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

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 investigation by the Securities and Exchange Commission (the “SEC”) and the ongoing inquiry by the Ontario Securities Commission (the “OSC”); 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 March 31, 2011 and December 31, 2010			5
Condensed Consolidated Statements of Operations for the three month periods ended March 31, 2011 and 2010			6
Condensed Consolidated Statements of Cash Flows for the three month periods ended March 31, 2011 and 2010			7
Notes to Condensed Consolidated Financial Statements			8

IMAX CORPORATION

		March 31,				December 31,
		2011				2010
		(unaudited)
Assets
Cash and cash equivalents		$	17,379			$	30,390
Accounts receivable, net of allowance for doubtful accounts of $1,495 (December 31, 2010 — $1,988)			30,518				39,570
Financing receivables (notes 3 and 16(c))			75,944				73,601
Inventories (note 4)			17,146				15,275
Prepaid expenses			3,533				2,832
Film assets			2,105				2,449
Property, plant and equipment (note 5)			78,313				74,035
Other assets (note 16(d))			12,789				12,350
Deferred income taxes (note 12(a))			57,417				57,122
Goodwill			39,027				39,027
Other intangible assets (note 6)			2,403				2,437
Total assets		$	336,574			$	349,088
Liabilities
Bank indebtedness (note 7)		$	17,500			$	17,500
Accounts payable			21,902				20,384
Accrued liabilities (notes 8(a), 8(c), 9, 12(a), 13(b), 15(a), and 15(c))			63,961				78,994
Deferred revenue			71,319				73,752
Total liabilities			174,682				190,630
Commitments and contingencies (notes 8 and 9)
Shareholders’ equity
Capital stock (note 13) common shares — no par value. Authorized — unlimited number. Issued and outstanding — 64,254,939 (December 31, 2010 — 64,145,573)			294,179				292,977
Other equity			10,852				7,687
Deficit			(142,212	)			(141,209	)
Accumulated other comprehensive loss			(927	)			(997	)
Total shareholders’ equity			161,892				158,458
Total liabilities and shareholders’ equity		$	336,574			$	349,088

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

IMAX CORPORATION

		Three Months
		Ended March 31,
		2011				2010
Revenues
Equipment and product sales		$	20,231			$	11,608
Services (note 10(c))			18,274				40,231
Rentals (note 10(c))			5,051				19,875
Finance income			1,354				1,070
Other			250				—
			45,160				72,784
Costs and expenses applicable to revenues
Equipment and product sales (note 10(a))			10,851				8,134
Services (notes 10(a) and 10(c))			11,377				13,967
Rentals (note 10(a))			2,266				2,383
Other			20				—
			24,514				24,484
Gross margin			20,646				48,300
Selling, general and administrative expenses (note 10(b)) (including share-based compensation expense of $3.9 million for the three months ended March 31, 2011 (2010 - $9.3 million))			16,868				19,530
Provision for arbitration award (note 9(c))			2,055				—
Research and development			1,868				1,243
Amortization of intangibles			112				130
Receivable provisions, net of recoveries (note 11(d))			208				13
(Loss) income from operations			(465	)			27,384
Interest income			18				284
Interest expense			(443	)			(652	)
(Loss) income from operations before income taxes			(890	)			27,016
Recovery of (provision for) income taxes			309				(436	)
Loss from equity-accounted investments			(422	)			—
Net (loss) income		$	(1,003	)		$	26,580
Net (loss) income per share — basic and diluted: (note 13(c))
Net (loss) income per share from operations — basic		$	(0.02	)		$	0.42
Net (loss) income per share from operations — diluted		$	(0.02	)		$	0.40
Comprehensive (loss) income consists of:
Net (loss) income		$	(1,003	)		$	26,580
Amortization of actuarial loss on defined benefit plan (note 15(a))			54				—
Unrealized hedging gain (note 16(d))			302				208
Realization of hedging gains upon settlement (note 16(d))			(258	)			(550	)
Tax effect of movement in comprehensive income (note 12(b))			(28	)			—
Comprehensive (loss) income, net of income taxes		$	(933	)		$	26,238

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

IMAX CORPORATION

		Three Months
		Ended March 31,
		2011				2010
Cash (used in) provided by:
Operating Activities
Net (loss) income		$	(1,003	)		$	26,580
Items not involving cash:
Depreciation and amortization (note 11(c))			5,247				5,158
Write-downs, net of recoveries (note 11(d))			208				109
Change in deferred income taxes			(315	)			—
Stock and other non-cash compensation			4,107				9,579
Foreign currency exchange (gain) loss			(1,084	)			621
Loss on equity-accounted investments			422				—
Gain on non-cash contribution to equity-accounted investees			(404	)			—
Change in cash surrender value of life insurance			—				(23	)
Investment in film assets			(2,250	)			(2,149	)
Changes in other non-cash operating assets and liabilities (note 11(a))			(14,494	)			(28,772	)
Net cash (used in) provided by operating activities			(9,566	)			11,103
Investing Activities
Purchase of property, plant and equipment			(838	)			(685	)
Investment in joint revenue sharing equipment			(3,136	)			(540	)
Acquisition of other assets			—				(203	)
Acquisition of other intangible assets			(232	)			(131	)
Net cash used in investing activities			(4,206	)			(1,559	)
Financing Activities
Repayment of bank indebtedness (note 7)			—				(10,000	)
Common shares issued — stock options exercised (note 13(b))			831				3,945
Net cash provided by (used in) financing activities			831				(6,055	)
Effects of exchange rate changes on cash			(70	)			(67	)
(Decrease) increase in cash and cash equivalents during the period			(13,011	)			3,422
Cash and cash equivalents, beginning of period			30,390				20,081
Cash and cash equivalents, end of period		$	17,379			$	23,503

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

IMAX CORPORATION

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 together with its wholly-owned subsidiaries, 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. As the Company has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and has the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE for 2 of the film production companies, the Company has determined that it is the primary beneficiary of these entities. 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 and total liabilities of $nil as at March 31, 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 March 31, 2011, these 6 VIEs have total assets of $12.0 million (December 31, 2010 — $11.1 million) and total liabilities of $12.0 million (December 31, 2010 — $11.1 million). Earnings of the investees included in the Company’s condensed consolidated statement of operations amounted to $nil for the three months ended March 31, 2011 (2010 — $nil). The carrying value of these investments in VIEs that are not consolidated is $nil at March 31, 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 ASC 323 Investments — Equity Method and Joint Ventures (“ASC 323”) and ASC 320 — Investments in Debt and Equity Securities (“ASC 320”), as appropriate. At March 31, 2011, the equity method of accounting is being utilized for an investment with a carrying value of $2.9 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 $1.5 million at March 31, 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 March 31, 2011 is $4.4 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 noted below.

2. New Accounting Standards and Accounting Changes

Changes in Accounting Standards

     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. Earlier application is permitted with required transition disclosures based on the period of adoption. 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. Earlier application is permitted with required transition disclosures based on the period of adoption. Both ASU 2009-13 and ASU 2009-14 must be adopted in the same period and must use the same transition disclosures. On January 1, 2011, the Company adopted the accounting requirements in ASU 2009-14. The application of this standard does not have any 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 Level 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 16. On January 1, 2011, the Company adopted the disclosure amendments in ASU 2010-06 relating to Level 3 fair value measurements. No additional disclosures were required as a result.

     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 disclosure for earlier reporting periods that ended before initial adoption is encouraged but not required. However, 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 16(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. Early adoption is not permitted. On January 1, 2011, the Company adopted the accounting requirements in ASU 2010-28. This standard is not expected to have any impact on the Company’s condensed consolidated financial statements as the Company does not have any reporting units with zero or negative amounts for goodwill impairment testing purposes.

  Recently Issued FASB Accounting Standard Codification Updates

     During 2011, the FASB has issued one ASU — ASU No. 2011-01, “Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20”. The Company is currently evaluating the potential impact of this ASU 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:

		March 31,				December 31,
		2011				2010
Gross minimum lease payments receivable		$	40,747			$	49,977
Unearned finance income			(13,241	)			(15,158	)
Minimum lease payments receivable			27,506				34,819
Accumulated allowance for uncollectible amounts			(2,558	)			(4,838	)
Net investment in leases			24,948				29,981
Gross financed sales receivables			72,562				62,127
Unearned finance income			(21,500	)			(18,441	)
Financed sales receivables			51,062				43,686
Accumulated allowance for uncollectible amounts			(66	)			(66	)
Net financed sales receivables			50,996				43,620
Total financing receivables		$	75,944			$	73,601
Net financed sales receivables due within one year		$	6,670			$	6,166
Net financed sales receivables due after one year		$	44,326			$	37,454

     As at March 31, 2011, the financed sale receivables had a weighted average effective interest rate of 8.7% (December 31, 2010 — 8.8%).

4. Inventories

		March 31,				December 31,
		2011				2010
Raw materials		$	4,971			$	4,693
Work-in-process			848				2,293
Finished goods			11,327				8,289
		$	17,146			$	15,275

     At March 31, 2011, finished goods inventory for which title had passed to the customer and revenue was deferred amounted to $3.1 million (December 31, 2010 — $3.2 million).

     Inventories at March 31, 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 March 31, 2011
						Accumulated				Net Book
		Cost				Depreciation				Value
Equipment leased or held for use
Theater system components(1)(2)		$	89,552			$	33,997			$	55,555
Camera equipment(5)			6,355				6,028				327
			95,907				40,025				55,882
Assets under construction(3)			9,716				—				9,716
Other property, plant and equipment
Land			1,593				—				1,593
Buildings			14,723				9,031				5,692
Office and production equipment(4)			27,125				23,297				3,828
Leasehold improvements			8,603				7,001				1,602
			52,044				39,329				12,715
		$	157,667			$	79,354			$	78,313

		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 March 31, 2011
						Accumulated				Net Book
		Cost				Amortization				Value
Patents and trademarks		$	7,366			$	4,963			$	2,403
Other			250				250				—
			7,616			$	5,213			$	2,403

		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 $0.3 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 three months ended March 31, 2011, the Company acquired $0.1 million in patents and trademarks. The net book value of these patents and trademarks was $0.1 million as at March 31, 2011. The weighted average amortization period for these additions was 10 years.

     During the three months ended March 31, 2011, the Company incurred costs of less than $0.1 million to renew or extend the term of acquired other intangible assets which were recorded in selling, general and administrative expenses.

7. Credit Facility

     On November 16, 2009, the Company amended and restated the terms of its senior secured credit facility, which had been scheduled to mature on October 31, 2010. The amended and restated facility, as further amended by the parties on January 21, 2011 (the “Credit Facility”), with a scheduled maturity of October 31, 2013, has a maximum borrowing capacity of $75.0 million, consisting of a revolving loan facility subject to a borrowing base calculation (as described below) and including a sublimit of $20.0 million for letters of credit and a term loan of $35.0 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 Amended and Restated Credit Agreement (the “Credit Agreement”), dated November 16, 2009, between the Company; Wells Fargo Capital Finance Corporation Canada (formerly Wachovia 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 portion of the Credit Facility permits maximum aggregate borrowings equal to the lesser of:

     (i) $40.0 million, and

     (ii) a collateral calculation based on the percentages of the book values 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. It is also reduced by the settlement risk on its foreign currency forward contracts when the notional value exceeds the fair value of the forward contracts.

     The revolving portion of the Credit Facility bears interest at either (i) LIBOR plus a margin of 2.75% per annum, or (ii) Wells Fargo’s prime rate plus a margin of 1.25% per annum, at the Company’s option. The term loan portion of the Credit Facility bears interest at the Company’s option, at either (i) LIBOR plus a margin of 3.75% per annum, or (ii) Wells Fargo’s prime rate plus a margin of 2.25% per annum. Under the Credit Facility, the effective interest rate for the three months ended March 31, 2011 for the term loan portion was 4.05% (2010 — 4.01%) and n/a for the revolving portion (2010 — 3.25%).

     The Credit Facility provides that so long as the term loan remains outstanding, the Company will be required to maintain: (i) 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 through December 31, 2010, and (ii) a ratio of funded debt to EBITDA of not more than 1.75:1 thereafter. If the Company repays the term loan in full, it will remain subject to such ratio requirements only if Excess Availability (as defined in the Credit Agreement) is less than $10.0 million or Cash and Excess Availability (as defined in the Credit Agreement) is less than $15.0 million. If Cash and Excess Availability is less than $25.0 million, 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; provided, however, that if the Company repays the term loan in full, it will remain subject to such ratio requirement only if Excess Availability is less than $10.0 million or Cash and Excess Availability is less than $15.0 million. 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 $40.2 million and $57.5 million at March 31, 2011 respectively. The Company was in compliance with all of these requirements at March 31, 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 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:

		March 31,				December 31,
		2011				2010
Term Loan		$	17,500			$	17,500

     Total amounts drawn and available under the Credit Facility at March 31, 2011 were $17.5 million and $35.2 million, respectively (December 31, 2010 — $17.5 million and $40.0 million, respectively).

     At March 31, 2011, the Company’s current borrowing capacity under the revolving portion of the Credit Facility was $35.2 million after deduction for the minimum Excess Availability reserve of $5.0 million. Outstanding borrowings and letters of credit and advance payment guarantees were $nil as at March 31, 2011. At December 31, 2010, the borrowing capacity was $40.0 million after deduction of the minimum Excess Availability reserve of $5.0 million.

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

2011 (nine months remaining)		$	11,667
2012			5,833
2013			—
2014			—
2015			—
Thereafter			—
		$	17,500

     On April 27, 2011, Wells Fargo entered into a commitment letter with the Company in which it, along with EDC, has committed to provide the Company with a senior secured revolving loan and revolving term loan facility in an amount up to $110.0 million (the “New Facility”). The New Facility would serve as an amendment and extension to the Credit Facility and would extend the maturity date of Credit Facility by two years to October 31, 2015. The New Facility would consist of up to $50.0 million in revolving loans and up to a $60.0 million revolving term loan with no scheduled repayments. Both the revolving loans and the revolving term loan will bear interest, at the Company’s option, at either (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. This compares to the pre-amended interest rate under the Credit Facility, which was, at the Company’s option, either (i) LIBOR plus a margin of 3.75% or 2.75% per annum for the term loan and revolving loan, respectively, or (ii) Wells Fargo’s prime rate plus a margin of 2.25% or 1.25% per annum for the term loan and revolving loan, respectively. The Company anticipates entering into definitive documents with respect to the New Facility by the end of the second quarter of 2011.

Wells Fargo Foreign Exchange Facility

     Within the Credit Facility entered into on November 16, 2009, 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 March 31, 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 $23.6 million is remaining.

Bank of Montreal Facilities

     As at March 31, 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 March 31, 2011, the Company has letters of credit 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 under operating leases as at March 31, 2011 for each of the years ended December 31, are as follows:

		Operating Leases				Capital Leases
2011 (nine months remaining)		$	4,240			$	19
2012			5,449				23
2013			2,088				21
2014			899				—
2015			510				—
Thereafter			1,812				—
		$	14,998			$	63

     Rent expense was $1.2 million for three months ended March 31, 2011 (2010 — $1.3 million) net of sublease rental of less than $0.1 million (2010 — $0.1 million).

     Recorded in the accrued liabilities balance as at March 31, 2011 is $4.0 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 March 31, 2011 were $13.5 million (December 31, 2010 — $13.6 million).

     (b) As at March 31, 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 March 31, 2011 the Company also has letters of credit 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 March 31, 2011, $1.4 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-CITI Entertainment (I) PVT Limited (“E-Citi”), seeking damages as a result of E-Citi’s breach of a September 2000 lease agreement. An arbitration hearing took place in November 2005 against E-Citi 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 $11,309,496, 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.

     (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 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 $409,000 in damages and $298,000 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 $1,214,999 in attorneys’ fees and costs pursuant to the attorneys’ fee provision set forth in the production agreements. Robots has initiated two separate proceedings in California state court and in Ontario, Canada, to confirm the award. The Company will oppose confirmation of the award in both venues and will seek to have it vacated in the appropriate jurisdictions on the ground that the arbitrator exceeded his powers or so imperfectly executed them that a mutual, final, and definite award was not made. In addition, the Company will affirmatively seek a judgment awarding it its attorneys’ fees and costs in connection with the second production agreement, on which the arbitrator expressly found Robots to be the losing party. 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 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 binding conclusions on the factual or legal merits of the claim. The Company has brought a motion seeking Court approval to appeal those decisions and it is not known when the Ontario court will release a decision on that motion. 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 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 has been subject to ongoing informal inquiries by the SEC and the OSC. On or about September 3, 2010, the SEC issued a formal order of investigation in connection with its inquiry. The Company has been cooperating with these inquiries. The Company believes that the inquiry and investigation principally relate to the timing of recognition of the Company’s theater system installation revenue in 2005 and related matters. Although the Company cannot predict the timing of developments and outcomes in these inquiries, they could result at any time in developments (including charges or settlement of charges) that could have material adverse effects on the Company. These effects could include payments of fines or disgorgement or other relief with respect to the Company or its officers or employees that could be material to the Company. Such developments could also have an adverse effect on the Company’s defense of the class action lawsuits referred to above.

     (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:

		March 31,				December 31,
		2011				2010
Balance at the beginning of period		$	160			$	36
Warranty redemptions			(5	)			(87	)
Warranties issued			15				211
Balance at the end of period		$	170			$	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 March 31, 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. During the second quarter of 2009, the Company provided an indemnity to a third party in connection with a terminated service arrangement. 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 $0.7 million for the three months ended March 31, 2011 (2010 — $0.2 million).

     Film exploitation costs, including advertising and marketing, totaled $0.6 million for the three months ended March 31, 2011 (2010 — $0.7 million) 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 $0.2 million for the three months ended March 31, 2011 (2010 — $0.4 million). Direct advertising and marketing costs for each theater are charged to costs and expenses applicable to revenues-rentals as incurred. These costs totaled $0.3 million for the three months ended March 31, 2011 (2010 — $0.2 million).

  (b) Foreign Exchange

     Included in selling, general and administrative expenses for the three months ended March 31, 2011 is a $0.6 million gain (2010 — gain of $0.3 million), for net foreign exchange gains/losses related to the translation of foreign currency denominated monetary assets and liabilities and unhedged foreign exchange contracts. See note 16(d) 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 15 exhibitors for a total of 306 theater systems, of which 181 theaters were operating as at March 31, 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 months ended March 31, 2011 amounted to $4.0 million (2010 — $18.9 million).

  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 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 three months ended March 31, 2011, 7 IMAX DMR films were exhibited through the IMAX theater network. The Company has entered into arrangements with film producers to convert 15 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 months ended March 31, 2011 amounted to $7.3 million (2010 — $23.5 million).

     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.

     As at March 31, 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 $12.0 million and 3 other co-produced film arrangements, the terms of which are similar.

     For the three months ended March 31, 2011, amounts totaling $1.1 million (2010 — $1.6 million) attributable to transactions between the Company and other parties involved in the production of the films have been included in cost and expenses applicable to revenues-services.

11. Condensed Consolidated Statements of Cash Flows Supplemental Information

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

		Three Months
		Ended March 31,
		2011				2010
Decrease (increase) in:
Accounts receivable		$	8,944			$	(22,725	)
Financing receivables			(2,328	)			(820	)
Inventories			(2,745	)			(2,260	)
Prepaid expenses			(701	)			(329	)
Commissions and other deferred selling expenses			88				56
Insurance recoveries			1,290				786
Other assets			612				—
Increase (decrease) in:
Accounts payable			(274	)			1,439
Accrued and other liabilities(1)			(16,948	)			(7,404	)
Deferred revenue			(2,432	)			2,485
		$	(14,494	)		$	(28,772	)

     (b) Cash payments made on account of:

		Three Months
		Ended March 31,
		2011				2010
Income taxes		$	1,378			$	143
Interest		$	298			$	643

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

		Three Months
		Ended March 31,
		2011				2010
Film assets		$	2,696			$	2,621
Property, plant and equipment
Joint revenue sharing arrangements			1,381				1,498
Other property, plant and equipment			947				842
Other intangible assets			112				114
Other assets			25				—
Deferred financing costs			86				83
		$	5,247			$	5,158

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

		Three Months
		Ended March 31,
		2011				2010
Other significant charges
Accounts receivables		$	120			$	(5	)
Financing receivables			88				18
Intangibles			—				16
Inventories(1)			—				80
		$	208			$	109

12. 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 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 quarter ended March 31, 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 March 31, 2011, the Company had net deferred income tax assets after valuation allowance of $57.4 million (December 31, 2010 — $57.1 million). As at March 31, 2011, the Company had a net deferred income tax asset before valuation allowance of $65.3 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 March 31, 2011 and December 31, 2010, the Company had total unrecognized tax benefits (including interest and penalties) of $4.5 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 in potential interest and penalties associated with unrecognized tax benefits for the three months ended March 31, 2011 (2010 — $0.1 million).

     (b) Income Tax Effect on Comprehensive Income (Loss)

     The income tax expense (recovery) related to the following items included in other comprehensive income (loss) are:

		Three Months
		Ended March 31,
		2011				2010
Amortization of actuarial loss on defined benefit plan			(16	)			—
Unrealized hedging gain			(84	)			—
Realization of hedging gains upon settlement			72				—
		$	(28	)		$	—

13. 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 $4.0 million for the three months ended March 31, 2011 (2010 — $9.4 million).

     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 $2.0 million for the three months ended March 31, 2011 (2010 — $0.6 million), 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 months ended March 31, 2011 at the measurement date was $9.87 per share (2010 — $5.75 per share). The following assumptions were used:

		Three Months
		Ended March 31,
		2011		2010
Average risk-free interest rate		2.87%		3.15%
Expected option life (in years)		5.08 - 5.14		5.31 - 5.39
Expected volatility		50%		61%
Annual termination probability		8.31% - 8.49%		9.69%
Dividend yield		0%		0%

     As at March 31, 2011, the Company has reserved a total of 12,850,988 (December 31, 2010 — 12,829,115) common shares for future issuance under the Stock Option Plan, of which options in respect of 7,595,086 common shares are outstanding at March 31, 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 March 31, 2011, options in respect of 3,148,833 common shares were vested and exercisable.

     The following table summarizes certain information in respect of option activity under the Stock Option Plan for the three month periods ended March 31:

										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			979,930				331,217				31.25				15.73
Exercised			(109,366	)			(628,421	)			7.60				6.28
Forfeited			(18,750	)			—				7.57				—
Expired			—				—				—				—
Cancelled			—				—				—				—
Options outstanding, end of period			7,595,086				5,876,591				13.49				7.06
Options exercisable, end of period			3,148,833				3,130,946				6.46				6.12

     During the three months ended March 31, 2011, the Company did not cancel any stock options from its Stock Option Plan (2010 —nil) surrendered by Company employees.

     As at March 31, 2011, 6,992,209 options were fully vested or are expected to vest with a weighted average exercise price of $13.09, aggregate intrinsic value of $132.1 million and weighted average remaining contractual life of 4.9 years. As at March 31, 2011, options that are exercisable have an intrinsic value of $80.3 million and a weighted average remaining contractual life of 3.0 years. The intrinsic value of options exercised in the three months ended March 31, 2011 was $2.4 million (2010 — $5.7 million).

     Options to Non-Employees

     During the three months ended March 31, 2011, an aggregate of 103,944 (2010 — 11,217) common share options to purchase the Company’s common stock with an average exercise price of $27.64 (2010 — $14.31) 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 March 31, 2011, non-employee options outstanding amounted to 210,445 options (2010 — 68,775) with a weighted average exercise price of $20.75 (2010 — $6.51). Of these grants, 20,000 common share options are subject to vesting based on a performance commitment which has not been completed as at March 31, 2011 and no expense has been recorded. 103,944 options (2010 — 24,607) were exercisable with an average weighted exercise price of $27.64 (2010 — $10.93) and the vested options have an aggregate intrinsic value of $0.5 million (2010 — $0.2 million). The weighted average fair value of options granted to non-employees during the three months ended March 31, 2011 at the measurement date was $13.75 per share (2010 — $8.46 per share), utilizing a Binomial Model with the following underlying assumptions for periods ended March 31:

		Three Months
		Ended March 31,
		2011				2010
Average risk-free interest rate			2.38	%			2.97	%
Contractual option life		6 years				6 years
Average expected volatility			50	%			61	%
Dividend yield			0	%			0	%

     For the three months ended March 31, 2011, the Company recorded a charge of $0.2 million (2010 — less than $0.1 million million) to cost and expenses applicable to revenues — services and selling, general and administrative expenses related to the non-employee stock options. Included in accrued liabilities is an accrual of $0.2 million for non-employee stock options granted.

     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 an expense of $0.7 million for the three months ended March 31, 2010 related to the restricted common shares.

     Stock Appreciation Rights

     There were no stock appreciation rights (“SARs”) granted during the first quarters 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. During the first quarter of 2011, 527,500 SARs were cash settled for $10.7 million (2010 — 210,000 SARs were cash settled for $2.1 million). The average exercise price for the settled SARs for the quarter ended March 31, 2011 was $6.86 (2010 — $4.34) per SAR. As at March 31, 2011, 605,000 SARs were outstanding, of which 572,000 SARs were exercisable. None of the SARs were forfeited, cancelled, or expired for the quarters ended March 31, 2011 and 2010. The SARs vesting period ranges from immediately upon granting to 5 years, with a remaining contractual life ranging from 4.76 to 6.76 years as at March 31, 2011. The outstanding SARs had an average fair value of $25.05 per right as at March 31, 2011 (December 31, 2010 — $21.21). The Company accounts for the obligation of these SARs as a liability (March 31, 2011 — $14.8 million; December 31, 2010 — $23.7 million), which is classified within accrued liabilities. The Company has recorded a $1.8 million expense for the three months ended March 31, 2011 (2010 — $8.0 million) 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		As at
		March 31,		December 31,
		2011		2010
Average risk-free interest rate		0.78%		0.65%
Expected option life (in years)		0.11 - 2.14		0.24 - 2.51
Expected volatility		50%		50% - 61%
Annual termination probability		0% - 8.31%		0% - 8.31%
Dividend yield		0%		0%
Warrants

     There were no warrants issued during the three months ended or outstanding as at March 31, 2011 and 2010.

  (c) (Loss) earnings per Share

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

		Three Months
		Ended March 31,
		2011				2010
Net (loss) earnings from continuing operations applicable to common shareholders		$	(1,003	)		$	26,580
Weighted average number of common shares (000’s):
Issued and outstanding, beginning of period			64,146				62,832
Weighted average number of shares issued during the period			41				224
Weighted average number of shares used in computing basic (loss) income per share			64,187				63,056
Assumed exercise of stock, net of shares assumed			—				3,052
Weighted average number of shares used in computing diluted (loss) income per share			64,187				66,108

     The calculation of diluted loss per share for the first quarter of 2011 excludes 4,038,198 shares that are issuable upon exercise of stock options, net of shares assumed as the impact of these exercises would be antidilutive.

  (d) Shareholders’ Equity

     The following summarizes the movement of Shareholders’ Equity for the three months ended March 31, 2011:

Balance as at December 31, 2010		$	158,458
Issuance of common shares for stock options exercised			830
Net loss			(1,003	)
Adjustment to other equity for employee stock options granted			1,995
Adjustment to other equity for non-employee stock options granted			1,542
Adjustment to capital stock for stock options exercised			372
Adjustment to other equity for stock options exercised			(372	)
Adjustments to accumulated other comprehensive income to record unrealized hedging gains			302
Adjustments to accumulated other comprehensive income to record the realization of hedging gains upon settlement			(258	)
Adjustments to accumulated other comprehensive income to record the amortization of actuarial loss on defined benefit plan			54
Tax effect of movement in accumulated other comprehensive income			(28	)
Balance as at March 31, 2011		$	161,892

     14. Segmented Information

     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), 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
		Ended March 31,
		2011				2010
Revenue(1)
IMAX systems		$	22,259			$	10,953
Theater system maintenance			5,795				4,966
Joint revenue sharing arrangements			4,040				18,936
Films
Production and IMAX DMR			7,258				23,452
Distribution			2,617				3,273
Post-production			1,624				2,592
Theater operations			981				5,949
Other			586				2,663
Total		$	45,160			$	72,784
Gross margins
IMAX systems(2)		$	11,735				4,500
Theater system maintenance			2,587				2,309
Joint revenue sharing arrangements(2)			2,178				16,812
Films
Production and IMAX DMR(2)			2,759				19,501
Distribution(2)			626				742
Post-production			1,689				2,054
Theater operations			(763	)			1,658
Other			(165	)			724
Total		$	20,646			$	48,300

		March 31,				December 31,
		2011				2010
Assets
IMAX systems		$	127,245			$	119,708
Theater system maintenance			14,872				13,548
Joint revenue sharing arrangements			82,323				81,376
Films
Production and IMAX DMR			5,521				17,229
Distribution			5,398				5,313
Post-production			4,505				2,877
Theater operations			507				582
Other			1,902				1,785
Corporate and other non-segment specific assets			94,301				106,670
Total		$	336,574			$	349,088

Geographic Information

		March 31,				March 31,
		2011				2010
Revenue
Canada		$	1,001			$	1,897
United States			25,480				55,796
Russia and the CIS			3,917				1,639
Western Europe			2,282				4,692
Rest of Europe			2,324				332
Asia (Excluding Greater China)			2,319				2,513
Greater China			6,772				3,322
Mexico			356				1,260
Rest of World			709				1,333
Total		$	45,160			$	72,784

     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.

15. Employees Pension and Postretirement Benefits

  (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 March 31, 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 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
		March 31,				December 31,
		2011				2010
Obligation, beginning of period		$	18,108			$	29,862
Service cost			—				448
Interest cost			70				351
Benefits paid			—				(15,199	)
Actuarial loss			—				2,646
Obligation, end of period and unfunded status		$	18,178			$	18,108

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

		Three Months Ended March 31,
		2011				2010
Service cost		$	—			$	112
Interest cost			70				88
Amortization of actuarial loss			54				—
Pension expense		$	124			$	200

     The accumulated benefit obligation for the SERP was $18.2 million at March 31, 2011 and $18.1 million at December 31, 2010.

     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
		March 31,				December 31,
		2011				2010
Unrecognized actuarial loss		$	2,185			$	2,239

     No contributions are expected to be made for the SERP during 2011. The Company expects amortization of actuarial losses of $0.2 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 (nine 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 months ended March 31, 2011, the Company contributed and expensed an aggregate of $0.2 million (2010 — $0.2 million) to its Canadian plan and an aggregate of less than $0.1 million (2010 — less than $0.1 million) 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 for 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 March 31, 2011 is $0.5 million (December 31, 2010 — $0.5 million). The Company has expensed less than $0.1 million for the three months ended March 31, 2011 (2010 — less than $0.1 million).

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

2011 (nine months remaining)		$	4
2012		$	15
2013		$	31
2014		$	34
2015		$	38
Thereafter		$	—

16. Financial Instruments

  (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

     The carrying values of the Company’s cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities due within one year approximate fair values due to the short-term maturity of these instruments. The Company’s other financial instruments are comprised of the following:

		As at March 31, 2011								As at December 31, 2010
		Carrying				Estimated				Carrying				Estimated
		Amount				Fair Value				Amount				Fair Value
Borrowings under Credit Facility		$	17,500			$	17,500			$	17,500			$	17,500
Financed sales receivable		$	50,996			$	50,793			$	43,620			$	43,615
Net investment in sales-type leases		$	24,948			$	27,751			$	29,981			$	32,613
Foreign exchange contracts — designated forwards		$	707			$	707			$	664			$	664
Foreign exchange contracts — non-designated forwards		$	1,200			$	1,200			$	1,249			$	1,249

     The carrying value of borrowings under the Credit Facility approximates fair value as the interest rates offered under the Credit Facility are close to March 31, 2011 and December 31, 2010 market rates for the Company for debt of the same remaining maturities (Level 2 input in accordance with the Fair Value Measurements Topic of the FASB ASC hierarchy) as at March 31, 2011 and December 31, 2010, respectively.

     The estimated fair values of the Financed sales receivable and Net investment in sales-type leases are estimated based on discounting future cash flows at currently available interest rates with comparable terms (Level 2 input in accordance with the Fair Value Measurements Topic of the FASB ASC hierarchy) as at March 31, 2011 and December 31, 2010, respectively.

     The fair value of foreign currency derivatives are determined using quoted prices in active markets (Level 2 input in accordance with the Fair Value Measurements Topic of the FASB ASC hierarchy) as at March 31, 2011 and December 31, 2010, respectively. These identical instruments are traded on a closed exchange.

  (c) Financing Receivables

     The Company’s net investment in leases and its financed sale receivables are subject to the disclosure requirements of ASC 310 “Receivables”. Due to differing risk profiles of its net investment in leases and its financed sales receivables, the Company views its net investment in leases and its financed sale receivables as separate classes of financing receivables. The Company does not aggregate financing receivables to assess impairment.

     The Company monitors the credit quality of each customer on a frequent basis through collections and aging analyses. The Company also holds meetings monthly in order to identify credit concerns and whether a change in credit quality classification is required for the customer. A customer may improve in their credit quality classification once a substantial payment is made on overdue balances or the customer has agreed to a payment plan with the Company and payments have commenced in accordance to the payment plan. The change in credit quality indicator is dependant upon management approval.

     The Company classifies its customers into three categories to indicate their credit quality internally:

     Good standing — Theater continues to be in good standing with the Company as the client’s payments and reporting are up-to-date.

     Pre-approved transactions only — Theater operator has begun to demonstrate a delay in payments with little or no communication with the Company. All service or shipments to the theater must be reviewed and approved by management. These financing receivables are considered to be in better condition than those receivables related to theaters in the “All transactions suspended” category, but not in as good of condition as those receivables in “Good standing”. Depending on the individual facts and circumstances of each customer, finance income recognition may be suspended if management believes the receivable to be impaired.

     All transactions suspended — Theater is severely delinquent, non-responsive or not negotiating in good faith with the Company. Once a theater is classified as “All transactions suspended”, the theater is placed on nonaccrual status and all revenue recognitions related to the theater are stopped.

     The following table discloses the recorded investment in financing receivables by credit quality indicator as at March 31, 2011:

		Net				Financed
		Investment				Sales
		in Leases				Receivables				Total
In good standing		$	21,320			$	50,052			$	71,372
Pre-approved transactions			1,521				—				1,521
Transactions suspended			4,665				1,010				5,675
		$	27,506			$	51,062			$	78,568

     While recognition of finance income is suspended, payments received by a customer are applied against the outstanding balance owed. If payments are sufficient to cover any unreserved receivables, a recovery of provision taken on the billed amount, if applicable, is recorded to the extent of the residual cash received. Once the collectibility issues are resolved and the customer has returned to being in good standing, the Company will resume recognition of finance income.

     The Company’s investment in financing receivables on nonaccrual status as at March 31, 2011 is as follows:

		Recorded				Related
		Investment				Allowance
Net investment in leases		$	4,665			$	(2,442	)
Financed sales receivables			691				(66	)
Total		$	5,356			$	(2,508	)

     The Company considers financing receivables with aging between 60-89 days as indications of theaters with potential collection concerns. The Company will begin to focus its review on these financing receivables and increase its discussions internally and with the theater regarding payment status. Once a theater’s aging exceeds 90 days, the Company’s policy is to review and assess collectibility on the theater’s past due accounts. Over 90 days past due is used by the Company as an indicator of potential impairment as invoices up to 90 days outstanding could be considered reasonable due to the time required for dispute resolution or for the provision of further information or supporting documentation to the customer.

     The Company’s aged financing receivables are as follows:

																		Related												Recorded
														Billed				Unbilled				Total								Investment
														Financing				Recorded				Recorded				Related				Net of
		Current				30-89 Days				90+ Days				Receivables				Investment				Investment				Allowances				Allowances
Net investment in leases		$	686			$	267			$	1,792			$	2,745			$	24,761			$	27,506			$	(2,558	)		$	24,948
Financed sales receivables			827				340				524				1,691				49,371				51,062				(66	)			50,996
Total		$	1,513			$	607			$	2,316			$	4,436			$	74,132			$	78,568			$	(2,624	)		$	75,944

     The Company’s recorded investment in past due financing receivables for which the Company continues to accrue finance income is as follows:

																		Related								Recorded
														Billed				Unbilled								Investment
														Financing				Recorded				Related				Past Due
		Current				30-89 Days				90+ Days				Receivables				Investment				Allowance				and Accruing
Net investment in leases		$	72			$	54			$	581			$	707			$	1,198			$	(116	)		$	1,789
Financed sales receivables			280				147				298				725				11,516				—				12,241
Total		$	352			$	201			$	879			$	1,432			$	12,714			$	(116	)		$	14,030

     The Company considers financing receivables to be impaired when it believes it to be probable that it will not recover the full amount of principal and interest owing under the arrangement. The Company uses its knowledge of the industry and economic trends, as well as its prior experiences to determine the amount recoverable for impaired financing receivables. The following table discloses information regarding the Company’s impaired financing receivables:

		Impaired Financing Receivables
		For the Three Months Ended March 31, 2011
														Average				Interest
		Recorded				Unpaid				Related				Recorded				Income
		Investment				Principal				Allowanced				Investment				Recognized
Recorded investment for which there is a related allowance:
Financed sales receivables			239				183				(66	)			239				—
Total recorded investment in impaired loans:
Financed sales receivables		$	239			$	183			$	(66	)		$	239			$	—

     The Company’s activity in the allowance for credit losses for the period and the Company’s recorded investment in financing receivables is as follows:

		For the Three Months ended March 31, 2011
		Net Investment				Financed
		in Leases				Sales Receivables
Allowance for credit losses:
Beginning balance		$	4,838			$	66
Charge-offs			(2,445	)			—
Recoveries			—				—
Provision			165				—
Ending balance		$	2,558			$	66
Ending balance: individually evaluated for impairment		$	2,558			$	66
Financing receivables:
Ending balance: individually evaluated for impairment		$	27,506			$	51,062