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IMAX CORP

IMAX CORPIMAXEarnings & Financial Report

NYSE · Consumer Discretionary · Motion Picture Production and Services

IMAX Corporation is a Canadian production theatre company which designs and manufactures IMAX cameras and projection systems as well as performing film development, production, post-production and distribution to IMAX-affiliated theatres worldwide. Founded in Montreal in 1967, it has headquarters in the Toronto area, and operations in New York City and Los Angeles.

What changed in IMAX CORP's 10-K — 2022 vs 2023

Top changes in IMAX CORP's 2023 10-K

557 paragraphs added · 566 removed · 397 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

102 edited+43 added−50 removed27 unchanged
Such enhancements include shooting films with IMAX cameras to increase the audience's immersion in the film and to take advantage of the unique dimensions of the IMAX screen by projecting the film in a larger aspect ratio that delivers up to 26% more image onto a standard IMAX movie screen.
Such enhancements include shooting films with IMAX cameras to increase the audience’s immersion in the film and to take advantage of the unique dimensions of the IMAX screen by projecting the film in a larger aspect ratio that delivers up to 26% more image onto a standard IMAX screen.
The subject matter covered by these patents and applications includes theater design and geometry, audio and display technology, mechanisms employed in projectors and projection equipment (including 3D projection equipment), stereoscopic (3D) imaging, digitally re-mastering 35mm films into large-format, dynamic range and contrast of projectors, seaming or superimposing images from multiple projectors, and other inventions relating to imaging technology, digital projectors, laser projection, and video quality assessment.
The subject matter covered by these patents and applications includes auditorium design and geometry, audio and display technology, mechanisms employed in projectors and projection equipment (including 3D projection equipment), stereoscopic (3D) imaging, digitally re-mastering 35mm films into large-format, dynamic range and contrast of projectors, seaming or superimposing images from multiple projectors, and other inventions relating to imaging technology, digital projectors, laser projection, and video quality assessment.
To achieve these objectives, the Company’s people and culture strategy focuses on creating a compelling employee brand which inspires top talent to join the Company; engaging its employee base to maximize overall performance and enhance retention; offering a competitive total rewards program (the “Total Rewards Program”); developing and refining a diversity, equity, and inclusion (“DE&I”) plan that is unique to its business; and continuing its focus on employee safety.
To achieve these objectives, the Company’s people and culture strategy focuses on creating a compelling employee brand which attracts top talent to join the Company; engaging its employee base to maximize overall performance and enhance retention; offering a competitive total rewards program (the “Total Rewards Program”); developing and refining a diversity, equity, and inclusion (“DE&I”) plan that is unique to its business; and continuing its focus on employee safety.
The following trademarks are considered significant in terms of the current and contemplated operations of the Company: IMAX ® , IMAX ® 3D, Experience It In IMAX ® , The IMAX Experience ® , DMR ® , Filmed For IMAX TM , IMAX Live TM , IMAX Enhanced ® , and SSIMWAVE ® .
The following trademarks are considered significant in terms of the current and contemplated operations of the Company: IMAX, IMAX 3D, Experience It In IMAX ® , The IMAX Experience , DMR, Filmed For IMAX, IMAX Live, IMAX Enhanced, and SSIMWAVE ® .
IMAX Systems are based on proprietary and patented image, audio and other technology developed over the course of the Company’s history since its founding in 1967. The customers for IMAX Systems are principally theater exhibitors that operate commercial multiplex theaters, and, to a much lesser extent, museums, science centers and destination entertainment sites.
IMAX Systems are based on proprietary and patented image, audio and other technology developed over the course of the Company’s history since its founding in 1967. The customers for IMAX Systems are principally theatrical exhibitors that operate commercial multiplex theaters, and, to a much lesser extent, museums, science centers and destination entertainment sites.
To be certified as IMAX Enhanced, leading consumer electronics manufacturers spanning 4K/8K televisions, projectors, A/V receivers, loudspeakers, soundbars, smartphones, personal computers, tablets, and more must meet a carefully prescribed set of audiovisual performance standards, set by a certification committee of IMAX and DTS engineers, along with some of Hollywood's leading technical specialists.
To be certified as IMAX Enhanced, leading consumer electronics manufacturers spanning 4K/8K televisions, projectors, A/V receivers, loudspeakers, soundbars, smartphones, personal computers, tablets, and more must meet a carefully prescribed set of audiovisual performance standards, set by a certification committee, along with some of Hollywood’s leading technical specialists.
The IMAX DMR process involves: • in certain instances, scanning, at the highest possible resolution, each individual frame of the movie and converting it into a digital image; • optimizing the image using proprietary image enhancement tools; • enhancing the digital image using techniques such as sharpening, color correction, grain and noise removal and the elimination of unsteadiness and removal of unwanted artifacts; • recording the enhanced digital image into an IMAX digital cinema package (“DCP”) format or onto IMAX 15/70-format film; and • specially remastering the soundtrack to take full advantage of the unique sound system of IMAX Systems.
The IMAX Film Remastering process involves: • in certain instances, scanning, at the highest possible resolution, each individual frame of the film and converting it into a digital image; • optimizing the image using proprietary image enhancement tools; • enhancing the digital image using techniques such as sharpening, color correction, grain and noise removal and the elimination of unsteadiness and removal of unwanted artifacts; • recording the enhanced digital image into an IMAX digital cinema package format or onto IMAX 15/70-format film; and • specially remastering the soundtrack to take full advantage of the unique sound system of IMAX Systems.
IMAX’s digital projection systems also operate without the need for analog film prints. The Company’s digital projection systems provide a premium and differentiated experience to moviegoers that is consistent with what they have come to expect from the IMAX brand, while providing exhibitor customers with the compelling economics and flexibility that digital technology affords.
IMAX’s digital projection systems also operate without the need for analog film prints. The Company’s digital projection systems provide a premium and differentiated experience to audiences that is consistent with what they have come to expect from the IMAX brand, while providing exhibitor customers with the compelling economics and flexibility that digital technology affords.
IMAX DMR digitally enhances the image resolution of films for projection on IMAX screens while maintaining or enhancing the visual clarity and sound quality to levels for which The IMAX Experience is known. In addition, the original soundtrack of a film to be exhibited across the IMAX network is remastered for IMAX digital sound systems.
IMAX Film Remastering digitally enhances the image resolution of films for projection on IMAX screens while maintaining or enhancing the visual clarity and sound quality to levels for which The IMAX Experience is known. In addition, the original soundtrack of a film to be exhibited across the IMAX network is remastered for IMAX digital sound systems.
The dollar value of backlog typically represents the fixed contracted revenue under signed IMAX System sale and lease agreements that the Company expects to recognize as revenue upon installation and acceptance of the associated system, as well as an estimate of variable consideration in sales arrangements.
The dollar value of backlog typically represents the fixed contracted revenue according to the signed IMAX System sale and lease agreements that the Company expects to recognize as revenue upon installation and acceptance of the associated system, as well as an estimate of variable consideration in sales arrangements.
IMAX Enhanced provides end-to-end premium technology across streaming content and best-in-class entertainment devices, offering consumers high-fidelity playback of image and sound in the home and beyond, including the following features: • IMAX’s expanded aspect ratio, which is available on select titles and streaming platforms, including Disney+; • IMAX’s proprietary remastering technology, which produces more vivid, higher fidelity 4K HDR images on premium televisions; and • IMAX Signature Sound, which is specially recreated and calibrated for the home by DTS to unlock more immersive audio.
IMAX Enhanced provides end-to-end premium technology across streaming content and best-in-class entertainment devices, offering consumers high-fidelity playback of image and sound in the home and beyond, including the following features: • IMAX’s expanded aspect ratio, which is available on select titles and streaming platforms, including Disney+; • IMAX’s proprietary remastering technology, which produces more vivid, higher-fidelity 4K HDR images on premium televisions; and 11 • IMAX’s signature sound, which was specially recreated and calibrated for the home to unlock more immersive audio.
Included in the Company’s patent portfolio are more than 40 patents and patent families acquired from The Eastman Kodak Company covering laser projection technology. In addition, the Company acquired more than 15 patent families in connection with the acquisition of SSIMWAVE in September 2022.
Included in the Company’s patent portfolio are more than 30 patents and patent families acquired from the Eastman Kodak Company covering laser projection technology. In addition, the Company acquired more than 15 patent families in connection with the acquisition of SSIMWAVE in September 2022.
Reports may be obtained free of charge through the SEC’s website at www.sec.gov and through the Company’s website at www.imax.com or by calling the Company’s Investor Relations Department at 212-821-0100. No information included on the Company's website shall be deemed included or otherwise incorporated into this Form 10-K, except where expressly indicated. 19
Reports may be obtained free of charge through the SEC’s website at www.sec.gov and through the Company’s website at www.imax.com or by calling the Company’s Investor Relations Department at 212-821-0154. No information included on the Company’s website shall be deemed included or otherwise incorporated into this Form 10-K, except where expressly indicated.
(See “Risk Factors – Consolidation among commercial exhibitors and studios reduces the breadth of the Company’s customer base, and could result in a narrower market for the Company’s products and reduced negotiating leverage. A deterioration in the Company’s relationship with key partners could materially and adversely affect the Company’s business, financial condition or results of operation.
(Refer to “Risk Factors – Consolidation among commercial exhibitors and studios reduces the breadth of the Company’s customer base, and could result in a narrower market for the Company’s products and reduced negotiating leverage. A deterioration in the Company’s relationship with key partners could materially and adversely affect the Company’s business, financial condition or results of operation.
(See “Risk Factors – Risks associated with the Company’s international business are outlined in “Risk Factors – The Company conducts business internationally, which exposes it to uncertainties and risks that could negatively affect its operations, sales and future growth prospects”, “Risk Factors – The Company faces risks in connection with its significant presence in China and the continued expansion of its business there”, “Risk Factors – General political, social and economic conditions can affect the Company’s business by reducing both revenues generated from existing IMAX Systems and the demand for new IMAX Systems”, and “Risk Factors – The Company may not convert all of its backlog into revenue and cash flows” in Part I, Item 1A.) PRINCIPAL PRODUCTS AND SERVICES The Company believes it is the world’s largest designer and manufacturer of specialty premium projection and sound system components for large-format theaters around the world, and it is also a significant distributor of large-format films.
(Refer to “Risk Factors – The Company conducts business internationally, which exposes it to uncertainties and risks that could negatively affect its operations, sales and future growth prospects”, “– The Company faces risks in connection with its significant presence in China and the continued expansion of its business there”, “– General political, social and economic conditions can affect the Company’s business by reducing both revenues generated from existing IMAX Systems and the demand for new IMAX Systems”, and “– The Company may not convert all of its backlog into revenue and cash flows” in Part I, Item 1A.) PRINCIPAL PRODUCTS AND SERVICES The Company believes it is the world’s largest designer and manufacturer of specialty premium projection and sound system components for premium large-format theaters around the world, and it is also a significant distributor of large-format films.
These trademarks are widely protected by registration or common law throughout the world. 16 HUMAN CAPITAL The Company believes that effective human capital management is critical to its success.
These trademarks are widely protected by registration or common law throughout the world. 15 HUMAN CAPITAL The Company believes that effective human capital management is critical to its success.
Through its proprietary software, theater architecture, patented intellectual property, and specialized equipment, IMAX offers a unique end-to-end solution to create superior, immersive content experiences for which the IMAX ® brand is globally renowned. Top filmmakers, movie studios, artists, and creators utilize the cutting-edge visual and sound technology of IMAX to connect with audiences in innovative ways.
Through its proprietary software, auditorium, architecture, patented intellectual property, and specialized equipment, IMAX offers a unique end-to-end solution to create superior, awe-inspiring immersive content experiences for which the IMAX ® brand is globally renowned. Top filmmakers, movie studios, artists, and creators utilize the cutting-edge visual and sound technology of IMAX to connect with audiences in innovative ways.
At present, certified global device partners include Sony Electronics, Hisense, TCL, LG, Phillips, Hewlett Packard, Xiaomi, Sound United and Honor, among others. As of December 31, 2022, more than 250 IMAX Enhanced titles have been released across five of the biggest streaming platforms worldwide: Disney+, Sony Bravia CORE, Tencent Video, iQiyi and Rakuten TV.
At present, certified global device partners include Sony Electronics, Hisense, TCL, LG, Phillips, Hewlett Packard, Xiaomi, Sound United and Honor, among others. As of December 31, 2023, more than 300 IMAX Enhanced titles have been released across five of the biggest streaming platforms worldwide: Disney+, Sony Bravia CORE, Tencent Video, iQiyi and Rakuten TV.
IMAX films also benefit from enhancements made by individual filmmakers exclusively for the IMAX release of the film. Collectively, the Company refers to these enhancements as “IMAX DNA”. Filmmakers and movie studios have sought IMAX-specific enhancements in recent years to generate interest in and excitement for their films.
IMAX films also benefit from enhancements made by individual filmmakers exclusively for the IMAX release of the film. Collectively, the Company refers to these enhancements as “IMAX DNA.” Filmmakers and movie studios have sought IMAX-specific enhancements in recent years to generate interest in and excitement for their films.
As part of the arrangement to sell or lease an IMAX System, the Company provides extensive advice on theater planning and design, and supervision of installation services.
As part of the arrangement to sell or lease an IMAX System, the Company provides extensive advice on auditorium planning and design, and supervision of installation services.
Since then, the Company has continued research and development aimed at creating more affordable laser-based solutions with various screen sizes for its commercial multiplex customers. Beginning in 2021, the Company began offering an additional laser-based system product to provide a broader array of customers with an opportunity to replace and upgrade IMAX Xenon Systems.
Since then, the Company has continued research and development aimed at creating more affordable laser-based solutions with various screen sizes for its commercial multiplex customers. Beginning in 2021, the Company began offering an additional laser-based system product to provide customers with an opportunity to replace and upgrade IMAX Xenon Systems.
As of December 31, 2022, the Company indirectly owns 71.73% of IMAX China Holding, Inc. (“IMAX China”), whose shares trade on the Hong Kong Stock Exchange. IMAX China is a consolidated subsidiary of the Company. GENERAL IMAX is a premier global technology platform for entertainment and events.
As of December 31, 2023, the Company indirectly owns 71.55% of IMAX China Holding, Inc. (“IMAX China”), whose shares trade on the Hong Kong Stock Exchange. IMAX China is a consolidated subsidiary of the Company. GENERAL IMAX is a premier global technology platform for entertainment and events.
The Company's human capital management objectives are 1) attracting, engaging, and retaining exceptional talent who are passionate about IMAX’s business; and 2) fostering a work environment that unites diverse teams around our mission to connect the world through extraordinary experiences that inspire us to reimagine what’s possible together.
The Company’s human capital management objectives are focused on attracting, engaging, and retaining exceptional talent who are passionate about IMAX’s business; and 2) fostering a work environment that unites diverse teams around its mission to connect the world through extraordinary experiences that inspire us to reimagine what’s possible together.
(See “Risk Factors – The Company may not convert all of its backlog into revenue and cash flows.” in Part I, Item 1A.) Certain of the Company’s contracts contain options for the customer to elect to upgrade system type during the term or to alter the contract structure (for example, from a joint revenue sharing arrangement to a sale) after signing, but before installation.
(Refer to “Risk Factors ― The Company may not convert all of its backlog into revenue and cash flows.”) Certain of the Company’s contracts contain options for the customer to elect to upgrade system type during the term or to alter the contract structure (for example, from a joint revenue sharing arrangement to a sale) after signing, but before installation.
In select IMAX locations worldwide, movies filmed with IMAX cameras have an IMAX-exclusive 1.43 film aspect ratio, with up to 67% more image. Together, these components cause audiences in IMAX locations to feel as if they are a part of the on-screen action, creating a more intense, immersive, and exciting experience than a traditional theater.
In select IMAX locations worldwide, movies filmed with IMAX cameras have an IMAX-exclusive 1.43 film aspect ratio, with up to 67% more image. Together, these components cause audiences in IMAX locations to feel as if they are a part of the on-screen action, creating a more intense, immersive, and awe-inspiring exciting experience than a conventional cinematic format.
The Company believes that the majority of its future growth will come from international markets. As of December 31, 2022, 75% of IMAX Systems in the global commercial multiplex network were located within international markets (defined as all countries other than the United States and Canada).
The Company believes that the majority of its future network growth will come from international markets outside of China. As of December 31, 2023, 76% of IMAX Systems in the global commercial multiplex network were located within international markets (defined as all countries other than the United States and Canada).
As a result of the engineering and scientific achievements that are a hallmark of The IMAX Experience ®, the Company's exhibitor customers typically charge a premium for IMAX films over films exhibited in their other auditoriums.
As a result of the engineering and scientific achievements that are a hallmark of The IMAX Experience ® , the Company’s exhibitor customers typically charge a premium for films released in IMAX’s format versus films exhibited in their other auditoriums.
The Company has been and will continue to be diligent in the protection of its proprietary interests. As of December 31, 2022, the Company holds 115 patents, has 17 patents pending in the United States and has corresponding patents or filed applications in many countries throughout the world.
The Company has been and will continue to be diligent in the protection of its proprietary interests. As of December 31, 2023, the Company holds 92 patents, has 14 patents pending in the United States and has corresponding patents or filed applications in many countries throughout the world.
The dollar value fluctuates depending on the number of new arrangements signed from year-to-year, which adds to backlog, and the installation and acceptance of IMAX Systems and the settlement of contracts, both of which reduce backlog.
The backlog reflects the minimum number of commitments for IMAX Systems according to the signed contracts. The dollar value fluctuates depending on the number of new arrangements signed from year-to-year, which adds to backlog, and the installation and acceptance of IMAX Systems and the settlement of contracts, both of which reduce backlog.
The Company believes that its competitive strengths include the value of the IMAX brand name, the premium IMAX consumer experience, the design, quality and historic reliability rate of IMAX Systems (including the quality of the sound system components included with an IMAX System), the return on investment of an IMAX System for exhibitors, the number and quality of IMAX films that it distributes, the relationships the Company maintains with prominent Hollywood and international filmmakers and other content creators (a number of whom desire to film their movies and events with IMAX cameras), the availability of Hollywood and international films to the IMAX network through IMAX DMR technology, the availability of unique and innovative events and experiences such as distributed concerts, special theatrical screenings, and live Q&A sessions with top content creators, consumer loyalty and the level of the Company’s service and maintenance and extended warranty efforts.
The Company believes that its competitive strengths include the value of the IMAX brand name, the premium IMAX consumer experience, the design, quality and historic reliability rate of IMAX Systems (including the IMAX Laser Systems as well as the IMAX immersive sound system, the return on investment of an IMAX System for exhibitors, the number and quality of IMAX films that it distributes, the tailored distribution and marketing support by dedicated teams around the world, the relationships the Company maintains with prominent Hollywood and international filmmakers and other content creators (a number of whom desire to film their movies and events with IMAX cameras), the availability of Hollywood and international films to the IMAX network through IMAX Film Remastering technology, the availability of unique and innovative events and experiences such as distributed concerts, special theatrical screenings, and live Q&A sessions with top content creators, consumer loyalty and the level of the Company’s service and maintenance and extended warranty efforts.
To support continued growth in international markets, the Company is focused on the expansion of the IMAX network and has sought to bolster its international film strategy, supplementing its slate of Hollywood films with appealing local language films released in select markets, including China, Japan, India, and South Korea. 7 The following table provides detailed information about the films that were released to the Company's global network during the years ended December 31, 2022 and 2021: For the Years Ended December 31, 2022 2021 Hollywood film releases (1) 32 35 Local language film releases: China 15 21 Japan 8 9 South Korea 5 1 India 6 — France 1 — Russia — 1 Indonesia 1 — Total local language film releases 36 32 Total film releases (2) 68 67 (1) Includes five re-released films for the year ended December 31, 2022 (2021 — four).
To support continued growth in international markets, the Company is focused on the expansion of the IMAX network and has sought to bolster its international film strategy, supplementing its slate of Hollywood films with appealing local language films released in select markets, including China, Japan, India, and South Korea. 7 The following table provides detailed information about the films that were released to the Company’s global network during the years ended December 31, 2023 and 2022: For the Years Ended December 31, 2023 2022 Hollywood film releases (1) 36 32 Local language film releases: China 28 15 Japan 11 8 South Korea 9 5 India 8 6 France 1 1 Malaysia 1 — Thailand 1 — Indonesia — 1 Total local language film releases 59 36 Total film releases (2)(3) 95 68 (1) Includes one re-released film for the year ended December 31, 2023 (2022 — five).
AVAILABLE INFORMATION The Company makes available, free of charge, its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and any amendments to such reports, as soon as reasonably practicable after such filings have been made with the United States Securities and Exchange Commission (the “SEC”).
AVAILABLE INFORMATION The Company makes available, free of charge, its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and any amendments to such reports, as soon as reasonably practicable after such filings have been made with the SEC.
This includes bringing connectivity to the Company’s global network and experimenting with live and interactive events worldwide; developing new IMAX film cameras and certifying additional digital cameras; further improving its proprietary DMR process for the delivery of content for both theatrical and home entertainment; and further improving the reliability of its projectors, as well as enhancing the Company’s image and sound quality.
This includes bringing connectivity to the Company’s global network to support live and interactive events worldwide; developing new IMAX film cameras and certifying additional digital cameras; further improving its proprietary film remastering and distribution process for the delivery of content for both theatrical (including local language content) and home entertainment; and further improving the reliability of its projectors, as well as enhancing the Company’s image and sound quality.
The Company believes that IMAX Laser Systems present greater brightness and clarity, higher contrast, a wider color gamut and deeper blacks, consume less power and last longer than other digital projection technologies, and are capable of illuminating the largest screens in the IMAX network. IMAX Xenon Systems In 2008, the Company introduced its digital IMAX Xenon System.
The Company currently sells two different configurations of its laser systems. The Company believes that IMAX Laser Systems present greater brightness and clarity, higher contrast, a wider color gamut and deeper blacks, consume less power and last longer than other digital projection technologies, and are capable of illuminating the largest screens in the IMAX network.
Unlike the soundtracks played in conventional theaters, IMAX remastered soundtracks are uncompressed and full fidelity. IMAX sound systems use proprietary loudspeaker systems and proprietary surround sound configurations that ensure every theater seat is in an optimal listening position.
IMAX remastered soundtracks are uncompressed and full fidelity. IMAX sound systems use proprietary loudspeaker systems and proprietary surround sound configurations that ensure every seat in an auditorium is an optimal listening position.
(See the table below under “Marketing and Customers” for additional information on the composition of the IMAX network.) The IMAX System provides the Company’s exhibitor customers with a combination of the following benefits: • the ability to exhibit content that has undergone the IMAX DMR conversion process, which results in higher image and sound fidelity than conventional cinema experiences; • advanced, high-resolution projectors with specialized equipment and automated theater control systems, which generate significantly more contrast and brightness than conventional theater systems; • large screens and proprietary theater geometry, which result in a substantially larger field of view so that the screen extends to the edge of a viewer’s peripheral vision and creates more realistic images; • advanced sound system components, which deliver more expansive sound imagery and pinpointed origination of sound to any specific spot in a theater equipped with an IMAX System; • specialized theater acoustics, which result in a four-fold reduction in background noise; • ongoing maintenance and extended warranty services, and • a license to the globally recognized IMAX brand. 4 In addition, certain movies shown in the IMAX network are filmed using proprietary IMAX film cameras or IMAX certified digital cameras, which offer filmmakers customized guidance and a workflow process to provide further enhanced and differentiated image quality and an IMAX-exclusive film aspect ratio that delivers up to 26% more image onto a standard IMAX movie screen.
IMAX Systems provide the Company’s exhibitor customers with a combination of the following benefits: • the ability to exhibit content that has been enhanced through IMAX Film Remastering, which usually results in higher image and sound fidelity than conventional cinema experiences; • advanced, high-resolution projectors with specialized equipment and automated theater control systems, which generate significantly more contrast and brightness than conventional theater systems; • large screens and proprietary auditorium geometry, which result in a substantially larger field of view so that the screen extends to the edge of a viewer’s peripheral vision and creates more realistic images; • advanced sound system components, which deliver more expansive sound imagery and pinpointed origination of sound to any specific spot in an auditorium equipped with an IMAX System; • specialized theater acoustics, which result in a four-fold reduction in background noise; • ongoing maintenance and extended warranty services; and • a license to the globally recognized IMAX brand, as well as benefits from IMAX marketing of films being shown in its network and IMAX’s growing social media followership. 4 In addition, certain movies shown in the IMAX network are filmed using proprietary IMAX film cameras or IMAX certified digital cameras, which along with IMAX’s customized guidance and a workflow process provide filmmakers enhanced and differentiated image quality and an IMAX-exclusive film aspect ratio that delivers up to 26% more image onto a standard IMAX movie screen.
The Company generally does not own the locations in the IMAX network, and is not an exhibitor, but instead sells or leases the IMAX System to exhibitor customers along with a license to use its trademarks and ongoing maintenance services.
The Company does not own the locations in the IMAX network, except for one, and is not an exhibitor, but instead sells or leases the IMAX System to exhibitor customers along with a license to use its trademarks and ongoing maintenance services for which there is an annual payment by the exhibitor to IMAX.
The Company’s segment information is provided in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 22 of Notes to Consolidated Financial Statements in Part II, Item 8. 6 IMAX DMR IMAX DMR is a proprietary technology that digitally remasters films into IMAX formats.
The Company’s segment information is provided in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 21 to Consolidated Financial Statements in Part II, Item 8. 6 IMAX FILM REMASTERING IMAX Film Remastering is a proprietary technology that digitally remasters films into IMAX formats.
RESEARCH AND DEVELOPMENT The Company believes that it is a premier global technology platform for entertainment and events with significant proprietary expertise in digital and film-based projection and sound system component design, engineering, and imaging technology, particularly in laser-based technology. The Company's flagship laser-based projection system is capable of illuminating the largest screens in the Company’s network.
RESEARCH AND DEVELOPMENT The Company believes that it is a premier global technology platform for awe-inspiring entertainment and events with significant proprietary expertise in digital and film-based projection and sound system component design, engineering, and imaging technology, particularly in laser-based technology.
Historically, these projectors, including both IMAX Laser Systems and IMAX Xenon Systems, have had reliability rates based on scheduled shows of approximately 99%. 15 Sound System Component Manufacturing The Company develops, designs, and assembles the key elements of the theater sound system component.
Historically, these projectors have had reliability rates based on scheduled shows of approximately 99%. 14 Sound System Component Manufacturing The Company develops, designs, and assembles the key elements of the theater sound system component.
As of December 31, 2022, the Company has a footprint of 253 connected locations in the IMAX network across the United States, Canada, and Europe configured with connectivity to deliver live, interactive content with low latency and superior sight and sound.
As of December 31, 2023, the Company has a footprint of 252 connected locations in the IMAX network across the United States, Canada, Europe, and Asia configured with connectivity to deliver live, interactive content with low latency and superior sight and sound. In 2023, the Company partnered with Metro-Goldwyn-Studios Inc.
The incremental box office generated by IMAX films has helped establish IMAX as a key premium distribution and marketing platform for Hollywood and foreign local language movie studios.
The incremental box office generated by IMAX films combined with IMAX’s unmatched global network footprint and scale has helped establish IMAX as a key premium distribution and marketing platform for Hollywood and foreign local language movie studios.
As of December 31, 2022, Wanda represents 23% of the Company’s commercial network, 4% of the Company’s backlog and 7% of its revenues.
As of December 31, 2023, Wanda represented 22% of the Company’s commercial network, 4% of the Company’s backlog and 10% of its revenues. As of December 31, 2022, Wanda represented 23% of the Company’s commercial network, 4% of the Company’s backlog and 7% of its revenue.
The Company believes that all of these alternative formats deliver images and experiences that are inferior to The IMAX Experience and do not have IMAX’s brand trust, filmmaker endorsement, loyal fan base, or global footprint.
The Company believes that all of these alternative formats deliver overall experiences that are inferior to The IMAX Experience and do not have IMAX's brand trust, filmmaker endorsement, loyal fan base, or global footprint and scale. Exhibitor Consolidation The Company’s primary customers are commercial multiplex exhibitors.
While the Company considers its patents to be important to the overall conduct of its business, it does not consider any particular patent essential to its operations. Certain of the Company’s patents for improvements to the IMAX projection system components expire between 2023 and 2038.
While the Company considers its patents to be important to the overall conduct of its business, it does not consider any particular patent essential to its operations. Certain of the Company’s patents expire between 2024 and 2041.
The launch of IMAX Enhanced on Disney+ provides strong brand exposure for IMAX by expanding the Company's in-home entertainment footprint to Disney+ and the majority of its 160 million global subscribers. In 2023, IMAX Enhanced is expected to enable an elevated end-to-end experience on Disney+, with IMAX Signature Sound coming to subscribers with IMAX Enhanced certified devices.
The presence of IMAX Enhanced on Disney+ provides strong brand exposure for IMAX by expanding the Company’s in-home entertainment footprint to Disney+ and most of its 150 million global subscribers. The Company believes that IMAX Enhanced enables an elevated end-to-end experience on Disney+, with IMAX signature sound coming to subscribers with IMAX Enhanced certified devices.
Other The Company derives a small portion of its revenue from other sources including after-market sales of IMAX System parts and 3D glasses, one owned and operated IMAX theater in Sacramento, California; a commercial arrangement with one theater resulting in the sharing of profits and losses; the provision of management services to three other theaters; renting the Company's proprietary 2D and 3D large-format film; and also offering production advice and technical assistance to both documentary and Hollywood filmmakers.
(Refer to “Risk Factors ― Failure to respond adequately or in a timely fashion to changes and advancements in technology could negatively affect the Company’s business.”) Other The Company derives a small portion of its revenue from other sources including one owned and operated IMAX System in Sacramento, California; a commercial arrangement with one theater resulting in the sharing of profits and losses; the provision of management services to three other theaters; renting the Company’s proprietary 2D and 3D large-format film cameras; and also offering production advice and technical assistance to both documentary and Hollywood filmmakers.
As of December 31, 2022, through the Company’s partnership with Wanda, there were 375 IMAX Systems operational in Greater China, of which 361 are under the parties’ joint revenue sharing arrangements.
The Company has a partnership in China with Wanda Film (“Wanda”) and as of December 31, 2023, through the Company’s partnership with Wanda, there were 376 IMAX Systems operational in Greater China, of which 362 are under the parties’ joint revenue sharing arrangements.
Prior to 2008, all of the IMAX Systems offered by the Company were film-based and required analog film prints. The Company believes that IMAX Xenon Systems deliver higher quality imagery when compared with IMAX Film Systems. IMAX Film Systems IMAX Film Systems include various configurations, including 2D and 3D systems, and screen sizes.
IMAX Xenon Systems In 2008, the Company introduced its digital IMAX Xenon System. Prior to 2008, all of the IMAX Systems offered by the Company were film-based and required analog film prints. The Company believes that IMAX Xenon Systems deliver higher quality imagery when compared with IMAX Film Systems.
The Company also expects to announce additional local language films to be released to its global network throughout 2023. IMAX Systems The Company’s primary products are its various digital projection systems, which are either sold or leased to exhibitor customers along with a license for the use of the globally recognized IMAX brand.
IMAX SYSTEMS The Company’s primary products are its various digital projection systems, which are either sold or leased to exhibitor customers along with a license for the use of the globally recognized IMAX brand.
With the acquisition of SSIMWAVE, there is ongoing research and development in perceptual metrics including novel measurement and optimization techniques. Teams are working to expand existing and/or develop new technologies which are expected to further enhance video quality, delivery, and creation across devices.
Within the Company’s Streaming and Consumer Technology business, there is ongoing research and development in perceptual metrics including novel measurement and optimization techniques. Investments are also being made to expand existing and/or develop new technologies which are expected to further enhance video quality, delivery, and creation across devices.
As of December 31, 2022, there were 1,716 IMAX Systems operating in 87 countries and territories, including 1,633 commercial multiplexes, 12 commercial destinations, and 71 institutional locations in the Company's global network.
This compares to 1,716 IMAX Systems operating in 87 countries and territories as of December 31, 2022, including 1,633 commercial multiplexes, 12 commercial destinations, and 71 institutional locations in the Company’s global network. Additional information on the composition of the IMAX network is provided in the discussion of Marketing and Customers.
The acquisition of SSIMWAVE marks a significant expansion of the Company's strategy to deliver the highest quality video images on any screen — to drive new, recurring revenue and grow its global leadership in entertainment technology.
The acquisition of SSIMWAVE marks a significant expansion of the Company’s streaming and consumer technology strategy to deliver the highest quality images on any screen, while also creating cost efficiencies to streaming companies, broadcasters and other companies that transmit visual data — to drive new, recurring revenue and grow its global leadership in entertainment technology.
(See “Critical Accounting Estimates” in Part II, Item 7 and Note 3(o) of Notes to Consolidated Financial Statements in Part II, Item 8 for further discussion on the Company’s revenue recognition policies.) The following table presents the number of IMAX Systems that are open and in backlog, by configuration, as of December 31, 2022 and 2021: December 31, 2022 December 31, 2021 System System Network New Upgrade Network New Upgrade Base Backlog Backlog Base Backlog Backlog IMAX Laser Systems 349 200 89 271 158 92 IMAX Xenon Systems 1,330 161 — 1,372 239 — IMAX Film Systems 37 — — 40 — — Total 1,716 361 89 1,683 397 92 IMAX Laser Systems In 2014, the Company introduced its first laser-based digital projection system.
Further discussion of the Company’s revenue recognition policies is provided in Critical Accounting Estimates in Part II, Item 7 and Note 2(o) to Consolidated Financial Statements in Part II, Item 8. 9 The following table presents the number of IMAX Systems that are in the network and in backlog, by configuration, as of December 31, 2023 and 2022: December 31, 2023 December 31, 2022 System System Network New Upgrade Network New Upgrade Base Backlog Backlog Base Backlog Backlog IMAX Laser Systems 466 238 68 349 200 89 IMAX Xenon Systems 1,276 144 — 1,330 161 — IMAX Film Systems 30 — — 37 — — Total 1,772 382 68 1,716 361 89 IMAX Laser Systems In 2014, the Company introduced its first laser-based digital projection system.
As of December 31, 2022, the Company employed 779 people, of which approximately 286 were employed in the U.S. and approximately 493 were employed outside of the U.S. The global workforce consists of approximately 96% full-time and 4% part-time employees.
As of December 31, 2023, the Company employed 697 people, of which approximately 69% were employed outside of the United States. The global workforce consists of approximately 96% full-time and 4% part-time employees.
The ownership rights to such films may be held by the film sponsors, the film investors and/or the Company. As of December 31, 2022, the Company has distribution rights with respect to 55 films, which cover subjects such as space, wildlife, music, sports, history and natural wonders.
As of December 31, 2023, the Company has distribution rights with respect to approximately 60 films, which cover subjects such as space, wildlife, music, sports, history and natural wonders.
As of December 31, 2022, the Company had 794 IMAX Systems operating in Greater China with an additional 204 systems in backlog. The Company’s backlog in Greater China represents 45% of its total current backlog, including upgrades in system type. The Company has a partnership in China with Wanda Film (“Wanda”).
As of December 31, 2023, the Company had 807 IMAX Systems operating in Greater China with an additional 206 systems in backlog. The Company’s backlog in Greater China represents 46% of its total current backlog, including system upgrades.
The Company believes its significant suppliers will continue to supply quality products in quantities sufficient to satisfy its needs. The Company inspects all parts and sub-assemblies, completes the final assembly, and then subjects the projector to comprehensive testing individually and as a system prior to shipment.
The Company inspects all parts and sub-assemblies, completes the final assembly, and then subjects the projector to comprehensive testing individually and as a system prior to shipment.
IMAX Enhanced is part of the Company's next evolutionary step to extend the IMAX brand and technology further into new use cases, including streaming entertainment and the consumer electronics market. SSIMWAVE In September 2022, the Company acquired SSIMWAVE, a leader in AI-driven video quality solutions for media and entertainment companies.
IMAX Enhanced is part of the Company’s next evolutionary step to extend the IMAX brand and technology further into new use cases, including streaming entertainment and the consumer electronics market.
The Company believes that its strong brand equity supports consumers’ predisposition to choose IMAX over competing brands and to pay a premium for The IMAX Experience now and into the future.
Across various measures of brand equity and health, the IMAX brand ranged from two to 10 times more powerful than other entertainment technology brands. The Company believes that its strong brand equity supports consumers’ predisposition to choose IMAX over competing brands and to pay a premium for The IMAX Experience now and into the future.
(3) As of December 31, 2022, the Company's backlog includes 14 systems in Russia, one system in Ukraine, and five systems in Belarus with a total fixed contracted value of $22.9 million. The number of IMAX Systems in backlog reflects the minimum number of commitments under signed contracts.
Current backlog information reflects all known elections. 10 (4) As of December 31, 2023, the Company’s backlog includes 14 systems (2022 ― 14) in Russia, one system (2022 ― 1) in Ukraine, and five systems (2022 ― 5) in Belarus with a total fixed contracted value of $22.9 million (2022 ― $22.9 million).
The Company receives as its distribution fee either a fixed amount or a fixed percentage of the theater box office receipts and, following the recoupment of its costs, is typically entitled to receive an additional percentage of gross revenues as participation revenues. In March 2022, the Company released the IMAX documentary film entitled IMAX presents The Last Glaciers.
The Company receives as its distribution fee either a fixed amount or a fixed percentage of the box office receipts and, following the recoupment of its costs, is typically entitled to receive an additional percentage of gross revenues as participation revenues. The ownership rights to such films may be held by the film sponsors, the film investors and/or the Company.
(2) For the year ended December 31, 2022, the films released to the Company's global network include 12 with IMAX DNA (2021 — ten).
(2) For the year ended December 31, 2023, the films released to the Company’s global network include 10 with IMAX DNA (2022 — 12). (3) Excludes three Alternative Content Experiences in 2023 (2022 — seven).
As of December 31, 2022, approximately 74% of all open IMAX Systems were in locations outside of the United States and Canada. 12 The following table provides detailed information about the IMAX network by system type and geographic location as of December 31, 2022 and 2021: December 31, 2022 December 31, 2021 Commercial Multiplex Commercial Destination Institutional Total Commercial Multiplex Commercial Destination Institutional Total United States 364 4 25 393 363 4 27 394 Canada 40 1 7 48 39 1 7 47 Greater China (1) 778 — 16 794 768 — 15 783 Asia (excluding Greater China) 138 2 2 142 122 2 2 126 Western Europe 118 4 8 130 116 4 8 128 Russia/the CIS & Ukraine (2) 69 — — 69 70 — — 70 Latin America (3) 55 1 11 67 51 1 11 63 Rest of the World 71 — 2 73 70 — 2 72 Total (4) 1,633 12 71 1,716 1,599 12 72 1,683 (1) Greater China includes China, Hong Kong, Taiwan, and Macau.
The following table provides detailed information about the IMAX network by system type and geographic location as of December 31, 2023 and 2022: December 31, 2023 December 31, 2022 Commercial Multiplex Commercial Destination Institutional Total Commercial Multiplex Commercial Destination Institutional Total United States 363 4 24 391 364 4 25 393 Canada 42 1 7 50 40 1 7 48 Greater China (1) 791 — 16 807 778 — 16 794 Asia (excluding Greater China) 166 2 2 170 138 2 2 142 Western Europe 126 4 8 138 118 4 8 130 Latin America (2) 60 1 8 69 55 1 11 67 Rest of the World 145 — 2 147 140 — 2 142 Total (3) 1,693 12 67 1,772 1,633 12 71 1,716 (1) Greater China includes China, Hong Kong, Taiwan, and Macau.
With a few exceptions, the Company develops and designs all of the key elements of the proprietary technology involved in this component. The fabrication of a majority of parts and sub-assemblies is subcontracted to a group of carefully pre-qualified third-party suppliers. Manufacture and supply contracts are signed for the delivery of the component on an order-by-order basis.
The fabrication of a majority of parts and sub-assemblies is subcontracted to a group of carefully pre-qualified third-party suppliers. Manufacture and supply contracts are signed for the delivery of the component on an order-by-order basis. The Company believes its significant suppliers will continue to supply quality products in quantities sufficient to satisfy its needs.
(2) The consideration owed under joint revenue sharing arrangements, which are accounted for as leases, is typically contingent on the box office receipts earned by the exhibitor. Accordingly, such arrangements do not usually have a dollar value in backlog; however, certain joint revenue sharing arrangements provide for contracted upfront payments and therefore carry a backlog value based on those payments.
Accordingly, such arrangements do not usually have a dollar value in backlog; however, hybrid joint revenue sharing arrangements typically provide for contracted upfront payments and therefore carry a backlog value based on those payments.
Some of the recent initiatives to achieve the Company’s human capital management objectives include the following: Recruiting Talent The Company believes that developing a workforce of individuals from diverse backgrounds with varying perspectives, experiences, and skills is essential in meeting the demands of its industry and the market.
Some of the Company’s recent initiatives to achieve its’s human capital management objectives include the following: Recruiting Talent The Company believes that a collaborative team of innovative employees from diverse backgrounds and experiences is essential to meet the demands of technology and creativity.
The Company leverages its proprietary technology and engineering in all aspects of its business, which principally consists of the digital remastering of films and other content into the IMAX format (“IMAX DMR” ® ) and the sale or lease of premium IMAX theater systems (“IMAX System(s)”).
As a result, IMAX is among the most important and successful global distribution platforms. The Company leverages its proprietary technology and engineering in all aspects of its business, which principally consists of the IMAX film remastering (“IMAX Film Remastering” and formerly known as “IMAX DMR”) and the sale or lease of premium IMAX theater systems (“IMAX System(s)”).
Under full-service programs, Company personnel typically visit each theater every six to twelve months to provide preventative maintenance, cleaning and inspection services and emergency visits to resolve problems and issues with the system. Under some arrangements, customers can elect to participate in a service partnership program whereby the Company trains a customer’s technician to carry out certain aspects of maintenance.
Under full-service programs, Company personnel typically visit each IMAX location every six to twelve months to provide preventative maintenance, cleaning and inspection services and emergency visits to resolve problems and issues with the system.
This laser-based projection system provides greater brightness and clarity, higher contrast, a wider color gamut and deeper blacks, while consuming less power and lasting longer than existing digital technology, to ensure that the Company continues to provide the highest quality, premier movie going experience available to consumers.
A significant portion of the Company’s research and development efforts have been focused on the IMAX Laser Systems, which the Company believes is capable of illuminating the largest screens in the IMAX network and provides greater brightness and clarity, higher contrast, a wider color gamut and deeper blacks, while consuming less power and lasting longer than existing digital technology, to ensure that the Company continues to provide the highest quality, premier cinematic experience available to consumers.
The Company continues to believe that the IMAX network serves as a valuable platform to launch and distribute original content. The Company also provides film post-production and quality control services for large-format films, whether produced by IMAX or third parties, and digital post-production services.
The Company also provides film post-production and quality control services for large-format films, whether produced by IMAX or third-parties, and digital post-production services. In addition, the Company also provides IMAX film and digital cameras to content creators under the IMAX certified camera program.
Total Rewards The Company takes a holistic view of the Total Rewards Program, focusing on providing competitive compensation and benefits packages to attract, incentivize, and retain a talented, diverse, multi-generational workforce. The Total Rewards Program balances base compensation, incentive compensation for both short-term and long-term performance, and a focus on total well-being of the employee.
The Total Rewards Program balances base compensation, incentive compensation for both short-term and long-term performance, and a focus on total well-being of the employee.
To date, in 2023, nine titles have been released to the global IMAX network, including one re-release, and the Company has announced the following additional 29 titles to be released in 2023: Scheduled Title Studio Release Date (1) IMAX DNA Creed III United Artists Releasing March 2023 Filmed For IMAX Shazam!: Fury of the Gods Warner Bros.
To date, in 2024, 18 titles have been released to the global IMAX network, including three re-releases, and the Company has announced the following additional 24 titles to be released in 2024: Scheduled Title Studio Release Date (1) IMAX DNA Dune: Part II Warner Bros.
In select IMAX locations worldwide, movies filmed with IMAX cameras have an IMAX-exclusive 1.43 film aspect ratio, with up to 67% more image.
In select IMAX locations worldwide, movies filmed with IMAX cameras have an IMAX-exclusive 1.43 film aspect ratio, with up to 67% more image. The Company has a Filmed For IMAX ® program under which filmmakers craft films from their inception in various ways in order to optimize The IMAX Experience .
Revenues and GBO derived from international markets continue to exceed revenues and GBO from the United States and Canada. For the year ended December 31, 2022, the Company's revenue generated from its Greater China operations represents 24% of consolidated revenue, compared to 44% in 2021 and 38% in 2020 due to the impact of restrictions resulting from the COVID-19 pandemic.
For the year ended December 31, 2023, the Company’s revenue generated from its Greater China (which includes the mainland of the People’s Republic of China, Hong Kong, Macau, and Taiwan) operations represents 25% of consolidated revenue, compared to 24% in 2022 and 44% in 2021. Restrictions resulting from the COVID-19 pandemic significantly impacted operations in China in 2022 and 2023.
The Company’s principal products and services are as follows: • IMAX DMR – The digital remastering of films and other content into IMAX formats for distribution to the IMAX network. • IMAX Systems – The sale or lease of premium IMAX Systems to exhibitor customers. • IMAX Maintenance – The provision of preventative and emergency maintenance services to the IMAX network. • Film Distribution and Post-Production – The distribution of large-format documentary films, primarily to institutional theaters, and, increasingly, the distribution of exclusive experiences ranging from live performances to interactive events with leading artists and creators, as well as the provision of film post-production services. • Other – Principally includes IMAX Enhanced ® , an initiative to bring The IMAX Experience into the home, SSIMWAVE, a leader in AI-driven video quality solutions for media and entertainment companies, and after-market sales of IMAX System parts and 3D glasses.
The Company’s principal products and services are as follows: • IMAX Film Remastering – The digital remastering of films and other content into IMAX formats for distribution to the IMAX network. • Film Distribution and Post-Production – The distribution of large-format documentary films, primarily to institutional theaters, and, increasingly, the distribution of exclusive IMAX events and experiences including music, gaming, and sports, as well as the provision of film post-production services. • IMAX Systems – The sale or lease of premium IMAX Systems to exhibitor customers. • IMAX Maintenance – The provision of preventative and emergency maintenance services and quality monitoring to the IMAX network. • Other – Principally includes the Company’s streaming and consumer technology business, including its streaming technology and IMAX Enhanced product services, as well as other ancillary activities.
The IMAX brand is a promise to deliver what today’s movie audiences crave — a memorable, more emotionally engaging, more thrilling and shareable experience. From 2015 to 2019, the Company commissioned leading third-party research firms to conduct multiple consumer research studies in 11 countries.
The IMAX brand is a promise to deliver what today’s audiences crave, which is a memorable, more emotionally engaging, more thrilling and shareable experience. IMAX commissions on-going third party consumer research to measure the strength of its brand in numerous markets.
As of December 31, 2022, women represented approximately 34% of the Company’s global workforce. The Company currently has one female director (12.5%) and one director who identifies as a member of a visible minority (12.5%) on the Board of Directors (the “Board”).
As of December 31, 2023, women represented approximately 35% of the Company’s global workforce. The Company currently has three female directors (30%) and two directors who identify as ethnically diverse (20%) on its Board of Directors (the “Board”).
The Company expects to implement enhancements to its U.S. benefits program in certain regions in 2023 based on employee feedback and market conditions. 17 • With an increased focus on mental health in light of the residual effects of the COVID-19 pandemic, the Company enhanced its health and family-friendly benefits to provide mental health support and access to mental health practitioners to its employees. • The Company supports new parents, including adoptive parents, with maternity and parental leave benefits.
These modifications were informed by both employee feedback and market conditions. • Given the increased focus on mental health, in response to addressing the needs of the Company’s employees and their families, the Company enhanced its health and family-friendly benefits to provide mental health support and access to mental health practitioners to its employees. 16 • The Company supports new parents, including adoptive parents, through maternity and parental leave benefits.
As of December 31, 2021, Wanda represented 22% of the Company’s commercial network, 4% of the Company’s backlog and 10% of its revenue.) 13 INDUSTRY OVERVIEW Competition The out-of-home entertainment industry is very diverse with numerous companies vying for the public’s leisure time and the Company faces significant competition as a consequence.
A geographic breakdown of the Company’s revenue is provided in Note 21 to Consolidated Financial Statements in Part II, Item 8. INDUSTRY OVERVIEW Competition The out-of-home entertainment industry is very diverse with numerous companies vying for the public’s leisure time, and the Company faces competition as a consequence.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Regulatory requirements concerning data protection and cybersecurity in the PRC, as well as other requirements concerning operations of foreign businesses in the PRC, are evolving, and their enactment timetable, interpretation and implementation involve significant uncertainties.
Regulatory requirements concerning data protection and cybersecurity, as well as other requirements concerning operations of foreign businesses, in the PRC are evolving, and their enactment timetable, interpretation and implementation involve significant uncertainties.
The sale and sales-type lease agreements for IMAX Systems typically provide for three major sources of cash flow: • initial fees, which are paid in installments generally commencing upon the signing of the agreement until installation of the IMAX System; • ongoing fees, which are paid monthly after the IMAX System has been opened to the public and are generally equal to the greater of a fixed minimum amount per annum and a percentage of box office receipts; and • ongoing annual maintenance and extended warranty fees, which are generally payable commencing in the second year of theater operations.
The sale and sales-type lease agreements for IMAX Systems typically provide for three major sources of cash flow: • initial fees, which are paid in installments generally commencing upon the signing of the agreement until installation of the IMAX System; 25 • ongoing fees, which are paid monthly after the IMAX System has been opened to the public and are generally equal to the greater of a fixed minimum amount per annum and a percentage of box office receipts; and • ongoing annual maintenance and extended warranty fees, which are generally payable commencing in the second year of theater operations.
Any such attack or unauthorized access could result in a disruption of the Company’s operations, the theft, unauthorized use or publication of confidential or proprietary information of the Company or its customers, employees, licensees or suppliers, a reduction of the revenues the Company is able to generate from its operations, damage to the Company’s brand and reputation, a loss of confidence in the security of the Company’s business and products, and significant legal and financial exposure, each of which could potentially have an adverse effect on the Company’s business.
Any such attack or unauthorized access could result in a disruption of the Company’s operations, the theft, unauthorized use or publication of confidential or proprietary information of the Company or its customers, employees, licensees or suppliers, a reduction of the revenues the Company is able to generate from its operations, damage to the Company’s brand and reputation, a loss of confidence in the security 19 of the Company’s business and products, and significant legal and financial exposure, each of which could potentially have an adverse effect on the Company’s business.
If exhibitors choose to reduce their levels of expansion, negotiate economic terms that are less favorable to the Company, or decide not to enter into transactions with the Company, the Company’s revenues would not increase at an anticipated rate and motion picture studios may be less willing to convert their films into the Company’s format for exhibition in commercial IMAX locations.
If exhibitors choose to reduce their levels of presence or expansion, negotiate economic terms that are less favorable to the Company, or decide not to enter into transactions with the Company, the Company’s revenues would not increase at an anticipated rate and motion picture studios may be less willing to convert their films into the Company’s format for exhibition in commercial IMAX locations.
Customer-requested delays in the installation of IMAX Systems in backlog remain a recurring and unpredictable part of the Company’s business. 29 The Company’s inability to enter into renewals of new sales and lease agreements on favorable terms or at all would adversely affect its cash flows and operating results.
Customer-requested delays in the installation of IMAX Systems in backlog remain a recurring and unpredictable part of the Company’s business. The Company’s inability to enter into renewals of new sales and lease agreements on favorable terms or at all would adversely affect its cash flows and operating results.
The Company’s contractual ability to audit IMAX locations may not rectify payments lost or delayed as a result of customers not fulfilling their contractual obligations with respect to financial reporting. There is collection risk associated with payments to be received over the terms of the Company’s IMAX System agreements.
The Company’s contractual ability to audit IMAX locations may not rectify payments lost or delayed as a result of customers not fulfilling their contractual obligations with respect to financial reporting. 26 There is collection risk associated with payments to be received over the terms of the Company’s IMAX System agreements.
Any reduction in backlog could adversely affect the Company’s future revenues and cash flows. In addition, customers with theater system obligations in backlog sometimes request that the Company agree to modify or reduce such obligations, which the Company has agreed to do in the past under certain circumstances.
Any reduction in backlog could adversely affect the Company’s future revenues and cash flows. In addition, customers with system obligations in backlog sometimes request that the Company agree to modify or reduce such obligations, which the Company has agreed to do in the past under certain circumstances.
The Company records write-downs 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 and anticipated market acceptance of the Company’s current and pending IMAX Systems.
The Company records write-downs for excess and obsolete inventory based upon current estimates of future events and conditions, including the anticipated installation dates for the current backlog of IMAX System contracts, technological developments, signings in negotiation and anticipated market acceptance of the Company’s current and pending IMAX Systems.
Furthermore, regulatory efforts to combat climate change could result in increases in the cost of raw materials, taxes, transportation and utilities for the Company’s suppliers and vendors which would result in higher operating costs for the Company and potentially impact the availability of components used in the Company’s systems.
Furthermore, regulatory efforts to combat climate change could result in increases in the cost of raw materials, taxes, transportation and utilities for the Company’s suppliers and vendors 30 which would result in higher operating costs for the Company and potentially impact the availability of components used in the Company’s systems.
As a result, the Company’s future revenues and cash flows could be adversely affected. 21 The Company is undertaking brand extensions and new business initiatives, and the Company’s investments and efforts in such business evolution may not be successful. The Company is undertaking brand extensions and new business initiatives.
As a result, the Company’s future revenues and cash flows could be adversely affected. The Company is undertaking brand extensions and new business initiatives, and the Company’s investments and efforts in such business evolution may not be successful. The Company is undertaking brand extensions and new business initiatives.
Although the Company maintains robust procedures, internal policies and technological security measures to safeguard such content and information, as well as a cyber-security insurance policy, the Company’s information technology systems, and the information technology systems of our current or future third-party vendors, collaborators, consultants and service providers, could be penetrated by internal or external parties intent on extracting information, corrupting information, stealing intellectual property or trade secrets, or disrupting business processes.
Although the Company maintains robust procedures, internal policies and technological security measures to safeguard such content and information, as well as a cyber-security insurance policy, the Company’s information technology systems, and the information technology systems of its current or future third-party vendors, collaborators, consultants and service providers, could be penetrated by internal or external parties intent on extracting information, corrupting information, stealing intellectual property or trade secrets, or disrupting business processes.
In either case, and in other cases, the Company’s obligations under the Convertible Notes and the indenture could increase the cost of acquiring the Company otherwise discourage a third party from acquiring the Company or removing incumbent management, including in a transaction that noteholders or holders of the Company’s common shares may view as favorable. 32 The Company is subject to counterparty risk with respect to the Capped Call Transactions, and the capped call may not operate as planned.
In either case, and in other cases, the Company’s obligations under the Convertible Notes and the indenture could increase the cost of acquiring the Company otherwise discourage a third party from acquiring the Company or removing incumbent management, including in a transaction that noteholders or holders of the Company’s common shares may view as favorable. 29 The Company is subject to counterparty risk with respect to the Capped Call Transactions, and the capped call may not operate as planned.
Dollars, significant local currency issues may impact the profitability of the Company’s arrangements with its customers, which ultimately affect the ability to negotiate cost-effective arrangements and, therefore, the Company’s results of operations. In addition, because IMAX films generate box office revenue in 87 different countries, unfavorable exchange rates between applicable local currencies and the U.S.
Dollars, significant local currency issues may impact the profitability of the Company’s arrangements with its customers, which ultimately affect the ability to negotiate cost-effective arrangements and, therefore, the Company’s results of operations. In addition, because IMAX films generate box office revenue in 90 different countries, unfavorable exchange rates between applicable local currencies and the U.S.
The Company must also comply with a variety of data privacy regulations and failure to comply with such regulations may affect the Company’s financial performance.
The Company must also comply with a variety of data privacy regulations and failure to comply with such regulations may adversely affect the Company’s financial performance.
In response to the ongoing conflict between Russia and Ukraine, Canada, the United States, and other countries in which the Company operates have imposed broad sanctions and other restrictive actions against governmental and other entities in Russia and Belarus, which in turn have and may continue to have an adverse impact on the Company's business and results of operations in affected regions.
For example, in response to the ongoing conflict between Russia and Ukraine, Canada, the United States, and other countries in which the Company operates have imposed broad sanctions and other restrictive actions against governmental and other entities in Russia and Belarus, which in turn have and may continue to have an adverse impact on the Company’s business and results of operations in affected regions.
These restrictive covenants impose operating and financial restrictions on the Company that limit its ability to engage in acts that may be in the Company’s long-term best interests. 31 The Company’s indebtedness and liabilities could limit the cash flow available for its operations, expose the Company to risks that could adversely affect its business, financial condition, and results of operations.
These restrictive covenants impose operating and financial restrictions on the Company that limit its ability to engage in acts that may be in the Company’s long-term best interests. 28 The Company’s indebtedness and liabilities could limit the cash flow available for its operations, and expose the Company to risks that could adversely affect its business, financial condition, and results of operations.
In order to keep pace with changes and advancements in digital technology and in order to continue to provide an experience that is premium to and differentiated from conventional cinema experiences, the Company has made, and expects to continue to make, significant investments in digital technology in the form of research and development and the acquisition of third-party intellectual property and/or proprietary technology.
In order to keep pace with changes and advancements in digital technology and in order to continue to provide an experience that is premium to and differentiated from conventional entertainment experiences, the Company has made, and expects to continue to make, significant investments in digital technology in the form of research and development and the acquisition of third-party intellectual property and/or proprietary technology.
The Company’s success depends in part on general political, social and economic conditions and the willingness of consumers to purchase tickets to IMAX movies. If movie-going becomes less popular globally, the Company’s business could be adversely affected, especially if such a decline occurs in Greater China.
The Company’s success depends in part on general political, social and economic conditions and the willingness of consumers to purchase tickets to the IMAX auditoriums. If movie-going becomes less popular globally, the Company’s business could be adversely affected, especially if such a decline occurs in Greater China.
The Company amortizes its film assets, including IMAX DMR costs capitalized using the individual film forecast method, whereby the costs of film assets are amortized and participation costs are accrued for each film in the ratio of revenues earned in the current period to management’s estimate of total revenues ultimately expected to be received for that title.
The Company amortizes its film assets, including IMAX Film Remastering costs capitalized using the individual film forecast method, whereby the costs of film assets are amortized and participation costs are accrued for each film in the ratio of revenues earned in the current period to management’s estimate of total revenues ultimately expected to be received for that title.
The declining box-office performance of IMAX films could materially and adversely harm the Company’s business and prospects. 26 The Company may not be able to adequately protect its intellectual property, and competitors could misappropriate its technology or brand, which could weaken its competitive position.
The declining box-office performance of IMAX films could materially and adversely harm the Company’s business and prospects. 23 The Company may not be able to adequately protect its intellectual property, and competitors could misappropriate its technology or brand, which could weaken its competitive position.
Item 1A. Ri sk Factors Before you make an investment decision with respect to the Company’s common stock, you should carefully consider all of the information included in this Form 10-K and the Company’s subsequent periodic filings with the SEC.
Item 1A. Ri sk Factors Before you make an investment decision with respect to the Company’s common shares, you should carefully consider all of the information included in this Form 10-K and the Company’s subsequent periodic filings with the SEC.
Notwithstanding the legal obligation to do so, some of the Company’s customers with which it has signed contracts may not accept delivery of IMAX Systems that are included in the Company’s backlog. An economic downturn may exacerbate the risk of customers not accepting delivery of IMAX Systems.
Notwithstanding the legal obligation to do so, some of the Company’s customers with which it has signed contracts may not accept delivery of IMAX Systems that are included in the Company’s backlog. An economic or industry downturn may exacerbate the risk of customers not accepting delivery of IMAX Systems.
Also, conflicts in international release schedules may make it difficult to release every IMAX film in certain markets. The Company depends principally on commercial movie exhibitors to purchase or lease IMAX Systems, to supply box office revenue under joint revenue sharing arrangements and under its sale and sales-type lease agreements and to supply venues in which to exhibit IMAX films.
Also, conflicts in international release schedules may make it difficult to release every IMAX film in certain markets. 18 The Company depends principally on commercial theatrical exhibitors to purchase or lease IMAX Systems, to supply box office revenue under joint revenue sharing arrangements and under its sale and sales-type lease agreements and to supply venues in which to exhibit IMAX films.
Factors that may be considered a change in circumstances include (but are not limited to) a decline in stock price and market capitalization, declines in future cash flows, and slower growth rates in the Company’s industry.
Factors that may be considered a change in circumstances include (but are not limited to) a decline in share price and market capitalization, declines in future cash flows, and slower growth rates in the Company’s industry.
Of the IMAX Systems currently scheduled to be installed in Greater China, 66% are under joint revenue sharing arrangements, which further increases the Company’s ongoing exposure to box office performance in this market.
Of the IMAX Systems currently scheduled to be installed in Greater China, 71% are under joint revenue sharing arrangements, which further increases the Company’s ongoing exposure to box office performance in this market.
An adverse determination in any intellectual property claim could require the Company to pay damages and/or stop using its technologies, trademarks, copyrighted works, and other material found to be in violation of another party’s rights and could prevent the Company from licensing its technologies to others unless we enter into royalty or licensing arrangements with the prevailing party or are able to redesign our products and services to avoid infringement.
An adverse determination in any intellectual property claim could require the Company to pay damages and/or stop using its technologies, trademarks, copyrighted works, and other material found to be in violation of another party’s rights and could prevent the Company from licensing its technologies to others unless the Company enters into royalty or licensing arrangements with the prevailing party or are able to redesign its products and services to avoid infringement.
Moreover, a deterioration of the diplomatic relations between the United States or Canada and a given country may impede the Company’s ability to operate theaters in such countries and have a negative impact on the Company’s financial condition and future growth prospects.
Moreover, a deterioration of the diplomatic relations between the United States or Canada and a given country may impede the Company’s ability to operate IMAX systems in such countries and have a negative impact on the Company’s financial condition and future growth prospects.
Factors that have affected the Company’s operating results and cash flow in the past, and are likely to affect its operating results and cash flow in the future, include, among other things: • the timing of signing and installation of new IMAX Systems (particularly for installations in newly-built multiplexes, which can result in delays that are beyond the Company’s control); • the timing and commercial success of films distributed to the Company’s network; • the demand for, and acceptance of, the Company’s products and services; • the recognition of revenue of sale and sales-type leases; • the classification of leases as sales-type versus operating; • the volume of orders received and that can be filled in the quarter; • the level of its sales backlog; • the signing of film distribution agreements; • the financial performance of IMAX Systems operated by the Company’s customers; • financial difficulties faced by customers, particularly customers in the commercial exhibition industry; • the magnitude and timing of spending in relation to the Company’s research and development efforts and related investments, as well as new business initiatives; and • the number and timing of joint revenue sharing arrangement installations, related capital expenditures, and timing of related cash receipts. 28 Most of the Company’s operating expenses are fixed in the short term.
Factors that have affected the Company’s operating results and cash flow in the past, and are likely to affect its operating results and cash flow in the future, include, among other things: • the timing of signing and installation of new IMAX Systems (particularly for installations in newly-built multiplexes, which can result in delays that are beyond the Company’s control); • the timing and commercial success of films distributed to the Company’s network; • the demand for, and acceptance of, the Company’s products and services; • the recognition of revenue of sale and sales-type leases; • the classification of leases as sales-type versus operating; • the volume of orders received and that can be filled in the period; • the level of its sales backlog; • the signing of film distribution agreements; • the financial performance of IMAX Systems operated by the Company’s customers; • financial difficulties faced by customers, particularly customers in the commercial exhibition industry; • the magnitude and timing of spending in relation to the Company’s research and development efforts and related investments, as well as new business initiatives, and success thereof; and • the number and timing of joint revenue sharing arrangement installations, related capital expenditures, and timing of related cash receipts.
Studio consolidation could result in individual studios comprising a greater percentage of the Company’s film slate and overall IMAX DMR revenue, and could expose the Company to the same risks described above in connection with exhibitor consolidation. 25 Failure to respond adequately or in a timely fashion to changes and advancements in digital technology could negatively affect the Company’s business.
Studio consolidation could result in individual studios comprising a greater percentage of the Company’s film slate and overall IMAX Film Remastering revenue, and could expose the Company to the same risks described above in connection with exhibitor consolidation. Failure to respond adequately or in a timely fashion to changes and advancements in technology could negatively affect the Company’s business.
For example, according to research conducted by Omdia, there were approximately 43,000 conventional-sized screens in North American commercial multiplexes in 2022.
For example, according to research conducted by Omdia, there were approximately 42,000 conventional-sized screens in North American commercial multiplexes in 2022.
The Company itself produces only a small number of such films and, as a result, the Company relies principally on films produced by third-party filmmakers and studios, including both Hollywood and local language features converted into the Company’s format. In 2022, 63 new IMAX films were released to the Company’s global network.
The Company itself produces only a small number of such films and, as a result, the Company relies principally on films produced by third-party filmmakers and studios, including both Hollywood and local language features converted into the Company’s format. In 2023, 95 new IMAX films were released to the Company’s global network.
Approximately 11% of the Company’s sales and lease agreements are due to expire in the next 12 months. If these agreements are not renewed, or if the Company is unable to enter into new leases agreements comparable to those currently in effect in a timely manner, then the Company’s theater revenue could be adversely affected.
Approximately 7% of the Company’s sales and lease agreements are due to expire in the next 12 months. If these agreements are not renewed, or if the Company is unable to enter into new leases agreements comparable to those currently in effect in a timely manner, then the Company’s systems revenue could be adversely affected.
Dollar and potential currency devaluations; • new tariffs, trade protection measures, import or export licensing requirements, trade embargoes, sanctions, and other trade barriers; • difficulties in obtaining competitively priced key commodities, raw materials, and component parts from various international sources that are needed to manufacture quality products on a timely basis; • imposition of foreign exchange controls in foreign jurisdictions; • dependence on foreign distributors and their sales channels; • reliance on local partners, including in connection with joint revenue sharing arrangements; • difficulties in staffing and managing foreign operations; • inability to complete installations of IMAX Systems, including as a result of material disruptions or delays in the Company’s supply chains, or collect full payment on installations thereof; • local business practices that can present challenges to compliance with applicable anti-corruption and bribery laws; • difficulties in establishing market-appropriate pricing; • less accurate and/or less reliable box office reporting; • adverse changes in foreign government monetary and/or tax policies, and/or difficulties in repatriating cash from foreign jurisdictions (including with respect to China, where approval of the State Administration of Foreign Exchange is required); • poor recognition of intellectual property rights; • difficulties in enforcing contractual rights; • inflation; 23 • requirements to provide performance bonds and letters of credit to international customers to secure system component deliveries; • harm to the IMAX brand from operating in countries with records of controversial government action, including human rights abuses; and • political, economic and social instability, which could result in adverse consequences for the Company’s interests in different regions of the world.
Dollar and potential currency devaluations; • new tariffs, trade protection measures, import or export licensing requirements, trade embargoes, sanctions, and other trade barriers; • difficulties in obtaining competitively priced key commodities, raw materials, and component parts from various international sources that are needed to manufacture quality products on a timely basis; • imposition of foreign exchange controls in foreign jurisdictions; • dependence on foreign distributors and their sales channels; • reliance on local partners, including in connection with joint revenue sharing arrangements; • difficulties in staffing and managing foreign operations; • inability to complete installations of IMAX Systems, including as a result of material disruptions or delays in the Company’s supply chains, or collect full payment on installations thereof; • local business practices that can present challenges to compliance with applicable anti-corruption and bribery laws; • difficulties in establishing market-appropriate pricing; • less accurate and/or less reliable box office reporting; • adverse changes in foreign government monetary and/or tax policies, and/or difficulties in repatriating cash from foreign jurisdictions (including with respect to China, where approval of the State Administration of Foreign Exchange is required); • poor recognition of intellectual property rights; • difficulties in enforcing contractual rights; • economic conditions in foreign markets, including inflation; 20 • public health concerns, including pandemics or epidemics, and regulations in response thereto, which could adversely affect the Company’s and its customers' operations; • requirements to provide performance bonds and letters of credit to international customers to secure system component deliveries; • harm to the IMAX brand from operating in countries with records of controversial government action, including human rights abuses; and • political, economic and social instability, which could result in adverse consequences for the Company’s interests in different regions of the world.
The introduction of new, competing products and technologies could harm the Company’s business. The out-of-home entertainment industry is very competitive, and the Company faces a number of competitive challenges. The Company faces competition both in the form of technological advances in in-home entertainment, as well as those within the theater-going experience.
The introduction of new, competing products and technologies could harm the Company’s business. The entertainment industry is very competitive. The Company faces competition both in the form of technological advances in in-home entertainment, as well as those within the out-of-home entertainment, including the theater-going experience.
The climates and geology of some of the regions in which the Company’s principal offices are located, including California, present increased risks of adverse weather or natural disasters. Any such events in the future could disrupt the Company’s operations and impact the Company’s ability to serve its customers. Item 1B. Unresolv ed Staff Comments None. 34
The climates and geology of some of the regions in which the Company’s principal offices are located, including California, present increased risks of adverse weather or natural disasters. Any such events in the future could disrupt the Company’s operations and impact the Company’s ability to serve its customers. Item 1B. Unreso lved Staff Comments None.
The success of the IMAX network is directly related to the availability and success of IMAX DMR films, and other films released to the IMAX network, as well as the continued purchase or lease of IMAX Systems and other support by movie exhibitors, for which there can be no guarantee.
The success of the IMAX network is directly related to the availability and success of the IMAX remastered films, and other films released to the IMAX network, as well as the continued purchase or lease of IMAX Systems and other support by theatrical exhibitors, for which there can be no guarantee.
The Company faces risks in connection with its significant presence in China and the continued expansion of its business there. Greater China is the Company’s largest market by revenue, with approximately 24% of overall revenues generated from its Greater China operations in 2022.
The Company faces risks in connection with its significant presence in China and the continued expansion of its business there. Greater China is the Company’s largest market by revenue, with approximately 25% of overall revenues generated from its Greater China operations in 2023.
An economic downturn, recession, significant increases in interest rates or other adverse economic developments could impact developers’ ability to secure financing on acceptable terms and complete the buildout of these locations, thereby negatively impacting the Company’s ability to grow its theater network.
An economic downturn, recession, significant increases in interest rates or other adverse economic developments could impact developers’ ability to secure financing on acceptable terms and complete the buildout of these locations, thereby negatively impacting the Company’s ability to install IMAX Systems, grow its theater network and collects its contractual revenue.
The China market faces a number of risks, including changes in laws and regulations, currency fluctuations, increased competition, and changes in economic conditions, including the risk of an economic downturn or recession, trade embargoes, restrictions or other barriers, as well as other conditions that may impact the Company’s exhibitor and studio partners, and consumer spending.
The China market faces a number of risks, including a continued slow recovery from the COVID-19 pandemic, changes in laws and regulations, currency fluctuations, increased competition, and changes in economic conditions, including the risk of an economic downturn or recession, trade embargoes, restrictions or other barriers, as well as other conditions that may impact the Company’s exhibitor and studio partners, and consumer spending.
As of December 31, 2022, the Company’s backlog included 450 IMAX Systems, consisting of 162 IMAX Systems under sales or lease arrangements and 288 IMAX Systems under joint revenue sharing arrangements. The Company lists signed contracts for IMAX Systems for which revenue has not been recognized as backlog prior to the time of revenue recognition.
As of December 31, 2023, the Company’s backlog included 450 IMAX Systems, consisting of 164 IMAX Systems under sales or lease arrangements and 286 IMAX Systems under joint revenue sharing arrangements. The Company lists signed contracts for IMAX Systems for which revenue has not been recognized as backlog prior to the time of revenue recognition.
The share of the Company’s revenue that is generated by Wanda is expected to continue to grow as the number of Wanda theater systems currently in backlog are opened.
The share of the Company’s revenue that is generated by Wanda is expected to continue to grow as the number of IMAX Systems in backlog with Wanda are opened.
The Company can make no assurances that exhibitors will continue to do any of these things. The Company is unable to predict the pace at which exhibitors will purchase or lease IMAX Systems or enter into joint revenue sharing arrangements with the Company, or whether any of the Company’s existing exhibitor customers will continue to do any of the foregoing.
The Company is unable to predict the pace at which exhibitors will purchase or lease IMAX Systems or enter into joint revenue sharing arrangements with the Company, or whether any of the Company’s existing exhibitor customers will continue to do any of the foregoing.
The Company may be required to record a significant charge to earnings in its financial statements during the period in which any impairment of its goodwill or long-lived assets is determined. 30 RISKS RELATED TO THE COMPANY’S COMMON SHARES The market price for the Company’s common shares has historically been volatile and declines in market price, including as a result of a market downturn resulting from the COVID-19 pandemic or otherwise, may negatively affect its ability to raise capital, issue debt, secure customer business, and retain employees.
The Company may be required to record a significant charge to earnings in its financial statements during the period in which any impairment of its goodwill or long-lived assets is determined. 27 RISKS RELATED TO THE COMPANY’S COMMON SHARES The market price for the Company’s common shares has historically been volatile and declines in market price, may negatively affect its ability to raise capital, issue debt, secure customer business, and retain employees.
Additionally, given the global nature of the Company's operations, any protracted conflict or the broader macroeconomic impact of the Russia-Ukraine conflict and sanctions imposed on Russia, Belarus and other countries could have an adverse impact on the Company's business, results of operations, financial condition, and future performance (the Company has 22 systems in its backlog from Russia, the CIS and Ukraine) and may also magnify the impact of other risks described herein, including the risk of cybersecurity attacks, which have increased in connection with the ongoing conflict and may impact information technology systems unrelated to the conflict, or jeopardize critical infrastructure in jurisdictions where the Company operates.
Additionally, given the global nature of the Company’s operations, any protracted conflict or the broader macroeconomic impact of geopolitical conflicts and sanctions imposed in response thereto, could have an adverse impact on the Company’s business, results of operations, financial condition, and future performance (the Company has 20 systems in its backlog from Russia, the CIS and Ukraine, and none from Israel) and may also magnify the impact of other risks described herein, including the risk of cybersecurity attacks, which may impact information technology systems unrelated to the conflict, or jeopardize critical infrastructure in jurisdictions where the Company operates.
The Company has notified its exhibitor clients in Russia and Belarus that such sanctions and actions constitute a force majeure event under their system agreements, resulting in the suspension of the Company's obligations thereunder. The scope, intensity, duration and outcome of the conflict is uncertain.
The Company has notified its exhibitor clients in Russia and Belarus that such sanctions and actions constitute a force majeure event under their system agreements, resulting in the suspension of the Company’s obligations thereunder.
The timing and extent of a recovery of consumer behavior and willingness to spend discretionary income on movie-going may delay the Company's ability to generate significant revenue from GBO generated by its exhibitor customers until consumer behavior normalizes and consumer spending fully recovers.
The timing and extent of a recovery of consumer behavior and willingness to spend discretionary income on movie-going may delay the Company’s ability to generate significant revenue from GBO generated by its exhibitor customers in various markets.
As of December 31, 2022 , the Company had approximately $413.2 million of consolidated indebtedness and liabilities. The Company may also incur additional indebtedness to meet future financing needs.
As of December 31, 2023 , the Company had approximately $389.5 million of consolidated indebtedness and liabilities. The Company may also incur additional indebtedness to meet future financing needs.
As of December 31, 2022, the Company had 794 IMAX Systems operating in Greater China with an additional 204 systems in backlog, which represent 45% of the Company’s current backlog.
As of December 31, 2023, the Company had 807 IMAX Systems operating in Greater China with an additional 206 systems in backlog, which represent 46% of the Company’s current backlog.
Such adverse impact on consumer’s discretionary income could result in a shift in consumer demand away from movie-going. The majority of the Company’s revenue is directly derived from the box office results of its exhibitor partners. Accordingly, a decline in attendance at commercial IMAX locations could materially and adversely affect several sources of key revenue streams for the Company.
The majority of the Company’s revenue is directly derived from the box office results of its exhibitor partners. Accordingly, a decline in attendance at commercial IMAX locations could materially and adversely affect several sources of key revenue streams for the Company.
The Company’s actual or perceived failure to comply with such laws and regulations could result in fines, investigations, enforcement actions, penalties, sanctions, claims for damages by affected individuals, and damage to the Company’s reputation, among other negative consequences, any of which could have a material adverse effect on its financial performance. 22 RISKS RELATED TO THE COMPANY’S INTERNATIONAL OPERATIONS The Company conducts business internationally, which exposes it to uncertainties and risks that could negatively affect its operations, sales, and future growth prospects.
The Company’s actual or perceived failure to comply with such laws and regulations could result in fines, investigations, enforcement actions, penalties, sanctions, claims for damages by affected individuals, and damage to the Company’s reputation, among other negative consequences, any of which could have a material adverse effect on its financial performance.
The following risk factors should be read in conjunction with the balance of this annual report, including the Consolidated Financial Statements and related notes. The risks described below are not the only ones the Company faces. Additional risks that the Company currently deems immaterial or that are currently unknown to the Company may also impair its business or operations.
The following risk factors should be read in conjunction with the balance of this annual report, including the Consolidated Financial Statements and related notes. The risks described below are not the only ones the Company faces.
It is possible that such attacks could compromise the Company’s security measures or the security measures of parties with whom the Company does business. Because the techniques that may be used to circumvent the Company’s safeguards change frequently and may be difficult to detect, the Company may be unable to anticipate any new techniques or implement sufficient preventive security measures.
Because the techniques that may be used to circumvent the Company’s safeguards change frequently and may be difficult to detect, the Company may be unable to anticipate any new techniques or implement sufficient preventive security measures.
If the Company does business with Wanda or other large exhibitor chains less frequently or on less favorable terms than currently, the Company’s business, financial condition or results of operations may be adversely affected. In addition, an adverse economic impact on a significant customer’s business operations could have a corresponding material adverse effect on the Company.
If the Company does business with Wanda or other large exhibitor chains less frequently or on less favorable terms than currently, the Company’s business, financial condition or results of operations may be adversely affected.
The Company’s systems revenue can vary significantly from the associated cash flows. The Company often provides financing to customers for IMAX Systems on a long-term basis through long-term sale or lease arrangements. The terms of leases or financing receivables are typically 10 to 12 years.
The Company’s systems revenue can vary significantly from its cash flows under IMAX System sales or lease agreements. The Company’s systems revenue can vary significantly from the associated cash flows. The Company often provides financing to customers for IMAX Systems on a long-term basis through long-term sale or lease arrangements.
Dollars, while a substantial portion of its expenses are denominated in Canadian Dollars. The Company also generates revenues in Chinese Yuan Renminbi, Euros and Japanese Yen.
The Company may experience adverse effects due to exchange rate fluctuations. A substantial portion of the Company’s revenues are denominated in U.S. Dollars, while a substantial portion of its expenses are denominated in Canadian Dollars. The Company also generates revenues in Chinese Yuan Renminbi, Euros and Japanese Yen.
The Company does not believe that it is currently required to obtain any permission or approval from the China Securities Regulatory Commission, the Cyberspace Administration of China or any other regulatory authority in the People’s Republic of China (“PRC”) for its operations, but there can be no assurance that such permissions or approvals would not be required in the future and, if required, that they would be granted in a timely manner, on acceptable terms, or at all.
The worsening of United States–China political tensions could exacerbate any or all of these risks, and adverse developments in any of these areas could impact the Company’s future revenues and cash flows and could cause the Company to fail to achieve anticipated growth. 21 The Company does not believe that it is currently required to obtain any permission or approval from the China Securities Regulatory Commission, the Cyberspace Administration of China or any other regulatory authority in the PRC for its operations, but there can be no assurance that such permissions or approvals would not be required in the future and, if required, that they would be granted in a timely manner, on acceptable terms, or at all.
The Company also receives revenues from studios releasing IMAX films. Hollywood studios have also experienced consolidation, as evidenced by the Walt Disney Company’s acquisition of certain studio assets from Twenty First Century Fox in 2019.
In addition, an adverse economic impact on a significant customer’s business operations could have a corresponding material adverse effect on the Company. 22 The Company also receives revenues from studios releasing IMAX films. Hollywood studios have also experienced consolidation, as evidenced by the Walt Disney Company’s acquisition of certain studio assets from Twenty First Century Fox in 2019.
The Company owns patents issued and patent applications pending, including those covering its digital projector, digital conversion technology, laser illumination technology, and other inventions relating to imaging technology and video quality assessment.
Finally, some of the underlying technologies of the Company’s products and system components are not covered by patents or patent applications. The Company owns patents issued and patent applications pending, including those covering its digital projector, digital conversion technology, laser illumination technology, and other inventions relating to imaging technology and video quality assessment.
A number of external factors beyond the Company’s control, including its industry’s highly competitive market for skilled workers and leaders, cost inflation, and workforce participation rates, may negatively affect the Company’s ability to retain and attract qualified employees. If the Company experiences high attrition rates in its employee population, the results of our operations may be adversely affected.
A number of external factors beyond the Company’s control, including its industry’s highly competitive market for skilled workers and leaders, cost inflation, development of non-compete laws, and workforce participation rates, may negatively affect the Company’s ability to retain and attract qualified employees.
If the Company’s patent claims are rendered invalid or unenforceable, or narrowed in scope, the patent coverage afforded the Company’s products and services could be impaired, which could negatively affect its competitive position.
The patent applications may also be challenged by third parties. Several of the Company’s issued patents expire between 2024 and 2041. If the Company’s patent claims are rendered invalid or unenforceable, or narrowed in scope, the patent coverage afforded the Company’s products and services could be impaired, which could negatively affect its competitive position.
For a description of the Company outstanding indebtedness, see Note 15 of Notes to Consolidated Financial Statements in Part II, Item 8.
A description of the Company’s outstanding indebtedness is provided in Note 14 to Consolidated Financial Statements in Part II, Item 8.
To the extent any PRC laws and regulations become applicable to the Company, it may be subject to the risks and uncertainties associated with the legal system in the PRC, including with respect to the enforcement of laws and the possibility of changes of rules and regulations with little or no advance notice. 24 Certain risks and uncertainties of doing business in China are solely within the control of the Chinese government, and Chinese law regulates both the scope of the Company’s continued expansion in China and the business conducted by it within China.
To the extent any PRC laws and regulations become applicable to the Company, it may be subject to the risks and uncertainties associated with the legal system in the PRC, including with respect to the enforcement of laws and the possibility of changes of rules and regulations with little or no advance notice.
Changes in accounting and changes in management’s estimates may affect the Company’s reported earnings and operating income. U.S. GAAP and accompanying accounting pronouncements are highly complex and involve many subjective judgments.
If the Company experiences high attrition rates in its employee population, the results of our operations may be adversely affected. Changes in accounting and changes in management’s estimates may affect the Company’s reported earnings and operating income. U.S. GAAP and accompanying accounting pronouncements are highly complex and involve many subjective judgments.
In addition, there can be no assurance that one or more of The Company’s competitors who have developed competing technologies or the Company’s other competitors will not be granted patents for their technology and allege that the Company has infringed.
In addition, there can be no assurance that one or more of The Company’s competitors who have developed competing technologies or the Company’s other competitors will not be granted patents for their technology and allege that the Company has infringed. 24 Any claims that the Company’s business infringes the intellectual property rights of others, regardless of the merit or resolution of such claims, could entail significant costs in responding to, defending, and resolving such claims.
The Company cannot provide assurance that the Chinese government will continue to permit the release of Hollywood IMAX films in China or that the timing or number of IMAX releases will be favorable to the Company. There are also uncertainties regarding the interpretation and application of laws and regulations and the enforceability of intellectual property and contract rights in China.
The Company cannot provide assurance that the Chinese government will continue to permit the release of Hollywood IMAX films in China or that the timing, number or performance of IMAX releases will be favorable to the Company.
As of December 31, 2022, through the Company’s partnership with Wanda, there were 375 IMAX Systems operational in Greater China and Wanda represented approximately 22% of the commercial network and 4% of the Company’s backlog.
For instance, Wanda is the Company’s largest exhibitor customer, representing approximately 10% of the Company’s total revenues in 2023. As of December 31, 2023, through the Company’s partnership with Wanda, there were 376 IMAX Systems operational in Greater China and Wanda represented approximately 21% of the commercial network and 4% of the Company’s backlog.
The Company may be unable to rapidly adjust its spending to compensate for any unexpected shortfall in sales, joint revenue sharing arrangements revenue or IMAX DMR revenue, which would harm operating results for a particular period. The Company’s systems revenue can vary significantly from its cash flows under IMAX System sales or lease agreements.
Most of the Company’s operating expenses are fixed in the short term. The Company may be unable to rapidly adjust its spending to compensate for any unexpected shortfall in sales, joint revenue sharing arrangements revenue or IMAX Film Remastering revenue, which would harm operating results for a particular period.
The Company also depends on the sale and lease of IMAX Systems to commercial movie exhibitors to generate revenue. Commercial movie exhibitors generate revenues from consumer attendance at their theaters, which depends on the willingness of consumers to visit movie theaters and spend discretionary income at movie theaters.
Commercial theatrical exhibitors generate revenues from consumer attendance at their theaters, which depends on the willingness of consumers to visit movie theaters and spend discretionary income at movie theaters. In the event of declining box office and concession revenues, commercial exhibitors may be less willing to invest capital in IMAX Systems.
The Company has recently explored initiatives in the field of in-home entertainment technology, which is an intensely competitive business and which is dependent on consumer demand, over which the Company has no control. The Company is also exploring new technologies to connect the IMAX network to facilitate bringing more unique content, including broadcasts of live events, to IMAX audiences.
The Company has recently explored initiatives in the field of in-home entertainment technology, which is an intensely competitive business and which is dependent on consumer demand, over which the Company has no control.
In addition, if any of the Company’s registered or unregistered trademarks, trade names or service marks is challenged, infringed, circumvented, declared generic or determined to be infringing on other marks, it could have an adverse effect on the Company’s sales or market position. 27 The Company may be subject to claims of infringement of third-party intellectual property rights that are costly to defend, result in the diversion of management’s time and efforts, require the payment of damages, limit the Company’s ability to use particular technologies in the future or prevent the Company from marketing its existing or future products and services.
The Company may be subject to claims of infringement of third-party intellectual property rights that are costly to defend, result in the diversion of management’s time and efforts, require the payment of damages, limit the Company’s ability to use particular technologies in the future or prevent the Company from marketing its existing or future products and services.
As a result, climate change regulation and market reactions to climate change could adversely impact the Company’s business, including the potential for an increase in climate risk assessment.
Growing public concern about climate change has resulted in the increased focus of local, state, regional, national and international regulatory bodies on climate change issues. As a result, climate change regulation and market reactions to climate change could adversely impact the Company’s business, including the potential for an increase in climate risk assessment.
The lack of protection afforded to intellectual property rights in certain international jurisdictions may be increasingly problematic given the extent to which the future growth of the Company is anticipated to come from foreign jurisdictions. Finally, some of the underlying technologies of the Company’s products and system components are not covered by patents or patent applications.
The lack of protection afforded to intellectual property rights in certain international jurisdictions may be increasingly problematic given the extent to which the future growth of the Company is anticipated to come from foreign jurisdictions. The Company may develop proprietary technology or knowledge, including AI-generated works, that are not entitled to intellectual property protection.
In addition, the Company’s operations could be adversely affected if consumers' discretionary income globally or in a particular geography falls as a result of an economic downturn or recession resulting from geopolitical tensions, including the Russia-Ukraine conflict and resulting sanctions, sustained increase in inflation and interest rates, supply chain issues, the COVID-19 pandemic or otherwise.
In addition, the Company’s operations could be adversely affected if consumers’ discretionary income globally or in a particular geography falls as a result of an economic downturn or recession, sustained inflationary conditions, high interest rates, supply chain issues, or otherwise. Such adverse impact on consumer’s discretionary income could result in a shift in consumer demand away from movie-going.
New initiatives could involve acquisitions or the formation of joint ventures and business alliances. In September 2022, the Company acquired SSIMWAVE for $19.5 million in cash and 160,547 common shares of the Company with a fair value of $1.9 million with additional earnout consideration.
New initiatives could involve acquisitions or the formation of joint ventures and business alliances. For example, in September 2022, the Company acquired SSIMWAVE.
There are a number of risks associated with operating in international markets that could negatively affect the Company’s operations, sales and future growth prospects.
The Company’s network spanned 90 different countries as of December 31, 2023, and the Company expects its international operations to continue to account for an increasingly significant portion of its future revenues. There are a number of risks associated with operating in international markets that could negatively affect the Company’s operations, sales and future growth prospects.
For instance, the Chinese government regulates the number, timing, and terms of Hollywood films released to the China market. A number of prominent Hollywood films were denied release dates in China in 2021 and 2022, including several films released in IMAX format in other markets.
A number of prominent Hollywood films were denied release dates in China in 2021 and 2022, including several films released in IMAX format in other markets. While significantly more Hollywood films were given release dates in China in 2023, several of the prominent Hollywood sequels or franchise films released into China in 2023 underperformed their predecessors in that market.
In the event of declining box office and concession revenues, commercial exhibitors may be less willing to invest capital in new IMAX Systems. In addition, a significant portion of systems in the Company’s backlog are expected to be installed in newly built multiplexes.
In addition, a significant portion of systems in the Company’s backlog are expected to be installed in newly built multiplexes.
A significant portion of the Company’s recent research and development efforts have been focused on its laser-based projection systems, which began rolling out to the largest theaters in the IMAX network at the end of 2014.
A significant portion of the Company’s research and development efforts have been focused on its laser-based projection systems. The Company’s recent research and development efforts have also focused on image enhancement technology, developing technologies and systems to help bring additional interactivity to its global IMAX network.
In addition, a variety of laws and regulations at the international, national, and state level govern the Company’s collection, use, protection and processing of personal data. These laws, including the General Data Protection Regulation and the California Consumer Privacy Act, are constantly evolving and may result in increasing regulatory oversight and public scrutiny in the future.
These laws, including but not limited to the General Data Protection Regulation and the California Privacy Rights Act, are constantly evolving and may result in increasing regulatory oversight and public scrutiny in the future.
If the Company were unable to navigate China’s regulatory environment, or if the Company were unable to enforce its intellectual property or contract rights in China, the Company’s business could be adversely impacted. The Company may experience adverse effects due to exchange rate fluctuations. A substantial portion of the Company’s revenues are denominated in U.S.
There are also uncertainties regarding the interpretation and application of laws and regulations and the enforceability of intellectual property and contract rights in China. If the Company were unable to navigate China’s regulatory environment, or if the Company were unable to enforce its intellectual property or contract rights in China, the Company’s business could be adversely impacted.

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Item 2. Properties

Properties — owned and leased real estate

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As of December 31, 2022, the Company’s principal facilities are as follows: Operation Own/Lease Expiration Mississauga, Ontario (1) Headquarters, Administrative, Assembly, Research and Development, and Maintenance Services Own N/A Playa Vista, California Sales, Marketing, Film Production and Post-Production Own N/A New York, New York Executive Lease 2029 Tokyo, Japan Sales, Marketing, and Maintenance Services Lease 2023 Shanghai, China Sales, Marketing, Maintenance Services, and Administrative Lease 2025 Waterloo, Ontario (2) Sales, Marketing, Administrative, and Research and Development Lease 2023 Dublin, Ireland Sales, Marketing, Administrative, and Research and Development Lease 2026 London, United Kingdom Sales Lease 2023 (1) This facility is subject to a charge in favor of Wells Fargo Bank in connection with a secured revolving credit facility.
As of December 31, 2023, the Company’s principal facilities are as follows: Operation Own/Lease Expiration Mississauga, Ontario (1) Headquarters, Administrative, Assembly, Research and Development, and Maintenance Services Own N/A Playa Vista, California Sales, Marketing, Film Production and Post-Production Own N/A New York, New York Executive Lease 2029 Tokyo, Japan Sales, Marketing, and Maintenance Services Lease 2024 Shanghai, China Sales, Marketing, Maintenance Services, and Administrative Lease 2029 Waterloo, Ontario Sales, Marketing, Administrative, and Research and Development Lease 2024 Dublin, Ireland Sales, Marketing, Administrative, and Research and Development Lease 2026 London, United Kingdom Sales Lease 2024 (1) This facility is subject to a charge in favor of Wells Fargo Bank in connection with a secured revolving credit facility.
The Company believes that its existing facilities and equipment are in good operating condition and are suitable for the conduct of its business. Item 3. Legal Proceedings See Note 17 of Notes to Consolidated Financial Statements in Part II, Item 8. Item 4. Mine Saf ety Disclosures Not applicable. 35 PART II
More information is provided in Note 14 to Consolidated Financial Statements in Part II, Item 8. The Company believes that its existing facilities and equipment are in good operating condition and are suitable for the conduct of its business. Item 3. Legal Proceedings Refer to Note 16 to Consolidated Financial Statements in Part II, Item 8. Item 4.
Removed
(See Note 15 of Notes to Consolidated Financial Statements in Part II, Item 8.) (2) Related to SSIMWAVE, which was acquired on September 22, 2022. See Note 5 of Notes to Consolidated Financial Statements in Part II, Item 8 for additional information related to the Company's acquisition of SSIMWAVE.
Added
Mine Saf ety Disclosures Not applicable. 33 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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The payment of any future dividends will be determined by the Board of Directors in light of conditions then existing, including the Company’s financial condition and requirements, future prospects, restrictions in financing agreements, business conditions and other factors deemed relevant by the Board of Directors.
The payment of any future dividends will be determined by the Board in light of conditions then existing, including the Company’s financial condition and requirements, future prospects, restrictions in financing agreements, business conditions and other factors deemed relevant by the Board.
The Company grants two types of performance stock units (“PSU”), one which vests based on a combination of employee service and the achievement of certain EBITDA-based targets, and one which vests based on a combination of employee service and the achievement of total shareholder return (“TSR”) targets.
The Company grants two types of performance stock units (“PSU”), one which vests based on a combination of employee service and the achievement of certain Adjusted EBITDA targets, and one which vests based on a combination of employee service and the achievement of total shareholder return (“TSR”) targets.
This program will be valid until the 2023 Annual General Meeting of IMAX China. The repurchases may be made in the open market or through other means permitted by applicable laws. IMAX China has no obligation to repurchase its shares and the share repurchase program may be suspended or discontinued by IMAX China at any time.
This program will be valid until the 2024 Annual General Meeting of IMAX China. The repurchases may be made in the open market or through other means permitted by applicable laws. IMAX China has no obligation to repurchase its shares and the share repurchase program may be suspended or discontinued by IMAX China at any time.
(2) The weighted average exercise price is calculated based solely on outstanding stock options and does not take into account common shares that are subject to outstanding RSUs and PSUs, which do not have an exercise price. 36 Performance Graph The following graph compares the total cumulative shareholder return for $100 invested on December 31, 2017 (assuming that all dividends were reinvested) in common shares of the Company against the cumulative total return of the NYSE Composite Index, the S&P/TSX Composite Index and the IMAX Peer Group to the end of the most recently completed fiscal year.
(2) The weighted average exercise price is calculated based solely on outstanding stock options and does not take into account common shares that are subject to outstanding RSUs and PSUs, which do not have an exercise price. 34 Performance Graph The following graph compares the total cumulative shareholder return for $100 invested on December 31, 2018 (assuming that all dividends were reinvested) in common shares of the Company against the cumulative total return of the NYSE Composite Index, the S&P/TSX Composite Index and the IMAX Peer Group to the end of the most recently completed fiscal year.
Over the last few years, the Company has not paid, nor does the Company have any current plans to pay, cash dividends on its common shares. The payment of dividends by the Company is subject to certain restrictions under the terms of the Company’s indebtedness (see Note 15 of Notes to Consolidated Financial Statements in Part II, Item 8).
Over the last few years, the Company has not paid, nor does the Company have any current plans to pay, cash dividends on its common shares. The payment of dividends by the Company is subject to certain restrictions under the terms of the Company’s indebtedness (see Note 14 to Consolidated Financial Statements in Part II, Item 8).
Item 5. Market for Registrant’s Common Equity, Related Stoc kholder Matters, and Issuer Purchases of Equity Securities The Company’s common shares are traded on the NYSE under the symbol “IMAX”. As of January 31, 2023, the Company had approximately 253 registered holders of record of its common shares.
Item 5. Market for Registrant’s Common Equity, Related Stoc kholder Matters, and Issuer Purchases of Equity Securities The Company’s common shares are traded on the NYSE under the symbol “IMAX”. As of January 31, 2024, the Company had approximately 231 registered holders of record of its common shares.
(See Note 15 of Notes to Consolidated Financial Statements for a summary of the material terms and conditions of the Company’s revolving credit facility, which include a limitation of the amount of permitted share repurchases.) Issuer Sales of Unregistered Securities Please see Note 18(c) of Notes to Consolidated Financial Statements in Part II, Item 8. Item 6.
A summary of the material terms and conditions of the Company’s revolving credit facility, which include a limitation of the amount of permitted share repurchases, is provided in Note 14 to Consolidated Financial Statements in Part II, Item 8. Issuer Sales of Unregistered Securities Refer to Note 17(c) to Consolidated Financial Statements in Part II, Item 8. Item 6.
Equity Compensation Plans The following table sets forth information regarding the Company’s Equity Compensation Plan as of December 31, 2022: Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights Weighted Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) Plan Category (a) (b) (2) (c) Equity compensation plans approved by security holders 5,788,499 $ 16.42 5,866,199 Equity compensation plans not approved by security holders nil nil nil Total (1) 5,788,499 $ 16.42 5,866,199 (1) The number of securities to be issued upon exercise of outstanding options, warrants, and rights excludes 698,787 common shares that may be issued with respect to PSUs outstanding, assuming full achievement of the EBITDA and TSR targets.
Equity Compensation Plans The following table sets forth information regarding the Company’s Equity Compensation Plan as of December 31, 2023: (A) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights Weighted Average Exercise Price of Outstanding Options, Warrants and Rights (2) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (A)) Plan Category Equity compensation plans approved by security holders 5,538,873 $ 15.77 4,895,941 Equity compensation plans not approved by security holders nil nil nil Total (1) 5,538,873 $ 15.77 4,895,941 (1) The number of securities to be issued upon exercise of outstanding options, warrants, and rights excludes 668,708 common shares that may be issued with respect to PSUs outstanding, assuming full achievement of the Adjusted EBITDA and TSR targets.
The achievement of the EBITDA and TSR targets in these PSUs is determined over a three-year performance period. At the conclusion of the three-year performance period, the number of PSUs that ultimately vest can range from 0% to a maximum vesting opportunity of 175% of the initial award, depending upon actual performance versus the established EBITDA and stock-price targets.
At the conclusion of the three-year performance period, the number of PSUs that ultimately vest can range from 0% to a maximum vesting opportunity of 175% of the initial Adjusted EBITDA PSU award or 150% of the initial TSR PSU award depending upon actual performance versus the established Adjusted EBITDA and TSR, respectively.
Any shares held with the trustee are recorded at cost and are reported as a reduction against Capital Stock on the Company's Consolidated Balance Sheets.
As of December 31, 2023 and December 31, 2022, the IMAX LTIP trustee did not hold any shares. Any shares held with the trustee are recorded at cost and are reported as a reduction against Capital Stock on the Company's Consolidated Balance Sheets.
This program expired on the date of the 2022 Annual General Meeting of IMAX China on June 23, 2022. During the 2022 Annual General Meeting, shareholders approved the repurchase of shares of IMAX China not to exceed 10% of the total number of issued shares as of June 23, 2022 (34,063,480 shares).
This program expired on the date of the 2023 Annual General Meeting of IMAX China on June 7, 2023. During the 2023 Annual General Meeting, shareholders approved the repurchase of shares of IMAX China not to exceed 10% of the total number of shares as of June 7, 2023 (33,959,314 shares).
Subsequent to December 31, 2022 and through February 21, 2023, the Company completed repurchases through a 10b5-1 program of 109,477 shares at an average of $14.87 per share, for a total cost of $1.6 million, excluding commission.
Subsequent to December 31, 2023 and through February 26, 2024, the Company completed repurchases through a 10b5-1 program of 1,158,724 shares at an average of $13.99 per share, for a total cost of $16.2 million, excluding commission.
The Company’s common share repurchase program activity for the three months ended December 31, 2022 was as follows: Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced program Maximum value of shares that may yet be purchased under the program October 1 through October 31, 2022 1,129,774 $ 13.96 1,129,774 $ 204,292,849 November 1 through November 30, 2022 — — — 204,292,849 December 1 through December 31, 2022 770,382 14.10 770,382 193,433,166 Total 1,900,156 $ 14.01 1,900,156 In 2021, IMAX China’s shareholders granted its Board of Directors a general mandate authorizing the Board, subject to applicable laws, to repurchase shares of IMAX China not to exceed 10% of the total number of issued shares as of May 6, 2021 (34,835,824 shares).
The Company’s common share repurchase program activity for the three months ended December 31, 2023 was as follows: Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced program Maximum value of shares that may yet be purchased under the program October 1 through October 31, 2023 350,058 $ 17.89 350,058 $ 184,936,439 November 1 through November 30, 2023 715,080 16.76 715,080 172,950,160 December 1 through December 31, 2023 394,810 14.96 394,810 167,042,020 Total 1,459,948 $ 16.54 1,459,948 In 2022, IMAX China’s shareholders granted its Board of Directors (the “IMAX China Board”) a general mandate authorizing the IMAX China Board, subject to applicable laws, to repurchase shares of IMAX China not to exceed 10% of the total number of issued shares as of June 23, 2022 (34,063,480 shares).
During the three months ended December 31, 2022, the Company repurchased 1,900,156 common shares at an average price of $14.01 per share, for a total of $26.6 million, excluding commissions, of which 140,000 were common shares (2021 ― nil) where settlement occurred subsequent to December 31, 2022, at an average price of $14.45 per share, for a total of $2.0 million, excluding commission. 37 As of December 31, 2022 and December 31, 2021, the IMAX LTIP trustee did not hold any shares.
During the three months ended December 31, 2023, the Company repurchased 1,459,948 common shares at an average price of $16.55 per share, for a total of $24.2 million, excluding commissions, of which 108,393 were common shares where settlement occurred subsequent to December 31, 2023, at an average price of $14.98 per share, for a total of $1.6 million, excluding commission.
The IMAX Peer Group consists of Ambarella, Inc., Avid Technologies, Inc., Cinemark Holdings, Inc., Cineplex Inc., Dolby Laboratories, Inc., Harmonic Inc., Lions Gate Entertainment Corp., The Marcus Corporation, and World Wrestling Entertainment, Inc.
The IMAX Peer Group consists of Ambarella, Inc., Cinemark Holdings, Inc., Cineplex Inc., Dolby Laboratories, Inc., Harmonic Inc., Knowles Corporation, Lions Gate Entertainment Corp., The Marcus Corporation, and WildBrain Ltd. The performance period includes the COVID-19 pandemic, which significantly impacted the out-of-home entertainment industry.
Issuer Purchases of Equity Securities On April 28, 2022 and July 28, 2022, the Company’s Board of Directors approved a 12-month extension to its share repurchase program through June 30, 2023 and an increase of $200.0 million in the share repurchase program, respectively.
In 2023, the Company’s Board approved a 36-month extension to its share repurchase program through June 30, 2026. As of December 31, 2023, the Company had $167.0 million authorized for repurchase under its approved share repurchase program.
Removed
With the increase of $200.0 million, the Company's total share repurchase authority is $400.0 million under the current share repurchase program. As of December 31, 2022, the Company had $193.4 million available under its approved repurchase program.
Added
The achievement of the Adjusted EBITDA and TSR targets in these PSUs is determined over a three-year performance period.
Removed
During the three months ended December 31, 2022, IMAX China did not repurchase any common shares. The total number of shares purchased during the year ended December 31, 2022, under both the Company and IMAX China’s repurchase plans, does not include any shares purchased in the administration of employee share-based compensation plans.
Added
The impact of the pandemic on the Company’s operations are discussed elsewhere herein. 35 Issuer Purchases of Equity Securities On June 12, 2017, the Company announced that the Board approved a $200.0 million share repurchase program for its common shares that would have initially expired on June 30, 2020, which was subsequently extended and increased in the total share repurchase authority to $400.0 million.
Added
During the three months ended December 31, 2023, IMAX China repurchased 16,800 common shares at an average price of HKD 7.11 per share ($0.91 per share) for a total of HKD 0.1 million or less than $0.1 million. For the years ended December 31, 2023 and 2022, there were no shares purchases in the administration of employee share-based plans.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Gelfond, its Chief Executive Officer (“CEO”), using a variety of factors and financial and operational metrics including: (i) IMAX box office performance and the securing of new IMAX DMR films and other events to be exhibited across the IMAX network; (ii) the signing, installation, and financial performance of IMAX System arrangements, particularly those involving laser-based projection systems; (iii) the success of the Company's investments in business evolution and brand extensions, including the integration and performance of SSIMWAVE, the distribution of live events to the IMAX network, and IMAX Enhanced, (iv) revenues and gross margins earned by the Company's segments, as discussed below; (v) consolidated earnings (loss) from operations, as adjusted for unusual items; (vi) the continuing ability to invest in and improve the Company's technology to enhance the differentiation of The IMAX Experience versus other out-of-home experiences; (vii) the overall execution, reliability, and consumer acceptance of The IMAX Experience ; and (viii) short- and long-term cash flow projections.
Gelfond, its Chief Executive Officer (“CEO”), using a variety of factors and financial and operational metrics including: (i) IMAX box office performance and the securing of new films and other events to be exhibited across the IMAX network; (ii) the signing, installation, and financial performance of IMAX System arrangements, particularly those involving laser-based projection systems; (iii) the success of the Company's investments in business evolution and brand extensions, including the integration and performance of SSIMWAVE, the distribution of live events to the IMAX network, and IMAX Enhanced, (iv) revenues and gross margins earned by the Company's segments, as discussed below; (v) consolidated earnings (loss) from operations, as adjusted for unusual items; (vi) the continuing ability to invest in and improve the Company’s technology to enhance the differentiation of The IMAX Experience versus other out-of-home experiences; (vii) the overall execution, reliability, and consumer acceptance of The IMAX Experience ; and (viii) short- and long-term cash flow projections.
If management made different estimates or judgments, material differences in the fair values of the net assets acquired may result. The estimates of fair value are based on assumptions believed to be reasonable at that time. If management made different estimates or judgments, material differences in the fair values of the net assets acquired may result.
If management made different estimates or judgments, material differences in the fair values of the net assets acquired may result. 49 The estimates of fair value are based on assumptions believed to be reasonable at that time. If management made different estimates or judgments, material differences in the fair values of the net assets acquired may result.
Specifically, the Company presents the following non-GAAP financial measures as supplemental measures of its performance: • Adjusted net income or loss attributable to common shareholders; • Adjusted net income or loss attributable to common shareholders per basic and diluted share; 65 • EBITDA; and • Adjusted EBITDA per Credit Facility.
Specifically, the Company presents the following non-GAAP financial measures as supplemental measures of its performance: • Adjusted net income or loss attributable to common shareholders; • Adjusted net income or loss attributable to common shareholders per basic and diluted share; • EBITDA; and • Adjusted EBITDA per Credit Facility.
Conversely, if, after recording a valuation allowance, management determines that sufficient positive evidence exists in the jurisdiction in which a valuation allowance is recorded, the Company may reverse all or a portion of the valuation allowance in that jurisdiction.
Conversely, if, after recording a valuation allowance, management determines that sufficient positive evidence exists in the jurisdiction in which a valuation allowance 50 is recorded, the Company may reverse all or a portion of the valuation allowance in that jurisdiction.
(See “Risk Factors – The Company may not convert all of its backlog into revenue and cash flows.” in Part I, Item 1A.) Certain of the Company’s contracts contain options for the customer to elect to upgrade system type during the term or to alter the contract structure (for example, from a joint revenue sharing arrangement to a sale) after signing, but before installation.
(Refer to “Risk Factors ― The Company may not convert all of its backlog into revenue and cash flows.” in Part I, Item 1A.) Certain of the Company’s contracts contain options for the customer to elect to upgrade system type during the term or to alter the contract structure (for example, from a joint revenue sharing arrangement to a sale) after signing, but before installation.
The Company grants two types of PSU awards, one which vests based on a combination of employee service and the achievement of certain EBITDA-based targets, and one which vests based on a combination of employee service and the achievement of total shareholder return (“TSR”) targets.
The Company grants two types of PSU awards, one which vests based on a combination of employee service and the achievement of certain Adjusted EBITDA targets, and one which vests based on a combination of employee service and the achievement of total shareholder return (“TSR”) targets.
In addition, certain movies shown in the IMAX network are filmed using proprietary IMAX film cameras or IMAX certified digital cameras, which offer filmmakers customized guidance and a workflow process to provide further enhanced and differentiated image quality and an IMAX-exclusive film aspect ratio that delivers up to 26% more image onto a standard IMAX movie screen.
In addition, select movies shown in the IMAX network are filmed using proprietary IMAX film cameras or IMAX certified digital cameras, which offer filmmakers customized guidance and a workflow process to provide further enhanced and differentiated image quality and an IMAX-exclusive film aspect ratio that delivers up to 26% more image onto a standard IMAX movie screen.
IMAX Systems are based on proprietary and patented image, audio and other technology developed over the course of the Company’s history since its founding in 1967. The customers for IMAX Systems are principally theater exhibitors that operate commercial multiplex theaters, and, to a much lesser extent, museums, science centers and destination entertainment sites.
IMAX Systems are based on proprietary and patented image, audio and other technology developed over the course of the Company’s history since its founding in 1967. The customers for IMAX Systems are principally theatrical exhibitors that operate commercial multiplex theaters, and, to a much lesser extent, museums, science centers and destination entertainment sites.
IMAX DMR digitally enhances the image resolution of films for projection on IMAX screens while maintaining or enhancing the visual clarity and sound quality to levels for which The IMAX Experience is known. In addition, the original soundtrack of a film to be exhibited across the IMAX network is remastered for IMAX digital sound systems.
IMAX Film Remastering digitally enhances the image resolution of films for projection on IMAX screens while maintaining or enhancing the visual clarity and sound quality to levels for which The IMAX Experience is known. In addition, the original soundtrack of a film to be exhibited across the IMAX network is remastered for IMAX digital sound systems.
In the first quarter of 2022, the Company recorded provisions for potential credit losses against substantially all of its receivables in Russia due to uncertainties associated with the ongoing conflict. These receivables relate to existing sale agreements as the Company is not party to any joint revenue sharing arrangements in these countries.
In 2022, the Company recorded provisions for potential credit losses against substantially all of its receivables in Russia due to uncertainties associated with the ongoing conflict. These receivables relate to existing sale agreements as the Company is not party to any joint revenue sharing arrangements in these countries.
GAAP requires management to make judgments, assumptions, and estimates that affect the amounts reported in the Company’s Consolidated Financial Statements and accompanying notes. Management’s judgments, assumptions, and estimates are based on historical experience, future expectations, and other factors that are believed to be reasonable as of the date of the Company’s Consolidated Financial Statements.
GAAP”) requires management to make judgments, assumptions, and estimates that affect the amounts reported in the Company’s Consolidated Financial Statements and accompanying notes. Management’s judgments, assumptions, and estimates are based on historical experience, future expectations, and other factors that are believed to be reasonable as of the date of the Company’s Consolidated Financial Statements.
The dollar value of backlog typically represents the fixed contracted revenue under signed IMAX System sale and lease agreements that the Company expects to recognize as revenue upon installation and acceptance of the associated system, as well as an estimate of variable consideration in sales arrangements.
The dollar value of backlog typically represents the fixed contracted revenue according to the signed IMAX System sale and lease agreements that the Company expects to recognize as revenue upon installation and acceptance of the associated system, as well as an estimate of variable consideration in sales arrangements.
Results of Operations for the Years Ended December 31, 2022 and 2021 Net Loss and Adjusted Net Income (Loss) Attributable to Common Shareholders The following table presents the Company's net loss attributable to common shareholders and the associated per share amounts, as well as adjusted net income (loss) attributable to common shareholders* and adjusted net income (loss) attributable to common shareholders per share* for the years ended December 31, 2022 and 2021: Years Ended December 31, 2022 2021 (In thousands of U.S.
Net Loss and Adjusted Net Income (Loss) Attributable to Common Shareholders The following table presents the Company’s net loss attributable to common shareholders and the associated per share amounts, as well as adjusted net income (loss) attributable to common shareholders* and adjusted net income (loss) attributable to common shareholders per share* for the years ended December 31, 2022 and 2021: Years Ended December 31, 2022 2021 (In thousands of U.S.
Reconciliations of net loss attributable to common shareholders and the associated per share amounts to adjusted net income (loss) attributable to common shareholders and adjusted net income (loss) attributable to common shareholders per basic and diluted share are presented in the table below. Years Ended December 31, 2022 2021 (In thousands of U.S.
Reconciliations of net income (loss) attributable to common shareholders and the associated per share amounts to adjusted net income (loss) attributable to common shareholders and adjusted net income attributable to common shareholders per basic and diluted share are presented in the table below. Years Ended December 31, 2023 2022 (In thousands of U.S.
IMAX Enhanced provides end-to-end premium technology across streaming content and best-in-class entertainment devices, offering consumers high-fidelity playback of image and sound in the home and beyond, including the following features: • IMAX’s expanded aspect ratio, which is available on select titles and streaming platforms, including Disney+; • IMAX’s proprietary remastering technology, which produces more vivid, higher-fidelity 4K HDR images on premium televisions; and 45 • IMAX Signature Sound, which is specially recreated and calibrated for the home by DTS to unlock more immersive audio.
IMAX Enhanced provides end-to-end premium technology across streaming content and best-in-class entertainment devices, offering consumers high-fidelity playback of image and sound in the home and beyond, including the following features: • IMAX’s expanded aspect ratio, which is available on select titles and streaming platforms, including Disney+; • IMAX’s proprietary remastering technology, which produces more vivid, higher-fidelity 4K HDR images on premium televisions; and • IMAX’s signature sound, which was specially recreated and calibrated for the home to unlock more immersive audio.
As of December 31, 2022, the Company’s Consolidated Balance Sheets include a deferred tax liability of $14.9 million for the applicable foreign withholding taxes associated with the remaining balance of unrepatriated historical earnings that will not be indefinitely reinvested outside of Canada. These taxes will become payable upon the repatriation of any such earnings.
As of December 31, 2023, the Company’s Consolidated Balance Sheets include a deferred tax liability of $12.5 million (December 31, 2022 — $14.9 million) for the applicable foreign withholding taxes associated with the remaining balance of unrepatriated historical earnings that will not be indefinitely reinvested outside of Canada. These taxes will become payable upon the repatriation of any such earnings.
The installation of IMAX Systems in newly built theaters or multiplexes, which make up a large portion of the Company’s system backlog, depends primarily on the timing of the construction of those projects, which is not under the Company’s control.
The installation of IMAX Systems in theaters or multiplexes, which make up a large portion of the Company’s system backlog, depends primarily on the timing of the construction of those projects, which is not under the Company’s control.
(“IMAX Shanghai”) revolving credit facility with the Bank of China (the “Bank of China Facility”), and $16.2 million in available borrowing capacity under IMAX Shanghai's revolving credit facility with HSBC Bank (China) Company Limited, Shanghai Branch (the “HSBC China Facility”).
(“IMAX Shanghai”) revolving credit facility with the Bank of China (the “Bank of China Facility”), and $28.2 million in available borrowing capacity under IMAX Shanghai’s revolving credit facility with HSBC Bank (China) Company Limited, Shanghai Branch (the “HSBC China Facility”).
To support continued growth in international markets, the Company is focused on the expansion of the IMAX network and has sought to bolster its international film strategy, supplementing its slate of Hollywood films with appealing local language films released in select markets, including China, Japan, India, and South Korea.
To support continued growth in international markets, the Company is focused on the expansion of the IMAX network and has sought to elevate its international film strategy, supplementing its slate of Hollywood films with appealing local language films released in select markets, including China, Japan, India, France and South Korea.
The grant date fair value of PSUs with EBITDA-based targets is equal to the closing price of the Company’s common shares on the date of grant or the average closing price of the Company’s common shares for five days prior to the date of grant.
The grant date fair value of PSUs with Adjusted EBITDA targets is equal to the closing price of the Company’s common shares on the date of grant or the average closing price of the Company’s common shares for five days prior to the date of grant.
At present, certified global device partners include Sony Electronics, Hisense, TCL, LG, Phillips, Hewlett Packard, Xiaomi, Sound United and Honor, among others. As of December 31, 2022, more than 250 IMAX Enhanced titles have been released across five of the biggest streaming platforms worldwide: Disney+, Sony Bravia CORE, Tencent Video, iQiyi and Rakuten TV.
At present, certified global device partners include Sony Electronics, Hisense, TCL, LG, Phillips, Hewlett Packard, Xiaomi, Sound United and Honor, among others. As of December 31, 2023, more than 300 IMAX Enhanced titles have been released across five of the biggest streaming platforms worldwide: Disney+, Sony Bravia CORE, Tencent Video, iQiyi and Rakuten TV.
The increase in IMAX Maintenance segment revenues is due to the continued global reopening of the IMAX network amidst the ongoing recovery of the theatrical exhibition industry from earlier stages of the COVID-19 pandemic, partially offset by a decrease of $1.2 million in revenue associated with systems in Russia, Ukraine, and Belarus, which were placed on nonaccrual status due to the ongoing Russia-Ukraine conflict and resulting sanctions.
The increase in IMAX Maintenance revenue was due to the continued global reopening of the IMAX network amidst the ongoing recovery of the theatrical exhibition industry from earlier stages of the COVID-19 pandemic, partially offset by a decrease of $1.2 million in revenue associated with systems in Russia, Ukraine, and Belarus, which were placed on nonaccrual status due to the ongoing Russia-Ukraine conflict and resulting sanctions.
Selling, General and Administrative Expenses The following table presents information about the Company's Selling, General and Administrative Expenses for the years ended December 31, 2022 and 2021: Years Ended December 31, Variance (In thousands of U.S.
Selling, General and Administrative Expenses The following table presents information about the Company’s Selling, General and Administrative Expenses for the years ended December 31, 2023 and 2022: Years Ended December 31, Variance (In thousands of U.S.
Additionally, the non-GAAP financial measures used by the Company should not be considered in isolation, or as a substitute for, or superior to, the comparable GAAP amounts. 67
Additionally, the non-GAAP financial measures used by the Company should not be considered in isolation, or as a substitute for, or superior to, the comparable GAAP amounts. 63
During the year ended December 31, 2022, $27.4 million of historical earnings from a subsidiary in China were distributed and, as a result, $2.7 million of foreign withholding taxes were paid to the relevant tax authorities.
During the year ended December 31, 2023, $24.0 million of historical earnings from a subsidiary in China were distributed (December 31, 2022 — $27.4 million) and, as a result, $2.4 million of foreign withholding taxes were paid to the relevant tax authorities (December 31, 2022 — $2.7 million).
To be certified as IMAX Enhanced, leading consumer electronics manufacturers spanning 4K/8K televisions, projectors, A/V receivers, loudspeakers, soundbars, smartphones, personal computers, tablets, and more must meet a carefully prescribed set of audiovisual performance standards, set by a certification committee of IMAX and DTS engineers, along with some of Hollywood’s leading technical specialists.
To be certified as IMAX Enhanced, leading consumer electronics manufacturers spanning 4K/8K televisions, projectors, A/V receivers, loudspeakers, soundbars, smartphones, personal computers, tablets, and more must meet a carefully prescribed set of audiovisual performance standards, set by a certification committee, along with some of Hollywood's leading technical specialist.
The amount and timing of compensation expense recognized for PSUs with EBITDA-based targets is dependent upon management's assessment of the likelihood of achieving these targets.
The amount and timing of compensation expense recognized for PSUs with Adjusted EBITDA targets is dependent upon management's assessment of the likelihood of achieving these targets.
(See “Risk Factors - The Company conducts business internationally, which exposes it to uncertainties and risks that could negatively affect its operations, sales, and future growth prospects.” in Part I, Item 1A and Note 6 of Notes to Consolidated Financial Statements in Part II, Item 8.) On September 7, 2022, Cineworld Group plc (“Cineworld”), the parent company of Regal, and certain of its subsidiaries and Regal CineMedia Holdings, LLC, filed petitions for reorganization under Chapter 11 of the United States Bankruptcy Code in the Southern District of Texas.
(Refer to “Risk Factors — The Company conducts business internationally, which exposes it to uncertainties and risks that could negatively affect its operations, sales, and future growth prospects.” in Part I, Item 1A, and Note 2(b) to Consolidated Financial Statements in Part II, Item 8.) 38 On September 7, 2022, Cineworld Group plc (“Cineworld”), the parent company of Regal, and certain of its subsidiaries and Regal CineMedia Holdings, LLC, filed petitions for reorganization under Chapter 11 of the United States Bankruptcy Code in the Southern District of Texas.
(See Notes 13(d) and 13(g) of Notes to Consolidated Financial Statements in Part II, Item 8.) 55 Uncertain Tax Positions The Company is subject to ongoing tax exposures, examinations and assessments in various jurisdictions. Tax benefits are recognized only when it is more likely than not, based on the technical merits, that the benefits will be sustained on examination.
(Refer to Notes 12(d) and 12(g) of Notes to Consolidated Financial Statements in Part II, Item 8.) Uncertain Tax Positions The Company is subject to ongoing tax exposures, examinations and assessments in various jurisdictions. Tax benefits are recognized only when it is more likely than not, based on the technical merits, that the benefits will be sustained on examination.
IMAX is a premier global technology platform for entertainment and events. Through its proprietary software, theater architecture, patented intellectual property, and specialized equipment, IMAX offers a unique end-to-end solution to create superior, immersive content experiences for which the IMAX ® brand is globally renowned.
IMAX is a premier global technology platform for entertainment and events. Through its proprietary software, auditorium architecture, patented intellectual property, and specialized equipment, IMAX offers a unique end-to-end solution to create superior, awe-inspiring immersive content experiences for which the IMAX ® brand is globally renowned.
Collectively, the Company refers to these enhancements as “IMAX DNA”. Filmmakers and movie studios have sought IMAX-specific enhancements in recent years to generate interest in and excitement for their films.
Collectively, the Company refers to these enhancements as “IMAX DNA.” Filmmakers and movie studios have sought IMAX-specific enhancements in recent years to generate interest in and excitement for their films.
The revenue earned from customers under the Company’s joint revenue sharing arrangements can vary from quarter-to-quarter and year-to-year based on a number of factors including film performance, the mix of theater system configurations, the timing of installation of IMAX Systems, the nature of the arrangement, the location, size and management of the theater and other factors specific to individual arrangements.
The revenue earned from customers under the Company’s joint revenue sharing arrangements can vary from quarter-to-quarter and year-to-year based on a number of factors that drive box office levels including film performance, the mix of IMAX System configurations, the timing of installation of IMAX Systems, the nature of the arrangement, the location, size and management of the theater and other factors specific to individual arrangements.
The Company further believes that its suite of IMAX Laser Systems are helping facilitate the next major renewal and upgrade cycle for the global IMAX network. In September 2022, the Company acquired SSIMWAVE Inc. (“SSIMWAVE”), a Canadian company, a leader in AI-driven video quality solutions for media and entertainment companies.
The Company further believes that its suite of IMAX Laser Systems are helping facilitate the next major renewal and upgrade cycle for the global IMAX network. In September 2022, the Company acquired SSIMWAVE Inc. (“SSIMWAVE”), a leader in artificial intelligence (“AI”)-driven video quality solutions for media and entertainment companies.
In addition, in sale arrangements, an estimate of the contingent fees that may become due if certain annual minimum box office receipt thresholds are exceeded is recorded as revenue in the period when the sale is recognized and is adjusted in future periods based on actual results and changes in estimates.
In addition, in sale arrangements, the present value of the estimated contingent fees that may become due if certain annual minimum box office receipt thresholds are exceeded is recorded as revenue in the period when the sale is recognized and is adjusted in future periods based on actual results and changes in estimates.
The lower level of revenue is the result of four fewer IMAX System installations, including upgrades, in the current year under sale and sales-type lease arrangements and a decrease of $1.1 million in Finance Income associated with locations in Russia, Ukraine, and Belarus, which were placed on nonaccrual status due to the ongoing Russia-Ukraine conflict and resulting sanctions.
The year-over-year lower level of IMAX Systems revenue in 2022 was the result of four fewer IMAX System installations, including upgrades, in 2022 under sale and sales-type lease arrangements and a decrease of $1.1 million in Finance Income associated with locations in Russia, Ukraine, and Belarus, which were placed on nonaccrual status due to the ongoing Russia-Ukraine conflict and resulting sanctions.
This includes bringing connectivity to the Company’s global network and experimenting with live and interactive events worldwide; developing new IMAX film cameras and certifying additional digital cameras; further improving its proprietary DMR process for the delivery of content for both theatrical (including local language content) and home entertainment; and further improving the reliability of its projectors, as well as enhancing the Company's image and sound quality.
This includes bringing connectivity to the Company’s global network to support live and interactive events worldwide; developing new IMAX film cameras and certifying additional digital cameras; further improving its proprietary film remastering and distribution process for the delivery of content for both theatrical (including local language content) and home entertainment; and further improving the reliability of its projectors, as well as enhancing the Company’s image and sound quality.
(See Note 18(b) of Notes to Consolidated Financial Statements in Part II, Item 8.) Deferred Income Tax Assets 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.
(Refer to Note 17(b) to Consolidated Financial Statements in Part II, Item 8.) Deferred Income Tax Assets 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.
(See Note 5 of Notes to Consolidated Financial Statements in Part II, Item 8.) Share-Based Compensation The Company issues share-based compensation to eligible employees, directors, and consultants under the IMAX Corporation Second Amended and Restated Long-Term Incentive Plan (as may be amended, the “IMAX LTIP”) and the China Long-Term Incentive Plan (the “China LTIP”) as summarized below.
(Refer to Note 4 to Consolidated Financial Statements in Part II, Item 8.) Share-Based Compensation The Company issues share-based compensation to eligible employees, directors, and consultants under the IMAX Corporation Second Amended and Restated Long-Term Incentive Plan (as may be amended, the “IMAX LTIP”) and the China Long-Term Incentive Plan (the “China LTIP”) as summarized below.
In select IMAX locations worldwide, movies filmed with IMAX cameras have an IMAX-exclusive 1.43 film aspect ratio, with up to 67% more image. 39 Together, these components cause audiences in IMAX locations to feel as if they are a part of the on-screen action, creating a more intense, immersive, and exciting experience than a traditional theater.
In select IMAX locations worldwide, movies filmed with IMAX cameras have an IMAX-exclusive 1.43 film aspect ratio, with up to 67% more image. 37 Together, these components cause audiences in IMAX locations to feel as if they are a part of the on-screen action, creating a more intense, immersive, and exciting experience than a conventional cinematic format.
In addition, as of December 31, 2022, the Company also had $275.0 million in available borrowing capacity under its Sixth Amended and Restated Credit Agreement, with Wells Fargo Bank, National Association (the “Credit Agreement”), $26.9 million in available borrowing capacity under the IMAX (Shanghai) Multimedia Technology Co., Ltd.
In addition, as of December 31, 2023, the Company also had $276.0 million in available borrowing capacity under its Sixth Amended and Restated Credit Agreement, with Wells Fargo Bank, National Association (the “Credit Agreement”), $26.8 million in available borrowing capacity under the IMAX (Shanghai) Multimedia Technology Co., Ltd.
For the Twelve Months Ended December 31, 2022 (1) Attributable to Non-controlling Less: Interests and Attributable to Attributable to (In thousands of U.S.
For the Twelve Months Ended December 31, 2023 Attributable to Non-controlling Less: Interests and Attributable to Attributable to (In thousands of U.S.
Joint Revenue Sharing Arrangements – Contingent Rent The JRSA segment provides IMAX Systems to exhibitors through joint revenue sharing arrangements. Under the traditional form of these arrangements, the Company provides the IMAX System under a long-term lease in which the Company assumes the majority of the equipment and installation costs.
Joint Revenue Sharing Arrangements The Company provides IMAX Systems to exhibitors through joint revenue sharing arrangements (“JRSA”). Under the traditional form of these arrangements, the Company provides the IMAX System under a long-term lease in which the Company assumes the majority of the equipment and installation costs.
Under these arrangements, in exchange for providing the IMAX System, the Company earns initial fees and ongoing consideration, which can include fixed annual minimum payments and contingent fees in excess of the minimum payments, as well as maintenance and extended warranty fees (see “IMAX Maintenance” below). The initial fees vary depending on the system configuration and location of the theater.
Under these arrangements, in exchange for providing the IMAX System, the Company earns initial fees and ongoing consideration, which can include fixed annual minimum payments and contingent fees in excess of the minimum payments, as well as maintenance and extended warranty fees (see “IMAX Maintenance” below).
(See Note 9 of Notes to Consolidated Financial Statements in Part II, Item 8.) 53 Asset Impairments Goodwill Goodwill represents the excess of the purchase price paid over the fair value of net assets acquired in a business combination.
(Refer to Note 8 to Consolidated Financial Statements in Part II, Item 8.) Asset Impairments Goodwill Goodwill represents the excess of the purchase price paid over the fair value of net assets acquired in a business combination.
In particular, the Company’s operating cash flows and cash balances will be adversely impacted if management’s projections of future signings and installations of IMAX Systems and box office performance of IMAX DMR content are not realized.
In particular, the Company’s operating cash flows and cash balances will be adversely impacted if management’s projections of future signings and installations of IMAX Systems and box office performance of remastered content distributed to the IMAX network are not realized.
Unlike the soundtracks played in conventional theaters, IMAX remastered soundtracks are uncompressed and full fidelity. IMAX sound systems use proprietary loudspeaker systems and proprietary surround sound configurations that ensure every theater seat is in an optimal listening position. 41 IMAX films also benefit from enhancements made by individual filmmakers exclusively for the IMAX release of the film.
IMAX remastered soundtracks are uncompressed for full fidelity. IMAX sound systems use proprietary loudspeaker systems and proprietary surround sound configurations that ensure every seat in an auditorium is an optimal listening position. IMAX films also benefit from enhancements made by individual filmmakers exclusively for the IMAX release of the film.
As a premier global technology platform for entertainment and events, the Company strives to remain at the forefront of advancements in cinema technology. The Company offers a suite of IMAX Laser Systems, which deliver increased resolution, sharper and brighter images, deeper contrast, and the widest range of colors available to filmmakers today.
As a premier global technology platform for entertainment and events, the Company strives to remain at the forefront of advancements in entertainment technology. The Company offers a suite of laser-based digital projection systems (“IMAX Laser Systems”), which deliver increased resolution, sharper and brighter images, deeper contrast, and the widest range of colors available to filmmakers today.
Adjusted EBITDA per Credit Facility is defined as EBITDA excluding: (i) share-based and other non-cash compensation; (ii) realized and unrealized investment gains or losses; (iii) acquisition-related expenses and (iv) write-downs, net of recoveries, including asset impairments and credit loss expense. 66 Reconciliations of net loss attributable to common shareholders, which is the most directly comparable GAAP measure, to EBITDA and Adjusted EBITDA per Credit Facility are presented in the table below.
Adjusted EBITDA per Credit Facility is defined as EBITDA excluding: (i) share-based and other non-cash compensation; (ii) realized and unrealized investment gains or losses; (iii) transaction-related expenses; (iv) restructuring and executive transition costs; and (v) write-downs, net of recoveries, including asset impairments and credit loss expense. 62 Reconciliations of net income attributable to common shareholders, which is the most directly comparable GAAP measure, to EBITDA and Adjusted EBITDA per Credit Facility are presented in the table below.
As a result of the engineering and scientific achievements that are a hallmark of The IMAX Experience ® , the Company's exhibitor customers typically charge a premium for IMAX films over films exhibited in their other auditoriums.
As a result of the engineering and scientific achievements that are a hallmark of The IMAX Experience ® , the Company’s exhibitor customers typically charge a premium for films released in IMAX’s format versus films exhibited in their other auditoriums.
In a typical IMAX DMR film arrangement, the Company receives a percentage of the box office receipts from a movie studio in exchange for converting a commercial film into IMAX DMR format and distributing it through the IMAX network.
In a typical film remastering and distribution arrangement, the Company receives a percentage of the box office receipts from a movie studio in exchange for converting a commercial film into the IMAX format and distributing it across the IMAX network.
As with a traditional joint revenue sharing arrangement, the customer also pays the Company a percentage of contingent box office receipts over the term of the arrangement, although this percentage is typically half that of a traditional joint revenue sharing arrangement.
As with a traditional joint revenue sharing arrangement, the customer also pays the Company a percentage of contingent box office receipts over the term of the arrangement, although this percentage is typically half that of a traditional joint revenue sharing arrangement. Hybrid joint revenue sharing arrangements take the form of a sale.
A customer may improve their credit quality classification once a substantial payment is made on an overdue balance or when the customer has agreed to a payment plan and payments have commenced in accordance with that plan. Changes in credit quality classification are dependent upon management approval.
A customer may improve their credit quality classification once a substantial payment is made on an overdue balance or when the customer has agreed to a payment plan and payments have commenced in accordance with that plan.
The dollar value fluctuates depending on the number of new arrangements signed from year-to-year, which adds to backlog and the installation and acceptance of IMAX Systems and the settlement of contracts, both of which reduce backlog.
The backlog reflects the minimum number of commitments for IMAX Systems according to the signed contracts. The dollar value fluctuates depending on the number of new arrangements signed from year-to-year, which adds to backlog and the installation and acceptance of IMAX Systems and the settlement of contracts, both of which reduce backlog.
Capital expenditures, including the Company’s investment in joint revenue sharing arrangements, the purchase of property, plant and equipment, the acquisition of other intangible assets, and investments in films were $57.0 million in 2022 as compared to $32.6 million in 2021.
Capital expenditures, including the Company’s investment in joint revenue sharing arrangements, the purchase of property, plant and equipment, the acquisition of other intangible assets, and investments in films were $53.2 million in 2023 as compared to $57.0 million in 2022.
In 2022, the net cash provided by the Company’s operating activities is principally a function of the Company’s cash earnings, as well as in respect of Financing Receivables, partially offset by the increase in Accounts Receivable of $29.0 million resulting from revenue growth attributable to the strength of the box office performance of the films distributed through the IMAX network during the last quarter of the year and $19.6 million spent in connection with the development of Film Assets.
For the year ended December 31, 2022, the net cash inflow from operating activities of $17.3 million was principally a function of the Company’s cash earnings, as well as Financing Receivables, partially offset by the increase in Accounts Receivable of $29.0 million resulting from revenue growth attributable to the strength of the box office performance of the films distributed through the IMAX network during the last quarter of the year and $19.6 million spent in connection with the development of Film Assets.
(See Note 24 of Notes to Consolidated Financial Statements in Part II, Item 8.) (3) Represents total minimum annual rental payments due under the Company's operating leases. (4) The Federal Economic Development Loan will be repayable over 60 months, with repayments estimated to begin in January 2024.
(Refer to Note 23 to Consolidated Financial Statements in Part II, Item 8.) (3) Represents total minimum annual rental payments due under the Company’s operating leases. (4) The Federal Economic Development Loan will be repayable over 36 months, with repayments estimated to begin in January 2024.
As of December 31, 2022, the IMAX network includes 54 theaters in Russia, eight theaters in Ukraine, and one theater in Belarus, and the Company's backlog includes 14 theaters in Russia, one theater in Ukraine, and five theaters in Belarus with a total fixed contracted value of $22.9 million.
As of December 31, 2023, the IMAX network includes 54 systems in Russia, eight systems in Ukraine, and one system in Belarus, and the Company’s backlog includes 14 systems in Russia, one system in Ukraine, and five systems in Belarus with a total fixed contracted value of $22.9 million.
In addition to the non-GAAP financial measures discussed above, management also uses “EBITDA,” as such term is defined in the Credit Agreement, and which is referred to herein as “Adjusted EBITDA per Credit Facility.” As allowed by the Credit Agreement, Adjusted EBITDA per Credit Facility includes adjustments in addition to the exclusion of interest, taxes, depreciation and amortization.
(Refer to Note 26 to Consolidated Financial Statements in Part II, Item 8.) In addition to the non-GAAP financial measures discussed above, management also uses “EBITDA,” as such term is defined in the Credit Agreement, and which is referred to herein as “Adjusted EBITDA per Credit Facility.” As allowed by the Credit Agreement, Adjusted EBITDA per Credit Facility includes adjustments in addition to the exclusion of interest, taxes, depreciation and amortization.
In exchange for its upfront investment, the Company earns rent based on a percentage of contingent box office receipts and, in some cases, concession revenues, rather than requiring the customer to pay a fixed upfront fee or annual minimum payments. Rental payments from the customer are required throughout the term of the arrangement and are due either monthly or quarterly.
In exchange for its upfront investment, the Company, primarily, earns rent based on a percentage of contingent box office receipts rather than a fixed upfront fee or fixed annual minimum payments. Rental payments from the customer are required throughout the term of the arrangement and are typically due either monthly or quarterly.
A discussion of the Company’s results of operations comparing results for the years ended December 31, 2021 and 2020 is included under the section entitled “Results of Operations” in Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, and is incorporated by reference into this Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
The discussion of the Company’s results of operations comparing results for the years ended December 31, 2022 and 2021 that was not impacted by the segment change is included under the section entitled “Results of Operations” in Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, and is incorporated by reference into this Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
The transaction price in an IMAX System arrangement is allocated to each good or service that is identified as a separate performance obligation based on estimated standalone selling prices. This allocation is based on observable prices when the Company sells the good or service separately.
The transaction price in an IMAX System arrangement is allocated to each good or service that is identified as a separate performance obligation based on estimated standalone selling prices.
See Note 6 of Notes to Consolidated Financial Statements in Part II, Item 8.) Inventories The Company records write-downs for excess and obsolete inventory based upon management’s judgments regarding future events and business conditions, including the anticipated installation dates for the current backlog of theater system contracts, contracts in negotiation, technological developments, growth prospects within the customers’ ultimate marketplace, and anticipated market acceptance of the Company’s current and pending IMAX Systems.
Inventories The Company records write-downs for excess and obsolete inventory based upon management’s judgments regarding future events and business conditions, including the anticipated installation dates for the current backlog of theater system contracts, contracts in negotiation, technological developments, growth prospects within the customers’ ultimate marketplace, and anticipated market acceptance of the Company’s current and pending IMAX Systems.
(2) Includes 200 new IMAX Laser Systems and 89 upgrades of existing locations to IMAX Laser Systems. (3) Includes 158 new IMAX Laser Systems and 92 upgrades of existing locations to IMAX Laser Systems.
(2) Includes 239 new IMAX Laser Systems and 73 upgrades of existing locations to IMAX Laser Systems. (3) Includes 200 new IMAX Laser Systems and 89 upgrades of existing locations to IMAX Laser Systems.
The Company has a footprint of connected IMAX Systems capable of delivering live, interactive content with low latency and superior sight and sound. As of December 31, 2022, 253 systems in the IMAX network across North America, Europe and Asia were configured with connectivity to deliver live and interactive events.
As of December 31, 2023, the Company has a footprint of 252 connected locations in the IMAX network across North America, Europe, and Asia were configured with connectivity to deliver live and interactive content with low latency and superior sight and sound.
The Company generally does not own the locations in the IMAX network, and is not an exhibitor, but instead sells or leases the IMAX System to exhibitor customers along with a license to use its trademarks and ongoing maintenance services.
The Company does not own the locations in the IMAX network, except for one, and is not an exhibitor, but instead sells or leases the IMAX System to exhibitor customers along with a license to use its trademarks and ongoing maintenance services for which there is an annual payment by the exhibitor to IMAX.
The fee earned by the Company in a typical IMAX DMR arrangement averages approximately 12.5% of box office receipts (i.e., GBO less applicable sales taxes), except for within Greater China, where the Company receives a lower percentage of net box office receipts for certain Hollywood films.
The fee earned by the Company in a typical film remastering and distribution arrangement averages approximately 12.5% of box office receipts (i.e., GBO less applicable sales taxes), except for within Greater China, where the Company receives a lower percentage of net box office receipts for certain Hollywood films due to an import tax.
Revenues and Gross Margin For the year ended December 31, 2022, the Company's revenues and gross margin increased by $45.9 million (18%) and $21.9 million (16%), respectively, when compared to same period in 2021 principally due to the strength of the GBO performance of the IMAX Technology Network through the distribution of films such as Avatar: The Way of Water, Top Gun: Maverick , Doctor Strange in the Multiverse of Madness , Jurassic World Dominion , The Batman , Black Panther: Wakanda Forever, Thor: Love and Thunder, The Battle at Lake Changjin 2 , and Spider-Man: No Way Home . * See “Non-GAAP Financial Measures” below for a description of this non-GAAP financial measure and a reconciliation to the most comparable GAAP amount. 57 The following table presents the Company’s revenue and gross margin (margin loss) by category and reportable segment for the years ended December 31, 2022 and 2021: Revenue Gross Margin (Margin Loss) (In thousands of U.S.
Revenues and Gross Margin For the year ended December 31, 2022, the Company’s revenues and gross margin increased by $45.9 million or 18% and $21.9 million or 16%, respectively, when compared to the same period in 2021 principally due to the strength of the GBO performance through the distribution of films such as Avatar: The Way of Water, Top Gun: Maverick , Doctor Strange in the Multiverse of Madness , Jurassic World Dominion , The Batman , Black Panther: Wakanda Forever, Thor: Love and Thunder, The Battle at Lake Changjin 2 , and Spider-Man: No Way Home . 56 The following table presents the Company’s revenue, gross margin and gross margin percentage by reportable segment for the years ended December 31, 2022 and 2021: Revenue Gross Margin Gross Margin % (In thousands of U.S.
Management’s judgments regarding expected credit losses are based on the facts available to management at the time that the Consolidated Financial Statements are prepared and involve estimates about the future.
Changes in credit quality classification are dependent upon management approval. 48 Management’s judgments regarding expected credit losses are based on the facts available to management at the time that the Consolidated Financial Statements are prepared and involve estimates about the future.
In 2022, the net cash used in financing activities is principally due to $83.2 million used to repurchase common shares of the Company ($80.1 million) and IMAX China ($3.0 million), $3.7 million paid to purchase treasury stock for the settlement of restricted share units and related taxes, $2.7 million of dividends paid to the non-controlling interests of IMAX China, and $2.3 million in fees paid in relation to the Sixth Amended and Restated Credit Agreement entered into by the Company during the first quarter of 2022, partially offset by $34.3 million in net cash inflow from revolving credit facility borrowings.
In 2023, the net cash used in financing activities is principally due to $13.5 million in net repayments of revolving credit facility borrowings, $26.8 million used to repurchase common shares of the Company, $6.5 million in taxes withheld on vested employee equity awards, and $1.4 million of dividends paid to the non-controlling interests of IMAX China. 59 In 2022, the net cash used in financing activities is principally due to $83.2 million used to repurchase common shares of the Company ($80.1 million) and IMAX China ($3.0 million), $3.7 million paid to purchase treasury stock for the settlement of RSUs and related taxes, $2.7 million of dividends paid to the non-controlling interests of IMAX China, and $2.3 million in fees paid in relation to the Sixth Amended and Restated Credit Agreement entered into by the Company during the first quarter of 2022, partially offset by $34.3 million in net cash inflow from revolving credit facility borrowings.
Such variable consideration is only recognized on sales transactions to the extent the Company believes there is not a risk of significant revenue reversal. In sale arrangements, title to the IMAX System equipment generally transfers to the customer.
Such variable consideration is only recognized on sales transactions to the extent the Company believes there is not a risk of significant revenue reversal. Finance income is recognized over the term of a financed sale or sales-type lease arrangement. 41 In sale arrangements, title to the IMAX System equipment generally transfers to the customer.
The Company also had contracts in backlog for 288 systems under joint revenue sharing arrangements as of December 31, 2022, including 76 upgrades to existing locations and 212 new locations.
The Company also had contracts in backlog for 286 systems under joint revenue sharing arrangements as of December 31, 2023, including 234 new locations and 52 upgrades to existing locations.
Joint revenue sharing arrangements also require IMAX to provide maintenance and extended warranty services to the customer over the term of the lease in exchange for a separate fixed annual fee. These fees are reported within IMAX Technology Sales and Maintenance, as discussed below.
Joint revenue sharing arrangements also require IMAX to provide maintenance and extended warranty services to the customer over the term of the lease in exchange for a separate fixed annual fee. These fees are reported within IMAX Maintenance, as discussed below. Joint revenue sharing arrangements have been an important factor in the expansion of the Company’s commercial system network.
(See Note 13 of Notes to Consolidated Financial Statements in Part II, Item 8.) Non-Controlling Interests The Company’s Consolidated Financial Statements include the non-controlling interest in the net income or loss of IMAX China as well as the impact of non-controlling interests in the activity of its Original Film Fund subsidiary.
(Refer to Note 12 to Consolidated Financial Statements in Part II, Item 8 for more information on the Company’s tax position.) Non-Controlling Interests The Company’s Consolidated Financial Statements include the non-controlling interest in the net income or loss of IMAX China, as well as the impact of non-controlling interests in the activity of its Original Film Fund subsidiary.
(See Note 15(b) of Notes to Consolidated Financial Statements in Part II, Item 8.) (5) The Convertible Notes bear interest at a rate of 0.500% per annum on the principal of $230.0 million, payable semi-annually in arrears on April 1 and October 1 of each year.
(Refer to Note 14(b) to Consolidated Financial Statements in Part II, Item 8.) (5) The Convertible Notes bear interest at a rate of 0.500% per annum on the principal of $230.0 million, payable semi-annually in arrears on April 1 and October 1 of each year. The Convertible Notes will mature on April 1, 2026, unless earlier repurchased, redeemed or converted.
LIQUIDITY AND CAPITAL RESOURCES As of December 31, 2022, the Company’s principal sources of liquidity included: (i) its balances of cash and cash equivalents ($97.4 million); (ii) the anticipated collection of trade accounts receivable, which includes amounts owed under joint revenue sharing arrangements and DMR agreements with movie studios; (iii) the anticipated collection of financing receivables due in the next 12 months under sale and sales-type lease arrangements for systems currently in operation; and (iv) installment payments expected in the next 12 months under sale and sales-type lease arrangements in backlog.
(Refer to Note 14(b) to Consolidated Financial Statements in Part II, Item 8.) LIQUIDITY AND CAPITAL RESOURCES As of December 31, 2023, the Company’s principal sources of liquidity included: (i) its balances of cash and cash equivalents of $76.2 million; (ii) the anticipated collection of trade accounts receivable, which includes amounts owed under joint revenue sharing arrangements and film remastering agreements with movie studios; (iii) the anticipated collection of financing receivables due in the next 12 months under sale and sales-type lease arrangements for systems currently in operation; and (iv) installment payments expected in the next 12 months under sale and sales-type lease arrangements in backlog.
From time to time, in the normal course of its business, the Company will have customers who are unable to proceed with an IMAX System installation for a variety of reasons, including the inability to obtain certain consents, approvals or financing.
The Company believes that the contractual obligations for IMAX System installations that are listed in backlog are valid and binding commitments. 45 From time to time, in the normal course of its business, the Company will have customers who are unable to proceed with an IMAX System installation for a variety of reasons, including the inability to obtain certain consents, approvals or financing.
In 2020, management completed a reassessment of its strategy with respect to the most efficient means of deploying the Company’s capital resources globally. Based on the results of this reassessment, management concluded that the historical earnings of certain foreign subsidiaries in excess of amounts required to sustain business operations would no longer be indefinitely reinvested.
Management reassessed its strategy with respect to the most efficient means of deploying the Company’s capital resources globally and determined that historical earnings of certain foreign subsidiaries in excess of amounts required to sustain business operations would no longer be indefinitely reinvested.
For the year ended December 31, 2022, the net cash provided by the Company’s operating activities totaled $17.3 million, as compared to $6.1 million in the prior year.
For the year ended December 31, 2023, the net cash provided by the Company’s operating activities totaled $58.6 million, as compared to $17.3 million in the prior year, an improvement of $41.3 million.
The Company’s “System Obligation” consists of the following: (i) an IMAX System, which includes the projector, sound system, screen system and, if applicable, a 3D glasses cleaning machine; (ii) services associated with the IMAX System, including theater design support, the supervision of installation services, and projectionist training; and (iii) a license to use the IMAX brand to market the location.
This allocation is based on observable prices when the Company sells the good or service separately. 47 The Company’s “System Obligation” consists of the following: (i) an IMAX System, which includes the projector, sound system, screen system and, if applicable, a 3D glasses cleaning machine; (ii) services associated with the IMAX System, including theater design support, the supervision of installation services, and projectionist training; and (iii) a license to use the IMAX brand to market the location.
The achievement of the EBITDA and TSR targets in these PSUs is determined over a three-year performance period. At the conclusion of the three-year performance period, the number of PSUs that ultimately vest can range from 0% to a maximum vesting opportunity of 175% of the initial award, depending upon actual performance versus the established EBITDA and share-price targets.
At the conclusion of the three-year performance period, the number of PSUs that ultimately vest can range from 0% to a maximum vesting opportunity of 175% of the initial Adjusted EBITDA PSU award or 150% of the initial TSR PSU award, depending upon actual performance versus the established Adjusted EBITDA and TSR targets.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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For foreign currency cash flow hedging instruments related to Selling, General and Administrative Expenses, the effective portion of the gain or loss in a hedge of a forecasted transaction is reported within Accumulated Other Comprehensive (Loss) Income and reclassified to the Consolidated Statements of Operations when the forecasted transaction occurs.
For foreign currency cash flow hedging instruments related to Selling, General and Administrative Expenses, the effective portion of the gain or loss in a hedge of a forecasted transaction is reported within Accumulated Other Comprehensive Loss and reclassified to the Consolidated Statements of Operations when the forecasted transaction occurs.
In addition, IMAX films generate box office in 87 different countries, and therefore unfavorable exchange rates between applicable local currencies and the U.S. Dollar could have an impact on the GBO generated by the Company’s exhibitor customers and its revenues.
In addition, IMAX films generate box office in 90 different countries, and therefore unfavorable exchange rates between applicable local currencies and the U.S. Dollar could have an impact on the GBO generated by the Company’s exhibitor customers and its revenues.
Assuming a 1% change appreciation or depreciation in foreign currency exchange rates as of December 31, 2022, the potential change in the amount of Selling, General, and Administrative Expenses would be $0.2 million.
Assuming a 1% change appreciation or depreciation in foreign currency exchange rates as of December 31, 2023, the potential change in the amount of Selling, General, and Administrative Expenses would be $0.2 million.
A loss of $(1.3) million was recorded to Other Comprehensive (Loss) Income with respect to the change in fair value of these contracts in 2022 (2021 — gain of $0.5 million).
A gain of $0.6 million was recorded to Other Comprehensive (Loss) Income with respect to the change in fair value of these contracts in 2023 (2022 — loss of $1.3 million; 2021 — gain of $0.5 million ).
The Company also has cash receipts under leases denominated in RMB, Japanese Yen, Euros and Canadian Dollars. The Company manages its exposure to foreign exchange rate risks through its regular operating and financing activities and, when appropriate, through the use of derivative financial instruments.
The Company also has cash receipts under leases denominated in RMB, Japanese Yen, British Pound Sterling, Euros and Canadian Dollars. The Company manages its exposure to foreign exchange rate risks through its regular operating and financing activities and, when appropriate, through the use of derivative financial instruments.
The notional value of forward contracts that do not qualify for hedge accounting as of December 31, 2022 was $nil (December 31, 2021 — $nil). For all derivative instruments, the Company is subject to counterparty credit risk to the extent that the counterparty may not meet its obligations to the Company.
The notional value of forward contracts that do not qualify for hedge accounting as of December 31, 2023 was $nil (December 31, 2022 — $nil). 64 For all derivative instruments, the Company is subject to counterparty credit risk to the extent that the counterparty may not meet its obligations to the Company.
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 as of December 31, 2022, with settlement dates throughout 2023. Foreign currency derivatives are recognized and measured in the Consolidated Balance Sheets at fair value.
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 as of December 31, 2023, with settlement dates throughout 2024 and 2025. Foreign currency derivatives are recognized and measured in the Consolidated Balance Sheets at fair value.
Assuming a 10% appreciation or depreciation in foreign currency exchange rates from the quoted foreign currency exchange rates as of December 31, 2022, the potential change in the fair value of foreign currency-denominated financing receivables and working capital items would have been $8.6 million. A significant portion of the Company’s Selling, General, and Administrative Expenses is denominated in Canadian Dollars.
Assuming a 10% appreciation or depreciation in foreign currency exchange rates from the quoted foreign currency exchange rates as of December 31, 2023, the potential change in the fair value of foreign currency-denominated financing receivables and working capital items would have been $17.3 million. A significant portion of the Company’s Selling, General, and Administrative Expenses is denominated in Canadian Dollars.
To manage this risk, the Company enters into derivative transactions only with major financial institutions. As of December 31, 2022, the Company’s Financing Receivables and working capital items denominated in Canadian Dollars, RMB, Japanese Yen, Euros and other foreign currencies translated into U.S. Dollars was $85.5 million, of which $83.2 million was denominated in RMB.
To manage this risk, the Company enters into derivative transactions only with major financial institutions. As of December 31, 2023, the Company’s Financing Receivables and working capital items denominated in Canadian Dollars, RMB, Japanese Yen, Euros and other foreign currencies translated into U.S. Dollars was $172.7 million, of which $172.5 million was denominated in RMB.
For the year ended December 31, 2022 the Company had drawn down $25.0 million on its Credit Facility (December 31, 2021 — $nil), $12.5 million on its HSBC China Facility (December 31, 2021 — $nil) and $0.4 million on its Bank of China Facility (December 31, 2021 — $3.6 million) which are subject to variable effective interest rates.
For the year ended December 31, 2023 the Company had drawn down $24.0 million on its Credit Facility (December 31, 2022 — $25.0 million), $nil on its HSBC China Facility (December 31, 2022 — $12.5 million) and $nil on its Bank of China Facility (December 31, 2022 — $0.4 million), which are all subject to variable effective interest rates.
Any ineffective portion is recognized immediately in the Consolidated Statements of Operations. 68 The notional value of foreign currency cash flow hedging instruments that qualify for hedge accounting as of December 31, 2022 was $24.7 million (December 31, 2021 — $26.7 million).
Any ineffective portion is recognized immediately in the Consolidated Statements of Operations. The notional value of foreign currency cash flow hedging instruments that qualify for hedge accounting as of December 31, 2023 was $40.6 million (December 31, 2022 — $24.7 million).
In 2022 there were no gains or losses resulting from a change in the classification of certain forward contracts no longer meeting the requirements for hedge accounting were reclassified from Accumulated Other Comprehensive (Loss) Income to Selling, General and Administrative Expenses (2021 — gain of $0.3 million).
In 2023, there were no gains or losses resulting from a change in the classification of certain forward contracts no longer meeting the requirements for hedge accounting were reclassified from Accumulated Other Comprehensive Loss to Selling, General and Administrative Expenses (2022 — $nil).
Certain of the Company’s PRC subsidiaries held approximately RMB 303.8 million or $43.6 million in cash and cash equivalents as of December 31, 2022 (December 31, 2021 — RMB 484.7 million or $76.0 million) and are required to transact locally in RMB.
Certain of the Company’s PRC subsidiaries held approximately RMB 213.0 million or $30.0 million in cash and cash equivalents as of December 31, 2023 (December 31, 2022 — RMB 303.8 million or $43.6 million) and are required to transact locally in RMB.
(See “Risk Factors – The Company faces risks in connection with its significant presence in China and the continued expansion of its business there” in Part I, Item 1A.) For the year ended December 31, 2022, the Company recorded a foreign exchange net loss of $(3.2) million as compared to a foreign exchange net gain of $1.3 million in 2021, associated with the translation of foreign currency denominated monetary assets and liabilities, primarily due to the weakening of the RMB against the USD throughout 2022.
(Refer to “Risk Factors – The Company faces risks in connection with its significant presence in China and the continued expansion of its business there”) For the year ended December 31, 2023, the Company recorded a foreign exchange net loss of $0.7 million as compared to a foreign exchange net loss of $3.2 million in 2022, associated with the translation of foreign currency denominated monetary assets and liabilities, primarily due to the slower pace of RMB weakening against the U.S.
Interest Rate Risk Management The Company’s earnings may also be affected by changes in interest rates due to the impact those changes have on its interest income from cash, and its interest expense from variable-rate borrowings that may be made under the Credit Facility.
Interest Rate Risk Management The Company’s earnings may also be affected by changes in interest rates and the resulting impact of those changes on its interest income from cash, and its interest expense from variable-rate borrowings.
A loss of $(0.6) million was reclassified from Accumulated Other Comprehensive (Loss) Income to Selling, General and Administrative Expenses in 2022 (2021 — gain of $1.7 million to Selling, General and Administrative Expenses and Inventories), primarily due to the weakening of the CAD against the USD throughout 2022.
A loss of $0.9 million was reclassified from Accumulated Other Comprehensive Loss to Selling, General and Administrative Expenses in 2023 (2022 — loss of $0.6 million; 2021 — gain of $1.7 million), primarily due to the fairly stabilized CAD against the U.S. Dollar through most of 2023 compared to 2022, when the CAD weakened against the U.S. Dollar.
These amounts are determined by considering the impact of the hypothetical interest rates on the Company's variable rate debt and cash balances as of December 31, 2022. 69
If the interest rates available to the Company increased by 10%, the Company’s interest expense would increase by $0.2 million and interest income from cash would increase by $0.2 million. These amounts are determined by considering the impact of the hypothetical interest rates on the Company’s variable rate debt and cash balances as of December 31, 2023. 65
The Company has entered into a series of foreign currency forward contracts to manage the risks associated with the volatility of foreign currencies.
Dollar throughout 2023 compared to 2022. The impact of changes in foreign currency valuations versus the U.S. Dollar led to a decrease in GBO of $30.4 million in 2023 as compared to prior year rates. The Company has entered into a series of foreign currency forward contracts to manage the risks associated with the volatility of foreign currencies.
The Company had variable rate debt instruments representing 7.7% and 0.8% of its total liabilities as of December 31, 2022 and December 31, 2021, respectively. If the interest rates available to the Company increased by 10%, the Company's interest expense would increase by $0.2 million and interest income from cash would increase by $0.2 million.
The Company’s variable rate debt instruments were $24.0 million as of December 31, 2023 or 37% less than $37.9 million as of December 31 2022. Variable rate debt instruments represented 5% and 8% of its total liabilities as of December 31, 2023 and 2022, respectively.
Removed
For foreign currency cash flow hedging instruments related to Inventories, the effective portion of the gain or loss in a hedge of a forecasted transaction is reported within Accumulated Other Comprehensive (Loss) Income and reclassified to Inventories on the Consolidated Balance Sheets when the forecasted transaction occurs.
Removed
For foreign currency cash flow hedging instruments related to capital expenditures, the effective portion of the gain or loss in a hedge of a forecasted transaction is reported within Accumulated Other Comprehensive (Loss) Income and reclassified to Property, Plant and Equipment on the Consolidated Balance Sheets when the forecasted transaction occurs.

Other IMAX 10-K year-over-year comparisons