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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2001
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
Commission File Number 0-24216
IMAX CORPORATION
(Exact name of registrant as specified in its charter)
Canada 98-0140269
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2525 Speakman Drive, Mississauga, Ontario, Canada L5K 1B1
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(Address of principal executive offices) (Postal Code)
Registrant's telephone number, including area code (905) 403-6500
N/A
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(Former name or former address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date:
Class Outstanding as of April 30, 2001
- ------------------------------------- --------------------------------
Common stock, no par value 31,126,514
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IMAX CORPORATION
INDEX
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Factors about Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain statements included herein may constitute "forward-looking statements"
within the meaning of the United States Private Securities Litigation Reform Act
of 1995. These forward-looking statements include, but are not limited to,
references to future capital expenditures (including the amount and nature
thereof), business strategies and measures to implement strategies, competitive
strengths, goals, expansion and growth of its business and operations, plans and
references to the future success of the Company. These forward-looking
statements are based on certain assumptions and analyses made by the Company in
light of its experience and its perception of historical trends, current
conditions and expected future developments as well as other factors it believes
are appropriate in the circumstances. However, whether actual results and
developments will conform with the expectations and predictions of the Company
is subject to a number of risks and uncertainties, including, but not limited
to, general economic, market or business conditions; the opportunities (or lack
thereof) that may be presented to and pursued by the Company; competitive
actions by other companies; conditions in the out-of-home entertainment
industry; changes in laws or regulations; risks associated with investments and
operations in foreign jurisdictions and any future international expansion,
including those related to economic, political and regulatory policies of local
governments and laws and policies of the United States and Canada; and the
potential impact of increased competition in the markets the Company operates
within and other factors, many of which are beyond the control of the Company.
Consequently, all of the forward-looking statements made herein are qualified by
these cautionary statements, and there can be no assurance that the actual
results or developments anticipated by the Company will be realized or, even if
substantially realized, that they will have the expected consequences to, or
effects on, the Company.
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IMAX CORPORATION
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following condensed consolidated financial statements are
filed as part of this Report:
Condensed Consolidated Balance Sheets as at March 31, 2001 and
December 31, 2000 4
Condensed Consolidated Statements of Operations for the three
month periods ended March 31, 2001 and 2000 5
Condensed Consolidated Statements of Cash Flows for the three
month periods ended March 31, 2001 and 2000 6
Notes to Condensed Consolidated Financial Statements 7
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IMAX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(in thousands of U.S. dollars)
March 31,
2001 December 31,
(unaudited) 2000
---------------- ----------------
ASSETS
Cash and cash equivalents $ 20,935 $ 30,908
Investments in marketable debt securities 3,922 7,529
Accounts receivable, less allowance for doubtful accounts of $19,691
(2000 - $19,774) 32,315 34,835
Net investment in leases 71,430 77,093
Inventories (note 3) 64,650 69,910
Income taxes recoverable 8,457 8,830
Prepaid expenses 4,338 3,650
Film assets 29,791 29,749
Fixed assets 91,295 89,879
Other assets 31,487 32,859
Deferred income taxes 53,646 46,345
Goodwill, net of accumulated amortization of $15,660 (2000 - $14,818) 61,060 60,513
---------------- ----------------
Total assets $ 473,326 $ 492,100
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LIABILITIES
Accounts payable $ 11,583 $ 23,250
Accrued liabilities 55,232 40,160
Deferred revenue 100,373 106,427
Convertible subordinated notes due 2003 100,000 100,000
Senior notes due 2005 200,000 200,000
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Total liabilities 467,188 469,837
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COMMITMENTS AND CONTINGENCIES (notes 4 and 5)
SHAREHOLDERS' EQUITY
Common stock - no par value. Authorized - unlimited number.
Issued and outstanding - 30,126,514 (2000 - 30,051,514) 60,152 60,136
Deficit (52,049) (38,278)
Accumulated other comprehensive (loss) income (1,965) 405
----------------- ----------------
Total shareholders' equity 6,138 22,263
---------------- ----------------
Total liabilities and shareholders' equity $ 473,326 $ 492,100
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(See accompanying notes to the condensed consolidated financial statements
on pages 7 to 11)
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IMAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(in thousands of U.S. dollars, except per share data)
(UNAUDITED)
Three months ended March 31,
2001 2000
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REVENUE
IMAX systems $ 16,278 $ 25,273
Digital projection systems 6,399 12,916
Films 9,256 10,459
Other 3,145 6,150
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35,078 54,798
COSTS AND EXPENSES 24,789 33,783
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GROSS MARGIN 10,289 21,015
Selling, general and administrative expenses 11,821 11,528
Restructuring costs 10,942 -
Research and development 1,294 1,592
Amortization of intangibles 1,077 1,009
Loss (income) from equity-accounted investees 93 (2)
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EARNINGS (LOSS) FROM OPERATIONS (14,938) 6,888
Interest income 357 1,542
Interest expense (5,303) (5,535)
Foreign exchange loss (1,118) (141)
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EARNINGS (LOSS) BEFORE INCOME TAXES (21,002) 2,754
Recovery of (provision for) income taxes 7,231 (1,019)
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EARNINGS (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING (13,771) 1,735
PRINCIPLES
Cumulative effect of changes in accounting principles, net of income tax
benefit of $37,286 (note 2) - (61,110)
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NET LOSS $ (13,771) $ (59,375)
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PER SHARE DATA (note 6):
Earnings (loss) per share - basic:
Earnings (loss) before cumulative effect of changes in accounting $ (0.46) $ 0.06
principles
Cumulative effect of changes in accounting principles $ - $ (2.05)
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Net loss $ (0.46) $ (1.99)
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Earnings (loss) per share - diluted:
Earnings (loss) before cumulative effect of changes in accounting $ (0.46) $ 0.06
principles
Cumulative effect of changes in accounting principles $ - $ (1.98)
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Net loss $ (0.46) $ (1.92)
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(See accompanying notes to the condensed consolidated financial statements
on pages 7 to 11)
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IMAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(in thousands of U.S. dollars)
(UNAUDITED)
Three months ended March 31,
2001 2000
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CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net loss $ (13,771) $ (59,375)
Items not involving cash:
Depreciation, amortization and write-downs 6,762 5,727
Loss (gain) from equity-accounted investees 93 (2)
Deferred income taxes (6,985) 903
Cumulative effect of changes in accounting principles - 61,110
Increase in film assets (2,205) (3,381)
Changes in other non-cash operating assets and liabilities 4,443 (44,071)
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Net cash used in operating activities (11,663) (39,089)
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INVESTING ACTIVITIES
Net sale of investments in marketable debt securities 3,607 33,263
Purchase of fixed assets (948) (9,532)
Increase in other assets (525) (1,672)
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Net cash provided by investing activities 2,134 22,059
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FINANCING ACTIVITIES
Common shares issued 16 191
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Net cash provided by financing activities 16 191
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Effects of exchange rate changes on cash (460) (19)
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DECREASE IN CASH AND CASH EQUIVALENTS DURING THE PERIOD (9,973) (16,858)
Cash and cash equivalents, beginning of period 30,908 34,573
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 20,935 $ 17,715
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(See accompanying notes to the condensed consolidated financial statements
on pages 7 to 11)
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IMAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(Tabular amounts in thousands of U.S. dollars unless otherwise stated)
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of IMAX
Corporation and its wholly owned subsidiaries. The nature of the
Company's business is such that the results of operations for the
interim periods presented are not necessarily indicative of results to
be expected for the fiscal year. In the opinion of management, the
information contained herein reflects all adjustments necessary to make
the results of operations for the interim periods a fair statement of
such operations. All such adjustments are of a normal recurring nature.
These interim financial statements are unaudited and should be read in
conjunction with the Company's most recent annual report on Form 10-K
for the year ended December 31, 2000 which should be consulted for a
summary of the significant accounting policies utilized by the Company.
These interim financial statements are prepared following accounting
policies consistent with the Company's financial statements for the
year ended December 31, 2000.
2. CHANGES IN ACCOUNTING POLICIES
(A) SEC STAFF ACCOUNTING BULLETIN NO. 101, "REVENUE RECOGNITION IN
FINANCIAL STATEMENTS" ("SAB 101")
In preparing its financial statements for the year ended December 31,
2000, the Company reviewed its revenue recognition accounting policies
in the context of SAB 101. In accordance with the interpretive guidance
of SAB 101, the Company, effective January 1, 2000, recognizes revenue
on theater systems whether pursuant to sales-type leases or sales, at
the time that installation is complete. Prior to January 1, 2000, the
Company recognized revenue from sales-type leases and sales of theater
systems at the time of delivery. The effect of applying this change in
accounting principle is a first quarter 2000 non-cash charge of $54.5
million, net of income taxes of $33.4 million, or $1.83 per share,
representing the cumulative impact on retained earnings as at December
31, 1999.
(B) AICPA STATEMENT OF POSITION 00-2, "ACCOUNTING BY PRODUCERS OR
DISTRIBUTORS OF FILMS" ("SOP 00-2")
Effective January 1, 2000, the Company adopted SOP 00-2. Prior to
January 1, 2000, revenues associated with the licensing of films were
recognized in accordance with Statement of Financial Accounting
Standard No. 53, "Financial Reporting by Producers and Distributors of
Motion Picture Films" ("FAS 53") and exploitation costs were
capitalized and amortized. As a result of adopting SOP 00-2, the
Company has recorded a non-cash charge of $6.6 million, net of income
taxes of $3.9 million, or $0.22 per share, to first quarter 2000
earnings, representing the cumulative impact on retained earnings as at
December 31, 1999.
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IMAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(Tabular amounts in thousands of U.S. dollars unless otherwise stated)
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
3. INVENTORIES
March 31, December 31,
2001 2000
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Raw materials $ 16,083 $ 16,037
Work-in-process 12,861 11,963
Finished goods 35,706 41,910
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$ 64,650 $ 69,910
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Finished goods at March 31, 2001 and December 31, 2000 include $25.4
million and $29.6 million, respectively, in theater systems delivered
to customers where installation was not complete.
4. FINANCIAL INSTRUMENTS
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133") and its subsequent amendments and
interpretations. FAS 133 established accounting and reporting standards
requiring that all derivative instruments be recorded in the balance
sheet either as an asset or a liability at their fair values. The
statement requires that changes in the derivative's fair value be
recognized in earnings unless specific hedge accounting criteria are
met. As a result, the Company recorded a transition loss of $210,000 in
its consolidated statement of operations on January 1, 2001. In
addition, a transition amount of $496,000 (net of income tax benefit of
$291,000) has been recorded as a charge to comprehensive loss to March
31, 2001.
The Company has entered into forward exchange contracts at March 31,
2001 to hedge the conversion of $14 million into Canadian dollars at an
average exchange rate of Canadian $1.49 per U.S. dollar. These forward
contracts are accounted for as hedges of identifiable foreign currency
commitments. The Company has also entered into foreign currency swap
transactions to hedge minimum lease payments receivable under
sales-type lease contracts denominated in Japanese Yen and French
Francs. These swap transactions fix the foreign exchange rates on
conversion of 79 million Yen at 98 Yen per U.S. dollar through
September 2004 and on 11.4 million Francs at 5.1 Francs per U.S. dollar
through September 2005.
5. CONTINGENCIES
(A) In April 1994, Compagnie France Film Inc. filed a claim against the
Company in the Superior Court in the District of Montreal, in the
Province of Quebec, alleging breach of contract and bad faith in
respect of an agreement which the plaintiff claims it entered into with
the Company for the establishment of an IMAX theater in Quebec City,
Quebec, Canada. The Company disputed these claims and the suit went to
trial in January 1998. In a decision rendered in April 1998, the court
dismissed the plaintiffs' claims with costs. In May 1998, the plaintiff
appealed the decision to the Quebec Court of Appeal. The Company
believes that the amount of the loss, if any, suffered in connection
with a successful appeal by the plaintiff will not have a material
impact on the financial position or results of operations of the
Company, although no assurance can be given with respect to the
ultimate outcome of this matter.
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IMAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(Tabular amounts in thousands of U.S. dollars unless otherwise stated)
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
5. CONTINGENCIES (CONT'D)
(B) In January 2000, the Commission of the European Communities (the
"Commission") informed the Company that Euromax, an association of
European large screen cinema owners, had filed a complaint against the
Company under EC competition rules. The complaint addressed a variety
of alleged abuses, mainly relating to the degree of the control that
the Company asserts over the projection systems it leases and the form
and terms of the Company's agreements. No formal investigation has been
initiated to date, and the Commission has limited itself to a request
of IMAX to comment on the complaint and subsequent response. Should
proceedings be initiated, it is expected that no decision would be
rendered until the end of 2001 or 2002 at the earliest. Although the
Commission has the power to impose fines of up to a maximum of 10% of
Company revenue for breach of EC competition rules, the Company
believes on the basis of currently available information and an initial
review that such result would not be likely. The Company further
believes that the allegations in the complaint are meritless and will
accordingly defend the matter vigorously. The Company believes that the
amount of the loss, if any, suffered in connection with this dispute
would not have a material impact on the financial position or results
of operations of the Company, although no assurance can be given with
respect to the ultimate outcome of this litigation.
(C) In April 2000, Themax Inc., a 33% owned investee of the Company, and
certain of its shareholders (collectively "Themax") filed a claim
against the Company in the Superior Court in the District of Longueuil,
in the Province of Quebec, alleging breach of contract in respect of
the IMAX System Lease agreement between IMAX Ltd. and Themax dated
February 5, 1996 as well as a claim for damages suffered as a result of
IMAX Ltd.'s alleged failure to adequately manage the Brossard Theater
during its tenure as manager. Themax claimed damages representing a
return of the original investment by Themax as well as lost profits and
costs. On November 8, 2000, Themax filed a notice of intention to make
a proposal in bankruptcy. The affect of such proposal on the litigation
is uncertain. The Company believes that the allegations made by Themax
are entirely without merit and has and will accordingly defend the
matter vigorously. The Company believes that the amount of loss, if
any, suffered in connection with this lawsuit would not have a material
impact on the financial position or results of operations of the
Company, although no assurance can be given with respect to the
ultimate outcome for any such litigation.
(D) In June 2000, a complaint was filed against the Company and a third
party by Mandalay Resort Group f/k/a Circus Circus Enterprises, Inc.,
alleging breach of contract and express warranty, fraud and
misrepresentation in connection with the installation of certain motion
simulation bases in Nevada. The complaint alleges damages in excess of
$30,000. The Company believes that the allegations made against it in
this complaint are meritless and will accordingly defend the matter
vigorously. The Company further believes that the amount of loss, if
any, suffered in connection with this lawsuit would not have a material
impact on the financial position or results of operations of the
Company, although no assurance can be given with respect to the
ultimate outcome for any such litigation.
(E) In December 2000, the Company filed a complaint against George
Krikorian Premiere Theatres LLC and certain other related parties
(collectively "Krikorian") in the U.S. District of California, alleging
breach of contract and fraud resulting in damages to the Company in
excess of US$6 million. In February 2001, Krikorian filed a Reply and
Counterclaim against the Company alleging, among other things,
fraudulent inducement and negligent misrepresentation. In April 2001,
Krikorian's counterclaims were dismissed by the Court without
prejudice. The Company believes that the allegations made against it in
the Reply and Counterclaim were meritless and will defend any new
counterclaims brought by Krikorian vigorously.
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IMAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(Tabular amounts in thousands of U.S. dollars unless otherwise stated)
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
5. CONTINGENCIES (CONT'D)
The Company believes that the amount of loss, if any, suffered in
connection with any future counterclaims brought by Krikorian would not
have a material impact on the financial position or results of
operations of the Company, although no assurance can be given with
respect to the ultimate outcome for any such litigation.
(F) In March 2001, a complaint was filed against the Company by Muvico
Entertainment, L.L.C. ("Muvico"), alleging misrepresentation and
seeking rescission in respect of the system leasing agreements between
the Company and Muvico. In May 2001, the Company filed counterclaims
against Muvico for breach of contract, unjust enrichment and theft of
trade secrets, and brought claims against Muvico and MegaSystems, Inc.
("MegaSystems"), a large format theater system manufacturer, for
tortious interference, unfair competition and/or deceptive trade
practices, violations of the U.S. Lanham Act, and to enjoin Muvico and
MegaSystems from using the Company's confidential and proprietary
information. The Company believes that the allegations made by Muvico
in its complaint are entirely without merit and will accordingly defend
the claims vigorously. The Company further believes that the amount of
loss, if any, suffered in connection with this lawsuit would not have a
material impact on the financial position or results of operation of
the Company, although no assurance can be given with respect to the
ultimate outcome for any such litigation.
(G) In addition to the litigation described above, the Company is currently
involved in other litigation which, in the opinion of the Company's
management, will not materially affect the Company's financial position
or future operating results, although no assurance can be given with
respect to the ultimate outcome for any such litigation.
6. EARNINGS PER SHARE
Reconciliations of the numerators and denominators of the basic and
diluted per-share computations are as follows:
Three months ended March 31,
2001 2000
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Net loss available to common shareholders: $ (13,771) $ (59,375)
================== ==================
Weighted average number of common shares (000's):
Issued and outstanding at beginning of period 30,052 29,758
Weighted average number of shares issued in the period 62 16
------------------ ------------------
Weighted average number of shares used in computing basic
earnings per share 30,114 29,774
Assumed exercise of stock options, net of shares assumed - 1,110
------------------ ------------------
Weighted average number of shares used in computing diluted
earnings per share 30,114 30,884
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IMAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(Tabular amounts in thousands of U.S. dollars unless otherwise stated)
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
6. EARNINGS PER SHARE (CONT'D)
For the quarter ended March 31, 2001, the assumed exercise of stock
options, net of shares assumed acquired under the Treasury Stock Method
and common shares issuable pursuant to the Convertible Subordinated
Notes would have an antidilutive effect on earnings per share and have
not been included in the above computations.
7. COMPREHENSIVE LOSS
Comprehensive loss amounted to $16.1 million in the three months ended
March 31, 2001 ($4.4 million for the three months ended March 31,
2000).
8. SEGMENTED INFORMATION
The Company has four reportable segments: IMAX systems, digital
projection systems, films and other.
There has been no change in the basis of measurement of segment profit
or loss from the Company's most recent annual report on Form 10-K for
the year ended December 31, 2000. Intersegment transactions are not
significant.
Three months ended March 31,
2001 2000
------------------ ------------------
Revenue
IMAX systems $ 16,278 $ 25,273
Digital projection systems 6,399 12,916
Films 9,256 10,459
Other 3,145 6,150
------------------ ------------------
Total $ 35,078 $ 54,798
================== ==================
Earnings (loss) from operations
IMAX systems $ 5,693 $ 10,406
Digital projection systems (2,155) 265
Films (1,280) (349)
Other (740) 576
Corporate overhead (16,456) (4,010)
------------------ ------------------
Total $ (14,938) $ 6,888
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IMAX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 VERSUS THREE MONTHS ENDED MARCH 31, 2000
During the first quarter of 2001, the Company signed a contract for one IMAX
theater system valued at $2.8 million. The Company's sales backlog was $209.4
million at March 31, 2001, representing contracts for 70 theater systems. The
Company's sales backlog will vary from quarter to quarter depending on the
signing of new systems which adds to backlog and the installation of systems
which reduces backlog. Sales backlog represents the sale value of all signed
system sale and lease agreements that will be recognized as revenue in the
future. The value of sales backlog does not include revenues from theaters in
which the Company has an equity interest, letters of intent or long-term
conditional theater commitments.
The Company reported a net loss of $13.8 million or $0.46 per share on a diluted
basis for the first quarter of 2001 compared to net earnings of $1.7 million or
$0.06 per share on a diluted basis for the first quarter of 2000 before
cumulative effect of changes in accounting principles.
The Company recorded revenues for the first quarter of 2001 of $35.1 million
compared to $54.8 million recorded in the corresponding quarter last year, a
decrease of 36%.
Systems revenue, which includes revenue from theater system sales and leases,
royalties and maintenance fees, decreased approximately 36% to $16.3 million in
the first quarter of 2001 from $25.3 million in the same quarter last year.
Three theater systems were installed in the first quarter of 2001 compared to 5
theater systems in the first quarter of 2000.
The Company's revenue from the sale of digital projection systems amounted to
$6.4 million in the first quarter of 2001, compared to $12.9 million in the same
quarter last year, a decrease of 50%, as a result of a shift of the staging and
rental business from high-end to mid-market products.
Film revenue comprises revenue recognized from film distribution and film
post-production activities. Film revenue decreased 12% to $9.3 million in the
first quarter of 2001 from $10.5 million in the same quarter last year primarily
as a result of the decrease in film distribution revenue of 20%.
Other revenues decreased 49% in the first quarter of 2001 to $3.1 million from
$6.2 million in the prior year quarter. Declines in Ridefilm revenues and in
revenues from the Company's owned and operated theaters contributed to the
decrease in other revenues.
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IMAX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT'D)
THREE MONTHS ENDED MARCH 31, 2001 VERSUS THREE MONTHS ENDED MARCH 31, 2000 -
(CONT'D)
Gross margin for the first quarter of 2001 was $10.3 million compared to $21.0
million in the comparative quarter last year, a decrease of 51%. Gross margin
was approximately 29% of total revenue in the first quarter of 2001 compared to
approximately 38% of total revenue in the same quarter of 2000. The decline in
gross margin as a percentage of revenues was due mainly to lower margins from
DPI and other revenues.
Selling, general and administrative expenses were $11.8 million in the first
quarter of 2001 compared to $11.5 million in the corresponding quarter last
year. The increase resulted mainly from an increase in general corporate costs.
During the first quarter of 2001, the Company recorded a restructuring charge of
$10.9 million related to a previously announced 15% reduction in its work force
and the consolidation of manufacturing facilities.
Research and development expenses were $1.3 million in the first quarter of 2001
compared to $1.6 million in the same period last year. The lower level of
expenses in 2001 reflects the timing of expenditures on certain projects.
Interest income decreased to $0.4 million in the first quarter of 2001 from $1.5
million in the first quarter of 2000 due to a decline in the average balance of
cash and cash equivalents held.
The effective tax rate on earnings before taxes differs from the statutory tax
rate and will vary from quarter to quarter primarily as a result of the
amortization of goodwill, which is not deductible for tax purposes, and the
provision of income taxes at different tax rates in foreign and other provincial
jurisdictions.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001, the Company's principal source of liquidity included cash and
cash equivalents of $20.9 million, trade accounts receivable of $32.3 million,
net investment in leases due within one year of $7.9 million and marketable
securities of $3.9 million. Amounts receivable due with one year under contracts
in backlog which are not yet reflected on the balance sheet, total approximately
$36 million.
The 7.875% Senior Notes (the "Senior Notes") due December 1, 2005 are subject to
redemption by the Company, in whole or in part, at any time on or after December
1, 2002 at redemption prices expressed as percentages of the principal amount
for each 12-month period commencing December 1 of the years indicated: 2002 -
103.938%; 2003 - 101.969%; 2004 and thereafter - 100.000% together with interest
accrued thereon to the redemption date and are subject to redemption by the
Company prior to December 1, 2002 at a redemption price equal to 100% of the
principal amount plus a "make whole premium". If certain changes result in the
imposition of withholding taxes under Canadian law, the Senior Notes may be
redeemed by the Company at a redemption price equal to 100% of the principal
amount plus accrued interest to the date of redemption. In the event of a change
in control, holders of the Senior Notes may require the Company to repurchase
all or part of the Senior Notes at a price equal to 101% of the principal amount
plus accrued interest to the date of repurchase.
The 5 3/4% Convertible Subordinated Notes (the "Subordinated Notes") due April
1, 2003 are convertible into common shares of the Company at the option of the
holder at a conversion price of $21.406 per share (equivalent to a conversion
rate of 46.7154 shares per $1,000 principal amount of Subordinated Notes) at any
time prior to maturity. The Subordinated Notes are redeemable at the option of
the Company on or after April 1, 1999 at redemption prices expressed as
percentages of the principal amount (2001 - 101.643%; 2002 - 100.821%) plus
accrued interest. The Subordinated Notes may only be redeemed by the Company
between April 1, 1999 and April 1, 2001 if the last reported market price of the
Company's common shares is equal to or greater than $30 per share for any 20 of
the 30 consecutive trading days prior to the notice of redemption.
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IMAX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -(CONT'D)
LIQUIDITY AND CAPITAL RESOURCES - (CONT'D)
The Subordinated Notes may be redeemed at any time on or after April 1, 2001
without limitation.
The Company partially funds its operations through cash flow from operations.
Under the terms of the Company's typical theater system lease agreement, the
Company receives substantial cash payments before it completes the performance
of its obligations. Similarly, the Company receives cash payments for some of
its film productions in advance of related cash expenditures. These cash flows
have generally been adequate to finance the ongoing operations of the Company.
In the first quarter of 2001, cash used in operating activities amounted to
$11.7 million. Changes in operating assets and liabilities amounted to an
increase of $2.2 million, mainly due to an increase in accrued liabilities of
$8.8 million related to restructuring costs.
Cash provided by investing activities in the first quarter of 2001 included a
decrease in marketable securities of $3.6 million, partially offset by an
increase of $0.9 million in fixed assets and an increase in other assets of $0.5
million.
During the first quarter of 2001, cash provided by financing activities included
$16,000 of proceeds from common shares issued under the Company's stock option
plan.
The Company believes that cash flows from operations together with existing cash
and marketable securities balances and the working capital facility will
continue to be sufficient to meet cash requirements in the foreseeable future.
ITEM 3. QUANTITATIVE AND QUALITATIVE FACTORS ABOUT MARKET RISK
The Company is exposed to market risk from changes in foreign currency rates.
The Company does not use financial instruments for trading or other speculative
purposes.
A substantial portion of the Company's revenues are denominated in U.S. dollars
while a substantial portion of its costs and expenses are denominated in
Canadian dollars. A portion of the net U.S. dollar flows of the Company are
converted to Canadian dollars to fund Canadian dollar expenses, either through
the spot market or through forward contracts. In Japan, the Company has ongoing
operating expenses related to its operations. Net Japanese Yen flows are
occasionally converted to U.S. dollars generally through forward contracts to
minimize currency exposure. The Company also has cash receipts under leases
denominated in French francs and Japanese Yen which are converted to U.S.
dollars generally through forward contracts to minimize currency exposure.
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IMAX CORPORATION
ITEM 3. QUANTITATIVE AND QUALITATIVE FACTORS ABOUT MARKET RISK - (CONT'D)
The following table provides information about the Company's foreign exchange
and interest rate swap contracts at March 31, 2001. The fair value represents
the amount the Company would receive or pay to terminate the contracts at March
31, 2001.
MARCH 31,
2001 2002 2003 2004 2005 TOTAL FAIR VALUE
--------- ---- ---- ---- ---- ----- ----------
(IN THOUSANDS OF U.S. DOLLARS)
FOREIGN CURRENCY EXCHANGE
CONTRACTS
(Receive Canadian $, pay U.S. $) $14,000 - - - - $14,000 ($787)
Average contractual exchange
rate per one U.S. dollar 1.49 - - - - 1.49
(Pay Yen, receive U.S. $) $318 $174 $179 $137 - $808 $122
Average contractual exchange
rate per one U.S. dollar 97.85 97.85 97.85 97.85 - 97.85
(Pay FF, receive U.S. $) $423 $435 $448 $462 $476 $2,244 $615
Average contractual exchange
rate per one U.S. dollar 5.07 5.07 5.07 5.07 5.07 5.07
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In April 1994, Compagnie France Film Inc. filed a claim against the Company
in the Superior Court in the District of Montreal, in the Province of Quebec,
alleging breach of contract and bad faith in respect of an agreement which the
plaintiff claims it entered into with the Company for the establishment of an
IMAX theater in Quebec City, Quebec, Canada. The Company disputed these claims
and the suit went to trial in January 1998. In a decision rendered in April
1998, the court dismissed the plaintiffs' claims with costs. In May 1998, the
plaintiff appealed the decision to the Quebec Court of Appeal. The Company
believes that the amount of the loss, if any, suffered in connection with a
successful appeal by the plaintiff will not have a material impact on the
financial position or results of operations of the Company, although no
assurance can be given with respect to the ultimate outcome of this matter.
In January 2000, the Commission of the European Communities (the
"Commission") informed the Company that Euromax, an association of European
large screen cinema owners, had filed a complaint against the Company under EC
competition rules. The complaint addressed a variety of alleged abuses, mainly
relating to the degree of the control that the Company asserts over the
projection systems it leases and the form and terms of the Company's agreements.
No formal investigation has been initiated to date, and the Commission has
limited itself to a request of IMAX to comment on the complaint and subsequent
response. Should proceedings be initiated, it is expected that no decision would
be rendered until the end of 2001 or 2002 at the earliest. Although the
Commission has the power to impose fines of up to a maximum of 10% of Company
revenue for breach of EC competition rules, the Company believes on the basis of
currently available information and an initial review that such result would not
be likely. The Company further believes that the allegations in the complaint
are meritless and will accordingly defend the matter vigorously. The Company
believes that the amount of the loss, if any, suffered in connection with this
dispute would not have a material impact on the financial position or results of
operations of the Company, although no assurance can be given with respect to
the ultimate outcome of this litigation.
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IMAX CORPORATION
ITEM 1. LEGAL PROCEEDINGS - (CONT'D)
In April 2000, Themax Inc., a 33% owned investee of the Company, and
certain of its shareholders (collectively "Themax") filed a claim against the
Company in the Superior Court in the District of Longueuil, in the Province of
Quebec, alleging breach of contract in respect of the IMAX System Lease
agreement between IMAX Ltd. and Themax dated February 5, 1996 as well as a claim
for damages suffered as a result of IMAX Ltd.'s alleged failure to adequately
manage the Brossard Theater during its tenure as manager. Themax claimed damages
representing a return of the original investment by Themax as well as lost
profits and costs. On November 8, 2000, Themax filed a notice of intention to
make a proposal in bankruptcy. The affect of such proposal on the litigation is
uncertain. The Company believes that the allegations made by Themax are entirely
without merit and has and will accordingly defend the matter vigorously. The
Company believes that the amount of loss, if any, suffered in connection with
this lawsuit would not have a material impact on the financial position or
results of operations of the Company, although no assurance can be given with
respect to the ultimate outcome for any such litigation.
In June 2000, a complaint was filed against the Company and a third party
by Mandalay Resort Group f/k/a Circus Circus Enterprises, Inc., alleging breach
of contract and express warranty, fraud and misrepresentation in connection with
the installation of certain motion simulation bases in Nevada. The complaint
alleges damages in excess of $30,000. The Company believes that the allegations
made against it in this complaint are meritless and will accordingly defend the
matter vigorously. The Company further believes that the amount of loss, if any,
suffered in connection with this lawsuit would not have a material impact on the
financial position or results of operations of the Company, although no
assurance can be given with respect to the ultimate outcome for any such
litigation.
In December 2000, the Company filed a complaint against George Krikorian
Premiere Theatres LLC and certain other related parties (collectively
"Krikorian") in the U.S. District of California, alleging breach of contract and
fraud resulting in damages to the Company in excess of US$6 million. In February
2001, Krikorian filed a Reply and Counterclaim against the Company alleging,
among other things, fraudulent inducement and negligent misrepresentation. In
April 2001, Krikorian's counterclaims were dismissed by the Court without
prejudice. The Company believes that the allegations made against it in the
Reply and Counterclaim were meritless and will defend any new counterclaims
brought by Krikorian vigorously. The Company believes that the amount of loss,
if any, suffered in connection with any future counterclaims brought by
Krikorian would not have a material impact on the financial position or results
of operations of the Company, although no assurance can be given with respect to
the ultimate outcome for any such litigation.
In March 2001, a complaint was filed against the Company by Muvico
Entertainment, L.L.C. ("Muvico"), alleging misrepresentation and seeking
rescission in respect of the system leasing agreements between the Company and
Muvico. In May 2001, the Company filed counterclaims against Muvico for breach
of contract, unjust enrichment and theft of trade secrets, and brought claims
against Muvico and MegaSystems, Inc. ("MegaSystems"), a large format theater
system manufacturer, for tortious interference, unfair competition and/or
deceptive trade practices, violations of the U.S. Lanham Act, and to enjoin
Muvico and MegaSystems from using the Company's confidential and proprietary
information. The Company believes that the allegations made by Muvico in its
complaint are entirely without merit and will accordingly defend the claims
vigorously. The Company further believes that the amount of loss, if any,
suffered in connection with this lawsuit would not have a material impact on the
financial position or results of operation of the Company, although no assurance
can be given with respect to the ultimate outcome for any such litigation.
In addition to the litigation described above, the Company is currently
involved in other litigation which, in the opinion of the Company's management,
will not materially affect the Company's financial position or future operating
results, although no assurance can be given with respect to the ultimate outcome
for any such litigation.
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IMAX CORPORATION
ITEM 2. SUPPLEMENTING OF AUDITORS' REPORT FOR 2000 AND 1999 FINANCIALS
Attached as Exhibit 13 is the revised Auditors' Report of
PricewaterhouseCoopers LLP ("PwC"), the Company's auditors, on the
Company's consolidated balance sheets as at December 31, 2000 and 1999
and the related consolidated statements of operations, cash flows and
shareholders' equity for each year in the three-year period ended
December 31, 2000. Such balance sheets and consolidated statements are
reprinted in their entirety from the Company's 2000 Form 10-K. Article
2-02(c) of SEC Regulation S-X calls for the opinion of the accountant
as to the consistency of the application of the accounting principles,
or as to any changes in such principles which have a material effect on
the financial statements. PwC's revised Auditors' Report states that,
as discussed more fully in Note 3 to the consolidated financial
statements in the Company's 2000 Form 10-K, the Company changed its
accounting principles for revenue recognition and film assets in 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
*10.15 Amended Employment Agreement, dated April 3, 2001 between IMAX
Corporation and Bradley J. Wechlser.
*10.16 Amended Employment Agreement, dated April 3, 2001 between IMAX
Corporation and Richard L. Gelfond.
*13 Supplementing of Auditors' Report for 2000 and 1999 financials.
----------
* Filed herewith
(B) REPORTS ON FORM 8-K
There were no reports filed on Form 8-K in the three-month period ended
March 31, 2001.
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IMAX CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IMAX CORPORATION
Date: May 15, 2001 By: / S / John M. Davison
- ------------------- ---------------------
John M. Davison
President, Chief Operating Officer and
Chief Financial Officer
(Principal Financial Officer)
By: / S / Mark J. Thornley
-----------------------
Mark J. Thornley
Senior Vice President, Finance
(Principal Accounting Officer)
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