IMAX CORP - Quarter Report: 2011 June (Form 10-Q)

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file Number 001-35066

IMAX Corporation

(Exact name of registrant as specified in its charter)

Canada (State or other jurisdiction of incorporation or organization)		98-0140269 (I.R.S. Employer Identification Number)
2525 Speakman Drive, Mississauga, Ontario, Canada (Address of principal executive offices)		L5K 1B1 (Postal Code)

(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 þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting Company o
				(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

     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 June 30, 2011
Common stock, no par value		64,567,556

 

 

IMAX CORPORATION

Table of Contents

		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements			4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			38
Item 3. Quantitative and Qualitative Factors about Market Risk			68
Item 4. Controls and Procedures			69
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			70
Item 1A. Risk Factors			70
Item 4. Submission of Matters to a Vote of Security Holders			70
Item 5. Other Information			71
Item 6. Exhibits			71
Signatures			72
EX-10.37
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

IMAX CORPORATION

SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION

     Certain statements included in this quarterly report 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 and technology strategies and measures to implement strategies, competitive strengths, goals, expansion and growth of business, operations and technology, plans and references to the future success of IMAX Corporation together with its wholly-owned subsidiaries (the “Company”) and expectations regarding the Company’s future operating, financial and technological results. 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; including the length and severity of the current economic downturn, the opportunities (or lack thereof) that may be presented to and pursued by the Company; competitive actions by other companies; the performance of IMAX DMR films; conditions in the in-home and out-of-home entertainment industries; the signing of theater system agreements; changes in laws or regulations; conditions, changes and developments in the commercial exhibition industry; the failure to convert theater system backlog into revenue; risks related to new business initiatives; 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; the potential impact of increased competition in the markets the Company operates within; risks related to foreign currency transactions; risks related to the Company’s prior restatements and the related litigation; and other factors, many of which are beyond the control of the Company. Consequently, all of the forward-looking statements made in this quarterly report are qualified by these cautionary statements, and actual results or anticipated developments by the Company may not be realized, and even if substantially realized, may not have the expected consequences to, or effects on, the Company. The Company undertakes no obligation to update publicly or otherwise revise any forward-looking information, whether as a result of new information, future events or otherwise.

IMAX^®, IMAX^® Dome, IMAX^® 3D, IMAX^® 3D Dome, Experience It In IMAX^®, The IMAX Experience^®,
An IMAX Experience^®, An IMAX 3D Experience^®, IMAX DMR^®, DMR^®, IMAX MPX^®, IMAX think big^® and think big^® are
trademarks and trade names of the Company or its subsidiaries that are registered or otherwise protected under laws of various jurisdictions.

IMAX CORPORATION

PART I. FINANCIAL INFORMATION

Item 1.		Financial Statements

		Page
The following Condensed Consolidated Financial Statements are filed as part of this Report:
Condensed Consolidated Balance Sheets as at June 30, 2011 and December 31, 2010			5
Condensed Consolidated Statements of Operations for the three and six month periods ended June 30, 2011 and 2010			6
Condensed Consolidated Statements of Cash Flows for the six month periods ended June 30, 2011 and 2010			7
Notes to Condensed Consolidated Financial Statements			8

IMAX CORPORATION

		June 30,				December 31,
		2011				2010
		(unaudited)
Assets
Cash and cash equivalents		$	23,232			$	30,390
Accounts receivable, net of allowance for doubtful accounts of $1,534 (December 31, 2010 — $1,988)			44,243				39,570
Financing receivables (notes 3 and 17(c))			79,558				73,601
Inventories (note 4)			17,746				15,275
Prepaid expenses			3,934				2,832
Film assets			2,752				2,449
Property, plant and equipment (note 5)			89,097				74,035
Other assets (notes 17(d) and 17(e))			13,896				12,350
Deferred income taxes (note 13(a))			56,155				57,122
Goodwill			39,027				39,027
Other intangible assets (note 6)			2,492				2,437
Total assets		$	372,132			$	349,088
Liabilities
Bank indebtedness (note 7)		$	34,583			$	17,500
Accounts payable			30,070				20,384
Accrued liabilities (notes 8(a), 8(c), 9, 14(b), 16(a), and 16(c))			55,104				78,994
Deferred revenue			81,589				73,752
Total liabilities			201,346				190,630
Commitments, contingencies and guarantees (notes 8 and 9)
Shareholders’ equity
Capital stock (note 14) common shares — no par value. Authorized — unlimited number.
Issued and outstanding — 64,567,556 (December 31, 2010 — 64,145,573)			300,282				292,977
Other equity			12,506				7,687
Deficit			(140,387	)			(141,209	)
Accumulated other comprehensive loss			(1,615	)			(997	)
Total shareholders’ equity			170,786				158,458
Total liabilities and shareholders’ equity		$	372,132			$	349,088

(the accompanying notes are an integral part of these condensed consolidated financial statements)

IMAX CORPORATION

		Three Months								Six Months
		Ended June 30,								Ended June 30,
		2011				2010				2011				2010
Revenues
Equipment and product sales		$	19,750			$	16,363			$	39,981			$	27,994
Services (note 10(c))			26,993				28,792				45,267				69,023
Rentals (note 10(c))			9,015				9,352				14,066				29,203
Finance income			1,474				1,091				2,828				2,161
Other			—				—				250				—
			57,232				55,598				102,392				128,381
Costs and expenses applicable to revenues
Equipment and product sales (note 10(a))			9,661				8,019				20,512				16,153
Services (notes 10(a) and 10(c))			17,525				18,210				28,902				32,177
Rentals (note 10(a))			3,744				2,329				6,010				4,712
Other			—				—				20				—
			30,930				28,558				55,444				53,042
Gross margin			26,302				27,040				46,948				75,339
Selling, general and administrative expenses (note 10(b)) (including share-based compensation expense of $4.6 million and $8.5 million for the three and six months ended June 30, 2011, respectively (2010 - recovery of $3.8 million and expense of $5.6 million, respectively))			19,470				11,133				36,338				30,662
Provision for arbitration award (note 9(c))			—				—				2,055				—
Research and development			2,117				1,219				3,985				2,462
Amortization of intangibles			116				115				228				245
Receivable provisions, net of recoveries (note 12)			151				353				359				366
Income from operations			4,448				14,220				3,983				41,604
Interest income			13				13				31				297
Interest expense			(551	)			(535	)			(994	)			(1,187	)
Income from operations before income taxes			3,910				13,698				3,020				40,714
Provision for income taxes			(1,634	)			(396	)			(1,325	)			(831	)
Loss from equity-accounted investments			(451	)			—				(873	)			—
Net income		$	1,825			$	13,302			$	822			$	39,883
Net income per share — basic and diluted: (note 14(c))
Net income per share — basic		$	0.03			$	0.21			$	0.01			$	0.63
Net income per share — diluted		$	0.03			$	0.20			$	0.01			$	0.60
Comprehensive income consists of:
Net income		$	1,825			$	13,302			$	822			$	39,883
Amortization of actuarial loss on defined benefit plan (note 16(a))			53				—				107				—
Unrealized hedging gain (loss) (note 17(d))			49				(387	)			351				(179	)
Realization of hedging (gains) losses upon settlement (note 17(d))			(466	)			7				(724	)			(542	)
Unrealized change in market value of available-for-sale investment (note 17(e))			(488	)			—				(488	)			—
Tax effect of movement in comprehensive income (note 13(b))			164				—				136				—
Comprehensive income, net of income taxes		$	1,137			$	12,922			$	204			$	39,162

(the accompanying notes are an integral part of these condensed consolidated financial statements)

IMAX CORPORATION

		Six Months
		Ended June 30,
		2011				2010
Cash (used in) provided by:
Operating Activities
Net income		$	822			$	39,883
Items not involving cash:
Depreciation and amortization (note 11(c))			12,183				10,696
Write-downs, net of recoveries (note 11(d))			370				578
Change in deferred income taxes			1,104				—
Stock and other non-cash compensation			8,944				6,050
Provision for arbitration award (note 9(c))			2,055				—
Unrealized foreign currency exchange (gain) loss			(97	)			729
Loss on equity-accounted investments			873				—
Gain on non-cash contribution to equity-accounted investees			(404	)			—
Change in cash surrender value of life insurance			—				47
Investment in film assets			(6,288	)			(5,725	)
Changes in other non-cash operating assets and liabilities (note 11(a))			(30,002	)			(12,335	)
Net cash (used in) provided by operating activities			(10,440	)			39,923
Investing Activities
Purchase of property, plant and equipment			(2,227	)			(2,808	)
Investment in joint revenue sharing equipment			(14,886	)			(2,325	)
Investment in new business ventures			(760	)			(667	)
Cash surrender value of life insurance			—				3,179
Acquisition of other assets			—				(39	)
Acquisition of other intangible assets			(504	)			(298	)
Net cash used in investing activities			(18,377	)			(2,958	)
Financing Activities
Increase in bank indebtedness (note 7)			49,583				—
Repayment of bank indebtedness (note 7)			(32,500	)			(25,208	)
Credit facility amendment fees paid			(259	)			—
Common shares issued — stock options exercised (note 14(d))			5,095				5,057
Net cash provided by (used in) financing activities			21,919				(20,151	)
Effects of exchange rate changes on cash			(260	)			113
(Decrease) increase in cash and cash equivalents during the period			(7,158	)			16,927
Cash and cash equivalents, beginning of period			30,390				20,081
Cash and cash equivalents, end of period		$	23,232			$	37,008

(the accompanying notes are an integral part of these condensed consolidated financial statements)

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)
(Unaudited)

1. Basis of Presentation

     IMAX Corporation, together with its wholly-owned subsidiaries (the “Company”), reports its results under United States Generally Accepted Accounting Principles (“U.S. GAAP”).

     The condensed consolidated financial statements include the accounts of the Company, except for subsidiaries which the Company has identified as variable interest entities (“VIEs”) where the Company is not the primary beneficiary. 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.

     The Company has evaluated its various variable interests to determine whether they are VIEs as required by the Consolidation Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC” or “Codification”). The Company has 8 film production companies that are VIEs. For two of the Company’s film production companies, the Company has determined that it is the primary beneficiary of these entities as the Company has the power to direct the activities that most significantly impact the respective VIE’s economic performance and has the obligation to absorb losses or the right to receive benefits from the respective VIE that could potentially be significant to the respective VIE. The Company continues to consolidate these entities, with no material impact on the operating results or financial condition of the Company, as these production companies have total assets of $nil (December 31, 2010 — $nil) and total liabilities of $nil as at June 30, 2011 (December 31, 2010 — $nil). For the other 6 film production companies which are VIEs, the Company did not consolidate these film entities since it does not have the power to direct activities and does not absorb the majority of the expected losses or expected residual returns. The Company equity accounts for these entities. As at June 30, 2011, these 6 VIEs have total assets of $12.7 million (December 31, 2010 — $11.1 million) and total liabilities of $12.7 million (December 31, 2010 — $11.1 million). Earnings of the investees included in the Company’s condensed consolidated statement of operations amounted to $nil and $nil for the three and six months ended June 30, 2011, respectively (2010 — $nil and $nil, respectively). The carrying value of these investments in VIEs that are not consolidated is $nil at June 30, 2011 (December 31, 2010 — $nil). A loss in value of an investment other than a temporary decline is recognized as a charge to the condensed consolidated statement of operations.

     The Company accounts for investments in new business ventures using the guidance of the FASB ASC 323 Investments — Equity Method and Joint Ventures (“ASC 323”) and the FASB ASC 320 - Investments in Debt and Equity Securities (“ASC 320”), as appropriate. At June 30, 2011, the equity method of accounting is being utilized for an investment with a carrying value of $3.3 million (December 31, 2010 — $1.6 million). The Company has determined it is not the primary beneficiary of this VIE, and therefore it has not been consolidated. In addition, during 2010, the Company made an investment in preferred stock of another business venture of $1.5 million which meets the criteria for classification as a debt security under ASC 320 and is recorded at its fair value of $1.0 million at June 30, 2011 (December 31, 2010 — $1.5 million). This investment is classified as an available-for-sale investment. The total carrying value of investments in new business ventures at June 30, 2011 is $4.3 million (December 31, 2010 — $3.1 million) and is recorded in Other Assets.

     All significant intercompany accounts and transactions, including all unrealized intercompany profits on transactions with equity-accounted investees, have been eliminated.

     The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP.

     These interim financial statements should be read in conjunction with the consolidated financial statements included in the Company’s 2010 Annual Report on Form 10-K for the year ended December 31, 2010 (the “2010 Form 10-K”) 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, 2010, except as described in note 2.

2. New Accounting Standards and Accounting Changes

Changes in Accounting Policies

     In October 2009, the FASB issued ASU No. 2009-13, “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements (a consensus of the FASB Emerging Issues Task Force)” (“ASU 2009-13”) which amends ASC 605-25, “Revenue Recognition: Multiple-Element Arrangements.” ASU 2009-13 addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how to allocate consideration to each unit of accounting in the arrangement. This ASU removes the fair value criteria for determining separate units of accounting and replaces all references to fair value as the measurement criteria with the term selling price and establishes a hierarchy for determining the selling price of a deliverable. Consideration in a multiple-element arrangement is allocated at the inception of the arrangement to all deliverables on the basis of the relative selling price. When applying the relative selling price method, the selling price for each deliverable is determined using vendor-specific objective evidence (“VSOE”) of the selling price, or third-party evidence (“TPE”) of the selling price. If neither VSOE nor TPE of the selling price exists for a deliverable, the Company will use its best estimate of the selling price (“BESP”) for that deliverable. ASU No. 2009-13 also eliminates the use of the residual value method for determining the allocation of arrangement consideration. Additionally, ASU 2009-13 requires expanded disclosures and is effective for fiscal years beginning on or after June 15, 2010. On January 1, 2011, the Company adopted the accounting requirements in ASU 2009-13 prospectively for revenue arrangements entered into or materially modified after the date of adoption. As described below, the adoption of these updates did not have, nor are they expected to have, a material effect on the Company’s financial condition or results of operations.

     The amended standard with respect to multiple-element arrangements is not expected to materially change the allocation of arrangement consideration to the Company’s units of accounting. The pattern and timing of revenue recognition for those arrangements entered into or materially modified after the date of adoption may be affected as a result of the adoption of the amended ASC 605-25 requirements. The Company will be required to develop a selling price for each deliverable using VSOE, TPE or BESP and allocate consideration amongst deliverables and to recognize revenue using that allocated consideration for the delivered units of accounting in the current period. For arrangements entered into or modified prior to the adoption date, the Company defers all consideration received and receivable under arrangements for which the selling price of an undelivered item has not yet been established.

     In October 2009, the FASB issued ASU No. 2009-14, “Software (Topic 985): Certain Revenue Arrangements That Include Software Elements (a consensus of the FASB Emerging Issues Task Force)” (“ASU 2009-14”). ASU 2009-14 amends ASC 985-605, “Software: Revenue Recognition,” such that tangible products, containing both software and non-software components that function together to deliver the tangible product’s essential functionality, are no longer within the scope of ASC 985-605. It also amends the determination of how arrangement consideration should be allocated to deliverables in a multiple-deliverable revenue arrangement. The amendments in this update are effective, on a prospective basis, for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. On January 1, 2011, the Company adopted the accounting requirements in ASU 2009-14. The application of this amended standard does not have an impact on the Company’s condensed consolidated financial statements.

     In January 2010, the FASB issued ASU No. 2010-06, “Improving Disclosures about Fair Value Measurements,” (“ASU 2010-06”) to amend topic ASC 820 “Fair Value Measurements and Disclosures,” by improving disclosure requirements in order to increase transparency in financial reporting. ASU 2010-06 requires that an entity disclose separately the amounts of significant transfers in and out of Levels 1 and 2 fair value measurements and describe the reasons for the transfers. Furthermore, an entity should present information about purchases, sales, issuances, and settlements for Level 3 fair value measurements. ASU 2010-06 also clarifies existing disclosures for the level of disaggregation and disclosures about input and valuation techniques. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements for the activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. On January 1, 2010, the Company adopted the disclosure amendments in ASU 2010-06, except for the amendments to Level 3 fair value measurements as described above, and has expanded disclosures as presented in Note 17. On January 1, 2011, the Company adopted the disclosure amendments in ASU 2010-06 pertaining to Level 3 fair value measurements and has expanded disclosures as presented in note 17(b).

     In July 2010, the FASB issued ASU No. 2010-20, “Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses” (“ASU 2010-20”). The objective of ASU 2010-20 is to provide financial statement users with greater transparency about an entity’s allowance for credit losses and the credit quality of its financing receivables. Under

ASU 2010-20, an entity is required to provide disclosures so that financial statement users can evaluate the nature of the credit risk inherent in the entity’s portfolio of financing receivables, how that risk is analyzed and assessed to arrive at the allowance for credit losses, and the changes and reasons for those changes in the allowance for credit losses. ASU 2010-20 is applicable to all entities with financing receivables, excluding short-term trade accounts receivable or receivables measured at fair value or lower of cost or fair value. It is effective for interim and annual reporting periods ending on or after December 15, 2010. Comparative disclosures are required to be disclosed for those reporting periods ending after initial adoption. On December 31, 2010, the Company adopted the disclosure requirements in ASU 2010-20 and has expanded disclosures as presented in note 17(c).

     In December 2010, the FASB issued ASU No. 2010-28, “Intangibles — Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts” (“ASU 2010-28”). The objective of ASU 2010-28 is to address questions about entities with reporting units with zero or negative carrying amounts. The amendments in ASU 2010-28 modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists by considering whether there are any adverse qualitative factors indicating that an impairment may exist. ASU 2010-28 is applicable to all entities that have recognized goodwill and have one or more reporting units whose carrying amount for purposes of performing Step 1 of the goodwill impairment test is zero or negative. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. On January 1, 2011, the Company adopted the accounting requirements in ASU 2010-28. This amended standard does not have an impact on the Company’s condensed consolidated financial statements at this time as the Company does not have any reporting units with zero or negative amounts for goodwill impairment testing purposes.

     In January 2011, the FASB issued ASU No. 2011-01, “Receivables (ASC Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructuring in Update No. 2010-20 (“ASU 2011-01”) which delays the effective date of disclosure requirements for troubled debt restructurings in ASU 2010-20 for public entities. This guidance is effective immediately. The adoption of ASU 2011-01 did not have a material impact on the Company’s condensed consolidated financial statements.

Recently Issued FASB Accounting Standard Codification Updates

     In April 2011, the FASB issued ASU No. 2011-02, “Receivables (ASC Topic 310): A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring in Update No 2010-20” (“ASU 2011-02”). ASU 2011-02 clarifies which loan modifications constitute troubled debt restructurings and is intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructurings. In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude, under the guidance clarified by ASU 2011-02, that both of the following exist: (a) the restructuring constitutes a concession; and (b) the debtor is experiencing financial difficulties. For public entities, the amendments in ASU 2011-02 are effective for the first interim or annual period beginning on or after June 15, 2011, with retrospective application to the beginning of the annual period of adoption. Early application by public entities is not permitted. The amendments in ASU 2011-02 do not have an impact on the Company’s condensed consolidated financial statements.

     In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (ASC Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU 2011-04”). The standards set forth in ASU 2011-04 supersede most of the accounting guidance currently found in Topic 820 of the FASB’s ASC. The amendments will improve comparability of fair value measurements presented and disclosed in financial statements prepared with GAAP and International Financial Reporting Standards (“IFRS”). The amendments also clarify the application of existing fair value measurement requirements. These amendments include (1) the application of the highest and best use and valuation premise concepts, (2) measuring the fair value of an instrument classified in a reporting entity’s shareholders’ equity and (3) disclosing quantitative information about the unobservable inputs used within the Level 3 hierarchy. For public entities, the amendments are effective for interim and annual periods beginning after December 15, 2011 on a prospective basis. Early application by public entities is not permitted. The Company is currently evaluating the potential impact of ASU 2011-04 on its condensed consolidated financial statements.

     In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income” (“ASU 2011-05”). The amendments contained within this update require that all nonowner changes in shareholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements, eliminating the option to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity. The objective of this amendment is to improve the comparability, consistency, and transparency of financial reporting and to increase the

prominence of items reported in other comprehensive income. For public entities, the amendments are effective for interim and annual periods beginning after December 15, 2011, on a retrospective basis. Early application by public entities is permitted. The Company is currently evaluating the potential impact of ASU 2011-05 on its condensed consolidated financial statements.

3. Financing Receivables

     Financing receivables, consisting of net investment in sales-type leases and receivables from financed sales of theater systems are as follows:

		June 30,				December 31,
		2011				2010
Gross minimum lease payments receivable		$	35,897			$	49,977
Unearned finance income			(11,175	)			(15,158	)
Minimum lease payments receivable			24,722				34,819
Accumulated allowance for uncollectible amounts			(2,592	)			(4,838	)
Net investment in leases			22,130				29,981
Gross financed sales receivables			81,570				62,127
Unearned finance income			(24,076	)			(18,441	)
Financed sales receivables			57,494				43,686
Accumulated allowance for uncollectible amounts			(66	)			(66	)
Net financed sales receivables			57,428				43,620
Total financing receivables		$	79,558			$	73,601
Net financed sales receivables due within one year		$	7,734			$	6,166
Net financed sales receivables due after one year		$	49,694			$	37,454

     As at June 30, 2011, the financed sale receivables had a weighted average effective interest rate of 8.8% (December 31, 2010 — 8.8%).

4. Inventories

		June 30,				December 31,
		2011				2010
Raw materials		$	3,542			$	4,693
Work-in-process			2,708				2,293
Finished goods			11,496				8,289
		$	17,746			$	15,275

     At June 30, 2011, finished goods inventory for which title had passed to the customer and revenue was deferred amounted to $7.4 million (December 31, 2010 — $3.2 million).

     Inventories at June 30, 2011 include provisions for excess and obsolete inventory based upon current estimates of net realizable value considering future events and conditions of $4.3 million (December 31, 2010 — $4.4 million).

5. Property, Plant and Equipment

		As at June 30, 2011
						Accumulated				Net Book
		Cost				Depreciation				Value
Equipment leased or held for use
Theater system components(1)(2)		$	98,740			$	35,762			$	62,978
Camera equipment(5)			6,355				6,048				307
			105,095				41,810				63,285
Assets under construction(3)			12,719				—				12,719
Other property, plant and equipment
Land			1,593				—				1,593
Buildings			14,723				9,157				5,566
Office and production equipment(4)			28,051				23,671				4,380
Leasehold improvements			8,774				7,220				1,554
			53,141				40,048				13,093
		$	170,955			$	81,858			$	89,097

		As at December 31, 2010
						Accumulated				Net Book
		Cost				Depreciation				Value
Equipment leased or held for use
Theater system components(1)(2)		$	86,249			$	33,775			$	52,474
Camera equipment(5)			6,355				6,008				347
			92,604				39,783				52,821
Assets under construction(3)			8,305				—				8,305
Other property, plant and equipment
Land			1,593				—				1,593
Buildings			14,723				8,906				5,817
Office and production equipment(4)			27,172				23,454				3,718
Leasehold improvements			8,603				6,822				1,781
			52,091				39,182				12,909
		$	153,000			$	78,965			$	74,035

6. Other Intangible Assets

		As at June 30, 2011
						Accumulated				Net Book
		Cost				Amortization				Value
Patents and trademarks		$	7,570			$	5,078			$	2,492
Other			250				250				—
		$	7,820			$	5,328			$	2,492

		As at December 31, 2010
						Accumulated				Net Book
		Cost				Amortization				Value
Patents and trademarks		$	7,289			$	4,852			$	2,437
Other			250				250				—
		$	7,539			$	5,102			$	2,437

     The Company expects to amortize approximately $0.2 million of other intangible assets for the remainder of 2011 and $0.3 million for each of the next 5 years, respectively. Fully amortized other intangible assets are still in use by the Company.

     During the six months ended June 30, 2011, the Company acquired $0.3 million in patents and trademarks. The net book value of these patents and trademarks was $0.3 million as at June 30, 2011. The weighted average amortization period for these additions was 10 years.

     During the three and six months ended June 30, 2011, the Company incurred costs of $0.1 million, respectively, to renew or extend the term of acquired other intangible assets which were recorded in selling, general and administrative expenses.

     7. Credit Facility

     On June 2, 2011, the Company amended and restated the terms of its existing senior secured credit facility (the “Prior Credit Facility”), which had been scheduled to mature on October 31, 2013. The amended and restated facility (the “Credit Facility”), with a scheduled maturity of October 31, 2015, has a maximum borrowing capacity of $110.0 million, consisting of revolving asset-based loans of up to $50.0 million subject to a borrowing base calculation (as described below) and including a sublimit of $20.0 million for letters of credit, and a revolving term loan of up to $60.0 million. The Prior Credit Facility had a maximum borrowing capacity of $75.0 million. Certain of the Company’s subsidiaries serve as guarantors (the “Guarantors”) of the Company’s obligations under the Credit Facility. The Credit Facility is collateralized by a first priority security interest in all of the present and future assets of the Company and the Guarantors.

     The terms of the Credit Facility are set forth in the Second Amended and Restated Credit Agreement (the “Credit Agreement”), dated June 2, 2011, among the Company, Wells Fargo Capital Finance Corporation (Canada), as agent, lender, sole lead arranger and sole bookrunner (“Wells Fargo”), and Export Development Canada, as lender (“EDC”, together with Wells Fargo, the “Lenders”) and in various collateral and security documents entered into by the Company and the Guarantors. Each of the Guarantors has also entered into a guarantee in respect of the Company’s obligations under the Credit Facility.

     The revolving asset-based portion of the Credit Facility permits maximum aggregate borrowings equal to the lesser of:

     (i) $50.0 million, and

     (ii) a collateral calculation based on the percentages of the book values of certain of the Company’s net investment in sales-type leases, financing receivables, certain trade accounts receivable, finished goods inventory allocated to backlog contracts and the appraised values of the expected future cash flows related to operating leases and the Company’s owned real property, reduced by certain accruals and accounts payable and subject to other conditions, limitations and reserve right requirements.

     Two years after entry into the Credit Facility any outstanding borrowings under the revolving term loan portion of the Credit Facility convert to a term loan to be repaid in accordance with the terms of the Credit Facility, any undrawn amounts under the revolving term loan are cancelled and the Company may not request any further advances under the revolving term loan.

     The Company borrowed $29.6 million from the revolving term loan portion of the Credit Facility to repay $15.0 million in outstanding indebtedness under the revolving portion of the Prior Credit Facility and $14.6 million in outstanding indebtedness under the term loan portion of the Prior Credit Facility. The Company subsequently borrowed another $5.0 million under the revolving term loan portion of the Credit Facility. Under the Prior Credit Facility, the effective interest rate for the three and six months ended June 30, 2011 for the term loan portion was 4.03% and 4.04%, respectively (2010 — 4.04% and 4.03%, respectively) and 2.97% and 2.97%, respectively for the revolving portion (2010 — 4.50% and 3.56%, respectively).

     The revolving asset-based portion of the Credit Facility bears interest, at the Company’s option, at (i) LIBOR plus a margin of 2.00% per annum, or (ii) Wells Fargo’s prime rate plus a margin of 0.50% per annum. The revolving term loan portion of the Credit Facility also bears interest at the Company’s option, at (i) LIBOR plus a margin of 2.00% per annum, or (ii) Wells Fargo’s prime rate plus a margin of 0.50% per annum. Under the Credit Facility, the effective interest rate for the three and six months ended June 30, 2011 for the revolving term loan portion was 2.19% and 2.19%, respectively (2010 — n/a). There was no amount drawn on the revolving asset-based portion of the Credit Facility.

     The Credit Facility provides that the Company will be required to maintain a ratio of funded debt (as defined in the Credit Agreement) to EBITDA (as defined in the Credit Agreement) of not more than 2:1. The Company will also be required to maintain a Fixed Charge Coverage Ratio (as defined in the Credit Agreement) of not less than 1.1:1.0. At all times under the terms of the Credit Facility, the Company is required to maintain minimum Excess Availability of not less than $5.0 million and minimum Cash and Excess Availability of not less than $15.0 million. These amounts were $49.2 million and $72.4 million at June 30, 2011 respectively. The Company was in compliance with all of these requirements at June 30, 2011.

     The Credit Facility contains typical affirmative and negative covenants, including covenants that limit or restrict the ability of the Company and the guarantors to: incur certain additional indebtedness; make certain loans, investments or guarantees; pay dividends; make certain asset sales; incur certain liens or other encumbrances; conduct certain transactions with affiliates and enter into certain corporate transactions.

     The Credit Facility also contains customary events of default, including upon an acquisition or change of control or upon a change in the business and assets of the Company or a Guarantor that in each case is reasonably expected to have a material adverse effect on the Company or a guarantor. If an event of default occurs and is continuing under the Credit Facility, the Lenders may, among other things, terminate their commitments and require immediate repayment of all amounts owed by the Company.

     Bank indebtedness includes the following:

		June 30,				December 31,
		2011				2010
Term Loan (under the Prior Credit Facility)		$	—			$	17,500
Revolving Term Loan			34,583				—
		$	34,583			$	17,500

     Total amounts drawn and available under the Credit Facility at June 30, 2011 were $34.6 million and $69.6 million, respectively (December 31, 2010 — $17.5 million and $40.0 million, respectively).

     At June 30, 2011, the Company’s current borrowing capacity under the revolving asset-based portion of the Credit Facility was $44.2 million after deduction for the minimum Excess Availability reserve of $5.0 million (December 31, 2010 — $40.0 million) and borrowing capacity under the revolving term portion of the Credit Facility was $25.4 million. Outstanding borrowings and letters of credit and advance payment guarantees were $nil as at June 30, 2011.

     In accordance with the loan agreement, the Company is obligated to make payments on the principal of the revolving term loan as follows:

2011 (six months remaining)		$	—
2012			—
2013			—
2014			—
2015			34,583
Thereafter			—
		$	34,583

Wells Fargo Foreign Exchange Facility

     Within the Credit Facility, the Company has a $10.0 million sublimit to cover the Company’s settlement risk on its purchased foreign currency forward contracts and/or other swap arrangements as defined in the Credit Facility. The settlement risk on its foreign currency forward contracts was $nil as at June 30, 2011 as the fair value exceeded the notional value of the forward contracts. The Company can enter into such arrangements up to a notional amount of $50.0 million, of which $39.0 million is remaining at June 30, 2011.

Bank of Montreal Facility

     As at June 30, 2011, the Company has available a $10.0 million facility (December 31, 2010 — $10.0 million) with the Bank of Montreal for use solely in conjunction with the issuance of performance guarantees and letters of credit fully insured by EDC (the “Bank of Montreal Facility”). As at June 30, 2011, the Company has letters of credit and advance payment guarantees outstanding of $1.2 million (December 31, 2010 — $2.4 million) under the Bank of Montreal Facility.

8. Commitments

     (a) The Company’s lease commitments consist of rent and equipment under operating leases. The Company accounts for any incentives provided over the term of the lease. Total minimum annual rental payments to be made by the Company as at June 30, 2011 for each of the years ended December 31, are as follows:

		Operating Leases				Capital Leases
2011 (six months remaining)		$	2,760			$	12
2012			5,380				23
2013			2,089				21
2014			899				—
2015			510				—
Thereafter			1,812				—
		$	13,450			$	56

     Rent expense was $1.0 million and $2.2 million for three and six months ended June 30, 2011, respectively (2010 — $1.2 million and $2.3 million, respectively) net of sublease rental of $nil and less than $0.1 million, respectively (2010 — $0.1 million and $0.2 million, respectively).

     Recorded in the accrued liabilities balance as at June 30, 2011 is $3.8 million (December 31, 2010 — $4.2 million) related to accrued rent and lease inducements being recognized as an offset to rent expense over the term of the lease.

     Purchase obligations under long-term supplier contracts as at June 30, 2011 were $18.8 million (December 31, 2010 — $13.6 million).

     (b) As at June 30, 2011, the Company has letters of credit and advance payment guarantees secured by the Credit Facility of $nil (December 31, 2010 — $nil) outstanding. As at June 30, 2011, the Company also has letters of credit and advance payment guarantees outstanding of $1.2 million as compared to $2.4 million as at December 31, 2010, under the Bank of Montreal Facility.

     (c) The Company compensates its sales force with both fixed and variable compensation. Commissions on the sale or lease of the Company’s theater systems are payable in graduated amounts from the time of collection of the customer’s first payment to the

Company up to the collection of the customer’s last initial payment. At June 30, 2011, $1.3 million (December 31, 2010 —$1.5 million) of commissions have been accrued and will be payable in future periods.

9. Contingencies and Guarantees

     The Company is involved in lawsuits, claims, and proceedings, including those identified below, which arise in the ordinary course of business. In accordance with the Contingencies Topic of the FASB ASC, the Company will make a provision for a liability when it is both probable that a loss has been incurred and the amount of the loss can be reasonably estimated. The Company believes it has adequate provisions for any such matters. The Company reviews these provisions in conjunction with any related provisions on assets related to the claims at least quarterly and adjusts these provisions to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other pertinent information related to the case. Should developments in any of these matters outlined below cause a change in the Company’s determination as to an unfavorable outcome and result in the need to recognize a material provision, or, should any of these matters result in a final adverse judgment or be settled for significant amounts, they could have a material adverse effect on the Company’s results of operations, cash flows, and financial position in the period or periods in which such a change in determination, settlement or judgment occurs.

     The Company expenses legal costs relating to its lawsuits, claims and proceedings as incurred.

     (a) In March 2005, the Company, together with Three-Dimensional Media Group, Ltd. (“3DMG”), filed a complaint in the U.S. District Court for the Central District of California, Western Division, against In-Three, Inc. (“In-Three”) alleging patent infringement. On March 10, 2006, the Company and In-Three entered into a settlement agreement settling the dispute between the Company and In-Three. Despite the settlement reached between the Company and In-Three, co-plaintiff 3DMG refused to dismiss its claims against In-Three. Accordingly, the Company and In-Three moved jointly for a motion to dismiss the Company’s and In-Three’s claims. On August 24, 2010, the Court dismissed all of the claims pending between the Company and In-Three, thus dismissing the Company from the litigation.

     On May 15, 2006, the Company initiated arbitration against 3DMG before the International Centre for Dispute Resolution in New York (the “ICDR”), alleging breaches of the license and consulting agreements between the Company and 3DMG. On June 15, 2006, 3DMG filed an answer denying any breaches and asserting counterclaims that the Company breached the parties’ license agreement. On June 21, 2007, the Arbitration Panel unanimously denied 3DMG’s Motion for Summary Judgment filed on April 11, 2007 concerning the Company’s claims and 3DMG’s counterclaims. The proceeding was suspended on May 4, 2009 due to failure of 3DMG to pay fees associated with the proceeding. The proceeding was further suspended on October 11, 2010 pending resolution of reexamination proceedings currently pending involving one of 3DMG’s patents. The Company will continue to pursue its claims vigorously and believes that all allegations made by 3DMG are without merit. The Company further believes that the amount of loss, if any, suffered in connection with the counterclaims 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 the arbitration.

     (b) In January 2004, the Company and IMAX Theatre Services Ltd., a subsidiary of the Company, commenced an arbitration seeking damages before the International Court of Arbitration of the International Chambers of Commerce (the “ICC”) with respect to the breach by Electronic Media Limited (“EML”) of its December 2000 agreement with the Company. In June 2004, the Company commenced a related arbitration before the ICC against EML’s affiliate, E-City Entertainment (I) PVT Limited (“E-City”), seeking damages as a result of E-City’s breach of a September 2000 lease agreement. An arbitration hearing took place in November 2005 against E-City which considered all claims by the Company. On February 1, 2006, the ICC issued an award on liability finding unanimously in the Company’s favor on all claims. Further hearings took place in July 2006 and December 2006. On August 24, 2007, the ICC issued an award unanimously in favor of the Company in the amount of $9.4 million, consisting of past and future rents owed to the Company under its lease agreements, plus interest and costs. In the award, the ICC upheld the validity and enforceability of the Company’s theater system contract. The Company thereafter submitted its application to the arbitration panel for interest and costs. On March 27, 2008, the Panel issued a final award in favor of the Company in the amount of $11.3 million, plus an additional $2,512 each day in interest from October 1, 2007 until the date the award is paid, which the Company is seeking to enforce and collect in full. On June 24, 2011, the Company commenced an application to the Ontario Superior Court of Justice for recognition of the final award.

     (c) In June 2003, Robots of Mars, Inc. (“Robots”) initiated an arbitration proceeding against the Company in California with the American Arbitration Association pursuant to arbitration provisions in two film production agreements entered into in 1994 and 1995 between Robots’ predecessor-in-interest and a discontinued subsidiary of the Company (Ridefilm), asserting claims for breach of contract, fraud, breach of fiduciary duty and intentional interference with the contract. The Company discontinued its Ridefilm

business through a sale of the Ridefilm business and its assets to a third party in March 2001. Robots sought an award of over $5.0 million in damages including contingent compensation that it claims was owed under two production agreements, damages for tort claims, and punitive damages. The arbitration hearings of this matter occurred in June and October 2009. The arbitrator issued a final award on March 16, 2011, awarding Robots $0.4 million in damages and $0.3 million in pre-judgment interest to date on its claim for breach of one of the Ridefilm production agreements. The arbitrator found in the Company’s favor on Robots’ tort claims, and awarded Robots no damages on its claim for breach of the second production agreement. Despite finding in the Company’s favor on the vast majority of Robots’ claims, the arbitrator awarded Robots $1.2 million in attorneys’ fees and costs pursuant to the attorneys’ fee provision set forth in the production agreements. Robots initiated two separate proceedings in California state court and in Ontario, Canada, to confirm the award. The Company removed the California state court proceeding to the United States District Court for the Central District of California, and stayed the Ontario, Canada proceeding pending resolution of the California proceeding. The Company opposed confirmation of the award and sought to have it vacated in the California proceeding. On July 13, 2011, the California district court granted Robots’ petition to confirm the award, and denied the Company’s petition to vacate the award. The Company intends to appeal the district court’s denial of its petition to vacate to the United States Court of Appeals for the Ninth Circuit. In addition, the Company will oppose confirmation of the award and will seek to have it vacated in the Ontario, Canada proceeding. The Company has accrued a liability of $2.1 million in respect of the arbitration award in this action.

     (d) The Company and certain of its officers and directors were named as defendants in eight purported class action lawsuits filed between August 11, 2006 and September 18, 2006, alleging violations of U.S. federal securities laws. These eight actions were filed in the U.S. District Court for the Southern District of New York. On January 18, 2007, the Court consolidated all eight class action lawsuits and appointed Westchester Capital Management, Inc. as the lead plaintiff and Abbey Spanier Rodd & Abrams, LLP as lead plaintiff’s counsel. On October 2, 2007, plaintiffs filed a consolidated amended class action complaint. The amended complaint, brought on behalf of shareholders who purchased the Company’s common stock between February 27, 2003 and July 20, 2007, alleges primarily that the defendants engaged in securities fraud by disseminating materially false and misleading statements during the class period regarding the Company’s revenue recognition of theater system installations, and failing to disclose material information concerning the Company’s revenue recognition practices. The amended complaint also added PricewaterhouseCoopers LLP, the Company’s auditors, as a defendant. The lawsuit seeks unspecified compensatory damages, costs, and expenses. The defendants filed a motion to dismiss the amended complaint on December 10, 2007. On September 16, 2008, the Court issued a memorandum opinion and order, denying the motion. On October 6, 2008, the defendants filed an answer to the amended complaint. On October 31, 2008, the plaintiffs filed a motion for class certification. Fact discovery on the merits commenced on November 14, 2008. On March 13, 2009, the Court granted a second prospective lead plaintiff’s request to file a motion for reconsideration of the Court’s order naming Westchester Capital Management, Inc. as the lead plaintiff and issued an order denying without prejudice plaintiff’s class certification motion pending resolution of the motion for reconsideration. On June 29, 2009, the Court granted the motion for reconsideration and appointed Snow Capital Investment Partners, L.P. as the lead plaintiff and Coughlin Stoia Geller Rudman & Robbins LLP as lead plaintiff’s counsel. Westchester Capital Management, Inc. appealed this decision, but the U.S. Court of Appeals for the Second Circuit denied its petition on October 1, 2009. On April 22, 2010, the new lead plaintiff filed its motion for class certification, defendants filed their oppositions to the motion on June 10, 2010, and plaintiff filed its reply on July 30, 2010. On December 20, 2010, the Court denied Snow Capital Investment Partners’ motion and ordered that all applications to be appointed lead plaintiff must be filed within 20 days of the decision. Two applications for lead plaintiff were filed, on January 10, 2011 and January 12, 2011, respectively. On April 14, 2011, the Court issued an order appointing The Merger Fund as the lead plaintiff and Abbey Spanier Rodd & Abrams, LLP as lead plaintiff’s counsel. The merger fund filed a motion for class certification on June 3, 2011, and on July 1, 2011, the Company filed its opposition. The Company is not able to estimate a potential loss exposure at this time. The Company will vigorously defend the matter, although no assurances can be given with respect to the outcome of such proceedings. The Company’s directors and officers insurance policy provides for reimbursement of costs and expenses incurred in connection with this lawsuit as well as potential damages awarded, if any, subject to certain policy limits and deductibles.

     (e) A class action lawsuit was filed on September 20, 2006 in the Ontario Superior Court of Justice against the Company and certain of its officers and directors, alleging violations of Canadian securities laws. This lawsuit was brought on behalf of shareholders who acquired the Company’s securities between February 17, 2006 and August 9, 2006. The lawsuit is in an early procedural stage and seeks unspecified compensatory and punitive damages, as well as costs and expenses. As a result, the Company is unable to estimate a potential loss exposure at this time. For reasons released December 14, 2009, the Court granted leave to the Plaintiffs to amend their statement of claim to plead certain claims pursuant to the Securities Act (Ontario) against the Company and certain individuals and granted certification of the action as a class proceeding. These are procedural decisions, and do not contain any conclusions binding on a judge at trial as to the factual or legal merits of the claim. Leave to appeal those decisions was denied. The Company believes the allegations made against it in the statement of claim are meritless and will vigorously defend the matter, although no assurance can be given with respect to the ultimate outcome of such proceedings. The Company’s directors and officers

insurance policy provides for reimbursement of costs and expenses incurred in connection with this lawsuit as well as potential damages awarded, if any, subject to certain policy limits, exclusions and deductibles.

     (f) In November 2009, the Company filed suit against Sanborn Theatres (“Sanborn”) in the United States District Court for the Central District of California alleging breach of Sanborn’s agreement to make payments for the purchase of two IMAX theater systems from the Company and seeking $1.7 million in compensatory damages. After granting Sanborn notice of default in connection with the failure to make required payments under the agreement and upon Sanborn’s failure to cure, the Company terminated its agreement with Sanborn. On May 11, 2010, Sanborn filed counterclaims against the Company and AMC Entertainment Inc. (“AMC Entertainment”) and Regal Cinemas, Inc. (“Regal”) in the U.S. District Court for the Central District of California alleging breach of contract, fraud and unfair competition against the Company and alleging intentional interference with contractual relations against AMC Entertainment and Regal. The lawsuits are at early stages and, as a result the Company is not able to estimate a potential loss exposure, if any, at this time. The Company will vigorously prosecute its claims and defenses in both matters, although no assurances can be given with respect to the outcome of such proceedings.

     (g) Since June 2006, the Company had been subject to informal inquiries by the Securities and Exchange Commission (the “SEC”) and the Ontario Securities Commission (the “OSC”). In September 2010, the SEC issued a formal order of investigation in connection with its inquiry. On June 28, 2011, the SEC informed the Company that its investigation had been completed with respect to the Company and that it did not intend to recommend any enforcement action against the Company. On June 28, 2011 the OSC informed the Company that the OSC Staff will not be seeking any orders pursuant to s.127 of the Securities Act (Ontario).

     (h) In addition to the matters described above, the Company is currently involved in other legal proceedings 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 of any such proceedings.

     (i) In the normal course of business, the Company enters into agreements that may contain features that meet the definition of a guarantee. The Guarantees Topic of the FASB ASC defines a guarantee to be a contract (including an indemnity) that contingently requires the Company to make payments (either in cash, financial instruments, other assets, shares of its stock or provision of services) to a third party based on (a) changes in an underlying interest rate, foreign exchange rate, equity or commodity instrument, index or other variable, that is related to an asset, a liability or an equity security of the counterparty, (b) failure of another party to perform under an obligating agreement or (c) failure of another third party to pay its indebtedness when due.

Financial Guarantees

     The Company has provided no significant financial guarantees to third parties.

Product Warranties

     The following summarizes the accrual for product warranties that was recorded as part of accrued liabilities in the condensed consolidated balance sheets:

		June 30,				December 31,
		2011				2010
Balance at the beginning of period		$	160			$	36
Warranty redemptions			(19	)			(87	)
Warranties issued			59				211
Balance at the end of period		$	200			$	160

Director/Officer Indemnifications

     The Company’s General By-law contains an indemnification of its directors/officers, former directors/officers and persons who have acted at its request to be a director/officer of an entity in which the Company is a shareholder or creditor, to indemnify them, to the extent permitted by the Canada Business Corporations Act, against expenses (including legal fees), judgments, fines and any amount actually and reasonably incurred by them in connection with any action, suit or proceeding in which the directors and/or officers are sued as a result of their service, if they acted honestly and in good faith with a view to the best interests of the Company. The nature of the indemnification prevents the Company from making a reasonable estimate of the maximum potential amount it

could be required to pay to counterparties. The Company has purchased directors’ and officers’ liability insurance. No amount has been accrued in the condensed consolidated balance sheets as at June 30, 2011 and December 31, 2010 with respect to this indemnity.

Other Indemnification Agreements

     In the normal course of the Company’s operations, the Company provides indemnifications to counterparties in transactions such as: theater system lease and sale agreements and the supervision of installation or servicing of the theater systems; film production, exhibition and distribution agreements; real property lease agreements; and employment agreements. These indemnification agreements require the Company to compensate the counterparties for costs incurred as a result of litigation claims that may be suffered by the counterparty as a consequence of the transaction or the Company’s breach or non-performance under these agreements. While the terms of these indemnification agreements vary based upon the contract, they normally extend for the life of the agreements. A small number of agreements do not provide for any limit on the maximum potential amount of indemnification; however, virtually all of the Company’s system lease and sale agreements limit such maximum potential liability to the purchase price of the system. The fact that the maximum potential amount of indemnification required by the Company is not specified in some cases prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay to counterparties. Historically, the Company has not made any significant payments under such indemnifications and less than $0.1 million has been accrued in the condensed consolidated financial statements with respect to the contingent aspect of these indemnities.

10. Condensed Consolidated Statements of Operations Supplemental Information

(a) Selling Expenses

     The Company defers direct selling costs such as sales commissions and other amounts related to its sale and sales-type lease arrangements until the related revenue is recognized. These costs, included in costs and expenses applicable to revenues-equipment and product sales, totaled $0.1 million and $0.8 million for the three and six months ended June 30, 2011, respectively (2010 — $0.4 million and $0.6 million, respectively).

     Film exploitation costs, including advertising and marketing, totaled $2.1 million and $2.8 million for the three and six months ended June 30, 2011, respectively (2010 — $0.4 million and $1.1 million, respectively) and are recorded in costs and expenses applicable to revenues-services as incurred.

     Commissions are recognized as costs and expenses applicable to revenues-rentals in the month they are earned. These costs totaled $0.7 million and $0.9 million for the three and six months ended June 30, 2011, respectively (2010 — $0.4 million and $0.8 million, respectively). Direct advertising and marketing costs for each theater are charged to costs and expenses applicable to revenues-rentals as incurred. These costs totaled $1.1 million and $1.4 million for the three and six months ended June 30, 2011, respectively (2010 — $0.2 million and $0.4 million, respectively).

(b) Foreign Exchange

     Included in selling, general and administrative expenses for the three and six months ended June 30, 2011 is a gain of $0.1 million and a gain of $0.7 million, respectively, for net foreign exchange gains/losses related to the translation of foreign currency denominated monetary assets and liabilities and unhedged foreign exchange contracts compared with a loss of $0.9 million and $0.6 million for the three and six months ended June 30, 2010, respectively. See note 17(c) for additional information.

(c) Collaborative Arrangements

     Joint Revenue Sharing Arrangements

     In a joint revenue sharing arrangement, the Company receives a portion of a theater’s box-office and concession revenues in exchange for placing a theater system at the theater operator’s venue. Under joint revenue sharing arrangements, the customer has the ability and the right to operate the hardware components or direct others to operate them in a manner determined by the customer. The Company’s joint revenue sharing arrangements are typically non-cancellable for 7 to 10 years with renewal provisions. Title to equipment under joint revenue sharing arrangements does not transfer to the customer. The Company’s joint revenue sharing arrangements do not contain a guarantee of residual value at the end of the term. The customer is required to pay for executory costs such as insurance and taxes and is required to pay the Company for maintenance and extended warranty throughout the term. The

customer is responsible for obtaining insurance coverage for the theater systems commencing on the date specified in the arrangement’s shipping terms and ending on the date the theater systems are delivered back to the Company.

     The Company has signed joint revenue sharing agreements with 17 exhibitors for a total of 332 theater systems, of which 204 theaters were operating as of June 30, 2011, the terms of which are similar in nature, rights and obligations. The accounting policy for the Company’s joint revenue sharing arrangements is disclosed in note 2(n) of the Company’s 2010 Form 10-K.

     Amounts attributable to transactions arising between the Company and its customers under joint revenue sharing arrangements are included in Rentals revenue and for the three and six months ended June 30, 2011 amounted to $8.3 million and $12.4 million, respectively (2010 — $8.5 million and $27.4 million, respectively).

IMAX DMR

     In an IMAX DMR arrangement, the Company transforms conventional motion pictures into the Company’s large screen format, allowing the release of Hollywood content to the IMAX theater network. In a typical IMAX DMR film arrangement, the Company will absorb its costs for the digital re-mastering of the film and then recoup this cost from a percentage of the gross box-office receipts of the film, which generally range from 10-15%. The Company does not typically hold distribution rights or the copyright to these films.

     For the six months ended June 30, 2011, 15 IMAX DMR films were released to the IMAX theater network. The Company has entered into arrangements with film producers to convert 9 additional films which are expected to be released during the remainder of 2011, the terms of which are similar in nature, rights and obligations. The accounting policy for the Company’s IMAX DMR arrangements is disclosed in note 2(n) of the Company’s 2010 Form 10-K.

     Amounts attributable to transactions arising between the Company and its customers under IMAX DMR arrangements are included in Services revenue and for the three and six months ended June 30, 2011 amounted to $12.4 million and $19.7 million, respectively (2010 — $14.5 million and $38.0 million, respectively).

Co-Produced Film Arrangements

     In certain film arrangements, the Company co-produces a film with a third party whereby the third party retains the copyright and rights to the film, except that the Company obtains exclusive theatrical distribution rights to the film. Under these arrangements, both parties contribute funding to the Company’s wholly-owned production company for the production of the film and for associated exploitation costs. Clauses in the film arrangements generally provide for the third party to take over the production of the film if the cost of the production exceeds its approved budget or if it appears as though the film will not be delivered on a timely basis.

     The accounting policies relating to co-produced film arrangements are disclosed in notes 2(a) and 2(n) of the Company’s 2010 Form 10-K.

     At June 30, 2011, the Company has 1 significant co-produced film arrangement which makes up greater than 50% of the VIE total assets and liabilities balance of $12.7 million and 3 other co-produced film arrangements, the terms of which are similar.

     For the three and six months ended June 30, 2011, amounts totaling $2.5 million and $3.5 million, respectively (2010 — $2.1 million and $3.7 million, respectively) attributable to transactions between the Company and other parties involved in the production of the films have been included in cost and expenses applicable to revenues-services.

11. Condensed Consolidated Statements of Cash Flows Supplemental Information

     (a) Changes in other non-cash operating assets and liabilities are comprised of the following:

		Six Months
		Ended June 30,
		2011				2010
Decrease (increase) in:
Accounts receivable		$	(4,950	)		$	(2,563	)
Financing receivables			(6,035	)			(1,232	)
Inventories			(1,269	)			(4,513	)
Prepaid expenses			(1,102	)			(2,724	)
Commissions and other deferred selling expenses			(117	)			(757	)
Insurance recoveries			1,135				521
Other assets			(1,441	)			845
Increase (decrease) in:
Accounts payable			6,703				671
Accrued and other liabilities(1)			(30,763	)			(6,553	)
Deferred revenue			7,837				3,970
		$	(30,002	)		$	(12,335	)

     (b) Cash payments made on account of:

		Six Months
		Ended June 30,
		2011				2010
Income taxes		$	1,652			$	332
Interest		$	570			$	1,104

     (c) Depreciation and amortization are comprised of the following:

		Six Months
		Ended June 30,
		2011				2010
Film assets		$	6,584			$	5,741
Property, plant and equipment
Joint revenue sharing arrangements			3,062				2,815
Other property, plant and equipment			1,927				1,743
Other intangible assets			228				229
Other assets			79				—
Deferred financing costs			303				168
		$	12,183			$	10,696

     (d) Write-downs, net of recoveries, are comprised of the following:

		Six Months
		Ended June 30,
		2011				2010
Accounts receivables		$	270			$	10
Financing receivables			89				356
Property, plant and equipment			11				—
Other intangible assets			—				17
Inventories(1)			—				195
		$	370			$	578

12. Receivable Provisions, Net of Recoveries

		Three Months								Six Months
		Ended June 30,								Ended June 30,
		2011				2010				2011				2010
Accounts receivable provisions, net of recoveries		$	151			$	16			$	270			$	10
Financing receivables, net of recoveries			—				337				89				356
Receivable provisions, net of recoveries		$	151			$	353			$	359			$	366

13. Income Taxes

     (a) Income Taxes

     The Company’s effective tax rate differs from the statutory tax rate and varies from year to year primarily as a result of numerous permanent differences, investment and other tax credits, the provision for income taxes at different rates in foreign and other provincial jurisdictions, enacted statutory tax rate increases or reductions in the year, changes due to foreign exchange, changes in the Company’s valuation allowance based on the Company’s recoverability assessments of deferred tax assets, and favorable or unfavorable resolution of various tax examinations. During the last quarter of 2010, the Company released a valuation allowance of $54.8 million relating to the future utilization of deductible temporary differences, tax credits, and certain net operating loss carryforwards. During the six months ended June 30, 2011, there was no change in the Company’s estimates of the recoverability of its deferred tax assets based on an analysis of both positive and negative evidence including projected future earnings.

     As at June 30, 2011, the Company had net deferred income tax assets after valuation allowance of $56.2 million (December 31, 2010 — $57.1 million). As at June 30, 2011, the Company had a gross deferred income tax asset before valuation allowance of $64.1 million (December 31, 2010 — $65.1 million), against which the Company is carrying a $7.9 million valuation allowance (December 31, 2010 — $7.9 million).

     As at June 30, 2011 and December 31, 2010, the Company had total unrecognized tax benefits (including interest and penalties) of $4.7 million and $4.4 million, respectively, for international withholding taxes. All of the unrecognized tax benefits could impact the Company’s effective tax rate if recognized. While the Company believes it has adequately provided for all tax positions, amounts asserted by taxing authorities could differ from the Company’s accrued position. Accordingly, additional provisions on federal, state, provincial and foreign tax-related matters could be recorded in the future as revised estimates are made or the underlying matters are settled or otherwise resolved.

     Consistent with its historical financial reporting, the Company has elected to classify interest and penalties related to income tax liabilities, when applicable, as part of the interest expense in its condensed consolidated statement of operations rather than income tax

expense. The Company recognized approximately less than $0.1 million and $0.1 million in potential interest and penalties associated with unrecognized tax benefits for the three and six months ended June 30, 2011, respectively (2010 — $0.1 million and $0.1 million, respectively).

     (b) Income Tax Effect on Comprehensive Income

     The income tax expenses related to the following items included in other comprehensive income are:

		Three Months								Six Months
		Ended June 30,								Ended June 30,
		2011				2010				2011				2010
Amortization of actuarial gain on defined benefit plan		$	(11	)		$	—			$	(27	)		$	—
Unrealized change in market value of available-for-sale investment			61				—				61				—
Unrealized hedging gain			(12	)			—				(96	)			—
Realization of hedging gains upon settlement			126				—				198				—
		$	164			$	—			$	136			$	—

14. Capital Stock

(a) Authorized

Common Shares

     The authorized capital of the Company consists of an unlimited number of common shares. The following is a summary of the rights, privileges, restrictions and conditions of the common shares.

     The holders of common shares are entitled to receive dividends if, as and when declared by the directors of the Company, subject to the rights of the holders of any other class of shares of the Company entitled to receive dividends in priority to the common shares.

     The holders of the common shares are entitled to one vote for each common share held at all meetings of the shareholders.

(b) Stock-Based Compensation

     The Company has five stock-based compensation plans that are described below. The compensation costs recorded in the condensed consolidated statement of operations for these plans were $4.7 million and $8.7 million for the three and six months ended June 30, 2011, respectively (2010 — recovery of $3.7 million and an expense of $5.6 million, respectively).

Stock Option Plan

     The Company’s Stock Option Plan, which is shareholder approved, permits the grant of options to employees, directors and consultants. The Company recorded an expense of $2.8 million and $4.8 million for the three and six months ended June 30, 2011, respectively (2010 — $1.1 million and $1.7 million, respectively), related to grants issued to employees and directors in the plan. No income tax benefit is recorded in the condensed consolidated statement of operations for these costs.

     The Company’s policy is to issue new shares from treasury to satisfy stock options which are exercised.

     The Company utilizes a lattice-binomial option-pricing model (“Binomial Model”) to determine the fair value of stock-based payment awards. The fair value determined by the Binomial Model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The Binomial Model also considers the expected exercise multiple which is the multiple of exercise price to grant price at which exercises are expected to occur on average. Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable. Because the Company’s employee stock options have certain characteristics

that are significantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, in management’s opinion, the Binomial Model best provides a fair measure of the fair value of the Company’s employee stock options.

     The weighted average fair value of all common share options, granted to employees for the three and six months ended June 30, 2011 at the measurement date was $7.72 per share and $9.60 per share, respectively (2010 — $8.00 per share and $7.27 per share, respectively). The following assumptions were used:

		Three Months Ended June 30,								Six Months Ended June 30,
		2011				2010				2011				2010
Average risk-free interest rate			2.34%				3.09%				2.79%				3.11%
Expected option life (in years)			1.78 - 5.14				2.99 - 5.33				1.78 - 5.14				2.99 - 5.39
Expected volatility			50%				61%				50%				61%
Annual termination probability			0% - 8.31	%			0% - 9.69	%			0% - 8.49	%			0% - 9.69	%
Dividend yield			0%				0%				0%				0%

     As at June 30, 2011, the Company has reserved a total of 12,913,511 (December 31, 2010 — 12,829,115) common shares for future issuance under the Stock Option Plan, of which options in respect of 7,409,881 common shares are outstanding at June 30, 2011. All awards of stock options are made at fair market value of the Company’s Common Shares on the date of grant. The fair market value of a Common Share on a given date means the higher of the closing price of a Common Share on the grant date (or the most recent trading date if the grant date is not a trading date) on the New York Stock Exchange (“NYSE”), the Toronto Stock Exchange (the “TSX”) and such national exchange, as may be designated by the Company’s Board of Directors (the “Fair Market Value”). The options generally vest between one and 5 years and expire 10 years or less from the date granted. The Stock Option Plan provides that vesting will be accelerated if there is a change of control, as defined in the plan and upon certain conditions. At June 30, 2011, options in respect of 3,121,874 common shares were vested and exercisable.

     The following table summarizes certain information in respect of option activity under the Stock Option Plan for the six month periods ended June 30:

										Weighted Average Exercise
		Number of Shares								Price Per Share
		2011				2010				2011				2010
Options outstanding, beginning of year			6,743,272				6,173,795			$	10.79			$	6.52
Granted			1,107,342				1,047,689				31.83				17.76
Exercised			(421,983	)			(838,206	)			12.07				6.03
Forfeited			(18,750	)			—				7.57				—
Expired			—				(22,302	)			—				22.68
Cancelled			—				—				—				—
Options outstanding, end of period			7,409,881				6,360,976				13.87				8.38
Options exercisable, end of period			3,121,874				3,093,225				7.61				6.05

     During the three and six months ended June 30, 2011, the Company did not cancel any stock options from its Stock Option Plan (2010 — nil and nil, respectively) surrendered by Company employees.

     As at June 30, 2011, 6,790,608 options were fully vested or are expected to vest with a weighted average exercise price of $13.47, aggregate intrinsic value of $129.3 million and weighted average remaining contractual life of 4.8 years. As at June 30, 2011, options that are exercisable have an intrinsic value of $77.8 million and a weighted average remaining contractual life of 3.2 years. The

intrinsic value of options exercised in the three and six months ended June 30, 2011 was $6.3 million and $8.7 million, respectively (2010 — $2.6 million and $8.3 million, respectively).

Options to Non-Employees

     During the three and six months ended June 30, 2011, an aggregate of nil and 103,944, respectively (2010 — 50,000 and 61,217, respectively) common share options to purchase the Company’s common stock with an average exercise price of n/a and $27.64, respectively (2010 — $18.98 and $18.12, respectively) were granted to certain advisors and strategic partners of the Company. These options have a maximum contractual life of 6 years. The granted options vested immediately. These options were granted under the Stock Option Plan.

     As at June 30, 2011, non-employee options outstanding amounted to 107,501 options (2010 — 91,885) with a weighted average exercise price of $14.31 (2010 — $13.43). Of these grants, 20,000 common share options are subject to vesting based on a performance commitment which has not been completed as at June 30, 2011 and no expense has been recorded. 9,500 options (2010 — 11,217) were exercisable with an average weighted exercise price of $14.40 (2010 — $14.31) and the vested options have an aggregate intrinsic value of $0.2 million (2010 — less than $0.1 million). The weighted average fair value of options granted to non-employees during the three and six months ended June 30, 2011 at the measurement date was n/a and $13.75 per share, respectively (2010 — $8.08 and $8.15 per share, respectively), utilizing a Binomial Model with the following underlying assumptions for periods ended June 30:

		Three Months								Six Months
		Ended June 30,								Ended June 30,
		2011				2010				2011				2010
Average risk-free interest rate			n/a				3.12	%			2.38	%			3.10	%
Contractual option life			n/a			6.84 years				6 years				6 - 6.84 years
Average expected volatility			n/a				61.00	%			50	%			61	%
Dividend yield			n/a				0.00	%			0	%			0	%

     For the three and six months ended June 30, 2011, the Company recorded a charge of $0.5 million and $0.7 million, respectively (2010 — less than $0.1 million and $0.1 million, respectively) to cost and expenses related to revenues — services and selling, general and administrative expenses related to the non-employee stock options. Included in accrued liabilities is an accrual of less than $0.1 million for non-employee stock options recorded (December 31, 2010 – $1.5 million).

Restricted Common Shares

     Under the terms of certain employment agreements dated July 12, 2000, the Company was required to issue either 160,000 restricted common shares or pay their cash equivalent upon request by the employees at any time. The Company accounted for the obligation as a liability, which was classified within accrued liabilities. In December 2010, upon request by the employees, the Company paid $4.2 million in cash to settle the equivalent of the remaining 160,000 restricted common shares under these agreements. The Company recorded a recovery of $0.5 million and an expense of $0.2 million for the three and six months ended June 30, 2010, respectively related to the restricted common shares.

Stock Appreciation Rights

     There were no stock appreciation rights (“SARs”) granted during the first six months of 2011 or 2010. During 2007, 2,280,000 SARs with a weighted average exercise price of $6.20 per right were granted in-lieu of stock options to certain Company executives. For the three and six months ended June 30, 2011 472,000 and 999,500 SARs were cash settled for $13.0 million and $23.7 million, respectively (2010 — 270,000 and 480,000 SARs were cash settled for $3.3 million and $5.4 million, respectively). The average exercise prices for the settled SARs for the three and six months ended June 30, 2011 was $6.86 and $6.86, respectively (2010 — $5.74 and $5.13, respectively) per SAR. As at June 30, 2011, 133,000 SARs were outstanding, of which 100,000 SARs were exercisable. None of the SARs were forfeited, cancelled, or expired for the three and six months ended June 30, 2011 and 2010. The SARs vesting period ranges from immediately upon granting to 5 years, with a remaining contractual life ranging from 6.51 years as at June 30, 2011. The outstanding SARs had an average fair value of $25.31 per right as at June 30, 2011 (December 31, 2010 — $21.21). The Company accounts for the obligation of these SARs as a liability (June 30, 2011 — $3.1 million; December 31, 2010 —

$23.7 million), which is classified within accrued liabilities. The Company has recorded an expense of $1.4 million and $3.2 million for the three and six months ended June 30, 2011, respectively (2010 — recovery of $4.4 million and an expense of $3.6 million, respectively) to selling, general and administrative expenses related to these SARs. The following assumptions were used for measuring the fair value of the SARs:

		As at June 30, 2011				As at December 31, 2010
Average risk-free interest rate			2.25%				0.65%
Expected option life (in years)			0.36 - 2.40				0.24 - 2.51
Expected volatility			50%				50% - 61%
Annual termination probability			8.31%				0% - 8.31%
Dividend yield			0%				0%

Warrants

     There were no warrants issued during the three and six months ended or outstanding as at June 30, 2011 and 2010.

(c) Income Per Share

     Reconciliations of the numerator and denominator of the basic and diluted per-share computations are comprised of the following:

		Three Months								Six Months
		Ended June 30,								Ended June 30,
		2011				2010				2011				2010
Net income from operations applicable to common shareholders		$	1,825			$	13,302			$	822			$	39,883
Weighted average number of common shares (000’s):
Issued and outstanding, beginning of period			64,255				63,460				64,146				62,832
Weighted average number of shares issued during the period			121				104				136				478
Weighted average number of shares used in computing basic income per share			64,376				63,564				64,282				63,310
Assumed exercise of stock options, net of shares assumed			4,323				3,424				4,096				3,184
Weighted average number of shares used in computing diluted income per share			68,699				66,988				68,378				66,494

(d) Shareholders’ Equity

     The following summarizes the movement of Shareholders’ Equity for the six months ended June 30, 2011:

Balance as at December 31, 2010		$	158,458
Issuance of common shares for stock options exercised			5,095
Net income			822
Adjustment to other equity for employee stock options granted			4,797
Adjustment to other equity for non-employee stock options granted			2,232
Adjustment to capital stock for stock options exercised			2,210
Adjustment to other equity for stock options exercised			(2,210	)
Adjustments to accumulated other comprehensive income to record unrealized hedging gains			351
Adjustments to accumulated other comprehensive income to record the realization of hedging gains upon settlement			(724	)
Adjustments to accumulated other comprehensive income to record the amortization of actuarial loss on defined benefit plan			107
Adjustments to accumulated other comprehensive income to record an unrealized decline in the market value of the preferred stock of another business venture			(488	)
Tax effect of movement in accumulated other comprehensive income			136
Balance as at June 30, 2011		$	170,786

     The Company has 8 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; theater operations; 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 the 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 theater operations segment operates certain IMAX theaters. The Company refers to all theaters using the IMAX theater system as “IMAX theaters.” The other segment includes camera rentals and other miscellaneous items. The accounting policies of the segments are the same as those described in note 2 to the audited consolidated financial statements included in the Company’s 2010 Form 10-K.

     The Company’s Chief Operating Decision Maker (“CODM”), as defined in the Segment Reporting Topic of the FASB ASC, assesses segment performance based on segment revenues, gross margins and film performance. Selling, general and administrative expenses, research and development costs, amortization of intangibles, receivables provisions (recoveries), writedowns net of recoveries, interest income, interest expense and tax provision (recovery) are not allocated to the segments.

     Transactions between the film production and IMAX DMR segment and the film post-production segment are valued at exchange value. Inter-segment profits are eliminated upon consolidation, as well as for the disclosures below.

     Transactions between the other segments are not significant.

		Three Months								Six Months
		Ended June 30,								Ended June 30,
		2011				2010				2011				2010
Revenue(1)
IMAX systems		$	20,470			$	17,329			$	42,729			$	28,282
Theater system maintenance			6,127				5,102				11,922				10,068
Joint revenue sharing arrangements			8,347				8,494				12,387				27,430
Films
Production and IMAX DMR			12,422				14,540				19,680				37,992
Distribution			5,275				3,870				7,892				7,142
Post-production			1,039				2,326				2,663				4,918
Theater operations			1,918				2,954				2,899				8,903
Other			1,634				983				2,220				3,646
Total		$	57,232			$	55,598			$	102,392			$	128,381
Gross margins
IMAX systems(2)		$	11,440			$	9,918			$	23,175			$	14,418
Theater system maintenance			2,381				2,051				4,968				4,360
Joint revenue sharing arrangements(2)			4,881				6,501				7,059				23,313
Films
Production and IMAX DMR(2)			6,461				6,823				9,220				26,324
Distribution(2)			487				719				1,113				1,461
Post-production			307				837				1,996				2,891
Theater operations			(242	)			152				(1,005	)			1,810
Other			587				39				422				762
Total		$	26,302			$	27,040			$	46,948			$	75,339

		June 30,				December 31,
		2011				2010
Assets
IMAX systems		$	126,571			$	119,708
Theater system maintenance			14,800				13,548
Joint revenue sharing arrangements			99,523				81,376
Films
Production and IMAX DMR			18,166				17,229
Distribution			7,776				5,313
Post-production			3,652				2,877
Theater operations			552				582
Other			2,525				1,785
Corporate and other non-segment specific assets			98,567				106,670
Total		$	372,132			$	349,088

Geographic Information

		Three Months								Six Months
		Ended June 30,								Ended June 30,
		2011				2010				2011				2010
Revenue
Canada		$	4,626			$	874			$	5,627			$	2,771
United States			36,240				38,087				61,720				93,882
Russia and the CIS			5,086				1,987				9,003				3,626
Western Europe			4,193				3,245				6,475				7,937
Rest of Europe			317				230				2,641				562
Asia (excluding Greater China)			3,554				6,142				5,873				8,655
Greater China			1,890				1,112				8,662				4,434
Mexico			302				475				658				1,735
Rest of the World			1,024				3,446				1,733				4,779
Total		$	57,232			$	55,598			$	102,392			$	128,381

     No single country in the Rest of the World, Western Europe, Rest of Europe or Asia (excluding Greater China) classifications comprises more than 5% of the total revenue.

(a) Defined Benefit Plan

     The Company has an unfunded U.S. defined benefit pension plan, the SERP, covering Richard L. Gelfond, Chief Executive Officer (“CEO”) of the Company and Bradley J. Wechsler, Chairman of the Company’s Board of Directors. The SERP provides for a lifetime retirement benefit from age 55 determined as 75% of the member’s best average 60 consecutive months of earnings over the member’s employment history. The benefits were 50% vested as at July 2000, the SERP initiation date. The vesting percentage increases on a straight-line basis from inception until age 55. As at June 30, 2011, the benefits of Mr. Gelfond were 100% vested. Upon a termination for cause, prior to a change of control, the executive shall forfeit any and all benefits to which such executive may have been entitled, whether or not vested.

     Under the terms of the SERP, if Mr. Gelfond’s employment terminated other than for cause prior to August 1, 2010, he would have been entitled to receive SERP benefits in the form of monthly annuity payments until the earlier of a change of control or August 1, 2010, at which time he became entitled to receive remaining benefits in the form of a lump sum payment. If Mr. Gelfond’s employment is, or would have been, terminated other than for cause on or after August 1, 2010, he is, or would have been, entitled to receive SERP benefits in the form of a lump sum payment. SERP benefit payments to Mr. Gelfond are subject to a deferral for six

months after the termination of his employment, at which time Mr. Gelfond will be entitled to receive interest on the deferred amount credited at the applicable federal rate for short-term obligations. The term of Mr. Gelfond’s current employment agreement has been extended through December 31, 2012. Under the terms of the extension, Mr. Gelfond also agreed that any compensation earned during 2011 and 2012 would not be included in calculating his entitlement under the SERP.

     Under the terms of the SERP, monthly annuity payments payable to Mr. Wechsler, whose employment as Co-CEO terminated effective April 1, 2009, were deferred for six months and were paid in the form of a lump sum plus interest on the deferred amount on October 1, 2009. Thereafter, in accordance with the terms of the SERP, Mr. Wechsler was entitled to receive monthly annuity payments until the earlier of a change of control or August 1, 2010, at which time he was entitled to receive remaining benefits in the form of a lump sum payment. On August 1, 2010, the Company made a lump sum payment of $14.7 million to Mr. Wechsler in accordance with the terms of the plan, representing a settlement in full of Mr. Wechsler’s entitlement under the SERP.

     The amounts accrued for the SERP are determined as follows:

		As at				As at
		June 30,				December 31,
		2011				2010
Obligation, beginning of period		$	18,108			$	29,862
Service cost			—				448
Interest cost			139				351
Benefits paid			—				(15,199	)
Actuarial loss			—				2,646
Obligation, end of period and unfunded status		$	18,247			$	18,108

     The following table provides disclosure of pension expense for the SERP:

		Three Months Ended June 30,								Six Months Ended June 30,
		2011				2010				2011				2010
Service cost		$	—			$	112			$	—			$	224
Interest cost			69				88				139				175
Amortization of actuarial loss			53				—				107				—
Pension expense		$	122			$	200			$	246			$	399

     The accumulated benefit obligation for the SERP was $18.2 million at June 30, 2011 (December 31, 2010 — $18.1 million).

     The following amounts were included in accumulated other comprehensive income (“AOCI”) and will be recognized as components of net periodic benefit cost in future periods:

		As at				As at
		June 30,				December 31,
		2011				2010
Unrecognized actuarial loss		$	2,132			$	2,239

     No contributions are expected to be made for the SERP during 2011. The Company expects amortization of actuarial losses of $0.1 million to be recognized as a component of net periodic benefit cost during the remainder of 2011.

     The following benefit payments are expected to be made as per the current SERP assumptions and the terms of the SERP in each of the next 5 years, and in the aggregate:

2011 (six months remaining)		$	—
2012			—
2013			18,813
2014			—
2015			—
Thereafter			—
		$	18,813

     At the time the Company established the SERP, it also took out life insurance policies on Messrs. Gelfond and Wechsler with coverage amounts of $21.5 million in aggregate to which the Company was the beneficiary. During 2010, the Company obtained $3.2 million representing the cash surrender value of Mr. Gelfond’s policy and $4.6 million representing the cash surrender value of Mr. Wechsler’s policy.

(b) Defined Contribution Plan

     The Company also maintains defined contribution pension plans for its employees, including its executive officers. The Company makes contributions to these plans on behalf of employees in an amount up to 5% of their base salary subject to certain prescribed maximums. During the three and six months ended June 30, 2011, the Company contributed and expensed an aggregate of $0.3 million and $0.5 million, respectively (2010 — $0.2 million and $0.4 million, respectively), to its Canadian plan and an aggregate of less than $0.1 million and $0.1 million, respectively (2010 — less than $0.1 million and $0.1 million, respectively), to its defined contribution employee pension plan under Section 401(k) of the U.S. Internal Revenue Code.

(c) Postretirement Benefits

     The Company has an unfunded postretirement plan covering Messrs. Gelfond and Wechsler. The plan provides that the Company will maintain health benefits for Messrs. Gelfond and Wechsler until they become eligible for Medicare and, thereafter, the Company will provide Medicare supplement coverage as selected by Messrs. Gelfond and Wechsler. The postretirement benefits obligation as at June 30, 2011 is $0.5 million (December 31, 2010 — $0.5 million). The Company has expensed less than $0.1 million and less than $0.1 million for the three and six months ended June 30, 2011, respectively (2010 — less than $0.1 million and less than $0.1 million, respectively).

     The following benefit payments are expected to be made as per the current plan assumptions in each of the next 5 years:

2011 (six months remaining)		$	13
2012			15
2013			31
2014			34
2015			38
Thereafter			353
		$	484

(a) Financial Instruments

     The Company maintains cash with various major financial institutions. The Company’s cash is invested with highly rated financial institutions.

     The Company’s accounts receivables and financing receivables are subject to credit risk. The Company’s accounts receivable and financing receivables are concentrated with the theater exhibition industry and film entertainment industry. To minimize the Company’s credit risk, the Company retains title to underlying theater systems leased, performs initial and ongoing credit evaluations of its customers and makes ongoing provisions for its estimate of potentially uncollectible amounts. The Company believes it has adequately provided for related exposures surrounding receivables and contractual commitments.

(b) Fair Value Measurements