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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2004
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OR
[ ] 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)
Canada 98-0140269
------------------------------------ ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2525 Speakman Drive, Mississauga, Ontario, Canada L5K 1B1
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(Address of principal executive offices) (Postal Code)
Registrant's telephone number, including area code (905) 403-6500
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N/A
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(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 [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date:
Class Outstanding as of July 31, 2004
----------------------------- -------------------------------
Common stock, no par value 39,315,491
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IMAX CORPORATION
TABLE OF CONTENTS
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements............................................ 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................... 31
Item 3. Quantitative and Qualitative Factors about Market Risk.......... 43
Item 4. Controls and Procedures......................................... 43
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................... 44
Item 2. Change in Securities............................................ 45
Item 4. Submission of Matters to a Vote of Security Holders............. 46
Item 6. Listings of Exhibits and Reports on Form 8-K.................... 46
Signatures............................................................... 47
IMAX Corporation (the "Company") is filing this amendment no.1 on Form 10-Q/A
(the "Form 10-Q/A") to amend and update Item 2 of Part I of its Quarterly Report
on Form 10-Q for the quarter ended June 30, 2004, which was originally filed
with Securities and Exchange Commission (the "SEC") on August 9, 2004 (the "Form
10-Q"). No other information included in the original Form 10-Q is amended
hereby.
The information included in this Form 10-Q/A has not been updated for any
events that have occurred subsequent to the originally filed Form 10-Q on August
9, 2004. For a discussion of events and developments subsequent to June 30,
2004, see the Company's reports filed with the SEC since August 9, 2004.
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 strategies and measures to
implement strategies, competitive strengths, goals, expansion and growth of
business and operations, plans and references to the future success of IMAX
Corporation together with its wholly-owned subsidiaries (the "Company") and
expectations regarding the Company's 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; conditions in the out-of-home
entertainment industry; changes in laws or regulations; conditions in the
commercial exhibition industry; the acceptance of the Company's new
technologies; 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.
Page 2
IMAX CORPORATION
PAGE
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following Condensed Consolidated Financial Statements
are filed as part of this Report:
Condensed Consolidated Balance Sheets as at June 30, 2004
and December 31, 2003............................................ 4
Condensed Consolidated Statements of Operations for the
three and six month periods ended June 30, 2004 and 2003......... 5
Condensed Consolidated Statements of Cash Flows
for the six month periods ended June 30, 2004 and 2003........... 6
Notes to Condensed Consolidated Financial Statements............. 7
Page 3
IMAX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
IN ACCORDANCE WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(in thousands of U.S. dollars)
JUNE 30, DECEMBER 31,
2004 2003
----------- ------------
(UNAUDITED)
ASSETS
Cash and cash equivalents $ 16,951 $ 47,282
Restricted cash (note 7(b)) -- 4,961
Accounts receivable, net of allowance for doubtful
accounts of $7,598 (2003 - $7,278) 16,054 13,887
Financing receivables (note 3) 56,968 56,742
Inventories (note 4) 26,449 28,218
Prepaid expenses 3,997 1,902
Film assets 1,098 1,568
Fixed assets 33,104 35,818
Other assets 13,554 13,827
Deferred income taxes (note 11) 4,623 3,756
Goodwill 39,027 39,027
Other intangible assets 3,260 3,388
--------- ---------
Total assets $ 215,085 $ 250,376
========= =========
LIABILITIES
Accounts payable $ 4,968 $ 5,780
Accrued liabilities (note 7(c)) 49,879 43,794
Deferred revenue 51,223 63,344
New Senior Notes due 2010 (note 5) 160,000 160,000
Old Senior Notes due 2005 (note 6) -- 29,234
--------- ---------
Total liabilities 266,070 302,152
--------- ---------
COMMITMENTS AND CONTINGENCIES (notes 7 and 8)
SHAREHOLDERS' EQUITY (DEFICIT)
Capital stock - no par value. Authorized -
unlimited number. Issued and outstanding - 39,314,991
(2003 - 39,301,758) 115,652 115,609
Other equity 3,251 3,159
Deficit (170,533) (171,189)
Accumulated other comprehensive income 645 645
--------- ---------
Total shareholders' deficit (50,985) (51,776)
--------- ---------
Total liabilities and shareholders' equity (deficit) $ 215,085 $ 250,376
========= =========
(the accompanying notes are an integral part of these condensed
consolidated financial statements)
Page 4
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)
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------- -----------------------
2004 2003 2004 2003
-------- -------- -------- --------
REVENUE
IMAX systems (note 9(a)) $ 20,482 $ 22,143 $ 36,502 $ 44,459
Films 6,600 7,460 11,089 14,294
Theater operations 3,771 3,608 7,513 6,775
Other 895 1,239 1,524 2,571
-------- -------- -------- --------
31,748 34,450 56,628 68,099
COSTS OF GOODS AND SERVICES 17,139 20,164 29,657 37,813
-------- -------- -------- --------
GROSS MARGIN 14,609 14,286 26,971 30,286
Selling, general and administrative expenses
(note 9(b)) 8,620 8,456 16,954 16,600
Research and development 870 1,168 2,015 1,881
Amortization of intangibles 154 152 305 291
Loss (income) from equity-accounted investees -- 14 -- (273)
Receivable provisions, net of (recoveries) (note 10) (69) 75 (967) 689
-------- -------- -------- --------
EARNINGS FROM OPERATIONS 5,034 4,421 8,664 11,098
Interest income 98 145 225 410
Interest expense (4,120) (4,056) (8,189) (8,343)
Loss on retirement of notes (note 6) -- (187) (784) (187)
-------- -------- -------- --------
NET EARNINGS (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 1,012 323 (84) 2,978
Recovery of income taxes (note 11) 340 700 340 563
-------- -------- -------- --------
NET EARNINGS FROM CONTINUING OPERATIONS 1,352 1,023 256 3,541
Net earnings (loss) from discontinued operations
(note 15) 200 (54) 400 (149)
-------- -------- -------- --------
NET EARNINGS $ 1,552 $ 969 $ 656 $ 3,392
======== ======== ======== ========
EARNINGS PER SHARE (note 12): Earnings per share -
basic and diluted:
Net earnings from continuing operations $ 0.03 $ 0.03 $ 0.01 $ 0.10
Net earnings from discontinued operations $ 0.01 $ -- $ 0.01 $ --
-------- -------- -------- --------
Net earnings $ 0.04 $ 0.03 $ 0.02 $ 0.10
======== ======== ======== ========
(the accompanying notes are an integral part of these condensed
consolidated financial statements)
Page 5
IMAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
IN ACCORDANCE WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(in thousands of U.S. dollars)
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
-------------------------
2004 2003
---------- -----------
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net earnings from continuing operations $ 256 $ 3,541
Items not involving cash:
Depreciation and amortization 6,556 5,844
Write-downs (recoveries) (967) 734
Income from equity-accounted investees -- (273)
Deferred income taxes (867) --
Loss on retirement of notes 784 187
Stock and other non-cash compensation 1,377 3,444
Non-cash foreign exchange (gain) loss 324 (629)
Premium on repayment of notes (576) --
Payment under certain employment agreements -- (1,550)
Investment in film assets (1,416) (2,020)
Changes in restricted cash 4,961 (772)
Changes in other non-cash operating assets and
liabilities (9,904) (15,143)
Net cash used in operating activities from
discontinued operations -- (369)
-------- --------
Net cash provided by (used in) operating activities 528 (7,006)
-------- --------
INVESTING ACTIVITIES
Purchase of fixed assets (589) (746)
Increase in other assets (684) (417)
Increase in other intangible assets (176) (291)
Net cash used in investing activities from
discontinued operations -- (21)
-------- --------
Net cash used in investing activities (1,449) (1,475)
-------- --------
FINANCING ACTIVITIES
Repayment of Old Senior Notes due 2005 (29,234) --
Repayment of Subordinated Notes -- (9,143)
Financing costs related to New Senior Notes due 2010 (564) --
Common shares issued 43 621
Net cash provided by financing activities from
discontinued operations 400 399
-------- --------
Net cash used in financing activities (29,355) (8,123)
-------- --------
Effects of exchange rate changes on cash (55) 141
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS FROM
CONTINUING OPERATIONS (30,731) (16,472)
Increase in cash and cash equivalents from
discontinued operations 400 9
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS,
DURING THE PERIOD (30,331) (16,463)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 47,282 33,801
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 16,951 $ 17,338
======== ========
(the accompanying notes are an integral part of these condensed
consolidated financial statements)
Page 6
IMAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(Tabular amounts in thousands of U.S. dollars unless otherwise stated)
(UNAUDITED)
1. BASIS OF PRESENTATION
The Condensed Consolidated Financial Statements include the accounts of
IMAX Corporation together with its wholly-owned subsidiaries (the
"Company"). The nature of the Company's 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. All such adjustments are of a normal
recurring nature, except as discussed in the accompanying notes.
The Company reports its results under United States Generally Accepted
Accounting Principles ("U.S. GAAP"). Significant differences between United
States and Canadian Generally Accepted Accounting Principles are described
in note 19.
These financial statements should be read in conjunction with the Company's
most recent annual report on Form 10-K/A for the year ended December 31,
2003 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 Company's
financial statements for the year ended December 31, 2003, and as described
below, except as described in note 2.
The Company currently follows the intrinsic value method of accounting for
employee stock options as prescribed by APB 25. If the fair value
methodology prescribed by FASB Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("FAS 123") had been
adopted by the Company, pro forma results for the three and six months
ended June 30, would have been as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
2004 2003 2004 2003
--------- --------- --------- ---------
Net earnings as reported $ 1,552 $ 969 $ 656 $ 3,392
Stock based compensation expense, if the
methodology prescribed by FAS 123 had
been adopted (1,768) (2,358) (3,362) (4,581)
--------- --------- --------- ---------
Adjusted net earnings (loss) $ (216) $ (1,389) $ (2,706) $ (1,189)
========= ========= ========= =========
Earnings per share - basic:
Net earnings as reported $ 0.04 $ 0.03 $ 0.02 $ 0.10
FAS 123 stock based compensation expense (0.05) $ (0.07) $ (0.09) $ (0.14)
--------- --------- --------- ---------
Adjusted net earnings (loss) $ (0.01) $ (0.04) $ (0.07) $ (0.04)
========= ========= ========= =========
Earnings per share - diluted:
Net earnings as reported $ 0.04 $ 0.03 $ 0.02 $ 0.10
FAS 123 stock based compensation expense (0.05) $ (0.07) $ (0.09) $ (0.13)
--------- --------- --------- ---------
Adjusted net earnings (loss) $ (0.01) $ (0.04) $ (0.07) $ (0.03)
========= ========= ========= =========
Of the total stock based compensation expense under FAS 123 for the three
and six months ended June 30, 2004, $1,205 and $2,411, respectively relate
to stock grants made in 2000 at an average exercise price of $24.25. In
accordance with FAS 123, this expense represents amortization of stock
option charges that were valued at the grant date using an option-pricing
model with assumptions that were valid at the time with no further update
of current stock trends and assumptions.
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)
1. BASIS OF PRESENTATION (cont'd)
The weighted average fair value of common share options granted to
employees for the three and six months ended June 30, 2004 at the time of
grant was $2.06 and $2.07 per share, respectively (2003 - $2.92 and $2.35
per share). For the three months ended March 31, 2003 and prior, the
Company used the Black-Scholes option-pricing model to determine the fair
value of common share options granted as estimated at the grant date. The
following assumptions were used during the three months ended March 31,
2003: dividend yield of 0% an average risk free interest rate of 2.1%, 20%
forfeiture of options vesting greater than two years; expected life of one
to seven years; and expected volatility of 50%. As of April 1, 2003, the
Company adopted a Binomial option-pricing model to determine the fair value
of common share options at the grant date. For the three and six months
ended June 30, 2004, the following assumptions were used: dividend yield of
0% and 0% (three months ended June 30, 2003 - 0%); an average risk free
interest rate of 4.87% and 4.86% (three months ended June 30, 2003 - 2.7%);
an equity risk premium between 3.82% and 5.53% (three months ended June 30,
2003 - 10.7%); a beta between .95 and 1.03 (three months ended June 30,
2003 - 1.03); expected option life between 2.57 and 5.34 years (three
months ended June 30, 2003 - between 3.6 and 5.1 years); an average
expected volatility of 62% (three months ended June 30, 2003 - 62%); and an
annual termination probability of between 8.06% and 9.62% (three months
ended June 30, 2003 - 8.1%). Had the Company changed from using the
Black-Scholes option pricing model to a Binomial option pricing model
effective January 1, 2003 rather than April 1, 2003, the impact would not
have been significant.
2. ACCOUNTING CHANGES
In January 2003, the FASB issued FIN 46 (revised 2003 by FIN 46R) which
requires a variable interest entity ("VIE") to be consolidated by its
primary beneficiary ("PB"). The PB is the party that absorbs a majority of
the VIE's expected losses and/or receives a majority of the expected
residual returns. The Company has evaluated its various variable interests
to determine whether they are in VIE's.
The Company reviewed its management agreements relating to theaters which
the Company manages, and has no equity interest, and concluded that such
arrangements were not variable interests since the Company's fees are
commensurate with the level of service and the theater owner retains the
right to terminate the service.
The Company has also reviewed its financial arrangements with theaters
where it shares in the profit or losses of the theater. The Company has not
considered these arrangements under FIN 46R as the arrangements meet the
scope exceptions defined in the pronouncement.
The Company has determined that one of its film production companies is a
VIE with total assets of $0.1 million and total liabilities of $0.1 million
as at June 30, 2004. Since the Company absorbs a majority of the VIE's
losses, the Company has determined that it is the PB of the entity. The
Company continues to consolidate this entity with no material impact on the
operating results or financial condition of the Company.
The Company also has an interest in another film production company which
is a VIE, however the Company did not consolidate this film entity since it
did not bear the majority of the expected losses or expected residual
returns.
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. FINANCING RECEIVABLES
The Company generally provides its theater systems to customers on a
long-term lease basis, typically with initial lease terms of 10 to 20
years. Financing receivables consisting of net investment in leases and
long term receivables are comprised of the following:
JUNE 30, DECEMBER 31,
2004 2003
-------- ------------
NET INVESTMENT IN LEASES
Gross minimum lease amounts receivable $ 97,349 $ 97,408
Residual value of equipment 824 824
Unearned finance income (39,188) (38,847)
-------- --------
Present value of minimum lease amounts receivable 58,985 59,385
Accumulated allowance for uncollectible amounts (5,116) (5,840)
-------- --------
Net investment in leases 53,869 53,545
-------- --------
Long-term receivables 3,099 3,197
-------- --------
Total financing receivables $ 56,968 $ 56,742
======== ========
4. INVENTORIES
JUNE 30, DECEMBER 31,
2004 2003
-------- ------------
Raw materials $ 6,236 $ 5,868
Work-in-process 5,151 4,327
Finished goods 15,062 18,023
------- -------
$26,449 $28,218
======= =======
5. NEW SENIOR NOTES DUE 2010
As at June 30, 2004, the Company has $160.0 million aggregate principal of
9.625% senior notes due December 1, 2010 (the "New Senior Notes"). The
Company commenced an exchange offer to exchange all outstanding New Senior
Notes for up to $160.0 million aggregate principal amount of senior notes
due December 1, 2010 that will be registered under the U.S. Securities Act
of 1933, as amended (the "Registered Notes"). On February 27, 2004, the
Company filed a registration statement on Form S-4 in relation to the
Registered Notes. The Registered Notes will continue to be unconditionally
guaranteed, jointly and severally, by certain of the Company's wholly-owned
subsidiaries. After the exchange, the terms of the Registered Notes will be
substantially identical to the terms of the New Senior Notes, and evidence
the same indebtedness as the New Senior Notes, except that the Registered
Notes will be registered under U.S. securities laws, will not contain
restrictions on transfer or provisions relating to special interest under
circumstances related to the timing of the exchange offer, will bear a
different CUSIP number from the New Senior Notes and will not entitle their
holders to registration rights.
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)
6. OLD SENIOR NOTES DUE 2005
In December 2003 the Company completed a tender offer and consent
solicitation for the remaining $152.8 million of principal of senior notes
due December 1, 2005 bearing interest at a rate of 7.875% per annum (the
"Old Senior Notes") that were not retired previously. In December 2003,
$123.6 million in principal of the Old Senior Notes were redeemed pursuant
to the tender offer. Notice of Redemption for all remaining outstanding Old
Senior Notes was delivered on December 4, 2003 and the remaining $29.2 of
outstanding Old Senior Notes were redeemed on January 2, 2004 using
proceeds from its private placement (see note 5).
In the first half of 2004, the Company recorded a loss of $0.8 million
related to the retirement of the Company's Old Senior Notes. During the
same period in 2003 the Company recorded a loss of $0.2 million from the
retirement of $25.0 million of the Company's Old Senior Notes.
7. COMMITMENTS
(a) The Company's total minimum annual rental payments to be made under
operating leases for premises as of June 30, 2004 for each of the years
ended December 31 are as follows:
2004 (six months remaining) $ 2,675
2005 5,923
2006 5,751
2007 5,554
2008 5,340
Thereafter 37,185
--------
$ 62,428
========
(b) As at June 30, 2004, the Company has letters of credit of $3.9 million
outstanding of which the entire balance has been issued under the credit
facility arrangement (see note 17). As at December 31, 2003, the Company
had letters of credit of $5.0 million outstanding, which had been
collateralized by cash deposits.
(c) In March 2004, the Company received $5.0 million in cash under a film
financing arrangement which is included in accrued liabilities. The Company
is required to expend these funds towards the production of a future motion
picture title. The Company has expended $0.1 million of these funds as at
June 30, 2004.
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)
8. CONTINGENCIES
(a) In March 2001, a complaint was filed against the Company by Muvico
Entertainment, L.L.C. ("Muvico"), alleging misrepresentation and seeking
rescission in respect of the system lease agreements between the Company
and Muvico. The complaint was subsequently amended to add claims for fraud
based upon the same factual allegations underlying its prior claims. The
Company filed counterclaims against Muvico for breach of contract, unjust
enrichment, unfair competition and/or deceptive trade practices and theft
of trade secrets, and brought claims against MegaSystems, Inc.
("MegaSystems"), a large-format theater system manufacturer, for tortious
interference and unfair competition and/or deceptive trade practices and to
enjoin Muvico and MegaSystems from using the Company's confidential and
proprietary information. The case is being heard in the U.S. District
Court, Southern District of Florida, Miami Division. The Company's motion
for a summary judgement on its contract claims against Muvico was heard in
September 2003; a decision has not yet been rendered. The Company believes
that the allegations made by Muvico in its complaint are entirely without
merit and will accordingly defend the claims vigorously. The Company
further believes that the amount of loss, if any, suffered in connection
with this lawsuit would not have a material impact on the financial
position or results of operation of the Company, although no assurance can
be given with respect to the ultimate outcome of any such litigation.
(b) In May 2003, the Company filed a Statement of Claim in the Ontario Superior
Court of Justice against United Cinemas International Multiplex B.V.
("UCI") for specific performance, or alternatively, damages of $25.0
million with respect to the breach of a 1999 agreement between the Company
and UCI whereby UCI committed to purchase IMAX theater systems from the
Company. In August 2003, UCI filed a Statement of Defence denying it is in
breach. On December 10, 2003, UCI and its two subsidiaries in the United
Kingdom and Japan filed a claim against the Company claiming alleged
breaches of the 1999 agreement referred to in the Company's claim against
UCI, and repeating allegations contained in UCI's Statement of Defence to
the Company's action. The Company believes that the allegations made by UCI
in its complaint are entirely without merit and will accordingly defend the
claims vigorously. The Company believes that the amount of loss, if any,
suffered in connection with this lawsuit would not have a material impact
on the financial position or results of operation of the Company, although
no assurance can be given with respect to the ultimate outcome of any such
litigation.
(c) In November 2001, the Company filed a complaint with the High Court of
Munich against Big Screen, a German large-screen cinema owner in Berlin
("Big Screen"), demanding payment of rental payments and certain other
amounts owed to the Company. Big Screen has raised a defense based on
alleged infringement of German antitrust rules, relating mainly to an
allegation of excessive pricing. Big Screen had brought a number of motions
for restraining orders in this matter relating to the Company's provision
of films and maintenance, all of which have been rejected by the courts,
including the Berlin Court of Appeals, and for which all appeals have been
exhausted. The Company believes that all of the allegations in Big Screen's
individual defense are entirely without merit and will accordingly continue
to prosecute this matter vigorously. The Company believes that the amount
of the loss, if any, suffered in connection with this dispute would not
have a material impact on the financial position or results of operations
of the Company, although no assurance can be given with respect to the
ultimate outcome of any such litigation.
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)
8. CONTINGENCIES (cont'd)
(d) In May, 2002, the Company filed a complaint with the District Court of
Nuremberg-Furth, Germany against Siewert Holding in Wurtzburg ("Siewert"),
demanding payment of rental obligations and other amounts owed to the
Company. Siewert raised a defense based on alleged infringement of German
antitrust rules. By judgement of December 20, 2002, the District Court
rejected the defense and awarded judgement in the documentary proceedings
in favor of the Company and added further amounts that had fallen due.
Siewert applied for leave to appeal to the German Supreme Court on matters
of law, which was rejected by the German Supreme Court in March 2004. To
enforce its judgement against Siewert, the Company filed for the opening of
insolvency proceedings with respect to Siewert, which filing was withdrawn
following payment by Siewert to the Company. Siewert has filed further
proceedings in the District Court, claiming that the majority of its lease
obligations to the Company should be invalidated. The Company will
vigorously defend such claim and does not believe that the amount of loss,
if any, suffered in connection with these proceedings would have a material
impact on the financial position or results of operation of the Company,
although no assurance can be given with respect to the ultimate outcome of
any such litigation.
(e) In January 2004, the Company and IMAX Theatre 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 April 2004, EML filed an answer and counterclaim seeking the
return of funds EML has paid to the Company, incidental expenses and
punitive damages. The Company believes that the allegations made by EML in
its counterclaim are entirely without merit and has requested that these
counterclaims be dismissed on the basis that EML has recently advised the
ICC that it has insufficient funds to pay its share of the arbitration
costs. The Company believes that the amount of loss, if any, suffered in
connection with this arbitration would not have a material impact on the
financial position or results of operation of the Company, although no
assurance can be given with respect to the ultimate outcome of any such
litigation.
(f) In addition to the matters described above, the Company is currently
involved in other legal proceedings which, in the opinion of the Company's
management, will not materially affect the Company's financial position or
future operating results, although no assurance can be given with respect
to the ultimate outcome of any such proceedings.
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)
9. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS SUPPLEMENTAL INFORMATION
(a) In the normal course of its business, the Company each year will have
customers who, for a number of reasons including the inability to obtain
certain consents, approvals or financing, are unable to proceed with
theater construction. Once the determination is made that the customer will
not proceed with installation, the lease agreement with the customer is
generally terminated by the Company. Upon the customer and the Company
being released from their future obligations under the agreement, the
initial lease payments that the customer previously made to the Company are
recognized as revenue. Included in systems revenue for the three and six
months ended June 30, 2004 are $2.2 million and $6.7 million, respectively
(2003 - $1.5 million, $4.1 million) for amounts recognized under terminated
lease agreements.
(b) Included in selling, general and administrative expenses for the three and
six months ended June 30, 2004 are $0.2 million and $0.5 million,
respectively (2003 - $0.6 million gain, $1.1 million gain) for net foreign
exchange losses related to the translation of foreign currency denominated
monetary assets, liabilities and integrated subsidiaries.
10. RECEIVABLE PROVISIONS (RECOVERIES), NET
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------- ----------------
2004 2003 2004 2003
----- ----- ----- -----
Accounts receivable provisions
(recoveries), net $ (69) $(192) $(242) $ 422
Financing receivables provisions
(recoveries), net(1) $ -- $ 267 $(725) $ 267
----- ----- ----- -----
Receivable provisions
(recoveries), net $ (69) $ 75 $(967) $ 689
===== ===== ===== =====
----------
(1) For the three and six months ended June 30, 2004, the Company recorded
a recovery of previously provided amounts of $nil and $0.7 million,
respectively (2003 - $0.3 million expense, $0.3 million expense) as
collectibility uncertainty associated with certain leases was resolved
by amendment or settlement of the leases.
11. INCOME TAXES
The effective tax rate on earnings differs significantly from the Canadian
statutory rate due to the effect of permanent differences, income taxed at
differing rates in foreign and other provincial jurisdictions and changes
in the Company's valuation allowance on deferred tax assets. The income tax
expense (recovery) for the quarter is calculated by applying the estimated
average annual effective tax rate to quarterly pre-tax income. In the
current quarter the Company recorded a tax recovery of $0.4 million related
to a refund for an applied tax carryback. This benefit has not been
previously recorded by the Company.
As at June 30, 2004, the Company has recognized net deferred income tax
assets of $4.6 million, comprised of tax credit carryforwards, net
operating loss and capital loss carryforwards and other deductible
temporary differences, which can be utilized to reduce either taxable
income or taxes otherwise payable in future years. As of June 30, 2004, the
Company had a gross deferred income tax asset of $50.9 million, against
which the Company is carrying a $46.3 million valuation allowance.
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)
12. CAPITAL STOCK
(A) STOCK BASED COMPENSATION
In the three and six months ended June 30, 2004, an aggregate of 13,335 and
26,670 options (2003 - 91,723 and 111,724) with an average exercise price
of $5.49 and $6.30 (2003 - $7.46 and $6.78) to purchase the Company's
common stock were issued to certain advisors and strategic partners of the
Company, respectively. The Company has calculated the fair value of these
options on the date of grant for the three and six months ended June 30,
2004 to be $0.04 million and $0.1 million (2003 - $0.3 million and $0.4
million), respectively, using a Binomial option-pricing model with the
following underlying assumptions: dividend yield of 0%; an average risk
free interest rate of 3.8% and 3.3% (2003 - 2.3% and 2.4%); expected option
life of 5 years; and an average expected volatility of 62.0%.
There were no warrants issued in the three and six months ended June 30,
2004 (2003 - 550,000 and 550,000). Of the 550,000 warrants issued in 2003,
which vest when certain millstones are met, and have an exercise price of
$6.06, the Company believes that only 200,000 will ultimately vest. The
warrants generally expire 5 years after the date of grant or vesting. At
June 30, 2004, 200,000 warrants were vested and exercisable.
The Company has recorded a charge of $0.04 million and $0.1 million to
costs of goods and services related to the non-employee stock options
granted in the three and six months ended June 30, 2004 (2003 - $0.03
million, $0.4 million).
(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 SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- -------------------
2004 2003 2004 2003
------- ------- ------- -------
Net earnings applicable to common
shareholders:
Net earnings $ 1,552 $ 969 $ 656 $ 3,392
======= ======= ======= =======
Weighted average number of common shares
(000's):
Issued and outstanding, beginning of period 39,304 32,973 39,302 32,973
Weighted average number of shares issued
during the period 6 1,186 5 593
------- ------- ------- -------
Weighted average number of shares used in
computing basic earnings per share 39,310 34,159 39,307 33,566
Assumed exercise of stock options, net of
shares assumed repurchased 627 1,295 314 798
------- ------- ------- -------
Weighted average number of shares used in
computing diluted earnings per share 39,937 35,454 39,621 34,364
======= ======= ======= =======
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)
13. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS SUPPLEMENTAL INFORMATION
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2004 2003 2004 2003
------ ------ ------ ------
Interest paid $7,661 $8,244 $7,896 $8,264
Income taxes paid $ 352 $1,242 $ 928 $1,776
14. SEGMENTED INFORMATION
The Company has four reportable segments: IMAX systems, films, theater
operations and other.
There has been no change in the basis of measurement of segment profit or
loss from the Company's most recent annual report on form 10-K/A for the
year ended December 31, 2003. Inter-segment transactions are not
significant.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2004 2003 2004 2003
-------- -------- -------- --------
REVENUE
IMAX systems $ 20,482 $ 22,143 $ 36,502 $ 44,459
Films 6,600 7,460 11,089 14,294
Theater operations 3,771 3,608 7,513 6,775
Other 895 1,239 1,524 2,571
-------- -------- -------- --------
TOTAL $ 31,748 $ 34,450 $ 56,628 $ 68,099
======== ======== ======== ========
EARNINGS (LOSS) FROM OPERATIONS
IMAX systems $ 11,824 $ 10,171 $ 21,546 $ 20,816
Films (1,304) 159 (2,407) 789
Theater operations 490 (463) 894 (880)
Other (371) (11) (612) 1,052
Corporate overhead (5,605) (5,435) (10,757) (10,679)
-------- -------- -------- --------
TOTAL $ 5,034 $ 4,421 $ 8,664 $ 11,098
======== ======== ======== ========
15. 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 is 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 has been estimated at between $0.8 million and $2.3
million, of which the Company has accrued $0.8 million. As the Company is
uncertain as to the outcome of the proceeding, no additional amount has
been recorded.
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)
15. DISCONTINUED OPERATIONS (cont'd)
(B) DIGITAL PROJECTION INTERNATIONAL
Effective December 11, 2001, the Company completed the sale of its
wholly-owned subsidiary, Digital Projection International, including its
subsidiaries (collectively "DPI"), to a company owned by members of DPI
management.
As part of the transaction, the Company restructured its advances to DPI,
releasing DPI from obligations to repay any amounts in excess of $12.7
million previously advanced by the Company, and reorganized the remaining
$12.7 million of debt owing to the Company into two separate loan
agreements. During the three and six months ended June 30, 2004, the
Company received $0.2 million and $0.4 million in cash towards the
repayment of this debt, and has recorded a corresponding gain in net
earnings (loss) from discontinued operations (2003 - $0.2 million, $0.4
million). As of June 30, 2004, the remaining balance is $11.5 million,
which has been fully provided for.
(C) CONSOLIDATED STATEMENT OF OPERATIONS FOR MIAMI THEATER AND DPI
The net earnings (loss) from discontinued operations summarized in the
Consolidated Statements of Operations, for the periods ended June 30, was
comprised of the following:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -----------------
2004 2003 2004 2003
----- ----- ----- -----
Net earnings (loss) from
discontinued operations(1) $ 200 $ (54) $ 400 $(149)
===== ===== ===== =====
----------
(1) Net of income tax provision of $nil and $nil in 2004 (2003 - $nil and
$nil).
16. DEFINED BENEFIT PLAN
The Company has a defined benefit pension plan covering its two Co-Chief
Executive Officers. The plan provides for a lifetime retirement benefit
from age 55 determined as 75% of the member's best average 60 consecutive
months of earnings during the 120 months proceeding retirement. 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 benefits were 50% vested as at July 12, 2000, the plan
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 shall be 100%.
Also, upon the occurrence of a change in control of the Company prior to
termination of a member's employment, the vesting percentage shall become
100%. As the plan is unfunded, the Company had not paid any contributions
in the period ended June 30, 2004 and does not expect to pay any
contributions in the remainder of the year. The following table provides
disclosure of pension expense for the defined benefit plan for the periods
ended March 31:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -----------------
2004 2003 2004 2003
------ ------ ------ ------
Service cost $ 516 $ 489 $1,032 $ 978
Interest cost 317 272 634 544
Amortization of prior service cost 349 349 698 698
------ ------ ------ ------
Pension expense $1,182 $1,110 $2,364 $2,220
====== ====== ====== ======
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)
17. CREDIT FACILITY
On February 6, 2004, the Company entered into a loan agreement for a
secured revolving credit facility with Congress Financial Corporation
(Canada) (the "Credit Facility") The Credit Facility is a three-year
revolving credit facility with yearly renewal options thereafter,
permitting maximum aggregate borrowings of $20.0 million, subject to a
borrowing base calculation which includes the Company's financing
receivables, and certain reserve requirements. The Credit Facility bears
interest at Prime + 0.25% per annum or Libor + 2.0% 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
Company's 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 or dissolve.
In addition, the Credit Facility contains customary events of default,
including upon an acquisition or a change of control that has a material
adverse effect on the Company's financial condition. The Credit Facility
also requires the Company to maintain a minimum level of earnings before
interest, taxes, depreciation and amortization, and cash collections. As at
June 30, 2004, the Company has not drawn down on the Credit Facility,
however, it has issued letters of credit for $3.9 million under the Credit
Facility arrangement.
18. SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION
The Company's New Senior Notes are unconditionally guaranteed, jointly and
severally by specific wholly-owned subsidiaries of the Company (the
"Guarantor Subsidiaries"). The main Guarantor Subsidiaries are David
Keighley Productions 70 MM 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., IMAX B.V., and IMAX Entertainment Pte. Inc., (the
"Non-Guarantor Subsidiaries") which have not provided any guarantees of the
New 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.
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)
18. SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION (cont'd)
Supplemental Consolidating Balance Sheets as at June 30, 2004:
IMAX GUARANTOR NON-GUARANTOR ADJUSTMENTS CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES AND ELIMINATIONS TOTAL
----------- ------------ ------------- ---------------- ------------
ASSETS
Cash and cash equivalents $ 12,257 $ 4,387 $ 307 $ -- $ 16,951
Restricted cash -- -- -- -- --
Accounts receivable 12,850 2,723 481 -- 16,054
Financing receivables 55,573 1,395 -- -- 56,968
Inventories 26,130 251 68 -- 26,449
Prepaid expenses 3,632 223 142 -- 3,997
Intercompany receivables 14,882 25,596 11,450 (51,928) --
Film assets 816 282 -- -- 1,098
Fixed assets 31,402 1,700 2 -- 33,104
Other assets 13,554 -- -- -- 13,554
Deferred income taxes 4,564 59 -- -- 4,623
Goodwill 39,027 -- -- -- 39,027
Other intangible assets 3,260 -- -- -- 3,260
Investments in subsidiaries 30,443 -- -- (30,443) --
--------- --------- --------- --------- ---------
Total assets $ 248,390 $ 36,616 $ 12,450 $ (82,371) $ 215,085
========= ========= ========= ========= =========
LIABILITIES
Accounts payable 3,366 1,602 -- -- 4,968
Accrued liabilities 47,914 1,789 176 -- 49,879
Intercompany payables 43,061 32,009 7,175 (82,245) --
Deferred revenue 45,952 5,062 209 -- 51,223
New Senior Notes due 2010 160,000 -- -- -- 160,000
--------- --------- --------- --------- ---------
Total liabilities 300,293 40,462 7,560 (82,245) 266,070
--------- --------- --------- --------- ---------
SHAREHOLDER'S DEFICIT
Common stock 115,652 -- 117 (117) 115,652
Other equity/Additional paid in
capital/Contributed surplus 2,217 46,960 -- (45,926) 3,251
Deficit (171,031) (50,192) 4,773 45,917 (170,533)
Accumulated other comprehensive income
(loss) 1,259 (614) -- -- 645
--------- --------- --------- --------- ---------
Total shareholders' equity (deficit) $ (51,903) $ (3,846) $ 4,890 $ (126) $ (50,985)
--------- --------- --------- --------- ---------
Total liabilities & shareholders'
equity (deficit) $ 248,390 $ 36,616 $ 12,450 $ (82,371) $ 215,085
========= ========= ========= ========= =========
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 $30.4
million as at June 30, 2004.
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)
18. SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION (cont'd)
Supplemental Consolidating Balance Sheets as at December 31, 2003:
IMAX GUARANTOR NON-GUARANTOR ADJUSTMENTS CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES AND ELIMINATIONS TOTAL
----------- ------------ ------------- ---------------- ------------
ASSETS
Cash and cash equivalents $ 41,311 $ 5,696 $ 275 $ -- $ 47,282
Restricted cash 4,961 -- -- -- 4,961
Accounts receivable 9,924 3,468 495 -- 13,887
Financing receivables 55,294 1,407 41 -- 56,742
Inventories 29,775 620 69 (2,246) 28,218
Prepaid expenses 1,098 523 281 -- 1,902
Inter-company receivables 21,203 21,745 15,184 (58,132) --
Film assets 361 1,207 -- -- 1,568
Fixed assets 33,897 1,918 3 -- 35,818
Other assets 13,827 -- -- -- 13,827
Deferred income taxes 3,705 51 -- -- 3,756
Goodwill 39,027 -- -- -- 39,027
Other intangible assets 3,388 -- -- -- 3,388
Investments in subsidiaries 26,196 -- -- (26,196) --
--------- --------- --------- --------- ---------
Total assets $ 283,967 $ 36,635 $ 16,348 $ (86,574) $ 250,376
========= ========= ========= ========= =========
LIABILITIES
Accounts payable 3,605 2,175 -- -- $ 5,780
Accrued liabilities 41,618 1,803 373 -- 43,794
Inter-company payables 43,885 31,640 11,065 (86,590) --
Deferred revenue 58,319 4,889 136 -- 63,344
New Senior Notes due 2010 160,000 -- -- -- 160,000
Old Senior Notes due 2005 29,234 -- -- -- 29,234
--------- --------- --------- --------- ---------
Total liabilities 336,661 40,507 11,574 (86,590) 302,152
--------- --------- --------- --------- ---------
SHAREHOLDER'S DEFICIT
Common stock 115,609 -- 117 (117) 115,609
Other equity/Additional paid in
capital/Contributed surplus 2,125 46,960 -- (45,926) 3,159
Deficit (171,687) (50,218) 4,657 46,059 (171,189)
Accumulated other comprehensive
income (loss) 1,259 (614) -- -- 645
--------- --------- --------- --------- ---------
Total shareholders' (deficit) $ (52,694) $ (3,872) $ 4,774 $ 16 (51,776)
--------- --------- --------- --------- ---------
Total liabilities & shareholders'
equity (deficit $ 283,967 $ 36,635 $ 16,348 $ (86,574) $ 250,376
========= ========= ========= ========= =========
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 inter-company receivable balances
with respect to these Guarantor Subsidiaries in the amounts of $26.5
million as at December 31, 2003.
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)
18. SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION (cont'd)
Supplemental Consolidating Statements of Operations for the three months
ended June 30, 2004:
IMAX GUARANTOR NON-GUARANTOR ADJUSTMENTS CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES AND ELIMINATIONS TOTAL
----------- ------------ ------------- ---------------- ------------
REVENUE
IMAX systems $ 19,870 $ 356 $ 337 $ (81) $ 20,482
Films 6,377 1,306 10 (1,093) 6,600
Theater operations 183 3,622 -- (34) 3,771
Other 895 -- -- -- 895
-------- -------- -------- -------- --------
27,325 5,284 347 (1,208) 31,748
COST OF GOODS AND SERVICES 13,237 5,007 103 (1,208) 17,139
-------- -------- -------- -------- --------
GROSS MARGIN 14,088 277 244 -- 14,609
Selling, general and administrative expenses 8,217 179 224 -- 8,620
Research and development 870 -- -- -- 870
Amortization of intangibles 154 -- -- -- 154
Loss (income) from equity-accounted
investees (89) -- -- 89 --
Receivable provisions (recoveries), net (69) -- -- -- (69)
-------- -------- -------- -------- --------
EARNINGS (LOSS) FROM OPERATIONS 5,005 98 20 (89) 5,034
Interest income 98 -- -- -- 98
Interest expense (4,085) (5) (30) -- (4,120)
Loss on retirement of notes -- -- -- -- --
-------- -------- -------- -------- --------
NET EARNINGS (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 1,018 93 (10) (89) 1,012
Recovery of (provision for) income taxes 340 -- -- -- 340
-------- -------- -------- -------- --------
NET EARNINGS (LOSS) FROM CONTINUING
OPERATIONS 1,358 93 (10) (89) 1,352
Net earnings from discontinued operations 200 -- -- -- 200
-------- -------- -------- -------- --------
NET EARNINGS (LOSS) $ 1,558 $ 93 $ (10) $ (89) $ 1,552
======== ======== ======== ======== ========
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)
18. SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION (cont'd)
Supplemental Consolidating Statements of Operations for the three months
ended June 30, 2003:
IMAX GUARANTOR NON-GUARANTOR ADJUSTMENTS CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES AND ELIMINATIONS TOTAL
----------- ------------ ------------- ---------------- ------------
REVENUE
IMAX systems $ 21,715 $ 188 $ 413 $ (173) $ 22,143
Films 3,453 4,819 3 (815) 7,460
Theater Operations 104 3,541 -- (37) 3,608
Other 1,228 -- 11 -- 1,239
-------- -------- -------- -------- --------
26,500 8,548 427 (1,025) 34,450
COST OF GOODS AND SERVICES 12,615 8,394 200 (1,045) 20,164
-------- -------- -------- -------- --------
GROSS MARGIN 13,885 154 227 20 14,286
Selling, general and administrative expenses 8,217 124 115 -- 8,456
Research and development 1,168 -- -- -- 1,168
Amortization of intangibles 152 -- -- -- 152
Loss (income) from equity-accounted
investees (1,171) (16) -- 1,201 14
Receivable provisions (recoveries), net 297 (178) (44) -- 75
-------- -------- -------- -------- --------
EARNINGS (LOSS) FROM OPERATIONS 5,222 224 156 (1,181) 4,421
Interest income 145 -- -- -- 145
Interest expense (4,049) (7) -- -- (4,056)
Loss on retirement of notes (187) -- -- -- (187)
-------- -------- -------- -------- --------
NET EARNINGS (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 1,131 217 156 (1,181) 323
Recovery of (provision for) income taxes (382) 1,074 8 -- 700
-------- -------- -------- -------- --------
NET EARNINGS (LOSS) FROM CONTINUING
OPERATIONS 749 1,291 164 (1,181) 1,023
Net earnings from discontinued operations 199 (253) -- -- (54)
-------- -------- -------- -------- --------
NET EARNINGS (LOSS) $ 948 $ 1,038 $ 164 $ (1,181) $ 969
======== ======== ======== ======== ========
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)
18. SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION (cont'd)
Supplemental Consolidating Statements of Operations for the six months
ended June 30, 2004:
IMAX GUARANTOR NON-GUARANTOR ADJUSTMENTS CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES AND ELIMINATIONS TOTAL
----------- ------------ ------------- ---------------- ------------
REVENUE
IMAX systems $ 35,406 $ 626 $ 659 $ (189) $ 36,502
Films 10,050 2,784 14 (1,759) 11,089
Theater operations 319 7,245 -- (51) 7,513
Other 1,523 -- 1 -- 1,524
-------- -------- -------- -------- --------
47,298 10,655 674 (1,999) 56,628
COST OF GOODS AND SERVICES 21,055 10,376 225 (1,999) 29,657
-------- -------- -------- -------- --------
GROSS MARGIN 26,243 279 449 -- 26,971
Selling, general and administrative expenses 16,335 316 303 -- 16,954
Research and development 2,015 -- -- -- 2,015
Amortization of intangibles 305 -- -- -- 305
Loss (income) from equity-accounted
investees (142) -- -- 142 --
Receivable provisions (recoveries), net (891) (76) -- -- (967)
-------- -------- -------- -------- --------
EARNINGS (LOSS) FROM OPERATIONS 8,621 39 146 (142) 8,664
Interest income 225 -- -- -- 225
Interest expense (8,146) (13) (30) -- (8,189)
Loss on retirement of notes (784) -- -- -- (784)
-------- -------- -------- -------- --------
NET EARNINGS (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES (84) 26 116 (142) (84)
Recovery of (provision for) income taxes 340 -- -- -- 340
-------- -------- -------- -------- --------
NET EARNINGS (LOSS) FROM CONTINUING
OPERATIONS 256 26 116 (142) 256
Net earnings from discontinued operations 400 -- -- -- 400
-------- -------- -------- -------- --------
NET EARNINGS (LOSS) $ 656 $ 26 $ 116 $ (142) $ 656
======== ======== ======== ======== ========
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)
18. SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION (cont'd)
Supplemental Consolidating Statements of Operations for the six months
ended June 30, 2003:
IMAX GUARANTOR NON-GUARANTOR ADJUSTMENTS CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES AND ELIMINATIONS TOTAL
----------- ------------ ------------- ---------------- ------------
REVENUE
IMAX systems $ 43,576 $ 2,038 $ 733 $ (1,888) $ 44,459
Films 7,496 8,212 19 (1,433) 14,294
Theater Operations 195 6,652 -- (72) 6,775
Other 2,518 -- 118 (65) 2,571
-------- -------- -------- -------- --------
53,785 16,902 870 (3,458) 68,099
COST OF GOODS AND SERVICES 24,387 16,517 375 (3,466) 37,813
-------- -------- -------- -------- --------
GROSS MARGIN 29,398 385 495 8 30,286
Selling, general and administrative expenses 15,927 401 272 -- 16,600
Research and development 1,881 -- -- -- 1,881
Amortization of intangibles 291 -- -- -- 291
Loss (income) from equity-accounted
investees (1,208) 18 -- 917 (273)
Receivable provisions (recoveries), net 911 (178) (44) -- 689
-------- -------- -------- -------- --------
EARNINGS (LOSS) FROM OPERATIONS 11,596 144 267 (909) 11,098
Interest income 410 -- -- -- 410
Interest expense (8,327) (16) -- -- (8,343)
Gain (loss) on retirement of notes (187) -- -- -- (187)
-------- -------- -------- -------- --------
NET EARNINGS (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 3,492 128 267 (909) 2,978
Recovery of (provision for) income taxes (507) 1,062 8 -- 563
-------- -------- -------- -------- --------
NET EARNINGS (LOSS) FROM CONTINUING
OPERATIONS 2,985 1,190 275 (909) 3,541
Net earnings from discontinued operations 399 (548) -- -- (149)
-------- -------- -------- -------- --------
NET EARNINGS (LOSS) $ 3,384 $ 642 $ 275 $ (909) $ 3,392
======== ======== ======== ======== ========
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)
18. SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION (cont'd)
Supplemental Consolidating Statements of Cash Flows for the six months
ended June 30, 2004:
IMAX GUARANTOR NON-GUARANTOR ADJUSTMENTS CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES AND ELIMINATIONS TOTAL
----------- ------------ ------------- ---------------- ------------
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net earnings (loss) from continuing operations $ 256 $ 26 $ 116 $ (142) $ 256
Items not involving cash:
Depreciation and amortization 6,280 275 1 -- 6,556
Write-downs (recoveries) (891) (76) -- -- (967)
Loss from equity-accounted investees (142) -- -- 142 --
Deferred income taxes (859) (8) -- -- (867)
Loss on retirement of notes 784 -- -- -- 784
Stock and other non-cash compensation 1,377 -- -- -- 1,377
Non-cash foreign exchange loss 324 -- -- -- 324
Premium on repayment of notes (576) -- -- -- (576)
Investment in film assets (2,341) 925 -- -- (1,416)
Changes in restricted cash 4,961 -- -- -- 4,961
Changes in other non-cash operating assets and
liabilities (7,408) (2,418) (78) -- (9,904)
Net cash used in operating activities from
discontinued operations -- -- -- -- --
-------- -------- -------- -------- --------
Net cash provided by (used in) operating
activities 1,765 (1,276) 39 -- 528
-------- -------- -------- -------- --------
INVESTING ACTIVITIES
Disposal (purchase) of fixed assets (532) (57) -- -- (589)
Decrease (increase) in other assets (684) -- -- -- (684)
Decrease (increase) in other intangible assets (176) -- -- -- (176)
-------- -------- -------- -------- --------
Net cash used in investing activities (1,392) (57) -- -- (1,449)
-------- -------- -------- -------- --------
FINANCING ACTIVITIES
Repayment of Old Senior Notes due 2005 (29,234) -- -- -- (29,234)
Financing costs related to New Senior Notes
due 2010 (564) -- -- -- (564)
Common shares issued 43 -- -- -- 43
Net cash provided by financing activities from
discontinued operations 400 -- -- -- 400
-------- -------- -------- -------- --------
Net cash used in financing activities (29,355) -- -- -- (29,355)
-------- -------- -------- -------- --------
Effects of exchange rate changes on cash (72) 24 (7) -- (55)
-------- -------- -------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS FROM CONTINUING OPERATIONS (29,454) (1,309) 32 -- (30,731)
Increase (decrease) in cash and cash equivalents
from discontinued operations 400 -- -- -- 400
-------- -------- -------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS, DURING THE PERIOD (28,054) (1,309) 32 -- (30,331)
Cash and cash equivalents, beginning of period 41,311 5,696 275 -- 47,282
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 12,257 $ 4,387 $ 307 $ -- $ 16,951
======== ======== ======== ======== ========
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)
18. SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION (cont'd)
Supplemental Consolidating Statements of Cash Flows for the six months
ended June 30, 2003:
IMAX GUARANTOR NON-GUARANTOR ADJUSTMENTS CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES AND ELIMINATIONS TOTAL
----------- ------------ ------------- ---------------- ------------
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net earnings (loss) from continuing operations $ 2,985 $ 1,190 $ 275 $ (909) $ 3,541
Items not involving cash:
Depreciation and amortization 5,353 488 3 -- 5,844
Write-downs (recoveries) 911 (133) (44) -- 734
Loss (income) from equity-accounted
investees (1,208) 18 -- 917 (273)
Loss on retirement of notes 187 -- -- -- 187
Stock and other non-cash compensation 3,444 -- -- -- 3,444
Non-cash foreign exchange gain (629) -- -- (629)
Payment under certain employment agreements (1,550) -- -- -- (1,550)
Investment in film assets (1,162) (858) -- -- (2,020)
Changes in restricted cash (772) -- -- -- (772)
Changes in other non-cash operating assets
and liabilities (14,085) (986) (106) 34 (15,143)
Net cash used in operating activities from
discontinued operations (339) (30) -- -- (369)
-------- -------- -------- -------- --------
Net cash provided by (used in) operating
activities (6,865) (311) 128 42 (7,006)
-------- -------- -------- -------- --------
INVESTING ACTIVITIES
Purchase of fixed assets (109) (595) -- (42) (746)
Increase in other assets (417) -- -- -- (417)
Increase in other intangible assets (291) -- -- -- (291)
Net cash used in investing activities from
discontinued operations -- (21) -- -- (21)
-------- -------- -------- -------- --------
Net cash used in investing activities (817) (616) -- (42) (1,475)
-------- -------- -------- -------- --------
FINANCING ACTIVITIES
Repayment of Subordinated Notes (9,143) -- -- -- (9,143)
Common shares issued 621 -- -- -- 621
Net cash used in financing activities from
discontinued operations 399 -- -- -- 399
-------- -------- -------- -------- --------
Net cash used in financing activities (8,123) -- -- -- (8,123)
-------- -------- -------- -------- --------
Effects of exchange rate changes on cash 151 (6) (4) -- 141
-------- -------- -------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS FROM CONTINUING OPERATIONS (15,714) (882) 124 -- (16,472)
Increase (decrease) in cash and cash
equivalents 60 (51) -- -- 9
-------- -------- -------- -------- --------
from discontinued operations
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS, DURING THE PERIOD (15,654) (933) 124 -- (16,463)
Cash and cash equivalents,
beginning of period 27,756 5,695 350 -- 33,801
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 12,102 $ 4,762 $ 474 $ -- $ 17,338
======== ======== ======== ======== ========
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)
19. SUMMARY OF MATERIAL DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP) IN THE UNITED STATES AND CANADA
The accounting principles followed by the Company conform with U.S. GAAP.
Significant differences affecting the Company between U.S. GAAP and
Canadian Generally Accepted Accounting Principles ("Canadian GAAP") are
described below.
(A) EQUITY ACCOUNTED INVESTEES
Canadian GAAP requires the accounts of jointly controlled enterprises to be
proportionately consolidated. Under U.S. GAAP, investments in jointly
controlled entities are accounted as equity investments. During the three
and six month periods ended June 30, 2004, the Company did not have any
investments in jointly controlled entities.
(B) FIXED ASSET IMPAIRMENTS
Fixed asset impairments under U.S. GAAP are calculated based on a
discounted future cash flow basis. Under Canadian GAAP, prior to January 1,
2002, impairments were calculated based on an undiscounted future cash flow
basis. Any impairment differences resulted in higher depreciation for the
remaining useful life of the assets.
(C) STOCK-BASED COMPENSATION
Under U.S GAAP, the Company accounts for stock-based compensation under the
intrinsic value method set out in Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees", and its related
interpretations, and has made pro forma disclosures of net earnings (loss)
and earnings (loss) per share in note 13 as if the methodology prescribed
by FAS 123, had been adopted. Under Canadian GAAP, the Company adopted the
fair value provisions of CICA Section 3870, "Stock-based Compensation and
Other Stock-based Payments" effective January 1, 2003. As of this date,
stock options given to employees or directors are recorded as an expense in
the consolidated statement of operations and credited to other equity.
(D) SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
In the three and six month periods ended June 30, 2003, the U.S. GAAP
financial statements included an additional $nil and $0.5 million in
selling, general and administrative expenses which was recorded in the
December 31, 2002 Canadian GAAP financial statements due to the timing of
finalization of certain compensation awards.
(E) INTEREST ON CONVERTIBLE SUBORDINATED NOTES
Convertible subordinated notes are carried at face value as a liability
under U.S. GAAP. Under Canadian GAAP, the carrying value of the convertible
subordinated notes is allocated between debt and equity elements and
classified separately in the balance sheet. The debt element was calculated
by discounting the stream of future payments of interest and principal at
the prevailing market rate for a similar liability that does not have an
associated conversion feature. The accretion of the liability component of
the notes is recorded as interest expense in the statement of operations.
(F) PENSION ASSET AND LIABILITIES
Under U.S. GAAP, included in accrued liabilities, is a minimum pension
liability of $4.8 million as at June 30, 2004 and $5.5 million as at
December 31, 2003, representing unrecognized prior service costs. There is
an equal amount recorded in other assets. Under Canadian GAAP, a minimum
pension liability and corresponding asset are not recorded.
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)
19. SUMMARY OF MATERIAL DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP) IN THE UNITED STATES AND CANADA (cont'd)
RECONCILIATION TO CANADIAN GAAP
CONSOLIDATED STATEMENTS OF OPERATIONS
The following is a reconciliation of net earnings (loss) reflecting the
difference between Canadian and U.S. GAAP:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ---------------------
2004 2003 2004 2003
--------- ------- ------- -------
Net earnings in accordance with U.S. GAAP $ 1,552 $ 969 $ 656 $ 3,392
Equity accounted investees(a) -- (148) -- (747)
Depreciation of Fixed assets(b) (41) (41) (82) (82)
Stock-based compensation(c) (177) (137) (178) (139)
Timing differences - Selling, general and
administrative expenses(d) -- -- -- 500
Interest accretion on Subordinated Notes(e) -- -- -- (48)
--------- ------- ------- -------
Net earnings in accordance with Canadian
GAAP $ 1,334 $ 643 $ 396 $ 2,876
========= ======= ======= =======
Earnings (loss) per share (note 12):
Earnings (loss) per share - basic:
Net earnings (loss) from continuing
operations $ 0.03 $ 0.02 $ -- $ 0.09
Net earnings from discontinued
operations $ -- $ -- $ 0.01 $ --
--------- ------- ------- -------
Net earnings $ 0.03 $ 0.02 $ 0.01 $ 0.09
========= ======= ======= =======
Earnings (loss) per share - diluted:
Net earnings (loss) from continuing
operations $ 0.03 $ 0.02 $ -- $ 0.08
Net earnings from discontinued
operations $ -- $ -- $ 0.01 $ --
--------- ------- ------- -------
Net earnings $ 0.03 $ 0.02 $ 0.01 $ 0.08
========= ======= ======= =======
CONSOLIDATED SHAREHOLDERS' EQUITY (DEFICIT)
The following is a reconciliation of shareholders' equity (deficit)
reflecting the difference between Canadian and U.S. GAAP:
JUNE 30, DECEMBER 31,
2004 2003
-------- ------------
Shareholders' equity (deficit) in accordance with U.S. GAAP $(50,985) $(51,776)
Fixed asset impairments(b) 770 852
-------- --------
Shareholders' equity (deficit) in accordance with Canadian GAAP $(50,215) $(50,924)
======== ========
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)
19. SUMMARY OF MATERIAL DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP) IN THE UNITED STATES AND CANADA (cont'd)
CONSOLIDATED BALANCE SHEET
The following is the Canadian GAAP Consolidated Balance Sheet as at
December 31, 2003:
AS AT
DECEMBER 31,
2003
------------
ASSETS
Cash and cash equivalents $ 47,282
Restricted cash 4,961
Accounts receivable 13,887
Financing receivable 56,742
Inventories 28,218
Prepaid expenses 1,902
Film assets 1,568
Property, plant and equipment 36,670
Other assets 8,297
Future income taxes 3,756
Goodwill 39,027
Other intangible assets 3,388
---------
Total assets $ 245,698
=========
LIABILITIES
Accounts payable $ 5,780
Accrued liabilities 38,264
Deferred revenue 63,344
New Senior Notes due 2010 160,000
Old Senior Notes due 2005 29,234
---------
Total liabilities 296,622
---------
SHAREHOLDERS' EQUITY (DEFICIT)
Capital stock Common shares. Authorized - unlimited number
Issued and outstanding - 39,301,758 114,153
Other equity 3,536
Contributed surplus 11,857
Deficit (182,297)
Cumulative foreign currency translation adjustments 1,827
---------
Total shareholders' equity (deficit) (50,924)
---------
Total liabilities and shareholders' equity (deficit) $ 245,698
=========
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)
19. SUMMARY OF MATERIAL DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP) IN THE UNITED STATES AND CANADA (cont'd)
CONSOLIDATED STATEMENT OF OPERATIONS
The following is the Canadian GAAP Consolidated Statement of Operations for
the three and six months ended June 30, 2003:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2003 JUNE 30, 2003
------------------ ----------------
REVENUE
IMAX systems $ 22,143 $ 44,459
Films 7,460 14,294
Theater operations 3,609 6,775
Other 2,101 4,180
-------- --------
35,313 69,708
COSTS OF GOODS AND SERVICES 21,143 39,800
-------- --------
GROSS MARGIN 14,170 29,908
Selling, general and administrative expenses 8,593 16,239
Research and development 1,168 1,881
Amortization of intangibles 152 291
Receivable provisions, net of (recoveries) 75 689
-------- --------
EARNINGS FROM OPERATIONS 4,182 10,808
Interest income 145 410
Interest expense (4,143) (8,569)
Gain (loss) on retirement of notes (187) (187)
-------- --------
NET EARNINGS (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (3) 2,462
Recovery of income taxes 700 563
-------- --------
NET EARNINGS FROM CONTINUING OPERATIONS 697 3,025
Net loss from discontinued operations (54) (149)
-------- --------
NET EARNINGS 643 2,876
======== ========
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)
19. SUMMARY OF MATERIAL DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP) IN THE UNITED STATES AND CANADA (cont'd)
CONSOLIDATED STATEMENT OF CASH FLOWS
The following is the Canadian GAAP Consolidated Statement of Cash Flows for
the six months ended June 30, 2003:
SIX MONTHS ENDED
JUNE 30,
2003
----------------
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net earnings from continuing operations $ 3,025
Items not involving cash:
Depreciation and amortization 6,518
Write-downs 734
Loss on retirement of notes 187
Stock and other non-cash compensation 3,583
Interest related to accretion on Subordinated Notes 48
Non-cash foreign exchange gain (629)
Payment under certain employment agreements (1,550)
Investment in film assets (2,020)
Changes in restricted cash (772)
Changes in other non-cash operating assets and liabilities (15,522)
Net cash used in operating activities from discontinued operations (369)
--------
Net cash used in operating activities (6,767)
--------
INVESTING ACTIVITIES
Purchase of fixed assets (765)
Increase in other assets (417)
Increase in other intangible assets (291)
Net cash used in investing activities from discontinued operations (21)
--------
Net cash used in investing activities (1,494)
--------
FINANCING ACTIVITIES
Repayment of Subordinated Notes (9,143)
Common shares issued 621
Repayment of long-term debt (288)
Net cash provided by financing activities from discontinued
operations 399
--------
Net cash used in financing activities (8,411)
--------
Effects of exchange rate changes on cash 141
--------
DECREASE IN CASH AND CASH EQUIVALENTS FROM CONTINUING OPERATIONS (16,540)
Increase in cash and cash equivalents from discontinued operations 9
--------
DECREASE IN CASH AND CASH EQUIVALENTS, DURING THE PERIOD (16,531)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 34,380
--------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 17,849
========
Page 30
IMAX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company's principal business is the design, manufacture, sale and lease of
projector systems for giant screen theaters for customers including commercial
theaters, museums and science centers, and destination entertainment sites. In
addition, the Company designs and manufactures high-end sound systems and
produces and distributes large format films. There are more than 240 IMAX
theaters operating in 35 countries worldwide as of June 30, 2004. IMAX
Corporation is a publicly traded company listed on both the TSX and NASDAQ.
ACCOUNTING POLICIES AND ESTIMATES
The Company reports its results under United States Generally Accepted
Accounting Principles ("U.S. GAAP"). Significant differences between United
States and Canadian Generally Accepted Accounting Principles are described in
note 19 of the Consolidated financial statements.
The preparation of these financial statements requires management to make
estimates and judgements 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, fixed and film assets, investments, 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 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.
The Company's significant accounting policies are discussed in note 2 of the
Consolidated Financial Statements in the Company's most recent annual report on
Form 10-K/A for the year ended December 31, 2003 and are summarized below.
SIGNIFICANT ACCOUNTING POLICIES
Management considers the following critical accounting policies to have the most
significant effect on its estimates, assumptions and judgements:
REVENUE RECOGNITION
SALES-TYPE LEASES OF THEATER SYSTEMS
Theater system leases that transfer substantially all of the benefits and risks
of ownership to customers are classified as sales-type leases as a result of
meeting the criteria established by FASB Statement of Financial Accounting
Standards No. 13, "Accounting for Leases" ("FAS 13"). When revenue is
recognized, the initial rental fees due under the contract, along with the
present value of minimum ongoing rental payments, are recorded as revenues for
the period, and the related theater system costs including installation expenses
are recorded as cost of goods and services. Additional ongoing rentals in excess
of minimums are recognized as revenue when reported by the theater operator,
provided that collection is reasonably assured.
The Company recognizes revenues from sales-type leases generally upon
installation of the theater system. Revenue associated with a sales-type lease
is recognized when all of the following criteria are met: persuasive evidence of
an agreement exists; the price is fixed or determinable; and collection is
reasonably assured.
The timing of installation of the theater system is largely dependent on the
timing of the construction of the customer's theater. Therefore, while revenue
for theater systems is generally predictable on a long-term basis, it can vary
from quarter to quarter or year to year depending on the timing of installation.
Page 31
IMAX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont'd)
SIGNIFICANT ACCOUNTING POLICIES (cont'd)
REVENUE RECOGNITION (cont'd)
SALES-TYPE LEASES OF THEATER SYSTEMS (cont'd)
The Company monitors the performance of the theaters to which it has leased
equipment. When facts and circumstances indicate that it may need to change the
terms of a lease, which had previously been recorded as a sales-type lease, the
Company evaluates the likely outcome of such negotiations. A provision is
recorded against the net investment in leases if the Company believes that it is
probable that the negotiation will result in a reduction in the minimum lease
payments such that the lease will be reclassified as an operating lease. The
provision is equal to the excess of the carrying value of the net investment in
lease over the fair value of the equipment. Any adjustments which result from a
change in classification from a sales-type lease to an operating lease are
reported as a charge to income during the period the change occurs.
In the ordinary course of its business, the Company will from time to time
determine that a provision it had previously taken against the net investment in
leases in connection with a customer's lease agreement should be reversed due to
a change in the circumstances that led to the original provision.
In the normal course of its business, the Company each year will have customers
who, for a number of reasons including the inability to obtain certain consents,
approvals or financing, are unable to proceed with theater construction. In
these instances, where customers of the Company are not in compliance with the
terms of their leases for theater systems not yet installed, the leases are in
default. There is typically deferred revenue associated with these leases,
representing initial lease payments collected prior to the default. These
initial lease payments are recognized as revenue when the Company exercises its
rights to terminate the lease and the Company is released legally and/or by
virtue of an agreement with the customer from its obligations under the lease
arrangement. When settlements are received, the Company will allocate the total
settlement to each of the elements based on their relative fair value.
OPERATING LEASES OF THEATER SYSTEMS
Leases that do not transfer substantially all of the benefits and risks of
ownership to the customer are classified as operating leases. For these leases,
initial rental fees and minimum lease payments are recognized as revenue on a
straight-line basis over the lease term. Additional rentals in excess of minimum
annual amounts are recognized as revenue when reported by theater operators,
provided that collection is reasonably assured.
ACCOUNTS RECEIVABLE AND FINANCING RECEIVABLES
The allowance for doubtful accounts receivable and provision against the
financing receivables are based on the Company's assessment of the
collectibility of specific customer balances and the underlying asset value of
the equipment under lease where applicable. If there is a deterioration in a
customer's credit worthiness or actual defaults under the terms of the leases
are higher than the Company's historical experience, the Company's estimates of
recoverability for these assets could be adversely affected.
Page 32
IMAX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont'd)
SIGNIFICANT ACCOUNTING POLICIES (cont'd)
INVENTORIES
In establishing the appropriate provisions for theater systems inventory,
management must make estimates of future events and conditions including the
anticipated installation dates for the current backlog of theater system
contracts, potential future signings, general economic conditions, technology
factors, growth prospects within the customers' ultimate marketplace and the
market acceptance of the Company's current and pending projection systems and
film library. If management 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.
GOODWILL
The Company performs an impairment test on at least an annual basis and
additionally, whenever events or changes in circumstances suggest that the
carrying amount may not be recoverable. Impairment of goodwill is tested at the
reporting unit level by comparing the reporting unit's carrying amount,
including goodwill, to the fair value of the reporting unit. The fair values of
the reporting units are estimated using a discounted cash flows approach. If the
carrying amount of the reporting unit exceeds its fair value, then a second step
is performed to measure the amount of impairment loss, if any. Any impairment
loss would be expensed in the statement of operations.
FIXED ASSETS
Management reviews the carrying values of its fixed assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset might not be recoverable. In performing its review for recoverability,
management estimates the future cash flows expected to result from the use of
the asset and its eventual disposition. If the sum of the expected future cash
flows is less than the carrying amount of the asset, an impairment loss is
recognized. Measurement of impairment losses is based on the excess of the
carrying amount of the asset over the fair value calculated using discounted
expected future cash flows. If the actual future cash flows are less than the
Company's estimates, future earnings could be adversely affected.
TAX ASSET VALUATION
As at June 30, 2004, the Company had net deferred income tax assets of $4.6
million, comprised of tax credit carryforwards, net operating loss and capital
loss carryforwards and other deductible temporary differences, which can be
utilized to reduce either taxable income or taxes otherwise payable in future
years. The Company's management assesses realization of these net deferred
income tax assets based on all available evidence and has concluded that it is
more likely than not that these net deferred income tax assets will be realized.
Positive evidence includes, but is not limited to, the Company's historical
earnings, projected future earnings, contracted sales backlog at June 30, 2004,
and the ability to realize certain deferred income tax assets through loss and
tax credit carryback strategies. If and when the Company's operations in some
jurisdictions were to reach a requisite level of profitability or where the
Company's future profitability estimates increase due to changes in positive
evidence, the Company would reduce all or a portion of the applicable valuation
allowance in the period when such determination is made. This would result in an
increase to reported earnings and a decrease to the Company's effective tax rate
in such period. However, if the Company's projected future earnings do not
materialize, or if the Company operates at a loss in certain jurisdictions, or
if there is a material change in actual effective tax rates or time period
within which the Company's underlying temporary differences become taxable or
deductible, the Company could be required to increase the valuation allowance
against all or a significant portion of the Company's deferred tax assets
resulting in a substantial increase to the Company's effective tax rate for the
period of the change and a material adverse impact on its operating results for
the period. As at June 30, 2004, the Company had a gross deferred income tax
asset of $50.9 million, against which the Company is carrying a $46.3 million
valuation allowance.
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 Company's ongoing assessments of the probable outcomes of
examinations and related tax positions require judgement and can materially
increase or decrease its effective rate as well as impact operating results.
Page 33
IMAX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont'd)
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2004 VERSUS THREE MONTHS ENDED JUNE 30, 2003
The Company reported net earnings from continuing operations of $1.4 million or
$0.03 per share on a diluted basis for the second quarter of 2004, compared to
net earnings from continuing operations of $1.0 million or $0.03 per share on a
diluted basis for the second quarter of 2003.
REVENUE
The Company's revenues for the second quarter of 2004 decreased 7.8% to $31.7
million from $34.5 million in the same period last year.
IMAX systems revenue decreased approximately 7.5% to $20.5 million in the second
quarter of 2004 from $22.1 million in the same period last year. The Company
recognized revenue on 5 theater systems in the second quarter of 2004, versus 6
theater systems in the second quarter of 2003. The decrease in systems revenue
from installations over the same period last year was partially offset by higher
settlement revenue in the period. In the normal course of its business, the
Company each year will have customers who, for a number of reasons including the
inability to obtain certain consents, approvals or financing, are unable to
proceed with theater construction. Once the determination is made that the
customer will not proceed with installation, the lease agreement with the
customer is generally terminated. Upon the Company being released from its
future obligations under the agreement, the initial lease payments that the
customer previously made to the Company are recognized as revenue. Settlements
relating to terminated lease agreements with customers who were unable to
proceed with theater construction included in revenue for the second quarter of
2004 total $2.2 million compared to $1.5 million in the corresponding period
last year. A significant portion of such revenue in the second quarter of 2004
related to existing customers which restructured their lease agreements in order
to obtain the Company's new IMAX(R) MPX(TM) projection system.
Films revenue decreased 11.5% to $6.6 million in the second quarter of 2004 from
$7.5 million in the same period last year due to several factors. A decline in
the Company's film post production revenue was partially offset by an increase
in film revenue due to the release of Harry Potter and the Prisoner of Azkaban:
The IMAX Experience in June 2004 and due to the release of NASCAR 3D: The IMAX
Experience in March 2004.
Theater operations revenue increased to $3.8 million in the second quarter of
2004 from $3.6 million in the same period last year primarily due to the
consolidation of the Company's Tempe theater in 2004 compared to
equity-accounting treatment in same period last year when the theater was only
50% owned.
Other revenues decreased 27.8% to $0.9 million in the second quarter of 2004
from $1.2 million in the same period last year primarily due to a decline in 2D
and 3D camera rentals.
GROSS MARGIN
Gross margin for the second quarter of 2004 was $14.6 million, or 46.0% of total
revenue, compared to $14.3 million, or 41.5% of total revenue, in the same
period last year. The increase in gross margin for 2004 is due in part to $2.2
million included in IMAX settlement revenues for the second quarter of 2004
(compared to $1.4 million in the corresponding period last year) for terminated
lease agreements with customers, a significant portion of which related to
existing customers which restructured their lease agreements in order to obtain
the Company's new IMAX MPX projection system. Partially offsetting the increase
in systems gross margin was a decline in film revenue from library titles such
as Space Station due to the strong comparative performance in the second quarter
of 2003 and the decline in the Company's film post production business. Camera
margins have also decreased significantly, primarily due to the decrease of 2D
and 3D camera rentals in 2004.
The Company improved its gross margin in its owned and operated theater segment
due to increased cost efficiencies over the same period last year.
Page 34
IMAX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont'd)
RESULTS OF OPERATIONS (cont'd)
THREE MONTHS ENDED JUNE 30, 2004 VERSUS THREE MONTHS ENDED JUNE 30, 2003
(cont'd)
OTHER
Selling, general and administrative expenses were $8.6 million in the second
quarter of 2004 compared to $8.5 million in the corresponding period last year.
The Company recorded a foreign exchange loss of $0.2 million in the second
quarter of 2004 compared to a gain of $0.6 million in the second quarter of
2003. The foreign exchange gains and losses resulted primarily from fluctuations
in exchange rates on the Canadian dollar, Euro dollar and Japanese Yen
denominated net investment in leases. The Company also recorded a recovery in
its phantom stock plan expense of $0.1 million in the second quarter of 2004 due
the decrease in the Company's share price compared to an expense of $1.2 million
in the second quarter of 2003. The Company expensed $0.2 million for capital
taxes paid in the second quarter of 2004 compared to a recovery of $0.2 million
for refunds received in the same quarter in 2003.
The Company no longer has any interests in equity-accounted investees as of
December 31, 2003.
Receivable provisions net of recoveries amounted to as a net recovery of $0.1
million in the second quarter of 2004 compared to a net provision of $0.1
million in the same period last year. The Company recorded an accounts
receivable recovery of $0.1 million as compared to a recovery of $0.2 million in
the same period last year. There were no provisions in the second quarter of
2004 on financing receivables as compared to a provision of $0.3 million in the
same period last year.
Interest expense remained consistent at $4.1 million in the second quarter of
2004 and 2003. The Company retired and repaid an aggregate of $170.8 million of
the Company's Old Senior Notes and $9.1 million of 5.75% convertible
subordinated notes due April 1, 2003 (the "Subordinated Notes") throughout 2003.
As at June 30, 2004, the Company had $160.0 million aggregate principal of
9.625% senior notes due December 1, 2010 (the "New Senior Notes"). Included in
interest expense is the amortization of deferred finance costs in the amount $
0.2 million in the second quarter of 2004 relating to the New Senior Notes and
$0.2 million for the second quarter of 2003 relating to the Old Senior Notes.
The Company's policy is to defer and amortize all the costs relating to a debt
financing over the life of the debt instrument.
The effective tax rate on earnings differs significantly from the statutory rate
due to the effect of permanent differences, income taxed at differing rates in
foreign and other provincial jurisdictions and changes in the Company's
valuation allowance on deferred tax assets. The income tax expense (recovery)
for the quarter is calculated by applying the estimated average annual effective
tax rate to quarterly pre-tax income. In the current quarter the Company
recorded a tax recovery of $0.4 million related to a refund for an applied tax
carryback. This benefit has not been previously recorded by the Company. As at
June 30, 2004, the Company had a gross deferred tax asset of $50.9 million,
against which the Company is carrying a $46.3 million valuation allowance.
Page 35
IMAX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont'd)
RESULTS OF OPERATIONS (cont'd)
THREE MONTHS ENDED JUNE 30, 2004 VERSUS THREE MONTHS ENDED JUNE 30, 2003
(cont'd)
RESEARCH AND DEVELOPMENT
Research and development expenses were $0.9 million in the second quarter of
2004 versus $1.2 million in the same period last year. The lower level of
expenses in 2004 primarily reflects research and development activities
pertaining to the Company's new IMAX MPX theater projection system which is now
substantially completed. Through research and development, the Company continues
to design and develop cinema-based equipment and software 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), digital
re-mastering distribution and display. Consequently, the Company has made
significant investments in digital technologies, including the development of a
proprietary, patent-pending technology to digitally enhance image resolution and
quality of 35mm motion picture films, and has a number of patents pending and
intellectual property rights in these areas. However, there can be no assurance
that the Company will be awarded patents covering this technology or that
competitors will not develop similar technologies.
LOSS ON RETIREMENT OF NOTES
During the second quarter of 2003, the Company recorded a loss of $0.2 million
from the retirement of $25.0 million of the Company's Old Senior Notes.
DISCONTINUED OPERATIONS
On December 23, 2003, the Company closed its owned and operated Miami IMAX
theater. The Company abandoned or removed all of its assets from the theater in
the first quarter of 2004. The Company is 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 has been estimated at between $0.8 million and $2.3 million, of
which the Company has accrued $0.8 million. As the Company is uncertain as to
the outcome of the proceeding, no additional amount has been recorded.
Effective December 11, 2001, the Company completed the sale of its wholly-owned
subsidiary, Digital Projection International, including its subsidiaries
(collectively "DPI"), to a company owned by members of DPI management. As part
of the transaction, the Company restructured its advances to DPI, releasing DPI
from obligations to repay any amounts in excess of $12.7 million previously
advanced by the Company, and reorganized the remaining $12.7 million of debt
owing to the Company into two separate loan agreements. During the second
quarter of 2004, the Company received $0.2 million in cash towards the repayment
of this debt, and has recorded a corresponding gain in net earnings (loss) from
discontinued operations (2003 - $0.2 million). As of June 30, 2004, the
remaining balance is $11.5 million, which has been fully provided for.
SIX MONTHS ENDED JUNE 30, 2004 VERSUS SIX MONTHS ENDED JUNE 30, 2003
The Company reported net earnings from continuing operations of $0.3 million or
$0.01 per share on a diluted basis for the first half of 2004, compared to net
earnings from continuing operations of $3.5 million or $0.10 per share on a
diluted basis for the first half of 2003.
Page 36
IMAX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont'd)
RESULTS OF OPERATIONS (cont'd)
SIX MONTHS ENDED JUNE 30, 2004 VERSUS SIX MONTHS ENDED JUNE 30, 2003 (cont'd)
REVENUE
The Company's revenues for the first half of 2004 decreased 16.8% to $56.6
million from $68.1 million in the same period last year.
IMAX systems revenue decreased approximately 17.9% to $36.5 million in the first
half of 2004 from $44.5 million in the same period last year. The Company
recognized revenue on 7 theater systems in the first half of 2004, versus 14
theater systems in the first half of 2003, one of which was an operating lease.
The decrease in systems revenue from installations over the same period last
year was partially offset by higher settlement revenue in the period. In the
normal course of its business, the Company each year will have customers who,
for a number of reasons including the inability to obtain certain consents,
approvals or financing, are unable to proceed with theater construction. Once
the determination is made that the customer will not proceed with installation,
the lease agreement with the customer is generally terminated. Upon the Company
being released from its future obligations under the agreement, the initial
lease payments that the customer previously made to the Company are recognized
as revenue. Settlements relating to terminated lease agreements with customers
who were unable to proceed with theater construction included in revenue for the
first half of 2004 total $6.7 million compared to $4.1 million in the
corresponding period last year. A significant portion of such revenue in the
first half of 2004 related to existing customers which restructured their lease
agreements in order to obtain the Company's new IMAX MPX projection system.
Films revenue decreased 22.4% to $11.1 million in the first half of 2004 from
$14.3 million in the same period last year due to several factors. A decline in
the Company's film post production revenue was partially offset by an increase
in film revenue due to the release of Harry Potter and the Prisoner of Azkaban:
The IMAX Experience in June 2004 and due to the release of NASCAR 3D: The IMAX
Experience in March 2004.
Theater operations revenue increased to $7.5 million in the first half of 2004
from $6.8 million in the same period last year, primarily due to the
consolidation of the Company's Tempe theater in 2004 compared to
equity-accounting treatment in same period last year when the theater was only
50% owned.
Other revenues decreased 40.7% to $1.5 million in the first half of 2004 from
$2.6 million in the same period last year primarily due to the decrease of 2D
and 3D camera rentals in 2004.
GROSS MARGIN
Gross margin for the first half of 2004 was $27.0 million, or 47.6% of total
revenue, compared to $30.3 million, or 44.5% of total revenue, in the same
period last year. The decrease in gross margin in dollar terms is due to 7
installations in the first half of 2004 as compared to 14 installations in the
first half of 2003, one of which was an operating lease. The decrease in gross
margin in dollar terms is also attributed to the decline in film revenue during
the first half of 2004 largely due to the strong comparative performance of the
Company's library films such as Space Station in the first half of 2003 and the
decline in the Company's film post production. Camera margins have also
declined, primarily due to the decrease of 2D and 3D camera rentals in 2004. The
increase in margin as a percentage of revenue for 2004 is due primarily to $6.5
million included in IMAX settlement revenues for the first half of 2004
(compared to $4.0 million in the corresponding period last year) for terminated
lease agreements with customers, a significant portion of which related to
existing customers which restructured their lease agreements in order to obtain
the Company's new IMAX MPX projection system.
The Company significantly improved its gross margin in dollar and percentage
terms in its owned and operated theater segment due to increased cost
efficiencies over the same period last year.
Page 37
IMAX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont'd)
RESULTS OF OPERATIONS (cont'd)
SIX MONTHS ENDED JUNE 30, 2004 VERSUS SIX MONTHS ENDED JUNE 30, 2003 (cont'd)
OTHER
Selling, general and administrative expenses were $17.0 million in the first
half of 2004 compared to $ 16.6 million in the corresponding period last year.
The Company recorded a foreign exchange loss of $0.5 million in the first half
of 2004 compared to a gain of $1.1 million in the first half of 2003. The
foreign exchange gains and losses resulted primarily from fluctuations in
exchange rates on the Canadian dollar, Euro dollar and Japanese Yen denominated
net investment in leases. The Company also recorded a recovery in its phantom
stock plan expense of $0.4 million in the first half of 2004 due the decrease in
the Company's share price compared to an expense of $1.5 million in the first
half of 2003. The Company expensed $0.4 million for capital taxes paid in the
first half of 2004 compared to a recovery of $0.1 million for refunds received
in 2003. The Company has incurred higher professional fees in the amount of $0.2
million in the period primarily relating to the implementation of certain
policies and procedures surrounding the Sarbanes-Oxley regulatory framework.
The Company no longer has any interests in equity-accounted investees as of
December 31, 2003.
Receivable provisions net of recoveries amounted to as a net recovery of $1.0
million in the first half of 2004 compared to a net provision of $0.7 million in
the same period last year. The Company recorded an accounts receivable recovery
of $0.2 million as compared to a provision of $0.4 million in the same period
last year. There was a net recovery of $0.8 million in the first half of 2004 on
financing receivables as compared to a provision of $0.3 million in the same
period last year due to a favorable outcome on lease amendments.
Interest income decreased to $0.2 million in the first half of 2004 from $0.4
million in the same period last year primarily due to a decrease in the average
balance of cash and cash equivalents held.
Interest expense decreased slightly to $8.2 million in the first half of 2004
from $8.3 million in the same period last year due largely to lower average debt
balances in 2004. The Company retired and repaid an aggregate of $170.8 million
of the Company's Old Senior Notes throughout 2003 and $9.1 million of
Subordinated Notes on April 1, 2003. As at June 30, 2004, the Company had $160.0
million aggregate principal of the New Senior Notes. Included in interest
expense is the amortization of deferred finance costs in the amount $0.4 million
in the first half of 2004 and $0.4 million for 2003. The Company's policy is to
defer and amortize all the costs relating to a debt financing over the life of
the debt instrument.
The effective tax rate on earnings differs significantly from the statutory rate
due to the effect of permanent differences, income taxed at differing rates in
foreign and other provincial jurisdictions and changes in the Company's
valuation allowance on deferred tax assets. The income tax expense (recovery)
for the period is calculated by applying the estimated average annual effective
tax rate to the period pre-tax income. The Company recorded an income tax
recovery of $0.4 in the first half of 2004 from $0.6 million in the same period
last year.
Page 38
IMAX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont'd)
RESULTS OF OPERATIONS (cont'd)
SIX MONTHS ENDED JUNE 30, 2004 VERSUS SIX MONTHS ENDED JUNE 30, 2003 (cont'd)
RESEARCH AND DEVELOPMENT
Research and development expenses were $2.0 million in the first half of 2004
versus $1.9 million in the same period last year. The higher level of expenses
in 2004 primarily reflects research and development activities pertaining to the
Company's new IMAX MPX theater projection system. Through research and
development, the Company continues to design and develop cinema-based equipment
and software 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), digital re-mastering distribution
and display. Consequently, the Company has made significant investments in
digital technologies, including the development of a proprietary, patent-pending
technology to digitally enhance image resolution and quality of 35mm motion
picture films, and has a number of patents pending and intellectual property
rights in these areas. However, there can be no assurance that the Company will
be awarded patents covering this technology or that competitors will not develop
similar technologies.
LOSS ON RETIREMENT OF NOTES
During the first half of 2004, the Company recorded a loss of $0.8 million
related to costs associated with the redemption of $29.2 million of the
Company's Old Senior Notes. This transaction had the effect of fully
extinguishing the Old Senior Notes. During the first half of 2003, the Company
recorded a loss of $0.2 million from the retirement of $25.0 million of the
Company's Old Senior Notes.
DISCONTINUED OPERATIONS
On December 23, 2003, the Company closed its owned and operated Miami IMAX
theater. The Company abandoned or removed all of its assets from the theater in
the first quarter of 2004. The Company is 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 has been estimated at between $0.8 million and $2.3 million, of
which the Company has accrued $0.8 million. As the Company is uncertain as to
the outcome of the proceeding, no additional amount has been recorded.
Effective December 11, 2001, the Company completed the sale of its wholly-owned
subsidiary, Digital Projection International, including its subsidiaries
(collectively "DPI"), to a company owned by members of DPI management. As part
of the transaction, the Company restructured its advances to DPI, releasing DPI
from obligations to repay any amounts in excess of $12.7 million previously
advanced by the Company, and reorganized the remaining $12.7 million of debt
owing to the Company into two separate loan agreements. During the first half of
2004, the Company received $0.4 million in cash towards the repayment of this
debt, and has recorded a corresponding gain in net earnings (loss) from
discontinued operations (2003 - $0.4 million). As of June 30, 2004, the
remaining balance is $11.5 million, which has been fully provided for.
Page 39
IMAX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont'd)
LIQUIDITY AND CAPITAL RESOURCES
CREDIT FACILITY
On February 6, 2004, the Company entered into a loan agreement for a secured
revolving credit facility with Congress Financial Corporation (Canada) (the
"Credit Facility") The Credit Facility is a three-year revolving credit facility
with yearly renewal options thereafter, permitting maximum aggregate borrowings
of $20.0 million, subject to a borrowing base calculation which includes the
Company's financing receivables, and certain reserve requirements. The Credit
Facility bears interest at Prime + 0.25% per annum or Libor + 2.0% 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
Company's 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 or dissolve. In
addition, the Credit Facility contains customary events of default, including
upon an acquisition or a change of control that has a material adverse effect on
the Company's financial condition. The Credit Facility also requires the Company
to maintain a minimum level of earnings before interest, taxes, depreciation and
amortization, and cash collections. As at June 30, 2004, the Company has not
drawn down on the Credit Facility, however, it has issued letters of credit for
$3.9 million under the Credit Facility arrangement.
CASH AND CASH EQUIVALENTS
As at June 30, 2004, the Company's principal sources of liquidity included cash
and cash equivalents of $17.0 million, trade accounts receivable of $16.1
million and net investment in leases due within one year of $4.2 million. As at
June 30, 2004, the Company had not drawn down any amounts under the Credit
Facility. In January 2004, the Company retired the remaining $29.2 million in
Old Senior Notes using existing cash balances.
The Company believes that cash flow from operations together with existing cash
and borrowing available under the Credit Facility will be sufficient to meet
operating needs for the foreseeable future. However, if management's projections
of future signings and installations are not realized, 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 Company's typical theater system 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 Company's 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 lease and sale agreements in the year, the box office performance
of large format films distributed by the Company and/or exhibited in the
Company's theaters, increases or decreases in the Company's operating expenses,
and the level of cash collections received from its customers.
Cash provided by operating activities amounted to $0.5 million for the period
ended June 30, 2004. Changes in other non-cash operating assets as compared to
December 31, 2003 include a decrease of $1.8 million in inventories, a decrease
of $0.2 million in financing receivables, a $1.7 million increase in accounts
receivable and a $2.1 million increase in prepaid expenses which relates to
prepaid film print costs which will be expensed over the period to be benefited.
Changes in other non-cash operating liabilities as compared to December 31, 2003
include a decrease in deferred revenue of $12.1 million, a decrease in accounts
payable of $0.8 million and an increase of $4.8 million in accrued liabilities.
Included in operating activities for the first half of 2004 were $5.0 million in
film finance proceeds which are required to be spent on a specific film project,
and $0.6 million in premiums paid to retire $29.2 million of principal of the
Company's remaining Old Senior Notes. Net cash provided by operating activities
increased by $5.0 million in the first half of 2004 primarily due to the
elimination of the Company's restricted cash balances, which were used as
collateral for letters of credit. The Company now secures letters of credit
through the Credit Facility, which was entered into in February 2004.
Page 40
IMAX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont'd)
LIQUIDITY AND CAPITAL RESOURCES (cont'd)
CASH AND CASH EQUIVALENTS (cont'd)
Cash used in investing activities amounted to $1.4 million in the first half of
2004, which includes purchases of $0.6 million in fixed assets, an increase in
other assets of $0.7 million and an increase in other intangible assets of $0.2
million.
Cash used in financing activities in the first half of 2004 amounted to $29.4
million. The Company retired $29.2 million of principal of the Company's Old
Senior Notes. Financing costs related to the New Senior Notes amounted to $0.6
million. The Company also received $0.4 million in cash on a note receivable
from a discontinued operation.
Capital expenditures including the purchase of fixed assets and investments in
film assets were $2.0 million for the first half of 2004.
Cash used in operating activities amounted to $7.0 million in the first half of
2003. Changes in other non-cash operating assets and liabilities included a
decrease in deferred revenue of $19.0 million, and a decrease of $6.8 million in
inventories. Cash used by investing activities in the first half of 2003
amounted to $1.5 million, primarily consisting of $0.7 million invested in fixed
assets. Cash provided by financing activities in the first half of 2003 amounted
to $8.1 million which included a $9.1 million repayment of the Company's
remaining outstanding Subordinated Notes and from the receipt of a note
receivable from a discontinued operation. Capital expenditures including the
purchase of fixed assets and investments in film assets were $2.8 million in the
first half of 2003.
LETTERS OF CREDIT AND OTHER COMMITMENTS
As at June 30, 2004, the Company has letters of credit of $3.9 million
outstanding of which the entire balance has been secured by the Credit Facility.
In addition, the Company is required to expend $5.0 million towards the
production of a future motion picture title. The Company has expended $0.1
million of these funds as at June 30, 2004.
NEW SENIOR NOTES DUE 2010
As at June 30, 2004, the Company has $160.0 million aggregate principal of
9.625% senior notes due December 1, 2010 (the "New Senior Notes"). The Company
commenced an exchange offer to exchange all outstanding New Senior Notes for up
to $160.0 million aggregate principal amount of senior notes due December 1,
2010 that will be registered under the U.S. Securities Act of 1933, as amended
(the "Registered Notes"). On February 27, 2004, the Company filed a registration
statement on Form S-4 in relation to the Registered Notes. The Registered Notes
will continue to be unconditionally guaranteed, jointly and severally, by
certain of the Company's wholly-owned subsidiaries. After the exchange, the
terms of the Registered Notes will be substantially identical to the terms of
the New Senior Notes, and evidence the same indebtedness as the New Senior
Notes, except that the Registered Notes will be registered under U.S. securities
laws, will not contain restrictions on transfer or provisions relating to
special interest under circumstances related to the timing of the exchange
offer, will bear a different CUSIP number from the New Senior Notes and will not
entitle their holders to registration rights.
The terms of the Company's New Senior Notes impose certain restrictions on its
operating and financing activities, including certain restrictions on the
Company's ability to: incur additional indebtedness; make distributions or
certain other restricted payments; grant liens; create dividend and other
payment restrictions affecting the Company's subsidiaries; sell certain assets
or merge with or into other companies; and enter into transactions with
affiliates. The Company believes these restrictions will not have a material
impact on its financial condition or results of operations.
Page 41
IMAX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont'd)
LIQUIDITY AND CAPITAL RESOURCES (cont'd)
OLD SENIOR NOTES DUE 2005
In December 2003 the Company completed a tender offer and consent solicitation
for its remaining $152.8 million of principal of senior notes due December 1,
2005 bearing interest at a rate of 7.875% per annum (the "Old Senior Notes")
that were not retired previously. In December 2003, $123.6 million in principal
of the Old Senior Notes were redeemed pursuant to the tender offer. Notice of
Redemption for all remaining outstanding Old Senior Notes was delivered on
December 4, 2003 and the remaining $29.2 of outstanding Old Senior Notes were
redeemed on January 2, 2004 using proceeds from the Company's private placement.
In the first half of 2004, the Company recorded a loss of $0.8 million related
to the retirement of the Company's Old Senior Notes. During the first half of
2003, the Company recorded a loss of $0.2 million from the retirement of $25.0
million of the Company's Old Senior Notes.
PENSION OBLIGATIONS
The Company has a defined benefit pension plan covering its two Co-Chief
Executive Officers. As June 30, 2004, the Company had an unfunded and accrued
projected benefit obligation of approximately $21.8 million (December 31, 2003 -
$20.1 million) in respect of this defined benefit pension plan. The Company
intends to use the proceeds of life insurance policies taken on its Co-Chief
Executive Officers to satisfy, in whole or in part, certain of the benefits due
and payable under the plan, although there can be no assurance that the Company
will ultimately do so.
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 Company's
financial condition.
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IMAX CORPORATION
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 Company's 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 Company's 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 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. In the first half of 2004, the Company recorded
translation losses of $0.3 million primarily from the receivables associated
with these leases, as the value of the U.S. dollar strengthened in relation to
these currencies. 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.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company's Co-Chief Executive Officers and Chief Financial Officer, after
evaluating the effectiveness of the Company's "disclosure controls and
procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e)
and 15d- 15(e)) as of the end of the period covered by this report, have
concluded that, as of the end of the period covered by this report, the
Company's disclosure controls and procedures were adequate and effective. The
Company will continue to periodically evaluate its disclosure controls and
procedures and will make modifications from time to time as deemed necessary to
ensure that information is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission's (the
"SEC") rules and forms.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
As of the end of the period covered by this report there was no change in the
Company's internal control over financial reporting that occurred during the
period covered by this report that has materially affected or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.
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IMAX CORPORATION
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
(a) In March 2001, a complaint was filed against the Company by Muvico
Entertainment, L.L.C. ("Muvico"), alleging misrepresentation and seeking
rescission in respect of the system lease agreements between the Company
and Muvico. The complaint was subsequently amended to add claims for fraud
based upon the same factual allegations underlying its prior claims. The
Company filed counterclaims against Muvico for breach of contract, unjust
enrichment, unfair competition and/or deceptive trade practices and theft
of trade secrets, and brought claims against MegaSystems, Inc.
("MegaSystems"), a large-format theater system manufacturer, for tortious
interference and unfair competition and/or deceptive trade practices and to
enjoin Muvico and MegaSystems from using the Company's confidential and
proprietary information. The case is being heard in the U.S. District
Court, Southern District of Florida, Miami Division. The Company's motion
for a summary judgement on its contract claims against Muvico was heard in
September 2003; a decision has not yet been rendered. The Company believes
that the allegations made by Muvico in its complaint are entirely without
merit and will accordingly defend the claims vigorously. The Company
further believes that the amount of loss, if any, suffered in connection
with this lawsuit would not have a material impact on the financial
position or results of operation of the Company, although no assurance can
be given with respect to the ultimate outcome of any such litigation.
(b) In May 2003, the Company filed a Statement of Claim in the Ontario Superior
Court of Justice against United Cinemas International Multiplex B.V.
("UCI") for specific performance, or alternatively, damages of $25.0
million with respect to the breach of a 1999 agreement between the Company
and UCI whereby UCI committed to purchase IMAX theater systems from the
Company. In August 2003, UCI filed a Statement of Defence denying it is in
breach. On December 10, 2003, UCI and its two subsidiaries in the United
Kingdom and Japan filed a claim against the Company claiming alleged
breaches of the 1999 agreement referred to in the Company's claim against
UCI, and repeating allegations contained in UCI's Statement of Defence to
the Company's action. The Company believes that the allegations made by UCI
in its complaint are entirely without merit and will accordingly defend the
claims vigorously. The Company believes that the amount of loss, if any,
suffered in connection with this lawsuit would not have a material impact
on the financial position or results of operation of the Company, although
no assurance can be given with respect to the ultimate outcome of any such
litigation.
(c) In November 2001, the Company filed a complaint with the High Court of
Munich against Big Screen, a German large-screen cinema owner in Berlin
("Big Screen"), demanding payment of rental payments and certain other
amounts owed to the Company. Big Screen has raised a defense based on
alleged infringement of German antitrust rules, relating mainly to an
allegation of excessive pricing. Big Screen had brought a number of motions
for restraining orders in this matter relating to the Company's provision
of films and maintenance, all of which have been rejected by the courts,
including the Berlin Court of Appeals, and for which all appeals have been
exhausted. The Company believes that all of the allegations in Big Screen's
individual defense are entirely without merit and will accordingly continue
to prosecute this matter vigorously. The Company believes that the amount
of the loss, if any, suffered in connection with this dispute would not
have a material impact on the financial position or results of operations
of the Company, although no assurance can be given with respect to the
ultimate outcome of any such litigation.
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IMAX CORPORATION
PART II OTHER INFORMATION (cont'd)
ITEM 1. LEGAL PROCEEDINGS (cont'd)
(d) In May, 2002, the Company filed a complaint with the District Court of
Nuremberg-Furth, Germany against Siewert Holding in Wurtzburg ("Siewert"),
demanding payment of rental obligations and other amounts owed to the
Company. Siewert raised a defense based on alleged infringement of German
antitrust rules. By judgement of December 20, 2002, the District Court
rejected the defense and awarded judgement in the documentary proceedings
in favor of the Company and added further amounts that had fallen due.
Siewert applied for leave to appeal to the German Supreme Court on matters
of law, which was rejected by the German Supreme Court in March 2004. To
enforce its judgement against Siewert, the Company filed for the opening of
insolvency proceedings with respect to Siewert, which filing was withdrawn
following payment by Siewert to the Company. Siewert has filed further
proceedings in the District Court, claiming that the majority of its lease
obligations to the Company should be invalidated. The Company will
vigorously defend such claim and does not believe that the amount of loss,
if any, suffered in connection with these proceedings would have a material
impact on the financial position or results of operation of the Company,
although no assurance can be given with respect to the ultimate outcome of
any such litigation.
(e) In January 2004, the Company and IMAX Theatre 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 April 2004, EML filed an answer and counterclaim seeking the
return of funds EML has paid to the Company, incidental expenses and
punitive damages. The Company believes that the allegations made by EML in
its counterclaim are entirely without merit and has requested that these
counterclaims be dismissed on the basis that EML has recently advised the
ICC that it has insufficient funds to pay its share of the arbitration
costs. The Company believes that the amount of loss, if any, suffered in
connection with this arbitration would not have a material impact on the
financial position or results of operation of the Company, although no
assurance can be given with respect to the ultimate outcome of any such
litigation.
(f) In addition to the matters described above, the Company is currently
involved in other legal proceedings which, in the opinion of the Company's
management, will not materially affect the Company's financial position or
future operating results, although no assurance can be given with respect
to the ultimate outcome of any such proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On January 2, 2004, the Company completed the redemption of $29.2 million
of 7.875% senior notes due December 1, 2005 (the "Old Senior Notes"). This
transactions had the effect of reducing the principal amount of the
Company's outstanding Old Senior Notes to $nil.
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IMAX CORPORATION
PART II OTHER INFORMATION (cont'd)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual and Special Meeting of the Company's shareholders held on
June 3, 2004, shareholders represented at the meeting: (i) elected
Richard L. Gelfond (33,955,350 shares voted for and 288,538 shares
withheld), Bradley J. Wechsler (33,958,510 shares voted for and 285,378
shares withheld) and Kenneth G. Copland (33,833,414 shares voted for and
410,474 shares withheld) as Class III directors of the Company for a
term expiring in 2007; (ii) appointed PricewaterhouseCoopers, LLP as
auditors of the Company to hold office until the next annual meeting of
shareholders at a remuneration to be fixed by the Board of Directors
(34,059,350 shares voted for; 36,962 withheld); (iii) approved
amendments to the Articles of Amalgamation of the Company (13,227,835
shares voted for and 679,429 shares voted against); and (iv) approved
amendments to By-Law No. 1 of the Company (13,519,768 shares voted for
and 368,604 shares voted against). In addition to the foregoing
directors, the following directors continued in office: Neil S. Braun,
Michael Fuchs, Garth M. Girvan, David W. Leebron and Marc A. Utay.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(B) EXHIBITS
3.2 Articles of Amendment of IMAX Corporation, dated June 25, 2004.
Incorporated by reference to Exhibit 3.2 to IMAX Corporation's Form 10-Q
for the quarter ended June 30, 2004 (File No. 000-24216).
3.3 By-Law No.1 of IMAX Corporation enacted on June 3, 2004. Incorporated by
reference to Exhibit 3.3 to IMAX Corporation's Form 10-Q for the quarter
ended June 30, 2004 (File No. 000-24216).
10.18 Amended Employment Agreement, dated June 3, 2004 between IMAX
Corporation and Bradley J. Wechsler. Incorporated by reference to
Exhibit 10.18 to IMAX Corporation's Form 10-Q for the quarter ended June
30, 2004 (File No. 000-24216).
10.19 Amended Employment Agreement, dated June 3, 2004 between IMAX
Corporation and Richard L. Gelfond. Incorporated by reference to Exhibit
10.19 to IMAX Corporation's Form 10-Q for the quarter ended June 30,
2004 (File No. 000-24216).
31.1 Certification Pursuant to Section 302 of the Sarbanes - Oxley Act of
2002, dated September 13, 2004, by Bradley J. Wechsler.
31.2 Certification Pursuant to Section 302 of the Sarbanes - Oxley Act of
2002, dated September 13, 2004, by Richard L. Gelfond.
31.3 Certification Pursuant to Section 302 of the Sarbanes - Oxley Act of
2002, dated September 13, 2004, by Francis T. Joyce.
32.1 Certification Pursuant to Section 906 of the Sarbanes - Oxley Act of
2002, dated September 13, 2004, by Bradley J. Wechsler.
32.2 Certification Pursuant to Section 906 of the Sarbanes - Oxley Act of
2002, dated September 13, 2004, by Richard L. Gelfond.
32.3 Certification Pursuant to Section 906 of the Sarbanes - Oxley Act of
2002, dated September 13, 2004, by Francis T. Joyce
(B) REPORTS ON FORM 8-K
The Company filed a report on Form 8-K on May 6, 2004, pursuant to Item
12 - Results of Operations and Financial Conditions. The Company
reported that it had issued a press release announcing the Company's
financial and operating results for the quarter ended March 31, 2004.
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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.
IMAX CORPORATION
Date: September 13, 2004 By: /s/ Francis T. Joyce
------------------------- -----------------------------------
Francis T. Joyce
Chief Financial Officer
(Principal Financial Officer)
Date: September 13, 2004 By: /s/ Kathryn A. Gamble
------------------------- -----------------------------------
Kathryn A. Gamble
Vice President, Finance, Controller
(Principal Accounting Officer)
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