1. Description of the Business
IMAX Corporation, together with its consolidated subsidiaries (the “Company”), is an entertainment technology company specializing in digital and film-based motion picture technologies, whose principal activities are the:
The Company refers to all theaters using the IMAX theater system as “IMAX theaters.”
The Company’s revenues from equipment and product sales include the sale and sales-type leasing of its theater systems and sales of their associated parts and accessories, contingent rentals on sales-type leases and contingent additional payments on sales transactions.
The Company’s revenues from services include the provision of maintenance and extended warranty services, digital re-mastering services, film production and film post-production services, film distribution, and the operation of certain theaters.
The Company’s rentals include revenues from the leasing of its theater systems that are operating leases, contingent rentals on operating leases, joint revenue sharing arrangements and the rental of the Company’s cameras and camera equipment.
The Company’s finance income represents interest income arising from the sales-type leases and financed sales of the Company’s theater systems.
The Company’s other revenues include the settlement of contractual obligations with customers.
Total assets and liabilities of the Company's consolidated VIEs are as follows:
December 31, |
| December 31, |
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| 2017 |
| 2016 |
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Total assets | $ | 7,539 |
| $ | 10,346 |
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Total liabilities |
| 7,178 |
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| 6,368 |
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Total assets and liabilities of the VIE entities which the Company does not consolidate are as follows:
December 31, |
| December 31, |
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| 2017 |
| 2016 |
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Total assets | $ | 448 |
| $ | 444 |
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Total liabilities |
| 388 |
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| 363 |
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The FASB ASC Guarantees Topic requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of certain guarantees. Disclosures as required under the accounting guidance have been included in note 13(f).
The Company has a defined benefit pension plan, the Supplemental Executive Retirement Plan (the “SERP”). As the Company’s SERP is unfunded, as at December 31, 2017, a liability is recognized for the projected benefit obligation.
Assumptions used in computing the defined benefit obligations are reviewed annually by management in consultation with its actuaries and adjusted for current conditions. Actuarial gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefits cost are recognized as a component of other comprehensive income. Amounts recognized in accumulated other comprehensive income including unrecognized actuarial gains or losses and prior service costs are adjusted as they are subsequently recognized in the consolidated statement of operations as components of net periodic benefit cost. Prior service costs resulting from the pension plan inception or amendments are amortized over the expected future service life of the employees, cumulative actuarial gains and losses in excess of 10% of the projected benefit obligation are amortized over the expected average remaining service life of the employees, and current service costs are expensed when earned. The remaining weighted average future service life of the employee used in computing the defined benefit obligation for the year ended December 31, 2017 was 2.0 years.
For defined contribution pension plans, required contributions by the Company are recorded as an expense.
A liability is recognized for the unfunded accumulated benefit obligation of the postretirement benefits plan. Assumptions used in computing the accumulated benefit obligation are reviewed by management in consultation with its actuaries and adjusted for current conditions. Current service cost is recognized as incurred and actuarial gains and losses are recognized as a component of other comprehensive income (loss). Amounts recognized in accumulated other comprehensive income (loss) including unrecognized actuarial gains or losses are adjusted as they are subsequently recognized in the consolidated statement of operations as components of net periodic benefit cost
Monetary assets and liabilities of the Company’s operations which are denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the end of the period. In 2013, the Company determined that the functional currency of one of its consolidated subsidiaries had changed from the Company’s reporting currency to the currency of the nation in which it is domiciled. As a result, in accordance with the FASB ASC 830 “Foreign Currency Matters”, the adjustment attributable to current-rate translation of non-monetary assets as of the date of the change was reported in other comprehensive income (“OCI”). The functional currency of its other consolidated subsidiaries continues to be the United States dollar. Foreign exchange translation gains and losses are included in the determination of earnings in the period in which they arise.
Foreign currency derivatives are recognized and measured in the balance sheet at fair value. Changes in the fair value (gains or losses) are recognized in the consolidated statement of operations except for derivatives designated and qualifying as foreign currency hedging instruments. For foreign currency hedging instruments, the effective portion of the gain or loss in a hedge of a forecasted transaction is reported in other comprehensive income (loss) and reclassified to the consolidated statement of operations when the forecasted transaction occurs. Any ineffective portion is recognized immediately in the consolidated statement of operations.
Research and development costs are expensed as incurred and primarily include projector and sound parts, labor, consulting fees, allocation of overheads and other related materials which pertain to the Company’s development of ongoing product and services. Research and development costs pertaining to fixed and intangible assets that have alternative future uses are capitalized and amortized under their related policies
The Company recognizes revenue in Services revenues from its owned and operated theaters resulting from box-office ticket and concession sales as tickets are sold, films are shown and upon the sale of various concessions. The sales are cash or credit card transactions with theater goers based on fixed prices per seat or per concession item.
In addition, the Company enters into commercial arrangements with third party theater owners resulting in the sharing of profits and losses which are recognized in Services revenues when reported by such theaters. The Company also provides management services to certain theaters and recognizes revenue over the term of such services.
Revenues on camera rentals are recognized in Rental revenues over the rental period.
Revenue from the sale of 3D glasses is recognized in Equipment and product sales revenue when the 3D glasses have been delivered to the customer.
Other service revenues are recognized in Service revenues when the performance of contracted services is complete.
Film Production and IMAX DMR Services
In certain film arrangements, the Company produces a film financed by third parties whereby the third party retains the copyright and the Company obtains exclusive distribution rights. Under these arrangements, the Company is entitled to receive a fixed fee or to retain as a fee the excess of funding over cost of production (the “production fee”). The third parties receive a portion of the revenues received by the Company from distributing the film, which is charged to costs and expenses applicable to revenues-services. The production fees are deferred, and recognized as a reduction in the cost of the film based on the ratio of the Company’s distribution revenues recognized in the current period to the ultimate distribution revenues expected from the film. Film exploitation costs, including advertising and marketing totaled $15.4 million in 2017 (2016 — $17.5 million; 2015 — $13.3 million) and are recorded in costs and expenses applicable to revenues-services as incurred.
Revenue from film production services where the Company does not hold the associated distribution rights are recognized in Services revenues when performance of the contractual service is complete, provided there is persuasive evidence of an agreement, the fee is fixed or determinable and collectability is reasonably assured.
Revenues from digitally re-mastering (IMAX DMR) films where third parties own or hold the copyrights and the rights to distribute the film are derived in the form of processing fees and recoupments calculated as a percentage of box-office receipts generated from the re-mastered films. Processing fees are recognized as Services revenues when the performance of the related re-mastering service is completed provided there is persuasive evidence of an arrangement, the fee is fixed or determinable and collectability is reasonably assured. Recoupments, calculated as a percentage of box-office receipts, are recognized as Services revenue when box-office receipts are reported by the third party that owns or holds the related film rights, provided collectability is reasonably assured.
Losses on film production and IMAX DMR services are recognized as costs and expenses applicable to revenues-services in the period when it is determined that the Company’s estimate of total revenues to be realized by the Company will not exceed estimated total production costs to be expended on the film production and the cost of IMAX DMR services.
Film Distribution
Revenue from the licensing of films is recognized in Services revenues when persuasive evidence of a licensing arrangement exists, the film has been completed and delivered, the license period has begun, the fee is fixed or determinable and collectability is reasonably assured. When license fees are based on a percentage of box-office receipts, revenue is recognized when box-office receipts are reported by exhibitors, provided collectability is reasonably assured. Film exploitation costs, including advertising and marketing, totaled a recovery of $0.7 million in 2017 (2016 — expense of $2.2 million; 2015 — recovery of $0.1 million) and are recorded in costs and expenses applicable to revenues-services as incurred.
Film Post-Production Services
Revenues from post-production film services are recognized in Services revenues when performance of the contracted services is complete provided there is persuasive evidence of an arrangement, the fee is fixed or determinable and collectability is reasonably assured.
Maintenance and extended warranty services may be provided under a multiple element arrangement or as a separately priced contract. Revenues related to these services are deferred and recognized on a straight-line basis over the contract period and are recognized in Services revenues. Maintenance and extended warranty services includes maintenance of the customer’s equipment and replacement parts. Under certain maintenance arrangements, maintenance services may include additional training services to the customer’s technicians. All costs associated with this maintenance and extended warranty program are expensed as incurred. A loss on maintenance and extended warranty services is recognized if the expected cost of providing the services under the contracts exceeds the related deferred revenue.
The Company enters into theater system arrangements with customers that contain customer payment obligations prior to the scheduled installation of the theater system. During the period of time between signing and the installation of the theater system, which may extend several years, certain customers may be unable to, or may elect not to, proceed with the theater system installation for a number of reasons including business considerations, or the inability to obtain certain consents, approvals or financing. Once the determination is made that the customer will not proceed with installation, the arrangement may be terminated under the default provisions of the arrangement or by mutual agreement between the Company and the customer (a “consensual buyout”). Terminations by default are situations when a customer does not meet the payment obligations under an arrangement and the Company retains the amounts paid by the customer. Under a consensual buyout, the Company and the customer agree, in writing, to a settlement and to release each other of any further obligations under the arrangement or an arbitrated settlement is reached. Any initial payments retained or additional payments received by the Company are recognized as revenue when the settlement arrangements are executed and the cash is received, respectively. These termination and consensual buyout amounts are recognized in Other revenues.
In addition, the Company could agree with customers to convert their obligations for other theater system configurations that have not yet been installed to arrangements to acquire or lease the IMAX digital theater system. The Company considers these situations to be a termination of the previous arrangement and origination of a new arrangement for the IMAX digital theater system. For all arrangements entered into or modified prior to the date of adoption of the amended FASB ASC 605-25, the Company continues to defer an amount of any initial fees received from the customer such that the aggregate of the fees deferred and the net present value of the future fixed initial and ongoing payments to be received from the customer equals the selling price of the IMAX digital theater system to be leased or acquired by the customer. Any residual portion of the initial fees received from the customer for the terminated theater system is recorded in other revenues at the time when the obligation for the original theater system is terminated and the new theater system arrangement is signed. Under the amended FASB ASC 605-25, for all arrangements entered into or materially modified after the date of adoption, the total arrangement consideration to be received is allocated on a relative selling price basis to the digital upgrade and the termination of the previous theater system. The arrangement consideration allocated to the termination of the existing arrangement is recorded in Other revenues at the time when the obligation for the original theater system is terminated and the new theater system arrangement is signed.
The Company may offer certain incentives to customers to complete theater system transactions including payment concessions or free services and products such as film licenses or 3D glasses. Reductions in, and deferral of, payments are taken into account in determining the sales price either by a direct reduction in the sales price or a reduction of payments to be discounted in accordance with the Leases or Interests Topic of the FASB ASC. Free products and services are accounted for as separate units of accounting. Other consideration given by the Company to customers are accounted for in accordance with the Revenue Recognition Topic of the FASB ASC
For theater systems and other equipment subject to an operating lease or placed in a theater operators’ venue under a joint revenue sharing arrangement, the cost of equipment and those costs that result directly from and are essential to the arrangement, is included within property, plant and equipment. Depreciation and impairment losses, if any, are included in cost of rentals based on the accounting policy set out in note 2(g). Commissions are recognized as costs and expenses applicable to revenues-rentals in the month they are earned, which is typically the month of installation. These costs totaled $1.6 million in 2017 (2016 — $1.8 million; 2015 — $1.1 million). Direct advertising and marketing costs for each theater are charged to costs and expenses applicable to revenues-rentals as incurred. These costs totaled $2.6 million in 2017 (2016 — $0.9 million; 2015 — $1.9 million).
Theater systems and other equipment subject to sales-type leases and sales arrangements includes the cost of the equipment and costs related to project management, design, delivery and installation supervision services as applicable. The costs related to theater systems under sales and sales-type lease arrangements are relieved from inventory to costs and expenses applicable to revenues-equipment and product sales when revenue recognition criteria are met. In addition, the Company defers direct selling costs such as sales commissions and other amounts related to these contracts until the related revenue is recognized. These costs included in costs and expenses applicable to revenues-equipment and product sales, totaled $2.7 million in 2017 (2016 — $3.3 million; 2015 — $3.4 million). The cost of equipment and product sales prior to direct selling costs was $45.5 million in 2017 (2016 — $66.5 million; 2015 — $60.2 million). The Company may have warranty obligations at or after the time revenue is recognized which require replacement of certain parts that do not affect the functionality of the theater system or services. The costs for warranty obligations for known issues are accrued as charges to costs and expenses applicable to revenues-equipment and product sales at the time revenue is recognized based on the Company’s past historical experience and cost estimates.
Finance income is recognized over the term of the sales-type lease or financed sales receivable, provided collectability is reasonably assured. Finance income recognition ceases when the Company determines that the associated receivable is not collectible.
Finance income is suspended when the Company identifies a theater that is delinquent, non-responsive or not negotiating in good faith with the Company. Once the collectability issues are resolved the Company will resume recognition of finance income.
The Company uses the Leases Topic of FASB ASC to evaluate whether an arrangement is a lease within the scope of the accounting standard. Arrangements not within the scope of the accounting standard are accounted for either as a sales or services arrangement, as applicable.
For lease arrangements, the Company determines the classification of the lease in accordance with the Lease Topic of FASB ASC. A lease arrangement that transfers substantially all of the benefits and risks incident to ownership of the equipment is classified as a sales-type lease based on the criteria established by the accounting standard; otherwise the lease is classified as an operating lease. Prior to commencement of the lease term for the equipment, the Company may modify certain payment terms or make concessions. If these circumstances occur, the Company reassesses the classification of the lease based on the modified terms and conditions.
For sales-type leases, the revenue allocated to the System Deliverable is recognized when the lease term commences, which the Company deems to be when all of the following conditions have been met: (i) the projector, sound system and screen system have been installed and are in full working condition; (ii) the 3D glasses cleaning machine, if applicable, has been delivered; (iii) projectionist training has been completed; and (iv) the earlier of (a) receipt of the written customer acceptance certifying the completion of installation and run-in testing of the equipment and the completion of projectionist training or (b) public opening of the theater, provided collectability is reasonably assured.
The initial revenue recognized for sales-type leases consists of the initial payments received and the present value of future initial payments and fixed minimum ongoing payments computed at the interest rate implicit in the lease. Contingent payments in excess of the fixed minimum payments are recognized when reported by theater operators, provided collectability is reasonably assured.
For operating leases, initial payments and fixed minimum ongoing payments are recognized as revenue on a straight-line basis over the lease term. For operating leases, the lease term is considered to commence when all of the following conditions have been met: (i) the projector, sound system and screen system have been installed and in full working condition; (ii) the 3D glasses cleaning machine, if applicable, has been delivered; (iii) projectionist training has been completed; and (iv) the earlier of (a) receipt of written customer acceptance certifying the completion of installation and run-in testing of the equipment and the completion of projectionist training or (b) public opening of the theater. Contingent payments in excess of fixed minimum ongoing payments are recognized as revenue when reported by theater operators, provided collectability is reasonably assured.
Revenues from joint revenue sharing arrangements with upfront payments that qualify for classification as sales and sales-type leases are recognized in accordance with the sales and sales-type lease criteria discussed above. Contingent revenues from joint revenue sharing arrangements are recognized as box-office results and concessions revenues are reported by the theater operator, provided collectability is reasonably assured.
Multiple Element Arrangements
The Company’s revenue arrangements with certain customers may involve multiple elements consisting of a theater system (projector, sound system, screen system and, if applicable, 3D glasses cleaning machine); services associated with the theater system including theater design support, supervision of installation, and projectionist training; a license to use the IMAX brand; 3D glasses; maintenance and extended warranty services; and licensing of films. The Company evaluates all elements in an arrangement to determine what are considered deliverables for accounting purposes and which of the deliverables represent separate units of accounting based on the applicable accounting guidance in the Leases Topic of the FASB ASC; the Guarantees Topic of the FASB ASC; the Entertainment – Films Topic of FASB ASC; and the Revenue Recognition Topic of the FASB. If separate units of accounting are either required under the relevant accounting standards or determined to be applicable under the Revenue Recognition Topic, the total consideration received or receivable in the arrangement is allocated based on the applicable guidance in the above noted standards.
Theater Systems
The Company has identified the projection system, sound system, screen system and, if applicable, 3D glasses cleaning machine, theater design support, supervision of installation, projectionist training and the use of the IMAX brand to be a single deliverable and a single unit of accounting (the “System Deliverable”). When an arrangement does not include all the elements of a System Deliverable, the elements of the System Deliverable included in the arrangement are considered by the Company to be a single deliverable and a single unit of accounting. The Company is not responsible for the physical installation of the equipment in the customer’s facility; however, the Company supervises the installation by the customer. The customer has the right to use the IMAX brand from the date the Company and the customer enter into an arrangement.
The Company’s System Deliverable arrangements involve either a lease or a sale of the theater system. Consideration for the System Deliverable, other than for those delivered pursuant to joint revenue sharing arrangements, consist of upfront or initial payments made before and after the final installation of the theater system equipment and ongoing payments throughout the term of the lease or over a period of time, as specified in the arrangement. The ongoing payments are the greater of an annual fixed minimum amount or a certain percentage of the theater box-office. Amounts received in excess of the annual fixed minimum amounts are considered contingent payments. The Company’s arrangements are non-cancellable, unless the Company fails to perform its obligations. In the absence of a material default by the Company, there is no right to any remedy for the customer under the Company’s arrangements. If a material default by the Company exists, the customer has the right to terminate the arrangement and seek a refund only if the customer provides notice to the Company of a material default and only if the Company does not cure the default within a specified period.
For arrangements entered into or materially modified after January 1, 2011, consideration is allocated to each unit of accounting based on the unit’s relative selling prices. The Company uses vender-specific objective evidence of selling price (VSOE) when the Company sells the deliverable separately and is the price actually charged by the Company for that deliverable. VSOE is established for the Company’s System Deliverable, maintenance and extended warranty services and film license arrangements. The Company uses a best estimate of selling price (BESP) for units of accounting that do not have VSOE or third-party evidence of selling price. The Company determines BESP for a deliverable by considering multiple factors including the Company’s historical pricing practices, product class, market competition and geography.
Sales Arrangements
For arrangements qualifying as sales, the revenue allocated to the System Deliverable is recognized in accordance with the Revenue Recognition Topic of the FASB ASC, when all of the following conditions have been met: (i) the projector, sound system and screen system have been installed and are in full working condition, (ii) the 3D glasses cleaning machine, if applicable, has been delivered, (iii) projectionist training has been completed and (iv) the earlier of (a) receipt of written customer acceptance certifying the completion of installation and run-in testing of the equipment and the completion of projectionist training or (b) public opening of the theater, provided there is persuasive evidence of an arrangement, the price is fixed or determinable and collectability is reasonably assured.
The initial revenue recognized consists of the initial payments received and the present value of any future initial payments and fixed minimum ongoing payments that have been attributed to this unit of accounting. Contingent payments in excess of the fixed minimum ongoing payments are recognized when reported by theater operators, provided collectability is reasonably assured.
The Company has also agreed, on occasion, to sell equipment under lease or at the end of a lease term. Consideration agreed to for these lease buyouts is included in revenues from equipment and product sales, when persuasive evidence of an arrangement exists, the fees are fixed or determinable, collectability is reasonably assured and title to the theater system passes from the Company to the customer.
Income taxes are accounted for under the liability method whereby deferred income tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the accounting and tax bases of assets and liabilities. Deferred income tax assets and liabilities are measured using enacted 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 income tax assets and liabilities of a change in tax rates or laws is recognized in the consolidated statement of operations in the period in which the change is enacted. Investment tax credits are recognized as a reduction of income tax expense.
The Company assesses realization of deferred income tax assets and, based on all available evidence, concludes whether it is more likely than not that the net deferred income tax assets will be realized. A valuation allowance is provided for the amount of deferred income tax assets not considered to be realizable.
The Company is subject to ongoing tax exposures, examinations and assessments in various jurisdictions. Accordingly, the Company may incur additional tax expense based upon the outcomes of such matters. In addition, when applicable, the Company adjusts tax expense to reflect the Company’s ongoing assessments of such matters which require judgment and can materially increase or decrease its effective rate as well as impact operating results. The Company provides for such exposures in accordance with the Income Taxes Topic of the FASB ASC.
Deferred revenue represents cash received prior to revenue recognition criteria being met for theater system sales or leases, film contracts, maintenance and extended warranty services, film related services and film distribution.
Patents, trademarks and other intangibles are recorded at cost and are amortized on a straight-line basis over estimated useful lives ranging from 4 to 10 years except for intangible assets that have an identifiable pattern of consumption of the economic benefit of the asset, which are amortized over the consumption pattern.
The Company reviews the carrying values of its other intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group might not be recoverable. Assets are grouped at the lowest level for which identifiable cash flows are largely independent when testing for, and measuring for, impairment. In performing its review for recoverability, the Company estimates the future cash flows expected to result from the use of the asset or asset group and its eventual disposition. If the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset or asset group, an impairment loss is recognized in the consolidated statement of operations. Measurement of the impairment loss is based on the excess of the carrying amount of the asset or asset group over the fair value calculated using discounted expected future cash flows.
Goodwill represents the excess of purchase price over the fair value of net identifiable assets acquired in a purchase business combination. Goodwill is not subject to amortization and is tested for impairment annually or more frequently if events or circumstances indicate that the asset might be impaired. The Company performs a qualitative assessment of its reporting units and certain select quantitative calculations against its current long-range plan to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount. The Company first assesses certain qualitative factors to determine whether the existence of events or circumstances leads to determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, the Company determines it is not more likely than not that the fair value of a reporting unit is less than its carry amount, then performing the two-step impairment test is unnecessary. When necessary, impairment of goodwill is tested at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit. The fair value of the reporting unit is estimated using a discounted cash flow approach. If the carrying amount of the reporting unit exceeds its fair value, then a second step is performed to measure the amount of impairment loss, if any, by comparing the fair value of each identifiable asset and liability in the reporting unit to the total fair value of the reporting unit. Any impairment loss is expensed in the consolidated statement of operations and is not reversed if the fair value subsequently increases.
Other assets include lease incentives, deferred selling costs that are direct and incremental to the acquisition of sales contracts, various investments, insurance recoverable, foreign currency derivatives, deferred charges on debt financing, and prepaid taxes.
Costs of debt financing are deferred and amortized over the term of the debt using the effective interest method.
Selling costs related to an arrangement incurred prior to recognition of the related revenue are deferred and expensed to costs and expenses applicable to revenues upon: (i) recognition of the contract’s theater system revenue; or (ii) abandonment of the sale arrangement.
Foreign currency derivatives are accounted for at fair value using quoted prices in closed exchanges (Level 2 input in accordance with the Fair Value Measurements Topic of the FASB ASC hierarchy).
The Company may provide lease incentives to certain exhibitors which are essential to entering into the respective lease arrangement. Lease incentives include payments made to or on behalf of the exhibitor. These lease incentives are recognized as a reduction in rental revenue on a straight-line basis over the term of the lease.
Investments in new business ventures are accounted for using ASC 323 as described in note 2(a). The Company currently accounts for its joint venture investment with TCL Multimedia Technology Holdings Limited (“TCL”), using the equity method of accounting. The Company accounts for in-kind contributions to its equity investment in accordance with ASC 845 “Non-Monetary Transactions” (“ASC 845”) whereby if the fair value of the asset or assets contributed is greater than the carrying value a partial gain shall be recognized.
The Company’s investment in debt securities is classified as an available-for-sale investment in accordance with ASC 320. Unrealized holding gains and losses for this investment is excluded from earnings and reported in other comprehensive income until realized. Realization occurs upon sale of a portion of or the entire investment. The investment is impaired if the fair value is less than cost, which is assessed in each reporting period. When the Company intends to sell a specifically identified beneficial interest, a write-down for other-than-temporary impairment shall be recognized in earnings.
The Company’s investment in preferred shares, which meets the criteria for classification as an equity security in accordance with ASC 325, is accounted for at cost. The Company records the related warrants at fair value upon recognition date. Warrants are recognized over the term of the agreement.
Property, plant and equipment are recorded at cost and are depreciated on a straight-line basis over their estimated useful lives as follows:
Theater system components(1) | — | over the equipment’s anticipated useful life (7 to 20 years) |
Camera equipment | — | 5 to 10 years |
Buildings | — | 20 to 25 years |
Office and product equipment | — | 3 to 5 years |
Leasehold improvements | — | over the shorter of the initial term of the underlying leases plus any |
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| reasonably assured renewal terms, and the useful life of the asset |
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(1) | Includes equipment under joint revenue sharing arrangements. |
Equipment and components allocated to be used in future operating leases and joint revenue sharing arrangements, as well as direct labor costs and an allocation of direct production costs, are included in assets under construction until such equipment is installed and in working condition, at which time the equipment is depreciated on a straight-line basis over the lesser of the term of the joint revenue sharing arrangement and the equipment’s anticipated useful life.
The Company reviews the carrying values of its property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group might not be recoverable. Assets are grouped at the lowest level for which identifiable cash flows are largely independent when testing for, and measuring for, impairment. In performing its review of recoverability, the Company estimates the future cash flows expected to result from the use of the asset or asset group and its eventual disposition. If the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset or asset group, an impairment loss is recognized in the consolidated statements of operations. Measurement of the impairment loss is based on the excess of the carrying amount of the asset or asset group over the fair value calculated using discounted expected future cash flows.
A liability for the fair value of an asset retirement obligation associated with the retirement of tangible long-lived assets and the associated asset retirement costs are recognized in the period in which the liability and costs are incurred if a reasonable estimate of fair value can be made using a discounted cash flow model. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset and subsequently amortized over the asset’s useful life. The liability is accreted over the period to expected cash outflows.
Costs of producing films, including labor, allocated overhead, capitalized interest, and costs of acquiring film rights are recorded as film assets and accounted for in accordance with Entertainment-Films Topic of the FASB ASC. Production financing provided by third parties that acquire substantive rights in the film is recorded as a reduction of the cost of the production. Film assets are amortized and participation costs are accrued using the individual-film-forecast method in the same ratio that current gross revenues bear to current and anticipated future ultimate revenues. Estimates of ultimate revenues are prepared on a title-by-title basis and reviewed regularly by management and revised where necessary to reflect the most current information. Ultimate revenues for films include estimates of revenue over a period not to exceed ten years following the date of initial release.
Film exploitation costs, including advertising costs, are expensed as incurred.
Costs, including labor and allocated overhead, of digitally re-mastering films where the copyright is owned by a third party and the Company shares in the revenue of the third party are included in film assets. These costs are amortized using the individual-film-forecast method in the same ratio that current gross revenues bear to current and anticipated future ultimate revenues from the re-mastered film.
The recoverability of film assets is dependent upon commercial acceptance of the films. If events or circumstances indicate that the recoverable amount of a film asset is less than the unamortized film costs, the film asset is written down to its fair value. The Company determines the fair value of its film assets using a discounted cash flow model.
Inventories are carried at the lower of cost, determined on an average cost basis, and net realizable value except for raw materials, which are carried at the lower of cost and replacement cost. Finished goods and work-in-process include the cost of raw materials, direct labor, theater design costs, and an applicable share of manufacturing overhead costs.
The costs related to theater systems under sales and sales-type lease arrangements are relieved from inventory to costs and expenses applicable to revenues-equipment and product sales when revenue recognition criteria are met. The costs related to theater systems under operating lease arrangements and joint revenue sharing arrangements are transferred from inventory to assets under construction in property, plant and equipment when allocated to a signed joint revenue sharing arrangement or when the arrangement is first classified as an operating lease.
The Company records provisions for excess and obsolete inventory based upon current estimates of future events and conditions, including the anticipated installation dates for the current backlog of theater system contracts, technological developments, signings in negotiation, growth prospects within the customers’ ultimate marketplace and anticipated market acceptance of the Company’s current and pending theater systems.
Finished goods inventories can contain theater systems for which title has passed to the Company’s customer (as the theater system has been delivered to the customer) but the revenue recognition criteria as discussed in note 2(m) have not been met.
Allowances for doubtful accounts receivable are based on the Company’s assessment of the collectability of specific customer balances, which is based upon a review of the customer’s credit worthiness, past collection history and the underlying asset value of the equipment, where applicable. Interest on overdue accounts receivable is recognized as income as the amounts are collected.
For trade accounts receivable that have characteristics of both a contractual maturity of one year or less, and arose from the sale of other goods or services, the Company charges off the balance against the allowance for doubtful accounts when it is known that a provided amount will not be collected.
The Company monitors the performance of the theaters to which it has leased or sold theater systems which are subject to ongoing payments. When facts and circumstances indicate that there is a potential impairment in the net investment in lease or a financing receivable, the Company will evaluate the potential outcome of either a renegotiation involving changes in the terms of the receivable or defaults on the existing lease or financed sale agreements. The Company will record a provision if it is considered probable that the Company will be unable to collect all amounts due under the contractual terms of the arrangement or a renegotiated lease amount will cause a reclassification of the sales-type lease to an operating lease
When the net investment in lease or the financing receivable is impaired, the Company will recognize a provision for the difference between the carrying value in the investment and the present value of expected future cash flows discounted using the effective interest rate for the net investment in the lease or the financing receivable. If the Company expects to recover the theater system, the provision is equal to the excess of the carrying value of the investment over the fair value of the equipment.
When the minimum lease payments are renegotiated and the lease continues to be classified as a sales-type lease, the reduction in payments is applied to reduce unearned finance income.
These provisions are adjusted when there is a significant change in the amount or timing of the expected future cash flows or when actual cash flows differ from cash flow previously expected.
Once a net investment in lease or financing receivable is considered impaired, the Company does not recognize interest income until the collectability issues are resolved. When finance income is not recognized, any payments received are applied against outstanding gross minimum lease amounts receivable or gross receivables from financed sales. Once the collectability issues are resolved, the Company will once again commence the recognition of interest income.
The Company considers all highly liquid investments convertible to a known amount of cash and with an original maturity to the Company of three months or less to be cash equivalents.
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could be materially different from these estimates. Significant estimates made by management include, but are not limited to: selling prices associated with the individual elements in multiple element arrangements; residual values of leased theater systems; economic lives of leased assets; allowances for potential uncollectability of accounts receivable, financing receivables and net investment in leases; provisions for inventory obsolescence; ultimate revenues for film assets; impairment provisions for film assets, long-lived assets and goodwill; depreciable lives of property, plant and equipment; useful lives of intangible assets; pension plan assumptions; accruals for contingencies including tax contingencies; valuation allowances for deferred income tax assets; and, estimates of the fair value of stock-based payment awards.
The Company accounts for investments in new business ventures using the guidance of the FASB ASC 323 “Investments – Equity Method and Joint Ventures” (“ASC 323”) and ASC 320 “Investments in Debt and Equity Securities” (“ASC 320”), as appropriate.
The Company has evaluated its various variable interests to determine whether they are VIEs as required by the Consolidation Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC” or “Codification”).
The Company’s stock-based compensation generally includes stock options and restricted share units (“RSUs”). Stock-based compensation is recognized in accordance with the FASB ASC Topic 505, “Equity” and Topic 718, “Compensation-Stock Compensation.”
The Company estimates the fair value of stock option awards on the date of grant using fair value measurement techniques such as an option-pricing model. The fair value of RSU awards is equal to the closing price of the Company’s common stock on the date of grant. The value of the portion of the employee award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s consolidated statement of operations.
The Company utilizes a lattice-binomial option-pricing model (“Binomial Model”) to determine the fair value of stock option awards. The fair value determined by the Binomial Model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The Binomial Model also considers the expected exercise multiple which is the multiple of exercise price to grant price at which exercises are expected to occur on average. Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable. Because the Company’s employee stock options have certain characteristics that are significantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, in management’s opinion, the Binomial Model best provides a fair measure of the fair value of the Company’s employee stock options. See note 14(c) for the assumptions used to determine the fair value of stock-based payment awards.
Stock-based compensation expense includes compensation cost for employee stock-based payment awards granted and all modified, repurchased or cancelled employee awards. In addition, compensation expense includes the compensation cost, based on the grant-date fair value calculated for pro forma disclosures under ASC 718-10-55, for the portion of awards for which required service had not been rendered that were outstanding. Compensation expense for these employee awards is recognized using the straight-line single-option method. Stock-based compensation expense is not adjusted for estimated forfeitures, but instead adjusted upon an actual forfeiture of a stock option or RSU award. The Company utilizes the market yield on U.S. treasury securities (also known as nominal rate) over the contractual term of the instrument being issued.
Stock Options
As the Company stratifies its employees into homogeneous groups in order to calculate fair value under the Binomial Model, ranges of assumptions used are presented for expected option life. The Company uses historical data to estimate option exercise within the valuation model; various groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected volatility rate is estimated based on a blended volatility method which takes into consideration the Company’s historical share price volatility, the Company’s implied volatility which is implied by the observed current market prices of the Company’s traded options and the Company’s peer group volatility. The Company utilizes the Binomial Model to determine expected option life based on such data as vesting periods of awards, historical data that includes past exercise and post-vesting cancellations and stock price history.
The Company’s policy is to issue new common shares from treasury or shares purchased in the open market to satisfy stock options which are exercised.
Restricted Share Units
The Company’s RSUs have been classified as equity in accordance with Topic 505. The fair value of RSU awards is equal to the closing price of the Company’s common stock on the date of grant.
Awards to Non-Employees
Stock-based awards for services provided by non-employees are accounted for based on the fair value of the services received or the stock-based award, whichever is more reliably determinable. If the fair value of the stock-based award is used, the fair value is measured at the date of the award and remeasured until the earlier of the date that the Company has a performance commitment from the non-employees, the date performance is completed, or the date the awards vest.
2. Summary of Significant Accounting Policies
Significant accounting policies are summarized as follows:
The Company prepares its consolidated financial statements in accordance with U.S. GAAP.
The consolidated financial statements include the accounts of the Company together with its consolidated subsidiaries, except for subsidiaries which the Company has identified as variable interest entities (“VIEs”) where the Company is not the primary beneficiary.
The Company has 11 film and content related companies that are VIEs. For five of the Company’s film production companies, the Company has determined that it is the primary beneficiary of these entities as the Company has the power to direct the activities of the respective VIE that most significantly impact the respective VIE’s economic performance and has the obligation to absorb losses of the VIE that could potentially be significant to the respective VIE or the right to receive benefits from the respective VIE that could potentially be significant to the respective VIE. The majority of these consolidated assets are held by the IMAX Original Film Fund (the “Original Film Fund”) and the virtual reality fund (the “VR Fund”) as described in note 21(b). For the other six film production companies which are VIEs, the Company did not consolidate these film entities since it does not have the power to direct activities and does not absorb the majority of the expected losses or expected residual returns. The Company equity accounts for these entities. A loss in value of an investment other than a temporary decline is recognized as a charge to the consolidated statements of operations.
Total assets and liabilities of the Company's consolidated VIEs are as follows:
December 31, |
| December 31, |
| |||
| 2017 |
| 2016 |
| ||
|
|
|
|
|
|
|
Total assets | $ | 7,539 |
| $ | 10,346 |
|
Total liabilities |
| 7,178 |
|
| 6,368 |
|
Total assets and liabilities of the VIE entities which the Company does not consolidate are as follows:
December 31, |
| December 31, |
| |||
| 2017 |
| 2016 |
| ||
|
|
|
|
|
|
|
Total assets | $ | 448 |
| $ | 444 |
|
Total liabilities |
| 388 |
|
| 363 |
|
The Company’s exposure, which is determined based on the level of funding contributed by the Company and the development stage of the respective film, is $nil at December 31, 2017 (2016 — $nil).
All intercompany accounts and transactions, including all unrealized intercompany profits on transactions with equity-accounted investees, have been eliminated.
For trade accounts receivable that have characteristics of both a contractual maturity of one year or less, and arose from the sale of other goods or services, the Company charges off the balance against the allowance for doubtful accounts when it is known that a provided amount will not be collected.
When the minimum lease payments are renegotiated and the lease continues to be classified as a sales-type lease, the reduction in payments is applied to reduce unearned finance income.
These provisions are adjusted when there is a significant change in the amount or timing of the expected future cash flows or when actual cash flows differ from cash flow previously expected.
Once a net investment in lease or financing receivable is considered impaired, the Company does not recognize interest income until the collectability issues are resolved. When finance income is not recognized, any payments received are applied against outstanding gross minimum lease amounts receivable or gross receivables from financed sales. Once the collectability issues are resolved, the Company will once again commence the recognition of interest income.
The costs related to theater systems under sales and sales-type lease arrangements are relieved from inventory to costs and expenses applicable to revenues-equipment and product sales when revenue recognition criteria are met. The costs related to theater systems under operating lease arrangements and joint revenue sharing arrangements are transferred from inventory to assets under construction in property, plant and equipment when allocated to a signed joint revenue sharing arrangement or when the arrangement is first classified as an operating lease.
The Company records provisions for excess and obsolete inventory based upon current estimates of future events and conditions, including the anticipated installation dates for the current backlog of theater system contracts, technological developments, signings in negotiation, growth prospects within the customers’ ultimate marketplace and anticipated market acceptance of the Company’s current and pending theater systems.
Finished goods inventories can contain theater systems for which title has passed to the Company’s customer (as the theater system has been delivered to the customer) but the revenue recognition criteria as discussed in note 2(m) have not been met.
Film exploitation costs, including advertising costs, are expensed as incurred.
Costs, including labor and allocated overhead, of digitally re-mastering films where the copyright is owned by a third party and the Company shares in the revenue of the third party are included in film assets. These costs are amortized using the individual-film-forecast method in the same ratio that current gross revenues bear to current and anticipated future ultimate revenues from the re-mastered film.
The recoverability of film assets is dependent upon commercial acceptance of the films. If events or circumstances indicate that the recoverable amount of a film asset is less than the unamortized film costs, the film asset is written down to its fair value. The Company determines the fair value of its film assets using a discounted cash flow model.
Theater system components(1) | — | over the equipment’s anticipated useful life (7 to 20 years) |
Camera equipment | — | 5 to 10 years |
Buildings | — | 20 to 25 years |
Office and product equipment | — | 3 to 5 years |
Leasehold improvements | — | over the shorter of the initial term of the underlying leases plus any |
|
| reasonably assured renewal terms, and the useful life of the asset |
______________
(1) | Includes equipment under joint revenue sharing arrangements. |
Equipment and components allocated to be used in future operating leases and joint revenue sharing arrangements, as well as direct labor costs and an allocation of direct production costs, are included in assets under construction until such equipment is installed and in working condition, at which time the equipment is depreciated on a straight-line basis over the lesser of the term of the joint revenue sharing arrangement and the equipment’s anticipated useful life.
The Company reviews the carrying values of its property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group might not be recoverable. Assets are grouped at the lowest level for which identifiable cash flows are largely independent when testing for, and measuring for, impairment. In performing its review of recoverability, the Company estimates the future cash flows expected to result from the use of the asset or asset group and its eventual disposition. If the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset or asset group, an impairment loss is recognized in the consolidated statements of operations. Measurement of the impairment loss is based on the excess of the carrying amount of the asset or asset group over the fair value calculated using discounted expected future cash flows.
A liability for the fair value of an asset retirement obligation associated with the retirement of tangible long-lived assets and the associated asset retirement costs are recognized in the period in which the liability and costs are incurred if a reasonable estimate of fair value can be made using a discounted cash flow model. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset and subsequently amortized over the asset’s useful life. The liability is accreted over the period to expected cash outflows.
Costs of debt financing are deferred and amortized over the term of the debt using the effective interest method.
Selling costs related to an arrangement incurred prior to recognition of the related revenue are deferred and expensed to costs and expenses applicable to revenues upon: (i) recognition of the contract’s theater system revenue; or (ii) abandonment of the sale arrangement.
Foreign currency derivatives are accounted for at fair value using quoted prices in closed exchanges (Level 2 input in accordance with the Fair Value Measurements Topic of the FASB ASC hierarchy).
The Company may provide lease incentives to certain exhibitors which are essential to entering into the respective lease arrangement. Lease incentives include payments made to or on behalf of the exhibitor. These lease incentives are recognized as a reduction in rental revenue on a straight-line basis over the term of the lease.
Investments in new business ventures are accounted for using ASC 323 as described in note 2(a). The Company currently accounts for its joint venture investment with TCL Multimedia Technology Holdings Limited (“TCL”), using the equity method of accounting. The Company accounts for in-kind contributions to its equity investment in accordance with ASC 845 “Non-Monetary Transactions” (“ASC 845”) whereby if the fair value of the asset or assets contributed is greater than the carrying value a partial gain shall be recognized.
The Company’s investment in debt securities is classified as an available-for-sale investment in accordance with ASC 320. Unrealized holding gains and losses for this investment is excluded from earnings and reported in other comprehensive income until realized. Realization occurs upon sale of a portion of or the entire investment. The investment is impaired if the fair value is less than cost, which is assessed in each reporting period. When the Company intends to sell a specifically identified beneficial interest, a write-down for other-than-temporary impairment shall be recognized in earnings.
The Company’s investment in preferred shares, which meets the criteria for classification as an equity security in accordance with ASC 325, is accounted for at cost. The Company records the related warrants at fair value upon recognition date. Warrants are recognized over the term of the agreement.
The Company reviews the carrying values of its other intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group might not be recoverable. Assets are grouped at the lowest level for which identifiable cash flows are largely independent when testing for, and measuring for, impairment. In performing its review for recoverability, the Company estimates the future cash flows expected to result from the use of the asset or asset group and its eventual disposition. If the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset or asset group, an impairment loss is recognized in the consolidated statement of operations. Measurement of the impairment loss is based on the excess of the carrying amount of the asset or asset group over the fair value calculated using discounted expected future cash flows.
The Company assesses realization of deferred income tax assets and, based on all available evidence, concludes whether it is more likely than not that the net deferred income tax assets will be realized. A valuation allowance is provided for the amount of deferred income tax assets not considered to be realizable.
The Company is subject to ongoing tax exposures, examinations and assessments in various jurisdictions. Accordingly, the Company may incur additional tax expense based upon the outcomes of such matters. In addition, when applicable, the Company adjusts tax expense to reflect the Company’s ongoing assessments of such matters which require judgment and can materially increase or decrease its effective rate as well as impact operating results. The Company provides for such exposures in accordance with the Income Taxes Topic of the FASB ASC.
The Company’s revenue arrangements with certain customers may involve multiple elements consisting of a theater system (projector, sound system, screen system and, if applicable, 3D glasses cleaning machine); services associated with the theater system including theater design support, supervision of installation, and projectionist training; a license to use the IMAX brand; 3D glasses; maintenance and extended warranty services; and licensing of films. The Company evaluates all elements in an arrangement to determine what are considered deliverables for accounting purposes and which of the deliverables represent separate units of accounting based on the applicable accounting guidance in the Leases Topic of the FASB ASC; the Guarantees Topic of the FASB ASC; the Entertainment – Films Topic of FASB ASC; and the Revenue Recognition Topic of the FASB. If separate units of accounting are either required under the relevant accounting standards or determined to be applicable under the Revenue Recognition Topic, the total consideration received or receivable in the arrangement is allocated based on the applicable guidance in the above noted standards.
Theater Systems
The Company has identified the projection system, sound system, screen system and, if applicable, 3D glasses cleaning machine, theater design support, supervision of installation, projectionist training and the use of the IMAX brand to be a single deliverable and a single unit of accounting (the “System Deliverable”). When an arrangement does not include all the elements of a System Deliverable, the elements of the System Deliverable included in the arrangement are considered by the Company to be a single deliverable and a single unit of accounting. The Company is not responsible for the physical installation of the equipment in the customer’s facility; however, the Company supervises the installation by the customer. The customer has the right to use the IMAX brand from the date the Company and the customer enter into an arrangement.
The Company’s System Deliverable arrangements involve either a lease or a sale of the theater system. Consideration for the System Deliverable, other than for those delivered pursuant to joint revenue sharing arrangements, consist of upfront or initial payments made before and after the final installation of the theater system equipment and ongoing payments throughout the term of the lease or over a period of time, as specified in the arrangement. The ongoing payments are the greater of an annual fixed minimum amount or a certain percentage of the theater box-office. Amounts received in excess of the annual fixed minimum amounts are considered contingent payments. The Company’s arrangements are non-cancellable, unless the Company fails to perform its obligations. In the absence of a material default by the Company, there is no right to any remedy for the customer under the Company’s arrangements. If a material default by the Company exists, the customer has the right to terminate the arrangement and seek a refund only if the customer provides notice to the Company of a material default and only if the Company does not cure the default within a specified period.
For arrangements entered into or materially modified after January 1, 2011, consideration is allocated to each unit of accounting based on the unit’s relative selling prices. The Company uses vender-specific objective evidence of selling price (VSOE) when the Company sells the deliverable separately and is the price actually charged by the Company for that deliverable. VSOE is established for the Company’s System Deliverable, maintenance and extended warranty services and film license arrangements. The Company uses a best estimate of selling price (BESP) for units of accounting that do not have VSOE or third-party evidence of selling price. The Company determines BESP for a deliverable by considering multiple factors including the Company’s historical pricing practices, product class, market competition and geography.
Sales Arrangements
For arrangements qualifying as sales, the revenue allocated to the System Deliverable is recognized in accordance with the Revenue Recognition Topic of the FASB ASC, when all of the following conditions have been met: (i) the projector, sound system and screen system have been installed and are in full working condition, (ii) the 3D glasses cleaning machine, if applicable, has been delivered, (iii) projectionist training has been completed and (iv) the earlier of (a) receipt of written customer acceptance certifying the completion of installation and run-in testing of the equipment and the completion of projectionist training or (b) public opening of the theater, provided there is persuasive evidence of an arrangement, the price is fixed or determinable and collectability is reasonably assured.
The initial revenue recognized consists of the initial payments received and the present value of any future initial payments and fixed minimum ongoing payments that have been attributed to this unit of accounting. Contingent payments in excess of the fixed minimum ongoing payments are recognized when reported by theater operators, provided collectability is reasonably assured.
The Company has also agreed, on occasion, to sell equipment under lease or at the end of a lease term. Consideration agreed to for these lease buyouts is included in revenues from equipment and product sales, when persuasive evidence of an arrangement exists, the fees are fixed or determinable, collectability is reasonably assured and title to the theater system passes from the Company to the customer.
Lease Arrangements
For lease arrangements, the Company determines the classification of the lease in accordance with the Lease Topic of FASB ASC. A lease arrangement that transfers substantially all of the benefits and risks incident to ownership of the equipment is classified as a sales-type lease based on the criteria established by the accounting standard; otherwise the lease is classified as an operating lease. Prior to commencement of the lease term for the equipment, the Company may modify certain payment terms or make concessions. If these circumstances occur, the Company reassesses the classification of the lease based on the modified terms and conditions.
For sales-type leases, the revenue allocated to the System Deliverable is recognized when the lease term commences, which the Company deems to be when all of the following conditions have been met: (i) the projector, sound system and screen system have been installed and are in full working condition; (ii) the 3D glasses cleaning machine, if applicable, has been delivered; (iii) projectionist training has been completed; and (iv) the earlier of (a) receipt of the written customer acceptance certifying the completion of installation and run-in testing of the equipment and the completion of projectionist training or (b) public opening of the theater, provided collectability is reasonably assured.
The initial revenue recognized for sales-type leases consists of the initial payments received and the present value of future initial payments and fixed minimum ongoing payments computed at the interest rate implicit in the lease. Contingent payments in excess of the fixed minimum payments are recognized when reported by theater operators, provided collectability is reasonably assured.
For operating leases, initial payments and fixed minimum ongoing payments are recognized as revenue on a straight-line basis over the lease term. For operating leases, the lease term is considered to commence when all of the following conditions have been met: (i) the projector, sound system and screen system have been installed and in full working condition; (ii) the 3D glasses cleaning machine, if applicable, has been delivered; (iii) projectionist training has been completed; and (iv) the earlier of (a) receipt of written customer acceptance certifying the completion of installation and run-in testing of the equipment and the completion of projectionist training or (b) public opening of the theater. Contingent payments in excess of fixed minimum ongoing payments are recognized as revenue when reported by theater operators, provided collectability is reasonably assured.
Revenues from joint revenue sharing arrangements with upfront payments that qualify for classification as sales and sales-type leases are recognized in accordance with the sales and sales-type lease criteria discussed above. Contingent revenues from joint revenue sharing arrangements are recognized as box-office results and concessions revenues are reported by the theater operator, provided collectability is reasonably assured.
Finance Income
Finance income is suspended when the Company identifies a theater that is delinquent, non-responsive or not negotiating in good faith with the Company. Once the collectability issues are resolved the Company will resume recognition of finance income.
Improvements and Modifications
Improvements and modifications to the theater system after installation are treated as separate revenue transactions, if and when the Company is requested to perform these services. Revenue is recognized for these services when the performance of the services has been completed, provided there is persuasive evidence of an arrangement, the fee is fixed or determinable and collectability is reasonably assured.
Cost of Equipment and Product Sales
Cost of Rentals
Terminations, Consensual Buyouts and Concessions
In addition, the Company could agree with customers to convert their obligations for other theater system configurations that have not yet been installed to arrangements to acquire or lease the IMAX digital theater system. The Company considers these situations to be a termination of the previous arrangement and origination of a new arrangement for the IMAX digital theater system. For all arrangements entered into or modified prior to the date of adoption of the amended FASB ASC 605-25, the Company continues to defer an amount of any initial fees received from the customer such that the aggregate of the fees deferred and the net present value of the future fixed initial and ongoing payments to be received from the customer equals the selling price of the IMAX digital theater system to be leased or acquired by the customer. Any residual portion of the initial fees received from the customer for the terminated theater system is recorded in other revenues at the time when the obligation for the original theater system is terminated and the new theater system arrangement is signed. Under the amended FASB ASC 605-25, for all arrangements entered into or materially modified after the date of adoption, the total arrangement consideration to be received is allocated on a relative selling price basis to the digital upgrade and the termination of the previous theater system. The arrangement consideration allocated to the termination of the existing arrangement is recorded in Other revenues at the time when the obligation for the original theater system is terminated and the new theater system arrangement is signed.
The Company may offer certain incentives to customers to complete theater system transactions including payment concessions or free services and products such as film licenses or 3D glasses. Reductions in, and deferral of, payments are taken into account in determining the sales price either by a direct reduction in the sales price or a reduction of payments to be discounted in accordance with the Leases or Interests Topic of the FASB ASC. Free products and services are accounted for as separate units of accounting. Other consideration given by the Company to customers are accounted for in accordance with the Revenue Recognition Topic of the FASB ASC.
Maintenance and Extended Warranty Services
Film Production and IMAX DMR Services
In certain film arrangements, the Company produces a film financed by third parties whereby the third party retains the copyright and the Company obtains exclusive distribution rights. Under these arrangements, the Company is entitled to receive a fixed fee or to retain as a fee the excess of funding over cost of production (the “production fee”). The third parties receive a portion of the revenues received by the Company from distributing the film, which is charged to costs and expenses applicable to revenues-services. The production fees are deferred, and recognized as a reduction in the cost of the film based on the ratio of the Company’s distribution revenues recognized in the current period to the ultimate distribution revenues expected from the film. Film exploitation costs, including advertising and marketing totaled $15.4 million in 2017 (2016 — $17.5 million; 2015 — $13.3 million) and are recorded in costs and expenses applicable to revenues-services as incurred.
Revenue from film production services where the Company does not hold the associated distribution rights are recognized in Services revenues when performance of the contractual service is complete, provided there is persuasive evidence of an agreement, the fee is fixed or determinable and collectability is reasonably assured.
Revenues from digitally re-mastering (IMAX DMR) films where third parties own or hold the copyrights and the rights to distribute the film are derived in the form of processing fees and recoupments calculated as a percentage of box-office receipts generated from the re-mastered films. Processing fees are recognized as Services revenues when the performance of the related re-mastering service is completed provided there is persuasive evidence of an arrangement, the fee is fixed or determinable and collectability is reasonably assured. Recoupments, calculated as a percentage of box-office receipts, are recognized as Services revenue when box-office receipts are reported by the third party that owns or holds the related film rights, provided collectability is reasonably assured.
Losses on film production and IMAX DMR services are recognized as costs and expenses applicable to revenues-services in the period when it is determined that the Company’s estimate of total revenues to be realized by the Company will not exceed estimated total production costs to be expended on the film production and the cost of IMAX DMR services.
Film Distribution
Revenue from the licensing of films is recognized in Services revenues when persuasive evidence of a licensing arrangement exists, the film has been completed and delivered, the license period has begun, the fee is fixed or determinable and collectability is reasonably assured. When license fees are based on a percentage of box-office receipts, revenue is recognized when box-office receipts are reported by exhibitors, provided collectability is reasonably assured. Film exploitation costs, including advertising and marketing, totaled a recovery of $0.7 million in 2017 (2016 — expense of $2.2 million; 2015 — recovery of $0.1 million) and are recorded in costs and expenses applicable to revenues-services as incurred.
Film Post-Production Services
Revenues from post-production film services are recognized in Services revenues when performance of the contracted services is complete provided there is persuasive evidence of an arrangement, the fee is fixed or determinable and collectability is reasonably assured.
Other
In addition, the Company enters into commercial arrangements with third party theater owners resulting in the sharing of profits and losses which are recognized in Services revenues when reported by such theaters. The Company also provides management services to certain theaters and recognizes revenue over the term of such services.
Revenues on camera rentals are recognized in Rental revenues over the rental period.
Revenue from the sale of 3D glasses is recognized in Equipment and product sales revenue when the 3D glasses have been delivered to the customer.
Other service revenues are recognized in Service revenues when the performance of contracted services is complete.
Foreign currency derivatives are recognized and measured in the balance sheet at fair value. Changes in the fair value (gains or losses) are recognized in the consolidated statement of operations except for derivatives designated and qualifying as foreign currency hedging instruments. For foreign currency hedging instruments, the effective portion of the gain or loss in a hedge of a forecasted transaction is reported in other comprehensive income (loss) and reclassified to the consolidated statement of operations when the forecasted transaction occurs. Any ineffective portion is recognized immediately in the consolidated statement of operations.
The Company estimates the fair value of stock option awards on the date of grant using fair value measurement techniques such as an option-pricing model. The fair value of RSU awards is equal to the closing price of the Company’s common stock on the date of grant. The value of the portion of the employee award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s consolidated statement of operations.
The Company utilizes a lattice-binomial option-pricing model (“Binomial Model”) to determine the fair value of stock option awards. The fair value determined by the Binomial Model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The Binomial Model also considers the expected exercise multiple which is the multiple of exercise price to grant price at which exercises are expected to occur on average. Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable. Because the Company’s employee stock options have certain characteristics that are significantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, in management’s opinion, the Binomial Model best provides a fair measure of the fair value of the Company’s employee stock options. See note 14(c) for the assumptions used to determine the fair value of stock-based payment awards.
Stock-based compensation expense includes compensation cost for employee stock-based payment awards granted and all modified, repurchased or cancelled employee awards. In addition, compensation expense includes the compensation cost, based on the grant-date fair value calculated for pro forma disclosures under ASC 718-10-55, for the portion of awards for which required service had not been rendered that were outstanding. Compensation expense for these employee awards is recognized using the straight-line single-option method. Stock-based compensation expense is not adjusted for estimated forfeitures, but instead adjusted upon an actual forfeiture of a stock option or RSU award. The Company utilizes the market yield on U.S. treasury securities (also known as nominal rate) over the contractual term of the instrument being issued.
Stock Options
As the Company stratifies its employees into homogeneous groups in order to calculate fair value under the Binomial Model, ranges of assumptions used are presented for expected option life. The Company uses historical data to estimate option exercise within the valuation model; various groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected volatility rate is estimated based on a blended volatility method which takes into consideration the Company’s historical share price volatility, the Company’s implied volatility which is implied by the observed current market prices of the Company’s traded options and the Company’s peer group volatility. The Company utilizes the Binomial Model to determine expected option life based on such data as vesting periods of awards, historical data that includes past exercise and post-vesting cancellations and stock price history.
The Company’s policy is to issue new common shares from treasury or shares purchased in the open market to satisfy stock options which are exercised.
Restricted Share Units
The Company’s RSUs have been classified as equity in accordance with Topic 505. The fair value of RSU awards is equal to the closing price of the Company’s common stock on the date of grant.
Awards to Non-Employees
Stock-based awards for services provided by non-employees are accounted for based on the fair value of the services received or the stock-based award, whichever is more reliably determinable. If the fair value of the stock-based award is used, the fair value is measured at the date of the award and remeasured until the earlier of the date that the Company has a performance commitment from the non-employees, the date performance is completed, or the date the awards vest.
Assumptions used in computing the defined benefit obligations are reviewed annually by management in consultation with its actuaries and adjusted for current conditions. Actuarial gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefits cost are recognized as a component of other comprehensive income. Amounts recognized in accumulated other comprehensive income including unrecognized actuarial gains or losses and prior service costs are adjusted as they are subsequently recognized in the consolidated statement of operations as components of net periodic benefit cost. Prior service costs resulting from the pension plan inception or amendments are amortized over the expected future service life of the employees, cumulative actuarial gains and losses in excess of 10% of the projected benefit obligation are amortized over the expected average remaining service life of the employees, and current service costs are expensed when earned. The remaining weighted average future service life of the employee used in computing the defined benefit obligation for the year ended December 31, 2017 was 2.0 years.
For defined contribution pension plans, required contributions by the Company are recorded as an expense.
A liability is recognized for the unfunded accumulated benefit obligation of the postretirement benefits plan. Assumptions used in computing the accumulated benefit obligation are reviewed by management in consultation with its actuaries and adjusted for current conditions. Current service cost is recognized as incurred and actuarial gains and losses are recognized as a component of other comprehensive income (loss). Amounts recognized in accumulated other comprehensive income (loss) including unrecognized actuarial gains or losses are adjusted as they are subsequently recognized in the consolidated statement of operations as components of net periodic benefit cost.
Recently Issued FASB Accounting Standard Codification Updates
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). The purpose of the amendment is to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. New disclosures will include qualitative and quantitative requirements to provide additional information about the amounts recorded in the financial statements. Lessor accounting will remain largely unchanged from current guidance; however, ASU 2016-02 will provide improvements that are intended to align lessor accounting with the lessee model and with updated revenue recognition guidance. For public entities, the amendments in ASU 2016-02 are effective for interim and annual reporting periods beginning after December 15, 2018. As a lessor, the Company has a significant portion of its revenue derived from leases, including its joint revenue sharing arrangements, and while the lessor accounting model is not fundamentally different, the Company continues to evaluate the effect of the standard on this revenue stream.
In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” (“ASU 2016-10”). The purpose of ASU 2016-10 is to provide more detailed guidance in the following key areas: identifying performance obligations and licenses of intellectual property.
In May 2016, the FASB issued ASU No. 2016-11, to rescind from the FASB Accounting Standards Codification certain SEC paragraphs as a result of two SEC Staff Announcements at the March 3, 2016 meeting.
In May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”). The purpose of ASU 2016-12 is to clarify certain narrow aspects of Topic 606 such as assessing the collectability criterion, presentation of sales taxes and other similar taxes collected from customers, noncash consideration, contract modifications at transition, completed contracts at transition, and technical corrections.
In December 2016, the FASB issued ASU No. 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers”. The amendments in ASU 2016-20 represent changes to clarify the accounting standard codification, correct unintended application of guidance, or make minor improvements to the accounting standards codification that are related to Topic 606, Revenue from Contracts with Customers.
In November 2017, the FASB issued ASU No. 2017-14, to eliminate or amend from the FASB Accounting Standards Codification Topic 220, Topic 605 and Topic 606 certain SEC paragraphs.
For public companies, ASU 2016-08, ASU 2016-10, ASU 2016-11, ASU 2016-12, ASU 2016-20, and ASU 2017-14 which are all related to Topic 606, are effective for interim and annual reporting periods beginning after December 15, 2017.
Effective January 1, 2018, for the 2018 fiscal year, the Company adopted Topic 606, “Revenue from Contracts with Customers” (ASC 606) utilizing the modified retrospective approach with a cumulative catch up adjustment and will provide additional disclosures comparing results to previous U.S. GAAP in its 2018 consolidated financial statements. The Company plans to apply the new revenue standard only to contracts not completed as of the date of initial application, referred to as open contracts. All system sales and maintenance contracts with the existing network of IMAX theaters and the backlog of sales contracts make up a significant majority of the Company’s open contracts at any point in time. DMR arrangements where the film continues to be shown by the Company’s exhibitor partners, film distribution arrangements with remaining terms, aftermarket sales orders that have been received but for which control of the assets has not yet transferred to the customer are all also considered open contracts.
The Company’s revenues from the sales of projection systems, provision of maintenance services, sale of aftermarket 3D glasses and parts, conversion of film content into the IMAX DMR format, distribution of documentary film content and the provision of post production services are within the scope of the standard. The Company’s joint revenue sharing revenue arrangements, with the exception of those where the title transfers to the customer prior to recognition of the system revenue (hybrid sales arrangements), are not in scope of the standard due to their classification as leases. Similarly, any system revenue transactions classified as sales-type leases are excluded from the provisions of the new standard.
The Company has assessed its performance obligations under its arrangements pursuant to ASC 606 and has concluded that there are no significant differences between the performance obligations required to be units of account under ASC 606 and the deliverables considered to be units of account under ASC 605. Specifically, the Company has concluded that its “System Deliverable”, which consists of a theater system (projector, sound system, screen system and, if applicable, 3D glasses cleaning machine); services associated with the theater system including theater design support, supervision of installation services, and projectionist training; a license to use the IMAX brand to market the theater; 3D glasses; maintenance and extended warranty services; and potentially the licensing of films. remains unchanged when considered under ASC 606.
Certain of the Company’s revenue streams will be impacted by the variable consideration provisions of the new standard. The arrangements for the sale of projection systems include indexed minimum payment increases over the term of the arrangement, as well as provision for additional payments in excess of the minimum agreed payments in situations where the theater exceeds certain box office thresholds. Both contract provisions constitute variable consideration under the new standard that, subject to constraints to ensure significant reversal of revenues do not occur, require estimation and recognition at the point of revenue recognition, which is at the earlier of client acceptance of the installation of the system, including projectionist training, and the theater’s opening to the public. As this variable consideration extends through the entire term of the arrangement, which typically last 10 years, the Company applies constraints to its estimates and recognizes the variable consideration on a discounted present value basis at recognition. Under the previous standard, these amounts were recognized as reported by exhibitors (or customers) in future periods.
In certain joint revenue sharing arrangements, specifically the Company’s hybrid sales arrangements, the Company’s arrangements call for sufficient upfront revenues to cover the cost of the arrangement, with monthly payments calculated based on the theater’s net box office earned. Title and control of the projection system transfer to the customer at the point of revenue recognition, which is the earlier of client acceptance of the theater installation, including projectionist training, and theater opening to the public. Under the new revenue recognition standard, the percentage payment is considered variable consideration that must be estimated and recognized at the time of initial revenue recognition. Using box office projections and the Company’s history with theater and box office experience, the Company estimates the amount of percentage payment earned over the life of the arrangement, subject to sufficient constraint such that there is not a risk of significant revenue reversal. Under the previous recognition standard, these amounts were recognized as reported by exhibitors (or customers) in future periods. As a result, the Company does not believe that hybrid sales arrangements should be considered as part of the Joint Revenue Sharing Arrangement segment since the revenue recognition patterns of the arrangements now very closely resemble those of the traditional sale arrangements.
The Company’s arrangements include a requirement for the provision of maintenance services over the life of the arrangement, subject to a consumer price index increase on renewal each year. Under the new standard, the Company has included the future consideration from the provision of maintenance services in the relative selling price calculation at revenue recognition. The amount allocated to maintenance services is deferred and recognized over the full life of the arrangement. As the maintenance services are a stand ready obligation revenue is recognized evenly over time, which is consistent with past treatment. Under the previous recognition standard, only the first year’s extended warranty and maintenance services included as part of the upfront consideration received by the Company was included in the relative selling price allocation to determine the allocation of consideration between deliverables, while the future years maintenance services were recognized and amortized over each year’s renewal term. The Company does not expect a significant change in the allocation of consideration between performance obligations to arise as a result of this change.
The DMR and Film Distribution revenue streams fall under the variable consideration exemption for sales- or usage-based royalties. While the Company does not hold rights to the intellectual property in the form of the film content, the Company is being reimbursed for the application of its intellectual property in the form of its patented DMR processes used in the creation of new intellectual property in the form of an IMAX DMR version of film. The Company’s Film Distribution revenues are strictly from the license of its intellectual property in the form of documentary film content to which the Company holds distribution rights.
The Company’s remaining revenue streams are not significantly impacted by the new standard. The Company’s balance sheet will require adjustment for contract assets and liabilities arising from the variable consideration calculations noted above.
At this point, the Company is in the process of calculating the opening retained earnings impacts of the above. The Company is implementing changes to its revenue accounting system, processes and internal controls over revenue recognition as part of the adoption of the new standard.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). The purpose of ASU 2016-13 is to require a financial asset measured on the amortized cost basis to be presented at the net amount expected to be collected. Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. For public entities, the amendments in ASU 2016-13 are effective for interim and annual reporting periods beginning after December 15, 2019. The Company is currently assessing the impact of ASU 2016-13 on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU 2017-01”). The purpose of the amendment is to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. For public entities, the amendments in ASU 2017-01 are effective for interim and annual reporting periods beginning after December 15, 2017. The adoption of this standard in January 2018 did not have a material impact to the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). The purpose of the amendment is to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. For public entities, the amendments in ASU 2017-04 are effective for interim and annual reporting periods beginning after December 15, 2019. The Company is currently assessing the impact of ASU 2017-04 on its consolidated financial statements.
In March 2017, the FASB issued ASU No. 2017-07, “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (“ASU 2017-07”). The amendment requires the service cost component of net periodic benefit cost be presented in the same income statement line item as other employee compensation costs arising from services rendered during the period and other components of the net periodic benefit cost be presented separately from the line item that includes the service cost and outside of any subtotal of operating income. For public entities, the amendments in ASU 2017-07 are effective for interim and annual reporting periods beginning after December 15, 2017. The adoption of this standard in January 2018 did not have a material impact to the Company’s consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09, “Compensation - Stock compensation (Topic 718): Scope of modification accounting” (“ASU 2017-09”). The purpose of the amendment is to clarify which changes to the terms or condition of a share-based payment award require an entity to apply modification accounting. For all entities that offer share based payment awards, ASU 2017-09 are effective for interim and annual reporting periods beginning after December 15, 2017. The adoption of this standard in January 2018 did not have a material impact to the Company’s consolidated financial statements.
In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815)”. The purpose of the amendment is to better align the results of cash flow and fair value hedge accounting with risk management activities through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results in the financial statements. For public entities, the amendments in ASU 2017-12 are effective for interim and annual reporting periods beginning after December 15, 2018. The Company is currently assessing the impact of ASU 2017-12 on its consolidated financial statements.
The Company considers the applicability and impact of all recently issued FASB accounting standard codification updates. Accounting standards updates that are not noted above were assessed and determined to be not applicable or not significant to the Company’s consolidated financial statements for the period ended December 31, 2017.
Adoption of New Accounting Policies
The Company adopted several standards on January 1, 2017, which are effective for annual periods ending after December 31, 2016, and for annual and interim periods thereafter, which did not have a material impact on its consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740)”. The purpose of ASU 2016-16 is to eliminate the exception for an intra-entity transfer of an asset other than inventory. The amendments require the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The Company elected to early adopt ASU 2016-16 during the first quarter of 2017. The impact from the adoption was reflected in the Company’s consolidated financial statements on a modified retrospective basis resulting in an increase to Accumulated deficit of $8.3 million, a decrease to Other assets of $14.8 million, an increase to Deferred taxes of $7.9 million and an increase to Accrued and other liabilities of $1.4 million
Future minimum rental payments receivable from operating and sales-type leases at December 31, 2017, for each of the next five years are as follows:
Operating Leases |
| Sales-Type Leases | |||
2018 | $ | 484 |
| $ | 1,503 |
2019 |
| 166 |
|
| 1,456 |
2020 |
| 69 |
|
| 1,331 |
2021 |
| 69 |
|
| 1,306 |
2022 |
| 70 |
|
| 899 |
Thereafter |
| 215 |
|
| 1,655 |
Total | $ | 1,073 |
| $ | 8,150 |
Contingent fees that meet the Company’s revenue recognition policy, from customers under various theater system arrangements, have been reported in revenue as follows:
Years Ended December 31, | ||||||||
| 2017 |
| 2016 |
| 2015 | |||
Sales | $ | 2,613 |
| $ | 3,308 |
| $ | 2,492 |
Sales-type leases |
| 53 |
|
| 375 |
|
| 363 |
Operating leases |
| 185 |
|
| 602 |
|
| 901 |
Subtotal - sales, sales-type leases and operating leases |
| 2,851 |
|
| 4,285 |
|
| 3,756 |
Joint revenue sharing arrangements |
| 70,779 |
|
| 73,976 |
|
| 82,016 |
| $ | 73,630 |
| $ | 78,261 |
| $ | 85,772 |
Financing receivables, consisting of net investment in sales-type leases and receivables from financed sales of theater systems are as follows:
As at December 31, | |||||
| 2017 |
| 2016 | ||
Gross minimum lease payments receivable | $ | 8,537 |
| $ | 10,466 |
Unearned finance income |
| (1,147) |
|
| (1,710) |
Minimum lease payments receivable |
| 7,390 |
|
| 8,756 |
Accumulated allowance for uncollectible amounts |
| (155) |
|
| (672) |
Net investment in leases |
| 7,235 |
|
| 8,084 |
Gross financed sales receivables |
| 162,522 |
|
| 154,301 |
Unearned finance income |
| (39,341) |
|
| (39,766) |
Financed sales receivables |
| 123,181 |
|
| 114,535 |
Accumulated allowance for uncollectible amounts |
| (922) |
|
| (494) |
Net financed sales receivables |
| 122,259 |
|
| 114,041 |
Total financing receivables | $ | 129,494 |
| $ | 122,125 |
|
|
|
|
|
|
Net financed sales receivables due within one year | $ | 25,455 |
| $ | 21,980 |
Net financed sales receivables due after one year | $ | 96,804 |
| $ | 92,061 |
4. Lease Arrangements
A number of the Company’s leases are classified as sales-type leases. Certain arrangements that are legal sales are also classified as sales-type leases as certain clauses within the arrangements limit transfer of title or provide the Company with conditional rights to the system. The customer’s rights under the Company’s lease arrangements are described in note 2(m). The Company classifies its lease arrangements at inception of the arrangement and, if required, after a modification of the lease arrangement, to determine whether they are sales-type leases or operating leases. Under the Company’s lease arrangements, the customer has the ability and the right to operate the hardware components or direct others to operate them in a manner determined by the customer. The Company’s lease portfolio terms are typically non-cancellable for 10 to 20 years with renewal provisions from inception. Except for those sales arrangements that are classified as sales-type leases, the Company’s leases generally do not contain an automatic transfer of title at the end of the lease term. The Company’s lease arrangements do not contain a guarantee of residual value at the end of the lease term. The customer is required to pay for executory costs such as insurance and taxes and is required to pay the Company for maintenance and extended warranty generally after the first year of the lease until the end of the lease term. The customer is responsible for obtaining insurance coverage for the theater systems commencing on the date specified in the arrangement’s shipping terms and ending on the date the theater systems are delivered back to the Company.
The Company has assessed the nature of its joint revenue sharing arrangements and concluded that, based on the guidance in the Revenue Recognition Topic of the ASC, the arrangements contain a lease. Under joint revenue sharing arrangements, the customer has the ability and the right to operate the hardware components or direct others to operate them in a manner determined by the customer. The Company’s joint revenue sharing arrangements are typically non-cancellable for 10 years or longer with renewal provisions. Title to equipment under joint revenue sharing arrangements does not transfer to the customer. The Company’s joint revenue sharing arrangements do not contain a guarantee of residual value at the end of the term. The customer is required to pay for executory costs such as insurance and taxes and is required to pay the Company for maintenance and extended warranty throughout the term. The customer is responsible for obtaining insurance coverage for the theater systems commencing on the date specified in the arrangement’s shipping terms and ending on the date the theater systems are delivered back to the Company. See additional details regarding the Company’s traditional and hybrid joint revenue sharing arrangements as described in note 2(m).
As at December 31, | |||||
| 2017 |
| 2016 | ||
Gross minimum lease payments receivable | $ | 8,537 |
| $ | 10,466 |
Unearned finance income |
| (1,147) |
|
| (1,710) |
Minimum lease payments receivable |
| 7,390 |
|
| 8,756 |
Accumulated allowance for uncollectible amounts |
| (155) |
|
| (672) |
Net investment in leases |
| 7,235 |
|
| 8,084 |
Gross financed sales receivables |
| 162,522 |
|
| 154,301 |
Unearned finance income |
| (39,341) |
|
| (39,766) |
Financed sales receivables |
| 123,181 |
|
| 114,535 |
Accumulated allowance for uncollectible amounts |
| (922) |
|
| (494) |
Net financed sales receivables |
| 122,259 |
|
| 114,041 |
Total financing receivables | $ | 129,494 |
| $ | 122,125 |
|
|
|
|
|
|
Net financed sales receivables due within one year | $ | 25,455 |
| $ | 21,980 |
Net financed sales receivables due after one year | $ | 96,804 |
| $ | 92,061 |
In 2017, the financed sales receivables had a weighted average effective interest rate of 9.1% (2016 — 9.3%).
Years Ended December 31, | ||||||||
| 2017 |
| 2016 |
| 2015 | |||
Sales | $ | 2,613 |
| $ | 3,308 |
| $ | 2,492 |
Sales-type leases |
| 53 |
|
| 375 |
|
| 363 |
Operating leases |
| 185 |
|
| 602 |
|
| 901 |
Subtotal - sales, sales-type leases and operating leases |
| 2,851 |
|
| 4,285 |
|
| 3,756 |
Joint revenue sharing arrangements |
| 70,779 |
|
| 73,976 |
|
| 82,016 |
| $ | 73,630 |
| $ | 78,261 |
| $ | 85,772 |
Operating Leases |
| Sales-Type Leases | |||
2018 | $ | 484 |
| $ | 1,503 |
2019 |
| 166 |
|
| 1,456 |
2020 |
| 69 |
|
| 1,331 |
2021 |
| 69 |
|
| 1,306 |
2022 |
| 70 |
|
| 899 |
Thereafter |
| 215 |
|
| 1,655 |
Total | $ | 1,073 |
| $ | 8,150 |
Total future minimum rental payments receivable from sales-type leases at December 31, 2017 exclude $0.4 million which represents amounts billed but not yet received.
| As at December 31, | ||||
| 2017 |
| 2016 | ||
Raw materials | $ | 21,206 |
| $ | 28,000 |
Work-in-process |
| 2,601 |
|
| 3,818 |
Finished goods |
| 6,981 |
|
| 10,303 |
| $ | 30,788 |
| $ | 42,121 |
5. Inventories
As at December 31, | |||||
| 2017 |
| 2016 | ||
Raw materials | $ | 21,206 |
| $ | 28,000 |
Work-in-process |
| 2,601 |
|
| 3,818 |
Finished goods |
| 6,981 |
|
| 10,303 |
| $ | 30,788 |
| $ | 42,121 |
At December 31, 2017, finished goods inventory for which title had passed to the customer and revenue was deferred amounted to $4.9 million (December 31, 2016 — $2.3 million).
Inventories at December 31, 2017 include impairments and write-downs for excess and obsolete inventory based upon current estimates of net realizable value considering future events and conditions of $0.5 million (December 31, 2016 — $0.5 million).
| As at December 31, | |||||
|
| 2017 |
| 2016 | ||
Completed and released films, net of accumulated amortization of | $ | 3,467 |
| $ | 10,643 | |
| $158,155 (2016 ― $128,650) |
|
|
|
|
|
Films in production |
| 97 |
|
| 325 | |
Films in development |
| 1,462 |
|
| 5,554 | |
|
| $ | 5,026 |
| $ | 16,522 |
6. Film Assets
| As at December 31, | |||||
|
| 2017 |
| 2016 | ||
Completed and released films, net of accumulated amortization of | $ | 3,467 |
| $ | 10,643 | |
| $158,155 (2016 ― $128,650) |
|
|
|
|
|
Films in production |
| 97 |
|
| 325 | |
Films in development |
| 1,462 |
|
| 5,554 | |
|
| $ | 5,026 |
| $ | 16,522 |
The Company expects to amortize film costs of $3.4 million for released films within three years from December 31, 2017 (December 31, 2016 — $4.8 million), including $2.2 million, which reflects the portion of the costs of the Company’s completed films that are expected to be amortized within the next year. The amount of participation payments to third parties related to these films that the Company expects to pay during 2018, which is included in accrued liabilities at December 31, 2017, is $4.5 million (2016 — $4.2 million).
The Company recognized an impairment on its episodic content assets, in its new business segment, of $11.7 million for the year ended December 31, 2017, due to lower than anticipated revenue generated for the television series’ first season. The first season of the series was completed in 2017 and as a result the episodic asset value was $nil as at December 31, 2017.
In 2017, the Company recorded a charge of $5.3 million (December 31, 2016 — $3.0 million) in costs and expenses applicable to revenues – services, after an assessment of the carrying value of certain documentary films and their estimated future box-office was performed.
| As at December 31, 2017 | ||||||||
|
|
|
|
| Accumulated |
| Net Book | ||
|
| Cost |
| Depreciation |
| Value | |||
Equipment leased or held for use |
|
|
|
|
|
|
|
| |
| Theater system components(1)(2)(3)(4) | $ | 264,259 |
| $ | 103,922 |
| $ | 160,337 |
| Camera equipment |
| 5,757 |
|
| 3,939 |
|
| 1,818 |
|
|
| 270,016 |
|
| 107,861 |
|
| 162,155 |
Assets under construction(5) |
| 23,398 |
|
| - |
|
| 23,398 | |
Other property, plant and equipment |
|
|
|
|
|
|
|
| |
| Land |
| 8,203 |
|
| - |
|
| 8,203 |
| Buildings |
| 74,478 |
|
| 17,364 |
|
| 57,114 |
| Office and production equipment(6) |
| 40,442 |
|
| 22,164 |
|
| 18,278 |
| Leasehold improvements |
| 10,974 |
|
| 3,341 |
|
| 7,633 |
|
|
| 134,097 |
|
| 42,869 |
|
| 91,228 |
|
| $ | 427,511 |
| $ | 150,730 |
| $ | 276,781 |
|
|
|
|
|
|
|
|
|
|
|
| As at December 31, 2016 | |||||||
|
|
|
|
| Accumulated |
| Net Book | ||
|
| Cost |
| Depreciation |
| Value | |||
Equipment leased or held for use |
|
|
|
|
|
|
|
| |
| Theater system components(1)(2)(3) | $ | 224,890 |
| $ | 89,218 |
| $ | 135,672 |
| Camera equipment |
| 5,739 |
|
| 3,732 |
|
| 2,007 |
|
|
| 230,629 |
|
| 92,950 |
|
| 137,679 |
Assets under construction(5) |
| 18,315 |
|
| - |
|
| 18,315 | |
Other property, plant and equipment |
|
|
|
|
|
|
|
| |
| Land |
| 8,203 |
|
| - |
|
| 8,203 |
| Buildings |
| 69,861 |
|
| 14,877 |
|
| 54,984 |
| Office and production equipment(6) |
| 41,128 |
|
| 21,935 |
|
| 19,193 |
| Leasehold improvements |
| 10,067 |
|
| 3,026 |
|
| 7,041 |
|
|
| 129,259 |
|
| 39,838 |
|
| 89,421 |
|
| $ | 378,203 |
| $ | 132,788 |
| $ | 245,415 |
7. Property, Plant and Equipment
| As at December 31, 2017 | ||||||||
|
|
|
|
| Accumulated |
| Net Book | ||
|
| Cost |
| Depreciation |
| Value | |||
Equipment leased or held for use |
|
|
|
|
|
|
|
| |
| Theater system components(1)(2)(3)(4) | $ | 264,259 |
| $ | 103,922 |
| $ | 160,337 |
| Camera equipment |
| 5,757 |
|
| 3,939 |
|
| 1,818 |
|
|
| 270,016 |
|
| 107,861 |
|
| 162,155 |
Assets under construction(5) |
| 23,398 |
|
| - |
|
| 23,398 | |
Other property, plant and equipment |
|
|
|
|
|
|
|
| |
| Land |
| 8,203 |
|
| - |
|
| 8,203 |
| Buildings |
| 74,478 |
|
| 17,364 |
|
| 57,114 |
| Office and production equipment(6) |
| 40,442 |
|
| 22,164 |
|
| 18,278 |
| Leasehold improvements |
| 10,974 |
|
| 3,341 |
|
| 7,633 |
|
|
| 134,097 |
|
| 42,869 |
|
| 91,228 |
|
| $ | 427,511 |
| $ | 150,730 |
| $ | 276,781 |
|
|
|
|
|
|
|
|
|
|
|
| As at December 31, 2016 | |||||||
|
|
|
|
| Accumulated |
| Net Book | ||
|
| Cost |
| Depreciation |
| Value | |||
Equipment leased or held for use |
|
|
|
|
|
|
|
| |
| Theater system components(1)(2)(3) | $ | 224,890 |
| $ | 89,218 |
| $ | 135,672 |
| Camera equipment |
| 5,739 |
|
| 3,732 |
|
| 2,007 |
|
|
| 230,629 |
|
| 92,950 |
|
| 137,679 |
Assets under construction(5) |
| 18,315 |
|
| - |
|
| 18,315 | |
Other property, plant and equipment |
|
|
|
|
|
|
|
| |
| Land |
| 8,203 |
|
| - |
|
| 8,203 |
| Buildings |
| 69,861 |
|
| 14,877 |
|
| 54,984 |
| Office and production equipment(6) |
| 41,128 |
|
| 21,935 |
|
| 19,193 |
| Leasehold improvements |
| 10,067 |
|
| 3,026 |
|
| 7,041 |
|
|
| 129,259 |
|
| 39,838 |
|
| 89,421 |
|
| $ | 378,203 |
| $ | 132,788 |
| $ | 245,415 |
The Company recognized asset impairment charges of $0.3 million (2016 — $0.2 million; 2015 — $0.4 million) against property, plant and equipment after an assessment of the carrying value of certain assets in light of their future expected cash flows.
In addition, as a result of the Company’s recent restructuring activities, certain long-lived assets were deemed to be impaired as the Company’s exit from certain activities limited the future revenue associated with these assets. The Company recognized property, plant and equipment charges of $3.7 million. No such charge was recorded in the year ended December 31, 2016 and 2015.
_________
(1) | Included in theater system components are assets with costs of $8.5 million (2016 — $10.3 million) and accumulated depreciation of $7.2 million (2016 — $8.1 million) that are leased to customers under operating leases. |
(2) | Included in theater system components are assets with costs of $249.0 million (2016 — $205.2 million) and accumulated depreciation of $92.9 million (2016 — $75.7 million) that are used in joint revenue sharing arrangements. |
(3) | In 2016, the Company identified and wrote off $0.6 million of theater system components upon the upgrade of xenon-based digital systems under operating lease arrangements to laser-based digital systems under sales or sales-type lease arrangements. No such charge was recorded in the year ended December 31, 2017. |
(4) | During 2016, the Company signed certain amending agreements which increased the length of the term for all applicable existing and future theaters under joint revenue sharing arrangement. As a result, the Company adjusted the estimated useful life of its theater system components in use for those respective joint revenue sharing theaters, on a prospective basis, to reflect the change in term. This resulted in decreased depreciation expense of $0.1 million in 2016 and $1.0 million in 2017 as well as in each of the next 4 years since the Systems will now be depreciated over a longer useful life. |
(5) | Included in assets under construction are components with costs of $15.0 million (2016 — $14.5 million) that will be utilized to construct assets to be used in joint revenue sharing arrangements. |
(6) | Fully amortized office and production equipment is still in use by the Company. In 2017, the Company identified and wrote off $0.4 million (2016 — $0.7 million) of office and production equipment that is no longer in use and fully amortized. |
| As at December 31, | ||||
| 2017 |
| 2016 | ||
Lease incentives provided to theaters | $ | 7,393 |
| $ | 5,632 |
Commissions and other deferred selling expenses |
| 3,762 |
|
| 3,352 |
Other investments |
| 3,516 |
|
| 2,000 |
Investment in film business |
| 3,484 |
|
| 1,389 |
Insurance recoverable |
| 2,708 |
|
| 2,708 |
Investment in content |
| 2,911 |
|
| 522 |
Foreign currency derivatives |
| 1,447 |
|
| 480 |
Deferred charges on debt financing and other fees |
| 1,182 |
|
| 1,713 |
Prepaid taxes (note 9) |
| - |
|
| 14,728 |
Other |
| 354 |
|
| 671 |
| $ | 26,757 |
| $ | 33,195 |
8. Other Assets
As at December 31, | |||||
| 2017 |
| 2016 | ||
Lease incentives provided to theaters | $ | 7,393 |
| $ | 5,632 |
Commissions and other deferred selling expenses |
| 3,762 |
|
| 3,352 |
Other investments |
| 3,516 |
|
| 2,000 |
Investment in film business |
| 3,484 |
|
| 1,389 |
Insurance recoverable |
| 2,708 |
|
| 2,708 |
Investment in content |
| 2,911 |
|
| 522 |
Foreign currency derivatives |
| 1,447 |
|
| 480 |
Deferred charges on debt financing and other fees |
| 1,182 |
|
| 1,713 |
Prepaid taxes (note 9) |
| - |
|
| 14,728 |
Other |
| 354 |
|
| 671 |
| $ | 26,757 |
| $ | 33,195 |
The estimated amortization expense for each of the years ended December 31, are as follows:
$ | 4,649 | |
2019 |
| 4,649 |
2020 |
| 4,649 |
2021 |
| 4,649 |
2022 |
| 4,649 |
As at December 31, 2017 | ||||||||
|
|
| Accumulated |
| Net Book | |||
| Cost |
| Amortization |
| Value | |||
Patents and trademarks | $ | 12,184 |
| $ | 7,710 |
| $ | 4,474 |
Licenses and intellectual property |
| 21,471 |
|
| 7,800 |
|
| 13,671 |
Other |
| 19,529 |
|
| 6,463 |
|
| 13,066 |
| $ | 53,184 |
| $ | 21,973 |
| $ | 31,211 |
|
|
|
|
|
|
|
|
|
| As at December 31, 2016 | |||||||
|
|
| Accumulated |
| Net Book | |||
| Cost |
| Amortization |
| Value | |||
Patents and trademarks | $ | 11,395 |
| $ | 7,046 |
| $ | 4,349 |
Licenses and intellectual property |
| 22,490 |
|
| 7,620 |
|
| 14,870 |
Other |
| 15,352 |
|
| 4,155 |
|
| 11,197 |
| $ | 49,237 |
| $ | 18,821 |
| $ | 30,416 |
10. Other Intangible Assets
As at December 31, 2017 | ||||||||
|
|
| Accumulated |
| Net Book | |||
| Cost |
| Amortization |
| Value | |||
Patents and trademarks | $ | 12,184 |
| $ | 7,710 |
| $ | 4,474 |
Licenses and intellectual property |
| 21,471 |
|
| 7,800 |
|
| 13,671 |
Other |
| 19,529 |
|
| 6,463 |
|
| 13,066 |
| $ | 53,184 |
| $ | 21,973 |
| $ | 31,211 |
|
|
|
|
|
|
|
|
|
| As at December 31, 2016 | |||||||
|
|
| Accumulated |
| Net Book | |||
| Cost |
| Amortization |
| Value | |||
Patents and trademarks | $ | 11,395 |
| $ | 7,046 |
| $ | 4,349 |
Licenses and intellectual property |
| 22,490 |
|
| 7,620 |
|
| 14,870 |
Other |
| 15,352 |
|
| 4,155 |
|
| 11,197 |
| $ | 49,237 |
| $ | 18,821 |
| $ | 30,416 |
Other intangible assets of $19.5 million are comprised mainly of the Company’s investment in an enterprise resource planning system. Fully amortized other intangible assets are still in use by the Company. In 2017, the Company identified and wrote off $0.1 million (2016 ─ $0.2 million) of patents and trademarks that are no longer in use.
During 2017, the Company acquired $5.2 million in other intangible assets. The net book value of these other intangible assets was $4.6 million as at December 31, 2017. The weighted average amortization period for these additions is 4.9 years.
During 2017, the Company incurred costs of $0.4 million to renew or extend the term of acquired patents and trademarks which were recorded in selling, general and administrative expenses (2016 ─ $0.2 million).
The estimated amortization expense for each of the years ended December 31, are as follows:
$ | 4,649 | |
2019 |
| 4,649 |
2020 |
| 4,649 |
2021 |
| 4,649 |
2022 |
| 4,649 |
In accordance with the Playa Vista Loan Documents, the Company is obligated to make principal payments on the loan as follows:
$ | 2,000 | |
2019 |
| 2,000 |
2020 |
| 2,000 |
2021 |
| 2,000 |
2022 |
| 2,000 |
Thereafter |
| 15,667 |
| $ | 25,667 |
Bank indebtedness includes the following:
As at December 31, | |||||
| 2017 |
| 2016 | ||
Playa Vista Loan |
| 25,667 |
|
| 27,667 |
Deferred charges on debt financing |
| (310) |
|
| (351) |
| $ | 25,357 |
| $ | 27,316 |
11. Credit Facility and Playa Vista Loan
The Company maintains a senior secured credit facility (the “Credit Facility”) with a maximum borrowing capacity of $200.0 million and a scheduled maturity of March 3, 2020. The Credit Facility is collateralized by a first priority security interest in substantially all of the present and future assets of the Company and the Guarantors. Certain of the Company’s subsidiaries serve as guarantors (the “Guarantors”) of the Company’s obligations under the Credit Facility.
The terms of the Credit Facility are set forth in the Fourth Amended and Restated Credit Agreement (as amended, the “Credit Agreement”), dated March 3, 2015, among the Company, the Guarantors, the lenders named therein, Wells Fargo Bank, National Association (“Wells Fargo”), as agent and issuing lender (Wells Fargo, together with the lenders named therein, the “Lenders”) and Wells Fargo Securities, LLC, as Sole Lead Arranger and Sole Bookrunner and in various collateral and security documents entered into by the Company and the Guarantors.
The Company was in compliance with all of its requirements at December 31, 2017.
Total amounts drawn and available under the Credit Facility at December 31, 2017 and 2016 were $nil and $200.0 million, respectively.
As at December 31, 2017 and 2016, the Company did not have any letters of credit and advance payment guarantees outstanding under the Credit Facility.
Playa Vista Financing
In 2014, IMAX PV Development Inc., (“PV Borrower”) a wholly-owned subsidiary of the Company, entered into a loan agreement with Wells Fargo to principally fund the costs of development and construction of the Company’s new West Coast headquarters, located in the Playa Vista neighborhood of Los Angeles, California (the “Playa Vista Loan”).
The Playa Vista Loan was fully drawn at $30.0 million and bore interest at a variable interest rate per annum equal to 2.0% above the 30-day LIBOR rate. PV Borrower was required to make monthly payments of combined principal and interest over a 10-year term with a lump sum payment at the end of year 10. The Playa Vista Loan is being amortized over 15 years. The Playa Vista Loan will be fully due and payable on October 19, 2025 (the “Maturity Date”), and may be prepaid at any time without premium, but with all accrued interest and other applicable payments.
The Playa Vista Loan is secured by a deed of trust from PV Borrower in favor of Wells Fargo and other documents evidencing and securing the loan, granting a first lien on and security interest in the Playa Vista property and the Playa Vista project, including all improvements to be constructed thereon. The Company has also guaranteed Playa Vista Loan.
The Loan Documents contain affirmative, negative and financial covenants (including compliance with the financial covenants of the Company’s outstanding Credit Facility), agreements, representations, warranties, borrowing conditions, and events of default customary for development projects such as the Playa Vista Project.
Bank indebtedness includes the following:
As at December 31, | |||||
| 2017 |
| 2016 | ||
Playa Vista Loan |
| 25,667 |
|
| 27,667 |
Deferred charges on debt financing |
| (310) |
|
| (351) |
| $ | 25,357 |
| $ | 27,316 |
Total amounts drawn under the Playa Vista Loan at December 31, 2017 was $25.7 million (December 31, 2016 — $27.7 million) at an effective interest rate of 3.14%, respectively (December 31, 2016 — 2.52%, respectively).
$ | 2,000 | |
2019 |
| 2,000 |
2020 |
| 2,000 |
2021 |
| 2,000 |
2022 |
| 2,000 |
Thereafter |
| 15,667 |
| $ | 25,667 |
Wells Fargo Foreign Exchange Facility
Within the Credit Facility, the Company is able to purchase foreign currency forward contracts and/or other swap arrangements. There is no settlement risk on its foreign currency forward contracts at December 31, 2017, as the fair value exceeded the notional value of the forward contracts. As at December 31, 2017, the Company has $35.2 million in notional value of such arrangements outstanding.
Bank of Montreal Facility
As at December 31, 2017 and 2016, the Company had available a $10.0 million facility with the Bank of Montreal for use solely in conjunction with the issuance of performance guarantees and letters of credit fully insured by Export Development Canada (the “Bank of Montreal Facility”). The Company did not have any letters of credit and advance payment guarantees outstanding as at December 31, 2017 (December 31, 2016 — $0.1 million) under the Bank of Montreal Facility.
The following table summarizes information about the Company’s total rental expenses under operating leases:
Years Ended December 31, | ||||||||
| 2017 |
| 2016 |
| 2015 | |||
|
|
|
|
|
|
|
|
|
Total rent expense | $ | 5,685 |
| $ | 5,106 |
| $ | 4,766 |
The following table presents a summary of the Company’s contractual obligations and commitments as at December 31, 2017:
Payments Due by Fiscal Year | ||||||||||||||||||||
| Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Obligations |
| 2018 |
| 2019 |
| 2020 |
| 2021 |
| 2022 |
| Thereafter | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase obligations | $ | 38,055 |
| $ | 38,055 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
Pension obligations |
| 20,076 |
|
| - |
|
| - |
|
| 20,076 |
|
| - |
|
| - |
|
| - |
Operating lease obligations |
| 24,933 |
|
| 6,226 |
|
| 3,462 |
|
| 1,545 |
|
| 1,364 |
|
| 1,397 |
|
| 10,939 |
Playa Vista Loan |
| 25,667 |
|
| 2,000 |
|
| 2,000 |
|
| 2,000 |
|
| 2,000 |
|
| 2,000 |
|
| 15,667 |
Postretirement benefits obligations |
| 4,569 |
|
| 746 |
|
| 613 |
|
| 480 |
|
| 488 |
|
| 420 |
|
| 1,822 |
Other financial commitments |
| 10,677 |
|
| 6,677 |
|
| 4,000 |
|
| - |
|
| - |
|
| - |
|
| - |
| $ | 123,977 |
| $ | 53,704 |
| $ | 10,075 |
| $ | 24,101 |
| $ | 3,852 |
| $ | 3,817 |
| $ | 28,428 |
12. Commitments
In the ordinary course of business, the Company enters into contractual agreements with third parties that include non-cancelable payment obligations, for which it is liable in future periods. These arrangements can include terms binding the Company to minimum payments and/or penalties if it terminates the agreement for any reason other than an event of default as described by the agreement. The following table presents a summary of the Company’s contractual obligations and commitments as at December 31, 2017:
Payments Due by Fiscal Year | ||||||||||||||||||||
| Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Obligations |
| 2018 |
| 2019 |
| 2020 |
| 2021 |
| 2022 |
| Thereafter | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase obligations | $ | 38,055 |
| $ | 38,055 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
Pension obligations |
| 20,076 |
|
| - |
|
| - |
|
| 20,076 |
|
| - |
|
| - |
|
| - |
Operating lease obligations |
| 24,933 |
|
| 6,226 |
|
| 3,462 |
|
| 1,545 |
|
| 1,364 |
|
| 1,397 |
|
| 10,939 |
Playa Vista Loan |
| 25,667 |
|
| 2,000 |
|
| 2,000 |
|
| 2,000 |
|
| 2,000 |
|
| 2,000 |
|
| 15,667 |
Postretirement benefits obligations |
| 4,569 |
|
| 746 |
|
| 613 |
|
| 480 |
|
| 488 |
|
| 420 |
|
| 1,822 |
Other financial commitments |
| 10,677 |
|
| 6,677 |
|
| 4,000 |
|
| - |
|
| - |
|
| - |
|
| - |
| $ | 123,977 |
| $ | 53,704 |
| $ | 10,075 |
| $ | 24,101 |
| $ | 3,852 |
| $ | 3,817 |
| $ | 28,428 |
Operating Lease Obligations
The Company’s lease commitments consist of rent and equipment under operating leases. The Company accounts for any incentives provided over the term of the lease. The following table summarizes information about the Company’s total rental expenses under operating leases:
Years Ended December 31, | ||||||||
| 2017 |
| 2016 |
| 2015 | |||
|
|
|
|
|
|
|
|
|
Total rent expense | $ | 5,685 |
| $ | 5,106 |
| $ | 4,766 |
Recorded in the accrued liabilities balance as at December 31, 2017 is $4.1 million (December 31, 2016 — $1.6 million) related to accrued rent and lease inducements being recognized as an offset to rent expense over the term of the respective leases.
Purchase Obligations
Purchase obligations primarily consist of the Company’s commitments made under long-term supplier contracts.
Pension and Postretirement Benefits Obligations
The Company has an unfunded defined benefit pension plan, covering certain individuals and a postretirement plan to provide health and welfare benefits to Canadian employees meeting certain eligibility requirements. See note 20 for further information.
Playa Vista Loan
The Company is required to make monthly payments of combined principal and interest over a 10-year term with a lump sum payment at the end of year 10. The Playa Vista Loan will be fully due and payable on October 19, 2025. See note 11 for further information.
Other Financial Commitments
Other financial commitments include the Company’s total minimum commitment toward the development, production, post-production and marketing, related to certain film and new content initiatives.
Letters of Credit and Advance Payment Guarantees
As at December 31, 2017 the Company did not have any letters of credit and advance payment guarantees outstanding (December 31, 2016 — $nil), under the Credit Facility. As at December 31, 2017 the Company did not have any letters of credit and advance payment guarantees outstanding as compared to $0.1 million as at December 31, 2016, under the Bank of Montreal Facility.
The Company compensates its sales force with both fixed and variable compensation. Commissions on the sale or lease of the Company’s theater systems are payable in graduated amounts from the time of collection of the customer’s first payment to the Company up to the collection of the customer’s last initial payment. At December 31, 2017, $2.3 million (December 31, 2016 —$2.0 million) of commissions have been accrued and will be payable in future periods.
The Company expenses legal costs relating to its lawsuits, claims and proceedings as incurred.
13. Contingencies and Guarantees
The Company expenses legal costs relating to its lawsuits, claims and proceedings as incurred.
Financial Guarantees
The Company has provided no significant financial guarantees to third parties.
Product Warranties
The Company’s accrual for product warranties, that was recorded as part of accrued and other liabilities in the consolidated balance sheets is $0.1 million and less than $0.1 million as at December 31, 2017 and 2016, respectively.
Director/Officer Indemnifications
The Company’s General By-law contains an indemnification of its directors/officers, former directors/officers and persons who have acted at its request to be a director/officer of an entity in which the Company is a shareholder or creditor, to indemnify them, to the extent permitted by the Canada Business Corporations Act, against expenses (including legal fees), judgments, fines and any amount actually and reasonably incurred by them in connection with any action, suit or proceeding in which the directors and/or officers are sued as a result of their service, if they acted honestly and in good faith with a view to the best interests of the Company. The nature of the indemnification prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay to counterparties. The Company has purchased directors’ and officers’ liability insurance. No amount has been accrued in the consolidated balance sheet as at December 31, 2017 and December 31, 2016 with respect to this indemnity.
Other Indemnification Agreements
In the normal course of the Company’s operations, the Company provides indemnifications to counterparties in transactions such as: theater system lease and sale agreements and the supervision of installation or servicing of the theater systems; film production, exhibition and distribution agreements; real property lease agreements; and employment agreements. These indemnification agreements require the Company to compensate the counterparties for costs incurred as a result of litigation claims that may be suffered by the counterparty as a consequence of the transaction or the Company’s breach or non-performance under these agreements. While the terms of these indemnification agreements vary based upon the contract, they normally extend for the life of the agreements. A small number of agreements do not provide for any limit on the maximum potential amount of indemnification; however, virtually all of the Company’s system lease and sale agreements limit such maximum potential liability to the purchase price of the system. The fact that the maximum potential amount of indemnification required by the Company is not specified in some cases prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay to counterparties. Historically, the Company has not made any significant payments under such indemnifications and no amounts have been accrued in the consolidated financial statements with respect to the contingent aspect of these indemnities.
Reconciliations of the numerator and denominator of the basic and diluted per-share computations are comprised of the following:
| Years Ended December 31, | ||||||||
|
| 2017 |
| 2016 |
| 2015 | |||
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders | $ | 2,344 |
| $ | 28,788 |
| $ | 55,844 | |
Less: Accretion charges associated with redeemable common stock |
| - |
|
| - |
|
| (769) | |
Net income applicable to common shareholders | $ | 2,344 |
| $ | 28,788 |
| $ | 55,075 | |
Weighted average number of common shares (000's): |
|
|
|
|
|
|
|
| |
Issued and outstanding, beginning of period |
| 66,160 |
|
| 69,673 |
|
| 68,988 | |
Weighted average number of shares (repurchased) issued during the period, net |
| (780) |
|
| (2,098) |
|
| 538 | |
Weighted average number of shares used in computing basic earnings per share |
| 65,380 |
|
| 67,575 |
|
| 69,526 | |
Assumed exercise of stock options and RSUs, net of shares assumed repurchased |
| 160 |
|
| 688 |
|
| 1,532 | |
Weighted average number of shares used in computing diluted earnings per share |
| 65,540 |
|
| 68,263 |
|
| 71,058 |
The following table summarizes the number of RSUs issued from the carve-out balance:
| 300,000 | |
Issued during 2016 |
| (39,726) |
Outstanding, December 31, 2016 |
| 260,274 |
Issued during 2017 |
| (46,613) |
Outstanding, December 31, 2017 |
| 213,661 |
The following table summarizes certain information in respect of RSU activity under the IMAX LTIP:
Number of Awards |
| Weighted Average Grant Date Fair Value Per Share | ||||||||||||
| 2017 |
| 2016 |
| 2015 |
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs outstanding, beginning of year | 1,124,180 |
| 973,637 |
| 595,834 |
| $ | 33.01 |
| $ | 32.27 |
| $ | 27.13 |
Granted | 463,010 |
| 664,278 |
| 605,349 |
|
| 30.47 |
|
| 32.29 |
|
| 36.04 |
Vested and settled | (456,779) |
| (466,918) |
| (207,371) |
|
| 31.66 |
|
| 30.63 |
|
| 28.81 |
Forfeited | (135,082) |
| (46,817) |
| (20,175) |
|
| 32.03 |
|
| 31.16 |
|
| 29.27 |
RSUs outstanding, end of year | 995,329 |
| 1,124,180 |
| 973,637 |
|
| 32.68 |
|
| 33.01 |
|
| 32.27 |
Total stock-based compensation expense related to non-vested RSUs not yet recognized and the weighted average period over which the awards are expected to be recognized are as follow:
| Years Ended December 31, | ||||||||
|
| 2017 |
| 2016 |
| 2015 | |||
|
|
|
|
|
|
|
|
|
|
Expense related to non-vested RSUs not yet recognized | $ | 22,440 |
| $ | 29,050 |
| $ | 24,399 | |
|
|
|
|
|
|
|
|
|
|
Weighted average period awards are expected to be recognized (in years) |
| 2.1 |
|
| 2.4 |
|
| 3.0 |
The Company recorded the following expenses related to RSU grants issued to employees and directors in the plan:
| Years Ended December 31, | ||||||||
|
| 2017 |
| 2016 |
| 2015 | |||
|
|
|
|
|
|
|
|
|
|
RSU expenses | $ | 16,033 |
| $ | 15,809 |
| $ | 8,197 |
The following table summarizes certain information in respect of option activity under the SOP and IMAX LTIP:
|
|
|
|
| Weighted Average Exercise | |||||||||
| Number of Shares |
|
| Price Per Share | ||||||||||
| 2017 |
| 2016 |
| 2015 |
| 2017 |
| 2016 |
| 2015 | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, beginning of year | 5,190,542 |
| 4,805,244 |
| 5,925,660 |
| $ | 28.35 |
| $ | 27.03 |
| $ | 24.24 |
Granted | 854,764 |
| 984,452 |
| 873,929 |
|
| 30.07 |
|
| 31.49 |
|
| 31.59 |
Exercised | (668,341) |
| (518,018) |
| (1,761,675) |
|
| 21.92 |
|
| 22.07 |
|
| 20.21 |
Forfeited | (108,551) |
| (66,903) |
| (232,670) |
|
| 32.42 |
|
| 29.28 |
|
| 24.60 |
Expired | (89,958) |
| - |
| - |
|
| 32.29 |
|
| - |
|
| - |
Cancelled | (96,356) |
| (14,233) |
| - |
|
| 29.28 |
|
| 24.82 |
|
| - |
Options outstanding, end of year | 5,082,100 |
| 5,190,542 |
| 4,805,244 |
|
| 29.31 |
|
| 28.35 |
|
| 27.03 |
Options exercisable, end of year | 3,913,088 |
| 4,001,078 |
| 2,800,723 |
|
| 28.96 |
|
| 27.79 |
|
| 25.83 |
The following table summarizes the expense related to China Options, China RSUs, CSSBPs and any accrued liability related to CSSBPs:
| Years Ended December 31, | ||||||||
|
| 2017 |
| 2016 |
| 2015 | |||
|
|
|
|
|
|
|
|
|
|
Expense |
|
|
|
|
|
|
|
| |
| China Options | $ | 1,034 |
| $ | 971 |
| $ | 2,136 |
| China RSUs |
| 1,124 |
|
| 518 |
|
| - |
| CSSBPs |
| 353 |
|
| 429 |
|
| 1,357 |
|
|
|
|
|
|
|
|
|
|
CSSBPs liability | $ | - |
| $ | 289 |
| $ | 395 |
The following table summarizes certain information about the outstanding stock options related to non-employees:
| Years Ended December 31, | |||||||
| 2017 |
|
| 2016 |
|
| 2015 | |
|
|
|
|
|
|
|
|
|
Weighted average exercise price per share of outstanding stock options | $ | - |
| $ | 29.64 |
| $ | 26.79 |
Number of outstanding stock options |
| - |
|
| 17,000 |
|
| 38,750 |
|
|
|
|
|
|
|
|
|
Weighted average exercise price per share of exercisable stock options | $ | - |
| $ | 30.10 |
| $ | 26.34 |
Number of exercisable stock options |
| - |
|
| 15,200 |
|
| 21,525 |
|
|
|
|
|
|
|
|
|
Aggregate intrinsic value of vested stock options | $ | - |
| $ | 123 |
| $ | 198 |
The weighted average fair value of all stock options granted to employees and directors at the measurement date and the assumptions used to estimate the average fair value of the stock option are as follow:
| 2017 |
| 2016 |
| 2015 | |
|
|
|
|
|
|
|
Weighted average fair value per share | $ | 8.31 | $ | 8.16 | $ | 8.07 |
Average risk-free interest rate |
| 2.34% |
| 1.67% |
| 1.97% |
Expected option life (in years) |
| 4.71 - 5.83 |
| 4.44 - 5.24 |
| 3.55 - 5.76 |
Expected volatility |
| 30% |
| 30% |
| 30% |
Dividend yield |
| 0% |
| 0% |
| 0% |
Total stock-based compensation expense related to non-vested employee stock options not yet recognized at December 31, 2017 are as follows:
| Years Ended December 31, | ||||||||
|
| 2017 |
| 2016 |
| 2015 | |||
|
|
|
|
|
|
|
|
|
|
Expense related to non-vested employee stock options not yet recognized | $ | 7,441 |
| $ | 5,894 |
| $ | 12,575 |
The weighted average period over which the awards are expected to be recognized are as follows:
| Years Ended December 31, | ||||||||
|
| 2017 |
| 2016 |
| 2015 | |||
|
|
|
|
|
|
|
|
|
|
Weighted average period awards are expected to be recognized (in years) |
| 2.3 |
|
| 2.3 |
|
| 1.7 |
The Company recorded the following expenses related to stock option grants issued to employees and directors in the IMAX LTIP and SOP plans.
| Years Ended December 31, | ||||||||
|
| 2017 |
| 2016 |
| 2015 | |||
|
|
|
|
|
|
|
|
|
|
Stock option expense | $ | 4,462 |
| $ | 12,795 |
| $ | 10,710 |
The following reflects the stock-based compensation expense recorded to the respective financial statement line items:
|
| |
|
| 2017 |
Cost and expenses applicable to revenues | $ | 1,704 |
Selling, general and administrative expenses |
| 20,393 |
Research and development |
| 556 |
Exit costs, restructuring charges and associated impairments |
| 357 |
| $ | 23,010 |
The following table summarizes the settlement of stock option and RSU transactions during the year:
| Years Ended December 31, | ||||||||
|
| 2017 |
| 2016 |
| 2015 | |||
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
|
|
|
|
|
| |
| Issued from treasury |
| 405,229 |
|
| 347,814 |
|
| 1,659,643 |
| Plan trustee purchases |
| 263,112 |
|
| 170,204 |
|
| 102,032 |
| Total stock options exercised |
| 668,341 |
|
| 518,018 |
|
| 1,761,675 |
|
|
|
|
|
|
|
|
|
|
| Cash proceeds on stock option exercises | $ | 14,652 |
| $ | 11,431 |
| $ | 35,609 |
|
|
|
|
|
|
|
|
|
|
RSUs |
|
|
|
|
|
|
|
| |
| Issued from treasury |
| 7,127 |
|
| 54,159 |
|
| 25,551 |
| Plan trustee purchases |
| 422,022 |
|
| 394,423 |
|
| 167,469 |
| Shares withheld for tax withholdings |
| 27,630 |
|
| 18,336 |
|
| 14,351 |
| Total RSUs vested |
| 456,779 |
|
| 466,918 |
|
| 207,371 |
14. Capital Stock
Common Shares
The authorized capital of the Company consists of an unlimited number of common shares. The following is a summary of the rights, privileges, restrictions and conditions of the 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.
During the year, the Company settled common shares pursuant to the exercise of stock options for cash proceeds and vesting of RSUs. The settlement of common shares can be either settled through newly issued common shares from treasury or through the purchase of common shares in the open market by the IMAX Long-Term Incentive Plan trustee. The following table summarizes the settlement of stock option and RSU transactions during the year:
| Years Ended December 31, | ||||||||
|
| 2017 |
| 2016 |
| 2015 | |||
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
|
|
|
|
|
| |
| Issued from treasury |
| 405,229 |
|
| 347,814 |
|
| 1,659,643 |
| Plan trustee purchases |
| 263,112 |
|
| 170,204 |
|
| 102,032 |
| Total stock options exercised |
| 668,341 |
|
| 518,018 |
|
| 1,761,675 |
|
|
|
|
|
|
|
|
|
|
| Cash proceeds on stock option exercises | $ | 14,652 |
| $ | 11,431 |
| $ | 35,609 |
|
|
|
|
|
|
|
|
|
|
RSUs |
|
|
|
|
|
|
|
| |
| Issued from treasury |
| 7,127 |
|
| 54,159 |
|
| 25,551 |
| Plan trustee purchases |
| 422,022 |
|
| 394,423 |
|
| 167,469 |
| Shares withheld for tax withholdings |
| 27,630 |
|
| 18,336 |
|
| 14,351 |
| Total RSUs vested |
| 456,779 |
|
| 466,918 |
|
| 207,371 |
The Company issues stock-based compensation to eligible employees, directors, and consultants under the IMAX Corporation Amended and Restated Long-Term Incentive Plan (the “IMAX LTIP”) and the China Long-Term Incentive Plan (the “China LTIP”) as summarized below.
The IMAX LTIP is the Company’s governing document and awards to employees, directors, and consultants under this plan may consist of stock options, RSUs and other awards. Stock options are no longer granted under the Company’s previous approved Stock Option Plan (“SOP”).
A separate stock option plan, the China LTIP, was adopted by a subsidiary of the Company in October 2012.
Compensation costs recorded in the consolidated statements of operations for the Company’s stock-based compensation plans were $23.0 million (2016 — $30.5 million; 2015 — $21.9 million). The following reflects the stock-based compensation expense recorded to the respective financial statement line items:
|
| |
|
| 2017 |
Cost and expenses applicable to revenues | $ | 1,704 |
Selling, general and administrative expenses |
| 20,393 |
Research and development |
| 556 |
Exit costs, restructuring charges and associated impairments |
| 357 |
| $ | 23,010 |
As at December 31, 2017, the Company has reserved a total of 10,781,936 (December 31, 2016 — 12,012,572) common shares for future issuance under the SOP and IMAX LTIP. Of the common shares reserved for issuance, there are options in respect of 5,082,100 (December 31, 2016 — 5,190,542) common shares and RSUs in respect of 995,329 (December 31, 2016 — 1,124,180) common shares outstanding at December 31, 2017. At December 31, 2017 options in respect of 3,913,088 (December 31, 2016 — 4,001,078) common shares were vested and exercisable.
Stock Option Plan
The Company’s policy is to issue new common shares from treasury or shares purchased in the open market to satisfy stock options which are exercised.
The Company utilizes a Binomial Model to determine the fair value of stock-based payment awards. The fair value determined by the Binomial Model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and employee stock option exercise behaviors. The Binomial Model also considers the expected exercise multiple which is the multiple of exercise price to grant price at which exercises are expected to occur on average. Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable. Because the Company’s employee stock options have certain characteristics that are significantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, in management’s opinion, the Binomial Model best provides a fair measure of the fair value of the Company’s employee stock options.
All awards of stock options are made at fair market value of the Company’s common shares on the date of grant. The fair market value of a common share on a given date means the higher of the closing price of a common share on the grant date (or the most recent trading date if the grant date is not a trading date) on the New York Stock Exchange (“NYSE”) or such national exchange as may be designated by the Company’s Board of Directors (the “Fair Market Value”). The stock options vest within 5 years and expire 10 years or less from the date granted. The SOP and IMAX LTIP provide for double-trigger accelerated vesting in the event of a change in control, as defined in each plan.
| Years Ended December 31, | ||||||||
|
| 2017 |
| 2016 |
| 2015 | |||
|
|
|
|
|
|
|
|
|
|
Stock option expense | $ | 4,462 |
| $ | 12,795 |
| $ | 10,710 |
An income tax benefit is recorded in the consolidated statement of operations of $1.0 million for the 2017 stock option expenses and $3.8 million for the year ended December 31, 2016, respectively.
| Years Ended December 31, | ||||||||
|
| 2017 |
| 2016 |
| 2015 | |||
|
|
|
|
|
|
|
|
|
|
Expense related to non-vested employee stock options not yet recognized | $ | 7,441 |
| $ | 5,894 |
| $ | 12,575 |
The weighted average period over which the awards are expected to be recognized are as follows:
| Years Ended December 31, | ||||||||
|
| 2017 |
| 2016 |
| 2015 | |||
|
|
|
|
|
|
|
|
|
|
Weighted average period awards are expected to be recognized (in years) |
| 2.3 |
|
| 2.3 |
|
| 1.7 |
| 2017 |
| 2016 |
| 2015 | |
|
|
|
|
|
|
|
Weighted average fair value per share | $ | 8.31 | $ | 8.16 | $ | 8.07 |
Average risk-free interest rate |
| 2.34% |
| 1.67% |
| 1.97% |
Expected option life (in years) |
| 4.71 - 5.83 |
| 4.44 - 5.24 |
| 3.55 - 5.76 |
Expected volatility |
| 30% |
| 30% |
| 30% |
Dividend yield |
| 0% |
| 0% |
| 0% |
Stock options to Non-Employees
There were no common share options issued to non-employees in 2017, 2016 or 2015. The following table summarizes certain information about the outstanding stock options related to non-employees:
| Years Ended December 31, | |||||||
| 2017 |
|
| 2016 |
|
| 2015 | |
|
|
|
|
|
|
|
|
|
Weighted average exercise price per share of outstanding stock options | $ | - |
| $ | 29.64 |
| $ | 26.79 |
Number of outstanding stock options |
| - |
|
| 17,000 |
|
| 38,750 |
|
|
|
|
|
|
|
|
|
Weighted average exercise price per share of exercisable stock options | $ | - |
| $ | 30.10 |
| $ | 26.34 |
Number of exercisable stock options |
| - |
|
| 15,200 |
|
| 21,525 |
|
|
|
|
|
|
|
|
|
Aggregate intrinsic value of vested stock options | $ | - |
| $ | 123 |
| $ | 198 |
In 2017, the Company recorded a charge of less than $0.1 million (2016 — less than $0.1 million; 2015 — $0.1 million) to selling, general and administrative expenses related to the non-employee stock options. There were no accrued liabilities related to non-employee stock options as at December 31, 2017 (December 31, 2016 — less than $0.1 million).
China Long-Term Incentive Plan (“China LTIP”)
The China LTIP was adopted by IMAX China Holding, Inc. (“IMAX China”), a subsidiary of the Company, in October 2012. Each stock option (“China Option”), RSU or cash settled share-based payment (“CSSBP”) issued under the China LTIP represents an opportunity to participate economically in the future growth and value creation of IMAX China. Prior to the initial public offering of IMAX China on October 8, 2015 (the “IMAX China IPO”), the China Options and CSSBPs issued by IMAX China operated in tandem with options granted to certain employees of IMAX China under the Company’s SOP and the IMAX LTIP (“Tandem Options”).
During 2015, no Tandem Options were granted in conjunction with China Options or CSSBPs. Immediately prior to the IMAX China IPO, there were 186,446 outstanding and unvested Tandem Options issued under the Company’s SOP and IMAX LTIP with a weighted average exercise price of $23.70 per share. The Tandem Options had a maximum contractual life of 7 years. The total fair value of the Tandem Options granted with respect to the China LTIP was $1.9 million. The Company was recognizing this expense over a 5-year period.
Pursuant to their terms, upon the occurrence of a qualified initial public offering, the 186,446 Tandem Options issued would forfeit immediately and the related charge would be reversed. As a result of the IMAX China IPO on October 8, 2015, the 186,446 Tandem Options with an average price of $23.70 per share were forfeited immediately. The Company recorded a recovery of $0.6 million in 2015 (2014 — $0.3 million expense) related to the forfeiture of Tandem Options issued under the Company’s SOP and IMAX LTIP.
The Company subsequently recognized an immediate charge related to the vesting of China Options and certain CSSBPs for China employees. The total fair value of the China Options and CSSBP awards granted with respect to the China LTIP was $3.9 million and $2.1 million, respectively. During the fourth quarter of 2015, a charge of $2.1 million and $1.4 million was recorded relating to the China Options and CSSBPs, respectively. The remaining charge was recognized over the related requisite period. The CSSBPs represent the right to receive cash payments in an amount equal to a certain percentage of the excess of the total equity value of IMAX China based on the per share price in the IMAX China IPO over the strike price of the CSSBPs. The CSSBPs were issued in conjunction with the China LTIP, with similar terms and conditions as the China Options. The CSSBP awards are accounted as liability awards, however the fair value of the liability is fixed at the time of the initial public offering. During 2017, the remaining balance of the CSSBPs vested and were settled in cash for $0.6 million (2016 — $0.5 million).
In connection with the IMAX China IPO and in accordance with the China LTIP, IMAX China adopted a post-IPO share option plan and a post-IPO restricted stock unit plan. Pursuant to these plans, IMAX China has issued additional China Options and China LTIP Restricted Share Units (“China RSUs”).
| Years Ended December 31, | ||||||||
|
| 2017 |
| 2016 |
| 2015 | |||
|
|
|
|
|
|
|
|
|
|
Expense |
|
|
|
|
|
|
|
| |
| China Options | $ | 1,034 |
| $ | 971 |
| $ | 2,136 |
| China RSUs |
| 1,124 |
|
| 518 |
|
| - |
| CSSBPs |
| 353 |
|
| 429 |
|
| 1,357 |
|
|
|
|
|
|
|
|
|
|
CSSBPs liability | $ | - |
| $ | 289 |
| $ | 395 |
Stock Option Summary
|
|
|
|
| Weighted Average Exercise | |||||||||
| Number of Shares |
|
| Price Per Share | ||||||||||
| 2017 |
| 2016 |
| 2015 |
| 2017 |
| 2016 |
| 2015 | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, beginning of year | 5,190,542 |
| 4,805,244 |
| 5,925,660 |
| $ | 28.35 |
| $ | 27.03 |
| $ | 24.24 |
Granted | 854,764 |
| 984,452 |
| 873,929 |
|
| 30.07 |
|
| 31.49 |
|
| 31.59 |
Exercised | (668,341) |
| (518,018) |
| (1,761,675) |
|
| 21.92 |
|
| 22.07 |
|
| 20.21 |
Forfeited | (108,551) |
| (66,903) |
| (232,670) |
|
| 32.42 |
|
| 29.28 |
|
| 24.60 |
Expired | (89,958) |
| - |
| - |
|
| 32.29 |
|
| - |
|
| - |
Cancelled | (96,356) |
| (14,233) |
| - |
|
| 29.28 |
|
| 24.82 |
|
| - |
Options outstanding, end of year | 5,082,100 |
| 5,190,542 |
| 4,805,244 |
|
| 29.31 |
|
| 28.35 |
|
| 27.03 |
Options exercisable, end of year | 3,913,088 |
| 4,001,078 |
| 2,800,723 |
|
| 28.96 |
|
| 27.79 |
|
| 25.83 |
As at December 31, 2017, 5,082,100 options included both fully vested and unvested options with a weighted average exercise price of $29.31, aggregate intrinsic value of $0.5 million and weighted average remaining contractual life of 4.7 years. As at December 31, 2017, options that are exercisable have an intrinsic value of $0.3 million and a weighted average remaining contractual life of 4.3 years. The intrinsic value of options exercised in 2017 was $6.8 million (2016 — $5.4 million; 2015 — $29.8 million).
Restricted Share Units
RSUs have been granted to employees, consultants and directors under the IMAX LTIP. Each RSU represents a contingent right to receive one common share and is the economic equivalent of one common share. The grant date fair value of each RSU is equal to the share price of the Company’s stock at the grant date. The Company recorded the following expenses related to RSU grants issued to employees and directors in the plan:
| Years Ended December 31, | ||||||||
|
| 2017 |
| 2016 |
| 2015 | |||
|
|
|
|
|
|
|
|
|
|
RSU expenses | $ | 16,033 |
| $ | 15,809 |
| $ | 8,197 |
The Company’s actual tax benefits realized for the tax deductions related to the vesting of RSUs was $3.6 million for the year ended December 31, 2017 (2016 — $4.6 million; 2015 — $0.4 million).
The Company did not issue any RSU grants to advisors or strategic partners of the Company for the year ended December 31, 2017. The Company did not record any expense for the years ended December 31, 2017 and 2016. An expense of less than $0.1 million was recorded in 2015 related to RSU grants issued to certain advisors and strategic partners of the Company.
| Years Ended December 31, | ||||||||
|
| 2017 |
| 2016 |
| 2015 | |||
|
|
|
|
|
|
|
|
|
|
Expense related to non-vested RSUs not yet recognized | $ | 22,440 |
| $ | 29,050 |
| $ | 24,399 | |
|
|
|
|
|
|
|
|
|
|
Weighted average period awards are expected to be recognized (in years) |
| 2.1 |
|
| 2.4 |
|
| 3.0 |
The following table summarizes certain information in respect of RSU activity under the IMAX LTIP:
Number of Awards |
| Weighted Average Grant Date Fair Value Per Share | ||||||||||||
| 2017 |
| 2016 |
| 2015 |
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs outstanding, beginning of year | 1,124,180 |
| 973,637 |
| 595,834 |
| $ | 33.01 |
| $ | 32.27 |
| $ | 27.13 |
Granted | 463,010 |
| 664,278 |
| 605,349 |
|
| 30.47 |
|
| 32.29 |
|
| 36.04 |
Vested and settled | (456,779) |
| (466,918) |
| (207,371) |
|
| 31.66 |
|
| 30.63 |
|
| 28.81 |
Forfeited | (135,082) |
| (46,817) |
| (20,175) |
|
| 32.03 |
|
| 31.16 |
|
| 29.27 |
RSUs outstanding, end of year | 995,329 |
| 1,124,180 |
| 973,637 |
|
| 32.68 |
|
| 33.01 |
|
| 32.27 |
Historically, RSUs granted under the IMAX LTIP have vested between immediately and four years from the grant date. In connection with the amendment and restatement of the IMAX LTIP at the Company’s annual and special meeting of the shareholders on June 6, 2016, the IMAX LTIP plan was amended to impose a minimum one-year vesting period on future RSU grants, with a carve-out for 300,000 RSUs that may vest on a shorter schedule. Vesting of the RSUs is subject to continued employment or service with the Company. The following table summarizes the number of RSUs issued from the carve-out balance:
| 300,000 | |
Issued during 2016 |
| (39,726) |
Outstanding, December 31, 2016 |
| 260,274 |
Issued during 2017 |
| (46,613) |
Outstanding, December 31, 2017 |
| 213,661 |
Issuer Purchases of Equity Securities
In 2017, the Company repurchased 1,736,150 (2016 ― 3,849,222) common shares at an average price of $26.57 per share (2016 ― $30.25 per share). The repurchases in 2017 exhausted the remaining allowance of $46.1 million under the previously announced $200 million share repurchase program. The average carrying value of the stock retired was deducted from common stock and the remaining excess over the average carrying value of stock was charged to accumulated deficit. Since the inception of this program, the Company has repurchased 6,697,406 common shares at an average price of $29.86 per share.
On June 12, 2017, the Company announced that its Board of Directors approved a new $200.0 million share repurchase program for shares of the Company’s common stock. The share purchase program expires on June 30, 2020. The repurchases may be made either in the open market or through private transactions, subject to market conditions, applicable legal requirements and other relevant factors. The Company has no obligation to repurchase shares and the share repurchase program may be suspended or discontinued by the Company at any time. There were no share repurchases of shares under the new share repurchase program in 2017.
The total number of shares purchased during the year ended December 31, 2017 and 2016 does not include any shares purchased in the administration of employee share-based compensation plans (which amounted to 825,692 (2016 – 630,720) common shares, at an average price of $30.23 (2016 – $31.52) per share).
As at December 31, 2017, the IMAX LTIP trustee held 206,651 shares purchased for $5.1 million in the open market to be issued upon the settlement of RSUs and stock options. The shares held with the trustee are recorded at cost and are reported as a reduction against capital stock on the consolidated balance sheet.
| Years Ended December 31, | ||||||||
|
| 2017 |
| 2016 |
| 2015 | |||
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders | $ | 2,344 |
| $ | 28,788 |
| $ | 55,844 | |
Less: Accretion charges associated with redeemable common stock |
| - |
|
| - |
|
| (769) | |
Net income applicable to common shareholders | $ | 2,344 |
| $ | 28,788 |
| $ | 55,075 | |
Weighted average number of common shares (000's): |
|
|
|
|
|
|
|
| |
Issued and outstanding, beginning of period |
| 66,160 |
|
| 69,673 |
|
| 68,988 | |
Weighted average number of shares (repurchased) issued during the period, net |
| (780) |
|
| (2,098) |
|
| 538 | |
Weighted average number of shares used in computing basic earnings per share |
| 65,380 |
|
| 67,575 |
|
| 69,526 | |
Assumed exercise of stock options and RSUs, net of shares assumed repurchased |
| 160 |
|
| 688 |
|
| 1,532 | |
Weighted average number of shares used in computing diluted earnings per share |
| 65,540 |
|
| 68,263 |
|
| 71,058 |
The calculation of diluted earnings per share exclude 4,993,014 (2016 ― 2,814,907) shares that are issuable upon exercise of 579,808 (2016 ― 377,048) RSUs and 4,413,206 (2016 ― 2,437,859) stock options for the years ended December 31, 2017 and 2016, as the impact of these exercises would be antidilutive.
15. Consolidated Statements of Operations Supplemental Information
The Company enters into theater system arrangements with customers that typically contain customer payment obligations prior to the scheduled installation of the theater systems. During the period of time between signing and theater system installation, certain customers each year are unable to, or elect not to, proceed with the theater system installation for a number of reasons, including business considerations, or the inability to obtain certain consents, approvals or financing. Once the determination is made that the customer will not proceed with installation, the customer and/or the Company may terminate the arrangement by default or by entering into a consensual buyout. In these situations, the parties are released from their future obligations under the arrangement, and the initial payments that the customer previously made to the Company are typically not refunded and are recognized as Other Revenues. In addition, the Company enters into agreements with customers to terminate their obligations for additional theater system configurations, which were in the Company’s backlog. Other revenues from settlement arrangements were $nil, $1.3 million and $0.1 million in 2017, 2016 and 2015, respectively.
Included in selling, general and administrative expenses for the year ended December 31, 2017 is $1.0 million for a net foreign exchange gain related to the translation of foreign currency denominated monetary assets and liabilities as compared to a net loss of $0.9 million and a net loss of $2.4 million for the year ended December 31, 2016 and 2015, respectively. See note 19(d) for additional information.
Joint Revenue Sharing Arrangements
The Company has signed joint revenue sharing agreements with 47 exhibitors (2016 — 48) for a total of 1,084 theater systems (2016 — 995), of which 747 theaters (2016 — 640) were operating as at December 31, 2017. The terms of the Company’s joint revenue sharing arrangements are similar in nature, rights and obligations. The accounting policy for the Company’s joint revenue sharing arrangements is disclosed in note 2(m).
Amounts attributable to transactions arising between the Company and its customers under joint revenue sharing arrangements are included in Equipment and Product Sales and Rentals revenue and for the year ended December 31, 2017 amounted to $80.6 million (2016 — $91.4 million; 2015 —$99.1 million).
IMAX DMR
In 2017, the majority of IMAX DMR revenue was earned from the exhibition of 60 IMAX DMR films (2016 — 51) throughout the IMAX theater network. The accounting policy for the Company’s IMAX DMR arrangements is disclosed in note 2(m).
Amounts attributable to transactions arising between the Company and its customers under IMAX DMR arrangements are included in Services revenues and for the year ended December 31, 2017 amounted to $108.9 million (2016 —$106.4 million; 2015 —$107.1 million).
Co-Produced Film Arrangements
As at December 31, 2017, the Company has two significant co-produced arrangements which primarily represents the VIE total assets balance of $7.5 million and liabilities balance of $7.2 million and three other co-produced film arrangements, the terms of which are similar. The accounting policies relating to co-produced film arrangements are disclosed in notes 2(a) and 2(m).
In 2017, amounts totaling $1.2 million (2016 — $1.4 million; 2015 — $1.5 million) attributable to transactions between the Company and other parties involved in the production of the films have been included in cost and expenses applicable to revenues-services.
In 2016, the Company entered into an arrangement to co-produce television episodic content. Funding was provided to the third party and the third party retains the copyright and rights to the content. The Company obtained exclusive theatrical distribution rights to the first two episodes and a percentage share to all television revenue.
As at December 31, 2017, the Company is participating in one significant co-produced television arrangement. This arrangement is not a VIE.
For the year ended December 31, 2017, revenues of $20.4 million and costs and expenses applicable to revenues of $33.4 million, attributable to this collaborative arrangement have been recorded in Revenue – Services and Costs and expenses applicable to revenues – Services, respectively. Included therein are net revenues attributable to transactions between the Company and other parties involved in the production of the episodic content of $20.1 million.
The following table reflects the Company’s receivable provisions net of recoveries recorded in the consolidated statements of operations:
Years Ended December 31, | ||||||||
| 2017 |
| 2016 |
| 2015 | |||
Accounts receivable provisions, net of recoveries | $ | 1,967 |
| $ | 1,029 |
| $ | 677 |
Financing receivable provisions, net of recoveries |
| 680 |
|
| (75) |
|
| 75 |
Receivable provisions, net of recoveries | $ | 2,647 |
| $ | 954 |
| $ | 752 |
16. Receivable Provisions, Net of Recoveries
Years Ended December 31, | ||||||||
| 2017 |
| 2016 |
| 2015 | |||
Accounts receivable provisions, net of recoveries | $ | 1,967 |
| $ | 1,029 |
| $ | 677 |
Financing receivable provisions, net of recoveries |
| 680 |
|
| (75) |
|
| 75 |
Receivable provisions, net of recoveries | $ | 2,647 |
| $ | 954 |
| $ | 752 |
Years Ended December 31, | |||||
|
| 2017 |
|
| 2016 |
Net accruals related to: |
|
|
|
|
|
Purchases of property, plant and equipment | $ | 871 |
| $ | (1,229) |
Investment in joint revenue sharing arrangements |
| 69 |
|
| 346 |
Acquisition of other intangible assets |
| 37 |
|
| (121) |
| $ | 977 |
| $ | (1,004) |
| Years Ended December 31, | ||||||||
|
|
| 2017 |
|
| 2016 |
|
| 2015 |
Asset impairments |
|
|
|
|
|
|
|
| |
| Property, plant and equipment | $ | 3,966 |
| $ | 223 |
| $ | 405 |
| Impairment of investments |
| 1,225 |
|
| 194 |
|
| 425 |
| Film assets |
| 17,363 |
|
| 3,020 |
|
| - |
| Other assets |
| 2,533 |
|
| - |
|
| - |
Other charges (recoveries) |
|
|
|
|
|
|
|
| |
| Accounts receivables |
| 1,967 |
|
| 1,029 |
|
| 677 |
| Financing receivables |
| 680 |
|
| (75) |
|
| 75 |
| Inventories(1) |
| 500 |
|
| 458 |
|
| 572 |
| Other assets |
| 47 |
|
| - |
|
| - |
| Property, plant and equipment(2) |
| 1,224 |
|
| 885 |
|
| 1,485 |
| Other intangible assets |
| 63 |
|
| 206 |
|
| 86 |
|
| $ | 29,568 |
| $ | 5,940 |
| $ | 3,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory charges |
|
|
|
|
|
|
|
| |
| Recorded in costs and expenses applicable to revenues - equipment & product sales | $ | 500 |
| $ | 227 |
| $ | 537 |
| Recorded in costs and expenses applicable to revenues - services |
| - |
|
| 231 |
|
| 35 |
|
| $ | 500 |
| $ | 458 |
| $ | 572 |
| Years Ended December 31, | ||||||||
|
|
| 2017 |
|
| 2016 |
|
| 2015 |
Film assets(1) | $ | 31,031 |
| $ | 16,324 |
| $ | 16,357 | |
Property, plant and equipment |
|
|
|
|
|
|
|
| |
| Joint revenue sharing arrangements |
| 18,112 |
|
| 15,840 |
|
| 13,663 |
| Other property, plant and equipment |
| 11,803 |
|
| 9,692 |
|
| 7,698 |
Other intangible assets |
| 4,319 |
|
| 3,235 |
|
| 3,285 | |
Other assets |
| 980 |
|
| 862 |
|
| 784 | |
Deferred financing costs |
| 562 |
|
| 532 |
|
| 1,016 | |
|
| $ | 66,807 |
| $ | 46,485 |
| $ | 42,803 |
Years Ended December 31, | ||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
Income taxes | $ | 22,829 |
| $ | 24,640 |
| $ | 22,798 |
Interest | $ | 826 |
| $ | 721 |
| $ | 411 |
| Years Ended December 31, | ||||||||
|
|
| 2017 |
|
| 2016 |
|
| 2015 |
Decrease (increase) in: |
|
|
|
|
|
|
|
| |
| Accounts receivable | $ | (37,807) |
| $ | (1,414) |
| $ | (22,521) |
| Financing receivables |
| (7,253) |
|
| (4,627) |
|
| (13,628) |
| Inventories |
| 10,832 |
|
| (3,825) |
|
| (21,070) |
| Prepaid expenses |
| (924) |
|
| (127) |
|
| (1,552) |
| Other assets, prepaid tax |
| - |
|
| (5,664) |
|
| - |
| Other assets |
| (457) |
|
| (1,038) |
|
| (655) |
Increase (decrease) in: |
|
|
|
|
|
|
|
| |
| Accounts payable |
| 4,204 |
|
| (3,360) |
|
| 9,183 |
| Accrued and other liabilities |
| (642) |
|
| 3,914 |
|
| (2,057) |
| Deferred revenue |
| 22,906 |
|
| (14,733) |
|
| 16,242 |
|
| $ | (9,141) |
| $ | (30,874) |
| $ | (36,058) |
17. Consolidated Statements of Cash Flows Supplemental Information
| Years Ended December 31, | ||||||||
|
|
| 2017 |
|
| 2016 |
|
| 2015 |
Decrease (increase) in: |
|
|
|
|
|
|
|
| |
| Accounts receivable | $ | (37,807) |
| $ | (1,414) |
| $ | (22,521) |
| Financing receivables |
| (7,253) |
|
| (4,627) |
|
| (13,628) |
| Inventories |
| 10,832 |
|
| (3,825) |
|
| (21,070) |
| Prepaid expenses |
| (924) |
|
| (127) |
|
| (1,552) |
| Other assets, prepaid tax |
| - |
|
| (5,664) |
|
| - |
| Other assets |
| (457) |
|
| (1,038) |
|
| (655) |
Increase (decrease) in: |
|
|
|
|
|
|
|
| |
| Accounts payable |
| 4,204 |
|
| (3,360) |
|
| 9,183 |
| Accrued and other liabilities |
| (642) |
|
| 3,914 |
|
| (2,057) |
| Deferred revenue |
| 22,906 |
|
| (14,733) |
|
| 16,242 |
|
| $ | (9,141) |
| $ | (30,874) |
| $ | (36,058) |
Years Ended December 31, | ||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
Income taxes | $ | 22,829 |
| $ | 24,640 |
| $ | 22,798 |
Interest | $ | 826 |
| $ | 721 |
| $ | 411 |
| Years Ended December 31, | ||||||||
|
|
| 2017 |
|
| 2016 |
|
| 2015 |
Film assets(1) | $ | 31,031 |
| $ | 16,324 |
| $ | 16,357 | |
Property, plant and equipment |
|
|
|
|
|
|
|
| |
| Joint revenue sharing arrangements |
| 18,112 |
|
| 15,840 |
|
| 13,663 |
| Other property, plant and equipment |
| 11,803 |
|
| 9,692 |
|
| 7,698 |
Other intangible assets |
| 4,319 |
|
| 3,235 |
|
| 3,285 | |
Other assets |
| 980 |
|
| 862 |
|
| 784 | |
Deferred financing costs |
| 562 |
|
| 532 |
|
| 1,016 | |
|
| $ | 66,807 |
| $ | 46,485 |
| $ | 42,803 |
______________
(1) | Included in film asset amortization is a charge of $1.5 million (2016 — $0.2 million; 2015 — $0.9 million) relating to changes in estimates based on the ultimate recoverability of future films. |
| Years Ended December 31, | ||||||||
|
|
| 2017 |
|
| 2016 |
|
| 2015 |
Asset impairments |
|
|
|
|
|
|
|
| |
| Property, plant and equipment | $ | 3,966 |
| $ | 223 |
| $ | 405 |
| Impairment of investments |
| 1,225 |
|
| 194 |
|
| 425 |
| Film assets |
| 17,363 |
|
| 3,020 |
|
| - |
| Other assets |
| 2,533 |
|
| - |
|
| - |
Other charges (recoveries) |
|
|
|
|
|
|
|
| |
| Accounts receivables |
| 1,967 |
|
| 1,029 |
|
| 677 |
| Financing receivables |
| 680 |
|
| (75) |
|
| 75 |
| Inventories(1) |
| 500 |
|
| 458 |
|
| 572 |
| Other assets |
| 47 |
|
| - |
|
| - |
| Property, plant and equipment(2) |
| 1,224 |
|
| 885 |
|
| 1,485 |
| Other intangible assets |
| 63 |
|
| 206 |
|
| 86 |
|
| $ | 29,568 |
| $ | 5,940 |
| $ | 3,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory charges |
|
|
|
|
|
|
|
| |
| Recorded in costs and expenses applicable to revenues - equipment & product sales | $ | 500 |
| $ | 227 |
| $ | 537 |
| Recorded in costs and expenses applicable to revenues - services |
| - |
|
| 231 |
|
| 35 |
|
| $ | 500 |
| $ | 458 |
| $ | 572 |
______________
(1) | In 2017, the Company recorded a charge of $1.2 million (2016 — $0.3 million; 2015 — $0.4 million) reflecting property, plant and equipment that were no longer in use. In 2016, the Company also recorded a charge of $0.6 million (2015 — $0.6 million) in cost of sales applicable to Equipment and product sales upon the upgrade of xenon-based digital systems under operating lease arrangements to laser-based digital systems under sales or sales-type lease arrangements. No such charge was recorded in the year ended December 31, 2017. In addition, in 2015, the Company recorded a charge of $0.5 million in cost of sales applicable to Rentals upon the upgrade of certain xenon-based digital systems to laser-based digital systems operating under joint revenue sharing arrangements. No such charge was recorded in 2017 and 2016.
|
Years Ended December 31, | |||||
|
| 2017 |
|
| 2016 |
Net accruals related to: |
|
|
|
|
|
Purchases of property, plant and equipment | $ | 871 |
| $ | (1,229) |
Investment in joint revenue sharing arrangements |
| 69 |
|
| 346 |
Acquisition of other intangible assets |
| 37 |
|
| (121) |
| $ | 977 |
| $ | (1,004) |
Years Ended December 31, | ||||||||
| 2017 |
|
| 2016 |
|
| 2015 | |
Revenue |
|
|
|
|
|
|
|
|
United States | $ | 135,153 |
| $ | 129,844 |
| $ | 136,017 |
Greater China |
| 126,474 |
|
| 118,532 |
|
| 110,591 |
Canada |
| 12,812 |
|
| 12,822 |
|
| 11,665 |
Western Europe |
| 32,765 |
|
| 36,286 |
|
| 39,569 |
Asia (excluding Greater China) |
| 35,896 |
|
| 35,283 |
|
| 38,143 |
Russia & the CIS |
| 11,054 |
|
| 14,908 |
|
| 12,412 |
Latin America |
| 10,963 |
|
| 12,191 |
|
| 10,179 |
Rest of the World |
| 15,650 |
|
| 17,468 |
|
| 15,229 |
Total | $ | 380,767 |
| $ | 377,334 |
| $ | 373,805 |
No single country in the Rest of the World, Western Europe, Latin America and Asia (excluding Greater China) classifications comprise more than 10% of total revenue.
As at December 31 | |||||
|
| 2017 |
|
| 2016 |
Property, plant and equipment |
|
|
|
|
|
United States | $ | 105,594 |
| $ | 104,083 |
Greater China |
| 84,619 |
|
| 69,751 |
Canada |
| 51,862 |
|
| 39,467 |
Western Europe |
| 19,480 |
|
| 19,308 |
Asia (excluding Greater China) |
| 8,793 |
|
| 8,460 |
Rest of the World |
| 6,433 |
|
| 4,346 |
Total | $ | 276,781 |
| $ | 245,415 |
| Years Ended December 31, | ||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 | |
Purchase of property, plant and equipment |
|
|
|
|
|
|
|
| |
Network business |
|
|
|
|
|
|
|
| |
| IMAX DMR | $ | 518 |
| $ | 1,121 |
| $ | 1,350 |
| Joint revenue sharing arrangements - contingent rent |
| 42,634 |
|
| 42,910 |
|
| 28,474 |
Theater business |
|
|
|
|
|
|
|
| |
| IMAX systems |
| 4,537 |
|
| 3,170 |
|
| 8,846 |
| Theater system maintenance |
| 206 |
|
| 481 |
|
| 555 |
New business |
| 4,487 |
|
| 5,070 |
|
| 1,737 | |
Other |
|
|
|
|
|
|
|
| |
| Film post-production |
| 810 |
|
| 1,746 |
|
| 16,337 |
| Film distribution |
| - |
|
| 21 |
|
| 830 |
| Other |
| 367 |
|
| 804 |
|
| 249 |
Corporate and other non-segment specific assets |
| 13,218 |
|
| 2,865 |
|
| 13,353 | |
Total | $ | 66,777 |
| $ | 58,188 |
| $ | 71,731 |
|
| Years Ended December 31, | |||||||
|
|
| 2017 |
|
| 2016 |
|
| 2015 |
Asset impairments and write-downs, net of recoveries |
|
|
|
|
|
|
|
| |
Network business |
|
|
|
|
|
|
|
| |
| Joint revenue sharing arrangements - contingent rent | $ | 944 |
| $ | 266 |
| $ | 528 |
Theater business |
|
|
|
|
|
|
|
| |
| IMAX systems |
| 2,930 |
|
| 916 |
|
| 2,298 |
| Theater system maintenance |
| - |
|
| 1,002 |
|
| 277 |
New business (2) |
| 16,400 |
|
| - |
|
| - | |
Other |
|
|
|
|
|
|
|
| |
| Film post-production |
| - |
|
| 223 |
|
| - |
| Film distribution |
| 5,865 |
|
| 3,020 |
|
| - |
Corporate and other non-segment specific assets |
| 3,429 |
|
| 513 |
|
| 622 | |
Total | $ | 29,568 |
| $ | 5,940 |
| $ | 3,725 |
| Years Ended December 31, | ||||||||
| 2017 |
|
| 2016 |
|
| 2015 | ||
Depreciation and amortization |
|
|
|
|
|
|
|
| |
Network business |
|
|
|
|
|
|
|
| |
| IMAX DMR | $ | 15,779 |
| $ | 15,028 |
| $ | 14,330 |
| Joint revenue sharing arrangements - contingent rent |
| 19,092 |
|
| 16,724 |
|
| 14,443 |
Theater business |
|
|
|
|
|
|
|
| |
| IMAX systems |
| 3,551 |
|
| 4,165 |
|
| 5,685 |
| Theater system maintenance |
| 173 |
|
| 72 |
|
| 72 |
New business (2) |
| 15,365 |
|
| 629 |
|
| 11 | |
Other |
|
|
|
|
|
|
|
| |
| Film post-production |
| 1,845 |
|
| 2,769 |
|
| 1,465 |
| Film distribution |
| 2,128 |
|
| 1,444 |
|
| 2,129 |
| Other |
| 911 |
|
| 938 |
|
| 693 |
Corporate and other non-segment specific assets |
| 7,963 |
|
| 4,716 |
|
| 3,975 | |
Total | $ | 66,807 |
| $ | 46,485 |
| $ | 42,803 |
Management, including the Company’s Chief Executive Officer (“CEO”) who is the Company’s Chief Operating Decision Maker (as defined in the Segment Reporting Topic of the FASB ASC), assesses segment performance based on segment revenues, gross margins and film performance. Selling, general and administrative expenses, research and development costs, amortization of intangibles, receivables provisions (recoveries), write-downs net of recoveries, interest income, interest expense and tax (provision) recovery are not allocated to the segments.
In the first quarter of 2017, modifications were made to the CEO’s reporting package to move away from the Company’s historical two primary groups – IMAX Theater Systems and Film – and to better align with the way in which the CODM manages the business. The new structure is expected to assist users of the financial statements with an enhanced understanding of how management views the business, and the drivers behind the Company’s performance. Certain of the prior period’s figures have been reclassified to conform to the current period’s presentation.
The Company has identified new business as an additional reportable segment in the first quarter of 2017. The Company now has the following eight reportable segments: IMAX systems; IMAX DMR; joint revenue sharing arrangements; theater system maintenance; film distribution; film post-production; new business; and other.
The Company’s reportable segments are now organized under four primary groups identified by nature of product sold or service provided: (1) Network Business, representing variable revenue generated by box office results and which includes the reportable segment of IMAX DMR and contingent rent from the joint revenue sharing arrangements and IMAX systems segments; (2) Theater Business, representing revenue generated by the sale and installation of theater systems and maintenance services, primarily related to the IMAX Systems and Theater System Maintenance reportable segments, and also includes fixed hybrid revenues and upfront installation costs from the joint revenue sharing arrangements segment and after-market sales of projection system parts and 3D glasses from the other segment; (3) New Business, which includes content licensing and distribution fees associated with the Company’s original content investments, virtual reality initiatives, IMAX Home Entertainment, and other business initiatives that are in the development and/or start-up phase, and (4) Other; which includes the film post-production and distribution segments and certain IMAX theaters that the Company owns and operates, camera rentals and other miscellaneous items from the other segment. The Company is presenting information at a disaggregated level to provide more relevant information to readers, as permitted by the standard. The accounting policies of the segments are the same as those described in note 2.
18. Segmented Information
In the first quarter of 2017, modifications were made to the CEO’s reporting package to move away from the Company’s historical two primary groups – IMAX Theater Systems and Film – and to better align with the way in which the CODM manages the business. The new structure is expected to assist users of the financial statements with an enhanced understanding of how management views the business, and the drivers behind the Company’s performance. Certain of the prior period’s figures have been reclassified to conform to the current period’s presentation.
The Company has identified new business as an additional reportable segment in the first quarter of 2017. The Company now has the following eight reportable segments: IMAX systems; IMAX DMR; joint revenue sharing arrangements; theater system maintenance; film distribution; film post-production; new business; and other.
The Company’s reportable segments are now organized under four primary groups identified by nature of product sold or service provided: (1) Network Business, representing variable revenue generated by box office results and which includes the reportable segment of IMAX DMR and contingent rent from the joint revenue sharing arrangements and IMAX systems segments; (2) Theater Business, representing revenue generated by the sale and installation of theater systems and maintenance services, primarily related to the IMAX Systems and Theater System Maintenance reportable segments, and also includes fixed hybrid revenues and upfront installation costs from the joint revenue sharing arrangements segment and after-market sales of projection system parts and 3D glasses from the other segment; (3) New Business, which includes content licensing and distribution fees associated with the Company’s original content investments, virtual reality initiatives, IMAX Home Entertainment, and other business initiatives that are in the development and/or start-up phase, and (4) Other; which includes the film post-production and distribution segments and certain IMAX theaters that the Company owns and operates, camera rentals and other miscellaneous items from the other segment. The Company is presenting information at a disaggregated level to provide more relevant information to readers, as permitted by the standard. The accounting policies of the segments are the same as those described in note 2.
Transactions between the film production and IMAX DMR segment and the film post-production segment are valued at exchange value. Inter-segment profits are eliminated upon consolidation, as well as for the disclosures below.
Years Ended December 31, | ||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
Revenue(1) |
|
|
|
|
|
|
|
|
Network business |
|
|
|
|
|
|
|
|
IMAX DMR | $ | 108,853 |
| $ | 106,403 |
| $ | 107,089 |
Joint revenue sharing arrangements – contingent rent |
| 70,444 |
|
| 73,500 |
|
| 81,396 |
IMAX systems – contingent rent |
| 3,890 |
|
| 4,644 |
|
| 3,900 |
|
| 183,187 |
|
| 184,547 |
|
| 192,385 |
|
|
|
|
|
|
|
|
|
Theater business |
|
|
|
|
|
|
|
|
IMAX systems |
| 90,347 |
|
| 100,884 |
|
| 98,226 |
Joint revenue sharing arrangements – fixed fees |
| 10,118 |
|
| 17,913 |
|
| 17,724 |
Theater system maintenance |
| 45,383 |
|
| 40,430 |
|
| 36,944 |
Other theater |
| 9,145 |
|
| 10,888 |
|
| 10,482 |
|
| 154,993 |
|
| 170,115 |
|
| 163,376 |
|
|
|
|
|
|
|
|
|
New business (2) |
| 24,522 |
|
| 626 |
|
| - |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
Film post-production |
| 10,382 |
|
| 8,873 |
|
| 7,069 |
Film distribution |
| 2,790 |
|
| 5,254 |
|
| 3,876 |
Other |
| 4,893 |
|
| 7,919 |
|
| 7,099 |
|
| 18,065 |
|
| 22,046 |
|
| 18,044 |
|
|
|
|
|
|
|
|
|
Total | $ | 380,767 |
| $ | 377,334 |
| $ | 373,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin |
|
|
|
|
|
|
|
|
Network business |
|
|
|
|
|
|
|
|
IMAX DMR (4) | $ | 71,789 |
| $ | 69,196 |
| $ | 77,645 |
Joint revenue sharing arrangements – contingent rent (4) |
| 47,337 |
|
| 54,705 |
|
| 63,500 |
IMAX systems – contingent rent |
| 3,890 |
|
| 4,644 |
|
| 3,900 |
|
| 123,016 |
|
| 128,545 |
|
| 145,045 |
|
|
|
|
|
|
|
|
|
Theater business |
|
|
|
|
|
|
|
|
IMAX systems (3) (4) |
| 57,734 |
|
| 55,448 |
|
| 55,265 |
Joint revenue sharing arrangements – fixed fees (4) |
| 2,349 |
|
| 5,132 |
|
| 4,873 |
Theater system maintenance (3) |
| 18,275 |
|
| 13,660 |
|
| 12,701 |
Other theater |
| 1,965 |
|
| 1,930 |
|
| 2,105 |
|
| 80,323 |
|
| 76,170 |
|
| 74,944 |
|
|
|
|
|
|
|
|
|
New business (2) |
| (16,176) |
|
| (2,199) |
|
| - |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
Film post-production |
| 4,791 |
|
| 3,729 |
|
| 1,381 |
Film distribution (4) |
| (5,797) |
|
| (3,909) |
|
| (259) |
Other |
| (911) |
|
| 342 |
|
| (1,823) |
|
| (1,917) |
|
| 162 |
|
| (701) |
|
|
|
|
|
|
|
|
|
Total | $ | 185,246 |
| $ | 202,678 |
| $ | 219,288 |
| Years Ended December 31, | ||||||||
| 2017 |
|
| 2016 |
|
| 2015 | ||
Depreciation and amortization |
|
|
|
|
|
|
|
| |
Network business |
|
|
|
|
|
|
|
| |
| IMAX DMR | $ | 15,779 |
| $ | 15,028 |
| $ | 14,330 |
| Joint revenue sharing arrangements - contingent rent |
| 19,092 |
|
| 16,724 |
|
| 14,443 |
Theater business |
|
|
|
|
|
|
|
| |
| IMAX systems |
| 3,551 |
|
| 4,165 |
|
| 5,685 |
| Theater system maintenance |
| 173 |
|
| 72 |
|
| 72 |
New business (2) |
| 15,365 |
|
| 629 |
|
| 11 | |
Other |
|
|
|
|
|
|
|
| |
| Film post-production |
| 1,845 |
|
| 2,769 |
|
| 1,465 |
| Film distribution |
| 2,128 |
|
| 1,444 |
|
| 2,129 |
| Other |
| 911 |
|
| 938 |
|
| 693 |
Corporate and other non-segment specific assets |
| 7,963 |
|
| 4,716 |
|
| 3,975 | |
Total | $ | 66,807 |
| $ | 46,485 |
| $ | 42,803 |
|
| Years Ended December 31, | |||||||
|
|
| 2017 |
|
| 2016 |
|
| 2015 |
Asset impairments and write-downs, net of recoveries |
|
|
|
|
|
|
|
| |
Network business |
|
|
|
|
|
|
|
| |
| Joint revenue sharing arrangements - contingent rent | $ | 944 |
| $ | 266 |
| $ | 528 |
Theater business |
|
|
|
|
|
|
|
| |
| IMAX systems |
| 2,930 |
|
| 916 |
|
| 2,298 |
| Theater system maintenance |
| - |
|
| 1,002 |
|
| 277 |
New business (2) |
| 16,400 |
|
| - |
|
| - | |
Other |
|
|
|
|
|
|
|
| |
| Film post-production |
| - |
|
| 223 |
|
| - |
| Film distribution |
| 5,865 |
|
| 3,020 |
|
| - |
Corporate and other non-segment specific assets |
| 3,429 |
|
| 513 |
|
| 622 | |
Total | $ | 29,568 |
| $ | 5,940 |
| $ | 3,725 |
| Years Ended December 31, | ||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 | |
Purchase of property, plant and equipment |
|
|
|
|
|
|
|
| |
Network business |
|
|
|
|
|
|
|
| |
| IMAX DMR | $ | 518 |
| $ | 1,121 |
| $ | 1,350 |
| Joint revenue sharing arrangements - contingent rent |
| 42,634 |
|
| 42,910 |
|
| 28,474 |
Theater business |
|
|
|
|
|
|
|
| |
| IMAX systems |
| 4,537 |
|
| 3,170 |
|
| 8,846 |
| Theater system maintenance |
| 206 |
|
| 481 |
|
| 555 |
New business |
| 4,487 |
|
| 5,070 |
|
| 1,737 | |
Other |
|
|
|
|
|
|
|
| |
| Film post-production |
| 810 |
|
| 1,746 |
|
| 16,337 |
| Film distribution |
| - |
|
| 21 |
|
| 830 |
| Other |
| 367 |
|
| 804 |
|
| 249 |
Corporate and other non-segment specific assets |
| 13,218 |
|
| 2,865 |
|
| 13,353 | |
Total | $ | 66,777 |
| $ | 58,188 |
| $ | 71,731 |
| Years Ended December 31 | |||||
|
| 2017 |
|
| 2016 | |
Assets |
|
|
|
|
| |
Network business |
|
|
|
|
| |
| IMAX DMR | $ | 42,067 |
| $ | 39,688 |
| Joint revenue sharing arrangements - contingent rent |
| 216,285 |
|
| 194,384 |
| IMAX systems - contingent rent |
| 457 |
|
| 573 |
Theater business |
|
|
|
|
| |
| IMAX systems |
| 224,424 |
|
| 216,931 |
| Joint revenue sharing arrangements - fixed fees |
| 7,997 |
|
| 10,174 |
| Theater system maintenance |
| 27,256 |
|
| 28,763 |
| Other theater |
| 1,564 |
|
| 429 |
New business |
| 27,450 |
|
| 13,661 | |
Other |
|
|
|
|
| |
| Film post-production |
| 34,480 |
|
| 35,865 |
| Film distribution |
| 9,444 |
|
| 21,059 |
| Other |
| 7,597 |
|
| 9,350 |
Corporate and other non-segment specific assets |
| 267,591 |
|
| 286,457 | |
Total | $ | 866,612 |
| $ | 857,334 |
______________
(1) | The Company’s largest customer represents 13.2% of total revenues as at December 31, 2017 (2016 — 13.5%; 2015 — 16.0%). |
(2) |
|
|
|
(3) | In 2017, the Company recorded a charge of $0.5 million (2016 — $0.5 million; 2015 — $0.6 million, respectively) in costs and expenses applicable to revenues, primarily for its film-based projector inventories. Specifically, IMAX systems includes an inventory charge of $0.5 million (2016 — $0.2 million; 2015 — $0.5 million). Theater system maintenance includes inventory write-downs of $nil (2016 — $0.2 million; 2015 — less than $0.1 million). |
|
|
(4) | IMAX DMR segment margins include marketing costs of $15.4 million, $17.5 million and $13.3 million in 2017, 2016 and 2015, respectively. Joint revenue sharing arrangements segment margins include advertising, marketing, and commission costs of $4.5 million, $4.1 million and $4.3 million in 2017, 2016 and 2015, respectively. IMAX systems segment margins include marketing and commission costs of $3.5 million, $3.0 million and $3.0 million in 2017, 2016 and 2015, respectively. Film distribution segment margins include a marketing recovery of $0.7 million, $2.2 million and recovery of $0.1 million in 2017, 2016 and 2015, respectively. |
|
|
(5) | Goodwill is allocated on a relative fair market value basis to the IMAX systems segment, theater system maintenance segment and joint revenue sharing segment. There has been no change in the allocation of goodwill from the prior year. |
Revenue by geographic area is based on the location of the customer. Revenue related to IMAX DMR is presented based upon the geographic location of the theaters that exhibit the re-mastered films. IMAX DMR revenue is generated through contractual relationships with studios and other third parties and these may not be in the same geographical location as the theater.
Years Ended December 31, | ||||||||
| 2017 |
|
| 2016 |
|
| 2015 | |
Revenue |
|
|
|
|
|
|
|
|
United States | $ | 135,153 |
| $ | 129,844 |
| $ | 136,017 |
Greater China |
| 126,474 |
|
| 118,532 |
|
| 110,591 |
Canada |
| 12,812 |
|
| 12,822 |
|
| 11,665 |
Western Europe |
| 32,765 |
|
| 36,286 |
|
| 39,569 |
Asia (excluding Greater China) |
| 35,896 |
|
| 35,283 |
|
| 38,143 |
Russia & the CIS |
| 11,054 |
|
| 14,908 |
|
| 12,412 |
Latin America |
| 10,963 |
|
| 12,191 |
|
| 10,179 |
Rest of the World |
| 15,650 |
|
| 17,468 |
|
| 15,229 |
Total | $ | 380,767 |
| $ | 377,334 |
| $ | 373,805 |
No single country in the Rest of the World, Western Europe, Latin America and Asia (excluding Greater China) classifications comprise more than 10% of total revenue.
As at December 31 | |||||
|
| 2017 |
|
| 2016 |
Property, plant and equipment |
|
|
|
|
|
United States | $ | 105,594 |
| $ | 104,083 |
Greater China |
| 84,619 |
|
| 69,751 |
Canada |
| 51,862 |
|
| 39,467 |
Western Europe |
| 19,480 |
|
| 19,308 |
Asia (excluding Greater China) |
| 8,793 |
|
| 8,460 |
Rest of the World |
| 6,433 |
|
| 4,346 |
Total | $ | 276,781 |
| $ | 245,415 |
Derivatives in Foreign Currency Hedging relationships are as follows:
|
|
| Years Ended December 31, | |||||||
|
|
|
| 2017 |
|
| 2016 |
|
| 2015 |
Foreign exchange contracts - Forwards | Derivative Gain (Loss) Recognized |
|
|
|
|
|
|
|
|
|
| in OCI (Effective Portion) |
| $ | 2,545 |
| $ | 1,049 |
| $ | (5,881) |
|
|
| $ | 2,545 |
| $ | 1,049 |
| $ | (5,881) |
|
|
|
|
|
|
|
|
|
|
|
| Location of Derivative Gain (Loss) |
|
|
|
|
|
|
|
|
|
| Reclassified from AOCI |
|
| Years Ended December 31, | ||||||
| into Income (Effective Portion) |
|
| 2017 |
|
| 2016 |
|
| 2015 |
| Selling, general and |
|
|
|
|
|
|
|
|
|
Foreign exchange contracts - Forwards | administrative expenses |
| $ | 824 |
| $ | (3,078) |
| $ | (3,217) |
|
|
| $ | 824 |
| $ | (3,078) |
| $ | (3,217) |
Fair value of derivatives in foreign exchange contracts:
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| As at December 31, | |||
| Balance Sheet Location | 2017 |
| 2016 | ||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
Foreign exchange contracts — Forwards | Other assets | $ | 1,447 |
| $ | 480 |
| Accrued and other liabilities |
| (22) |
|
| (776) |
|
| $ | 1,425 |
| $ | (296) |
Notional value of foreign exchange contracts:
| As at December 31, | ||||
|
| 2017 |
|
| 2016 |
Derivatives designated as hedging instruments: |
|
|
|
|
|
Foreign exchange contracts — Forwards | $ | 35,170 |
| $ | 37,825 |
The Company’s activity in the allowance for credit losses for the period and the Company’s recorded investment in financing receivables is as follows:
Year Ended December 31, 2017 | |||||
| Net Investment |
| Net Financed | ||
| in Leases |
| Sales Receivables | ||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
Beginning balance | $ | 672 |
| $ | 494 |
Charge-offs |
| (517) |
|
| (67) |
Recoveries |
| - |
|
| - |
Provision |
| - |
|
| 495 |
Ending balance | $ | 155 |
| $ | 922 |
|
|
|
|
|
|
Ending balance: individually evaluated for impairment | $ | 155 |
| $ | 922 |
|
|
|
|
|
|
|
|
|
|
|
|
Financing receivables: |
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment | $ | 7,390 |
| $ | 123,181 |
|
|
|
|
|
|
| Year Ended December 31, 2016 | ||||
| Net Investment |
| Net Financed | ||
| in Leases |
| Sales Receivables | ||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
Beginning balance | $ | 672 |
| $ | 568 |
Charge-offs |
| - |
|
| - |
Recoveries |
| - |
|
| (74) |
Provision |
| - |
|
| - |
Ending balance | $ | 672 |
| $ | 494 |
|
|
|
|
|
|
Ending balance: individually evaluated for impairment | $ | 672 |
| $ | 494 |
|
|
|
|
|
|
|
|
|
|
|
|
Financing receivables: |
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment | $ | 8,756 |
| $ | 114,535 |
The following table discloses information regarding the Company’s impaired financing receivables:
Impaired Financing Receivables | ||||||||||||||
| For the Year Ended December 31, 2017 | |||||||||||||
|
|
|
|
|
|
| Average |
| Interest | |||||
| Recorded |
| Unpaid |
| Related |
| Recorded |
| Income | |||||
| Investment |
| Principal |
| Allowance |
| Investment |
| Recognized | |||||
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases | $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
Net financed sales receivables |
| 1,050 |
|
| 142 |
|
| (922) |
|
| 684 |
|
| 89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Net financed sales receivables |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases | $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
Net financed sales receivables | $ | 1,050 |
| $ | 142 |
| $ | (922) |
| $ | 684 |
| $ | 89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Impaired Financing Receivables | |||||||||||||
| For the Year Ended December 31, 2016 | |||||||||||||
|
|
|
|
|
|
| Average |
| Interest | |||||
| Recorded |
| Unpaid |
| Related |
| Recorded |
| Income | |||||
| Investment |
| Principal |
| Allowance |
| Investment |
| Recognized | |||||
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases | $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
Net financed sales receivables |
| 525 |
|
| 75 |
|
| (494) |
|
| 637 |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Net financed sales receivables |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases | $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
Net financed sales receivables | $ | 525 |
| $ | 75 |
| $ | (494) |
| $ | 637 |
| $ | - |
The Company’s recorded investment in past due financing receivables for which the Company continues to accrue finance income is as follows:
| As at December 31, 2017 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Related |
|
|
|
| Recorded | ||||||
|
| Accrued |
|
|
|
|
| Billed |
| Unbilled |
|
|
| Investment | |||||||
|
| and |
|
|
|
|
| Financing |
| Recorded |
| Related |
| Past Due | |||||||
|
| Current |
| 30-89 Days |
| 90+ Days |
| Receivables |
| Investment |
| Allowance |
| and Accruing | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases |
| $ | 68 |
| $ | 70 |
| $ | 376 |
| $ | 514 |
| $ | 2,287 |
| $ | - |
| $ | 2,801 |
Net financed sales receivables |
|
| 1,165 |
|
| 743 |
|
| 3,363 |
|
| 5,271 |
|
| 27,430 |
|
| - |
|
| 32,701 |
Total |
| $ | 1,233 |
| $ | 813 |
| $ | 3,739 |
| $ | 5,785 |
| $ | 29,717 |
| $ | - |
| $ | 35,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As at December 31, 2016 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Related |
|
|
|
| Recorded | ||||||
|
| Accrued |
|
|
|
|
| Billed |
| Unbilled |
|
|
| Investment | |||||||
|
| and |
|
|
|
|
| Financing |
| Recorded |
| Related |
| Past Due | |||||||
|
| Current |
| 30-89 Days |
| 90+ Days |
| Receivables |
| Investment |
| Allowance |
| and Accruing | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases |
| $ | - |
| $ | 54 |
| $ | 244 |
| $ | 298 |
| $ | 1,646 |
| $ | - |
| $ | 1,944 |
Net financed sales receivables |
|
| 284 |
|
| 634 |
|
| 1,854 |
|
| 2,772 |
|
| 20,147 |
|
| - |
|
| 22,919 |
Total |
| $ | 284 |
| $ | 688 |
| $ | 2,098 |
| $ | 3,070 |
| $ | 21,793 |
| $ | - |
| $ | 24,863 |
The Company’s aged financing receivables are as follows:
| As at December 31, 2017 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Related |
|
|
|
|
|
|
| Recorded | ||
|
| Accrued |
|
|
|
|
|
|
| Billed |
| Unbilled |
| Total |
|
|
|
| Investment | |||||
|
| and |
|
|
|
|
|
|
| Financing |
| Recorded |
| Recorded |
| Related |
| Net of | ||||||
|
| Current |
| 30-89 Days |
| 90+ Days |
| Receivables |
| Investment |
| Investment |
| Allowances |
| Allowances | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases |
| $ | 103 |
| $ | 74 |
| $ | 376 |
| $ | 553 |
| $ | 6,837 |
| $ | 7,390 |
| $ | (155) |
| $ | 7,235 |
Net financed sales receivables |
|
| 3,285 |
|
| 1,399 |
|
| 3,763 |
|
| 8,447 |
|
| 114,734 |
|
| 123,181 |
|
| (922) |
|
| 122,259 |
Total |
| $ | 3,388 |
| $ | 1,473 |
| $ | 4,139 |
| $ | 9,000 |
| $ | 121,571 |
| $ | 130,571 |
| $ | (1,077) |
| $ | 129,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As at December 31, 2016 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Related |
|
|
|
|
|
|
| Recorded | ||
|
| Accrued |
|
|
|
|
|
|
| Billed |
| Unbilled |
| Total |
|
|
|
| Investment | |||||
|
| and |
|
|
|
|
|
|
| Financing |
| Recorded |
| Recorded |
| Related |
| Net of | ||||||
|
| Current |
| 30-89 Days |
| 90+ Days |
| Receivables |
| Investment |
| Investment |
| Allowances |
| Allowances | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases |
| $ | 28 |
| $ | 159 |
| $ | 781 |
| $ | 968 |
| $ | 7,788 |
| $ | 8,756 |
| $ | (672) |
| $ | 8,084 |
Net financed sales receivables |
|
| 2,393 |
|
| 1,724 |
|
| 2,368 |
|
| 6,485 |
|
| 108,050 |
|
| 114,535 |
|
| (494) |
|
| 114,041 |
Total |
| $ | 2,421 |
| $ | 1,883 |
| $ | 3,149 |
| $ | 7,453 |
| $ | 115,838 |
| $ | 123,291 |
| $ | (1,166) |
| $ | 122,125 |
The Company’s investment in financing receivables on nonaccrual status is as follows:
| As at December 31, 2017 |
| As at December 31, 2016 | |||||||||
|
| Recorded |
| Related |
| Recorded |
| Related | ||||
|
| Investment |
| Allowance |
| Investment |
| Allowance | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases |
| $ | - |
| $ | - |
| $ | 1,015 |
| $ | (672) |
Net financed sales receivables |
|
| 1,192 |
|
| (922) |
|
| 611 |
|
| (494) |
Total |
| $ | 1,192 |
| $ | (922) |
| $ | 1,626 |
| $ | (1,166) |
The following table discloses the recorded investment in financing receivables by credit quality indicator:
As at December 31, 2017 |
| As at December 31, 2016 | |||||||||||||||
| Minimum |
| Financed |
|
|
| Minimum |
| Financed |
|
| ||||||
| Lease |
| Sales |
|
|
| Lease |
| Sales |
|
| ||||||
| Payments |
| Receivables |
| Total |
| Payments |
| Receivables |
| Total | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In good standing | $ | 6,265 |
| $ | 118,060 |
| $ | 124,325 |
| $ | 7,741 |
| $ | 111,568 |
| $ | 119,309 |
Credit Watch |
| 568 |
|
| 2,926 |
|
| 3,494 |
|
| - |
|
| 1,514 |
|
| 1,514 |
Pre-approved transactions |
| 557 |
|
| 1,003 |
|
| 1,560 |
|
| - |
|
| 842 |
|
| 842 |
Transactions suspended |
| - |
|
| 1,192 |
|
| 1,192 |
|
| 1,015 |
|
| 611 |
|
| 1,626 |
| $ | 7,390 |
| $ | 123,181 |
| $ | 130,571 |
| $ | 8,756 |
| $ | 114,535 |
| $ | 123,291 |
The Company’s other financial instruments at December 31, are comprised of the following:
| As at December 31, 2017 |
|
| As at December 31, 2016 | |||||||
|
| Carrying |
|
| Estimated |
|
| Carrying |
|
| Estimated |
|
| Amount |
|
| Fair Value |
|
| Amount |
|
| Fair Value |
Cash and cash equivalents | $ | 158,725 |
| $ | 158,725 |
| $ | 204,759 |
| $ | 204,759 |
Net financed sales receivable | $ | 122,259 |
| $ | 122,918 |
| $ | 114,041 |
| $ | 115,014 |
Net investment in sales-type leases | $ | 7,235 |
| $ | 7,409 |
| $ | 8,084 |
| $ | 8,372 |
Convertible loan receivable | $ | 1,500 |
| $ | 1,500 |
| $ | 1,000 |
| $ | 1,000 |
Available-for-sale investment | $ | 2,016 |
| $ | 2,016 |
| $ | 1,000 |
| $ | 1,007 |
Foreign exchange contracts — designated forwards | $ | 1,425 |
| $ | 1,425 |
| $ | (296) |
| $ | (296) |
Borrowings under the Playa Vista Loan | $ | (25,667) |
| $ | (25,667) |
| $ | (27,667) |
| $ | (27,667) |
Cash and cash equivalents are comprised of cash and interest-bearing investments with original maturity dates to the Company of 90 days or less. Cash and cash equivalents are recorded at cost, which approximates fair value (Level 1 input in accordance with the Fair Value Measurements Topic of the FASB ASC hierarchy) as at December 31, 2017 and 2016, respectively.
The estimated fair values of the net financed sales receivable and net investment in sales-type leases are estimated based on discounting future cash flows at currently available interest rates with comparable terms (Level 2 input in accordance with the Fair Value Measurements Topic of the FASB ASC hierarchy) as at December 31, 2017 and 2016, respectively.
The fair value of the Company’s available-for-sale investment is determined using quoted prices in active markets (Level 2 input in accordance with the Fair Value Measurements Topic of the FASB ASC hierarchy) as at December 31, 2017 and 2016, respectively.
The estimated fair value of the Company’s convertible loan receivable is based on discounting future cash flow at currently available interest rates with comparable terms as at December 31, 2017 and 2016, respectively (Level 2 input in accordance with the Fair Value Measurements Topic of the FASB ASC hierarchy).
The fair value of foreign currency derivatives are determined using quoted prices in active markets (Level 2 input in accordance with the Fair Value Measurements Topic of the FASB ASC hierarchy) as at December 31, 2017 and 2016, respectively. These identical instruments are traded on a closed exchange.
The carrying value of borrowings under the Playa Vista Loan approximates fair value as the interest rates offered under the loan are close to December 31, 2017 market rates for the Company for debt of the same remaining maturities (Level 2 input in accordance with the Fair Value Measurements Topic of the FASB ASC hierarchy) as at December 31, 2017
There were no significant transfers between Level 1 and Level 2 during the year ended December 31, 2017 or 2016. When a determination is made to classify an asset or liability within Level 3, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement
The Company’s net investment in leases and its net financed sale receivables are subject to the disclosure requirements of ASC 310 “Receivables”. Due to differing risk profiles of its net investment in leases and its net financed sales receivables, the Company views its net investment in leases and its net financed sale receivables as separate classes of financing receivables. The Company does not aggregate financing receivables to assess impairment.
The Company monitors the credit quality of each customer on a frequent basis through collections and aging analyses. The Company also holds meetings monthly in order to identify credit concerns and whether a change in credit quality classification is required for the customer. A customer may improve in their credit quality classification once a substantial payment is made on overdue balances or the customer has agreed to a payment plan with the Company and payments have commenced in accordance to the payment plan. The change in credit quality indicator is dependent upon management approval.
The Company classifies its customers into four categories to indicate the credit quality worthiness of its financing receivables for internal purposes only:
Good standing — Theater continues to be in good standing with the Company as the client’s payments and reporting are up-to-date.
Credit Watch — Theater operator has begun to demonstrate a delay in payments, and has been placed on the Company's credit watch list for continued monitoring, but active communication continues with the Company. Depending on the size of outstanding balance, length of time in arrears and other factors, transactions may need to be approved by management. These financing receivables are considered to be in better condition than those receivables related to theaters in the "Pre-approved transactions" category, but not in as good of condition as those receivables in "Good standing."
Pre-approved transactions only — Theater operator is demonstrating a delay in payments with little or no communication with the Company. All service or shipments to the theater must be reviewed and approved by management. These financing receivables are considered to be in better condition than those receivables related to theaters in the "All transactions suspended" category, but not in as good of condition as those receivables in "Credit Watch." Depending on the individual facts and circumstances of each customer, finance income recognition may be suspended if management believes the receivable to be impaired.
All transactions suspended — Theater is severely delinquent, non-responsive or not negotiating in good faith with the Company. Once a theater is classified as “All transactions suspended” the theater is placed on nonaccrual status and all revenue recognitions related to the theater are stopped.
The Company considers financing receivables with aging between 60-89 days as indications of theaters with potential collection concerns. The Company will begin to focus its review on these financing receivables and increase its discussions internally and with the theater regarding payment status. Once a theater’s aging exceeds 90 days, the Company’s policy is to review and assess collectability on the theater’s past due accounts. Over 90 days past due is used by the Company as an indicator of potential impairment as invoices up to 90 days outstanding could be considered reasonable due to the time required for dispute resolution or for the provision of further information or supporting documentation to the customer
19. Financial Instruments
The Company maintains cash with various major financial institutions. The Company’s cash is invested with highly rated financial institutions.
The Company’s accounts receivables and financing receivables are subject to credit risk. The Company’s accounts receivable and financing receivables are concentrated with the theater exhibition industry and film entertainment industry. To minimize the Company’s credit risk, the Company retains title to underlying theater systems leased, performs initial and ongoing credit evaluations of its customers and makes ongoing provisions for its estimate of potentially uncollectible amounts. The Company believes it has adequately provided for related exposures surrounding receivables and contractual commitments.
The carrying values of the Company’s cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities due within one-year approximate fair values due to the short-term maturity of these instruments. The Company’s other financial instruments at December 31, are comprised of the following:
| As at December 31, 2017 |
|
| As at December 31, 2016 | |||||||
|
| Carrying |
|
| Estimated |
|
| Carrying |
|
| Estimated |
|
| Amount |
|
| Fair Value |
|
| Amount |
|
| Fair Value |
Cash and cash equivalents | $ | 158,725 |
| $ | 158,725 |
| $ | 204,759 |
| $ | 204,759 |
Net financed sales receivable | $ | 122,259 |
| $ | 122,918 |
| $ | 114,041 |
| $ | 115,014 |
Net investment in sales-type leases | $ | 7,235 |
| $ | 7,409 |
| $ | 8,084 |
| $ | 8,372 |
Convertible loan receivable | $ | 1,500 |
| $ | 1,500 |
| $ | 1,000 |
| $ | 1,000 |
Available-for-sale investment | $ | 2,016 |
| $ | 2,016 |
| $ | 1,000 |
| $ | 1,007 |
Foreign exchange contracts — designated forwards | $ | 1,425 |
| $ | 1,425 |
| $ | (296) |
| $ | (296) |
Borrowings under the Playa Vista Loan | $ | (25,667) |
| $ | (25,667) |
| $ | (27,667) |
| $ | (27,667) |
The estimated fair values of the net financed sales receivable and net investment in sales-type leases are estimated based on discounting future cash flows at currently available interest rates with comparable terms (Level 2 input in accordance with the Fair Value Measurements Topic of the FASB ASC hierarchy) as at December 31, 2017 and 2016, respectively.
The fair value of the Company’s available-for-sale investment is determined using quoted prices in active markets (Level 2 input in accordance with the Fair Value Measurements Topic of the FASB ASC hierarchy) as at December 31, 2017 and 2016, respectively.
The estimated fair value of the Company’s convertible loan receivable is based on discounting future cash flow at currently available interest rates with comparable terms as at December 31, 2017 and 2016, respectively (Level 2 input in accordance with the Fair Value Measurements Topic of the FASB ASC hierarchy).
The fair value of foreign currency derivatives are determined using quoted prices in active markets (Level 2 input in accordance with the Fair Value Measurements Topic of the FASB ASC hierarchy) as at December 31, 2017 and 2016, respectively. These identical instruments are traded on a closed exchange.
The carrying value of borrowings under the Playa Vista Loan approximates fair value as the interest rates offered under the loan are close to December 31, 2017 market rates for the Company for debt of the same remaining maturities (Level 2 input in accordance with the Fair Value Measurements Topic of the FASB ASC hierarchy) as at December 31, 2017.
There were no transfers in or out of the Company’s Level 3 assets during the year ended December 31, 2017.
The Company monitors the credit quality of each customer on a frequent basis through collections and aging analyses. The Company also holds meetings monthly in order to identify credit concerns and whether a change in credit quality classification is required for the customer. A customer may improve in their credit quality classification once a substantial payment is made on overdue balances or the customer has agreed to a payment plan with the Company and payments have commenced in accordance to the payment plan. The change in credit quality indicator is dependent upon management approval.
The Company classifies its customers into four categories to indicate the credit quality worthiness of its financing receivables for internal purposes only:
Good standing — Theater continues to be in good standing with the Company as the client’s payments and reporting are up-to-date.
Credit Watch — Theater operator has begun to demonstrate a delay in payments, and has been placed on the Company's credit watch list for continued monitoring, but active communication continues with the Company. Depending on the size of outstanding balance, length of time in arrears and other factors, transactions may need to be approved by management. These financing receivables are considered to be in better condition than those receivables related to theaters in the "Pre-approved transactions" category, but not in as good of condition as those receivables in "Good standing."
Pre-approved transactions only — Theater operator is demonstrating a delay in payments with little or no communication with the Company. All service or shipments to the theater must be reviewed and approved by management. These financing receivables are considered to be in better condition than those receivables related to theaters in the "All transactions suspended" category, but not in as good of condition as those receivables in "Credit Watch." Depending on the individual facts and circumstances of each customer, finance income recognition may be suspended if management believes the receivable to be impaired.
All transactions suspended — Theater is severely delinquent, non-responsive or not negotiating in good faith with the Company. Once a theater is classified as “All transactions suspended” the theater is placed on nonaccrual status and all revenue recognitions related to the theater are stopped.
As at December 31, 2017 |
| As at December 31, 2016 | |||||||||||||||
| Minimum |
| Financed |
|
|
| Minimum |
| Financed |
|
| ||||||
| Lease |
| Sales |
|
|
| Lease |
| Sales |
|
| ||||||
| Payments |
| Receivables |
| Total |
| Payments |
| Receivables |
| Total | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In good standing | $ | 6,265 |
| $ | 118,060 |
| $ | 124,325 |
| $ | 7,741 |
| $ | 111,568 |
| $ | 119,309 |
Credit Watch |
| 568 |
|
| 2,926 |
|
| 3,494 |
|
| - |
|
| 1,514 |
|
| 1,514 |
Pre-approved transactions |
| 557 |
|
| 1,003 |
|
| 1,560 |
|
| - |
|
| 842 |
|
| 842 |
Transactions suspended |
| - |
|
| 1,192 |
|
| 1,192 |
|
| 1,015 |
|
| 611 |
|
| 1,626 |
| $ | 7,390 |
| $ | 123,181 |
| $ | 130,571 |
| $ | 8,756 |
| $ | 114,535 |
| $ | 123,291 |
While recognition of finance income is suspended, payments received by a customer are applied against the outstanding balance owed. If payments are sufficient to cover any unreserved receivables, a recovery of provision taken on the billed amount, if applicable, is recorded to the extent of the residual cash received. Once the collectability issues are resolved and the customer has returned to being in good standing, the Company will resume recognition of finance income.
The Company’s investment in financing receivables on nonaccrual status is as follows:
| As at December 31, 2017 |
| As at December 31, 2016 | |||||||||
|
| Recorded |
| Related |
| Recorded |
| Related | ||||
|
| Investment |
| Allowance |
| Investment |
| Allowance | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases |
| $ | - |
| $ | - |
| $ | 1,015 |
| $ | (672) |
Net financed sales receivables |
|
| 1,192 |
|
| (922) |
|
| 611 |
|
| (494) |
Total |
| $ | 1,192 |
| $ | (922) |
| $ | 1,626 |
| $ | (1,166) |
The Company’s aged financing receivables are as follows:
| As at December 31, 2017 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Related |
|
|
|
|
|
|
| Recorded | ||
|
| Accrued |
|
|
|
|
|
|
| Billed |
| Unbilled |
| Total |
|
|
|
| Investment | |||||
|
| and |
|
|
|
|
|
|
| Financing |
| Recorded |
| Recorded |
| Related |
| Net of | ||||||
|
| Current |
| 30-89 Days |
| 90+ Days |
| Receivables |
| Investment |
| Investment |
| Allowances |
| Allowances | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases |
| $ | 103 |
| $ | 74 |
| $ | 376 |
| $ | 553 |
| $ | 6,837 |
| $ | 7,390 |
| $ | (155) |
| $ | 7,235 |
Net financed sales receivables |
|
| 3,285 |
|
| 1,399 |
|
| 3,763 |
|
| 8,447 |
|
| 114,734 |
|
| 123,181 |
|
| (922) |
|
| 122,259 |
Total |
| $ | 3,388 |
| $ | 1,473 |
| $ | 4,139 |
| $ | 9,000 |
| $ | 121,571 |
| $ | 130,571 |
| $ | (1,077) |
| $ | 129,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As at December 31, 2016 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Related |
|
|
|
|
|
|
| Recorded | ||
|
| Accrued |
|
|
|
|
|
|
| Billed |
| Unbilled |
| Total |
|
|
|
| Investment | |||||
|
| and |
|
|
|
|
|
|
| Financing |
| Recorded |
| Recorded |
| Related |
| Net of | ||||||
|
| Current |
| 30-89 Days |
| 90+ Days |
| Receivables |
| Investment |
| Investment |
| Allowances |
| Allowances | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases |
| $ | 28 |
| $ | 159 |
| $ | 781 |
| $ | 968 |
| $ | 7,788 |
| $ | 8,756 |
| $ | (672) |
| $ | 8,084 |
Net financed sales receivables |
|
| 2,393 |
|
| 1,724 |
|
| 2,368 |
|
| 6,485 |
|
| 108,050 |
|
| 114,535 |
|
| (494) |
|
| 114,041 |
Total |
| $ | 2,421 |
| $ | 1,883 |
| $ | 3,149 |
| $ | 7,453 |
| $ | 115,838 |
| $ | 123,291 |
| $ | (1,166) |
| $ | 122,125 |
| As at December 31, 2017 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Related |
|
|
|
| Recorded | ||||||
|
| Accrued |
|
|
|
|
| Billed |
| Unbilled |
|
|
| Investment | |||||||
|
| and |
|
|
|
|
| Financing |
| Recorded |
| Related |
| Past Due | |||||||
|
| Current |
| 30-89 Days |
| 90+ Days |
| Receivables |
| Investment |
| Allowance |
| and Accruing | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases |
| $ | 68 |
| $ | 70 |
| $ | 376 |
| $ | 514 |
| $ | 2,287 |
| $ | - |
| $ | 2,801 |
Net financed sales receivables |
|
| 1,165 |
|
| 743 |
|
| 3,363 |
|
| 5,271 |
|
| 27,430 |
|
| - |
|
| 32,701 |
Total |
| $ | 1,233 |
| $ | 813 |
| $ | 3,739 |
| $ | 5,785 |
| $ | 29,717 |
| $ | - |
| $ | 35,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As at December 31, 2016 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Related |
|
|
|
| Recorded | ||||||
|
| Accrued |
|
|
|
|
| Billed |
| Unbilled |
|
|
| Investment | |||||||
|
| and |
|
|
|
|
| Financing |
| Recorded |
| Related |
| Past Due | |||||||
|
| Current |
| 30-89 Days |
| 90+ Days |
| Receivables |
| Investment |
| Allowance |
| and Accruing | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases |
| $ | - |
| $ | 54 |
| $ | 244 |
| $ | 298 |
| $ | 1,646 |
| $ | - |
| $ | 1,944 |
Net financed sales receivables |
|
| 284 |
|
| 634 |
|
| 1,854 |
|
| 2,772 |
|
| 20,147 |
|
| - |
|
| 22,919 |
Total |
| $ | 284 |
| $ | 688 |
| $ | 2,098 |
| $ | 3,070 |
| $ | 21,793 |
| $ | - |
| $ | 24,863 |
The Company considers financing receivables to be impaired when it believes it to be probable that it will not recover the full amount of principal or interest owing under the arrangement. The Company uses its knowledge of the industry and economic trends, as well as its prior experiences to determine the amount recoverable for impaired financing receivables. The following table discloses information regarding the Company’s impaired financing receivables:
Impaired Financing Receivables | ||||||||||||||
| For the Year Ended December 31, 2017 | |||||||||||||
|
|
|
|
|
|
| Average |
| Interest | |||||
| Recorded |
| Unpaid |
| Related |
| Recorded |
| Income | |||||
| Investment |
| Principal |
| Allowance |
| Investment |
| Recognized | |||||
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases | $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
Net financed sales receivables |
| 1,050 |
|
| 142 |
|
| (922) |
|
| 684 |
|
| 89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Net financed sales receivables |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases | $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
Net financed sales receivables | $ | 1,050 |
| $ | 142 |
| $ | (922) |
| $ | 684 |
| $ | 89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Impaired Financing Receivables | |||||||||||||
| For the Year Ended December 31, 2016 | |||||||||||||
|
|
|
|
|
|
| Average |
| Interest | |||||
| Recorded |
| Unpaid |
| Related |
| Recorded |
| Income | |||||
| Investment |
| Principal |
| Allowance |
| Investment |
| Recognized | |||||
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases | $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
Net financed sales receivables |
| 525 |
|
| 75 |
|
| (494) |
|
| 637 |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Net financed sales receivables |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases | $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
Net financed sales receivables | $ | 525 |
| $ | 75 |
| $ | (494) |
| $ | 637 |
| $ | - |
Year Ended December 31, 2017 | |||||
| Net Investment |
| Net Financed | ||
| in Leases |
| Sales Receivables | ||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
Beginning balance | $ | 672 |
| $ | 494 |
Charge-offs |
| (517) |
|
| (67) |
Recoveries |
| - |
|
| - |
Provision |
| - |
|
| 495 |
Ending balance | $ | 155 |
| $ | 922 |
|
|
|
|
|
|
Ending balance: individually evaluated for impairment | $ | 155 |
| $ | 922 |
|
|
|
|
|
|
|
|
|
|
|
|
Financing receivables: |
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment | $ | 7,390 |
| $ | 123,181 |
|
|
|
|
|
|
| Year Ended December 31, 2016 | ||||
| Net Investment |
| Net Financed | ||
| in Leases |
| Sales Receivables | ||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
Beginning balance | $ | 672 |
| $ | 568 |
Charge-offs |
| - |
|
| - |
Recoveries |
| - |
|
| (74) |
Provision |
| - |
|
| - |
Ending balance | $ | 672 |
| $ | 494 |
|
|
|
|
|
|
Ending balance: individually evaluated for impairment | $ | 672 |
| $ | 494 |
|
|
|
|
|
|
|
|
|
|
|
|
Financing receivables: |
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment | $ | 8,756 |
| $ | 114,535 |
The Company is exposed to market risk from changes in foreign currency rates. A majority portion of the Company’s revenues is denominated in U.S. dollars while a substantial portion of its costs and expenses is denominated in Canadian dollars. A portion of the net U.S. dollar cash flows of the Company is periodically converted to Canadian dollars to fund Canadian dollar expenses through the spot market. In China and Japan, the Company has ongoing operating expenses related to its operations in Chinese Renminbi and Japanese yen, respectively. Net cash flows are converted to and from U.S. dollars through the spot market. The Company also has cash receipts under leases denominated in Chinese Renminbi, Japanese yen, Canadian dollars and Euros which are converted to U.S. dollars through the spot market. In addition, because IMAX films generate box-office in 75 different countries, unfavourable exchange rates between applicable local currencies, and the U.S. dollar affect the Company’s reported gross box-office and revenues, further impacting the Company’s results of operations. The Company’s policy is to not use any financial instruments for trading or other speculative purposes.
The Company entered into a series of foreign currency forward contracts to manage the Company’s risks associated with the volatility of foreign currencies. Certain of these foreign currency forward contracts met the criteria required for hedge accounting under the Derivatives and Hedging Topic of the FASB ASC at inception, and continue to meet hedge effectiveness tests at December 31, 2017 (the “Foreign Currency Hedges”), with settlement dates throughout 2018 and 2019. Foreign currency derivatives are recognized and measured in the balance sheet at fair value. Changes in the fair value (gains or losses) are recognized in the consolidated statement of operations except for derivatives designated and qualifying as foreign currency hedging instruments. For foreign currency hedging instruments, the effective portion of the gain or loss in a hedge of a forecasted transaction is reported in other comprehensive income and reclassified to the consolidated statement of operations when the forecasted transaction occurs. Any ineffective portion is recognized immediately in the consolidated statement of operations. The Company currently does not hold any derivatives which are not designated as hedging instruments and therefore no gain or loss pertaining to an ineffective portion has been recognized.
The following tabular disclosures reflect the impact that derivative instruments and hedging activities have on the Company’s consolidated financial statements:
Notional value of foreign exchange contracts:
| As at December 31, | ||||
|
| 2017 |
|
| 2016 |
Derivatives designated as hedging instruments: |
|
|
|
|
|
Foreign exchange contracts — Forwards | $ | 35,170 |
| $ | 37,825 |
Fair value of derivatives in foreign exchange contracts:
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| As at December 31, | |||
| Balance Sheet Location | 2017 |
| 2016 | ||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
Foreign exchange contracts — Forwards | Other assets | $ | 1,447 |
| $ | 480 |
| Accrued and other liabilities |
| (22) |
|
| (776) |
|
| $ | 1,425 |
| $ | (296) |
Derivatives in Foreign Currency Hedging relationships are as follows:
|
|
| Years Ended December 31, | |||||||
|
|
|
| 2017 |
|
| 2016 |
|
| 2015 |
Foreign exchange contracts - Forwards | Derivative Gain (Loss) Recognized |
|
|
|
|
|
|
|
|
|
| in OCI (Effective Portion) |
| $ | 2,545 |
| $ | 1,049 |
| $ | (5,881) |
|
|
| $ | 2,545 |
| $ | 1,049 |
| $ | (5,881) |
|
|
|
|
|
|
|
|
|
|
|
| Location of Derivative Gain (Loss) |
|
|
|
|
|
|
|
|
|
| Reclassified from AOCI |
|
| Years Ended December 31, | ||||||
| into Income (Effective Portion) |
|
| 2017 |
|
| 2016 |
|
| 2015 |
| Selling, general and |
|
|
|
|
|
|
|
|
|
Foreign exchange contracts - Forwards | administrative expenses |
| $ | 824 |
| $ | (3,078) |
| $ | (3,217) |
|
|
| $ | 824 |
| $ | (3,078) |
| $ | (3,217) |
The Company's estimated net amount of the existing gains as at December 31, 2017 is $1.2 million, which is expected to be reclassified to earnings within the next twelve months
The Company accounts for investments in new business ventures using the guidance of the FASB ASC 323 and the FASB ASC 320, as appropriate.
As at December 31, 2017, the equity method of accounting is being utilized for investments with a total carrying value of $nil (December 31, 2016 — $nil). The Company’s accumulated losses in excess of its equity investment were $2.0 million as at December 31, 2017 (December 31, 2016 — $0.5 million), and are classified in Accrued and other liabilities. For the year ended December 31, 2017, gross revenues, cost of revenue and net loss for the investment were $2.5 million, $3.9 million and $2.5 million, respectively (2016 — $0.6 million, $6.8 million, and $6.2 million, respectively). The Company has determined it is not the primary beneficiary of this VIE, and therefore this entity has not been consolidated. In 2016, the Company issued a convertible loan of $1.0 million to this entity with a term of 3 years with an annual effective interest rate of 5.0%. In 2017, the Company issued an additional $0.5 million under this existing convertible loan. The instrument is classified as an available-for-sale investment due to certain features that allow for conversion to common stock in the entity in the event of certain triggers occurring.
In addition, the Company has an investment in preferred stock of another business venture of $1.5 million which meets the criteria for classification as a debt security under the FASB ASC 320 and is recorded at a fair value of $nil at December 31, 2017 (December 31, 2016 — $nil). This investment was classified as an available-for-sale investment.
Furthermore, the Company has an investment of $1.0 million (December 31, 2016 — $1.0 million) in the shares of an exchange traded fund. This investment is also classified as an available-for-sale investment.
For the year ended December 31, 2017, the Company held investments with a total value of $3.5 million in the preferred shares of enterprises which meet the criteria for classification as an equity security under FASB ASC 325, carried at historical cost, net of impairment charges. The carrying value of these equity security investments was $1.0 million at December 31, 2017 (December 31, 2016 — $nil).
The total carrying value of investments in new business ventures at December 31, 2017 and 2016 is $3.5 million and $2.0 million, respectively, and is recorded in Other Assets.
The following assumptions were used to determine the obligation and cost of the Company’s SERP at the plan measurement dates:
| As at December 31, | |||||
|
| 2017 |
| 2016 |
| 2015 |
Discount rate | 2.22% |
| 2.18% |
| 1.34% | |
Lump sum interest rate: |
|
|
|
|
| |
| First 20 years | 2.39% |
| 1.87% |
| 2.82% |
| Thereafter | 2.60% |
| 2.37% |
| 2.95% |
Cost of living adjustment on benefits | 1.20% |
| 1.20% |
| 1.20% |
The amounts accrued for the SERP are determined as follows:
| Years Ended December 31, | |||||
|
| 2017 |
| 2016 | ||
Projected benefit obligation: |
|
|
|
|
| |
| Obligation, beginning of year | $ | 19,580 |
| $ | 19,478 |
| Interest cost |
| 427 |
|
| 261 |
| Actuarial gain |
| (1,004) |
|
| (159) |
| Obligation, end of year and unfunded status | $ | 19,003 |
| $ | 19,580 |
The following table provides disclosure of the pension benefit obligation recorded in the consolidated balance sheets:
As at December 31, | |||||
| 2017 |
| 2016 | ||
Accrued benefits cost | $ | (19,003) |
| $ | (19,580) |
Accumulated other comprehensive loss |
| 161 |
|
| 1,165 |
Net amount recognized in the consolidated balance sheets | $ | (18,842) |
| $ | (18,415) |
The following table provides disclosure of pension expense for the SERP for the years ended December 31:
Years ended December 31, | ||||||||
| 2017 |
| 2016 |
| 2015 | |||
Interest cost | $ | 427 |
| $ | 261 |
| $ | 253 |
Pension expense | $ | 427 |
| $ | 261 |
| $ | 253 |
The following amounts were included in accumulated other comprehensive income and will be recognized as components of net periodic benefit cost in future periods:
| As at December 31, | |||||||
| 2017 |
| 2016 |
|
| 2015 | ||
Unrealized actuarial loss | $ | 161 |
| $ | 1,165 |
| $ | 1,323 |
The following benefit payments are expected to be made as per the current SERP assumptions and the terms of the SERP in each of the next five years, and in the aggregate:
$ | - | |
2019 |
| - |
2020 |
| 20,076 |
2021 |
| - |
2022 |
| - |
Thereafter |
| - |
| $ | 20,076 |
The amounts accrued for the plan are determined as follows:
As at December 31, | |||||
| 2017 |
| 2016 | ||
Obligation, beginning of year | $ | 647 |
| $ | 763 |
Interest cost |
| 26 |
|
| 31 |
Benefits paid |
| (21) |
|
| (33) |
Actuarial loss (gain) |
| 46 |
|
| (114) |
Obligation, end of year | $ | 698 |
| $ | 647 |
The following details the net cost components, all related to continuing operations, and underlying assumptions of postretirement benefits other than pensions:
Years Ended December 31, | ||||||||
| 2017 |
| 2016 |
| 2015 | |||
Interest cost | $ | 26 |
| $ | 31 |
| $ | 30 |
Amortization of actuarial loss |
| - |
|
| 69 |
|
| 135 |
| $ | 26 |
| $ | 100 |
| $ | 165 |
The following amounts were included in accumulated other comprehensive income and will be recognized as components of net periodic benefit cost in future periods:
| As at December 31, | |||||||
| 2017 |
| 2016 |
|
| 2015 | ||
Unrealized actuarial loss (gain) | $ | 9 |
| $ | (37) |
| $ | 146 |
Weighted average assumptions used to determine the benefit obligation are:
As at December 31, | ||||||||
| 2017 |
| 2016 |
| 2015 | |||
Discount rate | 3.55 | % |
| 4.10 | % |
| 4.20 | % |
Weighted average assumption used to determine the net postretirement benefit expense are:
Years Ended December 31, | ||||||||
| 2017 |
| 2016 |
| 2015 | |||
Discount rate | 4.10 | % |
| 4.20 | % |
| 3.70 | % |
The following benefit payments are expected to be made as per the current plan assumptions in each of the next five years:
$ | 24 | |
2019 |
| 26 |
2020 |
| 33 |
2021 |
| 37 |
2022 |
| 40 |
Thereafter |
| 538 |
Total | $ | 698 |
The amounts accrued for the plan are determined as follows:
As at December 31, | |||||
| 2017 |
| 2016 | ||
Obligation, beginning of year | $ | 1,745 |
| $ | 1,778 |
Interest cost |
| 65 |
|
| 68 |
Service cost |
| - |
|
| - |
Benefits paid |
| (79) |
|
| (88) |
Actuarial gain |
| (171) |
|
| (70) |
Unrealized foreign exchange loss |
| 118 |
|
| 57 |
Obligation, end of year | $ | 1,678 |
| $ | 1,745 |
The following details the net cost components, all related to continuing operations, and underlying assumptions of postretirement benefits other than pensions:
Years Ended December 31, | ||||||||
| 2017 |
| 2016 |
| 2015 | |||
Interest cost | $ | 65 |
| $ | 68 |
| $ | 71 |
Service cost |
| - |
|
| - |
|
| 1 |
| $ | 65 |
| $ | 68 |
| $ | 72 |
The following amounts were included in accumulated other comprehensive income and will be recognized as components of net periodic benefit cost in future periods:
| As at December 31, | |||||||
| 2017 |
| 2016 |
|
| 2015 | ||
Unrealized actuarial loss | $ | 182 |
| $ | 353 |
| $ | 423 |
Weighted average assumptions used to determine the benefit obligation are:
As at December 31, | ||||||||
| 2017 |
| 2016 |
| 2015 | |||
Discount rate | 3.35 | % |
| 3.65 | % |
| 3.75 | % |
Weighted average assumptions used to determine the net postretirement benefit expense are:
Years Ended December 31, | ||||||||
| 2017 |
| 2016 |
| 2015 | |||
Discount rate | 3.65 | % |
| 3.75 | % |
| 3.75 | % |
The following benefit payments are expected to be made as per the current plan assumptions in each of the next five years:
$ | 98 | |
2019 |
| 105 |
2020 |
| 111 |
2021 |
| 114 |
2022 |
| 116 |
Thereafter |
| 1,134 |
Total | $ | 1,678 |
20. Employee's Pension and Postretirement Benefits
The Company has an unfunded U.S. defined benefit pension plan, the SERP, covering Richard L. Gelfond, Chief Executive Officer (“CEO”) of the Company. The SERP provides for a lifetime retirement benefit from age 55 determined as 75% of Mr. Gelfond’s best average 60 consecutive months of earnings over his employment history. The benefits were 50% vested as at July 2000, the SERP initiation date. The vesting percentage increased on a straight-line basis from inception until age 55. The benefits of Mr. Gelfond are 100% vested. Upon a termination for cause, prior to a change of control, Mr. Gelfond shall forfeit any and all benefits to which he may have been entitled, whether or not vested.
Under the terms of the SERP, if Mr. Gelfond’s employment terminated other than for cause (as defined in his employment agreement), he is entitled to receive SERP benefits in the form of a lump sum payment. SERP benefit payments to Mr. Gelfond are subject to a deferral for six months after the termination of his employment, at which time Mr. Gelfond will be entitled to receive interest on the deferred amount credited at the applicable federal rate for short-term obligations. Pursuant to an employment agreement dated November 8, 2016, the term of Mr. Gelfond’s employment was extended through December 31, 2019, although Mr. Gelfond has not informed the Company that he intends to retire at that time. Under the terms of the arrangement, no compensation earned beginning in 2011 is included in calculating his entitlement under the SERP.
| As at December 31, | |||||
|
| 2017 |
| 2016 |
| 2015 |
Discount rate | 2.22% |
| 2.18% |
| 1.34% | |
Lump sum interest rate: |
|
|
|
|
| |
| First 20 years | 2.39% |
| 1.87% |
| 2.82% |
| Thereafter | 2.60% |
| 2.37% |
| 2.95% |
Cost of living adjustment on benefits | 1.20% |
| 1.20% |
| 1.20% |
The amounts accrued for the SERP are determined as follows:
| Years Ended December 31, | |||||
|
| 2017 |
| 2016 | ||
Projected benefit obligation: |
|
|
|
|
| |
| Obligation, beginning of year | $ | 19,580 |
| $ | 19,478 |
| Interest cost |
| 427 |
|
| 261 |
| Actuarial gain |
| (1,004) |
|
| (159) |
| Obligation, end of year and unfunded status | $ | 19,003 |
| $ | 19,580 |
The following table provides disclosure of the pension benefit obligation recorded in the consolidated balance sheets:
As at December 31, | |||||
| 2017 |
| 2016 | ||
Accrued benefits cost | $ | (19,003) |
| $ | (19,580) |
Accumulated other comprehensive loss |
| 161 |
|
| 1,165 |
Net amount recognized in the consolidated balance sheets | $ | (18,842) |
| $ | (18,415) |
Years ended December 31, | ||||||||
| 2017 |
| 2016 |
| 2015 | |||
Interest cost | $ | 427 |
| $ | 261 |
| $ | 253 |
Pension expense | $ | 427 |
| $ | 261 |
| $ | 253 |
The accumulated benefit obligation for the SERP was $19.0 million at December 31, 2017 (2016 — $19.6 million).
| As at December 31, | |||||||
| 2017 |
| 2016 |
|
| 2015 | ||
Unrealized actuarial loss | $ | 161 |
| $ | 1,165 |
| $ | 1,323 |
No contributions were made for the SERP during 2017. The Company expects interest costs of $0.4 million to be recognized as a component of net periodic benefit cost in 2018.
$ | - | |
2019 |
| - |
2020 |
| 20,076 |
2021 |
| - |
2022 |
| - |
Thereafter |
| - |
| $ | 20,076 |
The Company also maintains defined contribution pension plans for its employees, including its executive officers. The Company makes contributions to these plans on behalf of employees in an amount up to 5% of their base salary subject to certain prescribed maximums. During 2017, the Company contributed and expensed an aggregate of $1.2 million (2016 — $1.2 million; 2015 — $1.1 million) to its Canadian plan and an aggregate of $0.7 million (2016 — $0.6 million; 2015 — $0.4 million) to its defined contribution employee pension plan under Section 401(k) of the U.S. Internal Revenue Code.
The Company also maintains a deferred compensation plan (the “Retirement Plan”) covering Greg Foster, CEO of IMAX Entertainment and Senior Executive Vice President of the Company. The Company has agreed to make a total contribution of $3.2 million over Mr. Foster’s employment term. The Retirement Plan is subject to a vesting schedule based on continued employment with the Company, such that 25% will vest July 2019; 50% will vest July 2022; 75% will vest July 2025; and Mr. Foster will be 100% vested in July 2027. During the year the Company contributed and expensed an aggregate of $0.7 million (2016 — $0.5 million) to this Retirement Plan. The Company expects to contribute and expense $0.7 million in 2018. As at December 31, 2017, the Company had an unfunded benefit obligation recorded of $1.0 million (December 31, 2016 — $0.5 million).
The Company has an unfunded postretirement plan for Messrs. Gelfond and Bradley J. Wechsler, Chairman of the Company’s Board of Directors. The plan provides that the Company will maintain health benefits for Messrs. Gelfond and Wechsler until they become eligible for Medicare and, thereafter, the Company will provide Medicare supplemental coverage as selected by Messrs. Gelfond and Wechsler.
The amounts accrued for the plan are determined as follows:
As at December 31, | |||||
| 2017 |
| 2016 | ||
Obligation, beginning of year | $ | 647 |
| $ | 763 |
Interest cost |
| 26 |
|
| 31 |
Benefits paid |
| (21) |
|
| (33) |
Actuarial loss (gain) |
| 46 |
|
| (114) |
Obligation, end of year | $ | 698 |
| $ | 647 |
Years Ended December 31, | ||||||||
| 2017 |
| 2016 |
| 2015 | |||
Interest cost | $ | 26 |
| $ | 31 |
| $ | 30 |
Amortization of actuarial loss |
| - |
|
| 69 |
|
| 135 |
| $ | 26 |
| $ | 100 |
| $ | 165 |
| As at December 31, | |||||||
| 2017 |
| 2016 |
|
| 2015 | ||
Unrealized actuarial loss (gain) | $ | 9 |
| $ | (37) |
| $ | 146 |
Weighted average assumptions used to determine the benefit obligation are:
As at December 31, | ||||||||
| 2017 |
| 2016 |
| 2015 | |||
Discount rate | 3.55 | % |
| 4.10 | % |
| 4.20 | % |
Weighted average assumption used to determine the net postretirement benefit expense are:
Years Ended December 31, | ||||||||
| 2017 |
| 2016 |
| 2015 | |||
Discount rate | 4.10 | % |
| 4.20 | % |
| 3.70 | % |
$ | 24 | |
2019 |
| 26 |
2020 |
| 33 |
2021 |
| 37 |
2022 |
| 40 |
Thereafter |
| 538 |
Total | $ | 698 |
The Company has an unfunded postretirement plan for its Canadian employees upon meeting specific eligibility requirements. The Company will provide eligible participants, upon retirement, with health and welfare benefits.
The amounts accrued for the plan are determined as follows:
As at December 31, | |||||
| 2017 |
| 2016 | ||
Obligation, beginning of year | $ | 1,745 |
| $ | 1,778 |
Interest cost |
| 65 |
|
| 68 |
Service cost |
| - |
|
| - |
Benefits paid |
| (79) |
|
| (88) |
Actuarial gain |
| (171) |
|
| (70) |
Unrealized foreign exchange loss |
| 118 |
|
| 57 |
Obligation, end of year | $ | 1,678 |
| $ | 1,745 |
Years Ended December 31, | ||||||||
| 2017 |
| 2016 |
| 2015 | |||
Interest cost | $ | 65 |
| $ | 68 |
| $ | 71 |
Service cost |
| - |
|
| - |
|
| 1 |
| $ | 65 |
| $ | 68 |
| $ | 72 |
| As at December 31, | |||||||
| 2017 |
| 2016 |
|
| 2015 | ||
Unrealized actuarial loss | $ | 182 |
| $ | 353 |
| $ | 423 |
The Company expects interest costs of $0.1 million to be recognized as a component of net periodic benefit cost in 2018.
Weighted average assumptions used to determine the benefit obligation are:
As at December 31, | ||||||||
| 2017 |
| 2016 |
| 2015 | |||
Discount rate | 3.35 | % |
| 3.65 | % |
| 3.75 | % |
Weighted average assumptions used to determine the net postretirement benefit expense are:
Years Ended December 31, | ||||||||
| 2017 |
| 2016 |
| 2015 | |||
Discount rate | 3.65 | % |
| 3.75 | % |
| 3.75 | % |
$ | 98 | |
2019 |
| 105 |
2020 |
| 111 |
2021 |
| 114 |
2022 |
| 116 |
Thereafter |
| 1,134 |
Total | $ | 1,678 |
The following summarizes the movement of the non-controlling interest in temporary equity, in the Company’s subsidiary:
|
|
|
|
| $ | 40,272 | |
Issuance of subsidiary shares to a non-controlling interest |
|
|
|
|
|
| 40,000 |
Share issuance costs from the issuance of subsidiary shares to a non-controlling interest |
|
|
|
|
|
| (2,000) |
Net income prior to IMAX China IPO |
|
|
|
|
|
| 5,401 |
Other comprehensive income prior to IMAX China IPO |
|
|
|
|
|
| 164 |
Accretion charges associated with redeemable common stock |
|
|
|
|
|
| 769 |
Redemption of redeemable common stock upon qualified IPO |
|
|
|
|
|
| (84,606) |
Balance as at October 7, 2015 |
|
|
|
|
| $ | - |
The following summarizes the movement of the non-controlling interest in shareholders’ equity, in the Company’s subsidiary:
|
|
|
|
| $ | 84,606 | |
Net income after IMAX China IPO |
|
|
|
|
|
| 3,712 |
Other comprehensive income after IMAX China IPO |
|
|
|
|
|
| 252 |
Dividends paid to non-controlling shareholders |
|
|
|
|
|
| (9,511) |
Reduction in value due to qualified initial public offering |
|
|
|
|
|
| (29,100) |
Balance as at December 31, 2015 |
|
|
|
|
| $ | 49,959 |
Net income |
|
|
|
|
|
| 11,338 |
Other comprehensive loss, net of tax |
|
|
|
|
|
| (1,735) |
Balance as at December 31, 2016 |
|
|
|
|
| $ | 59,562 |
Net income |
|
|
|
|
|
| 13,801 |
Other comprehensive income |
|
|
|
|
|
| 1,148 |
Balance as at December 31, 2017 |
|
|
|
|
| $ | 74,511 |
|
|
| $ | 3,640 | |
Net loss |
|
|
|
| (333) |
Balance as at January 1, 2016 |
|
|
| $ | 3,307 |
Issuance of subsidiary shares to non-controlling interests |
|
|
|
| 2,479 |
Net loss |
|
|
|
| (806) |
Balance as at December 31, 2016 |
|
|
| $ | 4,980 |
Issuance of subsidiary shares to a non-controlling interest |
|
|
|
|
|
Net loss |
|
|
|
| (3,627) |
Balance as at December 31, 2017 |
|
|
| $ | 1,353 |
21. Non-Controlling Interests
In 2015, IMAX China completed the IMAX China IPO. Following the IMAX China IPO, the Company continues to indirectly own approximately 67.93% of IMAX China, which remains a consolidated subsidiary of the Company.
|
|
|
|
| $ | 40,272 | |
Issuance of subsidiary shares to a non-controlling interest |
|
|
|
|
|
| 40,000 |
Share issuance costs from the issuance of subsidiary shares to a non-controlling interest |
|
|
|
|
|
| (2,000) |
Net income prior to IMAX China IPO |
|
|
|
|
|
| 5,401 |
Other comprehensive income prior to IMAX China IPO |
|
|
|
|
|
| 164 |
Accretion charges associated with redeemable common stock |
|
|
|
|
|
| 769 |
Redemption of redeemable common stock upon qualified IPO |
|
|
|
|
|
| (84,606) |
Balance as at October 7, 2015 |
|
|
|
|
| $ | - |
The following summarizes the movement of the non-controlling interest in shareholders’ equity, in the Company’s subsidiary:
|
|
|
|
| $ | 84,606 | |
Net income after IMAX China IPO |
|
|
|
|
|
| 3,712 |
Other comprehensive income after IMAX China IPO |
|
|
|
|
|
| 252 |
Dividends paid to non-controlling shareholders |
|
|
|
|
|
| (9,511) |
Reduction in value due to qualified initial public offering |
|
|
|
|
|
| (29,100) |
Balance as at December 31, 2015 |
|
|
|
|
| $ | 49,959 |
Net income |
|
|
|
|
|
| 11,338 |
Other comprehensive loss, net of tax |
|
|
|
|
|
| (1,735) |
Balance as at December 31, 2016 |
|
|
|
|
| $ | 59,562 |
Net income |
|
|
|
|
|
| 13,801 |
Other comprehensive income |
|
|
|
|
|
| 1,148 |
Balance as at December 31, 2017 |
|
|
|
|
| $ | 74,511 |
In 2014, the Company announced the creation of the Film Fund to co-finance a portfolio of 10 original large-format films. The Film Fund, which is intended to be capitalized with up to $50.0 million, will finance an ongoing supply of original films that the Company believes will be more exciting and compelling than traditional documentaries. The initial investment in the Film Fund was committed to by a third party in the amount of $25.0 million, with the possibility of contributing additional funds. The Company agreed to contribute $9.0 million to the Film Fund over five years starting in 2014 and sees the Film Fund as a self-perpetuating vehicle designed to generate a continuous, steady flow of high-quality documentary content. As at December 31, 2017, the Film Fund invested $13.4 million toward the development of original films. The related production, financing and distribution agreement includes put and call rights relating to change of control of the rights, title and interest in the co-financed pictures.
In 2016, the Company announced the creation of a VR Fund among the Company, its subsidiary IMAX China and other strategic investors. The VR Fund will help finance the creation of interactive VR content experiences over the next three years for use across all VR platforms, including in the pilot IMAX VR Centers. The VR Fund recently helped finance the production of one interactive VR experience, which debuted exclusively in the pilot IMAX VR Centers in November 2017 before being made available to other VR platforms. As at December 31, 2017, the Company invested $3.0 million toward the development of VR content.
|
|
| $ | 3,640 | |
Net loss |
|
|
|
| (333) |
Balance as at January 1, 2016 |
|
|
| $ | 3,307 |
Issuance of subsidiary shares to non-controlling interests |
|
|
|
| 2,479 |
Net loss |
|
|
|
| (806) |
Balance as at December 31, 2016 |
|
|
| $ | 4,980 |
Issuance of subsidiary shares to a non-controlling interest |
|
|
|
|
|
Net loss |
|
|
|
| (3,627) |
Balance as at December 31, 2017 |
|
|
| $ | 1,353 |
The following impairments for the year ended December 31, 2017 are a direct result of the exit activities described in (a) above.
| $ | 335 | |
Property, plant and equipment |
|
| 3,696 |
Other assets |
|
| 1,522 |
The following table sets forth a summary of restructuring accrual activities for the year ended December 31, 2017:
| Employee Severance and Benefits |
| Other Exit Costs |
| Total | ||||
|
|
|
|
|
|
|
|
|
|
Balance as at December 31, 2016 |
| $ | - |
| $ | - |
| $ | - |
Restructuring charges |
|
| 9,300 |
|
| 595 |
|
| 9,895 |
Cash payments |
|
| (6,719) |
|
| (427) |
|
| (7,146) |
Other movements |
|
| (360) |
|
| (168) |
|
| (528) |
Balance as at December 31, 2017 |
| $ | 2,221 |
| $ | - |
| $ | 2,221 |
A summary of the restructuring and other costs by reporting groups identified by nature of product sold, or service provided as disclosed in note 18 recognized during the year ended December 31, 2017 are as follows:
| Employee Severance and Benefits |
| Other Exit Costs |
| Total | ||||
|
|
|
|
|
|
|
|
|
|
Corporate |
| $ | 5,354 |
| $ | 15 |
| $ | 5,369 |
IMAX DMR |
|
| 1,699 |
|
| - |
|
| 1,699 |
Theater system maintenance |
|
| 930 |
|
| - |
|
| 930 |
New business |
|
| 364 |
|
| 298 |
|
| 662 |
Other |
|
| 548 |
|
| - |
|
| 548 |
IMAX systems |
|
| 264 |
|
| 282 |
|
| 546 |
Joint revenue sharing arrangements |
|
| 120 |
|
| - |
|
| 120 |
Film post-production |
|
| 21 |
|
| - |
|
| 21 |
|
| $ | 9,300 |
| $ | 595 |
| $ | 9,895 |
The Company recognized the following charges in its consolidated statements of operations for the year ended December 31, 2017:
|
| $ | 9,895 | |
Asset impairments |
|
|
| 5,553 |
Costs to exit an operating lease |
|
|
| 726 |
|
|
| $ | 16,174 |
Restructuring charges are comprised of employee severance costs including benefits and stock-based compensation, costs of consolidating facilities and contract termination costs. Restructuring charges are based upon plans that have been committed to by the Company, but may be refined in subsequent periods. These charges are recognized pursuant to FASB ASC 420. A liability for a cost associated with an exit or disposal activity is recognized and measured at its fair value in the consolidated statement of operations in the period in which the liability is incurred. When estimating the value of facility restructuring activities, assumptions are applied regarding estimated sub-lease payments to be received, which can differ from actual results.
22. Exit costs, restructuring charges and associated impairments
|
| $ | 9,895 | |
Asset impairments |
|
|
| 5,553 |
Costs to exit an operating lease |
|
|
| 726 |
|
|
| $ | 16,174 |
In September 2017, the Company relocated its New York office employees and operations as the existing leased space was not suitable to accommodate all current business needs. As the premises lease is non-cancellable to the end of the term, the Company entered into a sublease arrangement to reduce the expected losses over the remaining term of the lease. Pursuant to FASB ASC 420 “Exit or Disposal Cost Obligations”, the Company has recognized a corporate segment expense of $0.7 million for the year ended December 31, 2017.
In June 2017, the Company announced the implementation of a cost reduction plan with the goal of increasing profitability, operating leverage and free cash flow. The cost reduction plan included the exit from certain non-core businesses or initiatives, as well as a one-time reduction in workforce. Restructuring charges are comprised of employee severance costs including benefits and stock-based compensation, costs of consolidating facilities and contract termination costs. Restructuring charges are based upon plans that have been committed to by the Company, but may be refined in subsequent periods. These charges are recognized pursuant to FASB ASC 420. A liability for a cost associated with an exit or disposal activity is recognized and measured at its fair value in the consolidated statement of operations in the period in which the liability is incurred. When estimating the value of facility restructuring activities, assumptions are applied regarding estimated sub-lease payments to be received, which can differ from actual results.
In connection with the Company’s restructuring initiatives, the Company incurred $9.9 million in restructuring charges for the year ended December 31, 2017. A summary of the restructuring and other costs by reporting groups identified by nature of product sold, or service provided as disclosed in note 18 recognized during the year ended December 31, 2017 are as follows:
| Employee Severance and Benefits |
| Other Exit Costs |
| Total | ||||
|
|
|
|
|
|
|
|
|
|
Corporate |
| $ | 5,354 |
| $ | 15 |
| $ | 5,369 |
IMAX DMR |
|
| 1,699 |
|
| - |
|
| 1,699 |
Theater system maintenance |
|
| 930 |
|
| - |
|
| 930 |
New business |
|
| 364 |
|
| 298 |
|
| 662 |
Other |
|
| 548 |
|
| - |
|
| 548 |
IMAX systems |
|
| 264 |
|
| 282 |
|
| 546 |
Joint revenue sharing arrangements |
|
| 120 |
|
| - |
|
| 120 |
Film post-production |
|
| 21 |
|
| - |
|
| 21 |
|
| $ | 9,300 |
| $ | 595 |
| $ | 9,895 |
The Company expects to recognize restructuring charges of $0.8 million in 2018.
| Employee Severance and Benefits |
| Other Exit Costs |
| Total | ||||
|
|
|
|
|
|
|
|
|
|
Balance as at December 31, 2016 |
| $ | - |
| $ | - |
| $ | - |
Restructuring charges |
|
| 9,300 |
|
| 595 |
|
| 9,895 |
Cash payments |
|
| (6,719) |
|
| (427) |
|
| (7,146) |
Other movements |
|
| (360) |
|
| (168) |
|
| (528) |
Balance as at December 31, 2017 |
| $ | 2,221 |
| $ | - |
| $ | 2,221 |
As a result of the cost reduction plan discussed above, the Company recognized costs associated with the retirement of certain long-lived assets pursuant to the FASB ASC 410-20, “Asset retirement and environmental obligations” and ASC 360-10, “Property, plant and equipment”. The following impairments for the year ended December 31, 2017 are a direct result of the exit activities described in (a) above.
| $ | 335 | |
Property, plant and equipment |
|
| 3,696 |
Other assets |
|
| 1,522 |
|
| $ | 5,553 |
2017 | |||||||||||
| Q1 |
| Q2 |
| Q3 |
| Q4 | ||||
Revenues | $ | 68,657 |
| $ | 87,758 |
| $ | 98,800 |
| $ | 125,552 |
Costs and expenses applicable to revenues |
| 32,886 |
|
| 38,299 |
|
| 58,932 |
|
| 65,404 |
Gross margin | $ | 35,771 |
| $ | 49,459 |
| $ | 39,868 |
| $ | 60,148 |
Net (loss) income | $ | (887) |
| $ | 1,809 |
| $ | 2,898 |
| $ | 8,698 |
Net income (loss) attributable to common shareholders | $ | 75 |
| $ | (1,712) |
| $ | (850) |
| $ | 4,831 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share - basic | $ | - |
| $ | (0.03) |
| $ | (0.01) |
| $ | 0.08 |
Net (loss) income per share - diluted | $ | - |
| $ | (0.03) |
| $ | (0.01) |
| $ | 0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
| 2016 | ||||||||||
| Q1 |
| Q2 |
| Q3 |
| Q4 | ||||
Revenues | $ | 92,128 |
| $ | 91,743 |
| $ | 86,550 |
| $ | 106,913 |
Costs and expenses applicable to revenues |
| 39,952 |
|
| 41,466 |
|
| 41,651 |
|
| 51,587 |
Gross margin | $ | 52,176 |
| $ | 50,277 |
| $ | 44,899 |
| $ | 55,326 |
Net income | $ | 13,952 |
| $ | 8,908 |
| $ | 4,384 |
| $ | 12,076 |
Net income attributable to common shareholders | $ | 11,302 |
| $ | 6,016 |
| $ | 2,525 |
| $ | 8,945 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
Net income per share - basic | $ | 0.16 |
| $ | 0.09 |
| $ | 0.04 |
| $ | 0.14 |
Net income per share - diluted | $ | 0.16 |
| $ | 0.09 |
| $ | 0.04 |
| $ | 0.13 |
23. Selected Quarterly Financial Information (Unaudited)
2017 | |||||||||||
| Q1 |
| Q2 |
| Q3 |
| Q4 | ||||
Revenues | $ | 68,657 |
| $ | 87,758 |
| $ | 98,800 |
| $ | 125,552 |
Costs and expenses applicable to revenues |
| 32,886 |
|
| 38,299 |
|
| 58,932 |
|
| 65,404 |
Gross margin | $ | 35,771 |
| $ | 49,459 |
| $ | 39,868 |
| $ | 60,148 |
Net (loss) income | $ | (887) |
| $ | 1,809 |
| $ | 2,898 |
| $ | 8,698 |
Net income (loss) attributable to common shareholders | $ | 75 |
| $ | (1,712) |
| $ | (850) |
| $ | 4,831 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share - basic | $ | - |
| $ | (0.03) |
| $ | (0.01) |
| $ | 0.08 |
Net (loss) income per share - diluted | $ | - |
| $ | (0.03) |
| $ | (0.01) |
| $ | 0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
| 2016 | ||||||||||
| Q1 |
| Q2 |
| Q3 |
| Q4 | ||||
Revenues | $ | 92,128 |
| $ | 91,743 |
| $ | 86,550 |
| $ | 106,913 |
Costs and expenses applicable to revenues |
| 39,952 |
|
| 41,466 |
|
| 41,651 |
|
| 51,587 |
Gross margin | $ | 52,176 |
| $ | 50,277 |
| $ | 44,899 |
| $ | 55,326 |
Net income | $ | 13,952 |
| $ | 8,908 |
| $ | 4,384 |
| $ | 12,076 |
Net income attributable to common shareholders | $ | 11,302 |
| $ | 6,016 |
| $ | 2,525 |
| $ | 8,945 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
Net income per share - basic | $ | 0.16 |
| $ | 0.09 |
| $ | 0.04 |
| $ | 0.14 |
Net income per share - diluted | $ | 0.16 |
| $ | 0.09 |
| $ | 0.04 |
| $ | 0.13 |
In a joint revenue sharing arrangement, the Company receives a portion of a theater’s box-office and concession revenues, and in some cases a small upfront or initial payment, in exchange for placing a theater system at the theater operator’s venue. Under joint revenue sharing arrangements, the customer has the ability and the right to operate the hardware components or direct others to operate them in a manner determined by the customer. The Company’s joint revenue sharing arrangements are typically non-cancellable for 10 years or longer with renewal provisions. Title to equipment under joint revenue sharing arrangements generally does not transfer to the customer. The Company’s joint revenue sharing arrangements do not contain a guarantee of residual value at the end of the term. The customer is required to pay for executory costs such as insurance and taxes and is required to pay the Company for maintenance and extended warranty throughout the term. The customer is responsible for obtaining insurance coverage for the theater systems commencing on the date specified in the arrangement’s shipping terms and ending on the date the theater systems are delivered back to the Company.
In an IMAX DMR arrangement, the Company transforms conventional motion pictures into the Company’s large screen format, allowing the release of Hollywood content to the global IMAX theater network. In a typical IMAX DMR film arrangement, the Company will absorb its costs for the digital re-mastering and then recoup this cost from a percentage of the box-office receipts of the film, which in recent years has averaged approximately 12.5% outside of Greater China and a lower percentage for certain films within Greater China. The Company does not typically hold distribution rights or the copyright to these films.
In certain film arrangements, the Company co-produces a film with a third party whereby the third party retains the copyright and rights to the film except that the Company obtains exclusive theatrical distribution rights to the film. Under these arrangements, both parties contribute funding to the Company’s wholly-owned production company for the production of the film and for associated exploitation costs. Clauses in the film arrangements generally provide for the third party to take over the production of the film if the cost of the production exceeds its approved budget or if it appears as though the film will not be delivered on a timely basis. In 2016, the Company entered into an arrangement to co-produce television episodic content. Funding was provided to the third party and the third party retains the copyright and rights to the content. The Company obtained exclusive theatrical distribution rights to the first two episodes and a percentage share to all television revenue.
Years Ended December 31, | ||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
Revenue(1) |
|
|
|
|
|
|
|
|
Network business |
|
|
|
|
|
|
|
|
IMAX DMR | $ | 108,853 |
| $ | 106,403 |
| $ | 107,089 |
Joint revenue sharing arrangements – contingent rent |
| 70,444 |
|
| 73,500 |
|
| 81,396 |
IMAX systems – contingent rent |
| 3,890 |
|
| 4,644 |
|
| 3,900 |
|
| 183,187 |
|
| 184,547 |
|
| 192,385 |
|
|
|
|
|
|
|
|
|
Theater business |
|
|
|
|
|
|
|
|
IMAX systems |
| 90,347 |
|
| 100,884 |
|
| 98,226 |
Joint revenue sharing arrangements – fixed fees |
| 10,118 |
|
| 17,913 |
|
| 17,724 |
Theater system maintenance |
| 45,383 |
|
| 40,430 |
|
| 36,944 |
Other theater |
| 9,145 |
|
| 10,888 |
|
| 10,482 |
|
| 154,993 |
|
| 170,115 |
|
| 163,376 |
|
|
|
|
|
|
|
|
|
New business (2) |
| 24,522 |
|
| 626 |
|
| - |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
Film post-production |
| 10,382 |
|
| 8,873 |
|
| 7,069 |
Film distribution |
| 2,790 |
|
| 5,254 |
|
| 3,876 |
Other |
| 4,893 |
|
| 7,919 |
|
| 7,099 |
|
| 18,065 |
|
| 22,046 |
|
| 18,044 |
|
|
|
|
|
|
|
|
|
Total | $ | 380,767 |
| $ | 377,334 |
| $ | 373,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin |
|
|
|
|
|
|
|
|
Network business |
|
|
|
|
|
|
|
|
IMAX DMR (4) | $ | 71,789 |
| $ | 69,196 |
| $ | 77,645 |
Joint revenue sharing arrangements – contingent rent (4) |
| 47,337 |
|
| 54,705 |
|
| 63,500 |
IMAX systems – contingent rent |
| 3,890 |
|
| 4,644 |
|
| 3,900 |
|
| 123,016 |
|
| 128,545 |
|
| 145,045 |
|
|
|
|
|
|
|
|
|
Theater business |
|
|
|
|
|
|
|
|
IMAX systems (3) (4) |
| 57,734 |
|
| 55,448 |
|
| 55,265 |
Joint revenue sharing arrangements – fixed fees (4) |
| 2,349 |
|
| 5,132 |
|
| 4,873 |
Theater system maintenance (3) |
| 18,275 |
|
| 13,660 |
|
| 12,701 |
Other theater |
| 1,965 |
|
| 1,930 |
|
| 2,105 |
|
| 80,323 |
|
| 76,170 |
|
| 74,944 |
|
|
|
|
|
|
|
|
|
New business (2) |
| (16,176) |
|
| (2,199) |
|
| - |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
Film post-production |
| 4,791 |
|
| 3,729 |
|
| 1,381 |
Film distribution (4) |
| (5,797) |
|
| (3,909) |
|
| (259) |
Other |
| (911) |
|
| 342 |
|
| (1,823) |
|
| (1,917) |
|
| 162 |
|
| (701) |
|
|
|
|
|
|
|
|
|
Total | $ | 185,246 |
| $ | 202,678 |
| $ | 219,288 |
| Years Ended December 31 | |||||
|
| 2017 |
|
| 2016 | |
Assets |
|
|
|
|
| |
Network business |
|
|
|
|
| |
| IMAX DMR | $ | 42,067 |
| $ | 39,688 |
| Joint revenue sharing arrangements - contingent rent |
| 216,285 |
|
| 194,384 |
| IMAX systems - contingent rent |
| 457 |
|
| 573 |
Theater business |
|
|
|
|
| |
| IMAX systems |
| 224,424 |
|
| 216,931 |
| Joint revenue sharing arrangements - fixed fees |
| 7,997 |
|
| 10,174 |
| Theater system maintenance |
| 27,256 |
|
| 28,763 |
| Other theater |
| 1,564 |
|
| 429 |
New business |
| 27,450 |
|
| 13,661 | |
Other |
|
|
|
|
| |
| Film post-production |
| 34,480 |
|
| 35,865 |
| Film distribution |
| 9,444 |
|
| 21,059 |
| Other |
| 7,597 |
|
| 9,350 |
Corporate and other non-segment specific assets |
| 267,591 |
|
| 286,457 | |
Total | $ | 866,612 |
| $ | 857,334 |
The Company is involved in lawsuits, claims, and proceedings, including those identified below, which arise in the ordinary course of business. In accordance with the Contingencies Topic of the FASB ASC, the Company will make a provision for a liability when it is both probable that a loss has been incurred and the amount of the loss can be reasonably estimated. The Company believes it has adequate provisions for any such matters. The Company reviews these provisions in conjunction with any related provisions on assets related to the claims at least quarterly and adjusts these provisions to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other pertinent information related to the case. Should developments in any of these matters outlined below cause a change in the Company’s determination as to an unfavorable outcome and result in the need to recognize a material provision, or, should any of these matters result in a final adverse judgment or be settled for significant amounts, they could have a material adverse effect on the Company’s results of operations, cash flows, and financial position in the period or periods in which such a change in determination, settlement or judgment occurs.
In the ordinary course of business, the Company enters into contractual agreements with third parties that include non-cancelable payment obligations, for which it is liable in future periods. These arrangements can include terms binding the Company to minimum payments and/or penalties if it terminates the agreement for any reason other than an event of default as described by the agreement.
The Company’s lease commitments consist of rent and equipment under operating leases. The Company accounts for any incentives provided over the term of the lease.
Purchase obligations primarily consist of the Company’s commitments made under long-term supplier contracts.
The Company has an unfunded defined benefit pension plan, covering certain individuals and a postretirement plan to provide health and welfare benefits to Canadian employees meeting certain eligibility requirements.
Other financial commitments include the Company’s total minimum commitment toward the development, production, post-production and marketing, related to certain film and new content initiatives.
The Company compensates its sales force with both fixed and variable compensation. Commissions on the sale or lease of the Company’s theater systems are payable in graduated amounts from the time of collection of the customer’s first payment to the Company up to the collection of the customer’s last initial payment.
The income tax (expense) benefit related to the following items included in other comprehensive income (loss) are:
|
| Years Ended December 31, | |||||||
|
| 2017 |
| 2016 |
| 2015 | |||
|
|
|
|
|
|
|
|
|
|
Unrecognized actuarial gain or loss on defined benefit plan |
| $ | (307) |
| $ | (41) |
| $ | (47) |
Unrecognized actuarial gain or loss on postretirement benefit plans |
|
| 13 |
|
| (48) |
|
| (21) |
Amortization of actuarial gain or loss on postretirement benefit plan |
|
| - |
|
| (18) |
|
| (35) |
Unrealized change in cash flow hedging instruments |
| 107 |
|
| (271) |
|
| 1,543 | |
Realized change in cash flow hedging instruments upon settlement |
| (559) |
|
| (802) |
|
| (844) | |
Foreign currency translation adjustments |
|
| - |
|
| - |
|
| (85) |
| $ | (746) |
| $ | (1,180) |
| $ | 511 |
A reconciliation of the beginning and ending amount of unrecognized tax benefits (excluding interest and penalties) for the years ended December 31 is as follows:
|
|
|
|
|
|
|
|
|
| 2017 |
| 2016 |
| 2015 | |||
Balance at beginning of the year | $ | 12,593 |
| $ | 14,221 |
| $ | 1,972 |
Additions based on tax positions related to the current year |
| 3,639 |
|
| 314 |
|
| 12,694 |
Reductions for tax positions of prior years |
| (195) |
|
| (500) |
|
| - |
Reductions resulting from lapse of applicable statute of limitations and administrative |
|
|
|
|
|
|
|
|
practices |
| (110) |
|
| (1,442) |
|
| (445) |
Balance at the end of the year | $ | 15,927 |
| $ | 12,593 |
| $ | 14,221 |
As at December 31, | |||||
| 2017 |
| 2016 | ||
|
|
|
|
| |
|
|
|
|
| |
Net operating loss carryforwards | $ | 3,306 |
| $ | 2,893 |
Investment tax credit and other tax credit carryforwards |
| 161 |
|
| - |
Write-downs of other assets |
| 1,219 |
|
| 759 |
Excess of tax accounting basis in property, plant and equipment, inventories and other assets |
| 9,380 |
|
| - |
Accrued pension liability |
| 6,406 |
|
| 6,571 |
Accrued stock-based compensation |
| 3,004 |
|
| 12,352 |
Other accrued reserves |
| 9,615 |
|
| 3,754 |
Total deferred income tax assets |
| 33,091 |
|
| 26,329 |
Income recognition on net investment in leases |
| (2,186) |
|
| (3,985) |
Excess accounting over tax basis in property, plant and equipment, inventories and other assets |
| - |
|
| (1,368) |
|
| 30,905 |
|
| 20,976 |
Valuation allowance |
| (197) |
|
| (197) |
Net deferred income tax asset | $ | 30,708 |
| $ | 20,779 |
| Years Ended December 31, | ||||||||
|
| 2017 |
| 2016 |
| 2015 | |||
|
|
|
|
|
|
|
|
|
|
Income tax provision at combined statutory rates | $ | (7,954) |
| $ | (15,330) |
| $ | (23,081) | |
Adjustments resulting from: |
|
|
|
|
|
|
|
| |
| Stock based compensation |
| (295) |
|
| (565) |
|
| 2,387 |
| Other non-deductible/non-includable items |
| (717) |
|
| (1,254) |
|
| (439) |
| Decrease (increase) in valuation allowance relating to current year temporary |
|
|
|
|
|
|
|
|
| differences |
| - |
|
| 129 |
|
| (16) |
| Changes to tax reserves |
| (1,435) |
|
| 1,628 |
|
| (453) |
| U.S. federal and state taxes |
| (373) |
|
| (767) |
|
| (27) |
| Withholding taxes |
| (1,217) |
|
| (786) |
|
| (716) |
| Income tax at different rates in foreign and other provincial jurisdictions |
| 4,147 |
|
| 50 |
|
| 961 |
| Investment and other tax credits (non-refundable) |
| 1,570 |
|
| 2,190 |
|
| 1,597 |
| Changes to deferred tax assets and liabilities resulting from audit and other tax |
|
|
|
|
|
|
|
|
| return adjustments |
| (532) |
|
| (1,612) |
|
| (242) |
| Windfall tax (shortfall) benefit |
| (591) |
|
| 57 |
|
| - |
| Impact of changes in U.S. tax act |
| (9,323) |
|
| - |
|
| - |
| Other |
| (70) |
|
| 48 |
|
| (23) |
Provision for income taxes, as reported | $ | (16,790) |
| $ | (16,212) |
| $ | (20,052) |
|
| Years Ended December 31, | ||||||||
|
|
| 2017 |
| 2016 |
| 2015 | |||
Current: |
|
|
|
|
|
|
|
|
| |
| Canada |
| $ | (6,898) |
| $ | (1,396) |
| $ | (10,862) |
| United States |
|
| 267 |
|
| 1,756 |
|
| 985 |
| China |
|
| (12,724) |
|
| (10,131) |
|
| (10,591) |
| Ireland |
|
| (735) |
|
| (405) |
|
| - |
| Other |
|
| (717) |
|
| (1,093) |
|
| (920) |
|
|
|
| (20,807) |
|
| (11,269) |
|
| (21,388) |
Deferred:(1) |
|
|
|
|
|
|
|
|
| |
| Canada |
|
| 8,748 |
|
| (3,583) |
|
| (518) |
| United States |
|
| (7,109) |
|
| (4,359) |
|
| 147 |
| China |
|
| 1,405 |
|
| 776 |
|
| (83) |
| Ireland |
|
| 1,085 |
|
| 2,352 |
|
| 1,840 |
| Other |
|
| (112) |
|
| (129) |
|
| (50) |
|
|
|
| 4,017 |
|
| (4,943) |
|
| 1,336 |
|
|
| $ | (16,790) |
| $ | (16,212) |
| $ | (20,052) |
Years Ended December 31, | ||||||||
| 2017 |
| 2016 |
| 2015 | |||
|
|
|
|
|
|
|
|
|
Canada | $ | (17,261) |
| $ | 21,002 |
| $ | 41,099 |
United States |
| (11,895) |
|
| 505 |
|
| 4,504 |
China |
| 50,410 |
|
| 41,224 |
|
| 45,818 |
Ireland |
| 3,632 |
|
| (9,768) |
|
| (10,581) |
Other |
| 5,125 |
|
| 4,890 |
|
| 6,238 |
| $ | 30,011 |
| $ | 57,853 |
| $ | 87,078 |
9. Income Taxes
Years Ended December 31, | ||||||||
| 2017 |
| 2016 |
| 2015 | |||
|
|
|
|
|
|
|
|
|
Canada | $ | (17,261) |
| $ | 21,002 |
| $ | 41,099 |
United States |
| (11,895) |
|
| 505 |
|
| 4,504 |
China |
| 50,410 |
|
| 41,224 |
|
| 45,818 |
Ireland |
| 3,632 |
|
| (9,768) |
|
| (10,581) |
Other |
| 5,125 |
|
| 4,890 |
|
| 6,238 |
| $ | 30,011 |
| $ | 57,853 |
| $ | 87,078 |
|
| Years Ended December 31, | ||||||||
|
|
| 2017 |
| 2016 |
| 2015 | |||
Current: |
|
|
|
|
|
|
|
|
| |
| Canada |
| $ | (6,898) |
| $ | (1,396) |
| $ | (10,862) |
| United States |
|
| 267 |
|
| 1,756 |
|
| 985 |
| China |
|
| (12,724) |
|
| (10,131) |
|
| (10,591) |
| Ireland |
|
| (735) |
|
| (405) |
|
| - |
| Other |
|
| (717) |
|
| (1,093) |
|
| (920) |
|
|
|
| (20,807) |
|
| (11,269) |
|
| (21,388) |
Deferred:(1) |
|
|
|
|
|
|
|
|
| |
| Canada |
|
| 8,748 |
|
| (3,583) |
|
| (518) |
| United States |
|
| (7,109) |
|
| (4,359) |
|
| 147 |
| China |
|
| 1,405 |
|
| 776 |
|
| (83) |
| Ireland |
|
| 1,085 |
|
| 2,352 |
|
| 1,840 |
| Other |
|
| (112) |
|
| (129) |
|
| (50) |
|
|
|
| 4,017 |
|
| (4,943) |
|
| 1,336 |
|
|
| $ | (16,790) |
| $ | (16,212) |
| $ | (20,052) |
______________
(1) | For the year ended December 31, 2017, the Company has not adjusted the valuation allowance from the prior year (2016 — $0.1 million decrease) relating to the future utilization of deductible temporary differences, tax credits, and certain net operating loss carryforwards. Also included in the provision for income taxes is the deferred tax related to amounts recorded in and reclassified from other comprehensive income in the year of $0.7 million. |
| Years Ended December 31, | ||||||||
|
| 2017 |
| 2016 |
| 2015 | |||
|
|
|
|
|
|
|
|
|
|
Income tax provision at combined statutory rates | $ | (7,954) |
| $ | (15,330) |
| $ | (23,081) | |
Adjustments resulting from: |
|
|
|
|
|
|
|
| |
| Stock based compensation |
| (295) |
|
| (565) |
|
| 2,387 |
| Other non-deductible/non-includable items |
| (717) |
|
| (1,254) |
|
| (439) |
| Decrease (increase) in valuation allowance relating to current year temporary |
|
|
|
|
|
|
|
|
| differences |
| - |
|
| 129 |
|
| (16) |
| Changes to tax reserves |
| (1,435) |
|
| 1,628 |
|
| (453) |
| U.S. federal and state taxes |
| (373) |
|
| (767) |
|
| (27) |
| Withholding taxes |
| (1,217) |
|
| (786) |
|
| (716) |
| Income tax at different rates in foreign and other provincial jurisdictions |
| 4,147 |
|
| 50 |
|
| 961 |
| Investment and other tax credits (non-refundable) |
| 1,570 |
|
| 2,190 |
|
| 1,597 |
| Changes to deferred tax assets and liabilities resulting from audit and other tax |
|
|
|
|
|
|
|
|
| return adjustments |
| (532) |
|
| (1,612) |
|
| (242) |
| Windfall tax (shortfall) benefit |
| (591) |
|
| 57 |
|
| - |
| Impact of changes in U.S. tax act |
| (9,323) |
|
| - |
|
| - |
| Other |
| (70) |
|
| 48 |
|
| (23) |
Provision for income taxes, as reported | $ | (16,790) |
| $ | (16,212) |
| $ | (20,052) |
As at December 31, | |||||
| 2017 |
| 2016 | ||
|
|
|
|
| |
|
|
|
|
| |
Net operating loss carryforwards | $ | 3,306 |
| $ | 2,893 |
Investment tax credit and other tax credit carryforwards |
| 161 |
|
| - |
Write-downs of other assets |
| 1,219 |
|
| 759 |
Excess of tax accounting basis in property, plant and equipment, inventories and other assets |
| 9,380 |
|
| - |
Accrued pension liability |
| 6,406 |
|
| 6,571 |
Accrued stock-based compensation |
| 3,004 |
|
| 12,352 |
Other accrued reserves |
| 9,615 |
|
| 3,754 |
Total deferred income tax assets |
| 33,091 |
|
| 26,329 |
Income recognition on net investment in leases |
| (2,186) |
|
| (3,985) |
Excess accounting over tax basis in property, plant and equipment, inventories and other assets |
| - |
|
| (1,368) |
|
| 30,905 |
|
| 20,976 |
Valuation allowance |
| (197) |
|
| (197) |
Net deferred income tax asset | $ | 30,708 |
| $ | 20,779 |
The gross deferred tax assets include a liability of $0.4 million relating to the remaining tax effect resulting from the Company’s defined benefit pension plan, the related actuarial gains and losses, and unrealized net gains and losses on cash flow hedging instruments recorded in accumulated other comprehensive income.
The Company elected to early adopt ASU 2016-16 related to income taxes during the first quarter of 2017. The impact from the adoption was reflected in the Company’s consolidated financial statements on a modified retrospective basis resulting in an increase to Accumulated deficit of $8.3 million, a decrease to Other assets of $14.8 million, an increase to Deferred taxes of $7.9 million and an increase to Accrued and other liabilities of $1.4 million.
The Company recorded income tax expense of $16.8 million for the year-ended December 31, 2017. The effective tax rate for the year of 55.9% was significantly higher than the statutory rate due to the impact of the Tax Cuts and Jobs Act (the “Tax Act”), which was enacted on December 22, 2017 by the U.S. government. The Tax Act makes broad and complex changes to the U.S. tax code including, but not limited to reducing the U.S. federal corporate tax rate from 35% to 21%, and imposing other limitations and changes that limit or eliminate various deductions, including interest expense, performance based compensation for certain executives, and other deductions requiring the re-measurement of deferred tax assets and liabilities. U.S. GAAP requires that the impact of changes to tax legislation be recognized in the period in which the law was enacted.
On December 22, 2017, the SEC issued Staff Accounting Bulletin (“SAB 118”), which provides guidance on accounting for tax effects of the Tax Act when a company does not have all the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the effect of the changes in the Tax Act. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate to be included in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provision of the tax laws that were in effect immediately before the enactment of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. While the Company is able to make reasonable estimates of the impact of the reduction in corporate rate and other changes in the legislation the final impact of the Tax Act may differ from these estimates, due to, among other things, changes in interpretations and assumptions, additional guidance that may be issued by the I.R.S., and actions the Company may take.
The effect of the re-measurement on deferred taxes is reflected entirely in the period that includes the enactment date and is allocated directly to income tax expense. As of December 31, 2017, the Company can determine a reasonable estimate of the effects of tax reform and is recording that estimate as a provisional amount. The provisional re-measurement of the deferred tax assets and liabilities resulted in a $9.3 million discrete tax provision which increased the effective tax rate by 31.1% for the year. The provisional re-measurement amount may change as data becomes available allowing more accurate scheduling of the deferred tax assets and liabilities.
The Tax Act also includes a number of other changes including: (a) the imposition of a one-time deemed repatriation tax on accumulated foreign earnings (the “Transition Tax”), (b) a 100% dividends received deduction on dividends from foreign affiliates, (c) a current inclusion in U.S. federal taxable income of earnings of foreign affiliates that are determined to be global intangible low taxed income or “GILTI”, (d) creation of the base erosion anti-abuse tax, or “BEAT”, (e) provision for an effective tax rate of 13.125% for certain income derived from outside of the U.S. (referred to as foreign derived intangible income or “FDII”) and, (f) 100% expensing of qualifying fixed assets acquired after September 27, 2017.
Given that the Company is a Canadian based multinational with subsidiary operations in the US and other foreign jurisdictions a number of these changes are not anticipated to impact the Company. The Company does not expect to be subject to the BEAT, Transition Tax or GILTI given its current legal and tax structures. The Company will be eligible to expense qualifying fixed assets acquired after September 27, 2017, and will be impacted by the additional limitations imposed on the deductibility of executive compensation, and does not expect to be adversely impacted by the limitations placed on the deductibility of interest expense. The impact of the Tax Act may differ from this estimate, during the one-year measurement period due to, among other things, further refinement of the Company’s calculations, changes in interpretations and assumptions the Company has made, guidance that may be issued and actions the Company may take as a result of the Tax Act.
As a result, no U.S. income taxes have been provided for any undistributed foreign earnings, or any additional outside basis differences inherent in these foreign entities, as the Company is a Canadian corporation and these amounts continue to be indefinitely reinvested in foreign operations which are owned directly or indirectly.
forward indefinitely to reduce taxable income. Additional net operating loss carryforwards of $0.6 million in Canada and Japan can be carried forward through to 2029. Investment tax credits and other tax credits can be carried forward to reduce income taxes payable through to 2038.
The provision for income taxes in the year ended December 31, 2017 does not include an adjustment to the valuation allowance (2016 — $0.1 million recovery) in continuing operations. During the year ended December 31, 2017, after considering all available evidence, both positive (including recent and historical profits, projected future profitability, backlog, carryforward periods for, and utilization of net operating loss carryovers and tax credits, discretionary deductions and other factors) and negative (including cumulative losses in past years and other factors), it was concluded that the existing valuation allowance against the Company’s deferred tax assets was appropriate (2016 — $0.1 million decrease). The $0.2 million (2016 — $0.2 million) balance in the valuation allowance as at December 31, 2017 is primarily attributable to certain U.S. state net operating loss carryovers that may expire unutilized.
The Company recorded a net increase of $3.3 million related to reserves for income taxes, of which $1.9 million was recorded directly to retained earnings. As at December 31, 2017 and December 31, 2016, the Company had total unrecognized tax benefits (including interest and penalties) of $15.9 million and $12.6 million, respectively, for deductibility of stock based compensation, international withholding taxes and other items. Approximately $15.9 million of the unrecognized tax benefits could impact the Company's effective tax rate if recognized. While the Company believes it has adequately provided for all tax positions, amounts asserted by taxing authorities could differ from the Company's accrued position. Accordingly, additional provisions on federal, provincial, state and foreign tax-related matters could be recorded in the future as revised estimates are made or the underlying matters are settled or otherwise resolved.
|
|
|
|
|
|
|
|
|
| 2017 |
| 2016 |
| 2015 | |||
Balance at beginning of the year | $ | 12,593 |
| $ | 14,221 |
| $ | 1,972 |
Additions based on tax positions related to the current year |
| 3,639 |
|
| 314 |
|
| 12,694 |
Reductions for tax positions of prior years |
| (195) |
|
| (500) |
|
| - |
Reductions resulting from lapse of applicable statute of limitations and administrative |
|
|
|
|
|
|
|
|
practices |
| (110) |
|
| (1,442) |
|
| (445) |
Balance at the end of the year | $ | 15,927 |
| $ | 12,593 |
| $ | 14,221 |
Consistent with its historical financial reporting, the Company has elected to classify interest and penalties related to income tax liabilities, when applicable, as part of the interest expense in its consolidated statements of operations rather than income tax expense. The Company expensed less than $0.1 million in potential interest and penalties associated with its provision for uncertain tax positions for the years ended December 31, 2017 (2016 — less than $0.1 million recovery; 2015 — less than $0.1 million recovery).
The number of years with open tax audits varies depending on the tax jurisdiction. The Company's major taxing jurisdictions include Canada, the province of Ontario, the United States (including multiple states), Ireland and China.
The Company's 2011 through 2016 tax years remain subject to examination by the IRS for U.S. federal tax purposes, and the 2006 through 2016 tax years remain subject to examination by the appropriate governmental agencies for Canadian federal tax purposes. There are other on-going audits in various other jurisdictions that are not material to the financial statements.
Cash held outside of North America as at December 31, 2017 was $119.4 million (December 31, 2016 — $117.4 million), of which $32.6 million was held in the People’s Republic of China (“PRC”) (December 31, 2016 — $31.5 million). The Company's intent is to permanently reinvest these amounts outside of Canada and the Company does not currently anticipate that it will need funds generated from foreign operations to fund North American operations. In the event funds from foreign operations are needed to fund operations in North America and if withholding taxes have not already been previously provided, the Company would be required to accrue and pay these additional withholding tax amounts on repatriation of funds from China to Canada. The Company currently estimates this amount to be $6.9 million.
|
| Years Ended December 31, | |||||||
|
| 2017 |
| 2016 |
| 2015 | |||
|
|
|
|
|
|
|
|
|
|
Unrecognized actuarial gain or loss on defined benefit plan |
| $ | (307) |
| $ | (41) |
| $ | (47) |
Unrecognized actuarial gain or loss on postretirement benefit plans |
|
| 13 |
|
| (48) |
|
| (21) |
Amortization of actuarial gain or loss on postretirement benefit plan |
|
| - |
|
| (18) |
|
| (35) |
Unrealized change in cash flow hedging instruments |
| 107 |
|
| (271) |
|
| 1,543 | |
Realized change in cash flow hedging instruments upon settlement |
| (559) |
|
| (802) |
|
| (844) | |
Foreign currency translation adjustments |
|
| - |
|
| - |
|
| (85) |
| $ | (746) |
| $ | (1,180) |
| $ | 511 |