<PAGE>
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-24216
IMAX CORPORATION
(Exact name of registrant as specified in its charter)
Canada 98-0140269
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2525 Speakman Drive, Mississauga, Ontario, Canada L5K 1B1
--------------------------------------------------- -------------
(Address of principal executive offices) (Postal Code)
Registrant's telephone number, including area code (905) 403-6500
--------------
N/A
--------------------------------------------------
(Former name or former address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _____
-----
Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date:
Class Outstanding as of October 31, 2000
----------------------- ----------------------------------
Common stock, no par value 30,051,514
Page 1
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IMAX CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
Item 3. Quantitive and Qualitative Factors about Market Risk 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 6. Listing of Exhibits and Reports on Form 8-K 21
Signatures 22
</TABLE>
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 may 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.
Page 2
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IMAX CORPORATION
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
The following condensed consolidated financial statements are filed as part of this Report:
Condensed Consolidated Balance Sheets as at September 30, 2000
and December 31, 1999 4
Condensed Consolidated Statements of Operations for the three and nine
month periods ended September 30, 2000 and 1999 5
Condensed Consolidated Statements of Cash Flow
for the nine month periods ended September 30, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements 7
</TABLE>
Page 3
<PAGE>
IMAX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
In accordance with U.S. Generally Accepted Accounting Principles
(in thousands of U.S. dollars)
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-------------- -------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 14,495 $ 34,573
Short-term marketable securities 18,902 49,159
Accounts receivable 57,960 42,619
Current portion of net investment in leases 32,254 33,918
Inventories and systems under construction (note 2) 41,841 31,141
Prepaid expenses 6,584 2,621
-------------------------------
Total current assets 172,036 194,031
Long-term marketable securities 2,750 39,873
Net investment in leases 108,360 103,087
Film assets 47,609 38,453
Capital assets 95,864 66,897
Goodwill 62,954 62,751
Other assets 28,570 28,232
Deferred income taxes 4,433 4,913
-------------- -------------
Total assets $ 522,576 $ 538,237
============== =============
Liabilities
Current liabilities
Accounts payable $ 19,863 $ 18,361
Accrued liabilities 39,762 34,910
Current portion of deferred revenue 19,466 17,284
Income taxes payable 1,952 33,755
-------------- -------------
Total current liabilities 81,043 104,310
Deferred revenue 24,227 22,862
Senior notes 200,000 200,000
Convertible subordinated notes 100,000 100,000
-------------- -------------
Total liabilities 405,270 427,172
Commitments and contingencies (notes 3 and 4)
Shareholders' equity
Capital stock 59,086 57,471
Retained earnings 59,561 54,669
Accumulated comprehensive items (note 6) (1,341) (1,075)
-------------- -------------
Total shareholders' equity 117,306 111,065
-------------- -------------
Total liabilities and shareholders' equity $ 522,576 $ 538,237
============== =============
</TABLE>
(See accompanying notes to the condensed consolidated financial statements
on pages 7 to 14)
PAGE 4
<PAGE>
IMAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
In accordance with U.S. Generally Accepted Accounting Principles
(in thousands of U.S. dollars, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue
IMAX systems $ 24,656 $ 25,458 $ 82,907 $ 66,767
Digital projection systems 14,084 2,010 38,297 2,010
Films 10,634 11,042 31,429 30,108
Other 4,224 3,943 14,890 14,569
------------ ------------ ------------ ------------
53,598 42,453 167,523 113,454
Costs and expenses 33,768 23,043 98,868 61,800
------------ ------------ ------------ ------------
Gross margin 19,830 19,410 68,655 51,654
Loss from equity-accounted investees 121 288 491 450
Selling, general and administrative expenses 13,199 8,602 37,532 24,860
Research and development 1,962 1,027 5,568 2,314
Amortization of intangibles 1,018 581 3,063 1,526
------------ ------------ ------------ ------------
Earnings from operations 3,530 8,912 22,001 22,504
Interest income 593 2,281 3,005 7,550
Interest expense (5,618) (5,401) (16,275) (16,415)
Foreign exchange gain (loss) (355) 403 (1,008) 616
------------ ------------ ------------ ------------
Earnings (loss) before income taxes and minority interest (1,850) 6,195 7,723 14,255
Recovery of (provision for) income taxes 666 (2,451) (2,831) (5,595)
----------- ------------ ------------ ------------
Earnings (loss) before minority interest (1,184) 3,744 4,892 8,660
Minority interest -- (501) -- (1,207)
------------ ------------ ------------ ------------
Net earnings (loss) $ (1,184) $ 3,243 $ 4,892 $ 7,453
============ ============ ============ ============
Earnings per share (note 7)
Basic $ (0.04) $ 0.11 $ 0.16 $ 0.25
Diluted $ (0.04) $ 0.11 $ 0.16 $ 0.24
</TABLE>
(See accompanying notes to the condensed consolidated financial statements
on pages 7 to 14)
PAGE 5
<PAGE>
IMAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
In accordance with U.S. Generally Accepted Accounting Principles
(in thousands of U.S. dollars)
(unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
2000 1999
---------------- ----------------
<S> <C> <C>
Cash provided by (used in):
Operating Activities
Net earnings $ 4,892 $ 7,453
Items not involving cash:
Depreciation and amortization 21,707 17,330
Deferred income taxes 757 316
Loss from equity-accounted investees 491 450
Minority interest -- 1,208
Other -- (461)
Change in net investment in leases (11,525) (7,233)
Change in deferred revenue on film production 282 4,537
Changes in non-cash operating assets and liabilities (55,666) (8,941)
---------------- ----------------
Net cash provided by (used in) operating activities (39,062) 14,659
---------------- ----------------
Investing Activities
(Increase)/decrease in marketable securities 67,380 (35,007)
Acquisition of Digital Projection Int'l, net of cash acquired (900) (25,724)
Increase in film assets (18,555) (11,692)
Purchase of capital assets (26,994) (19,707)
Increase in other assets (4,425) (14,997)
---------------- ----------------
Net cash provided by (used in) investing activities 16,506 (107,127)
---------------- ----------------
Financing Activities
Class C preferred shares dividends paid -- (365)
Common shares issued 1,426 1,535
---------------- ----------------
Net cash provided by financing activities 1,426 1,170
---------------- ----------------
Effect of exchange rate changes on cash 1,052 405
---------------- ----------------
Decrease in cash and cash equivalents during the period (20,078) (90,893)
Cash and cash equivalents, beginning of period 34,573 143,566
---------------- ----------------
Cash and cash equivalents, end of period $ 14,495 $ 52,673
================ ================
</TABLE>
(See accompanying notes to the condensed consolidated financial statements
on pages 7 to 14)
PAGE 6
<PAGE>
IMAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In accordance with U.S. Generally Accepted Accounting Principles
(Tabular amounts in thousands of U.S. dollars unless otherwise stated)
For the Nine-Month Periods Ended September 30, 2000 and 1999
(unaudited)
1. Basis of Presentation
The consolidated financial statements include the accounts of IMAX
Corporation and its wholly owned and majority owned subsidiaries. The
nature of the Company's business is such that the results of operations
for the interim periods presented are not necessarily indicative of
results to be expected for the fiscal year. In the opinion of
management, the information contained herein reflects all adjustments
necessary to make the results of operations for the interim periods a
fair statement of such operations. All such adjustments are of a normal
recurring nature.
These financial statements should be read in conjunction with the
Company's most recent annual report on Form 10-K for the year ended
December 31, 1999 which should be consulted for a summary of the
significant accounting policies utilized by the Company.
2. Inventories and Systems Under Construction
September 30, December 31,
2000 1999
------------------ ------------------
Raw materials $ 20,619 $ 16,831
Work-in-process 13,836 11,974
Finished goods 7,386 2,336
------------------ ------------------
$ 41,841 $ 31,141
================== ==================
3. 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 financial institutions.
To fund Canadian dollar costs in 2000 and 2001, the Company had entered
into forward exchange contracts as at September 30, 2000 to hedge the
conversion of $24.0 million of its cash flow into Canadian dollars at
an average exchange rate of Canadian $1.48 per U.S. dollar.
To fund Pound Sterling costs in 2000, the Company entered into forward
exchange contracts as at September 30, 2000 to hedge the conversion of
$0.4 million of its cash flow into Pound Sterling at an average
exchange rate of (pounds)0.68 per U.S. dollar.
To fund German Marks costs in 2000, the Company entered into forward
exchange contracts as at September 30, 2000 to hedge the conversion of
$0.1 million of its cash flow into German Marks at an average exchange
rate of DM 2.01 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 79 million
Yen at 98 Yen per U.S. dollar through September 2004 and on 11.4
million Francs at 5.1 Francs per U.S. dollar through September 2005.
Page 7
<PAGE>
IMAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In accordance with U.S. Generally Accepted Accounting Principles
(Tabular amounts in thousands of U.S. dollars unless otherwise stated)
For the Nine-Month Periods Ended September 30, 2000 and 1999
(unaudited)
3. Financial Instruments (cont'd)
These hedging contracts are expected to be held to maturity; however,
if they were terminated on September 30, 2000, the Company would have
realized a gain of approximately $0.2 million based on the then
prevailing exchange rates.
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 1/st/ of
December, March, June and September. The Company adjusts interest
expense over each three-month period for the net amount it is to
receive from or pay to the counterparty. The interest rate swap is
expected to be held to maturity; however, if it were terminated by the
Company on September 30, 2000, the Company would have realized a loss
of approximately $1.5 million based on the then prevailing interest
rates.
4. 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. The plaintiffs claimed damages of Canadian $4.6
million, together with expenses and pre-judgment interest. Compagnie
France Film had also incorporated a shell company, 3101-8450 Quebec
Inc. ("3101"). 3101 was sued in an unrelated action to which the
Company was not a party and, in February 1996, was found liable to pay
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 such amount from the Company. In a
decision rendered in April 1998, the Court dismissed the plaintiffs'
claims with costs. In May 1998, Compagnie France Film Inc. and 3101
both filed appeals to the Quebec Court of Appeal. The Company believes
that it will be successful in responding to these appeals and the
amount of ultimate loss, if any, 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.
(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 loss, if any, suffered in
connection with this proceeding 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
matter.
Page 8
<PAGE>
IMAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In accordance with U.S. Generally Accepted Accounting Principles
(Tabular amounts in thousands of U.S. dollars unless otherwise stated)
For the Nine-Month Periods Ended September 30, 2000 and 1999
(unaudited)
4. Contingencies - (cont'd)
(c) In April 2000, Themax Inc., a 33% owned investee of the Company, and
certain of its shareholders (collectively "Themax") filed a claim
against the Company in the Superior Court in the District of Longueuil,
in the Province of Quebec, alleging breach of contract in respect of
the IMAX(R) System Lease agreement between IMAX Ltd. and Themax dated
February 5, 1996 as well as a claim for damages suffered as a result of
IMAX Ltd.'s alleged failure to adequately manage the Brossard Theatre
during its tenure as manager. Themax claimed damages representing a
return of the original investment by Themax as well as lost profits and
costs. The Company believes that the allegations are entirely without
merit and has and will accordingly defend the matter vigorously. The
Company believes that the amount of loss, if any, suffered in
connection with this lawsuit would not have a material impact on the
financial position or results of operations of the Company, although no
assurance can be given with respect to the ultimate outcome for any
such litigation.
(d) In June 2000, a complaint was filed against the Company and a third
party by Mandalay Resort Group f/k/a Circus Circus Enterprises, Inc.,
alleging breach of contract and express warranty, fraud and
misrepresentation in connection with the installation of certain motion
simulation bases in Nevada. The complaint alleges damages in excess of
$30,000. The Company believes that the allegations brought against it
in this complaint are meritless and will accordingly defend the matter
vigorously. The Company further believes that the amount of loss, if
any, suffered in connection with this lawsuit would not have a material
impact on the financial position or results of operations of the
Company, although no assurance can be given with respect to the
ultimate outcome for any such litigation.
(e) 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.
5. Measurement Uncertainty
(a) On May 31, 2000, then Cinema Plus, a client of the Company based in
Australia, appointed an administrator to restructure its financing and
liquidity under the protection of Australian bankruptcy laws. On August
1, 2000, the administrator placed Cinema Plus into liquidation. Cinema
Plus held nine system leases with the Company. On July 25, 2000, the
Company signed a conditional agreement with MTM Entertainment Trust to
lease and operate four IMAX theatres previously operated by Cinema Plus
in Sydney, Melbourne, Adelaide and Brisbane, and subsequently acquired
the assets of the theatres from the administrator and commenced
operating the theatres under an interim agreement. The Company is in
final negotiations with the construction company which built the Perth
theatre to lease that theatre. The Company is also in negotiations with
the theatre operators in Bangkok and Auckland to have these theatre
operators either assume the lease of the systems or return the systems to
the Company. The Company has repossessed the ninth system
9
<PAGE>
IMAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In accordance with U.S. Generally Accepted Accounting Principles
(Tabular amounts in thousands of U.S. dollars unless otherwise stated)
For the Nine-Month Periods Ended September 30, 2000 and 1999
(unaudited)
5. Measurement Uncertainty - (cont'd)
(a) under lease by Cinema Plus and intends to re-lease the system to a new
customer. The Company has recorded a provision of $2.0 million against the
carrying value of its assets in the quarter related to the original Cinema
Plus leases.
(b) On August 23, 2000, Edwards Theatre Circuit Inc. ("Edwards"), a client of
the Company, filed for bankruptcy protection under Chapter 11. The Company's
balance sheet as of September 30, 2000 reflects a total of $11.6 million
receivable from Edwards predominately due under system leases. The Company's
backlog at September 30, 2000 included five systems contracted for by
Edwards representing value of $12.1 million. Under the terms of the leases,
the Company has the right to the return of the systems plus all amounts due
under the full term of the contracts upon defaults. The Company has not yet
put Edwards in default. While the final exposure of the Company from the
bankruptcy of Edwards cannot be determined at this time, the potential
shortfall between the value of the eventual settlement of amounts owed and
the amounts shown on the balance sheet at September 30, 2000 is estimated to
be in the range of nil to $5.5 million. The Company has not provided for any
shortfall for these leases because the amount of probable loss, if any,
cannot be reasonably estimated at this time.
(c) On November 10, 2000, the Company placed Regal Cinemas, Inc. ("Regal"), a
client of the Company, in default of its obligations under its leasing
agreement with the Company. The Company's balance sheet reflected a total of
$3.0 million receivable predominately due under its leasing agreement with
Regal as of September 30, 2000. To date, Regal had taken delivery of six
systems, two of which were on a joint venture basis with the Company. The
Company's backlog at September 30, 2000, included four systems, two of which
would be done on a joint venture basis, representing a value of $3.2 million
of the Company's backlog. Under the terms of the leasing agreement, the
Company has the right to the return of the systems plus all amounts due
under the full term of the contract upon default. While the final exposure
of the Company to the default by Regal cannot be determined at this time,
the potential shortfall between the value of the eventual settlement of the
amounts owed and the amounts shown on the balance sheet at September 30,
2000 is estimated to be in the range of nil to $0.9 million. The Company has
not provided for any shortfall for the lease because the amount of probable
loss, if any, cannot be reasonably estimated at this time.
(d) On October 17, 2000, Millenium Expotainment Inc. ("Millenium"), a client of
the Company based in South Africa, was put into voluntary liquidation by
Millenium's Board of Directors. Millenium held four leases with the Company,
with an additional fifth system contracted for delivery in 2001. As of
September 30, 2000, the Company's balance sheet reflects a total of $3.0
million receivable due under these leases. Under the terms of the leases,
the Company has the right to the return of the systems plus all amounts due
under the full term of the contracts upon default. The Company is currently
in negotiation with the administrator of the liquidation and related parties
regarding the settlement of claims and/or a potential assignment of the
leases. While the final exposure of the Company to the liquidation of
Millenium cannot be determined with any degree of certainty at present, the
potential shortfall between the value of the eventual settlement of amounts
owed and the amounts shown on the balance sheet at September 30, 2000 is
estimated to be in the range of nil to $0.6 million. The Company has not
provided for any shortfall because the amount of probable loss, if any,
cannot be reasonably estimated at this time.
(e) On November 9, 2000, Themax, as described in Section 4 above, filed a notice
of intent to file a proposal under the Bankruptcy and Insolvency Act
(Canada). The Company's balance sheet reflected a total of $1.7 million
associated with its investment in and receivable from Themax as of September
30, 2000. Under terms of the lease, the Company has the right to the return
of the system plus all amounts due under the full term of the contract upon
default. While the final exposure of the Company to the default of Themax
cannot be determined at this time, the potential shortfall between the value
of the eventual settlement of the amount owed and the amounts shown on the
balance sheet at September 30, 2000 is estimated to be in the range of nil
to $0.6 million. The Company has not provided for any shortfall because the
amount of the probable loss, if any, cannot be reasonably estimated at this
time.
Page 10
<PAGE>
IMAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In accordance with U.S. Generally Accepted Accounting Principles
(Tabular amounts in thousands of U.S. dollars unless otherwise stated)
For the Nine-Month Periods Ended September 30, 2000 and 1999
(unaudited)
5. Measurement Uncertainty - (cont'd)
(f) The Company has exposure to the financial condition of other North American
exhibitors, many of which have been experiencing liquidity issues. Other
North American exhibitors to which the Company has a significant exposure
include Loews Theaters Inc., Famous Players (a Division of Viacom Inc.),
Marcus Theaters Corporation, Muvico Theaters Inc., Cinemark USA Inc.
and United Artists Theatres Inc. The aggregate exposure to these customers
is as follows:
<TABLE>
<S> <C>
Balance sheet value of receivables at September 30, 2000 $26.5 million
Estimate of potential shortfall between the value of the
eventual settlement of the amounts owed and amounts shown on the
balance sheet at September 30, 2000 nil to $11.4 million
Value of systems in backlog (five systems excluding JV's) $11.6 million
The Company has not provided for any shortfall for these leases because
the amount of probable loss if any, cannot be reasonably estimated at
this time.
</TABLE>
6. Comprehensive Loss and Income
Comprehensive loss amounted to $601,000 in the three months ended September
30, 2000 and comprehensive income amounted to $4,626,000 in the nine months
ended September 30, 2000.
Page 11
<PAGE>
IMAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In accordance with U.S. Generally Accepted Accounting Principles
(Tabular amounts in thousands of U.S. dollars unless otherwise stated)
For the Nine-Month Periods Ended September 30, 2000 and 1999
(unaudited)
7. Earnings Per Share
Reconciliations of the numerators and denominators of the basic and
diluted per-share computations are as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net earnings (loss) available to common
shareholders: $ (1,184) $ 3,243 $ 4,892 $ 7,453
=========== =========== =========== ===========
Weighted average number of common shares (000's):
Issued and outstanding at beginning of period 29,798 29,614 29,758 29,478
Weighted average shares issued in the period 99 17 61 120
----------- ----------- ----------- -----------
Weighted average used in computing basic
Earnings per share 29,897 29,631 29,819 29,598
Assumed exercise of stock options, net of shares
Assumed acquired under the Treasury Stock
Method -- 830 658 835
Assumed conversion of Convertible Subordinated
Notes -- -- -- --
----------- ----------- ----------- -----------
Weighted average used in computing diluted
Earnings per share 29,897 30,461 30,477 30,433
=========== =========== =========== ===========
</TABLE>
The assumed exercise of stock options, net of shares assumed acquired under
The Treasury Stock Method for the quarter ended September 30, 2000 were
excluded from the computations in the three months ended September 30, 2000
as they would have had an antidilutive effect on earnings per share.
Common shares potentially issuable pursuant to the Convertible Subordinated
Notes were excluded from the computations in the three months ended
September 30, 2000 and 1999 as they would have had an antidilutive effect on
earnings per share.
Page 12
<PAGE>
IMAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In accordance with U.S. Generally Accepted Accounting Principles
(Tabular amounts in thousands of U.S. dollars unless otherwise stated)
For the Nine-Month Periods Ended September 30, 2000 and 1999
(unaudited)
8. Segmented Information
The Company has four reportable segments: IMAX systems, Digital projection
systems, following the acquisition of Digital Projection International "DPI"
on September 3, 1999, film and other.
There has been no change in the basis of segmentation or in the basis
of measurement of segment profit or loss from the Company's most recent
annual report on Form 10-K for the year ended December 31, 1999.
Intersegment transactions are not significant.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue
IMAX systems $ 24,656 $ 25,458 $ 82,907 $ 66,767
Digital projection systems 14,084 2,010 38,297 2,010
Films 10,634 11,042 31,429 30,108
Other 4,224 3,943 14,890 14,569
---------- ---------- ---------- ----------
Total consolidated revenues $ 53,598 $ 42,453 $ 167,523 $ 113,454
========== ========== ========== ==========
Earnings (loss) from operations
IMAX systems $ 8,072 $ 13,629 $ 37,736 $ 34,692
Digital projection systems 733 (434) 854 (434)
Films (213) 123 (2,362) (358)
Other (1,551) (596) (1,655) (715)
Corporate overhead (3,511) (3,810) (12,572) (10,681)
---------- ---------- ---------- ----------
Consolidated earnings from operations $ 3,530 $ 8,912 $ 22,001 $ 22,504
========== ========== ========== ==========
</TABLE>
9. Impact of Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards (SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities". In June
1999, the FASB issued SFAS No. 137, "Accounting for Derivatives
Instruments and Hedging Activities - Deferral of the Effective Date of
FASB Statement No. 133", which deferred the required date of adoption
of SFAS No. 133 for one year, to fiscal years beginning after June 15,
2000. This standard is applicable for the Company's 2001 fiscal year
and currently its impact has not been determined.
In December 1999, the United States Securities and Exchange Commission
issued Staff Accounting Bulletin Number 101, "Revenue Recognition in
Financial Statements" ("SAB 101") which summarizes certain of the SEC
staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. SAB 101 is applicable to the
Company's fiscal 2000 year. The Company is in the process of evaluating the
impact of SAB 101 on its consolidated financial statements. Although the
Company will implement SAB 101 in the fourth quarter of this year, the
cumulative effect of the change, if any, must be retroactively adopted as of
the beginning of the first quarter of 2000.
Page 13
<PAGE>
IMAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In accordance with U.S. Generally Accepted Accounting Principles
(Tabular amounts in thousands of U.S. dollars unless otherwise stated)
For the Nine-Month Periods Ended September 30, 2000 and 1999
(unaudited)
9. Impact of Recently Issued Accounting Pronouncements - (cont'd)
In June 2000, the American Institute of Certified Public Accountants issued
Statement of Position 00-2 "Accounting by Producers or Distributors of
Films" ("SOP 00-2"), which is effective for the Company's 2001 fiscal year.
SOP 00-2 establishes new accounting standards for producers and distributors
of films, including changes to existing revenue recognition criteria, a more
restrictive definition of the components of revenue projections used for
amortization and valuation purposes for investments in films and changes to
accounting for promotional, advertising, development and overhead costs.
Among other changes, SOP 00-2 requires that promotional and advertising
costs for films be expensed as incurred. The Company is in the process of
evaluating the impact of SOP 00-2 on its consolidated financial statements.
Page 14
<PAGE>
IMAX CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Theater Signings and Backlog
During the third quarter of 2000, the Company signed contracts for 14 IMAX
theater systems valued at $37.7 million. Most of the theater signings for the
third quarter of 2000 were for commercial locations and all were for
international locations. For the nine months ended September 30, 2000, the
Company signed contracts for 29 theater systems valued at $82.8 million. The
Company also reserved five systems in backlog with an aggregate value of $12.3
million where customers were substantially in arrears on payments. As a
result of these theater signings, the Company's sales backlog was $199.3 million
at September 30, 2000, a 2% increase from $194.8 million at June 30, 2000 and a
4% increase from $192.5 million at December 31, 1999.
The Company's sales backlog at September 30, 2000 represented contracts for 76
theater systems, including 5 systems which will be located at theaters in which
the Company will have an equity interest. The Company's sales backlog will vary
from quarter to quarter depending on the signing of new systems which adds to
backlog and the delivery of systems which reduces backlog. Sales backlog
represents the minimum revenues under 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. 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.
Three months ended September 30, 2000 versus three months ended September 30,
1999
The Company reported net losses of $1.2 million or $0.04 per share on a diluted
basis for the third quarter of 2000 compared to earnings of $3.2 million or
$0.11 per share on a diluted basis for the third quarter of 1999.
The Company's revenues for the third quarter of 2000 increased 26% to $53.6
million from $42.5 million in the corresponding quarter last year due mainly to
the inclusion of revenues from digital projection systems of $14.1 million.
Systems revenue, which includes revenue from theater system sales and leases,
royalties and maintenance fees, decreased approximately 3% to $24.7 million in
the third quarter of 2000 from $25.5 million in the same quarter last year. The
Company delivered nine theater systems in the third quarter of 2000 versus seven
theater systems in the third quarter of 1999. The average value of the systems
delivered was less than in the corresponding period last year due to the
increased number of smaller sized systems delivered as well as the delivery of
one operating lease where revenue has yet to be recognized. Recurring revenues
from royalties and maintenance fees increased approximately 14% in the third
quarter over the corresponding period last year as a result of growth in the
IMAX theater network.
The Company's revenue from digital projection systems increased to $14.1 million
in the third quarter of 2000 from $2.0 million in the same quarter last year,
following the acquisition of 100% of DPI on September 3, 1999. The 1999 results
include only one month of DPI results.
Film revenue comprises revenue recognized from film production, film
distribution and film post-production activities. Film revenue decreased 4% to
$10.6 million in the third quarter of 2000 from $11.0 million in the same
quarter last year as a modest increase in film post-production revenue offset a
modest decline in film distribution revenue.
Other revenues increased 7% to $4.2 million in the first quarter in 2000 from
$3.9 million in the same quarter last year. Increased revenue from company-owned
theaters and camera rentals were partially offset by reduced revenues from its
motion simulation business.
Gross margin for the third quarter of 2000 was $19.8 million, or 37% of total
revenue, compared to $19.4 million, or 46% of total revenue, in the
corresponding quarter last year. The reduction in gross margin as a percentage
of total revenue is due primarily to the increased revenue from DPI which has a
lower margin than IMAX systems revenue.
Page 15
<PAGE>
IMAX CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (cont'd)
Three months ended September 30, 2000 versus three months ended September 30,
1999 - (cont'd)
Selling, general and administrative expenses were $13.2 million in the third
quarter of 2000 compared to $8.6 million in the corresponding quarter last year.
The increase resulted principally from the inclusion of selling, general and
administrative costs of DPI acquired in September 1999, and an increase in
general corporate costs.
Research and development expenses were $2.0 million in the third quarter of 2000
compared to $1.0 million in the same period last year. The higher level of
expenses in 2000 reflects the inclusion of research and development costs of DPI
and increased activity in digital technologies.
Interest income decreased to $0.6 million in the third quarter of 2000 from $2.3
million in the same quarter last year primarily due to a decline in the average
balance of cash, cash equivalents and marketable securities held.
Interest expense increased to $5.6 million in the third quarter of 2000 from
$5.4 million in the corresponding quarter last year.
The effective tax rate on earnings before taxes differs from the statutory tax
rate and will vary from quarter to quarter primarily as a result of the
amortization of goodwill, which is not deductible for tax purposes, and the
provision of income taxes at different tax rates in foreign and other provincial
jurisdictions.
The Company has exposure to the financial condition of North American
exhibitors, many of which have been experiencing liquidity issues. The Company
has a significant exposure to the following exhibitors - Edwards Theatre Circuit
Inc., Regal Cinemas, Loews Theaters, Famous Players (a Division of Viacom Inc.),
Marcus Theaters Corporation, Muvico Theaters Inc. Cinemark USA, Inc. and United
Artists Theaters Inc. The Company's balance sheet as at September 30, 2000
reflected at total of $11.2 million receivable and $30.0 million net investment
in lease associated with these clients. The Company's backlog at September 30,
2000 included 17 systems including 5 joint ventures and reflecting a value of
$27.0 million. Under the terms of the leases, the Company has the right to the
return of the systems plus all amounts due under the full term of the contracts
upon default. While the final exposure of the Company to the default of any
customers cannot be determined at this time, the potential shortfall between the
value of the eventual settlement of the amount owed and the amounts shown on of
the balance sheet at September 30, 2000 is estimated to be in the range of nil
to $17.8 million. The Company has not provided for any shortfall for these
leases because the amount of probable loss, if any, cannot be reasonably
estimated at this time.
Nine months ended September 30, 2000 versus nine months ended September 30, 1999
The Company reported net earnings of $4.9 million or $0.16 per share on a
diluted basis for the first nine months of 2000 compared to $7.5 million or
$0.24 per share on a diluted basis for the first nine months of 1999.
The Company's revenues for the first nine months of 2000 increased 48% to $167.5
million from $113.5 million in the corresponding period last year primarily as a
result of increased systems revenue and the inclusion of revenue from digital
projection systems of $38.3 million.
Systems revenue increased approximately 24% to $82.9 million in the first nine
months of 2000 from $66.8 million in the same period last year as the Company
delivered 23 third-party theater systems compared to 17 theater systems in the
same period last year. Recurring revenues from both royalties and maintenance
fees increased 14% in the first nine months of 2000 over the prior year period
due to growth in the IMAX theater network.
The Company's revenue from digital projection systems increased to $38.3 million
in the first nine months of 2000 compared to $2.0 million in revenue in the same
period last year following the acquisition of DPI on September 3, 1999.
Film revenue comprises revenue recognized from film production, film
distribution and film post-production activities. Film revenue increased 4% to
$31.4 million in the first nine months of 2000 from $30.1 million in the same
period last year due principally to increases in film post-production revenues.
Other revenue increased 2% in the nine months ended September 30, 2000 to $14.9
million as compared to $14.6 million in the same period last year. Increased
revenues from company-owned theaters and camera rentals offset reduced revenues
from its motion simulation business.
Gross margin for the first nine months of 2000 was $68.7 million or 41% of total
revenue, compared to $51.7 million or 46% of total revenue in the corresponding
period last year. The decline in gross margin as a percentage of total revenue
is primarily due to the higher proportion of revenues from DPI (which has a
lower margin than systems revenue) in the first nine months of 2000 compared to
the corresponding period in 1999.
Page 16
<PAGE>
IMAX CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (cont'd)
Nine months ended September 30, 2000 versus nine months ended September 30, 1999
- (cont'd)
Selling, general and administrative expenses were $37.5 million in the first
nine months of 2000 compared to $24.9 million in the first nine months of 1999.
The increase resulted mainly of the inclusion of selling, general and
administrative costs of DPI acquired in September 1999, and an increase in
general corporate costs.
Research and development expenses were $5.6 million in the first nine months of
2000 compared to $2.3 million in the first nine months of 1999. The higher level
of expenses in 2000 reflects the inclusion of research and development costs of
DPI and increased activities in digital technologies.
Interest income decreased to $3.0 million in the first nine months of 2000 from
$7.6 million in the same period last year primarily due to a decline in the
average balance of cash, cash equivalents and marketable securities held.
Interest expense decreased to $16.3 million in the first nine months of 2000
from $16.4 million in the first nine months of 1999.
The effective tax rate on earnings before taxes differs from the statutory tax
rate and will vary from quarter to quarter primarily as a result of the
amortization of goodwill, which is not deductible for tax purposes, and the
provision of income taxes at different tax rates in foreign and other provincial
jurisdictions.
Liquidity and Capital Resources
At September 30, 2000, the Company's principal source of liquidity included cash
and cash equivalents of $14.5 million, marketable securities totaling $21.7
million, trade accounts receivable of $58.0 million, net investment in leases
due within one year of $32.3 million and the amounts receivable under contracts
in backlog which are not yet reflected on the balance sheet.
The 7.875% Senior Notes due December 1, 2005 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 and are subject to redemption by the Company
prior to December 1, 2002 at a redemption price equal to 100% of the principal
amount plus a "make whole premium". If certain changes result in the imposition
of withholding taxes under Canadian law, the Senior Notes may be redeemed by the
Company at a redemption price equal to 100% of the principal amount plus accrued
interest to the date of redemption. In the event of a change in control, holders
of the Senior Notes may require the Company to repurchase all or part of the
Senior Notes at a price equal to 101% of the principal amount plus accrued
interest to the date of repurchase.
The 5 3/4% Convertible Subordinated Notes (the "Subordinated Notes") due April
1, 2003 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 Subordinated 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.
Page 17
<PAGE>
IMAX CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (cont'd)
Liquidity and Capital Resources - (cont'd)
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.
In the first nine months of 2000, cash used in operating activities amounted to
$37.3 million after the payment of $30.0 million of income taxes and working
capital requirements. The income tax payment in the first nine months of 2000
was due mainly 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. Working capital requirements included an
increase of $15.7 million in accounts receivable due mainly to a slowdown in
collections particularly from North American exhibitors and increased sales
volumes, particularly at DPI and an increase of $11.8 million in inventory due
mainly to an increase in digital projection inventory at DPI due to increased
sales volume.
In the first nine months of 2000, cash provided by investing activities amounted
$14.7 million and included a decrease in marketable securities of $67.4 million,
partially offset by an $18.6 million increase in film assets, primarily related
to the company's films, Cyberworld and China:The Panda Experience and a $27.0
million increase in capital assets, principally office premises dedicated to
film post-production and distribution and investments in company-owned theaters.
During the first nine months of 2000, cash provided by financing activities
included $1.4 million of proceeds from common shares issued under the Company's
stock option plan.
The Company believes that cash flows from operations together with existing cash
and marketable securities balances and the working capital facility will
continue to be sufficient to meet cash requirements in the foreseeable future.
Subsequent Events
On July 13, 2000 the Company announced that consistent with the priority and
commitment of its Board of Directors and senior management to realizing enhanced
value for all IMAX shareholders, the Company retained Goldman, Sachs & Co. and
Wasserstein, Perella & Co. as financial advisors to assist in the evaluation of
potential strategic alternatives that may be available to the Company, including
the potential sale or merger of the Company. On October 13, 2000, the Company
announced that it had ended the formal process of seeking such strategic
alternatives.
On November 10, 2000, the Company placed Regal Cinemas, Inc. ("Regal"), a client
of the Company in default of its obligations under its leasing agreement with
the Company. The Company's balance sheet reflected a total of $3.0 million
receivable predominately due under its system leasing agreement with Regal as of
September 30, 2000. To date, Regal had taken delivery of six systems, two of
which were on a joint venture basis with the Company, and had a commitment for
the delivery of another four systems, two of which would be done on a joint
venture basis, representing a value of $3.2 million of the Company's backlog.
Under the terms of the leasing agreement, the Company has the right to the
return of the systems plus all amounts due under the full term of the contract
upon default. While the final exposure of the Company to the default by Regal
cannot be determined at this time, the potential shortfall between the value of
the eventual settlement of the amounts owed and the amounts shown on the balance
sheet at September 30, 2000 is estimated to be in the range of nil to $0.9
million. The Company has not provided for any shortfall for the leasing
agreement because the amount of probable loss, if any, cannot be reasonably
estimated at this time.
On November 9, 2000, Themax filed a notice of intent to file a proposal under
the Bankruptcy and Insolvency Act (Canada). The Company's balance sheet
reflected a total of $1.7 million associated with its investment in and
receivable from Themax as of September 30, 2000. Under terms of the lease, the
Company has the right to the return of the system plus all amounts due under the
full term of the contract upon default. While the final exposure of the Company
to the default of Themax cannot be determined at this time, the potential
shortfall between the value of the eventual settlement of the amount owed and
the amounts shown on the balance sheet at September 30, 2000 is estimated to be
in the range of nil to $0.6 million. The Company has not provided for any
shortfall because the amount of the probable loss, if any, cannot be reasonably
estimated at this time.
Page 18
<PAGE>
IMAX CORPORATION
Item 3. QUANTITATIVE AND QUALITATIVE FACTORS ABOUT MARKET RISK
The Company is exposed to market risk from changes in foreign currency
rates. The Company does not use financial instruments for trading or other
speculative purposes.
A 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 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 a portion of 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 amounts of $65 million to partially hedge this exposure.
The following table provides information about the Company's foreign
exchange and interest rate swap contracts at September 30, 2000. The fair
value represents the amount the Company would receive or pay to terminate
the contracts at September 30, 2000.
<TABLE>
<CAPTION>
Sept. 30,
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 exch. Contracts
(Receive Canadian $, pay US$) $ 8,000 $16,000 -- -- -- -- $24,000 ($310)
Average contractual exchange rate 1.47 1.48 -- -- -- -- 1.48
per one U.S. dollar
(Receive Pound Sterling, pay US$) $ 375 -- -- -- -- -- $ 375 $3
Average contractual exchange rate 0.68 -- -- -- -- -- 0.68
per one U.S. dollar
(Receive German Marks, pay U.S. $) $ 75 -- -- -- -- -- $ 75 ($7)
Average contractual exchange rate 2.01 -- -- -- -- -- 2.01
per one U.S. dollar
(Pay Yen, receive U.S. $) - $ 318 $ 174 $ 179 $ 137 -- $ 808 ($16)
Average contractual exchange rate - 97.85 97.85 97.85 97.85 -- 97.85
per one U.S. dollar
(Pay FF, receive U.S. $) - $ 423 $ 435 $ 448 $ 462 $ 476 $ 2,244 $538
Average contractual exchange rate - 5.07 5.07 5.07 5.07 5.07 5.07
per one U.S. dollar
Interest rate swap
Fixed to floating $ 65,000 $65,000 $65,000/(1)/ -- -- -- $65,000 ($1,525)
Average pay rate L*+ L*+ L*+
2.09% 2.09% 2.09%
Receive rate 7.875% 7.875% 7.875%
</TABLE>
* LIBOR
/1/ Agreement terminates on December 1, 2002
Page 19
<PAGE>
IMAX CORPORATION
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
(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. The plaintiffs claimed damages of Canadian $4.6
million, together with expenses and pre-judgment interest. Compagnie
France Film had also incorporated a shell company, 3101-8450 Quebec
Inc. ("3101"). 3101 was sued in an unrelated action to which the
Company was not a party and, in February 1996, was found liable to pay
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 such amount from the Company. In a
decision rendered in April 1998, the Court dismissed the plaintiffs'
claims with costs. In May 1998, Compagnie France Film Inc. and 3101
both filed appeals to the Quebec Court of Appeal. The Company believes
that it will be successful in responding to these appeals and the
amount of ultimate loss, if any, 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.
(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 loss, if any, suffered in
connection with this proceeding 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
matter.
(c) In April 2000, Themax Inc., a 33% owned investee of the Company, and
certain of its shareholders (collectively "Themax") filed a claim
against the Company in the Superior Court in the District of Longueuil,
in the Province of Quebec, alleging breach of contract in respect of
the IMAX(R)System Lease agreement between IMAX Ltd. and Themax dated
February 5, 1996 as well as a claim for damages suffered as a result of
IMAX Ltd.'s alleged failure to adequately manage the Brossard Theatre
during its tenure as manager. Themax claimed damages representing a
return of the original investment by Themax as well as lost profits and
costs. The Company believes that the allegations are entirely without
merit and has and will accordingly defend the matter vigorously. The
Company believes that the amount of loss, if any, suffered in
connection with this lawsuit would not have a material impact on the
financial position or results of operations of the Company, although no
assurance can be given with respect to the ultimate outcome for any
such litigation.
Page 20
<PAGE>
IMAX CORPORATION
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS - (cont'd)
(e) In June 2000, a complaint was filed against the Company and a third
party by Mandalay Resort Group f/k/a Circus Circus Enterprises, Inc.,
alleging breach of contract and express warranty, fraud and
misrepresentation in connection with the installation of certain motion
simulation bases in Nevada. The complaint alleges damages in excess of
$30,000. The Company believes that the allegations brought against it
in this complaint are meritless and will accordingly defend the matter
vigorously. The Company further believes that the amount of loss, if
any, suffered in connection with this lawsuit would not have a material
impact on the financial position or results of operations of the
Company, although no assurance can be given with respect to the
ultimate outcome for any such litigation.
(f) 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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.9 Amended Employment Agreement, dated July 12, 2000, between IMAX
Corporation and Richard L. Gelfond;
10.10 Amended Employment Agreement, dated July 12, 2000, between IMAX
Corporation and Bradley J. Wechler; and
10.11 Amended Employment Agreement, dated April 4, 2000, between IMAX
Corporation and John M. Davison
(b) Reports on Form 8K
There were no reports filed on Form 8K in the three-month period ended
September 30, 2000.
Page 21
<PAGE>
IMAX CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IMAX CORPORATION
Date: By: /s/ John M. Davison
------ ----------------------
John M. Davison
President, Chief Operating Officer and
Chief Financial Officer
(Principal Financial Officer)
By: /s/ Mark J. Thornley
----------------------------
Mark J. Thornley
Senior Vice President, Finance
(Principal Accounting Officer)
Page 22
