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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
|_| 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
(Address of principal executive offices) (Postal Code)
Registrant's telephone number, including area code (905) 403-6500
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange
Title of each class on which registered
------------------- -------------------
None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, no par value
(Title of class)
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 |_|
The aggregate market value of the common shares of the registrant held by
non-affiliates of the registrant, computed by reference to the last sale price
of such shares as of the close of trading on March 10, 2000 was $405,093,331
(18,465,372 common shares times $21.938). As of March 10, 2000, there were
29,780,356 common shares of the registrant outstanding.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
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Annual Report on Form 10-K
December 31, 1999
Table of Contents
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Page
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PART I
Item 1-- Business................................................................................... 4
Item 2-- Properties................................................................................. 11
Item 3-- Legal Proceedings.......................................................................... 11
Item 4-- Submission of Matters to a Vote of Security Holders........................................ 12
PART II
Item 5-- Market for Registrant's Common Equity and Related Stockholder Matters...................... 13
Item 6-- Selected Financial Data.................................................................... 13
Item 7-- Management's Discussion and Analysis of Financial Condition and Results of Operations...... 15
Item 7a-- Quantitative and Qualitative Disclosures about Market Risk................................. 26
Item 8-- Financial Statements and Supplementary Data................................................ 27
Item 9-- Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....... 51
PART III
Item 10-- Directors and Executive Officers of the Registrant......................................... 51
Item 11-- Executive Compensation..................................................................... 54
Item 12-- Security Ownership of Certain Beneficial Owners and Management............................. 59
Item 13-- Certain Relationships and Related Transactions............................................. 63
PART IV
Item 14-- Exhibits, Financial Statement Schedules and Reports on Form 8-K............................ 63
Signatures.............................................................................................. 66
</TABLE>
2
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EXCHANGE RATE DATA
Unless otherwise indicated, all dollar amounts in this document are
expressed in United States dollars. The following table sets forth, for the
periods indicated, certain exchange rates based on the noon buying rate in the
City of New York for cable transfers in foreign currencies as certified for
customs purposes by the Federal Reserve Bank of New York (the "Noon Buying
Rate"). Such rates quoted are the number of U.S. dollars per one Canadian dollar
and are the inverse of rates quoted by the Federal Reserve Bank of New York for
Canadian dollars per U.S. $1.00. The average exchange rate is based on the
average of the exchange rates on the last day of each month during such periods.
The Noon Buying Rate on December 31, 1999 was U.S. $0.6925.
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------------------------------------------------
1995 1996 1997 1998 1999
------------------------------------------------ --------------------------------
<S> <C> <C> <C> <C> <C>
Exchange rate at end of
period.................... U.S. $0.7325 U.S. $0.7301 U.S. $0.6999 U.S. $0.6522 U.S. $0.6925
Average exchange rate
during period.............. 0.7312 0.7329 0.7220 0.6740 0.6730
High exchange rate during
period..................... 0.7533 0.7513 0.7471 0.7105 0.6925
Low exchange rate during
period..................... 0.7008 0.7235 0.6945 0.6341 0.6535
</TABLE>
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain statements included herein 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 its business and
operations, plans and references to the future success of the Company. 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; 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; and 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 herein
are qualified by these cautionary statements, and there can be no assurance that
the actual results or developments anticipated by the Company will be realized
or, even if substantially realized, that they will have the expected
consequences to, or effects on, the Company.
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IMAX(R), IMAX(R) Dome, IMAX Ridefilm(R), IMAX Solido(R), OMNIMAX(R),
IMAX(R) 3D, Personal Sound Environment(R), The IMAX Experience(R), An IMAX
Experience(R) and An IMAX 3D Experience(R) are trademarks and trade names of the
Company or its subsidiaries that are registered or otherwise protected under
laws of various jurisdictions.
3
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PART I
Item 1. Business
GENERAL
Imax Corporation and its subsidiaries (the "Company") is one of the
world's leading entertainment technology companies, with particular emphasis on
film and digital imaging technologies including giant-screen images, 3D
presentations, post-production and digital projection. The Company designs and
manufactures projection and sound systems for giant-screen ("15/70-format")
theaters based on proprietary and patented technology and is the largest
producer and distributor of films for giant-screen theaters. The Company,
through its recent acquisition of Digital Projection International ("DPI"), also
designs and manufactures high performance digital image delivery systems in the
form of digital projectors capable of projecting high quality images on large
screens from any video, computer or HDTV source. The IMAX(R) brand name enjoys
widespread recognition with more than 500 million viewers throughout the world
having experienced the Company's high-quality, giant-screen theater attractions
since 1970 including over 70 million viewers in 1999.
The Company has experienced substantial growth in the IMAX theater network
as a result of the increased worldwide demand for IMAX 3D theaters located in
commercial locations. The increased number of commercial IMAX theaters in
operation has attracted more commercial films to the medium including films
produced by major Hollywood studios. In January 2000, Buena Vista Pictures
Distribution, a unit of The Walt Disney Company, released Disney's animated
feature Fantasia 2000: The IMAX Experience exclusively to 75 IMAX theaters
around the world for a four-month period ending April 30, 2000. Fantasia 2000
was the first theatrical full-length feature film to be reformatted into
15/70-format film and has become the fastest grossing large-format film in
history demonstrating the potential for Hollywood films to be shown in IMAX
theaters. The Company believes that the success of Fantasia 2000
has the potential to lead to additional Hollywood films being released to IMAX
theaters which, the Company believes could create further demand worldwide for
commercial IMAX theaters.
The IMAX theater network is the most extensive giant-screen theater network
in the world with 208 theaters operating in 25 countries as of December 31,
1999. The Company generally does not own IMAX theaters but leases its projection
and sound systems and licenses the use of its trademarks. IMAX theater systems
combine advanced high-resolution projection systems, sound systems and screens
as large as eight stories high (approximately 80 feet) that extend to the edge
of a viewer's peripheral vision to create immersive audio-visual experiences. As
a result, audiences feel as if they are a part of the on-screen action in a way
that is more intense and exciting than in traditional theaters. In addition, the
Company's IMAX 3D theater systems combine the same projection and sound systems
and up to eight storey screens with 3D images that further increase the
audience's feeling of immersion in the film. The Company believes that the
network of IMAX 3D theaters is the largest out-of-home 3D distribution network
in the world.
In addition to the existing library of entertaining and educational
15/70-format films, recent film productions have included commercial films such
as Everest, which was produced and distributed by MacGillivray Freeman Films and
was the first 15/70-format film to be one of the top 10 highest grossing
films in North America, T-REX: Back to the Cretaceous which was produced by the
Company, and features giant computer generated 3D images of dinosaurs, and The
Walt Disney Company's animated feature Fantasia 2000: The IMAX Experience.
DPI's digital projectors are based on Texas Instruments' Digital
Micromirror DeviceTM (DMD), a unique digital imaging platform based on an
optical semiconductor chip that has any array of up to 1,310,000 hinged,
microscopic mirrors which operate as optical switches to create a high
resolution, full color image. DPI played an important role in the development of
the DMD chip. DPI designs, manufactures and sells high-quality digital image
delivery devices for applications such as rock concerts, casinos and trade
shows. DPI offers a number of different product offerings based on a range of
brightness and resolution of the projected image. The Company believes new
markets are emerging for DPI's products including applications for digital
cinema in conventional movie theaters and digital media networks including
location based advertising networks.
The Company was formed in March 1994 as a result of an amalgamation between
WGIM Acquisition Corp. and the former Imax Corporation ("Predecessor Imax").
Predecessor Imax was incorporated in 1967. Imax effected a corporate
reorganization in December 1998 to better align employees and operations to the
Company's lines of business. As a result of this reorganization, Imax Ltd., a
100% owned subsidiary of Imax Corporation, is responsible for the funtions of
system leasing, film marketing and distribution, systems maintenance, camera
rental, marketing and administration.
4
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PRODUCT LINES
The Company is the largest designer and supplier of projection and sound
systems and the largest producer and distributor of 15/70-format films for
giant-screen theaters. The Company's theater systems include specialized
projection equipment, advanced sound systems, specialty screens, theater
automation control systems and film handling equipment. The Company derives a
significant portion of its revenues from the sale and lease of its theater
systems to giant-screen theaters and related film products and services.
Segmented information is provided in Note 19 to the audited financial statements
contained in Item 8.
In 1999, the Company acquired 100% of DPI. DPI designs, manufactures and
sells high-quality digital image delivery devices for applications such as rock
concerts, casinos and trade shows. DPI offers a number of different product
offerings based on a range of brightness and resolution of the projected image.
The Company believes new markets are emerging for DPI's products including
applications for digital cinema in conventional movie theaters and digital media
networks including location based advertising networks (see Digital Projection
International).
Giant-Screen Theaters
The Company is the pioneer and leader in the giant-screen, large-format
film industry. The IMAX theater system network has the largest installed base of
giant-screen theater systems, with systems located in 208 theaters in 25
countries as of December 31, 1999 which, including committed theaters in
backlog, will grow to more than 280 theaters by the year 2002. IMAX theaters
have flat or dome shaped screens for 2D and 3D presentations which are many
times larger than conventional theaters, extending to the edge of the viewer's
peripheral vision. The theaters have a steeply inclined floor to provide all
audience members a clear view of the screen and typically seat 250 to 500
people.
The Company's projection systems utilize the largest commercially available
film format (70mm, 15-perforation film frame), which is 10 times larger than
conventional film (35mm, 4-perforation film frame) and therefore are able to
project significantly more detail on a larger screen. The Company believes its
projectors, which utilize the Company's Rolling Loop technology, are unsurpassed
in their ability to project film with maximum steadiness and clarity with
minimal film wear, and substantially enhance the quality of the projected image.
As a result, the Company's projection systems deliver a higher level of clarity,
detail and brightness compared to conventional movies and competing systems.
To complement the film technology and viewing experience, IMAX theater
systems feature unique digital sound systems. The sound systems are among the
most advanced in the industry and help to heighten the sense of realism of a
15/70-format film. IMAX sound systems are specifically designed for IMAX
theaters and are an important competitive advantage of IMAX systems.
The following chart shows the number of the Company's theater systems by
product, installed base and backlog as of December 31, 1999:
<TABLE>
<CAPTION>
2D 3D
------------------------------------- -------------------------------------
Product Installed Backlog Product Installed Backlog
------- --------- ------- ------- --------- -------
Base Base
---- ----
<S> <C> <C> <C> <C> <C> <C>
Flat Screen .... IMAX 61 4 IMAX 3D 63 23
IMAX 3D SR 17 48
Dome Screen .... IMAX Dome 64 2 IMAX Solido 3 --
</TABLE>
5
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IMAX and IMAX Dome Systems. IMAX and IMAX Dome systems make up the largest
component of the Company's installed theater base. IMAX theaters, with a flat
screen, were introduced in 1970, while IMAX Dome theaters, previously known as
OMNIMAX theaters, are designed for tilted dome screens and were introduced in
1973. There have been several significant proprietary and patented enhancements
to these systems since their introduction.
IMAX 3D and 3D SR Systems. IMAX 3D systems make up the largest component of
the Company's backlog. IMAX 3D theaters utilize a flat screen 3D system which
produces realistic three-dimensional images on a giant IMAX screen. The Company
believes that the IMAX 3D system offers consumers one of the most realistic 3D
experiences available today. To create the 3D effect, the audience uses either
polarized glasses or electronic glasses that separate the left- and right-eye
images. The electronic glasses use liquid crystal shutter lenses controlled by
an infrared signal. Each lens "opens and closes" 48 times a second in
synchronization with the projector to produce full color stereoscopic viewing.
The IMAX 3D projectors can project both 2D and 3D films, allowing theater owners
the flexibility to exhibit either type of film. The Company offers upgrades to
existing theaters which have 2D IMAX projection systems to IMAX 3D projection
systems. Since the introduction of IMAX 3D technology, the Company has upgraded
11 theater systems and had one additional upgrade in backlog as of December 31,
1999.
In 1997, the Company launched a smaller IMAX 3D system called IMAX 3D SR; a
patented theater system that combines a proprietary theater design, a more
automated projection system and specialized sound system to replicate the
experience of a larger IMAX 3D theater in a smaller space (up to 270 seats). The
IMAX 3D SR theater system is designed to be located primarily in multiplexes in
smaller cities and to operate at lower costs than the larger IMAX 3D GT theater
system. The Company had 48 IMAX 3D SR systems in backlog at December 31, 1999.
IMAX Solido Systems. IMAX Solido theaters comprise a dome screen 3D system
that projects the film onto a tilted dome such that objects not only appear to
"come out" from the screen but also to envelop the viewer. IMAX Solido
projectors, like IMAX 3D projectors, can project both 2D and 3D films.
Theater System Leases
The Company's system leases generally have 10 to 20-year initial terms and,
subject to certain conditions, are typically renewable by the customer for one
or more additional 10-year terms. As part of the lease agreement, the Company
advises the customer on theater design, custom assembles and supervises the
installation of the theater system, provides training to theater personnel and
ongoing maintenance to the system. Prospective theater owners are responsible
for providing the theater location, the design and construction of the theater
building and any other necessary improvements. Under the terms of the typical
lease agreement, the title to all theater system equipment (including the
projection screen, the projector and the sound system) remains with the Company.
The Company has the right to remove the equipment for non-payment or other
defaults by the customer. The contracts are generally not cancelable by the
customer unless the Company fails to perform its obligations. The contracts are
generally denominated in U.S. dollars, except in Canada and Japan, where
contracts are generally denominated in Canadian dollars and Japanese Yen,
respectively.
The typical lease agreement provides for three major sources of revenue:
(i) upfront fees, (ii) ongoing royalty payments and (iii) ongoing maintenance
fees. Royalty payments and maintenance fees are generally received over the life
of the contract and are usually adjusted annually based on changes in the local
consumer price index. The terms of each lease agreement vary according to the
system technology provided and the geographic location of the customer.
Theater Operations and Investments
The Company has 13 theaters in which it holds an equity interest. As of
December 31, 1999 the Company's sales backlog includes seven theaters in which
the Company has an equity interest.
In the case of equity interests which are joint ventures, the Company
generally contributes the projection and sound system to the theater in exchange
for a percentage of the theater revenues and/or profits. The Company's partner
is generally responsible for constructing and outfitting the theater. The
Company may also provide management services in return for a fee or a percentage
of theater revenues as part of the equity interest.
6
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Sound Systems
Sonics Associates, Inc. ("Sonics"), the Company's 100% owned subsidiary, is
a world leader in the development and manufacture of sound systems for all
applications including traditional movie theaters, auditoriums, and specialized
uses including the development of 3D sound capabilities and manufactures the
sound systems for the Company's theaters. Sonics holds multiple patents in sound
development including a new theater sound system developed especially for
theaters with stadium seating, a digital audio technology with advanced circuit
design specifically to enhance sound clarity and depth of sound reproduction,
and its Personal Sound Environment, the first 3D sound environment for
the movies. Prior to October 1, 1999, Sonics was 51% owned by the Company and
49% owned by four executive officers of Sonics. On October 1, 1999, the Company
purchased the remaining 49% of Sonics that it did not own (see note 3 to the
financial statements contained in Item 8).
Digital Projection International
DPI's digital projectors are based on Texas Instruments' Digital
Micromirror DeviceTM (DMD), a unique digital imaging platform based on an
optical semiconductor chip that has an array of up to 1,310,000 hinged,
microscopic mirrors which operate as optical switches to create a high
resolution, full color image. DPI played an important role in the development of
the DMD chip. DPI designs, manufactures and sells high-quality digital image
delivery devices for applications such as rock concerts, casinos and trade
shows. DPI offers a number of different product offerings based on a range of
brightness and resolution of the projected image. The Company believes new
markets are emerging for DPI's products including applications for digital
cinema in conventional movie theaters and digital media networks including
location based advertising networks. Digital Projection's products are the only
projectors to be honored with two Emmy(R) awards for broadcast engineering. On
September 3, 1999 the Company purchased 100% of DPI (see note 3 to the financial
statements contained in Item 8).
Film Production, Post-Production and Distribution
The Company is the largest producer and distributor of 15/70-format films.
The Company produces films financed either internally or partially or fully,
financed by third parties. With respect to third party productions, the Company
generally receives a film production fee in exchange for producing the films and
is appointed the exclusive distributor of the film. When the Company produces
films, it typically hires production talent and specialists on a
project-by-project basis, similar to a movie studio, allowing the Company to
retain creative and quality control without the burden of signification ongoing
overhead expenses. Typically, the ownership rights to films produced for third
parties are held by the film sponsors, the film investors and the Company.
The Company generally distributes films produced by the Company and has
acquired distribution rights to films produced by independent producers. The
Company has distribution rights to more 15/70-format films than any competing
distributor. As distributor, the Company generally receives a percentage of the
theater box office receipts. On a limited basis, the Company also markets video
cassette and laser disk souvenir copies of its films both at theaters and
through other retail channels.
The library of 15/70-format films includes entertaining and educational
films on subjects such as space, wildlife, music, history and natural wonders,
and consists of 154 films at the end of 1999 of which the Company had
distribution rights to 51 such films. In recent years, several 15/70-format
commercial films have been successfully released, including T-REX: Back to the
Cretaceous, which was released by the Company in 1998 and has grossed over $40
million to date and Everest, which was released by MacGillivray Freeman Films
1998 and has grossed over $100 million to date. On January 1, 2000 pursuant to
an agreement between the Company and Buena Vista Pictures Distribution, a unit
of The Walt Disney Company, Fantasia 2000: The IMAX Experience was released
exclusively to 75 IMAX theaters around the world for a four-month period ending
April 30, 2000. This was the first theatrical full-length feature film to be
reformatted into 15/70-format film and it became the fastest grossing
large-format film in history, grossing over $40 million in its first 75 days of
release. 15/70-format films are expected to be in distribution for five or more
years, although many of the films in the library have remained popular for
longer periods including the films To Fly (1976), Grand Canyon - The Hidden
Secrets (1984) and The Dream Is Alive (1985) which were all exhibited during
1999. In 1999, there were 15 new films released in the 15/70-format.
David Keighley Productions 70MM Inc., a wholly-owned subsidiary of the
Company, provides film post-production and quality control services for
15/70-format films (whether produced internally or externally), and is
developing digital post-production services for future digital formats.
7
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Cameras. The Company rents 2D 15/70-format cameras and provides technical
and post-production services to third party producers for a fee. The Company
maintains 13 cameras and other film and lighting equipment to support
third-party producers and also offers production advice and technical assistance
to filmmakers.
The Company has developed state-of-the-art patented dual and single
filmstrips 3D cameras which are among the most advanced motion pictures cameras
in the world and are the only 3D cameras of their kind. The IMAX 3D camera
simultaneously shoots left- and right-eye images and its compact size allows
filmmakers access to a variety of locations, such as underwater or aboard
aircraft. The Company has three dual filmstrip cameras in its inventory.
MARKETING AND CUSTOMERS
The Company markets its theater systems through a direct sales force and
marketing staff located in offices in Canada, the United States, Europe,
Singapore and Japan. In addition, the Company has agreements with consultants,
business brokers and real estate professionals to locate potential customers and
theater sites for the Company on a commission basis.
The Company has experienced an increase in the number of commercial theater
signings and international signings since 1995. At December 31, 1999, the number
of commercial theaters installed and in backlog had increased 18% over 1998. The
commercial theater segment of the Company's theater network is now its largest
segment with a total of 148 theaters opened or in backlog. At December 31, 1999,
42% of all opened and backlog theaters are for locations outside of North
America. The Company's institutional customers include science and natural
history museums, zoos, aquaria and other educational and cultural centers. The
Company also leases its systems to theme parks, tourist destination sites, fairs
and expositions. For a breakdown of the installed theater base and backlog by
market segment, geographic segment and product as of December 31, 1999, see Item
7, Management's Discussion and Analysis of Financial Condition and Results of
Operations.
INDUSTRY AND COMPETITION
The Company competes with a number of manufacturers of large-format film
projection systems; however, the IMAX theater network and the number of
15/70-format films to which the Company has distribution rights are
substantially larger than those of its 15/70-format competitors. The Company's
customers generally consider a number of criteria when selecting a large-format
theater including quality, reputation, brand name recognition, type of system,
features, price and service. The Company believes that its competitive strengths
include the value of the IMAX brand name, the quality and historic up-time of
IMAX theater systems, the number and quality of 15/70-format films that it
distributes, the quality of the sound system included with the IMAX theater and
the level of the Company's service and maintenance efforts.
The commercial success of the Company's products is ultimately dependent
upon consumer preferences. The out-of-home entertainment industry in general
continues to go through significant changes, primarily due to technological
developments and changing consumer tastes. Numerous companies are developing new
entertainment products for the out-of-home entertainment industry in response to
these changes, and some of these new products are or may be directly competitive
with the Company's products. Competitors may design products which are more
attractive to the consumers and/or more cost effective than the Company's
products and that may make the Company's products less competitive. There can be
no assurance that the Company's existing products will continue to compete
effectively and be attractive to consumers or that its products under
development will ever be attractive to consumers or be competitive. The Company
may also face competition from companies in the entertainment industry with
substantially greater financial and other resources than the Company.
8
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RESEARCH AND DEVELOPMENT
The Company believes that it is one of the world's leading entertaining
technology companies with significant in-house proprietary expertise in
projection system, camera, and sound system design, engineering and technology.
The Company believes that virtually all aspects of the motion picture industry
will be affected by the development of digital techniques, particularly in the
areas of content creation (image capture), post-production (editing and special
effects), distribution and display. The Company has made significant investments
in digital technologies, including its September 1999 acquisition of 100% of
DPI, a designer and manufacturer of digital image delivery systems, and has a
number of patents and intellectual property rights in these areas. DPI played an
important role in the development of the DMD chip that forms the basis for DPI's
projectors. The Company has made a number of significant technological advances
in the past and in January 1997, the Company was awarded an Academy AwardTM for
scientific and technical achievement by the Academy of Motion Picture Arts and
Sciences. In addition, the Company has substantial proprietary knowledge in
15/70-format film production. As of December 31, 1999, 58 of the Company's
employees were connected with research and development projects.
Several of the underlying technologies and resulting products and systems
of the Company are covered by patents or patent applications. Other underlying
technologies are available to competitors, in part because of the expiration of
certain patents owned by the Company. The Company, however, has successfully
obtained patent protection covering several of its significant improvements made
to such technologies. The Company historically has retained the rights to the
intellectual property associated with new products and technologies developed
under arrangements with third parties. The Company plans to continue to fund
research and development activity in areas considered important to the Company's
continued commercial success.
Including contributions by third parties, the Company has spent
approximately $15.5 million on research and development over the last five
years, including approximately $2.2 million, $2.8 million and $4.5 million in
1997, 1998 and 1999 respectively. In 1991, the Company received a multi-year
grant from the Ontario Technology Fund of the Government of Ontario for research
and development. The program was completed in 1998 and cost approximately $7.0
million over seven years, with the Ontario Technology Fund contributing
approximately $3.1 million.
In September 1999, the Company acquired 100% of DPI, a designer and
manufacturer of digital image delivery systems, to among other things, integrate
research and development of digital products.
MANUFACTURING AND SERVICE
Imax Manufacturing
The Company assembles its giant-screen projection systems at its Corporate
Headquarters and Technology Center in Mississauga, Ontario (near Toronto). A
majority of the components for the Company's systems are purchased from outside
vendors. The Company develops and designs all the key elements for the
proprietary technology involved in its projector and camera systems. Fabrication
of these components is then subcontracted to a group of carefully pre-qualified
suppliers. Manufacture and supply contracts are signed for the delivery of
components on an order-by-order basis. The Company has developed long-term
relationships with a number of significant suppliers, and the Company believes
its existing suppliers will continue to supply quality products in quantities
sufficient to satisfy its needs. The Company inspects all components and
sub-assemblies, completes the final assembly, and then subjects the systems to
comprehensive testing prior to shipment. Since 1980, the IMAX theater systems
have had an average in service time of over 99.8%.
9
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Sonics Manufacturing
Sonics develops, designs and assembles the key elements of its theater
sound systems. The standard IMAX theater sound system comprises components from
a variety of sources with approximately 50% of the materials cost of each system
attributable to proprietary components provided under OEM agreements with
outside vendors. These proprietary components include custom loudspeaker
enclosures and horns and specialized amplifiers, signal processing and control
equipment. The components for the complete sound system are assembled by Sonics
at its facility in Birmingham, Alabama. Sonics also fabricates professional
audio electronics equipment for a variety of applications and offers individual
system customization for unique applications such as amusement park rides.
DPI Manufacturing
DPI develops, designs and manufactures digital projector systems utilizing
digital and micromirror technology. These projector systems are marketed
typically to commercial clients in the staging, rental and display advertising
sectors who require an industry leading combination of high brightness and
resolution. DPI manufactures projectors at its production and research facility
in Manchester, England and also maintains a sales and customer support office in
Atlanta, Georgia.
Service and Maintenance
The Company provides key services and support functions for the IMAX
theater network and for filmmakers. To support the IMAX theater network, the
Company has personnel stationed in major markets who provide periodic and
emergency service and maintenance on existing systems throughout the world. The
Company's personnel typically visit each theater every three months to service
the projection and sound systems. The Company also provides theater design
expertise for both the visual and audio aspects of the theater, as well as
system installation and training.
PATENTS AND TRADEMARKS
The Company's inventions cover various aspects of its proprietary
technology and many of such inventions are protected by Letters Patent or
applications filed throughout the world, most significantly in the United
States, Canada, Japan, Korea, France, Germany and the United Kingdom. The
subject matter covered by these patents and applications encompasses electronic
circuitry and mechanisms employed in film projectors and projection systems
(including 3D projection systems), a simulator theater system and the orthogonal
motion base mechanism, and a method for synchronizing digital data systems. The
Company has been diligent in the protection of its proprietary interests.
The Company currently holds 58 patents, has 19 patents pending in the
United States and has corresponding patents or filed applications in many
countries throughout the world. Through its subsidiary DPI, the Company holds 13
patents and has 10 patents pending in the United States related to the delivery
and projection of digital images. While the Company considers its patents to be
important to the overall conduct of its business, it does not consider any
particular patent essential to its operations. Certain of the Company's patents
in the United States, Canada and Japan for improvements to the IMAX projector,
IMAX Solido and sound systems expire between 2001 and 2018.
The Company owns or otherwise has rights to trademarks and trade names used
in conjunction with the sale of its products, systems and services. The
following trademarks are considered significant in terms of the current and
contemplated operations of the Company: The IMAX Experience(R), An IMAX 3D
Experience(R), An IMAX Experience(R), IMAX(R), IMAX(R) 3D, IMAX(R) Dome, IMAX
Solido(R), Personal Sound Environment(R), OMNIMAX(R) and IMAX Ridefilm(R). These
trademarks are widely protected by registration or common law throughout the
world. The Company also owns the service mark IMAX THEATRE(TM). The Company
vigorously enforces its trademarks and trade names against whomever it believes
is infringing upon its rights.
10
<PAGE>
EMPLOYEES
As of December 31, 1999, the Company had 635 employees not including hourly
employees at Company-owned theaters. The Company's employees are not represented
by a labor union. The Company has never experienced an employee strike and
believes that its employee relations are excellent.
Item 2. Properties
The Company's principal executive offices are located in Mississauga,
Ontario and New York, New York. The Company's principal facilities are as
follows:
<TABLE>
<CAPTION>
Operation Own/Lease Expiration
--------- --------- ----------
<S> <C> <C> <C>
Mississauga, Ontario (1).... Headquarters, Administrative, Assembly and Own N/A
Research and Development
New York, New York.......... Executive Lease 2004
Birmingham, Alabama ........ Sound Systems Design and Assembly Own N/A
Kempten, Germany............ Sales and Marketing Lease 2000
Los Angeles, California..... Sales, Marketing, Film Production and Lease 2012
Post-Production
Singapore................... Sales and Marketing Lease 2002
Tokyo, Japan................ Sales, Marketing, Maintenance and Theater Design Lease 2000
Manchester, England......... Digital Projection International Design and Lease 2003
Assembly, Research and Development
Atlanta, Georgia............ Digital Projection International Sales, Marketing Lease 2002
and Service
</TABLE>
(1) This property is subject to a collateral secured charge in favour of The
Toronto-Dominion Bank in connection with a working capital facility.
Item 3. Legal Proceedings
In April 1994, Compagnie France Film Inc. filed a claim against the Company
in the Superior Court in the District of Montreal, in the Province of Quebec,
alleging breach of contract and bad faith in respect of an agreement which the
plaintiff claims it entered into with the Company for the establishment of an
IMAX theater in Quebec City, Quebec, Canada. Until December 1993, Predecessor
Imax was in negotiations with the plaintiff and another unrelated party for the
establishment of an IMAX theater in Quebec City. In December 1993, Predecessor
Imax executed a system lease agreement with the other party. During the
negotiations, both parties were aware of the other party's interest in also
establishing an IMAX theater in Quebec City. The plaintiffs claimed damages of
Canadian $4.6 million, representing the amount of profit they claim they were
denied due to their inability to proceed with an IMAX theater in Quebec City,
together with expenses incurred in respect of this project and pre-judgement
interest. The Company disputed this claim and filed a defense in response.
Compagnie France Film had also incorporated a shell company, 3101-8450 Quebec
Inc. ("3101"). 3101 was to, among other things, enter into a lease for the
proposed IMAX theater site. In November 1993, while negotiations between
Compagnie France Film and the Company were still ongoing, 3101 entered into a
lease for the site. 3101 defaulted on the lease and the landlord sued 3101 in an
unrelated action to which the Company was not a party. In February 1996, 3101
was found liable to pay the landlord damages in the amount of Canadian $2.5
million. Subsequent to that judgment 3101 intervened in the lawsuit between
Compagnie France Film and the Company in order to claim from the Company damages
in the amount of Canadian $2.5 million. The Company disputed these claims and
the suit went to trial in January 1998. In a decision rendered in April 1998,
the court dismissed the plaintiffs' claims with costs. In May 1998, the
plaintiffs and 3101 both filed appeals of the decision to the Quebec Court of
Appeal. The Company believes that the amount of the loss, if any, will not have
a material impact on the financial position or results of operations of the
Company, although no assurance can be given with respect to the ultimate outcome
of this litigation.
11
<PAGE>
In January 2000, the Commission of the European Communities (the
"Commission") informed the Company that Euromax, an association of European
large screen cinema owners had filed a complaint against the Company under EC
competition rules. The complaint addressed a variety of alleged abuses, mainly
relating to the degree of the control that the Company asserts over the
projection systems it leases, and the form and terms of the Company's
agreements. No formal investigation has been initiated to date, and the
Commission has limited itself to a request of Imax to comment on the complaint.
Should proceedings be initiated, it is expected that no decision would be
rendered until 2001 at the earliest. Although the Commission has the power to
impose fines of up to a maximum of 10% of Company revenue for breach of EC
competition rules, the Company believes on the basis of currently available
information and an initial review that such result would not be likely. The
Company further believes that the allegations in the complaint are meritless and
will accordingly defend the matter vigorously. The Company believes that the
amount of the loss, if any, suffered in connection with this lawsuit 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 this litigation.
In addition to the litigation described above, the Company is currently
involved in other litigation 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
for any such litigation.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of the security holders during
the quarter ended December 31, 1999.
12
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common shares are listed for trading under the trading symbol
"IMAX" on the Nasdaq National Market System ("Nasdaq"). The common shares are
also listed on The Toronto Stock Exchange ("TSE") under the trading symbol
"IMX". The following table sets forth the range of high and low sales prices per
share for the common shares on Nasdaq and the TSE.
<TABLE>
<CAPTION>
U.S. Dollars
--------------------------------
High Low
------ --------
<S> <C> <C>
Nasdaq
Year ended December 31, 1999
Fourth quarter 28.750 17.000
Third quarter 25.500 19.563
Second quarter 24.125 18.688
First quarter 33.625 15.000
Year ended December 31, 1998
Fourth quarter 32.250 18.000
Third quarter 25.000 17.000
Second quarter 28.875 21.750
First quarter 29.000 20.500
<CAPTION>
Canadian Dollars
--------------------------------
High Low
------ --------
<S> <C> <C>
TSE
Year ended December 31, 1999
Fourth quarter 42.500 25.750
Third quarter 38.000 28.500
Second quarter 35.000 27.400
First quarter 51.000 23.700
Year ended December 31, 1998
Fourth quarter 51.000 33.000
Third quarter 38.050 26.750
Second quarter 40.800 30.100
First quarter 41.950 28.750
</TABLE>
As of December 31, 1999 the Company had 255 registered holders of record of
the Company's common shares.
The Company has not paid within the last two fiscal years, and has no
current plans to pay, dividends on its common shares. The payment of dividends
by the Company is subject to certain restrictions under the terms of the
Company's indebtedness (see note 12 to the consolidated financial statements in
Item 8 and the discussion of liquidity and capital resources in Item 7). The
payment of any future dividends will be determined by the Board of Directors in
light of conditions then existing, including the Company's financial condition
and requirements, future prospects, restrictions in financing agreements,
business conditions and other factors deemed relevant by the Board of Directors.
Item 6. Selected Financial Data
(in thousands of dollars, except per share data and systems data)
The selected financial data set forth below is derived from the
consolidated financial statements of the Company. The financial statements have
been prepared in accordance with United States Generally Accepted Accounting
Principles ("U.S. GAAP"). Effective April 1, 1996, the Company adopted the U.S.
dollar as its functional currency. This change in accounting policy was applied
prospectively. All financial information referred to herein is expressed in U.S.
dollars unless otherwise noted.
13
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------
1995 1996 1997 1998 1999(1)
----------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Operating Statement Data:
Revenue.....................................
IMAX systems............................. $ 51,968 $ 85,972 $ 97,539 $ 140,874 $ 126,826
Digital projection systems.............. -- -- -- -- 10,999
Films.................................... 28,835 28,367 39,683 30,824 47,227
Other.................................... 7,694 15,499 21,259 18,657 18,783
---------- --------- ---------- ---------- ----------
Total revenue............................ 88,497 129,838 158,481 190,355 203,835
Costs and expenses (2) 44,348 58,257 73,806 111,784 106,241
---------- --------- ---------- ---------- ----------
Gross margin............................. 44,149 71,581 84,675 78,571 97,594
Loss from equity-accounted investees (3).... -- -- (22) (6,763) (683)
Selling, general and administrative
expenses (4)............................. 25,925 29,495 32,115 38,777 36,584
Research and development ................... 2,808 2,493 2,129 2,745 3,868
Amortization of intangibles (5)............. 2,541 2,708 2,701 5,948 2,585
---------- --------- ---------- ---------- ----------
Earnings from operations.................... 12,875 36,885 47,708 24,338 53,874
Interest income............................. 3,377 5,797 5,604 5,320 9,984
Interest expense............................ (7,337) (11,765) (13,402) (14,646) (21,860)
Foreign exchange gain (loss)................ 193 (337) (623) 588 977
---------- --------- ---------- ---------- ----------
Earnings before taxes and minority interest. 9,108 30,580 39,287 15,600 42,975
Provision for income taxes.................. (5,458) (13,579) (17,265) (9,810) (16,535)
---------- -------- ---------- ---------- ----------
Earnings before minority interest.......... 3,650 17,001 22,022 5,790 26,440
Minority interest........................... -- (1,593) (1,357) (1,895) (1,207)
---------- --------- ---------- ---------- ----------
Earnings before extraordinary item.......... $ 3,650 $ 15,408 $ 20,665 $ 3,895 $ 25,233
Extraordinary loss on early retirement of debt,
(net of income tax benefit of $1,588) (6)... -- -- -- (2,095) --
---------- -------- ---------- ---------- ----------
Net earnings................................ $ 3,650 $ 15,408 $ 20,665 $ 1,800 $ 25,233
========== ========= ========== ========== ==========
Earnings per share (7)
Before extraordinary item
Basic.................................... $ 0.12 $ 0.54 $ 0.71 $ 0.10 $ 0.85
Diluted.................................. $ 0.11 $ 0.50 $ 0.68 $ 0.09 $ 0.83
Net earnings per share
Basic.................................... $ 0.12 $ 0.54 $ 0.71 $ 0.03 $ 0.85
Diluted.................................. $ 0.11 $ 0.50 $ 0.68 $ 0.03 $ 0.83
Systems and Other Data:
Total systems signed (8).................... 24 26 48 43 44
Value of systems signed (in millions)....... $ 64.6 $ 89.6 $ 128.4 $ 129.2 $ 120.2
New systems delivered....................... 11 26 24 41 35
Total systems in operation.................. 130 149 159 183 208
Total systems in sales backlog (9).......... 44 45 77 76 77
Revenue in sales backlog (10)............... $ 107,238 $ 131,835 $ 175,394 $ 175,756 $ 192,468
</TABLE>
(1) Operating statement data for 1999 includes approximately four months of
DPI's operations (acquired by the Company on September 3, 1999) and
excludes approximately three months of the minority interest in Sonics
(acquired by the Company on October 1, 1999).
(2) The costs and expenses for the years ended December 31, 1995, 1996, 1997
and 1998 include $2.5 million, $1.9 million, $1.4 million, and $0.5 million
respectively, of charges for the amortization of purchase accounting
adjustments associated with the original acquisition of the Company in
1994. Costs and expenses for the year ended December 31, 1999 were reduced
by $1.5 million relating to the amortization of purchase accounting
adjustments associated with the acquisitions of DPI and the minority
interest in Sonics (see note 3 to the financial statements contained in
Item 8). The year ended December 31, 1998 includes a $7.9 million charge
related to rationalization of the Company's motion simulation division and
$19.1 million related to the write-down of the value of some of the films
in the Company's library.
14
<PAGE>
(3) Loss from equity-accounted investees in 1998 includes the Company's 50%
share of the loss of Forum Ride Associates and a provision against the
remaining carrying value of the Company's equity investment in Forum Ride
Associates totaling $6.1 million and a $0.5 million provision against an
equity investment in a motion simulation ride.
(4) For the year ended December 31, 1998 selling, general and administration
expenses include a $1.9 million charge related to the rationalization of
Ridefilm.
(5) Amortization of intangibles in 1998 includes a $3.3 million charge related
to the write-off of goodwill associated with the Ridefilm business.
(6) In 1998, all of the 10% Senior Notes due 2001 were redeemed. The excess of
the redemption price over the principal amount of the Notes of $2,789,000
and the write-off of the unamortized deferred financing costs of $894,000
resulted in an extraordinary pre-tax loss of $3,683,000 in the year ended
December 31, 1998.
(7) Earnings per share in the current and prior periods give retroactive effect
to (a) the 2-for-1 stock split which became effective by May 27, 1997 and
(b) the adoption of FASB Statement of Standards No. 128 which became
effective by December 31, 1997.
(8) Represents the number of theater systems which were the subject of sale or
lease agreements entered into by the Company in the years indicated. The
1996, 1997, 1998 and 1999 signings exclude three, twelve, one and one
theaters in which the Company has an equity interest, respectively.
(9) 1996, 1997, 1998 and 1999 systems in backlog include two, thirteen,
thirteen and seven theaters in which the Company has an equity interest,
respectively.
(10) Represents the minimum revenue on signed system sale and lease agreements
that is expected to be recognized as revenue as the associated theater
systems are delivered. Does not include revenues from wholly owned,
partnership or joint venture theaters.
<TABLE>
<CAPTION>
As at December 31,
----------------------------------------------------------------------
Balance Sheet Data: 1995 1996 1997 1998 1999(1)
---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and marketable
securities............................. $ 50,747 $ 120,688 $ 90,530 $ 202,941 $ 123,605
Total assets............................. 194,515 308,744 344,359 490,091 538,237
Total long-term indebtedness............. 70,810 167,023 165,000 300,000 300,000
Total shareholders' equity............... 57,486 54,841 81,117 84,446 111,065
</TABLE>
- ------------------
(1) includes the assets and liabilities of DPI, acquired by the Company on
September 3, 1999.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
The Company derives revenue principally from long-term theater system lease
agreements, maintenance agreements, the distribution of films, from film
production agreements and, commencing in 1999, from the sale of digital
projectors. The Company also derives revenue from the operation of theaters in
which the Company has an equity interest, the Company's motion simulation
operations, camera rentals, and the sale of sound systems for applications other
than for IMAX theaters.
15
<PAGE>
Theater Systems
The Company generally provides its theater systems on a long-term lease
basis to customers with initial lease terms of typically 10 to 20 years. Lease
agreements typically provide for three major sources of revenue: (i) upfront
fees; (ii) ongoing royalty payments; and (iii) maintenance fees. The upfront
fees vary depending on the type of system and location and generally are paid to
the Company in installments commencing upon the signing of the agreement and
continuing through the delivery of the theater system. Ongoing royalty payments
are paid monthly over the term of the contract, commencing after delivery. These
payments are generally equal to the greater of a fixed minimum amount per annum
and a percentage of box office receipts. An annual maintenance fee is generally
payable commencing in the second year of theater operations. Both minimum
royalty payments and maintenance fees are typically indexed to the local
consumer price index.
Sales and sales-type leases. Revenues from the Company's theater system
sale agreements and from theater system lease agreements which transfer
substantially all of the benefits and risks of ownership ("sales-type leases")
are recognized on the completed contract method (that is, upon delivery of the
system). Revenues recognized at the time of the theater system delivery consist
of upfront fees and the present value of minimum royalties on sales-type leases
over the initial term of the lease. For leases with initial terms greater than
10 years, the Company's practice is to establish a valuation allowance related
to the present value of minimum royalties beyond the initial 10 years at the
time of delivery of the system. Management assesses this allowance on an annual
basis based on the credit history of each individual lease. The timing of
theater system delivery is largely dependent on the timing of the construction
of the customer's theater which is used to fix the delivery date in the
contract. The delivery of the theater system stated in the contract may be
before the actual opening of the theater and as of December 31, 1999, the
Company had delivered 38 theater systems to theaters that had not yet begun
operations. Revenues recognized at the time of the theater system delivery
generally are derived from contracts signed 12 to 24 months prior to the date of
recognition. Such revenue is shown as sales backlog until it is recognized upon
delivery. Therefore, revenue for theater systems is generally predictable on a
long-term basis given the relationship to projected theater system deliveries.
However, systems revenue in any given quarter may vary significantly depending
on the nature and timing of the delivery of systems.
Cash receipts under upfront fees are generally received in advance of
deliveries over the average of 12 to 24 months from initial contract signing to
final delivery and are recorded as deferred revenue. The associated costs of
manufacturing the theater system are recorded as inventory and systems under
construction. Upon delivery, the deferred revenue and inventory costs are
recognized in income.
Cash receipts under royalty payments are received after delivery.
Typically, ongoing royalties are received over the 10 to 20 year life of the
system agreements and under any renewal periods. The Company recognizes up to 10
years of the present value of the minimum royalties on sales-type leases upon
delivery of the theater system. The discounted minimum royalties are recorded on
the Company's balance sheet as an increase in net investment in leases. For
financial reporting purposes, the actual cash received for minimum royalties in
each year are divided into two components representing both a repayment of the
net investment in leases (which has no income effect but reduces net investment
in leases) and finance income on the net investment in leases balance (which is
recorded as royalty revenue as earned). In the event of default of payment of
minimum contracted royalties, the Company may repossess the system and refurbish
it for resale. Royalties in excess of minimums are recorded as revenue when due
under the terms of the lease agreement.
Sales Backlog. Sales backlog represents the minimum revenues on signed
system sale and lease agreements that will be recognized as revenue as the
associated theater systems are delivered. The minimum revenue comprises the
upfront fees plus the present value of the minimum royalties due under
sales-type lease agreements for the first 10 years of the initial lease term.
The value of sales backlog does not include revenues from theaters in which the
Company has an equity interest, letters of intent, or long-term conditional
theater commitments.
16
<PAGE>
Film Distribution
Revenues from the distribution of films are recognized when films are
exhibited by theaters. The costs of films are charged as expenses using the
individual-film-forecast method in accordance with the Financial Accounting
Standards Board Statement No. 53 ("FAS 53"). The individual-film-forecast method
amortizes film costs (reflected on the balance sheet as film assets) in the same
ratio that current gross revenues bear to anticipated total gross revenues. The
costs of distribution of films are charged against the specific license to which
they relate. Estimates of anticipated total gross revenues are reviewed
quarterly by the Company and revised where necessary to reflect more current
information.
Film Production
Revenue from films produced for third parties is recognized when the film
is completed and delivered to the sponsor. The associated production costs are
deferred and charged against the associated revenue when the revenue is
recognized. The completion of films for third parties depends upon the
contracted delivery dates with film sponsors. Thus, both film revenues and film
income in any given period will vary significantly depending upon the timing of
the completion of films and the number of films produced for third parties. When
the Company invests in films, costs incurred are deferred and shown on the
balance sheet as film assets. Cash received from sales of the film in advance of
delivery is shown as deferred revenue until the film is complete and delivered
to the exhibitor. The film assets are amortized against revenues using the
individual-film-forecast method in accordance with FAS53.
International Operations
A significant portion of the Company's sales are made to customers located
outside of the United States and Canada. During 1997, 1998 and 1999
approximately 47.6%, 46.7% and 40.3%, respectively, of the Company's revenues
were derived from sales outside the United States and Canada. The Company
expects that international operations will continue to account for a substantial
portion of its revenues in the future. In order to minimize exposure to exchange
rate risk, the Company prices theater systems (the largest component of
revenues) in U.S. dollars except in Canada and Japan where they are priced in
Canadian dollars and Japanese Yen, respectively. Annual minimum royalty payments
and maintenance fees follow a similar currency policy.
Accounting Policies
The Company reports its results under both United States generally accepted
accounting principles ("U.S. GAAP") and Canadian generally accepted accounting
principles. The financial statements and results referred to herein are reported
under U.S. GAAP.
17
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentage of total revenue for each of
the items set forth below:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------------
1995 1996 1997 1998 1999
---------- ----------- ----------- ----------- -----------
% % % % %
<S> <C> <C> <C> <C> <C>
Revenue
IMAX systems........................... 58.7 66.2 61.6 74.0 62.2
Digital projection systems............. -- -- -- -- 5.4
Films.................................. 32.6 21.9 25.0 16.2 23.2
Other.................................. 8.7 11.9 13.4 9.8 9.2
----------- ---------- ----------- ----------- -----------
Total.................................... 100.0 100.0 100.0 100.0 100.0
Costs and expenses (1)................... 50.1 44.9 46.6 58.7 52.1
----------- ---------- ----------- ----------- -----------
Gross margin............................. 49.9 55.1 53.4 41.3 47.9
Loss from equity-accounted investees..... -- -- -- 3.6 0.3
Selling, general and administrative expenses
29.3 22.7 20.3 20.4 18.0
Research and development................. 3.2 1.9 1.3 1.4 1.9
Amortization of intangibles (2).......... 2.9 2.1 1.7 3.1 1.3
----------- ---------- ----------- ----------- -----------
Earnings from operations................. 14.5 28.4 30.1 12.8 26.4
----------- ---------- ----------- ----------- -----------
Earnings before extraordinary item....... 4.1 11.9 13.0 2.0 12.4
----------- ---------- ----------- ----------- -----------
Net earnings............................. 4.1 11.9 13.0 0.9 12.4
=========== ========== =========== =========== ===========
</TABLE>
- --------
(1) The costs and expenses include 2.8%, 1.4%, 0.9% and 0.3% of charges for the
amortization of purchase accounting adjustments for the years ended
December 31, 1995, 1996, 1997 and 1998, respectively related to the
original acquisition of the Company in 1994. The costs and expenses for the
year ended December 31, 1999 were reduced by 0.7% relating to the
amortization of purchase accounting adjustments related to the 1999
acquisitions of DPI and the minority interest in Sonics. For the year ended
December 31, 1998 costs and expenses include a charge of 4.1% related to
the rationalization of the Company's motion simulation and attractions
business and a charge of 10.0% related to the write-down of unrecoverable
film costs.
(2) Amortization of intangibles in 1998 includes a non-recurring charge of 1.7%
to reflect the write-off of goodwill associated with the Ridefilm business.
Year Ended December 31, 1999 versus Year Ended December 31, 1998
In 1999 the Company had revenues of $203.8 million and net earnings of
$25.2 million ($0.83 per share on a diluted basis) compared to revenues of
$190.4 million and net earnings (after a $2.1 million extraordinary loss on the
early extinguishment of debt) of $1.8 million ($0.03 per share on a diluted
basis) in 1998. The increase in revenues of 7.1% is due to increased film
revenues and the inclusion of four months of revenues from DPI which more than
offset a decline in systems revenue. Results in 1998 were adversely affected by
four significant items: a) the rationalization of the Company's motion
simulation and attractions business resulted in a charge of $0.46 per share; b)
the write-down of assets in the Company's film library resulted in a charge of
$0.35 per share; c) the extraordinary loss on the early extinguishment of debt
contributed a charge of $0.07 per share and, d) the redemption premium of the
Company's Class "C" preferred shares contributed a charge of $0.02 per share.
18
<PAGE>
Theater Network and Sales Backlog
The Company signed agreements for 44 theater systems in 1999 excluding one
theater in which it will have an equity interest, which represents expected
future minimum revenues of $120.2 million. In 1998, the Company signed
agreements for 43 theater systems excluding one theater in which it had an
equity interest, for expected future minimum revenues of $129.2 million. The
majority of signings in 1999 continued to be for 3D systems: 82% in 1999 versus
91% in 1998; commercial operators: 84% in 1999 versus 88% in 1998 and for
theaters to be located outside of North America: 61% in 1999 versus 66% in 1998.
As of December 31, 1999, there were IMAX theaters operating in 25 countries,
with theaters to be located in a further 15 countries once the theaters in
backlog open. Strong theater signings contributed to the 10% increase in the
Company's sales backlog from $175.8 million at December 31, 1998 to $192.5
million at December 31, 1999.
The IMAX theater network increased to 208 theaters in operation at December
31, 1999 from 183 theaters at the beginning of the year. The following is a
geographic, market and product breakdown of the IMAX theaters in operation and
theaters in backlog at December 31, 1999:
<TABLE>
<CAPTION>
Existing Theaters Backlog (1)
---------------------- ---------------------
Theaters % Theaters %
-------- ---- -------- ----
<S> <C> <C> <C> <C>
Geographic:
United States ........................................... 103 50% 34 44%
Europe .................................................. 32 15 21 27
Japan ................................................... 20 10 3 4
Canada .................................................. 24 11 3 4
Asia (excluding Japan) .................................. 12 6 4 5
Mexico .................................................. 8 4 1 1
Australia ............................................... 8 4 -- --
South Africa ............................................ 1 -- 3 4
Middle East ............................................. -- -- 5 7
South America ........................................... -- -- 3 4
--- --- --- ---
Total ................................................... 208 100% 77 100%
=== === === ===
<CAPTION>
Existing Theaters Backlog (1)
---------------------- ---------------------
Theaters % Theaters %
-------- ---- -------- ----
<S> <C> <C> <C> <C>
Market:
Science and Natural History ............................. 97 47% 8 10%
Commercial .............................................. 80 38 68 88
Theme Parks ............................................. 20 10 -- --
Destination Sites ....................................... 5 2 -- --
Zoos and Aquaria ........................................ 6 3 1 2
--- --- --- ---
Total ................................................... 208 100% 77 100%
=== === === ===
Product:
2D ...................................................... 125 60% 6 8%
3D ...................................................... 83 40 71 92
--- --- --- ---
Total ................................................... 208 100% 77 100%
=== === === ===
</TABLE>
(1) Backlog includes one upgrade from IMAX to IMAX 3D.
Film Library
There were 15 new films released in the 15/70-format in 1999, bringing the
total number of available films to 154 at the end of the year. The Company has
the distribution rights to 51 of those films. In 1999, the Company released
three films; Siegfried & Roy, Galapagos and Island of the Sharks.
The Company currently has three films in production which are scheduled for
release in 2000 through 2002, and more than 15 films in development and
pre-production. As of December 31, 1999 there were more than 30 films in
production in the 15/70-format industry wide, including the three being produced
by the Company.
19
<PAGE>
Revenues
The Company's revenues in 1999 were $203.8 million, compared to $190.4
million in 1998, an increase of 7%. The following table sets forth the breakdown
of revenue by category in thousands of dollars:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
IMAX Systems Revenue
Sales and leases ........................ $ 78,672 $121,042 $103,414
Royalties (1) ........................... 10,285 10,154 11,747
Maintenance ............................. 8,582 9,678 11,665
-------- -------- --------
97,539 140,874 126,826
-------- -------- --------
Digital Projection Systems -- -- 10,999
-------- -------- --------
Film Revenue
Production .............................. 6,459 352 --
Distribution ............................ 21,953 15,052 23,224
Post-production ......................... 11,271 15,420 24,003
-------- -------- --------
39,683 30,824 47,227
-------- -------- --------
Other Revenue 21,259 18,657 18,783
-------- -------- --------
$158,481 $190,355 $203,835
======== ======== ========
</TABLE>
- -----------------
(1) Includes finance income.
Systems Revenues. Systems revenue decreased from $140.9 million in 1998 to
$126.8 million in 1999, a decrease of 10%. Revenue from sales and leases
decreased from $121.0 million to $103.4 million, a decrease of 15%. The Company
recognized revenues on the delivery of 35 theater systems under sales and
sales-type leases in 1999 as compared to 41 theater systems in 1998. Royalty and
maintenance revenue increased 16% and 21%, respectively, over the prior year
principally due to the increased number of theater systems in the network.
Digital Projection Systems. Revenues from the sale of digital projection
systems of $11.0 million represents the revenues earned by Digital Projection
International since its acquisition by the Company on September 3, 1999.
Film Revenues. Film revenues increased from $30.8 million in 1998 to $47.2
million in 1999. Film distribution revenues increased from $15.1 million in 1998
to $23.2 million in 1999 due to the timing of the release of films and the
strong performance of T-REX: Back to the Cretaceous which was released late in
1998. Film post-production activities increased from $15.4 million in 1998 to
$24.0 million in 1999, an increase of 56%. The growth in revenues was due to an
increase in the number of prints released, post-production activities and
extensions of products and services. The Company did not deliver any films
produced for third parties in 1999 or 1998.
Other Revenues. Other revenues increased slightly from $18.7 million in
1998 to $18.8 million in 1999. Theater operations revenue more than doubled in
1999 versus 1998 due to the increase in the number of owned and operated
theaters which offset a decrease in camera and other revenues related to the
rationalization of the Motion Simulation and Attractions business.
Gross Margin
Gross margin in 1999 was $97.6 million versus $78.6 million in 1998. In
1998, the gross margin was adversely affected by the write-down of the Company's
motion simulation assets of $7.9 million and a write-down of its film assets of
$19.1 million.
The decline in the gross margin in 1999 over 1998, exclusive of these
write-downs, is due mainly to the decline in system deliveries from 41 in 1998
to 35 in 1999.
20
<PAGE>
Gross margin as a percentage of total revenues was 47.9% in 1999 compared
to 41.3% in 1998. The write-downs described above reduced the gross margin in
1998 by 4.1% and 10.0% respectively. The decline in the gross margin in 1999
over 1998, exclusive of these write-downs, is due to the higher proportion of
film and other revenues (which generally have lower margins than IMAX systems
revenues).
Other
Selling, general and administrative expenses were $36.6 million in 1999
versus $38.8 million in 1998. The decrease in selling, general and
administrative costs in 1999 over 1998 resulted primarily from a $1.9 million
charge in 1998 associated with the rationalization of the Company's motion
simulation and attractions business. Increases in costs in 1999 over 1998
resulted from the expansion of the network group and the inclusion of four
months of selling, general and administrative expenses of DPI, which were more
than offset by decreases in executive compensation and other corporate expenses.
Research and development expenses were $3.9 million in 1999 versus $2.7
million in 1998. The increase is due mainly to the inclusion of four months of
research and development costs of DPI.
Interest income increased from $5.3 million in 1998 to $10.0 million in
1999 due to higher average cash and marketable securities balances as a result
of the proceeds from the $200 million Senior Notes due 2005 issued on December
4,1998.
Interest expense increased in 1999 as a result of the issue in December
1998 of the Senior Notes.
The Company experienced a foreign exchange gain of $1.0 million in 1999
compared to a gain of $0.6 million in 1998. The foreign exchange gain in 1999
resulted primarily from fluctuations in exchange rates on Canadian dollar cash
balances and Canadian dollar and Japanese Yen denominated net investment in
leases. The gain in 1998 resulted primarily from fluctuations in exchange rates
on the Japanese Yen denominated net investment in leases.
The effective tax rate on earnings before tax differs from the statutory
tax rate and will vary from year to year primarily as a result of the
amortization of goodwill, which is not deductible for tax purposes,
manufacturing and processing profits deduction and the provision for income
taxes at different rates in foreign and other provincial jurisdictions. The
effective tax rate in 1999 decreased over prior years due to increased
manufacturing and processing credits resulting from a corporate reorganization
which occurred in December 1998 which better aligned employees and operations to
the Company's lines of business. The effective tax rate in 1998 was much higher
than in prior years due to the large amount of non-deductible goodwill and
deferred tax charge associated with the rationalization of Ridefilm as well as
being affected by the $6.1 million loss associated with Forum Ride Associates
which is provided for at a lower tax rate than the Company's statutory tax rate.
Minority interest expense declined to $1.2 million in 1999 from $1.9
million in 1998 due mainly to the acquisition by the Company of the remaining
49% minority interest in Sonics on October 1, 1999.
Year ended December 31, 1998 versus Year ended December 31, 1997
Rationalization of Motion Simulation and Attractions Business
Included in earnings for the year ended December 31, 1998 is a pre-tax
charge of $13.6 million related to the Company's investment in the motion
simulation and attractions business. Low returns in the industry, the high cost
of producing films, high manufacturing and installation costs, declining sales
and sales cancellations contributed to the Company's decision to rationalize the
Ridefilm activity in 1998 to reduce future potential losses.
Also, included in earnings for the year ended December 31, 1998 is a loss
of $1.9 million representing the Company's 50% share of the 1998 loss of Forum
Ride Associates, a joint venture with Starwood Hotels and Resorts Worldwide
Inc., operating an IMAX 3D Simulator Ride at the Forum Shops at Caesars Palace
in Las Vegas, Nevada. The Company also took a charge of $4.2 million to
write-off its remaining investment in the joint venture after considering the
1998 operating loss and a projection that indicated future continuing losses.
21
<PAGE>
Revenues
The Company's revenues in 1998 were $190.4 million compared to $158.5
million in 1997, an increase of 20%.
Systems revenue increased from $97.5 million in 1997 to $140.9 million in
1998, an increase of 44%. Revenue from sales and leases increased from $78.7
million to $121.0 million, an increase of 54%. The Company recognized revenues
on the delivery of 41 theater systems under sales and sales-type leases in 1998
as compared to 24 theater systems in 1997. Royalty revenue, excluding arrears
billings, and maintenance revenue increased 7% and 13%, respectively, over the
prior year principally due to the increased number of theater systems in the
network.
Film revenues declined from $39.7 million in 1997 to $30.8 million in 1998.
Film distribution revenues declined from $22.0 million in 1997 to $15.1 million
in 1998, a decrease of 31%. Film distribution revenues decreased in 1998 over
1997 due to the timing of film releases including the strong performance of
three films released in the latter half of 1996 and the fact that the Company's
major 1998 release, T-REX: Back to the Cretaceous, was not released until the
fourth quarter. Film post-production activities generated revenues of $15.4
million in 1998 versus $11.3 million in 1997, an increase of 37%. The growth in
revenues was due to an increase in the number of post-production projects, an
increase in the number of prints released and extensions of related products and
services.
Other revenues of $18.7 million in 1998 represented a decrease of 12% over
1997. The decline in other revenues was primarily due to a decline in the number
of IMAX Ridefilm systems delivered, partially offset by increases in camera
rentals and revenues from Company owned theater operations.
Gross Margin
Gross margin in 1998 was $78.6 million versus $84.7 million in 1997. The
number of systems delivered in 1998 increased to 41 from 24 in 1997. The
resulting increase in the gross margin was more than offset by the write-down in
1998 of the Company's motion simulation assets of $7.9 million and a write-down
of its film assets of $19.1 million. Gross margin as a percentage of total
revenues decreased from 53.4% in 1997 to 41.3% in 1998. An increase in the
higher proportion of systems revenue (which generally has higher margins than
film and other revenues) was more than offset by the charges noted above, which
reduced the gross margin by 4.1% and 10%, respectively.
Other
Loss from equity-accounted investees in 1998 includes $6.1 million of the
Company's share of the loss of Forum Ride Associates (a 50% joint venture with
Starwood Resorts Worldwide Inc. operating an IMAX 3D Simulator Ride) and a
write-off of the Company's remaining investment in the joint venture.
Selling, general and administrative expenses were $38.8 million in 1998
versus $32.1 million in 1997. The increase in selling, general and
administrative costs in 1998 over 1997 resulted primarily from increases in
performance-based compensation expenses, marketing, branding and affiliate
relations initiatives and staffing additions to the Company's film department,
particularly marketing, partially offset by declines in litigation expense. Also
included in 1998 is $1.9 million of costs related to the rationalization of the
Company's motion simulation and attractions unit.
Research and development expenses were $2.7 million in 1998 versus $2.1
million in 1997. In 1997 the Company's technical staff were engaged in the
design and production of the new IMAX 3D SR system and not in typical research
and development activities.
Amortization of intangibles in 1998 includes a non-recurring charge of $3.3
million to write-off the remaining goodwill associated with the Company's motion
simulation business.
Interest expense increased in 1998 as a result of the $200 million Senior
Notes due 2005 which were issued on December 4, 1998.
22
<PAGE>
The Company experienced a foreign exchange gain of $0.6 million in 1998
compared to a loss of $0.6 million in 1997. The foreign exchange gain in 1998
resulted primarily from fluctuations in exchange rates on the Japanese Yen
denominated net investment in leases, while the loss in 1997 resulted primarily
from fluctuations in exchange rates on the Canadian dollar, the Japanese Yen and
French Franc denominated cash balances and net investment in leases.
Quarterly Results
The following table sets forth unaudited data regarding operations for each
quarter of 1998 and 1999. The quarterly information has been prepared on the
same basis as the annual consolidated financial statements and, in management's
opinion, contains all normal recurring adjustments necessary to fairly state the
information set forth herein. The operating results for any quarter are not
necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
1998 1999
------------------------------------------------ ------------------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- -------- ------- ------- ------- ------- ---------
(in thousands of dollars except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Revenue
IMAX systems.......... $26,364 $30,890 $35,793 $47,827 $140,874 $22,420 $18,889 $25,458 $60,059 $126,826
Digital projection
systems.............. -- -- -- -- -- -- -- 2,010 8,989 10,999
Films................. 7,062 6,761 5,163 11,838 30,824 8,622 10,444 11,042 17,119 47,227
Other................. 2,873 5,526 3,293 6,965 18,657 5,701 4,925 3,943 4,214 18,783
------- ------- ------- ------- -------- ------- ------- ------- ------- ---------
Total................. 36,299 43,177 44,249 66,630 190,355 36,743 34,258 42,453 90,381 203,835
Gross margin.............. 21,044 24,699 26,453 6,375 78,571 16,530 15,714 19,410 45,940 97,594
Earnings (loss) from 9,985 14,566 16,702 (16,915) 24,338 7,475 6,117 8,912 31,370 53,874
operations................
Earnings (loss) before
extraordinary item...... 4,199 6,161 7,120 (13,585) 3,895 2,013 2,196 3,244 17,780 25,233
Net earnings (loss) ...... 4,199 6,161 7,120 (15,680) 1,800 2,013 2,196 3,244 17,780 25,233
Per share data :
Earnings (loss) before
extraordinary item.....
Basic................. $ 0.14 $ 0.21 $ 0.24 $ (0.49) $ 0.10 $ 0.07 $ 0.07 $ 0.11 $ 0.60 $ 0.85
Diluted............... $ 0.14 $ 0.20 $ 0.23 $ (0.49) $ 0.09 $ 0.07 $ 0.07 $ 0.11 $ 0.53 $ 0.83
Net earnings (loss) ......
Basic................. $ 0.14 $ 0.21 $ 0.24 $ (0.56) $ 0.03 $ 0.07 $ 0.07 $ 0.11 $ 0.60 $ 0.85
Diluted............... $ 0.14 $ 0.20 $ 0.23 $ (0.56) $ 0.03 $ 0.07 $ 0.07 $ 0.11 $ 0.53 $ 0.83
</TABLE>
The Company's operating results can fluctuate significantly from quarter to
quarter. This fluctuation is due primarily to the timing of theater system
deliveries, the mix of theater systems shipped, and the timing of recognition of
revenues on third party film production agreements. Other expenses vary less
significantly and are influenced by the timing of marketing initiatives and
research and development projects.
In 1999, revenues fluctuated by quarter largely due to the delivery of
systems. In the fourth quarter of 1999, the Company recorded $90.4 million of
revenues (44% of full year revenue) due to the delivery of 18 IMAX theater
systems, increases in film distribution and post-production revenues and a full
quarter of digital projection revenues resulting from the acquisition of DPI.
The fluctuations in gross margin in the four quarters of 1999 were due to the
variation in the revenue mix between systems, film and other with the highest
gross margin percentage in the year occurring in the fourth quarter when IMAX
systems revenue accounted for over 66% of the total revenue. Earnings from
operations varied by quarter due to fluctuations in gross margin. Earnings from
operations in the fourth quarter were affected by the inclusion of a full
quarter of operating costs resulting from the acquisition of DPI.
In 1998, revenues fluctuated by quarter largely due to the delivery of
systems. In the fourth quarter of 1998, the Company recorded $66.6 million of
revenues (35% of full year revenue) due to the delivery of 16 IMAX theater
systems and increases in film post-production revenues. The fluctuations in
gross margin in the first three quarters of 1998 were due to the variation in
the revenue mix between systems, film and other. The decline in the gross margin
in the fourth quarter was due to the costs associated with the rationalization
of the Company's motion simulation and attractions unit and the write-down of
film assets. Earnings from operations varied by quarter due to the fluctuation
in gross margin, the write-down of the Company's equity interest in the Race For
Atlantis attraction and were impacted by other expenses, which were
proportionately higher in the last quarter due to the rationalization of the
Company's motion simulation and attractions unit and performance-based
compensation expenses.
The Company expects quarterly results to continue to fluctuate in the
future.
23
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company's principal source of liquidity included
cash and cash equivalents of $34.6 million, marketable securities of $89.0
million, trade accounts receivable of $42.6 million, net investment in leases
due within one year of $33.9 million and the amounts receivable under contracts
in backlog which are not yet reflected on the balance sheet.
In addition, the Company is party to an agreement with the Toronto-Dominion
Bank with respect to a working capital facility. The Bank has made available to
the Company a revolving loan in an aggregate amount up to Canadian $10 million
or its U.S. dollar equivalent. Loans made under the working capital facility
bear interest at the prime rate of interest per annum for Canadian dollar
denominated loans and, for U.S. dollar denominated loans, at the U.S. base rate
of interest established by the Bank. These loans are repayable upon demand. At
December 31, 1999, $0.8 million was available for use under this facility.
In December 1998, the Company issued $200 million of Senior Notes due
December 1, 2005, part of the proceeds of which were used to redeem the $65
million of 10% Senior Notes due 2001. The Senior Notes due 2005 bear interest at
7.875% per annum and are subject to redemption by the Company, in whole or in
part, at any time on or after December 1, 2002, at redemption prices expressed
as percentages of the principal amount for each 12-month period commencing
December 1 of the years indicated: 2002 - 103.938%, 2003 - 101.969%, 2004 and
thereafter - 100.000% together with interest accrued thereon to the redemption
date. Until December 1, 2001, up to 35% of the aggregate principal amount of the
Notes may be redeemed by the Company using the net proceeds of a public offering
of common shares of the Company or certain other equity placements, at a
redemption price of 107.875%, together with accrued interest thereon. The
Company may also redeem the notes, in whole or in part, at any time prior to
December 1, 2002, at a redemption price equal to 100% of the principal amount
plus a "make-whole premium" calculated in reference to the redemption price on
the first date that the notes may be redeemed by the Company plus accrued
interest to but excluding the redemption date. If certain changes result in the
imposition of withholding taxes under Canadian law, the Senior Notes are subject
to redemption at the option of the Company, in whole but not in part, at a
redemption price of 100% of the principal amount thereof plus accrued interest
to the date of redemption. In the event of a change in control, holders of the
notes may require the Company to repurchase all or part of the notes at a price
equal to 101% of the principal amount thereof plus accrued interest to the date
of repurchase.
In April 1996, the Company completed a private placement of $100 million of
5 3/4% Convertible Subordinated Notes (the "Subordinated Notes") due 2003. These
Subordinated Notes are convertible into common shares of the Company at the
option of the holder at a conversion price of $21.406 per share (equivalent to a
conversion rate of 46.7154 shares per $1,000 principal amount of Notes) at any
time prior to maturity. The Subordinated Notes are redeemable at the option of
the Company on or after April 1, 1999 at redemption prices expressed as
percentages of the principal amount (1999 - 103.286%; 2000 - 102.464%; 2001 -
101.643%; 2002 - 100.821%) plus accrued interest. The Subordinated Notes may
only be redeemed by the Company between April 1, 1999 and April 1, 2001 if the
last reported market price of the Company's common shares is equal to or greater
than $30 per share for any 20 of the 30 consecutive trading days prior to the
notice of redemption. The Subordinated Notes may be redeemed at any time on or
after April 1, 2001 without limitation.
The Company partially funds its operations through cash flow from
operations. Under the terms of the Company's typical theater system lease
agreement, the Company receives substantial cash payments before it completes
the performance of its obligations. Similarly, the Company receives cash
payments for some of its film productions in advance of related cash
expenditures. These cash flows have generally been adequate to finance the
ongoing operations of the Company.
24
<PAGE>
Cash provided by operating activities amounted to $15.5 million for the
year ended December 31, 1999 after the payment of $21.4 million of interest,
$7.5 million of income taxes and working capital requirements. Working capital
requirements include an increase of $7.9 million in accounts receivable,
primarily related to an increase in film post production activity and an
increase in DPI's activity, an increase of $34.1 million in net investment in
leases due to the theater systems delivered under sales-type leases in 1999
partially offset by an increase in current income taxes payable of $32.8 million
due to the impact of the reorganization of the Company's lines of business, most
notably the transfer of its lease portfolio to Imax Ltd., a 100% owned
subsidiary of the Company. Cash used in investing activities in 1999 amounted to
$126.3 million. Of this amount, $25.7 million relates to the acquisition of DPI
on September 3, 1999, $12.7 million relates to the acquisition of the minority
interest in Sonics on October 1, 1999, $18.1 million was invested in film
assets, principally Siegfried & Roy, Galapagos and CyberWorld, $22.7 million was
invested in capital assets, principally owned and operated theaters and theater
systems contributed to joint ventured theaters, and facilities, $29.6 million
was invested in marketable securities and $17.4 million was invested in other
assets including an $11.6 million investment in Mainframe Entertainment Inc.,
costs associated with Fantasia 2000: The IMAX Experience and patents, trademarks
and software. Cash provided by financing activities included proceeds of $2.2
million from the issuance of common shares pursuant to the Company's stock
option plan.
Cash provided by operating activities amounted to $23.9 million for the
year ended December 31, 1998 after the payment of $14.6 million of interest,
$4.1 million of income taxes and working capital requirements. Working capital
requirements include an increase of $2.4 million in accounts receivable,
primarily related to an increase in upfront fees billed in connection with
increased signings and the growth in the number of systems in backlog, and an
increase of $40.9 million in net investment in leases due to the theater systems
delivered under sales-type leases in 1998. Cash used in investing activities in
1998 amounted to $72.1 million. Of this amount, $21.2 million was invested in
film assets, principally T-REX: Back to the Cretaceous and Galapagos, $14.0
million was invested in capital assets, principally space cameras and 3D cameras
and owned and operated theaters, $4.0 million was invested in other assets,
principally joint ventured and owned and operated theaters and $32.9 million was
invested in marketable securities. Cash provided by financing activities
includes proceeds of $200 million from the issuance of Senior Notes, part of the
proceeds of which were used to repay the $65 million 10% Senior Notes, the $2.8
million redemption premium thereon, the debt financing costs of $4.9 million and
the redemption of Class C preferred shares amounting to $2.2 million. Cash
provided by financing activities also included $2.6 million from the issuance of
common shares pursuant to the Company's stock option plan.
The Company believes that cash flow from operations together with existing
cash balances and the working capital facility will be sufficient to meet cash
requirements of its existing level of operations for the foreseeable future.
IMPACT OF THE YEAR 2000
The Year 2000 issue involved the possibility that computer programs and
embedded chips, which use two digit date fields, would fail or create errors as
a result of the change in the century. The Company formed a Year 2000 committee
in 1998 and throughout 1999, it assessed the impact of the Year 2000 issue on
its operations including information technology systems (cost accounting and
financial software systems), non-information technology systems (projection and
sound systems) and the readiness of facility and utility suppliers.
The Company experienced no failures of its information technology systems,
non-information technology systems and experienced no interruption in service
from its facility and service providers nor any delivery delays from other
suppliers at the turn of the century, and continued to experience no errors,
delays or interruptions throughout the first quarter of 2000.
25
<PAGE>
Item 7a. Quantitative and Qualitative Disclosures 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 substantial portion of the Company's revenues are denominated in U.S.
dollars while a substantial portion of its costs and expenses are denominated in
Canadian dollars. A portion of the net U.S. dollar flows of the Company are
converted to Canadian dollars to fund Canadian dollar expenses, either through
the spot market or through forward contracts. In Japan, the Company has ongoing
operating expenses related to its operations. Net Japanese Yen flows are
occasionally converted to U.S. dollars generally through forward contracts to
minimize currency exposure. The Company also has cash receipts under leases
denominated in French francs and Japanese Yen which are converted to U.S.
dollars generally through forward contracts to minimize currency exposure.
A substantial portion of the Company's cash equivalents earn interest at
short-term floating rates while all of its long-term debt incurs interest at
long-term fixed rates. The Company entered into an interest rate swap for the
notional amount of $65 million to partially hedge this exposure.
The following table provides information about the Company's foreign
currency and interest rate swap contracts as at December 31, 1999. The fair
value represents the amount the Company would receive or pay to terminate the
contracts at December 31, 1999.
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 Thereafter Total Fair Value
------- ------- ------- ------- ------- ---------- --------- ----------
(in thousands of U.S. dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Foreign currency exchange
Contracts
(Receive Canadian $, pay U.S.$) $24,000 -- -- -- -- -- $ 24,000 $ 484
Average contractual exchange 1.47 -- -- -- -- -- 1.47
rate per one U.S. dollar
(Pay Yen, receive U.S. $) $ 311 $ 318 $ 174 $ 179 $ 137 -- 1,119 ($ 92)
Average contractual exchange 97.85 97.85 97.85 97.85 97.85 -- 97.85
rate per one U.S. dollar
(Pay FF, receive U.S. $) $ 410 $ 423 $ 435 $ 448 $ 462 $ 476 $ 2.654 $ 362
Average contractual exchange 5.07 5.07 5.07 5.07 5.07 5.07 5.07
rate per one U.S. dollar
Interest rate swap
Fixed to floating $65,000 $65,000 $65,000(1) -- -- -- $ 65,000 ($1,855)
Average pay rate L*+1.84% L*+2.09% L*+2.09%
Receive rate 7.875% 7.875% 7.875%
</TABLE>
* Libor
1 Agreement terminates on December 1, 2002
26
<PAGE>
Item 8. Financial Statements and Supplementary Data
The following consolidated financial statements are filed as part of this
Report.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants of Imax Corporation........................................................ 28
Consolidated Balance Sheets as at December 31, 1999 and 1998................................................. 29
Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997................... 30
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997................... 31
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1999, 1998 and 1997......... 32
Notes to Consolidated Financial Statements................................................................... 33
</TABLE>
27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS TO THE SHAREHOLDERS OF IMAX CORPORATION
We have audited the accompanying consolidated balance sheets of Imax
Corporation as at December 31, 1999 and 1998 and the related consolidated
statements of operations, shareholders' equity and cash flows for each year in
the three-year period ended December 31, 1999. These financial statements and
the financial statement schedule listed in the index appearing under Item 14
(a)(2) on page 63 are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1999 and 1998 and the results of its operations and cash flows for each year in
the three-year period ended December 31, 1999 in accordance with United States
generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Canada
February 9, 2000
28
<PAGE>
IMAX CORPORATION
CONSOLIDATED BALANCE SHEETS
In accordance with United States Generally Accepted Accounting Principles
(In thousands of U.S. dollars)
<TABLE>
<CAPTION>
As at December 31,
1999 1998
--------- ---------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents (note 5) $ 34,573 $ 143,566
Short-term marketable securities 49,159 39,305
Accounts receivable 42,619 30,848
Current portion of net investment in leases (note 6) 33,918 23,672
Inventories and systems under construction (note 7) 31,141 18,747
Prepaid expenses 2,621 3,766
--------- ---------
Total current assets 194,031 259,904
Long-term marketable securities 39,873 20,070
Net investment in leases (note 6) 103,087 79,124
Film assets (notes 4 and 8) 38,453 34,885
Capital assets (note 9) 66,897 46,563
Goodwill (notes 3, 4 and 10) 62,751 38,129
Other assets (note 11) 28,232 11,416
Deferred income taxes (note 17) 4,913 --
--------- ---------
Total assets $ 538,237 $ 490,091
========= =========
Liabilities
Current liabilities
Accounts payable $ 18,361 $ 9,882
Accrued liabilities 34,910 30,153
Current portion of deferred revenue 17,284 22,062
Income taxes payable 33,755 435
--------- ---------
Total current liabilities 104,310 62,532
Deferred revenue 22,862 15,005
Senior notes due 2005 (note 12) 200,000 200,000
Convertible subordinated notes (note 14) 100,000 100,000
Deferred income taxes (note 17) -- 23,263
--------- ---------
Total liabilities 427,172 400,800
--------- ---------
Minority interest (note 3) -- 4,845
--------- ---------
Commitments and contingencies (notes 3, 16, 20 and 21)
Shareholders' equity
Capital stock (note 15) 57,471 55,236
Retained earnings 54,669 29,436
Accumulated other comprehensive items (1,075) (226)
--------- ---------
Total shareholders' equity 111,065 84,446
--------- ---------
Total liabilities and shareholders' equity $ 538,237 $ 490,091
========= =========
</TABLE>
(the accompanying notes are an integral part of these
consolidated financial statements)
29
<PAGE>
IMAX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
In accordance with United States Generally Accepted Accounting Principles
(In thousands of U.S. dollars, except per share data)
<TABLE>
<CAPTION>
Years ended December 31,
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenue
IMAX systems $ 126,826 $ 140,874 $ 97,539
Digital projection systems 10,999 -- --
Films 47,227 30,824 39,683
Other 18,783 18,657 21,259
--------- --------- ---------
203,835 190,355 158,481
Costs and expenses (notes 4 and 8) 106,241 111,784 73,806
--------- --------- ---------
Gross margin 97,594 78,571 84,675
Loss from equity-accounted investees (notes 4 and 11) (683) (6,763) (22)
Selling, general and administrative expenses (note 4) 36,584 38,777 32,115
Research and development 3,868 2,745 2,129
Amortization of intangibles (notes 3 and 4) 2,585 5,948 2,701
--------- --------- ---------
Earnings from operations 53,874 24,338 47,708
Interest income 9,984 5,320 5,604
Interest expense (21,860) (14,646) (13,402)
Foreign exchange gain (loss) 977 588 (623)
--------- --------- ---------
Earnings before income taxes and minority interest 42,975 15,600 39,287
Provision for income taxes (notes 4 and 17) (16,535) (9,810) (17,265)
--------- --------- ---------
Earnings before minority interest 26,440 5,790 22,022
Minority interest (note 3) (1,207) (1,895) (1,357)
--------- --------- ---------
Earnings before extraordinary item $ 25,233 $ 3,895 $ 20,665
Extraordinary loss on early retirement of debt,
net of income tax benefit of $ 1,588 (note 13) -- (2,095)xx --
--------- --------- ---------
Net earnings $ 25,233 $ 1,800 $ 20,665
========= ========= =========
Earnings per share (note 15)
Earnings before extraordinary item
Basic $ 0.85 $ 0.10 $ 0.71
Diluted $ 0.83 $ 0.09 $ 0.68
Net earnings
Basic $ 0.85 $ 0.03 $ 0.71
Diluted $ 0.83 $ 0.03 $ 0.68
</TABLE>
(the accompanying notes are an integral part of these
consolidated financial statements)
30
<PAGE>
IMAX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
In accordance with United States Generally Accepted Accounting Principles
(In thousands of U.S. dollars)
<TABLE>
<CAPTION>
Years ended December 31,
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash provided by (used in):
Operating Activities
Net earnings $ 25,233 $ 1,800 $ 20,665
Items not involving cash:
Depreciation and amortization (note 18) 25,110 22,677 15,075
Loss from equity-accounted investees 683 6,763 22
Deferred income taxes (24,249) 3,975 14,015
Unrecoverable film costs (note 8) -- 22,738 --
Extraordinary loss on early extinguishment of debt -- 3,683 --
Minority interest 1,207 1,895 1,357
Other 10 (259) 548
Changes in deferred revenue on film production 5,187 8,046 (5,840)
Changes in other operating assets and liabilities (note 18) (17,719) (47,371) (34,254)
--------- --------- ---------
Net cash provided by operating activities 15,462 23,947 11,588
--------- --------- ---------
Investing Activities
Acquisition of Digital Projection International, net of cash
acquired (note 3) (25,724) -- --
Acquisition of minority interest in Sonics Associates, Inc.
(note 3) (12,740) -- --
Increase in marketable securities (29,639) (32,920) (8,250)
Increase in film assets (18,051) (21,192) (28,056)
Purchase of capital assets (22,708) (14,021) (12,654)
Increase in other assets (17,402) (3,982) (4,502)
--------- --------- ---------
Net cash used in investing activities (126,264) (72,115) (53,462)
--------- --------- ---------
Financing Activities
Issue of 7.875% Senior notes due 2005 -- 200,000 --
Repurchase of 10% Senior notes due 2001 -- (67,789) --
Deferred charges on debt financing -- (4,852) --
Class C preferred shares dividends paid (365) (386) --
Common shares issued 2,235 2,632 5,758
Redemption of Class C preferred shares -- (2,178) --
Repayment of long-term debt -- -- (2,326)
--------- --------- ---------
Net cash provided by financing activities 1,870 127,427 3,432
--------- --------- ---------
Effects of exchange rate changes on cash (61) 238 (78)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents during the year
(108,993) 79,497 (38,520)
Cash and cash equivalents, beginning of year 143,566 64,069 102,589
--------- --------- ---------
Cash and cash equivalents, end of year $ 34,573 $ 143,566 $ 64,069
========= ========= =========
</TABLE>
(the accompanying notes are an integral part of these
consolidated financial statements)
31
<PAGE>
IMAX CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
In accordance with United States Generally Accepted Accounting Principles
(In thousands of U.S. dollars)
<TABLE>
<CAPTION>
Number of
Common Accumulated
Shares Other Total
Issued and Capital Retained Comprehensive Shareholders' Comprehensive
Outstanding Stock Earnings Income (loss) Equity Income (loss)
----------- ---------- ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 27,885,218 $ 46,810 $ 8,307 $ (276) $ 54,841 --
Issuance of common stock 1,230,200 5,758 -- -- 5,758 --
Accrual of stock compensation benefit -- 36 -- -- 36 --
Accrual of preferred dividends -- -- (170) -- (170) --
Accretion of discount of preferred shares -- -- (160) -- (160) --
Net earnings -- -- 20,665 -- 20,665 20,665
Foreign currency translation adjustments -- -- -- 147 147 147
---------- ---------- ---------- ---------- ---------- ----------
$ 20,812
----------
Balance at December 31, 1997 29,115,418 52,604 28,642 (129) 81,117 --
Issuance of common stock 362,966 2,632 -- -- 2,632 --
Accrual of preferred dividends -- -- (171) -- (171) --
Accretion of discount on preferred shares -- -- (183) -- (183) --
Premium paid on early redemption of
Class C Preferred shares -- -- (652) -- (652) --
Net earnings -- -- 1,800 -- 1,800 1,800
Foreign currency translation adjustments -- -- -- (97) (97) (97)
---------- ---------- ---------- ---------- ---------- ----------
$ 1,703
----------
Balance at December 31, 1998 29,478,384 55,236 29,436 (226) 84,446 --
Issuance of common stock 279,504 2,235 -- -- 2,235 --
Net earnings -- -- 25,233 -- 25,233 25,233
Unrealized loss on available-for-sale
security -- -- -- (867) (867) (867)
Foreign currency translation adjustments -- -- -- 18 18 18
---------- ---------- ---------- ---------- ---------- ----------
$ 24,384
----------
Balance at December 31, 1999 29,757,888 $ 57,471 $ 54,669 $ (1,075) $ 111,065
========== ========== ========== ========== ==========
</TABLE>
(the accompanying notes are an integral part of these
consolidated financial statements)
32
<PAGE>
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with United States Generally Accepted Accounting Principles
(Amounts in thousands of U.S. dollars unless otherwise stated)
1. Description of the Business
Imax Corporation provides a wide range of products and services to the
network of IMAX(R) theaters. The principal activities of the Company are:
o the design, manufacture and marketing of proprietary projection
and sound systems for IMAX theaters;
o the development, production, post-production and distribution of
films shown in the IMAX theater network;
o the provision of other services to the IMAX theater network
including designing and manufacturing IMAX camera equipment for
rental to filmmakers and providing ongoing maintenance services
for the IMAX projection and sound systems; and
o commencing in 1999, the design, manufacture and marketing of
digital projector systems following the acquisition of Digital
Projection International on September 3, 1999.
2. Summary of Significant Accounting Policies
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. The most significant estimates are related to
the recoverability of film assets, capital assets, goodwill and the
measurement of contingencies. Actual results could be materially different
from these estimates. Significant accounting policies are summarized as
follows:
(a) Basis of consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries.
(b) Investments
Investments in marketable securities categorized as available-for-sale
securities are carried at fair value with unrealized gains or losses
included in a separate component of shareholders' equity. Investments in
marketable securities categorized as held-to-maturity securities are
carried at amortized cost.
Investments in joint ventures are accounted for by the equity method of
accounting under which consolidated net earnings include the Company's
share of earnings or losses of the investees. The carrying values of the
investments are adjusted for the Company's share of undistributed income or
losses since acquisition and dividends received are recorded as a reduction
in the investments. Write-downs are only made for declines in value which
are other than temporary.
(c) Inventories
Inventories are carried at the lower of cost, determined on a first-in,
first-out basis, and net realizable value. Finished goods and
work-in-process include the cost of raw materials, direct labor and
applicable share of manufacturing overhead costs.
(d) Film assets
Film assets represent costs incurred in producing and distributing films
net of accumulated amortization. The film costs are charged as expenses
using the individual-film forecast method as prescribed by Statement of
Financial Accounting Standards No. 53 whereby film costs are amortized in
the same ratio that current gross revenues bear to anticipated total future
gross revenues. Estimates of anticipated total gross revenues are reviewed
quarterly by management and revised where necessary to reflect more current
information.
The recoverability of film costs is dependent upon commercial acceptance of
the films. Any capitalized costs of a film that are determined to be
unrecoverable are charged to operations in the period that determination is
made.
33
<PAGE>
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with United States Generally Accepted Accounting Principles
(Amounts in thousands of U.S. dollars unless otherwise stated)
2. Summary of Significant Accounting Policies - (continued)
(e) Capital assets
Capital assets are stated at cost and are depreciated on a straight-line
basis over their estimated useful lives as follows:
<TABLE>
<S> <C>
Imax projection equipment -- 10 to 15 years
Camera equipment -- 5 to 10 years
Buildings -- 20 to 25 years
Office and production equipment -- 3 to 5 years
Leasehold improvements -- Over the term of the underlying leases
</TABLE>
(f) Other assets
Other assets include an investment in Mainframe Entertainment, Inc.
("Mainframe") patents, trademarks and other intangibles, equity-accounted
investees, capitalized computer software and deferred charges on debt
financing.
The investment in Mainframe is carried at cost. Unrealized gains or losses
on the quoted market value of the equity portion of the investment are
recorded in a separate component of shareholders equity. The amount
invested in Mainframe convertible debentures is classified as "held to
maturity".
Patents, trademarks and other intangibles are recorded at cost and are
amortized on a straight-line basis over their estimated useful lives
ranging from 10 to 13 years.
The Company capitalizes computer software production costs related to the
costs of software to be marketed or to be used internally by the Company.
Amortization will commence when the products are available for general
release to customers or for use by the Company, on a straight-line basis
over their estimated useful lives of approximately three to five years.
Deferred charges on debt financing are amortized on a straight-line basis
over the term of debt.
(g) Goodwill
Goodwill represents the excess purchase price of acquired businesses over
the fair value of net assets acquired. Goodwill is amortized on a
straight-line basis over its estimated life ranging from 20 years to 25
years. The carrying value of goodwill is periodically reviewed by the
Company and impairments are recognized in earnings when the undiscounted
expected future operating cash flows derived from the acquired businesses
are less than the carrying value.
(h) Deferred revenue
Deferred revenue comprises receipts under systems sales and lease
contracts, film production contracts and film exhibition contracts not yet
recognized as revenue. The current portion of deferred revenue represents
the estimated amount to be recognized in earnings during the following
12-month period.
(i) Income taxes
Income taxes are accounted for under the asset and liability method whereby
deferred tax assets and liabilities are recognized for the expected future
tax consequences of events that have been recognized in the financial
statements or tax returns. Deferred tax assets and liabilities are measured
using tax rates expected to apply to taxable income in the years in which
temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in earnings in the period in which the change occurs.
34
<PAGE>
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with United States Generally Accepted Accounting Principles
(Amounts in thousands of U.S. dollars unless otherwise stated)
(j) Revenue and cost recognition
Sales and sales-type leases
Revenues from theater system sales and leases which transfer substantially
all of the benefits and risks of ownership to the customer ("sales-type
leases") are recognized on the completed contract method (that is upon
delivery of the system). Revenues include initial advance payments and
contracted minimum rental payments discounted to their present value.
Cash payments received in advance of delivery are recorded as deferred
revenue. The associated costs are recorded as inventories and systems under
construction. Upon delivery of the theater system, the deferred revenue and
deferred costs, net of estimated asset residual value at the end of the
lease term, are recognized in earnings.
The Company recognizes the present value of the minimum rental payments on
sales-type leases upon delivery of the theater system where collectibility
is reasonably assured. Cash receipts under minimum rental payments are
received after delivery. Typically, ongoing rental payments are received
over the life of the system agreement and under any renewal periods. In the
event of default of payment of minimum contracted rental payments, the
Company may repossess the system and refurbish it for resale. Royalties in
excess of minimum rental payments are recorded as revenue when due under
the terms of the lease agreement.
Operating leases
Revenues from leases which do not transfer substantially all of the
benefits and risks of ownership to the customer are treated as operating
leases where revenues and direct expenses are recognized over the term of
the lease and costs of leased assets are amortized over their estimated
useful lives.
Film production revenues
Revenues from films produced for third parties are recognized when the film
is completed and delivered to the sponsor. The associated production costs
are deferred and subsequently charged to earnings when the film is
delivered and the revenue is recognized.
(k) Research and development
Research and development expenditures are expensed as incurred.
(l) Foreign currency translation
Monetary assets and liabilities of the Company's operations which are
denominated in currencies other than the U.S. dollar are translated into
U.S. dollars at the exchange rates prevailing at the end of the period.
Non-monetary items are translated at historical exchange rates. Revenue and
expense transactions are translated at exchange rates prevalent at the
transaction date. All exchange gains and losses are included in the
determination of net earnings in the period in which they arise. For
foreign subsidiaries with functional currencies other than the U.S. dollar,
all assets and liabilities are translated at the year end exchange rates
and all revenue and expense items are translated at the average rate for
the period, with exchange differences arising on translation accumulated in
a separate component of shareholders' equity.
(m) Stock-based compensation
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, became effective for the Company for the year
ended December 31, 1996. This statement allows enterprises to continue to
measure compensation cost for employee stock option plans using the
methodology currently prescribed by APB Opinion No. 25, Accounting for
Stock Issued to Employees. The Company elected to remain with the
accounting in Opinion No. 25 and has made pro forma disclosures of net
earnings and earnings per share in Note 15 as if the methodology prescribed
by Statement No. 123 had been adopted.
35
<PAGE>
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with United States Generally Accepted Accounting Principles
(Amounts in thousands of U.S. dollars unless otherwise stated)
3. Acquisitions
(a) On September 3, 1999, the Company acquired all of the common and preferred
shares of Digital Projection International, ("DPI") a designer and
manufacturer of digital image delivery systems with operations in
Manchester, England and Atlanta, Georgia. The transaction has been
accounted for as a purchase and the assets acquired and the liabilities
assumed were recorded at their fair market values on September 3, 1999. The
purchase price of approximately $27.3 million was paid with approximately
$25.5 million of cash, $1.5 million in contingent escrow funds subject to a
net asset adjustment, and 100,000 restricted shares of the Company, valued
at approximately $1.8 million, to be issued to former shareholders of DPI
over the next five years.
The purchase price has been allocated to assets and liabilities acquired to
record them at their estimated fair values at September 3, 1999 as follows:
<TABLE>
<S> <C>
Cash $ 1,526
Accounts receivable 3,867
Inventory 6,654
Capital assets 3,056
Other assets 4,000
Accounts payable and accrued liabilities (12,013)
Deferred income tax 1,783
Goodwill 18,377
----------
$ 27,250
==========
</TABLE>
(b) On October 1, 1999 the Company acquired the remaining 49% interest of
Sonics Associates, Inc. ("Sonics"), not owned by the Company. Sonics is the
provider of sound systems for the Company's theater systems. The purchase
price of $12.7 million in cash was paid to Sonics management, who will
continue as the senior management of this 100% owned subsidiary. The
purchase agreement also provides for an additional earn out amount to be
paid to the former shareholders over the period 2000 to 2004. The earn out
is contingent on Sonics' level of earnings over that period, a guaranteed
percentage of which will be considered an addition to the purchase price
when earned, with the remainder accounted for as a compensation expense
when earned.
The purchase price has been allocated to assets and liabilities acquired to
record them at October 1, 1999 as follows:
<TABLE>
<S> <C>
Inventory and other assets $ 541
Accounts payable and accrued liabilities (3,468)
Deferred income tax 1,082
Minority interest 6,053
Goodwill 8,532
----------
$ 12,740
==========
</TABLE>
36
<PAGE>
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with United States Generally Accepted Accounting Principles
(Amounts in thousands of U.S. dollars unless otherwise stated)
4. Rationalization of Motion Simulation and Attractions Business
Included in earnings for the year ended December 31, 1998 is a pre-tax
charge of $13,569,000 related to the Company's investment in its motion
simulation and attractions business. The Company's decision to rationalize
its activities in this business was based upon declining sales of its
motion simulation products and continued operating losses within the
business unit.
As a result, management determined in 1998 that there had been a permanent
impairment of the Ridefilm assets amounting to $13,293,000 based on the
estimated present value of future cash flows of the operations. As a result
of the re-valuation and write down of Ridefilm assets, the 1998
Consolidated Statement of Operations for the Company reflect the following
costs and expenses: a) amortization of intangibles includes $3,266,000
related to the write-off of the remaining unamortized goodwill; b) costs
and expenses include $1,427,000 related to the write-down of three
participating joint venture operations, $3,665,000 related to a write-down
of film assets, $768,000 related to the write-down of inventory leaving the
historical cost of assets contracted to be delivered in 1999 and $1,067,000
related to the write-off of obsolete fixed assets; c) selling, general and
administrative expense includes $1,682,000 related to a provision for
doubtful accounts as the future collectibility of amounts is expected to be
impaired by the decision to rationalize the business; d) loss from
equity-accounted investees includes $543,000 representing the write-down of
the assets to fair market value of the Company's 50% equity share of a
joint venture; and e) income tax expense includes a write-down of deferred
state tax assets amounting to $875,000 relating to losses considered
unlikely to be utilized. In addition to the impairment of assets, costs and
expenses includes a provision for costs totaling $950,000 that will provide
no future economic benefit and included in selling, general and
administrative expense for the year ended December 31, 1998 is a provision
for severance of $201,000 for seven management, sales and administrative
staff, which was paid in 1999.
5. Cash and cash equivalents
At December 31, 1999, cash and cash equivalents includes a total of $4.4
million of cash held in escrow.
6. Net Investment in Leases and Lease Payments Receivable
The Company enters into sales-type leases which have initial advance
payments and annual rental payments with contracted minimums which are
generally indexed with inflation. The Company's net investment in
sales-type leases comprises:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Total minimum lease payments receivable $ 230,457 $ 173,791
Residual value of equipment 6,325 5,004
Unearned finance income (80,856) (62,792)
--------- ---------
Present value of minimum lease payments receivable 155,926 116,003
Valuation allowance (18,921) (13,207)
--------- ---------
137,005 102,796
Less current portion 33,918 23,672
--------- ---------
$ 103,087 $ 79,124
========= =========
</TABLE>
Income recognized on systems from annual rental payments comprised the
following:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Minimum rental payments on operating leases $ 875 $ 910 $ 1,073
Contingent rentals (1) 5,646 4,100 4,971
Finance income 5,228 5,144 4,241
------- ------- -------
Total $11,749 $10,154 $10,285
======= ======= =======
</TABLE>
(1) 1997 contingent rentals include $832,000 of arrears billings.
37
<PAGE>
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with United States Generally Accepted Accounting Principles
(Amounts in thousands of U.S. dollars unless otherwise stated)
6. Net Investment in Leases and Lease Payments Receivable - (continued)
The estimated amount of gross minimum rental payments receivable from all
delivered leases at December 31, 1999, for each of the next five years is
as follows:
<TABLE>
<S> <C>
2000 $12,843
2001 $15,173
2002 $15,061
2003 $15,104
2004 $14,874
</TABLE>
7. Inventories and Systems Under Construction
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Raw materials $16,831 $ 7,555
Work-in-process 11,974 10,686
Finished goods 2,336 506
------- -------
$31,141 $18,747
======= =======
</TABLE>
8. Film Assets
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Completed films, net of amortization $27,775 $25,687
Films in production 10,678 9,198
------- -------
$38,453 $34,885
======= =======
</TABLE>
Included in costs and expenses for the year ended December 31, 1998 is a
charge of $22.7 million to reflect a write-down for unrecoverable film
costs.
38
<PAGE>
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with United States Generally Accepted Accounting Principles
(Amounts in thousands of U.S. dollars unless otherwise stated)
9. Capital Assets
<TABLE>
<CAPTION>
1999
---------------------------------------------
Accumulated
Cost Depreciation Net book value
-------- ------------ --------------
<S> <C> <C> <C>
Equipment held for lease
Projection equipment $ 17,681 $ 7,050 $ 10,631
Motion simulation equipment 3,404 3,263 141
Camera equipment 13,760 3,749 10,011
-------- -------- --------
34,845 14,062 20,783
-------- -------- --------
Assets under construction 5,638 -- 5,638
-------- -------- --------
Other capital assets
Land 2,431 -- 2,431
Buildings 29,003 3,144 25,859
Office and production equipment 27,271 15,487 11,784
Leasehold improvements 1,143 741 402
-------- -------- --------
59,848 19,372 40,476
-------- -------- --------
$100,331 $ 33,434 $ 66,897
======== ======== ========
<CAPTION>
1998
---------------------------------------------
Accumulated
Cost Depreciation Net book value
-------- ------------ --------------
<S> <C> <C> <C>
Equipment held for lease
Projection equipment $ 11,131 $ 6,324 $ 4,807
Motion simulation equipment 3,403 3,263 140
Camera equipment 12,373 2,870 9,503
-------- -------- --------
26,907 12,457 14,450
-------- -------- --------
Assets under construction 6,605 -- 6,605
-------- -------- --------
Other capital assets
Land 2,431 -- 2,431
Buildings 17,227 2,368 14,859
Office and production equipment 18,389 10,255 8,134
Leasehold improvements 376 292 84
-------- -------- --------
38,423 12,915 25,508
-------- -------- --------
$ 71,935 $ 25,372 $ 46,563
======== ======== ========
</TABLE>
Capital assets include $754,000 of interest capitalized in 1999 (1998 -
nil, 1997 - nil).
10. Goodwill
The accumulated amortization of goodwill was $11,463,000 and $9,176,000 at
December 31, 1999 and 1998, respectively. Added to goodwill in 1999 was
$18,377,000 arising on the acquisition of DPI and $8,532,000 arising on the
acquisition of the minority interest in Sonics (see note 3). Unamortized
goodwill related to Ridefilm was fully written off in 1998 (see note 4).
39
<PAGE>
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with United States Generally Accepted Accounting Principles
(Amounts in thousands of U.S. dollars unless otherwise stated)
11. Other assets
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Investment in Mainframe Entertainment, Inc. $10,732 $ --
Patents, trademarks and other intangibles 5,872 1,565
Investments in equity-accounted investees 1,797 2,454
Computer software 1,353 457
Deferred charges on debt financing 5,930 6,794
Other assets 2,548 146
------- -------
$28,232 $11,416
======= =======
</TABLE>
The investment in Mainframe, a producer of 3-D computer generated
animation, consists of a cash investment of Canadian $8.0 million in common
shares which provided the Company with a 19% interest in Mainframe and an
investment of Canadian $8.0 million in 6% convertible debentures maturing
June 1, 2004.
The equity portion of the investment has been reduced by $867,000 to
reflect the unrealized loss on the investment based on the quoted market
price of the stock on December 31, 1999.
Patents, trademarks and other intangibles includes other intangibles of
approximately $3.9 million resulting from the acquisition of DPI.
Included in loss from equity-accounted investees for the year ended
December 31, 1998 is a loss of $1,937,000 representing the Company's share
of the loss of Forum Ride Associates, a 50% joint venture with Starwood
Hotels & Resorts Worldwide, Inc., operating an IMAX 3D Simulator Ride at
the Forum Shops at Caesars Palace in Las Vegas, Nevada. The Company also
took a charge of $4,208,000 to write-off its remaining investment in the
joint venture after considering current period operating losses combined
with a projection that indicated future continuing losses.
Investments in joint ventures accounted for under the equity method as at
December 31, 1998 also reflects the charge to write-down a Ridefilm joint
venture (see note 4).
12. Senior Notes due 2005
In December, 1998, the Company issued $200 million of Senior Notes due
December 1, 2005 bearing interest at 7.875% per annum with interest payable
in arrears on June 1 and December 1 of each year, commencing June 1, 1999.
The 7.875% Senior Notes are the senior unsecured obligation of the Company,
ranking pari passu in right of payment to all existing and future senior
unsecured and unsubordinated indebtedness of the Company and senior in
right of payment to any subordinated indebtedness of the Company.
The 7.875% Senior Notes Indenture contains covenants that, among other
things, limit the ability of the Company to incur additional indebtedness,
pay dividends or make other distributions, make certain investments, create
certain liens, engage in certain transactions with affiliates, engage in
sale and leaseback transactions, engage in mergers, consolidations or the
transfer of all or substantially all of the assets of the Company. The
7.875% Senior Notes are subject to redemption by the Company, in whole or
in part, at any time on or after December 1, 2002, at redemption prices
expressed as percentages of the principal amount for each 12-month period
commencing December 1 of the years indicated; 2002 - 103.938%, 2003 -
101.969%, 2004 and thereafter - 100.000% together with interest accrued
thereon to the redemption date. Until December 1, 2001, up to 35% of the
aggregate principal amount of the Notes may be redeemed by the Company
using the net proceeds of a public offering of common shares of the Company
or certain other equity placements, at a
40
<PAGE>
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with United States Generally Accepted Accounting Principles
(Amounts in thousands of U.S. dollars unless otherwise stated)
12. Senior Notes due 2005 - (continued)
redemption price of 107.875%, together with accrued interest thereon. The
Company may also redeem the notes, in whole or in part, at any time prior
to December 1, 2002, at a redemption price equal to 100% of the principal
amount plus a "make-whole premium" calculated in reference to the
redemption price on the first date that the notes may be redeemed by the
Company plus accrued interest to, but excluding, the redemption date. If
certain changes result in the imposition of withholding taxes under
Canadian law, the 7.875% Senior Notes are subject to redemption at the
option of the Company, in whole but not in part, at a redemption price of
100% of the principal amount thereof plus accrued interest to the date of
redemption. In the event of a change in control, holders of the notes may
require the Company to repurchase all or part of the notes at a price equal
to 101% of the principal amount thereof plus accrued interest to the date
of repurchase.
Interest expense on the 7.875% Senior Notes amounted to $15,750,000 and
$1,181,000 in 1999 and 1998.
13. Senior Notes due 2001
In December, 1998, the Company provided all holders of the 10% Senior Notes
due 2001 with a notice of redemption at a price in accordance with the
terms of the 10% Senior Notes of 104.29% of the principal amount. As of
December 31, 1998, all of the 10% Senior Notes due 2001 had been redeemed
for a total of $67,789,000. The excess of the redemption price over the
principal amount of the 10% Senior Notes of $2,789,000 and the write-off of
the remaining unamortized deferred financing costs of $894,000 resulted in
an extraordinary pre-tax loss of $3,683,000 in the year ended December 31,
1998.
Interest expense on the 10% Senior Notes amounted to nil in 1999 (1998 -
$6,681,000 and 1997 - $6,175,000).
14. Convertible Subordinated Notes
In April 1996, the Company issued $100 million of Convertible Subordinated
Notes due April 1, 2003 bearing interest at 5.75% payable in arrears on
April 1 and October 1. The notes, subordinate to present and future senior
indebtedness of the Company, are convertible into common shares of the
Company at the option of the holder at a conversion price of $21.406 per
share (equivalent to a conversion rate of 46.7154 shares per $1,000
principal amount of Notes) at any time prior to maturity.
The notes are redeemable at the option of the Company on or after April 1,
1999 at redemption prices expressed as percentages of the principal amount
(1999 - 103.286%; 2000 - 102.464%; 2001 - 101.643%; 2002 - 100.821%) plus
accrued interest. The notes may only be redeemed by the Company between
April 1, 1999 and April 1, 2001 if the last reported market price of the
Company's common shares is equal to or greater than $30 per share for any
20 of the 30 consecutive trading days prior to the notice of redemption.
The notes may be redeemed at any time on or after April 1, 2001 without
limitation.
Interest expense related to the Convertible Subordinated Notes was
$5,750,000 during the years ended December 31, 1999, 1998 and 1997.
41
<PAGE>
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with United States Generally Accepted Accounting Principles
(Amounts in thousands of U.S. dollars unless otherwise stated)
15. Capital Stock and Redeemable Preferred Shares
(a) Authorized
The authorized capital of the Company consists of an unlimited number of
common shares and an unlimited number of Class C preferred shares issuable
in two series.
The following is a summary of the rights, privileges, restrictions and
conditions of each of the classes of shares.
Common shares
The holders of common shares are entitled to receive dividends if, as and
when declared by the directors of the Company, subject to the rights of the
holders of any other class of shares of the Company entitled to receive
dividends in priority to the common shares.
The holders of the common shares are entitled to one vote for each common
share held at all meetings of the shareholders.
Redeemable Class C preferred shares, Series 1
The holders of Class C shares are entitled to a cumulative dividend at the
rate of 7% to 10% per annum under certain conditions on the Class C issue
price of Canadian $100 per share.
Except as otherwise required by law, the holders of Class C shares Series 1
are not entitled to vote at any meeting of the shareholders.
Notice of redemption for all outstanding Class C shares was delivered on
December 29, 1998 and all outstanding shares were redeemed on January 21,
1999.
Redeemable Class C preferred shares, Series 2
The Class C Series 1 preferred shares may be converted at any time in whole
upon a resolution of the directors of the Company into the same number of
Class C Series 2 preferred shares. The Series 2 shares shall be identical
to the Series 1 shares except that the holders of Series 2 shares will be
entitled to such number of votes as the directors determine subject to a
maximum of six percent of the votes attaching to all voting shares of the
Company outstanding immediately following the conversion.
(b) Changes during the period
Pursuant to shareholders' approval at the Annual and Special Meeting held
on May 6, 1997, the Company's shares were split on a 2-for-1 basis in May
1997. Common share, stock option and earnings per share data for the
comparative periods give retroactive effect to the stock split as if it had
taken place at the beginning of the period.
In 1999, the Company issued 277,838 common shares pursuant to the exercise
of stock options for cash proceeds of $2,207,000 and 1,666 shares were
issued under the terms of an employment contract with an ascribed value of
$28,000.
In 1998, the Company issued 361,300 common shares pursuant to the exercise
of stock options for cash proceeds of $2,605,000 and 1,666 shares were
issued under the terms of an employment contract with an ascribed value of
$27,000.
In 1997, the Company issued 778,200 common shares pursuant to the exercise
of stock options for cash proceeds of $5,616,000 and 5,000 shares were
issued under the terms of an employment contract with an ascribed value of
$37,000.
42
<PAGE>
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with United States Generally Accepted Accounting Principles
(Amounts in thousands of U.S. dollars unless otherwise stated)
15. Capital Stock and Redeemable Preferred Shares - (continued)
(c) Shares held for other than retirement
As at December 31, 1999, 148,000 (1998 and 1997 - 213,000) issued common
shares are held by a subsidiary of the Company for other than retirement.
During 1999, 65,000 (1998 - nil, 1997 - 447,000) common shares held by a
subsidiary of the Company were sold to a former employee of the Company in
connection with the exercise of a stock option grant for cash proceeds of
$14,000 (1998 - nil, 1997 - $105,000).
(d) Stock options
The Company has reserved a total of 6,303,850 common shares for future
issuance as follows:
(i) 316,744 common shares have been reserved for issuance pursuant to
stock options granted in connection with the employment of Douglas
Trumbull, former Vice Chairman of the Company, at an exercise price
equivalent to Canadian $0.32 per share and expire on September 1,
2002. These options are fully vested.
(ii) 15,008 common shares have been reserved for issuance pursuant to
stock options granted at an exercise price equivalent to Canadian
$1.59 per share which options are fully vested and expire on April
8, 2004.
(iii) 5,972,098 common shares remain reserved for issuance under the Stock
Option Plan, of which options in respect of 5,157,400 common shares
are outstanding at December 31, 1999. The options granted under the
Stock Option Plan generally vest over a five-year period and expire
10 years from the date granted. As at December 31, 1999, options in
respect of 2,514,634 common shares were vested and exercisable.
<TABLE>
<CAPTION>
Weighted
Average exercise price per
Number of shares share
---------------- -----
1999 1998 1997 1999 1998 1997
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, beginning of year 3,327,300 2,005,600 2,126,800 $ 19.38 $ 14.55 $ 8.99
Granted 2,225,000 1,815,500 711,000 20.32 22.58 23.10
Exercised (201,638) (335,900) (749,200) 10.82 7.14 7.45
Canceled or expired (193,262) (157,900) (83,000) 18.09 19.56 9.36
---------- --------- ---------
Options outstanding, end of year 5,157,400 3,327,300 2,005,600 20.18 19.38 14.55
========= ========= =========
</TABLE>
The weighted average fair value of common share options granted in 1999 is
$14,672,000 (1998 - $11,707,000 and 1997 - $5,604,000). The fair value of
common share options granted is estimated at the grant date using the
Black-Scholes option-pricing model with the following assumptions: dividend
yield of 0%, a riskfree interest rate of 6% (1998 - 5%; 1997 - 6%),
expected life of the options ranging from two to five years and expected
volatility of 40%.
The following table summarizes certain information in respect of options
outstanding under the Stock Option Plan as at December 31, 1999:
<TABLE>
<CAPTION>
Number of Shares
--------------------------------
Range of exercise Average exercise Average
prices per share Outstanding Vested price per share remaining term
----------------- ----------- ------ --------------- --------------
<S> <C> <C> <C> <C>
$ 5.00 - $ 9.99 343,800 298,400 $ 6.79 5 years
$10.00 - $14.99 49,000 21,000 11.85 6 years
$15.00 - $19.99 1,406,200 863,034 17.55 9 years
$20.00 - $24.99 2,886,100 1,121,800 22.09 9 years
$25.00 - $28.99 472,300 210,400 27.03 8 years
--------- ---------
Total 5,157,400 2,514,634 20.18 8 1/2years
========= =========
</TABLE>
43
<PAGE>
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with United States Generally Accepted Accounting Principles
(Amounts in thousands of U.S. dollars unless otherwise stated)
15. Capital Stock and Redeemable Preferred Shares - (continued)
(e) Earnings per Share
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net earnings available to common shareholders:
Earnings before extraordinary loss $ 25,233 $ 3,895 $ 20,665
less: accrual of preferred dividends -- (171) (170)
accretion of discount of preferred shares -- (183) (160)
premium paid on early redemption of preferred
shares -- (652) --
------------ ------------ ------------
25,233 2,889 20,335
Extraordinary loss on the early redemption of debt,
net of income tax benefit of $1,588 -- (2,095) --
------------ ------------ ------------
$ 25,233 $ 794 $ 20,335
============ ============ ============
Weighted average number of common shares:
Issued and outstanding at beginning of year 29,478,384 29,115,418 27,885,218
Weighted average shares
Issued in the year 137,404 165,175 659,065
------------ ------------ ------------
Weighted average used in computing basic
Earnings per share 29,615,788 29,280,593 28,544,283
Assumed exercise of stock options, net of
Shares assumed acquired under the Treasury
Stock Method 897,590 1,192,975 1,575,410
Assumed conversion of Convertible Subordinated
Notes 1,167,855 -- --
------------ ------------ ------------
Weighted average used in computing diluted
Earnings per share 31,681,233 30,473,568 30,119,693
============ ============ ============
</TABLE>
If the methodology prescribed by Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, had been adopted by the Company,
pro forma results would have been as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net earnings (loss) $ 20,362 $ (2,828) $ 19,499
Earnings (loss) per share
Basic $ 0.69 $ (0.13) $ 0.67
Diluted $ 0.64 $ (0.13) $ 0.64
</TABLE>
16. Commitments
(a) Total minimum annual rental payments under operating leases for premises
are as follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $3,806
2001 $4,230
2002 $4,217
2003 $4,253
2004 $4,274
</TABLE>
Rent expense was $2,853,000 for the year ended December 31, 1999 (1998 -
$1,478,000; 1997 - $1,033,000).
(b) The Company has unused lines of credit amounting to Canadian $1.1 million,
or the equivalent in U.S. dollars. No commitment fees are payable on these
lines of credit.
The Company's facility in Mississauga is subject to a collateral secured
charge in favour of The Toronto-Dominion Bank in connection with the
working capital facility.
44
<PAGE>
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with United States Generally Accepted Accounting Principles
(Amounts in thousands of U.S. dollars unless otherwise stated)
16. Commitments - (continued)
The Company has guaranteed up to $5.3 million of a term loan undertaken by
the Forum Ride Associates joint venture to which it is a party in
connection with the development and construction of the IMAX Race For
Atlantis attraction in Las Vegas. The term loan, which matures in January
2009, bears interest at LIBOR plus 3% and is collateralized by the assets
of the joint venture.
17. Income Taxes
(a) Earnings before income taxes and minority interest by tax jurisdiction
comprise the following:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Canada $ 36,774 $ 16,481 $ 31,872
United States 6,693 (5,439) 6,512
Japan 498 1,475 1,424
Other (990) 3,083 (521)
-------- -------- --------
Total $ 42,975 $ 15,600 $ 39,287
======== ======== ========
</TABLE>
(b) The provision for income taxes comprises the following:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Current $(40,784) $ (4,247) $ (3,250)
Deferred 24,249 (5,563) (14,015)
-------- -------- --------
Total $(16,535) $ (9,810) $(17,265)
======== ======== ========
</TABLE>
(c) The provision for income taxes before extraordinary item differs from the
amount that would have resulted by applying the combined Canadian federal
and Ontario provincial statutory income tax rates (44.62%) to earnings as
described below:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Income tax expense at combined statutory rates $(19,175) $ (6,961) $(17,530)
(Increase) decrease resulting from:
Non-deductible expenses, including amortization of
Goodwill (1,901) (2,727) (985)
Manufacturing and processing profits deduction 3,832 159 684
Large corporations tax (404) (235) (335)
Income tax at different rates in foreign and other provincial
Jurisdictions 684 (266) 292
Investment tax credits and other 429 220 609
-------- -------- --------
Provision for income taxes as reported $(16,535) $ (9,810) $(17,265)
======== ======== ========
</TABLE>
(d) The deferred income tax asset (liability) consists of:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Net operating loss carry forwards $ 2,021 $ 2,346
Investment tax credit carry forwards 1,977 5,492
Asset write downs 1,688 1,688
Income recognition on systems deliveries (47,944) (74,994)
Excess book over tax depreciation and amortization 47,474 43,405
Other 2,624 1,611
-------- --------
7,840 (20,452)
Valuation allowance (2,927) (2,811)
-------- --------
$ 4,913 $(23,263)
======== ========
</TABLE>
45
<PAGE>
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with United States Generally Accepted Accounting Principles
(Amounts in thousands of U.S. dollars unless otherwise stated)
18. Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
(a) Changes in other operating assets and liabilities were as follows:
Decrease (increase) in:
Accounts receivable $ (7,904) $ (2,363) $(15,081)
Net investment in leases (34,097) (40,900) (18,674)
Inventories and systems under construction (5,671) 2,476 (1,365)
Prepaid expenses 1,145 (1,635) (604)
Increase (decrease) in:
Accounts payable 3,458 2,969 2,428
Accrued liabilities (5,338) 5,933 7,543
Income taxes payable 32,796 (187) (2,423)
Other deferred revenue (2,108) (13,664) (6,078)
-------- -------- --------
$(17,719) $(47,371) $(34,254)
======== ======== ========
(b) Cash payments made during the year on account of:
Income taxes $ 7,464 $ 4,106 $ 5,145
======== ======== ========
Interest $ 21,369 $ 14,597 $ 11,402
======== ======== ========
(c) Depreciation and amortization comprise the following:
Film assets $ 13,595 $ 5,740 $ 4,905
Capital assets 5,443 8,459 5,560
Goodwill and intangibles 2,585 5,948 2,701
Deferred financing costs 1,219 935 882
Acquired systems contracts in process -- -- 1,027
Other 2,268 1,595 --
-------- -------- --------
$ 25,110 $ 22,677 $ 15,075
======== ======== ========
</TABLE>
46
<PAGE>
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with United States Generally Accepted Accounting Principles
(Amounts in thousands of U.S. dollars unless otherwise stated)
19. Segmented Information
The Company has three reportable segments: IMAX systems, films and other.
The systems segment designs, manufactures and sells or leases and maintains
projection systems. The film segment performs production, post-production
and distribution of films. The other segment includes camera rentals,
theater operations and since the acquisition of DPI, the design,
manufacture and sale of digital projectors to the staging, rental and
display advertising sectors. The accounting policies of the segments are
the same as those described in note 2. Segment performance is evaluated
based on gross margin less selling, general and administrative expenses,
research and development expenses, and goodwill amortization. Inter-segment
transactions are not significant.
a) Business Segments
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenue
Systems $ 126,826 $ 140,874 $ 97,539
Films 47,227 30,824 39,683
Other 29,782 18,657 21,259
--------- --------- ---------
Total consolidated revenues $ 203,835 $ 190,355 $ 158,481
========= ========= =========
Earnings (loss) from operations
Systems $ 70,403 $ 78,145 $ 52,594
Films 244 (16,458) 11,452
Other (1,979) (18,053) 1,000
Corporate overhead (14,794) (19,296) (17,338)
--------- --------- ---------
Consolidated earnings from operations $ 53,874 $ 24,338 $ 47,708
========= ========= =========
Depreciation and amortization
Systems $ 5,741 $ 7,572 $ 6,741
Films 14,044 5,908 5,100
Other and corporate 5,325 9,197 3,234
--------- --------- ---------
$ 25,110 $ 22,677 $ 15,075
========= ========= =========
Purchase of Capital Assets
Systems $ 9,934 $ 4,547 $ 6,103
Films 5,778 194 206
Other 6,996 9,280 6,345
--------- --------- ---------
$ 22,708 $ 14,021 $ 12,654
========= ========= =========
Assets
Assets
Systems $ 254,940 $ 204,349 $ 167,926
Films 65,149 49,048 52,199
Other 87,777 26,092 28,116
Corporate 130,371 210,602 96,118
--------- --------- ---------
$ 538,237 $ 490,091 $ 344,359
========= ========= =========
</TABLE>
In 1999, other revenue included four months of digital projection systems
revenue following the acquisition of DPI.
In 1998, the loss in the film segment includes a write-down of $19,073,000
for unrecoverable film costs. In 1998, the Other segment includes a charge
of $13,569,000 relating to rationalization of the motion simulation and
attractions business (note 4) and a loss of $6,145,000 from the Company's
50% share of Forum Ride Associates' loss for the year and the write-off of
the remaining carrying value of this equity-accounted investee (note 11).
47
<PAGE>
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with United States Generally Accepted Accounting Principles
(Amounts in thousands of U.S. dollars unless otherwise stated)
19. Segmented Information - (continued)
(b) Geographic Segments
Systems revenue and film distribution and post-production revenues by
geographic area are based on the location of the theater, while the
location of the customer determines the geographic allocation of film
production revenues:
Revenues
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Canada $ 15,289 $ 22,037 $ 12,890
United States 106,469 79,494 70,070
Europe 37,624 45,680 38,238
Japan 11,144 12,454 11,986
Rest of World 33,309 30,690 25,297
-------- -------- --------
$203,835 $190,355 $158,481
======== ======== ========
Long-lived assets
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Canada $175,990 $134,740 $131,600
United States 83,469 49,888 43,109
Europe 63,405 30,012 17,910
Japan 4,344 4,820 6,787
Rest of World 16,998 10,727 7,896
-------- -------- --------
$344,206 $230,187 $207,302
======== ======== ========
</TABLE>
20. Financial Instruments
From time to time the Company engages in hedging activities to reduce the
impact of fluctuations in foreign currencies on its profitability and cash
flow. The credit risk exposure associated with these activities would be
limited to all unrealized gains on contracts based on current market
prices. The Company believes that this credit risk has been minimized by
dealing with highly rated institutions.
To fund Canadian dollar costs in 2000, the Company had entered into forward
exchange contracts as at December 31, 1999 to hedge the conversion of $24
million of its cash flow into Canadian dollars at an average exchange rate
of Canadian $1.47 per U.S. dollar.
The Company has also entered into foreign currency swap transactions to
hedge minimum lease payments receivable under sales-type lease contracts
denominated in Japanese Yen and French Francs. These swap transactions fix
the foreign exchange rates on conversion of 110 million Yen at 98 Yen per
U.S. dollar through September 2004 and on 13.5 million Francs at 5.1 Francs
per U.S. dollar through September 2005.
The Company entered into an interest rate swap transaction in May 1999 for
a term commencing June 1, 1999 and terminating on December 1, 2002. The
Company has agreed to pay a floating rate of LIBOR plus 1.49% to June 1,
2000 and LIBOR plus 2.09% for the remainder of the term and the
counterparty has agreed to pay a fixed rate of 7.875% on notional principal
of $65 million. The floating rate is revised every 1st of December, March,
June and September. The counterparty may cancel the remaining payments on
the swap transaction prior to May 31, 2000 with no early termination cost
to either party. The Company adjusts interest expense over each three-month
period for the net amount it is to receive from or pay to the counterparty.
48
<PAGE>
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with United States Generally Accepted Accounting Principles
(Amounts in thousands of U.S. dollars unless otherwise stated)
Financial Instruments - (continued)
The estimated fair values of the Company's financial instruments at
December 31, 1999 are summarized as follows:
<TABLE>
<CAPTION>
Carrying Estimated Fair
Amount Value
------ -----
<S> <C> <C>
Cash and cash equivalents $ 34,573 $ 34,573
Marketable securities 89,032 88,654
Senior notes 200,000 186,500
Convertible subordinated notes 100,000 132,940
Foreign currency contracts 636 754
Interest rate swap contract -- (1,855)
</TABLE>
The carrying amount of cash and cash equivalents approximates fair value
due to the short maturity of these instruments. Marketable securities,
which principally represent investments in corporate bonds maturing through
2001, have been categorized as held to maturity securities and are carried
at amortized cost. The fair values of the Company's Senior Notes and
Convertible Notes are estimated based on quoted market prices for the
Company's debt. The fair value of foreign currency contracts held for
hedging purposes represents the estimated amount the Company would receive
upon termination of the agreements, taking into consideration current
exchange rates and the credit worthiness of the counterparts. The fair
value of the interest rate swap represents the estimated amount the Company
would pay to the counterparty to terminate the agreement, taking into
account the interest rate on December 31, 1999.
21. Contingencies
(a) In April 1994, Compagnie France Film Inc. filed a claim against the Company
in the Superior Court in the District of Montreal, in the Province of
Quebec, alleging breach of contract and bad faith in respect of an
agreement which the plaintiff claims it entered into with the Company for
the establishment of an IMAX theater in Quebec City, Quebec, Canada. Until
December 1993, Predecessor Imax was in negotiations with the plaintiff and
another unrelated party for the establishment of an IMAX theater in Quebec
City. In December 1993, Predecessor Imax executed a system lease agreement
with the other party. During the negotiations, both parties were aware of
the other party's interest in also establishing an IMAX theater in Quebec
City. The plaintiffs claimed damages of Canadian $4.6 million, representing
the amount of profit they claim they were denied due to their inability to
proceed with an IMAX theater in Quebec City, together with expenses
incurred in respect of this project and pre-judgment interest.
Compagnie France Film had also incorporated a shell company, 3101-8450
Quebec Inc. ("3101"). 3101 was to, among other things, enter into a lease
for the proposed IMAX theater site. In November 1993, while negotiations
between Compagnie France Film and the Company were still ongoing, 3101
entered into a lease for the site. 3101 defaulted on the lease and the
landlord sued 3101 in an unrelated action to which the Company was not a
party. In February 1996, 3101 was found liable to pay the landlord damages
in the amount of Canadian $2.5 million. Subsequent to that judgment 3101
intervened in the lawsuit between Compagnie France Film and the Company in
order to claim from the Company damages in the amount of Canadian $2.5
million.
The Company disputed these claims and the suit went to trial in January
1998. In a decision rendered in April 1998, the Court dismissed the
plaintiffs' claims with costs. In May 1998, Campagnie France Film Inc. and
3101 both filed appeals of the April 1998 decision to the Court of Appeal.
The Company believes that it will be successful in responding to these
appeals and the ultimate loss, if any, will not have a material impact on
the financial position or results of operations of the Company, although no
assurance can be given with respect to the ultimate outcome of this
litigation.
49
<PAGE>
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with United States Generally Accepted Accounting Principles
(Amounts in thousands of U.S. dollars unless otherwise stated)
21. Contingencies - (continued)
(b) In January 2000, the Commission of the European Communities (the
"Commission") informed the Company that Euromax, an association of European
large screen cinema owners had filed a complaint against the Company under
EC competition rules. The complaint addressed a variety of alleged abuses,
mainly relating to the degree of the control that the Company asserts over
the projection systems it leases, and the form and terms of the Company's
agreements. No formal investigation has been initiated to date, and the
Commission has limited itself to a request of Imax to comment on the
complaint. Should proceedings be initiated, it is expected that no decision
would be rendered until 2001 at the earliest. Although the Commission has
the power to impose fines of up to a maximum of 10% of Company revenue for
breach of EC competition rules, the Company believes on the basis of
currently available information and an initial review that such result
would not be likely. The Company further believes that the allegations in
the complaint are meritless and will accordingly defend the matter
vigorously. The Company believes that the amount of the loss, if any,
suffered in connection with this lawsuit 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 this
litigation.
(c) In addition to the litigation described above, the Company is currently
involved in other litigation 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 for any such litigation.
22. Impact of Recently Issued Accounting Standards
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities will become effective in the
first quarter of the Company's 2001 fiscal year. The Company is evaluating
the impact that the requirements of this Statement will have on the
accounting for its hedging activities.
23. Restatement of Prior Year Balances
Certain balances in accounts receivable have been reclassified to net
investment in leases in the 1998 balance sheet to conform with the
presentation adopted in the current year.
50
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth certain information regarding the executive
officers and directors of the Company.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Bradley J. Wechsler.................. 48 Co-Chairman, Co-Chief Executive Officer and Director
Richard L. Gelfond................... 44 Co-Chairman, Co-Chief Executive Officer and Director
John M. Davison...................... 41 President and Chief Operating Officer, Chief Financial Officer
Michael A. Gibbon.................... 56 Executive Vice President, Technology
Andrew Gellis........................ 45 Senior Vice President, Film
David B. Keighley.................... 51 Senior Vice President and President of David Keighley
Productions 70MM Inc.
Robert D. Lister..................... 31 Senior Vice President, Legal Affairs and General Counsel
Mark J. Thornley .................... 42 Senior Vice President, Finance
G. Mary Ruby......................... 42 Vice President, Legal Affairs and Corporate Secretary
Mary C. Sullivan..................... 36 Vice President, Human Resources and Administration
Michael J. Biondi.................... 42 Director
Kenneth G. Copland................... 62 Director
J. Trevor Eyton...................... 65 Director
Garth M. Girvan...................... 50 Director
G. Edmund King....................... 66 Director
Murray B. Koffler.................... 76 Director
Sam Reisman.......................... 47 Director
Marc A. Utay......................... 40 Director
Townsend Ziebold..................... 38 Director
</TABLE>
Under the Articles of the Company, the Board of Directors is divided into
three classes, each of which serves for a three year term. The term of Class I
directors, currently composed of J. Trevor Eyton, O.C., G. Edmund King, Sam
Reisman and W. Townsend Ziebold expires in 2000. The term of Class III
directors, currently composed of Michael J. Biondi, Richard L. Gelfond and
Bradley J. Wechsler expires in 2001. The term of Class II directors, currently
composed of Kenneth G. Copland, Garth M. Girvan, Murray B. Koffler and Marc A.
Utay expires in 2002.
Bradley J. Wechsler has been Co-Chairman of the Company since June 1999 and
Co-Chief Executive Officer since May 1996. Mr. Wechsler was Chairman of the
Company from March 1994 to June 1999. In June 1999, Mr. Wechsler became
Co-Chairman along with Mr. Gelfond. Mr. Wechsler also served as Interim Chief
Executive Officer. Mr. Wechsler serves on the Boards of NYU Hospital, the
Kernochan Center for Law, Media and the Arts, and the American Museum of the
Moving Image. Mr. Wechsler is also a Member of Clarion Capital Partners.
Richard L. Gelfond has been Co-Chairman of the Company since June 1999 and
co-Chief Executive Officer since May 1996. From March 1994 to June 1999 Mr.
Gelfond served as Vice Chairman of the Company. In 1991, Mr. Gelfond founded
Cheviot Capital Advisors Inc., a financial advisory and merchant banking firm
that specializes in acquisitions and venture capital investments. In addition,
Mr. Gelfond serves on the boards of several private and philanthropic entities.
Mr. Gelfond is also a Member of Clarion Capital Partners.
John M. Davison joined the Company in 1987 and was appointed President in
January 2000. In 1995, Mr. Davison became Senior Vice President, Finance and
Administration, responsible for the financial affairs and administrative
operations of the Company. In 1997, Mr. Davison was appointed Executive Vice
President, Operations and Chief Financial Officer and in 1999 was appointed
Chief Operating Officer and Chief Financial Officer. He was a Director of the
Company from May 1994 to June 1999. Mr. Davison is a Chartered Accountant and
Chartered Business Valuator. Mr. Davison is a Canadian citizen.
51
<PAGE>
Michael A. Gibbon joined the Company in 1988 and became Vice President,
Technology in 1989 and Senior Vice President, Technology in 1995 and was
appointed Executive Vice President, Technology in 1998. Mr. Gibbon is
responsible for technology, manufacturing and client support, for both the
making of films and for theaters and projection systems. Mr. Gibbon is
registered as a professional engineer by the Association of Professional
Engineers of Ontario. Mr. Gibbon is a Canadian citizen.
Andrew Gellis joined Imax Corporation as Senior Vice President, Film and
Distribution in January 1996. In his post at Imax, he supervises the development
and production of Imax's slate of pictures for both the institutional and
commercial markets. Prior to Imax, Mr. Gellis was with Sony Corporation and its
numerous entertainment/technology divisions, where he led Sony's entrance into
the large-format filmmaking arena.
David B. Keighley has been a Senior Vice President of the Company since
July 1997 and is President of David Keighley Productions 70MM Inc. From January
1995 to July 1997, Mr. Keighley was a Vice President of the Company. He is
responsible for motion picture post-production and image quality assurance for
15/70-format films. Mr. Keighley is a Canadian citizen.
Robert D. Lister joined the Company as Senior Vice President, Legal Affairs
and General Counsel in May 1999. Prior to joining the Company, Mr. Lister was
Vice President, General Counsel and Secretary of Clearview Cinemas, a film
exhibitor, from March 1998 until his employment with the Company. Prior to that,
Mr. Lister served as Associate General Counsel of Merit Behavioral Care
Corporation, a behavioral health care company, from March 1996 through March
1998. Prior to that, Mr. Lister was an attorney with the New York office of
Kelley Drye & Warren LLP from September 1993 through March 1996.
Mark J. Thornley joined the Company in 1996 was appointed Vice President,
Planning in January 1998 and was appointed Vice President, Finance in October
1998. In January 2000, Mr. Thornley was appointed to Senior Vice President,
Finance. Prior to joining the Company, Mr. Thornley was a partner in a private
financial consulting and communications firm. Mr. Thornley is a Canadian
citizen.
G. Mary Ruby joined the Company in 1987 as Associate General Counsel and
was appointed Vice President, Legal Affairs and Corporate Secretary in 1991 and
was General Counsel from February 1989 to February 1997. Ms. Ruby acts as
Corporate Secretary to the Board of Directors and provides advice with respect
to the Company's legal affairs. Ms. Ruby is a member of the Ontario Bar and is a
Canadian citizen.
Mary C. Sullivan joined the Company in 1996 as Director, Human Resources
and was appointed Vice President, Human Resources and Administration in 1998.
Prior to joining the Company, Ms. Sullivan was Director, Human Resources of
Central Park Lodges. Ms. Sullivan is a Canadian citizen.
Michael J. Biondi, a Director and Non-Executive Chairman of the Board of
the Company since June 1999, has been the Chairman and Chief Executive Officer
of Wasserstein Perella & Co., Inc. since January, 1996. One of the founding
partners of the firm, Mr. Biondi oversees Wasserstein Perella's domestic
investment banking activities, and is the Chief Operating Officer of Wasserstein
Perella Group, Inc. Mr. Biondi was a CEO Advisor of the Company from June 1994
to March 1996.
Kenneth G. Copland, a Director of the Company since June 1999, has been the
Vice Chairman of Nesbitt Burns Inc. since 1994, prior to which he was the
Executive Vice President. He is a director of Nesbitt Burns Corporation Limited,
Advisor to New Brunswick Power Corporation and Chairman of Humber College
Foundation and Educational Ventures Corporation. Mr. Copland is a Canadian
citizen.
52
<PAGE>
The Honourable J. Trevor Eyton, a Director of the Company since June 1999,
has been Chairman, Group Advisory Board and Group Chairman, International of
EdperBrascan Corporation since April 1999. He previously held the position of
Senior Group Chairman. Prior to August 1997, he was Chairman, Brascan Limited
and Trilon Financial Corporation. He is also a director of Barrick Gold
Corporation, Brookfield Properties Corporation, Coca-Cola Enterprises, General
Motors of Canada, Limited, MA. Hanna Company, Noranda Inc. and Trilon Financial
Corporation. He has been a member of the Senate of Canada since September 1990
and is an Officer of the Order of Canada. Mr. Eyton is a Canadian citizen.
Garth M. Girvan, a Director of the Company since 1994, is a partner of
McCarthy Tetrault, special Canadian counsel to the Company. Mr. Girvan is a
Canadian citizen.
G. Edmund King, a Director of the Company since June 1999, has been Deputy
Chairman and a director of McCarvill Corporation since January, 1996. Mr. King
is also a director of Falconbridge Ltd. and of Wolf Group Integrated
Communications Ltd. Prior to November 1995, he was the Chairman and Chief
Executive Officer of The CIBC Wood Gundy Corporation and from June 1994 to
January 1998 was Chairman of WIC Western International Communications. Mr. King
is a Canadian citizen.
Murray B. Koffler, a Director of the Company since May 1996, founded
Shoppers Drug Mart in 1968 and presently serves as its Honorary Chairman. Mr.
Koffler co-founded Four Seasons Hotels Limited and presently serves as a
Director. Since 1988, Mr. Koffler has been Chairman of the International Board
of Directors of the Weizmann Institute of Science in Israel. Mr. Koffler holds
numerous other directorships. Mr. Koffler is a Canadian citizen and is an
Officer of the Order of Canada.
Sam Reisman, a Director of the Company since June 1999, has been the
principal shareholder, Chairman and Chief Executive Officer of The Rose
Corporation, a real estate finance and investment company which was previously a
real estate development company, since September 1986. Mr. Reisman was the
Chairman and Chief Executive Officer of the Equion Corporation, a manufacturer
and distributor of vehicular climate control systems and other products for
original equipment manufacturers, the aftermarket and industrial customers from
1982 to 1996. Mr. Reisman is currently the principal shareholder of Hayden
Industrial Products of Corona, California, formerly a division of The Equion
Corporation. Mr. Reisman is a Canadian citizen.
Marc A. Utay, a Director of the Company since May 1996, has been a Member
of Clarion Capital Partners since November 1999; prior to joining Clarion, Mr.
Utay was a Managing Director of Wasserstein Perella & Co. Inc. and a member of
Wasserstein Perella's Policy Committee. Mr. Utay was head of Wasserstein
Perella's Leveraged Finance, Retailing and Media, Telecommunication and
Entertainment groups. Prior to his joining Wasserstein Perella, Mr. Utay was
Managing Director at Bankers Trust Company where he specialized in leveraged
finance and mergers and acquisitions.
W. Townsend Ziebold, a Director of the Company since June 1999, has been a
Managing Director of Wasserstein Perella & Co., Inc. and head of its Venture
Capital Practice since December 1994. Prior to 1994, he held the position of
director of Wasserstein Perella & Co., Inc. Mr. Ziebold was a director of
Maybelline, Inc. and Collins & Aikman Corporation and currently serves on
several private company boards in the media, entertainment and Internet
industries.
53
<PAGE>
Item 11. Executive Compensation
Summary Compensation Table
The following table sets forth, for the periods indicated, the compensation
paid or granted by The Company to the individuals who served during 1999 as
Chief Executive Officers and the four most highly compensated executive officers
of the Company, other than the Chief Executive Officers, who were serving as
executive officers at December 31, 1999 (collectively, the "Named Executive
Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
---------------------------------------------- -------------------------------
Other
Annual
Name and Principal Position of Year ended Compensation Restricted Securities Under All Other
Named Executive Officer December 31 Salary Bonus (1) (2) Stock Awards Options Granted Compensation (6)
- ----------------------- ----------- --------- --------- ------------ ------------- ---------------- ----------------
($) ($) ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C> <C> <C>
Bradley J. Wechsler 1999 500,000 900,000 -- -- 400,000 8,243
Co-Chairman and Co-Chief 1998 605,000 800,000 -- 330,000(4) 458,000 8,522
Executive Officer 1997 710,000 1,300,000 -- 465,000(3) 80,000 8,614
Richard L. Gelfond 1999 500,000 900,000 -- -- 400,000 8,396
Co-Chairman and Co-Chief 1998 605,000 800,000 -- 330,000(4) 458,000 8,306
Executive Officer 1997 710,000 1,300,000 -- 465,000(3) 80,000 8,614
John M. Davison 1999 300,000 200,000 -- -- 125,000 14,930
President, Chief Operating Officer, 1998 200,000 100,000 -- -- 75,000 10,404
and Chief Financial Officer 1997 193,025 73,455 -- -- 75,000 10,273
David B. Keighley, 1999 228,257 573,000 15,000 8,639
Senior Vice President and 1998 218,123 268,088 -- -- 15,000 8,522
President,
David Keighley 1997 178,849 220,597 -- -- 15,000 11,019
Productions 70MM Inc.
Andrew Gellis 1999 250,000 65,000 50,000(5) -- -- 8,396
Senior Vice President, Film 1998 225,000 50,000 50,000(5) -- 12,500 8,306
1997 210,000 55,000 50,000(5) -- 12,500 8,614
Michael A. Gibbon 1999 190,452 70,000 -- -- 30,000 14,480
Executive Vice President, 1998 141,246 60,000 -- -- 25,000 8,017
Technology 1997 144,936 50,000 -- -- 15,000 7,920
</TABLE>
(1) These amounts are paid under annual incentive arrangements that the Company
has with each of the Named Executive Officers, as detailed under
"Employment Contracts."
(2) The value of perquisites and other personal benefits for each Named
Executive Officer does not exceed the lesser of $50,000 and 10% of his
annual salary and bonus.
(3) These amounts represent the dollar value of the grant of 30,000 synthetic
restricted shares ("phantom stock") on January 1, 1997 to each of Messrs.
Wechsler and Gelfond as detailed under "Employment Contracts".
(4) These amounts represent the dollar value of the grant of 15,000 phantom
stock on January 1, 1998 to each of Messrs. Wechsler and Gelfond as
detailed under "Employment Contracts".
(5) This amount was paid on account of certain script writing services provided
by Mr. Gellis.
(6) These amounts reflect (i) the payment by the Company of life insurance
premiums on the lives of the Named Executive Officers, and (ii)
contributions to the Company's defined contribution pension plans.
54
<PAGE>
Options Granted
The Company has a Stock Option Plan under which the Company may grant
options to officers, employees, consultants and eligible directors
("Participants") to purchase common shares on terms that may be determined,
within the limitations of the Stock Option Plan. The aggregate number of common
shares that remain reserved for issuance under the Plan is 5,972,098 common
shares as at December 31, 1999. Options to purchase 5,157,400 common shares have
been granted and are outstanding under the Plan as at December 31, 1999. The
exercise price for options issued under the Plan is not to be less than the
market price of the common shares on the date of grant. An option will be
exercisable for a maximum period of 10 years from the date of grant, subject to
earlier termination if the Participant's employment, consulting arrangement or
term of office with the Company terminates. The Board of Directors determines
vesting requirements. If a Participant's employment, consulting arrangement or
term of office with the Company terminates for any reason, any Options which
have not vested will be surrendered for cancellation without any consideration
being paid therefor. If the Participant's employment, consulting arrangement or
term of office is terminated without "cause" or by reason of such Participant's
resignation, death or permanent disability, the Participant (or the
Participant's estate) will be entitled to exercise the Participant's vested
Options for a period of 30 days. If the Participant's employment, consulting
arrangement or term of office is terminated for cause, such Participant's vested
Options will be surrendered for cancellation without any consideration being
paid therefor. If the Participant is a party to an employment agreement with the
Company or any of its subsidiaries and breaches any of the restrictive covenants
in such agreement, such Participant will be required to surrender all
unexercised Options for cancellation without any consideration being paid
therefor and will be obligated to pay to the Company an amount equal to the
aggregate profit realized by such Participant with respect to any prior Option
exercises.
The following table sets forth information relating to individual grants of
options to purchase common shares of the Company to Named Executive Officers
under the Stock Option Plan during the financial year ended December 31, 1999 in
respect of services rendered or to be rendered to the Company:
Option Grants in Financial Year ended December 31, 1999
<TABLE>
<CAPTION>
Potential Realizable
% of Total Value at Assumed
Options Annual Rates of
Granted to Stock Price
Securities Employees Appreciation for
Under in Option Term
Options Financial Exercise Expiration -------------------------
Name Granted Year Price Date 5% 10%
- ---------------------- ---------- ---------- --------------- --------- --------- ----------
(#) (%) ($/Common Share) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
Bradley J. Wechsler(1) 400,000 17.98 17.94 15-Oct-09 4,520,880 11,409,840
Richard L. Gelfond (1) 400,000 17.98 17.94 15-Oct-09 4,520,880 11,409,840
John M. Davison (2) 100,000 4.49 21.93 19-Aug-09 1,381,590 3,486,870
(2) 25,000 1.12 24.00 01-Feb-09 378,000 954,000
David B. Keighley (2) 15,000 0.67 21.93 19-Aug-09 207,239 523,031
Michael A. Gibbon (2) 30,000 1.35 21.93 19-Aug-09 414,477 1,046,061
</TABLE>
(1) 266,667 of these options vested immediately upon the grant date and the
remaining 133,333 vest on October 15, 2000. These options entitle the Named
Executive Officer to purchase one common share for each option. The market
value of the common shares underlying the options was equal to the exercise
price on the date of the grant.
(2) These options vest over five years at the rate of 20% per year and entitle
the Named Executive Officer to purchase one common share for each option.
The market value of the common shares underlying the options was equal to
the exercise price on the date of the grant.
55
<PAGE>
Aggregated Option Exercised during the Financial Year
Ended December 31, 1999 and Financial Year-End Option Values
<TABLE>
<CAPTION>
Unexercised Options at Value of Unexercised
Securities Aggregate Financial Year-End in-the-money Options
Acquired Value Exercisable/ at Financial Year-end
Name On Exercise Realized Unexercisable Exercisable/Unexercisable (1)
- -------------------- -------------- --------- ----------------------- -----------------------------
(#) ($) (#) ($)
<S> <C> <C> <C> <C>
Bradley J. Wechsler NIL NIL 804,667/133,333 5,648,113/1,257,997
Richard L. Gelfond NIL NIL 804,667/133,333 5,648,113/1,257,997
John M. Davison NIL NIL 69,008/218,000 933,988/1,174,290
David B. Keighley NIL NIL 52,500/43,000 863,618/266,055
Andrew Gellis 20,000 339,562 24,700/42,300 260,913/439,213
Michael A. Gibbon 11,200 247,988 41,800/66,800 624,555/405,150
</TABLE>
(1) Calculated based on the December 31, 1999 closing price of the common
shares on Nasdaq of $27.375
Pension Plans
The Company maintains defined contribution employee pension plans for its
employees, including its executive officers. The Company makes contributions to
these plans on behalf of employees in an amount equal to 5% of their base salary
subject to certain prescribed maximums. During the financial year ended December
31, 1999, the Company contributed an aggregate of $18,212 to the Canadian plan
on behalf of Mr. Davison and Mr. Gibbon and an aggregate of $32,000 to the
Company's defined contribution employee pension plan qualified under Section
401(k) of the U.S. Internal Revenue Code on behalf of Messrs. Wechsler, Gelfond,
Keighley and Gellis. The Company does not have any other pension plans for its
employees.
Employment Contracts
On November 3, 1998 the Company entered into renewal employment agreements with
each of Messrs. Wechsler and Gelfond ("the Executives") with effect from July 1,
1998 for a three-year term. Under the Company's governance process, as then set
forth in its Articles and By-laws, the "CEO Advisors" unanimously recommended to
the Compensation Committee, which was composed of three directors independent of
management, the approval of these agreements, which were approved by the Board
of Directors upon the recommendation of the Compensation Committee. The CEO
Advisors included a representative of Wasserstein Perella, the largest
shareholders of the Company. The renewal employment agreements provide that each
of the Executives will receive a salary of $500,000 in each year of the term.
These agreements also provide that each of the Executives will receive a bonus
for each of 1998, 1999, 2000 and the period January 1, 2001 to June 30, 2001 of
$605,000, $500,000, $500,000 and $250,000 adjusted by a multiple of zero to two
times, tied to the performance of the Company and certain qualitative and
quantitative measures determined by the Compensation Committee of the Board. The
bonus paid to each of Messrs. Wechsler and Gelfond in respect of 1999 was
$900,000. In 1999, each Executive was also paid $485,625 upon exercising their
right to receive an amount equal to the fair market value of 15,000 shares,
equal to the number of synthetic restricted shares ("phantom stock") which were
originally to be granted on January 1, 1998 and, were later reduced by the
renewal employment agreement. Each Executive was also granted 400,000 options to
purchase common shares in accordance with the Stock Option Plan on October 15,
1999, which options expire on October 15, 2009.
Under the agreements, each of the Executives is to perform such services with
respect to the Company's business as may be reasonably requested from time to
time by the Board of Directors and which are consistent with his position as
Co-Chief Executive Officer. In addition, the Company is to use its best efforts
to cause the Executives to be elected to the Board of Directors. In addition, a
provision contained in their original employment agreements was continued,
whereby each of the Executives is also entitled to receive, upon a sale of the
Company or the exercise after March 1, 1999 by the Executives of their rights to
require the Company to take action to liquidate their common shares under a
Shareholders' Agreement among Wasserstein Perella Partners, L.P., Mr. Wechsler,
Mr. Gelfond and certain other investors dated as of June 16, 1994, a cash bonus
in an amount equal to the product of (a) 0.375% and (b) the amount by which the
sale or liquidation transaction imputes an equity value in excess of Cdn.
$150,000,000 to the common shares originally issued by the Company (on a fully
diluted basis but excluding the common shares issued upon the conversion of the
Class B convertible preferred shares of the Company formerly
56
<PAGE>
outstanding which were converted into common shares on June 16, 1994 and the
common shares issuable upon the exercise of warrants owned by each of Messrs.
Wechsler and Gelfond).
Under the employment agreements, the Company is to equalize the Executives to
the taxes which each of the Executives would have paid had he earned his
employment compensation and paid taxes thereon solely in the United States. The
employment agreements also contain non-competition provisions.
Mr. Davison entered into an employment agreement with the Company on
January 16, 1991, as amended by a letter dated August 31, 1992, under which he
was employed as Director, Corporate Development and then promoted to Vice
President, Finance. The agreement is for an indefinite term and contains
covenants regarding confidentiality and non-competition. The agreement provides
that the employment of Mr. Davison may be terminated at any time for cause. If
Mr. Davison's employment is terminated without cause, the Company must pay Mr.
Davison his annual salary for 12 months. Mr. Davison and the Company entered
into a share option agreement dated as of April 8, 1994. Under this agreement
Mr. Davison was granted options to purchase 75,008 common shares of the Company
at Canadian $1.595 per share. The options vested over a five-year period.
The Company and David Keighley Productions 70 MM Inc. (formerly David
Keighley Productions and 70MM Inc.) ("DKP/70MM"), a wholly-owned subsidiary of
the Company, entered into an employment agreement on July 15, 1997. The
agreement is for a five-year term. Under this agreement, Mr. Keighley is to
receive an annual base salary of $212,405 in the year ended July 15, 1998 and
will receive an annual base salary of 105% of the previous year's base salary in
each of the next four years during the term of the agreement. Mr. Keighley is
entitled to receive an annual bonus of one-third of his annual base salary if
DKP/70MM meets its pre-tax profit threshold as provided in the agreement. Mr.
Keighley is also entitled to receive a further profit-based bonus of 10% of any
excess of DKP/70MM audited profit before taxes over DKP/70MM's pre-tax profit
threshold. Mr. Keighley's bonus in respect of DKP/70MM's year ended December 31,
1999 was U.S. $573,000. Under the agreement, Mr. Keighley has also given
covenants regarding confidentiality and non-competition. The agreement provides
that the employment of Mr. Keighley may be terminated at any time for cause or
without cause. If Mr. Keighley's employment is terminated without cause,
DKP/70MM must continue to pay Mr. Keighley his annual base salary for a maximum
period of 36 months.
Mr. Gellis entered into an employment agreement effective January 1, 1998
under which he was employed as Senior Vice President, Film of the Company. The
agreement was for a two-year term. Under this agreement Mr. Gellis received an
annual base salary of $225,000 for 1998 and $250,000 for 1999 plus an annual
performance bonus at a target of 30% of salary, with a guaranteed minimum annual
bonus of $50,000. Mr. Gellis is also entitled to receive a minimum of $50,000 in
each year of the term in respect of script writing services performed by Mr.
Gellis for the Company. Mr. Gellis has given covenants regarding confidentiality
and non-competition. The agreement provides that the employment of Mr. Gellis
may be terminated at any time for cause. If Mr. Gellis' employment is terminated
without cause, the Company must pay Mr. Gellis his annual salary and guaranteed
bonus and benefits for the balance of the term. If Mr. Gellis' employment is
terminated without cause in connection with a change in control, the Company
must pay Mr. Gellis his annual salary and guaranteed bonus and benefits for the
greater of the balance of the term and six months. A revised employment
agreement for Mr. Gellis is in progress and he continues to be remunerated based
on the 1998 plan.
Mr. Gibbon entered into an employment agreement with the Company on January
16, 1991, as amended by letters dated August 31, 1992 and December 22, 1999. The
agreement expires in April, 2001, upon Mr. Gibbon's planned retirement from the
Company and contains covenants regarding confidentiality and non-competition.
The agreement provides that the employment of Mr. Gibbon may be terminated at
any time for cause. If Mr. Gibbon's employment is terminated without cause, the
Company must pay Mr. Gibbon his annual salary, a prorated share of his bonus,
and other benefits for the remainder of the term of the agreement. Mr. Gibbon
and the Company entered into a share option agreement dated as of May 8, 1994.
Under this agreement, Mr. Gibbon was granted options to purchase 36,000 common
shares of the Company at Canadian $1.595 per share. The options vested over a
five-year period. All options granted to Mr. Gibbon under the Company's Stock
Option Plan shall continue to vest and remain exercisable subsequent to his
retirement from the Company for a period of 10 years from the date of grant and
Mr. Gibbon is entitled to receive retiree benefits from the Company subsequent
to his retirement.
57
<PAGE>
Compensation Committee
The Board of Directors constituted a Compensation Committee in December
1996. The members of the Compensation Committee are Messrs. Girvan, Koffler and
Ziebold. As the Compensation Committee did not participate in executive
compensation decisions in respect of 1999, other than the compensation of the
Executives, the compensation of the Company's employees was established through
guidelines set by the Board of Directors.
Compensation for all the Company's employees, including its Named Executive
Officers, is based on each employee's job responsibilities and on his or her
individual performance over time. The Company's executive compensation program
has three principal components: base salary, annual variable incentive
compensation and stock options. The Company believes these components
collectively provide a fair and competitive pay package and an appropriate
relationship between an executive's compensation, the executive's performance,
and the Company's performance.
Directors' Compensation
Directors are reimbursed for the expenses of attending meetings of the
Board of Directors. In addition, members of the Board of Directors who are not
also employees of the Company receive Canadian $20,000 per year (or may elect to
receive options to purchase common shares of the Company in lieu of this
payment) plus Cdn. $1,500 for each meeting of the Board attended in person and
Canadian $750 for each telephone meeting of the Board or meeting of any
committee of the Board, whether participating in person or by telephone. In
addition, each of the directors who are not also employees of the Company are
granted options to purchase 4,000 common shares at an exercise price equal to
the market value of the common shares of the Company on the date of grant which
vest on the date of grant and expire on the date which is 10 years after the
date of grant.
58
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information with respect to the beneficial
ownership of each class of the Company's securities as at December 31, 1999 or
as otherwise indicated in the notes below, including (i) all beneficial owners
of more than 5% of the Company's voting capital stock, (ii) all Named Executive
Officers and directors individually, and (iii) all executive officers and
directors as a group.
<TABLE>
<CAPTION>
Shares Beneficially Owned
-------------------------
Title of Class Beneficial Owners Number of % of Class(2)
- --------------- ----------------- ---------- -------------
Shares(1)
---------
<S> <C> <C> <C>
Common Shares Wasserstein Perella Group: 10,170,384 (3) 30.0
Wasserstein Perella Partners, L.P.
Wasserstein Perella Offshore Partners, L.P.
WPPN, Inc.
Michael J. Biondi as Voting Trustee
Oppenheimer Group: 2,406,500 (4) 7.11
Small Cap Growth VA Fund
Oppenheimer Discovery Fund
Oppenheimer Enterprise Fund
Altas Emerging Growth Fund
Oppenheimer Convertible Securities Fund
Capital Research Group: 2,423,980 (5) 7.11
Capital Research and Management Company
SMALLCAP World Fund Inc.
Capital Group International, Inc.
Capital Group International Limited
Capital Group International S.A.
Capital Guardian Trust Company
FMR Corp. Group: 1,811,500 (6) 5.3
Fidelity Management & Research Company
Fidelity Management Trust Company
Bradley J. Wechsler .................................... 1,369,967 (7) 4.0
Richard L. Gelfond ..................................... 1,409,967 (8) 4.1
John M. Davison ........................................ 74,008 (9) *
Michael A. Gibbon ...................................... 55,804 (10) *
David B. Keighley ...................................... 52,500 (11) *
Andrew Gellis .......................................... 34,700 (12) *
Michael J. Biondi ...................................... 4,500 (13) *
Kenneth G. Copland ..................................... 4,500 (13) *
J. Trevor Eyton ........................................ 5,500 (13) *
Garth M. Girvan ........................................ 42,398 (14) *
G. Edmund King ......................................... 4,500 (13) *
Murray B. Koffler ...................................... 20,200 (15) *
Sam Reisman ............................................ 5,500 (13) *
Marc A. Utay ........................................... 16,500 (14) *
W. Townsend Ziebold .................................... 9,000 (13) *
All executive officers and directors as a group (19
persons) ............................................... 3,169,946 (16) 9.3
</TABLE>
* less than 1%
59
<PAGE>
(1) Includes number of shares owned at December 31, 1999 and common shares as
to which each individual had at December 31, 1999 the right to acquire
beneficial ownership through the exercise of options plus options that
vested within 60 days of December 31, 1999 and shares issuable upon
conversion of 5.75% Convertible Debentures due 2003.
(2) Based on dividing the Number of Shares by the total shares outstanding as
of December 31, 1999, adjusted for shares issuable upon the conversion of
5.75% Convertible Debentures due 2003 and for shares issuable through the
exercise of options to the Beneficial Owners.
(3) Based on information contained in a Schedule 13G dated February 11, 2000.
(4) Based on information contained in a Schedule 13G dated February 11, 2000
and information provided directly to the Company by Oppenheimer Group.
Includes 2,000,000 shares issuable upon conversion of the 5.75% Convertible
Debenture due 2003.
(5) Based on information contained in Schedule 13Gs dated February 14, 2000 and
information provided directly to the Company by Capital Research Group.
Includes 325,080 shares issuable upon conversion of the 5.75% Convertible
Debenture due 2003. Capital Research and Management Company and Capital
Group International, Inc. each disclaimed beneficial ownership of the
2,423,980 shares reported by them, advising they are owned by accounts
under their discretionary management.
(6) Based on information contained in a Schedule 13G dated February 11, 2000.
(7) Included in the amount shown are 804,667 common shares as to which Mr.
Wechsler had the right to acquire beneficial ownership through the exercise
of options.
(8) Included in the amount shown are 804,667 common shares as to which Mr.
Gelfond had the right to acquire beneficial ownership through the exercise
of options.
(9) Included in the amount shown are 74,008 common shares as to which Mr.
Davison had the right to acquire beneficial ownership through the exercise
of options.
(10) Included in the amount shown are 41,800 common shares as to which Mr.
Gibbon had the right to acquire beneficial ownership through the exercise
of options.
(11) Included in the amount shown are 52,500 common shares as to which Mr.
Keighley had the right to acquire beneficial ownership through the exercise
of options.
(12) Included in the amount shown are 34,700 common shares as to which Mr.
Gellis had the right to acquire beneficial ownership through the exercise
of options.
(13) Included in the amount shown are 4,500 common shares as to which Messrs.
Biondi, Copland, Eyton, King, Reisman and Ziebold had the right to acquire
beneficial ownership through the exercise of options.
(14) Included in the amount shown are 16,500 common shares as to which Messrs.
Girvan and Utay had the right to acquire beneficial ownership through the
exercise of options.
(15) Included in the amount shown are 16,000 common shares as to which Mr.
Koffler had, at the right to acquire beneficial ownership through the
exercise of options.
(16) Included in the amount shown are 1,941,742 common shares as to which all
directors and executive officers as a group had the right to acquire
beneficial ownership through the exercise of options.
Statements as to securities beneficially owned by directors and by
executive officers, or as to securities over which they exercise control or
direction, are based upon information obtained from such directors and
executive officers and from records available to the Company.
60
<PAGE>
Shareholders' Agreements
Imax Corporation (the "Corporation"), Wasserstein Perella Partners, L.P.,
Wasserstein Perella Offshore Partners, L.P., WPPN, Inc., and the Michael J.
Biondi Voting Trust (collectively "WP"), and each of Messrs. Wechsler and
Gelfond are parties to a Second Amended and Restated Shareholders Agreement (the
"Shareholders Agreement") dated as of February 9, 1999, which amends and
restates the previous amended and restated shareholders agreement among those
parties dated June 16, 1994. The Shareholders Agreement includes, among other
things, certain restrictions on transfers of common shares, take-along rights
and come-along rights. If WP holds at least 35% of their original holdings and
WP desires to transfer all of their securities in a transaction in which a
majority of the shares of outstanding common stock are to be sold, then Messrs.
Gelfond and Wechsler will be required to sell their securities on the same terms
as WP sells its securities.
The Shareholders Agreement also contains provisions related to the
composition of the Board of Directors and committees thereof. WP is entitled,
but not required, to designate individuals to be nominated for election as
directors as follows: so long as WP holds 3,685,759 or more common shares, it
may designate six nominees, of whom three may be employees of WP and its
affiliates (the "WP Employee Designees") and three shall be independent persons
and resident Canadians. If WP holds less than 3,685,759 common shares, but
1,842,879 or more common shares, it may designate four nominees, of whom two may
be WP Employee Designees and two shall be independent persons and resident
Canadians. If WP holds less than 1,842,879 common shares but 921,439 or more
common shares, it may designate two nominees, one of whom may be a WP Employee
Designee and the other of whom shall be an independent person and shall be a
resident Canadian. In addition to these provisions, each of Messrs. Wechsler and
Gelfond is entitled to be a director of the Corporation so long as he is either
a Co-Chief Executive Officer or is the Chief Executive Officer of the
Corporation or Messrs. Wechsler and Gelfond own more than 375,000 common shares.
In addition, Messrs. Wechsler and Gelfond are collectively entitled, but not
required, to designate individuals to be nominated for election as directors as
follows: so long as they hold 1,628,000 or more common shares, they may
designate three nominees, all of whom shall be independent persons and resident
Canadians. If they hold less than 1,628,000 common shares, but 1,075,000 or more
common shares, they may designate two nominees, both of whom shall be
independent and resident Canadians. If they hold less than 1,075,000 common
shares but 375,000 or more common shares, they may designate one nominee who
shall be an independent person. If the requirement that the Corporation have
`resident Canadian' directors is changed, then neither WP nor Messrs. Wechsler
and Gelfond will be required to designate resident Canadian nominees. Each of
the nominees of WP who is to be an independent person is subject to the approval
by Messrs. Wechsler and Gelfond, which approval is not to be unreasonably
withheld; each of the nominees of Messrs. Wechsler and Gelfond is subject to the
approval of WP, which approval is in WP's sole discretion for the first nominee
to serve in each such position and thereafter, is not to be unreasonably
withheld. Each of WP and Messrs. Wechsler and Gelfond has agreed to use their
best efforts to cause each of the individuals designated to be elected or
appointed as a director of the Corporation.
The Shareholders Agreement also provides that the Corporation, WP and each
of Messrs. Wechsler and Gelfond shall use their best efforts to cause the
Corporation to establish a nominating committee of the Board of Directors
consisting of two directors, one designated by WP and the other designated by
Messrs. Wechsler and Gelfond. In addition, WP has the right, subject to the
approval of Messrs. Wechsler and Gelfond, to designate a WP Employee Designee
for appointment by the Board of Directors of the Corporation as the
Non-Executive Chairman of the Corporation, as long as WP holds at least
2,948,607 common shares. Michael J. Biondi has been approved as such designee.
If Mr. Biondi no longer holds that position, then WP is to propose three
replacements and Messrs. Wechsler and Gelfond shall select one of those proposed
for appointment by the Board as the Non-Executive Chairman. Each of Messrs.
Wechsler and Gelfond is entitled to be appointed as a Co-Chairman or Chairman of
the Corporation as long as he is a Co-Chief Executive Officer or the Chief
Executive Officer of the Corporation. The Agreement provides that the duties of
the Non-Executive Chairman and the Co-Chief Executive Officers shall be as set
forth in the Bylaws, including the requirement that the following actions be
approved by the Non-Executive Chairman and at least one of the Co-Chief
Executive Officers: setting the dates and times of meetings of the directors and
shareholders (other than normal quarterly Board of Directors, and annual
shareholders' meetings), setting the agenda of such meetings, and appointing
members of committees of the Board of Directors other than persons designated by
WP and Messrs. Wechsler and Gelfond as provided in the Shareholders' Agreement.
Each of WP and Messrs. Wechsler and Gelfond have the right to designate one
director to serve on each committee of the Board of Directors of the
Corporation, provided that each such person meets applicable regulatory
requirements.
61
<PAGE>
Each of WP and Messrs. Wechsler and Gelfond agreed to use their best
efforts to cause there no longer to be CEO Advisors as of the date upon which
all of the WP Employee Designees are elected as directors of the Corporation.
All of the WP Employee Designees were elected as directors at the Corporation's
annual and special meeting of shareholders held June 7, 1999 and the CEO
Advisors were disbanded in June, 1999. After that date, none of WP or Messrs.
Wechsler and Gelfond shall take any action to reestablish the CEO Advisors and
the majority approval requirements described below under "Standstill Agreement"
would apply.
Registration Rights Agreement
The Corporation, WP and Messrs. Wechsler and Gelfond also entered into a
registration rights agreement (the "Registration Rights Agreement") dated as of
February 9, 1999, which carried forward the corresponding provisions of the June
16, 1994 shareholders agreement, and pursuant to which each of WP and Messrs.
Wechsler and Gelfond have certain rights to cause the Corporation to use its
best efforts to register their securities under the U.S. Securities Act of 1933.
WP is entitled to effect up to four demand registrations and Messrs. Wechsler
and Gelfond are entitled to make two such demand registrations. WP and Messrs.
Wechsler and Gelfond also have unlimited piggy-back rights to register their
securities under the Registration Rights Agreement whenever the Corporation
proposes to register any securities under the U.S. Securities Act, other than
the registration of securities pursuant to an initial public offering or the
registration of securities upon Form S-4 or S-8 under the U.S. Securities Act or
filed in connection with an exchange offer or an offering of securities solely
to the Corporation's existing shareholders. In addition to these provisions, if
Messrs. Wechsler and Gelfond hold at least 25% of their original holdings, WP
has recouped its original investment plus a 30% compounded annual return on such
investment, and WP initiates the sale of the Corporation, then for 60 days
thereafter, WP will enter into exclusive negotiations with Messrs. Gelfond and
Wechsler, and for another 60 days thereafter WP may not enter into an agreement
for the sale of the Corporation to a third party. The Registration Rights
Agreement also provides that Messrs. Wechsler and Gelfond will have the right
from March 1 to March 31 in any, but only one, of 1999, 2000 and 2001, to notify
the Corporation of their decision to require the Corporation to take action to
liquidate their common shares. The Corporation is required to use its best
efforts to cause at its option either (i) the sale of the Corporation within a
period of 180 days from receipt of the notice to liquidate, (ii) the filing of a
registration statement pursuant to the U.S. Securities Act within a period of
120 days from its receipt of the notice to liquidate, or (iii) purchase the
securities owned by Messrs. Gelfond and Wechsler for cash at the fair market
value as agreed upon by the Corporation and Messrs. Gelfond and Wechsler within
20 days of the notice to liquidate, or in the event of their failure to reach an
agreement, as determined by a procedure utilizing nationally recognized
investment banking firms. In the event that Messrs. Gelfond and Wechsler
exercise their rights to require the Corporation to take such action, they may
be entitled to certain cash bonus payments as described above under "Executive
Compensation - Employment Contracts".
The former shareholders of the Corporation have substantially similar
piggyback registration rights that commenced on March 1, 1996 pursuant to the
terms of the Selling Shareholders' Agreement (as defined below).
WP, Messrs. Gelfond and Wechsler, and the former shareholders of
Predecessor Imax have entered into another shareholders' agreement (the "Selling
Shareholders' Agreement") which includes, among other things, registration
rights, tag along rights and drag along rights.
62
<PAGE>
Item 13. Certain Relationships and Related Transactions
Standstill Agreement
The Corporation, each of Messrs. Wechsler and Gelfond and WP entered into
an Amended and Restated Standstill Agreement (the "Standstill Agreement") as of
February 9, 1999 which amended and restated the previous Standstill Agreement
dated June 16, 1994. Under the terms of the Standstill Agreement, WP agreed to
vote in any election for directors in favour of each person nominated by the
then current Board of Directors, not to participate in or facilitate proxy
contests, not to deposit into a voting trust or subject voting securities to an
agreement with respect to voting such securities, not to acquire or affect or
attempt to acquire or effect control of the Corporation or to participate in a
"group" as defined pursuant to Section 13(d) of the U.S. Securities Exchange Act
of 1934, which owns or seeks to acquire beneficial ownership or control of the
Corporation, and not to attempt to influence the Corporation except through
normal Board of Directors' processes. In addition, the parties agreed that the
CEO Advisors currently provided for in the Articles and By-laws of the
Corporation would cease to exist upon the election of those directors (the "WP
Employee Designees") WP is to have the right to designate as provided in the
Second Amended and Restated Shareholders' Agreement (the "Shareholders'
Agreement'), which was also entered into by those same and special parties as of
February 9, 1999. To accomplish this, the Corporation agreed to submit to its
shareholders at its annual meeting of shareholders (held June 7, 1999)
resolutions to amend the Articles and Bylaws to delete reference to the CEO
Advisors, and each of the parties to the Standstill Agreement agreed to use
their best efforts so to amend the Articles and Bylaws as of the date on which
all of the WP Employee Designees are elected or appointed as directors of the
Corporation. The Articles and Bylaws were amended effective June 7, 1999. The
Standstill Agreement continues in effect until the earlier of June 30, 2001,
unless extended by WP at its option for successive one year terms until March 1,
2004, or the date upon which WP holds less than 700,000 common shares.
As noted above, the Articles of the Corporation set forth the requirement
that certain matters be approved by 75% of the directors then in office. These
matters are: (i) hiring or terminating the employment of the Chief Executive
Officer or any Co-Chief Executive Officer of the Corporation; (ii) issuing any
shares of capital stock for a purchase price, or incurring indebtedness, in an
amount of $25 million or more; (iii) disposing of any material single asset, or
all or substantially all of the assets of the Corporation or approving the sale
or merger of the Corporation; (iv) acquiring a substantial interest in any other
entity or entering into any major strategic alliance; and (v) entering into or
changing the terms of any agreement or transaction with WP or Messrs. Wechsler
and Gelfond (other than agreements in the ordinary course of business, such as
employment agreements).
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements
The consolidated financial statements filed as part of this Report are
included in Part II.
(a)(2) Financial Statement Schedules
Financial Statement Schedule for each of the three years in the period
ended December 31, 1999
II Valuation and Qualifying Accounts
(a)(3) Exhibits
63
<PAGE>
The Items listed as Exhibits 10.1 to 10.8 relate to management contracts or
compensatory plans or arrangements.
Exhibit No. Description
- ----------- -----------
2.1 Agreement of Purchase and Sale dated August 4, 1999 among Imax
Corporation, the Vendors as defined therein and Digital
Projection International, PLC. Incorporated by reference to Form
8-K filed on September 17, 1999.
3.1 Articles of Incorporation of Imax Corporation. Incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement
on Form F-1 (File No. 33-77536)(the "Registration Statement").
3.2 Articles of Amendment dated June 7, 1999, to the Restated
Articles of Incorporation of Imax Corporation. Incorporated by
reference to Exhibit 3.1 to Form 10-Q for the quarter ended
September 30, 1999.
3.3 Bylaw No. 1 of Imax Corporation. Incorporated by reference to
Exhibit 3.2 to the Registration Statement.
3.4 New By-Law No.1 of Imax Corporation enacted on June 7, 1999.
Incorporated by reference to Exhibit 3.1 to Form 10-Q for the
quarter ended September 30, 1999.
4.1 Share Option Agreement, dated as of March 1, 1994, between WGIM
Acquisition Corporation and Douglas Trumbull. Incorporated by
reference to Exhibit 4.6 to the Registration Statement.
4.2 Amended and Restated Shareholders' Agreement, dated as of June
16, 1994 (the "Shareholders' Agreement"), by and among Imax
Corporation, Wasserstein Perella Partners, L.P., Wasserstein
Perella Offshore Partners, L.P., WPPN, Inc., Richard L. Gelfond
and Bradley J. Wechsler, Revere Equity Corp. and Chemical Equity
Associates. Incorporated by reference to Exhibit 4.7 to Form 10-
K/A for the year ended December 31, 1994.
4.3 Standstill Agreement, dated as of June 16, 1994, among Imax
Corporation, Wasserstein Perella Partners, L.P., Wasserstein
Perella Offshore Partners, L.P. and WPPN, Inc. Incorporated by
reference to Exhibit 4.8 to Form 10-K/A for the year ended
December 31, 1994.
4.4 Shareholders' Agreement, dated as of January 3, 1994, among WGIM
Acquisition Corporation, the Selling Shareholders as defined
therein, Wasserstein Perella Partners, L.P., Wasserstein Perella
Offshore Partners, L.P., Bradley J. Wechsler, Richard L. Gelfond
and Douglas Trumbull (the "Selling Shareholders' Agreement").
Incorporated by reference to Exhibit 4.9 to the Registration
Statement.
4.5 Amendment, dated as of March 1, 1994, to the Selling
Shareholders' Agreement. Incorporated by Reference to Exhibit
4.10 to the Registration Statement.
4.6 Letter, dated as of January 3, 1994, from WP and GW Shareholders
(as defined in the Selling Shareholders' Agreement) to Douglas
Trumbull. Incorporated by reference to Exhibit 4.11 to the
Registration Statement.
4.7 Indenture, dated as of March 1, 1994, between WGIM Acquisition
Corporation and Continental Bank, National Association, as
Trustee. Incorporated by reference to Exhibit 10.2 to the
Registration Statement.
4.8 Indenture, dated as of April 9, 1996, between Imax Corporation
and Chemical Bank, as Trustee, related to the issue of the 5 3/4%
Convertible Subordinated Notes due April 1, 2003. Incorporated by
reference to Exhibit 4.3 to Amendment No.1 to the Company's
Registration Statement on Form F-3 (File No.333-5212).
4.9 Indenture, dated as of December 4, 1998 between Imax Corporation
and U.S. Bank Trust, N.A., as Trustee, related to the issue of
the 7.875% Senior Notes due December 1, 2005. Incorporated by
reference to Exhibit 4.9 to Form 10-K for the year ended December
31, 1998. Registrant agrees to provide copies of instruments with
respect to long-term debt and its working capital facility, which
do not exceed 10% of the total assets of the registrant and its
subsidiaries on a consolidated basis, to the Commission upon
request.
4.10 Shareholders Agreement, dated as of February 9, 1999 by and among
Wasserstein Perella Partners, L.P., Wasserstein Perella Offshore
Partners, L.P., WPPN Inc., the Michael J. Biondi Voting Trust,
Bradley J. Wechsler and Richard L. Gelfond and Imax Corporation.
Incorporated by reference to Exhibit 4.10 to Form 10-K for the
year ended December 31, 1998.
64
<PAGE>
Exhibit No. Description
- ----------- -----------
4.11 Standstill Agreement, dated as of February 9, 1999 by and among
Wasserstein Perella Partners, L.P., Wasserstein Perella Offshore
Partners, L.P., WPPN Inc., and the Michael J. Biondi Voting
Trust, Imax Corporation, Richard L. Gelfond and Bradley J.
Wechsler. Incorporated by reference to Exhibit 4.11 for Form 10-K
for the year ended December 31, 1998.
4.12 Registration Rights Agreement, dated as of February 9, 1999, by
and among Imax Corporation, Wasserstein Perella Partners, L.P.,
Wasserstein Perella Offshore Partners, L.P., WPPN Inc., the
Michael J. Biondi Voting Trust, Bradley J. Wechsler and Richard
L. Gelfond. Incorporated by reference to Exhibit 4.12 to Form
10-K for the year ended December 31, 1998.
10.1 Employment Agreement, dated as of January 16, 1991, and amending
letter of August 31, 1992 between Imax Corporation and John M.
Davison. Incorporated by reference to Exhibit 10.6 to Form 10-K
for the year ended December 31, 1997.
10.2 Employment Agreement, dated as of July 15, 1997 between David
Keighley Productions 70MM Inc. and David B. Keighley.
Incorporated by reference to Exhibit 10.7 to Form 10-K for the
year ended December 31, 1997.
10.3 Form of Imax Corporation Amended and Restated Share Option Plan.
Incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-8 (File No.333-5720).
10.4 Share Option Agreement, dated as of April 8, 1994 between Imax
Corporation and John M. Davison. Incorporated by reference to
Exhibit 10.15 to the Registration Statement.
10.5 Employment Agreement, dated July 1, 1998 between Imax Corporation
and Richard L. Gelfond. Incorporated by reference to Exhibit 10.1
to Form 10-Q for the quarter ended September 30, 1998.
10.6 Employment Agreement, dated July 1, 1998 between Imax Corporation
and Bradley J. Wechsler. Incorporated by reference to Exhibit
10.2 to Form 10-Q for the quarter ended September 30, 1998.
10.7 (Amended) Stock Option Plan of Imax Corporation, dated June 7,
1999. Incorporated by reference to Exhibit 10.1 to Form 10-Q for
the quarter ended September 30, 1999.
*10.8 Employment Agreement, dated as of December 22, 1999 between
Michael A. Gibbon and Imax Corporation.
*21 Subsidiaries of Imax Corporation.
*23 Consent of PricewaterhouseCoopers LLP.
*24 Power of Attorney of certain directors.
* Filed herewith
- ----------
(b) On November 16, 1999, the Company filed an 8-KA containing the
financial information required as an amendment to a Form 8-K filed on September
17, 1999 under Item #2 - Acquisition or Distribution of Assets. The Company
reported that on September 3, 1999, it acquired all of the outstanding ordinary
and Preference Shares of Digital Projection International, a designer and
manufacturer of digital image delivery systems headquartered in Manchester,
England with an office in Atlanta, Georgia.
65
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By /S/ JOHN M. DAVISON
-------------------------------------------
John M. Davison
President, Chief Operating Officer and Chief Financial Officer
(Principal Financial Officer)
Date: March 29, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on March 29, 2000.
<TABLE>
<S> <C> <C>
/S/ BRADLEY J. WECHSLER /S/ RICHARD L. GELFOND /S/ JOHN M. DAVISON
- -------------------------------------- ------------------------------------------- --------------------------------------
Bradley J. Wechsler Richard L. Gelfond John M. Davison
Director and Director and President,
Co-Chief Executive Officer Co-Chief Executive Officer Chief Operating Officer
(Principal Executive Officer) (Principal Executive Officer) Chief Financial Officer
/S/ MARK J. THORNLEY MICHAEL J. BIONDI* KENNETH G. COPLAND*
- -------------------------------------- ------------------------------------------- --------------------------------------
Mark J. Thornley Michael J. Biondi Kenneth G. Copland
Senior Vice President, Finance Director Director
(Principal Accounting Officer)
J. TREVOR EYTON* GARTH M. GIRVAN* G. EDMUND KING*
- -------------------------------------- ------------------------------------------- --------------------------------------
J. Trevor Eyton Garth M. Girvan G. Edmund King
Director Director Director
MURRAY B. KOFFLER* SAM REISMAN* MARC A. UTAY*
- -------------------------------------- ------------------------------------------- --------------------------------------
Murray B. Koffler Sam Reisman Marc A. Utay
Director Director Director
W. TOWNSEND ZIEBOLD*
- --------------------------------------
W. Townsend Ziebold
Director
By * /S/ JOHN M. DAVISON
--------------------------------------
John M. Davison (as attorney-in-fact)
</TABLE>
66
<PAGE>
IMAX CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at
Beginning Balance at
of Year Additions Deductions End of Year
---------- --------- ---------- ------------------
<S> <C> <C> <C> <C>
Reserve for Net Investment in Leases/1/
Year ended December 31, 1997 $ 447 $2,900 $ - $ 3,347
Year ended December 31, 1998 3,347 9,925 (65) 13,207
Year ended December 31, 1999 13,207 6,427 (713) 18,921
Provision for Doubtful Accounts
Year ended December 31, 1997 1,087 1,084 -- 2,171
Year ended December 31, 1998 2,171 2,455 -- 4,626
Year ended December 31, 1999 4,626 1,576 (144) 6,058
Deferred Income Tax Valuation
Allowance/2/
Year ended December 31, 1997 2,272 - (291) 1,981
Year ended December 31, 1998 1,981 932 (102) 2,811
Year ended December 31, 1999 2,811 116 - 2,927
</TABLE>
1 Reduction in the valuation allowance based on management's assessment of the
credit history of each individual lease.
2 Additions represent provisions for losses unlikely to be utilized. Deductions
represent recognition of previously unavailable losses.
<PAGE>
Exhibit 10.8
December 22, 1999
Mr. Michael A. Gibbon
1340 Monk's Passage
Oakville, Ontario
L6M 1J5
Dear Michael:
This letter will confirm the agreement we have recently reached in connection
with your ongoing employment with Imax Corporation ("Imax") from August 1, 1999
up to and including April 30, 2001. This letter will constitute an amendment of
your employment agreement (the "Agreement") dated January 16, 1991 and confirm
all provisions of the Agreement, except as may be amended by this letter.
1. Term of Employment
In consideration of the agreements herein, you agree that your employment with
Imax will terminate on April 30, 2001, or such earlier date as Imax may
determine (the "Employment Term").
2. Compensation
(a) Base Salary
You will be paid an annual base salary US$225,000 ("Base Salary") up to and
including the date of which your employment terminates. Your Base Salary shall
be converted to Canadian dollars at an exchange rate to be fixed on the last
trading day of December of each calendar year of your employment. The exchange
rate for 1999 will be US$1.00 equals CDN$1.53.
<PAGE>
-2-
(b) Bonus
You shall continue to participate in the Imax Management Bonus Plan (as such
Plan may be amended from time to time) and your target annual bonus shall be 25%
of your Base Salary.
(c) Stock Options
Stock options which have been granted to you under the Imax Corporation Stock
Option Plan (the "Plan") shall continue to vest, subject to applicable law, in
accordance with the terms of the various stock option agreements entered into
between you and Imax. In consideration of the agreements herein, Imax shall
permit the options to continue to vest beyond the termination of your
employment. Such options shall be exercisable up to and including the date
which is ten (10) years from the date of each grant, as defined in the Plan.
(d) Termination Without Cause
In the event that Imax terminates your employment without cause before April 30,
2001, Imax shall continue to pay the Base Salary, your automobile allowance and
your 25% target bonus (on a pro rated basis) and shall continue to provide
employment benefits (to the extent paid for by the Company as at the date of
termination) and subject to the consent of the applicable insurers, up to
including April 30, 2001 (the "Severance Period"). You agree that Imax may
deduct from any payment of Base Salary, the benefit plan contributions which are
to be made by you during this period. In addition you agree that you will have
no further right to receive any other compensation or benefits after such
termination of your employment except as are necessary under the terms of
applicable benefit plans or programs of Imax or as required by applicable law.
All payments made to you hereunder shall be deemed to include all termination
severance pay to which you are entitled pursuant to applicable statute and
common law. The date of termination under this paragraph 2(d) shall be the date
specified in the written notice from Imax.
(e) Retirement Benefits
During the Employment Term, you shall be entitled to receive all of your current
health and welfare benefits, including health, dental, short term disability,
long term disability and life insurance benefits.
Should you become disabled during the Employment Term, you shall continue to
receive the Stock Option benefits outlined in Section (c) above.
Effective April 30, 2001, you shall be entitled to receive retirement benefits
offered by Imax's benefit provider as outlined to you, notwithstanding the
minimum age requirement.
<PAGE>
-3-
3. Non-Solicitation, Confidentiality and Non-Competition
You agree to be bound by the terms of the Non-Solicitation, Confidentiality,
Non-Competition provisions attached as Schedule "A" to this letter.
If you are in agreement with all of the foregoing, kindly execute the enclosed
copy of this letter and return to the undersigned at your earliest convenience.
Yours very truly,
IMAX CORPORATION
Per: /s/ Robert D. Lister
--------------------
Name: Robert D. Lister
Title: Senior Vice President,
Legal Affairs & General Counsel
Per: /s/ G. Mary Ruby
----------------
Name: G. Mary Ruby
Title: Vice President, Legal Affairs
AGREED AND ACCEPTED
As of the 22 day of December, 1999.
--
/s/ Michael A. Gibbon
---------------------
<PAGE>
Schedule A
NON-SOLICITATION, CONFIDENTIALITY, NON-COMPETITION
--------------------------------------------------
1. Non-solicitation. For so long as Michael A. Gibbon (the "Executive") is
-----------------
employed by Imax or receiving payment therefrom and continuing for two
years thereafter, notwithstanding whether the Executive's employment is
terminated with or without Cause or whether the Executive resigns, the
Executive shall not, without the prior written consent of Imax, directly or
indirectly, for the Executive's own benefit or the benefit of any other
person, whether as a sole proprietor, member of a partnership, stockholder
or investor (other than a stockholder or investor owning not more than a 5%
interest), officer or director of a corporation, or as a trustee,
executive, associate, consultant, principal or agent of any person,
partnership, corporation or other business organization or entity other
than Imax: (x) solicit or endeavour to entice away from Imax, any person or
entity who is, or, during the then most recent 12-month period, was
employed by, or had served as an agent or consultant of Imax; or (y)
solicit, endeavour to entice away or gain the custom of, canvass or
interfere with Imax's relationship with any person or entity who is, or was
within the then most recent 12-month period, a supplier, customer or client
(or reasonably anticipated to become a supplier, customer or client) of
Imax and with whom the Executive had dealings during his employment with
Imax. The Executive confirms that all restrictions in this Paragraph are
reasonable and valid and waives all defences to the strict enforcement
thereof.
2. Non-Competition For so long as the Executive is employed by Imax or
---------------
receiving payment hereunder and continuing for a period of two years after
the date of the termination of the employment of the Executive with Imax,
notwithstanding whether the Executive's employment is terminated with or
without Cause or whether the Executive resigns, the Executive shall not,
without the prior written consent of Imax, directly or indirectly anywhere
within Canada, the United States, Europe or Asia, as a sole proprietor,
member of a partnership, stockholder or investor (other than a stockholder
or investor owning not more than a 5% interest), officer or director of a
corporation, or as a trustee, Executive, associate, consultant, principal
or agent of any person, partnership, corporation or other business
organization or entity other than Imax, render any service to or in any way
be affiliated with a competitor (or any person or entity that is, at the
time the Executive would otherwise commence rendering services to or
become, affiliated with such person or entity, reasonably anticipated to
become a competitor) of
<PAGE>
-2-
Imax (a "Competitor"), which is engaged or reasonably anticipated to become
engaged in designing or supplying large format theatres, designing or
distributing projection or sound systems for large format theatres,
designing or supplying digital or other electronic film, projection systems
(regardless of image delivery system used) or sound technology, designing
or supplying motion simulation attractions or producing or distributing
films specifically for theatres or motion simulation attractions which use
the technology or competitive technology to that referred to above. The
Executive confirms that all restrictions in this Paragraph are reasonable
and valid and waives all defenses to the strict enforcement thereof.
3. Confidentiality. The Executive covenants and agrees with Imax that he will
----------------
not at any time during employment hereunder or thereafter up to and
including the date on which options granted to him by Imax under the Imax
Corporation Stock Option Plan terminate, except in performance of his
obligations to Imax hereunder or with the prior written consent of the
senior operation officer of Imax, directly or indirectly, disclose or use
any secret or confidential information that he may learn or has learned by
reason of his association with Imax. The term "confidential information'
includes information not previously disclosed to the public or to the trade
by Imax's management, or otherwise in the public domain, with respect to
Imax's products, facilities, applications and methods, trade secrets and
other intellectual property, systems, procedures, manuals, confidential
reports, product price lists, customer lists, technical information,
financial information, business plans, prospects or opportunities, but
shall exclude any information which (i) is or becomes available to the
public or is generally known in the industry or industries in which Imax
operates other than as a result of disclosure by the Executive in violation
of his agreements under this Paragraph 3 or (ii) the Executive is required
to disclose under any applicable laws, regulations or directives of any
government agency, tribunal or authority having jurisdiction in the matter
or under subpoena or other process of law. The Executive confirms that all
restrictions in this Paragraph 3 are reasonable and valid and waives all
defences to the strict enforcement thereof.
4. Exclusive Property. The Executive confirms that all confidential
------------------
information is and shall remain the exclusive property of Imax. All
business records, papers and documents regardless of the form of their
records kept or made by Executive relating to the business of Imax shall be
and remain the property of Imax, and shall be promptly returned by the
Executive to Imax upon any termination of employment.
5. Injunctive Relief. Without intending to limit the remedies available to
-----------------
Imax, the Executive acknowledges that a material breach of any of the
covenants contained herein will result in material and irreparable injury
to Imax for which there is no adequate remedy at law, that it will not be
possible to measure damages for such injuries precisely and that, in the
event of such a breach or threat thereof, Imax
<PAGE>
-3-
shall be entitled to seek a temporary restraining order and/or a
preliminary, interim or permanent injunction restraining the Executive from
engaging in activities prohibited herein or such other relief as may be
required specifically to enforce any of the covenants herein. The
Executive waives any defences to the strict enforcement by Imax of the
covenants contained herein. If for any reason it is held that the
restrictions hereunder are not reasonable or that consideration therefor is
inadequate, such restrictions shall be interpreted or modified to include
as much of the duration and scope identified herein as will render such
restrictions valid and enforceable.
6. Representation. The Executive represents and warrants that he is not
---------------
subject to any non-competition covenant or any other agreement with any
party which would in any manner restrict or limit his ability to render the
services required of him hereunder.
<PAGE>
EXHIBIT 21
IMAX CORPORATION
Significant and other major subsidiary companies of the Registrant at December
31, 1998 were:
<TABLE>
<CAPTION>
Jurisdiction of Percentage held
Name of Subsidiary Organization by Registrant
- ----------------------------------------- ------------------ -----------------
<S> <C> <C> 100%
Imax Ltd. Ontario 100%
David Keighley Productions 70MM Inc. Delaware 100%
Sonics Associates, Inc. Alabama 100%
Oxmoor Corporation Alabama 100%
Ridefilm Corporation Delaware 100%
1236627 Ontario Inc. Ontario 100%
Imax Japan Inc. Japan 100%
Imax Entertainment Pte. Ltd. Singapore 100%
Imax (Netherlands) B.V. Netherlands 100%
Imax U.S.A. Inc. Delaware 100%
Nyack Theatre L.L.C. Delaware 50%
Arizona Big Frame Theatres, L.L.C. Delaware 100%
Starboard Theaters Ltd. Canada 50%
Forum Ride Associates Nevada 100%
Miami Theatre, L.L.C. Delaware 100%
Digital Projection International Limited U.K. 100%
Digital Projection Inc. Georgia 33%
Themax Inc. (Brossard) Quebec 100%
Sacramento Theatre L.L.C. Delaware 100%
Panda Productions Inc. Delaware 100%
Wire Frame Films Ltd. Ontario
</TABLE>
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (No. 333-2076); Form S-8 (No. 333-5720); Form S-8 (No. 333-85815); Form
S-8 (No. 333-30956); Form S-8 (No. 333-30970); and the Post-Effective Amendment
No. 1 to Form S-8 (No. 333-5720) of Imax Corporation, of our report dated
February 9, 2000 relating to the financial statements and financial statement
schedule appearing in Imax Corporation's Annual Report on Form 10-K for the year
ended December 31, 1999.
Toronto, Canada PricewaterhouseCoopers LLP
March 27, 2000
S:\ABASDwtn\Client\I\IMAX\2000\Correspondence\Consent - March 2000 -
schedule.doc
<PAGE>
Exhibit 24
POWER OF ATTORNEY
Each of the persons whose signature appears below hereby constitutes and
appoints John M. Davison and G. Mary Ruby, and each of them severally, as his
true and lawful attorney or attorneys with power of substitution and
re-substitution to sign in his name, place and stead in any and all such
capacities the 10-K, including the French language version thereof, and any and
all amendments thereto and documents in connection therewith, and to file the
same with the SEC and such other regulatory authorities as may be required, each
of said attorneys to have power to act with or without the other, and to have
full power and authority to do and perform, in the name and on behalf of each of
the directors of the Corporation, every act whatsoever which such attorneys, or
either of them, may deem necessary or desirable to be done in connection
therewith as fully and to all intents and purposes as such director of the
Corporation might or could do in person.
Dated this 28th day of March, 2000
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ BRADLEY J. WECHSLER Co-Chairman of the Board and Co-Chief
- ------------------------ Executive Officer (Principal Executive
Bradley J. Wechsler Officer)
/s/ RICHARD L. GELFOND Co-Chairman of the Board and Co-Chief
- ------------------------ Executive Officer (Principal Executive
Richard L. Gelfond Officer)
/s/ MICHAEL J. BIONDI Non Executive Chairman of the Board and Director
- ------------------------
Michael J. Biondi
/s/ KENNETH G. COPLAND Director
- ------------------------
Kenneth G. Copland
/s/ J. TREVOR EYTON Director
- ------------------------
J. Trevor Eyton
/s/ GARTH M. GIRVAN Director
- ------------------------
Garth M. Girvan
</TABLE>
<PAGE>
-2-
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ G. EDMUND KING Director
- ------------------------
G. Edmund King
/s/ MURRAY B. KOFFLER Director
- -----------------------
Murray B. Koffler
/s/ SAM REISMAN Director
- ------------------------
Sam Reisman
/s/ MARC A. UTAY Director
- ------------------------
Marc A. Utay
/s/ W. TOWNSEND ZIEBOLD Director
- ------------------------
W. Townsend Ziebold
/s/ JOHN M. DAVISON President, Chief Operating Officer and
- ------------------------ Chief Financial Officer
John M. Davison (Principal Financial Officer)
/s/ MARK J. THORNLEY Senior Vice President, Finance
- ------------------------ (Principal Accounting Officer)
Mark J. Thornley
</TABLE>
