 million during the six months ended June 30, 2007 compared to
the prior year period. Non-cash stock-based compensation includes stock options, stock appreciation
rights and restricted shares issued to employees. The Company recorded a foreign exchange gain of
$0.6 million in the six months ended June 30, 2007, compared to a gain of $0.4 million in the six
months ended June 30, 2006. The Company records foreign exchange translation gains and losses
primarily on a portion of its financing receivable balances which are denominated in Canadian
dollars, Euros and Japanese Yen.
Receivable provisions net of recoveries for accounts receivable and financing receivables amounted
to a net recovery of less than $0.1 million in the six months ended June 30, 2007, compared to a
net recovery of $0.1 million in the six months ended June 30, 2006.
Interest income remained consistent at $0.5 million for both the six months ended June 30, 2007 and
2006.
Interest expense increased slightly to $8.6 million in the six months ended June 30, 2007 compared
to $8.4 million in the six months ended June 30, 2006. Included in interest expense is the
amortization of deferred finance costs in the amount of $0.6 million and $0.6 million in the six
months ended June 30, 2007 and 2006, respectively, relating to the Senior Notes due 2010. The
Companys policy is to defer and amortize all the costs relating to a debt financing over the life
of the debt instrument.
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IMAX CORPORATION
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(contd)
RESULTS OF OPERATIONS (contd)
Six Months Ended June 30, 2007 Versus Six Months Ended June 30, 2006 (contd)
Research and Development
Research and development expenses amounted to $2.6 million in the six months ended June 30, 2007
compared to $1.6 million in 2006. The expenses primarily reflect research and development
activities pertaining to a new digitally-based theater projector. Through research and development,
the Company continues to design and develop cinema-based equipment, software and other technologies
to enhance its product offering. The Company believes that the motion picture industry will be
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 has made significant investments in digital technologies, including the
development of proprietary, patent-pending technology related to a digitally-based projector, as
well as 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.
The motion picture industry is in the early stages of transitioning from film projection to digital
projection, and the Company itself is developing a digitally-based projector. In recent years, a
number of companies have introduced digital 3D projection technology and a small number of
Hollywood features have been exhibited in 3D using these technologies. 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 presentations.
Discontinued Operations
On December 23, 2003, the Company closed its owned and operated Miami IMAX theater. The Company
completed its abandonment of assets and removal of its projection system from the theater in the
first quarter of 2004, with no financial impact. The Company was involved in an arbitration
proceeding with the landlord of the theater with respect to the amount owing to the landlord by the
Company for lease and guarantee obligations. The amount of loss to the Company had been estimated
as between $0.9 million and $2.3 million. Prior to 2006, the Company paid out $0.8 million with
respect to amounts owing to the landlord. The Company paid out an additional $0.1 million and also
accrued $0.8 million in net loss from discontinued operations related to Miami IMAX Theater in
2006. On January 4, 2007, as a result of a settlement negotiated between both parties, the Company
paid out a final $0.8 million, extinguishing its obligations to the landlord.
On December 29, 2005, the Company and a previously wholly-owned subsidiary, Digital Projection
International, entered into an agreement to settle its loan agreements in exchange for a payment of
$3.5 million. During the six months ended June 30, 2006, the Company recognized $2.3 million in
income from discontinued operations as a result of this settlement.
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IMAX CORPORATION
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(contd)
LIQUIDITY AND CAPITAL RESOURCES
Credit Facility
Under the
indenture dated as of December 4, 2003, and as thereafter
amended and supplemented, governing the Companys Senior Notes (the Indenture), the Company is
permitted to incur indebtedness pursuant to a credit agreement, or the refinancing or replacement
of a credit facility, provided that the aggregate principal amount of indebtedness thereunder
outstanding at any time does not exceed the greater of a) $30,000,000 minus the amount of any such
indebtedness retired with the proceeds of an Asset Sale and (b) 15% of Total Assets, as defined in
the Indenture, of the Company. The Indenture also permits the Company to incur indebtedness solely
in respect of performances, surety or appeal bonds, letters of credit and letters of guarantee as
required in the ordinary course of business in accordance with customary industry practices. On
February 6, 2004, the Company entered into a Loan Agreement for a secured revolving credit facility
as amended on June 30, 2005 and as further amended by the Second Amendment to the Loan Agreement
which was entered into with effect from May 16, 2006 (the Credit Facility). The Credit Facility
is a revolving credit facility expiring on October 31, 2009 with an optional one year renewal
thereafter contingent upon approval by the lender, permitting maximum aggregate borrowings equal to
the lesser of (i) $40.0 million, (ii) a collateral calculation based on percentages of the book
values for the Companys net investment in sales-type leases, financing receivables, finished goods
inventory allocated to backlog contracts and the appraised values of the expected future cash flows
related to operating leases and of the Companys owned real property, reduced by certain accruals
and accounts payable and (iii) a minimum level of trailing cash collections in the preceding
twenty-six week period ($55.3 million as of June 30, 2007), and is subject to certain limitations
under the Companys Senior Notes and is reduced for outstanding letters of credit. As at June 30,
2007, the Companys current borrowing capacity under such
calculation is $25.5 million after
deduction for outstanding letters of credit of $11.4 million. The Credit Facility bears interest at
the applicable prime rate per annum or LIBOR plus a margin as specified therein per annum and is
collateralized by a first priority security interest in all of the current and future assets of the
Company. The Credit Facility contains typical affirmative and negative covenants, including
covenants that restrict the Companys ability 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. In addition, the Credit Facility agreement contains customary events of
default, including upon an acquisition or a change of control that may have a material adverse
effect on the Company or a guarantor. The Credit Facility also requires the Company to maintain,
over a period of time, a minimum level of adjusted earnings before interest, taxes, depreciation
and amortization including film asset amortization, stock and other non-cash compensation, write downs
(recoveries), and asset impairment charges, and other non-cash uses of funds on a trailing four
quarter basis calculated quarterly, of not less than $20.0 million. In the event that the Companys
available borrowing base falls below the amount borrowed against the Credit Facility, the excess
above the available borrowing base becomes due upon demand by the lender. If the Credit Facility
were to be terminated by either the Company or the lender, the Company would have the ability to
pursue another source of financing pursuant to the terms of the Indenture.
The Company was in compliance with its adjusted EBITDA covenant as of June 30, 2007.
In March 2007, the Company delayed the filing of its Annual Report on Form 10-K for the year ended
December 31, 2006 beyond the filing deadline in order to restate financial statements for certain
periods during fiscal years 2002 2006. On March 27, 2007, the Credit Facility lender waived the
requirement for the Company to deliver audited consolidated financial statements within 120 days of
the end of the fiscal year ended December 31, 2006, provided such statements and documents are
delivered on or before June 30, 2007. On June 27, 2007, the Credit Facility lender agreed that an
event of default would not deemed to have occurred unless the Companys 2006 Annual Report on Form
10-K filing did not occur by July 31, 2007 or upon the occurrence and continuance of an event of
default under the Companys Indenture dated as of December 4, 2003, and as thereafter amended and
supplemented, governing its Senior Notes, which goes uncured within the
applicable grace period. The Company cured such default under the Indenture by filing its 2006
Form 10-K and first quarter 2007 Form 10-Q on July 20, 2007.
Cash and Cash Equivalents
As at June 30, 2007, the Companys principal sources of liquidity included cash and cash
equivalents of $16.3 million, short-term investments of $2.2 million, the Credit Facility, trade
accounts receivable of $26.4 million and anticipated collection from financing receivables due in
the next 12 months of $12.1 million. As at June 30, 2007, the Company has not drawn down on the
Credit Facility, and has letters of credit for $11.4 million secured by the Credit Facility
arrangement.
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IMAX CORPORATION
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(contd)
LIQUIDITY AND CAPITAL RESOURCES (contd)
Cash and Cash Equivalents (contd)
The Company believes that 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 joint revenue sharing arrangements and to fund the
development of its digitally-based projection system. The Company similarly believes it will be
able to continue to meet customer commitments for at least the 12 month period commencing July 1,
2007. However, the Companys operating cash flow will be adversely impacted if managements
projections of future signings and installations 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 2006 Form 10-K/A), there is no guarantee the
Company will continue to be able to fund its operations through cash flows from operations. Under
the terms of the Companys typical theater system component 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.
The Companys net cash provided by (used in) operating activities is impacted by a number of
factors, including the proceeds associated with new signings of theater system component lease and
sale agreements in the year, costs associated with contributing systems under joint box-office
sharing arrangements, the box-office performance of large-format 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 used in operating activities amounted to $6.0 million for the six months ended June 30, 2007.
Changes in other non-cash operating assets as compared to December 31, 2006 include a $0.6 million
increase in commissions and other deferred selling expenses, an increase of $2.3 million in
inventories, a decrease of $3.7 million in financing receivables, a $0.3 million increase in
accounts receivable and a $0.4 million decrease in prepaid expenses, which mostly relates to
prepaid film print costs that will be expensed over the period to be benefited. Changes in other
non-cash operating liabilities as compared to December 31, 2006 include an increase in deferred
revenue of $4.4 million, a decrease in accounts payable of $3.0 million and a decrease of $0.1
million in accrued liabilities. Included in accrued liabilities for the six months ended June 30,
2007 were $27.7 million in respect of accrued pension obligations which are mostly long-term in
nature. In addition, $0.8 million was paid in the six months ended June 30, 2007 to extinguished
the Companys lease obligation under discontinued operations. Investments in film assets were $5.6
million at June 30, 2007.
Net cash used in investing activities amounted to $1.4 million in the six months ended June 30,
2007, which includes purchases of short-term investments of $4.3 million, proceeds from maturities
of short-term investments of $4.3 million, purchases of $0.7 million in fixed assets, an increase
in other assets of $0.4 million and an increase in other intangible assets of $0.3 million.
Cash used in financing activities in the six months ended June 30, 2007 amounted to $1.4 million
due mainly to financing costs related to Senior Notes due 2010.
Capital expenditures, including the purchase of fixed assets and investments in film assets were
$6.3 million for the six months ended June 30, 2007.
Cash used in operating activities amounted to $4.9 million for the six months ended June 30, 2006.
Changes in other non-cash operating assets and liabilities include a decrease in accounts payable
of $0.4 million, an increase in accrued liabilities of $0.7 million, an increase in deferred
revenue of $3.3 million, an increase of $0.9 million in inventories and an increase in trade
accounts receivable and financing receivables of $4.3 million. Cash provided by investing
activities for the six months ended June 30, 2006 amounted to $1.9 million, primarily consisting of
$10.3 million invested in short-term investments, $10.3 million received from proceeds of
short-term investments and $3.5 million from settlement of a note receivable from discontinued
operations. Cash provided by financing activities amounted to $0.3 million due to the issuance of
common shares through the exercise of stock options. Capital expenditures including the purchase of
fixed assets net of sales proceeds and investments in film assets were $5.8 million for the six
months ended June 30, 2006.
Letters of Credit and Other Commitments
As at June 30, 2007, the Company has letters of credit of $11.5 million outstanding, of which the
entire balance has been secured under the Credit Facility. In addition, the Company has performance
guarantees outstanding of $0.6 million that have been guaranteed through Export Development Canada.
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IMAX CORPORATION
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(contd)
LIQUIDITY AND CAPITAL RESOURCES (contd)
Senior Notes due 2010
As at June 30, 2007, the Company had outstanding $159.0 million aggregate principal of Registered
Senior Notes and $1.0 million aggregate principal of Unregistered Senior Notes. The Registered
Senior Notes and the Unregistered Senior Notes are referred to herein as the Senior Notes.
The terms of the Companys Senior Notes impose 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; create
certain dividend 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.
The Company believes these restrictions will not have a material impact on its financial condition
or results of operations.
In addition, the terms of the Companys Senior Notes require that annual and quarterly financial
statements are filed with the Trustee within 15 days of the required public company filing
deadlines. If these financial reporting covenants are breached then this is considered an event of
default under the terms of the Senior Notes and the Company has 30 days to cure this default, after
which the Senior Notes become due and payable.
In March 2007, the Company delayed the filing of its Annual Report on Form 10-K for the year ended
December 31, 2006 beyond the required public company filing deadline due to the discovery of
certain accounting errors, broadened its accounting review to include certain other accounting
matters based on comments received by the Company from the SEC and OSC, and ultimately restated
financial statements for certain periods during those years. The filing delay resulted in the
Company being in default of a financial reporting covenant under the Indenture, governing the
Companys Senior Notes.
On April 16, 2007 the Company completed a consent solicitation, receiving consents from holders of
approximately 60% aggregate principal amount of the Senior Notes (the Consenting Holders) to
execute a ninth supplemental indenture (the Supplemental Indenture) to the Indenture with the
Guarantors named therein and U.S. Bank National Association. The Supplemental Indenture waived any
defaults existing at such time arising from a failure by the Company to comply with the reporting
covenant and extended until May 31, 2007, or at the Companys election until June 30, 2007 (the
Covenant Reversion Date), the date by which the Companys failure to comply with the reporting
covenant shall constitute a default, or be the basis for an event of default under the Indenture.
The Company paid consent fees of $1.0 million to the Consenting Holders. On May 30, 2007, the
Company provided notice to the holders of the Senior Notes of its election to extend the Covenant
Reversion Date to June 30, 2007. The Company paid additional consent fees of $0.5 million to the
Consenting Holders. Because the Company did not file its Annual Report on Form 10-K for the year
ended December 31, 2006 and its Quarterly Report on Form 10-Q for the quarter ended March 31, 2007
by June 30, 2007, it was in default of the reporting covenant under the Indenture on July 1, 2007,
and received notice of such default on July 2, 2007. The Company cured such default under the
Indenture, by filing its 2006 Annual Report on Form 10-K and the first quarter 2007 Form 10-Q on
July 20, 2007, within the applicable grace period.
Pension and Postretirement Obligations
The Company has a defined benefit pension plan, the SERP, covering its two Co-CEOs. As at June 30,
2007, the Company had an unfunded and accrued projected benefit obligation of approximately $27.7
million (December 31, 2006 $26.1 million) in respect of the SERP. At the time the Company
established the SERP, it also took out life insurance policies on its two Co-CEOs with coverage
amounts of $21.5 million in aggregate. The Company intends to use the proceeds of life insurance
policies taken on its Co-CEOs 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. As at June 30, 2007, the
cash surrender value of the insurance policies is $4.6 million (December 31, 2005 $4.3 million).
In July 2000, the Company agreed to maintain health benefits for its two Co-CEOs upon retirement.
As at June 30, 2007, the Company had an unfunded benefit obligation of $0.4 million (December 31,
2006 $0.4 million).
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IMAX CORPORATION
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(contd)
LIQUIDITY AND CAPITAL RESOURCES (contd)
Pension and Postretirement Obligations (contd)
On March 8, 2006, the Company and the Co-CEOs negotiated an amendment to the SERP covering its two
Co-CEOs effective January 1, 2006 which reduced the related pension expense to the Company. Under
the original terms of the SERP, once benefit payments begin, the benefit is indexed annually to the
cost of living and further provides for 100% continuance for life to the surviving spouse. The
Company, represented by the independent directors (as defined in Rule 4200(a) of the NASDAQ
Marketplace Rules and Section 1.4 of Multilateral Instrument 52-110), retained Mercer Human
Resources Consulting and outside legal counsel to advise them on certain analyses regarding the
SERP. Under the terms of the SERP amendment, the cost of living adjustment and surviving spouse
benefits previously owed to the Co-CEOs are each reduced by 50%, subject to a recoupment of a
percentage of such benefits upon a change of control of the Company, and the net present value of
the reduced benefit payments is accelerated and paid out upon a change of control of the Company.
The benefits were 50% vested as of July 2000, the SERP initiation date. The vesting percentage
increases on a straight-line basis from inception until age 55. The vesting percentage of a member
whose employment terminates other than by voluntary retirement or upon change of control shall be
100%. The actuarial liability was remeasured as of March 8, 2006 to reflect the SERP changes
adopted. Under the original terms of the SERP, benefits were determined as 75% of the members best
average 60 consecutive months of earnings during the 120 months preceding retirement. On May 4,
2007, the Company amended the SERP to provide for the determination of benefits to be 75% of the
members best average 60 consecutive months of earnings over the members employment history. The
actuarial liability was remeasured to reflect this amendment. The amendment resulted in a $1.0
million increase to the pension liability and a corresponding $1.0 million change to other
comprehensive income. As of June 30, 2007, one of the Co-CEOs benefits was 100% vested and the
other Co-CEOs benefits were approximately 84% vested.
A Co-CEO whose employment terminates other than for cause prior to August 1, 2010 will 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 the Co-CEO shall receive remaining benefits in the form of a lump sum
payment. A Co-CEO whose employment terminates other than for cause on or after August 1, 2010 shall
receive SERP 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.
Item 3. Quantitative and Qualitative Factors about Market Risk
The Company is exposed to market risk from changes in foreign currency rates. The Company does not
use financial instruments for trading or other speculative purposes.
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 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
plans to convert Japanese yen and Euros lease cash flows to U.S. dollars through the spot markets
on a go-forward basis.
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IMAX CORPORATION
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 Co-CEOs and Chief
Financial Officer (CFO), to allow timely discussions regarding required disclosures. 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 Co-CEOs and its CFO, have 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 of June 30, 2007. Based on that evaluation,
the Co-CEOs and the CFO have concluded that the Companys disclosure controls and procedures were
not effective as at June 30, 2007. In making this evaluation, management considered, among other
matters: the identification of certain material weaknesses in the Companys internal control over
financial reporting, as discussed in the Companys 2006 Form 10-K (and as described below); and the
conclusion of the Co-CEOs and the CFO that the Companys disclosure controls and procedures as at
December 31, 2006 and March 31, 2007 were not effective, as discussed in the Companys 2006 Form
10-K and first quarter 2007 Form 10-Q, respectively.
MATERIAL WEAKNESSES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial
reporting for the Company.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a control deficiency, or combination of control deficiencies, that results
in more than a remote likelihood that a material misstatement of the annual or interim consolidated
financial statements will not be prevented or detected.
As previously disclosed in Item 9A of the Companys 2006 Annual Report on Form 10-K, the Companys
Co-CEOs and CFO assessed the effectiveness of the Companys internal control over financial
reporting, and concluded that the following material weaknesses in internal control over financial
reporting existed as at December 31, 2006, all of which had not yet been remediated as at June 30,
2007:
Application of U.S. GAAP
Six of the Companys material weaknesses relate to controls over the analysis and review of
certain transactions to be able to correctly apply U.S. GAAP to record those transactions. The
financial impact of these material weaknesses on the Companys restated financial results was
principally related to the analysis and review of transactions that were complex or nonstandard.
These material weaknesses are:
|
1. |
|
The Company did not maintain adequate controls, including period-end controls, over the
analysis and review of revenue recognition for sales and lease transactions in accordance with
U.S. GAAP. Specifically, effective controls were not maintained to correctly assess the
identification of deliverables and their aggregation into units of accounting and in certain
cases the point when certain units of accounting were substantially complete to allow for
revenue recognition on a theater system. |
|
|
|
|
In addition, the Company did not have effective controls over other aspects of such transactions
including identifying the fair values of certain future deliverables, identifying certain clauses
in arrangements that impact revenue recognition, accounting for warranty costs, the appropriate
accounting for certain settlement agreements and the recognition of finance income on impaired
receivables. |
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IMAX CORPORATION
Item 4. Controls and Procedures (contd)
MATERIAL WEAKNESSES IN INTERNAL CONTROL OVER FINANCIAL REPORTING (contd)
Application of U.S. GAAP (contd)
|
2. |
|
The Company did not maintain effective controls, including period-end controls, over
accounting for film transactions in accordance with U.S. GAAP. Specifically, effective
controls were not maintained related to the classification and accurate recording of marketing
and advertising costs of co-produced film productions, production fees on co-produced films
and the application of the individual-film forecast computation method to film assets,
participation liabilities and deferred production fees. |
|
|
3. |
|
The Company did not maintain effective controls, including period-end controls, over the
accounting for contract origination costs in accordance with U.S. GAAP. Specifically,
effective controls were not maintained related to the classification of fees paid to a
professional services firm. |
|
|
4. |
|
The Company did not maintain adequate controls over the complete and accurate recording of
postretirement benefits other than pensions in accordance with U.S. GAAP. Specifically,
effective controls were not maintained over the complete identification of all relevant
contractual provisions within its executive employment contracts. |
|
5. |
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The Company did not maintain effective controls over the intraperiod allocation of the
provision for income taxes in accordance with U.S. GAAP. Specifically, effective controls were
not in place such that the tax provisions were appropriately allocated to continuing
operations, discontinued operations, and accumulated other comprehensive income. |
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6. |
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The Company did not maintain adequate controls, including period-end controls, over the
complete and accurate recording of transactions related to real estate lease arrangements for
owned and operated theaters or corporate offices in accordance with U.S. GAAP. Specifically,
effective controls were not maintained over the complete identification of all relevant
contractual provisions including lease inducements, construction allowances, rent holidays,
escalation clauses and lease commencement dates. In addition, adequate controls were not
maintained over the accurate recording of rent abatements received in subsequent periods. |
Cross-departmental Communication
Two of the Companys material weaknesses relate to controls over the lines of communication between
different departments. These material weaknesses are:
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7. |
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The Company did not maintain adequate controls over the lines of communication between
operational departments and the Finance Department related to revenue recognition for sales
and lease transactions. Specifically, effective controls were not maintained to raise on a
timely basis certain issues relating to observations of the installation process, any
remaining installation or operating obligations, and concessions on contractual terms that may
impact the accuracy and timing of revenue recognition. |
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8. |
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The Company did not maintain adequate controls over the timely communication between
departments of information relating to developing issues that may impact the Companys
financial reporting. Specifically, effective controls were not maintained over the status of a
review of cap limits under the Companys Stock Option Plan that affected the recording and
related disclosure of stock-based compensation benefits. |
In addition to the restatements and audit adjustments discussed in the Companys 2006 Form 10-K/A,
each of these control deficiencies above could result in a misstatement of certain account balances
or disclosures that would result in a material misstatement to the annual or interim financial
statements that would not be prevented or detected. Management determined that each of these
control deficiencies set forth above constitutes a material weakness at June 30, 2007.
Page 69
IMAX CORPORATION
Item 4. Controls and Procedures (contd)
REMEDIATION PLAN
The Companys management, including the Co-CEOs and CFO, are committed to remediating its material
weaknesses in internal control over financial reporting by enhancing existing controls and
introducing new controls in all necessary areas. The smooth functioning of the Companys finance
area is of the highest priority for the Companys management. Remediation activities will include
the following specifics:
The Company will strengthen U.S. GAAP awareness throughout all levels of the Finance Department to
help prevent material misstatements. The objective of strengthening U.S. GAAP awareness is to
enable personnel throughout all levels of the Finance Department to recognize complex or atypical
situations in the day-to-day operations which may require further analysis. Management is currently
considering various ways of meeting this objective effectively.
The Company will enhance cross-functional communications to assist in preventing material
misstatements. The objective of enhancing cross-functional communications is to provide an
effective forum through which all relevant information pertaining to transactions could be sought
by, and communicated to, the Finance Department for consideration of accounting implications.
Management is currently considering various ways of meeting this objective most effectively and
efficiently.
The Company has revised its revenue recognition policy in the second quarter of 2007. The Company
will enhance its controls in this area by documenting a detailed analysis for all sales and lease
transactions to help ensure that the timing of revenue recognition is appropriate, and that all
contractual provisions have been sufficiently considered in determining the timing and amounts of
revenues to be recognized. As well, to assist in preventing material misstatements, the Company
will enhance its period-end reviews of sales and lease transactions to specifically consider
whether the accounting for these transactions is in accordance with U.S. GAAP.
The Company will enhance its controls in accounting for film transactions. To assist in preventing
material misstatements, the Company will enhance its review of new film transactions for
complexities that may impact the accounting for the transaction and treatment within the films
ultimate model. As well, to assist in preventing material misstatements, the Company will enhance
its period-end reviews of film accounting to specifically consider whether revenues and costs are
being treated in accordance with SOP 00-2.
The Company will enhance its controls in accounting for costs related to inventory. To assist in
preventing material misstatements, the Company will develop guidelines regarding the nature of
costs that could be capitalized to inventory with appropriate references to U.S. GAAP, which would
be distributed to personnel involved with inventory costs. As well, to assist in preventing
material misstatements, the Company will enhance its period-end reviews of the inventory balances
to specifically consider whether the nature of the costs that comprise inventory balances are in
accordance with U.S. GAAP.
The Company will enhance its controls to capture all postretirement benefits other than pensions
included within executive employment contracts. Management is currently considering various ways of
meeting this objective efficiently and effectively.
The Company will enhance its controls in accounting for intraperiod allocations of income taxes.
Management is currently considering various ways of meeting this objective effectively.
The Company will enhance its controls in reviewing its real estate lease arrangements to determine
the correct accounting treatment. Management is currently considering various ways of meeting this
objective effectively.
The Companys management, including the Co-CEOs and CFO, is committed to implementing its
remediation plan as soon as practicable.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
Except as described above, there were no changes in the Companys internal control over financial
reporting that occurred during the quarter ended June 30, 2007 that have materially affected, or
are reasonably likely to materially affect, the Companys internal control over financial
reporting.
Page 70
IMAX CORPORATION
PART II OTHER INFORMATION
Item 1. Legal Proceedings
(a) |
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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. On June 12, 2006, the U.S. District Court for the Central District of
California, Western Division, entered a stay in the proceedings against In-Three pending the
arbitration of disputes between the Company and 3DMG. Arbitration was initiated by the Company
against 3DMG on May 15, 2006 before the International Centre for Dispute Resolution in New
York, 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. On October 5, 2007, 3DMG amended its counterclaims
and added counterclaims from UNIPAT.ORG relating to fees allegedly owed to UNIPAT.ORG by IMAX.
An evidentiary hearing on liability issues has been set for January 2008 with further
proceedings on damages issues to be scheduled if and when necessary. 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
operations of the Company, although no assurance can be given with respect to the ultimate
outcome of the arbitration. |
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(b) |
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In January 2004, the Company and IMAX Theater Services Ltd., a subsidiary of the Company,
commenced an arbitration seeking damages of approximately $3.7 million 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 $17.8 million in
damages as a result of E-Citis breach of a September 2000 lease agreement. The damages sought
against E-Citi included the original claim sought against EML. An arbitration hearing took
place in November 2005 against E-Citi, which included 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 has now submitted its application to the
arbitration panel for interest and costs and is awaiting the Panels decision on that issue. |
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(c) |
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In June 2004, Robots of Mars, Inc. (Robots) initiated an arbitration proceeding against the
Company in California with the American Arbitration Association pursuant to an arbitration
provision in a 1994 film production agreement between Robots predecessor-in-interest and a
subsidiary of the Company, asserting claims for breach of contract, fraud, breach of fiduciary
duty and intentional interference with contract. Robots is seeking an accounting of the
Companys revenues and an award of all sums alleged to be due to
Robots under the production
agreement, as well as punitive damages. The Company intends to vigorously defend the
arbitration proceeding and believes the amount of the 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 |
Page 71
IMAX CORPORATION
PART II OTHER INFORMATION (contd)
Item 1. Legal Proceedings (contd)
(d) |
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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 & Paradis 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 through July 30, 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 adds PricewaterhouseCoopers LLP, the Companys auditors,
as a defendant. The lawsuit seeks unspecified compensatory damages, costs, and expenses. The
lawsuit is at a very early stage and as a result the Company is not able to estimate a
potential loss exposure. The Company believes the allegations made against it in the amended
complaint are meritless and will vigorously defend the matter, although no assurances can be
given with respect to the outcome of such proceedings. The Companys directors and officers
insurance policy provides for reimbursement for costs and expenses incurred in connection with
this lawsuit as well as potential damages awarded, if any, subject to certain policy limits
and deductibles. The deadline for defendants to respond to the amended complaint is currently
December 3, 2007. |
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(e) |
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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 a very
early 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. 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 for costs and expenses incurred in connection with this lawsuit as
well as potential damages awarded, if any, subject to certain policy limits and deductibles. |
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(f) |
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On September 7, 2007, Catalyst Fund Limited Partnership II, a holder of the Companys Senior Notes
(Catalyst), commenced an application against the Company in the Ontario Superior Court of Justice
for a declaration of oppression pursuant to s. 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 Senior
Notes. The allegations of oppression are substantially the same as allegations Catalyst made in a
May 10, 2007 complaint filed against the Company in the Supreme Court of the State of New York, and
subsequently withdrawn on October 12, 2007, wherein 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. Catalyst has also requested the appointment of an inspector and an order that an
investigation be carried out pursuant to s. 229 of the CBCA. In addition, between March 2007 and
October 2007, Catalyst has sent the Company eight purported notices of default or acceleration
under the Indenture. It is the Companys position that no default or event of default (as those
terms are defined in the Indenture) has occurred or is continuing under the Indenture and,
accordingly, that Catalysts purported acceleration notice is of no force or effect. The Company
is in the process of responding to the Ontario application and a hearing is scheduled to take place
on January 15 and 16, 2008. The litigation is at a preliminary stage and as a result, the Company
is not able to estimate a potential loss exposure. The Company believes this application is
entirely without merit and plans to contest it vigorously and seek costs from Catalyst, although no
assurances can be given with respect to the outcome of the proceedings. |
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(g) |
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On June 19, 2007, the Ontario Superior Court of Justice granted the Companys application to
call its Annual General Meeting between June 30, 2007 and September 30, 2007. |
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(h) |
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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. |
Page 72
IMAX CORPORATION
Item 1A. Risk Factors
There have been no material changes to the factors disclosed in Item 1A. Risk Factors in the
Companys Amended Annual Report on Form 10-K/A for the year ended December 31, 2006.
Item 6. Exhibits
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Exhibit No. |
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Description |
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31.1
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Certification Pursuant to
Section 302 of the Sarbanes Oxley Act of 2002, dated November 5,
2007, by Bradley J. Wechsler. |
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31.2
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Certification Pursuant to
Section 302 of the Sarbanes Oxley Act of 2002, dated November 5,
2007, by Richard L. Gelfond. |
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31.3
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Certification Pursuant to
Section 302 of the Sarbanes Oxley Act of 2002, dated November 5,
2007, by Joseph Sparacio. |
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32.1
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Certification Pursuant to
Section 906 of the Sarbanes Oxley Act of 2002, dated November 5,
2007, by Bradley J. Wechsler. |
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32.2
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Certification Pursuant to
Section 906 of the Sarbanes Oxley Act of 2002, dated November 5,
2007, by Richard L. Gelfond. |
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32.3
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Certification Pursuant to
Section 906 of the Sarbanes Oxley Act of 2002, dated November 5,
2007, by Joseph Sparacio. |
Page 73
IMAX CORPORATION
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.
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IMAX CORPORATION
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Date: November 5, 2007 |
By: |
/s/ Joseph Sparacio
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Joseph Sparacio |
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Chief Financial Officer
(Principal Financial Officer) |
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Date: November 5, 2007 |
By: |
/s/ Jeffrey Vance
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Jeffrey Vance |
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Co-Controller
(Principal Accounting Officer) |
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Date: November 5, 2007 |
By: |
/s/ Vigna Vivekanand
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Vigna Vivekanand |
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Co-Controller
(Principal Accounting Officer) |
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Page 74