IMAX Corporation Reports First Quarter 2014 Financial Results

Signings and Installations

Mar. 31, 2014

Three Months

Ended Mar. 31,

Theatre Signings:

2014

2013

Full new sales and sales-type lease arrangements        

32

(1)

14

(1)

New joint revenue sharing arrangements

3

3

Total new theatres

35

17

Upgrades of IMAX theatre systems

1

8

(2)(3)

Total Theatre Signings

36

25

Three Months

Ended Mar. 31,

Theatre Installations:

2014

2013

Full new sales and sales-type lease arrangements

3

6

New joint revenue sharing arrangements

5

4

Total new theatres

8

10

Upgrades of IMAX theatre systems

2

7

(2)

Total Theatre Installations

10

17

As of Mar. 31,

Theatre Backlog:

2014

2013

New sales and sales-type lease arrangements

151

135

New joint revenue sharing arrangements

257

136

Total new theatres

408

271

Upgrades of IMAX theatre systems

23

12

Total Theatres in Backlog

431

(4)

283

(5)

As of Mar. 31,

Theatre Network:

2014

2013

Commercial Multiplex Theatres:

Sales and sales-type lease arrangements

319

287

Joint revenue sharing arrangements

388

319

Total Commercial Multiplex Theatres

707

606

Commercial Destination Theatres

18

19

Institutional Theatres

115

113

Total IMAX Theatre Network

840

738

(1)

Includes three signings which replaced theaters under an existing arrangement in backlog (2013 – one).

(2)

Includes upgrades to xenon-based digital systems under short-term operating lease arrangements (2 signings, 2 installations).

(3)

Includes installation of laser-based digital systems in existing theater (2 signings).

(4)

Includes 23 upgrades to a digital theater system, in an existing IMAX theater location (3 xenon and 20 laser, of which 4 are under joint revenue sharing arrangements).

(5)

Includes 12 upgrades to a digital theater system, in an existing IMAX theater location (5 xenon and 7 laser).

IMAX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

In accordance with United States Generally Accepted Accounting Principles

(In thousands of U.S. dollars, except per share amounts)

(Unaudited)

Three Months

Ended March 31,

2014

2013

Revenues

Equipment and product sales

$

6,354

$

10,679

Services

28,872

26,656

Rentals

10,791

9,972

Finance income

2,180

1,984

Other

-

375

48,197

49,666

Costs and expenses applicable to revenues

Equipment and product sales

3,719

5,059

Services

14,350

14,964

Rentals

3,720

3,453

Other

-

-

21,789

23,476

Gross margin

26,408

26,190

Selling, general and administrative expenses

21,312

19,661

(including share-based compensation expense of $3.2 million for the three months

ended March 31, 2014 (2013 - expense of $2.8 million))

Gain on curtailment of postretirement benefit plan

-

(2,185)

Research and development

3,599

3,634

Amortization of intangibles

402

364

Receivable provisions, net of recoveries

287

-

Income from operations

808

4,716

Interest income

16

13

Interest expense

(266)

(345)

Income from operations before income taxes

558

4,384

Provision for income taxes

(72)

(1,203)

Loss from equity-accounted investments, net of tax

(262)

(220)

Income from continuing operations

224

2,961

Net income (loss) from discontinued operations, net of tax

355

(100)

Net income

$

579

$

2,861

Net income per share - basic & diluted:

Net income per share from continuing operations

$

-

$

0.04

Net income per share from discontinued operations

0.01

-

$

0.01

$

0.04

Weighted average number of shares outstanding (000's):

Basic

67,908

66,646

Fully Diluted

69,321

68,690

Additional Disclosure:

Depreciation and amortization⁽¹⁾

$

7,555

$

8,591

(1)

Includes $0.1 million of amortization of deferred financing costs charged to interest expense for the three months ended March 31, 2014, respectively (2013 - $0.1 million).

IMAX CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

In accordance with United States Generally Accepted Accounting Principles

(in thousands of U.S. dollars)

(Unaudited)

As at

As at

March 31,

December 31,

2014

2013

Assets

Cash and cash equivalents

$

29,692

$

29,546

Accounts receivable, net of allowance for doubtful accounts of $838 (December 31, 2013 — $887)

59,942

73,074

Financing receivables

103,752

107,110

Inventories

13,798

9,825

Prepaid expenses

4,641

3,602

Film assets

6,714

7,076

Property, plant and equipment

141,875

132,847

Other assets

27,173

27,034

Deferred income taxes

24,402

24,259

Other intangible assets

27,230

27,745

Goodwill

39,027

39,027

Total assets

$

478,246

$

481,145

Liabilities

Accounts payable

$

14,319

$

19,396

Accrued and other liabilities

57,745

65,232

Deferred revenue

83,409

76,932

Total liabilities

155,473

161,560

Commitments and contingencies

Shareholders' equity

Capital stock, common shares — no par value. Authorized — unlimited number.

    Issued and outstanding — 67,957,167 (December 31, 2013 — 67,841,233)

328,685

327,313

Other equity

38,216

36,452

Accumulated deficit

(42,472)

(43,051)

Accumulated other comprehensive loss

(1,656)

(1,129)

Total shareholders' equity

322,773

319,585

Total liabilities and shareholders' equity

$

478,246

$

481,145

IMAX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

In accordance with United States Generally Accepted Accounting Principles

(In thousands of U.S. dollars)

(Unaudited)

Three Months

Ended March 31,

2014

2013

Cash provided by (used in):

Operating Activities

Net income

$

579

$

2,861

Net (income) loss from discontinued operations

(355)

100

Adjustments to reconcile net income to cash from operations:

Depreciation and amortization

7,555

8,591

Write-downs, net of recoveries

518

-

Change in deferred income taxes

(75)

904

Stock and other non-cash compensation

3,281

3,000

Gain on curtailment of postretirement benefit plan

-

(2,185)

Unrealized foreign currency exchange loss

646

189

Loss from equity-accounted investments

346

220

Investment in film assets

(1,888)

(3,866)

Changes in other non-cash operating assets and liabilities

2,755

(10,703)

Net cash provided by (used in) operating activities from discontinued operations

572

(100)

Net cash provided by (used in) operating activities

13,934

(989)

Investing Activities

Purchase of property, plant and equipment

(7,927)

(3,315)

Investment in joint revenue sharing equipment

(5,506)

(8,717)

Acquisition of other intangible assets

(287)

(778)

Net cash used in investing activities

(13,720)

(12,810)

Financing Activities

Common shares issued - stock options exercised

742

2,485

Settlement of restricted share units

(789)

-

Increase in bank indebtedness

-

12,000

Repayment of bank indebtedness

-

(5,000)

Credit facility amendment fees paid

-

(1,881)

Net cash (used in) provided by financing activities

7,604

Effects of exchange rate changes on cash

(21)

17

Increase (decrease) in cash and cash equivalents during the period

146

(6,178)

Cash and cash equivalents, beginning of period

29,546

21,336

Cash and cash equivalents, end of period

$

29,692

$

15,158

IMAX CORPORATION

SELECTED FINANCIAL DATA

In accordance with United States Generally Accepted Accounting Principles

(in thousands of U.S. dollars)

The Company has seven reportable segments identified by category of product sold or service provided: IMAX systems; theater system maintenance; joint revenue sharing arrangements; film production and IMAX DMR; film distribution; film post-production; and other. The IMAX systems segment designs, manufactures, sells or leases IMAX theater projection system equipment. The theater system maintenance segment maintains IMAX theater projection system equipment in the IMAX theater network. The joint revenue sharing arrangements segment provides IMAX theater projection system equipment to an exhibitor in exchange for a share of box-office and concession revenues. The film production and IMAX DMR segment produces films and performs film re-mastering services. The film distribution segment distributes films for which the Company has distribution rights. The film post-production segment provides film post-production and film print services. The other segment includes certain IMAX theaters that the Company owns and operates, camera rentals and other miscellaneous items.

Three Months

Ended March 31,

2014

2013

Revenue

IMAX Theater Systems

IMAX Systems

Sales and sales-type leases

$

4,507

$

9,796

Ongoing rent, fees, and finance income

3,253

2,942

Other

1,512

1,780

9,272

14,518

Theater system maintenance

8,195

7,789

Joint revenue sharing arrangements

10,856

9,376

Film

Production and IMAX DMR

15,185

14,355

Film distribution and post-production

4,689

3,628

19,874

17,983

Total

$

48,197

$

49,666

Gross margins

IMAX Theater Systems

IMAX systems⁽¹⁾

Sales and sales-type leases

$

1,659

$

5,284

Ongoing rent, fees, and finance income

3,114

2,907

Other

(438)

(198)

4,335

7,993

Theater system maintenance

3,001

3,054

Joint revenue sharing arrangements⁽¹⁾

7,283

6,159

Film

Production and IMAX DMR⁽¹⁾

11,074

9,213

Film distribution and post-production

715

(229)

11,789

8,984

Total

$

26,408

$

26,190

(1)

  IMAX systems include marketing and commission costs of $0.2 million for the three months ended March 31, 2014 (2013 — $0.3 million). Joint revenue sharing arrangements segment margins include advertising, marketing and commission costs of $0.2 million for the three months ended March 31, 2014 (2013 — $0.2 million). Production and DMR segment margins include marketing costs of $1.1 million for the three months ended March 31, 2014 (2013 — $0.9 million). Distribution segment margins include marketing costs of $0.2 million for the three months ended March 31, 2014 (2013 — $0.1 million).

IMAX CORPORATION

OTHER INFORMATION

 (in thousands of U.S. dollars)

Non-GAAP Financial Measures:

In this release, the Company presents adjusted EBITDA, adjusted net income and adjusted net income per diluted share as supplemental measures of performance of the Company, which are not recognized under United States generally accepted accounting principles ("GAAP"). The Company presents adjusted EBITDA, adjusted net income and adjusted net income per diluted share because it believes that they are important supplemental measures of its comparable controllable operating performance and it wants to ensure that its investors fully understand the impact of its stock-based compensation (net of any related tax impact) on its net income. Management uses these measures to review operating performance on a comparable basis from period to period. However, these non-GAAP measures may not be comparable to similarly titled amounts reported by other companies. Adjusted EBITDA, adjusted net income and adjusted net income per diluted share should be considered in addition to, and not as a substitute for, net income and other measures of financial performance reported in accordance with GAAP.

Adjusted EBITDA is calculated on a basis consistent with the Company's Credit Facility, which refers to Adjusted EBITDA as EBITDA. The Credit Facility provides that the Company will be required to maintain a Fixed Charge Coverage Ratio (as defined in the Credit Agreement) of not less than 1.1:1. The Company will also be required to maintain minimum EBITDA (as defined in the Credit Agreement) of $90.0 million on December 31, 2014, which requirement increases to $100.0 million on December 31, 2015. The Company must also maintain a Maximum Total Leverage Ratio (as defined in the Credit Agreement) of 2.00:1 on December 31, 2014, which requirement decreases to 1.75:1 on December 31, 2015. The ratio of total debt to EBITDA was nil:1 as at March 31, 2014, where Total Debt (as defined in the Credit Agreement) is the sum of all obligations evidenced by notes, bonds, debentures or similar instruments and was $nil. EBITDA is calculated as follows:

3 months ended

12 months ended

March 31, 2014

March 31, 2014

(In thousands of U.S Dollars)

Net income

$

579

$

41,833

Add:

Loss from equity accounted investments

262

2,799

Provision for income taxes⁽¹⁾

289

15,607

Interest expense, net of interest income

250

1,209

Depreciation and amortization, including film asset amortization

7,424

35,616

Write-downs net of recoveries including asset impairments and receivable provisions

518

1,854

Stock and other non-cash compensation

3,281

12,966

$

12,603

$

111,884

(1)

Includes a tax provision in discontinued operations of $0.2 million and $0.1 million for the three and twelve months ended March 31, 2014, respectively.

IMAX CORPORATION

OTHER INFORMATION

 (in thousands of U.S. dollars)

Adjusted Net Income and Adjusted Diluted Per Share Calculations – Quarter Ended March 31, 2014 vs. 2013:

The Company reported net income of $0.6 million or $0.01 per basic and diluted share for the first quarter of 2014, as compared to net income of $2.9 million or $0.04 per basic share and diluted share for the first quarter of 2013. Net income for the first quarter of 2014 includes a $3.2 million charge, or $0.05 per diluted share, for stock-based compensation (2013 - $2.8 million or $0.04 per diluted share). Adjusted net income, which consists of net income excluding stock-based compensation expense and the related tax impact, was $3.3 million, or $0.05 per diluted share, in the first quarter of 2014, as compared to adjusted net income of $5.6 million, or $0.08 per diluted share, for the first quarter of 2013. A reconciliation of net income, the most directly comparable U.S. GAAP measure, to adjusted net income and adjusted net income per diluted share is presented in the table below:

Three Months Ended

Three Months Ended

March 31, 2014

March 31, 2013

Net Income

Net Income

Reported net income

$

579

$

0.01

$

2,861

$

0.04

Adjustments:

Stock-based compensation

3,188

0.05

2,808

0.04

Tax expense on items listed above

(515)

(0.01)

(105)

-

Adjusted net income

$

3,252

$

0.05

$

5,564

$

0.08

Weighted average diluted shares outstanding

69,321

68,690

Free Cash Flow:

Free cash flow is defined as cash provided by operating activities minus cash used in investing activities (from the consolidated statements of cash flows). Cash provided by operating activities consist of net income, plus depreciation and amortization, plus the change in deferred income taxes, plus other non-cash items, plus changes in working capital, less investment in film assets, plus other changes in operating assets and liabilities. Cash used in investing activities includes capital expenditures, acquisitions and other cash used in investing activities. Management views free cash flow, a non-GAAP measure, as a measure of the Company's after-tax cash flow available to reduce debt, add to cash balances, and fund other financing activities. A reconciliation of cash provided by operating activities to free cash flow is presented in the table below:

For the

3 months ended

March 31, 2014

(In thousands of U.S. Dollars)

Net cash provided by operating activities        

$

13,934

Net cash (used in) investing activities

(13,720)

Free cash flow

$

214